Around the Globe 11.04.2013

Janet Yellen’s mission impossible—Commentary.

Could QE spur deflation, not inflation?.

There are two reasons why the Fed will keep printing. 1st:

Fed Balance Sheet vs. SP500 10.2013


US 10yr through 11.04.2013

The creation of the 401(k) years ago politicized the stock market.  The government’s policy of herding Americans into purchasing equities to fund their retirements has created an expectation that the government must do something about falling markets, so it does.  Additionally, the government must be able to finance itself.  A rise in treasury rates would result in higher deficits down the road; hence, the Fed must keep rates low and the only method currently at its disposal is the printing press, so print it does.

Ultimately, all of this printing is slowly destroying the economy, because QE is ultimately both inflationary raising assets prices and deflationary suppressing income growth.  Japan started its own money printing program in the late 90’s, and you can see for yourself how incomes are performing:

Japanese Incomes

Like the Fed, ECB expected to keep on pumping.

ECB may soon join the flight of the doves | Reuters.

Debt crisis has left Germany vulnerable –

USDEUR Exchange Rate vs Fed to ECB Balance Sheet Ratio

The MFP and its assorted shills, hangers on and supplicants believe that the ECB will begin printing in earnest to match pace with the Fed, and it just might but not for the reasons it endlessly touts: unemployment, lower inflation and economic contraction and stagnation in the periphery.  Rather, the only thing you need to know is the USDEUR exchange rate.  When it rises to a level that threatens Germany’s export machine, then there will be an ECB rate cut and not one second before.

The chart above illustrates the relationship between the dollar/euro exchange rate and the Fed/ECB balance sheet ratio.  As you can see, the rate has diverged from its long-term relationship, but these divergences are only temporary.  The euro will continue it general, upward trend for the near future.  Once the euro crosses the $1.45 line, the ECB will consider a rate cut because this is the rate that curtails Germany exports.

China reform checklist: How to tell that this time it’s for real? | Reuters.

China 7 Day Repurchase Rate 11.04.2013


Chinese leaders enjoy discussing economic reforms almost as much as the mainstream financial press hyping said reforms.  Chinese leadership has linked economic growth with political stability.  In light of this fact, this is all you need to know about Chinese economic reforms: if the reforms have any negative consequences, they will quickly be rolled back.  The PBOC has been attempting to liberalize the financial system by stepping away and letting the banks fund each other rather than relying on central bank liqudity.  Unfortunately, whenever it begins backing out of the overnight lending market, interest rates spike, so it rushes right back in.

This is exactly how government reforms will proceed.  The government will attempt to reform the economy.  Once adverse consequences erupt, (i.e. higher unemployment, the wrong guy’s factory being shuttered) the government will reverse course in short order.  After conditions settle down, it will make another feeble attempt to reform and change its mind once the consequences return.  Rinse and repeat.

High unemployment? Blame high home ownership, study says – NBC

Unemployment versus Home Ownership


This is an interesting study.  High rates of home ownership lead to higher structural unemployment.  This study’s conclusion makes sense, and it survives a careful reading.  Renters are more mobile than homeowners, and this affects the unemployment rates.  In the chart excerpted from Dr. Oswald’s study, we can see two examples that tend to prove the rule.  Of course, there are other reasons why Greece has a drastically higher unemployment rate than Germany, which is why the country is so far above the trend line.  BTW, Greece’s neighbor on the chart is Spain.


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 10.15.2013

Fewer US homes entered foreclosure track in third quarter.

Foreclosure starts vs sales


The mainstream media loves its housing recovery narrative and fervently guards it against the data.  This is the lede from the article above:

The number of U.S. homes set on the path to foreclosure slid to a seven-year low in the third quarter, reflecting a gradually improving housing market and fewer homeowners falling behind on mortgage payments.

That statement is false.  Foreclosures are sliding because banks are keeping delinquent properties out of the foreclosure, whether by design to maintain higher prices or because they simply cannot work their way through the backlog.  I believe the latter explanation is more likely as incompetence trumps malevolence.  If the housing market were really on its way back to health, the number of delinquencies would have plummeted in lockstep with the foreclosures.  It hasn’t:

Mortgage Delinquency Rate

This second chart shows that defaulted mortgages have remained near recession peaks and historic highs. What is really happening here is that the zombie inventory of homes continues to grow keeping supply out of the hands of the 99% who pay inflated prices for homes and rents for apartments.

