Archive for September, 2012

Commodities And Stocks Trade Lower As The Credit And Business Cycle Ends And As Conflicts Increase Globally

September 24, 2012

Financial Market report for the week ending September 21, 2012

1) … Commodities and stocks traded lower as the credit cycle ends and as conflicts increase globally.
Oil, USO, plunged leading Commodities, DBC, USCI, Unleaded Gas, UGA, Natural Gas, UNG, Agricultural Commodities, RJA, JJA, lower as CNBC reported Slide in Oil Prices Shows Loss of Faith in QE.

Shanghai, CAF, Russia, RSX, ERUS, Italy, EWI, China Infrastructure, CHXX, traded lower.

Steel, SLX, Metal Manufacturing, XME, Copper Producers, COPX, Coal Producers, KOL, Rare Earth Miners, REMX, Aluminum Producers, ALUM, Iron Ore Miners, RIO, VALE, BHP, CLF, Basic Materials, ACO, MIL, GSM, ACO, SLCA. AZC, NRP, TIE, Small Cap Energy, PSCE, Energy Production, XOP, XLE, Energy Service, IEZ, OIH, Semiconductors, XSD, the European Financials, EUFN, the Too Big To Fail Banks, RWW, Investment Brokers, IAI, World Banks, IXG, Financials, XLF, and Transports, IYT, led the way lower, with the daily chart of world stocks, VT, showing a blow off top with a hammer candlestick close at 49.94 on Friday September 14, 2012.

Barrons reports Railroads decline on Norfolk Southern warning. Railroad stocks fell after hours following an announcement by Norfolk Southern, NSC, that it is lowering its earnings outlook because of weak coal and merchandise shipments and lower revenue from fuel surcharges.

Residential REITS, REZ, entered an Elliott Wave 3 Down, turning REITS, RWR, and Real Estate, IYR, lower, while Mortgage REITS, REM, rose manifesting a lollipop hanging man candlestick finish to their rise as Mortgage Backed Bonds, MBB, rose to a new high.

Inflationism is now turning  now to deflationism on disinvestment and derisking as the world economy pivots from leveraging to deleveraging on the exhaustion of the world central bank’s monetary authority.

On the upside, Biotechnology, IBB, XBI, rose parabolically higher, taking Pharmaceuticals, IHE, and US Healthcare Providers, IHF, higher.

Junior Gold Miners, GDXJ, SAND, GSS, TGD, MGH, Gold cycle, that is the business cycle has attained completion on a full expansion of credit and monetary expansion, putting an end to the risk on momentum rally that began in early June 2012. The Bank of Ireland, IRE, the National Bank of Greece, Deutsche Bank, UBS Switzerland, USB, led the European Financials EUFN, lower.  Miners, GDX, Silver Miners, SIL, SSRI, CDE, HL, FSM, MVG, rose higher.

Home Building, ITB, KBH, SPF, HOV ….. US Telecom, IYZ, SHEN, S, T, VZ ….. Consumer Services, IYC, FRGI, YUM, CAKE …. Media, PBS, GTN, LAMR, VIAB, DGI, NXST, TWX, CMCSA, TWC, DISCA, CBS, VMED, NWSA, DIS, FSCI, ENL … led US Infrastructure, PKB, higher in short selling covering in response to a rise in the Indian Rupe, ICN, which took India, INP, India Infrastructure, INXX, India Small Caps, SCIF, and India Earnings, EPI, higher, with Technical Software And Systems, INFY, Banks, IBN, HDB, Automobile Manufacturer, TTM, and Copper Producer, SLT, rising strongly.  Egypt, EGPT, Israel, EIS, Brazil Small Caps, BRF, New Zealand, ENZL, traded higher ….. Home Furnishing Stores, FBH, SHW, LOW, HD ….. General Building Materials, GFF, TREX, OC, AWI, LXU, MAS, NX, VMC ….. Concrete Producers, USCR ….  Engineering Services, USG …..  Appliances, LII, WHR ….. Industrial Textiles, MHW ….. Business Services, PRGX, MMS,  …… Industrial Electrical Equipment, ETN, ROK, AME, AIMC, BGC, RBC, AOS, FELE, rose.

Resorts And Casinos, WYNN, PNK, RCL, VAC, and Cigarettes, MO, PM, LO, took Sin Stocks, VICEX, higher.

Fertilizers and Agricultural Chemicals, SOIL, RTK, AVD, SYT, and Paper Producers, WOOD, FBR, traded unchanged.

Mario Monti, chief of the ECB, perceives his OMT program, will be a monetary program to preserve the Euro. Yet it is a debt monetization plan, which destroys national sovereignty, and which was anticipated by investors who had sold the dollar and had bought risk assets and commodities, as well as international treasury bonds, emerging market debt and international corporate debt, backed by rising major world currencies and emerging market currencies since June 1, 2012

From a biblical economic and political point of view, all of this is part of Christ’s administration plan, presented in Ephesians 1:10, for a One Euro Government, that is a European federal superstate, one of ten regions of governance, as foretold in prophecy by the prophet Daniel in Daniel 2:30-33, and in prophecy by the Apostle John in Revelation 13:1-4, Revelation 13:5-10, Revelation 13:11-18, and Revelation 17:17.

The ECB is active in the banking arena as well as Bloomberg reports ECB to set up Repo Database as EU moves to rein in shadow banks. The European Central Bank plans to boost oversight of trading in repurchase agreements by setting up a transactions database amid a push by regulators to rein in so-called shadow banking, a European Union document shows. Michel Barnier, the EU’s financial services chief, raised the plan at a meeting of European Union finance ministers and central bankers in Nicosia, Cyprus, on Sept. 14-15, according to the document, whose authenticity was confirmed by an EU official. The database would cover the European market for repos. The official spoke on condition of anonymity because the talks are private. Barnier told the meeting that he is working on regulations targeted at “key actors” in the shadow-banking system, in particular money-market mutual funds, according to the document.

There is no personal sovereign experience as perceived in natural law, nor is there any human action as perceived in Austrian economics, as there is only the sovereign action of the all inclusive Christ, as presented by the Apostle Paul in his letter to the Colossians. Furthermore, national sovereign experience is giving way to sovereign experience in regional leaders and regional bodies, as the dynamos of corporate profitability, and global growth are winding down, and the dynamos of regional security, stability and sustainability are winding up. Mario Monti’s OMT program is the foundation of what will unfold to be monetary authority residing in the ECB, where he will be the monetary pope. Christ is found in Revelation 6:1-2, releasing the first horseman of the Apocalypse, who has a bow with no arrows, representing the passing of the baton of sovereignty from European nation states to regional sovereign bodies, in a bloodless economic and political coup d’etat.

To compound banking and national insolvency in Europe, many tax hikes and spending cuts are still yet to hit European countries, which have recession bearing down.

The prophet Daniel relates in Daniel 8:23-26, that there is waiting in Europe’s wings, the most fierce of leaders, one skilled in schemes of framework agreements, who at the appropriate time, will step onto the Eurozone’s stage to become its sovereign leader, Revelation 13:5-10. Potentials include Jean Claude Juncker, Jean Claude Trichet, Olli Rehn, and Herman Van Rompuy. Robert Wenzel of Economic Policy Journal writes Nigel Farage Fined ~ $4,000 for Insulting EU Chief Herman Van Rompuy.

Mike Mish Shedlock writes Battle Between Germany and France Over Spain Bailout Application; Numerous EU Ministers At Odds Over Banking Union.  I have stated before, the UK ought to decide to leave the EU entirely. To place itself at risk of having to comply with EU banking regulations and restrictions in London, financial transaction taxes, and eurozone bailout funding, on top of numerous silly trade agreements and absurd farm policy agreements is pure insanity. Since any one country can sink this thing, it sure cannot pass as is, nor can all of this possibly be ironed out by December.

Christ is working to administer his economy, his administration plan, Ephesians 1:10, for the fullness of times, that is for the completion of Neoliberalism’s Capitalism, European Socialism, and Chinese and Japanese Manufacturing, and for the introduction of Neoauthoritarianism’s Regionalism, where economic and political activity will center in the world’s ten regional blocs.

There can be and will be no personal sovereign experience, there will only the sovereign experience of diktat. The sixty year long wave, the Kondratieff Wave, which began in 1948, is completed as the central bankers have gone all in, and the conditions for a global catastrophic failure are in place as their monetary authority wanes, and as political turmoil rises globally. John Rubino writes A Bankrupt World Is An Unstable World and Elaine Meinel Supkis writes China/Japan Confrontation Heats Up While US Loses Grip On Global Muslims. Financial Armageddon, that is a global financial system and credit bust, together with its resolution, is foretold in Revelation 13:1-4, the diktat money system will rise to replace the fiat money system; here diktat serves as both credit and currency.

Neoliberalism featured wildcat finance, a Doug Noland term, where bankers worked carry trade and finance schemes. But, Neoauthoritarianism features wildcat governance, where leaders bit, rip and tear at one another, and only the most cunning and fierce will rise to the top. A sovereign and a seignior, meaning top dog banker who takes a cut, will rise to rule Europe’s economy; where Germany will exact a price for its participation by ruling over peripheral vassal states in a type of tyrannical revived Roman empire.

Bloomberg Europe banks fail to cut as Draghi loans defer deleverage. European banks pledged last year to cut more than $1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then they’ve grown only fatter. Lenders in the euro area increased assets by 7 percent to 34.4 trillion euros ($45 trillion) in the year ended July 31, according to data compiled by the European Central Bank. BNP Paribas SA (BNP), Banco Santander (SAN) SA, and UniCredit (UCG) SpA, the biggest banks in France, Spain and Italy, all expanded their balance sheets in the 12 months through the end of June. They have Mario Draghi to thank. The ECB president’s decision nine months ago to provide more than 1 trillion euros of three-year loans to banks eased the pressure to sell assets at depressed prices. The infusion, designed to encourage firms to lend, succeeded in averting a short-term credit crunch by reducing their reliance on markets for funding. It also may be making European lenders dependent on more central-bank aid. “Deleveraging isn’t taking place, especially in Spain and Italy,” said Simon Maughan, a bank analyst at Olivetree Securities Ltd. in London. “The fact that we haven’t got on with it, or very slowly, suggests that when the time comes we’ll need another ECB injection to roll over the first one, just to keep the balance sheets of Italian banks in business. (Hat Tip to Gary of Between The Hedges)

Zero Hedge writes “What’s next?”: Simon Johnson explains the doomsday cycle

Zero Hedge writes  There’s no engine for global growth pt 1

Zero Hedge Following QE8, Japanese teachers’ pension fund goes all-in

Zero Hedge reports Japan’s slow-motion tsunami.

Zero Hedge Draghi’s coup d’etat and why OMT is illegal.

Stefan Riecher of Bloomberg reports “The European Central Bank said the cost of its new Frankfurt headquarters will jump by as much as 41% due to higher prices for construction materials and ‘a number of unforeseen challenges.’  The 185-meter twin-towered skyscraper will now cost as much as 1.2 billion euros ($1.6bn), up to 350 million euros more than the initial price of 850 million euros… The central bank’s relocation to the new premises remains scheduled for 2014… The cost blowout comes as the ECB castigates profligate European governments for failing to control their own spending.”

Solitary Purdah writes The sovereign man is the real prisoner

Andrew Garvin Marshall writes Welcome to the world revolution in the global age of rage.

Your Restoration Project writes QE N+1 what the Fed is really up to.

Christ Martenson, of Peak Prosperity writes The trouble with printing money

The Atlantic writes The next panic.

Solar Cycles writes New secular bonds bear market

Market Oracle reports The fiat currency cyclone gathers

Bloomberg reports Argentine growth halts as Fernandez tightens control.

Mises Institute reviews The origins of the Federal Reserve. “Someone in the Aldrich inner circle, probably Morgan partner Henry P Davison, got the idea of convening a small group of top leaders in a super-secret conclave to draft the central bank bill. On November 22, 1910, Senator Aldrich, with a handful of companions, set forth in a privately chartered railroad car from Hoboken, NJ to the coast of Georgia, where they sailed to an exclusive retreat, the Jekyll Island Club on Jekyll Island, GA. The cover story released to the press was that this was a simple duck-hunting expedition.”–Murray Rothbard (Hat Tip to Robert Wenzel of Economic Policy Journal).

Market Oracle reports Slow painful economic death spiral of debasement and despair.

International Man writes The tide of power.

CNBC reports For these four nations, 2012 is worse than the great recession.

Axis of Logic reports Anti-US protests spread throughout Muslim world.

Liz Alderman of the NYT writes Euro or no, economics of everyday Greek life is eroding. When a visitor raised the issue on everyone’s minds, Greece’s future in the euro zone, Mr. Skouros pursed his lips for a long moment before speaking. “The problem has now gone beyond whether we remain in the euro or not,” said Mr. Skouros, 54. “The issue is, Can Greece be fixed?”

LA Times writes Japanese businesses close in China in face of protests. Japanese factories, restaurants, mini-marts and clothing retailers across China closed en masse Tuesday as protests continued in nearly 100 cities over a territorial fight between the two nations centered on some uninhabited islands near Taiwan. Nissan, Honda, Toyota and Mazda suspended operations at some plants, as did Sony. Hundreds of 7-Eleven shops run by a Japanese company were shuttered, as were dozens of outlets of the popular Gap-like Japanese clothing chain Uniqlo. Eateries serving Japanese food — even those with Chinese owners and staff — closed as well, shaken by weekend demonstrations that saw protesters overturning Japanese cars, looting businesses and setting factories on fire

Mike Mish Shedlock writes Rehypopthecated “ghost” steel pledged as assets in China

Mike Mish Shedlock writes Infinite QE.

Mike Mish Shedlock writes Government debt held by Spanish banks doubles in seven months

Mike Mish Shedlock writes QE to infinity and beyond; Mish for president?

