Gross Domestic Product
A simple way of grasping the precarious situation China has found itself in is with this useful diagram which summarizes the negative loop that China's economy (which essentially means housing market which as SocGen recently explained is indirectly responsible for 80% of local GDP) could fall into should the government not promptly move to address the emerging dangerous situation, i.e., resume aggressive easing.
The key news overnight were global manufacturing PMIs which can be summarized as follows: Japan contraction; China contraction, but less than expected (as reported before); and most recently, Europe which expanded but dropped and missed, at 52.5, down from 53.4 and below the consensus estimate of 53.2. The weakness was fully driven by France which has moved back into a contraction phase in both manufacturing and services, which were 49.3 and 49.2, down from 51.2 and 50.4, respectively (although with the recent surge in train station remodelling, the mfg aspect may soon be boosted). The market soaked up the Chinese numbers with fervor, sending the algo-controlled USDJPY into a buying frenzy which in turn pushed up US equity futures, only to see a gradual fade of the Chinese euphoria when the European data hit.
China's HSBC Manufacturing PMI has now spent 3 years within 2 points of the crucial '50' demarcation between contraction and expansion but as the following chart shows, something seems 'odd' about the last few months apparent stability. Tonight China HSBC PMI printed a stunning 49.7 crushing the expectation of 48.3 (modestly above last month's 48.1) but still in contraction for the 5th month in a row (the longest contraction since Oct 2012). This was China's biggest spike in PMI in 9 months led by increases in new orders, production, and new export orders... but employment fell to new lows. Japan's Markit PMI also printed in 'contraction' territory for the 2nd month in a row - its first since Abenomics began.
On the surface, the economic atmosphere of the U.S. has appeared rather calm and uneventful. Stocks are up, employment isn’t great but jobs aren’t collapsing into the void (at least not openly), and the U.S. dollar seems to be going strong. Peel away the thin veneer, however, and a different financial horror show is revealed. With the Ukraine crisis now escalating to fever pitch, BRIC nations are openly discussing the probability of “de-dollarization” in international summits, and the ultimate dumping of the dollar as the world reserve currency. The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer? At first glance, it appears to be the tiny nation of Belgium. Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?
Has there been an economic recovery? The statistical data clearly shows that this has been the case. However, the 100 million Americans that currently depend on some sort of social assistance to "make ends meet" are likely to disagree with that view.
Fiat money is at base a form of indirect wealth transfer from those forced to hold the money to those issuing the money.
In a well-crafted 688 words published just 5 minutes after the minutes were exposed to the public, the Wall Street Journal's Jon Hilsenrath provides what bullish equity market believers might consider one of his more hawkish commentaries on what the Fed is really thinking. "Federal Reserve officials turned their attention to longer-run issues at their April policy meeting," he noted; adding that discussion of the Fed's "exit strategy" from low interest rates has heated up in recent weeks. His summation - lots of talk, no action... not what the bad-news-is-good-news crowd wants to hear.
FOMC Minutes Show Fed Fears No Inflation Risk; Worries About Complacency, Discusses "Low Level Of Volatility"Submitted by Tyler Durden on 05/21/2014 14:03 -0400
These are the minutes from an FOMC meeting that raised economic assessments for the year the day that Q1 GDP printed at +0.1%. No big surprises from the minutes...
- *FED SAW NO INFLATION RISK IN FUELING JOB GROWTH, MINUTES SHOW
- *FOMC PARTICIPANTS SAW `NEARLY BALANCED' RISKS TO ECONOMY
- *A NUMBER OF FOMC PARTICIPANTS SAW POSSIBLE RISK IN WEAK HOUSING
- *SEVERAL FOMC PARTICIPANTS SAID LOW VOLATILITY MAY SIGNAL RISK
More of the same from the FOMC minutes - which have been carefully prescribed to reflect just enough confusion as to provide every stock bull (and bond bear) with just enough ammo to BTFD once more unto the breach. With 2 Fed speakers yesterday and 4 today, it seems the Fed is keen to interpret the minutes for everyone through the only tool they have left - communications... Volatility is a concern due to complacency; low rates have consequences; new normal terminal rate lower than historical norm; taper will proceed; doves more dovish, hawks more hawkish.
It's the same old story: in order to make its economy appear healthier than it is, India attempted to centrally-plan and force a country of 1.2 billion to stop buying gold, going against centuries of, pardon the pun, tradition. It failed, and the result was an epic surge in gold smuggling. So now, with a new government in place, India is considering lifting the world's most draconian gold capital controls since FDR issued Executive Order 6102. Will it? And what will that mean for the price of gold? Find out soon enough.
Western companies have buybacks that only reward shareholders here and now; the East actually spends capex to invest into the future. Case in point: today's "holy grail" gas deal announcement, which in addition to generation hundreds of billions in externalities for both countries over the next three decades will result in an immediate and accretive boost to GDP, to the tune of $55 billion for Russia and $20 billion for Beijing.
Socialist-Motion Trainwreck: France Mistakenly Orders 2,000 Trains Which Are Too Wide For Its PlatformsSubmitted by Tyler Durden on 05/20/2014 20:13 -0400
In a time before the New Normal "fairness doctrine" where socialized companies such as GM have 60% more recalls in 5 months than they had sales in the prior year, a story such as the following would belong at best to a surreal "Polak" joke. Unfortunately, in this centrally-planned day and age, it is all too real. Reuters reports that in order to boost GDP and to cement that even under hard-core socialism France is still a manufacturing powerhouse, the French national rail company SNCF had ordered some 2000 trains for an expanded regional network from the national rail operator RFF. There was just one problem: the trains were too wide.
A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass - at the expense of the United States.
Equity markets are not happy about the Fed's Charles Plosser's economic exuberance ("3% growth no matter the weather" which is 20% above consensus of 2.5%) and his 'good-news-bad-news' monetary policy hawkishness ("may need to raise rates sooner rather than later"). But perhaps the most crucial part of his speech this morning was what the headlines notably left out. Plosser admonished his global central bank brethren: "if central banks do not limit their interventionist strategies and focus on returning to more normal policymaking aimed at promoting price stability and long-term growth, then they will simply encourage the financial markets to ignore fundamentals and to focus instead on the next actions of the central bank." Simply put, he warned, "central bankers have become too sensitive and desirous of managing prices in the financial world.."
Having been described by Warren Buffett as "the best single measure of where valuations stand at any given moment," Advisor Perspectives' Doug Short is perplexed at Warren's recent note to his CNBC brethren that "markets are not too frothy." Perhaps, as the following chart will shockingly identify, it is time to listen less and study more as Buffett's "Market Cap to GDP" indicator has risen seven quarters in a row and is only trumped in its absolute bubble exuberance by the very peak in 2000. Maybe, despite all the talking heads trying to explain what he meant, Tepper is right to be concerned, that the market is "dangerous" and given his historical comments - looking at this chart - what would Warren do?
Ironically, the Fed does have a point: rates do impact existing home sales. The only problem is that according to actual, historical data, not some Fed model projection based on ridiculous assumptions, they impact it exactly in the opposite way of what the Fed proposes!