In a stunning development, and likely the result of the University of Michigan no longer calling solely various number at the (212) 902-XXXX extension, one data point has come below expectations and this is with less than 2 weeks until the election: because whereas GDP was a comfortable beat courtesy of the government spending to make itself look better, today's UMichigan confidence print came at 82.6 on expectations of a 83.0 print, and just barely down from 83.1 last month. What was surprising too, is that hopium consumption, which has been off the charts recently, also moderated, with not only conditions declining modestly from 88.6 to 88.1, but expectations also down from 79.5 to 79.0. That said, and for popular media consumption, the headline will be that the final expectations print (not prelim) has been the highest since 2007. And in a sign that there is at least some coordination between the various departments of truth, 5 year inflation expectations finally rose from 2.6% to 2.7%. Recall that the whole premise behind the "improvement" in the economy is due to QEtc, which in turn implies a surge in inflation. Which explicitly means one can feel good about today, but one has to expect spiking inflation in the future. One can't have both. Today uMich finally got the memo.
"No matter where you stand, no matter how far or how fast you flee, when it hits the fan, as much as possible will be propelled in your direction, and you will not possess a towel large enough to wipe all of it off."
You thought it was tough; it is going to get tougher. You thought that Europe would not affect America and that we lived in some sort of bubble over here; think again. You thought that the liquidity provided by the world’s major central banks would carry us across the divide and intact; keep dreaming. We are at the cross roads...
Credit-rating cuts were made on more than $200 billion of municipal securities in the first nine months of this year, exceeding the total for 2011, and there’s no end in sight. Bloomberg Brief also notes that it is not just the weaker Californian cities (such as Fresno) but even Los Gatos (an affluent town about 50 miles south of San Francisco, where Apple's Steve Wozniak lives) is facing possible rating downgrades. Moody’s is concerned that cities might skip debt payments in a cash crunch to preserve services and meet payroll. The decisions to seek bankruptcy “provide some indication that willingness to pay debt obligations may be eroding in the U.S. municipal market,” according to the Moody’s report, especially since California municipalities have limited ability to boost revenue. They can’t impose higher sales taxes without going to voters. Meanwhile Chapter 9 Muni petitions are now above 2011's YTD equivalent as California’s Mendocino Coast Health Care District became the 12th Chapter 9 petition filed year to date and the fourth from that state - up from just 5 Chapter 9s in 2010. Paging Ms. Whitney...
One in four Spaniards are now officially out of work - well over double the euro-area's average 11.4% rate. This is the highest rate of unemployment since the Franco dictatorship ended in the mid-1970s as 5.8 million now stand idle. Perhaps more stunning is the fact that eight of the bailout-nation's regions have higher unemployment rates than the national average with Cueta at a stunning 41.03% (with women's unemployment rate in that region an almost incomprehensible 56.92%)!! The YoY increase of almost 800,000 people unemployed leaves 1.74 million households with no members employed. As one would expect, loan delinquencies are also surging as Caixabank just almost doubled its pool of bad loans in the third quarter. While Rajoy fiddles...
The preliminary look at Q3 GDP just came out and "beat" expectations of a 1.8% print, with a 2.0% reading (or just in line with stall speed, a number which previously has been indicative of recessions). So far so good, but as with every other pre-election economic data point out of the government, one has to look behind the headline to get the true picture. And the details are, as expected, ugly. Because of the 2.02% annualized increase in GDP, over one third, or 0.71% (compared to a deduction of -0.14% in Q2), was contributed by "Government Consumption." This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better. The real question is what the second and third Q3 GDP revisions will show, which both come, luckily, after the election. Recall that Q2 GDP initially came out at 1.5%, then was revised to 1.7%, until finally coming to rest at 1.25%.
Tim Geithner's carefully scripted plan to avoid European "reality" until the US election is unraveling. While previously Greece was not supposed to be an issue until after November 6, the recent escalation with the Greek FinMin openly lying about a Troika interim bailout outcome (which may or may not happen, but only following yet another MoU which would see Greece fully transitioning to a German vassal state in exchange for what is now seen as a €30 billion shortfall over the next 4 years, and which would send Syriza soaring in the polls in the process ensuring that a Grexit is merely a matter of time) has forced a retaliation. According to the Greek press, the Troika now demands that Greece resolve its objections to labor reforms (which as reported earlier have forced the ruling coalition to split) by Sunday night, or else...
- Greece Faces Need for Additional Assistance: €30 billion (WSJ)
- Greeks fail to agree on bailout terms (FT)
- The report that got the NYT banned on the Chinese interweb: Billions in Hidden Riches for Family of Chinese Leader (NYT)
- Bo Xilai: China parliament expels disgraced politician (BBC)
- Japan Adds Stimulus Amid Threat of Bond-Sale Disruption... $9.4 billion (Bloomberg)
- Hubbard Said to Prefer Treasury Chief to Fed If Romney Wins (Bloomberg)
- 9 More Banks Subpoenaed Over Libor (WSJ)
- Romney raises $112m in 17 days (FT)
- Amid Cutbacks, Greek Doctors Offer Message to Poor: You Are Not Alone (NYT)... no, we are all broke
- Muni Downgrades Top 2011 Total on Weak Economy: Moody’s (Bloomberg)
- Ireland urges ECB to commit to bond-buying (FT)
- Cameron and Clegg unite in EU demands (FT)
There have been no major overnight events or surprises, with Europe continuing a war of semantics whether the Spanish bailout is a bailout, and attempting to avoid it as long as possible while reaping the benefits of Spanish bonds which are trading at post-bailout levels for a 3rd months now, as well as whether Greece will receive more Troika money (the WSJ reported that Greece requires €30 billion through 2016 to close its funding gap: a number which will eventually double, then triple), and yet as of moments ago the EURUSD slipped under the psychological 1.2900 support, which also means that 1400 on the SPX cash is in play. Italy did not help after business confidence declined from 88.3 to 87.6 on expectations of a rise to 88.7 What news there has been is largely the realization that reality is here to stay, following misses and guides lower from Amazon and Apple, and no matter what some low-volume algo tries to represent by buying the stock in the after hours session, profitability and cash flow creation for both companies will be lower going forward. In terms of newsflow, the NYT released a report last night that China's Premier may have been hiding billions in "related-party" transactions - imagine that, and one which promptly got the NYT blocked from China's internet. Obviously this is a touchy topic for China days ahead of its internal party vote, and one which will hardly score the US brownie points with the domestic administration. Concurrently, Japan announced a new fiscal "stimulus" for a whopping ... $9.4 billion. That is roughly the amount of money needed to evade deflation for 2-3 hours. More apropos, Bild reports what Bloomberg noted earlier, namely that Merkel has no majority for reported Greek aid, further blowing up the hole that Greek finmin Stournaras dug himself in with his lies earlier this week. So while everyone is once again on edge, with the Shanghai composite sliding 1.7%, and key technical levels either breached or in play, today's session promises to be quite interesting.
