As Western economies start to regress in earnest following decades of failed and destructive monetary inflation and debt accumulation, yield-starved investors are allocating real capital to the one industrially untapped continent in the world: Africa. However, we’re not seeing industry moving to Africa to set up shop. Rather, politically-directed capital flowing into the African resources sector is fueling and financing the strongest consumer boom in the world. It’s a vendor financing model for Asia, and it portends a major boom and bust cycle for the African continental economy.
In East Africa, the major water resource is the Nile river, the world’s longest, at 4,130 miles, referred to by Egypt since antiquity as the country’s heart. Instability, poor governance, lack of finances and the availability of other water sources left the issue largely dormant until the 1990s, when Nilotic governments seriously started to consider using their Nile Basin waters to generate energy and irrigate crops. But now, most African countries (expecting growth), where only about 25% of the population is connected to electricity grids, are seeking any and all electric power sources; guaranteeing an ongoing and increasingly fractious source of tension for Nilotic states. With the current political turmoil roiling Egypt, Cairo’s ability to influence upstream states is currently constrained, which until the dust settles may well provide Egypt with a number of aquatic fait accomplits. If Kampala and Addis Ababa press forward with their (Chinese-sponsored) hydroelectric projects in the interim, then they will probably eventually face some “frank and candid” diplomatic discussions with Egypt, which, after all, has a 4,000 year old history of Nile concerns. Not a happy scenario.
- Critics Decry Risks Posed by Link Between China's Banks and Bonds (WSJ)
- U.S. retailers say uneven recovery keeps consumers cautious (Reuters) - er, what recovery?
- Easy Credit Dries Up, Choking Growth in China (NYT)
- Fed's Bullard Floats Idea of Small Cuts to Bond Buying (WSJ)
- EU wants one definition of bad loans for bank tests (Reuters) - because in Europe they can't even agree what an NPL is...
- Nagasaki Bomb Maker Offers Lessons for Fukushima Cleanup (BBG)
- With Gmail Overhaul, Not All Mail Is Equal (WSJ)
- Snowden downloaded NSA secrets while working for Dell, sources say (Reuters)
- Apollo co-founder buys into New Jersey Devils (FT)
- Republicans to vote on debate boycott because of Clinton programs (Reuters)
- J.C. Penney Heads for Ninth Quarter of Plunging Sales (BBG)
With calls for a European renaissance and a general belief in stability through the German elections, it is perhaps worth a reminder of the structural problems that the supposedly bottoming union is facing. Nowhere is that single monetary policy-facing dilemma more evident than in the massive economic growth divergences across the EU nations and the current huge gap in unemployment rates from Greece to Austria and beyond. It seems the world is waiting for Merkel's re-election and fold on austerity (seemingly confirmed by the leaked BuBa report recently) but EU stress test transparency may remove the symbiotic safety net of bank bond buying sooner than many believe. With monetary policy somewhat euthanized across the EU, what's left for the fragmented transmission channels but more promises as pension funds and banks are stuffed to the gills with their own domestic bonds.
Overnight equity markets are getting a lift from headline-making beats for Chinese exports and (more importantly) imports. A 10.9% YoY rise in imports (compared to a +1.0% expectation) and a surge in copper 'demand' has the media calling the turn on the global economy (even as China's trade balance at $17.82bn missed expectations of $26.9bn by the most in 4 months and for the second month in a row). But... one glance below the surface of this 5.5 Sigma beat for imports and the other absurdities discrepancies are glaring...
As the following two charts show, despite the rest of the world being mired in an entirely lackadaisical muddle-through (in terms of both manufacturing and non-manufacturing PMIs), the US is representing itself as the new growth engine with an expanding and rising economy (if the 'recovery-is-right-around-the-corner' data is to be believed). Of course, we are hearing the term 'decoupling' and 'cleanest dirty shirt' once again (begging the question Rick Santelli has asked numerous times "so why not remove the Fed's training wheels") but we remind, there is never a decoupling in the highly interconnected global economy (and its stagnant trade volumes). Our simple question is, with all this dramatic divergence from the rest of the world, stagnant income growth, and anemic manufacturing job growth at best, how will the consumer-driven US sustain its exuberance?
Just about a year ago we questioned the "demographic demand" thesis for why the US housing 'recovery' would become self-sustaining and lead to yet another fiscal and monetary 'nirvana'. However, while the 'household formation' meme remains front-and-center among bloviating Fed apologists; the sad facts are that not only is household formation actually still falling but, as a recent Pew Research study finds, a record 21 million young adults are now living at home with their parents.
For the third month in the last four, US Factory Order growth missed expectations. In fact the last four months have seen the biggest plunge in a year. Adding to the disappointment for the 'manufacturing renaissance' hopes (despite proof in the payrolls data that it does not exist) is the fact that New Orders (ex-transports) dropped 0.4% (its worst in 3 months) with non-durable shipments down 0.6%.
While the ADP jobs number is noise, it is no more noise than the BLS' NFP monthly print. And since the NFP jobs number has been targeting the 200K support level for all of 2013, with the 6 month average at precisely the taper-permissive 201K, it was natural that the Mark Zandi-supervised ADP would ultimately revise its data to substantiate the BLS message, which is simple: taper on. Sure enough, ADP beat expectations of 180K coming at 200K, while the previous number of 188K was revised to 198K.
Despite the Government's Best Efforts to Prop Up the Nuclear Market through Socialism ... It's Declining
Plunging Chinese manufacturing and an 11 month low PMI got you down? Don't worry: there's a Europe for that, which overnight reported that manufacturing and service PMI in Germany and, don't laugh, France soared far above expectations (German Mfg and Services PMIs of 50.3 and 52.5, up from 48.6 and 50.4, and above expectations of 49.2 and 50.8; French Mfg and Services PMIs of 48.3 and 49.8, up from 47.2 and 48.4 and an 11 and 17 month high, respectively, blowing away expectations of 47.6 and 48.8). The result was a composite Eurozone Manufacturing PMI of 50.1, above 50 for the first time since February of 2012, up from 48.8 and at a 24 month high - reporting the largest monthly increase in output sunce June 2011, as well as a composite Services PMI of 49.6, up from 48.3, and an 18 month high. In other words, European Composite PMI is expanding (above 50) for the first time since January 2012.
Last week it was JPM just somewhat contradicting Jamie Dimon's "kid gloves" CNBC infomercial, when it slashed its Q1 GDP forecast from 2% to 1% (and about to be revised to sub-stall speed). Today, following the latest retail sales unadjusted disaster, it is Goldman's turn to slash its Q2 GDP tracking estimate from 1.3% to 1.0%. Stall speed has arrived despite everyone's forecasts for the this time it's different glorious US economic renaissance (so far "deferred" each year since 2010).
Even as the manufacturing jobs continue to collapse, posting their fourth consecutive monthly drop in June to 11.964 million jobs, minimum wage waiters and bartenders have never been happier. In June Restaurant and Bar employees just hit a new all time high of 10,339,800 workers, increasing by a whopping 51,700 in one month.
While we already showed that according to the household survey the quality component of the June jobs report was absolutely abysmal, with part-time jobs representing more than all jobs added in June, we find that according to the establishment survey things were no better. In fact, as we show month after month, the bulk of the jobs additions were concentrated in the lowest paying industries.