Sunday, December 15, 2013

Today's links

 1---As stocks hit record highs, so do profit warnings, USA Today

A potential warning to stock investors: the fourth-quarter earnings pre-announcement season is shaping up to be the most negative on record.
In what seems like a major disconnect, the number of profit warnings relative to upbeat guidance is the widest it has ever been — at a time when the U.S. stock market is trading near record territory. The Standard & Poor's 500 index notched a new closing high of 1809 Monday.

For every 10 companies warning of weaker-than-expected earnings for the October-through-December period, only one has said it will top forecasts, says earnings-tracker Thomson Reuters I/B/E/S.

The actual 10.4-to-1 negative-to-positive pre-announcement ratio is on track to eclipse the prior record of 6.8 warnings for every positive one back in the first quarter of 2001. The long-term ratio is 2.3 warnings for each positive one.
"This is off the charts, I've never seen it this high," says Gregory Harrison, analyst at Thomson Reuters.

2---Eurozone: Worse than the Great Depression, NYT

I’ve mentioned before that at this point Europe is actually doing worse in the aftermath of the 2007 crisis than it did in the Great Depression. Nick Crafts documents this at greater length, and adds a provocative analysis of debt dynamics.
First, his chart:
3---Mauldin: "When the annual growth rate of several economic indicators falls below 2 percent, the macro economy eventually slides into recession", Testosterone Pit

Average hourly earnings have increased by 2.2 percent over the last 12 months – and a less than desirable 1.3 percent once you adjust for inflation. Clearly running in place isn't going to get the economy going. The earl chatter regarding the upcoming holiday season is that it will be heavily promotional.

And since consumers can't spend what they don't have, they've reduced the pace of spending to below that critical sub-2 percent pace of spending on real final sales of domestic product. There's a little known rule of thumb in the economics world: when the annual growth rate of several economic indicators falls below 2 percent, the macro economy eventually slides into recession. Currently several of these statistics are flashing warning signals: real GDP (1.6 percent), real disposable personal incomes (2 percent), real consumer spending (1.7 percent), and real final sales of domestic product (1.6 percent). These are the broadest measures, possessing exceptional recession predicting abilities. The explanation for this is simple: like riding a bicycle, if you don't pedal, you tip over. And when the tier one indicators don't advance by a 2 percent pace, the economy grinds to a halt amid softer employment, incomes, and spending.....

4---Initial Claims, Retail Sales, and Job Openings – All Bad News , Testosterone Pit

5---Central banks will move goal posts to keep QE forever, marketwatch

6---Playing chess in Eurasia, pepe escobar, asia times

Any way you look at it, there's this inescapable feeling the Czar of Pipelineistan is Vladimir Putin (and just like the Terminator, he will be back, next March, as president, whatever his current predicament).  After all, Russia produces more oil than Saudi Arabia (at least until 2015 [17]) and has the world's largest known reserves of natural gas.  Around 40% of all Russian state funds come from oil and gas.

Putin's roadmap is his paper, "A new integration project for Eurasia: The future in the making," published by Izvestia in early October [19].  It may be dismissed as megalomania, but it may also be read as an ippon -- Putin loves judo -- against NATO, the International Monetary Fund, and neo-liberalism....

Moscow, for its part, now wants Pakistan to be a full member of the Shanghai Cooperation Organization (SCO) [22].  That also applies to China in relation to Iran.  Imagine Russia, China, Pakistan, and Iran coordinating their mutual security inside a strengthened SCO, whose motto is "non-alignment, non-confrontation, and non-interference in the affairs of other countries."  R2P it ain't....

As Pipelineistan goes, with Russia, Central Asia, and Iran controlling 50% of world's gas reserves, and with Iran and Pakistan as virtual SCO members, the name of the game becomes Asian integration -- if not Eurasian.  China and Russia now coordinate foreign policy in extreme detail.  The trick is to connect China and Central Asia with South Asia and the Gulf -- with the SCO developing as an economic/security powerhouse.  In parallel, Pipelineistan may accelerate the full integration of the SCO as a counterpunch to NATO.

7---Deflation??, WSJ

This morning’s report on U.S. producer prices is the latest case in point. Wholesale prices fell in November 0.1% from October, the third straight month prices have fallen. Granted, a big chunk of it is coming from gas prices — the “core” index was up 0.1%. But this is not just something affecting the U.S. energy sector. Inflation figures were released in Spain on Friday as well, and showed consumer prices were up just 0.2% from a year ago, after falling 0.1% in October.

For the Fed, the key question is just how deeply ingrained these price movements have become in the economy, Bill McBride wrote at the Calculated Risk blog. “To start to reduce asset purchases next week, the FOMC would probably have to argue that the current low inflation is transitory.”

This not just an academic debate. Deflation has real world consequences, from wage growth to economic growth to profit growth. More immediately, inflation is the sworn enemy of central bankers. It’s Professor Moriarity, Nurse Ratchet, Darth Vader, the villain that must not be allowed to scamper free. The Fed has a meeting next week. With inflation well below its soft target, will the Fed be willing to dial back the stimulus efforts and risk inflation sinking further into disinflation and nearer to deflation?

