Financial market report for the week ending August 6, 2013
1) … Jesus Christ has completed the economic and political paradigm of liberalism and is introducing that of Authoritarianism.
Liberalism’s dollarization scheme of credit is failing. Bloomberg reports Asian bonds tumble below par in capital flight. Asia dollar-denominated bonds have dropped below par for the first time since 2011 as investors pull money out of the region amid concerns that growth is slowing and as currencies from the rupee to rupiah plunge. Average prices of company debentures in the region fell to 98.61 cents on the dollar on Aug. 22, the least since October 2011, Bank of America Merrill Lynch indexes show. Dollar bonds globally have held above 100 cents since September 2009. Both investment- and non-investment-grade debt in Asia were below par on Aug. 22. The last time that happened was in September 2008, when Lehman Brothers Holdings Inc. collapsed. Investor sentiment toward Asia is shifting as economic growth in China slows and currencies in India and Indonesia — the two countries with the biggest external funding needs in the region — plunge. About $44 billion has been pulled from emerging-market stock and bond funds globally since the end of May, data provider EPFR Global said on Aug. 23. “You risk being swept away by fund outflows even if you buy bonds from the best companies in Asia,” said Ben Bennett, a global credit strategist in London at Legal & General Investment Management, which manages $670 billion. “You’d need to be very brave to add credit risk before currencies show signs of stabilization.”
And a complete hemorrhaging of the Milton Friedman Free To Choose Floating Currency Regime has commenced, as Andrew England and Robin Harding of FT report in article Call for aggressive action over emerging markets crisis at conclave of central bankers at Jackson Hole. South African finance minister Pravin Gordhan spoke of the “inability to find coherent and cohesive responses across the globe to ensure that we reduce the volatility in currencies.” And Agustin Carstens, Mexico’s central bank governor said the “volatility of [capital] flows has been very pernicious.”
Sam Ro of Business Insider reports The meltdown of the 4 worst emerging market currencies in 2 charts. Foreign selling of emerging market assets has caused the currencies of many developing economies to depreciate vis-à-vis the U.S. dollar). Among large developing economies, the worst performing currencies over the past three months have been the Turkish lira, which has weakened about 10 percent against the greenback, the Indonesian rupiah and the Brazilian real (both down about 15 percent or so). The Indian rupee has plunged 20 percent, and it nosedived to an all-time low against the dollar this week. What these countries have in common is that they each run current account deficits at present.
With the failure of not only credit, but also of currencies, Jesus Christ, acting in dispensation, that is the oversight of all things economic and political, Ephesians 1:10, is completing the old things of liberalism, and is establishing the new things of authoritarianism.
New dynamos are in operation. The dynamos of corporate profit and global growth were based upon investment opportunities in sovereign nation states, are powering down; now the dynamos of regional security, stability and sustainability, are powering up, reflecting responsibilities to regional authority. The emergent solutions came from markets opportunities, are snuffed out by top-down, elite-driven commands.
A new seigniorage, that is a new moneyness, is developing. The seigniorage of investment choice, is waning; and the seigniorage of diktat is gaining strength. Robert Stevens of WSWS reports Euro zone hatches plan to wring further billions from Greece. According to a report, the EU, ECB and IMF sent an email to the Greek government “insisting on liquidating state enterprises and dismissing their employees without compensation.”
A new trust is emerging. Gone is trust in bankers, carry trade investing and credit, in particular Treasury debt, to increasing trust in statist nannycrats, totalitarian collectivism, public private partnerships and debt servitude, growing to the point of deification of regional governance, as is presented in Revelation 13:3-4, where the people’s trust comes to constitute worship. There be no more citizens or patriots of countries, there be only residents of a regional state, that is one of ten regional zones. Countries are developing bilateral arrangements that avoid the US, the US dollar, such as the Ambrose Evans Pritchard report China to dictate tough terms on BRICS rescue fund. Under authoritarianism, regional undollar economies are overseen by regional technocrats, who oversee the factors of production, commerce and trade for regional security, stability, and sustainability.
A new order of financial control is developing. Automatic Earth reports Holders of financial derivatives enjoy super-priority in municipal and financial institution bankruptcy; this may potentially leave nothing for other creditors to divide during subsequent proceedings. Along this line of reporting Andre Damon and Barry Grey of WSWS write The Detroit bankruptcy and the drive toward dictatorship. And Ellen Brown, of Web of Debt writes The Detroit Bail-In Template: Fleecing pensioners to save the banks. Banks will be integrated into the government and be known as government banks or Govbanks for short.
2) … Financial market trading for the week August 3, 2013, to August 6, 2013.
On Tuesday, August 3, 2013, The Japanese Yen, FXY, fell sharply lower, on the failure of Kuroda Abenomics, and as the NYT reports Japan panel backs sales tax hike coupled with stimulus, and as Reuters reports Total JGB issuance set to hit record high in 2014/15. The Euro, FXE, fell slightly lower, which forced the Swiss Franc, FXF, lower. The India Rupe, ICN, traded lower, forcing India, INP, and India Small Caps, SCIN, lower. The Australian Dollar, FXA, rose strongly. The US Dollar, $USD, rose to 50 day moving average at 82.41.
The strong fall lower in the Japanese Yen, FXY, popped the Nikkei, NKY, higher; yet debt deflation drove the Interest Rate on the Japanese Government Bonds, higher, causing its inverse, JGBS, to rise from a recent double bottom.
