Oh, the ignominy of thinking that China's widening of the Yuan trading band was anything other than uber-bullish and indicative of as soft a landing as can be imagined as the mainstream herd promptly, in a desperate attempt to seek affirmation from other members of the herd as always happens (see Jeremy Grantham for more), said this would be a move that guaranteed no hard landing. Albert Edwards takes the 'massive over-confidence in the ability of the Chinese authorities to achieve a soft landing' to task and furthermore indicates that between a rapidly diminishing current account surplus, a real effective exchange rate that is arguably (thank you IMF) not undervalued anymore, and the velocity with which nominal GDP has slowed recently (akin to 2007), the very fact that they widened the trading band suggests it is now a lot easier for them to achieve significant devaluation of their currency (to escape the hard landing) both technically and politically. Since widening the band, the PBOC has already devalued two days-in-a-row. Ironically, the bilateral imbalance with the US is reaching new records (seasonally adjusted) and will peak (seasonally unadjusted) just in time for some temperamental headlines right before the US election.
This is so pathetic, it is beyond words:
- US SEC EXPECETED TO VOTE ON POSSIBLE CHARGES AGAINST RATING FIRM EGAN JONES ON THURSDAY - RTRS
- POSSIBLE CHARGES STEM FROM ALLEGED WILFUL MISTATEMENTS ON EGAN JONES' REGULATORY APPLICATION WITH SEC - RTRS
If nothing else, it explains the recent WSJ hit piece against Egan, just so it can make the public record in the SEC documentation. In other news, this will surely teach any other rating agency to downgrade the US not once (ahead of everyone else), but twice. In the meantime, the SEC still has NO IDEA what liquidity is, and continues to refuse to take ANY action against High Frequency Trading, to press criminal charges against ANY banker, or for that matter, to do anything that may jeopardize its staffers future careers as 7th assistant general council at assorted bailed out Wall Street firms. Now we wait to hear news that Fitch and Moody's will receive a cash bonus from the SEC for not downgrading the US properly filing their regulatory applications. And now back to midget porn.
Ideological deflationists and inflationists alike find themselves both facing the same problem. The former still carry the torch for a vicious deflationary juggernaut sure to overpower the actions of the mightiest central banks on the planet. The latter keep expecting not merely a strong inflation but a breakout of hyperinflation. Neither has occurred, and the question is, why not? The answer is a 'cold' inflation, marked by a steady loss of purchasing power that has progressed through Western economies, not merely over the past few years but over the past decade. Moreover, perhaps it’s also the case that complacency in the face of empirical data (heavily-manipulated, many would argue), support has grown up around ongoing “benign” inflation. If so, Western economies face an unpriced risk now, not from spiraling deflation, nor hyperinflation, but rather from the breakout of a (merely) strong inflation. Surely, this is an outcome that sovereign bond markets and stock markets are completely unprepared for. Indeed, by continually framing the inflation vs. deflation debate in extreme terms, market participants have created a blind spot: the risk of a conventional, but 'hot,' inflation.
Every day (for the past 3 years) we hear countless fairy tales why housing has bottomed and will improve any minute now. Just consider the latest kneeslapper from that endlessly amusing Larry Yun of the NAR, uttered just today: "pent-up demand could burst forth from the improving economy." Uh, right. Here's the truth - it won't and here is why, in 5 charts from Bank of America, so simple even an economist will get it.
Keeping it simple, Europe was a sloppy mess today. In an almost perfect copy of last week's sovereign, corporate, and financial credit market movements, today saw all of these assets plunge back near post-Non-Farm-Payroll lows. Equity markets, which had miraculously managed to regain those pre-NFP levels this morning after the Spanish auction knee-jerk, rapidly retraced and aside from some stick-save efforts from US markets and Lagarde, keeps the chaos-ball rolling with yet another multiple-sigma flip-flop. Ugly all around as it seems the reality check we discussed on the Spanish auction overnight was better received than the spin the Euro-Elite tried to put on it as we reinforce our view of the instability as the LTRO Stigma widens further to post LTRO1 wides as 10Y Spain approaches 6% yield and 425bps spread and Italian CDS over 440bps as 10Y yields break back above 5.5%.
Here are four charts of wages, income and consumption. The charts depict changes from a year ago (also called year-over-year) and the percentage of change from a year ago. These measure rates of change as opposed to absolute changes, and so they are useful in identifying trends... The build-out of Internet infrastructure that culminated in the dot-com boom boosted employment, wages and consumption, and the credit-housing bubble of the mid-2000s also boosted income and consumption. Now that these temporary conditions have faded, what's left is the relentless chewing up of traditional industries by the Web as distributed software boosts productivity while slashing the number of people required to create value. What's remarkable about the first chart is the increase in volatility in recent years: the changes in wages and salaries are increasingly dramatic. This might be reflecting the dynamics of the global economy pulling wages lower while massive financial-stimulus policies of the Central State and bank (the Federal government and the Federal Reserve) act to artificially boost wages with trillions of dollars in borrowed/printed money.
In this week's missive, Jefferies' strategist David Zervos decries the doomsayers, panders to the printers, and colors this colossal nominal rally (and its expected infinite horizon) through green toner-colored glasses. All we can say here is "Viva Jefferies' David Zervos, and Viva Sarcasm"... it is Sarcasm right? Because if serious, this letter seems like it could have been penned by anyone fighting tooth and nail to become 3rd undersecretary of central planning in Stalinist Russia. We leave it to readers' judgment on which side of the fence Mr. Zervos sits.
