Sunday, October 28, 2012

The Financial-Political Complex


The authorities are acting primarily to prop up governments as well as the economy by saving the financial system. It is important to remember these authorities are politicians and bureaucrats that want increased power and influence, and guess what, they may have hit the jackpot. Those in power have joined with the banks to create the "Financial-Political Complex" that promotes the current financial policy and supports banks that are "to big to fail". Many people say that the way out of the housing crisis is to let everyone fix their mortgage debt at super low fixed rates, then inflate, inflate, inflate? Well perhaps the government's way out of its own debt is to secure low fixed rates for itself then inflate away when it becomes necessary.It should not bring comfort to the average man that these to unholy forces have joined together in such a union.

Who is the principal borrower at today's rates? The banks don't seem to be using the cheap money for their traditional business of lending, but it is the government that is doing the borrowing, and getting away with amazingly low rates for long term debt. I wouldn't buy a 10 year Treasury at today's rates - I have no idea why others are doing it - unless it's the Chinese exporters who figure they still benefit. I bet the politicians can't believe their luck at being able to borrow and spend at these rates, the printing press is being used to keep the game going. As unstabilizing as the military and war can be to our lives, financial disruptions can also have devastating effects.

Banks have been big buyers of government bonds in the past couple of years because of the “carry trade,” this allows them to borrow money from the central banks at low rates and lend it back to the government at a higher yield. In effect, this is a subsidy to the banking sector. Banks may buy even more government bonds in future because international regulations assign a low capital charge to government debt and because banks will be required to hold a store of liquid assets, of which bonds will be a big part. So the government stands behind the banking system, and in turn the banks are big buyers of government debt. This financial-political complex is reinforced by the general unwillingness of governments to let banks go bust. Better to intervene so heavily in markets, the argument runs, than do nothing and repeat the mistake of the Depression.

The cumulative effect of steps taken by the authorities over the past five years designed to prop up the economy and save the financial system have resulted in the creeping nationalization of markets. Central banks are the biggest players in many rich-world government-bond markets. Equity markets seem to perk up only when central banks are expanding the money supply. Banks exist to channel funds from savers to borrowers, traditionally from the household sector to companies. But modern banks raise funds not just from retail deposits, but also from the markets. Until 2007, European banks were able to borrow more cheaply from the markets than the better corporate borrowers. But for the past five years banks’ borrowing costs have been consistently higher than those of non-financial firms. This raises huge question-marks over the banks’ role as intermediaries.

Loans from the official sector are being used to reduce the impact of private-sector capital flight. Huge amounts of money have left Spain and Italy, largely as foreigners withdrew bank deposits or sold government bonds. The net effect is that several countries are substantial debtors of the ECB, while Germany, Finland and Luxembourg are net creditors. Money is flowing across borders at record rates. Funding pressures have been relieved by massive amounts of liquidity from central banks. Private-sector funding has been replaced with official lending. Central banks have been “lenders of last resort” for banks since the mid-19th century making short-term loans made at moments of panic. This time the ECB has lent a staggering €1 trillion ($1.3 trillion) on a three-year basis. The hope is that these loans can be refinanced via the private sector in 2014 or 2015. But this may be too sanguine. The funding woes of banks are already almost five years old.

The bond market has never been fully free of central-bank influence: expectations about the future level of short-term rates have always influenced yields. But the Federal Reserve has said that it will keep rates at current low levels until late 2014, an unprecedented commitment. Central banks have been putting downward pressure on yields through substantial quantitative easing (QE) programs. The Bank of England owns almost a third of the gilt market, this means that yields are not set solely by the balance of supply and private-sector demand.

Nor is this the only rigged market. Many countries are following policies that are designed to drive the value of their currencies down. And the authorities are helping to prop up share prices: Ben Bernanke, chairman of the Fed, has welcomed a higher stock-market as a side-effect of QE. As a result it is difficult to say what message the markets are sending. Do low bond yields show that investors are endorsing Britain’s deficit-reduction program, for example? Or do they mean that the government has plenty of room to ease fiscal policy and borrow more? Thanks to QE, it is hard to be sure.

