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nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
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NASA Rocket With Russian-Made Engine Explodes On Takeoff

śr., 29/10/2014 - 19:03
Sanctions or not, NASA uses Russian-made engines to propel rockets.

Yesterday, just seconds after takeoff, a NASA Antares rocket with a Russian-made engine exploded on takeoff. The mission was to carry supplies to the orbiting space station.

Today, the Guardian reports that Russian rocket manufacturer insists it is not to blame for Antares crash.
The Russian maker of the engine used in the unmanned US supply rocket that exploded after liftoff in Virginia denied on Wednesday that its product was at fault for the catastrophe.

The launch phase of the Orbital Sciences Corporation’s Antares rocket relied on two AJ-26 engines that were originally produced in the 1970s for a failed Soviet moon program and later modernised for US space flights. Speculation quickly centered on the Soviet-based engines, which have failed in tests, when the rocket exploded in a giant fireball after takeoff on Tuesday night.

But the Kuznetsov company in the Russian city of Samara suggested the blame lay not with its NK-33 engines, which formed the basis for the AJ-26 engines, but rather with their later modification in the United States, Russian news agency Itar-Tass reported.

Investigators from Nasa were scouring the site of the failed launch in Virginia by helicopter on Wednesday as they attempted to assess the extent of damage to the Wallops Flight Facility, which is owned by the agency. Engineers working for Orbital Science were trying to work out what caused the failure of the company’s $200m rocket, which forced the cargo mission resupplying the International Space Station to be aborted seconds after launch.

The launch was the first time the Antares rocket had been launched at night from Wallops, and the fireball caused by its explosion could be seen from miles around.

The accident is likely to intensify scrutiny over Nasa’s deal to subcontract resupply missions to private space operators following the end of its shuttle programme.

Orbital is under particular pressure to explain whether its use of ageing Russian rocket engines to power the first stage of the Antares rocket was a factor.

Kuznetsov argued that its NK-33 engines had undergone significant modernisation in the United States, including the addition of new components to direct the rocket’s thrust vector. “The development and certification of all new systems were done by the American side without Kuznetsov specialists. In essence, the AJ-26 engine is undergoing flight tests,” it said.

The NK-33 engines were first developed for the Soviet Union’s N-1 moon rocket, but many of them wound up in storage when that program was cancelled after several launch failures. The US company Aerojet Rocketdyne reportedly bought about 40 of the Soviet engines in the 1990s and began modifying them for use in US rockets. The resulting AJ-26 engine has suffered some failures during tests: one caught fire in 2011, and another being tested in May before use in an Antares flight burned up.

Since the end of its space shuttle program in 2011, the United States has had to rely on Russian engines and entire rocket systems to deliver astronauts and supplies to the International Space Station.

But rising political tensions between the two countries have complicated their space cooperation. Following US sanctions against Russia over its role in the Ukraine crisis, Dmitry Rogozin, the deputy PM in charge of the space and defence industries, barred the export of Russian engines used to launch US military satellites into orbit and threatened to end US participation in the ISS beyond 2020.Please click on the link to see an interesting video of the explosion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

MH17-Chief Investigator Investigates Possibility of Air-to-Air Missile, Seeks Cooperation From Russia

śr., 29/10/2014 - 08:58
Spiegel Online interviews Fred Westerbeke, the Dutch lead investigator of flight MH17 crash.

Westerbeke states that a surface-to-air missile is the most likely scenario, but he also discusses "secret satellite images and a possible involvement of the Ukrainian military."

Here are edited interview snips from MH17-Chief Investigator Westerbeke: "Do the Russians Have More Evidence?"
Who shot flight MH17 from over Eastern Ukraine? The Dutch prosecutor Fred Westerbeke directs international investigation. He talks about secret satellite images and a possible involvement of the Ukrainian military.

Spiegel: Mr. Westerbeke, your job as chief prosecutor sounds hardly solvable: MH17 flight was shot down over a civil war zone, even now, three months later, your crime scene investigator for is not available. What gives you hope someday to be able to bring someone to court?

Westerbeke: The Netherlands does not determine in the case so alone. There is a very good cooperation with police and prosecutors, especially in Malaysia, Australia and the Ukraine. It is not easy. But we can do it.

Spiegel: In what period of time?

Westerbeke: Look at Lockerbie, the bombing of a Pan Am jumbo in December 1988 with 270 deaths. At that time, it took three years before you could name those responsible. We will certainly need the whole next year for our work, and perhaps even longer.

Spiegel: The Federal Intelligence Service BND assumes that pro-Russian separatists have shot down the machine with a surface to air missile. Recently some German parliamentarians corresponding satellite images were presented. Do you know these recordings?

Westerbeke: The problem is that there are very many different satellite images: Some of them can be found on the Internet, others come from foreign intelligence agencies.

Spiegel: High-resolution images, for example from US spy satellites could play a crucial role in the investigation of the case. Did you get those shots of the Americans?

Westerbeke: We are not sure if we already have everything, or whether there are more - material that may be even more specific. What we present is certainly not enough to draw any conclusions. We remain in contact with the United States to get satellite images.

Spiegel: The shooting down of flight MH17 is the biggest criminal case in the history of your country, it says. How many investigators are currently working?

Westerbeke: In the Netherlands alone there are ten prosecutors. Three of them coordinate the investigation, two work at the international level. Two more are responsible for the care of relatives. In addition, forensic expert number around 80. There are regular meetings with colleagues from Malaysia, Australia and the Ukraine to divide the work.

Spiegel: Because of fighting at the crash site, again and again, none of your investigators is on site. On which tracks you rely instead?

Westerbeke: There are metal fragments that were found in the bodies of the dead and in pieces of luggage. This could be shrapnel from a rocket-Buk, possibly also parts of the aircraft itself. We analyze this, so far there are no results. We also have some witnesses who were on the spot immediately after the crash. In the Internet we spot an immense amount of information. We also have various recordings of telephone conversations from the Ukrainian police. Some of it is already available online, but we did get richer material.

Spiegel: So far, is there any indisputable evidence?

Westerbeke: If you look in the newspapers, yes. But if we really want to bring the perpetrators to justice, we need more evidence than a recorded phone call from the internet or photos of the crash site. That's why we take several scenarios into consideration.

Spiegel: What are the scenarios?

Westerbeke: An accident, a terrorist attack, the shooting down by a surface to air missile or an attack by another aircraft. We have ruled out the first two.

Spiegel: Moscow circulated for some time, a claim that the passenger plane had been shot down by a Ukrainian fighter jet. Do you think it possible?

Westerbeke: Based on the available information, the launch is by a ground-to-air missile in my eyes is still the most likely scenario. But we do not close our eyes to the possibility that it might have been different.

Spiegel: The OVV report states that there were no military jets in the vicinity.

Westerbeke: Right. But that statement is based on information that was available at the time. The question is: Do the Russians have more evidence?

Spiegel: Your Prime Minister Mark Rutte has recently criticized Vladimir Putin because of his lack of support in the MH17 case. What is the role of Russia in the investigation?

Westerbeke: At the moment, not large, since it is not part of the investigation team. We are preparing a request for assistance, in which we ask Moscow for information that could be important. Among other things, we seek radar data with which the Russians wanted to prove the presence of a Ukrainian military jet near MH17 after the crash.

Spiegel: If you actually draw the participation of the Ukrainian Air Force on firing of flight MH17 into consideration - is it not absurd that Ukraine is involved in the investigation?

Westerbeke: Of course that's a problem. But we cannot determine without them. I want a way to make it clear: We have no evidence that Kiev has not been completely open with us. You give us all the information we want.Notes: Translation from German is frequently difficult. I edited the Google translation to make it more readable. Also there is a bit more in the interview regarding rewards, bounties, the coming Winter, etc., but those clips were not very relevant so I truncated the translation a bit.

Investigative Problems

That seems like a pretty frank discussion of the issues, arguably the best we could have reasonably hoped for.  Clearly, many investigative problems remain.

The first problem, which Westerbeke admitted, is that if Ukraine is involved, it will seek to prevent that finding. Nonetheless, Westerbeke was polite in his response stating there is no evidence Kiev has not been open.

