43 Senate Republicans Oppose Reid Plan; Lacks Votes To Clear Cloture
by Zero Hedge - July 30th, 2011 1:55 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
After the Senate promptly voted down Boehner’s congressional plan, now it is the GOP’s turn to return the favor after a House vote on Reid’s bill is imminent at around 2:30 pm EDT, and will result in a vote down in kind. Furthermore, as The Hill reports, virtually the entire Republican block in the Senate has sent a letter to Reid expressing their opposition to his proposed legislation. “Their unified opposition to the bill leaves Democrats at least three votes short of the 60 needed to a clear cloture and virtually assures its defeat when it comes up for a vote tonight or tomorrow morning. Only moderate Republican Sens. Susan Collins (Maine.), Olympia Snowe (Maine), Scott Brown (Mass.) and Lisa Murkowski (Alaska.) did not sign on the letter.” This is not surprising and it means that the only potential plan is one based on compromise, most likely using the uber-toothless McConnell plan which essentially just raises the ceiling by $2.5 trillion or so and envisions nothing else, as a framework. That said, we doubt a compromise plan is feasible especially since Wall Street refused to take the bait and umble at least 10% in the past week. In other words, we may well enter the Asian open again, not to mention FX in 26 hours, with absolutely nothing firm on the table. Only this time, there will be 24 hours until the Treasury runs out of cash, sales of Fed tungsten notwithstanding.
From The Hill:
“We are writing to let you know that we will not vote for your $2.4 trillion debt limit amendment which, if enacted, would result in the single largest debt ceiling increase in the history of the United States,” reads the letter.
Senate Minority Leader Mitch McConnell (R-Ky.) took to the floor moments after the letter was delivered to assure Reid, who was also on the floor, that the proposal had no chance of clearing the chamber.
“It’s not going anywhere,” said McConnell. “It will not pass the Senate. It will not pass House.”
McConnell also accused Reid of “delaying the inevitable” defeat of the bill and called for an immediate vote. The first procedural vote is currently expected at around 1 a.m. Sunday morning.
Reid responded to the
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DiggA U.S. Sovereign Credit Downgrade Is No Laughing Matter for China or Anybody Else
by ilene - July 30th, 2011 1:21 pm
Courtesy of www.econmatters.com.
By EconMatters
China SignPost™ (????) did an interesting analysis on the top eight cities of China based on economic output. The study finds China’s eight largest cities still trail the eight largest U.S. cities substantially in terms of economic output. For instance, Shanghai, the largest Chinese city with the highest economic production, and a fast-growing global financial hub, is far from matching or surpassing New York, the largest city in the U.S. and the economic and financial super center of the world. In fact, Shanghai was trailing the 8th-largest U.S. city--San Francisco--by nearly 50% in 2009 (See Chart). By the way, China SignPost™ picked eight cities because of the number 8’s significance as a sign of good fortune in Mainland China.
As to finding an equivalent GDP counterpart in the U.S., the $221-billion economic output in 2009 of Shanghai put it on par with Seattle. Beijing, ranked no. 2 in China, is equivalent to Phoenix’s GDP (See Map.) In terms of purchasing power parity adjusted economic output, based on 2009 data from the IMF, Shanghai was worth about $400 billion—roughly equivalent to Washington DC and larger than Dallas or Houston.
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Source: National Bureau of Statistics, IHS Global Insight, China SignPost™
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Social-economically, the analysis found a stark contrast between the U.S. and China in the urban-suburban-rural divide. Chinese cities represent a greater proportional concentration of wealth and consumption, whereas suburbs and satellite cities are often the areas of significant wealth in the U.S. And some areas in the Midwest, West, and Southwest of the U.S. are further boosted by natural resources such as energy and agriculture, and tourism.
Not surprisingly, due to a higher degree of urbanization in the U.S., these 8 largest cities in China accounted for roughly 21% of GDP in 2009, while their U.S. peers accounted for nearly 30% of GDP in 2009. This also illustrates the relatively bigger role that China’s rural economy plays in the nation’s economic growth. China’s large pool of rural consumers and the substantial consumption growth potential is one factor that has…
Meet David Rosenberg: Tea Partier
by Zero Hedge - July 30th, 2011 1:07 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
That David Rosenberg – the skeptic – threw up all over the Q2 (and revised Q1) GDP in his note to clients yesterday is no surprise. Even Joe Lavorgna did it (which makes us quietly wonder if America is not poised to discover cold fusion, perpetual motion, nirvana, a truly edible iPad, and peace on earth). That David Rosenberg – the deflationist – makes light fare ("ceiling will be raised") of the ongoing debt debacle is also no surprise: after all should the US default, the long bond strategy the Gluskin Sheff strategist has long been espousing will go up in a puff of smoke. What, however, is surprising, is the fact that as of yesterday’s Breakfast with Rosie we get to put a political face to the financial man, and it very well may be… David Rosenberg – Tea Partier.
