European Leaders Affirm Angela Merkel’s European Economic Governance And Austerity Plan

European Leaders affirmed Angela Merkel’s Pact On Competitiveness as a Framework Agreement for stronger European economic governance as stocks, commodities, world government bonds and currencies turn lower on the week ending March 11, 2011, as the US Dollar rises.

Report on The European Leader’s Meeting of March 11, 2011

Constant Brand, Jarle Hetland, Tim King and Ian Wishart in European Voice article Eurozone Leaders Agree On Steps To Bolster Euro report that Van Rompuy communicates that the European Leaders have made political commitment to the Pact On Competitiveness for stronger economic governance of the Eurozone: “Van Rompuy said that all 17 leaders of the eurozone countries agreed that their economies needed to be more competitive and more convergent. The pact would help achieve that, he said. Eurozone governments would make their first pledges at the end of this month, as to what action they were going to take at a national level to help the eurozone. “What has changed is the political commitment,” he said.”

Furthermore, European Voice communicates that Ireland was deemed failing in making concessions to EU Leadership, and will not be getting an interest rate reduction in its bailout agreement.

European Voice reports: “However, Angela Merkel, Germany’s chancellor, said the leaders had agreed to lower the interest rate charged to Greece by 100 basis points. She said that Greece had agreed on “additional efforts” to reduce its debt further by selling various public properties to bring in an estimated €50bn in revenue.”

“Nicola Sarkozy, the French president, hailed the pact as a “decisive step forward”.”

“Sarkozy reiterated that the EU would not allow any country to default. This would entail huge problems for the euro and that is out of the question,” he said.”

I comment: This means that Germany is fully committed to the Euro, and will not be leaving the Eurozone before 2013; however the devil is in the details of the forth coming agreement, and thus beginning in  2013, anything can happen. i.e. Germany may very well attempt to leave the Euro at that time  

XE.com provides the Text of the Euo Zone leaders’ Deal On Boosting Financial Safety Nets

Rocket News in article Eurozone Agrees Pact In Principle reports: “In a message on Twitter, Mr Van Rompuy had initially said: “We have an agreement on the Pact for Euro.” The message was later amended to: “Update from ongoing meeting: Agreement in principle on the Pact for the Euro, but still discussing the other elements of the package.” …. “A pact would give members a say over each other’s major economic policies – a move aimed at keeping countries under firm fiscal discipline. Any agreement would need to be endorsed at a summit of all 27 EU states on 24-25 March, 2011”

Nick Ottens in Atlantic Sentinel article Eurozone Leaders Enact New Financial Pact reports: “The leaders agreed over the weekend to expand the bailout fund to a total of €500 billion and set up a separate, permanent facility of the same size in 2013 when the temporary fund expires. The current as well as future fund will be able to purchase bonds directly from eurozone countries and itself be financed by at least some capital contributions from member states instead of the current system of guarantees.”  ….. “Along with French President Nicolas Sarkozy, Chancellor Angela Merkel previously proposed a pact to boost Europe’s competitiveness, including raising the retirement age across the eurozone, abolishing the indexation of wages to inflation, harmonizing corporate tax rates and instituting a “debt brake” that would limit the ability of national governments to plunge deep in the red.”

Ambrose Evans Pritchard communicates Mrs Merkel got 100%, yes 100%, of everything she was seeking from the European Leaders as he writes in Total German Triumph As EU Minnows Subjugated. The Iron Chancellor of Germany could not have been clearer. “Whoever wants credit must fulfill our conditions“.

“For Greece, the terms are a fire-sale of €50bn (£43.2bn) of national assets within four years, a tenfold increase from the original €5bn that premier George Papandreou thought he signed up to a year ago.  When the IMF first mooted this sum last month he told the inspectors not to “meddle in the internal matters of the country.“  State holdings in Hellenic Post, Hellenic Railways, Athens Public Gas, the Pireaus port authority, Athens airport, Thessaloniki water, and ATEbank, to name a few, will not fetch more €15bn. What next?  In return, Chancellor Angela Merkel has agreed to cut the penal interest rate on the EU share of Greece’s €110bn loan package by 100 basis points (still penal), and stretch the maturity to 7.5 years.”

“This does not restore solvency. Greece’s debt spiral is too far advanced. The debt load will approach 150pc of GDP this year, and debt service costs are 14.4pc of tax revenue.
Meanwhile, austerity is biting harder.  The jobless number jumped almost a full point to 14.8pc in January. Youth unemployment hit 39pc.”

