EM's BoP Nightmares

As the world slows down and the lack of growth in Global Trade remains... idling productive capacity that needs to be paid off...

Now consider how much FX reserves non-DM guys have and what most of their growth models are based on.... and then match that with very loose monetary policies in the US, Eurozone, Japan.. and lack of global inflation to keep cash flows stable in order to pay all the global debt pile.

Here is the nightmare of Chinas, Brazils, Koreas, Taiwans, Mexicos, etc... basically mercantilists, exporters.

The depreciation of the Yen and the improving current account in the US and Europe is just starting to hit non-DM Balance of Payments, etc.

Now add that a lot of their corporations have recently issued debt in USD, as an example, as yields were lower than homeland's.

Who will consume?

Payback time.

US: quarterly figures for the Current Account / monthly figures for Trade Balance
1995 = USD strong / JPY weak = start of deterioration in East Asian exports and we know 1997.
Now.....???

Eurozone: monthly figures for Current Account.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

US: FC versus LT = Will QE Win?

Fiscal Contraction x Liquidity Trap = Will QE Win?


So months ago I spent some time coming up with a fantastic theory, based on readings of Crazy Krugman and Mad Koo. Basically they're the guys who love the fiscal impulse and have studied the almighty Balance Sheet Recessions, Liquidity Traps and Deleveraging What-Nots.

The broad thesis, without going into detail again, was that the US was to follow, to some degree, the paths of Europe and the UK: even though monetary easing was going on, fiscal austerity was the real magic bullet that killed growth while the private sector reduce leverage.

The US was just, through the end of 2012 and beginning of 2013, accelerating its marginal fiscal contraction and therefore would repeat the recent economic performance of EZ and UK.

The main difference, I think, is that since the US had spent more time under severe fiscal stimulus, giving its private sector more time to delever, through grand QE programs, then the economic underperformance might not be so large. We'll see.

Below I'll present some interesting charts and perhaps discuss a little. It is a holiday and I should be out doing something, perhaps at a bar here in Rio.

This is basically a chart stating that despite the fabulous strength of the S&P500 index, usually used as a leading indicator to growth, its Net Income, in USD terms, has been trending down for some time now.

Now for the Russell 2000 Small Caps, which is a large group of smaller companies that shouldn't have the same economy of scale as large and mega caps, etc, the picture is about the same:

So important drivers of growth in the US right now are 1/ Housing and 2/ Autos. Here's from the latest Consumer Confidence report which was actually very good. Basically Home Buying Intentions are stable, while Auto Buying Intentions have been trending lower.

Here is the NAHB (Home Builders Association) Indexes too and MBA Purchase Index. These are the generators of jobs in Construction. I don't know how a slowdown in Prospective Buers lower works with Future Sales, but... we'll see.

MBA Weekly Purchase Index (3 month change of 3-week moving average and raw weekly number):

And now the just released Total and Domestic Vehicle Sales #s:
// Total = lowest in 6 months.
// Domestic = same

I've read that Small Business actually do the heavy lifting in recovering jobs. If you count on the NFIB Hiring Plans and Outlook for General Business Conditions.... doesn't look too good. Back to multi-year lows.

Retail Sales:

Redbook Same Store Sales, 52-week change of 3-week moving average:

Manufacturing Production (not using Industrial Production due to the disparity in March of it due to Utilities, shown below, spike during a very, very cold month of March x average):

Considering the US went through one of the coldest months of March in history, bringing electricity generation upwards due to heating demand, here is what we have now for Electricity Generation... which also uses a lot of Heating Oil (distillates):

Now this is Crude Products Consumption (DOE data) ex-Distillates and considering Distillates and only Motor Gasoline:

On the Employment front... decelerating Non Farm Payrolls:

Household Survey:

And a very low Diffusion Index, showing that the number of sectors hiring is decreasing:

And recent spike in Average Duration of Unemployment:

Core Capital Goods Orders and Shipments:

Some what people call Leading Indicators:

Some good stuff or random stuff or bad stuff now.

Architecture Billing Index:

Railroad Carloads ex-Coal (due to weather impacting it) and ex-Grains (depends on harvest). Idea here is get manufacturing/overall consumer goods or capital goods shipment:

ATA Truck Tonnage:

Long Beach + Los Angeles Inbound Containers, YoY 3mo mov avg:

ICSC Chain-Store Sales, weekly looks good (despite the 52-week net-change of weekly moving average) is still decelerating)

I'm tired. I'm outta here.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com