Saturday, August 13, 2011


Here is how Miller Tabak's Peter Boockvar summarized the important and multiple macroeconmic events of this momentous week:

The Positives

1. ECB to the rescue, Italian and Spanish yields fall 100-plus basis points;

2. initial jobless claims fall below 400,000 after 16 weeks above, four-week average drops to lowest since mid-April;

3. July retail sales better than expected and June revised up;

4. refi apps rise 30.4% to most since November as 30-year mortgage rate goes to average of 4.37%;

5. for asset prices at least, Bernanke put last summer was at 1050 in S&P, now its 1120, S&P down less than 2% on week.

The Negatives

1. U.S. embarrassingly loses AAA rating (last Friday night);

2. Bernanke adds another step to his central planning ("do nothing" is not in his vocabulary, with the deeper he gets, how the heck does he think he's going to reverse this smoothly?);

3. health of European banking system called into question, access to funding a real risk, excessive leverage and sovereign holdings to blame, euro basis swap spikes to most since December 2008;

4. University of Michigan confidence falls to 31-year low spurred by events of last two weeks;

5. U.S. trade deficit $5 billion higher than expected as exports fall, may trim second-quarter GDP by up to 0.4%;

6. NFIB small biz index falls to lowest since September;

7. Business inventories rise only 0.3%, GDP drag but companies lean;

8. Second-quarter GDP in France flat quarter over quarter, Hong Kong GDP down 0.5% quarter over quarter, Greece GDP lower by 6.8% year over year;

9. China CPI up 6.5% and bank loans, IP, retail sales, M2 all rise below estimates.

The only companies seeing relatively firm order books are those that serve the Asian and emerging markets.

But even those companies are not expansive -- as measured by hirings or capital spending.

The jobs outlook, confidence and economic growth are eroding far worse than most investors have expected.

Today's plunge in the University of Michigan Confidence Index portends (in the absence of a bona fide move toward pro-growth fiscal initiatives by our leaders) a worsening jobs market, which could result in even more modest gains than already reduced consensus expectations.

With top-line growth under renewed pressure, austerity and spending cuts (here and abroad), the continued tail risk (of deleveraging) from the last cycle is an exclamation point to structural unemployment.

This is not a setting in which corporations are likely to expand their workforce; it is a setting in which corporations are likely to try to preserve their margins and profitability by holding on to all costs (including wages).

Here are two vivid examples of concern on the labor front:

1. The deterioration in the outlook for financial institutions is seen in HSBC's decision to lay off as many as 30,000 jobs.

2. Our country's fiscal imbalances are manifested in the U.S. Postal Service's decision to shed 120,000 jobs.

I continue to be of the view that we have hit a market bottom for the year, but upside market expectations should recognize the risks posed by weaker-than-expected employment figures (among other factors).

The Michigan consumer sentiment number was off-the-charts awful and helps to explain why we should not look at rearview economic numbers like this morning's good retail read as indicative of future results!

Four European countries are banning the short-selling of stocks in their markets to try to halt the precipitous plunge in value of troubled European banks, a step that some experts say could intensify fears and ratchet up risks of another financial crisis.

Belgium, France, Italy and Spain have decided to impose a temporary ban on short-selling, beginning on Friday, according to a statement from the European Securities and Markets Authority released Thursday evening, after markets had closed....

The ban on short-selling carries echoes of the 2008 financial crisis, when the Securities and Exchange Commission temporarily banned short sales in the U.S., a move that resulted in a brief rally but ultimately did little to arrest the market's free fall....

In France and Spain, the ban on short sales will last for 15 days, and will only apply to stocks in the financial sector, according to the Globe and Mail. Belgium will ban short sales on four financial stocks for an unknown period of time. It was unclear which stocks the Italian ban would affect, or for how long it would be in place.

A spokesman for the U.K. Financial Services Authority told Bloomberg that Britain has no plans to ban short sales.

-- The Huffington Post, "Italy, France, Spain, Belgium Ban Short-Selling in Order to Protect Markets"

Yesterday the U.S. stock market rallied, in part, on the announcement that several countries in Europe were imposing a ban on selected short-selling. (This morning, there are rumors of an even broader short-selling ban in Europe.

A September 2008 short-selling ban in the U.S. failed miserably (as the market's drop actually accelerated after it was instituted) and will likely fail in Europe now.

Such short-selling bans smack of desperation; they are artificial, interfere with natural market forces and are anti-free market (though typically instituted by free-market policymakers). Bans are ineffective Band-Aids that often raise red flags, may result in investors selling their longs (as bans make them nervous) and reduce the cushion of potentially latent buying from short positions put on.

What should be clear in looking at the dismal U.S. and eurozone economic numbers in the first half of 2011 and in the falloff in confidence is that there is a pressing need for outside-the-box, creative, hard-hitting, thoughtful and pro-growth fiscal strategies. Our country needs (among other things) a series of Marshall Plans aimed at reviving the housing market (and denting the shadow inventory of unsold homes) and an aggressive fiscal strategy that will generate jobs growth. But, given the partisanship observed in the debt-ceiling and budget circus, how can investors be confident that these needs can be met, especially as we are closing in on the November 2012 elections?

Instead of hard-hitting solutions, we get short-selling bans.

It is almost laughable, but the poor state of our world's economic affairs makes it sad.

"We believe that to err is human. To blame it on someone else is politics."

-- Hubert Humphrey

"If they can get you asking the wrong questions, they don't have to worry about answers."

-- Thomas Pynchon, Gravity's Rainbow