Forget Double Dip, The UK Is Now In A Depression

With the Olympics about to kick off in all its glorious celebration, the sad reality of UK's GDP shrinking 0.7% as the empire drops further into a double-dip. As Bloomberg Brief notes, this came along with a 5.2% plunge in construction output as the IMF estimates austerity has cut 2.5% off GDP. What is most concerning is that GDP has fallen for five of the last seven quarters and is now 4.5% below pre-crisis levels. The level of disbelief is palpable though since the BoE sees only a 10% chance of this recession lasting into 2013 and while it estimates that it will take until 2014 before the UK gets back to the 2008 level (magically), we note that that is already longer than it took during The Great Depression.

Goldman Interprets Draghi

Wondering what Draghi really meant this morning when he spoke at an informal Investment Conference? Apparently nothing just as we said first thing this morning: IMF SAYS DRAGHI'S REMARKS ARE A WELCOME REITERATION OF ECB'S WELL-KNOWN COMMITMENT TO DO WHAT IS NECESSARY. So now the talking down of expectations, or in this case today's iteration of "baffle with bullshit" begins. Yet surely there is some additional agenda. For the best interpretation of what the ECB head said, we go to his former employer, Goldman Sachs, which is always ready to tell its clients to do the opposite of what its own prop desk is doing.

Asian Contagion Strikes Again Thanks To US Drought

With the heat-wave in Southern Europe, the missing Monsoon, and the earth-cracking drought in the US, it is no surprise that corn, wheat, and soymeal prices are soaring as crop yields plunge. The level of inventories were already low going in and as Bloomberg notes, consumers around the world will feel the effect of higher food prices as the worst drought in 50 years impact the world's largest exporter of corn and wheat (and 3rd largest of soymeal). Within Asia, Korea and Malaysia will be most adversely affected, considering direct effects referenced in per capita and GDP terms. Indonesia and Japan are Asia’s largest importers of wheat, both importing roughly 5.7 million metric tons on average. China is by a wide margin the region’s largest importer of soy, with average imports of 49.9 million in the last five years. The impact on headline inflation in Asia will be stronger for the economies with lower per capita incomes — Vietnam, India, the Philippines and Indonesia — where food and food products account for a larger share of the typical consumption basket. Even in places where incomes are high, such as Singapore, food accounts for 22 percent of the consumer price index.

Europe 'Soars' To 4-Day High On Draghi 'Solution'

UPDATE: 7 of the last 8 moves in Spanish spreads of this magnitude were followed by a more dramatic selloff within 2-3 days.
It was a good day; of that there is no doubt. Equity, FX, credit, and sovereign bond markets all retraced  recent weakness in a hurry - extending some of the gains from yesterday's Nowotny nonsense. With Merkel away on vacation and unable to fade this exuberance - though the IMF did their best reality impression. We don't mean to steal the jam out of anyone's donut here but in the case of EURUSD, 2Y Spain, 10Y Spain, Italian bonds, and Italy and Spain's equity indices - today's 'game-changer' merely reverted us back to Friday's close - filling that gap. In most cases this still leaves the levels notably weaker than pre-EU-Summit - in spite of how much certain CNBC hosts 'believe'. Bt we would be unfair if we did not note the moves: IBEX/FTSEMIB +5.5%; Euro Stoxx +3.9%; Spain 2Y -87bps, 10Y -45bps; EURUSD +136pips - pegged at 1.23; Italy 2Y -89bps, 10Y -37bps; Europe's VIX dropped 1.7vols to 25.4%. The charts say it all for context here.

On The Path To Global Goldmanation: Former Goldmanite Mark Carney To Head The BOE After All?

When the Lieborgate scandal broke out and the Bank of England trace became publicly known, some of the more conspiratorially inclined elements saw in this epic shakedown at the English central bank nothing but an opportunity for the world's dominant investment bank, Goldman Sachs, to capitalize on the scandal and the succession panic now that Paul Tucker is obviously out of succession rotation, and to appoint its own tentacles to the head of this most important central bank that is currently squid free. In fact, on July 3 we said:"now that the natural succession path at the BOE has been terminally derailed, it brings up those two other gentlemen already brought up previously as potential future heads of the BOE, both of whom just happened to work, or still do, at... Goldman Sachs:  Canada's Mark Carney or Goldman's Jim O'Neil. Granted both have denied press speculation they will replace Mervyn King, but it's not like it would be the first time a banker lied to anyone now, would it (and makes one wonder if this whole affair was not merely orchestrated by the Squid from the get go... but no, that would be a 'conspiracy theory'.)" We wonder if this speculation can be upgraded from conspiracy theory to conspiracy fact, now that Bloomberg itself has written a major article discussing just this suddenly very likely outcome.

