The Resourceful Bear Blog

Financial market report for Friday, October 24, 2008

Introduction
Currency traders sold the yen carry trade, EUR/JPY, FXE:FXY, short, causing a massive a massive disinvestment from eastern european, GUR, emerging markets, EEM, the BRICS, EEB, and world shares, EFA. Chart of GUR, EEM, EEB, and EFA ... GUR, EEM, EEB and EFA 5 day ... GUR, EEM, EEB and EFA 12 month ... FXE:FXY

Ye Xie and Agnes Lovasz of Bloomberg report that the yen climbed to a 13-year high against the dollar as a worldwide drop in stocks encouraged investors to dump higher-yielding assets and pay back low-cost loans in Japan.

Amicus provides the monthly chart of the EUR/JPY; it's the chart of the century as it shows the Armageddon Trade unwinding ... Monthly EURJPY

Stocks fell sharply for the day and the week:
South Korea, EWY, -11%, -26%; Martin Fackler of The New York Time in article 'Trouble Without Borders' reports that rating agencies have raised conerns about the health of South Koreas Banks which have relied heavily on foreign borrowing. These are now scrambling to find dollars to repay manufacturing foreign currency loans. Woori Bank, one of Soth Korea's largest lenders, suddenly found itself unable to borrow dollars after last month's collapse of Lehman. Dealers in the bank's trading room made frantic calls to big foreign banks seeking fresh loans only to be told bluntly "no". Worse, Foreign banks refused to roll over many existing loans, forcing Woori to repay them as they came due, also in dollars. Woori has stayed liquid thanks to dollar loans from the government, which has pumped tens of billions into banks.

Former Soviet Union, GUR, -11%, -20%

BRICS, EEB, -10%, -20%
Brazil, EWZ, -9%, -20%
Russia, RSX, -12%, -20%
India, INP, -9%, -15%
China, FXI, -10%, -20%

Emerging Markets, EEM, -10%, -19%

World Shares, EFA, -5%, -11%

US Shares, VTI, -5%, -7%

Coal Producers, KOL -9%, -20%
Steel, SLX, -8%, -19%
Metal Manufacturing, XME, -7%, -13%
World Shipping SEA, -7%, -13%
Energy Sevices, OIH, -7%, -7%

Financial and real estate values fell on exposure to sythetic CDOs and settlement of Lehman Brothers credit default swaps
The Yahoo Finance ongoing five day chart of the debt suretors compared to the financial sector and the banks ABK, RDN, MBI, IYF, and KBE suggests that the marketplace is cutting value based on exposure to Synthetic CDOs and settlement of Lehman Brothers credit default swaps ... ABK, RDN, MBI, IYF, and KBE

The Yahoo Finance ongoing five day chart of the real estate investments DRW, IYR, and RWR suggests the same conclusion as with the suretors and the financial sector and the banks ... DRW, IYR and RWR

Real Estate, IYR, -7%, -17%
Financial, XLF -6%, -12%

International Real Estate, DRW, -7%, -15%
World Financial DRF, -3%, -14%

The unwinding yen carry trade sent commodities lower
The unwinding yen carry trade sent oil, USO, 4% lower on the day and 11% lower for the week.

Currency losses for the week were significant; these induced a loss of value in emerging market debt
Currency traders going short world currencies, DBV, such as Hungary's Forint and long the yen, FXY, and the US Dollar, UUP, $USD, propelled emerging market debt, EMB, PCY, and interntional government inflation protected bonds, WIP, lower. Chart of EMB, PCT and WIP ... EMB, PCY, and WIP

Doug Noland and Stockcharts.com relate world currencies, DBV, fell 12% this week;
New Zealand Dollar, BNZ, -20%,
South Africand Rand, SZR, -14%
British Pound, FXB, -8%
Mexican Peso, FXM, -6%
Caandian Dollar,FXC, -6%
Australian Dollr, FXA, -9%
Indian Rupe, ICN, -5%
Euro, FXE, -6%
Brazilian Real, BZF, -15%
Swiss Franc -3%
South Korean Won -6%,
Norwegian Krone -6%
Polish Zloty -12%
Turkish Lira -12%
Chilean Peso -8.0%
Hungarian Forint -8%,
Iceland Krona -6%.

Interest rate differential investing took a reversal beginning with the May 19, 2008, Bank of Japan meeting; at that time investors started to buy yen and repay their 0.5% carry trade loans as is seen in the six month ongoing Yahoo Finance chart of BZF compared to FXB, FXA, ICN and BNZ which illustrates the great unwind of high yielding currencies. The six month ongoing Yahoo Finance chart of TLT, UUP, and FXY, illustrates the so called "flight to safety" and the demand for US Dollars and Yen.

The euro, FXE, closed down at 125.89; its chart objective is 115.

There has been a run on Hungary's currency: Martin Fackler of The New York Time in article 'Trouble Without Borders' reports the Hungarian forint has lost 31% of its value relative to the US Dollar in the last three months.

Emerging Market bonds and inflation protected bond values fell sharply both today this week and in the last three months
EMB -3%, -10%, -28%
PCY -4%, -20%, -38%
WIP -2%, -6%, -22%

Gold has become significantly more expensive in terms of country currencies
Those who have failed to invest in gold, have been pauperized by their currencies falling in value relative to gold; in other words, their currencies have signifcantly fallen lower relative to gold: it now takes significantly more local currencies to buy true wealth.

The chart of the gold ETF, GLD shows a close up to $72 ... GLD

Gold, $GOLD, closed up at $730 ... $GOLD

Demand for US Treasuries was strong this week
US Treasuries, TLT, although turning lower for the day, stands at its second highest ever weekly close at 96.73 ... Weekly TLT

The interest rate on the 10 Year US Government Note, $TNX, closed up at 37 ... $TNX

The US Dollar closed strongly up at $86.42
The US Dollar, $USD, traded up 1.5% on the day; and 5% for the week to close at $86.42 ... $USD

The dollar bullish ETF, UUP, closed at 26.88 ... UUP

Jesse in article Charts in the Babson Style for the Week Ending 24 October 2008 provides the chart of DX Dollar ... DX Dollar

Lending eased somewhat for corporate high grade debt and worsened some for junk bond debt
The value of corporate debt, LQD, increased as the value of US Treasuries increased this week; but other forms of corporate debt lost value as is seen in the 5 day ongoing Yahoo Finance chart of TLT compared to LQD, HYG, JNK and CVY

Municipal bond debt increased in value with US Treasuries this week
The MSN Finance chart of municipal bond debt for the period of September 11, 2008 to October 24, 2008 for the debt ETFs MUB, CMF, and the mutual bond funds OROHX, ORMIX and FDMMX shows municipal bond debt increased in value with US Treasuries this week

Dollar roars back as debts are called in
Ambrose Evans Pretchard in article Dollar roars back as global debts are called in relates: "For six years the world has been borrowing dollars to bet on property, oil, metals, emerging markets, and every bubble in every corner of the globe. This has been the dollar “carry trade”, conducted on a huge scale with high leverage. Now the process has reversed abruptly as debt deflation - or “deleveraging” - engulfs world markets. The dollars must be repaid. Hedge funds are 75pc dollar-based, regardless of where they come from. Many are now having to repatriate their dollars as margin calls, client withdrawls, and the need to slash risk forces them to cut leverage. The hedge fund industry had assets of $1.9 trillion at the peak of the bubble."

Elaine Meinel Supkis writes: "The swelling of 'world wealth' coincides with this long period of free lending. Most of the money created this way was not in yen but in dollars. So the US lost control of who produces dollars. Since dollars are debt, the cranking out of epic amounts of debts meant this debased US dollars. Since this was done via Japan, this also killed the yen. So we saw, for about 6 years, the dollar and the yen BOTH in free fall vis a vis most currencies on earth".

