by ilene - August 21st, 2014 10:03 am
Submitted by Tyler Durden.
Following July's drop in US Manufacturing PMI (and biggest miss in 11 months), August's Flash print hit 58.0 – its highest since April 2010, beating expectations of 55.7 and up from the 55.8 July final print. With China (biggest PMI miss on record) and Europe (13-month low PMI) both disappointing, the world needed some help and the US 'soft' survey offered it up in spades… Production levels surged, employment rose at the fastest pace since March 2013, and new orders picked up once again.
This was the biggest beat on record – well above even the highest economist's estimate. Mission Accomplished…
Biggest beat on record – well above even the highest economist's estimate.
To April 2010 highs…
Well above even the highest economist estimate…
Highlights from the report:
- Manufacturing PMI rebounds sharply from July’s three-month low
- Output and new orders both rise at faster rates
- New export business increases at steepest pace for three years
- Employment growth accelerates to strongest since March 2013
And as Markit concludes:
“Overall, with job hiring gathering momentum and input buying expanding at the sharpest pace for at least seven years, it seems US manufacturers are increasingly confident that the recovery is firmly back on track and are gearing up for a sustained rebound in production schedules over the months ahead.”
So job done Fed, or will Yellen continue pointing out all those weaknesses we first observed in 2010 (part-time jobs, no wage growth) as the alibi for the Fed to continue pumping stocks to higher record highs before it is content that its job is done? More color tomorrow when Yellen speaks.
Charts: Bloomberg and Markit
by ilene - August 21st, 2014 2:53 am
Courtesy of Mish.
The spin in media reporting, in both directions (but typically bullish), is pervasive.
Here is a case in point. Markit reports Japan PMI Points to Strongest Manufacturing Expansion Since March.
Does “strongest since March” mean “strong”?
Here are the Key Points:
- Flash Japan Manufacturing PMI™ at 52.4 (50.5 in July). Modest improvement in growth registered in August.
- Flash Japan Manufacturing Output Index at 53.2 (49.8 in July). Output increased at solid pace.
A few charts will put this into perspective.
click on chart for sharper image
It seems to me that Japan has been treading water above and below the 50-50 expansion-contraction line for years (mostly below since 2007).
Will this surge prove to be more lasting than any of the others?
If so, please don’t credit Abenomics. Instead, I propose the recovery is due to trend exhaustion, in spite of Abenomics.
Mike “Mish” Shedlock
by ilene - August 21st, 2014 2:48 am
Rex Nutting argues (below) that Americans are stashing record amounts of cash in safe, low-interest bank accounts and money market funds (The 10.8 trillion failures of the Federal Reserve). In Rex's opinion, this "hoarding" represents a failure by the Fed to push people towards more risky assets rather than safe, low interest accounts.
For a counterargument, read CULLEN ROCHE of Pragmatic Capitalism's There Isn’t $10.8 Trillion “Stuffed Under Mattresses” Because of QE.
Courtesy of Joshua M Brown, The Reformed Broker
A popular tale financial pundits and Fed critics like to tell around the campfire is that the Fed’s ultra-low rate policies have led to a speculative mania that has Americans chasing down risky investments for higher yields from sun-up til sundown. The “Chase for Yield” is, according to some, about to be our undoing – just look at the tremors caused by the early August blip of selling in the junk bond market for the latest evidence of this.
But what if the data suggested that, while many are ramping up their allocation to riskier assets, the lion’s share of people were not. What if it turned out that most people are doing just the opposite of “chasing” higher yields?
via MarketWatch (emphasis mine):
Data from the little-noticed financial accounts report show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest. At the end of the first quarter, low-yielding assets totaled 84.5% of annual disposable personal income, the highest share in 23 years. Sure, people need to keep some money handy to pay their bills and some folks might have a few hundred or a few thousand in a rainy-day fund, but no one needs immediate access to the equivalent of 11 months of income. In essence, there’s $10.8 trillion stuffed into mattresses. That $10.8 trillion hoard represents a failure of Fed policy.
