Possession Of Gold Bullion And The Mandate Of Ditat Are The Only Two Forms Of Sovereign Wealth In The Age Of Diktat

Investment report for the week of June 31, 2013 to July 5, 2013

1) … Introduction … Sovereign wealth is found only in the possession of gold bullion and the mandate of diktat.

The jump on the Interest Rate on the US Ten Year Note, ^TNX, to 2.01% on May 24, 2013, constituted an “extinction event”, that is a cataclysm, which literally destroyed the investment choice offered by bankers as the way of life, and terminated the paradigm of Liberalism.  Jesus Christ is operating at the helm of the Economy of God, Ephesians 1:10, and has pivoting the world into the paradigm of Authoritarianism, where the diktat of nannycrats is the now the way of life.  Fiat money died, and diktat money has been coming to life.

Please consider the corollaries from the Dispensation Economics Manifest  … http://theyenguy.wordpress.com/about/ … that flow from the biblical revelation that Jesus Christ, is operating as steward in dispensation, that is the household management plan of God to both complete and fulfill all things in every age, epoch, era and time period.

Benson te writes Quote of the Day: State democracy is a limited monopolistic democracy.  Today’s democracy is a qualified democracy. Let us call it “state democracy”. It is a democracy entirely linked to and emanating from the concept of a single state as the sole sovereign political unit. All the rights just mentioned have to do with the “citizen” of a state and a political system equated with that state and its machinery. A citizen is not a person with free choice of a social-political-legal system. A citizen is a designation of a state-limited and state-defined set of rights that each person finds he has, whether he likes it or not.

State democracy is based on the principle of state sovereignty. The state’s power prevails. The citizens as a group and linked by particular political arrangements are associated with this sovereignty. Whatever the basis of this sovereignty is, nothing can stand in its way when a law or rule is formulated, passed and enforced. There is no check and balance from outside the system. One can only exercise the limited rights of protest, voting, moving and running for office that the state allows. State democracy is a limited democracy. It is a monopolistic democracy.

The incentive for individuals living in state democracy is to gain control over the machinery of government and to use it to one’s personal advantage by forming coalitions that pass laws that one wants. This is from retired finance pofessor Michael Rozeff at the lewrockwell.com

Liberalism’s Banker regime (which was based upon democratic nation states) had a policy of investment choice. The dynamo was one monetary interventionism, consisting of POMO, Quantitative Easing, Central Bank Interest Rate Reductions, Kuroda Abenomics, and Global ZIRP, which powered up corporate profit and global growth …  and came with credit schemes, such as free trade agreements, financial deregulation, leveraged buyouts, nation investment, currency carry trade investing, securitization of debt, financialization of stocks and ETFs, and dollarization … where Milton Friedman’s Free To Choose concept of floating currencies and abandonment of the gold standard, established the rule underlying all investing, providing for the fiat money system.

Authoritarianism’s Beast regime (is based upon statist regional governance) has a policy of diktat. The dynamo is one totalitarian collectivism consisting of public private partnerships for oversight of the factors of production, banking, commerce and trade, which powers up regional security, stability and sustainability … and comes with debt servitude schemes, such as regional framework agreements, bank deposits bailins, new taxes, privatizations, capital controls, central bank rulings for capital adequacy consisting of national treasuries, and austerity measures … where Nannycrats establish the rule underlying all diktat, providing for the diktat money system.

Liberalism’s final currency carry trade invigorated, April 2, 2013, as the Euro, FXE, traded up 127.05, and the Japanese Yen, FXY, traded lower from 104.82, this being seen in the chart of FXE:FXY, and being seen in the Bloomberg chart of the EUR/JPY trading up from 119.79.   

Yet the EUR/JPY devitalized on the jump on the Interest Rate on the US Ten Year Note, ^TNX, to 2.01%, on May 24, 2013, stimulating derisking out of World Stocks, VT, and yet compelled a rise in US Regional Banks, KRE, such as Community Banks, GBCI, FMER, PBCT, RNST, FFIN, and ZION, constituting Liberalism’s last safe haven investment.  The EURJPY will continue to devitalize on a ongoing collapse of Aggregate Credit, AGG, on an ongoing rise in ^TNX, stimulating more derisking and delveraging out of World Stocks. VT.  The debt monetization policies of the world central banks has created a carry trade investment, that is a hot money flow into US Regional Banks, KRE, on the rise of the US Dollar, best seen in its 200% ETF, UUP, and a fall in the all of the world’s currencies. 

Debt deflation is underway, as Jesus Christ set the bond vigilantes and the currency traders loose on the markets; the first to call interest rates higher globally, and the latter to wage a currency war, one of competitive currency devaluation, on the world central banks, with the result of destruction of fiat wealth.

Beginning in November 2012, and then again in April 2013, Gold, GLD, relative to Commodities, DBC, that is GLD:DBC, strongly sold off; and recovered from its great sell off on June 28, 2013.

Now, the soon coming rise of Gold, GLD, from its bottoming out on June 27, 2013, and the fall of stocks, VT, will be seen in the ongoing MSN Finance Chart of Gold, GLD, Stocks VT, the 200% Long Yen, ULE, and the 200% Short Euro, YCS, where the fall in the Euro, FXE, will exceed, any fall in the Yen, FXY. 

Will Gold, $GOLD, be trading higher from its June, 28, 2013, value of  $1,225?  I belive so as investors seek hard assets, that is something tangible, as Credit, AGG, continues to destabilize, causing even more disinvestment out of Stocks, VT.   Zero Hedge reports Citi’s FX Technicals group is biased to believe that the low in this correction may have been posted for Gold.

Tyler Durden asks Think gold and silver were the worst performing financial asset in June? Think again: that dubious distinction falls to the Bovespa, EWX, -12.4,  the Shanghai Composite, SSCE, -12.3%, and the Greek stock market index, GREK, -12.2, all of which tumbled more than the precious metal complex did in the past month. Yet what an odd month for hard assets – on one hand WTI, Corn and Brent were the best performing assets, while gold, silver, copper and wheat tumbled. One thing is certain: as already noted, the number of gross shorts in gold is now at an all time high. And just as gold was one of the two worst performing assets of the first half (with silver), all that would require the unwind of this move, now that gold and gold miners are the most universally hated assets by the “expert” community, will be a short-covering catalyst.  

Physical possession of Gold and Diktat will be the only two forms of sovereign wealth and thus sustainable wealth under the paradigm of Authoritarianism, and in the age of diktat. 

An inquiring mind asks will there be improvement in economic fundamentals going forward and will Consumer Confidence, seen in Tyler Durden Chart,  keep growing?

In as much as Jesus Christ has pivoted the world from Liberalism into Authoritarianism, there can be  no genuine improvement in any economic fundamentals. The ratio of Stocks, VT, to Gold, GLD, that is VT:GLD, will be falling lower.  Said another way the ratio of Gold to Stocks, GLD:VT, will be trading higher, as corporate profit and global growth fails, on the “extinction event” of the Interest Rate on the US Ten Year Note, ^TNX, jumping to 2.01% on May 24, 2013.

Interest rates, all across the yield curve, will continue to jump because of fears, first of credit liquidity, and second, that debtors will be unable to repay creditors, with the knock on fear that the world central banks monetary policies are unable to stimulate eorporate profit and global growth.

The recent growth of Consumer Confidence is consistent with Libersalism’s final inflationism, beginning with QE 1 and ending with QE4, causing a grand finale surge of M2 money, stated by the US Fed, with recent values of 10,594, 10590, 10579, 10557, 10541, as well as a surge in Automobile Stocks, CARZ, Retail Stocks, XRT, up until June 18, 2013, as see in their Yahoo Finance chart.

New Economic Action has commenced with Jesus Christ pivoting the world from inflationism to destructionism. Soon the M2 Money figures will peak and turn lower. Most of the Retailers, seen in this Finviz Screener, have turned lower as wealth is dissipating, as investors realize that the monetary policies of the world central banks, specifically policies of interventionism, of Quantitative Easing, POMO, Global ZIRP and Kuroda Abenomics, have made  “money good” investments bad.

Shawn Ritenour via the Foundations of Economics blog, asks in Zero Hedge Is it failed capitalism or failed internventionism?  One of the sad narratives, that is sad fallacies, of the financial meltdown of 2008 and its aftermath, is that it was and remains the result of unbridled capitalism.

We must never tire of explaining the fallacies in the thinking of those who think the Great Recession is a clear case of the failure of capitalism. In fact, it is a quintessential example of the failures of interventionism to bring about anything other than economic destruction and relative impoverishment.

In a free market rooted in private property, the only way entrepreneurs are able to sustain profits is by serving customers better than anyone else.  It is only when they receive special privileges through preferential regulation, subsidies, bailouts and the like that they are able to reap profits for which they have not sowed productive activity.  I was struck by how much of what Mises said about the response of many to the Great Depression applies closely to our current situation.  Just like Mises, we must never tire of explaining the fallacies in the thinking of those who think the Great Recession is a clear case of the failure of capitalism.  In fact, it is a quintessential example of the failures of interventionism to bring about anything other than economic destruction and relative impoverishment.

I comment that the dynamo of the Banker regime was one monetary interventionism, consisting of POMO, Quantitative Easing, Central Bank Interest Rate Reductions, Kuroda Abenomics, and Global ZIRP, which powered up corporate profit and global growth.

Now, the dynamo of the Beast regime is totalitarian collectivism consisting of public private partnerships for oversight of the factors of production, banking, commerce and trade, which powers up regional security, stability and sustainability.

2) … Investment trading for the week of July 1, 2013 to July 5, 2013

July 1, 2013

IVCPOST reports that On Monday, US based stocks began the third quarter with 1% or more gain. Data regarding the kick off indicated United States’ manufacturing improved in June. It also showed that construction costs hit a four-year high. This year’s improvement was brought about by Fed’s bond-buying policy. This further aided in increasing Dow Industrials and S&P 500′s record high conclusion in late May. The recovery was interrupted by worries regarding Fed’s plans about their stimulus project. This sequentially triggered liquidation in stocks. Since October, June was the first negative month for S&P 500. Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh, said “People saw ISM was stronger and slightly higher than consensus and decided to run with it.”  And Bespoke Investment Blog reports ISM manufacturing back above 50

SPHB 1.6

KRE  1.8 to a new high … GBCI, FMER, PBCT, RNST, FFIN, and ZION have been hot traders of late.

IAI 1.6

EUFN 1.6

FEFN 1.3

IBB 2.7

FDN 1.8

FLM 1.6

XLI 1,.6

PSCI 1.4

PBD 1.4

RXI 1.3

PJP 1.3

FXR 1.2

XTN 1.1

CSD 1.1

PBS 1.1

PBJ 1.1

PKB 1.1

PPA 1.0

XRT 1.0

AMJ 2.9

PSCE 1.6

OIH 1.2

IEZ 1.1

PSCE 1.6

SIL 2.5

GDX 1.6

COPX 1.8

URA 1.6

PICK 2.5

IWM 1.5

VGK 1.2

VIT 1.0

RZV 1.8

RZG 1.4

EWJ 1.2

JSC 1.2

NKY 1.5

EWP 2.0

EWI 1.6

EIRL 1.4

INP 1,.7

EWD 1.6

EWY 1.1

Benson te asks The End of the France’s “bel époque” (beautiful era)?

The Beautiful Era indeed did totally and utterly end in 1914, as interventionism began in 1913, as a fulfillment of the Bible Prophecy of Daniel 2:25-45.

Now a global system of regionalism has replaced the interventionism of the two iron legs seen in Nebuchadnezzar’s Statue of Empires; where the first iron leg was the British Empire, and the second iron leg is/was the US Dollar Hegemonic Empire, that commenced with the establishment of the US Fed in 1910 to 1913. Liberalism flourished from 1913 with the passing of the Federal Reserve Act, until May 24, 2013, when the Interest Rate on the US Ten Year Note, ^TNX, quickly rose to 2.13%.

Now Authoritarianism is starting to rule in Europe. The very linchpin in the Economy of God, Ephesians, 1:10, is the nation of Greece, GREK, as the sovereign Lord God, has designed it and a collection of Mediterranean Sea states, known as the PIGS, for their profligacy, to be the beachhead for the rise of the Beast Regime of Revelation 13:1-4. The National Bank of Greece, NBG, continued strongly lower in trading today, as the Troika met with Athens to review progress on compliance of  Bailout III terms.

 

Gold, GLD, traded up 1.7%, Oil, USO, 1.4%, and Base Metals, DBB, 2.5%.

The Yen, FXY, traded lower to close at 96.24; and all the other major currences, traded higher on today’s higher stocks. Action Forex provides the chart of the EUR/JPY, which rose to close at 129.622; this is also seen in the Stockcharts.com chart of FXE:FXY rising to close at 1.32.

I relate get ready for the great unwind of the EURJPY as Bloomberg report Record sales of foreign bonds by Japanese investors are signaling a bottom for the Yen, FXY, to traders who are trimming bets on further declines in the year’s worst performing major currency. Investors in the Asian nation offloaded 10.6 trillion yen ($106bn) of foreign debt in the first half of 2013, the most since at least 2001. .

