U.S. Stocks Advance Amid Factory Orders, Cyprus Deal - Bloomberg
Pope Breaks From Tradition - WSJ.com -
The Casal del Marmo, Rome’s juvenile detention center, was a highly unusual venue for the ceremony, and Pope Francis’s choice of the location was part of his drive to recast the papacy in a humbler light. Traditionally, popes have performed the ceremony at a Rome basilica, washing the feet of Christian men.
Papal gestures are carefully studied for signs of how a pope plans to shift the priorities of his global flock. From the start of his papacy this month, Pope Francis has kept the signals coming. Upon his election, he took the name of Francis in honor of St. Francis of Assisi, who is renowned for his poverty and humility. — WSJ
Germany Gains Momentum as Europe's South Struggles - WSJ.com -
Yet with little evidence that Berlin’s prescription for the south—massive spending cuts to reduce countries’ dependence on foreign borrowing—is bearing fruit, Europeans are asking what Germany’s endgame is…
With Germany increasingly reliant on the world’s emerging markets—from China to Brazil and India—to fuel its export engine, some Europeans worry that Berlin’s long-term interests lie not in helping countries such as Greece and Portugal back on their feet, but rather in preventing them from doing further harm.
“Germany is prioritizing limited-liability crisis management on the cheap and allowing the euro zone to exist in a halfway house in an ill-managed monetary union,” said Nicholas Spiro, head of consulting firm Spiro Sovereign Strategy. That approach “can’t persist indefinitely,” he said. — WSJ
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You’re damn right it can’t!
Lines Form as Cyprus Banks Reopen - WSJ.com -
“The media were waiting for Cypriots smashing windows of banks. Their dreams were not fulfilled—Cypriots are decent people,” said one man of roughly retirement age, who stood outside a Bank of Cyprus branch holding a leaflet that read: “Why must international media be so greedy of horror scenarios?!…Solidarity with the people of Cyprus, NOT their banks.”
Some Cypriots said they would wait a few days before going to their banks.
“We came here for the action. We just want to see what’s going on, but we don’t plan to go to the banks today or tomorrow,” said bus driver Nikos Panagiotou, 38 years old, who stopped at a Bank of Cyprus branch along with a colleague, George Nikolaou, 64, before heading to work. “We will wait for things to calm down. Our wages may be delayed for two to three days but that’s OK,” said Mr. Panagiotou.
Pointing at his bald head, he added: “I have already had my haircut, so I don’t mind.” — WSJ
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Lines are orderly. No bank runs here, according to reports. That’s bullish if Eurozone citizens remain confident in the banking system.
French President Lashes Out at Austerity - WSJ.com
And Scene: Big Cypriot Depositors Facing Complete Wipe Out | Zero Hedge -
http://www.youtube.com/watch?v=W5D07c0dJuQ&feature=youtu.be
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
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Bull
+ Cyprus is committed to the Eurozone. Its sacrifice is a signal of resilient and solid political will. The Bears continue to dwell on crisis after crisis, but they fail to recognize that these are clear buying opportunities. Europe is too invested in the project to turn back now; they will create solution after solution, leading to further integration. Smart investors sniff this trend of “no turning back” (a trend confirmed by 2-yr swap spreads)…
+ …Risk markets continue to appreciate despite Eurozone worries — the S&P 500 and Dow Industrials have hit record highs. Stale global growth will begin to rebound due to continued resolution in Europe as well as positive spillover effects from a clearly strengthening U.S. economy:
+ Corporate profits remain at record levels, but this is little reason to believe that they will mean revert. Through a domestic lens, profits are indeed high vs. the historial average, but from a global perspective, profits are only a little above average and have room to grow. Because globalization has resulted in many US corporations obtaining revenue streams from abroad, earnings will grow on an improving global economy. “Conventional thinking sees unsustainably high corporate profits and expects a reversion to the mean. Global thinking sees no a priori reason to worry at all.”
Bear
- Conditions in Europe are approaching a boiling point.
The Cyprus bailout is a Pyrrhic Victory, setting two ominous precedents:
Moreover, Dutch Eurogroup head Jeroen Dijsselbloem does his best to further rock the boat by announcing that the Cyprus deal would be a template; a statement quickly refuted by the EU (when it becomes serious you have to lie right?). Furthermore, how can Bulls say that political will remains solid when you have comparisons of Merkel to Hitler on “El Pais” (Spain’s largest newspaper) and Luxembourg’s PM saying “Germany and Merkel are striving for hegemony…”? It’s not only European countries who are ticked off at the Cypriot bailout package. So….who’s next in line for the Eurozone’s 6th bailout package and a guaranteed depression? Heeeere’s Slovenia!
Deterioration seen this week wasn’t limited to Cyprus. Italian yields rose on lack of a solution to the lingering political deadlock in the country. Levels to watch on Italian 10-yr yield = 4.87 to 4.89. A strong break over these levels will signal further trouble for equity markets worldwide. Economic wise, the data still look bearish for the country: Industrial Orders in January fell another 1.4%, while Retail sales fell 0.5% in February.
