There is a glaring divide between the G10 and Emerging Market economies in terms of what monetary easing is priced in - and what is not. Specifically, as Citi notes below, traders 'expect' the US, Europe, and Canada all to be tightening (raising rates) within 18 months, while expectations are for Australia (and the rest of the China-reliant nations across Asia) to see notable easing in that period - and already priced in. Brazil is the standout as far as 'inflation' fighting rate rises just as Eastern Europe is priced for the most 'easing' of rates. It seems clear that not every stimulating headline has the same value with this much EM easing priced in already - and hope priced into DMs.
Those who think that China's centrally-planned transition to the world's leading, fastest growing economy in the shortest time in world history, coupled with its attempt to shift from a mercantilist, export-driven economy, to one sporting the world's largest middle class is progressing smoothly and according to plan, especially as related to millions of overeducated young adults who are finding it impossible to find a job in China's big cities, and find their diplomas uselss in the small ones, are urged to watch the following documentary exposing "China's Broken Dreams." From Al Jazeera: "[The Chinese] people are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalised and are finding that improving their lives is getting harder. [This imbalance could lead to] the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak .... The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem." Translation: class war unlike anything seen even in America, where class war is the basis for the entire presidential campaign. Because unlike the US, "class war" in China will have a far more true to its name outcome.
It has officially become boring to joke about jokes about the record low volume, but here goes.
We tried to bite our tongue; we ignored some of the sheer hypocrisy of Cleveland Fed's Sandra' oh Sandy' Pianalto (that QE2 was a definitive success in 2010 but now LSAPs require more analysis of costs and benefits); but when she started down the road of praising the US consumer for deleveraging we had enough. In the immortal words of John Travolta: "Sandy, can't you see, we're in misery" as while she notes consumers cutting back on credit card debt (due to forced bankruptcies we note), Consumer debt has only been higher on one month in history! Soaring auto loans and student debt should just be ignored? There is no deleveraging - Total US Consumer debt is 0.23% from its all-time high in mid-2008, and will with all likelihood break the record at the next data point. Meanwhile her speech, so full of careful-not-to-over-commits can be summed up by the world-cloud that shows the six words most prominent: 'Monetary Policy', 'Financial Conditions', and most importantly 'Credit Economy'. Here's the deal: Consumer Debt is Consumer Debt.
In a little under two-and-a-half minutes, CNBC's Rick Santelli surveys the landscape of just what exactly is Quantitative Easing, why more debt does not solve the problem of too much debt, and why these actions (as even Frau Merkel has ascribed concern) are nothing but counterfeiting. He rhetorically questions how the printing of more money is the way to solve our 'problems', adding via Rick Rule, that "there's been no shortage of cash in the system; but one wonders [given] this economy seems based on liquidity, whether building an economy on what is, in fact, counterfeiting is very good for the economy in the long term?"
With the world's suckers investors (CEOs, politicians, and peons alike) all hanging on every word the man-behind-the-curtain has to say on Friday, Stone & McCarthy has crafted an excellent 'what-if' of key takeaways and interpretations ahead of Friday's Jackson Hole Symposium speech by Bernanke. Will Draghi toe the line? Will China be pissed? and what rhymes with J-Hole? On balance, we think Bernanke will save the policy directives for the FOMC meeting (potentially disappointing the market) while highlighting that the Committee is vigilant and flexible, and ready to act.
It's quiet out there; too quiet. But if you were watching carefully this morning, everyone's favorite government-subsidized bank - Citigroup - flash-crashed to the tune of a $1.2bn market-cap loss in a fraction under 100 milliseconds. A 1.3% micro-crash on absolutely massive volume so perfectly visualized thanks to Nanex. When does this 'liquidity-providing' fiasco stop?
Welcome to the new America — where banks must be protected at all costs. Whether it’s a bailout or a trumped up charge to silence a protestor, if the banks want it, they get it. The district attorney in the case has dropped the charge of attempted robbery. However, a terroristic threat charge remains. Meanwhile, the economic evidence is mounting that countries that want to recover need to tell the banks to take a hike.
