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Meanwhile, In A (European) Galaxy Far, Far Away...

Tyler Durden's picture





 

Submitted by Bill Blain of Mint Partners,

Another day of fraught wonderment ahead of us. What does it all mean? China economic data increasingly suggests there is a serious problem, (that’s still a few points below crisis – but recent experience suggests the politics of mobs can turn ugly with surprising speed!). On the other hand, yesterday’s US auctions went swimmingly well – so we can all relax about the taper? Er.. no. And while Spain gets a cheeky 15-yr bond issue completed (driven on the back of a large single order we strongly suspect), the Italians then get downgraded because of the weakening economy, deteriorating competitiveness and 1.9% negative growth outlook... “You can’t make this stuff up,” comments Chris, my head of Govvie Trading.

So its heads down, and pick the bones out of yet another messy market. Europe problems back to the fore – but volumes are tiny, and I really don’t think anyone cares very much. ECB chappie Ass-mussen saying rates might stay low beyond 12 months doesn’t quite have the reassuring impact Draghi had last week. We’re wondering if Spain is next on the ratings hit list, and there is yet another political crisis brewing about illegal payments. Same old, same old…

There is nothing quite like a summer crisis in Europe.. Yet the hoo-ha over Portugal does seem to have blown over. Don’t believe that for a second.. we don’t yet know what the cost of keeping the fragile coalition will prove to be – we suspect even a slight Portuguese course change puts them in collision with Europe.. again. 

Meanwhile, in a galaxy far far away... (I think I’ve used that too many times recently when differentiating Planet Earth from Yoorp!)..

The Bells of London are ringing with joy unconfined this bright sunny morn as the IMF says UK is poised for stratospheric growth! Of 0.9%?? wowser (US Readers: deliberate use of lower case to suggest mild sarcasm.) And Moody’s has raised its UK banking outlook from negative to stable to reflect UK’s increasingly stable economic outlook, and the fact the banks are generally in better shape after improving asset quality, capital ratios, funding and liquidity “metrics” (I detest that word),  improving profits and efficiency gains. They remain concerned about long term “systemic support” for the big banks – who can be surprised when government has made “exhuberant banking” a hanging offence. 

Whateva.. George Osborne must be dancing a jig and considering replacing the wallpaper in No 11. After all 0.9% is a positive number so hang out the blue bunting, set the band's a'playing, and lets all be deliriously happy. Lions, Andy Murray and now the IMF!

Contain my cynicism for a moment. 0.9% growth is better than 0.3% in Germany or -0.6% across Europe, so Osborne will be explaining success to Tory MPs ("well Toby.... 0.9 is a bigger number than -0.6.... do you see how that works?") But Mr Osborne probably shouldn't share anything more complex with his legislators lest they catch a whiff of things less than wholesome...

Friends fed me dinner last night, (She-who-wishes-to-be-Mrs-Blain is working on a contract outside town leaving me to fend for myself during the week... I know.. shocking, but that’s modern gals for you...), and him being one of the UK's businessmen actually making something, we discussed the prospects for UK industry in a lower sterling environment.

The conventional wisdom is weaker currency = hurrah for exporters. Unfortunately, previous weak sterling moments have seen precious little export growth.. you need a a manufacturing sector for that particular trick to work. Might work for Japan.. probably not here. Instead, the risk is lower sterling will simply import inflation. And all the entails..

Then we have improving confidence across the UK - apparently. I worry how much that is fuelled by house price gains - again suggesting increased indebtedness contributing to the rosier picture. Again all that entails as and when UK interest rates head back towards tropospheric normalcy and we get a housing crash.

And if we get growth, the banking transmission mechanism to ensure companies get the capital/dosh they need to expand is so broken and wrapped in regulatory red-tape that growth is going to be more about finding 20 quid notes on the street rather than getting expansion funding from banks! (Hang on.. I got an idea about that.. but means opening up the tomb of the CLO market… dah dah dah!)

And even the IMF admitted the slight 0.2% revision in UK prospects didn't mean much - "the recovery is weak, and policy makers should ensure the recovery is improved." Don’t underestimate the capacity of the UK’s elected leaders to get this completely wrong and snatch economic defeat from the jaws of growth!