Of significant ominous note, Utilities, XLU, which had been leading last’s week’s rally, traded lower. And the ratio of Transports relative Utillities, XTN:XLU, stands in the middle of a broadening top pattern, suggesting that the market expects the Interest Rate on the Ten Year Note, ^TNX, to rise higher from today’s 2.49% to start another bout of interest rate sensitivity selling. 

Chicago Tribune reports Piano maker Steinway to be sold for $438 million. Private equity firm Kohlberg & Co, KCAP, is acquiring 160-year-old piano and musical instrument makerSteinway Musical Instruments Inc. for about $438 million. Private Equity Company, KCAP, traded unchanged on the day; and related Hedge Fund, KKR, rose 2.9% on the day.

Mike Mish Shedlock wrties China manufacturing conditions deteriorate, new export orders fall at fastest rate since March 2009. In what should be no surprise to Mish readers, the HSBC China Manufacturing PMI™ shows Operating conditions deteriorate at quickest pace since last September, and new export orders plunge

Ambrose Evans Pritchard writes France’s triumphant ‘Joan of Arc’ vows to bring back franc and destroy euro. Marine Le Pen, French Presidential candidate of the Front National party, with a precept of Sovereign Peoples vs Technocrats, vows to smash the existing order of Europe, and force the break-up of monetary union, if she wins the next election.

Bloomberg reports Draghi’s one aize fits all rescue fuels northermost debt. The European Central Bank’s attempt to resuscitate the 17-member euro economy with record-low interest rates is fueling a debt boom in its most creditworthy country and exposing a growing disconnect in monetary policy. In Helsinki, about 1,500 kilometers (930 miles) northeast of the Frankfurt offices of ECB President Mario Draghi, household debt has surged to a record as Finns take advantage of the lowest mortgage rates in the euro area to buy property. Citizens of crisis-stricken countries from Greece to Portugal are either unable to get loans or forced to pay much higher rates.

The WSJ reports Canadian Mark Carney takes reins at Bank of England.  And Tyler Durden writes Behold Goldman’s Mark Carney attending his first Monetary Policy briefing (observe Michael Cross, Head of Foreign Exchange, and Executive Director for Markets, of Fleecebook fame sitting on the lower left.

The WSJ reports Gotta love the Keynesian-Monetarist religion: True ‘Bullievers’ are still sweet on Japan.   And Bespoke Investment Blog reports Japan back above 50-DMA. And Zero Hedge writes The relative size of margined buys vs margined sells on the 3 major Japanese stock exchanges was last this high at the very peak of the TOPIX in 1999.

Inflationary accomodative policies were cental to the bygone era of Liberalism, which was terminated by Jesus Christ on May 24, 2013, when the Interest Rate on the US Ten Year Note, ^TNX, rose to 2.1%.  Now policies to cope with deflationary pressures, presenting debt servitude schemes, such as, regional framework agreements, bank deposits bailins, new taxes, privatizations, capital controls, and austerity measures, are central to the era of Authoritarianism.

July 2, 2013

Reuters reports Greece has 3 days to deliver or face consequences, EU officials relate. Greece has three days to reassure its lenders it can deliver on conditions attached to its international bailout in order to receive the next tranche of aid, four euro zone officials said on Tuesday.

Five indicators suggest that the direction of the stock market is once again down.

First, closed end funds seen, led by closed end debt, CSQ, seen in this Finviz Screener, traded lower, despite, Community Banks, GBCI, FMER, PBCT, RNST, FFIN, and ZION, taking US Regional Banks, KRE, racing to a new high.

Second, the US Dollar, $USD, traded higher to 83.76, and the individual world currencies, led by the Japanese Yen, FXY, trading lower, which closed down 1.0% at 97.25. The lower Yen, boosted the Nikkei, NKY, slightly higher.

Third, the BRICS, EEB, leading the Emerging Markets, EEM, lower. The National Bank of Greece, NBG, led Emerging Markets Financials, EMFN, and the Emerging Markets Dividends, EDIV, lower.  Global Utilities, DBU, Global Industrials Producers, FXR, and Foreign Airlines, traded lower.

Fourth, a resumed downtrend in European Stocks, VGK.

Five Regional Airlines trading lower on a higher price of Oil, USO.

BRICS, EEB,  trading lower included

EWZ -3.3

RSX -2.2

INP -1.1

YAO -1.1

Emerging Market Nations, EEM, trading lower included,

GREK -2.9

ECH -2.1

IDX -1.9

TUR -1.5

EPU -1.4

EWW -1.4

European Stocks, VGK, trading lower included

GREK -2.9

EWI -1.9

EWG -1.6

EIRL -1.1

EWP -1.0

EWY -1.5

ARGT -1.3

Gold Miners, GDX, and Silver Miners, SIL, traded lower, on today’s higher US Dollar, $USD.

Surprizingly, Egypt, EGPT, traded higher, on strong volume.

Aggregate Credit, AGG, traded unchanged.

July 3, 2013

Reuters reports China slowdown, Portugal tensions spook markets. World shares pulled back on Wednesday as signs of slowing Chinese growth and escalating political tensions in Portugal, one of the euro zone’s crisis hot-spots, spooked investors. European shares opened down 1.2 percent and euro zone periphery bonds tumbled after two high profile government resignations in two days threatened to plunge Portugal into a political crisis. Portugal’s bond yields surged more than 1 percentage point to 8 percent. Spanish, Italian yields jumped too while nervousness over the state of Greece’s next tranche of bail-out money also caused jitters

The Telegraph reports Portuguese government at risk of collapse as foreign minister resigns  Portugal’s political crisis has deepened with the resignation of foreign minister Paulo Portas, in a move which could trigger the collapse of the ruling coalition government.

CNBC reports Portugal throws new curve ball in Euro debt crisis. Portugal faced a full-blown crisis on Tuesday after Foreign Minister Paulo Portas became the second minister to resign from the center-right government in a 24-hour period. Portugal’s Prime Minister Pedro Passos Coelho, speaking live on TV to the nation on Tuesday night said he had not accepted Portas’ resignation and would speak to his coalition partner. The leader of the opposition Socialist party speaking to the nation on TV on Tuesday night called for fresh elections and said the government had lost the confidence of the people.

Tyler Durden writes Things must be getting serious in Portugal, they just announced a short-selling ban on select banking stocks – how long before capital controls? Originally posted at Open Europe. A couple of months ago we asked, ‘Who’s next in line in the eurozone crisis?’. Our top pick was Portugal for a number of political and economic reasons, it now seems that prediction is coming to pass.

The Portuguese government is on the rocks. The junior coalition partner the People’s Party (CDS-PP) will hold a meeting this afternoon to determine whether to support the government, if it withdraws support in parliament, elections seem inevitable, although they could be delayed for some months. Such a move would seriously hamper Portugal’s economic reform programme, which is already off track. Portugal has only met its deficit targets due to one-off measures while competitiveness adjustments have slowed and contingent liabilities remain a hidden risk. With the country on the cusp of an unsustainable debt burden any delays would likely be the final straw which pushes Portugal into needing some form of further assistance.

Contingent liabilities are significant. In many countries, the long-term burden of contingent liabilities such as pensions and healthcare are well known but in Portugal there are more immediate problems. The contingent liabilities of State Owned Enterprises (SOEs) total 9% of GDP but are excluded from government debt levels despite these companies coming under serious pressure. Many have significant debt overhangs and could be forced to turn to the government for assistance if financing conditions worsen once again. Total contingent liabilities could run as high as 15% of GDP according to the IMF. Furthermore, the stock of government arrears is around 2.6% of GDP (€4.3bn) and is owed to domestic firms meaning it remains a drag on growth.

Easing the reform programme is an option but may help little

Portugal has already seen its targets eased as well as the maturities of its loans extended and the interest rates reduced. There may still be scope to do this further, but not much. It is unlikely the eurozone would agree to such a move until a stable government is once again in control. Furthermore, with maturities and rates already extended and cut almost as far as is feasible further action seems unlikely. Delaying targets may give more room to breathe but Portuguese debt continues to look unsustainable.

So will Portugal need further financial assistance? Any delays would likely be tantamount to pushing Portugal towards further assistance, be it OMT or some form of debt restructuring, and consigning the country to another few years of tough austerity, which would be both politically and legally difficult to implement. As we previously noted, further assistance always seemed possible, Portugal will now have to work very hard to avoid needing it.

Reuters reports Portugal President qarns of dailure to eeturn to markets

At market open Yahoo Finance and Reuters reports, Market turns attention to jobs, looking for clues to Fed Policy. Breakout Stocks are under pressure this morning on news of a major shake-up in Portugal’s government, escalating turmoil in Egypt, and more softness in Chinese manufacturing data. On the homefront, encouraging jobs data is helping to lift tide.

Benson te writes Ultimately it will be the global bond markets (or an expression of future interest rates) that will determine whether this week’s bear market will morph into a full bear market cycle or will get falsified by more central bank accommodation.

How true as Aggregate Credit, AGG, traded lower. The Interest Rate on the US Ten Year Note, ^TNX, traded slighly higher to close at 2.50%.

World Financials, IXG, and the Interest Rate Sensitive Utilities, XLU, traded lower.

The National Bank of Greece, NBG, led the European Financials, EUFN, lower. Bloomberg reports Europe banks fall as Portugal stokes debt crisis concern …. And Business Week reports  Portugal leads rise in European bond risk as coalition crumbles ….And Business Weeek reports Commerzbank slumps on sovereign debt concern

 

Brazil Fiancials, BRAF, and India Earnings, EPI, led Emerging Markets Financials, EMFN, lower.

Australia Dividends, led Austrlia, EWA, lower.

Global Utilities, DBU, and Utilities, XLU, traded lower.

Bloomberg reports China Enters Nomura high domestic debt risk danger aone as Fed tapers. China, Hong Kong and India are in a “high-risk danger zone” because their monetary policies have stayed too loose over the past four years, according to Nomura Holdings Inc. A June 28 report by the bank’s economists and strategists showed the average ratio of domestic private debt to gross domestic product across Asia had ballooned to 167 percent in 2012 and most of the region’s property markets are “frothy.” The domestic private debt ratio has increased by over 50 percentage points in Hong Kong and Singapore and between 30 and 40 points in Malaysia, South Korea, China and Thailand. A measure of monetary policy based on output gaps and inflation shows that interest rates have also been persistently below what economic models suggest, and even more so if the financial cycle is accounted for, the report said. That leaves countries financially vulnerable. Indonesia is at the lower end of the high-risk zone, while South Korea, Malaysia, Singapore and Thailand are in the middle-risk range, ahead of Japan. The Philippines and Taiwan seem the least prone to any economic crisis. Hong Kong is a Special Administration Region of China although it pegs its currency to the dollar.

Bloomberg reports One third of China shipyards face closure as orders slump. China, the world’s biggest shipbuilding nation, may see a third of its yards shut down in about five years as they struggle to win orders amid a global vessel glut, an industry group said. The yards in peril of closure have failed to get any orders “for a very long period of time,” Wang Jinlian, secretary general of the China Association of National Shipbuilding Industry, said in an interview yesterday. They may end operations in three to five years if the “gloomy market persists.” The nation has more than 1,600 shipyards

July 4, 2013

The European Commission communicates that the introduction of the Euro beginning in 1999, and in 2001 for Greece, was a means of European integration to facilitate global growth and corporate profitability; make Europe a more powerful voice in the world, and developed the concept of a body of EU citizens, giving them a tangible symbol of their European identity.  In common treaty, and thus in theory, there is to be no bailout of any nation whose Treasury Debt fails. And fiscal policy (public revenue and expenditure) remains in the hands of individual national authorities, although they undertake to adhere to commonly agreed rules on public finances known as the Stability and Growth Pact. And member States also retain overall responsibility for their structural policies (i.e. labour markets, pension and capital markets), but agree to co-ordinate them in order to achieve the common economic goals.

The battle to hold the Euro at 127.46 to 128.00 began on July 4, 2013, with the Finviz Chart of the Euro, FXE, showing a trade at 128.88, as the ECB announces a Forward Guidance Monetary Policy to keep all key ECB rates low for an extended period of time, as tightening in financial conditions will handicap the prospects for economic recovery in the Euro area, where the credit growth remains very weak and fragmented and as the Bank of England hints policy to remain loose.

Tyler Durden Zero Hedge report What the ECB’s Forward Guidance monetary policy means. Confused what the (non) news of today’s “unprecedented” forward guidance announcement by the ECB means? Shocked that the ECB is about as dovish as it has ever been, after having missed the following chart showing the record low European bank lending to the private sector which predicted all of today’s action (Stolper’s long EURUSD reco fade notwithstanding).

Then SocGen is here to explain, if only for all those who are seemingly stunned that the ECB isn’t planning on hiking rates, or even “tapering” any time soon. “Forward Guidance” Introduced, from SocGen

The ECB came out with all dovish guns blazing today to reverse the tightening in money and financial market conditions since June, stoking a rally in euribor futures (lower rates) but causing the EUR to drop nearly 1% vs the USD. The only thing that was missing today was a cut in the refi rate and/or negative deposit rate, but neither has not been ruled out given that downside growth risks continue to exist. Casting better macro data side, the ECB officially introduced ‘forward guidance’ on rates and said exit is “very distant”.

