http://www.zerohedge.com/fullrss2.xml en Deja Vu GDP Stunner: Over Half Of US Growth In The Past Year Is From Inventory Accumulation http://www.zerohedge.com/news/2014-07-30/deja-vu-gdp-stunner-over-half-us-growth-past-year-inventory-accumulation <p>Back in December 2013, when everyone was expecting a 3% GDP print for Q1, we did a simple analysis concluding that "<a href="http://www.zerohedge.com/news/2013-12-05/here-growth-inventory-hoarding-accounts-nearly-60-gdp-increase-past-year">Inventory Hoarding Accounts For Nearly 60% Of GDP Increase In Past Year</a>." We stated that this "hollow growth", <em>which is merely producers pulling demand from the future courtesy of cheap credit and assuming the inventory will be sold off in ordinary course of business without bottom-line slamming liquidations or dumping,</em> and which further assumes a healthy US consumer and global economy, is a flashing red flag for the future of US economic growth. In fact, we were one of the very few who warned that Q1 GDP would be a disaster: "The problem with inventory hoarding, however, is that at some point it will have to be "unhoarded." <strong>Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked.</strong>"</p> <p>This is precisely what happened in Q1, however it was blamed on the "harsh weather."</p> <p>Alas, following today's "spectacular" 4.0% GDP print following the predicted plunge in the US economy in Q1, we can again conclude that not only has nothing changed, but what we warned in Q4 of 2013 is about to happen all over again, and the inventory overhang (which incidentally was estiamted by the BEA and will certainly be revised lower next month) is about to slam future US growth.</p> <p>The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20vs%20Inv%20Q2.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20vs%20Inv%20Q2_0.jpg" width="600" height="386" /></a></p> <p>And, as we showed last time, where the scramble to accumulate inventory in hopes that it will be sold, <em>profitably, </em>sooner or later to buyers either domestic or foreign, is most visible, is in the data from the past 4 quarters, or the trailing year starting in Q2 2013 and ending with the just released revised Q2 2014 number. The result is that of the $675 billion rise in nominal GDP in the past year, <strong>a whopping 52%, or over half, </strong>is due to nothing else but inventory hoarding.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/Inv%20vs%20GDP%20LTM.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/Inv%20vs%20GDP%20LTM_0.jpg" width="600" height="351" /></a></p> <p>Once again, enjoy the sugar high that inventory accumulation always generates in the current quarter. Just don't expect it to last.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="966" height="565" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Inv%20vs%20GDP%20LTM.jpg?1406735058" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/deja-vu-gdp-stunner-over-half-us-growth-past-year-inventory-accumulation#comments Global Economy Nominal GDP Wed, 30 Jul 2014 15:45:40 +0000 Tyler Durden 492044 at http://www.zerohedge.com Portugal Plunges To 9-Month Lows, Europe's VIX At 3-Month Highs http://www.zerohedge.com/news/2014-07-30/portugal-plunges-9-month-lows-europes-vix-3-month-highs <p><strong>Portugal's PSI20 plunged over 3.4% today</strong> extending recent losses after its dead-cat-bounce, leaving the index near its lowest since October 2013. Interestingly peripheral bond spreads (and IG/HY credit spreads) compressed while equity markets all dumped across Europe amid concerns of blowback from Russia. As the sell-off accelerated into the close, credit markets also tumbled. An <strong>initial rally in financials gave way rapidly </strong>as US opened and rumors of G7 statements and Russian retaliation spread. <strong>Europe's VIX closed just shy of 18.00 - its highest close since early May</strong>. Banco Espirito Santo fell another 10% to record lows ahead of tonight's earnings.</p> <p>Early gains disappeared for European banks...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD1_0.jpg" width="600" height="313" /></a></p> <p>&nbsp;</p> <p>Portugal plunged to 9 month lows...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD2.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD2_0.jpg" width="600" height="302" /></a></p> <p>&nbsp;</p> <p>and broad European stocks fell as US GDP (as good as it gets) and Russian warnings sparked selling...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD3.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_EUEOD3_0.jpg" width="600" height="315" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="959" height="501" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_EUEOD1.jpg?1406734469" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/portugal-plunges-9-month-lows-europes-vix-3-month-highs#comments Bond Equity Markets Portugal Wed, 30 Jul 2014 15:34:43 +0000 Tyler Durden 492043 at http://www.zerohedge.com Six Current Economic Myths And Realities http://www.zerohedge.com/news/2014-07-30/six-current-economic-myths-and-realities <p><em>Submitted by <a href="http://mises.ca/posts/blog/six-current-economic-myths-and-realities/">Patrick Barron via Mises Canada</a>,</em></p> <p>The following are six of the most prevalent economic myths that appear time and again in the mainstream media.&nbsp; I will give a brief description of each and a brief description of the economic reality, as seen from an Austrian perspective.</p> <p><u><strong>Myth #1: Increased money leads to economic prosperity.