Good afternoon. Freedom continues to bear it’s fruits on the Arab soil: while the new government of Libya divided the portfolios (with some spectacular shooting, as usual), Gaddafi supporters have suddenly resurrected and seized the town of Beni-Walid – such a confusion; multi-stage parliamentary elections have finally ended in Egypt – Islamists won two thirds of the seats; their counterparts in Nigeria stage permanent terrorist attacks in an effort to expel or destroy all who do not want to live under Shari laws – what is there still to come. Somali pirates decided to try their hand in enlightenment: they stole American author and journalist Michael Moore who came to collect facts about banditry in the region – now he will have more than enough material. Republican primaries continue in the United States – Newt Gingrich suddenly won in South Carolina, putting the favourite Mitt Romney into a difficult situation: the latter already got caught by the media caught accusing him of raiding (a serious stain on the reputation of a man presenting himself a respectable businessman), and then showing that the effective rate of Romney’s income tax does not exceed 15% (as it turned out, even 13.9%) – and if the Republicans will push the abolition of tax on capital gains it will even be 0%; in general, Romney has problems – even if he wins inside the party, he will have minimal chances against Obama. Outside politics the United States are also fun: veterinarian was arrested in Oklahoma on accusation of raping... a horse – the judge is shocked as is the audience. The authorities of Britain have found an argument against the separation of Scotland: we will stop advertising your whiskey on the world market (exports in 2011 amounted to $4.6 billion) – Scots are now thinking what to choose, whiskey or oil.
Monetary markets. The US Senate has allowed the administration to raise the debt ceiling by $1.2 trillion – we won’t get last year's soap opera. Central banks of the New Zealand, Japan and Mexico have not changed the basic parameters of monetary policy; their Indian colleagues left the rate unchanged – but lowered the reserve ratio for banks; Bank of Thailand cut the rate by 0.25% to 3.00% per annum. Minutes of the last meeting of the Bank of England showed board members to be unanimous in maintain monetary policy unchanged – but some are already thinking about the new measures for easing. Finally, the Fed expressed not as optimistic as in December (economic growth is “modest” rather than “moderate” etc), declared “very soft” monetary policy and stated that it intends to maintain the zero rate not until mid-2013, as stated earlier, but until the end of 2014 – prompting the opposition of the Federal Reserve Bank of Richmond head Jeffrey Lacker. And in general he is right – publication (for the first time in the history of the Fed) of the board members’ views about the future dynamics of interest rates is ambiguous: 11 out of 17 people want to raise the rate before the end of 2014 (three want to do so in the current year), so Bernanke had to reassure public thereafter – saying, all forecast will be reviewed regularly. This also applies to the target level of inflation – Bernanke pushed for this figure to be published: for starters, the Fed thought that the 2% y/y growth in prices of consumer basket will be the best.
Meanwhile, the Fed at the same time published (with the usual lag of 5 years) the transcripts of meetings until 2006 – not the usual protocols but the complete transcripts. Media, of course, did not miss the opportunity to griddle the central bankers, full of complacency on the eve of a serious crisis. All snapped upon the laughter regularly arising in the meeting room – reasons for it today do sound ambiguous: Geithner (then head of the FRB of New York, now Finance Minister) tells Greenspan (who headed the Fed) that he is amazing – and that in the future he will be understood to be even more an eminent man than he is seen now; board member Ferguson has called Greenspan “the Yoda of monetary policy”; Bayes coyly expresses a desire to use Greenspan’s ingenious risk-management in managing his own household; the old Alan himself jokes that the breakfasts are becoming prolonged – and that it is time to rename them into lunches etc. Daily Stag Hunt went a step further by rationing the use of the word “laughter” in the transcripts and prices in the housing market (S&P/Case-Shiller index for 20 cities) – it was found out that the more fun the central bankers had the more expensive was becoming the housing: in 2006 there was a peak from which prices have lay down – now everyone is interested, whether it has influenced the frequency of laughter in the coming years? Let's wait for the publication of fresh transcripts!
