There were some minor fireworks in the overnight session following the worst Australian unemployment data in 12 years reported previously (and which sent the AUD crashing), most notably news that the Japanese Pension Fund would throw more pensioner money away by boosting the allocation to domestic stocks from 12% to 20%, while reducing holdings of JGBs from 60% to 40%. This in turn sent the USDJPY soaring (ironically, following yesterday's mini flash crash) if only briefly before it retraced much of the gains, even as the Pension asset reallocation news now appears to be entirely priced in. It may be all downhill from here for Japanese stocks. It was certainly downhill for Europe where after ugly German factory orders yesterday, it was the turn of Europe's growth dynamo to report just as ugly Industrial Production which missed expectations of a 1.2% print rising only 0.3%. Nonetheless, asset classes have not seen major moves yet, as today's main event is the ECB announcement due out in less than an hour. Consensus expects Draghi to do nothing, however with fresh cyclical lows in European inflation prints, and an economy which is clearly rolling over from Germany to the periphery, the ex-Goldmanite just may surprise watchers.
Unlike last week's economic report deluge, this week has virtually no A-grade updates of note, with the key events being Factory Orders (exp. 0.6%), ISM non-mfg (exp. 56.5), Trade balance (Exp. -$44.9 bn), Unit Labor Costs (1.2%) and Wholesale Inventories (0.7%).
Dispassionate, non-conspiratorial rant , fact-based high level discussion of the sigificant drivers of the week ahead.
We have been warning for years that as a result of the Fed's disastrous policies, America's middle class is being disintegrated and US adults are surviving only thanks to insurmountable debtloads. But not even we had an appreciation of how serious the problem truly was. We now know, and it is a shocker: according to new research by the Urban Institute, about 77 million Americans have a debt in collections.
It has been over six months since we first highlighted the growing deterioration in the quality of auto loans and mentioned the 's' word (subprime) as indicative that we learned nothing from the financial crisis. Since then, auto loans (and especially subprime in the last few months) have surged to record highs; and most concerning, recently has seen delinquencies and late payments spike. The reason we provide this background is that, thanks to The NY Times, this story is now hitting the mainstream media as subprime-quality car buyers (new and used) realize the burden they have placed on themselves thanks to exorbitantly high interest rates (and a rapidly depreciating 'asset'). As one car 'owner' exclaimed, "buying the car was the worst decision I have ever made."
"Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself." – From The Economist, July 16, 2009.
Mainstream economists continue to dominate their profession and wield huge influence on public policies. They merely needed to close ranks after the financial crisis and wait for people to forget that their key theories and models were wholly discredited. Meanwhile, heterodox economists who stress credit market risks and financial fragilities – the Austrians, the Minskyites – remain stuck on the fringes of the field. It doesn’t much matter that the crisis validated their thinking. Nonetheless, we’ll continue to explain why we think a shake-up is overdue...“Mythbusting” the theories of mainstream economists.
Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.
Is there any doubt that we are living in a bubble economy? At this moment in the United States we are simultaneously experiencing a stock market bubble, a government debt bubble, a corporate bond bubble, a bubble in San Francisco real estate, a farmland bubble, a derivatives bubble and a student loan debt bubble. And of course similar things could be said about most of the rest of the planet as well. And when these current financial bubbles in America burst, the pain is going to be absolutely enormous.
Remember that epic spending spree that took place in March when consumers cleaned out their savings account and which resulted in a surge in March retail spending in consumer outlays? Now we know that in addition to borrowing from their savings, consumers also "charged" it, because as we reported last month, the April consumer credit soared by an unprecedented $8.8 billion, the most since 2007, and a clear outlier in recent years. April, incidentally is precisely when the credit card statements for March purchases would come due so while impressive, the surge in revolving credit wasn't quite surprising. However, what is perhaps more notable now that the Fed just released the May consumer credit numbers, is that the month after the March spending spree, funding largely on credit, consumers hunkered down once more, and the May increase in revolving credit was a paltry $1.8 billion, much lower than the April surge, and the lowest since February. In other words, after the spending binge, came the credit card bills, and with them, the spending hangover.
- Headline of the day: Complacency Breeds $2 Trillion of Junk as Sewage Funded (BBG)
- Israel intensifies Gaza offensive after surge in rocket fire (Reuters)
- Profits plunge at Vatican bank (FT)
- Investors Are Buying Troubled Golf Courses and Giving Them Makeovers (NYT)
- Pimco Dissidents Challenge Bill Gross in ‘Happy Kingdom (BBG)
- That's a new one: Marks and Spencer blames new website for sales drop (Reuters)
- Iran's Supreme Leader calls for more enrichment capacity (Reuters)
- Boeing Faces Long-Term Credit Risk if Ex-Im Bank Closed, S&P Says (WSJ) not to mention the collapse risk to US durable goods orders
- U.K. Manufacturing Unexpectedly Slumps Most in 16 Months (BBG)
- Some Still Lack Coverage Under Health Law (WSJ)
Poor algos: after they got no love on Monday from the overnight USDJPY selling team which took the all important pair back to the 200 DMA, today, inexplicably (it is a Tuesday after all, and if one can't frontrun a rigged market surging higher on Turbo Tuesday may as well throw in the towel on free money and learn about fundamental analysis) the same overnight USDJPY selling team has pushed the key carry pair to below the 200 DMA, and has dragged US equity futures lower with it for the second day in a row.
Risk assets have started the week off on a slightly softer footing but overall volumes are fairly low given the quiet Friday session last week and with the lack of any major weekend headlines. Equity bourses are down between 25-50bp on the day paced by the Nikkei (-0.4%). In China, a number of railway construction stocks are up 3-4% after reports that China Railway Corp will buy around 300 sets of high speed trains and may potentially launch 14 news railway construction projects soon as part of national investment plans.
A look at the investment climate through the currency market and upcoming events and data.
The United States Of Debt: Total Debt In America Hits A New Record High Of Nearly 60 Trillion DollarsSubmitted by Tyler Durden on 06/17/2014 21:22 -0400
What would you say if we told you that Americans are nearly 60 trillion dollars in debt? Well, it is true. When you total up all forms of debt including government debt, business debt, mortgage debt and consumer debt, we are 59.4 trillion dollars in debt. 2008 should have been a major wake up call that resulted in massive changes. But instead, our leaders just patched up the old system and reinflated the old bubbles so that they are now even larger than they were before. They assure us that they know exactly what they are doing and that everything will be just fine. Unfortunately, they are dead wrong.
"In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” - The Fourth Turning - Strauss & Howe – 1997