With today's less than stellar consumer confidence number and continued path of missed expectations on key macro data over the past few weeks, it is perhaps wondrous that our brain-trust of analysts and economists continue to forecast higher expectations across the board. While this may not come as a surprise to readers used to comprehending the magic of the Birinyi ruler's extrapolation and the inevitable and clockwork 'miss' of turning points of any and every educated talking-heads model, this chart from Deutsche Bank's asset allocation group should contextualize where we are actually versus where LaVorgna and friends see us going. The sad truth is - we have seen this play out again and again and as the printing-press-pressure drives up asset prices (providing confirmation bias upon anchoring bias for any and every economist or long-only manager quoting the 'recovery' or decoupling), the truth is that as prices (and expectations) distend from value and actual reality, the central bank's efforts to 'maintain' the status quo simply create a larger and larger vacuum for asset prices to fall through when sad reality is finally peeked.
Guest Post: Welcome to the United States of Orwell, Part 2: Law-Abiding Taxpayers Treated As CriminalsSubmitted by Tyler Durden on 03/27/2012 - 09:40
Law-abiding taxpayers are treated like criminals while the criminal class of financiers and State apparatchiks are free to loot and pillage muppets and taxpayers alike. It's actually very simple: whatever the state or Federal government does to you, that's legal. Whatever action you take to protect your rights is illegal. In case you have any doubts about where our "leadership" is taking us, please review these Assorted quotes by Fascists or about Fascism.
Consumer Confidence fell for only the second time since this unerring rally began and basically met expectations but it is under the covers that is concerning. Expectations for high inflation in the next six months has reached its highest level in six months jumping considerably from the previous month. Combine this with the overall drop in the expectations subindex of the consumer confidence index which fell for the first time in 5 months and all is not well in the 'stocks are going up so we are all doing great and the economy must be awesome'-transmission mechanism. On top of this wonderful news, the Richmond Fed missed expectations (with its biggest miss in 10 months) - taking us to 15 of 17 (removing the consumer confidence and S&P Case Shiller meets) missed economic data prints now. 7 of the 9 subindices of the Richmond Fed index dropped precipitously with only wages rising notably (more inflation?) even as 'number of employees' slumped by more than half and expectations for 'number of employees' in six months fell to its lowest since September. It would appear that higher gas prices are much more of a detrimental impact on the individual's confidence than a rising equity market is a boost - whocouldanode?
"The statistical component of the European Union, Eurostat, is quite clear; they do not count guarantees or contingent liabilities as part of any nation’s debt. We might all note that if Nestle or IBM or General Electric did this they would find their senior executives jailed for Fraud but never mind; this is the methodology of the EU which quite obviously masks the truth. The problem then is not the simple math used to obtain a more accurate debt to GDP ratio but in digging out the various guarantees, contingent liabilities and obligations of any member nation of the European Union. “Time consuming” would be the accurate words because you have to sleuth around like Sherlock Holmes to come up with the data. Yes, it is all there somewhere or another but it is nowhere all together and so must be found." And as Mark Grant points out what we noted last July, when one factors in all the various guarantees and contingent liabilites by Germany to date, something peculiar appears: instead of a 81.8% Debt/GDP, the country's actual Debt to GDP soars to a Italy-lie 139.8%.
The Turkish central bank has doubled the amount of gold that lenders can hold in reserves (as opposed to paper money - Lira) as part of their reserve requirement changes. As the WSJ reports, this shift from 10% to 20% means that Turkish banks can use their shiny yellow metal as fungible money reserves against foreign currency deposits. This move follows closely on the heels of our comments on last week's 'gold transfer' efforts in Turkey to unleash some of the country's vast personal holdings of Gold. This effort to draw down on the nation's individual gold reserves - the traditional form of savings in Turkey - is part of Ankara's efforts to reduce a finance gap that is currently around 10% of GDP but more importantly it should serve as a lesson reality-check for Bernanke that gold is money and in the words of a 70-year-old housewife "In an emergency, I can convert [gold] to cash and I don't have to wait for the bank to say the asset has matured." It would seem a better store of value than the Lira over the past decade or two and we suspect incentives will have to rise considerably to 'help' the people part with their savings-gold.
