Black Friday

With all bad news on the tape now having a suitable "explanation", be it a prior president, a tropical storm, the weather being too hot, the weather being too cold, the weather being just right, but never, ever someone actually taking blame for the fact that life is what happens when corporate CEOs (and sovereign presidents) are busy making "priced to perfection" plans. So it is with what is now a confirmed flop of a Black Friday, which according to ShopperTrak saw sales drop by nearly 2% to $11.2 from 2011, which in turn was a 6.6% gain over 2010 (and would be revised to far lower once all the refunds and exchanges to cash took place in the two weeks later). This occurred despite a 3.5% increase in retail foot traffic to 307.7 million store visits. The nominal drop in retail sales also occurred despite a nearly 1% increase in the total US population over last Thanksgiving, and a 2% Y/Y inflation. But fear not: the ad hoc excuse for this "surprising" loss in purchasing power is already handy: it is all Black Thursday's fault, or the latest idiotic attempt by retailers to cannibalize their own future sales by diluting the exclusivity of Black Friday, and which will force all retailers to follow the sovereigns in a race to the bottom, as soon every day will be the equivalent of Black Friday. But at least retailers have another 364 years worth of excuses for the conceivable future to excuse any and all store weakness. Next year: it's all Black Wednesday's fault.

No, this is not a screaming herd of wild teenage girls awaiting the arrival of Justin Bieber or One Direction - this is Black Friday at a Victoria's Secret in Kansas... amazing that America has come to this.

Because only in America are people ready to kill each other for things they don't need and can't afford, after spending the day before being "grateful" for things they already have.

• Boehner comments show tough road ahead for "fiscal cliff" talks (Reuters)
• Argentina angry at hedge fund court win (FT)
• EU Spars Over Budget as Chiefs See Possible Deadlock (Bloomberg)
• Merkel doubts budget deal possible this week, more talks needed (Reuters)
• Greek deal hopes lift market mood (FT)
• Greek Rescue Deal Faltering Cut in Rescue-Loan Rate (Bloomberg)
• Japan's Abe Pushes Stimulus (WSJ) - Unpossible: a Keynesian in Japan demanding stimulus? Say it isn't so. 
• Authorities Tried to Flip Trader in Insider Case (WSJ)

First it was Greece, which Europe couldn't "resolve" on Monday night despite Juncker's vocal promises to the contrary, and was embarrassed into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the "resolution" of the EU budget, which was supposed to be implement last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse. As BBG summarizes, "Divisions between rich and poor countries flared over the European Union’s next seven-year budget, leading German Chancellor Angela Merkel to rule out an accord until the new year. France defended farm subsidies, Britain clung to a rebate and Denmark demanded its own refund, while countries in eastern and southern Europe said reduced financing for public-works projects would condemn their economies to lag behind the wealthier north. “Positions remain too far apart,” Merkel told reporters early today after the first session of a summit in Brussels. “Probably there will be no result at the end of this summit. There may be some progress but it is probable that we will need to meet again at a second stage."  In other words the same old absolute and total chaos from the European Disunion we have all grown to love, in which the only solution each and every time is to delay reaching a solution, at least until after Merkel is reelected and in the meantime kicking the ever greater ball inventory in Draghi's court, where he too will promise to make everything better as long as he actually dosn't have to do anything.

With America shut for Thanksgiving today, what was going to be an abysmal volume day, coupled with the usual any news is good news levitation following the lowest volume day of the year, will be even worse. Sure enough, the overnight session started off with a bang, when in the vacuum of night, a lift everything algo sent the EURUSD soaring by 40 pips higher on no news. With the entire risk complex firmly anchored to the EURUSD pair as the key driver, it pushed risk across the entire market well higher to set the early session mood with the very first trade. Followed light trading and a gradual drift lower which could not be offset even with a China HSBC Flash PMI print of 50.4, up from 49.5 in October, and the first 50+ print in 13 month (to accompany the new political regime: after all, the US is not the only nation where economic data mysteriouly levitate with key political events). This continued until about Europe open, when the monthly release of European PMIs came out, which once again were confusing to say the least with France posting the biggest and most surprising pick up, after its Manufacturing PMI rose from 43.7 to 44.7, on expectations of 44.0, while the Services PMI increased from 44.6 to 46.1, well above the expected 45.0 print. Germany was less exuberant with manufacturing rising from 45.5 to 46.2, although the Services PMI dropped from 48.4 to 48.0, missing expectations of 48.3, sending the series to its lowest in 41 months.

