NEW$ & VIEW$ (25 JULY 2013)

U.S. New-Home Sales Surge 8.3%

Sales of newly built homes rose to a five-year high in June, boosting a key sector driving the economic recovery.

New-home sales increased 8.3% last month to a seasonally adjusted rate of 497,000, the Commerce Department said Wednesday. That was the highest level since May 2008. Sales were up 38% from a year earlier.

The stock of new homes for sale at the end of June was 161,000. That would take 3.9 months to deplete at the current sales pace, the quickest since January. Meanwhile, the median price for a new home sold in June was $249,700, up 7.4% from that time last year.

However, new home prices declined by 5.0% MoM in June, following a 6.8% decrease in May.

Pointing up The latest report showed that sales were weaker in earlier months than previously reported. May’s pace was revised down to 459,000 from  476,000, and April’s figure also was a slower rate than first estimated. (Charts from Haver Analytics)



Orders for U.S. Durable Goods Increase More Than Forecast

Bookings for goods meant to last at least three years increased 4.2 percent, led by transportation equipment, after a revised 5.2 percent gain in May that was bigger than initially reported, the Commerce Department said today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 1.4 percent advance. Unfilled orders for big-ticket goods rose the most since December 2007.

Orders excluding transportation equipment, which is volatile month to month, were unchanged after a 1 percent advance in May that was twice as much as previously estimated.

Pointing up  Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in computers, electronics and other equipment, climbed 0.7 percent in June after rising 2.2 percent the prior month.

Here’s Doug Short’s chart that matters:

Click to View

And Zero Hedge’s one to keep you gloomy. Note that this is for shipments, not orders:

The WSJ continues:

In a sign industrial production will be sustained, the backlog of orders to factories jumped 2.1 percent in June, the most since the end of 2007. Unfilled orders for non-military capital goods excluding transportation equipment climbed 1.7 percent last month after a 1.2 percent increase.

Thumbs down  Macroeconomic Advisers in St. Louis, which updates its estimate of gross domestic product with each new piece of data, forecasts the economy grew at a 0.7 percent annual rate in the second quarter, down from a 1.7 percent estimate at the start of July. Second-quarter data are scheduled to be released July 31. The world’s largest economy expanded at a 1.8 percent pace in the first quarter.

Growth is projected to pick up in the second half of the year, climbing 2.3 percent in the third quarter and 2.6 percent in the last three months of the year, according to the medians in a Bloomberg survey of 70 economists.

Construction Index Dips in June, Still Shows Growth

The Architecture Billings Index, released by the American Institute of Architect son Wednesday, dipped to 51.6 in June from 52.9 in May. Despite the slip, the index remained in growth territory and was led by the new projects inquiry index component, which jumped to 62.6 from 59.1 the previous month.

The two-month sustained positive numbers come after a dip into negative territory in April, when the index fell to 48.6, the first time in 10 months the index had dropped below 50.

Billings were strongest in the Northeast, which had a reading of 55.6. The South posted a 54.8, the West 51.2, and the Midwest trailed with 48.3.

The commercial and industrial sector index led with 54.7, followed by multi-family residential with 54.0. The mixed-practice segment, a combination of retail and residential space, and the institutional segment were both in positive territory.


Obama Turns Focus to Economy

(…) In the first of a series of about a half-dozen speeches that will lay out his blueprint for sustained economic growth, Mr. Obama offered mostly familiar policy prescriptions. (…)

“Washington has taken its eye off the ball. And I am here to say this needs to stop,” he said at Knox College here, positioning himself as an outsider in the debates in the nation’s capital. (…)

Mr. Obama’s own job-approval rating has slumped to 45%, the lowest level for him since late 2011, while disapproval of Congress has reached a record 83%. (…)

Sprinkled throughout the speech were familiar proposals, including calls for investments in infrastructure; government job training programs that are more directly connected to business needs; expanded pre-kindergarten programs; federal policies designed to reduce college costs; and an increased minimum wage.

He also called for an end to the across-the-board spending cuts known as the sequester, which he described as a meat cleaver that has cost jobs and harmed growth. And he made a new pitch for an overhaul of the immigration system, saying more legal immigrants could pay the taxes to help finance imperiled retirement programs. (…)

Hopeful Signs for Euro Zone

Businesses in Germany and the Netherlands became more optimistic about their prospects in July, as did Italian consumers, another indication that the euro zone is emerging from its longest postwar economic contraction.

Germany’s closely watched Ifo business confidence index rose to 106.2 in July, its third consecutive monthly increase. Italian consumer confidence hit its highest level in more than a year in July as households’ optimism about the economic outlook improved, official data showed Thursday. The Dutch producer confidence index reached its highest level since April 2012, but still came in negative at minus-3.5 in July, the statistics bureau CBS said, adding that Dutch businesses are only “slightly less pessimistic.”

But persistently weak loan growth suggests any recovery for the region’s economy is likely to be modest.

Surveys from Germany and Italy signaled that businesses and consumers are feeling more upbeat about their outlook, and business sentiment in the Netherlands also showed some improvement this month. The indicators come after euro-zone business activity expanded in July for the first time in 18 months, according to a closely watched survey released on Wednesday.

Weak demand for credit and risk-averse banks continue to drag on the economy, dampening any prospects for a full recovery in the euro zone. Loans to euro-zone businesses fell by €13 billion ($17.2 billion) in June, following similar drops in April and May, data from the European Central Bank showed Thursday. Loans to households also fell in June, the ECB said. (…)

Banks continue to expect demand for loans from firms to weaken in the third quarter as they further tighten standards, albeit at a slower pace, a quarterly ECB banking lending survey showed earlier this week, blaming weak fixed investment and economic uncertainty.

Spain’s jobless data boost recovery hopes
Economists caution improvement is due to seasonal factors

The number of unemployed Spaniards fell by 225,000 in the second quarter of the year, the largest such drop since the financial crisis started more than five years ago and a boost to government claims that the economy is finally picking up.

The fall takes the total jobless figure to 5.98m, while the rate decreased by 0.9 points to 26.3 per cent. (…)

The government was bolstered earlier this week when the Bank of Spain published an estimate showing that the economy may have contracted by as little as 0.1 per cent in the second quarter – after a drop of 0.5 per cent in the first three months of the year. If confirmed, the second-quarter estimate would be consistent with Madrid’s forecast of a return to growth in the second half of the year. (…)

Spain traditionally sees a spike in employment ahead of the summer tourist season.

That bounce is likely to have been even stronger this year, as holiday-makers from Germany, Britain and other European countries shun destinations such as Turkey and north Africa, which have suffered well-publicised bouts of political instability. (…)

Ford: picking up speed in Europe
Carmaker signals the worst may be over for the continent

Ford’s revival in Europe echoes results from General Electric. Last week, the industrial conglomerate said that orders in Europe were up 2 per cent. That does not sound great, especially when orders in the US were up 20 per cent, but European orders in the first quarter had been down a dispiriting 17 per cent and had contributed to disappointing earnings in that period.


