Mish's Global Economic Trend Analysis

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• China PMI in Contraction; IMF Wants Further China Tightening to Combat Inflation
• Jim Grant on going forward with a gold standard, "This is not a threat, this is not a promise, it's going to happen"
• Sad State of Employment - Employees Covered by Unemployment Insurance Still Below 2001 Recession Low; How the BLS Determines Employment Revisited

China PMI in Contraction; IMF Wants Further China Tightening to Combat Inflation Posted: 20 Jul 2011 08:54 PM PDT China is overheating on the backs of massive property speculation, needless infrastructure building, and rampant credit growth. In spite of that inflation, HSBC's China flash PMI points to contraction. HSBC's China "flash" Purchasing Managers' Index fell to a 28-month low of 48.9 in July, down from 50.1 in June, marking the first time the guage has indicated a contraction since July 2010. The preliminary version of the PMI output index also showed further deterioration, dropping to 47.2 in July from 49.8 in June. HSBC economists said the PMI data seemed to indicate an industrial-production rebound seen in last month's data was temporary. "We expect industrial growth to decelerate in the coming months as tightening measures continue to filter through," said HSBC economist Hongbin Qu. HSBC's final version of the PMI is due out at the beginning of next month. China Overheating MarketWatch reports China should tighten further, IMF says The International Monetary Fund on Wednesday said China should continue to withdraw stimulus in part to combat risks of higher-than-expected inflation. In its annual review of China's economy, the IMF directors "saw room for further tightening of monetary conditions" and suggested "greater reliance on interest rates and nominal exchange rate appreciation." In addition to possible inflation risks from food supply shocks, the IMF staff said China also faced the risk of a possible property bubble and a decline in credit quality in the lending undertaken to protect the economy from the financial crisis. The IMF board repeated its recommendation that China should allow its currency, the yuan, to strengthen further. China's representative at the IMF, Jinxiong He, had the rare opportunity to rebut the report. He disagreed sharply with the suggestion that the yuan was below fundamentals, saying the staff analysis is based on a flawed benchmark. The Chinese official also complained that the IMF did not mention that the U.S. Federal Reserve's quantitative easing had fueled inflationary pressures and constrained options regarding the policy mix. The IMF seriously understates the the Chinese property bubble, credit bubble, and risk of a Chinese economic implosion. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Jim Grant on going forward with a gold standard, "This is not a threat, this is not a promise, it's going to happen" Posted: 20 Jul 2011 12:10 PM PDT Jim Grant speaks about going forward with gold standard, and away from a "PhD Standard" ruled by academics like Fed chairman Ben Bernanke. Link if above video does not play: U.S. Debt Crisis Is Contrived, James Grant Says Select Quotes Debt crisis is contrived Treasury market operating on muscle memory, up in price down in yield for 30 years. People have come to view treasuries are intrinsically safe when in fact pieces of paper emitted by a government that is cash-flow negative and the printer of the world's reserve currency. On going forward with a gold standard, "This is not a threat, this is not a promise, it's going to happen" The gold standard is a better alternative for money management. The historical evidence is incontrovertible. Jim Grant essentially describes the problems and solutions presented in Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited. Please give that a read if you have not yet done so. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Sad State of Employment - Employees Covered by Unemployment Insurance Still Below 2001 Recession Low; How the BLS Determines Employment Revisited Posted: 20 Jul 2011 07:52 AM PDT Here are some interesting charts from reader Tim Wallace regarding "covered employees", those employees that have unemployment insurance. Covered Employees by Quarter Since 2000 click on any chart for sharper image Note that the number of covered employees is still below the 2004 trough and that it took 16 quarters in the wake of the 2001 recession to get back above the pre-recession highs. It has now been 11 quarters since the 2008 high. However, we are still not back to the previous recession dip. Change in Covered Employee Coverage by Quarter Cumulative Change in Coverage Since 1st Quarter 2000 No Driver for Jobs The number of covered employees soared during the housing and commercial real estate bubbles and at the end of the dot-com bubble. What will be the next big driver for employment? I cannot come up with any nor do I think there will be any in the midst of a Schumpeterian Depression phase of the Long Wave trough. That is one of the reasons I proclaimed three years ago "expect structurally high unemployment for a decade". The others reasons are global wage arbitrage, tax policy, and massive consumer debt. For a detailed explanation of Schumpeterian Depression please scroll down to the sections of Creative Destruction labeled Comments From "BC" followed by Schumpeterian Depression. Slowing Global Economy Bear in mind the global economy is slowing with many structural problems as noted yesterday in Gold Reacts With "Big Yawn" to ECB Announcement Partial List of Problems Sovereign debt default crisis in Eurozone PIIGS: Portugal, Ireland, Italy, Greece, and Spain. US debt ceiling concerns US fiscal deficit concerns US total debt concerns Reckless, unsustainable credit growth in China Rampant inflation in Brazil, Russia, India, and China, the BRIC countries. Yuan peg to the US dollar Debt and deficit concerns in the UK Japan interest rate and total debt concerns Massive global trade imbalances I could easily add another 10 items related to global housing bubbles, demographics, unfunded future liabilities, state pension plans etc. Not only are there huge US structural debt issues, there are huge global issues. For a suggestion as to how to fix the global imbalances, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited Reader Question on Covered Employees Reader Will Worth from Texas also sent in a chart of covered employees similar to one of the charts from Tim Wallace. Will Worth asks ... Mish, In the jobless claims data, "covered employed" dropped by 8.3 million people during the recession it has since recovered by only 247,323 people. Yet, as estimated by the monthly "establishment" and "household" surveys, there have been between 1.4 million and 1.7 million jobs created. Why are those not "covered employed" positions? Will Worth Closer Look at the Self-Employed Self-employed are not covered by unemployment insurance. Thus, all of the people who have gone into business working for themselves are not covered. The "self-employed" group includes all of those selling trinkets on Ebay as a job as well as all of those "working" in their multi-level marketing "business". Others struggle as non-covered employees in family related businesses. Many of those jobs are not "real" and produce little or no income. However, these people are counted in the workforce if they respond to the BLS in the household survey that they "worked" any hours. Once again the BLS does not ask directly ask people if they are employed. Rather the BLS determines that answer with a set of questions that likely produce a far different, and higher answer. How the BLS Determines Employment I covered this at length previously with a detailed list of actual questions the BLS asks in "Dropping Out of the Workforce"; Implications of the Falling Participation Rate The key question appears to be question number two: "LAST WEEK, did you do ANY work for (either) pay (or profit)?" Anyone selling trinkets on Ebay or selling any products in multi-level marketing companies is likely to answer yes. If so, they are "employed" but they certainly are not covered by unemployment insurance. The implications of the above charts and commentary should be obvious. Things are much worse than the BLS presents. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

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