Posts Tagged ‘Europe’

A Hard Look At Europe

Tuesday, May 7th, 2013

Submitted by Mark J. Grant, author of Out of the Box,

A fool-proof method for sculpting an elephant:

First, get a huge block of marble; then you chip away everything that doesn’t look like an elephant.

Having just returned from the Continent I have been musing about the reality of what the European Union has become. I have crossed out the hype and the hyperbole and I concentrate this morning on not what we are all told but how the construct has evolved. In the forthcoming months as the likelihood of Spain, Portugal, Greece, Cypress, Slovenia and possibly Italy returning to the window for funds or more funds grows at a significant rate and as the Rules of Engagement have changed substantially; a realistic assessment now may prove to be quite worthwhile to consider future actions.

“The question is not what you look at but what you see.”

                    -Henry David Thoreau

In the beginning there were a handful of core nations equal in partnership and full of the excitement of a new venture. Much of the esprit was a desire to band together and compete against the United States for economic dominance and world power. Americans were the upstarts, afterall, and it had long aggravated the Europeans that we had so much control. “Those cowboys,” sums up the European position nicely.

Now the Europeans didn’t say this aloud of course. They rattled off world peace and band of brothers soliloquys that held their populace at rapt attention. It was rather like Camelot where all of the knights sat at the Round Table in pursuit of their noble quest. Well, to quote an American colloquialism, “Them days is gone forever.”

So now we find the EU headquarters no longer staffed by equals but a useful front for Berlin which resides in another country. In the EU now there is Germany and then there is everyone else and whatever motives you may ascribe to the Germans and whatever political position you may wish to embrace; Germany has gained control of most of Europe. Much more pleasant to use Euros than tanks; on that most of us can agree.

This point is critically important to understand. Yes, sure, the Germans will smile and nod and give way on agricultural supplements and on fishing rights and trivial matters but when it gets down to it and the decision is important; Berlin will have its way. Consequently when considering what might happen or allocating your assets; politically and economically the sole thing to consider is the German viewpoint because it will be put in place. When contemplating the discussion on the European banking union or what took place in Greece with the retroactive change in laws that swacked the bond holders, or the confiscation of depositors’ money in Cyprus; this was all approved, if not formulated, in Berlin. It is called the European Union but the Emperor is German and the rest of the Court dances to the Prussian anthem.

The honey is free trade and money when needed and the vinegar is the lack of both. The EU stays intact by the utilization of this carrot and of this stick and it has proven to be a very effective strategy. The problem centers on the Germans wanting and expecting everyone to be German and the inability and the lack of desire for a great many of the people on the Continent to either be German in traditions and standards because of thousands of years of cultural differences that cannot be magically transformed by the occasional bratwurst for lunch. In the end, the Germans will demand too much and there will be some sort of revolt but for now; Puff the Magic Dragon holds sway.

The fact that the equity markets have done fabulously and that the interest rates for European sovereign debt have done remarkably well all rest on one thing and one thing only; the creation of money and a massive amount of it. There is no inflation because the underlying economies are in horrendous shape, unemployment in a number of countries at Depression levels and yet the band still plays on. The printing of money is the alchemist’s dream and we have finally learned how to coin gold from iron ore.

For Britain, especially, it is a difficult moment. They fought two wars to not be governed by the Germans and now they find themselves trapped. London is the financial capital of Europe and now, moment by moment and drop by drop, they are seeing their stature erode. I can assure you that the Germans will, one way or another, overcome London if Britain remains in the EU and yet they cannot easily leave the EU either. England has become minimized and while they congratulate themselves for joining the European Union but keeping their currency that was really the second best choice. They never should have joined up and their status would have been on an equal footing while now they have been pushed into the coat closet and they get congratulated by the Germans for their fine work of maintaining it. There is no longer a Great Britain but a Trivialized Britain as Germany slowly but surely places their foot on England’s neck. Britain needs to let its citizens decide and bear the consequences of their decision.

When lying in bed at night and looking up at the stars you may well ask yourself what happened to your ceiling.

