The PMI numbers from both HSBC and the Chinese National Bureau of Statistics are at 50.1 and 51 respectively. These numbers indicate a slight amount of growth, but that is better than a contraction. Has the Chinese economy gained momentum? Well, the last two trips above 50 were temporary respites from the contraction, not a second coming of the Chinese miracle.
Inflation is a sign of strength in a growing economy reflecting increasing demand. Current central bank dogma holds that the reverse is true. By stoking inflation through increasing the money supply, central banksters believe that they can organically grow the economy. This belief is akin to raising one’s body temperature through a hot bath or exercise so that the flu develops.
While the mainstream media cheerleads the Bank of Japan’s successful efforts to create inflation, note that virtually all of the increase in the inflation rate are a result of higher energy prices, not increased demand. Stripping out these prices reveals a Japanese economy still in the throes of deflation as illustrated in our chart above.
Higher energy prices simply mean that Japan is sending more of its hard-earned yen overseas to purchase oil. This leaves less yen for Japanese consumers and businesses to spend on Japanese products. Note the deteriorating balance of trade:
Berlusconi had been issuing veiled threats about bringing the current government down for the last few months. Then, he unveiled these threats during a television interview. Later, he disavowed those threats saying that he wants the government to survive. Bunga bunga.
From Monday’s Edition:
Orders are volatile by their nature, but economists use this data because it may reveal information about the future. Changes in orders tip off changes in future production. Durable goods orders plunged over 7% this month, but this is not an unusual result due to the volatility in this series. What is concerning is the change in product shipments. The downward trend in shipments has happened twice before in the last 13 years. You can check for yourself to see what happened next.
From Tuesday’s Edition:
If you believe that these housing prices are sustainable, consult the first headline above and then examine the chart. Home prices are rising at nearly the same pace as they were when the bubble was inflating in the mid-aughts, and CNBC is calling the housing market the “new stock market.” Moreover, Robert Shiller has called the current price increases meaningless as they reflect speculative activity. Over 60% of the sales are all-cash deals.
Since the American worker is not earning enough to buy his own home, who will repurchase those speculators’ properties when they attempt to cash out? Don’t peddle fantasies about massive REITs holding thousands of rental homes. There are virtually no economies of scale associated with single-family home rentals, and state landlord-tenant laws vary widely. This is a nonstarter as a business, so the question remains: how will the speculators cash out?
From Wednesday’s Edition:
The Fed’s money printing has done little to stimulate the labor market but has created asset bubbles across the world from which the TBTF and the rich are profiting nicely. Wall Street is doing fine, while Main Street struggles.
After all of that money printing, the Fed is telling us that the economy is strong enough to stand on its own. While this seems like crazy talk, to those influencing monetary policy this narrative seems accurate. The net worth and salaries of top Fed officials places them squarely within the wealthiest 7% of the U.S. That income group is doing so well that it raises the averages and medians of the country distorting the true view of the “recovery.”
The bottom 93% is experiencing a very different economy, particularly since this group derives most of its wealth from its toil:
Which brings us to the reason why the Fed will continue printing until a crisis forces it to change tack: too many rich and powerful people depend on their current level of wealth based on the suppressed rates and almost daily injections of money of the Fed’s current policy.
The Fed will not change its policy, because it will lead to a market panic making all of those rich and powerful people just powerful. If the market tanks, it will be the proverbial black swan doing its magic.
From Thursday’s Edition:
Let me get this straight. Indians have realized that their currency is becoming worthless and have been purchasing gold to preserve their wealth. The RBI’s genius plan is to offer to purchase this gold back from the people in exchange for that same currency.
RBI, the problem is that your citizens do not wish to hold your paper anymore. If you want banks to buy gold back from consumers, then don’t offer rupees. Pick another currency instead. Ollie Rehn was just telling us how awesome the economy in the Eurozone will be in 2014, so maybe you could offer Indians euros. Just a thought.
Volatility in emerging markets has been rising in the last two weeks or so, but I believe the trend will cease and retrace a bit after Labor Day when liquidity conditions improve. Unfortunately, this will prove to be a temporary respite until Uncle Ben cranks up the magic money machine again.
From Friday’s Edition:
Today’s award for the most misleading headline of the day goes to the Wall Street Journal. Eurozone unemployment did fall slightly; about 24,000 less people were unemployed in July than in June. The reason why the headline is not accurate is because a shift in 24,000 in a population of close to 20 million should not be considered as a change either way, because the number is too small to be significant. Basically, a decrease of one-tenth of one percent is probably within the error range for the survey.
Moreover, the real story of the Eurozone’s employment picture is right here:
the number of people working declined 668,000 or about 0.5%. This was the steepest monthly drop in the workforce since the beginning of the Eurozone recession. Perhaps the GDP recession is over in the Eurozone, but the labor recession wears on.