Richard Koo thinks Europe needs to announce QE
The ECB may soon have to change its policy of keeping a 1.00% rate floor if JPM is correct.In a note just released by JPM's Greg Fuzesi, the JPM analysts says that "with the Euro area economy entering a potentially deep recession, we now think that the ECB will cut its main policy interest rate to just 0.5% by mid-2012. We expect the interest rate corridor to be narrowed to +/-25bp, so that the deposit facility rate will be 0.25%. We recognise that the ECB did not cut rates below 1% during the 2008/9 recession. It never fully explained why it did not, but we think that the two most likely reasons will be less important this time." And when the ECB does cut which it will have no choice considering Germany's stern reluctance to allow it to print outright, Hugh Hendry will make some serious cash. As a reminder, 'He’s made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year." Lastly, and as fully expected, the EURUSD is tumbling on the news.
Something tells us that Mohamed El-Erian is aware of the bulls' last bastion of "growth" and "decoupling"- the dip in Initial Claims below 400K. Even so, his appearance on Bloomberg TV was full of sound and fury, and some quite memorable soundbites, starting with this one: "Let me tell ou what I find most terrifying: we’re having this discussion about a risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time when the fiscal deficit is 9%, a time when interest rates are at zero. These are all conditions coming out of a recession, not going into a recession." The Newport Beach dweller is spot on: the situation is getting worse by the day, and the only option left is to do more of what has already failed so many times, and which only makes non-dilutable transitory monetary equivalents that much more attractive (with the mandatory liquidation which may bring them to triple digits first of course).
A global recession seems unavoidable now...
This update out of Goldman's Dirk Schumacher is probably not good news for anyone who believes that a high EURUSD, contrary to conventional wisdom, is a good thing for Europe. "German Q3 GDP: a last hurrah before the recession. The statistical office will release third quarter GDP figures tomorrow morning and we expect a quarterly increase of +0.3% after +0.1%; BBG consensus is +0.4%qoq. The risks of this forecast are to the upside and the strong industrial production figure as well as the robust trade figures would argue for a stronger quarterly growth figure. We see, however, a good chance for an upward revision of the disappointingly low Q2 figure (+0.1%qoq), implying a higher starting level for GDP in Q3 and therefore a somewhat smaller increase in Q3. In any case, the latest monthly figures, in particular business sentiment, point to a clear loss of momentum during the quarter and we think that the German economy has slid into recession in Q4. Whether this will be major recession or not will obviously depend on several factors not least the question whether some stabilisation in peripheral sovereign debt markets can be achieved or not. One factor that points to moderate recession is the on-going relative favourable funding conditions for German banks and corporate (see chart)." In other words: a "soft recessionary landing" - those predictions always work out just fine.
The IMF has released the report it prepared for last week's futile G-20 session, which incidentally saw the IMF being shut out of bailing out the Eurozone: a development which was adverse at the time but now is largely irrelevant: after all Greece has a new parliament, if still no ink to print tax forms. So what did the IMF say? Here are some key soundbites.
The Great Recession bites yet another New Normal in America.
We are far enough away from the onset of the Great Recession that another down-wave in the depression (or a new recession if you go by NBER) is either here or due soon. It may not be a severe downturn, as housing and autos would be falling from first- or second-floor windows in that case, but it would be occurring on the backdrop of a weakened structure, and thus the financial effects could be more severe than the economic effects (which could be severe or mild). Here is what you need to do.
Confirmation Of European Recession Following "Miserable" Composite PMIs Means French Downgrade ComingSubmitted by Tyler Durden on 10/24/2011 07:04 -0400
While the market continues to look forward to the latest Eurosummit on Wednesday (which rumor is may be postponed once again) with mouth-gaping expectations, the truth is that Europe "may have already entered a recession" as Goldman predicted some weeks ago, a prediction which was confirmed by today's miserable manufacturing and services PMI numbers. From Goldman: "The Euro-zone flash composite PMI came in at 47.2 in October, down from 49.1 in September. The October reading is below consensus expectations, which pointed to a somewhat more modest drop to 48.8. The decline was registered in both manufacturing and services, though it was slightly more pronounced in the latter (Manufacturing: down from 48.5 to 47.3, Services: down from 48.8 to 47.2). The pace of the decline in the headline output component of the Composite PMI accelerated in October. With its sixth consecutive monthly decline, the composite PMI has reached its lowest reading since July 2009." This is bad, and it gets worse. As Reuters concludes: "The euro zone's debt crisis might already have pushed the bloc's economy back into recession, according to business surveys that showed China's economy taking a stride forward in October." So why is this an issue? Simple - as a reminder in a little noticed statement last week, S&P said it "would likely downgrade the credit ratings of France, Spain, Italy, Ireland and Portugal if the euro zone slips into another recession." Well there's you recession confirmation. So: where is the European bailout killing downgrade of France?
