NEW$ & VIEW$ (24 SEPTEMBER 2012)


Rainbow Here’s the “hope” part:

Gasoline futures declined -7 cents last week, suggesting retail prices around $3.65, 20 cents (5%) below the recent peak.image

Storm cloud  Lightning  And here’s the “despair” part. Sorry if there’s little balance between them:

Chicago Fed National Activity Index drops in August

The index’s three-month moving average, CFNAI-MA3, decreased from –0.26 in July to –0.47 in August—its lowest level since June 2011 and its sixth consecutive reading below zero.

The CFNAI Diffusion Index also moved lower in August, declining to –0.23 from –0.08 in July. Twenty-six of the 85 individual indicators made positive contributions to the CFNAI in August, while 59 made negative contributions. Twenty-nine indicators improved from July to August,
while 55 indicators deteriorated and one was unchanged. Of the indicators that improved, 12 made negative contributions.


ISI’s China survey last week plunged to 40.0, approaching its 2009 low.  And the Shanghai Composite, down 4.6% last week, also made a new low. The PBoC, seeing the Fed, ECB and BoJ all committed to endless QEs, fears imported inflation as investors flee zero-interest rates.  So, they moved inflation control up on their policy agenda despite weak economic growth. 

Profits at non-financial SOEs are down 13% YoY between January and August 2012, worse than the 11% decline in the first 7 months of the year.

China Beige Book Shows Optimism Drops as Job Cuts Rise China’s manufacturers and retailers are less optimistic about sales than they were three months ago and more companies are cutting jobs, according to a survey modeled on the U.S. Federal Reserve’s Beige Book.

(…) The China Beige Book said manufacturing was the area with the biggest declines in companies reporting higher revenue, down 20 percentage points to 43 percent, and higher output, down 15 points to 47 percent. Respondents expecting higher sales in six months dropped 18 points to 53 percent and those seeing declines doubled to 20 percent, CBB said. (…)

Retailing growth also slowed in the third quarter from the three months through June, though by a smaller degree than manufacturing, according to the CBB report. Fifty-eight percent of respondents reported higher sales, down 10 percentage points from the second quarter, while 20 percent reported a drop, almost double the previous period. (…)

The number of companies reporting net hiring gains this quarter fell nine percentage points to 32 percent, while those cutting employees rose to 20 percent from 13 percent, CBB said. Fewer companies than before said the supply of unskilled labor is increasing.

The proportion of respondents reducing wages more than doubled to 11 percent, including 30 percent of companies with falling revenue, CBB said. (…)

Half of bankers reported greater credit availability at their branch, up 10 percentage points, while companies reporting borrowing dropped 9 points to 34 percent.

The report said a recovery in the real estate market was “slow but steady,” while the proportion of builders “in trouble is up despite higher overall revenues.” (…)

China’s SMEs in financial crunch: report  China’s small and medium-sized enterprises have been hit by multiple difficulties as the overall economy falters and export demand weakens.

(…) The report said most of China’s SMEs face difficulties as slowing domestic and overseas market demands and soaring consumer costs have aggravated their business environment, especially for labor-intensive sectors such as small suppliers for iron and steel firms and automobile producers. (…)

The report foresees that a large number of SMEs may shut down during China’s on-going economic restructuring, eliminating high energy-consumption and pollution-yielding firms.

The organizers of the report called on local governments to provide more financial support and tax and regulation fee cuts to help SMEs through the tough period. (…)

German Business Confidence Falls

Deepening its decline over the past four months, the Ifo business confidence index fell in September to 101.4 points, from an unrevised 102.3 points in August.

The Ifo survey of about 7,000 German companies engaged in industry and trade showed that the assessment of the current conditions and views of the business outlook both deteriorated in September. The subindex assessing current conditions fell to 110.3 from 111.1, while the subindex for business expectations dropped to 93.2 from 94.2 in August.

This chart from FT Alphaville highlights the recession risk for Germany:


Germany Losing Patience With Spain on Crisis Action

Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating* and decide whether Spain needs a full rescue.

