Everyone's favorite stock pitchman, Bob Pisani, who lately apparently has the capacity to learn just one line and just regurgitate it ad nauseam, was on CNBC earlier screaming how gold is down because the US is so much better than the world, when in reality gold is once again being sold to fund early margin calls (yes, institutionals are that levered right now). As for the US decoupling story, which time after time is dragged out, only to be shelved once the impact of trillions in liquidity fades, and which is never different this time, here is none other than Bank of America explaining to the likes of Pisani why "the US economy is likely to prove a faulty engine of global growth." Read - no decoupling, despite what the market may be trying to say. And yes, the market, and especially the Russell 2000 is never the economy.
The Arabian Spring started after the self-immolation of a 26 year old fruit vendor in Tunisia to protest a life he could no longer live. Will the European Summer set off with a suicide as well? News are crossing that a few hours ago, a 77 year old Greek has killed himself in broad daylight on Athens' symbolic and inappropriately named Syntagma square to protest the "occupier government" and not wanting to be a burden to his child. As Kathimerini reports, "an elderly man committed suicide on Friday morning in Syntagma Square in Athens, in front of Parliament. Some reports said witnesses claimed the man shouted «I don't want to leave debts to my children,» before he shot himself in the head. According to Skai TV, witnesses said the man did not say anything. The incident occurred shortly before 9 a.m. when the square was full of people and commuters using Syntagma metro station. The man had positioned himself next to a big tree and was not in view of most people in the square. Two people who were sitting on a bench some 10 meters away have been questioned by the police." Will this latest tragedy provoke a groundswell popular response? We doubt it - alas the status quo appears set to continue chugging along as per usual, taking advantage of appathetic and welfare addicted societies around the world.
Oh where to begin. The weakness in the markets started late last night when Australia posted a surprising second consecutive deficit of $480MM on expectations of a $1.1 billion surplus (with the previous deficit revised even higher). This is obviously quite troubling because as we pointed out 3 weeks ago when recounting the biggest Chinese trade deficit since 1989 we asked readers to "observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil." So who is exporting? Nobody knows, but everyone knows why the Aussie dollar plunged on the headline. The shock sent reverberations across Asian markets, which then spilled over into Europe. Things in Europe went from bad to worse, after Germany reported its February factory orders rose a modest 0.3% on expectations of a solid 1.5% rebound from the -1.8% drop in January. But the straw on the camel's back was Spain trying to raise €3.5 billion in bonds outside of the LTRO's maturity, where the results confirmed that it will be a long, hard summer for the Iberian country, which not only raised far less, or €2.6 billion, but the internals were quite atrocious, blowing up the entire Spanish bond curve, and sending Spanish CDS to the widest in over half a year.
The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.
Seasonal adjustments are not forever.
So much for the Hatzius and Hilsenrath prognostications. Headlines coming in:
- FOMC SAW NO NEED TO EASE ANEW UNLESS GROWTH SLOWS, MINUTES SHOW
- MOST FOMC PARTICIPANTS SAW `LITTLE EVIDENCE OF COST PRESSURES
- FOMC PARTICIPANTS SAID LABOR MARKET CONDITIONS HAD IMPROVED
- MOST FOMC PARTICIPANTS EXPECTED INFLATION RATE AT 2% OR LESS
- MANY FOMC PARTICIPANTS SAW `EASED' STRAINS IN GLOBAL MARKETS
- MOST ON FOMC SAW TEMPORARY IMPACT FROM RISING OIL, GAS PRICES
- FOMC SAID SIGNIFICANT OUTLOOK CHANGE COULD ALTER 2014 RATE PLAN
Apparently $4 gas has an impact.
European cash equities are trading in the red heading towards the US session, with particular underperformance in the periphery as financials continue to remain the biggest laggard. The EU session so far has consisted of downbeat commentary in regards to both Ireland and Portugal. An EU/ECB report noted that, Portuguese debt is now predicted to peak at 115% of GDP in 2013 and that contraction in 2012 is likely more pronounced than thought. Elsewhere, the Irish Fiscal panel said Ireland may need extra budget cuts to reach its 2012 target and 2012 growth has weakened. In terms of economic releases the UK observed a stronger than expected reading on its Construction PMI hitting a 21-month high, which saw some brief strength in GBP.
