Gross Domestic Product
While everyone was celebrating "record" black Friday sales, we noted that the bulk of this was due to sales channels taking on negative margins, and due to a "cash for clunkers" like effect in which future sales were pulled forward. Sure enough, we now learn that this is precisely the case, after Reuters reports that "more than a third of U.S. shoppers are already done with most of their holiday shopping, a survey showed on Monday, signaling that retailers need to offer bigger incentives to win sales in the few weeks before Christmas... About 32 percent of people surveyed by America's Research Group said they finished a majority of their Christmas shopping in November. Last month included Black Friday, the day after Thanksgiving when stores pulled out all the stops on discounts to woo shoppers during their biggest season of the year. More than 6 percent completed most of their holiday shopping in the first weekend of December." In other words so much for holiday shopping as a driver of stocks, as there is no way that the remaining two thirds of shoppers can carry the entire season regardless of what massive discounts retailers provide. This is also quite disturbing for US GDP which relies primarily on PCE as a driver to growth (although when that fails retailers can pretend they are stocking up on inventory), and will likely mean that banks which most recently (as of a week ago), had an upgrade round to Q4 GDP will be forced to promptly cut it back down. Lastly, as Rosenberg noted yesterday, once the bills come in January, that's when the wheels will really come off, just in time for the non-extension in the payroll tax.
- Merkel, Sarkozy Unite as S&P Issues Warning (Bloomberg)
- Austerity package key to Italy averting collapse (FT)
- GOP Rejects Democrats' New Payroll-Tax Bill (WSJ)
- Europe can get out of crisis (China Daily)
- Belgium, at Last, Forms Government (WSJ)
- Geithner to Add US Weight to Euro Zone Talks (CNBC)
- Asia Faces ‘Much Greater’ Global Risks: ADB Says (Bloomberg)
- Understanding sectoral balances for the UK (FT)
The onslaught of 2012-Outlooks continues to unmercilessly suggest bullish biases in most risk assets, particularly higher quality equities and credit, and while almost as ubiquitously noting the binary nature of outcomes in the medium-term and significant downside potential. Most of the upside/downside biases reflect heavily on Europe's outcome which in turn seems to have the majority forecasting recessionary contraction being 'stabilized' by a round of quantitative easing by the ECB. BofA's Global Asset Allocation group notes, however, as the Fed has recently discovered, QE alone may be enough to stabilize a situation but a credible plan for growth is harder to achieve. Furthermore, in a topsy-turvy potentially chaotic manner, they point out that the market's expectation of QE has been enough to calm waters (or more aptly levitate markets) leaving policy makers with little choice now for fear of the instability created by not delivering what Mr.Market (as we have been noting for weeks - pressure for a 'crash' from the likes of Deutsche Bank) demands or expects. But away from European disunity, if that is possible, BofA's key global risks include a worse-than-feared-EU-recession, Mid-East unrest, US fiscal tightening, and a China hard landing but given their perspective on the extreme levels of bearishness, they prefer to hedge upside risk from their correctly cautious view.
Prior to 2008 it was generally understood that the profession hardly merited its claims of its own predictive utility. So the failure to assign enough risk to such a crisis as befell the developed world in 2008 was, frankly, no surprise. But in the aftermath of the crisis, economics, in its professional form, has revealed itself to be damagingly disconnected from observable reality. A glaring example of this is how it cannot come to any agreement as to how the debt crisis occurred, and accordingly remains quite confused in its proffered solutions. Mostly the profession remains curiously naive about the nature of debt, an understanding of which is more critical than ever as the developed world enters a 'slow' to 'no-growth' phase of its history. Indeed, many of the papers, interviews, and op-eds from central bankers and economists in the face of our present-day sovereign debt crisis are little more than an eerie restatement of the discussions which took place about private-sector debt from 2006-2008.
The CreditWatch placement is prompted by our concerns about the potential impact on France of what we view as deepening political, financial, and monetary problems within the eurozone. To the extent that these eurozone-wide issues permanently constrain the availability of credit to the economy, France's economic growth outlook--and therefore the prospects for a sustained reduction of its public debt ratio--could be affected. Further, it is our opinion that the lack of progress the European policymakers have made so far in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the eurozone and European Union. This, in turn, informs our view about the ability of European policymakers to take the proactive and resolute measures needed in times of financial stress. We are therefore reassessing the eurozone's record of debt-crisis management and its implications for our view on the effectiveness of policymaking in France....If we change one or more scores, we could lower the long-term rating by up to two notches. Conversely, if the above concerns were mitigated by what we consider to be appropriate policy action, we could affirm the long-term rating at 'AAA'.
