Update, in which we find the true reason for the affair: Petraeus Won’t Testify on Benghazi Next Week, Senate Aide Says. In other words, next time one is called to testify before a panel over the deaths of 4 people including one US ambassador, one just pulls the infidelity "get out of testimony" card and all is well.
A mere few days after the re-election of our president, CIA Director David Petraeus annoucnes his resignation:
- *CIA DIRECTOR DAVID PETRAEUS RESIGNS
- *PETRAEUS SAYS HE ASKED OBAMA TO BE ALLOWED TO RESIGN: NBC NEWS
The reason - an extra-marital affair...
- *PETRAEUS SAYS HE ENGAGED IN AN EXTRAMARITAL AFFAIR: NBC NEWS
- *PETRAEUS 'SUCH BEHAVIOR IS UNACCEPTABLE' IN A LEADER: CNN
Of course, the defense is already known: Petreaus did not commit that affair... the government did it for him
In mid 2008, when macro data surprises were very weak, equity markets continued to push inexorably higher; happily ignorant of reality as The Fed has your back, 'bad is good', and the impossible was still impossible. This rally front-ran the economic surprise data - as economists had (in their ubiquitously extrapolant manner) over-cooked the downside and a reflexive bounce and rate cuts swung us into the green economically and market-wise. That surge in macro surprise data proved fleeting and we crashed a few short months after. Four years later and once again we are told that 'bad is good', every central bank is just dying to add more liquidity fuel to the fire, and macro data is 'surprising' to the upside. However, instead of following the 2009, 2010, and 2011 patterns, we are mimicking that 2008 pattern as 3-month S&P return turns red while ECO data is still rising. We suspect the hope-driven 'magic' in that ECO data will rapidly fall to the bottom-up-biased earnings data we discussed earlier and while 'expecting' a 30% plunge in stocks is a little much - we've seen this kind of hopeful optimism dashed before on the rocks of reality.
The U.S. trade balance in September improved, largely on petroleum, with a rebound in exports. This was good news for a single economic data point and it sent mainstream economists to mistakenly begin boosting third quarter GDP estimates to 2.9% from the 1st estimate of 2.0% that we saw last month. The important point is that the trend of exports, and imports, has been negative as the recession in Europe, and slowdown in China, have reduced end demand. There are a numer of reasons that the recent positive boosts to the trade deficit data are more likely temporary in nature and will be revised away in the months ahead. "Regardless of when the NBER officially announces the start date of the next recession - the damage will have already been done to investors."
It's been a mere seven weeks since the CNBC'ers announced to the world that every widow, orphan, and pet-monkey should buy the market with both hands and feet as Bernanke just opened the gates. The exact phrase on the evening of QEternity was:
"Buy everything that's not nailed down... as bearish as I want to be, you cannot fight the Fed. You buy everything. Buy copper, which i did today, FCX which i mentioned last night. Anything else? Emerging markets! everything! Just buy it. Buy it all. You never have to short again. Buy it. I had a guy call me today trying to sell me research on the short side, and I said I'm sorry, I think you're going to go out of business. You shouldn't short anymore."
Things haven't quite gone as planned...
One of the great faults with paying attention to Europe is to take what they tell you as factual. The media trumpets what they are given by the various sources of information in Europe but a quite skeptical eye is what is needed. They claim that they do not have the “Final Troika Report” on Greece because they have not stamped it “Final” yet and so they blame their indecision on the magic trick that they are performing. Everyone on the Continent has the report but since they can agree on almost nothing they have blamed the lack of the rubber stamp as the culprit. They should just come out and say that, “It is the rubber stamp’s fault” and be done with it. Every easy trick has now been exhausted when it comes to Greece. You may feel worn out and tired by the length of time this process has taken but that is a remarkably short-sighted viewpoint. It is going to be either “debt forgiveness” or “more money” or “brute force” and there are quite serious consequences for many nations and many governments whichever path is chosen. Any of these three paths will lead to extensive pain and a lot of contagion and so I conclude that the Greeks will get forced out by increasing European demands. “Blame it on the Greeks” will be the secret password while the Greeks will call Berlin every name in the book.
Technical bounces off 200DMAs; Fed lifting constraints from next year's stress tests; Basel III implementation deadlines rumored to be extended; and now we get the 'compromise' chatter to ensure we do not plunge and close at the lows of the day/week/month/quarter during the President's first few days of re-election. We are sure the market will hear what the market needs to hear and a history of divisive political backstabbing will be thrown away in rounds of group-hugs and exchanges of ponies...
