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Spot The Odd (Unsustainable) Economic Indicator Out?

Presented for your viewing pleasure are ten of the most prescient indicators of the resilience of the consumer and his largest asset (liability) since the ‘supposed’ end of the recession. We thought the subtle hint at which of these trends is not like the others would help; but, just in case you missed it, it’s the part of the economy that is government-backed, subprime-funded, over-inventoried, and entirely channel-stuffed. Aside from all that, entirely sustainable, we are sure.



Charts: Barclays

US August Budget Deficit Soars To $192 Billion, $1.17 Trillion In Fiscal 2012

While the official number from the FMS is not out yet, according to an advance look by the CBO, the August deficit soared from a modest $70 billion to a whopping $192 billion, the highest August deficit in history, and coming at a time when traditionally the US Treasury does not generate substantial deficits. It also means that “that” $59 billion budget surplus in April, coming after 42 straight months of deficits, and which surprised so many, was just as we suspected, nothing but a play on the temporal mismatch between treasury receipts and outlays. Most importantly, with one month left in the fiscal year, a month which, too, will likely come well above last year’s $63 billion, the US has now spent $1.165 trillion more than it has received via various taxes. Finally so much for the year over year improvement: at $1.23 trillion deficit in the LTM period, this is only 3.2% less than the August 2011 LTM deficit which was $1.27 trillion, despite nearly 2 million more workers employed (at least according to the BLS) and generating tax revenue. Expect the US to end Fiscal 2012 with a total deficit of well over $1.2 trillion, which in turn means that the average burn rate of $100 billion in new debt issuance each month, will continue into the indefinite future.

As a reminder…

Do You Believe In P/E Miracles?

Since The Dreme (Draghi Scheme) began shortly after the EU Summit, the P/E multiple on the S&P 500 has risen by a faith-defining 2x. This is the largest three-month rise in this indicator-of-indifference-to-reality since the initial burst rally off the March 2009 lows. Meanwhile, the actual earnings consensus is being marked down further, heading for an earnings recession as we pointed out last week. It seems investors are too afraid not to believe in P/E miracles or perhaps it is just faith that central banks have it all under control and their ‘promises’ are as good-as-gold.

The S&P 500 seems ‘managed’ to a certain level – no matter what that means for EPS or P/E multiples, the spice must flow market must rise… (a 2x multiple increase since Draghi’s initial utterances post EU Summit


As if the divergence was not enough, the 3 month rise in the S&P’s P/E ratio (lower pane) is its highest since the initial V-bottom recovery in 2009…


Charts: Bloomberg and JPMorgan

The French Government Gets Whacked, Even The Left Is Angry, And Hollande Gets Slapped In The Face

Wolf Richter

France is mired in a stagnating economy. The private sector is under pressure, auto manufacturing is heading into a depression. Unemployment hit a 13-year high of 10.2%, leaving over 3 million people out of work. Youth unemployment of 22.7%, bad as it is, belies the catastrophic jobs situation for young people in ghetto-like enclaves, such as the northern suburbs of Paris. The “solution”—fabricating 150,000 jobs for the young at taxpayers’ expense—has been tried before, with little success. Gasoline and diesel prices are hovering near record highs. So there are a lot of very unhappy campers.

In a BVA poll, 55% of the respondents were dissatisfied with President Fran├žois Hollande’s efforts to tackle the economic crisis. By comparison, only 31% were dissatisfied with Nicolas Sarkozy in 2007 at the end of his honeymoon. Devastatingly, for a socialist: 57% believed that he didn’t distribute the “efforts” equitably—same as Sarkozy, the president of the rich.

The problem with voters is Hollande’s “inaction,” after some initial half-measures, such as the partial reinstatement of retirement at 60 and raising back-to-school aid for families. Now people “seriously doubt his ability to change things.” They believe that the government spends its time trying to “unravel Sarkozy’s legacy” and “sitting around in meetings,” rather than making decisions.

In an OpinionWay poll, satisfaction with the job Hollande is doing crashed a vertigo-inducing 14 points from 60% in July to 46% in September—compared to the 64% satisfaction score voters heaped on Sarkozy in 2007. And 58% believed Hollande, after four months in office, is already going “in the wrong direction.”

People have the “strange impression” that the government is “only now becoming aware of the crisis,” and they’re worried that the government lacks “clear vision” and “a war plan” to combat it, said Bruno Jeanbart, deputy general director of OpinionWay. Anxiety is engulfing the middle class, and it pummeled Hollande with a 19-point drop in the satisfaction score. During his campaign he’d promised that he’d demand “efforts” from the rich and from large corporations, but now the middle class fears that it will be asked to step up to the plate and pay even more in taxes.

