‘The bigger they are, the harder they fall’ has always been true and is seemingly even more so today with regard to the BRICs (Brazil, Russia, India and China)
Confidence leads to spending; spending strengthens the economy; and economic strength buttresses confidence. It’s a circular, self-fulfilling prophesy. Confidence can also fuel market movements. Belief that the price of an asset will rise causes people to buy the asset... making its price rise. This is another way in which confidence is self-fulfilling. But, of course, as Oak Tree Capital's Howard Marks points out, the confidence that underlies economic gains and price increases only has an impact as long as it exists. Once it dies, its effect turns out to be far from permanent. As the economist Herb Stein said, "If something cannot go on forever, it will stop." This is certainly true for confidence and its influence. As far as confidence today, Marks notes significant uncertainty is one of the outstanding characteristics of today’s investing environment. It discourages optimism regarding the future and limits investors’ certainty that the future is knowable and controllable. In other words, it saps confidence. This is a major difference from conditions in the pre-crisis years. In fact, Marks warns he doesn't remember when his list of 'uncertainties' was this long...
If there was any doubt that the taper would take place shortly, it can be wiped out following the just released June international trade data, which showed a surge in exports to a record high $191.2 billion, an increase of $4.1 billion compared to May, even as imports declined by $5.8 billion to $225.4 billion, resulting in a trade deficit of just $34.2 billion, or 22.5% lower compared to the $44.1 billion in May, which is the lowest trade deficit since October 2009. It is also the biggest beat to expectations of -$43.5 billion since March 2005. Whether this plunge in the deficit was the result of the new GDP methodology is unknown, however the resulting surge in revised Q2 GDP following this bean-counting addition to the last month of Q2, means that the economy grew even more than expected and that the Fed's tapering course is now assured. It also means Q3 GDP based on July trade data will be dragged down as there is no way this surge in the collapsing deficit can be sustained.
In a somewhat shockingly blunt comment from the mouthpiece of Chinese officialdom, Yao Yudong of the PBoC's monetary policy committee has called for a new Bretton Woods system to strengthen the management of global liquidity. In an article in the China Securities Journal, Yao called for more power to the IMF as international copperation and supervision are needed. While comments seem somewhat barbed towards the rest of the world's currency devaluers, given China's growing physical gold demand and the fixed-exchange-rate peg that 'Bretton Woods' represents, and contrary to prevailing misconceptions that the SDR may be the currency of the future, China just may opt to have its own hard asset backed optionality for the future; suggesting the new 'bancor' would be the barbarous relic (or perhaps worse for the US, the Renminbi). Of course, the writing has been on the wall for China's push to end the dollar reserve supremacy for over two years as we have dutifully noted - since no 'world reserve currency' lasts forever.
Everybody in America wants health care - but most Americans seem to want someone else to pay for it. In the United States today, the way that our system works is that the hard working, productive members of society pay for the health care of everyone else. At least under socialism everyone gets the same benefits. Our system of health care is a very twisted version of socialism where millions upon millions of very hard working people are forced to pay for the health care of others, but often can't afford to purchase decent health insurance for themselves. When you add it all up, the hard working, productive members of society are at least partially subsidizing the health care of well over half of all Americans while having to pay for their own health care at the same time. Needless to say, it isn't too hard to see who is getting the raw end of the deal.
- Low Wages Work Against Jobs Optimism (WSJ)
- Tourre’s Junior Staff Defense Seen Leading to Trial Loss (BBG)
- Russia gives Snowden asylum, Obama-Putin summit in doubt (Reuters)
- Fortress to Blackstone Say Now Is Time to Sell on Surge (BBG)
- Brazil backs IMF aid for Greece and recalls representative (FT), previously Brazil refused to back new IMF aid for Greece, says billions at risk (Reuters)
- Google unveils latest challenger to iPhone (FT)
- Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees (BBG)
- Academics square up in fight for Fed (FT)
- Potash Turmoil Threatens England’s First Mine in Forty Years (BBG)
- Dell Deal Close but Not Final (WSJ)
NSA Spying Directly Harms Internet Companies, Silicon Valley, California … And the Entire U.S. EconomySubmitted by George Washington on 07/31/2013 12:47 -0500
Mass Surveillance Is “Killing Our Most Productive Golden Goose”
The world supply of crude oil isn’t going to run out any time soon, and we will be producing oil for decades to come. However, what we won’t be doing is producing crude oil – petroleum – at the present rate of around 30 billion barrels per year. For a global civilization that is based almost entirely on a plentiful supply of cheap, crude oil, this is going to present some considerable challenges.