China, YAO, blasted to a new rally high, as China Industrials, CHII, China Financials, CHIX, China Small Caps, ECNS, China Real Estate, TAO, and Far East Financials, FEFN, rose as Yardini reports China’s economy perking up (excerpt) The manufacturing purchasing managers’ index (M-PMI), compiled by China’s National Bureau of Statistics, rose to 51.0 in August from 50.3 in July, the highest level since last April and ahead of market expectations of 50.6 in a Reuters poll. The official survey showed an across-the-board recovery in all sub-indexes, ranging from new orders and quantity of purchases to input prices and employment, pointing to a positive picture for the huge factory sector.
Confirming the strength of China’s economy are electricity output and crude oil usage. Both rose sharply during July to new record highs. On August 13, I noted that an exclusive report in South China Morning Post revealed that the “mainland government is quietly offering financial stimulus to key cities and provinces to help them maintain local economic growth.” Instead of massive economy-wide stimulus, the government is targeting big projects around the country to stimulate growth. The new approach seems to be working
Finland, EFNL, and Nokia, NOK, popped higher, as Microsoft, MSFT, traded strongly lower, as Microsoft announced a deal to acquire Nokia’s mobile handset business for 5.44 billion euros.
World Stocks, VT, traded higher. Sectors trading higher included, 200% Volatility, XIV, Design Build, FLM, Casinos and Resorts, BJK, Biotechnology, IBB, Solar, TAN, Internet Retail, FDN, Global Consumer Discretionary, RXI, S&P High Beta, SPHB, Leveraged Buyouts, PSP, and Automobiles, CARZ.
Technology Stocks, MTK, seen in this Finviz Screener, such as ALU, ERIC, MU, QCOM, PHG, TEL, EGHT, ENVI, CIEN, CALX, TLAB, CLFD, CAMP, IDSY, HRS, WSTL, VCRA, WTT, ROP, ST, BSX, ALGN, MTSC, MEAS, and FEIC traded higher. Sweden, EWN, Norway, NORW, and the UK popped higher in sympathy with Finland. Facebook, FB, and LinkedIn, LNKD, rose to new rally highs. And Global Industrial Producers, PICK, copper Miners, COPX, Rare Earth Miners, REMX, Metal Manufacturers, XME, Steel Producers, SLX, and Coal Miners, KOL, traded higher.
Asia Excluding Japan, EPP, traded higher. The ever volatile, Taiwan, EWT, and South Korea, EWY, popped higher. But Indonesia, IDX, traded lower.
Utilities, XLU, traded lower, as the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepened, as is seen in the Steepner ETF, STPP, steepening, as the Interest Rate on the US Ten Year Note, ^TNX, spiked the most in two months, blasting strongly higher to 2.85%, sending Aggregate Credit, AGG, and the Credit ETFs, seen in this Finviz Screener lower. Michigan Closed End Municipal Bonds, MIW, Pennsylvania Closed End Municipal Bonds, EIP, New York Closed End Municipal Bonds, ENX, the Zeroes, ZROZ, and 30 Year US Government Bonds, EDV, are leading Bonds, BND, lower.
Jack Chan’s chart of the Euro, FXE, shows that it has broken down, and is no longer a viable currency.
Jack Chan’s chart of the Interest Rate on the US Ten Year Note, TLT shows it to be a failed investment, communicating that trust in US Treasury Debt has failed, and that the US has lost both its financial sovereignty and its financial seigniorage, that is financial moneyness, communicating the soon coming end of the American SSI Disability and Transfer Payment State, what some call the American Welfare State of TANF, and SSI Disability Payments, as well as the US Dollar Hegemonic Empire, known as the United States of America; and also known as the Milton Friedman Free To Choose Banker Regime, this coming at a time when Justin Raimondo of Antiwar writes A blank check for war.
Jesus Christ has been operating in economy of God, Ephesians 1:10, first to establish liberalism, beginning in 1971, when President Nixon, followed Milton Friedman’s advice, to take the US off the gold standard, and to pursue endless wars via the military industrial complex; and second to complete liberalism in August 2013, when the bond vigilantes drove the Interest Rate on the US Sovereign Debt, ^TNX, to 2.75%, destroying Credit, AGG.
In today’s news, The WSJ reports New York’s next mayor faces union showdown The city’s next mayor will face the biggest showdown with labor unions since New York’s brush with bankruptcy in the 1970s,
Daily KOS posts The Nation article NYC Mayor: Bill de Blasio (D), The only candidate who will end the stop-and-frisk era. In running for mayor, de Blasio has promised to tackle the city’s inequality crisis head-on, harnessing what he has called “the most powerful local government on earth” to bring affordable housing, living-wage jobs, universal pre-kindergarten and genuine opportunity to the city’s millions of forgotten residents. “My job is to help New Yorkers live in New York,” he told New York magazine in a recent interview.
There is a lot to like, from proposals on education and homelessness to public safety—but among the ideas that we found most persuasive is his unusually diverse economic development strategy, which embraces not only job creation but also enhanced labor protections and long-overdue investments in New York’s once-great public universities. De Blasio was a major force behind living-wage and paid-sick-leave legislation—indeed, he fought for much stronger bills than those ultimately passed by the City Council—and his platform contains additional policies to increase wages for the city’s working poor. He is also steadfastly pro-union, which is both a welcome change and a crucial one after twelve years of an administration so hostile to labor that all 152 of the city’s public unions are without contracts. And in an effort to stanch New York’s affordable-housing crisis, he has put forward an ambitious plan to build or preserve nearly 200,000 affordable-housing units over the coming decade, while pledging to remove wasteful tax breaks for real estate developers.
Perhaps most unexpected is the centerpiece of de Blasio’s platform: a city income-tax surcharge on New Yorkers earning over $500,000 a year to provide truly universal, full-day pre-kindergarten to every child in New York City—a game-changing investment in the next generation of New Yorkers. The revenue from this surcharge would also fund after-school academics, athletics and cultural programming for every middle-schooler. It is notable that deBlasio made this tax proposal in the belly of the beast, at a meeting of the city’s corporate leaders.
