Confirming the lack of decoupling in major developed economies (which we noted yesterday), US macro data (as tracked by Citigroup's ECO Surprise Index) has turned negative for the first time in six months. Having trended lower (i.e. missed expectations to the downside) for much of the last few months, this shift now puts aggregate US macro data in the deteriorating case and infers considerable risks of downside to equity prices in the next three months - or did Bernanke raise his put strike yesterday?
Common sense suggests that if employment is rising, the stock market should follow as more jobs means more wages, sales and profits. We see this correlation in the overlay of the S&P 500 (SPX) and employment until the latest recession and stock market Bull run-up: this is clearly a jobless "recovery" yet the stock market has more than doubled. Is this decoupling of employment from the stock market "the new normal" or an aberration that's about to revert to historical correlation? To do that, the market would need to fall in half or the economy would need to add 10+ million jobs in short order. If we combine Peak Oil with Peak Credit, we get a household sector with stagnant disposable income burdened by servicing monumental debt loads. Here is a chart of household liabilities and wages/salaries, unadjusted for inflation. Household debt has completely outstripped income. These charts do not paint a picture of robust recovery, they sketch a grim picture of stagnant household incomes and rising costs for fuel and debt service.
There is no shortage of money in the world. Thanks to global Central Banks' extreme activism money supply has exploded. Since August 2011, the Fed has been less of a full-time player in this effort but in passing the baton, the rest of the world did not let them down with most notably the ECB having taken over with its own version of free-money printing for much of the first quarter - driving the ratio of outside (central-bank-driven) money relative to inside (the bank themselves creating money via credit) to record highs as a stealth nationalization of credit is underway (though as we noted earlier this morning - the transmission mechanism is not working). So where oh where is all that hard-earned free-money going? The story bifurcates here. In the US, non-financial corporates have grown their war-chests as high as they have ever been (and continue to do so) after being burned by short-term financing stresses and knowing (despite all outward media appearances) that the next abyss is potentially around the corner (given real-life growth estimates becoming more and more binary/extreme as opposed to normalized with a range). In Europe, the 'excess' has flowed to the core driving, as Sean Corrigan notes, what some surveys suggest is a consumer and housing boom (read mal-allocation of capital once again) in the decade-long stagnant German real-estate market. All that extra cash, however, while helping revenues and margins for non-financial corporates in the US has left wage growth languishing. So the sad reality of the Keynesian 'multiplier' dogma is that rather than garbage-in, garbage-out - it is freshly printed money-in, nothing-out-to-the-real-economy as each actor in the game becomes increasingly driven by a sense of self-preservation. Is it any wonder that energy/raw materials prices (as evidenced most recently by Whirlpool's comments this morning) are rising when firms are awash in cash? But of course, as the old-saying goes, a-biflation-a-day-keeps-the-Fed-hawks-at-bay.
H.L. Mencken was a renowned newspaper columnist for the Baltimore Sun from 1906 until 1948. His biting sarcasm seems to fit perfectly in today’s world. His acerbic satirical writings on government, democracy, politicians and the ignorant masses are as true today as they were then. I believe the reason his words hit home is because he was writing during the last Unraveling and Crisis periods in America. The similarities cannot be denied. There are no journalists of his stature working in the mainstream media today. His acerbic wit is nowhere to be found among the lightweight shills that parrot their corporate masters’ propaganda on a daily basis and unquestioningly report the fabrications spewed by our government. Mencken’s skepticism of all institutions is an unknown quality in the vapid world of present day journalism.
H.L. Mencken understood the false promises of democracy 80 years ago:
“Democracy is also a form of worship. It is the worship of Jackals by Jackasses. It is the theory that the common people know what they want, and deserve to get it good and hard.”
We deserve to get it good and hard, and we will.
