Category: zerohedge

You know it's bad when…The smog has become so thick in Beijing that the city's natural light-starved masses have begun flocking to huge digital commercial television screens across the city to observe virtual sunrises. Following this week's practical shutdown of the city of "beyond index" levels of pollution, as The Mail Online reports, residents donned air masks and left their homes to watch the only place where the sun would hail over the horizon that morning…

It's grim…

 

The futuristic screens installed in the Chinese capital usually advertize tourist destinations, but as the season's first wave of extremely dangerous smog hit, ths happened…

 

Via The Mail Online,

…

 

The air took on an acrid odor, and many of the city's commuters wore industrial strength face masks as they hurried to work.

 

'I couldn't see the tall buildings across the street this morning,' said a traffic coordinator at a busy Beijing intersection who gave only his surname, Zhang. 'The smog has gotten worse in the last two to three years. I often cough, and my nose is always irritated. But what can you do? I drink more water to help my body discharge the toxins.'

 

…

 

The density of PM2.5 was about 350 to 500 micrograms Thursday midmorning, though the air started to clear in the afternoon. It had reached as high as 671 at 4 a.m. at a monitoring post at the U.S. Embassy in Beijing.

 

That is about 26 times as high as the 25 micrograms considered safe by the World Health Organization, and was the highest reading since January 2013.

 

In the far northeastern city of Harbin, some monitoring sites reported PM 2.5 rates of up to 1,000 micrograms in October, when the winter heating season kicked off.

 

…

 

Beijing reported 58 days of serious pollution last year, or one every six to seven days on average, Xinhua quoted Zhang Dawei, director of the Beijing Municipal Environmental Monitoring Center, as saying.

 

…

 

China has drawn up dozens of laws and guidelines to improve the environment but has struggled to enforce them in the face of powerful enterprises.

 

 

On Wednesday, China's commercial capital, Shanghai, introduced emergency measures, allowing it to shut schools and order cars off the road in case of severe smog.

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Following December's biggest-surge-in-4-years for UMich consumer confidence (though a miss), UMich data has fallen back to 80.4 – missing expectations by the biggest margin in 8 years. This is the 4th miss in the last 5 months as hope for moar multiple expansion begins to fade. Both current conditions and the outlook indices fell (for the first time sicne October). As UPS would says, confidence dropped because there was too much confidence…

 

 

Following Bernanke's "hope" strewn farewell speech yesterday, gaining the confidence of the market (and main street) seems his big plan…

As a gentle reminder, as we have noted previously – this move in confidence is key…

But, it's all about confidence… investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable… And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels…

 

 

 

and the cycle appears to be shifting…

Via Citi,

Is consumer confidence set to turn?

Consumer Confidence is once again following a dynamic where we see it move higher for 4 years and 4 months before beginning to collapse

• Moves higher from 1996-2000 with a smaller dip halfway through in October 1998
• Moves higher from 2003-2007 with a smaller dip hallway through in October 2005
• Moves higher and so far tops out in June 2013. Also sees a small dip halfway through in October 2011.

 

Higher yields do not help confidence…

 

A sharp rise in mortgage rates has a negative feedback loop to consumer confidence. For those families and individuals that were now looking/able to enter the housing market, the recent spike in rates acts as a headwind.

 

In addition to the economic backdrop, there is plenty of tail risk as we head into the end of the year. Oil prices have been rising since the summer began (and in reality since the Summer of 2012), partially due to geopolitical risks which are very much “top of mind.” A bigger spike due to a supply shock would choke the economic recovery.(In our view)

In the US, the appointment of a new Fed Chairman and the upcoming budget/debt ceiling debates are likely to bring added volatility. Tapering itself can also induce concern as the “Bernanke put” is being removed from markets.

In Europe, many of the structural problems related to the single currency union have not actually been addressed and the peripheral countries could still create turmoil going forward (see Fixed Income section focusing on Italy in particular for more on this). There has also been little concern with both the German elections and the German Court decision on the constitutionality of the OMT program. A surprise in either of these could be cause for concern.

Emerging Markets are still not out of the woods yet as growth has been weak relative to expectations and countries with current account deficits are beginning to feel pressure in their FX and Bond markets. This is an issue we believe is only starting to develop which we will continue to expand on at later dates.(We have also looked at this in our EM FX section this week)

Overall, the weak economic backdrop, poor housing recovery and potential for tail risk events over the next few months suggest that we have topped out in Consumer Confidence, a warning sign for equity markets.

