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Spoiler alert: Albert Edwards is not exactly bullish. Perhaps like Rosenberg, he too needs to spend a weekend or two on the Ray Dalio ranch.

First on China:

Chinese policy makers are locked in the same old failed credit simulative policies as the west to keep growth going. Indeed, the Chinese GDP ship appears to be steaming ahead in Q3 at a very respectable 7.8% yoy rate. This is the big message the markets have consumed. But look at the ship closely from the front or rear and you can see the ship increasingly rocking violently from side to side while still making forward progress. And are those Chinese policy makers that can be seen manically running from one side in an attempt to keep the ship from foundering? This is a totally unsustainable situation in my view. But again, no-one is listening.

And next, the US:

Only the brave can react to what they see and leave the markets. The global macro looks an appalling mess and even more importantly, long-term equity investors can find nothing worth buying. For equity investors we are closer to 2007 than 2001 as the vast bulk of the equity market, as represented by the median PE, PB or Price/Sales, is expensive. The US median price/sales ratios is at a record high, indicating that there is practically nothing cheap in the equity market left to buy.

 

Dear Albert: our condolences; the reason no-one is listening is because a comic term we came up with, namely BT(M)FATH, has become a daily investment strategy. And as long as the Fed allows that kind of idiocy to coninue, nobody will listen. Why should they?

In conclusion, here’s J.Paul Getty:

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/aogEXH8kSYY/story01.htm Tyler Durden

Spoiler alert: Albert Edwards is not exactly bullish. Perhaps like Rosenberg, he too needs to spend a weekend or two on the Ray Dalio ranch.

First on China:

Chinese policy makers are locked in the same old failed credit simulative policies as the west to keep growth going. Indeed, the Chinese GDP ship appears to be steaming ahead in Q3 at a very respectable 7.8% yoy rate. This is the big message the markets have consumed. But look at the ship closely from the front or rear and you can see the ship increasingly rocking violently from side to side while still making forward progress. And are those Chinese policy makers that can be seen manically running from one side in an attempt to keep the ship from foundering? This is a totally unsustainable situation in my view. But again, no-one is listening.

And next, the US:

Only the brave can react to what they see and leave the markets. The global macro looks an appalling mess and even more importantly, long-term equity investors can find nothing worth buying. For equity investors we are closer to 2007 than 2001 as the vast bulk of the equity market, as represented by the median PE, PB or Price/Sales, is expensive. The US median price/sales ratios is at a record high, indicating that there is practically nothing cheap in the equity market left to buy.

 

Dear Albert: our condolences; the reason no-one is listening is because a comic term we came up with, namely BT(M)FATH, has become a daily investment strategy. And as long as the Fed allows that kind of idiocy to coninue, nobody will listen. Why should they?

In conclusion, here’s J.Paul Getty:

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/aogEXH8kSYY/story01.htm Tyler Durden

Across the board, we are seeing European bank stocks (most notably Italian) trading halted. The 5-7% plunge in prices – just when everyone is proclaiming victory in Europe – reflects an apparent concern that the tougher-than-expected European bank stress-tests will expose the Italian banks for the bloated sovereign debt issuance soaks that they have become. As Draghi himself noted, in a desparate plea to maintain some credibility "banks do need to fail" to prove the credibility of the exercise, adding "if they do have to fail, they have to fail. There’s no question about that.". Spain is also under pressure and it would appear the "smart"money that chose to catch some knives in Greek banks may just lose more than one finger…

 

 

and here are Goldman's views on the stress tests…

 

ECB releases AQR/test parameters
Today, October 23, the ECB released its Note on Comprehensive Assessment, laying down key parameters governing the Asset Quality Review (“AQR”) and stress-test (“test”) processes.

Hurdle rate parameters: mixed

(1) Hurdle rate definition: below expectations. Fully phased BIII hurdle not used – instead, ECB chose phase-in, at two dates: (1) the AQR will be based on January 1, 2014 “phase-in” (a large difference to fully phased BIII), whereas (2) the stress-test will be based on either 2016 or 2017 phase-in (closer proxy to fully phased).

 

(2) Level of hurdle: 8% phase-in. This is broadly comparable to a 7% fully phased BIII, but only on the stress-test hurdle (so, January 1, 2017) and for the banks that do not rely on state-aid capital.

 

(3) Leverage ratio: an overlay, but definition unclear. In our view, this meets market expectations.

 

(4) RWAs: using adjusted rather than reported; positive, in our view.

 

AQR parameters: positive

(5) Broad scope of AQR, with a wide focus including all problematic areas of assets; positive.

 

(6) Outcome of AQR: a fully standardized and comparable NPL definition, in line with EBA guidance; positive.

