Even a traditionally optimistic Michael Darda, of MKM Partners, is having trouble discovering the silver lining among the flotsam and jetsam that is the global macro-economic ocean currently. The Japanification theme continues with five charts offering too-correlated-to-be-ignored perspectives on equities, money supply/velocity, valuations/multiples, and demographics.
BBC Does It Again: "In The Absence Of A Credible Plan We Will Have A Global Financial Meltdown In Two To Three Weeks" - IMF AdvisorSubmitted by Tyler Durden on 10/06/2011 16:40 -0400
A week after the BBC exploded Alessio Rastani to the stage, it has just done it all over again. In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone's mind: "If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008.... What we don't know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems."
There are only two ways for Apple to proceed (as) successfully in the medium term: 1) cut prices or 2) raise the technological bar. Either way, margins get hit. This is the first time Apple has released a smart product to boos from expectations set by the Android camp!!!
- Merkel Says Euro Bonds no Endgame for EU Woes (Bloomberg)
- China on Course to Squeeze Property Bubble (China Daily)
- Moody’s Sees More European Downgrades (Bloomberg)
- Athens Able to Pay Public Sector Wages (FT)
- Ireland Still Faces Bailout Challenges (WSJ)
- Death of Euro Seen Exaggerated Amid Non-Pimco Political Will (Bloomberg)
- Buchanan: With High-Speed Trading, Market Cannot Hold (Bloomberg)
- China to Subsidize Sales of Building Materials (China Daily)
At its very core, to price something complicated, you lay the most similar liquid asset you can find next to it that has a liquid price. You deconstruct the liquid one by its risk premia, and then you reconstruct the one you are trying to price by applying suitable risk premia to it. The output is fair value. All the talk of “Japanification” is just a variation on this theme at a pretty remarkable order of complexity. Call it modeling, call it storytelling, whatever: one compares an economy going through a multi-year banking crisis with one that is just a few years into a banking crisis. Compare trajectories, similarities, and differences. Then figure out what matters and what doesn’t in a macro-sense. One has either past observation to understand reality, or rely on dumb luck to understand future events.
Now: quantitative models recreate thoughts, and brain signals control mechanical devices. The flash crash will look quaint, and Google and Facebook will have a field day.
There's so many ways this could go wrong.
Just like Friday's Chicago PMI, the Manufacturing ISM has now completely decoupled from not only the developing world, but from the rest of America, as somehow US manufacturing in September came in better than expected, printing at 51.6, on expectations of a modest decline from 50.6 in August to 50.5. Commentary from the ISM's Bradley Holcomb: "The PMI registered 51.6 percent, an increase of 1 percentage point from August, indicating expansion in the manufacturing sector for the 26th consecutive month, at a slightly higher rate. The Production Index registered 51.2 percent, indicating a return to growth after contracting in August for the first time since May of 2009. The New Orders Index remained unchanged from August at 49.6 percent, indicating contraction for the third consecutive month. The Backlog of Orders Index decreased 4.5 percentage points to 41.5 percent, contracting for the fourth consecutive month and reaching its lowest level since April 2009, when it registered 40.5 percent. Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products." And reading within the index, the data was not all good, with the all important New Orders unchanged, while an increase in Price Paid showed a modest increase in inflation, and hence deterioration in margins. Compounding the picture, Backlog of orders slumped, while Customer inventories increased. Altogether a non-impressive number, although at least it did not post the first contraction in 26 months, as Goldman had expected.
- German conservative MP says "Greece is bankrupt" (Reuters)
- Eurogroup to discuss EFSF leveraging, Greek reforms (Reuters)
- Europe Aims to Dodge ‘Scapegoat’ Label (BBG)
- UK Treasury Fears Effects of a Euro Break-up (FT)
- Dollar Beating All Assets in September Undermines S&P Downgrade (BBG)
- Japan Tankan Sentiment Below Pre-Quake Level on Global Slump (BBG)
- Osborne Reaches for Middle Ground (FT)
- Hong Kong Banks Face Higher Credit Risks in Midterm, KPMG Says (BBG)
- Greece to Miss Deficit Targets Despite Austerity (Reuters)
- US Congress Presses China on Currency (FT)
Presenting some deeply philosophical observations from the man who has been wrong about pretty much everything, and to whom the jarring return of reality and its relentless destruction of the ivory towers he has carefully erected his entire career, can only be described as "surreal." No Jim - it's not surreal. It is all too real. The only surreal thing will be the response when GSAM's LP get their year end performance statement.
Deflation phobia has broken out again, and Japan's "deflation spiral" is held up as sheer horror. So here is my experience with that horror. Alas, in one category, deflationistas have been right.
David Stockman, former US Representative and Director of the Office of Management and Budget under Reagan, does not mince words. He sees the monetary systems of the world coming apart. How did we get here? He identifies the root cause as the intentional over-leveraging of world economies by central planners in a misguided effort to enjoy growth without consequence.
I blame it on the Fed. I blame it on the 1971 decision by Nixon to close the gold window and let the dollar float. Because out of that has evolved -- or morphed -- a central banking policy in the world that absorbs unlimited amounts of government debt. And so we went on what I call the "T-bill standard" or the "federal debt standard." And the other central banks of the emerging mercantilist Asian economies -- Japan, Korea, and now, especially, the People’s Printing Press of China -- have absorbed this massive emission of debt that otherwise would’ve created powerful negative consequences that would’ve forced politicians to act long ago. In other words, higher interest rates, pressure for inflationary monetary policy, and the actual appearance of price inflation. But because all the bonds on the margin were being absorbed by the central banks, we got away for twenty or twenty five years with “deficits without tears.”
And he's just getting started. The only thing more impressive than Stockman's CV of insider roles in public economics and private finance is his talent for colorful metaphor.
All you need to read. (a little late today)