12m Trailing EPS Growth = Scary

This is a chart that shows a rapid deceleration in EPS growth across the three major economic zones.  The negative growth in Europe is no surprise given all of the headwinds that economic zone is facing.  If all the central bankers of the world believe in what Bernanke believes (ie the wealth effect) than we will be in another round of ZIRP which is de facto QE.  What CBs have to remember is that the credit markets are a lot bigger than the equity markets.  If people/savers aren't able to earn a decent return then we are setting the stage for one heck of a messy clean up in the next few years.  The law of unintended consequences will strike again.

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Today's News & Noise (2012-08-30)

News:

• The 6 Apple patents Samsung violated
• http://www.businessinsider.com/apple-versus-samsung-2012-8?op=1
• Berlin's cozy new relationship with Beijing
• http://www.spiegel.de/international/germany/angela-merkel-trip-to-china-to-test-strength-of-growing-ties-a-852288.html
• Too close to state financing via the money press
• http://www.spiegel.de/international/europe/spiegel-interview-with-bundesbank-president-jens-weidmann-a-852285.html
• Weidmann: But we all know that such actions do not solve the fundamental problems. Our actions are based on trust. Doing more and more does not always engender more trust. Over the long term, the central bank can only preserve trust if its actions conform to the mandate that it has been entrusted with.
• Weidmann: At first glance, this of course looks like a good idea. But at second glance, it becomes clear that it leads to coordinated actions between the government rescue funds and the central bank. This results in a linking of fiscal and monetary policy.
• Weidmann: I support the positions that I believe are appropriate as the Bundesbank president and a member of the ECB Governing Council. In doing so, I don't take my cue from the German government's position. That's part of being independent.
• On Greece  Weidmann: Otherwise I doubt that the leader of another country in the program could convince his parliament to support additional austerity measures.
• Weidmann: I can carry out my duty best if I remain in office. I want to work to make sure the euro stays as strong as the deutsche mark was.
• 
  

Noise:

• Analysis: Apple's win dents Android's standard-essential patent hopes
• http://www.reuters.com/article/2012/08/27/us-apple-samsung-patents-idUSBRE87Q19Z20120827?feedType=RSS&feedName=technologyNews
• Mario Draghi vs. Germany continues
• http://www.presseurop.eu/en/content/news-brief/2607771-mario-draghi-vs-germany-continues?xtor=RSS-9
• Tim Cook and Larry Page are talking about their patent war
• http://www.businessinsider.com/tim-cook-and-larry-page-are-talking-the-patent-wars-2012-8?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29
• Crisis-hit countries may have turned the corner
• http://www.spiegel.de/international/europe/german-report-crisis-hit-countries-have-become-more-competitive-a-852813.html
• Is this the Fed's secret weapon?
• http://www.zerohedge.com/news/feds-secret-weapon
• Germany is cornered
• http://www.zerohedge.com/news/germany-cornered
• More dangerous than Sarah Palin
• http://www.spiegel.de/international/world/paul-ryan-represents-the-conservative-wing-of-a-conservative-party-a-853015.html
• 
  

PIMCO: The Chinese Hangover in Steel

PIMCO came out with a short comment on China's steel industry.  It is worth a read.  You can find the link below.  The key takeaways:

1. China's consumption for steel over the past decade was driven by an export-based investment model. This model attracted foreign capital investment in manufacturing in order to take advantage of China's low-cost labor advantage.
2. Going forward, the government is shifting it's fiscal focus from public investments to tax cuts and consumption subsidies.
3. PIMCO estimates that there is 850m metric tons of capacity in China.
4. The ripple effects of this supply glut could lead to more softening in iron ore prices, a weaker Australian dollar, and the most obvious, weaker global steel prices.

Perhaps a good pair trade would be to long the low-cost suppliers and short the higher-cost suppliers...

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