The meeting between Merkel and Sarkozy on Monday is likely to be the main focus of next week, as well as continued debate of the Greek PSI. Overall, this process is likely to push the EUR lower in the next couple of weeks, while the missing details for better fiscal policy coordination are getting negotiated. On the macro side, IP in Germany will have slowed by 0.2% mom in November and consensus expects the aggregate Euro-zone IP to have contracted by the same amount. But we also get November IP in many other places, including the UK and India. Already released over the weekend, Chinese money supply data has been stronger than expected and the amount of new loans issues in December is clear evidence of policy easing.
Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).
- Markets await US Non-Farm Payrolls data, released 1330GMT
- UniCredit experiences another disrupted trading session, trades down 11%, then returns to almost unchanged
- Iran causes further unease with plans to engage in wargame exercises in the Strait of Hormuz
The abysmal hit rate of Byron Wien's predictions over the past several years (ostensibly since the inception of this silly practice nearly three decades ago) has been the source of much laughter on the pages of Zero Hedge: see here and here. It has also been the source of much profit, due to the Blackstone Vice Chairman's uncanny ability to bat just over 0.000 with laser-guided precision and consistency. Below, as reported by Bloomberg, are the latest set of forecasts which are to be faded with impunity as soon as is possible.
The new year’s worldwide economic downturn has an interlocking effect: every national economy is searching to accommodate itself politically as well as economically to what looks to be an extended period of low growth. After longer or shorter periods of historically unrivaled prosperity, they are feeling for a “bottom” – a level to wait out new growth. That is the proverbial “soft landing”.
Presenting NSSM 200: "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests"Submitted by Tyler Durden on 01/01/2012 17:58 -0500
One of the topics touched upon by Eric deCarbonnel in the earlier article discussing the potential, if not necessarily probable absent further validation, implications of the Exchange Stabilization Fund, is that of the nature of AIDS. Which got us thinking. While we won't necessarily go into the implications proposed by none other than Chuck Palahniuk in his book Rant (word search Kissinger, especially what Neddy Nelson has to say on the topic), it made us recall that particular National Security Study Memorandum, aka NSSM 200, better known as "The Kissinger Report" authored on December 10, 1974 and immediately classified under Executive Order 11652 until 1989, titled simply, "Implications of Worldwide Population Growth For U.S. Security and Overseas Interests." What did the report say and why is it relevant, especially in our day and age when so many believe that all important substance - black gold - may have peaked? Well, since it has 123 pages full of very, very curious information as pertains to how US foreign policy is truly styled, we will leave it up to our readers to make their own conclusions, but here are some preliminary observations to help them on their way...
The genius of globalization is not in how it “works”, but in how it DOESN’T work. Globalization chains mismatched cultures together through circumstance and throws us into the deep end of the pool. If one sinks, we all sink, enslaving us with interdependency. The question one must ask, then, is if all sovereign economies are currently tied together in the same way? The answer is no, not anymore. Certain countries have moved to insulate themselves from the domino effect of debt implosion, one of the primary examples being China. Since at least 2005, China has been taking the exact steps required to counter the brunt of a global debt collapse; not enough to make it untouchable, but enough that its infrastructure will survive. One could even surmise that China’s actions indicate a foreknowledge of the events that would eventually escalate in 2008. How they knew is hard to say, but if the available evidence causes you to lean towards collapse as a Hegelian creation (and it should if you are paying any attention), then China’s activity begins to make perfect sense. If a globalist insider told you that in a few short years the two most powerful financial empires in the world were going to topple like bowling pins under the weight of their own liabilities, what would you do? Probably separate yourself as much as possible from the diseased dynamic and construct your own replacement system. This is what China has done…
- BRIC Decade Ends With Record Fund Outflows as Growth Slows (Bloomberg)
- U.S. says China not currency manipulator; chides Japan (Reuters)
- Japan Deflation Returns as Production Slides (Bloomberg)
- Record use made of ECB deposit facility (FT)
- Irish May Pay Greek Price for T-Bill Market Return: Euro Credit (Bloomberg)
- Italian 10-Year Bonds Rise, Stocks Advance After Debt Auction (Bloomberg)
- Obama to nominate economist, banker, as Fed governors (Reuters)
- Japan relaxes weapons export ban (FT)
The past several years have seen a growing backlash against "paper" investments as more and more investors consider hard assets to be a safe haven against the implications of central bank money printing. But as the global economy visibly slows, this question arises in many minds: Are commodities, which have been on a tear since the March 2009 bottom, finally topping out? The question requires both a fundamental economic response as well as a technical chart analysis. We can start by observing the common-sense connection between demand for commodities such as copper, cement, steel,etc. and economic expansion. When demand rises faster than supply, prices rise. Since supplies of commodities face all sorts of restraints in terms of extraction rates, energy costs, and declining reserves, increased demand quickly pushes prices higher.