The introduction of ‘forward guidance’ characterises the fact that all key ECB rates will stay low for a longer period. This makes the ECB fall in line with the guidance by the US FOMC on the Fed funds target, the Bank of Canada and most probably, the BoE in August. Put on the spot during the press conference, president Draghi rejected claims the ECB had come off the proverbial fence in response to a changed outlook for US monetary policy given the spill over effect from a steeper US yield curve across the Atlantic and the steepening impact on eurozone core and periphery debt markets.

Taking after the BoE earlier (a coincidence, Draghi said), the ECB is worried that the tightening in financial conditions will handicap the prospects for economic recovery in the euro area where the credit growth remains very weak and fragmented. The move clearly marks an innovative step in the ECB’s communication and policy strategy for a bank that previously had always refused to pre-commit on interest rates.

Draghi did not commit explicitly how long rates would stay low but hinted that there would be no change for at least 12 months (“extended period is not 6 or 12 months”). The decision to introduce forward guidance was unanimous and how long this bias will be observed will depend on the assessment of three variables ie inflation, growth and monetary developments (credit flows, monetary aggregates). The case for a cut in the refi rate was also discussed but there was no agreement.

The retention of ammunition should the economy move back into reverse was important to the ECB and this probably explains why there was no consensus to cut the refit rate from 0.50%. Draghi categorically said that 0.50% is not the “lower bound” for rates. This implies that further stimulus is still possible. For EUR/USD, key support now rests at 1.2877 before selling towards the April 1.2746 low is stepped up.

I comment that the battle to the Euro at 127.46 to 128.00 is the battle to keep the Euro, FXE, as a viable currency, and is a battle for the ECB, and not the credit market to provide credit seigniroage, that is credit moneyness, and credit liquidity flowing to companies, even though higher nation state Treasury rates, are coming at the hand of bond vigilantes, making soverign borrowing more expensive.  While European Financial Institutions, EUFN, and Nation Investment in Portugal, Italy, EWI, Greece, GREK, and Spain, EWP, as well as Ireland, EIRL, and Netherlands, EWN, Finalnd, EFNL, and Germany, EWG, are sinking, the ECB is fighting first, the bond vigilantes to provide low lending rates to companies, and secondly, currency traders to maintain the worth of the Euro through Forward Guidance monetary policy; and the Bank of England hints policy to remain loose.   

Gary of Between The Hedges provides the Handelsblatt report ECB policy results lack legitimacy, Buch says.  Many measures takes by ECB have had asymmetric results on euro-region members, causing redistribution of wealth, Claudia Buch, head of IWH economic institute and member of German govt’s council of economic advisers, says. The ECB isn’t mandated for such redistribution, she said. Buch sees danger that Europe faces situation like Japan, where “zombie banks” have financed “zombie companies”. And Gary of Between The Hedges provides El Confidencial report Spain banks hold $73.4b of Portugal debt. Spanish banks’ exposure to Portuguese sovereign debt represents 52% of total European banks’ exposure, citing Bank For International Settlement Data.

And the Gary of Between The Hedges providion of the Handelsblatt report ECB policy results lack legitimacy, Buch says communicates that the ECB has gone beyond its mandate and has become the Seignior, that is the EU Citizens’ Banker, which provides seigniorage, that is moneyness, with the effect of unifying all residents into a nascent European Super State, that is a EU Super State, as well as redistributing wealth, and as well creating “zombie banks” and “zombie companies”. The ECB’s monetary policies have facilitated sovereign debt, banking debt, and corporate debt moral hazard in the extreme, to the point where systemic risk now exists, and where European Socialism and the more extreme Greek Socialism, with its clientelism, has metastasized, to the point of being most definitely being unsustainable.

Please consider that all things are of God, 2 Corinthians 5:18. And as such, there is no human action as perceived by Austrian Economists. There be only the dispensation, that is the household sterwardship, of Jesus Christ, bringing forth the completion and fulfillment of every age, Ephesians 1:10.  

The introduction of the Euro blossomed the standard of living in the southern nations compared to the northern nations, especially Germany, and enabled Cajas lending to stimulate a tremendous real estate boom and consequential bust, swelled municipal and state employment, and enabled nation state wage legislation to grow labor unions in power to the point where Nation Investment, EFA, has failed because of high unit labor costs, and as the El Confidencial report Spain banks hold $73.4b of Portugal debt, indicates supported a huge debt trade boom, and the Tyler Durden Zero Hedge report What the ECB’s Forward Guidance monetary policy purpose is to establish the ECB, and not the credit market, as provider of credit seigniorage, as well as Seignior, that is top dog banker, establishing the worth of the Eurozone’s currency.

Where seigniorage exists, that is moneyness exists, sovereignty exists. The ECB, through its monetary policies, has established defacto pooled sovereignty. And it is either out of soon coming EU nation state sovereign default, and or banking default, or out of a global credit bust and financial system breakdown, that is a Financial Apocalypse of Revelation 13:3-4, will occur, and be the genesis event for political leaders to renounce national sovereignty and announce pooled sovereignty, establishing an EU Super State, that is a One Euro Government, with oversight of fiscal spending, banking, manufacturing, commerce and trade, by nannycrats who will govern through statist public private partnerships.

According to bible prophecy of Revelation 13:1-4, Regionalism will replace Crony Capitalism, European Socialism, and Greek Socialism, beginning in Europe, and spread to all of the world’s ten regions, and Totalitarian Collectivism, will become mankind’s social experience, as the Beast Regime replaces the Banker Regime, in all of mankind’s seven institutions.  By Christ’s Sovereignty, Ephisians 1:10, it is out of Eurozone sovereign insolvency and banking insolvency, that regional governance will replace democratic state governance. Liberalism is powering down, as the dynamos of corporate profitability and economic growth are winding down. Authoritarianism is powering up, as the dynamos of regional security, stability, and security, are winding up.

The rise of the interest rate on the US Ten Year Note, ^TNX, to 2.01% on May 24, 2013, at the hands of the bond vigilantes was an “extinction event” that terminated Liberalism’s Banker, Free To Choose, democratic nation state floating currency regime, whereby the fiat money system died.  Under Authoritarianism’s Beast, Diktat, regional governance and totalitarian collectivism regime governs, and the diktat money system underwrites economic action. 

Under Liberaglism, nation state bankers waived credit wands, providing seigniorage of investment choice. But under Authoritarianism, regional nannycrats yield debt servitude clubs of diktat; thus under Authoritarianism, the debts of Liberalism, will be applied to every man, woman, and child on planet earth, beginning first in the EU.    

July 5, 2013

The battle, which began on July 4, 2013, to maintain the Euro, FXE, at 127.46 to 128.00, was the battle to keep the Euro, as a viable currency, and which was a battle for the ECB, and not the credit market to provide credit seigniroage, that is credit moneyness, and keep credit liquidity flowing to companies, lasted only one day, as on July 5, 2013, the Euro, FXE, collapsed to 127.10.

The Action Forex chart of the EUR/JPY shows a close at 129.80; the Stockcharts.com chart of FXE:FXY closed this week at 1.314.

The see saw destruction of wealth that came with the “extinction event” of the rise of the Interest Rate on the US Treasury Debt, ^TNX, to 2.01%, on May 24, 2013, continued today, July 5, 2013, as US Stocks, VTI, led World Stocks, VT, and Global Industrial Producers, FXR, higher.

On July 5, 2013, all hell broke loose in the bond market, as Jack Ewing and Julia Werdigier of the NYT report Answering critics who said they were running out of ways to promote growth and lending, the European Central Bank and the Bank of England on Thursday did something neither had done before, committing themselves to keeping interest rates low indefinitely. The bid to reassure investors brought the two central banks into closer alignment with the Federal Reserve, which, under Chairman Ben S. Bernanke, has adopted a policy of becoming more open about its intentions.  Mario Draghi, the president of the European Central Bank, said that crucial interest rates would ‘remain at present or lower levels for an extended period of time.’  Until Thursday, the central bank had steadfastly refused to pin itself down on future policy.  Only hours earlier, Mark J. Carney, who became governor of the Bank of England on Monday, made a similar break with tradition. The British central bank said that any expectations that interest rates would rise soon from their current record low level were misguided.

Fion Li of Bloomberg reports The cost of borrowing in Hong Kong’s Dim Sum bond market, DSUM, jumped the most on record in June, climbing to an all-time high as China’s worst cash squeeze in at least a decade spurred concern an economic slowdown will worsen. The average yield on the securities surged 153 bps, or 1.53 percentage points, to 5.06%, the most since the Index was introduced at the start of 2011.  ‘The outbreak of one of the worst liquidity crunches in China’s interbank market has spilled over to offshore,’ said Becky Liu, a Hong Kong-based rates strategist at Standard Chartered Plc, the second-largest Dim Sum bond underwriter. ‘A sharp rise in the cost of funding on the back of tight liquidity has pushed up bond yields. Daily Bell reports Now they tell us: China debt levels ‘unknown’.

Credit collapsed, as evidenced in the strong fall lower of Aggregate Credit, AGG. Margaret Collins of Bloomberg reports Fixed-income mutual funds in the U.S. had their biggest weekly redemptions in more than six years as investors fled bonds. Credit trading lower today included the following:

ZROZ -5.3

EDV 05.0

TLT -3.4

LTPZ -3.2.

EMB -2.0

MUB -1.5

BWX -1.3

MBB -1.2

BLV -2.5

PICB  -1,7

LQD -1.2

UJB -1.4

JNK -1.3

Doug Noland writes in Safehaven.com Mispricing risk through Interventionism. Bonds taken out to the woodshed, again.

Robin Wigglesworth, Michael Mackenzie and Josh Noble of Financial Times report Central banks

sold a record amount of US Treasury debt last week while bond funds suffered the biggest ever investor withdrawals.

Ongoing selling by foreign central banks could be driven by two key dynamics. First, one would think (thinly capitalized) central banks would seek to contain losses on their outsized bond holdings. Keep in mind that the higher bond yields jump, the more individual central banks will need to monitor the scope of losses and the degree of capital impairment. Second, “developing” central banks will most likely be forced to sell Treasuries and other bond holdings to fund investor and “hot money” flows exiting their markets and economies.

A prominent bullish view has held that emerging market (EM) central banks built up robust international reserve positions (including large quantities of Treasuries) that would be available to backstop their systems in the event of global market turbulence. Well, a surge of outflows (and currency market intervention) coupled with a spike in yields is now in the process of depleting reserves much more quickly than anyone had anticipated. There is a clear possibility that we’re early in what could be unprecedented flows seeking to exit the faltering EMs. Recalling the 1997 SE Asian experience, it was a case of “those who panicked first panicked best.” The more reserve positions were depleted, the faster “hot money” ran to the rapidly closing exits.

Importantly, the longer the inevitable day of reckoning is delayed the worse the consequences. Years of aggressive market intervention ensured a most protracted period of unprecedented excess – excesses that encompassed virtually all markets and all risk categories. Perhaps Federal Reserve policymaking ensured that the greatest Bubble excesses and market distortions materialized in perceived low-risk (fixed income and equities) strategies.

“The danger of mispricing risk is that there is no way out without investors taking losses. And the longer the process continues, the bigger those losses could be. That’s why the Fed should start tapering this summer before financial market distortions become even more damaging.” Martin Feldstein, Wall Street Journal op-ed, July 2, 2013

I appreciate Mr. Feldstein’s focus on “the danger of mispricing risk” – I only wish this would have been part of the monetary policy debate starting a few years back (before the damage had been done). I would argue that never has so much mispriced debt been issued on a global basis. Moreover, never have inflated bond prices – artificially low borrowing costs – had such a profound impact on securities and asset pricing around the world. Never have risk perceptions and market risk premiums in general been so distorted by aggressive central bank market intervention.

The mispricing of risk implies market re-pricing risk. And the greater the mispricing, in the volume of securities issuance, price level distortions and risk misperceptions, the greater the scope of Latent Bubble Market Risks. Mispricing also implies wealth redistribution, and this has traditionally been from the less sophisticated to the more sophisticated. Actually, when enormous quantities of non-productive debt are issued at artificially high prices there is initially a perceived increase in wealth (more debt instruments at higher prices). This debt (“bull market”) expansion coupled with perceived wealth creation will spur spending, corporate profits and higher equities and asset prices. But when the Bubble begins to falter, with re-pricing, market losses, risk aversion and tightened financial conditions, the downside of the Credit cycle commences.

I believe we have commenced a “repricing” process that will unfold over weeks, months and years – with vast ramifications and unknown consequences.

Various reports claim the strong market reaction to Bernanke’s policy statement caught the Fed by surprise. Despite attempts by various officials to calm the markets, bond yields have just kept rising. As such, it’s now reasonable to suggest the Fed did not anticipate being on the wrong side of a spike in market yields. How much higher do Treasury bond and MBS yields need to rise before the Fed is held to account – and forced to explain – the large losses suffered in its $3.4 TN (and ballooning) portfolio? At this point, the Federal Reserve is akin to a novice trader that keeps adding to a losing position.

