Financial Market Report for May 31, 2012
Reuters reports Money flies out of Spain.
Marketwatch reports Bankia shares sink 28% after bailout plan, and Marketwatch reports Nomura cuts Bankia target, cites Spain bank needs, and Marketwatch reports Spain up against a wall as borrowing costs soar.
The New York Times reports Central Banker Sees Structure of Euro Zone as Unsustainable.
Bloomberg reports Spain credit default swaps surge to record,
Andre Damon of WSWS writes Spanish banking crisis roils global financial markets. Fears that the euro zone is nearing breakup sent panicked investors to safe haven assets, driving the yields on US government debt to their lowest levels since 1946.
An inquiring mind asks, is an Eurozone Banking Union coming soon?
Open Europe reports Commission calls for eurozone banking union. The Commission yesterday called on the eurozone to set up a ‘banking union’ to allow the burden of bank failures and deposit guarantees to be shared at the eurozone level, although it admitted moves towards this would take time. It also called for the ESM, the permanent eurozone bailout fund, to be allowed to lend directly to banks. Many of these proposals have been previously rejected by countries such as Germany, Finland and the Netherlands. WSJ BBC Telegraph Irish Times Irish Times 2 Welt
Euro Intelligence provides the best of news and analysis in its for fee daily news letter; it relates Jean Marc Vittori, a French economic journalist, applauds the proposals as a step towards a more federal Europe. Commenting in Les Echos Jean-Marc Vittori lauds the Commission’s country specific reports and recommendations as a step towards federalism. “This is a step towards a more federal Europe”, Vittori writes. “A small one the advocates of federalism will regret. An inacceptable intrusion into the country’s sovereignty, the partisans of sovereignty on the right and on the left will say. But this is a foretaste of a more integrated union. One cannot have more solidarity in Europe without rules that are better respected because the rich countries will not eternally accept to pay for the poorer ones. It will be interesting to see if the people of Europe are ready to accept this.
Market News International reports Europe’s bailout funds lack the mandate to directly aid troubled banks, but that possibility could be revisited as Europe moves to fully integrate its banking sector, EU Economic and Monetary Affairs Commissioner Olli Rehn suggested on Wednesday.
In a comprehensive analysis of EU government economic policies totaling a staggering 100,500 pages, the European Commission said that “to sever the link between banks and the sovereigns, direct recapitalisation by the ESM might be envisaged.”
In a follow-up press conference, however, Rehn made clear that neither the temporary European Financial Stability Facility (EFSF) or its designated successor, the European Stability Mechanism (ESM), had been designed with such a mandate in mind.
The Commission’s suggestion should be looked at in the context of plans to move towards a full “banking union,” Rehn said. The Commission has “always pushed for the EU’s firewalls to have maximum flexibility,” he said.
European governments should quickly ratify the ESM treaty so that it can be up and running as planned by July, Rehn said. In hopes of deepening Eurozone integration, a subject to be discussed by EU leaders in June, the Commission, along with EU Council President Herman Van Rompuy and European Central Bank President Mario Draghi, plan to suggest a “banking union” with a common-EU wide deposit guarantee scheme to complement the currency bloc’s monetary union and emerging fiscal union, EU officials said.
“The ESM would of course be part of such a union,” an EU official explained. Earlier today, European Commission President Jose Manuel Barroso noted that EU leaders had unanimously rejected the Commission’s proposal for an EU-wide deposit guarantee scheme last year, but that the idea had found support at an informal summit in Brussels last Wednesday.
