Below the pretty up beat WF view of the weekly fundamentals. Or, at least, relative to where we seemed to heading just a few short months ago.
A few chart highlights I’ve taken from the report.
Firstly, as those following events closely already knew, the pmi across the world were indicating a great slow down in economic activity and they have upticked a little. Ie in Q4 2011 we were heading into a world wide double dip with Europe compounding things to the downside. Early December things where bleak indeed. The ECB’s massive liquidity injection and Fed, behind the scenes, balance sheet expansion, along with the Chinese’s policy of easing liquidity again has helped to turn pmi and asset markets around. From ‘failed moves come fast moves’ so those hedged covered and up we have gone.
On the horizon coming rapidly towards us are hopefully the twin events of the IMF expanding her SDRs by half a trillion $ and a QE3 program from Dr Ben Bernanke and possibly more easing from Europe. On the downside we have possible more European fudge to come (as it is surely endless this) and a war in Iran. Whether Obumer would desire a war pre the US elections is a tricky call to make. Historically premieres like wars as it usually leads to a surge in their popularity off a wave of jingostic sentiment but if he is to launch yet another American war he needs to start soon as he is running out of weather & pre-election runway. The time for invasions in the middle east is early spring. Lets see.
Secondly BOE and ECB policy meetings this week. WF is forecasting yet another QE program out of the UK. This is concerning as I’m net long sterling Sterling has been doing well recently vs the USD and Euro. I’d like to see this continue. Given the pmi up turn the uk should let the US and ECB and China take the strain. Lets hope King sits on his hands this month. If he doesn’t sterling will be debased and inflation will uptick again in the uk.
And on the subject of structurally weak economies needing more stimulus.. Spain!
Spain is a disaster at present. And whats worse the Spanish has lost faith in themselves. They only see more weakness ahead. Confidence is Spain is very low and their youth (with training and jobs typically) are starting to leave for jobs elsewhere.
http://www.emigrate.co.uk/news/20120127-1264_brain-drain-hits-spain
http://www.ft.com/intl/cms/s/0/f6042f74-f5b1-11e0-be8c-00144feab49a.html
Its desperate stuff I’m afraid. Unemployment is surging and real ‘absolute’ can be seen on the streets every day now reminding me of the late 1970s early 1980s, UK.
Public sector debt is still relatively low but more government programs are certainly not what Spain needs. Using the relatively low public sector debt to slash corporate taxes and private taxes would be a wonderful step forward. The Spanish should steal a leaf from the Irish’s tiger economic plan (ex housing). Make Spain a friendly low tax place to do business.
Instead what do we find? (See below). Spain is one of the most expensive places to pay corporate tax. Only the US (although half US cos pay no tax as incorporated in Delaware!), Japan, Germany and France. Should Spain be priced on a par with the US, Japan, Germany and France? Do their populations have similar skill sets? Is Spain’s legal framework on a par with these other countries? Are her capital markets on a parr with these other nations? I leave the answers to you but i think for anyone with a reasonable grasp on reality Spain is pricing herself out of recieving inward investment. Its time her leaders woke up to this reality.
This is the only way Spain can change. Lower the minimum wage in Spain and reduce social security costs for employers. If deficits were used in this way to address the deep structural issues Spain faces everyone in the markets would cheer them. As it is cutting deficits without bring inward investment will destroy Spain’s banks and drive her youth away. As I live in Andorra and Spain I see what is occuring here and I must say I feel for the Spanish i really do though they have to help themselves before any external help can arrive. They must create an environment for private capital to enter Spain and they must do it quickly now.
Lastly, lets not forget the US food stamp reciepients. Thursday last week the latest food stamp participation nos were released for end November 2011. On the revised numbers, food stamp participation rose to a new all time record high. 46.3m Americans recieve food stamps now. Here the Bloomberg chart of Food Stamp useage which has not been updated yet to reflect the revised data.
This new record high set against stella equity market performance off the back of record corporate profits, many of which has surpassed 2007/2008 levels. The luxury end continues to boom year on year setting new highs for luxury sales from New York to London to Paris to Shanghai. All the money printing across the world is helping to enrich the few at the cost of the many. Its a classic mix that repeats over and over throughout history whenever money printing is deemed the solution to economic ills. The middle class are always destroyed and the rich always do very nicely. This time again is no different.
Without any more waffle here, finally, the WF weekly economic report:WF-weeklyeconomicdata030212
Have a great weekend all.
Rich
p.s. a final chart for you. Ive rebased the historic price data of end of year closing prices for the ft30 index (original pre ftse100), the uk inflation rate and gold. I rebased all the prices to 100 for 1970 and run them through until 1990. Lets not forget here that uk equities provided very large dividends well excess of today’s. Lets also not forget corporates balance sheets werent as strong in 1970 as they are today. In the 1970s the ft30 badly lagged the inflation rate. Money flowed into the commodities instead and particularly precious metals. The 80s weren’t a stella time for gold but even so she provided a good hedge to inflation if you got in early enough in the 70s.
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