Obama's Attempt To Use #OWS As A Diversionary Smoke Screen Fails: 56% Believe Washington To Blame For Crisis And RecessionSubmitted by Tyler Durden on 10/17/2011 15:21 -0400
Zero Hedge is the last to cut Wall Street, with its rampant criminality, conflicts of interest, and corruption, any slack - in fact we are often the first to expose it. That said, we have long found it surprising that popular anger is focused on this particular group of individuals, instead of targeting the just as, if not far more, culpable for the current economic collapse enabling focal point known as Washington D.C. As has been discussed previously, it is no surprise that none other than the president has been quick to embrace the Occupy Wall Street movement and its offshoots as his own: after all it cleanly and efficiently deflects attention from his own near-3 year performance as president. Surely Obama is neither the first (nor last) to recognize that the scapegoating of a "minority" group (as the Wall Street "1%" clearly is) and use it as a catalyst for class warfare, is a historically very successful tactic. Well, while thousands of people may express their displeasure with their plight openly before the traditional symbols of Wall Street, it would appear that Obama is failing in his attempt at global diversion from the place where popular anger should truly lie: Congress, Senate, and of course, the White House, without whose (and by 'whose' here we clearly envision Tim Geithner, Hank Paulson and Ben Bernanke) blessings Wall Street would not exist in its current form. Yet it does, and many have figured that out. According to a brand new poll by The Hill, "in the minds of likely voters, Washington, not Wall Street, is primarily to blame for the financial crisis and the subsequent recession. The movement appears to have struck a chord with progressive voters, but it does not seem to represent the feelings of the wider public. The Hill poll found that only one in three likely voters blames Wall Street for the country’s financial troubles, whereas more than half — 56 percent — blame Washington. Moreover, when it comes to the political consequences of the protest, voters tend to believe that there are more perils than positives for Obama and the Democrats." Sorry Obama, your attempt to demonize bankers (who richly deserve the public pariah status they have achieved, not least of due to the in vitro world they occupy, where anything less than $1 million is pocket change) has failed, and the people recognize that real social change, one that must and will impact Wall Street, has to begin with the commodity most often purchased by Wall Street: politicians... such as yourself.
A simple indicator constructed from readily available data is suggesting with great certainty that the US economy is already in a recession.
On Monday, Goldman was the first bank to go ahead and hike its recession odds for the US from 30% to 40% (needless to say assigning probabilities to a non-linear outcome is utterly ridiculous but we'll play along), additionally saying that both France and Germany will enter a recession shortly. Promptly, Wall Street followed. Yet despite the glaringly obvious, still nobody dares to assign a majority probability to a recession in America. Until today. French bank SocGen is once again the trailblazer in telling the truth, with its economics team being the first to make the bold (for a bank) claim that America now has not only a majority, but a two thirds chance of recession. To wit: "the recent financial shock, if it continues, is already large enough to derail the cycle prematurely. Our financial conditions index is at a tipping point and, all else equal, suggest 65% probability that the economy will enter recession in the next 12 months" (and to all those who point to record corporate profitability as the strawman which will never allow the US to enter a recession, SocGen has this response: "the recession that began in December of 2007 occurred in the face of very strong corporate profitability.").
Recession. It is now becoming clearer, even to the mainstream media, that the "Big 'R'" is rapidly approaching, or already upon us. Without further stimulus from the government the economy will continue its slide into negative growth. Unfortunately, it doesn't look like the "Calvary" will be charging to the rescue anytime soon. Bernanke, at this point has effectively punted to the Whitehouse for stimulative action. The Whitehouse is embroiled in partisan politics which will keep any action from occurring until most likely after the next election. This leaves the economy and the financial markets to their own devices, and much like kids without parental supervision, they are running amok. I have been very vocal as of late commenting on the fact that a recession is fast approaching. The trends of the economic numbers have all soured to the negative. From manufacturing to personal incomes to sentiment they all are signaling a recession lay ahead. Another confirming indicator of a recessionary track is the spread in yields between junk bonds and high quality bonds. The chart here shows two different yield spreads. The blue represents the difference in yields between AAA rated corporate bonds to BB rated bonds while the red represents the spread between 10-yr government treasuries to BB rated bonds. The dotted horizontal lines represent when these spreads have signaled recessions in the economy.
Goldman Raises US Recession Odds To 40%; Sees More Fed Easing, Expects Recession In Germany And FranceSubmitted by Tyler Durden on 10/03/2011 19:37 -0400
We won't comment on the supreme imbecility of being able to predict something as amorphous as a recession in decile increments, but for what it's worth, here it is. Just out from the crack Goldman tag team of Hatzius and Dominic Wilson, who usually don't work together unless they have to make some big statement: "We now see the risk of a renewed US recession as around 40%." (this was 30% before - expect every other Wall Street idiot to follow suit with an identical prediction). Also, those wondering if Goldman is content with getting shut out on its IOER cut demand, we have the answer: no. To wit: "We expect additional easing of monetary policy beyond the ‘operation twist’ announced recently, although this may not come until sometime in the first half of 2012. In addition, the market’s focus on changes in the Fed’s guidance on future policies - including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target - is likely to intensify." Lastly, as relates to the saving grace in Europe, little surprise there - Goldman, whose plant Mario Draghi is about to take over the ECB, expects the very same ECB to open the spigots: "The increase in financial risk is likely to lead the European Central Bank to ease its liquidity policies further this month, and the economic weakness will probably result in a cut in the repo rate by 50bp to 1% by December." As for European economic prospects, well, sacrifices will be made: "we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery." And with a former Goldmanite about to take over the European money issuance authority, we have a bad feeling about what will transpire in Europe after October 31, when Trichet finally exits stage left.