Financial market report for March 1, 2012
1) … The implosion of the Greek economy is accelerating.
Tyler Durden relates Greek Economy Suffers Record Collapse In February as Reuters reports Greece, GREK, Spain, EWP, Italy, EWI, are leading the way down in manufacturing production. Chart of EWP, EWI, VGK, ACWX. The Nasdaq was within a few points of the 3,000 milestone and the Dow continued to hover around the 13,000 mark.
Mr. Durden comments There are those who recall that not ten days ago, according to the IMF’s Greek (un)sustainability analysis, worst case scenario no less, Greek GDP would somehow miraculously post just a 1% drop in 2013. Unfortunately this won’t happen. According to the overnight PMI update out of Europe (where was saw the jobless rate at the highest since 1997), the Greek economy just imploded at a record pace. This follows the already horrendous budget revenue data from January which came in down 7% on expectations of a 9% rise. Sure enough, as expected the fact that the entire country has taken the rest of 2012 off with no incentive to actually work, will do miracles for Greece. From Reuters: “The Markit Manufacturing Purchasing Managers’ Index (PMI) for Greece fell to a survey low of 37.7 points in February from 41.0 in January, staying below the 50 mark that divides growth in activity from contraction for each of the past 30 months. Production and new order volumes fell at the sharpest pace in the near 13 year history of the survey as austerity sapped demand. New export orders fell for a sixth straight month and at the steepest rate since May 2010.” Translated: the situation is hopeless and getting worse. Expect the German, pardon Troika, Kommissar to be shocked, shocked, to find out that not only do banks in Greece have no deposits left, but the entire economy picked up and left.
Economic contraction not economic growth is commencing on fears of debt contagion. And Tyler Durden relates Goldman Lowers Q1 GDP Forecast To 2.0% From 2.3% On Weaker Consumer Data As already noted, consumer data this morning came in surprisingly weak, always a harbinger of GDP decline. Sure enough, here is Goldman with the first downward GDP revision in the aftermath.
The WSJ reports EU To Decide Next Week On Greek Bailout
2) … Stocks rose globally on LTRO financing.
World Shares, VT, Emerging Market Small Cap Shares, EWX, rose as Italy, EWI, Spain, EWP, Europe, VGK, and European Financials, EUFN, rose, after 800 banks took part in yesterday’s LTRO, tapping a total of €530bn. Financing flowed into Ireland based global infrastructure leader, CRH.
The BRICS, EEB, Emerging Markets, EEM, Mexico, EWW, Brazil, EWZ, Brazil Infrastructure, BRXX, and Brazil Small Caps, EWZS, Russia, RSX, ERUS, rose. South Africa, EZA, rose. Emerging Market Infrastructure, EMIF, rose as Brazil Oil Refiner, UGP, Brazil Steel Manufacturer, SID, Brazil utilities, SBS, CPL, rose. Neo liberal finance took Malaysia, EWM, and Thailand, THD, to rally highs.
Retail, XRT, Banks, KRE, Russell 2000, IWM, rose. Large Cap Growth, JKE, Consumer Discretionary, VCR, Global Banks, IXG, Paper Manufacturers, WOOD, rose to a new rally highs. Stocks rising included ZIP, NKE, IP, LVS.
Steel, SLX, Biotechnology, XBI, Small Cap Pure Value, RZV, Small Cap Industrials, PSCI, US Infrastructure, PKB, rose; but their charts looks terrifically bearish; these are set for a fast fall lower.
US Homebuilders, ITB, was one of the few sectors that traded lower today. China Real Estate, TAO, traded lower, pulling CHII, CHIM, CHIX, lower, while YAO, and FXI, rose.
Volatility shares TVIX and VIXY plummeted. Today was a good day for traders to start dollar cost averaging into volatility.
Great Depression 2 commenced with the Second Greek Bailout, will be commencing soon on exhaustion of neo liberal finance, and failure of carry trade investing, as seen will be seen in the combined chart of the most leveraged stocks falling the fastest, as will be seen in the combined chart of EUFN, RZV, PKB, XBI, PSCI, ITB, SLX, EWX, PSP, GREK, the fast fallers can be followed with this Finviz Screener, http://tinyurl.com/7ce9op7
Please consider that today could be the topping out of an Elliott Wave 2 Up in the S&P, SPY, as seen in this monthly chart and the soon beginning of an Elliott Wave 3 Down. The 3rd Wave Down is the most destructive of all economic waves, as it for all practical purposes destroys all wealth created on the prior waves up.
