NEW$ & VIEW$ (23 JANUARY 2013)

Sun  Housing Recovery Gained Pace in 2012   U.S. existing-home sales last year rose to their highest annual level in five years and registered their largest annual jump since 2004, the latest sign that more housing markets hit bottom last year.

The National Association of Realtors reported Tuesday that an estimated 4.65 million previously owned homes were sold in 2012, up 9.2% from 2011. Total home sales were higher than in any year since 2007, when 5.04 million homes were sold; at the time, that was the lowest annual tally since 1998.

Sales in December edged down by around 1% from November but still stood nearly 13% above the year-earlier level. Sales have now increased from their year-ago level for 18 consecutive months. (…)

Surprised smile  The number of homes for sale fell to 1.82 million units at the end of December— down by 8.5% from the previous month and 21.6% from one year ago—to the lowest level since January 2001.

While inventory typically declines during the winter, the dearth of supply is frustrating home buyers and real-estate agents who frequently say that there is little to buy. “If we had twice as much inventory, we’d have twice as many sales,” said Syd Leibovitch, president of Rodeo Realty, a Los Angeles-based brokerage. (…)

Even the shadow inventory of existing homes, which could satisfy some demand, is dwindling. CoreLogic estimates an October supply of 2.3 million homes that could potentially go on the market, down 12.3% from year-ago levels.

Raymond James on housing inventory:

After declining by 121,000 units last month, existing home listings fell by another 170,000 units in December. We would note that the sequential decrease (-8.5%) in inventory is in-line historical trends, as listed inventory (since 1990) has averaged an 8.8% seasonal decrease between November and December. Overall, though, the 1.82 million homes listed for sale is the lowest level since December 1999, driven in part by: 1) a lack of traditional listings (attributed to the negative equity situation and a lack of seller confidence); 2) a growing emphasis on short sales; and 3) a surge of investor capital soaking up lower-priced units with all-cash bids for future rental housing portfolios.

Move-up and luxury segments continue to be the sweet-spot for housing demand. We believe the balance of the incoming data (including November new home sales next week) will continue to suggest that incremental new-home buyers are still skewing toward more expensive “move-up” units relative to the traditional entry-level homes. Notably, according to NAR, first-time buyers accounted for just 30% of purchases in December, well below historic norm of 40%. We view this as further evidence that the move-up and luxury segments remain the sweet-spot for housing demand as stringent mortgage underwriting standards continue to limit potential entry-level demand.

Investors accounted for 21% of transactions in December, up from 19% in November and unchanged from a year ago.

Pointing up  CoreLogic estimates that 1.3 million properties regained positive equity during the first half of 2012 as prices rose. Another 2 million would if prices appreciated another 5%, out of a total 11 million underwater mortgages. Now, that’s a wealth effect!

Euro could be next to join currency war

(…) Europe’s single currency has risen almost 7 per cent on a trade-weighted basis since late July. It is up about 25 per cent against the yen and 10 per cent against the dollar. (…)

A stronger euro threatens to strangle one remaining source of growth: net exports have contributed positively to eurozone gross domestic product in each of the past 10 quarters, according to Barclays.

Even Germany’s resilient exporters have reason to worry – the euro/yen rate matters for the country’s powerful car manufacturers. Jean-Claude Juncker, Luxembourg’s prime minister, who has just relinquished his chairmanship of eurozone finance ministers meetings, warned last week that the euro’s level was “dangerously high”. (…)

Japan hits back at currency critics
Economy minister hits out at Germany

image(…) In an interview with the Financial Times on Wednesday, Mr Amari rejected Mr Weidmann’s characterisation of the Japanese moves as “alarming infringements” of central bank independence that could lead to “politicisation of the exchange rate”.

“Germany is the country whose exports have benefited most from the euro area’s fixed exchange rate system. He’s not in a position to criticise,” Mr Amari said. (…)

Mr Amari rejected the notion that Japan was trying specifically to weaken the yen, saying its efforts were aimed at reviving the domestic economy and reversing price declines.

“The market is in the process of correcting on its own from an excessively strong yen,” he said. “We aren’t guiding it, we aren’t doing anything.” (…)

Sure! A falling yen is great for exports and bad (read good) for inflation.

China added to the criticism on Wednesday. In a harsh editorial, the official Xinhua news agency said the “decision to crank up money printing presses is dangerous” and could lead to “currency wars” that could knock the global economy off track. (…)

Pound pressure
Eurozone stability leaves sterling exposed

Sterling is the worst-performing developed nation currency in the year to date. It has fallen 2.3 per cent against the dollar, trading at its weakest level since August at $1.58. And it is down 3.5 per cent against the euro, at a 10-month low. (…)

Still, any further weakening in the pound would be welcomed by UK officials. Ian McCafferty, member of the BoE’s MPC, was reported last week as questioning whether sterling was at a competitive enough rate for the UK economy to recover.

BOE Cites Pound as Rebalancing Obstacle in 8-1 Stimulus Vote  Bank of England policy makers said the pound’s level may prove an obstacle to rebalancing the economy and David Miles cited the currency as he repeated his call for an expansion of stimulus.

“Substantial headwinds to recovery remained, including the drag to activity from fiscal consolidation, a further squeeze in household real incomes, and the deterioration in U.K. competitiveness over the past couple of years,” the minutes said. “The sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy.”

U.K. Jobless Claims Unexpectedly Fall to 1 1/2-Year Low: Economy  U.K. jobless claims unexpectedly fell in December and a quarterly measure of unemployment also dropped, underlining the resilience of the labor market in the face of a weak economic recovery.

Unemployment claims declined by 12,100 from November to 1.56 million, the lowest since June 2011, the Office for National Statistics said today in London. In the quarter through November, unemployment measured by International Labour Organisation methods fell to 7.7 percent, the lowest since the three months through April 2011. The report also showed that wage growth slowed. (…)

Employment rose 90,000 during the quarter through November, taking the total to 29.7 million, the ONS said. That’s the highest since records began in 1971. The employment rate of 71.4 percent is at the highest since February-April 2009. The ILO unemployment level fell by 37,000 to 2.49 million, a 10th consecutive decline. The unemployment rate has come down from a peak of 8.4 percent in December 2011.

The labor-market report showed that consumers remain under pressure from subdued wage increases. Weekly pay growth slowed to an annual 1.5 percent in the three months through November, while pay excluding bonuses rose 1.4 percent, the least since June 2010. That compares with inflation of 2.7 percent.

Lightning  Spanish economic woes deepen
GDP declines 0.6 per cent in fourth quarter

(…) Gross domestic product in the last three months of 2012 declined by 0.6 per cent compared with the third quarter, according to preliminary figures released by the Bank of Spain on Wednesday. The sharp drop means the overall fall in GDP for the year is predicted to reach 1.3 per cent, the bank said.

Thai Exports Climb for a Fourth Month as Global Demand Improves

Overseas sales rose 13.45 percent last month from a year earlier to $18.1 billion after climbing a previously reported 26.86 percent in November, the Ministry of Commerce said in a statement today. (…)

The Bank of Thailand Governor Prasarn Trairatvorakul said yesterday risks to growth have declined amid a firmer global recovery and that shipments show signs of a broad-based recovery. Still, Finance Minister Kittiratt Na-Ranong said last week the exchange rate is “not at a good level” and that exporters will face difficulties should the baht strengthen further.

Taiwan’s December Industrial Output Climbs Less Than Estimated

Production climbed 2.39 percent from a year earlier, compared with a revised 5.87 percent gain in November, the Ministry of Economic Affairs said in Taipei today. (…)

Manufacturing in Taiwan gained 2.84 percent in December from a year earlier, while construction fell 20.42 percent, the report showed today.


While 2012Q4 data isn’t out yet, it’s safe to say that Canada’s current account deficit widened further in 2012, likely to around 4% of GDP, the worst in over two decades. A weak global economy is partly to blame for the massive external deficit but so is an overvalued Canadian dollar. The
loonie is now almost 10 cents stronger than what it was back in 2008, despite similar terms of trade (i.e. export prices divided by import prices).

So why has the Canadian dollar diverged from the terms of trade? For one, as today’s Hot Charts show, strong foreign demand for Canadian
securities have brought added support to the loonie — net purchases have averaged about C$8.5 bn/month over the last four years, more than four times the average of the preceding 20 years. Foreign investors, weary of currency devaluation strategies by central banks and shaky fiscal situations in several OECD economies, have understandably found some comfort in Canada.

The loonie’s divergence from the terms of trade can also be explained by the fact that markets continue to link the loonie to movements in global oil prices, and not to prices received by Canadian oil exporters which, due to pipeline capacity constraints, tend to be much lower than say WTI. The C$’s movements have indeed been more correlated with WTI than with prices received by Canadian exporters e.g. Edmonton Par. Clearly, by tying the loonie to the “wrong” oil price, markets are perpetuating the Canadian dollar’s overvaluation. (NBF Financial)



This chart from Macrobeat shows the diverging trends between the U.S. leading indicators and that of the rest of the world.



Google / IBM: breathe easy
Tech groups’ earnings reveal no nasty surprises, leaving investors reassured

Technology’s fourth-quarter earnings season has passed its two most important tests. Google and IBM, which both reported on Tuesday evening, are the most important players in two huge swaths of the digital world and indeed the world economy – internet advertising and corporate information technology. (…)

Google – far more sensitive to economic softness than Big Blue – presented numbers that were a model of steadiness. Adjusting for currency and Motorola, revenues grew by 24 per cent, exactly in line with the previous two quarters. Growth in “clicks” on Google ads slowed, but ad price declines slowed too, leaving the spread between the two unchanged. Cost ratios, always a cause of heartburn for Google investors, were consistent with the previous quarter. “Steady as she goes” was what investors wanted to hear: the shares rose 5 per cent in late trading.

Reproducing last quarter’s effort would not have been enough for IBM. In that quarter, hardware revenues continued a long slump, gross profit growth in tech services and software slowed to nearly nothing, earnings per share growth slowed to 10 per cent (the bottom of IBM’s target range), and the company uncharacteristically declined to raise its earnings per share target. But the fourth-quarter results managed to reassure, to a greater or lesser extent, on all of these fronts, with hardware sales near the previous-year level, firming margins, and better EPS growth. Not a great quarter, but a relieving one. Shares rose 4 per cent. The market is free to keep rising, for at least one more day.



Auto  Iran’s car industry output falls sharply
Decline of about 50% in volume ‘unprecedented’

Iran’s output of cars – the country’s biggest non-oil industry – has fallen by about 50 per cent, as the tightening international sanctions over the country’s nuclear programme aggravate economic woes.