And that inflation didn't matter. Well, we just got washed over by a tsunami of hyperinflation which has now receded. We are now in the other half of this destruction of all that Japanese/US 0% lending lunacy: equity and asset value destruction. Both the US and Japan desperately want to reinflate all the original items this flood of funny money inflated. Namely, stocks, housing, corporations, etc.

These items are 'wealth producers' because one can dump cheap debts on top of them! Commodities translate directly into inescapable inflation. But when artwork, diamonds, gold jewelry, vacation villas, yachts and custom cars rise in value as everyone eagerly bids higher and higher thanks to tons of free money, this gives the illusion of wealth. Paying more to fuel the yachts, custom cars, etc. feels like losing wealth.

Elaine Meinel Supkis writes: "This is why everything is now unwinding: the US can't take on more debt. And the debt we ARE taking on is not for buying anything. It is all vanishing down this massive Bottomless Pit where the Derivatives Beast eats every penny and belches. Nothing is being bought or created. This is creative destruction with a vengeance. Indeed, this is very much akin to the ancient Chinese practice of burning worthless paper money to bribe Celestial Guardians at the Gates of Death."

And Ms Supkis continues: "The Derivatives Beast doesn't want more Japan carry trade loans. He wants real money. And this means getting the major governments of the world to feed him real meat and potatoes: future taxes, the wealth of empires.

I say that once there is a total worldwide financial system breakdown, and currencies other than gold are totally burned out; then the mark, that is the charagma, of Revelation 13:17 will be introduced by the Seignior: "And that no man might buy or sell, save he that had the mark, or the authority of the beast, or the currency of his name."

Former soviet nations and South Africa currencies suffered huged losses: bankruptcy of eastern european countries is very possible
Laura Cochrane of Bloomberg reports: "The Polish zloty, Hungarian forint and South African rand headed for their biggest weekly declines as the global economic slump fuels concern of a worsening credit crisis in emerging markets.

The zloty fell 2.7 percent against the dollar today, taking its weekly decline to more than 16 percent, the steepest since Bloomberg began tracking the data in 1993. The forint extended its weekly loss to a record 14 percent while the rand fell almost 17 percent in its biggest five-day decline since 1975."

Martin Crutsinger and Mike Eckel of the Associated Press report that the IMF will provide Ukraine with $16.5 billion in loans and announced that emergency assistance had cleared a key hurdle.

Niall Green in GlobalResearch.ca article Eastern European Economies Face Bankruptcy

Rakesh Saxena writes in Seeking Alpha: How Will Hungary Shape Eastern European CDS Prices this Week?

Mark Scott writes on October 23 that Eastern European country Belarus has asked the International Monetary Fund, IMF, for a reported $2 billion loan to prop up the country’s dwindling capital reserves. The former Soviet satellite already has secured $2 billion in financing from Russia and the country’s finance minister, Alexei Kudrin, says he might ask Western states for additional help.

Current account deficits and high levels of external debt raise the risks of a hard [economic] landing. High dependence on foreign capital amplifies external vulnerability."

With an average current account deficit of 9% of GDP, Central and Eastern Europe definitely will feel the financial squeeze. Morgan Stanley reckons countries in the region hold approximately $1.65 trillion in foreign debt. And in Baltic states like Estonia and Latvia, which already are in recession, foreign currency-denominated debt stands at 30% and 24% respectively of total GDP.

Bulgaria and Hungary, face mounting financial problems as foreign currency loans represent more than half of the countries' entire loan book. Hungary's current account deficit in the second quarter of the year stood at roughly 6%. Bulgaria's was a staggering 24%.

Brad Setser of the Council on Foreign Relations, CFR, relates: "Some emerging market central banks have noticed that they - unlike the Bank of Japan, Bank of England, Swiss National Bank and the European Central Bank - don't have access to unlimited dollar credit through reciprocal swap lines with the Federal Reserve. "Analysts say the unlimited dollar currency swaps set up between the Federal Reserve and central banks have helped bring stability to currencies through alleviating institutions desire to purchase dollars in the spot market to satisfy overnight funding requirements. 'In contrast, the lack of currency swaps put into place between the Federal Reserve and emerging market central banks has likely helped to exacerbate the pick up in emerging market currency volatility' says Derek Halpenny, at the Bank of Tokyo Mitsubishi UFJ"

We now live in a multi-polar world: the days of US Dollar hegemony are over
Richard Russell of Dow Theory Letters relates that No nation can run an empire on borrowed money: "For months I've insisted that no nation can run an empire and fight two wars on borrowed money. Sooner or later something has to give - the nation's credit standing or its currency. Now the dreaded subject is beginning to emerge. The demise of the US's world standing".

"Today, in The Wall Street Journal of all places, we see a featured piece on the op-ed page entitled, 'The Dangers of a Diminished America'. A diminished America? How can that be? It be. The US has been getting away with it all by owning the unique advantage of printing the very money that its huge debt is denominated in. Yes, I'm talking about the reserve status of the US dollar. This is the Achilles Heel of the US. The US dollar will possess its reserve status as long as our creditors continue to accept Federal Reserve Notes, paper with nothing behind it accept the 'full faith and credit' of the United States."

European states likely to be unable to raise money despite the need to do so
David Oakley of the Financial Times reports that "Some European governments are struggling to raise money in the bond markets because of the vast financial pledges that they have made to bail out their battered banking sectors.

"Spain failed to launch a bond last week, while Belgium and Finland were having difficulty attracting investors for debt offerings after governments set aside billions to recapitalise their banks and guarantee their debt.

"Governments face problems raising money, as investors demand higher yields because of the extra credit risk resulting from the bank guarantees and the huge pipeline of sovereign debt expected over the next year, which is hanging over the market.

"The eurozone countries will have to issue an extra $263.3 billion in debt in the next year to pay for bank recapitalisations and guarantees, according to Bank of America."

Argentine bonds, stocks sink as takeover fuels default concerns
James Attwood and Drew Benson, Bloomberg report: "Argentina's bonds and stocks plunged for a second day as a planned government takeover of $29 billion of pension funds heightened concern the South American country is headed for its second default this decade.

"The benchmark Merval stock index tumbled 15.8% on speculation President Cristina Fernandez de Kirchner plans to use the funds to meet financing needs that have swelled as prices on the country's commodity exports tumbled. Argentina hasn't had access to international debt markets since its 2001 default and demand for its local bonds has dried up in the past year on concern the government is underreporting inflation.

"'It's the final of many nails in the coffin from an institutional investor perspective,' said Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London. Argentina is 'disappearing into irrelevance', he said.

"The yield on the government's 8.28% bonds due in 2033 surged 6.25 percentage points to 30.94%, according to JPMorgan Chase & Co. The bonds yielded 12.16% a month ago. The benchmark Merval stock index sank to a four-year low, extending its decline this week to 27%.

"Fernandez, 55, announced her plan to take over 10 private pension funds during a speech in Buenos Aires yesterday, saying the proposal would help protect retirees from the global financial crisis. The last time Argentina sought to tap workers' savings was in 2001, just before it halted payments on $95 billion of bonds. Fernandez denied in the speech that her plan is a bid to 'grab the cash'."

Summary
When the communist union broke up, it was about the time that "free trade", how I hate that term, picked up as factories were closed in the US and production transferred to China, Vietnam, Central and South America. The US started running huge spending and trade defecits, while the former soviet states borrowed to build factories from Japanese families.

In other words, the communist nations, and the BRICS, Brazil, Russia, India and China, got industrialized by paying high interest and good profits to Japanese middle and working class workers, as well as those using carry trades.

In the heyday of interest differential investing, money flowed from 0.5% interest Japan to 5.5% Australia, Hungay, Poland and Romania.

Now as risk is perceived, liquidity evaporates; and the Japanese and those funded with the yen carry trade, and other carry trades, are selling thier developing nation stocks and emerging market bonds for whatever they can get, which is practiclly nothing, and there is no lending so factories are shutting down, as commercial paper is not being cut to fund payrolls, make purchases and roll over debt. Economies are imploding.

