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Chubble (The Unmistakeable, Yet Thoroughly Argued Chinese Bubble), Unemployed/Deleveraging Shopaholics Pushing Retail Stocks & Other News
- Australia
- Bloomberg News
- Bureau of Labor Statistics
- China
- Consumer Credit
- Consumer Prices
- Emergency Unemployment Compensation
- European Central Bank
- Greece
- India
- Initial Jobless Claims
- Italy
- Japan
- Real estate
- recovery
- Reuters
- Royal Bank of Scotland
- Stagflation
- TARP
- Trade Deficit
- Trichet
- Unemployment
- Unemployment Insurance
- Wall Street Journal
- Yuan
Here is another smattering of news from the weekend past, as well as our
take on it and a decent dose of realistic analysis to cast a light on
the real issues at hand...
Beijing Reports a Trade Deficit: BusinessWeek
- China reported its first trade deficit in over 70 months as the
prices of raw materials imports climbed - Analysts are stating that a stronger Yuan is needed to deter
increasing domestic inflation - China has the impossible task of balancing an ever increasing
asset price bubble with US demands for a revalued Yuan in order to fuel
President Obama's manufacturing jobs utopia - Subscribers should reference
China Macro Discussion 2-4-10 (Global
Macro, Trades & Strategy)
And speaking of Beijing,,, China's
Economic
Growth
Accelerates to 11.9%, May Prompt End of Yuan Peg - The
Overheating has arrived???
- China’s economic growth accelerated to the fastest pace in almost
three years in the first quarter, highlighting overheating risks that
may prompt the government to scrap the yuan’s peg to the dollar. - Growth was more than the median 11.7 percent estimate in a
Bloomberg News survey of 24 economists. - A lower-than-estimated gain in consumer
prices complicates
a debate in Beijing on when to raise interest rates, cut in 2008
to counter the financial crisis. Australia and India have
already moved and Singapore yesterday allowed a one-time
revaluation of its currency as the region winds back stimulus
policies to limit asset-bubble and inflation risks. -
Investment contributed 6.9 percentage points to growth,
consumption accounted for 6.2 points and net exports deducted
1.2 points, the statistics bureau said today. China may post
more trade deficits in the first half after the first shortfall
in six years in March, the commerce ministry said today. Urban
fixed-asset investment increased 26.4 percent in the
first quarter from a year earlier, the statistics bureau said
today. Producer
prices rose a less-than-estimated 5.9 percent in
March, after climbing 5.4 percent in February. While China doesn’t yet
release quarter-on-quarter figures,
Royal Bank of Scotland estimated 14.5 percent economic growth on
that basis. The median of seven economists’ estimates was 11.2
percent. - Residential and commercial real-estate prices in 70 cities
climbed 11.7 percent in March from a year earlier, the most
since data began in 2005. Guangzhou-based Evergrande
Real Estate
Group Ltd. said sales jumped 175 percent in the first quarter.
Double, Bubble, Toil and Troube! You guys know my opinion on this -
Bubblicious, all the way! See:
- Can
China Control the “Side-Effects” of its Stimulus-Led Growth? Let's Look
at the Facts - What
Are the Odds That China Will Follow 1920's US and 1980's Japan?
- Some
Light Shown on My Developing China Thesis
- It
Doesn't Take a Genius to Figure Out How This Will End
- Signs
of a China Credit and Real Asset Bubble Are Now Unmistakable!
- China's
Most Expensive Export: Price Inflation
- He
Who Bloweth the Bubble With Wet Lips Should Stand Back Lest Spittle and
Saliva Spray Upon Ye Face
This Chanos interview helps bring my perspective into focus: http://www.charlierose.com/view/interview/10960#
Trichet Interviews with Italian Press II Sole 24: ECB
- Some countries will need to accept deflation as a return to
normalization - Trichet is very confident in Greece's "austerity measures", and
does not expect a bailout to be necessary - "Countries seeking EMU membership will have to abide by Maastricht
Treaty" (why are Greece, Italy, and Spain at the very least even in
the EMU? Maastricht is a piece of paper with no legislative bite, no
more, no less) - Is deflation already here? European
Retail Sales Fall Most in Nine Months
Oil oversupply & under demand: Wall
Street
Journal
- Oil inventories are at 10 week highs, and gasoline storage is at a
17 year high going into the summer - Oil has risen to $84, breaking its multi-month $70-$80 range, on
increasing anticipation of a US recovery - With oil reaching the $90 area, unemployment at nearly 10%, and a
growing Chinese asset price bubble, Stagflationlooms
Consumers Deleverage: Reuters
- Consumer credit unexpectedly took a
sharp turn lower, and revolving credit fell at a 13% annual rate -
Consumers are throwing away credit cards, yet retail sales data
continues to rise, watch pending homes data on Monday for further
development.
