- Looks like the troops won't be steamrolled: JPMorgan Blaming Marks On Traders Baffles Ex-Employees (Bloomberg)
- The Goldman "Huddle" goes to Blackrock - Surveys Give Big Investors an Early View From Analysts (NYT)
- At least housing has bottomed: London House Prices Plunge As Supply Rise Adds To Lull (Bloomberg)
- Christine Lagarde and Nicolas Sarkozy embroiled in new corruption inquiry (Telegraph)- at least that fraud they created: Others helped them create it.
- Heat Leaves Ranchers a Stark Option: Sell (NYT)
- Merkel Gives No Ground on Demands for Oversight in Debt Crisis (Bloomberg)
- The euro skeptics have the best lines again (FT)
- Wen Says China’s Economic Recovery yet to Show Momentum (Bloomberg)
- Europe’s Banks Face Tougher Demands (FT)
- Madrid Region To Sell 100 Office Buildings Amid Austerity (Bloomberg)
- China eases taxes for foreign companies (FT)
Even though the policy mix is extraordinarily stimulating, developed-world economies just cannot embark on a virtuous circle of recovery. Worse still, as Pictet points out in this excellent brief, governments, whose finances have been bled dry, are powerless to boost demand. This all suggests, they note, that Keynesian policies have failed. With no credit to dispense, State-administered Keynesianism is, in effect, bankrupt as government spending levers can no longer be activated. The implications are plain for all to see: once governments apply a brake to public spending, growth slows considerably. Economies of the developed world have become addicts, ‘hooked’ on government spending. A fresh approach to economic policy is needed. But policymakers will need to be both bold and brave as excess lending will always and inevitably lead to artificially-driven economic growth as it breaks the link between the cycles of innovation and economic growth. At a time when capitalism is being accused of the most reprehensible wrongdoings, policymakers will need to display great courage to promote the virtues of entrepreneurship and business.
So when you see Citi’s Q2 2012 earnings, remember that about ¼ of the number will come from non-interest bearing deposits covered by FDIC's TAG program.
The Politicians Have To Stop Doing What They Have Done Since WWII Or "The Markets Will Do It For Them"Submitted by Tyler Durden on 07/14/2012 21:27 -0500
In an interview on Bloomberg TV, RDM Financial's Ron Weiner summarizes the thing that keeps him up at night as in over thirty years he has never seen "The fate of the world economy rests so much on politicians." Pointing to the sad reality that since WWII the US has always spent more than it earns, he warns that if the politicians don't make it right, then "the markets will!" The heuristic bias to accept the spending status quo, as for most young-to-middle-aged people 'it has always been this way' - just like rising home prices (whose 'new normal recovery' Bloomberg's Joe Brusuelas admirably destroys with a single-chart of shadow inventory and opacity of bank balance sheets), is so entrenched, thanks to the last sixty years or so of 'growth', that when asked 'if it is possible to cut spending', he replies "you have to!" and if it's not politically possible then once again "the market will take care of it". This brief three minute clip reminds us of the disbelief and head-in-the-sand mean-reverting bias so widespread in developed nations (citizens and politicians) and summarily dismisses it with a reminder that 'it just has to be reasonable men that we elect to do it" - and better that than let the market force their hand.
Why Don’t the Corrupt Players On Wall Street and In D.C. Show Remorse for Their Destructive Actions…And Why Don’t We Stop Them?Submitted by George Washington on 07/14/2012 09:57 -0500
Scandal After Scandal, Lie Upon Lie ... What's Going On?