The second problem is that no countries really want cooperation from Russia. Fortunately, it seems the investigative team does.

A third problem is US satellite evidence. Where the hell is it? 

A fourth problem (unfortunately one that Spiegel never inquired about) regards flight deviations and tower to plane transmissions.

Without a doubt transmissions should be made available and flight pattern deviations over a war zone explained. If that has not been done (and I don't believe it has), then indeed there is strong evidence that Kiev has not been completely open.

The fifth problem is that even if the team concludes MH17 was downed by a surface-to-air attack, that alone does not prove who fired the missile.

Rush to Judgment

Finally, please note the "rush to judgment" by Ukraine, the US, Europe, and Western media in spite of glaring weaknesses in evidence gathered.

Nonetheless, it appears as if Westerbeke wants to do the job. Appearance or reality? If the latter, I wonder if he pokes around too much, if he will be removed from the mission.  

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Durable Goods Decline Second Month; Key Take-Aways

wt., 28/10/2014 - 21:25
Inquiring minds are digging into the Census Bureau Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for September 2014 for hints at 4th quarter GDP.

The headline data shows new orders for manufactured durable goods in September decreased $3.2 billion or 1.3 percent. This follows an 18.3 percent decline in August.

However, transportation (especially commercial and military plane orders) are so large and volatile, the overall results are nearly useless.

For  example: In June, new orders were up 22.5% with transportation orders up 73.3%. Nondefense aircraft and parts orders were up a whopping 315.6%. Last month, nondefense aircraft and parts was down 74% and this month another 16%.

Key Components

Instead of focusing on the headline numbers, let's dive into the report to isolate key components.

The report itemizes all the categories, but it's not easy to scroll through. This table I put together should help.

ItemSepAugJulAug-Sep %ChgJul-Aug % ChgJun-Jul % ChgTotal New Orders241,633244,864299,862-1.3-18.322.5Ex-Transportation Orders168,186168,603167,491-0.20.7-0.6Ex-Defense Orders230,654234,273289,442-1.5-19.124.9Transportation Orders73,44776,261132,271-3.7-42.473.3Capital Goods Orders91,35395,345144,635-4.2-34.152.5Non-Defense Capital Goods Orders81,98586,625136,323-5.4-36.560.9Defense Capital Goods Orders9,3688,7208,3127.44.9-17.9Core Capital Goods Orders71,82473,07872,836-1.70.3-0.1Core Capital Goods Shipments70,23870,39070,307-0.20.12.0
Line items (except the last line which shows shipments) are new orders, in millions of dollars, seasonally adjusted.

Key Take-Aways

The last two lines are the ones to watch.

Core Capital Goods are non-defense capital goods excluding aircraft. It's a measure of business investment and business sentiment. The 1.7% decline in orders is the largest since January.

Shipments factor into GDP estimates. Core capital goods shipments were down 0.2% this month. Core capital shipments and orders suggest that 4th quarter GDP is not off to a flying start.

 Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

El-Erian: "Europe Is One or Two Rounds of Sanctions From Recession"; El-Erian Far Too Optimistic

wt., 28/10/2014 - 18:51
In a speech on BRICs at the Peterson International Institute of Economics former PIMCO co-head El-Erian made the claim Europe Is One or Two Rounds of Sanctions From Recession.
The West, and Europe in particular, is one or two rounds of sanctions and counter-sanctions away from entering into a new recession, chairman of President Barack Obama’s Global Development Council Mohamed El-Erian stated Monday.

“We are one or two rounds of sanctions and counter-sanctions away from the European politics over the Ukraine tipping Europe into a recession,” El-Erian said in a speech on the BRICS economies at the Peterson International Institute of Economics.

He noted that the impact of level three sectoral sanctions against Russia is “taking the West into a recession through sanctions to the energy sector.”

Arguing against the notion that Western economies are managing to keep pace after the crisis and despite the sanctions against Russia, El-Erian stated, “It may be chugging along in the United States, but Europe is looking at flat growth.”

According to Obama’s global development adviser, Ukraine continues to be a problem. El-Erian concluded, “The current state of play in Ukraine is lose, lose, lose” for Ukraine, Russia, and the West.El-Erian Far Too Optimistic

It is not going to take another round or two of sanctions to tip Europe into recession.

France, Italy, and Spain are already there by any realistic set of measures, and Germany is in serious decline.

Unless one uses the strict definition of two consecutive quarters of declining growth, Europe is arguably in recession right now. Greece, Spain, and Italy are actually in economic depressions.

El-Erian is far behind the curve, especially if he thought he was making a dramatic statement.

But yes, sanctions are inane and they will make matters worse. And no, the US will not decouple from the global economy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Most Expensive Housing Markets in US are Liberal: Correlation or Cause?

wt., 28/10/2014 - 08:47
Here's an interesting article thanks to Jed Kolko, Chief Economist at Trulia Trends via Washington Post Wonkblog: The most expensive housing markets in the U.S. are also the most liberal.

The relationship between housing affordability and politics in the US is startlingly strong as these charts by Jed Kolko shows.



Median asking price in dollars per square foot is on the vertical axis. Margin for Obama over Romney in the 2012 election is on the horizontal axis.

With the exception of Orange County California, all of the high priced counties voted for Obama.



The Washington Post notes ....

Nine of the 10 bluest markets had median home asking prices above $130 per square foot. All of the 10 reddest markets had prices below that. In the dark blue markets, housing cost almost twice as much ($227 per square foot) as in the red ones ($119). In metro Washington — this is not just the District — the average home asking price was about $177.

Trulia notes ...

Households in blue markets tend to have higher incomes. But those higher incomes are not enough to offset higher home prices. Our middle-class affordability measure, which reflects the share of homes for sale within reach of a median-income household, is significantly lower in bluer markets. Furthermore, blue markets have lower homeownership and greater income inequality than red markets.

Sorted Data

Trulia made the data available. I sorted by price per square foot high to low. Here are the results.

