NEW$ & VIEW$ (11 FEBRUARY 2013)

Short term indicators steady. Insiders selling. OECD LEIs. Bubbly yields. U.S. exports slowing. German employment. Canada slowing. U.S. productivity squeezing margins? Chinese credit risks. China IP rising. Emerging markets valuations. Currency fluctuations.

Fingers crossed SO FAR, SO GOOD

The uncertain effects of the ongoing fiscal drag combined with rising gasoline prices require close monitoring of the U.S. economy. Real disposable income surged 6.8% Q/Q annualized in Q4’12, mainly due to dividends having been shifted (i.e. prepaid) into Q4 to escape potentially higher taxes in 2013. In addition, $160B in higher taxes will hit consumers in Q1’13. Disposable income could drop more than 8% in Q1’13! Can higher house and stock prices and lower mortgage rates create enough wealth effect to offset the hit?

ISI’s weekly surveys remain solid up to Feb. 8. Industrial and housing survey data are strong but “some of the consumer surveys with smaller ticket size” have decelerated recently. Retailers surveys are weakish but auto dealers surveys remain good.


The Discover U.S. Spending Monitor held steady in January dropping only one-third of a point from 91.1 to 90.8. Economic confidence among consumers remained relatively flat month-to-month, while more consumers are planning to increase their spending on household expenses like gas and groceries and home improvement purchases.

Pointing up Sucker Alert? Insider Selling Surges After Dow 14,000

(…) “In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012,” wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. “Insiders are waving the cautionary flag in an increasingly aggressive manner.”

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year. (…)

Looking at a longer time frame paints a bearish picture as well. The eight week sell-buy ratio from Vickers stands at 5-to-1, also the most bearish since early 2012. What’s more, the last time this ratio was at these levels was June 2011, just before another correction in the stock market took place.

Insider selling is not as significant as insider buying. But in my search for signs of a weakening economy, the January selling by people on the front line raises a yellow flag, especially coming after the year-end. If anybody needed to sell stock over the short term, the looming fiscal cliff provided ample reasons to sell in December.


Composite leading indicators (CLIs) show diverging growth patterns in the economic outlook of major economies. In the United States and the United Kingdom, the CLIs continue to point to economic growth firming but in the United Kingdom the signs are slightly weaker compared to last month’s assessment. In Japan and Brazil, signs of growth picking up are emerging.

In the Euro Area as a whole, and in particular in Italy and Germany, the CLIs point to a stabilisation in growth prospects; however in France growth is expected to remain weak.

In China and India, the CLIs point to growth below trend compared with more positive signals in last month’s assessment. In Canada and Russia the CLIs continue to point to growth below trend.



High five  SEARCH FOR YIELD GETTING BUBBLY (charts from Moody’s):

See the diverging trends?



Storm cloud  U.S. Trade Deficit Shrinks to Lowest Since January 2010 (Haver Analytics)

The U.S. foreign trade deficit during December improved to $38.5 from little-revised $48.6B in November. The improvement was due to a 2.1% increase (4.9% y/y) in exports and a 2.7% decline (-2.0% y/y) in imports. Real exports jumped 2.6% (2.7% y/y) while real imports plunged 3.1% (-1.1% y/y).

Petroleum Exports Soar To New High In Economic BoostThat looks like good news as many media reported it (e.g. the WSJ’s Data Suggest Economic Growth). Yet, details reveal that U.S. exports are continuing to slow down when excluding petroleum products from the trade stats. (Chart fro IBD)

In December, the increase in real exports was led by a 9.5% jump (4.7% y/y) in industrial supplies, mostly petroleum products, and a 1.1% increase (-6.8% y/y) in foods, feeds & beverage exports. The constant dollar value of motor vehicle exports fell 2.4% (+1.4% y/y); real exports of nonauto consumer goods exports declined 1.4% (+1.1% y/y) and real capital goods exports were off 0.9% (+2.7% y/y). (…)

Same with imports.

Leading the decline in imports was an 11.0% drop (-20.9% y/y) in the value of petroleum imports. The quantity of petroleum product imports was off 7.2% m/m and it was down 17.5% y/y. The price of crude oil fell to $95.16 from $97.45. Real imports less petroleum fell 1.6% in December (+2.4% y/y), led by a 3.9% decline (+3.5% y/y) in autos. (…)

Imports of nonpetroleum goods have actually been flat (+0.3%) in Q4. This means that U.S. domestic demand is waning. It also means that the U.S. economy is no longer a strong market for other economies.

The FT’s headline was another teaser, this one global: Trade surge hints at renewed growth Data from China, Germany and the US boost global hopes

Yet, China’s January data are significantly distorted by the New Year holidays and should therefore be heavily discounted. Why the FT included Germany in its headline is a mystery.

In Germany, both exports and imports fell in December compared with their levels a year earlier, reflecting weakness in Europe’s largest economy in the fourth quarter, which is expected to improve this year.

Speaking of Germany:

Lightning  ThyssenKrupp to cut 2,000 steel jobs
Lower demand forces €500m cost-cutting plan

(…) ThyssenKrupp said in a statement on Friday that “far-reaching structural adjustments and operational improvements are urgently needed to permit the continued running of the core units in the hot end operations and the hot rolling lines”.

ThyssenKrupp will consider “the closure, relocation or sale” of several business units, including plants in Germany and Spain, it said.

More than 2,000 jobs out of a total of 27,600 jobs at Steel Europe will be cut and a further 1,800 jobs could go via disposals. (…)

And, from Canada, the U.S. largest trading partner:

Storm cloud  Jobs downturn mirrors slump in housing and trade

Friday marked a plunge in home construction starts, to the lowest since August, 2009, and a tumble in exports to the United States, Canada’s largest trading partner. It also marked the first decline in employment levels in half a year, along with cooling growth in wages.

(…) exports to the United States tumbled in December, led by a decline in car and energy shipments.


Same-store sales in the U.S. were up 0.9%. (…) The Asia/Pacific, Middle East and Africa region posted a 9.5% drop in same-store sales. McDonald’s pointed to weakness in Japan and in China, where the company said a controversy over chicken supplies has damped consumer appetite. (…)

In Europe, same-store sales declined 2.1%, as positive results in the U.K. and Russia were offset by weak performance in Germany, France and other areas, the company said. (WSJ)

Are Wages About to Start Rising?

(…) Wages rose 3.4% from 2011 to 2012 for full-time workers in computer and mathematical occupations, 5.1% for accountants and auditors, 7.5% for electrical engineers, and 4.4% for mechanical engineers.

Storm cloud  U.S. Worker Productivity Declines and Drives Up Costs

Nonfarm business sector productivity for Q4’12 declined 2.0% (SAAR, +0.6% y/y) and reversed virtually all of the 3.2% increase during Q3, revised from 2.9%. That left the 1.0% gain for all of last year down sharply from the roughly 3.0% annual increases during the two years immediately following the last recession. Lower productivity growth last quarter was accompanied by a quickened 2.4% rise (2.6% y/y) in compensation per hour. Nevertheless, for all of last year compensation growth slowed to 1.7%, its weakest since 2009.

This combination of lower productivity and high compensation caused unit labor costs to jump at a 4.5% annual rate (1.9% y/y). Declines during the prior two quarters, however, left the full year increase at a modest 0.7%. (…)

large image large image

Hmmm…That means margin compression.

Surprised smile  Surge in Chinese credit raises fears

Data stoke concerns over overheating in China’s economy

(…) Total new financing in January reached Rmb2.5tn ($400bn) – up more than 50 per cent from December and more than double the figure a year ago – eclipsing even the start of 2009 when China unleashed stimulus spending to battle the global financial crisis. (…)

The explosion in financing was only partly driven by banks, which made Rmb1.07tn in loans. The rest of the new credit – 60 per cent of the total – came from corporate bonds, loans by investment companies, direct lending from companies to other companies and bankers’ acceptances, a popular form of short-term financing in China.


HSBC’s PMI index China’s manufacturing has improved considerably since bottoming at the 47.6 of August 2012. In fact, China’s PMI index rose in each of the five subsequent months having reached 52.3 in January 2013. Accordingly, the yearly increase of China’s industrial output should climb above December’s 10.3% advance. If China continues to improve, the recent financial market rallies may prove correct in their anticipation of faster growth for sales and profits. (Moody’s)



Two charts from usfunds’ Frank Holmes (via Business Insiders):





Investors dive into euro-yen policy gap
Spectre of currency wars as markets turn bullish on single currency

(…) Buying the euro and selling the yen has become one of the most popular trades in the foreign exchange market, with currency traders including hedge funds more bullish on the euro than at any time since July 2011. (…)

The rapid pace of the currency moves has alarmed policy makers in Europe and led to caution from government officials in Japan. The euro has risen nearly 9 per cent against the yen this year, outstripping its gains against the dollar of just over 1 per cent. (…)

Meanwhile, some analysts are urging caution on the euro after what many see as verbal intervention by Mario Draghi, ECB president, who said on Thursday that the euro’s strength could hamper the economic recovery of the eurozone. The comments sparked speculation the ECB could cut interest rates if the euro continued to gain in value.

G-7 Said to Discuss Statement to Calm Currency War Concern

The current wording, which still may be changed, contains a commitment to market-set exchange rates and an agreement that governments don’t use fiscal or monetary policy to drive currencies, the official said.

Franc Is Still Overvalued, SNB’s Zurbruegg Tells Aargauer

“The Swiss franc is overvalued even at today’s exchange rate against the euro,” Zurbruegg was cited as saying in an interview with Aargauer Zeitung published today. “The minimum exchange rate remains the appropriate instrument for the foreseeable future to ensure price stability.” The Zurich-based SNB confirmed the remarks.