History suggests that once governments get involved in a sector, they find it hard to withdraw. Given the weak outlook, it is hard to imagine the circumstances in which liquidity support for the banks will be withdrawn, or the policy of low interest rates abandoned. This is a new financial and economic era. QE and ZiRP haven't forced investment but rather sent people running for cover. More of the same is not a resolution to deep rooted problems but does represent the evil character of finance for the moment.

I predict a financial washing machine in the near future that will repeatedly agitate, rinse, spin, and strip away the wealth and savings of most citizens. It seems to me there is every chance that in time the people and the market will regain control of money from big banks and governments, after all banks only exist to distribute money, and for this minor service they are paid exorbitantly well. The character of money is changing with technology, that determines who can raise it, and how it is exchanged.  It will take time as our cultural changes but technically we no longer need banks or even the government for this. We should be very afraid of the "Financial-Political Complex" and the current policies because both have disaster written all over them.

Thanks for reading this post, if you haven't had enough or can stomach a bit more; 
              http://brucewilds.blogspot.com/2012/06/fantasy-world-of-debt-and-more-liqidity.html

Friday, October 26, 2012

GDP up 2.0% because of Government spending

The GDP came out this morning, up 2.0% rather then the 1.8% that was expected. This is still very slow growth. What should be noted is that Government spending on defense outlays jumped 3.7%, the biggest increase since mid-2009. In all spending by the Federal Government was up a whopping 9.6%, this was responsible for the growth. Again this economy is being held up by the government, strange timing right before the election?

Another thing that should be called to our attention is inflation is again approaching the 3% area. With consumer spending around 2% we still see no real growth. Business investment outside the residential sector fell 1.3%, the biggest drop since late 2009. Disposable income moved up 2.6%, but that was down from a 3.8% increase in the second quarter. The personal savings rate fell to 3.7% from 4.0%. A celebration is not in order.


FOOT NOTE; entered mid January, 2013-------- Now that the holiday retail sales have been weighed and measured, they have come up short. Rolling into the fall many called for the best retail sales ever and imagined increases of around 5%.  After quietly tamping down their expectations, just yesterday it came out that sales beat expectations, with a gain of 0.3% excluding auto. This is pretty sad when you factor in inflation. I do love the way the media can spin a story.


Tuesday, October 23, 2012

The Second Debate Was Important

The CNN debate moderator Candy Crowley clearly was in the Obama campaign's corner giving him the close on 8 of 11 questions and only interrupting him 9 times while interrupting Romney 28 times. The lowest and most dishonest part of Crowley's disgraceful "moderation" was when she actually jumped into the debate to take Obama's side regarding the death of  four Americans in Benghazi. To cover for his administration and his lying for almost two weeks about the attack coming as the result of a spontaneous protest over a You Tube video. Obama attempted to use as cover the claim that he had called the attack a "terrorist attack" on that very first day during his Rose Garden statement. Romney correctly disputed that. Crowley, quite incorrectly, took Obama's side and the crowd exploded.

Yes, the most shocking thing in the debate was when Obama lied deliberately to us about what he said in the Rose Garden and Candy Crowley inappropriately backed him up. A gloating Obama chimed in, “Can you say that a little louder, Candy!” He later scolded Romney about how “offensive” it was for him to question the administration’s selfless intention. But even the hyper-partisan press could not sanction this lie for long. After the event, Ms. Crowley quickly backtracked, admitting that Romney was “right in the main.” This is like in an umpire deliberately getting in a runner’s way, calling him out during a decisive World Series moment, then admitting the call was blown at a post-game press conference. Benghazi, the White House cover-up and an enabling media offer a microcosm for the whole Obama presidency. His economic policies have been wasteful and counterproductive; doing more to buttress cronyism than bring recovery. His social policies radically depart from traditional American values. Obama’s foreign policy is in shambles.

