Monday, December 23, 2013
I believe that nearly everything in [the coalition agreement] is only of secondary importance. It would be of greater importance if it contained ways of overcoming our present problem: that European institutions are basically leaderless. Helmut Schmidt, West German chancellor between 74-82 on Merkel’s Grand Coalition with the Social Democratic Party — (Schmidt at 95 delivers the realism that Europe needs - Marsh on Monday - MarketWatch)
Monday, December 16, 2013 Saturday, December 14, 2013
Germany’s Social Democrats backed an alliance with Chancellor Angela Merkel, clearing the way for her third term at the head of Europe’s biggest economy. 
Merkel’s cabinet will be announced tomorrow after SPD members voted three-to-one in favor of entering a so-called grand coalition with her Christian Democratic bloc. Merkel will be sworn in on Dec. 17, the day after she signs the coalition accord outlining German policy for the next four years that was negotiated with the SPD and her CSU Bavarian sister party. (via German SPD Sets Up Third Merkel Term, Power to Push Policy Over Opposition - Bloomberg)

Germany’s Social Democrats backed an alliance with Chancellor Angela Merkel, clearing the way for her third term at the head of Europe’s biggest economy.

Merkel’s cabinet will be announced tomorrow after SPD members voted three-to-one in favor of entering a so-called grand coalition with her Christian Democratic bloc. Merkel will be sworn in on Dec. 17, the day after she signs the coalition accord outlining German policy for the next four years that was negotiated with the SPD and her CSU Bavarian sister party. (via German SPD Sets Up Third Merkel Term, Power to Push Policy Over Opposition - Bloomberg)

Wednesday, October 2, 2013

The EU was meant to be a voluntary association of sovereign and equal states that surrendered part of their sovereignty for the common good. It has turned into a relationship between creditors and debtors that is by its nature compulsory and unequal. When a debtor country gets into difficulties the creditor countries gain the upper hand.

The rules they have established merely perpetuate this state of affairs. That is liable to be politically unacceptable and it has the potential of destroying the European Union altogether. Only the creditors are in a position to prevent this outcome but they do not seem to show any inclination to do so.

Soros: German elections mean euro crisis over, but EU might not survive - The Tell - MarketWatch

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This is along the lines of what I’ve been postulating for a while.  The Eurozone in its current form is a recipe for disaster.  There must be a change in policy or the project is doomed to failure.  

Wednesday, September 25, 2013 Thursday, April 4, 2013 Friday, December 7, 2012

Weekly Bull/Bear Recap: Dec. 3-7, 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

+ The U.S. economy is showing resiliency and leading indicators are pointing to continued growth:

  • The Institute of Supply Management’s Non-manufacturing survey indicates that the service sector, which accounts were roughly 80% of the U.S. economy, is starting to pick up steam. New orders, a leading indicator, rise from 54.8 to 58.1. (50 demarcates expansion/contraction).  Furthermore, order backlogs cross the 50 mark into positive territory.   
  • The US consumer continues to defy bearish forecasts.  Car sales rise to a five-year high in November, despite fiscal cliff fears. A clear uptrend has been reestablished.

image

(Source: Motor Intelligence

+ There are more signs of a bottom in China’s economic growth.  The National Bureau of Statistics releases its Non-manufacturing Purchasing Managers Index, which increased to a 3-month high of 55.6 and doing its best to emulate a 13-month high mark in HSBC’s manufacturing PMI as well as a 7-month high in the country’s official Manufacturing PMI.  Meanwhile, the property market has clearly stabilized; there is no housing bubble.  Bellwether companies, such as Dow Chemical, see signs of reacceleration.  Stabilization in China and resiliency in the U.S. is translating to a healing global economy.

+ In Europe, periphery sovereign paper has been quietly rallying.  The Italian 10-year yield is now in a clear downtrend (3-yr view); a major potential bearish catalyst is falling by the wayside.  Europe continues to muddle towards a resolution.  Furthermore, when looking at Germany’s DAX, it sure doesn’t look like the wheels are falling off the engine of European growth.     