Mike Mish Shedlock writes Government debt held by Spanish banks doubles in seven months

2) … Total Bonds Weekly, BND, traded up, but below their August 1, 2012, and September 1, 2102, double high, as US Government Bonds, ZROZ, EDV, TLT, BAB, BABS, rose; the rise in these caused a slight flattening of the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX; but the weekly chart of Steepner ETF, STPP, is now in an Elliott Wave 3 rise, heralding the end of credit. Another word for credit is trust. The economic foundation has changed from one of trust to distrust, as investors no longer believe that the world central banks are able to provide stimulus as is documented in Distressed Investments, FAGIX, Leveraged Buyouts, PSP, and Junk Bonds, JNK, traded lower. Emerging Market Bonds, EMB, International Treasury Bonds, BWX, Senior Bank Loans, BKLN, US Corporate Bonds, LQD, International Corporate Bonds, PICB, Municipal Bonds, MUB, topping out. Pimco’s Income Strategy Fund, PFL, and Nasdaq Premium Income, QQQX, rose to a new high as did Mortgage Backed Bonds, MBB, and as US Treasuries, ZROZ, EDV, TLT, BABS, BAB, Longer Duration US Corporate Bonds, BLV, rose, but below their late July 2012 highs. Doug Noland relates M2 (narrow) “money” supply jumped $34.6bn to a record $10.124 TN.  “Narrow money” has expanded 7.1% annualized year-to-date and was up 6.7% from a year ago. And he relates the jody Shenn Bloomberg report, “A measure of relative yields on mortgage securities that guide U.S. home-loan rates is poised for its biggest weekly drop in almost four years on speculation that the Federal Reserve will find a shortage of the bonds as it expands purchases…  This week’s drop of 34 bps, the largest since December 2008, exceeds the decline of 19 seen in the final two days of last week after the Fed’s Sept. 13 announcement that it would expand its balance sheet with monthly purchases of $40 billion of government-backed housing debt until the economic recovery strengthens.”   The value of California Municipal Bonds, CMF, jumped to an all time high on Friday as Mary Williams Walsh of Bloomberg reports  “Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion ‘wall of debt’ looming over the state, which had to be dismantled.  Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall.  On Thursday, an independent group of fiscal experts said… the ‘wall of debt’ was several times as big as the governor thought.  Directors of the State Budget Crisis Task Force said their researchers had found a lot of other debts that did not turn up in California’s official tally. Much of it involved irrevocable promises to provide pensions to public workers, health care for retirees, the cost of delayed highway maintenance and an estimated $40 billion bill to bring drinking water up to federal standards.  They also pointed out many of the same unpaid bills from previous years that the governor had brought to light, like $8 billion in delayed payments to schools and community colleges. The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time.”

3) …The US Dollar, $USD, UUP,  rose, as the Euro, FXE, the Swiss Franc, FXF, the Australian Dollar, FXA, the Canadian Dollar, FXC, the Brazilian Real, BZF, the South African Rand, SZR, the Mexico Peso, FXM, and Emerging Market Currencies, CEW, traded lower. Major World Currencies, DBV, and Emerging Market Currencies, CEW, traded slightly lower, as the US Dollar, $USD, UUP, traded slightly up.

4) … The global economic and political paradigm has changed from inflationism to deflationism; from expansion to contraction, as the global debt and economic growth that has underwritten capitalism, European Socialism, and Chinese production, has peaked. The new paradigm is one of regional monetary authority, regional security and regional sustainability.

Global debt deflation, that is global currency deflation is now underway on debt monetization by the US Federal Reserve, the ECB, and the Bank of Japan, as is seen in the currency demand curve, RZV: RZG, peaking out.. Ambrose Evans Pritchard writes Japan launches QE8 as 20-year slump drags on relating that Japan has launched an eighth round of quantitative easing to weaken the yen and cushion a slide back into recession and Bullion Vault reports  Japan follows “global easing trend”.

5) … Seigniorage, that is moneyness, will no longer come from the securitization of debt, but rather from the diktat of tyrants, as the fiat money system dies, and is replace by the diktat money system, where diktat serves s both money and credit.

Over the last two years, the world central banks’ monetary policies have stimulated US Infrastructure, PKB, Large Cap Growth, JKE, Russell 2000 Growth, IWO, but have destabilized the China Small Cap Stocks, ECNS, as is seen in this ongoing Yahoo Finance chart of PKB, JKE, IWO, and ECNS.

Doug Noland authors Z1, QE3 and Deleveraging as he writes on the Quarterly Z1 Flow Of Funds Report, The ongoing inflation of system incomes made possible by the historic expansion of federal debt has been the key dynamic of this latest reflationary cycle. Income gains have supported spending growth, corporate profits and renewed asset inflation.  This reflationary cycle has seen Household Net Worth bounce back strongly.  Household assets ended Q2 at $76.127 TN, up $1.423 TN y-o-y and are now only about 3% below the late-2007 peak.  At $62.668 TN, Household Net Worth (assets minus liabilities) has inflated $9.335 TN, or 17.5%, over the past eight quarters to less than 3% below Bubble period highs.  And while Real Estate values remain significantly below Bubble highs, the value of Household sector Financial Asset holdings has reached new records at about $52 TN.  Household Financial Asset holdings have inflated $8.505 TN in 24 months, or 19.6%.

I tend to believe that conventional thinking – albeit from central bankers, bond and hedge fund kings, or FT and WSJ columnists – is wrong on deleveraging.  Deleveraging is not predominantly a financial issue.  Economic structure matters – and it matters tremendously.  Importantly, true deleveraging requires that system debt loads are reduced to a level supportable by the capacity of an economy to produce real wealth.  A system can achieve stability and robustness only when a sound economy supports a manageable amount of system financial assets.  Yet with a highly unsound economy, ongoing rampant inflation of non-productive debt and highly unstable financial markets, from my framework our system remains very much in a financial leveraging Credit Bubble Cycle.

Today, a consensus view holds that money printing will inflate incomes and prices to levels that reduce the overall burden of system debt.  The belief is that a doubling of federal debt in four years has supported private-sector deleveraging – in the process creating a more robust system.  Higher risk asset prices are viewed as confirmation of the adeptness of this policy course.

And while it’s widely recognized that we are witnessing experimental monetary management, few seem to appreciate that we are similarly watching a historic experiment in economic structure.  Never before has a world-leading economy been so dominated by consumption and services.  This is especially noteworthy in terms of historical comparisons of deleveraging cycles.  I would strongly argue that if policymakers throw Trillions of fiscal and monetary stimulus at a maladjusted consumption and asset inflation-based economy – the end result will be an only more distended maladjusted economy.

Contemporary economies have an unprecedented capacity to absorb inflating Credit/purchasing power.  Apple expects to sell 10 million iPhone 5’s this weekend.  Throw more Credit and higher incomes at our economy, and folks can acquire more cool technology products, enjoy more downloads, do more laser treatments or dine at more upscale restaurants.  Literally Trillions of deficits and Fed monetization can be readily absorbed with hardly an impact on CPI.  A services and consumption-based economy is – at least during a Credit cycle’s upside – something to behold – and confound.

Our economic structure certainly enjoys unmatched capacity to absorb Credit excess without engendering traditional consumer price inflation.  Yet there is indeed a huge problem that no one seems to want to recognize:  Our system also has an unprecedented capacity to expand Credit that is backed by little in the way of wealth-creating capacity.  Our government literally injects Trillions into the economy – Credit that inflates incomes and sustains consumption and elevates asset prices.  The downside of this economic miracle is that, at the end of the day, there’s little left to show for the whole exercise except for an ever-expanding mountain of suspect financial claims.  Moreover, market values of these claims are sustained only by the unrelenting expansion of additional claims/Credit concurrent with increasingly radical monetary management.  This is Minsky’s “Ponzi Finance” at a systemic level

A real deleveraging would see the economy and financial markets weaned off of rampant Credit growth.  Non-financial Credit growth averaged about $700bn annually during the nineties.  This inflated to about $2.4 TN at the Mortgage Finance Bubble pinnacle in 2007.  As I noted above, we’re currently running at an annualized Credit growth rate of nearly $2.0 TN.  This is posing great unappreciated risk to system stability.

A real deleveraging would see price levels (and market-based incentives) adjust throughout the economy in a manner that would spur business investment – in the process incentivizing sound investment-based lending and resulting job growth.  Real deleveraging would see a shift in the economic structure from Credit-fueled consumption to savings and productive investment.  Real deleveraging would give rise to our endemic trade deficits shifting to surplus.  Real deleveraging would see a meaningful reduction in non-productive debt.  Real deleveraging would see market prices dictated by fundamentals rather than governmental intervention, manipulation and inflationism.

The “raging” debate is whether recent elevated unemployment is a “cyclical” or “structural” phenomenon.  Academic “white papers” not required.  After all, find a system that doubles mortgage Credit in about six years and then proceeds to double federal debt in four – and you’ll no doubt locate a deeply maladjusted economic structure.  Such gross financial imbalance ensures economic imbalance.  And, importantly, the longer such imbalances are accommodated/incentivized by loose fiscal and monetary policies the deeper the structural impairment.  Throw massive fiscal stimulus and monetize Trillions and such a structure will surely demonstrate historic deficiencies and fragilities.

Deleveraging – the process of unwinding the economic damage wrought from years of excess – will be a quite arduous economic process; one that will commence at some unknown date in the future.  Oh, I guess I failed to mention that total (financial and non-financial) Credit ended Q2 at a record $55.031 TN, or 353% of GDP.  And Rest of World holdings of our financial assets ended the quarter at a record $19.100 TN, a $3.860 TN increase from the end of 2008.

6) … Wealth can now only be preserved by investing in and taking possession of physical gold.
The Street writes Gold’s rise is stocks’ demise; wealth can only be garnered and preserved by investing in and taking possession of physical gold either in bullion form or at Internet trading vaults such as Gold Is Money or Bullion Vault.

Bernanke’s QE3 And Monti’s OMT Produce Peak Wealth … And Transition The World To Regional Governance And The Diktat Money System

September 17, 2012

Financial Market Report for the week ending Friday August 14,, 2012

1) … This week Daily Ticker reports Bernanke’s Bazooka: Aggressive, Open-Ended QE3.
The open-ended nature of this round of QE is a “very aggressive move,” says Reuters reporter Pedro Nicolaci da Costa,

The World Central Bank Chiefs brought out their big bazookas. Mario Draghi’s Monetary Outright Transactions Program, OMT, and Ben Bernanke’s QE3, were the aggressive monetary easing, read money printing, that the financial markets were waiting for. Neoliberalism’s debt trade expanded to what is likely the maximum possible benefit, with Fidelity’s distressed investments, Capital and Income Fund, FAGIX, expanding to its greatest value in a year at a price of 9.45. Full monetary expansion has likely been achieved; it is unlikely there be a QE-Infinity Market Rally. Peak fiat wealth, and peak money, have been attained. Definitely peak credit has been achieved as Total Bonds, BND, traded lower this week, and lower for the month, as World Stocks, VT, VSS, and Commodities, DBC, traded higher, on what is likely the last expansion of the global debt trade. The see saw destruction of fiat wealth is underway now that total bonds are trading lower.

Emerging Market Currencies, CEW, traded higher, taking the Emerging Markets, EEM, Poland, EPOL, Turkey, TUR, Egypt, EGPT, Thailand, THD, New Zealand, ENZL, the Philippines, EPHE, Austria, EWO, and Argentina, ARGT, higher.

Major world currencies, DBV, jumped higher as the Indian Rupe, ICN, the Australian Dollar, FXA, the Canadian Dollar, FXC, the Euro, FXE, the South African Rand, SZR, British Pound Sterling, FXB,  the Brazilian Real, BZF, the Swiss Franc, FXF, the Swedish Krona, FXS, the Russian Ruble, the Taiwan Dollar and the South Korean Won, rose. The Euro, FXE, closed at 130.40 on risk on momentum investing. The Japanese Yen, FXY, traded basically unchanged. The US Dollar, $USD, UUP, plummeted. The Mexico Peso, FXM, traded lower. Major stock exchanges South Korea, EWY, Sweden, EWD, Australia, EWA, Taiwan, EWT, Hong Kong, EWH, Russia, RSX, Singapore, EWS, India, INP, Switzerland, EWL, Mexico, EWW, Canada, EWC, Italy, EWI, and Spain, EWP, rose strongly.

Commodities, DBC, and US Commodities, USCI, rose as Silver, SLV, Timber, CUT, Base Metals,, DBB, Gold, GLD, Copper, JJC, Oil, USO, Agricultural Commodities, RJA, Natural Gas, UNG, rose. Unleaded Gas, UGA, traded unchanged. month.  Bloomberg reports Commodities set for longest run of weekly gains since  2010. Commodities headed for the longest run of weekly gains since 2010 as the Federal Reserve’s third round of monetary measures to boost the U.S. economy spurred speculation that energy and metal demand will increase as the US dollar declines. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 1.1 percent to 694.71 at 12:29 p.m. New York time. The gauge was poised for the seventh straight weekly advance, the longest rally since October 2010. Industrial metals led the rally, and crude oil in New York topped $100 a barrel for the first time since May.

Total Bonds, BND, traded lower, as US Treasuries, ZROZ, EDV, TLT, BAB, BABS, Municipal Bonds, MUB,  Longer Duration Corporate Bonds, BLV, Corporate Bonds, LQD, traded lower, as the 10 30 US Sovereign Debt Yield Curve steepened, as is seen in the chart of the Steepner ETF, STPP, rising. The Interest Rate on the US Ten Year Note, ^TNX, rose to 1.86%. Mortgage Backed Bonds, MBB, Senior Bank Loans, BKLN, Emerging Market Bonds, EMB, Junk Bonds, JNK, International Corporate Bonds, PICB, International Treasuries, BWX, and Leverage Buyouts, PSP, traded higher. The global government bond bubble is about to burst. Maximum credit expansion has likely occurred as the final dick the can down the road maneuver has been executed.