U.S. MetroVote margin: Obama vs Romney, 2012 (positive #s = blue markets; negative #s = red markets)Price decline in housing bust, peak to trough (FHFA)Year-over-year price change, Sept. 2014 (Trulia)Median asking price per square foot, $, Oct. 2014 (Trulia)San Francisco, CA58%-23%9.9%613Honolulu, HI39%-11%4.1%439San Jose, CA42%-26%8.6%430Orange County, CA-6%-33%4.8%363Long Island, NY6%-20%2.9%350Oakland, CA50%-39%11.9%342Los Angeles, CA42%-35%6.9%334New York, NY-NJ49%-18%4.3%320Ventura County, CA7%-39%12.4%305San Diego, CA8%-35%1.8%296Fairfield County, CT11%-21%-0.5%237Middlesex County, MA27%-13%7.8%236Boston, MA25%-17%4.5%229Peabody, MA16%-18%4.0%212Seattle, WA35%-26%8.9%197Bethesda-Rockville-Frederick, MD34%-22%2.6%189Sacramento, CA9%-48%10.1%188Edison-New Brunswick, NJ3%-22%6.2%180Miami, FL24%-47%14.0%180Washington, DC-VA-MD-WV37%-25%3.2%177Riverside-San Bernardino, CA4%-50%10.6%164Providence, RI-MA25%-26%2.8%162Baltimore, MD18%-22%-1.1%161Portland, OR-WA23%-25%7.5%157Denver, CO13%-8%9.4%152North Port-Bradenton-Sarasota, FL-10%-50%9.6%150New Haven, CT22%-21%-0.6%146Worcester, MA9%-23%4.9%146Philadelphia, PA31%-11%4.3%146Fort Lauderdale, FL35%-48%6.9%143Hartford, CT23%-14%-0.4%143West Palm Beach, FL17%-49%11.7%138Springfield, MA32%-14%2.5%137Albany, NY16%-6%-0.7%135Tacoma, WA11%-32%7.5%134Charleston, SC-5%-21%7.7%134Cape Coral-Fort Myers, FL-17%-56%9.8%133Newark, NJ-PA21%-20%1.9%133Fresno, CA2%-49%8.5%133Austin, TX7%-4%9.9%130Lake County-Kenosha County, IL-WI9%-27%11.3%130Chicago, IL32%-28%10.0%129Salt Lake City, UT-21%-22%4.7%129Virginia Beach-Norfolk, VA-NC11%-19%4.4%129Bakersfield, CA-17%-52%8.2%126Minneapolis-St. Paul, MN-WI12%-26%10.0%125Phoenix, AZ-11%-51%3.8%123Wilmington, DE-MD-NJ24%-20%3.8%123Warren-Troy-Farmington Hills, MI3%-37%7.8%117Camden, NJ24%-23%0.6%116Richmond, VA5%-20%2.7%116Milwaukee, WI5%-15%5.8%116Pittsburgh, PA-1%-2%6.9%116Allentown, PA-NJ2%-21%2.6%114Las Vegas, NV15%-61%9.0%113Raleigh, NC6%-9%4.2%113Dallas, TX-10%-6%7.7%112Tucson, AZ7%-38%1.4%111Orlando, FL8%-48%7.7%110Albuquerque, NM13%-17%0.6%110Nashville, TN-16%-9%5.6%109Jacksonville, FL-19%-38%7.0%109Colorado Springs, CO-21%-12%4.0%107San Antonio, TX-8%-4%4.5%107Tampa-St. Petersburg, FL3%-43%5.0%106Houston, TX-12%-4%10.7%106New Orleans, LA0%-11%7.5%102Palm Bay-Melbourne-Titusville, FL-13%-50%13.1%100Cincinnati, OH-KY-IN-16%-10%9.0%100Baton Rouge, LA-12%-3%1.3%100Charlotte, NC-SC2%-16%7.0%99Oklahoma City, OK-27%-3%4.0%98St. Louis, MO-IL7%-12%4.3%98Knoxville, TN-34%-8%2.1%98Birmingham, AL-20%-13%11.5%96Buffalo, NY14%-2%3.1%96Atlanta, GA1%-26%11.1%95Louisville, KY-IN-3%-6%11.0%94Fort Worth, TX-23%-6%6.4%94Columbus, OH7%-10%6.5%94Omaha, NE-IA-10%-5%5.4%93Greenville, SC-30%-8%5.9%92Kansas City, MO-KS-3%-12%6.6%92Lakeland-Winter Haven, FL-7%-46%11.1%92Gary, IN21%-11%6.8%91Little Rock, AR-11%-4%-6.0%90Tulsa, OK-32%-4%7.3%90Syracuse, NY17%-3%4.1%90Memphis, TN-MS-AR12%-14%4.6%89Greensboro, NC1%-10%2.6%89El Paso, TX32%-8%-0.9%88Rochester, NY11%-2%2.0%87Grand Rapids, MI-9%-22%9.1%87Cleveland, OH24%-18%4.1%86Akron, OH13%-16%6.9%84Columbia, SC2%-11%-0.9%83Toledo, OH21%-20%12.5%81Indianapolis, IN-8%-7%7.8%80Detroit, MI47%-40%11.4%75Dayton, OH-7%-13%8.8%74

Congratulations to California

  • California has seven of the top-ten least-affordable metro areas.
  • New York managed two top-ten least affordable spots.
  • Massachusetts garnered three top-fifteen slots. 

Congratulations (of sorts) go to California.

Top 10 Cities by Population in 2013

City RankCity PopulationCost per Sq FootCost Ranking1New York, New York 8,405,83732082Los Angeles, California3,884,30733473Chicago, Illinois2,718,782129424Houston, Texas2,195,914106665Philadelphia, Pennsylvania1,553,165146296Phoenix, Arizona 1,513,367123477San Antonio, Texas 1,409,019107648San Diego, California1,355,896296109Dallas, Texas1,257,6761125710San Jose, California998,5374303

I created the above table by combining City Size  data with Trulia data.

Top 10 Red vs. Blue

Of the 10 largest Metro Areas in the US, five voted for Obama and five for Romney. Note: The above table shows city population not metro area.

The Texas Metro Areas (Houston, San Antonio, Dallas) and the Arizona Metro Areas (Phoenix and San Antonio) voted for Romney.

The highest ranking red Metro Area in the list was Phoenix. It placed 47 out of 100 in cost, with a median cost per square foot of  $123 vs. San Jose, California with a median cost of $430 per square foot.

Correlation or cause? Union work rules, land availability, and building restrictions (or lack thereof) are all likely in play.

Correction

I stated 5 of the top 10 cities voted for Romney. The Trulia data is for Metro Areas. The above paragraphs modified accordingly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

"Will These Central Bank Morons Ever Learn?" asks Albert Edwards at Societe General

pon., 27/10/2014 - 19:50
Central Banks and the Business Cycle

I like it when someone besides a few financial bloggers takes the gloves off and starts asking some hard-hitting questions.

In Cross Asset Research last week, Albert Edwards at Societe General did just that. Emphasis in italics is mine.
Fragile and vulnerable in itself, the US recovery now battles against the rest of the world, which like a horror movie is dragging it down into a hellish Ice Age underworld. The problem is that at these stratospheric valuations, the market does not need to suffer an ACTUAL recession to see a crash. Like October 1987, just the fear of recession will be enough to trigger a massive market move.

On these pages we have a very simple thesis as to what will bring an end to this grotesque, QE-fueled market overvaluation. Simply put, the central banks for all their huffing and puffing cannot eliminate the business cycle. And they should have realised after the 2008 Great Recession that the longer they suppress volatility, both economic and market, the greater the subsequent crash. Will these morons ever learn?

The problem is that most risk assets, and especially equities and corporate bonds, are very expensive and priced for a long cycle. Meanwhile, this recovery has failed to generate any cyclical upward pressure to inflation – indeed quite the reverse. The global economy resembles a knackered old V8 engine which is now only firing on one cylinder (US). Hence, any data suggesting that the US economy is now also flagging were always likely to cause a meltdown as investors feared the imminent arrival of Japanese-style outright deflation. We note with interest that US 5-year inflation expectations in 5 years’ time have not fallen anything like as quickly as 5y expectations (see chart below). This suggests to me a continued misplaced market (over)-confidence about central banks’ ability to control events.



Only one day before last Wednesday’s flash crash, Guy Debelle, head of the BIS market committee, said investors had become far too complacent, wrongly believing that central banks can protect them, and many staking bets that are bound to “blow up” at the first sign of stress. A market loss of confidence in policy makers’ ability to control events has always been part of our Ice Age thesis. US inflation expectations in particular will fall an awful long way if investors fear the US cycle is about to fail.

I have always thought that this would all end the way Christopher Wood explained in his GREED and fear publication last November: “The key issue is what might trigger a market correction . The market consensus continues to focus on the tightening in financial conditions triggered by “tapering”. Still such a hypothetical correction is not so big a deal to GREED & fear, since any real equity decline caused by tapering is likely to lead, under a Fed run by Janet Yellen, to renewed easing. The real threat to US equities is when the American economy fails to re-accelerate as forecast”. Certainly, in my view , at these elevated valuations, it will not take much to bring down the entire ‘pyramid of piffle’.Other Economic Illiterates

Just two days before Albert penned the above, a reader sent me a link to the Salon article America’s ugly economic truth: Why austerity is generating another slowdown by David Dayen.
Austerity amid recovery has been a disaster everywhere it’s been tried, and the fact that America’s course looks better right now than the more calamitous policy choices in Europe or the rest of the world brings little comfort. Anyway, a global slowdown, which appears to be the current path absent concerted action, will inevitably hit us at home.

David Wessel of the Brookings Institution is right to say that this terrible outlook for economic growth represents a choice by policymakers. With borrowing costs once again near historic lows, Congress could simply decide to finance some more investments. Europe could finally put an end to the economic straitjacket it’s chosen to wear for over half a decade. That dreaded dirty word – “stimulus” – could be employed once again.US vs. Europe

For starters, austerity has never been tried. Deficit spending is still rampant in Europe.

