The big story this past week, besides the annual State of the Delusion speech by Barack “It won’t add a cent to the deficit” Obama, was the fate of the passengers on the Carnival Triumph as their skyscraper sized ship was left adrift at sea for days without power. The ordeal at sea of the Carnival Triumph and the leadership displayed by the Carnival management and executive officers is a microcosm of our declining empire. Rather than deal with our reality, Obama chose the Carnival Cruise Line method of public relations - misinformation, denial and delusion. He has embraced the Big Lie concept as if he had created it. Our cruise of illusions and delusions is headed for troubled water. The math challenged citizens on this ship have been enjoying the 24 hour pizza buffet without the labor required to pay for the bounty. This voyage is reaching an end and the bill is coming due. The engine is on fire but the captain is telling us all is well. Eventually, everyone will know the captain lied.
From 'the resurgence of religion' to 'food price volatility', cyber-viruses, urbanization, quantum computing, and peak water, Richard Watson's table highlights societal, technological, economic, and political trends that the world faces in the next decade. And if that wasn't enough, Bain & Co.'s 'Great Eight' trillion dollar growth trends should provide some food for thought as the US enjoys its vacation (although we wonder how soon until Q1 GDP misses are blamed on not only snow in the winter but also on nationally recognized holidays resulting in completely unforeseeable economic growth deductions: after all something has to be the culprit for the secular contraction, but never, ever the Fed's ubiquitous economic micromanagement and central planning).
Chevron and Royal Dutch Shell are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector. The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years.
And by "you", we mean of course the average American worker, who according to the Census Bureau averaged a full-time income of $4,400 per month, and whose plight has been documented extensively as making less and less on an inflation-adjusted basis every year, having an ever older average age, putting off retirement indefinitely, and whose lifestyle continues to deteriorate in line with the progressive elimination of the US middle class. But for every million or so disenfranchised workers, there are a few hundred lucky ones, in this particular case interns who work at companies that pay better than the average American worker. So if you are tired of making next to minimum wage, here is your chance to start afresh as an intern with zero experience at one of these 25 companies, while probably making more than the current jobs pays.
In the 40 years or so since the end of the Bretton Woods system, we have seen competitive devaluations occur again and again. However as SocGen notes, it appears Japan just keeps coming out on the losing side. Based on Real Effective Exchange Rates (REER), Japan's currency is 80% stronger now than in 1971 while the US (and South Korea interestingly) are about 40% weaker. The Euro has remained in a relatively stable band as the rest of the world has de- or re-valued itself. The 20% or so drop in the JPY so far under Abe's guidance appears a blip on the REER radar screen compared to its peers but, at the other end of the spectrum, SocGen suggests the USD is notably under-valued on a Purchasing Power Parity (PPP) basis - even as 'the strong dollar policy' remains verbally in tact.
Despite being weeks away from the start of the driving season proper, gas prices - at the pump - have been surging recently. With premium now over $4 nationwide (over $5 in SoCal - up 25 days in a row), this is the most expensive gas has ever been for the second week in February despite gasoline being relatively well supplied. Gasoline futures have ripped higher as unplanned maintenance, refinery closings, and rising crude oil prices (seemingly more central bank liquidity-driven than middle-east tensions) have impacted wholesale price expectations (and thus retail). The 44c rise is the fastest in four years and the year-to-date surge over 12% (outpacing stocks) is almost four times faster than average. What is more worrisome is the fact that seasonally the next month or two are when the biggest price spikes occur - which coupled with the tax-hike drag, will inevitably eat into people's spending habits and sentiment.
As the European parliament attempts to create a budget and Draghi repeats how the temporary lull in European growth is merely a prelude to a growth renaissance in the second half of the year (not to be confused with the verbatim lie rehashed by European dignitaries in 2012, 2011, 2010 and 2009), it appears a few leaks of truthiness are seeing daylight in the disunion. In a shockingly frank interview, the CEO of Saxo Bank describes the Euro's recent rally as illusory and that "the whole thing is doomed," as the continent is not supported by a fiscal union. As Bloomberg reports, Lars Seier Christensen says he would be a "seller of the EUR at anything near 1.40," noting that "right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all." Confirming that the only thing holding the farce together is political not economic efforts, he sums the situation up perfectly: "people have been dramatically underestimating the problems."
I meet people that still believe that the world is fine. They believe things like:
- The US government has plenty of money.
- Government cares for its citizens.
- The economy cannot crash.
- We are not in a recession (Depression).
- The lives of their children will be better than their own.
- The government can continue to print money to fund promises they cannot afford.
Despite these untenable beliefs, these are not stupid people.