 

The relationship between Consumer Confidence is clear, and IF June did mark the high and Confidence continues to decline, then we would expect to see that translate to weakness in the equity markets. The removal of the “Bernanke put” only adds to this concern.

A major turn has taken place in equity markets on average four months after Consumer Confidence turns, which would point to a decline beginning around September-October. As we have previously expressed, we remain of the bias that a correction in equity markets on the order of 20%+ is likely this year/ into 2014 and the current dynamics support such a move.

Should we see a decline of that magnitude, it is almost certain that yields would move lower in a rush to safe assets.

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Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde's call yesterday for moar from Draghi and every other central banker). As Bloomberg's Niraj Shah notes, it's not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.

 

Via Bloomberg's Niraj Shah ( @economistniraj ),

The IMF's decision means the four nations will be subject to mandatory financial sector assessments. The total number of countries on the list has risen to 29 from 25. The IMF’s decision may further undermine the safe-haven status of the Nordic nations, where rising household debt imposes a financial risk.

Ballooning Household Debt

Household debt and government-imposed austerity measures are deterring consumers from spending in the Nordic region. Denmark’s financial regulator is considering curbing banks’ lending policies to address the record household debt load. Danish households owe creditors 321 percent of disposable income, the OECD says. Norway’s household debt reached a record 200 percent of disposable income in 2011.

Austerity Triggered by Rising Government Debt

Finland’s debt-to-GDP ratio will almost double to 60.5 percent by 2015 from 33.9 percent in 2008, the IMF forecasts. The fund estimates the Finnish economy shrank 0.65 percent last year. Polish government debt reached 57.6 percent of GDP last year. A clause in the country’s constitution states that breaching a 55 percent ceiling triggers mandatory austerity measures.

Competitiveness at Risk

Denmark has dropped to 15th place in the World Economic Forum’s global competitiveness report from third in 2008. Labor costs rose 9.1 percent between 2008 and 2012, compared with an EU average increase of 8.6 percent in the period. Norway has the highest labor costs in Europe at 48.3 euros per hour in 2012, compared with 30.4 euros in Germany. That may undermine competitiveness and the growth outlook.

Most Financially Interconnected Countries

The inclusion of three Nordic nations for mandatory assessment is the result of a new methodology by the IMF that gives more weight to financial interconnectedness. The U.K. is the most financially linked nation in the world, followed by Germany. Seven of the top 10 most interconnected financial nations are in the euro-area.

 

So as the world congratulates itself (most notably Ben Bernanke today), the IMF seems concerned that this could all get worse again very quickly. Think they are all too small to worry about? Remember Lehman?

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Europe is recovering, right? Wrong. As Nigel Farage raged last night, things are not what they seem and even the IMF is now beginning to get concerned again (especially after Lagarde's call yesterday for moar from Draghi and every other central banker). As Bloomberg's Niraj Shah notes, it's not just the PIIGS we have to worry about (or not), Denmark, Finland, Norway and Poland have been added to the IMF’s list of countries with the potential to destabilize the global economy.

 

Via Bloomberg's Niraj Shah ( @economistniraj ),

The IMF's decision means the four nations will be subject to mandatory financial sector assessments. The total number of countries on the list has risen to 29 from 25. The IMF’s decision may further undermine the safe-haven status of the Nordic nations, where rising household debt imposes a financial risk.

Ballooning Household Debt

Household debt and government-imposed austerity measures are deterring consumers from spending in the Nordic region. Denmark’s financial regulator is considering curbing banks’ lending policies to address the record household debt load. Danish households owe creditors 321 percent of disposable income, the OECD says. Norway’s household debt reached a record 200 percent of disposable income in 2011.

Austerity Triggered by Rising Government Debt

Finland’s debt-to-GDP ratio will almost double to 60.5 percent by 2015 from 33.9 percent in 2008, the IMF forecasts. The fund estimates the Finnish economy shrank 0.65 percent last year. Polish government debt reached 57.6 percent of GDP last year. A clause in the country’s constitution states that breaching a 55 percent ceiling triggers mandatory austerity measures.