The Bailout Of The US Postal Service Begins: Cost To Taxpayers - $110,000 Per Union Vote "Saved Or Gained"Submitted by Tyler Durden on 04/26/2012 - 10:16
A week ago, when reading between the lines of what had heretofore been considered an inevitable USPS episode of austerity in which hundreds of thousands of labor union workers would lose their jobs but in the process would streamline a thoroughly outdated and inefficient US Postal Office bureaucracy, we asked if a US Postal Service bailout was imminent, focusing on the following: "Enter Ron Bloom, Lazard, and the very same crew that ended up getting a taxpayer funded bailout for GM. From the WSJ: "The Postal Service's proposal to close thousands of post offices and cut back on the number of days that mail is delivered "won't work" and would accelerate the agency's decline, according to the six-page report by Ron Bloom, President Barack Obama's former auto czar, and investment bank Lazard Ltd., LAZ who were hired by the union in October." That's right: after all the huffing and puffing about "sacrifice" and austerity, the labor union took one long look at the only option... and asked what other option is there." The other option, it turns out courtesy of news from AP, is the first of many incremental bail outs of the US Postal Office, better known in pre-election circles as hundreds of thousands of unionized votes up for the taking, and which could be bought for the low low price of $11 billion in taxpayer money, or $110,000 per vote! And so the latest bailout of yet another terminally inefficient and outdated government entity begins.
While the LTRO was heralded as a success for a month or so with the implicit money-printing-and-sovereign-reacharounds involved at the cost of senior unsecured bondholders, the sad reality is that not only are the effects of LTRO now almost entirely gone in both sovereign and financial funding costs but the massive 'injection' of freshly printed encumbrance did nothing for the real economy. In fact, as Barclays notes in these charts from the ECB bank lending survey, not only is demand weaker for credit (i.e. the consumer is pulling back in classic balance sheet recessionary style) but the banks themselves are tightening credit conditions (reducing supply) - the exact opposite of what the ECB had in mind. There is one exception to this vicious cycle - German real estate loan demand picked up modestly - we assume reflecting their flat housing market for the last 15 years and extremely low rates). Oh well, we are sure the next ECB action will be different in its banking reaction.
Pretend, from now on, that when you see this word it is written in Moldavian and needs to be translated. France and the periphery nations are screaming this word now while almost all of Europe is in recession and one that we believe will be much deeper than forecast. Consequently “growth” does not mean “growth” and the correct translation is “Inflation.” We have long said it would come to this in Europe and here we go. The troubled countries are going to beg and plead for Inflation and Germany, Austria, the Netherlands and Finland are going to resist. With Hollande the most likely next President of France you are going to see a stand-off between the socialist and the centrist countries so that a log jam will develop and the consequences of its uncoupling are anyone’s guess except that it will be likely violent and an extreme series of events. The governance of Europe on May 5 will not be what is found on May 6 and preparation for this should be high upon everyone’s list.
Recall what we said less than an hour ago: "what will most likely happen is a print in the mid to upper 380,000s, while last week's number will be revised to a 390K+ print, allowing the media to once again declare that the number was an improvement week over week. In other words, SSDD." SSDD it is: last week's 386K number was revised to 389K, meaning the massive miss relative to expectations of 370K last week just got even worse. This is the 10th week in a row of misses to the weaker side and the 16th of the last 18. And while this week's miss was whopping as usual, with expectations of 375K being soundly missed after the print came at 388K on its way back to 400K, the media can sleep soundly because the absolute lack of BLS propaganda means that the sequential progression is one of, you got it, improvement. In other words here is what the headlines in the Mainstream Media will be: "Initial claims improve over prior week." In fact here it is from Bloomberg: "U.S. Initial Jobless Claims Fell 1,000 to 388,000 Last Week." Absolutely brilliant.No propaganda. No data fudging. No manipulation at all. Just endless laughter at the desperation.
I don’t understand the furore around Obama’s secret service handlers being (ahem) secretly serviced by Colombian hookers. To writers like myself who specialise in salacious analogies, the incident was a gift. To the rest of the press, who don’t normally get to write about such matters, it was an excuse to shoot off pent-up sexual frustration. So I can understand the press pushing the story just the way Bill Clinton pushes expensive cigar cases (enthusiastically, by all accounts). The worry, apparently, is the potential to compromise the President’s security. Rep. Peter King, chairman of the House committee that oversees the Secret Service, says the key question is whether the prostitutes could have accessed “any data or information that could have compromised the president of the United States or made an enemy force aware of the practices and procedures of the Secret Service.” But surely this applies to all sexual relationships, not strictly ones for money? Surely prostitutes are absolutely the safest kind of liaisons? After all, why would a foreign agent trying to sequester intelligence information try and charge the American agent for sex? If you were setting a honey trap, why would you create some barrier to entry, such as a fee? There’s playing hard to get, and then there’s playing easy to brush off, and that would be the latter.