</strong></u></p> <p>This Keynesian myth postulates that increasing aggregate demand through increasing the money supply will lead to more spending, higher employment, increased production, and a higher overall standard of living.</p> <p>The reality is that an increase in money leads to malinvestment. The time structure of production is thrown into disequilibrium by encouraging investment in projects more remotely removed in time from final consumption.&nbsp; There are insufficient resources in the economy for the profitable completion of all projects, since individual time preference is unchanged, meaning that there is no increase in savings.&nbsp; When prices rise, due to this unchanged time preference, these projects will be liquidated, revealing the loss of capital.&nbsp; Production will be lower than otherwise.&nbsp; Unemployment will increase while workers adapt to economic reality.</p> <p><strong><u>Myth #2: Manipulating interest rates leads to economic prosperity.</u></strong></p> <p>This is a corollary of Myth #1 but deserves its own discussion.&nbsp; In the Keynesian view lower interest rates always are beneficial; therefore, it is the proper role of the monetary authorities to drive down the interest rate via open market operations.</p> <p>The reality is that interest rates are a product of the market, reflecting the interplay of the demand for loanable funds and the availability of loanable funds.&nbsp; Historically high or low interest rates can have multiple causes, none of which are prima facie good or bad.&nbsp; For example, rates can be high because entrepreneurs have highly profitable opportunities due to reduced regulation or a breakthrough in technology.&nbsp; If time preference is unchanged and, therefore, savings is unchanged, the interest rate rises and allocates the scarce savings to the most highly desired ends.&nbsp; Or, interest rates can be low due to a change in time preference that leads to increased savings.&nbsp; If entrepreneurial opportunities are unchanged, interest rates will fall.&nbsp; Likewise, demand for loans can be high while savings is high or vice versa.&nbsp; Manipulating the interest rate truly is an act of fantasy by the monetary authorities, who believe that they can know the impact of billions of ever changing decisions affecting the supply of money and demand for money.</p> <p><strong><u>Myth #3: Lowering the foreign exchange rate of the currency, to give more local currency in exchange for foreign currency, will lead to an export driven economic recovery.</u></strong></p> <p>The reality is that no country can force another to subsidize its economy by manipulating its exchange rate.&nbsp; Giving more local currency subsidizes foreign buyers in the near term, but it creates higher prices in the domestic economy later.&nbsp; Early receivers of the new money&ndash;exporters, their employees, their suppliers, etc.&ndash;benefit by a transfer of wealth from later receivers of the new money.&nbsp; But as the price level rises from the increase in the domestic money supply, the benefit to foreign buyers evaporates.&nbsp; Then the exporters demand that the monetary authorities conduct another round of exchange rate interventions.&nbsp; The big winners are foreign buyers.&nbsp; Intermediate winners are exporters, but their advantage ends eventually.&nbsp; The losers are non-exporters, especially retired people.</p> <p><strong><u>Myth #4: Money expansion will not cause higher prices.</u></strong></p> <p>Currently the U.S. government is engaged in a propaganda campaign to convince us that it can both monetize the government&rsquo;s debt and engage in quantitative easing without causing a rising price level.</p> <p>The reality is that there is no escaping the fundamentals of economic law in the monetary sphere.&nbsp; Ludwig von Mises and many excellent Austrian economists since, such as Murray N. Rothbard, have explained that the relationship between an increase in money and an increase in the price level is not a mechanical one.&nbsp; Nevertheless, even Mises explained that the basis of all monetary theory is the &ldquo;Quantity Theory of Money&rdquo;, that states that there is a positive relationship between the money supply and the price level.&nbsp; In other words, more money eventually leads to higher prices and vice versa.&nbsp; What causes all the confusion is that the price level actually can fall even when the money supply expands, if all of the new money plus some of the existing money stock are hoarded.&nbsp; Mises call this the first stage of the three stages of inflation.&nbsp; The public expects prices to remain the same or even fall, so they do not increase their spending even when the money supply expands. Eventually, though, the public comes to understand that the money supply will keep increasing and that prices will not return to some previous golden age.&nbsp; At this point the public will begin to increase spending to buy at lower prices today rather than higher prices tomorrow.&nbsp; The price level will rise even if the money supply shrinks, because the public spends previously hoarded money faster.&nbsp; This is Mises&rsquo; phase two of inflation.&nbsp; In the final stage money loses its value, as the public spends it as fast as possible.&nbsp; This is Mises&rsquo; stage three, the &ldquo;crackup boom&rdquo;.</p> <p><strong><u>Myth #5: More, better, and more vigorously enforced regulations can prevent loan and investment losses.</u></strong></p> <p>The politicians and their regulatory agencies believe that prior monetary crises were caused by a combination of stupidity, greed, and criminality by bankers and sellers of investments.