Unemployment

Mission Accomplished it would seem. Initial claims printed at its lowest since January 2008 at 324k. This is well below expectations of 345k - the biggest beat since September 2011. California and New York dominated the data with over 70,000 claims between them (though both dropped from last week). Michigan added the most from last month's rolls with 'educational service indutrsy' job losses affecting MA, CT, and RI. Emergency Unemployment Claims appears to have shaken off its statistical aberration of 2013 and is down a modest 12k this week.

One possibility for the markets to reverse has always been some grand event but another is just the economic deterioration that wears away at the markets as current levels cannot be rationally supported. It is not just the Law of Diminishing Returns which is coming into play as the central banks create more money but the effects on the consumer of seriously declining available cash to be used to purchase goods and services.  We have been subject to a massive amount of monetary printing and an unconscionable manipulation of data but the affects of reality cannot be ignored forever because reality forces the consequences as the fantasy gives way over time.

...  Until His Iron Deficiency Goes Away

With last night's China PMI disappointing expectations and eking out a just-expansionary miasma of hope for the growth enthusiasts, the very real question of global growth sustainability (while not on US equity market participants' minds) is coming to the fore. As Michael Pettis notes, Martin Wolf's recent perspective that it may be useful to think about Japan as a model for understanding the adjustment process in China since the Japanese model shows how risky it is to shift to a slow-growth model. While expectations for a 'relatively moderate' slowdown are common (at rates considered rapid for most economies); Pettis asks rhetorically, if part of the explanation for China’s spectacular growth of the past three decades has to do with the positive feedback loops that are so typical of developing countries with fragile and unsophisticated financial systems, then a moderate slowdown in growth may be an impossible target to achieve. Once growth starts to slow, the self-reinforcing impact on urbanization, on credit growth, on financial distress, and on expectations may force growth rates to drop far more sharply than any 'plausible' analysis would suggest.

Lamborghini sales hit the highest level in 14 years, Ferrari sales jumped 40% for the first quarter, luxury retailers forecast fat profits....

While it is the labor day holiday in most of the world, and as a result volumes will be more subdued than ever (meaning at least a 10 point algorithmic levitation on no volume for the S&P), let's not forget that Benny and the Inkjets are doing their best to make everyone into a professional day trader (the only "wealth effect" transmission mechanism left) so markets being open seems somewhat counterproductive. That said, futures are already up on the usual atrocious economic data out of Asia this time. First China's official manufacturing PMI slipped 0.3pt to 50.6, coming below expectations, suggesting weak momentum going into Q2. Meanwhile, Korea trade data indicated weaker momentum in exports than expected, rising 0.4% on expectations of a 2% bounce courtesy of Abenomics, and hence a lower trade surplus, while inflation defied median expectations of a rise and slowed yet further. Finally, Australia PMI was an absolute disaster printing even worse than the Chicago PMI, plunging from 44.4 to 36.7, meaning that the RBA is about to join the global "reflation effort." Given that most markets in Asia are closed today, there is no market reaction worth mentioning, aside from the fact that the yen which was logically weaker overnight then ramped up into the European open and US pre-trading as it is, after all, the primary source of "beta" for the global stock markets. Finally, while some are dreading the start of "sell in May and go away" season, what most have forgotten is that never before has May been accompanied by $160 billion per month in central bank de novo liquidity (a number which will only go up- you know, for the wealth effect). Which is why our redefinition of this infamous phrase is "buy in May and buy every day."

The next Great Depression is already happening - it just hasn't reached the United States yet.  Things in Europe just continue to get worse and worse, and yet most people in the United States still don't get it.  We have been warning that the next major wave of the ongoing economic collapse would begin in Europe, and that is exactly what is happening.  In fact, both Greece and Spain already have levels of unemployment that are greater than anything the U.S. experienced during the Great Depression of the 1930s. Pay close attention to what is happening over there, because it is coming here too.  A full-blown economic depression is raging across southern Europe and it is rapidly spreading into northern Europe.  Eventually it will spread to the rest of the globe as well. The U.S. economy has become a miserable junkie that is completely and totally addicted to reckless money printing and gigantic mountains of debt. If we stop printing money and going into unprecedented amounts of debt we are finished. If we continue printing money and going into unprecedented amounts of debt we are finished. Either way, this is all going to end very, very badly.

The Baltic States are unique in Europe in that they went through an austerity crash program a while ago already (beginning right after the 2008 crisis) and have in the meantime recovered strongly. Der Spiegel has an interesting interview with Lithuanian president Dalia Grybauskaite, in which she explains her views on the topic. It can obviously be done successfully. And while we are aware that every case is unique - the problems are not the same in every country, and due to cultural norms and traditions, it may be easier to enact reform in certain countries than others; it seems that no matter how many times Paul Krugman insists that no Baltic nation can possibly be held up as an example, the fact remains that they have imposed fiscal austerity and implemented wide-ranging reform measures and have succeeded.