Markit comments on its flash China PMI survey:

China manufacturing
Further downturn signalled as flash PMI drops to near post-crisis low in July

The headline PMI fell from 48.2 in June to 47.7, its lowest since last
August and signalling a third successive monthly deterioration of business conditions in China’s vast goods-producing sector. Since early-2009, the lowest reading of the PMI has been 47.6.

imageThe survey therefore adds evidence to suggest that the rate of growth of the world’s second largest economy has slowed further at the start of the third quarter, with growth having already weakened to an annual pace of 7.5% in the second quarter, which was the second-weakest pace seen for four years.

The slowdown is also not confined to the goods producing sector. The manufacturing PMI’s sister survey showed service sector growth slowing to near stagnation in the second quarter, indicating that the sector was undergoing one of the softest patches seen in the seven-and-a-half year history of the survey.

imageLooking at the details, the flash data showed output falling for a second successive month, dropping at the fastest rate since last October. New orders fell for the third straight month, likewise seeing the rate of decline accelerating, hitting the fastest since August of last year. Worryingly, backlogs of work fell to the greatest extent since January 2009, down for a third successive month.

imageThe acceleration in the rate of loss of orders was driven primarily by the domestic market. New export orders also fell, down for a fourth month running, but the rate of decline was the slowest since May.

China unveils measures to boost economy
Move indicates leadership’s concern about slowdown

(…) The “mini stimulus”, though limited in size, could herald more policy moves to prop up growth. The government will eliminate taxes on small businesses, reduce costs for exporters and line up funds for the construction of railways. (…)

First, it has temporarily scrapped all value-added and operating taxes on businesses with monthly sales of less than Rmb20,000 ($3,250). It said the tax cuts, which go into effect at the start of August, would help more than 6m enterprises which employ tens of millions of people

Second, the government pledged to simplify approval procedures and reduce administrative costs for exporting companies. Among the various moves, it said it would temporarily cancel inspection fees for commodities exports and streamline customs inspections of manufactured goods.

Third, it said it would create more financing channels to ensure that the country can fulfil its ambitious railway development plans. More private investors will be encouraged to participate and new bond products will be issued.

Ghost  SoGen on why China matters (via Business Insider)


“China is a major source of global demand,” with imports equivalent to 30% of GDP, Societe Generale Michala Marcussen points out in a new report. So a hard landing would have a major impact on economies that are reliant on China for their exports.

“Drawing on different studies, mainly from the IMF and the OECD, we estimate that the impact of the trade channel from the type of hard landing in China described in the previous section would cut GDP growth by around 4.5pp in Taiwan, 2.5pp in South Korea and Malaysia, 1.2pp in Australia, 0.6pp in Japan, 0.2pp in the euro area and 0.1pp in the US. For the global economy ex-China, the trade channel effects would bring about a reduction of around 0.6pp to GDP growth.”

There’s also the impact of the decline in investment, since “investment has significantly higher import content than consumption, most notably through commodities and machine tools.”

Here’s a look at the countries that would be hit the hardest by a slowdown in China:

countries hit by chinese slowdown

SocGen China

South Korea growth strongest in two years
Consumer spending helps buoy economy

The economy expanded a seasonally adjusted 1.1 per cent in the second quarter from the first three months of the year, the Bank of Korea said on Thursday. That marked its strongest performance since the first quarter of 2011. Compared with the same period a year earlier, gross domestic product grew 2.3 per cent. (…)

Construction contributed strongly to the growth, rising 3.3 per cent quarter-on-quarter. However, a decline of 0.7 per cent in facilities investment – particularly transport equipment – reflected fragile business confidence. Private consumption grew 0.6 per cent after a 0.4 per cent fall in the previous quarter, while exports of goods and services increased 1.5 per cent.

The central bank predicts full-year growth of 2.8 per cent, rising to 4 per cent in 2014. (…)

World Trade Volume Fell by 0.3% in May

In its monthly report, the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, Wednesday said the volume of exports and imports fell 0.3% from April, having risen 1.3% in that month.

The decline in trade volumes was spread across the globe, although was sharpest in Central and Eastern Europe.

The CPB also provides a measure of world factory output, which was unchanged in May, having risen 0.2% in April.

Emerging economies now seem to be underperforming

Latest data from the CPB show that growth in global industrial production (IP) is on track to decelerate a bit in the second quarter. That’s mostly due to the worst IP growth in emerging economies since 2009, in sharp contrast with the uptick observed in advanced economies
(the latter due to the rebound in economic activity in Europe but primarily in Japan).

So much so that, as today’s Hot Charts show, the gap in IP growth between advanced and emerging economies in the second quarter was the biggest since the Asian crisis. And based on Markit’s July manufacturing purchasing managers’ indices, which showed a further worsening in China, it seems that advanced economies could continue to
outperform emerging ones in Q3 as well.

The eurozone despite its structural problems seems to be slowly
returning to growth as evidenced by July’s above-50 manufacturing PMI, Japan’s recovery is set to continue buoyed by loose policies from a government emboldened by its absolute control of parliament, while the US is set to bounce back after a temporary sequester-related setback in Q2. In the meantime, China’s rebalancing act is biting into growth, while other emerging economies continue to adjust not only to the loss of competitiveness relative to the yen, but also to the recent run up in bond
yields. (NBF Financial)




Bond Investors Look to Cash  Investors are cashing out of bonds but remain hesitant to plunge into stocks even as they reach new highs, preferring to buy money-market mutual funds despite their low returns

Investors withdrew an estimated $43 billion from taxable bond mutual funds last month, the largest-ever monthly outflow, according to the Investment Company Institute. (…)

But in a twist, the main beneficiary of the rush out of bonds has been money-market funds, which are cash-like investments that appeal to safety-minded investors.

Assets in these portfolios increased for the fourth week in a row in the week ended July 17, rising $8.5 billion to $2.6 trillion, ICI data show. That left money-market funds, which pay barely more than simply holding dollars, with the most cash since early April. (…)

An estimated $6.3 billion came out of U.S. stock mutual funds in June. But as markets stabilized this month, investors moved $7 billion back into U.S. stock mutual funds in the first two weeks of July, according to the ICI. (…)

Since the financial crisis, investors have plowed money into bond funds and pulled out of U.S. stock funds. Some $947 billion made its way into bond funds from the start of 2008 through the end of last year, compared with an outflow of $548 billion for U.S. stocks funds, according to ICI data. (…)


NEW$ & VIEW$ (23 MAY 2013)

Global Market Rout Spreads

A 7.3% plunge in Japan’s stock market spilled into Europe, overshadowing moderately better data on the Continent.

After the tumult in Japan, investors jumped quickly out of riskier assets. Spanish and Italian government bonds weakened, as did more-speculative currencies like the South African rand. Havens such as German government bonds and the Swiss franc gained. Gold also rose.

Pointing up  Before Thursday, the Nikkei had risen 50% in 2013 and 10% in less than two weeks.

