Financial market report for the week ending Friday August 17, 2012; this is nineteenth week of entry into the Second Great Depression.
1) … Bonds, BND, plummeted Tuesday, Wednesday, and Thursday, manifesting a three black crows chart pattern on the failure of neoliberal finance and on competitive currency devaluation which turned Major World Currencies, DBV, and CEW, lower this week.
The global government finance Bubble has finally burst, as the world has passed through peak credit, with Bonds, BND, International Treasury Bonds, Emerging Market Bonds, EMB, trading lower, Zeroes, ZROS, US Treasuries, EDV, TLT, are now trading lower, as sovereign bond yields rise. Even Junk Bonds, JNK, are trading marginally lower from their all time highs, confirming that the world is passing through peak credit. Freddie Mac 30-year fixed mortgage rates rose 3 bps to 3.62%. The Interest Rate on the US Ten Year Note, ^TNX, rose to 1.82%.
The see saw destruction of fiat wealth is now underway, as the monthly chart of bonds, BND, shows a 1.0% fall lower.
Debt deflation, that is currency deflation is underway on the failure of the world central banks’ monetary authority with a perverse effect that money flowed into stocks creating a risk-on rally.
M2 Money may be turning lower. Doug Noland writes M2 (narrow) “money” supply dropped $17.8bn to $10.018 TN. “Narrow money” has expanded 6.4% annualized year-to-date and was up 6.1% from a year ago.
World Stocks, VT, and Commodities, DBC, rose on Thursday, with the National Bank of Greece, NBG, Banco Santander, SAN, Deutsche Bank, DB, taking European Financials, EUFN, Spain, EWP, Italy, EWI, and Germany, EWG, strongly higher.. Risk Onn Assets, ONN, Housing, ITB, Paper Products, WOOD, Retail, XRT, and Copper Mining, COPX, rose strongly.
Weyerhaeuser WY, Flowserve, FLS, Eagle Materials, EXP, Great Lakes Dredge and Docks, GLDD, Alliance Data Systems, ADS, Ultimate Software, ULTI, Quanta Services, PWR, rose strongly taking US Infrastructure, PKB, to a new high. Homebuilders, ITB, rose to a new high. Telecom Services, VOX, rose to a new high. Pepsi, PEP, rose 1%, taking Consumer Services, IYC, to a new high. Publishers, ENL, IHS, NYT, RUK, SSP, rose strongly taking Dynamic Media, PBS, to a new high. Exxon Mobil, XOM, rose to a new high, taking Large Cap Dividend Paying Stocks, DLN, and DVY, and SDY, and the S&P, SPY, to a high.
Venoco, VQ, rose 17%, taking Small Cap Energy, PSCE, higher. Cisco, CSCO, Red Hat, RHT, NetApp, NTAP, and FIO, rose strongly taking Networking, IGN, and the Nasdaq 100, QTEC, higher. Oil and Gas Pipelines, such as TLLP, SXL, SEMG, MMP, APL, WES, HEP, WMB, rose strongly. General Motors, GM, and Ford, F, rose strongly. .
Associated Press reported that Apple Stock Hits High After 4-Month Dip on Friday. Apple’s stock, AAPL, hit a new high Friday after a four-month swoon, as investors look ahead to the release of a new iPhone and possibly a smaller iPad.
Eli Steven of WSWS relates Magna International closing its Syracuse, New York auto parts plant. Magna International is shuttering its auto parts plant in Syracuse, New York, after workers rejected a poverty wage offer. Dividend paying Magna International, MGA, seen in this ongoing Yahoo Finance chart, has risen strongly in the last three months. And Elaine Meinel Supkis writes Abandoned factories litter US landscape.
