13th November 2011: Global Depression Haunts in the Cold November Rain
Quote of the Day:
So never mind the darkness
We still can find a way
‘Cause nothin’ lasts forever
Even cold November rain
Guns and Roses (November Rain)
Macro Overview
Beginning of the End Game for the Euro
- Political distractions have moved attention away from economics and towards politics. These are not quantifiable risks you can just “put into a spreadsheet” as Gillian Tett of the Financial Times put it on the Charlie Rose show. Italy and Greeks have always been the hub for European drama. Greek tragedies and Italian Operas are all in our veins now.
- But even as they seem to be solving their leadership problems towards an avenue which will smooth the austerity process the 75-year old Italian “Teflon Don” seems to be muttering about returning to power before the favourite, economist Mario Monti, has even got his bum on the seat.
- At the same time Germany’s leading CDU pass a vote that will remove hurdles to letting those “naughty peripherals” exit the Eurozone entirely and Merkel seems to be in “secret talks” to form a breakaway group should the unthinkable happen.
- There is a definite pattern occurring here. “Get your act together, or you’re out” appears to be the message I’m getting from this… Roubini thinks the end game for the Euro has begun.
November Rain – Asia
- As we expected China comes to the realization that it is experiencing a slowdown but (as we expected) this will be a soft landing, not a hard landing. Also this is part of China’s systematic and deliberate developmental cycle: its shift from a mercantilist towards a, more sustainable, labour-intensive service + consumption model (as we expected)… the transition (we expect) will be net positive for the Chinese economy but (we expect) also very volatile and fraught with investment risk. Here is an excerpt from the Bloomberg headline article:
After Hu spoke yesterday, two of China’s best-known economists, International Monetary Fund Deputy Managing Director Zhu Min and National Economic Research Institute Director Fan Gang, said the country’s economy was heading for a “soft landing” as growth slows. They cited lower inflation and bad debts at banks, and what Fan said were timely measures to avoid a bubble in the property market.
November Rain – Europe
- But the political solutions are not economic solutions necessarily, the markets will react gladly to any ray of sunshine that political agreements cast over the Eurozone but the economic November rain will keep coming.
- Lest we forget the reason why Greece and Italy have had such a political upheaval is because the public has been gnashing its teeth at the prospect of living standards and economic conditions deteriorating any further than they have done (which is already pretty severe).
- We’re seeing a slowdown throughout Europe in practically every sector, while inflation remains worryingly belligerent. After the EU downgraded its economic forecast to a pathetic 0.5% they followed up with the stark warning that The Eurozone may enter a Deep and Prolonged Recession and top fund managers are already predicting a recession in Europe.
- There is some good news in Europe… there appears to be less pollution! But alas… this apparently is linked to a sudden lack of economic activity – as the Guardian reports! When it rains in Europe – it pours.
- Meanwhile ZeroHedge headline reads: European Ponzi Goes Full Retard As EFSF Found to Monetize… Itself. It would not surprise me, but you have to read this to believe it.
The Telegraph reports that the already reduced 3 EUR billion “target was only met after the EFSF resorted to buying up several hundred million euros worth of the bonds.” You read that right: in its first bond issuance since its transformation to the European Bank/Soveriegn Bailout Swiss Army Knife, the EFSF not only failed to raise a minimum token amount, but also had to… buy its own bonds. We can assume that the money the EFSF needed to fund said purchase came from the money growing tree, as at last check the ECB was still not funding the EFSF with crisp, new zEURq.PK equivalent binary 1s and 0s. But at least we all know what happens when the global ponzi goes full retard.
- It’s going to be a trying month for politicians, economists, investors and everybody, to be honest. There is a bullish tone to the way we ended last week but this is not the peak of the volatility cycle there will be a lot more volatility peaks to come and some really important political decisions too. It’s a tiring market for all of us as macro risks are constantly elevated and will be for years to come, in my opinion, but be patient – remember, nothing last forever, even cold November rain…
Market Overview
Now The Focus shifts from Earnings to Growth
- Remember earnings season is basically over now and it’s time for “GDP season” – that’s where the focus will be for the markets… my guess? US will show signs of decent recovery butEuropewill be the spanner in the works which will bring down growth expectations around the World. We’ve already seen disappointing numbers in Europe and Asia with Spain and Hong Kong stagnating. This week we kick off with Japanese numbers first thing Monday morning!
Another Year of Disappointment for Under-hedged Investors
- The US has enjoyed not being European. Stocks in the US rallied hard as good jobs and a Michigan confidence number added a little more illumination to the small light appearing at the end of the European tunnel. The S&P is now flat on the year and it is quite possible that US stocks close the year on the up!
- Not so for European or Asian stocks, which seem to be down on average between -15% and -20% – YUCK! Anyone under-hedged has been eating crow all year, basically.
- Chart of the Day shows how Japanese stocks are close to their yearly lows. I would not be surprised to hear the Japanese to announce some sort of Yen manipulation measure soon – if they don’t that “shock and awe” tactic on the Yen will just look like a farce. You seen where the Yen is now? It’s already back to where it was pre-intervention! See Chart of the Day for the Yen Damp Squib.
Chart of the Day
The Japanese Resistance (Source: Bloomberg)
Yen Manipu-failure (Source: Bloomberg)
Events
Macro Events:
Update:
- HK GDP – stagnates (in line)
- Spain GDP – stagnates (in line)
Alerts:
- Japanese GDP
Corporate Events:
Results:
- Lowes [LOW], Tingyi [322 HK]
Dividends:
- Target {TGT],
Reading, Links:
November Rain:
