Archive - Dec 2012 - Story

There is little detail (more to come) but Boehner's office has just released his rebuttal to Obama's so-called 'un-serious' offer. These numbers do not appear like any change - just as Obama's was no change - so much for compromise. It seems politicians now have zero-beta for the algos - who have given up now the month-end is over...

• *BOEHNER DESCRIBES WHITE HOUSE PLAN LAST WEEK AS `LA-LA LAND'
• *BOEHNER SAYS HE'S OFFERING `CREDIBLE PLAN' ON FISCAL CLIFF
• *BOEHNER SAYS PLAN DESERVES `SERIOUS CONSIDERATION' BY OBAMA
• *HOUSE REPUBLICANS PROPOSE $1.4 TRILLION IN SPENDING CUTS
• *REPUBLICAN PLAN INCLUDES $800 BILLION IN NEW REVENUE

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We find ourselves more amazed than ever at the ability of those in power to lie, misinform and obfuscate the truth, while millions of Americans willfully choose to be ignorant of the truth and yearn to be misled. It’s a match made in heaven. Acknowledging the truth of our society’s descent from a country of hard working, self-reliant, charitable, civic minded citizens into the abyss of entitled, dependent, greedy, materialistic consumers is unacceptable to the slave owners and the slaves. We can’t handle the truth because that would require critical thought, hard choices, sacrifice, and dealing with the reality of an unsustainable economic and societal model. It’s much easier to believe the big lies that allow us to sleep at night. The concept of lying to the masses and using propaganda techniques to manipulate and form public opinion really took hold in the 1920s and have been perfected by the powerful ruling elite that control the reins of finance, government and mass media. How many Americans are awake enough to handle the truth? Abraham Lincoln once said that he believed in the people and that if you told them the truth and gave them the cold hard facts they would meet any crisis. That may have been true in 1860, but not today.

It will be interesting to say the least. President Obama will be taking control of the social media madness, via his #My2K hashtag, at 2pmET to discuss the fiscal cliff and answer questions - following Sunday's rather more un-compromising appearance. We are sure the ZeroHedge readership have many questions for him. We wonder if @JohnBoehner will ask any? Of course, nothing can compare to the @MarkCuban vs @RealDonaldTrump cagematch - though we can only hope. We also look forward to hearing from @FakeJohnBoehner and @NotJohnBoehner.

Moments ago the SEC, with about a two year delay, decided to finally act tought, and in a parting present to the most ineffective and clueless chairman of the coopted and corrupt organization ever seen, that would be Mary Schapiro of course, lashed out at Chinese affiliates of Big Four accounting firms as well as BMO, for refusing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors. Of course, readers of Zero Hedge will recall what we dubbed the formation of a cottage industry exposing Chinese fraudcaps back in November of 2010 when we warned that virtually every reverse merger out of China will soon prove to be a fraud, but because of the listing fees that US exchanges would get as a result of local listing, nobody cared, and only that now extinct class of gullible and naive investors would lose their entire investments. It is now two years and one month later, and the SEC has finally acted on it.

There is only one problem with the home builders - expectations are way too high. The builders are not only priced for perfection (as we noted here) by the market, the builders themselves have business strategies that are modeled for perfection. We believe the bar is set at an unattainable level. In summary, the building model is flawed. Here is why.

"High ranking generals and admirals earn their stars.  They earn their stripes.  Then, they earn their cash." Citizens for Responsibility and Ethics in Washington (CREW) has just released a fantastic new report on the revolving door between the Pentagon and the private sector, which raises serious concerns not only about ethics and corruption within the defense sector, but also raises issues of national security if retired generals are merely acting as mercenaries once they retire. As Mike Krieger notes: "When I first figured out the gigantic ponzi scheme, theft and fraud within the financial system... I never imagined the same thing goes on in virtually every sector of our corrupt crony capitalist economy... including the military." Absolutely incredible...

As if global geopolitics were not tempestuous enough, it seems China's increased military presence near Indian state-run explorer Oil and Natural Gas Corp's (ONGC) Nam Con Son basin operations near Vietnam are sparking India's navy into action. India's Navy Chief Joshi according to Reuters, said it was prepared to act, if necessary, to protect its maritime and economic interests in the region. He added that "When the requirement is there, for example, in situations where our country's interests are involved, for example ONGC... we will be required to go there and we are prepared for that." While the Straits of Hormuz seem to get most of the world's attention, the growing trouble in the South China Sea is troubling since it "is one of the most important international waterways and freedom of navigation there is an issue of utmost concern to India," because a large portion of India's trade is through the South China Sea. Noting that the modernization of China's Navy is "truly impressive", Joshi concluded:  "...are we preparing for it? Are we having exercises of that nature? The short answer is yes!" The Chinese are not making any friends as The Phillippines also condemned China's actions.

Supposed progress on the Greek buyback (which as we noted earlier has merely served to line the pockets of the short-term traders) and misunderstandings over Spanish bailout requests (amid mixed PMIs) was enough to drive European stocks up and sovereign bond spreads down as the morning progressed. EURUSD strengthened. Then around 8ET things changed (as the bailout request was realized for what it was): European stocks reverted lower in a hurry (catching down to a less robust credit market), Sovereign bond spreads bled notably wider off the day's tights, and gold fell notably. EURUSD seemed to manage a completely uncorrelated levitation (repatriation?) even as broad risk assets fell into the European close - ending at their lows. A weak close to a hope-full day.