Meanwhile the IMF warns Europe faces worsening economic headwinds requiring "additional policy action" and more "do what it takes moments"!  Good luck on that ahead of the September European elections.. oops.. sorry... meant Germany..

 


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Wed, 07/10/2013 - 09:54 | Link to Comment spine001
spine001's picture

Bill and dear ZH, It all means chaos, mathematical chaos. You find this type of behavior in compkex feddback loop systems that are non linear and show hysterisis, it is a little birpt more complex thatn this, but it siffices for this explanation. Knowing what are the dynamics of the system is. Critical to be able to control it since you knoiw what to avoid and how to maintain yir cintrols respnding so that a given action produces a predictable response. The correlation inver psions and the sudden loss of control that you are seeing are normal manifestations of this dynamics. The explanations provided are just ex post explanations of what feedback looos got activated or changed the phase of the feedback transitioning from negative feedback, thus stable to positive feedback, unstable. When a loop goes into positive feedback, the speed of the changes are not controllabke, thus the peril of the current situation we are in.

Wed, 07/10/2013 - 09:58 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"You find this type of behavior in compkex feddback loop systems that are non linear and show hysterisis..."

Welcome to the insane asylum. We are most pleased that you have decided to linger.

Wed, 07/10/2013 - 10:02 | Link to Comment wolfnipplechips
wolfnipplechips's picture

Blah blah blah blah....wake me when some actual news on the global economy surfaces. This circle of nonsense is tiring.

Wed, 07/10/2013 - 10:15 | Link to Comment spine001
spine001's picture

Indeed an asylum it is, there is no other explanation why a bunch of guys that couldnt obviouslly control any complex industrial plant are being allowed to contol our economic system and therefore our life savings and future well being of this and future generations. They may send us to the stone age and we are walking to our destruction nearly as happily as the jews  walked into the showers in nazi germany. May be the reason is the same people want to believe and our brains refuse to see situations that are complex and we dont have an easy remedy for. SAD!

Wed, 07/10/2013 - 10:07 | Link to Comment spine001
spine001's picture

They wouldnt let me edit, no idea why, may be I took too long so here is the corrected version of the above comment, sorry:

Bill and dear ZH, It all means chaos, mathematical chaos. You find this type of behavior in compex feedback loop systems that are non linear and show hysteresis, it is a little birt more complex than this, but it suffices for this explanation. Knowing what are the dynamics of the system is critical to be able to control it, since you know what to avoid and how to maintain your controls responding so that a given action produces a predictable response. The correlation inversions and the sudden loss of control that you are seeing are normal manifestations of this dynamics. The explanations provided are just ex post explanations of what feedback looos got activated or changed the phase of the feedback transitioning from negative feedback, thus stable to positive feedback, unstable. When a loop goes into positive feedback, the speed of the changes are not controllable, thus the peril of the current situation we are in. The only thing you can do to control these systems, meaning the only thing that you know ex ante is the dynamics ofnthe system, is to stay the hellbaway from the stability boundaries, because you know that if you touch them you can loose control and then it is game over.

Wed, 07/10/2013 - 10:14 | Link to Comment socalbeach
socalbeach's picture

You can't edit a comment that has been replied to.

Wed, 07/10/2013 - 12:29 | Link to Comment spine001
spine001's picture

Thanks!

Wed, 07/10/2013 - 10:17 | Link to Comment Mentaliusanything
Mentaliusanything's picture

Hey spine001, I too fight against not only the touchscreen on a Tablet but the effects of Alcohol on the fingers. But you have to remember, some of us have been at work for 22 hours, suo keep itvsimple

Wed, 07/10/2013 - 09:48 | Link to Comment SheepDog-One
SheepDog-One's picture

Time to shake up the snow globe again pretty soon.

Wed, 07/10/2013 - 09:51 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Fear and greed, two sides of the same coin.

