Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

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NEW$ & VIEW$ (19 FEBRUARY 2014)

Empire State Factory Index Backpedals

Click to viewThe Federal Reserve Bank of New York indicated that its Empire State Factory Index of General Business Conditions for February fell to 4.48 from its two year high of 12.51 during January.The latest figure fell short of expectations for a level of 9.5, according to the Action Economics Forecast Survey.

Based on these figures, Haver Analytics calculates a seasonally adjusted index that is compatible to the ISM series. The adjusted figure declined to 50.9, but a rising level of activity is indicated by a figure above 50. Since inception in 2001, the business conditions index has a 67% correlation with the quarterly change in real GDP.

Deterioration in the overall index this month reflected sharp declines in the new orders, shipments and inventories indexes. The number of employees series also slipped marginally. During the last ten years there has been a 75% correlation between the jobs index and the m/m change in factory sector payrolls. Improved readings for unfilled orders and delivery times dampened some of the downward pressure on the overall index. The length of the average workweek reading also gained slightly to its highest level in six months. (Chart from Doug Short)

Pointing up Bespoke Investment has the best juice from the NY Fed report:

The lower chart below shows Technology and Capital Expenditure plans for manufacturers over the next six months.  As shown, both indices declined this month to multi-month lows.  While plans for Technology spending dropped to their lowest levels since last June, plans for Capital Expenditures are down to their lowest levels since July 2009.

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U.S. Housing Starts Fall 16% Construction of new homes tumbled in January, the latest sign of cooling in the U.S. housing market as much of the country shivered through a cold and snowy winter.

U.S. housing starts in January fell 16% to a seasonally adjusted annual rate of 880,000, the Commerce Department said Wednesday. That was down from an upwardly revised December rate of 1,048,000 new homes built. Single-family starts for January were down 15.9% to a 573,000 annual pace.

Building permits, a sign of future construction, fell 5.4% to a seasonally adjusted annual rate of 937,000 last month from December’s upwardly revised rate of 991,000.

Home Builders Sour on Market Home builders are losing confidence in the housing market amid severe weather, worker shortages and limited availability of land, according to an industry index.

Builder confidence in the market for single-family homes dropped to 46 in February, down sharply from a reading of 56 a month earlier, the National Association of Home Builders said Tuesday. That was the biggest one-month decline on record and the lowest level since May.

More weather blaming. Look at the NAHB’s headline: Poor Weather Puts a Damper on Builder Confidence in February re-printed just about everywhere. It apparently snowed everywhere (chart from Bespoke Investment):

Activity fell sharply around the country. Activity in the West took the largest hit and the 14 point decline reversed the gains of the prior two months. The index for the Midwest followed with a 9 point drop to the lowest level in 9 months. The 8 point decline in the index for the Northeast lowered it to the lowest point since October. Finally, the 7 point decline in the South repeated its January downdraft.

There are other reasons, however:

“Clearly, constraints on the supply chain for building materials, developed lots and skilled workers are making builders worry,” said NAHB Chief Economist David Crowe.

The HMI breakdown reveals that builders don’t expect the weather to improve much before September at the earliest.

All three of the major HMI components declined in February. The component gauging current sales conditions fell 11 points to 51, the component gauging sales expectations in the next six months declined six points to 54 and the component measuring buyer traffic dropped nine points to 31.

U.S. CHAIN STORE SALES ROSE 2.5% LAST WEEK

The 4-week m.a. bounced back to +1.7%. Fingers crossed

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Will this helps?

Americans Ramp Up Their Borrowing

U.S. consumers late last year drove the largest quarterly increase in credit outstanding since the third quarter of 2007, just before the recession started, according to figures released Tuesday by the Federal Reserve Bank of New York. Household debt, which includes mortgages, credit cards, auto loans and student loans, jumped $241 billion between October and December to $11.52 trillion.