As Euro area policymakers continue to ‘muddle through’ the crisis, everyone's favorite FX Strategist - Goldman's Thomas Stolper, summarizes the decline in the EUR so far as due to slower growth and easier monetary policy, together with growing EUR short positions. Of course, the root cause of both developments is the political crisis in the Euro area. The uncertainty about the stability of the institutional framework of the Euro area forces front-loaded fiscal tightening, which in turn damages growth. In response, the ECB eased policy more than expected, while the Fed, did not ease as much or as early as many projected. Despite today's ecstacy in EURUSD, Stolper believes the EUR is unlikely to strengthen materially as long as this situation persists especially as the potential for the ‘fiscal risk premium’ to rise on the back of daily headlines that are dominated by disagreement and dispute remains. In an effort to clarify his thinking, Stolper identifies eight key issues that will determine the outlook for the Euro. Most of them relate to the Euro area crisis. The most interesting ones are possibly the timing of a recovery in the periphery, the ability of France and Germany to develop a common vision for further integration, and the evolution of fiscal policies in major economies outside the Euro area. He concludes that the risks in the near term remain substantial.
JPM Release Earnings: Announces $4.4 Billion CIO Loss, $3.1 Billion In "Profits" From Loan Loss Reserves, DVASubmitted by Tyler Durden on 07/13/2012 06:07 -0500
In light of the just announced huge 8-K which has JPM admitting it was mismarking hundreds of billions in CDS, in effect destroying the CDS market for everyone (as we predicted 2 months ago would happen), the firm's earnings (and CIO losses) are very much irrelevant. But here they are regardless: $5 billion in Net Income, which includes a $4.4 billion in CIO losses offset by $1.0 billion from "securities gain in CIO investment securities" i.e., asset sales; also in Q2, the firm took a $2.1 billion "benefit" from reducing loan loss reserves (the usual accounting gimmick), and $0.8 billion DVA "profit" as a result of its CDS blowing up. Finally JPM also announced $0.5 billion gain on a "Bear Stearns related first loss note." In summary, expectations were for $0.76 in EPS; reported EPS Ex-DVA were $1.09, and ex-all one time gains, $0.67. In other words, JPM's bottom line is totally meaningless, as the bulk of profits are from totally garbage and meaningless numbers. The real question is how much net income is now forever gone as a result of i) the unwind of the CIO's synthetic division, aka the most profitable group at JPM, and ii) the fact that the entire firm's CDS marks were made up and will now have to reflect reality. Now, back to the main news of the day: the fact that JPM just threw the entire CDS market under the bus, and England's Lieborgate just arrived in the US courtesy of CDS-gate.
Not very, I presume. Until shareholders see real dollars flowing back to the extent that dividends can be materially boosted, keep hope alive...
In reality, it is little surprise that behaviorally we see risk markets recover from precipitous declines - we are an optimistic bunch of knife-catchers after all. Credit Suisse's Global Risk Appetite index uses a number of factors to track the herd's shift from euphoria to dysphoria, and uses those panic levels to BTFD. The typical response function is around a 230 day upswing in animal spirits before reality sets in from now-euphoric levels. It seems that from the April 2011 'panic' levels in their index, we are about a month away from it being as good as it is going to get and the BTFD'ers will perhaps notice from the chart below that as time has gone on (from the '82 recovery to the current recovery) that the response function has had diminishing potential - as we are very near to Peak Recovery.
European equities are seen softer at the North American crossover as continued concerns regarding global demand remain stubborn ahead of tonight’s Chinese GDP release. Adding to the risk-aversion is continued caution surrounding the periphery, evident in the Spanish and Italian bourses underperforming today. A key catalyst for trade today has been the ECB’s daily liquidity update, wherein deposits, unsurprisingly, fell dramatically to EUR 324.9bln following the central bank’s cut to zero-deposit rates. The move by the ECB to boost credit flows and lending has slipped at the first hurdle, as the fall in deposits is matched almost exactly by an uptick in the ECB’s current account. As such, it is evident that the banks are still sitting on their cash reserves, reluctant to lend, as the real economy is yet to see a boost from the zero-deposit rate. As expected, the European banks’ share prices are showing the disappointment, with financials one of the worst performing sectors, and CDS’ on bank bonds seen markedly higher. A brief stint of risk appetite was observed following the release of positive money supply figures from China, particularly the new CNY loans number, however the effect was shortlived, as participants continue to eye the upcoming growth release as the next sign of health, or lack thereof, from the world’s second largest economy.
