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Keeping The Faith With Strategic Alpha

Tyler Durden's picture




 

From Maurice Pomery of Strategic Alpha

Keep The Faith

PMI data is finally seeing analyst’s waking up to the fact that global growth is falling. AUD exposed and rate cuts coming:
 
Finally it is dawning on mainstream analysts that the threat to global growth forecasts is real. It’s taken a while but it seems they are getting it now. The PMI data has always been a good indicator for me and wherever I look we seem to be in contraction and to my mind European and developed world’s PMI’s have started a cyclical fall again and will compound the problems facing those fighting the deficit issue. PMI’s for the Euro region fell to 47.4 in April, against 49.1 in March, well below market expectations (49.3) to reach its lowest level since November 2011. Even assuming no change in May and June, this would be consistent with a contraction in GDP of 0.3% qoq in Q2, down from -0.1% qoq in Q1.  Germany is not escaping this either as the manufacturing PMI was a bit of a shock to some. The drop in the German manufacturing PMI was driven by declines in most of the components and so I suggest that forecasts for growth in Europe are actually still too high!
 
This, plus the on-going austerity culture in governments will see growth and thus demand fall further as we have discussed many times and this will hit exporters very hard indeed and encourage more of the deleveraging process by the consumer. Global growth forecasts will shift lower and this will leave the commodity bloc exposed as we have thought for a while now. Looking at Brazil and India it is clear that concerns about their respective economies is affecting policy as rate cuts are coming thick and fast. The world is slowing down and this will impact policies at all the developed world’s central banks including the US.
 
The AUD is still set for much lower levels in my view and will take the Kiwi with it whilst the CAD may lag. Markets are beginning to price in nearly 100bps of cuts in Oz this year and to me there is a very real chance that the forward looking RBA may cut 50bps in May to nip any threat of deflation in the bud as it is clear that the domestic market is straining with property markets soft and inflation falling quite fast, let alone what is going on globally with regard to demand. The RBA are very aware of the global situation and are prepared to be pro-active. China is slowing, albeit in a controlled fashion so far but the data suggests a seismic shift in attitudes towards economic health around the world. To me the rot has been there for a while and may surprise a few to see how deep this runs.
 
The continuing burden on the global economy from the EU continues and I note with interest how close to the core this has got. France and the Netherlands are becoming a real concern and it doesn’t get more core than that! Money is fleeing France as the wealthy fear Hollande’s tax targets and there is evidence that this money is showing up in London property. The Dutch government has collapsed on the back of budget issues and a long battle could delay dealing with the problem and spook bond markets. Neither France nor the Netherlands can afford higher yields. If the core gets targeted then the likes of Italy and Spain are in trouble. Markets are scared of the mess in Holland and are rightly concerned where a Sarkozy loss will leave the EU leadership. The fact that the EUR is manipulated and held at ridiculously high levels has the negative effect of forcing traders into selling EU bonds and equities and the divergence (or the break in correlations) is becoming extreme.
 
The US will fail to deal with the deficit any time this year: So says former Fed VC Kohn:
 
Finally someone apart from me is highlighting the massive issue of the US election and the fact that it will delay any attempt to deal with the debt issue anytime in the US this year. This has to be taken more seriously but it gives macro managers a chance to position for the fact that the UD debt ceiling will likely be hit just before or just after the election, which is THIS year. Whoever is in government after the election is going to have to realistically sit down and tell the American public that benefits will be cut deeply, workers in the public sector will be let go (adding to the unemployed numbers), taxes will rise and hardship lies ahead. I am not sure the American people can take such a shock. The reality is that they seem completely unaware of what is coming.
 
The problem is no campaigner can win on this ticket so forget anything but promises to spend more and make life easier for the electorate. That is going to be the biggest lie in history and we can see it coming. However the delay may spook a few of the bond vigilantes and possibly a rating agency if they are awake (unlikely). Kohn put it like this; “there is a real danger U.S. authorities won’t take the necessary steps to fix the country’s debt and deficit problems between the elections and the end of this year”, Kohn said Monday. “What’s required to put the fiscal deficit on a sustainable path are some difficult decisions having to do with entitlement spending and taxes in the United States.” “There’s a high degree of uncertainty and there’s a huge risk that they won’t.”
 
