I Shall Not, Will Not, Promise Not To Talk About That Place . . . You Know, That Birthplace of Democracy Place

All you read these days is that birthplace of democracy place defaulting, capital controls, Tsiprais this, Troika that, IMF wants this, ECB demands that, does Merkel's hair ever move, etc.  I am personally tired of it all, so I am absolutely not, no way, no how, going to talk about it. 

Let's instead talk about some of the other PIIGS, shall we.  Nothing substantive other than to note they are increasing their public debt and debt to GDP ratios at an alarming rate:

http://www.zerohedge.com/news/2015-06-16/there-one-problem-europes-so-called-austerity

So me thinks they may ultimately follow the lead of that other country, you know the one I promised not to mention, and do their own version of Grexit.  Sure, they will wait and see how that works for you know who, but assuming after a couple of years of extreme pain it looks like a smart move, they might start scratching the old backside and considering options.  But rather than speculate, let's just assume that they do and try to come up with some catchy names for it, like Grexit.  

We begin with Portugal.  If you have any thoughts on this just leave a comment.  I am thinking:

Portugo

Leaving Port

Port - a - potty

Porting Ways

Not really happy with any of these, so please help.  Let's try Spain instead, which is also a tough one:

Spain't-here-no-more

Spain't-going-to-take-it-any-more

Spexit

Spandexit

I like the last one though it is a bit of a stretch (okay, I really am digging)  Last but not least, we come to Italy:

Ciao

Italbegoinnow

Quitaly

Exitaly

Certainly the last couple have some promise. Oh, you disagree?  So you think this is easy do ya? Well, go ahead then, see what you can come up with.

Meanwhile, I will go back to not talking about Gree . . . oops, that was close.

June 20th Update

Lest you think I jest at the suggestion other countries might follow the Grexit lead, you should start following some European election results.  Seems a bit of frustration brewing with the whole EU thingy.

http://globaleconomicanalysis.blogspot.com/2015/06/euroskeptics-to-form-government-in_19.html

Who would have seen that coming? (though I did mention like six years ago here that the U was ultimately leaving the EU, a forecast that was not well received at the time.)

http://financialspiltmilk.blogspot.com/2011/09/eu_25.html

A monetary union without a fiscal union is not a good combination.

China Briefly

I posted in January and again on February on some of the problems in China that make the problems here in the U.S. look a tad minor.  At the time China had lowered 2015 forecasts to 7% growth, when servicing its debt load arguably would take over 20% growth to properly manage.  They are now looking at around 5% and the trend is certainly in the wrong direction.  With suffering real estate, huge debt, a vastly over-valued stock market and a host of other issues, it is not looking good.  Even Bloomberg is pessimistic about it:

http://www.bloombergview.com/articles/2015-06-02/china-after-the-bubble

Anyone know Chinese for watch out below?

Good News Monday!

Hey, I can do two days of good news in a row if I want to, so get over it.  I have some good news to share today too.

Is it the ISM Manufacturing Index rising and beating expectations?  Nope.

Is it construction spending surging to its highest level in over six years?  Nah

http://www.cnbc.com/id/102721689

Could it be the hot dream I had last night?  Oops, strike that, wrong blog.

Okay, I'll tell you.  It is the flat, or if you are looking YOY, dropping, consumer spending.  Yeah!! 

http://www.zerohedge.com/news/2015-06-01/may-consumer-spending-has-biggest-annual-drop-great-financial-crisis-gallup-survey-f

Waaaiittt a minute, those econ 101 minds in the Keynesian crowd are now saying, isn't that bad?  Well, that depends on your perspective.  Incomes were up .4% and spending was flat which led the brains on Bloomberg to openly question where the money is going. 

http://www.bloomberg.com/news/videos/2015-06-01/consumer-spending-stalls-as-april-incomes-rise-0-4-

One posited "Maybe its going to savings?"  Ding, ding, ding.  Yes, consumers are over-leveraged and using what little gains they have in income to pay down debts and save, which is a painful process that is very long over due.  Debt levels are way too high and pushing folks to spend more and incur more debt in this situation is not the answer.  We need a freakin' correction and the Fed has to stop meddling and preventing the inevitable.  They are only making it much worse in the long run.  So it is not the central bank think tanks solving the situation but us lowly consumers.  Probably too little and too late, but we have to start somewhere.

