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Monday Market Musings

DIA WEEKLYWelcome to September!

So far, it's not much different than August with Global PMI data coming in so TERRIBLE that it's moving the markets up on hopes of more QE.  Last month, on August 3rd, we had PMI readings that were down 6% and the S&P had finished Thursday at 1,365.  But Draghi made his promise and QE Fever took us up to 1,391 that day and all the way to 1,422 on the 21st – up 4.2% in just over two weeks.  Here we are this morning, on September 3rd, with the S&P at 1,406 – almost exactly halfway between the August 3rd low and the Aug 21st high

As you can see from Dave Fry's Dow chart, we're actually losing ground on no volume for the past two weeks – even after Friday's ridiculous rally, which kept us from failing that critical 13,000 level.  

A pessimist may see a big "M" pattern forming and it could – to a casual observer – look like the rally from 12,000 to 13,200 (10%) is a bit stretched – to say nothing of the rally from 10,500 to 13,200 (25%) that we've had since last Fall.  

Hopefully Mitt Romney can step in and put a stop to this, right?  We were just discussing in Member Chat this morning the incredible difference between market performance under Democratic or Republican rule.  It's interesting how the Republican's keep this myth going that they are somehow good for the markets when nothing could be further from the truth.  Only a strong middle class gives you sustainable growth AND sustainable market returns yet, somehow, this has incredibly basic economic concept has been washed right out of the Conservative brain.  

Of course there's some quick money to be made from strip-mining corporations, Bain-style but, in the not-very long run, you are left with nothing but a wasteland, where companies and jobs that took decades to build are disassembled overnight as jobs and technology subsumed by larger corporations and, as often as not, shipped overseas.  In the early Bush years, cheap money led to an M&A boom that consolidated thousands of small, bottom 90% Corporations that were swallowed up by top 10% Corporations who became top 1% Corporations that "cut costs" like factories and workers and materials – pulling them all out of the local economies.  As often as not, local means US.  

Why then, should it be a surprise when, after a few years of this, jobs begin to disappear and unemployment climbs.  And it's not just temporary unemployment – those jobs are gone, permanently – that money is never coming back to our local economy so people lose their homes, tax bases erode, social services are strained and we find ourselves where we are now.  Benjamin Wallace-Wells of NY Magazine calls it "The Romney Economy" but it clearly began under Bush – Romney just wants to finish the job. 

"The Class War Has Begun," writes Frank Rich, who gives a very nice historical overview on the subject.  That was a year ago, before Occupy Wall Street was purged from city after city while the press remained silent.  This November, perhaps Rich can write that the class war is over, with the top 1% completing a bloodless revolution that began under Reagan and can finish under Romney, as we wipe away the last of the resistors and cut the rest off out of the Social Safety Net (make sure you spit when you say that!).  

Speaking of safety nets, Mish points out that China has now reported 10 consecutive months of declining exports and the latest PMI reading was the worst in the past 4 years.  This has, of course, been taken as "good news" by the markets this morning, who feel that the PBOC now HAS to save us by throwing more stimulus on the fire but, as you can see from this chart by AlsoSpractAnalyst, THEY DON'T HAVE ANY MORE MONEY!!!  


That's 20 Trillion RMB ($3.3Tn) of reserves spent since they peaked out in 2005 and 15Tn of it spent since Oct 2007 and the latest data out of China shows them running a deficit, not a surplus – there's no more coming in!  There is a persistent myth about China having tons of reserves but that's from back in the early part of last Decade, when they did.  Since then, China, like the US, has fallen on hard times and has eaten into their debt pile to keep the economy afloat.  

Like the US and Europe, Trillions of Dollars spent stimulating the economy and buying foreign debt is doing nothing at all to fix the problem but, sadly, it is the ECB's "plan" for fixing Europe this week, as expectations are very high that a massive bond-buying program will be announced this Thursday – apparently over the dead body of Jens Weidmann (see Friday's post).  What this will do to alleviate Europe's now 11% unemployment rate is anybody's guess.   

Look at all those jobs Obama "saved or created" compared to the other side of the Atlantic.  Too bad he'll never get the credit for it…

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  1. Good Morning!

  2. Good morning!  

    Our Futures are still flat but Europe's up about 0.7%, improving on a half-point morning pop.  

    The Dollar is at 81.30, Euro $1.257, Pound $1.588, 78.30 Yen to the Buck and EUR/CHF is $1.2007, indicating an exceptionally strong Euro.  

    Clearly the BOJ is out of cash and it looks like Auto sales are NOT up as much as advertised:  


    Modest Rise for Japan Auto Sales

    Japan's auto sales rose 7.3% in August, the slowest increase since September, despite the industry's expectations for a buying rush ahead of the expiration of government purchase incentives.

    This will probably blow back on us as well.  


