Just as Friday ended with a last minute meltup, there continues to be nothing that can stop Bernanke's runaway liquidity train, and the overnight trading session has been one of a continuing slow melt up in risk assets, which as expected merely ape the Fed's balance sheet to their implied fair year end target of roughly 1900. The data in the past 48 hours was hot but not too hot, with China Non-mfg PMI rising from 55.4 to 56.3 a 14 month high (and entirely made up as all other China data) - hot but not too hot to concern the PBOC additionally over cutting additional liquidity - while the Eurozone Mfg PMI came as expected at 51.3 up from 51.1 prior driven by rising German PMI (up from 51.1 to 51.7 on 51.5 expected), declining French PMI (from 49.8 to 49.1, exp. 49.4), declining Italian PMI (from 50.8 to 50.7, exp. 51.0), Spain up (from 50.7 to 50.9, vs 51.0 expected), and finally the UK construction PMI up from 58.9 to 59.4.
There has been much media insinuation in recent months that just because Spain's economy has virtually shuttered, and imports have slid to unprecedented low levels in the process pushing the (adjusted) GDP beancount positive for the first time in 3 years, that things are somehow getting better. What the media has roundly ignored is that as a result of the collapse in consumption and end demand, courtesy of an unemployment rate that at least according to Eurostat just rose to a new record high, the companies that actually operate in Spain and form the basis for any real economic growth, are shuttering at an unprecedented pace. Of note: Spanish electrical appliance maker Fagor, which employs 5,700 people worldwide, or in a few shorts months, employed, is one step closer to bankruptcy after its Polish subsidiary filed for protection from its creditors. The company, which claims to be the fifth-biggest electrical appliance company in Europe, had trading of its debt suspended after its mother firm - private Spanish conglomerate Mondragon - refused to pour in money to rescue the company.
Just a few days ago Alan Greenspan’s latest piece of work was published (October 20th 2013). It’s entitled The Map and the Territory: Risk, Human Nature, and the Future of Forecasting.
"As I leave, I really urge everyone to take note of, and stand against, what I and others have written about for years, but which is becoming increasingly more threatening: namely, a sustained and unprecedented attack on press freedoms and the news gathering process in the US. That same menacing climate is now manifest in the UK as well. Allowing journalism to be criminalized is in nobody's interest other than the states which are trying to achieve that. I hope everyone who believes in basic press freedoms will defend those journalistic outlets when they are under attack – all of them – regardless of how much one likes or does not like them."
The "wedge" between 'market-perception' and economic reality, that we discussed in detail last night, driven by Merkel's enabling of Draghi's excess, has never been more extreme. As Elliott's Paul Singer noted, things are indeed "wrong and dangerous" when politicians are proclaiming victories, stocks are at record highs, bonds risk is at multi-year lows and yet unemployment rates (most specifically among the under-25 youth of the region) soars back to record highs. A stunning 24.1% of young people across the entire euro-zone is unemployed; Spain (having 'exited' its nominal recession) stands at a record 56.5% youth unemployment, topped only by Greece's mind-numbing 57.3% youth unemployment record (as Greek bond yields hit 3 year lows). France and Italy also hit record highs and Cyprus' broad unemployment level has exploded from 28% a year ago to 43% now. Amid all of this, Germany's youth unemployment continues to improve to a 20 year low. Recipe for disaster?
In addition to the bevy of ugly European unemployment and inflation news just reported, the overnight session had a dollop of more ugly macro data for the algos to kneejerkingly react to and ramp stocks to fresh time highs on. First it was China, where the PBOC did another reverse repo, however this time at a fixed 4.3% rate, 0.2% higher than the Monday iteration and well above the 3%-handle from early October, indicating that China is truly intent on tightening its monetary conditions. Then Japan confirmed that despite the soaring imported food and energy inflation, wages just refuse to rise, and have declined now for nearly 1.5 years. Then, adding core insult to peripheral injury, Germany reported retail sales that missed expectations of a +0.4% print wildly, declining -0.4% from a prior downward revised 0.5% to -0.2%. And so on: more below. However, as usual what does matter is how the market digests the FOMC news, and for now the sense is that the risk of a December taper has risen based on the FOMC statement language, whether warranted or not, which as a result is pushing futures modestly lower following an epic move higher in the month of October on nothing but pure balance sheet and multiple expansion. The big data week in the US rolls on with the highlights being the Chicago PMI and initial jobless claims, which are expected to print their first accurate, non-impaired reading since August.
