Asian Stocks Rise, Oil Climbs on U.S. Budget Talks; Yen Weakens - Bloomberg
Obama, before starting a three-nation trip in Asia, began a new round of deficit-reduction talks with top Republicans and Democrats in a bid to avoid automatic tax increases and spending cuts that threaten to throw the country into a recession next year. European finance ministers aim to craft a plan for Greece’s next aid payment this week. Regional finance chiefs are due to meet in Brussels tomorrow for the second time in a week after they agreed seven days ago to keep Greece’s bailout aid flowing.
“Investors appear to be increasing their bets that the worst-case scenario for the U.S. fiscal situation will be averted,” Kim Dae Young, a Seoul-based fund manager at KB Asset Management Co., which manages about $27 billion in assets, said by phone today. — Bloomberg
Weekly Bull/Bear Recap: Nov. 12-16, 2012
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.
Bull
+ Weak economic data and fiscal cliff concerns have produced a buying opportunity for risk assets. Firstly, weakness in this week’s economic data is due to Hurricane Sandy. Data will revert to trend growth soon and surprise investors to the upside. Finally, we are beginning to see the contours of a resolution as per recent remarks from Obama and Boehner. Democrats will pile the pressure on Republicans to relent. Lawmakers understand the consequences of non-action and will naturally act in time to avoid the bearish scenario.
+ Long-term U.S. economic bullish tailwinds are forming before our eyes. Shale oil and “fracking” look to make the U.S. an energy powerhouse, spawning a wave of manufacturing investment and job creation. The U.S. is forecast to be an oil exporter by 2030. Furthermore, the housing market is on the mend with housing bellwethers reporting improved earnings trends, economic data showing falling inventory levels, evidence of an improving trend in delinquencies, and leading indicators such as the S&P Homebuilders index and lumber prices signaling increased vigor ahead. Finally, China continues to show stabilization; a rebound will ensue in 2013. Longer-term, new leadership will ensure that the country’s important 5-year plan is properly executed. These bullish tailwinds will grow stronger in the coming months and will cause a further uptrend in Citi’s Surprise Index (a measure of investor sentiment)…
+ …In fact, sentiment on Main Street continues to improve and U.S. economic growth quietly surprises to the upside in the 3rd quarter.
+ Athens will likely be given additional time to digest austerity cuts. European leaders understand that they must give Greece time to adjust. This is a positive step and shows that political will for a unified Europe remains resilient. Furthermore, GDP data for France, Germany, and Italy print better than expected.
Bear
- U.S. companies fear the fiscal cliff and government gridlock is set to continue, all the while bailouts persist. Falling core capital goods orders (affecting manufacturing), souring small business sentiment, and weakening consumer spending are ingredients for a self-fulfilling prophecy of recession. Promises of further monetary easing are met with risk markets shrugging. Monetary policy has become powerless to stop continued economic weakness.
- Germany will be entering recession soon. The important ZEW survey implodes in November, falling 4.2 points to -15.7. A negative balance indicates that more experts expect the economy to contract over the next 6 months. A political crisis in the Eurozone is increasing in probability. How can Germany bailout other countries when it now needs stimulus of its own? That will be a major question on November 20th when the Bundestag votes on the next tranche of aid to Greece.
- Meanwhile, things are taking a turn for the worse in most if not all of Europe. For September, Spanish industrial orders collapse almost 6%, while Eurozone industrial production falls the most in 3 years. In France, recession is knocking on the door and Germany is pondering critiquing the country’s economy (good luck with that). Meanwhile, most periphery nations are plagued with increasingly violent strikes and protests; the Greek government is beginning to lose control as a GDP print of -7.2% in the 3rd quarter has prompted the Prime Minster to announce that a “Great Depression” has descended on the country. The IMF and EU continue to spar over the details of a new aid package —wavering IMF support is further fuel for uncertainty.
- Weakness in Europe is spilling into Asia, with Japan on the cusp of another recession and Taiwan experiencing some intense market declines. Meanwhile, geopolitics is further clouding the outlook. Israeli airstrikes kill the leader of Hamas’s militant wing. This is occurring within the backdrop of already high tensions in the region; a report from an U.N. agency fuels further fear of military conflict between Israel and Iran.
CBO sees worse economic wreckage from "fiscal cliff" - Yahoo! Finance
Let the apocalyptic warnings begin. Eventually officials will agree to something, but the problem will remain; poor budget management and mountains of debt. Non-resolution in the meantime is leading to falling business confidence as businesses don’t know what to expect.
Mr. Stockman has a very grim outlook in regards to the political environment leading up to the fiscal cliff. Indeed his view is worse than mine.
Congress Said to Delay Automatic Budget Cuts Until March - Bloomberg
Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity.
“It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview. — (Bloomberg).
U.S. House May Split Up Package of Expired Tax Breaks - Bloomberg
Republicans in the U.S. House of Representatives are considering splitting up a package of miscellaneous tax breaks, potentially making it tougher for items with less support to survive alongside more popular provisions.
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It’s looking like there won’t be a fiscal cliff, but government spending will likely diminish next fiscal year.
