Stocks Fall Lower As The ECB Becomes The Monetary And Fiscal Backbone Of A Federal Europe Through LTRO And Bond Purchases

Financial Market Report For Friday April 13, 2012; Second Great Depression Weekly Report Number 1

1) … Stocks Fall Lower As The Spain CDS Continues On Track For Record Close

Tyler Durden writes “Spanish CDS, at 493bps, have just pushed above their previous record wide closing levels (though remain a few bps below their record intraday wides at 499bps from 11/17/11). The Spanish bond market, which we have numerous times indicated does not reflect the economic realities since it is so dominated by LTRO-buying and government reach-arounds, remain 45bps off their record wide spreads to Bunds. BBVA (430bps) and Santander, STD,  (415bps) are also close to their record wides back in late November as their stock prices plummet.”

Mike Mish Shedlock relates Massive Jump in Bank of Spain Borrowing from ECB: Bank of Spain Balance Sheet Shows Spain Deep in Trouble, LTRO is Essentially Useless … I comment that given the rate that Spain now pays in the sovereign debt marketplace, makes Spain an insolvent sovereign; and given the level at which its banks hold Spanish sovereign debt, and the level to which its banks have fallen, make Spain’s banks insolvent banks.

Tyler Durden also reports that “The ECB shows Spanish bank’s net borrowing from the ECB hit a new record high at EUR 227.6bln in March against EUR 152.4bln in February. Further pressure on the equity markets was observed following the overnight release of a below-expected Chinese GDP reading, coming in at 8.1% against a consensus estimate of 8.4%. As such, markets have witnessed a flight to safety, with Bund futures up over 40 ticks on the day. In the energy complex, WTI and Brent futures are also trading lower, as the disappointing Chinese GDP data dampens future oil demand.”

And Tyler Durden further goes on relating that the peripheral nations are now fully dependent on the ECB for the viability of their banks, and that European bond holdings of all types are now subordinate to the holdings of the ECB and are effectively worthless given the degree of haircut imposed on Greek Bondholders.  He relates that “As Spanish CDS surge and bonds shrug off the very recent gloss of a ‘successful’ Italian debt auction, the sad reality we pointed out this morning is the increasing dependence between Spanish banks, the sovereign’s ability to borrow, and the ECB. As ING rates strategist Padhraic Garvey notes this morning, the bulk of the LTRO2 proceeds were taken down by Italian (26%) and Spanish (36% of the total) and the latter is even more dramatic given the considerably smaller size of Spanish banking assets relative to Italy. The hollowing out of the Spanish banking system, via encumbrance (ECB liquidity now accounts for 8.6% of all Spanish banking assets), is a very high number – on par with Greek, Irish, and Portuguese levels around 10% where their systems are now fully dependent on the ECB for the viability of their banks. His bottom line, Spain is not looking good here and while plenty of chatter focuses on the ECB’s ability to use its SMP (whose longer-term effectiveness is reduced due to scale at EUR214bn representing just 3% of Eurozone GDP), consider what happened in Greece! The ECB did not take a Greek haircut and so the greater the amount of Greek debt the ECB bought, the greater the eventual haircut the private sector was forced to take. By definition, every Spanish bond that the ECB buys in its SMP program increases the default risk that private sector holders are left with.”

The degree to which Europe shares have now fallen suggests that Europe is characterized by sovereign insolvency and banking insolvency. The peripheral nations are insolvent sovereigns and have insolvent banks are entirely dependent upon the ECB. The ECB, through its LTRO and debt purchases has become both the monetary and fiscal backbone of a Federal Europe. Furthermore, the ECB’s policies have effectively chartered it as the Euro zones bank.

Insolvent sovereigns and their insolvent banks, cannot govern; the EU has new government, that being regional global governance. And it will increase in greater authority as leaders meet in future summits and waive national sovereignty to pool sovereignty and announce regional framework agreements providing for new monetary authority consisting of monetary cardinals, under a monetary pope, overseeing public private partnerships for management of regional resources, production and labor; and also providing a fiscal commissioner, overseeing austerity measures and structural reforms, such as abolishment of national wage contracts and constitutional right to work in state employment.

