Consumer Metrics View of the Great Recession

The Consumer Metrics Institute was founded on a simple observation: many 'leading'

economic indicators are published, but few (if any) are sufficiently 'leading' to be meaningful to

investors. In fact, many 'leading' indicators use the prior month's equity market results as a key

component of their indexes. Investors may find their last month-end account statement more

timely.

To remedy this, the Consumer Metrics Institute has developed (and is continuing to develop)

techniques for monitoring 'up-stream' economic activities on a daily basis.

The "Great Recession" that began in 2008 has had many nuances, some of which can only be seen in data with higher resolution than that provided by the BEA or NBER. Our day-by-day profile of consumer demand helps us understand triggering events while also making it clear that many recent changes in consumer behavior have begun to linger -- much as the recession itself now appears to have done. We have previously reported that consumer demand for discretionary durable goods is now at recessionary levels after starting to contract on a year-over-year basis on January 15, 2010. On the surface this would indicate a "double-dip" recession following the 2008 economic event. We may have inadvertently promoted the "double-dip" aspect of 2010's contraction by often graphing the two events superimposed upon each other in our "Contraction Watch" chart -- as though they were independent episodes: (Click on chart for fuller resolution) But to even a casual observer there is something unsettling in the above chart, especially if we've been told that the "Great Recession" was a once-in-a-lifetime event that required once-in-a-lifetime amounts of new national debt to fix. Clearly, the 2010 contraction already appears well on the way to equaling or exceeding the "Great Recession" in severity despite those "fixes."

Guest Post: Militancy and the U.S. Drawdown in Afghanistan

Militancy and the U.S. Drawdown in Afghanistan is republished with permission of STRATFOR.

The drawdown of U.S. forces in Iraq has served to shift attention toward Afghanistan, where the United States has been increasing its troop strength in hopes of forming conditions conducive to a political settlement. This is similar to the way it used the 2007 surge in Iraq to help reach a negotiated settlement with the Sunni insurgents that eventually set the stage for withdrawal there. As we’ve discussed elsewhere, the Taliban at this point do not feel the pressure required for them to capitulate or negotiate and therefore continue to follow their strategy of surviving and waiting for the coalition forces to depart so that they can again make a move to assume control over Afghanistan.
Indeed, with the United States having set a deadline of July 2011 to begin the drawdown of combat forces in Afghanistan — and with many of its NATO allies withdrawing sooner — the Taliban can sense that the end is near. As they wait expectantly for the departure of the International Security Assistance Force (ISAF) from Afghanistan, a look at the history of militancy in Afghanistan provides a bit of a preview of what could follow the U.S. withdrawal.



A Tradition of Militancy



First, it is very important to understand that militant activity in Afghanistan is nothing new. It has existed there for centuries, driven by a number of factors. One of the primary factors is the country’s geography. Because of its rugged and remote terrain, it is very difficult for a foreign power (or even an indigenous government in Kabul) to enforce its writ on many parts of the country. A second, closely related factor is culture. Many of the tribes in Afghanistan have traditionally been warrior societies that live in the mountains, disconnected from Kabul because of geography, and tend to exercise autonomous rule that breeds independence and suspicion of the central government. A third factor is ethnicity. There is no real Afghan national identity. Rather, the country is a patchwork of Pashtun, Tajik, Hazara and other ethnicities that tend also to be segregated by geography. Finally, there is religion. While Afghanistan is a predominantly Muslim country, there is a significant Shiite minority as well as a large Sufi presence in the country. The hardcore Deobandi Taliban are not very tolerant of the Shia or Sufis, and they can also be harsh toward more moderate Sunnis who do things such as send their daughters to school, trim their beards, listen to music and watch movies.

Any of these forces on its own would pose challenges to peace, stability and centralized governance, but together they pose a daunting problem and result in near-constant strife in Afghanistan.
Because of this environment, it is quite easy for outside forces to stir up militancy in Afghanistan. One tried-and-true method is to play to the independent spirit of the Afghans and encourage them to rise up against the foreign powers that have attempted to control the country. We saw this executed to perfection in the 1800s during the Great Game between the British and the Russians for control of Afghanistan. This tool was also used after the 1979 Soviet intervention in Afghanistan and it has been used again in recent years following the 2001 U.S. invasion of the country. The Taliban are clearly being used by competing outside powers against the United States (more on this later).

Why Pakistan’s Disaster Could Lead to a Systemic Collapse

From 11 Big Surprises for the Next Decade

4. Pakistan Collapses- The nuclear state fell victim of various terrorist groups who eventually succeeded in overthrowing the regime. The country falled into a bloody civil war. The U.S military, in a planned operation which was planned during the Bush years took control of the military facilities and dismantled them. The civil war affected India, which increasingly suffered from terrorist attacks throughout the decade. The collapse of Pakistan symbolized a new phase in the global "War on Terror" with the pro- American Gulf States becoming the main target.