“He must spell out what the situation is,” Michael Meister, the chief whip and finance spokesman for Merkel’s Christian Democratic Union, said in an interview in Berlin today. The fact he’s not doing so shows “Rajoy evidently has a communications problem. If he needs help he must say so.” (…)

Problem is, Rajoy did indeed get help last week:

German Finance Minister Wolfgang Schaeuble has signaled opposition to a Spanish application for aid. Schaeuble said Sept. 21 he’s “steadfast” in his opinion that the 100 billion euros in banking aid for Spain is enough to see it through. (…)


(FYI: *prevaricate: to speak falsely or misleadingly; deliberately misstate or create an incorrect impression; lie. (

More examples of European cohesiveness (FYI: cohesive: well-integrated; unified: a cohesive organization. Physics: of or pertaining to the molecular force within a body or substance acting to unite its parts):

Give Greece more time, says French PM
Clearest call to date on easing Athens’ bailout terms

(…) Jean-Marc Ayrault, the prime minister, taking a clear swipe at those in Germany insisting on a hard line against Athens, warned that a Greek exit from the eurozone would be “unmanageable” and could be “the beginning of the end of the European project”. (…)

President François Hollande has been careful not to cross Angela Merkel on the issue, but Mr Ayrault made clear the frustrations in the new socialist government over the handling of Greece by eurozone leaders, including the German chancellor, criticising them for a “political weakness” and “a lack of vision”. (…)

Mr Ayrault’s call for leniency followed a confrontation in Athens last week over international lenders’ demands for an extra €1.5bn of cuts in pensions and public sector salaries to meet the €11.5bn target.

A senior government official said on Sunday that Greece was now unlikely to receive a critical €31.5bn loan instalment tranche before mid-November.

Portugal drops plan for cuts to pay
PM to discuss alternative austerity measures after climbdown

(…) Following a furious public backlash against tougher austerity, Pedro Passos Coelho faces the difficult task of convincing labour leaders and recession-hit employers that further spending cuts and tax increases are needed to keep Portugal on track with its €78bn bailout programme. (…)


Turkey’s Economy to Miss Growth Goal

Turkey’s economic growth this year may be below 4%, central bank Governor Erdem Basci said, acknowledging for the first time that the government is likely to miss its target.

Vietnam CPI Rises at Accelerated Pace

Consumer prices in Vietnam rose in September at their fastest pace in 16 months, led by higher costs for health care, education and transportation.

The Consumer Price Index rose 2.2% in September from the previous month, the government’s General Statistics Office said. The country’s August CPI rose 0.63% from the month before. (…) Vietnam’s September CPI rose 6.48% from a year earlier, faster than August’s 5.04% comparable rise.

Earlier this month, Prime Minister Nguyen Tan Dung said Vietnam aims to cap inflation at 6.0% this year and 7.0% next year. The country’s CPI rose 18.1% in 2011.

Japan’s Noda Vows Quick End to Deflation

Japanese Prime Minister Yoshihiko Noda vowed to pull the country out of prolonged deflation within a year, pledging to strengthen efforts with the Bank of Japan.

Russia opens door to grain export limits

Russia, one of the world’s leading wheat exporters, put agricultural commodities markets on alert by signalling a policy U-turn that could see the introduction of grain export restrictions if domestic prices rose further.

Andrei Belousov, Russia’s economic development minister, told reporters on Friday that a grain export ban was still possible. (…)

High five  But hours later, Arkady Dvorkovich, the deputy prime minister who is in charge of farming policy, said Russia would not impose grain export restrictions, leaving traders on edge about future grain sales from a key producer.

Although Moscow’s official line for the past two months has been that it has no plans to ban exports, some grain experts worry that it will turn to informal tools, such as reducing access to the railways, to reduce the flow of grain leaving the country.

QEs compared

Deutsche Bank’s Alan Ruskin compares the effects of QEs 1, 2 and 3 (Via Ft Alphaville)

Do you see a trend there? Maybe, but it will likely be clearer after QE6 or QE9.

