Around the Globe 10.29.2013

Consumer Confidence in U.S. Slumps by Most Since August 2011 – Bloomberg.

Consumer confidence much lower than expected in October.

Conference Board Consumer Confidence 10.2013

Chart from ZeroHedge

This survey confirms the results from the UMich consumer sentiment survey released Friday with both indices plummeting.  The only question regarding this data is whether this month’s plunge in the index is attributable mostly to the shutdown or to rising rates and the ongoing weak labor market.  In my opinion, the index is at or close to its recovery peak, and consumers will increase their caution in the coming months.

US small businesses boosted borrowing in September.

ThomsonReuters Paynet Index

 

This index is an excellent leading indicator of economic growth, and the increase in small business lending will surely boost economic growth in the coming quarter.  That’s the good news.

The bad news twofold.  First, in the chart above, observe how small business lending has yet to recover to its pre-New Normal high.   Second, growth in this sector is grinding to a halt.  The present trend is on the right.  As to where it leads, look at the arrow on the left and see for yourself.

ThomsonReuters Paynet Index Month to Month Change

Exclusive: China central bank seeks to reassure money markets after rate spike | Reuters.

China 7 Day Repurchase Rate 10.29.2013

 

The PBOC is attempting to manage China’s money supply first through jawboning backed with action.  China is trying to liberalize its financial system and allowing more rates to float is part of this policy.  It seems that whenever the seven day repo rate approaches 5%, the PBOC injects liquidity into the system via reverse repos.  As long as the world’s printapalooza continues, the PBOC will be unable to let these rates float and will be forced to continue injecting yuan into the sytem on a regular basis.

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Around the Globe 09.25.2013

Millionaire optimism hits 9½-year high, Spectrem Group says.

Consumer Confidence by Income Group

Millionaires are actually doing quite well for themselves and are completely out-of-touch with workers.  Cheap money enriches those closest to it, and this “recovery” is proof.  Let’s follow the money:

  • The Federal government is the closest to the printing press, and it is performing better than any other entity.  The Fed is printing cash to finance the Feds at record low rates while it simultaneously runs record high deficits.
  • TBTF banks are the next in line at Ben’s cafeteria, and they are the beneficiaries of the Fed’s largesse in numerous ways.  Their financing costs are low due to financial repression and the implicit TBTF guarantee from the government.  Furthermore, the Fed has been purchasing their holdings of treasuries and MBS raising prices to ensure profits and gains in their investment portfolios.
  • Corporations get their money from the TBTF banks who are busy underwriting a record amount of bond deals.  The corporations are also using the cheap money to buy back shares and raise dividends, but not to expand much to the chagrin of the American worker.
  • The rich derive their wealth primarily from their investment and real estate holdings, so they are doing very well, too.  Cheap money has inflated asset prices, and they are the main beneficiaries of the cash as it trickles down from the corporations.
  • Meanwhile, the middle class is earning 8% less than it did in 2007:

Median Income Performance in the U.S. Since 2007

Remember, money printing does little to improve the labor market, but it does manage to significantly improve the lots of the feds, banksters, corporatists and the rich.  The Fed equitably distributes the benefits and burdens of the program: the well-off get the money, and the rest of us will get the bill at some future date.

Durable-Goods Orders Tick Up – WSJ.com.

Demand for U.S. Capital Goods Increases Less Than Forecast – Bloomberg.

Orders for U.S. Capital Goods Rise as Spending Improves – Bloomberg.

US durable goods up 0.1% in August vs. expectations of a 0.5% drop.

U.S. durable goods edge higher, fiscal uncertainty weighs | Reuters.

U.S. Durable Goods Orders

There has been a steady rise in durable goods orders since the “end” of the recession, but it appears that the rise is over.  Since the last quarter of 2011, durable goods sales have become stuck in a pretty tight range save for one outlier each to the upside and downside, as indicated by the red lines.  While these numbers aren’t awful, they aren’t great either.  Just like the rest of the economy, future performance in this sector will be meh.

U.S. New-Home Sales Rebound in August – WSJ.com.

New home sales rise by 421,000 in August.

Sales of New U.S. Homes Rose in August Following July Plunge – Bloomberg.

New Home Sales

The mainstream media is characterizing the latest blip upward in new home sales as a “rebound.” The real story lies within the chart where it become obvious that a mere blip will not suffice; new home sales are running at or near troughs from the early 80’s and the early 90’s and stand at less than a third of the pace achieved during Housing Bubble 1.0. Since the printing press has already been deployed, the only thing that will increase sales is rising consumer incomes.  Based on the current job creation pace, a healthy labor market is not in the country’s immediate future.

IMF Calls for Euro Zone to Create Central Budget Authority – WSJ.com.

EU Balks at Rule Change That Could Ease Austerity – WSJ.com.

Germany Debt to GDP

Germany and the rich countries will never agree to easing austerity or creating a central budget authority because they will never become joint and severally liable for periphery debts whether they be sovereign or from the financial system.  Germany’s budget situation is under control, while the same cannot be said for France, Italy and Spain, where deficits have risen in lockstep since the GFC:

F I S Debt Sampler

The rich countries know that any easing of the current program will allow deficits to rise even faster.

