At the End of the Day

Do we think that chickens come home to roost at the end of the day? If so, then this has been one of those days.

Output from US factories took a dive in October. This was the first fall in manufacturing output since the height of the global financial crisis back in September 2009. Unbelievably, Eurozone manufacturing output growth is now stronger than it is in the US. Hi Dan Hannan…what happened to the booming US economy you were going on about two months ago?

But if you thought the eurozone was doing ok, think again. The focus has now shifted bigtime to Italy, where the unemployment rate amongst 15-24s just soared to 40%….well behind Greece – but Italy is a far bigger and more  industrialised economy. As Bloomberg reports pointedly, “the [eurozone] region cannot recover without Italy’s revival”. That simply isn’t going to happen.

Michael Pettis of China Markets fame has this to say about Japan: “If the world were in ruddy good health, we might not worry too much about policies aimed at Japan pulling itself out of the mess created in the 1980s, but with the whole world struggling with weak demand and with country after country trying to reduce domestic unemployment by selling more abroad – effectively exporting unemployment (with Germany in particular hoping to resolve the European crisis not by increasing its net domestic demand, as it should, but rather by forcing German surpluses outside Europe) – there is a real question in my mind as to how successful the Japanese program of Abenomics is likely to be if it implicitly requires a burgeoning trade surplus….Japan’s enormous debt burden was manageable as long as GDP growth rates were close to zero because this allowed both for the country to rebalance its economy and for Tokyo to make the negligible debt servicing payments even as it was effectively capitalizing part of its debt servicing cost. If Japan starts to grow, however, it can no longer do so…”

Words like rock, hard place, paint, and corner come to mind.

Meanwhile back in the US of A, contracts to buy previously owned homes recorded their largest drop in over three years during September. And although car production increased by 2%, that was something of a plunge from the 5.2% recorded in August. I hate to keep mentioning this (I’ve been at it since December 2011) but no US economic recovery in history has ever happened without a sustained revival in the property sector.

Nothing much coming out of Detroit then….and it gets worse. Last Friday, Detroit’s financial consultant Kenneth Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts “without cutting them”. So they were cut by 84 cents on the dollar. Thus means that 23,500 City employees are going to get 16% of the pension they’d expected. Well, their disposable income should get the consumption economy kick-started.

But everything’s alright really, because the FT reports that ‘Global stocks hover near six-year peaks’ and ‘the S&P 500 on track to reach fresh record close’.

Fiddle-de-dee-diddly-doo-dah it gives me a thrill/to wake up in the morning to the mocking birds’ trill.