Around the Globe 10.31.2013

U.S. jobless claims fall in better news for labor market | Reuters.

Initial Jobless Claims Through 10.26.2013

The mainstream financial enjoys reporting simplistic explanations for complex trends.  The MFP explanation of the month is the “shutdown.”  Negative data is explained away by the shutdown, while positive data is used to reinforce the recovery narrative.  A more nuanced reading of the data reveals two facts.  First, initial unemployment claims have dropped to business cycle lows.  Second, claims had begun rising in the beginning of September long before the latest government manufactured crisis.

The pace of layoffs has slowed throughout 2013 after remaining static through 2012.  it seems that initial claims have finally bottomed out over four years since the “end” of the recession, but hiring remains weak.  Last month a mere 148,000 jobs were created well under the 200,000 necessary to maintain pace with new entrants to the labor force.

Home prices are still affordable, says Shiller.

Housing Affordbability Index



Shiller does not believe that the country is in the midst of a housing bubble and this is his thinking:

“I define a bubble as a time when people have extravagant expectations, and the expectations are driving home price increases,” said Robert Shiller, Case-Shiller index co-founder and Yale University professor of economics, in an interview with CNBC. “We don’t have the mindset of earlier this century.”

What Shiller is saying is that price expectations are different now than in 2006.  This is true, but the background economic picture has also changed with these expectations.  In 2006, people believed that house prices will continue rising as rates remained low and consumer incomes were growing.  Today, people believe that house prices will continue rising despite rising rates and stagnant consumer incomes.  Isn’t today’s market just as irrational as 2006 once we take those facts into account?

These headwinds will buffet housing going forward resulting in declining sales.  Moreover, once investors realize that there is no money to be made in renting hundreds of single family home due to the lack of economies of scale in the sector, expect a housing correction to a lower sales pace at lower prices.

Germany Hits Back at U.S. Over Economic Criticism –

U.S. Treasury Blasts Germany’s Economic Policies –

America’s misplaced lecture to Germany | The World.

Euro Fair Value at 1.37

An unbalanced economy is a weak economy.  The old cliché is, “Neither a borrower or lender shall be,” not “A borrower shall not be, but lenders are fine.”

Export-driven economies rely on a weak currency to flood the market with their goods and thereby place two burdens upon their populations.  The cheap currency makes imports more expensive, so consumers in export-driven economies cannot afford as much.  Lower consumption levels equate to lower employment levels as the infrastructure of consumption remains lacking.

Prices for consumer goods are much higher in export countries.  In the U.S., you can buy a nice HDTV and a surround sound system for about $1500.  In Germany or the Netherlands, you couldn’t even buy the HDTV for that price.  As a consequence, the retail sector remains small and labor force participation rates remain low.

As the chart illustrates, Germany receives a very nice benefit from belonging to a currency zone with more  unproductive members, and those countries pay a steep premium to remain in the Eurozone.  Eventually, someone will figure out that he could reverse his country’s fortunes rapidly by reverting to its national currency.  Until then, the periphery will struggle, and breakup risk will persist.  He who exits first, exits best.

ECB easing hopes help stocks, bonds deflect Fed hit | Reuters.

Euro-Area Inflation Rate Falls to Four-Year Low – Bloomberg.

Fed-ECB Balance Sheet Ratio versus USDEUR

Draghi better fire up the printing press  before it is too late. The Eurozone “Recovery” has been led by a surge in exports from the periphery.  While the employment picture is still deteriorating, at least higher export orders were a bright spot.  Unfortunately, this brief upswing in exports is about to reverse course.  The Euro has been depreciating as the ECB neglects to match the Fed, the BoJ and the BoE in currency creation.  Our chart illustrates the relationship between the Fed and ECB balance sheets and the USDEUR exchange rate.  The present ratio indicates a rate of $1.54.  The strong euro has already begun to weigh on PMIs and will filter down to GDP in due course.



Around the Globe 10.28.2013

Pending Home Sales Show Sharp Drop –

Pending Sales of Existing Homes Slump by Most in Three Years – Bloomberg.

Pending home sales drop 5.6 percent in September.

U.S. pending home sales fall by most in more than three years in September | Reuters.