Despite January being the first of 3 record warm winter months, which saw virtually all other economic indicators boosted on the heels of 'April in February', today's incomplete Case Shiller data (Charlotte, NA was missing), indicated that in the first month of the year, prices across the top 20 MSAs dropped once again, posting a 9th consecutive decline, declining by 0.04% to 136.60. The Seasonally Adjusted print brings the average home price to December 2002 levels. And just to avoid Seasonal Adjustment confusion which courtesy of a record warm winter is all the rage, the NSA data showed a -0.84% drop in January.
First it was Bob Janjuah throwing in the towel in the face of central planning, now we get the same sense from Bill Gross who in his latest letter once again laments the forced transfer of risk from the private to the public sector: "The game as we all have known it appears to be over... moving for the moment from private to public balance sheets, but even there facing investor and political limits. Actually global financial markets are only selectively delevering. What delevering there is, is most visible with household balance sheets in the U.S. and Euroland peripheral sovereigns like Greece." Gross' long-term view is well-known - inflation is coming: "The total amount of debt however is daunting and continued credit expansion will produce accelerating global inflation and slower growth in PIMCO’s most likely outcome." The primary reason for Pimco's pessimism, which is nothing new, is that in a world of deleveraging there will be no packets of leverage within the primary traditional source of cheap credit-money growth: financial firms. So what is a fund manager to do? Why find their own Steve McQueen'ian Great Escape from Financial Repression of course. " it is your duty to try to escape today’s repression. Your living conditions are OK for now – the food and in this case the returns are good – but they aren’t enough to get you what you need to cover liabilities. You need to think of an escape route that gets you back home yet at the same time doesn’t get you killed in the process. You need a Great Escape to deliver in this financial repressive world." In the meantime Gross advises readers to do just what we have been saying for years: buy commodities and real (non-dilutable) assets: "Commodities and real assets become ascendant, certainly in relative terms, as we by necessity delever or lever less." As for the endgame: "Is a systemic implosion still possible in 2012 as opposed to 2008? It is, but we will likely face much more monetary and credit inflation before the balloon pops. Until then, you should budget for “safe carry” to help pay your bills. The bunker portfolio lies further ahead."
As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul. Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market. In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS. Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.
Gold Nears $1,700/oz After Bernanke QE Hints, OECD $1.3 Trillion Eurozone ‘Firewall’ And Despite Indian Gold StrikeSubmitted by Tyler Durden on 03/27/2012 - 06:43
Gold is targeting $1,700/oz after yesterday’s Bernanke QE hints and today’s urging by the OECD to boost the Eurozone ‘firewall’ by another $1.3 trillion. Gold is consolidating on yesterday’s gains today above the 200 day moving average (simple) at $1,687/oz after yesterday’s biggest daily gain since January. The gains came after Ben Bernanke warned of the risks to the fragile US economic recovery and signalled the Fed would keep interest rates low and further debase the dollar – boosting gold’s inflation hedging appeal. Gold is also likely being supported by the OECD’s warning that the debt crisis is far from over. The OECD said today that the euro zone's public debt crisis is not over despite calmer financial markets this year and warned that Europe's banks remain weak, fiscal targets are far from assured and debt levels are still rising. The OECD said that the eurozone needs to boost crisis ‘firewalls’ to at least $1.3 trillion. Gold likes the ‘trillion’ word and talk of ‘trillions’ and will be supported by the risk of the creation of trillions of more euros, pounds and dollars in the coming months. Indian jewellers are on strike to protest against a government levy on gold and the strike is entering its 11th day in most parts of India. It has brought gold imports to a near standstill from the world's biggest buyer of bullion in the peak wedding season. The Indian government for the second time in 2012 doubled the import tax on gold coins and bars to 4% along with an excise duty of 0.3 percent on unbranded jewellery.
- 6.0+ Magnitude quake strikes near Tokyo (USGS)
- Ireland Faces Legal Challenge on Bank Bailout (Reuters)
- Bernanke says U.S. needs faster growth (Reuters)
- Spain Promises Austere Budget Despite Poll Blow (Reuters)
- Orban Punished by Investors as Hungary Retreats From IMF Talks (Bloomberg)
- Obama vows to pursue further nuclear cuts with Russia (Reuters)
- Japan's Azumi Wants Tax Issue Decided Tuesday (WSJ)
- Australia Losing Competitive Edge, Says Dow Chemicals CEO (Australian)
- OECD Urges ‘Ambitious’ Eurozone Reform (FT)
- Yields Less Than Italy’s Signal Indonesia Exiting Junk (Bloomberg)
Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board.