- Morning Humor from Hilsenrath - Fed Balance Sheet Not Seen Returning to Normal Until at Least 2019 (WSJ)
- Health Policies Canceled in Latest Hurdle for Obamacare (BBG)
- Was there anything RBS was not manipulating? RBS Said to Review Currency-Trading Practices Amid Probe (BBG)
- Sebelius to Testify Before House Panel (WSJ)
- And more humor: Spain's Statistics Institute Confirms End of Recession (WSJ) ... and now we await the triple dip
- Finally some credible reporting on Yellen's "foresight" - Yellen feared housing bust but did not raise public alarm (Reuters)
- Japan government moves closer to Fukushima takeover (FT)
- China to step up own security after new NSA allegations (Reuters)
- Blackstone Vies With Goldman in Spain Rental Housing Bet (BBG)
- In new U.S. budget talks, Republican proposal has flipped the script (Reuters)
There's a Monetary Firestorm Coming
Following the humiliation of having a US ambassador summoned so he would explain the spying conducted by the US government, in liberated Paris of all places (because while the NSA spying on your own citizens is an absolute travesty and trampling of basic human rights and smacks of Stalingrad circa 1960, spying abroad is permitted, accepted and largely forgiven by all the developed nations - after all everyone does it) the US has struck back in the most poetic way imaginable: it said that whatever phone records the NSA acquired were passed on to it by the local spy agencies of none other than France and Spain. The implication is simple: the local people understandably furious at the US and screaming blood, have just been given a far more convenient target at which to fume: their own governments.
There is a fear stalking the corridors of European politics. It is not the surging unemployment in France, or record delinquencies in Spain, or all-time low credit creation across the region; it is the growing concern that the powers that be have from the rise of Euroskepticism. As UKIP's Nigel Farage exclaims to Barroso and his brood, "years ago, you were less worried... but now we are "evil", "populists", we are "dangerous" and are going to bring down Western Civilization." As the outspoken Brit implores in this brief clip, there is nothing extreme in his views. "The real European debate is about identity," he notes, "what we are saying, large numbers of us from every single EU member state is: we don't want that flag, we don't want the anthem that you all stood so ram-rod straight for yesterday, we don't want EU passports, we don't want political union." As Greece faces down its 3rd bailout and deflationary threats loom across the region, we suspect top-down and bottom-up angst will bubble back to the surface soon enough.
You know the old rule of thumb about laws - the more high-sounding the legislation, the more destructive its consequences. Case in point, HR 3293 - the recently introduced Debt Limit Reform Act. Sounds great, right? After all, reforming the debt seems like a terrific idea. Except that’s not what the bill really does. They’re not reforming anything. HR 3293?s real purpose is to authorize the government to simply stop counting a massive portion of the US national debt.
No wonder investors don't take economists seriously. Or if they do, they shouldn't. Since Richard Nixon interrupted Hoss and Little Joe on a Sunday night in August 1971, it's been one boom and bust after another. But don't tell that to the latest Nobel Prize co-winner, Eugene Fama, the founder of the efficient-market hypothesis. No matter the facts, Fama has his story and he's sticking to it. "I think most bubbles are 20/20 hindsight," Fama told Cassidy. The rest of us, who lived through the tech and real estate booms while Fama was locked in his ivory tower, know that in a boom people go crazy. There's a reason the other term for bubble is mania.
Radiation Levels Will Concentrate in Pockets at Certain West Coast Locations
- Budget deficit priorities people: U.S. NSA spied on 60 million Spanish phone calls in a month (Reuters)
- Stuck in countless scandals, Obama does what he does best: speak. Obama To Speak At Installation Of FBI Director James Comey (TPM)
- Five killed as car ploughs into crowd in Beijing's Tiananmen Square (Reuters)
- U.K. Storm Brings Power Cuts, Snarls Transport in South (BBG)
- China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum (BBG)
- Sandy's Legacy: Higher Home Prices (WSJ)
- Merkel Enters Concrete SPD Talks as Finance Post Looms (BBG)
- Keep arming those Syrian al-qaeda rebels: Car bombs kill scores in Baghdad, in sign of crisis in Iraq (WaPo)
- J.P. Morgan's Mortgage Troubles Ran Deep (WSJ)
- Detroit’s public library contains story of city’s decline (FT)
- Argentina elections: President loses in Buenos Aires province (BBC)
- Phone-hacking: trial of Andy Coulson and Rebekah Brooks to begin (Guardian)
In the upcoming week, the key event is the US FOMC, though we and the consensus do not expect any key decisions to be taken. Though a strengthening of forward guidance is still possible, virtually nobody expects anything of import to be announced until the Dec meeting. In the upcoming week we also have five more central bank meetings in addition to the FOMC: Japan, New Zealand, India, Hungary and Israel. In Hungary we, in line with consensus, expect a 20bps cut to 3.40% in the policy rate. In India consensus expects a 25bps hike in the repo rate to 7.75%. On the data front, US IP, retail sales and pending home sales are worth a look, but the key release will be the ISM survey at the end of the week, together with manufacturing PMIs around the world. US consumer confidence is worth a look, given the potential impact from the recent fiscal tensions.