 Lightning  Venezuela Slashes Currency Value

Venezuela moved to devalue its currency exchange rate with the dollar, a move aimed to address shortages of basic goods as importers struggle to get a hold of hard currency.

The bolívar—whose official name is the Strong Bolívar—was slashed by nearly a third of its value to 6.3 per dollar from a previous rate of 4.3 per dollar, Finance Minister Jorge Giordani told a news conference.

The move will help narrow the Venezuelan government’s budget shortfall, but will also spur inflation that is already among the world’s highest—highlighting the increasingly difficult trade-offs faced by Mr. Chávez after a more than a decade of populist economic policies. (…)

The move should ease the fiscal gap by giving the government more in local currency terms for every dollar it earns in oil exports through state oil giant Petroleos de Venezuela, one of the world’s biggest oil companies. The fiscal gap will close to 5.3% of gross domestic product compared with 8.5% last year, said Francisco Rodriguez, an economist at Bank of America Merrill Lynch. (…)

The move will raise the cost of imports, and Venezuela’s economy—hit by widespread nationalizations during the Chávez years—is increasingly dependent on imports. Alberto Ramos at Goldman Sachs estimated Venezuela’s inflation will rise to 30% this year as a result.

As Egypt Runs Out Of Dollars, Is It Next On The Devaluation Bandwagon?


NEW$ & VIEW$ (31 JANUARY 2013)

U.S. GDP. Currencies. German unemployment declines. Oil prices threaten. Eurozone housing still depressed. Student loans sour.

Recovery Shows a Soft Spot

The U.S. economy shrank for the first time in more than three years in the fourth quarter, underscoring the halting nature of the recovery. But the strength of consumer spending and business investment suggested that the economy will grow, albeit slowly, this year.

Gross domestic product fell at a 0.1% annual rate in the fourth quarter of 2012, according to the government’s initial estimate out Wednesday.

The details weren’t as discouraging as the headline. The drop, a surprise, was driven by a sharp fall in government spending and by businesses putting fewer goods on warehouse shelves, as well as by a decline in exports. The mainstays of the domestic private economy—housing, consumer spending and business investment in equipment and software—were stronger.


The U.S. joined other advanced economies in reporting contractions in the final months of last year. The U.K., Germany, Spain and Belgium have said their economies shrank in the fourth quarter, and several more euro-zone members in coming weeks are expected to report their own declines. Budget cuts appear to be a leading factor driving the contractions in many of those nations.

GDP reports are rear-view mirrors. However, this last one has two little mentioned worrying details:

  • Real consumption expenditures (+2.2%) were strong (!) thanks to a surge in personal income as bonus payments and dividend income were accelerated into Q4 from the Q1.  As a result, personal income gains in Q1 will be soft.
  • Exports dropped 5.7% (+1.4% Y/Y) and contributed negatively (-0.8%) to Q4 GDP growth after three positive contributions in previous quarters, more than offsetting the +0.36 contribution from residential investment. So as the housing recovery is finally making headlines, exports are deflating right when everybody is trying to weaken its currency.

The widely expected rebound in Q1 might thus be over optimistic:

  • The fiscal drag on consumer income is substantial and immediate.
  • Oil prices have jumped recently but gasoline prices have lagged, but maybe not for long (see below). Natural gas prices are also up sharply this winter.
  • Exports may become a bigger drag.
  • The sequester is coming March 1.

I am no economist but these things are worrying me.

Fed’s Bond Purchases Continue

The Federal Reserve is keeping its foot pressed firmly on the monetary gas pedal amid news that the economy essentially stalled late last year.

Though they foresee a pickup to “moderate” growth, officials said they saw continued “downside risks to the economic outlook.”

Threats Cloud Euro’s Flight

The euro is on a months long tear, but the sharp increase threatens to curb exports badly needed to boost euro-zone growth.



German Unemployment Unexpectedly Declined in January  German unemployment unexpectedly declined in January, adding to signs that a pick-up in Europe’s largest economy is gathering pace.

The number of people out of work fell a seasonally adjusted 16,000 to 2.92 million, the Nuremberg-based Federal Labor Agency said today.  Joblessness declined by 2,000 in December instead of a previously reported gain. The adjusted jobless rate dropped to 6.8 percent this month, matching a two-decade low.

Yen’s Fall Boosts Japanese Firms

The yen’s recent dramatic drop is giving hard-hit corporate Japan its biggest break in years, raising hopes of a long-awaited earnings recovery.

“The weaker yen is a tailwind for export manufacturers like us,” Canon Chief Financial Officer Toshizo Tanaka said at a news conference. He called the company’s currency outlook “conservative” because of economic uncertainty in the U.S., Europe and China.

That sentiment is likely to be repeated by Japanese executives through the end of next week as the country’s multinational companies issue earnings reports. Daiwa Securities estimates that profit growth at the top 200 Japanese companies will nearly double to 13% for the fiscal year through March, reversing a 16% decline in the previous year, assuming exchange rates remain roughly at current levels for two months.

Since mid-November, when the yen’s depreciation started in anticipation that a new Japanese government would take a hands-on approach to fighting deflation, the dollar has soared nearly 15% against the Japanese currency. The dollar hit ¥90.88 late Wednesday in Tokyo, after trading below ¥80 for much of last year. The yen’s decline has been even more sharp against the euro, driving the European currency up 22% to ¥122.55.

Brent rise poses threat to fragile recovery
Rally drives oil closer to $120 ‘pain threshold’ for consumption

Nymex March West Texas Intermediate oil, the US benchmark which has been trading at a discount to Brent because of surging US unconventional production, approached $100, hitting $98.24, the highest since mid-September.

US consumers will feel the effect of higher Brent prices, because US gasoline prices are indexed to the global benchmark.



In the U.S.:

The fact that Brent crude oil prices have been rallying less than WTI crude oil is important due to the fact that gasoline prices are much more closely correlated to the price of Brent than they are to WTI crude oil.  The chart below compares the prices of unleaded gasoline to Brent crude oil prices over the last six months.  As shown, the relationship between gasoline and Brent crude is much stronger than the relationship between gasoline and WTI.  

To be closely monitored.

Demand for oil to rise 4.8%  As China’s economy gradually rebounds, its demand for oil will rise at a modest rate of 4.8% to 514m metric tons this year, and imports will continue to grow.

The country will import about 289 million tons of crude oil this year, up 7.3 percent year-on-year, according to a report released by the institute under China National Petroleum Corp.

China imported 269 million tons of crude last year, with a foreign dependency of about 57 percent.

The country’s total crude consumption was 475 million tons, up 4.7 percent year-on-year in 2012, CNPC said.




Euro-Zone House Price Decline Accelerates

European statistical agency Eurostat said the average cost of a home fell 0.7% in the third quarter of 2012, compared with a 0.1% decline in the second quarter. In annual terms, house prices were 2.5% lower than in the same period a year earlier—a steeper drop than the 2.1% annual decline reported in the second quarter of 2011.


House prices dropped 3.7% Q/Q in Spain in Q3 (-15.2% Y/Y), -0.9% in Portugal (-7.7%) and -1.1% in Italy (-3.2%). Prices rose 0.9% in France (-1.3%). No data on Germany. (Eurostat)

Taiwan lifted by uptick in exports Fourth-quarter GDP rises faster-than-expected 3.4%

Exports rose 9 per cent year-on-year in December, an acceleration from sub-1 per cent growth in November.

Taiwan is heavily dependent on exports, which are equivalent to 70 per cent of its economy, and throughout much of last year the economy was dragged down by falling demand in key markets of Europe and mainland China.

“We are seeing a recovery for example in China’s growth momentum and some stabilisation in the global economy, and so that is feeding through to the bottoming out and gradual recovery in Taiwan,” said Grace Ng, Taiwan economist for JPMorgan.

Risky Student Debt Starts to Sour

The number of student loans held by subprime borrowers is growing, and more of those loans are souring, according to new data.

imageIn all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

The federal government has taken a more active role in student lending and now makes about 93% of all loans.


NEW$ & VIEW$ (30 JANUARY 2013)

Equities back in fashion, Eurozone woes continue, U.S. housing recovery, Chinese banks.

[image]Individual Investors Help Stock Surge

Small investors are jumping back into the stock market after abandoning it during the financial crisis, and their return is a big reason why the Dow is pushing toward an all-time high.

A total of $6.8 billion shifted into U.S. stock mutual funds in the first three weeks of 2013, according to mutual-fund tracker Lipper Inc. That is the biggest move since 2001.

“Looking at the news every day, there seems to be more of a consensus that things are getting better,” said Jack Stokinger, a 65-year-old retiree in Sudbury, Mass.image


Eurozone business confidence rises sharply
Survey adds to consensus that ‘growth prospects are brightening’


The European Commission’s “economic sentiment indicator” rose from 87.8 in December to 89.2 as managers predicted that the service and construction sectors would pick up across the 17 countries in the currency bloc. The strongest improvement in sentiment was registered in Germany, the Netherlands and Spain.

High five  Now, curb your enthusiasm and beware of headlines. First, I fail to see a “sharp” rise in sentiment. Only a small improvement. Second, sentiment remains very negative, just slightly less so.





Euro Zone’s Risk in Currency Wars  In the currency wars, being a noncombatant puts you squarely in the firing line. Take the euro, which hit a 14-month high against the dollar.

