miercuri, 27 iulie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Long-Term Trends in Durable Goods, Two New Charts

Posted: 27 Jul 2011 08:43 PM PDT

Doug Short had an interesting set of charts on durable goods on his site earlier today.

His post, The "Real" Goods on Today's Durable Goods Orders showed "real" inflation-adjusted, population-adjusted charts of durable goods and durable goods ex-transportation.

Those charts show just how anemic this recovery has been. I asked Doug for two additional charts, showing "real" inflation-adjusted, population-adjusted charts of durable goods ex-defense, and ex-defense and ex-transportation.

Courtesy of Doug Short here are those charts. They will be posted on his site tomorrow.

Durable Goods Excluding Defense




click on chart for sharper image

Durable Goods Excluding Defense and Transportation




click on chart for sharper image

I asked for those charts because they offer a better picture of "core" durable goods orders of consumers (TVs, furniture, appliances, etc.)

The per-capita and real-per-capita charts tell a story of decay, and that decay started with the ascent of Chinese manufacturing and continued even through the housing boom years.

Ex-defense, the peak per-capita durable goods production was September 1997.

Doug Short has additional charts, not per-capita adjusted in Durable Goods Orders In Perspective

Here is an interesting chart from that set.

Durable Goods vs. S&P 500




click on chart for sharper image

If durable goods take a dive, and I believe they will, expect the stock market to take a dive as well.

Addendum:

I asked for one more chart that I thought would show the effect of the housing bubble.

Durable Goods Ex-Defense, Not Inflation or Per-Capita Adjusted




click on chart for sharper image

The 1990's was fueled by the internet boom and the 2000's by the housing bubble. Durable goods are still not back to the internet bubble peak in 2000 in spite of massive global stimulus.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Chris Christie on Obama's Unwillingness to Submit a Deficit Plan "You Can't Lead From Behind"

Posted: 27 Jul 2011 01:04 PM PDT

Chris Christie takes on Republicans and Democrats in a blast at both party's unwillingness to compromise. Christie also takes Obama to task for failure to produce a plan at all.



Link if above video does not play: Governor Christie on National Debt Talks: The Need for Bipartisan Compromise

Select Quotes

  • When you take these jobs, and you have to exert executive leadership, you have to put your cards on the table. The fact of the matter is the president has spoken in platitudes, but we have not seen a plan in writing form the president. That does not give an excuse to Republicans or Democrats to not come to an agreement.

  • There is no substitute to executive leadership. That means taking risks. We did it here [reducing entitlements and spending], but that only happened because I took risks first. I put a plan out there in writing.

  • Republicans and Democrats in Congress, and the president of the united states has to put his plan in writing and show it to people. And let's have a great debate about it. But you can't lead from behind.

  • I will put up our record of accomplishment, in divided government, with bipartisan work together against anybody in the country.

Chris Christie would make a tremendous president. I hope he reconsiders.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Brazil Charges 1% Tax on Bets Against US Dollar, Threatens 25% Tax; Brazilian Real Overvalued, FDI Will Reverse

Posted: 27 Jul 2011 12:07 PM PDT

The global imbalances continue to grow and the reactions to those imbalances is nothing short of madness.

As a case in point, Brazil Charges Tax on Bets Against Dollar as Real Rallies to 12-Year High.
Brazil imposed a tax on bets against the U.S. dollar and warned it may boost intervention in the nation's derivatives market in a bid to weaken a currency that reached a 12-year high this week.

As part of a new round of currency measures unveiled today, the government levied a 1 percent tax on short dollar positions in the country's futures market above $10 million in notional value. The government may increase the tax up to 25 percent if needed, according to the decree signed by President Dilma Rousseff and published today in the Official Gazette.

Finance Minister Guido Mantega said that the measures give the government a "bigger arsenal" of tools to defend itself from "speculation" that the real will continue to rally amid global economic uncertainty. "We're reducing the advantages enjoyed by speculators, and we expect the real will weaken or stop appreciating," Mantega told reporters in Brasilia.

