The Manufacturing World Suddenly Goes Into Reverse: Global August PMI Summary

While yesterday everyone was focusing on the ongoing escalation in Ukraine, or BBQing, the real story was the sudden and quite dramatic collapse, or as we called it, “bloodbath” in global manufacturing as tracked by various PMI indices.
Here, via Bank of America, is the bottom line: as the below table shows, out of the 26 countries that have reported so far, 9 reported improvements in their manufacturing sectors in August, while 15 recorded a weakening, and 2 remained unchanged. A reading above 50 reflects expansion, while below 50 indicates contraction. In this regard, there were 5 countries in negative territory and 21 in positive. In particular, Brazil, Greece, Korea and Turkey moved from contraction to expansion, while Australia and Italy did the reverse. The biggest concern: virtually every core and pierphral Eurozone country of note (from France and Germany to Spain and Italy) saw substantial contraciton. Which, as is well-known in the New Normal, is the stuff new all time S&P500 highs are made of.

This post was published at Zero Hedge on 09/02/2014.

France Needs a “Thatcher Moment” But First a Depression

It is amusing reading day in and day out the Keynesian cure for what ails Europe, especially France.
Consider France. Public spending amounts to 57% of French GDP, yet Keynesians want still more. The sad irony is that 100% would not be enough. In fact, it would make matters worse.
France suffers from too much government spending and too much government interference everywhere one looks.
The Problem
On Sunday, in Eurozone Currency Dispute Intensifies: France Wants More ECB Action to Correct Overvalued Euro, Germany Doesn’t I summed up the problem.
Inflation Won’t Cure France
Contrary to popular belief, inflation will not spur consumer spending. Nor will inflation create any jobs or cause wage inflation.
Nonetheless, France demands the ECB wizards fix something that cannot be fixed by monetary policy.

This post was published at Global Economic Analysis on Tuesday, September 02, 2014.

Eurozone Manufacturing PMI at 13-Month Low, with Germany Worse than Expected, Italy and France in Contraction

The Markit Eurozone Manufacturing final data shows Eurozone Manufacturing PMI at 13-month low in August.
The rate of expansion in eurozone manufacturing production eased to its lowest during the current 14-month growth sequence in August, as companies faced slower increases in both total new orders and new export business. The final seasonally adjusted Markit Eurozone Manufacturing PMI posted 50.7 in August, down from 51.8 in July, its lowest reading since July last year. The headline PMI was also below its earlier flash estimate of 50.8. National PMI data signalled a broad easing in the manufacturing recoveries underwa y across much of the currency union. Although Ireland was a noticeable exception, with its PMI at the highest level since the end of 1999, rates of expansion slowed in Spain, the Netherlands and Germany.

This post was published at Global Economic Analysis on September 01, 2014.

And The Best Performing Asset In August Was…

August is the month in which the third try for a global economic recovery officially snapped, with first China, then Europe and finally Latin America succumbing to pre-recession forces and/or outright contraction. Which, in the New Normal, is great news as it means more hopes for even greater imminent central bank easing and “stimulus” if only for the wealthiest (and also please ignore the fact that 6 years of more of the same has not worked, this time will be different). Which explains why August, otherwise the sleepiest month of the year, proved to be fairly strong with both equities and bonds moving higher in tandem.
In fact, the situation in Europe is so dire, that European government bonds yields reached/retested their record multi-century all time lows. As Deutsche Bank summarizes, the 10yr government bond yields for Germany, France, Italy, Spain, and Switzerland declined by 27bp, 28bp, 26bp, 28bp and 11bp in August to 0.89%, 1.25%, 2.44%, 2.23% and 0.44% respectively. From a total returns perspective, a 2% gain in August was the best monthly performance for Bunds and OATs since January which brings their YTD gains to around 8-9%. Not bad in the context of a 7% and 4% YTD gains in Stoxx 600 and the FTSE 100. Italian and Spanish government bonds are still ahead though on a YTD basis with total returns to date at around 12-13%. Staying in rates, US Treasuries were somewhat of a laggard relative to its European peers in August with a monthly return of around 1.2%. Nonetheless, it was still the biggest gain for Treasuries since January and the outperformance in long bonds has also driven the 10s/30s curve to its flattest since June 2009. The search for yield has also benefited Credit on both sides of the Atlantic. Total returns were positive across the main European, US and Sterling credit benchmarks although the highlight was a rebound in US HY. The asset class gained 1.8% in August after having lost 1.7% in July as outflows steadied and reversed as the month progressed.