</p> <p>The reality is that no army of regulators armed with the most modern analytical tools and the most powerful means of regulatory enforcement can prevent malinvestment from money supply expansion.&nbsp; The monetary expansion encourages longer term projects for which the cost of money is a major factor in forecasting success.&nbsp; But without an increase in real savings, insufficient resources will ensure that many of these projects will never earn a profit and must be liquidated.&nbsp; Bank and investor losses are inescapable.</p> <p><u><strong>Myth #6: Government can prevent hyperinflation.</strong></u></p> <p>This is a corollary of Myth #4.&nbsp; If our monetary masters believe that money expansion will not cause higher prices, then they believe that they can prevent hyperinflation; i.e., the total destruction of the monetary unit as a universal medium of exchange.</p> <p>The reality is that hyperinflation is cause by a loss of confidence in the money unit, which the monetary authorities may be incapable of preventing.&nbsp; Once the panic starts, the demand by the public to hold money falls to zero.&nbsp; Prices skyrocket.&nbsp; Even if the monetary authorities got religion at this point and froze the money supply, the panic will run its course.&nbsp; No one will want to be the last holding worthless paper.&nbsp; More likely, though, the monetary authorities will aid and abet the panic, even if unwittingly, due to political pressure to increase payments to powerful domestic constituencies, such as retirees, the military, the public safety sector, government contractors, etc.&nbsp; This was the case in Revolutionary France, Weimar Germany, and modern day Zimbabwe.&nbsp; The mindset of today&rsquo;s money masters seems little more advanced.</p> <p><u><strong>Conclusion</strong></u></p> <p>I encourage Austrian economists to point out these common myths whenever encountered.&nbsp; I have had success writing letters-to-the-editor of major newspapers.&nbsp; Their editors often seem genuinely pleased to receive a polite letter pointing out the Austrian view.&nbsp; Perhaps it is simply&nbsp; a case of controversy selling newspapers.&nbsp; Furthermore, much business writing often has imbedded Keynesian assumptions that drive the narrative toward government intervention.&nbsp; Most business reporters have no economic training, so Austrians should politely point out these errors, too.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="191" height="194" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_6.jpg?1406732911" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/six-current-economic-myths-and-realities#comments ETC France Germany Hyperinflation Ludwig von Mises Money Supply None Open Market Operations Quantitative Easing Reality recovery Unemployment Wed, 30 Jul 2014 15:16:31 +0000 Tyler Durden 492042 at http://www.zerohedge.com Chart(s) Of The Day: A Decade Of GDP Revisions http://www.zerohedge.com/news/2014-07-30/charts-day-decade-gdp-revisions <p>What is the best word to describe GDP? One suggestion: <em><strong>changing</strong></em>. </p> <p>Below we present select GDP data revisions over the past decade, from the initial release to the most recent, <a href="http://www.bea.gov/newsreleases/national/gdp/2013/gdp2q13_adv.htm">July 30 2014</a>, nudging of historical GDP data.</p> <p><em><strong>First, the "old normal" ancient past:</strong></em></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202002-2007.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202002-2007_0.jpg" width="600" height="617" /></a></p> <p>&nbsp;</p> <p><em><strong>Then, the Great Financial Crisis years:</strong></em></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202008-2010.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202008-2010_0.jpg" width="600" height="617" /></a></p> <p>&nbsp;</p> <p><em><strong>And finally, the post-central planning period:</strong></em></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202011-2014.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20revisions%202011-2014_0.jpg" width="600" height="617" /></a></p> <p><em>Source: <a href="http://www.bea.gov/national/xls/GDP-GDI%20vintage%20history.xls">Bureau of Economic Analysis</a></em><a href="http://www.bea.gov/national/xls/GDP-GDI%20vintage%20history.xls"></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="875" height="613" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/GDP%20revision%20teaser.jpg?1406731763" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/charts-day-decade-gdp-revisions#comments Wed, 30 Jul 2014 14:50:36 +0000 Tyler Durden 492031 at http://www.zerohedge.com The Fed's Failure Complicates Its Endgame http://www.zerohedge.com/news/2014-07-30/feds-failure-complicates-its-endgame <p>Submitted by <a href="http://charleshughsmith.blogspot.com/2014/07/the-feds-failure-complicates-its-endgame.html">Charles Hugh-Smith of ofTwoMinds blog</a>,</p> <p><i>To demonstrate it hasn&#39;t failed, the Fed must taper/withdraw its monetary heroin.</i></p> <p><b>That the Federal Reserve&#39;s policies have failed is now so painfully evident that even the political class is awakening to this truth.</b>&nbsp;Rather than re-ignite broad-based, self-sustaining economic growth, the Fed&#39;s loose-money policies (zero-interest rate policy a.k.a. ZIRP, and quantitative easing a.k.a. QE or&nbsp;<i>free money for financiers</i>), have perversely distorted the economy and widened wealth and income inequality.