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

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.