Mish's Global Economic Trend Analysis

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• China's Manufacturing Slowest in 9 Months, New Orders Suggest Manufacturing May Have Already Peaked; Australia Biggest GDP Drop in 20 Years
• "The Longer you Wait the Higher the Haircut. Greece is not Even in the EU's Hands. Let this be a Warning to the U.S."
• TV Censorship in China; Reflections on the Yuan as a Global Reserve Currency; Hype Sells
• Hooray! Greece "Saved" Again; Can it Possibly Matter?

China's Manufacturing Slowest in 9 Months, New Orders Suggest Manufacturing May Have Already Peaked; Australia Biggest GDP Drop in 20 Years Posted: 31 May 2011 10:11 PM PDT Weak economic reports in the US, Europe, Australia, and China tell the same story: The global economy continues to cool. MarketWatch reports China manufacturing growth slows further The official China Federation of Logistics & Purchasing Managers' Index eased to 52.0 from 52.9 in April, marking the slowest pace of growth in nine months. The result was below the median forecast of 52.2 in a Reuters survey of economists. Meanwhile, a separate PMI published by HSBC and compiled by U.K. group Markit, showed headline activity at 51.6, easing from 51.8 in April, the slowest pace of growth in 10 months. Analysts at Credit Suisse said that the Federation's PMI showed new orders declining at a faster pace than the slowdown in the overall reading, a sign that manufacturing activity may have already peaked in the current economic cycle. "Actual economic activity may have cooled down faster than the headline suggests," said Credit Suisse analysts. Australia Reports Biggest GDP Drop in 20 Years The BBC reports Australian economy reports biggest fall in twenty years Its economy contracted by 1.2% in the first three months of the year, compared with the previous quarter, the latest government figures showed. The government said flooding and cyclones in resource rich states of Queensland and Western Australia had a significant impact on growth. Australia's economy is heavily reliant on its resources sector. "The economy has hit a temporary pothole courtesy of the natural disasters this year," said Besa Deda of St George Bank. That temporary pothole is about to become a Grand Canyon led by declines in housing and retail spending. Chicago Region Manufacturing Gauge Biggest Drop in 2.5 Years Please consider Chicago manufacturing gauge nosedives A Chicago-area manufacturing gauge dropped by the largest amount in nearly two-and-half years in May, in a further sign that the rise in oil prices and the Japanese earthquake have affected activity. The Chicago PMI fell to a reading of 56.6% in May, the lowest reading since Nov. 2009, from 67.6% in April. While that reading is still significantly above the 50-line indicating growth, the eleven-point drop is the biggest one-month deceleration since Oct. 2008 and was worst than the 60% reading that economists polled by MarketWatch anticipated. Indexes for production, new orders and order backlogs each dropped by double digits. Inventories jumped, which in this case is more likely an indication of unplanned gains due to a lack of sales than stocking up in anticipation of better times ahead. US Consumer Confidence Declines Rounding out a torrent of bad news for the day, U.S. consumer confidence declines in May The nonprofit Conference Board said its consumer-confidence index fell to 60.8 in May — the lowest reading in six months — from a revised 66 in April. Economists polled by MarketWatch had forecast an increase to 67.5. Most economists were surprised by the decline. Some attributed the drop to the cost of gas, a downward spiral in housing prices, recent weakness in the economy, and even to a series of tornados and floods wracking parts of the U.S. The expectations index, which measures the view of consumers six months out, fell to 75.2 from 83.2 last month. It's the lowest reading since last October. The percentage of consumers who say jobs are plentiful increased to 5.6% from 5.1% in April, although the percentage who say they are hard to get also rose slightly to 43.9%. The consumer-confidence index remains low by historical standards. In a healthy economy, the index averages about 95 points. In a healthy economy the index averages 95. Currently it sits at 60.8. 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.

