U.S. markets have begun to fibrillate, pumping wildly and pointlessly, unable to measure prospects for slow-slide recession here, and Europe confounding everyone. In the last five weeks, the S&P 500 has traded from 1,097 to 1,292, caving to 1,244 now; the 10-year T-note in that time 1.75 percent to 2.37 percent, today back to 2.04 percent. The mortgage centerline is 4.25 percent, a huge spread to 10-year T-notes, which may soon draw the Fed’s attention.
The ISM surveys (old "purchasing managers") arrived at 50.8 for manufacturing in October, teetering at break-even and down from 52.1; the service sector 52.9 unchanged. Rather more ominous, the European equivalent dumped to 43, clear recession, and China is now below 50. August and September U.S. payroll gains were revised up by about half, but far below levels necessary to absorb the unemployed. October’s 80,000 gain is statistically undetectable.
Europe. No blue-sky, just the facts, Jacque. Try not to get lost in individual-nation details (Greece is a sideshow).
Hopes of external salvation are done, and even if Germany were willing, it alone does not have the strength for a pan-European fix.
The euro zone now has three options. One: To stop a run in progress, the European Central Bank begins a massive and sustained buy of Italian, Spanish and French debt. Two: Club Med plus France embark on brutal IMF-enforced Teutonic transformation. Three: Give it up, back to francs, lira and pesetas.
Option One is a can-kick, Lucy holding for Charlie. Might buy some time, but Germany will not stand for it, and there is no way to allocate whose bonds get bought and how much. Option Two might make it down the field a ways, months, but the enforced austerity will leave these economies in worse budget shape than now.
These Europeans do not merely distrust each other, they do not like each other; not just the leaders, but the peoples. French President Nicolas Sarkozy refers to German Chancellor Angela Merkel as "la Boche," and last week told UK Prime Minister David Cameron that he had "missed an opportunity to shut up." Italian Prime Minister Silvio Berlusconi uses unprintable terms to describe the Merkel physique. The Germans and French regard the Greeks as subhuman (in the last go-round, "untermenschen"). This grotesque, inept show reads like the 1930s, or 1905-14, mercifully now just about money.
And right there lies link and lesson here. Not about financial foolishness, but about the social contract.
The link: Jon Corzine, late chairman of Goldman, United States senator, governor of New Jersey, fabulously wealthy, has in one year destroyed a 200-year-old commodity trading house, MF Global, by betting on leverage 40:1 that Europe would not allow sovereign debt to default. He will soon be the arch-villain exemplar of corporate excess, disgusting compensation, and runaway inequality in American income and outcome. The perfect 1 percent man to burn in effigy at Occupy demonstrations.
Yet our greatest risk as a nation is to hear that music and rise to bilateral class anger. There was a time here, not long ago, when the 1 percent (or 10 percent or 20 percent) oppressed the rest, held them down: brutal Rockefeller, Gould, Carnegie … Robber Barons. Eighty years ago soldiers still turned out to shoot union strikers. Here. In this country.
Today, frustrated and fearful people accuse corporations of hoarding cash and refusing to hire here, unable to understand that they made the money elsewhere, not here, a couple of billion people in only 20 years willing to do the same work as Americans for less pay. The wounded feel justified to take the fruits of the successful, those who can compete in a global economy, but these are not "oppressors."
The Left offers infrastructure work, telling college grads, "Your shovel is in the mail." The Right, like Germany, thinks only to guard its own, telling all others to reform themselves, telling those without jobs to be more productive.
The deadly hazard here is not financial excess. The danger is fracturing into self-justified groups like Europe. Cross that line, and the others’ bad behavior and suspicious motive frees us from responsibility for our own. The desire to get even and to punish, slathered with contempt, excuses us from thought for the whole.
Thanks to www.calculatedriskblog, best chart of our predicament anywhere.