Around the Globe 09.13.2013

Doubts Rise as China Touts Upturn – WSJ.com.

Outstanding Chinese Credit

Two days ago, we wrote

At first, the government seemed willing to tolerate high rates and plunging liquidity in a bid to move to a more sustainable growth model.  Once they realized, that they were heading into a full-blown financial crisis, the appetite for reform quickly dissipated.  Now, it seems that China will allow additional leverage in order to maintain a 7.5% growth rate. (Around the Globe 09.11.2013 )

Today, the Wall Street Journal caught up to the blogosphere and began questioning the source of China’s rebound.  While the Chinese government has paid lip service to reforming its economy, it does not have the stomach for low growth and the potential instability that this will breed; hence, China will continue its credit binge indefinitely or until a financial crisis forces a course change.

Consumer sentiment plunges in September; rate surge bites.

Consumer Sentiment in U.S. Falls to Lowest Since April – Bloomberg.

Consumer Confidence 09.2013

The confidence index plunged over 5% in August for the steepest drop in the data series in recent memory.  Rising mortgage rates and a depressed labor market are weighing on consumers.  Consumers do not have the money or credit to dramatically increase spending.  Consumer spending accounts for 70% of GDP, so a pickup in growth is unlikely at this juncture.

Retail sales fall short in August, temper Fed speculation.

U.S. retail sales, wholesale inflation data point to slow growth | Reuters.

Retail Sales in U.S. Increase Less Than Forecast – Bloomberg.

Retail Sales Rise 0.2%, Signal Slow Growth – WSJ.com.

U.S. Retail Sales Month to Month

Retail sales growth remains tepid.  These meh results are much better than the Eurozone’s ongoing plunge in retail sales, but they do not portend an acceleration of growth in the near future.

Gold Slides to Five-Week Low – WSJ.com.

Gold 09.13.2013

Inflation in consumer goods is very low, so gold has lost a bit of its appeal as a hedge.  Moreover, the easing of tensions in the Middle East has also squelched gold’s rally.  The bull market for gold is dead, but the price will remain volatile for the immediate future.

Euro-Zone Employment Falls Again in Second Quarter – WSJ.com.

Eurozone Employed Workforce Through 2Q2013

Even though employment continues to plummet throughout the Eurozone, the mainstream media cannot help itself and must always present a positive side to the story:

There were encouraging developments in the three countries that have long been at the forefront of the euro zone’s fiscal and banking crisis, and which have received bailouts form the currency area and the International Monetary Fund. Employment rose 0.8% in Portugal, 0.5% in Ireland and 0.1% in Greece, suggesting the three may be on the mend.

The first part of the quote is accurate, but the writer jumps to conclusions in the bold type.  When the rise in employment in these countries is placed into context, the “analysis” just does not hold up:

Greek and Portuguese Employment Through 2Q2013

During the long, inexorable march downward, both Greece and Portugal have registered months where employment picked up.  You can see for yourself what happened next by looking directly to the right of the those months conveniently circled in red for your perusing pleasure.  Each rise was merely a temporary blip on the road to economic ruin.

Ireland is different.  The situation has changed and employment has stopped falling, but it is not really growing either:

Ireland Employed Persons Through 2Q2013

My interpretation of the data is neither growth or contraction but stagnation.  Ireland has barely recovered to 2005 employment levels, and at this pace of growth it will take over a decade for it to do so.  Sorry, but there is no good news in this data.

Around the Globe 08.30.2013

America’s Widening Confidence Gap, In a Little Chart – The Market Now.

Consumer Confidence by Income Group

From Bloomberg.com

A constant them in this blog is the unreliability of economic indicators due to their being skewed by the top of the income distribution.  Earlier in the week, I compared and contrasted the confidence levels among different consumer income groups, and you can read that here:

Around the Globe 08.27.2013

That chart basically compares the top half of the U.S. income distribution to the bottom half segmented into four groups.  I would like to the top half divided in a similar fashion in order to learn exactly how much of this “confidence” is being reported by the upper echelons.

 

U.S. July Consumer Spending Up 0.1%, Income Rises 0.1% – WSJ.com.

Consumer Spending in U.S. Rises Below Forecast on Incomes – Bloomberg.

Weak spending, inflation data underscore soft U.S. economy | Reuters.

I wonder why consumer spending and the economy are still weak.  Could it have anything to do with this chart?

US Real Wage Performance Since 2000

 

Euro-Zone Unemployment Falls – WSJ.com.

Eurozone Total Unemployed Workers 08.2013

Today’s award for the most misleading headline of the day goes to the Wall Street Journal.  Eurozone unemployment did fall slightly; about 24,000 less people were unemployed in July than in June.  The reason why the headline is not accurate is because a shift in 24,000 in a population of close to 20 million should not be considered as a change either way, because the number is too small to be significant.  Basically, a decrease of one-tenth of one percent is probably within the error range for the survey.

