Recession

"Apple has lowered its component orders by as much as 10% according to our teams in Asia. The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 80mn units for the December quarter and between 55-60mn units for the March quarter."

"Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."

• Bonds Rise as China Drags Down Metals, Selloff in Stocks Resumes (BBG)
• European Stock Rally Runs Out of Steam Amid China Growth Concern (BBG)
• Obama's immigration action blocked again; Supreme Court only option left (Reuters)
• Ukraine: Cyberwar’s Hottest Front (WSJ)
• With $170.4 Million Sale at Auction, Modigliani Work Joins Rarefied Nine-Figure Club (NYT)
• IEA Sees OPEC Market Share Growth in 2020 as Rivals Stagnate (BBG)

The ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day - led by China - bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.

With the third quarter earnings season almost over, and 90% of companies having reported, here is a quick look at where we stand and what has emerged as the 4 main themes during earnings calls.

While ridiculous, Venezuela's decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid. What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

Today’s system is essentially a system that can drift ever further away from reality through temporal discoordination, resource misallocation and eventually capital consumption. The final coordinating mechanism is nothing less than economic recession. Without them society would regress, impoverishing first the poor, then the middle class and in the end all socioeconomic layers of society.

"Historically, the statistical or mathematical properties of the financial markets have shifted as the economic recovery nears full employment (i.e., at about the 5% unemployment rate the contemporary recovery has reached). Traditionally, at this point in the recovery, the stock market suffers more frequent declines, bond yields rise more often, average annualized returns from both asset classes are lower, diversification benefits tend to diminish, and recession risk is enhanced."

The Socialists are coming! Just about the last thing Europe needs amid the bloc's worsening migrant crisis is a rerun of the Greek bailout negotiations, but that looks increasingly likely now that a coalition of leftists is moving to take control of the government in Portugal. 

"Given that we are clearly moving into a higher default environment we believe that equity investors may be inclined not to reward stocks that have large buyback programs. And if this is the case, corporate managers will have a diminished incentive to borrow money to finance buybacks."

Back in February 2013, the creater of the BRIC acronym, Goldman's Jim O'Neill retired, but not before some very (traditionally) optimistic words of parting, namely that there is "clear evidence things are doing better economically." Nearly three years later, things are not only not doing better economically, with the entire world now engaged in outright, or quasi QE (with helicopter money to follow as Adair Turner infamous warned) just to support global asset prices, but the very emerging markets that made up the BRICs, have devolved to a state of economic freefall. And nowhere is this more obvious than in Goldman's decision to pull the plug on the infamous fund that bears the name of Goldman's most bullish acronym in history.

According to the CEO of Maersk, the world's biggest container shipping company, "the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting." Andersen adds that "we believe that global growth is slowing down. Trade is currently significantly weaker than it normally would be under the growth forecasts we see....we’re a little bit more pessimistic than most forecasters."

"Sluggish activity will spur firms to repurchase shares in an effort to boost EPS growth" - Goldman Sachs

"Things are crazy," says Charles Biderman summing up this bizarre situation. "We’re seeing the impact of the global slowdown on the US and that’s going to continue" adds the TrimTabs founder, and, in contrast to the mainstream view on Wall Street, he doesn’t think that the Fed is going to raise interest rates (and is more likely to start a new stimulus program). "Ultimately there will be a major correction," he warns and any new stimulus will merely serve the drug-addicted market.

"After many years of ultra-accommodative polices, it is clear that ongoing interventions have failed to boost actual economic growth and only exacerbated the destruction of the middle class. It is clear that employment growth has only been a function of population growth, as witnessed by the ongoing decline in the labor-force participation rates and the surging levels of individuals that have fallen out of the work-force. While we will continue to operate to foster maximum employment and price stability, the reality is that the economy overall remains far to weak to sustain higher interest rates or any tightening of monetary policy."