ECRI Calls Recession Based on "Contagion in Forward Indicators"; Just How Timely is the Call?

A number of people have asked me to comment on the ECRI's recession calls.

Link if video does not play: Economist Says U.S. Recession Is `Inescapable'

Tom Keen: "Single Sentence, why recession now"
ECRI's Lakshman Achuthan: "Contagion in Forward-Looking Indicators"

Select Quotes from the Video

  • "We are looking at forward looking indicators, over a dozen leading indicators on different aspects of the US economy, and it's wildfire"
  • "Anyone who is looking for a job has a right to call this a depression"
  • "It's going to get worse"
  • "Spain never left recession, I don't care what the GDP numbers say. Italy's on the verge, and the [European] core is not looking so good."
  • "Dr. Copper is a short-term leading indicator. This thing has room to run. Global industrial growth is not turning up anytime soon"
  • "Government bond yields can go even lower. Look at Japan"
  • "Future inflation gauge for Europe is heading down"

Superb Interview

I have to give Achuthan credit. I think that was a superb interview. However, I still do not appreciate the half-truths and hype in today's ECRI report U.S. Economy Tipping into Recession
Last year, amid the double-dip hysteria, we definitively ruled out an imminent recession based on leading indexes that began to turn up before QE2 was announced. Today, the key is that cyclical weakness is spreading widely from economic indicator to indicator in a telltale recessionary fashion.

Why should ECRI’s recession call be heeded? Perhaps because, as The Economist has noted, we’ve correctly called three recessions without any false alarms in-between. In contrast, most of those who’ve accurately predicted a recession or two have also been guilty of crying wolf – in 2010, 2005, 2003, 1998, 1995, or 1987.
A Look at ECRI's Recession Predicting Track Record

The ECRI does not call recessions in advance. Perhaps they caught this one, but we will have to wait and see. I suspect the NBER will date this recession back to June or July and if so the ECRI will be about a quarter late.

More importantly the ECRI totally blew the the recession that began in 2007, as well as the strength of it.

As long as the ECRI persists in its false claims, I will persist that people take a look at ECRI's recession predicting track record.

Flashback November 2007 ECRI Vol. XII, No. 11: Weakness In Leading Indicators Not Yet Recessionary

Please consider the following image snip. Highlighting is mine.

ECRI: "The difference this time is that, even though the shocks have arrived, good leading indicators like the USLLI are not showing recessionary weakness ... This is a key reason why the economy is not yet in a recession. .... weakness is not pronounced, pervasive and persistent enough to be recessionary. .... leading indexes are still holding up sufficiently for a recession to be averted."

Window of Opportunity

Friday, January 25, 2008
ECRI Says There Is A Window of Opportunity for the US Economy

The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession. ....

This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet.

ECRI Denial

The ECRI laid it on pretty thick, openly mocking the "best advertised [recession] in history" while claiming "This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet."

The irony is the recession was about 2 months old at the time.

Recession of Choice

Friday, March 28, 2008
ECRI Calls it "A Recession of Choice"

The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession.

It is a somewhat different story with regard to GDP, because the cyclically volatile manufacturing sector still accounts for 36% of GDP. A mild downturn in that sector should limit the decline in GDP in this recession.

Marketing Spin

In contrast note the spin from The Great Recession and Recovery.

Accompanying that slide the ECRI said "And we issued a clear Recession Warning noting that: “The magnitude of oil and interest rate shocks are near recessionary readings.” A month later, as we now know, the recession began.

Compare that slide, with the above image snip above.

The ECRI was clearly bragging not only about besting the yield curve, but also said "The Difference this time is that, even though the shocks have arrived, good leading indexes like USLLI are not showing recessionary weakness. ... as Chart 1 shows, the level of the USLLI is already a little lower now than it was three months earlier. However, this weakness is not pronounced, pervasive and persistent enough to be recessionary"

It's Different This Time!

After the fact, the ECRI took one statement out of context, a statement they went to great lengths to refute, then has the blatant gall to claim they issued a "recession warning".

Recessions Predicted in Arrears

Once again, I think Lakshman Achuthan did an excellent job in the interview. He stated the recession case well.

However, the ECRI has a history of waiting until a recession is baked in the cake, then proclaiming it before the NBER and calling it a success.

The revisionist history in regards to "no misses" is plain to see. The ECRI totally blew the call in 2007 and early 2008. That is not the galling part. Calls are easy to miss. The galling part is the ECRI's revisionist history related to the blown call.

The ECRI's integrity will remain in question as long as it continues to perpetuate the myth of a perfect record. The simple fact of the matter is no one has a perfect track record at calling recessions, interest rates, the stock market or anything else.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

How NOT to Trade This Market

From The Stock Sage on StockTwits.

I’ll let you in on a little secret: This market is here to fool you and take your money. Yeah I know, nothing ground breaking there. However, this market continues to fool the majority of participants who continue to play for breakouts and breakdowns. This is NOT a trending market, it is a market caught in a violently oscillating range. Those who insist on swing trading in search of 5-10% momentum moves have been, and will likely continue to be sorely disappointed. Case in point – yesterday’s action in $AMZN:

It takes a little more than a short term trend line break to take money out of this market. One must remember that the HFT algos are designed to trigger stops and cause trend line breaks in order to suck in human money. The HFT algos love mean reversion, this is their market until it isn’t.

I don't want to copy the whole post so go to this link (out off respect to the author) so for the entire article and more charts.

Thanks to Shaza for bringing this one to us.

It Ain't over Til the Fat Lady Sings: An Ode to Peter Brandt...he stuck to his guns ( despite all the naysayers)  and got all of his index  calls right...then he trotted out ...The Fat Lady!

