NEW$ & VIEW$ (9 AUGUST 2013)

China slowdown shows signs of abating
Industrial production rises 9.7% in July

Industrial production at large enterprises, a closely watched measure that usually tracks China’s gross domestic product, increased 9.7 per cent from a year earlier in July, sharply up from 8.9 per cent growth in June and the fastest pace since February.

The unexpectedly strong performance was driven mostly by rebounding production of steel, cement, power and nonferrous metals, underscoring the fact that China’s growth remains disproportionately reliant on credit-fuelled infrastructure and property construction.

In contrast, growth in retail sales slipped slightly in July, increasing 13.2 per cent from a year earlier compared with 13.3 per cent growth in June.

Fixed asset investment, a key driver of China’s investment-led economy, stabilised in July with a 20.1 per cent rise in the first seven months from a year earlier, the same pace as in the six months to the end of June, following four consecutive months of deceleration.

Growth in real estate investment sped up in July, growing 20.5 per cent in the first seven months, compared with 20.3 per cent growth in the first six months.

Power production, another closely watched indicator, increased 8.1 per cent in July from a year earlier, up from 6 per cent growth in June and the fastest increase since December 2011.

On Friday, official figures showed consumer prices in China rose 2.7 per cent in July from a year earlier, the same pace as in June and well below Beijing’s 3.5 per cent upper limit. Meanwhile, producer prices stayed in deflationary territory for the 17th consecutive month, falling 2.3 per cent in July from a year earlier, compared with a 2.7 per cent drop in June.

China’s Credit Expansion Slows as Li Curbs Shadow Banking

Aggregate financing was 808.8 billion yuan ($132 billion), the People’s Bank of China said in Beijing today, compared with the 925 billion yuan median estimate of analysts surveyed by Bloomberg News. New yuan loans exceeded forecasts and accounted for about 87 percent of the total, the most since September 2011. M2 money supply growth unexpectedly accelerated to 14.5 percent.

New yuan loans were 699.9 billion yuan in July, compared with the 640 billion yuan median analyst estimate and 540 billion yuan a year earlier. Aggregate financing, which includes bond and equity sales, entrusted loans and bankers’ acceptance bills, compared with 1.04 trillion yuan in June and 1.05 trillion yuan a year ago.

Auto  China’s passenger-vehicle sales rose 10.5 percent in July as automakers increased production and dealerships stepped up discounts to clear inventory, figures from the state-backed China Association of Automobile Manufacturers showed today. Wholesale deliveries of 1.24 million units topped the median estimate of 1.22 million from six analysts surveyed by Bloomberg News.

Home Prices Rise In West, Sunbelt

Cities in the West and the Sunbelt, among the hardest hit during the real-estate downturn, continue to lead the nation’s housing recovery, posting double-digit gains in home prices.

imageIn the second quarter, median existing-home prices increased in 142 of the 163 metropolitan areas tracked by the National Association of Realtors, according to a survey released Thursday.

Nationally, the median existing-home price rose 12.2% in the second quarter from a year ago, to $203,500.

The fastest growth was the West, with 18.2% price growth, followed by the South (11.0%), the Midwest (7.9%) and the Northeast (6.9%).

U.K. Exports Rising to Record Signal Recovery Progress

Overseas sales increased increased 4.9 percent to 78.4 billion pounds ($122 billion), the most since the series began in 1998, the Office for National Statistics said today in London.

The growth in goods exports was led by demand outside the European Union, where sales surged 7.5 percent, exceeding 40 billion pounds for the first time. Exports to the EU increased 2.3 percent, though shipments to Germany dropped 7.9 percent, widening the U.K.’s trade gap with Europe’s largest economy.

French Industrial Output Unexpectedly Drops

Industrial production fell 1.4 percent from the previous month, state statistical institute Insee said today. The drop was worse than any of the predictions made by 22 economists in a Bloomberg survey, whose estimates ranged from a 0.5 percent decline to a 0.5 percent increase. The median forecast was for a 0.3 percent gain.

In Germany, the measure rose 2.4 percent in June, adding to signs that growth in Europe’s largest economy accelerated in the second quarter. Even Italy, mired in its worst recession in 30 years, saw a 0.3 percent increase in production, the second monthly increase in a row and its best since January.image

Weak Demand Dogs Shipping Companies

(…) “This is primarily caused by very, very weak demand and capacity oversupply, causing downward pressure on freight rates,” acting finance chief Alan Tung said, calling the results “disappointing.” “But we do hope for an improvement in the second half.”

Singapore-based Neptune Orient Lines said on Wednesday it sees few signs of a quick recovery in freight rates, (…)

“There’s hope in this and, yes, the high season is coming,” he said. “I don’t know how successful the high season will be, but the initial sign is that we see cargo growth and that’s good news.”

Dutch mood shifts against austerity

Support for government plunges as protests grow

(…) The growing protest marks a slow but significant shift, as this prosperous Calvinist country, once strongly committed to austerity, has gradually turned against it. The Dutch government was among the strongest advocates of tough European budget deficit rules and enforcement powers from the start of the euro crisis in 2010. Now that the EU is forcing the Dutch to slash their deficits, public support for Europe in this once strongly pro-European country has plunged.

Indeed, with the economy in a deep and prolonged recession, austerity measures have sent popular support for the government plummeting to just 28 per cent in the latest polls. Meanwhile, support for the two parties firmly opposed to austerity, the far-right Freedom Party of Geert Wilders and the far-left Socialist Party, has soared; some polls put the Freedom Party in the lead. (…)

The resistance to EU-driven austerity comes not just from the unions, but from business leaders. Bernard Wientjes, the head of the Netherlands’ VNO-NCW business group who is one of the most influential lobbyists in the country, called in June for the government to drop the €6bn austerity plan if it meant raising taxes further. (…)

The head of the country’s small-business organisation has attacked austerity measures as well.

The unions, meanwhile, demand that any new austerity measures should rely on raising taxes. They say they will withdraw from a so-called “social accord” reached between business, labour and the government in April if the government extends pay freezes for healthcare and government employees, which have already persisted for three years.(…)

US oil demand growth at two-year high
Industrial products such as gasoil and LPG fuel growth

Demand for oil in the US has grown in four of the past six months – the strongest run since early 2011 – leading the industrialised countries’ energy watchdog to upgrade its forecast for US demand this year from zero growth to 0.3 per cent, which would be the first in two years.

Refinery runs have increased 5.1m barrels a day since April, the largest seasonal increase in runs since the IEA began collecting data in 2004.

But the IEA also highlighted supply outages across the Opec oil producers’ cartel as a reason for price strength.

In Libya, production fell to 1m b/d in July, a sharp drop from June, when production was already at its lowest since the country’s civil war in 2011. A wave of strikes and militia activity have closed export terminals in the North African producer.

In Iraq production dipped below 3m b/d for the first time in six months. The IEA said planned maintenance to a key export terminal in September, which is expected to reduce exports by a further 500,000 b/d, could drag on for several months.

Saudi Arabia increased production to 9.8m b/d in July, according to the IEA, in part to meet domestic demand for electricity to run air conditioners in the summer months, but also to compensate for reduced supplies elsewhere. But Opec’s overall crude oil output fell to 30.4 mb/d in July, from 31 mb/d in May.

Auto  Energy Journal: America to Its Auto: Long May You Run The 247 million cars and trucks on U.S. roads are growing old together. New auto sales may have reached a five-year high in June, but Americans are keeping their vehicles longer.

The average age of an American car or truck in January was 11.4 years, the oldest on record and a nearly a full two years older than in 2007.

On top of this, Americans are driving less and, as Quartz explains, young Americans aren’t interested in a brand new Cadillac.

The IEA’s latest oil market report said that while U.S. demand has been rising in recent months for products that closely track industrial activity, such as liquefied petroleum gas, demand for fuel oil and gasoline has been eroding.

Some could benefit from such a shift—auto-repair shops or hire firms—but as Geoffrey Styles writes for Pacific Energy Development, if the number of Americans who drive continues to fall then this will require some serious thinking by fuel producers, established and upstart auto makers, transportation planners and policy makers.

Auto  Magna raises sales forecast after profit beats forecasts

Auto parts maker Magna International Inc reported a stronger-than-expected 19-per-cent rise in second-quarter profit and raised its sales forecast for the year, buoyed by increased vehicle production in North America.

  The company raised its sales forecast for the year to $33.3-billion (U.S.)-$34.7-billion from $32.6-billion-$34-billion.

Magna also raised its expected total production sales for the year to be between $27.7-billion and $28.7-billion, up from its previous forecast range of $27.2-billion-$28.2-billion.

Production sales are Magna’s core business of manufacturing vehicle parts and exclude its smaller vehicle assembly and tooling operations.

Aurora, Ont.-based Magna’s fortunes are closely linked to the health of the U.S. vehicle market and Detroit’s Big Three – Ford Motor Co., General Motors Co. and Fiat SpA’s Chrysler.


Of 442 companies in the S&P 500 that reported earnings through Thursday morning, Thomson Reuters data showed that 67 percent topped analysts’ expectations, matching the beat rate over the past four quarters. In terms of revenue, 53.6 percent exceeded estimates, more than the 48 percent rate over the past four quarters, but below the 61 percent average since 2002.

Pointing upBut here’s the meat from Moody’s:

(…) according to the 87% of the non-financials that have reported, Q2-2013’s operating income contracted by -1.3% annually, partly because of a weak 2.6% yearly rise by the group’s revenues. For the third-quarter, the consensus expects the operating income of the S&P 500’s nonfinancial companies to grow by a mediocre 3.5%. (…)

Nevertheless, the consensus somehow believes that the operating income of the S&P 500’s nonfinancial companies will recover to annual a growth rate of 8.8% by Q4-2013.

Fingers crossed  The hope:
New US listings at post-crisis high in Q3

A total of 28 companies have raised $5.2bn from US initial public offerings since July, which marks the fastest rate of activity and amount raised in the same period since 2007, according to data from Dealogic. A further six companies are looking to price deals and begin trading by the end of this week.

IPOs this year have gained an average of 13.2 per cent on their first day of public trading and are up on average just over 30 per cent from their listing price, Dealogic said.

Morning MoneyBeat: The Growing ‘1700 Club’ The number of Wall Street strategists who predict the S&P 500 will finish the year above 1700 keeps growing as stocks keep rallying.

At the beginning of 2013, when the S&P 500 was at 1426, none of Wall Street’s leading prognosticators had 1700 on their radars. Now, at least seven strategists expect the index will finish above 1700 by year’s end.

Wall Street’s 13 leading strategists, on average, expect the S&P 500 to finish the year at 1669, according to Mr. Birinyi. That estimate, while up from the 1544 forecast at the beginning of the year, is still below Thursday’s close.

Even the skeptics are turning a bit less bearish. Earlier this week Barry Knapp of Barclays boosted his year-end target to 1600 from 1525. “It appears that our bull case – faster-than-expected improvement in capital investment and better-than-expected consumer resiliency to tax hikes – may be playing out,” he said.

Stocks Start to Look Overvalued

For the past several years, stock-market bulls have been able to argue that stocks are cheap. That argument is increasingly on shaky ground.

The S&P 500 is trading at 14.5 times its expected earnings for the next 12 months, according to FactSet. That is above the index’s average P/E of 14.2 for the past 10 years, and the highest monthly reading since September 2009. The S&P 500’s forward P/E hasn’t crossed above 15 since October 2007.

The S&P 500 remains below its average valuation of 16.6 since 1988, according to S&P Dow Jones Indices. But that includes the dot-com bubble of 1999 and 2000, when investors paid as much as 27.6 times every dollar of the S&P 500’s expected earnings. Investors haven’t paid more than 20 times the coming year’s earnings for the S&P 500 since 2002, according to FactSet.

Stock futures lower, pointing towards worst week since June

Stock index futures were lower on Friday, putting major indexes on track for their worst week since June, as investors found few reasons buy with equity prices near record levels.