It gets worse. Only 34% are confident that Hollande can tackle the unemployment fiasco, 33% are confident that he can control budget deficits, and 29% believe that he can maintain purchasing power (a formula based on inflation and a slew of other factors, such as social payments). Prime Minister Jean-Marc Ayrault got knocked down by 13 points to 46%. Luckily for Hollande and his ilk, the entire classe politique, including the opposition, got hammered, and even right-wing Marine LePen was knocked down 10 points to 21%.

To turn things around, Hollande addressed the nation on Sunday night TV (TF1) … and lowered growth expectations for 2012 from the already measly 1.2% to 0.8%. To keep the deficit in line, he’d have to come up with €33 billion in new measures. He’d “save” €10 billion in public service—though he’d already committed to hiring more civil servants for education, law enforcement, and the decrepit justice system. Deep unnamed cuts would have to be made elsewhere. A mystery, because the resulting strikes would paralyze France for weeks.

And he outlined tax measures, some of which he’d already proposed during his campaign, to extract another €20 billion from households and businesses—the 75% top income tax bracket among them. Once again, he emphasized to his incredulous middle-class compatriots that these taxes would hit only the largest corporations and richest households.

Hence the explosive impact of the “affaire Arnault,” as it has come to be called. Bernard Arnault, richest man in France, fourth richest man in the world, top honcho at luxury retailer LVMH, and close associate of Sarkozy, has applied for Belgian citizenship.

France gasped. Liberation ran a front-page article, “Hit the Road, Rich Idiot.” It lambasted him for his tax-avoidance strategy and called him a “deserter.” Arnault decided to sue the paper. Economy Minister Pierre Moscovici said on BFMTV that he was “shocked” and called for renegotiation of the tax treaties with Belgium, Luxembourg, and Switzerland (unlike Americans, who are taxed on their worldwide income, French citizens are not taxed in France if they don’t live there).

In November 2011, Arnault called Armand De Decker, the mayor of Uccle, a swank French-speaking community in the Region of Brussels, to let him know that he’d buy a residence there and apply for citizenship. Arnault had explained to him that his decision was based on the current tax climate in France—”If certain tax measures are implemented,” De Decker said, “that would mean for him that the taxes he’d pay would exceed his income.”

But Brussels isn’t a hot tax haven—we used to live there, and there are lots of reasons to live in Brussels, but you pay taxes out of your nose for almost everything. Yet it’s 1 hour 22 minutes by train from Paris; and there are some tax advantages over France, including inheritance taxes. Hence, the dominant group of the many French escapees, the 45-60 year-olds, want to protect their moderate fortunes. But the super-rich tend to go elsewhere. If nothing else, Arnault’s move is a deft slap in Hollande’s face.

And here is an excellent piece by Blankfiend: as the Eurozone careens down the path of its fate….. The European Central Bank Thumbs Its Nose At The Law.

The Zero Hedge Daily Round Up #123 – 10/09/2012

My computer has had some sort of major technical error every day since posting on Zero Hedge, always just before releasing another episode. Today’s mayhem is inclusive of my screen turning off indefinitely, whenever a video file is openned. Plus the image in the video editor decided to turn the brightness and contrast to a merry ‘zero’. How excellent. This bastard was ready well before 8pm. Now it’s 8:40pm. The same goes for every other episode.

It doesn’t help that I’m atheist. “Comedy and finance is a great fit”, they said. I should’ve simply allowed the preist molest me as a child and go on to reap the future benefits of being delusional and old. I think they call it wisdom, although my psychiatrist doesn’t know. He’s not Jewish. 

Maybe I wouldn’t be left with this appaling premise… gee, I feel like Letterman. The punchline is obscured be my arrogance and lame outlook on the typical global citizen. Any moment now… I think I see a predator drone overhead. This is the Zero Hedge Daily Round Up.

1. Obama executive order for cybersecurity. 2. Employment free 2016. 3. FBI arrest mayor of Trenton. 4. 51% admit they’re American consumers. 5. Baltic dry index dries up. 6. Chevy volt stalls indefinitely. 7. 54% Germans ‘nein’ to ESM. 8. College degree burden. 9. $1 trillion of TARGET2 south extortion. 10. A statistic. 11. Extended last minute bulletin.

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Julius Reade

PS: Or for those paranoid about the government: