Stocks Slide But Then Jump Higher As Merkel’s Coalition Members Signal Acceptance Of ECB Bond Buying … ..The US Dollar, Bonds, And US Treasuries Trade Lower …. The Great Sea Saw Destruction Of Fiat Wealth Has Commenced.

Financial market report for the week ending Friday August 3, 2012; this is eighteenth week of entry into the Second Great Depression.

1) … On Thursday August 2, World Stocks, VT, traded lower after the European Leaders and the ECB failed to take any decisive action for solving the region’s debt crisis and as markets were unimpressed by Draghi’s promises.  

The Risk On ETN, ONN, traded lower, indicating that risk on investing has turned to risk off investing. High Paying Dividend ETFs, such as S&P Dividend Payers, DWX, Australia Dividends, AUSE, S&P Telecom, IST, Global Real Estate, DRW, Shipping, SEA, High Yield REITS, KBWY, Alerian MLP, AMLP, US Preferred Stocks, PFF, Junk Bonds, JNK, as well as Dividend Payers, DVY, such as Exxon Mobil, XOM, and Cigarette Manufacturer, RAI, and MO, turned lower.

Last week BBC reported Mario Draghi, said ”he would do whatever it takes to preserve the euro”.

Eva Kuehnen of Reuters reported Mario Draghi and the ECB Governing Council to draw up plans for further bond purchases to support price stability and will consider further non-standard monetary policy measures according to what is required to repair monetary policy transmission.  The European Central Bank will draw up a mechanism in the coming weeks to make outright purchases to stabilise stressed euro zone borrowing costs, ECB President Mario Draghi said on Thursday. “The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.” Draghi said after the bank kept euro zone interest rates at 0.75 percent. “The Governing Council will consider further non-standard monetary policy measures according to what is required to repair monetary policy transmission. In the coming weeks we will design the appropriate modalities for such policy measures.”

US Government Debt rose, as seen in the combined Yahoo Finance chart of ZROZ, EDV, TLT, but are trading below their recent highs. The highly margined bond ETF, BOND, is trading below its recent high of 107.39, and Total Bonds, BND, is trading below its recent high of 85.17, suggesting a the exhaustion of the world central banks’ monetary authority, even though Short to Medium Term Corporate Bonds, LQD, and Emerging Market Bonds, EMB, traded to a highs as a safe haven investment.  Junk Bonds, JNK, traded lower with stocks. The Flattner ETF, FLAT, has now turned lower in value. A steepening 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, is reflected in the Steepner ETF, STPP, rising in value. Freddie Mac 30-year fixed mortgage rates rose 6 bps to 3.55%.

The trade lower in World Government Bonds, BWX, indicates that bond vigilantes are beginning to seize control of interest rates from the world central bankers; the global government bond bubble has finally burst; the world central banks have lost control over money and credit as sovereign nations states, Greece, GREK, Spain, EWP, and Italy, EWI, have lost their debt sovereignty and national sovereignty as well.

World Stocks, were led lower by US Stock Brokers, IAI, Emerging Market Financial Institutions, EMFN, European Financials, EUFN, World Banks, IXG, and Nasdaq Community Banks, QABA, and the Too Big To Fail Banks, RWW. Banco Santander, STD, fell 6%. Argentina’s BBVA, fell 8%.

Utility Stocks, XLU, being heavily debt laden, and thus interest rate sensitive, dropped like a rock at he  Interest Rate on the US Ten Year Note, ^TNX, has been rising from its recent low of 1.40.

Pharmaceuticals, IHE, Biotechnology, XBI, Small Cap Energy, PSCE, Energy XOP, IEO, Energy Service, OIH, IEZ, Steel, SLX, Coal, KOL, traded lower.

China Infrastructure, CHXX, India Infrastructure, INXX, and US Infrastructure, PKB, led Infrastructure Stocks, PXR, lower. Ecolab, ECL, fell 3%.

Spain, EWP, Italy, EWI, and Germany, EWG, led Europe, VGK, lower. South Korea Small Caps, SKOR, South Korea, EWY, and Indonesia, IDX, led Asia, EPP, lower. Spain’s phone company, TEF, Distrito Telef, Ronda de la Comunicación, fell 5%.