Market players have surely been stunned by how poorly the bond market has traded – especially with the Fed providing $85bn of monthly support. Assuming the Fed cannot keep purchasing Treasuries and MBS forever, perhaps there is now added impetus for investors, hedge funds, foreign central banks, sovereign wealth funds and others to push liquidations forward. If money managers now realize they are holding higher risk exposures than desired, it might be advantageous to make necessary portfolio adjustments prior to the Fed winding down its QE operations. If foreign central banks have begun a process of reducing bond holdings, does this accelerate hedge fund selling? Are the sophisticated players now anxious to reduce holdings before the next wave of bond fund redemptions and ETF-related selling? How does it work when the “Masters of the Universe” – having accumulated Trillions of assets under management by adeptly playing a most-protracted market Bubble – find themselves on the wrong side of rapidly moving markets?

I am intimately familiar with the bull story for U.S. equities. Corporate profits are strong and stock valuations are attractive. Bond yields are rising because of the underlying strength of the U.S. economy. The “great rotation.” The U.S. economy remains the most vibrant in the world. U.S. equities are the preferred asset class for the current environment. (Witness the rally in US Regional Banks, KRE, and the Russell 2000 Growth, and the Small Cap Pure Value Growth, IWO, as is seen in their ongoing combined Yahoo Finance Chart).

Well, the U.S. stock market is an integral facet of the greater Credit Bubble. Massive federal deficits, ultra-loose financial conditions and artificially low borrowing costs have been instrumental in inflating profits. Mispriced debt and meager risk premiums have been instrumental in myriad financial engineering mechanisms that have inflated corporate earnings and inflated stock prices. Abundant cheap finance has fueled a powerful global mergers and acquisition boom. (Witness the rally in IPOs, FPX, and Leveraged Buyouts, as is seen in their ongoing combined Yahoo Finance Chart).

If the Bond Bubble is indeed bursting, the markets are only in the earliest phase of re-pricing risks and asset prices (The Bond Bubble burst in May 2013, causing debt deflation, that is curreny deflation as is seen in the fall lower of Bonds, BND, together with Major World Currencies, DBV, and Emerging Market Currencies, as is seen in their ongoing combined Yahoo Finance Chart).

After leading unsuspecting savers into the wild world of mispriced fixed income instruments, the Fed will apparently ensure the public becomes overly exposed to unappreciated risks in the U.S. equity market. (Unprecedented risk is seen in ongoing Yahoo Finance Chart of Biotechnology, IBB, the Russell 2000 Growth, IWO, the Small Cap Pure Value Growth, RZG, and Aerospace and Defense,  PPA).

I relate that debt deflation is seen in the collapse of individual currencies, and the rise of the US Dollar, $USD, swhose chart show a blast higher to close at 84.71. The Milton Friedman Free to Choose floating currency system, synomous with the Banker Regime of credit was literally destroyed, as bond vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.72%, and as currency traders continued their global currency war on the world central bankers.  The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepend sharply, as is seen in the Steepner ETF, STPP, steepening, better said, blasting vertically higher. 

 

Currency traders were successful in carrying out their currency war of competitive currency devaluation as currencies falling lower included:

British Pound Sterling, FXB -2.4

Swedish Krona, FXS -1,5

Swiss Franc, FXF -1.4

Emergning Market Currencies, CEW, -1.4 …. and Emerging Marketw EEM traded 0.6% lower.

The Euro, FXE, -1.4

The Indian Rupe, ICN -1.2

The Japanes Yen, FXY, -1.1 … and the Nikkei, NKY traded 1.6% higher

The Australian Dollar, FXA, -1.2

The Brazilian Real, BZF, +0.4 … and Brazil, EWZ traded 1.7% lower.

And Doug Noland reports The U.S. dollar index jumped 1.6% to a three-year high 84.45 (up 5.9% y-t-d). For the week on the downside, the South African rand declined 3.2%, the Norwegian krone 2.9%, the British pound 2.1%, the Japanese yen 2.0%, the Swiss franc 2.0%, the Swedish krona 1.5%, the Danish krone 1.4%, the euro 1.4%, the Mexican peso 1.1%, the Singapore dollar 1.1%, the Brazilian real 0.9%, the Australian dollar 0.8%, the Canadian dollar 0.6%, the New Zealand dollar 0.4% and the Taiwanese dollar 0.2%.

US Regional Banks, KRE, continued their rally, blasting a stunning 2.8% higher; which drove the Russell 2000 Growth, IWO, and the Small Cap Pure Value, RZG, to new highs. Other financial sectors trading higher included

IAI 1.9

KCE 1.9

RWW 1.6

IXG 1.0

Laura Marcinek and Donal Griffin of Bloomberg report Barclays Plc, BCS, Deutsche Bank AG, DB,  and Credit Suisse Group AG, CS, had their credit ratings lowered by Standard & Poor’s as new rules and ‘uncertain market conditions’ threaten their business. The four European lenders are among the most exposed to proposed rules that could reduce revenue from trading and investment banking operations, the ratings firm said. ‘We consider that these banks’ debtholders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis,’ S&P said. ‘A large number of global regulatory initiatives are increasingly demanding for capital market operations.’

Bloomberg reports Chinese banks’ valuations, CHIX, are close to their lowest on record as the nation’s interbank funding crisis exacerbated investors’ concern that earnings growth will stall and defaults may surge as the economy slows. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, ended Hong Kong trading last week at 5.3 times estimated earnings.  Investors’ disenchantment with Chinese banks reflects concern that a crackdown on shadow banking and measures to direct new credit away from repaying old loans and toward boosting economic productivity will undermine earnings and trigger a surge of bad loans.  ‘The golden era of banking is over,’ said Mike Werner, an analyst at Sanford C. Bernstein.  ‘Investors have to recognize that more market discipline is going to be imposed upon the banks.’

Lingling Wei and Bob Davis of WSJ report A rare peek into the actions of China’s leaders in a month when a Chinese cash crunch spooked global investors shows a leadership falling short in its struggle to redirect China’s economy and also faltering in its efforts to communicate its intentions to markets. The People’s Bank of China instigated the cash shortages that catapulted Chinese interest rates to nosebleed highs during the past two weeks because the central bank felt it had no alternative amid what it saw as out-of-control credit growth, according to an internal document.  Since 2009, Chinese domestic debt has been growing so rapidly it approximates credit bubbles in the U.S., Europe, Japan and Korea that precipitated recessions. In the spring of 2013, the central bank and banking regulators tightened regulations but to little avail. For the first five months of 2013, domestic credit, called total social financing in China, rose 52% from 2012. According to a summary of a PBOC internal meeting on June 19, the central bank was especially concerned that in the first 10 days of June, Chinese banks increased lending by 1 trillion yuan ($163bn), an amount the central bank said ‘had never been seen in history.’  About 70% of that amount consisted of short-term notes that mostly don’t show up on banks’ balance sheets, making it easier for the banks to get around regulatory lending restrictions, rather than lending the money to promising companies or projects.

Reuters reports A senior Chinese official said on Friday that the government did not know precisely know how much debt local governments had built up and warned that it could be more than previous estimates. Estimates of local government debt range from Standard Chartered’s 15% of the country’s GDP at end-2012 to Credit Suisse’s 36%. Fitch put the figure at 25% when it downgraded China’s sovereign debt rating in April. Vice Finance Minister Zhu Guangyao said China had not released official figures since a 2010 auditing report that put local government debt at 10.7 trillion yuan. ‘Currently, [according to] nationwide surveys, I think this number will rise,’ Zhu said, defending the debt as mostly geared toward fuelling infrastructure projects. ‘A very important task for this administration is to clearly determine the level of local financing platforms,’ Zhu told reporters.

Kristine Aquino and Rachel Evans of Bloomberg report China’s top-rated dollar-denominated bonds are losing more than any other BRIC nation as a record cash crunch threatens to slow economic growth and strain corporate finances. Chinese notes, the only gainers in March as debt from Brazil, Russia and India slumped, lost 6.1% last quarter, the most in Bank of America Merrill Lynch indexes going back to 1999.  Company debt tumbled as overnight borrowing rates jumped to the highest level since at least 2003.  The surge fueled concerns about nonpayment as People’s Bank of China Governor Zhou Xiaochuan seeks to rein in risky lending while reviving the world’s second-largest economy. The premium investors demand to hold Chinese dollar debt surged to a 10-month high of 225 bps on June 26, 2013.

Bloomberg reports China’s crackdown on shadow banking is backfiring as a plunge in stocks prompts individual investors to pump increasing amounts of cash into wealth management products that offer yields more than double the deposit rate.  A record 1,137 of the investment plans were sold by about 70 banks in the last two weeks, almost 50% more than the similar period ended June 14, according to Benefit Wealth. China Minsheng Banking Corp., the nation’s first privately owned lender, last week sold a 35-day product with an annualized yield of 7%.

China Financials, CHIX, China Industrials, CHIII, and China Small Caps, ECNS, traded lower as Reuters reports China signals will cut off credit to rebalance economy

Energy Service, OIH, rose 1.8%, Small Cap Energy, PSCE, 1.7%, and Energy, XLE, 1.2%, as Oil, USO, blasted 1.8% higher. West Texas Intermediate Crude, $WTIC, rose parabolically to a 14-month high to close at 103.63; futures capped the biggest weekly gain in more than two years.  Oil, USO, joined US Regional banks, KRE, in being a safe haven investment this week. 

Sectors trading higher included

IBB 1.8

XSD 1.7

PJP 1.7

XTN 1.6

PSCI 1.5

XLI 1.5

IGV 1.5

RZV 1.4

PPA 1.4

CSD 1.4

XRT 1.3

IGV 1.2

FXR 1.2

Yield bearing sectors trading lower included

BRAF -1.6

EPI -0.6

DBU -0.6

XLU  -0.3

REM  -3.6

IYR -1.1

ROOF -0.6

Scetors trading lower included

COPX -2.4

ITB -2.0

The Emerging Markets, EEM, traded lower yet again. Alex Frangos and Patrick McGroarty of the WSJ report Countries from Turkey to Brazil to China are getting hit by a brutal combination of events, as economies slow, investors pull out cash, commodity prices tumble and protesters take to the streets. An outflow of funds from so-called emerging markets has picked up pace over the past month, triggered by expectations among some investors that the days of easy money globally are coming to an end. It is a stark turnaround for these countries, whose growth helped offset weakness in the U.S. and Europe during the financial crisis. Seeking better returns, investors poured money into emerging market economies in the past four years. Private capital flows into emerging markets from 2009 to 2012 were $4.2 trillion, according to the Institute of International Finance. While the amount of money leaving these markets hasn’t reached levels seen during the 2008 crisis, the outflows are expected to continue as sentiment sours further.

Gold Miners, GDX -5.2, as GLD, -2.8. And Silver Miners, SIL, -4.5, as SLV -4.7 

Agricultural Commodities, RJA, traded lower, as Commodities, DBC, traded unchanged.

3) … Are we witnessing, the rise of the Bible prophesied, King of The South; who will this  individual be?

3A) … An uprising ocurs in Egypt.

Tyler Durden of Zero Hedge reports Egypt’s Morsi still President as ministers resign, Muslim Brotherhood offices destroyed. With over a million people crowded into the streets of Cairo (and 16 reported dead and 781 injured according to The Jerusalem Post), the situation in Egypt is becoming more unstable. Amid cheers of “the people demand the fall of the regime,” protesters set fire to and ransacked the Muslim Brotherhood’s main offices all over Egypt. Many saw this as another victory towards their goal of Egypt not being ruled under Islamic law noting, that they “feel victorious, but we’ll only have truly won once Morsi leaves.” It seems the pressure is building as five Egyptian ministers have just resigned amid the growing chaos.

Reuters reports Egypt’s Mursi rebuffs army ultimatum, sets own course.

Reuters reports Draft Egypt army roadmap to change constitution and scrap parliament

Times of Israel reports Egypt headed for Civil War, ex-Israeli defense minister warns

Zero Hedge reports Crude cracks $102 as Egyptian army “Ready to die”

Jason Ditz of Antiwar reports Coup in Egypt: Military detains President Morsi

Jason Ditz of Antiwar reports Introducing Egypt’s new rulers: Sisi and Mansour. Egypt’s coup sidelines President Mohammed Morsi and has put two other figures, Army Chief Gen. Abdelfattah El-Sisi and Supreme Constitutional Court Justice Adly Mansour.