Finally, de Blasio has been one of the fiercest critics of the NYPD’s stop-and-frisk policy, which has seen hundreds of thousands of young black and Latino men wrongly detained and subjected to searches. And of the candidates, he has been the most vocal and persistent supporter of a bill to prohibit racial profiling and impose greater police oversight. He has also pledged to replace Police Commissioner Ray Kelly, who stubbornly defends stop-and-frisk. – The Nation, 8/8/13
On Wednesday, August 4, 2013, The Interest Rate on the US Ten Year Note, ^TNX, rose to 2.9% today. World Stocks, VT, traded higher. Sectors rising included Networking, IGN, Semiconductors, SMH, Solara, TAN, Biotechnology, IBB, Transportation, XTN, S&P High Beta, SPHB, Internet Retail, FDN, Small Cap Industrial, PSCI. Australia, EWA, rose, taking Asia excluding Japan, EPP, higher. Oil Price reports Tesla opens first European Model S assembly plant and supercharger network. Finviz Daily Chart of Tesla, TSLA, shows its parabolic rise from its April 1, 2013, price of 44, to its September 3, 2013, price of 168.
Many libertarian bloggers are writing today that they are disgusted with both political parties as ABC News reports Boehner’s Aboard: Obama gains Syria strike support. President Barack Obama gained ground Tuesday in his drive for congressional backing of a military strike against Syria, winning critical support from House Speaker John Boehner while key Senate Democrats and Republicans agreed to back a no-combat-troops-on-the-ground action in retaliation for a chemical weapons attack.
I am not disgusted with any political party, as I know that according to the Apostle Paul in Ephesians 1:10, that Jesus Christ is operating in the economy of God, bringing Liberalism to its zenith, and introducing Authoritarianism as the world’s economic and political paradigm.
How can I be disgusted, when I know according to the Prophet Daniel in Daniel 2:25-45, that God ordained there be two great world powers, these being the British Empire and the US Empire of Crony Capitalism, whose iron legs of hegemony would rule before their empires collapse, and a Ten Toed Kingdom of regional governance would come to govern the world, in a miry mixture of iron diktat and clay democracy.
In fact, I’m rejoicing because I know the truth, and it has set me free from the deception of human philosophy of Libertarianism, which is simply just another experience in will worship, that is the worship of human things desired. as communicated by the Apostle Paul in Colossians 2:23.
It was the true great and original libertarian, the one who set the world on the course away from control by the state, John Calvin, who described will worship as that “which men choose for themselves at their own option, without authority from God.” What a fitting description of libertarianism today. Libertarianism is self-made religion, as it has its origins in the concept that individuals are sovereign individuals. Scripture reveals that only God be sovereign. Libertarianism is a worship of “free choice” rather than that of “divine choice”. Because libertarianism comes from a sense of self-determination, it is enslaving, corrupting, intoxicating, and ultimately destructive.
The Prophet Daniel, in Daniel 2:25-45, has presented the reality that God operates in empires, always has, and always will. And John the Revelator adds emphasis in Revelation 13:1-4, describing the soon coming Ten Toed Kingdom, as a Beast Regime that will occupy not only in ten zones of regional governance; but also in totalitarian collectivism in all of mankind’s seven institutions.
So if one be disgusted today, one will only be enraged tomorrow.
Brandon Cornett of The Home Buying Institute reports San Francisco home prices have rebounded the furthest from their crisis low point. Since March 2009, when this market officially hit bottom, prices have risen by a whopping 49%. That’s more than any other metro area tracked by the Case-Shiller Index. I comment, that if you are looking for a home in Excelsior, well then, perhaps the 3 Bedroom and 1 Bath home at 206 Lisbon St, San Francisco, CA 94112, is for you.
Ask Blog provides Another essay for everyone to ignore on housing finance reform. It’s appropriate to focus and then refocus again for emphasis on housing finance reform, as Jesus Christ has been in dispensation, that is in the active management of all things economic, political, and spiritual, as revealed by the Apostle Paul in Ephesians 1:10, bringing forth Liberalism in 1931, with the establishment of the US Fed; and then again maturing Liberalism in 1971, with the provision of the Milton Friedman Free To Choose floating currency system, and in 1999 with the Repeal of the Glass Steagall Act establishing a modern banking regime, and with the provision of the Euro currency as a platform for further monetary expansion as well as regional political intervention.
Liberalism’s policy was one of investment choice, with all kinds of credit schemes like Ask Blog mentions, and all kinds of currency carry trade schemes as well, as some bought their homes using FX currency carry trades originated by Austrian bankers.
But now with the Interest Rate on the US Debt having soared to 2.75% in August 1, 2013, Jesus Christ like a ship’s steward, has fully completed the ship’s manifest, providing a moral hazard based prosperity, where gains have been privatized to the bankers and losses socialized to the public.
And with John McCain fathering World War III in the Middle East, Jesus Christ is fully pivoting the world into Authoritarianism, with its policies of diktat, and schemes of control and debt servitude producing austerity for all.
Ron Paul writes in Liberty Crier Private property is the essence of liberty. Similar thoughts come from Hoppe, Hans-Hermann, writing in Lew Rockwell, 2004. “The Ethics and Economics of Private Property.” I comment that respect for the person of others, and the property of others is the basis of ethics.
On Thursday August 5, 2013, The Interest Rate on the US Ten Year Note, ^TNX, rose to 2.97%, causing Aggregate Credit, AGG, to trade sharply lower. The 10 30 US Sovereign Debt Yield Curve, $TNX:$YTX, steepened, as is seen in the Steepner ETF, STPP, steepening. World Treasury Debt, BWX, Longer Duration Corporate Debt, BLV, traded lower.
