The European Central Bank's (ECB) unprecedented use of a three year, low cost LTRO (Long Term Repurchase Agreement) policy initiative may have removed some of the short term pressures from the EU Banking crisis, but like the Greenspan PUT, the unintended consequences are not yet fully understood. One is the moral hazard which is fostering financial "games" to be played with reckless abandon. Some of the mischievous and cunning games are frankly questionably as being even legal! But then, nothing is illegal if the regulators and those organizations charged with surveillance are not bothering to investigate. Extend > Pretend > Bend is the new approach. MORE>>
The Global Markets have reached the point of waht can be best labeled as "Elevated Risk". Analytics measurements including Fundamenal Analysis, Techncial Analysis and Risk Anlysis all are independently signalling this along with warnings. This months report lays out the Risk Assessment, Risk Levels as determined by our proprietary aggregated Global Financial Risk Index, changes in Tipping Points and the Macro Risk-On, Risk-Off Drivers.
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The market action since March 2009 is a bear market counter rally that has completed a classic ending diagonal pattern. The Bear Market which started in 2000 will resume in full force when the current "ROUNDED TOP" is completed. We presently are in the midst of of a "ROLLING TOP" across all Global Markets. We are seeing broad based weakening analytics and cascading warning signals. This behavior is typically seen during major tops. This is all part of a final topping formation and a long term right shoulder technical construction pattern.
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TRIGGER$ publications combine both Technical Analysis and Fundamental Analysis together offering unique perspectives on the Global Markets. Every month “Gordon T Long Market Research & Analytics” publishes three reports totalling more then 380 pages of detailed Technical Analysis and in depth Fundamentals. If you find our publications TOO detailed, we recommend you consider TRIGGER$ which edited by GoldenPhi offers a ‘distilled’ version in a readable format for use in your daily due diligence. Read and understand what the professionals are reading without having to be a Professional Analyst or Technician.
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Latest Public Research ARTICLES & AUDIO PRESENTATIONS
The idea that economic momentum driven by the LTROs has faded already stands in contrast to statements by ECB president Mario Draghi yesterday, who told reporters that the effects of the LTRO had not yet been felt in the markets. Read more: http://www.businessinsider.com/the-euro-area-economy-is-deteriorating-at-a-disastrous-pace-2012-5#ixzz1tz2Kv600
Unemployment in the 17 countries that belong to the euro zone rose to 10.9 percent in March from 10.8 percent in February, according to Eurostat, the European Union’s statistics agency. In March 2011, the rate was 9.9 percent, a number that illustrates the deterioration of the region’s economy in the last year.
The monthly increase, the 11th in a row, translates into more than 17 million jobless people, and it is in line with other recent indicators showing that the euro zone economy remains distressed. Manufacturing in the region hit a 34-month low in April, according to a survey of purchasing managers released Wednesday by the research firm Markit.
Operating conditions in the Spanish manufacturing sector deteriorated sharply again in April. New orders fell at a substantial pace, while the rate of contraction in output accelerated. Spare capacity led to further reductions in backlogs of work and employment. Meanwhile, firms lowered output prices in the face of strong competitive pressures and weak demand, despite robust input cost inflation.
The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – fell for the third month running in April, posting 43.5, from 44.5 in March. The latest reading signalled the fastest worsening of operating conditions since June 2009.
From Economist Andrew Harker:
The acceleration in the rate of contraction in new orders seen in March was followed up by a similar trend in the output index in April. Further price discounting at manufacturers appeared to have a limited impact on sales, with new orders falling at a substantial pace over the month.
April data pointed to further reductions in manufacturing output and new business, although rates of decline were marginal in both cases. Consequently, companies remained cautious with regards to hiring, highlighted by the index measuring trends in manufacturing employment reaching its lowest level in 37 months. On the price front, charges at the factory gate were unchanged, while average input costs increased only marginally.
“The upward revision to April’s final PMI reading, compared to the flash estimate, confirms that the pace of China's slowdown is stabilized. The 8.1% y-o-y GDP growth is likely to be the cyclical trough. As easing measures are starting to work and additional easing measures are on the way in the light of accommodative inflation outlook in the coming months, we expect Chinese GDP growth to bottom out in 2Q and recover modestly to over 8.5% in 2H.”
"The upward revision to April’s final PMI reading, compared to the flash estimate, confirms that the pace of China's slowdown is stabilized," said HSBC economist Hongbin Qu. "The 8.1% y-o-y GDP growth is likely to be the cyclical trough. As easing measures are starting to work and additional easing measures are on the way in the light of accommodative inflation outlook in the coming months, we expect Chinese GDP growth to bottom out in 2Q and recover modestly to over 8.5% in 2H.”