Jason Ditz of Antiwar reports Junta arrests Brotherhood leaders as mass protest called

Jason Ditz of Antiwar reports Egypt’s Junta looks to assemble an Interim Govt

USA Today reports Adly Mansour sworn in as Egypt’s President

Jason Ditz of Antiwar reports Egypt’s coup serves as anti-democracy lesson

Jason Ditz of Antiwar reports Egypt coup a major setback for Syria’s rebels

Reuters reports Gulf drive against Hezbollah may hit ordinary shi’ites

Jason Ditz of Antiwar reports Iraq Sunni protest leader calls for Egypt-dtyle protests

Jason Ditz of Antiwar reports 71 killed as Islamists battle over key Somali port

Elaine Meinel Supkis writes There is a lot of other news, of course such as this one which confirms what I said earlier about Saudi Arabia paying the military in Egypt to overthrow the government in a coup:  Head of Egypt’s armed forces tells Saudi king that the country is ‘stable’.  Reporting to the Big Boss!  We see the results:African Union Suspends Egypt Over Coup because even the US and EU have charged Africans for doing these coups and these are ‘illegal’ except when the US, EU and Saudi Arabia want a coup of course.

 

When coups happen, people do not get more socialism, they usually get put down and the old regime status quo is imposed violently.  Opposition parties are eliminated.  Fake elections happen as will happen in Egypt once half of the political spectrum is removed.  The Saudis think this will save them from the fury of the mobs who hate them.  Instead, it will cement the hatred.  As the average Egyptian, unhappy with IMF rules, discovers the military and Elbaradei appointed as Egypt’s interim PM (the loser in the previous election who is put in power today!) the IMF and others praise this claiming ‘technocrats’ (1984 double speak for ruthless enforcers of banker’s whims) will take over.

 

The people will be put on a Gaza Starvation Diet.  They won’t have subsidized fuels or food.  Like in the US, the demand the poor and lower workers pay 100% of the costs of running a country will prevail.  Think the ’47% moochers’ business is what Elbaradei believes?  Of course!

 

Al Jazeera’s Jamal Elshayyal, reporting from Nasr City, said the reaction from the Morsi’s camp to the appointment of Elbaradei was one of complete rejection and anger.

 

“One of the protesters here said that the appointment of ElBaradei is a move directed at appeasing the United States and that he served them well, allowing for the invasion of Iraq when he was in the IAEA and will now be their puppet again – we all know he is a puppet.

 

Elbaradei called for Bush to be charged with war crimes over the illicit Iraq invasion, for example, so he isn’t a total ‘US puppet’.  The military don’t want him to lead them, they are using him as a front so they can cement power again as the generals, as per usual in the past, work out who is going to be the New Big Boss.  He will be disposed eventually but only after he is blamed for IMF programs just like Morsi.  The effects of the IMF ‘starve the poor’ actions will make anyone unpopular.   The poor UN nuclear inspector is a puppet but not the way the people in the streets know it.  He won’t last long if he defies the bankers.

 

The coup in Egypt just raised world fuel prices which is OK with Russia but this is causing Egypt-style demonstrations and rage in Europe like here: Bulgaria anti-govt protest high fuel bills.

 

Authorities: Armed man arrested in Seattle was planning action in support of Brazil protesters : like all teeming countries with lots of poor people and an attempt at a popular government, when the banks demand punishment for running in the red, this is inflicted on the poor.  So Brazil, trying to get ready for the obscene Olympic ‘sports’ which are mainly pros thanks to changes in the rules, we have the government ‘cleaning up’ the cities which means removal of poor people.

 

This, in turn, causes demonstrations and riots.  The US which was so very supportive of using the military to overthrow a government in Africa due to some demonstrations over IMF rules will do the same to Brazil.  The US has done this repeatedly to Brazil in the past.  The most recent was the 1964 Brazilian coup d’état.  The US CIA has huge reasons for another coup there.  Greenwald, the Guardian reporter who broke the Snowden whistleblower case lives there and is protected there.  They are very anxious to get their paws on him and to Gitmo him.

3B) … Bible prophecy in the Book of Daniel, foretells that one known as the King of the South, will arise out of an Egypt African Islamic power block, only to be defeated by the future World Sovereign, presented in Revelation 13:5-10, known as the King of the North. 

Daniel 11:11 provides into the one who will arise out of and lead the Egypt African Islamic power block.  “And the king of the South shall be moved with rage, and go out and fight with him, with the king of the North, who shall muster a great multitude; but the multitude shall be given into the hand of his enemy”

Daniel 8:23-24 provides details on the future King of the North. “In the latter part of their reign, when rebels have become completely wicked, a fierce-looking king, a master of intrigue, will arise.  He will become very strong, but not by his own power. He will cause astounding devastation and will succeed in whatever he does. He will destroy those who are mighty, the holy people”.

3B1) …Although not of the Church of God, I do believe what The Old WCG taught about the King of the South.

It is easy to demonstrate that HWA’s WCG did teach that there would be a future King of the South and who WCG believed it would be. Here is a quote from the August 1974 Good News article by Raymond McNair titled Watch the Middle East where he stated: he longest prophecy of the Bible, the eleventh chapter of Daniel, specifically concerns the Middle East…verses 40-45 are yet to be fulfilled. They reveal that startling events are yet to take place in the Middle East… (p.12).

Thus, WCG was teaching, under HWA for at least the last 22 1/2 years of his life, that at least from verses 40 and on, that portions of Daniel 11 were yet to be fulfilled (also HWA specifically taught that Daniel 11 had final fulfillment of early verses as well; see the also article on the King of the North). Any who teach that HWA did not teach that there were future fulfillments of Daniel 11 simply have not understood the totality of his writings. Notice specifically one of them: In Daniel 11:21, referring in original, typical fulfillment to Antiochus Epiphanes, there shall stand up a vile person…So once again before the second coming of Christ, a Vile Leader will stop the daily sacrifices being offered…This same prophecy spoken by Jesus is also reported by Luke…21:20-24 (Armstrong HW. Personal, Plain Truth magazine, June 1967).

Thus, Herbert W. Armstrong clearly taught that starting at least from verse 21, that Daniel 11 had a future fulfillment. He understood prophetic duality.

It is clear that HWA’s WCG taught that there would be a future king of the South. Also notice something from 1972: comment Then at least a part of Daniel 11 must also be DUAL! And no wonder, for we find the chapter concludes with the “time of the end” (verse 40) – leading up to the resurrection of the saints (chapter 12 :2). (In the original text, there is no chapter break between Daniel 11 and 12.) (Ambassador College Bible Correspondence Course, Lesson 2, World Peace Coming in Our Time! 1972 edition, p. 14).

Thus, since Daniel 11:40-45 discusses the King of the South, those who are willing to see the truth will realize that as of 1972, the old WCG did teach that there was a coming future King of the South in 1972.

Garner Ted Armstrong in a May 3, 1975 Plain Truth article titled Watch the Middle East wrote

Prophecy says some sort of a ‘shoving match’ precipitated by the ‘King of the South’ will unleash whirlwind lightening-like MILITARY response by a ‘King of the North’.  So these quotes from the literature show that WCG did believe in a future ‘King of the South’, but did not clearly identify who, in a December 1979 Plain Truth article by Keith Stump titled The Arab World in Prophecy it states But who is the “King of the South”?…in verse 40 we skip to “the time of the end”…The verse undoubtedly found partial fulfillment in the offensive of 1896…But Mussolini did not finish the prophecy

Just as there is yet to be a final “king of the north”…there may very well emerge in the same manner a final “King of the South”–an overall leader of an Arab-Moslem confederation, possibly bearing the very title Mahdi…a prophetic psalm (Psalm 83) provides additional insight into the Mideast picture. Germany (Assyria in Bible prophecy) and perhaps the rest of Europe will be in league in the future with a union of Arab nations…But in the end, this European-Arab alliance will prove short-lived…And the  King of the North shall come against him [the King of the South]…Daniel 11:40-41…The Arab-Moslem Confederation will, of course, be thrown into chaotic disarray in the fact of invasion. (Stump K. The Arab World in Prophecy. Plain Truth, December 1979, pp. 11-12).

The above quote clearly shows that the WCG under the late Herbert Armstrong’s leadership taught that there would be a future fulfillment of Daniel 11:40 involving an end-time King of the South. It would seem that the King of the South will employ some type of warfare and terrorism against the descendants of Israel. The Bible specifically warns about “terror” as a curse for the descendants of Jacob (Leviticus 26:16; Jeremiah 15:8) and since terrorism has often been used by Islamists, this may be part of how they will contribute to the destruction of the nation of Israel and the Anglo-descended peoples that Psalm 83 and Daniel 11:39 alludes to. Some Muslims want a leader called the Imam Mahdi, while others call for a Caliph, to lead them and create some type of Islamic empire in the 21st century.

(Note: There is actually a Shiite prophecy that some believe points to Barack Obama as one who will help the final “Mahdi” (Arabic for “the guided one”), please see Obama in Islamic Prophecy?, Prophecies of Barack Obama?, and The Arab World In the Bible, History, and Prophecy.) This leader is sometimes also called the Imam Mahdi or the thirteenth Imam by Muslims.

Though not all Muslims expect the Imam Mahdi, many still seem to long for a leader to unify the Arab World. Some Muslims are looking for a political-spiritual leader, sometimes called the Caliph in English, to rise up (Caliph is a shortened version of “Khalifah rasul Allah” meaning “Successor to the Messenger of God”). The title caliph has been given to the head of state in Muslim-governed countries in the past, though the latter ones lacked the power of the earlier ones: The supreme office of caliph, originally elective, became hereditary…Eventually…caliphs became figurehead or “puppet” leaders…Many Arabs…seek to re-create the political and theological unity of the early Islamic caliphate (Stump K. The Arab World in Prophecy. Plain Truth, December 1979, pp. 9-10).

Today this pattern is repeating itself, as a “third wave” of leaders is sweeping across the Middle East. Rejecting both the capitalism of the West and the discredited Marxism of the former Soviet Union, these would-be “third wave” leaders have emphasized a fundamentalist brand of Islam that leaves no room for compromise. Looking back to the glory days of Arab conquest and dominance in the first centuries after Muhammad, they also dream of a pan-Arab union. This will not be a union under a monarch from one of the old Bedouin dynasties, or a secular-educated army officer turned dictator, but rather a New Caliph who will unify the Faithful under the banner of purified Islam. This, they reason, is the only way that Western influence can be expelled from their region, and that Israel can be subjugated

The yearnings across much of the Middle East for a New Saladin—one who will restore Arab glory by conquering the Jews and expelling Western influence—were foreseen by Bible prophecy. In Daniel 11:40, we read of a future “King of the South” who will ultimately “push at” a coming European superpower at the time of the end. This individual, called in Bible prophecy the King of the South because his center of power is south of Jerusalem, will undoubtedly be a charismatic person who will whip up much of the Muslim Middle East into a frenzy against Israel and Europe. (Ogwyn J. Conflict Over the “City of Peace”. Tomorrow’s World magazine, March-April 2002).

In the Plain Truth of December 1980–the year that HWA often claimed he now had the Church back on track–another article states: Bible prophecy reveals the coming emergence of an Arab-Moslem confederation in the Middle East. It is referred to in prophecy as the ‘King of the South’ (Daniel 11:40). This confederation will play a crucial role in end-time events (Stump, K. Plain Truth. December 1980, p.26).

A related Plain Truth article states: Bible prophecy reveals the coming emergence of an Arab-Moslem confederation in the Middle East. It is referred to in prophecy as “the King of the South” (Dan. 11:40). This confederation will play a crucial role in end-time events. (Stump K. Seeing the World Through Islamic Eyes. Plain Truth, June 1983, p.44).

Thus, the idea of an Islamic confederation has been in COG literature for some time; and its leader is presented in You Tube The Future King of the South is rising.

CoG writer also presents Damascus and Syria in prophecy Will Bashar Assad hold power as he has it? Does the Bible show that Damascus, the capital of Syria, will be destroyed? What will happen to Syria? Will the Syrians support the final King of the South that the Bible tells will rise up? Which scriptures discuss the rise and fall of an Arabic confederation? Does Islamic prophecy predict the destruction of Syria. This is a YouTube video.

What should you know About Turkey in prophecy Do you know the Turkish people descended from? Did the Ottoman Empire possibly fulfill a promise in Genesis? Will Turkey support the European King of the North or Arabic King of the South? Will it betray one of them? Will Turkey be involved in the encouraging the destruction of Israel? Is Turkey going to become Catholic? Is Turkey mentioned in Psalm 83, Daniel 11, and elsewhere in the Bible? This video provides answers.

Prophecy Update relates Egyptian, Israeli military alerts prompted by Islamist mutiny threat from Sinai.  A new Egyptian crisis arena:  the Egyptian and Israeli armies Friday, July 5, raised their alert levels on either side of the Sinai border after the Muslim Brotherhood declared Sinai its center of revolt and revenge for the Egyptian army’s ouster of Mohamed Morsi as president Wednesday, July 3. Following a multiple Islamist attack in northern Sinai, the Egyptian army went on high alert in the Suez and North Sinai provinces. The Sinai border crossings to the Gaza Strip and Israel were closed. The army spokesman in Cairo denied declaring an emergency – only a heightened alert.

Egyptian forces also shut down all three underground passages running from the mainland to Sinai  under the Suez Canal. Egypt’s Third Army was deployed to secure them, under the command of Maj. Gen. Osama Askar.

Further measures imposed for guarding Suez Canal cargo and oil shipping against possible rocket fire from central Sinai included the stationing along its banks of Patriot anti-missile batteries and anti-air weapons systems

Around one-third of the world’s oil supplies from the Persian Gulf pass through the Suez Canal on their way to the Mediterranean and Europe.