The global investment tectonic plates have shifted, and an authoritarian tsunami is on the way. Investment capital that has governed capitalism is failing as the dynamos of growth and profit are winding down on the exhaustion of the world central banks’ monetary authority. Political capital is rising to govern regional global governance as the dynamos of regional security, stability and security are winding up, as investors derisk out of stocks and delever out of commodities.

Fiat wealth, such as stocks, VT, and commodities, DBC, as well as major world currencies, DBV, and emerging world currencies, CEW, is literally evaporating, or perhaps better said falling into the pit of financial abandon. In the age of devolution, strife, chaos, violence and discord will be the norm; the Lord said that in the end times, because of wickedness, love will grow cold, Mt 24:12.
In the fiat realm, fiat rule is appearing and solidifying, calling one to have fiat identity and a life there from.

Please consider the liberal religious concept of practicing virtue in the divine moments of life, where one has an ongoing exercise of virtue in interpersonal relationships. Liberty is found in reformed theology and the practice of partaking of the divine nature, as one lives a virtuous life. There be those who are chaste (pure from sin, that is doubt), and holy (set aside for God’s purposes) who live apart from the fiat realm, and live in the divine realm experiencing a moral life. These self transcendent individuals are those mentioned by the libertarian and Apostle Peter in 2 Peter 2:1-10. These are those of like precious faith, and being the elect, that is chosen of God, add to the faith, virtue, that is moral excellencies, and love, so as to partake of the divine nature, and experience the exceedingly great promises of God, and so as to not be spiritually barren, but rather to be fruitful in God’s Spirit. These pray for a good conscience, one not seared by a poneros carnal nature, nor one seared by sinful living, so as to objectively know right from wrong, and escape corruption, that has come into the world through lust, by persevering in faith daily, making their calling and election sure. Such keep God’s Word, that is they maintain and appropriate it as a resource, so as to not let it go sour or spoil, and live under the Name of the Lord, that is they live in His presence, and have experience out of His authority.

Experience in the Sovereign’s will produces both the moral person and a moral life.

The age of devolution is producing an unfree, that is not free society, where liberty comes from being God’s son, by calling upon His Name for life and salvation; and then living out the exchanged life.  Liberalism is the experience of liberty, and comes from the only right there is. The aim of liberalism is to be free to partake of the divine nature, that is to have organic union there with.

In Four Sources To Determine One’s Rights, I wrote God’s sovereign will is the forge and furnace, hammer and anvil where one’s right, the right to become the son of God, is learned, developed and exercised. John revealed the only right there is in 1 John 1:12. “But as many as received Him, to them He gave the right to become children of God, to those who believe in His name.”

There has been no genuine independent buying of peripheral nation treasury debt for a long time. There is no real market place for sovereign debt of the PIGS. The sole buyer of the peripheral nation Treasury debt has been the ECB. This makes the ECB both the Sovereign, the ruler, of the PIGS, and their Seignior, the top dog banker who takes a cut for the issuance of money. The ECB, not the independent world government bond market place, is underwriting the continued operation of the peripheral nations and providing for their fiscal spending.

The PIGS have lost their debt sovereignty, and as such they are now longer sovereign nation states. The PIGS exist as client states of a Federal Union, and in as much as they affirm the debt brakes of the recent Leaders fiscal compact, they are part of a defacto Fiscal Union. The EU ECB and IMF Troika are now the sovereign authority in Europe replacing sovereign nation states.

Creative destruction coming from the first and second Greek bailouts has established a region of global governance as called for by the 300 elite of the Club of Rome, who envisioned a ten toed kingdom of regional government, as they met and wrote in various papers during 1972 to 1974.  Those living in the peripheral nations are no longer residents of sovereign nation states, but rather residents living in a region of  global governance.

The age of speculative investing is over and the age of diktat is commencing. The fiat money system is crumbling and the diktat money system is coalescing. Fiat money is being replace by diktat which will soon serve as both credit and money. Monetary cardinals will provide directives as credit; and budget commissioners will provide austerity measures as money.

