Every government entity that reckoned it was moated from the market economy will be snapped back to "discover" risk and consequence. Let's lay out the dynamic:
1. Every government can only spend what its economy generates in surplus.
2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.
3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.
4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.
5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.
As politicians have become more and addicted to the campaign contributions of 'special interest' groups, or as Charles Biderman of TrimTabs analogizes: "The pusher owns the user", so the representatives-of-the-people are no longer. The only solution Charles sees is to change our representative form of government as we "no longer have a government of the people, for the people, by the people". In a July-4th-week inspired rant, Biderman extends from the Gettysburg address to constitutional expectations (and representative law-driven rule as opposed to military force) concluding what many know and yet are afraid to lean against: our government is "of the special interest groups, for the special interest groups, and by the special interest groups".
With today's payroll print hardly bad enough to prompt instantaneous QE (as evidenced by the weakness in gold for now) and increasing truth coming out of Europe which confirms our non-game-changing EU-Summit calls; it seems S&P 500 futures remain confident about something since they have only retraced 38% of the EU-Summit hope rally, while EURUSD is over 100% retraced, European Sovereign bond yields have retraced over 100% of the gains, Italian banks stocks have given up between 75 and 100% of their gains and across all European banks equity prices have given up 50% of their gains. So what is there left for ES? Earnings? (not so much with the number of negative pre-announcements) Housing? (hhm don't think so) Election cycle?
And in the meantime, not a peep about any bank in the US, which is ironic considering JPM, Citi and BofA are BBA member banks, and had among the lowest fixing rates during the period in question, and as Bob Diamond himself said, "everyone did it." One may almost get the impression that US regulators and politicians, gasp, have a motive to not investigate banks for not only criminal but civil malfeasance. And why should they: after all there is unlimited taxpayer money. And if that ends, the US can just print some more.
The chart below is a representation of the Establishment Survey (B.1)showing workers in the Construction of Buildings Space, aka those who, as the name implies, build buildings. At 1,213,500 workers, this was not only the lowest number of 2012, but the lowest since May 2011, and is just 2100 workers above the last decade lows. Perhaps instead of relying on the NAR's self-promotional brochures and Housing Starts data which capture if and when a shovel has met the earth, one should perhaps track how much actual demand there is for building construction workers and how many jobs this critical component of the economy creates. Sadly, as the chart below shows, not much.
UPDATE: Sell-off gathering pace now. WTI lagging a little more now at $84.6 -$1.2 and ES back at this week's lows as Gold has retraced all its knee-jerk gains
The initial knee-jerk reaction is a closing of the hope-gap between stocks and gold as S&P 500 e-mini futures are down 6pts or so from pre-NFP and Gold is up $11. Treasury yields are dropping relatively fast to the lows of their recent range under 1.56%. For now modest reactions in IG and HY credit (but markets are thin there this week). The USD is just a little weaker and WTI crude is limping lower but not spectacularly. European sovereign spreads are back at their highs.
The June Non-farm Payroll number of 80,000 comes below expectations of 100,000. Private payrolls miss even worse, at 84,000 below consensus of 106,000. Unemployment rate prints at 8.2%, inline with expectations. U-6, or broad unemployment rose from 14.8% to 14.9%. According to the household survey, jobs rose by 156,000 S/A and 1,387,000 Not seasonally adjusted. The worst news is that the number is not bad enough for more NEW QE immediately.
With the revised consensus of the NFP number due out in under 30 minutes at precisely 100,000 (because 99,963.333 and 101,492.5 are not quite as round, memorable and thresholdy), we remind readers that in June the average seasonal adjustment over the past decade comes to just over 1 million. These are 1 million jobs that do not exist but are merely added, or in June's average case, subtracted from the actual number, to make them fit a regression pattern. In other words, the marginal number that will determine whether or not we have a NEW QE will be far less than 10% of what the statistical adjustment to the actual June number itself will be.
We are at that moment in time where Greece has capitulated and it is going to be hanging or life imprisonment and Greece, eyes downward cast, is waiting for the verdict. This situation may have been long in coming but it is going to be a disaster for the IMF and for the European Union however it goes. Greece (3) will be a “moment” of that you may be assured and the announcement will be coming shortly. The forthcoming decision will be a matter of credibility in the end as the next line in the sand will hit the ECB, the EU and the IMF in a place that hurts as the last free barrier, the private investors, has been breached and is it going to be the taxpayers of Europe that bear the brunt or is it to be the nation of Greece and her people. There can be no more excuses and the fantastic charades of the past have evaporated and been found wanting. The shepherd ascended Mount Olympus and finding no temples, no gods now is descending back down the mountain and trying hard to figure out just what to say to the people. We are about to face a “Moses Moment” when the worshipping of the “Golden Bull” will no longer cut it. Stand by!
Yesterday, the ECB took the rate on its deposit facility to 0.0%. Today the money market casualities begin.
- Beggars can't be choosers after all: Greece Drops Demand to Ease Bailout Terms (FT)
- It took journalists 4 years to get that under ZIRP all banks have to be hedge funds: US Banks Taking Risks in Search of Yield (FT)
- Made-In-London Scandals Risk City Reputation As Money Center (Bloomberg)
- Merkel Approval Rises to Highest Since 2009 After EU Summit (Bloomberg)
- Judge orders JPMorgan to explain withholding emails (Reuters)
- U.S. hiring seen stuck in low gear in June (Reuters)
- Germans Urged to Block Merkel on Integration (WSJ)
- Crony Capitalism Rules: Countrywide used VIP program to sway Congress (Reuters)
- Barclays’ US Deal Rewrites Libor Process (FT)
- Cyprus Juggles EU and Russian Support (FT)
- Delay Seen (Again) For New Rules on Accounting (WSJ)
- Lagarde Says IMF to Cut Growth Outlook as Global Economy Weakens (Bloomberg)
Summit full life: One week. Literally. Last Friday morning speculation that Germany had "caved" to Mario Monti, somehow allowing beggars to be choosers, and would allow an unconditional and IMF-free rescue of Spain and Italy while the seniority of the ESM was eliminated, sending the Spanish 10 Year yield to under 6.2%. The same security is now back over 7%, where it was just before the summit, as Finland and Holland (or half of Europe's AAA-rated countries), and even Germany, made it quite clear, as we said all along, that stripping seniority of a piece of debt is far more complex than saying one wants to do it in a Memorandum of Understanding. The other thing pushing Spanish spreads wider was German FinMin spokesman Kotthaus saying that no decision on Spain can be taken on Monday as there is no Troika report on Spain bank aid yet, and that the European bailout activation, which was supposed to begin on July 9th, may be delayed until July 20. At that point it will likely be delayed again, only this time GSPGs may be trading wider than their lifetime highs of 7.285%. Finally, adding insult to Mario Monti "victory" is that Merkel's popularity rating just hit a multi-year high. So: who was last week's summit "winner" again?