One major factor behind the increase has been the stabilization of the nation’s mortgage debts, the biggest piece of household borrowing. Mortgage debt increased $16 billion in the fourth quarter of 2013 from a year earlier, ending a four-year streak of year-over-year declines. Fewer Americans are filing for bankruptcy or going into foreclosure, moves that bring down mortgage debt.

Meanwhile, more people are borrowing to pay for educations, cars and new homes. All told, overall debt is up $180 billion from the fourth quarter of 2012, the first increase from year-earlier levels since late 2008. Household debt remains 9% below its peak of $12.7 trillion in the third quarter of 2008.

(…) much of the recent rise in borrowing is being driven by student loans. Nearly two-thirds of last year’s overall gain in debt—about $114 billion—was from student loans.

Consumers are showing signs of being more cautious about debt this time around. Tuesday’s report showed new originations of mortgages fell for a second quarter in a row, to $452 billion, likely due to higher interest rates. Auto-loan originations also fell in the fourth quarter, to $88 billion.

imageU.S.: Re-leveraging in the works

Is U.S. deleveraging finally over? Aggregate consumer debt rose by US$241 bn in 2013Q4, the biggest quarterly increase since 2007. Student debt rose again and accounted for roughly a fifth of the increase. But as today’s Hot Charts show, even excluding student loans, household debt rose for the second consecutive quarter in Q4, the first back-to-back increase for that measure since 2008. That’s due to a second straight increase in mortgage loans and a further ramp up in auto loans, the latter hitting a new record in Q4.

The potential for re-leveraging is now starting to be fulfilled thanks to the combination of low interest rates, rising consumer confidence and improving credit ratings, particularly among those with the lowest scores (i.e. those that had been previously shut out of the formal loan market). So, looking beyond near-term weather-related disruptions to economic activity, the outlook for the U.S. economy looks good. (NBF)

EMERGING MARKETS’ DOMESTIC CRUNCH?

(…) In attempting to escape from the consequences of the credit bubbles, and the resulting Great Recession in the developed world, many emerging economies may have ended up creating similar problems of their own. The external financing aspects of the EM problem may well be less than in the 1990s, but the internal aspects could take longer to handle. Credit standards in the EM banking sectors are now tightening markedly, in contrast to the easing now underway in the DMs [2]. This needs to change before growth in the EM economies can recover.

In summary, while the emerging markets may escape the sudden stops of the 1990s, they may be facing a domestic credit crunch instead. (Gavyn Davis)

Winking smile The 1% Don’t Feel The Weather: Ferrari Posts Record Sales In US; Doubled In Jan

First Mercedes, then Porsche, and now Ferrari and Maserati post record US sales in January…

*FERRARI POSTS RECORD SALES IN U.S. AND U.K. IN 2013
*FERRARI AND MASERATI GLOBAL MORE THAN DOUBLE IN JAN TO 2,400

NEW$ & VIEW$ (18 FEBRUARY 2014)

U.S. Ocean Container Exports Decline 18% in January

Reflecting a global economic slowdown, U.S. container export volumes sank 18% in January compared to the same time last year. Container imports, on the other hand, increased 5.1% year over year. Ocean container activity – both imports and exports – increased month to month (exports at 2.9% and imports at 5.8%), but not at the magnitude of the increases we saw in December. The U.S. economy had a fairly strong second half in 2013, but turned sharply downward in December. The slowdown has continued into January and February.

January 2014 container import volumes were 5.1 percent higher than a year ago and at the highest January mark in our index data (since 2010). Import container shipments rose 5.8 percent from December, a significant slowing from the 17.7 percent increase we saw from November to December. The slower growth in import ocean container activity coincides with the start of the drop-off in new orders placed with our trading partners. Imports from China were responsible for most of the growth in December and January, which has been the trend for the last several years.

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Auto Europe Auto Recovery Gains Pace

New car registrations, which mirror sales, rose to 935,640 vehicles in January, up 5.5% from the same month a year earlier, according to the Association of European Automobile Manufacturers, known as ACEA.