Commodities, DBC, traded lower.

2) … On Friday August 3, 2012, World Stocks, VT, reversed course and jumped nearly 3% higher, as Merkel’s coalition members signaled acceptance of ECB bond-buying and as investors sell US Treasuries. The Great Sea Saw Destruction Of Fiat Wealth Wealth has commenced.

Today, as investors sold Bonds, BND, World Stocks, VT, World Currencies, DBV, and Emerging Market Currencies, CEW, and World Treasuries, BWX, rose strongly. Robert Wenzel of Economic Policy Journal relates Merkel’s coalition members signal acceptance of ECB bond-buying.  Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds, Bloomberg reports The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee member of Merkel’s Christian Democratic Union party, told Deutschlandfunk radio today.

Norbert Barthle, CDU budget spokesman, said that German lawmakers will have veto rights over bond purchases by the euro area’s rescue funds, which would operate in tandem with the ECB under Draghi’s proposal. The temporary fund “was created for a purpose and bond-buying is in the manual,” Barthle said yesterday by phone.

The question now becomes what is meant by “in tandem with the ECB”? Does this mean the ECB starts printing euros? The rescue funds themselves that are currently set up don’t have enough funds in them to do the job. Stay tuned, the great euro money printing may be about to begin.

This as Reuters also reports Jenz Weidmann locked in tense struggle with Mario Draghi. The powerful Bundesbank, the central bank of Europe’s largest economy, is fiercely opposed to fresh ECB bond buying on the grounds that it amounts to monetary financing of governments, contravening European law.

Doug Noland writes Think Grand Canyon Things get wackier by the week. My proposition has been that once a Credit crisis comes to afflict the “core” (gravitating from the “periphery”) the deleterious consequences tend to be irreversible. As such, with Spain now engulfed in full-fledged financial, economic, political and social crisis, the overall European debt crisis has turned interminable. Of course, desperate politicians and central bankers promise to do whatever it takes to finally resolve the crisis. “Pointless to short the euro,” Mr. Draghi warned yesterday. Their determination is surely intensified by the fact that they are fighting for the very survival of euro monetary integration.
Policymakers and market participants alike appreciate what’s at stake. With global risk markets these days enveloped in an extraordinary “risk on, risk off” speculative melee, the historic battle to “save” the euro has come to dictate global trading dynamics. The European crisis is taking an increasing toll on the global economy, though the incredible measures to combat the bursting of the European Credit Bubble fuel an escalating speculative Bubble throughout global risk markets.
Why does “core” affliction prove such a momentous crisis development? Importantly, the associated costs become enormous and, by definition, the number of parties with the wherewithal to finance a core country bailout turns quite limited. While large, initial Greek bailouts costs were manageable when spread across euro zone partners and a robust ECB. The ultimate costs of bailing out Spain’s banks, regional governments and the sovereign will be many hundreds of billions. And with “robust” a thing of the past, there are scant few places to spread huge prospective bailout expenses. Italy is on the ropes and France is increasingly vulnerable. It is today essentially left to the Germans and the ECB to shoulder the burden of bailout responsibility. And only a small and increasingly isolated minority has an issue with gambling German Creditworthiness and ECB credibility.
It’s been my thesis that there would come a time when the Germans would begin to reevaluate. There are the age old economic issues around “solvency vs. illiquidity” to contend with – along with that fateful “throwing good money after bad” predicament. There is the issue of sacrificing one’s Creditworthiness for the profligacy and misdeeds of others. These issues can be downplayed or completely disregarded – they’re just not going away. At the end of the day, I don’t expect the German people will be willing to shoulder the financial burdens of Spain and Italy. The Germans won’t bury themselves and won’t be blackmailed. And I don’t expect the Bundesbank to completely turn over the keys to the European Central Bank printing press and vault to the MIT trained Italian economist Mario Draghi. There are very deep philosophical differences. Think Grand Canyon.