Competitiveness at Risk

Denmark has dropped to 15th place in the World Economic Forum’s global competitiveness report from third in 2008. Labor costs rose 9.1 percent between 2008 and 2012, compared with an EU average increase of 8.6 percent in the period. Norway has the highest labor costs in Europe at 48.3 euros per hour in 2012, compared with 30.4 euros in Germany. That may undermine competitiveness and the growth outlook.

Most Financially Interconnected Countries

The inclusion of three Nordic nations for mandatory assessment is the result of a new methodology by the IMF that gives more weight to financial interconnectedness. The U.K. is the most financially linked nation in the world, followed by Germany. Seven of the top 10 most interconnected financial nations are in the euro-area.

 

So as the world congratulates itself (most notably Ben Bernanke today), the IMF seems concerned that this could all get worse again very quickly. Think they are all too small to worry about? Remember Lehman?

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After last month’s surge in industrial production by a revised 1.0%, driven by a 3% jump in Utilities production, December promptly cut to a lower gear rising at just 0.3%, in line with expectations, as Utilities offset last month’s surge, falling by 1.4% even though December weather was, last we checked, far more “eventful” (to borrow UPS’ term) than November. Factory production also rose at a slower pace, increasing 0.6% compared to the 0.4% in November, while Mining cut its growth pace by more than half, increasing by 0.8% compared to 1.9% in November.

The most notable number in today’s Industrial production report was the update of Capacity Utilization, which rose once again from 79.1% to 79.2%, 10 basis point higher than expectations. This was also the highest Cap Utilization print since May 2008 and makes a further case that the economic cycle is in its late stages and that slack, contrary to what economists are repeatedly, and incorrectly, claiming is rapidly dropping to the point where it is indeed time to start thinking about the arrival of the next dreaded “R” word.

From the report:

Manufacturing output moved up 0.4 percent in December, its fifth consecutive monthly increase, and rose at an annual rate of 6.2 percent in the fourth quarter. In December, the index remained 3.1 percent below its peak in December 2007. The factory operating rate in December was 77.2 percent, a rate 1.5 percentage points below its long-run average.

 

The production of durable goods edged up 0.1 percent in December. The largest gains—about 1 1/2 percent—were posted by primary metals; electrical equipment, appliances, and components; and motor vehicles and parts. The largest declines—around 2 percent—were recorded by wood products and by machinery. For the fourth quarter, the output of durable manufacturing moved up at an annual rate of 8.8 percent, as the indexes for all of its major categories increased. In December, capacity utilization for durable manufacturing was 77.4 percent, a rate 0.4 percentage point above its long-run average.

 

The output of nondurable goods increased 0.9 percent in December. All of its major categories except textile and product mills posted gains. For the fourth quarter, the index for nondurable manufacturing rose at an annual rate of 4.1 percent, with gains widespread among its major categories. The utilization rate for nondurable manufacturing jumped 0.6 percentage point to 78.3 percent in December, but it remained 2.4 percentage points below its long-run average.

 

Production in the non-NAICS manufacturing industries (logging and publishing) moved up 0.5 percent in December after having declined in the previous two months. Relative to its year-earlier level, output contracted 2.1 percent.

 

In December, production of mines advanced 0.8 percent, and capacity utilization moved up 0.3 percentage point to 90.2 percent, a rate 2.9 percentage points above its long-run average. The index for utilities dropped 1.4 percent, and the operating rate fell 1.2 percentage points to 80.1 percent, a rate 6.1 percentage points below its long-run average. For the fourth quarter, the output of utilities rose at an annual rate of 18.6 percent after having declined 6.4 percent in the third quarter.

And on Cap U:

Capacity utilization rates in December for industries grouped by stage of process were as follows: At the crude stage, utilization increased 0.3 percentage point to 88.7 percent, a rate 2.4 percentage points above its long-run average; at the primary and semifinished stages, utilization was unchanged at 77.9 percent, a rate 3.1 percentage points below its long-run average; and at the finished stage, utilization edged up 0.1 percentage point to 76.3 percent, a rate 0.8 percentage point below its long-run average.