Dayen never mentions the structural problems with the euro itself, Europe's demographics, or productivity differences between France and Germany (mainly stemming from socialism and inane work rules).

Instead, like most economic illiterates, Dayen believes Europe can spend its way out of trouble. The fact of the matter is fiscal stimulus adds to deficits and any alleged improvement comes at enormous expense down the line. Then, as soon as the stimulus stops, guess what happens.

Compounding the problem, union work rules add to the cost of stimulus. Europe and the US both need to address massive overpayment of government workers vs. the private sector.

Fix the structural problems and most of the rest will take care of itself.

Dayen cheers the U.S. recovery vs. Europe. He overlooks the massive bubbles in stocks and corporate bonds.

US vs. Japan

Dayen wants more stimulus. Pray tell, what the hell do you call interest rates at zero and trillion dollar deficits for years?

Dayen is too bleeping blind to see that Japan tried things his way and failed. All Japan has to show for decades of deflation fighting is debt to GDP over 250%, the highest of any major county, by far.

He also fails to note the housing bubble is a direct result of the Fed not taking its medicine in 2000 and 2001.

Academic Wonderland

The idea that the Fed can eliminate the business cycle is clearly idiotic (bubbles of increasing magnitude in 2000, 2007, and now should be proof enough).

Nonetheless, that is precisely what the vast majority of economic writers believe. The writers all live in Academic Wonderland after years of Keynesian teaching.  Only those who believe in voodoo can get a job at a central bank.

In contrast, the average seventh-grader can see that building bridges to nowhere and overpaying for labor on top of it is doomed to fail.

Taught to be Stupid

You have to be taught to be stupid!

I have discussed these points before, most recently in James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan.

On October 19, I wrote Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" in response to an article in the Financial Times.

Will the Morons Ever Learn?

Albert Edwards asked "Will These Morons Ever Learn?" I added the implied words "Central Bank", but need to remove them.

Just three days ago Hillary Clinton stated "Don't Let Anyone Tell You It's Corporations and Businesses that Create Jobs".

How moronic is that statement?

Keynesian and monetary fools are in complete control of academia, central banks, and most media.

Will the morons learn? Unfortunately, no. Why? Because they are morons, and by definition they can't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Hillary Clinton: "Don't Let Anyone Tell You It's Corporations and Businesses that Create Jobs"; Ten Spectacular Failures

pon., 27/10/2014 - 18:26
On October 24, while campaigning for Martha Coakley for governor of Massachusetts, Hillary Clinton made one of the most absurd political statements in history "Don't Let Anyone Tell You It's Corporations and Businesses that Create Jobs."

Clinton continued, "You know that old theory, trickledown economics. That has been tried, that has failed. It has failed rather spectacularly. One of the things my husband says when people say, 'What did you bring to Washington?' He says, 'I brought arithmetic.'"

Wow.

Just in case you think that quote is out of context, here's a video clip courtesy of Town Hall;



If Hillary wins the Democratic nomination, expect to see that clip, over and over and over.

Is she really stupid enough to believe what she said?

I leave it up to the reader to decide, but 100% without a doubt, Hillary believes big government, more regulation, and higher taxes are the key ingredients to growth.

Clinton calls trickle down a "spectacular failure". I propose this 10-item alternative list. I could easily expand the list to 100 items, all of which can be attributed to buckets 1, 2, 3, and 10.

Ten Spectacular Failures

  1. The Fed
  2. Fractional reserve lending
  3. Deficit spending
  4. Central bank manipulation of interest rates
  5. US foreign policy
  6. Warmongering
  7. Nation building
  8. Sanctions
  9. Public unions
  10. Politicians in general

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Another Unbelievable Stress-Free Test; Whitewash Math and Deferred Tax Assets

pon., 27/10/2014 - 05:36
In an effort to fool the public into believing the latest round of bank stress tests were actually designed to find stress, the ECB found 25 scapegoats, with the biggest losers in Italy and Greece.

Interested parties may wish to slog through the full 178 page Stress Test Report.

Capital Shortfalls


Non-Performing Loans

Here's a chart from PDF page 75 (report page 67) with thanks to ZeroHedge.



There is €879 billion in nonperforming loans but the report concludes bank assets are only €48 billion overstated. Apparently we are to believe there are adequate loan loss provisions for rest.

Reuters reports ECB Fails 25 Banks in Health Check but Problems Largely Solved.
Roughly one in five of the euro zone's top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said on Sunday. Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

"This seems as if it has been pretty unstressful," said Karl Whelan, an economist with University College Dublin.

"The real issue is the size of the capital shortfall and that is very, very small. I don't feel a whole lot more reassured about the health of the banking system today than last week."€48 Billion Shortfall

The Financial Times reports ECB Says Banks Overvalued Assets by €48bn.
The European Central Bank’s dissection of the books of the eurozone’s biggest banks has found lenders overvalued their assets by €48bn.

The results of the ECB’s examination of balance sheets worth €22tn, known as the Asset Quality Review, will require the 130 lenders who took part in the exercise to adjust the value of their assets in their accounts or prudential requirements.

A quarter of the reduction, €12bn, will fall on Italian lenders, an amount just short of 1 per cent of their risk-weighted assets. Greek banks will have to lower their asset values by €7.6bn, or almost 4 per cent of their risk-weighted assets.

Philippe Legrain, an economist and former adviser to then European Commission president José Manuel Barroso, described the tests as a “whitewash”.

“The ECB singles out less important banks in less important countries and gives the German banks a clear bill of health,” Mr Legrain said.

German lenders will have to lower the value of their assets by €6.7bn and their French counterparts by €5.6bn.

The AQR reviewed 800 portfolios, which together made up more than 57 per cent of banks’ risk-weighted assets. The ECB said they examined 119,000 borrowers and valued 170,000 items of collateral. Supervisors also built 765 models to challenge banks’ estimates of their provisions.

The 130 banks account for 81.6 per cent of all eurozone assets. Whitewash Math

Non-performing loans total €879 billion out of a total balance sheet of about €22 trillion. That's approximately 4% of loans.

Of the 130 banks, 25 failed. That seems like a lot. However, the total amount of under-capitalization is a mere €48 billion. That is an overall asset overvaluation of a mere 0.218%.

Anyone seriously believe that €48 billion is credible with France, Italy, and Spain in or near recession (and Germany heading there)? I don't. It's not even a generous rounding error.

Have Spanish banks written off 100% of their bad property loans? What about sovereign bonds assumed to be 100 percent risk-free? Didn't Greece prove bonds payments are not sacrosanct?

What happens when the eurozone splinters? Here's the answer: German banks are going to take a massive hit.

Deferred Tax Assets

Huky Guru has some interesting figures about Spanish banks.

About a year ago, Guru reported that a Reclassification of DTAs (Deferred Tax Assets) provided an extra €30 billion capital for Spanish banks.

Guru brought up the subject again today in Putting the Stress Tests in Context.

Paraphrasing Guru ... Accounting magic and government decree has allowed banks to compute an extra €30 billion in capital for Spanish banks via DTAs. Without that €30 billion, the average Tier 1 capital for Spanish banks would have fallen from 9.1% to 7.1%. More than one bank would have failed the test.

Spanish Banks Plow Into Spanish Sovereign Bonds



Guru notes "Spanish banks hold Close to €231.519 billion in Spanish bonds, almost twice around the capital of the Spanish banking system."

At least six Spanish banks have massive leverage in bonds. Catalunya Banc and NCG are particularly exposed.

Conclusion

The entire exercise was another stress-free farce.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

What Do Seven Billion People Do? Top 10 Mega-Cities by Population 2014 vs. 2030 Estimate

nie., 26/10/2014 - 19:20
Reader Bran who lives in Spain sent some interesting charts of population, expected population growth, the world's largest cites, and what people do for a living. I don't have links for the charts, but most show the origin.

