Charts: Yellen’s No Build Up in Leverage and No Price Misalignments

At the confirmation hearing in the halls of the US Congress, incoming US Fed Chairwoman Janet Yellen testified[1]

I don’t see evidence at this point, in major sectors of asset prices, misalignments. Although there is limited evidence of reach for yield, we don’t see a broad buildup in leverage, where the development of risks that I think at this stage poses a risk to financial stability.

The following is a showcase of charts and reports from which Ms. Yellen “don’t see a broad buildup in leverage” and “don’t see evidence at this point, in major sectors of asset prices, misalignments”

“No build up in leverage”

US commercial and Industrial loans are at 2007 highs. Consumer loans have equally been climbing now approaching 2010 levels.

US banking exposure to the commercial real estate sector has been skyrocketing where CRE loans outstanding notes the Institute of International Finance (IIF) now stand at some USD 200 billion above pre-crisis levels.

Also US mortgage REIT assets have more than tripled since the crisis. Yet the IIF warns US REITs are vulnerable to disruptions in repo markets, as repo market funding constitutes 90% of their liabilities[2]

U.S. covenant-lite loan issuance has soared past 2007 levels now at $210 billion year to date—“a multi-year record and almost three times that of last year” according to IIF.

US companies have reportedly been selling bonds at the fastest rate ever or on record as companies try to beat potential rate increases.

According to the Wall Street Journal[3],

The $1 trillion mark was passed in the 46th week this year, according to Dealogic. In 2012, the mark was passed in the 48th week, and in 2009, the mark was passed in the 50th week. Despite the record issuance, investment-grade corporate bonds haven't had a stellar year. They have posted a 1% negative return this month and a 2.16% negative return so far this year, according to Barclays

“No misalignment of prices”

The Wilshire US REIT Trust Total Market has passed the 2007 highs.

US Farmland prices has exploded vertically. The chart represents Iowa’s farmland prices based on the first semester of the year[4].

Although declining prices of commodities has been expected to slow simmering prices farmlands

From the Wall Street Journal[5]

A multiyear run-up in the value of farmland in the U.S. Midwest may be running out of steam.

Average cropland prices declined in parts of the Farm Belt in the third quarter from the previous quarter while rising at a low rate in other areas, according to separate reports this past week by regional Federal Reserve banks in Chicago, St. Louis and Kansas City.

The surveys also found that some agricultural bankers expect cropland prices to decline across the Farm Belt as 2014 approaches because big harvests this fall have driven grain and soybean prices sharply lower. Corn prices also are expected to weaken after the U.S. Environmental Protection Agency on Friday proposed for the first time lowering an annual requirement for how much ethanol should be blended into gasoline.

Talk about record prices. Last week’s art auction $380.6 million at the Sotheby’s nearly hit a record high previously set at $394.1 million. Nonetheless record auctions, according to a Bloomberg report[6] were set for seven artist including Andy Warhol, Cy Twombly, Agnes Martin and Martin Kippenberger.

Francis Bacon’s ‘Three Studies of Lucian Freud’ reportedly sold for $142.4 million at Christie’s to Acquavella Galleries which bested bested Edvard Munch’s ‘The Scream’. Meanwhile Jeff Koons sold his sculpture “Balloon Dog (Orange)” for $58.4 million, an auction record for a living artist, according to another Bloomberg report[7].

Soaring stock market prices, REITs at over 2007 highs, parabolic farmland prices and record art prices have been seen as no misalignment of prices. This time is different.

Frenzied Global Bonds

 

 

Around the world, global issuance of leveraged loans has vastly surpassed 2007 highs. Global corporate bond issuance particularly on High yield bonds has also reached records.

An update on this from the Financial Times[8] (bold mine)

Global borrowers with weaker credit quality are taking advantage of investors’ relentless search for higher yields to sell a record amount of bonds so far in 2013.

Intelsat, the world’s largest satellite-services company, the US casino owner Caesars Entertainment and the luxury chain Neiman Marcus have been among the low-rated borrowers to have sold a combined $38.1bn debt this year, according to Dealogic. That amount surpassed the previous record of $37bn for the whole of 2012.

