- Majority of Swiss Polled Back SNB Currency Operations (Bloomberg)
- Merkel, Van Rompuy Caution Against Euro Bonds (Bloomberg)
- Italy’s Debt May Swell as Austerity Chokes Growth (Bloomberg)
- Jackson Hole Build Up (FT)
- China Previews Rising Leadership (WSJ)
- Gaddafi Regime Collapsing (FT)
- Prosecutor to drop Strauss-Kahn case: report (Reuters)
- Inflation a danger for safe havens (FT)
WTI and Brent crude futures traded under pressure in the early European session weighed upon by the news that Libyan rebels have taken control of most of capital Tripoli and increasing prospects that the ongoing civil war may come to an end soon. However, as the session progressed, prices came off their earlier lows with a weakening USD-Index. News from Libya also supported the oil & gas sector in the hope that companies may resume their business in the country, which also helped European equities to trade higher. Equities received additional strength on the back of early market talk of asset re-allocation from fixed income into equities, which exerted downward pressure on Bunds. Elsewhere, weakness in the USD-Index underpinned the strength in EUR/USD, GBP/USD and commodity-linked currencies, however CHF weakened across the board partly on the back of market talk that the SNB was active in one-month forward market. In other forex news, a sharp uptick was observed in USD/JPY overnight, however there was no confirmation of any forex intervention by Japan. Moving into the North American open, the economic calendar remains thin, however the Chicago Fed report from the US is scheduled for later in the session. In fixed income, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Nov'21-Aug'41, with a purchase target of USD 0.5-1bln is also due later.
Well over two months ago we first reminded the Marxists of the world that something big may be coming over the horizon in "Attention Marxists: Labor's Share Of National Income Drops To Lowest In History" a theme, whose violent reprisals in the real world we have been observing since before the Arab Spring began (courtesy of the Fed of course). Lo and behold, suddenly the coolest thing among the post-sophist punditry is to bring up the name of Marx for this and for that, because, guess what - he was right all along or something. Where were these same pundits when Marxist postulates were becoming apparent not only across the past year, but past century, we wonder. That said, one analysis that does merit mention is that by UBS George Magnus, who several days ago does the most comprehensive summary of the modern world through the lens of Marxism. His conclusion is spot on: "We have had a gathering crisis of political economy this year, which is partly about economic growth and jobs, but also and importantly, about a malaise in politics and policymaking, in which governments are seen as unwilling, unable, divided or ineffective when it comes to economic management and stability. It’s this resistance or backlash against the political order that runs through the propagation of the political economy convulsions around the world, including, in extremis, the uprisings through North Africa and the Middle East." Granted this is not at all surprising, nor is it odd considering that all that central planning under the modern monetary system has done is to perpetually push off disasters, with each increasingly frequent subsequent one hitting with greater severity until not all the money printing in the world can save the modern broken socio-political (and economic) framework. But everything in due course. And yes, expect many more references to Marx by hollow econo-historians who bring nothing new to the table and merely stampede in where the herd has already boldly gone before.
What is actually going on in the Financial World?
The funny thing about the boiling frog is that every day, the pot gets a little bit warmer. First they start by fondling 5-year old girls at the airports, then it’s train stations. Train stations become bus stations, bus stations become shopping malls, etc. This erosion of civil liberty and economic opportunity is a slippery slope, and only YOU know your breaking point. Having a plan ensures that, when you reach your breaking point and/or social upheaval hits, you’ll at least know exactly where to go and what to do when you get there. This is not a decision you’ll want to make while packing your suitcase.
For the last several months we have been posting our Economic Output Composite Index and warning that it was heading to levels that typically denote that the economy is in a recession or about to be in one. With today's read of the Philadelphia Fed Regional Manufacturing Survey coming in a not just contraction levels but a massive collapse to the downside, as we have been saying was a possibility, the EOCI index is now at levels signaling recessionary warnings..The safe play in the current environment is hedged investments, cash and fixed income for the current time. This has not been, nor will it be any time soon, a "buy and hold" investing market. The management of risk, the conservation of investment capital and the generation of total returns from portfolios is paramount for investors to survive the cycles that we will face in the coming years.
Allow me a ramble down history lane to make a point.
