Monday, August 13, 2012

Today's Links

1--Persistant droughts in US, Early Warning

...whereas over the twentieth century, the model runs show a first MCA mode that varies quite a bit from model to model and only explains a small amount of the total covariance, once the 21st century is included, the picture changes greatly. Now the effect of global warming is so great that all the models have similar MCA first modes, and that mode explains far more of the total covariance. So Dai's argument is that the same thing will happen with the observations - as global warming proceeds, it will increasingly overwhelm natural sea surface temperature fluctuations, and the overall drying trend that the models show will assert itself in the US also. Indeed, arguably, this has already begun in the 1990-2010 period in which the US has been drying (culminating in the serious drought this summer).

If this is right, then we can expect massive serious droughts to become an increasingly common feature of US life in coming decades.

2--Health care is crowding out everything. Social Security isn’t, Washington Post
Just take one look at this chart and you'll see what's going on.

3--China: The bottomless pit, also sprach analyst

There is very little doubt, to our mind, that this series of weak numbers will put more pressure on the government to ease policy further. However, let us review a few facts: the People’s Bank of China has already cut interest rates twice and RRR has been reduced three times since late last year. The government has expressed their intention to bring future investment projects forward, and now that growth is their top priority....

As we mentioned for a number of times, the fact that the real estate market warming up in the past few months has already caused some concern. While the government is not likely to implement extremely harsh measures to curb home prices at this point as the economic slowdown is getting much worse than most expected, it is not likely that they would like to ease either. As we believe that it is next to impossible to ease policy to stimulate growth while at the same time cool the real estate market, this leaves the government in a position that limit their willingness to implement full-on easing.

The on-going drought in the US is also going to delay more aggressive stimulus and monetary easing. As we noted before, meat prices in China tend to lag global corn prices. With corn prices reaching a record, it will probably put some inflationary pressure on food prices later this year. Although inflation in China on an ex-food basis is low and is expected to remain very low owing to massive over-capacity, food prices account for 30% of China’s CPI basket, and food prices have been historically very volatile in China. ...

The consensus invariably believes that China “has a lot of room to stimulate the economy”, “has a lot of tools at its disposal”, etc. This could not be further from the truth.

The latest data actually confirm the point. Loan growth is not really picking up after interest rate cuts, and deposit growth remains weak. Meanwhile, prices pressure continues to subside, with PPI falling 2.9% yoy. This actually fits into our debt deflation call surprisingly well...

Although government directed lending (i.e. government forcing state-owned banks to lend) is a key tool within China’s monetary policy toolbox, Chinese exchange rate regime (as it currently stands) limit the ability for banks to extend credit when the country is facing shrinking trade surplus and capital outflow, even if the government wants them to.....

we doubt if the government has the willingness at this point to do much more, and we doubt whether the government really has the ability as the market thinks. We do not see convincing signs of recovery (except, perhaps, Wen Jiabao making waves every other week), and we even struggle to see signs of stabilisation.

If we see anything, we are seeing a bottomless pit.

4--US political system hostile to American people’, RT

The money-ruled American political system has a pretty straight-ahead Wall Street agenda and is designed to eliminate opposition the way dictatorships do, Jill Stein, the US presidential candidate for the Green Party, shared with RT.

­She believes that both Mitt Romney and Barack Obama have essentially the same agenda of serving the interests of the richest 1 per cent of American population while the voices of the rest of Americans, who bear most of the burden of the economic downturn, are not heard.

Stein acknowledged that while proven to be ineffective in Iraq and Afghanistan wars, the “world police” policy the US has followed since the collapse of the Soviet Union is bankrupting Americans.

5--Hard landing for China as factory prices fall and deflation looms, Telegraph

Factory gate prices in China fell at an accelerating rate of 2.9pc in July as the economy flirted with industrial recession, prompting calls for further stimulus to head off Japanese-style deflation.

Severe deflation pressures are rippling across the country,” said Alistair Thornton and Xianfeng Ren from IHS Global Insight. “Deflation, not inflation, is the greatest short-term threat to the Chinese economy.”

“The hard landing has happened,” said Charles Dumas from Lombard Street Research. “We don’t believe official data. We think GDP slowed to a 1pc rate in the second quarter

6--Germany Considers Holding EU Referendum, Der Speigel

7--DFS's Lawsky under the spotlight, IFR
The banks turn the tables on the one honest regulator.  Welcome to the United States of Corruption

8--China's painful adjustment to sustainable rate of growth, sober look

9--TrimTabs Says Mattress Remains Most Popular Destination for Investor CashAug, TrimTabs

09Staggering $356 Billion Pours into Checking and Savings Accounts in First Half of 2012

Sausalito, CA – August 9, 2012 – TrimTabs Investment Research said today that inflows into checking and savings accounts are far outpacing inflows into all other major investment vehicles.

“The Fed and other central banks are doing everything in their power to convince investors to play the speculative game in rigged stock markets,” said Charles Biderman, CEO of TrimTabs. “But investors aren’t taking the bait. The most popular destination for investor cash is the mattress.”

In a research note, TrimTabs explained that checking and savings accounts attracted a combined $356 billion in the first half of 2012, nearly double the inflow of $188 billion into bond mutual funds and exchange-traded funds.

Equity mutual funds and ETFs were the flow laggards, taking in only $6 billion, as a $26 billion outflow from U.S. funds offset nearly all of the $32 billion inflow into global funds.

“Inflows into savings accounts were consistently heavy—the flows weren’t just happening in one or two months,” noted Biderman. “Savings account inflows ranged from $30 billion to $90 billion in each of the first six months of this year.”

TrimTabs attributes the flood of money into savings vehicles and bonds funds to a variety of factors: poor stock market returns in the past 15 years, a weak economy, an aging population, stock market trading glitches, and increasingly aggressive central bank market manipulation.