</p> <p>After six long years of unprecedented monetary expansion and intervention--more than enough time to have succeeded in its stated purpose of restarting the real economy-- political and financial blowback is forcing the Fed to withdraw its monetary heroin.</p> <p>Unfortunately for the nation, the Fed&#39;s monetary heroin has addicted the economy to ZIRP, loose credit and&nbsp;<i>free money for financiers</i>. As a result, withdrawal will be painful, financially and politically.</p> <p><b>The abject failure of these policies to aid Main Street while heaping wealth on Wall Street greatly complicates the Fed&#39;s endgame.</b>&nbsp;Given the economy&#39;s dependence on the Fed&#39;s monetary heroin, declaring victory and beating a hasty retreat is not really an option: once the Fed stops delivery of monetary heroin, the economy will go into withdrawal, and the Fed&#39;s failure will be too obvious for even its most ardent backers to deny.</p> <p>But if the Fed continues pushing its monetary heroin after six long years, its failure to energize the real economy will be equally obvious--as will the unintended consequences (blowback) of monetary heroin: malinvestment, systemic risk and a pernicious faith that the Fed will do whatever is necessary to keep the stock market lofting ever higher.</p> <p><b>There are two basic schools of thought on the Fed&#39;s real agenda.</b></p> <p>The mainstream view is the Fed is pursuing its stated goals of stabilizing inflation and employment. The other view is the Fed&#39;s real agenda is enriching its homies, the banking cartel, at the expense of the nation.</p> <p>Since Wall Street has thrived while households and Main Street have seen earned income decline, the mainstream view is left with the unenviable task of explaining exactly how&nbsp;<i>free money for financiers</i>&nbsp;has helped J.Q. Citizen.</p> <p><b>Household income has declined significantly in real terms:</b>&nbsp;<a href="http://www.advisorperspectives.com/dshort/updates/Employment-Wages-and-Hours-since-1964.php" target="resource">Five Decades of Middle Class Wages</a>&nbsp;(Doug Short).</p> <p>The first line of defense is the&nbsp;<i>wealth effect</i>, the notion that a rising stock market will make people feel wealthier and therefore more likely to borrow and spend money on stuff they don&#39;t need. This is of course the foundation of the U.S. economy:&nbsp;<i>debt-based consumption</i>, and it just so happens to generate gargantuan profits for lenders such as banks.</p> <p><b>Unfortunately for the Fed apologists, only the top slice of wealthy households own enough equities to feel wealthier as stocks rise.</b>&nbsp;Wealth in the U.S. is an inverted pyramid: the so-called &quot;middle class&quot; owns a small slice near the apex while the super-rich own the entire base:<br /><img align="middle" border="0" src="http://www.oftwominds.com/photos2014/wealth-pyramid2.gif" /></p> <p>The reality is the majority of households own a trivial amount of financial assets; the number of households with debt in collection far exceeds the number benefiting from the Fed&#39;s wealth effect, which not coincidentally has greatly enlarged the wealth of financiers and the few who own most of the financial assets.</p> <p><img align="middle" border="0" src="http://www.oftwominds.com/photos2014/wealth-inequality3-14a.jpg" /></p> <p><b>This glaring disconnect between the Fed&#39;s publicly stated agenda and the results of its policies has created a political problem for the Fed.</b>&nbsp;In the mainstream media&#39;s gauzy perception, the Fed is a god-like assembly that is above the grime of politics.</p> <p><b>In truth, the Fed is as intrinsically political as any other branch of the Central State.</b>&nbsp;The thundering gap between the Fed&#39;s stated goals and the results of its policies have, after six long years, reached the toadies and lackeys of the political class, who are now reluctantly stirring to the public demand to examine the Fed&#39;s closely played cards.</p> <p><b>In other words, the failure of the Fed&#39;s policies has generated unwelcome political blowback.</b>&nbsp;A few brave politicos have interrupted their campaign fund-raising long enough to grasp that the Fed has not just failed in some random fashion:&nbsp;<b>the Fed is the problem, not the solution.</b></p> <p>As a refresher, here is the Fed&#39;s Balance Sheet, bloated with over $3 trillion of freshly created money that was mainlined into the financial system:<br /><img align="middle" border="0" src="http://www.oftwominds.com/photos2014/usfed-balance-sheet6-14.png" /></p> <p>Debt has skyrocketed under the guiding hand of the Fed&#39;s policies; GDP, not so much:</p> <p><img align="middle" border="0" src="http://www.oftwominds.com/photos2014/TCMDO-GDP7-14b.png" /></p> <p><b>There is no mystery why the Fed&#39;s policies have failed.</b>&nbsp;Fed policies have diverted interest income that once flowed to households to the banks, they&#39;ve enabled the Federal government to borrow and squander trillions of dollars in deficit spending with no political trade-offs or consequences, and they&#39;ve greatly incentivized malinvestments and risky bets.</p> <p>Federal debt is borrowed from future generations. If it is squandered on consumption, it is effectively stealing from future generations, as their income will be devoted to paying interest on the trillions of dollars we have borrowed and blown propping up a bloated and ineffective Status Quo.