NEW$ & VIEW$ (10 JUNE 2013)



Jobs Rise Enough to Soothe Markets

Employers added 175,000 jobs in May, maintaining a pace that hasn’t brought unemployment down quickly but has been enough to ease worries of a summer slowdown after a run of murky economic reports.


(…) “Adding it all up, today’s report has a little something for everyone,” said Michael Feroli of J.P. Morgan Chase. “If the last week or two of soggy data generated renewed…fears, today’s report should help to mollify those concerns. On the other hand, the figures do little to suggest the economy is shifting into higher gear.”

Muddling Through

image image


We were most encouraged by the fact that the household survey (from which the unemployment rate is derived) showed an 185,000 monthly increase in full-time employment, the best such performance in 2013.
This is a crucial development for continued household formation and higher home prices.

The demographics of job creation certainly argue for such a scenario to take place. As today’s Hot Chart shows, employment for people aged 25+ is now virtually back to its pre-recession peak. Impressively, more than half of the jobs created in May were for people aged 25-34. This sets the
stage for more consumer-driven spending growth in H2 2013. Youth employment might be depressed in the U.S., but that is mostly concentrated in the younger age cohorts (16-24). (NBF Financial)



Not so long ago, the media would have highlighted the fact that monthly trends are down, both in total and in private employment. A slower swoon, but a swoon nonetheless.



And this from Bloomberg:

Bulk of U.S. Payroll Gain in Jobs Paying Less-Than-Average Wages

Occupations paying below-average wages accounted for more than half of last month’s U.S. payroll increase, a dynamic that may restrain consumer spending and the economic recovery.

Retailers, the hospitality industry and temporary-help agencies accounted for 96,300, or 55 percent, of 175,000 jobs added in May, figures from the Labor Department showed today in Washington.

The composition of the employment gain caused hourly earnings for all employees to stagnate at $23.89 on average last month, up a cent from April. They rose 2 percent over the past 12 months, compared with year-to-year increases averaging 3.5 percent in the 10 months leading up to the recession that began in December 2007.

The leisure and hospitality industry, which includes hotels, restaurants, casinos and amusement parks, added 43,000 workers to payrolls last month. On average, those employees are paid $13.45 an hour, the lowest of any of the 10 major employment categories, according to the Labor Department.

Retailers added 27,700 jobs in May, with an average hourly wage of $16.63. Temporary help accounted for 25,600 jobs with an average wage of $15.74 an hour.

In contrast, construction companies, which pay employees an average $26.06 an hour, added 7,000 jobs in May. Manufacturing, which pays $24.22 an hour, lost 8,000 jobs.

Twenty-one percent of all job losses during the recession were in occupations paying median hourly wages of $13.83 or less, according to the National Employment Law Project in New York, a non-profit employee-advocacy group. By contrast, those occupations accounted for 58 percent of new positions during the recovery from February 2010 to March 2012.

As a result, average hourly earnings have sharply decelerated from a +2.1% annualized rate during 2012 to +1.35% during Q1’13 and to +1.17% during the last 3 months. This combination of slowing employment growth and slowing wage growth is obviously not conducive to much enthusiasm on consumer spending. Keep in mind that inflation remains in the 1-2% range and that oil prices have stopped falling.


And yet:

Fed on Track to Ease Up on Bond Buying

Federal Reserve officials are likely to signal at their June policy meeting that they’re on track to begin pulling back their $85-billion-a-month bond-buying program later this year.

A good-but-not-great jobs report Friday ensured officials wouldn’t want to act right away and would instead want to see more data before taking a delicate step toward winding down the program. But they could point at their next meeting to improvement they’re seeing in the economy, a prerequisite to reducing the so-called quantitative-easing program.

Plotting out a move is a tricky task, in part because investors are on edge about the Fed’s plans for the program. Fed Chairman Ben Bernanke signaled last month that the central bank could start pulling back the program “in the next few meetings,” a view echoed by other officials in recent weeks, including some of the program’s most vocal supporters. (…)

Many Fed officials believe the job market and the broader economy have made enough progress to warrant considering a partial pullback in their bond buying, but they still have reservations about the outlook that give them pause.

Most notably, officials are expecting the combination of federal tax increases and spending cuts to weigh on growth in the second and third quarters. Many want to see how the economy weathers that fiscal drag before altering the bond-buying program.

Officials believe the private sector, aided by a rebounding housing market and solid consumer spending, has enough momentum to drive a pickup in growth later in the year. Moreover, the effects of state and local government cutbacks show signs of waning.

Are we heading towards another policy mistake?

Housing’s Up, but Is Foundation Sound?

(…) Housing bulls see the slow economic recovery releasing pent-up demand, first for rental housing and then for home purchases. More young adults—many of them among the 65 million “echo” boomers born to baby boomers between 1981 and 1995—are moving out of their parents’ homes and into apartments. Others that had delayed home purchases during the bubble are ready to buy.

Rising prices in many parts of the country today show what happens when demand outstrips supply. To be sure, some homes are being held off the market by owners who can’t sell because they owe more than their homes or worth. Others are reluctant to sell at prices that leave them with little money to make a down payment on their next home.

Meanwhile, bulls still see too few homes being built, even after accounting for that “shadow” inventory. Population growth will require 14 million additional housing units this decade, around three-quarters of them single-family homes, according to Zelman & Associates, a research and advisory firm. Analysts at Zelman estimate that only 5.7 million of those units will be built by 2015, meaning the U.S. would need to add two million homes a year over the last four years of the decade—spurring a big boost of construction that would ripple through the economy. (…)

Equally important is that home prices have stopped falling, convincing consumers that they’re no longer at risk of catching a falling knife. (…)

The bear case, the outlines of which are laid out in a forthcoming paper by Joshua Rosner, managing director of Graham Fisher & Co., draws attention to several forces that had helped housing—and the economy—expand over the past few decades but whose end will now hinder growth. (…)

The democratization of credit ended during the bust, and a new period of much tighter credit standards has replaced it. Mortgage lending has seen little expansion amid a slew of new regulations and tougher capital rules.

Tight credit isn’t the only problem, argue the bears. Many Americans will face trouble qualifying for loans because they have too much debt relative to incomes that aren’t growing fast—particularly first-time buyers from the “echo” boom who have taken on heavy student-debt loads over the past decade. All of this is likely to unfold in a rising-interest-rate environment. (…)

Skeptics also haven’t taken comfort in the housing rebound because they see it as too dependent on investors. “We shouldn’t look at it as a fundamentally recovered housing market,” says Mr. Rosner. Sooner or later, he says, there needs to be “a handoff from the investor purchase to the primary-resident purchase.”

How that handoff unfolds will go a long way toward deciding whether the bulls or the bears have the last laugh.

Good read on U.S. housing:  Blackstone Denies It Is the Cause Of Housing Bubble 2.0

 Consumers Boost Borrowing for Cars, Education


Consumer credit, a measure of lending that excludes home mortgages, rose by $11.06 billion to a seasonally adjusted $2.820 trillion, a Federal Reserve report showed Friday. That’s a little short of economist expectations of a $13.4 billion advance, but overall figures have now grown steadily for 20 straight months.

Non-revolving credit, which includes student loans and auto financing, rose by $10.38 billion to $1.970 trillion on a seasonally adjusted basis. It was the 20th consecutive monthly increase.

More detailed figures aren’t seasonally adjusted so comparisons are imperfect. But the Fed numbers suggest a good chunk of that increase was related to borrowing for cars, trucks, boats, motor homes and the like.

Revolving credit, which is mainly credit-card debt, rose only $682.3 million to $849.81 billion. Outstanding credit card debt bottomed out two years ago and has only crept ahead in fits and starts since.

 Home Loan Rates Near 4% Send Buyers Scurrying

Mortgage applications to purchase homes fell 1.6 percent last week and are 6 percent below a three-year high at the beginning of last month. Applications to refinance loans dropped 15 percent, the fourth straight decline, to the lowest level in more than a year, according to the Mortgage Bankers Association.

Surprised smile  Canada posts biggest job gains in more than a decade as sentiment firms up

A surprising 95,000 jobs were created last month, marking the biggest gain in almost 11 years and just shy of the record 95,100 of August, 2002. The surge pushed the unemployment rate down a notch to 7.1 per cent, Statistics Canada said Friday.

Even though such month-to-month numbers can be volatile, the economy still likely created at least 38,000 jobs even when standard errors from the survey are taken into account.



China’s Export Growth Slumps

China’s exports edged up a meager 1% in May over a year ago while imports slipped 0.3%. That left a wider surplus of $20.4 billion—up from $18.16 billion in April, according to customs figures.

The export rise was less than a 5.6% gain forecast by economists polled by The Wall Street Journal and well below the 14.7% climb year over year in April. The April figure was widely believed to have been distorted by exporters inflating their data, trying to skirt capital restrictions and move capital into China to take advantage of a rising Chinese currency.

Exports to Hong Kong, a key focus of suspected data problems, showed the clearest evidence of an impact of tighter regulations. Exports in May rose 7.7% year on year, but they were up 69.2% in the first four months of the year compared with the same period in 2012.

Exports to large markets such as the U.S. and the EU were down 1.6% and 9.7% in May compared with a year ago, according to The Wall Street Journal calculations.

China’s CPI grows 2.1%

China’s consumer price index, a main gauge of inflation, grew 2.1 percent year-on-year in May,down from 2.4 percent in April.

In May, food prices, which account for nearly one-third of the weighting in China’s CPI, increased 3.2 percent year on year, NBS data showed.

On a monthly basis, the CPI in May edged down 0.6 percent from April, compared to a rise of 0.2 percent in April from March.


Non-food CPI fell 0.1% MoM, after having risen 0.2% in April and 0.1% in March.

China’s May PPI down 2.9%

China’s producer price index, which measures inflation at the wholesale level, fell 2.9 percent year-on-year in May, the National Bureau of Statistics announced on Sunday.

The figure marked a further drop of 0.6 percent from April’s, according to data released by the NBS. For the January-May period, the PPI fell 2.1 percent.


China’s fixed-asset investment up 20.4% in Jan-May

China’s urban fixed asset investment rose 20.4 percent year-on-year to 13.12 trillion yuan ($2.13 trillion) in the first five months.



China’s retail sales up 12.9% in May

China’s retail sales grew 12.9 percent year-on-year to 1.89 trillion yuan ($306.8 billion) in May, the National Bureau of Statistics announced



Nominal retail sales rose 1.17% MoM in May, compared to 1.25% in April and 1.11% a year ago. Sales of gold, silver and jewelry rose 38.4% YoY in May and are up 31.3% YTD.

China’s Risky Move to Slow Credit

(…) Total social financing, China’s widest measure of credit, fell by about one-third to 1.19 trillion yuan ($194 billion) in May from April, the second month of substantial decline, the People’s Bank of China said Sunday. And new bank loans, a subset of total social financing, also have fallen substantially in the past two months.

[image]Total social financing consists of all manner of financing including banks, trusts, financing companies, trade credit, corporate bonds, certain kinds of interbank lending and informal lending by individuals, among other kinds of credit.

Regulators, however, have a way to go to curb overall lending. In the first five months of 2013, total social financing was up 52% from 2012. (…)

In May, both traditional bank loans and nontraditional lending fell. (…)

China’s industrial output was up 9.2% year-to-year in May, off fractionally from April’s growth rate, and much slower than the rates of expansion routinely recorded in 2010 and 2011.

Pointing up  Electricity output, a barometer of industrial activity, rose 4.1% year-to-year in May versus 6.2% in April. Construction starts by area, a key measure of the health of the property market, were up just 1% in the January-to-May period, versus the same five months last year. (…)

German Industrial Production Increases Most in a Year

Production jumped 1.8 percent percent from March, when it gained 1.2 percent, the Economy Ministry in Berlin said today. That’s the third consecutive increase and the strongest gain since March last year. From a year earlier, production rose 1 percent when adjusted for working days.

