The entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.
"...the deterioration in both economic data and profitability data leave a good bit of cause for near-term concern..."
And the answer is...
Four and a half years after Brazil's FinMin Guido Mantega first re-introduced the world to the term "currency wars," it appears the Brazilians have admitted defeat. Amid what Goldman calls a sharp decline in consumer confidence - to the lowest level in series history - which could also extend the ongoing macroeconomic adjustment processes and therefore delay the recovery of the economy; Brazil's central bank has announced that it will no longer intervene to support the Real via its Dollar-Swap program. In a SNB2.0-esque move, though somewhat anticipated by the market, Brazil enables the devaluation that has occurred to perhaps extend (improving competitiveness) and removing what was becoming a notable fiscal drag. Implicitly, Brazil just followed the Swiss and admitted defeat in the global currency war...
*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015
With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."
To truly understand what The Fed does, we go to the source... "The Fed is best known for its influence in money and credit conditions in the economy in order to help the US economy experience strong growth in output and income, high employment, and stable prices." So factory output growth is now negative, income stagnant, the percentage of employed people in the population is catastrophic, and prices (oil collapse? stock explosion? record beef and beer prices?) are anything but stable.
Despite a modest 1.7% rise (after dropping 1.5% in December), Pending Home Sales missed expectations of a 2.0% rise - the 5th monthly miss in a row. It appears NAR's chief economist Lawrence Yun has flip-flopped: On existing home sales, NAR blames drop on lack of supply (as prices drop); on pending home sales, NAR says buyers overcame lack of supply.
It appears all the emerging/emerged economies of the world that are supposed to be the dynamic growth engines to lead the world to escape velocity are, well, not. Perhaps no better example is Brazil where hyper-growth expectations have disappeared into a black hole as business and consumer confidence collapsed this week to historical lows. As Goldman noted, "This poses major headwinds for private consumption and overall activity in the coming months."
Are we on the verge of a major worldwide economic downturn? Well, if recent warnings from prominent bankers all over the world are to be believed, that may be precisely what we are facing in the months ahead.
But the shadow of crisis has passed... it appears the engine of job growth in America is sputtering as NFIB Small Business optimism dropped from 100.4 to 97.9 (against an extrapolated 101.0 expectation - the biggest miss since Nov 2012). Across the board the data was disappointing with the percentage of firms expecting a better economy falling to 0%, and the number of employers anticipating job creation drops to just 14%.
As reported earlier, several hours ago Saudi Arabia announced that its 91-year-old King Abdullah had passed away, in the process setting off what may be a fascinating, and problematic, Saudi succession fight which impacts everything from oil, to markets to geopolitics, especially in the aftermath of the dramatic political coup in neighboring Yemen. As a reminder, it is Saudi Arabia whose insistence on not cutting oil production with the intent of hobbling the US shale industry has led to the splinter of OPEC, and to a Brent price south of $50. Which is why today's event and its implications will be analyzed under a microscope by everyone: from politicians to energy traders. Here, courtesy of Ecstrat's Emad Mostaque, is an initial take at succession, the likely impact on oil, then the Saudi market & currency and finally regional politics.
... things like a 50%+ drop in oil prices happen. Which at some point will lead more people to wonder what the real numbers are. For emerging nations, those numbers will not be pretty for 2015. They’re going to feel like they’re being thrown right back into the Stone Age. And they’re not going to like that one bit, and look for ways to express their frustration. Volatility is not just on the rise in the world of finance. It also is in the real world that finance fails to reflect. At some point, the two will meet again, and Wall Street will mirror Main Street. It will make neither any happier. But it’ll be honest.
Chicago Fed's Charlie Evans called the drop in rates at the longer-end of the Treasury yield curve "extraordinary," falling just short of screaming "sell, sell, sell bonds" and threw wrench in the Fed's policy path by noting "raising rates at the wrong time would be catastrophic." So it is noteworthy that damage control appears to have been engaged this morning by no lesser Fed mouthpiece than Wall Street Journal's Jon Hilsenrath. Reminding the public of Bill Dudley's fears, when he argued the Fed had the wrong reaction to lower long rates in the 2000s, a mistake that might have contributed to the housing boom that ended disastrously; when instead the Fed should push rates higher sooner or more aggressively than planned.
Today we update where China stands on its path to a very hard landing. As the charts below show, what has been so far a controlled descent is rapidly sliding out of control.
Moments ago the Census Bureau reported that 458K new homes were sold in October (with a 16.5 error confidence), which missed expectations of a 471K increase from last month's 467K print, but that's ok, because last month's number was also revised substantially lower from 467K to 453K, which in turn will allow the mainstream propaganda to tout that New Home Sales jump in October to match the highest print since October 2013. There is one problem: here is what the update chart of New Home Sales data looks like on a historical basis... and as revised. It sure puts that 458K "increase" in a slightly different light.