20th December 2011: Have Yourself A Merry Little Depression

Quote of the Day:

Have yourself a merry little depression…
What’s this? Christine Lagarde, IMF chief, said last week that the world’s nations needed to work together to avoid a 1930s-style depression.
But seeing the way they work together… and where they seem to be headed…we’d prefer a depression.

Bill Bonner – The Daily Reckoning

Macro Overview

Focus Still On Europe

• For now, the market is still digesting just what is going on in Europe. As I mentioned, treaty change was a great first step. But it was only a first step – there needs to be at least a short and medium term bridges to ensure traction for this structural change actually sees the light of day. If “Merkozy” determine that this is the only step they are prepared to take then they may have ensured their dominance in Europe, while also ensuring the disastrous fate of the continent. In many respects, jeopardizing the recovery of the region to ensure/protect national economic dominance in this way could  be even more destructive to the equitable “European dream” than Britain leaving The Union altogether.
• A Telegraph article exhibits an interactive graph which shows that Britain may not be as much of a loner as everyone thinks it is. I still feel Cameron played his hand badly (even with an inevitable veto, no need to make enemies in Europe unnecessarily) but it’s too early to say that this was an entirely disastrous outcome for Britain. Let’s see just how much of a “union” the European Union truly is, as we approach Sarkozy’s election campaign.

The Other Economic Engines Are Spluttering And Stalling

• Every time we experience a lull in the European drama, a little more light is shed on the other main economic drivers in the World – specifically Asia and North America. Unfortunately, what the market sees East and West of Europe is hardly encouraging.
• China’s property market is in the midst of a contraction. America is looking quite sick and not all blame can be put on the European doorstep. Here is Chris Martenson (courtesy of ZeroHedge) explaining the simplicity of the problem for many Western Governments:

…it’s a simple math problem. You can’t forever increase your loans or your indebtedness faster than your income. I don’t care if you’re a person, a private individual, a family, a town, a nation state.

• If you remember, hedge fund legend, Michael Platt, said something similar on Bloomberg TV, when he said that for countries like Italy:

… arithmetically, their debt it going to blow up.

• Chris Martenson then attacks the US Dollar’s current safe haven status (what Gross would call the “least dirty shirt” status), saying that buying US Dollar assets in this environment is like:

…climbing on to the tail end of the Titanic and saying that: “this is the place to be”!

• So let’s just rewind to where we were this summer, before Europe distracted us so. In China, fears of a growth recession (I define as where reported real growth exceeds reported inflation) and the potential tail-risk that comes with this.
• In America, by continuing his money printing process, Bernanke was continuing his debasement of the World’s reserve currency. The Fed succeeded in exporting inflation to the World but not in reviving its own economy. Unemployment was still structurally extremely high (even as the numbers are systematically fudged lower) … oh yeah and the S&P had downgraded the US from the top rating after the embarrassment of political gridlock in Washington. Europe has provided America with a timely distraction, but it will not always be this way.

Market Overview

Asian Stocks A Little Rocky

• Was anybody as surprised as I was about the huge drop in Taiwanese stocks a couple of days ago? I mean Sure they were up a bit today, but this was quite a fall. News today that the Taiwanese government will step in to prop up stock prices because the “economic and stock fundamentals remain sound”… hmmm…
• India’s Sensex index hit a new low today. Everything is pointing lower inAsia, but there are some positive things to take away from this. Hopefully, a recession in the tide of growth will ensure an inflation rate low enough to mitigate the tsunami of fat-tail events that would otherwise hit the shores of South andEast Asia. UnfortunatelyHong Kong’s CPI does not yet reflect this (see below), but remember there are lag effects.
• Chart of the Day – Indian Sensex.

Chart of the Day

Indian Sensex (Source: Bloomberg)

Events

Macro Events:

Update:

• Hong Kong Inflation is persistent at 5.7% (in fact, slightly higher than expected)

Alerts:

• Brazil Inflation
• Italy GDP
• New Zealand GDP

 

Corporate Events:

Results:

• Bed, Bath and Beyond [BBBY],

Dividends:

• Nothing Significant

Reading, Links:

Nothing Significant