If there was one analogy for the failing artificial Eurozone system we had not heard so far, was one comparing it to Hogwarts (thank you Harry Potter). Now, courtesy of Tullet Prebon that is no longer the case: "Albus Mario Dumbledore and Harry Constancio Potter are due to assemble next Thursday for the next episode of the sovereign Voldemort saga. It is foretold that during the press conference the headmaster will unveil his wand and deliver an almighty spell, ‘Expelliarmus Debtus’, whereupon the dreaded Troika Dementors will be vaporised disappearing into the austerity vortex, leaving the Muggles to live happily ever after."
Last month, global equity markets fairly demanded that the ECB hurry up and print, through buying euro zone debt. Effete euro elites publicly demurred at first, insisting that unlike crass Anglo-Saxons, they didn’t let financial markets push them around. Shortly thereafter, to markets’ thrill, LTRO was launched, i.e. backdoor money printing, since any sentient investor realizes that the debt being bought by the ECB is effectively like a loan to a family member: One should only expect repayment if the recipient has a chance encounter with a winning lottery ticket. Market euphoria over this intensely desired outcome was briefly interrupted a week later, when investors had a look at the shockingly bloated ECB balance sheet, causing a Euro chart breakdown, with a concomitant breakout for the dollar. This now unremitting dollar strength will doubtless temper company outlooks due to be delivered in the next few weeks. Ironically, it is the most crowded trade of late, the Dow Dividend Darlings, whose earnings are likely to be singularly impacted by this newfound dollar strength, as at current rates the dollar is looking to be ~10% higher in H1/12 vs. H1/11.
At least the altitude, but certainly not attitude, challenged French president has finally jumped the shark when it comes to fire and brimstone pronouncements of mutual assured destruction:
- SARKOZY "END OF EURO WOULD MEAN END OF EUROPE, END OF PEACE" - BBG
Or... it would mean the end of the current generation of crony, corrupt, and criminally stupid leaders. Because last we checked, the Euro just celebrated its 10th birthday (with a vast majority wishing said anniversary had never occurred), and Europe was quite "war free" in the days before the globalist wet dream currency. But what do we know.
Despite the barrage of geopolitical headlines involving Iran, and as of today, the US and Israel, especially as pertains to wargame exercises in the Straits of Hormuz, a different, and potentially much more important story is to be found in the country's capital markets, and specifically its currency, which has continued to tumble ever since Obama signed the Iran financial boycott on New Year's Day as reported here. And, as we predicted, it is the aftershocks of the boycott which may have the most adverse impact on geopolitics. Because if the Iran regime finds itself in a lose-lose situation with its economy imploding and its currency crashing, the opportunity cost of doing something very irrational, from a military standpoint or otherwise, gets lower and lower. Then again, something tells us the US administration has been well aware of this sequence of events all along. Here is Art Cashing explaining it all.
It just may turn out that Europe's strategic "plan" of kicking the can down the road indefinitely, or at least until aliens can come down and bail out the global central banking cabal - aka the Deus Ex Alpha Centauri plan - may have worked! In a rather curious announcement, the SETI website of UC Berkeley has announced that it has found signals that "look similar to what we think might be produced from an extraterrestrial technology. They are narrow in frequency, much narrower than would be produced by any known astrophysical phenomena, and they drift in frequency with time, as we would expect because of the doppler effect imposed by the relative motion of the transmitter and the receiving radio telescope." And in the off case that said aliens prove to have an atavism to rude European waiters, at least Paul Krugman will be delighted: after all there is nothing better for the economic voodoo shamans out there than intergallactic warfare. Then again, since Keynesianism appears to be a popular universal delusion, we wouldn't be surprised if it is us who ends up having to bailout them...
"What we have on our hands is a good old fashioned quagmire" is how Morgan Stanley's Mike Wilson sets up his surprisingly non-sheep-like perspective on the troubles that US equity investors may be about to face. Expanding on MS's bearish strategic (fundamental) forecast, that we discussed earlier in the week, Wilson combines the 'liquidity vs negative-real-rate' thesis (that the Fed's liquidity is perhaps no longer 'good' for stocks) with his own views on ECRI's weakness (very 2008-like in relation to ECO surprises), household debt deleveraging (more and longer), how much QE3 is already priced in and what will its effect be when it comes (less and less positive in nominal and real terms), investor sentiment (very bullish), long-term technicals (weak breadth), and short-term earnings expectations (deteriorating and weighted to 'weak' financials to end with the pragmatic realist perspective that perhaps 'the gig is up'.
Looks like the Anonymous hackers continue having fun at the expense of Stratfor's George Friedman... and its clients. In an mass email sent out earlier spoofing the account of Friedman and blasted to all the Stratfor clients, the hacked account stated that going forward all Stratfor premium content would be free, and further, would "like to hear from our loyal client base as to our handling of the recent intrusion by those deranged, sexually deviant criminal hacker terrorist masterminds." Unfortunately, now that the email addresses of thousands of highly placed individuals are out in the open, we believe this is merely the start of comparable spoofing, which will likely end up with disturbing results. In the meantime, Stratfor's website continues to be down.
