EU Economic News

[LVG]

Some news from the EU front:

http://www.bbc.co.uk/news/business-17836624

UK economy in double-dip recession

The UK economy has returned to recession, after shrinking by 0.2% in the first three months of 2012.

Deutche Bank's profits plummet 35%:

http://www.bbc.co.uk/news/business-17851185

Deutsche Bank has reported a sharp fall in profits, in part due to weaker performance in investment banking during the eurozone debt crisis.

Spain's bond costs double from a year ago:

http://www.businessday.co.za/Articles/Content.aspx?id=170410

SPAIN’s short-term borrowing costs nearly doubled compared with a month ago at auctions yesterday, even though it opted to sell relatively small amounts of debt given investor doubts about its shrinking economy and a new flare-up in the euro-zone crisis.

The Netherland's government fell due to failure to pass an austerity package:

http://www.washingtonpost.com/busin...ity-measures/2012/04/23/gIQAbxB3cT_story.html

A backlash against proposed austerity measures upended the government of the Netherlands on Monday, highlighting the growing peril facing efforts across Europe to tame the region’s financial crisis.

The collapse of Prime Minister Mark Rutte’s governing coalition came after the populist Freedom Party, led by euro opponent Geert Wilders, abandoned negotiations over ways to meet deficit targets. National elections are now expected to be held in June.

Concern that demand for French debt is softening due to the potential of a credit downgrade:

http://www.telegraph.co.uk/finance/...nd-halves-at-crucial-French-bond-auction.html

France sold €4.02bn of 10-year debt at average yields of 3.29pc, up from 3.18pc at a similar auction last month. Demand outstripped supply by a ratio of 1.64 to one, compared with 3.046 to one at a similar auction in December.

And finally, though almost a month old, the Fed bout 61% of US debt.

http://www.moneynews.com/Headline/fed-debt-Treasury/2012/03/28/id/434106?s=al&promo_code=E8AA-1

The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.

"Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis," Goodman writes.

Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”

Read more: WSJ: Fed Buying 61 Percent of US Debt
​

In other news (tounge-in-cheek), the British government has dipped into their material stockpiles of old WWII posters. This classic is seen as coming back onto the streets of London:

You must be registered for see images attach

 

[Russ Smith]

And yet the US markets were all up today? Makes you wonder how long before people notice what's going on worldwide.

I'm still all cash on my IRA's, my work 401k is still in stocks but it's quite small, I'm fully expecting a correction.

 

[82CardsGrad]

And yet the US markets were all up today? Makes you wonder how long before people notice what's going on worldwide.

I'm still all cash on my IRA's, my work 401k is still in stocks but it's quite small, I'm fully expecting a correction.

Not sure how long you've been in cash - chances are you've missed out on a nice run over the past year or so. That said, I am also expecting to see a correction and am very surprised it hasn't hit yet, what with the problems all over Europe and China slowing (though they recently showed some improvement), as well as Brasil - combined with slowing job gains here in America, poor manufacturing and durable goods numbers and problematic gas prices...

 

[Russ Smith]

Not sure how long you've been in cash - chances are you've missed out on a nice run over the past year or so. That said, I am also expecting to see a correction and am very surprised it hasn't hit yet, what with the problems all over Europe and China slowing (though they recently showed some improvement), as well as Brasil - combined with slowing job gains here in America, poor manufacturing and durable goods numbers and problematic gas prices...

About 4-5 weeks I think. When it was around 13,500 on the Dow I went all cash. Went down below 13 so I've missed about 300 points back up but I missed the drop too.

 

[82CardsGrad]

About 4-5 weeks I think. When it was around 13,500 on the Dow I went all cash. Went down below 13 so I've missed about 300 points back up but I missed the drop too.

I'm still all stocks at present... each time I think it's "that" time to pull the trigger and run to cash, the market comes back. Crazy...

