It's that time of year when 2013 outlooks and strategy pieces bog down an otherwise already overloaded inbox. Some are wise; some not so much. We thought the following four wise fun facts noted from Morgan Stanley's Adam Parker would brighten-up an otherwise dull Wednesday evening. Full details below but: just 10 S&P 500 stocks accounted for 88% of 2012 EPS growth; those same 10 will account for only 34% of the growth next year; 5 stocks are projected to account for one-quarter of the entire S&P 500's EPS growth in 2013; and of the 20 firms expected to grow earnings faster in 2013 than in 2012, 8 of them will be swinging from major slumps to miraculous gains. It seems that once the fiscal cliff is behind us then the whole world is fixed, equities can initiate ramp-mode, and analysts' expectations have a chance of coming true. Parker, however, like us remains more stoic of reality with his 1434 end-2013 S&P 500 target (with downside 1135 possible).
Five years ago, every American would have considered a trillion-dollar budget deficit a national tragedy. If you believe the CNBC parrot show, NOT having a trillion-dollar deficit is now a sure sign of the Apocalypse. I speak of course of the cleverly dubbed “Fiscal Cliff,” which panicked CNBC apologists are required to mention no less than 5,000 times a day. Creating the illusion of economic growth is easy if you can print money. It’s a prank you can play on an entire country. Cut the value of the currency in half and the economy’s size will appear to double. If it doesn’t, you’re in recession (whether you know it or not). Cavemen probably understood this concept better than America’s best economic minds.
It seems like it was only 24 hours ago that Europe bailed out Greece for the third time and everything was "fixed", with a resultant desperate attempt to validate this by pushing the EURUSD above 1.3000. Sadly, as always happens, Europe, and especially Greece, refuses to be fixed, because as we will not tire of saying: you can't fix debt with i) more debt, ii) hockeystick projections or iii) soothing words of platitude and an outright bankruptcy, just like that which Argentina is about to undergo, will be needed. If that means the end of the EUR and the delusion that the Eurozone is a viable monument to the egos of a few technocratic career politicians, so be it. As a result, this time around the halflife of the latest bailout was precisely zero, as was that of the latest Japanese QE episode, as the entire world is now habituated to the lies emanating from Europe, and demands details, which in turn are sorely lacking, especially as relates to the question of just where will Greece get the money desperately needed to fund the Greek bond buyback. But at least Kathimerini was kind enough to advise readers that said buyback must take place by December 7 in time for the euroarea finmins to approve the payment of the next Greek loan tranche at the December 13 meeting, something which will likely not happen, especially if Germany's SPD party delays the vote on the Greek bailout until the end of December as was reported yesterday. We can't wait to learn the details of the buyback package, which will come in the "next few days" per ANA, and especially where the buyback money will come from, especially with the FT reporting that various European countries will already lose money next year on the latest Greek bailout.
This EU juggler simply has too many balls in the air...
As we hear more and more pundits talk about the soaring consumer confidence, the "recovery", and how the fundamentals are improving, keep in mind that retail investors are still not in equities
We are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too. No government in what used to be called “the free world” seems prepared to take the steps that can stop this inexorable decline. They are all busily telling their electorates that austerity is for other people (France), or that the piddling attempts they have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary for government to cut back its own spending (America). So here we all are. Like us, the member nations of the European single currency have embarked on their very own double (or is it triple?) dip recession. This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it. Democratic socialism with its “soft redistribution” and exponential growth of government spending will have paved the way for the hard redistribution of diminished resources under economic dictatorship.
In what is the first formal speech of Simon "Harry" Potter since taking over the magic ALL-LIFTvander wand from one Brian Sack, and who is best known for launching the Levitatus spell just when the market is about to plunge and end the insolvent S&P500-supported status quo as we know it, as well as hiring such sturdy understudies as Kevin Henry, the former UCLA economist in charge of the S&P discuss the "role of central bank interactions with financial markets." He describes the fed "Desk" of which he is in charge of as follows: "The Markets Group interacts with financial markets in several important capacities... As most of you probably know, in an OMO the central bank purchases or sells securities in the market in order to influence the level of central bank reserves available to the banking system... The Markets Group also provides important payment, custody and investment services for the dollar holdings of foreign central banks and international institutions." In other words: if the SPX plunging, send trade ticket to Citadel to buy tons of SPOOSs, levered ETFs and ES outright. That the Fed manipulates all markets: equities most certainly included, is well-known, and largely priced in by most, especially by the shorts, who have been all but annihilated by the Fed. But where it gets hilarious, is the section titled "Lessons Learned on Market Interactions through Prism of an Economist" and in which he explains why the Efficient Market Hypothesis is applicable to the market. If anyone wanted to know why the US equity, and overall capital markets, are doomed, now that they have a central planning economist in charge of trading, read only that and weep...
It wouldn't be Europe if the insolvent continent did not announce, to much pomp and circumstance, another final rescue for a broke country which was nothing but a short-termist can kicking exercise. It also wouldn't be Europe if the leaders did not do much if any math when coming up with said "rescue", and it certainly wouldn't be Europe if the initial EURphoria following such an announcement was not promptly faded. Sure enough, all three have now occurred with the EURUSD soaring to over 1.3000 in the moments after last night's soon to be obsolete announcement, only to see a gradual and consistent sell off over the next several hours, dropping to a week low of just under 1.2940 as details emerged that... there were not details. To wit, as Market News reported:
- EU COMMISSION: FUNDING FOR GREECE DEBT BUYBACK NOT WORKED OUT YET
In other words, the use of funds for the third Greek bailout has been more than detailed. The only tiny outstanding issue - the source of funds.