The measures, the latest attempt by policy makers to ease capital inflows behind a 48 percent rally in the real since the end of 2008, are unlikely to reduce the attractiveness of Latin America's biggest economy to foreign investors, said Jankiel Santos, chief economist for Espirito Santo Investment Bank in Sao Paulo.

Investment is pouring into Brazil as the nation develops offshore oil finds and prepares to host the 2014 World Cup and 2016 Summer Olympics. Foreign direct investment jumped to a record $69 billion in the 12 months through June, the central bank said yesterday.

Today's measures, while applicable to all investors, will primarily affect foreign investors who hold the bulk of about $25 billion in bets against the dollar on Sao Paulo's future exchange, said Nelson Barbosa, executive secretary at the Finance Ministry.
Brazil's Currency Regulation Knocks Real Off 12-Year Highs

The Wall Street Journal reports Brazil's Currency Regulation Knocks Real Off 12-Year Highs
Brazil's currency slumped Wednesday as the Brazilian government introduced harsh controls on currency derivatives, knocking the real off 12-year highs against the U.S. dollar.

The real has gained 7% against the greenback so far in 2011, and has advanced about 20% over the past two years. The strong real undercuts manufacturers and exporters, which struggle to compete with cheaper alternatives both at home and abroad.

Some analysts and economists also question whether the latest measures will once again prove unable to stem the real's rise, given the inherent weakness in the dollar because of the ongoing U.S. debate over spending cuts and raising the debt ceiling. Europe's difficulties with sluggish economic growth and heavy debt loads also have weighed on the euro in recent weeks.

"If the [Brazilian real] is strengthening versus the [U.S. dollar] because of the perception of adverse developments in the U.S., there is little that the Brazilian government can do other than implement measures that will increase domestic competitiveness," Goldman Sachs said in a report. Such items could include reducing local tax burdens and productivity-enhancing reforms, the firm said. The full impact of the measures is unclear right now, especially given that they will likely be followed by others, Goldman Sachs added.
Credit Crisis Brazil Revisited

I am sticking with analysis as posted in Credit Crisis in Brazil: Consumer Loan Rates Hit 47%, Defaults Soar, Debt Service Tops 50% of Disposable Income

Reader Otavio, from Brazil writes ...
Hello Mish

Otavio here, a Brazilian follower of your blog. Today I want to express my satisfaction as I read you latest post entitled Preposterous Statements - Jim Rogers: "No Food at Any Price"; Barton Biggs: " U.S. Needs Massive Infrastructure Program".

When I hear statements like these, it feels like the move up in commodity prices might be near the end. I cannot stress more the fact that high prices fueled by zero interest rates in developed and many emerging markets (for many years now) are a fruit of rampant speculation.

We have our own credit bubble here, which in my opinion has a good chance of busting sooner rather than later, via one or more of the following:

  1. Central Bank over-tightening local rates
  2. Slowdown in China, which would change our terms of trade and contract global capital flows to EM and Brazil (as we are suppliers of commodities to China), tightening monetary conditions here as a result
  3. Deterioration of credit crisis in Europe (and US), would also contract global capital flows and tighten monetary conditions here


I took the liberty of forwarding you a FT article about Brazil.

I think you might appreciate this as maybe a topic for future posts of yours, since you are keen in identifying and warning readers and investors of potential bubbles around the world that may be close to busting. For the record, I will say that in my opinion, Brazilian real estate, many local stocks, and our currency (the Real), are extremely overvalued as well.

Cheers
Otavio
With thanks to Otavio, please consider a few highlights from the Financial Times article Brazil risks tumbling from boom to bust

Cash Flow Burden Astronomical and Rising

  • Average rate of interest on consumer loans 47%, up from 41% in 2010
  • Consumer debt service burden was 24 per cent of disposable income in 2010, slated to rise to 28 per cent in 2011. This compares with 16% for an "overburdened" US consumer and a mid-single digit reading for other emerging markets such as China and India.
  • Debt service burden for the so-called "middle class" in Brazil has now breached 50% of disposable income
  • Delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011.
  • Delinquencies are now rising at a very hectic rate. They have risen at 23 per cent in the first five months of this year in absolute terms or at an annualised rate of 55 per cent.
  • Normally credit indicators cyclically lag the economic cycle. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.