</p> <p><img align="middle" border="0" src="http://www.oftwominds.com/photos2014/us-debt6-14a.png" /></p> <p><b>Perhaps most perniciously, the Fed has nurtured a belief that has now taken on a quasi-religious certainty</b>&nbsp;that the Fed will never let the stock market go down. The Fed has bolstered this faith by launching a new&nbsp;<i>free money for financiers</i>&nbsp;program every time the stock market faltered.</p> <p>As a direct result, nobody believes the Fed will actually reduce its monetary heroin or allow interest rates to normalize, i.e. rise: traders, money managers and the financial punditry are convinced that the Fed will soothe any tantrum thrown by Wall Street with another dose of monetary heroin.</p> <p><b>This greatly complicates the Fed&#39;s endgame, because nobody will believe the Fed is serious about ending its monetary heroin</b>&nbsp;until it allows the stock market to plummet off a cliff without rushing to save it with more&nbsp;<i>free money for financiers</i>.</p> <p><b>The Fed is hoping to manage expectations and perceptions with such perfection that nobody notices the monetary heroin is no longer flowing.</b>&nbsp;But this is an absurd fantasy: having addicted the stock market and the economy to monetary heroin over the past six years, how can the addict go through&nbsp;<i>cold turkey withdrawal</i>&nbsp;without being completely disrupted?</p> <p><b>And in a delicious irony, should the Fed come to the rescue with another round of monetary heroin (<i>free money for financiers</i>),</b>&nbsp;that will only demonstrate the complete and utter failure of the Fed&#39;s policies to generate sustainable growth in the real economy.</p> <p>If the Fed has to rescue Wall Street yet again after six years and trillions of dollars of&nbsp;<i>free money for financiers</i>, that will prove beyond a shadow of doubt that the Fed has failed.</p> <p><b>To demonstrate it hasn&#39;t failed, the Fed must taper/withdraw its monetary heroin.</b>If the stock market tanks as a result, and the Fed rushes to the rescue with more&nbsp;<i>free money for financiers</i>, that will also prove the Fed has failed: if the economy and financial system is as robust as the Fed claims, why does it need to be rescued yet again after six long years of unprecedented injections of monetary heroin?</p> <p>It&#39;s a double-bind with no escape. No matter what the Fed chooses to do, the failure of its policies to help households and Main Street while enriching wall Street and the banks will be revealed to all.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="512" height="345" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_chs.jpg?1406723289" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/feds-failure-complicates-its-endgame#comments Deficit Spending Federal Reserve Free Money Main Street Quantitative Easing Reality Turkey Wed, 30 Jul 2014 14:31:26 +0000 Tyler Durden 492030 at http://www.zerohedge.com Q2 GDP Surges 4%, Beats Estimates Driven By Inventories, Fixed Investment Spike; Historical Data Revised http://www.zerohedge.com/news/2014-07-30/q2-gdp-surges-4-beats-estimates-driven-inventories-fixed-investment-spike-historical <p>Moments ago the Commerce department reported Q2 GDP which blew estimates out of the water, printing at 4.0%, above the declining 3.0% consensus, as a result of a surge in Inventories and Fixed Investment, both of which added over 2.5% of the total print, while exports added another 1.23% to the GDP number. The full breakdown by component is shown below.&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/Q2%20GDP%20snapshot.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/Q2%20GDP%20snapshot_0.jpg" width="600" height="415" /></a></p> <p>As the BEA noted, "The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The "second" estimate for the second quarter, based on more complete data, will be released on August 28, 2014."</p> <p>Some other <a href="http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm">components</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The change in real private inventories added 1.66 percentage points to the second-quarter change in real GDP after subtracting 1.16 percentage points from the first-quarter change.&nbsp; </strong>Private businesses increased inventories $93.4 billion in the second quarter, following increases of $35.2 billion in the first quarter and $81.8 billion in the fourth quarter of 2013. </p> <p>&nbsp;</p> <p>Real personal consumption expenditures increased 2.5 percent in the second quarter, compared with an increase of 1.2 percent in the first.&nbsp; Durable goods increased 14.0 percent, compared with an increase of 3.2 percent.&nbsp; Nondurable goods increased 2.5 percent; it was unchanged in the first quarter. Services increased 0.7 percent in the second quarter, compared with an increase of 1.3 percent in the first. </p> <p>&nbsp;</p> <p>Real nonresidential fixed investment increased 5.5 percent in the second quarter, compared with an increase of 1.6 percent in the first.&nbsp; Investment in nonresidential structures increased 5.3 percent, compared with an increase of 2.9 percent.&nbsp; Investment in equipment increased 7.0 percent, in contrast to a&nbsp; decrease of 1.0 percent.&nbsp; Investment in intellectual property products increased 3.5 percent, compared with an increase of 4.6 percent.&nbsp; Real residential fixed investment increased 7.5 percent, in contrast to a decrease of 5.3 percent. </p> <p>&nbsp;</p> <p>Real exports of goods and services increased 9.5 percent in the second quarter, in contrast to a decrease of 9.2 percent in the first.