Around the Globe 10.23.2013

High-End Spenders Shrug Off Headwind –

Consumer Confidence by Income Group

Around the U.S., the same song plays ad nauseam.   The more money you have, the more money they give you.  Money printing has been very good to the rich raising the prices of their asset portfolios while the majority of the country suffers an unprecedented five year labor market recession.  In yesterday’s post, Around the Globe 10.22.2013 , we examined rampant inflation in the collectibles market.  Today, we learn that the market for high-ticket items is robust buttressing our argument that the “recovery” is exclusive to the rich.

The truth is that QE is not the solution to the problem, it is the problem.  Money printing is a particularly insidious because it helps the rich while crushing the labor market and therefore the working class.   Fortunately for the banksters, their central bank and their government, no one will figure out what is happening until long after they have taken their profits.
Full post with charts, images and links:

Draghi Says ECB Won’t Hesitate to Fail Banks in Stress Tests – Bloomberg.

ECB to Start Review of Bank Balance Sheets –

Net Bank Assets as a Percentage of Host Country GDP


Draghi’s job is too talk tough.  That’s what he was doing in July of 2012 with his pledge to do whatever it takes to save the euro, and that’s what he is doing now by claiming that he won’t hesitate to fail banks next year.  As the chart above illustrates, European banks are overlevered, TBTF disasters waiting for an opportunity to happen.  If ING bank failed, the Netherlands would not be able to bail it out as the institution’s balance sheet is twice Dutch GDP.

These tests will be merely be a continuation of the laughable stress tests that have been conducted so far.  The regulators will arrive, audit and admonish.  The banks will make a few minor changes to their capital structures to enable them to continue the sovereign debt purchases that are keeping the PIIGS afloat, and everyone will be happy.

Meanwhile, bank lending will continue to flag in the periphery, and eventually the disease will spread to the core.  Europe’s economy will stagnate indefinitely, but at least a collapse is not imminent.  As in the U.S., the wealthy’s lot will begin improving at the expense of the worker.

Spain Ends Two-Year Recession Amid Effort to Add Jobs – Bloomberg.

End of Recession in Spain Fuels Hopes for Euro Zone –

Spain emerges from two years of recession –

Spain Retail Sales Performance Spain Employed Persons


The mainstream financial press loves its Spanish recovery narrative and continues to tout it even as Spain remains in a depression.  This is the growth that MFP is getting excited about:

Spain GDP Performance


0.1% could be a rounding error, but instead it is hyped as a win for Spain.  As you can see above, Spain has only grown in 8 of the last 24 quarters and has not put together four consecutive quarters of growth since the GFC.  Moreover, total employment and retail sales are still falling proving that the depression continues.

There is no reason why the facts should get in the way of a good narrative.  This article cherry picks data, combines that with a couple of anecdotes from reliable, go-to permabulls, and declares victory.  If you need to use a quote, at least pick one that’s accurate instead of this:

“We are optimistic on the euro periphery as a whole and Spain in particular,” said Robert Wood, an economist at Berenberg Bank, which forecasts growth of as much as 1.4 percent in 2014. “The country has made big structural changes, it’s been engaged in a lot of deficit reduction, business sentiment is improving and unemployment is probably close to a peak.”

Sell-side economist Wood makes a rosy growth prediction for Spain based on three facts and an additional prediction.  Let’s see if the foundation can support the house.

First, the country has not made big structural changes.  Firing workers is no easier today than it was a few years ago.  A few superficial changes have been implemented, but these are largely ineffectual as illustrated by our second chart showing an ongoing reduction in the labor force.  Second, it has not been engaged in a lot of deficit reduction:

Spain Budget Deficits Last Decade

Last year, the deficit was close to 11% having risen from 9.4% in 2011.  Since the onset of the new normal, the Spanish government has underestimated its budget deficit by at least three full points.  This year, Spain has an EU mandated deficit target of 3.8% for the year.  Through July, it ran a 4.38% deficit.  Extrapolating this number to the full year, we get a 7.5% deficit.  Adding in the traditional Spanish forecasting “error” of three points, we come to a grand total of 10.5% for the year.  There has been no deficit reduction, and total debt levels continue to rise.  Spain will cross the 100% debt-to-GDP level sometime in the first half of 2014.

Third, business sentiment is improving:

Spanish Business Confidence


but note that Spanish businesses remain unconfident as they have since 2008 they are just less unconfident than they had been.

Fourth and last, the shill bases his rosy GDP prediction on a rosy labor market prediction.  Spanish unemployment is probably at the peak as companies have already fired everyone they need to for now, but this is much different from a growing workforce.  Just like in the U.S. falling unemployment numbers belie the true, dismal state of the labor market.

Moreover, GDP growth was driven by export growth.  The euro has appreciated since then and with weak economic conditions prevailing in Spain’s largest trading partners, continued export growth will be elusive.

The bottom line is that Spain remains in a depression, and the data points to continued economic pain despite the hype.



Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s