Alfred Woody's Kewl Blog [ 椼森 ]

Thursday, November 27, 2014

The Mystery Of Surging Q3 GDP Explained And Why Americans Are Suddenly $80 Billion "Poorer"

The final major datapoint of the day was the Consumer Income and Spending data from the US Dept of Commerce's Bureau of Economic Analysis, the same outfit that yesterday shocked everyone with just how much better US GDP was. Well, today, we learned just where the offset came from. Because while on the surface, both income (+0.2%) and spending (+0.2%) missed expectations of a 0.4% and 0.3%, respectively...

... it was the revised data that the US department of data fudging once again showed why it has long since surpassed China.
Behold what is perhaps the most important data series in all of US eco: Disposable Personal Income. We say behold, because there are some rather massive variations between what the BEA reported a month ago, and what it reported today, as relates to all the data issued since March. To wit:

Essentially, the just reported Disposable Persona; Income print of $13.109 trillion as of the end of October, is where according to the old, unrevised data US houshold income was some time in August. Whatever happened to two months of income?
Which brings us to the other all important number: the personal savings rate. At just reported at 5.0%...

... something strucks us: this number was reported at 5.6% last month.
And sure enough, since Disposable Personal Income flows into personal savings, net of outlays, it was clear that American savings would be dramatically impacted as a result of the massive data revision.
Sure enough, this is how the US personal savings rate looked like based on the old and just revised data.

And, the punchline: US savings in absolute terms, an $80 billion decline in savings from the old September print and the latest, post-revision, number of just over $650 billion.

So there you have it: in order to "suggest" that the US economy had grown by a far greater than expected run-rate, the BEA was forced to revise away personal income, and "assume" these had instead been invested in the US economy, in the form of a surge of durable goods purchases. Sure enough, while both incomes and savings tumbled, spending magically surged:

So if that "statistical" amount of money you thought you had saved in the BEA's savings.xls spreadsheet just dropped by 10%, fear not dear Americans: it was all used for a good cause: to fabricate a much stronger than expected Q3 GDP number.
Source: BEA

HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says :

Goldman Sachs Group Inc. (GS) and HSBC Holdings Plc (HSBA) were sued in New York over claims they conspired for eight years to manipulate prices for the precious metals platinum and palladium in what plaintiffs’ lawyers say is the first class-action lawsuit of its kind in the U.S.
Standard Bank Group Ltd. and a metals unit of BASF SE (BAS), the world’s largest chemical company, were also sued. The four companies used inside information about client purchases and sale orders to profit from price movements for the metals used in products ranging from jewelry to cars, according to a complaint filed yesterday in Manhattan federal court.he lawsuit by Modern Settings LLC, a jeweler that buys precious metals and derivatives set on their prices, claims the companies “were privy to and shared confidential, non-public information about client purchase and sale orders that allowed them to glean information about the direction” of prices.
Smilar lawsuits have been filed this year in Manhattan accusing banks of rigging the benchmark price for gold. Authorities around the world are examining the gold market for signs of wrongdoing.regulators tightened scrutiny of benchmarks after uncovering price-rigging in interbank-loan rates and currencies. Silver became the first precious metal to change its traditional procedure in August, and Intercontinental Exchange Inc. (ICE) will run the replacement for the 95-year-old London gold fixing. A new mechanism for platinum and palladium starts Dec. 1.
Read more: http://www.bloomberg.com/news/2014-11-25/hsbc-goldman-rigged-metals-pric...

- See more at: http://xrepublic.tv/node/11329#sthash.v1gY2vo8.dpuf

SHOCK: Can OPEC Breakup Collapse Petro Dollar

Sell, Sell, Sell… The Central Bank Madmen Are Raging… Everywhere The Real World Evidence Points To Cooling Growth, Faltering Investment, Slowing Trade, Vast Excess Industrial Capacity, Peak Private Debt, Public Fiscal Exhaustion, Currency Wars…

by David Stockman

The global financial system has come unglued. Everywhere the real world evidence points to cooling growth, faltering investment, slowing trade, vast excess industrial capacity, peak private debt, public fiscal exhaustion, currency wars, intensified politico-military conflict and an unprecedented disconnect between debt-saturated real economies and irrationally exuberant financial markets.
Yet overnight two central banks promised what amounts to more monetary heroin and, presto, the S&P 500 index jerked up to 2070. That is, the robo-traders inflated the PE multiple for S&P’s basket of US-based global companies to a nose bleed 20X their reported LTM earnings.
And those earnings surely embody a high water mark in a world where Japan is going down for the count, China’s house of cards is truly collapsing, Europe is plunging into a triple dip and Wall Street’s spurious claim that 3% “escape velocity” has finally arrived in the US is soon to be discredited for the 5th year running. So it goes without saying that if “price discovery” actually existed in the Wall Street casino, the capitalization rate on these blatantly engineered earnings (i.e. inflated EPS owing to massive buybacks) would be decidedly less exuberant.
In truth, nothing has changed about the precarious state of the world since yesterday. Except….. except the Great Bloviator at the ECB made another fatuous and undeliverable promise—- this time that he would do whatever he “must to raise inflation and inflation expectations as fast as possible”; and, at nearly the same hour, the desperate comrades in Beijing administered another sharp poke in the eye to China’s savers by lowering the deposit rate to by 25 bps to 2.75%.
Let’s see. Can it possibly be true that European growth is faltering because it does not have enough inflation? Or that China’s fantastic borrowing and building boom is cooling rapidly because the People Bank of China (PBOC) has been too stingy?
The answer is not on your life, of course. So why would stocks soar based on two overnight announcements that can not possibly alleviate Europe’s slide into recession or the collapse of China’s out-of-control investment and construction bubble?
It can’t be a case of debatable data. Europe’s real GDP is no higher today than it was in the third quarter of 2006. Self-evidently, the temporary slowdown in consumer inflation during recent months owing to plunging oil prices and the transient impact of exchange rates cannot possibly explain this long-standing trend of going nowhere.

