Financial Market Report for Wednesday February 15, 2012
1) … Dow Theory suggests that the Great Deleveraging likely commenced today.
Volatility TVIX,VIXY,VIXM, rose, as is seen in this combined chart.
This as Railroad Shares, ARII, TRN, KSU, GBX, traded lower, likely heralding a soon end to the US Infrastructure, PKB, rally.
Small Cap Pure Value, RZV, another recent safe haven and ECB LTRO neo liberal credit rally leader, traded lower.
Dow Theory holds that Industrials, IYJ, and Transports, IYT, make market turns together. In as much as these both traded lower today, the Great Deleveraging, likely commenced. The chart of Transportation, IYT, shows a rounded top, and a fall lower out of an ascending triangle, suggesting that transportation stocks are headed irretrievably lower. Jack D. Stevison writes in article Dow Theory, this looks like a “non-confirmation” to me. It’s the like the Dow Transports are saying, “We’re not as strong as you industrials are. We’re just not able to move the stuff that you’re producing. So whomever is buying your stocks, well, they’re getting ahead of themselves.
Confirmation of the start of the Great Deleveraging comes from Steel, SLX, and Metal Manufacturing, XME, trading lower, on a likely exhaustion of growth, that comes from the failure of the global debt trade, which is seen in World Government Bonds, BWX, having turned lower, and from the exhaustion of neo liberal finance and fears of Greece Default.
The fiat wealth system known as Neoliberalism, that has governed the world for the last forty years is now passing away. The diktat system known as Neoauthoritarianism, is rising in its place.
Bespoke Investment Group reports Breadth Weakens While it may seem as if the market has been doing well lately, it really hasn’t done anything over the past ten trading days. Since February 3rd (a Friday), the S&P 500 is flat, and the Dow is actually down about 100 points. While Apple, with its huge weighting in the S&P 500 and Nasdaq, has really helped buoy the market over this time period, underlying breadth has weakened, and the VIX fear index has shot up 25%. As shown below, 78% of the stocks in the S&P 500 are currently trading above their 50-day moving averages, down from a reading in the mid-80s earlier this month. Apple can’t go straight up forever, and if it does pull back or trade sideways for awhile, it will be interesting to see if the rest of the market picks up the slack or completely falls apart.
Greece Shares, GREK, and the National Bank of Grace, NBG, traded lower as the WSJ reported Greek bailout talks entered a new round of brinkmanship on Tuesday, as euro-zone finance ministers delayed a meeting to approve a new bailout and debt restructuring for Athens, which worked to assure them it is committed to new austerity measures as a debt-redemption deadline looms. The ministers put off the talks in Brussels, which they had scheduled for Wednesday, and replaced them with a teleconference, saying Greek political leaders haven’t given clear pledges on the implementation of fresh austerity measures.
And Bespoke Investment Group reports Euro Spreads Back on the Rise. Two days ago, we highlighted the fact that sovereign debt spreads in Europe relative to Germany were well off their highs and for many countries were actually making lower lows. Since then, Moody’s lowered its ratings on six countries and the outcome of the Greek bailout process has been thrown into doubt. As a result of these events, spreads for most EU countries have been back on the rise, although we would stress that they are nowhere near their recent highs. In Italy, spreads have risen by nearly 20 bps to 386 bps, while spreads in France have risen by 17 bps to 114 bps. Spain has seen its spreads rise 25 bps to 355 bps. Finally, while the increase in spreads in Greece is hardly visible on the chart, that is only because spreads are already so high in Greek debt. The reality is that Greek spreads have widened by more than any of the four countries shown at 35 bps.
2) … What If? …. What If Banks Are Regionalized?
What if? …. What if Angela Merkel has not been blatantly lying about wanting to keep Greece in the EU, as some suggest? What if she has heard and heeded the 1974 Clarion Call of the Club of Rome for regional global governance to provide order out of chaos as inflationism turns to destructionism?