Since the Fed began quantitative easing in September 2012, U.S. households have socked away $1.17 trillion in their low-yield accounts. That means that 95% of the Fed’s $1.24 trillion QE3 ended up not in bubbly markets but in a safe and boring bank account.
But don’t let that alter your narrative, which by now is probably immaculately delivered and quite compelling.
Picture by ariesa66 at Pixabay.
by ilene - August 21st, 2014 1:41 am
Courtesy of Mish.
Chinese manufacturing is once again treading water, barely above contraction according to the HSBC Flash China Manufacturing PMI.
- Flash China Manufacturing PMI™ at 50.3 in August (51.7 in July). Three-month low.
- Flash China Manufacturing Output Index at 51.3 in August (52.8 in July). Three-month low.
click on chart for sharper image
Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said …
“The HSBC Flash China Manufacturing PMI moderated to 50.3 in August, down from 51.7 in July. Both domestic and external new orders rose at slower rates compared to the previous month. Meanwhile, disinflationary pressure returned as input and output prices contracted over the month. Today’s data suggest that the economic recovery is still continuing but its momentum has slowed again. Therefore, industrial demand and investment activity growth will likely stay on a relatively subdued path. We think more policy support is needed to help consolidate the recovery. Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity.”
Mish Translation of Comments
China PMI has gone nowhere. The last uptick Qu raved about is now in the ashcan. Thus, Qu wants more “policy support” AKA loose money from the China central bank to “consolidate the recovery“.
Mike “Mish” Shedlock
by ilene - August 20th, 2014 5:42 pm
Courtesy of The Automatic Earth.
Dorothea Lange Salvation Army, Minna Street, San Francisco, California. Apr 1939
When I think about what an American president should do, and should be, the first thing that pops into my mind is (s)he should be a peacemaker. It would seem to be the no. 1 requirement for someone who’s the leader of the most powerful nation on the planet, and therefore the leader of the free world.
If that person is not a peacemaker, if (s)he is not focused on diffusing trouble and violence when and where they rear their ugly heads, how could the entire world possibly not be in a state of perpetual warfare? But here we are, there’s no such American leader in sight, and the prospects of one appearing anytime soon are zero.
Despite what anyone might say or claim, and many will do just that, today America makes war, not peace. A lot of people tell a lot of stories of how and why the American Empire is winding down, but they’re usually talking about the US dollar or energy resources or the rise of China.
For me, it’s the failure of the strongest power in the hood to maintain peace and calm, that tells the story in the clearest terms. If the leader doesn’t just not keep the peace, but actively ignites battles, all the rest are doomed to fight amongst each other until either the end of time, or the end of the leader’s prominence, whichever comes first.
Today, as we look at what goes on in Ukraine, Iraq, Syria, the Gaza Strip, there’s no way we can say the US hasn’t had a stoke-the-fire role in each of these conflicts, and in most cases has even been the main instigator. If you’re the biggest bully on the block, and you keep on bullying people, your days are numbered. It’s the law of the jungle.
Once you’re on top, expectations and responsibilities change. You just went from conquering the fort to holding the fort. And that change is very hard to make. Then again, it’s not as if no-one in 20th century American history ever had an idea of how it works. Robert Kennedy. Ron Paul.
by ilene - August 20th, 2014 5:29 pm
Surely, in 1999, everyone was both aware and excited about the milestones in the market – if we were anywhere near a mania-like atmosphere, wouldn’t we be seeing something similar today?
But instead of wall-to-wall market coverage – there was just about nothing. Most business sections mentioned it, but the stock rally didn’t make the front cover of anything. And even the mentions were skeptical in nature, there was precisely zero ebullience to be found in the mainstream press. (See ‘Meanwhile on Main Street…’)
Sorry, no bubble without an accompanying mania – bubbles are never just about price, but about investor behavior as well. The people who got this wrong, and were without the context of what a real bubble looks like, ended up missing out substantially.
And the funny part is that this disinterest in stocks continues to this day.