The only thing that will be worth anything is gold.

Powerful political elite and investment bankers, ie the Goldmanites, those of Goldman Sachs, are rising to rule mankind through bloodless political and economic coups as well as through innovaive framework agreements.

Soon there will be a global monetary authority, and unified regulation of banking globally, and a Seignior, that is a top dog investment banker to govern mankind.

Investment application
While the US Dollar is strong, and brokerage accounts and money markets insured, there seems to me, to be a risk of investment loss due to an economic seizure that could take place in either the lending market place or the stock market.

If one has wealth, it is best to put it far, far away from the current financial system, safe and sound in a guarded vault, like BullionVault and GoldMoney, with an account personally at streetTracks Gold Trust, and in physical possession of gold coins.

State corporate rule was rejected by both the currency traders and the stock investors today
Gaius Marius relates in article Dictatorship Of The Treasury relates that the banking system is being nationalized piecemeal and that the facility of TARP is nationalization of the financial system.

I say that the announcements of our leaders Ben Bernanke and Hank Paulson relate a political and economic coup, for the purpose of establishing state capitalism, that is state corporatism.

John writes in The Beast Arises Through Economic Crisis: "By using monetary inflation as a sapping device, the FED is knocking down the few federalist pillars that, at least in theory, separated the various layers of government. It is also preparing to nationalize key segments of the commercial economy. All of this is being done through the FED’s New Deal era “emergency powers” to extend “credit” to any entity it chooses, whether governmental, commercial, or “public-private partnership.”

The revolution of 1913-1933, which inflicted the Federal Reserve, income tax, and the New Deal apparatus upon the United States, left us with a system Mussolini described as a “corporate state,” more commonly known as Fascism.

Admittedly, the American version was milder than most, at least domestically. The Revolution of 2008 is consolidating the elements of that system into a monolithic, unitary State of the sort Lenin and his heirs would applaud.

The creation of the Federal Reserve in 1913 was a partial enactment of the fifth plank of the Communist Manifesto, which called for creation of “a national bank with State capital”; last week, with the creation of a de facto economic dictatorship under the Secretary of the Treasury, Congress implemented the other key element of that plank, “centralization of credit in the hands of the state.”

Approval of the new economic dictatorship was the irreducible purpose of the so-called Economic Stabilization Act, which — true to the measure’s pedigree of grandly named government interventions — has summarily failed to stabilize the economy.

The $700 billion disbursed by the bill was a trifle, in light of the magnitude of the debt flood to be “bailed out” and the ability of the FED to create what it’s pleased to call “money” in any amount it chooses. But that relatively trivial amount was enough to create a constituency for the bill not only on Wall Street, but also in statehouses, city halls, and wherever else the Horseleach’s Daughters convene.

With both the corporatist and political elements of the parasite class enlisted to support the revolution, all that remained was the neutralize the productive class — the common people, who found ourselves on the bad end of what the reliably perceptive Chris Floyd calls “one of the largest single redistributions of wealth since the Bolsheviks seized power in Russia in 1917.”

Unanimity is, almost without exception, a bad thing in politics. The near-unanimity of the electorate in rejecting the Wall Street “bailout” measure is one of those incalculably precious exceptions. In the teeth of this near-unanimity, Congress — led by the Senate, supposedly the more deliberative chamber — took the rejected bill, an austere 3-page Enabling Act for the economic dictatorship, plumped it up with several hundred pages of bureaucratic boilerplate and undisguised pork, and passed it four days later.

Bribing a Congressman is generally about as challenging as seducing Catherine the Great. Getting the institution to surrender its institutional control over the public purse was a bit more difficult. Some Congressmen — well, at least one, perhaps two or three others — recalled their duty to their constituents, as well as their constitutional mandate to control the public purse, and held fast. Many others opposed the Enabling Act/Plutocrat Bailout because of simple terror over the prospect of immediate unemployment.

But in this case, bribery was coupled with undisguised official terrorism — the use or threatened use of violence to achieve a radical change in the political system.

As Brad Sherman, a Democratic Congressman from California, testified in a remarkable address on the House Floor — an address the likes of which will soon be punishable as sedition — that representatives of the Regime candidly informed recalcitrant congressmen that refusal to pass the Enabling Act would result in nothing less than “martial law in America.”

The problem with that explanation, of course, is that the Bush Regime is actively preparing for martial law. So is the German government. So is the British government. Most likely, so are other governments throughout the Euro-Zone, and everywhere else central banks are still coupled to the rapidly disintegrating dollar.

There is no way we can honestly construe the comments reported by Rep. Sherman as anything other than a legitimate, credible threat to accomplish, through a coup de main, what Congress was being ordered to do: Surrender its power over the purse to an executive branch department that is an appendage of Wall Street".

I relate that laissez-faire capitalism is dead. The Milton Friedman neoliberal free-market ideology that enabled securitization of auction rate securities, CDOs, subprime mortgages, and monoline bond insurance, is history. The age of financial neoliberalism, whose claim was that modern global financial markets would provide for stability and growth, is over. The University of Chicago Professor's policies have only resulted in destabilizing speculation, spectacular asset deflation, runaway product price inflation, and enslavement of Americans to debt and the taskmasters of government and banking.

The currency traders, with funding coming from 0.5% interest loans from the Bank of Japan, sold the EUR/JPY short, inducing those invested in stocks to sell ... FXE:FXY

And for short sellers, it was like shooting ducks in a pond; it was simply "click and shoot" to amass amazing returns. But beware, those who play with fire and financial alchemy, often get burned badly. There could come a liquidity run where brokerages globally will shut down without warning; and the day trader, and those still invested there, awaken to find their funds frozen like those in Iceland's banks: one may not always have full and immediate access to one's funds held in brokerage accounts.

The lending markets continued in freeze over mode: The Ted Spread traded at 4.3 which suggests that a total world wide financial collapse is imminent.

It is important to understand that there is no, repeat no commercial lending going on at the current time. Chan Sue Ling in Bloomberg article Shipping Lines Say Tight Credit Cutting World Trade relates that German banks with funds to lend are offering about 200 basis points above Libor, double previous rates, while in Singapore the rate is plus-350 points, according to Tobias Koenig, managing partner of Koenig & Cie. In the main though, shipping lines aren't able to borrow, he added.

``There is no rate because all banks are closed for business,'' he said. ``You have a few banks rescuing their best customers, but that's it.''

More than two-thirds of 104 bankers polled said they were unable to obtain funding at or close to Libor, according to an October survey by trade publication Marine Money Asia. About 80 percent expect shipping bankers will not be able to raise enough financing for clients this year and next, the survey showed.

``There are a lot of banks that will do deals today but they will do it on a bilateral basis with good clients, which they have long relationships with,'' Tom Zachariassen, an executive at Nordea Bank, said yesterday.

Libor, set by 16 banks in a survey conducted by the British Bankers' Association each day in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. The cost of borrowing in dollars for three months fell 12 basis points to 4.64 percent yesterday.

I relate that the Federal Reserve will be unable to stimulate lending in the marketplaces and the credit gridlock, that is, the lending gridlock, will continue for a number of reasons:
1) the banks know they are walking dead men, and simply want the TARP swaps to help preserve their balance sheet.
2) they are aware the consumer is tapped out and overextended and at risk for non payment of loans.
3) they want to preserve capital as they and their customers have exposure to settlement of credit default swap derivatives on Lehman Brothers and others.
4) there is no trust between lender and debtor as the fair value accounting rule of the SEC, and the mark to market provisions of FASB 157 have been thrown out the window.
5) there is an awareness that the CPFF facilities are for the top tier Fed invested nine banks.

The municipal bond market has seized up again, and the municipal bond ETFs and mutual funds will be falling awesomely lower in value, as a run on these gets underway.

States and municipalities are going to dramatically reduce payrolls. Funding for new projects cease will cease, and countless municipalities will be going into foreclosure. Only the most basic of services, such as a low level of law enforcement, will be provided.