Don't believe me, read this from David Stockman who has been studying this stuff since long before me back to when he was Regan's Budget Director and before.  He explains it much better than I ever could.

http://davidstockmanscontracorner.com/from-whence-cometh-our-wealth-the-peoples-labor-or-the-feds-printing-press/

I will highlight here for you what I took as the best explanation in the whole piece, which as always for him is well written, well researched and witty:

"But here’s the insidious thing.  There is no such thing as “aggregate demand” which is separate and apart from production and income. The only way an economy can spend more than it produces is to finance excess consumption from artificially conjured credit.  But even that can work only so long as balance sheets have available runway and the servicing cost of higher leverage does not overtax the carrying capacity of current incomes.

Well, that is exactly what has happened. The US economy hit peak household debt at the time of the crisis. Central bank fueled credit expansion was a one time parlor trick. During the decades leading up to the great financial crisis, household leverage levels were ratcheted higher and higher during each stimulus cycle.

To be sure, that did generate the illusion of growth. But it wasn’t sustainable. Accordingly, the tepid growth rate since the pre-crisis peak——that is, just a 1.0% annualized gain in real final sales for the last eight years—-simply represents the limits of a production and supply-side constrained economy."

And with these fine words I bid you good night!  Perhaps we will have a Good News Tuesday tomorrow (or at least another great dream tonight).

Good News Sunday!

There is plenty of negative news to ponder, but how many times do you really want to talk about Greece, 1st quarter GDP rearcasts lowered to -.7%, the Chicago debt load, China and European stocks down, etc.  Let's take a break today and talk about some good news for a change.  After all, with the ISM Manufacturing Index and April numbers for personal income and outlays out tomorrow, I am sure there will be plenty of the nasty things to talk about later this week.

Let's start with hotels.  The hotel business in the U.S. is booming.  Occupancy rates for April were THE BEST APRIL EVER!

http://www.calculatedriskblog.com/2015/05/hotels-best-april-ever.html

And I cannot really figure out why.  Consumers are not exactly being bullish otherwise and it is not like a lot of foreigners from Greece are visiting to take advantage of the bad exchange rate, so I am scratching my head (or other parts).  Either way, it is good news and hiring for hotel staff, restaurants and the like is one of the bright spots in the hiring picture, so definitely a good thing.

And speaking of restaurants, the Restaurant Performance Index has been doing fairly well also.

http://www.calculatedriskblog.com/2015/05/restaurant-performance-index-increased.html

People have got to eat and eat they shall.  Apparently all those folks staying in hotels are eating out at restaurants.

Banks are also okey dokey.  The list of "problem banks"  is down to 324, a nice hefty 35% drop from just a year ago. 

http://www.calculatedriskblog.com/2015/05/may-2015-unofficial-problem-bank-list.html

And so, this fine Sunday paints a glorious, upbeat, bright - I want to live there - kind of future (until tomorrow).

Build It and They Will Come . . .

Well, housing starts just had a rousing month, coming it at a 1.14 million annualized rate, a very nice 20% climb from March.  Yep, lots of homes being built.

http://www.bloomberg.com/news/articles/2015-05-19/housing-starts-in-u-s-surge-to-seven-year-high-permits-climb

Mind you, I said built, not sold.  And you can see why they are building.  The NAHB has high expectations for the future this year, though current consumer traffic seems to be a tad lacking at the moment. 

http://www.zerohedge.com/news/2015-05-18/homebuilder-sentiment-slides-misses-5th-last-6-months

We will see what happens when NAHB expectations run face forward into reality.  For reality is that folks these days simply aren't in the home buying mood.  Home ownership rates are over 5% off their peak and the lowest they have been in 25 years:

http://www.cnbc.com/id/102627205

Yet this is with record low mortgage rates, so what gives?  Could it be that baby boomers are retiring, empty nesters and/or switching to lower paying part time jobs (willingly or not) and are downsizing or choosing to rent?  Could it be that median incomes, adjusted for inflation, are down 10% since 2000 and housing prices, also adjusted for inflation, are up 20%?  Could it be that young people with no job security are choosing to not load up with so much debt, especially after seeing the bubble burst in 2008 with massive foreclosures and the like?  Could it be builders have given in to the heroin epidemic and simply have no idea what is going on?  You choose.  Either way, not likely to have a happy ending.