Cheap credit coming through the Fed currency debasement 3 caused Silver Miners, SIL, SSRI, Gold Miners, GLDX, GDX, GDXJ, to rise to new highs. A falling US Dollar drove up demand for risk assets such as Rare Earth Miners, REMX, Aluminum MIners, ALUM, Metal Manufacturing, XME, Steel, SLX, Coal Miners, KOL, Copper Miners COPX,Energy Service, IEZ, OIH, European Financials, EUFN, Financials, XLF, the Too Big To Fail Banks, RWW, Investment Bankers, KCE, Stock Brokers, IAI, Small Cap Revenue, RWJ, Paper Manufacturers, WOOD, Small Cap Energy Shares, PSCE, Small Cap Materials, PSCM, Small Cap Consumer Discretionary, PSCD, and Small Cap Technology, PSCT. Home builders, ITB, rose to a new high, World small cap stocks, VSS, rose more strongly than the world stocks, VT.  The Morgan Stanley Cyclicals Index, ^CYC, rose 4%.

The dollar carry trade, that is the the sell of the US Dollar, $USD, UUP, and the purchase of Emerging Market Currencies, CEW, and Major World Currencies, DBV, has caused the Small Cap Pure Value, RZV, to rise more strongly than the Small Cap Pure Growth Shares, RZG, as is seen in this ongoing Yahoo Finance Chart of RZV and RZG. Debt deflation, that is currency deflation of the US Dollar, has caused finally caused US Treasuries, ZROZ, EDV, TLT, to fall lower in value. Doug Noland reltes The U.S. dollar index dropped 1.8% to 78.847 (down 1.7% y-t-d).

Investors anticipation of purchase of longer duration Treasuries, EDV, in QE2, and mortgage backed bonds, MBB in QE3, underwrote an ongoing risk-on momentum trade, beginning in June 2012, led by US Consumer Service, IYC, Real Estate, IYR, Small Cap Real Estate, ROOF, the Too Big To Fail Banks, RWW, and now a likely blow off top in US Infrastructure, PKB, US Home Building, ITB, Copper MIning, COPX, Small Cap Revenue, RWJ, and Small Cap Value, RZV, as is seen in this ongoing Yahoo Finance chart of MBB and RZV, RWJ, RWW, IYC, IYR, COPX, ITB, PKB, ROOF

Russia, RSX, Russia Small Caps, ERUS, China Infrastructure, CHXX, China Real Estate, TAO, China Small Caps, HAO, China Minerals, CHIM, China Industrials, CHII, India Infrastructure, INXX, India Earnings, EPI, led the BRICS, EEB, higher.

The bond vigilantes have gained a nascent control of US Sovereign debt interest rates. With a steepening 10 30 US Sovereign Debt Yield, Curve, ^TNX:^TYX, seen in the Steepner ETF, STPP, rising, the monetary authority of the US Federal Reserve has started to wane. Doug Noland relates M2 (narrow) “money” supply jumped $17bn to a record $10.089 TN.  “Narrow money” has expanded 6.8% annualized year-to-date and was up 6.3% from a year ago.

2) … In the news
Barron’s Like the ECB, the Fed vows to do whatever it takes

Yahoo News German court removes hurdle to euro zone bailout fund

Zero Hedge The noose tightens on national sovereignty in Europe

Zero Hedge On Bernanke’s voyage to the end of the monetary policy world

CNBC Eurozone in worst crisis since WWII, Trichet says

Casey Research Paradigm collapse

Mike Mish Shedlock China’s shadow banking system collapses exposing numerous Ponzi schemes

Mike Mish Shedlock Panic!

Seeking Alpha Why QE3 can’t work: Understanding the liquidity trap

The Automatic Earth Those Dutch Tulips ain’t looking all that rosy

Mises Institute Martin Armstrong on the Sovereign Debt Crisis

Follow The Money QE3: welcome to the era of unlimited money printing

Automatic Earth Bernanki and Draghi are not trying to save our economies

Institutional Risk Analyst Basel III as the next Smoot-Hawleyt

Money And Market Insanity at the Fed! Bernanke to print $480 million!

Zero Hedge Spain is Greece… only bigger and wors

Armstrong EConomics QE3 confirms the economic implosion

Zero Hedge On Bernanke’s voyage to the end of the monetary policy world

New York Times Japanese companies close facilities in China as tensions rise

Daily Ticker 2008 Financial Crisis Cost Americans $12.8 Trillion.  Better Markets, a pro-financial reform Wall Street watchdog, has released what it is calling the “first-ever” report totaling the loss of American wealth since Lehman filed for bankruptcy on Sept. 15, 2008

Reuters Exclusive: Ghost warehouse stocks haunt China’s steel sector. Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place. China’s demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth. As defaults have risen in the world’s largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said. Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world’s steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments. “What we have seen so far is just the tip of the iceberg,” said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. “The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry.  (Hat Tip to Gary of Between The Hedges)

Doug Noland QE Forever.  “Congratulations Mr. Bernanke.  I’m happy, my assets’ values go up.  But as a responsible citizen I have to say the monetary policies of the U.S. will destroy the world.”  Marc Faber, investor, analyst and writer extraordinaire, September 14, 2012, Bloomberg Television.

Speculative financial leveraging created an unlimited supply of Credit/marketplace liquidity.  Unlimited supply, then, led to a wholesale mispricing (under-pricing) of finance.  This was particularly problematic for asset markets, where the over-abundance of cheap Credit fueled asset price inflation.  Higher asset prices, then, created heightened demand for additional Credit, which was satisfied at ongoing low borrowing costs.  As Credit will do if not restrained, it all became self-reinforcing – or “recursive.”  And as the quantity of unlimited, mispriced and asset-centric Credit exploded, resources throughout the entire economy were badly misallocated.  A decade or so ago I explained the dangers of “Financial Arbitrage Capitalism.” Somehow, the notion that our system needs only greater quantities of mispriced and misallocated finance has yet to be discredited.

There’s no reasonable justification for Dr. Bernanke taking such extreme risks with financial and economic stability.  And I struggle to understand how he doesn’t see the likely consequences.  After the cult of Greenspan, I thought we had learned a lesson from having one individual exert such power and influence.  Indeed, the Federal Reserve has now grossly overstepped its role.  Never was it anticipated that the Fed would resort to massive purchases of Treasury bonds and mortgage-backed securities in a non-crisis environment.  Never was it contemplated that our central bank would resort to pre-committing to massive ongoing money printing in the name of reducing the unemployment rate.  It is, as well, the nature of speculative manias for things to turn crazy in the destabilizing terminal-phase.  The past few weeks – with more than ample Bubble accommodation and craziness – really make me fear that eventual day of reckoning.

Robert Wenzel of Economic Policy Journal relates Ron Paul Responds to Fed Decision to Launch QE3
Ron Paul issued the following statement in response to the Federal Reserve announcement that it will launch a new round of quantitative easing:  No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity. Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.

“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit. But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources. Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.”

3) … Commentary
World Stocks, VT, VSS, and Commodities, DBC, USCI, are likely to trade lower beginning next week with the Shanghai shares shares, traded by, CAF, US INfrastructure, PKB, laden with Cement Producers,and Building Material Wholesalers, Steel, SLX, Metal Manufacturing, XME, Home Builders, ITB, Semiconductors, XSD, Aluminum Producers, ALUM, Small Cap Pure VAlue, RZV, and the National Bank of Greece, NBG, are likely to lead the way lower, as the credit cycle, that is the business cycle is complete on a full expansion of credit and monetary expansion, putting an end to the risk on rally that began in early June 2012: the daily chart of world stocks, VT, likely shows a blow off top with a hammer candlestick close at 49.94. Inflationism will likely turn now to deflationism on disinvestment and derisking. The sixty year long wave, which began in 1948, the Kondratieff Wave, is now likely complete as the Central Bankers have gone all in. The conditions for a global catastrophic failure are in place.

Financial moral hazard will now be breaking out as the seigniorage, that is the moneyness, of the Neoliberal Milton Friedman Free to Choose floating currency regime, which has been based on a global debt trade, crumbles as trust of the debtor wanes. A new seigniorage, that is the seigniorage of diktat of regional governance emerges; traditional credit and neoliberal finance are characteristics of a bygone era of prosperity.

Jesus the Christ, is passing the baton of sovereignty is passing from sovereignty countries to regional bodies such as the ECB and the troika, as leaders meet in summits and announce regional framework agreements, Revelation 6:1-2, to effect the economy of God for the fullness of our current time, as Neoliberalism yields to Neoauthoritarianism, Ephesians 1:10.  Monetary authority will no longer be based upon the debt paying capability of nations, but rather on political leaders of regional monetary popes and cardinals. The fiat money system is now giving way to the diktat money system. Monetary sovereignty will no longer be held by nations, but rather by regional blocs as regionalism rises to replace crony capitalism and European Socialism. Evidence of the loss of monetary sovereignty comes from the Zero Hedge report Europhoria officially over: Spanish 10Y breaks 6% the wrong way.

We are witnessing the fulfillment of Bible prophecy of Daniel Daniel 2:30-33, which foretells that the twin iron legs of global hegemony will give way to the ten toed kingdom of regional economic and political governance; and also the fulfillment of bible prophecy of John the Revelator, that in Europe, a beast system, Revelation 13:1-4, a beast ruler, Revelation 13:5-10, and a beast banker, Revelation 11-18, will rise to power to establish totalitarian collectivism and austerity in a type of revived Roman empire. In These Times writes In the twilight of empire.

Cristoph Dreier of WSWS reports The troika returns to Athens.  The EU has transformed Greece into a protectorate, in which European companies can exploit workers at low wages.  And Mike Jobson of WSWS reports Alcoa workers travel to Rome to protest imminent plant closure. On September 10 about 500 Alcoa workers from Sardinia travelled to Rome to protest the imminent closure of their plant located in Portovesme.

Nick Beams of WSWS reports Financial parasitism and looting are the “new normal”. The actions of the world’s major central banks signify that there is no prospect of a return to what were once considered “normal” conditions.

Bespoke Investment Blog reports Highest Percentage of Bulls in Three Months. We’ve now gotten two weeks in a row of more bulls than bears in our weekly market poll, which asks whether the S&P 500 will be higher or lower one month from now.  This week’s bullish reading of 56% is the highest level seen in three months. A lot of optimism has creeped up over the past week, so don’t be surprised if we get a pullback here.  Given such bullishness one may consider investing in these Bear Market ETFs, SMN, BZQ, EEV, BIS, FXP, SKF, DUG, SQQQ, REW, RUSS, DPK, SZK, SCC, MZZ, SSG, RXD, STPP seen in this Finviz Screener; or one may consider investing in these Volatility ETFs TVIX, CVOL, VIXY, VXX, VIIX, TVIZ, VXZ, VIXM, seen in this Finviz Screener.

World Stocks, European Financial Institutions, Spain, and Italy Blast Higher As Mario Draghi Defies Germany With Launch Of What He Terms a Fully Effective Backstop For The Euro … Mario Draghi Proclaims The Defacto Monetary Authority For A Eurozone Super State

September 11, 2012

Financial Market Report for the week ending Friday August 7, 2012

1) … On Thursday, World Stocks, VT, and World Small Cap Stocks, VSS rose strongly, as European Financials, EUFN, Greece, GREK, Austria, EWO, Spain, EWP, Italy, EWI, Germany, EWG, Russia, RSX, Australia, EWA, Australia Small Caps, KROO, blasted higher, as Louis Armistead of the Telegraph reports Mario Draghi defies Germany with launch of ‘fully effective backstop’ for euro. Mario Draghi has defied German opposition and launched an “unlimited” bond buying programme by the European Central Bank (ECB) that he said would provide a “fully effective backstop” to the stricken eurozone economies.

China Minerals, CHIM, China Infrastructure, CHXX, rose strongly; US Infrastructure, PKB, rose to a new high on higher cement, TXI, CRH, CX, EXP, Appliances, WHR, Building Supply Stores, SHW, Building Materials, OC, USG, HW, and Home Furnishing Stores, LZB, FBHS, PIR, LL, and HD. Homebuilders, ITB, rose to a new high.

Banks, NBG, DB, SAN, LYG, BCS, RBS, CS, UBS, led World Banks, IXG, European Financials, EUFN, Investment Bankers, KCE, and Financials, XLF, higher.

Retail, XRT, Large Cap Dividend, DLN, Dividend Payers, DVY, Real Estate, IYR, Consumer Discretionary, IYC, rose to new highs; these together with carry trade nations of EGPT, ENZL, THD, EPOL, TUR, are the canaries in the stock market coal mine showing the future direction of the stock market. Risk assets were drawn up by Mario Draghi’s plan; but next week all are likely to trade lower as can be followed in this ongoing Yahoo Finance Chart.

Disney, DIS, CBS, NWSA, TWX took Dynamic Media, PBS, to a new high,

Monsanto, MON, PPG Industries, PPG, FMC Corp, FMC, Raytheon, RTN, General Electric, GE, 3M, MMM, led Large Cap Growth, JKE, to a new high.

Annaly Capital Management, NLY, and Starwood Property Trust, STWD, rose taking Mortgage REITS, REM, to a new high.

Ford, F, General Motors, GM,  PACCAR, PCAR, led Automobiles, CARZ, higher.

Technical Software Manufacturers, MENT, CNQR, ANSS, CDNS, PMTC, led Small Cap Technology, PSCT, higher,

Small Tools, SNA, led Small Cap Industrials, PSCI, higher.

Small Cap Energy, PSCE, rose strongly.

Footwear producers, ICON, SHOO, DFS, and CROX, as well as Apparel Retailers, ANN, CMRG, BKE, CAT, JOSB, MW, RUE, SSI, TLYS, DSW, PLCE, ANF, JNY, PSUN, CBK, as well as Textile Manufacturers RL, and UA, and Home Furnishings such as FBHS, LZB, led Small Cap Discretionary, PSCD, to a new high. The ongoing Finance Chart of PSCD, PSCT, PSCI, PSCE, shows the dramatic rise of PSCD.

Synthetics, MTX, GGC, and Specialty Chemicals, KOP, NUE, WLK, SHLM, RPM, POL, ODC, KMG, WDFC, FUL, CYT, SXT,OMN, APEC, CHMT, KRA, OMG, CBT, and OLN, led Small Cap Basic Materials, PSCM, to a new high.

