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JULY 2012: GLOBAL MACRO TIPPING POINT - (Subscription Plan III

COMING UNGLUED: Market Fragility and Credit Market risk indicators are now at post-Lehman levels.

Global Economic Risks have taken a noticeable and abrupt turn downward over the last 30 days. Deterioration in Credit Default Swaps, Money Supply and many of our Macro Analytics metrics suggest the global economic condition is at a Tipping Point. Urgent and significant actions must be taken by global leaders and central banks to reduce growing credit stresses.

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JULY 2012: MONTHLY MARKET COMMENTARY (Subscription Plan II)

MORAL METASTASIS : Malfeasance, Manipulation & Malpractice - Metastasis is the spread of a disease from one organ or part to another non-adjacent organ or part. Cancer occurs after a single cell in a tissue is progressively genetically damaged to produce a cancer stem cell possessing a malignant phenotype. These cancer stem cells are able to undergo uncontrolled abnormal mitosis, which serves to increase the total number of cancer cells at that location. The moral fiber of our society is going through this same process as it breaks down, spreads and metastasis. We are presently in the process of Moral Metastasis that will prove fatal if not immediately operated on and surgically removed. Sadly, however it has gone undetected too long and the damage it has caused is now irreparable. MORE>>

MARKET ANALYTICS & TECHNO-FUNDAMENTAL ANALYSIS

JULY 2012: MARKET ANALYTICS & TECHNICAL ANALYSIS - (Subscription Plan IV)

The market action since March 2009 is a bear market counter rally that has completed a classic ending diagonal pattern. The Bear Market which started in 2000 will resume in full force when the current "ROUNDED TOP" is completed. We presently are in the midst of of a "ROLLING TOP" across all Global Markets. We are seeing broad based weakening analytics and cascading warning signals. This behavior is typically seen during major tops.  This is all part of a final topping formation and a long term right shoulder technical construction pattern.  - The "Peek Inside" shows the detailed coverage available this month.

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	PART I - Understanding FINANCIAL REPRESSION
	PART II - FINANCIAL REPRESSION in Europe
	PART III - FINANCIAL REPRESSION in the US & ASIA
	PART IV - Preparations for FINANCIAL REPRESSION

Password: macro

RISK: Systemic Problems Becoming both Obvious & Critical

Market-Top Economics 07-19-12 Zero Hedge

• As human-beings we have developed an uncanny ability to rationalize what we know to be bad news and convince ourselves, "This time is different," despite the fact that it usually never is.
• In a previous article I provided analysis on economic/equity decoupling (cognitive dissonance) and showed that the economy as we know it cannot persist--we are either due for a literal gap-up in leading economic conditions, or we are due for a serious correction in US equities. With today's 5.4% slip in existing home-sales, let's go with the latter.
• Velocity of M2 Money Stock (blue) and the S&P500 (red): Inversion in the velocity & SPX correlation led to a market crash in 2000 and 2007. No evidence suggests that we should break that trend this time.

Market tops are classically defined by:

1. The revelation of fraud within the financial sector
2. The collapse of financial institutions under their own weight
3. Sweeping revenue loss within the financial sector
4. The erection of massive buildings.

Where there is smoke, there is fire; where there is coordinated financial fraud, there are systemic issues. In this case, it seems that the banks involved in LIBOR rigging were attempting to manipulate short-term interest rates in order to literally engineer the price of derivatives contracts. This is a scary notion, and I believe that it is apt to infer that these banks have trillions in losses on shadow derivative contracts that they have been attempting to cover up with interest rate manipulation.

US RECESSION: Signs Becoming Overwhelming

The Evidence Of A Coming Recession Is Overwhelming 07-20-12 Comstock Partners

We first noticed the first signs that the economy was beginning to soften about three months ago. Now the evidence of a slowdown has become so overwhelming that it is difficult to avoid the conclusion that we are headed for a recession. We cite the following as evidence.

• RETAIL sales (both total and non-auto) have dropped for three consecutive months. This has happened only five times since 1967----four times in 2008, and one now. Vehicle sales have tapered off with May and June being the two weakest months of the year.
• CONFIDENCE: Consumer confidence for both the Conference Board index and the University of Michigan Survey are at their lowest levels of 2012. The small business confidence index declined in June to its lowest level since October and has now dropped in three of the last four months. Plans for capital spending and new hiring have dropped sharply.
• JOBS: On the labor front, June payroll numbers were weak once again and averaged only 75,000 in the second quarter. The latest weekly new claims for unemployment insurance jumped back up to 386,000 and the last two months have been well above the numbers seen earlier in the year.
• MANUFACTURING: The ISM manufacturing index for June fell 3.8 points to 49.7, its first sub-50 reading in the economic recovery. Most recently the Philadelphia Fed Survey for July was negative (below zero) for the third consecutive month.
• Core factory orders, while volatile on a month-to-month basis, have declined 2.6% since year-end, and the ISM numbers indicate the weakness is likely to continue.
• SERVICES: The ISM non-manufacturing index for June dropped to its lowest level since January 2010.
• HOUSING: Despite all of the talk about a housing bottom, June existing home sales fell 5.4% to its lowest level since the fall of last year. In addition mortgage applications for home purchases have been range-bound since October.
• LEI The Conference Board Index of leading indicators has declined for two of the last three months and is now up only 1.4% over a year earlier, the lowest since November of 2009, when it was climbing from recessionary numbers. The ECRI Weekly Leading Index is indicating a recession is either here now or will begin in the next few months.

