Pushing the neo-liberal argument further than it wants to go, with interesting results.
China bought more than 100 tonnes of gold from Hong Kong for a fifth straight month in September as demand for bullion bars and jewellery stayed strong. Chinese demand appears to have fallen marginally in recent days but remains on track to overtake India as the world's biggest store of wealth gold buyer this year.
While we understand Europe's desperation to telegraph an improvement in its economy, driven by both GDP and such sentiment indicators as PMI data, very much as we saw in early 2011 before the carpet was pulled from beneath Europe and it promptly slid into a double dip, one thing that is unclear is why Europe continues to insist using Spain as the marginal indicator of improvement. After all, for every 50+ PMI print or "just barely positive" GDP there is a total (or youth) unemployment chart rising to fresh highs and confirming there is no consumption, and certainly no loan creation - the two driving forces of Keynesian economic growth. But while those two data dynamics are well-known to most, perhaps the true Ying and Yang indicators of Spain's economy are these two, somewhat less popular, charts.
The amusing news overnight was that following slightly better than expected Q2 GDP data out of Germany (0.7% vs 0.6% expected and up from 0.0%) and France (0.5% vs 0.2% expected and up from -0.2%), driven by consumer spending and industrial output, although investment dropped again, which meant that the Eurozone which posted a 0.3% growth in the quarter has "emerged" from its double dip recession. The most amusing thing is that on an annualized basis both Germany and France grew faster than the US in Q2. And they didn't even need to add iTunes song sales and underfunded liabilities to their GDP calculation - truly a miracle! Or perhaps to grow faster the US just needs higher taxes after all? Of course, with the all important loan creation to the private sector still at a record low, and with the ECB not injecting unsterilized credit, the European depression continues and this is merely an exercise in optics and an attempt to boost consumer confidence.
Coca-Cola, Yahoo, Intel, IBM, eBay, Google, GE and MSFT are just some of the household names that have disappointed on the revenue front so far.
With little going on today besides the just reported GE earnings, which beat consensus EPS expectations of $0.35 by the smallest possible increment but, as expected, missed consensus revenue of $35.56 printing at $35.12, and both the Japanese (which experienced a 500 point drop in minutes overnight) and Chinese (which closed below 2000 again) markets sliding, it is perhaps better to summarize the day that just was: Detroit City files for bankruptcy (send in Detroika!), Moody's take the US off negative outlook, Google and Microsoft miss on earnings and the S&P 500 hits a new record high. As DB says, the above certainly made for an eventful close to the US session after what was a fairly dull second day of testimony and Q&A for Bernanke. He has said all that can be said for now and we're left waiting for the data. And the earnings data so far has been abysmal if mostly on the top line, with corporate revenues now assured to double dip and decline for the second quarter in a row. And if the tech bellwethers all of which have been major disappointments to date and have guided down, are an indication of what is coming, Q3 may and will be even worse.
Nothing like good ole' Goldman to brighten up things with a wink and a smile just as the economy is sliding, earnings are retrenching (and declining excluding pension underfunding adjustments), cash flow is negative and revenues are poised to double dip.
The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.
Confirming that in a world in which either commercial or central banks have to be constantly be churning out debt, and in a world in which Europe is doing neither (with European commercial loan growth posting sequential declines across the board, and the ECB's balance sheet still declining although likely not for long), "growth" as defined by conventional standards, is impossible, we got today's European Q1 GDP data. Not only was it bad, but it was even worse than most had expected.
It started overnight in Japan, where Q4 GDP posted a surprising and disappointing 3rd quarter of declines, then quickly spread to France, whose Q4 GDP declined -0.3% Q/Q missing expectations of a -0.2% drop, down from a +0.1% increase, then Germany, whose GDP also missed expectations of a -0.5% drop, declining from a +0.2% increase to a -0.6% drop, then on to Italy (-0.9% vs Exp. -0.6%, last -0.2%), Portugal (-1.8%, Exp. -1.0%, last -0.9%), Greece (down -6.0%, previously -6.7%), Hungary (-0.9%, Exp. -0.3%), Austria (-0.2%, down from 0.1%), Cyprus (-3.1%, last -2.0%), and so on. To summarize: Eurozone GDP dropped far more than expected, or posting a -0.6% decline in Q4, worse than the -0.4% expected, which was the largest drop since Q1 2009, and down from the -0.1% posted in Q3. And since this was a second consecutive negative quarter of GDP decline for the Eurozone, the technical recession (double dip? triple dip? is anyone even counting anymore?) in Europe too is now official.
As we said a week ago in "Scapegoating Nemo", it was only a matter of time before Wall Street's heroic band of permabullish lemmings used a snow storm in the middle of, gasp, winter, as a "valid" excuse to justify why an economy priced to central planning-perfection may deviate slightly from a path that has missed every major upside inflection point in the past four years (but... but, there is always a reason... if only for the Fed to print). And appropriately enough, the first such excuse comes from none other than Groundhog Phil's nemesis Joe LaVorgna who just cut his Non-farm payroll forecast to 125K due to "inclement winter weather." Truly odd how there is never an exogenous reason for "better than expected" data. Ever. Next, and as always, rain in the spring will be blamed for a Durable Goods plunge in April, sun and balmy warm weather in the summer will be the cause of a collapse in retail spending in July, and finally, a gust of wind in the fall will lead to a double dip depression.
In the last days of 2012 we penned an article describing the current situation of the market as follows: "Margin Debt Soars To 2008 Levels As Everyone Is "All In", Levered, And Selling Vol." Today, Bloomberg catches up with this rather critical topic, and confirms that the buying power of the biggest marginal traders left in the market who do not recycled deposits into stocks - hedge funds - is nothing more than debt piled upon debt, as "Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley." BBG also recaps what our readers already know: "Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show." In other words: everyone is all in and levered. And soon, in about two weeks, Bloomberg will figure out that everyone, or at least a central bank here or there, is, indeed, "selling vol."
That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.
Back in June, we wrote an article titled "On The Verge Of A Historic Inversion In Shadow Banking" in which we showed that for the first time since December 1995, the total "shadow liabilities" in the United States - the deposit-free funding instruments that serve as credit to those unregulated institutions that are financial banks in all but name (i.e., they perform maturity, credit and liquidity transformations) - were on the verge of being once more eclipsed by traditional bank funding liabilities. As of Thursday, this inversion is now a fact, with Shadow Bank liabilities representing less in notional than traditional liabilities.
Europe is supposedly fixed and/or well on the path to being competitive and "rebalanced." Or so they say every day. What they don't say, is that to complete the process of rebalancing, in the absence of external devaluation mechanisms under a currency union, is that wages in countries such as Spain, Italy and even France, will have to drop by another 30%-50% for internal imbalances between the Eurozone's nation states to be evened out. What they certainly don't say is how this could ever possible be achieved...