Around the Globe 09.30.2013

Japan Economic Recovery Remains Uneven as Production Declines –

Japan Industrial Production Through September 2013

No matter where the money printing occurs, the results are the same.  The Bank of Japan’s latest foray into the world of QE has predictably made banksters, speculators and corporations more money while the rest of the country fares poorly.  Of course, there are economic”bright spots” caused by asset price inflation, but they will be unable to spread sustainable growth throughout the Japanese economy.  After witnessing two other QE programs courtesy of the Fed and the BoE, it is safe to conclude that these are the effects of money printing:

  1. Record high bank profits
  2. High corporate profits from financial engineering and cost cutting.
  3. Bull markets for both stocks and bonds
  4. Rising real estate prices
  5. Falling employment levels:

Labor Force Participation through August 2013

Chicago Index Increases in Sign U.S. Manufacturing Improving – Bloomberg.

Dallas Fed Manufacturing September – Business Insider.

Texas Manufacturing Outlook Survey – Dallas Fed.

Chicago PMI Employment 09.30.2013

The mainstream media enjoys telling the reader what to conclude from the facts they report.  In this particular article, Bloomberg tells us that the rising PMI number is a “sign” of improving American manufacturing conditions.  Perhaps it is, but the article fails to place these numbers in context.

The reason that we desire an improving manufacturing sector is because factory owners used to hire more workers to increase production, but this dynamic is no longer part of the new normal.  As our chart above illustrates and our table below shows is that employment conditions remain soft.  While the factory owners are earning excellent profits, these are not trickling down to workers.

Manufacturing accounts for 12% of the economy but this is dwarfed by consumer spending’s 70% share.  The economy will not get moving until the consumer income begins rising no matter what these various manufacturing surveys have to say about output.

Dallas Fed Survey

Italian Premier Pursues Last-Ditch Rescue of Government –

Berlusconi faces party revolt over Italy political crisis | Reuters.


Word today is that Berlusconi’s party is balking at their leader’s request for members to resign from the government.  The PDL’s full complement of five government ministers resigned, but rank and file legislators are threatening to support the coalition.  If a few defect, Letta will retain a slim majority, and the present government will live to fight another day.  This is what I wrote yesterday, and I stand by it:

Italy has had 61 different governments since 1946 and is about to try for a 62nd.  While the financial press is attempting to whip everyone into a state of frenzy over the “crisis”, this situation is fairly typical of Italian politics.  Governments in Italy only last about 13 months on average, and this one is already six months old.  Usually Italy can get by without anyone ruling the country because the civil service is running the country.   This time is different because Italy requires its duly elected government to enact budgetary and economic reforms.

While political instability is not good news, the current situation is overhyped.  In a few days, there will be a deal, because there is always a deal.  In the meantime, European markets are in store for a bumpy ride.

EU bank bailout roulette awaits Monte dei Paschi investors | Reuters.

BMPS 09.30.2013

The theme of this article is that Europe is not being consistent in how it is resolving the banking crises that have been breaking out in member countries since 2009.  I believe that the Eurozone has been very consistent in its resolution efforts.  Even though the plans for Ireland, Spain, Portugal, Greece and Cyprus are different, this is not where the commonality lies.

Eurozone bank/country rescues are based on the exposure of German, and to a lesser extent, French banks.  German and French banks had lots of exposure in Greece and Ireland, so Greek and Irish systems were fully bailed out by the Eurozone.

The French and German bank did not have much exposure to Cyprus, so the depositors and investors were forced to pay the lion’s share of the bailout with the troika contributing a small loan.

If Monte dei Peschi’s failure will adversely affect French and German interests, then it will receive a Eurozone bailout.  If the effects of the failure will be limited to Italy, then Italy will have to pay to clean up its own mess.


One thought on “Around the Globe 09.30.2013

  1. Please explain how French and German banks avoided haircuts as part of the Greek PSI? Did they liquidate their Greek sovereign debt holdings in advance of the PSI? If so, who took the hit? Any insight would be much appreciated.


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