NAR Pennding Home Index through 09.2013

The MFP is rightly attributing this fall in pending home sales to the precipitous rise in mortgage rates since May, though the NAR would have you believe that the shutdown beginning on October 1 somehow affected pending sales from September.  Houses have become dramatically more unaffordable since May from rising rates and housing prices against the backdrop of stagnant incomes.  The only way for the housing market to improve at this juncture would be from gains in consumer income, which is not in the cars.


Hilsenrath to Wall Street: You don’t know Fed.

QE Infinity? No end in sight for money printing.

In Fed and Out, Many Now Think Inflation Helps –

Fed Balance Sheet vs. SP500 Last Year

If you wish to know the Fed’s future money printing output, this is the only chart you need to understand.  The Fed buys bonds, and the sellers invest those proceeds into stocks raising prices.  When the Fed stops or even threatens to stop, the whole trade begins unraveling. While the Fed claims to be concerned with unemployment and inflation, the Fed is extremely apprehensive about the consequences of a falling stock market.    Going forward, the Fed will continue to use low inflation and poor labor market data to justify continued printing to support both the government bond and stock markets.

Analysis: Convalescent euro zone seeks to escape debt overhang | Reuters.

Currency Woes Batter Europe’s Industrial Giants –

EURUSD 10.28.2013

From Yahoo Finance

The Eurozone and the MFP is really counting on PIIGS exports continuing their rise in order to support the Eurocrisis Recovery Narrative.  Unfortunately, a rising euro will stop the export “boom” in its tracks.  The Euro will continue to rise as the Fed continues to print.  Moreover, Eurozone banks are still selling overseas assets to bolster capital ratios back home.  This process has created  background buying pressure on the euro that may even pick up as these backs clean up their balance sheets in advance of the commencement of the “banking union” in late 2014.

Not happy at work? Wait until you’re 50 or older….

This article is typical of the drivel spewing from the mouth of the MSM.  People report increasing job satisfaction after 50 because of some rather obvious selection bias.  People switch jobs several times over the course of their careers.  If your job sucks, you quit it in the hopes that the next job will be better.  This process will continue until you find a job that you enjoy.  Then, you will stay with it as long as you can.  It is not surprising that people settle into a comfort zone with their employment when they reach the last stages of their careers.  So the article’s advice to sit around and “just wait” until you’re 50 is poor advice.  It takes a lot of work to obtain satisfying work, so get to work already!

Around the Globe 10.10.2013

U.S. retailers’ sales rise in September, but shoppers stay cautious | Reuters.

September Retail Sales Were Tepid –

US Retail Sales YoY


US retail sales grew at a sluggish pace in September.  Considering the health of the labor market, these results are unsurprising and do not bode well for the future.  Retail sales have seemingly turned over and are growing at the slowest pace since the beginning of the recovery.  You can see for yourself what happened the last two times the retail sales pace slowed on the chart above.

Jobless claims rise to 374,000 vs. 311,000 estimate.

California, government shutdown lift U.S. jobless claims to 6-month high | Reuters.

Jobless Claims Surge on California, U.S. Federal Shutdown – Bloomberg.

Initial Unemployment Claims Through 10.05.2013

Jobless claims have spiked in response to the shutdown “crisis.”  A great deal of the spike can be attributed to survey technical problems, but the shutdown has generated at least 15,000 new claims.  Even temporary unemployment will subtract a bit from growth as consumer spending is lost that is never made up.  The shutdown combined with other headwinds will reduce economic growth in both the 3rd and 4th quarters.  As to initial claims, once the shutdown is resolved the number will drop back down to around 300,000 or so.

Euro Zone Sees House Prices Rise –

Eurozone Housing Index

The mainstream media loves housing recoveries, because the high number of homeowners guarantees positive housing market articles a lot of clicks, and now Europe has it very own American-style “housing recovery.”  Spain, Ireland and the Netherlands have endured the bursting of property bubbles.  Prices have begun rising again in these countries due to the effects of cheap money, banks keeping distressed properties off the market and speculative activity.  Incomes are either stagnant or falling, so these gains are not sustainable and will not lead to a second, European postwar miracle.


Around the Globe 10.01.2013

U.S. Factory Activity Shows Surprising Strength –

U.S. ISM Manufacturing Index Rose in September – Bloomberg.

ISM jumps; Construction report likely canceled due to shutdown.

September manufacturing activity highest since April 2011: ISM | Reuters.

