Breaking point in Europe has been reached

The simultaneous devaluation of most paper currencies against gold and silver has reached the end of its first stage.

Gold and silver won.

And meanwhile, the race to the bottom in the competitive currency devaluation competition has yet to award any one country a decisive win.

More importantly, the currency war of the last two years has not done anything to solve the biggest problem in the world's financial system: the massive overhang of debt.

The financial system still labours under a mountain of debt. The private debts were transferred to the public sector balance sheets in 2009.

This gave markets a false sense of security. But that sense is now shattered.

On Tuesday the International Monetary Fund (IMF) warned of slowing growth for the entire world. According to them, world growth will be 4% in both 2011 and 2012, down from more than 5% in 2010.

Then, Standard & Poor's downgraded Italy's credit rating from single-A-plus to single-A.

On cue, the European Central Bank stepped into the market to buy Italian bonds.

The result?

The yield on 10-year Italian government debt dropped to 5.603%, down from an earlier high of 5.67%. Despite the government intervention, credit default swaps on Italian government debts are at all-time highs.


Italy will struggle to finance its debts

Just to keep its head above water Italy must refinance over €100 billion in bonds by the end of this year.

But Italy is already the world's third-largest sovereign borrower with public debt of €1.9 trillion euro. Its total government debt-to-GDP ratio is 120%.

How serious is that?

In 2012, the Italian government must refinance nearly €500 billion in debt. That's 20% of Italian GDP. That's an incredible amount of new debt to sell when interest rates are rising.

You can see Italy's problem. The only way for it to survive is by borrowing more and getting deeper and deeper into debt.

Eventually, Italy could struggle to even pay the interest on its huge debts.

And that's the gun Italy's staring down the barrel of as we speak.

In fact, it gets worse. Because Italy's banks own huge quantities of government bonds, the downgrade on Italian government debt has led to a downgrade of the Italian banks.

The scary thing is, no country in the entire world is immune to this debt contagion.

That includes China... and it certainly includes Australia.

from moneymorning.com/link to follow.

10,771.48  

Up 37.65 (0.35%)

http://chart.finance.yahoo.com/zs=%5eDJI&t=1d&q=l&l=on&z=l&a=v&p=s&lang=en-AU&region=AU

Well, the DOW finally finished UP 38 points for the last day of trading this week.

The day saw a number of hefty swings, both up & down. Following is an interactive version, which makes it easier to track the intra-day movements -
http://au.finance.yahoo.com/echarts?s=^DJI#symbol=^dji;range=1d;compare=;indicat...

Given the recent state of the markets and that declines continued to appear thruout the day, one would have to wonder at the source/s of the continued support?

The Truth is that TPTB are now in the unenviable position where Demand is set for a long term steady (at best) decline, because of Demographic, Energy & Debt related issues and they have NO weapon capable of even addressing those factors, let alone reversing them!  

So, sometime before the end of 2012, including next month (October Crashes seem popular over modern history) I would expect a massive capitulation in equity markets.

That phase of events could see some 30-50% of current share values disappear in a very short period of time.

Signs The Perfect Economic Storm Is Coming

The financial world is officially going crazy. Can you believe what is going on out there right now? Financial markets have been jumping up and down like crazy for months and this is creating a lot of fear. Other than during the financial crisis of 2008, in the post-World War II era have we ever experienced as much financial instability as we are seeing right now? Should we just accept that massive financial instability is going to be part of "the new normal" in the financial world? The wild swings that we are witnessing in the global financial marketplace are making a whole lot of people very nervous right at the moment. When markets go up, they tend to do it slowly and steadily. When markets go down, a lot of times it can happen very rapidly. Also, as I have mentioned before, more major stock market crashes happen during the fall than during any other time of the year. The last major financial crisis happened during the fall of 2008, and things are starting to look a little bit more like 2008 with each passing day. The last thing the global economy needs right now is another major financial meltdown, but that may be exactly what we are about to get.

The Dow got absolutely hammered once again on Thursday. It was down almost 400 points, and it has lost a total of 674.83 points over the last two days combined.

A couple of days ago, I discussed 21 signs that the financial world was on the verge of a nervous breakdown. But I had no idea that things would get so ugly so soon. So what comes next?

One of the keys is to watch what the "insiders" are doing. Often they will say one thing and do another. At the moment, corporate "insiders" are selling 7 dollars of stock for every 1 dollar of stock that they are buying. Over the past couple of weeks, "insider" investing behavior has changed dramatically. The following is from an article that was recently posted on MarketWatch....