Source: U.S. Federal Reserve, S & P / Case-Shiller
In Europe everything is generally the same: fundamentally bad – but the surge of liquidity from the ECB created temporary illusion of prosperity. Problem-countries hurry to take advantage of the situation – placements of government securities again were not bad: Spanish and Italian yields have declined markedly since the previous auctions; the Germans even took a chance to sell 30-year bonds – and found a decent demand at a moderate interest (3.25% per annum); however, German short bonds are selling much worse – which is understandable considering microscopic yields offered by the issuer (0.07% per annum). The Germans continue to put pressure on the EU: for the sake of adopting tough fiscal rules (providing for automatic penalties for missing budgetary parameters) they are willing to accept concessions in the use of stabilization funds (old and new). Private investors have agreed on the terms of the Greek default – they were promised to exchange old bonds for new ones with the 4% annual return: but then the IMF and the EU got into, saying that it was too much – the unlucky holders of Greek securities had to move; it seems they have agreed on 3.75% - but that is not for sure. Greece itself continues to find exotic resources to replenish the treasury – the authorities facilitate the access to heritage sites for photographers, filmmakers and advertisers: the Parthenon can now be rented at the rate of just over €1,500 euros per day for filming, or €200 euros – for photography; and the prices previously were 5000 and 300 – that’s a deflation!
Currency markets. The net short on the euro and the net long on the yen have continued to grow last week – however, closing of some of these positions us inevitable and logical: European currency went up, and the Japanese down (however, it was brought back quickly); the euro showed a u-turn "Morning Star" construction, which is already being worked through – but to talk about global reversal would be premature. The rouble continued its winning streak on the political appeasement, the pound was not too happy – but in general, again, nothing dramatic happened.
Stock markets. The leading stock exchanges (excluding China, where the new year was celebrated the whole week) behaved moderately optimistic: Dow reached last year's highs – and keeps around there recent days. NASDAQ was quirkier – the cause was the brilliant report of Apple: iPhones sales exceeded 37 million per quarter, increasing the company's revenues by 73% in the last quarter of 2010; profit more than doubled during the same period; IPads pleased, but MacBooks did not; promises for the year are good – in general, solid pink. But under conditions of weak demand, what one gets another loses: loses were upsetting for AT&T (6.7 billion), Verizon (212 million) and AMD (177 million); Japanese companies Nintendo and NEC are feeling bad (the latter will fire 10 thousand people); more or less quietly went through the reports of United Technologies and Yahoo – roughly as expected. Boeing figures are good – but the forecast for 2012 is worse than the expectations of the market. Industrial conglomerates have pleased – good are Caterpillar, 3M, and (to a lesser extent) DuPont; however, revenue of Honeywell are weak, profit of Ford fell by 1.5 times, and Chevron is all bad. Consumer sector is unhappy: sales and forecasts of Johnson & Johnson and Procter & Gamble are mediocre; McDonald's is not bad – but it is known to be rather a sign of problems with aggregate demand rather than a cause for joy. In general, current reporting season gives little joy so far, but is full of failures.
Commodity markets. The European Union imposed an embargo on oil supplies from Iran – that will hit Italy, Spain and Greece (over two thirds of the Persian supplies to Europe), but Saudi Arabia has promised to help. However, neither this nor the general optimism could inspire oil to rise in price – even though gas has jumped slightly it still faces a long-term low. Russian First Deputy PM Zubkov spoke about gas: he pointedly said that Gazprom produces not only natural gas but also liquid one – all to be afraid! Industrial metals behaved much more cheerful - and precious metals had even more fun, spur by the dovish attitude of the Fed: gold confidently flew above $1,700 per ounce, while silver showed a peak since late autumn. Food (except rice, milk, sugar and coffee) and feeder also showed the signs of optimism – but in general, the disposition here is still the same: fruit and beef on tops and all the rest closer to the lows.
