Baltic Dry Index. 1869 +28
LIR Gold Target by 2019: $3,000.
Leading active members of today’s economics profession…have formed themselves into a kind of Politburo for correct economic thinking. As a general rule—as one might generally expect from a gentleman’s club—this has placed them on the wrong side of every important policy issue, and not just recently but for decades. They predict disaster where none occurs. They deny the possibility of events that then happen.… They oppose the most basic, decent and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. They do not consider the possibility of a flaw in logic or theory. Rather, they simply change the subject. No one loses face, in this club, for having been wrong.
J. K. Galbraith.
Is it a case of darkest before the dawn or have we just stepped off the pavement into the path of a bus? We open below with the Telegraph’s best economics editor covering recent developments.
Drip after drip of deflation data
By Ambrose Evans-Pritchard Last updated: July 27th, 2010
Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again.
The expectations index for the US 5th District is crumbling:
----- This follows yesterday’s horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. “Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June,” said the bank.
Texas New Orders were -9.6 in July, -8.2 in June, and +15.8 in May.
Capacity Utilization was -0.6 in July, +2.7 in June, and +18.7 in May.
This of course is why Fed chair Ben Bernanke has been giving strong hints of QE2 (helicopters again) if necessary.
Forgive me if I am becoming a “leading indicator” bore but these turning points in the cycle are fascinating. The US Conference Board’s index of consumer confidence fell again in July to 50.4 after plunging in June.
“Concerns about business conditions and the labour market are casting a dark cloud over consumers that is not likely to lift until the job market improves. Given consumers’ heightened level of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season,” said the Board.
This follows the fall in the ECRI leading indicator for last week to -10.5, a level that has always been followed by recession in the post-war era. The Economic Cycle Research Institute is careful not to jump the gun, waiting for further confirming data before issuing a formal recession call that would hurt its credibility if proved wrong by events.
All of this squares with the fall in truck shipments and rail car loadings over recent weeks.
---- But here is a note I received today from Tom Porcelli at RBC Captial Markets that puts uber-bullish earnings rhetoric in a proper context.
It seems like on a daily basis the headlines point to yet another company beating earnings expectations. The tally thus far shows 142 companies out of 172 have surprised to the upside for a significant 8pc beat-rate. On the face of it this seems promising.
But the sales figures (i.e. the part that measures organic growth) have been less than stellar. Thus far, they have shown just over 9pc growth versus last year’s figures. But sales were down nearly -14pc in 2Q09 – hardly a tough comp to best!
While 68pc of companies have beaten sales estimates, this is hardly anything to get overly excited about. Back in 2Q08, 69pc of companies had beaten sales estimates. We all know where the economy headed shortly thereafter.
The numbers should be taken with a grain of salt. Below the surface, the earnings reports continue to confirm what we have been saying – that this recovery is anaemic at best.
Ian in Toronto has sent along a couple of articles too good not to share. Up first, as America rushes into debt at 1.5 trillion a year forever, and the UK is already up to £200 billion of quantitative easing, with more to come, up in Canada, someone has dared to ask the unthinkable, was it all worth it to turn the treasury and collective national wealth over to the banksters?Below, the Globe and Mail gets on the banksters’ case. Below that, righteous comeuppance for the dismal scientists. The whole article is well worth the read.
"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Leonard Read
Was the boom worth it?
Doug Saunders
Broken Europe: In countries that kept a lid on consumer and mortgage lending, the good times were worth the hype. Everywhere else, it was like a bad dream
From Saturday's Globe and Mail Published on Saturday, Jul. 24, 2010 5:00AM EDT Last updated on Saturday, Jul. 24, 2010 9:36AM
It was Liam Corrigan, a 51-year-old heating technician I met in Dublin, who made the point: “In the end, you really do have to ask yourself whether it was worth all the hype.”
He made good money in the 15-year boom and bought a five-bedroom house, only to watch the work dry up and his house disappear. Now he’s living in a rented apartment, earning what he did in 1994, as if the whole thing had been an odd and very Irish sort of dream.
Was it all worth it? Or are we all like Liam Corrigan? As the economy begins to recover, we ought to be asking whether the crash of ’08 wiped out all the gains, national and personal, that were created in the long boom. Or are people still better off than they were when it all began?