Citigroup results hit by bond trading slowdown.

Citigroup Results Hit by Weak Fixed Income Trading –

Citigroup results hit by bond trading slowdown | Reuters.

Citigroup 10.15.2013


All of the TBTF banks are enduring lower profits due to smaller bond volumes and a decrease in mortgage applications.  This news has not mattered one iota to share prices as our chart of C shows.  A mild 50¢ sell-off at the open followed by a rally back to just about the pre-earnings level.  Corporate profits have ceased improving, so the current rally is exclusively beholden to additional multiple expansion.  The financial commentariat generally believes that this expansion is unlikely, but in light of the new Printmaster General’s dovish bonafides, I am not so sure.  The market is still far below record P/E levels, and the magic money machine isn’t finished yet:

S&P500 PE Ratio

Fed’s Dudley: Large Balance Sheet Increases Inflation-Fighting Discipline – Real Time Economics – WSJ.

Exclusive: Fed’s Fisher, outspoken hawk, sees no QE reduction this month | Reuters.

Fed Balance Sheet vs. SP500 10.2013

The printfest will continue because it cannot stop.  Once the Fed stops creating dollars by monetizing federal and mortgage debt, the market will cease its rise shortly thereafter.  Eventually, the policy of printing money to increase asset prices will lose its efficacy.  First, additional QE will stop inflating market prices, but it will still be able to maintain some sort of stability.  Next, well, no one knows what happens next.

Germany digs in heels as Europe moves towards banking union | Reuters.

Total Banking Sector Balance Sheet to GDP


The Eurozone has created a faux banking union, which should be sufficient to keep the bond vigilantes at bay for the moment.  There are several requirements for a real banking union as currently exists in the U.S. under the auspices of the FDIC, which you can read about in more detail here:

Cosmetic, Can-Kicking Banking Union Agreement in Play | DARECONOMICS

The sticking point is the money.  The rich countries refuse to become joint and severally liable for depository insurance and resolution costs with their poorer brethren.  What this means is that a euro in Germany is much safer than a euro in Spain, because the Germans have more money to bailout its banking sector.  Hence, the current agreement does not break the pernicious bank and sovereign link.  German banks will have money to lend to businesses, and the periphery won’t, so it will remain mired in stagnation.  This Nash equilibrium will remain until one of these countries decides to gamble on a euro exit.

Around the Globe 10.09.2013

Nothing to do but duck and cover if US defaults: Kyle Bass.

US Sovereign Credit Default Swap

There is nowhere to run if the U.S. government defaults, but that isn’t stopping the US CDS from rising dramatically since the “crisis” began.  If the government really defaults, then the financial system will freeze, and no one will get paid on their hedges.  After a time, the government will get its act together and reopen.  The debt will come off default, and the CDS hedges won’t matter.

Obama to choose Yellen for top Fed job, markets relieved | Reuters.

Janet Yellen, a Backer of Pushing the Fed’s Policy Boundaries –


Janet Yellen will easily be confirmed by the Senate.  Summers had administration support, but he was an unfavorable candidate from the perspective of the banksters.  Yellen is a known serial printer, but Summers would have probably ceased monetary easing.  The banksters spend a lot of money on the Senate, and this lobbying paid off.

At the very least, Yellen will continue to current program, and there is an excellent chance she may even add to it.  Bernanke would have begun winding down bond purchases had the government shutdown not intervened, so this development is being viewed favorably by the banksters and permabulls.

Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit – Bloomberg.

Iceland must run a large current account surplus in order to generate the cash necessary to pay its debts, because foreigners will not invest in the country as long as the capital controls remain in place. Removing the capital controls is a giant gamble, but it is also the only way to take a shot at getting the country back to normal.  Expect no gambling from Iceland’s leaders.  They’ll have to go hat in hand to obtain another loan from someone.

Iceland Current Account to GDP

Puerto Rico Yields Above Venezuela’s in Worst Rout: Muni Credit – Bloomberg.