Obama came out on the anniversary of 911 speaking about the fact that we would not run run from terrorists speaking generically with no reference to Benghazi. He then sent Susan Rice out to 5 times tell the news media the attack was due to a video, Hilary Clinton said the same, Obama said the same to the families and then he went before the UN and said 8 times, the problem was the video. At the debate Romney asked Obama if he had come out immediately and called the attack what it was seen to be by the White House Security, a terrorist attack in real time. Obama looked right at Romney and lied and said he did say it was a terrorist attack. 60 million people saw this man just sit there and not tell the truth. Romney looked stunned.

Why did Candy have a copy of the”transcript” of that one Obama Speech? And how did Obama know she had a copy of the transcript of that particular speech, he asked her to refer to it. Sounds like somebody (Obama) knew what the question was going to be, and sandbagged Romney by ensuring that Candy was going to have the “transcript” on her table and believed the answer Obama was going to give. Then the drama, Obama: “Please proceed Governor,” and Obama: “get the transcript.” How did Obama know what the question was going to be and how Candy would reply? Candy was the only one who picked the questions. What other documents did she have? Us with inquiring minds would like to know, and why is no one asking?

From the transcript on the Wall Street Journal site: "No acts of terror will ever shake the resolve of this great nation, alter that character, or eclipse the light of the values that we stand for. Today we mourn four more Americans who represent the very best of the United States of America. We will not waver in our commitment to see that justice is done for this terrible act. And make no mistake, justice will be done." To clarify, in this transcript of his speech Obama did not call the 9-11 attack in Benghazi a terrorist attack. When you watch a replay of the debate it is clear the American people are being set up and mislead. This was a cover up by the Obama administration because it was too close to the election and it has blown up in their face.

In all 3 debates so far, the democrat has had several minutes more to speak than the republican. Obviously  mainstream media is backing Obama, but the public is favoring Romney anyway, we could be looking at an election where Romney gets a majority of the vote yet Obama stays in office because of the electoral college. The media and the public seem to be viewing the debates as the MLB World Series. This is not a best of 7 game were playing here. Who wins the debate or blasts his opponent with a knuckle sandwich has no bearing on the outcome. The content of the candidates has become boring, predictive and a lathering of fixed message points hurling "you are bad" epitaphs at each other with little substantive content. It's not only America that is playing this distraught game. Governments all over the world are plunging into theatrics with hands waving, waiting for the audience applause. It's the wrong game at the wrong time and it's a very sad comment on our culture.

Saturday, October 20, 2012

Bill Clinton verses George Bush

Is Bill Clinton running against George Bush in the 2012 Presidential election? With all the campaigning Bill Clinton is doing, and the constant line drumming from the White House that America is facing a return to the policies that got "America into this mess", a voter might get that impression. The truth is Barack Obama and Mitt Romney are the choice flavors of the day. While Obama holds the edge when it comes to style, and a "cute" use of words, such as "sketchy", this election is about the economy and getting America going. When you compare the resume of the two men that are running Romney wins hands down.

While the media has gone on to calling Bill Clinton, "the explainer and chief" I still remember him by the moniker, Slick Willie. Etched into my memory is the image of Bill Clinton during the Monica Lewinsky scandal pondering the definition of "IS". Sometimes as we look into the rear-view mirror things become bit distorted. To many Americans looking back in time and seeking a more gentle existence, Clinton has morphed into the best thing since sliced bread, but in reality he may not of been so good, he was just followed by something worse.

While not coming across as the most engaging and likable, Romney's resume shouts "most competent." Romney has a history of serving his fellow man but a religious background that makes talking about it a form of bragging. He is hard working and well anchored. I suspect that the American people would not see him taking expensive vacations with a large entourage at the taxpayers expense. The most telling sign, twice recently I witnessed on news clips that as Romney arrived at events he exited a car and his plane carrying his own bag.

Is Your Pension At Risk?