Production dropped to 677,000 cars in the first nine months of the Persian year that started in March, from 1.2m during the same period last year. (…)

Domestic media have reported that more than 110 auto part makers shut down and thousands of workers lost their jobs over the past year.

Moreover, Iran’s two largest state-run carmakers , Iran Khodro and Saipa, are reportedly now suffering from overstaffing – or “hidden unemployment”, as the domestic media call it – due to the decline in output. (…)

In a move to support carmakers, the government has allowed them to raise the prices of cars by about 25 per cent since last October. The official price of the cheapest models of Kia Pride – the South Korean car which accounts for up to 40 per cent of vehicles on the country’s roads – has officially increased from 75m rials ($3,053) to 119m rials ($4,845). The market rate is about 20 per cent higher still.

But carmakers argue the price rises do not cover the losses they have sustained, as their costs have more than doubled over the past year because of the plunging rial. (…)

For months, the government has promised to pay 20tn rials ($814m) to the two leading carmakers so they can pay their suppliers.

But the banks that would underpin any bailout are themselves grappling to deal with international sanctions, with overdue loans now exceeding deposits.

Iraj Nadimi, a member of the parliament’s economics committee, said this month that carmakers should not “tie their survival to banking loans” because “banks are empty”. (…)

Meanwhile, some of the Iranian producers’ European and South Korean partners, including France’s PSA Peugeot Citroën, have left the market due to sanctions.

France’s Peugeot Renault appears to be the lone European carmaker still operating in Iran.

The gap created by this exodus is opening up an opportunity for Chinese car and auto part makers. Sales of some makes of China’s Chery Automobile Co, such as the MVM and X33, have more than doubled since last April, although the company’s share of the Iranian car market is still less than 6 per cent.

“This is another example that Chinese are the main beneficiaries of the sanctions, while Iranians and Europeans are losing,” said one economic analyst.

Firms Keep Stockpiles of ‘Foreign’ Cash in the U.S.

Much of the estimated $1.7 trillion in cash American companies say they have indefinitely invested overseas is actually sitting at home.

imageSome companies, including Internet giant Google Inc., software maker Microsoft Corp. and data-storage specialist EMC Corp. keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiar with the companies’ cash positions.

In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn’t flow back to the U.S. parent company, the U.S. doesn’t tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if it were plowed into potentially risky foreign investments.

In accounting terms, the location of the funds may be just a technicality. But for people on both sides of the contentious debate over corporate-tax reform, the situation highlights what they see as the absurdity of rules that encourage companies to engage in semantic games, legal gymnastics and inefficient corporate-financing methods to shield profits from U.S. taxes. (…)

The U.S. is the only major economy whose tax authorities claim a share of a domestic company’s profits no matter where those profits are earned. But auditors don’t require the companies to account for possible taxes on foreign earnings as long as they declare that the funds are permanently invested overseas. The upshot: American companies have a strong incentive to find ways of earning most of their profit overseas and keeping it in the hands of foreign units. (…)


NEW$ & VIEW$ (3 JANUARY 2013)

Gift with a bow  U.S. CHRISTMAS SALES OK

Based on the weekly chain store sales data, Christmas sales were good, being up 2.9% Y/Y for the 4 weeks ended Dec. 29. Nothing to write home about but good enough to avoid a huge inventory overhang in the new year and keep margins decent.


With the fiscal drag limited to about $250 billion or 1.5% of GDP, the worst has been avoided, or postponed rather. While consumer spending will likely suffer in Q1 and Q2, the economic momentum of recent months could help mitigate the hit to the overall economy. The recent spike in WTI is worrisome however:



Charting Tax Increases in Fiscal Cliff Deal



Smile  Planned layoffs fall in December: Challenger

Planned layoffs at U.S. firms fell in December for the first time in four months, while the overall job-cut total in 2012 was the lowest since 1997, a report showed on Thursday.

Employers announced 32,556 job cuts last month, the second lowest monthly total of 2012 and down 43 percent from 57,081 in November, according to the report from consultants Challenger, Gray & Christmas, Inc. In 2012, the only month with a lower job-cuts tally was August, with 32,239.

December’s job cuts were also down 22 percent from the 41,785 seen a year ago.

Consumers paying down debt despite obstacles: ABA

Consumers continued to pay down debt in the third quarter of 2012, but slow job growth and the expiration of a tax cut could mean it will become more difficult to repay loans, the American Bankers Association said on Thursday.

Delinquencies on bank card payments fell to an 18-year low during the quarter, and a composite ratio covering late payments in eight loan categories also fell, the group said. (…)

The composite ratio’s delinquency rate fell to 2.16 percent of all accounts in the third quarter from 2.24 percent in the second quarter, the ABA said.

Bank card delinquencies, which are not part of the composite, fell to 2.75 percent during the quarter, the lowest level since 1994, the group said.

U.S. Construction Spending Is Depressed by Hurricane Sandy

Construction activity suffered in the wake of Hurricane Sandy. The value of construction put-in-place fell 0.3% during November after a downwardly revised 0.7% October increase.  A lower level of private nonresidential construction led the drop with a 0.7% (+8.2% y/y) fall. Offsetting these declines was a 0.4% rise (19.0% y/y) in residential spending. That was led by a 1.3% jump (29.4% y/y) in new single-family home building. Multi-family building rose 0.5% and nearly doubled y/y, but spending on improvements fell 0.7% (+5.8% y/y).  

In the public sector, building activity fell 0.4% m/m (-2.6% y/y). Office construction declined 5.7% and was off by nearly one quarter y/y. Public safety spending fell 2.6% (-6.2% y/y). To the upside, spending on highways & streets, which is 29% of total public construction spending, rose 0.5% (-6.0% y/y). Transportation spending, which is 10% of total public, gained 0.4% (25.6% y/y).

Pointing up  It is worth nothing that private construction has been rising at an 8.7% annualized rate in the 3 months to November (+13.3% Y/Y). Meanwhile, public spending has been declining at a 2.4% annualized rate (-2.6% Y/Y).

Manhattan Apartment Listings Plunge in Sign Sale Prices to Climb  Manhattan’s inventory of homes for sale plunged to the lowest in at least 12 years, a sign that prices may rise in 2013 if buyer demand intensifies.

There were 4,749 apartments on the market at the end of December, a 34 percent decline from a year earlier and the lowest number since Miller Samuel Inc. began tracking the data in 2000, the appraiser said today in a report with Douglas Elliman Real Estate. Fourth-quarter sales surged 29 percent to 2,598, the highest for the period since at least 1987, as buyers rushed to finish deals before expected tax increases this year.

“Inventory has fallen precipitously to the point where there’s only one way for pricing to go, and that is to see an upward trend in 2013,” Jonathan Miller, president of New York- based Miller Samuel, said in an interview. (…)

StreetEasy reported a 14 percent decline in inventory for the fourth quarter compared with a year earlier, and a 10 percent increase in the median price of all sales to $819,000.

Money  BofA raises lending after cuts
Chief seeks ‘more aggressive’ loans to companies


Bank of America is ramping up mortgage and corporate lending after two years of focusing on capital levels and cost-cutting under chief executive Brian Moynihan.

Mr Moynihan said the company should overtake JPMorgan Chase in direct-to-consumer mortgage lending in the next six months and he had directed bankers to be “more aggressive” in lending to companies.

UK credit conditions ease ‘significantly’
BoE survey finds access to mortgages is improving

Lenders polled by the BoE for its quarterly Credit Conditions Survey said the availability of credit secured on property had risen “significantly” in the three months to mid-December, in part because of the central bank’s Funding for Lending scheme – the flagship initiative by the government to spur lending to UK households. Mortgages also became cheaper, according to the lenders surveyed.

German Jobless Number Rises

The number of people seeking work increased by 3,000 in the final month of last year, the Agency for Labor reported Thursday, a smaller rise than November’s 5,000 claims.

Spain Registered Unemployment Falls for 1st Month in Five  Spain’s registered unemployment fell for the first time in five months in December as service industries boosted hiring over the holiday season.

The number of people registering for jobless benefits fell by 59,094 from November to 4.8 million, the Labor Ministry in Madrid said today. That’s the best result on record for December. (…)

The number of service-sector workers registered as jobless fell by 49,438. At the same time, 4,325 more construction workers and 2,794 more manufacturing workers were unemployed.

High five  Markit’s Spanish PMI suggests more pain for Spain:

imageThe health of the Spanish manufacturing sector deteriorated again in December, continuing a trend seen in each month since May 2011. Production decreased at an accelerated pace, while the rate of job cuts also intensified.

New orders decreased for the twentieth successive month in December. Although the rate of contraction slowed to the weakest since June 2011, it was still marked.

In contrast to total new business, new export orders increased in December. Respondents indicated that they had concentrated marketing efforts on external markets.

Smile  Asian Economies Show Strength

Surveys released Wednesday of purchasing managers in South Korea, Taiwan and India, following similar releases from China earlier in the week, suggest manufacturing in Asia is gaining steam after a subdued 2012. (…)

HSBC’s PMI for South Korea was at a seasonally adjusted 50.1 in December—its highest point since May—up from 48.2 in November and 47.4 in October.

Taiwan’s HSBC PMI reading for December was 50.6, moving into the expansionary zone from November’s 47.4. The India HSBC PMI reading rose to 54.7 in December from 53.7 in November.


HSBC’s Asian electronics lead indicator for December posted its highest reading since last March, suggesting that the electronics manufacturing cycle is on the mend. That is a significant development for countries such as South Korea and Taiwan, and was reflected in HSBC’s December Purchasing Managers’ Index for those countries, with the surveys indicating expansion for the first time since May.

Non-manufacturing sector continues to improve The Purchasing Managers Index of China’s non-manufacturing sector was 56.1 percent in December, up 0.5 percentage points from November.

Hong Kong Luxury Sales Rebound on Confidence in China’s Recovery

Sales of goods including jewelry and watches jumped 13.7 percent in November from a year earlier after a 2.9 percent fall in October.

Overall, retail sales rose 9.5 percent from a year earlier, the biggest gain in five months and more than any of seven analysts forecast in a Bloomberg News survey with a median of 4.2 percent.

Russian Oil Output Keeps Rising

Oil production rose just over 1% to 10.375 million barrels per day, from the previous high of 10.27 million barrels reached last year. news agency Interfax reported, citing the ministry’s statistical arm. In tons, Russia’s crude production rose to about 518 million, from 511.4 million tons in 2011.

Mohamed El-Erian:

(…) there is an important serious silver lining to what, otherwise, should be regarded as one of the most uninspiring and wasteful Congressional dramas of all times. And this has to do with the social dimension.

For many years now, the rich have done very well in America while the middle class has stagnated and a growing number of poor Americans have fallen through the country’s stretched safety nets. Even in the aftermath of a global financial crisis triggered by irresponsible risk taking and excessive concessions to powerful lobbies, the bulk of state support has gone to the better off segments of society.