Japan: is it rally so bad?

(…) Investors should take note. Share prices, relative to expected earnings, have risen by 50 per cent in the past year for the Nikkei 225 and by a third for the Topix to 20 and 16, just a little below long-run averages. For a promising but as yet unproven recovery in a country hoping to emerge from two decades of decline, that is enough for now. Profit-taking was due, and the chill provided by the idea of a less easy Fed and slowing growth in China was a good spur. After all, if those come to pass, Japan’s prospects will indeed look very different.

The Nikkei: a market abducted by retail

Blame Bernanke, China or the BoJ but this Nikkei rout has apparently been led by the little guys. From the FT:

Over the past few weeks, individual investors’ share of trading had risen steadily, to a record 35 per cent last week. Brokers say their share was almost certainly higher over the past few days, judging by huge volumes in popular stocks such as Fast Retailing, owner of Uniqlo, and Mitsubishi Motors […]

The scale of the fall [says Stefan Worrall, director of equity sales at Credit Suisse in Tokyo], “just shows the extent to which this market has become abducted by retail.”

Fed’s Varied Voices Leave Market Guessing Bernanke said the Fed could start reducing bond buying “in the next few meetings” but warned against premature action, amid conflicting messages that roiled markets.

The Fed could take a first step toward reducing the program at one of its “next few meetings,” Mr. Bernanke said, but he cautioned that he was reluctant to move prematurely or aggressively.

The comments, given at a congressional hearing Wednesday, gave markets a dose of clarity for a few hours, though a subsequent release of minutes from the Fed’s April 30-May 1 Fed policy meeting added to investor anxiety about the Fed’s plans. The minutes disclosed that some officials were prepared to start pulling back the program as early as the Fed’s next meeting in June, though the group as a whole, too, expressed hesitance. (…)

“We are trying to make an assessment of whether or not we have seen real and sustainable progress in the labor-market outlook,” Mr. Bernanke said. (…)

“A premature tightening [would] carry a substantial risk of slowing or ending the economic recovery,” Mr. Bernanke said.

Gavyn Davies
Falling inflation complicates Fed’s QE exit plan

(…) In Mr Dudley’s words, “once you are caught in deflation, it is very hard to get out. Thus, policymakers need to put considerable weight on this risk and conduct monetary policy with sufficient aggressiveness to ensure that they avoid such an outcome”. He also argued that the Fed made a mistake with its earlier “start-stop” approach to QE and “put too much emphasis, too early, on the exit”. The implication is that he does not want to do that again. (…)

After yesterday’s evidence, it is clear that the Fed’s decision on tapering will be “data determined”. But the relevant data include inflation reports as well as employment reports. The Fed is now missing both parts of its twin mandate in the same direction. This will complicate, and perhaps delay, the decision on when to start tapering QE.

Housing Off to Solid Spring

Sales of foreclosed homes fell in April, and the number of properties on the market rose at the start of the spring selling season, suggesting further improvement in the housing market this year.

[image]Existing-home sales inched up 0.6% in April from a month earlier to a seasonally adjusted annual rate of 4.97 million, the National Association of Realtors said Wednesday. The results were the highest since November 2009 and were 9.7% above the same month a year earlier.

The report brought several new signs that the housing market is well on its way to recovery from the housing bust. Homes sold in April were on the market for a median of 46 days, down from 83 a year earlier. The median sale price in April was $192,800, up 11% from a year earlier, the highest since August 2008. Sales of homes under $100,000, including many foreclosures, were down nearly 10% from a year earlier, while sales of properties for more than $750,000 were up by more than 40%.

Pointing up  The overall percentage of sales that were foreclosures and other distressed properties fell to 18%, the lowest level since the Realtors’ group began tracking the issue through surveys of agents in October 2008. (…)

The inventory of previously owned homes listed for sale at the end of April increased 11.9% to 2.16 million homes, but was still down 13.6% from year-ago levels.

From Toll Brothers conf. call:

Mr. Yearley added that Toll raised prices by about $26,000 per home on average during the quarter, noting that “in many markets as prices increase, a sense of urgency takes hold and demand continues to rise.”

That’s a 5% price rise on Toll’s average selling price.

Home Supply Limited by Americans Lacking Equity to Sell

About 22 million Americans may lack enough home equity to move, keeping property listings tight and limiting sales as the housing market recovers, Zillow Inc. said.

Forty-four percent of homeowners with mortgages owed more than their properties are worth or had less than 20 percent equity in the first quarter, the Seattle-based real estate data company said in a report today. Those people probably are locked in to their residences, because listing a house and purchasing a new one generally requires equity of at least 20 percent to meet costs such as a down payment and broker fees, Zillow said.

The people who cannot sell are contributing to a dearth of home inventory on the market, which is restraining deals in the key U.S. spring selling season. There were 2.16 million homes available last month, the fewest for any April since 2001, the National Association of Realtors reported yesterday. While the low supply is helping to fuel price gains and lift home equity, values have to climb further to ease the shortage, Zillow said. (…)

More than 13 million homeowners were underwater in the first quarter, equal to about 25.4 percent of those with a mortgage, down from 13.8 million at the end of 2012, Zillow said. Another 9 million people had less than 20 percent equity. (…)

About 1.4 million homeowners will regain positive equity by the first quarter of 2014, according to a Zillow projection.

Auto  Auto Makers to Skip Summer Closings

U.S. auto makers are accelerating production lines and, in some cases, even canceling the North American industry’s traditional summer factory shutdowns to pump out more vehicles and meet strong demand.

General Motors Co., Ford Motor Co. and Chrysler Group LLC are running their factories at full tilt amid continued sales increases. Annualized U.S. automotive sales reached a 14.9 million vehicle pace in April. Auto executives expect U.S. sales for all of 2013 to reach 15 million vehicles, above last year’s 14.5 million mark.

Detroit brands have made strong market share gains this year. They held 45.9.% of the U.S. market year-to-date through April, exceeding the 44.9% share of Japanese and South Korean auto makers. A year ago, the U.S. was at 44.4% while Asian auto makers had 46.3%.

The chart, courtesy of Haver Analytics, shows the flattening in demand in 2013…

China data add urgency to stimulus calls
Preliminary PMI numbers highlight sluggish economy

(…) Most alarming in the PMI was the fact that declines in the gauges of new orders and employment appeared to be driven by a slump in domestic demand rather than external weakness. (…)

Germany Survey Shows Export Risks Are Companies’ Biggest Concern

Forty-one percent of companies polled by the industry and trade chambers’ DIHK umbrella organization said they worry most about export demand. While 30 percent of the companies expect their sales abroad to grow, 13 percent of respondents expect exports to decline.

Pointing up  Markit’s May PMI for Germany:

May data indicated a stabilisation of German  private sector business activity, with both  manufacturing and services output little-changed
since the previous month. At 49.9, the seasonally  adjusted Markit Flash Germany Composite  Output Index improved from a five-month low of
49.2 in April, but remained weaker than its long-run  average (52.9). The latest index reading for  manufacturing production (50.2) was fractionally  higher than that recorded for services activity  (49.8), which reversed the trend seen in April.

