On December 5 2013, George Osborne will deliver the Autumn Statement, providing an update on the state of the UK economy. In the address, the Chancellor of the Exchequer will detail the coalition’s plans to reduce the budget deficit and extend the UK economic recovery into 2014. Saxo Capital Markets latest infographic outlines the changes in the economy since the coalition government formed in 2010. In 2010, the Chancellor projected that the coalition would slash the structural budget deficit to zero by 2016. Three years on, net public debt has risen as a consequence of the government’s measures to reduce the deficit. While there is some hope in the figures - and we are sure they will be projected in nothing but glowing glorious ways, Brits are drawing down savings at record rates to cover soaring costs of living and the UK's debt-load is surging. What happens if/when Carney lifts his foot even a little?
Previewing the rest of this week’s events, we have a bumper week of US data over the next five days, in part making up for two days of blackout last week for Thanksgiving. Aside from Friday’s nonfarm payroll report, the key releases to look for are manufacturing ISM and construction spending (today), unit motor vehicle sales (tomorrow), non-manufacturing ISM (Wednesday), preliminary Q3 real GDP and initial jobless claims (Thursday), as well as personal income/consumption and consumer sentiment (Friday). Wednesday’s ADP employment report will, as usual, provide a preamble for Friday’s payrolls.
Just as in the 1930s the Fed fueled deflation by not making credit available, today the opposite seems to be the case – low rates are fueling deflation and preventing markets from clearing.
- So much for the euphoria: Stores open early on Thanksgiving but shoppers in no rush (Reuters)
- Get to work Mr. Chairwoman: Do-Nothing Congress Dithers on Budget as Deadline Nears (BBG)
- FX to Libor Probes Leave U.K. Traders Looking for Lawyers (BBG)
- Protesters Briefly Storm Thai Army Headquarters (WSJ)
- Berlusconi accused of bribing witnesses in prostitution trial (Reuters)
- Japan Price Gauge Rises Most Since ’98 in Boost to Abe (BBG)
- S&P downgrades Netherlands’ AAA credit rating (FT)
- GrainCorp Verdict Clouds Australia Open-For-Business Pledge (BBG)
- Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned (BBG)
- Narrow Budget Agreement Comes Into View (WSJ)
Recently, newspaper headlines declared that Greece would have a balanced budget for 2013 as a whole. The news came as quite a shock: Recall that when Greek officials came clean about the true state of their country’s public finances in 2010, the budget deficit was more than 10% of GDP – a moment of statistical honesty that triggered the eurozone debt crisis. It seemed too good to be true that the Greek deficit would be completely eliminated in just three years. In fact, it is too good to be true.
There are increasing signs of deflationary risks in the developed world, suggesting bonds are set for a comeback.
Following yesterday's latest Taper Tantrum, it was critical to get a smattering of bad global overnight news to provide the ammunition for the algos that not all in the world is fine and the easy monetary policy will continue indefinitely pushing stocks ever higher at the expense of the global economy. Sure enough first China, and then Europe complied, following the biggest China Flash PMI miss and drop in 6 months, followed shortly thereafter by a miss and a drop in the Eurozone Composite PMI down from 51.9 to 51.5, below expectations of an increase to 52.0, primarily on the back of a decline in the Service PMI from 51.6 to 50.9, with 51.9 expected even as the Mfg PMI rose modestly from 51.3 to 51.5. The country breakdown showed a significant deterioration in France and an improvement in Germany. But the biggest overnight driver by a wide margin was the Yen, which tumbled nearly 100 pips and the USDJPY hit an overnight high of just over 100.90, which pushed the Nikkei up by almost 2%, and kept the futures well bid. However, what has confused algos in recent trading is the expected denial by Draghi of a negative interest rate, which while good for the EURJPY that drives the ES, what is the flipside is that this means less easing by the ECB, and thus interpreting the data does not result in a clear BTFD signal. Which may be a problem because should stocks close red today it will be the first 4 day drop in who knows how long.
At this point it is incredible that there are any Americans that still trust anything that comes out of the administration's collective mouth. And of course it is not just Obama that has been lying to us. Corruption and deception are rampant throughout the entire federal government, and this has been the case for years. Now that some light is being shed on this, hopefully the American people will respond with overwhelming outrage and disgust. Aside from the now "fake" employment data, the following are five massive economic lies that the government has been telling you... Our financial system is far more vulnerable than we are being told. We are in the terminal phase of the greatest debt bubble in the history of the planet, and when this bubble bursts it is going to be an absolutely spectacular disaster. Please don't believe the mainstream media or the politicians when they promise you that everything is going to be okay.