While it is a rare event for a reputable financial commentator to interject political observations into a client note, that is precisely what Rosie did last night, by essentially espousing the (correct) Tea Party advocacy of a balanced budget. To wit: "You know what — I am sick and tired of all the so-called mainstream pundits out there lambasting the Tea Party. Those who know me, and know me well, know that I am not some right-wing nutbar but come on. Why is everyone so scared about committing to a balanced budget amendment? Why is there so much fear about admitting that living within your means is not a terrible thing? Government spending, in the United States, is simply out of control." Hear, hear. We hope more bond commentators step up and say the same thing (except for Jim Caron of course: we expect him to say the opposite, just as we keep expecting him to admit after 3 years of wrong calls that he may have been in fact a little off in his expectations of an economic recovery and the whole bull steepener thing). What we are confused by is that according to some of the more virulent(ly amusing) neo-Keynesian theories, the more debt issued by the monetary reserve authority, the lower the prevailing interest (in a nutshell) due to more demand, or some such perversion of supply and demand. By advocating a balanced budget approach Rosie is basically saying cut the…
Guest Post: Q2 GDP – The Numbers Don’t Add Up
by Zero Hedge - July 30th, 2011 12:43 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Tony Pallotta of Macro Story
Q2 GDP – The Numbers Don’t Add Up
Q1 2011 GDP was revised one final time from 1.9% to 0.4% and Q2 2011 GDP the first estimate was 1.3%. Before analyzing the data I have one very simple question.
Economic growth slowed during Q2 as acknowledged by the Fed and indicated by regional Fed surveys, ISM, durable goods, etc so how could Q2 GDP be higher than Q1 GDP? That would imply the economy accelerated and clearly that has not happened. In other words just as Q1 2008 was eventually shown as the start of the great recession so will Q2 2011 in subsequent revisions.
The table below shows how each of the four components contributed to GDP while the two red highlighted areas indicate the most vulnerable and their negative trend.
GDP = Consumer + Investment + Government + Net Trade
Consumer
Representing upwards of 70% of the US economy the consumer fell hard from Q1 to Q2 with their contribution to GDP falling from 1.46% to 0.07%. This was driven primarily by contraction in consumer goods from 1.10% in Q1 to (0.33%) in Q2. The chart below shows further consumer weakness based on recent UM Sentiment survey data.
Additionally as more unemployed exhaust jobless benefits and the Federal government is less able to extend aid the consumer faces yet another major headwind.
Investment
Two components make up this category (a) Fixed Investment and (b) Inventory. As the great recession ended retailers began replenishing their stock rooms and adding inventory thus fueling economic growth but as the table above shows that build is coming to an end. As consumers pullback retailers will also pullback and rather than add to inventory will sell existing inventory.
The fixed investment component appears to be either overstated or ready for a serious move lower. The historical comparison with fixed investment and UM Sentiment is presented below while the simple reality is if the consumer is pulling back so will the demand for fixed investment.
Government
The government component seems overstated in the current report at (.23%) after contracting (1.23%) in Q1. July 1 was the start of a new fiscal year for most US states and as required by law they were forced to balance their budget…
World Markets Weekend Review: The U.S. Leads a Selloff
by Chart School - July 30th, 2011 12:35 pm
Courtesy of Doug Short.
What a difference from last week, when my update title was Major Rally. The seven major world markets I track all finished in the red with six of the seven down anywhere from two to nearly four percent. The S&P 500 finished dead last, down 3.92%, and doubtless contributed to the broader international retreat, thanks to our political incompetence in dealing government financial policy.
The tables below provide a concise overview of performance comparisons over the past four weeks for these seven major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.
The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.
A Longer Look Back
Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai, Hang Seng) is readily apparent.
Check back next weekend for a new update.
