Around the Globe: Weekend Edition September 7-8, 2013


Fannie Mae, Freddie Mac Remain Unfinished Business Five Years After Financial Crisis –

Government Share of Mortgage OriginationsIf anyone ever tells you that the housing market is healthy, then that person needs to examine this chart.

Since the onset of the Great Financial Crisis, the federal government has doubled its role in the mortgage market. The so-called housing recovery is being supported by Fed money printing and the easing of lending standards with the tacit acceptance of the government.


Greek premier says economic pain will ease next year | Reuters.

Bad IMF Predictions 2

The Greek Prime Minister has been yammering about the light at the end of the tunnel since he first took office in 2012, and he has been consistently wrong.  The mainstream media refuses to put these predictions in context by informing the reader that he has been making the same claims for a year! Eventually, he should be right.

Unfortunately for the Greek people, it is not today.  While a strong tourist season lowered the rate of contraction, the season is over and will have a negligible effect on third and fourth quarter results.  Unemployment remains over 26%, and the economy continues to shrink at almost a 4% pace.  Despite the mainstream media’s hyping of the “Greek Recovery” since the Spring, Greece’s economy has shown no signs of a pick up.  Note how well the official forecasts for Greek economic growth and unemployment have performed above.

From Friday’s edition:

Greek Economy Contracts Less Than Expected –

Greek GDP Performance Through 2Q2013

Only in the Eurozone could a 3.8% rate of GDP contraction be viewed as a positive development:

“The figures were much better than our expectations,” said Nikos Magginas, senior economist at National Bank of Greece. “The target for a 4.2% contraction for the full year is feasible, and since we are expecting an equally strong third quarter it could even reach 4%.”

The rate of contraction has decreased for three straight quarters leading the mainstream media to declare that Greece is emerging from recession after “analyzing” the data.  Well, analyze the data a little more.  On three separate occasions since the beginning of the crisis, Greece has witnessed this same trend as illustrated by the red circles.  You can see for yourself what happened next.

Don’t put the checkbook away just yet, Angie.

Nonfarm Payrolls Through August 2013

Yesterday, the mainstream media got very excited about the drop in initial unemployment claims.  Various outlets proclaimed that the number represented labor market strength.  Today, the labor market is weak again.  Only 169,000 jobs were added in August and the last two months were revised downward.  In the last two years, job growth has exceeded the 200,000 necessary to keep pace with the country’s population growth only seven times and has never approached the 400,000 that would be indicative of a respectable labor market as you can see for yourself in the chart above.

Job creation is woefully inadequate for this stage of the recovery, and 144,000 created jobs out of the 169,000 are mostly low-quality positions like retail and food service.  Since consumers are not earning enough money, they are relying on credit, which means even the lackluster economic growth we are experiencing is unsustainable.

From Thursday’s edition:

Spain’s Deficit Struggle Shows Threat to ECB Rally – Bloomberg.

Spanish GDP

Earlier in the year, we covered the funny numbers emanating from the Tesoro in Spain in this post:

MSM Begins Reporting Actual Spanish Numbers.

I predicted the 2013 budget deficit for Spain of 8% with the potential for 10%.  The naysayers told me that I was crazy, so let’s check in with our amigos in Spain and see if they will be able to meet this year’s 6.5% target.

Spain has a deficit of €45bn throughout the first seven months of 2013.  Those numbers yield a €6.4bn per month deficit spending pace leading to a deficit of at least €77bn.  This number is 7.7% of the Spanish GDP of approximately €1tr.  It does not include arrears to suppliers and provincial governments, or any other trick.

At the present rate of deficit spending, Spain should cross the 100% debt to GDP ratio sometime in early 2014 just like we said in February.  I hate to say I told you so…

From Wednesday’s edition:

GM to Ford Sales Climb in Best Month for U.S. Since 2007 – Bloomberg.

U.S. auto sales on pace for best month since November 2007 | Reuters.

GM, Ford, Toyota and Chrysler Log Strong Sales –

Light Vehicle Sales Pace 1976-2013

Cheap money is being used to paper over the problems in the economy.  Light vehicle sales have rebounded to pre-GFC levels, and at first glance, this is a positive development.  However, the information is being presented without context.  Placing August’s sales results into context places a giant gap in the mainstream media narrative.

First, a sales pace from 2007 isn’t that great.  The red line illustrates that from 1997 to 2007, auto sales surpassed this month’s pace in all but two months while the country’s population was lower, 267 million to 302 million in those years compared to 316 million today.  Since 1998, the country has added six New York Cities, but auto sales have basically remained flat during this time.

Second, in light of this chart showing declining incomes for Americans

US Household Income Performance Since 2000

you may wonder where people are getting all of this money to purchase shiny, new cars.  Wonder no more:

Subprime deja vu: Bank car loan lending standards ease:

  • A record 84.5 percent of people acquiring cars in the second quarter financed the deals with loans or leases, Experian said on Tuesday. That is up from 79.7 percent in 2008.
  • The shifts came as average credit scores for new car loans from all lenders fell for the fourth consecutive year.
  • U.S. banks made 36 percent of their car loans to subprime borrowers in the second quarter, up from 34 percent a year earlier, according to data from Experian.
  • On nearly 20 percent of new car loans, lenders take the additional risks of allowing borrowers six to seven years to repay.
  • Total U.S. outstanding auto loans rose to nearly $751 billion, up 10 percent from a year earlier.

Credit fueled expansions are never sustainable.  In addition to the various bubbles created courtesy of your Federal Reserve, please add the “New Car Bubble” to the list.

From Tuesday’s edition:

Mobius: The rupee rout will be over soon.

USDINR 09.03.2013

Mobius believes that the rupee rout is almost over, but I am not so sure.  Economic growth is slowing, consumers are continuing to purchase gold exacerbating India’s current account deficit and the government does not seem to be able to handle the situation before 2014 elections.  More financial distress is within India’s immediate future.

5 thoughts on “Around the Globe: Weekend Edition September 7-8, 2013

  1. Great analysis! Keep up the good work!

    I have to admit that the central banks in the US, EU and Japan have done an amazing job of keeping the Potemkin Village economy alive. I would of thought that the back up in rates in the US alone would have had a more consequential impact on sentiment and markets. The more I learn, the less I know.

  2. Thank you for this. I am just asking for your opinion (which yes, may well be wrong), but do you think that home prices will go down more? I mean, I need to buy a house in San Antonio, Texas, which is a growing city, and I prefer not to wait. Again, I know this is only your opinion.

    • House prices will probably remain around current levels or even rise over the next few months because mortgage rates still remain low, even though they have risen recently. Good luck.

      • Ok, I see. But further on down the road interest rates will rise and then housing prices will go down? I wonder, though, how long until this happens. If QE keeps on chugging along, I assume it could be a long time. What do you think?

      • Perhaps. Keep in mind that whenever rates rise, so will your monthly payment. Basically, any gains you receive from a lower price may be taken away by higher rates. If rates crush home prices, a cash buyer could still get a deal.

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