Mish's Global Economic Trend Analysis

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• Housing Insanity Japanese Style: Record Number of Vacant Homes in Japan, Abe Wants to Stimulate Home Building
• Household Demographics 2003 vs. 2013: Spotlight on Age of Head of Household
• Russia Ponders Russian Airspace No-Fly Zone for EU Commercial and Passenger Jets
• China Services PMI Lowest Since 2005 as Housing Slumps; Manufacturing Expands

Housing Insanity Japanese Style: Record Number of Vacant Homes in Japan, Abe Wants to Stimulate Home Building Posted: 05 Aug 2014 10:28 PM PDT Thanks to a rapidly aging population, record numbers of Japanese homes sit vacant according to the July 30, 2014 Asian Review report Vacant Homes in Japan Reach Record as Outlying Population Shrinks. A record 13.5% of all homes in Japan were unoccupied as of last October, reflecting an exodus from outlying regions of the country and a general aversion to used homes. Preliminary figures for a study on homes and land, conducted once every five years, were released on Tuesday by the Internal Affairs Ministry. The vacancy rate rose 0.4 percentage point from the previous survey. The number of empty homes grew by 630,000 to a record 8.2 million, and there were a record 60.63 million homes in all, an increase of 3.05 million. Yamanashi Prefecture had the highest vacancy rate at 22%, largely due to a population outflow to Tokyo and other large cities. Nagano and Wakayama prefectures followed at 19.8% and 18.1%, with the four prefectures in Shikoku all at the 17% level. The concept of renovating homes to make them last longer is not firmly established in Japan, according to a ministry official. Real estate companies do not actively handle used homes because they are considered to have lower value than new homes. An outdated tax system meant to promote construction of residences on farmland during Japan's high-growth era decades ago has been another obstacle. Landowners that tear down homes would see their fixed-asset taxes for that land roughly quadruple because a tax break would no longer apply. This has prompted many landowners to leave unoccupied homes as is. Holes in Abenomics' Push for Housing As is typical with Japanese economic absurdities, Abenomics is in the spotlight. Flashback September 2013: Vacant Japan Homes Show Holes in Abenomics' Push for Housing Broken wood pieces dangle and sway like autumn leaves from the window frames of vacant homes in Inariyato, part of Yokosuka in the greater-Tokyo urban area, where taped-over mailbox slots tell a story of abandonment. More than 50 houses and apartments, almost 20 percent of the quaint residential neighborhood of narrow streets and stairway paths leading into green hills, are empty here, an hour's train ride south of Tokyo and 1,000 yards (900 meters) from the Yokosuka naval base, home of the U.S. Seventh Fleet. That hasn't stopped developers from building at least eight new apartment blocks in the same city in the past two years. Prime Minister Shinzo Abe's plan to boost the economy in part by reviving the housing market and encouraging new home construction is in conflict with Japan's demographics. Rural, suburban and less-desirable urban areas are becoming littered with empty homes as younger people moving to cities combines with one of the world's fastest-aging populations. At the same time, tax breaks on mortgages favoring new-home purchases, recently extended to 2017 and increased to 50 million yen from 30 million yen, are spurring demand for new properties. "Even when the number of vacant homes is on the rise, more and more new homes are being built," said Hidetaka Yoneyama, a senior researcher at Fujitsu Research Institute in Tokyo who has written at least five books on Japan's housing market. "That's absurd." Absurdities "That's Absurd" is a huge understatement, and not just for Japanese housing, but for Abenomics in general. 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.

Household Demographics 2003 vs. 2013: Spotlight on Age of Head of Household Posted: 05 Aug 2014 02:22 PM PDT Here's a look at some interesting demographics, comparing 2003 vs. 2013. Number of Households by Age of Head of Household 2013 vs. 2003 The next chart shows the change in number (in thousands), in the age of the head of household. Change in Households by Age Group (2013 Minus 2003) click on any chart for sharper view I created the above charts from spreadsheet data reader Tim Wallace sent. The data is from the Census Department 213-page PDF 2013 Annual Social and Economic (ASEC) Supplement. Two Key Points 3,516,000 more heads of households in age group 60-64 than in 2003 3,989,000 more heads of households in age group 65-74 than in 2003 And those are just heads-of-households, not individuals. The individual total would be much higher. Aging boomers accounts for much but not all of the decline in labor force and participation rate. The recession made matters worse. Finally, some of the semi-retired, only want to work part-time, explaining part of the surge in part-time employees. We will have more charts of education levels, household wealth, and other items shortly. 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.

