Financial Market Report for the week ending October 5, 2012
1) … The world has now passed through peak credit, as Total Bonds, BND, traded lower this week from an Elliott Wave 5 High, as World Stocks, VT, rose, but traded lower than their September 14, 2012 high, on the failure of the World Central Banks’ Monetary Authority to sustain economic growth and corporate profitability. WSWS reports The volume of global trade is expected to grow only 2.5 percent this year, down from a 5.0 percent in 2011 and 14.0 percent in 2010, according to a survey released Monday by the World Trade Organization. A separate report by an agency of the Dutch government estimates that world trade actually contracted in June and July.
Major World Currencies, DBV, are now trading lower as Commodity Currencies, CCX, led by the South African Rand, SZR, Australian Dollar, FXA, the Swedish Krona, FXS, the Euro, FXE, and the Canadian Dollar, FXC. as well as Emerging Market Currencies, CEW, have fallen from recent highs. Competitive currency devaluation is underway, as the US Dollar, $USD, UUP, is trading up from its recent low.
South Africa, EZA, traded lower on SSL, HMY, GFI, trading lower. World central bank monetary policies are longer commodity price inflationary, and as a consequence, Russia, RSX, ERUS, Sweden, EWD, Australia, EWA, KROO, Norway, NORW, are amongst the countries, leading world stocks, VT, lower from their September 14, 2012 high.
Global debt deflation, that is world wide currency deflation, is underway on the failure of neoliberal finace, introducing derisking out of stocks, ACWX, and deleveraging out of commodities, DBC, USCI; it is oil, USO, and Agricultural Commodities, RJA, JJA, that is leading Commodities lower. Energy Service, OIH, IEZ, traded lower on a lower price of oil, USO.
The Steepner, ETF, STPP, has now fifnally risen from a triple bottom that began on June 1, 2012, which is seen in the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, rising, communicting that Interest rates are on the rise globally. The Interest Rate on the 10 Year US Note, ^TNX, closed at 1.72, up from its late July 2012 low. The 10 Year US Government Notes, TLT, have entered an Elliott Wave 3 of 3 down.
The daily charts of High Yield Municipal Bonds, HYD, Long Duration Municipal Bonds, MLN, Municipal Bonds, MUB, California Municipal Bonds, CMF, now show a downturn. US Municipal Debt is no longer a safe haven investment. Mortgage Backed Bonds, MBB, have also turned lower.
Investors have gone long the India Small Caps, SCIF, India Infrastructure, INXX, India Earnings, EPI, India, INP, on a rising India Rupe, ICN. Mexico, EWW, New Zealand, ENZL, Israel, EIS, Phillippines, EPHE, Thailand, THD, Brazil Small Caps, BRF, and Egypt, EGPT. rose. China Consumer, CHIQ, China Materials, CHIM, China Small Caps, HAO, China Financials, CHIX, China Infrastructure, CHXX, rose on a high Chinese Yuan, CYB. Switzerland, EWL, rose on PropertyAnd Casualty Insurance, ACE, and Pharmaecutical, NVS. Property And Casualty Insurers, XL, GBLI, Medical Instruments, COV, Information Services, ACN, Cement Manufacturer, JHX. Bloomberg reports India’s NSE Says 59 Erroneous Orders Caused Index Plunge. The National Stock Exchange of India said 59 erroneous orders prompted a plunge in equities that briefly erased about $58 billion in value, underscoring growing global concern about the integrity of financial markets. Trading in the S&P CNX Nifty (NIFTY) Index and some individual companies stopped at 9:49 a.m. in Mumbai for 15 minutes after the 50-stock gauge tumbled as much as 16 percent. The volume of stocks in the benchmark index that were traded today almost doubled from the 100-day average, according to data compiled by Bloomberg. An index of Indian stocks traded in New York slipped as much as 1 percent.
Home Construction, ITB, and Home Retail Stores, HD, LOW, SHW, LL, rose to a new high, as did Nasdaq Bitotech, IBB, Biotechnology, XBI, US Consumer Service, IYC, Dividend Payers, DVY, Pharmaceuticals, IHE, Media, PBS, US Infrastructure, PKB, Cement Manufacturers, EXP, Paper Producer, IP, Appliance Manufactuer, WHR, Textile Manufacturer, MHK, Housewares Manufacturer, JAH, Building Materials, USG, MAS, OC, BECN, HW, Textile Manufacturer, MWK, Rental Company, SBAC, Appliance Manufacturer, WHR, Business Services, TISI,Healthcare Provider, IHF, Silver Miners, SIL, and US Preferreds, PFF. Google, GOOG, rose to a new high of 770. Creditors, such as V, MC, COF, EFX, and CS, rose to a new high.