Budweiser, BUD, Direct TV, DTV, Comcast, CMCSA, Carnival Cruise Lines, CCL, led US Consumer Services, IYC, to a new high.

PowerShares Nasdaq, QQQ, rose to a new high; Nasdaq 100, QTEC, Semiconductors, XSD, Networking, IGN, Cloud Computing, SKYY, Steel, SLX, Copper Miners, COPX, Banking, KRE, rose strongly.

Dividend Payers, DVY, Small Cap Revenue, RWJ, Too Big To Fail Banks, RWW, Premium REITS, KBWY, US Preferred Shares, PFF, rose to a new high.

Drug Manufacturers PFE, LLY, NVO, took Pharmaceutical Manufacturers, IHE, higher.

Paper manufacturer International Paper, IP, and WY, NP, rose to new a new high; and Junior Gold Miners, GDXJ, Gold Miners, GDX, rose strongly.as Timber, CUT, Unleaded Gasoline, UGA, Gold, GLD, and Silver, SLV, traded higher, but commodities, DBC, traded unchanged.

Bonds, BND, traded lower.

Emerging Market Currencies, CEW, traded higher taking Turkey, TUR, Egypt, EGPT, Thailand, THD, New Zealand, ENZL, and South Africa, EZA, higher, the British Pound Sterling, FXB,  the Canadian Dollar, FXC, the Australian Dollar, FXA, the Swiss Franc, FXF, the South Africa Rand, and the Euro, FXE, rose; while the Swedish Krona, FSX,  the Yen, FXY, and the US Dollar, $USD, UUP, traded lower.

2) … On Friday, World Stocks, VT traded higher again on Mario Draghi’s announcement of his Outright Monetary Transactions Program, the program will be unlimited; buying will focus on bonds with one-to-three year maturity.
Euro Intelligence in their for fee newsletter relates Draghi’s Big Bazooka causes outrage in Germany
Pari passu will be guaranteed through legislation;
The ECB governing council will have full discretion to determine when conditions have been met;
The ECB will provide a transparent breakdown of its purchases;
Jens Weidmann votes No, and is quoted by the Bundesbank as condemning the decision as monetary financing of debt;
Die Welt has the headline: “Financial markets cheer the death of the Bundesbank”, as  the reaction in Germany was one of outrage;
Holger Stelzner writes that the dividing line between fiscal and monetary policy has disappeared; he said the German constitutional court can still stop this;
Marc Beise says it is wrong for Draghi to risk everything to save the euro;
Nikolaus Blome says inflation will come with a delay.

Small Cap Growth Shares, RZG, rose to a new high. And Small Cap Value Shares, RZV, rose strongly as Automobile Dealerships KMX, SAH, ABG, CRMT, LAD, GPI, and PAG, rose to new highs. The Street reports US Auto Sales on Road to Next Subprime Bubble. Experian Automotive, a unit of Experian, the credit-rating firm, reported Tuesday that “loans in the nonprime, subprime and deep-subprime risk tiers accounted for more than one in four new-vehicle loans in [the second quarter] of 2012.” That was a 14% increase from the same period a year earlier, and it actually exceeded the rate in the second quarter of 2007, before the financial crisis made lenders tighten their standards. And Zero Hedge writes Subprime Auto Nation.

World Banks, IXG, rose strongly as China Financials, CHIX, led China Infrastructure, CHXX, China, YAO, Shanghai, CAF, Hong Kong, EWH, higher. South Korea banks, WF, KB, SHG, EWY, higher. India Earnings, EPI, led India Infrastructure, INXX, India Small Caps, SCIF, and India, INP, higher. Brazil Financials, BRAF, led Brazil, EWZ, EWZS, higher. Russia, Russia, RSX, ERUS, Poland, EPOl, Australia Small Caps, KROO, Sweden, EWD, rose strongly. National Bank of Greece, NBG, and Royal Bank of Scotland, RBS, led European Financials, EUFN, Italy, EWI, Spain, EWP, Austria, EWO, and Germany higher.

Regional Banks, KRE, rose to a new high; and The Too Big To Fail Banks, RWW, rose strongly as MS, JPM, GS, BAC, and C rose strongly, taking Financial, XLF, near its earlier high. Small Cap Revenue, RWJ, continued higher to match its previous high.

Internet Retailers, GOOG, AMZN, and EBAY, FDN, continued higher. Networking, IGN, and Cloud Computing, SKYY, rose strongly.  Leveraged Buyouts, PSP, moved higher.

Copper Miners, COPX, Metal Manufacturing, XME, Steel, SLX, Small Cap Energy, PSCE, Energy, XLE, XOP,  Energy Services, OIH, IEZ, Coal Miners, KOL, Gold Miners, GDX, GDXJ, Rare Earth Manufactures, REMX, and Uranium Miners, URA, moved higher.

Real Estate shares, ROOF, IYR, and REM, moved to new highs as seen in this combined Yahoo Finance chart.

Transports, IYT, and Industrial, IYJ, finished the week higher.

Copper, JJC, Timber, CUT, Unleaded Gas, UGA, Gold, GLD, and Silver, SLV, led Commodities, DBC, higher, while Natural Gas, UNG, traded lower.

The National Bank of Greece, NBG, and Bank of Ireland, IRE, and Deutsche Bank, DB, took European Financials, EUFN, and Europe, Greece, GREK, Germany, EWG, and Europe, VGK, higher.

Total Bonds, BND, traded higher but below their August 2012 high, while PICB, BKLN, EMB, JNK, BWX, MBB, rose to new highs this week, taking distressed securities, FAGIX, to a new high as seen in this combined Yahoo Finance chart.  M2 (narrow) “money” supply jumped $26.3bn to a record $10.07 TN.

Emerging Market Currencies, CEW, jumped strongly; the Euro FXE, the Swedish Krona, FXS, the Swiss Franc, FXF, the Australian Dollar, FXA, the British Pound Sterling, FXB, the South African Rand, SZR, the Canadian Dollar, FXC, and the Japanese Yen, FXY, blasted higher, and the US Dollar, USD, UUP, fell strongly; major world currencies, DBV, rose, but closed below their early August 2012 high.

3) …Open Europe relates
Quartet of EU presidents working on plans for a new eurozone parliament. Citing EU diplomats, Handelsblatt reports that plans being developed by Council President Herman Van Rompuy, Commission President José Manuel Barroso, Eurogroup chief Jean-Claude Juncker, and ECB President Mario Draghi, would see the creation of a new ‘eurozone parliament’. The new parliament, in which both MEPs and national parliamentarians would sit, would have powers over eurozone members’ fiscal and economic policy. Other proposals include a stronger role for the European Commission to veto national spending plans. The far-reaching proposals would require changes to the EU Treaties. Handelsblatt

ECB to announce unlimited bond purchases but with emphasis on conditions. Bloomberg reported yesterday that the ECB will at today’s monthly meeting announce a new bond buying plan termed “monetary outright transactions”, which will involve potentially unlimited purchases of short term government debt (under three years). However, the purchases would be sterilised to offset any inflation fears and the ECB will not publicly announce a cap on the spread in borrowing costs between different eurozone members. Countries wishing to receive such assistance will also have to apply to the eurozone bailout funds and adhere to a strict reform programme.  Bloomberg.

Reports suggested that Bundesbank President Jens Weidmann remained the only member of the ECB’s Governing Council to object to the proposed plan. The FT reports that Netherlands, Belgium, Luxembourg and Finland have insisted that a discussion of plans for a credible exit strategy from the bond buying be added to the agenda for today’s meeting. In a joint statement leading business groups from France, Germany, Italy and Spain issued a call for greater action from both governments and the ECB to safeguard the euro, although they added that the current pessimism was unjustified with structural reforms beginning to take effect. Carsten Schneider, budgetary spokesman for the SPD, accused German Chancellor Angela Merkel of forcing the ECB to break its mandate and take on a governing role due to her inability to make decisions, according to Handelsblatt. FT WSJ Bloomberg 2 Independent Irish independent Euractiv BBC: Hewitt Telegraph The Irish Times Corriere della Sera Sole 24 Ore Le Monde Le Monde2 Le Figaro Repubblica FT Times: Leader Times Guardian European Voice FT: Atkins FT: Barber FT: Davies Handelsblatt

Cheap ECB cash could prove to be the worst form of bailout. Writing on his Telegraph blog Open Europe’s Director Mats Persson warns against becoming reliant on ECB intervention to save the euro, arguing, “Once the ECB taps are opened, it’s incredibly hard to turn them off without causing huge market distortions and creating an even graver crisis than the one that the original intervention was meant to stave off. That is why the ECB is right to insist on countries committing to reforms, through an intergovernmental decision, before it bails them out. Perhaps that mix could work for struggling Eurozone countries. But there’s also a huge risk that Europe, in the long-term, will pay a very high price for what is only (at best) a short-term fix.” Telegraph: Persson.

4) … CNBC reports (Hat Tip to Gary of Between The Hedges)
Italy Has No Plans to Access ECB Bond-Buying Plan: Monti. Italian Prime Minister Mario Monti said he is not expecting Italy to access the European Central Bank’s new bond-buying program anytime soon in an exclusive interview with me for CNBC’s “Closing Bell.”

China’s Factories Run at Lowest Rate in 39 Months. Industrial output growth slowed to 8.9 percent year on year, the weakest since May 2009 and below market forecasts of a 9.1 percent rise, data from China’s National Bureau of Statistics (NBS) showed on Sunday. Fixed asset investment, which accounted for half of China’s net economic growth in the first-half of 2012, grew 20.2 percent between January and August compared to the year earlier period, a touch below expectations for a 20.4 percent expansion.

China August Imports Shrink 2.6%; Exports Grow. China’s imports fell by 2.6 percent on year in August, while exports grew by a less-than-expected 2.7 percent, the customs administration said on Monday. The country logged a trade surplus of $26.7 billion, topping forecast of $19.8 billion, from July’s $25.1 billion. China’s trade outlook for 2012 is worsening, darkened especially by growing problems in Europe, the Commerce Ministry said last month.

Downturn in China Spreads to Key Sectors

5) … Doug Noland writes Diverging Like It’s 1929.
With the financial world fixated on Draghi, Bernanke and endless QE, global markets now wildly diverge from economic fundamentals.  Many are content to celebrate, holding firm to the view that financial conditions tend to lead economic activity.  Markets discount the future, of course.
Importantly, traditional rules and analysis no longer apply.  Monetary policy has been locked in super ultra-loose mode now entering an unprecedented fifth year.  Here in the U.S., financial conditions can’t get meaningfully looser.  The Federal Reserve has pushed corporate and household borrowing costs to record lows.  Liquidity abundance will ensure near-record 2012 corporate debt issuance.  “Loose money” has already had too long a period to impact decision making throughout the economy – with decidedly unimpressive results.  Arguably, previous unfathomable monetary measures some time ago created dependencies and addictions that are increasingly difficult to satisfy.
Clearly, monetary policy is exerting a much greater impact on the financial markets than it is on real economic activity.  In the U.S. and globally, market gains are in the double-digits, while economic growth is measured in dinky decimals.  The vulnerability associated with elevated securities markets has tended to only compound the issue of systemic fragility, and policymakers have responded to heightened stress with only more extraordinary policy measures.  Recent weeks have provided important confirmation of the Bubble Thesis.
Amazingly, in the face of exceptionally buoyant securities markets and an expanding economy, the Federal Reserve is apparently about to embark on yet another round of quantitative easing (“money printing”).  Few expect this to have much impact on the real economy, but it is clearly having a major impact on already speculative financial markets.
I’ve always feared such a scenario:  Severely maladjusted Bubble Economies responding poorly to aggressive monetary stimulus, spurring policymakers into only more aggressive stimulus measures.  Meanwhile, financial fragility mounts, as Credit systems continue to rapidly expand non-productive debt.  Securities markets become dangerously speculative and detached from underlying fundamentals.
Students of the late-1920s appreciate how late-cycle policy-induced market and economic distortions laid the groundwork for financial collapse and depression.  Especially in 1928 and early-1929, highly speculative financial markets diverged from faltering global economic fundamentals.  Our nation’s business came to be precariously dominated by “money changers,” financial leveraging and market speculation.
the speculator community was emboldened back in late-1998.  Not surprisingly, loose monetary policy combined with a central bank market backstop had the greatest impact on the fledging Bubble at the time gathering momentum in technology stocks.  The Nasdaq Composite then rose from about 1,000 in early-October 1998 to its historic March 2000 high of 4,816.
It’s certainly not uncommon for individual stocks – or markets – to enjoy their most spectacular gains right as they confront rising fundamental headwinds.  Indeed, whether it was the Dow Jones Industrial Average in 1929 or technology stocks in late-99/early-2000, deteriorating fundamentals actually played an instrumental role in respective dramatic market rallies.   In both case, bearish short positions had been initiated in expectation of profiting from the wide gulf between inflating stock prices and deflating fundamental backdrops.  In both cases, short squeezes played a prevailing role in fueling “blow off” speculative rallies.
Actually, the most precarious backdrops unfold during a confluence of serious fundamental deterioration, perceived acute systemic fragilities, aggressive monetary policy easing and an already highly speculative market environment.  This was the backdrop during 1929 and 1999, and I would argue it is consistent with the current environment.  Excess liquidity and rampant speculation drove prices higher in ’29 and ’99, as the unwinding of short positions (and the attendant speculative targeting of short squeezes) created rocket fuel for a speculative melt-up.  Over time, intense greed and fear and episodes of panic buying overwhelmed the marketplace.  Would be sellers moved to the sidelines and markets dislocated (extraordinary demand and supply imbalances fostered dramatic spikes in market pricing and emotions).   Market dislocations – and resulting price jumps – were only exacerbated when those watching prudently from the sidelines were forced to capitulate and jump aboard.
The technology Bubble was spectacular – but it was also more specific to an individual sector than it was systemic.  Today’s Bubble is unique in the degree to which it encompasses global markets and economies.  Systemic fragilities these days make 1999 appear inconsequential in comparison.  The backdrop has more similarities to 1929 – and, not coincidently, policymakers are absolutely resolved to avoid a similar fate.  Thus far, policy measures have notably succeeded in fostering over-liquefied and highly speculative markets on a manic course divergent from troubling underlying fundamentals.
The Draghi Plan was unveiled this week, and expectations have the Fed coming imminently with QE3.  I don’t anticipate measures from the ECB or the Fed to have much effect on economic fundamentals.  At the same time, Drs. Draghi and Bernanke already have had huge impacts on global risk markets.  Their policies have dramatically skewed the markets in the direction of rewarding the “bulls” and severely punishing the “bears”.  History will not be kind.  Policies have, once again, incentivized speculation and emboldened speculators.  Policymakers have further energized the expansive global “government finance” Bubble.
From my perspective, the key issue is not whether the ECB finally has a (Draghi) plan that will resolve Europe’s debt crisis – the coveted big bazooka.  Monetary policy won’t solve Europe’s deep structural problems anymore than QE will resolve U.S. economic maladjustment and global imbalances.  Indeed, there is little doubt that the Draghi and Bernanke Plans will only exacerbate global systemic fragilities.