While the Federal Reserve and Bank of Japan are continuing to print money, leading to weaker currencies, the European Central Bank seems to be heading in the opposite direction. That points to more euro strength—at least until fears about euro-zone growth kick in.

Confused smile  “until fears about euro-zone growth kick in”! Read on:

Europe’s Car Woes Continue

Sales in Europe’s 19 largest auto markets this year likely will be lower than 13.5 million units, nearly a 20-year low.

Ford Chief Financial Officer Bob Shanks said a plan to cut 18% of its European capacity and close three plants by 2014 is on track and deeper cuts could come if necessary. (…)

Vice Chairman Stephen Girsky has said he is considering closing Opel’s Bochum, Germany, plant by 2015, nearly two years earlier than planned, unless executives and unions can wring out more costs. The plant employs about 3,000 workers.

Spanish Contraction Deepens  A new round of austerity further depressed Spain’s economy at the end of last year, official data showed

Spain’s National Statistics Institute, or INE, said Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period the previous year. It said output for whole of 2012 fell 1.37% from 2011.

The fourth-quarter INE data was slightly worse than a reading last week from the Spanish central bank, which estimated the economy had contracted by 0.6%. In the third quarter, Spanish GDP fell 0.3% from the second quarter.

Pointing up  According to data Tuesday from the INE, calendar-adjusted retail sales in December fell 10.7% from the same period a year earlier.

See also EUROZONE RETAIL PMIs REMAIN SOFT posted this a.m.

Poland’s Slowdown Fuels Worries

Polish economic growth slowed significantly last year, data showed, raising fears that the economy could soon be on the verge of contracting for the first time in more than two decades.

Hungary Cuts Rate as Expected

The Hungarian central bank cut the policy rate for the sixth consecutive month, ignoring the marked weakening of the forint against the euro and a warning from the IMF that room for easing is becoming limited.



Smile  Home Prices Jump From Year Earlier

U.S. home prices slipped in November, according to Standard & Poor’s Case-Shiller, with the decline attributed to seasonal weakness. (Chart below from Haver Analytics)

Home prices rose 5.5% in November from a year ago, the strongest increase since the peak of the housing boom in August 2006, according to the Standard & Poor’s/Case-Shiller index, released Tuesday.

The Case-Shiller report showed that 19 of the 20 metropolitan areas it tracks registered year-over-year price increases, with New York as the sole city to see prices fall.

Price gains have transformed housing from an economic drag to a key cog in the nation’s recovery. Through the third quarter of 2012, about 1.4 million homeowners saw their mortgages go from “underwater” to above, meaning that until recently their homes were worth less than they paid for them, according to real-estate research firm CoreLogic. Meantime, Federal Reserve data show real estate wealth increased $1.0 trillion through the first three quarters of 2012. (…)

A report on the home-ownership rate, released Tuesday by the Census Bureau, showed that the percentage of Americans who owned their home fell to 65.4% at the end of last year from 65.5% in the third quarter of 2012. The rate is down from its peak of 69.2% in 2005, but the decreases have slowed over the past year as the housing market has improved.


Though edging up for the first time in two years, the number of vacant homes (for sale only, year round) in the U.S. remained close to the historical trend. There are about 800,000 (or one-third) fewer
unoccupied homes on the market today than in 2008, which explains why house prices (Case-Shiller) rose 5.5% in 2012 after plunging 18.6% in 2008. (BMO Capital Markets)



Rising prices, low interest rates, limited visible supply, lower shadow inventory, rising rents, higher household formation = rising demand, rising prices, …

Emerging-Market Loan Outlook Perks Up

A survey to be released Wednesday by the Institute of International Finance, a global association of major banks, found that lending conditions in emerging economies perked up in recent months for the first time since the second quarter of 2011. Trade finance also is improving, a hopeful sign for the trade-dependent developing countries hit hard by the euro zone’s recession and financial turmoil. (…)

High five  Credit standards continued to tighten as well, particularly in Asia, as banks in China and other faster-growing economies maintain caution after sharp increases in property prices and trouble around the world.

China averts local government defaults
Banks extend maturities on loans on massive scale

Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load. (…)

Banks extended at least Rmb3tn ($482bn) – and perhaps more – of the roughly Rmb4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data. (…)

With banks all but refusing to lend to local governments, cities and provinces have turned in increasing numbers to non-bank financial institutions, especially trust companies, and to the bond market to raise new debt.

“As the regulators have gotten more careful, they have been able to shift the risk to other sources of financing such as trusts and bonds,” Mr Peng said. “The risk has not gone away. It’s just been spread.”

Official public debt in China is extremely low, at less than 20 per cent of gross domestic product. But Mr Huang said Beijing might eventually have to pick up the tab for the local governments’ debt – about 25 per cent of GDP – since it had directed them to spend the money in the first place.

China’s leading index from NBS ticked up from 100.4 in November to 100.5 in December, the fourth consecutive month above 100. Not a great indicator, however.


NEW$ & VIEW$ (14 SEPTEMBER 2012)

“Whatever it takes”. Central bankers have delivered. Both Draghi and Bernanke have done their part: unlimited and open ended money printing, hoping to achieve what policy makers obviously can’t. Inflation risk? No longer on bankers’ radar. Whatever it takes.

So, sovereign and banking risks are taken care of. The backstops are “firmly” in place. Interest rates will stay through the floor as long as it is needed. Politicians will remain politicians, no hope there. The baton has been passed to investors: boost asset prices high enough (including housing) to create the wealth effect that will bring more spending. And so the economic wheel will start moving ahead again.

Fingers crossed  Fed Acts to Fix Jobs Market

The Fed unveiled an aggressive program to spur the economy through open-ended commitments to buy mortgage bonds and promised to keep rates low for years.

In the most significant of its new moves, the Fed said Thursday it would buy $40 billion of mortgage-backed securities every month and would keep buying them until the job market improves, an unusually strong commitment by the central bank. (…)

The $40 billion monthly price tag on the bond-buying program is relatively small compared with the $1.25 trillion mortgage-bond buying program the Fed launched in March 2009 and a $600 billion Treasury bond-buying program it launched in November 2010. But the new effort has the potential to become very large.

“If the outlook for the labor market does not improve substantially, the [Fed] will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Fed said in its postmeeting statement.

The Fed also said

a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens.

Punch  Mohamed El-Erian

Like the ECB, its Frankfurt-based European counterpart, the Fed cannot by itself secure the results that so many desire – high growth, robust job creation and financial stability. At best, it can keep buying time in the hope that other government entities will get their act together. Until this happens, the Fed will remain in policy purgatory.

Part of the goal in both the U.S. and the Eurozone is to weaken the currency. This is especially crucial in Europe. However, this a.m. the Euro is through 1.31.



And …

Japan Hints at Intervention

Japan’s finance minister hints that market intervention to tackle the strong yen may be imminent, as the currency’s strength threatens to worsen the country’s economic slowdown.

Finance Minister Jun Azumi’s intensifying efforts to talk down the yen come after the dollar hit a fresh seven-month low of ¥77.13 in New York overnight, putting additional stress on Japan’s struggling manufacturers.

The U.S. Federal Reserve’s announcement Thursday of a major new round of monetary easing to juice U.S. growth dealt a blow to the U.S. currency. The dollar was at around ¥77.62 around 0345 GMT.

Mr. Azumi said he understood the Fed’s “commitment to revitalizing growth,” and noted that a U.S. economic rebound would be “desirable for the world economy.” But he characterized the yen’s recent climb as “one-sided” and “clearly” out of line with Japan’s economic situation.


Euro area annual inflation was 2.6% in August 2012, up from 2.4% in July. A year earlier the rate was 2.5%. Monthly inflation was 0.4% in August 2012.

U.S. wholesale prices in August posted the largest one-month gain in more than three years, fresh evidence that advancing energy costs could create inflation pressures.

The producer-price index increased a seasonally adjusted 1.7% in August from a month earlier. The biggest gain since June 2009 was largely a result of energy prices rising 6.4% for the month. So-called core prices, which strip out volatile energy and food components, moved up 0.2% in August.

Wholesale energy prices rose in August for the first time since February as gasoline prices climbed 13.6%, the largest increase in three years. Liquefied petroleum gas, home heating oil and diesel-fuel costs also jumped last month. (…) food cost rose 0.9% last month as prices for eggs and dairy products increased sharply. (Chart from IBD)

The 0.6 increase in the consumer-price index was the biggest since June 2009 and followed no change in the previous month.

Consumer prices increased 1.7 percent in the 12 months ended in August, the report showed. The core CPI climbed 1.9 percent over the past 12 months.


Inflation in India rose more than expected in August on higher prices of fuel and manufactured products, reducing the chance that the Reserve Bank of India will cut interest rates next week.

The wholesale price index rose 7.55% in August from a year earlier, up from July’s 6.87% increase, government data showed Friday.

  • Russia Raises Interest Rates  Russia’s central bank raised interest rates for the first time in nine months as it struggles to contain inflation amid a slowing economy.



Note how crude oil has been rising in the face of very weak economies since 2010. Does not look like just a “temporary” blip to me.

Storm cloud  U.S. Industrial Production Fell in August

The 1.2 percent decrease at factories, mines and utilities followed a revised 0.5 percent gain in the prior month.

“Precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of the hurricane contributed to a drop of 1.8% in the output of mines for August,” the Fed said. It was also a big factor in the 3.6% drop in utilities.

But manufacturing activity also cooled significantly, retreating 0.7% after a 0.4% gain in July.

0.3% of the monthly decline is because of hurricane Isaac.


