• Pivotfarm
    04/18/2014 - 12:44
    Peering in from the outside or through the looking glass at what’s going down on the other side is always a distortion of reality. We sit here in the west looking at the development, the changes and...

Renaissance

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JPMorgan Warns: Increasing Rates Have "Reduced The Remaining Refinance Opportunity By More Than 50%"





About an hour ago, Bank of America served the latest indication that the US housing "recovery" (also known as the fourth consecutive dead cat bounce of the cheap credit policy-driven housing market in the past five years) may be on its last breath. Namely, the bank announced that it will eliminate about 2,100 jobs and shutter 16 mortgage offices as rising interest rates weaken loan demand, said two people with direct knowledge of the plans and reported by Bloomberg. In some ways this may be non-news: previously we reported, using a Goldman analysis, that up to 60% of all home purchases in recent months have been, which of course shows just how hollow the "recovery" has been for the common American for whom the average home has once again become unaffordable. However, judging by an update presentation given earlier today by the CFO of none other than JP "fortress balance sheet" Morgan, things are rapidly going from bad to worse for the banking industry as a result of the souring mortgage market for which, absent prop trading, loan origination is the primary bread and butter.

 


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Is This The Recovery That Is Supporting Taper Talk?





As a proxy for economic activity, the addition of US exports and imports provides a useful indication of 2-way trade underlying growth in the US. Following the collapse in 2008/9, 2-way trade surged by over 30% YoY providing the impetus for the initial 'recovery' off the lows. That 'growth' has now dissipated and for almost 2 years, 2-way trade has gone nowhere. The last 3 times that this activity indicator was so poor, very significant systemic events occurred. Will 4th time be the charm?

 


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Manufacturing ISM Rises To 55.7, Beats Expectations, Highest Since April 2011





Unless this Friday's NFP number plummets, the taper is now assured. Moments ago the US joined the rest of the world in its "manufacturing renaissance" spurt reported over the past two months, with the Manufacturing ISM headline number rising from 55.4 to 55.7, beating expectations of a 54.0 print, and printing the highest number since April 2011 and the biggest beat since August 2011. The components which posted a notable increase were New Orders, which rose from 58.3 to 63.2, recording the largest 3 month rise in 4 years, Prices jumped the most or 5 from 49.0 to 54.0, while exports also rose by 2.0 to 55.5 as it appears everyone is exporting more to everyone else at the same time: hopefully someone is reminded that trade just happens to be a zero sum game. Among the decliners, the most notable one was Employment which dropped from 54.4 to 53.3, Production down 2.6 to 62.4, and  Customer Inventories down 5 to 42.5. Maybe there is a reason why customers are rapidly destocking despite the the ramp up of production at the material stage.

 


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It's The Consumer, Stupid!





Early-year tax increases and higher gasoline prices have probably dented U.S. consumer expenditures and as Bloomberg's Joseph Brusuelas notes, tomorrow's report of July’s personal income and spending report may illustrate the weakness that poses a significant risk to the much-anticipated economic growth renaissance in the second half of the year.

 


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Scandal Erupts Between Russia And Belarus Following Arrest Of Uralkali CEO, Nationalization Threat





Less than a month ago, potash stocks around the world cratered overnight following news that Russian potash producer OAO Uralkali announced its decision to break up a 'marketing venture' that controlled around 43% of global potash exports in the process ending the cartel that many US fertilized companies enjoyed for years. The end of the cartel was also a big hit for former partner Belarusian Potash Company (BPS) and the host nation Belarus, a country of 9.5 million people, where revenue from its potash industry accounts for almost 20 percent of the budget.  Everyone, Goldman Sachs, included were confounded by the move: Such behavior by Belaruskali in a structurally oversupplied potash industry should push for stricter competition for end customers and result in a significant swift decline in pricing... " What was most surprising is that Uralkali would voluntarily engage in this move, knowing full well that the Belarus government would retaliate. The only question is how severely. Turns out the answer is "very."

 


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China 'Officially' Admits PMI Data Inaccurate





Over six weeks ago we first noted that there were problems with the industry-specific data underlying the Chinese PMI numbers when we added that "the random disappearance of data was disorienting." Fast-forward to last week and the greater-than-50 PMI print heard around the world, which provided just enough momentum ignition to warrant more optimism in world equity markets that the second-half of the year would indeed prove to be a mythical renaissance. Well, it turns out that China's official National Bureau of Statistics has admitted that "we can’t ensure all industry-specific data can reach accuracy requirements," adding that they "were concerned that some of the numbers may affect related investors and users." Translation - the data in some industries was so bad that by telling the truth, our data would have become viciously self-fulfilling for their demise. The Juncker-rule is alive and well...

 


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Africa: The Next Major Boom-Bust Cycle?





As Western economies start to regress in earnest following decades of failed and destructive monetary inflation and debt accumulation, yield-starved investors are allocating real capital to the one industrially untapped continent in the world: Africa. However, we’re not seeing industry moving to Africa to set up shop. Rather, politically-directed capital flowing into the African resources sector is fueling and financing the strongest consumer boom in the world. It’s a vendor financing model for Asia, and it portends a major boom and bust cycle for the African continental economy.

