Meet the man, who many say (most of whom correctly) has been running pretty much everything from deep behind the scenes.
Financialization and the build-out of China provided Europe the illusion that the worker-to-retiree/beneficiary ratio could fall to 2-to-1 and be maintaned indefinitely. Now that the fast-growth phase of China's build-out has ended, and the disastrous consequences of financializing everything under the sun are apparent, the illusion has run aground on fiscal reality. Expectations that have been raised to unrealistic levels for decades are now in the process of being adjusted down to reality, and everyone who felt entitled to promises that cannot be kept is angry, frustrated, disillusioned and seeking a scapegoat for processes that are running entirely independent of the leadership of the moment. How long will this false calm of official reassurances last? Nobody knows, but if crises track an exponential curve like so many natural dynamics, the next phase of the Eurozone crisis will quickly reach escape velocity and accelerate beyond the reach of politicos and PR.
For all those who thought the smooth-talking, avuncular Goldman operative Mario Monti would never lie when he said "Italy is fine", we have some bad news. He did:
- *ITALY REVISES 2012 GDP TO -2.4% FROM -1.2%
- *ITALY REVISES 2013 GDP TO -0.2% FROM GROWTH OF 0.5%
- *ITALY RAISES 2012 DEFICIT TARGET TO 2.6% FROM 1.7%
- *ITALY REVISES 2013 DEFICT TO 1.6% OF GDP FROM 0.5%
- *ITALY SEES 2012 DEBT AT 126.4% OF GDP, 2013 DEBT AT 127.1%
Financial REALity TV #2 - Bernanke's Bank Bailouts Blow Up The Consumer Discretionary Sector! Boom!!!
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We are now T+5 from the launch of the good ship QEternity - do you know where your asset classes are?
There is a reason why we called the graph of youth unemployment in Europe 'the scariest chart' as quite simply, it is the leading indicator for what most call 'social unrest' - but some would call 'uprising'. In somewhat stunning news today, not only do a majority (54%) of Greeks no longer trust any political party, but the popularity of the ultra-nationalist Golden Dawn has risen dramatically since May. According to Ekathimerini, the popularity of Golden Dawn's leader Nikos Mihalolioakos has risen ten points since May to an incredible 22%. More than 1 in 5 Greeks now support the neo-nazi party as the general disillusionment with mainstream political parties - who are seen as lying to get votes - grows stronger. 85% believe that the new measures planned by the government to take affect them personally or another member of their family and 68% are against the terms of the EU's bailout.
Portuguese bond spreads have been weak all week; Spain has been bleeding in the front-end and belly of the curve; and today saw Italian bonds start to lose some gains. What is perhaps more notable is the weakness in Italian stocks (most notably banks) since the short-sale ban was lifted on Friday. FTSEMIB is down 3.5% from pre-FOMC and -5% from post-FOMC spike highs. EURUSD is back below 1.30 (and stands 1.5 sigma rich to swap-spread-implied levels). Meanwhile, Europe's VIX plummets to six-month lows as realized vol plunges - but the volatility risk premium is still high.
It would appear the concerns regarding rising rates in the Treasury Bond market are overblown - no matter how much the inflation break-evens spike. Implied volatility for the Interest Rate market is practically at all-time record lows currently as the Fed continues to remove duration and high convexity assets from the market. One thing concerns us though - the velocity of spikes in volatility once it gets down to these levels has empirically been tremendous - though we are sure this time it's different. In fact this time is different, since this time it is the Fed (as majority owner) that faces the pain from the now-marginal Minsky-like seller of Treasuries running away from inflation-flares (or China/Japan tensions) - and what would Treasury do without that pass-through ponzi revenue from the Fed's winnings? Or as Taleb wrote: "There is no freedom without noise - and no stability without volatility."
The Philly Fed's current September Business Indicators index, long ignored when bearish and cheered when bullish, came slightly above expectations of -4.5, printing higher from last week's -7.1 to -1.9. This was the fifth consecutive negative print. And while there were no major highlights in the index, whose New Orders rose from -5.5 to 1.0 at the expense of Shipments and Inventories, both of which imploded to worse then -20, the real story is the Six Months expectations index, which exploded from 12.5 to 41.2: this was the biggest spike may not ever, but certainly in the past 22 years! Is there any wonder why everyone is transfixed with hope that Q4 will be the deus ex that saves the US economy. And so we are back to being a hopium driven economy - when reality sucks, there may not be much change, but there is always hope that finally, the central planners will get it right, and the future will be so bright you've gotta wear Made in China shades. One word of caution: if the so very much anticipated and 100% priced in Q4 recovery does not materialize, and with the fiscal cliff and debt ceiling issues still unresolved, get the hell out of Dodge, as the spread between hope and reality comes crashing.
explained last week why the initial exuberance from QEternity was likely to fade since it basically removed all suspense from futures FOMC announcements - i.e. that bad news would once again become bad news as opposed to bad news stoking the hopes or more-er QE. Well this morning's bad news - to wit: China PMI, Europe PMI, and US initial claims - has indeed had a detrimental impact on S&P futures as they approach fresh post-FOMC lows.
We have seen a number of leading indicators recently (for example, we were first to note the FedEx implications for GDP) that point to a rapidly rising probability of recession. Today, via Bloomberg Brief, is a look inside the Philly Fed state economic indexes. To be specific, we look at the six-month ahead outlook for each state. Only once in the last 30 years did 20 states possess a negative outlook and the overall economy avoid recession.
Today's initial claims print was the 5th week out of 6 in which expectations missed: instead of coming in at the consensus number of 375K, down from last week's 382K, the BLS reported a miss to expectations of 7K, resulting in a seasonally adjusted number of 382K, or what is now once again secular shift higher. But, wait big miss was actually good news: why? Because the ever data-massaging BLS was kind enough to revise last week's print upward (for the 86th week in a row) from 382K to 385K (just as we predicted last week) which in turn led to such farcical headlines as " U.S. weekly jobless claims drop slightly to 382,000" from the WSJ. And so bad news is now great headlines: Orwell would be proud. Here is an alternative and realistic headline: "Initial Claims Rise Post Next Week's Upward Revision."
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