Mish's Global Economic Trend Analysis

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McDonald's Global Sales Slump 1.9 Percent; Price, Competition, Jobs to Blame Posted: 09 Feb 2013 03:36 PM PST Most people love McDonalds, but I am in the distinct minority. Regardless, global sales are down perhaps an indication that the price people are willing to pay for convenience has at least temporarily reached a peak. Reuters reports, McDonald's January sales drop more than anticipated McDonald's Corp (MCD) said on Friday that January sales at established restaurants around the world fell 1.9 percent, a steeper decline than expected as fast-food chains fight for diners. McDonald's warned last month that same-restaurant sales would be down. Analysts polled by Consensus Metrix had expected a decline of 1.1 percent. Comparable sales in Europe, McDonald's top market, declined 2.1 percent last month, with weakness in Germany and France. Analysts expected an increase of almost 0.1 percent. The United States, a close No. 2, posted a 0.9 percent gain, helped in part by the addition of the Grilled Onion Cheddar burger to its Dollar Menu. U.S. results exceeded analysts' target for a 0.3 percent decline. Asia/Pacific, Middle East and Africa (APMEA) turned in a 9.5 percent decline, despite strength in Australia - steeper than the 5.8 percent analysts had anticipated. McDonald's cited continued weakness in Japan and the shift in the timing of the Chinese New Year. Scares over the safety of China's chicken supply also took a small bite out of McDonald's sales there. Not a McRib Issue This is not a food quality scare issue (For details see Yum! The McRib is Back, Get Yours Today (After You Find Out What's In It); The Secret's in the Sauce!). Rather, it's an affordability issue. People want value in the value meal and there is no value, either in terms of quality or price. Sales rose in the US purportedly "helped in part by the addition of the Grilled Onion Cheddar burger to its Dollar Menu". Most don't want to know what's in it, and would not stop eating the stuff even if they did. This all comes down to price and jobs. There are too few jobs, and the price of the value meal (by any name at any fast food company) is simply too high.  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.

German Trade Surplus Hits Five-Year High; Rebalancing the Wrong Way Posted: 09 Feb 2013 11:10 AM PST Looking for evidence of rebalancing in Europe? Don't look here: German 2012 trade surplus soars despite weak December reports Germany's trade surplus was the second highest in more than 60 years in 2012, pointing to an underlying resilience in Europe's largest economy, although both imports and exports disappointed in the last month of the year. Exports rose just 0.3 percent in December from November, compared with a forecast rise of 1.3 percent, and imports fell 1.3 percent against expectations for a rise of 1.4 percent . Analysts blamed poor demand from the euro zone and beyond for the weakness of exports, and Germans' reluctance to spend for the fall in imports, but pointed to signs of recovery ahead, including a 0.8 percent rise in December industrial orders. "Imports fell noticeably in December but were stronger then exports over the entire quarter, which really weighed on economic growth," said economist Andreas Scheuerle at Deka Bank. "Looking forward the sky is brightening. Global early indicators have improved noticeably and give hope that export business will improve again." REBALANCING European Central Bank chief Mario Draghi weakened the euro on Thursday with a subtle hint of concern about the impact of the currency's recent strength on a euro zone economy reeling from the impact of searing budget cuts across its southern half. That undermines Spain, Portugal and others' efforts to be more competitive in markets beyond the currency bloc - but there were signs in Friday's data that they are at least selling more and buying less from Germany. In 2012 German exports to the euro zone declined 2.1 percent while imports from the single currency bloc rose 0.7 percent. That may largely be a sign of the weak demand in Spain, Italy and elsewhere, but if continued it would go some way to addressing the bloc's long-term problem with Germans selling more goods abroad than they spend at home. "Germany made a contribution to the rebalancing of the Eurozone in 2012, but offset the inevitable loss with success elsewhere," said Christian Schulz at Berenberg bank. Sky Brightening? The US, Germany, China, Japan, UK, Spain, Italy, and in fact every country wants to be a net exporter to create jobs. Mathematically it's impossible. There is no significant reblancing, only Illusions of Stabilization. Moreover, in the non-news of the day on Thursday ECB president Mario Draghi went out of his way to sink the euro with his statement "Risks to Downside". In that article I took a look at the Nascent Recovery in Spain, pointing out Two Things Spain Needs (and Won't Get). Rebalancing the Wrong Way It's clear that Draghi wants to sink the euro to help exports. But what needs to happen is for Spanish, French, and Italian exports to soar. Instead exports from Germany have soared (primarily based on renewed unsustainable growth in China). A sinking euro may help net European exports a bit, but it will not help Spain and Italy in relation to Germany. As long as all countries remain committed to the eurozone, European rebalancing improvement must come from rising unemployment and/or still lower wages in the rest of Europe relative to Germany. With Spanish unemployment over 26% and youth unemployment over 50%, how much more "rebalancing" of this nature can Spain take? 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.

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