Archive - Sep 2011

If there has been one consistent theme since day one at CI, it has been our perhaps near myopic focus and focal point highlight of importance that is the macro credit cycle.  Does this play into long wave and perhaps Kondratieff cycle or Austrian economics type of thinking?  Call it what you will, but elements of all of these schools of thought very much overlap.  Right to the point, we believe THE key thematic construct to keep in mind as a macro cycle decision making overlay and character point dead ahead is the now more than apparent collision of the generational long wave credit cycle with the current short term business cycle of the moment.  Without trying to reach for melodrama, this is the first time a multi-decade long wave credit cycle has collided with the short-term business cycle since the late 1920’s/early 1930’s.  Most decision makers and Street seers of the moment have absolutely no experience with this type of a generational collision.  Moreover, our illustrious academician Fed Chairman has never even considered long wave or credit cycle based Austrian economics thinking in his and the broader Fed’s policy making – absolutely key and crucial mistake.  Although it’s just our perception, this will be Bernanke’s legacy Waterloo.  It also tells us directly that his only policy tool ahead will be more money printing.

For some odd reason, even though it is by now very, very clear that the world is back in a depressionary state, some are still fascinated by the inflection point of the global economy, and wonder: "are we headed for a recession?" (which obviously is the wrong question). Anyway, to help with the answer is this set of 9 interactive charts from Reuters which should remove any last bit of doubt as to what is about to unfold, at least in the perception of conventional wisdom. Furthermore, since most of these data sets are coincident or lagging, it is safe to say that the NBER will shortly announce that the recession started some time in H1.

The following is an excerpt from the contribution from BoomBustBlog resident trader Eurocalypse

While the fact that the September Conference Board consumer confidence number missed in September, coming in at 45.4, below expectations of 45, and a tiny increase from the revised August 45.2, the shocker was in the responses to "jobs hard to get" category which printed at 50, up from 48.5 in August, and is now the highest number since 1983! Yet despite that it can not get a job to save its life, the public appears to have reverted to Hopium consumption, with the 6 month outlook jumping to 54 from 52.4, even as the current conditions index declines from 34.3 to 32.5, and the lowest since January. And a big red sign for the auto segment, is that Americans expecting to buy a car within 6 months has dropped to just 11.4% from 13% last month. And this even with GM offering subprime loans to deadbeats left and right.

Following closely on the heels of Schaeuble's express concerns over leveraging the EFSF and his AAA rating, the EIB has come out with a direct statement refuting media claims (read Liesman unsourced rumors which served no other reason than to be a pretext for a month end window dressing rally) about the potential involvement of the fund in connection with the EFSF. So if the money man (Germany) and the SPV shell-partner (EIB) are both denying, then who or what is left?

And 9:55 am update in which Mantega responds to Valor (and ZH):

• MANTEGA SAYS BRAZIL ISN'T PREPARING ANY MEASURE

So far the only strategic use of "unnamed government officials" has been to leak rumors, whose sole purpose is to test the market's short covering squeeze potential and to discover just how long the half-life of one after another ever more incredulous rumor is. And since the only thing to come out of Europe in the past month in terms of problem resolution (no really: there has not been one policy that has been enacted since the July 21 Greek bailout), this is a useful strategy. Alas, as Europe is about to find out, this works both ways, because as Brazilian financial site Valor Economic reports, none other than perpetual optimist Brazil, the same country that is supposedly according to one set of rumors preparing to bail out all of Europe, with or without the rest of the BRICs, is now preparing for a Greek default within the week. From Valor: "Something must happen. Greece is a few days [from bankruptcy]" said a high official source.

All the markets continue to bask in the glow of the new improved EFSF.  From a low of 1115, the S&P futures are now trading at 1175.  A pretty impressive 5% move.  Stocks in Europe are doing even better and credit is following along.  By now I would have hoped to see some details of this alleged new beast that EFSF has morphed into.  While I search for detail all I could see, so far, are denials by Germany and Spain, some support from Austria, and additional rumors of what is to come.  Every European politician outside of Germany can say this is a great idea, but if the money man doesn’t go along, is there really a deal?  This isn’t a democracy, and only Germany controls German money. There was a brief headline that this new plan could cause S&P to downgrade Germany and France.  As a back-up plan, there is talk about letting the EIB do the heavy lifting.  Just in case the world wasn’t already controlled by enough 3 letter entities, welcome the EIB to the IMF, ECB, and FED party.

The Case Shiller for July, that's right July (does anyone remember that? that's was before the US was about to go bankrupt due to that whole flap in Congress over the debt ceiling, nevermind the second European bankruptcy), is out and it was both better and worse than expected: the Y/Y print beat at -4.1% on expectations of -4.4%, up from a revised -4.4%, yet missing on a sequential basis, which was expected to come at 0.1%, instead printing at 0.05%, unchanged from the June's upward revised M/M 0.04%. In other words, this is not only traditionally late data, it also confirms that the double dip continued into the months that saw the market tumble by nearly 15%. Look for substantial drops in the August and September Case Shiller data.

Squueze we said squeeze it was, now what?

• China’s Developers Face More ‘Severe’ Credit Outlook, S&P Says (Bloomberg)
• Hong Kong’s Tsang Sees ‘Soft Landing’ for Property, Keeps Peg (Bloomberg)
• SEC Eyes Ratings From S&P (WSJ)
• Geithner Predicts Europe Will Step Up on Crisis After Chiding (Bloomberg)
• Big audit firms face Brussels onslaught (FT)
• Fed Officials Express Doubt About Faster Inflation as Tool to Boost Growth (BBG)
• Medvedev fires mutinous finance minister (FT)
• EU urged to probe Hungary mortgage move (FT)
• Anger rises in India over redrawn poverty line (FT)

In a speech given in Berlin, the ever-vocal German finance minister Wolfgang Schaeuble appeared less than vociferous about the new levered EFSF plan and further lambasted Geithner's 'plan' in as politically correct manner as he could. Bloomberg headlines include:

*SCHAEUBLE SAYS `WILL NOT SPEND OUR WAY' OUT OF CRISIS

*SCHAEUBLE SAYS `SOLIDARITY HAS LIMITS,' REQUIRES RETURN EFFORTS

*SCHAEUBLE SAYS `IMMEDIATE FISCAL REFORMS ARE OF THE ESSENCE'

And the kicker in response to questions on Geithner, the pithy response:

*SCHAEUBLE SAYS EASIER TO GIVE ADVICE THAN TAKE IT!!!

*SCHAEUBLE SAYS INCREASING EFSF WOULD DAMAGE SOME AAA RATINGS

• A European official said a detailed plan is being worked on leveraging EFSF money with the plan using some EFSF money to shore up bank capital.
• The Austrian finance minister said Euro-zone officials are to discuss the EFSF leveraging plan on Monday
• German Chancellor Merkel says we are not prepared to implement further stimulus programmes.
• Confirmation of the EFSF leveraging talks sparked outrage in Germany, where opposition politicians threatened to derail the plans by voting against a key amendment to the bail-out fund this Thursday.

All you need to read.

Some economic data out which has absolutely no impact on anything anymore. All that matters are lies and rumor. And headlines. THE BIGGER, THE MORE BOLDED AND UNDERLINED THE HEADLINES THE BETTER. Also, never forget, the better the news, the better; the worse the news, the best.

Just who is watching who? We're watching them is the answer