from Phoenix Capital Research:
Last week I outlined the reason why we are very likely going over the fiscal cliff: there are little if any political incentives for the GOP or Dems to fix the problem; the best option politically is to let us go over the cliff and then offer targeted tax breaks in late 2013 early 2014 as part of their 2014 Congressional campaigns.
With that in mind, corporations are now rushing out special dividends to shareholders in an effort to beat the coming tax hikes on dividends.
Between Nov. 1 and Dec. 5, 349 companies moved up their dividends or paid special dividends, according to Silverblatt. That is higher than the 314 irregular dividends paid last year in all of November and December. Silverblatt expects the pace of early dividends to pick up if Washington keeps dawdling.
Many companies go beyond moving up ordinary payments. They are declaring special, one-time dividends to take advantage of the lower tax rate while it lasts.
This is a serious red flag for the US economy’s future: all of the capital being paid out to shareholders will not be going into corporate expansions or hiring. This, when taken along with the recent rush of capital into savings accounts ($150 billion was shifted into savings accounts following Obama’s re-election), indicates that big money is either going into hibernation or being paid out to shareholders.
In simple terms: none of these funds will be used to grow the US economy or create jobs. Which means the US economy will be taking an even sharper nose-dive than expected in 2013.
On the other side of the pond, the EU as a whole is in recession. However, recent data coming from Germany indicates things are going to be getting significantly worse.
Month over month, German industrial production fell 2.6% in October. It fell 1.3% the month before. This contraction has resulted in the Bundesbank lowering its 2013 GDP growth projection to just 0.4%.
The entire EU bailout process has been based on the notion that Germany will write the check to fund various bailouts/ interventions. If Germany enters a recession then politically it will be much harder for German politicians to push for additional aid to the rest of the EU.
Remember, Chancellor Angela Merkel is up for re-election next year. So she will be turning her attention increasingly towards her campaign. And running on the idea of more bailouts when the German economy is contracting is political suicide.
Thus, we have something of a capital freeze occurring in the US at the very same time that the primary pillar of EU stability (Germany) will very likely begin to pull back from providing additional aid (case in point, Greece is still waiting on receiving proposed aid from six months ago).
All of these items point towards what will be a particularly ugly 2013.
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In a perfect trifecta of disappointment, overnight we had reality reassert itself with a thud as first Japan reported weaker than expected GDP which contracted for a second consecutive quarter and which technically sent the country into yet another recession, merely the latest one in its 30 year deflationary collapse. And it isn’t about to get better: ” Analysts expect another quarter of contraction in the final three months of this year due to sluggish exports to China, keeping the Bank of Japan under pressure to loosen monetary policy as early as this month.” Of course, there is hope that the new, old PM, Abe will restore money trees and unicorns and get Japan to a 3% inflation target, without somehow destroying bank and insurance co balance sheets in the process, all of which are loaded to the gills with JGBs set to collapse should inflation truly return. Then after Japan, China reported miserable trade data, which flatly refuted all hopes of an economic pick up both in the mainland and across the world. As BusinessWeek reports “China’s exports rose 2.9 percent in November from a year earlier while imports were unchanged, leaving a trade surplus of $19.6 billion, the customs administration said today in Beijing. The growth in overseas shipments compares with the 9 percent median estimate of analysts in a Bloomberg News survey.” This was below the lowest forecast of the range ($21.9-$32.2) with an average expectation of a $26.9 billion surplus.
Perhaps the reason China can not openly fudge its trade data, unlike its GDP, inflation, retail sales, industrial production and all those other indicators that none other than the incoming head of government Li Keqiang said are for “reference only” (a fact conveniently ignored when they are all going up, and duly noted when China is self-reportedly sliding) because other countries report the counterparty data and it is very easy to catch China lying in this particular case. And finally there was Europe…
Ah Europe: the gift that keeps on giving. Just when everyone thought all was fixed, last Thursday Monti’s government lost support of Berlusconi’s PdL and effectively lost control. It took the market 4 days to understand, and a statement from the Goldman horse’s mouth himself, what this really means. Sure enough today Italian bonds are sliding on the Monti departure, and at last check were nearly 40 bps wider to 4.9%, the biggest rise in yields in 4 months, while latent fears over Spain following last week’s weak auction and a DB note saying the hope rally may be over in Iberia, sent SPGB wider by 20 bps to 5.65% (more on DB later). We also learned that despite all attempts to disengage the banking and sovereign sectors in Europe, in Italy precisely this fusion is accelerating as sovereign debt held by Italian banks just rose to a record. To wit: Italian bank holdings of Italian sovereign debt rose to €340 billion, up €12.6 billion and the highest ever. In other words, the weakest link in the sovereign-banking symbiosis in Spain and Italy will once again be the fulcrum security when setting prices for sovereign bonds, and lead to another inevitable ECB, Troika bailout….
Pimcos New Warning, The Future Just Got Much, Much Darker For Investors Stocks Dead, Bonds Deader Until 2022.
from Paul B. Farrell:
Big money managers are warning invertors. They’re now citing the Bible: “Seven lean years.” No recovery till 2016. That was Jeremy Grantham back a few years ago. His GMO firm manages $104 billion.
Now Bill Gross and Mohamed El-Erian, the co-CEOs at the $2 trillion Pimco money managers, are citing the same biblical warning to jar investors awake and prepare for the coming lean years of slow, low growth and austerity. Except in Pimco’s new warning, the future just got much, much darker for investors — no recovery until 2022.