Regular readers are aware that periodically, usually weekly, Zero Hedge presents critical naval updates demonstrating the positioning of key US maritime assets, primarily strategic aircraft carriers. The location of these indicates far more what US foreign policy is focused on at any moment, than propaganda distributed for general consumption via the coopted media. Today, however, instead of focusing on aircraft carriers, using Stratfor analysis, we present several broad "curious" US and French military developments.
The plight of the salaryman
Ray Dalio recently described the characteristics of a “beautiful deleveraging” in which equal doses of austerity, write-downs, and inflation gradually lighten the load of impaired debt. Two things can turn beautiful inflation into ugly inflation: Wages don’t inflate along with prices and the currency depreciates as money is printed excessively. This might not matter for a nation that is a net exporter of goods and services. But for nations that import essentials such as oil and grain, this is a catastrophe, as wages are flat while the cost of imported energy and food skyrocket. Households have less money to spend, and servicing debt becomes increasingly burdensome. Welcome to the United States of Ugly Inflation. Real household income (i.e., adjusted for official inflation) has declined 8% since 2007; the cost of oil, medical care and higher education has climbed; and government revenues have stagnated even as demand for government services has increased. As a result, the entire beautiful deleveraging scenario is at risk.
Bizarrely, and even after slapping my screens several times to make sure things were working, real opening levels in EGBs very quite simply FLAT. All flat! Haven’t seen that in ages!
Had to slap my screens again tonight, given the tons of “unchanged” data in EGBs. Have decorrelated from equities, as has the USD (closing about unchanged).
- China accuses Bo Xilai of multiple crimes, expels him from communist party (Reuters), China seals Bo's fate ahead of November 8 leadership congress (Reuters)
- "Dozens of phone calls on days, nights and weekends" - How Bernanke Pulled the Fed His Way - Hilsenrath (WSJ)
- Fed won't "enable" irresponsible fiscal policy-Bullard (Reuters)
- PBOC Adviser Says Easing Restrained by Concerns on Homes (Bloomberg)
- Data Point to Euro-Zone Recession (WSJ)
- Fiscal cliff dims business mood (FT)
- FSA to Oversee Libor in Streamlining of Tarnished Rates (Bloomberg)
- Monti Says ECB Conditions, IMF Role Hinder Bond Requests (Bloomberg)
- Japan Heads for GDP Contraction as South Korea Weakens (Bloomberg)
- Moody’s downgrades South Africa (FT)
- Madrid Struggles With Homage to Catalonia (WSJ)
Those confused by yesterday's rapid move higher in stocks, which fizzled by day's end, which was catalyzed by the non-event of the Spanish budget declaration which will prove to be a major disappointment as all such announcement are fated to be, can take solace in the following summary by DB's Jim Reid: "Yesterday's risk rally on the back of the 2013 budget announcement coincided with a trend seen over the last couple of years of rallies into month and quarter ends. We'll probably get a clearer picture of underlying sentiment by early next week with the new quarter starting, especially as it commences with a bang with the Global PMI numbers on Monday." In this vein, tonight's overnight sentiment showing weakness confirms yesterday's move was one which merely used Spain as a buying catalyst without reading anything into it. Because an even cursory read through shows major cracks. Sure enough the sellside readthroughs appeared this morning: "In our view the Spanish 2013 budget is based on a too optimistic GDP growth assumption" from Citi. Once again, the market shot first, and asks questions later, as the weakness in the futures confirms, EURUSD retracing all overnight gains, and Spain now 1.6% lower on this, as well as uncertainty of today's latest non-event - the local bank stress test vers 304.2b - whose results will be announce at noon NY time, and which just may find Bankia (and its Spiderman towel collection) is quite solvent once again.
The recent release of the final estimate of Q2 GDP, and the September's Durable Goods Report, confirmed that indeed the economy was far weaker than the headline releases, and media spin, suggested. While the media quickly glossed over the surface of the report there were very important underlying variables that tell us much about the economy ahead. The problem is that there is little historical precedent in the U.S. as to whether maintaining ultra-low interest rate policies, and inducing liquidity, during a balance sheet deleveraging cycle, actually leads to an economic recovery. This is particularly troublesome when looking at a large portion of the population rapidly heading towards retirement whom will become net drawers versus net contributors to the economic system. The important point for investors, who have a limited amount of time to plan and save for retirement, is that "hope" and "getting back to even" are not successful investment strategies.