This post was published at Zero Hedge on 09/01/2014.

Markets Set To Surge On Global Manufacturing PMI Bloodbath

If last week’s disappointing global economic data, that saw Brazil added to the list of countries returning to outright recession as Europe Hamletically debates whether to be or not to be in a triple-dip, was enough to push the S&P solidly above 2000, even if on a few hundreds ES contracts (traded almost exclusively between central banks), then the overnight massacre of global manufacturing PMIs – when not one but both Chinese PMIs missed spurring calls for “more easing” and pushing the SHCOMP up 0.83% to 2,235.5 – should see the S&P cross Goldman’s revised year end target of 2050 (up from 1900) sometime by Thursday (on another few hundreds ES contracts).
Some of the highlights, or rather lowlights: Dutch PMI 51.7, down from 53.5, Hungarian PMI 51.0, last 56.7; Spain PMI 52.8, Exp. 53.3, Last 53.9; Czech PMI 54.3, Exp. 55.5, Last 56.5; Swiss PMI: 52.9, Exp. 53.7, Last 56.5; Sweden PMI 51.0, Exp. 54.8, Last 55.1; Italy PMI 49.8, Exp. 51.0, Last 51.9 (back into contraction mode to go along the GDP decline and the record low inflation), French PMI 46.9, Last 46.5, Germany 51.4, Exp. 52.0, and Last 52.0 and finally the UK at 52.5, exp. 55.1, and last 54.8, was the lowest reading since June 2013.
Some more observations from Goldman: on Europe’s absolute manufacturing disaster:
The Euro area final manufacturing PMI printed at 50.7 in August, 0.1pt below the Flash and the consensus estimate (Flash, Cons: 50.8). This implies a 1.1pt contraction from the July print. The French component was revised up relative to the flash ( 0.4pt), while the German component was revised down (-0.6pt). The August figure in both Italy and Spain showed continued loss of momentum, with the manufacturing PMI easing 2.0pt in Italy and 1.0pt in Spain relative to the July print (against a consensus expectation of a smaller decline).
The Euro area aggregate Final manufacturing PMI printed at 50.7, 0.1pt below the August Flash owing to a considerable 0.6pt downward revision in Germany, outweighing a 0.4pt upward revision in France. The breakdown of the manufacturing PMI reflected the weaker headline print: New orders fell 1.4pt to 50.7 while stocks remained stable, thus implying a 1.3pt contraction in the forward-looking order-to-stocks ratio. Employment edged 0.6pt lower and remains relatively weak at 49.3. Output also declined by 1.7pt, now standing at 51.0.

This post was published at Zero Hedge on 09/01/2014.

Does France Need A 21st Century Revolution?

Submitted by Saxobank’s Steen Jakobsen via TradingFloor.com,
French President Franois Hollande unveiled his new government under Prime Minister Manuel Valls on August 26, and there have been a few changes. While most senior ministers have retained their positions, economic minister Arnaud Montebourg was replaced by Emmanuel Macron, a former investment banker and economic adviser at the Elyse.
Hollande is already the most unpopular president in French history so he is not risking much by removing a political opponent like Montebourg (who should never have been part of a so-called reform program to begin with). Montebourg is a man of the old school and of old ideas: Among other things, he titled himself “Minister of Industrial Resurrection.” His ideas included threatening to fine businesses for each job they failed to create and speaking against globalisation.