Corporations, finding the commercial paper market place shuttered, are in a desperate way. They lack the cash on hand to cut payroll and accounts payable checks, buy raw materials, and order ongoing services, and as such are going to quickly close. Others finding lending closed, are not going to be able to refinance debt, and will fail, and go into bankruptcy.

Investment grade debt traded flat ... LQD

Junk bonds, HYG, fell 4% ... HYG

The municipal bond market, MUB, fell 3% ... MUB

Eddy Elfenbein relates today's carnage: "The Dow dropped today by 733.08 points to close at 8577.91. That's a loss of 7.87%. By percentage, this was worse than both October 9 (-7.33%) and September 29 (-6.98%). This was the worst day for the Dow since October 26, 1987, and it was the ninth-worst day ever".

Charts reflect the days transactions:
The gold ETF, GLD, traded slightly up to its 50 day moving average ... GLD

Gold, $GOLD, traded slightly down at its 50 day moving average at $840 ... $GOLD

The US Dollar, rose slightly to $82.09 ... $USD

US Treasuries, TLT, rose slightly to their 50 day moving average at 95.01 ... TLT

Oil, USO, fell 6% on an unwinding yen carry trade, that is, on a falling EUR/JPY. The media is reporting that oil is falling on grim economic data; however this is only partially true. Oil, like the stocks, are being driven lower by a falling yen carry trade, better termed euro carry trade. One of the greaest economic stories never told is that the Euro, FXE, as well as the other commodity currencies such as the Australian dollar, FXA, and the Canadian Dollar, FXC, in carry trades have carried stock values in great waves of gain and loss ... USO

Energy producers, XOP, fell 18% ... XOP

Energy services, OIH, fell 17% ... OIH

Metal and mining manufacturers, XME, fell 17%. Rio Tinto announced it is cutting production at some of its aluminum smelters in response to slowing Chinese growth. Rio Tinto chief executive Tom Albanese declared that the Chinese economy “is pausing for breath after spectacular GDP growth.” Shares in the mining giant plummeted by 16 percent in response to the announcement. Other energy and commodity firms’ stock also fell yesterday, including Alcoa (down 12.8 percent) and Exxon Mobil (14 percent) ... XME

Real estate fell 14% ... IYR

Real Estate REITS, RWR, fell 13% ... RWR

BRICS, EEB, fell 18% ... EEB

Emerging Markets, EEM, fell 16% ... EEM

World shares EFA, fell 11% ... EFA

The Nasdaq, QQQQ, fell 9% ... QQQQ

The Russell 2000, IWM, fell 9% ... IWM

Gold and gold alone is the measure and means of wealth preserving wealth in a deflationary investment world
David N. Vaughn relates in A Coming New Currency!, the Alf Field statement: "The resulting massive creation of new liquidity would destroy or vastly reduce the purchasing power of currencies as we know them today" ... "The assets in the most secure category at the tip of the inverted pyramid are gold and silver bullion, assets that have performed the function of protecting wealth throughout the ages. In the layer above the precious metals lie the companies that mine and hold large deposits of gold and silver".

Adrian Ash presents the question Why choose gold when the Fed lowers the central bank interest rates.

I recommend that one be invested in gold, because of financial system instability, lack of liquidity and because of possible inability of the US government to make good on its surety promises of insuring bank accounts, brokerages, money markets and now commercial paper. I recommend diversification of investment in gold in four locations immediately, yes immediately: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins purchased from sources like Kitco.com.

The end of monetary expansion ends in all things being rented to the central bank
Elaine Meinel Supkis in article Burns, Nixon, Gold And The New World Order Chinese relates "US government debt is now the ONLY really solid 'reserve' left as the Federal Reserve sells or rather, gives away, Treasuries in return for useless 'assets' which no banker in their right mind considers to have any realistic future value at this point. But the Treasuries themselves are drawn up against the biggest pool of potential wealth on earth: the accumulated holdings, belongings and future earnings of the American People, themselves!

Germany ended its monetary hyper-inflation collapse very simply: the government declared that all things in Germany were now going to be RENTED TO THE BANKS via fiat. The new currency was called, 'Renten Mark' which was a huge change from 'Reichsmark.' Governments can do this! When Germany finally went bankrupt less than 10 years later, all Germans were bankrupt. This total bankruptcy was dealt with very severely: the rise of Hitler and fascism coupled with the open looting first, of the Jews, then of all of Europe".

I relate that the United States is continuing down the same path as Germany, that is the end of monetary expansion ends in all things being rented to the central bank: all different types of debt is now being swapped out by the banks for US Treasuries as is seen in the US Federal Reserve Press Release of October 13, 2008.

Because of this, there will be a run on the US Treasuries, TLT, producing a rise in interest rates, $TNX, and a sell off of the US Dollar, $USD, especially through the currency traders obtaining 0.5% interest loans from the Bank of Japan, and going short the USD/JPY and short the USD/CHF. This will cause gold to rise in value. And US stocks, VTI, will continue to tumble lower in a death spiral together with the world stocks, EFA.

To address an ongoing dearth of liquidity and financial instability, the world bankers will institute a new international financial architecture, which see the rise of a global monetary authority, which will institute unified regulation of banking globally.

Soon there will be no national seigniority, as sovereign nations and their constitutions become history, as principles of global governance work through regional economic and security pacts or agreements; and these will serve as the basis for regional currencies. The US Dollar will be replaced with the Amero for purposes of commerce and trading in the North American homeland.

A world banker, a Seignior, meaning top dog who takes a cut, will arise to take charge of finance, banking, commerce and trade world wide. He will install a global seigniorage wealth and commerce system. This individual will have such a commanding way that interest rate differentials between nations and regions will disappear. All seigniorage will come and go through him: all sovereign wealth funds, and banks will report to him.

Once financial institutions fail, and stocks and bonds fail, and currencies totally burn out, the principle that "the end of monetary expansion ends in all things being rented to the central bank" will compel the Seignior to institute a one world currency system which is based upon the "mark" which comes from the Greek word charagma meaning "etching in", or "tattoo upon", or "stamp", or "badge of servitude", which enables one to conduct economic activity, and which authorizes one to receive economic benefits; the mark will be required in order to buy or sell.

Between the soon coming world leader, the Sovereign, and the world banker, the Seignior, they will own the world "lock, stock and barrel".

The Bible prophecy of Revelation Chapter 13 foretells the future
I. Introduction
The Apostle John wrote from prison, on The Isle of Patmos about 90 AD, the Revelation Of Jesus Christ, the last book of the Bible, which foretells those things which must shortly come to pass: meaning a series of events that once they begin, fall quickly into place one right after the other.

II. Revelation Chapter 13 tells of three separate beasts which rise to sovereignly direct mankind's activities (1).
A. Revelation 13:1-4 tells of a sovereign system which directs all of mankind's activities through seven institutions and ten regions of global governance.
B. Revelation 13:5-10 tells of a sovereign king, that is a monarch, who has sovereign power and authority to rule.
C. Revelation 13:11-18 tells of a globally sovereign religious leader and banker
He is the Seignior, meaning, top dog who takes a cut; in modern day terms, an investment banker, he is also the world's religious leader, and via investment and commerce connections institutes a global seigniorage wealth and commerce system (2).

This individual will have the financial experience or connections of CFR Co-Chairperson Robert E. Rubin or a John Paulson or a George Soros or a Tony Blair.

Photo of Treasury Secretary Robert Rubin, Treasury Secretary, and Alan Greenspan, the Federal Reserve Chairman, at a House Hearing in 1995 Photo by Stephen Crowley of The New York Times from the article The Reckoning Taking Hard New Look At A Greenspan Legacy by Peter S. Goodman who said of Alan Greenspan: "And his views held the greatest sway in debates about the regulation and use of derivatives, exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street.

