Around the Globe 07.16.2013

Pimco’s El-Erian: Where does the Fed get its numbers?.

From ZeroHedge

From ZeroHedge

To attain the Fed’s forecast of 2013, growth must pick up significantly in the second half.  First quarter growth was 1.8%, and 2nd quarter growth will not be more than 1.5% so the economy must expand by over 3% in each of the last two quarters to achieve the forecast number.

Optimism replaces realism when it comes to economic forecasts.  The chart above shows how economic forecasts are scaled back as we approach the event horizon.  It’s either time to throw out those pre-2008 economic models or the economists who continue to use them.

Real Wages Still Below June 2009 Level – Real Time Economics – WSJ.

Real Wage Growth Since 2009

From the Wall Street Journal

For the vast majority of Americans who work for a living, there has been no economic recovery.  In fact, the chart reveals an ongoing labor recession.  Unearned income will never be spent on houses, cars, clothes, food and other goods.  The real story of the recovery is that there isn’t one.  Cheap money has inflated asset prices primarily benefiting corporations and the 1% while not promoting a turnaround in the job market.

Home builder confidence soars despite rising rates.

From ZeroHedge

From ZeroHedge

The mainstream media loves it housing recovery narrative.  It is very excited that various measures of housing sentiment have reached their 2006 bubble highs while omitting what happened afterwards from its reports.  Today’s Chart of Truth illustrates how rising rates are quickly making housing less affordable.  Sales will drop precipitously shortly, but the housing recovery narrative will live on.

Consumer inflation stabilizing, industrial output up | Reuters.

Industrial Production in U.S. Rises by Most in Four Months – Bloomberg.

Surging gas prices fuel jump in consumer prices.

US Industrial Production 07.16.2013

From Bloomberg

There is much excitement in the air because industrial production jumped the most in four months, but this is not saying much.  Production actually decreased in two of those four months and five out of the past twelve.  Moreover, high energy prices are stoking dormant inflationary pressures.    The bottom line is that economic indicators are mixed with corporations and rich faring well while the U.S. worker remains stuck in a labor recession.

Europe Car Sales Slump as German Sentiment Wanes: Economy – Bloomberg.

Euro-Zone Exports Slump in May –

EU New Car Registrations 07.2013


The auto industry is a huge driver of economic growth in Europe.  There will not be a recovery in the Eurozone without a a recovery in auto sales, and the chart indicates that this is not in the cards.  Furthermore, Eurozone exports have been falling for the last three months.  If Europeans are not buying products, like cars, from each other and foreigners are buying less European exports, then what will spur the much-hyped recovery in the second half of the year? Sorry, that’s a trick question.  There will be no recovery, just a continued recession and a lot of talk.

Coke profit falls on wet weather, weak economy | Reuters.

Coca Cola 07.16.2013

From Yahoo Finance

The effect of the Eurozone recession is creeping into the results of American multinationals.  Coca Cola’s European sales dropped 4% in the second quarter.  The soft-drink purveyor blamed the weather rather than the real culprit, the Eurozone’ recession.  Why? Because the weather will change, but the recession is here to stay.  How else can you forecast stronger sales in the second half without the underlying economic fundamentals?

Analysis: Low rates pledge buys time but builds risk for fragile banks | Reuters.

Wealth Products Threaten China Banks on Ponzi-Scheme Risk – Bloomberg.

China 7 Day Repo Rate 07.16.2013

The Chinese financial system has reached the Ponzi stage.  Banks are desperately seeking more capital to keep the game going, also known as “extend and pretend.” Chinese banks create these wealth management products to maintain extra capital.  Since most of these securities lack bank guarantees, they bolster bank liquidity more than demand deposits.  In exchange for higher rates, Chinese savers are taking on a lot of risk while believing that they have old-fashioned, insured bank accounts.  This did not turn out well for Spain, and it won’t end well here either:

Spain Bank Sub Bondholders Try to Sell – | DARECONOMICS.


Rupee Hits More Than Two-Week High –

USDINR 07.16.2013

From Yahoo Finance

India just surreptitiously raised its key lending rate.  While there was no change in the 7.25% rate discount rate, the Reserve Bank of India limited the amount of funds available for overnight loans to 750bn rupees.  This move has helped the rupee rally, but it still remains at inflation rates around 60 to the greenback.  In order to strengthen its currency, the RBI must raise rates, but it will try to avoid this as long as possible so it does not crimp already tepid economic growth.


4 thoughts on “Around the Globe 07.16.2013

  1. The real wage chart is completely deceiving because it hints at wage not income.

    ” For the vast majority of Americans who work for a living, there has been no economic recovery. ”

    This (your) statement is absolutely true,
    and I believe the real wages chart is a false chart.