This is an interesting development, for unemployment (real
unemployment that is) is still rampant. See Are
the Effects of Unemployment About To Shoot Through the Roof? I wrote this piece late last year, and thus far it appears to be on point.
...The Bureau of Labor Statistics reported the total number of
unemployed at 15.6 million and the unemployment rate at 10% in Dec 2010.
With serious doubts being raised about the reported figures of the
insured unemployed that forms a substantial portion of total unemployed
(nearly 69% in Dec 2010, based on reported figures), the total
unemployment figures reported by the government is most likely
severely understated.
The grave unemployment situation not only undermines the economic health
and recovery hopes, but is also acting as a major source of financial
strain on the Fed's books. The Fed has been spending huge amounts of
money in the form of UI (unemployment insurance) benefits. In 2009, the
government paid about $139 billion in UI benefits. Based on the figures
for total unemployed by Bureau of Labor statistics and total insured
unemployed by DOL, the total insured unemployed which are being
supported by the government under the various state and federal programs
have risen to 69.0% of the total unemployed as of Dec 2009 from just
29.0% in Sep 2007. Further it is observed that the Fed has been taking
in huge deficits on its books because of UI programs. The total UI
withdrawals on Fed books in 2009 were $139 billion against deposits of
just $31 billion received from states for unemployment. While the
withdrawals in 2009 have increased by 320% when compared with
withdrawals in 2007, the deposits have declined by 6.6%. The deficit has
increased to nearly $107 billion from nearly no deficit, two years ago.
The increased pressure on the Fed books can be largely explained when we
look into UI programs that are currently being administered by the
government. There are two major UI programs - Regular state programs and
Emergency Unemployment Compensation (EUC). While the former has to be
funded through tax collection by the state (with any deficit financed
by the Fed through loans), the latter is 100% funded by the Fed.
EUC is a Federal, temporary extension of unemployment compensation for
unemployed individuals who have already collected all regular state
benefits for which they were eligible. The program was started in June
2008 and was due to expire in December, 2009. The claims under the
program have risen at a phenomenal rate and now accounts for nearly 50%
of the total insured unemployed claims. Thus, the Fed has been financing
the extension of UI benefits of those which are no longer covered under
the regular state programs. As per the last reported figures as of Dec
19, 2009, while the claims under the regular state programs have come
down due to the expiration of claims, the same was more than
offset by the massive jump in insured unemployed under the federal EUC
program. The claims under the regular state programs were down 4.3%
(y-o-y) while the claims under EUC were up nearly 200% which led to a
nearly 51% increase in total insured unemployed. Insured unemployed
are not able to get jobs and with claims expiring under the regular
state programs, they are increasingly applying to the Federal's EUC
program for extended benefits.
Looking at the initial job claims under the regular state programs,
while the markets rejoiced the decline in seasonally adjusted figure,
the non-seasonally adjusted figures (which are the actual claims)
continue to inch up. For the week ended Jan 02, 2010, the initial
jobless claims (NSA) increased 88,000 (w-o-w) to reach 645,571. Looking
at the two year trend of the seasonal adjustment does call into question
the validity and accuracy of the adjustments, no?
With the total number of insured unemployed (under the state and federal
programs combined) continuing to increase as well as no respite coming
from the initial jobless claims (looking at the real figures which are
not seasonally adjusted), the unemployment situation is far from
improving. Further, with serious questions being raised about the
validity of the reported number of insured unemployed, the gravity of
the situation is definitely underrated. The Fed is pumping in enormous
sums of money to underpin the problem - an amount that may rival the
TARP. However, with claims expiring under the regular UI state programs
and the temporary aid provided by EUC expected to taper in the coming
months, unemployment is going to increasingly weigh on aggregate demand
and further delay the economic recovery.
- advertisements -
I CAN believe it's not butter.
As was reported, comments by Zandi at Moody's, its possible that foreclosed homeowners who are not paying their mortgages, are putting up to $8 billion a month into consumer spending, and services. (anyone who thinks the median American consumer is interested in saving money, they need to have their head examined, these people are heading out to the casino to see if they can turn what they've got into rent money. It's only when wifie and kids stop them before they get out that door that money stays in the cookie jar. - money that ultimately goes into Ipads, and nails, and Starbucks lattes - Without making any moral claims, economically the double down is the best economic strategy, et tu Ben? - and if Ben could counsel them - imagine that - he would probably say - you kids shut up and eat your oatmeal, your Dad has to try and figure out a way to pay for our bailouts, at the roulette table)
When you say Crude inventories are up, I think the Bush people pulled the rug out from under speculators ahead of the 2006 midterms, so why not Obama too? Trade reco for the political paranoid investor class, short the RBOB...
and on that subject there are plenty of ways to get money into the pockets of the unemployed besides unemployment insurance, so why not dismantle the office at BLS, (this what Bush did with consumer protection, while Wall Street counted profits and we chewed on the lead paint, and personal income trended lower - because me suspects the Obama people are just the Bushies on steroids - and with fewer paranoid fantasies) and watch the uncounted unemployed draw food stamps, title 8 renters aid, and whatelse have you, and keep the official number of not working low. Nobody pays attention to Shadowstats.com anyway.
