This page has been archived and commenting is disabled.
Will Merkel and Sarkozy Save Us?
Will Merkel and Sarkozy Save Us?
Courtesy of Phil of Phil's Stock World
Yesterday, Art Cashin sounded like he was reading my Morning Alert to CNBC viewers saying: "Everybody’s sitting on their hands waiting for the Merkel-Sarkozy meeting and they may have their hopes a little too high." Cashin sees parallels between the current market and the 1987 crash, and he even closed with: "you want to be very careful here." You also want to be careful about the retail sales and consumer data we're seeing. As David Fry notes:
Consumer Metrics Institute, a painstakingly reliable organization reported some interesting data Monday. First they attributed the rise in consumer credit primarily to Student Loans. Further, on a “back of the envelope” estimate they suggest roughly $100 billion of consumer stimulus is in the economy from “rent free” mortgagees’. So with many homes in default banks aren’t pursuing foreclosure as a remedy thus providing those folks with disposable income. It’s that pesky Moral Hazard thing again. It’s unfair to all paying their mortgages faithfully knowing their neighbor and others aren’t. For those living rent free it’s more rationalized cash for iPads and other stuff.
That also helps to explain the incredible divergence of Retail Sales vs. Consumer Confidence (chart from Zero Hedge). I had postulated this weekend, as we were discussing the chart above with Members, that the divergence was a reflection of forced or compulsory spending. In other words, consumers used to have discretionary income which they would use or not use depending on their mood. Beginning in 2008, consumers had less money but the price of commodities shot up and that has kept consumer spending high – but that doesn’t mean they are happy about it.
In 1999 or even 2004, a consumer would have $100 in their pocket and drive to the mall and buy a tank of gas for $30 and have $70 left to spend. In 2011, the same consumer (if he still has a job) has the same $100 (assuming health care costs didn’t go up and he eats 40% less) and he stops for gas and now it’s $75 and he has $25 left to spend. He’s still going to spend that whole $100 – but don’t expect him to be HAPPY about it! Now let's consider that that same consumer has no job and is falling another $2,500 a month into debt to the bank - sacrificing their homes to keep food on the table - THAT's what we're looking at with $10Bn of mortgage debt piling up every month...
Moody’s may not have downgraded the U.S. credit rating, but that doesn’t mean it's feeling good about the U.S. economy, lowering its growth forecast to 2% for the rest of the year and 3% next year from its earlier view of 3.5% growth for the rest of 2011 and another 3.5% in 2012. The likelihood that the U.S. will fall back into recession is one in three, Moody’s contends.
Fitch released a report on its Sovereign Rating Methodology today with no "substantive" changes to its review process. The US will maintain it's AAA rating with Fitch but the agency warned previously it may place a negative outlook on the U.S. later this month, although it also said it was encouraged by the debt agreement signed by Obama.
Over in Europe, France's CDS swaps have gotten more expensive than Panama as hedge funds are just saying no to the Euro in general and all sorts of imbalances are being created in the more thinly-traded swaps markets as money moves away from the under-priced big boys.
It's interesting how all this is lending credence to Karl Marx's view that Capitalism ultimately self-destructs as income is driven away from the workers and pooled in the investment class who then, in turn, begin to attack each other as excess capacity runs headlong into a lack of aggregate demand. That Marxist logic led us to make two very successful short plays on oil yesterday - one that we took off the table and then the USO Sept $32 puts at .90 are going to be looking good this morning as the oil futures slip back towards $85. As Nouriel "Dr. Doom" Roubini warned yesterday:
We’re not there yet but I think there is a risk that this is the second leg of what happened during the Great Depression. We had a severe economic and financial crisis, then we kicked the can down the road (and have) too much private debt—households, banks, governments. You cannot solve the problem with liquidity. At some point where there is too much debt either you grow your way out of it…either you save yourself out of it…or you can inflate your way out of the debt problem, but that has a lot of collateral damage. We’re not doing it. We’re creating zombie households, zombie banks and zombie governments, and you can have a depression.
A sobering chart produced by the Atlantic adds back in Americans who left the job force temporarily to derive an alternate unemployment rate. The methodology is grounded on the theory millions of Americans discouraged from looking now will start again if the economy picks up.
So how bad is unemployment by this measure? Try 12.5%. Meanwhile, ICSC Retail sales FELL 1.5% this week, accelerating from -0.5% last week. The weak sales are attributed to consumer concerns over losses and volatility in the stock market. However, a drop in gasoline prices may help restore consumer confidence.
July housing starts were also awful at -1.5% (604K) and permits are down 3.2% to 597,000. As we already discussed in Member Chat early this morning, both German and EuroZone GDP was a miss this morning with Germany dropping all the way down to 0.1% from 1.3% in Q1. That did not stop the UK July CPI from hitting a blistering 4.4% with Upward pressures included goods & services; clothing & footwear; household goods & maintenance; housing & household services.
Now for the good news (yes, there is some!): July Industrial Production was up 0.9% and, while that was in-line with expectations, it's the first report in two weeks that was and it's up from 0.2% prior with Cap Utilization (an indication of hiring needs) at 77.5%, above the 77.1% expected and a nice move up from June's 76.7%. Dow components WMT and HD also reported nice numbers. We wait patiently to hear what The Merkoszy comes up with later today and, most importantly, we'll be watching those Must Hold lines - which HAVE to be taken back this week.