“For Portugal, the condition is more hair-shirt retrenchment, a fiscal squeeze of 5.3pc in one year. Pensions, welfare, and health will be cut, following wage cuts already under way.  “A descent into Hell,” said the Bloco de Ezquerda.”   Almost 300,000 youth took to the streets of Lisbon and Oporto on Saturday in a day of wrath by the “Desperate Generation”, openly invoking the events of Egypt’s Tahrir Square.  A wing from the ruling Socialist Party said it would not vote for a “disastrous policy”. They said the cabinet did not even know about the cuts imposed by Brussels before Wednesday night.  Fiscal tightening of this magnitude in a country with public-private debt of 330pc of GDP, an over-valued currency, and reliance on fickle foreign financing, is not a happy prospect.”

“This is likely to have meaningful implications for the stability of the domestic banking system,” said Giada Giani from Citigroup. Yields on Portugal’s 5-year bonds hit a record 8pc on the news of cuts. The bond markets view further belt-tightening as self-defeating.”

“For Ireland, one condition, as yet unmet, is to give up the 12.5pc corporate tax rate described by France’s leader Nicolas Sarkozy as “shameful”.

“Angela Merkel was more clinically imperious: “We weren’t satisfied with what Ireland agreed to, so the question of lowering interest rates has only been addressed for Greece.”  What a debut for the new Taoiseach, Enda Kenny.  This tax has been the foundation of Ireland’s economic strategy, a reason why it has been able to build a pharmaceutical, medical, and software industry so far from Europe’s geographic core.”

“Peter Sutherland, former EU competition tsar, said Ireland is being punished for transparency. The real corporate tax rate in France is 8.2pc when hidden incentives are included.  He called the EU rescue deal a Diktat, with “exorbitant“ interest of 5.8pc.  Such a rate is suffocating for an economy in the grip of core deflation, already reeling from a 22pc contraction in nominal GNP.”

“The condition for Spain, Italy, Belgium et al, is intrusive surveillance of pensions, wage policies, productivity levels, as well as demands for a mandatory “debt-brake”, regardless of whether or not such a reactionary policy implies 1930s deflation.  

“Just as eurosceptics always feared, monetary union has led to a state of affairs where, in order to “save the euro” as Mrs Merkel puts it.  Europe’s ancient states find themselves having to accept a quantum leap towards political union and a degree of subjugation that would not have been tolerated otherwise.”

“There is no democratic machinery to hold this central system to account since the European Parliament lacks a unifying language or demos, and remains a technical body in practical terms. Raw power is shifting, but to whom exactly?  It is as if Merkel has somehow been crowned Magna Mater Europae by the Consilium, behind closed doors.”

“In exchange for these conditions, Germany has agreed to boost the deployable lending power of the rescue machinery (EFSF, soon to be ESM) from €250bn to €500bn.  It is not clear how this can be squared with the fund’s AAA rating, though the looming threat of EU rules to make Moody’s, Fitch, and S&P liable for “incorrect ratings“ may secure some flexibility.”

“She has agreed to let the fund buy bonds of rescued states “as an exception“, and not on the secondary market. The language is odd, and EU summits have a habit of issuing communiques that mean different things to different countries and unravel under scrutiny.”

“She has not agreed to eurobonds or a “soft-restructuring“, where debtors buy back their own bonds at a discount on the market, to chip way away at the debt burden. Yet unless this is done, the laggards will struggle to pull out of debt deflation.”

“She has not agreed to the purchase of bonds of crippled debtors pre-emptively to cap yields and nip crises in the bud, and has certainly not agreed to pay one cent in extra transfers to southern Europe or Ireland.”

“Mrs Merkel professed to be “very pleased“ with the outcome. “We’ve accomplished out national goals,“ she said.”  Indeed.  The deal does not take Germany across the Rubicon into a ‘Transferunion’. It ushers in economic integration on Teutonic terms, but without the prize of shared debt liability. Germany gets most of what it wants, and avoids most of what it does not want.”

“She can return to the Bundestag and plausibly reassure the three blocs of her coalition that she has not violated their instructions, or signed off on concessions that manifestly violate Maastricht or the German Constitution.”

“Yet is this the “grand bargain“ that will resolve the crisis once and for all?”