From Fund My Mutual Fund

Quarter 3 a Horror Show for Commodities

While the S&P is down low double digits for the quarter, the real damage was elsewhere.  Small caps have been obliterated, as the Russell 2000 is down well over 20%, and commodities have simply been decimated.  Below is the quarterly performance in the group with a few hours to go.  You eeked out some small gains in gold and ...err, rough rice and live cattle.  Otherwise, it's a sea of double digit red.

[click to enlarge] 

Real Disposable Personal Income Drops Second Consecutive Month; Drop is Highly Deflationary

Inquiring minds are digging into the just released Personal Income and Outlays Report for August 2011.
Personal Income

Personal income decreased $7.3 billion, or 0.1 percent, and disposable personal income (DPI) decreased $5.0 billion, or less than 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $22.7 billion, or 0.2 percent. In July, personal income increased $17.1 billion, or 0.1 percent, DPI increased $14.4 billion, or 0.1 percent, and PCE increased $76.6 billion, or 0.7 percent, based on revised estimates.

Real disposable income decreased 0.3 percent in August, compared with a decrease of 0.2 percent in July. Real PCE decreased less than 0.1 percent, in contrast to an increase of 0.4 percent.

Wages and Salaries

Private wage and salary disbursements decreased $12.2 billion in August, in contrast to an increase of $23.8 billion in July. Goods-producing industries' payrolls decreased $1.3 billion, in contrast to an increase of $6.3 billion; manufacturing payrolls decreased $2.9 billion, in contrast to an increase of $5.8 billion. Services-producing industries' payrolls decreased $10.9 billion, in contrast to an increase of $17.5 billion. Government wage and salary disbursements increased $0.4 billion, in contrast to a decrease of $1.8 billion.

Real DPI, real PCE and price index

Real DPI -- DPI adjusted to remove price changes -- decreased 0.3 percent in August, compared with a decrease of 0.2 percent in July.

Real PCE -- PCE adjusted to remove price changes -- decreased less than 0.1 percent in August, in contrast to an increase of 0.4 percent in July. Purchases of durable goods increased 0.1 percent, compared with an increase of 2.2 percent. Purchases of nondurable goods decreased 0.4 percent, compared with a decrease of 0.5 percent. Purchases of services increased 0.1 percent, compared with an increase of 0.4 percent.

PCE price index -- The price index for PCE increased 0.2 percent in August,compared with an increase of 0.4 percent in July. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent.
Some charts will help put these numbers onto perspective.

Real Disposable Personal Income Since 1969

Real Disposable Personal Income Since 1989

Real Disposable Personal Income % Change from Year Ago

The second chart is the same as the first except the time period is smaller to better show the decline in the last recession. Together the charts show an unprecedented decline in real personal income.

The third chart shows percentage change from a year ago. Note how rare it is for this number to cross the zero-line. It is headed there again, following an unprecedented drop in 2008-2009.

Unlike the 1970's where consumer prices were soaring this decline comes at a time when the Personal Consumption Expenditures Price Index is tame.

Personal Consumption Expenditures (PCE) Price Index

The above chart courtesy Personal Consumption Expenditures: Price Index for August by of Doug Short.

It's Credit that Matters

Inflationists will immediately howl over excluding food and energy from the price index (and they will be right). However, inflationists conveniently ignore the collapse in home prices, instead focusing on the price of a Big Mac.

When energy prices send price index lower (which will happen shortly), the inflationists will conveniently ignore that data as well, preferring to scream inflation when commodities are rising while hiding under a rock when commodity prices fall.

Moreover, and more importantly, focus on prices is silly in the first place because in a credit-based economy it is expansion and contraction of credit that matters, not modest increases or decreases in prices (totally ignoring the plunge in home prices to boot).

Drop in Personal Income Highly Deflationary

With real wages falling and jobs exceptionally hard to get (and keep), this drop in personal income will be accompanied with more unwillingness of banks to lend, and therefore must be considered highly deflationary.

For further discussion as to a realistic approach to what inflation and deflation are all about, please see

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Market Thread 9/30

I'm out of town this morning and will be unable to post an update for today. Please use this thread for daily comments and news sharing. Thank you.

Shilling Sees Evidence of Deflation in 5 of 7 Key Areas; Bernanke Begs Congress for Fiscal Stimulus, Admits Fed is Out of Bullets

Shilling Sees Evidence of Deflation in Financial Assets, Tangible Assets, Median Income, Commodities, Currencies

Shilling says "Forces of deleveraging and deflation are greater than the Fed can handle."

I certainly agree and have been saying the same thing (correctly I might add) for several years. All the Fed has ever managed to do is slow the deflationary outcome and that is in spite of $trillions in both monetary stimulus from the Fed and fiscal stimulus from Congress.

Once again, if you mistakenly think inflation and deflation are about consumer prices instead of vastly more important credit, you will come to a different conclusion.

For further discussion as to what deflation is all about, please see

Fed Out of Bullets

In spite of what the Fed says and wants everyone to believe the Fed is Out of Bullets
Let's Twist Again (and Not Much More) as I expected

There were a lot of expectations regarding numerous options the Fed might take today. I did not expect the Fed would risk trying them.

See Six Things the Fed May Announce Tomorrow (But Likely Won't); Would Any of Them Matter? Gaming the Reaction for details.

The Fed said "Let's Twist Again" and not much more other than throwing a bone at mortgages. Neither will work and the Fed is out of bullets.
Bernanke Begs Congress for Fiscal Stimulus

In a question session following Bernanke's speech Lessons from Emerging Market Economies on the Sources of Sustained Growth (in which Bernanke proves he does not really understand what is really happening in China), Bernanke begged Congress for help and admitted the Fed is out of bullets.