Mired in economic stagnation and barely concealed unrest, France is a nation that often seems displeased with its lot. But will things have to get worse before they get better? Photo: Getty
The problem for President Hollande and any reform efforts is that, as much as removing Montebourg was a victory for his economic strategy, it was also a loss in terms of his political ability to rule both his party and the French state. We often forget that economic policy without political backing is like skiing without snow: Policy needs political anchoring.

This post was published at Zero Hedge on 08/31/2014.

The Ultimate Demise Of The Euro Union

The European Union (EU) was created by the Maastricht Treaty on November 1st 1993. It is a political and economic union between European countries which makes its own policies concerning the members’ economies, societies, laws and to some extent security. To some, the EU is an overblown bureaucracy which drains money…and compromises the power of sovereign states. For others, the EU is the best way to meet challenges smaller nations might struggle with – such as economic growth or negotiations with larger nations – and worth surrendering some sovereignty to achieve. Despite many years of integration, opposition remains strong.
ACCORDINGLY, there are signs the EU is teetering on implosion.
Indeed the Euro zone break up is inevitable for numerous reasons.
Unpayable government debts and the massive bailouts in Greece, Portugal, Spain and Ireland logically pave the road to an eventual EU break up.
While it’s convenient to have the one currency for 17 different nations, the nature of those national economies and their strength is quite different and problematic. Indeed and fact it favors wealthy countries like Germany and France at the expense of the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).
Another issue is that while the 17 nations share the same Central Bank, they do not have a central control on government budgets, nor central political control.
Paul Griffiths, Colonial First State chief investment officer does not want to put a time frame on the euro zone being shrunk, but says it will eventually be very different from what it is today.

This post was published at Gold-Eagle on September 1, 2014.

Eurozone Currency Dispute Intensifies: France Wants More ECB Action to Correct Overvalued Euro, Germany Doesn’t

The currency and fiscal battleground front lines in Europe remains the same. France wants QE, fiscal stimulus, and more leeway on meeting fiscal deficit targets. Germany doesn’t. And the fighting has strengthened.
The idea that ECB can produce nirvana by devaluing the euro is ridiculous. Yet, that’s the battle cry of the day.
Bloomberg reports France Asks for More Action From ECB to Correct Overvalued Euro.
French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.
‘The monetary policy has started to change,’ Valls said today in a speech made at the Socialist Party’s summer school in La Rochelle, France. While he called the ECB’s package of measures taken in June a ‘strong signal,’ he also said that ‘one will have to go even further.’
Valls’s comments come after ECB President Mario Draghi, who’ll meet French President Francois Hollande tomorrow in Paris, signaled that declining inflation expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.

This post was published at Global Economic Analysis on Sunday, August 31, 2014.

The Eurozone Is a Growing Problem for U.S. Economy

The 18-nation euro-zone is the largest economy in the world, eclipsing that of the U. S. The euro-zone is the largest trading partner of the U. S. (the largest importer of U. S. goods, the largest exporter of goods to the U. S.). The euro-zone is in an economic crisis. Its recovery from the 2008 global financial collapse has been as anemic as that of the U. S., in fact more so. The euro-zone already slid back into recession once. And its economy was barely positive in the first quarter of this year, growing only 0.2%. It slowed further to 0.0% quarter-over-quarter in the second quarter.
Worse, Germany, the euro-zone’s largest and previously strongest economy, unexpectedly saw its economy contract to negative -0.2% in the second quarter. France, the second largest euro-zone economy, saw its growth slow to 0.0% for the quarter. Italy, Europe’s fourth largest economy, slid back into recession, its GDP at negative 0.8% in the second quarter, its second straight quarterly contraction.
Reports this week indicate the problems are worsening in the third quarter.
Retail sales in Germany plunged 1.4% in July, after declining 0.4% in the second quarter.
Germany’s Ifo business confidence index fell in August for the fourth straight month, to its lowest level since July 2013. Market research group GfK reported its German consumer expectations index ‘collapsed’ in August to its most pessimistic level since 1980. Perhaps for good reason, since the overall euro-zone’s unemployment rate remained in double-digits at 11.5% in July, just 0.5% lower than its peak of 12% in 2013.