6) … Bloomberg reports
Matthew Brockett and Jeff Black report Draghi Says Officials Agree on ECB Unlimited Bond-Buying. European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond- purchase program to regain control of interest rates in the euro area and fight speculation of a currency breakup. The program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi said at a press conference in Frankfurt after the ECB held its benchmark rate at a record low of 0.75 percent. “Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.” “Governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial-market circumstances and risks to financial stability exist — with strict and effective conditionality,” Draghi said. The ECB reserves the right to terminate bond purchases if governments don’t fulfil their part of the bargain, he added.

Jeff Black and Jana Randow report Weidmann Says ECB Bond Plan ‘Tantamount’ to State Financing. Bundesbank President Jens Weidmann criticized the European Central Bank’s bond-buying plan, saying it is “tantamount to financing governments by printing banknotes.” “Monetary policy risks being subjugated to fiscal policy,” Weidmann said in a statement issued by the Frankfurt- based Bundesbank today. “The intervention purchases must not be permitted to jeopardize the capability of monetary policy to safeguard price stability in the euro area.” While Weidmann represents Germany, the euro area’s largest economy, he was the only objector on the ECB’s 23-member council, where each national central bank governor has one vote. The Bundesbank, which is required to carry out ECB policy decisions, didn’t say it would stand in the way of bond purchases. “If the adopted bond-purchasing program leads to member states postponing the necessary reforms, this will further undermine confidence in the political leaders’ crisis-resolution capability,” Weidmann said. “The announced interventions in the government bond market carry the additional danger that the central bank may ultimately redistribute considerable risks among various countries’ taxpayers,” Weidmann said. “Such risk-sharing, however, can be legitimately authorized solely by democratically elected parliaments and governments.”

Brian Parkin reports  “European Central Bank President Mario Draghi’s plan to shore up the euro by buying bonds is a ‘black day’ for the currency ‘with no turning back, said Germany’s Bild newspaper, siding with the Bundesbank.  The newspaper’s chief political columnist, Nikolaus Blome, said in an editorial that the blueprint outlined by Draghi yesterday undermines conditions tied to bailout programs.  Draghi’s plan turns the currency’s rescue program ‘on its head’ by letting states like Spain dodge strict terms for gaining help. ‘No, Herr Draghi, you’re not returning the euro to health by doing this — you’re making it sick!,’ said Blome. The plan ‘is as ludicrously wrong as putting sugar cubes in the salt shaker,’ said Blome.  An ARD television poll published today showed 13% of Germans support ECB bond buying.  Germany’s Frankfurter Allgemeine Zeitung newspaper shares Bild’s observation, saying in an editorial today that implementing Draghi’s plan means ‘there will no longer be a separation between fiscal and monetary’ policy in the euro area. ‘First the no-bailout ban for states in the EU treaty was dropped and now the ban on the ECB financing states via monetary policy.’”

7) … Mike Mish Shedlock writes Japan’s revised GDP growth cut in half; current account surplus down 41% to $8 Billion; Mathematical impossibilities.
Revised estimates of Japan’s growth have been cut in half, from 1.4% to .7%. More importantly, Japan has a small but shrinking current account surplus (in spite of running a trade deficit for some time). Once the current account surplus vanishes, and I believe it will, Japan will become somewhat dependent on foreigners to handle its budget deficit. Good luck with that at 0% interest rates.

Case For Stimulus? I am amused by a Reuters report that says Japan Q2 GDP revised down, builds case for stimulus.  In a sign of slackening foreign demand for Japanese goods caused by the euro zone debt crisis and China’s slowdown, the July current account surplus came 40.6 percent below year-ago levels, reflecting a drop in exports. However, due to a slower rise in imports, the fall in the surplus to 625.4 billion yen ($8 billion) was less pronounced than the forecast 56.8 percent drop to 455.0 billion. Should the economy require more fiscal stimulus, the policy response could be delayed as policy making has ground to a halt due to a stand-off between the ruling and opposition parties.

Mathematical Impossibilities. Notice the absurd reliance on stimulus, in spite of a shocking amount of debt, exceeding 200% of GDP. Moreover, the idea of fiscal stimulus is actually preposterous given the government wants to hike taxes to do something about the deficit and mammoth amount of debt. Japan wants to do two things at once and it is mathematically impossible. Tax hikes are certainly not going to stimulate a thing, and on August 10, Japan Parliament Passed Sales-Tax Increase doubling the nation’s sales tax by 2015 as a step toward fiscal reconstruction.

8) … The usually leftist Der Spiegel references other newspaper criticism of Draghi’s plan reporting ‘The ECB is doing governments’ dirty work.
The center-left Süddeutsche Zeitung writes, “Rescuing the euro at any price could be an economic disaster — that is the red line that must not be crossed. The other limit is the law: In a community based on law, the ends can never justify the means. A euro community that is based on constantly breaching treaties is built on a shaky foundation.”

“On Thursday, the ECB unfortunately crossed both red lines. It did so reluctantly and not irrevocably, and yet it did so with determination. The purchase of government bonds by the central bank means that the ECB will tolerate and even reward economic mismanagement. (…) The crisis countries are not out of the woods yet. And that means that if the ECB provides them with unlimited help, then it is financing unsound states. It can only do so by printing ever more money. Ultimately, there will be the threat of bubbles, crises and inflation. It will benefit speculators, and the vast majority of citizens will have to foot the bill.”

The center-right Frankfurter Allgemeine Zeitung writes, “Draghi has made it clear that, from now on, the ECB will only buy bonds when a crisis-hit country asks for help from the euro rescue fund or agrees to other conditions. But that promise isn’t new. The would-be saviors of the euro have been insisting on structural reforms for years. The recipients of aid make promises but often do not keep them. But what will the ECB do if, say, Italy does not carry out the labor market reforms it has promised? Is it going to start selling Italian bonds? It can’t if it takes its own argument seriously, that monetary policy in the euro zone no longer functions properly.”

“The central bank is getting tangled up in its own arguments because it has allowed itself to become the prisoner of politics. Since it is willing to make up for the failures of European politicians, it can not quit the bond-purchasing program.”

“The leaders of southern euro-zone countries should be happy: They can continue to borrow at low interest rates and do not need to worry about finding investors. But the northern leaders are satisfied, too, because they can hide behind the ECB and do not need to face uncomfortable questions in, say, the Bundestag (Germany’s parliament) about all the additional risks that Germany is taking on. In the euro zone, there is no longer a distinction between monetary and fiscal policy.”

The conservative Die Welt writes, “Every time the politicians shout ‘fire,’ the ECB puts it out.  “With his reference to a possible breakup of the euro zone, Draghi tried to justify the fact that he is trampling all over the ECB’s statutes. In doing so, he is doing the dirty work for governments, who can slow down the pace of reforms a bit now that they are being protected by the central bank. At the same time, the ECB will get clogged up with government bonds from the crisis countries.”

“The dangers of this policy are enormous. At the moment, it’s not inflation that is the big problem. Rather, it is the redistribution of wealth from the north to the south in a completely non-transparent way and without political legitimacy. (The money is flowing) from the savers to those who benefit from this irresponsible monetary policy. This is undemocratic and antisocial.”

9) … Mike Mish Shedlock asks, Actual constitutional case against OMT and ESM; Why bond buying undermines democracy; Is Draghi above the law?
A post on the the Fibs and Waves blog by “Blankfeind” outlines the actual legal case against the OMT. I believe the case is rock solid. How the German constitutional court rules in two days is another matter.

Please consider The ECB Thumbs Its Nose At The Law. On September 6th, the ECB announced its Outright Monetary Transactions program, known as OMT. Justified as a means for the ECB to repair monetary policy transmission and to recreate the singleness of monetary policy for the euro area, the OMT offers an unlimited commitment by the ECB to purchase short-term (one to three year) sovereign debt in the secondary markets for sovereigns who agree to certain conditions.

The bond purchases themselves will not be conducted by the ECB, but rather by the national central banks in proportion to their capital key with the European Central Bank. Hence, should Spain eventually fall under the OMT program, it will be the German Bundesbank that will be responsible for purchasing the largest single share of Spanish bonds.

But, is OMT legal under the treaties that govern the ECB?

The letter of the law. Treaty on the Functioning of the European Union (TFEU) Article 123 (ex Article 101 TEC)

1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favor of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.

With the OMT program, the ECB has essentially said that any European Monetary Union sovereigns unable to obtain favorably priced credit from the market may apply to the ECB in order to obtain that credit in unlimited quantities, albeit via debt purchases in the secondary market.

This clearly means that the ECB will have established a credit facility in favor of the sovereign participating in the OMT program, and that is an explicit violation of the letter of the law.

Primary vs. secondary markets and intent of the Treaty. Former ECB president Jean-Claude Trichet (and one of the original architects of the treaties that created the eurozone), opened up this can of worms by allowing the ECB to buy bonds in the secondary market.

Since the ECB could act as the end party immediately buying bonds from the original buyer, there is in practice virtually no difference between buying bonds in the primary and secondary markets.

Here is the loophole Trichet exploited: Article 123 (ex Article 101 TEC) 1. … Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.

Clearly, that could not possibly be what the treaty intended. When discussing the intent of the treaty, the ECB is already in violation. Now Draghi has gone a step further.

“Blankfeind” continues Germany demanded the inclusion of Articles 123 and 125 of the Treaty on the Functioning of the European Union with the clear intent of protecting itself and its citizens from responsibility for the fiscal failings of other member states. Hence, OMT violates the intent of the applicable laws.

Conclusion..The OMT program is in violation of both the letter and the intent of Article 21 of Statute of the European System of Central Banks and of the European Central Bank and of Article 123 of the Treaty on the Functioning of the European Union (TFEU). “Blankfeind” is certainly correct. And I point out the obvious creep in unconstitutional acts. Trichet capitalized on one misplaced word and debate over the intent of “directly” giving Draghi a bit of cover to even more blatantly break the law.

Why bond buying undermines democracy. In a direct criticism of “Draghi Almighty” Der Spiegel explains Why ECB Bond-Buying Plans Undermine Democracy.  Anyone who breaks a law can hardly excuse his actions by claiming that he is acting within the scope of the law. In any case, it won’t help him much — unless his name is Mario Draghi and he is the president of the European Central Bank (ECB).

Draghi wants more, though; he wants to save the European common currency at all costs. The euro, he says, is “irreversible.”

So far, the ECB has already spent over €200 billion ($256 billion) buying sovereign bonds from crisis-stricken euro-zone countries. If the exception now becomes the rule, additional bonds worth hundreds of billions could quickly follow. German taxpayers are also ultimately liable for this amount — without the German parliament, the Bundestag, having a say.

This Wednesday, Germany’s Federal Constitutional Court is expected to decide whether the European Stability Mechanism (ESM), the permanent successor to the current rescue fund, is compatible with the German constitution. It is seen as likely that the judges will put a ceiling on Germany’s liability. But in view of the latest ECB decision, such limits are already useless before they have even been enacted. The ECB apparently stands above the Bundestag and above the Federal Constitutional Court.

Double game. And what is the German government doing? It’s playing a double game. It supports both the ECB president as well as his main critic, Weidmann. Merkel is secretly pleased with Draghi’s initiative because the chancellor would probably not be able to gain majority support in the Bundestag for additional euro rescue programs. That’s why she is among those saying that the ECB is acting within the scope of its mandate.

If she said anything else, she would have to take action. She could, for example, file a suit with the European Court of Justice in Luxembourg in a bid to have the ECB decision nullified. The Bundestag could also pass a resolution calling for such a lawsuit — and thus force Merkel to put her cards on the table.

But if there are no plaintiffs, no judges will intervene. In such a situation, Mario Draghi is the most powerful man in Europe, undeterred by courts or parliaments.

The euro may be irreversible, but apparently democracy is not. That is exceptionally harsh criticism of both the OMT and of chancellor Merkel from a magazine that is generally quite pro-euro.

Is Draghi above the law? The answer to that question is obvious. He thinks and acts like he is. This should not be surprising. It is one of the direct corollaries of the Fed Uncertainty Principle, which I wrote on April, 3, 2008, long before the Fed started its big power grab.

What I said about the Fed applies equally to the ECB and central bankers in general. Here are key excerpts.
Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

10) …Mario Draghi’s Outright Monetary Transactions Program represents a shift of governmental sovereignty from current sovereign states to a Eurozone Super State.
The weekly chart of Steepner ETF, STPP, is now rising from Elliott Wave 2 bottom into an Elliott Wave 3 Up, at a price of 35.26, reflecting that the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, has settling at its 50 day moving average of 0.592, as bond vigilantes now have control of the US Sovereign Debt Interest rates, causing Total Bonds, BND, and US Treasuries, ZROZ, EDV, TLT, Longer Duration US Corporate Bonds, BLV, and US Corporate Bonds, LQD, to trade lower from their early August 2012 high, on debt deflation, that is currency deflation, as the US Dollar, $USD, UUP, is trading lower.