Bonds with the lowest possible credit ratings have soared in popularity with investors, who have been diverted from top tier government and corporate debt where central banks are suppressing interest rates.

In today’s world, there is no such thing as default risks. Everybody has been piling up on one another to bid for companies even with the worst credit rating. That’s because zero bound rates and QEs has been seen to last forever.

Same record high story with global catastrophe bonds and non record but rapidly rising Global Payment in Kind Bonds

See NO bubble. Move along, nothing to see here.

---

[1] Bloomberg.com Yellen Signals Continued QE Undeterred by Bubble Risk November 15, 2013

[2] Institute of International Finance November 2013 Capital Markets Monitor and Teleconference

[3] Wall Street Journal Companies Sell Bonds at Fastest Pace on Record November 14, 2013

[4] Irreplaceable Capital The Butterfly Effect June 15, 2013

[5] Wall Street Journal Midwest Farmland Values: Past Peak Season? November 15, 2013

[6] Bloomberg.com Warhol ‘Crash,’ Steve Cohen’s Richter Lift Sotheby’s Sale November 14, 2013

[7] Bloomberg.com Bacon, Koons Set Major Records in New York at Christie’s November 13, 2013

[8] Financial Times Record sales of lowest rated bonds November 14, 2013

Video: What it means to end Central Bank (Should we end the FED?)

In the following video, GMU Professor Lawrence H. White explains what it means to end the FED. (Certainly not the end of the world)

From Learn Liberty: (hat tip Zero Hedge)

What would it mean to "end the Fed"? Professor Larry White says that in order to know the effects of such a measure, we must first understand the role of "the Fed".

The Federal Reserve is the central bank of the United States and the institution at the center of the nation's monetary and banking systems. It has five main functions, including controlling monetary policy. Could the United States even survive without the Federal Reserve?

In order to answer this question, Professor White examines countries throughout history that did not have an established central bank, including Scotland, Sweden, Switzerland, and Canada. Hong Kong, he points out, still does not have one. So who performs the functions of a central bank in these countries?

Professor White cites private institutions, including clearing house systems, banks, and financial companies, as the main actors in the monetary systems of countries without a central bank. Ultimately, Professor White concludes that the Federal Reserve is not necessary. Evidence shows that nations can survive without a central bank. What the Federal Reserve does well can be done even better by private institutions, and the institution is capable of serious errors.

China’s Stock Market Soars on ‘Leaked’ Reform Documents as Bond Markets Seize Up

Following a sustained downdraft since September, China’s major equity benchmark, the seemingly sluggish Shanghai Composite index surprisingly jumped by 1.68% on Friday, allegedly on “leaked” documents that showed the intended reforms by the Chinese government from the recently concluded Third Plenum

From Malaysia’s The Star.com

A document purporting to detail reform plans by China's ruling Communist Party, including liberalising the prices of resources and reining in some state monopolies, circulated widely on social media on Friday, helping fuel the biggest stock market rally in two months.

The document appeared to be a scanned copy of part of a version of a policy statement with annotations on it.

It circulated on the Twitter-like social media service Weibo and was passed around widely on the social messaging service WeChat….

The proposed reforms…

The document said the government will push reforms on the pricing of water, oil, natural gas, electricity, telecommunications and transportation, and refrain from intervening in the market.

The government will push ahead with exchange rate and interest rate reforms, establish a market-driven bond market and open capital markets further, while speeding up moves towards full capital account convertibility, it said.

The government will also push reforms to limit various forms of state monopolies. State-owned firms must adapt to market changes, improve their efficiency and engage in fair competition, and exercise more social responsibility, it said.

China will encourage more state-owned enterprises (SOEs) to shift towards mixed ownership by bringing in private investors and allowing employees to hold shares in such companies, it added.

It included details on giving farmers more property rights and quickening reforms of the current "hukou" or residency system, which currently hinders rural residents from making a full transition to urban dwellers - something that in turn has impeded the country's urbanisation efforts.

Such restrictions will be lifted in small cities and townships and gradually removed in middle-sized cities, the document said.

Generally, the rumored reforms, which have been mostly liberalization based, seem promising over the long term. Some of the rumors above have now been official.