 

[jefftheshark]

Bad news like the GDP miss coupled with the bad weekly payroll report equals an uptick in the DOW because they think it's a step closer to QE3. The Fed said this week that they'll go the QE route if forced, but that they don't think they will. It's a classic case of mixed signals bordering on schizophrenia. The Fed is basically shoving everyone into the market as there is no yield to be found anywhere else, but this is a dangerous game - for them and for us. I think the best bet is no more than a 50% exposure to stocks, but that's just me.

Geithner said that there is absolutely no chance of Europe's problems spilling over on us, which makes it a 100% certainty that they will. Everybody's thinking they can get out in time - however many will be wrong.

JTS

 

[82CardsGrad]

Bad news like the GDP miss coupled with the bad weekly payroll report equals an uptick in the DOW because they think it's a step closer to QE3. The Fed said this week that they'll go the QE route if forced, but that they don't think they will. It's a classic case of mixed signals bordering on schizophrenia. The Fed is basically shoving everyone into the market as there is no yield to be found anywhere else, but this is a dangerous game - for them and for us. I think the best bet is no more than a 50% exposure to stocks, but that's just me.

Geithner said that there is absolutely no chance of Europe's problems spilling over on us, which makes it a 100% certainty that they will. Everybody's thinking they can get out in time - however many will be wrong.

JTS

I know Jeff... I'm "this" close to jumping ship and running to cash. However, there is a TON of $$ still on the sidelines... The retail investor really hasn't come back into the market. That would be a very strong indicator to me that it's time to get out... but, as I say - it hasn't happened... yet.

 

[Duckjake]

Just drove from Austin to Stillwater Oklahoma to pick up my daughter from College. I don't think I've ever seen so many 18 wheelers on Interstate 35. Literally hundreds of them. Non stop from Austin to Stillwater and back. Where are they going and what are they hauling if the economy is wrecked? It was all day 5 oclock traffic for Peterbilts.

 

[jefftheshark]

Just drove from Austin to Stillwater Oklahoma to pick up my daughter from College. I don't think I've ever seen so many 18 wheelers on Interstate 35. Literally hundreds of them. Non stop from Austin to Stillwater and back. Where are they going and what are they hauling if the economy is wrecked? It was all day 5 oclock traffic for Peterbilts.

Meridith Whitney, a well known "doom & gloomer" was interviewed the other day and said that she was bullish on the USA, but only the section starting on either side of Texas and going straight up to North Dakota.

I suppose that I'm guilty of sounding like I think everything's going to hell in a handcart, yet that's not ever going to be true everywhere. I think that there will always be those who thrive during tumultuous times. What I see is that we as a global economy are not immune to the things that occur in Europe or Asia. If there was a war in Iran for example and we saw a shutdown in oil from the gulf then you could say that Texas might boom, as would Canada and the northern tier states including Alaska. But places like Japan could get crushed by the same event.

All economies are local, just like politics.

JTS

 

[LVG]

For the US, what Duckjake is pointing out really is a form of selection bias. His observation tells that there is increased trucking activity along that section that he traveled for the time that he traveled it, but cannot be generalized to regional, national, or international indicators, or expanded to additional time frames without additional supporting data.

I'm not trying to throw rocks, DJ, just pointing out the dangers of generalizing observations.

 

[82CardsGrad]

For the US, what Duckjake is pointing out really is a form of selection bias. His observation tells that there is increased trucking activity along that section that he traveled for the time that he traveled it, but cannot be generalized to regional, national, or international indicators, or expanded to additional time frames without additional supporting data.

I'm not trying to throw rocks, DJ, just pointing out the dangers of generalizing observations.

Good point... however, the reality remains that, in this bizarro economy we find ourselves in today, we see unemployment remaining far too high and too few jobs being created. We see foreclosures and short-sales still presenting problems. We hear about people on welfare and food-stamps at record levels. Yet, the vast majority of publicly traded companies continue to produce incredibly strong financial performances. In all industries...
I get the sense that those financial performances are simply unsustainable when there are so many other huge negative inputs. But then again - companies have been fattening up for quite a while now, while other important economic data continues to illustrate harsh conditions. Very strange...

