Are we running out of time? For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money. This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an "aberration" and that now things are back to normal. Unfortunately, that is not the case at all. The truth is that the financial crash of 2008 was just the first wave of our economic troubles. We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching. Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency. As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing. And each time, those "solutions" will only make our problems even worse. Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment. I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out. The following are 12 things that just happened that show the next wave of the economic collapse is almost here...
The week ahead promises to be eventful. Three main items stand out: service sector purchasing managers surveys, five major central bank meetings, and the US employment data.
The numbers we are faced with are so large, the COLA changes are really just a rounding error.
Incase you didn’t notice, the sequester is in place cutting the rise in government spending by all of 2%. I woke up this morning expecting the planet to have reversed its rotation, it was no longer winter and I had aged 30 years. But no, everything was the same, except for the bullshit emanating from various pundits or websites. One thing I’ve learned to do, whether its Obama, Boehner, or Reid is just to tune them out. If there’s a national emergency then I don’t know what I’d do or who I’d tune in—Big Sis? Good grief!
When the US income and spending figures for December came out, the punditry couldn't contain their exuberance following the massive surge in income which as we explained was merely a function of the pulled forward wages and bonuses in December due to fears of what the Fiscal Cliff and the expiration of the payroll tax cut would do to incomes in 2013 (nothing good), as well as a surge in stock dividends to avoid a dividend tax hike resulting in yet another boost in income. The spike in personal income without an offset in spending sent the savings rate to the highest in three years. Today it's payback time as moments ago we learned that the US consumer gave back all the December gains and then much following news that while spending did nothing, and came in as expected at 0.2%, personal income imploded by 3.6% on estimates of a modest 2.4% drop. This was the biggest drop in personal income in 20 years just as the US consumer's confidence was soaring at least according to such manipulated aggregators as UMich. What this also led to was that not only is the stock market back to 2007 levels, but so is the personal saving rate, which crashed from 6.4% to 2.4%, the lowest since November 2007, and leaving Americans with the least purchasing power just as the full impact of a government that is flirting with austerity is starting to be felt. And just as bad was the material 4% pullback in real disposable personal income or adjusted for inflation. "Consumers can’t spend what they don’t have, and they don’t much much,” summarized Bloomberg economist Rich Yamarone.
If the new year started off with a bang, March is setting up to be quite a whimper. In the first news overnight, we got the "other" official Chinese PMI, which as we had predicted (recall from our first China PMI analysis that "it is quite likely that the official February print will be just as weak if not more") dropped: while the HSBC PMI dropped to 50.4, the official number declined even more to just barely expansionary or 50.1, below expectations of a 50.5 print, and the lowest print in five months. This was to be expected: Chinese real-estate inflation is still as persistent as ever, and the government is telegraphing to the world's central banks to back off on the hot money. One country, however, that did not have much hot money issues was Japan, where CPI declined -0.3% in January compared to -0.1% in December, while headline Tokyo February data showed an even bigger -0.9% drop down from a revised -0.5% in January. Considering the ongoing surge in energy prices and the imminent surge on wheat-related food prices, this data is highly suspect. Then out of Europe, we got another bunch of PMIs and while French and Germany posted tiny beats (43.9 vs Exp. 43.6, and 50.3 vs 50.1), with Germany retail sales also beating solidly to cement the impression that Germany is doing ok once more, it was Italy's turn to disappoint, with its PMI missing expectations of a 47.5 print, instead sliding from 47.8 to 45.8. But even worse was the Italian January unemployment rate which rose from 11.3% to 11.7%, the highest on record, while youth unemployment soared from 37.1% to 38.7%: also the highest on record, and proof that in Europe nothing at all is fixed, which will be further confirmed once today's LTRO repayment shows that banks have no desire to part with the ECB's cash contrary to optimistic expectations.
Aided by QE and ZIRP, the-powers-that-be tried to end February with some bullish records designed to pump-up Main Street. Theoretically, if new market record highs were achieved this would then suck more money into financial products, as the WS marketing machine would be energized.
Next week’s calendar is packed with important events and releases, aside of course from the biggest event of the week which are the Italian elections. In fact we already got the first one in the form of China's disappointing HSBC flash PMI which consensus expectations would print stable yet which dropped to a 4 month low. On Friday, the ISM is expected to come out mildly softer vs last month’s strong 53.1 print and consensus at 52.5. Chicago PMI will also be followed by markets on Thursday. On the central bank front markets will be primarily looking for further news on the BOJ leadership succession front. From the perspective of Fed speakers, Chairman Bernanke’s testimony ahead of the Senate Banking Committee will also be followed as markets continue to track the Fed’s assessment of the economic recovery. In the global currency warfare front, the Bank of Israel is expected to cut policy rates by 25bps on Monday, as well as the National Bank of Hungary on Tuesday.