However, implementation will mark the difference from rhetoric

Yet the Chinese political economy and her financial markets will have to face vast immediate or short term challenges first. And the ultimate  challenge is how to deal with her overleveraged economy.

Allegedly due to the Chinese central bank’s (PBoC) suspension of cash injections (Reuters), overnight interbank shibor rates skyrocketed (Shibor.org).

Signs of liquidity squeeze even hit the Chinese government’s 10 year bonds which yield reached a “record” high of 4.6 on Friday. Yields of the 10 year sovereign closed at 4.43%, still up 16 basis points week on week.

What’s the implication of the surge of lending rates? 

The Chinese political economy has racked up the biggest private sector debt since 2008 compared to her emerging market and developed contemporaries

From another perspective, the ramping up of China’s debt markets has been from bank and non bank loans (including the Shadow Banking—China’s shadow banking industry posted one of the world’s fastest growth in 2012 according to the FSB). 

While debt growth has mostly been in the private corporate sector (a big segment of which has been due to Chinese local government financing vehicles or LGFVs), even households and the government has contributed to the substantial increase.

In the face of such huge debt levels, interest rate increases only means a larger share of debt servicing which should eat up on profits, delay planned expansions and possibly reduce overall demand. This also means greater risk of deterioration on credit quality or higher risks of credit default. The two charts above are from the Financial times

Should interest rates continue to dramatically rise (via China’s bond vigilantes), this will likely represent a “shock” to many establishments or even households who will be forced to respond drastically by adjusting to a “new” tighter money environment. 

Yet these precipitate adjustments will possibly be manifested, not only in China but on many international financial markets especially on economies whom has tightly connections or interactions with China. Again everything will depend on the bond vigilantes.

We live in interesting times.

Charts of the Day: Obamacare Enrollment–3.9 Million

The goal of Obamancare (Affordable Care Act), according to Wikipedia.org, is to increase the quality and affordability of health insurance, lower the uninsured rate by expanding public and private insurance coverage, and reduce the costs of healthcare for individuals and the government. (bold added)

Here is what Obamacare has done so far…

4.02 million Americans has had their insurance policy cancelled….

….while 106,185 people has enrolled. Net enrollment –3.9 million (hat tip Zero Hedge/Wall Street Journal) 

Upon realizing this, President Obama backtracks and said “insurers can extend by one year those policies they had canceled for failing to meet the law's requirements” (WSJ)

And in response, the House of Representatives just passed a bill "to let insurance companies sell health plans that had previously been canceled due to ObamaCare regulations" (Fox).

Obamacare’s monumental failure serves as vindication of the great Austrian economist Friedrich August von Hayek who warned of the adverse effects from the Fatal Conceit of central planners:(bold added)

If we had deliberately built, or were consciously shaping, the structure of human action, we would merely have to ask individuals why they had interacted with any particular structure. Whereas, in fact, specialised students, even after generations of effort, find it exceedingly difficult to explain such matters, and cannot agree on what are the causes or what will be the effects of particular events. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Abenomics: Weak Yen Not Equal to Strong Exports

In the view of the consensus, currency devaluation serves as a key policy to promote economic growth via implicit subsidies to the export industry through a weaker currency.

Yet Japan’s Abenomics appears to be falsifying such populist snake oil therapy.

From the Wall Street Journal Real Times Economics Blog. (bold mine)

Despite the generally held view that the weak yen can quickly boost Japanese exports by making them more price-competitive in the global markets, many Japanese companies cut their export prices gradually.

They typically employ what is known as “pricing-to-market,” where they basically set the prices of their exports to match prevailing levels in their target markets, and adjust prices so that they are in line with exchange rates at a measured pace.

“Just because the yen falls that doesn’t mean Japanese companies will rapidly slash their prices” if there is no change in internationally accepted price levels, said Takeshi Minami, chief economist at Norinchukin Research Institute. “If they aggressively cut prices, they could be accused of dumping.”

Since the ultimate goal of most companies is to make money rather than boost the amount of goods sold, other economists say that if consumers overseas are willing to buy Japanese products at current prices, firms will be most willing to oblige.