Goldman Weekly Chartology: “Investors In Full Risk Off Mode”
by Zero Hedge - July 30th, 2011 11:40 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
As Goldman’s David Kostin summarizes in his latest weekly kickstart chartology, the market continues to be a dueling story between slightly better micro (although certainly not in Europe) and deteriorating macro. “Two weeks ago the narrative of the market was the triumph of politics and profits. News from inside the Beltway suggested a deal to curtail spending and raise the federal debt ceiling was in sight and a steady sequence of very strong earnings reports led by the Information Technology sector combined to push the market higher. However, the news this week was decidedly less market-friendly….Our client discussions indicate investors are in full “risk-off” mode and they plan to continue that posture until sovereign uncertainty subsides. Lack of conviction regarding the outcome of politically-charged fiscal negotiations has compelled hedge funds to reduce risk by lowering gross exposure and mutual funds to stay close to benchmarks. Investors are refocusing on corporate balance sheet strength as a key factor in the stock selection process and we re-balanced our strong and weak balance sheet baskets. 331 stocks have released 2Q earnings and the results have been strong although several firms slashed 2H guidance during the past week.” And as a reminder, the bulk of the upside has come from one company alone: Apple. Also, it is gradually getting uglier on the earnings front: “During the past week a number of firms reduced EPS guidance for 2H. Examples include ITW, JNPR, MUR, and SO. Several firms specifically commented that business activity slowed sharply in June and July.” And with a slew of financials reporting shortly, next week is sure to tip investor sentiment further into derisking mode.
Weekly Bull/Bear Recap: July 25-29, 2011
by Zero Hedge - July 30th, 2011 10:56 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Rational Capitalist Speculator
Weekly Bull/Bear Recap: July 25-29, 2011
Bull
+ Jobless Claims fall more than expected as companies can’t lay off any further. They are lean and posed to hire in the second half of the year as the global economy rebounds.
+ Emerging market economies will act as an ongoing support to the bull market as earnings growth is increasingly focused on the development of the new global consumer. Plenty of companies have pointed to growth in Asia as the impetus for their out-performance.
+ Another sign emerges pointing to the transitory nature of the current soft-patch as the Dallas Fed Manufacturing Index notches a reading of -2 vs. -17.5 the month prior. New Orders vroomed back to +16 from +6.4. Need another? Check out the latest “Truck Tonnage Report” from the American Trucking Association. This all important barometer of the US recovery shows that manufacturing remains moving forward.
+ Credit is loosening. The Federal Reserve Bank of St. Louis just reported a spike in commercial bank credit issuance for the week ending 7/13.
+ The Case-Schiller Index shows a stabilization in home prices. This will help consumer sentiment. Furthermore, here’s an interesting economic indicator, which portrays increased home-buyer interest. From the looks of Pending Home Sales, buyer activity is increasing.
+ The US economy may be slowing, but it’s not headed into another recession. The ECRI leading indicator has stabilized at a growth rate of 2.0% for the week ending 7/22/11, from a reading of 1.6% the prior week.
Bear
- The Chicago Fed National Activity Index (CFNAI) points to continued economic weakness as its 3 month average moved from -0.31 to -0.6 in June. It is now only a smigen away from the important -0.7 reading. “When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.”
- The CFNAI reading is also supported by the Q2 GDP report which showed a US economy perilously close to contraction, coming in at 1.3% (below estimates of 1.6%). Q1 was revised down to a gain of only 0.4% from 1.3%. The economy is extremely vulnerable right now. Any exogenous shock…
With The US Economy Sliding Back To Recession, Here Is What The Fed Will Do Next
by Zero Hedge - July 30th, 2011 10:41 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Back in May when we presented our humble and succinct analysis on what the preliminary 1.8% GDP looked like, we said "Ex the now traditional inventory build [of 1.2%], Q1 GDP growth was sub 1%" basically being the only party who said that aside for the "old faithful plug" better known as the traditional BEA fudge to get GDP to whereever the administration wants it, growth was where it ultimately ended up being: 0.4%. And the kicker? The primary cause of the downward revision was, you guessed it, Inventories, which imploded from 1.31% to 0.32% (see chart). In other words, the next time we are skeptical about government data in any format, believe us, and not "them." Which also goes for our skepticism when it comes to the predictive ability of one Goldman Sachs, most notably our take on Goldman’s December 1 2010 "watershed" report in which Hatzius said: "This outlook represents a fundamental shift in the thinking that has governed our forecast for at least the last five years… Five years ago, we became very pessimistic about the US economic outlook…So why do we now expect growth to pick up? In a nutshell, it is because underlying demand has strengthened significantly… After a deep downturn from 2007 to mid-2009 and near-stagnation from mid-2009 to mid-2010, underlying demand is now accelerating sharply. Currently, it is on track for a 5% (annualized) growth rate in the fourth quarter." Total and utter fail.