What if? …. What if the Sovereign Lord God, Psalm 2:4-5, has sent the first horseman of the Apocalypse, Revelation 6:1-2, riding through the EU with a bow and no arrows, to effect a bloodless Euro zone political, economic, and investment coup de etat, where the EU ECB and IMF Troika, together with the banks, become the new sovereign authority replacing former sovereign nation states.
What if ? …. What if John the Revelator, who wrote the Book of the Seven Seals, has it right when he foretold that a seven headed and ten horned beast regime of statism and totalitarian collectivism, will rise from the Mediterranean Sea to rule mankind, Revelation 13:1-4.
Zero Hedge presents the video of the silk-tie-and-suited MEP Nigel Farage bombarding his peers with the Red Pill …. “If they don’t get the Drachma back, you will be responsible for something truly truly horrible!”.
Yes horrible indeed, something horrible is coming. The Apostle John relates that ”the beast which I saw was like unto a leopard, and his feet were as the feet of a bear, and his mouth as the mouth of a lion: and the dragon gave him his power, and his seat, and great authority.” The leopard’s skin is camouflaged, and as such, blends in with the background so it can not be seen by its prey. It operates furtively and prefers the darkness, and then at dusk, or at night, strikes to ensare, enslave, destroy and consume. The bear’s feet are padded for running at great speed to ruthlessly pursue its prey and for maintaining its footing in any adversity; its claws root out its meal and rip apart its meal. The lion’s mouth opens wide to choke it’s prey, and then crush and shred its victim. The monster that God is now unleashing on mankind combines the most terrible elements of nature’s most fierce animals. The Beast’s characteristics make it the perfect predator for destroying all economic and political life. God’s intention is to reveal the sovereignty and kingship of his Son’s rule over the entire planet, Revelation 2:26-27.
Is Angela Merkel not sovereign over the Euro zone? Is not, fate is passing the baton of sovereignty from nation states to sovereign leaders in Brussels and Berlin? Libertarian hopes for Freedom, Free Enterprise, and a Free Monetary System, are simply mirages on the Neoauthoritarian Desert of the Real. Austrian economic writers are wearing anarcho capitalist spectacles.
I suggest that they consider the Morpheus Proposal and take the Red Pill, as in the movie The Matrix, where Morpheus relates “You take the blue pill. The story ends. You wake up in your bed and believe … whatever you want to believe. “You take the red pill. You stay in Wonderland and I show you how deep the rabbit hole goes. “Remember. All I’m offering is the truth. Nothing more.”
The debt economy of capitalism is coming to an end, with the result that the dynamos of growth and profit are failing. The driver of investment reality is that the European Central Bank’s long-term refinancing operations has provided cheap three-year liquidity to banks, which has fueled fiat asset purchases across the board including Italy and Spain Sovereign Debt. The ECB LTRO ponzi credit facility cannot extend to the emerging markets, EEM, and the emering market financials, EMFN, and the emerging market mining shares, EMMT, and to US regional banks, KRE, and US community banks, QABA, US Infrastructure, PKB, Small Cap Pure Value, RZV shares. Yes, the scope of neo liberal finance is limited, as is likely to been seen in the chart of ITLY, EMFN, EMMT, KRE, QABA, PKB, RZV, where ITLY will likely be sustained by the ECB’s LTRO 1 and LTRO 2, yet, the rally in the former safe haven stocks fizzles. The reach of ECB credit liquidity cannot continue to extend to S&P Materials, MXI, and S&P Global Financials, IXG, as is seen in the chart of SPY, MXI, IXG.
Soon out of creative destruction, regional global governance will establish a totalitarian collective in the Eurozone, and regional public private partnerships to manage the rest of the world’s ten regions. This ten toed kingdom of regional global governance, Daniel 2:31-33, also known as the Beast Regime of Revelation 13:1-4, seen rising out of the profligate Mediterranean Sea countries of Italy and Greece, will provide diktat to replace Milton Friedman’s Free To Choose Script, that governed global finance and trade for the last forty years.
Political capital will soon command economic transactions, as the dynamos of regional security and stability gain traction, providing order out of chaos. Investment capital that fueled growth and profit will literally be washed away into the pit of financial abandon as regionalization replaces capitalism.
