Around the Globe 11.05.2013

BOJ Gov. Kuroda Calls Easing Steps Successful – WSJ.com.

BOJ Struggles to Convince on 2% as Abenomics Shine Fades – Bloomberg.

Japan Salaries Extend Fall as Abe Urges Companies to Raise Wages – Bloomberg.

Japanese Incomes  Japanese GDP Performance Through 2Q2013

Japanese Inflation Rate

 

Printapalooza throughout the world continues, but the Bank of Japan is leading the world in money creation.  Printing inflates asset prices while deflating labor costs, i.e. wages.  In the first chart, note the trend of Japanese wages since the BoJ began printing over a decade ago.  It is not surprising that the Japanese economy is weak, because consumers have been on a slow, inexorable wage reduction for almost 15 years.  The current round has proven ineffective at raising GDP growth, as illustrated in our second chart.  Indeed, Japan witnessed stronger growth in the aftermath of Lehman than it is under Abenomics, which is also the last time Japanese inflation exceeded 2%.  If you examine the third chart, you can see what happened after the last three times the mainstream financial press called an end to Japanese deflation.

In the meantime, the export and stock market gains fueled by the weak yen have probably peaked.  The USDJPY exchange rate is highly correlated to the ratio between BoJ and Fed assets.  As our last chart details, the market has already priced in the more rapid expansion of the BoJ’s balance sheet.  A reduction in Fed purchases, the dreaded taper, will allow the yen to depreciate further.

BoJ to Fed Balance Sheet Ratio vs. JPYUSD

 

Service Industries in U.S. Grow at Faster Pace Than Forecast – Bloomberg.

Service sector exapnds more than expected in October: ISM.

U.S. service sector growth quickens in October: ISM | Reuters.

ISM NMI 11.2013

The economic data continues to tell a tale of stagnation.  The MFP is breathlessly reporting that the services PMI beat the consensus forecast despite the “shutdown.”  Numbers above 50 signal expansion, but a 55.4 is nothing to write home about.  Expected GDP growth at this level is below 2%, which is far below the 3.5% growth required to stir the labor market.

Pressure mounts on Draghi following eurozone forecasts – FT.com.

Rehn Confident Greece to Meet Targets as Troika Talks Resume – Bloomberg.

EU Forecasts Sluggish Growth as Austerity Continues – WSJ.com.

EU cuts euro zone growth forecasts for 2014.

Uncertainty over ECB caps moves in shares, euro | Reuters.

Euro Fair Value at 1.37

 

Everyone is trying to predict what the ECB will do on Thursday: will it cut rates or not? Most commentators seem to believe that the ECB will cut its discount rate, because the EU just cut its Eurozone growth forecast for 2014 to 1.1%.  The EU has been relentlessly cutting growth forecasts since 2010, so there is no crisis here.  The only thing you need to know about how the ECB will conduct monetary policy is contained in the chart above.

As long as the euro remains weak enough to promote German exports, there will be no rate cut to lower the euro exchange rate.  If the euro attains and maintains the low $1.40’s for a time, then there will be a rate cut.  At the current rate of $1.35, Germany is benefiting from both low inflation and a weak currency.

Around the Globe 06.28.2013

China Bad-Loan Alarm Sounded by Record Bank Spread Jump – Bloomberg.

China 7 Day Repo 06.28.2013

As the chart illustrates, the 7 Day repo rate has been declining rapidly as the PBOC adds liquidity and jawbones, but the Chinese financial system remains stressed.  Longer term repo rates remain high, and bad loans have been rising since late 2011.  While the cash crunch has abated for now, the Chinese credit bubble is bursting.  Look out below.

Euro Zone Set to Keep Shrinking – WSJ.com.

Eurocoin Survey 06.2013

The Eurozone is mired in a recession with no end in sight, but the mainstream media must point to a light at the end of the tunnel to conform the latest news to its Eurozone Recovery Narrative.  Here’s an excerpt:

Many recent economic data releases and surveys have suggested the contraction is easing and may end soon. Figures released Friday showed German retail sales rose in May following three straight months of decline, while French consumer spending also increased.

Eurozone Retail PMI 06.28.2013

Italian and French retail sales are both declining, which is unsurprising considering record unemployment rates.  The mainstream media has been calling an end to this recession since October and as long as it does not change its tune it will be right someday.  Today is not that day.