Europe, and the rest of the world for that matter, has been transformed by the printing of money. The dislocation between economies and markets is huge and the glue is the twenty-four seven machinations of the printing presses. Politicians in Europe and America have taken a back seat to the heads of the world’s central banks. These people, elected by no one, have become the absolute rulers of the world. The three most important people in Europe are Draghi, Weidmann and Merkel. Merkel, I would say, is appropriately put in third place.

Lastly, as I stare out at the horizon, you should understand the German viewpoint of the State. It comes first, foremost and before any laws. Anything may and will be utilized to further the State, defend the State and carry on its existence. Germany will not hesitate, for one moment and especially in the vassal nations in the rest of Europe, to protect its franchise. Nothing will get in its way as long as they hold their present position of pretty much absolute power.

My heritage is German and I get this joke. You win by being in control and control must always be exercised and never relinquished. In the German mind there are Germans and then there is everyone else and the “everyone elses” will not be treated as the Germans treat themselves.

Consequently as new troubles arise and other nations show up hat in hand, because money is both the carrot and the stick, you may expect whatever needs to be done to protect Germany to be what is done. The preservation of the German state and the continuation of Germany retaining power will be the guiding light that you may bank on in any investment decisions. It will be austerity for the needy, vengeance for those out of step and the sound of the boots marching for the Fatherland.

Achtung!

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Les Misérables (Mark Grant)

Friday, April 26th, 2013

Submitted by Mark Grant, author Out of the Box,

“If I speak, I am condemned.

If I stay silent, I am damned!”

                 -Victor Hugo, Les Misérables

It is a convoluted world. The money rolls in from the Fed, the ECB and various European funds where money is pledged by each country and put up by none. Pledges, contingent liabilities, guarantees of bank debt are not counted but have not vanished and show up when the bills are due decreasing the assets of everyone.

The newly printed money must find a home and so supports the sovereign debt yields while costing each European government more in the process. Austerity fails, unemployment rises, economies decline, more taxes are applied and the use of newly printed money is the only thing that separates us from some sort of financial chaos.

The differential between the European economies and the European markets increases and the actual losses increase. Securitizations pledged at the ECB are massive and chock full of bad Real Estate and commercial loans that are hidden and swept under the rug in Frankfurt. It is a dangerous business and a charade of the worst kind as no one has any real notion of the danger.

“If the soul is left in darkness sins will be committed. The guilty one is not he who commits the sin, but he who causes the darkness.”

                  -Victor Hugo, Les Misérables

France
The Official French GDP                          $2.638 trillion

FRANCE’S NATIONAL DEBT
Admitted Sovereign Debt                          $2.37 trillion
Loans to the Nation                              $214.9 billion
Admitted Bank Guaranteed Debt                    $479 billion
Dexia Guarantee                                  $ 55.48 billion
Total National Debt                              $3.119 trillion

FRANCE’S EUROPEAN DEBT
France’s Liabilities at the ECB                  $569 billion
France’s cost for the EU Budget                  $ 23.2 billion
France’s Liabilities for the Stabilization Funds $110 billion
France’s Liabilities for the Macro Fin Ass. Fund $203 billion
France’s Guarantee of the EIB Debt               $137.6 billion
France’s Total European Debt                     $1.043 trillion
France’s National and European Debt              $4.162 trillion
France’s Official Debt to GDP Ratio                 90.2%
France’s ACTUAL Debt to GDP Ratio                   158%

I would say that Mr. Hollande has been a disaster for France. I state this not just based solely on economics but also upon their leadership in Europe. There was a time when Germany and France operated in some sort of tandem but now France has declined to a status where it gets the occasional nod from Berlin but that would be about the extent of it. It is now Germany and then everyone else in a pecking order designed and approved in Berlin where France ranks slightly ahead of Spain and Italy but not by much.

France, in fact, has joined their southern neighbors in both policy and adherence to the previously agreed upon guidelines. There is now only an admission of culpability and then the increase in debt, the extension of the debt to GDP ratios and the continual promises that it will all be better next year. This definition of “next year” will not be arriving however and so the economies worsen and the anguish of the deceit worsens the pain.

