duminică, 13 noiembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Australia in Recession; Spending Slide Spreads from Housing to Service Sector; Australia's Double Whammy; US Dollar Safe Haven?

Posted: 13 Nov 2011 08:29 PM PST

The Australian economy is toast. Forget about GDP and distortions of it thereof. Australia's housing bust will linger for years, and as I expected it has spilled over into retail spending and now the service sector.

Westpac, Australia's second biggest lender says Spending Slide Spreads
KEY parts of Australia's services sector are being hit by the slowdown in consumer spending.

Figures released by Westpac, the second biggest lender, shows that the well-publicised impact on the retail industry has spread to hotels, the construction industry and the finance and insurance sectors. Cafes and restaurants have suffered as consumers have closed their wallets and concentrated on paying down debt.

Along with hotels, with which they are bracketed, food outlets have incurred one of the biggest jumps in percentage terms in the number of impaired loans and bad debts incurred by Westpac over the 12 months to the end of September this year. The figures cover 14 major sectors of the economy including property, manufacturing and mining.

According to the data released on Friday as part of the bank's compliance with risk and lending rules, Westpac saw impaired loans run up by the hotel and food hospitality sector rise by $71 million to $205 million. It also recorded a small increase - of $5 million to $54 million - in the money it has set aside to cover debts that it may not recover.

Big increases in impaired loans year on year were recorded by construction companies (up $69 million to $180 million) and the finance and insurance industries (a rise of $63 million to $213 million). Westpac has also raised its specific provisions for likely loan losses for those sectors.
Australia's Double Whammy

The above article by The Age goes on and on. That snip is about half of it.

This certainly is not unexpected (at least by me), as a natural progression of the housing bust. Moreover, Australia faces a "double whammy".

China is slowing and that will effect commodity prices as well as Australia's export sector.

Those thinking Australia will be immune from recession because of China have another thing coming. Indeed, Australia will bust even if commodity prices stay firm.

US Dollar Safe Haven?

Those playing the Australian dollar as a safe haven might wish to reconsider. For more on currencies, please see Perfect Storm; Eight Reasons to be Bullish on the US Dollar.

By the way, I need to point out my liking of the US dollar is in comparison to other fiat currencies (not gold), and that my opinion fluctuates with the circumstances. Long-term, the US dollar is not a safe haven.

This is not a change in stance. This has been my position all along as evidenced by my opinions on gold stated numerous times over the years.

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.

Yuan Deposit Growth Slows; Investors Dump Yuan for Dollars; What Would Happen if China Floated the Yuan?

Posted: 13 Nov 2011 05:03 PM PST

Inquiring minds are reading the South China Morning Post which says Yuan deposit growth slowing
Yuan deposits in Hong Kong may have dropped significantly last month due to falling trade volumes with the mainland and a weakening of the currency in the offshore market, analysts said. Bankers and analysts said while the brake could be a positive for local banks in the short term, if the trend continued it could impact their strategy to bet big on yuan business. The slowdown could also drag the pace of the internationalisation of the yuan, while not derailing it.

Daniel Hui, HSBC foreign-exchange strategist, said this week that yuan deposits in October could show "a sizeable decline". This would be a huge reversal from the upbeat expectations markets had at the beginning of the year, when forecasts reached 1 trillion yuan.

The Hong Kong Monetary Authority has yet to release October figures on yuan deposits, but by the end of September there was about 622 billion yuan in the city.　 "Based on recent trends, I would be doubtful that the figure could top 700 billion yuan at the end of the year," said Frankie Kwong, treasurer of Wing Lung Bank. He said if the trend continued into the first quarter of next year it could pinch banks betting big on pushing their yuan business, meaning they would have to adjust their strategy accordingly.
Investors Dump Yuan for Dollars

Michael Pettis at China Financial Markets had lengthy comments and an interesting chart on the above article via email. Here is a short text snip (minus the chart) in the sake of fairness. His complete article will appear on his website shortly.

Pettis writes ....
China of course suffers less from flight capital risk than Europe, but hot money does seem less eager than in the past to enter the country, and outflows seem still to be increasing.　 Regular readers know that I have always been skeptical about the excitement over RMB internationalization, and I consider much of the evidence to be exaggerated or misleading.　 What drove the redenomination of trade into RMB, I have always believed, was not transactional interest but largely speculative interest.