Moreover, the real story of the Eurozone’s employment picture is right here:

Eurozone Employed Workforce 08.2013

the number of people working declined 668,000 or about 0.5%.  This was the steepest monthly drop in the workforce since the beginning of the Eurozone recession.  Perhaps the GDP recession is over in the Eurozone, but the labor recession wears on.

Greek Cash Shortfall Spells Problems for Euro Zone – WSJ.com.

Greek Government Budget Deficit

Deadheads were a cult that followed folk rock group the Grateful Dead around on tour living a hand-to-mouth existence relying on the kindness of others.  When the tour ended, Deadheads tended to just stay wherever they were until the next touring season began.  This leads to the old joke from the 80’s:

Q. How can you tell that a Deadhead crashed on your couch?

A. He’s still there.

So, how can the Germans tell that they once bailed out Greece? Because they are still bailing out Greece.

Greece has devolved into a permanent ward of the Eurozone.  The Greeks need to attain economic growth rate of 5% for several years in a row in order to end their nightmare, but this growth will never come.  While the Germans are loathe to admit it, they are now the guardians of Greece and will be paying a few billion euro a year for years to maintain the integrity of the eurozone.  These payments will continue until either the Germans get tired of handing over the cash or the Greeks grow weary of what will be increasingly draconian conditions attached to the aid.

Around the Globe 06.25.2013

Orders for U.S. Durable Goods Rose More Than Forecast – Bloomberg.

U.S. Stocks Rebound From Nine-Week Low on Economic Data – Bloomberg.

Consumer confidence highest in over five years in June | Reuters.

US Durable Goods 06.2013

There was a bumper crop of positive economic news today led by the rise in durable goods orders.  Is this good news or bad? While rising factory activity shows a strengthening economy, this dynamic could portend the Fed reducing its bond purchases despite all the protestations to the contrary in the media yesterday.

The consumer confidence numbers are even trickier to analyze.  Today’s rise in the Conference Board suggests improving sentiment, but the University of Michigan numbers released last week show the opposite.  Let’s call this data “mixed” for now and move on.

Cyprus says not seeking re-work of debt bailout, but tweaks | Reuters.

Cyprus Debt to GDP

After the panic subsided, Cypriots realized that the country will suffocate underneath a crushing burden of debt.  Now, they do not wish to rework the bailout but merely tweak it.  What is the difference between reworking and tweaking? It’s a matter of semantics.  Presumably, German voters will not be as angry at donating more money towards tweaks.  No matter, after German elections, the Cyprus bailout will be reworked, as the chart above leaves no other choices.

Population in crisis-hit Spain down 114,000 – Yahoo! Finance.

Population of Spain 06.2013

The inflection point in Spain’s population growth is 2008, the start of the country’s economic woes.  Robust economic growth led to more immigration and less emigration, but this trend is over.  Population growth is one factor that fuels GDP, so this is one more reason while Spain will find itself mired in depression for the foreseeable future.

PBOC Says It Will Ensure Stability of China Money Market – Bloomberg.

PBOC Addresses Cash Crunch – WSJ.com.

China’s central bank seeks to allay fears of credit crunch | Reuters.

china-7-day-repo 06.25.2013

The PBOC has abandoned its laissez-faire posturing from the last few weeks and now pledges to support stability in the money markets.  The bank has ceased withdrawing cash from the system via bill sales, and this action combined with a little, good old-fashioned jawboning has succeeded in bringing rates down since last week.  Stability has been achieved in the short-term, but a creaking shadow banking system ensures that the long-term will be a wild ride in the Middle Kingdom.

New Homes Sales Hit Third Straight Month of Gains.

US Home Prices Jump in April, Setting New Record.

New-Home Sales Rise 2.1% in May; Case-Shiller Index Jumps – WSJ.com.

New home sales near five-year high, prices rise | Reuters.

Case Shiller 06.2013

When digesting the housing reports issued by the mainstream media, it is best to heed the advice of Chuck and Flav: Don’t believe the hype.  The recent rise in housing price brings them to 2004 levels.  When you remember that there has been inflation since then, you realize that prices still have not recovered.  Of course, they are better than they were, and this is good news if you own a home but bad news if you wish to buy.  While the recent rise in mortgage rates spells the end to the housing recovery meme, remember that the mainstream media’s narratives die hard.

Cash Is Tight: 6 More US Muni Bond Sales Postponed.

Bonds Steady, Taking Cue From Overnight Stabilization.

Exit From the Bond Market Is Turning Into a Stampede.

MUB 06.25.2013

Municipal bonds are down over 10% from their November peaks.  This is a story which started months ago, but the decline became steeper in once the taper tantrum set in.  Prices have stabilized today, but this is probably the start of a dead duck bounce.  Rates will bounce up and down, but they will generally trend down over the next few months.  One exception is the U.S. treasury market, which may benefit from haven flows if it gets serious.

By the way, one of the first markets to blow up in the beginning of the GFC was the muni market, particularly ARS.  Is history repeating itself?