Yahoo Finance reports Bernanke: Long-term unemployment a national crisis
Federal Reserve Chairman Ben Bernanke said Wednesday that long-term unemployment is a "national crisis" and suggested that Congress should take further action to combat it. He also said lawmakers should provide more help to the battered housing industry.

Bernanke said the government needs to provide support to help the long-term unemployed retrain for jobs and find work. And he suggested that Congress should take more responsibility.

In the question-and-answer period, Bernanke cautioned U.S. lawmakers against cutting deficits too quickly to reduce budget deficits. He has said that could put the fragile economy at risk.
In practical terms, Bernanke was begging Congress for help, and in the Q&A session, Bernanke went even farther.

Please consider Everyone Missed It, But Ben Bernanke Peed On The Fed Again Last Night by Joe Weisenthal.
We've talked about this before, the fact that Ben Bernanke is growing increasingly vocal about his skepticism that monetary policy can do much to save this economy.

This is a HUGE change from someone who once said that the Great Depression was entirely the Fed's fault, and that the Fed would never let that happen again!

In his daily note, Art Cashin caught a key bit from a Ben Bernanke Q&A last night after he gave a speech, further emphasizing that Bernanke has radically changed his views.

"Monetary policy can do a lot, but monetary policy is not a panacea," Bernanke said.
That is a close an admission that the "Fed is out of Bullets" that you are ever going to see.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Germany Retail Sales Decline 2.9%, Most Since May 2007; Retail Sales in the Eurozone Fell Fifth Consecutive Month

Those looking for evidence that Europe is already in recession can find it in this headline: German Retail Sales Decline More Than Forecast
German retail sales declined the most in more than four years in August as concerns about the economic impact of Europe’s sovereign debt crisis sapped consumers’ willingness to spend.

Sales, adjusted for inflation and seasonal swings, slumped 2.9 from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest drop since May 2007. Economists forecast a 0.5 percent drop, according to the median of 18 estimates in a Bloomberg News survey. Sales rose 2.2 percent in the year.

The debt crisis is threatening to tip Europe back into recession, damping confidence even as falling German unemployment boosts household purchasing power in Europe’s largest economy. While a possible Greek default has clouded the outlook, the Bundesbank still predicts a “robust” third quarter and growth of about 3 percent this year.

The European Commission on Sept. 15 cut its euro-region growth forecasts for the second half and warned the economy, Germany’s biggest export market, may come “close to standstill at year-end.” The International Monetary Fund in Washington on Sept. 20 also lowered its growth projections for the euro region and Germany for this year and next.

Deutsche Lufthansa AG on Sept. 20 lowered its full-year profit forecast and said it would deepen capacity cuts this winter after last month’s results were weaker than expected and forward bookings slumped.

Still, Germany’s jobless rate fell to 6.9 percent this month, the lowest since the country’s reunification two decades ago, as companies stepped up hiring to meet export orders.
I will take the "under" on 3% German GDP in the second half. Moreover, given the slowdown in Europe, the US, Australia, and now China, the ability of the vaunted German export machine to keep humming along is simply not believable.

Retail Sales in the Eurozone Fell Fifth Consecutive Month

Finfacts reports Rate of decline in Eurozone retail sales slows in September

Retail sales in the Eurozone fell for the fifth month in a row in September, according to Markit’s latest PMI (Purchasing Managers' Index) surveys. That said, the rate of decline slowed to a marginal pace as sales rose in both France and Germany. The survey data again signalled stubbornly high inflationary pressures in the sector, with purchase price inflation at retailers the strongest in over three years.

The Eurozone Retail PMI is a single-figure indicator of changes in the value of sales at retailers. The PMI is adjusted for seasonal factors, and any figure greater than 50.0 signals growth compared with one month earlier. The PMI remained below 50.0 in September, signalling a fifth successive monthly drop in sales revenues. The current sequence of decline is the joint-longest in the past two years. But the index rose during the month, to 49.6 from 48.0, indicating only a marginal decline in sales revenues. The latest PMI figure suggested that the pace of decline in retail sales as measured by the EU’s statistical office Eurostat (on a three-month-on-three-month basis) may ease in the coming months.

Markit says Eurozone retail PMI figures are based on responses from the three largest euro area economies. September figures suggested that Italy remained the weak link, registering a seventh successive monthly drop in retail sales. The rate of contraction was the slowest since March, but still strong overall.

German retail sales continued to rise in September, extending the current sequence of growth to 12 months. This is the longest period of expansion since monthly sales data were first collected in January 2004. The rate of growth slowed to a weak pace, however.

French retail sales rose for the first time since May. The rate of growth was modest, however, and slightly weaker than the average for 2011 so far.
The articles seem at odds with each other since they were both released in the last two days. However, the Bloomberg article was for August, Finfacts was for September.

The important points are the European retail sales PMI is negative and Germany is weakening.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Seton Hall to lower tuition rate by $21K matching Rutgers; Cost of College Education will Crash; Moronic Educators Object to Lower Costs

I have been waiting for and expecting news headlines just like this one: Seton Hall will lower tuition rate by $21K to match Rutgers for some incoming freshmen
Getting good grades and high SAT scores could save some Seton Hall University freshmen more than $21,000 a year in tuition costs under an unusual new program that could pit the Catholic school against Rutgers University for some of the state’s top students.

Starting next fall, Seton Hall will match Rutgers’ tuition — which is currently $10,104 a year for most in-state undergraduates — if freshmen score at least 1,200 on the combined reading and math sections of their SAT tests and graduate in the top 10 percent of their high school class.

Other students on the South Orange campus will continue to pay Seton Hall’s regular annual tuition rate, which is currently $31,440 before room, board and other fees are added.
Expect Plans to Spread

Drew University in Madison rejected the plan as a publicity stunt. However, I expect such plans to spread. I also expect more competition from online classes.

