Spain: Fiesta or Siesta?

At a time when Spain is back in the limelight on account of its ever-sprouting corruption scandals, the government is trying to switch public attention to the prospect of impending economic recovery. Last Thursday, when the National Statistics Institute (INE) reported a 0.90 percent drop in the active population unemployment rate (down to 26.26 percent from the previous quarter’s 27.16 percent), Economy Minister Luis de Guindos assured: “Despite all the difficulties, today I am convinced that the worst is over and that the Spanish economy will leave behind the negative growth rates.” Mariano Rajoy’s government may, as its predecessor did, announce “around the corner” recovery to keep the population’s hope alive and dodge uncomfortable matters such as corruption scandals, but in reality the country’s trend is quite worrying.

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What is at stake is illustrated by the difference in oil consumption between Asia and the West. The former, exemplified by China and India, is still increasing its consumption growth. The latter, basically the OECD, has been using less oil each year since the crisis began in 2008. This is unsustainable. The OECD’s deepening recession is evidenced by its falling oil use while the fragility of the export dependent and imported energy dependent East’s growth prospects suggests that its real growth rate is about to peak or already has. 

7 Charts Of The Market's Complete Divorce From Reality

The mainstream media would have us believe that the U.S. economy must be in great shape since the stock market has been setting new all-time record highs this month.  But is that really true?  Yes, surging stock prices have enabled sales of beach homes in the Hamptons to hit a brand new record high.  However, the reality is that stock prices have not risen dramatically in recent years because corporations are doing so much better than before.  In fact, the growth in stock prices has been far, far greater than the growth of corporate revenues.  The only reason that stock prices have been climbing so much is because the Federal Reserve has been flooding the financial system with hundreds of billions of dollars that it has created out of thin air.  The Fed has created an artificial stock market bubble that is completely and totally divorced from economic reality. Meanwhile, everything is not so fine for the rest of the U.S. economy.

The Inevitable 'Taper' And Avoiding 'The Giddiness Of Weimar'

With all eyes fixed on GDP and unemployment data this week (and all their revised and propagandized unreality) for more hints at if (not when) the Fed will Taper; the dismal reality that few seem willing to admit is that it is when (not if) and that the announcement of a "Taper" has nothing to do with the economy. There are three key factors driving this decision: Bernanke's bubble-blowing and bond-market-breaking legacy, the political 'clean slate' his successor needs, and, most importantly, the fear that QE will be discovered for what it is - monetization. As BoJ's Kuroda admitted last night "if QE is seen as financing debt, this could lead to rise in yields." With deficits falling, the Fed's real actions will be exposed (unless QE is tapered) and as Kyle Bass has explained before, it was out of the hands of the BOJ (or The Fed) and entirely up to market psychology.

One Person's Case For Chairman Larry Summers

With the case for the next Fed chairman having devolved to the most ridiculous of decision trees, such as Nancy Pelosi's "it would be great to have a woman", because apparently gender diversity trumps everything in the eyes of the California democrat, the choice of Bernanke's successor is now more nebulous than ever. It has certainly not been aided by the periodic floating of the Larry Summers trial balloon, especially as originating from the Fed's WSJ mouthpiece who one week presents Summers as the favorite and the next skewers his chances. However, one person for whom the Summers vote is essentially a done deal with 90% odds, is Scotiabank's Guy Haselmann. Here is his logic.

Guest Post: The Honest President

“He who goes a-borrowing, goes a-sorrowing.”

The quote comes from Ben Franklin. But it was recalled to us neither by America’s president nor Britain’s prime minister. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.” What goes around comes around. The Anglo-Saxons have forgotten what makes a successful economy. The Chinese have remembered.

Key Events And Market Issues In The Coming Week

After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.

Third Day In A Row Of Early Futures Weakness Set To Give Way To Low-Volume Levitation

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.

Europe Passes The Inflection Point (Or Why LTRO3 Is Inevitable)

One year on from the "whatever it takes" speech and all appearances suggest Draghi's all-in move with the imaginary OMT 'worked. European sovereign spreads have compressed dramatically, European stock indices are near their highs, European financials are doing great. Of course, record unemployment rates, record loan delinquencies, record drops in house prices, and record deposit outflows can all be ignored because no matter what, Draghi will do "whatever it takes." Except, as JPMorgan notes, the excess cash in the Euro area banking system continues to decline reaching EUR230bn, closer to the so-called inflection point at which money market rates, i.e. EONIA and repo rates, are responding more pronouncedly to changes in the excess cash. Bank funding is becoming increasingly volatile since the 2nd LTRO repayment and the trend shows no sign of abating. We suggest Mrs. Merkel will be on the phone telling Mr. Draghi to "get back to work," - at least until September 23rd anyway.

It Is Happening Again: 18 Similarities Between The Last Financial Crisis And Today

If our leaders could have recognized the signs ahead of time, do you think that they could have prevented the financial crisis of 2008?  That is a very timely question, because so many of the warning signs that we saw just before and during the last financial crisis are popping up again.  Many of the things that are happening right now in the stock market, the bond market, the real estate market and in the overall economic data are eerily similar to what we witnessed back in 2008 and 2009. It is almost as if we are being forced to watch some kind of a perverse replay of previous events, only this time our economy and our financial system are much weaker than they were the last time around. We have been living so far above our means for so long that most of us actually think that our current economic situation is "normal."

Guest Post: "Housing" - Is It Really Recovering?

The optimism over the housing recovery has gotten well ahead of the underlying fundamentals.  While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Instead it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression.  The risks to the housing story remains high due to the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts and a slowdown of speculative investment due to reduced profit margins.  While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2013 and beyond - the data suggests that it might be quite a bit of wishful thinking.