No Country For Old Bulls

Tyler Durden's picture

With global PMI rolling over again, dimming unemployment growth, and slowing EM Asia impacting global production, it is no wonder than BofAML's economics team sees a dearth of 'feelgood' factors in the market. In fact, as they note, further rate cuts in the euro area and China along with around $500bn of NEW QE in this quarter are priced into the market with any hope for risk assets to rally more consistently, investors will need to see not just willing-and-able central bankers but an abatement of the sovereign crisis in Europe and improvement in global data - neither of which they expect anytime soon. Easier monetary policy can only cushion the blow from higher uncertainty in the US and Europe. Effective policy breakthroughs would thus have to come from compromises in the European Council or in US cross-party politics. Investors have yet to zero in on the real impacts of rising economic uncertainty in the US. As Ethan Harris and Michael Hanson have argued, it is unlikely that the cliff is fully priced into the markets and US political dysfunction will share the spotlight with the European crisis over the next few months. And as last time, the joint act will likely undercut investor confidence.

and the prize for best research title also goes to BAML...

BofAML: No Country For Old Bulls

Review: policy to the rescue

Global central banks continued to ease monetary policy in response to a deteriorating global backdrop. Both the ECB and China’s PBoC cut interest rates this week, while the Bank of England kicked off another round of its quantitative easing program. As we expected, the ECB lowered interest rates by 25bp and brought deposit rates down to zero. In the UK, the BoE announced it aims to add £50bn to its balance sheet over the next four months. Meanwhile in Asia, the Chinese central bank surprisingly cut interest rates less than one month after it last lowered borrowing costs.

Most importantly, policymakers’ continued focus on downside risks backs expectations of further policy support. The ECB sounded more concerned about area-wide demand conditions and, although ECB President Mario Draghi discouraged hopes of further non-standard measures such as new LTROs, we think the Governing Council will lower interest rates once again before the end of the quarter. Likewise in China, we look for follow-ups to this week’s rate cut. Reserve requirement ratios will probably be lowered within the next few days, and we expect the PBoC to cut interest rates twice more before the end of the year. This week’s policy action was accompanied by mostly downbeat economic data.


Global confidence stumbled again, with the global PMI dropping to 49.6 in June from 50.1 in the previous month (Chart 1). In the US, nonfarm payrolls expanded by a below-consensus 80k in June, while the unemployment rate remained at 8.2%. This brings the 2Q average to 75k, well below the 226k per month seen during the first quarter. The unemployment outflow rate – a statistic tracked by Federal Reserve staff – remained close to historically low levels (Chart 2).


Hot topic: a dearth of ‘feelgood’ factors

Besides further interest rate cuts in the euro area and China, we also expect the Federal Reserve to underwrite $500bn worth of QE this quarter. If we are right, systemic central banks will have largely fulfilled recent market expectations of significant policy rescue. But for risk assets to rally more consistently, investors need to see more than willing-and-able central banks, in our view. On top of expanding liquidity, a meaningful market rally needs: (i) an abating sovereign crisis in Europe; and (ii) improvement in the global data. Are these conditions likely to materialize?


We think the crisis in the euro area will remain an open sore. The outcome of last week’s summit indeed revealed steps in the right direction. But it was no game changer. As German officials have been keen to highlight, the principle of no mutualization of national liabilities without sovereignty transfers looks intact. Moreover, the painstaking debate on what both shared banking supervision and ESM direct help to banks entail is only beginning. As Laurence Boone explains, the effectiveness of a banking union lies in the details.


The Eurogroup will meet next week, when we hope to learn more about the conditions underpinning the Spanish banking bailout. By the end of the month the Troika should unveil the magnitude of funding gaps in Greece. With policymakers still balking at prospects of another debt relief round (that is, official sector involvement), pressure on the new Greek government is likely to mount. We have seen this before: if the Troika pushes for significant adjustment over a short period of time the weakest link of Greek political stability will likely break. The well-known Greek dilemmas should resurface soon.