Fiat money has expanded to its full potential. Soon, the global debt trade will exhaust, and competitive currency devaluation, reflected in the currencies seen in this Finfiz Screener, http://tinyurl.com/7rbvf9u will turn risk appetite to risk avoidance, with the result being derisking out of stocks, and deleveraging out of commodities.
Monetary anarchy will eventually cause price inflation in countries outside of the US as they increasingly have to sell more and more of their currencies to buy commodities which are denominated in the US Dollar, $USD, UUP, which manifested bullish engulfing today. In testimony before Congress, Ben Bernanke warned on jobs. Soon real inflation will come to those without employment — having no income, the price of everything will seem really high.
Wealth can only be preserved by dollar cost averaging into, and taking possession of, and safely storing, gold bullion. In a world of failing sovereign, gold will be the premier form of sovereign wealth.
The dynamos of growth and profit that governed capitalism are losing their power through failure of the debt trade, specifically the failure of neo liberal credit and the failure of fiat money on the loss of confidence in central bank monetary policies. The dynamos of regional security, stability, and sustainability are powering up regional global governance.
3) … Bonds, including junk bonds, traded lower communicating the failure of credit.
The ECB’s subordination of credit and massive issue of credit commenced disinvestment out of credit instruments. Credit failed today as investors sold out Bonds, BND, LAG, AGG, expressing a loss of confidence and trust in the world central banks’ monetary policies. The world is passing through peak credit. Investors, in selling debt, are commencing global debt deflation, which will soon be revealed as falling major world currencies, DBV, and falling emerging market currencies, CEW. Competitive currency devaluation will commence soon on today’s disinvestment out of credit instruments, which saw a strong sell of the longer out US debt, the Zeroes, ZROZ, the 30 Year US Government Bond, EDV, as well as the US 10 Year Note, TLT. A global deflationary credit collapse commenced today.
Junk Bonds, JNK, traded lower communicating the end of credit as it has been known. In a soon coming credit devalued world, diktat from monetary cardinals under the monetary pope, Mario Draghi, will serve as both credit and money.
Bond vigilantes called interest rates higher globally communicating that the world central banks monetary policies constitute monetization of debt. The ECB’s LTROs, as well as its subordination of sovereign debt, and the terms of the Second Greek Bailout, communicate that the ECB has unified and regionalized banking. The Euro zone now has a One Euro Bank, that being the ECB. A Euro zone coup d etat is being effected by Angela Merkel, and the EU ECB and IMF Troika, where by a monetary union now exists to complete the EU debt union. We are witnessing political capital rising to replace investment capital. An inquiring mind asks, Will a full fledged EU political union and a EU fiscal union soon be a reality? Are we witnessing the birth of a New Europe, that is a Federal Europe?
The longer out debt traded more strongly lower than the shorter duration debt. ZROZ, EDV,TLT, fell more than IEF. and BLV fell more than LQD, as the Interest Rate on the US Ten Year Note, ^TNX, rose above 2.0%.
The debt monetization call of the bond vigilantes was so strong that even Emerging Market Bonds, EMB, traded lower, despite rising emerging market currencies, CEW; and World Treasury Bonds, BWX, traded lower, despite rising major world currencies, DBV. Emerging markets sovereign debt is no longer a safe haven investment. The global government credit bubble burst today. No level of debt is sustainable by any government world wide. The global debt trade is done and over. Out of sovereign crisis, the dynamos of growth and profit of capitalism will give way to the dynamos of regional security, stability and sustainability, producing regional global governance.
Insolvent sovereigns cannot sustain debt; these become toxic sovereigns, and fate working thorough creative will produce new sovereigns. Regional sovereign bodies, such as the ECB as the EU’s regional bank, and the ECB as a sovereign monetary authority will be complemented by fiscal sovereigns who issue diktat as both money and credit.
US Preferred Shares, PFF, and even corporate bonds, PICB, BLV, LQD, suffered loss of value on the failure of debt sovereignty globally, that is on the loss of confidence in the world central banker’s monetary policies. One can follow bonds of all types using this Finviz Screener.
In striking contrast to debt, lenders DFS, AXP, V, MA, seen in this Finviz Screener rose. Very soon these lenders will be casualties of the failure of the global debt trade. When I look at the Finviz chart of SPY, http://tinyurl.com/7xsewhw, I see it cresting into an Elliott Wave 2 Up, ready to fall into an Elliott Wave 3 Down.
4) … The Sovereignty of God is being unveiled by current events.