Open Europe reports
Open Europe further reports Tsipras renews pledge to scrap bailout agreement as new poll gives SYRIZA the lead. A new VPRC poll published by Greek magazine Epikaira gives left-wing SYRIZA the lead with 30% of vote intentions, followed by centre-right New Democracy on 26.5% and the Socialist PASOK party on 12.5%. A separate Pulse poll for Greek weekly To Pontiki credits both SYRIZA and New Democracy with 24.5% of vote intentions. During a campaign speech in Athens yesterday, SYRIZA leader Alexis Tsipras said, “We insist that you can either implement the bailout deal or overturn it. We will overturn it as soon as parliament opens.” Kathimerini notes that SYRIZA is expected to unveil its economic programme shortly. Yesterday’s Open Europe event looking at the forthcoming Greek elections featuring Nobel economics laureate Christopher Pissarides was covered by Bloomberg and Greek TV station ANT1TV. CityAM Kathimerini Epikaira Independent: Krugman Corriere della Sera: Schröder Bloomberg
Paul Goodman: Osborne set to gamble on “EU renegotiation referendum”. In the FT, Paul Goodman of Conservative Home argues that UK Chancellor George Osborne is set to “gamble” on committing “the Tories at the next election to an EU renegotiation referendum. Such a gambit would disrupt the UK Independence party, which is committed to an in-out poll; out manuever Ed Miliband, who is mulling the same option; and spike the guns of the London Mayor, who is flaunting his eurosceptic views”. And in the Spectator, Political Editor James Forsyth argues that “There are signs from No 10 that Cameron might be amenable to the idea” of using EU Treaty changes that may arise from the Eurozone crisis to seek concessions for the UK. In a podcast accompanying the publication of this week’s Spectator, Open Europe’s Mats Persson discusses the prospects of the euro and Britain’s place in Europe. FT: Goodman Spectator Podcast Conservative Home: Howarth
Ireland set for ‘Yes’ vote on fiscal treaty today. Ireland votes today on the ratification of the European fiscal treaty. Polls predict a low turnout and a victory for the ‘Yes’ vote. However, up to one fifth of voters remain undecided, and anti-austerity sentiment remains a driving force of the ‘No’ campaign. Ahead of the referendum, the Irish government released data indicating that unemployment levels remained high on 14.3%. Sinn Fein, which has campaigned against the treaty on the grounds of economic hardship, currently leads opinion polls on 24%. FT BBC EurActiv Irish Independent Irish Times Le Monde Les Echos Nouvel Observateur Liberation FAZ Times WSJ WSJ: Ganley
In its latest convergence report, the ECB has found that all eight non-euro EU member states legally obliged to join the single currency in the future have failed to meet the entry criteria, in particular keeping their debt below 60% of GDP and deficit below the 3% of GDP. BBC Les Echos Reuters ECB: Convergence Report
European Voice reports that at a meeting of EU ministers to discuss the next EU multi-year budget, seven member states including Finland, Germany, the Netherlands, Sweden and the UK, criticised the European Commission’s budget proposals arguing for cuts of at least €100bn to the €1,025bn proposed budget. Another group of 14 member states defended cohesion spending. European Voice
European Voice reports that the European Commission is expected to propose new rules on the recognition of electronic ‘signatures’ to enable ‘e-IDs’ to be mutually recognisable across borders. The proposal is the last of twelve Commission projects aimed at boosting the single market. European Voice
Moody’s Downgrades Danske Bank, Eight Other Danish Lenders. Moody’s Investors Service downgraded the ratings of nine Danish financial institutions, including the country’s biggest bank, Danske Bank A/S, saying loan books have deteriorated and debt refinancing has become harder. Danish banks suffer from “a weak operating environment, pressurized asset quality and poor profitability,” the rating company said late yesterday in a statement published out of London. Danske Bank’s deposit rating was cut two steps to Baa1 from A2, after Standard & Poor’s earlier yesterday cut the Copenhagen-based bank’s long-term rating to A- from A. The bank said in a separate statement that it “does not understand Moody’s very negative view” of the Danish banking industry. It had also questioned the reasoning for S&P’s downgrade. “We have had a close dialog with Moody’s in recent months,” Henrik Ramlau-Hansen, Danske’s chief financial officer, said. “We are certain that Moody’s has heard our arguments, but we do not think they are reflected in the rating the bank has received.”