The insiders have vanished.
Chief executives. Board members. The head honchos. The people who know. Just a few weeks ago, they were out in force, buying up shares in their own companies with both hands. No longer. They’ve disappeared. Almost overnight. “They’ve stopped buying,” says Charles Biderman, the chief executive of stock market research firm TrimTabs, which tracks the data.

For some reason, this almost always starts happening before a crash. So obviously this is not a good sign.

Not only that, but a third very troubling sign is that an extraordinary number of bets have been placed against the S&P 500. As I noted the other day, if there is a stock market crash in the next few weeks, somebody is going to make a ton of money....

It doesn't take a genius to see all the dark financial clouds that are gathering on the horizon.

As fear spreads, it is only going to make global financial instability even worse. If something doesn't change, we could soon have a full-blown panic on our hands.

So why should the rest of us care if global financial markets crash and a bunch of bankers lose a whole lot of money? Well, unfortunately our entire economic system is based on credit. When the last financial crash happened in 2008, the credit markets got really tight. Economic activity started to freeze up. We entered a deep recession and unemployment skyrocketed.

The truth is that the U.S. economy is in the middle of a long-term decline. The economy declined badly while George W. Bush was in office, and the decline has accelerated since Barack Obama entered the White House.

As I wrote about yesterday, the American people are feeling really depressed about the economy and 80 percent of them believe that we are in a recession right now.

We live in unprecedented times. The financial world has become incredibly unstable, and none of us is really quite sure what "the new normal" is going to look like after all of this is over.

But one thing is for sure - things never stay the same for long. The way that things have been in the past is not how things are going to be in the future.  

A "perfect storm" is coming. Everything that can be shaken will be shaken.

You better get ready.

Link -
http://seekingalpha.com/article/295457-signs-the-perfect-economic-storm-is-comin...
===================================
The Truth is, there are some major negatives lining up against the Global Economy and regrettably the signs are not good!

That said, this author is suggesting that some of TPTB may already be bailing, ahead of another October crash?

Stocks Advance on Optimism Europe Will Act

U.S. stocks advanced, giving the Dow Jones Industrial Average its biggest increase in a month, amid speculation that European policy makers will act to prevent the region’s debt crisis from getting worse.

The Standard & Poor’s 500 Index added 2.3 percent to 1,162.95 at 4 p.m. in New York, after falling as much as 0.5 percent earlier. All 10 groups in the gauge advanced today. The Dow climbed 272.38 points, or 2.5 percent, to 11,043.86.

“You had some quasi-positive comments out of Europe,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a telephone interview.
“The situation in Europe is a near term risk, but if the global economy muddles through, you’ll probably have room for a rally in stocks.”

“Now is the time to be bullish, not the time to panic,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $278 billion. “I don’t think we’re going into a recession. Europe will come up with something.”

“When you look at Europe, the solutions are not going to be implemented any time soon,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “That means the market volatility is going to continue.”

Link -
http://www.bloomberg.com/news/2011-09-25/u-s-stock-futures-slump-as-europe-fails...
===========================================
What we really have here is simply as case of

"Stocks Advance on Optimism"  

OR to put it another way -
"BUY ON THE RUMOUR & SELL ON THE FACT"

That said, based on -

some quasi-positive comments out of Europe

the situation in Europe is a near term risk, but if the global economy muddles through

I don’t think we’re going into a recession. Europe will come up with something

a 272 point gain on the DOW IS JUST A JOKE!

The Truth is, solutions will not be implemented any time soon.

In fact, time may well be the only solution, as Demographic, Peak Energy, Climate Change & Debt related issues eventually work themselves thru and a new balance is found?

In the mean time, we await the next edition of "Sell on the Facts"!

