recovery

The irony and the Freudian displacement reaction are simply too much. Since Moody's knows it would be kneecapped and Friend-o'ed the second it downgrades the UK, Germany or France, it has decided to lash out at the very people who will be the cause of the next, and terminal for the rating agency, round of congressional grillings in a year or so, when Europe is bankrupt and Moody's is questioned why it kept England at AAA until two days after the sovereign default.

"It is literally raining oil" proclaims the narrator in this RT video, who observes what appear to be puddle of oil following a heavy rainfall in the Louisiana area. We have not received independent confirmation of this phenomenon elsewhere but this is very troubling, and certainly possible considering the amount of oil burned and washed ashore as part of the spill recovery effort.

He answered this question in 2002. He has already done most of those things. There are still a few arrows left in his quiver. They all have poison tips and will likely kill us.

Another completely irrelevant announcement from the "ZIRP4EVA" Fed. The only sane human being, Tom Hoenig, continues to have no friends. Only notable part of the statement: "Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad." On Hoenig's dissent: "Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly." Precisely what he said two months ago: no change in Hoenig's dissent. No change.

The best we can expect is an anemic H2 GDP growth rate of only 1.5%. The private sector has flipped from spending 4% of GDP to saving 7%, a massive deflationary swing. I’m sure Ben Bernanke is listening.

Goldmans' Dominic Wilson,director of global macro & markets research, is out with a note which indicates a material shift in the firm's sentiment on risk. In a nutshell, the firm, unwilling to fight the macro double dip headwinds is prepared to concede that the American stimulus/reflation experiment has failed, and that investors should instead focus on underperforming markets (O'Neill's N-11 comes to mind): "Our own forecasts point to one other emerging theme. We see more risks of slowing in the economy where people have seemed most comfortable (US) and expect less slowing in places where people are more worried (Europe, China). If our forecasts are right, US domestic outperformance could ultimately reverse more." Also amusing is the attempt to reconcile a slightly bullish residual view on risk assets with the firm's 1.15 target on the EURUSD which would imply an S&P in the triple digit range. In summary - get out of America if you are a Goldman client, or, using the whole re-reverse psychology trick, now is the time to short the BRICs and Europe (even more), and buy the US. As usual with a Goldman report, more questions than answers, none more so than the original one - has recent market performance been a product of an actual rally, or nothing but massive squeeze?

New home join the existing home sales double dip brigade, and plunge by an unprecedented 32.7%, nearly double the expected -18.7, compared to a previous reading of 14.7%. The government succeeded in making a mockery of this data series with all its ridiculous stimuli, and now we are officially in a housing double dip absent another massive stimulus bill. The median sales price of new houses sold in May 2010 was $200,900, lowest since December 2003, and a 9.6% drop YoY.

Politicians at the G20 be warned: hell hath no fury like a pensioner scorned.

The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders  prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that  cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

Goldman's Allison Nathan is out tonight with a report that will leave an unpleasant taste in the mouths of growth/BRIC bulls. In an analysis whose key catalyst is a downward revision of demand growth expectations, Goldman materially cuts its short and mid-term forecast prices for key commodities oil and copper. "Commodity markets are generally rebounding strongly off their lows but sentiment remains fragile on European and Chinese concerns and potential signs of slowing positive economic momentum, despite generally healthy macro data and further improvements in commodity fundamentals. These concerns have caused the market to revise down expectations for future growth, and, in turn, discount future commodity supply constraints." Specifically, Goldman has revised its 3 Month oil forecast to $87 from $96 (old forecast can be found here), nat gas unchanged, copper to $6,800 from $8,125, and zinc to $2,000 from $2,600. What is most amusing is the sheer loathing that comes of the page in which Nathan is forced to be constructive on gold. "We see upside risk to our forecast should investor demand continue to support further flows into the gold-ETFs or central banks continue to accumulate gold. For example, if gold-ETF buying were to continue at its current pace for the remainder of the year, we would expect gold prices to rise to $1,400/toz by the end of 2010."