Seven Billion People



Breakdown
  • 4.30 Billion Work
  • 1.90 Billion too Young to Work
  • 0.43 Billion Unemployed
  • 0.58 Billion 65 or Older

Total about 7.2 Billion people

Cities With Projected 2030 Population of 10+ Million



Top 10 Mega-Cities by Population



Anyone have any concerns over these numbers in regards to jobs, food, housing, cost of education,  healthcare costs, or retirement?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Home Prices Drop in 69 of 70 Chinese Cities; Did the Pool of Greater Fools Run Out?

sob., 25/10/2014 - 18:25
China eased purchase restrictions last month ending its four-year campaign to contain home prices. And what a ridiculous campaign it was. Prices are down less than 1% this month and less then 1% year-over-year.

Bloomberg reports China Home-Price Drop Spreads as Easing Doesn’t Halt Fall.
Prices dropped in 69 of the 70 cities in September from August, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the data. They fell in 68 cities in August.

The central bank on Sept. 30 eased mortgage rules for homebuyers that have paid off existing loans, reversing course after a four-year campaign to contain home prices as Premier Li Keqiang seeks to prevent economic growth from drifting too far below the government’s 7.5 percent annual target. Home sales slumped 11 percent in the first nine months of this year.

Developers will keep prices attractive as they open more projects toward the end of the year to meet sales targets, boosting supply and increasing competition, Ping An Securities Co. Shenzhen-based analyst Yang Kan wrote in an Oct. 14 report.

New-home prices fell 0.7 percent from August in Beijing and 0.9 percent in Shanghai, according to the government. The port city of Xiamen in southern Fujian province was the only city where prices didn’t fall, remaining unchanged from the previous month.

Prices in Shanghai fell 0.8 percent from a year earlier, the first annual decline since December 2012, compared to a 17.5 percent jump in January this year. Hangzhou, the capital of southeastern Zhejiang province, had the biggest decline among all cities, with 7.6 percent.

The average new-home price in 100 cities tracked by SouFun Holdings Ltd. fell 0.9 percent in September from August, dropping for the fifth consecutive month. The price rose 1.1 percent from a year earlier, narrowing for a ninth month in a row, China’s biggest real estate website owner said.

The People’s Bank of China’s new rules give homeowners who have paid off their mortgages and want a second property the same advantages as first-time buyers, including a 30 percent minimum down payment, compared to at least 60 percent previously, and interest-rate discounts of as much as 30 off the central bank’s benchmark. The PBOC also eased a ban on mortgages for people without home loan debt who want to buy a third home, allowing banks determine down payments and rates.

Home sales in September jumped 40 percent from August, the biggest increase this year, according to Bloomberg News calculations, based on a government report earlier this week. Did the Pool of Greater Fools  Run Out?

All it took for china to reverse course was a .8% year-over-year decline.

Home sales are down 11% this year, but that may not last long if September is any indication. Then again, the easing of restrictions may have suckered in the last remaining greater fools.

Either way, I laugh at the assessment analyst Yang Kan who says "developers will keep prices attractive as they open more projects toward the end of the year to meet sales targets".

The only thing that will make prices attractive is a 50% decline in price. That's how big China's property bubble is. 

Even in China the pool of greater fools will eventually run out. Perhaps it already has.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Hyperventilation Charade: EU Demands Another €2.1 Billion from UK, "We Won't Pay," Says Furious Cameron

pt., 24/10/2014 - 20:54
Things are about to get more interesting in the EU as a review of budget procedures shows the UK, Greece, and Italy owe more money, but Germany and France will get money back.

Curiously, this came about following a review of non-profit organizations from churches and universities to trade unions, charities and sports clubs. The time period is 2002-2009.

Cameron's Obvious Bluff

UK prime minister David Cameron is already battling French President Francois Hollande abroad, and UKIP at home.

Thus, Cameron's limited choice is to bluff as usual: "We Won't Pay," Says Furious Cameron.
In a vivid display of public fury at European Union technocrats, British Prime Minister David Cameron refused to pay a surprise 2.1-billion-euro bill on Friday as EU leaders ordered an urgent review of how the budget figures were arrived at.

"It's an appalling way to behave," Cameron said. "I'm not paying that bill on Dec. 1. If people think I am they've got another thing coming. It is not going to happen."

EU ministers will hold an emergency meeting on the issue next month. Cameron said he wanted to understand the technical calculations and was also ready to mount a legal challenge.

EU officials insisted the revision, which also saw Italy and even crisis-hit Greece asked to pay more while France and Germany would get rebates, was part of an annual statistical exercise handled by civil servants, not politicians.

Cameron noted that annual revisions to the payments had never been so great - an effect, EU officials said, of a once-in-a-generation review of how national incomes are calculated that found Britain was richer than it had previously declared.

Officials at EU statistics office Eurostat said that was a result mainly of taking more account of money flowing in 2002-09 to non-profit organizations - from churches and universities to trade unions, charities and sports clubs.

Cameron has demanded reforms and plans a referendum on EU membership if he manages to secure re-election next May.

His Eurosceptic opponents, gaining ground fast on his Conservative Party, accused the premier of misleading voters.

"David Cameron once claimed that he had reduced the EU budget -- but the UK contribution went up and now, quite incredibly, our contribution goes up a second time. It's just outrageous," said UKIP leader Nigel Farage.

"The EU is like a thirsty vampire feasting on UK taxpayers' blood. We need to protect the innocent victims who are us."Hyperventilation Charade

It's easy to see through Cameron's hyperventilation charade.

Cameron did not really say "We won't pay" as the Reuters headline states. Rather, Cameron stated "I'm not paying that bill on Dec. 1".

The latter statement would be true if Cameron paid the bill on any date before or after December 1, or the amount changed by a penny.

This is the kind of wishy-washy nonsense that Cameron pulls all the time. Unfortunately, conservative believers fall for it every time.

Similarly, Cameron promises an up-down vote on UK membership in the EU, but only if he is reelected. Would he even keep that promise? Who the hell knows?

Cameron's pledge is to first get the EU to change its rules more to the UK's liking. If he succeeds, then and only then will he offer the vote (and of course he has to win reelection on top of it).

Odds Cameron gets the rule changes he seeks are approximately 0%. You know it, I know it, the world knows it, and even Cameron knows it.

The promise of a 2017 up-down vote is nothing more than an election ploy coupled with blatant arrogance.

Liar, Not a Conservative

As I have stated before, Cameron is a liar, not a conservative. He is in a coalition bed with the Liberal-Democrats, a pro-euro, pro-Labour, pro-climate-change, free education, and progressive tax party.

With that set of bed-mates, no conservative in their right mind should believe a damn thing he claims to stand for.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way?

pt., 24/10/2014 - 18:05
There's some interesting discussion points in the UK-based Absolute Return Partners October 2014 Letter, by Niels C. Jensen, most of which I agree with, others not.
Japan-Style Deflation in Our Backyard?

It is no secret that we have been long-standing believers in deflation being a more probable outcome of the 2008-09 crisis than high inflation. What has changed over the past six months is that the world has begun to move in different directions. Whereas rising unit labour costs in the U.S. make outright deflation in that country quite unlikely, the same cannot be said of the Eurozone.



Japan-style deflation across the Eurozone is no longer an outrageous thought. As you can see from chart 1, there is a close link between CPI and demographics. That has certainly been the case in Japan and I don’t see any reasons why it should be any different in Europe. The negative demographic trends are perhaps not as acute in Europe as they were in Japan in the early to mid 1990s, so one might expect a less dramatic outcome here, but the writing is on the wall. Furthermore, Japan’s problems were multiplied due to an almost complete lack of political recognition and willingness to take drastic action. At least, with Mario Draghi in charge of the ECB, there seems to be a willingness to do something. Deflation and "Willingness To Do Something"

Jensen is mistaken about Japan's willingness to take action. Japan has a debt-to-GDP ratio of 250%, highest of any major developed country, as a direct consequence of fighting deflation.

Japan piled on debt, built bridges to nowhere, and engaged in other wasteful spending, all of which made matters worse. Taking on debt to fight deflation is insane. Yet that is exactly what France and Italy want now!

Japan's QE certainly did not help either. Both policies addicted Japan to 0% interest rates forever (until of course Japan blows up).