Is your pension at risk? Most companies have a product or service from which other lines of business can grow. Ford has cars and trucks, and Dell has computers. In the developed world as companies realize how costly guaranteed pensions can be, and how they impact profit, we are seeing pensions change. Although the shift to defined contribution (DC) schemes has been clear in America since the early 1990s, the financial crisis has accelerated this trend. Indeed, many Western firms no longer offer defined benefit schemes to new employees. Instead their far stingier cousin, the DC scheme, is the only option for fresh recruits as companies limit future liabilities.

During the Presidential campaign both Barack Obama and Mitt Romney raised concerns about underfunded pension programs as poor management has led many pension systems to seek bailouts. State pensions have reached deficit levels of $767 billion in the U.S. The largest 100 corporate-defined pensions have hit $454 billion in unfunded liabilities.The blame for the underfunding of retirement systems, on the public level, lies generally with legislatures, which have raised pension benefits to unaffordable levels while failing to contribute enough to properly fund obligations. They've also kept assumed return rates high, making plans appear better funded than they are. Private companies have simply promised too much to workers that are living longer at a time that business pressures are changing.

In the UK stock market turmoil and record low interest rates have left workers nearing retirement with private pensions worth substantially less than those who finished work three years ago. New figures show that overall pension incomes are now 30% lower than they were three years ago when the government began attempts to boost the economy through quantitative easing. Peter McDonald, a partner in the pension practice at PwC, warned that those retiring this year would be left "between a rock and a hard place", forced to defer claiming a pension until the market picks up. With stock market turmoil set to continue and this week's resumption of the Bank of England's quantitative easing program, injecting another £75bn of new money into the economy, annuity payouts are set to shrink further. The FTSE has fallen by about 15% since May, which has cut the value of many workers' private pensions schemes.

Pensions are also under attack in Canada where the Harper government has decided to tighten up and reduce many of the gold-plated retirement packages that MPs and public servants have enjoyed for decades. This follows the government's decision to raise the age of eligibility for the Old Age Supplement to 67 from 65. The government could not ask Canadians to take a hit, while allowing elected officials and public servants to conduct business as usual. Under the new terms, MPs will pay 50 per cent of contributions to their pensions or $39,000 a year compared to $11,000 now. They won't be able to collect a full pension until age 65, as opposed to 55. After just six years of service, MPs are eligible to receive one of the richest pensions in the country, courtesy of taxpayers, who have been contributing $24 for every $1 an MP puts into the program.

There is a new normal when it comes to investing that many have not accounted for, moderate portfolios these days are hoping for an annual gain of 5 to 7 percent. The likeliness that they will consistently earn 7.5 percent on a conservatively managed portfolio, as anticipated by its fund managers, is unlikely. Lately the markets have been hooked on monetary morphine and ignoring fundamentals. Many of the financial structures we have built are on flimsy foundations or unsustainable. If the wheels come off the financial system pension plans will take a direct hit. To those who base their future on money coming from these monthly payouts I urge caution, prepare to take a "haircut" or worse.


 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. The posts below may be of interest,
              http://brucewilds.blogspot.com/2013/01/ugly-math-made-simple.html            
              http://brucewilds.blogspot.com/2013/07/it-will-all-end-badly.html

Thursday, October 18, 2012

A Helicopter Drop For England?


Lord Turner is one of two leading contenders to succeed Sir Mervyn King, he has made comments in the past that might indicate what "still more innovative and unconventional" monetary policies might look like. The outgoing Financial Services Authority chief doesn't spell it out, but in the past he has talked privately about the possibility of pure money financing of the deficit, when a person's "private" comments have been mentioned publicly often enough, the word private rather loses its meaning. The most well known example of this is the so-called "helicopter drop".

For example, the government could simply send every family in the country a onetime "Christmas Bonus" of  a thousand pounds or roughly sixteen hundred dollars, directly financed by money created by the Bank of England. It is fair to say that Lord Turner has never publicly proposed this kind of money drop, or suggested that it should happen right away. Still  the fact that a man of Lord Turner's position and experience is even hinting at this kind of solution to the UK's problems might be thought to indicate how serious he thinks problems in England have become. Of course, it also indicates that Lord Turner would not be a cautious or placid Bank of England governor.

