Central Perk: 10 iun. 2015

miercuri, 10 iunie 2015

Mish's Global Economic Trend Analysis

Steen Jakobsen: US Credit Cycle Peaked, Zero Growth Coming to Europe, Gold 1425 by Year End

Posted: 10 Jun 2015 02:11 PM PDT

Saxo Bank chief economist sent a number of charts and comments that constitute his outlook for global macro fundamentals for the next 6-7 months.

Via email, the rest of what follows is a guest post from Steen Jakobsen.

Headlines for Next 6-7 Months

US, German and EU core government bonds will be 100 basis points higher by and in Q4 before making final new low in H1 2016. The US 10-year bond yield will trade above 3.0% and German Bunds 1.25%
WTI crude will hit US $ 70-80/barrel setting up excellent energy returns.
US dollar will weaken to EUR 1.18/1.20 then start multi-year weakness.
Gold will be the best performer in commodity-led rally. We see 1425-1435 by year-end.

Average Annual Inflation by Decade

We need to stop talking deflation and using 1930s comparison on Fed hike.

US Real Rates

Real rates finally coming off in the US. Positive Gold and negative for US$?

US Germany Breakeven Rates

Inflation expectations rising fast.

European Growth

European "cost advantage" is disappearing fast and furious. Enjoy the summer of growth – behind comes: zero growth, zero reform and higher inflation "expectations".

Central Bank Balance Sheets

Excuse me? Didn't ECB start QE – in world of madness? Hard even to see change in ECB balance sheet. Japan is just not real, for that matter nothing is!

US High Yield vs. S&P 500

Clearly the credit cycle has peaked.

LQD - US Investment Grade Corporate Bond ETF

CRY - Core Commodity Index

Compare commodities to investment grade bonds.

Fed Hike Indicator

When the FED hikes it's a margin call. There is no basis in their mandate to do hike, but their need to normalize will have data support over summer as CESI (Citi Surprise Index will mean revert).

I have been traveling like a mad man: France, UK, Croatia, Slovenia, Slovakia, Kazakhstan, Singapore, Hong Kong, Slovenia, Hungary, Czech and Netherlands. And next few weeks: London (CNBC guest hosting Friday), Switzerland, China and Japan. I have plenty to report.

Upcoming Teasers

CEE is the canary in the coal mine for QE
Mining is underowned and underpriced
Inflation is coming back
Silk Road is for real
Autocratic government in for hard time across Europe
Unfortunately still no reforms anywhere, but great clients, risk takers and media

Safe travels
Steen

Mish Comments

When Steen says there is no basis for a US rate hike, he is talking from the Fed perspective of CPI inflation.

He has commented before that the Fed may hike simply to prick asset bubbles and/or to simply do what they keep saying they will do.

I have no target for the price of gold. Rather, like Steen, I believe it is an unloved asset likely to outperform.

Finally, I have my doubts that interest rates will hit a new low in 2016, but if they do, panic will be in the air over crashing equities or asset prices in general.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Stocks Jump on Greece Deal Rumors; Capital Control Fears Mount, Car Buying Soars as Greeks Pull Cash

Posted: 10 Jun 2015 11:06 AM PDT

This morning, Bloomberg reported a Deal was in the works, later denied by Germany. Stocks jumped on the news, but cash withdrawals and capital flight continues as Greeks pull cash to buy cars or to put it under the mattress.

Staggered Deal Offer From Germany?

Starting from the top, Bloomberg reports Germany to Consider Offering Tsipras Staggered Deal on Aid.

Chancellor Angela Merkel's government may be satisfied with Greece committing to at least one economic reform sought by creditors to open the door to bailout funds, according to two people familiar with Germany's position.

While the Germans still insist on a package of steps that includes higher taxes, state asset sales and less generous retirement benefits, they may settle for a clear commitment by the Greek government to a measure up front to unlock aid, said the people, who asked not to be identified discussing the government's negotiating stance.

