Lost In Translation

The markets apparently loved Mario Draghi’s promise to buy bonds in unlimited quantities. Lost in translation, apparently, is the meaning of the word “conditionality,” which in this context means “austerity.” The troika will require the eager bond sellers to reduce their deficit spending. These reductions will only deepen the European recession as consumption and investment are both cut back in the periphery, knocking on to reduced exports in the core. These reductions are, of course, necessary and appropriate, but hardly compatible with the “risk-off” response from stock markets around the world.

Close to home, the ADP report and the services PMI made the US recession scenario look rather shaky for a day or two; however this morning’s BLS employment report cemented it solidly back into place. A gain of only 55,000 jobs, net of revisions, and that number itself liable to be revised downwards. The less advertised household survey showed a loss of 119,000 jobs although the “unemployment rate” was mitigated by a much bigger decline in the “labor force” – whatever that means. This is consistent with Gallup’s polling. ADP is living in another universe, apparently. Stocks are up on the day because, well bad news is good and of course good news is, well, good. This report is thought to force Mr Bernanke’s hand into printing again. And again. Just look at the labor force participation rate to really understand where we are – back to the early 1980s:

Do you see the effects of QE1, QE2 and Operation Twist in that chart? I thought not. Also lost in translation were a couple of interesting warnings – first from Fedex, citing continuing “weakness in the global economy,” then from Intel, which forecast a 7% y-o-y revenue decline and disowned its previous earnings forecasts. All being touted as company-specific, of course. Right, although I will observe that some of Intel’s problem is the whole PC industry’s problem – nobody wants ’em anymore. They are buggy whips. Technologically obsolete would be more polite, I guess.

Between the money printing and the saber-rattling in the Mideast, somehow gas prices have been driven up, now well over $4 for regular in California and nearly as much here in Florida. That’s not good for the economy, folks, we’ve seen in the past that this kind of pricing takes a real bite out of other spending and sends it right to the Saudis.

Iron ore prices have fallen to $86.70 a tonne from a 2011 high of $191.90 (as of Thursday). Australia’s trade deficit is rising fast as exports to China fall in price and volume. This is the China bubble bursting. Yes, I know, they’re going to build subways and highways. Not going to compensate for the fall in exports as the West goes into recession. A little historical note from David Rosenberg:

He explains:

Note that 13 of the 16 countries under our radar screen have reported their August PMI/ISMs and 100% of them showed contracting manufacturing activity in August – that is up from 75% in July and 73% in June. Yet again, the last time we saw a 100% dispersion in terms of a turndown in the global industrial sector was back in February 2009.

Now it seems that it is a sure thing that Ben is warming up the helicopters again. I don’t think they will make much difference to the trajectory of the economy. It is too late for that.

Both comments and trackbacks are currently closed.
%d bloggers like this: