Thursday, February 16, 2012
US: Initial claims now drop below the recession line. This has to be good news, and given the results for January, it should be a good omen for the February employment report. Since we still are not creating jobs in great numbers, it's very helpful to net employment to see slowing jobs losses. Because many do not qualify for unemployment it is true that there may be a hidden positive bias in these numbers, but such a bias would have formed over the long term and would be relatively static over a period of a few months, so the very healthy trend we see in this report recently should be mostly real. Also reduced backups in state unemployment processing should make these numbers more reliable week-to-week because lower claims numbers mean that processing is more timely.
US Housing starts/permits. I believe that housing is trending positively. However the big difference between seasonally adjusted YoY comparisons and non-seasonally adjusted YoY comparisons leaves me with raised eyebrow this month. I still have this report in the category of "error bars too large for meaningful analysis". I believe this report will become meaningful in June of 2012. Favorable weather seems to have affected the under construction and not-yet started numbers, but it shouldn't have affected permitting. But if you look at the authorized YoYs for January, SA numbers reported a 19% increase, whereas non-SA numbers reported a 1% increase.
China: Consider reading a remarkably good Bloomberg article on Chinese banking, deposits, and the effect that efforts to subvert the Chinese government's unrealistically low deposit interest caps have on lending. The slowing of Chinese bank deposit increases last year probably arose from private lending returns, which were much higher. To fight that, Chinese banks are beginning to offer products that are essentially money-market accounts, but they don't count them as deposits, and of course their higher payouts cut into bank profits:
At the same time, deposit growth at Chinese banks last year slowed to 12.7 percent after rising 20 percent in 2010, central bank data show.This is not surprising at all, but it does have implications:
In January, depositors pulled 800 billion yuan from savings accounts, about 1 percent of the total, the central bank reported. It was the largest monthly decline in at least 12 years, according to data compiled by Bloomberg.
Chinese banks made 738.1 billion yuan of new loans in January, the lowest lending for that month in five years. The industry’s loan-to-deposit ratio climbed to 69 percent at the end of January, the highest since 2005, according to Werner, indicating that banks don’t have much room to grow their loan books.In every country, the loan to deposit ratio is a crucial banking stat. In the US, it has shifted sharply favorably. In China, it's going the wrong way.
Now if banks have considerable hidden losses on their books, which they do, lower rates of return magnify the effect of those losses, so bank lending should be constrained. Couple that with recent unfavorable trends in foreign direct investment in China, and contemplate the total effect. This is not the sort of thing that bookkeeping changes really affect much. These are fundamentals that indicate some pretty hard constraints forming for the Chinese domestic economy, the likely shift of more internal investment to external investment, and a downshift in money circulation for the Chinese economy as a whole.
The government can directly insert money into the banks. The government can directly provide financing to companies, but either of these two strategies are unlikely to show the same multiplier effects of the last decade. So now it gets interesting.
If we had a positive energy policy (more supply, lower prices) it might help, but the Obamites and watermelons don't want that. So, here we are looking at the abyss.
I almost wish the Iraelis would go ahead and pull the trigger. This cat and mouse game with endless blah, blah, blah and pitiful sanctions is like water toture. Yeah, it would trigger a big spike in oil prices, but it wouldn't take long for the situation to be resolved and finally get back to normal.
Until investors get scared of taking big petroleum losses, the money out there ensures that prices will rise.
The demand side of the equation doesn't seem to pertain any more.
But, but, isn't supply/demand econ101? What next? Up is down? I see how they do it, (create expectations, that is) I just wonder how long they can get away with it.
Got me a smal position in gasoline. If I'm paying more at the pump, why not try to profit off it?
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