 


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Egypt's Next Crisis? China Dam(n)s The Nile





In East Africa, the major water resource is the Nile river, the world’s longest, at 4,130 miles, referred to by Egypt since antiquity as the country’s heart. Instability, poor governance, lack of finances and the availability of other water sources left the issue largely dormant until the 1990s, when Nilotic governments seriously started to consider using their Nile Basin waters to generate energy and irrigate crops. But now, most African countries (expecting growth), where only about 25% of the population is connected to electricity grids, are seeking any and all electric power sources; guaranteeing an ongoing and increasingly fractious source of tension for Nilotic states. With the current political turmoil roiling Egypt, Cairo’s ability to influence upstream states is currently constrained, which until the dust settles may well provide Egypt with a number of aquatic fait accomplits. If Kampala and Addis Ababa press forward with their (Chinese-sponsored) hydroelectric projects in the interim, then they will probably eventually face some “frank and candid” diplomatic discussions with Egypt, which, after all, has a 4,000 year old history of Nile concerns.  Not a happy scenario.

 

 


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Frontrunning: August 16





  • Critics Decry Risks Posed by Link Between China's Banks and Bonds (WSJ)
  • U.S. retailers say uneven recovery keeps consumers cautious (Reuters) - er, what recovery?
  • Easy Credit Dries Up, Choking Growth in China (NYT)
  • Fed's Bullard Floats Idea of Small Cuts to Bond Buying (WSJ)
  • EU wants one definition of bad loans for bank tests (Reuters) - because in Europe they can't even agree what an NPL is...
  • Nagasaki Bomb Maker Offers Lessons for Fukushima Cleanup (BBG)
  • With Gmail Overhaul, Not All Mail Is Equal (WSJ)
  • Snowden downloaded NSA secrets while working for Dell, sources say (Reuters)
  • Apollo co-founder buys into New Jersey Devils (FT)
  • Republicans to vote on debate boycott because of Clinton programs (Reuters)
  • J.C. Penney Heads for Ninth Quarter of Plunging Sales (BBG)
 


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Picturing The Dis-United States Of Europe





With calls for a European renaissance and a general belief in stability through the German elections, it is perhaps worth a reminder of the structural problems that the supposedly bottoming union is facing. Nowhere is that single monetary policy-facing dilemma more evident than in the massive economic growth divergences across the EU nations and the current huge gap in unemployment rates from Greece to Austria and beyond. It seems the world is waiting for Merkel's re-election and fold on austerity (seemingly confirmed by the leaked BuBa report recently) but EU stress test transparency may remove the symbiotic safety net of bank bond buying sooner than many believe. With monetary policy somewhat euthanized across the EU, what's left for the fragmented transmission channels but more promises as pension funds and banks are stuffed to the gills with their own domestic bonds.

 


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Chinese Trade Data Brings New Hope Even As Old Discrepancies Remain





Overnight equity markets are getting a lift from headline-making beats for Chinese exports and (more importantly) imports. A 10.9% YoY rise in imports (compared to a +1.0% expectation) and a surge in copper 'demand' has the media calling the turn on the global economy (even as China's trade balance at $17.82bn missed expectations of $26.9bn by the most in 4 months and for the second month in a row). But... one glance below the surface of this 5.5 Sigma beat for imports and the other absurdities discrepancies are glaring...

 


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The US Manufacturing Renaissance In (Perplexing) Context





As the following two charts show, despite the rest of the world being mired in an entirely lackadaisical muddle-through (in terms of both manufacturing and non-manufacturing PMIs), the US is representing itself as the new growth engine with an expanding and rising economy (if the 'recovery-is-right-around-the-corner' data is to be believed). Of course, we are hearing the term 'decoupling' and 'cleanest dirty shirt' once again (begging the question Rick Santelli has asked numerous times "so why not remove the Fed's training wheels") but we remind, there is never a decoupling in the highly interconnected global economy (and its stagnant trade volumes). Our simple question is, with all this dramatic divergence from the rest of the world, stagnant income growth, and anemic manufacturing job growth at best, how will the consumer-driven US sustain its exuberance?

 


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Record 21 Million 'Young Adults' Now Live With Their Parents





Just about a year ago we questioned the "demographic demand" thesis for why the US housing 'recovery' would become self-sustaining and lead to yet another fiscal and monetary 'nirvana'. However, while the 'household formation' meme remains front-and-center among bloviating Fed apologists; the sad facts are that not only is household formation actually still falling but, as a recent Pew Research study finds, a record 21 million young adults are now living at home with their parents.

 


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US Factory Orders Miss (Again); Biggest 4-Month Drop In A Year





For the third month in the last four, US Factory Order growth missed expectations. In fact the last four months have seen the biggest plunge in a year. Adding to the disappointment for the 'manufacturing renaissance' hopes (despite proof in the payrolls data that it does not exist) is the fact that New Orders (ex-transports) dropped 0.4% (its worst in 3 months) with non-durable shipments down 0.6%.

 


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