This post was published at FinancialSense on 08/29/2014.

Contra Krugman, Europe Shows Benefit of Lean Government

The great thing about Paul Krugman is that you just need to let him tie the rhetorical noose with which he hangs himself. The funniest example is when he asked a group of Canadians in a live forum whether they liked their government health care, and it blew up in his face. Another good one was when I showed (in the final section of this article) the failure of two of Krugman’s empirical ‘tests’ of the Keynesian demand-side explanation. In the current post, I’ll show once again that Krugman’s own choices – this time regarding ‘austerity’ in Europe – illustrate the bankruptcy (both figuratively and literally) of Keynesian fiscal analysis.
Krugman on Europe
In a post titled, ‘What’s Wrong With France?’ Krugman posts the following chart and then comments:

This post was published at Mises Canada on Friday, August 29th, 2014.

Largarde under Criminal Investigation for Corruption in France

Christine Lagarde has long been suspected of corruption yet of course the International Monetary Fund’s (IMF) board proclaimed they firmly stand behind her because she has raised the stature of the IMF to a world player once again thanks to Obama and their joint agenda to raise our taxes to 80% and confiscate 10% of everyone’s bank account to pay for the bankers. Christine Lagarde is facing a criminal investigation in France that is tied to a political corruption probe dating from 2008.
The allegations by French magistrates earlier in the week placed Lagarde squarely under formal investigation for ‘negligence’ after questioning her in Paris for a fourth time.

This post was published at Armstrong Economics on August 29, 2014.

French Government Dissolves in Dispute Between PM Valls and Economy Minister Montebourg

Economy minister Arnaud Montebourg stepped over the line last weekend criticizing the policies of president Francois Hollande. Some sources report that prime minister Manuel Valls gave Hollande a “him or me” ultimatum, but Valls disputes that claim.
Regardless, France Thrown Into Political Turmoil After Government Dissolved.
France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government’s resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany.
The prime minister, a social democrat who has been compared to Tony Blair, acted with characteristic swiftness in a bid to reassert his authority. His aides had let it be known on Sunday that the economy minister, Arnaud Montebourg, had crossed a “yellow line” for his dual crime of criticising both the president of France and a valued ally.
Montebourg, 51, fired his first broadside in an interview with Le Monde on Saturday and followed up with a speech to a Socialist party rally the following day. In a veiled reference to President Franois Hollande, he said that conformism was an enemy and “my enemy is governing”. “France is a free country which shouldn’t be aligning itself with the obsessions of the German right,” he said, urging a “just and sane resistance”.

This post was published at Global Economic Analysis on August 25, 2014

Russia Dumping US Treasuries? But Why the Heck in Belgium?

Belgium is known for its surprises. For example, it got by amazingly well for a couple of years without a national government, and without breaking apart, to the endless chagrin of a lot of people. And it has a great variety of delicious beers, which I amply tested during the three years I was there. But now, that tiny country with a tiny economy is suddenly piling up a mountain of US Treasuries.

In March, according to new data from the US Treasury Department, it added another $40.2 billion to its existing mountain of Treasuries, now at the dizzying height of $381.4 billion, or 79% of GDP!

Read more …

Jim Kunstler’s 2014 Forecast

Over at ZeroHedge, Jim Kunstler’s latest post on his forecast for 2014 is a MUST READ!!  Readers should greatly benefit from his astonishingly honest take on everything from the shale oil sham to last year’s gold slam.  He even gets into Obamacare, Bitcoin the Euro crisis and the middle east.

Excerpt: Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations.

Read the entire article at ZeroHedge.