Mr Noland continues, The markets’ Thursday-to-Friday depressive-manic response to Mr. Draghi was something to behold (being kind here). Capturing the much-improved Friday market mood, and the markets’ imagination, was a big statement from an ECB policymaker: “There are 23 members in the council and if there will be a vote then everyone’s vote has the same weight in the sense that some questions are solved by a majority.” Rather bold for a new member of the ECB’s rate setting committee from the Bank of Estonia to claim his bank’s vote is as powerful as that from the esteemed Bundesbank.
Especially by week’s end, markets were happy to disregard what I believe were telling comments from prominent Bundesbank officials – current and former. Mr. Otmar Issing penned a brilliant op-ed for Monday’s Financial Times, “Europe’s Political Union is Worthy of Satire.” This was followed by “the Bundesbank celebrates its 55th birthday on 1 August and continues to stand for an exceptionally strong orientation to stability,” with the Bundesbank’s website highlighting an insightful interview with current Bundesbank President Jens Weidmann and former (1991-1993) head Helmut Schlesinger. Considering the backdrop, I thought this interview was worthy of major excerpts.

Mr. Weidmann: “…Despite all our various qualifications and tasks, within the Bank, there is a shared vision and a clear commitment to monetary stability. This is unique for such an institution and has also made the Bank an attractive option for people applying to work for us. The public good of maintaining price stability and thus contributing to the common good is a major incentive for many.”
Mr Weidmann, how did you yourself see the Bundesbank, say, while you were at university?
Mr. Weidmann: “In 1987 I was studying in France. The Banque de France was not yet independent at the time. That is when I first clearly saw the differences in outlook concerning the role of, and oversight over, the central bank. I myself had pretty much ‘inhaled’ the Bundesbank’s role; my French student friends, however, could not possibly imagine a government institution performing a key sovereign task and still being outside parliamentary control. Two very different world views were colliding. They have continued to do so in all political debates – essentially, up to the present day.”
Where can you identify this?
Mr. Weidmann: “I recently gave an interview to the French daily newspaper ‘Le Monde’. Many readers responded to the substantive positioning, some positively, some negatively. However, some responded along the lines of ‘Why is he meddling in the political debate? He’s only a central bank governor, a ‘civil servant’ who actually shouldn’t be saying anything on the matter.”
In 1990, the Bundesbank wrote that the participants in economic and monetary union would be inextricably linked to one another ‘come what may’ and that such a union would be an ‘irrevocable joint and several community which, in the light of past experience, requires a more far-reaching association, in the form of a comprehensive political union, if it is to remain durable’.
Mr. Weidmann: “The assessment at that time merely reflected the Bank’s long-held position. As early as 1963, President Karl Blessing had stated that the introduction of monetary union should be conditional on political union. The Bank’s stance has not only been consistent over time but has, in fact, taken on even greater relevance in a dramatic way owing to the recent crisis in the euro area.”
Political union did not feature in the Maastricht Treaty at the end of 1991. How did the Central Bank Council react to this?
Mr. Schlesinger: “When I took office as President of the Deutsche Bundesbank in the summer of 1991, Chancellor Helmut Kohl was still in favour of political union. However, the decision to implement monetary union by no later than 1999 was taken just four months later. This was a clear defeat for us. There is no other way of putting it. We had assumed that the Treaty would be concluded with a definition of the entry criteria, but without a fixed date being set.”
Mr. Weidmann: “It is interesting that we are having a similar discussion now in connection with the banking union. Here, too, some quarters are evidently seeking a far-reaching joint solution, but without imposing stricter rules on the other policy areas that are also affected. A genuine European banking supervision can indeed form a major component of closer integration within monetary union. However, such an institutional reorganisation of banking supervision also has to be integrated – into a comprehensive reform of the supervisory regulatory framework and of the respective national scope for economic and fiscal policy. Otherwise, too great a burden will be placed on banking supervision.”
What is crucial for political union is the willingness to hand over national sovereignty. Does such a willingness actually exist within the EU?
