The increasingly short-termist attitudes of both policy-makers, analysts, and investors leaves market and economic indicators in the US and Europe all anticipating some magic in 2013. If only we can get through the elections, the fiscal cliff, a banking union, a Spanish bailout request, Greek extensions; not to mention another round of weak earnings and a sliding Chinese demand backdrop. As SocGen's FX and Rates desk notes, the battle against disinflation in Europe is not over and nominal GDP outlooks remain far too optimistic - only highlighted by the morning's weak lending data. The moribund growth backdrop also begs the question what palpable difference any relief over Spain or Greece (if it comes) will do to the long end. The answer is probably not a whole lot.
The deleveraging has a long-way to go!
Puh… Why don’t we just wait for Apple? They might pitch a maxi iPhone 6? Or so…
Otherwise, rather Bad Karma day.
Flat start, bullish morning, refreshing afternoon. Nothing concrete or fundamental, so it’s a spiritual thing.
Go to any university, any center of equities trade, any meeting place for financial academia, any fiscal think tank, and they will tell you without the slightest hint of doubt in their eyes that the U.S. economy is essential to the survival of the world. To even broach the possibility that the U.S. could be dropped or replaced as the central pillar of trade on the planet is greeted with sneers and even anger. But let’s set aside what we think (or what we assume) we know about the American financial juggernaut and consider the sordid history of the money powerhouse myth. China’s incredible gold buying extravaganzas over the past few years indicate that they are indeed hedging against what they obviously expect will be devaluation in the dollar or multiple currencies around the world including the dollar.
- Japan grapples with own fiscal cliff (Bloomberg)
- Japan Protests After Four Chinese Vessels Enter Disputed Waters (Bloomberg)
- Asian Stocks Rise as Exporters Gain on China, U.S. Data (Bloomberg)
- An obsolete Hilsenrath speaks: Fed Keeps Rates Low, Says Growth Is Moderate (WSJ)
- ECB Said to Push Spain’s Bankia to Swap Junior Debt for Shares (Bloomberg)
- Spain’s Bad Bank Seen as Too Big to Work (Bloomberg)
- China postpones Japan anniversary events (China Daily)
- Carney Says Rate Increase ‘Less Imminent’ on Economy Risk (Bloomberg)
- Credit Suisse to Cut More Costs as Quarterly Profit Falls (Bloomberg)
- Obama offers a glimpse of his second-term priorities (Reuters)
- Draghi defends bond-buying programme (FT)
Don't Read This ... It's Totally Irrelevant, Old News, Who Cares, Americans Are Above the Law, We're Exceptional (and Anyone Who Criticizes anything our Government Does is a Commie Fascist Turruristicalist Moooooslim)
Bernanke has fired his infinite bazooka and yet markets have done nothing but slide since and macro-economic data are showing further signs of weakness (New Orders and Capex) with the reality under the headlines of a housing 'recovery' hardly green-shoots. Draghi remains sidelined with his conditionally infinite bazooka as his region of the world slides deeper and deeper into the abyss of recession/depression with IFO expectations and New Orders slumping and deleveraging continuing. So, it seems, the hope for moar-money from central-bankers remains squarely on the shoulders of the PBoC. However, a glimmer of green shoots as a gentle acceleration PMI (and New Export Orders? to Japan?) suggest (as Goldman's Jim O'Neill would have us believe) that the Chinese have manufactured a slow landing (for now - given 'their' data). Hardly the driver for the next major round of stimulus that is so required to fill deleveraging shoes (leaving aside the question of food inflation concerns). So a 'blip' of a green shoot in China is in fact nothing to be celebrated as the world remains a closed-loop (no martians yet) and two of the world's three largest economies are lagging badly. Look at these three charts and decide which way the world is heading!
Both capitalism and democracy promise the opportunity for upward mobility. Capitalism offers upward mobility to anyone with a profitable idea or productive skillset and work ethic. Democracy implicitly promises a "level playing field" of meritocracy, where talent, drive and hard work open opportunities for advancement. Crony capitalism offers wealth to the class that already possesses it. Feudalism bestows "rights" to wealth to a favored few. In a way, upward mobility is a real-world test of a nation's economic and social order: if upward mobility exits in name only, then that nation is neither capitalist nor democratic. Stripped of propaganda and misleading labels, it is a feudal society or a crony-capitalist economy masquerading as a capitalist democracy. The wealth that could have been transferred to the next generation has been consumed suporting a "middle class" lifestyle and providing the next generation with what was once the basis for advancement: a university education, healthcare insurance, a reliable vehicle, etc. Now that jobs are hard to find and compensation is low, the next generation still needs the accumulated wealth of the household to get by. That is not upward mobility, it is downward mobility, on a vast and largely unnoticed scale.