S&P futures are being crushed overnight. Currently trading below the levels of September 5th Draghi comments (back under 1400) and -11pts from the close. AUD is weak, Treasuries are modestly bid (as is the USD) and commodities are rolling over. The catalyst? We see four things: 1) Delayed reaction to global supply chain implications of an AAPL outlook cut (and/or overseas holders hedging) as well as some missed earnings in China; 2) Major Aussie quasi-bank Banksia (yes, its really called that!) hitting the skids (a la Northern Rock) bringing fear that Australia is entering 2008-mode USA; 3) a NYT article which could be inferred as a direct attack on the Chinese political faction (exposing Wen Jiabao's hidden billions); and/or 4) a realization that at 14-plus x P/E multiples, the US equity markets are not pricing in anything the kind of possible pain a fiscal cliff scenario (or Romney-ite in the Fed) might bring. Of course, the need for a narrative is irrelevant, the most net long position since 2008 is unwinding (for now) but by the time we wake for New York's morning, things could have reversed once again.
If you often wonder why ‘free market capitalism’ feels like it is failing despite universal assurances from economists and political pundits that it is working as intended, your intuition is correct. Free market capitalism has become a thing of the past. In truth free market capitalism has been replaced by something that is truly anti-free market and anti-capitalistic. The diversion operates in plain sight. Beginning sometime around 1970 the U.S. and most of the ‘free world’ have diverged from traditional “free market capitalism” to something different. Today the U.S. and much of the world’s economies are operating under what I call Monetary Fascism: a system where financial interests control the State for the advancement of the financial class. This is markedly different from traditional Fascism: a system where State and industry work together for the advancement of the State. Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Today the financial and banking class enforces this ideology through the media and government with the same ruthlessness of the Church during the Dark Ages: to question is to be a heretic. When asked in an interview what humanities’ future looked like, Eric Blair, better known as George Orwell, said “Imagine a boot smashing a human face forever.”
Equity markets will ebb and flow (mostly flow it seems) at the whim of central planners; and employment statistics will me X-12'd into whatever cognitive bias is required for the status quo to be maintained; but one thing that is hard to hide (harder still with Bloomberg's help) is the reality of job cut announcements. Over the past few years, there is one pronounced reality that has occurred in front of any major fiscal or monetary stimulus-related event - a huge rise in North American job cuts. It would appear, given the data below, that CEOs are wise in the ways of just-in-time only fix it when its totally broken policy-making and have front-run every major event with huge layoffs. To wit, since the start of September, announced layoffs in North American firms have soared to levels not seen since the debt-ceiling-debacle of last year (all the while - claims and the unemployment rate continue to fall). Cautiously optimistic? not!
The 2012-2013 election season is exceptional, with more than 100 elections in economies accounting for approximately 60% of global GDP. So far, Goldman notes that markets have navigated through elections in Russia, Egypt, Greece, France, Mexico and Venezuela, among others. The closely watched Presidential election in the US will take place shortly, followed by the culmination of the political transition in China. Later on, markets will see countries like Italy, Iran, and Japan go to the ballots too. This extraordinary election season brings several questions to the forefront: Why are elections important market events? What are the main factors affecting that market-driving impact and its seasonality? And which states are key? Critically, Goldman finds that a divided government has on average produced considerably tighter fiscal policy - not a good sign for the Keynesians.
In the immortal words of Bruce-the-shark from Finding Nemo: "Fish are friends, not food"; but in Fukushima, they are neither! As Bloomberg reports, radiation levels of fish caught off the coast of Northern Japan are as high as they were a year ago with contamination levels particularly high among bottom-dwellers. There remains a fishing ban on these bottom-dwelling fish as 40% are still above the limit for human consumption. As one scientist noted, "This means that even if these sources were to be shut off completely, the sediments would remain contaminated for decades to come." So, today's lesson is, Fukushima fish are neither friends nor food, but more like lava lamps we suspect.
Tensions between Japan and China over the Senkaku (Diaoyu) islands are continuing, as indicated by continued obstacles to Japanese businesses in China, a drastic decline in tourism, and Chinese patrols near the islands. This is both a Sino-Japanese issue and a part of a broader confrontation between China on one side and the United States and its allies on the other. Given Japan’s reliance on the U.S. security umbrella, Tokyo’s moves are to some extent constrained by American actions. Nevertheless, Japan’s size and resources mean Tokyo retains considerable autonomy in handling its relationship with Beijing. At this point, Tokyo has three options... Taking a proactive course on China policy requires stable and high-quality leadership, something which is lacking in Tokyo.