FDI Will Reverse, Real Overvalued

My comment at the time : I am inclined to agree with Otavio who says the Real is "extremely overvalued".

I see no reason to change my stance now.

It's important to realize Brazil is not a passive victim. Inflation is rampant and government spending is a "whopping 40 percent of gross domestic product" according to Alberto Ramos, Latin America economist at Goldman Sachs in New York, as noted in Guido Mantega Mulls New Currency Measures

At some point FDI and hedge fund bets on the Real will reverse in a spectacular way. I suspect it will be when China slows taking commodity prices with it. However, reversals can happen at any time.

Certainly the situation is unstable, much like it was with the the Icelandic Krona before Iceland imploded.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


"Unexpected" Decline in Durable Goods Orders; Highest Level of Inventories Ever; Capital Goods Orders Plunge 4.1 Percent

Posted: 27 Jul 2011 10:39 AM PDT

In the wake of a clearly slowing global economy why a drop in durable goods orders would be unexpected is a mystery.

Nonetheless, that is what Bloomberg reports in Orders for U.S. Durable Goods Fell in June
Orders for U.S. durable goods unexpectedly dropped in June, raising the risk that a slowdown in business investment will weigh on the world's largest economy in the second half of the year.

Manufacturers face a slowdown in consumer spending just as they are poised to rebound from the parts shortages caused by Japan's earthquake, indicating production may keep cooling. Companies are also cutting back on hiring, which may further temper household demand.

Orders excluding volatile transportation equipment, like commercial aircraft, increased 0.1 percent after a 0.7 percent gain, the Commerce Department said. Demand for transportation gear dropped 8.5 percent, countering industry data.

Boeing Co. (BA), the largest U.S. maker of aircraft, said it received orders for 48 airplanes in June, up from 27 the prior month. Industry data, nonetheless, may not correlate precisely with the government statistics on a month-to-month basis because it doesn't take into account the prices.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items like computers, engines and communications gear, decreased 0.4 percent after rising 1.7 percent the prior month. The drop signals companies scaled back investment plans.

Demand for machinery dropped 2.3 percent, the most since January. Computer bookings fell 0.8 percent and those for automobiles decreased 1.4 percent.

Xerox Chief Executive Officer Ursula Burns said the temblor that struck Japan in March and hurt the company's suppliers will affect the provider of printers and business services in the second and third quarters.

"Let me be clear: Demand is not the problem here," Burns said in a July 22 call with analysts. "This is a supply issue. The second quarter impact was expected and created a backlog for orders taken in the quarter, orders that we'll be filling during the balance of the year."
Supply Side Nonsense

Xerox CEO Ursula Burns: "Let me be clear: Demand is not the problem here. This is a supply issue."

One has to wonder "What the hell is she smoking?" On the slim chance this is really only a supply issue, it is unique to Xerox.

Recap from Census Bureau

From the Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders June 2011

New Orders

  • New orders for manufactured durable goods in June decreased $4.0 billion or 2.1 percent to $192.0 billion. This decrease, down two of the last three months, followed a 1.9 percent May increase.
  • Excluding transportation, new orders increased 0.1 percent.
  • Excluding defense, new orders decreased 1.8 percent.
  • Transportation equipment, also down two of the last three months, had the largest decrease, $4.2 billion or 8.5 percent to $45.4 billion. This was due to nondefense aircraft and parts which decreased $2.8 billion.

Shipments

  • Shipments of manufactured durable goods in June, up six of the last seven months, increased $1.0 billion or 0.5 percent to $196.0 billion. This followed a 0.5 percent May increase.
  • Machinery, up four of the last five months, had the largest increase, $0.7 billion or 2.6 percent to $29.1 billion.