China, PEK, CAF, FXI, and YAO, traded lower this week. Tom Orlik of WSJ reports Investors and companies are increasingly pulling money out of China and its currency in a vote of concern over its growth prospects, a development that could hinder Beijing’s efforts to spark a turnaround. New data… showed China’s banks were net sellers of 3.8 billion yuan ($597 million) in foreign exchange in July, suggesting that China’s exporters aren’t converting their dollar earnings into yuan and some investors are taking funds out of the country. China’s banks have been sellers of dollars in five of the last 10 months, purchasing a paltry 145 billion yuan in foreign exchange over that combined period, considerably less than the 905 billion yuan that flowed into the country through the trade surplus. That is a stark contrast with much of the past decade, when confidence in China’s growth and hunger for yuan meant China’s banks were buying up not just the entire trade surplus, but also considerable inflows of speculative capital, known as hot money. In the first 10 months of 2008, China’s banks were net purchasers of 3.6 trillion yuan in foreign exchange.
Bloomberg reports Foreign direct investment in China fell to the lowest level in two years in July, fueling concern that waning confidence in the nation’s growth prospects may restrain any economic rebound. Investment declined 8.7% from a year earlier to $7.58 billion, the eighth drop in nine months and the smallest inflow since July 2010. Chinese financial institutions sold a net 3.8 billion yuan ($600 million) of foreign currency last month, indicating capital is flowing out as property curbs and weakness in exports slow growth and the yuan weakens. The nation reported a $71.4 billion capital account deficit in April-through-June, the biggest quarterly shortfall in data going back to 1998.
2) … In the news
Doug Noland writes In the 15 quarters June 30, 2008 to March 31, 2012, Treasury debt increased almost $5.6 TN, or 106%, to $10.828 TN. This massive inflation of government Credit, in concert with Federal Reserve rate cuts and monetization, reflated system price levels that in 2009 had commenced a problematic downward spiral. Indeed, National Income jumped 4.5% in 2011 to a record $13.421 TN, after increasing 5.7% in 2010. After gaining 4.0% in 2010 and 3.3% in 2011, Total Compensation has also grown to record levels. Corporate profits have inflated to record levels after increasing 25% in 2010 and another 4% in 2011. As bullish analysts extrapolate corporate profit growth, U.S. stock prices appear “cheap” after doubling from 2009 lows.
The key has been that overall system Credit resumed its historic expansion. While down from 2007’s 8.4% growth rate, U.S. Non-Financial Credit still increased 5.9% in 2008, 3.1% in 2009, 4.1% in 2010 and 3.6% in 2011. It didn’t really matter that the vast majority of 2009-2011 growth originated from Treasury debt. Massive Washington stimulus was able to sustain inflated price levels throughout much of the economy – perhaps not home prices, but definitely system incomes, spending, GDP, and profits, while state & local receipts bounced back to, and in many case surpassed, pre-crisis levels.
EuroIntelligence in its for fee newsletter relates Reuters reports Greek banks turn to national central bank for liquidity. Greek lenders turned to their country’s central bank for liquidity in July after the ECB stopped accepting Greek government bonds as collateral from July 25, Bank of Greece data showed on Monday. ECB funding to Greek banks fell by €49.67bn in July from a month earlier while emergency liquidity assistance (ELA) from the Greek central bank increased by €44.37bn. Total ECB lending to Greek banks dropped to €23.99bn, and increased to a total of €106.31bn in ELA assistance from the Greek central bank at the end of July.
Open Europe relates Deutsche Bank’s Chief Economist Thomas Mayer argues in FAZ: Mayer that Italian Prime Minister Mario Monti’s record on structural reforms is disappointing, since “the liberalisation of closed professions has stalled, and labour market reforms were watered down so badly that they won’t have any positive effects on employment.”
Jean Chau of CNBC asks Merkel Comments Latest Salvo in QE Incognito? Stock markets from U.S. to Asia got a boost after German Chancellor Angela Merkel vowed Thursday to do “everything” possible to keep the euro intact. Her comments follow similar rhetoric from European Central Bank chief Mario Draghi three weeks ago, which also stoked a rally in global equities.
Some analysts say the remarks have had an effect akin to launching a fresh round of quantitative easing, and more importantly, injected confidence into markets. “There’s no secret out there, I call it quantitative easing incognito, but we all see the effects,” Jack Bouroudjian, CEO of fund manager Bull and Bear Partners, said on CNBC Asia’s “Squawk Box.” “Volumes are slim but, remember, the tone of what is happening now seems to be a lot different. Just a few weeks ago, we were talking about a Greek exit. Now, it’s more a question of what Europe is going to look like, in another couple of years staying together.”