Pointing up  The fiscal cliff compromise is the first meaningful attempt to redress this multi-year phenomenon.

By increasing tax rates on better off segments and by maintaining redistribution mechanisms, an effort is being made to stop years of steady deterioration in income and wealth inequalities. Yet the benefits will only prove durable and meaningful if the nation’s overall economic context is addressed in a more comprehensive manner that improves economic growth and creates jobs. For that, we need a much more visionary, responsible and functional Congress.


NEW$ & VIEW$ (24 DECEMBER 2012)

Gift with a bow  MERRY CHRISTMAS  Gift with a bow

Obama Seeks Bare-Bones Budget to Avoid Cliff

Mr. Obama told reporters he was seeking quick action on a compromise bill that would extend current tax rates for middle income taxpayers and extend an expiring program of unemployment benefits.

But he acknowledged that time likely wouldn’t allow agreement before year’s end on a broader deal to avoid the fiscal cliff that Mr. Obama and House Speaker John Boehner had been working on until those talks collapsed earlier this week. (…)

The move apparently postpones until next year the broad effort to set up a process to overhaul the tax code and to rein in spending for Medicare and other entitlement programs, in favor of focusing only on the most immediate fiscal deadlines at year’s end. That narrower focus marks a setback for the president’s ambitions, and it remains unclear if it would garner Republican support.

Greg Valliere, chief political strategist for the Potomac Research Group, wrote to his clients (via Barron’s):

“This is the most incompetent, gridlocked Congress in our lifetime—and to complicate matters we have a president who doesn’t negotiate well and is not personally popular in either party. This could be a very long slog.”

The WSJ’s Stephen Moore tells us what went wrong with Boehner’s Plan B last week (my emphasis):

What went wrong? Two things. First, enough conservatives decided that to vote for a plan that would have prevented taxes from rising for 99 percent of Americans would be a tax increase on the other one percent. Groups like Heritage Action and others said Plan B was a vote for a tax hike and they urged a “no” vote. This was a debatable proposition, but it hurt Mr. Boehner with conservatives.

There was wide disagreement among strategists on whether Plan B was technically a tax hike. Conservatives from Grover Norquist to Larry Kudlow to Arthur Laffer and others had endorsed the Boehner plan. Rep. Tom McClintock of California, a staunch conservative, argued that “if 50 people are drowning and you save 49 of them, you aren’t responsible for the one who does drown.” But there was a critical mass of Republicans who said they would never vote for a tax increase, period. Rep. Jim Jordan of Ohio, the head of the Republican Study Committee, came out against the plan, and that carried weight with undecideds.

The second problem for Mr. Boehner is that he lost the trust of many in the GOP caucus with his purge of conservatives from key committees several weeks ago.

Boehner made concessions, acceptable to many hardliners, that neither his party nor Obama cared about. Everybody is now trashing on the Speaker but nobody is offering any way out of the mess. In fact, everybody is now painted into his own corner.

Ronald Reagan could not have been more right:

Government is not the solution to our problem. Government is the

Meanwhile, in the real world…

Cliff Would Strike Low Incomes Hard

(…) in terms of percentage of tax increases, low- and moderate-income taxpayers will face the biggest burden—an often overlooked part of the budget debate that’s now getting attention as the year-end deadline nears.

Households earning $10,000 to $20,000 would see a large increase in their overall federal tax burdens, from an average of $68 to $605. The blow would be especially harsh for married couples and households with children. (…)

A household that makes between $10,000 and $20,000 in income and has a child would get a $2,761 payment from the Internal Revenue Service under current rules, thanks to various tax breaks and credits. After the cliff, that would be cut by $1,324, or about half.

Married couples earning $20,000 to $30,000 today would get an average $15 payment from the IRS under current rules. In January, they would owe an average $1,408 to the IRS, because several of those breaks would be narrowed or eliminated. (…)

But, don’t you worry:

With little more than a week to find a solution, Democrats and Republicans are focusing on the real-world impacts of the fiscal cliff and seeking to shift blame for it. Confused smile

Crying face  Number of the Week: Without Unemployment Extension, Millions to Lose Benefits The expiration of nearly all federal emergency unemployment programs, which now provide benefits to 2.1 million job seekers, appears imminent.

Unlike past deadlines, this one is a hard stop — benefits won’t roll off gradually but rather will expire all at once overnight. That has economic implications that go beyond the impact on the recipients themselves. The average EUC beneficiary receives about $284 a week, making the program the equivalent of a $2.4 billion monthly stimulus.Credit Suisse estimates that allowing the program to expire would be enough to shave two tenths of a percentage point off GDP growth next year.


Aside from the dismal political scene, last week saw many positive economic news.

While GDP was higher sharply higher in Q3 – the boost came from areas that suggest the real economy remains weak.  This was further shown by only a modest increase in real final sales.    

He shows how government spending contributed positively in Q3…


…something we all know will not last (chart from Gluskin Sheff).

Here’s an Economic Policy Institute chart revealing the negative impact governments have had on employment:

If it were not of governments (and politicians), we’d be in good shape:

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.10 in November from –0.64 in October. Two of the four broad categories of indicators that make up the index increased from October, but only the production and income category made a positive contribution to the index in November. The index’s three-month moving average, CFNAI-MA3, increased from –0.59 in October to –0.20 in November—its ninth consecutive reading below zero.

Production-related indicators contributed +0.41 to the CFNAI in November, up from –0.54 in October. This increase largely reflects the recovery of industrial production from the effects of Hurricane Sandy.

Doug Short writes:

The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recession that during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level.

Click to View

Personal income grew 0.6% last month following an unrevised 0.1% October uptick. The gain was the strongest since February and lifted the y/y increase to an improved 4.1%. A strong 0.6% rise (3.7% y/y) in wage & salary income provided lift to income last month. Disposable income rose a similar 0.6% (4.0% y/y) and adjusted for the decline in prices, take home pay rose 0.8% (2.5% y/y).

Improved earnings were all it took to power the dollar value of personal consumption expenditures. An expected 0.4% (3.5% y/y) rise followed a revised 0.1% October slip, initially reported as -0.2%. Adjusted for lower prices, spending jumped 0.6% (2.1% y/y), the largest monthly gain since August 2009. Strength in new vehicles purchases, up 5.6% (10.7% y/y), as well as a 0.9% increase (3.9% y/y) in furniture & durable household equipment powered the overall rise.

As growth in income outpaced the rise in spending, the personal savings rate rose to 3.6% from 3.4% in October. For the last year, the rate moved roughly sideways.

Doug Short adds:

Adjusted for inflation, per-capita disposable incomes have been struggling for the past two years and are currently at about the level first achieved in November of 2007. Most of 2011 saw a slow decline in incomes, a trend that began reversing in November of last year. Modest income growth continued for eight consecutive months. However, the trend reversed in August, and incomes slumped for three months. But the November data has shown a surprisingly strong reversal to the upside.

Click to View

But there’s more than income, there’s deleveraging:

U.S. households spent 10.6% of their after-tax income on debt payments in the third quarter of the year, the lowest level since 1983, according to recently released Federal Reserve data. Add in other required payments that aren’t classified as debt—such as rent and auto leases—and the figure rises to 15.7%, also near a 30-year low.


The release of the “Philly Fed” survey came in much stronger than expectations rising from a -10.7 in November to 8.1 in December.  Most all of the internals for both current and future activity were higher as the region came back online post-hurricane Sandy as was expected.

The chart above shows the survey as reported and smoothed with a 6-month average.  While the report was stronger for the current month the trend of the overall data has been decidedly weaker.  We have similar surges in the data before, as seen in the recent report, which fade in the months ahead.  

Pointing up  Last, but not least: Durable goods orders jump

Durable goods orders excluding transportation were up 1.6% (0.4% y/y), a third consecutive steady increase that followed 1.9% in October and 1.7% in September. Several industries had good gains in November. Primary metals were up 2.4% for a second consecutive month, and fabricated metal products firmed to a 1.9% increase from 0.7% in October. Orders for nonelectrical machinery rose 3.3% following October’s 3.4% rise, and electrical equipment and appliances followed their 5.6% October rise with another 1.8% in November. Other sectors were less vigorous, as computer and electronic products barely moved, just +0.1% after 2.2% in October, and all other durable goods industries reported a second successive erosion of 0.1%. Nondefense capital goods orders fell 2.8% in November, but this represented the combination of the fall in nondefense aircraft and a nice rise of 2.7% in all other nondefense capital goods orders.

The important number is on the fifth line of this Haver Analytics table: non-def capex ex aircraft +5.9% in the last 2 months!


RBC Capital had flagged this turnaround in capex with this December 14 chart…


…which now looks like this with last week’s numbers (chart from Business Insider):


RBC Capital reminds us that we have had 15 months of synchronized easing in  the world:

image54% of the world‟s Non-manufacturing PMI data is showing improvement, 61% of the world‟s Manufacturing PMI data has risen and the OECD‟s aggregate leading economic index, which typically turns
ahead of global GDP growth by ~6 months, is up smartly over the past half year.

These positive economic inflections are most likely linked to the synchronized and powerful monetary easing program that has been in place for the past 14 months. Typically, economic growth accelerates anytime from 12-18 months after the beginning of a rate cutting campaign and we are now smack-dab in the middle of that historic window.

Goldman’s Jan Hatzius sums up everybody’s frustrations:

The key challenge for economic forecasters in 2013 is to weigh the relative importance of the positive impulse from the improvement in the private sector versus the increasing drag from the dysfunction and fiscal retrenchment in the public sector. Never has this been clearer than in the past week.

Following Speaker Boehner’s failure to corral enough Republican votes for his “Plan B” on Thursday, the risk of greater fiscal restraint and greater policy uncertainty has increased. This could involve a temporary move “over the cliff” or a stop-gap measure that extends lower- and middle-income tax cuts and potentially unemployment benefits, but fails to defuse both the automatic federal spending cuts and the debt ceiling.

Punch  The Fed can help, up to a point:

Push for Cheaper Credit Hits Wall The Fed’s intensified campaign to push mortgage rates lower has hit a wall, in part because a shift in the lending landscape has made some banks unable, or unwilling, to pass along cheaper credit.

(…) While current rates are the lowest in generations, some economists argue that they should be even lower—perhaps 2.8% based on the historical relationship between mortgage rates and yields on mortgage-backed securities. The economists posit that banks are keeping the rates artificially high, boosting profits and depriving the economy of the full benefit of the Federal Reserve’s efforts.

No bank-by-bank survey on the matter has been conducted. But some lenders say they are simply making a fair rate of return on a business that has much higher fixed costs than it used to. “We have a different cost structure now,” said Stewart Larsen, who runs the mortgage banking division of Bank of the West.

