Do we have what it takes to get from here to there? This apparently simple question offers profound insights into the dynamics of individuals, households, enterprises and nation-states. If we answer this question honestly, it establishes a "road map" of what must be in place before a progression from here to a more sustainable future ("there") can take place. For most of the world's economies and societies, the answer is a resounding "no." The U.S. Status Quo is as intellectually bankrupt as it is financially bankrupt. Our "leadership" cluelessly clings to the only model they know: incentivize "consumers" into borrowing more money to buy more "stuff" from China, in the magical-thinking belief this churn will somehow lead to sustainable "growth." This is akin to handing a parched alcoholic a fresh bottle of whiskey to wean him of his addiction. There are more than a few lessons to be learned from Japan...
Whilst the economic data shows at least some signs of an anaemic turnaround, China’s corporate results are demonstrating just how difficult things have been. During a slowdown, it is common for payments to be delayed as everyone hangs on to cash. Some companies, though, can be tempted to avoid curtailing production by offering reluctant customers much easier credit to encourage sales, the hope being that the slump will soon end and “natural” demand will pick up again. The trouble of course is that if the slowdown is prolonged, or the recovery weaker than expected, these accounts receivable (A/R) might turn “un-receivable”, and thus have to be written down as losses. An increase in A/R is expected, but such a large increase suggests that some companies have been staying in operations through this vendor financing. In the struggling coal sector, at the end of June, accounts receivable had jumped 52.8 % for the 90 biggest coal firms. The need for a stronger turnaround is becoming more and more urgent!
The people have spoken. It’s seen as a solution.
Please, point me to the floor.
Today's just announced revenue and EPS misses from both megacaps McDonalds and GE (in addition to MSFT, GOOG, INTC, IBM and everyone else) merely adds to what has so far been an abysmal earnings season, and one which is set to continue for far more weakness into Q4 (why? Hint: China, and its unwillingness to ease, and thus provide the much needed demand oomph US corporates need). Yet, the pundits will claim, economic conditions in the US have improved. How does one reconcile this disconnect? Simple: as Bloomberg Brief shows in two simple charts, what we are undergoing is not the first, but second case of annual deja vu, as the economy supposedly picks up in Q3 and Q4, courtesy of the latest and greatest artificial sugar high from the Fed, only to slide promptly back into decline once the initial euphoria fizzles. However, this time there is a major difference: corporate Y/Y revenue (and in many cases EPS) comps have turned negative, which means that unlike before when corporations would be the silver lining in a dreary macro environment once the economic downward trend resumed, this time around there won't be a convenient Deus Ex to provide a last gasp reason to hold on to the myth that things are getting better. This, in turn means, that with "dividend" assets no longer attractive, the investing/trading crowd will rush into hard assets like crude (recall the $125/barrell Brent barrier for economic decline)... and gold. But that is a story for another day.
Och-Ziff Calls Top Of "REO-To-Rental", And Distressed Housing Demand, With Exit Of Landlord BusinessSubmitted by Tyler Durden on 10/17/2012 18:25 -0500
The primary, if not only, reason there has been a brief spike in subsidized demand for housing in recent months, has been the GSE/FHFA endorsed REO-To-Rental plan, and associated securitization conduits, in which large asset managers have been encouraged to take advantage of government funded, risk-free financing (and entirely bypassing banks who have given up on loan origination due to legacy liability issues which have every bank tied up in litigation from now until Feddom come - just see today's Bank of America results) and purchase foreclosed properties in bulk, with the intention of converting them into rental properties. Needless to say, the subsidization of this wholesale purchasing of foreclosures, coupled with the ongoing "foreclosure stuffing" pursued by the big banks (as a reminder days to foreclose in New York just hit a record 1,072 per RealtyTrac as banks simply refuse to clear housing inventory faster knowing full well withheld inventory is an additional clearing price subsidy) is the main reason why the punditry has been confused into believing there is a housing rebound. That this "rebound" is merely a subsidized demand pull phenomenon a la the "cash for clunkers" auto sales program is patently clear to most. Nonetheless what little confusion is left, is finally coming to an end, thanks to none other than one of the first entrants in the REO-To-Rental space, $31 billion hedge fund Och Ziff, which a year after entering the program with hopes of quick riches, is now looking to cash out.
When push comes to shove, China still has the bigger gun over Japan on many other levels, and the U.S. most likely has to at least sit in the bed it’s made so far.
The overnight session started with broad weakness following last night's downgrade of Spain to BBB- by S&P, once again led by Egan Jones, due to fears that an outright junking by one or all rating agencies is on deck, now that the status quo means business and is hard pressed to advice Mariano Rajoy that the ECB will not be toyed with, and if need be the same tactics used to oust Silvio Berlusconi just under a year ago can be applied to Spain which is now proving very difficult to handle: all Spain needs to do to ensure at least a few more months of banker pay is to demand a bailout. And yet it remains unwilling to stick to the simple script so far. Sure enough, Spanish bond prices tumbled, as did the EURUSD. Yet sometime around 4 am Eastern, a levitation commenced across all risk assets, EURUSD, and US futures, with Spanish bonds retracing the entire earlier loss, showing that the ECB has now once again shot itself in the foot and that any attempt to recreate the same playbook as was used to remove Silvio, will be far more problematic when applied to Spain.