Poland Warns on Further Volatility Curbs

Poland’s central bank took the market by surprise by intervening on the local currency market in order to limit the Polish zloty’s volatility Friday, and central bank Governor Marek Belka said they could do it again.

The zloty, Polish bonds and other emerging market assets have been under immense pressure since the Federal Reserve indicated in late May that it may consider unwinding its bond-buying stimulus program if the U.S. economy continues to improve. The prospect of tighter policy in the U.S. has prompted investors to exit riskier assets and rush to safe-haven currencies and bonds.

Italian Economy Contracts as French Confidence Stalls: Economy

Italian gross domestic product fell 0.6 percent from the previous three months, the Rome-based National Statistics Institute, said today, after a May 15 estimate of a 0.5 percent drop. A French index of sentiment among factory managers was unchanged at 94, while an index of service companies fell to 88 from 89, according to the Bank of France.

Exports dropped 1.9 percent in the first three months, the first quarterly fall since the second quarter of 2009, today’s report showed. Industrial output unexpectedly declined in April.

Sweden Industrial Output Declines as Domestic Demand Falters

Industrial production fell an annual 0.8 percent after sliding a revised 0.1 percent the previous month, Stockholm-based Statistics Sweden said today. Output fell a monthly 0.5 percent after rising a revised 0.6 percent the previous month.

Industrial orders rose an annual 1.7 percent in April and plunged a monthly 10.3 percent, Statistics Sweden said. Domestic orders slid 4.6 percent in the year while export orders rose 6.5 percent.

Sweden’s exports, which account for about half of the country’s output, fell 5.5 percent in the first quarter from the same period last year as countries in Europe cut spending to reduce debt.

Philippine Peso Falls to Lowest Level in a Year  The Philippine peso on Monday depreciated to its lowest level against the U.S. dollar in a year, and analysts think it may retreat further along with other Asian currencies as the U.S. economy gains traction and U.S. Treasury yields improve.

Japan sharply revises up Q1 growth
Rate stronger than initial estimate of 3.5%, in a boost to Abe

Government data released on Monday showed that the economy expanded at an annualised rate of 4.1 per cent between January and March, lifted by strong household spending and a pick-up in private residential investment. That was much higher than the preliminary estimate of 3.5 per cent, which was already the fastest rate recorded by any Group of Seven economy.

Composite Leading Indicators (CLIs), OECD, June 2013

The United States and Japan are the only countries where the CLIs point to economic growth firming. In other major economies, the CLIs point to limited growth momentum.

In the Euro Area as a whole, the CLI continues to indicate a gain in growth momentum. In Germany, the CLI shows that growth is returning to trend. As in April and May, the CLI points to a positive change in momentum in Italy. In France, the CLI does not indicate any change in momentum.

The CLIs for the United Kingdom, Canada, China and Brazil point to growth close to trend rates. The CLI indicates that growth is losing momentum in Russia, whereas for India, it continues to indicate growth below trend.

Fears of hyperinflation grip Venezuela
Prices rise by highest monthly amount on record in May
Sudan orders halt to South Sudan oil
President tells army to prepare for holy war

South Sudan had started to pump 200,000 barrels per day in April. Its output was around 300,000 bpd before the shutdown.


U.S. Expansion Poised for Longevity Without Many Excesses

Record $12.5bn outflows from bond funds
Selling wave across all major classes in past week

Two-thirds of the total outflows came from US funds, where nervousness over the Federal Reserve’s next moves in monetary policy is at its height.

(…) The accelerating outflows are already showing up in junk bond prices, which have fallen sharply, sending yields higher. The average yield has surged from its historic low of 4.95 per cent on May 9, to 6.20 per cent on Thursday night, according to a Barclays index.

Forecast Calls for a Summer of Swings

Investors are bracing for a stormy summer, as steady asset-price gains fueled by bottomless central-bank liquidity have given way to sharp swings jolting stocks, currencies and commodities alike.


Good FT piece by David Rosenberg today: The Fed has turned things upside down

  • That is how the Fed has turned things so upside down and inside out. Investors in the Treasury market today are not there for the income but for the prospective capital gain should yields decline. And when you look at the sectors that have done best this year on a risk-adjusted basis, they are the stodgy defensives for the most part that carry a 3.5 per cent dividend yield – investors are here not for the capital gain (though it is always welcome) but for the income. Equities for income and bonds for capital gains. How fascinating.
  • Yet, in the past month, more than 60 per cent of the incoming US economic data have come in below expectations versus 34 per cent above expectations. Two months ago, only 42 per cent of data were disappointing and 53 per cent surprising to the upside.
  • While there has been some reversal in recent weeks, the defensive segment of the stock market is up nearly 20 per cent so far this year versus just over 10 per cent for the cyclicals in the largest outperformance in a good 15 years.
  • Cyclical stocks command an average yield of only 1.8 per cent and you can see how income-hungry investors in the stock market are paying up for the yield characteristics: at a price/earnings multiple of nearly 19 times, the defensives command a 20 per cent multiple premium over their economically-sensitive cousins.

NEW$ & VIEW$ (16 APRIL 2013)


The string of softer data continues:

The Empire State’s business conditions index declined to 3.05 in April from 9.24 in March.

The New York Fed survey is the first factory report released by regional Fed banks for April. (…) The Empire subindexes were generally weak but still expansionary.

The new orders index declined to 2.20 in April from 8.18 in March. The shipments index plunged to 0.75 from 7.76.

Despite weaker output, labor conditions improved sharply this month. The employment index more than doubled to 6.82 in April from 3.23 in March, and the workweek index jumped to 5.69 from 0. (Chart from Haver Analytics)

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo declined to 42 this month following an unrevised March reading of 44. Expectations were for an index reading of 45 in April. The latest was the lowest since November. Nevertheless, the index level remained up by three quarters versus one year ago. The index of single-family home sales fell to 45 while the index of sales during the next six months improved to 53. Also down m/m was the home builders index of traffic of prospective home buyers. It fell sharply m/m to 30, its lowest level since July.

  • ISI`s economic diffusion index has declined for a second week.
  • ISI`s company surveys and their diffusion indices fell again.



Slower China Growth Signals Days of Miracles Are Waning

After three decades of annual economic growth in China averaging around 10%, many industries are now experiencing less bling and more blah.

image(…) Retail sales growth last month slid to 12.6%, year on year, down from 15.2% at the end of 2012. Industrial production growth also faded in March, evidence that a late-2012 rebound could be losing steam. (…)

Shortly before he became president, Xi Jinping set the tone for a downshift with actions that appeared to equate indulgence with corruption. During a visit to Hubei Province, he shunned trappings of high office and stayed at a small hotel. His menu at one meal included just four dishes and one soup.

Mr. Xi’s humility has struck like religious canon. To avoid appearing corrupt, lower-ranking officials suddenly shun five-star hotels, as well as such delicacies as bird’s nest soup and even fruit, according to restaurant and hotel managers.

Less indulgence by officials “may be the largest factor” in dragging down first quarter growth, according to Lu Ting, China economist at Bank of America Merrill Lynch; 10 million of them carry government-issued credit cards that, on average, rack up annual spending of about $5,800, or a total of $58 billion, according to Shanghai research firm Emerging Asia Group.

One measure of the funk is a 94% price drop for the yellow-colored dao yu, or knife fish. Two years ago, one of the Yangtze River delicacies traded wholesale for more than $220. They now cost $13.

The new austerity also is deflating luxury markets for art, liquor, entertainment and clothing. (…)

Beijing hopes higher household incomes will trigger more personal consumption to rebalance the economy away from investment and exports. Consumption contributed 4.3 percentage points to China’s first quarter growth, compared with 2.3 percentage points from investment, said Sheng Laiyun, a spokesman for the National Bureau of Statistics. “Now we can say consumption has become the major driver of growth,” he said.

New restraint by formerly free-spending government officials should eventually channel more money into improving health care, education and other underfunded segments of the economy. The government has said it would raise social spending as a share of the budget.

But the immediate impact appears to be a drag on consumer spending, particularly at the top end. For the first time in 25 years, for example, banquet revenues fell during holidays at the start of 2013 compared with a year earlier, according to the Chinese Cuisine Association.

Demand appears to be shifting from gilded restaurants—with names like Mansion and Palace—to unpretentious-sounding places like Hefei’s Jinzhai Farm House. “If you don’t reserve here, you can’t get a table,” said owner Fan Ronghua.

China’s quick wealth fed hyper-expansion by the global luxury industry, which suddenly appears vulnerable. Only about a third of luxury shoppers surveyed this year by CLSA Asia-Pacific Markets said they would spend as normal during a sustained anticorruption campaign.

A decade ago, China’s top-earners mesmerized global marketers with their embrace of new and different experiences.

Today, nearly 62% of this group wished things “would stay the same” and more than half prefer staying home rather than attending parties, according to a survey by WPP PLC’s Young & Rubicam Group. “They’re feeling a lot of the hype was actually quite fake,” said Kaiyu Li, Y&R’s head of planning in China.

NBF Financial Sees Positives:


Analyst commentaries have been largely negative with regards to China’s Q1 GDP results which showed growth decelerating to 7.7% on a year-on-year basis, or 6.6% annualized on a seasonally-adjusted quarter-on-quarter basis. While we’re not thrilled about the
overall results, we’re not as downbeat as some. For one, China saw a similar performance in the same quarter last year and that didn’t prevent overall 2012 growth from eventually topping the government’s 7.5% target. We expect a similar pick-up later this year.

Also, the results confirm that the rebalancing of the Chinese economy continues as intended by the government, i.e. growth is tilting towards consumption and away from fixed investment. That’s a step in the right direction with regards to the sustainability of growth over the coming years. Moreover, as today’s Hot Charts show, trade contributed to China’s GDP growth for the first time in two and a half years, thanks to a rebound in exports, and that despite a strengthening yuan. That, perhaps, is a sign that global demand is firming up after a soft 2012.


But CLSA points out that:

While GDP growth was slower than expected, the most disappointing data point for the first quarter was the slowdown in income growth.

Urban household disposable income rose by only 6.7% YoY in real terms, down from 9.8% in 1Q12 and the slowest pace since 2001.  To put the 1Q13 rate of 6.7% in context, the average annual growth rate for the last decade was 9.3%.  A key factor was slower nominal wage growth:  up 8.3% YoY compared to 13.8% a year ago.

While 6.7% real income growth is something that most countries can only fantasize about, this is a surprisingly low number for China and raises questions about longer-term consumption growth as investment growth continues to slow.

The monthly average income of China’s 166m migrant workers was RMB 2,436 (US$ 390), up 12.1% YoY, after having risen by 16.6% in 1Q12.  Given that the working age population has just begun to shrink, we had not been expecting a significantly slower wage growth for unskilled workers.

Real per capital rural cash income also rose at a slower pace in 1Q, 9.3% YoY compared to 12.7% a year ago, due in part to slower growth in food prices.

. . . but retail sales held up

Despite slower income growth, real retail sales growth was 10.8% YoY in 1Q13, down only 0.1ppt from the first quarter of last year.

Markit Remains Upbeat on China:

(…) It is unlikely, however, that the disappointing data for  the first quarter represent the start of a renewed trend of slower economic growth in China, and it remains likely that GDP growth should pick up again in the second quarter.

First, a lag between the official data picking up after the PMI has risen is not unprecedented: GDP lagged considerably in 2009, for example. Markit’s PMI also fell sharply in February but rose again in March,
possibly reflecting a late pick up in growth in the first quarter which has not been fully captured by the official GDP data.

Second, it is not just the Markit-produced PMI that has signalled an upturn. A government sponsored survey signalled the strongest growth of manufacturing output for ten months in March as order books growth hit an 11-month peak.

Third, the message from companies in China is that the underlying trend in the Chinese economy is improving. Markit’s Business Outlook survey showed both China’s manufacturing and service sector companies growing more optimistic about prospects for the year ahead in the first quarter. Confidence hit a two-year high in manufacturing, while a near one-year high was seen in services.