Inverse Volatility, XIV, rose, as YAO, and China Financials, CHIX, China Industrials, CHII, China Small Caps, ECNS, and Chia Real Estate, TAO, rose strongly higher, taking Far East Financials, FEFN, South Korea, EWY, and Taiwan, EWT, higher. Solar Stocks, TAN, rose. India, INP, Brazil, EWZ, Russian, RSX, rallied with China, taking the BRICS, EEB, and the Emerging Markets, EEM, higher. The US Dollar, $USD, rose strongly to close at 82.66. Gold, GLD, and Silver, SLV, traded lower, taking Gold Mining, GDX, GDXJ, and Silver Mining, SIL, SILJ, SSRI, lower. Yet, Poland, EPOL, fell 5%, as Poland Government Seizes Half of Pension Funds
On Friday August 6, 2013, This week Aggregate Credit, AGG, traded 0.70% lower, as the Interest Rate on the US Ten Year Note, ^TNX, traded higher from 2.75% to 2.94%.
Lisa Abramowicz and Liz Capo McCormick of Bloomberg report “The worst losses in U.S. debt in at least 37 years are being magnified by investors exiting the market at the same time new regulations prompt Wall Street firms to cut back on trading corporate bonds. Bank of America Merrill Lynch’s U.S. Broad Market Index is on pace to drop 4.41%, the biggest annual loss since at least 1976. Investors pulled $123 billion from bond funds since May, according to TrimTabs. Trading in corporate fixed income securities is the lowest ever as a proportion of outstanding debt, and volumes in Treasuries are little changed from 2007 levels even though the market has almost tripled to $11.5 trillion, Financial Industry Regulatory Authority and ICAP Plc data show. Bonds are getting riskier even with inflation at bay and corporate profits hitting new highs. ‘When bond investors start to meaningfully divest themselves of their positions, it will be analogous to yelling fire in a crowded theater,’ Michael Underhill, the chief investment officer at Capital Innovations LLC, which manages $1.5 billion, said”
Brian Chappatta of Bloomberg reports “The biggest losses since 1999 for municipal debt signal that Detroit’s bankruptcy and 14 weeks of withdrawals from mutual funds are overwhelming historical trends pointing to a rebound in the $3.7 trillion market. Local debt lost 1.6% in August, the steepest drop for the month in 14 years. It marked just the second time in 25 years that the obligations fell in both July and August, a period in which the market usually rallies as investors get cash from coupon and principal payments while issuance dwindles. Benchmark yields are the highest since 2011 and exceed those on Treasuries and AAA company debt by the most in at least 20 months”
Sean McLain and I Made Sentana of the WSJ report on the failure of Liberalism credit scheme of Dollarization “Companies across Asia are facing a debt repayment crunch as plunging local currencies make it more costly to repay foreign loans, a situation that is exacerbating stresses on the region’s economies. Asian companies took out sizable foreign loans in recent years as the U.S. Federal Reserve kept interest rates low and printed money. For firms in nations like India and Indonesia, rates on U.S.-denominated debt were more attractive than local borrowing costs. But the current exodus of capital from emerging markets, amid expectations the Fed will end its period of extraordinary monetary stimulus later this year, has changed that equation. Foreign funds are pulling out of Asian bonds and other assets amid expectations U.S. rates will rise further. That is pushing currencies in Asia sharply lower and raising the cost of repaying U.S. denominated borrowings.”
Ben Bland of the Financial Times reports “The gloom surrounding Indonesia continued to deepen on Monday after southeast Asia’s biggest economy posted a record monthly trade deficit and inflation climbed to a four-year high. The trade deficit jumped to $2.3bn, much higher than expected, in July as imports remained strong while exports fell because of the slowdown in China and ongoing troubles in Europe and the US. Annual consumer price inflation rose to 8.8% in August, from 8.6% one month earlier, with economists predicting that inflation may reach double digits by the end of the year, putting pressure on the central bank to continue hiking interest rates. Indonesia has been hit hard by the recent sell-off, which has also ensnared other emerging markets with large current account deficits and a need for foreign financing like Brazil, India, South Africa and Turkey.”
James Crabtree of Financial Times reports “Fears are rising for the health of India’s banking system as slowing economic growth and rapid currency depreciation threaten to worsen asset quality and reduce demand for bank credit from large industrial companies. The growing concerns complicate the task facing Raghuram Rajan, who takes over today as head of the Reserve Bank of India, a role that includes responsibility for bank regulation, as he attempts to chart a path through the deepening currency crisis. Non-performing and restructured loan levels in Asia’s third-largest economy have risen steadily over the past year to stand at around 9% of assets and could reach 15.5% over the next two years, according to Morgan Stanley. Indian companies hold around $225bn of US dollar-denominated debt, as much as half of that estimated to be unhedged, while some larger Indian banks including State Bank of India and ICICI have raised money via dollar-denominated bonds in recent years.”
The chart of the S&P 500, $SPX, shows a massive dark filled questioning harami on Friday September, 6, 2013, and a 1.4% rise for the week. Sectors trading higher this week included
Solar, TAN, 9.2 (a new rally high)
Inverse Volatility, XIV, 5.5
Networking, IGN, 4.7
Biotechnology, IBB, 4.0 (a new rally high)
Internet Retail, FDN, 3.7 (a new rally high)
Automobiles, CARZ, 3.6
Casinos and Resorts, BJK, 3.5 (a new rally high)
Semiconductors, SMH, 3.4
Design Build, FLM, 3.3
S&P High Beta, SPHB, 3.2
Stock Brokers, IAI, 3.1
Eurozone Financials, EUFN, 3.0
Global Consumer Discretionary, RXI, 2.9
Life Insurance Companies, GNW, 2.8 (a proxy for life insurance companies)
Media, PBS, 2.6
Energy Production, XOP, 2.5
Transportation, XTN, 2.4
Too Big To Fail Banks, RWW, 2.3
Small Cap Pure Industrials, PSCI, 2.2
IPOs, FPX, 2.1, (a new rally high)
Small Cap Pure Value, RZV, 2.0. It is Regional Airlines, Business Services, Personnel Services, and Business Software and Services, that have been leading lower, as this month’s loss leading sector, despite Bespoke Investment Blog reporting, ISM Services Index Hits Highest Level Since 2005!