- China May Forgo Easing as Economy Rebounds, Survey Shows (Bloomberg)... or as food and house inflation has never gone away
- China Edges Out U.S. as Top Foreign-Investment Draw Amid World Decline (WSJ)
- Fed to keep buying bonds despite firmer U.S. growth (Reuters)
- Bernanke Seen Attacking Jobless Rate With QE Until His Term Ends (Bloomberg)
- Mortgage applications plunge 12%, down for third week in a row (Dow Jones)
- Exchanges Retreat on Trading Tools - Fund Managers, Regulators Say Certain Orders Are Risky, Aid High-Speed Firms (WSJ)
- Europe Bank Chief to Defend Bond-Buying Plan (WSJ)
- Japan, China Envoys Met Last Week for Talks on Island Feud (Bloomberg)
- Goldman’s Pill Says ‘Guerrilla’ ECB to Impose Losses on Skeptics (BBG)
- Chance rise of an Obama defeat (FT)
- King Says BOE Is Ready to Add to QE If U.K. Recovery Fades (Bloomberg)
- Rajoy Sees Case for Slowing Spain’s Austerity as Economy Shrinks (BusinessWeek)
- Hong Kong Intervenes to Defend Peg as Upper Limit Tested (Bloomberg)
The waistline bubble began to expand at just about the same time as the debt bubble...
What is wrong with this market? The S&P 500, instead of grinding higher in the aftermath of QE3 actually hit its peak for the year the day after the policy announcement. Go figure. Maybe economic reality finally caught up with Mr. Market (there is a very fine line between "'resiliency" and "denial" — and keep in mind that the S&P 500 is still up 14% in a year in which profits are now contracting, not just slowing down)... On average, six weeks hence, the S&P 500 was up more than 9% after the policy announcement. It was all so novel! Tech on average was up over 11%, industrials were up 12%... ditto for Consumer Discretionary and Materials. The cyclicals flew off the shelves. But this time around. either Mr. Market is jaded or the laws of diminishing returns are setting in. Six weeks after the unveiling of QE3, the market is down 2%. This hasn't happened before. Every economic-sensitive sector is in the red, and even Financials — the one sector that should benefit from all the "sucking at the Fed teat" — have made no money for anybody!
Sometimes you just have to laugh; or else committing harakiri comes dangerously close to mind. Japan's increasingly terrifying fiscal situation combined with a central bank that is rapidly becoming the laughing stock of the world (though all the other central banks are merely mimicking its actions) is becoming so self-referential (with its almost total domestic ownership of government debt), so short-termist (with its dramatically high short-term funding requirements constantly rolling), and demographically challenged (with its elderly almost entirely reliant upon government transfer payments) that it is hard to comprehend how much longer this farce can carry on. We have previously discussed Japan's WTF charts, but the following collection from Deutsche Bank's Torsten Slok must be seen to be believed. For now - the problem in a nutshell is government-debt per working-age person in Japan will be $140,000 in 2016 - almost triple the rest of the G7.
Debt. There isn't a day that passes as of late that the issue of debt doesn't arise. Federal debt and consumer debt (including mortgages) are of the most concern due to its impact on the domestic economy. Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The problem is that during a “balance sheet” recession the consumer is forced to pay off debt which detracts from their ability to consume. This is the one facet that Keynesian economics doesn’t factor in. It’s time for our leaders to wake up and smell the burning of the dollar – we are at war with ourselves and the games being played out by Washington to maintain the status quo is slowing creating the next crisis that won’t be fixed with monetary bailout.
Uuuhh. Yesterday a heart attack and today Lights Out? Then again, markets went up seamlessly with no trigger and can thus slide the same way.
AAPL will need to come up with a helluva surprise mini iPad that does the cooking and bring the kids to school to turn around things overnight.
Spain situation still by far not settled enough to last without some real interventions / decisions.
Toppling central banks is a messy business.
- Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions (Bloomberg)
- And the market top: Billionaire Ross Interested in Buying Spanish Bank Assets (Bloomberg)
- Japan Jojima denies govt seeks $250 bln BOJ asset buying boost (Reuters)
- China hints at move to strengthen Communist rule (Reuters)... well everyone else is doing it
- Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court (Bloomberg)
- Obama, Romney now tied in presidential race: Reuters/Ipsos poll (Reuters)
- Former China Leader Jiang Resurfaces Before Political Transition (Bloomberg)
- Some in Congress look to $55 billion fiscal cliff 'fallback' (Reuters)
- CLOs stage comeback in US (FT)
- TXU Teeters as Firms Reap $528 Million Fees (Bloomberg)
- China’s Factories Losing Pricing Power in Earnings Threat (Bloomberg)