Is the Euro-Area Collapsing?

Over the last week, there are three significant Euro-Area activity figures that merit the market's consideration.

September's Eurozone's industrial production dropped from a previous August +1.3% to -1.9%
September's construction production dropped from a previous months -0.4% to -1.3%;
New Industrial Orders for the four largest populated economies-Germany, France, Italy and Spain all dropped significantly to -4.4%, -6.2%.-9.2% and -5.3% respectively. For the reverent, the United Kingdom NIO's dropped to -1.9%.

Well, shuttered factories are not privy only to the UK; they seem to be the prospect of industrial Europe, especially if one considers that levels of capacity utilization in manufacturing is slipping everywhere with the exception of an anomalous month in United Kingdom.

Evidently, once investors realize that the longer term confidence required to justify purchasing Eurobond securities is not justified by output figures from the region's business sector, then even if your brand name is Germany, and even if the rating agencies mark you tops,  it won't help keep yields down. Germany is as susceptible to being dumped as is Italy and its next candidate France which witnessed its yields increase, and its yield gaps widen against the German counterparts. There is no Immune Boutique in this Shopping Mall. There isn't any vote of confidence for Germany; rather it signals that investor concern is becoming pandemic within the Euro-Area and no sovereign, especially a non-sovereign issuer, is immune. But the contagion on the financial front is not as great a deterrent in our opinion as the rapid weakening and dampening of economic activity within the area. Germany can certainly pull out, or welcome the unstable members' exit, but it can't deter the oncoming economic slowdown that will devastate its own regional economies.

The ECB is a lame-duck if Mr. Draghi continues to endorse without challenge its constitutional mandate. Signor Draghi deve sospendere 'Price Stability',  which is a moot predicament at the moment, and with the help from two oversea friends, act to stabilize the yield curves. The New Normal advocated by financial and portfolio managers should not be higher unemployment and softer growth, it should be lower Returns on Investment. The structural adjustment required by the global economy in order to survive the extending contagion of below-quality investments is to realign investor expectations in view of  de-stabilized and riskier investment scenarios.

Obviously, this goes contrary to the grain of conventional investment lore: the riskier the target, the higher the yield! Unfortunately, when available resources are numbered, and quality contaminated, there's not much choice. You buy into the mess,praying for a cure, or seek quarantined shelters. Are there any? You run to gold? Does anyone care? To SF, Yen or some other resource-constrained sovereign? Price those economies out of the market and over time, the original predicament only changed hands.

What is becoming clearer is that there are only a few viable Backstops in this Global economy, and the Classic is the United States Treasury, with a little help from a friend.

To the United States Treasuries-of course, and at most probably quasi-zeros, or cash the portfolio. If the latter is the soundest judgement  of the wise and enlightened investors, then why wait for the storm; shelter yourselves now.

How will the markets end? Not with a tumble but a crumble. The EU will fall apart unless Draghi and some confreres show their stuff...change the discourse from financial narratives about controlling deficits and imposing guarantees to a discourse with fiscal narratives about job creation, stabilizing growth engines and stimulating aggregate demand. Mr. Draghi will need support from Mr. Bernanke and gang. He knows it and the United States know it.

The Blogger’s Return

If Parliament can recess, then Bloggers can Break.

The Bloggers’s Return, on the other hand is more fruitful than Parliament’s re-entry session.

The advantage of our break is twofold. First of all, one comments with confidence on what happened during the recess and as a result looks pretty good, if not great. Secondly,  one finds out how popular one is with family and one’s audience- respectively, they get a well-deserved front look at the poster-person and the rush to the stats hoping for the hopeless is hopeless. That is the true blogger’s fate! faith?!.

Reality is that only a few things are unchanged. In part, the collected efforts and works of the better part of our defunct humanity slyly called the Greatful Dead! And, in passing that’s not many!

What has changed? Nothing much, sparsely speaking.  Greece, Portugal, Ireland, Spain and Italy have been downgraded by  rating agencies: the US is on the next short-list. The IMF has selected a new Managing Director and US Congress is laming a decision on the debt limit-but it won’t affect their salaries. A new nation in Africa-South Sudan, has replaced Haiti as the poorest nation in the world. Haiti still awaits for its announced relief contributions from some Western democracies. Stock markets are so jittery that it looks like they’re dancing to the tune of a tarantella. Finally, no one knows what to do about the global economy other than China-although it’s also starting to worry about inflation. Yet, China will not cash in on its US Treasuries.

So where do we go from here. Best is to start with the IMF because its continuity is so critical to the low-income regions of world.