Fourth, a sharp acceleration in bank credit growth in March should also feed through to higher activity in the real economy in the coming months.

Fifth, the data for the first quarter need to be treated with particular caution in the case of China due to the extended and widespread business closures for the New Year holidays.

The Chinese authorities have retained the 7.5% growth target for 2013 despite the weakness of the first quarter data, but many private sector analysts have already begun to downgrade their outlooks. Given the
uncertainties about growth in the first quarter, a reliable indication of growth momentum in the Chinese economy may only be really known until the second quarter.

South Korea in bid to kick-start economy
Bigger-than-expected supplementary budget aims to restore confidence

The government slashed its 2013 growth target to 2.3 per cent late last month from 3 per cent, citing slowing exports and sluggish domestic spending.

Colombia launches stimulus measures
Package aimed at easing appreciation of the peso


Brent Crude Falls Below $100

The price of a barrel of Brent crude oil fell below $100 for the first time in nine months as a selloff that started Monday continued.

Still travelling with my dead laptop…


NEW$ & VIEW$ (10 DECEMBER 2012)


The Labor Department’s latest job-market overview showed employers added 146,000 jobs in November. That is better than the previous two months, which were revised down, but still too weak to get many of America’s 4.8 million long-term unemployed back to work.

The biggest surprise in the report was the government’s pronouncement that Superstorm Sandy didn’t significantly affect the findings. (WSJ)

The change in total nonfarm payroll employment for September was revised from +148,000 to +132,000, and the change for October was revised from +171,000 to +138,000. Most of the downward revisions were in government employment.


Few people accept the BLS view that Sandy had little impact on the November data.

As it happens, the week the household survey was conducted was around the time Sandy made landfall. Oddly, by the Bureau’s own count, some 369,000 workers couldn’t make it to work, yet it insists the hurricane did not “substantively impact the national employment and unemployment” totals for last month. Go figure. (Barron’s A. Abelson)


The BLS’ own household numbers point to a meaningful impact from Sandy. In addition, the 20k drop in construction employment is highly suspicious in light of the clear improvement in construction spending in recent months (chart below from Lance Roberts and AAR).



Here’s what the National Federation of Small Businesses said recently:

Sandy will have a substantial impact on the jobs numbers. Although large
national firms will not experience much of an employment impact, thousands of small firms were shut down along the East Coast, and large numbers have not re-opened and their customers can’t shop. Segregating the responses in the “Sandy States” from the rest of the U.S. (including western Pennsylvania and New York which weren’t affected), it is clear that there was less hiring and more job loss in Sandy States. (NFIB via John Mauldin)

Meanwhile, up North where Sandy had no impact: Canada Nov. Employment Rises More-Than-Expected 59,300

Canadian employment rose almost six times faster than economists forecast in November, countering recent signs of slowing economic growth.

The increase of 59,300 lowered the unemployment rate to 7.2 percent from 7.4 percent, the first decline in five months, Statistics Canada said today in Ottawa.

Full-time employment rose by 55,200 in November and part- time positions increased 4,100, Statistics Canada said. Private companies added 48,200 workers and public-sector employment climbed 5,400.


LEI Says Slow Growth, Not Recession

For now, leading economic indicators are not pointing toward recession—but they continue to suggest “stall-speed” growth. The Conference Board’s Composite of Leading Economic Indicators just hit a new high for the current expansion. As you can see in the chart and table below, the six-month rate of change in the LEI is consistent with nearly 2% gross domestic product (GDP) growth. Going off the fiscal cliff would almost certainly take the economy into a recession, but the present fundamental picture remains out of the contraction zone.

LEI Says Slow Growth, Not Recession

LEI Says Slow Growth, Not Recession

Smile Rail stats point up

Excluding coal and grain, U.S. carloads were up 2.2% M/M in November and 5.5% Y/Y, the biggest percentage increase in six months. (AAR)image image

Pointing up Also, the diffusion index of ISI’s company surveys made a new high last week.

But there is the cliff:

[image]As recently as September, about half of consumers were largely ignoring the issue, according to a regular survey by RBC Capital Markets. But in the most recent survey, completed last week, 71% of respondents said they were following the cliff debate, and more than half said the threat had hurt their confidence or led them to hold back on spending.

Will Churchill is already seeing the issue affect his business. Mr. Churchill, co-owner of Frank Kent Motor Co. in Fort Worth, Texas, saw strong sales growth at his Cadillac and Honda dealership until early November.

But sales started to slow after Election Day, with many customers attributing their caution to the Washington budget debate. “Fifty percent of the customers we talk to, it comes up at some point,” he said. “They’re in the market, they want to buy, but the hesitation is that they don’t know what’s going to be the result in Washington.” (WSJ)

In the twilight zone:

Boehner Says Week Wasted in Talks to Avert Fiscal Changes

An agreement won’t be possible “if the president insists on his position, insists on my way or the highway,” he said. “That’s not the way to get an agreement.”

High five Boehner said that Friday but before Nancy Pelosi met with President Obama and came out with:

“It’s not about the rate—it’s about the money,” Mrs. Pelosi told reporters. She said the point was not “about being punitive to the high end—it’s about getting money to reduce the deficit, to grow the economy.”

To me, this sounds like progress: “It’s not about the rate—it’s about the money,”

Who will blink first?

Pointing up  In the end, the President of the U.S.A. is Barrack Obama. He is the ultimate person responsible for what happens. No president would knowingly do anything that would clearly and effectively result in a recession which, after all, would make things even worse for the United States and the world.

Obama will blink.


Pay attention to this Ned Davis Research chart via Liz Ann Sonders (Charles Schwab & Co.):

Investors' Extreme Pessimism Starting to Reverse

Investors' Extreme Pessimism Starting to Reverse

And to this basic technical reading which suggests that equities have decent support around the still rising 200-Day MA (1390) and resistance on the 50-Day MA (1420).

Stocks Move Back Above Trendlines



Earnings Growth Rate Cut By Nearly 2/3 since September 30 (Factset)

The estimated earnings growth rate for Q4 2012 is 3.5% this week, slightly below last week’s estimate of 3.8%. Estimate cuts to companies in the Financials sector were mainly responsible for the decrease in the growth rate this past week. Overall, the growth rate for the Financials sector decreased to 20.0% from 20.9% during the week.

Since the start of the quarter (September 30), the estimated earnings growth for the index has dropped to 3.5% from 9.3%. Seven of the ten sectors have witnessed a decline in expected earnings growth over this time frame, led by the Materials, Information Technology, Financials, and Industrials sectors.

The estimated earnings growth rate for the Materials sector is 6.4% today, down from an expectation of 24.0% at the start of the quarter. The projected earnings growth for the Information Technology sector is -2.4%, down from an expectation of 8.7% at the beginning of the quarter. The predicted earnings growth rate for the Financials sector is 20.0%, below an expectation of 27.8% at the start of the quarter. The expected earnings growth rate for the Industrials sector is -4.2%, down from a projection of 3.3% on September 30.

Guidance: High Percentage of Information Technology Companies Guide Lower

The reduction in expected earnings growth for Q4 2012 can attributed in part to a high percentage of companies issuing negative EPS guidance for the quarter, particularly in the Information Technology sector.

Of the 108 companies that have issued EPS guidance for the fourth quarter, 79 have issued projections below the mean EPS estimate and 29 have issued projections above the mean EPS estimate. Thus, 73% of the companies that have issued EPS guidance to date for Q4 2012 have issued negative guidance. This percentage is well above the five-year average of 61%, but below the percentage at this same point in time in Q2 2012 (80%).

An unusually high percentage of companies in the Information Technology sector have issued negative guidance. Of the 32 Information Technology sector companies that have issued EPS guidance, 29 (or 91%) have issued EPS projections below analyst estimates. This percentage is well above the five-year average of 56%.

I did the calculation for you. Excluding IT, 76 companies have issued Q4 guidance and 50 (66%) were below the mean estimate.

Slow demand is hurting revenue but operating margins are necessarily impacted by lower capacity utilization (charts from AAR):


Pointing up The current decline in capacity utilization is similar to the early 2008 experience. Then we had the Lehman failure and all hell broke loose. Nothing similar is expected in 2013, barring the fiscal cliff, but capacity utilization needs to stabilize if current margin expectations are realized:


Smile  China’s recovery gains momentum 

The monthly flood of Chinese data:

  • [image]Industrial output rose 10.1% Y/Y in November, up from 9.6% in October and the strongest since March. On a MoM basis, VAI rose 0.86%, up from 0.82% in October and the fastest pace since May. 
  • Electricity production accelerated to 7.9% growth from 6.4%. That was the fastest pace for 2012.
  • Retail sales rose 1.5% M/M vs. 1.4% in October. Retail sales growth rose to 14.9% Y/Y from 14.5% in October. Real retail sales rose 13.6% Y/Y, up from 13.5% in October and the fastest pace of the year.
  • Investment in fixed assets grew 20.7% Y/Y, down from 22.2% in each of the prior two months. FAI rose 1.3% M/M vs. 1.9% in October. FAI by state-owned firms rose 17.1% Y/Y last month, while FAI by private firms rose 22.7%.
  • Real estate investment showed a marked rebound, registering 16.7% in the first 11 months, compared with 15.4 percent for the first 10 months.
  • China’s exports rose just 2.9% Y/Y in November, much lower than October’s 11.6% rise. Imports were flat against a 2.4% increase in October. Exports to the EU fell 18% Y/Y in November. For the first 11 months of the year, China’s exports to the EU were down 7%. China’s exports to the U.S. fell 2.5% Y/Y after rising between January and November.
  • China property November 2012, floor space sold, new starts - UBSNew floor area under construction in the real-estate sector showed signs of recovery, as residential sales rose 31.6% year-to-year,up from 25% in October and from -3.3% in November 2011. In the nine months through June, sales were down Y/Y each month, while since then sales have been up Y/Y in four of five months. Residential investment rose 21.8% Y/Y in November, up from 13.2% in October and 10% in September.
  • New home starts jumped 6.3% Y/Y last month, following declines of -9.4% in October and -28.1% in September. 
  • Land purchases by developers rose 16.8% last month, after -36.6% in October.
  • The Consumer Price Index rose to 2% Y/Y in November. CPI rose 0.1% M/M with food prices up 0.4% and non-food prices flat.
  • China’s PPI dropped 2.2% in November, the ninth straight month of decline.

Auto  November vehicle sales hit top gear  Passenger-vehicle sales in China hit a record in Nov as a series of positive indicators boosted the market.

A total of 1.419 million cars, sports utility vehicles, multi-purpose vehicles and minivans were sold in November, a 13 percent year-on-year increase, according to data from the China Passenger Car Association on Friday.

The number showed that total sales for the first 11 months jumped 6.6 percent year-on-year to 13.12 million, paving the way for an increase of at least 5 percent in passenger-vehicle sales this year.

Cui Dongshu, deputy secretary-general of the association, said the Guangzhou Auto Show last month helped passenger-vehicle sales surge more than 20 percent in the last week of November.

“More impressively, China’s homegrown brands recovered in the domestic market as their share of the passenger-car sector reached 35.1 percent, the highest in 20 years,” Rao said.



Chinese Survey Shows Higher Jobless Rate

A new survey shows that the real unemployment rate in China is double the official level, and layoffs rose sharply among migrant workers in the past year, underlining the challenge for China’s new leaders to maintain growth.

The survey of 8,000 households shows the urban unemployment rate hit 8.05% in June, up slightly from 8% in August 2011 and nearly twice as high as the official 4.1% rate.

The unemployment rate for China’s army of 160 million migrant workers has risen sharply to 6% in June 2012, up from 3.4% in August 2011 according to the survey, suggesting 10 million unemployed as a result of the sharp slowdown in exports and real-estate construction.

China’s official unemployment rate is based on urban residents registering for unemployment benefits. That measure leaves out key sections of the workforce—notably migrant workers, who go uncounted because they can’t register for such benefits in the cities where they go to work. For the last 15 years it has stayed in a tight range between 3.1% and 4.3%, failing to capture wrenching changes in China’s labor markets.