Gasoline will $2.50 by election day. Unemployment will be under 10%, while other forms of entitlements will be going through the roof, and the (consumer) economy will be clicking along, because Bernanke doesn't have that much influence, and a double down trip to the casino is really a business venture, after all. Think about it.
Dude, you sound depressed. I guess tax day's a ....
China will become the new Japan and it'll be India's turn, after that who know's
A certain segment of investors (those that require a growth story) and political correctness demands there be a great non-white hope. Dispassionate financial analysis is not the desired method when emotions are in play.
Fetch, it'll be war long before it's India's turn.
The Eagle the bear and the dragon are ready and waiting!
Something sounds like it is going to give... soonish!
Hats off to Reggie Middleton for mentioning energy prices in a finance article!
The primary input around which the entirety of modern (and post- modern) business activity orbits. As it gets too expensive ... WATCH OUT!
As for the rest ... because of the inability to earn the rapidly vanishing dollar, the country as a whole is a lot poorer than it was back in 2008, when The Great Oil Price Spike took place. So ... what is the 'new $147'?
$90? $80?
I'm guessing $45 but there is an awful lot of momentum ...
When all else fails start a war. The new war is internally American.
Here is another piece of revealing data for your collection:
http://www.madeinusaproductsstore.com/
Every single item displayed for sale can be classified under "Worthless Crap You Don't Need".
Ross Perot was right.
Reggie, thanks so much for your relentless posting of the truth. The problem is, this market will go up until our govt runs out of leverage and printed money, and will remain disconnected to reality.
I have noticed a sea change in conversations with the 20 and 30 somethings who bought real estate only to get caught in the bubble burst. Their most frequent statement is that they are DONE with any real estate purchases for the rest of their lives, they've learned their lesson. To them, mortgages are something to be avoided, period. Have you seen any official surveys to back this up? If so, how would this dynamic play out in some of your models?
Many things just don't reconcile. Shadow Statistics is printing a 21.7% number for March 2010 month-end. This I believe is the closest we have to a consistent unemployment/underemployment series available (i.e., if you pay a fee). A year before it was 19.8% (March 2009), a year before that 12.9 (March 2008), while U-6 is now around 16.9% and U-3 is around 9.7% (i.e., both for March 2010). New claims are running around two million of more per month (averaging about 460,000 per week these days, i.e., without adjusting for census jobs that will go away in the Fall, and being substantially higher a year ago).
Thus, at least for me, it is very hard to believe this economy has been creating, by my rough guess, 1-1/2 to 2 million new full time positions per month (ignoring for a moment we need to find another 100 or 200 thousand per month just to be static on a jobs basis due new entrants to the labor force, and part time government work that will soon disappear). At least for me, I think Reggie is correct to note that what seems to be happening is that by extending long-term unemployment (regardless of what it is now called these days) there is a kind of grinding pressure being placed on Federal finances (in this case, shifting the expense from states to the Federal authorities). What is also problematic for me is that, as far I as I know, this is another source of borrowing for the Feds that will add to the actual debt numbers, as opposed to the government stated deficit values in any given fiscal period. As far as I know, this borrowing is not included in state budget numbers because it is technically borrowings from the Federal authorities for the relatively new long-term unemployment insurance, but is not officially declared from the Federal authorities during the fiscal year it is incurred (under current circumstances it is borrowed, but not officially acknowledged - debt happens, and you see it in the actual Treasury debt outstanding values, but not the official deficit values reported during the fiscal period incurred). Anyway, unemployment financing between the states and Fed, state & Federal pension deficits, guaranteed private pensions, etc., etc. keep putting pressure on Federal finances, and at some point, my guess in the next few months to few years, the magic financing at the current nominal and real rates will end. You get the picture.
Regarding China, given the reliability of their numbers, who knows; but the 'smart' money is clearly not on the official story. Actually, for almost any financial bet these days, and unless you have unambiguous inside information (e.g., of the Buffet type), the basic posture should be to fade, short, or don't touch the official story. Only the clinically insane will go long the government false propanganda/silliness.
Hey Reggie, my Nov 30 PPD puts are gonna have a good day, thanks so much for the great work! You're a badass.
Chineses GDP figures are pure fantasy. They can "meet" whatever number they want by government stimulus and government-encouraged (mandated?) construction spending. China is the U.S. housing bubble on steroids.
The exits are here, here and here...
I wonder if the brain slug has gotten into Santelli. He seemed to be spouting the party line this morning. Everything is wonderful, move along.
I think the term is perfect: "Chubble". This sucker probably has another 6-12 months to inflate... what will you call it when the bubble bursts? World War III?