Scope of exercise: includes 124 banks
We see the list of banks subject to AQR/test – which includes all German Landesbanken, one Sparkasse – as positive.

ECB makes a positive start – execution is key
All in, we see the release of key parameters as a positive start. Ultimately, however, it will be the execution, the details and, importantly, the willingness of the ECB to be an “intrusive supervisor” that will determine the success of this exercise. With parameters close to Survey expectations, we now believe a number of failures (survey expectation: #11) and meaningful recapitalizations (survey expectations: €75 bn) are a more realistic outcome, especially in the non-listed portion of the bank list.

 

Survey findings:

 

and compared to expectations, the tests "look" tougher…

 

Moar Bail-Ins?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PcewxLCBFuw/story01.htm Tyler Durden

Across the board, we are seeing European bank stocks (most notably Italian) trading halted. The 5-7% plunge in prices – just when everyone is proclaiming victory in Europe – reflects an apparent concern that the tougher-than-expected European bank stress-tests will expose the Italian banks for the bloated sovereign debt issuance soaks that they have become. As Draghi himself noted, in a desparate plea to maintain some credibility "banks do need to fail" to prove the credibility of the exercise, adding "if they do have to fail, they have to fail. There’s no question about that.". Spain is also under pressure and it would appear the "smart"money that chose to catch some knives in Greek banks may just lose more than one finger…

 

 

and here are Goldman's views on the stress tests…

 

ECB releases AQR/test parameters
Today, October 23, the ECB released its Note on Comprehensive Assessment, laying down key parameters governing the Asset Quality Review (“AQR”) and stress-test (“test”) processes.

Hurdle rate parameters: mixed

(1) Hurdle rate definition: below expectations. Fully phased BIII hurdle not used – instead, ECB chose phase-in, at two dates: (1) the AQR will be based on January 1, 2014 “phase-in” (a large difference to fully phased BIII), whereas (2) the stress-test will be based on either 2016 or 2017 phase-in (closer proxy to fully phased).

 

(2) Level of hurdle: 8% phase-in. This is broadly comparable to a 7% fully phased BIII, but only on the stress-test hurdle (so, January 1, 2017) and for the banks that do not rely on state-aid capital.

 

(3) Leverage ratio: an overlay, but definition unclear. In our view, this meets market expectations.

 

(4) RWAs: using adjusted rather than reported; positive, in our view.

 

AQR parameters: positive

(5) Broad scope of AQR, with a wide focus including all problematic areas of assets; positive.

 

(6) Outcome of AQR: a fully standardized and comparable NPL definition, in line with EBA guidance; positive.

Scope of exercise: includes 124 banks
We see the list of banks subject to AQR/test – which includes all German Landesbanken, one Sparkasse – as positive.

ECB makes a positive start – execution is key
All in, we see the release of key parameters as a positive start. Ultimately, however, it will be the execution, the details and, importantly, the willingness of the ECB to be an “intrusive supervisor” that will determine the success of this exercise. With parameters close to Survey expectations, we now believe a number of failures (survey expectation: #11) and meaningful recapitalizations (survey expectations: €75 bn) are a more realistic outcome, especially in the non-listed portion of the bank list.

 

Survey findings:

 

and compared to expectations, the tests "look" tougher…

 

Moar Bail-Ins?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/PcewxLCBFuw/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Oil-rich nations are bedeviled by the Resource Curse.

The global scramble for Africa's estimated 25 billion barrels of oil is on. Those scrambling to secure (and/or exploit) the continent's abundance of fossil fuels include each oil-rich nation's political and economic Elites, international oil corporations, regional powers, trading blocs and the four major (and energy-hungry) economic players: the E.U., the U.S., Japan and China.

Oil-rich nations are bedeviled by the Resource Curse. An abundance of natural resource wealth distorts the national economy and politics in a number of ways: private investment in other less exploitable/profitable sectors of the economy stagnates, leaving the government and economy highly dependent on resource revenues; local Elites quickly gain control of the income stream from the resource wealth and divert it to their own accounts and cronies, institutionalizing corruption, and this diversion of national income to Elites starves the nation of investment in infrastructure, education, transportation networks and all the other foundations of a vibrant, competitive economy.

In geopolitical terms, oil-rich nations become "areas of interest" to neighboring states and energy-hungry global powers, further complicating and distorting national development.

Though many hope that this flood of energy wealth can be used to fund much-needed infrastructure, education and public health projects throughout the continent, the key systems of governance, governmental transparency, an open media and a political process that enables public participation are problematic in many (if not all) of Africa's energy-rich nations.

Unfortunately, these systemic weaknesses render these nations even more vulnerable to the distortions of the Resource Curse.