Mr. Schlesinger: “This question always takes me back to the start of European unification. At that time, the main objective was quite a different one – namely, to ensure that there would never again be a war in Europe. The plan for a common European army was ultimately blocked by France, even though the loss of sovereignty involved would have been easy to implement. It is actually hard to envisage how a loss of monetary sovereignty could be achieved in the absence of a unified state.”
Mr. Weidmann: “Seeing how reluctant some countries are to relinquish their fiscal policy autonomy – even in return for financial assistance – it is hard to imagine political union being achieved in the foreseeable future.”
Mr Schlesinger, should the Bundesbank have fought more strongly against monetary union without a political counterweight in the 1990s?
Mr. Schlesinger: “All of our demands were fulfilled. But I think we all underestimated just how wide the gulf is in the mindset not only of the political class but also in terms of public opinion in the individual countries concerning the objectives of fiscal policy. I would like to refer you to a chapter by Rudolf Richter in the publication marking the 50th anniversary of the Deutsche Mark… He writes that the culture of stability in Germany has been able to develop only because it has had the full backing of the general public. If you look at the Maastricht Treaty, the relevant criteria are there. But you won’t find any reference to the member states having to have the same culture of stability.
Mr. Weidmann: “Political efforts to use the central bank for policy purposes exist in all countries. However, the public’s stance on this is probably the crucial factor.”
Is there a lack of political will?
Mr. Weidmann: “The founding fathers of the EU treaties evidently took a skeptical view of the political will, and it is precisely for this reason that they made the central bank independent in order to protect it from a lack of or a conflict of political will. But the central bank must use and maintain this protection. Furthermore, it should be aware that this independence also requires it to respect and not overstep its own mandate. Mr. Schlesinger’s examples show that what is politically desirable and what is economically prudent have often not matched up. Whether we’re talking about interest rates or some sort of non-standard measures, in the end it always comes down to the central bank being instrumentalised for fiscal policy objectives. However, policymakers thereby overestimate the central bank’s possibilities and expect too much of it by assuming that it can be used not only for price stability, but also for promoting growth, reducing unemployment and stabilising the banking system. This pattern occurs again and again; this time it is perhaps even more pronounced than in the past because there is increased doubt among the general public about policymakers’ ability to act, and the central bank is seen as the sole institution that is capable of doing something. In this respect, the central bank is perhaps under even more pressure than in the past – even though you, Mr. Schlesinger, are better able to judge this as you have witnessed all of these periods. Furthermore, in Europe we are faced with some quite different ways of looking at the central bank’s role – not only in politics, but also in the media and on the part of the general public. If a central bank also has to work against public opinion, things get difficult.”
Today it is even harder for the Bundesbank to assert its influence as it is just one of 17 central banks in the Eurosystem. What impact does this have on your work?
Mr. Weidmann: “Even though what you say is correct in terms of shares of voting rights, I certainly would not say that we are ‘just’ one of 17 central banks. We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks in the Eurosystem. This means that we have a different role. We are the central bank that is most active in the public debate on the future of monetary union. This is also how some of my colleagues expect it to be.”
It is often said that Germany has benefitted from monetary union and it therefore has a duty to help.
Mr. Weidmann: “I think that argument is incorrect. First, counting up the for and against of who has benefited to what extent from monetary union is not helpful. A stable single currency benefits all member states – some perhaps more than others, but that, too, can change over time. After all, Germany was certainly not considered to be a winner during the first few years of monetary union. Second, when monetary union was established, we agreed on a legal framework which has to be respected: a single monetary policy ensures price stability and each member state is responsible for its own fiscal policy. This is precisely what is expressed in the ‘no bail-out’ clause. And third: Germany is already providing large-scale assistance for the peripheral countries, not least as an anchor of stability and as a guarantor of the rescue packages.”
Mr Weidmann, in your opinion, what are the biggest challenges that the Bundesbank is facing now and in the coming years?
Mr. Weidmann: “The crisis requires all our energies. We shall continue to use all of our resources at all levels to stand up for the positions we believe in and to ensure that the monetary union remains a stability union…”