The easiest way to think about a "helicopter drop" is as a lump sum temporary tax cut, or a one-off reverse tax. This would be  financed by new government bonds which are purchased by the Bank of England on the secondary market with all interest and redemption payments etc transferred back to the Treasury. This is similar to quantitative easing, to the extent that it is one part of the government lending to and acquiring claims against another. It is also similar in that it is reversible. The government could have a one-off tax increase, two years later, to get back the money that has been paid out, just as the Bank can now sell back the gilts it has bought under QE.

The only real difference between QE and even more "unconventional" money financing is that, with QE, the terms on which the money is created "are flexible and sensitive to inflationary pressures", whereas in the case of a helicopter drop, the terms are more open, both can cause distortions within a market. As long as Bank rate is near zero and the Bank of England buys new gilts to replace the ones that mature, quantitative easing looks an awful lot like a "helicopter drop". But providing it has the political will, as soon as the Bank starts raising interest rates and selling back those government bonds, the similarity with Zimbabwe starts to disappear.

Is this the path to economic prosperity? I think not, some may argue that it gives us more time to make tough structural reforms, others argue it allows us to postpone them. But to be effective it must be noted that even helicopter money needs to be directed. Its no good showering the country with cash to buy cheap imports. . The only answer will be time, try this, try that. Maybe even sit it out, or have a really big war, which is very unappealing. But is not given the credit it deserves as opposed to Keynsian " new deal ". US recovery & growth had more to do with WW II than the "new deal".   

Then again we should remember that the velocity of money, the speed that it moves throughout  the system is also important and should not be underestimated. At some point one might begin to speculate that those in power might try to hit a "reset" and start over or try to introduce a new "world-currency" as a replacement to all those that are failing. As in the case of  previous stimulus acts, tax cuts, or other one-off acts to get the economy moving it all depends on details. Still a system based on debt and mass consumption heavily reinforced with promises of future entitlements may not be sustainable. In the end where the money is placed, what it is used for, and where it flows does matter.


 Footnote added February 2014; I recently wrote an article that expands on calls for a new world currency, the link is below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
            http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-currency.html

Monday, October 15, 2012

Unemployment Numbers Mask The Truth

 CNBC's Kelly Evans did some digging and found that one state's numbers were way off the expected tally. Either they didn't make the proper seasonal adjustment or that seasonal adjustment didn't actually happen. Later on, Business Insider's Henry Blodget got word from a source that California was the culprit, because it didn't include all of its claims when it submitted its numbers—not out of malice, but because they probably got overwhelmed and simply couldn't process them all in time for the reporting deadline. Those claims will still be counted eventually, either in a future report or in a revision to this report that will come in a few weeks.

With only weeks till the presidential election this left a sizable number of people thinking something fishy is going on. With a number that looks suspiciously positive for the president once again we find some conservatives refusing to believe the numbers are legitimate. But why are these statistics so questionable? The Labor Department will be the first to admit that there is considerable subjectivity in their reports. In fact, there's so much subjectivity that it is standard practice to change the numbers in the months that follow, as new, more concrete data is fed into the statistics. It is wiser to regard the report as a preliminary estimate, rather than a hard finding.

 There are three kinds of lies in the world. Lies, damn lies, and statistics, as the saying goes. Statistics now show that the unemployment rate plunged to 7.8 percent in September, its lowest level since Barack Obama took office in 2009. In part this was because the Bureau of Labor Statistics made big revisions to previous months, showing huge increases in the number of jobs being created. Total employment from the "household survey" showed an increase of 873,000 jobs last month, the biggest one-month jump since June of 1983.