And yet the rosy numbers will undoubtedly boost 2nd Quarter GDP forecasts (not reality, just forecasts).  The Atlanta Fed just increased its 2nd quarter forecast from .6 to .7% annualized.  Notably the Atlanta Fed GDP Now forecast is still well below the blue chip consensus that is close to 3%, but these blue chip forecasts are as reliable as, well, NAHB forecasts.  And so, with optimistic economic numbers, comes a stock market pretty much stuck at even.  Torn between good housing numbers on one hand and a Fed looking for such rosy news to justify an increase in rates on the other.  Yes, good news is bad and bad news is good.  Welcome to the new economy.

May 21 Update

I posted the above a couple of days ago and now it all becomes clear to me.  You see, today the sales numbers for existing homes came in and they were - shockingly - below forecast.

http://globaleconomicanalysis.blogspot.com/2015/05/existing-home-sales-lower-than-any.html

So that explains it.  All these builders are optimistic and building new homes because people have  suddenly decided to start buying new houses instead of existing houses.  I apparently still have a lot to learn on this economics stuff cause I really did not see that coming.  How obvious that sales on new homes will undoubtedly be going up if sales on existing homes are going down.  Just saying it out loud makes me wonder how I did not see that before.  And now the other correlations are becoming clearer as well; incomes down, spending up; full time jobs down, employment up; house prices up, house demand down; bad news reported, stock prices up.  It all makes sense and I can see clearly now, the rain is gone.  I can see all obstacles in my way . . .

"Bernanke Admits He Couldn't Get It Up Either"

This, my friends, is the quote of the year so far.  I love it and it relates to the poor GDP numbers that came out last week for the first quarter.  It is taken from the Daily Reckoning, which you can find here:

http://dailyreckoning.com/

The article is also worth quoting, so here it is:

"Since yesterday, we’ve had “getting it up” on our mind.

 The “it” here is GDP growth. And the “we” is the economy. You’re invited to use your imagination to deal in these silly abstractions for the length of this reckoning.

 As stated, we’ve tried everything. TARP... QE I... QE II... QE III... ZIRP... NIRP... PIRP... “FoGu”... The Federal Reserve has hosted Ph.D. trysts and ogled economic models...  And what was the harsh verdict passed down?  That there’s no little blue pill to pop… no horny goat weed to ingest… that will give the economy a strong, exciting lift.

 Here’s Ben Bernanke, blogging about his own experience with persistent floppiness this morning at the Brookings Institution:

“Growth in output has been slow, despite solid job creation…

“But nobody claims that monetary policy can do much about productivity growth... I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times.”

No kidding! At what final price, we wonder, will he and his ilk have learned that lesson?

Bernanke, like so many other power elites, operates under the prevailing Keynesian paradigm. As an economics student of the ’60s, he was molded by it. As a professor, Fed chairman and now blogger, he has perpetuated it.

The current paradigm holds that promoting consumption instead of production is the path to prosperity. And prosperity, according to the paradigm, is measured by GDP.

Our co-founders Bill Bonner and Addison Wiggin stood in awe of these bad ideas in Empire of Debt, published in 2006:

“As the Anglo-Saxon economies lost their competitive edge in manufacturing, the tried to make up for it by encouraging consumption. This is the biggest fraud of all. At first, higher consumption feels good. It is like burning the furniture to keep warm; it feels good for a moment. But the sense of well-being is extremely short-lived.

When people borrow and spend, they feel as though they are getting richer -- especially when their houses are rising in price. The increased consumption even shows up, indirectly, in the GDP figures as growth. But you don’t really become wealthier by consuming. You become wealthier by making things you can sell to others -- at a profit. The point is obvious, but at this stage of imperial finance, it was inconvenient.”

If the current paradigm were correct -- which it’s not -- there might’ve been reason to celebrate this morning. Namely, the consumer spending data, out this morning. “Nearly every month for the past year, personal incomes have been growing at a faster clip than consumer spending” explained our colleague Dave Gonigam in this afternoon’s 5 Min. Forecast.