Countries trading higher this week included
Nikkei, NKY, 3.4
US Stocks, VTI, 1.6
Sweden, EWD, 3.5
Eurozone, EZU, 2.6
Europe, VGK, 2.6
Norway, NORW, 2.5
Asia Excluding Japan, EPP, 4.1, a new rally high
Thailand, THD, 6.7
South Korea, EWY, 5.5, a new rally high
Australia, EWA, 4.3, a new rally high
Taiwan, EWT, 3.8
The Philippines EPHE, 3.4
The BRICS, EEB, 6.1, with Brazil, EWZ, 6.8, Russia, RSX, 5.4, India, INP, 6.5, and China, YAO, 4.8, a new rally high. In the last month, SHG, and CHIX, have been leading CHII, ECNS, and TAO higher, as is seen in their ongoing Yahoo Finance chart. Emerging Market Financials, EMFN, rallied 4.4%, and Far East Financials, FEFN, 3.0%, this week.
Chile, ECH, 7.1
Poland, EPOL, traded 4.8 lower this week.
2) … Authoritarianism’s paradigm of diktat and debt servitude is emerging as Jesus Christ is in active administration of the economy of God terminating Liberalism’s paradigm of investment choice and credit … Luciferian Worship Will Emerge Out of a Middle East Third World War.
Eleni Panagiotarea authors the book Greece in the Euro: Economic Delinquency or System Failure.
I comment that the Euro, currently a currency without a state, is about to become the world’s preeminent region of economic governance and totalitarian collectivism, rising out of sovereign and banking insolvency of the PIGS. And Canada, Mexico, and America, is about to become the leading example of the Security State. The centuries-old individualistic American culture which featured diversity and volunteerism, will be will be washed away through compulsion and uniformity, as foretold in Revelation 13:4, where John the Revelator wrote, “So they worshiped the dragon who gave authority to the beast; and they worshiped the beast, saying, “Who is like the beast? Who is able to make war with him?”
In 1998, at a Symposium on the Continuing Political Relevance of the Peace of Westphalia, the then NATO Secretary-General Javier Solana said that “humanity and democracy [were] two principles essentially irrelevant to the original Westphalian order” and levied a criticism that “the Westphalian system had its limits. For one, the principle of sovereignty it relied on also produced the basis for rivalry, not community of states; exclusion, not integration.”
In 2000, Germany’s Foreign Minister Joschka Fischer referred to the Peace of Westphalia in his Humboldt Speech, which argued that the system of European politics set up by Westphalia was obsolete: “The core of the concept of Europe after 1945 was and still is a rejection of the European balance-of-power principle and the hegemonic ambitions of individual states that had emerged following the Peace of Westphalia in 1648, a rejection which took the form of closer meshing of vital interests and the transfer of nation-state sovereign rights to supranational European institutions.”
In the aftermath of the 11 March 2004 Madrid attacks, Lewis ‘Atiyyatullah, who claims to represent the terrorist network al-Qaeda, declared that “the international system built up by the West since the Treaty of Westphalia will collapse; and a new international system will rise under the leadership of a mighty Islamic state”.
Benedict Anderson refers to putative “nations” as “imagined communities.” Others speak favorably of the Westphalian state, notably European nationalists and American paleoconservative Pat Buchanan. Some such supporters of the Westphalian state oppose socialism and some forms of capitalism for undermining the nation state. A major theme of Buchanan’s political career, for example, has been attacking globalization, critical theory, neoconservatism, and other philosophies he considers detrimental to today’s Western nations. In a 2008 article Phil Williams links the rise of terrorism and other violent non-state actors (VNSAs), which pose a threat to the Westphalian sovereignty of the state, to globalization.
A new notion of (humanitarian intervention and) contingent sovereignty seems to be emerging, but it has not yet reached the point of international legitimacy. Neoconservatism in particular has developed this line of thinking further, asserting that a lack of democracy may foreshadow future humanitarian crises, or that democracy itself constitutes a human right, and therefore nation states not respecting democratic principles open themselves up to just war by other countries. However, proponents of this theory have been accused of being concerned about democracy, human rights and humanitarian crises, only in countries where American global dominance is challenged, such as the former Yugoslavia, Iraq, Iran, Russia, China, Belarus, North Korea, Sudan, Venezuela, etc., while hypocritically ignoring the same issues in other countries friendlier to the United States, such as Pakistan, Saudi Arabia, United Arab Emirates, Jordan, Egypt, Georgia, and Colombia.
The seigniorage of Liberalism’s nation state single reserve currency system is failing; the seigniorage of Authoritarianism’s undollar regional governance and totalitarian collectivism diktat system is rising as Joseph Stuber writes in Seeking Alpha As The Bernanke Era Comes To An End A New Global Paradigm Is Almost Certain But Few See It Coming
Many of us wondered if the Jackson Hole Summit this year would offer anything of significance with Bernanke not in attendance. The primary focus for most was the hope that we would we get some clues on the matter of the Fed’s timing on pulling back on the controversial QE program?