No energy-importing power center can afford to be sidelined in the scramble for Africa's fossil fuel wealth. Sadly, that insures global and regional powers will continue jockeying for oil leases (vulnerable to cancellation when corrupt regimes change hands), development contracts and political influence within controlling Elites, a process that rewards the least savory aspects of corrupt regimes.

Global rivals who have lost out will be tempted to support armed rebellions that weaken their rival's influence, encouraging conflicts that are inherently destabilizing, not just to the oil-rich nations but to the region.

Arrayed against these powerful forces of corruption and destabilization are grassroots groups supporting democracy and national development and some non-governmental organizations (NGOs) funded by foundations.

In the abstract, almost everyone agrees that this energy wealth should benefit all residents of oil-rich nations. But as long as it is cheaper in terms of time and money to secure oil by making deals with kleptocrats and corrupt Elites, there will be few incentives for major powers to risk losing access to oil/natural gas by supporting policies that would spread the wealth and encourage democracy.

Sadly, few consumers of energy care where the energy they burn comes from, or what distortions were created by the extraction and processing of that energy.

As the Cliff Robertson character said at the end of the prescient 1975 film, Three Days of the Condor: "When the people are cold and their engines stop running, they're not going to ask us why; they'll just want us to go get it." It's difficult to refute that, whether the people are American, Chinese or European.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FTUM7Jz1vaA/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Oil-rich nations are bedeviled by the Resource Curse.

The global scramble for Africa's estimated 25 billion barrels of oil is on. Those scrambling to secure (and/or exploit) the continent's abundance of fossil fuels include each oil-rich nation's political and economic Elites, international oil corporations, regional powers, trading blocs and the four major (and energy-hungry) economic players: the E.U., the U.S., Japan and China.

Oil-rich nations are bedeviled by the Resource Curse. An abundance of natural resource wealth distorts the national economy and politics in a number of ways: private investment in other less exploitable/profitable sectors of the economy stagnates, leaving the government and economy highly dependent on resource revenues; local Elites quickly gain control of the income stream from the resource wealth and divert it to their own accounts and cronies, institutionalizing corruption, and this diversion of national income to Elites starves the nation of investment in infrastructure, education, transportation networks and all the other foundations of a vibrant, competitive economy.

In geopolitical terms, oil-rich nations become "areas of interest" to neighboring states and energy-hungry global powers, further complicating and distorting national development.

Though many hope that this flood of energy wealth can be used to fund much-needed infrastructure, education and public health projects throughout the continent, the key systems of governance, governmental transparency, an open media and a political process that enables public participation are problematic in many (if not all) of Africa's energy-rich nations.

Unfortunately, these systemic weaknesses render these nations even more vulnerable to the distortions of the Resource Curse.

No energy-importing power center can afford to be sidelined in the scramble for Africa's fossil fuel wealth. Sadly, that insures global and regional powers will continue jockeying for oil leases (vulnerable to cancellation when corrupt regimes change hands), development contracts and political influence within controlling Elites, a process that rewards the least savory aspects of corrupt regimes.

Global rivals who have lost out will be tempted to support armed rebellions that weaken their rival's influence, encouraging conflicts that are inherently destabilizing, not just to the oil-rich nations but to the region.

Arrayed against these powerful forces of corruption and destabilization are grassroots groups supporting democracy and national development and some non-governmental organizations (NGOs) funded by foundations.

In the abstract, almost everyone agrees that this energy wealth should benefit all residents of oil-rich nations. But as long as it is cheaper in terms of time and money to secure oil by making deals with kleptocrats and corrupt Elites, there will be few incentives for major powers to risk losing access to oil/natural gas by supporting policies that would spread the wealth and encourage democracy.

Sadly, few consumers of energy care where the energy they burn comes from, or what distortions were created by the extraction and processing of that energy.

As the Cliff Robertson character said at the end of the prescient 1975 film, Three Days of the Condor: "When the people are cold and their engines stop running, they're not going to ask us why; they'll just want us to go get it." It's difficult to refute that, whether the people are American, Chinese or European.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FTUM7Jz1vaA/story01.htm Tyler Durden

Today’s Chart of the Day comes by way of SocGen’s Albert Edwards who in one image shows why, with gross debt issuance needs between budget funding and rolling maturities at 60% of GDP, Japan has no choice but “to print and print and print“

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/S9pC6K-Wtyk/story01.htm Tyler Durden

Today’s Chart of the Day comes by way of SocGen’s Albert Edwards who in one image shows why, with gross debt issuance needs between budget funding and rolling maturities at 60% of GDP, Japan has no choice but “to print and print and print“

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/S9pC6K-Wtyk/story01.htm Tyler Durden