Greece Faces Collapse of Second Key Privatization.

Greece - Privatization

Greece will never be able to sell all of its state assets at the prices it desires.  Similar to many third world countries, Greece does not protect property rights well, and businesses are subject to arbitrary and capricious regulations that hinder productivity.  This is a problem, because a hole is opening up in the Greek budget and is being exacerbated by the lack of privatization receipts.  The troika privatization projections are highlighted above.  While the sums seem small, they loom large in the German elections.  Will Merkel make it to September 22 without the Greek situation exploding?

HEARD ON THE STREET: A Stormy Summer Looms for Bonds – WSJ.com.

Lacker Says Markets to Stay Volatile as Fed Debates Tapering QE – Bloomberg.

US-Junk-bond-rout-2013-Jan_Jun

Rates have stabilized for now, but the action will heat up as the summer progresses.  When retail investors see how much money they have lost so far in their bond funds, they will continue selling them to avoid more losses leading to the funds liquidating specific positions.  While this is occurring, don’t expect government rates to follow.  The money from liquidations has to go somewhere.

Japan Recovery Strengthened in May in Boost for Abe: Economy – Bloomberg.

Japan Manufacturing PMI 06.28.2013

The Japanese recovery did strengthen giving the mainstream media fodder for its Japanese recovery meme.  Placing the PMI an production numbers in context would really add to this story, but that type of analysis would also not support the narrative.  As the chart above shows, Japan has been down this road before with rises quickly leading to stagnation and contraction.  We will know by year end if Japan’s recovery is self-sustaining, but I have a feeling that this time won’t be different.

Business Activity in U.S. Cools More Than Forecast – Bloomberg.

US Consumer Sentiment Comes in Higher Than Expected in June.

Chicago PMI 06.2013

U.S. economic data has been mixed recently.  Today, the Chicago manufacturing report showed a declining rate of expansion on the way to stagnation while UMich’s Consumer Sentiment increased.  Good news and bad news, or is it more like bad news and bad news? The last time the Consumer survey was this high was on the eve of the Great Recession:

UM Consumer Confidence 06.28.2013

Thomson/Reuters University of Michigan Consumer Confidence Survey

Gold’s Drop to 34-Month Low Extends Record Quarterly Fall on Fed – Bloomberg.

Gold 06.28.2013

The Gold Rout of 2013 continues.  The recent high prices have led to increased production and salvage, and finally the supply increases have pushed the price down.  This is how every gold bull market ends.  The price is now below the price of production, but this fact is of little solace to investors.  When a rally ends, prices tend to over-correct to the downside.

Around the Globe 06.19.2013

ekathimerini.com | 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.

japan-balance-of-trade

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 – WSJ.com.

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 – WSJ.com.

china-7-day-repo

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 – WSJ.com.

cyprus-government-debt-to-gdp

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 06.14.2013

Yen Slump Failing to Stem Japan’s Exodus of Factories Overseas – Bloomberg.

YENUSD 06.14.2013

Abenomics has made the round trip.  The Yen has made up all of its losses, and the Nikkei 225 has given up most of its gains since the 2-2-2 plan was announced in early April.  According to both anecdotal and statistical evidence, the weaker yen failed to revive Japanese manufacturing.  This is  because manufacturing capacity has been leaving Japan since the Asian Flu of 1998.

I will not call an end to this project yet.  There is a chance the market rally and yen weakening have paused with investors waiting for the results of elections next month.  If Abe’s party wins like it is supposed, the circus may return to town.

Spain Recession Seen Ending by 2014 as Austerity Eases – Bloomberg.

Spanish GDP Performance

Economic forecasts more than one quarter fare no better than chance in predicting the direction of the economy.  This inconvenient fact does not stop anyone from trying.  If you’re right, you can brag about your acumen to all your little economist friends.  If you’re wrong, well, everyone is usually wrong anyway.

As long as the Euro Crisis and it resultant recession have been around, economists have been predicting their ends two quarters into the future.  Before you invest on their advice, examine the chart above and decide for yourself which direction Spain is heading.

Why the Fed Will Try to Calm Market Nerves.

