Financial market report on Sunday August 7, 2011 going into Monday August 8, 2011
1) … Regional economic governance took a leap forward August 7, 2011, as German Chancellor Angela Merkel and French President Nicolas Sarkozy announced their joint commitment to address the Eurozone’s financial and fiscal issues stating: “President Sarkozy and Chancellor Merkel reiterate their commitment to fully implement the decisions taken by the heads of state and government of the euro area and the EU institutions on July 21st 2011. In particular, they stress the importance that parliamentary approval will be obtained swiftly by the end of September in their two countries. They welcome the recent measures announced by Italy and Spain with regard to faster fiscal consolidation and improved competitiveness. Especially the Italian authorities’ goal to achieve a balanced budget a year earlier than previously envisaged is of fundamental importance. They stress that complete and speedy implementation of the announced measures is key to restore market confidence. As decided on July 21st, the effectiveness of the EFSF will be improved and its flexibility increased linked to appropriate conditionality, in particular through the following instruments: precautionary program, finance recapitalization of financial institutions and to intervene in secondary markets on the basis of an ECB analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability and on the basis of a decision by mutual agreement of the member states, in order to avoid contagion.”
On July 21, 2011 the European Leaders announced a new political and economic regime by decreeing an enhanced EFSF Monetary Authority, establishing a common European Monetary Fund, effecting in essence, a European Treasury.
On August 4, 2011 investors panicked and fled to the exit doors, when they came to realize that Italy’s banks are insolvent, and that Italy is headed to a default with the result that a default union has formed in Europe.
Black Thursday, and now Red Sunday, have terminated the Milton Friedman political and economic regime know as neoliberalism, which saw a plastic prosperity, soaring stock values and a leveraged price of gold and silver. The former regime to a screeching halt with resource stocks falling as much as seventeen percent and Italy falling nine percent for the week. Currencies are now sinking, not rising, in competitive currency devaluation, that is competitive currency deflation. Carry trades unwound again today as the Swiss Franc and the Japanese Yen rose today.
South Africa Rand, SZR, -4.2
New Zealand Dollar, BNZ, -2.5
Australian Dollar, FXA, -2.4
World Currencies, DBV, -2.3
Mexico Peso, FXM, -2.3
Emerging Market Currencies, CEW, -2.3
Commodity Currencies, CCX, -2.0
Brazilian Real -1.8
Canadian Dollar, FXC, -1.2
Indian Rupe, ICN, -1.1
Euro, FXE, -0.5
British Pound Sterling, FXB, -0.3
The Merkel and Sarkozy Communique of August 7, 2011, The Declaration of Eurozone Interdependence and Debt Servitude, gave full support for the EFSF Monetary Authority. It is a Leaders’ Announcement of Neoauthoritarian Rule in Europe where the word, will and way of the Leaders establishes both political rule and seigniorage, that is moneyness, as well.
The Merkel and Sarkozy Communique of Sunday August 7, 2011 effects a global coup d etat, changing worldwide political and economic governance from one of Neoliberalism, to one of Neoauthoritarianism, that is Neofeudalism, where leaders waive national sovereignty, and rule in the ten regions of global governance as called for by the Club of Rome in 1974. Financial success of their plan is doomed to fail as Germany will ultimately foot the bill following the French downgrade from AAA, which will make it an ineligible funder. The monetization of German sovereign debt, will result in its debt deflation, and Germany’s loss as well of its debt sovereignty and fiscal sovereignty, as it participates in a Eurozone debt union and default union. In an interview on Der Spiegel, Kenneth Rogoff, a professor of economics at Harvard University, makes the case ‘Some European Countries Are Fundamentally Bankrupt’. With the Merkel and Sarkozy Communique of August 7, 2011, Europe is now a Transfer Union. Fiscal Authority for all Europe will soon be coming from Brussels, Berlin and Paris as leadership from the Europe’s core will rise over the periphery. that is the PIIGS. Germans are not Greeks, yet all Europeans are now one, and soon to be living under a Federal and Fiscal Union, in a One Euro Government.
Meanwhile Open Europe reports the announcement on Friday that the Italian government will speed up its deficit cutting plan, Il Corriere della Sera reports on a ‘secret’ letter sent by ECB President Jean-Claude Trichet and his designated successor Mario Draghi to Italian Prime Minister Silvio Berlusconi last week, effectively outlining the measures – including speeding up labour market reforms – to be implemented in order for the ECB to intervene with the purchase of Italian bonds.
La Repubblica reports that opposition parties in Italy are increasingly concerned about the conditions being imposed on the country in return for international support. Leader of Democratic Party, Pier Luigi Bersani, is quoted saying, “We want the truth…What are the ECB and the other international institutions exactly asking us for? Leading opposition MP Antonio Di Pietro has warned, “At the moment, Italy is under the tutelage of the EU, and a country under tutelage is not a free and democratic one.”