India Policy Freeze Saps Funds as Greek Fallout Threatens Growth. Posco, the world’s third-largest steelmaker, took seven years to gain permission to build a mill in India, only to have the environmental approval suspended by a tribunal in March. Bahrain Telecommunications Co. (BATELCO) may sympathize after selling its share of mobile-phone operator STel Pvt. following the Indian Supreme Court’s revocation of 122 licenses in a corruption probe. Star India Pvt. Ltd., a unit of New York-based News Corp., waited even longer than Posco, finally exiting an eight-year television channel venture after the government failed to relax rules on news media ownership. The reversals reflect policy paralysis in Prime Minister Manmohan Singh’s administration that leaves India risking deeper damage from any global crisis now than it experienced during the 2008-09 turmoil.
A bonfire in the world’s banks, IXG, has stimulated a global sell off in stocks, ACWI, in May 2012, and caused a stong contraction of credit available to small cap country shares, VSS, EWX, with stocks falling in value this month as follows
EUFN, -16%, BRAF, -18%, EPI, -14%, EMFN, -10%,
GREK -38%, EWP, -18%, EWI, -16%,
EEB, -14% INXX, -15%, the last thing investors want to invest in is Infrastructure in India; as local participating utilities, could easily slam the door on their participation in these projects, and being debt laden, could collapse literally overnight. It was hot money flows, particularly, currency carry trade investing, that caused strong growth in the BRICS, This speculation in Brazil, Russi, India, and China, as well as Austria, Poland, and Argentina, has come to a terrible end over the last year, as the twin spigots of the debt trade and carry trade investing have been turned off.
SKOR, -8%, LATM,-13%,BRF, -13%, ERUS, -19%,KROO, -17%,CNDA, -16%, HAO, -10%, SCIF, -18%,
PSCE, -12%, XLE, -12, IEZ- 14%, OIH, -15%,
XME -20%, SLX, -20%,
The international high dividend providers SEA, -11%, PSP, -11%, IPU, -9%,
COPX, -11%, URA, -11%, KOL, -22%, SIL,-17%, REMX, -17%, ALUM, -17%,
XSD, -10%, IGN, -18%, FONE, -11%, SKYY, -11%,
Volatility, TVIX, rose 36% this month, it has increased for nine weeks now.
The monthly loss in currencies is as follows; and the loss over the last year shows the death of money on competitive currency devaluation, that has come with the rise in the US Dollar, $USD.
SZR, -10%, -16%,
FXS, -7%, -13%,
FXE, -6%, -13%,
FXF, -6%, -13%,
ICN, -6%, 15%, this has resulted in INP -36% for the last year.
FXB, -5%, -6%,
BZF, -5%, -15%, this has resulted in EWZ -22% for the last year.
CWW, -6%, -11%,
Oil, USO, -18%, led Commodities, DBC -11%, Silver, -10%, and Gold, GLD-6%. Bloomberg reports Copper Bears Rise to Eight-Month High as Hedge Funds Bet on Drop. Copper traders are the most bearish since September and hedge funds are betting on price declines as concern that Europe’s debt crisis is deepening drove the metal to the lowest this year. Eighteen of 33 analysts surveyed by Bloomberg expect the metal to drop next week and six were neutral, the highest proportion since Sept. 23. Fund managers and other speculators held a net short position of 2,808 U.S. futures and options.
The ratio of US Stocks, VTI to World Stocks, ACWX, VTI:ACWX, and US Stocks, VTI, to US Commodities, USCI, VTI:USCI, reflects how much the US stocks are overvalued; these are being sustained by a strong US Dollar, $USD, UUP, as well as a flight to supposed safe haven in Treasury, TLT, Municipal, MUB, Housing, MBB, and Long Duration Corporate BLV, debt.
The US stocks, VTI, are being given artificial seigniorage, that is moneyness, on the rise of the US Dollar and US Debt, that came with the collapse of money in April 2011, when the currencies started to fall strongly in value; and that came with the collapse in credit in April 2012, when the world banks, IXG, started to fall strongly in value … It is fears of Eurozone sovereign insolvency and banking insolvency, together with fears of the failure of global growth, and global trade, that have given seigniorage to US Stocks. Prime examples of US stocks given moneyness include the Retail REIT, SPG, Residential REITS, REZ, Homebuilders, ITB, Retailers, XRT, and Utilities, XLU, Over the last year a number of Utilities, being debt laden, have risen strongly on the fall in the 10 Year US Note Interest Rate, ^TNX; these include WEC 26%, XEL, 19%, CMS, 23%, DUK, 24%, ED, 19%, SCG, 22%, DTE, 17%, SO, 21%, CNL, 21%, PGN, 22%, PNW, 16%, NEE, 13%.