“The tenor is cruelly one-sided, as if this were a morality tale of wise and foolish sovereign virgins. The debtor states are made to carry opprobrium for what is at root a pan-European banking crisis.”

“Ireland and Spain never breached the deficit ceiling of the Stability Pact, though Germany and France did. They did not break the rules. If anything, it was the European Central Bank that broke the rules by running negative real interest rates and gunning the money supply.”

“Europe’s whole financial system was out of control, and still is. The North has not yet forced banks to rebuild their capital buffers or nationalize those that cannot do so, understandably in one sense since it might risk a credit crunch. Germany’s policy towards the Landesbanken is a study in paralysis.”

“That is why Europe dares not lance the boil with “haircuts” and debt restructuring. It dares not risk a repeat of Europe’s Lehman moment in May 2010. It is why the EU has scotched any quick move by Ireland to deflect the shards of pain from taxpayers to senior bank creditors.”

“How long will democracies accept being made the scapegoat for what is in part a Franco German -Benelux banking debacle?”

“Not for ever, judging by comments this week by Avriani, a paper with ties to Greece’s ruling PASOK party. “We should default and return to the Drachma to punish foreign loan sharks who have bled us dry,” it said.”

“Ireland’s Enda Kenny may ultimately have to choose between his EU club loyalties and his duties to the sovereign nation that elected him. Some within his coalition ranks already seem tempted to retaliate by pulling the plug on EU banks. That would certainly remind Chancellor Merkel and President Sarkozy what this crisis is really about.”

“Popular revolt is the dog that has not barked since the long slump began. This may just be a question of time. The pattern of the 1930s is that deep alienation starts in year three as austerity grinds on, and in this case tensions on the eurozone periphery can only turn nastier as the ECB tightens monetary policy.”

“What is clear is that sovereign states are being forced to cut wages and dismantle parts of their welfare state under foreign diktat, with a gun held to their heads. This will not be forgotten lightly. The character of the European Project has changed utterly.”

Atlantic Sentinel continues: “At the previous meeting of government leaders last month, it became evident that Europe didn’t want Germany’s rules. The leaders agreed to a watered down version of the competitiveness pact over the weekend which proclaimed that the policy mix “remains the responsibility of each country.” Under the new regime, the European Commission would supervise fiscal commitments that are national prerogatives. The existing Stability and Growth Pact sets a deficit limit of 3 percent of GDP and a debt limit of 60 percent of GDP. At times of crisis however many the nations that carry the euro have broken those rules.”

And, Atlantic Sentinel reports:  “It’s difficult to ask others to help finance a plan but not concern themselves with the tax side,” President Sarkozy told reporters after the summit. Heated debates between Ireland’s newly elected prime minister and the French president reportedly caused the negotiations to drag on until the early morning hours.”

Mike Mish Shedlock relates: Clear violation of the “no-bail-out clause” in the Maastricht Treaty, the group voted to allow the ECB to directly purchase sovereign bonds.

“Note that the ECB is is already stuffed with sovereign bonds. It bought them in the secondary market because buying them in the primary market was against the rules.”

“Flashback May 4, 2010: Trichet, a Monetarist Pussycat at Heart, Throws ECB Rulebook Out the Window   While the ECB is prohibited from buying assets directly from authorities, it can buy them on the secondary market. Trichet said on May 2 that “at this stage, we have absolutely no decision on the purchase of government bonds.”  I said at the time “No Decision” means pussycat-hearted Trichet is considering it. And so it was. “No decision” quickly became a decision, in clear violation of the intent of the treaty.”

“With strong objections from German central bank president Axel Weber, Trichet started loading up the ECB’s balance sheet with garbage.”

“Now the EU has voted to allow the ECB to buy bonds in the primary market but not the secondary one.”

“As noted above, this bond buying debacle is not part of the Maastricht Treaty. Thus German voters need to ratify this provision. In effect, German Chancellor Angela Merkel just sold Germany down the river to meet her political goals. She will not survive this.”