Writing in the Telegraph, Chancellor George Osborne argues that “eurozone countries need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration. Solutions such as euro bonds now require serious consideration”. Osborne further suggests that even competitiveness reforms and bank consolidation would be only a temporary solution to the crisis without fiscal union
Australian and New Zealand markets opened lower Sunday August 7, 2011, in reaction to the Merkel-Sarkozy Announcement. Australia’s benchmark S&P/ASX-200 index fell 2.2 percent to 4,015 points, while the broader All Ordinaries index was down 2.3 percent to 4,076. The fall was steeper in neighboring New Zealand, where the benchmark NZX 50 index was down by 3.2 percent to 3,171. And Kitco News reports Comex Gold Soars to Record high of $1,697.70 in early Sunday Evening Trade, as Crude Oil, U.S. Stock Indexes Plummet.
Steven Erlanger of the New York Times writes with “prospect of US slowdown, Europe fears a worsening debt crisis. Jean Claude Trichet, Angela Merkel and Jose Barroso, are continuing to grapple with Europe’s debt woes. The shock of the downgrade Friday of long term US Government debt and the worsening situation in Europe added urgency to restore confidence and to prevent an extension of the stock market slide this last week. The ECB signaled that it would intervene more aggressively in buying more bonds of Spain, EWP, and Italy, EWI. The bank did not identify which bonds it would buy but its statement is likely to be interpreted as a sign that it will intervene to prevent borrowing costs for the two countries from growing unsustainability. ”
Chart of SPY, CAF, YAO, EWG, VGK, EWZ, INDY, EWA shows the S&P is now precisely at the levels at which Bernanke came out with QE2 in November 2010.
There are no longer sovereign individuals in the EU, there are only sovereign leaders who govern by diktat. Doug Noland communicated that Neoliberalism was characterised by wildcat finance. I relate that Neoauthoritarianism is characterized by wildcat governance.
Political, economic and investment dusk fell on July 21, 2011 with the Leader’s Framework Agreement for an enhanced EFSF Monetary Authority. And the full darkness of Kondratieff Winter fell on August 4, 2011, with an investor awareness of a Eurozone Default Union.
An inquiring mind asks will a President of the EU, arise as the Sovereign Leader in the Eurozone? I rather think so. He will be accompanied by the Seignior, which literally means top dog banker who takes a cut; this one will provide the new seigniorage, that is the new moneyness, that comes by diktat.
While Neoliberalism was characterized by the the Spirit of The Cat In The Hat, Neoauthoritarianism is characterized by the Spirit of Wilding. This is exemplified in the Associate Press report New disturbances break out in London Tottenham neighborhood a night after rioting and London police deploy extra officers after rioting and Police arrest over 160 in weekend London riots. The New York Times reports Twin perils of social service cuts and scorn for police converge to fuel riot. Other news of wiling is seen in the New York Times report Idyllic Cape Cod growing drug problem fuels rise in property claims.
Associated Press reports S&P downgrades Fannie Mae, Freddie Mac, home-loan debt. and Bloomberg reports Muni Market Prepares for Lost AAA Ratings. The $2.9 trillion municipal bond market is preparing for “hundreds and hundreds” of downgrades after Standard & Poor’s lowered the U.S. one level to AA+, the first-ever reduction for the country. S&P is likely to cut its ratings on municipal debt secured by the federal government, such as pre-refunded bonds, tax- exempts backed by U.S. agencies, and credits that are most dependent on federal spending, Peter DeGroot, head of municipal research at JPMorgan Chase & Co. (JPM), wrote in an Aug. 5 report distributed after the federal downgrade. The New York-based ratings company said it would release a statement on state and local issuers today. “There will be hundreds and hundreds of municipal downgrades, which will not do well to bolster investor confidence,” Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors, said in a telephone interview. “Treasuries may be able to shake off a real impact from the downgrade. Munis I’m less sure about.” Municipal issuance has fallen amid the U.S. debt-ceiling impasse. The slump and signs of a slowing economy helped drive tax-exempt yields to the lowest this year. Scheduled debt sales total about $2.8 billion this week, the slowest August week since 2003, according to data compiled by Bloomberg.
2) … All long duration US Government Bonds, TMF, ZROZ, and EDV, rose as a safe haven investment from falling stocks. The Flattner ETF, FLAT, rose on a flattening of yield curves such as the 10 30 Yield Curve, $TNX:$TYX, as as the 30 10 Demand Curve, $TYX:$TNX, rose. Despite the rise, the chart of US Treasuries, and Bond, BND, communicates that peak credit is being achieved. This being the case with the topping out of BLV, and LQD, and the report Wall Street Journal report Corporate bond pipeline snaps shut.
3) … Commodities, DJP, Timber, CUT, Base Metals, DBB, Oil, USO, Petroleum Products, DBC, and Brent Oil, BNO, all fall sharply lower as West Texas Crude plunges below $84 a barrel on the exhaustion of quantitative easing and inflation destruction.
