Within the European economic context Germany has been a star performer in recent years, outgrowing in GDP terms its Eurozone peer group as a whole in all but one year since 2006 (complete with a magnificent football/soccer team). This was quite a reversal of fortune from the ten years prior, when Germany consistently lagged in wealth creation. Together with its size and unwavering historical commitment to the EU project, this has created the expectation in political and even financial circles that if Europe faces another major economic crisis Germany will have no choice but to support the most vulnerable member states, possibly even relenting to the mutualisation of the Eurozone's debts. While this is a very complex topic, the following graph puts the odds in favor of one outcome: the next time push comes to shove in a big way, Germany will likely say NEIN!
- Argentine holdout NML says government "choosing" to default (Reuters)
- Crunch time for Gaza truce talks as death toll passes 800 (Reuters)
- Don’t Tell Anybody About This Story on HFT Power Jump Trading (BBG)
- U.S. Accuses Russia of Shelling Eastern Ukraine (BBG)
- France’s Wheat Exports in Question as Rain Spoils Quality (BBG)
- Tapering in action: Lower printer sales hurt Xerox's revenue (Reuters)
- No liquidity? No Problem, there's an ETF for that: Bond ETFs Swelling in Europe as Trading Debt Gets Tougher (BBG)
- Herbalife hires ex-Biden chief to fend off regulators (NYPost)
- GM recalls far from calamity for some dealers who find new customers, business (Reuters)
- Bad weather likely cause of fatal Air Algerie crash: French officials (Reuters)
Passing a European Banking stress test these days is a little like farting - easy to do, mostly hot air, and yet it typically warns of something else coming down that isn't going to be pretty
As if trying to figure out the impact of the central banks' balance sheets and China's record debt creation on stocks wasn't enough of a complexity (actually it really isn't that complex) for a market where fundamentals haven't mattered in 5 years, there is also the issue of ETF basket creation, best known for the daily 3:30 pm ramp when ETFs catch up with their underlying components in a rising market, giving it all a procyclical turbo boost. It is here that SocGen reports that in the past fortnight, there was record equity ETF creation, mostly focusing on the S&P 500.
Ever since going public, it appears that Markit's giddyness about life has spilled over into its manufacturing surveys: after a surge in recent Markit mfg exuberance in recent months in the US, it was first China's turn overnight to hit an 18 month high, slamming expectations and fixing the bitter taste in the mouth left by another month of atrocious Japan trade data (where even Goldman has thrown in the towel on Abenomics now) following which the euphoria spilled over to Europe just as the triple-dip recession warnings had started to grow ever louder and most economists have been making a strong case for ECB QE. Instead, German July mfg PMI printed at 52.9, above the 52.0 in June and above the 51.9 expected while the Composite blasted higher to 55.9, from 54.0, and above the 53.8 expected thanks to the strongest Service PMI in 37 months! End result: a blended Eurozone manufacturing PMI rising from 51.8 to 51.9, despite expectations of a modest decline while the Composite rose from 52.8 to 54.0, on expectations of an unchanged print. Curiously the soft survey data took place as Retail Sales declined both in Italy (-0.7%, Exp. +0.2%), and the UK (-0.1%, Exp. 0.3%), which incidentally was blamed on "hot weather." Perhaps Markit, now that it has IPOed successfully, can step off the gas or at least lobby to have surveys become part of GDP.
When it comes to the apocalypse, Krugman likes to have his apocalyptic cake and eat it too. Krugman says that the recent concern about “debts and deficits” was a “false alarm.” He attempts to paint those who were concerned about the debt crisis as scare mongers. He sarcastically says that “the debt apocalypse has been called off.”
With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.
This clown parade of clueless opinions (did we mention Goldman had BES at a buy until this morning?), stretched all the way to the very top with Bank of Portugal itself issuing the following pearl:
- BANK OF PORTUGAL SAYS BES DEPOSITORS CAN STAY CALM
Uhhh, what else would the Portugal central bank say? Panic and withdraw your deposits from a bank whose exposures to insolvent entities have been largely unknown until today (and even now).
Gold Rigged “To Benefit Banks, At Expense Of Producers, Traders, Investors, Jewellers And Other Market Participants”?Submitted by GoldCore on 07/09/2014 04:40 -0400
We believe that a more transparent and reliable fixing could lead to higher gold prices as we suspect that prices are artificially low at this time and do not reflect the delicate supply demand balance in the physical gold market ... Nor do they capture the degree of systemic and geopolitical risk in the world today."
While Spain may have been scrambling for the past several years to figure out how to spin its economy, boasting one of the highest unemployment rates in the Eurozone, as recovering, coming up with numerous changes to what it believes should constitute GDP, most recently including an estimate of the contribution hookers and blow add to the economy, a surprising place which has emerged as a potential source of huge economic upside for Spain's economy is none other than the recently established Islamic State created by the ISIS al-Qaeda spin off. Because, stunningly, in a story right out of a history book covering the Islamic Conquest and subsequent Reconquista (however not in the middle ages but in the 21st century), the hardest-core Islamists around, those which even al-Qaeda deemed too "extremist", appears to have sworn to invade Spain next!
EURUSD drop may have further to go given that the relative policy outlook would push Fed/ECB balance sheet ratio lower before long. Citi's Valentin Marinov believes, relative data surprises as well as forward looking cyclical gauges like bank stocks are starting to favor USD over EUR and he points out that leveraged accounts could start adding to shorts again as real money continue to sell EUR.
Felix Zulauf, James Montier and David Iben: Three legendary investors share their views on financial markets. Everything is pricey ("we will continue to swim in a sea of liquidity; but there might be other events and developments that may not be camouflaged by liquidity which could cause a change of investor expectations.") the European periphery is a bubble ("The Euro crisis is not over...the European economies are not going to change for the better for years to come despite all the cheating and breaking of laws"), Value investors need to venture to Russia ("when you look at today’s opportunity set, you’re left with a set of assets where nothing looks attractive from a valuation point of view") or buy gold mining stocks (" The down cycle could be much bigger than anybody believes if the market realizes that all the actions taken in recent years do not work.") Summing it all up, "there is no question that [sovereigns] lack the fundamental economic base to finally service their debts," trade accordingly.
To complete the French triple whammy offensive against the US Dollar this weekend (first, French central banker Noyer suggesting de-dollarisation; second, French oil major Total's CEO "seeing no reason for the Petrodollar"), French finance minister Michel Sapin says "now is the right time to bolster the use of the euro" adding, more ominously for the dollar, "we sell ourselves aircraft in dollars. Is that really necessary? I don’t think so." Careful to avoid upsetting his 'allies' across the pond, Sapin followed up with the slam-dunk diplomacy, "This is not a fight against dollar imperialism," except, of course - that's exactly what it is... just as it was over 40 years ago when the French challenged Nixon.
The most dangerous organization is the now French led IMF with Christine Lagarde at the helm, which has presented a concept report in which 'debt cuts for over-indebted states are uncompromising' and are to be performed more effectively in the future by defaulting on retirement accounts held in life insurance, mutual funds and other types of pension schemes, or arbitrarily extending debt perpetually so you cannot redeem. Yes you read correctly, The new IMF paper describes in great detail exactly how to now allow the private sector, which has invested in government bonds, will be expropriated to pay for the national debts of the socialist governments. This far-reaching plan for the expropriation of savers, investors and retirees clearly shows the reality of socialism.