These emergency measures were clamped down Friday after the Muslim Brotherhood established a Sinai “War Council” to mount a rebellion against the army in collaboration with the radical Palestinian Hamas and Jihad Islami as well as the al Qaeda-linked Salafist groups in the Gaza Strip and Sinai.

3B2) … Nature economist Elaine Meinel Supkis provides insightful information

From March, 2013:  Islamist political parties form electoral alliance – Politics – Egypt – Ahram Online shows us how the groundwork was prepared exactly like how Chile’s military prepared Santiago for its suppression and military rule, namely, have various entities go on strike like the police:

 

The parties say in a press conference Saturday that what prompted them to form the alliance is the recent political crises in Egypt and the “clear dangers” triggered by the “police [labour] strike… in what seems like a forced summoning of the army” to take power.

 

The Salafi parties have been mentioned in the news so here is some information about them, they are the arm of the Saudi royals and have contested with the Muslim Brotherhood, who the Saudis fear, for power:  Salafi movement – Wikipedia, the free encyclopedia

 

The Salafi methodology, also known as the Salafist movement, is a movement among Sunni Muslims named by its proponents in reference to the Salaf (“predecessors” or “ancestors”), the earliest Muslims considered to be examples of Islamic practice.[1][2]

 

The movement is often described as related to, including, or synonymous with Wahhabism, but this is disputed. Many Salafists consider the term Wahhabi derogatory, and object to being called that.[3] At other times, Salafism is deemed as the hybridation between Wahhabism and other movements which have taken place since the 1960s.[4] Salafism has become associated with literalist, strict and puritanical approaches to Islam and, in the West, with the Salafi Jihadis who espouse violent jihad against civilians as a legitimate expression of Islam.[5] However, leading Salafi scholars have condemned attacks on civilians,[6][7][8][9] and salafi who support such attacks remain a minority.[10]

 

This paragraph is most interesting since it goes totally contrary to US propaganda about how mean Morsi was: Salafi have been notable following insurrections in Egypt, Tunisia and Libya. In the 2011–12 Egypt parliamentary elections, the Islamist Bloc led by Al‑Nour party despite having only “a few months of party politicking experience” managed to received 27.8% of the vote, or 127 of the 498 parliamentary seats contested, to form the second-largest parliamentary bloc.[74] According to Ammar Ali Hassan of al-Ahram, while Salafis and the Muslim Brotherhood agree on many issues such as the need to “Islamise” society and the right to private property restricted by the duty incumbent upon Muslims to give alms, they have clashed over the Brotherhood’s “flexibility” on the issue of whether women and Christians should be entitled to serve in high office, and the brotherhood’s relatively tolerant attitude towards Shia Iran in foreign policy.[75]

 

Doesn’t fit today’s propaganda storyline, does it?  The liberals in Cairo (this is nearly their only base) have this bizarre belief that the fascist military group which serves Egypt’s elite rich, will support the sort of women’s and religious civil rights which Saudi’s rulers forbid.  Note that only the Red Sea separates these two countries and the last thing Saudi rulers want is a counter example to their despotism!  The riots against Christians were not the Brotherhood but mainly the Saudi-supported Salafists.  Ditto, the raping of women all over the place during the demonstrations against Morsi.

 

Here is a good thumbnail history of the relationship of the Muslim Brotherhood and the Saudi Royals which explains why the Saudi Royals fear them: The Muslim Brotherhood and Saudi Arabia – Opinion – Ahram Online

 

The first real shock that hit the relationship between Riyadh and the Brotherhood took place following the Iraqi invasion of Kuwait in 1990. While Saudi Arabia relied on the US to liberate the occupied emirate and to ensure its own security against the threat of Saddam Hussein, the Muslim Brotherhood opposed Western intervention. This position was interpreted as a sign of ingratitude. Following the liberation of Kuwait in 1991, Saudi Arabia witnessed the appearance of the first opposition movement, Al-Sahwa (Awakening), which challenged throughout the 90s the absolute monarchy of Al-Saud and called for political reforms. Some Saudi leaders accused the Brotherhood of being Al-Sahwa’s inspiration.

 

The second shock, more violent, that hit the relationship between the Brotherhood and Saudi Arabia came following the attacks of 11 September 2001 in the United States. Some 15 of the 19 alleged attackers were Saudis. Part of Saudi’s rulers threw the blame for this “deviation” of some young Saudis on the doctrinal activism advocated by the Muslim Brotherhood, particularly their most famous ideologue, Sayed Qutb, hanged by the Nasser regime in 1966. The Saudi interior minister at the time, and the crown prince from October 2011 until his death on 16 June 2012, Nayef Bin Abdel-Aziz, accused the Muslim Brotherhood in 2002 of being the origin of most problems in the Arab world. This doesn’t mention Atta, the ringleader of the successful 9/11 attacks.  He was the son of a top Egyptian Muslim Brotherhood member!  The Egyptian people will not be ‘free’ at all, they will be loaded with even heavier chains by the Saudis.  The farce of the US media celebrating this as some sort of redemption of the revolution is insane.  And worse, the owners of our media know perfectly well.

 

4) … An inquring mind asks, will there be enough liquid assets, amongst the collateral assets, at banks, to provide credit liquidity to avert a liquidity crisis, and a resulting credit crisis?

John Butler of The Amphora Report, takes a closer look at proposed liquidity regulation as a response to the growing use of ‘collateral transformation’ (a topic often discussed here) in the shadow banking system and writes in Zero Hedge that the stability of the financial system is at risk in the event that there was a drop in securitised collateral held by banks.

Time marches on and with lessons learned harshly comes a fresh resolve to somehow get ahead of whatever might cause the next financial crisis. For all the complacent talk about how the “recovery is on track” and “there has been much economic deleveraging” and “the banks are again well capitalized,” the truth behind the scenes is that central bankers and other economic officials the world over remain, in a word, terrified. Of what, you ask? Of the shadow banking system that, I believe, they still fail to properly understand.

In the present instance, so the thinking behind liquidity regulation goes, prior to 2008 the regulators were overly focused on capital adequacy rather than liquidity and, therefore, missed the vastly expanded role played by securitised collateral in the international shadow banking system. In other words, the regulators now realise, as I was arguing back in the mid-2000s, that the vast growth in shadow banking liquidity placed the stability of the financial system at risk in the event that there was a drop in securitised collateral values.

In 2007, house prices began to decline, taking collateral values with them and sucking much of the additional, collateral-based liquidity right back out of the financial system, unleashing a de facto wave of monetary+credit deflation, resulting in the subsequent financial crisis. But none of this was caused by ‘market failure’, as Governor Stein contends. Rather, there is another, simpler explanation for why banks were insufficiently provisioned against the risk of declining collateral values, yet it is not one that the regulators much like to hear, namely, that their own policies were at fault.

In one of my first Amphora Reports back in 2010 I discussed in detail the modern history of financial crises, beginning with the 1980s and concluding with 2008, …

Notwithstanding this prominent pattern of market-distorting interest-rate manipulation, guarantees, subsidies and occasional bailouts, fostering the growth of reckless lending and other forms of moral hazard, the regulators continue their self-serving search for the ‘silver bullet’ to defend against the next ‘market failure’ which, if diagnosed correctly as I do so above is, in fact, regulatory failure.

Were there no moral hazard of guarantees, explicit or implicit, in the system all these years, the shadow banking system could never have grown into the regulatory nightmare it has now become and liquidity regulation would be a non-issue. Poorly capitalised banks would have failed from time to time but, absent the massive systemic linkages that such guarantees have enabled, encouraged even, these failures would have been contained within a more dispersed and better capitalised system.

As it stands, however, the regulators’ modus operandi remains unchanged. They continue to deal with the unintended consequences of ‘misregulation’ with more misregulation, thereby ensuring that yet more unintended consequences lurk in the future.

Might collateral transormation be the crux of the next crisis?  An obvious consequence of such collateral transformation is that it increases rather than decreases the linkages in the financial system and thus in effect replaces firm-specific, idiosyncratic risk with systemic risk, exactly the opposite of what the regulators claim they are trying to do by increasing bank regulatory capital ratios. Liquidity regulation is an attempt to address this accelerating trend and the growing systemic risks it implies.

Those financial institutions engaging in the practice probably don’t see things this way. From the perspective of any one institution swapping collateral in order to meet changing regulatory requirements, they see it as necessary and prudent risk management. But within a closed system, if most actors are behaving in the same way, then the net risk is not, in fact, reduced. The perception that it is, however, can be dangerous and can also contribute to banks unwittingly underprovisioning liquidity and undercapitalizing against risk.

Viewed system-wide, therefore, collateral transformation really just represents a form of financial alchemy rather than financial engineering. It adds no value in aggregate. It might even detract from such value by rendering opaque risks that would otherwise be more immediately apparent. So I do understand the regulators’ concerns with the practice. I don’t, however, subscribe to their proposed self-serving remedies for what they perceive as just another form of market failure.

Already plagued by the ‘Too Big to Fail’ (TBTF) problem back in 2008, the regulators have now succeeded in creating a new, even more dangerous situation I characterise as MAFID, or ‘Mutual Assured Financial Destruction.’ Because all banks are swapping and therefore holding essentially the same collateral, there is now zero diversification or dispersion of financial system risk. It is as if there is one massive global bank with thousands of branches around the world, with one capital base, one liquidity ratio and one risk-management department. If any one branch of this bank fails, the resulting margin call will cascade via collateral transformation through the other branches and into the holding company at the centre, taking down the entire global financial system.

Am I exaggerating here? Well, if Governor Stein and his central banking colleagues in the US, at the BIS and around the world are to be believed, we shouldn’t really worry because, while capital regulation didn’t prevent 2008, liquidity regulation will prevent the scenario described above. All that needs to happen is for the regulators to set the liquidity requirements at the right level and, financial crises will be a thing of the past: never mind that setting interest rates and setting capital requirements didn’t work out so well. Setting liquidity requirements is the silver bullet that will do the trick.

Sarcasm aside, it should be clear that all that is happening here is that the regulators are expanding their role yet again, thereby further shrinking the role that the markets can play in allocating savings, capital and liquidity from where they are relatively inefficiently utilized to where they are relatively more so. This concept of free market allocation of capital is a key characteristic of a theoretical economic system known as ‘capitalism’. But capitalism cannot function properly where capital flows are severely distorted by regulators. Resources will be chronically misallocated, resulting in a low or possibly even negative potential rate of economic growth.

The regulators don’t see it that way of course. Everywhere they look they see market failure. And because Governor Stein and his fellow regulators take this market failure as a given, rather than seeking to understand properly how past regulatory actions have severely distorted perceptions of risk and encouraged moral hazard, they are naturally drawn to regulatory ‘solutions’ that are really just plagiarised copies of an old playbook. What is that definition of insanity again, about doing the same thing over and over but expecting different results?

5) … Some be of pathological altruism and others be of pathological confrontation.

Liberal economists be those of pathological alturism, and those of patholical confrontation be the psychopaths, that is the antisocial ones.  Barbara Oakley, is Associate Professor in the School of Engineering and Computer Science at Oakland University, and Author of Pathological altruismCold blooded kindness …  Evil genes: Why Rome fell, Hitler rose, Enron failed, and My Sister stole my Mother’s boyfriend.  Special Hat Tip To Robert Wenzel of Economic Policy Journal.

6) … News of the Global Security State

Mike Mish Shedlock relates New York Times op-ed contributors Jennifer Stisa Granick and Christopher Jon Sprigman make the case that the NSA Actions are both illegal and unconstitutional in their article The Criminal NSA.

Mike Mish Shedlock writes Don’t worry it’s only “Alegal“.  Inquiring minds just may be interested in the Meaning of Alegal.  According to the Urban Dictionary … An unambiguously wrong, disruptive and often deliberately committed act for which there is not yet a specific law making that act expressly illegal. (See Extralegal) Financial and white collar crimes, such as offshore banking, misrepresenting the value of investments and temporarily selling ‘junk’ assets to create cashflow are prime examples of “a”legal activities. Alegality is a corollary of the distinction between amoral and imoral reasoning as applied to legality.

Broker#1: We’re putting together a portfolio of failing investments so we can sell it investors then short against it and make a killing … Broker#2: Isn’t that illegal? … Broker#1: Nope, just alegal… Now lets get some lattes.

Mish Definition of Alegal …  A blatantly illegal action conducted with immunity, because perpetraitors understand they will never be prosecuted or held accountable in any way

7) … Banks of all types will be integrated with the government and be known as the “Gov Banks”.

Robert Wenzel reports The nudge that will force banks to put more money Into Treasury Securities.  The Federal Reserve is out with a release today, (The strong capital positions framework ruling of July 2, 2013), announcing that it on Tuesday approved a final rule to help ensure banks maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns […]

“This framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks,” Chairman Ben Bernanke said. “With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy.”

Translation: The rules will require banks to purchase more government securities, rather than make loans to the private sector. The nudge is in.