Global markets have been rising ever since Mario Draghi promised on July 25 to do “whatever it takes” to protect the euro zone from collapse, and continued to gain even when no bazookas were delivered at the ECB meeting a week after. The S&P 500 (^GSPC) has gained 5.8 percent while the Stoxx 600 has climbed 8.6 percent since then.
Merkel’s pledge lent firepower to the market uptrend as she has been a key figure in resisting the introduction of common euro zone bonds which proponents see as a solution to the region’s debt crisis.
“Merkel’s comments were uplifting not only because she seemed to be aligning closer with the ECB, but also because she stressed that ‘time is of the essence‘,” said Vishnu Varathan, Market Economist with Mizuho Corporate Bank in Singapore. “So the sense is that euro zone policy-makers could begin to converge more quickly.”
Still, the effects of the rhetoric may be short-lived as nothing has fundamentally changed in Europe, warned Tony Nash, Managing Director of IHS Global Insight. He also doesn’t believe there are legs to the rally because trading volumes on markets are extremely thin. “I think they are hoping for a ‘whatever-it-takes’ rally part 2, which was kind of what happened after Mario Draghi’s comments,” Nash said.
Bloomberg reports Merkel handed sub-zero yields as ECB plans gains traction.
Dietmar Henning of WSWS writes European car industry prepares mass redundancies. Auto manufacturers who produce almost exclusively for the European market are reporting massive losses and are preparing mass layoffs, plant closures and wage cut.
Jon Moynihan, PA Consulting Group, The Decline of the West; and Open Europe’s Director Mats Persson writes in the Times that A eurozone banking union poses two main risks to the UK and the City of London, “First, companies doing business in the euro area could be required to be supervised by eurozone authorities…The second risk is that the eurozone 17 start to write banking and financial rules for all 27 EU states.” Mats concludes that Britain needs to “think creatively about new institutional arrangements”, not only to guarantee the City’s position as a global entry point to the single market but also to create a space in Europe for those countries not intent on joining the single currency, and also for those that may choose to leave it.
Jerusalem Post reports Israel may have to destroy parts of Gaza, Lebanon.
Elaine Meinel Supkis writes Indian elite hamstrung as the economy falters as real inflation shoots upwards, the value of their currency falls too low to stop capital flight and the great blackout has ravaged the GDP numbers.
Ben Sills of Bloomberg reports: “Spanish lenders’ net borrowings from the European Central Bank rose to a record 376 billion euros ($465bn) in July as investors shunned the country’s banks… Net average ECB borrowings climbed from 337 billion euros in June… Gross borrowing was 402 billion euros, up from 365 billion euros in June, accounting for 33% of borrowing in the euro region… ‘These banks clearly are having to borrow more from the ECB so that they can continue to buy the debt and this can only go on for so long,’ Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London, said… Spanish lenders are tapping the ECB to finance purchases of government debt as foreign investors dump the bonds binding the sovereign and the banks together.”
Chiara Vasarri of Bloomberg writes “Italian government debt reached a record 1.97 trillion euros ($2.42 trillion) at the end of June, the Bank of Italy said today in its public-finances supplement. Italy’s debt rose by 6.6 billion euros in June from the previous month
Mike Mish Shedlock writes Face-to-Face showdown sith Merkel. Greece is bankrupt. It cannot pay the bills. A Spending Moratorium proves just that. Greece will only pay salaries and pensions. If the state owes anyone else money, they can forget about it unless the Troika sends more money. If that causes more corporate and personal bankruptcies (and it will), then tough luck .. .And Mr. Shedlock asks Does Italy or Germany Exit the Eurozone First? The difference between Italy and Greece is certainly not the direction of the economy. Rather the difference is in magnitude. Certainly, Greece has imploded at a far faster rate than Italy, but the latest ISM numbers from Italy, both services and manufacturing have been nothing short of horrendous. Moreover, there is absolutely no reason to expect economic conditions in Italy to get any better. There is one crucial difference between Italy and Greece: Italy is without a doubt too big to bail. Moreover, German citizens would not be willing to try, even if chancellor Angela Merkel was willing. That begs the question, does Italy or Germany exit the eurozone first? I suspect Italy leaves first. Although the answer is unclear, timing is very important. Indeed, the value of the euro vs. the US dollar is very likely dependent on whether Germany remains in the union.