The rise in January marks the fifth-consecutive monthly increase in demand after six years of declining sales, but ACEA said it was the second-lowest number of cars sold in the month of January since the group began collecting EU-wide data in 2003.

“Most EU markets posted growth, as did all the major ones, from 7.6% in the U.K. and Spain, to 7.2% in Germany, 3.2% in Italy and 0.5% in France,” ACEA said in its monthly release. Car sales rose 33% in Ireland, 32% in Portugal, 15% in Greece, and 7.6% in Spain, some of the countries worst affected by the euro crisis. (…)

Industry analysts remain guarded too about the strength of the upturn.

“Whilst clearly a positive month it was perhaps not as strong as might have been expected and at this point we don’t want to get too carried away,” auto analysts at ISI Group said, citing a 2.8% decline in registrations on a comparable basis month on month. Fewer discounts and incentives in some markets may have contributed to that decline, ISI said.

Rebates and cheap financing stimulated sales in Germany in January, while a scrapping premium in Spain underpinned sales there, said Ernst & Young analyst Peter Fuss.

In contrast, car sales continued to decline in Austria, Belgium, Cyprus, Estonia and the Netherlands. (…)

Bloomberg has the same story but with somewhat different numbers than the WSJ from the same source:

Registrations increased 5.2 percent from a year earlier to 967,800 vehicles, the Brussels-based European Automobile Manufacturers Association, or ACEA, said today. That compares to a 13 percent jump in December sales. The stretch of gains is the longest since a 10-month period ended in March 2010. (…)

Spanish demand for cars has been boosted in recent months by a cash-for-clunkers sales incentive program renewed by the government in October. Dealer discounts in Germany averaged 11 percent in January, the lowest level of price cutting in the past two years, according to trade publicationAutohaus PulsSchlag. Peugeot and Renault together were the second-biggest car discounters in Germany last month, with price cuts averaging 12.1 percent, according to Autohaus PulsSchlag. Dearborn, Michigan-based Ford lowered its prices more than other competitors in Germany with a 12.3 percent reduction, the magazine said.

Bundesbank warns on German house prices Central bank’s move stokes fears of property bubble

House prices in Germany’s biggest cities are overvalued as much as 25 per cent, the Bundesbank warned on Monday, adding to fears that international investment has helped to fuel a property bubble in the eurozone’s largest economy.

The German central bank said that residential real estate prices in 125 cities rose by 6.25 per cent on average last year. In October, it reported that property prices in the biggest German cities were 20 per cent overvalued, suggesting the problem is getting worse. (…)

A report earlier this month from property specialists Engel & Völkers predicted that international investors from Italy, Israel, Russia, the US and China would continue to push residential prices in Berlin up this year, where property remains cheap by international standards. (…)

Taiwan Sees Growth at 3-Year High

The government now expects Taiwan’s gross domestic product to expand 2.82% in 2014, it said Tuesday. This would be higher than the government’s previous estimate of 2.59% and above the 2.11% growth recorded in 2013. The government also revised annual fourth-quarter GDP growth to 2.95% from 2.92%.

“The solid improvement of demand from developed economies will likely continue to boost domestic household consumption,” the government’s Directorate General of Budget, Accounting and Statistics said Tuesday.

“But price competition on electronic components from China is becoming fierce,” clouding the outlook for Taiwan’s exports, the statistics agency added.

SURPRISE, SURPRISE

BOJ Surprises Markets The Bank of Japan surprised the market by doubling incentives designed to spur bank lending, weakening the yen and lifting Tokyo stocks at a time when the nation’s economy is showing signs of trouble.

In the hope that it will open the spigot for lending to the broader economy, the central bank said it will expand two programs where it offers fixed-rate loans at rock-bottom interest rates to commercial banks. It will also lengthen the duration of the loans, making it easier for financial institutions to profit even in an environment where interest rates are close to zero. (…)

Since the current lending programs don’t expire until the end of March, the policy board could have waited for another month to see whether the recent downturn subsides. Analysts say the sudden action suggests that it wanted to bring calm to the stock market.