Fed QE versus SP500

The reason the Fed will attempt to calm market nerves lies within the chart above.  There’s no need to write any more pithy analysis.  Just look at the chart, and the Fed’s motive becomes clear.  The markets are being targeted by QE in order to create the “wealth effect.” Once the money machine stops, so does the economy.

Euro-Zone Risks Return to Fore – WSJ.com.

GGB 06.14.2013

In this article, the mainstream media begins to question its own Eurozone recovery meme that it has touted since November, 2012.  The recovery was an illusion in the first place, and the only thing that has changed is that periphery bond yields have begun rising again, which prompted this article.

In November, the Eurozone was ensconced in a recession where it remains today.  Rising rates are not a sign of investors getting cold feet but rather a taper tantrum.  Note the day rates starting rising in the chart above.  Italy, Portugal and Spain show a similar inflection point in their yields, too.

U.S. Coal Exports Plunge – WSJ.com.

Now, China Watchers See Growth Below 7%.

Coal Price 06.13It’s hard to say what is really happening in China as the country controls releases of its own internal information.  However, by proxy we are able to deduce that Chinese growth is falling.  Electricity usage is down as are oil imports and rail traffic.  China’s trading partners report lower imports from China.

The latest proxy signal of China’s decreasing growth is its deep drop in coal imports.  Coal is used for power and to create steel.  The precipitous drop in its price and demand over the last year or so shows the true state of Chinese manufacturing.

China is often accused of smoothing its economic numbers, so it will be interesting to see what its 2nd quarter growth is light of all of these proxy economic indicators.

 

Consumer Sentiment in U.S. Declines From Six-Year High – Bloomberg.

UM Consumer Confidence 06.14.2013

After last month’s euphoria, this months UM numbers have fallen back to earth, not that they were great to begin with.  The base reading is 100, so numbers in the 80’s are nothing to write home about.  The continuing story of this recovery is its failure to produce a surge in job creation, and this factor will limit growth to the tepid 0-2.5% zone indefinitely.

This Nation Could Be the Most at Risk From Capital Flight.

Brazilian Real to USD 06.14.2013

This is the latest chapter in the ongoing emerging markets jog.  Brazil has come a long way from its hyperinflation days, but it does not wish to fall into that trap again.  While other countries may wish for a weaker currency to attract imports, the Brazilian central bank thinks of itself first and foremost as an inflation fighter.  Don’t be surprised at another rate increase this summer.

Around the Globe 06.13.2013

RBNZ Holds Key Rate as Wheeler Targets Strong Kiwi, Housing – Bloomberg.

From Bloomberg.com

From Bloomberg.com

The Royal Bank of New Zealand continues to communicate to markets its belief that the kiwi is too strong.  As such, the RBNZ is maintaining a low interest rate posture that is fueling a housing bubble with New Zealand housing up almost 10% from May to May.  The major world central banks have forced monetary easing on everyone else.  Of course, there is no need to worry, Kiwis.  I’m sure that your housing market will have a soft landing and not cause a banking crisis.

Traders Pay for an Early Peek at Key Data – WSJ.com.

Speed Trading 06013.2013Please don’t act surprised, and don’t act outraged either.  This activity is perfectly legal.  Private organizations earn income by selling information to the highest bidder.

The best way to avoid getting soaked in this game is not to be a sucker.  Being a short-term trader is an expensive, time-consuming job.  If you do not wish to pay for primary access to information and spend the time observing markets to learn about the vagaries or supply and demand, then you are just gambling.

The professional speculators will always beat the amateur gamblers in the long-term.  The system is and always will be  unfair.  If you do not like it, don’t make short-term market bets.

Nikkei Enters Bear Market – WSJ.com.

Nikkei Plunges 6.4%; Re-Enters Bear Market.

Nikkei 225 06.13.2013

As the red line in the chart indicates, the Nikkei has completed a round trip from 12,500 at the onset of 2-2-2 to 16,000 during the height of exuberance in May back down to 12,500 as investors realize that Japan is still Japan.  The country is a victim of both a demographic disaster and the Cantillon Effect.  The country cannot be awoken from its torpor with money printing or any other intervention, because it is not sleeping.  Japan is dying.

Trichet Says ECB’s Monetary Transactions Perfectly Legal – Bloomberg.

Jean Claude TrichetThis guy was in charge of the ECB throughout the entire boom to bust cycle of the new euro, 2003-2011.  He claims that the OMT program is legal.  It is not, though it is certainly necessary.  The only thing holding up those periphery bond prices is the ECB.  One day, the emperor will be shown to have no clothes, but today is not that day.