    Japan Public Pension Fund Loses $26 Billion

    Japan's public pension fund, the world's largest, announced investment losses of ¥2.069 trillion, or about 1.9%, on its total asset holdings in the April-June quarter.


    Asia's Manufacturing Slump Deepens

    Asia's manufacturing downturn deepened in August as China showed notable weakness, adding to pressure on governments and central banks.


    Industrial Output Falls in Japan

    Japanese industrial production unexpectedly fell 1.2% in July from a month earlier, in a sign that Japan's export-dependent economy may be stalling amid a slowdown overseas.


    Japan's Budget Spending Mired in Politics


    And here's a really interesting spin out of Europe:  



    As markets look for the European Central Bank president to unveil details of his bond-purchase program on Sept. 6, Italy and Spain are showing little willingness to request aid from Europe’s bailout fund — a pre-condition for the ECB to start buying their debt. A jump in bond yields may remind governments that they need to act first.

    Draghi’s plan hinges on governments asking the bailout fund to buy their bonds on the primary market, which would require them to sign up to strict conditions, before the ECB intervenes on the secondary market. While Spanish Prime MinisterMariano Rajoy and Italian Premier Mario Monti are heaping pressure on the ECB to act to lower their borrowing costs, they’re resisting making an application to the bailout fund for aid.


    “Draghi will be vague, and he should be,” said Erik Nielsen, global chief economist at UniCredit Bank AG in London. “He’ll reiterate the conditionality aspect, that whatever they’ll do will be ‘enough’,” and that “the objective of such interventions, if they happen, will be to prevent speculation of a euro-zone break-up.”

    The ECB will publish new economic forecasts on Sept. 6 that council member Ewald Nowotny has said are likely to revise down the outlook for growth.

    Maybe I'm just crazy but I don't get a BUYBUYBUY vibe out of this stuff.  

  3. Oil is $96.39, gold is $1,695, silver $31.87, copper tested $3.50 again and back to $3.48 now, nat gas $2.785 and gasoline tested $2.98 and now $2.958. 

    So the majority opinion is that the World's Central bankers look at this and look at their markets back at 2007 highs and, DESPITE the EU CB's having ONLY a mandate to control inflation and DESPITE the Fed having 1/2 of their mandate to do the same – that they will all look at these commodity prices (up for 2 months in a row, beating equity performance over 16 months now) and say:  "What we really need right now is more QE."  Am I the only person who doesn't think that makes any sense?



    Well, me and Jens Weidmann, anyway…

  4. I'll be in and out today (US markets closed) but, if you are playing the Futures – I think 812 is a good shorting line on the RUT (/TF) as long as the Dollar holds 81.30 and the Dow (/YM) stays below 13,100 (now 13,081).  Oil is tricky but can be shorted at $96.50 with very tight stops (/CL) and gold (/YG), which is currently $1,695.90 will make a nice short if it tests $1,700 as that should be an easy spot to stop out on a break.  

  5. lest you think it is just politicians that are the problem
    Carly Fiorina on Meet the Press cited the tremendous oil boom in North Dakota as proof that Mr Romney has the best energy plan for the U.S..  Failing to note the irony that the boom has occurred while Obama is president.  She also made the wildly inaccurate claim that the XL pipeline would create 1 million jobs, TransCanada estimates 20,000.  Both those comments went unchallenged by David Gregory, leaving more time for the panelists to discuss the importance of Clint Eastwood.  Ugh! 

  6. Phil / Extraplanetary weight:  Is that how it would work for the 1,000 pounders?  I thought Bernanke had already repealed the laws of gravity!!

  7. Good morning, Angel!  It sounds like I'm at a disadvantage in respect of our bet, since you appear to have both Phil and H.S. Mencken on your side:  "No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”
    I hope they're both wrong.

  8. Lincoln/Carly   Yeah, she can spin with the best of the boys!
    With such a bullsh*t line on the million jobs, I was expecting a rebuttal from anyone, including gingritch!  :)

  9. Zero/bet  Chin Up!  No regrets….You Guys need to make your bet FUN !  The catch would be, the WINNER has to be willing to take the prize……
    I offer Modesto's finest – In a 5 litre box, no less….. :)

  10. Spain is returning to the bond market after a month-long pause, along with France, Austria and Belgium, prior to the ECB's Sept. 6 meeting, where Draghi may, or may not, announce a bond buying program.  Interesting to see how that will go.
     Meanwhile, France is facing a bailout of CIF, with E40B in liabilities and E2.4B in equity, with a E1.75B covered bond due in October.  And in Spain, Valencia has just raised its 2011 deficit estimate by E3B to E6.648B today, while Andalucia has just asked the central government for a E1Billion advance against anticipated tax revenues, as it is short of liquidity.  I think it's fair to say that there is no sign of improvement in Spain's fiscal situation.

  11. EU stocks giving up a bit of gains but generally strong.  Spain went red -0.3%.  Miners are leading the rally on QE Fever and $1,695 gold.  