“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

III. Verse Commentary

13:11 another beast This is a third of three beasts, who is preceded by the beast system, and the beast political leader; this beast promotes the power of the former two; and convinces the world to worship them both. He is called 'false prophet' in Revelation 19:20 and Revelation 20:10.

13:11 out of the earth Just as the Antichrist is the embodiment of Lucifer, Satan, the Devil, the false religious leader will be sent forth and controlled by a demon from the pit of hell.

13:11 two horns like a lamb This describes the relative position of the false prophet compared to the beast system which has ten horns. The word horn in scripture symbolizes authority; and lamb symbolizes peacefulness: He uses his position to adeptly resolve global economic, religious, political and natural resource conflicts. Yet his outward gentleness belays his real deceptive dealings to lord it over mankind.

13:11 like a dragon He has a commanding way.

13:12 exercises all the authority of the first beast This oracle yields all the power and influence of the beast system.

13:12 causes The word causes is used eight times of him. He yields influence to establish false world religion, which is Luciferian in nature: he entices and induces to eventually dominate the world.

13:12 to worship People are compelled to accept and worship, both the beast system, and the beast world leader.

13:12 whose deadly head wound was healed This refers to a catastrophic global financial breakdown.

13:13 great signs The words 'great signs' is used of Jesus in John 2:11 and John 2:23 and John 6:2. He works false miracles which cause the world to accept the beast system and the the Antichrist.

13:14 make and image to the beast He directs construction of a symbol, that is, a representation of the beast system.

13:15 speak The image of the beast system communicates, which is contrary to what is normal of idols.

13:15 causes to be killed His gentle appearance is a lie, he is a killer.

13:16 a mark He introduces a seigniorage system which is based upon the "mark" which comes from the Greek word charagma meaning "etching in", or "tattoo upon", or "stamp", or "badge of servitude", which enables one to conduct economic activity, and which authorizes one to receive economic benefits; the mark will be required in order to buy or sell (3).

All seigniorage comes and goes through him: all sovereign wealth funds, and banks report to him. There is no national seigniority, as sovereign nations and their constitutions are history, as principles of global governance working through regional economic and security pacts or agreements exist; and these serve as the basis for regional currencies.

His religious and economic power complements the military and political power of the sovereign king; and between this false prophet and the Antichrist, they own the world "lock, stock and barrel".

IV. Footnotes.
(1) Sovereignly means to rule in a monarch fashion; sovereign means to rule powerfully and authoritatively; the word came into use in 1250 to 1300. Dictionary.com

(2) Seigniorage means top dog bank note system, and comes from the Scottish and Bank of England financial system which was devised to maintain the value of currency The History of Seigniorage Wealth Elaine Meinel Supkis February 7, 2008 Money Matters Blog

(3) David Deschesne Editor, Fort Fairfield Journal, A Mark in the Right Hand or in their Forehead, Fort Fairfield Journal, July 6, 2005 in his explanation of Revelation Chapter 13:16-17.

V. Revelation Chapter 13, Holman Christian Standard Bible
The Beast System Arises Out Of The Mass Of Humanity To Direct And Rule All Of Mankind's Activities.
1 And I saw a beast coming up out of the sea; he had 10 horns and seven heads; on his horns were 10 diadems, and on his heads were blasphemous names.

2 The beast I saw was like a leopard, his feet were like a bear's, and his mouth was like a lion's mouth; the dragon gave him his power, his throne, and great authority.

3 One of his heads appeared to be fatally wounded; but his fatal wound was healed; the whole earth was amazed and followed the beast.

4 They worshiped the dragon because he gave authority to the beast; and they worshiped the beast, saying, "Who is like the beast? Who is able to wage war against him?"

The Sovereign King Rules For 42 Months.
5 A mouth was given to him to speak boasts and blasphemies; he was also given authority to act for 42 months.

6 He began to speak blasphemies against God: to blaspheme His name and His dwelling—those who dwell in heaven.

7 And he was permitted to wage war against the saints and to conquer them; he was also given authority over every tribe, people, language, and nation.

8 All those who live on the earth will worship him, everyone whose name was not written from the foundation of the world in the book of life of the Lamb who was slaughtered.

9 If anyone has an ear, he should listen:

10 If anyone is destined for captivity, into captivity he goes; if anyone is to be killed with a sword, with a sword he will be killed; here is the endurance and the faith of the saints.

The Sovereign Banker Institutes The Mark, Greek Word Charagma, Meaning Etching In Or Tattoo Upon, Which Is Required In Order To Buy Or Sell.
11 Then I saw another beast coming up out of the earth; he had two horns like a lamb, but he sounded like a dragon.

12 He exercises all the authority of the first beast on his behalf and compels the earth and those who live on it to worship the first beast, whose fatal wound was healed.

13 He also performs great signs, even causing fire to come down from heaven to earth before people.

14 He deceives those who live on the earth because of the signs that he is permitted to perform on behalf of the beast, telling those who live on the earth to make an image of the beast who had the sword wound yet lived.

15 He was permitted to give a spirit to the image of the beast, so that the image of the beast could both speak and cause whoever would not worship the image of the beast to be killed.

16 And he requires everyone—small and great, rich and poor, free and slave—to be given a mark on his right hand or on his forehead,

17 so that no one can buy or sell unless he has the mark: the beast's name or the number of his name.

18 Here is wisdom: The one who has understanding must calculate the number of the beast, because it is the number of a man. His number is 666.

VI. Further reading on Revelation Chapter 13
For continued reading on Revelation Chapter 13, I recommend: Beast System, Sovereign, And Seignior To Rule Mankind, Bible Reveals

My personal application
I believe that God is Sovereign, and as such from eternity past, foreknew, foresaw, and worked out today's events; everything is working out according to his foreordained plan.

While some reference the rule of law, and others the rule of men, I reference the Word, Will and Way of The Lord; and what ever comes of that so be.

I do as I am commanded by the Lord, I keep the 'Luke 21:36 Watch', that is, I watch and pray always that I might be accounted worthy to escape all these things (the end time horrors) that are coming, and stand before the Son Of Man.

Clearly, the liquidity meltdown that began September 11, 2008, when the banks discovered that they could not issue stock and raise capital, is intensifying. (It was at that time they quit lending and gold soared from $750 to its current price of $850).

Rising exposure to settlement of credit default swaps is draining liquidity out of the financial system faster than the central banks pour it in.

All liquidity added to the system is trapped, and evaporated, or better said, discharged from the system as soon as it is added to settle credit default swap liabilities.

The governments of the world must stop their wasteful adding of liquidity immediately, as they are burdening the taxpayers with debt, debt and more debt. Austrian economist Mike Mish Sheldon "tells it like it is": You cannot patch a busted dam with water

They are enslaving mankind to the financial organizations of the world and their derivatives; definitely these are weapons of financial mass destruction.

The Gaius Marius article It's Lehman CDS Settlement Day relates: "Based on the results, sellers of protection may need to make cash payments of more than $270 billion, BNP Paribas SA strategist Andrea Cicione in London said.

No one knows exactly how much is at stake because there's no central exchange or system for reporting trades. It's that lack of transparency that has increased the reluctance of financial institutions to do business with each other, exacerbating the global credit crisis and prompting calls for regulation of the market. More than 350 banks and investors signed up to settle credit-default swaps tied to Lehman.

The list of participants includes Newport Beach, California-based Pacific Investment Management Co., manager of the world's largest bond fund, Chicago-based hedge fund manager Citadel Investment Group LLC and American International Group Inc., the New York-based insurer taken over by the government, according to the International Swaps and Derivatives Association in New York".

I suggest a re-read of the Gaius Marius statement: "It's that lack of transparency that has increased the reluctance of financial institutions to do business with each other." The fallout is that of credit gridlock, that is lending gridlock, where the lending marketplace is shut not only by the bankers but by the debtor and lender not coming to the table to do business.

