The good news this morning is that the 2nd estimate of the third quarter (3Q) GDP was revised up from 2.0% initially to 2.7%. This is up sharply from the 2Q print of 1.3%. However, the combination of rising levels of unsold goods (inventory), slowing sales growth and declining incomes all point to weaker GDP growth in Q4 and into the early quarters of 2013. Look for GDP growth in the 4Q to decelerate to 1.5% to 1.7%. While there is currently not an official recession in the U.S. economy, as of yet, the details of the current economic growth are not ones of robust strength. If we are correct in my assumptions the economic underpinnings will continue to negatively impact fundamental valuations as profit margins continue to be compressed. While most of the media, and mainstream analysts, continue to focus on the state of the economy from one quarter to the next - the trend of the data clearly shows the need for concern. Of course, this also why Bernanke is already considering QE4. As we stated previously, while economic growth did pick up this quarter it is the makeup, and more importantly the sustainability, of that growth is what we need to continue to focus on.
"We all know what to do, we just don't know how to get re-elected after we have done it." - Jean-Claude Juncker
We have again reached a point where attempting to explain away an utterly irrational market, in which sentiment and momentum shifts on a dime overriding any fundamental newsflow, and summarizing overnight catalysts has become a moot point. With stocks acting and reacting like petulant, schizophrenic children with ADHD, fundamentals are totally meaningless: yesterday and the overnight trading session have become perfect examples as prepared bulletins by two politicians, which said absolutely nothing of significance or constructive - have been enough to override 72 hours worth of actual fundamental deteriorating data, and also offset each other. Will Congress resolve the Fiscal cliff in its 10 remaining days in session without a major impetus to move such as a market plunge? Of course not, but once again the question has become one of who sells first, and the momentum piles on - and if there is no downside momentum, there are no volume ramps. In the meantime all the sellside firms have gone uber bullish on 2013, setting up the Fiscal Cliff as a perfect strawman. Of course the "Cliff" will be surmounted eventually, and after some near-term pain, but the reality is that the resulting rising taxes across the world in 2013 will be a major economic headwind, just the opposite of what the sellside crew is saying as one after another strategists push out optimistic outlooks on the next year to sucker in what little remaining retail interest in the farce formerly known as the market may be left.
Goldman Wins Again As European Union Court Rules To Keep ECB Involvement In Greek Debt Fudging A SecretSubmitted by Tyler Durden on 11/29/2012 05:19 -0400
Three years ago, a hard fought landmark FOIA lawsuit was won by the great Bloomberg reports, the late Mark Pittman, in which the Fed was forced to disclose a plethora of previously secret bailout information, which in turn spurred the movement to "audit the Fed" and include a variety of largely watered down provisions in the Frank-Dodd bill. This victory came despite extensive objections by the Fed and the threat that the case may even escalate to the highly politicized Supreme Court, which lately has demonstrated conclusively that not only is justice not blind, but goes to the highest ideological bidder. Moments ago, Europe just learned that when it comes to secrecy of its supreme monetary leaders, in this case all originating from Goldman Sachs and defending data highly sensitive to the same Goldman Sachs, the European central bank's secrecy is not only matched by that of the Fed, but even more engrained in the "judicial" system of the Eurozone, after the European Union General Court in Luxembourg just announced that the European Central Bank will be allowed to refuse access to secret files showing how Greece used derivatives to hide its debt. Why? Simple: recall that it was Goldman Sachs who was the primary "advisor" on a decade worth of FX swaps-related deals which allowed Greece to outright lie about both its fiscal deficit and its total debt levels, and that it was a Goldman alum who became head of the same Greek debt office just before the country imploded. And certainly the ECB was involved and knew very all about the Greek behind the scenes shennanigans. And who happens to be head of the ECB? Why yet another former Goldman worker, of course. Mario Draghi.
Rising inequality might “jeopardize social cohesion”
Where will the €10bn for the buyback come from? This is far from clear but it is hard to imagine it being found anywhere other than the bailout funds, meaning a new transfer of around €9bn will be needed. This again poses significant political problems as leaders in Germany, the Netherlands and Finland (to name but a few) try to convince their parliaments (and public) that this is not more money into a black hole. It has been suggested that some of the other mechanisms mentioned below could be used to fund the buyback, but this looks impossible since they are being tapped to fill the existing funding gap. These substantial obstacles to a successful debt buyback are crucial since the IMF has already stated its on-going participation in the Greek bailout hinges on this policy. The likes of Finland and the Netherlands have also previously stated that IMF involvement is requirement if they are expected to continue to aid Greece. With a plan on the buyback expected to be in place by 13 December, to allow for the release of the next tranche of bailout funds, this deal could hit a wall even sooner than many expected.