The PIGS are not fiscally viable countries. Their fiscal viability rests solely with the ECB and upon the Leaders mandate of austerity measures imposed via the Leaders fiscal compact with its balanced budget agreements to be enacted in each state. Fiscal capability, fiscal resource, and fiscal spending comes from the authority of EU ECB and IMF Troika, as well as the Leaders’ Fiscal Compact.

New sovereigns are coming to rule the new age. Fate, not any human action, Revelation 6:1-2, and Revelation 2:26-27,  is passing the baton of sovereignty from formerly sovereign nation states to these two new sovereign authorities. The EU ECB IMF Troika and the Leader’s Fiscal Compact now govern Euroland. The Milton Friedman script of choice for the age of Neoliberalism is history; and the Herman van Rompuy and Angela Merkel script of diktat for the age of Neoauthoritarianism is coming. Europe will be characterized as a gulag of debt servitude, statism, and totalitarian collectivism.

Out of soon coming Financial Armageddon, that is a credit bust and a global financial breakdown, Germany will arise to be preeminent in the EU, and will rule as a type of revived Roman empire.  David C Park Publisher of The Real Truth asks, Will Europe’s Economy Collapse? And provides biblical answers which relate that by God’s authority, from the ashes of Europe’s financial collapse, a Beast power as foretold in Revelation 13, will with seven heads and ten horns to rule Europe and eventually mankind.

Such change in governance is significant as it is part of a larger picture prophesied long ago in Daniel 2:31-33, where it was foretold that the UK and US hegemony, that has ruled the world as two iron legs would give way, and fall into ten toes of iron and clay, where iron is symbolic of diktat and clay of democracy. This unstable mixture will also one day give way, and a terrible one world government, Daniel 7:7, with global seigniorage, that is global credit and money, Revelation 13:17-18, will come forth to govern the entire world for mankind’s last three and one half years. At this time a select group of saints will find refuge in a wilderness area, and be protected, while the beast government goes forth to destroy the rest of God’s people.

World stocks, VT, traded lower, as India, INDY, Sweden, EWD, Austria, EWO, Poland, EPOL,  European, VGK, and the BRICS, EEB, fell lower today; being led so by European Financials, EUFN, India Banks, EPI, Argentina Banks, GGAL, BBVA, Regional Banks, KRE, Biotechnology, XBI, Copper Miners, COPX, Semiconductors, XSD, Coal, KOL, and Energy Shares such as PSCE,  IEZ, OIH and XES. This downward action in stocks suggests that the monetary policies of the world central banks is no longer able to stimulate growth and profit. Confirmation comes from the trade lower in retail, XRT, consumer discretionary, IYC, and Real Estate REITS, such as SPG, as well as the large cap growth stocks, JKE, such as CAT, SAP, BA, IP, DOW, and those seen in this Finviz Screener.  The Google Finance chart of RZV, JKE, COPX, KOL, IX, XBI, XSD, suggests that the Small Cap Pure Value Shares, RZV, having lost 6% over the last month, are the canary in the coal mine, warning the investor to get out.

This month, Total Bonds, BND, traded higher, on higher Mortgage Backed Bonds, MBB, and a higher US Dollar, $USD, UUP, as Emerging Market Bonds, EMB, traded lower on lower Emerging Market Currencies, CEW, and as World Government Bonds, BWX, and International Treasuries, PICB, traded lower, on lower World Currencies, DBV. The trade lower in world government bonds suggests that debt deflation has come to bonds and the monetization of debt will soon turn bonds, as a whole, toxic. The US 10 Year Interest Rate, $TNX, closed at 2.0% as the Flattner ETF, FLAT, rose to an all time weekly high, and the Steep ETF, STPP, closed at an all time weekly low.

The strong fall in the Junior Gold Mining Shares, GDXJ, Silver Mining Shares, SIL, and Value Stocks such as BID, STB, SNX, NICK, COH, ZUMZ, and WTW, contributed to the continuing strong fall in Small Cap Pure Value. RZV. Its fall together with the trade lower in World Government Bond, BWX, and Junk Bonds, JNK, together with falling commodity prices, DBC, communicates the failure of neo liberal finance.