Mr. Gan’s survey attempts to overcome the problems of the official data by dispatching student researchers into households up and down the country.

OECD Composite Leading Indicators, December 2012

The CLIS for Canada, Japan, Russia, Germany, France and the Euro Area as a whole continue to point to weak growth. In Brazil tentative signs have emerged that the positive growth momentum predicted in recent months is dissipating.

In China and Italy, on the other hand, signs of turning points in the cycle are beginning to emerge. Tentative signs of a stabilisation in growth have also emerged in India.

In the United States and the United Kingdom, where consumer confidence picked up strongly last month, the CLI continues to point to economic growth firming.



Lightning  Japan sinks into fresh recession Revised GDP indicates contraction in six months to September

Japan quarterly qoq annualised seasonally-adjusted GDP - Soc Gen Revised quarterly gross domestic product data on Monday showed that output fell 0.9 per cent in the three months to September, in line with earlier estimates. However, the government also marked down its previous estimate of 0.1 per cent growth in the second quarter to a shade below zero, with growth in net exports cut almost in half. That meant that the six-month period met the textbook definition of a technical recession.

Storm cloud  Turkish growth below expectations
Exports perform less well than hoped

Gross domestic product grew 1.6 per cent in the third quarter compared with the same period last year, significantly below analysts’ consensus forecast of about 2.6 per cent.

GDP advanced 2.6 per cent the first nine months of the year on the same period in 2011. The government forecast for the year as a whole is 3.2 per cent, but some economists say such projections will now be revised downwards.

Storm cloud  Mexico warns of economic headwinds New government says finances in US and Europe will hit growth

Mexico’s new centrist administration says weakness in Europe and concerns about US finance will limit economic growth next year to 3.5 per cent. The figure is in line with previous official forecasts, but below that of most independent economists who had expect 4 per cent growth.

ECB – symbolism matters  Central bank should have cut its benchmark interest rate this week

(…) the ECB also appears to be signalling that a cut is more likely than not, and probably soon. But why wait, especially since it is the symbolism as much as the fact of the cut that really matters?

Lightning  Italian bond yields jump sharply higher
Monti’s decision to step down early leads to wave of uncertainty


Italy’s Bersani Vows Steady Hand

Pier Luigi Bersani, the center-left politician tipped in polls as Italy’s next leader, pledged to uphold his country’s economic commitments to Europe and not dismantle the current government’s overhauls, if he is elected.

Pointing up  Spain Bailout Caution Grows as Business Lobby Backs Rajoy

Spain’s biggest business lobby is getting as cautious as Mariano Rajoy’s government on a possible bailout request because of concern how stringent conditions might be to trigger European Central Bank bond-buying.

A rescue “could impose a criminal pace of reduction in public spending,” Alberto Nadal, vice secretary-general of CEOE, Spain’s main business group, said in an interview.

The group’s newfound skepticism contrasts with their earlier support for a request following the ECB’s unveiling of its bond-buying program in September after President Mario Draghi committed to do “what it takes” to save the euro. Rajoy has refrained from seeking such aid and pressure on him to do so has eased, with the yield on Spain’s 10-year bonds now 214 basis points lower than in July.

Encouraged by the impact of the ECB’s announcement on borrowing costs, business leaders share Rajoy’s optimism that the five-year slump is reaching a low and that measures to overhaul the economy will pave the way to a recovery next year, with already resilient exports and declining labor costs helping resorb Spain’s current account deficit.

…until yields rise again


Demography is destiny, and like cancer, demographic population changes are becoming a silent growth killer. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average “age” then demand slows. Typically the
imagedynamic cohort of an economy is its 20 to 55-year-old age group. They are the ones who form households, have families and gain increasing experience and knowhow in their jobs.

Now, however, almost all developed economies, including the U.S., are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark. This means several things for economic growth: First of all from the supply side, it means productivity and employment growth rates will slow. From the demand side, it suggests a greater emphasis on savings and reduced
consumption. Those approaching their seventh decade need fewer cars and new homes. Almost none of them have babies (thank goodness!). Such low birth rates and a significant reduction in demand have imperiled Japan for several lost decades now. A similar experience will likely turn many developed economy “boomers” into “busters” within the next several years. (Bill Gross, Pimco)

The Collapse Of Microsoft’s Monopoly

(…) This chart comes from Goldman Sachs, and it shows Microsoft losing its market dominance of computing devices as smartphones and tablets have come into the market. (…)

Microsoft’s inability to make a smartphone people really love could be a deadly mistake. As people became comfortable with the iPhone, they became open to the idea of the iPad. As the iPad takes off, it is slowing PC sales. As people become comfortable with the iPad, they’re going to be more inclined to buy a Mac to stay in Apple’s ecosystem.


Here’s my humble contribution: two shots taken at the Aventura Mall in Florida within 5 minutes. Guess which is which.

image image


To Quote Thomas Jefferson, ‘I Never Actually Said That’

(…) Mr. Langworth says Chris Matthews, a fellow Churchill Centre board member and host of MSNBC’s “Hardball,” has misquoted Churchill. Last year Mr. Matthews made a promotional ad for MSNBC in which he recounted Churchill being told during World War II that he should cut government funding for the arts.

“Then what are we fighting for?” Churchill replied, according to Mr. Matthews.

Mr. Langworth says Churchill never said it, though many over the years have used what Mr. Langworth calls “this famous ‘red herring’ nonquote.”

Mr. Matthews, a self-described “Churchill nut,” insists he hasn’t misquoted his hero, but adds, “How can you prove someone never said something?” Confused smile


NEW$ & VIEW$ (1 NOVEMBER 2012)

Asia Data Suggest Worst of Slowdown May Be Past

(…) HSBC’s PMI readings were strongest in India, where the index rose to 52.9 in October from 52.8 in September, and Indonesia, which rose to 51.9 from 50.5. (…)

Export data released Thursday also showed some improvement. South Korea’s exports rose 1.2% in October from a year earlier, their first improvement in four months and well above expectations. That comes a day after data showed Korea’s September factory output growing for the first time in four months.

Indonesia also posted strong export numbers, with September exports rising 13.21% from the prior month and its trade surplus widening more than expected to $550 million. (…)

Still, improvement across the region wasn’t uniform. The contraction in Vietnam’s manufacturing sector continued for a seventh month and even accelerated in October, as companies cut output and orders declined.

China’s Rag Trade Looks Ragged

Vipshop Holdings Ltd. unloads unwanted inventory from domestic and global clothing brands at a discount to Chinese consumers. Unfortunately for the global apparel industry, the company’s business has never been better.

More than 3,000 brands have turned to Vipshop this year to peddle clothing they couldn’t sell, up 58% from a year earlier, says Yang Donghao, Vipshop’s chief financial officer. Second-quarter sales more than tripled to $135.3 million from a year earlier, edging the four-year-old company closer to posting a profit. (…)

Nike Inc. last month said China sales were weakening, and VF Corp., which makes such brands as Lee jeans, The North Face outdoorwear and Timberland boots, said it has increased discounts on some products. (…)

Chinese brands have borne the brunt of the slowdown. Inventory for Shanghai Metersbonwe Fashion & Accessories Co. rose to as much as 50% of its total net assets last year, and the company’s shares have dropped about 25% this year.

Casual-wear company Giordano International Ltd., which is based in Hong Kong and has roughly 1,350 outlets in China, reported that first-half sales from its China operations fell 4% from a year earlier.

But multinational apparel makers aren’t immune, as Nike showed when the U.S.-based sportswear maker said orders for the fiscal quarter through August slipped 6% in China from a year earlier.(…)

Initial U.S. Jobless Claims Decrease by 9,000 to 363,000
  Fewer Americans than forecast filed first-time claims for unemployment insurance last week, an indication demand is strong enough to maintain current staff levels.

Lightning  Stronger fall in Eurozone retail sales in October

imageThe Eurozone retail sector remained mired in a deep downturn at the start of the final quarter of 2012, according to PMI® data from Markit. The current sequence of falling sales revenues was extended to a twelfth month, and the rate of decline accelerated since September.

The Retail PMI fell back from September’s three-month high of 47.1, to 45.3. That signalled a sharp fall in retail sales compared with one month previously, and the latest figure was also below the average for the third quarter (46.0).

The overall acceleration in the month-on- month pace of decline across the Eurozone retail sector reflected stronger falls in both France and Italy. French retail sales have declined for the past seven months, and the latest pace of
contraction was broadly in line with the average seen over the past year. Italy remained by far the worst performer, however, registering another rapid decline that extended the current sequence of contraction to 20 months. Germany bucked the trend, registering a marginal increase in sales for the first time in three months.


Still on the road, limiting posting.


NEW$ & VIEW$ (18 OCTOBER 2012)

China’s Growth Slows

China said its economy continued to slow in the third quarter, just weeks before a once-a-decade change in leadership.

Growth in China’s gross domestic product fell to 7.4% in the third quarter compared with a year earlier, down from 7.6% in the second quarter and the weakest since the beginning of 2009. The seventh consecutive deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China’s households to pick up the slack. (…)

Data for September showed some signs of stabilization. Industrial output growth rose to 9.2% year-over-year, from 8.9% in August. Exports also bounced back, up 9.9% year-over-year in September, after 2.7% in the previous month. And Chinese refineries processed a record high amount of crude oil, 7% more than a year earlier.

Retail sales were up 14.2% year-on-year in September, ticking up from 13.2% growth in August. (…) A manager of a supermarket chain in Wenzhou said that “supermarket shoppers now hold their purse strings even tighter” and figures the chain will miss its 2012 sales target by 20%.


Remember that the retail sales stats in China are not very useful as they exclude services and also tally some corporate and government expenditures. A more accurate stat is urban household consumption spending, based on a quarterly NBS survey, which rose 7.9% in 3Q in nominal terms, down from 11.6% in 2Q and from 15% a year ago.  Rural household spending slowed to 13.2 in 3Q from 15.4% in 2Q and from 22.9% a year earlier. Interestingly, real urban disposable income rose 9.8% during the first 9 months. Rural PDI rose 12.3% during the same period.

Fixed-asset investment, a flawed stat which includes both capital formation and asset sales, rose 22.2% in September, up from 19.1% in August. Private firm investment rose 24.8%, up from 21.5% in August, while SOE investment rose 17.5%, up from 14.5% in August.


Pointing up  China also reported a 2.2% QoQ seasonally adjusted growth rate in Q3/12, +9.1% annualized, up from Q2 which was also up from Q1. This quarterly acceleration in China’s economy is completely foreign to the reality of the first 9 months. No other details from that GDP black box was released.

China seems to have stabilized although electricity consumption and freight volume have yet to confirm that. Next week’s flash PMIs will help in that regard. (Charts above from CLSA)

Pointing up  Electricity consumption slows  China’s electricity consumption growth slowed in September, underlining the nation’s moderating economic growth.

imageThe National Energy Administration said on Wednesday that the country’s total electricity consumption grew just 2.9 percent month-on-month in September to 405.1 billion kilowatt-hours. That is 9.3 percentage points lower than last September, and 0.7 percentage points lower than in August.

In the year to September, the country’s electricity consumption grew 4.8 percent, slowing from 12 percent in the same period last year. Electricity consumption is widely seen by economists as one of the most reliable indictors of a country’s economic strength.

The industrial sector’s consumption grew just 0.9 percent year-on-year. Among heavy industries, the country’s main electricity consumers, consumption dropped by 0.1 percent.

The agricultural sector used 3.4 percent more electricity than last September, whereas the service sector’s consumption grew by 8.4 percent. Both of these sectors consumed less electricity than in August.

China Home Prices Rise in Fewer Cities as Market Stabilized

Prices climbed in 31 cities of the 70 the government tracks from the previous month, compared with 35 cities in August, according to data released by the statistics bureau today. Prices fell in 22 cities, the data showed.

