Mish's Global Economic Trend Analysis

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• World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties
• Ireland 10-Year Bond Spread Hits Record; Portugal's Government Collapsed; Portuguese 5-Year Yields Hit Record 8.2%; Death by 1000 Cuts
• U.S. Petroleum Usage, New Home Sales, Jobs, Consumer Credit and the Alleged Recovery

World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties Posted: 23 Mar 2011 06:35 PM PDT I have done many stories on China's ghost cities. So have others. However, yet another ghost city story has come up recently that's worth a good look. Please consider the Dateline SBS report on China's Ghost Cities by Adrian Brown Vast new cities of apartments and shops are being built across China at a rate of ten a year, but they remain almost completely uninhabited ghost towns. It's all part of the government's efforts to keep the economy booming, and there are many people who would love to move in, but it's simply too expensive for most. Video journalist Adrian Brown wanders through malls of vacant shops, and roads lined with empty apartment buildings… 64 million apartments are said to be empty across the country and one of the few shop owners says he once didn't sell anything for four or five days. Here is a Transcript of by Adrian Brown's report. Here is a Slideshow of Ghost Cities. However, the must see portion of his report is the Video of Ghost Cities. Modern Equivalent of Building Pyramids All this talk about how undervalued the Yuan is, how China will rule the world, and why the Yuan will be the next global reserve currency is pure silliness. China's growth is nothing more than a credit bubble on steroids. Cities are vacant, yet China keeps building, and building and building. The true state of affairs is China's banks are insolvent. China is building units for which there is little demand and few can afford. China will have to print money to pay for all of this malinvestment. The idea the Yuan is undervalued fails to take into consideration any of this. Play the video and decide for yourself. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ireland 10-Year Bond Spread Hits Record; Portugal's Government Collapsed; Portuguese 5-Year Yields Hit Record 8.2%; Death by 1000 Cuts Posted: 23 Mar 2011 02:50 PM PDT As expected, the Portuguese government collapsed today in the wake of a dispute between political parties regarding increased austerity measures. Bloomberg reports Portuguese Parliament Rejects Government's Deficit Plan Portuguese lawmakers rejected Prime Minister Jose Socrates's deficit-cutting plan, threatening to topple his government and increasing the chance of an international bailout. Following parliament's vote against proposed spending reductions and tax increases, Socrates was set to meet President Anibal Cavaco Silva at the presidential palace in Lisbon and then address the nation, heightening speculation he'll call early elections. The Social Democrats, the biggest opposition group in parliament, contested the new austerity measures. The party has still said it supports Portugal's plan to reduce its budget gap and meet deficit targets. "With bond yields stubbornly high and heavy debt redemptions due over the next few months, it appears all but inevitable that Portugal will be forced to follow Greece and Ireland in accepting financial support," economists Emilie Gay, Roger Bootle and Jonathan Loynes of Capital Economics Ltd. wrote in a note yesterday. Death by 1000 Cuts Tomorrow the EU leaders meet at a summit to discuss the sovereign debt crisis. The outcome is already certain: They will not solve a damn thing but they will agree to some meaningless items to make it appear they are solving something. Please consider Irish Notes, Portuguese Bonds Drop as Debt Crisis Deepens Ahead of Summit Irish two-year notes slumped, leading the bonds of the region's most-indebted nations lower, on concern a permanent solution to the fiscal crisis will elude European Union leaders meeting at a summit starting tomorrow. The declines drove the yield on the security to more than 10 percent for the second consecutive day, while the spread investors demand to hold Irish 10-year bonds instead of German bunds climbed to a record. Portuguese bonds slid before Prime Minister Jose Socrates faced a vote today against his deficit- cutting plan, which may spur early elections and the need for an EU bailout. "It's death by a thousand cuts," said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London. "We're waiting for Portugal. There isn't actually a solution to the problem. Yields remain at unsustainable levels, technically forcing insolvency." The yield on the two-year Irish note surged 30 basis points to 10.17 percent as of 4:46 p.m. in London and earlier reached 10.70 percent. The yield has climbed from 9.09 percent at the end of last week. The 10-year yield advanced 21 basis points to 10.05 percent, widening the spread over bunds by 24 basis points to 681 basis points. The Portuguese 10-year yield climbed 14 basis points to 7.63 percent, with the similar-maturity Greek yield up five basis points to 12.56 percent. The Portuguese five-year note yield rose to as much as 8.19 percent, the highest since before the euro was introduced in 1999. Portugal 10-Year Yield 7.49% Portuguese 10-year government bond yields are a mere 13 basis point from another all time high. Greece 10-Year Yield 12.51% Ireland 10-Year Yield 10.05% Note: bloomberg's non-interactive Ireland Government Debt display as well as Bloomberg commentary shows the yield above 10% for the second day. The above chart shows 9.834% with no instances above 10%. I cannot account for the discrepancy. ECB president Jean-Claude Trichet plans as many as three rate hikes this year. If so, it will only compound the problems of the PIIGS. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

U.S. Petroleum Usage, New Home Sales, Jobs, Consumer Credit and the Alleged Recovery Posted: 23 Mar 2011 01:47 AM PDT If the recovery was in full swing, why isn't petroleum usage? Here are a pair of charts from reader Tim Wallace showing the percentage change in petroleum usage over time. Except for January of 2008, the peak months for petroleum usage were all during 2007. The first chart below shows first quarter usage 2008-2011 as compared to the same month in 2007. Q1 Petroleum Distillates Usage 2008-2011 vs. 2007 Except for January of 2008 and a brief bounce in March of 2010, petroleum usage has been in a steady decline since the recession started. Historical Petroleum Growth The historical growth chart above helps put the first chart in proper perspective. Annual declines in petroleum usage have never occurred before. Now they persist for 3 years running in spite of an alleged "recovery" that started two years ago. There is also no recovery in jobs, new home sales, or consumer credit. New Home Sales The above chart courtesy of Calculated Risk. Change in Total Consumer Credit Outstanding The above chart shows change in consumer credit in billion of dollars from a year ago. Nonfarm Payroll Employment - Seasonally Adjusted Total According to the BLS, non-farm employment is lower than it was 11 years ago! The BLS says the unemployment rate dropped the past year. I find that questionable given that it takes roughly 125,000 new jobs a month on average just to hold the unemployment rate steady. Gallup, also pegs the unemployment rate much higher. Please see Gallup Poll Pegs Unemployment Rate at 10.2%, Underemployment at 19.9%, Same as Last Year for details. Petroleum usage together with housing, jobs, and consumer credit paints a much different picture about the "recovery" than cheerleaders would have you believe. Yes there has been a recovery in manufacturing, but one bright spot in a sea of weakness does not a recovery make. Moreover, it's important to note that auto sales are substantially off their peak years. Finally, please consider Shrinking Labor Pool Means Shrinking Demand For Housing for additional charts by Tim Wallace on home sales vs. changes in the U.S. labor pool. All things considered, but especially jobs, housing, and petroleum usage, there is solid evidence we are in the midst of a stimulus-fed financial-recovery as opposed to a recovery in any real sense of the word. When the stimulus dies, the recovery will die with it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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