Around the Globe 10.25.2013

U.S. durable goods orders, sentiment suggest politics hurting economy | Reuters.

Durables rise, but aircraft surge hides underlying weakness.

Durable Goods Orders Through 09.2013

Durable goods orders are probably at or near peak at this stage of the “recovery.”  A large increase in orders for aircraft masked a 0.1% decrease in the rest of the series led by a 1.1% fall in capital spending.  Even though economic conditions remain tepid, the MFP is trotting out the government shutdown to explain this weakness despite the fact that the government shutdown occurred in October and the survey period was September.

Shutdown Dims Consumer Optimism –

Consumer sentiment weakest since December 2012 in October.

U.S. consumer sentiment slides in October on government shutdown | Reuters.

Consumer Sentiment in U.S. Fell to 10-Month Low in October – Bloomberg.

UM Consumer Sentiment Through October 2013

According to the MFP, the dip in consumer sentiment was driven by the shutdown; yet, the shutdown began on October 1.  Consumer sentiment declined in both August and September prior to the shutdown.  The MFP recovery narrative controls all.  If the economic data does not confirm the narrative, then it is either ignored or explained away.  With the shutdown resolved for now, the MFP will have to rely on bad weather to provide appropriate economic excuses.

ECB Bond Figures Paint Picture of a Happier Euro Zone – MoneyBeat – WSJ.

Banks in Spain, France and Italy sell govt bonds in Sept -ECB | Reuters.


The recovery narrative is not just confined to the U.S.  The MFP reports that the eurozone is recovering, too. The latest “sign” is that European banks have begun reducing sovereign bond holdings with foreigners supposedly loading up on creaky euro sovereigns.  Once again, small, positive moves in the data have been distorted to conform to the narrative.

It is true that Spanish and Italian banks have reduced their holdings by €11.5bn and €8.1bn respectively, but these numbers are completely shorn of context in the article.  In percentage terms, Spanish banks reduced their sovereign holdings by 3.5% in the last quarter, and Italians sold 1.9% of their holdings.  To place these numbers in perspective, it would take Spain and Italy about four months just to sell the bonds they purchased in May.

The bond sales in the 3rd quarter represent a proverbial drop in the bucket of outstanding debt.  Italy is an excellent example of what has occurred during the Eurocrisis.  Notice that from late 2011 to early 2012, foreigners fled the Italian government bond market in droves and have not returned.  This is representative of the situation of all the PIIGS.  While the run has ceased, there has been no revival in foreign interest in this debt despite the anecdotal evidence presented in this article.

Italian Government Debt


Do you see a rebound in this chart? Needless to say, the article ends on a hopey note anyway:

But the crucial fact that they are now finding institutional buyers is a fresh pointer that the euro-zone is at least moving in the right direction.

Since banks are not really finding buyers for their sovereign bond holdings, we know that the Eurozone is not “moving in the right direction.”  Moreover, as this chart illustrates, the Eurozone financial system is increasingly becoming more balkanized as banks increase their domestic holdings, a trend that shows no signs of abating.

Financial Integration in the Eurozone







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