+ Longer-term, rising wages in China, increased flexibility of U.S. labor unions, and rising transportation costs are various factors resulting in a wave of “onshoring.”  Meanwhile, the Department of Energy announces that oil production is now the highest in almost 15 years, while a highly anticipated report on natural gas exports sets the stage for a significant increase in investment.  These factors will act as steady secular tailwinds for economic growth in the years ahead.  

Bear

- Investors are ignoring a growing divide between Democrats and Republicans on how to resolve the Fiscal Cliff and growing uncertainty is resulting in a precipitous drop in business investment, eerily similar to 2008. 

image

— (Source: Briefing)

- Bullish investors’ hopes that the worse has passed in Europe is pure poppycock.  Eurozone retail sales sink 1.2% in October, while a slew of PMIs continue to show deep contraction; worse,  austerity   looks  to proceed.  Moreover Germany, the locomotive of European growth, presents a terrible batch of economic data this week: industrial production is now cliff diving, retail sales plunge 2.8%, and the Bundesbank chops its growth forecast for 2013 (but the weakness is temporary…..riiight <sarcasm>).  Contagion hits Finland, a country already skeptical of continued bailouts to the South, while in the UK, dreadful factory data raises fears of a triple-dip recession.  In Greece, more than 1 out of every 4 people are unemployed, while France’s unemployment rate hits its highest level in 13 years (youth unemployment hits a record high).  Finally, political uncertainty is remerging in Italy, with Monti’s government seeing ever-thinning support for continued austerity.  Continued weakness in Europe is infecting other major economies, such as Brazil and India.    

- Tensions are close to boiling in the Middle East.  In Syria, rumors of an imminent wielding of chemical weapons by Assad on rebel forces marks a perilous escalation of violence.  NATO approves Turkey’s request for missile installations, to the chagrin of Russia and China.  Morsi plans to slay democracy in Egypt by calling for a referendum and a new Islamist-backed constitution; protestors are marching toward the presidential palace as this article is posted.  Finally, while out of the spotlight, the Iran/Israel standoff continues to regress.


- While the bulls may celebrate today’s better than expected jobs report, behind the scenes, the job market is actually weakening.  The unemployment rate fell because less people are in the work force (a decline in the participation rate).  In addition, a net revision downwards of 49,000 over the prior two months points to a much weaker job market than many believe.  Meanwhile, buried in the ISM’s Non-Manufacturing Index, the employment sub-index is on the precipice of contraction, at 50.3, while in the Manufacturing Index, the sub-index is now contracting for the first time in 3 years.  What’s more, Gallup reports that its measure of unemployment has risen significantly, and job creation has stalled.  Challenger Gray & Christmas, an important consulting firm, reports that job cuts are coming down the pipe over the coming months.
Monday, August 27, 2012 Monday, August 20, 2012 Thursday, August 16, 2012
German Chancellor Angela Merkel renewed her call for austerity as crucial to tackling financial turmoil in the euro area, praising Canada’s economic example as she returned to the crisis fight after her summer vacation. (via Merkel Cites Canada as Debt-Deficit Model in Europe’s Crisis - Businessweek)
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Austerity will likely continue and could further worsen an already fragile investor climate as austerity-wrecked periphery countries remain in the throes of a debt trap.

German Chancellor Angela Merkel renewed her call for austerity as crucial to tackling financial turmoil in the euro area, praising Canada’s economic example as she returned to the crisis fight after her summer vacation. (via Merkel Cites Canada as Debt-Deficit Model in Europe’s Crisis - Businessweek)

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Austerity will likely continue and could further worsen an already fragile investor climate as austerity-wrecked periphery countries remain in the throes of a debt trap.

Sunday, July 15, 2012 Friday, July 6, 2012

Weekly Bull/Bear Recap: Jul. 2-6, 2012 

Bull

+ The U.S. economy continues to grow; recent data is only a pause that refreshens.  

  • The consumer is resilient in the face of slowing economic conditions abroad.  The National Restaurant Association reports that performance and expectations for May are near 2006 levels. Meanwhile, auto sales rebound, surprising most analysts. 
  • U.S. Rail Traffic continues to show an expanding economy and two key sectors of the economy, autos and housing, are poised to lead a re-acceleration of growth.  
  • Construction spending for May surges the most in 5 months, signaling that activity has finally bottomed and will be a job creator in the quarters to come.  
  • Speaking of job creation, ADP reports a stronger pace.  Meanwhile, jobless claims fall under 380K for the first time since mid-May, planned job cuts plunge to a 13-month low, and the Monster Employment shows growing labor demand.  While the BLS job report is below expectations, wage growth firms up and the average workweek ticks higher.  