These interesting comparisons of what now seems like annual QEs should be more thoroughly analyzed as the economic background is always different. This one is no exception with Europe in recession and little visibility of an exit, China in a clear slowdown and the U.S. fiscal cliff looming around the next corner. NBF Economics and Strategy Group adds an important variable that was not present in 2010 and 2011:

Stockpiling could hit world growth in 2012H2

Global industrial production (IP), which was flat in the second quarter of 2012 (the worst performance since the 2009 global recession), seems to have picked up speed in July based on latest CPB data. While the 0.4% IP increase in July is welcome news, the coinciding decline in trade volumes (-0.2%) isn’t so.

In fact, the ratio of industrial output to trade volumes, a proxy for the global inventory-to-sales ratio, rose again in July, extending an uptrend
that started about a year ago. Such stock building doesn’t bode well for global production and growth over the rest of the year, unless of course trade volumes see a significant rebound in coming months. (…)

All told, the expected moderation in global output growth could generate headwinds for commodity prices over the coming months, even as the Fed’s printing press gears up.



Earnings Gains in U.S. Obscured by Retreat in Energy Profit

The unbroken streak of Standard & Poor’s 500 Index profit growth that spurred a three-year bull market would last another quarter if not for energy companies, whose profits are poised to slump the most since 2009.

Income at oil and gas producers will fall 24 percent in the three months ending in September, the largest decline in three years, according to more than 1,200 analyst estimates compiled by Bloomberg. Excluding the retreat, earnings in the benchmark gauge for U.S. stocks would climb 2.5 percent, the 12th straight increase, amid gains for banks and computer makers, data show.

Yes my friends, earnings season is back in a couple of weeks!

Hint from ISI:

Insider buying has dried up; and insider selling is high. This typically suggests revenue disappointment in subsequent months. It is worth noting that ISI’s Company Surveys are once again moving lower.

Surprised smile Based on MSCI data, earnings estimates for the Eurozone through 3Q are down -22% y/y and for China -1%.

Barron’s adds:

Beware Complacency  Newsletter writers grow more bullish, but corporate insider sales outnumber buys by six to one.

So it is that corporate insiders, one group that’s often quick to harvest windfalls, have been active on the offer side of the market in their employers’ shares, with sellers outnumbering buyers by more than six to one, says ISI Group strategist Bijal Shah. That weekly level has been reached just four times since early 2010. While this hasn’t always proved an urgent danger signal, it has tended to precede a softer period for economic momentum and the equity tape.

(…) the percentage of bulls looking for even more exceeds that of the skeptics by nearly the 30-point span that signifies the onset of a potentially unhelpful complacency. Combined with an excess of bullish call options versus puts, and the fact that once again last week the broad market was supported by defensive rather than growth-sensitive stocks and sectors, the picture of a market unlikely to run away to the upside becomes clearer.


Netanyahu’s red lines mark split with US
Israeli PM in difficult position over any Iran action

(…) In a surprise move, the Israeli prime minister last week took his message straight to the American people, appearing on several television channels to explain his differences with Washington and reinforce his diplomatic demands. Mr Netanyahu made clear once again that he wants the US administration under Barack Obama to issue a “red line” for Iran’s nuclear programme – with a commitment either to take or support military action should this line be crossed. He made his plea despite repeated statements from senior US officials rejecting his demand.

Today more than ever, the gulf between Washington and Israel is there for all to see, including decision makers in Tehran. Unless the two sides can agree on a common line soon, the overarching goal of Israeli diplomacy for the past three years – the creation of a united international front against Iran – will move further beyond reach. (…)

Pension Crisis Looms Despite Cuts  Almost every state in the U.S. has made cuts to its public-employee pensions,but the measures have fallen short of bridging a nearly $1 trillion funding gap.

Since 2009, 45 states have rolled back pension benefits for teachers, police, firefighters and other public workers, including cuts by Michigan and California this month. Next week, Republican Ohio Gov. John Kasich is expected to sign legislation requiring, for example, that certain teachers work longer and pay more toward their pensions. (…)


While most states have approved some form of pension cuts, many have opted to apply those changes only to workers who have yet to be hired.

That means most of the savings won’t be realized for decades, when the most expensive retirement benefits come off the books. Changes made to the retirement plans of newly hired workers are expected to reduce pension costs by 25% over the next 35 years, according to Boston College estimates.

Push to Let College Students Carry Guns Picks Up Steam  At more college campuses across the country, students are winning the right to pack a gun. Confused smile


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