Vihar Georgiev reports The Pact for the Euro: a Summary

Bloomberg reports: Portugal’s 5-Year Yield Jumps to Euro-Era Record on Bailout Speculation. The yield on Portuguese five-year debt reached a euro-era record amid speculation the nation may be nearing a request for financial aid.  Bunds rose for a third day as stocks fell after an earthquake struck northern Japan. Ten-year Portuguese bonds fell for a fifth day.  When asked whether his country was preparing to request a bailout, Finance Minister Fernando Teixeira Dos Santos said European leaders must understand the “seriousness” of the region’s debt crisis. He made the remarks at a press conference in Lisbon before a European summit later today. Spanish and Italian bonds jumped, while Irish and Greek securities fell. The minister’s comments “might indicate that financial support for Portugal will be discussed at the weekend,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf, Germany. “Yields show that the market is concerned, and is waiting for something,” he said. The yield on the Portuguese five-year bond rose 22 basis points to 7.99 percent as of 4:45 p.m. in London, the most since at least 1997 when Bloomberg began collecting the data. (Hat Tip to Gary of Between The Hedges)

Commentary on the Pact For The Euro
The Pact for the Euro, to use Van Rompuy’s term, or the Pact on Competitiveness, to use Merkel’s terms, does nothing, nada what so ever to address the fact that Portugal has lost its debt sovereignty, that is, its debt seigniorage, and that its banks are insolvent, and cannot obtain funding, and are not making loans, as are many other European Financial Institutions, EUFN. The EU is stuck in a purgatory between bailout and default,     

The Leaders Pact, to which the European Leaders have given their assent, which is now forming, and which will be announced at the end of March 2100, will feature Mrs Merkel’s austerity measures, and  Mr Rompuy’s means of supervision “keeping countries under firm fiscal discipline’. New and more significantly harsh austerity measures will be announced by Portugal’s government and by Greece’s finance ministry. Greece will attempt to sell off assets, but, will it sell a 51%, that is controlling interest. And given that some of the assets such as Hellenic Railways have so much debt and are represented by unions, one should question if they are sellable.     

Mr Trichet will be most displeased that he will not be allowed to sell the toxic debt he acquired to the EFSF. Will he retaliate by stopping the ECB’s purchases of bonds?

The Leaders Pact on Competiviveness, which will be formally announced, will be yet another Leader’s Announced Framework Agreement such as the Greek Debt Bail Out Agreement of May 2010, the vetting of national budgets before national legislatures meet, and the Ireland Bank Bailout.

Germany has all the strong cards and is playing its hand fully to its advantage; and from my perspective is even laying the groundwork for a future exit from the Euro if needed. In so doing Germany is further entering into a most dangerous embroglio, which will reach out and engulf and consume this fiercely strident country.  

The European Leaders are effecting a bloodless political economic coup which draws out an important concept that the rule of the sovereigns replaced neoliberalism and democracy in February and March of 2011. The rule of the sovereigns is now the governing political and economic regime and construct.  

Neoliberalism was the political and economic regime that governed mankind from the time that the Free To Choose economic theory of Milton Friedman replaced the gold standard in the early 1970s, to the exhaustion of Ben Bernanke’s quantitative easing 1 and 2 on February 22, 2011, which was reflected in the fall in value of the distressed securities, which underwrote quantitative easing, and which are approximated by the Fidelity Mutual Fund FAGIX. It was on February 22, 2011 that the value of FAGIX, and world stocks, ACWI, both fell lower.

Under the rule of the sovereigns, leaders meet in task groups such as the Pact for Euro, that is the Pact for Competitiveness, to develop Framework Agreements. Then leaders meet in summits to formally announce Framework Agreements, which set forth regional political and economic governance which replace treaty, constitutional and historic rule of law. The Leaders’ Agreements waive national sovereignty.  One is no longer a resident of a sovereign nation state; rather one is a resident living in a region of global governance, as called fro the Club of Rome in 1974. Government minsters and business leaders appoint stake holders who effect the mandate of the leaders which promotes global corporatism, that is combined state corporate rule. Policies are enacted which promote the security and prosperity of corporations, and enforce austerity for the people. Neoliberalism and democracy are replaced by the rule of the sovereigns, where the word will and way of the leaders is law.  

The European sovereign crisis will intensify, and out of  Götterdämmerung, an investment flameout, according to New Testament Bible Prophecy of Revelation 13:3, a Sovereign, Revelation 13:5-10, and a Seignior Revelation 13:11-18, an Old English term for top dog banker who takes a cut, will emerge to establish a common EU Treasury with fiscal sovereignty, as well as a new seigniorage replacing the currently failing US Federal Reserve’s Quantitative Easing seigniorage; and the Bank of Japan’s failed Yen Carry Trade seigniorage. He will assure the security and prosperity for select corporations while providing austerity for all people. Global Corporatism and the Rule of the Sovereigns will replace Neoliberalism as the world’s economic and political regime.     