This week we learned that only 7% – SEVEN PERCENT – of Americans are aware that the US stock market went up by 30% last year.
This is quite a mania – a mania of apathy.
Gallup (via Jason Zweig):
Election Jackpot Scratch and Sniff: LA Proposes Free Lottery Tickets if You Vote; Romney Says Obama Worse Than Expected
by ilene - August 20th, 2014 4:33 pm
Courtesy of Mish.
Turnout in some Los Angeles elections is so low that LA Considers Giving Citizens Lottery Tickets if they Vote.
With as few as 8% of registered voters showing up to vote in some recent elections, the Los Angeles Ethics Commission has urged the City Council to consider improving turnout with a lottery pilot program. No actual vote would be required, but those participating would have to show up at the polls to participate. There was no decision on what the grand prize for participating in the democratic process. “Maybe it’s $25,000, maybe it’s $50,000,” Ethics Commission President Nathan Hochman told The Los Angeles Times. “That’s where the pilot program comes in—to figure out what…number and amount of prizes would actually get people to the voting box.”
It would seem that almost any prize would draw more voters than are currently participating in municipal elections. Only 23% of registered voters cast ballots in the 2013 mayoral election, according to the Times.
Detractors of that initiative, and the Los Angeles proposal, say it would bring people to the polls who were interested only in the prize, not in the issues.
“That might produce better results,” Fernando Guerra, a researcher at the Center for the Study of Los Angeles at Loyola Marymount University, told Southern California Public Radio. “There is no data to show that uninformed voters make worse decisions than informed voters.”
Los Angeles is also considering a more mundane solution to the problem of voter turnout. It’s looking at moving its municipal elections to even-numbered years to coincide with state and federal elections.
Is there any data that says it matters how people vote?
Speaking of which, look at the pathetic choices in the last presidential election. Romney vs. Obama how did it matter?
Romney Says Obama Worse Than Expected
The laugh of the day is Mitt Romeny Claims Obama Worse Than Even I Expected.
It’s easy enough to cite failures of Obama. There are dozens of them. But at no point in the interview did Romney say what he would have done differently.
For starters, Obamacare is Romneycare no matter how much he tried to distance himself from that simple fact. Would Romney have given arms to Syrian rebels like Hillary proposed? Would the US
by ilene - August 20th, 2014 2:59 pm
Submitted by Tyler Durden.
Nearly a decade after Countrywide was sold to Bank of America in what has become the worst M&A deal of all time, bar none, having resulted in tens of billions of legal charges for Bank of America shareholders, the most recent of which was revealed also minutes ago when Bank of America reached a record $17 billion settlement with the government over the sale of mortgage-backed securities.
Moments ago Bloomberg announced that none other than Agent Orange himself, Angelo Mozilo, is about to be sued. Again, only this time the lawsuit may actually not be tossed or result in yet another DOJ trademark wristslap.
- U.S. SAID READYING LAWSUIT AGAINST MOZILO IN COMING MONTHS
- U.S. SAID PREPARING TO FILE MOZILO LAWSUIT IN LOS ANGELES
More from Bloomberg:
Government attorneys plan to sue Mozilo, Countrywide’s former chairman and chief executive officer, and other individuals using the Financial Institutions Reform, Recovery and Enforcement Act, said one person with knowledge of probe. The law, approved by Congress in 1989 in response to savings- and-loan scandals, gives prosecutors 10 years to bring cases and has less stringent liability requirements than criminal charges.
While U.S. prosecutors have notified lawyers that their clients are targets of civil cases, any suit against Mozilo and other individuals may be more than a month away, one of the people said.
The Justice Department has been focused on wrapping up a FIRREA settlement with Bank of America Corp. for about $17 billion over mortgage bonds inherited from its 2008 acquisition of Countrywide and 2009 purchase of Merrill Lynch & Co. The accord, which may be announced as soon as tomorrow, will penalize the Charlotte, North Carolina-based bank for how securities were marketed to investors, people familiar with the matter have said.
