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The Bad Breath of the Eurozone “Recovery”
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
There has been a symphony of calls for American investors to take their money, after the outsized gains in our gravity-defying stock market, and plow it into European stocks. Net inflows into European equity funds have been strong since April and have recently set all-time records. In October, allocation to Eurozone equities hit the highest level in over six years.
Excitement was palpable when Eurozone PMIs stopped dropping in most countries, and started rising in some, and things appeared to be getting less worse, giving rise to euphoria that a recovery was on the way, that profits would flow in profusion, and that equities would soar.
Equities did soar. But reality has bad breath. Total Q3 estimated earnings by the 286 companies in the STOXX 600 that have quarterly estimates, according to Thomson Reuters IBES, dropped €17.3 billion from a year ago, or -14.5%. That’s right, earnings are plunging. And they're plunging the most in Italy (nearly -50%), Austria (-22%), France, Germany, and Spain (around -20%), followed by Britain.... It’s tough out there.
And the recovery-fueled revenues? Estimated Q3 revenues dropped by €39 billion, or -2.4%. The revenue quagmire covered all sectors except consumer cyclicals and non-cyclicals. Hardest hit: basic materials down 5%, telecom down 6.2%, financials down 6.4%, and tech down 6.5%.
Estimated earnings for the full year dropped by €20.5 billion, or -3.1%. That includes the still optimistic estimates for Q4. Of course, estimates for 2014 are sky-high because reality is still too far away, and hype organs can’t smell its bad breath yet.
Yet there are whiffs of it. When Euro Disney reported earnings yesterday for the year ending September 30, it disclosed that the number of visitors to Disneyland Paris dropped by 1.1 million, or 7%, to 14.9 million. Two-thirds of the decline was due to French visitors (who make up about half of total visitors). The remaining third of the decline was due to Italian and Spanish visitors. They no longer have the moolah to do fun things!
It wasn’t “disenchantment,” explained Euro Disney CEO Philippe Gas, but an “economic problem.” Other companies in the industry suffered similar declines. Compagnie des Alpes, which operates the Parc Astérix and the Futuroscope, saw traffic fall by 7.5%. For the Paris region, tourist count for 2013 is expected to be down 2%, largely due to fewer Spanish and Italian visitors.
To make up for lower traffic, Disneyland Paris cut promotions and raised prices. And so, overall revenues were down only 1.1% to €1.31 billion. And it doesn’t expect a rebound. It’s trying to fill the hole left behind by French, Italian, and Spanish visitors the best it can with visitors from other countries, such as Russia and Brazil. There is only so much blood you can still wring out of Eurozone dwellers.
In France, the troubles continue. There has been an avalanche of announced of 736 mass layoffs so far this year, though layoffs are difficult to impossible, very expensive, and often associated with political battles, labor unrest, plant occupations, vandalism, and taking local bosses hostage.
The list includes Alcatel-Lucent [Hype Collapses: Alcatel-Lucent “Could disappear,” Says CEO], Alstom, La Redoubte (whose labor unrest with strong support from political heavy weights is making the evening news), pork giant Gad, automaker PSA.... And this, even while the economy, as measured in GDP, is hopefully going to grow, at the brisk rate of, well, 0.9% in 2014 and 1.2% in 2015.
So, job creation in 2014? Nope. Companies are overstaffed by 250,000 people, according to recent estimates – due to the difficulties of laying them off. This has been confirmed by polls of CEOs who consistently say that they could raise output without having to hire. They have large productive reserves on their payrolls that now sit more or less idle. So growth, if any, in France's anemic private sector won't create new jobs. Instead, companies will try to shed workers.
For 2013, total job destruction will likely reach 91,000. Fewer jobs for more people: the working age population is growing by about 115,000 this year – France being one of the few European countries with that toxic combination of job destruction and a rapidly growing working age population. So unemployment will get worse, estimated to hit 10.9% next year. There simply is no letup in sight.
Not surprisingly, the French are having a field day, now that the EU Commission has joined the US Treasury in slamming Germany for its export-focused policies that are bleeding France, the rest of Europe, the US, and the rest of the world to death, somehow.