I wonder if Cramer will mention the death of his long-time favorite, ESLR today? This Momo Solar has had a wild ride but it's finally over as they filed Chapter 11 today as Chinese competition and EU austerity drove the final nails in their coffin. We have to forgive Cramer for ignoring ESLR as he's probably too busy answering the phone about SODA this morning.
We are still very cashy and very cautious. As Art Cashin says - Be careful out there!
»
- ilene's blog
- 5315 reads
- Printer-friendly version
- Send to friend
- advertisements -
Beauty Equipment Wholesale Toys
Christmas Gifts
Wholesale Socks
Coca Cola Gifts Wholesale Belt
Coca Cola Gifts
Wholesale Mouse
Wholesale Vase Manicure Set
Wholesale Cards
Wholesale Hardware Tools
Wholesale TelePhone Wholesale Keyboard
Wholesale Speakers
Wholesale Binoculars
Wholesale Carabiner Wholesale Pedometer
Wholesale T-Shirts
Coca Cola Gifts
Voice Recorder Wholesale Kitchenware
Wholesale Mat
Cleaner Products
Wholesale Lighter Wholesale Stress Ball
Water Bottle
Wholesale Cap
Wholesale Flag Wholesale Binoculars
Business Gift
China Wholesale
Wholesale Helmet Wholesale Dartboard
Home Appliances
Wholesale Scale
Digital Photo Frame Wholesale Bag
Giveaway Material
Solar Products
As posted elsewhere : re:
The Euro zone farce is now reaching fever pitch. This whole game of EU was a political construct to bring Germany under control of its partners with an economic Euro zone shell to please them at minimal cost for abandoning their sacred DM and giving the rest of europe their benign economic/financial umbrella.
Now that the shit has hit the sovereign fans based on private banker greed having sucked EU zone into US led ponzi, and Political cowardice on both sides of the pond since december 2008, letting this cancer grow, we are back to the POLITICAL drawing board to recharter at the 11th hour the new economic/financial course of a floundering EU.
Plan A : Tighten the political cooperation through measures taken in 2012-2013 period to make the deal federal. As there is NO federal fiscal, financial mechanism capable of resisting to the upcoming sovereign bond meltdown. Unless the Euro bond emerges. This can ONLY occur if the political instruments are in place to define and have VOTED fundamental changes to the treaty in each major EU nation. This will take time and will be fueled by the ongoing crisis. So EU is at the cross roads. Either we go federal and have the political ambition to do it, or its Plan B.
Plan B : Back to nation state economies. Or to two sub zone economies, North and South Europe. This Plan B is the death of European geo-political power for fifty years. So the people of Europe have to choose if they want to be collectively a BIG player on the global scene thirty years down the road. Or, if they are content to be a Swiss type gruyere cheese selling bunch of nations, each living in its own 'comfy' zone, hoping there is no Atilla the Hun down the road. Tall order, as now the rest of the world is coming out of its 'inferiority complex' relative to the Western world. The age of Enlightenment is over for Europe. As for the US of A.
Can't wait to see facebook in 6 to 9 months when all of a sudden, the dumb fucks who would only read what Snooki shoved up her arse the previous night, will be suddenly reading posts about why the economy is going down the drain and why their company will be laying people off soon! I am sure every ZH regular has had these "shit is hitting the fan soon" conversations with friends and famaily who still look at you as if you are a 2 headed monster!
That first chart - when viewed volume, time and price - you can see the walkdown during the buying, the walkup to the end of trading, when volume spiked significantly at the highs. You can see the manipulation.
If you can look past the graft, corruption, and failure to collect taxes, Panama is flying high. I submit that the Panamanian economy is literally at maximum capacity as evidenced by their 4.0% unemployment rate. They actually have a labor shortage. Compare that with France and I think you will understand why CDS spreads are where they are. Panama is where its at IMO.
Merkel and Sarkozy can't save themselves. It is doubtful either will get re-elected unless they allow the PIIGS to fail
and, in short order, exit the EU. That would mean nationalizing their banks. In turn the U.S. would have to nationalize its banks
and the U.S. would finally have closure of the 2008 banking crisis. Is it going to go down that way? Probably not.
More likely the PIIGS will be bailed out by monetization and the real problem just put off until they need more money.
The U.S. will have to rescue most of the states soon, many are now running out of cash. It will be world money printing
until all major fiat currencies implode.
I'm glad you mentioned Banks. You can buy BAC, bank of america stock today if you like. The concept is to sell it when it gets back to eleven dollars. The bottom is in. (temporarily, of course).
what is interesting about Marx's assumption that capitalism self destructs is that the self destruction of capitalism does not come about becuase of capitalism itself but the invasion of Marxist central planning ideals that destroys the ability of competition to destroy those who have become lazy and corrupt.
Under true capitalism I could start my own bank tomorrow and loan money to whoever i wished at whatever terms i decide. I would be happy to loan mortgages at 2% to those who are worthy to borrow. You know what I would probably steal every bank's business within a couple months.
Umm... not quite a sound syllogism regarding Marx....
Capitalism destroys itself because at some point there are a group of people that for which enough is never enough, they will pursue actions that may enrich themselves only at the expense of the greater society. Capitalism eventually enters its financialization phase; it becomes more lucrative to become part of the rentier class where speculation and collection of non-productive rents becomes the norm. Now this class will enventually assume political control and will enact policies that are benign at best, self-destructive at worst. Now what do think has happened to this country?
What is the answer to this dilemma? Well, my friends isn't that the question we grope for here at Hedge?