Presenting The Good, Bad, And Nuclear Options For The Fed

While some have talked of the 'credit-easing' possibility a la Bank of England (which Goldman notes is unlikely due to low costs of funding for banks already, significant current backing for mortgage lending, and bank aversion to holding hands with the government again), there remains a plethora of options available for the Fed. From ZIRP extensions, lower IOER, direct monetization of fiscal policy needs, all the way to explicit USD devaluation (relative to Gold); BofAML lays out the choices, impacts, and probabilities in this handy pocket-size cheat-sheet that every FOMC member will be carrying with them next week.

Are You Loving Your Servitude Yet?

As prescient as he was, Huxley could not have foreseen the power of electronic media hypnosis/addiction as a conditioning mechanism for passivity and self-absorption. We are only beginning to understand the immense addictive/conditioning powers of 24/7 social and "news" media. What would we say about a drug that caused people to forego sex to check their Facebook page? What would we say about a drug that caused young men to stay glued to a computer for 40+ hours straight, an obsession so acute that some actually die? We would declare that drug to be far too powerful and dangerous to be widely available, yet the Web is now ubiquitous. Servitude comes in many gradations and forms. Relying on the Federal Reserve to constantly prop up our pension and mutual funds lest reality cause them to collapse is a form of servitude; we end up worshipping the Fed's every word and act as mendicants worship their financial saviors. That the Fed is unelected and impervious to democracy or the will of the people is forgotten; all that matters is that we love our servitude to it.

Watch The NAR's Larry Yun Explain The Pending Home Sales Miss

Readers know that Zero Hedge boycotts manipulated NAR data, which, just like Libor, is not only meaningless, and set by "insiders" who have skin in the game, but is also always totally wrong. Today we will make an exception, not so much because the just released pending home sales miss (-1.4% on expectations of +0.3%) confirmed what most people know: namely that the housing "recovery" has the same credibility as saying ZNGA has bottomed, and follows misses in New and Existing home sales, but because the below video of Larry Yun is a pure theatrical masterpiece and worth the price of admission alone.

Here Is Why Angela Merkel Has Not Responded To Draghi Just Yet

Curious why Germany by way of Angela Merkel, has not yet responded officially to Mario's promises to break Article 123 if needed, in order to preserve the Goldman bonus pool, even if it means flooding Germany with inflation - something that historically has taken her at most a few hours? Better yet, curious why Mario Draghi picked exactly today to go ahead and defy Germany knowing full well there would be no official response for quite a while? Here's why.

65% Of QE3 Is Already Priced In

The major problem with daily jawboning by central bankers, such as Draghi today, and the Fed via Hilsenrath on Tuesday, is that it "achieves" to price in QE without QE actually being implemented: in essence the various central banks try to run up assets on the rumor, knowing well that with every incremental "news" event, the news will be sold ever faster, and ever more forcefully. Which then begs the question: how much QE is currently priced in, in order to determine how much more "rumor" there is to buy. According to Bank of America: not much, as a full 65% of QE 3, or the NEW QE, to use the proper iNomenclature, is by now priced in.

Some Context On Europe's Sovereign Rally This Morning

As panties are being thrown at the feet of Mario Draghi all around Europe, and his comments are being heralded as 'confirmation' of Nowotny's restatement of absolutely nothing yesterday, we thought some context would be useful before we all cheer that all is well. Spanish and Italian 10Y bond spreads are still notably wider than the pre-EU-Summit 'panic' levels and dramatically wider than the post-EU-Summit best levels. Spain 2s10s, having flattened from 220bps to 60bps in a week has squeezed back up to 128bps as we can only imagine the bath-salting that caused a few people. The point is that this kneejerk reaction in an incredibly illiquid market at the front-end of the Spanish curve is nothing to rest your hat on yet. In fact, if there are more hints dropped of ECB restarting SMP then we suspect European asset managers will run to sell down their Spanish bonds to try and front-run the subordination this implies at the inevitable restructuring (as game-theoretically they know everyone else will also do the same).

Hong Kong Completing 1,000 Ton Gold Vault

In Hong Kong they are completing work on its largest gold vault due to open in September which can hold 22% of the gold that is in the US facility Fort Knox.   The new secure storage facility will compete with services set up by the Airport Authority Hong Kong in 2009 that serviced governments, commodity exchanges, bullion banks, refiners, wealthy individuals and exchange-traded funds. The new facility is within the international airport compound and its capacity is 1,000 metric tons. This signals the growing interest from China currently the world’s second largest consumer of gold in owning physical gold bullion. 