ISM PMI 10.2013

The financial press enjoys hyping the various economic indicators but fails to place the results in context.  Rather than viewing each piece of economic data as a component of the big picture, these outlets tend to view each indicator separately.  Markit’s PMI data was released prior to today’s ISM numbers.  Markit revealed a PMI of 52.5, and this was buried in the online editions of all of the outlets above.

When the ISM’s PMI registered at a 56, this news was placed on the homepage of Reuters, Bloomberg, the WSJ and CNBC.  Which number is better? Neither.  The truth is that these numbers confirm the present trend of tepid growth with an increasing chance of a recession going forward.  Companies may be doing well with robust order flow and strong pricing power, but they are not willing to add more workers.  As long as hiring remains slow, economic growth will remain tepid.  As long as economic growth remains tepid, hiring will remain slow.

US Manufacturing Employment PMI 10.2013

Euro-Zone Factory Growth Slows –

Euro zone manufacturing output falls in September.

Eurozone Markit PMI 10.2013

The Eurozone remains in a stagnant state.  The Manufacturing PMI is barely within expansionary territory with a 51.1.  This number represents a small decline from August.  Commentators seem concerned that the Eurozone “expansion” is running out of gas only two months after it began.  This information merely conforms to the actual situation on the ground rather than the recovery narrative.  Growth is not accelerating, which is what used to happen prior to the New Normal, and this change is confusing to the mainstream media.  The story is not the monthly fluctuations of the PMI but rather the overall trend.  What is making this recovery weaker than previous iterations?

China manufacturing tepid in September, small firms struggle | Reuters.

China September HSBC PMI well below flash estimate.

China Sept. Manufacturing Index Rises Less Than Forecast – Bloomberg.

HSBC China PMI 10.2013

People place too much emphasis on the latest data release, but the real story is that Chinese manufacturing has been basically flat since mid-2011.  The economy is still growing by 7.5% a year, and this growth must be coming from somewhere.  Credit creation has been proceeding at a fairly rapid clip, and this is supporting the economy in the short term.  The question in China is the same as for the rest of the large economies:  How long will this loose money policy remain effective?

Lawmakers to Break With Berlusconi –

Bunga Bunga

Bunga Bunga

It seems as if Letta’s government will live to fight another day.  PDL lawmakers rightly fear that voters will blame them for plunging the country into chaos.  The problem is that even though this government will survive it is too weak to create and implement the necessary reforms to Italy’s political, economic and financial systems to spur growth.  While there will not be an immediate crisis, eventually the consequences of past behavior will catch up to Italy, but it won’t be today.  The country will continue muddling along until one day it doesn’t.


Around the Globe 09.19.2013

Bernanke Resets Policy by Doing Nothing as Markets Soar – Bloomberg.

Taperless Fed sets off share and bond market surge | Reuters.

Fed Balance Sheet vs. SP500 07.2013

Arguably, a $15bn taper was already priced into the stock market.  Had the Fed stuck to its guns, it is likely that the market would have yawned with the S&P remaining stuck between 1600-1700.  It seems that the Fed will maintain current policy until the new chairman assumes the role early next year, and it will be up to the new regime to figure out a way out of the money printing trap.  Yellen is a notorious dove, and her Fed will probably continue and perhaps even augment present efforts, which probably accounts for at least a part of the post-announcement rally.

Home Sales Hit Highest Level Since 2007 –

Sales of U.S. Existing Homes Rise in August to Six-Year High – Bloomberg.

U.S. existing home sales rise to 6-1/2 year high | Reuters.

Existing home sales jump 1.7 percent in August, better than expected.

NAR House Affordability Index

Today’s housing hype disseminated by the mainstream media is based on existing home sales rising to the highest pace since 2007.  NAR economist Lawrence Yun rightly points out that the robust increase can be attributed to buyers rushing through purchases before rates climb any higher and concedes that the sales picture will be volatile going forward:

Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions.

One of the market frictions is higher mortgage rates.  Another is the low inventory of houses for sales.  Yun mischaracterizes the inventory problem as a housing shortage.  There is no housing shortage in the United States, but not enough houses are coming to market due to underwater homeowners being unable to sell and the clogged foreclosure pipeline.

The difference is important. If there were a genuine housing shortage, we could expect building to increase alleviating the supply problem while spurring economic growth.  Since the inventory problem is the cause of a broken market, expect building and sales to stagnate.