 

French confidence about the future is fading fast…


“Before him he saw two roads, both equally straight; but he did see two; and that terrified him–he who had never in his life known anything but one straight line. And, bitter anguish, these two roads were contradictory.”

                -Victor Hugo, Les Misérables

The only way that the actual financials do not matter is if nothing matters. If the flood of money created from nothing overshadows all economic principles, obscures all accountability, hides any semblance of meaning in the debts one owes to the assets one has then nothing is relevant any longer.

Print forever. Lies without end. Reality redefined.

I, however, am not a member of this congregation. I do not believe in these Rites. They day is forthcoming when the mask will be torn away and the light will illuminate the face of the denizen.

I just sit quietly and wait.

“Let us study things that are no more. It is necessary to understand them, if only to avoid them.”

             -Victor Hugo, Les Misérables

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An Analytic Framework for 2013 (Sibileau)

Tuesday, January 15th, 2013

by Martin Sibileau, A View From the Trenches

In one sentence, during 2013, I expect imbalances to grow…

Click here to read this article in pdf format: January 15 2013

In the same fashion that I proposed an analytic framework for 2012, I want to lay out today what I think will be the big themes of 2013. Their drivers were established in September 2012, and I sought to give a thorough description of them here, here and here.

An analytic framework for 2013

In one sentence, during 2013, I expect imbalances to grow. These imbalances are theUS fiscal and trade deficits, the fiscal deficits of the members of the European Monetary Union (EMU) and the unemployment rate of the EMU thanks to a stronger Euro. A stronger Euro is the consequence of capital inflows driven by the elimination of jump-to-default risk in EMU sovereign debt. Below is a drawing I made to help visualize these concepts:

The drawing shows a circular dynamic playing out: The threat of the European Central Bank to purchase the debt of sovereigns (that submit to a fiscal adjustment program) eliminates the jump-to-default risk of this asset class. As explained and forecasted in September, this threat also forces a convergence in sovereign yields within the EMU, to lower levels. As long as the market perceives that the solvency of Germany is not affected, the Bund yields will not rise to that convergence level. So far, the market seems not to see that (Possunt quia posse uidentur). But the resulting appreciation of the Euro will eventually address that illusion.

This convergence, in my view, is behind the recent weakness in Treasuries. I proposed this thesis last September. However, the ongoing weakness in Treasuries does not mean I was right. In fact, I fear I may have been right for the wrong reasons. The negotiations on the US fiscal deficit and the latest announcement of the Fed with regards to debt monetization quantitative easing to infinity may also be behind this move. But until proven wrong, I will cautiously hold to my thesis.

The above factors drove capital inflows back to the European Monetary Union and strengthened the Euro. I believe this strength will last longer than many can endure. The circularity of this all resides in that the strength of the Euro will make unemployment and fiscal deficits a structural feature of the EMU, forcing the ECB to keep the threat of and eventually implementing the Open Monetary Transactions. The alternative is a social uprising and that will not be tolerated by the Euro kleptocracy.

All this -and particularly the strength of the Euro- is not sustainable. Ad infinitum, it would create a Euro so strong that the periphery would drag coreEuropein its bankruptcy. But while it lasts, the compression in sovereign yield will mask the increasing default risks in Euro corporate debt, specially the one denominated in US dollars. Both have been fuelling the rise in the value of equities globally.

The unsustainable framework rests upon the shoulders of the Federal Reserve, which thanks to the established USD swaps and unlimited Quantitative Easing, has completely coupled its balance sheet to that of the European Central Bank. In the end, as this new set of relative prices between asset classes sets in, it will be more difficult for the European Central Bank to sterilize the Open Monetary Transactions.

History provides an example of the current growth in imbalances

By now, it should be clear that the rally in equities is not the reflection of upcoming economic growth. Paraphrasing Shakespeare, economic growth “should be made of sterner stuff”.