Russia Ponders Russian Airspace No-Fly Zone for EU Commercial and Passenger Jets Posted: 05 Aug 2014 11:01 AM PDT The sanctions retaliation game took another big leap forward today with the EU in the spotlight: Moscow May Force European Airlines to Fly Around Russia. Russian Prime Minister Dmitry Medvedev threatened on Tuesday to retaliate for the grounding of a subsidiary of national airline Aeroflot because of EU sanctions, with one newspaper reporting that European flights to Asia over Siberia could be banned. Low-cost carrier Dobrolyot, operated by Aeroflot, suspended all flights last week after its airline leasing agreement was cancelled under European Union sanctions because it flies to Crimea, a region Russia annexed from Ukraine in March. The business daily Vedomosti reported that Russia may restrict or ban European airlines from flying over Siberia on Asian routes, a move that would impose costs on European carriers by making flights take longer and require more fuel. Vedomosti quoted unnamed sources as saying the foreign and transport ministries were discussing the action, which would put European carriers at a disadvantage to Asian rivals but would also cost Russia money it collects in overflight fees. At the height of the Cold War, most Western airlines were barred from flying through Russian airspace to Asian cities, and instead had to operate via the Gulf or the U.S. airport of Anchorage, Alaska on the polar route. However, European carriers now fly over Siberia on their rapidly growing routes to countries such as China, Japan and South Korea, paying the fees which have been subject to a long dispute between Brussels and Moscow. The daily quoted one source as saying a ban could cost carriers including Lufthansa, British Airways and Air France 1 billion euros ($1.3 billion) over three months. However, state-controlled Aeroflot would also be hurt if it lost the fees. Aeroflot was the worst performing stock in Moscow on Tuesday, closing down 5.9 pct compared with a 1.4 percent drop on the broad index. Lufthansa said it operates about 180 flights a week through Siberian airspace but declined further comment, as did British Airways. Estimated Losses Greek tourism expects the move to cost $400 million.  Travel from Ukraine down 50%  Lufthansa, British Airways and Air France expect 1 billion euros ($1.3 billion) over three months  Russian controlled Aeroflot would lose $300 million in flight fees it collects for flights over Russia Lose-Lose Game The nature of this lose-lose game is to inflict more damage on the other side than it costs your side. Take that! No, you take that! Sanctions and retaliations are much like children pushing and shoving, and calling each other names on a school play lot. Last week Russia struck at Poland, banning fruit and vegetable sales from that country. Russians will pay more for fruit, but Poland is the largest apple producer in the world, and 50% of that crop goes to Russia. See How About Them Apples? for further discussion. One would hope that bureaucrats would see the folly of sanctions, but EU bureaucrats egged on by president Obama are likely to do even stupider stuff than we have seen so far. Russia may very well shut off natural gas to Europe this winter if sanction madness escalates out of control. Simple Proposal Isn't it time to have serious cease-fire discussions with all sides at the table instead of war, killing, and sanctions? 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.

China Services PMI Lowest Since 2005 as Housing Slumps; Manufacturing Expands Posted: 05 Aug 2014 01:00 AM PDT An interesting divergence is underway in China with manufacturing in expansion while the service sector is at the lowest reading since November 2005 according to HSBC China Composite PMI HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a third consecutive monthly expansion of Chinese business activity in July. That said, the rate of increase eased from June‟s 15-month high and was moderate overall. This was signalled by the HSBC Composite Output Index posting at 51.6 in July, down from 52.4 in the previous month. The latest expansion of composite output was led by manufacturers, as business activity at service providers was unchanged from the previous month. Furthermore, it was the strongest expansion of manufacturing output in 16 months. This contrasted with a stagnation of services activity, which was signalled by the HSBC China Services Business Activity Index posting at the no-change mark of 50.0 in July. This was down from 53.1 in June and the lowest index reading in the near nine-year series history. Comment Commenting on the China Services and Composite PMI™ data, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "The headline HSBC China Services PMI came in at 50.0 in July, the lowest reading since the series began in November 2005. Both the new business and outstanding business indices declined from their levels in June. The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business. Meanwhile, the employment and business sentiment indices remain stable. In the coming months, we think the service sector may get some support from the recovery in investment. But today's data points to the need of continued policy support to offset the drag from the property correction and consolidate the economic recovery." Clamoring for "Policy Support" It's amusing  to hear the continuous parade of chants for "policy support" that have fueled asset bubbles worldwide. In China, the primary asset bubble is real estate, in the US, the primary asset bubbles are equities and junk bonds. When the bubbles burst, people will want central banks to "do something". Unfortunately, they already did, multiple times, which is precisely why the world has witnessed serial asset boom-bust bubbles of increasing amplitude in the last decade 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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