Archive - Nov 9, 2012 - Story

Does China have what it takes to get from here (industrialized export economy) to there (sustainable growth, widespread prosperity)? The same can be asked of every nation: do they have what it takes to move beyond their current limitations to the next level? Consider corruption. Corruption isn't just a "values" issue: corrupt societies have corrupt economies, and these economies are severely limited by that corruption. A deeply, pervasively corrupt economy cannot get from here to there. Corruption acts as a "tax" on the economy, siphoning money from the productive to the parasitic unproductive Elites skimming the bribes, payoffs, protection money, unofficial "fees," etc. By definition, the money skimmed by corruption reduces the disposable income of households and enterprises, reducing their consumption and investment... Pull aside the curtain and what you find is a China crippled by corruption and debt.

Shortly, Speaker John Boehner will provide some clarity to what was heralded by so many hope-mongering media types as an olive-branch in his previous speech. We suspect the fire and brimstone will pick up modestly while there will be just enough to offer hope that all our fears are misplaced. This apparent pre-buttal of Obama's 1pmET speech will set the tone for how these two 'colleagues' will play for the next few months... perhaps the "Don't Tax Me Bro'" t-shirts will raise enough taxes to cover the shortfall?

Last week we suggested a reason why the market was unable to hold on to the Bernanke bid. The relative plunge in Goldman Sachs 'bottom-up' Analysts Index (GSAI) suggested that the macro 'strength' that market-savants were so focused on, could perhaps be election-biased (blasphemy). It seems this macro 'strength' divergence (highest since 1996!) from micro 'weakness' reality was enough to get the Goldmanites thinking - and unfortunately for all the cautiously optimistic managers out there, they are not hopeful. As Jan Hatzius explains,  "the GSAI remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index; and while one possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data."

By now everyone knows how Americans feel about America: one quarter of the population (the half of the less than half that voted) is convinced the US is plunging into a socialist void that would make the USSR proud, another quarter of the population is furious at the wealthy and demands that they be taxed up the wazoo because "they didn't build that" but certainly profited from it, and is demanding wealth and income redistribution, while the silent majority is quietly picking up whatever pieces it can, and batting down the hatches, seeing very well, beyond the fog of bias and subjectivity, the inevitable epic deleveraging disaster, followed by even more epic printing that is coming this way. But how does the rest of the world see the US, especially now that the fiscal cliff (and the much less discussed debt ceiling debate: why, we don't know - it was "merely" the debt ceiling that led to a 20% drop in 2011). Yesterday, German financial media Spiegel provided a glimpse into just how Europe, which is in deep feces itself, sees America. The verdict: the next Greece.

Earlier we asked a simple question:

What time is the all time highest UMich Consumer Sentiment out?

— zerohedge (@zerohedge) November 9, 2012

the answer is 9:55... and while not an all time high, LOLfidence, pardon, CONfidence just printed the highest number since July 2007!

Here's why you shouldn't trust sell-side research analyst expectations. Their 'normal' pattern is extrapolate trends in a lemming-like chase to be the headline-maker of the day ($1111 AAPL price-targets for instance) and then - when it's just too obvious (or when the company in question actually 'misses' what they extrapolated by a mile cough JCP cough) - they knee-jerk react at turning points - when it is already too late. So the next time someone on TV 'projects' value based on earnings or tries to convince you to part with your hard-earned money on a stock with great earnings prospects, perhaps this chart will remind you to reduce that exposure. The simple fact is - they do not know; and with the macro 'forest' becoming increasingly binary in its outlook, focusing on the micro 'trees' and supposed 'diversification' is irrelevant as correlations snap and as Goldman notes 'big revisions are the norm' as bottom-up earnings data (guided by the ever cautiously optimistic CEOs) is always slow to reflect much weaker macro data.

Just out from Bloomberg:

• RBS, UBS TRADERS SAID TO FACE ARREST WITHIN MONTH IN LIBOR CASE

Note the word "traders" - not CEOs, not COOs, not General Counsels, not Managers, not Supervisors... Traders. Because remember: it was a scheming 28-year old Frenchman that was the mastermind behind Goldman's CDO fraud for years. Nobody else. Just him. That said, we are looking forward to the latest minimum prison reality TV show: "How Many Cigarettes* For A Bollinger?"

We outline various fundamental and technical characteristics of each of the three stages of a standard rally such that one could use the blueprint in identifying an imminent top. The table below leverages statistics compiled from the prior decade from various selloffs (i.e. > 7%) which have produced consistent patterns that help traders ascertain the potential depth and duration of the current downward move.