Especially these days, I have little company when it comes to extolling the virtues of the Bundesbank or German economic thinking more generally. For me, it’s an issue of principle. Over the past 22 years I have come to deeply respect the German (including “Austrian”) view of economics, money and Credit, and monetary management. I’m partial to a sound analytical framework, discipline and the so-called “orientation of stability.” Back in 2004, in a CBB titled “Issing vs. Greenspan,” I highlighted a WSJ op-ed by then ECB Chief Economist Otmar Issing, with his prescient warning against central banks ignoring Bubbles: From Issing’s article, aptly titled “Money and Credit”: “Huge swings in asset valuations can imply significant misallocations of resources in the economy and furthermore create problems for monetary policy. Not every strong decline in asset prices causes deflation, but all major deflations in the world were related to a sudden, continuing and substantial fall in values of assets. The consequences for banks, companies and households can be tremendous… Prevention is the best way to minimize costs for society from a longer-term perspective. …it should not be overlooked that most exceptional increases in prices for stocks and real estate in history were accompanied by strong expansions of money and/or credit.”
This has been a multi-year battle for what constitutes sound analysis and economic doctrine. Mr. Issing and the Bundesbank know they have won the debate on Bubbles, money, Credit and monetary policymaking. There is reason to believe they view U.S. monetary and fiscal policymaking as an ongoing disaster. And it is ironic that markets today celebrate Mr. Draghi’s desperate move to adopt Fed-like quantitative easing. As Mr. Issing wrote this week in the FT, “Juvenal would have said: Difficile est satiram non scribere (It is difficult not to write a satire).”
I suspect the Bundesbank has commenced preparation for a difficult confrontation. I am less clear on the stance of what appears an increasingly divided Merkel government, although a decisive shift in German public sentiment has seemingly begun. According to recent polling (YouGov), only 33% of respondents now support Ms. Merkel’s handling of the euro zone crisis, down sharply over recent weeks. And, for the first time, a majority (51%) of Germans now believe they would be better off without the euro (Merkel was said to be “profoundly disturbed”). The vast majority of Germans want Greece out of the euro, and fewer each week would be content subsidizing profligate Spain and Italy. If either the Bundesbank or the Federal Constitutional Court of Germany should in coming weeks draw a harder line, they might just enjoy an outpouring of support from the German people – if not global risk markets.

Mike Mish Shedlock writes Ass-backwards Eurozone policies.  Most countries in Europe now have ass-backwards policies in place. The silver lining in this mess is those ass-backwards policies will accelerate the breakup of the eurozone, and that is a good thing.

Please consider that the economy of God is in full operation pivoting the world from evolution to devolution, from fiat asset inflation to fiat asset deflation, from democracy and socialism to regional governance, from choice to diktat, as the Kingdom of God is being introduced to planet earth, Revelation 2:26-28.

According to God’s Word, that there is neither human action nor personal sovereignty nor national sovereignty; Colossians 1:15-23, and Colossians 2:23-29; such things are arbitrary will worship. Colossians 2:8-12 warns against being spoiled through philosophy, and vain deceit, after the tradition of men, after the rudiments of the world, and not after Christ.

There is only the will of God and the economy of God, that is the administrative law of Christ working for the fullness of times, Ephesians 1:10, whereby He is terminating the global iron hegemony of UK and US rule, and introducing the ten toed kingdom of regional governance; Daniel 2:30-33, where the fiat money system will be replaced by the diktat money system, where diktat will serve as both money and credit.

When taken together bible prophecy of Revelation 6:1-2 and Revelation 13:1-4, communicate that the baton of sovereignty is being passed from sovereign nation states to regional sovereign leaders, such as Mario Draghi, and sovereign bodies such as the ECB  When Mario Draghi vowed last week “to do whatever it takes” to keep the continent’s monetary union intact, he laid the groundwork for a One Euro Government, that is a Federal European Superstate existing as a political, monetary, fiscal, and economic union. Now with the proposal that German lawmakers will have veto rights over bond purchases by the euro area’s rescue funds, which will operate in tandem with the ECB under Draghi’s proposal, Germany will emerge as the preeminent Eurozone power over vassal peripheral states in a type of revived Roman empire.