If we had to summarize the global effort to reflate various debt and asset bubbles to "restart growth," we might say the Status Quo is pursuing opportunities of the past. However, as is becoming all too clear, pursuing opportunities of the past only speeds the dissolution of any Status Quo that depends on spent models of growth.

Those who have been reading our 2+ year series tracking the ridiculous "bottom-left to top-right" trend in GM dealer inventory channel stuffing, know all there is to know about the modern day equivalent of AOL (in which the purchases of modern equivalents of "dial up connections" are funded by loans from the US government itself), in both (non government backstopped) business continuity terms as well as in channel stuffing notoriety. Which is why we will present the November update of total dealer "inventory" (which rose to a record for the fresh-start company 788,194, or a record 99K increase in two months) a without commentary, except to say: WTF!?

Oaktree Capital's Chairman Howard Marks went on a rather more politically-positioned rant in his latest missive (pdf here) but one section caught our eye more than others given the current imbroglio:

The bottom line is that if we don't want to be Greece, we can't act like Greece. Something has to be done... and soon. Every year in which we add another trillion dollars to the national debt (and tens of billions to the annual interest bill) - and every year the excessive entitlement promises are allowed to compound - makes it harder to solve the problem.

A dismally honest reflection follows...

Remember Michael Feroli? The JPM economist who "predicted" US Q4 GDP would be boosted by 0.5% due to iPhone sales (don't laugh: yes, US GDP, not that of China where the iPhone is actually produced, but the US where the consumer merely incurs more record student loans to be able to afford it)? Well, the same JPMorganite has now cut his Q4 GDP expectation to 1.5% for all the same reasons why we penned the second Q3 GDP revision: namely ugly internals, a surge in hollow government and inventory contributions to "growth", and a collapse in the purchasing power of the US consumer (who somehow is still expected to boost Q4 GDP with iPhone sales). And while there is no mention of the iPhone in his just released downward revision, he still believes the cell phone will provide a boost to Q4 GDP. In other words, of the 1.5% in GDP growth in Q4, the iPhone will account for 33% of this! One really can not make this up.

Remember when fundamentals mattered? Neither do we, and why should they: the New Normal market has long since stopped pretending to be able to discount a future that is entirely politically driven, and thus irrational, and the only thing that matters is being able to respond as fast as possible to blinking red headlines. This explains the best performing asset classes on November: at the very top, something one would never expect to see - the Nikkei, which soared on "hopes" the return of politician Shinjiro Abe would mean the nationalization of the BOJ, 3% inflation targeting, and a surge in monetization. And while this is good for Japanese equities, it would crush all local banks who hold the bulk of their assets in JGBs, which would in turn plunge, and likely result in another bank sector bailout, no to mention annihilate pension funding for tens of millions. But such is the new normal.

So much for the 3rd Recovery (or is that 4th?) in the current depression: following the Chicago PMI which posted a solid beat on horrendous internals, today's Manufacturing ISM came in just as expected, at least by those skeptical of all the sugar high economic data the US population was spoon fed in the past few weeks. At 49.5, the headline PMI print was the lowest since July 2009, the biggest miss to expectations of 51.4 in 5 months, and down from 51.7. Also, as most know, as sub-50 print indicates a contraction in the manufacturing space, usually a precursor to overall recession. Particular data points of note: Employment down from 52.1 to 48.4; New Orders slide from 54.2 to 50.3, and in the worst news for GDP Exports declined, Imports rose and Inventories plunged - which was to be expected after a huge inventory build up in Q3 pushed GDP much higher in the period. Expect even more downward GDP recessions on today's ugly data. Finally, while the bulls would love to blame the collapse on Sandy, it was not mentioned anywhere in the release and the ISM's Holcome said just one respondent even mentioned Sandy in the release, which means the manufacturing reality will only get worse as the full impact of Sandy is internalized.

Depending on what market or macro indication you choose to believe in, China is doing terribly badly or is on a sustainable path to a more domestic consumption-based economy. This weekend's PMIs show the economy is barely limping higher but Industrial Output is dismally low; HSI is ripping higher while SHCOMP is at multi-year lows. What is more critical, as Bloomberg's Michael McDonough points out today, is China’s growing role as a transmission mechanism between the economies of the developing and developed world. China’s economic rise has been accompanied by a surge in its appetite for imports - especially raw materials - even as global demand has been slow to recover. This introduces new stresses for many export-oriented countries by reducing the diversity of their trade relationships as they become more and more dependent on China in particular, creating substantial risk for those economies, which account for an increasing share of global GDP. Russian, Brazilian and Indian trade volumes have become heavily dependent on China at 10.6 percent, 17.5 percent and 9 percent, respectively. An economic crisis in Brazil would have a minimal impact on the Chinese economy, while a slowdown in China would likely crush Brazil’s external sector and domestic economy.