- Madrid Protesters March Again as Spain Braces for Cuts (Bloomberg)
- Euro Can Bear Fewer Members as Czech Leader Calls Greeks Victims (Bloomberg)
- Chinese Industrial Profits Fall 6.2% in Fifth Straight Drop (Bloomberg)
- China pours $58bn into money markets (FT)
- Beijing vows more measures on Diaoyu Islands (China Daily)
- Noda vows no compromise as Japan, China dig in on islands row (Reuters)
- Politico’s Paul Ryan Satire: The Joke’s on Them (Bloomberg)
- Electoral Drama Shifts to Ohio (WSJ)
- German opposition party targets banks (FT)
- Fed action triggers fear of new currency wars (FT)
- Ex-Credit Suisse CDO Boss Serageldin Is Arrested in U.K. (Bloomberg)
- Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit (Bloomberg)
After seeing its stock market tumbling to fresh 2009 lows, the PBOC decided it couldn't take it any more, and joined the Fed's QE3 and the BOJ's QE8 (RIP) in easing. Sort of. Because while the PBOC is prevented from outright easing as we have been saying for months now (even as "experts" screamed an RRR or outright rate cut is imminent every day while we warned that Chinese inflation has proven quite sticky especially in home prices and food and China's central bank will not attempt to push its stocks up as long as the situation persists, so for quite a while) it can inject liquidity on a ultra-short term basis using reverse repos (or what are called repos here in the US). And shortly after it was found that Chinese companies industrial profits fell 6.2% in August after tumbling 5.4% in July, we learned that the PBOC added a record 365 billion Yuan to the financial system in order to prevent a creeping lockup in the banking system. While this managed to push the Shanghai Composite by nearly 3% overnight, this injection will prove meaningless in even the medium-term as the liquidity is now internalized and the PBOC has no choice but to add ever more liquidity or face fresh post-2009 lows every single day. Which it won't as very soon it will seep over into the broader market. And as long as the threat of surging pork prices next year is there, and with a global bacon shortage already appearing, and food prices set to surge in a few short months on the delayed effects of the US drought, one thing is certain: China will need a rumor that someone- even Spain- is coming to its rescue.
Yes, it did feel kinda rainy already yesterday with “Purple Rain”.
Total Risk Off close today.
Bad Rain. Bad, Bad Rain...
The consensus view of China is that the country is imploding due to the collapse of the export sector. Such arguments make sense. But they may also be dead wrong.
- China To Maintain Prudent Monetary Policy (China Daily)
- Why Exit Is An Option For Germany (FT)
- China-Japan Ministers Hold 'Severe' Talks As Spat Damages Trade (Bloomberg)
- Eurozone Deal Over Bank Bailout In Doubt (FT)
- UBS Co-Workers Knew of Fake Trades, Adoboli Told Lawyer (Bloomberg)
- Banks Seek Changes To Research Settlement (FT)
- Secession Crisis Heaps Pain On Spain (FT)
- SEC: NY Firm Allowed HFT Manipulation (Bloomberg) - busted 'providing liquidity'?
- Germany To Tap Brakes ON High-Speed Trading (WSJ)
- Rajoy Outlines Fresh Overhauls (WSJ)
- BBC Apologizes To Queen Over Radical Cleric Leak (Reuters)
- British Banks Step Back From Libor Role (WSJ)
- Obama Seeks To Recast Ties With Arab World (FT)
More bailouts and QE, until Beethoven writes the 10th Symphony.
In what is likely the biggest sabre being rattled this week in the war-of-words that is occurring in the Pacific, China announced today the launch of its first aircraft carrier. China bought the 300-meter Soviet-built vessel in 1998 from Ukraine and had it refitted to become an important step in "raising the overall fighting capacity" of its naval forces. Rear Admiral Yang Yi noted that "it is natural that China should have its own aircraft carrier," arguing that all major world powers already own similar vessels. Of course, the coincidental timing is no surprise as Reuters notes "China will never tolerate any bilateral actions by Japan that harm Chinese territorial sovereignty," Vice Foreign Minister Zhang Zhijun told his Japanese counterpart on Tuesday as the two met in a bid to ease tensions. "Japan must banish illusions, undertake searching reflection and use concrete actions to amend its errors, returning to the consensus and understandings reached between our two countries' leaders."
The Japanese have a peculiarly virulent strain of right-wing militarism that continues to influence domestic politics. In this worldview, reverence for the Imperial household is mixed with an aggrieved sense that Japan's expansion in World War II was justified (though few would say this publicly). As a result, any official Japanese attempt to apologize for the horrendous destruction, murder, enslavement and torture inflicted by Japanese forces in World War II sparks outrage in one sector of the domestic political order. Deep within this mindset is the view that the only thing wrong with World War II was that Japan lost. Even more galling to those who suffered so mightily, Japan has refused to publicly acknowledge (though they claim they have) and compensate the "comfort women," young women who were forced into prostitution to serve Japan's armed forces in the Asian/Pacific theater of World War II. This official dance between apology and refusal satisfies no one, and the general sense outside Japan is that the Japanese acceptance of guilt is grudging public relations rather than sincere. Combine an obsession with "face" and a plethora of deep-seated resentments, and you get the tinder for territorial disputes. What appears to be lost on the Chinese is the consequence of their saber-rattling and bluster: they appear to have obliterated 20 years of careful diplomacy aimed at convincing their neighbors of China's peaceful intentions.