This is in line with the Old Testament Bible Prophecy of Daniel 2:40-43, which foretells a Euro German empire, will arise prior to the emergence of an end time one world government.  There has been four great world powers since Daniel wrote the prophecy.  Babylon, Persia, and Greece were all conquered and absorbed by the Roman Empire.  All were described in the form of a giant statue representing­ng the four Kingdoms.  Babylon was the head of gold. Persia was the chest and arms of silver.  Greece was the belly and thighs of bronze, followed by the two appearance­s of Rome, two legs of iron, Western and Eastern.  And two feet of iron mixed with clay, which will be a revived Roman Empire coming forth as a United States of Europe, whose influence will spread to ten toes, that being ten regions of global governance­, which was called for by the Club of Rome in 1974, and which is described as a ten headed beast, manifesting­ in mankind’s seven institution­s in Revelation 13:1-4.  Soon a EU President will be Caesar over a Revived Roman Empire, having the type of power of Charlemagne  This Chancellor­, or Sovereign, is described in Revelation 13:5-10.  He or she will be accompanied­ by a Banker, a Seignior, as described in Revelation 13:11-18.  Their rule will become global as described by Daniel in Daniel 7:7.

Financial market report for the week ending February 11, 2011
The failure of US Central Bank seigniorage continued for its third week, as the distressed securities owned by the US Federal Reserve, and whose value is approximated by the Fidelity Mutual Fund, FAGIX, turned lower again.from its February 18, 2011 value of 9.87, to close this week at 9.75

Exhaustion of Quantitative Easing continued to force world stocks, ACWI, down from its February 22, 2011 value of 47.92 to close at 47.65 this week.

Falling world stocks, VT, turned commodities, DJP, down. And falling US Stocks, VTI, turned US Commodities, USCI. Now both stocks and commodities are manifesting inflation which Urban Dictionary defines as “the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies.  Inflation Destruction may precede Debt Deflation which is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

Bond vigilantes seized control of debt sovereignty, and called sovereign debt interest rates higher globally, causing emerging market bonds, EMB, to enter an Elliott Wave 3 Down at a price of 106.25, on March 9, 2011, and world government bonds, BWX, to enter an Elliott Wave 3 Down 59.70 on March 1, 2011. The nations of the world have lost their debt sovereignty, that is their debt seigniorage to the bond vigilantes.

US Government Treasuries fell lower in an Elliott Wave 3 Decline, as reflected by the 30 Year US Government Bond, EDV, trading lower from 80.46 to 78.40; and the 10 Year US Government Note, TLT, trading lower from 92.37 to 91.55.  The beginning of the Elliott Wave 3 Down in US Treasury values means the likelihood of failed Treasury auctions. We are witnessing the end of credit as it has traditionally been known. Both bank lending and home lending will be a thing of the past. Vincent Giudice of Bloomberg reports “The U.S. government, facing a record annual fiscal shortfall and a congressional impasse over financing, posted the largest monthly deficit ever in February, reflecting increased spending.  The gap totaled $222.5 billion last month compared with a $220.9 billion shortfall in February 2010  This year’s budget deficit is projected to reach $1.5 trillion   The Treasury’s report today showed that government spending rose 1.4% in February to $333.2 billion and revenue and other fees increased 2.9% to $110.7 billion.   Individual income tax receipts rose 26.6% to $422.8 billion on a fiscal year-to-date basis.  Corporate income tax receipts fell 15.9% on a fiscal year-to-date basis.”  

Emboldened by inflation destruction in stocks and the failure of world government bonds, FX Currency Traders instituted a global currency war on the world central bankers by commencing competitive currency deflation.  The U.S. dollar index, $USD, rose 0.4%. On the upside for the week, the Mexican Peso, FXM, increased 0.8%, the New Zealand Dollar, BNZ, 0.6%, the Japanese Yen, FXY, 0.6%, the Swedish krona, FXS, 0.2%, the South Africa Rand, 0.5%,  and the Australian Dollar, FXA,  0.2%.  On the downside, the British pound, FXB, declined 1.2%, the South Korean won 0.9%, the Taiwanese dollar 0.7%, the Danish krone 0.7%, the Brazilian real, BZF, 0.6%, the Euro, FXE, 0.6%, the Norwegian krone 0.5%, the Indian Rupe, ICN, 0.4%, the Swiss Franc, 0.4%, and the Emerging Market Currencies, CEW, 0.2%.