Storm cloud  OECD: Foreign Investment in Sharp Fall

Economic uncertainty and fears of rising protectionism are causing companies to pull back on international investment, the OECD said.

(…) While research institutes that monitor trade and investment rules around the world have recorded an increase in measures designed to protect businesses against foreign competition, Mr. Gestrin said there is little sign that protectionism is “spiraling out of control.”

It is the threat of a surge in protectionism, rather than actual changes in the rules to date, that has changed the behavior of some businesses.

“For business it’s really the threat and potential for things to get worse,” Mr. Gestrin said of the decline in foreign investment this year. “Everybody sees that the pressure on governments and the temptation to resort to protectionism aren’t going to diminish soon. Businesses are in a wait-and-see mode.” (…)

And yet, this is where the cash is piled up, waiting to be deployed in productive endeavors.


Euro-Zone Job Level Holds Steady

Employment numbers in the euro zone held steady for the first time in a year, raising hopes that the crisis-stricken economy may not be sinking as rapidly as feared.

The number of persons employed remained stable in the euro area (EA17) and increased by 0.1% in the EU27 in the second quarter of 2012 compared with the previous quarter, according to national accounts estimates published by Eurostat, the statistical office of the European Union. (Eurostat)


High five  Problem is, the monthly data on unemployment crept up during Q2 and PMI reports continue to point to reduced employment in the Eurozone.

Remember that Draghi’s gambit needs official bailout requests:


Schaeuble Cautions Spain Against Aid Bid as Cyprus Talks Begin

German Finance Minister Wolfgang Schaeuble discouraged Spain from seeking a full international bailout, saying another request for outside aid risked a new round of financial-market turmoil.

“I’m not in the camp that says ‘take the money,’” Schaeuble, 69, said in an interview in Berlin when asked about moves to press Prime Minister Mariano Rajoy’s government to seek more aid. Spain “would be daft” to ask for a bailout on top of the 100 billion euros ($130 billion) for its banks if it didn’t need it, he said. (…)

“I don’t share the view of those who say Spain is so much a focus of speculation in the financial markets that we should advise the Spaniards to do anything different from what they’re doing,” Schaeuble said in the interview yesterday in the Finance Ministry in the German capital. “I’m one of those who says we should do everything possible to convince the markets that this speculation against Spain is without any basis in reality.”  Light bulb


+3.6% YoY in August vs +4.5% in July. It was down 1.1% MoM seasonally adjusted according to ISI.

Storm cloud  Third quarter unlikely to buoy industry  Even though the shipping industry usually enters its peak season during the third quarter of the year, it now finds itself struggling.


Storm cloud  Japan Cuts Economic Assessment

The Japanese government cut its assessment of the economy for the second straight month in September, as a slowdown in key export markets weighed on domestic demand and production.

In its monthly economic report released Friday, the government said the economic recovery “appears to be pausing due to a deceleration of the world economy.”

It was the first time the assessment was cut for two or more consecutive months since a five-month decline from October 2008 to February 2009. (…)

Weak exports caused the government to downgrade its view of production to “weakening” from “flat” for the second consecutive month.

Rainbow  Business Loans a Sweet Spot for Banks

The growth in commercial and industrial loans is twice as fast as gains in overall bank credit. The loan volume and resulting payments will buoy those banks weighed down by low interest rates, as long as the economy stabilizes or improves.

[image]Commercial and industrial loans outstanding jumped 14% to $1.45 trillion in July, the latest month for which figures are available, from a year earlier on a seasonally adjusted basis, according to the Federal Reserve.

The growth rate is twice as fast as gains in overall bank credit. Fed data show that nonreal-estate loans to businesses are up by double-digit percentages compared with a year earlier for four quarters in a row. (…)

The industry gains come as more bankers report easier terms on business loans, according to the latest Fed survey of senior loan officers. The survey, released last month, said that “relatively large fractions of respondents” were charging lower rates relative to their costs of funds, in a trend that will help them win business but could add to pressure on profits if the economy fails to gain traction.


NEW$ & VIEW$ (31 July 2012)


Today: personal Income, Chicago PMI, and the Case-Shiller home price report.

Then PMI day and the US ISM on Wednesday. Also on Wednesday: the ADP jobs report, construction spending, and auto and truck sales. Plus the FOMC.

Thursday, the BoE and the much awaited Fingers crossed Fingers crossed Fingers crossed ECB meetings.

Finally on Friday comes the U.S. jobs report.




Storm cloud  Dallas Fed Survey Hits 10-Month Low, Cites Washington Uncertainty

The bank said its general business activity index plunged to -13.2 in July from 5.8 in June. July’s is the weakest number in 10 months. The company outlook index fell to 1.6 from 5.5. Readings below 0 indicate contraction, and positive numbers indicate expanding activity.

The Dallas Fed survey is the last of the regional Fed factory reports. In general, the other surveys show a weakening in factory activity, led by falling orders.


China Reiterates Growth Chief Priority as Local Government Loans May Rise  China’s leaders pledged to keep adjusting policies to ensure stable economic growth this year as a state newspaper said some banks are telling branches to boost local-government loans.

The Politburo reiterated China will pursue a “prudent” monetary policy and “proactive” fiscal policy, signaling that authorities are trying to stem a six-quarter slowdown in the world’s largest economy without resorting to the level of stimulus implemented after the global financial crisis.

China will use different monetary policy tools to ensure stable growth in money supply and bank credit, Wen said.

The local branches are being instructed to give credit support to provincial-level vehicles and those backed by China’s 100 richest counties, according to a report today by the China Securities Journal that cited unidentified people and didn’t name any of the banks. The newspaper is published by Xinhua.

Relaxing control of lending to local governments would mark a shift in strategy as leaders try to boost economic growth that slowed to the least in three years.

The lending support will focus on roads, railways, natural gas and clean energy projects, the China Securities Journal said.

And, right on cue:

China Boosts Railway Spending Plan as Wen Seeks to Reverse Growth Slowdown  China announced a jump in planned railway spending and the State Council called for private investment in utilities and health care as Premier Wen Jiabao tries to reverse an economic slowdown.

China announced a jump in planned railway spending and the State Council called for private investment in utilities and health care as Premier Wen Jiabao tries to reverse an economic slowdown.

The Ministry of Railways, the nation’s largest corporate debt issuer, plans to spend 470 billion yuan ($74 billion) on railroads and bridges this year, according to a bond prospectus issued yesterday. That’s the second increase in July, making a combined gain of about 14 percent from the previous figure.

The new target exceeds last year’s 461 billion yuan in spending and follows Wen’s July 10 comments that promoting investment growth is the key now to stabilizing an expansion that decelerated to 7.6 percent last quarter, a three-year low. At the same time, Chinese officials are signaling the slowdown isn’t deep enough to warrant a return to the 700 billion-yuan level of railway-construction funds in 2010.

Separately, 28 cities in China are building 2,500 kilometers (1,554 miles) of subway lines from 2010 to 2015, China Daily reported today. Construction will cost at least 1 trillion yuan, and experts are concerned that the projects may strain local resources and boost debt, the newspaper said. Cities may also be failing to account for long-term operating and maintenance costs, China Daily said.

Pointing up  By the way, ISI’s company survey of China sales has been unchanged for two weeks, but it’s very depressed at 42.5, below its 4 week average, and in a sharply declining trend.

Storm cloud  Taiwan GDP Unexpectedly Shrinks Taiwan’s economy unexpectedly shrank in the second quarter from a year earlier, the first on-year contraction since 2009, as exports and consumption sagged.

Gross domestic product declined 0.16% in the second quarter from a year earlier. That was worse than growth of 0.77% the agency estimated May 25 and a 0.39% expansion in the first quarter. The economy expanded 0.78% from the first quarter, when it posted growth of 0.33% from the last quarter of 2011.

Singapore earlier this month reported a surprise 1.1% contraction in GDP. South Korea’s economy grew 2.4% on year, its weakest expansion since the third quarter of 2009. China’s on-year GDP growth eased to 7.6%, the slowest rate since the first quarter of 2009.

In Korea, the government said factory output fell a seasonally adjusted 0.4% on month in June, reversing a 1.1% rise in May. That echoed weak industrial output data in Japan on Monday.

Taiwan’s government forecast the economy will expand 2.08% this year, less than its previous estimate of 3.03%. It slashed its export growth forecast for this year to a mere 0.07% from 2.69% and predicted private consumption will grow 1.77%, down from its earlier estimate of 2.03%.


Lightning  EU Jobless Rate Hits High


Over 100,000 more people lost their jobs in the euro zone in June, pushing the region’s unemployment total to a record and adding pressure on the European Central Bank to take action at its monthly rate decision

The number of unemployed people in currency bloc rose by 123,000 to 17.801 million in June, the highest level since records for the 17 nations were first compiled in 1995, the region’s statistics agency Eurostat said Tuesday.

That meant 11.2% of the workforce was unemployed—the joint highest on record, after the estimate for May’s jobless rate was increased to 11.2% from 11.1%.

Lightning  Italian June Jobless Rate Rises to Highest in Almost 13-Years

The unemployment rate increased to a seasonally-adjusted 10.8 percent, the highest since the third quarter of 1999, from a revised 10.6 percent in May.

Storm cloud  German Unemployment Rose for Fourth Month in July on Crisis

The number of people out of work rose a seasonally adjusted 7,000 to 2.89 million. The adjusted jobless rate held at 6.8 percent.

Storm cloud  France, the euro zone’s second largest economy, also saw unemployment rise in June to 10.1 percent.