    RUT broke over 812 to 815, other indexes mainly flat but Dollar failed 81.30 and now 81.20 so no bear betting in futures anyway.  

    Carly/Lincoln – Hard to imagine that, despite setting a new spending record, people didn't elect her as Senator (42/52).  She was one of McCain's main advisers – hopefully she can do as well for Romney.  

    LOL ZZ – Maybe we can send Bernanke there.  

    Bonds/ZZ – Will be messy if the sales don't work but maybe they want them to fail so ECB has more reason to step in.  Very confusing games being played over there at the moment.  

    In the case of commodities, what goes up must come down, suggests FT Alphaville's Neil Hume, who wonders what this up-and-away chart would have looked like without the threat of Iran and the fervor of gold bugs.

    Apparently it has been the summer of Grexit planning for major U.S. firms. A NYT report has Bank of America considering a scenario where trucks filled with cash would be sent over the Greek border to let clients pay local employees, while JPMorgan is creating a handful of holding accounts reserved for a new drachma or alternative currency. More doomsday planning here.

    Markets are getting keyed up about possible Chinese stimulus, but China may stand fast. Its economy, though slowing, is still growing at a reasonable rate, and Chinese policymakers need to tread carefully with the economy ahead of this year's transition to new political leadership.

  12. Carly hasn't she like the failed Neiderhoffer been thoroughly discredited?
    So bet sign ups angeltrade1@aol
    ill do up to 50 bets with a ceiling of 100 per..i could grow a more robsut set and lift that to 500..not sure yet..feeling very confident..could be the lack of oxygen in church yesterday
    koch bros do not like him (willard) btw..was that sur name changed to koch (clearly a homonym) might recall robinhood men in tights when latrine explained to prince richard lewis the evolution of her name…

  13. After three "jobless recoveries" in the last twenty years,NYT's Hedrick Smith suggests it's time to take a lesson from Henry Ford. History has proven Ford's virtuous circle to be effective, and if business managers "give the middle class a better share of the nation’s economic gains… the economy will grow faster."

    LOL Angel.  

    Well, Europe closed at the highs, with Italy and France up over 1%,UK and Germany around 0.7% and Spain made it green too, up 0.2%.  

    Dollar 81.18, Euro $1.259, Pound $1.589 and Yen getting even stronger at 78.27 and Nikkei not happy about that at 8,800 after bouncing off 8,750.  


    European Stocks Slightly Higher

    European stocks remained firm as market participants interpreted weak euro-zone and Chinese manufacturing data as a reason for further central bank stimulus.

    Oil Rises on Stimulus Speculation

    Merkel Says Bailouts Here to Stay as Schaeuble Warns on ECB

    Gold Wagers Jump to 5-Month High as Fed Spurs Rally

    John Cochrane: The Federal Reserve: From Central Bank to Central Planner

    What Jackson Hole means for markets – Financial Times 

    Obama campaign struggles with question, 'Are you better off?' – Chicago Tribune 

  14. Technician Louise Yamada urges clients to keep stops tightas she watches equities with growing unease. "You could call it a vacuum rally," she says, characterized by short-covering, low volume, and deteriorating new highs vs. new lows. The lagging Transport Index (IYT) has her attention as well, but following this indicator kept someout of the big summer rally.

  15. No changes since last.   

    Not even news – time for my BBQ – have a good day all. 

  16. Hedge Fund Bulls Push U.S. Gasoline to Labor Day Record


    Oil will advance 19 percent to $115 a barrel in three months, soybeans 14 percent to $20 a bushel and corn 13 percent to $9 a bushel, Goldman Sachs Group Inc. said in a report Aug. 13. The bank predicted a month earlier that the S&P GSCI Enhanced Commodity Index would gain 27 percent in a year, with the best returns in energy and industrial and precious metals.

    Gasoline futures added 6.6 percent, reaching a four-month high Aug. 27. The cost of a gallon of regular unleaded gas at U.S. pumps was $3.827 on Aug. 31, from $3.521 a month earlier, according to the American Automobile Association.

    Hedge funds are holding close to their biggest bet on rising raw-material prices since May 2011, according to data from the Commodity Futures Trading Commission. Open interest, or outstanding futures contracts, across the 24 members of the S&P GSCI rose 1.5 percent last month, the most since March, data compiled by Bloomberg show.

  17. Hello Phil …  How ya been ?
    Lots of folks bulled up now (re)interpreting Uncle Benny into saying QE 3 and inli ited bond purchases are a go – along w/ similar jawboning from 4 talking Feds.
    Whatchoo think ?  More talk, or are they taking the plunge.
    Not that there is any evidence that this helps the economy or creates any jobs …

  18. Just finished reading your post … Maybe O can run or be acclaimed Prez of Europe so he can fix things over there … Problem solved.   Works for me.