Illustration: Artem Popov
Asia and Oceania. After the World Bank, IMF has lowered forecasts for world GDP growth in 2012 from 4.0% to 3.3%; the eurozone is promised a of 0.5% instead of the autumn aspirations of +2.1%, forecast were also worsened for Japan, China, India and Russia – and only optimism about the USA is not quenched, though it is certainly a temporary phenomenon. Slowdown is evident throughout the Pacific region: for example, South Korea's GDP in the fourth quarter grew by 0.4% instead of 0.8% in the previous quarter. In Japan, in December, the trade deficit happened again – exports fell by 8.0% y/y (very bad are the orders from Asia and the EU); even worse, the balance for the entire 2011 went out in passive – for the first time since 1980. Sales at supermarkets showed the fifth consecutive minus in yearly dynamics – and this despite the fact that the cold weather generated a surge in purchases of clothes; however, due to this reason retail sales in general have grown up a bit. Deflation remains – as a whole for 2011, consumer prices excluding fresh food dipped by 0.3%. In Australia, leading indicators sank in November at all versions; inflation in the fourth quarter has clearly slowed down (this applies to both wholesale and retail prices); in the New Zealand consumer spending on credit cards in December have recouped only a small fraction of the fall of the previous month – but activity in manufacturing industry showed a hefty splash coming back into the zone of expansion. In general, the situation is ambiguous and unstable.
Europe. UK GDP fell in October-December by 0.2% - manufacturing sector fell by 1.2%; services have not changed, construction fell by 0.5% - only the government spending (+0.4%) supported the economy. Forecast for EU leaders is gloomy: Germany apparently fell in the fourth quarter by 0.25%, France – by 0.2%, and Spain – by 0.3%. Construction orders in Germany soared at the end of 2011 because of unusually warm weather; industrial orders in the eurozone and EU sank in November versus both October and November 2010 – as a result, the growth of 2009/11 has never recouped for the fall of 2008, and already a clear turn down is seen. In Britain, orders slowed down their deceleration in January – and that’s all; in France, demand prospects in the manufacturing sector have deteriorated again – despite some increase in foreign purchases. However, the eurozone services sector is back from recession to stagnation – for how long? Production is still falling – though not as active as before; the Germans have the whole economy behaving cheerfully – thanks to construction and exports; business sentiment cooled down in the eurozone – except France, where they are falling incessantly; leading indicators of Switzerland are falling too.
Inflation continues to slow down across Europe – Sweden had deflation in December: wholesale prices were 2.1% lower than last year. Import prices in Germany rose last year by only 3.9% - minimum growth since the beginning of 2010; consumer prices fell in December against November. Broad money supply (M3) continues to slow down aggressively in the eurozone – now only 1.6% growth over the past 12 months; the annual increase in lending to the private sector shrank to 1.0%. In Britain in 2011, mortgage lending grew by only 3% - very sickly, given the scale of the previous fall. Unemployment in France is growing at 1.0-1.5% m/m; in Spain by the end of 2011 it had reached a staggering 22.85%; sudden rise in unemployment in Sweden – in such circumstances, the demand is weak: Italian retail sales slipped in November by 0.3% m/m and 1.8% y/y; in 2011 retail sales in Spain fell by 5.8%. In January, European consumers cheered up a bit – but it was then when in Britain there was the worst retail balance since March 2009. The situation in Europe is best characterized by a funny saying of the ECB chief economist Praet – he happily reported that “the slowdown rate of economic growth is declining”.