U.S. Treasury Said to Have No Puerto Rico Assistance Plan – Bloomberg.

MUB 10.09.2013

The Puerto Rican debt crisis is similar in form to the Eurocrisis. Ultralow rates have induced Puerto Rico to issue too much debt rather than cutting back on expenses. Furthermore, the dollar is too strong a currency for Puerto Rico, which renders the commonwealth noncompetitive on world markets.   You can say the same thing about Greece, Italy, Spain, Cyprus or even France.  There is no way to bail out a state or territory if it gets into trouble, which is similar to the relationship between the Eurozone countries and the ECB.  Saving Puerto Rico would require an act of Congress, and that does not seem likely at the present juncture.

Around the Globe 09.23.2013

Yellen Would Bring Tougher Tone to Fed –

YellenFed watchers have redesignated Janet Yellen as the frontrunner to replace chairman Ben Bernanke.  What no one has discussed is who will replace Jon Hilsenrath as unofficial Fed mouthpiece?

Journalists must straddle a fine line between treating subjects with kid gloves to obtain access and while maintaining the necessary distance to continue objective reporting.  Hilsenrath became too close to Bernanke and the Fed so that he was no longer a reporter, merely a conduit of information from his anonymous source.  This fact bodes well for his retaining his unofficial title as he has proven himself in the role.

Moreover, he is off too a good start to gaining the favorite’s confidence with this puff piece.  Clichés like “hard-charging” and “demanding” are deployed while we learn little about the candidate that we already did not know.  All you really need to know about Janet Yellen is that she is the candidate most willing to crank up the magic money machine to 11, and that is why she is garnering crucial support of the financial industry that will vault her into the role come 2014.

Triumphant Merkel starts tough task of seeking coalition | Reuters.

Merkel Wins Big in German Election –

Merkel’s Victory Is Stunning and Depressing – Bloomberg.

Angela Merkel, courtesy of Armin Kübelbeck

Angela Merkel, courtesy of Armin Kübelbeck

Germany experienced a shift to the right in Bundestag elections. Merkel’s own party drew support not seen since Helmut Kohl unified Germany and the two libertarian parties polled over 9% of the vote.

Much to both parties’ chagrin, the new AfP siphoned critical support away from FDP so that neither earned the 5% necessary to enter the Bundestag.  So while Merkel received a large mandate, in practice it will be difficult to exploit this as she must either enter a grand coalition with the Social Democrats or pick one of the small, leftist parties with which to govern.  This means that Merkel will rule from the center again, which probably indicates a more dovish approach to dealing with the periphery.  Get ready to open your wallets, Germans.

China’s Data Suggest Rebound –

HSBC China Flash PMI 09.2013

Fox News likes to tell us that they report and we decide; not that it works this way in practice, but at least the issue is on their radar.  On the other hand, the affiliated Wall Street Journal does not offer a similar claim.  This is probably why it has reported that China flash PMI has risen to a six month high and decided that the number indicates an economic rebound.

Well, you’re not the boss of me, Wall Street Journal! I am deciding that the six month high in Chinese data represent easy money shenanigans courtesy of your PBOC.  The green arrow indicates the July low in PMI that was cured by record injections of liquidity into the Chinese financial system.  Some of this money is being used to inflate export receipts to create additional funds to invest outside the country, and that is why PMI is rising.  In reality, Chinese manufacturing remains stagnant, not good but not bad either, more like meh.

Euro-Zone Business Activity Rises –

Core v. Periphery PMI Employment Indices

Journalists travel in the circles of banksters, central banksters, government officials and corporate leaders so their views of the economy are very much influenced by these groups.  If you belonged to one of those groups, you could be forgiven for believing that the economy is doing well.  Stock markets are frothy, and now these PMIs are rising indicating a little GDP growth, which is at least better than a contraction.

However, the truth lies in the PMI employment component, which was given short shrift by the mainstream media.  If you take a peek at our chart, you will discover that the Eurozone’s “recovery” just applies to those who own stocks and bonds while employment in the periphery continues to contract. Cheap money may be able to assist corporations financially engineer profits, but it does not seem to promote employment no matter which of the alphabet soup of central banksters you choose: the Fed, BoE, BoJ or ECB.

