The "worst case" in the sequence of events forecasted two days ago in "The Most Critical 48 Hours In The Fiscal Cliff Melodrama Have Begun" is taking shape, with Obama and Boehner not even remotely close to a compromise despite what the media and fly by night sellside analysts will have you believe. Instead what looks almost certain to happen is a House vote on the GOP-proposed Plan B where it will pass, only to be voted down in the Senate, especially with the pre-veto treatment by Obama. The House vote will be preceded by a Boehner press conference in which he will prepare the general public for this one final PR gambit before the House essentially shuts down for the year, as any hope of further Cliff discussion in the Christmas week can be abandoned. So from a timing standpoint:
- House republicans meet at 12:00 pm to discuss the final act of the 2012 season of the Fiscal Cliff miniseries.
- Boehner holds press briefing at 1:15 pm Eastern
- House scheduled to vote on "Plan B" between 7:30 pm and 9:30 pm
Shortly thereafter Senate votes Plan B down and chaos ensues.
As Greek bonds go from unintended consequence strength to strength, helped by a EU planned buyback, so Cypriot bonds have been monkey-hammered in the last week or so (and dramatically so today) as the IMF withholds support, demanding a haircut is imposed. As Speigel notes, Cyprus did its part on Wednesday night by passing a 2013 budget with far-reaching austerity measures, yet the would-be creditors (providing the bailout funding) are at odds with the IMF playing 'bad cop'. The IMF is demanding a partial default (rather like being half pregnant) involving haircuts for private creditors before it joins the deal. The IMF is concerned that, despite the austerity measures the country has now adopted, it still wouldn't be able to shoulder the interest payments due on its debt - gracious, where have we heard that uncertainty before? "The situation in Cyprus is much worse than it is in Greece," one high-ranking EU official said, and its hard to argue when you note that with a GDP of EUR18bn in 2011, its banking system has 'assets' of EUR150bn, and fiully EUR10bn of the EUR17bn bailout (should it appear) is aimed at propping up the idiocy of the banking system!
Another day, another precious metals' dumpfest. Many have argued that this could not be a sophisticated hedge fund as they would surely 'trade' their position down, as opposed to hit the street with it all at once? Well, it appears whoever keeps doing this 'dumping' does not have the greatest price-sensitivity...
Moments ago the BEA released the final Q3 GDP number, which printed at 3.1%, up from the second GDP guesstimate 2.7% reported last month, the first 3%+ print since Q4 2011 when, just like today, everything was coming up roses and when growth was on the horizon. Sadly, just like then, reading between the lines reveals more of the same disappointing components, with nearly half of the entire 3.1% annualized growth being derived from Government (0.75) and Inventories (0.73%), combined adding 1.48% (more than in the second revision) of the 3.1% print. Annualized Personal Consumption as a portion of the final number rose modestly from 0.99% to 1.12%, but still is well below the 1.42% in the first Q3 GDP estimate. It is this number that will be closely watched once the preliminary Q4 GDP number is released in a one month. Recall that Q4 GDP is currently tracking between 0.5% and 1.5% depending who you ask. Finally, the most important real growth factor for the US economy - fixed investment - remained stubbornly flat, at a mere 0.12%, virtually unchanged from the first revision's 0.10%. In other words, in Q3 companies stubbornly refused to invest in capital investment i.e. CapEx, and will continue to do so as long as the Fed makes "investing" in dividends and buybacks a more rewarding option. Expect the same pattern to continue in Q4 only this time the Sandy and Fiscal Cliff excuses will be espoused by all the economic apologists.
It seems some sense of normality has returned to the initial claims numbers, if that could ever be the case, as NY and Penn saw initial claims drop 11,295 and 11,247 respectively this week. However, this 22,000-plus improvement was not enough to stall the rest of the nation as we saw a 17,000 rise in initial claims over last month. This week's data remains below the year's average, though not by much, and the trend of claims falling appears to have almost entirely stalled this year from the hope-driven moves of the previous two years.
Just about a year after the failed attemped by the Deutsche Bourse to acquire the NY Stock Exchange, we get a friendly reminder that stock trading is a dying business, and venues that engage in it must consolidate or die. Sure enough, moments ago the Intercontinental Exchange, or ICE, announced it would acquire the NYSE for $33.12 or roughly $8.2 billion in stock and cash.
- ICE TO BUY NYSE EURONEXT FOR $33.12-SHR IN STOCK, CASH
- ICE PACT IS FOR ABOUT 67% SHRS, 33% CASH
- INTERCONTINENTALEXCHANGE TO ACQUIRE NYSE FOR ABOUT $8.2 BLN
- ICE TO FUND CASH IN DEAL WITH CASH ON HAND, EXISTING CREDIT
- NYSE EURONEXT HOLDERS TO OWN ABOUT 36% OF ICE SHRS POST DEAL
- ICE SAYS NIEDERAUER TO BE PRESIDENT COMBINED CO, CEO NYSE GROUP
It is unclear if the combined exchange will be called N-ICE.
