The overnight fireworks out of China's interbank market, which saw a surge in repo and Shibor rates (O/N +78 to 5.23%, 1 Week +64.6 to 5.59%) once more following the lack of a follow through reverse repo as described previously, and once again exposed the rogue gallery of sellside "analysts" as clueless penguins all of whom predicted a quick resumption of Chinese interbank normalcy, did absolutely nothing to make the San Diego's weatherman's forecast of the overnight Fed-driven futures any more difficult: "stocks will be... up. back to you." And so they were, despite as DB puts it, "yesterday saw another round of slightly softer US data that helped drive the S&P 500 and Dow Jones to fresh highs" and "the release of weaker than expected Japanese IP numbers hasn’t dampened sentiment in Japanese equities" or for that matter megacorp Japan Tobacco firing 20% of its workforce - thanks Abenomics. Ah, remember when data mattered? Nevermind - long live and prosper in the New Normal. Heading into US trading, today the markets will be transfixed by the FOMC announcement at 2 pm, which will likely say nothing at all (although there is a chance for a surprise - more shortly), and to a lesser extent the ADP Private Payrolls number, which as many have suggested, that if it prints at 0 or goes negative, 1800 on the S&P is assured as early as today.
U.S. Debt Limit To Be Raised For 18th Time In 20 Years - Gold Vulnerable Short Term But Real Record High LikelySubmitted by GoldCore on 10/11/2013 12:05 -0400
The dangerous habit of politicians and governments continually ‘kicking the can down the road’ cannot go on indefinitely. Eventually, the ramifications of this profligacy will be clear to all.
Yet another increase in the debt ceiling and the increasingly parabolic nature of the rise in U.S. government debt will be very supportive of gold in the medium and long term.
What Ben Bernanke did by not Tapering was expose the fragility of the US economy for all to see. His actions, Mises Institute's Peter Klein explains in this brief clip, based on the premise that the US economy was not capable of sustaining any reduction in the $85 billion per month stimulus free-money, means once again "the economy is so dependent on artificial stimulation from the central bank... that the economy is in another artificial boom just like the artificial boom we have been trying to get out of." Critically, for all those proclaiming the US as a "cleanest shirt," Bernanke proved them wrong (and exposed the fallacy of data such as the unemployment rate and jobless claims as having any value - as we have explained). In conclusion, Klein notes "any signs of economic growth or progress that we have experienced since 2008 are solely the result of government stimulus; in other words, more malinvestment." This will not end well.
The market is rallying today on August performance gaming. The talking heads will claim this move has something to do with fundamentals, but the reality is that the move up yesterday and today consists of fund managers doing whatever they can to end this month with their holdings as high as possible. Nothing else.
UPDATE: China 7-day repo +374bps to 12%! China Flash PMI 48.2 (49.1 exp) - lowest in 9 months; worst 3-month plunge since Feb 2011.
Following the hushed-up default by Everbright Bank last week, the liquidity situation in China has gone from bad to worse - with 1Y IRS now at all-time record highs. Many are now questioning whether the dramatic elevation in short-term financing rates is "here to stay," and with the Chinese yield curve now inverted in a similar fashion (and period) as the US Treasury market prior to the US recession in 2007, the clarion call for government stimulus is loud from the addicts. However, as HSBC notes today, since the government is now putting more emphasis on balanced growth and market reforms, it will tolerate GDP growth in the 7-7.5% range and will therefore take no strong measures to boost growth unless there is a risk of growth slowing to 7%. The red flags are piling up in the world's supposed growth engine...
The wild ride in Japan's bond market is a prelude to what will happen in other developed markets.
We are a long way from really resolving the argument between the Keynesian and Austrian economic theories, despite some so-called experts proclaiming Krugman's victory this week. The discovery of the calculation error in the Reinhart/Rogoff study does little to change the overall premise that excessive debt levels impede economic growth and have, historically, led to the fall of economic empires. All one really has to do is pick up a history book and read of the Greeks, Romans, British, French, Russians and many others. Does fiscal responsibility lead to short term economic pain? Absolutely. Why would anyone ever imagine that cutting spending and reducing budgets would be pain free? However, what we do know is that the path of fiscal irresponsibility has long term negative consequences for the economy. In the meantime we can continue to ignore the long term conseqences in exchange for short term bliss.
