marți, 13 decembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

China Prepared to Let Housing Prices Sink in Spite of Economic Slowdown; Transition to New Regime Underway

Posted: 13 Dec 2011 11:33 PM PST

If you are looking for the reason the Shanghai stock market has been one of the weakest globally, then look no further than China Affirms Property Curbs Even With 'Grim' Outlook
China's leaders affirmed they will stick next year with a campaign to bring down property prices even as a "very grim" global outlook threatens growth in the second-largest economy.

The nation will target "basically stable" consumer prices and "unswervingly" implement real-estate curbs, according to a statement after an annual economic planning meeting in Beijing. At the same time, officials will seek "steady and relatively fast growth," Xinhua News Agency said.

"The authorities are cautious about a premature or aggressive easing of policy, while committed to be pre-emptive and flexible to roll out supportive policies if needed," said Chang Jian, a Hong Kong-based economist at Barclays Capital, who formerly worked for the World Bank. "The policy focus will be shifting from managing inflation to supporting growth."

In China, the theme for next year is "progress amid stability," Xinhua said. "Stability means to maintain macro- economic policies basically stable, maintain steady and relatively fast growth, keep overall price levels basically stable and maintain social stability."

Policies will be fine-tuned as needed and the nation will press on with economic reforms, the statement said. The global outlook "remains very grim" with China facing pressure for growth to slow and prices to rise, operational difficulties at some companies, and "a grim situation in energy saving," the statement from Xinhua said.

In December last year, the government officially shifted its monetary policy stance to "prudent" from "moderately loose." The party's 25-member Politburo said last week that that label will remain unchanged for 2012 and fiscal policy will remain "proactive."

China will speed construction of "ordinary commercial residential housing" and seek to return home prices to a reasonable level, today's statement said. The yuan's exchange rate will be kept "basically stable," it said.
Transition to New Regime Underway

There is a change next year in Chinese leadership. I have long speculated the next regime will be less focused on infrastructure and real estate, and more focused on supporting consumer spending.

Those statements from China provide a big hint as to what is coming.

Commodity bulls better think twice about the alleged "insatiable demand" of China. They also need to think twice about preposterous decoupling theories that suggest the Chinese tail will wag the US and European dogs.

Bear in mind that Europe is China's biggest trading partner, and Europe is without a doubt in recession. That recession will become much more severe before it gets any better.

The irony in this setup is the one nation most likely to decouple is the US. However, I am sticking with a recession call as noted in "Wall Street is Little More than Glorified Crack House"; ECRI Sticks with US Recession Call; So Does John Hussman, with Odds Above 80%; So Do I; SF Fed has 50-50 Odds


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.

Newt Gingrich Fades Fast in Iowa Polls, Ron Paul in Statistical Dead Heat

Posted: 13 Dec 2011 10:48 PM PST

Whether or not the news media pays any attention to Ron Paul, voters do and the polls show it. Ron Paul is now essentially tied with New Gingrich in the latest Iowa poll.

Please consider Gingrich ahead in US poll, but slipping in Iowa
Republican White House hopeful Newt Gingrich has surged ahead of rival Mitt Romney nationwide, but his lead in Iowa has faded ahead of the January 3 caucuses, two new polls showed.

Gingrich, the former speaker of the House of Representatives, and Romney are seeking their party's nomination to take on Democratic President Barack Obama in the November 2012 election.

The Iowa vote, which kicks off the Republican presidential nominating process, will be seen as a crucial test of strength for Gingrich, who only weeks ago took the lead from long-time frontrunner Romney.

Gingrich now has 40 percent support among likely Republican voters nationwide, far ahead of the 23 percent support for Romney, a former governor of Massachusetts, according to a new Wall Street Journal/NBC News poll.

National polls are not decisive in a contest fought on a state-by-state basis, but do reflect the temperature of national opinion of a particular candidate.

In Iowa, Gingrich tops a Public Policy Polling survey of likely Republican voters with 22 percent support, just slightly ahead of Texas Congressman Ron Paul with 21 percent -- a major drop from the nine-point lead he enjoyed in the previous PPP survey one week ago.

Romney's support in Iowa -- a largely rural midwestern state which barely figures in the general election but is key as the first official nominating contest -- was unchanged at 16 percent since last week.

"Newt Gingrich's momentum is fading in Iowa," said PPP president Dean Debnam.

Gingrich has come under fire from members of the party's religious base over his admitted extramarital affairs. Both Romney and Texas Governor Rick Perry have run ads in Iowa emphasizing their family values credentials.