The lower Dollar, has propelled other currencies, especially emerging market currencies, CEW, higher, inflating, World Stocks, VT, and Commodities, DBC, and is bringing about peak monetary expansion, that came with the introduction of the Milton Friedman, Free To Choose Floating Currency Regime. Soon inflationism will be history and deflationism will commence. Soon the world will reach an inflection point, and move from an age of prosperity and into an age of debt servitude; that is the world will shift from an age of choice to an age of diktat.

Angela Merkel, laid the groundwork for a One Euro Government, she was the precursor of one greater, that being Mario Draghi, who is pouring the foundation for a Eurozone Super State. These are God’s point people, that is ordained leaders in establishing the economy of God, Ephesians 1:10, for the fullness of times  Mario Draghi’s announcement of the Outright Monetary Transactions Program is completing the fullness of the times of prosperity, which came through the debt trade and securitization of all kinds of financial instruments. And Mr Draghi’s Program is the introduction of the of the first edict of regionalism, which at its fulfillment will result in the charagma or mark Revelation 13:16; Revelation 14:9, 11; and Revelation 15:2, being introduced as a means to conduct any and all economic transactions, when the fiat wealth system totally fails.

Neoliberalism featured wildcat finance, a Doug Noland term, where bankers waived wans of dect creation. Neoauthoritarianism will feature wildcat governance, where regional leaders will yield clubs of debt servitude and austerity.

The economy of God, Ephesians 1:10, that is the administration plan of Jesus Christ, is bringing peak wealth, to the fullness of of a time when the US and the UK have ruled the world with iron hegemony. Now Christ is directing the ten toed kingdom of regional governance, where ten toes of iron diktat and clay democracy, will rule the world as foretold in King Nebuchadnezzar’s dream,and presented by the prophet Daniel, Daniel 2:30-33.

Through the first horseman of the Apocalypse, Revelation 6:1-2, Christ is passing the baton of sovereignty from sovereign nation states to the ECB. Monetary sovereignty of the European periphery countries has failed prompting the ECB Chairman to act. Mario Draghi’s program is one of diktat, which is establishing the ECB as sovereign monetary of a nascent One Euro Government.

A full fledged Eurozone political union and fiscal union will soon emerge out of Financial Armageddon, Revelation 3:3. The Beast System of Totalitarian Collectivism, will rise to replace crony capitalism and European socialism; it will grow to occupy in all of the world’s ten regions, and in all of mankind’s seven institutions.

Soon the curtains of European stage will open, and onto the stage will step Europe’s Sovereign, Revelation 13:5-10. This cunning and fierce individual, will be accompanied by the Seignior, or banking lord, Revelation 13:11-18. Together their word, will and way will replace all constitutional and treaty law. Sovereign Authority will no longer reside in sovereign nation states, but rather in the diktat of these two leaders.

Regionalization, coming from regional framework agreements, will replace crony capitalism, and socialism, as regional blocs form in all of the world’s ten regions, Revelation 13:1-4.

The dynamos of global growth, and corporate profit are winding down crony capitalism and European Socialism. And the dynamos of regional security stability, security and sustainability are winding up regionalism.

The fiat money system will soon be ending as the world major currencies, DBV, and emerging market currencies, CEW, will follow the US Dollar into the pit of financial abandon. In Europe, the diktat money system will be overseen by the Seignior, that is the monetary pope, who will accompany, the Sovereign, or king, as they rule in a type of revived roman empire.

Stocks And Bonds Trade Lower As Major World Currencies Trade Lower As Fed Considers Stimulus And ECB Prepares To Communicate Plans As They Meet On First Thursday Of September 2012

September 5, 2012

Financial Market Report for Tuesday September 4, 2012

Daily Ticker asks Is More Fed Action Needed to Boost the Economy?  Fed policymakers will review the fiscal situation and the latest economic data when they meet Wednesday and Thursday of this week.

Euro Intelligence in its for fee daily news briefing relates that the proportion of foreign holders of Italian bonds has dropped to 30%. Fabrizio Goria writes in Linkiesta that foreign investors hold only 30% of Italian debt, hitting a record low. Research from Morgan Stanley, published by the Italian online newspaper, reveals a significant drop in foreign confidence in Italian debt obligations, valued €1.648bn. From 38% at the end of 2011 to 30% at the end of August: the foreign debt-holdings are now at €492bn. Foreign banks hold €161bn, meanwhile others financial institution possess €330bn. The ECB’ SMP holdings remain stable to €110bn, 7% of total. Italian banks hold €336bn, MFIs €304bn and others €406bn, 63% of total. And Euro Intelligence relates In an interview with Bild am Sonntag, and FT De, Spanish PM Mariano Rajoy proposed a three step plan to fiscal union with eurobonds, in which member states first realise convergence criteria by 2013-2014, set up a European budget authority by 2015-2016 to control national budgets, and finally introduce eurobonds by 2017-2018.

Open Europe relates Euractiv reports Barroso repeats call for political integration.   European Commission President José Manuel Barroso told EU diplomats yesterday that he believes there is a need for “further political and institutional integration” and a consolidation of “a truly political union” through a change of the EU treaty reports. And Open Europe relates According to WEF and Le Figaro, Finland is highly competitive and Greece is least competitive.  The latest rankings of countries’ competitiveness produced by the World Economic Forum there is a significant disparity between Northern and Southern Europe, with Finland ranking third and Greece ranked 96.

Bespoke Investment Blog reports ISM Manufacturing report for August came in weaker than expected (49.6 vs 50.0 est) for the fourth straight month, and was below 50 for the third straight month.  The last time the ISM Manufacturing report was weaker than expected was from August through December of 2008.

On Tuesday, World Stocks, VT, traded lower, as China Industrials, CHII, Australia’s Westpac Bank, WBK, Australia Small Caps, KROO, Australia, EWA, Sweden, EWD, Japan Small Caps, Japan, EWJ, fell strongly, as Ambrose Evans Pritchard reports Global crisis moves East as China suffers rapid downturn.  China’s industrial output is contracting at the fastest pace since the depths of the global financial crisis, with knock-on effects spreading across the Far East. Also Brazil’s BSBR, EWZ, BRF, fell strongly, taking the BRICS, EEB, lower,  XSD, KOL, SLX, traded strongly lower. FAA led Transports, IYT, lower; and DD, PX, CAT, DE, MMM, UTX, CMI, IR, GDI, DRC, KUB, EMR, ROK, led Industrials, IYJ lower.

The charts of processed food manufacturers HAIN, STKL, BGS, CAG, MKC, SJM, CPB, SNFA, are seen topping out.

One Tuesday, Bonds, BND, traded lower as seen in this ongoing Yahoo Finance Chart of BOND, JNK,  BLV, LQD, as Major World Currencies, DBV, traded lower

The World Passes Through Peak Credit As International Treasury Bonds, International Corporate Bonds And Junk Bonds Top Out ….. A United States Of Europe Is On The Way As Monti Makes Call For A Strong Eurozone Bank

September 1, 2012

Financial market report for the week ending Friday August 31, 2012; this is twenty first week of entry into the Second Great Depression.

1) … The age of deflation will be characterized by a see saw destruction of fiat wealth.
This week silver, gold, agricultural commodities, oil, natural gas, and unleaded gas, traded up, while world stocks, base metals, timber, and currencies traded lower, at a time when total bonds have likely peaked out..

China, CAF, YAO, HAO, TAO, CHII, CHIQ, CHIM, CHIX, India, INXX, INP, SCIF, Russia, RSX, RSXJ, Brazil, EWZ, BRXX, Indonesia, IDX, Australia Small Caps, KROO, Canada Small Caps, CNDA, Japan, EWJ, led country stocks lower this week as Andy Sharp and Toru Fujioka of Bloomberg report   Japan’s consumer prices slid at a faster pace in July and industrial production unexpectedly slumped, raising the danger that the world’s third-largest economy has slipped back into a contraction.  The benchmark price gauge, which excludes fresh food, fell 0.3% in July from a year before, putting the central bank’s 1% inflation goal further from reach… Industrial output fell 1.2%. A private measure of manufacturing for August was the lowest since the aftermath of the record March 2011 earthquake.

Japanese Banks NMR, SMFG, MTU, MFG, Brazil Banks, BSBR, ITUB, India Bank IBN, and South Korea Banks, WF, SHG, Shipping, SEA, Small Cap Gold Miners, GDXJ, Energy Service, IEZ, OIH, Iron Ore Miners, BHP, VALE, RIO, Rare Earth Miners, REMX, Uranium Miners, URA, Coal Miners, KOL, Copper Miners, COPX, Aluminum Miners, ALUM, Metal Manufacturers, XME, and Steel Producers, SLX, led World Stocks, ACWI, lower this week.

The S&P, SPY, traded lower as Bespoke Investment Group reports Breath remains weak.

Transports, IYT, fell 2.2%, and Industrials, IYJ, 0.8%.

Reuters reports Iron ore hits lowest in nearly 3 yrs; miners’ shares tumble. Iron ore prices fell to their lowest levels since 2009 on Thursday, dragging down shares in miners including top producers of the steelmaking ingredient, Rio Tinto and BHP Billiton , as a slowdown in top consumer China threatened to further sap demand. Benchmark iron ore with 62 percent iron content slid nearly 2 percent to $88.70 per tonne on Thursday, according to data provider Steel Index, the lowest since October 2009, although recorded spot prices fell as low as $59 in early 2009. The iron ore price has dropped by a third, or almost $50 per tonne, since July, as Chinese steel producers shun cargoes and the appetite of the world’s largest consumer cools. Prices could fall up to 30 percent more, with no sign consumption will rebound anytime soon, analysts and traders said. “It’s possible for prices to fall to as low as $65 to $70 in the spot market, before a recovery back to the $80 to $90 range,” said Fairfax I.S. analyst John Meyer, adding that the price slide could continue for the next one to two months. Iron ore is a leading economic indicator as it highlights demand in key industrial sectors such as construction and carmaking. Many traders are currently trying to liquidate their iron ore cargoes with little success, a further sign that a rebound is not on the cards in the short term. “Not only is a recovery in the near term unlikely, there is also no sign that the fall will stop,” a UK-based iron ore trader said. “Looking at the cost curve these prices make no sense but there are no signs at all of an improvement in demand. The further traders wait the more they lose and waiting for a recovery is a big risk to take.” A second trader said he was getting “no interest whatsoever” for an iron ore cargo he was offering. The iron ore market will remain under pressure until the steel sector recovers and this will not be a quick process, analysts said. “With sluggish manufacturing activity in Europe and a construction market that’s struggling to pick up in China, demand for steel has dropped sharply with no quick fix in sight,” said Metal Bulletin research steel analyst Kashaan Kamal. Chinese steelmakers said the sector, nourished by a decade of breakneck growth, needs to brace itself for weak demand and razor-thin margins over the next 3-5 years that will force inefficient mills to shut.”The speed in the fall of the iron ore price is alarming. I don’t think many people expected it to be sub $100 and to see it go below $90 is eye-opening to say the least,” analyst Asa Bridle at Seymour Pierce said

Bespoke Investment Blog writes BRICs continue to underperform.  The BRIC trade was one of the hottest trends of the mid-2000s, but it has been especially weak over the past few years.  Today, the BRIC (Brazil, Russia, India, China) ETF broke below its 50-day moving average, so we have charted the year-to-date performance of the four countries that make up the ETF in the second chart below.
As shown, India is the only market that is outperforming the S&P 500 in 2012.  India’s Sensex is up 13.17% vs. the S&P 500’s gain of 12.13%.  Both Brazil (Bovespa) and Russia (RTSI) are barely in the green for the year, while China’s Shanghai Composite is down 6.65%.

This week silver, SLV, gold, GLD,  and and agricultural commodities, RJA, DBA, natural gas, UNG, oil, USO, Natural Gas, UNG, and Unleaded Gas, UGA, took commodiites, DBC, higher, while base metals, DBB, and timber, CUT, traded lower. Soybeans rose 1.65% as Sameer C. Mohindru of WSJ reports A Taiwan importers’ association bought soybeans Tuesday, in what might seem a routine tender. But it wasn’t.  Instead of buying one cargo of around 60,000 metric tons, as usual, the Taiwan’s Breakfast Soybean Procurement Association bought three, including one not due for shipping until next July. It was the second time in less than a week that a Taiwanese buyer had taken above-average or far-forward amounts. With prices already in uncharted territory and an even tighter market in the future seeming all but inevitable, soybean importers elsewhere having been locking in supplies, too.  Prices for wheat and corn are also soaring… But the time bomb ticking under the global soybean trade is potentially more explosive. Corn and wheat can be substituted for one another for many uses, but soymeal substitutes are limited, and even costlier.”

The US Dollar, USD, UUP, Swedish Krona, FXS, and the Australian Dollar, led Major World Currencies, DBV, and Emerging Market Currencies, CEW, lower this week, while the Euro, FXE, traded higher.

Bonds, BND, traded up this week, but below their July 2012 high, as the Interest Rate 10-Year US Government Note, ^TNX, traded lower this week.  Junk Bonds, JNK, Senior Bank Loans, BKLN, Emerging Market Bonds, EMB, International Corporate Bonds, PICB, rose to new highs, while International Treasury Bonds, BWX, and US Government Bonds, ZROZ, EDV, TLT, have likely peaked out. WSJ reports Summer’s over: Spain and Italy CDS surge. M2 (narrow) “money” supply dropped $25.7bn to $10.044 TN.  Bloomberg: reports China’s corporate bonds are set for their first monthly loss this year as more than half of issuers reported profit growth slowed.  Company debt in the world’s second-biggest economy has lost 0.8% in August, paring gains for the year to 3.6% compared with 6.4% in 2011.

Bloomberg reports Japan cuts economic assessment as BNP says contraction looms.  And Nasdaq reports Argentine banks lost $92 million in foreign currency deposits week of 8/17.

