Up until the last day of July, everything was going great: stocks were solidly up for the month, the DJIA was on the verge of 17,000, and the wealth effect was flourishing, if not the economy. Then yesterday happened, and everything changed: not only did the S&P turn red for the month, but the DJIA slid to red for 2014. So what is the best performing asset class in July? With the PBOC now openly unleashing QE in its economy, no surprise that it was the Shanghai Composite, which returned over 8%, if virtually nothing since 2009. However, don't expect this to last: for China real estate is orders of magnitude more important than the stock market to boost the wealth effect. As for the best returning assets class in 2014 YTD: don't laugh - it's still Spain and Italy. Expect the day of reckoning for Europe's periphery to be fast, unexpected and very brutal.
- As we predicted yesterday, the "big" Gaza ceasefire lasted all of a few hours (Reuters)
- To Lift Sales, G.M. Turns to Discounts (NYT)
- Espirito Santo Family’s Swift Fall From Grace Jolts Portugal (BBG)
- Argentine Debt Feud Finds Much Fault, Few Fixes (WSJ)
- Fiat Says Ciao to Italy as Merger With Chrysler Ends Era (BBG)
- Euro zone factory growth eases in July as inflation fades away (Reuters)
- CIA concedes it spied on U.S. Senate investigators, apologizes (Reuters)
- Ukraine Reports Losses After Pro-Russian Ambush Near Malaysia Airlines Flight 17 Crash Area (WSJ)
- U.S. says India refusal on WTO deal a wrong signal (Reuters)
- Why Putin Has 2006 Flash Before His Eyes After Sanctions (BBG)
Nouriel Roubini, Kyle Bass, Hugo Salinas Price, Charles Nenner, James Dines, Jim Rogers, David Stockman, Marc Faber, Jim Rickards, Paul Craig Roberts, Martin Armstrong, Larry Edelson, Gerald Celente and Others Warn of Wider War
While many were amused by this photo of Putin and Merkel during the world cup final showing Europe's two most important leaders siding side by side, some were more curious by just what the two were scheming: Thanks to the Independent, we may know the answer, and it is a doozy, because according to some it is nothing shy of a sequel to the Molotov-Ribbentrop pact: allegedly Germany and Russia have been working on a secret plan to broker a peaceful solution to end international tensions over the Ukraine, one which would negotiate to trade Crimea's sovereignty for guarantees on energy security and trade. The Independent reveals that the peace plan, being worked on by both Angela Merkel and Vladimir Putin, "hinges on two main ambitions: stabilising the borders of Ukraine and providing the financially troubled country with a strong economic boost, particularly a new energy agreement ensuring security of gas supplies."
Quietly, and without the drama associated with The Fed and ECB, China unveiled what looks like QE recently (as we discussed in detail here). Whether this is a stealth creation of a 'fannie-mae' structure to support housing or merely another channel for the PBOC to shovel out hole-filling liquidity is unclear. However, one thing is very clear, demand for CNY is surging (even as the PBOC weakens its fixing) and the Shanghai Composite is surging as hot money chases free money once again...
China PMI Jumps To 2 Year Highs (Jobs Contract For 27 Months), Japan PMI Slips (Jobs Worst In 11 Months)Submitted by Tyler Durden on 07/31/2014 21:51 -0400
China's official manufacturing PMI beat expectations by the most since Nov 2013 and jumped to its highest since April 2012 - sure it did after all the forget-the-reforms liquidity, QE-lite, and local government spending dragged forward. Perhaps worryingly the steel industry saw domestic and export new orders crater (from 55.7 to 48.2 in July). The employment sub-index fell once again (now in contraction since May 2012) as large enterprises dominated the upbeat report (medium and small clinging to 50.1 PMIs). Japan's PMI dropped for the first time in 3 months from 50.8 to 50.5 with output contracting and payrolls only marginally positive (slowest since August 2013). And then to end the night, Markit/HSBC's China Manufacturing PMI drops from its Flash 52.0 to 51.7 - perfectly in line with the government's data.
Over the past 6 months, there has been much talk about the strategic proximity between Russia and China, made even more proximal following the "holy grail" gas deal announced in May which would not have happened on such an accelerated time frame had it not been for US escalation in Ukraine. And yet little has been said about that other just as crucial for the "new BRIC-centric world order" relationship, that between Russia and India. That is about to change when yesterday the Russian central bank announced that having been increasingly shunned by the west, Russia discussed cooperation with Reserve Bank of India Executive Director Shrikant Padmanabhan. The punchline: India agreed to create a task group to work out a mechanism for using national currencies in settlements. And so another major bilateral arrangement is set up that completely bypasses the dollar.