“We can’t seem to get up a head of inflationary steam no matter how hard the Fed tries,” Joan McCullough, the chief market strategist at East Shore Partners, wrote to clients. “And this, kids, is when this economy is approaching the five-year milepost measured from the official beginning of the recovery.”

She pointed out that the most recent core PCE deflator – the Fed’s favorite measure of inflation – was 1.1% in October, year-over-year. But that’s imperceptibly higher than the record-low for this measures 0f 0.9% set in December 2010. That’s well below the range the Fed considers stable.

“This is because we have no wage growth and as a result consumer demand,,” Ms. McCullough wrote, “unless manipulated by the Fed though the banks, remains on the skids. We still have a lot of slack in production and the global economy is weak as well. Yet against this backdrop, we are being told that the Fed will start cutting back on its buying program.”

8--Las Vegas housing crash, cal risk

9---Vegas crash continued, Mark Hanson summary, zero hedge

10--Gloomy consumers foreshadow poor home sales, DS News

Nearly two-thirds of those surveyed believe the economy is on the wrong track. Twenty-two percent expect their personal finances to worsen during the next year, and only 45 percent expect home prices to increase within the next 12 months.

According to Doug Duncan, SVP and chief economist at Fannie Mae: “We continue to see caution as the defining feature of Americans’ attitudes toward the economy and their personal financial situation. In this environment, the housing recovery is likely to improve, but only at a gradual pace.”
Duncan continued: “Our November National Housing Survey results show a loss of momentum in expectations for home prices and personal finances. Also, the majority of consumers expecting higher mortgage rates implies a slowing of housing market momentum. ...

11--With a Crucial Test Looming for Abenomics, Japan's Economy Falls Short, Bloomberg

The limited success to date of Abenomics is largely the result of a big increase in spending by the government, not by consumers, says Tom Orlik, a Bloomberg economist based in Beijing. For the recovery to have legs next year, when the government will be increasing taxes to address the huge budget deficit, Japanese businesses and consumers need to spend more too. One promising sign: Japanese companies are investing, with new machinery orders on the rise again.
More take-home pay would help Japanese consumers do their part, but with wages falling, people aren’t confident enough to spend. “Japan’s growth really outperformed in 2013, but a large part of that was the government spending more money,” Orlik says. “For Abenomics to work, you need much higher spending by households and [business]. With the fiscal contraction coming, that has to start happening now.”

12---Clashes in Madrid as demonstrators rally against anti-protest bill (VIDEOS, PHOTOS), RT

13---Fukushima Core Meltdown: TEPCO Confirms Systemic Cooling System Failures, smirking chimp

14--Goliath: The Book That May Delegitimize Israel’s Apartheid State, antiwar

15---Britain’s policy on Syria has just been sunk, and nobody noticed , Patrick Cockburn, Independent

World View: The West’s favoured faction is on the run, while the Riyadh-backed rebels steadily gain ground...

The final bankruptcy of American and British policy in Syria came 10 days ago as Islamic Front, a Saudi-backed Sunni jihadi group, overran the headquarters of the Supreme Military Council of the Free Syrian Army (FSA) at Bab al-Hawa on the Syrian side of the border with Turkey. The FSA, along with the Syrian National Coalition, groups that the United States and Britain have been pretending for years are at the heart of Syrian military and political opposition, has been discredited. The remaining FSA fighters are in flight, have changed sides, or are devoting all their efforts to surviving the onslaught from jihadi or al-Qa’ida-linked brigades.

The US and Britain stopped the delivery of non-lethal aid to the supply depot at Bab al-Hawa as the implications of the disaster sank in. The West’s favourite rebel commander, General Salim Idris, was on the run between Turkey and his former chief supporter and paymaster, Qatar. Turkey closed the border, the other side of which is now controlled by the Islamic Front. The so-called moderate wing of the Syrian insurgency has very limited influence, but its representatives are still being urged by Washington and London to attend the peace conference in Geneva on 22 January to negotiate Bashar al-Assad’s departure from power

Confusion over what is happening is so great that Western leaders may not pay as much of a political price at home as they should for the failure of their Syrian policy. But it is worth recalling that the Syrian National Coalition and the FSA are the same people for whom the US and UK almost went to war in August, and saw as candidates to replace Assad in power in Damascus. The recent debacle shows how right public opinion in both countries was to reject military intervention....

The US, Britain and France do not have many options left except to try to control the jihadi Frankenstein’s monster that they helped create in Syria and which is already helping destabilise Iraq and Lebanon. Turkey may soon regret having given free passage to so many jihadi on their way to Syria. Ankara could close its 500-mile border with Syria or filter those who cross it. But Turkish policy in Syria and Iraq has been so dysfunctional in the past three years that it may be too late to correct the consequences of wrongly convincing itself that Assad would fall.

The Geneva II peace conference on Syria looks as if it will be born dead. In so far as the FSA and its civilian counterparts ever repres-ented anyone in Syria they do so no longer. The armed opposition is dominated by Saudi-sponsored Islamist brigades on the one hand and by al-Qa’ida affiliates on the other. All US, British and French miscalculations have produced in Syria is a re-run of Afghanistan in the 1980s, creating a situation the ruinous consequences of which have yet to appear. As jihadis in Syria realise they are not going to win, they may well look for targets closer to home.

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