There are a number of terrible consequences of the current lending crisis;
1) There is a fall in the value of the debt instruments such as the credit ETFs ongoing Yahoo Finance Yahoo Finance Chart of CVY, HOG, HYG, JNK and LQD ... CVY, HOG, HYG, JNK, and LQD

While the Federal Reserve announced the CPFF facility; it will be too little too late; and will only work to a limited degree with and for corporations that will be integrated into the government.

2) There is a fall in the value of emerging market bonds, EMB; it fell 5% today, making for an average of 2% per day this week ... EMB

3) The rise of the US Government as the sole lender; that is the sole provider of capital; this means capitalism is dead; and can only lead to state corporatism, that is state corporate rule in the extreme; and a situation where the Federal Reserve is the bank of banks.

4) There is coming with days, at the most, weeks, 'a financial blackout', where all of a sudden the corporations will have no short term capital, that has traditionally been provided by the commercial paper marketplace. This means there is not going to be money and liquidity to make payroll, cut account payable checks, let alone roll over maturing debt, or make capital imporvements.

5) A meltdown of the municipal bond market place as is seen in the daily fall this week in value of MUB of about 2 percent. There has been no CPFF type of facility announced by the Federal Reserve for the municipal bond marketplace; and one may not be forthcoming. Therefore, I anticipate an implosion in the muncipal bonds arena, with municipalities and states having to lay off, municipalities going bust, and a run on the municipal and tax free bonds and mutual funds by investors.

The Fidelity Massachusetts Municipal Income Bond Fund, seen here in the ongoing Yahoo Finance Chart of FDMMX compared to MUB and CMF which shows the ongoing decline since September 11, 2008 ... FDMMX, MUB, CMF

Suggested Reading
The Purpose Of Modern Capitalist Banking Systems Is To Create Increasing Debt And Not Increasing Wealth

Charts show the loss of value in commerical paper instruments which is the result of the 'cardiac arrest' of trust between lender and debtor that occurred on September 11, 2008, that is 9-11-2008, when the banks found they could not sell stock to raise capital; the banks simply stoped lending:
1) The ongoing Yahoo Finance Yahoo Finance Chart of CVY, HOG, HYG, JNK and MUB ... CVY, HOG, HYG, JNK, and MUB

2) The ongoing MSN Finance Chart of CVY, HOG, HYG, JNK, and MUB ... CVY, HOG, HYG, JNK, and MUB

Higher interest rates document a liquidity gridlock and a lending gridlock
Liquidity has dried up as is seen in the chart of The Ted Spread being at 3.55.

Karthik presented the chart of the 30 Day A2/P2 Nonfinancial Commercial Paper Interest Rate on 9-20-2008 which shows that credit is expensive and available only to the best of companies.

Here are the Commercial Paper Rates from the Federal Reserve

The result is a silent neutron bomb both in the municipal bond market place and in the commercial lending marketplace.

Municipaliities and corporations are soon going into shut down mode because they lack short term financing to meet payroll and cut accounts payable checks and commit purchase orders for services, consumables and raw materials.

And on October 3, 2008, the mark-to-market, that is the fair value accounting rule, was tossed out the window.

Now CPAs must bow to the holder's of debt assumption as to the value of assets, that is value of debt, kept on the holder's books; this being documented by
a web page from from the Michigan Association of Certified Public Accountants which relates:
FASB Issues Proposed Staff Position on Fair Value
Early last week, the Financial Accounting Standards Board and SEC jointly provided guidance on the application of fair value measurements in the current market environment. Then, on Friday, Oct. 3, the FASB issued additional interpretative guidance in FSP FAS 157-d, a proposed Staff Position to amend FASB Statement No. 157, Fair Value Measurements. Comments on the FSP must be received in writing by October 9, 2008.

From FASB website FSP FAS 157-d PDF document relates: Proposed FSP on FAS 157 (FSP FAS 157-d) Notice for Recipients, Notice for Recipients of This Proposed FASB Staff Position: This proposed FASB Staff Position (FSP) would amend FASB Statement No. 157, Fair Value Measurements, to clarify its application in an inactive market by providing an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. Application issues addressed by the proposed FSP include: a. How management's internal assumptions (that is, expected cash flows and appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable data do not exist.

Great Depression II is on the way
A major theme of this blog is to communicate The Liquidation Thesis which holds forth two principles: One, irredeemable debt and unfunded retiree benefits, must be liquidated, that is done away with. Two, government services and payments as well as service sector jobs, of all types, being unsustainable, must be and will be done away with as well.

Although the Federal Reserve has provided the facility of CPFF, it will be too little, too late. When things get real bad, they will be able to say "we did all we could do". CPFF sets the stage for tight integration of the Federal Government and key industries in state corporate rule, that is corporatism, over the people of North America.

I recently wrote to communicate that the impending downturn is going to be worse, much worse, than the 1929 to 1932 Depression, it is going to be sheer desolation: A Lending System Cardiac Arrest Means Economic Desolation

The World's Financial System Collapsed Today ... This Event Was As Foretold In Bible Prophecy
Gold and US Treasuries rose as stocks fell on shuttered lending markets as trust between lender and debtor remained frozen.

Today's collapse of the world financial system was foretold in bible prophecy in Revelation 13:3.

US Treasuries, TLT, are likely peaking as stocks in the US, VTI, and the world, EFA, fell as currency traders sold the yen carry trade, EUR/JPY, short, which caused oil, USO, to fall 5%.

Gold, $GOLD, rose to close at $860, above its $850 moving average, on news that lending markets remained shut. The fact that gold rose on a falling Euro documents the investment demand for gold far beyond the recent rising price of gold relative to world stocks, US Stocks, and currencies.

The only lending that is taking place now is the US government selling US Treasuries, TLT, BTTRX, and SHY.

The US Dollar, $USD, rose on a sell off of the Euro, FXE, and other high yielding currencies, which can be seen in the 7% fall of the currency harvest DBV. The Prudent Investor in Seeking Alpha article Global Margin Call Underway relates: "Financial news has been coming fast and furious in the past four weeks, taking the nationalization of Frannie as a starting point for the worst turmoil any living market participant has experienced in his/her life. What we have seen since can only be called monetary madness, where central banks and governments ultimately saddle more than one generation of citizens with debts for the rescue of a financial system that ultimately cannot be successful by generating still more debt.

It has become almost impossible to follow all the inflationary measures disguised as "liquefying operations" by monetary authorities. At the same time, governments begin to blow up future inflation expectations with their unlimited guarantees of savings deposits that have a good possibility of blowing up in their face.

Socialism for the haves has become commonplace almost overnight in Europe. After Ireland and Greece, governments in Germany, Austria, Denmark, Sweden and the UK followed suit in a move to reassure savers that their money is safe in the bank. We can be confident we will hear similar announcements from more countries in the near future.

Not even bankers agree in private that this is the case, being grateful that the non-financial world is still not aware of the debt Himalaya that starts crashing upon the world and has not yet led to a massive run on continental European banks which are bleeding on all ends.

Central banks meanwhile keep trumping themselves over who will create more money without a correspondent value. But the pinstriped inflationistas have only a single strong card left in their hands. It is the card of public ignorance and the blessing that nobody can remember the last period of hyper-inflation.

This will change as soon as the public will see that the next bank run will not be the last one. At this point in time, the banking crisis will have become toxic for the broad economy.

Anything real estate related, insurance companies and the leisure sector will feel the pinch next, either from hard to get credit, or falling bond prices, or the disappearance of disposable income due to rising prices. Do not mistake the current correction in commodities as a bear market. It is simply another result of the global margin call taking place right now.

Climbing spreads in the fixed income markets show the dichotomy between market reality and the wishful thinking of central bankers who increasingly lose power over their only tool, establishing leading interest rates for the short end of the market. The game can go on as bankers and investors are so foolish to accept negative real rates. This behavior will stop soon, once the tightening continues. And I see no step so far that is designed to restore confidence in a market where participants would like to adapt accounting rules to converge with their wishful thinking.