4 - China Hard Landing
LABOR REPORT - Its Structural not Cyclical
Even the BLS says the Labor Reprot is +/- 100K. So forget it. Here is what matters.
BEVERIDGE CURVE: The classic eponymous Beveridge Curve “is a graphical representation of the relationship between the unemployment rate and the job vacancy rate. It typically has vacancies on the vertical axis and unemployment on the horizontal. The curve slopes downwards as a higher rate of unemployment normally occurs with a lower rate of vacancies. If it moves outwards over time, then a given level of vacancies would be associated with higher and higher levels of unemployment, which would imply decreasing labor market efficiency. Inefficient labor markets are due to mismatches between available jobs, the unemployed and an immobile labor force.”
For the last decade the B-curve has been moving downward and out to the right. That suggests the change in the labor force in the US is structural and not cyclical. We have color-coded sections of the curve. They are labeled “Expansions” (economic recoveries) and “Recessions” (there are two recessionary periods). For recessions we are using the NBER definition. Notice how the longer-term structural trend is temporarily reversed in each of the cyclical recoveries. Also notice how the cyclical recovery is not strong enough to overcome the longer-term downward trend. The most recent recovery is still underway and shows the nature of the slow repair to the labor force and the continuing jobs vacancy issue. This B-curve says that we are improving and that we doing so from a very low level. It does say that the longer-term structural trend is intact as of the most recent data point. That suggests the ongoing economic recovery will remain at a slow pace.
RATIO - Change in Employed : Change in Not in Labor Force
10 - Chronic Unemployment
LABOR REPORT - More People Leaving the Labor Force than Entering
The chart indicates that Germany seems to be leading the pack—farther ahead on household deleveraging than even the United States. In the eurozone periphery, however, deleveraging has not even begun in the financial sector, spelling trouble ahead.
Those who thought Italy's massive drop in PMI from 47.9 to 43.9 in April was bad, apparently have not seen Hungary, Australia, Norway or Switzerland. The good news? Turkey is doing well to quite well... which likely explains why they are trying to confiscate the people's gold.
The Eurozone accounts for about 20% of U.S. exports and profits and any slowing of consumption due their economic ills will wash ashore in the U.S.
As exports slow the profit margins of U.S. corporations are reduced and they react by ceasing hiring, cutting back temporary labor and increase productivity to suppress wages and maintain profits. Those actions, and outlook, by corporations are reflected not only by the stock market but also by declining consumer confidence. The pullback in consumption causes corporations to get more defensive. This virtual spiral further slows economic growth pushing the economy into recession.
Basically, all through the Bush years, government was a positive force on GDP. There were some negative blips here and there, but not steadily. Under Obama, on the other hand, we had a few quick spikes in government spending, but we're now seeing a steady drag unlike anything we've seen this century.
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
Japanification of global interest rates (for currency issuers not users)
will push valuations down and defending equity investment on the back of multiple expansion seems disingenuous at best.
Empirically, the current interest-rate regime (the 2-3% 10Y) is as good as it gets and whether rates rise or fall from here, equity valuations are likely to drop. The market rarely trades at the average multiple, though the current market trades at near average levels currently (not cheap as many would like us to believe). Of course, as Morgan Stanley notes, there are a number of other drivers but on a long-term basis and top-down, equity valuations have a hard hill to climb to prove its different this time.
Analysts expect demand for such short-term, high-quality floating-rate debt to be strong. New regulations that came in the wake of the financial crisis pushed financial institutions to hold more safe assets such as Treasurys, and floating-rate notes might be more attractive when interest rates eventually begin to rise. Other potential buyers include money market mutual funds and state and local governments looking to manage their cash.
REAL INCOME - The REAL Story (Without Transfer Payments)
This chart from Bill McBride at Calculated Risk shows one reason why the economy is still sputtering along: Because Americans are still making much less money than they were before the recession. The chart shows real personal income (adjusted for inflation) minus "transfer payments" as a percent of the total before the crash. Transfer payments are welfare payments, unemployment insurance, and other government subsidies. When transfer payments are included, the income picture looks better, but of course those transfer payments are just more government spending.
The chart also shows how much more devastating the recent recession was than other recessions for the past 50 years
Why is personal income so lousy? Because employment still hasn't recovered to pre-recession levels. Here's a second chart from Calculated Risk showing current employment as a percent of pre-recession employment.
The polarization in the House and the Senate is as high as it has ever been, even higher than after Reconstruction, one of the most acrimonious periods in the country’s history. Without a political middle, there is a greater risk that the ideological divide between the parties cannot be bridged, leading to intermittent government shutdowns (or the threat of them2) and market disruptions.
It also means:
He Who influences Party Politics / Platform / Policy through contributions and influence (read Corporatocracy) controls the government.
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