Under the current framework, the European Central Bank can afford to engage in the purchase of sovereign debt because the Fed is indirectly financing the European private sector. The Fed does so with the backstop of USD swaps and tangible quantitative easing, which provides cheap USD funding to European banks and thus avoids a credit contraction of the sorts we began to see at the end of 2011.

This same structure was in place between the Federal Reserve and the central banks of France and England in 1927, 1928 and 1929 and, as a witness declared, “(it) transformed the depression of 1929 into the Great Depression of 1931”. Something tells me that this time however it will be different. It will be worse. That little something is the determination of the new Japanese government to devalue its currency via purchases of European sovereign debt (ESM debt).

How fragile is this Entente?

Most analysts I have read/heard, focus on the political fragility of the framework. And they are right. The uncertainty over theUSdebt ceiling negotiations and the fact that prices today do not reflect anything else but the probability of a bid or lack thereof by a central bank makes politics relevant. Should the European Central Bank finally engage in Open Monetary Transactions, the importance of politics would be fully visible.

However, unemployment is “the” fundamental underlying factor in this story and I do not think it will fall. In the long term, financial repression, including zero-interest rate policies, simply hurt investment demand and productivity. I do not see unemployment dictating the rhythm in 2013, indirectly through defaults. Furthermore, in the meantime, the picture may look different, because “…we should not be surprised if, under zero-interest-rate policies in the developed world, we witness a growing trend in corporate leverage, with vertical integration, share buybacks and private equity funds taking public companies private…”. This is obviously supportive of risk.

No systemic meltdown in 2013?

From earlier letters, you know that I believe quasi-fiscal deficits (i.e. deficits from a central bank) are a necessary condition for a meltdown to occur, and that these usually appear when deposits begin to seriously evaporate. So far, capital is leaving main street (via leveraged share buybacks and dividends), but at the same time, it is being parked at banks in the form of deposits. The case of Wells Fargo and the temporary pause in the flight of deposits from the periphery of the European Union suggest that the process towards a meltdown, if any (and I believe there will be one) will be a long agony. Furthermore, in the short term, at the end of January, European banks, have the option to repay the money lent by the European Central Bank in the Long-Term Refinancing Operations from a year ago, on a weekly basis. I expect them to repay enough to cause more pain to those still long of gold (including me, of course).

Martin Sibileau

Copyright © A View From the Trenches

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The “What if” Games Begin

Friday, August 10th, 2012

by Peter Tchir, TF Market Advisors

What if Europe is actually really going to get aggressive?

 

What if housing has bottomed and is starting to improve?

 

What if the Q2 jobs data was affected by adjustments as much as Q1 and the economy wasn’t as bad as some feared?

 

What if Chinese stimulus works?

 

What if earnings rebound in Q4?

 

“What if” is a close relative of “Green Shoots”. The market doesn’t need actual data to support it, just needs to think it might be coming. There are a lot of shorts who are nervous about this week’s price action. We didn’t get the typical Monday pullback. Here it is Thursday and we continue to push up against the highs. That is making people question their beliefs, and wonder “what if”. And it isn’t just the bears. Many bulls are underweight and are wondering “what if” this is the real thing.

 

For myself, I still think 1,425 is a good target, but above 1,410 I start selling again. I think the “what if” analysis is what will push us to those targets.

 

Copyright © TF Market Advisors

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Biderman: “The Most Damage Is Caused By Those Who Are Not As Smart As They Think They Are”

Wednesday, July 25th, 2012

 
It is not often we double-dip in the Sausalitan’s soliloquies but tonight’s glorious truthiness from Charles Biderman, CEO of TrimTabs, is worth the price of admission. After explaining that the only way he could be any more bearish is to be double-levered – and that he believes that besides “believing in miracles” this market will see the March 2009 lows once the market-rigging is fully exposed, he makes probably the most clarifying statement we have heard regarding our central-planners-in-chief. With regards to Messrs. Bernanke, Geithner, and Obama: “The most damage is caused by those who are not as smart as they think they are.” They continue to believe they are smart enough to fix all our financial problems (and Europe’s – if they would just listen to Timmay) by building a bridge over the recession – thanks to asset-buying and ZIRP. “The only problem is we are running out of bridge and are nowhere near recovery” is how he sees it and reflecting on the massive gains that have been made on short-dated Treasuries as the Fed (who is the one buying them) extends the ZIRP horizon – it is clear that this is nothing but a huge Ponzi scheme.