"When it comes to his character record, he's a very fine, empty suit with a broken zipper," wrote Iowa pastor Albert Calaway, a member of the Truth, Values and Leadership evangelical group, according to local media.

.....

PPP surveyed 555 likely Iowa Republican caucus voters between December 11-13. The poll has a plus or minus 4.2 point margin of error.

The WSJ/NBC poll surveyed 1,000 adults between December 7-11 and has an overall plus-minus 3.1 percentage point margin of error.
Blatant Reporting Bias

I posted more paragraphs than necessary in the above clips. I did so on purpose to prove a point. It was not until the 6th paragraph that Ron Paul even got a mention.

I also call your attention to the second-to-last paragraph. "The poll has a plus or minus 4.2 point margin of error."

Given the margin of error, and the momentum, Ron Paul has surged into a statistical tie with Gingrich.

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.

Dollar Soars vs. All Major Currencies Following FOMC No Hint of QE3; Looking Ahead, What's Next?

Posted: 13 Dec 2011 12:52 PM PST

I have read countless articles recently regarding the inevitability of QE3. I have disagreed for four reasons.

  1. Price of oil near $100 give Fed little choice
  2. Rising price of food gives Fed little choice
  3. Stock market has risen on air and hype of European bailout giving Fed little reason
  4. Falling unemployment rate (even though it's totally bogus) gives Fed little reason

    Why should the Fed react when hot air from Europe gave a huge lift to the markets?

    I would have been surprised if the Fed tossed a QE3 bone under those circumstances. And it didn't. The Forex market responded appropriately:

    • The US dollar rose against all major currencies
    • The Euro sunk to an 11-month low

    Euro Daily Chart



    click on chart for sharper image

    The Euro took out the October 2011 low and is in fact now at lows last seen mid-January of 2011.

    Forex Currency Market




    The US dollar rose against every Barchart-Listed Currency.

    Looking Ahead, What's Next?

    If the Fed holds off on QE3 and the ECB cuts further, both of which are likely for the near-future, the US dollar will likely strengthen more. However, and as I have pointed out, one cannot look at these things in isolation.

    A downgrade of the EFSF and/or France by rating agencies would be US dollar supportive as would falling demand for commodities from China as noted in China's Deserted "Fake Disneyland"; Shanghai Prices Down 40% from Peak, Inventory Clogs Market; Pollyannas Proven Wrong; Implications for US Dollar
    Implications for US Dollar

    I have said on numerous occasions, China's shift from a real estate and construction economy is going to send many commodity prices tumbling. In isolation, this is good for the US dollar, but things cannot be viewed in isolation.

    Currency movements will depend on how central banks in the US, China, Europe, and Japan react to the global slowdown.

    Certainly the Crumbling of Comprehensive Solution No. 4; Treaty "Legally Doubtful"; Cracks and Splinters Everywhere is US dollar supportive regardless of repeated "Pet Lies" by EC President Van Rompuy.

    On the other side of the coin, US deficits are out of control. However, I believe (and the market seems to agree), the other factors are more important in the short-to-intermediate term.

    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.

    Crumbling of Comprehensive Solution No. 4; Treaty "Legally Doubtful"; Cracks and Splinters Everywhere; Repeated "Pet Lies" by EC President Van Rompuy

    Posted: 13 Dec 2011 10:39 AM PST

    German Chancellor Merkel and French President Sarkozy did their best to portray the results of the treaty as 26-1, Isolating the UK. Actual results are vastly different.

    Everywhere you look there are splinters and cracks, even in France and Germany. Here is one I just came across: France says not planning budget rule vote for now
    France will not schedule a bicameral parliamentary vote for a constitutional budget-balancing rule while the opposition Socialist Party remains opposed to the idea, government spokeswoman Valerie Pecresse said on Wednesday.

    "There can be no question of holding a vote unless the opposition changes its position," Pecresse a news briefing after a weekly cabinet meeting.

    Sarkozy's efforts to get a fiscal rule enshrined in the constitution have been thwarted by left-wing opposition, but he and German Chancellor Angela Merkel said on Monday they would seek EU backing by March to have such clauses put into law across the euro zone.
    Sarkozy Cannot Deliver French Votes, Plows Ahead Anyway

    Sarkozy is willing to write clauses in the treaty even though he does not have the necessary votes to deliver them.

    Moreover, and as I pointed out earlier, Sarkozy is going to lose the next French election and Socialist challenger François Hollande Would Renegotiate EU Deal.

    As I also pointed out with thanks to reader Janne from Finland, Hell Will Freeze Over Before Finland Signs Treaty.

    It's also important to note that the German Supreme court has not yet ruled on some of the proposed treaty modification, notably the 85% rule that has Finland upset.

    Nonetheless, Sarkozy and Merkel will plod along with their attempt to ram a treaty down the throats of the 17 at complete taxpayer expense (thanks to Merkel caving in to a Sarkozy demand) when it is highly likely their own countries cannot deliver the votes.

    But wait, there are still more cracks and splinters, including some major ones.

    Treaty "Legally Doubtful"

    EuroIntelligence reports on the Crumbling of Comprehensive Solution No. 4
    It is surprising how long it took the markets to see through last week's agreement to set up a separate treaty to reinforce the current one. As Frankfurter Allgemeine reports, the European Commission believes the whole thing is legally doubtful, and mostly irrelevant. The rating agencies, too, are underwhelmed.

    EFSF About to Lose AAA Rating

    Moody's announced yesterday that it will review the credit rating of the eurozone member states, citing a lack of new measures agreed at the summit. Fitch was even more explicit, saying the summit once again failed to provide a comprehensive solution. A eurozone downgrade seems increasingly probable, at which point the EFSF would also lose its rating, and with it its whole raison d'etre.

    EC Understands Subordinate Treaty Adds Very Limited Value

    In the Commission's view there is hardly anything really new in the euro agreement and what is new is legally very doubtful, Frankfurter Allgemeine Zeitung reports. The main problem according to the Commission is that the agreement for quasi-automatic sanctions would be part of an intergovernmental treaty and in international law that is of lesser legal value than a European treaty. As a consequence any country's request to proceed according to the weaker deficit rules of the European treaty would mean that the stricter rules according to the intergovernmental treaty cannot be applied. Also the Commission points out that is doubtful that it and the European Court of Justice can legally be asked to perform surveillance duties on behalf of a subgroup of the EU.

    Japan says No to IMF bailout

    The world is getting impatient with the eurozone and its pathetic attempts to solve its crisis through the IMF. Reuters has the story that Japan's finance minister Jun Asumi said Japan would only be able to cooperate with an IMF programme if the Europeans first came up with a convincing firewall. He expressed sympathy for the negative position the US taken on this issue.
    I added the first two bold headlines in the above quotes for ease in understanding. The the rest of the text was not altered.

    Nonsensical Headlines

    Nonetheless, the most common headlines in mainstream media after this complete debacle look something like this: EU, without Britain, moves towards fiscal deal.

    Deal? What deal?

    There is no legally enforceable deal, and with all the cracks, splinters, splits, and discord, there is likely no deal at all.

    Repeated Bald-Faced Lies by EC President

    The arrogance and outright lies by EC president Herman Van Rompuy stand alone. Please consider New fiscal treaty ready by march says Van Rompuy
    "Early March at the latest, this fiscal compact treaty will be signed," Van Rompuy said in a speech to the European Parliament in Strasbourg.

    Several non-euro zone countries, including Sweden, Hungary and the Czech Republic, still need parliamentary approval before they can give their full backing to the move, but diplomats say this is largely a formality.

    Van Rompuy said a review of the adequacy of the €500-billion ceiling on the euro zone's combined bailout funds will also be completed by March.

    The so-called fiscal compact is designed to allow closer surveillance of countries' spending, in an effort to prevent a repeat of the eurozone's debt crisis and which may allow the European Central Bank to step up its purchases of distressed euro zone debt to calm markets.
    For starters, the objections of Finland are no "mere formality". And it still remains to be seen if Sweden, Hungary and the Czech Republic parliaments are willing to go along. They would be foolish to do so.

    Moreover, I am tired of this arrogant buffoon's repeated lies that the ECB is willing to step up purchases of European bonds. The ECB will not do so and the Bundesbank is adamantly opposed as well. Yes, the ECB presumably hinted that might happen, but ECB president Mario Draghi took that idea back in no uncertain terms, even repeating the message.

    Market Rout as ECB Dashes Bond Hopes

    Please consider Market rout as ECB dashes bond hopes
    Mario Draghi, the ECB's president, said the bank had not agreed to any sort of "Grand Bargain" with EU leaders to act as lender of last resort for sovereign states, insisting that it does not have a legal mandate to rescue sovereign states in trouble.

    "We have a treaty and Article 123 prohibits financing of governments. It embodies the best tradition of the Bundesbank. We shouldn't try to circumvent the spirit of the treaty," he added, warning against the use of "legal tricks" to bend the bank's mandate.
    Pet Lies

    Van Rompuy likes to alternate between his two pet lies.

    1. ECB will step up bond purchases
    2. Eurobonds are coming

    Someone needs to stand up to Herman Van Rompuy and call him a disgusting liar straight to his face in an interview.