Pakistan’s disaster could lead to a systemic collapse

The colossal humanitarian tragedy and the imminent economic meltdown, will now shape a new Pakistan or rather, exacerbate its predicament in the months and years to come. Pakistan’s chronic political instability, structural economic constraints and a warped national security policy are all going to be affected by the unfolding drama of the national disaster, perhaps the severest, in the country’s history. Whilst the challenges have snowballed within a short duration of ten days, the response of the Pakistani state and society underline extremely dangerous trends and make us wonder about future of the country, as we have known it for the last 63 years.




Systemic shock:
Pakistan had reverted to quasi-democratic rule after a decade of dictatorship in March 2008. Since the resumption of the electoral process in February 2008, the traditionally powerful unelected institutions, had acquired both legitimacy and unprecedented powers. The power troika of the 1990s had transformed into a quartet comprising the army, judiciary, the media and the civilian government which was represented by a ‘discredited’ president who has been a constant punching bag for the unelected institutions of the state.
Notwithstanding the isolation of the elected in the afore-mentioned quartet, the pending reform of governance was well-executed by the political elites by forging a consensus around the devolution of powers from the centre to the provinces via the 18th Amendment, and by establishing the rules of the game on fiscal transfers. However, these advances were overshadowed and challenged by the bane of Pakistani state: the national security policy, and its proclivity to act as a rentier entity for the Western agendas in the region.
Despite the fundamental shifts in governance, Pakistan has been in the tight grip of the civil-military-bureaucratic nexus and its newfound ally i.e. the ubiquitous electronic media. This is why the calamitous circumstances of today are turning into a major shock to the political system, which may unravel its very existence.

Dangerous trends:


Three key trends can be cited here. First, the perpetual attack on the person and office of the President who symbolises the political consensus of the federation and, especially, the popular will for the smaller provinces. Second, the relentless glorification of militarism by using the pretext of emergency relief. To illustrate, while the President was demonised during his UK visit, not a whimper was sounded out on the Army Chief’s official visit to the UAE, especially by those who have been praising the ascendant role of the armed forces in ‘saving’ Pakistan. Lastly, the sheer failure of the civilian administration to install an early warning mechanism and cope with the scale and immensity of the disaster has yet again raised the questions of state failure in the civilian domain. However, this time the civilian failure is hounded by the large-scale presence of banned militant organisations and their cadres in undertaking rescue-and-relief work in Southern Punjab and parts of KP, which casts a dark shadow over the attempts of the present civilian government to fight extremism in the country. Things have come to such a pass that the Taliban are advising a sovereign state not to seek international help and gunning down Awami National Party (ANP) workers and activists even in these dire times. All in all, political instability is likely to grow and deepen in the short-term leading to a systemic collapse, which Pakistan is familiar with and which almost always results in taking recourse to an authoritarian regime.

Spain Homeowners Face Squeeze as Mortgage Rates Rise

Bloomberg:

Spanish homeowners will face higher mortgage repayments after the benchmark rate for loans last month posted its first annual gain since October 2008.
The benchmark rate for most of the country’s home loans, 12-month Euribor, rose to 1.42 percent in August from 1.33 percent a year earlier, the Bank of Spain said today on its website. That will further stretch the finances of Anabel Ruiz, who already spends two-thirds of her 1,000 euro ($1,271) monthly salary on making payments on a 30-year mortgage that runs until 2036.
“It’s going to make a desperate situation even more critical,” said Ruiz, 43, who works in an accounts department. “It could mean I lose my apartment and we all end up living under a bridge.”
Because almost nine out of every 10 new Spanish mortgages are floating rate, increases in Euribor may start to squeeze demand in an economy struggling to emerge from the deepest recession in 60 years. Higher mortgage payments as loans start to reset come as Spanish households adjust to an increase in sales taxes and a jobless rate above 20 percent.

Greek PMI Shows Manufacturing Slump Worsened in August

ATHENS, Sept 1 (Reuters) - A slump in Greece's manufacturing activity worsened in August as output and new orders contracted more sharply and job cuts accelerated, a purchasing managers' survey showed on Wednesday.


There was, however, one encouraging sign in that export orders rose slightly -- for the first time in nearly a year -- although the growth rate was marginal.

The Markit Manufacturing Purchasing Managers' Index (PMI) for Greece fell to 43.0 points in August from 45.3 in July, staying firmly below the 50 mark that separates growth from contraction.