No surprise then that

Lightning  Eurozone retail sales fall for ninth month running in July

The Eurozone retail downturn continued at the start of the third quarter, according to PMI® data from Markit. Sales fell on a month-on-month imagebasis for the ninth successive month – the joint-second longest sequence in the survey history – and at a faster rate than in June.

The PMI fell from June’s three-month high of 48.3 to 46.4, signalling a robust fall in sales.

July data signalled a broad-based worsening trend compared with June, with all three national retail PMIs falling month-on-month. The French and Italian PMIs continued to signal falling sales, and the fastest rates of decline for two months. Italy continued to post by far the steepest contraction. In Germany, retail sales increased for the third month running, but at only a marginal rate.

Retailers cut back on staffing in July. The current period of job shedding now stretches to four months, and the rate of reduction accelerated to a 32-month record. French and Italian retailers reduced their workforces on average, with the steeper decline posted among the latter. Italian retailers have shed staff every month since January 2008. In contrast, German retailers raised headcounts for the twenty-sixth successive month.

Retailers reported stepping up promotional efforts to boost sales in July, but this failed to arrest the decline in revenues. Reflecting widespread discounting, gross margins fell at the second-fastest rate in the survey history, with the respective index only just above the record low registered in December 2008.

Storm cloud  German Retail Sales Unexpectedly Fell for a Third Month in June

Sales, adjusted for inflation and seasonal swings, fell 0.1 percent from May, when they slipped 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That’s the longest stretch of declines since the end of 2007, when they dropped four consecutive months.

Lightning  Spanish retail sales fell by 5.2pc on an annual basis in June. This follows a 4.9pc fall in May, and marks the 24th straight month of decline.

Eurostat said in a preliminary release that consumer prices rose at an annual rate of 2.4%, the same as in June.

Make sure to read this next item:

Lightning Egan-Jones Sees No End To Rain In Spain, Italian Ice

Egan-Jones, the first ratings firm to signal doom for Enron, WorldCom and Lehman Bros., has such a dire outlook for Spain and Italy that policymakers can only hope this time is different.

Or else, they can take what Egan-Jones sees as the only viable path: major debt restructuring.

The current track for Spain and Italy is a deep, unending recession and debt spiral, in the view of the small, independent credit ratings agency.

While eurozone optimists expect the current recession to give way to growth in mid-2013, Egan-Jones projects that GDP will contract at least 4% a year through 2014 in both Spain and Italy.

At that point, Spain’s debt (including contingent liabilities) is projected to hit 146% of GDP, up from 83.5% at the end of 2011.

Italian sovereign debt is seen hitting 165% of GDP from 132.3% in 2011 (including contingent liabilities).

In the past two weeks, Egan-Jones has cut its ratings for Spain and Italy further into junk territory. Standard & Poor’s, Moody’s and Fitch still give investment grades to both countries.

Pointing up  Unlike its bigger, better-known rivals, who are compensated for their ratings by the issuing company or country, Egan-Jones is paid only by institutional investors interested in an opinion free from any conflict of interest.


Bad Guidance Continues

Roughly 1,000 companies have reported second quarter earnings so far this season, and while the earnings beat rate has been average relative to prior quarters, guidance has been negative to say the least.  As shown below, the current spread between the percentage of companies raising guidance minus the percentage of companies lowering guidance is -6.38 percentage points.  If earnings season were to end today, this would be the most negative guidance spread since Q4 2008 when it was nearly -14 percentage points.  


Crying face Crying face UBS Hit by Loss on Facebook IPO

UBS said it will start legal proceedings against exchange operator Nasdaq OMX Group after the Swiss bank’s second-quarter results were hit by a big loss from the Facebook stock-market debut.


NEW$ & VIEW$ (27 July 2012)

        Note DAYDREAM BELIEVER Note 

You once thought of me
As a white knight on a steed.
Now you know how happy I can be.
Oh, and our good times starts and end
Without dollar one to spend.
But how much, baby, do we really need.

(The Monkeys)

Central banks are trying to keep market hopes high…The now traditional August “Shock and Awe”! Liquidity flooding is their only tool here. Can it really work this time?


Rainbow  ECB Chief Vows to Do ‘Whatever It Takes’

“Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough,” Mr. Draghi said in a speech in London, one week ahead of the ECB’s next policy meeting.

Mr. Draghi’s willingness to reverse course after showing reluctance to push the bank further into a crisis-fighting role reflects how serious the situation in European markets has become. It also suggests that government efforts to stem the crisis through austerity and greater integration of their economic policies have fallen short, as have the ECB’s own policies so far.

Unlike politicians who must navigate parliaments and other euro-zone member nations to get things done, the ECB’s ability to print unlimited euros means it can match words with actions almost immediately, if it chooses.

One option is for the ECB to start buying bonds again, but on a much larger scale. A more extreme step would be to set a ceiling on interest-rate spreads between weak and strong countries, though that would require an unlimited commitment that officials so far have been unwilling to make. It could also buy bonds of strong and fragile countries alike to jump-start the bloc’s economy.

“To the extent that the size of these sovereign premia hamper the functioning of the monetary-policy transmission channel, they come within our mandate,” Mr. Draghi said. His remark suggests a broad interpretation of the ECB’s sole responsibility to keep inflation just below 2%. Annual euro-zone inflation is 2.4%.

High five  Still, questions linger over how much a divided ECB will be able to do. The ECB bought around €45 billion in Greek bonds, a sizable share of the country’s outstanding debt, but was unable to keep Athens from careening into default. Purchases of Italian and Spanish bonds during the second half of last year failed to keep borrowing costs down for long. These countries have deep-seated economic problems the ECB can’t solve. Germany’s central bank fiercely opposes buying bonds and anything else that uses ECB money to support governments. Mr. Draghi would likely have enough support within the ECB’s 23-member governing council to outvote Bundesbank President Jens Weidmann. But opposition from the bloc’s largest economy could weaken the tonic effect on markets.

Confused smile  ‘Whatever It Takes’ Is Familiar Refrain From Europe

“We have to ensure whatever it takes that we don’t have a recession coming from the funding pressure,” Draghi said last December, hoping to prevent a recession generated by a credit crunch as banks cut lending. Banks are facing a capital shortage because “the situation has changed profoundly,” he said at the time.

This January, after warning of a “very grave state of affairs,” Mr. Draghi again pledged to do “whatever it takes to ensure financial stability” as long as its actions fit with its mandate of price stability.

“Whatever it takes” appears to have been the phrase of choice across Europe around prior bouts of market turmoil. European Council President Herman Van Rompuy, German Chancellor Angela Merkel and Mr. Draghi himself — along with numerous other euro-zone officials — have repeatedly pledged to do “whatever it takes” during a debt crisis that’s now well into its third year.

      Note Whatever It Takes Note 

And if you give me a chance

Believe it, I can change

I’ll keep us together

Whatever it takes


Just kidding  Bundesbank Stays Opposed to Bond Buys

Germany’s influential central bank poured cold water on hopes the European Central Bank will take a more aggressive approach to the euro-zone debt crisis.

For Markets, Draghi’s Talk Isn’t Cheap

While the ECB has raised expectations that it will muscle in to ease the sovereign debt crisis, there are still big hurdles to action.

Reactivation of bond purchases might provide some short-term relief, but the SMP is flawed in practice. Most important, the ECB’s decision not to take losses on Greek bonds meant that investors now see SMP purchases as subordinating their existing holdings. That means even deeper losses if there is ever a default as happened in Greece.

The ESM has been held up by the German Constitutional Court until at least mid-September. The ECB previously has said the ESM can’t be a counterparty because it would breach the European Union treaty ban on central-bank financing for governments. And a banking license alone doesn’t lift the ESM’s lending cap of €500 billion ($610 billion), raising questions about the real firepower unlocked.

On the banking license, the FT adds:

This would also break EU treaty rules, the Bundesbank said. The German government on Friday also stressed its opposition to granting a banking licence to the bailout fund, while saying that it “will do all that is politically required to maintain the euro”.

Now, here’s a variation on the “whatever it takes” theme.

Reuters’ Exclusive: ECB may take losses in second Greek debt restructuring


Draghi Boxes Himself Into a Corner With Bond Signal

Now he has to deliver, or face deep disappointment on financial markets, analysts said.

MEANWHILE IN THE REAL WORLD, cloudy at best most everywhere


Lightning  The Conference Board Leading Economic Index® for the Euro Area Declines


The Conference Board Leading Economic Index® (LEI) for the Euro Area decreased 0.3 percent in June, falling to 104.8 (2004=100), following decreases of 0.3 percent in May and 1.0 percent in April.

The leading indicators are consistent with a picture of very slow growth or even economic contraction for the remainder of the year, with risks tilted to the downside given the high level of uncertainty about the resolution to the current financial crisis.”



Lightning  Euro-Zone Gloom Deepens

The CEPR and the Bank of Italy Friday said their Eurocoin indicator —which is intended to estimate quarter-on-quarter growth in gross domestic product, excluding erratic components, such as seasonal variations and short-run volatility—fell to -0.24% in July from -0.17% in June, its lowest level since July 2009.

Lightning  Spanish Unemployment Advances to Highest Rate in Post-Franco Era

The number of homes with all breadwinners unemployed has reached 1.7 million, up 27 percent from a year ago.

“The prospect of further employment losses and the end of the tourism season is likely to push the unemployment rate above 25 percent,” Raj Badiani, an economist at IHS Global Insight in London, said in an e-mailed note. “This presents a significant obstacle to any recovery impetus as Spain is set for a deep and prolonged recession.”


