As channel-stuffing shifted from the US (here) to China (here) and Europe (here), so the new vehicle sales data has disconnected from a number of realities. Whether it is economic growth or Ford's share price, things look a little over-cooked in the land of if-we-build-it-the-government-will-buy-'em. However, there is one index that tends to see through all the unreality much more clearly than our analysis above, that is the Used Vehicle Price index. Each time this index has dropped and broken below its two-year average, the auto industry has tended to fade rapidly. After yesterday's comments on the lowering of collateral standards for subprime auto lending, it would appear we are setting up nicely for some whocouldanode moment in the manufacturing sector's most critical industry.
Back in 1885, to much fanfare, the General Act of the Berlin Conference launched the Scramble for Africa which saw the partition of the continent, formerly a loose aggregation of various tribes, into the countries that currently make up the southern continent, by the dominant superpowers (all of them European) of the day. Subsequently Africa was pillaged, plundered, and in most places, left for dead. The fact that a credit system reliant on petrodollars never managed to take hold only precipitated the "developed world" disappointment with Africa, no matter what various enlightened, humanitarian singer/writer/poet/visionaries claim otherwise. And so the continent languished. Until what we have dubbed as the "Beijing Conference" quietly took place, and to which only Goldman Sachs, which too has been quietly but very aggressively expanding in Africa, was invited. As the map below from Stratfor shows, ever since 2010, when China pledged over $100 billion to develop commercial projects in Africa, the continent has now become de facto Chinese territory. Because where the infrastructure spending has taken place, next follow strategic sovereign investments, and other modernization pathways, until gradually Africa is nothing but an annexed territory for Beijing, full to the brim with critical raw materials, resources and supplies. So while the "developed world" was and continues to deny the fact that it is broke, all the while having exactly zero money to invest in expansion, China is quietly taking over the world. Literally.
You may recall that one of the “tricks of the trade” was the use of people in the audience. They stood up and claimed that they had taken the magic potion and were cured of rheumatism, arthritis, cancer and that ninety year old Uncle Elijah and been able to throw away his cane after imbibing the stuff. This may remind you of what is going on in Europe presently as politicians from each and every nation claim that the newest European snake oil will cure the ailments of Europe for all time, for forever and for always. Yes, well, the printing of money has a cost besides the paper and brandishing yourself as the next new Savior of Europe is the trick of Kings and countless empires on the Continent and yet here we are after being saved so many times in the past. So I will tell you this; you produce the Vampire and then I will buy the garlic and we’ll leave it at that!
- Regulators irate at NY action against Standard Chartered (Reuters)
- Recession Generation Opts To Rent Not Buy Houses To Cars (Bloomberg)
- Egypt launches air strikes on militants in Sinai (Reuters)
- Loan-Shark Lending Surge Feared In Japan (Bloomberg)
- US seeks $3bn for Sudan oil deal (FT)
- Home Prices Climb as Supply Dwindles (WSJ)... not really- just money laundering in the form of ultra luxury home purchases soars
- A lifeline is thrown to the periphery - Smaghi (FT)
- Standard and Who? Greece Credit-Rating Outlook Lowered by S&P as Economy Weakens (Bloomberg)
- BOE Cuts Growth Forecast, Sees Inflation Below Goal in Two Years (Bloomberg)
- S&P Takes CreditWatch Actions On Four Spanish Banks (Reuters)
- Japan Gets Reprieve as Drop in Oil Eases Trade Impact (Bloomberg)
Nobel Prize Winning Economist: Core Problem Is Too Much Centralization ... In Both Government AND the Private SectorSubmitted by George Washington on 08/07/2012 22:47 -0500
We've Gone Way Too Far ... It's Time to Decentralize
While all eyes are on the absurdist tragicomedy playing out in Europe, Japan is quietly circling a financial black hole as its export economy is destroyed by its strong currency and the global recession. There is a terrible irony in export-dependent nations being viewed as "safe havens." Their safe haven status pushes their currencies higher, which then crushes their export sector, which then weakens their entire economy and stability, undermining the very factors that created their safe haven status.
The idea of “collapse”, social and financial, comes with an incredible array of hypothetical consequences ranging from public dissent and martial law, to the complete disintegration of infrastructure and the devolution of mankind into a swarm of mindless arm chewing cannibals. In an age of television nirvana and cinema overload, I have found that the collective unconscious of our culture has now defined what collapse is based only on the most narrow of extremes. If they aren’t being hunted down by machete wielding looters or swastika wearing jackboots, then the average American dupe figures that the country is not in much danger. Hollywood fantasy has blinded us to the tangible crises at our doorstep. In 2012, we still await that trigger event, which I believe will be the announcement of QE3 (or any unlimited stimulus program regardless of title), and the final debasement of the dollar. At the beginning of this year, I pointed out that we were likely to see such an announcement before 2012 was out, and it would seem that the private Federal Reserve is right on track. Last month, the Fed announced that it was formulating a plan to “expand its tool kit”.