America. US GDP increased in the fourth quarter by 0.7% against the third quarter – the lion's share (0.5%) has fallen onto the increase of inventories. If you remove the statisticians’ jokes, then GDP will remain at the level of July-September, and per capita will fall by 0.2%. Even more glaring difference is in the annual dynamics: the officials trumpet of 1.7% growth in 2011 - and in fact, per capita GDP has fallen by exactly the same figure. Private demand falls - which is not surprising: real wages have fallen to the bottom of the early 1960s’. In December, there happened a surge of orders for durable goods – thanks to aircrafts (i.e. Boeing); net capital orders have finally fallen – but in general for October-December the growth is minimal (and taking into account real inflation there is no such). Leading indicators from the Conference Board are growing as always – but they have not met expectations; however, the Feds of Richmond and Kansas City have pleased, noting the increased activity in the regions. According to RealtyTrac, in July-September, the share of foreclosed housing in the total volume of sales was 20% - wile its price was on average one and a half times lower than of the “normal” houses. Pending sales of secondary houses fell in December – as well as the sales of developments: the latter are also in the red again in annual dynamics (-7.3%) – in the meantime, it is the weakness of the housing market that the Fed thinks to be the main obstacle to economic growth. Applications for unemployment benefits continue holidays jerking; consumer sentiments are ranging around nasty figures; the Canadian retail has slowed down – but sales at the US stores after the new year are going from bad to worse.
Source: U.S. Bureau of Economic Analysis, an independent evaluation
Russia. Rosstat report for December demonstrates feverish efforts to drive the reality into the channels of numbers assigned by the bosses – successfully, of course. However, industrial production rose by only 2.5% versus the same month of 2010 – lowest growth since October 2009; the same in the manufacturing sector (+3.3%, half of that came in cars). In agriculture, the base effect of hot 2010 has disappeared – annual growth shrank to 3.8% (in October and November it was around 40%); logging declined by 5.9%. Construction grew by 6.7% (for the whole year – by 5.1%), construction developments – by 12.8% (by 6.6% y/y). Sudden surge in traffic turnover was noted – railways’ growth reached 12.2% against December 2010, though in November it was only 1.9%. Retail swelled by 9.5% (for the whole year – by 7.2%), paid services – by 2.2%; real per capita income jumped by 6.3%, real wages and salaries - 4.9%, unemployment fell and inflation disappeared – all this reminiscent anecdote “I want the Soviet Union”. According to our estimates, in December GDP rose by 3.5-4.0% y/y, in the fourth quarter – by 1.5%, in 2011 as a whole – by 2.5%; officialdom will show something like 6%, 4% and 5% respectively. By the way, Rosstat was going to include bonded rents into the GDP (as in the USA) – only this will inflate the figure by 10%: comrades go the right way!
Kremlin shocked the regional authorities with a demand to hold fair election – but when Yavlinsky was “honestly” removed from the ballot and opposition march banned, the locals relaxed. They are pleased by Medvedev, who said the last Duma campaign were “the purest elections in Russian history”: President has a rare ability to “cast in granite” abstracts of “universal scale and universal stupidity”. Naive youngsters of Barnaul wanted to fool the law by arranging nano-rallies – those were participated not by people, but toys: harsh authorities stated that the villains will be punished for “unauthorized assembly” (of toys?) Konigsberg athletes held a run – and were arrested by the police who suspected... a gay parade! Amid all this Putin’s staff complain of bullying. Putin has written an article on the national policy – as was found by bloggers (cursed tyrants!), a third of the text was copied from some book (written not by Putin), and the plagiarists could not even figure out the original text. Premier flew to the Kuznetsk Basin, hunted by the workers’ song, “Smile is good for the President’s face, as well as skiing and kimonos. Country, do not stop at the crossroads, it's better to have a fight tomorrow. Go forth, Vladimir Putin! And we will join you in the attack.” Nashi from St. Petersburg created a calendar with agitation on the idiots’ tongue (“I'm for Putin because he is a f**king man”); Nizhny Novgorod’s Mother Photina (criminal) saw the reincarnation of Prince Vladimir in the PM and showed the myrrh-streaming icon of Putin the miracle-worker. Kazakhstan is even better – the top dog was pictured on the wall of the cathedral greeting the approaching Jesus. It is time! Time to write the dithyrambs to the new saints of the new times!
Illustration: Artem Popov
Have a nice week!
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