Instaforex writes Ralf Nelson Elliott And His Wave Analysis. Ralf Nelson Elliott was an American accountant. In 1938 appeared the book “The Wave Principle” where he detailed the results of his studies and described his method. His next book entitled “Nature`s Law – The Secret of the Universe” was published in 1946.
The monthly chart of S&P, $SPX, traded by SPY, communicates that we are at the crest of an Elliott Wave 2 high, and are going to enter an Elliott Wave 3 Down, as is seen in Daneric’s Elliott Wave article 15 February 2012. These are the most destructive of all economic waves as they destroy practically all of the wealth accumulated on the way up. The Great Deleveraging, that is Great Depression 2, is about to commence.
Banks will soon be nationalized, better said regionalized, and integrated into the government, and become known as the government bank, or gov banks for short.
In Europe, leaders will meet in summits and waive national sovereignty, and announce that the European Financial Institutions, such as Ireland’s IRE, will be integrated into the Bundesbank or the ECB, which will become known as the Euro’s bank.
In Europe, regional monetary cardinals, under the supervision of a monetary pope, will work in private public partnerships for regional security and stability, as they oversee the region’s resources and economic production. The FT reports that François Hollande, the Socialist candidate for the upcoming French presidential elections, has questioned whether the new European fiscal treaty on budgetary discipline goes far enough in guaranteeing stronger economic governance in the eurozone, adding, “Some have proposed the idea of a minister of finance for the eurozone who reports to the European parliament, that is a potential solution.” And, German industry executives are expressing increasing lack of confidence in the euro project. Open Europe relates that In an interview with economic monthly Manager Magazin, Franz Fehrenbach, the head of Bosch – one of Germany’s largest corporations – argued that Greece was an “unbearable burden”, and that “with its phantom retirees and wealthy tax evaders, this country has no place in the EU”. He said that Greece ought to voluntarily leave both the eurozone and the EU, but that if it refused, it ought to be forced out through a change in EU law. Süddeutsche notes that his intervention is significant because of both the size of his company and the fact that German Chancellor Angela Merkel has sought out his advice in the past. Meanwhile, a survey of 300 German executives found that 57% believed it would be better for Greece to re-adopt the Drachma. Manager Magazin Süddeutsche Bild
And in Europe, budget commissioners will work in technocratic government implementing austerity measures and structural reforms.
Will the EFSF be a Special Purpose Investment Vehicle, SPV, to house Greek debt? Open Europe reports that in an interview with Handelsblatt, Bundesbank President Jens Weidmann said that, while he would have no problem with the eurozone’s temporary bailout fund, the EFSF, purchasing eurozone government bonds from the ECB and national central banks in order to ease pressure on them, he is against central bank participation in Greek debt write-downs, arguing, “The crucial point is that we are not allowed to waive claims against a state. That would be a form of monetary financing of a government.” Weidmann also noted that eurozone governments are wary of the plans to let the EFSF buy Greek bonds from central banks. Les Echos reports that Belgian Central Bank Governor Luc Coene has confirmed that the ECB will redistribute any profits made on Greek bonds among eurozone countries, which will then decide whether to return the money to Greece as part of the second Greek bailout.
It is unlikely that holders of Greek debt will take losses, and as a result that the Euro Working Group will likely be faced with a Greek default. An inquiring mind asks, just who will provide monetary financing of Greek government after default? As it stands now bailout talks have been cancelled as the Greek government has failed to produce the required documents. Might EU ECB IMF diktat be used to finance government of the Greek people? Andrew Lilico of Europe Economics writes in The Telegraph “Despite the vote yesterday, the Greeks probably won’t ever see a single cent of that second bailout. In particular, the Slovakians, Finns, Austrians and Dutch would never have agreed to the [second bailout] if they had thought there was any chance of them actually having to pay.”
A Eurozone guarantee will backup national bank deposit insurance schemes, to reduce retail bank runs. And in Japan, a national bank deposit scheme will act as capitol controls on retail bank accounts.