Confirming what we all know, here is Bloomberg's "most improved for 2012" (in our humble opinion) commentator, Michael McDonough, on China: "Fiscal stimulus has bought China’s new leadership time to pass critical reforms to spur domestic consumption and rebalance the economy, though there is little room for error. Central banks from U.S. to Japan, through unprecedented levels of quantitative easing, are influencing global markets more than ever. Concerns have arisen over China’s manufacturing sector losing competitiveness; companies including Apple and General Electric have moved some manufacturing lines back to the U.S." The Bloomberg Brief note continues: "Growth in China, which is currently being supported by government fiscal stimulus targeting infrastructure investment, will probably remain between 7.5 and 8 percent. This will buy time for the new leadership to continue with reforms, including interest-rate liberalization, designed to help stoke final demand in China and properly rebalance the nation’s economy."
Silver will rise as much as 29% to $40.25/oz, from $31.10/oz today, in 2013. This is based on the median estimate of 49 analysts, traders and investors compiled by Bloomberg. Global investment through silver backed exchange traded products reached a record 18,854 metric tons in November, or more than nine months of mine output, data compiled by Bloomberg show. Holdings are now valued at about $19.2 billion. Bullion dealers all over the world report robust demand for silver and there has been a shift in many Asian and Middle Eastern markets from gold to silver - due to silver's relative cheapness and undervaluation versus gold. According to Bloomberg, one of Singapore’s largest suppliers of coins and bars to retail investors, says sales tripled since October, part of a global surge in demand for silver that drove holdings to a record.
- IMF Demands Partial Default for Cyprus (Spiegel)
- Boehner's 'Plan B' Gets Pushback (WSJ)
- Beijing criticises US ‘political checks’ (FT)
- White House Said to Tell Business Groups Talks Stall (BBG)
- NYSE tries to get hitched again: IntercontinentalExchange in talks to buy NYSE (Reuters) -> N-Ice coming?
- Greece faces ‘make or break’ year (FT)
- Fed rejects idea of consensus forecasts, "maybe forever": Fisher (Reuters)
- Rajoy Drives Spanish Revolution With Low-Cost Manufacture (BBG)
- Italian Senate Set for Budget Vote Before Monti Resigns (BBG)
- BOJ Loosens With Pledge to Review Inflation Objectives (BBG)
- Bowing To Abe, BOJ To Review Price Goal (WSJ)
Very much in keeping with the tradition of Japan's now monthly QE8 (September) and QE9 (October), last night's announcement of what is effectively QE10, left a bitter taste in the mouth of salivating habitual gamblers (f/k/a traders), after Shirakawa showed he would not bend over to Abe's political demands just yet, and left out any mention of inflation targeting, whether 2% or 3%, out of the QE10 announcement. What he did include was yet another JPY 10 billion increase in the total asset purchase fund to a total of JPY 76 trillion, increasing the size of eligible JGB and Bill purchases by JPY 5 billion each. However, since this approach has proven to be a total failure in recent months, the market immediately faded the move and the USDJPY tumbled to under 84.00 overnight. Of course, this an all other overnight news items are, of course, completely irrelevant, as the market now observes the Cliffhanger drama in what may be its last day. As we expected several days ago, if the GOP indeed proceeds to vote Plan B in the House today (and is subsequently voted down by the Senate), you can drop any hope of a compromise deal in 2012.
After a significant slowdown in the years before the crisis, Goldman Sachs notes that the number of immigrants coming to Germany is rising strongly again. While it is not clear at this point how sustainable this development is, it will nonetheless help to ease the strains in the German labour market. But, given the underlying demographics, we suspect, like Goldman, that an increase in immigration by itself is unlikely to prevent a meaningful decline in the labour force after 2020. Only a continuous rise in the participation rate can offset these demographic trends.
Last year's AmeriCatalyst interview with Kyle Bass provided much more color than the normal 30-second soundbites that we are subjected to when serious hedge fund managers are exposed to mainstream media. This year, Bass was the keynote speaker and in the following speech (followed by Q&A), the fund manager provides 60 minutes of eloquence on the end of the grand experiment and its consequences. From Money Printing and Central Bank Balance sheets to Japan and the psychology of the current situation - which in many cases trumps the quantitative data - the question remains, "when will this unravel" as opposed to "if?"; Bass provides his fact-based heresy against the orthodoxy of economic thought "On The Financial Nature Of Things" extending well beyond his recent note. Must watch (there's no football or X-Factor on tonight).Make sure to stay tuned to the last 2 minutes when Kyle succinctly sums up our society...
Bernanke and his fellow Beltway insiders continue to apply fake tan in an attempt to make the US economy look more healthy than it is, but even though the public has been in love with the bronze monetary sheen that has been sprayed onto a decidedly pasty economy repeatedly since 2008, the backlash is picking up steam and broadening its reach. As Grant Williams discusses in this week's 'Things That Make You Go Hmmm...', from QE4's lack of 'pop' to Foodstamp Nation and the fundamental deterioration in our economy, the divergence between reality and the beauty-is-skin-deep appeal of the markets can only end one way and the earnings picture lights that up better than any other. For a little bit of everything, the newsletter below provides something for everyone.
Despite the seemingly generational destruction to household and bank balance sheets and an entirely unprecedented fiscal and monetary policy reponse, investors would never know it given the market's reactions from the 2009 lows relative to its rally from the 2003 lows. Different this time? hhmmm... Worried about gold prices falling also? Doesn't look like we learned anything from the 'Debt Ceiling' debate either...