Netherlands

We don't need recession

Or means of repression

Just give us some money

Our life could be sunny too...

The Chinese Stock Markets are returning to the lows of 2009 and the Europe is mired in a recession. The American Stock Markets are not far off their highs and we do not think this will continue. Mark Grant is quite negative, for all kinds of reasons, about our equity markets now and would be taking profits and returning to the more assured bets of getting yield from bonds and not from dividends. A dividend may be reduced or cancelled by the wave of some Boards’ hand one afternoon while senior debt cannot be cancelled without the company or the municipality going into bankruptcy so that the top of the capital structure is far safer than relying upon dividends for income. In the next sixty days we are faced with Greece, Portugal, Spain, Italy and ECB issues that are quite serious both economically and politically. You may think what you like but there is a lot of risk on the table; of that you may be assured. When someone says, “Buddy can you spare a dime” we would like to be the one being asked and not the one doing the asking. It is here where we stand and wait.

We advise you to take note of the political opposition that is coalescing in Europe. The cry across the Continent, in various languages, is “Enough.” All of the grand designs speculated about for the ECB rest upon the use of the EFSF and/or the ESM as stated specifically by Mr. Draghi. Over the weekend the Bundesbank was absolutely critical of any such plans and they were supported by several statements made by Ms. Merkel. It is now dubious, in my view, whether Austria, the Netherlands, Finland and perhaps Germany would support not pledges but more actual money to be used for Greece, Portugal and Spain. The rub is on and the size of these potential programs will, without doubt, affect the funding nations in Europe along with the nations that need the capital. Muddling is no longer possible, delay has run out of road, postponement is no longer an option as recession grips the Continent and as each solvent nation seeks to defend itself.

The market was just starting to digest the schizophrenic Durable Goods data when chatter broke of the German FINMIN discussing a 'temporary' GRExit. In other words, just like Mario Draghi could transmogrify the twilight zone into reality during Merkel's vacation, and spread unfounded rumors that Europe is fine, now that the Chancellor has returned, the rumors take on the other side of the equation, and the mice no longer can play. This pushed S&P futures below overnight lows (down about 5pts from Dur Goods), EUR down 40 more pips (-75pips from close), and 10Y Treasury yields dropped 3bps (down 6bps from their overnight open). As we stand S&P 500 futures appear poised at an important trend-line tipping point in this move as Draghi's dreams are delayed to mid September and the world stops believing - as there is market talk also that Netherlands, Finland, Slovakia and Estonia are said to back the German plan.

Under widespread NIRP, pensions, annuities, insurers, banks and ultimately all savers will suffer a slow but steady decline in real wealth over time. Just as ZIRP has stuck around since the early 2000’s, NIRP may be here to stay for many years to come. Looking back at how much widespread damage ZIRP has caused since its introduction back in 2002, it’s hard not to expect that negative interest rates will cause even more harm, and at a faster clip. In our view, NIRP represents the death knell for the financial system as we know it today. There are simply too many working parts of the financial industry that are directly impacted by negative rates, and as long as NIRP persists, they will be helplessly stuck suffering from its ill-effects.

European bourses are down at the North American crossover, all ten sectors in the red, on thin volumes and a distinct lack of data and news flow from the EU and the UK. The risk-off tone in part attributed to the much wider than expected Japanese trade deficit for July, whose exports also fell the most in six months, raising investor concern once again that Asian economy as a whole is stalling. Elsewhere, investor caution over the Greek debt crisis is once again mounting, as EU’s Juncker visits Athens today to meet with the Greek PM Samaras. Overnight it was reported that Greece would present EUR 13.5bln in budget cuts today, higher than the previous EUR 11.5bln, and whilst the country is not asking for more money, Samaras might request more time to implement them. Lawmakers in Netherlands remain critical of providing more aid for the country and continue to push for more reforms, such as spending cuts and privatization, with the Dutch Finance Minister de Jaeger commenting earlier that it is not a good idea for Greece to get more time.

Hopes that today may finally see an increase in trading volatility and volume following yesterday's reversal session will likely be dashed as the event wasteland on the horizon continues for the third day in a row. As DB explains, the FOMC meeting minutes and Juncker’s visit to Athens are likely the two main sources for key headlines today. While backward looking and certainly predating Lockhart's hawkish comments from yesterday, the FOMC minutes today are expected to shed further light on the kind of policy currently under consideration and the economic conditions required before easing is warranted. One thing that will not be discussed is the circularity of launching more QE even as gas prices have never been higher on this day in history, soy and corn are back at all time highs, and the market trading at multi-year highs. As repeatedly explained before, the option for the FOMC include pushing out the targeted exit date for fed funds, providing “exit guidance” on balance sheet measures (i.e. asset sales), various mixes of additional balance sheet expansion (including the possibility of an open-ended QE program) and  cutting interest on reserves. It is virtually certain that none of these will be enacted at the Jackson Hole meeting in one week, 2 months ahead of the presidential election, but hope springs eternal.

Markets taking any negative news as additional must-have accelerators of a bail-out.

Time being of the essence.

But what if things just drag on? 

Organic growth is slow and painful (Boo!), central bank money fast, cheap and with few strings attached (Yes!)…And anyway, QE and other supports have already been priced in… Can’t change the programme.

One of the reasons that Europe is so difficult to assess is the tremendous amount of jargon and hype that comes pouring out from all across the Continent. Each separate nation sends out stuff and then Brussels sends out their fluff and then the ECB makes proclamations and there is no harmonization as each group has its own distinct platform. We are bombarded daily with national interests, Federal interests and finally an ECB that supposedly is beholden to no one but is, in fact, beholden to everyone and especially Germany as the paymaster. Almost every day there is a new bandwagon to jump on and a new disappointment to be found some days later as one plan after another does not come to fruition. So to make sense of it all you have to stop, come to a full halt and give due consideration to the totality of what is happening in Europe.

Think the US has it bad with its "soaring" gas price, which is now back to $3.75 per gallon? Think again. Here, courtesy of Bloomberg, is a list of the countries whose gasoline cost puts what Americans pay at the pump to shame. In order of descending gas prices, below are the 20 places in the world where one does not want to "fill 'er up."

No exactly fireworks, but anything that isn’t totally bad these days is good to have.

 Good news, but then not so good news?! So, no QE, after all?

The two major overnight data points were European Q2 GDP which printed at -0.2%, or the expected continuation of the European double dip. As SocGen explains, these numbers continue to paint an all too predictable picture of growth in Europe, with expansion in Germany driven by exports and consumption, growth in France stagnating and deep recessions continuing in southern  Europe. The European GDP pattern is now expected to be a copy of 2011. Amongst the country details, growth beat expectations in Germany (+0.3 q/q), Austria (0.2%), Slovakia (+0.7%) and the Netherlands (0.2%) but this was offset by deep declines in Finland (-1.0%) and Portugal (-1.2%). Amongst data already published we know Italy declined 0.7%, Spain declined 0.4% and Belgian GDP declined 0.6%. And while the market was clutching at the German GDP beat straw, it was the German ZEW Survey which threw a cog in the spikes of German economic perception, after the number came at a whopping -25.5, declining for the 4th consecutive month and far below expectations of -19.3, and a drop from the already negative -19.6. Finally, while there may be hopes that this is the bottom, already weak IP data confirms that the weakness in Europe has continued into Q3 and as such as the continental contraction will likely not stop contracting for the foreseeable future.

Not much life. Nor conviction.

Barely a pulse.

Can you feel it?