- China's Central Banker to Fed: Act Responsibly (WSJ)
- Spain's debt to jump to 78 percent of GDP: De Guindos (Reuters)
- Rajoy Needs All the Luck He Can Get (WSJ)
- Spain Faces Risks in Budget Refit (WSJ)
- Top JP Morgan banker resigns to fight abuse fine (Reuters)
- Reinhart-Rogoff See No Quick U.S. Recovery Even as Data Improve (Bloomberg)
- Program to help spur spending in domestic sector (China Daily)
- Barnier hits out at lobbying ‘rearguard’ (FT)
- U.S. CEOs' take-home pay climbs on stock awards (Reuters)
What a quarter! The Dow up 8% and enjoying a record quarter in terms of points — 994 of them to be exact and in percent terms, now just 7% off attaining a new all-time high. The S&P 500 surged 12% (and 3.1% for March; 28% from the October 2011 lows), which was the best performance since 1998. It seems so strange to draw comparisons to 1998, which was the infancy of the Internet revolution; a period of fiscal stability, 5% risk-free rates, sustained 4% real growth in the economy, strong housing markets, political stability, sub-5% unemployment, a stable and predictable central bank. And look at the composition of the rally. Apple soared 48% and accounted for nearly 20% of the appreciation in the S&P 500. But outside of Apple, what led the rally were the low-quality names that got so beat up last year, such as Bank of America bouncing 72% (it was the Dow's worst performer in 2011; financials in aggregate rose 22%). Sears Holdings have skyrocketed 108% this year even though the company doesn't expect to make money this year or next. What does that tell you? What it says is that this bull run was really more about pricing out a possible financial disaster coming out of Europe than anything that could really be described as positive on the global macroeconomic front. What is most fascinating is how the private client sector simply refuses to drink from the Fed liquidity spiked punch bowl, having been burnt by two central bank-induced bubbles separated less than a decade apart leaving David Rosenberg, of Gluskin Sheff, still rightly focused on benefiting from his long-term 3-D view of deleveraging, demographics, and deflation - as he notes US data is on notably shaky ground. This appears to have been very much a trader's rally as he reminds us that liquidity is not an antidote for fundamentals.
Watching pompous politicians, egotistical economists, arrogant investment geniuses, clueless media pundits, and self- proclaimed experts on the Great Depression predict an economic recovery and a return to normalcy would be amusing if it wasn’t so pathetic. Their lack of historical perspective does a huge disservice to the American people, as their failure to grasp the cyclical nature of history results in a broad misunderstanding of the Crisis the country is facing. The ruling class and opinion leaders are dominated by linear thinkers that believe the world progresses in a straight line. Despite all evidence of history clearly moving through cycles that repeat every eighty to one hundred years (a long human life), the present generations are always surprised by these turnings in history. I can guarantee you this country will not truly experience an economic recovery or progress for another fifteen to twenty years. If you think the last four years have been bad, you ain’t seen nothing yet. Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic worldwide implosion. Too bad. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008.
The main event of the past 48 hours: the Chinese "Schrodinger" PMI, which came much weaker or stronger, depending on whether one uses the HSBC or official data (which always has a seasonal jump from February into March) has been forgotten. Any bullish sentiment from a 'hard landing-refuting' PMI (which incidentally means less chance of easing), was erased following a very weak Japanese Tankan sentiment report, which saw exporters fret about a return to Yen strength. Naturally, the market response was to immediately shift hopes and dreams of more easing to the BOJ, if the PBOC is for the time being off the hook. Alas, since the BOJ's actions have traditionally had much less impact on global markets, stocks are not happy. This was followed by a bevy of Eurozone data, where unemployment rose to 10.8% from 10.7%. And while this deterioration was expected, the slide in French PMI was not, dropping from 47.6 to 46.7, on expectations of an unchanged print. The modest bounce in German PMI and especially in the UK from 51.5 to 52.7, where QE is raging, were not enough to offset fears that it is now "France's turn" and that global PMIs are once again showing that the recent $2 trillion in global liquidity equivalent injections have already peaked, in line with expectations: after all the half life of central planning interventions is getting progressively shorter.
The real story of Germany, to be blunt, is that it is a parasite economy. Its domestic demand lags. It has a labor force with different values than most. It will live with low wage increases and low inflation. It has lured other EMU members into a currency bloc and let them run such persistently higher rates of inflation (with no criticism of it!) that Germany now OWNS any domestic demand that other EMU countries can generate. Germany is like the vampire squid economy of Europe. Now it’s kind of caught in its own huge blinding squirt of ink, since its banks have lent to these other EMU countries to finance their excessive consumption and Germany is entangled. But on the real-economy side of things, the German economy is eating their lunch, however, meager.
Ben's selling the same old crap
As Monti said, "The financial aspect of the crisis is over." For the moment. But the problems are worse than ever.