The overall stabilisation in output was partly  achieved through work on outstanding projects, as  total new business volumes decreased for the third  month running. Across the German private sector as  a whole, backlogs of work dropped at the fastest  pace so far in 2013, largely reflecting a marked  decline at service providers. New business
received in the service economy fell at the steepest rate since last September, while manufacturing new  order volumes were broadly unchanged over the  month. Subdued demand from foreign markets
continued nonetheless in the manufacturing sector,  as highlighted by a decrease in new export work for the third successive month.


NEW$ & VIEW$ (1 MAY 2013)

It seems that U.S. housing is the only area offering fresh positive stuff these days. That is if you are not in the market for a new house.


Housing Market Heating Up

Home prices are rising at the fastest rate in seven years, as buyers return to a market where property is in short supply.

Prices increased 9.3% in February from a year earlier while mortgage-interest rates hovered near record lows, according to the Standard & Poor’s/Case-Shiller index that tracks home prices in 20 major metropolitan areas. All 20 cities posted year-over-year gains for the second consecutive month, which hasn’t happened since 2005, before the crash.

In some of the hardest-hit markets, the gains have been particularly heady. Home prices rose 23% from one year ago in Phoenix and 18.9% in San Francisco. Nationally, the median home price in March stood at $184,300, well below the peak of $230,400 in 2006 but up from $154,600 in January 2012. (…)

For now, recent data suggest home-price gains are likely to continue. Sales of previously owned homes rose by 10.3% from one year ago in March, even as supplies of homes for sale fell by 16.8%. The Wall Street Journal’s quarterly survey of market conditions in 28 metropolitan areas showed very low supplies of homes available in a rising number of markets, including a less-than-three-month supply in a dozen markets, including the two hottest—Phoenix and San Francisco. (…)

At current mortgage rates near 3.5%, home values would need to rise by 32% nationally—and by as much as 48% in markets across the Midwest and north Florida—for affordability to return to its long-run average, according to an analysis by John Burns Real Estate Consulting in Irvine, Calif.




Confused smile  Krueger: Sequester Hits Harder, Earlier Than Expected

The economic fallout from deep federal government spending cuts has come sooner than expected, White House chief economist Alan Krueger said Tuesday.

Storm cloud  ADP Says U.S. Companies Employed Fewer Workers Than Forecast

Companies added 119,000 workers to payrolls in April, figures from Roseland, New Jersey-based ADP Research Institute showed today.

Storm cloud  China Manufacturing Weakens

A gauge of China’s manufacturing activity showed fresh signs of weakness in April, undercutting hopes of a stronger upturn in demand from the world’s second-largest economy.

[image]The official Purchasing Managers’ Index came in at 50.6 in April, below expectations of a reading in line with the 50.9 recorded in March.

Note that the seasonally adjusted (by ISI) number is 49.1 vs 49.6 in March.

All but one of the official PMI subindexes—with the exception of a steady measure of raw material stockpiles—were down in April from the previous month.

  • Pointing up  The official PMI sub-index for new orders fell to 51.7 in April from 52.3 in March while the measure of new export orders slid into contraction territory with a reading of 48.6 in April, compared with 50.9 in March.
  • The sub-index for purchasing prices of raw materials tumbled 10.5 percentage points to 40.1 percent, the first reading below 50 after the sub-index stayed above the demarcation level for seven consecutive months.
  • The sub-index for finished goods inventories moved down 2.5 percentage points from the previous month to 47.7 percent, while the sub-index for production shrank slightly by 0.1percentage points to 52.6 percent.
  • The CFLP data also showed that the employment sub-index for April declined 0.8 percentage points to 49.0 percent, indicating job cuts, while the sub-index for supplier delivery times fell slightly to 50.8 percent.

Lightning  Eurozone retail sales continue to fall sharply in April

Markit’s retail PMI® data signalled little respite for the Eurozone’s retailers at the start of the second quarter. Sales fell on a monthly basis for a survey record eighteenth consecutive month, and the rate of
decline remained sharp despite easing slightly since March. Retailers subsequently cut more staff and lowered their purchasing activity.

Retail PMI data by country signalled steep falls in sales in both France and Italy, and an ongoing flat trend in Germany. The month-on-month rate of decline in France eased from March’s record pace, but remained severe.

(…)  Retailers across the Eurozone continued to cut workforces in April, extending the current sequence of job shedding to over a year. Moreover,
the rate of decline was little-changed from March’s 43-month record. Retail employment rose in Germany for the thirty-fifth successive month, but at only a marginal rate, while job shedding at French and Italian retailers remained sharp in the context of historic survey data.

(…) retailers’ gross margins continued to fall sharply, and they cut the value of purchases for the twenty-first successive month. Subsequently, stocks of goods for resale declined for the eight consecutive month, the
second-longest sequence in the survey history.


Denmark Exhausts Stimulus Avenues as Housing Losses Persist

Denmark’s government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started.

“We’ve used whatever leeway there is,” Economy Minister Margrethe Vestager said in a telephone interview from Copenhagen late yesterday. “There’s no more space to stimulate the Danish economy.”

Seoul offers exporters $10bn of help
Companies dealing with sluggish global demand and weaker yen

South Korea exported goods and services worth $46.3bn in April, the government said on Wednesday. This was a 0.4 per cent year-on-year rise, but down by 2.4 per cent from March’s figure.

Seoul said it would seek to revive export growth by increasing from Won71tn ($64.5bn) to Won82.1tn the value of public loan programmes aimed at small and midsized exporters. (…)

However, he cautioned that Seoul would closely monitor the weakening Japanese yen, a source of growing concern for South Korean policy makers. This follows a warning last month from finance minister Hyun Oh-seok that the yen’s slide was already having an impact on the South Korean economy.

Despite a recent fall in the US dollar value of the South Korean won, it has strengthened by 21 per cent against the yen over the past seven months, as markets anticipate expansionary fiscal and monetary policy under Japan’s new government. (…)

On Monday, data showed that South Korea’s industrial production suffered a month-on-month fall of 2.6 per cent in March: the third successive decline.

Smile  Solid rises in output and new orders support continued expansion of Japanese manufacturing economy

imageThe headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) rose to 51.1 in April, up from March’s 50.4 and a 13-month high. The PMI has shown steady improvement since the start of 2013 and has posted readings above the 50.0 no-change mark in each of the past two survey periods.

April’s survey data indicated a further rise in manufacturing output. Growth was modest, but still the sharpest in over a year as a particularly strong performance from the investment goods category offset ongoing weakness in the consumer and intermediate sectors.

Similar market group trends were observed for new orders data, with investment goods producers supporting a solid increase in sales for the sector as a whole. There was evidence of improved domestic and overseas demand, with clients reportedly investing in plant equipment and raising inventory holdings. A depreciation of the yen helped to support a solid rise in new export sales.


