Tuesday, September 6, 2011

Swiss Shock Starts Stock Slide

The Markets

While most Americans were munching on burgers, hots and potato salads Monday, the rest of the world was working, and stocks took a major beating in exchanges across the globe. Both Asian and European markets suffered 3-6% declines, capped by a huge fall in the German DAX, as financial woes continue to spread globally, but are hitting the Eurozone especially hard.

On Monday, Asian markets were mixed, but all except the UK and Swiss markets finished in the red.

The workweek in the US began with news that the Swiss National Bank (SNB) decided to peg its "safe haven" currency at 1.20 Euros to stave off a recession and halt the strengthening of its currency that has proceeded at a swift pace since the collapse of Lehman Bros. in 2008.

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," the SNB said in a brief statement. "The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."

"Unlimited quantities" indeed. The Swiss are prepared to match the Euro and US dollar print for print as the debasement of fiat currencies has now reached a new level of madness/stupidity/desperation (take your pick).

The Swiss move sent the US dollar soaring to two month highs (75.92), and dropped the 10-year note to an historic low yield of 1.91%. The 10-year ended the day at 1.98%.

The trading day began with steep declines, with the Dow off by 308 points at its lows and the NASDAQ shedding 66 points just prior to 11:00 am EDT. After that, it was an uphill climb with a huge ramp job in the final 30 minutes of the session, on either short covering or blithe spirits, though the former seems more appropriate.

With trading on the light side, cutting the losses on the major indices was probably easy work for the criminal Wall Street cartel. Shares will likely be dumped by Thursday when a troika of events - one by Ben Bernanke, one by President Obama and one in Europe by German Chancellor Angel Merkel when she must quell a threatened revolt in her own parliamentary bloc when the Bundestag begins debating the controversial expansion of the European rescue fund, which increases Germany's share of guarantees to up to €211bn (£184bn) from a previous €123bn – about two-thirds of the annual federal budget. Merkel will be first, prior to the open of US markets, followed by Bernanke in Minnesota, with President Obama's highly-anticipated, nationally-televised speech to introduce his jobs program to joint session of congress slated for 7:00 pm, hoping to avoid a conflict with the opening of the NFL season. The Green Bay Packers play the New Orleans Saints at 8:30 pm.

One sector that did not participate in the afternoon rally off the lows was financial, with bank stocks being hit hard once again. Bank of America pared some of its earlier losses, closing at 6.99, down 26 cents, but below the 7.14 price of 700,000 warrants recently offered to billionaire Warren Buffett as a sweetener to his $5 billion investment in the flailing bank. Message to Warren: Don't be in a hurry to own a big chunk of another bank.

Dow 11,139.30, -100.96 (0.90%)
NASDAQ 2,473.83, -6.50 (0.26%)
S&P 500 1,165.24, -8.73 (0.74%)
NYSE Composite 7,148.13, -102.60 (1.42%)
NASDAQ Volume 1,740,810,000
NYSE Volume 5,077,949,500
Combined NYSE, NASDAQ Advance - Decline: 1942-4640
Combined NYSE, NASDAQ New highs - New lows: 32-451
WTI crude oil futures: 86.02, -0.43
Gold: 1873.70, -26.60
Silver: 41.96, -0.91

Idea: Ready to get really scared?

How about a report by UBS, which outlines the frightening aspects of Euro dissolution, i.e., the end of the EMU (European Monetary Union) and the resulting chaos, civil strife and even civil wars. Full text below.


Then there's this post on a little-known blog called Nathan's Economic Edge, from March 20, 2010, which concludes, via the U.S. Treasury Z1 Flow of Funds report that the diminishing marginal productivity of debt (a well-understood, but not widely-circulated concept) reached debt saturation sometime in 2009, thus adding new debt, as the Fed and the federal government are always so eager to do, but the Tea Party wants stopped ASAP, produces negative results, as in lower GDP.

What that means is that the era of fiat currencies, without backing of any kind, is backfiring in a big way. The more money the Fed or the government throws at the problem only makes it worse and hastens the eventual implosion of the currency. However, these things take a long time to work themselves out, but we may be only years away from financial Armageddon.

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