Rather quiet. Verdict still out, whether we’ll get a real rebound or whether the last days were already the dead cat bounce, before heading lower. Periphery on the soft side, but with restricted own dynamics and trailing general Risk sentiment. Waiting. For the US to show the way. Or something to happen.
"Show Me The Way" (Bunds 1,34% unch; Spain 5,88% +7; Stoxx 2473% -0,3%; EUR 1,271 unch)
Well, after the Great Disconnect last week, next to the Great Pumpkin, and Sandy, we had Election week and suddenly the great Wake-Up Call. Fiscal Cliff was suddenly all the rage and ramped up equities (disconnect) were beaten flat by bonds.
"Wake Up" (Bunds 1,34% -11; Spain 5,81% +17; Stoxx 2481 -2,4%; EUR 1,271 -130)
One of the great faults with paying attention to Europe is to take what they tell you as factual. The media trumpets what they are given by the various sources of information in Europe but a quite skeptical eye is what is needed. They claim that they do not have the “Final Troika Report” on Greece because they have not stamped it “Final” yet and so they blame their indecision on the magic trick that they are performing. Everyone on the Continent has the report but since they can agree on almost nothing they have blamed the lack of the rubber stamp as the culprit. They should just come out and say that, “It is the rubber stamp’s fault” and be done with it. Every easy trick has now been exhausted when it comes to Greece. You may feel worn out and tired by the length of time this process has taken but that is a remarkably short-sighted viewpoint. It is going to be either “debt forgiveness” or “more money” or “brute force” and there are quite serious consequences for many nations and many governments whichever path is chosen. Any of these three paths will lead to extensive pain and a lot of contagion and so I conclude that the Greeks will get forced out by increasing European demands. “Blame it on the Greeks” will be the secret password while the Greeks will call Berlin every name in the book.
Europe had wanted a rebound, tried to hold on, panicked, sold off, triggered stops – and recovered as the US, although not rebounding fast and furious, at least held the line. EGB running a little out of steam, although August levels were traded again in Bunds. Periphery eventually tracking Risk, but with no own dynamic. Need to see how things close tonight. No More.
"No More" (Bunds 1,34% -2; Spain 5,81% -3; Stoxx 2481% +0,1%; EUR 1,271)
Does China have what it takes to get from here (industrialized export economy) to there (sustainable growth, widespread prosperity)? The same can be asked of every nation: do they have what it takes to move beyond their current limitations to the next level? Consider corruption. Corruption isn't just a "values" issue: corrupt societies have corrupt economies, and these economies are severely limited by that corruption. A deeply, pervasively corrupt economy cannot get from here to there. Corruption acts as a "tax" on the economy, siphoning money from the productive to the parasitic unproductive Elites skimming the bribes, payoffs, protection money, unofficial "fees," etc. By definition, the money skimmed by corruption reduces the disposable income of households and enterprises, reducing their consumption and investment... Pull aside the curtain and what you find is a China crippled by corruption and debt.
While the citizens of Athens rioted and threw Molotov Cocktails outside of their Parliament the elected officials narrowly passed the new austerity measures demanded by the Troika last night. They have a budget vote left, likely to be passed, and then the focus will shift to the IMF and the European Union and whether they will fund and how it will be done. The Greek government says it will run out of money on November 16 and the country has debt payments to be made on November 21. Last night’s vote in Athens was only the first page in the current chapter and there are a number of open questions left. Make no mistake; we are caught between three cliffs at present.
Hmmm… Initial rebound after yesterday’s bashing was rather modest, settling on a bit better and awaiting US input. Spain overdid its auction, which looked just good in the sense of being able to say it sold a new bond for size – to its dealers. ECB, happy to have provided the idea of OMT to save the world from simple panic, now going pessimistic (in non-panicky way). It’s just soft out there… It’s the economy, Stupid! And it is weak.
"Bop 'Til You Drop " (Bunds 1,36% -2; Spain 5,84% +16; Stoxx 2479% +0,1%; EUR 1,275)
Exuberant start (Who knows why?), flat lunch (made more sense…), dismal afternoon (to say the least). EGBs ramped up, as the reality of the last days’ figures kicked in. And suddenly everyone woke up and saw… and bonds were right. Tommy, "See Me, Feel Me".
"Pinball Wizard" (Bunds 1,38% -5; Spain 5,68% +4; Stoxx 2486 -1,8%; EUR 1,276)
It’s really hard to ignore what’s happening today; the election phenomenon is global. The entire world seems fixated on this belief that it actually matters who becomes the President of the United States anymore... or that one of these two guys is going to ‘fix’ things. Fact is, it doesn’t matter. Not one bit. And we’ll show you why mathematically... This is not a political problem, it’s a mathematical one. Facts are facts, no matter how uncomfortable they may be. Today’s election is merely a choice of who is going to captain the sinking Titanic.
Markets have found a good excuse to be on hold. Elections. No real US figures and a tendency to ignore European ones. No shoe dropping means upside, a little. Core EGBs rather firm nevertheless, for choice. Periphery, in absence of news, trading back and forth, so better today. EZ Q4 growth looks like stalling with a catch-up of a more lenient summer. More to come.
"Elected " (Bunds 1,43% +1; Spain 5,64% -9; Stoxx 2513 +0.5%; EUR 1,281)
When it comes to sleepless nights, Toimi Soini of Finland originally set the record by using the "toothpicks under the eyelids" method for 11 straight days. In hindsight, Toimi was an amateur. Toimi Soini was not a banker and this was his downfall. As for the Canadians, Swiss and British – yes they are all bankers, but not just any bankers. This terrific trio have the displeasure of forever being known as the bankers who sold their gold. The irony of course, is the action of the World’s central bankers themselves is the reason why gold is destined to remain golden for sometime to come. And with gold sitting near $1700/oz, and with no end to the money printing games, the sleepless nights are destined to continue. IceCap's Keith Dicker opines on the wrong-ness of Alan Greenspan's economic miracle, equity manager's misplaced rationalization of performance as skill, China's gold-buying spree, the Nobel Peace Prize debacle, and the inexorable growth of 'fake money'.
Nothing really mattered… Eventually. Europe correcting Friday’s excessive optimism, in line with the US, treading water ahead of the elections. Still, the Periphery remained under (controlled) pressure with Spain cornering most, if not all negative headlines today – ahead of Thursday’s auction. 10 YRS periphery backing up to (selective) symbolic levels of 5% and 5.75% (damn’ near 6%).
We had ended the week on Fri 26 being “On the Road to Nowhere”, which essentially wasn’t that wrong a call, as markets got stuck on Sandy’s path.
So, as last week: Nothing new. Spailout OMT still not in play – and might not be this year's business. Officially. Hmmm... Yeah. Sure. We'll see. Greece, haggling not over.
Big Disconnect between Risk and Reality, Equities and Bonds.
At a cost to the taxpayer of $317,435 per job
Uhhhh. It just couldn’t last. Risk had been pushed higher and higher in anticipation, but a combination of reality-check, rather unsettling Q3 earnings and renewed Spanish jitters just made players come down hard from their previous week’s high flying exercise.
Spailout OMT still not in play. Greece, haggling not over. Earnings rather bad. PMIs dismal. Central Banks on hold, as everything is on the table, at least for the moment.