The chart below shows the 26-week rolling correlation of the Economic Surprise Index and changes in the S&P 500. A declining line represents periods where economic data and the S&P are becoming less correlated, or even moving inversely to each other. The most recent correlation below -0.7 indicates that stocks and negative economic data are moving in almost perfectly opposite directions. (Bill Hester via John Hussman)


Lightning  Slovenia Junks Its Bond Sale After Downgrade

Slovenia stunned investors when it halted a bond sale just before Moody’s downgraded the country’s debt to “junk.”

The government said it would proceed with the bond issue. However, Slovenia will likely see higher borrowing costs, some investors said. Now that its bonds are rated junk, they will be off limits to investors that buy only investment-grade debt. Slovenia’s 10-year bond yielded 5.847% on Tuesday, compared with 5.69% a day earlier. (…)

Moody’s said it was concerned about Slovenia’s undercapitalized banking sector and deteriorating government balance sheet.

Rift Emerges Over Saudi Oil Policy

A rare public dispute over oil policy in Saudi Arabia emerged as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter.

The Middle Eastern kingdom, which produces around 10% of the world’s oil, needs to increase its crude production capacity by a fifth to 15 million barrels a day by 2020 in order to meet rising domestic consumption and maintain its current export capacity, said Prince Turki al-Faisal, a former intelligence chief and ambassador for the kingdom. (…)

The comments from the prince, who has no formal government position, but is a prominent member of the kingdom’s royal family, were contradicted by Saudi Oil Minister, Ali al-Naimi. There is currently no need to increase crude production capacity beyond 12.5 million barrels a day, Mr. Naimi said.

Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million barrels a day as spare capacity. (…)

Prince Faisal’s comments also run counter to the official position of the state-controlled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to comment Tuesday, but its top executive has previously ruled out increasing capacity to 15 million barrels a day despite acknowledging that domestic use of crude would rise and thus limit exports.

Aramco’s Chief Executive Khalid al-Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets. (…)

Saudi Arabia last year consumed around 3 million barrels per day of oil, according to the U.S. Energy Information Administration, almost double its 2000 level and putting it on track to use more than 5 million barrels a day if a 7% annual growth rate were to continue.

Aramco’s Mr. al-Falih acknowledged in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030. (…)

Remember: the Saudis need $100 oil to balance their budget.



NEW$ & VIEW$ (25 FEBRUARY 2013)

The sequester and the fragile U.S. economy. Truck tonnage. Car sales. Rising inventories? ObamaCare. House prices. Canadian economy struggling. Social unrest. China’s PMIs. China housing. Earnings watch. Sentiment watch.


Long Impasse Looms on Budget Cuts

Lawmakers anticipate that looming spending cuts will take effect next week and won’t be quickly reversed, likely leading to protracted uncertainty that presents risks both to Congress and the president.

Never mind the political risks. How about the real world?


GDP could shrink in the first and second quarters — two consecutive declines is the popular definition of a recession — and stretch into the third quarter, according to Charles Dumas of Lombard Street Research in London — a prospect he says Wall Street is “blithely ignoring.” Federal spending could be reduced by 0.5% under sequestration, which would come atop the 1% fiscal tightening under the 2011 debt-ceiling agreement and 0.8% impact of the end of the payroll-tax cut on Jan. 1, he points out.

LEI – Is There A Disconnect? (Lance Roberts)


(…) the negative trend of the LEI since the turn of the century has not only been a reliable indicator of the maturity of the economic cycle but a cross below the ZERO bound has been closely associated with a market peak. However, with the Fed artificially suppressing the yield spread and boosting asset prices (both of which are major components of the index) through repeated QE programs the artificial inflation of the index is likely masking the weakness in the economy.

Speaking of underlying weakness in the economy – the next chart is the annual change in the LEI versus the annualized growth rate of GDP.


(…) Historically, when the annual rate of change in the LEI drops below zero the economy either has been, or was close to, a recession.  At a current reading of 2.06% there is not a tremendous margin for error with regards to missteps with either fiscal or monetary policy.  Furthermore, as discussed recently, with the global recession already providing a drag on the domestic economy – any drastic moves toward austerity could easily push the economy over the ledge. (…)

ATA Truck Tonnage Index Posts Best Ever January (via CalculatedRisk)

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.9% in January after jumping 2.4% in December. … Tonnage has surged at least 2.4% every month since November, gaining a total of 9.1% over that period. As a result, the SA index equaled 125.2 (2000=100) in January versus 121.7 in December. January’s index was the highest on record. Compared with January 2012, the SA index was up a robust 6.5%, the best year-over-year result since December 2011.

“The trucking industry started 2013 with a bang, reflected in the best January tonnage report in five years,” ATA Chief Economist Bob Costello said. “While I believe that the overall economy will be sluggish in the first quarter, trucking likely benefited in January from an inventory destocking that transpired late last year, thus boosting volumes more than normal early this year as businesses replenish those lean inventories.” (emphasis added)


Inventory restocking seems to be confirmed by rail traffic. Intermodal volume has been very strong in the past several weeks.

The problem with the above is that the consumer is 70% of the U.S. economy and indications are that consumer spending has stalled. Restocking could rapidly lead to destocking.

ISI company surveys revealed softness from truckers and retailers and restaurants last week while manufacturers and homebuilders improved.

Pent-Up Demand Drives Auto Sales

More than 1.2 million new vehicles were estimated to have been sold in the month, a 4.3% increase over a year earlier and a 15% increase over January, according to If accurate, that would put the seasonally adjusted annual rate at 15.5 million vehicles. (…)

Analysts, however, will be searching Friday’s reports for signs that auto makers may be too far ahead of the sales curve (…)

ObamaCare’s Tax Net Snares Middle Class, Economy

When the subsidized exchanges open in 2014, ObamaCare will become a redistribution program. This year, it’s primarily a tax collection program.

The health law will shrink the fiscal 2013 deficit by $34 billion due to $36 billion in revenue, the Congressional Budget Office predicts.

Thus, ObamaCare’s ramp-up will be an economic drag, made steeper by employers’ shifts to avoid fines that kick in next year.

While much of the new taxes will come from high earners, ObamaCare’s tax net will be impossible to avoid for the middle class. Pretty much anyone who uses medical care will pay up, since fees on insurance policies, prescription drugs and medical devices are sure to be passed along to consumers.

Likewise, tax penalties for employers who fail to offer affordable and comprehensive coverage would come at least partly out of wages for moderate earners.

In all, ObamaCare is expected to raise about $800 billion in revenue over 10 years, including penalties on individuals and firms for not complying with new mandates.

January Annual Home Value Increase Is Largest Since Summer 2006

Zillow’s January Real Estate Market Reports, released today, show that national home values rose 0.7% from December to January to $158,100. January 2013 marks the 15th consecutive month of home value appreciation. On a year-over-year basis, home values were up 6.2% from January 2012 – a rate of annual appreciation we haven’t seen since July 2006 (when the rate was 7.5%), before the peak of the housing bubble.