In a May 1 report, Treasury Borrowing Advisory Committee said  banks, over time, will need to buy as much as $5.7 trillion in “safe” assets including government bonds by 2020 to comply with the

2010 Dodd-Frank Act in the U.S., and capital standards set by the Bank for International Settlements in Basel, Switzerlandt.

The Federal Reserve’s strong capital positions framework ruling of July 2, 2013, is diktat in its rawest form. The US central bank ruling for capital adequacy consisting of Federal Government Debt, SHY, IEF, TLT, is a form of diktat money, that replaces fiat money.  Furthermore, today’s diktat, evidences an integration between community banks and government, where community banks will be known as “Government Banks” or “Gov Banks” for short.  The banks will be part and parcel of government; their purpose will not be lending as it has been known, but rather check cashing.

An inquiring mind asks, will gold stored in the bank’s vault, constitute “higher quality capital” mentioned in the Federal Reserve Board capital framework rule? 

When the Bretton Woods system, synonymous with the Milton Friedman Free To Choose floating currency system, really gives way, America’s Dollar Empire, that is the US Dollar Hegemonic Empire, and its globe-spanning archipelago of mililtary bases, will collapse, and the Ten Toed Kingdom of Regional Governance of Daniel 2:25-45, will emerge, where ten regional zones of increasing iron diktat will emerge out of today’s clay democracy. The additional bible prophecy of Revelation 13:1-4 presents the ten zones of regional governance, as ten horns on a beast, that also has seven heads, suggesting totalitarian collectivism. The seven heads symbolize mankind’s seven institutions: 1) Education, 2) Banking, Finance, Commerce and Trade, 3) Body Politic, 4) Military, 5) Religion, 6) Media, 7) Science and Technology.

 

The jump on the Interest Rate on the US Ten Year Note, ^TNX, to 2.01% on May 24, 2013, constituted an “extinction event”, that is a cataclysm, which literally destroyed the investment choice offered by bankers as the way of life, and terminated the paradigm of Liberalism.  Jesus Christ is operating at the helm of the Economy of God, Ephesians 1:10, and has pivoting the world into the paradigm of Authoritarianism, where the diktat of nannycrats is the now the way of life.  Fiat money died, and diktat money has been coming to life.

Please consider the corollaries from the Dispensation Economics Manifest  … http://theyenguy.wordpress.com/about/ … that flows from the biblical revelation that Jesus Christ, is operating as steward in dispensation, that is the household management plan of God to both complete and fulfill all things in every age, epoch, era and time period.

Liberalism’s Banker regime (which was based upon democratic nation states) had a policy of investment choice. The dynamo was one monetary interventionism, consisting of POMO, Quantitative Easing, Central Bank Interest Rate Reductions, Kuroda Abenomics, and Global ZIRP, which powered up corporate profit and global growth …  and came with credit schemes, such as free trade agreements, financial deregulation, leveraged buyouts, nation investment, currency carry trade investing, securitization of debt, financialization of stocks and ETFs, and dollarization … where Milton Friedman’s Free To Choose concept of floating currencies and abandonment of the gold standard, established the rule underlying all investing, providing for the fiat money system.

Authoritarianism’s Beast regime (is based upon statist regional governance) has a policy of diktat. The dynamo is one totalitarian collectivism consisting of public private partnerships for oversight of the factors of production, banking, commerce and trade, which powers up regional security, stability and sustainability … and comes with debt servitude schemes, such as regional framework agreements, bank deposits bailins, new taxes, privatizations, capital controls, central bank rulings for capital adequacy consisting of Federal Government debt, and austerity measures … where Nannycrats establish the rule underlying all diktat, providing for the diktat money system.

Despite this week’s trade lower in Gold, $GOLD, to $1,211, please consider that possession of gold bullion and the mandate of diktat are the only two forms of sovereign wealth in the age of diktat.

8) … Can legislation mandate or foster virtuous conduct and even a virtuous character?

Dr. Worden writes China: Mandating the virtue of filial piety by law The founders of the United States, most notably Thomas Jefferson, John Adams, and Ben Franklin, held that for a republic to long endure, its citizenry must be virtuous and of a minimum education. Public education would be established, such that the common man could render a reasoned judgment at the ballot box. The dictum that the popular sovereign (i.e., the electorate) should be broadly educated resulted in law and medical schools in the U.S. requiring entering students to have a bachelor degree in another school before beginning the bachelor’s degree in the professional school. In short, public policy is an effective means of providing a people with the opportunity to gain an education, which at least in theory enhances the wisdom of a self-governing people.

Virtue is another story. Law seems ill-equipped to form a virtuous people. It is one thing to outlaw vice in its outward conduct; how can legislation instill virtue within a soul?  Mandating virtuous conduct, such as in Massachusetts’ “Good Samaritan” law, may be possible where the conduct is in public and thus readily enforceable. Virtue within the home is far more difficult for the law to reach and thus foster. Even vice behind closed doors, such as incest as well as physical and emotional abuse more generally, is difficult for police to catch. To an extent, property rights enable such vice and allow people the option of not being virtuous in a family context.  Yet in countries in which an authoritarian state trumps even property rights, the question becomes whether legislation is the sort of thing that can foster or mandate virtuous conduct and even a virtuous character.[i]

On July 1, 2013, the Government of China passed the Protection of the Rights and Interests of Elderly People law.

In contrast, virtue interacts with the idiosyncratic nature of the human psyche to form a unique moral character, which the person then applied to particular social situations. Filial piety in practice might mean one thing to you and something else to me even if we agree on the internal essence of the virtue. Furthermore, how we choose to express the virtue externally involves our own particular histories and situations. You might be obligated morally to visit your parents, while I face a psychological and moral obligation to avoid mine. Law is not such a sufficiently fine-tuned instrument to accommodate both of us, even as we share the same virtue.

Given the nature of human nature, law is both necessary and limited in its capacity. Even in the case of an autocratic state such as in China, the law can only do so much in touching a citizen’s interior life—the life of the soul.  Instead of having issued particular requirements to foster the virtue of filial piety in society, the Chinese government could alternatively have put resources into helping the Chinese adults having living parents assess how to apply the virtue to their particular situations rather than determine one size to fit all.

9) … Trains carrrying rail cars full of oil to be sent through Bellingham Washinton for refining, and then the oil is exported to Asia.

Nature economist Elaine Meinel Supkis writes Oil Train Blows Up Lac-Megnatic Quebec.  A train with lots of oil cars was heading to the US from energy export power, Canada when it exploded in the center of a small city, killing probably over 100 people:  60 reported missing as runaway Canada oil train explosion forces town evacuation (VIDEO) — RT News

The train “somehow got released,” and had no conductor on board, according to the rail company. The convoy of crude oil left the station of its own accord during a shift change in Nantes, west of the affected region. “We’re not sure what happened, but the engineer did everything by the book. He had parked the train and was waiting for his relief,” Montreal, Maine and Atlantic Railway, Inc Vice President Joseph McGonigle said on Saturday.

John Stark of the Bellingham Herald reports Whatcom refineries gear up for crude oil via rail. BP Cherry Point refinery is building a huge rail loop south of Grandview Road to handle crude oil shipments from North Dakota, and the Phillips 66 Ferndale refinery hopes to start building its own crude oil rail terminal later this year.

In regulatory filings with Whatcom County, the oil companies say the projects will help them diversify their sources of supply. Phillips notes that Alaskan oil production is declining, and there are no pipelines capable of bringing large volumes of North American crude to this area.

BP’s project includes a 10,200-foot-long rail loop – almost two miles. BP told county regulators the refinery expects to handle a maximum of one trainload of crude oil per day. In an email, BP spokesman Bill Kidd said the project would be complete late 2013 or early 2014.BP once planned to build a large natural gas-fired generating plant on the same site, and obtained permits to build it. Corporate officials eventually decided not to proceed with that project, but some of the environmental groundwork done for the generating plant helped to clear the way for the rail loop: New wetlands had been installed north of Grandview Road to make up for wetlands that would have been filled for the generating plant, so no new wetlands had to be created for the rail loop.

The Phillips 66 project would be located north of Slater Road and west of Lake Terrell Road, at the end of the existing BNSF Railway Co. spur that serves the two Whatcom County refineries as well as the Alcoa Intalco Works aluminum smelter. Among other things, Phillips 66 plans to build a 7,000-foot siding to park empty oil trains waiting to be dispatched back to the oilfields.

Phillips reported to Whatcom County that it expects to handle one oil train every two days, on average.

The trains are made up of 100 or more tank cars, Phillips reports, with total train lengths of more than one mile. Those trains will travel to and from the refineries on the BNSF line through Bellingham and Ferndale.

Phillips spokesman Jeff Callender said his company is still completing the permitting process with local, state and federal agencies, but hopes to begin construction by the end of this summer. Once the rail terminal is done, Phillips could meet as much as 30 percent of its 100,000-barrel per day demand with rail shipments.

That would eliminate the need for one tanker per week on Puget Sound, Callender said.

Frank Holmes, spokesman for Western States Petroleum Association, noted that oil production from Alaska has been the traditional mainstay for Washington refineries, but that production is falling. At its peak, Alaska produced about 2 million barrels a day, but that has declined to about 500,000 barrels a day. At the same time, the use of fracking technology has generated a boom in North Dakota’s Bakken formation, with production there now estimated at 790,000 barrels a day.

But there are no pipelines to move that oil west.

“Getting that crude to our refineries here in Washington state necessitates rail,” Holmes said.

To the south, the Tesoro refinery in Anacortes is already taking delivery of Bakken crude, and the Shell refinery in Anacortes has announced plans to do so.

While trainloads of crude oil pose some spill hazards, Holmes observed that every form of oil transport proposes risks. Eric de Place, policy director at Sightline Institute in Seattle, said that is true. “I don’t want to be alarmist, because oil spills happen on vessels and they happen on pipelines also,” de Place said.

But de Place said environmentalists and public officials should pay more attention to the sudden boom in crude oil shipments by rail. In a recent report he authored, de Place said that if all existing and planned petroleum rail terminals were built and operated at full capacity, they would put an estimated 20 mile-long trainloads of crude oil per day on the Northwest’s railway system. De Place argues that regulators should be looking at the combined impact those trains would have.

He is also concerned that Northwest ports could eventually be used to export North Dakota crude that would be carried to the coast by rail. Under current law, U.S. crude oil cannot be exported, but the law could be changed. And current law would not prohibit using U.S. ports to ship out Canadian crude oil that also could be sent south by rail.

“I don’t think people understand that it represents a pretty fundamental transition in the region’s energy economy,” de Place said.

The Bakken oil boom is having other local reverberations: Some Whatcom County people have moved to North Dakota to get their share of the boom.

Kelly Pugh, a Lynden High School graduate, made a living on local construction projects before the real estate boom collapsed. Now he lives in Williston, N.D., making good money working for Baker Hughes Inc., a major oilfield services company. Pugh said he knows a number of Whatcom Countians willing to put up with the long winters and hot, sometimes stormy summers in exchange for a steady income. “I don’t honestly know that anybody wants to be here,” he said. “We’d all rather be home, but we can’t say no to the money.”

10) … With corporations having debt owing to foreigners, a lack of foreign currency exchange imperils the nation of India.

Ashish Kumar writes in India Study Channel The dangerous decline of rupee and the worsening economic crisis. Despite the record weakness of rupee, export has not augmented since last two years. The reason of this is not the worldwide slow down. In fact, the increase in investment cost of production has broken the spine of competition in export. The weak rupee, ICN, inflation and pricey credit have all played together the role in increasing investment cost of production. Even when the rampant burgeoning demand in global market, our country’s exporters are falling behind the nations like Thailand, South Africa, and Indonesia even in traditional areas like gems, clothes, engineering etc. The October of 2012 was very decisive when dollar had started the journey ahead of 53 rupees. By then, the cleft of safe vault of foreign exchange reserve had opened up fully. The difference of deficit of current account touched 6.7 % in proportion to GDP, which was 5.6 % during the crisis of 1991 that should have been 3 % in idea condition. Due to the news circulation of dollar reserve of country left only for a period of 7 month’s import, strong instability in rupee set in because, now the strength of Indian currency is not dependent on export or export or investments but on the incoming and withdrawal of dollar in share market.

Reasons for fall of India’s stock market, INP, and SCIN, Foreign investors had descended down in Indian market with the money that was released in market by the Federal Reserve to deal with depression. Now with the return of growth in America, this flow is certain to stop. Hence, from the fresh hints of Federal Reserve, the financial markets are falling and rupee is going down the pit. Its effects are on every emerging market. However, other countries have sufficient foreign exchange reserve whereas India has this at the minimal mark compared to other equivalent nations. Foreign debt has burgeoned. The monetary reserve is worth paying 78 % debt liability. Fundamental economic indicators are giving off weak signals and over 50 big main companies are burdened with foreign debt that would increase their investment cost and squeeze consumers to make up enhanced cost of their own investments. Therefore, Indian currencies among emerging markets ha fallen steeply biting dust.

It would be better had we learnt to live with the tortures of a weak rupee, because our economy has set out on the circuitous long journey depending on import in company of weak nation’s currency.               