Emerging Markets Act to Stem Capital Flight – Bloomberg.

USDPHP 06.13.2013

We have been monitoring the emerging market situation for quite some time now.  Nothing has changed since our May 2 inflection point.  Capital is slowly jogging out of emerging markets and into… I really don’t know.  The usual havens are not showing massive inflows.

The chart above shows the plight of the Philippine peso.  Note that this is basically the same pattern experience by all emerging markets.  Since May 2, their currencies, bonds and stocks have been weakening in lockstep.

Insight: The big money bails on Argentina – again | Reuters.

Argentine Peso Official and Unofficial Rates 06.13.2013

If you ever invest money in Argentina, then you deserve whatever happens to you.  Argentina has been a rogue financial state for over a century now.  As recently as the early 1900’s, the country had living standards comparable to the U.S., but it has been a basket case since then.  The consensus among economists is that Argentina will have another financial crisis soon foretold in the exchange rate chart above, but they all believe that it will not be as severe as the last crisis.

I glean two pieces of information from the consensus views of all those economists.  First, either Argentina will have a crisis that puts the 2001-2 to shame, or it will not have one at all.  If you agree with the latter statement, reread the first line of this post.

Greeks strike over state TV closure, PM offers talks | Reuters.

200px-EPT_logo.svgAs Juvenal imparted to us over two millenia ago, the keys to ruling are bread and circuses.  The Greek government was able to remain in power (and alive) despite cutting off bread to a great deal of the population, but it may not be able to survive the elimination of the circuses.  The largest protests in months were spurred by the PM unilaterally shutting down Greek public stations.  Let’s hope that our government never makes the same mistake.  We can accept optional wars, scandals and Big Brother monitoring our communications, but don’t you dare take those Kardashians or the NFL away from me!

Euro Zone Closes In on Bank Plans – WSJ.com.

The mainstream media loves touting the Eurozone banking union and never takes a moment to critically analyze what the eurocrats are telling them.  In this case, the elephant in the room is the paltry sum available to resolve failed banks, €60bn. This amount of money is simply not sufficient.  The Spanish banks alone will probably require this much capital within a year, not to mention all of those dodgy Italian and French institutions.  The bottom line is that if these countries want to preserve their euro, they better open their wallets.

Around the Globe 06.12.2013

Behind the Massive Bet Against the Emerging Markets.

Brazilian Real Selloff Sparks More Intervention: Sao Paulo Mover – Bloomberg.

Bank Indonesia Raises Deposit Facility Rate After Rupiah Slide – Bloomberg.

Emerging-Market Bond Anxieties Surging by Most Since 2008 – Bloomberg.

Analysis: Asia’s ticking time bonds; time to cut and run? | Reuters.

Charts from Bloomberg.com

Charts from Bloomberg.com

May 2nd was an important inflection point in world markets, as the chart above illustrates.  Since that date, emerging market currencies, bonds and stocks have all weakened.  The news of the day indicated contractionary manufacturing sectors in both the U.S. and Europe, but that news does not seem to be the catalyst for the changes in emerging markets.  At the present rate of decay, a liquidity crisis is in the cards, which is all the more reason why EM should level off shortly.

Markets May Be Overpricing Risk of Fed Tapering.

From marketwatch.com

From marketwatch.com

Since peaking in May, the S&P 500 has entered a correction phase.  The decline could be because of the dreaded taper tantrum, or it could just be that the market has risen so quickly and so high since Presidential elections that it was just due for a correction.  It could also be the start of a bear market.

Here’s a little something I just read in MauldinEconomics.com.  Mauldin pointed out that the last three market crashes occurred during a period of loose monetary policy from the Fed.  Could the fourth be forming as we speak?

Greece First Developed Market Cut to Emerging as UAE Raised – Bloomberg.

From Developed Back to Emerging: Greece’s Full Circle.

Greece back in crisis mode on state TV shutdown, downgrade | Reuters.

From ZeroHedge

From ZeroHedge

Greece’s largest export is bad news.  The government shut down the public broadcast system and fired 3,000 workers at the behest of the troika.  Greece has 650k public workers, so the closure was largely a symbolic move.  For some reason, PM Samaras did not consult his coalition partners from the left prior to the shutdown, and they’re pissed.  The coalition is threatening to fall apart as opposition Syriza is bringing a no confidence vote.