Fear of missing out fuels China property market.

China Housing Index 09.2013

China’s property market has become quite bubblicious in the last year. In this article alone, there are at least three factors signalling a bubble:

  1. The belief that prices can only go up has taken hold.
  2. People are regretting missing out on the price rises.
  3. The Real Estate market is accounting for an ever-increasing portion of economic growth prompting the government to continue policies that are inflating the bubble.
  4. Speculators comprise the majority of buyers.

BTW, each of the four points existed right before the U.S real estate market began its descent.  This bubble will pop, too, but no one knows when.

Iceland euro zone.

Unemployment Sampler

All is not perfect in Iceland, but the country is outperforming the two Eurozone countries who have experienced recent banking crises.  Iceland decided to allow the banks to fail, while Spain and Ireland are in the midst of propping their financial systems up with taxpayer money.  Unfortunately, bailing out the banks has destroyed many jobs so there are less taxpayers to foot the bill.

The chart above shows the different recoveries in Iceland, Ireland and Spain with the  latter two countries enduring unemployment rates at or near crisis peaks while Iceland has achieved a 4.5% rate.  What might have been had Ireland and Spain acted in the interests of their citizens rather than those of the banksters and the cult of the euro?

EU, IMF Warn Cypriot Banks to Prepare for More Upheaval –

Cyprus Unemployed People

Apparently, the EU and IMF underestimated the true extent of the Cypriot economic depression in the wake of its banking crisis and are revising their figures.  This should come as no surprise to anyone who has been paying attention for the last four years.  The troika has been bungling economic forecasts ever since the beginning of the eurocrisis.  Rosy forecasts are issued at the onset of the bailout to obfuscate its true cost from taxpayers.  Then, the forecasts are lowered and the bailout costs raised every few months when no one is looking.  Just for fun, the result of prior Greek forecasts:Troika Greek GDP Forecasts

the chart is old, so you can add two more “oopses” for 2012 and 2013.

Around the Globe 07.09.2013

Greece Wins Release of Aid, Stays Lashed to Tightness – Bloomberg.Greece - Privatization

As we predicted yesterday, the troika approved the next Greek aid payment after engaging in the usual theatrics in order to satisfy German voters that Merkel is tough on Greece.  After the election, Greece will receive its 4th Bailout with its Eurozone partners forgiving a large chunk of the debt they hold. Unfortunately for poor Greece, this may not even be enough to make its debt sustainable.  Optimistic and unrealistic forecasts on future growth and privatization virtually ensure that the program is a failure.

IMF Cuts Global Growth Outlook –

IMF Forecast GDP Performance Europe 07.2013

Long term economic forecasts are no better than random guesses, but this does not stop anyone (including me) from making them.  Our chart shows the IMF eternally predicting an end to the Eurozone’s recession.  Note that each forecast is predicated on a take off occurring shortly after the release date, which has yet to materialize.  Note also that there is not indicator pointing to an end of this recession.  Unemployment is rising, while PMIs continue to remain firmly ensconced in contractionary territory.

IMF Warns of ‘Growing Pains’ in Emerging Markets.

IMF Forecast GDP Performance World 07.2013

The IMF has been revising its World GDP forecasts for quite some time now.  The red arrow should remind you of the direction of IMF forecasts, and I am very worried about future growth prospects.  The current forecast is probably as unrealistically optimistic as the last five, which implies sub-3% growth in the world’s GDP.  The true extent of the Chinese slowdown makes this likely by the end of 2013.

Latvia Gets Green Light to Join Euro Zone –

Latvia GDP Performance 07.2013

Joining the euro will not sap Latvia’s growth in the short-term.  It’s currency is already pegged to the euro, and it has been growing nicely since it emerged from depression three years ago.  It took seven years for the unintended consequences of the poorly designed currency union to rear their ugly head in the periphery.  Prior to that, those countries experienced a boom.  I think that Latvia will enjoy a honeymoon with the euro for a time before the consequences of surrendering monetary and financial sovereignty reveal themselves.

Heard on the Street: Yen Slide Should Pick Up Steam –

YENUSD Exchange Rate to 07.09.13

The yen has not been this weak since early June, but I believe that the currency’s fall is done for now.  U.S. rates do not offer enough upside to pry the JGBs out of Japanese investors’ hands.  While nominal U.S. yields are higher, the real yields are lower.