Jim Rickards: The Fed’s Using the Wrong Models

James Rickards, author of Currency Wars, gave the following presentation at The Future of Money 2.0 in Bratislava, Slovakia on September 26, 2013.  A week later, Rickards gave the same presentation, though significantly abbreviated, at the Casey Research Summit in Tucson, Arizona.  In the presentation, he covers:

  • US Defense Department’s exercises in financial warfare.
  • Historical currency devaluations by countries to gain trade advantages.
  • Historical examples of re-establishing a gold standard after a currency collapse.
  • The current situation of Inflationary and Deflationary forces working against each other – an unstable situation.
  • Irving Fisher’s (and later Milton Friedman) theory of economics (Quantity Theory of Money … M x V = P x Q).
  • QE, Operation Twist, etc. have had no affect because money velocity is not responding.  2014 may bring efforts to put money directly into the hands of the people (e.i. Tax Cuts).
  • Complexity Theory may provide a better model for the Fed, as it shows that the economic system has become increasingly more interconnected across sectors.  It actually predicted the 2008 collapse and, unfortunately the model is even more densely integrated today, indicating a worse crash ahead.
  • The potential remedies the Fed or the IMF might enforce in response to the next collapse.

140 Years of Monetary History (In 10 Minutes)

Here again is Mika Maloney from GoldSilver.com with a great (and quick) review of what’s happened to the global monetary system in the last 140 years.  Mike explains how the world’s monetary system went from the classical gold standard in the late 1800’s to the floating fiat paper being used today.  Also quite interesting is the observation that the world’s monetary system seems to change approximately every 40 years. America’s “good as gold” dollar became the world’s reserve currency after World War II and has enjoyed its status as the world’s reserve currency.  After Nixon removed the dollar’s tie to gold in 1971, it freed the Federal Reserve & US Treasury to allow money to be created without limitation.  But now, too many dollars have been printed so we may be about to see another change in the global monetary system.

Doing The Math

Grant Williams is a strategy adviser for the hedge fund, Vulpes Investment Management in Singapore, as well as the blogger behind the popular Things That Make You Go Hmmm….  In the following video, Williams reviews the disconnects between the economic realities that exist in today’s world and the rosy pictures painted by governments, central banks and the main stream media.

  • Williams’ problem #1: The disconnect between fundamentals and equity prices.
  • Williams’ problem #2: The paradox behind China’s mysterious GDP growth during a time of reduced manufacturing, shrinking demand for raw materials and declining imports/exports
  • Williams’ problem #3: How is France able to sell its sovereign bonds at such low interest rates when all indications of its own economy are performing like those of the European periphery?
  • Williams’ final problem: The difference between the “Gold Price” and “The Price of Gold”

In the end, the laws of mathematics cannot be subverted by governments or central banks.  Central banks’ zero percent interest rate policies are damaging:

  • In the short term through the confiscation of savings and the forcing into riskier investments in the search for yield
  • In the long term by suppressing market volatility, which must be reconciled at some point


Mathematics, rightly viewed, possesses not only truth, but supreme beauty – a beauty cold and austere.
– Bertrand Russell

On Germany’s Gold Repatriation

Conspiracy theories are only theories until they become conspiracy facts.  The straws are blowing in the wind as this main-stream CNBC panel discusses the reasoning behind Germany’s gold repatriation. The Bundesbank (Central Bank of Germany) recently stated they have plans to move their gold held at other central banks back to the Father Land.  This includes moving 374 tonnes from France’s Banque de France & 300 tonnes from the New York Federal Reserve Bank.  Could it be that, as Pimco’s Bill Gross opined, that the central banks of the west are starting to lose faith in one another?

A Peace to End All Peace

 

A Peace to End All PeaceIt seems that current news always has some report of violence and disorder in the middle east. And yet few people in the western world truly understand the middle east, let alone it’s geographically disbursed nation states. The boundary lines creating the middle eastern countries were imposed on the people that lived there and the western world believed those people couldn’t govern themselves so they attempted to do it for them. This is the real reason there’s no peace in the middle east!  Imagine some foreigner coming to your residence and taking over your way of life.