Charts show that accessory retailer Coach, COH, and restaurant Chipolte Mexican Grill, CMG, have been among the stocks favored by the leveraged speculative community during the years of the global government debt trade which featured quantitative easing and LTRO financing.  In as much as European banking debt and European sovereign debt cannot be repaid, it is reasonable that the coming Beast regime that is replacing the Banker regime will integrate banking and government into a single entity, to be known as the Government Bank,  and apply all the debt, to all the people.  Under Neoauthoritarianism, the debts of Neoliberalism that cannot be repaid, will be applied to every man, woman and child on planet earth.

The 3.2% fall in World Stocks, ACWI, communicates that the Second Great Depression has commenced with an entrance into an Elliott Wave 3 Down in stock wealth. Money and credit are dying; these will be replacedby diktat enforcing austerity and debt servitude.

Country stocks trading lower so far this month include EWZ, 3%, INDY, 4%, EPOL, 4%, ARGT, 6.5, EWD, 6.5%, EWI, 11%, EWP, 11%.

Categories trading lower so far this month include, MXI, 4%, KRE, 5%, IXG, 5%, RZV, 6%, XSD 6%, XOP 7%

Energy shares trading lower so far this month include IEZ. 3.5%, OIH, 3.5%, XLE, 4%, XOP, 6%.

The Bear Market ETFs seen  EEV, TWM, DUG, SMN, BZQ, SSG, BIS this Finviz Screener, show they have been performing well; the chart of BZQ shows a 16% gain this month.

Jack Chan of JC’s Buy and Sell Signals gave his buy signal to the gold ETF, GLD, on April 12, 2012; I recommend that one dollar cost buy gold at this time.

2) … Quotes reflect new governance for a new age
The pursuit of speculative profit and growth in global trade is history. Doug Noland writes in All Eyes On Spain, “Spain is in dire straits. Its debts are spiraling out of control and its badly maladjusted economic structure is today incapable of producing sufficient real wealth to support itself, let alone to service its obligations.”

The Club of Rome’s report Mankind At The Turning Point is so timely. Soon out of Financial Armageddon, regional global governance will rise out of the death of fiat money, to provide the diktat money system as a replacement the fiat money system. In the wings of Europe’s stage, is one of seemingly little authority. Yet soon fate will open the curtains, and this Little Horn will step on to Europe’s stage, and work through regional frameworks, to rise to be Europe’s Sovereign, as foretold by bible prophecy of Revelation 13:5-10.  He will be accompanied by Europe”s Seignior, that is top dog investment banker who takes a cut, Revelation 13:11-18.  And together, their word, will and way will serve as both money and credit. And the people will be amazed, and place their trust in these two, giving them their allegiance, Revelation 13:3-4.

Stevo provides insightful quotes on Bishop Hills Blog from The Green Agenda from global leaders about soon coming regional global governance.

“In Nature organic growth proceeds according to a Master Plan, a Blueprint. Such a ‘master plan’ is missing from the process of growth and development of the world system. Now is the time to draw up a master plan for sustainable growth and world development based on global allocation of all resources and a new global economic system. Ten or twenty years form today it will probably be too late.”  Club of Rome, Mankind at the Turning Point.

“The concept of national sovereignty has been immutable, indeed a sacred principle of  international relations. It is a principle which will yield only slowly and reluctantly to the new imperatives of global environmental cooperation.”  UN Commission on Global Governance report.

“Democracy is not a panacea. It cannot organize everything and it is unaware of its own limits. These facts must be faced squarely. Sacrilegious though this may sound, democracy is no longer well suited for the tasks ahead. The complexity and the technical nature of many of today’s problems do not always allow elected representatives to make competent decisions at the right time.”  Club of Rome, The First Global Revolution.

“The emerging ‘environmentalization’ of our civilization and the need for vigorous action in the interest of the entire global community will inevitably have multiple political consequences. Perhaps the most important of them will be a gradual change in the status of the United Nations. Inevitably, it must assume some aspects of a world government.” Mikhail Gorbachev, State of the World Forum.