Last night, Japan issued an update of its total public debt. The number was ¥983 as of September 30. Trillion. The bad news is that the long anticipated currency legend which will finally say "¥ in Quadrillions" is once more delayed. The good news, is that with the recently expanded BOJ QE8 and QE9, the excess monetization debt capacity, a lot of its going to sweep the aftermath of Fukushima under the rug, will promptly be filled, and we fully expect the December 31, 2012 debt update to finally bring us to the first instance of the word "quadrillion" used in the context of a modern, developed nation.

Gold is 3.35% higher and silver 4.53% higher this week in US dollars in the aftermath of Obama's re-election.  Gold in euros looks set to break out above €1,400/oz and is 4.1% higher and in sterling gold has risen 3.7% so far this week. Silver is 5.25% higher in euros and 4.8% higher in pounds. Gold and silver are set for higher weekly closes in all fiat currencies which may negate the recent bearish short term technical picture and set the precious metals up for the traditional yearend rally.  The data clearly shows that November is gold's strongest month and one of silver's strongest months. December, January and February are also strong months - prior to a period of weakness is often seen in March.

Another day another sell-off…with equity markets in Europe trending steadily lower after it was reported that the decision on Greek aid will not be taken during the Eurogroup meeting scheduled for November 12. Still, EU official said that there will be no Greek default on November 16th (EUR 4.1bln redemptions) and that this redemption is to be "factored in" decision on disbursement. Separately, analysts at Fitch rating agency noted that while current Spain’s rating is appropriate, further action would more likely than not be to sub-investment grade. Moody’s also commented on the never-ending sovereign debt crisis today, stating that actions taken by the ECB only buying time for Euro region and that a decision on France will be communicated within a few weeks. As a result, bond and credit spreads widen further today, with SP/GE 10s spread at 450 level, which is of particular importance given that this is the level at which the LCH begins to review bonds for margin requirements. Deterioration in Italian paper was linked to next week’s supply. In turn, EUR/USD and GBP/USD trended lower, with the USD index up 0.12% at last check. Going forward, market participants will get to digest the release of the latest U. Michigan Survey (Nov P), as well as macro forecasts from Philadelphia Fed.

• Greek Aid Payment Call Won’t Be Made Next Week, EU Official (Bloomberg)
• Eurozone faces brinkmanship on Greece (FT)
• Pressure Rises on Fiscal Crisis (WSJ)
• The JC Penney massacre continues (BBG) - In other news, any minute now Bill Ackman will get that 15x return...
• SEC left computers vulnerable to cyber attacks (Reuters) cue "back door Trojan" jokes
• Former Goldman trader accused of fraud (FT)
• Elizabeth Warren's Inadvertent Best Friends: Wall Street and Republicans (BusinessWeek)
• Zurbruegg Says Managing SNB Currency Reserves Is Major Challenge (BBG)
• Obama ally leads push on fiscal cliff (FT)
• Britain threatens to block banking union (FT)
• PBOC’s Zhou Says China’s Economy Improving as Data Due (Bloomberg)
• China slaps duties on steel tube imports (FT)
• Obama to Make Statement on Economic Growth, Cutting Deficit (Bloomberg)

With expectations that Europe will once again become a flaming powderkeg after the US elections are over running high, Europe has so far not disappointed. And as usual, the focal catalyst of greatest pain remains Greece, which is only now learning what ZH readers knew days ago, namely that the Greek "austerity" vote was merely theater, and that Europe, i.e., Germany, has certainly not decided to release any of the much needed cash that Greece needs not only to run its society but to make a key bond payment on November 16. Confirming this was German finance ministry spokeswoman Marianne Kothe, who said on Friday that Eurozone finance ministers will probably not be able to decide at their upcoming Eurogroup meeting on Monday whether to disburse a badly-needed €31.5 billion loan tranche to Greece, as MNI reported earlier. "Speaking at a regular government press conference here, Kothe reminded that German Finance Minister Wolfgang Schaeuble needs the approval of the German Bundestag, the lower house of parliament, before being able to approve any further aid for Greece. “It will be difficult to achieve this by next Monday,” she said." In other words, the Greek default is suddenly in the hands of the German people, of whom at last check  about 60% wanted Greece gone. There is yet hope for Greece, with a story overnight running that George Soros is ready to commit "serious funds to aid Greece." Surely that generosity too will end well for the Greek people who by now must feel as if they are in the 5th circle of a NWO globalization hell.