In summary, the slight rise US Dollar, $USD, UUP, put a cap on the Risk On Momentum Rally, ONN, that ran from June 1, 2012 to September 14, 2012, as seen in the chart of the Risk On ETF, ONN. The dollar carry trade rally that came from the anticipation of the US Federal Reserve’s QE3 and the ECB’s OMT Program, that carried Large Cap Growth Shares, JKE, and Dow Dividend Shares, DVY, as well a emerging market economies such as Thailand, THD, carry trade nations such as New Zealand, ENZL, Mexico, EWW, Philippines, EPHE, Poland, EPOL, higher and higher, and rallied nations such as Sweden, EWD, Taiwan, EWT, South Korea, EWT, the Netherlands, EWN, is history.
The fiat money system is dying, and the diktat money system is rising. WSWS reports SYRIZA deepens European Union ties as austerity intensifies in Greece. In an interview with the Argentine newspaper Páginatwo weeks ago, Alexis Tsipras, (a Greek left wing politician, member of the Hellenic parliament, president of the Synaspismos political party since 2008, head of SYRIZA parliamentary group since 2009 and Leader of the Opposition since June 2012, per Wikipedia), called for closer political union and more powers for the continent’s central bank. He said: “The euro is a unique phenomenon worldwide. We have a common currency, that is, a monetary union, but we lack a political union and a European Central Bank able to provide assistance to every country in Europe.”
Bloomberg reports Merkel’s First Greek Crisis Visit May Mark Turning Point. German Chancellor Angela Merkel will travel to Athens for the first time since Europe’s financial crisis broke out there three years ago, a sign she’s seeking to silence the debate on pushing Greece out of the euro. Merkel’s visit to the Greek capital Oct. 9 to meet with Prime Minister Antonis Samaras underscores the shift in her stance since she held out the prospect last year of Greece exiting the 17-nation currency regime.
Helena Smith of The Guardian reports Antonis Samaras, the Greek Prime Minister warns of societal disintegration without urgent financial aid. Antonis Samaras says Greece’s democracy is in danger, comparing situation to Germany’s pre-war Weimar Republic. Greece is teetering on the edge of collapse with its society at risk of disintegrating unless the country’s near-empty public coffers are shored up with urgent financial aid, the country’s prime minister has warned.Almost three years after the eruption of Europe’s debt drama in Athens, the economic crisis engulfing the nation has become so severe that democracy itself is now imperiled, Antonis Samaras said.Resorting to highly unusual language for a man who weighs his words carefully, the 61-year-old politician evoked the rise of the neo-Nazi Golden Dawn party to highlight the threat that Greece faces, explaining that society “is threatened by growing unemployment, as happened to Germany at the end of the Weimar Republic”. Mounting anti-austerity rage before a new round of sweeping EU-IMF-mandated austerity measures appears to have caught the government off-guard, with officials voicing fears over the ability of Samaras’s fragile coalition to survive. The unprecedented storming of Greece’s defence ministry by hundreds of protesting dockworkers on Thursday – a breach of security not seen in modern times – has especially unnerved officials. On Friday, Samaras lashed out at “those who don’t understand the meaning of law and order”. “The government is waging a battle on all fronts for the nation’s credibility and its future so that the sacrifices made by Greeks aren’t lost,” he said, referring to the spending cuts and tax increases that have sparked record levels of poverty and unemployment. “I will not allow the country to become a free-for-all.” In the interview Samaras emphasised that Greek cash reserves would run dry by the end of November. “The key is liquidity,” said the leader. “That is why the next credit tranche is so important for us.” The high-wire act of placating international lenders while keeping social unrest at bay will be tested as never before when Merkel, the German chancellor, flies into Athens next Tuesday. With anti-EU sentiment at an all-time high, opposition parties and trade unions vowed a baptism of fire. “She should expect demonstrations. Greek society will welcome her with mass protests,” said Panos Skourletis, a spokes man for the radical left main opposition Syriza party. The Independent Greeks party, also vehemently anti-bailout, has said it will make war reparations a major part of its own protest when it stages a “symbolic blockade” outside the German embassy in Athens during Merkel’s visit
Countries, based upon waning sovereign authority, ie the US, are failing in providing seigniorage, that is moneyness, to their national debt and corporate debt. Seigniorage, that is the moneyness of diktat coming through sovereign bodies, ie the ECB, and sovereign leaders, is increasing.
