Where’s Henry The Navigator?
Saturday, May 18, 2013
George Friedman, the Chairman of Stratfor, a geopolitical intelligence company, wrote a piece that digs deeps into the European problem, especially Portugal, because the country’s condition is widely misunderstood by all the clueless talking heads that see conspiracies against their way of life everywhere they look. I share some key excerpts.
We flew into Lisbon and immediately rented a car to drive to the edge of the Earth and the beginning of the world. This edge has a name: Cabo de São Vicente. A small cape jutting into the Atlantic Ocean, it is the bitter end of Europe. Beyond this point, the world was once unknown to Europeans, becoming a realm inhabited by legends of sea monsters and fantastic civilizations. Cabo de São Vicente still makes you feel these fantasies are more than realistic. Even on a bright sunny day, the sea is forbidding and the wind howls at you, while on a gloomy day you peer into the abyss. Just 3 miles west of Cabo de São Vicente at the base of the Ponta de Sagres lies Sagres, a pleasant little town of small villas and apartments. For the most part, these are summer homes, many owned by Germans and British, judging from the flags flying. It was here in 1410 that Prince Henry the Navigator founded a school for navigators. If Cabo de São Vicente is where the Earth ended for the Europeans, Ponta de Sagres became the place where the world began.
Prince Henry was the second son of Portuguese King John I. As a member of the royal class, he had the means to finance his ambitions. Those who attended his school included Vasco da Gama, who made the first voyage from Europe to India, and Magellan, whose expedition first circumnavigated the globe. Columbus was once shipwrecked and rescued off the coast, subsequently learning many of his later nautical skills in Portugal. This school gave rise to the most extraordinary alumni association imaginable.
It is odd to be thinking of Europe's legacy while sitting here in Portugal. Only the dead leave legacies, and Europe is not dead. Yet something in it has died. The swagger and confidence of a great civilization is simply not there, at least not on the European peninsula. Instead, there is caution and fear.
There is a great deal of discussion about Europe's economic crisis and finding a way to return to the lost promise of the European Union. But what was that promise? It was a promise of comfort and security and what they called "soft power," which is power without taking risks or making anyone dislike you.
The Portuguese Empire, culpable of countless atrocities which were no different than what everyone else was doing, “was the longest-lived of the modern European colonial empires, spanning almost 600 years, from the capture of Ceuta in 1415 to the handover of Macau in 1999 and granting of sovereignty to East Timor in 2002.” To bring perspective to the topic, consider that Portugal is slightly smaller than Indiana and has few resources, while it managed to establish a presence in almost every continent.
Today there’s little that resembles the tenacity and vision of Henry the Navigator. What we have, left, right and center, and politically speaking, are certifiable lazy idiots and plenty of whiners that don’t have the guts to explore, but carry loud, yet empty voices constantly attempting to protect a culture of entitlement. Then the political pettiness carried on by the mentally deficient, disguised as intellectuals, adds fuel to the fire without adding solutions. Why no solutions? Because it takes work and dedication, and their skills end where their mouths begin! Without a doubt, the economic damage is done and if people think that the present European condition is painful, wait until the future starts to unfold. But you can either sit on your ass, or acknowledge the errors of the last few decades and set sail into the unknown like the men of centuries past (many women would have done it if allowed), and rediscover yourselves. As it stands, you’re only spoiled brats that want something for nothing.
Now French president François Hollande wants to be the smartest person in the room, and called “for a united ‘economic government’ in the Eurozone, with its own full-time president, budget and harmonized tax system.” Yes, we all agree, political union before monetary union. Duh! But it’s too late, poupée, imbécile, or whatever works.
In keeping this week on a different tone, I must add another political point because it will affect markets. Benghazi, IRS, and DOJ! Three is a charm! This is more than a coincidence, and while I do not presume that Obama directly ordered any of the above unless the facts dictate otherwise, it’s a reflection of the culture, and the implied approval of any tactics to defeat political opponents reins supreme. What is appalling is that for a President that projects himself as being in charge, he certainly does not know much about what transpires around him. Are you sure you live in the White House? And when Jon Stewart goes out of his way to deliver a joke that literally calls the President a liar, there’s a problem. Bob Woodward, a fair and pleasant man that I met two decades ago and that has the White House’s back far more often than not, didn’t go as far as explicitly comparing the current scandals to Watergate. But he updated his opinion on Benghazi due to recent disclosures, placing the issue far closer to Watergate than he did only six months ago.
