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Higher Taxes Put the Brakes on Retail Spending
Monthly Archives: February 2013
RBS: U.S. Equity Strategy Weekly; Assessing some Cracks in the Foundation
Good observations:
Assessing some Cracks in the Foundation
Most measures of investor sentiment rest deep within the optimistic domain. This, combined with the recent decline in volatility and performance correlation, suggests that investors have become much less concerned about the macro economy.
A serious correction has so far failed to materialize and shake out some of the optimism. Pull-backs are more evident in many of the larger markets outside of the U.S., including Brazil, France, Italy, Spain, and South Korea.
However, several leadership themes are beginning to give up some performance ground:
I. Machinery. The group is starting to lag following a recent peak in the Mainstreet Farm Equipment Sales Index;
II. Household Durables The stocks are correcting following a sideways move in the HMI;
III. Autos & Components. This group is losing ground as auto sales growth decelerates;
IV. Materials. The stocks have pulled back with the rise in the U.S. dollar and the weaker tone set by some global bourses.
Other important leadership themes at risk of rolling over include:
I. Financials. High-yield credit spreads are beginning to widen and this is usually associated with performance turbulence for the sector.
II. Consumer Discretionary. A softer tone to consumer confidence on the back of DC’s floundering and the rise in payroll taxes sets the stage for a pullback.
Yet, we continue to view these events as opportunity. The global leading data is rallying, while the monetary authorities continue to subsidize business cycle activity by holding interest rates substantially below the level of nominal GDP growth. In our opinion, these very powerful macro forces argue in favor of a bias towards economic leverage, beta, value and foreign exposure.
Surge in Chinese credit raises fears
All else equal, a reduction of state sponsored lending gets ‘replaced’ by non govt lending to the extent it can be sustained by incomes, collateral values, etc.
And not to forget, likewise, the private sector is necessarily pro cyclical.
The western educated kids at the name mainstream schools may not have brought that home with them…
Surge in Chinese credit raises fears
(FT) Chinese credit issuance surged to a record high in January on the back of a boom in shadow banking. Total new financing last month reached Rmb2.5tn ($400bn). Up more than twofold from the same month last year, eclipsing even the start of 2009 when China unleashed stimulus spending to fight off the global financial crisis. The explosion in financing was only partly driven by banks, which made Rmb1.07tn in loans. The rest of the new credit – 60 per cent of the total – came from corporate bonds, loans by investment companies, direct lending from companies to other companies and banker’s acceptances. Since December regulators have started to tap the brakes on shadow banking – in one important move they restricted the financing sources available to local governments.
1985 Mosler Consulier GTP – The 50 Worst Cars of All Time – TIME
EU leaders strike deal on long-term austerity budget | Reuters
Goes with the territory…
EU leaders strike deal on long-term austerity budget
By Mark John and Peter Griffiths
Feb 8 (Reuters)
UK Recovery
A question
>
> (email exchange)
>
> On Thu, Feb 7, 2013 at 1:06 PM, wrote:
>
> There was an almost sensible article by Samuelson in the WP today. What caught my eye
> was this comment that claims Japan failed at using Keynsian over the years. Can you
> clarify this:
>
> Here is the comment:
>
The problem is that economists have not recognized the failure of Keynsian economics. I think the uniform failure of deficit spending to promote growth has to be recognized.
They just didn’t run large enough deficits.
If the model worked, we would not be talking about Japan’s lost decade, or more accurately lost generation. Japan’s debt is now over 200 percent of GDP.
So?
Their growth rate in response to an ocean of deficits is uniformly poor.
Because they aren’t large enough to cover their savings desires.
The story is similar in Europe, particularly Southern Europe. There is no way Uncle Sam can continue to borrow 40 cents of every dollar spent.
Why not?
When governments get this far behind, they usually pay off the debt with hyper inflation.
Usually? hardly!
This never ends well. The usual outcome is social disintegration followed by dictatorship. For example, the hyper inflation of Weimar Germany after WWI lead to Hitler.
That was due to deficits of 50% of GDP to sell marks for fx and gold to pay war reparations. Any other examples???
The Federal Reserve’s constant quantitative easing in search of economic growth is going to lead to increasing inflation and interest rates.
Japan’s been doing it for over 20 years and still has no inflation and a strong currency.
They are buying 70 percent of the debt the Federal Governments incurs this month. Once Once interest rates go up, the deficits will balloon, 160 billion dollars a year for each percentage point.
So?
We have got to cut spending and stop the coming train wreck.
What train wreck? The train wreck is the current state of affairs from a deficit that’s too small.
Note that every move towards deficit reduction in Japan made things worse, and every supplementary budget made things better. they just haven’t ever done enough
>
> Its a typical RW comment, but what am I missing. How can you keep stating Japan did this
> wrong for the other reason?
>
UK Daily | U.K. Jobs Grow Fastest in Almost 2 Years
If they just wouldn’t add to the austerity measures the deficit is plenty high enough for a reasonable recovery, albeit from unconscionably low levels caused by their fiscal policies.
UK Headlines:
Bank of England Leaves Interest Rate Unchanged at 0.5 Percent
U.K. Fourth-Quarter Construction Increases More Than Estimated
Carney Plays Down Talk of Radical Policy Change
U.K. Jobs Grow Fastest in Almost 2 Years
Cameron Demands EU Budget Cuts as U.K. Tories Grow More Restive
U.K. Manufacturing Rises Most Since July on Machinery Output
Perspective on student loan growth (CHARTS)
Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts
The problem is there’s nothing he can do about it short of backing off on supporting fiscal austerity.
Buying fx is not an option ideologically, as it would give the appearance that the fx reserves are backing the euro.
Late addition:
One more thing, Japanese buying of member nation euro bonds necessarily weakens the yen.
So does Draghi want that to stop/rates to go up?
Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts
By Matthew Brockett and Stefan Riecher
Feb 7 (Bloomberg) — “The exchange rate is not a policy target, but it is important for growth and price stability,” ECB President Mario Draghi said at a press conference. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.” Draghi noted that the ECB will publish new economic projections next month and stressed that officials will “maintain our accommodative monetary stance.” Draghi said economic weakness will prevail only “in the early part” of this year and “later in 2013, economic activity should gradually recover, supported by our accommodative policy stance.” Still, risks to the economic outlook remain on the downside, he said. Draghi said if monetary policies produced “consequences on the exchange rate that do not reflect the G-20 consensus, we will have to discuss this.”