Imagine there was a time when bottled water didn't exist in our catalog of popular commodities. Perhaps the trend started in 1976 when the chic French sparkling water, Perrier made its introduction. There it was seductively bottled in its emerald green glass amongst the era of disco and the spectacle of excesses... who could resist right?! What could be more decadent than to package, sell and consume what most consider (in the western world) a common human right easily supplied through a home faucet! It’s absurd that the cost of designer water is at a "280,000% markup" to your tap water and it's reaching record heights in consumption.
The storm that caused chaos across financial markets since May should not dissipate any time soon. As such, we retain a short bias towards China and an outright short in EM currencies. If world trade remains weak and local inflation keeps on gaining momentum, the currencies of several EM countries (ex-China) may remain under pressure. Such weakness may be exacerbated by tightening liquidity.
We've discussed Jiangsu before (dead pigs, TBTF Solar companies, and bird flu) but the Chinese province (that is big enough to be a Top 20 global economy with GDP greater than that of G-20 member Turkey and 79 million people) is on the brink of collapse under the weight of its own debt (cough Detroit cough). As China's leaders attempt to rein in over-capacity industries, tamp-down residential real-estate bubbles, and generally unwind "...the greatest misallocation of capital the world has ever seen, which was China’s 2009 stimulus," Jiangsu stands head-and-shoulders. With debt far higher than its peers, its mainstay industries (shipbuilding and solar panel manufacture) drowning in over-capacity, and massive 'empty' property developments now starved of funding, Jiangsu "can potentially pose a systemic and macro economic risk to the country."
Today average Brazilians are having trouble making ends meet paying for everyday products or household goods. Riots erupted in Brazil against the Pope’s visit to Rio de Janeiro.
- Biggest Banks Face Fed Restoring Barriers in Commodities (BBG)
- SAC to Employees: Cohen Didn't Read Dell Email at Heart of SEC's Case (WSJ)
- Second (and Third) liens are back, and so is 2005: As Banks Retreat, Hedge Funds Smell Profit (WSJ)
- Singapore funds benefit from Asian wealth (FT)
- 2 years later the lies haven't changed one bit - Tepco hit over slow admission of radioactive leak (FT)
- How big tech stays offline on tax (Reuters)
- Hilton Leads Rush to Africa in Fastest Boom (BBG)
- U.S. and UK fine high-speed trader for manipulation (Reuters)
- Key witness takes stand in SEC case against Goldman's Tourre (Reuters)
- Boomer Sex With Dementia Foreshadowed in Nursing Home (BBG)
- Bentley SUV gives £800m boost to UK car industry (FT)
“All warfare is based on deception.” – Sun Tzu
With earnings season in full swing as some 20% of the S&P is expected to report, the quieter macro picture moves to the backburner especially with the Fed now silent for a long time. Looking at key central banks events, at the Turkey central bank meeting this week, Goldman expects that the bank is more likely to deliver a moderately hawkish “surprise” and hike the lending rate by 100bp to 7.5% (7.0% for primary dealers), and leave the key policy (1-week repo) and the borrowing rates unchanged at 4.5% and 3.5%, respectively. Among the other central bank meetings this week, benchmark rates are expected to remain unchanged in New Zealand, Philippines and Colombia, in line with consensus, while a 25bp cut is expected to be announced at the Hungary MPC meeting.