The talking heads will be rolled out on CNBC to assure the masses that all is well. The economy is strong. Corporate profits are awesome. The stock market will go higher. Op-eds will be written by Wall Street CEOs telling you it’s the best time to invest. Federal Reserve presidents will give speeches saying there are clear skies ahead. Obama will hold a press conference to tell you how many jobs he’s added and how low the budget deficit has gone. We couldn’t possibly be entering phase two of our Greater Depression after a temporary lull provided by the $8 trillion pumped into the veins of Wall Street by the Fed and Obama. Could we?
Having noted last week of the rising tensions between the French (pushing forward with plans for a budget deficit that far exceeds EU Treaty rules) and Germany (letting a Frenchman run EU's finances is "an unwise personnel decision") and Brussels (planning to reject the French budget); it seems the French are unimpressed. As les Echos reports, French finance minister Michel Sapin has proclaimed he won't change the budget, arguing that the EU commission has no power to reject a budget as sovereignty belongs to France's parliament... fighting words for a 'union'! In addition, the EU is now planning to reject Italy's budget, due to its "serious violation" of EU rules.
And it all started off so promisingly, when after the biggest selloff in US stocks in two months, the BOJ and its preferred banks once again sold 6J (i.e., bought USDJPY) in the morning Japan session (while collecting CME liquidity rebates of course), sending the pair from below 108 to half the way to 109, and naturally taking global futures higher while pushing yields lower when as ITC says a "large TY seller knocked USTs to lows during the session" - hmmm, wonder who the large seller was. And then... the "rebound euphoria" fizzled a la Sodastream, sending the Nikkei sliding 1.2%, and US equity futures back to unchanged with the bond surge returning and sending German Bunds to new all time highs once again, while the Dax briefly broke below under 9000 before stabilizing at the key support level. It is unclear what caused the failure in central bank euphoria, although some suggest that the latest bevy of disappointing economic news wasn't quite bad enough.
Simply put, illegal activities are now the difference between economic growth and economic recession in Europe.
Global Equities In "Sea Of Red" After German Industrial Data Horror, Hints Japan May Give Up On Weak YenSubmitted by Tyler Durden on 10/07/2014 06:44 -0400
While the economic data, especially out of Europe, just keeps getting worse by the day, with the latest confirmation that Europe is now officially in a triple-dip recession coming out of Germany and the previously observed collapse in Industrial Production which tumbled the most since February 2009, it was once again the Dollar and especially the New Normal favorite currency, the Yen, that was in everyone's sights overnight, when it first jumped to 109.20 only to slide shortly after midnight eastern, when Abe repeated once again that a plunging Yen is hurting small companies and consumers - and to think it only took him 2 years to read what we said would happen in late 2012 - but also the BOJ minutes which did not reveal any addition easing, which apparently disappointed algos and triggered USDJPY slel programs, pushing the USDJPY 80 pips lower to 108.40.
"What people underestimate is that what's at stake is the entire credibility of the rules," warns one EU official as The WSJ reports, is preparing to reject France’s 2015 budget, that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis. With the looming handover to former French FinMin Pierre Moscovici (fox, henhouse?) it appears the current European Commission will not stand for Current French FinMin Sapin's plan that would run a budget deficit of 4.3% of GDP next year (far greater than the 3% deficit it had previously promised) put France’s budget in "serious noncompliance" with the new EU rules and risking sanctions of as much as 0.2% of GDP. The credibility of Brussels' new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules as "it’s not like they will try - and fail; they're actually planning not do it," another EU official said.
We actually to believe that the Federal Reserve can lift the entire front-end of the curve from 0-1% (current rates out to three years) to 2-4% over the next two years without adding massive further stress onto the deficit, and only adding to the debt? Servicing 2% interest when growth is 2% means you are doing worse than standing in place if you also have a budget deficit. Whatever the timing, the US, China and Europe are all headed for another Minsky moment: the point in debt inflation where the cash generated by assets is insufficient to service the debt taken on to acquire the asset. Productivity growth in the US last year was +0.36%. The real growth per capita was about 1.5%.
Do you have a friend who consistently borrows 30% of his income each year, is currently in debt about six times her annual income, and wanted to take advantage of short-term interest rates so that he needs to renegotiate with his banker about once every six years? Well, if Uncle Sam is your friend you do!
The Fed, by raising its rates and relinquishing its downward pressure on the US dollar, is about to kill off most of the emerging markets. That’s a whole lot of misery in one pen stroke. That’s a whole lot of millions of people who will see their dreams of better lives shattered, just as they were beginning to think they had a chance. It’s how the game is played. The weak must be sacrificed so the strong be stronger.
Just one guy's attempt to make sense of what is likely to happen in the coming days.
The idea that the Obama administration has the budget deficit under control is a complete and total lie. The U.S. national debt has actually grown by more than a trillion dollars in less than 12 months. We continue to wildly run up debt as if there is no tomorrow, and by doing so we are destroying the future of this nation.
There are plenty of things to worry about these days. However, with enough intelligence, political will, common-sense and perseverance, most challenges we face as a species can be overcome (maybe providing some hope that we can tackle whatever we are facing right now.) So why worry? Well, what will happen if we start losing those qualities and values as a global society? Which is why we believe that the following graphs are the scariest in the world today...
- Obama orders U.S. airstrikes in Syria against Islamic State (Reuters)
- Obama Relying on Mideast Allies to Counter Islamic State (BBG)
- Scotland Nationalists Claim U.K. Oil in 40-Year Campaign (BBG)
- Scottish Polls Embolden Catalans Pushing Rajoy for Vote (BBG)
- Royal Bank of Scotland: RBS will leave Scotland if voters back independence (Guardian)
- Most Hedge-Fund Managers Are Overpaid, Unigestion Says (BBG)
- China Inflation Softens to Four-Month Low (WSJ)
- Munger Hosts Groupies, Mocks Wall Street, Praises Buffett (BBG)
For those just catching up on the main news event of the weekend, namely the sudden surge in Scotland "Yes" vote polling surpassing 50% for the first time, here is a complete round up of the background, updates and expert reactions from RanSquawk, Bloomberg and AFP.