S&P Slashes US Growth Forecast, Says Current Crisis Is Worse Than 2008 As US At "Risk Of Default", Ridicules "Transitory"Submitted by Tyler Durden on 08/17/2011 11:37 -0500
First they cut the rating of the US, then the went and downgraded Google, now S&P is going for the "treason trifecta" by just releasing a report which literally takes the US to the toolshed. Among many other things, the rating agency just cut US growth for the next 3 years. To wit: "While July data finally showed a slight improvement in the U.S. economy, it's not enough to support expectations that the second half of the year will see a bounce in growth. We now expect to see an even slower recovery than the half-speed we earlier expected. We now expect just 1.9% growth in the third quarter and 1.8% in the fourth, to bring 2011 calendar year growth closer to 1.7% instead of 2.4% we earlier expected. We also downwardly revised growth expectations for 2012 and 2013, as a more drawn-out recovery is factored into our forecast." We wonder how soon before the realization that the US is in fact contracting will force S&P to downgrade America even further, a move which will force Moodys and Fitch to come up with a AAAA rating for the US in order to keep the weighted average rating at current levels. It gets even worse though as S&P now openly brings the 2008 analogy: "The markets' violent swings in early August resurrected fears of the market meltdown, such as the one in 2008 when Lehman Brothers went under and Reserve Fund broke the buck. Currently, the crisis is considered to be much more severe, with U.S. sovereign debt at risk of default. The low Treasury yields indicated that markets were expecting Congress to come to its senses and reach a deal. However, the wait and the last-minute deal, which left a lot to be desired, only increased worries that the government will do more harm than good. Confidence in the recovery and in U.S. policymaking has hit new lows. After U.S. sovereign debt lost its triple-A status and financial markets unwound, consumer confidence hit a 31-year low and manufacturing sentiment readings contracted." And the kicker: S&P, yes S&P, makes fun of the Fed, and specifically the "transitory" nature of the economic collapse: "Continued weak growth after sharply downward GDP revisions has made the "temporary argument" a less plausible explanation for the slew of bad news for the first half of the year. At least the GDP revisions make the persistently high unemployment rate make more sense. But the revised data also indicate a much weaker outlook than we previously expected. As the boosts from rebuilding inventories and fiscal stimulus unwound, consumer spending and housing couldn't cover the hole, because the former is still working off excess debts and the latter excess supply. The recovery comprised a first-half average growth of just 0.8%." And that is how you respond to endless scapegoating that now blames the S&P for the collapse. Look for S&P to make the FBI's most wanted list very shortly.
Bloomberg's Mike McDonough has put together the simplest, and thus best, chart of the latest epic collapse in the BOJ's attempt to intervene and keep the Yen from appreciating. The chart needs no explanation, and shows that the half life of BOJ interventions is not only exponentially shorter but now, outright laughable. What does need an explanation, however, is the prevailing quandary of just what sleeping medications Noda and Shirakawa will have to take once USDJPY touches on 75, then 70, then 65, then 60 and so on, and they watch, watch, watch, the "one-sided" moves in the USDJPY, helpless to do absolutely anything as the Chairman drop kicks yet another monetary opponent into a permanent knock out.
US Resumes Importing Inflation, Exporting Deflation, As Annual Import Prices Increase Highest Since August 2008Submitted by Tyler Durden on 08/16/2011 07:45 -0500
So much for the end of inflation importing. After dropping by the most in 2011, or 0.6% in June, import prices once again increased firmly, rising by 0.3% in July, on expectations of a -0.1% decline. So much for that commodity drop "cooling" with fuel imports increasing 0.4%, and non-fuel imports up 0.2%. The take home: "Import prices rose 14.0 percent for the year ended in July, the largest 12-month advance since the index increased 18.1 percent for the year ended in August 2008." The picture is far uglier on the export side, where prices posted the first drop since July 2010. "The downturn was led by a decline in the price index for agricultural commodities, which was partially offset by an advance in nonagricultural prices. Export prices rose 9.8 percent over the past 12 months, down from the 10.1 percent change for the year ended in June, which was the largest year-over-year increase in export prices since a 10.2 percent advance between July 2007 and July 2008." In other words: the US is now importing inflation and exporting deflation. What does that mean if you are a chairman of the Fed reserve? Why, that you want to return the favor of course, and as soon as possible at that, as this implies ongoing GDP contraction due to terms of trade.