Well Slope-a-Dopes, I am feeling the heat, as many of my favorite Bears on SOH have expressed their disdain for my new found bullish stance ever since EP 63.0 (Rain Delay EURO Tarp) three Sunday's ago. Let me assure all of you grizzly groaners that I'm only renting this inflamed bleeding bull. My evil plan is to ride this bucking beast right up to the gates of hell, at which point I will fly off the saddle right back into the welcoming arms of cool hand Luke, our beloved papa bear Tim Knight.
Just as the smoldering global economic data timbers were about to smoke out the fading stimulus fires, it seems the engulfing blaze of hell on earth has been intensely reignited. Once again, an insane arson inferno has been set & stoked by the underworld's Central Bank Lucifers, and their Princes of Darkness Heads of State.
Behold the burning flames:
Flame #1: Chinese fire works display. China cut its lending rate by a quarter percentage point on Thursday to 6.31 percent for the first time since 2008 in order to reinvigorate growth in its cooling economy. On Friday, China also cut state-set gasoline and diesel prices for the second time in a month, amid mounting government efforts to reverse a slowdown in the world's second-largest economy. Beijing is unveiling new measures almost daily to shore up growth. It plans to pump money into the economy through more spending on construction of airports and other public works and to encourage corporate investment as well.
The New York Times reports as follows:
BEIJING — Spooked by a sharply slowing economy, China's leaders have begun opening the financial spigots to build still more roads and airports and subsidize consumer purchases, reprising measures that enabled the nation to sail mostly unscathed through the last great global recession.
The National Development and Reform Commission, the state body that executes economic strategy, has approved scores of major new infrastructure projects since the start of April, including clean-energy ventures like hydropower stations, four new airports and three renovations or expansions of big steel mills.
That follows accelerated approvals this year for at least two other airports and a subway in Nanjing. And that does not count new projects announced by local governments, apparently with Beijing’s blessing, including highways, sewage treatment plants and a 350 billion renminbi, or $55 billion, investment by state corporations in the Chongqing municipality in south-central China.
Beyond bricks and mortar, the government appears to be reviving a cash-for-clunkers program that spurred automobile sales during the last recession, offering hefty subsidies to those who buy new small cars and perhaps buses, trucks and farm vehicles. Some reports suggest the cash incentives will extend to home appliances, similar to another 2009 program.
Over the weekend it was reported that China’s consumer prices rose the least in two years in May and industrial output and retail sales trailed estimates. This will only add to the calls for more stimulus measures, especially with reduced concerns for further stoking inflation, which slowed to 3 percent from a year earlier, the National Bureau of Statistics reported, compared with the 3.2 percent median forecast in a Bloomberg News survey. Production increased 9.6 percent, lower than a projected 9.8 percent gain, and retail sales increased 13.8 percent, the Beijing-based bureau said in separate statements. Retail sales of 13.8% were below the consensus estimates of 14.3%, but not the disaster many were predicting.
On a much brighter note, it was reported by the China Association of Automobile Manufacturers on Saturday, that auto sales in May were up 23% from a year earlier, to 1.28 million vehicles. That's quite an improvement over April's 13% pace, which was itself an encouraging reversal from the decline in the first quarter, when sales were down 1.3% from a year earlier.
Flame #2: USA QE after burners ignite. It's an election year, and make no mistake, Benny Big Bucks has got Obama's back. Faced with a weakening job market, many economists have turned more pessimistic and no longer think U.S. economic growth will accelerate later this year. Friday's surprisingly bleak jobs report for May followed a slew of weak U.S. economic data last week. Manufacturing activity slowed, an index of home contracts fell and consumer confidence tumbled.
From the Associated Press:
Julia Coronado, an economist at BNP in New York, said she now expects growth of 2.2 percent this year, down from her previous forecast of 2.4 percent. She also revised down her estimate of growth in the April-June quarter to a 2.2 percent annual rate, from a 2.5 percent rate.
"We keep hoping that we're going to turn a corner and move into a stronger phase of recovery, and the door keeps getting slammed shut," Coronado said.
After the jobs report Friday, JPM sharply reduced its growth forecast for the July-September quarter to a 2 percent annual rate, down from 3 percent. It cited the weaker U.S. hiring and a likely drop in U.S. exports related to slower growth overseas.
This clearly opens the door for further easing from our loosey ducey FED. Janet Joan Jett to the rescue! In a speech delivered to the Boston Economics Club Wednesday night, Janet Yellen, vice chairwoman of the Federal Reserve’s board of governors, intimated that the Fed should hold its key short-term interest rate near zero and buy US Treasuries. The demented objective is to further lower long-term rates, such as those for mortgages, so as to encourage consumer and business spending to boost the US economy. QE3 to you!
The following two slides from her presentation say it all:
If you are keen on reading her entire boring Boston speech have at it:
Flame #3: EU turbo growth fuel injections. EP 63.0 (Rain Delay EURO Tarp) described at length much of what was to come, which has now formally been announced over the weekend. Europe has clearly taken a page out of Tiny Tim's Tarp play book, and is now set to inject over $100 billion to re-capitalize Spain's ailing banking system. Apparently the hot shot European finance ministers pulled off some slick financial engineering, by which the loaned capital will not compromise Spain's ability to raise future public funds through the private bond markets. No TROIKA shackles & chains for Spain.