2) … Commentary from Doug Noland, You Can Intimidate Everyone. Betting on the predictable path of Federal Reserve policy must by now be one of the more lucrative endeavors in history. In a CBB a decade ago, I made a flippant comment about the financial and economic landscape, writing “The titans of industry run money.” Never did I imagine back then that hedge fund assets were on their way to $2.2 TN, Pimco to $1.7 TN and Blackrock to $3.6 TN. Betting successfully on Fed policy has created billionaires . And, more importantly, those that have played this extraordinary policymaking backdrop most adroitly today control unimaginable sums of financial assets – in the hundreds of billions and even Trillions. There’s been nothing comparable in terms of the concentration of financial power and speculation since the late-twenties.
ECB President Mario Draghi is clearly a very intelligent man. He is an MIT trained economist with the most impressive credentials. He has decades of experience as a professor, World Bank official and governor of the Bank of Italy. Mr. Draghi was also a vice chairman at Goldman Sachs for several years (2002-2005). Clearly, Draghi understands markets and the dynamics of speculative finance. When he warned against betting against the euro and European bonds the marketplace took notice. Amazingly, the ECB has gone from being adamantly opposed to pre-committing on rates to openly determined to pre-commit to huge open-ended market interventions and price support operations. After holding out, the ECB finally sold its soul – and the speculators have been giddy.
n the face of alarming economic deterioration, European debt has become a hot commodity. The euro has become a hot currency. Reuters reported Thursday that the euro zone is considering a bond insurance plan. The idea is for the ESM to “guarantee the first 20 to 30% of each new bond issued by Spain.” Friday from Reuters (Andreas Framke): “The European Central Bank envisions buying large volumes of sovereign bonds for a period of one to two months once its ‘OMT’ programme is launched…”
From those among us questioning how the euro can trade so resiliently in the face of potential financial and economic calamity, I have this thought: The Draghi Plan has been in the process of transforming Spanish, Portuguese, Italian and other problematic debt into possibly the most appealing speculative asset in the world today. After all, all this paper provides a relatively decent yields (especially in comparison to bunds, Treasuries, or securities funding costs), and now at least the 1-3 year debt enjoys a commitment of open-ended liquidity/price support from the ECB. If the Draghi Plan does transform this debt from a fundamentally attractive short to a must have speculative long in the eyes of the powerful leveraged players, well, then the Draghi Plan truly has been a “game changer.”
There’s a lot that will likely go really wrong in Europe, perhaps even in the short-term. Greece is an unmitigated disaster, and Spain is running a close second. There was further dismal economic news this week, most notably from France.
The ECB has similarly opened itself up to blackmail. “Be ready with the OMT as promised – or we dump.” “Spanish and Italian politicians, play ball or we’ll dump.” “Mr. Weidmann and the Bundesbank, fall in line – or we dump!” “All policymakers everywhere, play or we dump.” At least in Europe, this is developing into one fascinating multifaceted game of chicken.
Dangerous excesses have gravitated to the core of Credit and monetary systems. Policymakers are now “all in” in a desperate gambit to hold financial and economic fragility at bay. And, dangerously, highly speculative markets seem determined to extend their divergent path from economic fundamentals. It’s frightening how enormous and enormously powerful dysfunctional global markets have become.
I comment that Financial Times reports Greece’s sovereign debt market has enjoyed a quiet but strong rally in recent months, with the country’s benchmark 10-year bond more than doubling in price since its nadir in late May. The €3bn bond maturing in 2023 still trades at a price of just 28.7 cents in the euro – indicating that investors still think that Greece’s government finances are deeply distressed – but that is up from a trough of 13.9 cents in the euro on May 31. The current price equates to an annual yield of 18.9 per cent, down from almost 30 per cent before the summer, and the lowest since March. A senior government bond trader said that the tentative recovery in the price of Greek government bonds had primarily been caused by hedge funds making a “speculative” bet on the embattled eurozone country. “We’ve seen interest in some parts of the Greek curve, particularly the 2022s and further out,” the trader said. “The activity has grown noticeably in just the last few weeks, but it’s highly speculative money.” And Finviz shows that Greece, GREK, popped to a new high this week, as did Ireland, EIRL, on its airline RYAAY.
