Financial Market report for March 27, 2012
Greece, GREK, and Spain, EWP, led European Shares, VGK, lower today. Euro Intelligence provides the best of analysis; it comes via a subscription; I recommend that one purchase their daily newsletter which features the commentary of Stephen King who is HSBC Group’s chief economist and the bank’s global head of economics and asset allocation research. He is a member of the Financial Times Economists, and in the Financial Times he writes Growing Financial Crisis Calls For A Eurozone Fiscal Union The situation of Spain compares to that of Greece, where in the autumn of 2010, the IMF projected a fall in growth of 2.6%, whereas the economy really fell by 7%. When economies collapse, deficit reduction becomes impossible. He questions whether the rise in yields has really been due to the failure by the government to accept the Commission’s targets, or whether the creditor countries are simply running out of patience. In the old days, weak growth was synonymous with low interest rates. Now the opposite is the case. Austerity delivers weak growth, and higher interest rates. He concludes that the only way to solve this problem is a fiscal union.
The EU is currently a currency union, and has recently become a monetary union via the regionalization of banks via subordination of debt to the ECB and via the ECB’s LTRO 1 & 2 money printing operations. A fiscal union, with budget commissioners who effect technocratic government, and a full monetary union with monetary cardinals will provide credit and economic direction under the monetary pope Mario Draghi. He said today Governments Must Continue to Take Decisive Measures. This is the ordained plan of the Sovereign Lord God, Psalm 2:4-5. Look and see, Jesus has opened the first of the seven seals, and is sent the First Horseman of the Apocalypse, riding on a white horse, with a bow and no arrows to effect a bloodless global economic and political coup, Revelation 6:1-2. He is passing the baton of sovereignty from sovereign nations states to the EU ECB and IMF Troika. Eventually a New Charlemagne will arise to be sovereign in the EU, where he rules with a seignior, as Germany rises to be preeminent in a revived Roman Empire. This Euro zone super state will be one of ten regions of global governance as foretold in bible prophecy of Daniel 2:31-33 and Revelation 13:1-4.
Open Europe reports Germany settles on minimal combination of EFSF and ESM bailout funds; SPD accuse Merkel of leaving German public in the dark over real risk from eurozone bailouts.
The German government yesterday publicly confirmed its intention to run the ESM and the EFSF, the permanent and temporary eurozone bailout funds respectively, in parallel. German and European officials suggest that Germany now favours the minimum integration of the two funds whereby the €200bn already dispersed by the EFSF will be rolled into the ESM, increasing its size to €700bn, according to the WSJ. However, the effective lending capacity will remain at €500bn. The Commission has stated that it does not believe this will be enough to convince the IMF to increase its own resources.
The SPD’s budgetary policy spokesman Carsten Schneider criticised the decision to combine the funds, saying, “The negotiating strategy of the Chancellor is a disaster, leaving the public in the dark about the true risks of the liability.” FTD notes that following the move, the total risk to Germany would amount to over €400bn by mid-2013.
Meanwhile, talks between the German government and the opposition SPD and Green parties on the ratification of the ‘fiscal treaty’ on eurozone governance will get underway today, as the opposition have demanded a number of concessions in return for their support including the introduction of a financial transactions tax.
And Open Europe reports Bild columnist Jan Schäfer argues that Chancellor Merkel explicitly wants her junior coalition partner, the liberal FDP, to stay under the 5% threshold at the next federal elections so as to prevent a potential ‘traffic lights’ coalition between the SPD, Greens and the FDP.
The Italian prime minister threatens to resign if the parliament does not approve his reform programme as Open Europe reports Monti suggests he may leave before 2013 as new poll shows fall in public support for labour market reform; European Commission to send new monitoring mission to Spain. Italian Prime Minister Mario Monti has suggested that his government may dissolve itself before 2013 if faced with excessive resistance to its plans to reform the labour market and reduce the cost of dismissals, saying that “if the country, through its political and social forces, does not feel ready to cope with what, according to us, is a good work, we will certainly not ask to stay until a given date.” Meanwhile, a new ISPO poll published by Il Corriere della Sera shows that support for Monti’s government has shrunk from as high as 60% to 44% in less than one month – in large part due to the proposed labour market reforms.