Concern that yen will rebound is another reason why Japanese firms are cautious about lowering export prices, people familiar with the BOJ’s thinking have said. While prices at the same high levels may help to maintain the status quo even if sales suffer, consumers tend to take a more negative view of sudden price increases.

Looking at the four times there was a major upward movement in the dollar against the yen between 1988 and 2007, the BOJ export-price index initially fell by just 1.8% on average.

The “ultimate goal of most companies is to make money rather than boost the amount of goods sold” is indeed why people engage in trade. It has been rare to see articles that gives a balance account of events.

From another Wall Street Journal Real Time Economics Blog (bold mine)

But Japan’s exports declined 2.4% in the July-September period from the previous quarter, according to preliminary gross domestic product data released Thursday.

Officials say, however, that while the weak yen did help exports, economic conditions and policy decisions in destination countries can trump the exchange-rate factor.

If such factors are one-off developments, that could mean there’s still room for export optimism.

Take Thailand, for example. Japanese exports there had been robust until recently due to ongoing reconstruction activities after the devastating floods in 2011 and generous government incentives for new car purchases.

But with the program having expired in December, orders dried up after a backlog of orders was met and imports started to go down.

“Once the Thai government’s car-buying incentives ended, the market quickly lost their impact on overall demand,” said Nobuyori Kodaira, Executive Vice President at Toyota Motor Corp.

Indonesia is another case. The country cut fuel subsidies in June in a bid to reduce its fiscal deficit. That has led to a drop in demand for Japanese cars, and materials for car production, such as steel and machine tools.

In the six months ended September, auto shipments to the rest of Asia dropped 10.4% from the same period a year earlier, according to Japan Automobile Manufacturers Association data.

In both cases, the decline in exports was a result of policy changes by the respective governments, much more than any financial turbulence caused by expectations for a U.S. monetary policy change, a senior Japanese official said.

Canon Inc. last month lowered its net profit outlook for the full business year through December to ¥240 billion from ¥260 billion. “China and other Asian nations accounted for one third” of the downward revision, said Canon Chief Financial Officer Toshizo Tanaka.

Japanese export volumes fell to the U.S. also, but for a different reason. As demand for Japanese cars picked up, auto makers began ramping up local production rather than boosting exports from Japan.

All these developments are likely to be one-off events, however.

The lesson from the above articles has been that trade represents a complex ‘subjective’ dynamic between contracting parties, which have not only been dependent on prices but to many manifold factors, some of which has been cited above. 

Yet the consequences from the combination of these factors are hardly knowable for policymakers to justify interventions. So the simplistic solutions end up backfiring.

Moreover since the initial spike of exports from Abenomics, Japan’s exports has hardly grown.

Importantly the deterioration of the Japan’s trade balance relative to pre-Abenomics (2012), shows how imports have been growing faster than exports. This reveals, so far, that falling exports hasn’t been a "one time event".

And aside from granting political privileges to select or favored members of society at the expense of the rest and inflating debt away via indirect gradualist default (where foreigners own 8.4% JGBs as of June 2013), another reason for devaluation has been to promote nationalism 

Writes the great Austrian economist Ludwig von Mises:

Devaluation of a country's currency has now become a regular means of restrict­ing imports and expropriating foreign capital. It is one of the methods of economic nationalism. Few people now wish stable foreign exchange rates for their own countries. Their own country, as they see it, is fighting the trade barriers of other nations and the progressive devaluation of other nations' currency systems.

Japan’s growing nationalism can be seen even outside the economic context. Geopolitical tensions such as territorial dispute with China over the Senkaku Island has prompted Japan’s government to increase defense spending and a adapt a “new defense equipment production strategy” with allies.

So aside from the failure to attain mercantilist goal of "favorable balance of trade", devaluation, which fosters nationalism, only increases the risks of military conflicts or war.

Global Shadow Banking: $71 Trillion or 80% of World GDP as of 2012

In the latest (2012) tally of the Financial Stability Board on their recent Global Shadow Banking Monitoring Report 2013, Global Shadow Banks—”or credit intermediation involving entities and activities outside the regular banking system”—jumped by $5 trillion (7.5%) to $71 trillion in 2012. 

