Nobody could have foreseen this, nobody, certainly not the vacuum tubes who took the S&P for a ride for nearly 150 points. As Reuters reports, "the euro fell to a session low versus the dollar on Monday after comments from German Finance Minister Wolfgang Schaeuble saying the EU summit would not present a definitive solution to the euro zone debt crisis prompted investors to sell the single currency." No, that's not true, it's impossible. You mean all those hopes... Dashed? "A Bundesbank report saying the German economic outlook had deteriorated further also curbed some of the market optimism that had helped push the euro to a one-month high earlier in the session. The euro hit a session low of $1.3824 before recovering slightly to last trade down 0.3 percent on the day at $1.3840." And since the EURUSD and stocks trade as one... You know the rest.
By now everyone has had a chance to play with the US debt clock. But what about its global cousin? Courtesy of The Economist, we now have a convenient way to track the hundreds of millions in dollars added each and every hour by the global governments who see to spur global deleveraging by, you guessed it, adding more debt. Yes, in the process the world's sovereigns are transferring default risk away from global corporations to sovereigns, but few in the #OWS crowd appear to have yet figured out this rather disturbing and very insidious usurpation of sovereignty by the global corporatocracy, so said risk and leverage transfer will continue until such time as any and all paper backed by these insolvent corporate shells (f/k/a countries) is completely worthless. Regardless, one should not forget that like in the sandalone case, the "debt clock" below only tracks on balance sheet debt. Should one add the NPV of all "welfare state" obligations (pensions, retirement, healthcare), the number will be well over quarter of a quadrillion dollars. Have fun funding that, never mind paying it off...
I have previously discussed the many profound financial reasons why the euro is doomed. But there is another political/financial reason why the euro's unraveling is inevitable. To understand this dynamic, we must start with this reality: in the wealthy countries of the north, the crisis is abstract; there is so much wealth and apparent financial stability, the notion that some sort of real-world hardship could actually spread from the southern Eurozone to the north is simply impossible to grasp. In the nations impacted directly by the crisis, there is nothing abstract about the unraveling; it is now part of everyday experience.
By now nobody should have any doubts as to just how disturbing America's fiscal debacle is. For those naive and innocent few who still think there is a Hollywood ending with a pot of gold awaiting everyone at the end of the rainbow, we present the following "10 essential fiscal charts" from the Pew Policy Institute. To be sure, these are all charts summarizing data that has appeared on Zero Hedge repeatedly over the years in some way shape or form. Pew does, however, have a flair for dramatic visual presentation. In Pew's own words: "Since April 2010, the Pew Fiscal Analysis Initiative has published several reports explaining the medium-and long-term fiscal challenges facing the federal government. With stagnating economic conditions and the passage of new legislation, especially the Budget Control Act of 2011, the outlook for the deficit and debt has changed considerably over the past six months. We have created 10 charts that illustrate how the choices made over the last 10 years contributed to our nation’s debt and the challenges currently facing the Joint Select Committee on Deficit Reduction." So without further ado...
Remember when Morgan Stanley pulled out the kitchen sink two weeks ago in support of its surging CDS (which incidentally will be the sole reason for the bank's "surprising" EPS beat when the bank pulls a DV(D)A page right out of JPMorgan's playbook) by enlisting the support of Japanese JV Mistubishi UFG with promises that it would never let its bigger US brother down? Well, we now have the first indication of just "how" said plan will look like. As Reurters reports, the JV "is planning to cut 1,200 to 1,300 jobs, or about 20 percent of the total workforce, a source familiar with the matter said on Monday. A spokesman at Mitsubishi UFJ Morgan Stanley said his firm made a call for early retirements earlier this month but declined to say how many workers responded. A previous call for early retirements in February cut about 270 jobs. The company had about 6,600 employees at the end of March." And there you have it. With supporting JV partners such as these, who needs CDS vigilantes, or the difference between gross and net exposure when bilateral netting is discovered to be the biggest fraud ever?
Many of us wonder whether the Occupy Wall Street movement will continue to grow and establish roots, to offer some hope for change… or whether it will be stopped and smothered… not by the Fat-Cats represented in that odious One Percent, but by the Squires, that Nineteen Percent of enforcers, or bystanders, of predatory capitalism that has taken over America; what is now Corporate America. The Squires are the only middle-class left in the United States today, even if there are many others who illusorily think of themselves as middle-class, not wanting to be included in a bottom 80 percent, the place where they belong if only they would wake up to reality, set aside their pride.