I don’t expect mom and pop investors to pile into equities anytime soon,” said Biderman.  “The typical American household isn’t doing well financially, and retiring Baby Boomers are seeking safety rather than growth.  Also, I think investors are wary of a market dominated by high-frequency trading and central bankers who are trying to take advantage of the trading robots by jawboning all the time about bailouts and money printing.”

10--Is This Really the Worst Economic Recovery Since the Depression?, NY Times

The only metric that had smaller growth in this recovery than in any previous one was government spending, although whether that is a good or a bad thing depends on your economic ideology. In fact, the public sector has not grown at all in the last three years; it is smaller today than it was when the recovery began.

Even if the current recovery gets beat out on most negative superlatives by at least one other earlier recovery, it is still much worse than the typical recovery of the last six decades.

For example, as you can see in the chart at the top of this post, in the average recovery private residential investment — that is, housing — grew 24 percent. This time around, it grew 8 percent.

The gap is about the same for consumer spending and overall gross domestic product growth. Export growth has been slower, but then so has import growth.

Usually payrolls grow 15 percent from trough to peak over the course of a business cycle. So far in this recovery, they have grown only 2 percent. That’s about as much as they grew in the recovery that began in July 1980, though as I mentioned that recovery lasted less than a third as long as the current one has stretched so far.

The only major metric I looked at wherein today’s recovery outperformed the average expansion of the previous 60 years was corporate profits.

In the average postwar recovery, corporate profits rose 38 percent from trough to peak. So far into this recovery, they have risen 45 percent.

That is not the largest increase of any postwar expansion, as the recoveries that lasted from November 1982 to July 1990 and from November 2001 through December 2007 both saw corporate profits increase by more than 60 percent. That record for the current recovery is still quite impressive, though, especially given how poor the job market still is.

In fact, the total level of corporate profits reached an all-time high, even after adjusting for inflation, in the last quarter of 2011, despite the fact that unemployment averaged 8.7 percent that quarter.

11--Some Points Just Aren't Debatable, The Bonddad Blog

12--Five myths about Obama’s stimulus, Wa Post

A year after Obama signed the bill, the percentage of the public that believed it had created jobs was lower than the percentage that believed Elvis was alive. But at its peak, the Recovery Act directly employed more than 700,000 Americans on construction projects, research grants and other contracts. That number doesn’t include the jobs saved or created through its unemployment benefits, food stamps and other aid to struggling families likely to spend it; its fiscal relief for cash-strapped state governments; or its tax cuts for more than 95 percent of workers. Top economic forecasters estimate that the stimulus produced about 2.5 million jobs and added between 2.1 percent and 3.8 percent to our gross domestic product

The stimulus didn’t keep unemployment below 8 percent, as the Obama team predicted in an ill-advised report designed to help pass the bill. Unemployment soared past 8 percent before the stimulus even kicked into gear. It later became clear that the economy was free-falling much faster than experts realized at the time; the initial GDP estimate for the fourth quarter of 2008 was a recession-level negative 4 percent, later revised to a depression-level negative 8.9 percent.

But, as I detail in my new book on the stimulus, “The New New Deal,” the bill helped stop that free fall. Job losses peaked the month before it passed....

The stimulus should have been much bigger.

It’s true that a bigger stimulus would have provided a bigger economic jolt and accelerated the sluggish recovery. More public works projects would have produced more jobs; more state aid would have prevented more of the public-sector cutbacks that have slowed the recovery; more tax cuts would have directed more cash into your wallet. But there was no way Obama could have gotten another dime out of Congress.

13--Economists in Philly Fed Survey Lower Forecasts, WSJ

The outlook for the U.S. economy and labor markets is weaker this quarter than it was three months ago, according to a quarterly survey released Friday by the Federal Reserve Bank of Philadelphia.

According to the regional bank’s Survey of Professional Forecasters, real gross domestic product is expected to grow at only a 1.6% annual rate this quarter and 2.2% in the fourth quarter, down from 2.5% and 2.6% forecast three months ago.

The 48 forecasters surveyed also trimmed their view for the first and second quarters of 2013, with growth of 1.8% and 2.3%, compared with earlier projections of 2.6% and 2.7%.

Lower economic activity forecasts are leading to reduced expectations for job growth. The forecasters now see payroll gains averaging 125,000 per month this quarter and 135,300 in the fourth. That hiring pace is down sharply from the gains of 170,000 and 172,600 expected in the second-quarter survey.

Slower hiring means the U.S. unemployment rate will remain above 8% until the second quarter of 2013. In the previous forecasts, the economists thought the rate would fall below 8% by the fourth quarter of this year.

14--Fuel, Food, Industrial Supplies Push U.S. Import Prices Lower, WSJ

15--Gallup shows droopy confidence, Gallup

The Gallup Economic Confidence Index was negative in all 50 states in the first half of 2012, but positive in the District of Columbia. West Virginia was by far the most negative, at -44. Minnesota edged out South Dakota and Maryland as the least negative state in the U.S., with an index score of -6, while the residents of the District of Columbia were solidly positive, at +29...

So far in the second half of 2012, Gallup has found a decline in economic confidence, with the Index dropping to -26 in July from -22 in June. If this continues, it could erase some of the gains the states posted in the first half of the year.

16--U.S. Exports Will Soon Slide From Lofty Heights, WSJ

17--The Disappearing Market, Big Picture

"There are times when the market gives the impression it is fading into nothingness. Volume becomes very low, trading ranges become very small, volatility becomes very low. Also, there is very little change in market levels and day-to-day fluctuations are minimal. Looking back at history, when that happens it is almost always a sign of a market high point.”

The chart — the VIX is inverted – below is a warning:












 









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