Soon a rising US Dollar, $USD, UUP, and competitive currency devaluation, as is seen in the chart of UUP, FXE, FXM, FXC, ICN, FXB, SZR, BZF, FXA, FXRU, CEW, will turn world stocks, ACWX, VSS, EWX, lower.
4) … Godly character is formed in the forge of adversity; it comes having a good conscience. Godly character is the means of having life and out of that life freedom to become the mature child of God.
Chaste character, is foundational to godly character; chaste comes from the Greek word hagnos, meaning pure, specifically character pure from carnality of wrath, greed, sloth, pride, lust, envy, and gluttony, and comes from upholding virtue, which comes from the Greek word arete, meaning the preeminent set of of moral excellencies, which provides peace and strength in one’s mind.
Through conscience, one will give way to either violence or to peace.
Reuters reports Athens Mayhem Raises Fears Of Greek Social Explosion. I was saddened by European parliament member Nigel Farage blames the Troika for the violence and destruction in Greece stating, “Violence and destruction in Greece that you saw on Sunday is being caused directly because people have had their democratic rights taken from them. What else can they do? If I was a Greek citizen I would have been out there joining those protests. I would be out there trying to bring down this monstrosity that has been put upon those people,” … as I took his words to condone rebellion. I am for resistance and turning away, which is quite different from rebellion.
One’s character comes from one’s identity. If one has identity out of virtue, then one accepts adversity, poverty, dishonor, and disappointment, as one looks beyond the temporal to the eternal. Character is out of the forge of adversity that one becomes a moral person.
A person of genuine and good faith will supply virtue to one’s soul and forsake carnality, turning away from those who walk disorderly and not according to the way of peace.
As one lets concepts of grace and truth sink in to ones’ life attitudes, then a strong and good conscience develops, and the moral person emerges and mortifies the carnal nature and one grows in emotional and spiritual strength and peace.
5) … Greece is no longer a sovereign nation state.
Greece is no longer a sovereign nation state; it is no longer a republic. Greece is a client state of the EU ECB IMF Troika, and has a technocratic government which has come via a coup d etat, and which is promising to institute structural reforms and austerity measures. Obviously it cannot be helped by any Neoliberalism nation building initiatives. Given the severity and scope of the recent rioting, its entirely likely that a total breakdown of law and order is imminent and that a civil war like that in Egypt is imminent. The Open Europe Research Briefing 10 Unanswered Questions asks whether Greek debt will ever be sustainable, and communicates that Greece has come close to the social and political level of austerity which it can credibly enforce.
Bloomberg reports Europe Demands More Greek Budget Controls in Struggle to Forge Rescue Plan. Europe’s creditor countries struggled to bridge divisions over a rescue of Greece, seeking more control over how future aid is spent as the clock ticked toward a possible default next month. In a replay of the brinkmanship that marked the early stages of the Greek crisis two years ago, euro-area finance ministers extracted concessions from political leaders in Athens intended to pave the way for the endorsement of a 130 billion- euro ($171 billion) aid package next week. While “further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation,” Europe is set to make “all the necessary decisions” on Feb. 20, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a conference call of finance chiefs late yesterday. Greece’s plea for more aid on top of the 110 billion euros awarded in 2010 has stirred recriminations on both sides of Europe’s north-south economic divide, with taxpayers in better- off countries rebelling against further handouts. Each day lost brings Greece closer to a March 20 bond redemption when it must make a 14.5 billion-euro payment or become the first country in the euro’s 13-year history to default. (Hat Tip to Between The Hedges)
6) … Richard Russell writes the last currency standing will be gold.
Stockvine quotes Richard Russell: “The world has drunk at the punch-bowl of good times and debt ever since World War II. The world has avoided the discipline of pay-as-you-go and austerity for decades. But sooner or later the piper must be paid. Up to now, the piper has been ‘paid’ with vast amounts of fiat paper.
The politicians want to make the people happy. The Fed is beholden to the politicians. The voters want it all, and they don’t like pain. The Fed and the politicians want to make the voting public fat and happy causing as little pain as possible.