What the Western world did in the 1990s was essentially try an experiment: We expanded loose money and easy credit more widely than ever before, allowing even poor people to borrow against future earnings, in hopes that this would create a sustainable improvement in living standards.
If we do it all over again, should we avoid that risk – or were there sustainable gains that made the volatility worth it? To formulate an answer, I enlisted the assistance of economic researcher Allison Martell, who spent the week scouring the latest economic statistics for North America and Europe.
First, we looked at earnings (in terms of actual purchasing power) of poor and lower-middle-class people. If you were in the bottom 20 per cent of the population, did the boom give you more purchasing power? And did you keep it?
In Canada, the answer is an unambiguous yes. The after-tax incomes of the bottom 20 per cent of Canadians had fallen slightly during the crisis of the 1990s, from $21,000 to $19,000 (in constant 2008 dollars); beginning in 1997, they rose steadily, to just shy of $24,000. Among the next highest 20 per cent, they rose from $32,000 to 40,000 – and, with both groups, the purchasing power of their earnings seems to have levelled off but not fallen.
The same was somewhat true in Britain, though incomes have fallen in recent years. In the United States, it’s a different picture: After-tax earnings peaked in 2000, fell somewhat throughout the 2000s, and went off a cliff after 2008, dropping to 1997 levels (though not yet to pre-boom 1994 levels).
Another important index is home ownership: Did the boom allow more people to own their own property – and did the crash wipe out that important step into middle-class stability?
Statistics Canada’s General Social Survey shows that home ownership rose from 65 per cent in 1993 to somewhere above 75 per cent in 2008 with a slight dip, of 4 percentage points, at the end. In the U.S., it rose from 64 per cent in the 1990s to 69 per cent in 2005, then slumped every year after that, back to 1999 levels in 2009. European rates have generally held steady, except in Ireland, where they have plummeted to pre-boom levels (some European figures aren’t yet available).
But we should be wary: A study by the U.S. Federal Reserve last month looked at “real” homeownership, by discounting people who owe more than their homes are worth (and thus are unlikely to own them forever). That cuts the rate by 5.6 percentage points, killing most boom-period gains. We don’t know these figures for other countries, but Britain, Spain and Ireland all have plenty of “underwater” mortgages, and Canada generally doesn’t.
Indeed, the debt that made possible all those gains could end up undermining them completely. We looked at total consumer debt compared with income and, in almost every Western country, it rose sharply – even during the boom years, when incomes were rising. In the U.S. and Britain, debt went from 65 per cent of income in 1994 to almost 100 per cent in 2009; in Spain, from 40 per cent to 90 per cent; and in Ireland, from 60 per cent to 130 per cent.
The outliers were France and Canada, which saw debt rise less sharply, and Germany, where consumer debt has fallen since 1999. The answer is hard to avoid: In the countries that kept a lid on consumer and mortgage lending, the economic boom was worth all the hype. Everywhere else, it was like a bad dream.
http://www.theglobeandmail.com/news/opinions/was-the-boom-worth-it/article1650201/
The Great Mortification: Economists’ Responses to the Crisis of 2007–(and counting)1
Philip Mirowski
Economists have not comported themselves with much dignity of late. Normally so quick off the mark to ferret out and expose irrationality in others, currently they have been distinctly loathe to recognize a pandemic within their own ranks. I refer here to the outpourings spewn forth by the economists themselves, provoked by the numerous embarrassments that have been visited upon them consequent to the onset of the world economic crisis.
The figure of the economist has more often than not served as a butt for jokes or the template for an unsympathetic protagonist in the larger culture; economists make for lousy celebrities.2 Yet something novel and not a little creepy has happened since 2008. General interest magazines, from Business Week to The Economist to The New York Times—previously cheerleaders for the economics profession—turned openly hostile in 2008, hectoring whole schools of thought for their failures, grasping randomly for “new paradigms,” rooting around for sixth-round draft picks and telegenic wicked rebels to replace their prior stable of catallactic pundits. Lusting for scapegoats, journalists initially scoured the landscape for miscreants like Bernie Madoff, Dick Fuld, and Joseph Cassano, and then instinctively sought to find their counterparts inside the economics profession. There was even an online ballot for receipt of the Ignoble (or “Dynamite”) Prize, to be awarded to the three economists deemed to have contributed the most to the global financial collapse.3
More.
http://www.iasc-culture.org/publications_article_2010_Summer_mirowski.php
In China news this morning, the People’s Bank of China says no double dip. Just in case China’s Finance Minister intends to continue China’s “proactive fiscal policy.” The BDI suggests both will be wrong.
