Real GDP Per Capita: Another Perspective on the Economy
by Chart School - July 22nd, 2012 11:35 pm
Courtesy of Doug Short.
On Friday we learned that the Advance Estimate for Q2 real GDP came in at 1.5%, down from the upward revision of 2.0% for Q1. Let’s now review the numbers on a per-capita basis.
For an alternate historical view of the economy, here is a chart of real GDP per-capita growth since 1960. For this analysis I’ve chained in current dollars for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale.
I’ve drawn an exponential regression through the data using the Excel -GROWTH() function to give us a sense of the historical trend. The regression all illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 10.3% below the regression trend.
The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession. In fact, at this point, 17 quarters beyond the 2007 GDP peak, real GDP per capita is still 1.87% off the all-time high following the deepest trough in the series.
Here is a more revealing snapshot of real GDP per capita, specifically illustrating the percent of the most recent peak across time, with recessions highlighted. The underlying calculation is to show peaks at 0% on the right axis. The callouts shows the percent off real GDP per-capita at significant troughs as well as the current reading for this metric.
Quarterly GDP Compounded…
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The Russian Default Scenario As Script For Europe’s Next Steps
by Zero Hedge - July 22nd, 2012 8:10 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Nicholas Bucheleres of NJB Deflator
Russian/Euro Credit Crisis Analog
Below is the second half of a timeline on the Russian/Asian Credit Crisis of the late-90s that I amended with what I think are the analogous happenings of the Euro Crisis. Italicized text is the Euro Crisis equivalent of the Russian analog; full Russian Crisis timeline can be found here. No event has been rearranged, removed, or edited, so there are some temporal discontinuities between the months leading up to the Russian default and the current Euro Crisis, but the resemblance is remarkable.
Russia and the southeast Asian countries are analogs for Greece, Spain, and Cyprus, with no particular association between their references within the timeline. The timeline runs through the Russian pain; things begin to turn around after the timeline ends.
This is meant to serve as a reference point: In retrospect it was clear throughout the late-90s that Russia would default on its debt and spark financial pandemonium, yet there were cheers at many of the fake-out “solution” pivot points. The Russian issues were structural and therefore immune to halfhearted solutions--the Euro Crisis is no different. This timeline analog serves as a guide to illustrate to what extent world leaders can delay the inevitable and just how significant “black swan event” probabilities are in times of structural crisis.
It seems that the next step in the unfolding Euro Crisis is for sovereigns to begin to default on their loan payments. To that effect, Greece must pay its next round of bond redemptions on August 20, and over the weekend the IMF stated that they are suspending Greece’s future aid tranches due to lack of reform. August 20 might be the most important day of the entire summer and very well could turn into the credit event that breaks the camel’s back.
*UPDATE: Over the weekend Germany’s Roesler said he was “very skeptical” that Greece can be rescued.
Analog runs through August 13, 1998--the point to where I believe the Euro Crisis has evolved. What happens after that in Russia may stand as a strong indicator of where things will head in the coming weeks/months in Europe.
May 21, 1998
[Indonesian President] Suharto resigns after 32 years in power. Vice President Habibie succeeds as president.
Greek leadership shake-up over…
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T-30 Days To 10Y Treasuries Yielding Less Than 1%
by Zero Hedge - July 22nd, 2012 6:57 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
While many have discussed the extreme analogs of the last few years in equity market performance, few have looked at the relative performance of the most explicitly impacted asset class of Central Bank largesse – the US Treasury bond market. Based on the almost perfect correlation between 2010, 2011, and this year’s yield movements over the past few months, traders could be forgiven for considering that the 10-year yield will be below 1% by the end of August – no matter how many times they are told “but rates cannot fall any more” or this time it’s different. One has to wonder just how long the Fed can control this herding of cats (by forcing everyone to front-run it) and what the hyper-inflating solution to asset-deflation expectations will look like this time.
