Around the Globe 09.09.2013

Japan Q2 GDP revised up sharply, boosts case for tax hike | Reuters.

U.S Stocks Rise Broadly –

Japanese GDP Performance Revised 2nd Quarter

This article is essentially cheerleading for Japan.  Here’s the lede:

Japan’s economy expanded much faster than initially expected in the second quarter, adding to growing signs of a solid recovery taking hold. (My emphasis)

Note how the recovery narrative thwarts any chance of real reporting.  The revised GDP figure is presented without context and assumed to be within a group of “growing signs” pointing to recovery.  There are also growing signs that this burst of economic activity is not indicative of a growth trend, but merely a continuation of Japan’s stagnation.

Inflation, fed by soaring energy costs, is reducing consumers’ purchasing power and crushing retail sales with a 1.8% plunge last month:

Japan Retail Sales

GDP growth was not that special, anyway.  Japan has exceeded or equaled 0.9% in exactly 10 out of 24 quarters without a revival in Japan’s postwar growth miracle. Just like the U.S, Japan’s economic picture remains mixed.  Those closest to the Bank of Japan’s easy money will do well, while regular people will remain recovery free.

China Trade Rebounds in Further Sign Economy Stabilizing – Bloomberg.

China Exports

As you can see for yourself, Chinese exports are an extremely volatile data series.  This volatility makes for an unreliable economic indicator.  Moreover, Chinese firms have more leeway on how they may invest export earnings giving them a large incentive to cook the books.  In May, Chinese regulators began cracking down on inflated export invoices, and liquidity dried up quickly almost causing a full-blown crisis.  By the beginning of July, the liquidity swoon had abated.

So, what does the rise in Chinese exports tell us? Is the country experiencing stronger GDP growth? Have the authorities stopped their crackdown allowing firms to inflate their export receipts again? Is the rise in exports just a spike in the data series that will not sustain itself?

These are all valid explanations for the rise in exports, but Reuters explores only the first one.  Once again, the recovery narrative trumps real reporting and analysis.

China Aug inflation another sign economy is stabilizing | Reuters.

China GDP vs. Housing Prices 08.2013

Chinese economic data is not reliable, but that does not stop anyone from attempting to draw conclusions from it.  Chinese inflation is under-reported by the government through one simple trick.  Housing inflation is reported as only 8% since 2000, while rents have skyrocketed over 50% during this same period.  Moreover, housing prices have risen much more than the official figure.  Once China’s greater rate of inflation is considered, it’s economy is about $1tr less than officially reported.  If you don’t believe me, then read this excellent report about the scam:

How Badly Flawed is Chinese Economic Data – $1 Trillion and Over Hit to GDP.

Monte Paschi doubles planned capital hike to 2.5 billion euros | Reuters.

BMPS 09.09.2013

Back in February, we predicted that BMPS would need much more than €1bn to fill its capital shortfall and that the bank was heading towards nationalization in this post:

Latest Chapter in the Monte dei Paschi Scandal

Today, we were proven right.  There is no way that the bank will be able to raise €2.5bn on its own, which means that the Italian government will be bailing it out shortly.  Depositors prepare to be Cyprussed.

Spain Cash-Starved Firms Seeking Growth Run Out of Time – Bloomberg.

Spain Loans to the Private Sector 09.2013

While the Spanish government continues to proclaim that the economy is recovering, the economy seems to have other ideas.  GDP continues to contract, and it is not hard to see why.  Spain’s zombie banks cannot make loans, and without capital Spanish companies are dying.

On the other hand, German bank lending is doing fine:

German Loans to the Private Sector 09.2013

The ECB is running the perfect monetary policy for Germany, which is exactly the opposite of what the PIIGS need right now.  As long as the euro exists, so will this problem.

Unemployment Falling for Wrong Reason Creates Fed Predicament – Bloomberg.

Withholding vs Employment 9-13

The article implies that there is a lot of controversy over the true health of the labor market. There shouldn’t be any controversy.  The labor market remains weak according to every indicator.  Median incomes are down 8% from their 2007 peaks, the participation rate continues to decline, the majority of new jobs are part-time and low quality, and even the heavily manipulated headline unemployment rate remains historically high.

QE has not and will not ameliorate the employment situation.  The Fed needs to end QE for other reasons and needs optical improvements in the labor market so that it can declare victory and go home.  Once enough Americans exit the labor force, it will be able to point to a sub-7% unemployment rate declare the labor market health, which will come as a surprise to millions of Americans earning less, working less or not working at all.


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