"The Longer you Wait the Higher the Haircut. Greece is not Even in the EU's Hands. Let this be a Warning to the U.S." Posted: 31 May 2011 06:19 PM PDT In the video below, Terrence Keeley at Sovereign Trends LLC discusses Greek restructuring, why Germany backed down on restructuring, and what it ultimately means. The video is outstanding, please play it. If the video does not play here is the Bloomberg link Sovereign Trends' Keeley Interview Terrence Keeley, senior managing principal at Sovereign Trends LLC and a Bloomberg Television contributing editor, discusses the outlook for additional aid to Greece from the European Union. EU officials will decide on more aid by the end of June and have ruled out a "total restructuring" of the nation's debt, said Jean-Claude Juncker, head of the group of euro-area finance ministers. Keeley speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." Key Quotes The Longer you wait the higher the haircut. Germany backed off over bank threats, Europe is ill-prepared for restructuring. A lot of people talk about getting Greece back on its feet. The truth of the matter is Greece has not been on its feet for several millennium 40% of Greek GDP is government workers. Until that problem is fixed there is no solution for Greece's economy. The reality is Greece is a goner, Ireland is very, very tough and Portugal is the same. We could have more. Keeping the Brady Plan in your back pocket is a very good idea. Everyone is clapping their hands this morning but Greek CDS imply a 70% chance of default. The market expects Greece to default, and the market is right This is not even in the EU's hands. Let this be a warning to the United states. The US can still control its situation, Greece cannot. I agree with everything Terrence Keeley said in the interview. 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.

TV Censorship in China; Reflections on the Yuan as a Global Reserve Currency; Hype Sells Posted: 31 May 2011 09:14 AM PDT An interesting article in the Financial Times got me thinking once again about the popular notion that the Yuan is about to replace the dollar as the global reserve currency. Please consider a couple brief snips from Beijing in fresh TV censorship move The Chinese government has stepped up censorship of local television in a sign of the broadening of a political crackdown that has landed many dissidents in jail. China has severely clamped down on activists since February when an anonymous online appeal called for demonstrations along the lines of the "jasmine revolution" sweeping north Africa and the Middle East. Authorities have detained scores of human rights lawyers, activists, and writers. They have also arrested Ai Weiwei, the contemporary artist. Reserve Currency Requirements So what does this political crackdown say about the likelihood that the Yuan will soon replace the US dollar as the world's reserve currency? First consider what it takes to be the world's reserve currency. Deep, liquid, open bond markets Floating currency Property rights, civil rights Political stability Political freedom China flunks on at least 4 of 5 points, and arguably all 5. It may be a decade before China even floats the Yuan. How long before China has a deep, liquid, bond market? You tell me, because I don't know, but I assure you it is not in the next three years. For further discussion please see Bogus Threats to US Reserve Currency Status: No Country Really Wants It! Yet somehow hyperinflationists persist in spreading nonsense that the Yuan is somehow on the verge of replacing the dollar as a global reserve currency and that may cause hyperinflation. There certainly may be more local trading in the Yuan. In fact, it is likely. That does not imply the death of the dollar or the loss of reserve currency status and it certainly does not portend hyperinflation. Hyperinflation is the complete loss of faith in a currency. Should that happen to the US, the entire global banking system blows up. Global trade blows ups. If China refuses US dollars, then China's exports to the US stop, overnight. So do Japan's. So what does that do to the economies of Japan and China? What would that do to the economies of Canada and Australia? Think about Chinese and Japanese exports and the demand for commodities. Whether they realize it or not, that is the story hyperinflationists peddle. It simply is not a credible story as noted in Hyperinflation Nonsense. Hype Sells No Virginia, the US Dollar is Not Headed to Zero any time soon. Might the dollar slowly decay over decades? Sure why not? It already has. However, that is not hyperinflation. Yes, the US has problems, so does Japan, so does China, so does the Euro-Zone, and so does the UK. Indeed global currency problems and insolvent banks are everywhere one looks. However, myopic eyes are primarily focused on the US. Here's the deal. The US dollar is not suddenly going to zero vs. the Pound, the Yen, the Yuan, or the Euro, yet that is what hyperinflation implies. Why is the "hyperinflation is imminent" scare everywhere you look? The answer is simple: Hype Sells. The bigger the hype, the sexier the story, and the more people are attracted by 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.

Hooray! Greece "Saved" Again; Can it Possibly Matter? Posted: 31 May 2011 08:19 AM PDT The overnight markets were all giddy about the notion that Greece will be saved for the umpteenth time. I have a set of questions: How can it possibly matter? What about Ireland? What about Portugal? What happens when Spain needs a bailout? What happens if the markets lose confidence in Italian debt? Further problems in Ireland, Portugal, Spain, and Italy are all highly likely, and the first three are a given. So does, it matter that Greece is saved? By the way, IS Greece saved? How many times can a country be saved? In case you missed it on this long holiday weekend, please consider Europe at the Abyss; US Housing in the Abyss; Who is to Blame? for a look at structural problems facing Europe and the US and who is to blame for them. 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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