    I have said this a number of times,

    very simply put

    I) real estate brokers, were for the most part selling say 30 homes a year,
    now selling 10 homes a year
    ii) architects, the same, they are said to be one of the worst businesses to be in
    for someone graduating from school
    iii) home construction the same, were building 30 a year now building 10
    iv) the deli owner, was selling say 500 sandwiches a day to I, ii and iii above, now selling 200 sandwiches a day
    v) the local dress – the local frame shop – the local furniture store, the local car dealer
    if not now vacant, selling 1/3 what they used to – two local car dealerships closed up in our
    area; I now have to drive 30 minutes to get my car serviced where before it was 3 minutes.

    The list goes on. I see it every single day.

    None of the above, except those that closed up, are on unemployment.
    They are not unemployed, their income has been cut in 1/2.

    I will take your statement one step further, for the vast majority of Americans who work
    for a living, not only has there been no economic recovery, but it has gotten worse. They hung on 2008 – 2012 suffering reduced wage, keeping the doors open in hope of a recovery, but now are learning they can no longer keep the doors open.

    It will get worse before it gets better, if it ever gets better.

    You cannot pay a wage of say $ 10. an hour in US when in India it is .50 an hour
    or in China $ 2 an hour, and handle all the paperwork, licensing, insurance,
    environmental that increases cost in US (these other Countries do not have)
    and expect to maintain any manufacturing or other similar job in the US.


    The trade deficit continues to climb

    ” The U.S. monthly international trade deficit increased in May 2013, according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $40.1 billion in April (revised) to $45.0 billion in May as exports decreased and imports increased. The previously published April deficit was $40.3 billion. The goods deficit increased $5.0 billion from April to $63.4 billion in May; the services surplus increased $0.2 billion from April to $18.4 billion in May. ”

    It will continue to get worse, there is no end in sight currently.
    US administration placing carbon tax and additional environmental constraints
    simply adds fuel to the fire. You could not crush US manufacturing better if you tried.


  2. People need savings. We need to invest in something today that will hold its value in the future, so as not to be left begging for handouts when we’re old and feeble.

    There’s no point saving paper money that central bankers can devalue at will. Few Americans own much precious metal. Most of our saved wealth is in our houses, so we cheer when home values rise, weep when they fall, and design our public policies (e.g. zoning laws) to make housing more expensive.

    This is perverse. Young adults need safe, spacious, affordable housing close to good jobs if they are to marry and raise children. Forcing them to live with their parents or rent studio apartments leads to Japanification and eventual extinction. Section 8 makes this worse by bidding up rents on family-sized apartments, and subsidizing only the families least likely to incubate productive citizens.

  3. “You cannot pay a wage of say $ 10. an hour in US when in India it is .50 an hour
    or in China $ 2 an hour, and handle all the paperwork, licensing, insurance,
    environmental that increases cost in US (these other Countries do not have)
    and expect to maintain any manufacturing or other similar job in the US.”

    I do not agree with your statement that there is more paperwork, licensing, insurance,
    environmental hurdles (bureaucratic hurdles). In fact there is more red tape in India.Just see countries which is easier to do business in and just search for number of projects stalled for clearance in India.

    • Piyhatt you are possibly correct. However, I note the following from Wikipedia:
      “There are many environmental issues in India. Air pollution, water pollution, garbage, and pollution of the natural environment are all challenges for India. The situation was worse between 1947 through 1995. According to data collection and environment assessment studies of World Bank experts, between 1995 through 2010, India has made one of the fastest progress in the world, in addressing its environmental issues and improving its environmental quality.[1][2] Still, India has a long way to go to reach environmental quality similar to those enjoyed in developed economies. Pollution remains a major challenge and opportunity for India.”

      So while progressing rapidly, I understand the requirements in India are no where near the US requirements. If that is wrong, I apologize.

      The point remains the same, and I was using that as an example. For instance, I know of all the lead pollution and devastation in China caused by lead and lithium ion car battery creation. Things that could never be possibly done in US are of course done regularly in China and Mexico. If not in India too I apologize.

      I also am aware of the carbon tax the US is currently trying to impose. So not only are things difficult already in the US, the current administration seems to be creating higher hurdles and greater cost. The obvious result, more manufacturing will leave the US. Obviously the carbon tax will be passed to the consumer, when the electric bill to manufacture grows, the cost grows, and the manufacturing leaves.

      The point being, the cost of a good manufactured in US includes not only a significantly higher wage, but perhaps greater medical insurance coverage, greater insurance PERSONAL INJURY LITIGATION coverage, environmental restriction. Accordingly the cost to produce in US is significantly greater. So there is obvious reason why manufacturers leave the US. There simply is no way to compete, if held to higher standards and greater costs.

      Despite Bernake’s monthly “printing” of billions, there is no reason to believe the trade deficits will reverse, or to believe manufacturing will come back to US in any significant manner.

      The facts are the facts; the trade deficit continues to increase significantly with no end in sight.

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