Financial market report for the week ending June 17, 2011
European Leaders Merkel and Sarkozy announced a plan for “Voluntary Restructuring” of Greek debt challenging the rating agencies. Such is a prelude to a European governmental and investment coup d’état introducing a new fiat order.
1) … Bloomberg reports Merkel, Sarkozy, and Trichet plan “Vienna-Style” Agreement which involves a voluntary restructuring of Greek which the rating agencies have repeatedly said will invoke a downgrade to default status. “Echoing the Vienna plan, used during the financial crisis of 2009 for eastern European units of banks to maintain their exposure, would involve encouraging creditors to roll over expiring bonds, buying time for Greece until its austerity program shows results or until a permanent rescue fund kicks in from mid-2013. A rollover involves reinvesting the proceeds from maturing bonds in new securities.“This is a breakthrough,” Sarkozy said. “Finally we have found a solution for an involvement of the private sector on a voluntary basis,” he said. “What we decided just now is precisely in the spirit of what was decided in Vienna.”
Mike Mish Shedlock relates Sovreign debt bond market rejects Greek solution already and I say that it is impossible to structure a debt rollover in a voluntary way. This is a sham and prelude to a European governmental, banking, economic and investment coup d etat.
2) … The World Passes Through Peak Credit As Bond Sales Plummet On Soaring Greek CDS
Bloomberg reports Bond sales plummeting as spreads soar on Greece: Credit Markets. investors steering clear of the corporate bond market are driving down debt offerings to the least this year as European officials struggle to contain a Greek debt crisis that’s sent relative yields to a five-month high. Bond sales from the U.S. to Europe to Asia declined 56% this week to $27.9 billion, according to Bloomberg. Investors are demanding an extra 1.65 percentage points in yield over government debentures, the most since January, Bank of America Merrill Lynch Index data show.
Bloomberg reports China bond sale fails for second time this year on rate increase concern. “The auction was affected by tighter liquidity brought by the reserve-ratio hike,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “The high auction yield represents investor expectations for a near-term policy rate hike.”
CNN Money reports Small business lending plummets. (graph) Bank lending to small businesses fell $15 billion in the first quarter of this year, according to a report released this week from the U.S. Small Business Administration’s Office of Advocacy.
ZeroHedge reports Ice-Nine Spreads to Shanghai: Chinese Interbank Liquidity Evaporates.
Bloomberg reports on the failure of seigniorage of Neoliberalism: Leveraged Loan Prices Poised to Fall for Sixth Week on Greek Debt Crisis. Leveraged loan prices in the U.S. are poised to fall for a sixth consecutive week, led by Caesars Entertainment Corp., the world’s biggest casino operator, and First Data Corp. amid concerns that Greece may default and signs of a slowing economy.
The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index has declined for 12 consecutive days to 94.32 cents on the dollar in a six week slump not seen since December 2008 and the longest daily losing streak in almost five years. The decline underscores that senior secured loans are also not immune from investor fleeing from all assets but the safest government bonds as the European Central Bank tries to contain a sovereign debt crisis. Confidence is also eroding on signs that the expansion of the world’s largest economy has slowed.
Financial Times reports that the failure of seigniorage is flowing through to banks: Financials’ Risk Premiums Jump Sharply. Risk premiums for US banks and other financial institutions have jumped sharply this month as investors question their credit quality, weighing on equity and credit markets.
The Chart of bonds, BND, communicates that Peak Credit has been achieved
3) … In Today’s News
Bloomberg reports Ethanol production tax break, tariff rejected by U.S. Senate in 73-27 Vote.
The U.S. Senate voted to eliminate a tax credit and a tariff that subsidize ethanol production, providing the strongest signal yet that Congress will curtail subsidies for corn-based biofuel.
The 73-27 vote exceeded the 60-vote threshold needed to advance the measure as part of an economic development bill. The underlying legislation isn’t likely to become law, so the vote mostly indicated that it will be difficult for ethanol supporters to extend the 45-cent-a-gallon tax break and the 54- cent-a-gallon tariff beyond their scheduled Dec. 31 expiration.
Elisa Martinuzzi and Maria Petrakis of Bloomberg report: “Prime Minister George Papandreou vowed in 2009 to scrap an agreement to sell a stake in Greece’s biggest phone company in a bid to get elected. This month, forced to raise cash, Greece triggered an option to sell 10% of Hellenic Telecommunications Organization… to Deutsche Telekom AG. The price: less than one-third of what Europe’s largest phone company paid for shares when it last bought OTE stock in 2009. That deal underlines the challenge facing European countries such as Greece and Ireland, awash in debt, that are hoping to raise as much as 71.5 billion euros ($103bn) in the continent’s largest yard sale of state assets in more than a decade. The threat of Greek default or euro breakup is scaring buyers and depressing prices.”