Draghi Says ECB Will Offer More Long-Term Loans If Needed – Bloomberg.

Draghi Says ECB Willing to Consider More Loans to Banks –

Eurozone Loans to the Private Sector Through 08.2013

There are two reasons for doing something: the real reason and the reason one uses.  The reason Draghi is using to print more money is some wonkish and obscure factors regarding “monetary transmission.” The real reason that Draghi will gladly offer another round of LTROs is that sick European banks cannot easily fund themselves.  Since they are keeping their host countries afloat by continuing to purchase sovereign debt, they cannot be allowed to fail.



Around the Globe 09.17.2013

U.S. Incomes Stabilize for First Time Since Recession –

Median Income Performance in the U.S. Since 2007

This article tries to show two sides to the news of stagnant median incomes.  First, the article draws a questionable conclusion from the data:

The Census report, viewed as a gauge of American prosperity, could mark a turning point for the recovery: It suggests consumers may soon start to feel the benefits of a steady, if sluggish, pickup in jobs…

The clause after the colon makes the assumption that a steady and sluggish pickup in jobs will create benefits, and this is false.  Strong, robust job growth is required to lift the boats of consumers, nothing less.  When the economy is creating new jobs at a rapid clip, the demand for labor outstrips the supply, raising wages for all workers in the process.

Today’s pace of job growth is enough to allow American consumers to tread water, and there is nothing in the data that suggests that attaining a state of stagnancy marks an inflection point signaling increasing incomes.  The true, parlous state of the labor market is revealed deeper in the article:

  1. Incomes remain 8% below 2007 peaks.
  2. 11 million Americans are still seeking work

The only thing you need to know is that 1 is a direct result of 2.

Consumer Prices in U.S. Rose Less Than Forecast in August – Bloomberg.

U.S. consumer prices muted, but rents and medical costs rise | Reuters.

U.S. Consumer Prices Rose 0.1% –

US Inflation Rate YoY

When the economy is strong, increasing demand generally stokes inflation as can be seen above from Jan 2002 to 2008 during the post 9/11 recovery.  Today’s monetary easing is based on the theory that this process also works in reverse.  That is, printing more money to purchase bonds will stoke inflation leading to a pickup in economic growth.

Current theory does not account for the diminishing marginal returns of easy money.  Each successive round of monetary easing has  resulted in less benefits inuring to the American people:

Income Growth 99 vs 1

At one time, the Fed’s actions would be expected to lift the economy from its doldrums, but too many years of loose money have taken their toll.  Today, the best we can hope for from additional money printing is stagnancy, which is different from stability.

Home builder confidence hits a pause.

Home Builders Remain Confident, if Cautious –

Homebuilder Confidence in U.S. Holds at Highest Level Since 2005 – Bloomberg.

Homebuilders Confidence Index

I selected an article each from the Wall Street Journal, and for this post about Homebuilder Confidence.  Note how each headline endows the news of a flat index with a positive spin.

The first headline, “Homebuilder Confidence Hits a Pause,” makes a very bullish assumption by characterizing the data as a “pause.”  By using this word, the headline implies that the index will resume its rise.

The WSJ gives a more accurate headline.  The data does tend to show that homebuilders are confident for future prospects but show their underlying caution by not increasing hiring, unfortunately, the article misses a chance to expound on the cognitive dissonance in the results: If homebuilders are really confident, then why aren’t they hiring new workers and expanding production at a faster pace?

The third headline highlights the fact that confidence remains as high as last month, but then this information is not placed into context.  The index remains at historical lows as compared to every other recovery since the 80’s.  This poor showing is despite the fact that this is the fastest, largest increase in the index since its inception.

Low rates spurred increased housing activity, but now that rates have risen the market will only be driven higher if consumer incomes rise, and the evidence indicates that this is a long way off.

Berlusconi postpones message on future after tax conviction | Reuters.