2) …  The age of deflation will see a rise of regional governance: a One Euro Government, that is a European Super State, is forming.  
Euro Intelligence in its for fee newsletter relates ECB seeks right to close down a bank. This is the ultimate test of any resolution powers. Frankfurter Allgemeine writes that the ECB is seeking the power to close down banks, as part of the new resolution regime. Quoting from Asmussen’s speech, the ECB wants all the powers to make a resolution regime feasible. Without it, the ECB is not prepared to take on this new role. The article says it was the first time the ECB has publically described its role in the new bank supervisory architecture. The article mentioned that its position was supported by the German government but not by the Bundesbank. And Germany and France set up a working group to make joint proposals. It happened before, was subsequently abandoned, and is now resurrected. Germany and France are setting up an inter governmental working group. This particular group will make proposals for the banking union, for the strengthening of fiscal coordination and economic growth. The announcement was made yesterday by Wolfgang Schauble and Pierre Moscovici at a meeting in Berlin. Der Spiegel quotes Moscovici as saying that the proposal of the joint working group should be ready by October. The working group will also coordinate the Franco-German position on Greece.

Euro Intelligence further reports Draghi says unconventional policies are needed in times of crisis; says measures are justified because monetary policy signals do not arrive even across the eurozone; says ECB was not a political institution, but an institution of the European Union; also made a strong case for centralised bank resolution powers; Draghi cancels trip to Jackson Hole to work on the plan; there are continued disagreements, most notably over conditionality; some central banks say that it is not enforceable; other disagreements concern the transparency of the operation; Merkel and Monti disagree at their meeting over whether the ESM should get a banking licence; Merkel says it is not possible under current law, while Monti says the law can be changed; ahead of the trip, Monti warned Merkel against standing in the way of a solution, as the influx of peripheral deposits would drive up German money supply and inflation.

And Euro Intelligence reports European Commission at odds with Germany over bank reconciliation. Michel Barnier says the September 12 proposal will include central supervision of all 6000 systemically relevant banks; he says Dexia, Northern Rock and Bankia would not have fallen under a large-bank regime; foresees a staged introduction: EFSF-supported banks in January 2013, large banks in July 2013, remaining banks in January 2014; the CDU bitterly opposes these proposals as they threaten the viability of many German savings banks and mutual banks, whose business models depends on regulators looking the other way; Wolfgang Schauble argues that it is too much for the ECB to take on 6000 banks;
Bild reports that Jens Weidmann has considered resignation in protest over bond purchases, but decided against it “for now”. We always suspected that Germany would emerge as the true opponent to any form of meaningful bank regulation. There is now an open dispute between the Commission, which wants to centrally regulation all 6000 eurozone banks, and Germany, which wants to confine this to the 20 or 25 largest banks.

In an interview with Sueddeutsche Zeitung and Les Echos, Michel Barnier made it clear that Brussels wants all 6000 banks to fall under a central regulation. He will make the official proposal September 12. Countries outside the eurozone can participate on a voluntary basis. He said a proposal to confine the centralisation of regulation to the largest banks only, would not have caught banks like Dexia, Bankia or Northern Rock, all of which triggered large state rescues. Tasks without consequences for the financial stability, like consumer protection, can remain at national supervision level. As to the timetable, Barnier says the central regulator should start with the banks subject to an EFSF/ESM programme on January 2013, followed by the large banks in July 2013 and by all banks in 2014. He says this would pave the way for a direct funding of banks through the EFSF/ESM from January onwards.

Suddeutsche writes that the proposals are opposed particularly by the CDU, which defends the position of the savings banks and mutual banks, which are opposed to any intrusion from Brussels into their cosy operations.

In a riposte in the Financial Times, Wolfgang Schauble left no doubt that he opposes the central aspect of the proposal – the control over all banks. He says the system must be effective and that means that a European regulator cannot supervise 6000 banks. He also called for the erection of Chinese Walls inside the ECB to prevent conflicts of interests between monetary policy and prudential supervision. It is also important that the supervisor is accountable to the European Parliament and the Council. He also supports the idea that member states can impose more stringent capital controls beyond the requirements of Basel III. He said it was right not to allow systemically important banks to fail after Lehman Brothers, but it was now time to move on.

EurActive reports “Those who claim only a full federation can be sustainable set the bar too high,” Draghi wrote in an opinion piece published on Wednesday (29 August). “What we need is a gradual and structured effort to complete the EMU [Economic and Monetary Union],” he added in the article, originally published in previous Eur Active article The future of the euro: stability through change. Such ventures into political territory are extremely rare from the ECB, signalling that the eurozone’s sovereign debt crisis is reaching a decisive turn.

In his opinion piece, Draghi writes that a full political union is not a prerequisite, saying that “economic integration and political integration can develop in parallel”. “We do not need a centralisation of all economic policies,” Draghi further develops to assuage sceptics of greater integration. However, “for fiscal policies, we need true oversight over national budgets,” he adds, because “we cannot afford a situation where some regions run permanently large deficits vis-à-vis others.”  “The euro area is not a nation-state,” Draghi concludes, but “the sharing of powers and of accountability can move in parallel.” European heads of states were given a report on closer economic and monetary union, which Draghi co-authored, at the last EU summit in June. The report outlined the process towards deeper EU integration and identified the main building blocks – a banking union, a fiscal union and further steps towards a political union.

Open Europe relates Draghi: A United States of Europe is not the solution to the eurozone crisis. Writing in Die Zeit today, ECB President Mario Draghi argues that the current “solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes.” Draghi suggests that a new architecture is needed, with Germany remaining the “anchor of a strong currency”, but that a political union is not a prerequisite, adding “economic integration and political integration can develop in parallel”. Draghi suggests a model based on fiscal responsibility, combined with financial regulation and oversight, arguing, “This is not the end, but the renewal of the European social model.” Draghi concludes, “Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high. What we need is a gradual and structured effort to complete EMU. And writing in Handelsblatt Handelsblatt: Stark, former ECB chief economist Jürgen Stark argues that in attempting to combat the eurozone crisis, the ECB has “repeatedly crossed red lines”, and that plans to buy up government bonds amount to “illegaly financing states”, which he warns “will lead to higher inflation”.

Open Europe further relates Commission wants to give ECB control over all eurozone banks; Schäuble: It is “common sense” to limit supervisory powers to systemically important banks.  The Commission’s latest proposals for a banking union, which it will present on the 12 September, would see the ECB being given supervisory powers over all 6,000 eurozone banks, stripping national bodies of any real power, claims the FT. The power would lie within a new 23 man supervisory board within the ECB, made up of a representative from each eurozone state and six independent members. The supervisory function would start from January 2014, although, for banks which borrow from the eurozone bailout fund, supervision could start as early as January 2013. Writing in the FT, German Finance Minister Wolfgang Schäuble argues that it is “common sense” to only monitor systemically important banks rather than all 6,000 eurozone lenders. The presence of a “Chinese wall” between supervisory and monetary policy matters “would also make it easier for EU members that do not use the euro to participate in the supervisory system, thereby protecting the coherence of the single market,” he writes.Writing in the Guardian, Commission President José Manuel Barroso argues, “We will need to bridge the gap between eurozone members and EU members that remain outside the monetary union, some of which may want to participate in the new supervisory mechanisms.” Schäuble also called for a cap on bank bonuses to be included in a compromise between MEPs and national governments to implement Basel III under the EU’s Capital Requirements Directive. “Immediate cash bonuses for top bank executives should not exceed their fixed pay,” he argues.  FT CityAM Euractiv Expansión Süddeutsche: Barnier EUobserver Guardian: Barroso WSJ Telegraph Echos Süddeutsche FT Süddeutsche 2 FAZ: Ruhkamp FT: Schäuble FT Reuters

And Open Europe Spain and France renew calls for ECB intervention; Bild: Weidmann has considered resigning.  Following their meeting yesterday Spanish Prime Minister Mariano Rajoy and French President Francois Hollande backed calls for greater ECB intervention in the crisis, with Hollande saying, “When you see such wide gaps in yields, that could be a justification for an intervention in the name of monetary policy.” Meanwhile, Bild reports that, according to unnamed sources, Bundesbank President Jens Weidmann has considered resigning in recent weeks. According to El Mundo, German Chancellor Angela Merkel is urging Spain and Italy to delay potential requests for EFSF bond-buying, as she would like the Bundesbank’s internal tensions to ease first. WSJ CityAM European Voice Le Figaro Economist: Charlemagne Bild MNI Handelsblatt El Economista Corriere della Sera El Mundo

Michael Goldfarb in BBC Radio speaks in audio blog European Federalism, its history, the intellectual theories behind it, and its successes and failures. The eurozone crisis boils along like a tea kettle left screaming on the stove. But once this situation is resolved, the fundamental problem of the euro will remain – it’s a single currency serving 17 countries, with 17 different governments, operating on 17 different electoral timetables, setting 17 different tax policies. Can 17 into 1 ever go?  Some have suggested Europe’s single currency needs an independent central bank, a single fiscal policy, and a single democratically elected government to oversee the economy it serves. There’s a word for this arrangement among states. Former British Prime Minister Margaret Thatcher knew it well – federalism. Federalism was fine for America but she was dead set against it for Europe.

Mike Mish Shedlock in article Don’t expect much from a Merkollande Summit, writes I wrote Merkel pushes convention to draft new EU Treaty; United States of Merkel?,  Do the German people want a centralized authority over budgets led by bureaucrats in Brussels or is is it primarily Merkel? I suggest the latter. Merkel wants as her legacy a United States of Merkel (which I define as a United States of Europe in which she gets primary credit for building). She does not care what it costs Germany as long as it gets her in the history books forever and a day.

Numerous Problems.  The problems should be obvious. Many countries, especially the club-med states, do not want austerity or loss of sovereignty. They want printing. Also note that Holllande wants to continue his tax the rich policies while lowering the retirement age and preventing businesses from firing workers.

Will Hollande’s ideas work in a United States of Merkel? Let’s assume they will work. Indeed that should be Germany’s big fear. Put a bunch of nannycrats together and they are likely to decide anything. And whatever rules they decide will apply to every country in the nannyzone that foolishly signs the treaty. If the treaty is a simple majority rule treaty, Germany would be at risk of being overruled by the club-med states. If  the treaty is by percentages, the club-med states would be at risk of being dominated by what is good for Germany and France (assuming of course Germany and France can agree).

Do-or-Die Political Expediency.  Finally, politicians might want a nannyzone, but citizens of many countries would not, and I strongly suspect that includes Germany. Recall that France and Germany pushed through a treaty in December (still not ratified). Also recall that Hollande ran on a platform of renegotiating the treaty. Germany and France are still bickering. How’s that supposed to work? Does Merkel think an agreement now is likely? I think not. Instead, her proposal is simply a matter of do-or-die political expediency and her one last chance to push for the United States of Merkel.

Don’t Expect Much (Except Bickering) From a Merkollande Summit. While Hollande is skeptical at best, the Netherlands is downright anti-Brussels belligerent. So please tell me again how the Merkolande summit is supposed to work given the Netherlands, Germany, and France still not have ratified the last one, and numerous countries do not want to create a United States of Merkel led by nannycrats with budgetary veto powers.

And Mike Shedlock further writes Brussels Pushes for Another “All Powerful” Banking Committee, Headed by ECB, In Spite of Objections by ECB and Germany. Once nannycrats grab on to an idea, they never relinquish it. Eurobonds are the perfect example.  Many other idea float around despite numerous objections in key places. Some of these ideas involve creation of more commissions and more working groups.

Here is a sampling of commissions and groups that I am aware of. The European Commission is headed by president José Manuel Barroso; The European Council is headed by president Herman Van Rompuy; The Euro Group is headed by president Jean-Claude Juncker; The European parliament president is Martin Schulz; Numerous other committees set policy on trade, energy, and nearly everything else under the sun.

Barroso now wants another new commission, this one under the ECB with the task of being the “all powerful” banking supervisor. As envisioned, Barroso’s plan would would create a 23-member board: a national representative from each eurozone country plus six independent members, including its chair and vice-chair.

No doubt there will be dozens if not hundreds of staff members all intent on expanding their own power.

The Financial Times has more details in Brussels pushes for wide ECB powers.  The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under a plan being drawn up by the European Commission, putting Brussels on a collision course with Germany and the ECB itself, which have urged a more decentralised first step towards “banking union”.

The plan, agreed at a meeting this week between top aides to José Manuel Barroso, commission president, and Michel Barnier, the EU’s senior financial regulator, would strip existing national supervisors of almost all authority to shut down or restructure their countries’ failing banks, giving those powers to Frankfurt.

The German government has resisted centralising all supervisory powers with the ECB, however, arguing that Frankfurt should be left to deal with just the eurozone’s 20-25 largest banks. National supervisors would then be left as independent and co-ordinating agencies for smaller banks.

Some senior ECB officials had taken a similar view in closed-door consultations with Brussels, EU officials said, though Mario Draghi, the ECB chief, is more sympathetic to the commission’s view.

Germany’s objections also stem from a desire to keep national control over smaller, politically connected regional savings banks.

Despite the resistance, Mr Barroso this week decided to adopt the more ambitious proposal advocated by the commission’s internal market directorate, drafters of the plan, which argued a narrower approach would disappoint financial markets.

Splitting responsibility could complicate the next steps in creating a banking union: setting up a eurozone-wide deposit guarantee scheme and bank bailout fund. If only large banks were covered by those schemes, depositors could flee smaller banks for more secure larger ones, officials argued.
To become law, all 27 nations must agree. Barroso hopes for a summit before the end of the year.

In addition to unanimous approval for such as position, I would point out that ceding power to Brussels is a change is so sweeping that Germany would require a national referendum, just as with the eurobonds idea.

Nannycrats do not care about such issues, they just plow ahead, then blame Germany when it will not go along. Speaking of which, I highly suspect Merkel has taken a partial stance out of political expediency. Perhaps she thinks she can avoid a referendum by limiting authority to only the largest banks.