The central bank will offer funds at a fixed 0.1% rate for four years through the redesigned lending schemes, instead of the previous terms of one to three years.

While Japan’s bank lending has been increasing recently, cash and deposits held by corporations remain at record levels, their total standing at ¥224 trillion in the July to September period of 2013, the latest data released in December showed.

PBoC drains $7.9bn from money markets China’s central bank uses repos to drain liquidity for first time in eight months

China’s central bank has drained Rmb48bn ($7.9bn) from money markets, an unexpected move that signals its concern with the boom in lending at the start of the year.

The People’s Bank of China withdrew the cash by issuing 14-day bond repurchase agreements. It was its first time using repos to drain liquidity from the money market in eight months.

The central bank typically gauges demand from banks the day before conducting open-market operations, but on this occasion it issued the repos without advance warning, traders said.

The drain follows a jump in bank and shadow bank lending in January. New local-currency loans reached Rmb1.32tn ($218bn) last month – nearly triple December’s total, Rmb200bn more than market expectations and the highest monthly total since January 2010.

It is customary for banks in China to lend most heavily at the start of the year, but the numbers this January were unusually strong even accounting for seasonal patterns.

Analysts said Tuesday’s cash withdrawal indicated that the central bank did indeed have a tightening bias, albeit a mild one.

China Is the No. 1 Gold Buyer Chinese demand for gold soared by 32% to record levels last year, even as the price of gold slumped 28%.

Chinese demand for gold bars, coins and jewelry soared by 32% to record levels in 2013, even as the price of gold slumped 28%.

The surge in buying saw China overtake India as the world’s top consumer of physical gold, importing 1,066 metric tons of the metal to India’s 975 metric tons in 2013, according to new data from the World Gold Council. (A metric ton is equal to about 2,240 pounds.)

In India, consumption increased by 13% but further growth was curbed by import restrictions aimed at narrowing the country’s current-account deficit. The council estimates around 200 metric tons was smuggled into the country. (…)

The sharp rise in Chinese consumption partially offset a steep fall in gold demand elsewhere. While global sales of gold bars, coins and jewelry grew by 21%, gold-backed exchange-traded funds liquidated 51% of their gold holdings, putting 800 metric tons of the metal back on the market. The result was a net year-over-year decline in global gold demand of 15%, according to the gold council report.

Last year’s price slump contributed to a 2% fall in global gold supply, according to the report from the council, which is funded by mining companies. The supply of gold from mining companies increased 5% last year, but gold recyclers held back bringing their metal to market at depressed prices.

Worsening U.S. Divorce Rate Points to Improving Economy

(…) The number of Americans getting divorced rose for the third year in a row to about 2.4 million in 2012, after plunging in the 18-month recession ended June 2009, according to U.S. Census Bureau data. Whatever the social and emotional impact, the broad economic effects of the increase are clear: It is contributing to the formation of new households, boosting demand for housing, appliances and furnishings and spurring the economy. Divorces are also prompting more women to enter the labor force. (…)

Divorces were at a 40-year low in 2009, according to Jessamyn Schaller, an economics professor at the University of Arizona in Tucson, citing data from the federal government’s National Center for Health Statistics. The divorce rate more than doubled between 1940 and 1981 before falling a third by 2009, according to figures from NCHS, based in Hyattsville, Maryland.

The rise in divorces has coincided with an increase in household formation. Almost 5.3 millionhouseholds have been formed in the past four years after the figure slumped to fewer than 400,000 in 2009, according to the Census Bureau. That is bolstering the need for apartments, condos and furnishings.

“Separations and divorce often create additional housing demand by creating two households when there was one,” said David Crowe, chief economist at the National Association of Home Builders in Washington.

About 150,000 divorces were postponed or avoided between 2009 and 2011, said Philip Cohen, a sociology professor at the University of Maryland in College Park who linked breakups to the economic cycle in a January 2014 paper. (…)

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