Meanwhile, Greece has been downgraded to Emerging Market status.  This means that over the coming few weeks, managers will need to wind down Greek holdings in order to adhere to their investment mandates.  Greek markets had been selling off prior to this news, so there is the chance that this swoon could turn into a rout.

Don’t worry about all of this.  As we learned yesterday in the mainstream media, Greece is beginning to recover.

Orange grove gangs are product of Spanish crisis | Reuters.

Frito_BanditoLook, I know this isn’t a Spanish bandito.  Give me a break.  I couldn’t find an image for the right kind on the Internet, so this one will have to do.

The Spanish living in the countryside have resorted to brigandry.  Roving gangs have been stealing produce and equipment from far-flung farms that lack the means to secure themselves.

The Spanish are surviving their economic depression by resorting to lives of crime.  Thefts and robberies have increased dramatically since 2009, and this should not come as a surprise.  Whether it be participating in the black market or outright stealing, people will do what is necessary to continue eating.

ECB and Bundesbank square off over bond-buying plan | Reuters.

German Supreme CourtConstitutional courts are part of the government, so they have inherent conflicts of interest that simply cannot be resolved.  Courts who rule to increase government power are increasing their own, too.

While the 35,000 Germans who filed this petition with the court are seeking justice, all they will find is some tortured reasoning telling them that the ECb does not have to obey treaties and can do whatever it wants to save the euro.

When this decision is handed down in September, it will leave all ECB programs intact and merely require that the Bundestag rubberstamp certain ECB decisions.

 

Hold On, Japan Bond Market Swings Aren’t That Wild.

JGB 10 Year 06.12.2013

This article confuses two different concepts: price declines and volatility.  JGBs have not declined enough to cause concern on an historical basis as yields are around their averages from 2012, but volatility has clearly increased since the 2-2-2 plan was unveiled in April.  In fact, the chart above shows the increased volatility better than a paragraph or an analyst’s model.  Note the jagged pattern since early April as compared to the relatively smooth line prior to then.

Around the Globe 06.11.2013

Analysis: Greece awakens from coma but recovery likely to be anemic | Reuters.

Greece Won’t Need New Budget Cuts After Depa Blow, Samaras Says – Bloomberg.

Greek Statistic Sampler

In the first article, we are told that Greece is awakening from its coma.  Meanwhile, in the second, PM Samaras is busily denying that the need for additional budget cuts even though its privatization plan is failing.   Greece will need to come up with about €1.5bn or so if it is unable to close deals on state assets in 2013.  Moreover, revenues are running behind projections again.  Greece will require more money soon whether it be debt forgiveness or the ELA money printing program.

Greece resides in the realm of surreality.  Employment and GDP have been falling for years, yet business confidence has risen markedly in the last year.  Maybe Greek businessmen have bought into the mainstream media’s Greek recover meme.

In the meantime, will Angie be able to keep the lid on Greece until after Bundestag elections?

EU unveils action plan for Europe’s ailing steel sector | Reuters.

EU Unveils Plan to Halt European Steel Sector Decline.

EU27 Steel Balance of Trade

Europe has unveiled an action plan to deal with its steel industry.  The good news about the EU’s steel industry is that it ran its highest trade surplus in a decade.  The bad news is that a precipitous drop in imports is what enabled it to run such a large surplus.  Falling imports are indicative of Europe’s economic malaise.

Fortunately for European steel producers, the action plan contains very little action making it similar to other European endeavors, like a banking union.  The plan is a political document created so that politicians can score points for attempting to save jobs.  The steel producers are actually in favor of reducing state intervention in the steel market.

Falling New Orders Signal U.S. Stock Inflation: Chart – Bloomberg.

For Anyone Who Still Thinks Earnings Matter | Zero Hedge.

SPX vs. New Orders 06.11.2013

SPX vs. New Orders 06.10.2013

When ZeroHedge points out the divergence between the economy and the stock market, it is just another day in the Blogosphere.  When mainstream media outlet Bloomberg uses the same chart and makes the same point a day later, it is a sign that a correction is fast approaching Uncle Ben’s Magic Money Land.