My thoughts on the coming year.
To all who still think that in the war of attrition between the USD and the EUR (because contrary to what some have "discovered" only recently, currency wars have been going on for a long, long time and will continue to do so, before morphing into trade and real wars), in which both currencies are doomed, and where the winner takes it all, if only for a few minutes, we bring to your attention the following most recent update out of the Pacific Rim (where incidentally the Shanghai Composite has resumed its relentless track lower with the obvious intention of closing 2011 at its 52 week low) in which we find i) that the dollar's hegemonic control over the world is ending, and ii) that the mercantilist relationship so long sustained between China and the US, may be shifting and reversing, and in its next metamorphosis will see Japan buying the bonds of... China (although probably not for long - see next post). As Bloomberg reports, "Japan and China will promote direct trading of yen and yuan without using dollars and will encourage the development of a market for the exchange, to cut costs for companies, the Japanese government said. Japan will also apply to buy Chinese bonds next year, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday." And before someone blows it off as merely more foreign relations posturing, "“Given the huge size of the trade volume between the Asia’s two biggest economies, this agreement is much more significant than any other pacts China has signed with other nations,” said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd." As for China's reverse mercantilist move, one which will stun anyone who believes that Yuan is still undervalued, "Finance Minister Jun Azumi said Dec. 20 buying of Chinese bonds would be beneficial for Japan because it would help reveal more information about financial markets in China, the world’s largest holder of foreign currency reserves." Speaking of, has Albert Edwards gloated yet that given enough time, he always ends up being proven right, in this case about the CNY's upcoming devaluation?
A new era of increasing instability is opening in East Asia.
In its "pre-Christmas" note, it is somehow appropriate that Goldman's Jose Ursua reprises the role of Ebenezer Scrooge, and explains how, in this contemporary Christmas Carol, "The world economy is struggling: to begin with. There is no doubt whatever about that" and, logically, gets a visit from the three ghosts of the world's past, present and future. However, while the narrative is similar for the most part to the Carol morality play, where it diverges is in the Hollywood ending: "As in Dickens’ story, avoiding this outcome will require decisive actions. Unlike Ebenezer Scrooge’s overnight redemption, however, we believe the solution to the current global problems will potentially take much longer. So, although some steps are clearly visible in the right direction, the post-holiday environment will likely continue to be challenging for both policymakers and markets alike." And that's only for the macro; the "micro", as Morgan Stanley explained yesterday, is already slipping regardless of how long the US pretends that Europe is irrelevant for the big picture. The only question is whether the macro follows suit (which in Morgan Stanley's case was left as the optimistic case with full resolution), in which case the ghost of the coming "Great Stagnation" will be one scary dude.
While the rest of the world enjoys the New Normal, which lately has primarily and mostly negative connotations, when it comes to such "legacy" aspects of life as holiday shopping, we all enjoy the fall back to a simpler time assuming that at least such basic behavior as buying presents for the loved (and not so loved) ones can hardly change much with the years. Alas, even this last bastion of nostalgic simplicity has now been swept away: Nick Colas and his team from ConvergEx, have once again decided to educate us about the folly of assuming the old ways are with us, and has created a useful compilation exposing the finer nuances of the "twelve days of online Christmas" which show that just like everything else, holiday shopping patterns are rapidly changing as well. "This holiday season consumers aren’t quite as concerned with finding “cheap gifts” as in recent years, though traditional luxury items such as jewelry and cashmere sweaters are still losing traction with gift-givers. They’re seeking sales on electronics, becoming increasingly enamored with real vs. artificial Christmas trees, and backing off catering services in favor of home-cooked ham. New York City is the most popular place to spend Christmas and New Years (hey, it’s cheaper than a ski destination), but interest in the Radio City Rockettes and Broadway shows is dwindling. All these observations come courtesy of two of our favorite online gauges of consumer behavior – Google Trends and search engine autofills from Google, Yahoo and Bing. We’ve compiled a collection of 13 visuals (12 for the days of Christmas plus a bonus for Hanukkah) that ultimately show consumer spending patterns are still decidedly cautious."