Inventories

  • Inventories of manufactured durable goods in June, up eighteen consecutive months, increased $1.6 billion or 0.4 percent to $357.2 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 1.2 percent May increase.
  • Transportation equipment, also up eighteen consecutive months, had the largest increase, $1.2 billion or 1.1 percent to $109.1 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 1.7 percent May increase.

Capital Goods

  • Nondefense new orders for capital goods in June decreased $3.0 billion or 4.1 percent to $69.8 billion.
  • Defense new orders for capital goods in June decreased $0.3 billion or 3.9 percent to $8.6 billion.

Summary

  • Shipments Up
  • New Orders Down
  • Capital Goods Orders Plunge
  • Record High Inventories

That anemic mix does not portend well for the second-half.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Vote of No Confidence: Deutsche Bank Dumps 70% of Spain, Portugal, Ireland, Greece, Italy Debt

Posted: 27 Jul 2011 09:11 AM PDT

Courtesy of Google Translation, El Pais reports Deutsche Bank reduces its exposure to 70% Spanish debt and other peripherals
The German bank Deutsche Bank has reduced by 70% exposure to debt issued by countries of the periphery of the euro as Spain, Portugal, Ireland, Greece and Italy in the first six months of the year to 3.669 million euros, according reported by the entity. In particular, Germany's biggest bank by assets reported June 30 that its net exposure to the Spanish sovereign debt was 1,070 million euros, 53% less than at the end of 2010, while 87.5% cut their Italian debt exposure, which stood at 996 million.

The chairman of Deutsche Bank, Josef Ackermann, has noted that between April and June there was a worsening business conditions to increasing concerns over the sovereign debt of Greece and other eurozone countries, and for recovery the whole economy. "As a result, during the quarter we see more volatility [in] global financial markets, as well as a withdrawal from riskier assets, including the sovereign debt of some countries in the euro area," said Ackermann.
Vote of No Confidence

Here is the original link in Spanish: Deutsche Bank reduce un 70% su exposición a la deuda española y del resto de periféricos

Deutsche Bank is clearly voting with its feet on PIIGS debt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Rating the Obama, Reid, and Boehner Deficit Reduction Plans on Mish's 10-Point Credibility Scale

Posted: 27 Jul 2011 02:42 AM PDT

Many people have asked where they can find details of what the budget cuts proposed by President Obama and House Speaker John Boehner.

Because the plans have been in a constant state of flux, and because President Obama did not release details of ongoing discussions, it has been difficult to properly analyze the credibility of the recent proposals.

However, on Monday the CBO chimed in on Boehner's latest phased-in proposal.
Dear Mr. Speaker:

As you requested, the Congressional Budget Office has estimated the impact on the
deficit of the Budget Control Act of 2011, as posted on the Web site of the Committee on Rules on July 25, 2011.

...

In total, if appropriations in the next 10 years are equal to the caps on discretionary spending and the maximum amount of funding is provided for the program integrity initiatives, CBO estimates that the legislation would reduce budget deficits by about $850 billion between 2012 and 2021 relative to CBO's March 2011 baseline adjusted for subsequent appropriation action.

As requested, CBO has also calculated the net budgetary impact if discretionary savings are measured relative to its January baseline projections. Relative to that baseline, CBO estimates that the legislation would reduce budget deficits by about $1.1 trillion between 2012 and 2021.
There you have it. Boehner has proposed a $850 billion reduction over 10 years, a minuscule $85 billion a year on a deficit of $1.4 trillion.

Bear in mind it is far worse than it looks because it is heavily back-loaded. The 2012 reduction is only $4 billion.

ZeroHedge Comments As CBO Scores Boehner's (Laughable) Deficit Cut Plan, Jay Carney Admits Obama Still Does Not Have An Actual Plan
Boehner's plan is an abysmal joke, with $4 billion in discretionary spending cuts in 2012 growing mysteriously to $111 billion by 2021, and $0 billion in debt service reduction for 2012 and 2013 (growing to $37 billion in 2021), for a combined cumulative deficit impact of $850 billion, which on a NPV basis is more like $50 billion, but at least it is a plan.