Greece? Sorry, what’s with Greece? French downgrade. Unexpected, but then again not that much. So what? Fiscal Cliff? As no one speaks about it, it can be ignored. Risk? If it doesn’t fall, it has to rise.

"Rise To The Occasion" (Bunds 1,43% +2; Spain 5,7% -9; Stoxx 2518 +0,4%; EUR 1,282 +10)

Austerity is coming our way, it's just a matter in what manner and by how much, and whether it becomes an orderly or disorderly process. The fiscal cliff is really a bit of a ruse in that respect, but the key here is that years of fiscal profligacy is coming to an end and the Fed at this point, having used its bazookas, is now down to firecrackers. The economic outlook as such is completely muddled and along with that the prospect for any turnaround in corporate earnings... Once we get past the Fiscal Cliff we will confront the inherent inability of the Democrats and the GOP to embark on any grand bargain to blaze the trail for true fiscal reforms. The U.S. has not had a rewrite of its tax code since 1986, which was the year Microsoft went public and a decade prior to Al Gore's invention of the Internet. The tax system is massively inefficient and leads to a gross misallocation of resources that impedes economic progress — rewarding conspicuous consumption at the expense of savings and investment. It is the lingering uncertainty over the road to meaningful fiscal reform that is really the mot cause of the angst — the fiscal cliff is really a side show because who doesn't know that we are going to have a Khrushchev moment?

Sentiment surveys are sending the all-clear; the US Consumer (that 72% of all economic activity in the US) is as happy as they were five years ago (pre-crash) and American Idol is due to start again soon. However, recency-biased surveys apart, the reality in the data is far more dismal. The Philly Fed's ADS business conditions index is back at its worst since the crisis and decidedly recessionary (critical since it tracks many of the same indicators as the recession-confirming NBER). Even more concerning, as Bloomberg Briefs notes, the stagnancy of real disposable income and contraction of revolving credit has led to a disaster-prone drop in industrial production of consumer goods (-0.9% in October) and a significant slide in the all-important retail sales data. Once adjusted for inflation, retail sales fell to a lowly 1.7% YoY gain and while Sandy's effect is tough to discern, it seems anecdotally to be a net positive due to home supply stores sales - offering little real hope of a surge. Of course with Black Friday, Cyber Monday, and Terrific Tuesday (we made that up) around the corner, we are sure the media will trot out as many CEOs and store-owners to explain how great things are - we will wait for the data.

• Israel Ready to Invade Gaza If Cease-Fire Efforts Fail (Bloomberg)
• Petraeus: A Phony Hero for a Phony War (NYT)
• IMF'S Lagarde says Greek deal should be "rooted in reality" (Reuters) "rooted" or "roofied"? And where was it until now?
• ECB's Asmussen says Greece to need aid beyond 2014 (AP)
• EU makes budget plans without (FT)
• Japanese Poll Shows LDP Advantage Ahead of Election (WSJ)
• Shanghai Composite Dips Below, Regains 2,000 Level (Bloomberg)
• Bond investor takes big punt on Ireland (FT)
• Noda defends BoJ’s independence (FT) Indewhatnow?
• Inaba Says BOJ Could Ease More If Government Reins in Debt (Bloomberg) Actually it's the other way around
• Miles Says Bank of England Can Do More If U.K. Slump Persists (Bloomberg) So much for the end of QE
• US tax breaks worth $150bn face axe (FT)

While the prior week was marked by some kind of awakening, this week was more about finding a direction. Eventually mostly downwards, but always in jumps, marked by tentative rebounds. Europe mostly lost, so unused not to be the focal point anymore, waiting for US input. If it wasn’t for the Fiscal Cliff, and in absence of further news out of the Periphery, we seem to have

"No Direction" (Bunds 1,32% -2; Spain 5,86% +5; Stoxx 2429% -2,1%; EUR 1,27 -10)