Examples: courtesy of Bill Gary’s great publication, ‘Price Perceptions.’ Last week the Fed announced that they were extending the current near-zero interest rates out to the end of 2014. The European central bank gave in and finally reduced interest rates to 1%. The Bank of England is meeting next week to decide on another round of QE. (money printing). This week the Bank of Australia will decide on whether to reduce rates again. The Swiss National Bank placed a currency floor of 1.2 francs per euro in September to prevent further strengthening of the franc. Japan has been printing for years in an effort to keep the yen cheap and competitive against other currencies.
Every nation wants a cheap and export-friendly currency. The result is a blizzard of (fiat) paper money blowing across the face of the earth. Inflation is the central banks’ method of avoiding the pain of austerity. Inflation is the current economic narcotic that is used by modern nations. It’s the old ‘beggar thy neighbor’ system, and it will ultimately result either in all out hyperinflation and a collapse of the fiat currency system or a corrective deflationary crash. Either way, the last currency standing will be gold.”
7) … In today’s news and commentary
John Redwood MP asks Who should pay for the Greek military? Greece has around one sixth the population of the UK, yet is has about the same number of military personnel on the payroll. The Greek military comprises around 170,000 active personnel paid by the state, with a further 280,000 in the reserve forces. Maybe instead of heaping ever more misery on the Greek private sector in an effort to pay for the very high Greek public spending the government should take a look at this cost. The Greek navy has around 80 warships. The army has more than 1200 tanks. The air-force has around 1000 planes and helicopters. (these are figures taken from public websites). The question is, who should pay for all this? If Greece had armed forces proportionate to her size of country she would have far fewer military personnel and military vehicles, ships and planes. She would save a lot of money , bringing her budget deficit under better control. Greece argues that she needs this large military as she does not trust her neighbours. The west could offer her security guarantees – indeed they already do in effect. I do not believe the west would stand by and watch any invasion of Greece, nor do I think one is any more likely than it has proved in the last few decades. She probably argues that with recession now would not be a good time to sack a lot of soldiers. Greece believes that the EU and the IMF should pay for her military for a bit. She also believes her creditors should pay permanently for her past maintenance of these large forces, by writing off great chunks of her debts.
Open Europe relates that the Wall Street Journal reports the European Commission announced yesterday that twelve EU states, including Italy, Spain, the UK and France, are suffering from significant economic imbalances that leave them vulnerable to further economic shocks, and as a result they would be placed under “stringent observation” so that they do not compromise the stability of the EU. WSJ FTD
Open Europe reports on the pork and patronage that characterizes Greek Socialism. On his Coulisses de Bruxelles blog, French journalist Jean Quatremer reports that, ahead of Sunday’s vote on the latest austerity package, Greece’s former Prime Minister George Papandreou told Greek MPs, “Our political system is collectively responsible for all the civil servants that we have recruited by favouritism, for the privileges that we have accorded by law, for the scandalous demands that we have satisfied, for the trade unions and business people that we have favoured and for the thieves that we haven’t sent to prison.” Liberation: Coulisses de Bruxelles
Sinead Cruise of Reuters reports Al Gore Takes Aim At Capitalism. Former Vice President Al Gore wants to end quarterly company reporting and explore issuing loyalty-driven securities as part of an overhaul of capitalism which he says has turned many of the world’s largest economies into hotbeds for irresponsible short-term investment.
Together with David Blood, senior partner of ‘green’ fund firm Generation Investment Management, the environmental activist has crafted a blueprint for “sustainable capitalism” he wants the financial industry to adopt to support lasting economic growth.
“While we believe that capitalism is fundamentally superior to any other system for organizing economic activity, it is also clear that some of the ways in which it is now practiced do not incorporate sufficient regard for its impact on people, society and the planet,” Gore said.
At a briefing ahead of Thursday’s launch, David Blood said capitalism has been blighted with short-termism and an obsession with instant investment results, which had ramped up market volatility, widened the gap between rich and poor and deflected attention from the deepening climate crisis.