2012 Q4 GDP has been weak in G3 and indeed Europe more broadly, (however it has generally surprised to the upside in Asia), consequently, the momentum of business sentiment will be key to watch. The Euro area flash PMI, German Ifo and the Philadelphia Fed survey are released this week (the China flash PMI will be released on Feb 25). The consensus expects a further small rise in the Euro area services and manufacturing readings. The week also brings a batch of central bank commentary, where the focus will be on references to currency strength; these include the RBA minutes followed by testimony, a speech by RBNZ governor Wheeler, Bank of Thailand policy decision and Bank of England minutes. The Federal Reserve will release the minutes from the last meeting and they may contain important clues on the bias of the Committee with respect to how long it expects the current QE program to last. Additionally, the Committee may have discussed the potential merits of outcome-based guidance for balance sheet policy, which may be reflected in the minutes.
The tender (and doomed to fail) truce obtained several months ago between miners and platinum mining companies is formally over, following reports from Johanesburg that at least five workers have been shot outside of the the Rusetenberg mine by security officials during a standoff between rival unions. Reuters adds: "Johannesburg - At least five workers were shot on Monday after security guards at an Anglo American Platinum mine in Rustenburg opened fire following clashes between rival union factions, eNCA television said. The station said it believed one worker at the Siphumelele shaft had been killed."
While the recent move in gold lower, attributed primarily to the fickle rotations of assorted hedge funds who have gotten crushed on their AAPL holdings and thus forced to liquidate profitable positions mostly in ETFs and other paper gold representations (as demand for physical precious metals has never been greater), has seen many pundits scream (as they do every year) that the move higher in gold and precious metals is over, what everyone as usual forgets is that the big move up in gold in 2011 was not driven by Soros or Paulson or Einhorn buying (or selling) laughable amounts of the yellow metal but by relentless end consumer demand out of China and India, when inflation was surging. And with the entire world now openly reflating the one country that has the lowest buffer to hot external money - China - is about to see prices for all products go parabolic once more. It's just a matter of time. Of course, last week's Lunar New Year and closed exchanges bought some time for the bearish gold thesis, but that is now over, quite literally with a bang as demand out of both China and India explodes out of the gates, proving that the sensible money is merely waiting for every dip in the PM complex to buy.
Beleaguered Prime Minister Mariano Rajoy just broke another record. As if a plague of corruption scandals was not enough, Spain's debt-to-GDP has now reached levels not seen in over 100 years. As El Pais reports, Spanish debt levels rose at an alarming EUR 400 million per day in 2012 making for the largest annual increase in debt in the nation's history - all the while proclaiming austerity. The EUR 146 billion increase in debt in 2012 is the equivalent of more than 14 percentage points of GDP leading to a staggering EUR 882.3 billion or 84% of GDP overall - far exceeding the government's own budget forecast of 79% and expected to rise significantly further in 2013. The last time levels of debt were this high relative to GDP Spain was recovering from war and the loss of its colonies. At EUR 38.7 billion, Spain has never spent so much money to pay only the interest on its debt, 33% more than budgeted for last year. Still think Europe's crisis is over?
- G-20 Signals Support for Japan Easing Without Yen Talk (BBG) - but how will Mrs Watanabe know to sell the JPY without nightly proddings?
- Obama Faces Risks in Pipeline Decision (NYT)
- White House Immigration Plan Leaked (WSJ)
- Reader’s Digest Is Bankrupt as Iconic Magazine Falters (BBG)
- Venezuela's Chavez in surprise return from Cuba (Reuters)
- German Recovery Hinges on Euro Zone (WSJ)
- Hong Kong’s Bankruptcy Requests Climb to Almost Two-Year High (BBG)
- China New Year Retail Sales Growth Slows on Frugal Drive (BBG)
- Debt Bubble Born of Easy Cash Prompts Swedish Rule Review (BBG)
- In Europe's tax race, it's the base, not the rate, that counts (Reuters)
- Ugliest Danish Banks Find No Buyers in Toxic Asset Trap (Bloomberg)
- Italian Undecided Voters Targeted in Campaign’s Last Week (BBG)
With the US closed today, the Shanghai Composite red after a week of partying not helped by news from China’s Ministry of Commerce showed that spending during the week-long Lunar New Year break grew at the slowest pace since 2009, and the Nikkei merely a tick-for-tick proxy of whatever the USDJPY does which in turn is a mood indicator for how any given G-7/20 statement is interpreted, the only relevant news in today's thinly traded market would come from Europe, where the EUR is once again modestly higher in overnight trading, even as Spain and Italy bonds are selling off.