As per Reuters this morning:
Conditions in the plan did not appear to add to the austerity measures and structural economic reforms which Rajoy's government has already put in place.
"Since the funds being asked for are to attend to financial sector needs, the conditionality, as agreed in the Eurogroup meeting, will be specifically for the financial sector," de Guindos said.
The Eurogroup said the funds could come from either from the euro zone's temporary rescue fund, the EFSF, or the permanent mechanism, the ESM, which is due to start next month. Finland said that if money came from the EFSF, it would want collateral.
EU sources said there was a preference to channel money to Spain through the ESM, rather than the EFSF. Under the ESM, an approval rate of 90 percent or less is needed to trigger aid, and the fund also has more flexibility in how it operates.
"That's why it's so important that the ESM … be ratified quickly," German Finance Minister Wolfgang Schaeuble said.
As far as further EU growth stimulus goes, we can thank my country's new socilaist leader for lighting that self striking match. Italian Prime Minister Mario Monti, German Chancellor Angela Merkel and French President Francois Hollande were among the European Union leaders discussing further growth initiatives at the Brussels EC dinner late last month. An EU growth compact is being formulated as we speak, what it is, is not exactly clear. Have no fear Obama is here. You can have your birthday cake, and eat the burning candles too. Red hot short term spending combined with ice cold long term budget reforms will do the trick, that's the brilliant advice from the POTUS with the mostess.
From the Associated Press & Reuters:
(AP) – Along with a specific recommendation that Europe inject much-needed money into its banking system, he said European leaders must focus on economic growth and job creation, not just "cutting and cutting and cutting" spending to deal with debt problems. That's the same point he's trying to make to Congress — and to voters — back home.
(Reuters) – Germany may come under pressure from the Group of 20 major economies to step up spending as the bloc looks to encourage stronger economies to return to stimulus mode in support of global growth, a G20 official in Asia told Reuters on Tuesday.
The official, speaking on condition of anonymity because he was not authorized to speak publicly on G20 discussions, stressed Germany's responsibility as the economic engine of the troubled EU, but he also cited Canada as another nation with the "fiscal capability" to step up spending.
So far the growth initiatives which have been agreed to, will involve some type of Economic development bonds issued by the EIB (European Investment Bank). Unlike out right EURO bonds, these so called "project bonds" are more palatable to the tight fisted Germans for now.
The follow excerpt from an article in EUROPOLITICS elaborates:
Project bonds are being discussed more and more often at EU summits and MEPs have just approved the agreement worked out between the European Commission and the member states, on 22 May, for a modest start: the creation of a fund of €230 million from the EU budget to guarantee debt issue by private companies specialised in infrastructures. The idea was raised by European Commission President José Manuel Barroso in his 2010 ‘State of the Union’ address and his ‘Europe 2020 project bonds’ initiative provides for the organisation, by July 2012, of a pilot phase for 2012-2013, ahead of the EU’s multiannual financial framework 2014-2020 and implementation of the Connecting Europe Facility.
The trailblazing path towards a complete fiscal EU may not be here yet, but it is heating up!
Flame #4: The BRICS turn up the heat. Brazil's central bank announced last week that it would continue cutting its benchmark interest rate as domestic inflation falls, pushing the envelope on record low rates in an attempt to kick-start Latin America's most powerful economy.
As per Reuters:
"The Copom considers that at this time the risks for the trajectory of inflation remains limited," the minutes said. "The committee notes that, given the fragility of the global economy, the impact of the external sector has been disinflationary."
The Copom also reiterated that the domestic economy outlook remains favorable for this and the coming quarters. It also said that a reversal in 12-month inflation readings will lead to easing expectations of consumer price increases by market participants.
"The central bank is leaving the door open for more rate cuts, but is somewhat dependent on future data," said Alberto Ramos, head of Latin America economic research for Goldman Sachs. "If the external scenario deteriorates and domestic economic conditions remain weak, the committee might extend the easing cycle further."
India has also fired up the slum dog millionaires. PM Manmohan Singh recently pledged one trillion dollars in highways, ports and airports over five years. He wants to attract new investments and boost his support ahead of the 2014 parliamentary elections. He may not be able to get all his spending plans passed by the oposition in Parliment, but some significant infrastructure programs will get through.
As per ASIA NEWS:
Mumbai (AsiaNews/Agencies) – India will build new highways, ports, airports and other infrastructures to kick-start the country's economy. "In these difficult times, we must do everything possible to revive investment and business sentiment, both public and private," Prime Minister Manmohan Singh said.
So you see my fellow Dopes, the raging fires are being fueled once again. The firemen have the water pressure maxed out, don't get washed away by the fire hose.
Let the accelerants flow……Flick my Bic…..Evil Plan 67.0 is on fuego…..1360 here we come.
BDI SOH's Idiot Savant