Doug Noland writes Risk #3.  Chairman Bernanke, not surprisingly, made it clear in Jackson Hole that he is prepared to move further into the uncharted waters of “non-traditional” monetary tools.  His review came out on the side of benefits outweighing “manageable” costs, although perhaps to placate the hawks he cautioned, “The hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.”
Before delving into his cost-benefit framework, it is worth mentioning that the word “Bubble” is nowhere to be found in Bernanke’s paper.  I strongly argue that the issue of whether the Fed is once again accommodating a Credit (“government finance”) Bubble is today’s prevailing – potentially catastrophic – policy risk.  The possible role that non-traditional policy tools might be playing in nurturing Bubble dynamics should be the focal point of any cost-benefit analysis related to the Fed’s experimental policymaking endeavor.  Regrettably, it’s completely disregarded – hear no evil, speak no evil, and see no evil. I take exception with those calling Bernanke’s presentation “balanced.”

From Bernanke’s paper Monetary Policy since the Onset of the Crisis.   “Of course, one objective of both traditional and nontraditional policy during recoveries is to promote a return to productive risk-taking; as always, the goal is to strike the appropriate balance. Moreover, a stronger recovery is itself clearly helpful for financial stability. In assessing this risk, it is important to note that the Federal Reserve, both on its own and in collaboration with other members of the Financial Stability Oversight Council, has substantially expanded its monitoring of the financial system and modified its supervisory approach to take a more systemic perspective. We have seen little evidence thus far of unsafe buildups of risk or leverage, but we will continue both our careful oversight and the implementation of financial regulatory reforms aimed at reducing systemic risk.”

He again misjudges and woefully understates risk. The entire monetary policy transfer mechanism has been radically altered, foremost by the transformation of system Credit expansion from primarily bank loan-driven to one dominated by marketable debt and myriad risk intermediation channels. Traditionally, central bank stimulus would entail adding reserves into the banking system to effectively reduce the cost of funds, thereby incentivizing additional bank lending.  Today, Federal Reserve monetary stimulus is transmitted primarily through incentivizing risk-taking and leveraging in the securities, derivatives and other risk asset markets.  We now have about 20 years experience in support of the thesis that there exists a dangerously powerful interplay between activist central banking, marketable debt and financial speculation.  Yet the Fed somehow seems to ensure that its analysis avoids addressing the associated risks of an ever-increasing Federal Reserve role in the pricing and trading dynamics of an ever-expanding quantity of securities, derivatives and market speculation.

Global central bankers, whether Draghi at the ECB, or the Bernanke Fed, the Bank of England, the Swiss National Bank (SNB), or others, now actively pursue the power of “open-ended” monetary and market support/intervention.   No quantification necessary.  This escalation to unconstrained monetary stimulus was the motivation for last week’s “Do Whatever it Takes!”  Drs. Draghi and Bernanke have done nothing less than to signal to the marketplace that they at any point and to any extent deemed necessary will be there to backstop the markets.  Worries – albeit those associated with so-called “exit strategies” or inflation risks – have been completely overshadowed by a resolute determination to avert another global crisis.  It may have been subtle; it’s no doubt radical.  The Draghi and Bernanke “puts” have been significantly bolstered and manifestly communicated.  Sophisticated global speculators operate knowing central bankers are unequivocally determined to quell so-called “tail” risk of illiquid and faltering securities markets.

I’m the first to admit that it’s easy to dismiss the view that, only a month or so ago, rapidly escalating European debt tumult was at the brink of unleashing the forces of global financial and economic crisis.  The path from illiquid Spanish and Italian debt markets and a crisis of confidence in the euro to a more globalized panic was not so difficult to discern:  illiquid markets, de-risking/de-leveraging dynamics, capital flight, systemic banking stability issues, derivative and counterparty concerns, hedge fund problems and a resulting abrupt tightening of global financial conditions.  Draghi surely believed he had no alternative than to go radical – and now Bernanke and others are as well ready to do whatever it takes.

Let’s return to Risk #3.  Global markets have rallied strongly.  Those bearishly positioned have been mauled.  Risk hedges have been unwound.  The speculator community has positioned bullishly around the globe to profit from the latest policy-induced bout of “risk on.”  Those betting on the power of the policymaker market backstop have been rewarded and emboldened.  What if it doesn’t work?  What if policymakers have prodded everyone to one side of the boat – and then it tips?  Is policymaking bolstering stability or, rather, exacerbating instability?  It is now generally accepted that additional monetary stimulus would have little economic impact.  Yet moving toward aggressive “open-ended” market interventions is, understandably, having a major impact on marketplace dynamics.  Is financial stability again being unwittingly subverted?

Monetary policy will not resolve deep structural financial and economic issues in Europe – nor in the U.S., Japan, China or elsewhere around the world, for that matter.  History informs us that it will likely make things worse.  With focus on Jackson Hole, it was easy Friday to miss the widening hole in the Spanish bond market.  Spain’s 10-year yields jumped 27 bps to 6.81%, with yields up 45 bps for the week.  Spain Credit default swap (CDS) prices jumped 21 bps this week (eight-session rise of 62bps) to an almost one-month high 518 bps.  Italian CDS ended the week 12 higher to 467 bps.  Curiously, precious metals gained this week while most industrial metals declined

Draghi clearly has his plan – and his wingman at the Federal Reserve.  There may be no turning back.  At the same time, the European financial, economic and political issues may very well prove insurmountable.

I relate all nations worldwide are starting to lose their sovereign authority and their debt sovereignty as Rainer Buergin of Bloomberg reports Germany, France Reconnect in a Push for Crisis Solutions. Germany and France agreed to drive ahead measures on closer European integration in a renewed show of unity by the region’s two biggest economies to fix the crisis in the euro zone. German Finance Minister Wolfgang Schaeuble, speaking after talks in Berlin today with his French counterpart, Pierre Moscovici, said the two countries will create a working group to advance European Union cooperation on banking union, fiscal union and the strengthening of monetary union.

Regional economic and trading blocs will rise to replace sovereign nation states as leaders announce regional framework agreements to pool sovereignty regionally as capitalism and European socialism is dying on the failure of the world central banks to stimulate global growth and corporate profitability.  Nick Beams writes Fed minutes point to a bankrupt economic order.  The latest FOMC meeting amounted to an acknowledgement that while the financial system continues to operate on a day-to-day basis, in a longer-term, historical sense it has completely broken down.

We are witnessing bible prophecy of Revelation 6:1-2, being fulfilled, as the baton of sovereignty is being passed from sovereign nation states, such as the US, the UK, Spain, Italy, and Greece, to regional sovereign bodies and leaders. The economy of God, that is the administration plan of Christ, Ephesians 1:10, is at work to establish regional economic and political governance, as foretold in Daniel 2:30-33. The Beast Regime of Neoauthoritarianism is rising from the profligate Mediterranean Sea country of Greece, and the failed industrial nation of Italy, as foretold in bible prophecy of Revelation 13:1-4. New centralized monetary authority is coming in the EU, and with it, the diktat money system, which will replace the fiat money system. Diktat will serve as both money and credit.

Angela Merkel is a precursor, that is an antecedent, of one greater, that is the Sovereign, foretold in Revelation 13:1-4, and his partner, the Seignior, Revelation, 13:11-18. Angela Merkel is much like what John the Baptist was to Jesus Christ; one who comes before to herald one more powerful. Germany will rise to be preeminent over vassal peripheral client states in a type of revived Roman Empire. John the Revelator communicates that after Financial Armageddon, that is a global credit and economic collapse, that people will be place such trust in the Beast Regime of regional governance, that it will constitute worship, Revelation 13:3.

The steepening in the 10 30 US Sovereign Debt yield curve, $TNX:$TYX, as seen in the Steepner ETF, STPP, is bouncing up from a multiple bottom, serving a warning signal to investors to get out of bonds, The steepening yield curve in the U.S. Treasury market should have investors worried, PIMCO’s CEO Mohamed El-Erian says in Advisor One article. Wealth can only be preserved by investing in, and taking possession of gold, either in bullion form, or in physical form, in Internet trading vaults, such as Money Is Gold, or Bullion Vault, as the chart of gold, GLD, communicates that an investment demand for gold commenced in August 2012. In the age of devolution, despotism, asset deflation, and spiritual degeneration, gold is the only form of sovereign wealth. The chart of gold mining stocks relative to gold, GDX:GLD, communicates that gold stocks, GDX, GDXJ, GLDX, and Silver Mining Stocks, SIL, SSRI, HL, are liking peaking out.

This week, the most toxic of debt rose, the Fidelity Investments mutual fund FAGIX, which invests in companies in troubled or uncertain financial condition, rose to an all time high of 9.28, as is seen in this ongoing Yahoo Finance chart of FAGIX, BKLN, EMB, JNK, PICB, BWX, and MUB.  One can establish and follow a portfolio of Bonds, BND, including ZROZ, EDV, and TLT, using this Finviz Screener.

All forms of fiat wealth, Bonds, BND, Stocks, ACWI, Commodities, DBC, are depreciating on competitive currency devaluation as Currencies, DBV, and CEW, are trading lower in value, on the failure of the world central banks’ monetary authority to stimulate global growth and trade, as fears of Eurozone sovereign and banking insolvency increase with the passage of time.

The dynamos of growth and credit powering down Neoliberalism. The dynamos of stability, security, and sustainability are powering up Neoauthoritarianism. The former featured wildcat finance, a Doug Noland term,  where bankers waved magic wands of credit providing prosperity. The latter features wildcat governance where tyrants yield clubs of diktat establishing debt servitude.

3) … Poneros behavior and speech will increase in the age of fiat asset deflation and in the age of regional governance; the age of moral degeneration has commenced.
The legacy of LBJ’s grandchildren is proving to be quite poneros. Peter Heudl writes in Crime File News Why All the Killings in Rahmaland? Despite having the nation’s most onerous three-decade old total gun bans, shootings here are as prevalent as typical war zones. 50 ward bosses or Aldermen control Chicago.

The wards are relatively small geographic areas that elect their local strongman.  The problem is that in the high crime wards the elected Alderman are by default deeply entrenched in gangs, crime, drugs and general corruption.  That’s just the Chicago way. The 50-ward system worked a lot better before the massive and sudden migration of disenfranchised and poor Blacks from the South of the 1960s.  Horrible social engineering turned those migrants into a needy, ignorant and dependent population that were easily controlled through generous handouts.

I comment that the ward system, together with the fact that many men could not find and keep manufacturing, construction, distribution, or finance jobs that lasted their life times, led to family breakup, as the father become distant, bitter, and hardened; acting out in mean and crazy speech and behavior to his children, vexing them, so that they grow up as dysfunctional people. Attitudes, virtues, and ethics, that is right relationships with others, are developed by the father; if there is no father present then poneros children is the result. News Weekly writes of The importance of a Father’s love in thier daughter’s healthy development.and Mikiyasu Hakomu & Brian S Ready communicate in PDF document The Father child relationship and development outcome that the father’s presence and role is to instill boundaries and discipline.

God is sending the poneros, pronounced pawn-ay-os, that is the sociopath as part of his end time judgement upon the earth which began in May of 2010, with the announcement of the first Greek Bailout; this is when he opened the seven seals, Revelation 2:1-2. The word poneros, is defined as bad, evil, or wicked, and carries the meaning of diseased, calamitous, morally culpable, derelict, mischievous and malicious.

The sociopath is a human predator of total cunning and capability. He is presented in scripture in 2 Thes 3:2. These individuals have a seared conscience, which for many comes from birth, and which is useless for discerning morally good or morally bad behavior, 1 Tim 4:2.

They act without regard for the rights and feelings of others. They disregard all social mores, norms, and lawful rule, as they set themselves up to be God. They become fiat rule itself. And being totally self serving, they have a win at all cost attitude. They are reprobate chameleons who have multiple personas to best serve the situation at hand. They can switch between charisma and charm and all out aggression in an instant.  2 Tim 3:1-9.

They are secretive and manipulative. Some are organized while other are impulsive and thus easily agitated. Yet nevertheless, they are busybodies in others affairs, continually seeing just how far they can go. 2 Tim 3:11.

The Bible instructs those of faith and reason to offer no resistance to these individuals and to withdraw and turn away from them 2 Thes 3:6, 1 Tim 6:5, Rom 6:17-18.

Virtuous living suggested in 2 Peter 1:1-10, where those of the like precious faith of Jesus Christ, being elect, that is the chosen, selected and appointed of God, add virtue and love to their faith, so as to partake of the divine nature, and receive the exceedingly great and precious promises of God, and to bear spiritual fruit, reflecting the obedience of faith.

Virtuous living develops the four dimensions of personhood. For the Christian, virtues, that is a set of moral excellencies, is practiced the same to all people; there is no moral duality. Virtues when faithed in Christ, confirm one’s identity as elect, and enable one to have organic union with the divine nature; whereas any other spiritual experience or philosophical experience is simply an ongoing experience in the dead state of Adam. Virtuous living glorifies 1) Livelihood, that is gainful occupation, 2) Family role, 3) One another living with other believers 4) Sex life. Marriage, and a wedding band on the finger, places sexual passion in a fireplace where it can be safely and graciously enjoyed.

The degree of one’s moralness, or one’s ethicalness, or one’s fiat ruleness, establishes the clarity,  definition, and distinctiveness of one’s personhood. Morality comes by a good conscience, which in turn comes by prayer, and by the development of purity, and by the practice of holiness as one reflects on and purposes for virtuous living.

Many Germans have by cultural habit developed personal industry, their occupational ruleness gives them an economic advantage and defines a strong, conscientious, and capable worker, yet this does not make them morally superior, or more morally desirable, or morally anything, as it come out of one’s carnal or fiat nature.

And as for the poneros who I have encountered, they continually and habitually have life experience out of their carnal ruleness, a condition where they have no genuine conscience to objectively discern right from wrong, they are only conscious of themselves and their own rules, and act without remorse to exact justice on the offenders of their subjective rules.

4) … Do you know the Lord’s Words?
The Lord’s Words are wonderful words of sound doctrine and spiritual life. Philip P. Bliss, 1874, wrote the song Wonderful Words of Life, now in Public Domain; it is based upon Philippians 2:15-16.