Surprisingly we did indeed get something of significance coming out of the Jackson Hole Summit but it was not what most expected. The following quote is the opening statement in a Reuter’s article entitled Central bankers debate risks from withdrawing global liquidity:
Global financial stability is at risk as central banks draw back from ultra-easy policies that have flooded the world with cash, because emerging markets lack defences to prevent potentially huge capital outflows, top officials were warned on Saturday.
The Fed’s talk of tapering is real and relevant to investors but it is only of secondary importance as far as this article is concerned. The primary focus of this article is whether or not the US dollar will remain the world’s reserve currency. It is a very complex and highly controversial subject that gets almost no play in the press but an enormous amount of focus behind the scenes.
The harsh truth is that we have reached the end of an era and it is blatantly clear to those of us who understand the subject that Keynes was right when he stated at the 1944 Bretton Woods conference that a sovereign currency would not work as the world’s reserve currency. The reasons are multifaceted and complicated to say the least and I am not sure I can explain the complexity of the issue in terms the average investor will understand but at the request of a number of my readers I am determined to give it a try.
Why would a decision by the United States to withdraw monetary stimulus by slowing down or terminating QE create global instability?
The answer to that question is complex but we need to start with a discussion on the nature of a reserve currency. The US dollar is the world’s reserve currency and providing a sufficient supply of US dollars to the world’s sovereign nations is the principal function of the US as it relates to its role as supplier of reserve assets. To understand the implications one needs to understand what was decided in 1944 at the Bretton Woods Conference that resulted in what French Finance Minister Valery Giscard d’Estang termed “exorbitant privilege” – a privilege bestowed on the United States when the US dollar was established as the world’s reserve currency.
Here is the condensed version of what happened at Bretton Woods back in 1944: The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states in the mid-20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.
Preparing to rebuild the main international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference, also known at the Bretton Woods Conference. The delegates deliberated during 1-22 July 1944, and signed the Agreement on its final day.
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.
So the outcome of this new system was that the US dollar was designated as the world’s reserve currency and the United States guaranteed that those sovereigns holding dollars would be allowed to exchange them at a rate of $35 for 1 ounce of gold. We all know how that worked out though – it didn’t – and for reasons that were easily predictable by competent economists.
The motivation for a system of trade that was fair was well articulated by Cordell Hull, United States Secretary of State from 1933-1944:
Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war…if we could get a freer flow of trade…freer in the sense of fewer discriminations and obstructions…so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace.
We of course didn’t create that system Hull hoped for – we simply transferred preferred status from Great Britain to the United States. Great Britain no longer held exboritant privilege but the United States did. And the very thing that Hull hoped for – a system based on fairness – has to this day eluded us and we now find ourselves once again at the point where something is about to happen that will dramatically change the system.
In an article entitled – Bretton Woods and the Forgotten Concept of International Seigniorage – Dix Sandbeck expands further on the debate at Bretton Woods on the nature of the new reserve currency:
Keynes envisaged the bancor as an international trade currency and unit of account. Its management and issue was to be in the hands of an another planned international organization, the International Clearing Union (ICU). The value of the bancor was to be determined by the value of the different national currencies in a trade weighted basket. Values of currencies would be fixed, but could be changed by mutual agreement.
A fundamental aim of Keynes’ plan was to install a truly multilateral system. No nation would be allowed to dominate; nations in surplus or in deficit would be disciplined alike. Shortly before the conference however, the Americans rescinded their support for the bancor. Presumably, they felt that the bancor scheme, with its control in the hands of the ICU, was a shrewd strategy to rob the United States of its greatest spoil of victory: unfettered post-war dominance.
Instead, the Americans insisted on a system where the US dollar would be fixed to a gold value of $35 per ounce, though convertible only for central banks. All other currencies were to be aligned to this dollar-gold anchor. If adopted, this would confer on the US an unprecedented supremacy Even Britain, at the pinnacle of her power had not enjoyed such a position. But at Bretton Woods the exhausted European nations were eager for the continued flow of dollars to finance the war and the impending reconstruction. No nation was in a position to challenge the American volte-face.
Seigniorage is the difference between the value of money and the cost of producing it. It is that concept that sets the US apart from every other nation in that it derives the benefit of the currencies purchase value and bears almost no effective cost at current interest rates. Here is how it works. The US government expands the debt ceiling at will and then borrows money by issuing treasuries.
Countries who are net exporters then buy those instruments from the United States in order to invest the dollars they receive in international trade. If you are a net exporter then you build a surplus of US dollar denominated assets. If you are a net importer the inverse is true.
The benefits to the reserve currency issuer is that they are allowed to borrow in great quantity relative to other sovereigns without the commensurate cost these other countries would incur were they to do the same. The reason is simple – if you want to import or export goods and services you do so using US dollars as the form of payment. In other words there is a high demand for dollar denominated assets for reasons unrelated to the interest rate paid on those assets.
A country like China then ends up with a surplus of dollars and here is why. A company in China exports goods and receives in return US dollars. That exporting company then needs to convert those dollars back to the sovereign currency and so the central bank exchanges those dollars for yuans. Now the central bank has dollars which it uses to buy US debt.
That isn’t the way most investors see it though. Most investors see China as deliberately buying US debt for any number of sinister purposes. Others see us at the mercy of China and that may end up being true but not for reasons that are readily apparent.
China by the way has a unique arrangement that links the yuan to the US dollar and that would suggest that the yuan would not appreciate if China sold US dollars and bought the yuan but that is only partially true. The problem with China is multi-faceted. A strong dollar necessarily results in a strong yuan relatively speaking due to the yuan’s link to the US dollar. In other words a strong dollar could end up having a modest impact on Chinese export demand. On the other hand a weak US dollar could have an inflationary effect on the yuan domestically.