To wit, the U.S. 10 yr is trading at 2.6%, and when we subtract the 1.7% inflation rate, we find that the real rate of return is 0.8%.  On the other hand, the JGB trades at 0.88% subtracting the -0.5% inflation rate gives you close to a 1.4% real rate of return.  The yen should remain range-bound for now.

Spaniards Fight to Get Savings Back –

Spanish and Italian NPLs 03.2013

This is what is happening in Spain.  Banks fraudulently converted savers into preferred equity holders in order to stave off insolvency.  Our chart illustrates the period preceding the scheme, and you can see that fall of the Spanish banking system and the recruitment of all of those retail savers was more than a coincidence.

There is really no way of making these people whole without hitting up the strapped, Spanish taxpayer, so look for more protests leading going nowhere in the future.

By the way, this same thing could happen in the U.S.  TBTF banks are not allowed to market their own securities to customers unless they are investment grade, in which case they may steer client towards their debt and preferred stock.

Credit-Card Delinquency Falls to Lowest Rate Since 1990 – Real Time Economics – WSJ.

Credit Card Charge Offs 07.2013 ABA Credit Card Delinquencies 07.2013

The mainstream media must make every piece of economic data conform to its recovery narrative.  While it is  not bad news that credit card delinquencies are shrinking, the main reason the rate is at record lows is because of the record number of defaults in 2010 in the chart above.  The weak accounts have been written off leaving the strong.  The good news is actually the effects of selection bias.

Around the Globe 07.08.13

Analysts Boosting S&P 500 Target 11% Reduce Earnings Growth – Bloomberg.

Why Gloomy Earnings May Not Be So Dim.

Earnings Guidance Ratio 07.08.2013

There is the fantasy of the mainstream media’s earnings puffery, and then there is the reality of the Chart of Truth.  The chart tracks negative to positive earnings and revenue guidance released by S&P 500 companies.  As the bull market wears on, the ratio of negative to positive guidance in both areas has been rising.

What is particularly troubling is the rise in negative revenue guidance.  Revenues are much harder to sandbag than profits, and US corporate revenue is basically stagnating while profits continue to grow at a slower pace.  Moreover, P/E ratios have almost reached the peak achieved before the onset of the GFC in 2007.

The fundamentals indicate a range-bound indices, but it always takes time for the market to catch up with economic reality.  In this time, we can all go bust shorting the thing.

Euro zone nears deal on lifeline for Greece | Reuters.

Greece’s Economic Future ‘Uncertain,’ Creditors Say –

Greek GDP Performance 07.08.2013

Greece has no hope of ever exiting its depression unless large amounts of its government debt are written off by its Eurozone partners.  Everybody involved in the bailout knows this but dare not say it out loud until after German elections.  The 3rd bailout was constructed late last year to ensure that Greece would not require any more money before 2014, but Greece is always full of surprises.  The country is behind on its privatization schedule and is running a health system deficit of over €1 billion more than projected resulting in yet another larger than projected deficit.

A 4th bailout is currently out of the question, but it will appear as if by magic shortly after German elections.  In the meantime, the troika will keep Greece on life support by approving the next precious tranche:

But a week of talks in Athens, culminating in promises to reform the public sector, appeared to convince the troika of international lenders – the International Monetary Fund, the European Commission and the European Central Bank – that Greece is committed to rebuilding its economy.

By the way, read that last phrase.  Is that what Greece is doing? It is actually destroying its economy by slavishly adhering to the euro.  Let’s rewrite the passage above so that accurately reflects the facts:

But a week of talks in Athens, culminating in yet more Greek promises, appeared to give the troika of international lenders, the IMF, the EC and the ECB, the political cover necessary continue payments.

China Cash Squeeze Seen Creating Vietnam-Size Credit Hole – Bloomberg.

china-7-day-repo 07.08.2013

China is desperately attempting to slowly deflate its credit bubble so that it does not burst.  A bubble has never exhibited this behavior.  They always burst, but the mainstream media has a severe case of this-time-is-different:

As long as policy makers cushion the impact through fiscal and exchange-rate measures, the damage to the economy could be quite modest.

Economists are predicting that amidst this credit market turmoil, China managed to grow 7.5%.  Now, that is the official number.  In reality, China probably grew less than 5% based on exports, rail traffic and electricity usage.