Sad smile  China’s business climate index falls in Q3  China’s business climate index, a major gauge of the country’s macroeconomic outlook, continued to fall in the third quarter.

The quarterly index dropped to 122.8, 4.1 points lower than in the second quarter. This is a steeper decline compared with the 0.4 dip in the previous quarter, the National Bureau of Statistics said Thursday. (…)

This was the result of a survey conducted among 21,000 industrial enterprises.

Businessmen in IT, wholesale and retail industries felt most optimistic.

Those in manufacturing industries, entrepreneurs from steel, petroleum and chemical fibre sectors felt the worst about their economic operations, with indices under 100.

Open-mouthed smile  U.S Home Building Surges

Residential construction picked up momentum in September and now is running at its highest level in four years, a turn that could have a positive effect on the jobs market and the broader U.S. economy.

Housing Starts Soar To 4-Year High, But Is Upside Limited?Builders started work on new houses and apartments at a seasonally adjusted annual rate of 872,000 units last month, the Commerce Department said Wednesday, up 15% from August and 34.8% from September a year ago. The level of starts was the highest since July 2008. (…)

Starts on single-family homes, which made up 69% of housing starts last month, rose 11% in September to a rate of 603,000 units, a 43% improvement from a year earlier.

Pointing up  The National Association of Home Builders, a trade group, estimates that each home built generates three full-time jobs and $90,000 in new tax revenue. (…)

Building rose 20.1% in the West, 19.9% in the South and 6.7% in the Midwest. New construction fell 5.1% in the Northeast.

In September, the number of new building permits, an indication of future construction, rose 11.6% to an annualized level of 894,000, also the highest level since July 2008. (…)

Builders have started construction on about 1.5 million new homes a year since 1959, to keep up with household formation which has run at an average of 1.27 million new homes a year, according to Census data analyzed by Moody’s Analytics.

U.S. households, many of which doubled up during the economic downturn in order to save money, have been growing by just over one million a year since 2008. (…) (Chart from IBD)

Shoppers Raise Hopes for U.K. Economy

The volume of retail sales rose 0.6% on the month and 2.5% on the year in September. In August, sales fell a revised 0.1% on the month and were up 2.5% on the year.

High five September’s retail figures benefited from higher sales of school uniforms and new collections of warmer clothing, both temporary factors. An ONS spokeswoman said sales of school uniforms rose because of the later start to the school year, which saw families holding off on purchasing items that more traditionally are bought in August. Girl

September’s rise helped boost sales over the third quarter, which increased 1.0% from the second quarter, and marked the strongest rise since the three months to June 2010.

Storm cloud  Output of new vehicles fell 7% in September from August, as demand for cars and vans across Europe fell, figures from the Society of Motor Manufacturers and Traders showed.

Storm cloud  Germany cuts 2013 growth forecast
Minister blames eurozone crisis and global slowdown

The German government has cut its forecast for growth next year to 1 per cent due to the eurozone sovereign debt crisis and the global slowdown as it made the case for stimulating Europe’s largest economy with tax cuts.

In its traditional autumn forecast, the government revised down gross domestic product growth next year from an earlier spring forecast of 1.6 per cent, but slightly revised up this year’s forecast to 0.8 per cent from 0.7 per cent. The government forecasts match those made by the country’s top four economic institutes last week. (…)

Snail  Fears grow over EU banking union plan
‘Legacy assets’ at heart of debate

(…) “The eurozone can only get together and act when the market puts pressure on it,” lamented an EU diplomat from a country allied with Paris. “The things people are being asked to do are very difficult and they don’t want to do them.”

Concern has focused on the inability to agree a way forward on a deal reached in June in which Berlin agreed to allow the eurozone’s €500bn rescue fund to take on debts of failing banks once a new centralised bank supervisor for the single currency is established.

German, Dutch and Finnish finance ministers called the deal into question last month when they insisted that “legacy assets” – such as banks in trouble before the supervisor was established – would be excluded in the rescue scheme, a position that caused howls of protest in Ireland and Spain which both have spent billions bailing out banks. (…)

German reluctance has led diplomats involved in detailed talks to become doubtful that a deal is possible before year’s end. One noted Berlin was still sending mid-level officials to talks on the single supervisor; others suggested talks could run for a year or more. (…)

More on the “peaceful” EU: Germany shocks EU with fiscal overlord demand

There must be an EU “currency commissioner” with sweeping powers to strike down national budgets; a “large step towards fiscal union”; and yet another EU treaty.

Finance minister Wolfgang Schaeuble dropped his bombshell in talks with German journalists on a flight from Asia, and apparently had the blessing of Angela Merkel, the chancellor. “When I put forward such proposals, you can take it as a given that the chancellor agrees,” he said.

Officials in Brussels reacted with horror. “If that is the demand, they are not going to get it. Nobody in the Council wants a new treaty right now,” said one EU diplomat.

Here’s something to motivate people to act:

Lightning  Spain Banks Face More Pain as Worst-Case Scenario Turns Real  Spain’s banks face more loan losses as the pace of an economic slump risks turning a worst-case scenario dismissed in stress tests into reality.

Bad loans as a proportion of total lending jumped to a record 10.5 percent in August from a restated 10.1 percent in July as 9.3 billion euros ($12.2 billion) of loans were newly classified as being in default, according to data published by the Bank of Spain on its website today. The ratio has climbed for 17 straight months from 0.72 percent in December 2006, before Spain’s property boom turned to bust. (…)

Lending in Spain’s banking system fell 1.1 percent in August from July and 5 percent from the same month a year earlier, the Bank of Spain said. Deposits dropped 1.1 percent in the month and 8.7 percent from a year ago. (Chart below from Scott Barber)



It’s still early, but this earnings season is so far looking a lot like last earnings season.  Last earnings season, the percentage of stocks that beat earnings estimates was 59%.  So far this season, the earnings beat rate also stands at 59%.  Last earnings season, revenues were awful, and the revenue beat rate finished at 48%.  So far this season, revenues have also been awful with a beat rate of just 43%.

Bespoke readers will remember that while the earnings beat rate was weak for all US stocks last season, it was strong for just the stocks in the S&P 500.  The same thing is happening this season, as the beat rate for S&P 500 stocks so far stands at 75%. (Bespoke Investment)

Also remember that the beat rate last season declined throughout the season.


NEW$ & VIEW$ (11 OCTOBER 2012)

Composite Leading Indicators (CLIs), OECD, October 2012  The U.S. remains the lone grower. For how long can it sustain growth when everybody else is slowing?




Sarcastic smile  U.S. EMPLOYMENT: Think about that (US Eco Q4’12 Outlook from Bloomberg Briefs)



Danielle Park (Juggling Dynamite) quotes John Hussman (tks Ian)

And even if we take the recent employment report at face value, the year-over-year growth in non-farm payrolls is presently just 1.37%, and we’ve never yet seen a decline in payroll growth below 1.4% year-over-year except during or just prior to U.S. recessions [see chart below].


Bowl   WEALTH EFFECT!  Plate

Core inflation appears tame but total inflation remains resilient in spite of the severe worldwide economic slowdown. Rising commodity prices have a more limited impact on discretionary spending in the richer developed countries but are a big deal elsewhere. The impact that rising food prices have on purchasing power is surprisingly high even in countries such as France, Italy, Spain and Japan.



Lightning Spanish Bond Yields Rise

Spanish government bond yields climbed and the country’s benchmark equity index fell after Standard & Poor’s downgraded the nation’s credit rating to just above junk status.

With Moody’s Investors Service already assessing Spain’s credit-worthiness at its lowest investment level, the country is a step closer to losing its membership in key bond indexes, which could in turn prompt selling of the nation’s bonds, push yields even higher and force the government to seek a bailout.

In European morning trading, the Spanish 10-year government bond fell, driving the yield up 0.10 percentage point from Wednesday’s closing level to 5.87%, after having touched 5.90% earlier in the session. Same-maturity debt of Italy, which is also struggling with a financial crisis, increased 0.05 percentage point to 5.14%, according to Tradeweb.



Then that:

Clock  Lagarde Urges More Time For Greece, and Spain. Christine Lagarde said Greece should be given an extra two years to meet its budget targets, publicly wading into the politically sensitive bailout discussions under way.

“That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation programme that is considered.”

Lightning  Greek unemployment scales new high

Unemployment rose for a 35th consecutive month to 25.1 per cent in July, more than double the euro zone average and up from a revised 24.8 per cent in June, Greece’s statistics service ELSTAT said on Thursday. (…)

A record 1.26 million Greeks were without work in July, up 43 per cent from the same month last year.

Airplane  Greece’s biggest company quits for Switzerland

Greece’s biggest company is leaving the country, drinks bottler Coca Cola Hellenic said on Thursday in announcing it will move to Switzerland and list its shares in London, dealing a blow to the debt-crippled Greek economy. (…)

“This transaction makes clear business sense,” chief executive Dimitris Lois told analysts in a conference call. An overwhelming majority of shareholders have already accepted moving a company which has long complained about Greek taxes.

(…) which follows Greek dairy group FAGE this month in seeking a low-tax, low-volatility haven for its corporate base – in FAGE’s case Luxembourg. (…)

Pointing up  A Evans-Pritchard: IMF fears ‘credit shock’ in Spain if Rajoy blocks rescue

(…) The IMF said capital flight from Spain reached €296bn (£238bn) in the 12 months to June, or 27pc of GDP. It matches the intensity of “sudden stop” crises seen in emerging markets.

Banks in Spain, Italy, and the EMU fringe cannot easily make up the shortfall by turning to the ECB because they are short of usable collateral.

The biggest risk is that Europe’s banks will have to slash balance sheets by €4.5 trillion by the end of 2013, largely concentrated in the Club Med bloc.

The fund said Europe’s failure to flesh out promises for a banking union – needed to break the “vicious circle” between banks and states – risked a violent credit crunch, slashing an extra 4pc off output in southern Europe next year. (…)

Call me  Mr Rajoy and French president Francois Hollande seized on the warning , demanding the AAA core stands behind its pledge to let the ESM recapitalise Spain’s banks directly. “We have to show we’re serious people and that we do what we say we are going to do,” said Mr Rajoy . Germany, Austria, Finland, and Holland reneged on the accord two weeks ago .

The Franco-Spanish tete-a-tete comes two days before leaders of a newly-dubbed “Mediterranean Front” gather in Malta to thrash out a Latin strategy and plot ways to break the German lockhold on policy. Portugal’s prime minister, Pedro Passos Coelho, will join France, Spain, and Italy for the first time, suggesting that the free-market advocate may have lost its enthusiasm for the German austerity view. Diplomats say the meeting marks a break with EU tradition. For decades, France and Germany pre-cooked agendas before EU summits. (…)

Vitor Constancio, the ECB’s vice-president, said the EU must be careful not to push austerity beyond the therapeutic dose. “The whole balance has to be continuously under observation,” he said, marking a shift in ECB thinking.

Lagarde calls for brake on austerity
IMF increasingly concerned over impact on growth


Fingers crossed  French, Italian Output Jumps

In France, the second-largest of the 17 economies that use the euro, industrial output rose 1.5% in August from July, national statistics bureau Insee said Wednesday. The rise, which was stronger than forecast by analysts, was driven by production of manufactured goods, particularly cars. (…)

Industrial production in the third-largest euro-zone economy surpassed expectations with an increase of 1.7% in August from July, Istat said. An official from the agency said variations in the number of factories that shut down temporarily for the summer break may have distorted the figures. (…)

Industrial output in Germany, the euro zone’s biggest economy, fell 0.5% in August—much worse than the figures for France and Italy, but still an improvement on a 1.2% drop the previous month, official data showed this week. In the U.K., which isn’t part of the euro zone, industrial production also fell 0.5% in August.

