This comes at the totally wrong time.
News That Matters
The weakness seen in world economic activity is partly the result of the lack of a real purge of the financial system in 2008. It has become unimaginable to let entire parts of the system collapse, and the titling of some financial institutions as “systemic” is part of this logic. Policymakers attempting to keep unhealthy economic and financial institutions alive are making a mistake. The very essence of capitalism lies in the process of creative destruction. What we see here is not a way out of the crisis. Instead, we are on the edge of a new financial disaster.
On the heels of the nuclear deal and Tehran's ground operation in Syria, Iran is stepping up efforts to prove that contrary to Western rhetoric, it is not in fact "isolated." According to the country's economy minister, Iran is now set to join the BRICS bank and step up its cooperation with Brazil. This is symptomatic of Washington's waning ability to exert American influence on global affairs both political and economic.
"The ability of corporations to take a 1% to 2% revenue line [gain] and turn it into 5% to 6% profit growth is waning. They’ve run out of rabbits to pull out."
Doing as Yellen and her counterparts demand is the biggest risk of all. The Yellen Doctrine requires that central banks be both correct and able, abilities that have been (and can only be) in utter short supply. Her view would show more proactive and effective central bank management where only reactive and impromptu, last minute white-knuckling has abounded. Central banks have been in the past year only holding on for dear life, which is where obscurity has been their benefit. In the end, however, it will bring about their own downfall as it only serves to make matters worse. Yellen wants the central bank to be viewed as almost godlike, but they continually reveal themselves weak, deceptive and ineffectual; eschewing all long run sustainability in order to just make it through one day at a time.
The bottom line is that the "internationalization" and an increasing free float of the Yuan is bearish. And since the currency urgently needs even more devaluation as today's PBOC rate cut confirmed, this may just be the IMF's way of greenlighting even more devaluation for China's currency. And since any devaluation would lead to a surge in capital outflows, what the IMF is doing is merely blessing the Yuan's weakness while pretending it is in a position of strength, in an attempt to slow down the capital outflow as much as possible.
In what amounts to a slap in the face for a coalition of Leftist lawmakers who are opposed to the austerity programs that some believe are responsible for painful economic adjustments, Portugal has reappointed PM Pedro Passos Coelho. This sets the country up for an intractable political stalemate and will serve to embed an enormous amount of uncertainty in markets going forward.
We hoped yesterday's preview would soften the blow from today's CAT Q3 earnings which were clearly going to be ugly, and surely worse than consensus estimates. Moments ago we got said earnings and as expected, they were indeed far worse than expected, with CAT reporting adjusted EPS of $0.75 ($0.62 GAAP), below consensus estimate of $0.77, while revenue of $11.0 billion also missed expectations of $11.33.This takes place even as CAT repurchased $1.5 billion in stock in Q3, or about 75% of the total $2.0 billion in buybacks it conducted in all of 2015 (compared to $8 billion in the past three years).
The hype and hope of more QE misses the point...The bull market of the last six years is likely over.
"Then tell me, future boy, who's President of Brazil in 2016? Then who's vice president?"
- Global Stock Markets Edge Higher Though Global Growth Concerns Weigh (WSJ)
- Nikkei up 1.9% because Japan export growth slows sharply, raising fears of recession (Reuters)
- Saudis Risk Draining Financial Assets in 5 Years, IMF Says (BBG)
- Syria's Assad flies to Moscow to thank Russia's Putin for air strikes (Reuters)
- US Prosecutor Preet Bharara Probing Daily Fantasy-Sports Business (WSJ)
- Syrian army denies Russian ground forces fighting in Syria (Reuters)
News That Matters
It is more evident than ever that the world economy is heading into a deflationary conflagration, but today’s generation of house trained bulls wouldn’t recognize a warning if it slapped them upside their horns. They refused once again last week to exit the casino because they got another signal from Hilsenramp that the Fed is on “hold” until at least next March. Call it Ostrich Economics. But do it quick. Those side-effects are coming to the casino some day real soon.
"Najib has tarnished the country’s image in the world and caused investors to lose faith in the government. Malaysians do not believe in this prime minister."