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National Acronym Day in Europe. Don’t Underestimate the ECB

Wednesday, May 30th, 2012

 

National Acronym Day in Europe – Don’t Underestimate the ECB

by Peter Tchir, TF Market Advisors

May 29, 2012

So the EC wants the ECB to bypass the EFSF and use the ESM to recap EU banks? That was the rumor that shifted global stock markets by 1% in a matter of minutes?

It has been awhile see we looked at the EFSF Flowchart or had a detailed look at the EFSF Guidelines but it looks like it is time to dig a bit deeper into what is possible and what is not.

The ESM is not yet up and running. There was talk that it would be done by June or July of this year, but in typical EU fashion I don’t think much progress has been made towards that promise. So right now the EU is stuck with EFSF and the potential to set up the ESM.

The EFSF actually has a lot of powers. I’m not sure exactly why it is such a big deal if the EFSF (or ESM) invests directly in banks or lends money to countries to invest in banks. In theory the countries could lose on their bank investment but pay back EFSF loans? That is a possibility but it would seem more and more likely that if the bank rescues fail the sovereign is dead anyways, so the market might be reacting too much to that distinction.

The bigger problem is that the EFSF is not well set up to leverage itself. The EFSF is technically the entity that could be buying bonds in the secondary market. It is supposed to have taken over that role from the ECB, yet it hasn’t done that. Why not? It is possible that they haven’t figured out a good way to leverage the EFSF and therefore would get minimal bang for the euro by buying bonds in the secondary market without leverage. The same issues apply to its role in the primary markets. Yes, the EFSF can intervene in the primary markets, but again, had very convoluted leverage schemes, which would never work.

The problem isn’t so much what the EFSF is allowed to do, it is how constrained it is in terms of leverage and access to funding. There is almost nothing that can be done about how EFSF is set up at this stage, nor should there be. That messed up entity should be put out of its misery.

Europe’s big hope is to actually launch ESM and launch it with a banking license. If ESM can be launched, and it can get a banking license, then the EU has a powerful tool. The ESM is allowed to do all the things the EFSF can do – participate in new issues and the secondary market and lend to countries for them to support their banks. Without a banking license its firepower is limited. With a banking license it can leverage itself to a very high degree and can tap all the cheap funding already in place and whatever new programs the ECB decides to launch.

So worry less about any “new” powers the ESM might have and worry about 1) the ESM actually getting funded, and 2) the ESM getting a banking license. Germany was very resistant to the idea of the banking license. I assume they still are, but they have already given the ESM all the powers it needs, and has endorsed leveraging the capital, so a banking license might not be out of the realm of possibility.

With a banking license, the ECB can do a lot to help the ESM. The LTRO deals did a lot for the banks. They really have reduced the pressure on European banks. In spite of the fact that Bankia is a total mess, we are not reading headline after headline about how BBVA or SocGen or even DB are in trouble. The banking system is in much better shape than last year because of LTRO.

The market got carried away with the promise of LTRO as a sovereign debt savior. The market, more than the ECB, created the idea of banks buying lots of sovereign debt. That was never going to work because the banks that would do it, already had too much exposure to their national sovereign debt. It created a potential death spiral. Taking the concept of the “carry” trade and LTRO out of the banking system and into the ESM might have more of an impact.

The market has lots to worry about, whether it is China, Facebook, Banking Regulations, Fiscal Cliff, whether American Idol is rigged, economic data, etc., but we are still very much at the mercy of policy intervention. Strong signals of new QE for the U.S. seem more likely by the day, and in Europe, there is likely to continue to be a lot of contradictory comments, but banking license for the ESM seems more plausible than many of the other rumors (like Eurobonds or Greek Exit) and would be a powerful catalyst for a bounce in European equities.