- Egypt protests continue in crisis over Mursi powers (Reuters)
- Greece hires Deutsche, Morgan Stanley to run Greek voluntary debt buy back, sources say (Kathimerini)
- Executives' Good Luck in Trading Own Stock (WSJ)
- Hollande Presents Mittal Nationalization Among Site Options (Bloomberg)
- Eurozone states face losses on Greek debt (FT)
- Spain's rescued banks to shrink, slash jobs (Reuters)
- EU Approves Spanish Banks' Restructuring Plans (WSJ)
- At SAC, Portfolio Managers Are Treated Like Stocks (BBG)
- China considers easing family planning rules (Reuters)
- European Court to Rule Over ECB’s Secret Greek File (BusinessWeek)
- And another top tick indicator: Asia Funds Buy London Offices in Bet Volatility Is Past (Bloomberg)
- Harvard Doctor Turns Felon After Lure of Insider Trading (BBG)
- Zucker Is Lead Candidate to Head CNN (WSJ) - it's not true until CNN misreports it
- Iran "will press on with enrichment:" nuclear chief (Reuters)
It seems like it was only 24 hours ago that Europe bailed out Greece for the third time and everything was "fixed", with a resultant desperate attempt to validate this by pushing the EURUSD above 1.3000. Sadly, as always happens, Europe, and especially Greece, refuses to be fixed, because as we will not tire of saying: you can't fix debt with i) more debt, ii) hockeystick projections or iii) soothing words of platitude and an outright bankruptcy, just like that which Argentina is about to undergo, will be needed. If that means the end of the EUR and the delusion that the Eurozone is a viable monument to the egos of a few technocratic career politicians, so be it. As a result, this time around the halflife of the latest bailout was precisely zero, as was that of the latest Japanese QE episode, as the entire world is now habituated to the lies emanating from Europe, and demands details, which in turn are sorely lacking, especially as relates to the question of just where will Greece get the money desperately needed to fund the Greek bond buyback. But at least Kathimerini was kind enough to advise readers that said buyback must take place by December 7 in time for the euroarea finmins to approve the payment of the next Greek loan tranche at the December 13 meeting, something which will likely not happen, especially if Germany's SPD party delays the vote on the Greek bailout until the end of December as was reported yesterday. We can't wait to learn the details of the buyback package, which will come in the "next few days" per ANA, and especially where the buyback money will come from, especially with the FT reporting that various European countries will already lose money next year on the latest Greek bailout.
We are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too. No government in what used to be called “the free world” seems prepared to take the steps that can stop this inexorable decline. They are all busily telling their electorates that austerity is for other people (France), or that the piddling attempts they have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary for government to cut back its own spending (America). So here we all are. Like us, the member nations of the European single currency have embarked on their very own double (or is it triple?) dip recession. This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it. Democratic socialism with its “soft redistribution” and exponential growth of government spending will have paved the way for the hard redistribution of diminished resources under economic dictatorship.
No funds are going to be distributed now. Perhaps some of you missed this but this is exactly what Ms. Lagarde stated. Before any distribution the Eurozone has to “fulfill its commitments” and the Private Sector bond buyback plan must be completed. Consider this; Europe is putting up all of the money currently and the IMF has declined to participate. Oh yes, it is couched in political mishmash and tucked neatly under the rug but there it is; no money from the IMF for now.
Watching Barack Obama and Mitt Romney duel in the presidential campaign should have convinced the spectators that we live in an age of illusionists. Few of the assertions and conjectures thrown around have been subjected to what the political chattering classes deem to be the indignity of factual verification. This brings us to the sharp pencil people in the Obama administration, specifically the OMB. They claim to know what the relative size of the federal government will be in 2016, at the end of President Obama’s term. According to the OMB’s plans, the federal government, as a percent of GDP should be 22.5%. That’s a 1.8 percentage point drop from the current level. Given that President Obama’s first term recorded a record growth in the relative size of the federal government, and that the President campaigned on a platform of more big government, it is doubtful that he will come close to meeting his own OMB forecasts, in his second term. Yes, the illusionists, not the President’s sharp pencil people, will probably carry the day. What will make the President’s task even more onerous is money – as in the money supply. Thanks to Basel III, the U.S. money supply isn’t the only one creating growth headwinds. Europe faces significant money supply deficiencies. Will Asia continue to be the world’s locomotive? We will have to wait and see. At present, though, one thing is certain – an age of illusionists has arrived.
The price of the euro as a “romantic icon”
No 4:00 AM morning session this time, as the general revulsion to even pretending to work on behalf of a totally destroyed country is tangible:
- EURO ZONE MINISTERS, IMF REACH DEAL TO CUT GREEK DEBT TO 124 PCT/GDP IN 2020 THROUGH PACKAGE OF EXTRA STEPS TOTALLING 20 PCT/GDP -OFFICIAL
Phew - great, Greece is fixed or something. The only problem, of course, as we explained earlier, is that Greece has to magically grow its GDP by EUR 50 billion from EUR 184 billion to EUR235 billion by 2020 for this 124% debt/GDP to be hit (and another EUR 20 billion in the next two years). No, really.
Many economists are suggesting that the second estimate of Q3 GDP, which showed an initial estimate of 2.0% annualized growth, will be revised sharply upward to 2.8%. The problem is that the surge in demand isn't materializing at the manufacturing level. The month-over-month data has begun to show signs of deterioration as of late which doesn't support the idea of a sharp rebound in economic activity in recent months. The headwinds to economic growth are gaining strength as the tailwinds from stimulus related support programs fade. This has been witnessed not only in the manufacturing reports, such as the CFNAI and Dallas Fed Region surveys where forward expectations were sharply reduced, but also in many of the corporate earnings and guidance's this quarter.
Gold edged down on a Monday as speculators took their profits as prices rallied on thin volumes on Friday to their highest in a month on technical buying. A strong fall in the greenback triggered rapid gains in commodities and options-related buying on Friday. Tonight US Congress will meet to attempt to devise a plan to avert the US fiscal cliff which will throw the US into a spiral of tax hikes and budgetary cuts that will lead the US economy deeper into a recession this January. Another short term ‘resolution’ will almost certainly be achieved which will allow the US to keep spending like a broke drunken sailor and which will again store up far greater fiscal and monetary problems. The scale of these deep rooted structural challenges is so great that they are likely to affect the US sooner rather than later. Global investment demand for gold remains robust with the amount in exchange-traded products backed by the metal rising 0.1% to 2,606.3 metric tons.