The FSB estimates that Shadow Banks now account for “80% of global GDP and 90% of global financial system assets”

Here are some of the major findings by the FSB: (bold mine)

-According to the ‘macro-mapping’ measure, based on ‘Other Financial Intermediaries’ (OFIs), non-bank financial intermediation grew by $5 trillion in 2012 to reach $71 trillion. This provides a conservative proxy of the global shadow banking system, which can be further narrowed down.

-By absolute size, advanced economies remain the ones with the largest non-bank financial systems. Globally OFI assets represent on average about 24% of total financial assets, about half of banking system assets and 117% of GDP. These patterns have been relatively stable since the crisis.

-OFI assets grew by +8.1% in 2012, helped by a general increase in valuation of  global financial markets, while bank assets were relatively stable as valuation effects were counterbalanced by shrinking balance sheets. The global growth trend of OFI assets masks considerable differences across jurisdictions, with growth rates ranging from -11% in Spain to +42% in China.

-Emerging market jurisdictions showed the most rapid increases in non-bank financial systems. Four emerging market jurisdictions had 2012 growth rates for non-financial bank intermediation above 20%. However this rapid growth is from a relatively small base. While the non-financial banking system may contribute to the financial deepening in these jurisdictions, careful monitoring is still required to detect any increases in risk factors (e.g. maturity transformation or leverage) that could arise from the rapid expansion of credit provided by the non-bank sector.

-Among the OFI sub-sectors that showed the most rapid growth in 2012 are real estate investment trusts (REITs) and funds (+30%), other investment funds (+16%) and hedge funds (+11%). Of note that the growth rate for hedge funds should be interpreted with caution as the FSB macro-mapping exercise significantly  underestimates the size of the hedge fund sector. The results of the recent IOSCO hedge fund survey provide a more accurate picture of the size of the hedge fund sector (see below and Section 4) but do not provide an estimate of its growth.

My comments:

1. The above figures are conservative estimates. It means shadow banking could even be larger.

2. Asset bubbles have played a role in increasing OFI asset values.

3. Emerging markets led by China Argentina India and South Africa have accounted for the largest increases in 2012

4. While the FSB cautions that EM figures may reflect on a “low base effect” for emerging markets, this excludes China whose shadow banks assets have been fast catching up with the assets of the formal banking system.

5. Sectoral asset growth patterns by OFIs have been mostly in the real estate and the financial sectors, very much like the growth patterns in the formal banking system of the Philippines.

The other way to look at this is that shadow banks have played a significant role in the blowing of global asset bubbles while doing little to finance the real economy.

The FSB’s report squares with the corporate debt growth figures shown by the Institute of International Finance. 

This shows that exploding credit has not just been in the formal banking sector but likewise in the informal banking sector.

US Federal Reserve Insider Confessional: I'm sorry, America…QE Enriched Wall Street

Mr. Andrew Huszar formerly an insider or manager of Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program writes a confessional at the Wall Street Journal

Here is the opening: (bold mine)

I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

The kernel: (bold mine)

And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working. 

Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets. 

As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Read the rest here

The FED's QE has undermined not just the average Americans, but by blowing asset bubbles everywhere, the average citizens of the world.

Graphic of the Day: The Miracle Cure?

Via the Zero Hedge/Acting Man Blog

Yellenomics Pushes Japan’s Nikkei to Key Resistance Level

The bullish stock market sentiment from Yellenomics has been contagious. Japan’s Nikkei has now reached a critical juncture.

From Bloomberg:

The Nikkei 225 added 2.1 percent to 14,876.41 in Tokyo, its highest close since May 22. The broader Topix index climbed 1.2 percent to 1,218.55, with all but one of its 33 industry groups rising. Shares advanced in the morning as remarks by Janet Yellen, the nominee to lead the Federal Reserve, fueled optimism the U.S. will maintain stimulus. The yen slid 0.4 percent to 99.64 per dollar.