The reality should not be surprising.  China has relied on a massive credit binge since 2008 to maintain the growth necessary for it to avoid a Chinese Spring, but this cycle is coming to an end.

German economy struggles as exports and output tumble | Reuters.

Flagging Demand Makes German Economy No European Growth Engine –

German Exports 07.08.2013

In Friday’s edition of Around the Globe we asked who will buy all of those German exports, and now we have our answer: nobody.  Exports to the Eurozone in particular plummeted.  Germany’s stagnating economic growth does not bode well for the Eurozone’s future prospects.  It may be time to change the economic forecast and push the Eurozone’s recovery into 2014.

India’s Tumbling Currency Matters, and Here’s Why.

USDINR 07.08.2013

The rupee is off 20% from its peak in October, and this does not bode well for the Indian economy.  India imports everything, and this stunning fall in its currency will raise the inflation rate.  With relatively mild inflation, India has been able to lower interest rates for the last two years or so.  These low rates have provided ample credit for the economy to grow, but this trend is set to change.  The weakening rupee will force India to choose between stable prices and economic growth, and there will be political consequences no matter the choice.

Cyprus Finance Minister Calls for Urgent Completion of Bank Restructuring –

Cyprus GDP Performance 07.08.2013

There will be continued delays in restructuring Cyprus and its banks.  The €10bn pledged is insufficient for the task, and completing the bank restructuring will reveal this truth.  Hence, the restructuring will take place in the fall after a certain country has elections.  Only when Merkel is safely reelected will she be able to continue throwing money into the widening maw of the periphery.

Around the Globe 07.03.2013

Housing Recovery Rides Mortgage Rate Roller Coaster.

Rise in mortgage rates cut into homebuyer demand last week | Reuters.

Mortgage Applications 07.03.2013

From ZeroHedge

As the chart above plainly illustrates, there is a strong, negative correlation between mortgage applications and rates.  The move upward in mortgage rates from their May lows reduces the buying power of a home buyer 15%.  This dynamic is pushing down housing sales though real estate industry shills claim that housing sales will remain buoyant.  Usually, raising prices for a product reduces demand, but the housing recovery narrative dies hard.

Service sector growth slows to three-year low in June: ISM | Reuters.

Service Industries Unexpectedly Grew at Slower Pace in June – Bloomberg.

ISM US Service PMI 07.03.2013

From ZeroHedge

US Markit PMI 07.01.2013

The charts above show both the services and manufacturing sectors simultaneously slowing down.  Fortunately, they barely hold onto expansionary territory.  Unfortunately, the economic data continues to disappoint, and the recovery remains lackluster four years after the supposed end of the recession.  For the future, expect more of the same.  A little luck could help pick up the pace, but a shock will throw the country back into recession.

Trade Deficit in U.S. Jumped in May as Imports Near Record – Bloomberg.

US Trade Deficit 07.03.2013

From Bloomberg

Exports are falling as China and Europe continue to disappoint while imports spiked.  Yet, these negative trends are spun into good news.  The rise in imports is not a sign that the economy is heating up.  It indicates that Americans spent a larger share of their incomes on energy. Persistent high trades deficits will continue to sap economic growth.  This was the reason that 1Q2013 growth was revised downward almost a quarter from 2.5% to 1.9%.  How soon the mainstream media forgets the articles it published only weeks ago.

WTI Crude Rises Above $100 a Barrel as Inventories Drop – Bloomberg.

WTI quote 07.03.2013

Middle Eastern crises are excellent for oil prices, but they are bad for the economy.  Higher energy prices mean that consumers get less bang for their buck in virtually every sector.  This price spike will sap economic growth in the second quarter as explained in the comments regarding the trade deficit above.

Companies in U.S. Added More Workers Than Forecast in June – Bloomberg.

Jobs data upbeat, but trade and services dim outlook | Reuters.

ADP Jobs Added 07.2013

The economy actually needs to create 500, 000 per month for the next three years or so to raise employment to the level last seen before the onset on the Great Recession.  You would never know this from reading accounts of payroll increases in the mainstream media.  188,000 jobs created is less than half what we need, but it is also a relatively strong number as the chart shows.  The best thing you can say about the employment picture is at least it isn’t getting worse.