The credit markets and CDS in particular seem tired. They don’t seem to have the energy to compete with the swings in equities. So far IG18 has traded in about a 1 bp range in spite of the gaps in equity futures. Even MAIN, right in the center of it all, has traded between 173 and 175.5. The high yield market, and HYG and HY18 both had big days yesterday, with cash up as much as 1%. We will likely see some give back there, but there really is no evidence that retail is giving up on high yield and there isn’t as much leverage in the market as there was in 2011 as hedge funds have been cautious and banks have cut their exposures.

Spanish and Italian bonds are definitely getting crushed today, but with Spanish 10 years above 6.5% and Italian 10 year bonds nearing 6%, the potential for intervention rises. The secondary market is affecting the primary market, which is driving up the cost of funds, creating more pressure on the budget deficits. The countries are painfully aware of that, as is the ECB. One ongoing frustration for the ECB is their inability to translate their short term rate setting of 1% into the sovereign debt market. They are looking for ways to ensure that policy can impact all sovereigns because without that occurring it makes their job far harder than the Fed’s where treasuries instantly respond to the Fed rate decisions.

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Chinese, European Data Continues to Weaken as Market Potentially Forming New Bear Flag

Thursday, May 24th, 2012

 

First we’ll go to the technicals.  Back in mid April I had opined a ‘bear flag’ formation was being created. [Apr 17, 2012: Potential Bear Flag Forming]  But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs.  This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market.  Generally a bear flag will resolve relatively quickly but the longer that one lasted the more doubt it created and potentially transitioned into a market that was creating a new range before a new move up.  Hence, why it was so tricky.

I speak of this only because we potentially are forming a new bear flag.  After extreme oversold conditions the markets finally held a previous low Monday and rallied.  This had been expected for a few days but anyone trying to catch the knife last week had their fingers chopped off… repeatedly.   We had mentioned a potential bounce level to 1338 minimum [May 22, 2012: Market Bounce Arrives - How Durable?] but as of Tuesday mid day the rally only hit 1328 as it was rejected by the quickly falling 10 day moving average.  Then yesterday started horribly as news surfaced that discussions / preparations for a Greek exit from the EU are formally starting behind the scenes, and it really looked like the bears would take charge.  Instead it was a trap, as rumors out of Europe that (a) Merkel supports backstopping all EU bank deposits (b) Italy and France support Eurobonds [May 22, 2012: Are Eurobonds Coming?] and/or (c) pick your rumor, hit.

The larger picture is this environment is akin to summer 2010 and latter 2011 where headline rumors, European comments, intervention hopes dominate the landscape and the market is herked and jerked around while in a downward path.   The action is violent in sharp contrast to January and February of this year.   Stocks are moving en masse as correlations return, and individual stock picking is nearly useless again.  Meanwhile the safe havens – the U.S. dollar and Treasury bonds, surge.  Therefore, unless you know the rumor/intervention hope of the day ahead of time it’s really not a place anyone with intermediate term views is going to risk a lot of capital.

Speaking of the bear flag, yesterday’s sharp rally to take markets out of steep losses to very modest gains helps define a current potential bear flag range of about 50 points: S&P 1290 to 1340.  While we did not reach the 1338 in the S&P 500 I am still going to include that in the range as that is a multi month resistance/support level the market has been dealing with throughout the year.   So just as I said in mid April what happens WITHIN that range means nothing.  The market could be UP 25 S&P points or DOWN the same, but as long as it’s within that range it is only a basing activity and nothing but “white noise”.  And until further notice it is has the potential of a new bear flag forming.   Of course we sit almost smack dab in the middle of said range today.

If you turn this chart upside down you would call this very bullish…. we’d be saying after a large move up, the market is going sideways for a few days to digest the move.  Hence, it is only fair to lean bearish when we have the inverse situation.  The market can always differ and change things – technicals are only a roadmap and in a world of massive intervention they can quickly be obliterated as said roadmap.  So if we hear that to stop bank runs every single cent of bank deposit in the Eurozone will be backstopped by the ECB or “Germany” (with what money???) you will get a ‘face ripper’ type rally I am sure.  You can see that from yesterday where nothing but rumors got the Dow up 200 points from the low.  We repeat the same pattern year after year now, downfall, bad news, crisis, intervention, rally.  Rinse, wash, repeat.