The Euro, FXE, entered an Elliott Wave 3 Down on Friday March 11, 2011, trading lower to a price of 138.47.

The fall lower in world stocks, ACWI, commodities, DJP, world major currencies, DBV, emerging market currencies, CEW, documents the failure of seigniorage of the neoliberal economic and political regime, as well as entrance into Kondratieff Winter on March 11, 2011.  It is reasonable to expect desperate economic conditions and great austerity with evaporation of lending and falling investment prices.

The rise of the US Dollar, $USD, from 76.50 suggests a dollar liquidity crisis is likely to occur, as investors take profits on their inflated assets and cover their US Dollar shorts.  Peter Garnham of The Financial Times reports:  “Hedge funds and forex dealers are betting record amounts against the dollar, reflecting a growing belief that the US currency has lost its haven appeal and that eurozone interest rates will soon rise.  Figures from the Chicago Mercantile Exchange, which are often used as a proxy for hedge fund activity, showed that short dollar positions surged from 200,564 contracts in the week ending February 22 to 281,088 on March 1.  This meant that the value of bets against the dollar on the CME rose $11.5bn in the week to March 1 to $39bn, $3bn more than the previous record of $36bn in 2007.”

Richard Milne and Peter Wise of the Financial Times report:  “The cost of borrowing for Portugal, Ireland and Greece has hit euro-era highs, amid concern in the market that European leaders will fail to take concerted action to dispel fears of sovereign defaults.  The long-term market interest rate for Spain has come close to setting a record and Italy’s borrowing cost rose above 5% for the first time since November 2008.”

Emma Ross-Thomas of Bloomberg reports:  “Spain’s credit rating was cut to Aa2 by Moody’s. which said the cost of shoring up the banking industry will eclipse government estimates. The risks to public finances are ‘skewed to the downside,’ the company said.  The outlook is ‘negative,’ suggesting more rating cuts are under consideration.”

Ben Bernanke’s quantitative easing and anticipation of quantitative easing 2 gave global  seigniorage to investments. Zachary R. Mider and Jeffrey McCracken of Bloomberg report the details of the great crack up boom:  “The merger boom that started in 2010 isn’t looking like any of the past three. The takeover binge of the 1980s was fueled by Michael Milken’s junk bonds; the late- 1990s wave of Internet and telecom deals, by inflated stock prices; and the private-equity frenzy that produced a record year for deals in 2007, by leveraged loans.  The more recent surge comes from the expanding BRIC economies,  Brazil, Russia, India and China, and beyond.  Deals are rising among the companies that supply raw materials to these countries.  Worldwide deals in energy, power and basic materials made up about a third of the merger and acquisition market in 2010, compared with about 20% in the previous decade. Emerging-market acquisitions helped the total value of announced deals for 2010 grow 27% to $2.2 trillion, driving up advisory fees.”

Sapna Maheshwari of Bloomberg reports of the financialization of securities that came as a result of quantitative easing: “Leon Black’s Apollo Global Management LLC and Fortress Investment Group LLC, FIG, are bringing back bonds that let companies make interest payments in the form of extra debt as investors chase returns about 12 times greater than those for investment-grade securities. S ales of the bonds have more than tripled this year to $1.3 billion from $375 million in all of 2010.  ‘I actually thought these kinds of deals would be dead after the last meltdown because some of these PIK notes traded down to worthless,’ said Marc Gross, a money manager at RS Investments.  Investors are ‘going out as far as they can on the risk spectrum,’ he said.”

Aline van Duyn of the Financial Times reports  “Demand is growing for ‘synthetic’ financial instruments that enable investors to take positions in the US junk bond market without owning the underlying securities.   The instruments, created by using credit derivatives on junk bond or high-yield indices, resemble transactions linked to US mortgages that proliferated before the financial crisis.   The collapse of these synthetic mortgage-backed collateralized debt obligations, CDOs, when mortgages turned sour was a big feature of the crisis   Now, hedge funds are buying the riskiest parts of instruments linked to bonds.  This demand reflects more bullish views on the US economy, which investors believe will translate into lower corporate defaults.   ‘We see much interest in synthetic high yield, more than we would have predicted just a few months ago,’ said Sivan Mahadevan, managing director at Morgan Stanley.”

