(Everybody) Long and Wrong
A quick little recap of the great bull of 2012.
The few lucky ones that bought the SPX or the DAX in the very first week of January are positive on the year. Anything else you bought (including the DAX and the SPX at a later stage) you are negative on the year.
All in all, momos are now long and wrong.
Chart for the sober look presented without further comments.
Mr Rajoy, the figures don’t add up- mission impossible
Everybody knows Spain is in real trouble. What few seem to grasp though, is the fact the figures don’t add up. Trying to revive the economy with austerity, and expecting people to believe the figures, is a fairytale. Wonder just how the banks are valuing the ever increasing property book? They still seem to apply those “was” prices. More on the impossible mission, via El Pais.
Spain has set its course and there is turning back” has been Prime Minister Mariano Rajoy’s mantra since taking office in January after committing himself to reducing the budget deficit from 8.5 percent of GDP to three percent by 2013 in a bid to avoid an ECB and IMF bailout, as has happened in Greece, Portugal, and Ireland.
The prime minister said on April 13 that it was “not possible” for the EU to rescue Spain: “If we don’t meet the deficit targets, they will stop lending to us, and if no one lends to us, they will have to rescue us. Because the government rules out the possibility of a rescue and intervention, that’s why we’re implementing reforms.”
DAX Deja Vú
The MED countries have received a brutal beating over the past weeks. The DAX is still trading way to strong compared to many other European indices. Today we are getting some of that real risk off shown in the DAX. Just like last year, the DAX formed a head and shoulders formation, and broke that neckline. We are getting a similar set up today. Note how the first buy the dip was followed by a fall of more than 20% in two weeks.
Beware of catching those falling knifes. Chart below.
China’s Rise, America’s Fall
Despite the falling PMI figures released earlier, China is taking over America, or? Must read by The American Conservative.
The rise of China surely ranks among the most important world developments of the last 100 years. With America still trapped in its fifth year of economic hardship, and the Chinese economy poised to surpass our own before the end of this decade, China looms very large on the horizon. We are living in the early years of what journalists once dubbed “The Pacific Century,” yet there are worrisome signs it may instead become known as “The Chinese Century.”
But does the Chinese giant have feet of clay? In a recently published book, Why Nations Fail, economists Daron Acemoglu and James A. Robinson characterize China’s ruling elites as “extractive”—parasitic and corrupt—and predict that Chinese economic growth will soon falter and decline, while America’s “inclusive” governing institutions have taken us from strength to strength. They argue that a country governed as a one-party state, without the free media or checks and balances of our own democratic system, cannot long prosper in the modern world. The glowing tributes this book has received from a vast array of America’s most prominent public intellectuals, including six Nobel laureates in economics, testifies to the widespread popularity of this optimistic message.
Yet do the facts about China and America really warrant this conclusion?
Spain Following in Ireland’s Footsteps-Bail out deja vú?
A few months ago, when The Trader was writing about the Spanish problems, the world was obsessed with the Greek drama. Well, now it is all about Spain. A few good points by Megan Greene on the similarities between Spain and Ireland.
Watching developments in Spain since the beginning of April has been source of non-stop déjà vu for anyone who spent 2010 watching events unfold in Ireland. There are a number of striking similarities between the position in which the Spanish government now finds itself and the Irish government’s situation in November 2010, just before it was forced into an EU/IMF bailout programme. Based on Ireland’s experience, a bailout for Spain seems inevitable.
The trifecta of problems
While many have deemed the eurozone (EZ) crisis to be fiscal in nature, it has never been that simple. It is true that neither Ireland nor Spain were as fiscally healthy as the headline numbers they were posting may have suggested. But that fiscal vulnerability was largely a reflection of other problems in the two economies. Both Ireland and Spain had allowed their public finances to become reliant on property bubbles that had also seen the countries’ banks over-extend themselves and their construction sectors grow unsustainably large.
Red Europe-Chart Update
European (red) charts update.
IBEX is down some 20% YTD, and approaching the the magic lows of 2009.
MIB is down some 8% YTD.
The Dax has formed a big head and shoulders pattern about to break down, and the Eurostoxx 50 is trading badly.
Essential charts below.
Spain in recession-everything under the sun
Spanish news dominating the scene today again. People are still talking about the bull, but let’s not forget, the MIB is down some 8% and the IBEX some 20% YTD. Spanish economy is now in recession. From Banco de Espana.
In 2012 Q1, Spanish economic activity continued on the declining path initiated in the closing months of 2011, in a setting of high financial tension. On the as-yet incomplete information available, the contraction in GDP is estimated to have been slightly higher than that in 2011 Q4, with a quarter-on-quarter rate of change of -0.4%. National demand fell once again (-0.9 pp), as has been the case over the past four years, although the decline was milder than in the preceding quarter, while the contribution of net external demand was positive once more (0.6 pp), but likewise lower than that in the previous three months. After posting rises for seven consecutive quarters in year-on-year terms, GDP fell back to a rate of -0.5% (0.3% in the previous quarter).
Employment fell once more, sharply so, posting an estimated year-on-year decline of close to 4%. And compensation per employee slowed across the economy, leading, in combination with high productivity growth, to a significant reduction in unit labour costs, prolonging the trajectory of the last eight quarters. The considerable sluggishness of domestic spending prompted a slowdown in the year-on-year rate of change of consumer prices from December to March, and the CPI stood at a 12-month growth rate of 1.9% in this latter month. Easing was more visible in the CPI excluding unprocessed food and energy, the year-on-year growth rate of which fell to 1.2%. In terms of the HICP, the inflation differential with the euro area stood in March at -0.9 pp, reflecting a reduction which was extensive to all the main HICP components.
The Truth About Excess Reserves
Guest post by Azizonomics.
Tyler enquires about excess reserves:
While the current iteration of the Fed, various recent voodoo economic theories, and assorted blogs, all claim that excess bank reserves are never an inflationary threat, it is precisely two Federal Reserve chairmen’s heretic claims that reserves will light an inflationary conflagration, that forced then president Truman to eliminate not one but two Fed Chairmen, and nearly result in the “independent” Federal Reserve being subsumed by the Treasury to do its monetization and market manipulation/intervention bidding. Which then begs the question: who is telling the truth about the linkage of reserve accumulation to inflation — the Fed of 1951, or every other Fed since, now firmly under the control of the Treasury-banker syndicate?
This is of course a live question. Excess reserves are at never-before-seen levels:
PMI Chills
Another day with collapsing markets. PMI figures sending everything lower, while 10 years spreads continue higher. The usual dogs IBEX and the MIB are the under performers, but this time even the DAX is joining the party.
PMI and 10 year spread charts below.
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