Lenders profit on the gap, or spread, between their cost of obtaining money and the rate they charge when lending it out. Before the financial crisis, this spread averaged around 0.5 percentage point and widened to about 1 percentage point in the years after 2008. In October, after the Fed embarked on a new round of mortgage bond purchases, the spread leapt to 1.6 points and currently is hovering around 1.3 points.

There are numerous, and complex, reasons for the difference. More volume, for example, is moving through an industry that has shrunk significantly. At the same time, banks today are scrutinizing property appraisals and loan files more closely—requiring reams of documentation of borrowers’ assets, to guard against the cost that they will be forced to buy back any defaulted mortgages from Fannie and Freddie. That means fewer underwriters are spending more time on every loan. (…)

Lightning  Dutch Housing Slump Continues

Prices of existing homes fell by an annual 6.8% in November, national statistics agency CBS said on Friday. (…) Since the peak of 2008, house prices in the Netherlands have tumbled more than 16%, according to CBS.

The country’s jobless rate rose to 7% in November, hitting a 10-year high, and consumer sentiment is again nearing a historic low, CBS said on Thursday.


Recent stats from China were decidedly on the upside. Most November data were positive and December’s flash indicators (HSBC and MNI) were both strong. CEBM Research’s own Industrial Expectations Index has risen for three consecutive months, supporting the positive trends in the official NBS PMI and the flash indicators.


ISI’s China survey has also hooked up during the past 3 weeks.

No political clouds there and a P/E of 11 times trailing earnings.



Taiwan Industrial-Output Growth Accelerates to a Nine-Month High

Production climbed 5.85 percent from a year earlier, compared with a revised 4.84 percent in October, the Ministry of Economic Affairs said in Taipei today.

Export orders increased at the second-highest pace in 2012 in November, and the government predicts gross domestic product growth of more than 3 percent next year.

Money  Pressure Grows on Asian Central Banks  Demands on Asian central banks to be more aggressive are heating up in the face of the global economic downturn and amid political leadership changes, raising questions about the banks’ ability to remain independent.

Malaysia and the Philippines are due to go the polls in the first half of next year, Australia by the end of 2013 and India and Indonesia in 2014.

Global Currency Tensions Rise  Japan’s Abe said the country must defend itself against attempts by other governments to devalue their currencies by ensuring the yen weakens as well.

[image]Mr. Abe on Sunday called on Japan’s central bank to resist what he described as moves by the U.S. and Europe to cheapen their currencies and noted that a yen level of around ¥90 to the dollar—it was at ¥84.38 in early Asian trading Monday, down from ¥84.26 late Friday—would support the profit of Japanese exporters. (…)

Mr. King, in an interview this month, said, “I do think 2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns.”

Japan’s Abe issues ultimatum to BoJ  Bring in 2% inflation goal or we will, says PM-to-be



Annoyed  Americans Miss $200 Billion Abandoning Stocks

Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The big financial repression:

With ten-year US Treasury notes yielding 1.6% and inflation running at 2.2%, note holders are guaranteed a loss of at least six-tenths of a percent – and that’s before taxes. Add in Uncle Sam’s take, and 10-year T-note holders are taking “real” hits of up to 35% in purchasing power for any
bond held outside tax-deferred plans. This means portfolios laden with supposedly “safe” 10-year Treasury debt risk are going bankrupt gradually.

Meanwhile, the world’s central banks are doing all they can to make sure inflation rises well above today’s 2.2% rate. Led by the Fed, they have flooded the global financial system with US$11 trillion in new money since 2007 and show no signs of slowing down. They will either get the inflation they desire or bankrupt the global financial system trying. In mid-December, Ben Bernanke and Company announced plans to buy US$45 billion in long-term US Treasury debt per month with money virtually created out of thin air, bloating the Fed’s already unwieldy balance sheet to monstrous proportions.


NEW$ & VIEW$ (17 DECEMBER 2012)


A fresh proposal from House Speaker John Boehner to raise tax rates on millionaires marked a breakthrough in stalled budget negotiations with President Barack Obama, suggesting a potential framework for avoiding year-end spending cuts and tax increases known as the fiscal cliff.

The proposal, which the speaker offered privately to Mr. Obama Friday, calls for raising $1 trillion in tax revenues over 10 years, up from the $800 billion Mr. Boehner previously proposed, and cutting about $1 trillion from spending.

The Boehner proposal would extend all current tax rates, while raising rates only for income above $1 million, which would rise to 39.6% from 35%. Previewing an argument likely to be used in selling the idea to conservatives, GOP officials argued Sunday that Mr. Boehner’s proposal would not call for Republicans to vote for a tax increase: The plan will simply allow rates to rise, as scheduled, for income over $1 million.

While the White House objected to major parts of the proposal, senior Democrats described it as a tipping point that moves talks away from deadlock. (…)

Mr. Boehner’s proposal calls for a two-stage process, providing for enactment of a small-scale deficit-reduction plan by year’s end, coupled with a second phase next year, in which lawmakers would embark on a revamp of the tax code and entitlement programs, using a final agreement as a guide.

Mr. Boehner offered to include an increase in the U.S. borrowing limit as part of the deal—enough to avoid another fight over the issue for perhaps a year if it is matched by comparable spending cuts. (…)

Centrists who are seeking a big deficit-reduction deal, however, saw promise in Mr. Boehner’s willingness to take a politically risky move toward compromise. (…)

Smart move from Boehner.

The Washington Post adds:

Senior White House officials remained in contact with Boehner’s staff throughout the weekend in a sign that serious negotiations had finally begun after weeks of stalemate and partisan posturing.

Fingers crossed  No grand bargain now but an agreement on a two-step program seems possible.

Smile  Consumer Prices Fell in November

U.S. consumer prices dropped 0.3% in November as the cost of gasoline declined.

Gasoline prices dropped 7.4% in November, the largest decrease in nearly four years. Retail fuel prices have fallen in eight of the past nine weeks, according to a different government measure. Overall energy costs fell 4.1% in November.

(…) core consumer prices rose 0.1% last month. That number reflects higher prices for shelter, transportation services and medical care. Food costs rose 0.2%, the sixth consecutive monthly increase.

Year over year, consumer prices were up 1.8% and core prices were 1.9% higher.

This is good news from the Rule of 20 point of view. Inflation dropping from +2.2% to +1.8% means fair P/E rises from 17.8 to 18.2, more than offsetting the 0.5% decline in trailing earnings after Q3. If only politicians could do something smart…



Buy high, sell low charts from RBC Capital. Institutional investors, as a group, are no smarter than individual investors.


Deflation is not a big threat at this time:

Median CPI remains above 2.0%

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.3% annualized rate) in November. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.6% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.



Open-mouthed smile  U.S. Retail Sales Restrained By Lower Gas Prices

Total retail sales recovered 0.3% last month following an unrevised 0.3% October decline. Retail sales were unchanged excluding autos, as expected, for the second consecutive month. The mix of sales, however, was more encouraging than these top-line numbers suggest.

Consumers spent less on gasoline last month as prices fell. A 4.0% drop (+0.8% y/y) in gas purchases accompanied a 2.5% decline in seasonally adjusted prices, as calculated by Haver. Also adding to volatility was a 1.4% recovery (5.4% y/y) in motor vehicle sales. Excluding gasoline and autos, retail sales rose a notable 0.7% (3.3% y/y) and more than recovered their 0.2% October falloff.

Also adding to volatility was a 1.6% rise (5.4% y/y) in sales of building materials. A good indication of consumers’ underlying ability to spend on discretionary items are sales without these volatile components. Excluding autos, gas and building materials, retail sales rose a respectable 0.5%. However, the 2.9% y/y increase was lower than the peak y/y gain of 7.1%, ending October of last year.



Looking at the last 3 months, total retail sales are +1.2% or +4.9% annualized. Non-Auto less Gasoline sales are +1.4% or +5.7% annualized. The U.S. consumer is not retrenching just yet. That is in spite of slow income growth:

The recent 3.2% yearly increase by employment income limits the upside for retail sales growth. After slowing from the 6.4% of 1991-2000’s recovery to the 4.5% of 2002-2007’s recovery, employment income’s average annual increase subsequently slowed to the 3.4% of the current upturn. (Moody’s)





Thinking smile  But, for how long? Americans may be willing to spend but can they? (Chart from Gary Shilling).


U.S. Industrial Output Recovers After Sandy, But The Trend Weakens

The rebound in industrial sector output from Hurricane Sandy totaled 1.1% (2.5% y/y) last month following a deepened 0.7% October decline, last month reported as -0.4%. The Fed indicated that virtually all of last month’s increase in output was due to the passage of the storm. A weakening trend is indicated by the 1.2% y/y increase in factory sector output which was down from the 4.3% rise during all of last year as well as versus 5.7% in 2010.

In the manufacturing sector, a 0.9% increase (1.2% y/y) in output just made up for October’s 1.0% drop. The pattern is the same for the 1.3% m/m gains in consumer goods and business equipment output, although the latter’s 7.5% y/y rise easily outpaced the 1.2% y/y increase for consumer goods.

The capacity utilization rate rose to 78.4% and recovered its October fall. In the factory sector, the rate also rose to 76.6% and made up for the October decline to 75.9%.



Markit’s December flash PMI offers strong hopes that the manufacturing sector is re-accelerating:



U.S. Business Inventories Continue To Accumulate

Business inventories rose a slower 0.4% (5.7% y/y) during October following a 0.6% September rise. Factory inventories ticked up just 0.1% (3.1% y/y). The slower 0.6% gain in merchant wholesalers inventories reflected a 3.1% decline (+2.4% y/y) in petroleum inventories with lower crude oil prices. Elsewhere, wholesale inventories increased a firm 0.8% (6.8% y/y) during October. Inventories at the retail level gained a firmer 0.6% (8.2% y/y). That was led by a 0.9% jump in autos (21.2% y/y) after a 0.9% September increase. Nonauto retail inventories gained 0.4% (3.2% y/y) reflecting strength in building materials (4.0% y/y) and clothing stores (3.8% y/y).

Business sales fell 0.4% (+3.1% y/y) after a 1.2% September jump. Wholesale sales dropped 1.2% (+2.3% y/y) with the decline in petroleum prices. Even without oil, however, wholesale  sales fell 0.3% (+1.6% y/y).

large image 




Auto  The U.S. auto sector, particularly GM, seems to be caught with excess inventory even with reasonably strong sales recently. Imports from Canada are already weakening which is not positive for Canada’s GDP as this chart from RBC Capital shows:image

In effect, Canada is also at the edge of the U.S. fiscal cliff!