- Red flags are waving in terms of global growth. The level of complacency throughout the investment community is at deafening levels. All of a sudden the Phd in economics, copper, is disregarded as a bellwether indicator of global growth. Perhaps because its clearly not confirming the bullish narrative - (the red metal broke through its multi-year symmetrical triangle pattern to the downside). What’s more, South Korean GDP disappointed, as did industrial production. Was this due to Abenomics? - (keep an eye on a possible rising wedge for the Kospi).
- Is manufacturing in the US really picking up? Most of the rebound in Durable Goods Orders was due to the volatile transportation sector. Core durable goods, a gauge of business spending, actually fell at the steepest rate since July last year (-2.7%), surpassing economists’ forecasts of a 1.2% drop. Meanwhile, the Chicago purchasing managers index came at a disappointing 52.4 versus analyst expectations of 56.1. New Orders plunged 9 pts and Backlogs are now negative.
- Is the housing recovery real? Not when mortgage purchase applications, a measure of true sustainable demand and not investor buying, is not confirming. Furthermore, for all the talk of large YoY gains, it’s important to see the forest for the trees; home prices are still down 30% from their peak 7 years ago.
Kim Prepares Rockets as Hagel Denounces N. Korea ‘Danger’ - Bloomberg -
Kim Jong Un ordered North Korean rocket forces on standby to strike the U.S. and South Korea as Secretary of Defense Chuck Hagel denounced the totalitarian state’s “provocative actions and belligerent tone.”
Kim met with his military leaders today and ordered the rocket preparations after two U.S. B-2 stealth bombers flew over South Korea yesterday in a show of deterrence. Hagel condemnedNorth Korea’s recent actions, which include cutting off a military hotline with South Korea, putting its artillery forces on high alert and threatening pre-emptive nuclear strikes.
Even with the escalating rhetoric, the U.S. sees no sign of any unusual military maneuvers by North Korea, Army General Martin Dempsey, chairman of the Joint Chiefs of Staff, said at yesterday’s press conference with Hagel.— Bloomberg
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Usually, the belligerent rhetoric is nothing more than that; however this guy seems to be pushing the envelope. Given that he’s new, not many people know how he will actually act. The situation continues to escalate and warrants an eye on.
S. Korean Output Unexpectedly Falls as Growth Forecast Lowered - Bloomberg -
South Korea’s industrial production unexpectedly fell in February, signaling that a recovery in Asia’s fourth-largest economy may be slower than expected as a weaker yen threatens exports. — Bloomberg
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Despite continually rising US equity indexes, Asian indices aren’t buying it. Furthermore copper continues to sink. Has the US decoupled from the global economy? Has the PhD in economics lost its relevance? Some people think so.
Cyprus Averts Panic Withdrawals as Banks Open With Cash Controls - Bloomberg -
“We expected much more people,” said Argyros Eraclides, manager of a Bank of Cyprus Plc branch in the Stavrou area of Nicosia. “Fortunately there are only some people who needed cash for the day, but customers reacted fantastically. We expected some people to be more aggravated.” — Bloomberg
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Here’s a bullish spin to Cyprus banks reopening
Long Lines as Banks Reopen in Cyprus After Freeze - NYTimes.com -
But the prevailing view in Cyprus is that the leaders of the European currency project have mainly sought to quarantine a potential Cypriot financial contagion by limiting it to a disease whose only real victims will be Cyprus and its bank depositors.
For Mr. Sofroniou, the bailout terms show that the European Union is driven by the same merciless forces now playing out in the long concrete and aluminum sheds of his family farm. ‘‘The weakest pigs in the pen don’t eat,’’ Mr. Sofroniou said. ‘‘The strong ones eat everything. This is the law of nature.’’
‘‘The weak ones will be eaten,’’ he continued, pointing to specks of blood on the ears and tails of scrawny pigs that can’t fend for themselves in a daily struggle for meager rations of food. He needs 30 tons of feed a day, but with the limited money he can now withdraw, he can buy only one ton from his supplier, who is still demanding cash because his own suppliers of grain, all of it imported, are also insisting on cash. — NYT
Dollar gains as Italy ‘mess’ puts euro below $1.28 - Currencies - MarketWatch -
LOS ANGELES (MarketWatch) — The U.S. dollar climbed against most major rivals on Wednesday, with the euro tumbling below $1.28 for the first time since November on renewed political turmoil in Italy. — Marketwatch
Argentina Loses Bid for Full-Court Rehearing on Bonds - Bloomberg -
Argentina’s request that the full federal appeals court in New York reconsider a ruling by a three-judge panel was denied in a case involving $1.3 billion in defaulted bonds.
Argentina defaulted on a record $95 billion in debt in 2001. Holders of about 91 percent of the bonds agreed to take new exchange bonds in 2005 and 2010, at a deep discount. The country claims that a ruling forcing it to pay creditors who hold defaulted bonds, led by Elliott Management Corp.’s NML Capital Ltd., would open it up to more than $43 billion in additional claims it can’t pay and trigger a new default. — Bloomberg
BRICS Nations Plan New Bank to Bypass World Bank, IMF - Bloomberg -
The biggest emerging markets are uniting to tackle under-development and currency volatility with plans to set up institutions that encroach on the roles of the World Bank and International Monetary Fund.
The leaders of the so-called BRICS nations — Brazil, Russia, India, China and South Africa — are set to approve the establishment of a new development bank during an annual summit that starts today in the eastern South African city of Durban, officials from all five nations say. They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises. — Bloomberg