Bloomberg reports Gold Futures Surge to Record on Haven Demand. Gold futures surged to a record $1,697.70 an ounce on demand for an investment haven as the dollar slumped following Standard & Poor’s downgrade of the U.S. long-term credit rating from AAA. Gold futures for December delivery rose $36, or 2.2 percent, to $1,687.80 an ounce at 7:40 a.m. Tokyo time in electronic trading on the Comex in New York after reaching the all-time high. “Gold will most likely be a sharp recipient of safe- haven flows” following the U.S. rating cut, Edel Tully, a London- based analyst at UBS AG, said in a report. “Our previous one- month forecast of $1,725 is likely to be easily met in the short term.”
4) … There was a violent sell off of stocks today on the unwinding of the QE Trade
5) … Country Stocks fell severely on the debt deflation of competitive currency devaluation
6) … Conclusion
Out of deleveraging, global governance is rising, specifically a ten toed kingdom, a beast regime of state corporatism ruling in all of mankind’s seven institutions and ten global regions, as called for by the Club of Rome, in 1974. Milton Friedman died, and with it wildcat finance, a Doug Noland term, is being replaced by global leaders wrestling in what I call wildcat governance. Two have risen to replace Milton Friedman: Angela Merkel and Nicholas Sarkozy. Yet these are simply forerunners, that is, precursors of even two greater, whose rule of diktat will replace democracy, this being the dictatorship of the Sovereign, and the Seignior.
Neoliberalism has given way to neoauthoritarianism, national sovereignty to regional economic governance, independence to interdependence, debt expansion to debt servitude, separateness to oneness, Cat in the Hat to Wilding, leverage to deleveraging, democracy to diktat, sovereign nation states to default union, floating currencies to sinking currencies, prosperity to austerity, growth to decay, liberty to slavery.
7) … In today’s news
Between The Hedges reports The Eurozone Financial Sector CDS Index is now only 10.0 bps from its March 09 record high. The 3-Month Euribor-OIS spread is jumping another +8 bps to a multi-year high of 54.0 bps.
Marketwatch reports BofA, Citi Millstones Around Financial Stocks Shares of two of the largest U.S. banks flirted with 20% losses Monday, leading the financial sector and broader market down as investors fretted about the ripple effects of Standard & Poor’s downgrade of U.S. government debt. AIG lost 10%.
Forbes reports The economics of the recent era are dead
Reuters reports AIG sues BofA for $10 billion alleging “massive fraud”
CNN Money reports Moody’s: Why we aren’t downgrading the U.S.
Reuters reports Verizon shares slump as 45,000 workers strike
MarketWatch 2011-2020: Decade of U.S. economic hell
New York Times reports A.I.G.(AIG) to Sue Bank of America (BAC) Over Mortgage Bonds. The American International Group is planning to sue Bank of America over hundreds of mortgage-backed securities, adding to the surge of investors seeking compensation for the troubled mortgages that led to the
financial crisis. The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in
possibly the largest mortgage-security-related action filed by a single investor.
Haaretz reports Lieberman Calls on Israeli Government to Cut Off Ties With Palestinian Authority as
‘Bloody’ September Approaches. Foreign Minister Avigdor Lieberman said he plans to demand that the government sever all ties with the Palestinian Authority in light of what he termed the PA’s growing anti-Israel activity in various international forums. At a briefing for journalists in the Knesset, he also accused the Palestinians of preparing for “bloodshed the likes of which we’ve never seen before” after September’s expected United Nations vote to declare a Palestinian state. “The PA is stepping up its efforts to try to indict senior Israeli officers at the international court in The Hague,” Lieberman said. “I will demand that the prime minister and the Octet [forum of eight senior ministers] sever all ties. Not treasury officials, not the Water Authority, not Foreign Ministry officials. It’s impossible both to accept security coordination and to indict Israel Defense Forces soldiers in The Hague.” Moreover, he charged, while senior PA officials say the protests they plan in September will be nonviolent, they are in fact preparing for violence. The PA has been preparing detailed plans for demonstrations likely to spark conflict with Israeli soldiers, he said, down to the number of buses needed to transport demonstrators to army roadblocks in the West Bank – where friction with soldiers would be almost inevitable. “The PA is planning bloodshed the likes of which we’ve never seen before,” he said.
EconomicPolicy Journal reports Michelle Bachmann makes the cover of Newsweek Magazine as The Queen Of Rage.
ZeroHedge reports Japan Rice Futures Surge 40%, Trigger Circuit Breaker On Concerns Fukushima Radiation Will Destroy Crops
Joe Mount of WSWS reports Kenyans win right to sue UK government for colonial torture. Four Kenyans are to sue the UK government for the treatment they received during the suppression of the Mau Mau uprising during the early 1950s when Kenya was a British colony.
Neoliberalism was the Free To Choose currency economic, investment, banking and cultural regime, that was great grand fathered by Milton Friedman, grand fathered by Alan Greenspan and fathered by Ben Bernanke. In Meet The Press Alan Greenspan said “This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. There is zero probability of default.” To which I say his comment is the very doublespeak that George Orwell warned of.