  19. Happy Labor Day Phil!  I'm sure you read this already.  I found it to be very thought provoking (guess thats why it here)  Wall Street’s War Against the Cities
    Feels like we keep waiting for the next big shoe to drop and even when it does, nothing… SO we wait now for the 6th and then the 12th.  It's been like racing to a red light.  Have a good one. J

  20. This could be interesting:

    New York’s Attorney General Eric Schneiderman is investigating a number of financial companies — including Mitt Romney’s old private equity firm Bain Capital — that in the past decade avoided paying millions of dollars to the federal government by executing a dubious tax avoidance strategy available only to very wealthy executives.

  21. Cap: welcome back?
    Perhaps I had you accidentally on ignore.  In any case look forward once again to your insights, particularly if you spot any wildly overbought stocks, not likely in the current rational market.  Most of those that you used to pan have of course imploded ;)

  22. Phil:
    Is it safe to un-ignore goober?

  23. Phil
    I see 0% chance of QE3 before Jan and then raise it to 25%.

  24. And perhaps here is a tradable datum [second cite, above] :  Monti/Draghi/Merkel appear to have a tacit consensus that buying the short end is not a bailout, but rather just a soothing yield curve massage:
     "Draghi told lawmakers in a closed-door meeting that purchasing short-dated bonds doesn’t constitute state financing, according to Jean-Paul Gauzes, a member of the European Parliament. “He thinks it’s not a violation of the treaty and you can do it under the current legal framework,” Gauzes said. “He said for example three years is OK, 15 years no.”
    This is the "Rawhide Gambit" — "rolling, rolling, rolling, keep those doggies rolling."  The ultimate in "extend and pretend."  Even Bernanke will be envious.  But waves of short notes will pile up, and at some point the storm surge is going to crash through the fiscal barricades, and you'll need wings to stay above it.  Sounds like I need to flip bullish and take up prayer. 

  25.  Or perhaps go very long TBT???

  26. TLT, sorry!!

  27. Great finding zero! No holiday most places and labor day is all about a job this year not taking the day off. I am available!

  28. yah ZOZO you remember there was alot of site reflex round these parts to buy and buy some more of tbt for a longggg time
    muscle memory..when we begin to lose it we should step back up..everyone home from the moon starting this week yes?

  29. angelcur
    TBT another of  the disa-burns!

  30.  Angel:  I'm  still thinking this through, without notable success.  Mu musing so far, don't take this as considered opinion: if Eurobanks pile into the ECB-supported short end  of the curve, the U.S. 10 year might become an endangered species, the world's last Long Bond with a yield over 1% in a [somewhat] stable currency.   The Spanish 3 year is now at 4.45%, and that will be brought down by ECB purchases, but NO ONE is going to take them off the ECB's hands  -- allow the ECB to withdraw from the market down the road —  since  there's no way "austerity" savings" are going to be sufficient the Peripherals to move back out to the long end of the curve.  
    This is Euro QE writ large, and European long bond holders will see the real value of their yield dwindle as ECB money printing to buy the short end trashes the Euro.  Ergo, hello, U.S. T-Bond, adios Peripheral debt.  We are already seeing the German long bond yields spiking, so — again, this is late night half-cocked speculation — the play might be long TLT, short German Bunds.    The U.S. 10-year is 1.553, the 10 year Bund is 1.375, I would guess that might reverse.

  31. Reverse is on deck!

  32. Thanks Lincoln.  Been a little MIA here, but not from the markets.  Yes, some have imploded (cmg, pcln) – maybe CRM soon ?

  33. Jim Rogers seems to think that the Fed has already started QE3 without announcing it because the Fed's balance sheet has been increasing for no particular reason:
    Federal Reserve has already started QE3, says investor Jim Rogers

  34. TLT/zero
    Been thinking about TLT too. So, if one were to go long TLT using a BCS, what expiration and which strikes look good to you? Thanks!

  35. Hi, Laddoo:  I'm not the right  person to answer that question.  I'm not even sure where to come up with a Bund put, but if there's one on a U.S. exchange, he would know, and I would first wait for his reaction to the trade, I really haven't thought this through quite yet.  It falls into my "proto-idea" category, and I could be way off.  For example, the Euro could soar if the market thinks Europe has been "saved", and the reverse could happen.  Just saying.

  36. The "he" I'm referring to is Phil, of course.

  37. Zero
    Anything for those able to balance TLT,  Europe will not be fixed no matter what the short term thought is. At all levels learning is only when too late. The plus is Europe is closer to failure and therefore closer to recovery but none of this is short term. When all else fails read the directions comes to mind.

  38. Springheel Jack: Technical Drama

  39. Circus Politicus – offered for the general enjoyment.  I love it when hollywood types express their opinions, and some even do a good job.  Here's John Cusak getting into the fray.  (And a swell political cartoon referenced too.)