In the meantime, here is what is going on on the other side of the spectrum.

From the NRO: After bobbing-and-weaving for nine minutes, Carney [Obama's Press Secretary] finally says what everybody knows: the president won't put his plan on paper because he doesn't want it to become "politically charged" before a compromise can be reached. In other words, you've got to pass it to find out what's in it.
$1 Trillion Budget Gimmick

House Budget Chairman Paul Ryan writes about Senator Reid's Trillion-Dollar Gimmick
The $2.7 trillion debt-limit increase proposal offered by Senate Majority Leader Harry Reid contains a $1 trillion gimmick meant to disguise the plan's shallowness on spending cuts. Supporters of the Reid plan are measuring their savings against a baseline that assumes the continuation of surge-level spending in Iraq and Afghanistan, even though the President has neither requested this funding nor signaled that he might request it. Instead, the President has signaled the opposite: a troop drawdown over the next few years. In other words, the Reid plan is claiming credit for "savings" that were already scheduled to occur, and for "cutting" spending that no one has requested.
Ryan's article included a humorous flashback to a March 12, 2009 article at Washington Post, Paved With Magnificent Intentions.

Writing on the credibility of Obama's budget assumptions in 2009, George Will concludes ...
Although only a small fraction of the supposedly countercyclical stimulus will be spent by the end of the year, the budget assumes that by then the economy will have perked up, and that it will grow robustly -- 3.2 percent, 4 percent and 4.6 percent -- in the next three years. Growth supposedly will cut the deficit in half -- growth and the $1.6 trillion "saved" by first assuming, and then "canceling," a 10-year continuation of the surge in Iraq.

Why, one wonders, not "save" $5 trillion by proposing to spend that amount to cover the moon with yogurt and then canceling the proposal?
Obama's Growth Estimates

  • 3.2% 2009
  • 4.0% 2010
  • 4.6% 2011

How credible was that?

Veto Credibility

The president has vowed to veto deficit cutting legislation if it contains a balanced budget amendment or if it does not go past the 2012 elections.

How credible is that threat? The correct answer is not at all. The veto threat is nothing but hot air because Reid will see to it that such bills will never make it out of the Senate.

Whatever does make it out of the House and Senate, Obama will sign. Thus, a veto is an imaginary threat.

With that backdrop, it's time to rate the Obama, Reid, and Boehner Deficit reduction plans on a credibility scale.

10-Point Credibility Scale

  1. Golden
  2. Rock Solid
  3. Fudge
  4. Jello
  5. Marshmallow
  6. Cream Puff
  7. Nauseous
  8. Gaseous
  9. Imaginary
  10. Delusional

Scoring the Proposals

  • Given a $1.4 trillion deficit, the latest plan from Boehner to cut a minuscule $85 billion a year (and back-loaded at that) is somewhere between nauseous and gaseous. It's no wonder that various Tea-Party members will not vote for it.

  • Obama's plan is imaginary or delusional depending on whether or not the President actually believes he has a plan, when he doesn't.

  • Parts of Senator Reid's plan are gaseous and the rest is clearly imaginary.

  • In contrast, the gang-of-six $4 trillion deficit cutting plan has something of the consistency of Jello, fudge, or marshmallow depending on details that were never disclosed.

$4 trillion sounds like a lot but it is only $400 billion a year, while the deficit is $1.4 trillion. Thus it's tough to give that plan a rating higher than Jello, and impossible to give it a rating higher than fudge.

At this late juncture, the best one can reasonably hope for is a nauseous resolution. Unfortunately, the odds now favor something between gaseous and imaginary with delusional a distinct possibility.

The higher the score, the lower the credibility, and the better for gold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Niciun comentariu:

Trimiteți un comentariu