Analysis: Portugal, Greece risk reawakening euro zone beast | Reuters.

Portugal’s Coalition Splinters on Austerity Fatigue – Bloomberg.

Portugal Stocks Slide as Political Crisis Worsens.

Portugal Resignation Rocks European Markets –

Portugal 10yr Bond 07.03.2013

From Bloomberg

Let’s not panic, because there will be plenty of time for that later.  While the markets are roiled at the prospect of Portugal reneging on its bailout, a lot must happen before that becomes a reality.

First, the current government must fall, and there are still coalition negotiations to be had.  Second, a anti-bailout government must be elected, and then that government must follow through.  Keep in mind that the current ruling coalition in Greece made a lot of noise in the election before meekly succumbing to the troika’s demands once firmly in power.  Third, the troika must actually pull the plug on Portugal, and it is doubtful that this risky decision will be taken before German elections.

Of course, it was doubtful that France, Russia and the U.K. would rush to the defense of tiny Serbia after Austria handed the country an ultimatum fully backed by the Kaiser’s blank check.  Be wary of Europe in the summertime.

Retail Sales Rise in Euro Zone –

Euro zone slump eases just as debt crisis returns to haunt progress | Reuters.

Eurozone Retail Sales YoY 07.03.2013 Eurozone Retail Sales Mom 07.03.2013

Here’s another example of anchoring bias.  Eurozone economic data is so awful that when less awful data is released it is perceived as “good.”  While retail sales rose 1% from April to May, they actually decreased slightly from May of 2012.  Moreover, we have been down this road before.  As the red circles in the charts highlight, European retail sales have occasionally risen or stopped falling so dramatically several times since the beginning of the Eurozone recession.  Despite the positive spin bestowed on this news by the usual suspects, the chart of truth shows  that sales have not risen in consecutive months since the summer of 2011.  And the recession wears on.



Around the Globe 06.19.2013 | Health costs under pressure.

Greek GDP Per Capita

The Greek health system is in the red to a tune of €1.2bn.  Astute readers of Dareconomics are already know that the 3rd Greek bailout used troika projections that would enable the country to make it through German elections in September without requiring more assistance:

Greece Requires 4th Bailout Already?!?!?!$@%*& | DARECONOMICS.

God bless those wacky Greeks.  There is just no sandbagging them.  Even though the game was rigged to ensure a quiet summer followed by debt forgiveness in the fall, they have somehow managed to collect less revenues and spend more.

As the government teeters on the edge the public broadcaster’s closure, now would be an inopportune time to ask for more money.

Japan Exports Surge Most Since 2010 in Boost for Abenomics – Bloomberg.


The mainstream media loves its various recovery narratives.  If you just read the headline and not the attached article, you would think that the weak is resulting in an export boom.  However, that 10% rise in exports was met by an equal 10% rise in imports.  Actually, 10% does not equal 10%.  The import number was larger to begin with, so equal percentage rises in both areas equates to a record trade deficit for the month of May.

Japan’s hollowed out manufacturing sector is unable to exploit the cheap yen, while the Japanese must pay more for energy.  A further drop in the yen will only exacerbate the situation.

French Socialists call for weaker euro, eased EU budget rules | Reuters.

French GDP Performance 06.19.2013

Allow me to save you time reading this article. The French Socialists are running out of other Frenchmens’ money to give away, so now they want the German’s.  Of course, they do not explicitly say this, because they are politicians but supporting larger budget deficits and Eurobonds is essentially the same thing.

Fed Brightens Recovery View, Stays Silent on Bond Buying –

Fed Balance Sheet Projection 2014

Despite Uncle Ben’s promise to continue printing until the middle of 2014, the markets continue to hold their breath and have their taper tantrum.  Observe today’s swoon after the FOMC minutes were released at 2 PM.  Perhaps it is time to increase QE to $100bn per month.

Easing of Slump Won’t Halt Euro’s Decline.

EURUSD 06.19.2013

Why does the headline reference an easing of the Euro slump? There is no factual basis for this claim.  The Eurozone has been in a recession for six quarters, and there is still no indication that the economy is strengthening.

In the short term, the euro will not budge.  There are too many technical factors that are contributing to the currency’s tight trading range.  Basically, the supply and demand for euros is just about right in the low 1.30’s for now.  In the long term, disaster potential rises significantly.  Of course, in the long term we are all dead, and I consider that quite the disaster.

