recovery

If we see retail sales follow the same precipitous one month drop of NFP, the YoY rate should drop from last months 6.9% to ZERO. Last June the index of retail sales was 343.1 vs. last month's 362.52 so zero YoY would mean that the monthly rate, expected to print -0.3% on Wednesday would in fact print -5.4%. Now that frankly seems like an inconceivable no. as it would be the worst number we've seen since the series started in 93. However, I have to think that even if we make up the divergence over a couple of months something like -2% tomorrow would cause people to fundamentally question the recovery. Personally, I think all we are doing is remove a lot of the noise created in the data by the census jobs and we should see retail sales drop back to the levels suggested by claims and possibly even the ABC consumer buying climate question. Unfortunately, that should cause people to question the recovery!

The debate of China's double dip may have just been sealed after the "Conference Board corrected its
April gauge for the outlook of China’s economy, saying its
leading index for the country rose the least since November,
rather than registering the biggest gain in 14 months. The gauge compiled by the New York-based research group
rose 0.3 percent, less than the 1.7 percent gain reported on
June 15." Ignoring for a second the fact that such massive swings in amplitude imply either a malicious data misrepresentation intent or weapons grade stupidity, the second derivative in Chinese growth has now peaked, just at the time when the country for whatever optically political reason decided to unpeg its currency. We are now looking forward to the official rescinding of that decision, and a resumption of the peg. Of course, the fine gentlemen at the Conference Board, have come up with some trivial excuse, namely that the previous release contained a “calculation
error” for total floor space on which construction began, but it is now too late - the discrediting is beyond terminal. And anyone who believes this same agency for its monthly "consumer confidence" reading should ask themselves repeatedly if the CB did not, by mistake or just by following guidelines from above, drop the minus sign.

Michael Hudson: "Europe is committing fiscal suicide – and will have little trouble finding allies at this weekend’s G-20 meetings in Toronto."

Markets have viewed China’s willingness to move to a more “market” determined value of CNY as an indication that Chinese officials believe the global economy is strong enough to weather a CNY revaluation. However, I contend just the opposite. What if China fears increased risk reversion as the worldwide economy slows down during the second half of the year? What if they are moving away from a peg to the USD because they are afraid that USD will appreciate significantly during an onset of risk aversion? Given the increasingly likely double dip scenario, China’s move toward a “market” based CNY value may ironically only exacerbate global imbalances.

It is obvious that the government's policies to revive the economy are not working. As soon as the stimulus money runs out, we will see GDP backtrack. Instead of trying the same failed policies over again we should try something new. That is, deleveraging the economy. Until that happens the economy will stagnate. (See: Japan) Here are some proposals that will allow the economy to recover, quickly.

Activision CEO Robert Kotick can make some mean Modern Warfare games, but that will not be sufficient to get him back on CNBC again. Ever. CNBC's poor Julia Boorstin gets clotheslined (metaphorically, although it would be funny in real life) when she asks Robert whether the American consumer is back on track, no doubt hoping for a fervent yes as the cue cards said. At that point the man whose top line lives and dies by the vagaries of the 18-45 year old's spending habits takes a two second pause and replies: "We don't think so. I think that from a a macroeconomic perspective we definitely are in a challenging time and nothing that we see would give us encouragement that the economy is going to materially change any time soon." At this point the CNBC producer is rabidly screaming to cut to Joseph Cohen, who based on h....er extensive knowledge of stuff, and pets.com, sees the S&P at 1250 shortly, thanks to the US consumer who is now coming back with a vengeance and buying Gulfstreams. At which point someone asks h...er why Goldman's popularity rating is 4%.

Another look under the hood of what is driving consumer expenditures...

While the current economic data appears rosy, it won't be sustained without credit or rising wages or job growth. Much of existing spending is from a drawdown of savings and various transitory stimulus programs. These things won't last.

Improving California state finances make its municipal bonds a “buy.” With California in the heat of primary elections, this is good news no one seems to want to talk about. Inconvenient ties to the “vampire squid.” With taxes about to skyrocket everywhere, tax free municipal bonds are about to become more valuable. What’s this movie, "Fight Club", all about, anyway? (VCV), (NCP), (NVX).

In its influential World Economic Outlook, the IMF said the recovery in global growth over the past year had relied on "highly accommodative" policies and there was a risk of a relapse. But the Bank of Israel Governor Stanley Fischer, a former top official at the IMF, said advanced economies don’t face a deflationary threat and the U.S. economy is rebounding faster than anticipated. Are we out of the woods yet?

I still have a deep, deep concern about the leverage in the banking system. I look at the inability of governments who are spending vast amounts of money to generate much growth in GDP. I can give the example of running a $1.5 trillion deficit last year and GDP goes up $200 billion. So we are not getting much bang for the buck but we still owe the buck at the end of the year. I also worry about what's going on in China. The Chinese government has asked the banks to cool down their lending, the latest data in March show that lending has gone down from $300 billion per month to $100 billion. That's $2.4 trillion a year less. And obviously it has to have an effect on their economy as the lending of $2 trillion did positively last year. When you look back at China in 2009, they had a $4 trillion economy, they lent $2 trillion to people, they had a $600 billion stimulus: those should generate some GDP growth. I am not even convinced that 10% growth which would be $400 billion is a good response to all the measures that were taken. - Eric Sprott

Today we will be getting the BLS numbers on jobs which everyone says will be great. Will it be good or bad news? The problem is that many of these "jobs" aren't jobs. The needle isn't budging.

The ECB's executive board member Juergen Stark had a rare admission (and even rarer for a central banker demonstration of rationality) that not only are most advanced economies about to enter a "third wave, a sovereign debt crisis in most advanced economies", not only is a "timely exit of extraordinary fiscal measures crucial in order to ensure a continued recovery",  but that the mentioned recovery and economic improvements are largely as a result of "massive support measures taken by governments and central banks." In other words, the whole episode of the past year has been a one-time item which most analysts would exclude from "recurring operations" yet due to the magic of the Keynesian magic wand, the new normal is expected to persists as the magical "consumer" at some point takes over the recovery from the government effort. Alas, while the economy has indeed stabilized (effect), the cause continues to be purely based on governmental actions, as the consumer, and the private sector in general, continues retrenching. Too bad the US Federal Reserve has no aerobic critters than can formulate the same critical thoughts as Mr. Stark, or else they would realize that the path they are leading the US on is pure disaster, and furthermore, with the lessons from the last bubble fresh in everyone's mind, doing all they can to be branded mad, at least according to the Einsteinian definition of insanity: let's just keep flooding the system with money and keep hoping that something will change. In retrospect, pleading insanity in a decade when the entire western world is in ruins, before a tribunal of the people may not have quite the desired effect.

A lot of conflicting data came in last week. There is a lot of positive news, but does it all add up to a recovery or is the cyclical recovery headed for a stall? Nothing has changed the underlying conditions that would relieve the credit freeze. And without credit, the economy will stall.

The Minneapolis Fed has launched a useful charting service which analyzes not only the Great Recession, which allegedly has ended (must be news to the 1.8 million...and growing...newly uncovered unemployed, but we'll take the NBER's word for it) but the even Greater Recovery that we have presumably been in for the past 6 months or so. At least those Fed critters have a twisted sense of humor. In order to quantify just how funny they are, the Min Fed provides the following preamble "The 2007-2009 recession is widely thought to have ended sometime last summer. How bad was this recession, and how quickly is the economy recovering? How does this recession and recovery compare to previous cycles?"How indeed? Here are the charts which just a cursory perusal will lead the peruser to wonder what on earth the administration is smoking. Recovery indeed.