But even in Germany, exports are down 0.9% for the year through September, and imports are down even more, 1.9%. Germany, the locomotive of the Eurozone? Its economy has been crummy. Production, including construction and energy, dropped in September after rising in August in its typical zigzag manner, but still has not reached the level of 2007 – as the dreary graph shows (Destatis):
Same with the industrial orders. They’re still running way below their peak of 2007 (Destatis).
Retail sales look even drearier. In September, they dropped 0.4% from August, seasonally adjusted, but edged up year over year a measly 0.2% adjusted for inflation. On an annual basis, retail sales since 1994 have been on a bumpy downward slope. When sales for 2013 are available, chances are, this won’t look much better:
The economies of Italy and Spain have been wracked by long recessions, dreadful unemployment fiascos, decomposing assets in the banking sector.... Yet, Eurozone stock markets have been oblivious to reality’s bad breath.
The German DAX jumps from new high to new high. It’s up about 150% from its March 2009 low and 17% for the year so far. It didn’t even stop to take a breath when the economy shrank in Q4 last year. The French CAC 40, up 14% so far this year, knows no crisis. The Italian FTSE MIB, oh my! It soared 29% so far this year (though it’s still down 62% from its peak in 2000). The Spanish IBEX 35? What a dizzying ride! Up 29% just four months (though it’s still down 52% from its 2007 real-estate bubble peak)!
Another sign that the sea of trillions that central banks have been printing, particularly in the US, floats even the leakiest boats. The bad breath of reality? Ignored. For the time being.
The euro, its dexterous management, the “whatever-it-takes” guarantees by ECB President Draghi, the trillions being shifted around to prop up banks and governments – all these efforts to keep the Eurozone duct-taped together have hit countries differently. Including France and Germany, that are now shooting at each other, but hitting the ECB. Read.... France Clamors for Currency War, Bundesbank Warns Of Housing Bubble
And here I am on RT with Max Keiser on the Keiser Report. High-octane, pungent, and funny! Risk of whiplash.... Debtonomics And The NSA
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Disneyland announced a while back that they were raising the price something like 9%. I remember when it used to be affordable to go to Disneyland.
View from low level small business in Germany: I had a nice and profitable business idea in the 80s and lived quite well for a lot of years. My employees became ever more lazy and unordentlich. Now I fired nearly all of them. I found out I paid them for doing very, very little work. Of course I was also cheated outright. My tax adviser overcharged me triple, organizations, health insurance, revenue office and many leeches have drawn on my bank account without mercy. Now I stopped supporting the world economy with my purchases and I am selling off part of my stock to end bank debt once and for all time. The world economy can go to hell. A lower GDP does not mean sex is less exciting. Think 1960s, 70s.
"...we should expect quite soon, a new organized attack in the heart of eurozone, in France, which facing problems already, leading to a definite and irreversible path of the preferable to the neoliberal doctrine conditions."
http://failedevolution.blogspot.gr/2012/09/lea-jacta-est-by-emperor-drag...
The Eurozone collapse has been a planned demolition, just as its fake recovery is being staged.
At the end the day it is being set up so that the same level of desperation and internicine feuding
will rival pre-WWII.
However, this time around --->
"The Global Economic and Financial Control Matrix Disintegrating in Real Time"^^^
http://cosmicconvergence.org/?p=2973Liked the interview on Keiser. Always appreciate your writing.
Can't wait for eurozone to fall apart!
let me guess... because this would give the USD a better stand?
If the EUR breaks, you'll get 17 national currencies, and the EUR "satellites" like the CHF get lose. Lots of competitive devaluations possible, then. And? What changes?
After a couple of blows, a new "ceasefire" Exchange Rates Mechanism. Which is the same as having the EUR
no, seriously, I'd wish I'd understand better this "EUR must die fetish". Outside of England, that is
When the EU breaks apart not necessarily will be there 17/28 currencies, much likely scenario is the EU will break apart into smaller economical blocks with similar economies which are easily manageable.
Much likely parts:
-Countries around Germany: France, Benelux countries and Austria;
-Scandinavia;
-Visegrád Group countries;
-PIGS countries;
-newly accepted EU countries like Slovenia or Croatia may be independent again.