BTW, I prefer ZeroHedge’s chart and analysis.  Compare the chart and articles yourself and see what you think.

Kuroda’s April-Was-Enough Message Faces Investors Wanting More – Bloomberg.

Yen jumps sharply after BOJ refrains from new measures | Reuters.

YENUSD Exchange Rate to 06.13.13

Bloomberg

Over the weekend, I read the latest John Mauldin piece about Japan.  He is so convinced that the yen is on the verge of collapse that he financed his new home purchase with a yen based loan.  That is the ultimate contrarian indicator for the current yen narrative.  At the present juncture, it is safe to say that the yen is done depreciating.

Money Flows Out of Emerging Markets – WSJ.com.

USDTKL 06.11.2013

USDZAR06.11.2013

Something changed on May 2.  I can’t tell you what happened, but the evidence is all over every chart I use for my posts.  For some reason, the dollar began appreciating rapidly on this date.  I am not sure if this caused the slide in emerging markets or if the slide in emerging markets pushed the dollar higher as speculators cashed out and converted.

Around the Globe 06.10.2013

IMF Says Another Greek Bailout Necessary | Zero Hedge.

Greek Privatization Plan Hits Snag – WSJ.com.

Hail the outbreak of honesty about Greece’s bailout – FT.com.

Bad IMF Predictions 2

The IMF has admitted that its economic predictions for Greece have been poor and this has caused the Greek people unnecessary suffering.  You can see how bad the predictions have been in the chart above.  Each has missed to the downside including privatization receipts, but the Fund still will not admit that the poor predictions were not mistakes but rather political compromises to enable the Europeans to present their voters with a smaller cost.

The can was kicked yet again, and once again it appears that we are running out of road.  Greece has missed its unemployment, economic growth and privatization forecasts by so much that another bailout is inevitable by the end of the year just like we wrote months ago:

Recovery Meme Spreads to Greece, Yes, Greece | DARECONOMICS.

Japan current account surplus doubles as income gains, exports rise | Reuters.

Japanese Current AccountThe mainstream media must spin news positively to keep those clicks coming.  It is accurate to state that Japan’s current account surplus has doubled, but by removing this number from context the author has made this piece of news “optimistic.”  The chart above shows that as a percentage of GDP the current account has been decreasing and the trend continues.  The red arrow points to the spot where the current account balance resides today.  Placing that number in context, in order to finance itself without foreign assistance, Japan’s current account surplus must be close to 10%.

German Top Court Likely to Say ‘Yes, But’ to ECB Policy – Bloomberg.

German court to hear case against ESM, ECB bond-buying in June | Reuters.

German Supreme CourtThis is the official symbol of the German Supreme Constitutional Court in Karlsruhe.  It looks pretty cool and is ready for duty on a government website, official publication or the hood of a Pontiac Trans-Am.  On to the business at hand…

The German high court will never render a decision that imperils the euro.  As such, it will rubber stamp whatever argument put forth by Merkel’s government to allow the ESM and ECB to monetize periphery debt as long as it is with the consent of the Bundestag.  In an effort to keep things calm so that everyone carries on, the decision will not be issued until after elections.

No Inflation as Yields Jump Belies Point of No Return View – Bloomberg.

US 10yr 06.10.2013

The taper tantrum began May 2.  Since then, the stock market has moved sideways, and the bond market has fallen (yields rose).  My alternate explanation is that liquidity is drying up.  First, commodity markets felt the pinch.  Then, it was the bond markets.  That leaves equity markets for the next big move.  Arguably, this has already started with foreign stock markets led by Japan moving downwards during the last six weeks.

Housing’s Up, but Is Foundation Sound? – WSJ.com.

US Housing Sales through 04.2013

This is a well-written piece explaining both sides of the housing recovery debate.  In my opinion, the bears are a bit too optimistic.  A full-fledged recovery to pre-crash levels will take years.  In the meantime, the U.S. must figure out another way to promote economic growth rather than replacing one bubble with another.

Rupee Falls to Record Lows – WSJ.com.

Rupee to Dollar 06.10.2013

This asset also is experiencing a taper tantrum.  In fact, it appears to correlate perfectly with the recent decline in treasury prices. India does have macroeconomic issues, but why did these issues begin to manifest themselves in the rupee exchange rate beginning May 2?