The Sovereign Lord God, Psalm 2:4-5, is in the process of judging governments, and replacing them with regional authorities, Daniel 2:31-33, and is bringing forth the Beast Regime of Neoauthoritarianism to replace the Banker Regime of Neoliberalism, in order to reveal the Sovereignty of His Son Jesus Christ, Revelation 2:26-27.
The collapse of credit today, is a breakdown of sovereign authority. The age of sovereign crisis, sovereign insolvency, and universal sovereign unsustainability has commenced. God is in the process of slaughtering human government; and to accomplish his purpose, He has sent the four horsemen of the apocalypse to make sure the job gets done. The end result will be new government, that of His Son, who will rule from Jerusalem for a thousand years. He being the Sustaining One, will restore a destroyed Jerusalem, which will complete the Lord’s Recovery and the government will be upon His shoulders.
The Grace Community Church presents A Study Of The Sovereignty Of God.
5) … Today’s action by the bond vigilantes communicates that nation states world wide have lost their debt sovereignty as a result of the world central banks’ monetary policies.
Despite the rise in stocks, neo liberal finance died today. As a result of the sell off in bonds, fate, through creative destruction, is passing the baton of sovereignty to regional authorities, such as the EU ECB and IMF Troika, with the result that capitalism is dying. Fiat money is sure to die soon, and the value of the US Dollar, $USD, UUP, will soon rise. Capitalism wll be replaced by regional global governance. The Milton Friedman Free To Choose script that has governed the world’s political and economic system for the last forty years is dying, and in its place the Club of Rome Script for regional global governance is rising to govern mankind’s political and economic activities.
Germany is playing a leading role in effecting fate’s plan for regional global governance. In 1974, the Club of Rome, a German based think tank, gathered 300 of the world’s elite who called for regional global governance as a means of dealing with the destruction coming from the failure of currencies and carry trade investing. Jim Simmons writes The Club of Rome is a German based think tank established in 1957. It has a limit of 100 active members. The members are from five continents and 52 countries. It was an association of scientists, economists, businessmen, international high civil servants, and former heads of state. The Club’s purpose is to figure out ways to solve humanity’s problems. Many years ago, the Club of Rome advocated a “one world order,” dividing the world into 10 economic centers or regions, i.e., regions of countries. “Regionalization” became the new buzzword. World Federalists also advocated “world regions” and have detailed plans for a world government similar to the Club of Rome.
The massive Second Greece Bailout Agreement, the defacto regionalization of banks has created a sovereign Euro zone bank, that is a One Euro Bank, and LTRO 2, marks a turning point in mankind’s history as regional global governance is rising to replace capitalism.
Major world currencies, DBV, and emerging market currencies, CEW, will soon be turning lower, when it becomes apparent that Greece is an insolvent nation, and that its sovereign debt is unsustainable, and as confidence in the world central banks’ monetary policies fails. Open Europe writes Take III: Don’t bore me with the details. Felix Salmon writes The Improbable Greece Plan. Greece’s debt dynamics get even worse. But of course even with well-below-market interest rates, Greece is still never going to pay that money back. The cost of this plan is €130 billion right now, and €170 billion over three years, through the end of 2014; it just continues going up from there, with no end in sight. Remember that total Greek GDP, right now, is only about €220 billion and falling.
King World News relates Fears of debt contagion. These, as well as fears of decreased growth, and loss of confidence in the world central bank fiat monetary policies will cause disinvestment out of stocks and delveraging out of commodities, as fiat money dies globally on competitive currency devaluation.
Future EU Leader’s framework agreements will serve as the constitution for the New Europe, and usher in the ten toed kingdom of regional global governance, where the Beast Regime of Neoauthoritarianism, will be replacing the Banker Regime of Neoliberalism.
Soon a New Charlemagne will rise to rule the Euro zone, where Germany will be preeminent, as a type of revived Roman Empire that governs the European continent.
With today’s strong sell of bonds, the fiat monetary system is dying, and the diktat monetary is rising in its place.
Of interesting note, Tyler Durden relates Bloomberg reports The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities. Israel, EIS, had fallen strongly lower this week, but rose 1% today. I comment that such a thing represents the ultimate in tulip mania.
6) … The Euro and the US Dollar traded unchanged today.
The US Dollar, $USD, UUP, traded unchanged, as the Brazilian Real, BZF, and the Mexico Peso, FXM, rose; but the Euro, FXE, traded unchanged.