In the coming age of regional economic and governance, there will be sharp distinction between the elect and the fiat, those based in philosophy, religion or their own rules for living.

Those who have like precious faith of Jesus Christ, which is based upon the exceedingly great promises of Christ, have organic union with God, become a virtuous person, manifesting charity, bear spiritual fruit, and make their calling and election genuine, 2 Peter 1:1-12. The saints know Christ as their element and life and have the all inclusive Christ, who provides the objective and not subjective life experience.

Regardless of those who have philosophy, religion or rules, regional governance will be an all inclusive living experience, especialy for the residents of the Eurozone, living in a EU Superstate. The groundwork and foundation were laid by Mario Draghi, as well as by Angela Merkel and Francois Hollande; these are  heralds and antecedents of a greater sovereign experience, that being rule by Europe’s Sovereign, as foretold in Revelation 13:5-10, and Europe’s Seignior, Revelation 13:11-18. The all inclusive experience of totalitarian collectivism will be a unified experience of living under diktat.

Deutsche Bank rose 10%, Argentina’s BBVA, 9%, Banco Santender, STD, 7% Italy, EWI, 8%, Spain, EWP, 8%, European Financials, EUFN, 6%. World Banks, IXG, 3%, Nasdaq Community Banks, 3%, Regional Banks, KRE 3%, Brazil Financials, 7%, Financial Brokers, 5%, and The Too Big To Fail Banks, RWW 2%.

The Risk On ETN, ONN, rose 4%.  Steel, SLX, jumped 5%, and Coal, KOL, 4%. Electrical Equipment Manufacturers, ETN, ROK, AME, ENS, AIMC, AMRC, BGC, seen in this Finviz Screener, rose 4%. Textile Manufacturers, MHK, UFI, IFSIA, rose strongly.

Boston Office Properties, BXP, took Office REITS, FNIO, higher. General Growth Properties, GGP, and Simon Property Group, SPG, took Retail Reits higher. Health Care REITS, VTR, HCN and SBRA, took Residential REITS, REZ, to a new high. Mortgage REIT, Starwood Property Trust, STWD, rose to a new high, taking Mortgage REITS, REM, to a new weekly high.

General Electric, GE, American Water Works, AWW, Macquarie Infrastructure, MIC, Sanofi, SNY, AstraZeneca, AZN, Pfizer, PFE, Kimberly Clark, KMB, Johnson And Johnson, JNJ, Abbott Labs, ABT, Philip Morris, PM, Reynolds American, RAI, Exxon Mobil, XOM, Chevron, CVX, Walmart, WMT, and AT&T, T, took Large Cap Dividend, DLN, to a new high.

Mobile Telecom Company, TKC, blasted Turkey, TUR, 5% higher to a new high; Singapore, EWS, climbed 2% higher to a new high;  Malaysia, EWM, rose to multiple top high. South Africa, EZA, jumped 5% and Sweden, EWD, 4%.

Commodities, DBC, traded higher. Oil, USO, rose 4% posting its biggest gain in a month as Zero Hedge reports Russia Sends Three Warships To Syria Carrying Hundreds Of Marines.  Gasoline, UGA, continued its rally 3% higher.  Yet Natural Gas, UNG, traded 1% lower today, and 5% parabolically lower on the week.

Doug Noland relates M2 (narrow) “money” supply declined $5.5bn to $10.030 TN. “Narrow money” has expanded 7.1% annualized year-to-date and was up 7.8% from a year ago.

The Great Sea Saw Destruction Of Fiat Wealth has commenced as the US Dollar, $US, and Bonds, BND, traded lower and stocks, VT, traded higher this week.

The US Dollar $USD, UUP, traded lower, as the Euro, FXE, rose 1.6%, taking it to a weekly gain of 0.6%, the Australian Dollar, FXA, 0.9%, and the Swedish Krona, FXS, 2.0%.