To suggest that the ECB can do something meaningful with European demographics being what they are, the flaws in the euro being what they are, and lack of willingness for France and Italy to initiate badly-needed structural reforms, is simply wrong.

Holding down interest rates and state-sponsored stimulus will have the identical result as in Japan.

As for wages, they are actually rising not only in the US, but also in Europe as I pointed out in European Service Prices Plunge at Steepest Rate Since January 2010; Reflections on Keynesian Stupidity.

In the US, the Fed did stave off for now, another round of price deflation. However, that came at the expense of creating monstrous asset bubbles.

The bursting of asset bubbles is inherently deflationary, and much more damaging than falling prices because of the impact asset prices have on asset-based loans.

I propose falling prices should be welcome across the board.

Behind the Curve?
Is the Fed Falling Behind the Curve?

As mentioned earlier, the picture in the U.S. – and to a degree also in the UK - is quite different. The Fed increasingly looks like it is behind the curve with the Fed Funds rate remaining unchanged despite a significant rise in unit labour costs.



Not only does that suggest a meaningful rise in the U.S. policy rate over the next couple of years – and therefore also possibly a further rise in longer term rates - but it also suggests a relatively strong U.S. dollar. Forward rates on the Fed Funds rate suggest it will reach 1.50% by June of next year; however, if the latest estimates for unit labour costs are painting a true picture of inflation in the pipeline, one could argue that the Fed Funds rate could go substantially higher. Behind the Curve? Which Way?

Curiously, St. Louis Fed Governor James Bullard says Fed Should Consider Delay in Ending QE because "Inflation expectations are declining in the U.S."

That's nonsense of course because of the asset bubbles the Fed spawned. With interest rates so low across the world, the chase for yield is on.

Opportunity in Japan
Which Equity Markets Offer Most Potential?

One area I have not elaborated on yet is Japan. There are strong indications that Japan has finally turned the corner economically. At the same time, return on equity has returned to pre-crisis levels in Japan, but valuations have not.

Japanese return on equity is back to an all-time high



With a more or less fully priced U.S. equity market and a Federal Reserve Bank at risk of falling seriously behind the curve, and a Europe where it is hard to see where growth is going to come from (ex. U.K.), Japan looks remarkably interesting, and I expect it to be one of the better performing mature equity markets over the next few years. Just don’t forget to hedge your currency risk. I am not saying that the Yen will fall, but there is enough uncertainty surrounding the Yen that I would rather not have to worry about that aspect.Japanese Equities and the Yen

It's certainly debatable whether Japan has turned the corner economically. Nonetheless, on a valuation basis alone, I have been recommending a yen-hedged position in Japanese equities.

Whether or not the Yen plunges will have to do with Abenomics, and how Japan eventually handles (or doesn't) zero percent rates.  

Jensen's comment that US equities are "more or less fully priced" is silly. US equities are priced well beyond perfection in one of the biggest valuation bubbles in history.

Pension Fund Piling On

Jensen concludes with an interesting chart and comments about piling on.
Investors (well, most investors) continue to pile in to equities, as if they are the solution to their return challenge.

   

Pension funds are one example of such investors. If such pension funds have fixed obligations (called defined benefit plans in the UK), they currently struggle to generate the level of re turns they need to meet their obligations.

Even if there are good reasons to believe that the prolonged rally can continue for a little longer, there are equally good reasons to believe that the current equity bull market may end in tears. Such is the disconnect between stock valuations and economic fundamentals in some markets. Disconnects

I agree with Jensen on Japanese equities, hedging the Yen, and the prospects of deflation in Europe.

The chart on asset allocations is particularly interesting. Investors are overweight equities just as they were were in 2000 and 2007, and I believe with dire consequences.

Jensen says "Statistically, equity markets fall 40-50% (as they did in 2008-09) only a couple of times in a life time, so why somebody is forecasting the next bloodbath to be around the corner is quite frankly beyond me."

It seems to me that equities plunged in 2000 and again in 2007. So that was twice in a seven year timespan. Given valuations are equally extreme now, caution is more than in order.

Japan prove stocks can stay depressed for decades. And that can happen again, someplace else, besides Japan.

Central Bank Action

I disagree with Jensen on the need for the ECB to do anything about falling prices. For discussion, please see Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

Inquiring minds may also wish to consider James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

European Service Prices Plunge at Steepest Rate Since January 2010; Reflections on Keynesian Stupidity

pt., 24/10/2014 - 01:52
The Markit Flash Eurozone PMI shows the steepest fall in output prices since the global crisis began. The PMI also shows renewed job losses in spite of an otherwise stable PMI.
The Eurozone saw a marginal upturn in growth of business activity in October, according to the flash PMI results. The headline Markit PMI ™ rose from September’s ten-month low of 52.0 to 52.2, signalling the first upturn in the pace of expansion for three months. However, the index remained below the average seen in the third quarter, and was the second-weakest reading seen so far this year.



Backlogs of work fell at the fastest rate since June of last year, dropping in both services and, to a lesser extent, manufacturing.

Service providers reported the first cut in payroll numbers since March, though manufacturers reported a slight upturn in employment. Prices were increasingly being cut in order to help boost sales. Average prices charged for goods and services showed the largest monthly fall since February 2010, having now fallen almost continually for just over two-and-a-half years. Charges for services fell at the steepest rate since January 2010 while a more modest decline was seen in the manufacturing sector, where prices fell only marginally and to a lesser extent than in September.

Price cuts occurred despite overall input costs rising in October, pointing to a further squeeze on operating margins. That said, manufacturing input prices fell for the second month running. Finally, business optimism about the year ahead in the service sector fell to the lo west since June of last year.

Markit Comments

"The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show the region teetering on the verge of another downturn. Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year. Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions."

"While the survey suggest s the euro area has so far avoided a slide back into recession this year, a renewed downturn cannot be ruled out. Growth is so anemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting."

“The survey data are broadly consistent with GDP rising 0.25% in the third quarter, but unless demand picks up soon, growth could weaken again in the fourth quarter and deflationary forces could intensify."My Comments

Prices received plunge the steepest since January 2010, but input prices are up. The latter is in spite of Brent crude dropping from 112 to 84-86 since June, and 98 to 84-86 since the end of September!

Rising wages in Germany help explain (see French Private Sector Output Falls at Sharpest Rate in Eight Months; Tale of Two Europes)

Isn't that what everyone wants? Yet competition for new business is so intense that "Prices were increasingly being cut in order to help boost sales."

Reflections on Keynesian Stupidity

Fancy that. Businesses are cutting prices to increase sales! Meanwhile Keynesian economists tell us that prices need to go up to increase sales.

Any business in Europe raising prices now would soon go out of business due to no sales at all.

And forget about the equally stupid Keynesian theory that consumers will hold off purchases when prices fall. They won't.

For discussion, please see Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

French Private Sector Output Falls at Sharpest Rate in Eight Months; Tale of Two Europes

czw., 23/10/2014 - 20:17
France

Looking for growth in Europe? You won't find it in France, but you can still find it in Germany (for now).

The Markit Flash France PMI shows French private sector output falls at sharpest rate in eight months.
Key Points

  • Flash France Composite Output Index falls to 48.0 (48.4 in September), 8-month low
  • Flash France Services Activity Index falls to 48.1 (48.4 in September ), 8-month low
  • Flash France Manufacturing Output Index falls to 47.6 (48.4 in September ), 2-month low
  • Flash France Manufacturing PMI falls to 47.3 (48.8 in September), 2-month low

Summary

The latest flash PMI data signalled a deepening downturn in France’s private sector economy during October. The seasonally adjust ed Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped to 48.0, from 48.4 in September. That was its lowest reading since February, albeit indicative of a moderate rate of contraction overall. Faster declines in output were recorded in both the services and manufacturing sectors during October.

Employment in the French private sector fell further in October, extending the current period of contraction to one year. Furthermore, the rate of decline quickened to the sharpest since April 2013. Similarly solid rates of job shedding were registered across the services and manufacturing sectors. Staffing levels were cut in line with reduced workloads.