China sees no double dip, but will keep spending
July 27, 2010, 7:51 p.m. EDT
LOS ANGELES (MarketWatch) - Chinese authorities feel confident that the current economic slowdown won't turn into a "double dip," but they will maintain stimulus spending to support the economy, according to government statements Tuesday.
The People's Bank of China said that while the nation's economy is definitely slowing, it will continue to grow and its fundamentals remain strong, according to the central bank's quarterly report, as cited by the official Xinhua news agency.
The PBOC pointed to the slowing in China's manufacturing purchasing managers' index, which slowed to 52.1 in June, down from a May reading of 53.9.
---- The central bank said the current slowdown was a correction after earlier "excessive expansion" - as well as policy to stop steep real-estate price inflation and cutting loans to local governments - and added that the easing was "good for rebalancing the economic structure and achieving a sustainable economic growth," according to the Xinhua report.
Despite the central bank's apparent peace with the slowing economy, Finance Minister Xie Xuren said Tuesday that China's "proactive fiscal policy" will continue for the rest of the year.
Xie said the spending would focus on supporting agriculture and technological innovation, as well as environmental projects, according to comments carried in a separate Xinhua report.
He was also quoted as saying regulations and other policy initiatives would continue to try to boost domestic demand, through moves such as continuing a subsidy for rural residents buying home appliances, the report said.
http://www.marketwatch.com/story/china-sees-no-double-dip-but-will-keep-spending-2010-07-27
We end for today with the latest news on electric cars. Like it or not, our governments intend to make cleaner motoring the next “big thing.” Time to brush up on rare metals.
27 July 2010 Last updated at 00:01
Electric car subsidy spared cuts by government
By Richard Scott Transport correspondent, BBC News
Motorists who buy an electric plug-in car from January next year will get a grant worth up to £5,000 from the government.
The project was announced by Labour but placed on hold by the coalition until the autumn spending review.
Now the Treasury has taken the highly unusual step of agreeing to ring fence the money from any cuts.
Carmakers had been putting pressure on the new government to announce what was happening to the electric car subsidy.
----- The sheer scale of budget cuts needed across government departments - with the distinct possibility that transport might fare worse than most - had placed the scheme in doubt.
Now the government says the £43m earmarked for the scheme will be protected.
It means that anyone who buys an electric plug-in car from next year will get a 25% discount up to a maximum of £5,000.
"The coalition government is absolutely committed to low carbon growth, tackling climate change and making our energy supply more secure," said Transport Secretary, Philip Hammond.
---- The extra help is not expected to make up for the extra cost of the vehicle - which could be about £10,000 more expensive than its petrol equivalent.
However owners could save hundreds of pounds a year in running costs.
http://www.bbc.co.uk/news/business-10783287
First mainstream electric cars on track for 2010-11 launch
July 27, 2010, 2:05 p.m. EDT
NEW YORK (MarketWatch) -- General Motors and Nissan on Tuesday said they're on target to roll out some of the first mainstream electric cars in U.S. history late this year, as the auto makers seek to attract buyers who want to cut their carbon footprint.
General Motors said its new Chevrolet Volt, a plug-in hybrid electric vehicle that uses a gasoline-powered motor to charge the battery once it's been driven about 40 miles, will carry a manufacturer's suggested retail price of $41,000.
The auto maker is quick to point out that the car is eligible for a federal tax credit of up to $7,500, bringing the possible cost of the car down to $33,500.
General Motors said Chevrolet dealers are now taking orders for the Volt, which will be offered first in California, New York, Michigan, Connecticut, Texas, New Jersey and the Washington, D.C., area. Deliveries of the car will start late this year.
Meanwhile, Nissan begins rolling out its all-electric car, the Leaf, in December.
The car will be available in California, Washington, Oregon, Arizona and Tennessee, states representing about 55% of reserved vehicles.
Nissan said customers can make firm orders in August.