- Spain’s Deficit Widened to 10.2% on Bank-Rescue Cost (BBG) - or as Rajoy would say, when one excludes all negatives, it was a surplus
- Monti Austerity Pushes Italians Toward Parliament Upheaval (BBG)
- Russia accuses U.S. of double standards over Syria (Reuters)
- Euro Area to Shrink in 2013 as Unemployment Rises (BBG)
- UK, China central banks to discuss currency swap line (Reuters)
- Italy Court Rejects Challenge to Bailout of Monte Paschi (BBG)
- Japan's Abe to showcase alliance, get Obama to back Abenomics (Reuters)
- Russia’s missing billions revealed (FT)
- China Home-Price Gains May Presage Policy Tightening (BBG)
- Fed unlikely to curtail stimulus despite rising doubts (Reuters)
- Banks face fines up to 30 per cent of revenues (FT) - just as soon as Basel III is passed (i.e., never)
- J.C. Penney Can Raise Billions Under Revised Credit Line (BBG)
- Cost of Dropping Citizenship Keeps U.S. Earners From Exit (BBG)
With sequesters and loopholes the only two words that seem to matter in Washington (the latter more than the former as far as action), we suspect the popularity of the so-called 'Bermuda Triangle' tax dodge may raise more than a few eyebrows. Put simply, hedge fund managers create a Bermuda-based re-insurance entity, their clients (high-net-worth individuals) funnel their hard-earned gains through this offshore entity and back to the US hedge funds - dramatically reducing their personal income taxes. The re-insurers do a minimum of business to create the appearance of legitimacy but are enabling hedge fund investors to avoid paying high-rate income tax on any gains from the funds and growing tax-free while in the fund. Of course this is defended as "good tax management." Funds such as Paulson's, Third Point, Greenlight, and SAC all use this vehicle according to Bloomberg as a handy way to funnel a US hedge fund investment through a tax haven. It truly is good to be king...
Janet Yellen Discovers Okun's Law Is Broken, Confused Record Russell 2000 Doesn't Lead To Plunging UnemploymentSubmitted by Tyler Durden on 02/11/2013 14:31 -0400
Moments ago Fed vice-chair Janet Yellen released a speech titled: "A Painfully Slow Recovery for America's Workers: Causes, Implications, and the Federal Reserve's Response." In it, Yellen finally revealed she is on the path to realizing the it is none other than the Fed's own actions that have broken the economic "virtuous cycle", and that Okun's Law - the bedrock behind the Fed's flawed philosophy of assuming more debt -> more GDP -> more jobs, is no longer relevant in the broken "New Normal." In other words, Yellen finally starts to grasp what Zero Hedge readers knew a year ago, when they read, "JP Morgan Finds Obama, And US Central Planning, Has Broken The Economic "Virtuous Cycle."
Whether you're aware of it or not, a great battle is being waged around us. It is a war of two opposing narratives: the future of our economy and our standard of living. The dominant story, championed by flotillas of press releases and parading talking heads, tells an inspiring tale of recovery and return to growth. The other side, less visible but with a full armament of high-caliber data, tells a very different story. One of growing instability, downside risk, and inequality. As different as they are in substance, they both share one fundamental prediction – and this is why you should care: This battle is about to break. And when it does, one side will turn out to be much more 'right' than the other. The time for action has arrived. To position yourself in the direction of the break you think is most likely to happen. It's time to choose a side.
The Chairman of Goldman's Asset Management group, unwise supporter of Man Utd, promoter of 'decoupling' myths, and creator of the BRIC mnemonic has decided, with everything looking so tickety-boo, to retire. Whether his great Buy BRICS fail or his BoE leadership bid fail was the final straw is unclear, but for now, the erstwhile permabull (and mocker of market skeptics) leaves us on a bright note:
- *O'NEILL SAYS CLEAR EVIDENCE OF THINGS DOING BETTER ECONOMICALLY
20 years of 'broken record' survival and the Brit throws in his chips now - just as everything looks be taking off? Leave your farewell message below...
The mainstream media is overflowing with stories proclaiming the global economy is on the mend. Really? Based on what engine of growth? If we cut through the Keynesian jargon of aggregate demand and other Cargo-Cult mumbo-jumbo, what we find is the Status Quo is hoping to boost its precious aggregate demand with the same bag of tricks that imploded so spectacularly in 2008: the wealth effect based on phantom collateral created by Centrally Planned asset bubbles. Though you will not find a Keynesian pundit or economist with the courage required to admit it, the same problem of phantom collateral applies to Federal and state debt: the consumption all that debt funded is soon forgotten, but the debt remains to be paid, essentially forever.
After two consecutive down days in the market, it was time to get real, and like clockwork the dollar and yen devastation started right out of the gate in overnight trading, when first the USDJPY exploded higher, followed promptly by the EURUSD, both of which hit new period highs, of over 92, and just why of 1.37 respectively. And with not one funding currency around to push risk higher, but two, futures have ramped enough to undo all of yesterday's losses and then some. Bad news was either promptly ignored, such as China's official PMI coming in at 50.4, below expectations of the 50.6 print, or offset by conflicting data, with the HSBC China PMI print moments after at 52.3, higher than the 52.0 expected, taking us back to early 2012 when the Chinese PMI was contracting and expending at the same time.