If Congress really wants to do something about the high cost of education, it would:

  1. Cancel student loan programs
  2. End support for the University of Phoenix and all for-profit universities
  3. Accredit more online universities
  4. End collective bargaining of public unions

Cost of College Education will Crash
Within a Decade

The cost of college education would sink like a rock with those four structural improvements.

Interestingly, even with piss poor government policies, places like Seton Hal, prices have collapsed for some students. Right now the opening toss applies to 10% of the students. Next year it may be 25% of students and offered at more universities.

For those who have kids in grade school, I would not advise programs that lock in today's rates if paid in advance.

The cost of college education will crash within a decade, simply because it has to. Moreover, the free market would lower costs sooner and far more dramatically, if only given the chance. Wages are not supportive of current education costs.


I wrote the above quoting the New Jersey Start Ledger article written yesterday. I received two emails just now pointing to additional articles in the Wall Street Journal and New York Daily News.

Please consider the Journal Article Seton Hall Cuts Cost For High Achievers
Seton Hall University will radically restructure its tuition for next year, slashing costs by more than 60% for all incoming students who have achieved a set of academic standards in high school, officials announced on Wednesday.

Some national education experts expressed concerns that the plan could accelerate a national trend: a shift in the focus of financial aid toward merit-based scholarships rather than awards based on need.

"There's only so much money, and at the end of the day every college needs to make decisions about who they'll subsidize," said Patrick Callan, the president of the National Center for Public Policy and Higher Education.

The proposal raised concerns among some education experts, who said that schools are moving further away from the original intent behind subsidizing higher education: to help people attend college who couldn't afford it otherwise.

"When you just flat out across the board knock the price down for high-achieving students, you're going to be subsidizing a lot of students who don't really need the money," said Mr. Callan.

This form of subsidization "tends to help the institution attract the freshman class that it wants to raise the academic profile, raise the U.S. News rating," he said. "It doesn't have much to do with providing opportunity to people who wouldn't have it."

"It becomes, from a budget point of view, a race to the bottom," said Jerome Sullivan, the executive director of the American Association of Collegiate Registrars and Admissions Officers. "Someone else will do the same thing only they'll do it $50 better. And then someone else will do it $100 better."

The ultimate result, he said, is that "the budget gets ravished because revenue begins to disappear and in the end it's low-income families as well as the institution that lose out."
Failure of Subsidies

One of the reasons college education is so high is because union activists and socialists want to send everyone to college whether they are qualified or not. When that drove up costs, government "aid" programs were invented, not for the benefit of students, but rather for the benefit of educators. Students became debt slaves in the process.

The education mess has gotten bigger and more costly ever since programs were put in place to subsidize students, many of whom did not belong in college in the first place, but rather a trade school or apprentice program.

Moronic Thinking of Jerome Sullivan

Note the moronic thinking of Jerome Sullivan. He is actually complaining about costs of education dropping, complaining price wars will hurt low-income families.

The fact of the matter is the more prices drop, the more people can afford to go to college.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

'That idiot in Brussels': BBC forced to apologise for interview 'ambush'

The BBC has apologised to the EU after a Brussels official was repeatedly called an "idiot" when taking part in a flagship news broadcast on the eurozone debt crisis.

TV bosses said they contacted European Commission economic affairs spokesman Amadeu Altafaj Tardio to apologise for "discourtesy" that led him to walk off the Newsnight show during a video-link appearance from Brussels on Wednesday night.
The clip turned into an internet hit - and piled on discomfort for Britain's state media giant, already under fire for an interview with a self-styled independent trader who claimed bankers were "dreaming of another recession" so they can make more money.
The Commission, the EU civil service central in international negotiations to prevent the eurozone crisis from turning into a global economic catastrophe, had earlier demanded a formal apology.
Portuguese national Altafaj joined a discussion panel including Peter Oborne, a noted eurosceptic columnist primarily associated with Britain's Daily Telegraph newspaper.
In what commission insiders viewed as an ambush, he was asked by star presenter Jeremy Paxman at the start of the debate: "Would you like to apologise, Mr Altafaj Tardio, for the lack of European leadership in this crisis?"
Altafaj defended the "political project" that is the creation of the eurozone in 1999, arguing that economics alone were not the reason to proceed with successive bailouts for Greece, Ireland and the Portugal.

Peter Oborne 'Idiot' Comments Prompts EU Spokesman To Storm Off Newsnight

link if above video does not play:

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear

Here is an interesting email from reader "Kevin" regarding the crashing loan-shark market in China.
Hello Mish

I am a long time reader and want to bring to your attention on a new development in China: private business owners are disappearing or jumping off buildings because they can no longer pay off black market shark loans.

According to national new paper Economics Information (part of state media Xinhua), on 9/22, Hu Fulin, owner of the biggest eyeglass manufacture of the city of Wenzhou disappeared, leaving behind 2 billion RMB debt.

On 9/25, 3 more business owners in Wenzhou disappeared (owners of copper, steel and shoe manufacture).

On 9/27, owner of "Zhengdeli", a shoe manufacture jumped off of a 22 story building and killed himself.

Since April this year 29 private business owners have disappeared, all of them had over 100 million RMB businesses. 11 of the 29 owned shoe manufacturing businesses.

An analyst from China Investment (China's Sovereign investment fund) pointed out that it's because they are squeezed by a rapid increase of component and labor costs. A rising RMB is also a reason why many export oriented companies are hit. In August, Zhou Dewen, President of Wenzhou Small-Medium Business Development Association said the profit margin of Small-Medium businesses in Wenzhou has dropped to under 5% and absent of policy changes, 40% of businesses in Wenzhou will go out of business by next Spring Festival (late Jan 2012)

The complete article is here (in Chinese):

Another article (titled: China's Shark Loans Crashing; "Grey Finance" Brewing the Chinese Crisis) states that most of those owners have borrowed "private" loans (typically 70% of all loans), with MONTHLY interest rate ranging from 3% to 10%.