+ Gas prices have plunged over the past 3 months, while ISM Prices-Paid subcomponents are in deep contraction territory.  Conditions are ripe for the Fed to initiate another QE and confirm that central banks are coordinating policy, causing a turn in sentiment and a powerful rally.  

+ Meanwhile, China has plenty of ammunition for additional stimulus.  However, the economy is stabilizing on its own as per China’s non-manufacturing index, which rises to a 3-month high of 56.7.  There will be no hardlanding in China.  Monetary officials are loosening monetary policy, setting the stage for a strengthening recovery over the 2nd half of the year.  

+ German factory orders come in better than expected and is good news for the exporting powerhouse.  Global growth has weakened but will stabilize soon.     

Bear

- Investors are giving the thumbs down towards solutions presented at the latest European summit .  Spanish yields are back within striking distance of 7%, while Italian bonds are above 6%.  Core-countries are reneging on providing unconditional help to the periphery.  A crisis of confidence is set to fragment the Eurozone.  We are at most weeks away from a negative worldwide financial shock, leading to a global recession.  

- Merkel is under increasing pressure from officials in her native Germany.  The CSU, the Constitutional Court, and now the President of the Bundesbank are making it clear that political will in Germany has been exhausted.  A referendum must take place.  Meanwhile, the Greek government is set to collapse again soon.  The ECB cut interest rates, but it isn’t enough for the QE-addicted market.  Finland says the “unthinkable.”

- U.S. economic data continues to point to increasing sluggishness and ultimately a recession.  The ISM June’s manufacturing index turns in its first contraction print in 35 months; important leading indicators — New Orders and Backlogs — are in solid negative territory.  While ADP shows an improved labor market, the BLS has a different account of its health.  Weekly consumer metrics are showing significant weakness and outlooks in the retail sector are getting slashed.  

- Global economic data continues to disappoint.  Euro-area unemployment climbs to a record 11.1% in May.   The bulls were wrong, Germany did not decouple from the rest of Europe, as May’s PMI fell to a 3-year low and weighted on a gloomy Eurozone PMI.  Slumping New-Orders for most PMIs signal global recession has arrived.  Globally coordinated interest-rate cuts smell of panic.  

- “But trust is shattered at the very top of the financial system.

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Be sure to check out my newly minted macro and market outlooks.  Happy Independence day to all of America.  I love my country and look forward to better times ahead.       

Saturday, June 2, 2012 Thursday, May 24, 2012
European leaders clashed over joint debt sales as they called on Greece to stick with the budget cuts needed to stay in the euro and offered no immediate relief for recession-wracked Spain. 
The 18th summit in more than two years of crisis fighting was marked by new French President Francois Hollande’s challenge to the German-dominated deficit-cutting orthodoxy that has failed to stabilize the euro area and led to speculation that Greece might be forced out. 
“We had a not unheated discussion on euro bonds,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels early today after six hours of talks. Joint borrowing “didn’t find much support, particularly in the German speaking area but found a certain enthusiasm in the French speaking area.” (via EU Chiefs Clash on Bonds Amid Call Greece Keep Cutting - Bloomberg)

European leaders clashed over joint debt sales as they called on Greece to stick with the budget cuts needed to stay in the euro and offered no immediate relief for recession-wracked Spain.

The 18th summit in more than two years of crisis fighting was marked by new French President Francois Hollande’s challenge to the German-dominated deficit-cutting orthodoxy that has failed to stabilize the euro area and led to speculation that Greece might be forced out.

“We had a not unheated discussion on euro bonds,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels early today after six hours of talks. Joint borrowing “didn’t find much support, particularly in the German speaking area but found a certain enthusiasm in the French speaking area.” (via EU Chiefs Clash on Bonds Amid Call Greece Keep Cutting - Bloomberg)

Tuesday, May 22, 2012