The majority of Americans seem OK with just waddling through life, accepting the lies and misinformation blasted from the boob tube and their various iGadgets by their owners, gorging themselves to death on Twinkies and Cheetos, paying 15% interest on their $10,000 rolling credit card balance, and growing ever more dependent on the welfare/warfare state to provide and protect them from accepting personal responsibility for their lives. A minority of critical thinking people have chosen to question everything they see and hear being spewed at us by the propagandist mainstream media. What do 'we, the people' want? As it seems the entitlement “free shit” mentality permeates our culture. The question is whether we will stand idly by, fiddling with our gadgets, tweeting about Honey Boo Boo, or will we regain our sense of duty to the future generations of this country.
Even domestic demand is getting hit, and the Draghi-Bernanke effect has kicked in.
The market appears convinced that it now has nothing to worry about when it comes to the fiscal cliff. After all, if all fails, Bernanke can just step in and fix it again. Oh wait, this is fiscal policy, and the impact of QE3 according to some is 0.75% of GDP. So to offset the 4% drop in GDP as a result of the Fiscal Cliff Bernanke would have to do over 5 more QEs just to kick the can that much longer. Turns out the market has quite a bit to worry about as Goldman's Jan Hatzius explains (and as we showed most recently here). To wit: "our worry about the size of the fiscal cliff has grown, as neither Democrats nor Republicans look inclined to budge on the issue of the expiring upper-income Bush tax cuts. This has increased the risk of at least a short-term hit from a temporary expiration of all of the fiscal cliff provisions, as well as a permanent expiration of the upper-income tax cuts and/or the availability of emergency unemployment benefits." This does not even touch on the just as sensitive topic of the debt ceiling, where if history is any precedent, Boehner will be expected to fold once more, only this time this is very much unlikely to happen. In other words, we are once again on the August 2011 precipice, where everything is priced in, and where politicians will do nothing until the market wakes them from their stupor by doing the only thing it knows how to do when it has to show who is in charge: plunge.
It seemed yesterday's channel-stuffed and hope-ridden car-maker data in the US was seen by some as evidence that we are right back on track. However, ever ready to separate the reality from the fantasy, we offer the following charts, via Barclays' Julian Callow, that vividly illustrate the rapid decline in the pace of auto registrations (the actual end-users that is) over the past year. In particular, Callow notes, the pace of seasonally-adjusted auto registrations in Q3 for the four largest European countries was the weakest in the series history (back to 1995).
- 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)
Consumer Prices Soar By Most Since June 2009, Retail Sales Ex-Autos And Gas Expose Lethargic ConsumerSubmitted by Tyler Durden on 09/14/2012 07:47 -0500
Following yesterday's producer price shock, when PPI soared by the most since June 2009, today's CPI follows suit, with the largest jump in over 2 years, printing up 0.6%, in line with expectations, up from an unchanged print in July. In other words, the food inflation which is already spreading through the economy courtesy of the record drought, is about to be supported by some brand new Fed-generated inflation. Luckily, as yesterday, nobody uses gas or food. And in other news, retail sales posted yet another very disappointing print, when despite a better than expected headline print of 0.9% in August advance retail sales, a number which included gas and auto sales, retail sales excluding these very volatile components, rose by only 0.1%, on expectations of a 0.4% rise, and a downward revision from 0.9% to 0.8%. This was the 5th miss in 6 months, and ugly all around. In other words, the US consumer, revised consumer credit data notwithstanding, is levering up and not generating any real new sales. Expect yet another round of GDP revisions. However, in light of yesterday's Bernanke announcement, it is pretty obvious that no macro economic data for public consumption does the disaster that is the economy in the Fed's eyes, justice, and makes us wonder just how ugly the underlying reality must be. All that said: with inflation spiking, and consumers lethargic, it certainly appears that Bernanke picked the perfect time for more monetary paper dilution.
Perhaps never a more truthful 'lifting-the-veil' paragraph has been written by the squid as the following discussion of just what NEW QE will consist of and what it will achieve; sad that our economy market has come to this.
"The form of any return to QE is less clear. The issue is not so much whether the Fed buys Treasuries or agency mortgage-backed securities; we are pretty sure that any new program would be primarily focused on agency MBS purchases. These should have a somewhat bigger per-dollar effect on private-sector demand and are probably less controversial with the public than Treasury purchases. They can be framed as help for homebuyers to achieve the American Dream, which sounds better than help for the government to run large budget deficits."