The former CEO of Goldman Sachs Asset Management put forward five key actions which he hoped would revive the discussion on how to clean up capitalism and put companies, investors and stakeholders on the path towards long-term, sustainable profit.
These include ending quarterly earnings guidance from companies, which the authors said incentivized executives and investors to base decisions on short-term factors at the expense of longer-term objectives.
Companies have also been encouraged to integrate financial reporting with insight on environmental, social and governance policy so investors can clearly see how performance in the latter can contribute to the former.
“This is a direct appeal, dare I say, attack on short-termism in business,” Blood said.
“Today the average mutual fund in the U.S. turns over its entire portfolio every 7 months; 20 years ago it was every 7 years. Something has fundamentally changed and the problem with that is it means we’re not making good investing decisions… and not delivering proper and efficient wealth creation.”
After hitting mainstream consciousness in the early part of the last decade, the 2008 financial crisis brought efforts to make global business more environmentally and economically sound to a virtual halt.
But with so many roots to that crisis found in skewed asset valuations and irrational short-term trading, the authors want to restate the case for change while the pain of the credit crunch was still fresh in the memory.
“We went down this path because we fundamentally believe this is relevant to business. This has always been about value creation and this whole conversation about sustainable capitalism is not a new movement,” Blood said.
“While governments and civil society will need to be part of the solution to these challenges, ultimately it will be companies and investors that will mobilize the capital needed to overcome them.”
To offset the disproportional influence of short-term traders like hedge funds on global markets, Generation has proposed the issuance of loyalty-driven securities to reward investors who nurture real business growth by holding a company’s shares for a number of years.
The blueprint also recommends significant changes in corporate compensation structures, putting more emphasis on bonuses linked to multi-year performance instead of individual fiscal years.
Gore said pension funds had a vital role to play in coaxing their managers to make longer-term investment decisions, which by extension, could result in a healthier society and planet.
“(They) have a fiduciary obligation to maximize the long-term performance of their assets to the maturation of their long term liabilities,” Gore said.
“If pension funds turn to managers of their assets and compensate them with a structure that incentivizes them to maximize performance on an annual basis, they should not be surprised if that is what their managers end up doing.”
Blood said the campaign for sustainable investment had been hit by worries that change would cost more than it would ultimately deliver, but many businesses were still to grasp how value-destructive some elements of modern capitalism had become.
“In America, as soon as you say the word ‘sustainability’ people think of socially-responsible investing, tree-hugging and we don’t believe that at all. We think sustainability is just best practice in business,” he said.
I believe that the Neoliberalism which is synonymous with capitalism is dying as fiat money is dying due to excess credit of all types. With the soon coming failure of credit and a financial breakdown, that is with Financial Armageddon, the dynamos of growth and profit that have driven capitalism will be replaced by the dynamos of regional security and stability, which will introduce Neoauthoritarianism. He states “While we believe that capitalism is fundamentally superior to any other system for organizing economic activity, it is also clear that some of the ways in which it is now practiced do not incorporate sufficient regard for its impact on people, society and the planet.”
I suggest that Mr. Gore consider that the Beast Regime that is replacing the Banker Regime, will have no regard for any people, any society, any place on the planet. Specifically, bible prophecy reveals three beasts are rising to rule mankind, a beast system, Revelation 13:1-4, a beast ruler, Revelation 13:5-10, and a beast banker, Revelation 13:11-18. Furthermore, I believe that political capital will soon command economic transactions, as the dynamos of regional security and stability gain traction, providing order out of chaos. Investment capital that fueled growth and profit will literally be washed away into the pit of financial abandon as regionalization replaces capitalism. Capitalism is unsustainable, creative destruction is tearing it apart, and in its place will come the ten toed kingdom of regional global governance called for by the 300 elite of the Club of Rome in 1974. Diktat is rising to replace fiat money. God has released the First Horseman of the Apocalypse, Revelation 6:1-2, to overthrow all existing constitutional law, and national law, and to establish sovereign leaders to replace sovereign nations, whose only-practice will be regional statism and regional totalitarian collectivism.
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