Archive - Aug 18, 2015 - Story

According to the latest, just released survey concerns about both geopolitics and Greece have been largely forgotten, as have Chinese debt defaults, and instead these have been replaced with far more overarching fears about a China recession (made all the more acute after China's devaluation) and an Emerging Market debt crisis. In fact, according to BofA, "2 out of 3 investors think either China recession or EM debt crisis = biggest "tail risks."

Thanks to the economic miracle of offering cheap money to the least creditworthy of society, The Atlanta Fed just increased its forecast for Q3 GDP from +0.7% to +1.3% - though this is still less than half consensus estimates. The driver of this 'almost doubling' was due to a 15.3% increase in seasonally adjusted motor vehicle assemblies in July stuffing inventories even fuller. Of course, as we previously noted, this is entirely unsustainable and we await the mean-reversion in August and September.

In the event you were becoming concerned that the U.S. government might be backing away from its longstanding policy of endless violence, militarism and bloodshed, fear not. If we know one thing for sure, it’s that defense contractors and the military-intelligence-industrial complex must earn. And continue to earn it will.

The era of reaping stupendous profits from low-quality goods produced by low-cost labor in a lax anything-goes regulatory system are ending, not as a result of policy changes but as a result of far deeper structural changes. Anyone thinking China, Inc. and Corporate America will emerge unscathed is living in Fantasyland.

As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. But, as WSJ's Jon Hilsenrath warns, their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive. "The world economy is like an ocean liner without lifeboats,” economists at HSBC Bank explained, and as looming threats are a reminder that the slow-growing global economy is just a shock away from peril, with rates already at zero, Douglas Elmendorf, the recently departed director of the CBO, warned, "policy makers are thinking about their backup, backup plans."

For the 3rd time in a week, Silver futures prices are plunging. This time though it is on considerably heavier volume as Silver drops 3.75% - the most in over a month - hammered off resistance at its 50DMA. Gold is also falling though not as aggressively.

There is no such thing as objective science when a researcher receives tens of thousands of dollars from the GM producers themselves, then goes on to promote their financiers’ products. Corporate collusion between government bureaucracies and educational institutions has become a serious issue in the U.S. that has corrupted objectivity in nearly every sector of American life.

It will probably not come as a surprise that with oil trading at 6 year lows, and with China barely able to keep the plates spinning,  according to the latest NYSE data, Energy and Industrial were the most shorted sectors as the shorts congregate, having smelled if not blood than ongoing commodity and excess capacity turmoil. What about the remaining 8 sectors?

Political turmoil, rising violence, and general EM malaise have hit Turkey's currency hard and on Tuesday, the central bank left rates unchanged prompting further weakness in the lira which had already fallen earlier in the session after Emine Nur Gunay, PM Davutoglu's chief adviser, hinted that a rate hike was not in the cards.

Copper (and aluminum) tumbled overnight as base metals were battered during an intense Asia session and losses are extending in European trading. As one trader noted "sentiment toward China is weak, the dollar is somewhat strong and there is an unholy combination of many factors keeping prices under pressure," and copper traded $4,999/mt on the LME - its first sub-$5000 print since 2009. Aluminum, nickel and zinc all tumbled also.

After 3 months of exploding building permits - driven almost exclusively by the Northeast region (due to expiration of property tax breaks in NYC) - reality bit in July as permits plunged 16.3% to the lowest since March (biggest drop since June 2008). This was the biggest miss on record for permits. Housing Starts rose less than expected but thanks to a dramatic upward revision are stable at around 1.2 million units SAAR (driven by a rise in single-family units trumping multi-family units).

"We Were Short… Now We Are Not!: The trend since mid-June is upward and today’s collapse in the Chinese stock market will serve only to make the bid for the US bond market that much stronger!" - Dennis Gartman

Just hours after the PBOC announced a modestly "revalued" fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39 it was the local stock market spinning plate - which had been relatively stable during the entire FX devaluation process - that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak.

On Monday we laid out the rather dire road ahead for the world’s emerging economies in the face of China’s entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic." Well don’t look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July. Meanwhile, the rupiah is sitting near multi-decade lows.

It may not rely on such tech bubble (ver 1.0 and 2.0) buzzwords as eyeballs, clicks, "story", "sharing", "hyperxxxx, "non-GAAP" and so on, in fact with 2.2 million worldwide employees Wal-Mart is as old-school as it gets, which is why the fact that what was once the world's most valuable retailer (until Amazon dethroned it a month ago) just reported not only a miss, on tumbling operating earnings, but slashed its guidance by 7%, should be very troubling to anyone who still looks as such trivial things as "fundamentals" and how these reflect the even more trivial "economy."