Look at all that red in the charts above. All the world’s markets are having simultaneous taper tantrums. It seems that by tipping an end to QEternity that Uncle Ben has unleashed something that he cannot control. The dollar is strengthening, so that means that everything else is weakening. Note that the U.S. bond and stock markets are a bit more resilient than all the others. The biggest losers from the taper talk:
- Spanish and Italian bonds are both down over 6%.
- Silver and gold have both breached psychologically important levels at $20 and $1300 respectively.
- The Aussie is rapidly approaching .90 to the $.
It looks like it is another central bank’s turn to crank up the printing presses. Can you hear me Mario? The further those PIIGS bonds slide, the more likely it is to be you.
Astute readers of Dareconomics have been keeping an eye on China for months now, and it is about time that the mainstream media caught up. China is producing less and consuming less, and this does not bode well for the world economy.
The chart above illustrates the weakness in Chinese manufacturing with the sector plunging into contraction after months of stagnation. There was no good news in the Flash PMI report. Every factor is decreasing with the only expansion coming from inventory due to decreasing sales.
Meanwhile, the Chinese financial system is in a full blown credit crunch, which has been induced by the PBOC to burst the credit bubble. The PBOC should be wary. The unintended consequences of bubble bursting are always severe. For this reason, it is best to prevent bubble formation in the first place, but now that the horses are gone we might as well get down to the business of shutting those stable doors.
The plus side to the taper tantrum is the falling price of oil. This dynamic could really help the world economy, particularly energy poor regions such as China and Europe. On the other hand, this will also raise instability in the Middle East as unstable governments depend on oil money to hold everything together.
As you can see in the chart above, the oil price has been meandering for quite some time, but it appears that Uncle Ben has finally given the market some direction.
Every month we are told that we are in the midst of a housing recovery, yet the numbers do not support the narrative of the mainstream media. Existing home sales have now recovered to levels seen right after 9/11, about 5mm houses per year. This number is 30% below the peak in 2006 and occurs in a country that has another 30mm people or so. Housing is constantly referred to as a “bright spot” by the mainstream media, but it is not strong enough to produce an organic economic recovery. If GDP growth rises to 3.5% in the next three quarters, I will have no problem saying that I was wrong.
When journalists write about the things that they do not understand, the result is this inaccurate statement:
Euro-area services and factory output increased more than economists forecast in June, adding to signs the currency bloc may emerge from its record-long recession in the second quarter.
PMI is a simple concept. A number over 50 indicates an increase in economic activity while a number under 50 indicates contraction. The number for June is 48.7 as seen on our chart above, which means Eurozone GDP is contracting, not increasing “more than economists forecast in June.”
Now, let’s help our friendly representative of the mainstream media by rewriting the passage so it accurately reflects the survey results:
Euro-area services and factory output decreased less than economists forecast in June, adding to signs that the Eurozone is still mired in recession with no easy path back to growth.
Economists forecasting an end to the Eurozone recession are not paying attention to slackening demand in China, the U.S. and emerging markets. Who will be buying all of those growth-spurring exports?