An example of money pouring into Greek debt, and European Sovereign Debt, is seen in the closed end debt fund, Pimco Income Fund, PFL, paying 8%, continually rising in value, 49% over the last year.
3) … Jesus Christ is at the helm of all sovereignty, Ephesians, 1:21-23, and is heading up the economy of God, for the fullness of times, Ephesians 1:10.
The recent momentum risk on rally from June 1, 2012, to September 14, 2012, was simply the final rally of stocks on a falling US Dollar. Now all forms of fiat wealth will be falling lower into the pit of financial abandon with the failure of the fiat money system, which pivots the world from the age of prosperity to the age of deleveraging.
All stocks, VT, Bonds, BND, Commodities, DBC, Major World Currencies, DBV, and Emerging Market Currencies, will be deflating on the exhaustion of the world central bank’s monetary authority, leading to an inability to stimulate global growth and corporate profit.
The dynamos of corporate profit and global growth are winding down, depowering Neoliberalism; and the dynamos of regional security, stability and sustainability are powering up Neoauthoritarianism; the former featured the Milton Friedman Free To Choose paradigm where bankers waved wands of debt creating prosperity; now the latter features despots yielding clubs of austerity and debt servitude.
God has given Jesus Christ all authority, Colossians 1:16-17, and has placed Him at the helm of economy of God, Ephesians 1:10. Christ has brought in the fullness of prosperity that has come via choice in the floating currency regime, as well as through the finance of moral hazard via the global debt trade. Now the Lord is introducing the mandate of diktat, which comes out of derisking and deleveraging as global currencies fall on competitive currency devaluation.
Furthermore, Jesus has unleashed the First Horseman of the Apocalypse, Revelation 6:1-2. This rider on the white horse has a bow without any arrows symbolizing a global economic and political coup d etat, as he passes the baton of sovereignty from nation states to regional bodies, as inflationism turns to deflationism.
In the age of deleveraging and derisking, sovereignty will no longer come from nation states but from regional leaders in Berlin and Brussels as well as the ECB, which is exercising regional monetary authority, serving as the bedrock for a soon coming EU Super State, which will be based upon regional framework agreements, as leaders meet in summits and waive national sovereignty and pool sovereignty regionally, thus replacing the sovereignty of nation states, and introducing regional sovereignty as foretold in Revelation 13:1-4 and Daniel 2:30-33.
Seigniorage, that is moneyness will no longer come from the securitization of debt instruments such as mortgage based bonds, MBB, securitized by mortgage REITS, REM, such as Starwood Property Trust, STWD, Junk Bonds, JNK, International Corporate Bonds, PICB, International Treasury Bonds, BWX, Emerging Market Bonds, EMB, Municipal Bonds, MUB, US Treasuries, ZROZ, EDV, TLT, or Corporate Bonds, BLV, LQD. Rather, seigniorage will come from diktat and debt servitude, as the fiat money system is replaced by the diktat money system.
Either one is fiat or one is elect. The fiat have mandate in philosophy, religion or self made rules. The Elect are the chosen and have ordination, predestination, in the like allotted like precious faith of Jesus Christ, 2 Peter 1:1 and partake of God’s divine nature and His virtue, bearing spiritual fruit so as to make their calling and election sure, and so as to be established in the present truth, 2 Peter 1:2-12.
Austrian economists believe themselves to be sovereign individuals living within natural law expressing human action. But the elect are servants of Christ. Romans 6:22, live in Christ, Colossians 3:3, and express Him, Colossians 1:10. The elect perceive Christ to be sovereign Colossians 1:16-18, and Ephesians 1:20-22; they have a conscience guided by the sacrifice of Christ, which arbitrates speech and conduct Colossians 3:15, and have biblical ethics, that is rules for interacting with others, Colossians 3:18-25.
The fiat have subjective experience in reputed wisdom or even self imposed worship in a set of rules. This “will worship” is arbitrary, and can be sanctimonious and even become psychopathic, Colossians 3:23.
There is no human action, as perceived by Ludwig von Mises. There is only the economy of God, Ephesians 1;10, operating to produce the transitioning from the fullness of prosperity that came with the Milton Friedman Friedman Free To Choose paradigm to the regional governance paradigm, as foretold in Daniel 2:20-23 and Revelation 13:1-4.