Sun  Global outlook brightens as flash PMIs rise in the US, China & Eurozone

The strongest gain was seen in the United States, where’s Markit’s flash PMI hit an eight-month high in December. The survey had correctly signalled the downturn in official data, which showed a contraction of manufacturing output in October, and therefore bodes well for a rapid return to growth. The December PMI was broadly consistent with US manufacturing output growing at a 4% annualised rate.

The US PMI came on the heels of Markit’s PMI for China, produced for HSBC, which hit a 14-month peak in December. The PMI has now risen for four successive months in China, rising above the no change level of 50 in the final two months of 2012, providing strong evidence to suggest that industrial production growth will have continued to revive after the annual growth rate picked up to 9.6% in October.

Even the Markit Eurozone Manufacturing PMI improved in December, rising to its highest since March. However, although well up on the three-year low seen in July, the rise in the Eurozone PMI was only very marginal, and the index remains firmly in contraction territory, contrasting with the expansions seen in the US and China. The PMI data therefore add to worries that the Eurozone recession deepened in the fourth quarter after GDP data showed a surprisingly mild 0.1% contraction in the third quarter. But, the rise in the PMI nevertheless suggests that the picture is beginning to brighten for even the hard pressed Eurozone as we move in 2013.

 image image

I agree with Markit’s view on the U.S. and China, but not on the Eurozone where the picture will only begin to brighten when new orders turn positive. The Euro has not depreciated sufficiently to offset the very slow progress to date on the lack of competitiveness of the Euroblock.


Right on cue, Eurostat released October’s trade data this morning: exports fell 1.4% M/M after dropping 1.3% in September. Imports rose 0.6% in October but they had declined 3.6% in the previous 2 months.

Coincidentally, Eurostat also released Hourly Labor Costs: they are up 2.0% Y/Y in Q3, up from +1.9% in Q2 and +1.6% in Q1.

Just kidding  In case you think that the Eurocrisis has ended:

Lightning  Spanish House Prices Quicken Decline

imageIn an indication that the market isn’t yet bottoming out, Spanish housing prices are now falling at the fastest pace on record, after double-digit falls over the past year. House prices fell on average by 15.2% in the third quarter from the year-earlier period, compared with the 14.4% decline in the second quarter, the country’s statistics agency, INE, said Friday.

Unlike other markets faced with a housing slump, like the U.S. and Ireland, house prices in Spain fell at a slower pace in the first few years after the 2008 property bust. The pickup in the rate of decline comes after Spain’s government urged the banks to unload foreclosed properties more quickly.

More pain in Spain (chart below from Gary Shilling):


More from Gary Shilling, this time on Canada:





Looks like an accident waiting to happen. As I said earlier, Canada is right at the edge of the U.S. fiscal cliff.

Green with envy  Portugal Moves to Cut Corporate Tax

(…) The Portuguese government is seeking to cut its corporate tax rate for new businesses to one of the lowest in Europe as part of a plan to attract investment and revitalize ailing industries, the minister of economy said.

The government is in talks with the European Commission’s competition agency in Brussels to get approval to cut the tax on corporate income for new investors to 10% from the current 25%, the minister, Alvaro Santos Pereira, said in an interview.

That would be the lowest in the European Union along with Cyprus and Bulgaria, which have blanket 10% corporate tax rates, according to consultancy firm KPMG. The average corporate tax in the EU is above 22%. (…)

Mr. Santos Pereira, who was an economics professor at Simon Fraser University in Vancouver, Canada, before taking over the Portuguese ministry, said Portugal’s economic revamping will pay off.

Changes to make the labor law more flexible and companies easier to be set up, fiscal incentives to new investment and the use of EU funds to train the Portuguese to work in export-led industries will provide sustainable economic growth, he said.

“Fifteen years ago, Germany was the sick man of Europe, and it regained its competitiveness by reforming its laws and legislation and by investing quite a lot of resources in technical training. Their model in terms of industries, exports and technical training is the model we are getting back to in Portugal,” Mr. Santos Pereira said.

Let’s see how the EU reacts to that…

Abe Sets Economic Agenda in Japan

To revive the sickly economy, incoming Japanese Prime Minister Shinzo Abe vowed a hefty spending package and increased pressure on the central bank to pull the country out of recession and deflation

Singapore Home Sales Fall

Singapore’s clampdown on home loans is showing some signs of success, as sales of new private homes fell to their lowest level so far this year in November.

Sales of new private residential units fell to 1,087 units in November, down 44% from October, according to data from the Urban Redevelopment Authority. October’s tally was 26% lower than the previous month’s.

The Energy game Changer

US sees $90bn boost from shale gas boom  Europe fears widening divide amid America’s industrial renaissance

Manufacturers have announced more than $90bn worth of investments in the US to take advantage of its cheap natural gas, according to new calculations, underlining how the shale revolution appears to be driving the country’s industrial renaissance.

Petrochemicals, fuel, fertiliser and steel companies are among those that have committed to or are considering multibillion dollar investments based on their ability to source cheap energy and feedstocks. (…)

Industry executives say low-cost feedstocks and energy are already having an effect on the US economy.

Pointing up  Since the start of 2010, industrial production is up 12 per cent in the US, while it has fallen 2 per cent in China, 3 per cent in Britain, and 6 per cent in Japan.

Germany’s production has risen 11 per cent over the same period, but German industrial companies including Bayer and BASF have been warning that they expect to lose competitiveness against US rivals over the coming decade because their energy costs are rising.

For more on that see Facts & Trends: The U.S. Energy Game Changer.


NEW$ & VIEW$ (28 NOVEMBER 2012)

THE “GRAND BARGAIN”: Back to the future

Democrats Harden Budget Positions

The White House and congressional Democrats hardened their budget positions in talks on a fiscal-cliff deal.

White House officials suggested in a closed-door meeting with supporters that talks wouldn’t heat up for about a week. In the meeting, President Barack Obama said he considered the fiscal-cliff debate a defining moment of his presidency.

The next four weeks could define the next four years,” Mr. Obama told a small group of Democrats after joining their meeting in the Roosevelt Room with his top aides, according to a participant. (…)

Complicating the already complex budget talks, Mr. Durbin said the year-end budget agreement will have to include an increase in the country’s statutory borrowing limit to avoid another fight when the federal debt ceiling is reached, likely early next year. “The president isn’t going to sign off on an agreement that doesn’t provide some certainty on the debt ceiling,” he said.

A GOP House leadership aide said Republicans would insist on greater concessions from Democrats, in addition to any fiscal-cliff agreement, to include the debt ceiling in any deal.

Déjà vue, and not funny at all!

Peter Orszag: Vague Plans to Limit Tax Breaks Will Soon Die

As negotiations over the U.S. fiscal cliff get down to details, they will become more arduous — something that financial markets seem to be ignoring. The superficial appeal of proposals to limit tax expenditures, for example, will fade as the details become clearer. (…)

On their face, proposals to raise revenue by limiting tax breaks enjoy unusual bipartisan support — at least when they are described generically as “broadening the tax base and eliminating loopholes.” Enacting legislation, though, requires much more than such platitudes, and therein lies the political difficulty. (…)


Housing Market Propels Economy

The U.S. housing market, which plunged the economy into recession five years ago and was a persistent drag on the recovery, is now a key economic driver at a time when other sectors are slowing. (…)

imageMacroeconomic Advisers projects the economy will grow at a 1.4% annual rate in the fourth quarter, with housing contributing 0.4 percentage point. IHS Global Insight is projecting a 1% growth rate, with housing contributing 0.53 of a percentage point—the largest contribution since 2005. (…)

The housing turnaround has been a boon for real-estate brokers and home builders, some of whom have seen their stock prices more than double this year. Retailers have seen a new stream of customers ready to decorate, furnish and upgrade their homes while investors are spending at hardware stores to renovate previously foreclosed homes. Banks, meantime, have posted record mortgage profits amid high refinance volumes and stronger demand for new loans.

Beyond those direct benefits are a number of indirect effects. Rising home values make homeowners feel better about their finances—making them more likely to spend and, with interest rates low, more comfortable about taking on debt. An index of confidence released Tuesday by the Conference Board rose to 73.7 in November, the highest level since February 2008.

US housing market still in recovery mode

imageThe S&P/Case-Shiller house price index showed the largest annual increase in US property prices since July 2010, up 3.0% on a year ago in September, compared with a 1.9% increase in August. House prices have gained 4.7% since hitting a low in January. (Markit)

Higher prices beget higher demand 

Buried in the Conference Board’s November consumer confidence report was a surge in plans to buy a home in the next 6 months, to an elevated 6.9% of respondents (that’s the highest since August 2007). Potential buyers have been presented with the best affordability in decades for some time, but maybe now they’re starting to sense that home prices are in fact rising again in many cities. In other words, when affordability is high but prices are still falling, what’s the rush? But, when affordability is high and prices have begun to rise, then that’s a different story… (BMO Capital)



Falling Mortgage Balances Offset Rising Student, Auto, Credit-Card Debt

Americans cut their debt further in the summer, with falling mortgage balances more than offsetting increases in other types of borrowing, new data show.

Americans have reduced their debts by more than $2 trillion since household debt peaked in summer 2008, a process called deleveraging.

Deleveraging delivered!


(Chart from FBN Financial)


Smile  Durable goods orders were unchanged in October. They had surged a revised 9.2% in September. Ex transportation, orders rose a strong 1.5% after a 1.7% gain in September.

However, in the latest three months, orders have dropped 5.3% on the prior three month period, the steepest three-month fall since May 2009. However, if volatile transportation goods are excluded, which has a closer correlation with industrial production, orders rose 1.5% against expectations of a 0.5% drop, helping ease the three-month rate of decline up from -3.4% to -2.0%. (Markit)

Unfilled orders rose a modest 0.2%, after a 0.1% gain in September and a 1.7% drop in August. (table below from Haver Analytics)


The good news is from Non-defense Cap. Goods ex-Aircrafts which rose 1.7% after a 0.4% decline in September. Doug Short explains:

Last month Business Insider posted a commentary with the attention-grabbing headline: DAVID ROSENBERG: Here’s Your Big Red Flag That We Could Be Heading For Recession. Rosenberg has frequently included CAPEX among his various recession indicators.

The CAPEX referenced by Rosenberg is the Manufacturers’ New Orders: Nondefense Capital Goods Excluding Aircraft data series, which is conveniently available in the FRED database. The data goes back to February 1992, so we only have two recessions during this timeframe to evaluate CAPEX as a recession indicator. Here is a look at the monthly data.

Click to View


The chart below is the YoY of a 3-month moving average of the complete series. This is the data manipulation used by Rosenberg to support his recession alert.