Is America better off than four years ago? Things look significantly worse when one includes those shut out of the labor market, they are included in the number known as the U-6. The U-6 is, “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.”  I know it sounds redundant, but that’s the Bureau of Labor Statistics definition. Thus we see a 14.7% U-6 rate for September. It was also 14.8% in May.  In all, for 2012, the U-6 has fluttered between 14.5% and 15.1%. In January 2009, when President Obama took office the rate was 14.2%

The spread between the U-3 and U-6 numbers have drastically increased by 50%. Of course, if you listen to the Obama camp, they're proud of the 7.8 figure and are trumpeting it at every opportunity as a sign that Obama's policies are finally paying off. Interesting, because that 7.8 percent number in any other year would be considered a source of shame for most presidents. The methods used to get this number include attempting to contact some 60,000 people, most by phone, and some by visit, to ask if they are working. The definition of who is and isn't working is fairly broad, Jack Welch explained in his op ed, a woman who is babysitting for a week to earn bus fare is counted as working. Welch says he believes the economy is improving, however he notes that the growth is very slow. 


Friday, October 12, 2012

Consumers Are In a Protracted Period Of Weakness

On Bloomberg Television recently Harvard economist Steven Roach put in her place a retail sales consultant who was crowing about strong retail growth. Roach pointed out that after discounting for inflation growth in retail sales compared to past years is mostly an illusion. I wish he had gone to the next step and pointed out that what little growth does exist is built on a foundation of demand from huge government deficit spending. To make things worse the government has been forced to borrow much of that money.

Part of the poor outlook for consumer spending comes from the inability for people to use their homes as a ATM, this abruptly ended in 2008 and was a large driver in causing the bubble to burst. While super low interest rates have allowed people to refinance homes and cut their monthly payments they have also devastated the incomes of those with savings causing them to curtail spending. Slow job creation, coupled with many of the jobs being created at the low end of the pay spectrum, is now being effected by another recent occurrence, hours are being cut by many employers because of Obamacare.

Bottom-line good jobs are scarce and incomes are not rising. More deleveraging is facing Americans, this will go on for years. Some consumers have worked hard and paid down the debt that they accumulated, others have simply walked away from their debts and taken the path of bankruptcy. Those that remain in houses where they have not paid their mortgage for months or years have supplemented discretionary spending.Consumers Are In a Protracted Period Of Weakness, you can stop talking about strong retail sales till more good jobs materialize.


Thank you for reading my post. Most economist see creating more jobs as a way out of this quagmire but this is no easy task. If you have time please read one or all of these post that focus on how difficult that tends to be;

          http://brucewilds.blogspot.com/2013/01/creating-jobs-in-mature-market.html
          http://brucewilds.blogspot.com/2013/09/implications-of-poor-job-creation.html
          http://brucewilds.blogspot.com/2013/06/obamacare-means-partime-work.html

Thursday, October 11, 2012

USADA Continues Attack on Armstrong

After Being massively criticized and talk about cutting taxpayer funds to the USADA a counter attack to justify its existence has begun. Aware of the criticism Tygart insisted his agency has handled this case under the same rules as any other. ''We focused solely on finding the truth without being influenced by celebrity or non-celebrity, threats, personal attacks or political pressure because that is what clean athletes deserve and demand,'' Tygart said. The report called the evidence ''as strong or stronger than any case brought in USADA's 12 years of existence.''

In a letter Tuesday to the U.S. Anti-Doping Agency, Armstrong attorney Tim Herman says the agency should send the International Cycling Union its entire evidence file, not just a limited report packaged to support the sanctions. Armstrong finally gave up fighting the USADA charges, but insists he never cheated. His attorney, Tim Herman, called the report ''a one-sided hatchet job - a taxpayer funded tabloid piece rehashing old, disproved, unreliable allegations based largely on axe-grinders, serial perjurers, coerced testimony, sweetheart deals and threat-induced stories.''

In a letter sent to USADA attorneys Tuesday, Herman dismissed any evidence provided by Landis and Hamilton, saying the riders are ''serial perjurers and have told diametrically contradictory stories under oath.'' The testimony of Hincapie, one of Armstrong's closest and most loyal teammates was one of the report's new revelations. ''I would have been much more comfortable talking only about myself, but understood that I was obligated to tell the truth about everything I knew. So that is what I did,'' Hincapie said of his testimony. His two-page statement did not mention Armstrong by name. Neither did statements from three other teammates-turned-witnesses.