<Time to flip it and see what comes up.>

Wed, 07/10/2013 - 09:53 | Link to Comment Jim in MN
Jim in MN's picture

It's true, bitchez! It's true! The crown has made it clear. The climate must be perfect all the year. A law was made a distant moon ago here: July and August cannot be too hot. And there's a legal limit to the snow here In Camelot. The winter is forbidden till December And exits March the second on the dot. By order, summer lingers through September In Camelot. Camelot! Camelot! I know it sounds a bit bizarre, But in Camelot, Camelot That's how conditions are.

Wed, 07/10/2013 - 10:00 | Link to Comment gaoptimize
gaoptimize's picture

Its just a model.

Wed, 07/10/2013 - 10:17 | Link to Comment Greshams Law
Greshams Law's picture

Tis a silly place.

Wed, 07/10/2013 - 09:58 | Link to Comment DaMule
DaMule's picture

Perhaps the $12 recent spike in oil will help out?

Wed, 07/10/2013 - 10:00 | Link to Comment caShOnlY
caShOnlY's picture

There is nothing quite like a summer crisis in Europe

it has happened 5 years running, why should this summer be different?

Wed, 07/10/2013 - 10:07 | Link to Comment NoDebt
NoDebt's picture

"US Readers: deliberate use of lower case to suggest mild sarcasm"

OK.  Thanks.  The article was still barely readable.  And still searching for a point to make. 

Wed, 07/10/2013 - 10:07 | Link to Comment oldasiahand
oldasiahand's picture

Gideon and Mark are engineering a mini old fashioned pre electioin boom with higher house prices and higher inflation. So we are OK till May 2015 and then the piper has to be paid.

Wed, 07/10/2013 - 10:23 | Link to Comment JFKFC
JFKFC's picture

I disagree. September Taper + September Debt Celing = Red Team Wet Dream. They've thrown everything, including the kitchen sink, at Obama. The one thing they couldn't beat him on was the (bullshit stock market) economy. Team Red needs a sizable correction going into 2014. They need some real shit to hit the fan on Obama's watch.
Like they said in 2008... Jobs weren't their #1 priority. Ruining Obama is their #1 priority.

Wed, 07/10/2013 - 10:42 | Link to Comment wolfnipplechips
wolfnipplechips's picture

By all accounts Barry is ruining himself these days.

Not that it matters, though. The "Blue Team" doesn't seem to mind his "changing America", and the other non "Red Team" sheeple only have a 2-3 week memory since they need to focus on reality TV and what free shiznit they can grope from the government. By 2014, they'll forget spying, IRS thugs, debt ceilings, Benghazi, and Obummercare.

Wed, 07/10/2013 - 11:17 | Link to Comment Doubleguns
Doubleguns's picture

We have decended into simply one team. The purple team and they are all idiots and their leader is the village idiot from the village of idiots!!!

Wed, 07/10/2013 - 10:32 | Link to Comment q99x2
q99x2's picture

Stimulus Hopes. There's a hell of a lot more wealth to transfer before the crash.

Wed, 07/10/2013 - 10:43 | Link to Comment Bloody Chiclitz
Bloody Chiclitz's picture

Weak stuff.

 

Barely passes for summer reading.

Better than nothing by a small margin.

Thanks anyway.

I'm not sure a paranoid rant from one of the usual suspects is goig to help.  Most are probably digging a new sub-basement for their bunker anyway.

 

 

 

 

 

Wed, 07/10/2013 - 11:03 | Link to Comment youngman
youngman's picture

Everything today is about managing the next two days....putting out fires...no long term ideas...this is what we have devloved into....De evolotion..DEVO....where are the statesmen who will take the long view...they are all buried and gone forever....trillions more will be printed to put out fires...at some point those trillions become the fuel for the fire as they become worthless......when peole finally lose the "faith"....at some point inflation has to rear its ugly head...and will not be stopped...it will come very fast.....panic will insue...and panic it will be....

Wed, 07/10/2013 - 11:08 | Link to Comment Jim in MN
Jim in MN's picture

 

 

And he

Wore a hat

And he

Had a job

And he

Brought home the bacon

So that

No one knew.....

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