The Painful Side Of Japan’s “Growth Strategy” | Zero Hedge.Oil Price in Yen 02.01.2013

The decline in the yen has led to a large increase in the price of oil for Japanese consumers.  The high oil price will drag down Japanese growth rates for the immediate future.

Around the Globe 05.31.2013

Japan Consumer Prices Slide in Challenge to Abe Revival Campaign – Bloomberg.

Chart from Bloomberg

Chart from Bloomberg

Japan Population

The reason deflation rules Japan is because an aging population demands less and less resources.  What is needed to revive the country is not a grand money printing experiment but actual demographic changes that promote growth.  Encouraging immigration and better treatment of women will revive Japan’s population growth leading to better economic prospects.  This takes time, and what everyone wants is a silver bullet solution, which has taken the form of a printing press.

Japan Output Gains as Tokyo Prices End Four-Year Slide: Economy – Bloomberg.

Japan Industrial Production 05.2013

Japan has had output increases before, so this may be a blip in the data.  However, four months in a row of positive growth indicates a trend in my book.  Without strong increases in demand from Japan’s main trading partners, the U.S. and China, growth will not hit escape velocity.

This Chart Shows Dow Should Be Lower…a Lot Lower.

EPS-vs-Price-053013

I do not agree with this article’s conclusion that the Dow should be lower according to EPS.  Declining yields in all markets should allow stocks to become more expensive, and they will over the next few months.  Once yields level off, the stock market will stop rising soon thereafter.

Consumer Spending in U.S. Unexpectedly Declined in April – Bloomberg.

Consumers Feel Pinch as Income Flat, Spending Off.

US Retail Sales

The necessary ingredient for an organic, self-sustaining economic recovery in the United States is a strong labor market.  As long as the demand for labor remains weak, incomes will not rise, and consumer spending will remain weak.  Since the end of the recession, retail sales have risen albeit at a slower and slower rate.  At the present rate of change, they will flat-line sometime next year.

Of course, falling consumer spending will not get in the way of the recovery meme, as we shall soon see.

Consumer Sentiment in U.S. Rises to Highest Since July 2007 – Bloomberg.

US Consumer Sentiment Rallies to Six-Year High in May.

Consumer sentiment strongest in nearly six years in May | Reuters.

Reuters-UMich Consumer Confidence via Bloomberg

Yea! Consumer sentiment is at its highest level since July, 2007.  Consumer sentiment measures peoples feelings about the economy as opposed to the hard data that shows real indicators like sales and employment levels.  What we have here is a words versus actions situation.  According to the survey, people believe that everything is wonderful and that they are ready to buy.  Then, consumer spending falls, and we realize that what consumes say and what they do are two different things.

Euro-Area Jobless Rate Rises to Record Amid Recession: Economy – Bloomberg.

Record unemployment, low inflation underline Europe’s pain | Reuters.

Tough Times Still Ahead for Euro Zone – WSJ.com.

Eurozone Unemployment 05.31.2013

Yesterday, Bloomberg was telling us

Economic confidence in the euro area increased in May, adding to signs the region is beginning to emerge from the longest recession in the single-currency era.

Once again, the Eurozone recovery narrative put forth by the mainstream financial press is dealt a harsh blow by the facts.  As long as the Continent remains shackled to the Euro and its sundry sclerotic institutions, it will continue to contract.  Occasionally, the rate of contraction will slow, and journalists will all jump over each other in an attempt to call the end of the malaise first.  Then, the data will rear its ugly head.  The real victims in the Eurozone are the young people faced with an unemployment rate close to 25%.

Euro-Zone Bailouts Leave Public Creditors at a Loss – WSJ.com.

WO-AN959_Brusse_G_20130530182716

The red portion of the bar graph is earmarked towards paying off the holders of the country’s sovereign debt courtesy of the EU taxpayer.  The gold portion of the bar graph is used mostly to restructure banks who are the largest holders of the sovereign debt again on the taxpayer’s tab.  Essentially, each sovereign bailout is a thinly disguised gift to European banks that made poor investment decisions in Greece, Ireland, Portugal and Cyprus soon to be joined by Slovenia, Spain and Italy.

Around the Globe 05.30.2013

5.2% Drop Takes Tokyo Stocks Into a Correction – WSJ.com.