Better EM data to be cold comfort

As recessions in euro area countries deepen and doubts about both the crisis fighting strategy and the future institutional contours of the monetary union linger, we see no meaningful respite from the sovereign crisis. But could market perceptions brighten up once global activity data start to improve? In other words, could rebounding EM economies lighten up the mood in the marketplace and help investors tolerate foot-dragging in Europe?


Our real-time global activity gauge does suggest business conditions became less negative in June. Although activity appears to have softened further in the US, conditions seem to have improved in GEMs. This pushed the global aggregate higher. That said, the GLOBALcycle still indicates that global GDP growth likely dropped to 2.1% qoq (saar) in 2Q from 3.1% in the previous quarter. Looking ahead, wobbling global business confidence argues against a meaningful follow-up from June’s improvement. But mounting policy support in countries such as China and Brazil plus substantial recent drops in EM industrial production (Chart 3) point to a 3Q rebound in local activity. Its global reach, however, will likely be limited. As the US economy weakens ahead of the oncoming fiscal cliff and the euro area remains in recession, we expect global GDP growth to remain close to the 3% level. That is down from the average 4% seen between 2010 and 2011.

The looming fiscal fog

All in all, therefore, market respite opportunities are likely to be few and far between. On the plus side, global monetary conditions should continue to ease. Next week, whereas we now expect the BoJ to stay put, we look for the Brazilian central bank to cut interest rates by 50bp. Likewise, India’s RBI will probably reduce rates by the end of the month. However, as we illustrated last week, easier monetary policy can only cushion the blow from higher uncertainty in the US and Europe. Effective policy breakthroughs would thus have to come from compromises in the European Council or in US cross-party politics.

Investors have yet to zero in on the real impacts of rising economic uncertainty in the US. As Ethan Harris and Michael Hanson have argued, it is unlikely that the cliff is fully priced into the markets. The issue may only start to visibly influence the consensus once lumpy economic decisions – such as business investment and durable goods consumption – start being postponed in the run-up to the cliff. In all likelihood – and much like last summer – US political dysfunction will share the spotlight with the European crisis over the next few months. And as last time, the joint act will likely undercut investor confidence.

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bank guy in Brussels's picture

Jim Sinclair has long said the US is worse, the EU 'crisis' is partly distraction ...

So we need Simon Black to tell us where to go

old naughty's picture

sure there are 'still' countries for old bulls...throw the pmi out, let's do a make over, call it BSmi.


Bobbyrib's picture

The only reason the US may be worse off is because the EU's breakup will come before the Fed stops printing money to try to stimulate the US economy. The politics of the European Union will force a complete breakup or at least the insolvent countries being removed from the EU. So the PIIGS and all the other insolvent EU countries will be forced to either restructure or default on their debt. England and the US can keep printing for years until it is painfully obvious to everyone that it will no longer work. Don't get me wrong, the economy will still suck while we print, but there will probably be massive unrest in the population of both countries before our central banks get the message that we will not tolerate any more money printing.

Sudden Debt's picture

America spends 70 cents on every taxdollar it receives on the militairy.
and QE's pay for the rest of the expenses.
America's government can't create more jobs than it does right now.
in greece, 65% of all the working population works for the government.
In the US this is just the same.

Darkness's picture

I have been calling to #Beardown for awhile, looks like people are starting to listen. 

TruthInSunshine's picture

What do you expect when Ben Bernanke is to any notion of free markets and real economic activity what Anton Chigurh is to door knobs?


jeff montanye's picture

re the first line of the post above, imo prospects for unemployment growth are brightening considerably.

knukles's picture

When they all gonna wake up this isn't a monetary problem
It's a crisis of confidence that creates a credibility trap that manifests itself as a liquidity trap.

Quit treating the symptoms... but then again that's asking politicians to....