This book, by David Fromkin, focuses on the era of World War I and describes how the “great powers” carved states out of the Ottoman Empire to create what we know today as the middle east.  It details the intrigue and secrete treaties these powers (Britain, France, Russia, Italy, among others) entered into in order to secure their part of the middle eastern pie.

Prior to the war, the Ottoman Empire was ruled from Constantinople – what is today Istanbul, Turkey. Though there was an official Sultan for outward leadership, in 1913 a group of secret society brotherhoods rose and formed the true governing power known as the Young Turks or Committee of Union & Progress (C.U.P.). Enver Pasha is perhaps one of the most famous of this clan and indeed is extremely active in this historical reference.  Enver married the Sultan’s daughter and became an important political and military leader within the Ottoman Empire.

The Ottoman Empire stretched from the western end of Turkey all the way east until reaching India and south until the end of the Saudi Arabian peninsula. But even though this huge area was ruled by the Turks, there were several non-Turkish tribes of the Arab descent disbursed among the lands.  All of these tribes didn’t necessarily get along with each other, nor did they fully submit to the rulership of the Sultan. But a common theme was that they would rather be ruled by a moslem Turk, rather than a Christain westerner.

Britain wanted to keep it’s land route clear to India by way of a straight line from Palestine. In addition, a buffer zone was required in order to secure the land route from Russia, which required land to be held in the Syrian and Mesopotamian areas.  And, of course, it was necessary to maintain the control of the Suez Canal, which meant the occupation of Egypt.

France had both business and religious-based desires in what is today Lebanon and Syria.  Greece and Italy had designs on parts of Anatolia as well and wanted to expand their own nations.  Russia was eager to have some control, or at least access to, the great port of Constantinople in order to allow sea routes to the Mediterranian.

The Young Turks, however, were mainly interested in holding their vast empire together – they didn’t want to have it divvied up among the western powers who’d been colonizing in their lands.

When World War I broke out, the Ottoman Empire wanted to stay out of it, but ended up scheming to find a major power in which to ally with in order to prevent its empire from being broken up.  The Young Turks approached almost all the great powers only to be turned down. No one thought the Ottoman Empire was worth partnering with – it didn’t seem like it had much to offer and was considered insignificant because the war’s strategic importance currently centered on the western and eastern fronts within mainland Europe.

However, this all changed when Germany learned that Britain was about to deliver two top-of-the-line battle cruisers to Turkey.  If Germany could add these to their own arsenal, it may be some benefit to the overall war effort. So, the Young Turks found their ally in Germany. (Even though right after the treaty was signed, it was learned that Winstin Churchill, then Lord of the Admiralty, had decided not to deliver the two warships and witheld them for Britain’s own use.)

During and after the war, the great powers continued to deal with each other for the rights to occupy and control certain areas within the Ottoman Empire. Britain sought to control Palestine by partnering with Zionists who wanted to settle a new Jewish home land. In Jordon and Iraq, Britain installed Hashemite leaders Abdullah and Feisal Hussein, sons of Hussein bin Ali, Emir of Mecca, within the Hejaz region of what is today, Saudi Arabia.

In Persia there were conflicts between Britain and the new Soviet Russia. Britain had installed a subsidized ruler, Ahmed Shah, along with a powerful military leader, Reza Khan. Nevertheless, the Persians formally cut ties with Britain and signed treaties with Soviet Russia instead. It was a similar situation for Turkey and Afghanistan – Soviet Russia entreated with them and denied British desires.

Britain faced challenges from France on control of Lebanon and Syria. Britain had attempted to install Feisal, but France was able to dethrone him and take complete control of the area.

On a quest for imperialism on the field of the Great Game, the western powers have created all the problems we see in the middle east today.  The peace settlements at the end of World War I, which divided up the Ottoman Empire’s lands, truly was A Peace to End All Peace.