UPDATE: Added link to Matthew Bishop's ebook 'In Gold We Trust'
On a day where gold surged generously on the same thesis with which it managed a five-fold increase in the last decade or so - that of paper money debasement - we thought it appropriate to get some context as to the yellow metal's history, current implications, and potential future. In a mere 111 seconds, we are treated to a history of sound money (from Croesus to The Bank of England to The Great Depression), the growing division between some of the world's most-famous smartest investors with regards to Gold's price (Buffett vs Paulson/Bass), Governments and Central Banks Spending and Printing 'experiments', and a discussion of the endgame of "Where Will All The Money Go?" - all with the help of a magical cartoon hand. As it seems the profligate control of the electronic press is now all that matters to an increasingly correlated and blind-leading-the-ignorant markets, perhaps it pays to consider how markets have changed reactions to the threat promise of the extreme easing upon which the equity market's heart beats so strongly. Once anxious of bond vigilantes (taken care of via LTRO reacharounds and direct Fed monetization), FX markets remain intervention-prone (just ask Azumi how many times he looks at JGBs or JPY risk-reversals every day), and finally to the stock (and vol) markets as 'Bernanke's trailing-strike Put' ensures 'the wealth effect' buoys us all the chosen few to greater and greater spending disconnects between value and price and potentially larger and larger mal-allocations of capital. With Corporate cash stockpiles so huge - the "Where Is John Galt?" line can't help but appear in many minds as reinvestment in a dilapidated, aging, increasingly less cash flow generating asset base remains to be seen.
Following the earlier microphonegate (someone really need to tell politicians that any time they speak, they are now on the record always, and no just for the benefit of the NSA's brand spanking new compound in Utah known as "1984", that includes Portuguese and German politicians too) it was only a matter of time before the more conservative republican elements went beyond the simply rhetorical and asked some pointed questions, such as this from Mike Turner, Chairman of the House Armed Services Subcommittee on Strategic Forces, who minutes ago said that "It’s Unclear What the President has Offered up to the Russians as Bargaining Chips." Additionally, what is funny is that a part of the much hated NDAA which essentially eliminates the bill of rights for American citizens who are suspected of terrorist activity, Congress specifically targeted missile information sharing with Russia. To wit: "Congress has included in the FY 2012 National Defense Authorization Act, Congress, which the president has signed into law, a provision constraining his ability to share classified U.S. missile defense information with the Russian Federation. Congress took this step because it was clear based on official testimony and Administration comments in the press that classified information about U.S. missile defenses, including hit-to-kill technology and velocity at burnout information, may be on the table as negotiating leverage for the president’s reset with Russia." So let's get this straight - Obama signs the NDAA, with supposed reservations because he is well aware it is unconstitutional, and yet when it comes to its plain vanilla provisions, he violates them? Has anyone figured out yet what follows a banana republic in the escalation to pure centrally-planned lunacy, because America is there now.
Earlier today we presented an extended case by Caixin's Andy Xie, who is now confident that a massive 40% devaluation of the Yen is imminent and inevitable (with dire consequences for regional trading partners), as the opportunity cost, now that the Japanese economy is no longer competitive in the New Normal world (read trade surplus) of delaying what every other central banks has been doing so well (just observe the nominal surge in risk assets at 8 am this morning when Bernanke made it clear more real dilution is coming, as predicted here just yesterday), is the 3 decade long overdue pop in the JGB bond market. Yet as Xie notes, either of these two bubbles popping - the JPY or the JGB - is fraught with danger as both will confirm that three decades of central planning have failed. What is worse, Japan would then become a case study for failed central planning (yes, redundant), everywhere, but nowhere more than in the US. Which in turn, would not be a surprise to most, or at least to those who don't chase dead end momentum trends and heatmapped assets in simplistic hopes of finding a greater fool 1 millisecond into the future. It also would not be a surprise to anyone who sees the following chart from John Lohman which shows the gradual failure of central planning since the second global depression started in 2007 (and offset to date by $7 trillion in central bank private-to-public risk offset), during which time the BOJ has been forced to load up its balance sheet with substantially more assets than its GDP has grown by. Alas, this trend will accelerate which is why with time the exponential chart of central bank balance sheet expansion will only get more "exponential" until it finally pops, bringing with it an end to the truly last bubble. We can only hope we are somewhere far away when that happens.