He went on; there is a real risk debt and deficit will continue to grow past the end of this year. He said governments worldwide must not rely on central bankers to get them off the hook for uncomfortable choices. “You cannot count on central bank purchases to bail out governments whatever the inflationary consequences.”  He has a point and the delay will be costly and the pain to fix the problem will be deep. The US faces a massive set of issues in 2013 and no one is talking about it.
 
Now here is the point; Bernanke thinks he can deal with this falling growth outlook and a deleveraging consumer by adding to QE to keep rates very low. I am not sure it will work and if it doesn’t yields could start to rise and the more he throws at it the more yields actually rise as vigilantes will fear pent up inflationary pressures. This is a potential disaster for central bankers and at some point the impact of QE may be proven limited. When it is the central banks will have shot the last bullet. Why is no one discussing this?

 

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Tue, 04/24/2012 - 06:45 | 2369254 SilverTard
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Look out below.

 

Tue, 04/24/2012 - 06:55 | 2369271 theMAXILOPEZpsycho
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Ron Paul accepts invitation from Rommney to be treasury secretary WOW

you heard it here first

Tue, 04/24/2012 - 07:11 | 2369279 Rusticus
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Translation:  Ron Paul has been compromised.

Tue, 04/24/2012 - 07:13 | 2369281 francis_sawyer
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 "Finally someone apart from me is highlighting the massive issue of the US election and the fact that it will delay any attempt to deal with the debt issue anytime in the US this year"

~~~

So when did this author wake up & declare himself "Captain Obvioius" (or did he just rent the outfit from a Halloween supply store)?

Tue, 04/24/2012 - 08:24 | 2369369 Oro
Oro's picture

Agree, he/she is way behind.

Tue, 04/24/2012 - 08:51 | 2369429 SheepDog-One
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The belief 'everything is on hold in a state of suspension of disbelief 100% until after the election' is bullshit, the banksters already have their next puppet picked and it isnt Obama. 

Tue, 04/24/2012 - 10:58 | 2369925 francis_sawyer
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Disagree...

They'll swing with either Obama or Mittens... That's all that they care about... With 6 innings left to go (until November), at this point it's all about which of the two promises to swallow (for starters)...

Tue, 04/24/2012 - 09:00 | 2369472 Shizzmoney
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Ron Paul accepts invitation from Rommney to be treasury secretary

There is NO way Romney's corporate handlers (i.e. Goldman) will allow that to happen. 

Why is no one discussing this?

Because they are paid *not* to discuss it?

Tue, 04/24/2012 - 06:45 | 2369257 LongSoupLine
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The last bullet you ask?

That's when rate of inflation exceeds rate of continuous printing

Tue, 04/24/2012 - 06:49 | 2369260 icanhasbailout
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there's no product more demanded in the market than a greater fool

Tue, 04/24/2012 - 06:50 | 2369263 orangegeek
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Fair enough.  A blistering decline in the markets should wake up the politicians.

 

The SP500 isn't looking so healthy these days.

 

http://bullandbearmash.com/index/sp-500/hourly/

Tue, 04/24/2012 - 08:39 | 2369410 SheepDog-One
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What 'blistering market decline'? They simply wont allow it....any .5% decline is immediately and desperately put back on the next mornings futures. 

Tue, 04/24/2012 - 07:00 | 2369276 scatterbrains
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but can't the fed just hit a button and buy every last treasury on earth?  and when they own it all who's left to sell?  themselve?They could do an HFT thing back and forth out of the Caymens or something I guess? Suck in the occasional pension fund or retail fuktard maybe ? Would it be possible for the fed/cia/mafia  to hold a gun to all the primary dealer crooks heads and forceably order them never to take the proceeds and diversify into commodities etc ? How much control is there coming from the top gangsters ? No clue.

Tue, 04/24/2012 - 08:34 | 2369400 DeadFred
DeadFred's picture

This will work in a universe where they won't need ever sell any more bonds, ever, and dollars are no longer traded with other countries. Where will my iPhone5 come from so I can serf (sic) the web?

Tue, 04/24/2012 - 07:06 | 2369278 francis_sawyer
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 "When it is the central banks will have shot the last bullet"

~~~

I was rather hoping that the "last bullet" would be used on themselves...