7) … In today’s News
Euro Intelligence provides the best in Euro zone reporting. I recommend that one purchase their newsletter which relates Hans-Werner Sinn proposes that the Target 2 balances should be securitised through the issue of covered bonds by the euro system and that a Transparency International report says Greece is making insufficient progress in the fight against corruption, which hampers the country’s reform process.
Frankfurter Allgemeine has the scoop of the day. It has obtained a letter by Jens Weidmann to Mario Draghi, warning about Germany’s Target 2 claims, and proposing a return to the collateral rules before the crisis. This is a hugely significantly development, considering also that the Bundesbank has until recently denied the significance of Germany’s €500bn Target 2 imbalances. In his letter, Weidmann proposes a securitisation of the ECB’s claims against the weaker central banks in the eurosystem, which have reached a level of €800bn. The paper says the proposals are bound to trigger a big controversy inside the ECB, and reflects growing concern inside the Bundesbank, whose own Target 2 claims of €500bn are the single largest item of the total. Weidmann said if these claims were to fall foul, it is possible that the member states may not be able to pay for those losses.
Weidmann is particularly critical about the relaxation of the collateral rules, especially the rule that national central banks can now accept corporate credits as collateral. He demands a return to a standard collateral system. He insists on a review to determine to which extent the risk position of the ECB could be improved through a change of collateral policies. FAZ says Weidmann’s criticism might mute positive market reaction t the second LTRO, in which banks acquired €530bn in new liquidity, after €489bn in December. The paper says that Weidmann had not insisted on a time scale for a return to normal collateral policies. In a recent interview with FAZ, Draghi said that the ECB had done, and could not do more even if the situation of the banking sector deteriorated again.
In Frankfurter Allgemein, Hans Werner Sinn, the man who raised the Target 2 debate, writes about how to fix the Target 2 imbalances. He said Europe’s south-west is now financing its persistent current account deficits through the money presses, as central banks now provide unlimited liquidity to the banking sector. That money, thus created, flows to Germany, where ends up at the Bundesbank as a claim against the eurosystem. He compares the Target 2 balances to equivalent balances in the US, which are much lower, which he says is due to different rules under which the system there operates. He proposes to create covered bonds – securities on property and other assets – created by the eurosystem to redeem the Target 2 imbalances. (Note that this proposal appears to have been taken up by Weidmann in his demand to securities the balances.)
In Lavoce, Angelo Baglioni writes that very little of trillion euro LTRO shows is likely to end up with the real economy (a point also made by Fitch Ratings yesterday). He said the sole effect of this operation is to support government bonds. If the ECB were to assume the role of lender of last resort, it would favour a policy to strengthen the traditional banking lending channel. As it stands, however, the economy continues to be weighed down by credit constrains, which will exacerbate the recession.
In Süddeutsche Zeitung, Alexander Hagelücken writes Draghi acts not like a classical central banker but like a politician. He emulates the failed policies of Alan Greenspan, which has triggered the US credit crisis. He says Draghi’s cheap billions will also produce a bubble, with similarly disastrous consequences.
Dow Jones Wires quotes a new report by Transparency International Greece. The first assessment of the anti-corruption group shows that the fight against corruption is undermined by the country’s government, businesses and civil servants not only failing to stop corruption but actively participating in it. The report urged Greece to improve disclosure rules of political parties, stronger rules to make private companies more transparent and merge existing anti-corruption agencies into a single body. According to an EU corruption survey published this month, 98% of Greeks feel corruption is a major problem in their country, with 88% saying corruption is part of Greek business culture. A study by the Washington-based Brookings Institution from mid-2010 estimated that corruption costs Greece the equivalent of 8% of GDP per year.
Open Europe communicates that a sovereign EU regional bank has formed, that is a One Euro Bank has formed. In PDF briefing, Open Europe relates In 2015, 85% of Greek debt will be owned by taxpayer backed institutions. Ahead of today’s EU summit, Open Europe has published a new briefing arguing that the second Greek bailout is bad for Greece and bad for eurozone taxpayers. The briefing notes that of the total amount (€282.2bn) entailed in the various measures currently on the table to save Greece – through the bailouts and the ECB – only €159.5bn, or 57% will actually go to Greece itself. The rest will go to banks and other bondholders. Furthermore, immediately after the restructuring, Greece’s debt to GDP will still be 161%, a reduction of only 2% compared to where it is now. On top of this Greece has to undertake extensive budget cuts amounting to 20% of GDP in total – a level which no other country has even attempted in recent history.