The only numbers that matter today are 16000, 4000 and 1800: those are the Fed's closing targets for the Dow Jones, the Nasdaq and the S&P. Following last night's Chinese euphoria which saw the Shanghai Composite surge by 2.87%, or up 61.4 to just under 2,200 on renewed hopes for Chinese reform by 2020, the Fed's price targets should all be quite easily achievable. And not even the rising home prices in 69 out of 70 cities year over year, and 65 over month - the same as last month, with new nome price inflation at 0.6% overall and 0.8% for the first tier cities, was able to put a dent in the reflationary spirits in the Mainland. Additionally, news that China would join the US and Europe in "adjusting" its GDP calculation method, which would add R&D expensing into the bottom line, and as a result boost the overall number, is, well, helping things. Finally, with today's POMO a rather whopping $3-$4 billion, it is only a matter of time before all three of the previously noted psychological resistances are promptly taken out by the Fed's open markets desk.
This past week saw the initial public offering of the single most anticipated IPO of 2013 - Twitter. If you tweeted about it then you are not alone as the news dominated the media headlines and the market. With Twitter already sporting a 11x price-to-sales ratio, and no earnings, what could possibly go wrong? However, it is that growing complacency among investors that should be the most concerning as the general sentiment has become that nothing can stop the markets as long as the Fed is in the game. This week's issue of things to ponder over the weekend provides some thoughts in this regard...
Just over 400-years ago today, a group of 13 conspirators were caught trying to assassinate King James I of England and blow up the House of Lords in what became known as the Gunpowder Treason. Fundamentally, the Gunpowder Treason was about freedom. The English monarchy at the time was controlling nearly every aspect of the economy and their subjects’ lives– from what they could wear to how they could worship.“Sumptuary laws” which regulated private behavior were commonplace. When you think about it, the collapse was inevitable. The Gunpowder Treason of November 5, 1605 may have been a failure for the conspirators, but given enough time, a system so screwed up, so unsustainable, was destined to collapse on itself. We’re not so different in the west today. Is it wise to think that this time is any different?
Two months ago we reported that Obama had officially declared war on the weather, after it was reported that he was ready to use "administrative authority" to fight climate change. While at the time it was not quite clear just what authority he had to unleash centrally-planned weather, today we finally got a glimpse of how Obama's biggest war yet would look like. As Washington Times reports, "President Obama issued an executive order Friday directing a government-wide effort to boost preparation in states and local communities for the impact of global warming. The action orders federal agencies to work with states to build “resilience” against major storms and other weather extremes. For example, the president’s order directs that infrastructure projects like bridges and flood control take into consideration climate conditions of the future, which might require building structures larger or stronger — and likely at a higher price tag." In other words, following the epic Syrian fiasco, whose primary intention was to boost the US budget deficit as a result of a localized war, and allow Bernanke more debt issues to monetize, Obama now has decided to unleash a very expensive, and very much debt-funded war against the greatest enemy of all: the weather.
"The recent trading environment has felt something like walking into a place and having a sense that something is wrong and dangerous but not knowing exactly what will happen or when. “QE Infinity” has so distorted the prices of stocks and bonds that nobody can possibly determine what the investing landscape would look like, or what the condition of the economy and financial system would be, in the absence of Fed bond-buying."
-Paul Singer, Elliott Management
- Budget deficit priorities people: U.S. NSA spied on 60 million Spanish phone calls in a month (Reuters)
- Stuck in countless scandals, Obama does what he does best: speak. Obama To Speak At Installation Of FBI Director James Comey (TPM)
- Five killed as car ploughs into crowd in Beijing's Tiananmen Square (Reuters)
- U.K. Storm Brings Power Cuts, Snarls Transport in South (BBG)
- China Signals ‘Unprecedented’ Policy Changes on Agenda at Plenum (BBG)
- Sandy's Legacy: Higher Home Prices (WSJ)
- Merkel Enters Concrete SPD Talks as Finance Post Looms (BBG)
- Keep arming those Syrian al-qaeda rebels: Car bombs kill scores in Baghdad, in sign of crisis in Iraq (WaPo)
- J.P. Morgan's Mortgage Troubles Ran Deep (WSJ)
- Detroit’s public library contains story of city’s decline (FT)
- Argentina elections: President loses in Buenos Aires province (BBC)
- Phone-hacking: trial of Andy Coulson and Rebekah Brooks to begin (Guardian)
Most recently, it was the horrific rollout of Obamacare which as we observed earlier in the week, was all "someone else's fault" but certainly not the government's. Now, as the Snowden whistleblowing scandal has found its third (or fourth) wind courtesy of a furious international response following revelations that Obama was listening in to Merkel and at least 34 other world leaders', it is time for perhaps the most stunning revelation of all: you see, Obama is shocked, shocked to learn that cell phone spying - of virtually everyone on the planet - is going on in here.