Our summary then was also rather spot on: "Much more hopium inside. This is unfortunate. Jan Hatzius used to have credibility." Indeed, after waiting for so long, the firm once again capitulated per its most recent report released last night: "Our forecasts for 3%-3.5% growth in Q4 and 2012 are under review for probable downgrade." So with apologies for the self-backpatting, this brings us to the topic of this post. As we have said for over a year, the catalyst for QE3 will be none other than Goldman. Which is convenient because the title of Goldman’s report is "The Fed’s Easing Options." Pretty much as subtle as it gets: a month ahead of Jackson Hole, Goldman, aka the Federal Reserve’s superior, has not only also admitted the other theme was have been pounding the table on, namely that 2011 is a…
Weekly Market Commentary: Russell 2000 and S&P Under Pressure
by Chart School - July 30th, 2011 4:36 am
Courtesy of Declan Fallon
The strongest index before the week started was also the index to suffer least by the selling. The Nasdaq 100 may have reversed last week’s breakout, leaving behind a potential ‘bull trap’, but it’s still the index best positioned to lead should there be any semblance of buying interest.
via StockCharts.com
Strength in the Nasdaq 100 has a positive knock on effect on the Nasdaq, despite the latter index shedding over 5% on the week. The index also hasn’t cracked above 2,887 resistance, but remains well positioned inside the bullish channel.
via StockCharts.com
Unfortunately, the Russell 2000 pulled further away from its confirmed bull trap and is moving towards 760 support. Small Caps are key leaders in market direction and should the bullish channel established from the March 2009 lows break it will likely drag the other indices down with it.
via StockCharts.com
The S&P is the index closest to channel support. But it has been under performing relative to the 2007 high, so while it may be the first index to break outside of it’s channel, it hasn’t been a leading index for some time.
via StockCharts.com
S&P Market Breadth is also pointing to a likely channel break next week. The S&P Bullish Percents lost channel support, negating the prior ‘bear trap’. The Bullish Percents could ‘bear trap’ for a second time, but for now treat it as a breakdown. A strong rally on Monday would likely confirm it as a ‘bear trap’, but the longer it takes the next rally to emerge the less likely the ‘bear trap’ will reverse (i.e. it will count as a confirmed channel break).
S&P 500 Bullish Percent Index ($BPSPX)
via StockCharts.com
For next week, watch Small Caps (Russell 2000) and Nasdaq 100 for leads, but it could be a
…
What Happens When A Paper Currency Fails?
by Zero Hedge - July 30th, 2011 4:05 am
Courtesy of ZeroHedge. View original post here.
Submitted by thetrader.
Once upon a time there was a really nice country, Yugoslavia,but due to huge Economic and Religious problems, the country eventually was divided into smaller countries. Tito used to run the country successfully, balancing between the West and the East. It all worked well for Tito, who financed debt with printing money. Eventually, reality caught up, and Yugoslavia experienced one of the biggest Hyperinflation periods the World has ever seen. Sounds familiar?
Full Fiat Currency Map, click here.
From Thayer Watkins,
Under Tito, Yugoslavia ran a budget deficit that was financed by printing money. This led to a rate of inflation of 15 to 25 percent per year. After Tito, the Communist Party pursued progressively more irrational economic policies. These policies and the breakup of Yugoslavia (Yugoslavia now consists of only Serbia and Montenegro) led to heavier reliance upon printing or otherwise creating money to finance the operation of the government and the socialist economy. This created the hyperinflation.
By the early 1990s the government used up all of its own hard currency reserves and proceded to loot the hard currency savings of private citizens. It did this by imposing more and more difficult restrictions on private citizens’ access to their hard currency savings in government banks.
The government operated a network of stores at which goods were supposed to be available at artificially low prices. In practice these store seldom had anything to sell and goods were only available at free markets where the prices were far above the official prices that goods were supposed to sell at in government stores. All of the government gasoline stations eventually were closed and gasoline was available only from roadside dealers whose operation…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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