Austerity measures and depressed confidence as Athens tackles the country's massive debt burden have kept Greece in recession for a second year. Gross domestic product is seen contracting by as much as 4 percent in 2010, according to analysts and the central bank, after shrinking 2 percent last year.

Weak economic conditions were hurting demand, making clients reluctant to commit to new projects, survey participants said.

The Coming Euro Collapse- Greece is Sliding into Deflation as Sales Go Down Despite Discounts

Read more at Euro Crisis


Kathimerini:

Athens retailers report fall in turnover of 25 percent from last year; drop steeper in other parts of Greece


Revenue figures from the summer sales season in the retail sector were disappointingly low, according to data provided by trade groups yesterday.

Encouraging signs arising from increased shopper traffic lasted for just the first 15 days of the sales season, according to the National Confederation of Greek Commerce (ESEE), which said turnover this year fell by an average of 25 percent from 2009 levels. The sales period ran from mid-July until the end of August.

As pointed out by ESEE president Vassilis Korkidis, more shoppers visited retailers over the sales period but there was no increase in revenues, despite the lower prices.

In Athens, the drop in revenues reached between 25 and 35 percent compared to the same period a year earlier, while in Piraeus the drop was about 25 percent. In other parts of Greece, the figures painted an even bleaker picture.
In Serres, northern Greece, stores reported a drop of up to 65 percent in turnover, while in Edessa, also in the north, it was around 40 percent. Shopkeepers in Kastoria said revenues were up to 45 percent lower than last year.

Maya Bhandari on India's Reserve Bank of Stagflation

Read more at India- An Examination of another Emerging “Miracle”



The Reserve Bank of Stagflation

The collapse of world trade in late 2008 drove brutal recessions for big exporting countries, most spectacularly China, Japan and Germany. But India, largely driven by domestic demand, emerged relatively unscathed. Gross domestic product shrank in the final quarter of 2008, but only by 0.2%. At its lowest point, industrial production dipped 2% below the pre-crisis peak, the best performance of all major economies, and has since bounced back powerfully to well above the mid-2008 peaks. Yet the combination of a lethargic central bank and swelling inflation could now quickly alter this seemingly benign scenario.
This may seem counterintuitive. India's Reserve Bank raised two of its four main policy levers—the repo and reverse repo rates at which the central bank lends to and borrows from banks—by 0.25 percentage points and 0.50 percentage points respectively at its meeting last week. The more powerful tool, the ratio of cash reserves banks must keep at the central bank, was left unchanged.

Notwithstanding a warm reception from markets and commentators, these latest policy "moves" were in fact little more than token gestures. The two most relevant rates, the repo and cash reserve ratio, are still considerably below where they were before the central bank misguidedly started slashing interest rates in the fourth quarter of 2008. While the cuts back then, by 4.25 percentage points and 4 percentage points respectively, appeared to conform to what other central banks were doing at the time, they may have had as much to do with the run-up to general elections in May 2009. The ruling Congress Party benefited from cheap credit before voters went to the polls.
At best, the new higher rates might convince banks to hold less excessive quotas of government paper on their balance sheets: More than 40% of banks' assets (measured as total loans) are held in government bonds. Meanwhile, raising the "tolerable" wholesale price inflation rate to 6%, from 5.5% in April and 4% a couple of years ago, is a grossly inefficient way to manage the problem. (Among other variables, India's central bank "targets" wholesale price inflation, which is also heavily influenced by the exchange rate.)
But these measures are unlikely to be anywhere near enough. It is clear that India has a large and growing inflation problem. Prices are rising at anywhere between the 10.5% on the wholesale price inflation measure and 14.5% on the rural consumer-price measure, considerably higher than inflation rates of the five years preceding the crisis, a period commonly known as the "Goldilocks years." The result has been heavily negative real, or inflation-adjusted, interest rates. Depending on which data one chooses, real rates are between minus 5% and minus 8%, and even that may be an understatement.
All inflation measures are poised to accelerate further. Primary articles inflation, for instance, leads other inflation rates—as it is released weekly rather monthly, and comprises chiefly food in most indices—is running at more than 15% in annual terms. At current levels, Indian inflation is also not far from British inflation just before and after the bitter stagflation years of the late 1970s and early 1980s, with a substantially more central role for domestic demand in India's case.

Spain's Unemployment Continues To Rise While German Unemployment Falls

Edward Hugh:

Spain's EU harmonised seasonally-adjusted unemployment rate (which is the interesting number) rose again in July, according to the latest data from Eurostat. It rose to 20.3% from 20.2% in June.