Stephen Castle of the New York Times reports “With European governments divided over how to shape a new bailout for Greece, Mario Draghi, who is likely to become the next president of the European Central Bank, warned… against forcing private investors to take part. At a confirmation hearing at the European Parliament, Mr. Draghi… also highlighted the risk that a Greek default could set off a ‘chain of contagion.’
Open Europe reports Finnish government talks are expected to come to an end tomorrow, with Jyrki Katainen, leader of the National Coalition Party, heading a six-party coalition, reports Yle. The True Finns walked out of negotiations last week because of irreconcilable differences towards EU policies. Hs.fi Yle.fi
Open Europe reports Violence kicked off outside the Catalan Parliament yesterday as protestors marched against austerity cuts to Catalonia’s budget. The Bank of Spain’s annual report released yesterday notes that “almost half of the austerity measures required for us to meet our deficit targets by 2013 will have to be made by the autonomous communities and local government”, El País El País 2 Bank of Spain Report
Open Europe reports An internal battle among German Christian Democrats over a eurosceptic paper tabled by the Secretary-General of the CSU, Alexander Dobrindt, in which he warned against the “automaticity in which powers are being transferred to Brussels”. FAZ
Robert Wenzel of EconomicPolicy Journal reports The U.S. Government Attack on Gold. On Friday, I detailed how part of the Dodd-Frank Act may ultimately lead to the tracking of gold coins, They Want to Track Our Gold!. Now comes word that provisions of the Dodd-Frank Act will result in some commodity dealers halting some of their gold trading operations. Forex.com has sent this letter to its clients (Via Lew Rockwell and Zero Hedge): From: FOREX.com, Date: Fri, Jun 17, 2011 at 6:11 PM, Subject: Important Account Notice Re: Metals Trading. “We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.
In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.
We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.
We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.
Mr. Wenzel continues: It is unclear exactly what in Dodd-Frank is triggering this move by Forex.com. I hope to have more on Monday, but these events should not be viewed in isolation. There is a clear bias in the Dodd-Frank legislation to slow and monitor activity in gold. All holders of gold should be alarmed. I expect more developments along these lines. In my view it is an attempt to gain control over how, when and where gold can be used. There would be too much uproar in the country if gold was confiscated in the manner FDR did in 1933, so this time it needs do be done incrementally, but it sure looks like this is going on.
How long after the Dodd-Frank regulations kick in, before it is discovered that a terrorist cell financed its operations using gold coins and that even more monitoring of gold is going to be required? The stage certainly appears set for further government attacks on gold.
4) A new fiat order is coming.
An inquiring mind asks why is Germany insisting a voluntary rollover at a time when Moody’s and S&P communicate that such a plan constitutes a default?
Germany and France are telling the rating agencies to go take a hike, because they believe that Germany is Europe’s Leader. In the 1960’s I came to visualize a United States of Europe, to be led by a leader whose power would rival that of Charlemagne. Out of Götterdämmerung, that is an investment flameout, Leader’s Framework Agreements will waive national sovereignty, and establish the authority for a Chancellor, The Sovereign, and a Banker, The Sovereign, to rule Europe.
The seigniorage of Neoliberalism came via the Milton Friedman Free to Choose Regime beginning in the early 1970s, and was enhanced by yen carry trade investing from the Bank of Japan at 1% lending as well as by the Czar of Credit Liquidity, Alan Greenspan, and Helicopter Ben Bernanke with Quantitative Easing policies such as TARP and then QE2.
Trading in fiat currencies ruled Neoliberalism and inflated commodity prices especially gold since the War of Terror commenced in 2001. And those who were buy and hold investors in GNMA Intermediate Bond Mutual Funds such as PIMCO GNMA Fund, PDMIX, did quite well over the long term providing both growth of principle and interest payments.
The Seigniorage of Neoliberalism failed in April 2011; the coming seigniorage, that is moneyness, will be more political than economic.
The fiat of the Sovereign and the Seigniorage will rule the Age of Authoritarianism. The word, will and way of the Sovereign and the Seigniorage will replace the economic policies of Neoliberalism.
The soon coming authoritarian rule will implement debt servitude and austerity for all. The sovereign and banking debt of the Age of Leverage will be applied to every man woman and child on the European continent.