  40. In the places where you can bet on the US election Obama is a 1 1/2/1  to 2/1 favorite to retain his POTUS status – basis for this is a smattering of offshore sportbooks. At even money its a pretty good bet on Obama. As Phil says: Its better to be the casino than the customer.

  41.  scottmi, great interview with John Cusak

  42. Good morning! 

    Futures are up but less up than they were.  

    Asia reversed yesterday's gains and Europe is giving up about half of their gains so far.  Overall, we're just a bit over flat to Friday, even with the Dollar at 81.17, about .13 lower than we left off on Friday, which began at 81.70.  

    Gold topped out at $1,699.40 and is back at $1,695, Oil is $97.16 and a big draw for the inventory period that ended Sunday is in the bag, with the Report delayed until Thursday at 11, Silver is still way up at $32.25, copper $3.484, Nat gas $2.785 and gasoline pinning the needle at $2.9992 – Happy Holidays!  

    Euro is $1.2605, Pound rejected at $1.59, now $1.5885, 78.43 Yen to the Dollar and the Dollar is weak so they must be buying Euros again and, after a brief vacation at $1.2007 and a spike up to 1.2011, EUR/CHK is back to 1.2009 – in case you were worried….

    It was Draghi to the rescue last night but people seem to be getting tired of the old "here's another thing we COULD do but aren't doing yet" trick:

    Mr. Draghi "has no problems with purchases (of short-term bonds)," says MEP Jean-Paul Gauzes after hearing closed-door testimony from the ECB chief today. "He said the ECB wouldn't be contravening the treaty in doing so." The remarks – if true – add further confirmation to the idea the ECB is set to act and that action will be centered on short-term (2-3 year) paper.

    Of course these comments are ahead of Spain and Italy's bond auctions:  Mario Draghi's sweet words that the ECB's bond-buying program could take in debt with maturities of up to three years has the desired effect , sending yields on Spanish and Italian paper falling. Now all Draghi has to do is deliver. Spain: 2-year yields -24 bps to 3.27%, 10-year -16 bps to 6.7%. Italy: 2-year -25 bps to 2.39%, 10-year -5 bps to 5.72%.

    For how much longer can we keep kicking the can down this roadMr Tilford draws an all too familiar conclusion. The ECB's bond buying programme will be large enough to ensure Mr Draghi, its architect, doesn't lose face, but it will be too small to dispel convetibility risk and underpin the ECB's credentials as a credible lender of last resort. The euro is becoming a tragedy without end.

    Moody's yesterday cut its outlook for the EU's AAA long- and medium term bond ratings from "stable" to "negative," saying the move reflects the agency's similarly negative outlook for the AAA ratings of Germany, France, the U.K. and the Netherlands, which contribute 45% of the union's budget. (PR)

    Bundesbank President Jens Weidmann is totally isolated in the ECB in opposing a renewal of the bank's purchases of eurozone government bonds, Dutch daily Het Financieele Dagblad reports. Those in favor include hawks such as Holland's Klaas Knot, Luxembourg's Yves Mersch and Finland's Erkki Liikanen, not to mention fellow German Joerg Asmussen.

    Germans rally around Weidmann’s hard line. Commentary: Public pressure mounts against ECB action on Spain. The German press in the last few days has been full of reports that Bundesbank President Jens Weidmann has threatened to resign and had to be talked out of it by Wolfgang Schaeuble, the finance minister. A bit of clever spin-doctory by the Bundesbank’s media magicians. It is highly unlikely that Weidmann will actually leave (what would he do next?) but the reports have fostered, as was no doubt planned, an outpouring of pro-Weidmann support and sympathy from people in Germany who matter.

    German Economy Minister Supports Weidmann in Bond Buy Opposition. Germany's economy minister threw his weight behind Bundesbank chief Jens Weidmann's opposition to the European Central Bank's plans to buy debt of euro zone countries with high borrowing costs, saying that they could not replace economic reforms.

    Bavarian Minister Says ECB 'Wrong' to Abandon Stability. Markus Soeder, Bavaria's finance minister, said Bundesbank President Jens Weidmann is right in his criticisms of the ECB. ECB actions will lead to inflation, Soeder said.

    Germany's Export Collapse.

    Greek Euro Exit Debate Continues To Make Headlines in Germany25% in France Want More Done to Keep Greece in Euro. A Financial Times/Harris poll finds 32% in France think Greece should leave the Euro region, vs. 54% of Germans. Just 26% of Germans think Greece will repay bailout loans. Of UK respondents, 44% were "not at all confident" that Europe policy makers would be able to solve the economic crisis.

    Germany's Roesler Rejects Longer Greek Deadline. German Economy Minister Philipp Roesler says payment deferral for Greece would "exacerbate liquidity problems." "More time costs more money; that is not possible," Roesler said.