Absolute performance of 10Y Treasury yields for each of the last 3 years…
Charts: Bloomberg
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Key Events In The Coming Week: Stalling Global Q2 GDP Update
by Zero Hedge - July 22nd, 2012 6:38 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
From Goldman Sachs
Week in Review: US GDP tracking at 1.1%qoqann
US data was the focus of the past week, with a slew of key data releases. In terms of hard data, retail sales for June were much weaker than expected, IP was a touch stronger and CPI in line. The Philadelphia Fed survey was a touch weaker than consensus expectations at -12.9. We ended the week with US Q2 GDP tracking at 1.1%qoq.
The week also brought two key cross-border flow updates, the US TIC data and Euro area balance of payments, both for May. The US TIC data revealed a doubling of inflows to US$50.0bn, overwhelmingly driven by foreign buying of USTs. At the same time, net equity flows remained negative to the tune of $9.3bn. The Euroland balance of payments revealed a small BBoP surplus, reflecting FDI inflows and foreign buying of Euroland bonds. It remains the case that the Euroland external balance is stronger than that of the US. Typically this would be a key driver of EUR/USD, however the flow dynamics have been dominated by short positioning on the back of the European situation and relatively easier monetary policy from the ECB.
Away from the data, possibly the biggest focus of the week was the ongoing exponential rise in soft commodity prices, with the prices of wheat, corn and soybean racing to new all time highs. Brent also rose in price, but it remains well below historical highs, but rice prices, which are important for Asian inflation are basically flat on the week. As yet, there is little obvious spillover from rising agricultural prices into other asset classes. In principal the rise in soybean prices should be positive for the BRL, given that Brazil is one of the top soybean exporters, however the currency has not reacted. Given the rise in price of agricultural products reflects a severe drought in the US and other parts of the world and therefore represents a supply shock, they are likely to remain a focus of attention.
Week Ahead: How weak was Q2? How strong will Q3 be?
The week ahead brings a batch of Q2 GDP prints, which will provide guidance on the strength of activity in that quarter, as well as a bunch of business survey data which will…
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Why A 9-Year Trade-Weighted Low In The Euro Won’t Help EU GDP
by Zero Hedge - July 22nd, 2012 5:56 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
The euro has depreciated to its lowest level in nearly nine years when measured in trade-weighted terms. Common wisdom is to assume that this might trigger a GDP forecast upgrade for the common currency area. UBS says “no”, while at first sight, this ‘devaluation’ should boost output, the exchange rate response is simply part of the bigger, well-known picture of economic stress in the common currency region. Simply put, the currency has depreciated on fear and risk aversion – and economic growth tends to suffer rather than flourish in that environment – and furthermore, the two structural measures that help determine the outlook for the currency – the internal balance (output gap) and the external balance (current account) – point to further weakness.
UBS: Euro depreciation: Implications for GDP
The euro has depreciated to its lowest level in nearly nine years when measured in trade-weighted terms. Clients have asked if this might trigger a GDP forecast upgrade for the common currency area. The short answer is no; the currency has depreciated on fear and risk aversion – and economic growth tends to suffer rather than flourish in that environment.
The euro has depreciated by 15% since its recent peak in October 2009. The depreciation is, in fact, exactly in line with our forecast, which is for the EURUSD to drop further to 1.15 by the end of this year and to 1.10 by the end of next year.
At first sight, this should boost output, but the exchange rate response is simply part of the bigger, well-known picture of economic stress in the common currency region. Our asset allocation team highlighted this point in their latest piece, with a compelling chart that shows a tight relationship between the value of the euro and the relative size of the ECB’s balance sheet (Chart 2). The ECB’s balance sheet has expanded much faster than the Fed’s, and this is simply because the eurozone economy and its banks remain troubled (sounds familiar).