The Swiss are the envy today. Soon they will be goats.
Courtesy of Bloomberg's Michael McDonough, here is how the end game for demographically defunct, deflationary debt holes such as Japan looks like extrapolated into the future. And for the time-strapped it is condensed into 333 words and 3 charts. "Fewer workers and less labor will reduce the potential output of the Japanese economy, which will increase the country’s reliance on imports as retirees continue to spend, inhibiting GDP growth. The rising number of retirees will strain the government’s welfare programs and the country’s pension funds, which have been major buyers of government bonds. Japan already maintains the world’s second-largest debt load in nominal terms at more than $13.7 trillion and growing."
Market players are watching for any details on the ECB’s bond purchasing plans, after bank chief Mario Draghi said last week that the ECB would target short-term debt, fuelling optimism in the bond markets. A Reuter’s poll of economists on Friday highlighted that they expect the Fed to start QE3 in September, but a top Fed official said that a stimulus package so close to a presidential election would not be prudent. Since the ECB conditioned it would buy more government debt from Spain & Italy if they agreed to strict austerity packages, this has decreased pressure on either country to act quickly. The Financial Times interviewed Ken Wattret, a BNP Paribas economist who said: “If people think this will all be sorted in a matter of days, or weeks, then they will be disappointed. We could be in limbo for months.”
Eventually — because the costs of the deleveraging trap makes organicy growth very difficult — the debt will either be forgiven, inflated or defaulted away. Endless rounds of tepid QE (which is debt additive, and so adds to the debt problem) just postpone that difficult decision. The deleveraging trap preserves the value of past debts at the cost of future growth. Under the harsh discipline of a gold standard, such prevarication is not possible. Without the ability to inflate, overleveraged banks, individuals and governments would default on their debt. Income would rapidly fall, and economies would likely deflate and become severely depressed. Yet liquidation is not all bad. The example of 1907 — prior to the era of central banking — illustrates this. Although liquidation episodes are painful, the clear benefit is that a big crash and depression clears out old debt. Under the present regimes, the weight of old debt remains a burden to the economy.
- Monti Warns of Euro Breakup as Tussle Over Spain Aid Hardens (Businessweek)
- Italy doesn't need German cash, Monti tells Germans (Reuters) - at least we know who needs whose cash...
- Spain has time to Wait for Clarity on EU Aid -Econ Min (Reuters) - which came first: the Spanish bailout request or the denial to need a Bailout request? Ask the Spanish 2 year...
- Bundesbank Weidmann’s opposition to a proposed new wave of ECB bond purchases has support of Merkel’s CDU - Volker Kauder
- China media tell U.S. to "shut up" over South China Sea tensions (Reuters)
- Top Chinese Leaders Gather in Annual Summer Conclave (WSJ)
- Greece Agrees With Troika on Need to Strengthen Policy (Bloomberg)
- Coeure Says ECB Should Look at Getting Loans Into Real Economy (Bloomberg)
- Italy Central Banker Sees Potential Rate Cut as Euro Economy Slows (WSJ)
- A Dose of Dr. Draghi's 'Whatever It Takes' (WSJ)
- Greek bank head sent savings abroad (FT)
After last week's event-a-palooza, where the headlines, the spin, the erroneous HFT trading, and the propaganda (Draghi is too cold; Draghi is too hot; Draghi is just right) just refused to stop, we finally enter the summer proper where all of Europe is on vacation, as is congress. Add on top of this a very light macro event week and an earnings season which has seen the bulk of companies already report, and we expect the volume in the coming 5 days to be among the lowest recorded in 2012, and thus in the past decade. Which of course means that the cannibalization among the market makers will continue as more and more firms succumb to "trading anomalies."
Some odds and ends, plus a very scary report on China
- U.S. nuclear bomb facility shut after security breach (Reuters)
- EU Commission Welcomes Greek Reform Pledge, Wants Implementation (Reuters) -> less talkee, more tickee
- China Cuts Stock Trading Costs to Lift Confidence (China Daily) as France hikes transactions costs
- Holding Fire—for Now—but Laying Plans (WSJ)
- ECB-Politicians’ Anti-Crisis Bargain Starts to Emerge (Bloomberg)
- Dollar falls back as non-farm payrolls loom (FT)
- Ethics Plan to Raise Consumer Confidence (China Daily)
- Brazil backslides on protecting the Amazon (Reuters) - fair weather progressive idealism?
- Japan Foreign-Bond Debate May Boost BOJ Stimulus Odds (Bloomberg)
- Japan’s Lower House Passes Bill to Let Workers Stay on to 65 (Bloomberg)