- Moscow fights back after sanctions; battle rages near Ukraine crash site (Reuters)
- On Hold: Merkel Gives Putin a Blunt Message (WSJ)
- Argentina’s Default Clock Runs Out as Debt Talks Collapse (BBG)
- Argentina braces for market reaction to second default in 12 years (Reuters)
- Banco Espirito Santo Plunges After Posting 3.6 Billion-Euro Loss (BBG)
- Adidas Plunges After Cutting Forecast on Russia, Golf (BBG)
- GOP Says Lerner Emails Show Bias Against Conservatives (WSJ)
- Londoners Cashing in Flee to Suburbs as Home Rally Wanes (BBG)
- BNP Paribas Reports Record $5.79 Billion Quarterly Loss (WSJ)
- Swiss Banks Send U.S. Client Data Before Cascade of Settlements (BBG)
- Putin Sows Doubt Among Stock Bears Burned by 29% Rebound (BBG)
It has been a deja vu session of that day nearly a month ago when the Banco Espirito Santo (BES) problems were first revealed, sending European stocks and US futures, however briefly, plunging. Since then things have only gotten worse for the insolvent Portuguese megabank, and overnight BES, all three of its holdco now bankrupt, reported an epic loss despite which it will not get a bailout but instead must raise capital on its own. The result has been a record drop in both the bonds (down some 20 points earlier) and the stock (despite a shorting ban instituted last night), which crashed as much as 40% before stabilizing at new all time lows around €0.25, in the process wiping out recent investments by such "smart money" as Baupost, Goldman and DE Shaw. The result is a European financial sector that is struggling in the red, while adding to its pain are some large cap names such as Adidas which also tumbled after issuing a profit warning relating to "developments" in Russia. Then there was European inflation which printed at 0.4%, below the expected 0.5%, and the lowest in pretty much ever, and certainly since the ECB commenced its latest fight with "deflation", which so far is not going well. The European cherry on top was Greece, whose dead cat bounce is now over, after May retail sales crashed 8.5%, after rising 3.8% in April.
Huxley’s Brave New World dystopian America had a good run from 1950 until 2000. Our keepers kept us fat, dumb, distracted, and in debt up to our eyeballs. Since 2000 Orwell’s 1984 dystopian Surveillance States of America seems to be taking shape, under the watchful eye of our very own Big Brother, the NSA. Fear, punishment, slogans (See Something Say Something) and appeals to non-thinking patriotism have replaced freedom, liberty, individual rights, the Constitution, personal responsibility for our own lives and questioning authority. Are you a believer? “One believes things because one has been conditioned to believe them.” – Aldous Huxley – Brave New World; Or a truth seeker? “You shall know the truth and the truth shall make you mad.” – Aldous Huxley
If Venezuela is the case study of a country in the late stages of transition into a socialist utopia, then France is the clear runner up. The most recent case in point, aside from the already sliding French economy, whose recent contraction can be best seen be deteriorating PMI data which hints at the dreaded "triple dip" recession, nowhere is the economic collapse in France more evident than in its housing market which as even Bloomberg admits, citing industry participants, is now "in total meltdown." Pierre-Andre de Chalendar, chief executive officer of Saint-Gobain, summarized the current dire situation best: "Current figures are worrying and will be disastrous if nothing is done; clients of the building sector are sounding the alarm bell.”
"It's a troubling continuation/expansion of trade as a geopolitical tool," warns one Washington-based consulting firm as Russia prepares to unleash retaliatory actions to US and European sanctions. As Bloomberg reports, Russia said yesterday it may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald's cheese for safety. In addition, a Russian lawmaker has drafted legislation that might result in U.S. accounting firms being barred from doing business in his country. All of this is odd given Jack "trust me" Lew's reassurance that Russian sanctions would have no impact on the US economy. Russia's response, US will feel 'tangible losses' from 'destructive, myopic' sanctions.
Equity bulls should be exuberant. The last time Alan Greenspan warned of exuberance and potential for a correction, stocks soared for a few more years. While Yellen's stock-picking skills have been questioned in recent days, Greenspan has once again weighed in:
*GREENSPAN SAYS 'KEY QUESTION' IS WHETHER U.S. FACES FALSE DAWN
*GREENSPAN PREDICTS AT SOME POINT EQUITIES TO HAVE CORRECTION
Although Greenspan declined to second-guess the Fed, he sees a problem moving toward "normalized" policy for his descendants.
- Fed Decision-Day Guide: QE Tapering to Inflation Debate (BBG)
- Obama says strains over Ukraine not leading to new Cold War with Russia (Reuters)
- Siemens to BP Prepare for Downward Russia Business Spiral (BBG)
- Paying Ransoms, Europe Bankrolls Qaeda Terror (NYT)
- Argentina Banks Preparing Bid to Help Argentina Avoid Default (WSJ)
- Obama Weighs Fewer Deportations of Illegal Immigrants Living in U.S. (WSJ)
- India Warships Off Japan Show Rising Lure as China Counterweight (BBG)
- Hong Kong Popping Housing Bubbles London Can’t Handle (BBG)
- Carnage at U.N. school as Israel pounds Gaza refugee camp (Reuters)
This week's US data onslaught begins today, with the ADP private payroll report first on deck (Exp. 230K, down from 281K), followed by the number of the day, Q2 GDP, which after Q1's abysmal -2.9%, is expected to increase 3%. Anything less and in the first half the US economy will have contracted, something the purists could claim is equivalent to a recession. The whisper numbers are to the downside since consumption and trade never caught up and the only variable is inventory as well as Obamacare, whose impact was $40 billion "contribution" in Q1 was entirely eliminated and instead led to a deduction, something we expect will be reversed into Q2. Following the backward looking GDP (which will be ignored by the sellside penguins if it is bad and praised if good) at 2:00 pm Yellen Capital LLC comes out with a correction on her call to short social networking stocks, as well as admit once again that the "data-driven" Fed really has no idea what it is doing and how it will tighten, but that tightening is imminent and another $10 billion taper to QE will take place ahead of a full phase out in October. Joking aside, the Fed is expected not to do much if anything, which may be just the right time for Yellen to inject an aggressively hawkish note considering her inflation "noise" refuses to go away.