    Tuesday's economic calendar:

    Auto sales

    9:00 PMI Manufacturing Index

    10:00 ISM Manufacturing Index

    10:00 Construction Spending

    3:06 AM Asian shares are lower heading into the regional close, with Japan -0.1%, Hong Kong -0.3%, China -0.9%, India -0.1%.

    3:38 AM Europe stocks open mixed after Moody's changes its outlook on EU debt to "negative" from "stable" and ahead of the ECB's policy meeting on Thursday, when markets hope for bond-buying news. EU Stoxx 50 flat, London -0.5%, Paris -0.2%, Frankfurt-0.4%, Milan +0.8%, Madrid +0.5%.

    Bernanke Faces Skepticism Over PolicyBen Bernanke encountered a heavy dose of skepticism and doubt here this weekend. In a highly anticipated speech on monetary policy Friday, the Federal Reserve chairman argued that the Fed's easy-money policies were helping the weak economy and laid the groundwork for more actionBut economists and central bankers wondered more openly than usual if the Fed had the tools to fix the problems of the day and expressed frustration that four years of super low interest rates and extraordinary money-pumping by the Fed hadn't done more to spur the slow-moving economy.

    Draghi's "Promise" Sends Hope Off The Charts.

    People's Bank of China Deputy Governor Hu Xiaolian said that money can't solve the fundamental problems at the root of the European debt crisis, citing Hu. European politicians must balance their need to appease their citizens with their international promises, the report said.

    Global Manufacturing Sector Struggling Amidst Waning Demand. (graph)

    Euro-Area Manufacturing Output Contracts More Than Estimated. Euro-area manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter.A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, London-based Markit Economics said today.  The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction.

    China Manufacturing Contracts by Most Since 2009, HSBC Says. China’s manufacturing contracted at the fastest pace since March 2009, a private survey showed, indicating the slowdown in the world’s second-largest economy is deepening. The purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics had a final reading of 47.6 for August after a preliminary 47.8 provided Aug. 23. The gauge was at 49.3 in July. The dividing line between expansion and contraction is 50.

    Goldman Sachs Cuts Chinese Earnings Forecasts as Economy Slows. Goldman Sachs Group Inc. lowered its earnings growth forecasts for China's publicly traded companies as slowing growth in the world's second-largest economy crimps profit margins. Profits for companies in the MSCI China Index may increase 1.8% this year and 8.6% in 2013, compared with previous growth estimates of 6% and 12.3%, Helen Zhu and Timothy Moe, analysts at the U.S. bank, wrote in a report.

    Chinese companies struggle as they wait to get paid. The financial health of Chinese industries is getting worse, with the situation being particular alarming in the machinery, coal and steel sectors, a report by the Chinese Ministry of Industry and Information Technology said Wednesday. According to the report, large sums of money are owed by clients to the machinery industry, given slowing external demand. Money owed between January and February to machinery makers totaled 2.2 trillion yuan (US$346.6 billion), but grew to 2.49 trillion yuan (US$392 billion) in June. That represented a 17.29% increase from last year, higher than the revenue growth rate of 9.44%.

    Bad loan risk looms over banking sector. China's commercial banks are facing a high risk of increased bad loans, partly due to a lending spree to support massive economic stimulus three years ago. That risk might worsen as local governments have attempted to unleash a new round of stimulus packages amid the current economic downturn, market analysts have warned.

    China's big four banks end-June outstanding loans to local govt financing vehicles stand at 2.6t yuan, rising nearly 500b yuan from a year earlier.

    PBOC Has No Short Term Intention for Loose Money Policy. China's central bank doesn't want the lowering of lenders' reserve requirement ratio to create false expectations for loose monetary policy, according to a Financial News front page commentary by Xu Shaofeng. Reverse repurchase operations can quickly satisfy short term capital needs and stabilize inflation expectations, the commentary said.

    Chinese premier says property controls still in "critical period"Chinese Premier Wen Jiabao has reiterated the country still needs to resolutely curb speculative property investment as controls on the real estate sector are still in a "critical period." Wen made the remarks while making an inspection tour of affordable housing projects in the city of Tianjin in north China on Friday.

    Hong Kong Recession Risk May Increase on Exports, Tsang SaysHong Kong’s risk of a “technical recession” may increase after declines in exports and a slowdown in retail sales, Financial Secretary John Tsang said. “We are unable to escape the impact of the European debt crisis,” Tsang wrote on his blog yesterday in Chinese. He didn’t give a forecast for third-quarter gross domestic product.

    Australia Retail Sales Drop by Most Since ’10, Profits Fall. Australian retail sales unexpectedly declined in July by the most in almost two years and company profits dropped for a third straight quarter, sending the local currency to a five-week low. 

    'The crowded long dollar trade is no more," writes Sober Look, as CFTC data shows currency speculators last week turned net short the greenback for the first time in nearly a year. The CFTC information can be handy when it gets to extremes. A year ago, specs were leaning heavily to the short side (amidst the U.S. credit downgrade) just as the dollar was set to take off on a 9-month, 13.5% run higher. 