The rental market remains strong, even as the housing market regains strength. (…) Investors are still playing a big role in the housing recovery, as they purchase homes (many times lower priced homes or distressed inventory) and convert these into rental units to satisfy the increase in demand for rental housing. Their involvement in the marketplace has often squeezed out first-time buyers and has contributed to high home value appreciation. (…)

Pointing up  Fig4The rate of homes foreclosed continued to decline in January with 5.54 out of every 10,000 homes in the country being liquidated. Nationally, foreclosure re-sales continued to fall, making up 13.05% of all sales in January. This is down 3.6 percentage points from January 2012 and down 6.9 percentage points from its peak level of 19.9% in March 2009.

See also: 2 Million Homeowners Freed From Negative Equity in 2012; 1 Million More to Come in 2013


Canada’s Economy Struggles as Inflation and Sales Slow

Canada’s inflation rate fell in January to its lowest since 2009 and retail sales plunged in December, adding to evidence the country’s economy is struggling to accelerate from its slowest pace since the 2009 recession.

Consumer prices rose 0.5 percent in January from a year earlier, the least since October 2009, Statistics Canada said today from Ottawa. Retailers in December recorded a 2.1 percent drop in sales, the biggest decline in almost three years, the agency said separately.

France asks Brussels for budget pass
Finance minister seeks extra year to hit deficit targets Surprised smile
Risk of instability hangs over Italy poll
Result that yields strong government ‘would be a miracle’
Social Unrest In Europe? (BCA Research)

Three crucial stabilizing factors have de-fused the risk of an imminent social explosion in Europe.

  • First, in the powder keg that ignites major social unrest one vital ingredient is missing: inflation. An INSEAD study of social upheaval shows that the young can tolerate unemployment so long as prices are stable, and they expect a brighter future when they eventually find jobs. The good news is that inflation in Europe’s troubled economies is well contained, and coming down.
  • The second stabilizing factor is the role of the family as a vital shock absorber. For example, note that the countries with the highest youth unemployment rates are also the ones with the highest proportion of young adults living with their parents. Effective transfers at the family level are providing the young jobless with essential economic and social support.

Social Unrest In Europe

  • Third and probably most important the official unemployment numbers in some European countries are a fiction. It is an open secret that many of the officially jobless in countries like Greece and Spain are actually working in the shadow economy which encapsulates activity that is unrecorded, unregulated, and untaxed.

Bottom Line: The social, political and economic stability of Europe is much greater than widely believed. Hence, any sell-off on renewed social or political tensions in the coming weeks or months is a possible opportunity to shift into euro area assets.

I don’t subscribe to that view. Today’s youth has little patience. I expect a hot spring in Europe.

UK loses triple A credit rating  Moody’s action cites deteriorating outlook

Sterling hits two-year low on downgrade Moody’s action rattles currency in final minutes of trading


China’s farm produce prices down  Farm produce prices in China have seen a marked decline since mid-February, according to a survey conducted by Xinhua News Agency.

The average price of 21 monitored vegetables declined 11.2 percent from February 10-22, while the price of eggs was down 0.4 percent, said the survey released Friday.

The price of pork, a staple meat in China, dipped mildly, but the price for chicken held steady. Prices of beef and mutton also nudged down.

Food prices account for about one-third of the prices used to calculate the consumer price index (CPI), a main gauge of inflation, in China.


The overall index rose sharply to 61.8 in February. The New Orders index rose again.


High five  Note: this MNI index goes totally against this morning’s Markit flash PMI.

Is China’s Property Market Topping Out?

Investing in property is very important to Chinese people, who are unable to easily move their money overseas and distrustful of the stock market. According to Jing Ulrich, a property cycle in China only lasts about 14 months from beginning to end.

(…) Chinese home buyers in tend to put down a lot more cash and borrow less than their Western counterparts, so interest-rate hikes have less impact on the market. Instead, the government has used requirements for minimum down payments and restrictions on buying multiple homes to cool things down.

Though they never formally relaxed the rules, Ms. Ulrich said authorities judiciously started taking a more laid back attitude to enforcement when it became clear the market was stuttering in the second half of 2012.

Now she is on the lookout for renewed signs of zeal in enforcing the curbs, which would be the easiest way to suppress demand. Buying restrictions could also be extended beyond the 40 or so cities where they are now in force. (…)

Vietnam Inflation Rate Eases as Economy Struggles to Revive  Vietnam’s inflation eased in February as domestic consumption struggled to rebound after a credit crunch that slowed economic growth to a 13-year low.

Consumer prices climbed 7.02 percent from a year earlier after rising 7.07 percent in January, the General Statistics Office in Hanoi said today.

The World Bank in December forecast that Vietnam’s economy will expand 5.5 percent this year, which would mark a third straight year of below-6-percent growth. The increase in gross domestic product averaged 7.3 percent annually in the first decade of this century.


Q4 earnings season ends this week. Factset on S&P 500 companies:

Of the 429 S&P 500 companies that have reported earnings to date for the fourth quarter, 72% have reported earnings above estimates. This percentage is slightly above the average of 69% recorded over the past four quarters. (…)  In terms of revenues, 66% of companies have reported sales above estimates. This percentage is well above the average of 50% recorded over the past four quarters.

Bespoke on NYSE companies: Earnings Season Ends with a Thud

Not only did the season end on a down note regarding the market, but the underlying earnings numbers fell hard this week as well.  As shown below, the final reading for the percentage of US companies that beat Q4 earnings estimates was 61.4%.  This is still a solid number compared to recent quarters, but it actually fell 2.2 percentage points this week.  Of the 252 companies that reported this week, only 48% beat earnings estimates, causing the overall beat rate to drop from 63.6% down to 61.4%. While it hasn’t been mentioned, maybe weak earnings has been a key reason for the market’s drop this week.


The revenue beat rate ended at 62.7% for the fourth quarter reporting period.  As shown below, this is much better than what was seen in the prior two quarters, and it’s the exact same beat rate that was seen during the Q1 2012 reporting period.  Just like the earnings beat rate, the revenue beat rate also fell this week, dropping 1.3 percentage points from a reading of 64% last Friday.


The official S&P tally as of Feb. 21:

Of the 445 companies having reported, 65.8% beat and 24% missed earnings estimates. Ex-IT companies which beat by 83%, the beat rate drops to 62.8%.

Pointing up Q4 EPS are now seen at $23.28, down $0.04 from last week and $0.55 (-2.3%) from Jan. 31. This is the lowest earnings level since Q1’11. It also marks the second consecutive Y/Y decline (-5.1% in Q3).

Trailing 12-month EPS now total $96.95, down 0.5% from Q3’12 and 1.8% from Q2’12. Valuation based on trailing earnings is now facing a mild headwind after enjoying a strong tailwind since mid 2009 (EPS +149%).