Truly, the only reason to buy into a stock rally here is based on the belief that the Fed or someone else is going to be providing more juice in the near future.
The Doves Resume Their Crying: Fed's Evans Sees More Easing As Necessary To Avoid "Debt Trap"; Fed Must Act NowSubmitted by Tyler Durden on 12/05/2011 13:23 -0400
While Italy's Mario Monti earlier said that the country with the still ridiculously high bond yields would be somehow able to avoid a debt trap on its own (for its second largest debt load in the entire Eurozone), the Chicago Fed's Evans just said that America, which has the lowest rates in the world (with the possible exception of Japan) just said that unlike Italy, the US apparently needs far more help, and "further monetary stimulus is needed" to avoid a relapse into the debt trap. This probably means that sooner or later Italy will follow through with statements that "Italy is not the US" - after all, they are perfectly ok as is.
Expectations for ISM Services (services as in the sector that accounts for 70% of US GDP) were for expansion to keep the decoupling dream alive. Unfortunately, those dreams are dashed for now as the data prints its worst level in 23 months. The biggest driver of this drop was the employment sub-index which cliff-dived from 53.3 to 48.9 (a contracting print). The composite manufacturing and services PMI also dropped notably.
ISM non-manufacturing index and factory orders.
What is certain? If you take 1350 US dollars today, you may exchange them for 1000 euros.
GPD Growth can't be solved by fiscal stimulus
The new dollar liquidity injection from 6 central banks essentially took the urgency out of a much needed decisive resolution. More crises similar to the one in the Euro Zone popping up to the point of one Scary Grandioso--No more spare bailout capacity.
Psychopaths flew financial weapons of mass destruction (derivatives) into the twin towers of our economy, the housing market and the stock market. Ten trillion dollars of wealth imploded in a cloud of dust. Ninety-nine percent of the economic experts – financial planners, economists, economic professors, brokers, and investors – missed the largest bubble in history as well as the systemic risk that the bubble posed. The National Board of Economic Research (NBER) (who is responsible for declaring a recession) was 9 months late calling the worst recession since the Great Depression.
While the world continues to be hypnotically captivated with every word out of Europe, the ongoing fiasco in the insolvent socialist continent is a welcome diversion from our own issues here in the US, which as we noted yesterday, has not "decoupled" from the rest of the world's woes but merely is "lagging." After all the European recession is now guaranteed, and no matter how it is spun it will never amount to a positive GDP event for the US, even more when considering that the PBoC's recent resumption of monetary loosening will take at least several quarters to be felt globally. But a lag to what? Why 2012 of course, and specifically the January 24-25, 2012 Fed statement when as SocGen pointed out the Fed is most likely to announce yet another $600 billion episode of quantitative easing. But why then? Why not at the December 13 meeting, the topic of Fed telegraph Jon Hilsenrath's latest piece, according to which the Fed will soon emphasize that it will never hike rates and as a result collapse all refi activity because who wants to go into a 30-year fixed at 4% when it will be available at 2% 3 months later, and at 0% 6 months after that? Simple: the Fed's balance of power is about to shift substantially. With under 30 days left in 2011, the current roster of 4 rotating voting Fed governors is about to be swept out, only to be replaced with 4 new ones. Yet as the chart below from SocGen shows, the rotation will probably be the most dramatic in Fed history as 3 die hard Hawks (and 1 dove) are eliminated only to be replaced with a panel which is almost exclusively Dovish. In fact, at the end of the day the only modest Hawk on the Fed's voting committee will be Richmond Fed's Jeffrey Lacker (the only member to vote against the drop in FX swap line rates), and even he in the past has shown his dovish wings. Which means that for all intents and purposes, the major delay in global events, and market uncertainty, merely has to last until the end of the year when the doves take over. Furthermore to anyone who will point out that in 2012 virtually every single Hawk will be mysteriously out of the voting rotation, all we can say is: "you are correct." And if Europe or Iran or China or any other event serves as a welcome distraction for a few more weeks until the Fed once again does what it does best (and only), so be it.