Archive - Sep 8, 2013 - Story

Emerging markets’ currencies are crashing, and their central banks are busy tightening policy, trying to stabilize their countries’ financial markets. Who is to blame for this state of affairs? The cause of this state of affairs, in one word, is austerity. Weak demand in Europe is the real reason why emerging markets’ current accounts deteriorated (and, with the exception of China, swung into deficit). Thus, if anything, emerging-market leaders should have complained about European austerity, not about US quantitative easing. Fed Chairman Ben Bernanke’s talk of “tapering” quantitative easing might have triggered the current bout of instability; but emerging markets’ underlying vulnerability was made in Europe.

Presented with little comment...

Global macro data has surprised to the upside in recent weeks in general. For major economies the last 3 months has seen such an 'impressive' rise that it has reached a point at which (historically) market expectations have become relatively exuberant. As the chart below shows, not only is the macro surprise index near its normalized highs (suggesting there is not much room for further positive surprises here) but each time the pace of apparent improvement has been so fast, the US equity market has faded lower as "hard" data simply does not support the hope in the markets and "soft" data (including survey-based PMI data as BAML destroys that myth below). Each time macro data has weakened and stocks have faded, central banks have rescued it - but with "taper" now required, we ask - is this as good as it gets?

An exuberant Japanese investing public bid the open of equity trading in their oh so-penny-stock-like prestigious Nikkei 225 stock index by 540 points from Friday's close. That these 4% rips in major global stock markets have become ubiquitous is now no surprise to anyone but, sadly, for Abenomics supporters the world over, final Q2 GDP missed expectations modestly (+0.9% vs +1.0% exp.) with the 3rd worst trade balance (on a BoP basis ) ever not helping matters. Is that GDP hit enough to maintain Abe's decision to hike taxes? Maybe, maybe not. In thge hour since the data hit, the Nikkei has collapsed back 220 points and USDJPY, having surged up over 100.00 into the GDP print, is fading lower (stronger JPY). The rest of Asia is quiet for now, gold and Treasury bond prices are very slightly lower and amid very thin trading in S&P futures, equities are up 3 points.

Sadly reflective of the dismal reality of the US 'system' that we described here first and here most recently, the following cartoon summed up 1000 words very succinctly...

Preferring to "wait until the dust settles," to make a decision on who will replace Ben Bernanke as Fed Chair, Bloomberg resports. Former Obama advisor David Plouffe notes, "Syria right now has kind of paralyzed the town." It would appear that with the Senate planning to start debating the Syrian strike decision tomorrow, the fed-head is yet another bargaining chip on the table. With Summers still the strong "bookies" favorite, it would seem should the Syrian strike become a protracted conflict then Bernanke will stay since, as the NYTimes notes, Summers has "a reputation that is replete with evidence of a temperament unsuited to lead the Fed."

"What's more fun than a Barrel of Monkeys? Nothing!" What could be better than assembling a long chain of tangled monkeys, each reliant on those either side of it for purchase, with just the one person holding onto a single monkey's arm at the top end of the chain, responsible for all those monkeys dangling from his fingers. Of course, with great power comes great responsibility; and that lone hand at the top of the chain of monkeys has to be careful - any slight mistake and the monkeys will tumble, and that, we are afraid, is the end of your turn. You don't get to go again because you screwed it up and the monkeys came crashing down. On May 22nd of this year, Ben Bernanke's game of Barrel of Monkeys was in full swing. It had been his turn for several years, and he looked as though he'd be picking up monkeys for a long time to come. The chain of monkeys hanging from his hand was so long that he had no real idea where it ended... indeed, "
If the Fed really thinks that the rest of the world will have to "adjust to us" as it insists on draining global liquidity come what may, it may have a very rude surprise, yet again." One false move and all the monkeys may end up in a heap on the floor.

Sylvio Berlusconi is no stranger to being a catalyst for European crisis: in November 2011 it was his unwillingness to leave the PM post (and be replaced with a Goldman technocrat), that precipitated a bond crisis accented by the ECB's unwillingness to interject and buy Italian bonds until the career politician had left. Tomorrow, an Italian Senate committee is due to begin hearing arguments on whether to eject ex-PM Berlusconi from Parliament and on. The special Senate Elections and Immunities Committee will have its first hearing on Berlusconi’s expulsion from the Parliament and six-year ban on 9 September. It seems now less likely that a vote will already take place on 9 September. The decision of the commission will be followed by a vote of the whole Senate. According to Deutsche Bank, the duration of the process is unclear. Indeed, it could be lengthened by several months if the commission (or the parliament) asks for a ruling of the Constitutional Court. However, a worst case scenario could see the government fail, early elections being called, and a repeat of this February's political circus all over again, only this time with even less political capital, if such a thing ever existed in Italy.