Italy 10yr Bond 09.17.2013

Today, the yield on Italy’s benchmark sovereign bond has once again dropped below Spain’s.  The reason is that Berlusconi is backing off threats to dissolve the government if he is expelled from the Senate.  His inner circle persuaded him that political discord would damage his media holdings.  I am not so sure that he will go away so easily.  He may lie low for a few months, but rest assured Bunga has something up his sleeve.

Around the Globe 09.16.2013

U.S. manufacturing sector regaining some momentum | Reuters.

U.S. Factory Output Picked Up in August –

US Industrial Production Through August 2013

The latest manufacturing reports are being taken out of context to present a picture of “hope.” Industrial production did rise in August, but as we can see above gains in this sector have been trending downward since a robust recovery following the Great Recession.  August’s results do not reveal a manufacturing sector expanding at rapidly enough to significantly lower unemployment and raise wages.  Stagnant wages are what is holding the economy back at this juncture.

Summers Quit Fed Quest as Democrats Spurned Obama Favorite – Bloomberg.

Three reasons why the Fed needs to taper now.

Fed taper likely to be announced this week: El-Erian.

US Treasury Borrowing Needs

Everybody has a reason why the Fed will begin purchasing less bonds over the next few months, i.e. the taper.  These are often complex theories based on arcane points of monetary policy stuffed with jargon.  The real reason is that the Fed is depleting the existing bond supply.  At a rate of $65bn per month in U.S. treasury purchases, the Fed will purchase the entire projected issuance in the fiscal year ending in March of 2014.

The next Fed chairman will have a large mess to clean.  The taper will cause interest rates to rise in two ways.  The first is the adjustment of supply and demand for T-bills.  The reduced demand for treasuries will bump up rates, though at least some of this is dynamic is already priced in.

The second is that the Fed standing by with its mighty printing press has beaten risk out of the market.  As the big elephant reduces it bond intake, risk levels will begin rising prompting markets to reprice.

Over the next few months, the consequences of the wind down of bond purchases will become apparent much to the chagrin of the next chairman.

Employment gap between rich and poor highest on record.

Unemployment Rate vs. Education Attainment

There are two troubling trends apparent on our unemployment chart.  The first is just what the article is telling you; specifically, higher income groups have recovered much better since 2009 than lower income groups.  High school and college graduates have retraced about half the increase in unemployment from the recession while high school dropouts have gained only about a third of their losses back.

The second is that each successive recovery from the last three recession has become less robust.  Unemployment levels from the Obama recovery are higher than the lows from the Bush recovery, which are higher still than the low levels witnessed during the Clinton boom.  The marginal returns from additional credit creation from cheap money are diminishing over time, but this won’t stop the Fed from reversing the taper if markets swoon post-taper.

Analysis: Europe, waiting for Germany, could be disappointed | Reuters.

Bavarian Elections Deal Blow to Renewal of Merkel Coalition –

Angela Merkel, courtesy of Armin Kübelbeck

Angela Merkel, courtesy of Armin Kübelbeck

Merkel is steaming towards victory in Germany’s elections Sunday.  While euro cheerleaders hope for Germany to change its eurocrisis fighting efforts after a new government is secure in the Bundestag, I think they will be disappointed.

The most significant message from German voters is that they do not want change, but more of the same.  Merkel can be counted on to maintain the euro for as little money as possible, which is exactly what Germans want.  What they don’t want are the inevitable consequences from kicking the can down the road umpteenth times.  Delaying the eurocrisis will just make it more severe when it eventually erupts.

Around the Globe: Labor Day Weekend Edition 2013


China Factory Activity Hits 16-Month High –

China official PMI hits 16-month high in August.

China official PMI hits 16-month high in August | Reuters.

HSBC China Flash PMI 08.2013

The PMI numbers from both HSBC and the Chinese National Bureau of Statistics are at 50.1 and 51 respectively.  These numbers indicate a slight amount of growth, but that is better than a contraction.  Has the Chinese economy gained momentum? Well, the last two trips above 50 were temporary respites from the contraction, not a second coming of the Chinese miracle.


Most Japan Experts Back Tax Hike: Economy Minister –

Japan Prices Rise on Higher Energy Costs –

Japanese Core Consumer Prices

Inflation is a sign of strength in a growing economy reflecting increasing demand. Current central bank dogma holds that the reverse is true.  By stoking inflation through increasing the money supply, central banksters believe that they can organically grow the economy.  This belief is akin to raising one’s body temperature through a hot bath or exercise so that the flu develops.