Never mind

spinone's picture

When a fiat currency is debt saturated, it breaks.

geno-econ's picture

Because we created a Credit/Liquidity trap with the full cooperation of the Fed, Banks and Governments over the last two decades, now we have all kinds of real problems on a global scale. Making things worse, no one wants to face deleveraging , accept even a mild recession or reexamine a flawed Global Trade model.  Restoring Confidence via peptalks, 4th of July fireworks or seeking psychiatric therapy is useless.  Iam depressed for good reason while my assets depreciate or are at risk to hucksters looking to make a quick buck. Not trusting anyone anymore is the real definition of confidence loss 

Bobbyrib's picture

It's more than a confidence crisis. The Western countries don't produce enough real goods to sustain the size of their economies. That is why unemployment will be high for years to come. Globalization has slaughtered our manufacturing sector and left us with this joke of a service sector economy.

Conman's picture

Investor confidence? The only thing im confident of is that the whole market is rigged.

Duke of Con Dao's picture

YouTube - No Country for Old Ben Bernanke

starring Ben and that infernal simian

who's aping our Chairman with facial hair. 

Clashfan's picture

Is this really what it looks like? Is this really Bloomberg reporter Sarah Eisen wearing a huge strapon under her dress during a broadcast, then caught admiring or playing with it, unexpectedly? Is this some kind of in-house prank, or is it a stunt to gain viewership? What is it? How do we explain this phenomenon?

RobotTrader's picture

All I can say is that it is hard to be bearish when:


1)  Retail stocks refuse to crack

2)  REIT stocks are at record highs

3)  Oil prices continue to crash nationwide

4)  Interest rates rock bottom for as far as the eye can see

5)  PPT intervenes each time there is potential trouble

6)  Retail investors keep piling into bonds and they all hate stocks

Itch's picture

Tyler get a post going on why daytraders are so loathed, i bet everyone would be glad of some feedback (even amongst ourselves) on what it actually is about them that people hate so much. It would be great especially to find out why financial institutions hate us so much…this is a weird phenomenon right? How has the stereotypical image of the humble daytraer been so thoroughly butchered?

Umh's picture

Envy from the losers and disgust that you did it the easy way from the hard workers. I'm sure you can refine this some more. Me; I just don't talk about it.

Bobbyrib's picture

The little guy is not supposed to make money in the stock market. You keep trying to win a rigged game. I'm guessing sometimes you win and sometimes you lose. When you win it pisses off the big boys.

Morrotzo's picture

Day traders are like people who found some exploits and flaws in a monumentally rigged and fraudulent system that exists solely for the benefit of billion and trillion dollar entities. You get the same disdain and disgust from the Fed, JPM and Goldman Sachs as a casino pit boss has for a successful craps dice manipulator or Blackjack card counter.

fuu's picture

I hear ya, I went long growth stocks on the Nairobi Stock Exchange yesterday. Whew!  9% growth! Totally fire and forget.

Hype Alert's picture

You make good points, especially #5, which a few years ago people laughed at, but not in this cracked up market.  The Bernanke Put wins time and time again, but I just keep thinking this market, being hyped up on crack, is taking body shots pretty good, but eventually a round is going to burst the heart or take out the head.  I'm not convinced the complexity of the market can be controlled without some unknown or uncontrollable event happening.  Black Swan if you will.  We've whistled past the graveyard far too long.  It will probably start when #4 and #6 unwind.  Even just a little.  Maybe when someone figures out interest rates can't return to what was once normal.  Too much debt, too much interest.

TruthInSunshine's picture

The PPT and/or Fed Head 'put' have probably burned more investors than any other concept in the history of the markets.

I'm not saying that the radically activist central bankers and the pseudo/quasi-governmental technocratic group known as the working group on financial markets don't try and prevent market meltdowns.

I'm saying that the best they can accomplish is to delay the meltdowns, and that ironically, they make the inevitable meltdowns worse than they would have been if the forest fires weren't suppressed (allowing the brush and scrub to accumulate in prolific fashion).

In another irony, it's many of their very actions and radical interventionist policies that ratchet up the risk present in markets, which always and forever will unwind in a disorderly and messy fashion.

I remember the Greenspan 'put' being talked about frequently and openly in '99, just when people were starting to get worried because of the insanity of the malinvestment, and the same thing happening regarding talk of the Bernanke 'put' back in 2007, but in reference to hopium that The Bernank would save a much wider/broader swath of assets from tanking.