Click to View

Indeed, the CAPEX 3-month MA has been trending down since March of this year. In fact, the month-over-month data has been trending downward since its interim high on December 2011. I would point out, however, that the latest 3-MA month-over-month change is tiny: -6.6 percent in September slipping to -6.7% in October.

Ultimately my sense is that this data series manipulation (the YoY 3-month MA) has an insufficient track record to be considered a definitive recession indicator.



Smile  Thailand Holds Policy Rate as Economic Data Signal Recovery

Thai manufacturing and exports increased in October, adding to signs from the U.S. and China of a recovery in the global economy. While the central bank last month lowered its growth forecast for 2013, it said today risks to expansion have subsided, and that it doesn’t see much need for more rate cuts. (…)

Thai GDP increased 3 percent in the third quarter from a year earlier, after expanding a revised 4.4 percent in the previous quarter, the government said last week. Still, manufacturing jumped 36.1 percent in October from a year earlier, when the floods shuttered thousands of factories, while exports rose 15.6 percent, the fastest pace in more than a year. (…)

Smile  Philippines 7.1% Growth Surprise May Herald End of Rate Cuts

Gross domestic product increased 7.1 percent in the three months through September from a year earlier, compared with a 6 percent gain in the previous quarter, the National Statistical Coordination Board said in Manila today. (…)

Philippine exports rose 22.8 percent in September from a year earlier, as data signaling a recovery in the U.S. and China boosted the outlook for Asian goods.

The Philippine economy expanded 6.5 percent in the January- September period, today’s report showed. Public construction in the third quarter climbed 23.7 percent from a year earlier, while government spending gained 12 percent and household spending advanced 6.2 percent.

RBC Capital Markets adds:

The OECD’s LEI has rounded the corner and it is important to note that the index usually turns ~6 months ahead of global GDP growth.


Pointing up Also, ISI’s global economic diffusion index, which measure all eco indicators in 38 countries, has clearly hooked up in recent weeks, suggesting the global economy is starting to improve.



Spain’s Bankia says it expects to post a loss of 19 billion euros ($24.6 billion) in 2012, and announces plans to cut 6,000 jobs.

Europeans Scrimp on Gifts

Shoppers across Europe are pinching pennies as the debt crisis enters its third year, forcing retailers to cut prices and push promotions.

imageBoth the Italian national consumer association and Portugal’s commerce-and-services confederation expect Christmas sales to drop about 20% from last year in their respective countries. (…)

According to Deloitte, the average German family plans to spend around €485 for Christmas, compared with €639 for the average French family. (…) Deloitte predicts Irish households will spend €966 on average this year, the most of any country in the euro zone.

Schaeuble Signals Greece May Need More Help as Bild Slams Deal

German Finance Minister Wolfgang Schaeuble signaled that Greece may need additional help as the country’s most-read newspaper slammed a rescue accord as a “never-ending story” financed by German taxpayers.

Euro-area governments may provide additional funding through the European Union structural fund and further interest- payment reduction as long as Greece meets all its obligations under the agreement, Schaeuble wrote in a letter to German lawmakers obtained by Bloomberg News. (…)

They may confront increased public resistance as Bild- Zeitung, a tabloid that’s called in the past for Greece’s exit from the currency union, pilloried yesterday’s late-night agreement in Brussels to ease terms on emergency aid for Greece.

“The Greek patient is beyond help,” Bild said in a commentary, adding that the ever-rising costs were falling on German taxpayers. “One hardly needs to imagine the worst scenario: the patient dies, the paramedic goes bust.”


With 489 reports in, S&P calculates that Q3 earnings came in at $24.37, down 3.6% Y/Y. However, Factset warns that

Of the 103 companies that have issued EPS guidance for the fourth quarter, 75 have issued projections below the mean EPS estimate and 28 have issued projections above the mean EPS estimate. Thus, 73% of the companies that have issued EPS guidance to date for Q4 2012 have issued negative guidance. This percentage is well above the long-term average (61%), but it is below the percentage recorded in the previous quarter at this same point in time (80%).


Analysts Cutting Estimates for Q4 & 1st Half of 2013
Since the end of the third quarter (September 30), analysts have reduced earnings growth expectations for Q4 2012 (to 3.9% from 9.3%), Q1 2013 (to 3.1% from 5.3%), and Q2 2013 (to 7.7% from 9.2%).

Despite the reductions to earnings estimates for Q4 2012, analysts are still calling for an increase in earnings growth (3.9%) relative to Q3 2012 (-0.9%). In addition, analysts are calling for slightly higher revenue growth rates in Q4 2012 (2.5%), Q1 2013 (0.9%) and Q2 2013 (3.4%) relative to the current growth rate for Q3 2012 (-1.2%)


Birth rule could be relaxed  Changes to the family planning policy are being considered, and action plans have been drawn up, amid a graying society and other challenges.

(…) According to Zhang, one of the key areas of possible change will concern the criteria for urban couples having a second child. At present, only parents who are themselves an only child are allowed to have a second child. Under the proposed changes, couples will be able to have a second child even if one of them is not an only child. (…)

The national fertility rate (the average number of children a woman has during her lifetime) stands at about 1.7, far below the replacement level of 2.1.

“Even with the policy further relaxing, there won’t be any sharp rise in the population,” Zhang said, adding that an ideal fertility rate should be at least 1.8.

President Hu Jintao said in the report of the 18th National Congress of the Communist Party of China this month that “we must adhere to the basic state policy of family planning, improve the health of newborns, steadily improve the population policy and promote long-term and balanced population growth”.

Observers said it was the first time that “maintaining low reproduction levels” had been omitted, representing the central government’s wish to ease the policy.

There are things that never change.  I have always thought that airlines and steel were two sectors that investors should simply avoid.

Problem: There’s Too Much Steel

This year, steel mills around the world have a production capacity of 1.8 billion tons but will take orders for only 1.5 billion tons. And instead of consolidating, the industry is building still more capacity.

By 2016, an estimated 100 new mills, with total estimated supply capacity of 350 million tons, are expected to come on stream, according to industry executives and consultants. Companies in Vietnam, Argentina, Ecuador, Peru and Bolivia, all backed in some way by their governments, are building or planning new mills. (…)

Getting a definite count on the number of steel mills in the world and actual production capacity is difficult in large part, say industry officials and analysts, because there are hundreds of small, uncounted mills in China, which accounts for 46% of world steel output. Estimates for the number of steel mills in China range from 600 to 800 mills. (…)

The world’s top five steel companies control only 18.2% of global steel supply. (…)

Meanwhile, governments continue to subsidize mills, despite weakening demand, to maintain jobs and sustain local economies.

Wolfgang Eder, president of the European Steel Association, has called for European politicians to organize a coordinated scheme of capacity-cutting. Confused smile

“The steel industry could fall back into the mistake of the 1980s, in which it would demand subsidies and keep obsolete plants running for social and political reasons,” he said in a recent interview.

France Escalates Steel Fight

A dispute pitting France against the world’s largest steelmaker escalated Tuesday after Socialist President François Hollande threatened to nationalize a plant that owner ArcelorMittal MT -2.32% wants to partially close, fueling concerns about the country’s treatment of foreign investors.


NEW$ & VIEW$ (8 NOVEMBER 2012)

NOW: THE “GRAND BARGAIN” Fingers crossed

Focus on ‘Fiscal Cliff’

Political leaders vowed to try to avoid the “fiscal cliff” of spending cuts and tax increases that could push the U.S. into another recession.

Mr. Boehner laid out his own opening offer on Wednesday afternoon, and it included both a warning and an olive branch. The latter is an offer to put tax revenue increases on the table. This is a major concession given the antitax hostility among voters who renewed the Republican majority with minimal losses despite the strong Democratic trend on Election Day.

The warning is that he doesn’t consider the election to be a mandate to raise tax rates. So any additional revenues need to be considered as part of a larger budget and tax reform that doesn’t raise rates. “In order to garner Republican support for new revenues, the President must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt,” Mr. Boehner said. (…)

To avoid a fiscal crackup, Mr. Obama is going to have to lead his own party to compromise too. Maybe he can even convince them to pass a budget for the first time in four years.

There’s little doubt that Mr. Obama has the political whip hand for the moment. (…) The question is whether Mr. Obama wants to solve these problems—or continue demonizing Republicans while getting nothing done. (WSJ)

There will be lots of grand statements over the next several weeks, swaying markets back and forth between hope and despair. Bob Woodward’s new book, The Price of Politics, provides little faith in this political process. Same poker table, same players with similar chips.


Home Prices Up 7.6%

The median price for an existing single-family home was $186,000 in the third quarter, up 7.6% from a year earlier and the largest year-over-year growth since 2006, according to a report Wednesday from the National Association of Realtors. More cities saw gains. Single-family home prices rose in 120 of 149 metropolitan areas tracked by the NAR, up from 110 in the second quarter and 39 in the year-ago period.

Many of the sharpest home-price rebounds have been in markets hard hit by the real estate bust. In the Phoenix metropolitan area, for instance, median prices were up 34.9% from a year ago, according to the NAR. Three cities pummeled by the bust—Las Vegas, Miami, and Riverside, Calif.—all were in the top 20 for price gains with year-over-year increases between 12.0% and 12.7%. (…)

At the close of the third quarter there were about 2.32 million existing homes for sale, down 20% from the third quarter of 2011. And rates for a 30-year fixed mortgage averaged 3.54% in the third quarter—a rock-bottom level by historical standards—which was down from a still-low 4.31% average a year ago.

About 72% of respondents said it was a good time to buy a home, according to a monthly survey Fannie Mae issued Wednesday. While many consumers expect home prices to rise only modestly over the next year, they believe rental rates will continue to climb, further motivating them to buy.

The mortgage-finance company said its poll of 1,001 Americans showed that consumers expect home prices to increase an average of 1.7% over the next year.

The share who expect a decline in home prices dropped to 10%, the lowest level since the survey’s inception in June 2010.

Self-feeding process in action.



Consumer credit increased $11.4B in September, following a modestly revised $18.3B gain in August, the Federal Reserve reported. The year-to-year gain was 5.5%, the same as in August.

Non-revolving credit – car loans, students loans and other specific loan contracts – remained strong, with a $14.3B increase, almost the same as the $14.1B in August. The year-to-year gain was 8.0%, even a bit firmer than August’s 7.8%, already the strongest in 10 years. Non-revolving credit accounts for roughly two-thirds of the credit total. In contrast, revolving credit (credit card debt) retreated, falling $2.9B after rising $4.3B in August. With an up-and-down saw tooth pattern repeating every few month, the year-to-year growth rate was just 0.5%. (Haver Analytics)

Oil Tumbles Below $85 a Barrel

Crude oil tumbled 4.8% as swelling fuel supplies and weak demand due to superstorm Sandy weighed on a market already pressured by a postelection selloff.