 

[LVG]

Good point... however, the reality remains that, in this bizarro economy we find ourselves in today, we see unemployment remaining far too high and too few jobs being created. We see foreclosures and short-sales still presenting problems. We hear about people on welfare and food-stamps at record levels. Yet, the vast majority of publicly traded companies continue to produce incredibly strong financial performances. In all industries...
I get the sense that those financial performances are simply unsustainable when there are so many other huge negative inputs. But then again - companies have been fattening up for quite a while now, while other important economic data continues to illustrate harsh conditions. Very strange...

Doesn't the international nature of modern business mean that the US economy can be in the crapper, but companies can continue to post strong results because of overseas strength?

I know there are other explanations but none come to mind right now - can you think of any (other than outright fraud)?

 

[82CardsGrad]

Doesn't the international nature of modern business mean that the US economy can be in the crapper, but companies can continue to post strong results because of overseas strength?

I know there are other explanations but none come to mind right now - can you think of any (other than outright fraud)?

Of course... however, take a company like Apple - where the majority of their sales (which continue to hit record levels) are based here in the U.S. Take a look at retailers here in the U.S. as well. Major U.S. banks...
The dichotomy between corporate America and main street is huge right now. I honestly don't recall it ever being as substantial as it is today...

 

[jefftheshark]

Of course... however, take a company like Apple - where the majority of their sales (which continue to hit record levels) are based here in the U.S. Take a look at retailers here in the U.S. as well. Major U.S. banks...
The dichotomy between corporate America and main street is huge right now. I honestly don't recall it ever being as substantial as it is today...

Wage arbitration. Corporate profits go up as labor costs go down.

Real wages in the US have been trending down for well over a decade with credit creation making up the difference. The workers in America moved into service industry jobs that while (usually) necessary do not in themselves create wealth. It all works great until the credit card gets cut up and then it gets ugly.

That's why it is important to look at Greece. They are the first to experience what happens when their cards get declined. They are selling their national sovereignty in exchange for enough cash to make the next couple of payments. Add Spain and Italy to the mix and it gets harder and harder to come up with enough cash. Unless you just print it out of thin air and that's a whole different ball of wax.

Nasim Taleb tells a great parable in his book The Black Swan where he talks about a turkey on a farm. For its entire life the farmer takes wonderful care of the bird. It comes to expect that every day the farmer is going to feed it when it gets hungry, give it water if its thirsty and medicate it if feels under the weather. The farmer is his best friend in the entire world. Then one Wednesday morning from out of the blue the farmer lops his head off.

The lessons: 1) Past performance means nothing. 2) Just because you don't understand the system doesn't mean that you can't be affected by it. and 3) Everything is going to sound rosy until it isn't.

The trucks are gonna be traveling down the highways right up until they aren't.

JTS

 

[Duckjake]

For the US, what Duckjake is pointing out really is a form of selection bias. His observation tells that there is increased trucking activity along that section that he traveled for the time that he traveled it, but cannot be generalized to regional, national, or international indicators, or expanded to additional time frames without additional supporting data.

I'm not trying to throw rocks, DJ, just pointing out the dangers of generalizing observations.

I understand that's why I asked the question. On another note two houses on my street have been put up for sale in the last month. One was sold before it was even listed on MLS. The other had 3 offers for more than the asking price within 2 days of listing. It's like Austin is working in a bubble or something.

Construction is still depressed as every Construction Co in the US has opened an office here because there's no work anywhere else I guess. Thank goodness for the RFP matrix selection process*. Otherwise projects would be going for -10% profit

* a personal note for my friend LVG as most of you won't know what that means. Watching that Packers game in the LV was too much fun wasn't it?

 

[Duckjake]

Meridith Whitney, a well known "doom & gloomer" was interviewed the other day and said that she was bullish on the USA, but only the section starting on either side of Texas and going straight up to North Dakota.