Well, guess what? Neither 'put' did jack shit. They merely served the purpose of allowing a few insiders time to unload their basket of wretched assets on dumb asses (strong to weak hand butchering via catching trillions of falling knives).

Hype Alert's picture

I agree the put has burned many investors and has only pushed the problem to another area.  The Greenspan put pushed it into housing and the Bernanke put has pushed it into treasury bonds.  Bubble here, bubble there and each one bigger than the last.  I'm not sure how we get out of this one.  Keeping rates low is killing savers, pensions, retired/fixed incomes and the prudent.  When the rates do rise, and they will, payment of the interest is going to be a problem.

Yen Cross's picture

RobotTrader   May you have an "Effervesent" week! 

overmedicatedundersexed's picture

robo our local jcpenny has empty shelves ala old soviet russia..guess jcpeeny is a buy..LOL

LostAtSea's picture

There is an upside:  Broke chicks do it better

bnbdnb's picture

Insanity. How about try dropping printed dollars from helicopters?

monopoly's picture

Robot, I think it is that Unknown factor that has everyone concerned. And remember, they have not even begun to talk about our wonderful situation here yet. Bond vigilantes will have a field day here when the troops decide to show up and not take any prisoners. It is what is coming that is starting to scare many, not what is already here. 

cardis's picture

the right write to the left overs.

robertocarlos's picture

Why was that reporter wearing a strap-on?

Raisuli's picture

Put yourself in her shoes, and ask yourself the same question.

Caviar Emptor's picture

Chronically souring economy is characteristic of biflation. A little bit of growth causes prices to spiral. So everything has to slow to a halt. But the next cycle involves less workers, less profits, less confidence. 

RobotTrader's picture

The "Black Swan" everybody has been waiting for is already here.


It is called the Strong Dollar.

Funny how it doesn't really affect Joe Six and the retail stocks.

However, it is having material, adverse consequences on gold and oil.


jimmyjames's picture

However, it is having material, adverse consequences on gold and oil.



The dollar is exactly where it was in 2005-

Gold has quadrupled since 2005-

So where do you figure there is any sort of $/gold correlation?

Clueless fuckwit-

Yen Cross's picture

 Robo you are such a "little" Prick tape worm! You live like a "Remora" on a Great White!

    There is NOTHING original about you. You are a parasite, that lives off of others!

BeetleBailey's picture

You sound exactly like the fucktwit/troll/douchebag Obamacunt "Truth Squad" asshats that spew the inane "30 months of consecutive job growth" total bullshit, along with "the stock market has gone up under O-Fucker" claptrap.

Funny thing about you hosebags; you NEVER acknowledge anything close to reality - as if just saying these bullshit lies make it "so"

You are akin to the douchebag cheating husband, caught red-handed by his wife, that says;

"Are you gonna believe me, or your lying eyes?"



robertocarlos's picture

I need dollars to pay my debts. Badly. I feel like I'm not America.

Chartist's picture

I still expect the pros to mark up stocks to SPX 1400 by late July and dump them on unsuspecting CNBC watchers.....See you all at SPX 1000 in 12-15 months.

Bizaro World's picture

Concur with your assessment but not your terminology. The market will continue to be manipulated for a while yet before reality sinks in.

Bobbyrib's picture

I think the SPX will go below 1000 by that time and I believe it will happen before 12-15 months. It could be 6-10 months.

Ness.'s picture

"One can print as many zeros on a piece of paper as one deems necessary.  It's still just a piece of paper.  And some feel the amount one owes defines the man as apposed to what you own... strive to be the latter."


My Dad. Old Bull. July 4.2012.


Thanks ZH










Yen Cross's picture

 I guess it's time to step up Ness? Take care of your family? 

orangegeek's picture

"...unlikely the cliff is priced into the markets..."


Pretty much.


Take a look at a weekly Dow going back a few years.  Since the March 2009 bottom, price moves have limped upward and then fallen back, overlapping previous moves up.


In short, the "cliff" is pending.