    Merkel Attacks Markets in Call for Voter SupportGerman Chancellor Angela Merkel renewed her attack on markets for their role in stoking Europe’s financial crisis, saying the challenge for policy makers is to woo voters to support cutting debt levels to escape the sights of investors. 

    Germany’s Debt Rose 390 Billion Euros on Crisis, Passauer SaysGermany’s debt grew by 390 billion euros ($490 billion) on costs related to banking bailouts and payouts to indebted euro-area countries, Passauer Neue Presse reported, Costs related to bank bailouts increased debt by 322.5 billion euros and funding to help Greece, Portugal and Ireland added 67.5 billion euros, Passauer said, citing a German government response to a request in parliament by the Left Party. The rescue package for Spain wasn’t included in the estimate because terms of the bailout haven’t been completed, the newspaper reported, citing Hartmut Koschyk, state secretary at the Finance Ministry.

    ECB Meeting Won't Be Spain Game-Changer: RBS Credit Strategists. ECB steps toward more liquidity won't fix lack of growth and capital across Spain's economy and banks, head of European macro credit research Alberto Gallo and macro credit analyst Lee Tyrrell-Hendry say. Spain will continue to underperform market, investors should take profits or reset short positions, they said. Expect Spain to be downgraded to high yield over the coming months, they said. Recommend buying protection on Spain 5-yr CDS against selling protectkino on iTraxx Xover.

    Regling Says ESM Won’t Work Without German Backing, Spiegel Says. The European Stability Mechanism, the euro area’s permanent rescue fund, is unlikely to be successful if Germany’s highest court rules against it this month, ESM chief Klaus Regling told Der Spiegel. “Without Germany, the ESM doesn’t make any sense,” the magazine quoted Regling as saying in an e-mailed preview of a story to be published tomorrow. 

    The majority of the French are pessimistic about the future and doubt the government's ability to handle issues such as purchasing power and joblessness, a poll conducted for Ouest France found. According to a poll by Ifop, 68% of those queried expressed pessimism about the future, the highest percentage since August 2005 and a three-point increase since a previous poll conducted in January, according to Ifop. On Aug. 30, another poll showed Socialist President Francois Hollande, elected in May, is France's most unpopular leader at just over 100 days into the job.

    Struggling Spanish Consumers Now Face A Crippling Tax Hike.

    Is Spain Running Out Of Cash?

    China’s Staggering Bad Debt Problem.

    JIM ROGERS: India Can't Overcome Its Growth Issues.

    As expected, the Reserve Bank of Australia keeps its key interest rate at 3.5%, the highest among major developed countries. The decision comes as the country's key mining industry copes with slowing Chinese growth, and follows cumulative cuts of 1.25% from November-June, which helped boost domestic spending and stabilize the housing market. 

    Brazil lowers 2012 exports forecast-official.

    Thomson Reuters/PayNet Small Business Lending Index rises to 103.8 in July from 100.5 in June, borrowing +15% Y/Y. The increase in the index, which measures the overall volume of loans, is too small to indicate momentum in the wider economy.

    Just as with eurozone governments, small businesses are paying vastly different interest rates depending on which country they're from. A €1M 1-5 year loan commands a rate of 6.5% in Spain and 6.2% in Italy, but just 4% in Germany, the ECB said yesterday. "The fragmentation is getting worse," says Fitch's David Riley. "It undercuts the whole rationale of the euro," and could make it easier to break it up.

    Just 2 years after hiring a couple of ETF stars, Russell Investments is shutting its passive-funds business, sparking questionsabout whether more closures will follow as competition causes prices to drop. "The Russell announcement could be a watershed," says ETF watcher Ron Rowland. But while over 70 exchange-traded products have closed this year, net inflows into ETFs were $77B in H1.

    Questions over viability of US ETFsMore than a quarter of exchange-traded funds and notes listed in the US have failed to attract enough assets to be economically viable, according to data compiled for the Financial Times. Cutthroat competition in the fast-growing market for tradable index-tracking funds is making it harder for sponsors to cover costs and forcing some to close funds. As the number of funds increases, assets are being spread more thinly across products, forcing sponsors to lower fees further in order to compete.

    Lloyds (LYGintends to sell €2B of mainly Irish property loans, Bloomberg reports, although the British bank is likely to take a discount on the divestment. Since Ireland's real-estate market crashed four years ago, Lloyds has taken £11.8B of impairment charges on loans in the country.