Ashley Lutz of Bloomberg reports on the de-population and de-industrialization of Ohio:  “When Vaughn Bullman moved to Drummer Avenue in 1961, thousands of people built cash registers at the NCR Corp. in Dayton, Ohio, and assembled cars at a General Motors Co. plant in nearby Moraine.   Now, 10 of Drummer Avenue’s 30 houses are empty.  NCR and General Motors are gone   ‘This whole street used to be full of families who owned their homes,’ said Bullman. ‘Today, the neighborhood is so different because there is no feel of community and no way to take pride in living here.’   Dayton has 21.1% of its housing stock vacant   The city exemplifies a trend in Ohio of de-population and de-industrialization. That means less tax revenue, fewer jobs and less political clout.”  I report NCR’s executives moved the corporation’s manufacturing locations out of the rust belt to more opulent locations in Duluth, GA and Columbus, GA, the very center of golf cart community living.

Doug Noland in Prudent Bear article Risk and Dollar Carry Trade writes of the debasement of the US Dollar that came with the anticipation of and execution of QE 2 and the Global Inflation Trade Rally, the European Bank Stress Test Rally, and the European Financial Institution, EUFN, Earnings Report Rally:  “The dollar has been trending lower for much of the past 10 months.  Dollar bearishness has again become prominent, underpinned by about the most dollar bearish fiscal and monetary backdrop imaginable.  And not dissimilar to ‘07/early-’08, commodities and risk markets have been on a run.  For the most part, borrowing in dollars and lending/speculating elsewhere has provided an ongoing profit bonanza.  Especially knowing that hedge fund and sovereign wealth fund assets have recovered back to record levels, it’s not crazy to suspect that that the old “dollar carry trade” has re-emerged as well” ….. “So far, 2011 has brought a few market cracks and the occasional whiff of tumult.  The resources stocks were hammered to begin the year.  Emerging equities have disappointed.  Commodities and equities have turned increasingly volatile (i.e. crude, wheat, semiconductors),  one could argue unstable.  The respite in the European periphery debt crisis has come to an end, perhaps portending a similar circumstance for the U.S. municipal debt market.  The world is, after all, not oblivious to structural debt issues.  The accident in waiting, referred to generally as the “Treasury market” – is garnering increasing amounts of attention (none constructive).  On a few occasions, it has seemed almost as if the leveraged players were about to find themselves on the wrong side of the markets.  But throughout it all, the old stalwart weak dollar has refused to let the marketplace down.  Presuming that myriad global uncertainties will not find resolution anytime soon, I’m left pondering how the markets will react when the dollar inevitably musters some sort of rally.”

Ray Dalio in Barrons relates “Currency devaluations are good for stocks, good for commodities and good for gold. They are not good for bonds.” I comment that Ben Bernanke sacrificed the US Dollar in order for he thought we be a worthy effort to prevent a deflationary collapse ….. Money good US Treasuries were indeed a casualty as is seen in the chart of the Flattner ETF, FLAT, the 30 Year US Government Bond, EDV, the 10 Ten Year US Government Note, TLT, and the US Dollar ETF, UUP, …. FLAT, EDV, TLT, UUP and now with the dollar swing trade fully complete, inflation destruction has come to the most inflationary of stocks, that being Solar, KWT, Silver Mining, SIL, Copper Mining, COPX, Semiconductors, XSD, Small Cap Energy Shares, XLES, Hard Asset Producers, HAP, Coal Miners, KOL, Gold Miners, XSD, Energy Service, IEZ, Nasdaq 100.

Symbols: UUP, VGK, KWT, COPX, XSD, GDXJ, SIL, XME HAP, KOL, IEZ, QTEC, FXE, BWX, ACWI, VT, VTI, DJP, USCI, EMB, EDV, TLT, FLAT, DBV, CEW, FXB, BZF, JNK,   

Keywords: Pact on Competitiveness, European Economic Governance, Pact For The Euro, End Of Credit, Kondratieff Winter, Global Governance, Framework Agreements, The Inflation Trade, Dollar Carry Trade, Global Seigniorage, The Failure of Seigniorage, Quantitative Easing Exhaustion, Dollar Liquidity Crisis, Inflation Destruction, debt sovereignty, debt seigniorage, bond vigilantes

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