The month-over-month composite index was 5 in July, up from 3 in June but down from 9 in May. Manufacturing growth increased at most nondurable goods-producing plants, while growth was flat to slightly negative for durable goods production. Other month-over-month indexes were mixed in July. The production index fell further from 12 to 2, and the shipments index dipped into negative territory.

The new orders for export index dropped from -7 to -13, almost matching the all-time low of -14 in early 2009. However, the new orders index edged up from -7 to -4, and the employment and order backlog indexes also improved over last month. Both inventory indexes rose considerably.

Sad smile  U.S. Pending Home Sales Decline

Pending sales of single-family homes fell 1.4% last month after a little revised 5.4% May rise, according to the National Association of Realtors (NAR). Sales have risen nearly one-third versus the 2010 low. Nevertheless, the sales index of 99.3 was down 21.8% versus the April 2005 peak.

Sad smile  U.S. Durable Goods Orders Buoyed by Aircraft

New orders for durable goods jumped another 1.6% last month following a similar May increase (initially reported as 1.1%). The Consensus forecast was for a 0.5% June rise. Resurgent orders for aircraft & parts accounted for much of last month’s gain with a 17.2% jump (21.8% y/y). Less the transportation sector altogether, durable goods orders fell 1.1% last month. The y/y gain slowed to 3.1% from its 8.6% rise last year and 2010’s increase of 18.0%.

In most industry categories orders were weak. Computers & electronic products orders dropped 4.9% (-2.3% y/y). Machinery orders fell 1.1% (-2.9% y/y) and electrical equipment orders were off 0.7% (+1.4% y/y). Primary metals bookings rose 0.9% (16.8% y/y).

Non-def. cap. goods ex-aircrafts declined 1.4% in June. They have declined 0.2% in the last 3 months.


Storm cloud  CHINA JULY MNI FALLS FROM 53.2 TO 49.7  That’s 3 consecutive monthly declines from  56.0 in April.

Storm cloud  China’s Industrial Profit Slows

Profit at China’s major industrial enterprises in June fell 1.7% from a year ago to 468.2 billion yuan ($73.97 billion), slowing from a 5.3% drop in May, the National Bureau of Statistics said Friday.

Industrial profit fell by 2.2% in the first half of 2012 from a year earlier to 2.31 trillion yuan, slowing from a decline of 2.4% in the January-May period, according to data from the bureau.

Profits of state-owned enterprises fell 10.9% on year to 690.5 billion yuan in the January-June period.

Foreign companies posted the largest decline, with profits down 13.4% from a year earlier to 522.1 billion yuan in the January-June period.

Storm cloud  Zhejiang enterprises scale down output 

Weak demand, rising labor costs and strained liquidity are ravaging enterprises in East China’s Zhejiang province, a traditional stronghold of China’s entrepreneurship, and forcing them to scale down or even halt production, a Zhejiang government report said.

The report, based on a month-long investigation and interviews with local government officials and businessmen, said the falling earnings, rising production costs and dwindling orders are now plaguing most of Zhejiang companies.

In Wenzhou alone, 60.43 percent of the industrial enterprises have scaled down or halted production.

In the first five months of the year, the net profit of large companies dropped 23.8 percent, for medium companies decreased 18.3 percent and for small and micro enterprises declined 14.3 percent.

The report warned that the bleak situation for Zhejiang’s enterprises could snap their capital chains and threatens to cripple the credit system.

Storm cloud  China Shipyards Falter as Glut Triggers 49% Slump in Orders

Storm cloud  China Job Market for Graduates Shows Stress on Slowdown

“Graduate unemployment matters to the government because of the concern about the risk of social unrest,” said Willy Wo- Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong. “Graduates are the ones who are well educated and know how to mobilize the public to protest.”

China will have 6.8 million new graduates in 2012, compared with 6.6 million in 2011 and 6.3 million in 2010, Ministry of Human Resources and Social Security data show. Students finish their studies each summer.

China Moves to Contain Cooking-Oil Prices

Singapore-based producer Wilmar International Ltd. said on Friday that the Chinese government has advised edible-oil producers in China to avoid raising prices “unless absolutely necessary.” Wilmar and another company, state-owned China National Cereals, Oils & Foodstuffs Corp., known as Cofco, control about 70% of China’s retail cooking oil market.

The move falls short of an outright price cap like the one officials put in place two years ago, when inflation was surging.

Still, the government’s move signals it is again wary of resurgent food prices—of which cooking oil is a bellwether—after a sharp rally in U.S. grain prices late last week drove up Chinese soybeans.


Storm cloud  Japan Falters as Ito Calls for Euro Buys to Rein in Yen

Consumer prices excluding fresh food fell 0.2 percent in June from a year earlier, the statistics bureau said in Tokyo today. The median estimate in a Bloomberg News survey was for no change in prices. Retail sales rose 0.2 percent, a separate report showed, the smallest gain since November and less than a median forecast for a 1.1 percent increase.

Pointing up  “We must realize that a much bigger plunge in the euro may occur,” Ito, who was deputy vice finance minister from 1999 to 2001, said in an interview in Tokyo on July 25. BOJ purchases of euro bonds would be “surprising” and also show investors that Japan is supporting Europe, he said.


As derived from the results of the 53% of the S&P 500 member companies that have released second-quarter results, their total income from continuing operations that excludes some extraordinary gains and losses dipped by 0.7% year-to-year. By comparison, the year-to-year increases by income from continuing operations were 6.2% in Q1-2012 and 16.2% in Q2-2011.

After posting year-to-year gains of 5.4% in Q1-2012 and 11.1% in Q2-2011, the sales growth of Q2-2012’s reporting companies slowed to a meager 2.2% thus far. Excluding the financial company members of the S&P 500, the Q2-2012-to-date results showed a limp 2.3% annual rise in sales and a 0.8% dip of operating profits. (Figure 4.) (Moody’s)

imageFacebook shares hit as ad growth slows  Stock falls more than 10% to new low

(FT’s Lex column has this great headline:  Facebook – social notworking)  (Chart from IBD)

Amazon Profit Evaporates

The Seattle-based company reported a 96% drop in second-quarter profit, reflecting heavy investments in its business. Even as revenue swelled 29% to $12.83 billion, its bottom line was left with just $7 million.

Starbucks Outlook Short of Expectations

Starbucks reported a 19% rise in quarterly earnings but cut its outlook, sending its shares lower in after-hours trading.

Merck Affirms Full-Year Forecast as Second-Quarter Earnings Top Estimates



At 46.4 in June, the Markit Eurozone PMI® Composite Output Index was higher than both May’s reading of 46.0 and the earlier flash estimate of 46.0, but still remained deep in contraction territory. The average reading for Q2 2012 was the lowest for three years as a result.


Rates of decline eased marginally in both services and manufacturing, but both sectors have seen the strongest quarterly contractions for three years in the second quarter.

imageThe spreading of the economic malaise from the periphery of the currency union to its core continued in June. German output contracted at the fastest rate in three years, and France also saw a further decline (albeit slower than in May). Italy and Spain, meanwhile, remained in deep recessions.

A further contraction of business activity is likely in the coming months as intakes of new work continued to decline sharply, albeit at the slowest rate for three months. The sharpest depletion of backlogs of work since July 2009 also suggests that spare capacity remains available, with backlogs falling across all of the nations covered by the survey.

The ongoing steep downturn in order books led to a fall in employment for the sixth straight month, with the rate of job losses running at the second-highest in over two years. Employment fell in France, Italy and Spain, with the steepest cuts again seen in Spain. German payroll numbers continued to buck this trend, as job creation in services offset losses at manufacturers.

Weak demand and slower global economic growth reduced the pricing power of both Eurozone manufacturers and service providers in June. Average factory gate prices fell for the first time since March 2010, while service sector charges decreased at the fastest pace for 28 months. Average prices charged for all goods and services fell at the fastest rate since February 2010.

At 47.1 in June, up from 46.7 in May, the Markit Eurozone Services Business Activity Index rose to a three-month high. The index was above the earlier flash estimate of 46.8, but remained at a level consistent with an ongoing solid rate of contraction.

Service providers were hit by a further sharp fall in new business, with firms reporting that market conditions remained weak due to ongoing consumer and business uncertainty. However, the rate of decline in new orders eased to a three-month low and was also less steep than signalled by the earlier flash estimate.

Business activity at German service providers stagnated in June, ending an eight-month period of growth. Rates of contraction meanwhile eased in France, Italy, Spain and Ireland. The steepest downturns were again seen in Italy and Spain.



NEW$ & VIEW$ (2 July 2012)


Before heading to the Moisie River last week, I posted a piece from I. Bernobul who presciently wrote about the EZ leaders’ meeting:

This week, another summit in Europe…This one has more than a financial plot. I sense a huge political game might be played as the poor Latin Europeans try to unite against the powerful Teutons. Hollande’s arrival at the poker table might prove significant if the Mediterranean players, with but a few chips left, unite and desperately call Merkel’s bluff and impose their will on the EU and the ECB.

Indeed, Der Spiegel learned that

Monti’s uprising began at 7:00 p.m. on Thursday evening. That was when European Council President Herman Van Rompuy wanted to conclude the summit’s first working session and announce the growth pact to the press. According to participants, Monti was furious and asked Van Rompuy where he was going. Had the president perhaps not understand correctly, Monti reportedly asked. The Italian prime minister said he could not leave the summit without concrete measures to fight the high interest rates on Italian government bonds. He would not agree to the growth pact until that issue had been clarified. Rajoy lent his support to Monti and said that he too could not yet approve the pact.