&nbsp; Real imports of goods and services increased 11.7 percent, compared with an increase of 2.2 percent. </p> <p>&nbsp;</p> <p>What is interesting is that the Commerce Department announced that as a result of incomplete June data, the biggest components of the GDP beat, Inventories and Trade, were estimated. In other words, assume that future revisions of Q2 GDP will be lower, not higher, as the actual data comes in, and especially as the CapEx data, which contrary to the GDP report, has not rebounded. </p> <p>&nbsp;</p> <p>Real federal government consumption expenditures and gross investment decreased 0.8 percent in the second quarter, compared with a decrease of 0.1 percent in the first.&nbsp; National defense increased 1.1 percent, in contrast to a decrease of 4.0 percent.&nbsp; Nondefense decreased 3.7 percent, in contrast to an increase of 6.6 percent.&nbsp; Real state and local government consumption expenditures and gross investment increased 3.1 percent, in contrast to a decrease of 1.3 percent.</p> </blockquote> <p>Speaking of revisions, today the BEA also released its annual revision of all data from 1999 to Q1 2014, which made last quarter's "harsh weather" -2.9% print a more palatable -2.1%, in the process throwing everyone's trendline calculations off as yet another GDP redefinition was implemented.</p> <p>The chart of the original and revised data is shown below.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20Original%20Revised%20Q2.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20Original%20Revised%20Q2_0.jpg" width="600" height="359" /></a></p> <p>Here are some additional details via Bloomberg:</p> <ul> <li>2Q personal consumption up 2.5% vs est. up 1.9% (range 1.5%-2.9%); prior revised to 1.2% from 1%</li> <li>Core PCE q/q 2% vs est. 1.9% (range 1.4%-2.3%)</li> <li>Gross private investment up 17% in 2Q after falling 6.9% in 1Q</li> <li>Residential up 7.5% after falling 5.3%</li> <li>Purchases of durable goods jumped 14%, most since 3Q 2009 </li> <li>Corporate spending up 5.9% vs little changed q/q</li> <li>Inventory accumulation added 1.7ppts to GDP</li> </ul> <p>And the quarterly breakdown between the original and just revised data:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20original%20revised_1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/07-overflow/GDP%20original%20revised_1_0.jpg" width="600" height="716" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1181" height="706" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/GDP%20Original%20Revised%20Q2.jpg?1406724850" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/q2-gdp-surges-4-beats-estimates-driven-inventories-fixed-investment-spike-historical#comments fixed Personal Consumption Wed, 30 Jul 2014 14:30:15 +0000 Tyler Durden 492024 at http://www.zerohedge.com Stocks Slide, Erase All GDP Gains http://www.zerohedge.com/news/2014-07-30/stocks-tumble-erase-all-gdp-gains <p>Well that didn't last long...</p> <p>Desk chatter of large institutional selling and concerns over a forthcoming G7 statement on Russia are being blamed for now...</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_oops.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_oops_0.jpg" width="600" height="449" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1272" height="951" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_oops.jpg?1406729088" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/stocks-tumble-erase-all-gdp-gains#comments Wed, 30 Jul 2014 14:04:59 +0000 Tyler Durden 492029 at http://www.zerohedge.com "US Will Feel Tangible Losses," Russia Prepares To Unleash Retaliatory Trade Wars http://www.zerohedge.com/news/2014-07-30/us-will-feel-tangible-losses-russia-prepares-unleash-retaliatory-trade-wars <p>"<strong>It's a troubling continuation/expansion of trade as a geopolitical tool</strong>," warns one Washington-based consulting firm as Russia prepares to unleash retaliatory actions to US and European sanctions. <a href="http://www.bloomberg.com/news/print/2014-07-28/russia-eyes-banning-u-s-chicken-and-some-european-fruit.html">As Bloomberg reports</a>, Russia said yesterday it <strong>may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald's cheese for safety</strong>. In addition, a Russian lawmaker has drafted legislation that might result in U.S. accounting firms being barred from doing business in his country. <em>All of this is odd given Jack "trust me" Lew's reassurance that Russian sanctions would have no impact on the US economy</em>. <span style="text-decoration: underline;"><strong>Russia's response, US will feel 'tangible losses' from 'destructive, myopic' sanctions.</strong></span><em><br /></em></p> <p>&nbsp;</p> <p><a href="http://www.bloomberg.com/news/print/2014-07-28/russia-eyes-banning-u-s-chicken-and-some-european-fruit.html"><em>As Bloomberg reports, </em></a>while Russia and the U.S. have long sparred over agricultural trade, the <strong>actions fueled speculation they could be retaliatory</strong>. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Russia’s food safety agency said it may ban imports of U.S. poultry and some European fruit due to contamination of the products</strong>, according Bloomberg BNA, citing Russian state media. The food safety agency, known as Rosselkhoznadzor, also said it will <strong>examine suppliers of McDonald’s cheese for their use of antibiotics.</strong></p> <p>&nbsp;</p> <p>Russia was the second-largest market, after Mexico, for U.S. chicken last year, according to the USA Poultry &amp; Egg Export Council.<strong> The U.S. exported about $309 million worth of broiler chickens to Russia last year</strong>, according to the council.