China’s Cash Crunch Spreads –


The chart above is stale, but it does show the level to which the Chinese key  7-day repurchase rate has spiked.  8% is a high since January of 2012.  Since the PBOC refuses to alleviate the liquidity crunch with overnight funds, it must believe that the situation will abate on its own shortly.  Let’s hope that they are right.

Cyprus Asks Creditors to Help Biggest Bank –


It looks like the Cypriot bailout is already falling apart.  I hate to say I told you so, but savvy readers of this blog have know about this since the middle of April:

Cyprus Bailout Needs to Be Reworked | DARECONOMICS.

We already discussed Greece’s situation and how it may explode before German elections, and now Cyprus will surely meddle with Merkel’s reelection plans.

Around the Globe 06.06.2013

Economist: Housing Will Thrive After Fed Exit.

US Housing Sales through 04.2013

The mainstream media loves promoting its housing recovery narrative.  In this article, the reporter writes, “Housing has experienced an incredible recovery.” Apparently, an incredible recovery means 2010 sales levels, which are less than one-third the pace at the market’s peak.

The chief economist for a sell-side firm bases her thriving housing market prediction on rising mortgage activity going forward.  We have a chart for that:

Mortgage Applications 06.2013

As you can see, mortgage activity is actually falling.  The truth is that the housing market will not revive until employment and income rise.  In other words, people who actually wish to live in houses must reenter a market overrun by exuberant flippers with their pockets stuffed full of Uncle Ben’s money.

The Aussie Dollar Just Can’t Catch a Break.

AUDUSD 06.06.2013


All you need to know about the Aussie can be summed up in this handy chart:

China HSBC PMI 06.02.2013

Chinese manufacturing is contracting, and in lockstep, China’s demand for raw materials.  China is purchasing less Aussies, and this shortfall in demand is driving the currency lower.  This trend will continue for the immediate future broken up by occasional rallies.

$1 Trillion Debt Crushes Business Dreams of U.S. Students – Bloomberg.

Credit Growth to 2013

Government intervention creates a vicious circle.  The purpose of offering cheap loans is to make higher education accessible to all, but this is not the end result of student loan programs.  The hot money created by government subsidies actually increases the cost of college, so in the long run the program runs counter to its purpose:

Tuition Inflation

The chart also details what hot money from government subsidies is doing to another popular economic sector that is subject to Beltway reforms (the orange line).

Draghi Sees Economy Recovering as ECB Rates Left on Hold – Bloomberg.

ECB holds rates, sees gradual recovery this year | Reuters.

ECB Sees Longer Wait for Recovery –

Eurozone Unemployment 05.31.2013

The ECB lowered its GDP performance estimate for the Eurozone from -0.5% to -0.6%, and Draghi forecasts a return to growth by the end of the year.  Of course, the return to growth keeps getting pushed back by ECB forecasters from their initial prediction of the 1st quarter in the fall, to the summer in their 1st quarter forecast and to year end today.  Notice a pattern? The ECB will continue to predict growth commencing six months from the date of the prediction until the day the euro breaks.  In the meantime, GDP will contract, unemployment will rise and prosperity will remain just around the corner.

EU Hits Back at IMF Report –

For hard-hit Greeks, IMF mea culpa comes too late | Reuters.

Bad IMF Predictions

Hanlon’s razor is, “Never attribute to malice that which is adequately explained by stupidity.” On the plus side, the IMF was not cooking the books and actually believed that it was issuing usable economic forecasts for the Greek bailouts.  On the minus side, IMF economists are dangerously incompetent.  Despite missing to the downside time after time, they continued to rely on the same defective models.  This mea culpa and change in philosophy is a day late and a drachma short for the people of Greece.

Merkel urged to come clean on Greek debt relief | Reuters.

Angela Merkel, courtesy of Armin Kübelbeck

Angela Merkel, courtesy of Armin Kübelbeck

The German opposition, the SPD, is attempting to make hay out of the fact that the Greeks will require debt forgiveness after German elections.  While this is true and German voters will be outraged when this goes down in the winter, the SPD supports this policy, too. In fact, the Socialists will be more than happy to expend even more money to keep the euro together.  This is the type of stupid move that the challenger makes on his way to losing an election to an incumbent.