In Between Days

by CC December 14, 2011 1:06 am • Commentary


This time, India’s strained government finances and high inflation  leave little room for the strong doses of fiscal and monetary stimulus that supported consumer demand and shielded the economy three years ago.

“India does not have any fiscal headroom to provide any stimulus,” said Andrew Kenningham, an economist with Capital Economics in London. “It will have to brace itself for an economic slowdown longer than the one after the 2008 financial crisis.”

Economic woes are mounting. On Tuesday, the rupee hit a new all-time low after the government reported on Monday that industrial output in October fell a stunning 5.1 percent from a year earlier — the first decline in more than two years.

India still has a growth rate many countries envy, but the pace is dropping quite sharply and — unlike during the 2008 global crisis — it’s hard to see how government fiscal policies can jack it up.

Before the global financial crisis, India was close to achieving 10 percent annual economic growth. When the financial tsunami hit, growth slumped to 6.8 percent and then rebounded to 8 percent and 8.5 percent as the world emerged from the crisis.

Once again, growth is under pressure. Last Friday, the government slashed its forecast for the current year to around 7.5 percent from a previous forecast of 9 percent.

Growth slipped below 7 percent in the July-September quarter and, with increasing headwinds, a sub-7 percent clip is now widely expected in the near- to medium-term.


FRANKFURT — The cloud of dread hanging over European banks darkened after reports that Commerzbank could be on the verge of another government bailout.

Like many of the region’s financial firms, Commerzbank — the second-largest German lender behind Deutsche Bank — is under pressure from regulators to increase its capital buffer. This month, the European Banking Authority said the firm had to raise an additional 5.3 billion euros, or $6.9 billion, by the middle of 2012.

But analysts and others are worried that Commerzbank will not be able to come up with the funds, which amount to roughly 80 percent of the firm’s market value. In the current turmoil, investors are loath to risk more money on the sector.

With a substantial sum to raise, speculation has swirled that Commerzbank was in advance talks with the German Finance Ministry about a rescue plan.

“The banking system is extremely fragile,” Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels. “Whether it will result in spectacular events like collapses or nationalizations is difficult to say. I would not rule anything out.”

Commerzbank has denied the reports, saying it is determined to avoid taking more government aid. The firm, based in Frankfurt, is already 25 percent owned by the German government as a result of a rescue in 2009.


Investors in (AMZN) tend to be pretty fickle.  Over the last few years, they have flip-flopped back and forth between focusing on profits and focusing on market share.  In several of the company’s recent quarterly earnings reports, investors ignored the fact that the company missed EPS forecasts, and instead praised the company for ‘investing in the business’ and gaining market share.

In its last report, however, investors are back to focusing on profits. After missing EPS forecasts in late October, investors have taken off the rose-colored glasses and headed for the exits.  Less than two months ago, AMZN was eating everyone’s lunch, trading at all-time highs, and about to launch a ‘game changer’ in the tablet market.  Today, AMZN may still be eating everyone’s lunch, but it has nothing to show for it.  The stock is following in the same path as several of the market’s other highfliers earlier this year like NFLX and GMCR, and is now within two points of being down on the year.


The major European indexes closed the day with modest losses, and once again, the US copied the direction … but doubled the decline. The S&P popped a the open, gave up most of the gains, but gradually drifted higher, until the FOMC press release. Apparently Chairman Bernanke isn’t donning a Santa costume. The index sold off for a closing loss of 0.87%. At least that was off the intraday loss of 1.38%. The index is in the red year-to-date, down 2.54%, which is 10.11% below the April 29th interim high. The 50-day moving average appeared to provide support.

Dear Santa, we’re waiting for that rally! We only have 12 trading days left in 2011.

From an intermediate perspective, the index is 81.2% above the March 2009 closing low and 21.7% below the nominal all-time high of October 2007.


Tomorrow’s Tape – WSJ


  • Italy auctions some 5-year bonds.
  • 8:30 a.m. ET: Import and export prices for November. Economists think import prices, which are really all ye need worry about, rose 1.1% after falling 0.6% in October.
  • Atlanta Fed President Dennis Lockhart speaks.