Archive - Jul 1, 2010 - Story

As if one needed additional fears about the Chinese bubble popping, with overnight reports that various Chinese provinces are rising minimum wages to quell social unrest, following last night's surprising decline in the China PMI, here comes CEBM with a very scary outlook on China trade in general, and exports in particular. Well, if nothing else it will sure help the US push its world's worst trade deficit a little higher now that it will have much less to import. From the report: "Our CEBM China export leading indicator has already peaked, indicating that China’s exports are likely to peak soon. Our export model suggests that China’s exports may decelerate from 3Q due to weakening domestic and foreign demand." And here are some bad news for Obama's plan to double US exports in the next 5 years: "As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports." Have no fear - with its record budget spending, NASA will soon discover intelligent and wealth life on Mars, which will be more than glad to import all of America's financial innovation and three other things we export.

And this is even without the BP oil getting caught in the loop current and washing on the private beach of the Delano. And yes, buy the MCDX. "The negative outlook reflects Moody's expectation that Miami's financial operations will remain strained over the medium-term horizon as the city grapples with reduced reserves and budget pressures while trying to implement a recovery plan. Ultimate long-term credit standing is dependent on the ability of officials to re-establish budgetary structural balance and restore reserves to prescribed policy levels in an adverse economic environment that impedes revenue growth. Improvement of financial condition appears to require either significant city cuts or infusion of one-time revenues or some combination of both."

Turn out there was an app for that after all (and it was in fact designed by a bunch of Princeton Ph.D.). Not one to rest on his laurels, Steve Jobs is already getting people in line for the next generation, the iPlunge, while the FoxConn suicide team is hard at work on the iMonkeyhammered prototype.

Another big leg down into the recognition that i) the recession was really a depression all along and ii) we are smack back in it. The ISM Manufacturing index came at 56.2 on expectations of 59, previous was 59.7. And the stunner - the prices paid index came in at 57 on expectations of 70, with a previous read of 77.5. The crash in margins will be surreal and companies will have no choice but to raise prices. And just so there are no mistakes that the Great Depression 2.0 is here, pending homes sales plunged a massive 30% on expectations of -14.2, and a previous read of 6%. This was the biggest MoM drop on record. Deflation is here, as is a full blown economic contraction, coupled with the complete pull out of the US consumer, who, absent government subsidies, will contain purchases solely to the iPad. Ben Bernanke has no choice but to print money now, or it is game over.

Updated weekly perspectives from Peak Theories Research

• Must watch: "A gigantic ponzi scheme, lies and fraud" - Howard
  Davidowitz on Wall Street (TechTicker)
• The fanatics turn on their guru: Apple sued over new iPhone reception problems by consumers (Bloomberg)
• Shocker - Fed acquired shit assets from failing banks and completely misrepresented these under oath. (Bloomberg)... Um, we kinda warned about this in October of last year.
• BP oil spill cleanup work hampered by hurricane (Reuters)
• More theatrics from AIG's Benmosche who threatens to quit unless Harvey Golub quits (Bloomberg)
• Jim Willie - Path to gold backed currency (Market Oracle, h/t John)
• The stimulus is now over - global manufacturing slowdown shows weakening from China to Europe (Bloomberg)

Jobless claims were a disaster, coming in at 472k, on expectations of 455k. Prior was revised, surprise, surprise, higher to 459k from 457k. What is scariest is that between extended benefits and EUC, now that Congress has turned off the perpetual insurance spigot for the unemployed, dropped by -158,155 and -217,513. This is almost half a million people who just lost their weekly governmental stipend to buy Apple's latest app, iTimberrr. Full report here. RIP Recovery: the economy has now entered the "total freefall" area. And in the meantime, the 2.90% on the 10 year is now implying the FV of the S&P just dropped by another 8 points to about 740. And as a reminder, Goldman's NFP expectation for tomorrow is -100,000.

After yesterday's €132 billion euro 90 day LTRO seemed to indicate that all is well for European banks and that up to €310 billion of liquidity could be withdrawn, today's stunningly bad result in the follow up 6 Day liquidity providing fine tuning operation, in which another 78 banks bid for €111.2 billion worth of reverse repo cash, at the same rate as yesterday's 90 Day, or 1%, indicated that all is, after all, bad for European banks, who further more can't seem to realize that when given the opportunity to luck up funds for 90 days versus 6 days, you always go for the former. In other words, the liquidity crunch in Europe is just as bad as everyone had feared.

• BOJ Tankan key sentiment index better than expected - first time in two years.
• China’s manf index declined for a second month, falling to 52.1 from 53.9 in May.
• China's stock index declines for seventh day; Commodity producers retreat.
• Disappointing Chinese economic data send stocks lower across Asia.
• German retail sales down 2.4% in May on year.
• OPEC crude output fell in June from a 17-month high, Bloomberg Survey says.
• Retail sales growth in Australia weakened in May, Building approvals drop.

By this point only ECB commissioners can not see the death spiral that Europe is currently in. Earlier today, Spain issued €3.5 billion in 5 year bonds with terms markedly worse than even the most recent prior auction. The yield came in at 3.657%, up from 3.532% previously, with a dramatic slide in the Bid To Cover, which plunged from 2.35 in May to just 1.7. And to guarantee that the next bond auction will barely clear 1.0 is Moody's, which just downgraded 5 Spanish regions, Castilla-y-Leon, Extremadura, Madrid and Murcia to Aa2 from Aa1 and
Castilla-La-Mancha to Aa3 from Aa2. This is even as the rater is about to cut Spain by about 3-5 notches to the single A category if not lower. Elsewhere, Germany once again threw Europe into a general state of discord by announcing that it does supports banks' refusal of full stress test releases. As Market News reports, "Bundesbank President Axel Weber is supporting German
banks in their opposition of a complete and uncontrolled disclosure of
stress tests, German business daily Financial Times Deutschland (FTD)
reported Thursday citing sources. Weber promoted the partial release of stress test results. Yet, he
opposed the plan to let the European association of financial
supervisors CEBS decide alone how much of the stress tests will be
released, FTD said." This is in stark contrast with the Geithner approach of complete doctoring and fudging of even the stress test framework, to make sure no banks ever fail the stress tests. Once again Germany is showing Tiny Tim the middle finger.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/07/10