Mozilo said he has “no regrets” about how he ran Countrywide, according to a June 2011 deposition he gave in a lawsuit between the mortgage lender and bond insurer MBIA Inc.
by ilene - August 20th, 2014 2:48 pm
Courtesy of Mish.
In June, the US Supreme Court ruled that Argentina Cannot Selectively Default on a small group of hold-outs demanding full payment on otherwise restructured government bonds.
The problem with the ruling is that if Argentina pays the vulture fund full value, it will have to pay all the bondholders full value, and that would wreck the country again.
In the future, bond agreements will force everyone to go along with a majority decision.
In the meantime, US courts ruled Argentina must negotiate with all the parties, including the vulture funds that own roughly 8% of Argentine debt and demand full payment on it.
The ruling meant, and banks enforced, the all or none principle. Argentina defaulted on all the bonds, not because it wanted to, but because US courts forced that outcome.
In an attempt to circumvent the ruling, Argentina will swap the bonds in question for new bonds. It will then hope to pay the 92% according to the prior workout agreement, leaving the vulture funds in limbo.
With that backdrop it will be easier to understand today's Bloomberg report Argentina’s Bonds Decline on Plan to Offer Local-Law Swap.
Argentina’s bonds sank to a two-month low after the government said it plans to pay foreign-currency notes locally to sidestep a U.S. court ruling that blocked payments and caused its second default in 13 years.
The government will submit a bill to Congress that lets overseas debt holders swap into new dollar-denominated bonds governed by domestic law, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee.
Fernandez’s move flies in the face of orders from U.S. District Judge Thomas Griesa that a swap would be illegal. He has said the nation must pay $1.5 billion to holders of debt defaulted on in 2001 or reach a settlement before resuming payments on restructured notes.
The country’s benchmark restructured bonds due in 2033 fell 2.58 cents to 80.16 cents on the dollar as of 11:47 a.m. in New York, the lowest level since June 19. The price is still above the 74.03-cent average of the past five years. …
by ilene - August 20th, 2014 1:52 pm
Courtesy of Charles Hugh-Smith of OfTwoMinds
As rents climb, developers large and small take out their calculators and dreams of wealth blossom: but no, this is not bubble.
The disastrous blowback from inflating housing bubbles is painfully obvious: as housing becomes unaffordable, households impoverish themselves to "get in now before it's too late;" malinvestment (i.e. McMansions in the middle of nowhere) flourishes as housing becomes a speculative financial vehicle rather than shelter; retirement funds are sold designed-to-default mortgage-backed securities, and when the bubble finally pops, those lured into buying at the top are left underwater, owing more on their mortgage than their house is worth.
But there is one silver lining to housing bubbles: some of the money squandered in the speculative frenzy ends up rehabilitating old buildings or erecting new housing in useful locales.
Let's not overstate this silver lining: a rational, productive set of financial policies would have directed capital into useful construction without the dubious aid of a speculative bubble. Every dollar wasted on a marginal-return housing investment (for example, a shoddy house with Chinese drywall that renders it cheaper to tear the house down than attempt to fix everything that's wrong) is a dollar that could have gone into rehabbing a well-constructed building from a previous era or building shelter that will last 100 years with little maintenance.
But the euphoria and greed of the bubble mindset do serve one valuable purpose: rundown properties that would not attract any investment in more rational times are viewed as undiscovered gold mines in bubbles.
As rents climb, developers large and small take out their calculators and dreams of wealth blossom. This gold-rush mentality quickly spreads to forgotten areas such as small-town Main Streets and abandoned urban zones--for example the Mid-Market area in downtown San Francisco, a seedy stretch of Market Street that is being redeveloped at a furious pace. Decrepit storefronts are being torn down and thousands of new high-rise apartments and condos are being built in their stead.
The tens of thousands of well-paid techies who have flooded into the city in recent years have driven rents off the scale, and so developers of cubbyhole studios are rubbing their hands in anticipation of collecting $3,000 a month for each cubbyhole from Tech Bros earning $10,000 a month.