This evaporation of confidence in parts of the European banking sector has a direct impact on the real economy, including through a higher cost of capital for companies and from tougher credit conditions for loans. The Spanish, Italian, Greek and Portuguese economies are in recession, and…
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Greece’s Tsipras Calls For ‘Drachmatization’ Instead Of TROIKA “Longer Rope To Hang Ourselves”
by Zero Hedge - July 22nd, 2012 5:08 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
EURUSD is down over 50 pips from Friday’s close, about to test a 1.20 handle for the first time in over 25 months, as headlines pour from the beleaguered disunion. The AP reports of the German vice-chancellor’s “more than skeptical” view that Greece can fulfill its obligations; after which “there can be no further payments” seemingly confirms our earlier note on the IMF’s reluctance (and dismisses any hope that the IMF’s call for more ECB ‘assistance’ will go unheeded. More worrisome is the Athens News story on Alexis Tsipras (leader of the Greek Syriza party) forecasting that the government will “soon present a return to a national currency (drachma) as a national success.” He went on to state rather honestly for a politician that any payment extension (of the already re-negotiated TROIKA deal) is “essentially a longer rope with which to hang ourselves.” The elite-perpetuating status-quo-sustaining unreality is summed up perfectly as he notes the Greek finance minister is the definition of a finance minister that the TROIKA would have chosen. Germany’s Roesler adds a little fuel to the conflagration by adding that “for many experts,… a Greek exit from the eurozone has long since lost its horror.”
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Men in Black to seize Spanish Regions
by Zero Hedge - July 22nd, 2012 4:59 pm
Courtesy of ZeroHedge. View original post here.
Submitted by thetrader.
As our readers should know, we have been overly bearish with regards to the Spanish Economy. The main problem, still not covered by any economic researcher, is the great Spanish denial. With politicians, policy makers, business managers etc denying the state of the economy, the problem Spain faces will ultimately be much bigger than if you would deal with the problem. Valencia “came clear” on Friday, and expect more regions to follow. Murcia’s president is putting the whole problem rather clearly. From El Mundo.
“Let no one think they’re going to give away money” , said Valcárcel, who has predicted that “it would ask for between 200 and 300 million” but specified that is not yet fixed the exact amount requested to fund the Murcia region created by the Government to help the regions.
Murcia President said that “in practice”, all regions are taken over, as he explained, the State “forced” to make decisions that will not normally be taken.
“All regions can be tapped, because if you do not meet the deficit, the state forces you to take action and that is the intervention,” he said.
“There will come a few gentlemen dressed in black with a briefcase, wearing sunglasses, to get us out of the offices to clean slap” incident Murcia President, who asked whether he would resign if there is intervention, considers that Zapatero and then Rajoy “should have resigned several times.”
In this sense, states that as a community “belong to a state that requires you to take action and as a country, belong to a union of states that also forces you to apply for the general good.”
By Given this situation, expressed his respect for the demonstrations against the cuts are happening, but thinks that “could have been done before.”
In his view, “demonstrating against a government that makes decisions and they did against other Government which denied the crisis. The end is installed in people the idea that the crisis has caused Rajoy.” But adds, in a row, what is clear is that people “is very angry and is within their rights” because “when you work more and get paid unless you get mad.”
He believes that what is pissing people is the…
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Guest Post: Spain’s Banking Reform Is A Bailout Of The Status Quo
by Zero Hedge - July 22nd, 2012 4:00 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by J. Luis Martin of the Truman Factor (via El Confidencial),
If a couple of months ago we warned about the eerie similarities between Mexico’s 1994 financial fiasco and what is now taking place in Spain, the latest details on the Spanish financial sector bailout continue to remind us not to underestimate politicians’ readiness to undermine whatever is left of a free market capitalist system.
A bad “bad-bank”
According to El Confidencial, and as per the latest draft of the European Commission MoU, the plan to cleanse the Spanish banking sector of its toxic assets by means of transferring them into “bad banks” has a new twist: instead of reflecting such assets’ real market value, the idea is to impose a markup (based on an estimated “long-term value”) to minimize losses. In essence, the Spanish government aims to fix real estate prices for over the next 10 years.
The problem is that Spain’s hugely inflated real estate sector will not see any type of recovery until property values truly reach bottom – and even plunge under replacement costs in some areas. This, unless, the government also plans to force investors to buy overpriced assets by law. One never knows.