As for economic news overnight – it continues bad.  China continues to weaken, but I think commodities have been telling us this for months.  Expect more easing in the future although they cut reserve requirements 50bps a week and a half ago.  And Europe data is also very weak, but this should come to no surprise to anyone.  I think some/much of this is ‘priced in’ the market but the mess that is the Eurozone remains the key issue.  Everyone awaits the authorities to swoop in and “fix it” (kick the can).  My thesis that QE3 is arriving has not changed since last fall, and is only being strengthened by the day.  In fact we might get coordinated global central bank action since the level of worries are global – we’ll see in a few weeks.

  • The euro zone composite PMI, a combination of the services and manufacturing sectors and seen as a guide to growth, fell to 45.9 this month from April’s 46.7, its lowest reading since June 2009 and its ninth month below the 50-mark that divides growth from contraction.
  • Markit, which complies the PMIs, or purchasing managers indexes, said the reading was consistent with gross domestic product, which stagnated in the first quarter, falling by at least 0.5 percent across the region in the current quarter.
  • “The flash PMI figures for May look horrible and provide a clear warning that euro zone GDP will almost certainly show a contraction in Q2 after stagnating in Q1,” said Martin van Vliet at ING.
  • Across the channel, official data showed Britain’s economy shrank more than first thought between January and March, after the deepest fall in construction output in three years, while government spending made the biggest contribution to growth.
  • PMI data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at a far greater pace than was expected, and its service sector saw minimal growth. In neighboring France, both sectors contracted faster than predicted by most economists.
  • German business sentiment also dropped for the first time in seven months in May, the Ifo think tank said, missing even the most conservative forecasts, in a sign that Europe’s largest economy is vulnerable to euro zone turmoil despite holding up well until now.
  • HSBC’s Flash China PMI, the earliest indicator of China’s industrial sector, retreated to 48.7 in May from a final reading of 49.3 in April. It marked the seventh straight month that the index has been below 50.  ”The series of highly disappointing April activity data – exports, imports, industrial production and retail sales indicators all fell short of even the most pessimistic forecasts – the first gauge for economic activity in the current month is a further signal that internal and external headwinds are still biting into economic momentum,” said Nikolaus Keis at UniCredit.

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From High to Low – A Look at World Markets (Horowitz)

Wednesday, May 23rd, 2012

 

by Andrew Horowitz, The Disciplined Investor

It has been a wild ride over the past 52 weeks and some markets came out looking good, some not so good.

Clearly the U.S. has the best overall return in 2011 and that shows through on the peak to trough range – and still holding up well.

Europe (ex-Germany) has not had as good as a run. Even with the big uptick due to the LTRO, the markets have been punished.

Asia speaks for itself – Japan is still a mess though…

 

Copyright © The Disciplined Investor

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Stratfor On Europe’s Growing Anti-Establishmentism

Tuesday, May 8th, 2012

 
“The traditional political elites are losing control of the system they once dominated.” 12 of the 17 member states of the EMU have seen their governments collapse or been voted out in the last two years. As Stratfor’s Kristen Cooper notes, this is testament to the near political impossibility of implementing austerity and maintaining popular support. The tough truth is that while voters initially turn to the mainstream opposition they soon realize that they have little to offer that is different and so radical, extreme, or previously marginalized political parties will, and have done in Germany (Pirates) and Greece (Golden Dawn) already, see an increasing share of the popular anti-establishment vote and implicitly hamper any political solutions to the crisis that Europe awakens to every morning.

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Commodities Back in Bear Territory (Bespoke)

Monday, May 7th, 2012

With Europe mired in recession and economic data in the US turning soft in recent weeks, the commodities sector has taken it on the chin recently.  With a decline of close to 2% today, the CRB Commodities index is once again down more than 20% from its highs in 2011.

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