While the mainstream media cheerleads the Bank of Japan’s successful efforts to create inflation, note that virtually all of the increase in the inflation rate are a result of higher energy prices, not increased demand.  Stripping out these prices reveals a Japanese economy still in the throes of deflation as illustrated in our chart above.

Higher energy prices simply mean that Japan is sending more of its hard-earned yen overseas to purchase oil.  This leaves less yen for Japanese consumers and businesses to spend on Japanese products. Note the deteriorating balance of trade:

Japan Balance of Trade

Berlusconi Threatens to Topple Letta If Expelled From Senate – Bloomberg.


Berlusconi had been issuing veiled threats about bringing the current government down for the last few months.  Then, he unveiled these threats during a television interview.  Later, he disavowed those threats saying that he wants the government to survive.  Bunga bunga.

From Monday’s Edition:

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

U.S. durable goods post largest drop in nearly a year | Reuters.

Durable-Goods Orders Drop 7.3% in July –

US we have a problem, and its name is durable goods.

Durable Goods Shipments 08.2013

Orders are volatile by their nature, but economists use this data because it may reveal information about the future.  Changes in orders tip off changes in future production.  Durable goods orders plunged over 7% this month, but this is not an unusual result due to the volatility in this series.  What is concerning is the change in product shipments.  The downward trend in shipments has happened twice before in the last 13 years.  You can check for yourself to see what happened next.

From Tuesday’s Edition:

As investors shift, housing is the new stock market.

Home Prices in 20 U.S. Cities Increased at Slower Pace – Bloomberg.

Home Prices Increased in June –

Case Shiller 20 City Index 08.2013

If you believe that these housing prices are sustainable, consult the first headline above and then examine the chart.  Home prices are rising at nearly the same pace as they were when the bubble was inflating in the mid-aughts, and CNBC is calling the housing market the “new stock market.” Moreover, Robert Shiller has called the current price increases meaningless as they reflect speculative activity.  Over 60% of the sales are all-cash deals.

Since the American worker is not earning enough to buy his own home, who will repurchase those speculators’ properties when they attempt to cash out? Don’t peddle fantasies about massive REITs holding thousands of rental homes.  There are virtually no economies of scale associated with single-family home rentals, and state landlord-tenant laws vary widely.  This is a nonstarter as a business, so the question remains: how will the speculators cash out?

From Wednesday’s Edition:

Fed’s Yellen, Husband Worth Up to $13.2 Million in 2012 –

ThWealthy Recoverye Fed’s money printing has done little to stimulate the labor market but has created asset bubbles across the world from which the TBTF and the rich are profiting nicely.  Wall Street is doing fine, while Main Street struggles.

After all of that money printing, the Fed is telling us that the economy is strong enough to stand on its own.  While this seems like crazy talk, to those influencing monetary policy this narrative seems accurate. The net worth and salaries of top Fed officials places them squarely within the wealthiest 7% of the U.S.  That income group is doing so well that it raises the averages and medians of the country distorting the true view of the “recovery.”

The bottom 93% is experiencing a very different economy, particularly since this group derives most of its wealth from its toil:

US Household Income Performance Since 2000

Which brings us to the reason why the Fed will continue printing until a crisis forces it to change tack: too many rich and powerful people depend on their current level of wealth based on the suppressed rates and almost daily injections of  money of the Fed’s current policy.

The Fed will not change its policy, because it will lead to a market panic making all of those rich and powerful people just powerful.  If the market tanks, it will be the proverbial black swan doing its magic.

From Thursday’s Edition:

Exclusive: India might buy gold from citizens to ease rupee crisis | Reuters.

Gold in Rupees 08.29.2013

Let me get this straight.  Indians have realized that their currency is becoming worthless and have been purchasing gold to preserve their wealth.  The RBI’s genius plan is to offer to purchase this gold back from the people in exchange for that same currency.