 “Whatever money comes their way, people have been trying to squirrel some of it away or pay down debt. But not in March. Personal income was flat, while consumer spending grew 0.4%.” Even then, says Dave, “the year-over-year figures still show income growing faster than spending.” That’s probably a tough fact for Yellen and co. to swallow.

 But “what really scares the Fed,” adds Jim Rickards, “is that nominal GDP is less than real GDP. Since debt is repaid in nominal dollars, things are much worse than they look.” Deflation’s a beech.

 Alas, it will take more than deflation -- however scary it is -- to overturn mainstream economic thinking. As Jim reckoned yesterday, reaching a paradigm shift is a slow, ponderous lurch. Bad ideas are as resilient as, if not more resilient than, Keith Richards.

 The best you can do while you wait is invest accordingly and laugh as the parade goes by."

And I am going out on a limb here (a very structurally sound limb in my view) and predicting that the second quarter GDP will be worse than the first.  What, no snow storms to point at, no port disruptions, and the dollar is weakening now but I have the gall  to make such a silly prediction!?  Yes I do, because these "causes" of  the low GDP in the first quarter were minimal influences.  An economy on the precipice of recession (if not already in one) is the real cause and it is starting to show more of its ugly face every day.  I note the Atlanta Fed started its 2nd quarter GDP forecast April 30th with an "Initial Nowcast" of .9.  Go ahead, ask me.  How long did it take for number that to start to come down you ask?  Well, I am glad you finally asked.  All of one day.  With less than glowing ISM manufacturing numbers it dropped to .8 on May 1. 

International trade numbers are out tomorrow and may move it slightly again, but the real number to wait for will come May 14 when the retail trade and inventories numbers come in.  Had it not been for a vast inventory buildup, first quarter GDP would have been negative around -2.5%.  And last I checked, retail ain't retailing so much.  Just a few store closings have been announced this year - like 6000!  And this is just major retailers. 

http://www.zerohedge.com/news/2015-05-02/major-us-retailers-are-closing-more-6000-stores

It is about to get ugly.  By the way, I moved what money I had in it out of Pimco.  It hired Bernanke as an advisor last week and I moved my money the same day.  Mostly in cash at this point, just like the co-founder of Pimco who is no longer there, Mohamed El-Erian.  I know El-Erian is no Ben Bernanke, which is why I am following his lead.  We will see . . .

http://www.ocregister.com/articles/pimco-656718-erian-people.html

 

"But you are under-invested in real things and over-invested in paper things."

The title is a quote from Steen Jakobsen, Chief Investment Officer of Saxo Bank in Denmark.  He was interviewed on the Peak Prosperity Show and you can find the entire interview here:

http://davidstockmanscontracorner.com/get-ready-for-the-biggest-margin-call-in-history/

Bit of a long read but worth it as he has some interesting ideas on what we are doing wrong and what we can do right. He does feel that getting it right is going to take a wake-up call, as in another major financial disaster to alert politicians to the need to do something different.   He ends noting:

" I think we agree on one thing, we need to see some sort of a failure in the system for people to wake up. I think it’s very close by and I think we agree on that, yes."

 I only hope some of our politicians take the time to listen to him.  They probably won't, however, as he is Danish and what do they know.  Never mind that they are the third happiest country, well ahead of the U.S., which is just behind Mexico at number 15:

http://www.bloomberg.com/news/articles/2015-04-23/these-are-the-happiest-countries-in-the-world

and that their government debt to GDP ratio is less than half of what it is in the U.S.  Nope, these stats mean nothing and this guy, just because he has that Chief Investment Officer title thingy, certainly knows nothing.  But - hey - what if he has something there.  Instead of just throwing trillions at too big to fails and falsely building yet bigger paper bubbles, how about when things get bad we invest in things like infrastructure, education and the like.  Money still spent, but spent in a way that can truly provide a return on investment. 

Just look around.  There is plenty of worthy investment to be made.  The Boston commuter rail system could not handle this past Winter and is in desperate need of some upgrades.  Same can be said now for San Francisco:

http://globaleconomicanalysis.blogspot.com/2015/04/new-problem-old-tracks.html

And the Chicago school system is on the verge of bankruptcy:

http://globaleconomicanalysis.blogspot.com/2015/04/credit-swap-event-triggers-for-chicago.html

We have plenty of places we need to invest money and aren't and lots of places we are giving away money and shouldn't.  Time for a wake up call.