- If Hilsenrath leaks a Fed party line and nobody cares, does Hilsenrath exist? Fed Weighs More Stimulus (WSJ)
- Clock Is Ticking on Crisis Charges (WSJ)
- South Korea in first rate cut since 2009 (FT)
- Shake-Up at New York Fed Is Said to Cloud View of Risk at JPMorgan (NYT)
- Italy stats office threatens to stop issuing data (Reuters)... because Italy is "out of money"
- China New Yuan Loans Top Forecasts; Forex Reserves Decline (Bloomberg).. and here are Chinese gold imports
- Italy Faces 'War' in Economic Revamp, Monti Warns (WSJ)... says Mario Monti from Sun Valley, cause Italy is "out of money"
- NY Fed to release Libor documents Friday (Reuters)
- U.S. House Again Votes to Repeal Obama’s Health Care Law (Bloomberg)
- Germany May Turn to Labor Programs as Crisis Worsens, Union Says (Bloomberg)
- Ireland to unveil stimulus package (FT)
For many months, if not years, we have been beating the drum on what we believe is the most hushed, but significant story in the metamorphosis of the US labor pool under the New Normal, one which has nothing to with quantity considerations, which can easily be fudged using seasonal and birth death adjustments, and other statistical "smoothing" but with quality of jobs: namely America's transformation to a part-time worker society. Today, one of the very few economists we respect, David Rosenberg, pick up on this theme when he says in his daily letter that "the use of temps is outpacing outright new hirings by a 10-to-1 ratio." And unlike in the old normal, or even as recently as 2011, temp hires are no longer a full-time gateway position: "Moreover, according to a Manpower survey, 30% of temporary staffing this year has led to permanent jobs, down from 45% in 2011.... In today's world, the reliance on temp agencies is akin to "just in time" employment strategies." Everyone's skillset is now a la carte in the form of self-employed mini S-Corps, for reason that Charles Hugh Smith explained perfectly well in "Dear Person Seeking a Job: Why I Can't Hire You." Sadly, that statistic summarizes about everything there is to know about the three years of "recovery" since the recession "ended" some time in 2009.
Wholesales inventories were revised lower for the previous month but met current expectations with a modest 0.3% rise. However, under the surface (as ever) things are not quite as muddle-through-like. Wholesale 'sales' plunged by their most since March 2009 with Lumber (but but what about the housing recovery) dropping the most MoM in durables and Farm Products dropping the most YoY among non-durables. This plunge in sales pushed the relatively stable Inventory-to-Sales indicator up to its highest in 19 months.
Josh Barro of Bloomberg has an interesting theory. According to him, conservatives in modern day America have become so infatuated with the school of Austrian economics that they no longer listen to reason. It is because of this diehard obsession that they reject all empirical evidence and refuse to change their favorable views of laissez faire capitalism following the financial crisis. Basically, because the conservative movement is so smitten with the works of Ludwig von Mises and F.A. Hayek, they see no need to pose any intellectual challenge to the idea that the economy desperately needs to be guided along by an “always knows best” government; much like a parent to a child. CNN and Newsweek contributor David Frum has jumped on board with Barro and levels the same critique of conservatives while complaining that not enough of them follow Milton Friedman anymore.
To put this as nicely as possible, Barro and Frum aren’t just incorrect; they have put their embarrassingly ignorant understandings of Austrian economics on full display for all to see.
A question on the minds of many people today (increasingly those who manage or invest money professionally) is this: How do I preserve wealth during a period of intense official intervention in and manipulation of money supply, price, and asset markets? As every effort to re-inflate and perpetuate the credit bubble is made, the words of Austrian economist Ludwig Von Mises lurk ominously nearby: "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved." Because every effort is being made to avoid abandoning the credit expansion process -- with central banks and governments lending and borrowing furiously to make up for private shortfalls -- we are left with the growing prospect that the outcome will involve some form of "final catastrophe of the currency system"(s). This report explores what the dimensions of that risk are.