Industrial Production charted:

And the more notable Cap Utilization chart:

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Moments ago UPS released its Q4 earnings which missed EPS expectations of $1.43, printing at $1.25 instead (too bad it was not a bank or it could just add back half of SG&A to the bottom line and slap a 10% tax rate on it). Additionally, the company concurrently lowered full year 2013 guidance saying “Full-year 2013 adjusted diluted earnings per share are expected to be $4.57, below the previously provided guidance of $4.65 to $4.85.” Good to know the guidance cut waited until literally the last possible moment for it to be revealed. Naturally, one of the factors blamed for the miss was the weather: “weather events in December weighed on results.” Events? But the punchline is the other thing UPS blamed for missing earnings (and supposedly for the weaker forecast): a surge in business! That’s right – for the first time ever a company blames too much business… for not generating enough business. “U.S. results were negatively impacted by the challenges of the compressed peak season coupled with an unprecedented level of online shopping that included a surge of last-minute orders. In an effort to maintain service standards and commitments, UPS took extraordinary measures deploying additional equipment and people. For example, the company utilized 85,000 temporary employees, 30,000 more than planned.”

Unprecedented excuse aside, this means that 85,000 temp workers will drop from the January payrolls. However since they will promptly disappear from the labor force as well, expect the net impact of this action to lower the unemployment rate by another 0.1% or so.

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Moments ago UPS released its Q4 earnings which missed EPS expectations of $1.43, printing at $1.25 instead (too bad it was not a bank or it could just add back half of SG&A to the bottom line and slap a 10% tax rate on it). Additionally, the company concurrently lowered full year 2013 guidance saying “Full-year 2013 adjusted diluted earnings per share are expected to be $4.57, below the previously provided guidance of $4.65 to $4.85.” Good to know the guidance cut waited until literally the last possible moment for it to be revealed. Naturally, one of the factors blamed for the miss was the weather: “weather events in December weighed on results.” Events? But the punchline is the other thing UPS blamed for missing earnings (and supposedly for the weaker forecast): a surge in business! That’s right – for the first time ever a company blames too much business… for not generating enough business. “U.S. results were negatively impacted by the challenges of the compressed peak season coupled with an unprecedented level of online shopping that included a surge of last-minute orders. In an effort to maintain service standards and commitments, UPS took extraordinary measures deploying additional equipment and people. For example, the company utilized 85,000 temporary employees, 30,000 more than planned.”

Unprecedented excuse aside, this means that 85,000 temp workers will drop from the January payrolls. However since they will promptly disappear from the labor force as well, expect the net impact of this action to lower the unemployment rate by another 0.1% or so.

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Last month’s record-breaking surge in housing starts has rapidly reversed and fell 9.8% MoM – the biggest drop since April 2013. Despite a plethora of revisions, single unit housing starts tumbled to 610k – the lowest since July. However, permits were dismal (which is what we should be caring about if we are looking ahead at how the ‘recovery’ will play out). Building Permits dropped 3% MoM, far more than expected, missing by the largest gap since June. This was the 3rd biggest monthly drop in total starts since Lehman.

 

Permitss missed notably…

 

With Total Housing Starts dropping by the 3rd most since Lehamn…

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Francis Scott Key was certainly not a visionary when he penned the famous words “the land of the free and the home of the brave”. But, we can certainly forgive him since it was back in 1814 and things were different maybe then. Two hundred years later, the 2014 Index of Economic Freedom has just been published by the Heritage Foundation think tank and its findings are far from glorious of the country that believes that it is a founding father of both democracy and freedom. We all know that the former went out of the window long ago and not just when the National security Agency finally admitted to eavesdropping on the world. The second went to the wind too decades ago and people are starting to realize it. The USA is no longer the land of the free and certainly not the home of the brave. The land of the foolish and the home of the corrupt, maybe! There’s a thought. Foolish because we have sat like lemmings, sheepled into believing that the wealthy were honest and the state was good; corrupt because everyone at the highest echelons is in on the act.

Thomas Jefferson once said: “ Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence”. How true was it back then and oh how telling is it of today’s society!

The USA

The USA is no longer at the top of the Index of Economic Freedom. It’s no longer in the top ten these days and for the first time ever it is in 12th place in the rankings. The biggest and the best economy in the world is no longer the freest. Since 2013, it has dropped a half point yet again and now stands at 75.5 points on the scale. Why?

• Simply because it has seen deteriorations in property rights, fiscal freedom and business freedom according to the think tank.
• Since 2006, the USA has systematically declined in the ratings and has lost since that dates 6 points on its score.
• The USA is now the only country in the world that has lost points for the past 7 years in a row in the world.
• According to the index the reason behind this is the fundamental rise in the size and status of the government: “Substantial expansion in the size and scope of government, including through new and costly regulations in areas like finance and health care, has contributed significantly to the erosion of U.S. economic freedom. The growth of government has been accompanied by increasing cronyism that has undermined the rule of law and perceptions of fairness.”