By 2015, once the first and second Greek bailouts have been completed, as much as 85% will be owned by taxpayer-backed institutions (EU/IMF/ECB).This means that in the event of a likely default, a huge chunk of the losses will fall on European taxpayers, potentially leading to significant political fallout in countries such as Finland, the Netherlands and Germany. The briefing concludes that, given the sizeable debt relief needed in Greece, a fuller coercive restructuring would have been a simpler and more effective option from the start and should still be pursued.
Open Europe relates Süddeutsche reports that Chancellor Merkel is ready to drop her long-standing opposition to expanding the borrowing ceiling on the eurozone’s bailout funds from €500bn to €750bn, with a final decision expected at the end of March. This would be achieved by running the temporary bailout fund, the EFSF, in parallel with the new permanent fund, the ESM over the next year. Overall, Germany’s share of the guarantee would increase from €211bn to €280bn. The paper cites government sources as saying that “In the long run, we cannot resist such pressure [from the rest of the world]”. However, FTD reports that Merkel will still face opposition from her CSU and FDP coalition partners.
FAZ reports in a sign of growing unrest at the Bundesbank, its head Jens Weidmann has written to ECB President Mario Draghi, warning of “growing risks” within the euro system following the ECB’s recent relaxation of the requirements for collateral in monetary policy operations, allowing it to lend billions of euros to Europe’s weakest banks via its so-called Long Term Refinancing Operation (LTRO).
Greek PM Lucas Papademos has dismissed a suggestion by Jean-Claude Juncker, the head of the Eurogroup, for an EU-appointed Reconstruction Commissioner for Greece, reports ARD. Meanwhile, following a tense debate, the Finnish Parliament yesterday approved the second Greek bailout package by a margin of 111 to 72.
The Irish Times reports that in a report, controversially circulated yesterday in the German parliament, the EU Commission has warned that further deterioration in the global macroeconomic situation this year could necessitate additional “fiscal tightening” in Ireland, and see next year’s planned return to financial markets “evaporate”.
El País reports that protests against education cuts turned violent in Barcelona yesterday, as twelve people were arrested after students clashed with the police. Meanwhile, Cinco Días reports that Spain’s trade unions are considering calling another general strike against the Spanish government’s reform of the labour market on 29 March. Separately, Jornal de Negócios reports that Portugal’s borrowing costs are continuing to rise, despite the ECB resuming its purchase of Portuguese bonds yesterday.
Süddeutsche Welt FTD Handelsblatt FT FAZ Irish Times Telegraph Telegraph 2 European Voice BBC Irish Times 2 Telegraph EUobserver FT 2 CityAM FT 3 Independent IHT Le Figaro WSJ WSJ 2 IHT Le Figaro Kathimerini Kathimerini 2 ARD CityAM 2 Süddeutsche 2 CityAM 3 FT 5 Jornal de Negócios IHT El País El Mundo BBC Cinco Días El País El País 2 Expansión Expansión 2 EUobserver FT 4 Les Echos Monde La Tribune ARD
Open Europe relates, writing in the FT, former ECB Executive Board member Lorenzo Bini-Smaghi says a monetary pope from the ECB should be given greater supervisory power over eurozone banking system. “The ECB has helped to reduce systemic risk and avoided a credit crunch. To minimise the inefficiencies and perverse incentives that may result from the increase in its balance sheet, and to reduce counter-party risk, the ECB should be given a greater role in co-ordinating and overseeing supervision of the eurozone banking system. The euro area needs a supervisory and regulatory compact, as much as – if not more than – a fiscal compact.”
Writing in Bild, the former President of Germany’s Constitutional Court between 2002 and 2010, Hans-Jürgen Papier, argues that “the EU should become more humble”, adding that “it is not necessary to reinvent the EU. Rather it simply needs to over-come its self-centeredness and focus more on two core elements; the principles of subsidiarity and vibrant democracy. Europe should act only if and when member states cannot adequately fulfill the task themselves”.
FT: Bini Smaghi FT Lex FT: Verhofstadt FT Editorial Le Monde BBC: Flanders Times: King Independent: McRae IHT: Fitoussi El País: Otero Iglesias WSJ: Review & Outlook WSJ: Heard on the street Kathimerini: Xydakis Bild: Papier
Open Europe relates Handelsblatt reports Van Rompuy will also be elected as Eurogroup chief, succeeding Luxembourg PM Jean-Claude Juncker. FAZ comments that “Angela Merkel is now glad that Herman Van Rompuy has turned into a counterweight to José Manuel Barroso”.
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