With the varied interests of constituents very much in mind, finding a compromise over taxation will be worse than Sisyphean in nature we suspect. CNBC's Rick Santelli offers a strawman, that gets around Norquist's 'pledge' and perhaps provides cover for both parties. The Chicagoan recognizes that what seems like a high-salary to some is very much not to others and suggests instead of focusing on the income, we should focus on the wealth. This is not the first time such a proposition was suggested (as we noted 14 months ago that 'muddle-through' was over and "we are confident, that one way or another, sooner or later, it will be implemented. Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth") Strawman or not, the fact that Santelli is discussing it (and demurs on whether he has been contacted) means it is on the table...
Most European equity and sovereign bond markets suffered their biggest loss this week in the last six. Thanks to a somewhat notable rally from the US open today into the European close (seemingly driven by AAPL's bounce off its 55-week average and S&P 500's bounce off 200DMA), things don't look like the 'worst week in six months' that we had been expecting. European credit markets moved tick for tick with stocks - though we note risk appetite does not seem to be following through in high-yield credit. Spanish bond spreads rose 27bps on the week (and Portugal 45bps) as Europe's VIX closed up 2 vols on the week at 22.35% (well off its highs of the day at 24.75% which are two-month highs). EURUSD slid below 1.2700 into the European close (down ~200pips from the highs) - its lowest in two months.
Does China have what it takes to get from here (industrialized export economy) to there (sustainable growth, widespread prosperity)? The same can be asked of every nation: do they have what it takes to move beyond their current limitations to the next level? Consider corruption. Corruption isn't just a "values" issue: corrupt societies have corrupt economies, and these economies are severely limited by that corruption. A deeply, pervasively corrupt economy cannot get from here to there. Corruption acts as a "tax" on the economy, siphoning money from the productive to the parasitic unproductive Elites skimming the bribes, payoffs, protection money, unofficial "fees," etc. By definition, the money skimmed by corruption reduces the disposable income of households and enterprises, reducing their consumption and investment... Pull aside the curtain and what you find is a China crippled by corruption and debt.
Shortly, Speaker John Boehner will provide some clarity to what was heralded by so many hope-mongering media types as an olive-branch in his previous speech. We suspect the fire and brimstone will pick up modestly while there will be just enough to offer hope that all our fears are misplaced. This apparent pre-buttal of Obama's 1pmET speech will set the tone for how these two 'colleagues' will play for the next few months... perhaps the "Don't Tax Me Bro'" t-shirts will raise enough taxes to cover the shortfall?
Last week we suggested a reason why the market was unable to hold on to the Bernanke bid. The relative plunge in Goldman Sachs 'bottom-up' Analysts Index (GSAI) suggested that the macro 'strength' that market-savants were so focused on, could perhaps be election-biased (blasphemy). It seems this macro 'strength' divergence (highest since 1996!) from micro 'weakness' reality was enough to get the Goldmanites thinking - and unfortunately for all the cautiously optimistic managers out there, they are not hopeful. As Jan Hatzius explains, "the GSAI remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index; and while one possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data."
By now everyone knows how Americans feel about America: one quarter of the population (the half of the less than half that voted) is convinced the US is plunging into a socialist void that would make the USSR proud, another quarter of the population is furious at the wealthy and demands that they be taxed up the wazoo because "they didn't build that" but certainly profited from it, and is demanding wealth and income redistribution, while the silent majority is quietly picking up whatever pieces it can, and batting down the hatches, seeing very well, beyond the fog of bias and subjectivity, the inevitable epic deleveraging disaster, followed by even more epic printing that is coming this way. But how does the rest of the world see the US, especially now that the fiscal cliff (and the much less discussed debt ceiling debate: why, we don't know - it was "merely" the debt ceiling that led to a 20% drop in 2011). Yesterday, German financial media Spiegel provided a glimpse into just how Europe, which is in deep feces itself, sees America. The verdict: the next Greece.
Earlier we asked a simple question:
What time is the all time highest UMich Consumer Sentiment out?
— zerohedge (@zerohedge) November 9, 2012
the answer is 9:55... and while not an all time high, LOLfidence, pardon, CONfidence just printed the highest number since July 2007!