(It was tragic that the SEC withdrew the fair value accounting rule on October 2, 2008.)

Sorry, the signs have been on the wall for at least four years. Money supply and debts first grew in the USA and the EU and this dangerous policy was followed by countries at such diverse stages of development as China, India and Russia, (the BRICS, EEB) which are all fighting the same inflation problem by now.

The avalanche of cheap credit pumped out by central banks (especially the Bank of Japan at 0.5% interest) does not reach the broad economy and consumers in Europe anymore as banks scramble to improve their balance sheets. This may become a roadblock for the ailing economy, already limping ahead at growth rates that fall within the statistical margins of error.

As all measures since August 2007 have not helped to alleviate the crisis, we probably have to get ready for a very brute and nasty crash that will do what a crisis is here for: to cleanse out the weak part of the economy and start again with a clean plate. I know this euphemism does no justice to the economic contraction which will cost many their lifestyles, as they have come to know them.

(I've been relating the Liquidation Thesis here on my blog for quite some time; it holds forth two principles: One, irredeemable debt and unfunded retiree benefits, must be liquidated, that is done away with. Two, government services and payments as well as service sector jobs, of all types, being unsustainable, will be done away with as well.)

But no authority in the world has ever been able to prevent a depression by decree or by printing money in limitless amounts. It only fueled inflation further, without any historical exception. Don't think it will be different this time. All economic and financial indicators have long surpassed the toxic levels that led to the 1930s depression. Oh yes, one thing will be different: This time it will be global.

Gold is the only genuine and lasting financial safehaven.
Ambrose Evans Ambrose Evans-Pritchard relates: "We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars".

Charts relate today's financial collapse and the rise of gold
TLT Weekly ... TLT Daily ... popped up to 99.17; this is likely a top, as it is a pop, to the range of a former pop.

BTTRX popped up to 61.

SHY popped up to 84.20.

EURJPY shows the unwinding of the yen carry trade, better termed the euro carry trade.

Stockcharts.com shows the EUR/JPY, FXE:FXY, falling massively.

$USD closed up at $81.73.

Dollar bull ETF, UUP, rose.

EURUSD shows the fall of the Euro.

The world currency ETF, DBV, shows the collapse of the world's currencies -- they all sank; soon the US Dollar will collapse and follow them into The Abyss.

Gold, $GOLD, rose above its 50 day moving average to close at $860.

The gold ETF, GLD, popped to resistance at $84.28; its direction very well could be down, before it moves higher to $1,000 and possibly beyond.

A rising ratio of gold relative to world stocks, GLD:EFA, to US Stocks, GLD:VTI, to commodities, GLD:RJI, to currencies, GLD:DBV, the Euro, GLD:FXE, documents that gold is the investors safe haven.

The fall of the Euro took the greatest toll in the natural resource heavy emerging markets
EEB -9%
EEM -8%
SEA -12%
MOO -10%
SLX -8
OIH -7%

Polya Lesova, MarketWatch of MarketWatch relates in article Emerging markets plunge, confidence breaks down that the sell-off "clearly erases a lot of the growth that these markets have provided in recent years," said David Riedel, president of Riedel Research Group. "It indicates that investors are questioning the outlook for global growth and are unwilling to take any risk in their portfolios."

The year-to-date losses for all the BRIC markets are dismal. Russia's RTS index has tumbled 62% this year, making it the worst performer among major global emerging markets.

The Shanghai Composite index is not far behind, with a loss of 59% this year. The Sensex index has dropped 42% and the Bovespa index has fallen 34%.

High-yielding, emerging-markets currencies fell sharply against the U.S. dollar, as rise in risk aversion led traders to unwind carry trades.

The Brazilian real tumbled 7% against the dollar, the South African rand fell 4% and the Turkish lira dropped 5%.

In the debt markets, EMB, the EMBI+ spread index soared 49 basis points to 486 basis points, according to data from RBC Capital Markets.

A number of regional banks fell sharply
Here is the Yahoo Finance chart of a sample of five regional banks which took a tumble NCC, SAMB, WBNK, TBHS, FFSX. Cleveland, Ohio, National City Corporation, NCC, is at the epicenter of the subprime lending debacle; it lost 27% today ... NCC, SAMB, WBNK, TBHS, FFSX ... NCC

The Emergency Economic Stabilization Act, EESA, privatizes profits for the elite, and socializes loses and risks to the taxpaying public and enslaves the nation to the banker's debt
To quote Elaine Meinel Supkis again: "A lot of money is being 'lost' today and nothing irritates people more than losing money. But the problem isn't money at all. If that were so, all we need to do is print more money and then give it back to everyone who lost money! HAHAHA. And frankly, this is the solution everyone wants. A government insurance program that lets people make money any old way but if these things have ANY risk of losing money, the governments step in and restore the losses?

Well! This sort of communist system for the very rich is stupid. First, it causes incredible inflation. Eventually, money becomes meaningless. The entire 'reward' system is totally predicated on the possibility of LOSSES. If there are never losses, the whole thing becomes one big, mushy mess. Why bet on the stock market if you can simply pay some politicians to hand out money at various intervals? The entire US tried this recently. To boost the economy, the government mailed out all those checks. Nearly the entire amount was eaten by a tsunami of inflation.

Now that the money was sucked up, prices of necessities are now falling again. What a shock! If Wall Street can't tolerate losses, the government should outlaw the sales of stocks. Already, they are outlawing shorting of stocks. Next, they can outlaw selling and indeed, there are triggers to market failures. Lose more than 10% value and the markets close. Period.

Liquidity is being trapped and vaporised by short selling, a purchase of yen to repay carry trade loans, a flight to safety in US Treasuries and gold, and a flight out of debt instruments across the board.
Elaine Meinel Supkis in article Global Meltdown Meets Earthquakes and Extinction News presents the BIS Locational Banking Statistics which document the massive resource of the Yen Carry trade, that is Total Yen Bank Claims On Non-Banks Outside Japan and Net Cross Border Claims Of Banking Offices In Japan.

Facilities of TAF, FSLF and PDCF failed on May 19, 2008, as currency traders increased their shorts on the EUR/JPY and on stocks, with funding at 0.5% interest from the Bank of Japan, while awaiting the announcement of the minutes of the May BoJ meeting, which related that inflation was a risk concern.

In response to those minutes, and in response to diminished growth opportunities in the emerging markets, especially the BRICS, yen carry traders sold their investments and went net short.

Not only did the US facilities fail, but beginning with Peak Currencies on July 25, 2008, all injected liquidity began to be immediately vaporized by the yen carry traders going massively short the EUR/JPY; this has intensified with successful shorting of other currency pair crosses, such as the USD/JPY and the USD/CHF.

On September 11, 2008, the lending markets froze up as a lack of trust between lender and debtor arose when the bankers found they could not sell stock to raise capital. It was at this time thaat gold broke out, rising to briefly go above $900. Ever since there has been a liquidity run on debt instruments and municipal bonds, leaving California Governor Arnold Schwarzenegger to ask for a US Treasury loan.

The yield curve explodes higher
The yield curve had been steeping it exploded higher as is seen in intrest rates, $TNX:$UST2Y, and in ETFs, TLT:BIL

Interest rates reflect a "so called" flight to safety in US Treasuries
The interest rate on the 30 Year US Government Bond$TYX.

The interest rate on the 2 Year Treasury bill $US2TY.

The interest rate rate on the 10 Year US Government Note $TNX

Those invested in DXKSX found they were invested the wrong way.

Banks are not lending for a number of reasons; this creates the likelihood of an economic shutdown to occur at a rate faster than it did in the 1929 to 1932 Depression
Factors why banks are unwilling to lend include:
an awareness of rising unemployment raises the risk the debtor will not repay.
an awareness of the explosive danger that derivative counterparty risk provides to debtors.
an awareness of the risk of their own exposure to default events on credit default swaps.
an awareness of that their own stock value is going to fall rapidly, thretening thier capital position, whereby they will have to close.