About 89% of families/individuals and 59% of companies in Wenzhou participated in such "private loan" schemes. In Erdos (the ghost city you blogged many times), such "private loans" are more than 200 billion RMB with annual interest rate over 60%. Now they are crashing, causing rampant unfinished real estate projects in Erdos.

Note that Wenzhou is one of riches cities in China (No. 3 in disposable income per capita), and is considered the "Birthplace of China's Private Economy". Wenzhou people are among the first that got in trades, manufacturing, export, and in recent years real estate investment/speculation. The Wenzhou economy is considered the "weathercock" of Chinese economy.
Loan Shark Credit Crisis Brewing

Courtesy of Google Translate please consider Gray Chinese-style financial credit crisis brewing area
"Economic Information Daily" correspondent from the multi-confirmed the day before and then there were two causes of Wenzhou City, inability to repay loan sharks and jumping events. According to informed sources, the two business owners are the local shoe factory owner, debt of millions.

Since April this year, Wenzhou, missing more than 80 business owners, the company closed, the event staff pay talks, since September alone, there are up to 25 cases. A local lender told reporters, "At present, only the flight of capital Longwan area estimated to have 100 million or more, many SMEs liabilities, the banks accounted for 30%, accounting for 70% civil usury."

Crazy expansion of private lending market chaos

Some sharks can reach up to 180% per annum. ... "many companies debt snowball, private lending market has not been given attention now has about 25% local to 30% of companies in trouble, some in the suspension or semi-shutdown state, but by the end of this class companies are more likely accounted for 40% to 50%. "
Financial Earthquake Triggered by Loan Shark Business

Also courtesy of Google Translate, please consider loan-sharking business owners who jumped to escape
September 22, Wenzhou, Zhejiang Jiang Xintai largest optical company chairman Hu Fulin liabilities 2 billion fled, triggering a major earthquake Wenzhou business. Wenzhou Zhou German SME Development Association president, said Hu Fulin liabilities involving nearly ten thousand people, dozens of companies, including upstream and downstream Nobuyasu and creditors, the incident is still fermenting, the impact will be further expanded.

Hu Fulin fled after the September 25 Wenzhou enterprises have three big boss fled; afternoon of September 27, Wenzhou shoe boss is profit because of debt problems from Wenzhou Shun Building, 22 Floor, Jin jumped to death.
The translations are choppy, but the ideas very easy to spot.

$SSEC - Shanghai Exchange -Daily Chart

click on chart for sharper image

China is down another 1% (not reflected in the above chart), to 2368 as of 2:00 AM Thursday. It closed at 2365.

click on chart for sharper image

The Shanghai stock market depicts a credit bubble that collapsed in 2008, partially rebounded, and is sinking once again.

China did not decouple from the global economy, nor is there any reason to believe it will, or should. China's debt bubble, housing bubble, and copper Ponzi financing schemes are collapsing.

Copper Ponzi Scheme: See Ponzi Financing Involving Copper Trade Gone Wild In China for details of a copper financing scheme now gone bust.

Shark Loans: See Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin for details on how loan shark operations fueled China's real estate bubble.

Ghost Cities: I have done many stories on China's ghost cities, most recently World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

Property Loans Halted: Property Loans Halted in China's 2nd and 3rd-Tier Cities; Is China's Spectacular Real Estate Bubble About to Pop?

All of these schemes are starting to unravel in a major way.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Morning Update/ Market Thread 9/29 - Inflation/ Deflation Debate Debunk Edition…

Good Morning,

Equity futures are higher this morning, with the dollar lower, bonds twisting lower for the fourth day in a row, oil higher, gold & silver higher, and food commodities mixed.

Our third and “final” look at Q2 GDP came in higher than expected, adjusted from +1.0% to 1.3% on the 1.2% expectation. Again, this is all nonsense as our GDP is vastly overstated. In fact even what they call “final,” isn’t really final, as it will be adjusted once more next year. Tiresome debunking the continuous flow of disinformation statistics – this one suffers mostly from counting credit creation as growth, as well as understating inflation which also overstates growth. For what it’s worth, here’s econocomplicit:
Economic growth for the second quarter ended up stronger than previously estimated but remained anemic. The Commerce Department's final estimate for second quarter GDP growth was bumped up to a rise of 1.3 percent annualized, compared to the prior estimate of 1.0 percent annualized and to first quarter growth of 0.4 percent. The median market forecast called for a 1.2 percent annualized gain.

Final sales of domestic product were revised to an annualized 1.6 percent from the previous estimate of 1.2 percent. Final sales to domestic purchasers were revised up to 1.3 percent from the second estimate of 1.1 percent annualized. By components, the most notable upward revisions were to nonresidential structures, PCEs, and exports.

Economy-wide inflation was revised up incrementally to 2.5 percent annualized, compared to the previous estimate of 2.4 percent and the first quarter rise of 2.5 percent. Analysts had projected a no revision number of 2.4 percent.

Overall, economic growth was very sluggish during the first half of 2011. More recent monthly data are very mixed but net suggest marginal strengthening at best for the third quarter.

Speaking of trumped data, Jobless Claims suddenly fell back below the 400k mark down to 391,000. Of course the prior week was revised higher, this time by 5k. Here’s Econoguess:
It turns out Hurricane Irene may have elevated jobless claims all along. At least that's what the Labor Department is suddenly hinting at, attributing a giant 37,000 decline in initial claims in the September 24 week to state offices catching up with hurricane-related data. A Labor Department official also told Market News International that end-of-quarter factors are also coming into play as offices catch up on their work. Adjustment problems tied to calendar shifts may also be at play.