Indeed, during this same period, Europe’s CPI has risen by nearly 20%. Where is it written or proven that an average of 2% annual inflation causes economic growth to grind to a halt? There is not a shred of evidence for that proposition—so Draghi’s pledge to restore 2%/year shrinkage in the value of the wages and bank accounts of European households cannot possibly mean more growth, more profits and more S&P market cap. In fact, the whole clamor about “deflation” and Draghi’s overnight pledge to do whatever it takes to get inflation rising quickly has to do with a transient blip in the price index during the last 12-18 months. But is this the first time that a shift in the global commodity cycle and the euro exchange rate has caused a temporary dip in short-run consumer price trends? The historic data indicate a resounding no. Historical Data Chart

In fact, the only manner in which weakening inflation could possibly impact short-run real GDP growth is if European consumers were to sharply raise their savings rate, waiting for lower prices tomorrow. This is the hackneyed claim of the Keynesian money printers, of course, but where’s the evidence? After a temporary surge in Europe’s personal savings rate during the Great Recession, it has regressed to its recent historical average, and has remained on the flat line, even as inflation rates have decelerated since 2012.
The idea that the hard pressed households of France, Italy, Spain and even Germany have gone on a buyers strike and are hoarding cash is a flat-out lie. But it is one that suits the convenience of the desperate Keynesian apparatchiks pulling the levels in Brussels and Frankfurt. And, yes, it also makes for the kind of headline policy announcements that robo-traders can snatch with blinding dispatch. No, the problem in Europe is not too little inflation in the short-run; it is staggering levels of taxes, public debt and interventionist dirigisme that represents a permanent, debilitating barrier to growth. Draghi already has driven deposit rates through the zero bound at the ECB deposit facility, and now its spreading rapidly through the banking system to businesses and consumers.
So precisely who will finance this soaring mountain of public debt at negative real returns when the fast money is flushed out of the ECB’s now plummeting euro? The “algos”, needless to say, didn’t get to that question during this mornings frenzied buying. Likewise, last night”s signal from China was a warning to take cover, not to get all giddy in the casino. The People’s Printing Press of China has been on a rampage for this entire century, and has expanded its balance sheet by an incredible 9X since the year 2000.
Now, even the hapless masters of red capitalism taking shelter in Beijing recognize that this colossal money printing spree has fueled fantastic levels of over-building, over-investment and mind-boggling real estate speculation throughout the land.
The fact that—despite their better judgment—-they have had to once again open the monetary spigot is evidence that China’s addiction to the printing press is terminal, and that a hard landing is only a matter of time. No one told the algos that, either. Historical Data Chart

The real downward trajectory in China is tracked by the canary in the iron ore pit. Like almost everything else, China’s iron and steel industry is massively overbuilt. It has 1.1 billion tons of capacity but in the order of 600 million tons of sustainable “sell-through” demand. That is, need for steel for use in consumer products and capital replacement, not the current one-time construction binge.
Stated differently, China’s excess steel capacity is greater than the combined output of the US, Japan and the EC combined. Accordingly, when its real estate and construction bubble finally collapses, the world market will be inundated with cheap steel and every manner of goods made from it, including automobiles. During the current year alone, China will export more steel than the US industry will produce, and it is just getting started on the greatest “dumping” campaign the world has ever seen. Iron Ore Spot Price (Any Origin) Chart

In short, there is a tidal wave of industrial deflation coming down the pike—- owing to two decades of world-wide central bank financial repression that has fueled vast malinvestments in mining, manufacturing, transportation and trade. That, in turn, will trigger a monetary race to the bottom by the central banks—a race that is already underway owing to Japan’s Halloween Massacre of the yen. Soon the rest of East Asia—and especially China— will have to join the exchange rate plunge or find their export based economies hitting the shoals.
Then will come more desperate maneuvers from the ECB, as even the German export machine falters in the face of collapsing growth in China and competitive devaluation all around the world. Stated differently, last night’s central bank announcements were the starting guns for a monetary implosion that will soon shock financial markets and real production, trade, employment and incomes on a world-wide basis.
Someone should reprogram the algos. Otherwise, one of these days they will snatch a headline which says sell, sell, sell!

The Guardian: Swiss Referendum Could Spark Gold Rush

Today I was interviewed by the Guardian on the Swiss gold referendum. Again, I was fortunate to share my opinion with a wide audience.

…The debate has underlined the emotional and arguably romantic pull of the precious metal in an age where less tangible assets dominate.
“Gold continues to trigger impetuous and irrational reactions in many people,” Sergio Rossi, professor of macroeconomics and monetary economics at Fribourg University, told the Swiss news agency SDA.
Others say it has rather emphasized the flaws in the monetary system. “It has shown just how unsustainable the debt-based monetary system we have is,” said Koos Jansen, an Amsterdam-based gold analyst for the Singaporean precious-metal dealer BullionStar.
“The Swiss initiative is merely part of an increasing global scramble towards gold and away from the endless printing of money. Huge movements of gold are going on right now. Recently the Dutch repatriated 122 tons, Germany is bringing home its gold from the US, whilst the Bric countries are accumulating large quantities of it for their banks.
“While those behind the Swiss initiative have often been portrayed as crazy, they’re merely acting out of fear that their central bank is losing control of its monetary policy, and of the Swiss franc being sucked into this currency war and losing its value,” he said.

https://www.bullionstar.com/blog/koos-jansen/guardian-swiss-referendum-spark-gold-rush/
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