It seems the 'we -really-want-it-but please-don't-blame-us-when-it-all-goes-pear-shaped' meme continues in Europe as ECB's Asmussen adds his own peculiar mix of talking out of both sides of his mouth, (via Bloomberg):
- *ASMUSSEN SAYS DOUBTS ABOUT EURO'S SURVIVAL UNACCEPTABLE FOR ECB
- *ASMUSSEN: ECB STILL WORKING ON DETAILS OF BOND PLAN, WILL ADDRESS SENIORITY CONCERNS
- *ASMUSSEN: ECB WILL STRICTLY SEPARATE MON. POL., SUPERVISION ROLES
- *ASMUSSEN SAYS ECB CAN'T PAY FOR FISCAL POLICY MISTAKES
- *ASMUSSEN: WE WON'T TAKE SUPERVISOR RESPONSIBILITY WITHOUT TOOLS
- *ASMUSSEN SAYS HE PREFERS BAILOUT FUND TO BUY BONDS BEFORE ECB
Clearly there is still ongoing uncertainty and confrontation within the governing council - and it is obviously not just Weidmann. Market response - not a blip in ES or EURUSD!
With London closed, the market's 'police' were away and so the mice played. Credit markets (sovereign and corporate) went absolutely nowhere as trading was minimal to negligible but equities just could not help themselves as the path of least resistance was to retraced back up from Friday's loss. The move in European equities is simply catch up to Friday's post-European-close levitation in the US (admittedly with a little higher beta) and volume was as dismal as one would expect. FX markets are also dead with EURUSD up only 5 pips at the EU close - having traded in a 40 pip range since it opened on Sunday night (most of which was around the Asian and European data releases). Quiet - in a word - with reality returning tomorrow as London's credit traders come back.
It doesn't get any better than this - or at least in the last 30 years we have not seen a post-panic rally in risk appetite extend beyond the current length of this move. Credit Suisse's Global Risk Appetite index, which is notably tracking lower with ISM New Orders data, has not extended beyond this time-frame from any of its previous 'deep-panic' peaks. While equity markets contonue to diverge higher, risk appetite is notably lagging and one has to wonder if that historical 'animal-spirits' trough-to-peak period (which is set to coincide with Jackson Hole, FOMC, and ECB meetings) will hold once again as hope fades and reality rears its ugly head.
A recent article discusses an old document (the "Report from Iron Mountain") supposedly written by a committee of academics, explaining why war was necessary as an organizing principle of society. In reality, nature thrives on diversity and yet the current authoritarian vision of the ever-more centrally-planned world appears to be to create a larger political union still. But the end is coming for them. We have entered the twilight of their vision. It is the same fear that motivates the Report from Iron Mountain. The system is too complex to be controlled. Back then the authorities said they feared chaos breaking out over the necessary changes to the economy that would follow from a transition to perpetual peace. In reality they feared the loss of control.
Following last month's plunge in the Dallas Fed Manufacturing data (which was its biggest miss in 14 months and lowest print in 10 months), today's -1.6 print was the biggest jump in 7 months. From last month's -13.2, against an expectation of -7 this month, the -1.6 'beat' was very 'impressive' though obviously still negative. Critically though, once again, much of the rise in the index is predicated on the hope-section of the survey as while current activity indices such as production, new orders, and growth rates fell (and inventories rose), their corresponding future expectation indices all rose (even though expectations of the general activity index were mixed). Notably, the Prices Paid index jumped the most in 19 months. Once again it appears that good is bad, bad is better, but terrible is awesome; as the market's entirely lost discounting mechanism has no idea what to do with this flashing red headline.
In the 'I need to read that again to make sure I am not totally nuts' headline of the day, Reuters is reporting that 100 Sardinian miners have gone totally M.A.D. over the potential closure of the mine they work at. Barricading themselves 400 meters underground with 350 kilograms of explosives and threatening to "stay [there] indefinitely." While one certainly sympathizes with anyone who is unable to adapt to the New Abnormal Normal, one question does remain - is the 'blowing up the mine to protect their jobs' concept a Keynesian 'broken-window-fallacy' joke? or do they (like their forefathers who also occupied the mine in 1984, 1993, and 1995) hope the Italian politicians will simply back-down, collateralize the explosives with the ECB, and bail the whole mine out.