</p> <p>&nbsp;</p> <p>Russia, which joined the World Trade Organization in 2012, is <strong>considering banning some European fruit</strong> that includes seeds and pits from the entire EU or from bloc’s individual member countries, said Alexei Alekseenko, an aide to Rosselkhoznadzor director Sergei Dankvert, BNA reported.</p> <p>&nbsp;</p> <p>Fruit shipments from the EU have recently contained Oriental fruit moths, he said, according to the Russian news agency RIA. He proposed talks with EU suppliers over the issue.</p> </blockquote> <p>Seems like that would impact the US and European economy...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“This is not a surprise,” Mike Cockrell, chief financial officer at Sanderson Farms Inc. (SAFM) of Laurel, Mississippi, said by phone. <strong>“It’s not unusual for Russia to find something wrong when they have a political reason to do so.”</strong></p> <p>&nbsp;</p> <p>Officials from McDonald’s, based in Oak Brook, Illinois, didn’t respond to a request for comment.</p> </blockquote> <p>Russia explained these are not anti-US sanctions...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“These are not sanctions against U.S. We don’t have a goal to harm U.S. citizens’ quality of life,” Fedorov said. <strong>“There are companies in Russia which have sensitive positions in terms of Russia’s sovereignty and economic security.”</strong></p> <p>&nbsp;</p> <p>Fedorov said consulting firms and audit firms will be the first to be targeted by the new bill.<span style="text-decoration: underline;"><strong> Next will be U.S. media, he said.</strong></span></p> </blockquote> <p>And <a href="http://www.mid.ru/brp_4.nsf/newsline/3245014C8BB2CFCF44257D2500450936">Russia issued a statement</a> that<strong> US will feel 'tangible losses' from 'destructive, myopic' sanctions.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>We have repeatedly spoken about the illegitimacy and groundlessness of the US sanctions against Russia</strong>. Washington will gain nothing from such decisions except for further complication of Russian-American relations and the creation of an unfavorable atmosphere in international affairs, where the cooperation between our countries often plays a key role.</p> <p>&nbsp;</p> <p>The U.S. administration, strained creating the appearance of "sequence" in its current behavior, in fact, is <strong>merely trying to avoid responsibility for the tragic developments in Ukraine</strong>. Not Russia, and Kiev regime and its overseas patrons guilty of a growing number of civilian casualties in the eastern regions. In his pompous manner prosecutorial <strong>White House, covering the bloody military operation of Kiev</strong>, which contrary to all international norms sunk to rocket attacks peaceful cities, continues to put forward baseless claims against us.</p> <p>&nbsp;</p> <p>One gets the impression that the U.S. sanctions pressure, transformed now at sectoral level, <strong>has one goal - to get even with us for an independent and uncomfortable for Washington politics</strong>. Please also note the obvious elements of unscrupulous trade and economic competition in the U.S. actions.</p> </blockquote> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><strong>The losses that Washington will sustain from such a destructive and myopic policy will be very tangible</strong></span></p></blockquote> <p>US officials are not happy...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“Assuming that they take this action, it would be blatant protectionism,”</strong> Clayton Yeutter, a U.S. Trade Representative under President Ronald Reagan, said in a phone interview.<strong> “There is little or no legitimacy to their complaints.”</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *<br />Putin warned of boomerangs... and sure enough here they come...</p> <ul> <li><strong>*EU ENERGY SANCTIONS `IRRESPONSIBLE' STEP, RUSSIA SAYS</strong></li> <li><strong>*EU ENERGY SANCTIONS TO CAUSE PRICE INCREASE IN EUROPE: RUSSIA</strong></li> <li><strong>*RUSSIA TO WEIGH `UNCONSTRUCTIVE' EU ATTITUDE IN FUTURE TIES</strong></li> <li><strong>*EU BANKS WORKING IN RUSSIA MKT TO SUFFER FROM SANCTIONS: RUSSIA</strong></li> </ul> <p>And France is screwed...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Russian Deputy Prime Minister Dmitry Rogozin said Wednesday that Russia has the capability to build Mistral-class helicopter carriers on its own if France cancels the existing contract,</strong> RIA Novosti reported. “The French must prove they are serious partners and reliable contractors,” Rogozin said after a meeting between President Vladimir Putin and government ministers.</p> <p>&nbsp;</p> <p><strong>“If they fail to do so, we will build the [Mistral] ships on our own. We are finally capable to do it,” </strong>Rogozin said. On Monday, he expressed doubts that France would cancel the contract, which he said would be worse for France than for Russia.</p> </blockquote> <p>And it seems Russia is not as isolated as President Obama would like everyone to think...