    Oil Rises to Highest in One Week on Stimulus Speculation. Oil rose to the highest intraday price in more than a week in New York on speculation central banks will take more steps to boost growth after reports signaled the economic slowdown is deepening. Oil for October delivery increased as much as 83 cents to $97.30 a barrel in electronic trading on the New York Mercantile Exchange, the highest intraday price since Aug. 27, and was at $96.86 at 9:29 a.m. Sydney time. Brent oil for October settlement rose $1.21, or 1.1 percent, to $115.78 a barrel on the London-based ICE Futures Europe exchange yesterday.

    Drought's Grip Is Wide, DeepAs Economists Forecast Long-Term Effects, Several Businesses Already Feel a Hit.

    Japan Iron Ore Prices to Fall 14% Next Quarter. Prices for shipments to Japan are set to reach the lowest level in 2 1/2 years because of weak demand in China.

    Fortescue cuts spending, staff as ore prices fall. Billionaire Andrew Forrest’s aggressive iron ore production expansion plans are under a cloud after Fortescue Metals announced it would slash costs and defer development on some its key projects as the strain of tumbling commodity prices on the mining industry – and his company’s balance sheet – mounts

    Lego Chief Sees Weak U.S. Demand for Toys. The chief executive of Lego A/S signaled deep concern about the U.S. toy market on Friday even after the Danish toy maker reported a solid first-half performance. Despite Lego's momentum through June, Chief Executive Jørgen Vig Knudstorp said in an interview that the approaching presidential elections, rising debt and economic uncertainty are weighing on the critical U.S. market. "The U.S. consumer is still quite heavily indebted, and with an election coming up, whoever gets elected, taxes will go up and government spending will go down," Mr. Knudstorp said. "So what will that do to consumer spending? So there's a big factor of uncertainty in the U.S." Mr. Knudstorp, a 10-year veteran of the toy industry, said clouds have already formed over the U.S. toy market: "These six months have been the most negative toy market that I have seen in the U.S…so that worries us."

  43. Hey Cap, long time!  As you can see from news above and, mainly, soaring commodity prices – QE3 would be insane right now.  I had a chart a few weeks ago showing where the easing came and, of course, it comes at market bottoms, not market tops.  It makes absolutely no sense for the Fed to step in now.  This is all about the Banksters and their pet media puppets trying to keep retailers buying equities while they dump out – keeping the VIX low so they can load up on puts ahead of the crash – JMHO.  

    War on Workers/Jacalyn – I've been going on about this for years.  The Banksters just go after whoever has money left in the middle class and pension funds that were parts of pay packages negotiated decades ago are still ripe for the looting because "just because we made a promise doesn't mean we should keep it."  What's really disturbing is how many Americans just go along with this BS but you can screw workers like this when jobs are scarce (check), the economy is bad (check) and the courts are packed with judges who take a dim view of workers rights (check).  Oh yes, and if you try to organize a protest, you can now be branded as a terrorist for standing up for your rights (check).  

    NYAG/StJ – About time someone looked into this nonsense.  

    Goober/Lincoln – Long gone. 

    QE/Shadow – Would be madness.  

    Bonds/ZZ – More madness.  Not sure it will be taken that well by real bond buyers as it's clearly desperate – "Well we found a grey area we can used because everything legal has been tried and failed."  Not really encouraging, is it?  

    TLT/ZZ – I continue to maintain that, with US selling debt at $150Bn a month and Europe not too far off and Japan selling another $750Bn a month and China out of money, that we are rapidly reaching the end game.  What if China needs money and starts selling some of their $3Tn of TBills?  They can't use them for anything and they no longer have a surplus, nor does Japan as trade went negative for them 2 months ago and rising oil isn't helping matters.  This is a dam that is going to break sooner or later – I'd be very careful with going long on low rates. 

    Rogers/Kinki – He may have a point.  


    Graphic: EU Debt Crisis Explained


    Graphic: EU Treaty Deadlock Explained

    Bunds/ZZ, Ladoo – Not a market I follow.  

    Dollar/Diamond – I think we bounce right off that support, which is right where we are today.  It's one thing to look at a chart and say "we could break below resistance and drop back to 78" but – against what?  Does that mean the Euro should pop back over $1.30?  Ridiculous?  Would Japan allow the Yen to go back to the low 70s and put a stake through the heart of their economy?  Not at all likely.  Can people afford to pay 5% more for oil and food (assuming they only went up as far as the Dollar falls)?  No, consumers are clearly out of money.  So, despite the chart – I don't see it happening.  

    Gold/Ajay – Same issue as Dollar below 81 – we're stretching the bounds of realism here.  

  44. Pharm – just looking at the MRX pick… THANK YOU! You and Phil are GOLDEN GODS! hahahaha. It has been an awful week for me in Afghanistan but this just turned it all around! WOOOOOOOOOOOOHOOOOOOOOOO! Give me your paypal, I got 100$ on your tab in Vegas since I wont be able to come in Nov…

  45. Great comment by Ed Rendell on CNBC: "When the towers were hit on 9/11 – do you think those people wanted less Government or the best Government we could give them?"