U.S. stockpiles of oil and gasoline jumped last week as Sandy derailed shipments of fuel into the East Coast and forced refineries to shut down, according to data released Wednesday by the Department of Energy.

The report helped confirm that Sandy has had a bigger effect on demand than supply despite long gas lines across New York and New Jersey. Gasoline stockpiles rose by 2.9 million barrels, while East Coast demand for gasoline and other fuels fell 6% last week, the data showed.

WTI is down 13% from its September high and 23% from its February peak.



Brent is only down 7% from September and 13% from February. Why is that, given the awful Eurozone economy and weak Chinese imports?



Two reasons for the widening spreads: increasing U.S. production and OPEC supply management.




Lightning  Greek Jobless Rate Tops 25%

Elstat, the Greek statistical agency, Thursday said the seasonally adjusted rate of unemployment increased to 25.4% from 24.8% in July and 18.4% in August 2011. That was just below the 25.5% unemployment rate recorded by Spain in the same month, the highest in the European Union.

Elstat said that among those 24 years of age or younger, the unemployment rate rose to 58.0% from 45% in the same month last year, and is now the highest among the bloc’s 27 members.

Earlier Thursday, Greek lawmakers narrowly approved €13.5 billion ($17.24 billion) of spending cuts and tax hikes in an effort to win more bailout funds, but the measures also threaten to deepen the country’s brutal recession and destabilize its fragile politics.(…)

Some 36,597 people lost their jobs in August, bringing the total of unemployed to 1.3 million. With another 3.4 million adults classified as inactive, the number of adult Greeks not in work now greatly exceeds the 3.7 million who remain in employment.

Feedstock for social unrest!


Increasing signs are appearing that German industry is being hit hard by the ongoing crisis in the Eurozone and waning demand in other key export markets, with official data now corroborating the survey evidence to indicate that the country is at risk of sliding back into contraction in the fourth quarter.

Manufacturing output slumped lower in September, falling much more than analysts had been expecting. Economists polled by Reuters had pencilled in a 0.5% drop in production for the final month of the third quarter. Instead, data from the Economics Ministry showed a 1.8% fall. The decline comes on the heels of a 0.4% loss of output in August.

Manufacturing output fell 2.3%, the steepest fall since April 2009, and energy production dipped 0.3%, leaving the construction sector as the only bright spot, where firms reported a 2.7% rise in activity. (Markit)

That was on manufacturing output. Here’s industrial production (from BMO Capital):


Look at orders now. Hmmm…



Storm cloud  Japan Data Show Signs Of Distress

Japan’s current account balance fell sharply in September versus the previous year, logging the first deficit in 30 years, in a sign that the country’s economy could be deteriorating faster than expected.

The gloomy outlook announced Thursday was underscored by separate data showing that core machinery orders fell an unexpected 4.3% in September from the previous month.

N.Z. Jobless Rate Surges to 13-Year High, Currency Plunges

The jobless rate jumped to 7.3 percent from 6.8 percent in the second quarter, Statistics New Zealand said in a report today in Wellington. That’s the highest since the first quarter of 1999. Employment fell by 0.4 percent, or 8,000 jobs, from the second quarter, when it dropped 0.1 percent.

The drop in employment was led by manufacturing, where hiring fell to the lowest level since June 2010, today’s report showed.

Employment fell in consecutive quarters for the first time since 2009, the statistics agency said.


NEW$ & VIEW$ (27 SEPTEMBER 2012)

Decline in China’s Industrial Profit Accelerates

Profits at China’s major industrial enterprises fell more steeply in August, extending the decline into a fifth straight month as earnings were dragged down by the continued slowdown in economic growth and rising labor costs.

The combined profit of China’s major industrial companies fell 6.2% to 381.2 billion yuan ($60.45 billion) in August from a year earlier, according to data issued by the National Bureau of Statistics on Thursday. That’s steeper than July’s 5.4% slide.

For the eight months through August, profit fell by 3.1% from a year earlier to 3.060 trillion yuan, picking up the pace from a 2.7% decline in the first seven months of the year.

China Moves to Ease Liquidity Crunch

The People’s Bank of China injected a net 365 billion yuan ($57.9 billion) into the money market this week through its regular open-market operations, its biggest-ever weekly fund injection, amid a surge in demand for cash by banks.

Chinese lenders typically need more funds toward the end of each quarter as they try to meet regulatory requirements on their loan-to-deposit ratio, and the demand has been compounded ahead of a week-long National Day holiday week starting Oct. 1. (…)

The central bank’s continued reliance on short-term liquidity-adjustment tools such as reverse repos signals that authorities remain hesitant to use more-aggressive monetary easing in the face of a weakening economy, such as cutting the reserve-requirement ratio of banks, partly because of concerns over resurgent inflationary pressures.

Pointing up  (…) the PBOC is unlikely to extend the efforts of massive liquidity easing in the coming weeks as it is wary of domestic inflationary pressure, which is set to rise following the U.S. Federal Reserve’s recent decision to launch a third round of bond-buying, or so-called quantitative easing, to boost the U.S. economy. (…)

Storm cloud  Korean Manufacturer Confidence Holds Near Three-Year Low


EUROPE IN 2 CHARTS (courtesy of Reuters’ Scott Barber)



Euro zone money supply and private sector loan growth


Lightning  A European fudge, now in focus

While Athens burns and Spaniards march, catching all the headlines in the process, Alex White of JP Morgan would seem to have identified the real reason market nerves across Europe are a-jangle once more…

The divisions over whether the ESM should shoulder the burden of existing impaired bank assets is a serious one, and could get worse. It reflects the problems of the key European Summit in June, which set the parameters for the progress the region has since made. The Summit communiqué bridged disagreement about whether burden sharing should happen – but it achieved this largely by being incoherent. The periphery (Ireland in particular) went away convinced that they could socialise the debt burden they had incurred by supporting their domestic banking systems, that bank recapitalization payments could take effect in the near-term and be applied to existing troubled assets. The core countries went away thinking that they had committed to no such thing, but that work should be done to disentangle sovereign-banking sector feedback loops in the future institutional design of the region. This misunderstanding reflects the danger of mixing the discussion of tactical issues – how to deal with the current Irish or Spanish debt burden – from strategic issues, like Germany’s desire to build a new permanent architecture for EMU. It also reflects the dangers of trying to reach complex agreements at 4.00am.

This poisonous little issue has been sitting there, just below the surface, for three months. But with the moment of truth about to arrive for the Spanish banking system, the hardcore of Germany, Finland and the Dutch have effectively said peripheral debtors can wear their own dysfunctional lending institutions, thank you very much.

Storm cloud German Jobless Claims Rise Again

German jobless claims increased for a sixth-straight month in September, indicating that Europe’s erstwhile job machine is sputtering.

The number of unemployment claims rose 9,000 in September, when adjusted for seasonal effects, the country’s labor agency said Thursday. As part of its regular revisions, the agency also increased the estimated rise in August’s unemployment claims to 11,000 from an earlier estimate of 9,000. (…)

Another discouraging sign is the drop in job openings, which fell to roughly 467,000 from 471,000 in August, its eighth straight decline. (…)

Lightning  Spanish deposits fall as crisis deepens
Pressure mounts on PM Rajoy as he unveils crucial budget

Private sector deposits fell more than 1 per cent to €1.49tn at the end of August from €1.51tn in the previous month, hitting their lowest point since April 2008, according to the European Central Bank. The rate of flight slowed slightly compared with July, however. (…)

The financial pressures on Mr Rajoy’s government have been intensified by a constitutional crisis brewing over the Catalonia region, which called snap elections this week that could hasten a move toward independence. (…)

Who Should Pay Spain’s Crisis Costs?  Even as the euro-zone fights to unite at a national level, the strains of the crisis are showing up further down the political chain. In Spain, Catalonia illustrates the struggle over who should pay the costs of the financial crisis. (Chart below from Reuters’ Scott Barber)

Winking smile A good excuse for me to re-present this article: BUT, WHO’S THE PIPER?


New-Home Sales Fall, but Prices Jump

Sales of newly built homes in the U.S. fell slightly 0.3% August, but prices posted their largest gains since late 2004.

(…) Sales of new single-family homes decreased 0.3% last month from July to a seasonally adjusted annual rate of 373,000, the Commerce Department said Wednesday. July’s revised rate of 374,000 homes sold was the highest since April 2010. (…) New-home sales were up 27.7% compared with the same month a year ago. (…)

Still, the median price for a new home in August was $256,900, the highest since March 2007. That figure is 17% above the price in the same month a year ago and the largest percentage gain since December 2004. (…)

Pointing up  The number of new homes listed for sale, seasonally adjusted, at the end of August was 141,000, which matches last month’s revised figure and is a record low. (…)

Consumer Rebound Built on Solid Foundations  Confused smile

It was housing that left the U.S. economy in shambles. Now it may be housing that is keeping it from buckling.

(…) But now that housing is clearly improving, consumers have cause to breathe a little easier. With the S&P/Case-Shiller 20-city home-price index up 5.9% in July from the start of the year, the values of Americans’ homes are making their finances look better instead of worse.

Considering how important houses are as an asset class, that matters. According to the Federal Reserve, 68.6% of U.S. families owned a home in 2010, compared with 49.9% who held stocks directly or through retirement accounts and the like. The median value of homes, among families who owned one, was $209,500, compared to a median value of stockholdings of $29,000. (…)

And indeed, there are signs that the American mood is improving, with a host of consumer measures picking up. There also appears to be an increased willingness to spend on big-ticket items: estimates that dealerships will sell 14.6 million light vehicles this month, at a seasonally adjusted annual rate. That would match the cash-for-clunkers-boosted July 2009 level.

Plenty could go wrong, but with the Fed now buying mortgages in an effort to juice the housing market, the wind at consumers’ back may only get stiffer.

A host of measures picking up? What’s a host? Here’s a host:





And this last chart from IBD today:

Need a Loan? Where Do You Live?  The long-awaited recovery in bank lending to consumers is well under way in some smaller U.S. cities but remains depressed in large metropolitan areas on the East and West coasts, according to an analysis of data by The Wall Street Journal.


This is a good chart from the WSJ. It shows that overall borrowing remains low. Car loans have picked up because of aging cars but deleveraging is continuing.

Fed action triggers fear of new currency wars
Traders steer clear when central bank intervention a risk

Currency intervention has been a growing concern for forex investors, with many now scrutinising the history of a central bank’s interventions before deciding whether to invest.

Emerging market currencies respond to the Fed but intervention can limit gains


CEOs Turn Less Optimistic as Fiscal Cliff Nears

The Business Roundtable‘s third quarter CEO Economic Outlook Survey found more top executives now expect their firms to cut jobs rather than add them in the next six months. Fewer of those leaders expect sales and capital investment to increase in the near future than they did in June.

