Anyone who has not taken the pre-Thanksgiving day off may regret it as in addition to a Eurozone whose core is now officially imploding we have possibly one of the busiest economic days of the year to top it all of right into what will likely be the thinnest volume days. Expect massive manic depressive mood swings on the smallest of blocks.
- Barnier Panel to Study Break-Up of EU Banks (FT)
- Brussels Plans to Bring Eurozone to Heel (FT) - good luck with Germany
- China’s Manufacturing May Contract Most in Three Years as Housing Falters (Bloomberg)
- Merkel Backs ECB, Warns on Greek Aid Tranche (Reuters)
- Obama Reopens Debate on US Stimulus (FT)
- Germany Fails to Receive Bids for 35% of 10-Year Bunds Offered at Auction (Bloomberg)
- To the Eurozone: Advance or Risk Ruin (Martin Wolf - FT)
- Australia Lower House Passes Mining Tax (Bloomberg)
It just goes from bad to surreal in Europe where the latest moment of pure Greek "gods kill titans" tragicomedy, comes from French rating agency Fitch threatening to cut... France? Excerpts via Bloomberg:
- FITCH: FRANCE CAN'T ABSORB MORE SHOCKS WITHOUT UNDERMINING AAA
- FITCH: FRENCH AAA WOULD BE AT RISK IF CRISIS INTENSIFIES
- FITCH: ADDED MEASURES LIKELY NEEDED FOR FRANCE '13 DEFICIT GOAL
- FITCH PROJECTS FRANCE DEFICIT IN '13 ABOUT 4% OF GDP
This white paper is a thorough analysis of the current economic situation and what are the most likely outcomes. The result is that the U.S. will be joining the rest of the world in an economic decline. This is not a new recession but a continuation of the existing one. Many of the data reports from the government, especially GDP, are grossly misleading and paint a hopeful but false picture of what is happening. We give our forecast for the next six months.
Though late to the party as usual, the proverbial man on the street – along with members of mainstream media and Wall Street heavyweights – is finally waking up to the decade-long, 700% increase in the price of gold, joining a growing buzz around the monetary metal. From questions whether gold is in a bubble to predictions that soaring prices are just around the corner, one thing is clear: a new phase of awareness for gold is upon us. How far might it move before these troubling times are over?
Most of the media goes along with the notion that US banks exposed to the ‘euro-contagion’ will hurt our (nonexistent) recovery. US Banks assure us, they don't have much exposure - it's all hedged. (Like it was all AAA.) The press doesn't tend to question the global harm caused by never having smacked US banks into place, cutting off their money supply, splitting them into commercial and speculative parts ala Glass-Steagall and letting the speculative parts that should have died, die, rather than enjoy public subsidization and the ability to go globe-hopping for more destructive opportunity, alongside some of the mega-global bank partners. Today, the stock prices of the largest US banks are about as low as they were in the early part of 2009, not because of euro-contagion or Super-committee super-incompetence (a useless distraction anyway) but because of the ongoing transparency void surrouding the biggest banks amidst their central-bank-covered risks, and the political hot potato of how many emergency loans are required to keep them afloat at any given moment. Because investors don’t know their true exposures, any more than in early 2009. Because US banks catalyzed the global crisis that is currently manifesting itself in Europe. Because there never was a separate US housing crisis and European debt crisis. Instead, there is a worldwide, systemic, unregulated, uncontained, rapacious need for the most powerful banks and financial institutions to leverage whatever could be leveraged in whatever forms it could be leveraged in. So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.
While we will get into the nuances of why the Austrian AAA rating is the next to go (just after Hungary is downgraded in a matter of weeks if not days, following the country's request for IMF help earlier today) an event which we described ten days ago when the news that Austria's shaky rating was about to be downgraded first broke via the FTD and has since resulted in a major spike in Austrian credit spreads and bond yields, first we wanted to show readers the one ad which explains why the seeds of Austria's credit perfection collapse were sown back in 2007. In the ad, the second biggest Austrian bank, Raiffeisen Bank, explains precisely what its "selection" criteria were to get a loan in Hungary at the peak of the credit bubble (and yes, the ad is real). The ad explains the follow up news, which is namely that Austrian bank supervisors were today told to limit their lending to Eastern Europe. Unfortunately, the horses are out of the barn, and the biggest banks in Austria are about to be at the mercy of the markets, especially once the rating agencies do the inevitable and cur the country by at least 2 notches.
