Quote of the Day from The Big Picture website: “The economy remains on government-assisted life support, and the government has been very successful in creating the illusion of economic prosperity. [...]
Rosenberg
The extend and pretend charade in Europe is out of magic dust to sprinkle around. It is becoming increasingly apparent that there is no way out of their problem and that their words are merely smoke. Peter Tchir says:
They are running into legal roadblocks, death spiral scenarios, the reality that once they give the money to the PIIGS that the power reverts to the PIIGS, that everything is circular and self-referencing, that debt markets in the end can decouple from CDS markets, that Germany and France are going to see borrowing costs spike (even after the ECB rate cut), and that there are so many holes to plug – bank capital, bank bonds, PIIGS debt, Belgium debt, something about Dexia that no one even remembers, voters are against it, Greece isn’t going to fool anyone, etc.
Anyone who follows this play acting must be getting tired of the repetitious shenanigans attempted in Europe. David Rosenberg inconveniently reminds us of the progress that has been made (not):
… when you go back to the opening months of 2010, it was all about Greece and the prime goal was to prevent contagion to Portugal and Ireland. We know how that went. Then that fall, the risk was Greece, Ireland and Portugal and this was when the term PIG was coined. At that time, the goal was to protect Spain and Italy. And we know how that went. Then just this past July, the crisis moved beyond just Greece, Ireland and Portugal to include Italy and Spain (and this is where PUGS was coined). At this point it was about preventing contagion to the banks, but nothing has worked. The contagion has merely spread, and this is not the first time a late-day press release or policy announcement was leaked to juice the market. So, we are still living in a world were levering up is somehow deemed to be a solution to a world of excessive credit and all this will do, again, is just kick the can down the road.”
Europe’s latest plan appears to have unraveled and the Mastrich treaty itself may be in jeopardy. Mish described their options thusly:
Assuming the “Leveraged EFSF” idea is now dead, not only is there no bazooka, there is no pea shooter either.
Conditions in the US are little different, although it is not as apparent to as many quite yet. Our supply of smoke and mirrors is finite and reaching the exhaustion point as well.
May 252011
More evidence of the weak and getting weaker economy from Zerohedge:
From David Rosenberg’s latest Breakfast with Rosie, from Gluskin Sheff
Reality Check:
- The S&P 500 is no higher now than it was on February 7. Yet, so many pundits still believe we are in a flaming bull market.
- QE2 failed to provide for a sustained acceleration in the pace of economic activity.
- The housing inventory background is horrible
- Over half of the NYSE is now trading below its 50-day moving average (thanks to Richard Russell).
- M3 has fallen at a 1.5% annual rate since QE2 started (thanks to CLSA’s Russell Napier); in other words, credit is still not being created.
- The Nasdaq is the first of the major averages to have broken below both the 100-day and 50-day moving averages. The Dow and S&P 500 have so far just pierced the former, but we all know the Nasdaq is a leading indicator. As an aside, in the last 12 months the Dow has broken below its 50-day moving average three times and from that point to the interim bottom, we saw the Dow plummet 4.5%.
- Ditto for FTSE, on an international scale, and it is down 1.1% year-to-date. Same goes for the cyclically-sensitive Korean Kospi, which is now flat for the year.
- Whenever bond yields and bank stocks go down in tandem, it rarely foreshadows anything good. So far this year, the yield on the 10-year note is down 11 basis points while financials have sunk 2.9% and underperformed the market by 765bps.
If inflation is on everyone’s brain, then why is the S&P 500 basic materials sector the only other one down for the year?
Mar 292011
David Rosenberg offers his usual incisive comments on the economy and suggests a couple of reads:
Whether you are perma bull or perma bear or everyone in between, the column by Paul Lim in the Sunday NYT business section (The Bounce Isn’t Enough to Recover From a Bubble on page 4) states that fully recovering from a bubble burst usually takes a long, long time, notwithstanding the flashy 100% rally from the March 2009 lows. The economic recovery is less than spectacular, and in fact, ranks as one of the poorest ever ― 3% growth so far whereas GDP usually expands at a 5.5% pace. And outside of exports, no real economic variable is close to coming in anywhere near the levels prevailing before the recession began in 2007 (and the revisions the Fed made to the industrial production statistics on Friday show that output is further away from the cycle highs than previously thought ― by an additional 2.6 percentage points (now IP is down 7.6% from the pre-recession peak). The data up until January were looking okay but since that time the vast majority of economic indicators have come in below expectations. Look for nonfarm payrolls to disappoint, yet again, this Friday (consensus around 200k).
Also have a look at page B9 of the weekend WSJ ― Stocks: Bracing for Falling Profits. And then go back and have a look at Bob Farrell’s Rule 1 ― the concept of mean reversion. Profits relative to GDP stand at a historical high of 12.7% compared with the long-run norm of 10.5%; while S&P 500 margins at 8.2% are also far above the historical average of 6.1%.
The one area that is performing — exports — is likely to disappoint in the near and longer term. Given the problems in Europe and Japan, their purchases from us are likely to drop.
Feb 262011
David Rosenberg summarizes the tug of war between inflation and deflation:
Pricing power improving
• Air fares: +2.2% and have now posted 2%+ gains in each of the past three months (during which prices have soared at a 33% annual rate).
• Delivery services: +6.8% MoM in January in the third best pricing month ever, and were up four months in a row.
• Grocery stores: prices here rose 0.7% MoM (seasonally adjusted) in January — the best since July 2008 and the YoY is in an uptrend. Going through the PPI data it looks like the margin squeeze is more acute for the food producers than it is for the retailers.
• Movie theatres: +0.3% two months in a row.
• Jewellery: +1.2% in January and have risen now in each of the past three months.
• Tires: +0.9% and riding a four-month winning streak.
• Drugs: +0.55% and up six months in a row.
• Toys: +1.1% in January, best since Feb 2004 and first increase in four months.
• Apparel: +1.1% in what was the best month since Feb 2009 and only three other times in the past 20 years was pricing in clothing this strong.
• Restaurants: for some reason this group did not screen well in the retail sales data so perhaps the weather influenced volumes but prices rose 0.3% in January, which was the best month in nearly two years.Pricing power declining
• Hotels: down 1.3% in January and down in six of the past seven months.
• Furniture: down 0.3% and down in seven of the past eight months as well.
• Health services: down 0.1% in January (first decline since Aug 2005).
• New cars: down 0.1% and off now for four months running.
• Computers/peripherals: down 1.7% in January and this followed a 2.1% slide in December.
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