Japan’s Stocks Correction Raises Stakes for Abe’s Growth Plan – Bloomberg.

Is Japan the canary in the coal mine? – MarketWatch.

Japan Stocks Dive Ahead of Sensitive US Data.

Nikkei 225 05.30.2013

The Bank of Japan embarked upon the latest experiment in money printing in early April.   This scale of money printing has never been attempted in a modern, industrialized economy.  The BoJ will be purchasing $75bn worth of JGBs per month for the foreseeable future.  If the Fed were to pursue its QE program with the same gusto, it would be purchasing close to $200bn per month of treasuries and mortgage bonds, over double the current clip of $85bn per month.

Unlike the Fed, the BoJ confines its open market activities to only a few days per month resulting in increased volatility in Japanese markets on the off days.  If this plan has any chance of being successful, the BoJ will have to smooth out its purchase schedule.  A constant flow will create a consistently rising market, and then the Japanese can even have their own version of Turbo Tuesdays.

Morning MoneyBeat: A Bond Selloff, But Not the Big One – MoneyBeat – WSJ.

From Bloomberg, US Treasury 10 year

From Bloomberg, US Treasury 10 year

Treasury yields have plummeted since the beginning of May when a raft of strong US economic data was released.  Strong economies usually increase the demand for money raising its price, the interest rate.  This dynamic is absent in the new normal.  The economy is not as strong as the buoyant stock market and increasing yields indicate.  Moreover, there is a shadow inventory of cheap money waiting on the sidelines to keep rates in check.  Those bonds will rally again and trade within a range of 1.6 – 2.2% as long as the Fed is running the magic money machine.

U.S. Stocks Rise on Fed Stimulus Hopes After GDP Report – Bloomberg.

DJIA 05.30.2013

This is all you need to know about the wacky paradigm created by massive money printing:

U.S. stocks advanced, following the Dow Jones Industrial Average’s biggest drop in four weeks, as weaker-than-expected data on economic growth and jobless claims boosted speculation the Federal Reserve will maintain stimulus.

Weaker data should equate to weaker profits driving the market down, but the exact opposite is happening.  Or maybe this is just a random price move, and it doesn’t mean anything.

Euro-Area Economic Confidence Climbs Amid Recession – Bloomberg.

Euro-Zone Sentiment Picks Up – WSJ.com.

EC Economic SentiMent Indicator 05.2013

Compare and contrast.  The first quote is from Bloomberg

Economic confidence in the euro area increased in May, adding to signs the region is beginning to emerge from the longest recession in the single-currency era.

and the second from the WSJ regarding the same exact data:

Businesses and consumers in the 17 nations that share the euro were less pessimistic about their prospects in May, the first improvement in sentiment since February, although one that is unlikely to herald a substantial pickup in economic growth in coming months.

Now, examine the chart illustrating the survey over time.  A rating of 100 indicates the confidence of an expanding economy.  Despite the happy talk from BBG, the confidence number overwhelmingly indicates a further contraction in the coming months despite the small improvement in May as illustrated by the chart above.

Bloomberg editor, here’s free rewrite of the first line of your article.  It’s what we call “accurate” here in the real world:

Economic confidence in the euro area increased in May, but the survey indicates a continuing recession for the Eurozone.  The rise in confidence was the first since February, but Europeans remain pessimistic about future economic prospects.

Exclusive: Europe plans major scaling back of financial trading tax | Reuters.

This was a bad idea, the chief product of the Eurozone.  Fortunately, cooler heads have prevailed, and the tax will be scaled down and its implementation delayed.  As to why it is a bad idea, click this link:

Good News for London and New York | DARECONOMICS.

Credit returns to Portugal economy, more to be done-bankers | Reuters.

Portugal Loans to Private Sector

“I am sure that we are entering a phase of greater supply of credit to Portuguese companies and even adjustments to its price,” Nuno Amado, chief executive officer of the country’s largest listed bank, Millennium BCP (BCP.LS), told a conference hosted by Reuters and TSF radio.

The headline is based on a quote by someone who is paid to say optimistic things about his business.  There is no evidence that credit is rising in the Portuguese economy. As usual, the chart dispels happy talk.  The best case scenario in play is that Portugal has hit the bottom.  While I do not agree with that analysis of the data, it is at least plausible.  Claiming that the supply of credit is increasing is not.