The topic of "minimum wage" had been a hot one recently until Obama's red line and Syria stole the front pages. However, no matter how much one explains the dilemma of 'who, eventually,' pays for the increases in minimum wage that will, supposedly, bring a livable wage to all, everyone still wants more - for less. So we looked around the world to see - on a real purchasing power parity basis - just how 'tough' America's minimum wage earners have it. Turns out, only 9 nations in the world have a higher real minimum wage than the US.

There are some in Congress who may be fooled by a few YouTube videos, but the international community, especially the part of it that may soon be on the receiving end of a few hundred of Raytheon's finest, is proving far less gullible.

Current US Treasury issuance is relatively low due to sequestration and (at least temporarily) less US warmongering in the Middle East. That's about to change, of course, now that the US is getting ready to launch a Cruise missile attack on Syria (we’re already been arming and financing the opposition rebels, including groups directly linked to al-Qaeda for several years now). Bernanke and the Fed doves would like nothing better than another “controlled” war in the Mideast, because with war comes massive debt issuance, and with massive debt issuance comes the transmission mechanism (QE) for monetizing that debt and mainlining it onto the Wall Street banks' broken balance sheets. And yes, they’re still broken, and Ben is still bailing them out at the expense of the American middle class. Make no mistake, Jamie Dimon, Lloyd Blankfein, and every other complicit banker on the Street has no problem with this, or any other, war, regardless of whether such a conflict would destabilize the entire region and would almost assuredly pull Russia and China into the fray. The more the merrier, just keep letting that free QE monopoly money roll in from the 4X weekly Federal Reserve Permanent Open Market Operations (POMO’s).  And with the significant financing needs for a large war effort in the Middle East, say good-bye to “Taper.”

There was much discussion of Friday's "disappointing" non-farm payrolls goal-seeked, seasonally adjusted, X-13-ARIMA conceived jobs "number."The conclusion was that it showed an economy which one year after the start of QEternity was growing nowhere near where the Fed has projected and hoped it would be at this time. But in addition to the BLS jobs number, there was another just as important number that was released on Friday: the monthly foodstamp (SNAP) participation update. There was no discussion of this particular number and for good reason. If the NFP number was at least meant to show some economic stability, if subpar, the monthly foodstamp update shows month after month that the greatest depression is nowhere near ending. To wit: in June, the number of households receiving foodstamps rose to 23.117 million, an increase of 45.9k in one month, and also a new record high. As for the average monthly benefit per household: $274.55, just off record lows.

One of the most underreported sentiment shifts of the past week was JPM's announcement late on Friday, that the firm quietly went long commodities - specifically base metals and copper (in addition to energy) - and the firm also closed it "sell" (i.e., underweight) in precious metals. This is not surprising: we had noted the ongoing purchasing of gold by JPM over the past two month (in part to restore its depleted gold vault inventory) when the yellow metal not only stabilized but promptly entered a bull market, returning 20% in a short period of time. And as gold was rising, JPM was advising its clients to sell. It seems JPM now has more than enough gold stashed away, and as the September shock is set to unwind, even JPM may be seeking the safety of gold, and the usual other hard asset suspects, if and when events escalate out of control, resulting in another "risk off" phase.

Earlier today, Charlie Rose who traveled to Damascus previously, interviewed Syria's president al-Assad at the presidential palace. The interview will air in its entirety on PBS's "Charlie Rose" show on Monday night just as Obama's full media campaign to push for a Syrian war is peaking. In the interview, previewed by Rose on CBS's "Face The Nation" on Sunday morning, Assad denied that he had anything to do with the chemical weapons attack that took place on August 21, 2013 and that there was no evidence that he had "used chemical weapons against my own people". Rose also said the Syrian president would not confirm or deny that the regime has chemical weapons. When asked if Assad though there would be an attack, the president told him "I don't know."

Perhaps the 77 year-old republican senator should stick to online poker. Because if the war hawk was in charge of US foreign policy, World War III would be a distant memory. Courtesy of The Burning Platform, the chart below lists of countries where John McCain has not called for military intervention. It is, in a word, large.