When it comes to the gyrations in the stock market, there are those who, quite foolishly as of late, believe that market moves are driven by such arcania as fundamentals and/or technicals, or, much more relevant lately, are purely a function of overall liquidity in the system. Which brings us to China where unlike the US, the stock market has been in full on collapse mode until last Monday when the government, rightfully so, decided to bail out its own banks while letting European ones fend for themselves. Yet, unfortunately for China bulls such as Jim O'Neill, we have some bad news: the core indicator of overall systemic liquidity, M2, just tumbled to a 9 year low as of Friday, printing at 13% on expectations of 14%. Not only that, but the direct loans in the financial system, dropped far below the 550Bn CNY estimate, at just 470Bn, the lowest since December 2009. Granted, this is all "on the books" stuff (yes, we know, we know, communist regime and goal-seeked econometrics - check), so who the hell knows what is happening with the uncontrollable shadow banking system. Well, nobody, but since robots only have overt data to play with, regardless of how manipulated it may be, the following two charts will probably be a wake up call to anyone expecting a China driven "risk renaissance" absent the PBoC deciding to do away with its inflation-fighting regime, and launching into print speed ahead (something several hundred millions migrant workers would not be delighted with).
When even Goldman says the rally is based on male cow feces, Houston, we have a very big problem: "To some extent it is remarkable that markets continued to rally last week and that Eurozone-related risk premia declined, because at the surface, there has been very little concrete progress regarding the Eurozone fiscal crisis. The extent of Greek haircuts, the details of bank recapitalisations, the use of leverage in the EFSF or not – all these and many other issues remain basically unresolved at the moment. Only one thing is clear, policymakers continue to work overtime while trying to find solutions."
The last time (May 2010) when the head of the worst performing division at Goldman, GSAM's Jim O'Neill openly taunted the market skeptics ("Anyhow, dear grizzlies....bet your [sic] worried about today’s rally? See u later.") the market proceeded to implode with such ferocity (not to mention see the first and biggest SEC fine charged against his firm for CDO rigging) that it took QE2 to prevent a depressionary relapse. Now, following the latest two week surge in risk assets, driven as we currently speculate primarily due to a FX repatriation out of French banks on asset liquidation and USD to EUR conversion, Jim O'Neill has once again crawled out of his shell and has gone "bear hunting." However, so as not to jinx the ongoing melt up on proceeding liquidations, he is far more subdued and rhetorically answer himself: "So are the bears beaten? As tempting as it is, alas I think not - at least yet." He continues, putting the onus of the growth thesis once again squarely on China: "While the Euro challenges are immense, I don’t see them as being necessarily of the power to drag down either China or the US, or both. While it is perfectly possible, the US and China have coped perfectly well with Japan’s weakness for a long period, so I don’t see why they can’t cope with a struggling Europe. A collapsing Europe would be a different story, but a struggling Europe, that shouldn’t be too demanding. As for Europe, the bar has been raised these past few weeks, as markets have recovered and expectations of a Big Bang increased. There are all sorts of dilemmas remaining, ranging from Berlusconi’s tentative hold of power in Italy to the divergence of stances on the right broad European solution. What we really need from Europe is to just not implode, that would be a problem for the rest of us and the markets." Unfortunately for Jim, he appears to have missed the "paradigm shift" when few if any buy the China as world savior phenotype any more, and instead most finally see what Jim Chanos and other fringe bloggers have been claiming for year. As for the bears, Jim, just like last time, fear not - the bears will once again have the last laugh.
We all know that China has the biggest skyscrapers, the fastest growing economy, and the emptiest cities in the world. We also know that there is no such thing as a free lunch. And with every economic success story, no matter how engineered, manipulated, or contrived, comes a human cost. The 2009 documentary by Lixin Fan, "The Last Train Home", is just one such attempt to capture the "human element" behind the glitzy headlines and the 9% GDP growth. The quite synopsis: "Every spring, China's cities are plunged into chaos as 130 million migrant workers travel back to their home villages for the New Year's holiday. This mass exodus is the world's largest human migration, an epic spectacle that exposes a nation tragically caught between its rural past and industrial future. Working over several years in classic cinéma vérité style, director Lixin Fan traveled with one couple who have embarked on this annual trek for almost two decades. Like many of China's rural poor, the Zhangs have left their native village of Huilong in Sichuan province and their newborn daughter to find work in Guangzhou in a garment factory for 16 years and see her only once a year during the Spring Festival. Their daughter Qin, now a restless and rebellious teenager- bitterly resents her parents' absence and longs for her own freedom away from school and her rural hometown, much to the dismay of her parents. She eventually leaves school, against the wishes of her parents, to work in the city. Emotionally charged and starkly beautiful, Last Train Home examines one fractured family to shed light on the human cost of China's ascendance as an economic superpower." We bring the documentary in 6 parts to our readers in hopes of a greater understanding of the dynamics behind the world's biggest economic dynamo.
China Bailing Out Europe (Again)? Don't Make The Head Of Greater China Research At Standard Chartered Bank LaughSubmitted by Tyler Durden on 10/16/2011 - 14:00
With the G20 meeting in Paris such an epic dud there is nothing even the permaspin media can write about (there was no news of a bailout. Nothing), it is time for some paywalled publications to recycle the gibberish about China bailing out Europe all over again. Sorry, it's too late. Courtesy of last week we now know that China is much more focused on bailing out its own largely underwater banking system (first facts, then analysis), than worrying about buying the 17th Community Bank of Thessaloniki. Yet we can keep repeating this so very simple fact until we are blue in the face. So we will leave it Stephen Green, head of Greater China research at Standard Chartered Bank.