The incident with the Associated Press, an organization that is largely behind the administration’s policies, is not a surprise, and I bet that it has noting to do with leaks that compromise national security. But it has now awaken all reporters across the spectrum, because they just realized that the love affair will be terminated when they step out of bounds, and the usual chocolate covered strawberries given in exchange for looking the other way will be replaced by Taser shocks to get them back in line. Having an ideological belief is everyone’s right, but when ideology interferes with journalism, also known as the pure gathering of facts, the professional becomes a fraud regardless of the political side taken. Jake Tapper, formerly with ABC News and now with CNN, brought the behavioral issue to light when Fox News was attacked, but love is blind... well, not quite when the loyal media is the target. Can you hear the kettle starting to whistle as the water reaches a boil? Like I stated last week, watch out, this sucker may be going down!
Perfection continues, and a different pattern is evolving. All indices are positive, while the dollar continues to gain. That’s the difference! Where a high dollar is detrimental to large caps with an international presence, it is no longer holding equities back and the greenback is now rising in tandem with the stock market. The dollar is positive short and long-term, while the euro continues to sink toward $1.2750 and is negative short and long-term. The yen doesn’t appear to find a bottom and has embraced its trip south. WTI and Brent oil are short-term positive and negative respectively, with their long-term trends holding neutral and negative. The spread widened to $8.41. Gold continued to head toward $1,350 with the immediate hard bottom about $200 below from here, and silver simply going along for the ride. Copper is short-term neutral and long-term negative, holding hope for real growth in the U.S. The 10-year Treasury rate rose to 1.95% from 1.90%. The 10-year note and the 30-year are now short and long-term negative. Next week we’ll get U.S. housing data, durable goods, FOMC meeting minutes, and Bernanke’s story before the Joint Economic Committee. In addition, we’ll get another EU Economic Summit, and flash PMI numbers will come in.
Retail sales increased 0.1%, and without gasoline sales rose 0.7%. March decline was revised down to -0.5%, and February was revised up to 1.1%. Business inventories were unchanged in March, while sales dropped 1.1%. Import prices declined 0.5% and export prices decreased 0.7%. CPI dropped 0.4% in April, the largest decline in over 4 years, with the core rate rising 0.1%. PPI dropped 0.7%, the largest decline in 3 years, and continuing to set the deflationary stage.
The Mortgage Bankers Association’s mortgage application activity index decreased 7.3%. Refinancing decreased 8.0%, and home purchases decreased 4.0%. Freddie Mac's average 30-year mortgage rose to 3.51% from 3.42%, and the 15-year increased to 2.69% from 2.61%. Jobless claims increased 32,000 to 360,000, and the 4-week moving average increased 1,250 to 339,250. The number for seasonally adjusted insured unemployment decreased 4,000 to 3,004,000.
Housing starts plunged 16.5% in April to an annual rate of 853,000 units. Building permits jumped 14.3% to an annual rate of 1.02 million. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 44 in May from 41, but still negative.
Philly Fed manufacturing index declined to -5.2 in May from 1.3 in April. New orders declined from -1.0 to -7.9, and shipments dropped to -8.5 from 9.1. The current inventories index rose to 4.1 from -22.2 and employment declined 2 points to -8.7. The Federal Reserve Bank of New York’s general economic index declined to -1.4 this month from 3.1 in April. Industrial production declined 0.5%, with manufacturing dropping 0.4%. Capacity utilization declined to 77.8% from 78.3%.
Industrial production in the Eurozone rose 1.0% in March, although on an annual basis production decreased 1.7%. Eurozone’s GDP contracted 0.2% during Q1-2013, solidifying the recession and marking the longest recession (six quarters) in almost 20 years. France’s GDP declined 0.2% and the recession is in, while Germany expanded by a meager 0.1%. Italy’s GDP, the other major partner, dropped 0.5%.
CPI in the Eurozone was tame, registering 1.2% in April on an annual basis, and markedly down from 1.7% in February. Germany’s CPI came in at 1.2% and wholesale prices declined 0.4%. France’s CPI was up 0.7% on an annual basis. The ZEW Economic Sentiment for Germany rose slightly to 36.4 from 36.3. The broader ZEW Economic Sentiment for Europe increased to 27.6 from 24.9. Eurozone’s trade balance registered a €22.9 billion surplus, with exports rising 2.8% and imports declining 1.0%. Italy had a trade surplus of €3.2 billion, but exports dropped 6.0% and imports plunged 10.6%.
On an annual basis, China’s industrial output increased 9.3% in April, and retail sales rose 12.8%. Fixed-asset investment increased 20.6%. Japanese Preliminary machine tool orders dropped 24.1% on an annual basis, accelerating from the previous month's decline of 21.5%. Japan's core private-sector machinery orders, jumped 14.2% in March, although there were temporary large orders that will not repeat. Japan’s GDP advanced 0.9%, or a 3.5% annual rate, although capital expenditures declined 0.7%.