Go to following lateline site, then click onto story with Gerrard Minack, who is the chief Economist with Morgan Stanley.
Minack gives his views on Europe, the USA and Future.


http://www.abc.net.au/lateline/

Last Report dated 03/09/2011

US$ Index (basket of Currencies):  @ 78.80 (Last Report - 74.71) (2010/06/04 - 87.85)
http://www.goldseek.com/quotes/charts/usdollar/usdollarindex24hour.php

Euro - US$: @ 1.3388 (Last Report - 1.4205) (2010/06/04 - 120.44)
AUD$ - US$: @ 0.9662 (Last Report - 1.0645) (2010/06/04 - 83.17)
AUD$ - GBP: @ 0.6200 (Last Report - 0.6563) (2010/06/04 - 57.04)
AUD$ - EURO:  @ 0.7217 (Last Report - 0.7492) (2010/06/04 - 69.06)
http://www.bloomberg.com/markets/currencies/fxc.html

Gold - @ US$1,622.30 (Last Report - US$1,884.20) (2010/06/04 - $1,207.80)
Oil WTi -  @ US$79.20 (Last Report - US$86.45) (2011/03/19 US$101.01)  (2010/06/04 - $70.22)
BALTIC DRY INDEX (BDIY) - @ 1,899 (Down 14 @ Friday close) (Last Report – 1,740) (2010/06/04 - 3,844)
http://noir.bloomberg.com/apps/quote?ticker=BDIY:IND

DOW @ 10,913 - (Down 241 @ Friday close) (Last Report - 11,240)  (2010/06/04 - 11,444)
ALL ORDS @  4,070 (Up 2 @ Wednesday close) (Last Report - 4,322) (2010/06/04 - 4,840)
SHANGHAI COMPOSITE @  2,359 (Down 6 @ Friday close) (Last Report - 2,528) (2010/06/04 - 2,553)
http://www.bloomberg.com/?b=0

Last 5 years DOW -
http://finance.yahoo.com/echarts?s=%5EDJI#chart3:symbol=

THERE was movement at the FED, for the word had passed around, That the US$ was an old Regret and its value had long since passed away
==================


The Oil Price will now decline along with the Global Economy, for some time, before recommencing it's rise, due to Supply related problems!

DOW
Share markets after reaching mid year lows, as the DOW went from just under 9800 in July, to finish 2010 at 11,577.
The DOW Declined from 12,657 on July 9th, to 11,445 on August 6th, before hitting a recent low of 10,719 on August 10th and some wild recent fluctuations, before finishing down 241 on Friday, at 10,913.
Given the basic Economic factors in play, I suspect the trend is down & we are not yet anywhere close to a bottom.

ALL ORDS
The Australian market rose from just under 4,300 in July to finish 2010 at 4,847.
The All Ords Declined from 4,716 on July 9th, to 4,170 on August 6th, before hitting a recent low of 4057 on August 8th amid some wild swings, before finishing up 2 on Friday, at 4,070.
Following the US & Europe performances on Friday, it is likely that OZ will follow on Monday with another fall!
OZ, as with most other countries will follow the US and I therefore suspect that the All Ords is also no where close to a bottom.

SHANGHAI COMPOSITE
The Shanghai Composite now seems set on a downward trend, since April, 2011!
The Shanghai Composite finished down 6 on Friday, to close at 2,359.
http://chart.finance.yahoo.com/zs=000001.SS&t=6m&q=l&l=on&z=l&a=v&p=s&lang=en-AU&region=AU

NOTE: Given the REAL, BASIC ECONOMIC FACTORS involved -
1) Declining Demand, due to Demographics (Baby Boomer Ageing & Job losses) and the Public anticipating a poor Economic future, due to Debt problems in the US & Europe.
2) Peak Energy & related issues.
3) Neither side of the Economic divide (Keynesians Vs Austrians) can magically solve the current Global Economic dilemma's.
4) Bernanke & the FED are Impotent.
5) Obama can not stimulate the US Economy, as US Debt is already far too high, so any possible stimulus measures can only be mild and that is, IF any measures can get past the Republicans & the Tea Party.

I WOULD SUGGEST, THE TRUTH IS, THAT EQUITIES ARE GOING TO TAKE A HAMMERING for quite some time and given these circumstances and the history of past October events, there may be even greater volatility over the next 30 days?

Good luck & watch the Debt!  

THERE'S NO WAY IN HELL WE'RE MAKING IT TO NOV 2012
POSTED BY ANN BARNHARDT - SEPTEMBER 26, AD 2011 9:09 PM MST
Here is a piece from ZeroHedge.com that hopefully will make you all understand, once and for all, that this ain't the 1930's, and that there is absolutely no way in hell that this Republic is going to make it to November 2012.
HERE IT IS.