Initial claims totaled 391,000 in the week, far below Econoday's consensus for 420,000. The prior week is revised 5,000 higher to 428,000. The latest week is the first sub 400,000 reading since early August and is the lowest since early April. The four-week average is down 5,250 to 417,000 from a revised 422.25 in the prior week to end five straight weeks of increases. Still the average is roughly 5,000 higher than the month-ago comparison which isn't a positive signal for the monthly employment report.

Continuing claims, in data for the September 17 week, fell 20,000 to 3.729 million with the four-week average down 5,000 to 3.743 million. The month-ago comparison is mildly positive showing a nearly 15,000 decrease. The unemployment rate for insured workers is unchanged for a seventh week at 3.0 percent.

Stock futures are rising sharply in reaction to this report as well perhaps to the upward revision to second-quarter GDP which came out at the same time. But there's plenty of surprising noise in today's claims report which may limit its impact on the markets and on expectations for next week's employment report.

“Surprising noise in today’s claims report…” Yes, it’s okay to call it what it is… manipulation. Remember, any number above 350k is a jobs losing proposition, we’ve been shedding jobs for years now without pause.

Pending Home Sales are released at 10:00 Eastern.

Yesterday the Shanghai stock market along with copper price both simultaneously hit new two year lows. Over the past 10 years or so, the Shanghai market and our SPX have moved pretty much together. When they diverge from one another, the other usually plays catch-up. Prior to the late 2007/2008 decline, the Shanghai led the way, a big gap developed and then the SPX crashed. A pretty similar gap has developed now, a three year chart is seen below:

There’s no doubt that China got overheated and that “growth” (money creation) is now slowing. Because a large percentage of China’s business is American centric, they do tend to follow one another.

Yesterday a guest posted some thoughtful comments on the Daily Market Thread. He points out that the central banks create and then feed BOTH inflation and then deflation, using the inflationary leg as the set up to trap people in debt, and then the deflationary leg to strip them of the real assets. This is definitely true, central banks have intentionally caused deflation and used it to their advantage for centuries – JPMorgan famously did this, but I also think this is presently the case as well.

All the central bank has to do is tighten the supply of money, and those in debt wind up turning over real assets to the banks. Thusly the banks profit on the ride up, and then they profit again on the way down gathering assets to inflate again on their next cycle. If I were a narcissistic central banker, this would sound like good sport, and I would encourage others to debate all day long which is coming next, inflation or deflation.

Like I’ve always maintained, there are going to be waves of both, but since private individuals control the production of money, the overall trend will be more and more money until confidence in the money system is completely gone. We are losing confidence now, I would maintain that confidence in our money is too high, and that the system is closer to collapse than the vast majority of people know.

It is the deflationary wave that keeps the system going longer – the more it is fought, the shorter the life of the currency, the sooner those who control its production will lose their power. The central banks are under pressure now, they are walking a tightrope that is not attached at the end to which they are progressing.

My point is that there is no point in arguing inflation or deflation. There is both, and both work to the people’s disadvantage as long as private bankers are in charge. Focus your positive energy on them, withdraw your support of their schemes and their puppet politicians, their negative karma will bite them soon enough.

Enron-i-sation of Europe; Is the Euro "Beyond Rescue"?

Steen Steen Jakobsen, chief economist for Saxo bank in Denmark discusses the Enron-i-sation of Europe in an Email "Macro Brief"
The Enron-i-sation of Europe: Finding solutions through SPV’s speak for themselves. Apart from the inability to being implemented (if German constitutional court is heard) it’s also a slippery road towards permanent aid. Hiding debt in more and more obscure vehicles is similar to Enron having 1000s of SPV hiding the “real issue”. Debt is debt. It needs to be paid back or someone needs to take a loss!

New financial tax: This is major game changer – this is in my opinion the beginning of the end for Europe – the “new new” in this scenario is that G-20/EU seems to have found an academic documentation that the tax may not need be applied “universally” – they mention domestic taxes in India(not freely trading market) and UK.

The suggested (not confirmed) level of taxes are 0.1 pc on shares and bonds (1 mio. EUR equals “tax” of 1.000 EUR) and 0.01 on derivatives or 1.4 pips on each side of EURUSD! This is MASSIVE tax……. And as such shows that my Maximum Intervention concept is now operating a top speed.

Banks are now meeting around Europe to move their operation outside the EU.

We are no longer doing two steps forward, three steps back, but one step forward and ten back. Furthermore the so called “Plan” for saving Europe is not reality.

All my sources confirm, again and again, this is a desperate attempt to find the right path through this mess. The people in the know, realize there are no longer any good solutions only pain. The pain from here is either 2-5 years of recession or 10-15 years. Enron-i-sation & tax makes this week the new low in solidarity, rationality and solution seeking.

Cash is king – and cash in UK, Switzerland, Singapore, and US even more King-ish. I remain EXTREMELY bearish on this.
Notes on SPVs

Investopedia describes the Special Purpose Vehicle/Entity - SPV/SPE
What Does Special Purpose Vehicle/Entity - SPV/SPE Mean?

1. Also referred to as a "bankruptcy-remote entity" whose operations are limited to the acquisition and financing of specific assets. The SPV is usually a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.

2. A subsidiary corporation designed to serve as a counterparty for swaps and other credit sensitive derivative instruments. Also called a "derivatives product company."