RBI, the problem is that your citizens do not wish to hold your paper anymore.  If you want banks to buy gold back from consumers, then don’t offer rupees.  Pick another currency instead.  Ollie Rehn was just telling us how awesome the economy in the Eurozone will be in 2014, so maybe you could offer Indians euros.  Just a thought.

Indonesia Raises Interest Rate as India Aids Rupee – Bloomberg.

Bank Indonesia Hikes Interest Rates to Bolster Plunging Currency –

USDIDR 08.29.2013
From Bloomberg

Volatility in emerging markets has been rising in the last two weeks or so, but I believe the trend will cease and retrace a bit after Labor Day when liquidity conditions improve.  Unfortunately, this will prove to be a temporary respite until Uncle Ben cranks up the magic money machine again.

From Friday’s Edition:

Euro-Zone Unemployment Falls –

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.

Around the Globe 08.28.2013

Pending Home Sales Index Falls in July –

U.S. housing recovery loses a step as pending home sales fall | Reuters.

Pending Sales of Existing Homes in U.S. Dropped 1.3% in July – Bloomberg.

From ZeroHedge

From ZeroHedge

If you read the articles from the attached links, you would come to the conclusion that the fall in pending home sales took people by surprise.  A person who relies solely on the mainstream media for its news and analysis would have been surprised, because it relies on industry shills for the bulk of its reporting about the housing market.  As recently as last month, NAR economist Lawrence Yun was claiming that the rise in mortgage rates would not adversely affect sales because rates these rates were historically low and the labor market was improving.

Nominal rates are historically low, but real rates, accounting for inflation, are not.  Furthermore, the labor market is not improving.  Wages continue to decrease, and part-time work is displacing full-time jobs with benefits.  Stating that rates would not affect the level of future housing transactions was merely cheerleading, not economic analysis.

Today’s Chart of Truth illustrates the relationship between rates and sales.  I’ll leave you to figure out the future direction of sales based on rising interest rates.

Emerging-Market Rout Intensifies on Syria Jitters –

Lira, rupee at forefront as Syria tension pounds emerging assets | Reuters.

EM Currency Sampler 08.28.2013

The EM rout continues.  None of these central banks seem to have a grip on the situation.  India is busy moving deckchairs, and I could not tell you what Brazil, Indonesia and Turkey are doing to arrest the capital flight.  India is in the worst shape, because its citizens are not stupid.  They have been busy buying as much gold as possible to escape the rupee’s swoon.

As long as Syria remains in the red zone, further emerging market distress is likely, and no one knows what will happen there next.

Fed’s Yellen, Husband Worth Up to $13.2 Million in 2012 –

ThWealthy Recoverye Fed’s money printing has done little to stimulate the labor market but has created asset bubbles across the world from which the TBTF and the rich are profiting nicely.  Wall Street is doing fine, while Main Street struggles.

After all of that money printing, the Fed is telling us that the economy is strong enough to stand on its own.  While this seems like crazy talk, to those influencing monetary policy this narrative seems accurate. The net worth and salaries of top Fed officials places them squarely within the wealthiest 7% of the U.S.  That income group is doing so well that it raises the averages and medians of the country distorting the true view of the “recovery.”

The bottom 93% is experiencing a very different economy, particularly since this group derives most of its wealth from its toil:

US Household Income Performance Since 2000

Which brings us to the reason why the Fed will continue printing until a crisis forces it to change tack: too many rich and powerful people depend on their current level of wealth based on the suppressed rates and almost daily injections of  money of the Fed’s current policy.

The Fed will not change its policy, because it will lead to a market panic making all of those rich and powerful people just powerful.  If the market tanks, it will be the proverbial black swan doing its magic.

Eurozone is heading for a relapse back into crisis –

Draghi Rate Pledge Weakened by Recovery It Targets: Euro Credit – Bloomberg.

Occasionally, the mainstream media will print an opinion piece laying bare the facts surrounding the Eurocrisis, but its forte is still the Eurozone recovery piece.  These articles generally quote financial industry shills discussing the noise, stock markets, bond yields and cherry-picked data devoid of context, rather than the signal:Eurozone Employed Workforce

The European workforce has been shrinking almost continuously since 2008, while sovereign debt has been increasing:

Eurozone Debt to GDP Ratio

The financial markets recovered without a corresponding economic recvery.  As long as robust growth evades the Continent, the specter of a breakup will haunt the Eurozone.

