While Greek government yields (and political leaders) proclaim the troubled peripheral European nation is 'recovering', the risk of major political upheaval in Greece has not gone away ahead of next year's presidential vote next year. As Reuters notes, under growing pressure from anti-bailout leftists, Greek Prime Minister Antonis Samaras desperately needs a new narrative to get the backing of lawmakers and rally Greeks fed up with four years of austerity. We wish him luck as Keep Talking Greece notes, it is high time that the real data of the economic situation of the Greek society come to the surface and so it did this week. A report from Greece's State Budget Office found that three in every five Greeks, or some 6.3 million people, were living in poverty or under the threat of poverty in 2013 due to material deprivation and unemployment.
The "confidence" gap between high-income and low-income earners has never been larger... Thank you Ben and Janet...
Despite the ubiquitous v-shaped recovery in stocks from the US open to EU close (decoupling entirely from bonds), stocks slumped into the end of the quarter leaving the S&P and Dow barely positive for Q3 and Russell 2000 down 7.9% - its worst quarter since Q2 2011 (and -5.2% year-to-date). Treasury yields flip-flopped around in a 4-5bps range with a late-day ramp (suggesting liquidations cough PIMCO cough) leaving 30Y -1bps on the week. The USDollar suged higher in the European session and traded lower in the US session. The bigger news on the day was the carnage in commodities that appeared to occur around the European close (desk chatter of commodity fund liquidations). Silver and WTI Crude were monkey-hammered, gold and copper dropped to down 1% on the week. VIX pumped and dumped again but closed above 16. Stocks closed very weak with Russell tumbling 1.5% on the day to not "off the lows."
The pool of greater fools willing and able to buy assets at higher prices with leveraged free money has been drained by six years of credit/risk expansion. Those who believe the stock market can continue rising despite the end of the Fed's "free money for financiers" programs are implicitly claiming that the pool of greater fools is still filled to the brim. Simply put, speculating with leveraged free money and extending credit to marginal borrowers is not sustainable or productive, and the stock market seems poised to reflect these three dynamics...
It has been a night of relentless and pervasive disappointing economic data from just about every point on the globe: first the Chinese HSBC manufacturing data was well short of expectations (50.2 vs. Exp. 50.5), which was promptly spun as bullish and a reason for more stimulus by the PBOC even though the central bank has been constantly repeating it will not engage in western-style shotgun easing. Then Japanese wages, household spending and industrial production came in far below expectations - in fact at levels which suggest Japan is once again in a recession - which once again was spun as bullish, because the BOJ has no choice but to do more of the same failed policies that have made Abenomics the laughing stock of the world. Finally, moments ago Europe reported the lowest inflation data in 5 years, as well as core CPI sliding to just 0.7%, and which was, wait for it, immediately spun as bullish for risk as once again the local central bank would have "no choice but to ease." In other words, thank god for horrible news: because how else will the rich get even richer?
As we previously noted, only the highest income earners have seen any gains in compensation since the crisis began around 2007 to the current 'recovery' tops. It is perhaps not entirely surprising then that, the total income controlled by the Top 1% is drastically above that of the slave-included times of Ancient Rome and as high as the peak in the roaring 20s. "The greatest irony is that the President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough."
At some point, the markets will call BS on Spain’s dreams of recovery and the bond markets will rebel. When this happens the whole fraud will come unraveled. However it might take a full-scale political crisis before this happens. And by the look of things we’re not far from one.
New Global Crisis Imminent Due To “Poisonous Combination Of Record Debt And Slowing Growth", CEPR Report WarnsSubmitted by Tyler Durden on 09/29/2014 07:52 -0400
A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday. It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”. The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013. “Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said. Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”
Brinkmanship, a failure of diplomacy and increasing militarism appears to have the world on the verge of a serious military conflict. Everybody should own some physical gold as a hedge and a safe haven asset to protect against the significant risks challenging us today which include bail-ins, currency wars, terrorism and war.
For the longest time anyone suggesting that Europe's economic collapse was nothing short of a deflationary collapse (which would only be remedied with the kind of a money paradopping response that Japan is currently experiment with and where, for example, prices of TVs are rising at a 10% clip courtesy of the BOJ before prices rise even more) aka a "Japan 2.0" event, was widely mocked by the very serious economist establishment, and every uptick in the EuroSTOXX was heralded by the drama majors posing as financial analysts as the incontrovertible sign the European recovery has finally arrived. Well, they were wrong, and Europe is now facing if not already deep in a triple-dip recession. Which also explains why now it is up to the ECB to do all those failed things that the BOJ did before the Fed convinced it it needs to do even more of those things that failed the first time around, just so the super rich can get even richer in the shortest time possible. So we were a little surprised when none other than Goldman Sachs today diverged with the ranks of the very serious economists and the drama major pundits, and declared that "recent trends in some European economies already qualify as a Japanese-style stagnation."
Self-evidently, all the major economies are saturated with debt. Accordingly, central bank balance sheet expansion has lost its Keynesian magic entirely. Now the great sea of freshly minted liquidity simply fuels the carry trades as gamblers everywhere load up with any asset that generates a yield or short-run capital gain, and fund these bloated positions with cheap options and repo style finance. But here’s the obvious thing. Central banks can’t normalize interest rates - that is, allow the money markets to rise off the zero-bound - without triggering a violent unwind of the carry trades on which today’s massive asset inflation is built. On the other hand, they can no longer stimulate GDP growth, either, because the credit expansion channel to the main street economy of households and business is blocked by the reality of peak debt. Yes, the era of Keynesian money printing is over and done. But don’t wait for the small lady at the Fed to sing, either.
U.S. companies are taking a margin hit as they continue to cut prices amid intense competition, according to Bloomberg Briefs' Richard Yamarone. In this disinflationary environment, Yamarone notes that consumer-related businesses are raising red flags on the struggling household sector, especially those at the lower end of the income spectrum. Here are 8 CEOs comments to clarify the 'real' situation (as consumer confidence somehow hits 7 year highs)...
The bull case is not the recovery or the economy as it exists, it is the promise of one and the plausibility for that promise. Under that paradigm, the market doesn’t care whether orthodox economists are 'right', only that there is always next year. Other places in the world, however, are running out of “next year.” The greatest risk in investing under these conditions is the Greater Fool problem. Anyone using mainstream economic projections and thus expecting a bull market will be that Fool. That was what transpired in 2008 as the entire industry moved toward overdrive to convince anyone even thinking about mitigation or risk adjustments that it was 'no big deal'. Remember: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." - Federal Reserve Chairman Ben Bernanke, June 9, 2008.
Everyone's a genius in a Fed-induced rally. But what next...