Thanks to Enron, SPVs/SPEs are household words.
Euro is "Practically Dead, Beyond Rescue"

Bloomberg reports Euro Is Beyond Rescue in Debt Crisis, Szalay-Berzeviczy Says
The euro is “practically dead” and Europe faces a financial earthquake from a Greek default, according to Attila Szalay-Berzeviczy, global head of securities services at Italy’s biggest lender UniCredit SpA. (UCG)

“The euro is beyond rescue,” Szalay-Berzeviczy said in an opinion piece for, a Hungarian news portal, which he signed as former chairman of the Budapest Stock Exchange. “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”

“It’s one scenario among many, one which may lead to the breakup of the euro area via a banking crisis,” he said in the interview. “This can still be averted. It primarily depends on the Germans, and secondly on European citizens, especially on how much the Greek population can tolerate.”

Szalay-Berzeviczy’s “are his own personal view and do not reflect the position of the company,” Claudia Bresgen, a spokeswoman at UniCredit in Munich, Germany, said by e-mail.
"Beyond Rescue" and "This can still be averted" are logical opposites.

Nonetheless, it's interesting to see such blunt comments from high places at major lenders, even if those comments "do not reflect the position of the company".

For more on the twisted mess in Europe, please consider these recent posts

I struggle to see how the Eurozone can survive intact. No currency union without a fiscal union has ever survived and the German court ruled out a fiscal union without a new constitution and popular referendum. Good luck with that given 75% of Germans oppose more bailouts. See the above articles for details.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Growing Isolation in Germany as Merkel's Allies Abandon Her; Polls Show 75% of Germans Oppose More Bailouts; Clock Ran Out of Time

German Chancellor Angela Merkel will likely survive a key vote on Thursday to expand the EFSF bailout fund, but passage now depends on support from the opposition.

Even more telling is the increasing isolation sentiment in Germany. Polls show shows three-quarters of Germans are against the expanded European rescue fund that's subject to Thursday's vote. So, who is it that politicians represent?

The Wall Street Journal reports Germans Reconsider Ties to Europe
When German lawmakers vote Thursday on whether to put more money into Europe's bailout fund—a step many investors see as essential to prevent a market panic—several conservative deputies, including Wolfgang Bosbach, a prominent champion of European integration, are expected to vote "no." Mr. Bosbach, a high-ranking conservative in Ms. Merkel's Christian Democratic Union, has recently become an outspoken critic of the bailout strategy.

"The first medicine didn't work, and now we are simply doubling the dose," said the lanky Mr. Bosbach of the Greek debt crisis. "My fear is that when the big bang happens, it won't just be us who will have to pay but generations hereafter."

The lawmaker rebellion underscores a broader shift among Germans about their nation's role in Europe since the crisis erupted nearly two years ago. While the Thursday vote is expected to pass, and a vast majority of Germans continue to feel a strong, historical commitment to Europe, with a common currency as its anchor, many have grown doubtful of whether it's worth the ever-growing cost of saving the euro.

A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund that's subject to Thursday's vote.

The measures before German parliament today would nearly double the main euro-zone's bailout fund's lending capacity to €440 billion ($595 billion) and allow the fund to buy sovereign bonds in the open market.

Germany's contribution to the new, expanded rescue loan package is €211 billion, still less than half the €500 billion it pledged to bail out its banks in 2008. But many see the European Central Bank's moves to buy billions of euros in low-grade government bonds of southern European countries as another sign that European institutions are slipping away from them.

Even more unpalatable is the prospect of making the euro zone collectively liable for its members' debts, as a growing chorus of European officials have recently urged. Many argue so-called euro bonds, which Ms. Merkel has steadfastly opposed, are the bulwark to relieve financial pressure on debt-ridden members and underpin the euro zone's full fiscal union.

But to Germans, it would mean relinquishing their hard-won low borrowing rates to pay for the largess of more free-wheeling members.

"Ultimately the euro-bond issue will come to a head, and Ms. Merkel will have an impossible dilemma," says one senior German coalition lawmaker. "If she goes back to the German people with [euro bonds], she is out. If she doesn't, she will be a very lonely person in Europe."
Merkel's Clock Ran Out of Time

The vote in Germany is a foregone conclusion, but it is the end of the line for Merkel, whether or not she needs opposition votes for passage.

She is taking a stance 75% of the nation does not agree with, and that stance is guaranteed not to work. The German court nixed Eurobonds, permanent bailout funds, and leveraged use of the EFSF.

Greece is going to need more and there is no more to give. Time will not improve this situation but it's a moot point. The clock ran out.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Government and the Power to Issue Fiat Currency Out of Thin Air

Here is an excellent video on fiat currencies by my friend Dominic Frisby at Frisby's Bulls and Bears.

Bear in mind we are in credit based economy, and credit markets can override the Fed's ability to create inflation, assuming of course a definition of inflation that encompasses credit.

Please see Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over for a discussion.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Coffee Falls in Robusta Rout While Starbucks Cup Costs $1.50: Commodities

Farmers from Vietnam to Brazil will supply a record robusta crop in the marketing year that begins next month, extending a slump in coffee futures that spurred Kraft Foods Inc. (KFT) and J.M. Smucker Co. to cut prices.
Production will rise 5.4 percent to 3.29 million metric tons (54.9 million 60-kilogram bags) in the 2011-12 season, the U.S. Department of Agriculture estimates. Vietnam and Brazil, the biggest producers, will reap the most beans ever. Robusta traded on the NYSE Liffe exchange in London fell 26 percent since March, and will drop another 5 percent to $1,884 a metric ton by Dec. 31, according to the mean in a Bloomberg survey of 16 brokers, traders and analysts.
Robusta, the second most-consumed coffee after arabica, is reversing a rally that more than doubled prices in the 12 months ended in March as shortages emerged. That was part of a global surge in food prices that the United Nations estimates reached a record in February. U.S. food-price inflation will be as much as 3.5 percent next year, compared with as much as 4 percent this year, the USDA estimates.
“Vietnam will have a record crop next season and supply will be readily available for roasters, which had to rely on stocks after the country ran out of beans earlier this year,” said Keith Flury, a commodities analyst at Rabobank International in London. “Increased availability will pressure prices, helping ease costs for roasters and consumers.”
Robusta futures reached a three-year high of $2,672 in March as an unusually long rainy season in Indonesia cut output by 12 percent to 7.95 million bags. While production in the world’s third-largest grower probably dropped another 16 percent to 6.66 million bags in the harvest that began in April, the decline will be more than offset by the biggest suppliers.