“The uncertainty is cold water on long-term planning,” said Boeing Co. CEO Jim McNerney. He is chairman of the Business Roundtable, an association of CEOs. (…)

Only 29% of CEOs surveyed expected employment at their companies to grow in the next six months, compared to 34% that expect headcount to decline.(…)

The third-quarter survey found 58% of CEOs expect their company’s sales to grow in the next six months, compared to 75% that predicted gains in the second-quarter survey. Similarly, 30% forecast increases in capital spending, down from 43% the prior quarter.


John Mauldin`s always excellent Thoughts from the Frontline recently focused on the hurdles faced by American executives in managing their business (QE Infinity: Unintended Consequences).


Guessing the Fiscal Cliff’s Fate

Is Congress going to drive the U.S. economy over the fiscal cliff? Is Washington so dysfunctional that Congress and the president will let taxes rise sharply and spending be cut across the board? Maybe, writes David Wessel.

There are, however, Democrats arguing that going over the cliff—briefly—wouldn’t be so bad and would strengthen their hand in negotiating with Republicans in 2013. There are Republicans who argue the same. (They can’t both be right.) Right now, it is hard to distinguish between bargaining bluster and true conviction.

But they can both be stupid!

The latest polls suggest the most likely outcome is an Obama win with a Congress that looks much like the current one. Crying face


I am not strong on line drawing but here’s one worth following:


Scandals Rain on Berlusconi’s Party

The scandals erupted this month when prosecutors said they were investigating whether a regional lawmaker from Mr. Berlusconi’s conservative People of Freedom party embezzled €1 million ($1.29 million) from taxpayer-funded party coffers. Days later Italian newspapers published photos of a soirée thrown by a People of Freedom party politician that featured revelers dressed as pigs.

Could be a typo. PIIGS?  Rolling on the floor laughing


NEW$ & VIEW$ (30 AUGUST 2012)

Not a cheerful day!
Snail  US growth revised up on stronger exports
Pace of recovery remains too slow to rule out QE3


Better growth on stronger exports! How sustainable is that in the current environment?

Doug Short illustrates the U.S. secular slowdown:


Smile  large imageU.S. Pending Home Sales Reach Two-Year High

Pending sales of single-family homes rose 2.4% last month after an unrevised 1.4% June decline, according to the National Association of Realtors (NAR).


Americans Chip Away at Debt on Homes

Total U.S. household debt fell by 0.5% in the April-to-June period from the previous quarter to $11.38 trillion, the Federal Reserve Bank of New York said Wednesday.

The drop was due almost entirely to falling mortgage balances, as some households paid down home loans while others erased their debts and lost their homes by completing the foreclosure process.

Pointing up Meantime, the number of homeowners entering foreclosure fell by 12% to an estimated 256,000 during the quarter, the lowest level since mid-2007, providing another sign the housing market may be stabilizing.

NBF Financial digs deeper to reveal this increasingly worrying trend:

Student debt has soared in recent years to reach a record 28% of non-mortgage household debt in Q2. While student loans account for 8% of total household debt, they accounted for a disproportionate 13% of delinquencies in Q2. That’s over twice the share of delinquencies seen in
2010Q1 when student loans accounted for 6% of total debt.

As today’s Hot Charts show, the spread has never been that big between the students’ share of total delinquencies and the students’ share of total debt. With the US government decision two years ago to back student loans, the growing problem of delinquencies makes the task of reducing the federal budget deficit a bit more challenging.


Auto Auctioneers See Hint of Auto Slowdown  There may be a hint of a slowdown in the U.S. auto industry coming from, of all places, industrial yard sales.

“But in the last 30 to 60 days, we’ve seen prices move down a little bit, and activity is down a little,” says Mr. Wolf. “We’re just suddenly seeing more wariness in the [automotive] marketplace.” He says it’s unclear whether this is a short-term pullback. “It’s not just us,” he says. “We’re seeing this in the larger auction marketplace.”

WPP Cuts Revenue Forecast

WPP, the world’s largest advertising company, cut its revenue forecast for 2012 on slowing growth in the U.S. and Europe, but reported a rise in first-half profit.

WPP’s move to trim its full-year outlook is a U-turn from a rise in the forecast just four months ago after a strong performance in Asia and Latin America boosted first-quarter results.

WPP generates more than two-thirds of its sales in Western economies, which are continuing to feel the effects of the European debt crisis. More surprising is the company’s disappointing performance in the U.S., with the group blaming a 0.6% fall in the country’s second-quarter like-for-like revenue on slow spending by its customers, particularly in health care, call center and public affairs businesses. The U.S. slide compares with 1.4% growth in the first quarter.

Storm cloud  German Unemployment Rises for Fifth Month as Companies Restrain Investment 

German unemployment increased for a fifth straight month in August as the European debt crisis curbed demand for exports and companies held back investment.

The number of people without a job increased a seasonally adjusted 9,000 to 2.90 million, the Federal Labor Agency in Nuremberg said today. The adjusted jobless rate was unchanged at 6.8 percent. (…)

Unemployment rose an unadjusted 29,000 in August, today’s data showed. The weaker economy is hurting the labor market, the labor agency said in a press release.

“It’s normal for unemployment to rise in a holiday month, but the increase this month is bigger than usual,” labor agency President Frank-Juergen Weise told a press conference.

Storm cloud  Brussels cuts Ireland’s growth forecast
Dublin warned it may need new round of spending cuts
France earmarks €2.3bn to cut joblessness
Extra spending to increase difficulty of cutting deficit

(…) It was the second spending measure announced in two days after the government’s commitment on Tuesday to spend €300m in financing its share of a 6 euro cent per litre cut in fuel pump prices. The cost is to be shared equally with the fuel industry.

Despite growing concern among independent economists about its ability to hit the deficit target, Mr Ayrault reiterated in his speech to thousands of Medef members gathered outside Paris that it would do so based on an equal split between tax increases and spending cuts. The savings required are expected to be at least €33bn, an unprecedented figure for France.

Auto  Storm cloud Volvo to cut car production by 10 percent: union

Swedish carmaker Volvo, owned by Chinese Zhejiang Geely, is to cut production in Sweden about 10 percent and axe 200-300 jobs due to slower than expected sales, a union said on Thursday.

(…) “They (management) said before the summer break that sales had gone down. When we came back, they said they had gone down further,” he said, adding that about 2,000 staff work on the production line at Torslanda. (…)

Storm cloud  Recruiter Hays warns of more jobs pain to come

British recruitment firm Hays said business was getting increasingly tough in many of its regions and it would struggle to find growth from a dwindling set of healthy markets in a weak global economy next year.

Earlier this month, rival recruiter Michael Page International said it saw no sign of improvement in the job market.

“Our markets over the last 12 months have got progressively more difficult and a number of them do not have any momentum in them today,” Hays chief executive Alistair Cox said on Thursday.

Storm cloud  Brazil cuts interest rates to new low
Economic growth expected to slow to less than 2% this year

The central bank reduced its benchmark Selic interest rate by 50 basis points to 7.5 per cent and signalled another possible cut, continuing a sharp easing cycle that began a year ago.

Latin America’s largest economy has slowed dramatically from 7.5 per cent growth in 2010 to an expected rate of below 2 per cent this year. (…)

The fragility of the present recovery was made clear by moves by finance minister Guido Mantega on Wednesday to prove a two-month extension of tax breaks for car purchases that were due to expire this month.

He also extended to the end of the year tax relief on washing machines, refrigerators and other home appliances while the development bank, BNDES, announced new credit lines for capital equipment.

Inflation adds to Spanish woes with jump to 2.7 per cent

Spanish consumer prices surged in August driven by higher fuel costs and a value-added tax hike in September could drive another jump, complicating Spain’s efforts to get out of recession and generate the growth needed to reduce its debts.

EU-harmonized consumer prices rose by 2.7 per cent year-on-year in August, flash data from the National Statistics Institute (INE) showed on Thursday, up from 2.2 per cent in July and much higher than a market consensus for an unchanged reading.

Prices could well rise further from September 1 when value-added tax rises to 21 per cent from 18 per cent, raising prices for consumers already struggling under the weight of falling wages and unemployment of almost 25 per cent.

Spain also depends on imports for some 70 per cent of its energy needs, meaning higher fuel prices raise costs for businesses.

“We can see an energy cost effect here, but it might also be that some businesses have raised prices on products before the September VAT hike, so they can then say they haven’t raised prices when it happens,” said Nicolas Lopez, economist at M&G Valores.

He said inflation could rise as high as 3.7 per cent in September.


Prices just keep rising in the face of 25% unemployment and a free fall in the GDP! Confused smile


Storm cloud  China’s Stocks Head for Fourth Monthly Loss as Corporate Earnings Falter China’s stocks fell, dragging the benchmark index down for a fourth straight month, after companies from China Cosco Holdings Co. to China Shipping Container Lines Co. reported first-half losses.

Storm cloud  China Copper Demand Seen Growing at Slowest Pace in 15 Years

Usage may increase 5 percent to about 7.7 million metric tons supported by demand from the power industry, Yang Changhua, who’s studied the market for more than a decade, said in a phone interview from Beijing. “It could turn out to be even lower, and we’re not optimistic about next year,” Yang said yesterday. (…)

“This time is different from 2008,” said Yang. Growth in copper demand “reached almost 10 percent as Beijing’s stimulus package boosted infrastructure construction then, but now even if there are stimulus policies, the potential for further growth is relatively small.” (…)

“The average growth rate in the next five years will be 4 percent to 5 percent at best as China’s potential growth slows,” Yang said. Antaike’s latest forecast was cut from an initial estimate of 6.4 percent, made at the end of last year.

Airplane  More U.S. firms may shift some business from China to ASEAN: survey


AmCham Singapore said on Thursday its survey of 356 senior executives working for U.S. companies in the region showed that 21 percent planned to reduce reliance on China by moving some businesses to Southeast Asia over the next two years, up from 15 percent in a 2011 survey.

Dutch Candidates Embrace Euro-Skepticism


According to TNS NIPO, the Liberals are back in the lead with 36 projected parliamentary seats, followed by the Socialists with 30 and the center-left Labor Party with 24. The Freedom Party—which is led by Mr. Wilders, who is a member of parliament—is shown with 15 seats, nine fewer than the 24 it won in 2010. The poll surveyed 1,443 voters, and has a 2.2% margin of error.

In an election season where one-third of voters are still undecided so close to the polling, the vote seems up for grabs. Other live televised debates will have a major impact, pollsters say.

Whatever the outcome next month, no party is likely to get a majority, and the process of forming a coalition is expected to be difficult in such a fragmented political landscape.