As every kitchen sink appears to have a definitive opinion on the impact on the CNY rebalance, we would like to step back for a second and present a historical chart of the country's trade balances not only in total, but by individual country. As the chart shows, and as David Rosenberg also highlights, providing a blanket summary as to the impact of a CNY revaluation is a rather foolhardy thing: while China may enjoy a positive trade surplus with the US and EU, it certainly has a trade deficit with some other key producer countries, namely Korea ($61 billion LTM), Japan ($47 billion), Taiwan ($79 billion), and Australia ($27 billion). So while it could be argued that the US and EU's manufacturing sectors benefit from a stronger Yuan, what happens to the exports of the traditional Chinese partners? Absent the PBoC going full tilt and scaling up its imports across the board, there will be some very unhappy traditional Chinese trade counterparts. Although in this age, when even presumably smart economists beckon to "Spend now, save tomorrow", why bother with something as simple as the Capital to Current account equality. China should buy up everything, and use reverse money or something to then reinvest the reverse proceeds from all the exports into sovereign bonds... or something.

Brown Brothers joins Meredith Whitney, who earlier noted that the collapse of state and local government funding is one of her primary concerns, in warning that the "The similarities between Europe and the US, in terms of debt and deficit issues, are much greater than the different political, social and regulatory regimes may suggest. While investors are well acquainted with the US federal deficit, they may be only vaguely aware of the increasingly difficult strait of many US states and local governments." BBH's Marc Chandler, Head of Currency Strategy, presents his view on the dramatic surge in regional deficits, and concludes that Whitney's words of caution need to be seriously considered: "The essay does warn that the cutbacks by state and local governments will retard the US economic recovery for the next year or two. These cuts have blunted the impact of increased federal stimulus. Going forward, perhaps after the November Congressional elections, the increase in federal spending will also slow, reducing its offset of state and local budget cuts. The US may face a greater fiscal drag than many observers suspect due to the impact of state and local government fiscal conditions. Investors would do well to consider the possible impact of similar fiscal conditions in European regions and cities." Yet Chandler's most relevant observation is that even as the domestic implications of this topic have been largely underreported, what is happening in Europe is likely far worse, and even more under the radar.

What specifically is happening, and will happen to the CNY? Like many others, I went to bed last night thinking that how Beijing allowed the fix to move today would be key. In fact, it was unchanged, and since then spot has moved notably from 6.8275 down to 6.8055 last print. I am reminded, that truly technically, today’s fix reflects the previous days trading, so in this regard, where we close will determine tomorrow’s fix, and in some sense today’s fx was not relevant. Given that the PBOC statement said that the daily trading band will not be widened ( beyond the 0.5pct which it has never experienced), this means the limit for today is 6.7930 I believe. Of course, it also means if this is all true, then we could have in theory a maximum 2.5pct rise of the CNY against the Dollar this week. I guess if that happened, and you times it by 52 even Congress would be happy, a 130pct move….I doubt that Mr. Schumer…… - Jim O'Neill, Goldman Sachs

This is just getting far too surreal: Robert Mundell, the "intellectual" creator of the currently most despised monetary experiment in the history of the world, i.e., the euro, told reporters in Hong Kong, that "China’s pledge to return to a more flexible exchange-rate policy may erode stability in the global and Chinese economies." According to Bloomberg "keeping the yuan pegged to the dollar has been “a great source of stability” for China and the world, the Columbia University professor told reporters in Hong Kong today before giving a speech." Presumably, we should believe Mundell- he knows all about "monetary stability" - just look at Europe to see what happens when you have a monetary union without a political one. It is precisely the inability to adjust relative monetary strength between Europe's countries, thereby providing only a fiscal mechanism to adjust busted economies, that has led the continent to the brink of insolvency and illiquidity. Yet somehow Mundell suggests that "exchange-rate swings were a cause of the global financial crisis." Which in turn leads us to just one question - how long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies.

Don Coxe of Coxe Advisors is out with his latest monthly newsletter, a must read report on why the Loonie may be a better investment than both the CNY and the USD combined, why investors should beware of Greeks baring facts, the BP disaster, and, most importantly, quotes Browning, in an extensive analysis of gold: "Leave the fire ashes. What survives is gold."