It seems Tygart and the taxpayer funded USADA just won't let go of their mission to destroy Armstrong. Please take a moment to read my past post on the ;   More on Armstrong and the USADA

Monday, October 8, 2012

China's Currency Hits A New Reccord

China’s yuan climbed last week to its highest level against the U.S. dollar since the currency was reevaluated in July of 2005, The currency was buoyed by the U.S. Federal Reserve’s recent QE3 program as well as recent data showing that the People’s Bank of China has injected a record amount of cash into the financial system. While the yuan’s recent rise comes as a surprise to many considering all of the doom and gloom surrounding the Chinese economy, it is important to remember that the Fed’s QE3 program creates excess liquidity that in theory flows to the safest and highest-yielding assets.

With U.S. Treasury yields low, investors are being forced to search elsewhere for return and despite the Chinese economy’s recent weakness, it is still the world’s second-largest economy with a growth rate north of 7%. Data this week also showed that China's central bank injected 365 billion yuan ($57.9 billion) into the financial system via open-market operations. The news fed a rally in Chinese stocks on Thursday. Investors worried about the lack of action by the central government to prop up the economy as it has faltered  were pleased by the move to inject liquidity into the market in such a large scale and hope to see more stimulus coming down the pipeline.

Looking ahead many currency watchers expect more stimulus to come through before the once-in-a-decade regime change in China to help ease the transition. Expectations for fiscal stimulus from China are so strong that industrial commodity prices have managed to climb significantly higher despite disappointing news on U.S. economic industrial activity. The slowdown in economic growth in China is unlikely to end soon, Chinese growth is being hurt by the crisis in Europe as well as the anemic U.S. economy and growth is slowing faster than some expected.

"We will see the worst of the slowdown in the fourth quarter of this year, after that it will stabilize." said KimEng Tan, a senior director and analytical manager for a sovereign ratings team  based in Hong Kong.  He feels that while the euro-zone crisis has affected China, most of the exposure to Europe is short term and export related thus it will only hits Chinese banks indirectly. Mr. Tsang said. "Depositors have confidence in government-backed Chinese banks."  A side effect and another problem for the world economy is China's major trading partners like Australia and Japan will also be  hurt when China slows down.

Sunday, October 7, 2012

Jobs, or no jobs?

Jobs, or no jobs? Reports show that the September unemployment rate plunged, unexpectedly, to 7.8%, from 8.1% in August. It was the first time it fell below 8% since January, 2009, the month that Obama took office. More important was the reason, it fell was because people were finding work in large numbers, and not because they were just leaving the labor force as in prior months. Claims that things are kicking up came as a surprise to many of us surveying things here on the ground, and recently witnessing a slowdown in manufacturing.

Non-farm payroll employment rose by 114,000, a very unremarkable number in itself but, the two prior months of July and August were revised up sharply, payrolls are now being shown to have rose a cumulative 86,000 more than first reported. That, however, is not the full story. The Bureau of Labor Statistics measures jobs two ways: the well-known payroll survey of employers, and the lesser-known survey of households, which yields the unemployment rate. Most the ruckus is being caused by the latter survey which shows the number of people with jobs skyrocketed by 873,000 in September from August. It must be noted that the household survey numbers are extremely volatile.

So whats the bottom line, how should we interpret these numbers? This is the largest gain since January, 2003, but remember January figures are often distorted by annual revisions, you have to go back to 1983 to find a monthly gain this big outside January.  Moreover, the gains in payroll employment, for a change, got a big hand from government; state and local jobs have climbed a relatively hefty 72,000 in the last three months. This does not add to the argument that all is well in the private sector. Many of these new jobs are low paying and often part time, it should also be noted that we saw a huge jump in the hiring of new workers without highschool diplomas, that is somewhat baffling. I remain unconvinced.