I suppose that I'm guilty of sounding like I think everything's going to hell in a handcart, yet that's not ever going to be true everywhere. I think that there will always be those who thrive during tumultuous times. What I see is that we as a global economy are not immune to the things that occur in Europe or Asia. If there was a war in Iran for example and we saw a shutdown in oil from the gulf then you could say that Texas might boom, as would Canada and the northern tier states including Alaska. But places like Japan could get crushed by the same event.

All economies are local, just like politics.

JTS

Good point. Reports are and from personal observation this week Oklahoma is doing well. And that economy has lagged behind for decades.

 

[azmike74]

I understand that's why I asked the question. On another note two houses on my street have been put up for sale in the last month. One was sold before it was even listed on MLS. The other had 3 offers for more than the asking price within 2 days of listing. It's like Austin is working in a bubble or something.

Construction is still depressed as every Construction Co in the US has opened an office here because there's no work anywhere else I guess. Thank goodness for the RFP matrix selection process*. Otherwise projects would be going for -10% profit

* a personal note for my friend LVG as most of you won't know what that means. Watching that Packers game in the LV was too much fun wasn't it?

The real estate market in the Phoenix area is changing quickly as well. My wife and I recently purchased a house and along the way, experienced similar experiences.

We placed an offer on a house that had 3 bids, ours was a full price offer without asking for appliances or any other extra and were declined due to a cash offer.

Our second offer was on a short sale that had 10 offers in 3 days. We offered 25k over the asking price and thought we had the house (due to follow up questions by the other realtor). We didn't get that house either.

After talking to other realtors, it seems most everything under 300k in the Phx area is going cash to investors. My wife and I ended up purchasing a new build in North Peoria to avoid all this bidding nonsense. I hope my house sells as easily as the ones we were bidding on.

 

[Duckjake]

The real estate market in the Phoenix area is changing quickly as well. My wife and I recently purchased a house and along the way, experienced similar experiences.

We placed an offer on a house that had 3 bids, ours was a full price offer without asking for appliances or any other extra and were declined due to a cash offer.

Our second offer was on a short sale that had 10 offers in 3 days. We offered 25k over the asking price and thought we had the house (due to follow up questions by the other realtor). We didn't get that house either.

After talking to other realtors, it seems most everything under 300k in the Phx area is going cash to investors. My wife and I ended up purchasing a new build in North Peoria to avoid all this bidding nonsense. I hope my house sells as easily as the ones we were bidding on.

Dang. That's what happened in the early '90s with all the HUD homes. People with cash bought houses for dimes on the dollar. The upside was that as soon as all the HUD inventory was gone homebuilding took off like a rocket and a couple of years later you couldn't get a contractor to return your phone calls. And if you didn't watch the guy building your house like a Hawk you'd get a hastily built POS.

 

[LVG]

I understand that's why I asked the question. On another note two houses on my street have been put up for sale in the last month. One was sold before it was even listed on MLS. The other had 3 offers for more than the asking price within 2 days of listing. It's like Austin is working in a bubble or something.

Construction is still depressed as every Construction Co in the US has opened an office here because there's no work anywhere else I guess. Thank goodness for the RFP matrix selection process*. Otherwise projects would be going for -10% profit

* a personal note for my friend LVG as most of you won't know what that means. Watching that Packers game in the LV was too much fun wasn't it?

Parts of the midwest and south still have a strong economy. Texas is one, the Dakotas are another, Wyoming a third, parts of Arkansas and Oklahoma, all have been bucking the national trend. I know a fair amount of people who left Vegas for these parts with job offers in hand.

Nothing like watching the game with a brew at the Monte Carlo, is there buddy?

 

[82CardsGrad]

Furhter to my points about this whacky economy and the delta between the numbers we see being reported, i.e. unemployment, welfare and food stamps, etc... versus broader facts being produced by corporations:

Scottsdale hotels, resorts have strong first quarter showing

Scottsdale tourism leaders are upbeat after a season that saw growth in hotel occupancy, room rates and revenue.
The city's hotels and resorts outperformed the overall Phoenix market in the first quarter and all other major markets except Miami, New York and Oahu, Hawaii, according to figures from STR, formerly Smith Travel Research.
"I think it showed continued recovery," said Mike Surguine, Scottsdale Convention and Visitors Bureau chairman. "Occupancy is making a pretty good comeback and that really had to happen before we can achieve any rate integrity compared to 2007."


Read more: http://www.azcentral.com/community/...ts-strong-first-quarter-showing#ixzz1u2mM6QUa

 

[jefftheshark]

First indications are that the "anti-bailout" advocates are leading in the Greek parliamentary elections this weekend. Surprisingly (or not, depending on how you look at the world) the neo-Nazi group "Golden Dawn" is going to come away with close to 8% of the seats - which will give them a prominent place in the new government.

If you want to read something eye-opening then Google Golden Dawn. Between ravaging packs of unemployed skinheads beating up those who they see as "different" and openly advocating forced internment of illegal immigrants into "labor camps", the group certainly sounds somewhat familiar.

Things are getting nutty in Europe, but why should anyone be surprised? Greece is the canary in the coal mine, showing the way to what happens when a sovereign nation gets into massive debt to service entitlement programs that are far above and beyond its means to ever repay.

Oops! Who else does that sound like?

JTS

 

[LVG]

Spain to bailout 4th largest bank at an estimated cost of 5 to 10 billion Euros.

The interesting part is that the Spanish PM has previously stated that such bailouts would not be used unless there was systemic risk.

http://www.google.com/hostednews/af...ocId=CNG.e775d2eb4e612af7f0bc3bf289337f2c.561

 

[LVG]

JTS - its interesting that both austerity incumbents were defeated (Greece and France) over the weekend. It appears that the general populace is rejecting austerity in general, which may have profound effects on the EU. Do you think France will continue to partner with Germany, or do you think they'll be more confrontational as it relates to the overall EU fiscal and budgetary policy?

 

[82CardsGrad]

JTS - its interesting that both austerity incumbents were defeated (Greece and France) over the weekend. It appears that the general populace is rejecting austerity in general, which may have profound effects on the EU. Do you think France will continue to partner with Germany, or do you think they'll be more confrontational as it relates to the overall EU fiscal and budgetary policy?

The riots in the streets offered just a slight foreshadowing of these results...

 

[jefftheshark]

JTS - its interesting that both austerity incumbents were defeated (Greece and France) over the weekend. It appears that the general populace is rejecting austerity in general, which may have profound effects on the EU. Do you think France will continue to partner with Germany, or do you think they'll be more confrontational as it relates to the overall EU fiscal and budgetary policy?

I think that Germany is waking up to the fact that they are the only adults in a room full of screaming babies. There is only so much that they can do now, so my feeling is that they will go into "controlled demolition" mode. Wall Street is betting today that Hollande will bow to the inevitable and knuckle under to the banks, just as Obama did before him. From everything I've read, they might be right, but long-term I think Germany is headed back to the Mark and letting France reap the whirlwind it so richly deserves.

But there are larger games afoot right now. Greece failed to establish a new government today, which gives the anti-bailout crowd the upper hand. The Greeks will, most likely, be exiting the Eurozone either under their own power or tossed out. So far they have avoided creating a true default and triggering the CDS whirlwind. Without further ECB assistance however, this latest soft default could hurt - a lot. Norway has the world's second largest sovereign wealth investment fund and it has a heavy position in "long" Greek international-law bonds. You could see where a default would result in their taking Greece to court in Brussels, yet there isn't a true government in Greece to actually sue and what good might a judgment do anyway? Go to war? Foreclose on the Parthenon? I know you have read about Austria's Kreditanstalt and how it was the tipping point for the Great Depression. In some regards the parallels are eerily similar.

When you bring Spain and Italy into the picture it doesn't get any better, does it?

JTS