As was announced earlier today, the Cypriot parliament was set to vote on the country's deposit confiscatory bail in, a vote that was largely expected to pass. Moments ago it did.

• CYPRUS LAWMAKERS APPROVE BAILOUT IN PARLIAMENTARY VOTE WITH 29 VOTES IN FAVOR, 27 AGAINST
  

And with that, the resulting depression that is about to be unleashed in Cyprus is nobody else's fault but of the country itself, its politicians and ultimately, its people. So dear Cyprus, you may have a 20% GDP drop every year for the foreseeable future and triple digit unemployment, but at least you will have the EUR and your Stockholm Serf Syndrome.

A Jackson Hole meeting without the Fed Chairman is like having a performance of Hamlet without Hamlet himself in it. Why would the single most important Central Banker not attend one of the biggest economic meetings of the year?

The President will take questions from the White House reporters at 1015ET. Will he mention the equity market at all-time highs? The strength of the housing market? The 'rising' unemployment rate? The 'falling' macro economy?

While near record low sovereign bond spreads and near record high equity prices have been taken as vindication by the European elites that all is well and 'we just need a little less fauxsterity' to be done with this crisis; the data, as it so often does, says the exact opposite. European unemployment just broke above 12% for the first time ever and European youth unemployment remains miserably above 24%. And while 1-in-4 under-25s unemployed is a bad enough statistic in terms of likely emergence of social unrest, the individual countries are in general deteriorating once again at a faster rate. French youth unemployment has risen for 13 months in a row to a record 26.5%; Spain (at 57.2% of under-25s unemployed) is catching up fast to Greece's stunning 59.1%; but perhaps the most concerning for the broader economies is the fact that Italy's youth unemployment has now topped that of Portugal at 38.4%. The only nation to see a drop in its youth unemployment was Ireland - which fell back modestly to January levels. Not a rosy picture, but then again, it doesn't matter...

It appears the Eurozone Stockholm Syndrome of absolutely (mutual, but ignore that) Assured Destruction has once again bloomed in tiny Cyprus, where capital controls have now had their one month birthday despite promises for a "very short duration" by the IMF's Lagarde, yet where people - all of whom far poorer and with nothing but a catastrophic depression to look forward to - just don't want to leave the Euro and the Belgian neofeudal kingdom. Because today, Cyprus actually has the power to say no to Europe when its parliament decides whether to back the EU bail-in out imposed on its by its EU "partners." However, as Reuters reports, it most likely will not "with approval likely from a thin majority against mounting calls for the island to exit the euro." Which means that Iceland's miraculous growth case study aside, Cyprus will only have itself and its politicians to blame next year when everyone's standard of living is reduced by 20%, then 20% the year after and so on. All in the name of making sure Deutsche Bank's spring clip loaded €55.6 trillion in notional derivatives never snaps shut.

• Euro-Area Unemployment Increases to Record 12.1% Amid Recession (BBG)
• Fed faces calls for radical reform (FT) - Has Jamie Dimon approved of this message? No? Carry on then
• CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law (BBG)
• Ex-UBS Executive Convicted of Paid Sex With Underage Girl (BBG)
• Six months after Sandy, New York fuel supply chain still vulnerable (Reuters)
• Older, richer shoppers lead Japan’s surge in consumer spending (FT)
• Sharp euro zone inflation fall, joblessness point to ECB rate cut (G&M)
• Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump (BBG)
• Japan Industrial Output, Retail Sales Disappoint (MW)
• Gunmen surround Libyan justice ministry (Reuters)
• Insider-Trading Probe Trains Lens on Boards (WSJ)
• Best Buy exits Europe (WSJ)
• Banker Roommates Follow Zuckerberg Not Blankfein With IvyConnect (BBG)

The weakness in economic data (not to be confused with the centrally-planned anachronism known as the "markets") started overnight when despite a surge in Japanese consumer spending (up 5.2% on expectations of 1.6%, the most in nine years) by those with access to the stock market and mostly of the "richer" variety, did not quite jive with a miss in retail sales, which actually missed estimates of dropping "only" -0.8%, instead declining -1.4%. As the FT reported what we said five months ago, "Four-fifths of Japanese households have never held any securities, and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association." In other words any transient strength will be on the back of the Japanese "1%" - those where the "wealth effect" has had an impact and whose stock gains have offset the impact of non-core inflation. In other words, once the Yen's impact on the Nikkei225 tapers off (which means the USDJPY stops soaring), that will be it for even the transitory effects of Abenomics. Confirming this was Japanese Industrial production which also missed, rising by only 0.2%, on expectations of a 0.4% increase. But the biggest news of the night was European inflation data: the April Eurozone CPI reading at 1.2% on expectations of a 1.6% number, and down from 1.7%, which has now pretty much convinced all the analysts that a 25 bps cut in the ECB refi rate, if not deposit, is now merely a formality and will be announced following a unanimous decision.