Q1’13 estimates remain upbeat at $25.57, +5.5% Y/Y, even though they keep declining albeit at a slower rate lately. If met, trailing earnings would resume growth and reach $98.28 after Q1’13.

Note this, however:

Corporations and analysts are lowering earnings expectations for Q1 2013. In terms of preannouncements, 72 companies have issued negative EPS guidance for Q1 2013, while 23 companies have issued positive EPS guidance.


As of last week, nearly 20% of the S&P 500 companies have pre-announced and 76% were negative. The last few weeks seem to have been particularly difficult for consumer-centric companies. This could begin to hit producers potentially facing excess inventories. Then there is the looming sequester which will hit a host of companies which may have been hoping for a solution that now seems elusive. The risk is clearly tilted toward negative earnings surprises. Read on:

Darden Cuts Guidance, Citing Payroll Tax, Gas Prices

Darden Restaurants Inc., which owns Olive Garden and Red Lobster, cut its fiscal-year profit and revenue outlook, citing “headwinds” from consumers pinched by higher payroll taxes and gasoline prices.

Its less-rosy view comes amid similar warnings from U.S. food and retail chains that have blamed the economy for slowing sales. (…)

“While results midway through the third quarter, [which will end Sunday], were encouraging, there were difficult macroeconomic headwinds during the last month,” Chief Executive Clarence Otis said. Two of the most prominent culprits were increased payroll taxes and rising gasoline prices. (…)

Restaurant analyst Bonnie Riggs, from market research firm NPD Group Inc., said that three weeks ago, which is about when consumers likely saw the impact of the higher payroll tax in their paychecks, restaurants reported a 4% decline in same-store sales, marking the first industrywide, weekly decline that NPD has seen in more than a year and a half. (…)

For the year, Darden now expects earnings from continuing operations of $3.06 to $3.22 a share on sales growth of 6% to 7%, down from its previous view of $3.29 to $3.49 a share in earnings on 7.5% to 8.5% sales growth.

Darden said it expects fiscal third-quarter earnings from continuing operations between $1 and $1.02 a share, below estimates of $1.13 from analysts surveyed by Thomson Reuters.

Q3 will miss by 11% while full FY mid-point EPS are shaved 8%. Big impact.


RBC Capital Markets’ latest sentiment indicator:

Bullishness recently hit its highest level since July 2005 according to our
sentiment indicator. Of the six components that comprise the composite, only the CBOE Put/Call Ratio and the AAII Bull Ratio stand at relatively depressed readings. Unbalanced optimism sets the stage for a pullback in share prices, one in which investors will need to decide whether to lean into or against.



(…) The Standard & Poor’s 500-stock index has gone 505 days without a correction, deemed a 10% drop from a recent high. Since 1962, the index has rallied for at least 500 days without a correction during five separate instances, according to data provided by stock-market research firm Birinyi Associates.

In all five rallies, stocks averaged another 9.2% gain over the next six months and a 13% increase over the ensuing one-year time frames. (…)

“This market’s rally without a 10% pullback is not out of the ordinary,” Kevin Pleines, research analyst at Birinyi, told MarketBeat. He said there is little historical merit to the notion that the market is overdue for a sizable drop. (…)

In a note to clients on Friday, Thomas Lee, chief equity strategist at J.P. Morgan, advocated some near-term caution. He said the S&P 500 would look more compelling if it fell to the 1400-to-1450 range.

Such a drop would be consistent with patterns that have played out since the market bottomed in March 2009. On average, rallies have lasted 55 days and risen 18% in between 5% pullbacks over the last four years, according to research firm Stone & McCarthy Research Associates.

Lately, the S&P 500 has risen 12% throughout the last 66 trading days since its most recent pullback that concluded in mid-November. There have only been four other instances throughout the last four years in which the market has rallied for a longer period of time without at least a 5% pullback, the research firm said.

“We think there could finally be a minor pullback at any time,” said Mark Arbeter, chief technical strategist at S&P Capital IQ. “While we continue to think that the market will grind higher in the weeks to come, risk appears to be rising and the call from here may get a little trickier.”

But on a longer-term time horizon, the rally may have more momentum behind it.

“We are still positive on stocks and believe the bull market will continue,” said Birinyi’s Mr. Pleines. (WSJ)


NEW$ & VIEW$ (2 JANUARY 2013)

***  HAPPY NEW YEAR  ***

Congress Ends Stalemate, Passes Bill

(…) The far-reaching agreement will have lasting implications for the tax code, future budget battles and the balance of power in Washington. It raises income-tax rates for the first time in almost two decades and fulfills Mr. Obama’s signature campaign promise to prevent rates from rising on the middle class. Not since 1991 has a Republican in Congress supported such a move—a challenge to its brand as the antitax party.

At the heart of the deal are some of the biggest tax changes in years, including an increase in tax rates for couples with incomes over $450,000, to 39.6%. For those same households, capital-gains and dividend taxes would increase to 20%, from 15%. Estate taxes would increase from 35% to 40%.

More than three-quarters of American households would see a tax increase from their 2012 tax levels, according to an analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. For households earning between $500,000 and $1 million, the additional tax owed would be about $15,000. For households with incomes over $1 million, it would average about $170,000.

In policy terms, it permanently codifies most of the tax rates that were set only temporarily in the Bush era. After years of failed efforts, the bill permanently keeps the middle class from being hit by the alternative minimum tax, a 1960s edifice intended only for America’s wealthiest.

At the same time, the bill defers some of America’s toughest spending problems—in particular the ballooning cost of health care—and it doesn’t come close to the kind of $4 trillion deficit-reduction deal the country’s leaders had hoped to negotiate. By some estimates, it would cut the deficit by $600 billion over 10 years. (…)

High fiveThe compromise dodges one cliff, but it sends Congress barreling toward another. In two months, the delayed $110 billion in spending cuts will again kick in. At the same time, the U.S. will face the need to increase its borrowing limit, a change that can only be made by Congress. That sets up another rancorous fight, one with potentially more damaging consequences. Republicans want to use the debt ceiling to extract spending cuts. Mr. Obama has said he won’t negotiate. (Cartoon from The Seattle Times)



The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.

More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday. (Bloomberg)

[image]The nearby table shows the taxes that are going up this year. The best that can be said is that Senate Republicans managed to moderate the increase in the death tax from what it would have been, and to spare some upper middle-class families from even higher taxes by raising the income threshold for the new 39.6% top rate. But even those families will still see their taxes raised because couples making more than $300,000 will begin to have their deductions and exemptions phased out as their income rises.


Keep in mind that this entire exercise was also supposed to promote “deficit reduction.”  (…) this bill increases spending by at least $30 billion by extending extra jobless benefits for another year. It also postpones for two months the automatic spending cuts that were set to begin this week, so in February we can all witness the delights of another phony showdown that will result in more phony deficit reduction. Maybe they can combine those with a phony debt-limit fight too. (WSJ)

Here’s the front page of the China Daily:

Senate’s ‘fiscal cliff’ bill packed with sweeteners The US Senate passed an eclectic plan to avert the “fiscal cliff”, including a measure to repeal part of Obama’s signature healthcare overhaul and a string of special interest tax breaks.