It took the charming three tries for Greece to get its third "bailout", which incidentally does not bail out anyone except the hedge funds who went long GGBs because the only actual winners resulting from yesterday's transaction - those benefiting from Europe's AAA club fund flows are hedge funds as explained previously. As for Greece, what the "deal" did was buy it more time to get its hockeystick GDP forecast in order as the only thing that may win the country some future debt forgiveness is hitting an unbelievable 4%+ current account surplus and GDP growth of a ridiculous 4.5% per year. That said, of the cash proceeds going to Greece, to be released in three tranches, totaling €43.7 billion, only a de minimis €10.6bn for budgetary financing, i.e., the Greek population (read government corruption) and €23.8bn in EFSF bonds for bank recapitalisation, read keeping German and French banks solvent. Once the €10.6 billion runs out in a few months, the strikes will resume. So what does this third, latest, greatest and certainly not last can kicking exercise mean? Simple: in the words of SocGen, a short-term reprieve has been hard bought, nothing has been fixed, and "more will be likely."
GMO, Boston's $104bn asset-management firm, has 'given-up' on the bond market. However, this is not a clarion call for equity bulls, as the FT reports, GMO's head of asset-allocation Ben Inker notes the only time he has held more cash was in late 2007, before the financial crisis. Today's equity valuations, he notably points out, are predicated on today's profit margins being sustainable and he thinks US corporate profits are set to fall - even if growth picks up. Critically, this smart-money cash-hoarder rightly sees the problem as one prominent during the presidential election - that of income inequality. "One of the things that happens as profits grow as a per cent of gross domestic product is income becomes more and more unequal because the ownership of capital is extraordinarily uneven. And there's a natural tension that forms there from a societal perspective." So far, Inker adds, government spending has supported the economy and so profits. But a pick-up in growth requires higher consumption, and the only way to get that is through higher incomes, which must come from profits. So that's where the dry powder is Maria - in the smartest investors' hands.
No 4:00 AM morning session this time, as the general revulsion to even pretending to work on behalf of a totally destroyed country is tangible:
- EURO ZONE MINISTERS, IMF REACH DEAL TO CUT GREEK DEBT TO 124 PCT/GDP IN 2020 THROUGH PACKAGE OF EXTRA STEPS TOTALLING 20 PCT/GDP -OFFICIAL
Phew - great, Greece is fixed or something. The only problem, of course, as we explained earlier, is that Greece has to magically grow its GDP by EUR 50 billion from EUR 184 billion to EUR235 billion by 2020 for this 124% debt/GDP to be hit (and another EUR 20 billion in the next two years). No, really.
Somewhere in the deep bowels of Brussels bureaucratic labyrinth, a murder of European ministers (as they most closely approximate the Corvus Corvidae Genus/Species) currently sitting down and trying to come with a solution that "fixed" Greece. It will do no such thing: in fact, all that the Eurogroup is doing today, in addition to trying to do with it already did twice before without success, is to find a socially palatable way to disclose a policy that will see Greek debt haircut by a very modest amount (modest enough to be considered prohibited under Article 123, but who is counting any more), either through an outright haircut of official sector debt (something Germany has repeatedly said "9" to), or through a debt buyback of existing private debt (something which will have no impact now that the debt has soared following a long-running political leak which has allowed bondholders to trade accordingly). Aside for applying lipstick on a dead pig, what Europe is doing is focusing on the numerator in the all critical debt/GDP ratio. Sadly, this is just half of what Europe should be focusing on. The other half? Why GDP of course. Because it is here that things get truly hilarious.
In summary: Greek 2022 debt/GDP will be 115% if and only if Greece not only cuts its debt by EUR50 billion, but manages to grow its GDP by EUR60 billion.
Following this week's 'failed' Eurogroup meeting, leaked details suggest a debt-buyback is becoming the corner-piece of the 'new' Troika deal with Greece. The leaking of details (and anticipation by the market) has driven GGB prices up and reduced much of the benefit of the buyback 'boondoggle' but as Barclays notes, "even if the debt buyback enables the IMF and EU leaders to come to an agreement, leading to a Greek resolution in the near term, in the medium-to-long-term Greek debt is not sustainable on realistic macroeconomic assumptions without notable outright haircuts on official EU loans to Greece. Therefore, a successful debt buyback might resolve the Greek debt sustainability issue on paper in the troika report but it will most likely not resolve it in investors’ minds." While there are 'optical' advantages to the buyback, the four main disadvantages outlined below should be irksome to the Greeks (e.g. creditor benfitting over growth-empowering) - which is critical since, as ekathermini notes, a senior finance minister commented "God forbid we should not be close to an agreement on Monday."
Back in March, we first presented a rather stunning finding: by 2020 75% of Americans will be obese or overweight. This was promptly followed up with a post showing just how it is transpired that America became the fattest nation in the world in less than 20 years. What however may not be known, is that America's fatness epidemic is not localized to the country that gave the world the McDonalds burger (and the McMansion): it really is a fat, fat world, after all.
In what should be the least unexpected news of the day, Europe has failed for the second time in one week, after disappointing with no Greek resolution on Monday (and forcing the BIS into a EUR liftathon scramble to indicate that all is still well), this time announcing that an attempt to come to a deal on the EU budget has failed, with another budget summit scheduled now for January. This follows yesterday's misreported news that Cyprus, too, was fixed and the country had achieved a "hard-won" (as some sad Eurohack called it) bailout: turns out it wasn't in the end. And just how does one "hard-win" a bailout - crash their economy better than the rest? And speaking of Greece, nothing is fixed there either, but Germany, whose position was the reason for the first stalemate, demands optimism.