</p> <ul> <li><strong>VEB IN TALKS W/ CHINA, JAPAN, ARAB COUNTRIES ON FUNDING</strong></li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="292" height="214" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_wall.jpg?1406725189" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/us-will-feel-tangible-losses-russia-prepares-unleash-retaliatory-trade-wars#comments China Fail France Illinois Japan Mexico President Obama Trade Wars Ukraine Vladimir Putin White House World Trade Wed, 30 Jul 2014 13:53:13 +0000 Tyler Durden 492028 at http://www.zerohedge.com Argentine Bonds Soar To Record Highs As Hope Rules (For Now) http://www.zerohedge.com/news/2014-07-30/argentine-bonds-soar-record-highs-hope-rules-now <p>While last night saw'The Holdouts' and 'The Argentina Delegation' come face-to-face for the first time in a decade for negotiations, when they went to bed late last night, there was no resolution. No news yet this morning of when the meeting will reconvene but it appears market participants are hopeful... <strong>The Argentina 2033 bonds are exploding higher. ARG 2033s are up over 10 points to a record-high price of 97.50</strong>. Let's hope they are not disappointed at the hopes for a <strong><span style="text-decoration: underline;">bank bailout</span></strong>. Of course, we saw this kind of exuberant jump right after the initial pro-holdouts ruling drop...</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_ARG.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/07/20140730_ARG_0.jpg" width="600" height="314" /></a></p> <p>&nbsp;</p> <p><a href="http://online.wsj.com/articles/argentina-banks-preparing-bid-to-help-argentina-avoid-default-1406692665?mod=WSJ_hp_LEFTWhatsNewsCollection">This is what is driving the rally:</a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Members of Argentina's banking association, known as Adeba, are working on a last-minute plan to help the country avoid default, according to people familiar with the matter.</strong></p> <p>&nbsp;</p> <p>The bankers association's plan, which<span style="text-decoration: underline;"><strong> hasn't been completely hashed out among the banks,</strong></span> would entail buying the legal claim and paying off the holdout creditors who are suing Argentina in U.S. courts for full payment on bonds the country defaulted on in 2001.</p> <p>&nbsp;</p> <p><strong>In exchange, the banks would ask the holdouts to ask U.S. District Judge Thomas Griesa, whose ruling has barred Argentina from paying its restructured bondholders unless it pays off the holdouts, to suspend his ruling.</strong></p> <p>&nbsp;</p> <p><strong>...</strong></p> <p>&nbsp;</p> <p><strong>Another person said the idea is for the banks to buy the government's claim in three cash installments. In exchange, the banks would ask the government to pay them back in bonds beginning in January, when a key clause in the case expires.<br /></strong></p> </blockquote> <p><em>Charts: Bloomberg</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="956" height="501" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_ARG.jpg?1406727201" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/argentine-bonds-soar-record-highs-hope-rules-now#comments Creditors default Wed, 30 Jul 2014 13:36:58 +0000 Tyler Durden 492027 at http://www.zerohedge.com Greenspan Fears "False Dawn" In US Economy, Warns Of "Equity Correction At Some Point" http://www.zerohedge.com/news/2014-07-30/greenspan-fears-false-dawn-us-economy-warns-equity-correction-some-point <p>Equity bulls should be exuberant. The last time Alan Greenspan warned of exuberance and potential for a correction, stocks soared for a few more years. While Yellen's stock-picking skills have been questioned in recent days, Greenspan has once again weighed in:</p> <ul> <li><strong>*GREENSPAN SAYS 'KEY QUESTION' IS WHETHER U.S. FACES FALSE DAWN</strong></li> <li><strong>*GREENSPAN PREDICTS AT SOME POINT EQUITIES TO HAVE CORRECTION</strong></li> </ul> <p>Although Greenspan declined to second-guess the Fed, he sees a problem moving toward "normalized" policy for his descendants.</p> <p>&nbsp;</p> <p>Speaking on Bloomberg TV, Greenspan has lots to say...</p> <ul> <li><strong>*GREENSPAN SAYS `OPEN QUESTION' WHETHER INFLATION WILL SURPRISE</strong></li> <li><strong>*GREENSPAN DECLINES TO `SECOND GUESS THE FED'</strong></li> <li><strong>*GREENSPAN SEES `A LOT OF UNCERTAINTY' ON ECONOMY</strong></li> <li><strong>*GREENSPAN SAYS `WE HAVE A LOT OF UNCERTAINTY OUT THERE'</strong></li> <li><strong>*GREENSPAN SAYS HE'S CONCERNED BY SLOWER OUTPUT PER HOUR</strong></li> <li><strong>*GREENSPAN SAYS PRODUCTIVITY WILL HAVE TROUBLE ACCELERATING</strong></li> <li><strong>*GREENSPAN SEES PROBLEM MOVING TOWARD `NORMALIZED' POLICY</strong></li> </ul> <p>He is also an oil analyst...</p> <ul> <li><strong>*GREENSPAN SAYS OIL MARKET HAS EXCESS CAPACITY, SLACK</strong></li> <li><strong>*GREENSPAN: WITHOUT MIDDLE EAST TENSION OIL PRICES WOULD FALL</strong></li> <li><strong>*GREENSPAN: CRUDE WOULD BE $15-$20 LOWER IF NOT FOR MIDEAST WOES</strong></li> </ul> <p>And warns of US fiscal problems...</p> <ul> <li><strong>*GREENSPAN SAYS U.S. LACKS `FISCAL RESOURCES'</strong></li> <li><strong>*GREENSPAN SAYS U.S. HAS `NO WAY TO FIND NEW REVENUES'</strong></li> <li><strong>*GREENSPAN SAYS U.S. `RUNNING OUT OF BUFFER IN ECONOMY'</strong></li> <li><strong>*GREENSPAN SAYS FISCAL POLICY MAY PUT STATUS OF DOLLAR AT RISK</strong></li> </ul> <p>And then there's this...</p> <ul> <li><strong>*GREENSPAN SAYS DOLLAR HELD `IN EXTRAORDINARY ESTEEM'</strong></li> </ul> <p>Except in Russia, China, Brazil, and India?</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="614" height="551" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20140730_green.jpg?1406726654" /> </div> </div> </div> http://www.zerohedge.com/news/2014-07-30/greenspan-fears-false-dawn-us-economy-warns-equity-correction-some-point#comments Alan Greenspan Brazil China Crude India Middle East Wed, 30 Jul 2014 13:24:41 +0000 Tyler Durden 492026 at http://www.zerohedge.com