Tue, 04/24/2012 - 07:34 | 2369302 fonzannoon
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Whoever is in government after the election is going to have to realistically sit down and tell the American public that benefits will be cut deeply, workers in the public sector will be let go (adding to the unemployed numbers), taxes will rise and hardship lies ahead

Haha

Tue, 04/24/2012 - 08:48 | 2369435 SheepDog-One
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Any reason they cant do it now, wont be any different after some BS election, they wont do it then either. 

This line that we're all in some state of suspended animation until after another bullshit election, and THEN we'll face reality, is such horse shit it makes me want to hurl. 

NOTHING will be any different after some next BS election.

Tue, 04/24/2012 - 08:01 | 2369327 TooBearish
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Why is no one discussing this? 

Why indeed...WHy is no one discussing the dismantling of the US from within?

Why is no one discussing the corporate takeover of government, the unconstitutionalism of the status quo and the dictator warmongering executive branch?

Why indeed? 

Go along to get along, fool - the sheep are more comfortable asleep with the dream they will wake up and shite will be good again....

Tue, 04/24/2012 - 08:40 | 2369416 SheepDog-One
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Totaly dismantling the US into some kind of totalitarian centrally planned police state nightmare that would even make Orwell deny it could possibly be true doesnt matter as long as we've got a green DOW! 

Tue, 04/24/2012 - 10:09 | 2369698 Judge Arrow
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Public sector employee unions have bankrupted every gov - from local thru to Fed - so that, and your cigar smoking short armed fatties in the corporate sector make a two-fer - the workaround is no collective bargaining and one term limits - the wind would go out of a lot of pirate ship sails at that point

Tue, 04/24/2012 - 08:26 | 2369376 DavidC
DavidC's picture

"Why is no one discussing this?"

I guess for the same reason that "no one" is discussing the Fed being leveraged at over 50 to1, buying up 60% + of Treasuries, etc etc.

I've been talking about this for a while and I was talking about this last night with someone, saying that I think there is only 1 more LTRO or QE, the last two bullets. If they go further than this the hyperinflationary genie would be out of the bottle and all hell will break loose.

DavidC

Tue, 04/24/2012 - 08:35 | 2369403 csmith
csmith's picture

"...the more he throws at it the more yields actually rise as vigilantes will fear pent up inflationary pressures."

 

Not gonna happen. The gigantic amounts of debt principal loaded on the system will swamp any inflationary impulse. The simple fact is that adding debt is DEFLATIONARY. We are Japan.

Tue, 04/24/2012 - 08:43 | 2369421 SheepDog-One
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Why is no one discussing this? We all are, and have been for years, and it gets you the label of 'fringe kook anti-gov extremist'...and 'probably a terrorist' to boot. 

When the shit implodes and everyones crying, dont even say NO ONE ever pointed it out and warned about it it because thats a lie.

Tue, 04/24/2012 - 09:18 | 2369548 kraschenbern
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"Why is no one discussing this?"  It is being discussed, at least within the IMF.  Check this out:

http://www.imf.org/external/pubs/ft/wp/2011/wp11264.pdf

Tue, 04/24/2012 - 09:38 | 2369622 asteroids
asteroids's picture

The stock market is NOT the economy. Unfortunately.

Tue, 04/24/2012 - 09:47 | 2369643 q99x2
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Not to worry. FED buys its own bonds.

Tue, 04/24/2012 - 15:57 | 2371072 trentusa
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Michael Jackson has a great song on either 'Dangerous' or 'Invincible' called 'Keep the Faith.' Intense songs on latter half of that album. I know ZH will continue to keep the faith!! rip mj

Tue, 04/24/2012 - 21:37 | 2372058 LongOfTooth
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Pervert child molester.  To hell with him!!!

 

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