Let’s read again Markit’s September PMI:

Eurozone manufacturing production declined for the seventh month running in September. Although the rate of contraction eased to a five-month low, this mainly reflected companies making substantial
inroads into backlogs of pipeline work. In contrast, the trend in new orders remained lacklustre, with inflows of new work declining for the sixteenth straight month. Output and new orders declined across the big-four nations, Austria and Greece. Eurozone manufacturers reported weaker demand from domestic markets and reductions in both intra-Eurozone and global trade flows. New export orders fell for the fifteenth month in a row.

Storm cloud  Slowdown worsens in emerging markets

According to HSBC, in the three months to September, manufacturing output fell on weak demand from developed economies and new orders declined in 11 out of 18 economies surveyed.

During the same period, the service sector in emerging markets dropped to its weakest level since 2005, marking a sharp contrast with the previous quarter when service providers were at their most optimistic for two years.

The bank’s emerging market index, which measures production and business activity in the manufacturing and service sectors, fell to 52.1 during the July-to-September period, down from the 53.2 in the second quarter.

Burberry Sales Growth Slows

Burberry’s comparable sales growth—measured from stores open more than a year—slowed to 1% in the second quarter, compared with 6% in the first and 16% in the second quarter last year. (…)

Pointing up  In Hong Kong this week, luxury retailers hoping for a sales boost during Golden Week, a national holiday period that coincides with the anniversary of China’s founding, were disappointed as sales of watches and jewelry dropped compared with last year.

Storm cloud  BOJ Minutes, Weak Data Raise Easing Prospects

Japanese core machinery orders decreased 3.3% on the month in August, worse than forecast, according to data released Thursday.

[image]The weakness in orders was most visible in the manufacturing industry, which dropped 15.1% on month, the biggest drop since November 2009. (…)

The nationwide core Consumer Price Index fell for the fourth straight month in August, suggesting there is no end in sight to the BOJ’s continuing battle with deflation, while industrial production fell for the third consecutive month and firms expect it to fall again in September and be flat in October.

Bank of Korea Slashes Policy Rate

South Korea’s central bank cut interest rates for a second time this year while China kept its banking system flooded with cash, the latest efforts by Asian authorities to shore up growth as the economic outlook for their big trading partners grows darker. (…)

The monetary loosening by Korea and China followed a decision by Brazil’s central bank to cut its key rate a quarter point to a record low of 7.25% and highlighted moves by emerging-market countries to buttress their economies against headwinds from Western markets. (…)

The BOK cut its growth and inflation forecasts for this year and next, saying it expects the global recovery to be only moderate in the near future, weighed by the prolonged euro-zone crisis. It now expects Korea’s economy to grow 2.4% this year, far below its July projection of 3.0%, and it cut its 2013 forecast to 3.2% from 3.8%. GDP grew 3.6% in 2011.

Korea’s headline inflation likely will ease to 2.3% this year before accelerating to 2.7% in 2013, the BOK said, lowering its projections from its July forecasts of 2.7% and 2.9%, respectively. Inflation last year was 4%.

Brazil Signals Interest Rates to Stay at Record for Long Period


Indonesia Holds Benchmark Rate to Shield Weakening Currency

Surprised smile Indonesian exports fell 24.3 percent in August from a year earlier, after a revised 7.6 percent decline the previous month, the worst contraction since at least June 2009, according to data compiled by Bloomberg. Imports slid 8 percent for a trade balance of $249 million, the first surplus since March.


Rainbow  Land sales fuel predictions of real estate rebound

Land sales in China’s 10 major cities more than doubled in the third quarter compared with the previous one, with the price premium picking up, fueling expectations of a speedier rebound in the country’s real estate sector.

Statistics from real estate service provider Homelink showed that local governments in the 10 cities, including Beijing, Shanghai and Guangzhou, received 135.2 billion yuan ($20.8 billion) from selling land parcels in the third quarter, up 123.8 percent on the second quarter. Floor space sold during the same period jumped 70.1 percent. (…)

The warming up of the land market is due to local governments’ eagerness to launch more quality land parcels onto the market, as well as falling inventories and property developers’ improved cash flow, said Qin Xiaomei, chief researcher at Jones Lang LaSalle Beijing. (…)

Pointing up  Inventory levels appear to be falling in many big cities, countering expectations that it would take years for the market to absorb the large number of empty apartments, Standard Chartered said in a research note on Wednesday.

OPEC Gloomy About Economic Growth

The Organization of the Petroleum Exporting Countries warned that growth in oil demand is shrinking this year and predicted a continued slowdown in 2013.

(…) Given the increasingly weak economic picture, OPEC forecast that oil supply would remain comfortable in the coming year, with production increases from countries outside the group outpacing demand growth.

The market “will be characterized by high volumes of crude supply and increasing production capacity” in the coming year, the report said.

OPEC production fell nearly 265,000 barrels a day in September from August because of production declines in Angola and Nigeria, the report said. Production remained above 31 million barrels a day, according to data from secondary sources collated by the organization’s analysts. OPEC said demand for its oil is expected to average 30.1 million barrels a day this year.

While OPEC’s production exceeds current demand for the group’s output, Saudi Arabia’s oil minister said Tuesday that the country would continue to pump about 10 million barrels a day of oil this month and would like to see oil prices fall to about $100 a barrel. (…)

At the beginning of this month, Iraq’s oil minister said the country would like to see prices between $100 and $120 a barrel. In mid-September, Iran’s OPEC governor said oil prices weren’t too high, even as Brent crude futures rose to their highest level since May, to more than $117 a barrel.




(…) But even before the reporting period “officially” began, the outlook for corporate profits was looking grim, based on the 5% of companies in the S&P 500 that announced their results. Earnings preseason results have historically been predictive of earnings results for the remainder of an earnings season. When an above-average percentage of companies beats earnings estimates during the preseason, the rate at which the rest of the companies beat their own estimates tends to be higher, too, with some two-thirds of those companies announcing higher-than-expected profits. But the opposite also holds true.


Of the 26 S&P 500 companies that have reported their third-quarter earnings results in the preseason, only 14 have reported profits that were higher than analysts’ estimates. This “beat” rate of 54% is significantly below the long-term average of 63%. That suggests that we may see fewer positive surprises than normal as the rest of the quarter’s results come flooding in over the next few weeks. That doesn’t augur well for corporate earnings, given that analysts already had such low expectations.

Companies have had similar results when it comes to hitting or exceeding analysts’ estimates for their revenues. In the preseason, 54% of S&P 500 companies have announced top-line figures that exceeded analyst expectations, while 46% companies fell short. This is an improvement on the revenue results from last quarter, when only 41% of companies beat estimates – a post-financial crisis low. Still, while it may be better than the second-quarter result, the rate at which companies are posting positive surprises on revenues still falls short of the long-term average of 62%.


NEW$ & VIEW$ (10 SEPTEMBER 2012)

Trends in the U.S. job market remain below what’s needed to keep the economy alive and well.


imageJobs Data Weigh on Obama, Fed

America’s employers added jobs at a tepid pace in August, posing a re-election challenge for Obama and raising the likelihood the Federal Reserve will step in to spur growth when it meets in the coming week.

June dropped from the original estimate of 64,000 to just 45,000 while July’s monster 163,000 expectation blasting number was slashed to 141,000. 

The Labor Department report showed private employers ranging from utilities to health care added a total of 103,000 jobs in August, while government cut head counts by 7,000. States and localities shed 10,000 jobs while the federal government added 3,000. (Charts beloe from Markit)


image image

(…)  the labor market remains fragile as evidenced by the weak non farm payrolls (only 96K jobs added in August, with downward revisions of 41K to the prior two months) and a second successive employment decline in the household survey (-314K in the last 2 months). True, the unemployment rate fell to a four-month low of 8.1%. But that’s entirely due to people giving up the job search as reflected by the drop in the participation rate to 63.5%, the lowest since 1981.

The small gains in full-time jobs in August did little to significantly alter a trend that’s been apparent since Q2, with a move away from full-time and towards part-time jobs. That has contributed to limit growth in hours worked to less than 0.5% annualized over the Q2-Q3 period. We haven’t seen such weakness since 2009.


As today’s Hot Charts show, barring a spectacular increase in productivity, that should translate into weak GDP growth in Q3 as well.
Given Chairman Bernanke’s emphasis on labor markets, this general weakness in employment suggests the Fed will downgrade its forecasts at the FOMC’s September meeting. That’s not to say that QE3 will be dispatched this month, but it’s clear that the probability of QE action sooner rather than later, has increased significantly. (NBF)

This next chart from IBD:

Weak Job Growth, Labor Force Exodus Signal Major Woes

Alan Abelson:

(…) there are now some seven million poor souls, or 2.9% of the population, who are not in the labor pool but want a job, a new high for the current cycle. Last month’s work week was flat, and so were average hourly earnings. The yearly gain in hourly earnings of 1.7%, they sigh, is less than half the rate of early 2009.


(…) more non-working people being “supported” (for lack of a better term) by the people who are working.

image image


Uncertain times, uncertain employers, uncertain jobs, uncertain income, weak spending, weak economy:


Pointing up   CreditSights via FT Alphaville:

MODERN DAY DEPRESSION:  Mortimer Zuckerman: Those Jobless Numbers Are Even Worse Than They Look

(…) We are experiencing, in effect, a modern-day depression. Consider two indicators: First, food stamps: More than 45 million Americans are in the program! An almost incredible record. It’s 15% of the population compared with the 7.9% participation from 1970-2000. Food-stamp enrollment has been rising at a rate of 400,000 per month over the past four years.

Second, Social Security disability—another record. More than 11 million Americans are collecting federal disability checks. Half of these beneficiaries have signed on since President Obama took office more than three years ago. (…) (Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.)

Surprised smile  So, 56 million Americans on food stamps/SSD, 18% of the population of the “richest country in the world”. David Rosenberg adds:

(…) bear in mind that in the month of August, more people went on the food-stamp program (173,000) than those who managed to find a new job (96,000).







The chart above is very troubling. Corporate America’s profits and profit margins are at all-time highs even with its huge pile of unproductive cash. Yet, it’s not hiring nor investing.




Is it the uncertainties about world finances and/or U.S. politics? The stigma of the Lehman crisis? Market diktat or, as Karl Marx saw it, pure selfishness on the part of the corporate elite (“la bourgeoisie”). Perhaps all of the above.

The reality is that the governmental sector is in no position to spend much more while the American consumer is squeezed out by weak employment, low wage growth and rising food and energy prices.

The pendulum will eventually, as always, swing back.



Somebody should revisit Henry Ford’s business approach.


Friday, I posted about the weakening Cass Freight Index which showed that total freight expenditures have now fallen four consecutive months.

AAR reports that seasonally adjusted rail traffic declined again MoM in August



Excluding the volatile and less economy-sensitive coal and grain segments, carloads have been weak for most of 2012.



Another telling chart from the AAR report:



And that one which needs to be considered along with the recent employment stats:


Meanwhile, across the pond:

Merkel Backs ECB, Bucking Critics

Germany’s government threw its support behind the ECB’s plan to intervene in bond markets, countering a deluge of domestic criticism.

imageThe ECB is acting “independently and within the framework of its mandate,” a spokesman for German Chancellor Angela Merkel told reporters Friday, adding that the ECB’s offer to buy bonds of struggling euro-zone governments is aimed at ensuring “the stability of money.”

German Finance Minister Wolfgang Schäuble also backed the ECB’s move, contradicting the Bundesbank’s statement on Thursday that ECB bond-buying is “tantamount to financing governments by printing bank notes.”

ECB officials “know very well what they have to do,” Mr. Schäuble told reporters in Stockholm. “It’s not the beginning of monetary financing of sovereign debt.”

Super Mario reaches the last level – German politics

Cummings illustration(…) Mr Draghi, 65, urbane and in an immaculately tailored dark suit, had reasonable arguments about why so-called “outright monetary transactions”, or OMT, are well within the remit of the bank and why strict conditions are required.

But for an illustration of just how pragmatic that makes the US-trained economist, one-time Goldman Sachs banker and long-time technocrat, rewind to his first press conference after taking over from Jean-Claude Trichet in November 2011.