After rising in the overnight session following the overbought momentum chasing yesterday's hawkish tone by the Fed (don't ask), futures, European stocks, and sovereign spreads took a turn for the worse following the big miss in European confidence and sentiment, all of which posted material declines, and slid to two and a half year lows. And while the traditional upward stock levitation will resume once the European market close is in sight, only one thing can spoil the party and derail the most recent pseudo-hawkish statement out of the Fed: initial claims, which are expected to decline to 375-380,000 from 386,000 last week. Instead what will most likely happen is a print in the mid to upper 380,000s, while last week's number will be revised to a 390K+ print, allowing the media to once again declare that the number was an improvement week over week. In other words, SSDD.
- Fed Holds Rates Steady, But Outlooks Shift (Hilsenrath)
- Has Obama Stacked the Fed? Not Really (Hilsenrath)
- High Court Skeptical of Obama’s Use of Power as Campaign Starts (Bloomberg)
- Europe Seen Adding Growth Terms to Budget Rules as Focus Shifts (Bloomberg)
- China Reaches Out to Its Adversaries Over Rare Earths (WSJ)
- Iran Says It May Halt Nuclear Program Over Sanctions (Bloomberg)
- Europe Shifts Crisis Focus to Growth as Merkel Backs Draghi Call (Bloomberg)
- Merkel Wants Rules for Raw Material Derivative Trade (Reuters)
- Evercore Profit Falls 62% as Investment Banking Expenses Rise (Bloomberg)
Following this week's ongoing battery of abysmal economic news out of Europe it will hardly come as a surprise that yet another indicator has been released and is pointing to a multi-year low in the deleveraging (elsewhere called incorrectly austere) continent, namely the Euro-area wide confidence index which just slide to the lowest leve since 2009, missing every single estimate and declining sequentially across the board... And with the UK, Greece, Italy, Portugal, Ireland, Belgium, Denmark, Holland, Czech Republic, and Slovenia now in re-recession, and Spain a definitive shoo in next week, the kicker is that German GDP will almost certainly now report a second consecutive GDP print in a few days, thus pushing the entire European continent in a double dip.
We start today's story of the day by pointing out that Deutsche Bank - easily Europe's most critical financial institution - reported results that were far worse than expected, following a decline in equity and debt trading revenues of 23% and 8%, but primarily due to Europe simply "not being fixed yet" despite what its various politicians tell us. And if DB is still impaired, then something else will have to give. Next, we go to none other than Deutsche Bank strategist Jim Reid, who in his daily Morning Reid piece, reminds the world that with austerity still the primary driver in a double dipping Europe (luckily... at least for now, because no matter how many economists repeat the dogmatic mantra, more debt will never fix an excess debt problem, and in reality austerity is the wrong word - the right one is deleveraging) to wit: "an unconditional ECB is probably what Europe needs now given the austerity drive." However, as German taxpayers who will never fall for unconditional money printing by the ECB (at least someone remembers the Weimar case), the ECB will likely have to keep coming up with creative solutions. Which bring us to the story du jour brought by Suddeutsche Zeitung, according to which the ECB and countries that use the euro are working on an initiative to allow cash-strapped banks direct access to funding from the European Stability Mechanism. As a reminder, both Germany and the ECB have been against this kind of direct uncollateralized, unsterilized injections, so this move is likely a precursor to even more pervasive easing by the European central bank, with the only question being how many headlines of denials by Schauble will hit the tape before this plan is approved. And if all eyes are again back on the ECB, does it mean that the recent distraction face by the IMF can now be forgotten, and more importantly, if the ECB is once again prepping to reliquify, just how bad are things again in Europe? And what happens if this time around the plan to fix a solvency problem with more electronic 1s and 0s does not work?