“Yellen’s speech is making the market buoyant as the view spreads that tapering will be delayed,” said Hiroaki Hiwada, a strategist at Toyo Securities Co. in Tokyo. Aso’s comments provide “verbal support. While it’s unlikely they’ll intervene with the currency at these levels, it’s positive as it means there’ll be pressure on the yen if it strengthens.”…

As with other nations, Japan needs to be able to intervene in currency markets if necessary, Aso said at a parliamentary committee today in response to a question about the government’s special foreign-exchange accounts law. The country must set aside a proper amount of money to fund such actions, he said.

The chart above of the Nikkei 225 from stockcharts.com has not been updated.

Nevertheless, today's big gains has pushed the Nikkei to test the resistance level (blue horizontal line).

Abenomics has brought about a seemingly symmetric correlation between the Nikkei and the Yen where both has moved in inverse directions (green trend lines). This relationship passed me by when I slipped “there has been little signs of symmetry in their (yen-nikkei) flows”. 

The yen has recently been weakening that has led to a re-energized Nikkei. Today's comments by incoming Fed chief Janet Yellen only bolstered the momentum.

Also, a similar dynamic “bad news is good news” applies to Japan’s financial markets.

Today’s disclosure of the halving of economic growth rate will likely put pressure on Japan’s policymakers to apply more stimulus.

From the Financial Times

The rate of growth in Japan’s economy roughly halved between the second and third quarters, the government reported on Thursday, as weaker consumption and exports offset big rises in public spending and property investment.

According to Cabinet Office estimates, the real value of goods and services produced by the world’s third-largest economy grew at an annualised rate of 1.9 per cent between July and September…

Nonetheless, the data will sustain pressure on Shinzo Abe to keep Japan’s growth trajectory intact. Since returning to power last December, the prime minister has moved to overturn more than a decade of deflation through the “three arrows” of aggressive monetary easing, a more flexible approach to fiscal spending, and a series of overlapping initiatives to lift the country’s longer-term growth potential.

As pointed in the chart above from zero hedge, aside from a slowing economic growth and despite higher cpi, Japan's wage growth has also turned lower. 

The momentum from Abenomics seem to be fading.

This implies that the markets expect the Abe administration via the BoJ to conduct more easing in the future, thus the lower yen.

For both the Yen and the US dollar, it has been a race to the bottom. Nevertheless lost purchasing power of the average citizenry would, for the meantime, extrapolate to a bonanza for banks, financial institutions, the Japanese government and to asset investors, should the Nikkei breakout to the upside. 

Updated to add: The futures markets appear to be pointing at a successful breach.

Europe’s Economic Recovery Gasps for Air

Rising stock markets and PMI surveys has mainly been used as basis by the consensus to posit for a so-called European economy recovery which I have been a big skeptic of.

In questioning the mainstream premises, I pointed to several evidences. 

Just how will a recovery occur when countries like France have been strangulating commerce with exorbitant taxes? In Greece, economic stagnation has prompted for a call for coup by army reservists. Also Europe’s car sales plunged in August.

Sanguine PMI surveys departed with bleak actual industrial output in July. Industrial production based on the chart from Eurostat turned lower as of August while September output has deteriorated further.

Importantly why would the ECB cut rates if the recovery has been for real?

Well it appears that, as I suspected, the Eurozone’s statistical recovery has been gasping for dear air.

From Bloomberg

The euro area’s recovery came close to a halt in the third quarter as German growth slowed, France’s economy unexpectedly shrank and Italy extended its record-long recession.

Gross domestic product in the 17-nation euro area rose 0.1 percent in the three months through September, cooling from a 0.3 percent expansion in the second quarter, the European Union’s statistics office in Luxembourg said today. That’s in line with the median forecast in a Bloomberg News survey of 41 economists. Growth in Germany, the region’s largest economy, eased to 0.3 percent from 0.7 percent.

The slowdown comes as the currency bloc struggles with the legacy of a debt crisis now in its fifth year and just after it emerged from its longest-ever recession in the second quarter. Unemployment (UMRTEMU) stands at a record 12.2 percent and inflation slowed to the lowest level in four years in October, leading the European Central Bank to cut its benchmark rate to a record low last week.

I would call this growth dynamic, in stock market lingo, a fading dead cat's bounce.