Outstanding business at French private sector firms fell for the sixth month running, and at the fastest pace since May 2013. Lower backlogs were signalled by service providers and manufacturers alike.

Divergent trends continued to be observed for input and output prices during the latest survey period. Input costs rose for a seventeenth consecutive month, albeit at a moderate pace. Increases were signalled in both the services and manufacturing sectors. Conversely, output prices decreased further in October. The rate of decline in charges was considerable, having accelerated to the sharpest in five years. Firms in both sectors cut their selling prices, citing intense competitive pressures and tough negotiations with clients.

Comment

Jack Kennedy , Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “The French economy remained stuck in reverse gear in October , as crumbling demand dragged activity lower. New orders fell at the sharpest p ace in 16 months, leading firms to make deeper cuts to output and employment. Companies scrabbled to attract new business by slashing their output prices to the greatest extent in five years, despite a further rise in input costs, underlining the extent of the pressures facing businesses at present.  Germany

The Markit Flash Germany PMI shows Output growth maintained as manufacturing strengthens.

Key Points

  • Flash Germany Composite Output Index at 54.3 (54.1 in September), 3-month high.
  • Flash Germany Services Activity Index at 54.8 (55.7 in September), 4-month low.
  • Flash Germany Manufacturing PMI at 51.8 (49.9 in September), 3-month high.
  • Flash Germany Manufacturing Output 53.3 (51.0 in September), 3-month high.

The seasonally adjusted Markit Flash Germany Composite Output Index rose marginally from September’s 54.1 to 54.3 in October, thereby extending the current sequence of private sector output growth to a year-and-a-half.

Input prices continued to increase during October, largely driven by higher staff costs in the service sector. Manufacturers, on the other hand, reported a further decline in costs. That said, the overall rate of cost inflation picked up slightly since September. Despite higher input prices, charges fell for the first time since June last year, thereby squeezing on companies’ profit margins. Anecdotal evidence suggested that firms lowered their output prices amid increased competitive pressures.

Service providers reported a sharp drop in confidence in October, with the level of positive sentiment the weakest in nearly two years. Survey participants commented on economic risks in Southern Europe, slower new order growth and a subdued business climate.

Comment

Oliver Kolodseike, economist at Markit and author of the Flash Germany PMI®, said: “T he latest flash PMI results suggest that Germany’s private sector economy expanded at the start of the fourth quarter. Activity increased at a slightly stronger rate than in September and encouraged companies to take on additional workers. However, margins were under pressure, as companies reduced their charges despite rising input costs.

Our panellists reported that they reduced their charges in a response to increased competitive pressures. “While the service sector remained the driving force in terms of output growth , manufacturing recovered some of the ground it had lost last month, with the headline PMI edging back into expansion territory and signalling an improvement in operating conditions in the sector. “However, there are still some uncertainties about the near-term. New orders increased at the slowest pace in over a year and service providers reported a sharp drop in sentiment, suggesting that output growth may come under pressure in coming months.”Tale of Two Europes

For now, it's still a tale of two Europes. Germany (and some smaller Northern European countries) vs. everyone else. Such divergences will not last forever. The slowdown in China and the ridiculous sanctions on Russia will both take their toll on all of Europe.

The Sick Man of Europe is Europe; Blame the Socialists, Progressives, Greens, and the Euro Itself.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Late Payments by Ibex Companies Hits €47 Billion, 169 Days (3 Times Legal Time Limit); Ibex vs. DOW

czw., 23/10/2014 - 17:45
Lack of significant improvement in payments by IBEX companies to suppliers is yet another sign there isn't much of a recovery in Spain.

La Vanguardia reports Late Payments by Ibex Companies Hits €47 Billion, 169 days (nearly 3 times the legal time limit). Ibex is the name of the Spanish stock market exchange.

Via translation from La Vanguardia. Delinquency of the Ibex 35 exceeds 47 billion euros and the average payment is 169 days late, almost three times the limits set by law, according to the latest report of the Platform Multisectoral against delinquency (PMcM), made from the data published by the National Securities Market Commission (CNMV).

In 2012, the average payment of listed non-financial corporations was 191 days, while in 2013 totaled 184, down 4%.

Construction and real estate had a 10% improvement. Trade and services improved 4%. Despite this improvement, the data shows that the construction sector and real estate remains the one with the greatest delay in settlement of bills. Their average payment reached the 288 days in 2013, while in 2012 exceeded 300.

Behind them are trade and services, with 253 days, nine fewer than in 2012.

PMcM president, Antoni Cañete said that "these data show that some of these big companies are financed at the expense of their own providers, mostly SMEs and freelancers". "This situation, is produced by the dominant position of Ibex companies, shows abuse and violation of the law, "added Cañete.IBEX vs. DOW

La Vanguardia notes that in the DOW, the average collection period of industrial companies is 105 days, followed by service and trade at 70 days and energy at 60 days.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Saxo Bank CIO Jakobsen Predicts Another "Shock Drop" in Markets; Addicted to Cheap Money

śr., 22/10/2014 - 17:52
Inquiring minds are tuned into the Saxo Bank's 4th Trading Debate on Volatility and Performance.

Another "Shock Drop" in Markets

Saxo Bank CIO Steen Jakobsen says Another 'Shock Drop' is Coming and it's Coming Soon
Steen takes the view that central bank policy is creating a 'fantasy land' for investors and he points out that the recent 'day dive' in markets was a closer reflection of reality.

Steen outlines his suggestions for trading ahead of another dip in mid November with targets for the S&P 500 around 1810 and the Dax at 8000 - 7800.China Replicates West's Mistakes Says Trading Panel

Martin O'Rourke, Managing Editor of Saxo's TradingFloor.Com says China 'Replicates' West's Mistakes
"China's lesson from the Asia crisis of the 1990s was never to be beholden to the West for debt," Director at Fathom Consulting Danny Gabay said. "Our concern is China will mismanage what increasingly looks like a hard landing."

"China has effectively managed to replicate the mistakes of the West since the global financial crisis," said Gabay. "The Chinese will ultimately be defaulted upon."

Addicted to Cheap Money

Societe Generale macro strategist Kit Juckes also warned of some tough times ahead. "We're getting deeper into a mess. We're addicted to cheap money and the addiction is getting stronger."Martin Wolf Bearish on Markets and China

In another Trading Debate panel Martin Wolf Says He's Bearish on Markets.
Martin Wolf, chief economics commentator at the Financial Times and one of the main speakers at Saxo Bank's #TradingDebates event in London today. "The world is never out of the woods and people will always get lost in them," he said.

"The Chinese growth model is collapsing and they know it," says Wolf. "China will disappoint on the downside and we will see the negative impact of that on commodities," he added.

As to how this will affect trading and traders the world over, Wolf is equally blunt: "I would expect more turbulence," he said.

"All the problems that existed before the crisis are still with us, with the addition of the problems created by the crisis," he warned.Major Bear Market Coming 

My view is that 1810 on the S&P would be only the beginning of the bear market that is to come. 1500 or even 1200 on the S&P would not shock me.

Once sentiment reverses for good (and it will), I highly doubt that even more cheap money will help the markets. But I offer no timeframe.

In contrast, Steen made a call with a timeframe and a short-term one at that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

US Airdrops Load of Weapons Into Hands of ISIS

śr., 22/10/2014 - 17:17
In yet another embarrassing moment for the Obama administration, Isis Claims it has US Airdrop of Weapons.
A US airdrop of arms to besieged Kurds in Kobani appears to have missed its target and ended up in the hands of Islamic State (Isis) militants.

Video footage released by Isis shows what appears to be one of its fighters for in desert scrubland with a stack of boxes attached to a parachute. The boxes are opened to show an array of weapons, some rusty, some new. A canister is broken out to reveal a hand grenade.

The Pentagon said it was investigating the claim but admitted that one of its airdrops had gone missing.

The Pentagon spokesman, Rear Admiral John Kirby, told reporters that analysts at Centcom headquarters in Tampa, Florida, were examining the video. “We’re still taking a look at it and assessing the validity of it,” he said. “So I honestly don’t know if that was one of the one dropped.”