REGIONAL

• GLOBAL: The breadth and depth of the slowdown are greater than the growth pauses experienced in mid-2010 and mid-2011, and indicate a strong likelihood of recession ahead.
• EU: In addition the foreign economies will be a drag as well. A number of European nations are already in recession and others are on the cusp. The debt, deficit and balance sheet problems of the EU's southern tier are a long way from any solution, and will not remain out of the news for long.
• CHINA is coming down from a major real estate and credit boom, and is not likely to avoid a hard landing. The Shanghai Composite is in a major downtrend, declining 28% since April 2011. The view that China is immune because of their unique economic system reminds us of what people were saying about Japan in 1989.

The stock market is ignoring these fundamentals as it did in early 2000 and late 2007 in the belief that the Fed can pull another rabbit out its hat. It couldn't do it in 2000 or 2007 when it had plenty of weapons at its disposal. Now there is little that the Fed can do, although it will try since it will not get any help, as Senator Schumer so aptly pointed out at Bernanke's Senate testimony. In sum, we believe that the stock market is in store for a huge disappointment.

EARNINGS: Unit Revenues Must Fall Based Falling GDP & Inflation

Are Analysts' Revenue Estimates Signaling A Recession? 07-20-12 Zero Hedge

If inflation is running around 2%, a 1% increase in revenues means a negative 1% growth rate for units sold, assuming constant mix.

1. On average, the Street expects the 30 companies of the Dow to post only 1.0-1.5% year-over-year top line growth for Q3 2012, down from the 3.0-3.7% expectations it had baked into its financial models just 60 days ago.
2. Also, these analysts now peg Q4 2012 at 3.9% growth, but those numbers are falling quickly
3. Analysts are reducing their revenue expectations across the board – only 3 of the Dow 30 companies saw increased expectations for Q3 2012 revenues in the past 30 days, with a similarly dismal count for Q4 2012 expectations.

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Analysts started off 2012 thinking that Q3 and Q4 would average about 4-6% revenue growth for the Dow companies. By April, they began to grow a bit concerned, nibbling away at Q3 revenue estimates but leaving Q4 numbers largely unchanged. In May and June they started to ratchet back expectations more aggressively, to something more like 2-3% for Q3 and 4-5% for the final quarter of the year.

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1. For the third quarter of 2012, the analysts that cover the Dow stocks expect to see only 1.0 – 1.5% year-on-year top line growth for the overall index and the non-financial names, respectively. That will be the worst comparison since the Financial Crisis, and show sequential deceleration/stagnancy from Q2 2012’s expected 3.2% comp overall and 1.5% comparison for the non-financial names.
2. Analysts are still holding out some hope for Q4, but I can tell you from years of experience doing such models that this is probably because they do not want to reduce their full-year earnings estimates just yet.
3. What is also notable is that the cuts in expectations over the past 30 days have been widespread. Analysts are only marginally more bullish on 3 names of the Dow 30 for the back half of the year, and the increases in revenue growth here is miniscule.

CONVULUTED THINKING: When corporations feel the pinch from a slower economy, they lay off workers. When they lay off workers, the Fed executes on its dual mandate and increases liquidity. And when the Fed increases liquidity, stocks go up.

EARNINGS: Abysmal Earnings Season

The Abysmal Earnings Season Explained In Two Charts 07-21-12 Zero Hedge

The following two charts show just why any hopes that corporate earnings can mask the US economic deterioration this year, as they did in 2011 (probably the first and only way in which 2012 is not a carbon copy of 2011 so far), should be promptly dashed.

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Basically revenue growth is abysmal. But no surprise there - after all we have been warning for nearly a year that with the Fed intervening directly in corporation cash allocation decisions (via ZIRP), management teams are much more eager to hand out retained earnings in the form of dividends than reinvest via CapEx - an extremely short-sighted strategy and one that backfires immediately with cash-generating assets around the world already at record old age. (for more read: "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement").

And with revenue growth absent, EPS can only grow if corporations cut even deeper into the muscle and let even more workers off, since employee pay is already abnormally low and can not realistically be cut any more. Sure enough, ex-financials, Year over Year EPS growth is now at 0% for the first time since the Lehman collapse!

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In other words, corporations have already extracted all the growth they could courtesy of ZIRP.

It is all downhill from here, as only the negative consequences of the Fed's disastrous policies now predominate in finance and the economy.

As an appendix, here is a full summary of the earnings season to date:

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