The Baltic countries may became the part of the Eur-Asian union or became the part of the Scandinavian block.
Wolf, nice to see you on RT, that whole clip is worth the watch.
Dancing chickens, boiling frogs, and an N.S.A. backdoor in Linux.
Unsustainable debt, currency manipulations, wired in banksters, and a victim populace.
this world wide situation reminds of what happened in south florida in the eighties when the local .gov decided to end the spring break party fest because the local economy didn't need the money from drunk college kids to sustain the economy. ending spring break trashed the local economy obviously but local pols and business people could not understand how ending spring break could possibly affect the revenue of businesses several times removed from spring break money.
the same confusion is found with wal mart. they, and all the other retailers, cannot understand how paying their workers wages so ltle they must be subsidized by .gov could affect their bottom line in the cheapest crap selling business.
so now the poverty wage model is affecting the macro economy and economists cannot understand why people won't borrow and why money handed directly to the .1% doesn't trickle down.
like broward county decided they didn't need spring break money then didn't understand why the local economy suffered in aggregate the world's businesses can't understand why gutting the middle class might bring the world economy down.
You did not tell the whole story in Broward County. The spring breakers came in hordes by car. The airlines made little money, nor did the car rental companies. Hotel rooms were trashed, and it cost the owners more money in repairs than the profit that was made. I know, I was one of those hotel owners. The only businesses to make money from spring break were the liquor stores, night clubs, and McDonalds. We didn't see any of those businesses subsidizing the losses to the hotel industry.
Broward County decided to end spring break, spend $25 million to improve the beach front, encouraged more upscale hotel construction and appeal to a more upscale family oriented market. Sure, the first few years did some damage but in the end profitability improved, property values rose, and there was far less chaos. It proved to be a good decision in the end.
Subsequently, other county and city governments, such as Daytona Beach and Padre Island in Texas, consulted with Broward County as to how they could rid themselves of the spring breakers as well.
i don't know who you are but i made my first fortune off spring breakers(before i trashed it all in a divorce so she would not get a penny from me). in the words of a friend, "who cares about 100,000 dollars worth of damage i grossed 2mil". i don't know about your other stats. alamo rent a car was started in ft.lauderdale at that time as was peoples air shuttling thousands and thousands of nyers to south florida for 100 bucks.
yes, in the long run it turned out to be a good decision. what i was pointing out was the ignorance of local business and political leadership.
Don't most polls still show that people in EU countries believe in the EU rather than downshifting to something less controlling? (not that their rulers would ever allow that).
So, stew in it. You all chose it, voted for it, voted for politicians that support it. Merkels reelection showed even Germany, where things are relatively OK, still swallows the bait & hook that they'll be better off giving away autonomy to unelected bureaucrats who will lead them who knows where.
So live the dream of union and socialism and quit whining about the consequences. Hell, at least in the U.S. a war was fought for autonomy (unfortunately the wrong side won).
If EU citizens should change course and strive for more autonomy EU wide, or within their respective country, or even less overt corruption slanted towards saving the banks, then get back to us with real news. Otherwise all your figures and charts are irrelevant.
It's a political problem, not economic. I see NO significant movement against the status quo in Europe (just reports about those on the fringe of swag dissemination, disgruntled that they can no longer have their cake and eat it too). Perhaps revealing news is being buried, however your report doesn't disclose otherwise. Apparently you're willing victims and there's little visible signs of that changing.
The Dutch and French voted against the new EU constitution in 2005 and many people in the EU are not at all happy with the direction things are moving to in the EU right now. Next year there are EU elections and a rise of EU critical or anti EU parties is expected
The French think they're being bled by Germany? They're just lazy fuckheads. Not as lazy as Italians or Spaniards. None of which should try to share a common fiat currency. But then no one should use a fiat currency, nor a monopoly one.
Further to which, the Italians aren't even fuckheads, to their credit, and their laziness is limited to their non grey market jobs. And who could get mad at Spaniards and stay mad? But fuck the French. Fuck'em.
Mr. Gas. LOL !