Bonds, BND, turned parabolically lower. as US Government Debt fell sharply with ZROZ, EDV, and TLT,  plummeted.  The charts of  Short to Medium Term Corporate Bonds, LQD, and Emerging Market Bonds, EMB, show a topping out. Junk Bonds, JNK, traded higher with stocks. The Flattner ETF, FLAT, has now fallen strongly lower in value. A steepening 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, is reflected in the Steepner ETF, STPP, rising in value, causing deflation in bonds. World Government Bonds, BWX, traded high on rising world currencies, DBV.

Doug Noland relates Sarika Gangar of Bloomberg reports: “Corporate bond sales globally, PICB, reached $293.5 billion last month for the busiest July on record as yields on investment-grade debt tumbled, falling below 3%. for the first time. Offerings by companies from the U.S. to Europe and Asia surpassed the previous record of $286.4 billion set in July 2009.”
Lisa Abramowicz of Bloomberg reports: “Investors are stockpiling corporate debt, BLV, rather than trading as banks retreat from bond brokering, with daily trading volumes in the U.S. slumping to the slowest July in four years even as offerings reached a record. Volumes averaged $9.97 billion last month, 8% below July 2011 and the lowest for the period since two months before Lehman Brothers Holdings Inc.’s failure ignited the credit crisis. Investment-grade sales rose 58% from the same month last year to $80.5 billion.”
Patricia Kuo of Bloomberg reports: “Companies are borrowing the most in the loan market since 2008 to finance acquisitions worldwide, betting that they can quickly replace the debt with permanent financing as yields on corporate bonds fall to records. Anheuser-Busch InBev NV obtained $14 billion in credit to buy Mexico’s Grupo Modelo SAB  pushing loans for mergers to $221 billion this year, up 34% from the same period of 2011 and the most since $276 billion four years ago.”

The see saw destruction of fiat wealth is now underway as the US Dollar, USD, UUP, is traded below its recent high and as US Treasuries have turned parabolically lower.  Competitive currency devaluation, in all currencies, is now underway, leading the world along what FA Hayek terms The Road to Serfdom. Wealth can only be preserved by dollar cost averaging into the physical possession of gold, or by investing in gold on internet trading platforms such as Gold Is Money, or Bullion Vault. Although Gold, GLD, traded lower on the week to 155; its chart pattern still shows it to be in breakout above 152.

3) … In the news

Open Europe relates Handelsblatt’s Norbert Häring argues, “Under President Mario Draghi, the ECB has come to play a completely different role…it has become the eurozone’s secret power. Politicians are no longer in charge of the crisis, it is the ECB.” A headline in today’s Bild reads, “No more German money for bankrupt euro states, Herr Draghi!

Open Europe relates According to sources quoted by Reuters, The ECB may, in its new role as the eurozone’s single banking supervisor, be given the power to order bank closures – even over the objections of national regulators.

Open Europe relates Greece’s coalition leaders yesterday agreed on the €11.5bn package of new cuts Greece is expected to make over the next two years, after Evangelos Venizelos and Fotis Kouvelis – the leaders of PASOK and Democratic left respectively – backed down from their proposal to delay part of the cuts to 2015-16. Kathimerini FT FT 2 WSJ EUobserver Les Echos La Tribune BBC Welt

Gary of Between The Hedges relates Bloomberg reports Rajoy Will Consider Bond Buying Request to Protect Spain. Spain’s Prime Minister Mariano Rajoy said he would consider asking Europe’s bailout funds to buy Spanish debt if it were for the best for the country, as he called for a crisis meeting of the region’s finance chiefs. “I will do what I always do, act in the best interest of Spaniards,” Rajoy said at a news conference in Madrid today, when asked whether he would consider making a request. He needs to see more details on what the European Central Bank is planning in terms of bond buying and non-conventional measures before taking any decision on seeking support, he said.

Doug Noland relates Rainer Buergin of Bloomberg reports: “Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license… The rules of the European Stability Mechanism don’t foresee a license to allow refinancing at the ECB, the Berlin-based ministry said. France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported.”