Nevertheless for the Eurozone’s stock market speculators it’s been a “don’t worry, be happy” ambiance as the German Dax hit fresh landmark highs, while the French CAC and the Eurozone Stoxx 50 has passed 2010 highs.

And as the Eurozone’s stock markets swiftly race forward, corporate debt in both financial and nonfinancial sector has similarly been ballooning.

Media will continue to spin the Eurozone’s parallel universe with fables

US Stocks on a Record Melt Up on Yellenomics and ECB’s QE!

US stocks are on a “Wile E Coyote running off the cliff” momentum.

Here is media’s narrative of last night's record setting run by US stocks. From Bloomberg

U.S. stocks rose, sending benchmark indexes to records, as Macy’s Inc. led a rally among retailers and investors speculated the Federal Reserve’s Janet Yellen will continue the central bank’s stimulus policy as chairman….

The melt up frenzy mode in US stock markets has been broad based. All four major benchmarks from the S&P 500, Dow Jones, Nasdaq and the Russell 2000 have performed strongly.

And here is what has spurred the fantastic run… (bold mine)

Yellen, nominated to be the next chairman of the Fed, said the economy and labor market are performing “far short of their potential” and must improve before the central bank can begin reducing monetary stimulus

“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen, the Fed’s current vice chairman, said in testimony prepared for her nomination hearing tomorrow before the Senate Banking Committee. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

The remarks show Yellen is committed to the central bank’s strategy of attempting to boost the economy and lower 7.3 percent unemployment, more than four years after the economy began to recover from the longest and deepest recession since the Great Depression.

Today’s stock market guidance: Bad news is good news. Bad news means more policies to implicitly redirect or to transfer resources from the real economy to the stock markets. Therefore, US stocks have nowhere to go but up

And it’s not just about Yellonomics. The European Central Bank hinted that Europe’s version of QE may be on the way,  from Reuters:

European Central Bank Executive Board member Peter Praet on Wednesday raised the prospect of the central bank starting to buy assets to bring inflation closer to its target, one of the central bank's most divisive tools.

He also suggested that the ECB could still create negative deposit rates, essentially charging banks to place their money with it.

Zero bound rates, QE, negative deposit rates: central bankers want to eviscerate everyone’s savings in the name of “growth”.

But obviously ballooning central bank balance sheets have hardly translated to “growth”, even the statistical ones. 

"Far short of their potential" has been the dynamic since 2008. It never ends. It seems like endlessly "Waiting for Godot"

The other reason central bankers are supposedly conducting even more easing has been to “combat deflation”.

Bizarrely, by selectively focusing on the CPI index, the mainstream ignores the frenetic stock market melt up yet declares “deflation”. It is as if stock markets operate on different dimensions from the real world.

Such equivocations has been media's du jour feature.

Today’s headlines from the Guardian on Spain’s supposed deflation “Deflation fears stalk eurozone as Spain reports fall in prices” is a good example 

Spain became the latest European country to report sliding prices, underlining fears that with inflation already at 0.7% across the 17 country single currency area in October, sky-high unemployment and a prolonged economic malaise may be dragging the eurozone towards a Japanese-style deflationary slump.

Madrid said prices in the crisis-hit country declined by 0.1% in the year to October, adding Spain to a list of countries – including Ireland, Greece and Cyprus – that are already mired in deflation.

The above is Spain’s stock market benchmark the Madrid General Index. Deflation in stocks?

Falling yields from Spain’s 10 year bonds means a rally in Spain’s bonds. Deflation on bonds?

So while it may be half true where CPI indices for crisis affected countries may have been in a decline, whatever loss in CPI has been offset by rallying financial markets.

Again such phenomena have been indicative of an ongoing shift of resources from main street to the banks, the financial industry, to the government and to relative fewer market participants occurring throughout the world, but mostly led by the US.

Yet the widespread engagement by media of doublespeak to justify these central bank interventions.

Ironically there has even recently been an “inflation” spike in the search for the term “deflation” in Google trends! Deflation, where?

Novelist George Orwell Power warned of such manipulation of information or "doublespeak" in his prescient classic 1984  

Power is in tearing human minds to pieces and putting them together again in new shapes of your own choosing.