In January, the car will hit markets in Texas and Hawaii. In April, the Leaf will be available in North Carolina, Florida, Georgia, Washington, D.C., Virginia, Maryland, South Carolina and Alabama, Nissan said.
http://www.marketwatch.com/story/electric-cars-readying-mainstream-rollout-2010-07-27
Rare metals blog.
At the Comex silver depositories Tuesday, final figures were: Registered 52.58 Moz, Eligible 57.77 Moz, Total 110.35 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today it’s BP and BP’s executive and owners dumping the cost of their Gulf of Mexico disaster on the taxpayers. They really have little choice, pursuing any other policy is against the best interests of the owners and would leave them liable to lawsuits from pension trustees, etc. Still the US taxpayers, at least will probably get it back through fines and penalties, the UK taxpayers will then get hit a second time, as BP offsets against UK tax. Oh well, it’s all only fiat money and dodgy accounting after all, and anyway only little people pay taxes.
“Well, sometimes you just step off the pavement and you get hit by a bus.”
Tony Haywood. CEO of BP (until October.)
BP offsets spill costs to save $10 billion in tax
'If you make a loss you don't pay tax,' analyst says
LONDON — Oil giant BP said it plans to offset the entire cost of its Gulf of Mexico oil spill against its tax bill, reducing future contributions to U.S. tax coffers by almost $10 billion.
BP took a pretax provision of $32.2 billion in its accounts for the period, for the cost of capping the well, cleaning up the spill, compensating victims and paying government fines.
However, the net impact on BP's bottom line will only be $22 billion, with the company recording a $10 billion tax credit, most of which will be borne by the U.S. taxpayer, a spokesman said.
BP's U.K. tax bill will also be reduced, BP added.
Analysts told Reuters that BP could prompt more public and political anger in the United States by deducting all the costs, and especially the expected fines BP will face.
In 2006, Boeing Co decided to forego seeking a tax deduction for any of a $615 million settlement with the government over ethics charges, under pressure from lawmakers.
BP spokesman Toby Odone told msnbc.com: "This is just normal practice. If you declare an income, you have to pay tax on it — it's the way tax laws are set up. We will pay less in tax because we are earning less, as you would as an individual if you were earning less.
This is the accounting process," he added. "We are going by U.S. laws, we're following the accounting laws of the country. We are a business and we have shareholders we are responsible to."
He said the Boeing decision was different, adding that BP would not be allowed to offset taxes against any fines or settlements with the government over the spill.
Oil analyst Dougie Youngson, of London-based Arbuthnot Securities, also told msnbc.com that BP's decision to offset the spill costs was normal procedure.
http://www.msnbc.msn.com/id/38424553/ns/disaster_in_the_gulf
On the Surface, Gulf Oil Spill Is Vanishing Fast; Concerns Stay
By JUSTIN GILLIS and CAMPBELL ROBERTSON Published: July 27, 2010
The oil slick in the Gulf of Mexico appears to be dissolving far more rapidly than anyone expected, a piece of good news that raises tricky new questions about how fast the government should scale back its response to the Deepwater Horizon disaster.
The immense patches of surface oil that covered thousands of square miles of the gulf after the April 20 oil rig explosion are largely gone, though sightings of tar balls and emulsified oil continue here and there.
Reporters flying over the area Sunday spotted only a few patches of sheen and an occasional streak of thicker oil, and radar images taken since then suggest that these few remaining patches are quickly breaking down in the warm surface waters of the gulf.
---- After 86 days of oil gushing into the gulf, the leak was finally stopped on July 15, when BP managed to install a tight-fitting cap on the well a mile below the sea floor, then gradually closed a series of valves. Still, the well has not been permanently sealed. Until that step is completed in several weeks, the risk remains that the leak will resume.
Scientists said the rapid dissipation of the surface oil was probably due to a combination of factors. The gulf has an immense natural capacity to break down oil, which leaks into it at a steady rate from thousands of natural seeps. Though none of the seeps is anywhere near the size of the Deepwater Horizon leak, they do mean that the gulf is swarming with bacteria that can eat oil.
http://www.nytimes.com/2010/07/28/us/28spill.html?_r=1&hp
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F.A. von Hayek
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 Down.
The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators.
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