Additionally, the Chinese use a novel approach to curbing inflation domestically. They simply raise bank reserve requirements in lieu of withdrawing liquidity. That creates an instant muting of the expansionary impact of the fractional bank multiplier. At the same time it can produce a serious liquidity crisis domestically in China when they attack inflation in this manner.
Another problem as far as China is concerned is rooted in the US blunders from a domestic perspective that create instability in the dollar and in US Treasuries. Blunders like consistently inflating investment assets as in the mortgage debt crisis that impacted global economies across the spectrum.
So what happens then that causes a crisis in the emerging market economies. Here is what Jim Rickards – author of Currency Wars: The Making of the Next Global Crisis – sees happening:
If the Fed does what they say they’re going to do-which I don’t think they will-but if they do… and they reduce asset purchases and U.S. interest rates go up, the capital outflows are going to come from the emerging markets back to the U.S., the carry trades are going to be unwound and that’s going to leave these economies high and dry,” says Jim Rickards, senior managing director of Tangent Capital.And ultimately, those emerging markets “will have unsustainable projects and bank debt, and it could be the beginning of another emerging market crisis which as we know in 1997-1998 spread to major economies.
Rickards made the above statement back in June. There seems to be a pretty broad consensus view today that tapering will start this year. Furthermore, projected deficit levels this year suggest that new Treasury issues will be substantially reduced in fiscal 2013 meaning that the Fed’s bond buying program at current levels will consume roughly 70% of new issue.
So even though there are a very few reasons for tapering there are perhaps a lot more reasons for not tapering. My guess is Rickards will end up being right and the US will not taper but for reasons that are again not so obvious.
When rates start to climb the dollar carry trade loses its appeal and not just in the emerging market economies. Borrowing short term to invest long term works as long as the yield curve remains attractive. But what happens to bonds when rates start to climb. Bonds at the long end of the curve lose value and that applies to all bonds – not just emerging markets. That of course exacerbates the problem as the selling pressure on bonds begets more selling pressure.
Is the Fed really to blame for recent bond weakness?
The following excerpt on the matter of foreign sales of US Treasuries suggests that there is a lot more than QE taper talk driving bonds lower:
(Reuters) – China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries.
The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.
One can argue that China and Japan are selling US Treasuries as they fear the Fed is losing control of the bond market. One can also argue that they are doing so as they are no longer trading exclusively in US dollars.
Consider this from Aljazeera on the matter of trade agreements not involving the US dollar:
Over the past two years, China has announced a string of yuan internationalization efforts that are systematically chipping away at the dollar’s importance to global trade. Financial blog Zero Hedge reports: “One more domino in the dollar reserve supremacy regime falls. [T]he announcement two weeks ago that ‘Australia and China Will Enable Direct Currency Convertibility’ … was the culmination of two years of yuan internationalization efforts as summarized by the following”:
“World’s Second- (China) and Third-Largest (Japan) Economies to Bypass Dollar, Engage in Direct Currency Trade” “China, Russia Drop Dollar in Bilateral Trade” “China and Iran to Bypass Dollar, Plan Oil Barter System” “India and Japan Sign New $15bn Currency Swap Agreement” “Iran, Russia Replace Dollar With Real, Ruble in Trade, Fars Says” “India Joins Asian Dollar Exclusion Zone, Will Transact With Iran in Rupees” “The USD Trap Is Closing: Dollar Exclusion Zone Crosses the Pacific as Brazil Signs China Currency Swap”
What we know is that the Fed hasn’t begun the process of tapering back QE purchases yet the yield on US Treasuries has skyrocketed – doubling since the mid-2012 lows:
(click to enlarge)
This can only be explained in the context of foreign sales of US Treasuries. In June foreign sales of US Treasuries exceeded the Fed’s purchases by roughly $27 billion. In other words US Treasuries aren’t falling as a result of taper talk but as a result of the selling pressure created by those countries no longer trading in US dollars.
If China, Japan, Australia, Brazil or one of the many other countries now by-passing the US dollar no longer receive US dollars in payment for exports then it creates an altogether different dynamic that tends to diminish the exorbitant privilege of the US.
Take Japan as an example. If they receive US dollars in trade settlements they either hold the dollar or interest bearing treasuries. In other words they buy US Treasuries pushing bond prices up and yields down. Do they want to do that? The answer is no but they have no choice. If they simply sell US dollars and buy yens they drive the yen higher and the result is a dampening of demand for Japanese produced goods. It hurts the domestic economy so they are forced to reinforce the exorbitant privilege of the reserve currency nation.
How are bilateral trade agreements affecting markets?
Let’s look at the bond market to see if this dynamic is really occurring. Here is the bond market (TLT):
(click to enlarge)
Once again we know why bonds have been weak of late – foreign sales of US Treasuries. And we know why that is occurring – bilateral trade agreements that don’t result in US dollars being received to the degree they have in the past. It can be argued that the recent spike is the result of a safe haven bid for US Treasuries based on the prospects of heightened tensions in the middle east arising from the mess in Syria but will it last? Probably not as the overriding influence on bonds is the bilateral trade agreements that are bypassing the US dollar.
Debunking the capital flowing to US equities bull market argument
The idea that capital will flow to US equities as US equities are the best value is refuted by the fact that US equities will likely suffer a major hit as China, Japan, Russia, Brazil, India and others bypass the US dollar. What will occur instead is an end to the demand for US Treasuries that has driven bond prices higher and yields lower. This can occur at a much more rapid rate than many would imagine.