    Three Things

    1. There is certainly is no legally enforceable deal and most likely no deal of any kind
    2. Eurobonds are dead (Germany would never go along, nor would Finland and some other countries)
    3. The ECB is unlikely to step up bond purchases in a significant way for fear of the Bundesbank and German Supreme Court ruling

    One would never glean any of that from listening to Van Rompuy.

    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.

    China’s Deserted “Fake Disneyland”; Shanghai Prices Down 40% from Peak, Inventory Clogs Market; Pollyannas Proven Wrong; Implications for US Dollar

    Posted: 12 Dec 2011 11:54 PM PST

    About 45 minutes outside of Beijing are the deserted ruins of what was supposed to be the world's largest amusement park. Instead, farmers have reclaimed the land planting corn and digging wells next to spires modeled after Disneyland.

    Please consider China's deserted fake Disneyland
    Along the road to one of China's most famous tourist landmarks – the Great Wall of China – sits what could potentially have been another such tourist destination, but now stands as an example of modern-day China and the problems facing it.



    Situated on an area of around 100 acres, and 45 minutes drive from the center of Beijing, are the ruins of 'Wonderland'. Construction stopped more than a decade ago, with developers promoting it as 'the largest amusement park in Asia'. Funds were withdrawn due to disagreements over property prices with the local government and farmers. So what is left are the skeletal remains of a palace, a castle, and the steel beams of what could have been an indoor playground in the middle of a corn field.



    Pulling off the expressway and into the car park, I expected to be stopped by the usual confrontational security guards. But there was absolutely no one to be seen. I walked through one of the few entrances not boarded up, and instantly started coughing. In front of me were large empty rooms and discarded furniture, all covered in a thick layer of dust, along with an eerie silence that gave the place a haunted feeling – an emotion not normally associated with a children's playground.

    All these structures of rusting steel and decaying cement, are another sad example of property development in China involving wasted money, wasted resources and the uprooting of farmers and their families. It is a reflection of the country's property market which many analysts say the government must keep tightening steps in place. The worry is a massive increase in inflation and a speculative bubble that might burst, considering that property sales contribute to around 10 percent of China's growth.
    More pictures and text in an excellent article by David Gray.

    China has the dubious honor of the world's largest vacant malls, vacant cities, and vacant amusement parks.

    Amazingly people insist there is not a property bubble in China. I have news, there is a bubble and it has now popped.

    'Long-term Pain' For Chinese Property Market

    Credit Suisse says 'Long-term Pain' For Chinese Property Market
    China's overheated real-estate market has become a source of fascination and dread for investors. With a significant share of the economy tied up in construction, and global commodity prices hanging on Chinese demand, the recent drop in property prices could prove a turning point. China Vanke, the largest developer and a bellwether for the industry, said Monday that sales in November fell down 36%, year-on-year. This marks the company's fourth consecutive month of double-digit drops in revenues. So how much further might house prices fall, and what would be the impact on developers' balance sheets? Is it time to push the panic button? In a new report, Credit Suisse predicts an average drop of 20% from a peak in mid-2011 to the end of 2012.

    If a 20% fall sounds dire, consider that some Chinese media outlets have begun speculating on the possibility of a much more severe correction to what is widely seen as a bubble. Some reports flout the idea of 40-50% slump, which would have huge implications for China's political economy.
    20% does not sound "dire", it sounds like a cakewalk. Heck, not even 40% is dire. 70% is dire. 40% is right here right now in Shanghai.

    Shanghai Prices Down 40% from Peak, Inventory Clogs Market

    The LA Times reports China's housing bubble is losing air
    Home prices and sales plunge after China's government intentionally slams on the brakes. Some recent buyers stage demonstrations, destroy real estate offices and demand refunds of up to 40%.

    Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

    Sales have plummeted. In Beijing, nearly two years' worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

    The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

    Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

    "I still haven't told them," Li, 29, said of his home's plummeting value. "It will just make them worry, and it's already too late."
    Crash in Progress, Pollyannas Proven Wrong

    China's property bubble is clearly in free-fall. Just as happened in the United States, developers are offering "free" cars, BMW's no less, for those willing to take the plunge.

    The numerous Pollyannas who said this would not happen have been proven wrong. China did not "decouple" and home prices cannot stay elevated over wages and rental prices forever.

    Implications for US Dollar

    I have said on numerous occasions, China's shift from a real estate and construction economy is going to send many commodity prices tumbling. In isolation, this is good for the US dollar, but things cannot be viewed in isolation.

    Currency movements will depend on how central banks in the US, China, Europe, and Japan react to the global slowdown.

    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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