The “bail-in” alternative
Economist and Director of Spain’s Juan de Mariana Institute, Juan Ramón Rallo, has suggested a “bail-in” formula to effectively restructure and recapitalize the financial sector in a more transparent and fair manner: to convert the banks’ subordinated debt, as well as some of their senior unsecured debt into equity.
Rallo’s formula does not come free of pain, however, as it would severely hit shareholders, creditors, and small investors such as depositors who bought into obscure securities. However, this is how failure should take place in a free market system. This is also how most businesses deal with failure and learn from mistakes.
Certainly, the resulting bank owners under Rallo’s proposed “bail-in” would learn the lesson of the dangers involved in placing politicians and ballet dancers on banks’ boards.
Bailing out the status quo
In contrast to Rallo’s “bail-in” proposal, the current Spanish banking sector reform is aimed at bailing out and protecting those who have benefited from the practices which caused the problem in the first place: the political class, inefficient regulators, as well as private companies…
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No More Mr. Nice Guy As IMF Set To Kick Out Greece
by Zero Hedge - July 22nd, 2012 3:15 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
It appears that following the resignation letter fiasco from Friday, the venerable IMF is trying to regain some level of credibility in the world. In a note obtained by SPIEGEL, senior IMF officials patience has clearly come to an end and has decided that, with Greece likely to go bust by September, it is no longer willing to provide additional Greek aid (we assume in light of the push-backs on the promised cuts that the aid was based upon). Pointing to this now being a euro-zone problem, their cessation of Greek aid is even more critical since both Holland and Finland pledged support because the IMF was involved. August 20th marks an important short-term hurdle as Greece is required to pay back EUR3.8bn to the ECB – and with collateral being withdrawn, we wonder how long before the ECB pulls the plug entirely – even on Greek T-Bills. Whether this is sabre-rattling before the delayed TROIKA visit or the IMF (and the rest of the TROIKA) indeed deciding enough is enough and realizing finally that more debt (or even maturity extensions) does not solve the problem of too much debt – only default will do that!
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On FX
by ilene - July 22nd, 2012 3:00 pm
Bruce Krasting: On FX
I’ve been running a short EURUSD for the past six weeks. I got in at 1.2650 (Link) on June 30, and doubled up on July 8 at 1.2260 (Link). I was delighted to see the Euro get cheap in Friday’s trading, but the market action forced a decision. I wrote some things down on a pad, thought about it a bit, and said, “Screw it”, and cut the whole position. Here's some of my thinking:
I hate trading FX at the end of July. The markets shut down with the approaching European August vacations. The last week of the month is about cleaning up positions, not putting new ones on. August is never a time to be involved, unless you have to.
There was something odd about the EURUSD trading Monday through Thursday. Tyler Durden, at Zero Hedge, made note of this (Link).
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The red arrows that Tyler drew bother me.
This stinks of “official guidance.” It’s tough to make a buck at the FX casino; it’s tougher still when the tables are rigged.
In May and June the Swiss National Bank (SNB) bought CHF 110Bn worth of Euro’s. That’s a staggering amount. I’m convinced that the intervention was heavy in July as well. Reserves are headed up another CHF 50Bn. I think these numbers still understate what is happening, as the SNB has been writing calls on the Franc.
In the course of just three months, ¼ Trillion Euros have crossed into the Alps. This is unsustainable. At some point it will have to result in a messy blow up. But not necessarily in the month of August.
I don’t think the SNB is going to fold its cards just because they are under attack. If the SNB were to quit intervening, the EURCHF would be nearing par in a matter of days. The cost to the SNB would be CHF40Bn (15% of GDP).
Before taking a loss of this magnitude, the SNB, (with the blessings of the government), would implement a variety of exchange controls. I think this is a something that could come sooner than the market believes.
It is my understanding that there is significant macro hedge fund positioning in the EURCHF. I don’t believe that the SNB is…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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