The threats apparently made an impact on the other delegates. Danish Prime Minister Helle Thorning-Schmidt asked pointedly whether the attendees were now all hostages. Van Rompuy remained seated. (…)

After midnight, when the blockade had still not been resolved, representatives of the 10 non-euro EU members headed back to their hotels. Leaders of the 17 euro-zone countries remained in their seats and began a decisive round of negotiations. At this point, members of the German delegation were still insisting they would not give up their hardline position.

A few hours later, however, Monti and Rajoy had the chancellor where they wanted her. (…)

The session ended at 4:20 a.m. on Friday morning. Ten minutes later, Van Rompuy and European Commission President José Manuel Barroso announced the breakthrough at a press conference. At 5:00 a.m., Monti, the winner of the evening, appeared at the Council building’s exit. He gave a press conference on the way to the car — and announced that he will travel to the European Championship football final in Kiev on Sunday.

Monti was determined to change things (WSJ):

As Mr. Monti cajoled his counterparts, several officials said he held out the prospect that if he wasn’t granted concessions, Italian elections might well bring his predecessor back to power. Silvio Berlusconi’s government is blamed by many leaders for precipitating Italy’s predicament, and the former prime minister had a long, nettlesome history on the European stage and with Ms. Merkel in particular.

Italy broke Germany twice that day!  Soccer ball  The WSJ sums up the score:

First, Germany agreed to allow the bloc’s bailout funds to directly inject capital into struggling banks, a step that should help Spain. It also agreed that aid for Spanish banks wouldn’t outrank the claims of regular government bondholders in the event of any debt restructuring, and to a move that leaders said would make it simpler for European bailout funds to intervene in the bond markets of Spain and Italy.

These represented concessions from Ms. Merkel that were more significant than at any previous summit since the debt crisis began in late 2009. For weeks, Ms. Merkel has insisted that the bailout funds would only ever be allowed to lend to euro-zone governments, not inject capital into banks.


Where I. Bernobul was wrong, however, was in his view that Merkel’s cave in would also break markets. Germany losing was seen positively. Hollande socialistically proclaimed that “Europe was the winner!”, no doubt referring to the fact that Germany has finally agreed that all Europeans will be on the hook for banks’ sins, including the Irish banks. Time will tell if this was really worth rejoicing

Thumbs up Debt crisis: Markets surge after EU summit deal

European markets soar after Germany caves in to demands made by Italy and Spain for immediate eurozone aid to bring down their soaring borrowing costs, sending the euro and stock markets higher.

In fact, just about everything with a ticker improved. But let’s see what’s ahead politically in Europe:

Ms. Merkel played down her concessions at a news conference in Brussels, saying that details remained to be settled, giving Germany plenty of time and opportunity to ensure it wouldn’t hand over its taxpayers’ money without adequate controls.

She also stressed that Germany’s parliament would have to approve the new financial-aid tools, as well as any actual use of them. Direct aid for banks will be possible only after the euro zone has a central banking supervisor that Germany trusts, she said.

By next year, German taxpayers could, via the bailout funds, become indirect investors in risky Spanish banks—and lenders to an Italian government that won’t be subject to particularly arduous policy conditions or to monitoring by the International Monetary Fund.

Officials said a lot of details remained to be settled. For example, they didn’t specify whether countries benefiting from direct bank recapitalizations would have to retain final liability for any losses and how the bailout fund would deal with any stakes in banks it could end up with.

“The negotiations will once again be tough,” Ms. Merkel said. “And they certainly won’t take just 10 days.” (WSJ)

High five  However, the FT reveals that the agreements seem to have multiple interpretations:

German officials were said to be irritated by Mr Monti’s public claims of condition-free aid, and Finnish and Dutch officials proved even more hardline than their German allies, insisting there had been no changes whatsoever.

It is absolutely clear that all the decisions taken last night were under the explicit understanding that the conditionality would remain unchanged,” said a Dutch official. A senior Finnish official added: “They haven’t been changed at all.”

Herman Van Rompuy, the president of the European Council who brokered the late-night deal, sided with Mr Monti’s interpretation.

Regardless of Mr Monti’s and Mr Van Rompuy’s interpretation, without Dutch and Finnish acquiescence, Italy will still be faced with a full-scale monitoring programme from the European Commission and the ECB if it chooses to avail itself of bond-buying aid.

In any event, some key problems remain:

  • The ESM will only be able to recapitalize banks directly after the euro zone introduces a single bank supervisory body, a process that will take time: The European Council is being asked to look at proposals by the end of 2012.
  • Investors may not take at face value the seniority concession on Spain after being burnt by the European Central Bank’s decision to make itself a senior creditor in Greece’s debt restructuring.
  • And the agreement to use existing bailout facilities flexibly to stabilize Spanish and Italian debt markets lacks detail. Without some credible means of leveraging the funds available, the bailout facilities’ buying power of some €500 billion ($622.2 billion) is dwarfed by the markets they are targeting.

Money Money Importantly, where does the money come from?

The real constraint for ESM bond purchases had less to do with the rules than with the overall size limit of the ESM. It has a lending capacity of €500bn – and that has not changed. No matter how you twist and turn it, the ESM is simply not big enough. It will inject equity into Spanish banks. It will need to refinance the programme for Greece, Ireland, and Portugal. It will soon have to cope with Cyprus and, who knows, maybe Slovenia as well. A full-scale programme for Spain still looks likely. I cannot see how you can fit Spain under the umbrella, plus Italian bond purchases. (Wolfgang Münchau in the FT)

So, back to the other Mario who, according to the Summit statement has agreed to be the banker of last resort:

We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.



Thumbs up  Jefferies’ David Zervos:

So what does all this mean? The ECB’s balance sheet has been opened up via the ESM to directly recapitalize the European banking system. And that my friends is a game changer!!

Oh yes, they finally figured it out – separating bank financing from state financing is the key to lifting the systemic risk cloud that has been hanging over the entire GLOBAL financial system. Having an effective backstop, and resolution structure, for bad European banks is all we wanted. Was it really that much to ask for?

No one wanted to see the entire Irish state saddled with the cancer that had infected the Irish banks. That was insanity! And here in the US we don’t care if Europe has structural growth problems or labor market inefficiencies. If everyone Frenchman wants a 35 hour work week so be it! And we don’t need European growth for global growth. But what we can’t have is a European banking run with systemic global ramifications.

When the top 6 banks in the US have 300 TRILLION in OTC derivatives, much of which is linked to the European banks, we will have serious problems if the European banking and monetary system breaks. That card however has just been taken off the table. The ESM, with access to the ECB balance for leverage, is a fiscal backstop (with a printing press) for the resolution of bad European banks. Hallelujah!!!! This is a huge step in the right direction for the global reflation trade.


Thumbs down  Jim Rogers feels differently:

“How many times has this happened in the last three years – they (EU leaders) have had a meeting, the markets have rallied, two days later the market says wait a minute this doesn’t solve the problem,” he said.

“Just because now you have a way to get them (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse”

But Jim, the ECB is copying the Fed’s book, buying time, assuring investors that there is a “credible” backstop (let’s wait for the German version of the details before concluding on the credibility of the backstop). Ben Bernanke is clearly a fan of Rod Stewart:

Note Young hearts be free tonight. Time is on your side. Note

Still, Rogers, even less of a “Young Turks”, warns:

“What are you going to do in two, three, four years when the market suddenly says ‘no more money’ and the Germans don’t have more money and the American debt has gone through the roof.” (CNBC)

For my part, the Bee Gees had it right:

Note It’s only words, and words are all I have to take your heart away Note

Thumbs down  Already, this morning: Finns, Dutch cast first doubt on euro zone deal

The Finnish government told parliament that Helsinki and its Dutch allies would block the euro zone’s permanent bailout fund buying bonds in secondary markets, despite an agreement among leaders’ last Friday that the fund could be activated to stabilize markets.


  • Lightning  Euro area unemployment rate at 11.1% in May, up from 11.0% in April.Spain UR is up 0.3 to 24.6, Italy’s is down 0.1 to 10.1% and France is up 0.1 to 10.1. (Eurostat)

Eurozone unemployment ratesCompared with April 2012, the number of persons unemployed increased by 151 000 in the EU27 and by 88 000 in the euro area. Compared with May 2011, unemployment rose by 1.952 million in the EU27 and by 1.820 million in the euro area.


  • Lightning  The Eurozone June Manufacturing PMI shows nothing to cheer about. New orders continue to contract. Germany’s new export business fell at the most substantial pace since last November. Here’s the German version of the PMI:



Softer demand from export markets was indicated again in June, with new business from abroad declining at a steep and accelerated pace. The latest decrease in new export orders was the second-fastest since May 2009, which firms attributed to lower spending across European markets and signs of a slowdown in China.

In France, the problem is mainly domestic:

(…) the rate of contraction in new work remained substantial. Domestic demand was again the main area of weakness, as total new orders fell at a much sharper rate than export sales.

Things seem likely to get worse before they get better:

Many companies put off restructuring plans during the election campaign, so as to avoid controversy. Now an avalanche of lay-offs is in prospect. The Confédération Générale du Travail, a powerful union, has given warning that as many as 45,000 jobs are under threat as firms such as PSA Peugeot-Citroën, a car manufacturer with falling sales, and Carrefour, a struggling retailer, prepare to retrench. In some cases, firms could founder if they are not allowed to cut costs. (The Economist)

A factory slump in Asia’s two biggest exporters China and Japan deepened in June as crumbling orders from abroad dragged activity to seven-month lows, heightening worries that the health of the global economy is deteriorating.