The states of America are, truly, children of the Constitution. The legal framework that is the foundation of state sovereignty and internal administration is unique for perhaps any country in history up to the moment the U.S. won its independence. States were designed to decentralize and keep in check the power of a subservient Federal Government. They were meant to be the guardians at the gate, the barrier to the formation of oligarchy or outright dictatorship. This, of course, has changed drastically. The battle over centralized verses decentralized authority and economy has been going on for quite some time, and is undeniably critical in our climate of crisis now, under a government which is bankrupt in every sense and a currency which is on the verge of calamity... The following is a step by step method that states could use to accomplish the task of insulation from financial crisis and federal control. Much of it hinges on a willingness by state governments to actually pursue independence, which might seem like a naïve dream to most of us. But, in the wake of a major breakdown, and the fall of the greenback, I believe many states will be seeking a way to weather the storm, if only out of a desire to survive, and this includes walking away from their ties to Washington.
The WTO recently announced it expects global trade to fall again from 5% to only 3.7% growth - significantly lower than the 20-year average growth rate of 5.4%. But ThomsonReuters notes this week that their additional comment that 'severed downside risks' could put a further dent in growth rates could well have foundation in some very real data. Traffic through the Suez Canal - a key cargo transport route - has nosedived in recent weeks and months and is currently only just above the flat-line. While not a perfect indicator, given that 8% of world trade travel this route and the rising tensions occurring geographically, nevertheless the trends in global GDP growth and trade volumes have mirrored one another very closely and this downturn suggests considerably more contraction in global growth than even the most pessimistic of sell-side research shops believes is possible.
No, it’s not Greece Prime Minister and bankster puppet Lucas Papadermos who serves his former masters at Goldman Sachs rather than the people of the country he was “appointed” to lead. No, it’s not German Chancellor Angela Merkel who is putting the interests of the banks and bailout recipients above her fellow Germans at the risk of a continually devaluing euro. And no, it’s not European Central Bank president Mario Draghi whose cheap euro policies are propping up both the banking sector and governments of the periphery at the expense of capital investment in sectors that would result in actual wealth creation rather than sustaining a clearly unsustainable status quo. Meet Ed Houben. He is not solely responsible for the slow implosion of the poster boy of New World Order also known as the Eurozone, but the results of his career certainly play a part. So who is Ed Houben? Well, he is not a politician buying votes with stolen funds. Nor is he a banker looking to use taxpayers to cover his poor investments. Mr. Houben is just a lowly entrepreneur. His business just happens to be in putting a strain on the various welfare states which permeate throughout the Eurozone. Ed Houben is a sperm donor; but he is not just any sperm donor. The “fruits of his labor,” pardon the phrase, have thus far granted him 82 children; with at least 10 more on the way.
Continuing today's disappointing data releases, we now get the Philly Fed, Existing home sales (aka the NAR's monthly advertising update), and Eurozone confidence. Sure enough, all missed, since we are now in NEW QE prep mode.
- Philly Fed: 8.5, missed expectations of 12.0, and lower than the previous print of 12.5 (source)
- New Orders down from 3.3, to 2.7
- Prices Paid spike from 18.7 to 22.5,
- but, just to add confusion to injury following the much weaker claims data, the Employment index rose from 6.8 to 17.9
- Existing home sales, reported by the inherently conflicted NAR, missed, dropping from 4.61MM to 4.48MM, a data set which we caution readers is about 0.0% accurate and valid.
- Total housing inventory at the end of February rose 4.3 percent to 2.43 million existing homes available for sale, which represents a 6.4-month
- The national median existing-home price for all housing types was $156,600 in February, up 0.3 percent from February 2011.
- All-cash sales rose to 33 percent of transactions in February from 31 percent in January; they were 33 percent in February 2011
- Single-family home sales declined 1.0 percent to a seasonally adjusted annual rate of 4.06 million in February from 4.10 million in January
- Finally, Eurozone consumer confidence also missed sliding to -19.8, on expectation of an improvement to -19.0 from -19.1
Judging by the kneejerk reaction lower, the misses were not big enough to send the market soaring.
Three key issues remain at the heart of current markets: the strength of the US growth cycle; the sovereign and financial risks in the Euro area; and the risks of ongoing deceleration in Chinese growth. Goldman has created proxies for these various risks and the sensitivities of different assets to those risk factors. They further note that looking at those three proxies over time confirms what general qualitative commentary has also spelled out. From late November to early February, the market relaxed about all three risks, as better global data and the impact of the LTROs on European financial risks provided a strong tailwind. From February until mid-March, China fears reappeared and the market downgraded its views of China significantly while still relaxing about European and growth risk. Since then, both European – and to a lesser degree – US growth risks have re-emerged, but at the same time there are some very tentative signs that the market is becoming a little less worried about China. They, however, remain increasingly cautious on them all: Europe seems increasingly in the hands of governments, not the ECB, raising volatility; unspectacular growth trajectory in the US continues as outlooks adjust down; and even thouigh China's risk has stabilized they have avoided active exposures 'given the muddiness of news'. Understanding which assets are more sensitive and how these risks evolve might help prognosticators understand the need to pay attention to Europe - as opposed to merely Apple's earnings.
Now that those so inclined are once again advised to wake up at 4 am in the morning just to keep track of the Bid To Cover of each and every blowing out European auction (which absent a few trillion in ECB liquidity would be a sheer disaster), just like in the summer and fall of 2011 (but remember, according to Jim O'Neill 2012 is "nothing like 2011"), it would be useful to have an updated calendar of all the action in Europe for the rest of the year. So courtesy of Goldman, here it is: set your alarms.
Frustration levels are running high today. Just feels like we are being lied to, and no one wants to question the lies. According to the headlines, the Spanish auction was a 'great success', MS and BAC had 'great' earnings, and jobless claims 'fell by 2000'. Nothing that has happened so far today has been good, and the attempt to spin everything so positively is downright scary.