Data are hard to deal with when your vision is on the wrong side of it. Those wanting to claim there is a recovery underway are having just this problem. These people either have no understanding of economics or they believe falsely that they can inflate “animal spirits” with their hyped reports and that will initiate a recovery. There will not be an economic recovery given the economic policies of this country. A recovery is not unlikely, I would argue it is closer to impossible if not impossible. The reasons for this position are not complicated. In short, the nation has become an out-of-control welfare state that is rapidly destroying the incentives to work or create jobs. Government policies appear designed toward this end. One doesn’t need a high IQ or an advanced degree in economics to understand the problems. There are innumerable factors responsible for the decline of the US. These three important ones will convey why the economy is dying...
Q. What is the fiscal multiplier on $529 in government stimulus?
A. If you are Fisker Automotive, zero.
While the terminal fate of the federally-subdizied car company was no secret to anyone, there were some questions when this latest example of idiotic government "capital allocation" would get Solyndraed. The answer is now.
This week's events show that the Chinese government realises that its stimulus efforts have got out of hand and its economy is in trouble.
- When the cash runs out: Nokia to Omit Dividend for First Time in 143 Years (BBG)
- Passing Debt Bill, GOP Pledges End to Deficits (WSJ)
- Japan logs record trade gap in 2012 as exports struggle (Reuters)
- so naturally... Yen at 100 Per Dollar Endorsed by Japan Government’s Nishimura (BBG)
- Japan rejects currency war fears (FT)
- In Amenas attack brings global jihad home to Algeria (Reuters)
- Investors grow cagey as Italy election nears (Reuters)
- Mafia Victim’s Son Holds Key to Bersani Winning Key Region (BBG)
- Bernanke Seen Pressing On With Stimulus Amid Debate on QE (BBG)
- U.S. to lift ban on women in front-line combat jobs (Reuters)
- Red flags revealed in filings of firm linked to Caterpillar fraud (Reuters)
- Apple Sales Gain Slowest Since ’09 as Competition Climbs (BBG)
- Spanish Jobless Rate Hits Record After Rajoy’s First Year (BBG)
- North Korea Threatens Nuclear Test to Derail U.S. Policies (BBG)
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
Following some well-timed 'suggestions' in Natural Gas and Apple this year, the new bond guru has some rather more concerning views about the future of America. Reflecting on a dismal outlook progressing due to the fact that "Retirees take resources from a society, and workers produce resources", Gundlach has cut his exposure to US equities (apart from gold-miners and NatGas producers) noting their expensive valuation and low potential for growth. In a forthcoming Bloomberg Markets interview, the DoubleLine CEO warns we are about to enter the ominous third phase of the current debacle (Phase 1: a 27-year buildup of corporate, personal and sovereign debt. That lasted until 2008, when Phase 2 started, unfettered lending finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth) as deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. "I don’t believe you’re going to get some sort of an early warning," Gundlach warns "You should be moving now."
Farce #1: “Market value” and “free markets” have become a joke.
Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar.
Farce #3: Printed money is backed by nothing.
Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.
Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.
Farce #6: Risk is gone. Now there is only liability borne by citizens.
Farce #7: Productivity has been supplanted by parasitism.
Today Europe awakes to yet another Eurozone summit, one at which such topics as Greece, Spain, the banking union project or a economic/budgetary union will have to gain further traction, if not resolution. In fact Greece could hardly wait and has already launched it latest 24 hour strike against austerity. The same Greece which demands a 2 year, €30 billion extension from Europe to comply with reform, a move which Europe has/has not agreed to as while the core have said yes to more time, all have refused to fund Greece with any more money. Alas the two are synonymous. As SocGen predicts unless there is some credible progress today, all the progress since the September ECB meeting, which has seen SPGB 10 Year yields decline from 690 bps to sub 550 bps, may simply drift away. And as everyone knows, there is never any progress at these meetings, except for lots of headlines, lots of promises (the Eurozone June summit's conclusions have yet to be implemented) and lots of bottom line profits by Belgian caterers. Elsewhere, Spain sold 3, 4 and 10 year bonds at declining yields on residual optimism from the pro forma bailed out country's paradoxical Investment Grade rating. In non-hopium based news, Spanish bad loans rose to a record 10.5% in August from 10.1% previously while the oldest bank in the world, Italy's Banka Monte dei Paschi was cut to junk status. All this is irrelevant though, as no negative news will ever matter again in a centrally-planned world. Finally the only real good news (at least until it is revised)came out of the UK, where retail sales posted a 0.4% increase on expectations of a 0.2% rise from -0.2%.