There was a time when central bankers used to fight high oil prices with interest-rate hikes. But we are now in a different era with that equation, and central bankers are more likely to lament, as Ben Bernanke quipped in his spring 2011 press conference, that "the FED can’t print oil.” Yes, precisely. At the zero bound of interest rates and with debt saturation coursing through the private and public sector, the developed world faces not an inflationary restraint from oil prices, but rather an additional deflationary barrier. Welcome to the new oil cycle. In the old oil cycle, new supply of petroleum was brought online to capture rising prices. In the new oil cycle, declines from existing fields neutralize this new supply, for a net global supply gain of zero. In the old oil cycle, recessions benefited large consumer countries like the United States as oil prices fell, giving a boost to the economy. In the new oil cycle, the price of oil falls only for a short time before resuming a higher swing. In the old oil cycle, the developed world set the oil price through swings in its demand. In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations.
The impossible is happening: resistance to printing money is fading. Has Germany hawked its soul to save the euro?
While we spend a lot of our time pointing out critical factors driving the reality of our markets and economies, today's note from David Rosenberg, of Gluskin Sheff, provides a spot-on and unarguable description of what every one of your favorite long-only strategist, sell-side economist, and hope-heavy CNBC anchor told you would happen - and hasn't! Then Rosie goes on to compare Italy to Lehman in a not so flattering light.
The Eurocalypse has unfolded EXACTLY as I foretold exactly 2 years ago, with nearly each and every quarterly update along the way coming to fruition within a year. With that much accuracy, preceded with the same from RRE, CRE and US banking crash, you'd think someone over in Europe would have called me over to sort things out???
- Moody's said that rising French bond yields increase the fiscal challenges facing France
- Members of the congressional deficit reduction committee voiced little hope of a breakthrough ahead of Wednesday’s deadline to agree a deal to reduce the US deficit
- EU's Rehn said that the sovereign crisis is hitting core Eurozone countries, and there should be no illusion
- ECB's Nowotny said an interest rate cut is possible, adding that the ECB will consider worsening economy at the next meeting
- Bundesbank slashed its 2012 German growth forecast to 0.5%-1% from its previous forecast of 1.8%, sees German economy entering 'difficult waters' in the coming months
- According to sources, EU governments rejected mutual guarantees for bank term funding, adding that the German opposition was key to the decision against mutual guarantees
- China Fears Lasting Worldwide Recession (FT)
- Grand deficit-cutting effort ends with whimper (Reuters)
- Global Economic Outlook Grim, China Tells U.S. Trade (Reuters)
- U.S. Billionaires Avoid Reporting Gains to IRS (Bloomberg)
- Deutsche Bank Could Transfer Contagion (Simon Johnson)
- Some BOJ Members Warned of Lehman Crisis-Type Shock (Reuters)
- Spain's Rajoy Triumphs With Big Election Majority (Reuters)
- Commission Proposes ‘Eurobonds’ (FT)
- Greek PM Heads for Brussels to Try to Secure Cash (Reuters)
The week ahead is light on data. The highlight of the week will be the publication of the PMIs in the Eurozone and the IFO in Germany. We expect business sentiment to deteriorate but only modestly. There is also the release of the first of several monthly China PMIs. Durable Goods and the FOMC minutes in the US will also be interesting to watch. Data in the US has been reasonably stable and have continued to surprise mostly on the positive side, albeit less so recently as expectations have adapted. Sub-trend growth will lead the Fed to consider its easing options again, but possibly not until sometime next year. An important US event this week will be the deadline for the fiscal Super Committee, which will likely fail to deliver a plan to cut the budget deficit by $1.2tn over the next 10 years. Though markets do not expect a plan before the deadline, it is likely that the focus on structural US imbalances intensifies during the week. This could well become an even more risk-averse environment, leaving few options to go short the USD. As our weekly FX idea, we therefore like short $/JPY, aiming for a move back to the pre-intervention lows.