Mark Felsenthal of CNBC reports that the U.S. Treasury Department and the Federal Reserve are considering additional steps to support strained commercial paper markets, a source familiar with the discussions said on Monday.

Among steps under consideration would be funding a special purpose vehicle as opposed to outright purchase of commercial paper, the source said. Strained commercial paper markets are seen as a major destabilizing force in financial markets.

"The Federal Reserve and the Treasury Department are consulting with market participants on ways to provide additional support for term unsecured funding markets," the statements said.

Aiding the commercial paper market may test the limits of the Fed's authority because of the possibility of losses. One way the government could get around that constraint would be for the Treasury to provide some buffer against losses, the source said.

Daniel Kruger in Bloomberg article reports Fed Should Buy Commercial Paper, Pimco's Gross Says

Bill Gross, who manages the world's biggest bond fund, said the Federal Reserve should act as a clearinghouse to guarantee that transactions are completed and buy commercial paper to renew confidence in financial markets.

Credit markets are currently "frozen," Gross wrote in a note to clients published today on Newport Beach, California- based Pacific Investment Management Co.'s Web site. Without confidence in the markets, ``our economic center cannot hold.''

Rates on commercial paper, or short-term IOUs sold by companies, soared today and the interest banks charge each other for overnight dollar-denominated loans in London increased as banks remained reluctant to lend. Buying commercial paper would allow the Fed to make unsecured loans and encourage borrowing at rates beyond overnight levels.

Yields on overnight U.S. commercial paper jumped 94 basis points to 3.68 percent, according to data compiled by Bloomberg. Companies sell debt maturing in nine months or less to help pay for day-to-day expenses such as payroll and rent (and purchases of raw material)

My commentary here is that the banks are unlikely to reopen the commmercial paper market therefore we are going to see an economic shutdown at a rate faster than in the 1929 to 1932 Depression; by shut down I mean an immediate close up of businesses.

We have the 'mother of all lending spreads'.
Unfortunately the US is going to a zero US central bank rate; now stealthily, soon overtly.

Scott Lanman of Bloomberg in article Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut reports that the Federal Reserve may have trimmed borrowing costs yesterday without actually saying so.

The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.

``Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher".

As the US Government official rate is moving to zero, the world's interst rate as defined by the Ted Spread moved higher higher to 3.76% today; and not only that, there was no lending again today, that is, the markets remain frozen, so thus the market place interest rate is infinitely high, that is beyond measure.

The spread between the US government central bank interest rate, and the world market interest rate is 'the mother of all lending and interest rate spreads'.

French President Sarkozy called for a New World
Mike Mish Sheldon quotes Sakkozy: "Until now the solutions have appeared to be uncoordinated, so perhaps it's time for a more coordinated approach globally," said Torsten Slok, an economist at Deutsche Bank AG in New York. "It's not just the U.S. and Europe, it's banks in every part of the world."

French President Nicolas Sarkozy, who convened the Oct. 4 meeting, called for a global summit "as soon as possible" to implement "a real and complete reform of the international financial system." He said "all actors" must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said.

"We want a new world to come out of this," Sarkozy said. "We want to set up the basis for a capitalism of entrepreneurs, not speculators."

George Orwell got resurrected today as the Office of Financial Stability is announced
Some things sound both Orwellian, just like out of the book 1984, as well as Soviet, that is something right out of Stalin's time.

Deborah Solomon of the WSJ is reporting Paulson to Tap Adviser to Run Rescue Program.

Treasury Secretary Henry Paulson is expected to tap Neel Kashkari, a key adviser on whom he has come to rely heavily during the financial crisis, to oversee Treasury's $700 billion program to buy distressed assets from financial institutions, according to people familiar with the matter.

Mr. Kashkari, 35 years old, a Treasury assistant secretary for international affairs and a former Goldman Sachs Group Inc. banker, is expected to be named interim head of Treasury's new Office of Financial Stability as early as Monday.

It's quite fitting that Kashkari sounds like cash & carry.

Regarding The Office of Financial Stability: no office or officer can stabilize the embroglio that we are in; sheer chaos is here today, and will only intensify.

He will be an agent of Reality Control and he will come forth with Good Think and rally disingenuously for values such as prosperity and stability and the good of the people. His organization's policy statements and political actions will be those of Doublethink and Newspeak.

The Guardian is reporting the party's over for Iceland as its industry of securitization has failed
Almost overnight, its population became the wealthiest on Earth. Tracy McVeigh writing in The island that tried to buy the world relates that one finds that the credit crunch is making the cash disappear.

Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.

Jordan Shilton of WSWS.org reports Iceland suspends trading in bank shares as financial crisis hits Scandinavia hard.

Mark Atherton in TimesOnline relates Savers frozen out as Icesave website collapses.

Slowly but surely counterparty risk to derivatives is being reported and the toll tenderd
The Associated Press reports that ING, the Netherlands' only other financial share remaining after the nationalization of the Dutch operations of ABN Amro and Fortis, was down 10 percent (16% at end of day). Total exposure reported by the company includes €125 million (US$170 million) in exposure to Washington Mutual credit default swaps, €265 million (US$360 million) in Lehman Brothers bonds, €189 million (US$257 million) in unspecified exposure to AIG, and €311 million (US$422) in exposure to AIG operating companies.

Derivaties, are living up to their name of 'financial weapons of mass destruction' as termed by Warren Buffet, in BBC interview.

Elaine Meinel Supkis remarks "So Aegon is doomed, obviously. It takes about a week for each of these guys to go underwater. They have to wipe out all the investors holding stocks before being officially declared defunct. With Bear Stearns, the government derailed this by rescuing it all at $2 a share which was raised to$10 a share to stem a panic.

The nature of the Derivatives Beast is, when summoned, it turns wealth into nothingness. It also blows up anything it touches. This is why the list of banks and insurers that fed this creature are rapidly blowing up, quite suddenly. There is no defense. All one can do is either make the Beast illegal and arrest those who created it or let it finish its job of reversing $600+ trillion in faux bets by a horde of crazed gnomes (bankers)."

A series of bad earthquakes rattle the entire perimeter of where India is crashing into Asia
Elaine Meinel Supkis relates that today with no warning, a number of people minding their own business died this morning when a sharp series of medium-bad earthquakes rippled through the mountains being shoved so violently upwards by the Indian Plate. This plate used to be the fastest moving plate on earth but ramming into Asia has slowed it down, somewhat. But hasn't stopped it from shoving relentlessly northwards. Will India continue until it cuts Asia in two?

It is possible! This titanic force is like all forces of nature: relentless and follows its destiny and doesn't let much of anything interfere. When India split off from Antarctica, most likely after a meteorite strike of great violence there, it shot northwards and geologists still have no idea why it did this with such amazing force. When India passed over this 'hot spot', it released enough gases and lava, it changed the earth's climate and lead to a huge extinction event.

This earth is dynamic and powerful. The sun is also capricious and dynamic. We mere humans would like to think our houses, the wearing of animal skins, our technologies and our use of fire will isolate us from Nature's forces. But we can't even control forces that are TOTALLY within our own control! Yet we think we dominate this amazing planet.

Investment Application
Jim Cramer, “Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.”

I say lack of short term credit prevents the paying of invoices, paychecks, as well as means no cutting of purchase orders for raw materials, so we are going to see a quick shuttering of businesses.

I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

Shares most heavily off were as follows
RSX -18
JFT -15
ROB -13
EWJ -12
EWA -12
SEA -12
GUR -12
MOO -10
EWZ -10
EEB -9
SLX -8
INP -8
RWX -8
PUF -8
TUR -8
EWK -8
LDN -8
OIH -7
EWD -7
IAK -7
EEM -7
EZA -7
IYZ -6
IHF -6
ITB -6
KBE -6
EWI -6
RPV -5
XLF -5
RWR -5
XLE -5
EWC -5