Initial Claims Continue To YoYo, Beat Estimates On Seasonals; Durable Goods Ex-Transports Slide

Here are the initial claims prints in the past 3 weeks: 376K, 352K, 388K, 353K (with the last week number naturally revised higher as always). Why the volatility? Same reason as the plunge two weeks ago: "onetime factors such as fewer auto-sector layoffs than normal likely caused the sharp decline." Naturally, this week's headline will say, 35K improvement in initial claims, and Wall Street will be (un)happy because we had a beat of consensus of 380K, which likely means QE is a little bit further. Looking at the other data point today will provide no help: headline June Durable Goods soared by 1.6%, on expectations of 0.3%, with the previous revised from 1.1% to 1.6%. But the number ex-volatile transports plunged from 0.8% to -1.1%, far below expectations of -0.8%, while Capital Goods orders ex air collapsed from a revised 2.7% to -1.4%. Which number is relevant? Probably the one which can be goalseeked to prolong the EURUSD jawboning rally started at 6 am this morning by Draghi, in which as we already showed, he said nothing new by regurgitating his open ended options, and merely awaits the refutation by Merkel et al who over the past 6 months has become the true European paymaster.

As A Matter Of Evidence

The Europeans have played the Great Game badly; are playing it badly and there will be consequences for their failures. All of this nonsense with Greece, with Spain, could have been avoided by telling the truth about the numbers, by not goose stepping with plans meant to mislead instead of illuminating the truth, with trying to hide the self-evident and presenting scams as solutions or by addressing the size of firewalls instead of trying to cure the sickness of the nations that lie within them. There is no Prince, there are no glass slippers and the bills have to be paid and the money to pay them will not be found in the pot of gold at the end of some rainbow. Unless the Germans are willing to have the same standard of living as those in Greece and that will not be happening so that it can be foretold that the play will end badly. It is not economics that will determine the end of the European fantasy but politics.

And Here Is What Draghi CAN Do, In His Own Words

For those stunned that the market is reacting as euphorically as it is to remarks which are basically a rehash of prior Draghi statements and are nothing new, or that bond yields are ripping in on the implicit threat that Draghi may reactivate the SMP, in the process further subordinating bondholders and cramming them down forcing even more selling, here is a sampling of previous Draghi statements explaining what he can do, and more importantly, what he is allowed to do under the existing European framework. Which is why we find it not very surprising that Draghi waited until all usual German suspects are on vacation and are thus unable to immediately issue a press release as to the structural limitations of what Draghi can do. Because when in doubt, ask this: does export-heavy Germany want a strong or a weak euro?

First Responses To Draghi's "Deliberately Ambiguous" Remarks Trickle In

The kneejerk short covering reaction to Draghi's remark that he will do "anything to preserve the euro" (this must be news because yesterday the ECB would not do anything to preserve the euro supposedly) is over. Now the analysis begins of what was actually said. The realization is... nothing.

Housing: Look Out Below

Dave in Denver at The Golden Truth - 9 minutes ago

*I don't think we are at the beginning of the recovery. I think we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector*. - David Stockman, former OMB Director for Reagan and former Congressman I have to admit, I get excited when I put forth a thesis and the data ... more »

Video: Global Crash, US Bond Bubble & Chinese Slowdown

Admin at Marc Faber Blog - 39 minutes ago

*Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*

Defensive Capital Flows Forces The Fed To Be Ready To Act

Eric De Groot at Eric De Groot - 4 hours ago

The Fed signals they're ready to act because they understand the flight to safety or defensive message ebbed into global capital flows. They also understand that the trends used to define these flows continue to deteriorate at an alarming rate. For example, news lows in the German (bund) and Japanese bonds (JGB) to US Treasuries ratio illustrate this flight of capital towards the safety of the... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

New U.S. home sales decline 8.4% in June

Eric De Groot at Eric De Groot - 4 hours ago

Trends or velocity and acceleration are more important than a single data point. While housing is bouncing upward from extremely oversold levels (chart), prudent traders continue to consider it as a trading opportunity only. Chart: New Home Sales And Change YOY, SA Housing is all about access to private credit. That access continues to deteriorate at an alarming pace (table). ... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Fed Sees Action if Growth Doesn't Pick Up Soon

Eric De Groot at Eric De Groot - 4 hours ago

Absolutely Jim. Hilsenrath, as suggested by Stephen Roach, is the defacto Chairman of the Fed. They [The Fed] have gone about their usual pre-FOMC leak frenzy where they talk to this reporter and that reporter. Jon Hilsenrath is actually the chairman of the Fed. When he writes something in the Wall Street Journal, Bernanke has no choice but to deliver on what he wrote. Source:... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Draghi sends strong signal that ECB will act

Eric De Groot at Eric De Groot - 4 hours ago

First Bernanke hinted that the US stood ready to defend the US and by extension the global economy. Now, Draghi is sending a strong signal they'll also do whatever it takes to protect the euro zone and global economy. Have you noticed the seas are beginning to withdrawal from the shoreline as the the tidal wave of money designed to save all approaches silently. The precious metals and... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

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