One of the strongest pieces of evidence for my saying this was that nearly all of the trade that had been redenominated into RMB had to do with Chinese imports, and almost none of it with Chinese exports.　 Remember that Chinese imports in RMB leave the seller long RMB in their offshore accounts.

In that case as long as there was speculative demand for RMB, it made sense to redenominate Chinese imports into RMB in order to provide off-shore investors with legal long positions in RMB.　 But now that the speculative demand for RMB seems to have dried up, at least temporarily, some of the excited talk about the glowing future for offshore RMB business is fading.

In the past couple of months the value of the RMB during daily trading has plummeted, even more sharply than it had after the Lehman crisis, and the PBoC has had to set the morning parity at a premium to the previous day's close in order to maintain the appreciation trend of the RMB.　

Daily trading seems to suggest that investors are eager to dump RMB against dollars.　 If this is true, it is not surprising that central bank reserves in the third quarter rose by so little ($4 billion) even though the current account surplus was around fifteen times that amount.
What Would Happen if China Floated the Yuan?

For months China was attempting to slow appreciation of the Yuan to the consternation of the Fed, Congress, and Treasury Secretary Geithner.

Now China is acting to prop up the Yuan. Thus, and contrary to popular myth about the alleged massively undervalued Yuan, were China to let the Yuan float right now, the currency might sink because "hot money" has given up.

Imagine the uproar in Congress if China did float the Yuan and it held steady or dropped.

A slowing China is bullish for the dollar (at least in isolation). For details and a complete discussion, please see Perfect Storm; Eight Reasons to be Bullish on the US Dollar.

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.

Slovenian Economist Emails "Our Banking System is on Brink of Collapse"; Housing Crash and Incompetent Bureaucrats Blamed

Posted: 13 Nov 2011 09:56 AM PST

In response to last Friday's post Slovenian Bond Yield Breaks 7%, First Time Since Euro Entry in 2007 I received an interesting email from a Slovenian economist who says "Our banking system is on the brink of collapse."

Luka Gubo writes ...
Hello Mish!

I am an economist from Slovenia (I have written you before about social unrest in Slovenia). I just want to point out few facts about Slovenia.

  1. Slovenian debt to GDP ratio has doubled since 2009 (one of highest growing on the planet)
  2. Our banking system is on the brink of collapse. Biggest bank (Nova Ljubljanska Banka - NLB) is owned by the government and almost all the money it has lent is sub-prime (much worse than in US up to 2007/08) or it was lent politically to chosen people who now can't pay the debt back. NLB has 15% bad loans (payments being late more than 90-day) and the number is getting higher.
  3. Our housing market is frozen. Prices are not falling because no one is buying or selling. Most of the construction companies are bankrupt and they owe lots of money to banks. (percentage of loans that payments are late in construction sector is mind boggling 25%! - and is even growing!)
  4. Government has recapitalized NLB with 250 million €. It will probably do it again with 400 million. I have calculated that if the bank was for sale it would be sold for no more than 400 million €! So taxpayers have already 250M and will pay another 400M for what? For saving some banker's ass because of his bad decisions? (And they call the bank "Slovenian silver"!)
  5. There is no interest in Slovenia to leave EU. Moreover, it may be better for incompetent bureaucrats from EU to run the monetary system because things would be much worse if run by incompetent Slovenian bureaucrats.
  6. Slovenian banks will need to borrow at least 5 billion € in 2012 and get about 1 billion € of fresh capital. Do you know someone who will give them the money? I truly hope it will not be the taxpayer.
  7. When the banks start selling real estate, the market will collapse 20-30% in a year or two. That will further deteriorate bank balance sheets and the problems will be much worse.
  8. Our labor market is totally inflexible and unemployment rate is getting higher (currently at 11.5%)

So if someone says to you that Slovenia is healthy just tell him the facts. Slovenia is not healthy. It has a brain-tumor that is getting worse.

By the way, Bostjan Vasle is a great economist but he works for incapable government. When he says there is a possibility for recession, we know there is a 100% chance recession is coming. He doesn't say so directly out of fear the government will implement some Keynesian silliness or other crazy ideas.

Best regards from Slovenia!
Luka Gubo, frustrated with Slovenian government analyst and worried about banking system economist

Luka Gubo
Senior Analyst and Economist
Finančni trgi d.o.o.
The surprising thing to me was not his candor, but the willingness of Luka to share his full name. A quick search led me to Finančni blog, where he shares his views.

Thanks Luka. Good luck to you.

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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