Smile Small-business borrowing rises in November  Borrowing by small U.S. businesses rose marginally in November, indicating they were essentially on hold in terms of growing their enterprises in the face of economic and government fiscal uncertainty, a report on Wednesday showed.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, rose to 108.3 from a downwardly revised 107 in October, PayNet said. PayNet had initially reported the October figure as 107.5.

Borrowing was up 3 percent in November from a year earlier. (…)

PayNet’s lending index typically correlates to economic growth one or two quarters in the future.

Pointing up  Separate PayNet data showed financial stress at near-record-low levels. Accounts overdue by 30 days rose slightly to 1.22 percent of the total from 1.21 percent the previous month. Phelan said a “normal” rate of delinquency is 1.5 percent to 1.6 percent.


TrimTabs provides an early look at December employment, estimating payroll growth of 145K-165K jobs last month, down from 220K in November. Wage growth jumped to 8.2% Y/Y as companies shifted bonus payments to December. Look for a sharp reversal in January. The company derives its estimates by looking at daily tax deposits to the Treasury from all salaried employees. (SA)

Auto  Lightning  French New Car Sales Slump

Registrations of new cars in France slumped 14% in 2012 to the lowest level in 15 years as car buyers postponed purchases amid deepening economic gloom, according to data released on Wednesday by the French automobile manufacturers’ association. (…)

Wednesday’s data show a 15% drop in registrations of new cars in France during December, bringing the total for the full year to 1.90 million, the lowest level since 1997. (…)

Emmanuel Bulle, who analyzes the European industrial sector for Fitch Ratings, estimates that European car sales fell between 7% and 8% in 2012. The year got off to a bad start due to a base effect from the car scrapping scheme that was phased out at the end of 2010. Sales registered in the first few months of 2011 were boosted by orders booked at the end of 2010 as car buyers rushed to take advantage of the scrapping scheme. However, the base effect was no longer present after March.

Pointing up  South Korea Exports Slide More Than Expected

South Korea’s exports were down in December from a year earlier, snapping two straight months of expansion, as Christmas and the presidential election cut into the number of working days.

Exports were off 5.5% to $45.097 billion while imports were down 5.3% to $43.072 billion, resulting in a surplus of $2.026 billion, according to preliminary data from the Ministry of Knowledge Economy.

A slide in exports had been expected, but it turned out to be sharper than the market foresaw—sapping hopes for a pick-up in Asia’s fourth-largest economy.

Auto  Storm cloud  India Car Makers Post Mixed Sales


Several of India’s car makers Tuesday reported a drop or a modest increase in sales for December, despite year-end discounts and the recent introduction of new models. (…)

In December, car makers announced year-end discounts on several models, while announcing plans to raise car prices from January. Despite their efforts, most customers continue to postpone their purchasing decisions.

The Society of Indian Automobile Manufacturers has cut its forecast for growth in car sales to between 1% and 3% for this financial year through March 2013, from the earlier estimate of 9%-11%. (…)

Singapore narrowly avoids recession
GDP data first sign city-state entering period of slower growth

The government said on Wednesday that the economy grew at a “modest” pace of 1.1 per cent on a year-on-year basis, down from 3.6 per cent the same quarter a year previously.

While that was an improvement on the flat growth rate of the previous quarter, manufacturing has shrunk for two successive quarters as weak demand from the eurozone has sapped the electronics sector.

Pointing up  Monday, we saw that the HSBC China PMI rose 1.0 to 51.5 in December. China’s official PMI confirms that the domestic market is currently the main driver and that China continues to suffer from the Eurozone woes.

China’s Dec PMI flat at 50.6%

The manufacturing Purchasing Manager’s Index in December remained at 50.6, unchanged from November’s reading and indicating that expansion momentum has stabilized.

Most of the sub-indices saw gains, with the sub-index for input prices up 3.2 percentage points to 53.3 percent from a month earlier. But four sub-indices, including new export order and output sub-index, witnessed slight month-on-month declines that were all within one percentage point.

Hu Jintao Says China to Step Up Efforts to Support Growth

The nation will “step up efforts to promote strong, sustainable and balanced growth in the world economy,” Hu said in the speech broadcast by state radio and television.

Japan’s Population Falls by Record in 2012 as Births Decrease

Japan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry.

That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines. The number of births fell by 18,000 to a record low of 1.03 million last year, the ministry said.

Pizza  Mug  A Few Extra Pounds Won’t Kill You—Really

In a finding that could undermine many New Year’s resolutions, a new government study shows that people who are overweight are less likely to die in any given period than people of normal weight. Even those who are moderately obese don’t have a higher-than-normal risk of dying.

Being substantially obese, based on measure called body mass index, or BMI, of 35 and higher, does raise the risk of death by 29%, researchers found.

But people with a BMI of 25 to 30—who are considered overweight and make up more than 30% of the U.S. population—have a 6% lower risk of death than people whose BMI is in the normal range of 18.5 to 25, according to the study, being published Wednesday in the Journal of the American Medical Association. (…) …


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.



China’s muddling through. The final PMI is slightly below the flash (49.5). New orders keep declining albeit more slowly.

July data showed that manufacturing sector operating conditions deteriorated at a slower rate, as factory production rose – for the first time in five months – and new business decreased at a weaker pace. Inventories of inputs also fell to a weaker extent, while supplier delivery times shortened at only a marginal rate. However, manufacturing employment declined at the sharpest rate in over three years.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted 49.3 in July, up from 48.2 in June, signalling only a marginal deterioration in Chinese manufacturing sector operating conditions. Moreover, the month-on-month increase in the index was the largest in 21 months.


Manufacturing production in China increased during July, ending a four-month period of contraction. Despite reaching a nine-month high, the index measuring monthly trends in manufacturing output was at a level indicative of only a marginal rate of expansion.

Another decline in the volume of new business placed at China’s goods producers was signalled by July’s survey. The pace of reduction in new work was only modest, however, and the weakest in three months. New export business also decreased at a slower rate.

Meanwhile, companies continued to reduce their staff numbers during the month, with the pace of job shedding accelerating to the sharpest in 40 months. Manufacturers commented on employee retirements, company downsizing and the need to streamline workforce numbers in response to falling new order volumes.



China’s official Purchasing Managers Index, the government’s gauge of the health of the manufacturing sector, slipped to 50.1 in July from 50.2 in June.

The Chinese PMI reading is the weakest since November 2011, and reflects three consecutive months of decline, as Europe’s broadening debt crisis and a stalled U.S. economy have kept a lid on Western demand for Chinese exports. (WSJ)

Look at the new orders component of the official PMI: weak and weakening.

Components of China's official PMIs May/Jun/July 2012 - Nomura