Summary: The five largest banks in the U.S. (JP Morgan Chase, Citibank, Bank of America, Goldman Sachs and HSBC) are carrying $238 TRILLION dollars in derivative exposure. JP Morgan alone is carrying $78 TRILLION in derivative exposure BY ITSELF.

Okay, what the hell is derivative exposure? What this is referring to are over-the-counter non-exchange traded forward delivery (or "futures") contracts of various kinds. I am a futures broker, but I only execute futures contracts on the futures exchanges, namely the Chicago Mercantile Exchange and the New York Mercantile Exchange. About ten years ago a new "novelty" emerged in the futures business - the so-called "over-the-counter" contracts. There was a kid in the office I worked in who got wind of this and had all kinds of stars in his eyes about making a killing off of these "OTC" contracts because the brokers' commissions were not a flat fee but a percent of the contract value. Here's the problem with OTC contracts: there is no exchange standing between the buyer and seller as a guarantor.

In my business, when a customer executes a trade on a futures or options contract, it makes no difference who the other guy is on the other side of the trade, be it executed electronically or in the pit. None of us have to worry for a second about the counterparty on our executions because the EXCHANGE ITSELF stands between ALL transactions as the ultimate guarantor. The exchange then enforces the financial requirement rules with the Clearing Houses, the Clearing Houses enforce the financial requirement rules with the brokers, and the brokers enforce the financial requirement rules with the customers. That is the chain of financial responsibility. So, even if a customer bugs out and fails to financially perform on a contract, the contract WILL BE MADE GOOD by extracting the money from the broker, then the Clearing House and finally the Exchange. This massive enforcement buffering is what gives the system integrity.

OTC contracts have no exchange. They are a flipping free-for-all. If someone bugs out on a contract, the poop hits the fan. The counterparty has their pants around their ankles and the broker is caught in the middle. That's why when that kid in my office years ago got all starry-eyed, I thought to myself, "I wouldn't do that OTC crap if you put a gun to my head - no matter what the commissions were. It would be Russian Roulette. Eventually someone would default and it would financially destroy the broker instantly, and perhaps the counterparty as well."

Let's take my business - cattle futures. One contract is 40,000 pounds of live cattle. The spot contract settled at $119.725 per hundred pounds today. So, 40,000 pounds X $1.19725 (shift the decimal) = $47,890 total value of the contract. Since this is an exchange traded instrument, the customer doesn't really don't have to worry about default and can go ahead and book that $47,890 today, and it will be offset at a later time, and the net of the entry and exit will be the P&L. The contract isn't going to default, so the derivative exposure is limited.

Okay. These banks are carrying these OTC futures contracts with NO exchange to guarantee anything. And they are carrying these contracts largely WITH EACH OTHER. So JP Morgan might be the long and Goldman Sachs, or some insolvent bank in Europe is the short on the other side. If these banks default, which is now a mathematical certainty because they are not only insolvent, but insolvent multiple times over and there isn't enough money in the world to bail them out, there is going to be a cascading default on all of these OTC contracts.

Now look at the value and exposure of these OTC derivatives again: the top 5 banks in the US alone have exposure of $238 TRILLION dollars.

The total GDP of the United States is $14.5 Trillion.

The total GDP of China is $6 Trillion.

The total land mass on earth is 36.8 billion acres. If every acre of land on earth was "sold" for $6467 per acre, that would total $238 Trillion.

JP Morgan BY ITSELF has derivative exposure equal to over FIVE TIMES the value of the entire US GDP.

And no, there will not be a 1:1 offsetting in a collapse, because the collapse will be asymmetrical, and the bankrupt party will first pursue FULL payment on its "longs" (think of these as accounts receivables) while its "shorts" (accounts payable) will only pay out 20 cents on the dollar OR LESS. In other words, these entities will tear each other apart in a mad dogfight and this dogfight will take the entire world down with it.

TWO HUNDRED AND THIRTY-EIGHT TRILLION DOLLARS.

AND THAT IS JUST FIVE BANKS.

AND THE MASSIVELY CORRUPT AND INCOMPETENT SECURITIES REGULATORS, BOTH GOVERNMENTAL AND PRIVATE, SAT BY AND WATCHED THIS HAPPEN. That is what happens when you let a group of criminals run a bureaucracy of affirmative action hires to "audit" the financial industry. Scroll down and read my post titled "There Must Be A Reckoning."

It's over. There is no coming back from this. The only thing that can happen is a total and complete collapse of EVERYTHING we now know, and humanity