The USA is currently losing in the ratings on the index due to the fact that there has been an “expansive use of government regulatory agencies to manage economic activity, particularly in the financial, health care, and energy sectors”.

The order of the day is cronyism, corruption and embezzlement, it would seem.

Taxation is also been accused of reducing freedom in the country. The top individual tax rate has seen a rise to 39.6%. The top corporate tax rate is stuck at 35%. The total tax burden stands at 25.1% of gross domestic income.

Creating a new company has become more expensive and stricter. There have been more than 130 new regulations that have been applied to incorporating a business since 2009. Regulatory requirements have increased the cost of founding a company by up to $60 billion since the same date.

The countries in the top slots are as follows:

1. Hong Kong
2. Singapore
3. Australia
4. Switzerland
5. New Zealand
6. Canada
7. Chile
8. Mauritius
9. Ireland
10. Denmark

This isn’t the land of the free and it certainly isn’t the home of the brave these days. The USA is no longer the liberal, free-economics country that it once was. It’s now all about making the rich richer and the corrupt more corruptible. It has nothing to do with the freedom of making a living and becoming the self-made man that the country was built upon. At one time that wasn’t a myth; these days it’s just laughable. The only men that can make it these days are those that have already been boosted on the road to success by diverting, embezzling, swindling ad money-grabbing at the highest echelons of the state. Nothing wrong with making money. Nothing at all. But, there’s everything wrong with treading on the people down below while you clamber up to the top of the state, hoarding the millions, siphoning off the money that should be going elsewhere.

The USA: the land of the free and the home of the brave?

Heritage Foundation was founded in 1973; a think tank headquartered in Washington D.C.

Its statement of mission is to “formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense”.

Originally posted: USA:The Land of the Not-So-Free

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Remember when Obama said he would have engaged in a dramatic overhaul of the NSA with or without Edwards Snowden? Funny as that statement may have been at the time (and recall that Comedians have psychotic personality traits, study finds), we will never know just what Obama would have done if… but we do know that at 11 am this morning, Obama will say he is ordering a transition that will significantly change the handling of what is known as the telephone “metadata” program from the way the NSA currently handles it. In other words, if you like your phone records, you can keep your phone records. It goes without saying that the number of people who believe anything the president says at this point is the same number or less than the dozen or so Chinese enthusiasts who waited in “line” to get a new China Mobile phone.

From Reuters:

Obama is balancing public anger at the disclosure of intrusion into Americans’ privacy with his commitment to retain policies he considers critical to protecting the United States.

 

Obama’s move is aimed at restoring Americans’ confidence in U.S. intelligence practices and caps months of reviews by the White House in the wake of damaging disclosures about U.S. surveillance tactics from former U.S. spy agency contractor Edward Snowden.

 

In a nod to privacy advocates, Obama will say he has decided that the government should not hold the bulk telephone metadata, a decision that could frustrate some intelligence officials. In addition, he will order that effectively immediately, “we will take steps to modify the program so that a judicial finding is required before we query the database,” said the senior official, who revealed details of the speech on condition of anonymity.

So… the NSA will promptly dismantle its Stazi-inspired “Stellar Wind” facility with all the big hard disks in Bluffdale, Utah, right? Right? That’s what we thought.

The fun continues:

Obama has asked Attorney General Eric Holder and the intelligence community to report back to him before the program comes up for reauthorization on March 28 on how to preserve the necessary capabilities of the program, without the government holding the metadata.

 

“At the same time, he will consult with the relevant committees in Congress to seek their views,” the official said.

 

While a presidential advisory panel had recommended that the bulk data be controlled by a third party such as the telephone companies, Obama will not offer a specific proposal for who should store the data in the future.

Well if nobody else wants it, we are sure a consortium of Goldman and JPMorgan would be delighted to “host” this data… Finally, even more lies:

People familiar with the administration’s deliberations say Obama also is expected to agree to other reforms, such as greatly scaling back spying on foreign leaders and putting a public advocate on the secretive Foreign Intelligence Surveillance Court.

We LOLed too. Tune in at 11:00 am, or just around the time today’s $3 billion POMO ends, for much more live, televized humor.

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