The objective truth is that Christ is carrying out the preordained eternal administration plan, that is the economy of God, for the fullness of times, as communicated in Ephesians 3:10. Austrian economists and libertarians, are no different from libertines, who create their own rules, or socialists, who seen a common rule, in that all have subjective thinking, which comes from fiat mandate, that is from worldly edict.
Christ is the objective, all extensive, all prevailing, all sufficient, all inclusive, and all sovereign human experience, encompassing personal, economic and political governance. A Sabbath Day rest is coming, before eternity begins. For 4,000 years, the Old Man, has lived, easting of the The Tree of Knowledge of Good and Evil. And for 2,000 years now, the New Man, Christ’s Body, The Church, has been manifesting by eating of the Tree of Life. Soon, for 1,000 years, this New Man will rule from Jerusalem, as God’s Kingdom is established on planet earth.
The fourfold nature of the Church is presented in Ephesians:
1) The Body of Christ, Ephesians 1;22-23,
2) The House of God, Ephesians, 2:19,
3) The Temple in The Lord, Ephesians 2:21-22,
4) The New Man, The Church, Ephesians 4:22-24
The elect, that is the called out ones, have the like precious faith of Jesus Christ, and grow in the wisdom of God, and spiritual understanding, and appreciation of sound bible doctrine such as,
1) The economy of God, that is the administrative plan for personal, economic, and political governance, Ephesians 1;10, where Christ unleashes the Four Horsemen of The Apocalypse, Revelation 6:1-8, and the Beast Regime of Revelation 13:1-4, to install totalitarian regional governance in the world’s ten regions, Daniel 2:30-33, upon the failure of UK and US hegemony, as a prelude to the Sovereign, Revelation 13:5-10, and the Seignior, Revelation 13:11-18, ruling from Jerusalem, Daniel 9:25, in a one world government for 42 months.
2) The prominent, all inclusive, universally extensive, all reconciling, universally cohesive, and sovereign Christ, through which one comes to know and experience God, Colossians 1:15-28,
3) Christ is the believer’s life; one is to take Him as life and live by Him, One is to live in Him daily, so that all He is and has attained and obtained will become our subjective experience. There is no natural person, nor carnal identity in the new man; that is there is no psychopath, no sovereign person, no Jew, nor debt slave in Christ, Colossians 3:1-11.
4) The vanity of philosophy and natural law, Ephesians 4:17
5) The objective reality of Christ, Ephesians 4:21
In contrast with the elect, those of the world, whether they be Libertarians, Austrian Economists, or Socialists, are not objective, as they practice 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
Paul Festival Facebook posts “Peter Schiff, Lew Rockwell, Gary Johnson, Tom Woods, Adam Kokesh are Libertarians who are at the heart of the R3VOLUTION who are working for libertarian values and will be speaking at the Paul Festival; “it will be the moment we wean ourselves and become free and independent, as we continue to be active and work towards instilling the libertarian values Dr. Paul has espoused. But more than anything else one thing has become plainly obvious to us, there is no political solution to the problems that are dragging America through the dirt. The only solution is a change in how we think.”
In response to the Paul Festival Facebook post, I relate that there is a big difference between a Libertarian and a Christian. I am free and dependent, that is free in Christ and dependent upon Christ. When I was made accepted in the Beloved, and got Sonized, that is made a Son of God, I became free from the law of the sin and death, and was given freedom to become a child of God, that is I was given spiritual wisdom and insight to start down the path to manifest as God’s person in Christ Jesus. I am the elect of God, who lives in the like precious faith of Jesus Christ, and who practices the seven step additive process, of virtue, knowledge, self moderation, perseverance, godliness, brotherly kindness, and lowe, so as to bear fruit that is pleasing to God, and to make my calling and election genuine. Libertarians are natural law philosophers who believe in the sovereign person as well as human action. I am a reformed Christian who believes evangelist writers, such as Witness Lee, are restoring the principles of grace and truth to Christianity.