Michael Lewis' latest compilation of Vanity Fair articles into book format, Boomerang, is the usual entertaining romp around those back and front waters of the world that are currently on the verge of bankruptcy: from Greece, to Ireland, to Germany and, of course, to California. The premise at its core is an interview that the former Salomon bond salesman had with investing wunderkind Kyle Bass several years back which inspired to him to ask what it is that the Texan saw three years ago that so few others, due to a permafrosty cognitive bias or what have you, could (i.e., that the world is bankrupt and getting much worse). Oh, did we say wunderkind? We meant billionaire. Because unlike that other "anti-Midas" who only piggybacked on the good ideas, while blowing up LPs when left to his own non-Goldman Sachs facilitated devices, Bass actually could always see the big picture for what it is. So courtesy of Lewis' latest book, here are three pieces of advice from Bass to people everywhere, which will surely bring the fanatically jealous anti-gold crew to accusations that Bass made his billions from buying and reselling tinfoil hats.
We won't spend too much time to dwell on the following pamphlet of sheer "buy, buy, buy" desperation from Barclays' Sandeep Bordia, suffice it to say that we now know which would be the first European blue light special "rescuer" of Lehman to go under courtesy of a massively wrong bet on PrimeX should the "illiquid" market continue to flounder. Which it will. We will add, however, that it would be damn poetic, not to mention hilarious, if while long and wrong bets on Subprime is what detonated Lehman, then being John Holmes'd in Prime is what leads to Barclays' bankruptcy (and we do already know that Barc is the bank with the second largest capital shortfall in Europe courtesy of that other bank which hopes to pick up the pieces upon blue's implosion, Credit Suisse). It would appear that the vultures are already circling... And where the vultures are, the squid can't be far behind.
Europe is far too reliant on Germany and the other ‘strong’ countries for the various individual nations to be able to take care of their own problems - particularly if any localized bank recapitalizations are to be in addition to the already pledged EFSF contributions by each nation (left). What is far more likely is some kind of ‘bazooka’ or ‘shock & awe’ (to use two tired cliches) approach using the newly-approved EFSF. If France had to recapitalize BNP and Soc Gen to the tune of €11 billion in addition to its €158 billion stake in the EFSF (as is widely suspected), it could well kiss goodbye to its AAA rating now that the ratings agencies seem to have finally found religion (Italy & Spain saw downgrades this week) and that, for a country currently running a debt-to-GDP ratio of 84%, would NOT be a good thing. Whether a ‘station-to-station’ plan is in the works or not, it will rely on a nice, orderly procession from one country to the next and I think it has been made abundantly clear over the last year that Europe DOESN’T do ‘orderly’. There is absolutely no way that the Eurocrats can stop the markets turning their collective eyes towards the next domino in the line at every point in the process. As they struggle to ‘fix’ the Greek situation, the markets have already done it for them and Greek 1-year bonds now yield 166%. Job done. Next up? Whether the architects of a solution are ready for it or not, it’s Spain and Italy... and France.
With the near record melt up in stocks last week already history, vacuum tubes are already eagerly awaiting the next week of wild and crazy momentum swings in which earnings season comes with a bang as 100 of the S&P 500 companies, or 33% of the total market cap, reports earnings. And even with lowered earnings expectations, hence the upcoming beats, the trailing 4 quarters of S&P 500 earnings which are now expected to come at $94, will represent a new all time high, over the $91.47 record set in Q2 2007, and well above the $90.91 LFQ posted last quarter. As Goldman notes, "To remain below the previous peak, earnings would have to miss current bottom-up consensus expectations by 10%, which would represent a significant shortfall." As for what Goldman, or specifically what its clients expect, here is the rundown: "Conversations this week focused on the 3Q earnings season as investors look to use this earnings season to benchmark company performance in light of the uncertain macro environment. Solid micro data from earnings results could represent a stabilizing force in a market where volatility had been extremely elevated. Better-than-expected or in-line results would indicate firms can continue to produce strong profit growth despite weaker economic data, matching the pattern in both 1Q and 2Q 2011. However, high correlation will act as a market headwind if earnings disappoint. Average 3-month stock correlation for S&P 500 stocks rose significantly in August to nearly 0.75 and remains near record-high levels." However, so far earnings have been more or less a dud, with the exception of Google: "This week AA reported earnings below consensus estimates on higher costs and slowing European demand. SWY beat EPS estimates despite margin pressure. JPM results were largely in line with expectations after excluding one-time items." Well, no, absent the "benefit" of JPM effectively buying CDS on itself, it would have missed consensus by 20%. Expect the same gimmick to be used by all other financials.