Separately, following his party’s failure to win an absolute majority in the Andalusian elections, Spanish Prime Minister Mariano Rajoy has said that his government’s plans for reform remain unchanged. The Spanish government is due to unveil a new austerity package on Friday, the day after a general strike. Expansión reports that the European Commission will send another monitoring mission to Spain by mid-April, only one month after the previous one.
Bloomberg reports US World Bank Nominee Under Fire Over Book. Jim Yong Kim, the US nominee to head the World Bank, is coming under fire over a book he co-authored that criticises “neoliberalism” and “corporate-led economic growth”, arguing that in many cases they had made the middle classes and the poor in developing countries worse off. Some economists are arguing that Dying for Growth, jointly edited by Dr Kim and published in 2000, puts too great a focus on health policy over broader economic growth. “Dr Kim would be the first World Bank president ever who seems to be anti-growth,” said William Easterly, professor of economics at New York University. “Even the severest of World Bank critics like me think that economic growth is what we want.”
I comment that the quest for growth and profit will change to be a quest for regional security, stability and sustainability. For the last forty years, the world has known neo liberal credit, which came via the Milton Friedman Free To Choose Script of floating currencies, where the US Dollar was the global reserve currency; and as a result capitalism thrived, which was experienced as a free market economy in the United States and socialism in Europe; with the standard of living of Republicans and European Socialists rising dramatically and the economic wannabes such as Libertarians salivating and whimpering.
But the global tectonic economic and political plates have shifted as fears of sovereign default, and fears of diminished global growth have arisen. The bond vigilantes a have called sovereign interest rates higher, as is seen in the Flattner ETF, FLAT, falling and the Steepner ETF, STPP, rising. And the currency traders are selling world currencies, DBV, and emerging market currencies, CEW, with the result that the US Dollar, $USD, traded by the 200% ETF, UUP, is rising.
An authoritarian tsunami is on the way. Look and see, a coup d’etat is underway in the EU, Revelation 6:1-2. And Fate, Revelation 2:26-27, is passing the baton of sovereignty from sovereign nation states to the EU ECB and IMF Troika, with the result that the global governance of EU UK and US hegemony is ending, and a ten toed kingdom of regional global governance is forming, with the first toe being the Euro zone.
Export dependence has been a major characteristic of the Milton Friedman Free To Choose floating currency regime since its introduction in 1991, when the US went off the gold standard. For forty years, there has been an intensification of global integration through trade.
A global trade bubble has formed because the US Dollar has been the defacto reserve currency, and because a debt trade has recycled dollars into US Treasuries, ZROZ, EDV, TLT, with the result that a global government finance bubble has formed, as is seen in the ETFs, BWX, and EMB, growing over the years.
China, YAO, CAF, FXI, became an export superstar. India, INP, and South Korea, EWY, rose to be export giants; the former because of low wages and the latter because of ingenuity. Brazil, EWZ, saw exports grow. Australia grew as a major exporter of commodities. Sweden became a major exporter to the EU. Russia, RSX, became a major exporter of oil and natural gas. Mexico, EWW, was a strong exporter. Hot money flowed in Brazil Banks, BRAF, and India Banks, EPI.
As inflationism has turned to deflationism, The Bullwhip Effect, cited by Business Insider of Lakshman Achuthan of ECRI, writing in the Yo Yo Years, is at hand. Yoyo risk is at its maximum. Through trade synchronization, there is coming a strong unwinding of global trade, with asset price deflation, competitive currency devaluation, deleveraging out of commodities, and debt deflation in bonds.
Because of the yo yo effect, what was global trade will become regional trade, featuring regional bartering and currency exchanges.
Regionalization is the new direction of globalism. Regional blocs will form based upon regional framework agreements where leaders meet in summits, waive sovereignty, and pool sovereignty to establish regional global governance.
The dynamos of growth and profit that powered capitalism are winding down; and the dynamos of regional security, stability and sustainability are powering up regional global governance.