As rumors of preparations for a Greek Euro exit resume, even if attributed to an old Spiegel piece we wrote about back in 2011, and the USD seems like the cleanest dog in a dirty fight (this week at least), EURUSD drops below 1.27 for the first time since September of 2010. This is a 76.4% (Fib) retracement of the 2005-to-2008 rally and has few solid support levels below here at 1.2590, then the figure 1.25 quickly follows, and on to the 1.2330 10/28/08 swing low and finally the 6/7/10 swing low at 1.1877. All of this is not helped when the former IMF Chief Economist doesn't expect the eurozone to survive entirely, via Bloomberg:
- *EX-IMF CHIEF ECONOMIST RAGHURAM RAJAN SAYS EUROZONE MAY NOT SURVIVE ENTIRELY:CNBC
America may be $25 million away from breaching the interim debt ceiling, it may have well over 40 million people subsisting on food stamps, and we may be reading all about this "austerity" thing gripping the country, but it sure won't be impacting Federal workers, all millions and millions of them, if Obama has his way. According to Washington Post, the White House will propose a 0.5 percent pay increase for civilian federal employees as part of its 2013 budget proposal, according to two senior administration officials familiar with the plans." Well as long as the president is adamant about increasing taxes on what is left of America's upper middle class (and let's not forget that half of America pays no taxes at all) to pay for this, we see no way that this proposal will irritate the class-war divided United States even further. And yet we can't help but wonder: why a pay increased? Haven't we been brainwashed day after day how the only threat is deflation, that prices are not going up, that nobody actually needs food or gas, and that people should in fact be grateful for a pay cut?
One does not need to be a rocket scientist to grasp the fudging the BLS has been doing every month for years now in order to bring the unemployment rate lower: the BLS constantly lowers the labor force participation rate as more and more people "drop out" of the labor force for one reason or another. While there is some floating speculation that this is due to early retirement, this is completely counterfactual when one also considers the overall rise in the general civilian non institutional population. In order to back out this fudge we are redoing an analysis we did first back in August 2010, which shows what the real unemployment rate would be using a realistic labor force participation rate. To get that we used the average rate since 1980, or ever since the great moderation began. As it happens, this long-term average is 65.8% (chart 1). We then apply this participation rate to the civilian noninstitutional population to get what an "implied" labor force number is, and additionally calculate the implied unemployed using this more realistic labor force. We then show the difference between the reported and implied unemployed (chart 2). Finally, we calculate the jobless rate using this new implied data. It won't surprise anyone that as of December, the real implied unemployment rate was 11.4% (final chart) - basically where it has been ever since 2009 - and at 2.9% delta to reported, represents the widest divergence to reported data since the early 1980s. And because we know this will be the next question, extending this lunacy, America will officially have no unemployed, when the Labor Force Participation rate hits 58.5%, which should be just before the presidential election.
While it appears that the future path of globally correlated risk assets is increasingly binary (or even tertiary if we include muddle-through), the AAII has just recorded one of the lowest prints for Bearish Investor Sentiment ever. At only 17.16% of respondents bearish, this is second only to the late 2010 (QE2-inspired) trough in bearishness that soon after heralded the top in risk assets for this cycle - as the rumor rally met the news negativity. This level of bearishness is over two standard deviations from long-run norms. Almost 50% of respondents are fully bullish (which explains the retail equity outflows?) which is the highest in 9 months. The ratio of bears to bulls has accelerated to almost record levels as it seems the respondents that AAII is asking are increasingly (over) confident in their nominal returns (perhaps not so much their real returns), or perhaps believe the hype of a fiat print-fest just around the corner (maybe not post NFP?) and see only upside for USD-numeraire stock prices (even as earnings contract and outlook downgrades persist). So the next time someone tells you that the market will rally because everyone is so negative - not so much.
Enamored with the 200,000 number? Don't be - the reason why the market has basically yawned at this BLS data is that as Morgan Stanley's David Greenlaw reports, 42,000 of the 200,000 is basically a seasonal quirk, which will be given back next month, meaning the true adjusted number is 158,000, essentially right on top of the expectation. From David Greenlaw: "some of the strength in this report should be discounted because of an seasonal quirk in the courier category of payrolls (Fed-ex, UPS, etc). Jobs in this sector jumped 42,000 in December, repeating a pattern seen in 2009 and 2010 (see attached figure). We should see a payback in next month's report."
The NFP report confirms the picture we have all known to grow and love - the people "entering" the labor force are temp workers, those with marginal job skills, and making the lowest wages. For everyone else: better luck elsewhere: the number of people not in the labor force has soared by 7.5 million since January 2007, and the average duration of unemployment is 40.8 weeks - essentially in line with last month's record 40.9. Bottom line - if you are out of a job, you are out of a job unless you are willing to trade down to an entry level "temp-like" position with virtually no benefits or job security.
NFP Payrolls At 200K, Expected At 155K; Unemployment Rate Drops To 8.5%, Labor Force Participation At Lowest Since 1984Submitted by Tyler Durden on 01/06/2012 - 09:30
The nonfarm payroll number prints at 200K on expectations of 155K. The Unemployment rate comes at 8.5% - lowest since February 2009, and down from an upward revised 8.7%. U-6 15.2% down from 15.6% in November. Average hourly earnings rose at 0.2%, in line with expectations, previous revised to -0.1% from unchanged. Private payrolls +212L vs Expectations of 178K. Manufacturing payrolls rose 23K vs Expectations of 155K. Yet the unemployment rate trickery still continues, with labor force participation (prior revised), now at a 27 year low of 64%, and the labor force itself declined by 50K from 153,937 to 153,887. In fact, persons not in the labor force have increased by 7.5 million since January 2007! Bottom line - dropping out of labor statistics is the new killing it.