Angeline Benoit and Emma Ross-Thomas of Bloomberg reports:  “Spain’s Prime Minister Mariano Rajoy said he would consider asking Europe’s bailout funds to buy Spanish debt if it were for the best for the country, as he called for a crisis meeting of the region’s finance chiefs. ‘I will do what I always do, act in the best interest of Spaniards,’ Rajoy said Spain and Italy’s borrowing costs surged the most this year on Aug. 2 after ECB President Mario Draghi outlined a plan under which the central bank might buy debt in tandem with the euro governments’ bailout fund, while saying the details still need to be worked out over the coming weeks. Countries would have to request help and commit to strict conditions in return.”

Esteban Duarte and Angeline Benoit of Bloomberg reports: “Spain’s rescue of Catalonia and Valencia risks diverting the taxes those regions need to pay their debts, disadvantaging holders of more than $150 billion of regional debt. Spain collects income, sales, gasoline, tobacco and alcohol taxes on behalf of its regional governments, excluding the Basque country and Navarra. More than half of the 65.9 billion euros ($81bn) gathered in the first six months of the year was then assigned to local states. The government is doubling loans to 17 semi-autonomous regions to as much as 41 billion euros after the local authorities lost access to capital markets to meet debt redemptions, pay suppliers and finance their deficits. ‘The potential subordination is an element, which is implicit in the way the rescue mechanism has been designed,’ said Fernando Mayorga, an analyst at Fitch Ratings in Barcelona.”

Angeline Benoit of Bloomberg reports: “Budget Minister Cristobal Montoro will urge Spain’s regions today to deepen budget cuts as support to prevent their defaulting has worsened the central government’s finances. Representatives of Spain’s 17 semi-autonomous regional governments are scheduled to convene in Madrid.  Montoro said the central government’s budget deficit widened in the first half to about 4% from 3.41% in January through May. Prime Minister Mariano Rajoy has asked the regions to implement most of Spain’s planned budget-deficit reduction this year after they overshot last year’s target by more than 100%.”

Zeke Turner of Bloomberg reports: “The plot of Ayn Rand’s controversial 1957 novel ‘Atlas Shrugged’ couldn’t be more relevant to Germany as the European financial crisis unfolds — or so contends a young Munich executive, Kai John, who has published a new translation of the libertarian classic. In the novel, the brightest and most productive citizens (i.e. the Germans) deeply resent having to support the weaker members of society and rebel, leaving society in tatters, a fate that could befall the Continent if Angela Merkel and the German parliament refuse to bolster the European Union’s straggling economies. A series of bailouts has left John, 36, a vice president at a multinational financial services company, feeling like Rand’s hero, John Galt: ‘The time is here to make Germans aware that collectivism has its limits.’”

Anoop Agrawal and Jeanette Rodrigues of Bloomberg report: “India’s companies cut rupee bond sales by 50% in July to a nine-month low as the fastest inflation among the largest emerging-market economies drove yield premiums to the widest in three years.”

Steven Church, Dawn McCarty and Michael Bathon of Bloomberg report: “San Bernardino, California, filed for municipal bankruptcy after disclosing a $46 million shortfall in the city’s budget, the third California city to seek court protection from creditors since June 28. California cities from the Mexican border to San Francisco Bay are confronting rising pension costs as they contend with growing unemployment and declining property- and sales-tax revenue. The costs stem from decisions made when stock markets were soaring and retirement funds were running surpluses.”

Gillian White of Bloomberg reports: “California municipal funds, are garnering the most demand since 2007, helping fuel the biggest rally in the state’s debt since May and allaying concern that bankruptcies would curb the appetite of individual investors. With local yields close to the lowest since the 1960s, investors seeking tax-free income are willing to take the added risk of debt from Standard & Poor’s lowest-rated U.S. state. Bond funds focusing on California issuers have added assets for 18 straight weeks, the longest streak since 2007, according to Lipper.”  The chart of CMF, manifested massively bearish engulfing on Friday August 3, 2012.

Robert Stevens of WSWS reports Greek government agrees €11.5 billion cuts package.  The leaders of the three Greek government parties have announced their agreement on further austerity cuts amounting to €11.5 billion.

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