Vietnam Harvest

Output in Brazil, which started its 2011-12 harvest in July, will rise 14 percent to 14.5 million bags, the USDA estimates. Vietnam’s harvest, which begins next month, will yield 9.8 percent more at 19.9 million bags, the data show. Futures traders are already anticipating the surge in supply of the beans used mostly in instant coffee, with robusta for November delivery trading at $1,932 on Sept. 26.
Prices for arabica, favored by Starbucks Corp. (SBUX), dropped 19 percent to $2.335 a pound on ICE Futures U.S. in New York since Sept. 1, also reacting to traders’ expectations of increasing supply. Brazil will harvest a record crop next year, according to Volcafe, a unit of ED&F Man Holdings Ltd. The USDA is forecasting the biggest Central American supply in a decade.

Green Coffee

The flood of beans will add to European coffee stockpiles that already rose 35 percent to 13.66 million bags this year as Vietnamese farmers accelerated exports to take advantage of a three-year high in prices, data from the European Coffee Federation show. The figure includes robusta and arabica. Stockpiles of green, or unroasted, coffee in U.S. warehouses monitored by the Green Coffee Association of New York jumped 19 percent to almost 4.74 million bags this year.
The anticipated price slump may be curbed if the Vietnam Coffee and Cocoa Association implements a plan to stockpile beans to avoid domestic shortages, said Kona Haque, an analyst at Macquarie Group Ltd. in London. Vietnam exporters agreed this month to stockpile 420,000 tons of beans for 2011-12, Luong Van Tu, chairman of the association, said yesterday.
Macquarie predicts robusta will average $1,919 in 2012, about 2 percent more than estimated in the Bloomberg survey. Robusta averaged $1,836 since NYSE Liffe started trading the 10- ton contract in 2008.

Marketing Year

Global robusta production will exceed demand by almost 4.1 million bags in the coming season, according to ABN Amro Bank NV and VM Group. Macquarie anticipates a surplus of 2.5 million bags, the most in four years, compared with a shortfall of about 700,000 bags in the current marketing year.
Robusta output in Ivory Coast, the fifth-biggest grower, will rise almost 10 percent to 2.3 million bags, according to the USDA. Production will also expand in Guinea, Madagascar, Laos,Malaysia, Tanzania and Togo, according to the Washington- based government department.
While stockpiles are rising and futures slumping, consumer prices may take longer to react because roasters and retailers need to work through inventories accumulated at higher costs.
Starbucks, the world’s largest coffee-shop operator, bought most of the coffee it needs for the year ending in September 2012, Troy Alstead, the Seattle-based company’s chief financial officer, said in a conference call in July. A 12-ounce brewed coffee from Starbucks in the U.S. ranges from $1.50 to $1.75, according to Alan Hilowitz, a spokesman for the company.

Retail Prices

Kraft, which owns the Maxwell House brand, reduced prices for some products by 6 percent last month after raising them three times in 2010, the Northfield, Illinois-based company said Aug. 23. Smucker, which owns the Folgers brand, reduced costs for the majority of its coffee products sold in U.S. by an average 6 percent in August, the Orrville, Ohio-based company said in a statement on Aug. 16.
U.S. retail prices for roasted coffee averaged almost $3.91 a pound last year, the most since 1997, according to data compiled by the International Coffee Organization in London.
“A fall in prices won’t feed through to us immediately because we already have stocks,” said Bryan Stockley, the managing director of Coburg Coffee Co., a London-based roasting company founded almost a half century ago. “It may take six months or more.”

We'll Need 170,000 Worker says BHP 

BHP BILLITON has predicted Australia's resources industry will need an extra 170,000 workers in the next five years, underlining the job bonanza set to hit mining states.
Forecasts from the mining giant say the resources boom will create 90,000 continuing jobs by 2016, and demand for temporary construction workers will peak at 80,000 in 2014.
In a sign of the growing risk of skills shortages, BHP's prediction is almost 60 per cent higher than a previous government forecast used to develop policies for meeting skills demand.
A federal taskforce into resources employment last year said 61,500 mining jobs would be created by 2015 and the construction workforce would peak at 45,000.
Most of the job growth is forecast in Western Australia and Queensland, where companies are investing in coal, iron ore and liquefied natural gas projects.
The Minister for Resources, Martin Ferguson, said the gap between BHP's forecast and the government's could be explained by the new investment approved in the past year.
Skills shortages were expected to peak in 2014 or 2015, he said, but the challenge was ''not a bad problem to have''.

Gold Bulls & Silver Fools Lose $29 Billion in September

He’s back!
It was not my intent to be tip-toeing in the blogoshpere this soon. I really thought my next blog post would be introducing the “grand” old lady of song. But the story of this post is just too big to pass up. Besides, you honored me by voting this among your top blogs on Barry Ritholtz’ web site, TheBigPicture, (see here) so I needed to throw you a meaty bone.
Well, this one is really meaty. Get ready to enjoy. The story behind this post will be in the history books.
You read the headline correctly, during the month of September Gold bulls and Silver fools lost a grand total of $29 billion — for those of you who cannot spell, that is $29,000,000,000!
The table below tells the story.
Source of table: Factor LLC Research
That’s a lot of money when one is not talking about some “no-earnings, no-income, just another average idea” internet start-up.
But the story does not end there. There are three other story lines.
Story line #1 — the money is gone and is not coming back.