11) … Summary financial comment

Jesus Christ, operating at the helm of the Economy of God, Ephesians 1:10, terminated Liberalism, and its Banker regime, by enabling the bond vigilantes to call the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.01%, on May 24, 2013. This “negative key reversal”, that is this “extinction event”, killed the Creature from Jekyll Island, that is the US Fed.  God’s Son did what Ron Paul could not do; he ended the US Fed.

And now, continuing on, Jesus Christ buried Liberalism, putting its Milton Freidman Free To Choose Floating Currency System, in the grave, on July 5, 2013, by first enabling the bond traders to call the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.72%; of note, the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, steepend sharply, as is seen in the Steepner ETN, STPP, steepening, better said, blasting vertically higher; and secondly by enabling the currency traders to call the US Dollar, $USD, higher to  84.71, and to sell invididual currencies; those sinking included the Indian Rupe, ICN, -1.2%, Emerging Market currencies, CEW, -1.4%, the Swedish Krona, -FXS, 1.5%, the Euro, FXE, -1.5%, and the British Pound Sterling, FXB -2.4%.

Friday July 5, 2013, was Black Friday for credit, as the bond vigilantes conducted ongoing sluagher in the credit markets.  And Friday July 5, 2013, was Black Friday for currencies worldwide as the currency traders continued their successful currency war of competitive currency devaluation on the world central banks.

Marc to Market writes in Zero Hedge The Dollar Index made new three year highs before the weekend and after the employment data (and has been rising from an April 2011 low of 73).  Although it is flirting with the top of its Bollinger Band, there is no compelling sign that the move is exhausted.  It has rallied over 5% off the low on June 19, when it recorded a key upside reversal.  Our next target is the downtrend line drawn off 2009 and 2010 highs and comes in near 86.00. This environment is not good for the dollar-bloc, which had been the market’s darlings for much of the post-Lehman period.  Both the Canadian and Australian dollar recorded new lows for the year last week and the adjustment is not over.

Arabian Money writes Upward pressure on the US dollar is an extremely serious problem for economic recovery going forward.  Step forward what could very soon be the most overvalued currency in the world. That makes US manufactured goods more expensive overseas, and it means that profits from the subsidiaries of US multinationals are lower when translated back into greenbacks.

Welcome to the mad world of competitive devaluations. Talk that the Fed might be thinking about winding up its QE money printing hardly helps. Higher interest rates would attract even higher inflows into the dollar. Still bond yields have been rising anyway. The bond market is starting to crack up.

For investors fleeing the currencies of depreciating nations this becomes a self-fulfilling prophesy on a mammoth scale. As they shift into the US dollar so the currencies they think are going to fall just have to fall because they are being sold. Besides that is what the central banks running the yen, pound and

euro want anyhow.

Their mad plan is to export their own economic troubles to the United States through currency devaluation and yet at the same time imagine that the US economic recovery will somehow drag the whole world out of its economic depression. No matter that China is also slowing down right now, partly because of its links with the increasingly overvalued US dollar.

How does this situation resolve itself? Badly is the answer. At some point the US bond market, the largest financial market in the world, has to crash under the strain. The Fed has certainly painted itself into a policy corner that requires far more imagination than we can conjure to think of a solution.

Perhaps some of our outstandingly brilliant readers could offer an answer. ArabianMoney can’t solve it, so we think a massive financial crash and rush into precious metals is the final phase of the crisis before a global reset and a new gold-backed currency is issued. That’s a financial crisis much bigger than anything we have seen to date. Politicians and central bankers will really have to get their act together then or we really are all doomed!

I relate that going into July Earnings Season Reporting, World Stocks, VT, Nation Investment, EFA, Small Cap Nation Investment, EFA, Global Industrial Production Investment, FXR, and Sector Investment with those which have seen the least investment derisking, are at great risk for a significant  sell off; these include

Biotechnology, IBB, seen in this Finviz Screener

Semiconductor, XSD, seen in this Finviz Screener

Small Cap Value, RZV, seen in this Finviz Screener

Retail, XRT, seen in this Finviz Screener

and Internet Retail, FDN, and its stocks, AMZN, PCLN, and GOOG, these being the short selling opportunity of a lifetime, as the the global credit carry trade is over through finished and done.

Benson te relates Given the Fed’s accommodative policies, a financial asset boom represents symptom an inflationary boom. Such boom appears to have percolated into the real economy which has been reflected via the ongoing recovery in commercial and industrial loans which approaches the 2008 highs  [3].  Consumer credit has also zoomed beyond 2008 highs [4]. This means that the pressure for higher has been partly a product of greater demand for credit. But treasury yields have been rising since July 2012. Treasury yields have been rising despite the monetary policies designed to suppress interest rates such as the US Federal Reserve’s unlimited QE in September 2012, Kuroda’s Abenomics in April 2013 and the ECB’s interest rate cut last May.

I comment that the world central banks’ global ZIRP monetary policies have crossed the Rubicon of sound monetary policy have crossed the Rubicon of sound monetary policy and have made “money good” investments bad, first with Emerging Markets, EEM, such as Peru, EPU, Brazil, EWZ, EWZS, and India, INP, SCIN,  and then with interest rate sensitive sectors, specifically Utility Stocks, XLU, DBU,  Real Estate, IYR, and REITS, RWR.

Benson te continues, The spike in US Treasury yields has broad based implications. Treasury yields, particularly the 10 year note [5], functions as important benchmark which underpins the interest rates of US credit markets such as fixed mortgages and many longer term bonds.

 

Rising treasury yields means higher interest rates for US credit markets.  Treasury yields also serves as the fundamental financial market guidepost, via yield spreads [6], towards measuring “potential investment opportunities” such as international interest rate “carry trade” arbitrages.

Higher interest rates translate to higher costs of servicing debt for interest rate sensitive global bond and loan markets. Theoretically, 1% increase in the $175 trillion bond and loan markets may mean $1.75 trillion worth of additional interest rate payments. The higher the interest rate, the bigger the debt burden.

Moreover, sharply higher UST yields will likely reconfigure ‘yield spreads’ drastically on a global scale to correspondingly reflect on the actions of the bond markets of the US and the other major developed economies.

Such adjustments may exert amplified volatilities on many global financial markets including the Philippines.

For instance, soaring US bond yields have already been exerting selling strains on the Philippine bond markets as I have been predicting [8].   Philippine 10 year bond yields [9] jumped 35 bps on Friday or 13 bps from a week ago.

And no matter how local officials earnestly proclaim of their intent or goal to preserve the low interest rate environment [10], a sustained rise in local bond yields will eventually compel policymakers to either fight bond vigilantes with a domestic version of bond buying program which amplifies risks of price inflation (which also implies of eventual higher interest rates), or allow policies to reflect on bond market actions.

Worst, a sustained rise in international bond yields, which reduces interest rate arbitrages or carry trades, may exacerbate foreign fund outflows. Such would prompt domestic central banks of emerging market economies, such as the Philippines, to use foreign currency reserves or Gross International Reserves (GIR) to defend their respective currencies; in the case of Philippines, the Peso.

‘Record’ surpluses may be headed for zero bound or even become a deficit depending on the speed, degree and intensity of the unfolding volatilities in the global bond markets.

Yet any delusion that the yield spreads between US and Philippine bonds should narrow towards parity, which would imply of the equivalence of creditworthiness of the largest economy of the world with that of an emerging market, will be met with harsh reality which a tight money environment will

handily reveal.

The new reality from higher bond yields in developed economies are most likely to get reflected on “yield spreads” relative to emerging markets via a similar rise in yields. Yet many banks and financial institutions around the world are proportionally vulnerable to losses based on variability of interest rate risk exposures particularly via fixed-rate lending funded that are funded by variable-rate deposits. Importantly, the balance sheets of public and private financial institutions are highly vulnerable to heavy losses as bond yields rise.

As the Economist observed [11], The immediate threat to banks is a fall in the market value of assets that banks hold. As yields of government bonds and other fixed-income securities rise, their prices fall. Because the amounts of outstanding debt are so large, the effects can be big. In its latest annual report the Bank for International Settlements, the Basel-based bank for central banks, reckons that a hypothetical three-percentage-point increase in yields across all bond maturities could result in losses to all holders of government bonds equivalent to 15-35% of GDP in countries such as France, Italy, Japan and Britain.

What has been categorized as “risk free” now metastasizes into a potential epicenter of a global crisis.

It would be foolish or naïve to shrug at or dismiss the prospects of losses to the tune of 15-35% of GDP. These are not miniscule figures, and my guess is that they are likely to be conservative as these figures seem focused only on bond market losses.

While a sustained increase in the price of credit should translate to eventually lesser demand for credit, as the cost of capital rises that serves to restrict or limit marginal capital or the viability or profitability of projects, what is more worrisome is that “because the amounts of outstanding debt are so large” or where formerly unprofitable projects became seemingly feasible due high debts acquired from the collective credit easing policies by global central banks, the greater risks would be the torrent of margin calls, redemptions, liquidations, defaults, foreclosures, bankruptcies and debt deflation.

And such losses will apply not only to the private sector but to governments as well.

I pointed out last week of a report indicating that many central banks has been hurriedly offloading “record amount of US debt”. As of April 2013, according to US treasury data [12], total foreign official holders of US Treasury papers, led by China and Japan was $5.671 trillion.

This means that the $5.671 trillion foreign official holders (mostly central banks and sovereign funds) of USTs have already been enduring stiff losses. This is likely to encourage or prompt for more selling in order to stem the hemorrhage. I would suspect that the same forces have played a big role in this week’s UST yield surge.

Additionally, the propensity to defend domestic currencies from the re-pricing of risk assets via dramatic adjustments in yield spreads means that the gargantuan pile up of international reserves are likely to get drained for as long as the rout in the global bond markets continues.

I conclude, that beginning in May 2013, Jesus Christ, as steward, acting in the administration plan of God, for the fullness and completion of every age, dispensed debt deflation to destroy Liberalism’s way of life, by first destroying credit, AGG, and second by destroying Major World Currencies, DBV, as well as Emerging Market Currencies, CEW, terminating peoples trust in the elected officials, and world central bank monetary policies of investment choice and their credit schemes, such as, free trade agreements, financial deregulation, leveraged buyouts, nation investment, currency carry trade investing, securitization of debt, financialization of stocks and ETFs, and Forward Guidance.

Tyler Durden posts Monty Pelerin’s Economic Noise article You are in the ponzi scheme whether you realize it or not.  The reasons for continuing to participate in stock markets are discussed in this video

from Gordon T. Long and John Rubino. It all comes down to liquidity (and little else).

The liquidity fraud is well advanced and likely will continue. This worldwide Ponzi scheme, engineered by governments, provides massive risks and opportunities. For those who don’t understand what is occurring, there is much to be gained from this presentation.

Mr. Rubino describes the problem the Fed’s liquidity has created. Bubbles are re-inflating just as they did prior to the 2008 collapse. Why shouldn’t they? The exact same scam is being perpetrated by government.  Another collapse will eventually occur, but its timing and form can only be speculated.

Rubino does a good job of explaining Ludwig von Mises’  ”crack-up boom” which will ultimately destroy fiat currencies. That end leads to extremely high, probably hyper, inflation. The pieces are already in place for this outcome. All that has to happen is for banks to begin normal lending or for people to understand what is happening (or going to happen) to the value of currency. Something will ignite the timber.

Charles Ponzi and Bernie Madoff had to lure marks into their scams. People joined them by choice. The Ponzi scheme operated by governments is mandatory. You are in it whether you want to be or not. You are in it whether you realize it or not. The only issue is to decide is what the best way is to play this Ponzi scheme. Long and Rubino discuss your options.

EU Observer writes Portugal and Greece highlight eurozone fragility.  Soon out of the PIGS, that is Portugal, Italy, Greece, and Spain, banking and nation state insolvency, Jesus Christ is going to cause a stroke to one of mankind’s seven institutions, specifically, the head of Finance, Commerce, and Trade. This is known as Financial Apocalypse, that is a global credit bust and financial system breakdown, as foretold by John the Revelator in Revelation 13:3-4.  Yet surprisingly, economic capability will recover, this will come through Regionalism, replacing Crony Capitalism, European Socialism, and Greek Socialism, as well as Russian Communism and Chinese Communism, as leaders meet in summits to renounce national sovereignty, and announce pooled sovereignty, this being seen in bible prophecy of Revelation 13:1-4.    

Monetization of debt, was a factor in stimulating global economic growth; now with the world central banks unable to monetize debt, the large sovereign debt loads, seen in the chart of World Treasuries,  BWX, is no longer sustainable.  And with increasing inability to sell debt, fiscal spending will be nipped in the bud, especially for local municipalities, MUB.  The very nature of governance will change over night.

With Liberalism, both terminated and buried, people will come to trust in Authoritarianism’s regional governance, and economic policies of diktat and their debt servitude schemes, such as, regional framework agreements, bank deposits bailins, new taxes, privatizations, capital controls, and austerity measures.

Libertarians and Austrian Economists abhorred Liberalism’s Interventionism; they will abhorre even more Authoritarianism’s Regionalism.

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