The result is an end to exorbitant privilege status for the US. Interest rates will continue to climb or normalize as some say and that will necessarily result in a deleveraging – a reduction in debt levels – that will cause M2 growth to stall out and perhaps decline. So the take away then is that even in a period of disinflation or deflation we could still see the US dollar fall relative to other currencies. It isn’t supposed to work that way of course but then we don’t have a period we can reference to inform us on what happens to the US dollar when it loses its reserve currency status.
Each of us has to judge for ourselves what will occur in the coming months and all I can do is inform readers of what I see and what I see is a major seminal moment that will come upon us with a suddenness that few expect. The big question is will a sell off be in the category of normal or will it be much more dramatic. I am confident that it will be the latter and wonder if maybe the time is now upon us.
I continue, as having brought liberalism with its policies of investment choice and schemes of credit and carry trade investing to fulfillment, Jesus Christ, acting in dispensation, Ephesians 1:10, is now introducing authoritarianism, and John The Revelator’s Beast Regime, with its policies of diktat and schemes of nannycrat control, where through a soon coming credit bust and global financial system breakdown, foretold in Revelation 13:3-4, regional leaders, that is, nannycrats, will meet in summits, to renounce national sovereignty, and announce regional pooled sovereignty, in each of the world’s ten regional zones, most likely first with the Eurozone, and secondly with the North American Continent, which will become a North American Union, or NAU, a region I call CanMexAmerica. Thus the The Westphalian System of sovereign nation states is collapsing, and out of its ashes the Beast Regime of regional governance and totalitarian collectivism is rising to rule the world.
Accompanying the rise of the Beast System, will be a war in Syria foretold in Isaiah, 17, and a third world war, foretold in Ezekiel 38. Illuminati Prophet Albert Pike had Luciferian insight that there would be three world wars. D. Robert Singer writes the article The Modern State of Israel: Providence, Miracle, or What Really Happened. In 1871 Albert Pike founder of one of the Rothschild secret societies, Order of Perfectibilists, received a vision, which he described in a letter dated August 15, 1871 that graphically outlined plans for three world wars that were seen as necessary to bring about the One World Order.
ThreeWorldWars.com writes The Third World War must be fomented by taking advantage of the differences caused by the “agentur” of the “Illuminati” between the political Zionists and the leaders of Islamic World. The war must be conducted in such a way that Islam (the Moslem Arabic World) and political Zionism (the State of Israel) mutually destroy each other. Meanwhile the other nations, once more divided on this issue will be constrained to fight to the point of complete physical, moral, spiritual and economical exhaustion…We shall unleash the Nihilists and the atheists, and we shall provoke a formidable social cataclysm … Then everywhere, the citizens, obliged to defend themselves against the world minority of revolutionaries, will exterminate those destroyers of civilization, and the multitude, disillusioned with Christianity, whose deistic spirits will from that moment be without compass or direction, anxious for an ideal, but without knowing where to render its adoration, will receive the true light through the universal manifestation of the pure doctrine of Lucifer, brought finally out in the public view.  [Cmdr. William Guy Carr: Quoted in Satan: Prince of This World, Albert Pike received a vision, which he described in a letter that he wrote to Mazzini, dated August 15, 1871.
3) One light in the Lord, and the other dark in the world
As I’ve shared in the past, I reside in the Sea Breeze Apartments, in downtown Bellingham; its the bottom of the social pyramid, specifically Claritas Prizm Sector 65, Inner City Blues 66; the most economically challenged of all demographic areas.
Most individual here have physical health, emotional health, and mental health handicaps.
Two returned late in the day on saturday. One guy, who has lived here seventeen years, is a sabbatarian, always observant of keeping his faith, returned dressed in pressed white shirt, black tie, and black shined shoes, holding his Bible. One gal, returned with pulling an overnight bag, holding a bouquet of flowers. One has relationship with the Lord, and the other has a relationship with her significant other.
There be no choice; there is only the Lord, with the Spirit, moving in the lives of people. All things are of his choice. He in His Providence of space and time brought forth John Calvin in the reform movement to bring forth genuine liberalism, that is freedom from the state, and also Witness Lee in the recovery movement to recover living principles of grace and truth. People are who they are, because they are both vessels of the Lord, and are shaped, molded, and brought forth by Him, to produce things of His choosing.
I’ve often wondered about the FWB relationship. When growing up, and into young adulthood, my parents entertained on the holidays and had their friends over. One of mom’s friends brought another; and I asked mom about the relationship, and she said “just friends”. It wasn’t until my third year of college, that I came to understand what friends with benefits means. I’m ok with it when I see it, if there be a ring on the finger communicating a fidelity to the other, and a presence with the other.
Fidelity with the Lord is that which I purpose. I don’t go to a church, yet I endeavor to keep the first day of the week special to and with Him. As we are headed off strongly into another age; I purpose to keep His word of endurance and not deny his name, by living within His presence and authority,
4) … Prophetic signs of the endtimes, by Duane and Shelley Muir, of Sign Posts of The Times.
The forsaking of the Gospel Message. How the Seeker-Sensitive, Consumer Church Is Failing a Generation
The destruction of Damascus. Russia warns Of Nuclear Disaster If Syria Is Attacked
The implementation of the daily sacrifices. Temple Institute Opens New School For Training Priests
5) … Charts of the week
Daily chart of the S&P 500, $SPX, courtesy of Stockcharts.com
Weekly chart of the Small Cap Pure Value Stocks, RZV, courtesy of Finviz.
6) This is possibly my last post
There comes an end to all writing. I’ve enjoyed writing about what John the Revelator says are “those things which must shortly come to pass”, Revelation 1:1; many of these are about to burst on the scene as the Isaiah 17 War with the destruction of Damascus, and the Ezekiel 38 War as a major assault by Islam against Israel, and vice versa. Inasmuch as these things will become reality, I see diminishing reward to write about them.