“In my view, after fifty years of service in the United Nations system, I perceive the utmost urgency and absolute necessity for proper Earth government. There is no shadow of a doubt that the present political and economic systems are no longer appropriate and will lead to the end of life evolution on this planet. We must therefore absolutely and urgently look for new ways.”  Dr Robert Muller,  UN Assistant Secretary General.

“Nations are in effect ceding portions of their sovereignty to the international community and beginning to create a  new system of international environmental governance  as a means of solving otherwise unmanageable crises.”  Lester Brown, WorldWatch Institute

“The goal now is a socialist, redistributionist society, which is nature’s proper steward and society’s only hope.”  David Brower, founder of Friends of the Earth.

“Isn’t the only hope for the planet that the industrialized civilizations collapse? Isn’t it our responsibility to bring that about?” Maurice Strong, founder of the UN Environment Programme “Giving society cheap, abundant energy would be the equivalent of giving an idiot child a machine gun.”  Prof Paul Ehrlich, Stanford University

3) … In This Week’s News
Ambrose Evans Pritchard writes Argentina Poised To Seize Repsol Assets, endangering shale dream Argentina was poised on Thursday night to launch the forced takeover of assets from the Spanish energy group Repsol, risking a diplomatic showdown with Spain and scaring investors needed to unlock the country’s vast shale gas reserves.

Stefan Steinberg suggests in WSWS article that the rise of the Independent Party in Greece will lead to a fascist coalition which will result in imposing more austerity measures in Greece. Independent Greeks has been able to draw support from both the ND and Laos camps and is currently polling at 11 percent. One other neo fascist organization, Golden Dawn, is polling at 5 percent. The fascist parties have been able to gain support from the racist campaign conducted by the government of Lucas Papademos, which has sent out special police units in the past few weeks to round up immigrant workers and their families. The current political situation is fraught with danger for the Greek working class. The key role is being played by the Greek pseudo-left organizations that are striving to bind the working class to the European Union, and the established trade union and social democratic bureaucracies. To the extent that they are able to paralyze the working class and suppress a genuine socialist alternative, it is these parties which permit the traditional right and ultra-right to reorganize and establish a new regime with the type of dictatorial power required to enforce the austerity policies demanded by the international banks …  I comment that I believe a fascist regime will rise to power and institute structural reforms that will abolish the Greek national wage law and revoke the life time right to state employment guaranteed by the Greek constitution.

Open Europe reports that Spain passed a law to tackle excessive spending in regions and that the ECB warns of high levels of ‘shadow government debt’ in the Eurozone. The Spanish parliament yesterday approved a ‘budgetary stability’ law which obliges all levels of Spanish government to cut their annual budget deficits to zero by 2020 and to limit total public debt to 60% of GDP. The law also allows the central government to intervene in regions which continue to miss budget targets. Antonio Beteta, Secretary of State for Public Administrations, criticised the “excesses” of the regional governments after they played a significant role in Spain missing its deficit target last year.  Meanwhile, speaking yesterday Spanish Prime Minister Mariano Rajoy again dismissed the prospect of a Spanish bailout, adding “it’s not possible to rescue Spain”. According to El Pais, Spain may be fined for not meeting the macroeconomic requirements under the new EU six-pack regulations aimed at tackling large imbalances in the eurozone. Spanish bank Banesto yesterday announced significantly lower profits after having to increase its provisions against souring loans by €475m.  FAZ reports that the ECB has warned that eurozone countries may face high levels of ‘shadow government debt’ in the form of banking guarantees and commitments to the eurozone bailout funds. In the case of Germany, this burden is equal to 11% of total public debt, in Ireland it is as high as 43%, while in Greece and Cyprus it totals 26% and 16% respectively.

In spite of the Dow Jones Newswires report that Japan’s PM Noda Vows to Use All Possible Policies To Defeat Deflation, it is inevitable.

Special thanks to the Study Light New Testament Greek Lexicon for the definition of poneros.


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