So despite a double digit fiscal deficit, Spain has not yet succeeded in putting a brake on the upward drift in the headline unemployment number.
And the number of those officially working continues to decline, according to the data on those paying insurance contributions from the Social Security Ministry.

 
 
Clearly having broken the 20% barrier the number looks like heading up even further in the second half of the year, although quite how far up is hard to say, since my feeling is that some of the increase in unemployment is now being offset by the silent march of feet, heading for the door, and looking for employment abroad.
 

Meat Price Surge Fuels Fears of Food Inflation

Read more at:

 If They Can’t Afford Wheat Let Them Buy Real Estate? Why the Price of Food Will Guarantee a Chinese Real Estate Crash

China’s Food Price Inflation Is Starting To Affect the Rest Of the World




Financial Times:

Global meat prices have hit a 20-year high as robust demand from emerging countries has coincided with a drop in production by exporters such as the US and Australia, fuelling concerns about rising food inflation.
The UN Food and Agriculture Organisation’s index of meat prices rose in August to its highest level since 1990, up 16 per cent over the past year, after lamb prices hit a 37-year high, beef prices climbed to a two-year high and the cost of pork and poultry prices rose.
“There has been sustained demand from Asia and from the Middle East for both beef and lamb,” said Pedro Arias, a livestock economist at the FAO in Rome, echoing a widely held view in the industry. “But the traders have not been able to satisfy that demand because herds have been curtailed.”
The sharp price rises have attracted speculative money to what is otherwise a niche market in Chicago. The number of outstanding contracts at the Chicago Mercantile Exchange for live cattle and lean hogs futures and options – both benchmark derivatives – has jumped by nearly a third since the start of the year.
But industry executives, traders and analysts said the increase in prices was not due to the inflows of hot money, but rather supply and demand factors. Meat production has stagnated in top exporting countries as livestock farmers suffered a series of misfortunes from severe droughts in Australia and Latin America, to low prices in the early 2000s and record high feeding costs.

China’s Shark Loan Ponzi Finance- An Overview of China’s Fake Mortgage Loan Industry

Read more at China Bubble


From China’s Shark Loan Ponzi Finance- Understanding China’s Shadow Banking System

The five steps of a fake housing sale in China


1. Before the construction, loan shark operators provide initial finance to small or middle size developers in 2 and 3 tier cities in order to begin the construction.

2. After the construction is complete, and before the official sale to the public begins, loan shark operators will provide resident IDs and other fake documents for mortgage application to real estate developers and make together a fake sale contract.

3. The real estate developer brings the fake contracts to the bank in order to obtain a loan. That can explain why in China, many houses already get sold before they are opened to the public for sale, and why there are so many vacant houses already sold, which no one lives in. (According to the report by Fitch, that was mentioned above there are 64 million unoccupied homes in China)

4. A secret agreement is made between the shark loan operator and the real estate developer. The shark loan operator will get more bank loans through this fake sale, as will the real estate developer. They will use the bank loan in order to engage in another ponzi scheme.

5. The real estate developer and  loan shark  will hire people to fake sale frenzy in order to attract real buyers, and if there are enough sales the fake contract will be cancelled out.
 During the time of the real estate bubble frenzy these ponzi schemes and fake sales were mostly covered, since real buyers could be found. But when the market slows down there will be a thin transaction volume, and the fake sales will be exposed. Then the real collapse will happen.



From China’s Shark Loan Ponzi Finance- Former Microsoft CEO in China is Under Investigation for Shark Loan Activities and Faking Commercial Real Estate Contracts.


He became famous recently due to the exposure of his purchase of a fake PHD diploma from Western Pacific University. He also claimed to have a PHD degree from California Institute of Technology in his Bio and numerous occasions. There is a hot debate on the Chinese web regarding Mr. Tang, who used to be a role model, and is now exposed to be a crook. On the other hand, in the fake goods capital of the world someone line Mr. Tang may as well be a role model.
According to the report, Mr. Tang is under police investigation for an alleged criminal corporation with real estate developers in Suzhou City. The police suspect that they faked a commercial real estate sale contract, which enabled him to receive a 112.8 million Yuan mortgage loan from a bank. Later, the loan has been lent out by the real estate developers and to loan sharks.


If you do a search for “Fake Mortgage Loan” in Mandarin in Google, you will get 298,000 hits; each hit will take you to an individual case, a news report, or a financial expert warning about potential financial risk.

Last time, we reported former Microsoft China CEO, Mr. Tang Jun was involved in a fake mortgage loan case. In that case, real estate developer colluded with Mr. Tang Jun to fake real estate sales contract to obtain more than 100million in loans from the bank, and it turns out this is standard practice in China’s real estate industry.