PMI reports on major exporters South Korea and Taiwan also indicated new orders from overseas were falling. The manufacturing sectors in these countries contracted in June for the first time in five months, the reports showed.

In India, where the economy is more reliant on domestic activity, the factory sector picked up in June. But its new export orders growth was the weakest in seven months.

  • Storm cloud  McKinsey’s latest global survey reveals that 48% of corporate executives expect the global economy to worsen over the next 6 months, up from 20% in March.
  • Storm cloud  German retail sales fell 0.3% MoM in May. Markit surveys suggest a better June although

Actual sales in June were generally lower than expected, as has been the case in each of the past three months. Moreover, German retailers signalled a marked degree of pessimism about the outlook for their sales in one month’s time. The balance of firms expecting to reach their targets in July is the lowest for two-and-a-half years. Anecdotal evidence widely cited concerns about the impact of weakening domestic economic conditions, alongside uncertainty related to the euro area crisis, as the main factors leading to downbeat sentiment in the retail sector.

  • Lightning  ECB data showed a disappointing drop of €10 billion MoM in business lending in May.
  • Lightning  France’s public debt shot up to €1.789 trillion ($2.23 trillion), a rise of more than €72 billion in three months, the highest quarterly increase in debt for France in the history of the euro. Public debt now stands at 89.3% of GDP.

Lightning  EUROZONE RETAIL SALES KEEP WEAKENING  Markit’s retail PMI reveals that Germany is showing signs of stabilizing while Italy and France remain in sinking mode.


Sales fell on a month-on-month basis for the eighth successive month – the third-longest sequence in the survey history – and purchases of new goods by retailers declined at the second-fastest pace on record. That said, the rate of decline in sales slowed sharply during the month.

Having registered its second-lowest level on record in April (41.3), the PMI recovered further ground in June to post 48.3. The latest figure signalled that retail sales fell at only a modest rate, following sharp falls in April and May.

Eurozone retail PMI figures are based on responses from the three largest euro area economies. June data signalled a broad-based improvement compared with May, with all three national retail PMIs registering month-on-month increases. The French and Italian PMIs continued to signal falling sales, but at slower rates than in May. In Germany, retail sales increased for the second month running and at a sharper rate. However, the gap between the German and Italian retail PMIs remained substantial, despite narrowing to the second-lowest so far in 2012.

Retailers cut back on new purchases at a near-record pace in June, as stocks of unsold goods were sufficient to meet demand. The overall level of goods in stock fell marginally in June, following five successive months of growth.

Retail workforces in the Eurozone shrank for the third month running on average in June, as firms continued to adjust to weak market conditions. That said, the rate of job shedding was only marginal. French and Italian retailers registered similarly moderate rates of headcount reduction, while those in Germany recruited additional staff for the twenty-fifth successive month.

Storm cloud  Clouds remain over German skies however:

The rate of unemployment in Germany remained close to post-unification lows at 6.8% in June, but the jobless total has now risen for three successive months, highlighting the spreading impact of the euro area debt crisis.

In the U.S.A.

Storm cloud  U.S. DURABLE GOODS ORDERS IN FREE FALL  This is worse than during the 2010 and 2011 soft patches.

(…) the monthly data are volatile, and a better understanding of the underlying trend can be ascertained from the change over the last three months, which showed orders dropping some 3.8% in the three months to May compared to the previous three month period. That was the steepest decline since May 2009. Even after excluding transportation goods, orders were down 1.2% in the latest three months, which was also the largest fall for three years.


Markit adds:

Durable goods represent a major part of the manufacturing sector’s output, so the data bode ill for second quarter economic growth and the outlook for the second half of the year. Markit’s flash PMI showed manufacturing growing at the slowest pace for 11 months in June, with growth of new orders hitting a four-month low, due largely to the first fall in export orders for eight months.

Here’s the hard data from Haver Analytics:



The devil is in the details. Most reports I saw only mentioned that the Business Barometer stabilized at 52.9 in June, up from 52.7 in May:



The reality is that all the positive came from Production which shot up from 50.0 to 57.0 in May after having collapsed from 68.6 in March. The problem is that New Orders edged down for the 4th consecutive month to 51.9 and Order Backlogs declined again to 42.2 from 46.3 in May and 56.8 in April.



Personal income growth is slowing rapidly in the U.S. stalling consumer spending.

  • Personal income growth has slowed from 5% YoY 8-10 months ago to 2.9% in recent months. During the past 2 months, personal income has increased at a 2.4% annualized rate.
  • Wages and salaries are also slowing significantly. The YoY growth rate was 3.2% in May but the annualized gain has been a low 1.1% during the last 3 months.
  • Transfer payments have remained stable for 3 consecutive months.
  • Personal disposable income rose 2.6% YoY in May.
  • Consumer expenditures were +3.5% YoY in May but are up only 0.1% in the last 3 months, in nominal terms!



Rainbow  But the U.S. manufacturing renaissance is underway:

Airbus to Invest $600 Million in U.S.

Airbus plans to unveil an investment of roughly $600 million to build and equip a new assembly line in Alabama, marking the European plane maker’s first major manufacturing facility on the home turf of U.S. rival Boeing, according to a person familiar with the talks.

Each job in an airplane assembly plant creates at least 10 more jobs in the global supply chain, say aerospace industry officials.


Storm cloud  Rest of World Pulls Down U.S. Profits

$48.1 billion: The quarterly drop in U.S. corporate profits from abroad in the first three months of 2012. (…) Profits from the U.S. were actually strong in first quarter, jumping 10% from a year earlier. But earnings coming from the rest of the world tumbled 12% from the first quarter of 2011.

Storm cloud  Q2 EPS Guidance: More Negative, Fewer Positive than Recent Quarters

imageTo date, 102 companies in the S&P 500 have issued quarterly EPS guidance for the second quarter. Of these 102 companies, 74 have issued negative EPS guidance and 28 have issued positive EPS guidance. For Q1 2012, 111 companies issued EPS guidance. Of these 111 companies, 67 issued negative EPS guidance and 44 issued positive EPS guidance.

The Consumer Discretionary sector has witnessed the largest increase (+7) in the number of companies issuing negative EPS guidance and the largest decrease (-9) in the number of companies issuing positive EPs guidance in Q2 2012 relative to Q1 2012.

It is interesting to note there has been a significant decline in the number of companies issuing positive guidance in Q1 2012 relative to recent quarters. If the final number of companies issuing positive guidance is 28, it will mark the first time the number has finished below 30 since Q2 2006 (29).


Confused smile  Uncle Sam Bolsters Pensions with a Stroke of a Pen

(…) the transportation bill would permit corporations to make more liberal assumptions in the discount rate. Instead of using the average of investment-grade corporate bond yields of the past two years — when interest rates have been the lowest in U.S. history — the measure would allow corporations to use the average of the past 25 years, when bond yields were significantly higher.

Goldman Sachs economist Alec Phillips writes in a research report that pension fund contribution requirements could be reduced by $35 billion in 2012 and between $60 billion and $70 billion in 2013 and 2014, according to estimates by the Society of Actuaries. Companies would be free to contribute more than the minimum,however. The Joint Tax Committee of Congress estimates actual contributions could decline by a total of $12 billion to $20 billion over the next several years.



China Home Prices Rise

A survey of property developers and real-estate firms showed the average price of housing in June was 8,688 yuan ($1,369) a square meter, rising 0.05% from 8,684 yuan in May, and overturning May’s 0.31% decline, data provider China Real Estate Index System said Monday.

On an on-year basis, the average housing price fell for a third consecutive month, sliding 1.90% from 8,856 yuan booked in June 2011, and accelerating from May’s 1.53% decline.

Housing prices fell in 55 cities and rose in 45 cities in June from the previous month, the survey showed. Housing prices in Baotou city in Inner Mongolia gained by 2.6% and in Beijing they increased by 2.3%, posting the widest margins of growth.

Given that Beijing is determined to lower house prices, this can’t be seen positively. China’s bind continues with the manufacturing PMI getting worse.

Japan Output Suggests Recovery Yet to Take Hold

Japanese industrial production fell a worse-than-expected 3.1% in May from the previous month while consumer prices were lower in the period, in a sign that a recovery in the domestic economy has yet to take hold. It follows a 0.2% decline in April.

Vietnam’s Economy Shows Strength

Vietnam’s economic growth accelerated in the second quarter, and the central bank said it would cut its refinancing interest rate, the fifth such move this year.

Gross domestic product expanded 4.7% in the April-June period from a year earlier, accelerating from a 4.0% expansion in the previous quarter

BofA’s $40 Billion Blunder

The ill-fated acquisition of Countrywide Financial has cost Bank of America more than $40 billion in real-estate losses, legal expenses and settlements, and the bill may get higher still.

Bank of America Corp. thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost the Charlotte, N.C., lender more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank.

“It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. “Hands down.” (…)

But the tally could go higher. Bank of America has said it could face an additional $5 billion in possible losses, and scores of lawsuits seeking to pin Countrywide’s liabilities on Bank of America are pending in courtrooms around the U.S.


Last week, imageI had the privilege and honor of fishing with Mr. Lucien Rolland, former president of the Atlantic Salmon Federation. Mr. Rolland is 95 years old and is in very good health, both physically and mentally. He’s been angling salmon and many other species around the world for 60 years so you can imagine the fishing stories at the dinner table…

He caught 2 salmons (he is coolly handling a 15 pounder on the picture) last week in difficult fishing conditions.

He was kind enough to share with us the secret for a long, healthy life: Mr. Rolland says that each of us has a pre-determined number of days on earth at birth, but the days on a river do not count!