Financial Armageddon, that is a global credit bust and stock market collapse, is coming shortly before, or at the time Greece defaults. Greece will default within the EU, and will not be reverting to the Drachma. Losses on Greek sovereign debt will be born by bond holders, which are for the most part insurance companies, and European Financial Institutions, EUFN, and the losses will be carried over to taxpayers in countries using the Euro Currency. Financial Armageddon, and the default of Greece will be the genesis event for regionalization of banking, lending, economic, monetary and fiscal policy.
Henry Lamb, writes in AFCGR article, What’s wrong with regional governance? Nothing, unless you value the republican form of government and individual freedom, and detest autocracy in all its forms. Regional governance evolved as a way to get around the obstacles presented by multiple local governments, all of which may have a stake in the region, but often disagree on what the region needs.
Regional governments, and their initiatives, are driven by government, not by the people. Government, by its very nature, seeks to increase its power and overcome any obstacle in its path. Local governments, like individual neighbors, often disagree on how best to resolve a common problem. Consequently, governments, especially the executive branch, tend to look for ways to get around the obstacle of disagreement.
One successful method is regional governance, which diminishes the power of local governments by conferring increasing levels of authority on the executive branch, which implements its authority through appointed bureaucrats. In very short order, it is the unelected bureaucrats who wield the power; elected officials become little more than a rubber stamp whose approval provides “official” respectability to the bureaucracy. And now… the rest of the story in PDF format.
I relate authoritarian leaders such as Angela Merkel, but not socialist leaders such as Mr Hollande, have heard and heeded the Call, that is the 1974 Clarion Call of the 300 elite of the Club of Rome for regional governance, and will meet in summits, to renounce national sovereignty, and pool sovereignty regionally. Open Europe reports German Chancellor Angela Merkel said yesterday, “There are integration steps which will require treaty changes. We are not at that stage today but nevertheless there are no taboos.” Soon, Eurozone dignitaries will announce regional framework agreements that provide for regional security, stability and sustainability, replacing corporate profit and global growth as the drivers for economic activity. New sovereign bodies such as a EU Bank, most likely the Bundesbank or th ECB, the Troika, and public private partnerships, will be the basis regional banking, political, economic, monetary, credit, and fiscal authority replacing the failed sovereign authority of nation states. Germans cannot be Greeks, but through regionalization, they all will be one, living in a One Euro Government, in totalitarian collectivism, austerity and debt servitude. Regional governance is God’s ordained plan for mankind as foretold in bible prophecy found in Daniel 2:30-33 and Revelation 13:1-4; it is his means of introducing the Kindgom of his Son, Jesus The Christ, Revelation 2:26-28.
In conclusion, I relate that I am not an Austrian Economist, an American Patriot, a Southron, a Libertarian, or a Republican, as I have been set free by God from such fiat identities. I am a son of God, as I got Sonized, having been made accepted in the Beloved, Ephesians 1:6, Yes, I am the Elect of God, 1 Peter 1:2, the very Israel of God, Galatians 6;16, where the word Israel means Prince. I am seated in heavenly places, and rule and reign with Jesus Christ, and participate in the Economy of God. My experience is in the like precious faith of Jesus Christ, whereby I partake of the divine nature, by adding to faith, virtue, self-moderation, knowledge, perseverance, godliness, brotherly kindness, and love, so as to experience the exceedingly great promises of God, and bear spiritual fruit pleasing to God, 2 Peter 1:1-10. I labor in good works, and am diligent to show myself approved unto God, a worker who needs not be ashamed. I keep God’s word, that is I maintain in good doctrine, keeping His revelation fresh and in good use, and abide in His Name, that is in his presence and authority, as I participate in the Lord’s Recovery