Spaniards Fleeing Jobless Scourge Seek Jobs in Morocco – Bloomberg

Historical Spanish Unemployment

One difference between the third world and the West is that the people from third world countries are more likely to migrate to greater economic opportunities.  So, if Spaniards are leaving Spain for greater opportunities in Morocco, what does that make Spain?


Around the Globe 08.20.2013

Fear of Fed Retreat Roils India –

India’s Economic Woes Spread to Southeast Asia – Businessweek.

India Central Bank Intervenes to Ease Liquidity –

USDINR 08.20.2013

The Reserve Bank of India decided to ease liquidity issues by purchasing $1.5bn in rupee denominated bonds from the banking system.  While the bond purchase should provide sufficient liquidity for banks in the short-term, the RBI has paved the way for additional drops in the rupee.   India is moving towards a full-scale financial panic, and the RBI should raise interest rates before the situation runs away from it.

Greece will need third aid deal: German finance minister.

UPDATE 1-Greece will need third aid deal, German Finance Minister admits | Reuters.

Greece - with policy change

Greece does not require a 3rd bailout, because it has already had three.  The next will be the fourth.

The first bailout occurred in May of 2010, and everyone believed that the Greek problem was solved.  Within a year, this aid package proved to be short, so the troika approved a new bailout plan that most economists outside the official halls of central banks, governments and the IMF deemed insufficient from the get-go.  This plan, the second bailout, was eventually implemented in March of 2012.

By the summer, it was obvious that Greece was in need of more aid.  ELA approved by the ECB kept the Greeks afloat until a third bailout package could be arranged in November of 2012.  As you can see for yourself above, the same wildly optimistic projections of revenues from GDP growth and privatization doomed this plan from the start, but the troika’s goal here was not to save Greece but to keep it quiet until after German elections.  They failed, and I wrote

The 3rd Greek bailout was not designed to place Greek finances on a sustainable path; rather, the troika was primarily concerned with kicking the can down the road past German elections.  Once Angie was safely seated in the Chancellor’s throne, she could return to the Bundestag with a request for more German money to throw down the Hellenic Hole. (Greece Requires 4th Bailout | DARECONOMICS.)

The fourth bailout will occur sometime in the winter of 2013/2014.  Additional German money will be politically covered with a deposit tax à la Cyprus.  Anyone who is maintaining funds in a Greek bank deserves whatever happens to him.

Bubbles Bloom Anew in Desert as Buyers Wager on Las Vegas – Bloomberg.

Las Vegas Housing vs Unemployment Rate

Unemployment has remained high in Las Vegas at 2.4 points, about 33% greater than the national average.  Yet, look at that rise in housing prices. Since regular folk are not participating in the market, the increase has been caused by flippers buying and selling houses to each other.  Cash deals account for just about two-thirds of house transactions in the Las Vegas market.  Eventually, those flippers will need to sell their investments to regular people who require a home and realize that there aren’t any at the posted sales price.  Until that moment, the bubble will continue to inflate.

Dubai Sees Need for Tallest Office Tower Amid 45% Vacancy – Bloomberg.

Skyscraper Index Image

Amidst dizzying office vacancy rates approaching 50%, Dubai continues to add to its skyscraper inventory.  The longer cheap money is available, the higher the levels of malinvestment.  Not included in the image above are the Freedom Tower in New York and SkyOne in Shanghai.  When this bubble bursts, the central banks will not be able to ride to the rescue.  There is a decreasing marginal return with additional liquidity.  At this point in the cycle, new money is barely maintaining current levels of frothiness let alone causing another leg up.

Skyscraper Index

Norway Krone Slumps as GDP Data Revives Rate Bets – Bloomberg.

USDNOK 08.20.2013

When I originally selected this article for inclusion in today’s edition of Around the Globe, my thesis was that even Norway was feeling the effects of Europe’s malaise.  Then, I examined the figures and have come to conclusion that Norway is actually doing quite well for itself even though industrial production is not growing as quickly as some would like.