“I do want to add, though, that we are very confident that the vast majority of the bundles did end up in the right hands. In fact, we’re only aware of one bundle that did not.”

The airdrops were carried out by three C-130 planes. The video shows a man in camouflage clothes and balaclava looking through the boxes of munitions. He says they were dropped by US forces and had been intended for the Kurds. He described them as the spoils of war.Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

McDonald's Vows Fresh Thinking After Net Income Declines 30%; Mish Offers Some Advice

śr., 22/10/2014 - 02:34
A 30% net income decline for McDonald's is quite startling to most. I wonder why such a decline took so long.

In response to that pathetic performance, McDonald’s Vows Fresh Thinking.
McDonald’s Corp. outlined plans for what it called fundamental changes to its business as it reported one of its worst quarterly profit declines in years, driven by problems in nearly every major part of its business.

The 30% decline in net income for the period ended Sept. 30 was the latest in a string of disappointing results for the world’s largest restaurant chain. It is struggling with weak sales in Asia, Europe and, most important, its home market in the U.S.

In the U.S., an increasingly complicated menu has slowed service and McDonald’s once reliable base of younger customers have defected to fast-casual chains boasting customized ordering and fresh ingredients, including Chipotle Mexican Grill Inc., and specialty-burger places such as Five Guys.

McDonald’s has focused so far on efforts including increased staffing at busy times, and has shaken up its management ranks, including replacing the head of its U.S. business for the second time in less than two years. But the changes have yet to boost sales or profit.

The 4.1% decline in McDonald’s September U.S. same-store sales marked the worst monthly U.S. same-store sales performance since February 2003.

In response, McDonald’s Chief Executive Don Thompson on Tuesday said it would simplify its menu starting in January, in part to remove low-selling products, and plans to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant.

By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.

“The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers,” Mr. Thompson said. “Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they’re served.”Advice for McDonald’s

  1. Serve better food
  2. Let customers have it the way they want it
  3. Let customers have it when they want it

McDonald’s is nearly hopeless. On many occasions while traveling, I have chosen to not eat at all rather than eat at McDonald's. It happened just this past weekend.

Don't want McDonald's "special sauce" (I fail to understand why anyone does), and you have to wait an extra 5 minutes (at least) to get it your way.

In contrast, Wendy's has some nice salads and a very good chicken sandwich.

The one and only thing I like at McDonald’s is their breakfast sandwiches. Breakfast sandwiches may not be healthy, but at least they are very tasty. I like the bacon, egg, and cheese biscuit.

If McDonald’s would offer breakfast 24 hours a day I would eat there more often. Instead, if you walk in one minute past breakfast time you cannot get breakfast. That has happened to me on many occasions.

I say "F* McDonald’s" unless I am certain I can get there before their arbitrary breakfast cutoff time which seem to vary by location and day of the week.

Lunch and dinner at McDonald’s? I'd rather not eat at all!

My advice for McDonald’s is simple: Forget about "atmosphere", expensive renovations, and the ridiculous notion of the “McDonald’s Experience”.

Other than "fast" (in theory but not necessarily in practice for those who custom order) there is no “McDonald’s Experience” except for the occasional "McPlayground" that demographically speaking appeals to fewer and fewer (especially with  rising costs of feeding a family).

I have a simple suggestion: serve better food, the way customers want it, when they want it. And lower prices would certainly help. 

Correction

I originally stated a decline in revenues of 30%. I meant to say net income.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan

wt., 21/10/2014 - 19:15
Here's an interesting video from the recent James Grant Conference. The title of this year's conference is Investing Opportunistically, Separating the Beta from the Alpha.

The first five minutes are introductions and attendee notes you may wish to skip over. The opening speech was by Marc Seidner, CFA at GMO, on inflation expectations.

Note: you may have to click on the play arrow twice to start the video.



Last year at this time a majority thought tightening was inevitable and bonds were attractively priced for those who thought otherwise now, tightening in Europe and Japan is totally priced out and even in the US, inflation expectations are down as noted by forward yield curves.

Seidner commented that 100% of strategists were negative on bonds heading into 2014 but I can name a couple exceptions, notably Lacy Hunt at Van Hoisington.

Lackluster GDP



Tepid Inflation - UK, US, EU, Japan



Historically, when inflation has been this low, talk was of easing further not tightening.

Inflation Expectations



One-Year Inflation Expectations



US Dollar, Euro, Yen, British Pound Forward Curves



"Europe Has Become Japan"

Seidner says that if he was washed up on an island and could periodically see one chart to let him know the state of the global economy the above chart would be the one as it shows interest rates, implied path of monetary policy, and the divergence between the US and the rest of the world.

"From this perspective of the bond market, Europe has become Japan. ... There is an inconsistency in my mind between a path of forward interest rates that reflect such slow economic growth that interest rates never get off zero-bound [and believing] there will be enough growth to enable high-debt countries to delever safely," said Seidner.

James Grant on Price Discovery and Inflation

James Grant takes the podium at about the 25 minute mark with a joke about the title of his publication, Grant's Interest Rate Observer.

Grant asked for sympathy for his business model, because "Ladies and gentlemen, we have no interest rates. We used to have them and they were swell. Some of your parents may have lived off them."

Grant complained about PHDs with no real world experience running things. He properly noted “Interest rate suppression is price control by another name.”

"Can prices even be measured?” asked Grant? I think not, and have stated so many times.

Grant stands up to the “universal notion that prices ought to rise and if they don’t rise something is wrong. I read the most extraordinary thing in the Financial Times the other day. It said that the failure of prices to accelerate meaningfully in this lame recovery was a dark cloud over the world’s economy.

Dark cloud? Dark cloud?” asked Grant.

The world has come to accept the notion that prices must go up and need to go up, yet Grant cites numerous periods in US history where prices fell and there was no panic and no problems. Notably, prices fell for 25 years in the final quarter of the 19th century reflecting the progress of the age.

Grant challenged Fed Chair Janet Yellen to "please explain the difference between progress on one hand and deflation on the other".

Two days ago, I wrote Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" also in response to an article in the Financial Times.

I had not yet seen the above video, and I am pleased to be of the same mind as Grant: There is no economic benefit to rising prices.

Grant concluded with the idea "Gold is the anti-debt. It is money that cannot be conjured on a computer screen. It is that money that has no counterpart on the balance sheet of a central bank indicating that it's a liability.  It's money pure. It's out of favor.  So we at Grant's continue to carry a torch for gold."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

M&A Deals Fail At Highest Rate Since 2008

pon., 20/10/2014 - 22:23
In yet another potential market topping sign, M&A Deals Fail At Highest Rate Since 2008
The value of deals that fail to complete has reached its highest level since 2008, in the latest sign that the best year for mergers and acquisitions since the financial crisis will also feature a number of high-profile failures.

Three large deals collapsed last week, adding to the list of wrecked deals and coinciding with a sharp jump in equity market volatility that sapped confidence in stocks and put a chill on the market for initial public offerings.

The biggest blow to dealmaking prospects came as US pharmaceutical group AbbVie unexpectedly dropped its support for a $55bn takeover of UK rival Shire. The sudden U-turn has undermined the prevailing belief among bankers that a US Treasury crackdown on deals that allow US companies to lower their tax obligations by moving abroad would have little impact.

So-called tax inversions have featured prominently in this year’s resurgent M&A market accounting for at least a dozen deals. But the chances of Pfizer, the US pharma company, reviving its $120bn pursuit of the UK’s AstraZeneca have been greatly diminished as a result of AbbVie’s decision, several people close to the situation recently told the Financial Times, casting doubt on the year’s biggest withdrawn deal returning.

A total of $573bn worth of deals have been withdrawn, setting this year up to surpass the $640bn in deals that went uncompleted in 2008, according to Dealogic.

Bruce Embley, partner at Freshfields, said: “It’s slightly unusual to have an M&A cliff coming without also seeing an adverse impact on equity capital markets. So I wonder if we look back on this moment as an anomaly or whether it is the start of something more volatile.”Deals Withdrawn or Doubtful



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

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