Peter Tchir of TF Market Advisors, writes of the securitization of Italian Sovereign Debt, Kicking The Can Not Too Far. Italy has issued €157 billion of debt between November of last year and the end of last week. This is direct Italian government issuance and doesn’t include any of the debt the government has guaranteed in the meantime, which seems to be at least €70 billion more, but hey, who counts guaranteed debt. Of the €157 billion that has been issued, about €122 billion matures within the lifetime of LTRO. So over 77.5% of Italian new debt is 3 years and in. In fact, at least 56% was issued with maturities of less than a year. So in spite of LTRO, in spite of a big rally in Italian yields, in spite of having a technocrat in charge of the country, they continue to issue well over half their debt so that it will mature within a year from now. That means they will be continuously rolling over debt. The prudent country would be trying to extend maturity, not shrink it. The market celebrates each “successful” auction, but we should be focusing on what they are actually issuing. If Germany is serious about a firewall, they or the ECB, should be encouraging countries to pay up and borrow longer
Tyler Durden writes of The Coming Collapse In Fiat Asset Prices The sad truth is, we have seen this play out again and again and as the printing-press-pressure drives up asset prices (providing confirmation bias upon anchoring bias for any and every economist or long-only manager quoting the ‘recovery’ or decoupling), the truth is that as prices (and expectations) distend from value and actual reality, the central bank’s efforts to ‘maintain’ the status quo simply create a larger and larger vacuum for asset prices to fall through when sad reality is finally peeked.
The chart of Deutsche Bank, DB, manifested bearish engulfing today. Washington Post reports Deutsche Bank No 1 in Europe as Leverage Hits Market Valuation. Deutsche Bank AG, adding assets as other lenders trim their balance sheets, leapfrogged France’s BNP Paribas SA to reclaim the title of Europe’s largest bank. Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years, according to data compiled by Bloomberg. Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money. “Deutsche Bank has been pretty decidedly opposed to reducing its balance sheet,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment. “It’s understandable: The higher your leverage, the higher the returns when times are good. They want to cut as little as possible to keep doing as much business as possi
Energy shares seen in this Finviz Screener, PSCE, XLE, IEZ, ENY, WCAT, XOP, IEO, XES, traded lower today, with US Energy Service IEZ, leading the way down. Global energy service shares are also strong fallers; investors are taking taking profit and short selling energy development stocks such as SLB.
It will be the small cap value shares, RZV, such as those seen in this Finviz Screener, which will the fast fallers, once the global bear market commences. Other fast fallers include Copper Miners, COPX, and the others seen in this Finviz Screener.
Major World Currencies, DBV, and Emerging Market Currencies, CEW, seen in this Screener, traded lower with the Russian Ruble, FXRU, and the Australian Dollar, FXA, leading the way down; these enjoining Sweden, EWD, Russian, RSX, and Australia, EWA, lower, which led World Stocks, VT, lower. Argentina, ARGT, traded strongly lower.
Greece, GREK, Spain, EWP, and Argentina, ARGT, China Industrials, CHII, India, INP, and Brazil, EWZ, are stock market black holes that are opening up to suck up all fiat investment wealth. This was foretold by John the Revelator who foretold those things which must shortly come to pass, Revelation 1:1, which means that when they start to occur, they will proceed like lined up dominoes falling one upon another. In the dream given to him by angels, he relates in Revelation 13:1-4, that the Beast Regime of Neoauthoritarianism is rising up out of the Mediterranean nations of Greece, GREK, and Italy, EWI, to destroy the Banker Regime of Capitalism. This monster of state corporatism and totalitarian collectivism is the same as the ten toed kingdom of regional global governance as seen and announced by the prophet Daniel as he wrote in Daniel 2:31-33.
Eurosis, that is the failure of the PIIGS debt sovereignty, and the failure of the world central banks’ monetary policy to stimulate growth, is causing derisking out of stocks outside of the US, ACWX, a steepening of yield curves, STPP, the failure of credit, BND, a deleveraging out of commodities, DBC, particularly base metals, DBB, and the failure of fiat money via competitive currency deflation, DBV, CEW, The only money good is possession of gold bullion.
The fiat money system is dying and the diktat money system is developing, as Stephen King, HSBC Group’s chief economist and the bank’s global head of economics and asset allocation research wrote today in Financial Times.