"Where there's a will, there's a way," Merkel told reporters as she arrived in Brussels. "The goal is to keep Greece in the euro area."

Wall Street Jumps on Rumor Deal

It appears Merkel will be the one to bend if anyone does.

Reuters reports Wall St. Jumps on Report Germany May Consider Greece Aid.

Wall Street surged in late morning trading on Wednesday after a Bloomberg report that Germany may be satisfied with Greece committing to at least one economic reform in return for aid.

All three major indexes rose more than 1 percent on the same day for the first time in a month.

Deal Talk "Pure Invention"

Is there a deal offer or just a rumor? Reuters reports Merkel, Hollande to Tell Greek PM to Talk to Creditors.

Germany will only accept a cash-for-reform deal between Greece and its international creditors that has the approval of all three lending instutions, a government spokesman said in response to reports that Berlin was considering easier terms.

Asked about a Bloomberg report that said Chancellor Angela Merkel's government may be satisfied with Greece committing to at least on major economic reform sought by the creditors, the spokesman told Reuters: "Germany will only accept a proposal of the three institutions. All else is a pure invention."

Merkel said earlier that her message would be that Greece must negotiate with the institutions representing the creditors. Tsipras, who has rejected several of the creditors' key conditions for a deal to unlock frozen aid, has been pressing for a "political agreement" among leaders to break an impasse in detailed negotiations.

Capital Control Fears Mount, Car Buying in Greece Soars

The Financial Times reports Anxious Greeks Pull Money from Banks Amid Fears of Capital Controls.

Two weeks after Greece's leftwing Syriza party won power at a general election in January, Panayotis Fotiades pulled his deposits from an Athens bank. To protect his savings he bought a brand new Mercedes-Benz car, then took the advice of a financial consultant and invested the remainder in money market funds based in Luxembourg.

Many other Greeks appear to be taking similar precautions. Even as the economy has been sinking, new car registrations have soared this year as worried Greek depositors seek out alternative havens for their money. They rose 27.9 per cent in April on top of a 47.2 per cent increase in March.

Already weakened banks are seeing their liquidity evaporate and the European Central Bank has warned there are limits to its support.

"The continuation of these outflows significantly increases the risk that the local authorities will impose capital controls to limit deposit outflows, which in our view would be tantamount to a bank deposit default," Moody's, the rating agency, warned in a report this week.

Discussions ground to a standstill on Wednesday amid mounting signs Germany was no longer willing to compromise and was urging a more hardline "take it or leave it" approach towards Greece. "They're really at the end of their tether," one senior eurozone official said of the Germans.

Fokion Karavias, chief executive of Eurobank, one of four big Greek lenders, said about €30bn had left the system since December, leaving banks dependent on the ECB for liquidity.

"The smart money left early on . . . The shipowners pulled out funds and manufacturing companies set up accounts outside Greece with foreign banks so they could be sure they'd continue trading," said an Athens-based banking analyst.

Fears of a default last week drove another increase in withdrawals. More than €500m left the system on Friday, the day Greece missed a €300m payment due to the IMF.

Most large depositors by now have pulled out their funds, the bank analyst said.

"Last month the amounts being moved by individual depositors were noticeably smaller, between €200,000 and €100,000. We're getting to the bottom of the barrel," he said, estimating Greeks had stashed about €5bn under mattresses and floorboards since January.

Areti Simopoulou, a retired store owner, said she heads for the cash machine at her local bank branch at the end of the month and withdraws all her pension money at once.

"I used to take out half and leave the rest for an emergency," Mrs Simopoulou said. "Now I feel relieved it's there and make sure I take out every last lepto [cent]."

If anyone gave in, it now appears it may have been Germany. But I am not sure there was movement by anyone.

And Greeks have seen enough of these rumors not to trust any of them. Even if there is a deal, that deal may involve capital controls.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com