“What makes you think that the ECB becoming the lender of last resort for governments is what is needed to keep the euro area together?” he said then. “No, I do not think that this is really within the remit of the ECB.” Eight months later, in July, he pledged to “do whatever it takes” to save the euro. (…)

But if the talk of big sticks to accompany the carrot of unlimited bond-buying was meant to convince Germans that the Italian in control of their printing presses had their backs, it is unclear he has succeeded.

Steaming mad  Die Welt spoke of a “gigantic danger” and the “death” of the Bundesbank. The Frankfurter Allgemeine, paper of record for German conservatism, judged the ECB to have become a “prisoner of politics”. The mass-market Bild Zeitung said Mr Draghi had written a “blank cheque for debtor states”.


  • Dutch elections

Officials are nervously watching Thursday’s Dutch national elections where, until recently, strong polling by two eurosceptic parties – the far-left Socialists and far-right Freedom Party – was forcing Mark Rutte, the sitting Liberal prime minister, to turn increasingly anti-bailout on the campaign trail.

Mr Rutte has promised Dutch bailout loans to Greece will not be restructured, something being actively contemplated by eurozone leaders, and has vowed no new bailouts for Athens despite widespread recognition such additional aid is likely.

As one of the few remaining triple-A rated eurozone countries, the Netherlands retains outsized influence in crisis discussions, and a strong showing by anti-bailout parties could prevent a new government from agreeing more help for struggling southerners, particularly Greece.

  • Germany and the ESM

On the same day, Germany’s constitutional court is scheduled to rule on whether the eurozone’s new permanent €500bn rescue system, the European Stability Mechanism, violates the country’s basic law.

More than 37,000 German citizens have signed onto the challenge on the grounds it exposes German taxpayers to funding the ESM without proper democratic control over how those funds are used.

A ruling to stop – at least temporarily – the ESM would throw rescue efforts into disarray since the existing, temporary €440bn fund is running low on cash and is due to expire in less than a year.

The broad consensus among legal experts is the court will stop short of a drastic decision forcing a halt to the fund, but judges are expected to attach strict conditions to any further German financial aid.

  • Spanish banks

Madrid is expected to unveil a highly-anticipated “bottom-up review” of its banking sector as early as next week. Spanish officials are selling the review as the defining act in persuading markets that no more nasty surprises lurk within the country’s financial system.

Luis de Guindos, the Spanish finance minister, has indicated the review will show banks only need an additional €60bn of the €100bn offered in aid from the eurozone bailout fund, a sign the review has not uncovered any unwelcome surprises.

But private estimates are as much as double that figure, and some weaker banks are showing signs of deteriorating faster than expected. Bankia, which requested €19bn in state aid in May but has yet to receive it, was given an emergency €4.5bn bridging loan from Spain’s state bank rescue fund this week following large losses in the first half.





Lightning  [image]France Outlines Austerity Goals

Mr. Hollande said his government would propose a budget this month packed with as much as €20 billion ($25.6 billion) in new taxes and €10 billion in spending cuts. He confirmed that the budget will include a special 75% tax for people earning more than €1 million a year that has fanned fears of an exodus of France’s wealthiest citizens.

Lightning  Portugal Adds Austerity Measures

Prime Minister Pedro Passos Coelho said he would cut public employees’ salaries, requires that all workers to pay more for social security, and raise taxes on the rich—the latest belt-tightening steps aimed at meeting Portugal’s obligations under an international bailout program. (…)

Employees will be required to pay 18% of their salaries to social security, up from 11%, allowing companies to cut their contributions from 23.75% to 18%. “We will reduce substantially the costs of labor, providing incentives to investment and job creation,” the Portuguese leader said.

Public workers will lose one paycheck out of the 14 they receive each year.(…)

Evidence is growing that some austerity measures are weakening the country’s already-fragile economy. The government said this month it would be hard to meet its pledge to hold this year’s budget deficit at 4.5% of the gross domestic product. The steps outlined by Mr. Passos Coelho on Friday are aimed at holding down next year’s deficit while stimulating growth.(…)

High five  Finns loath to approve Greek bailout changes
Country says it has reached limits of how far it can go

The Finnish parliament would find it all but impossible to approve any changes to the latest Greek bailout, according to senior politicians in Helsinki.



Storm cloud  China Economy Shows Frailty

Imports fell 2.6% from a year earlier. Exports rose 2.7% in August from a year earlier, up from July’s 1.0% rise.

Much of the weakness came from crisis-hit Europe, China’s biggest trading partner, with exports to the EU falling 12.7 per cent in August from a year earlier.

Exports to Japan also disappointed, registering a decline of 6.7 per cent in August, while shipments to the US rebounded with 3 per cent growth, compared with an increase of just 0.6 per cent in July. (Chart below from Scott Barber)


  • Industrial production +8.9% YoY vs +9.2% in July.
  • Fixed asset investments +19.1% vs 20.4%. +20.2% first 8 months.
  • Electricity output +2.7% vs +2.1%.
  • Retail sales +13.2% vs 12.2% in July and +12.1% in June.
  • CPI +2.0% vs +1.8%. Food prices +3.4% vs +2.4%. Non-food +1.4% vs +1.5%. MoM CPI +0.6% vs +0.1%.
  • PPI -3.5%

Sales of residential floor space expanded 13.3% year-to-year in August, a sign that the government’s strict controls on sales—intended to control runaway prices—are starting to fray.

Stronger sales have prompted developers to break ground on new developments. New residential floor space under development expanded 4.9% year-to-year in August, the first month of growth since the end of 2011.


Hu: Proactive fiscal policy will continue  China will continue to pursue a proactive fiscal policy and a prudent monetary policy as the Chinese economy is facing “notable downward pressure“, President Hu Jintao said

Speaking of the challenges besetting China’s economy, Hu said lack of balance, coordination and sustainability still weigh on the country’s economic growth and notable downward pressure remains, especially for the Small and Medium Enterprises and exporters. (Hu expounds on China’s economic policies at APEC)


The math of the “stimulus package”: 1 trillion yuan over 3 years is about 0.5% of annual GDP. The 2008-09 package was 2.5-3.0% of GDP. Other announced “city packages” sound more like fantasy. More “Beijing announcements” are likely but actual spending is unlikely before 2013.

While the plethora of plans is stretched over several years – and lacks obvious sources of funding to cover a seven trillion yuan headline total – it is clear that the Politburo is sufficiently alarmed by mini-slump of recent months to put its reform drive on hold, opting instead for prime pumping to help the Communist Party through its handover of power later Autumn.

Cheng Li, research director at the Brookings Institution, said a key reason for the hard-landing is a “crisis of legitimacy” in the upper echelons of Chinese leadership, with fears growing that the transition could prove unruly as 70pc of top cadres and the military are replaced.

“You cannot forecast the Chinese economy unless you have a sophisticated view of the political landscape and the current succession crisis,” he said.

“This legitimacy crisis is worse than in 1989 [Tiananmen Square], and may be the worst in the history of the Communist Party. People are afraid that it could lead to revolution if it is not handled well.”

“That is what is causing capital flight. All the top officials are trying to get their money out of the country,” he said. (Ambrose Evans-Pritchard, UK Telegraph)

China’s Trade Goal in Doubt as Europe Weighs on Christmas Orders: Economy  Chinese toy merchant Pan Junping says this is usually among his busiest times as customers in the U.S. and Europe load up on orders for Christmas. This year, he’s quieter than ever.

The situation is possibly worse than 2009, and confidence is zero,” said Pan, 39, who’s frozen salaries and expects a 30 percent decline in annual sales for his trading company in Yiwu city, in eastern Zhejiang province. “It’s not busy at all.”

Vehicle sales increase, but dealers see profits drop  China’s passenger vehicle sales continued to recover in August, with the third-highest year-on-year growth in 20 months.



The headline above was from The China Daily, a Party newspaper. The chart shows little growth if any, however. Yahoo Finance wrote:

China’s auto sales growth tumbled to 3.7 percent in August, further deepening an economic slowdown, data showed Monday.

Customers bought 1.23 million cars, according to a government-authorized industry group, the China Association of Auto Manufacturers. The lower growth extended a steady decline from July’s 11 percent rate and June’s 15.8 percent.

Pointing up  Remember, these are not final sales, only sales from the manufacturers to the dealers.
China stimulus – wishful thinking
Bad debts from previous misspent stimulus will damp banks’ will to lend

The problem is one of financing. Few details were released. Asset quality is fast deteriorating among Chinese banks as bad debts emerge from the latest round of misspent stimulus. That will damp their will to lend. And local government finances are in tatters. Beijing estimates that their debts stand at Rmb11tn, or a quarter of China’s output. Moody’s thinks the debts could be Rmb3.5tn higher. Granted, China has Rmb19tn in foreign exchange reserves and a strong official fiscal position. But converting reserves into renminbi to spend at home will destabilise the exchange rate. And disguised indebtedness in local governments could put the debt-to-output ratio far north of its official 17 per cent.

Storm cloud  Japan GDP revision raises recession fears  Growth in second quarter halved from earlier estimate

Money  South Korea Boosts Stimulus by $5 Billion

The 5.9-trillion-won ($5.23 billion) package—4.6 trillion won of stimulus for the remainder of this year and 1.3 trillion won for next year—doesn’t require a new national budget, the ministry said. It expects the latest stimulus package to add 0.06 percentage point to this year’s economic growth and 0.1 percentage point to next year’s.

The stimulus announced Monday will cut taxes on individual incomes and purchases of homes or cars, as well as expand state-funded social welfare programs. It follows a 8.5 trillion won stimulus package announced in June to boost the economy in the second half of 2012.

The combined stimulus of 13.1 trillion won for this year equates to 1% of the country’s gross domestic product.

Saudi Arabia Concerned About Rising Crude Prices

“The current high price of oil is simply not supported by market fundamentals. The market is well balanced, forward cover remains within an acceptable range and inventories are more than adequate,” Mr. Naimi said in an emailed statement.

“Saudi Arabia will, as always, take all necessary steps to ensure the market is well supplied and to help moderate prices—and we will meet any additional demand from our customers.” (…)

Saudi Arabia produced about 9.7 million barrels a day of crude in August, down from 9.8 million barrels a day in July, slightly below its average production levels of 9.94 million barrels a day in the first half of 2012.

But the kingdom is likely to pump more crude than it supplies to the market in the fourth quarter, leading to further accumulation of stocks.

Oil Supplies Appear Tighter in Crisis Mirror  Investor perceptions of tight supply in the oil market, which have underpinned Brent crude’s 26% rally since late June, may be distorted.

OECD refined product stocks as a multiple of demand and exports hit the bottom of the five-year range in June. But when looked at for the more stable preceding five-year period, from 2003 to 2007, this year’s figures look more in line.

Commodity investing for the long term!



US companies gloomy about earnings growth Pessimism at its worst since 2008 as global slowdown hits demand

imageDuring the latest reporting season S&P 500 groups were three times more likely to say they would miss analysts’ expectations of third-quarter earnings than beat them. That was the worst guidance ratio since the final quarter of 2008, immediately after the collapse of Lehman Brothers.

“Historically, we have only seen numbers like this during times of recession,” said Christine Short, who tracks earnings at S&P Capital IQ. “It tells you something about how American executives see the world.”  (…)

Nearly 400 companies did not offer any guidance at all, suggesting uncertainty about future growth prospects, the most since the third quarter of 2009.

Intel Warns on Woes in PC Market

Intel Corp. said its revenue in the third quarter will likely be more than $1 billion less than it expected, as a series of woes multiply for personal computer makers that buy its chips. (…) The midpoint of the new range indicates a decline of about 2% over the second quarter, a period its revenues typically grow. (…)

At the same time, Intel cited slowing demand in emerging economies—a key source of sales growth in recent years—and softening sales of PCs to enterprises. While a warning from Intel was widely expected given downbeat results last month from customers Dell Inc. and Hewlett-Packard Co., some analysts said they were surprised by the magnitude of the revenue shortfall.