Mish's Global Economic Trend Analysis

Brazil Declares New Currency War on US and Europe; Japan Losing Balance of Trade Battle
Vancouver B.C. vs. Donegal Ireland Real Estate: What Will $890,000 Buy?
Eurozone Wrapup: Unemployment Rate 10.7%, Highest Since 1999; Manufacturing PMI Contracts 7th Month; German Retail Sales Unexpectedly Fall

Brazil Declares New Currency War on US and Europe; Japan Losing Balance of Trade Battle

Posted: 03 Mar 2012 06:12 PM PST

In hope-against-hope scenario, countries with balance-of-trade surpluses struggle to maintain it. Put Japan, Germany, Brazil, and China in that group.

In that group, Japan is losing the Balance of Trade Battle.

Japan's trade deficit widened to a record level in January, as falling exports combined with surging imports of energy.

Imports rose 9.8 per cent from a year earlier, while exports were down 9.3 per cent, resulting in a record monthly deficit of Y1.48tn ($19bn).

Last year Japan's trade balance fell into an annual deficit for the first time since 1980, driven by subdued global demand and soaring fossil fuel imports in the wake of the Fukushima nuclear power crisis.

Japan reported a trade deficit equivalent to 1475 Million JPY in January of 2012. Exports have been the main engine of Japan's economic growth in the past six years. Japan imports raw materials and processes them into high technology products. Japan's major exports are: consumer electronics, automobiles, semiconductors, optical fibers, optoelectronics, optical media, facsimile and copy machines. Its main trading partners are The United States, China and European Union.

Brazil Declares New Currency War on US and Europe

The Financial Times reports Brazil declares new 'currency war'

Brazil has declared a fresh "currency war" on the US and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country's struggling manufacturers.

Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not "sit by passively" as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.

"When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil," he said on Thursday after announcing changes to the so-called IOF tax.

In a presidential decree, the government extended the existing 6 per cent financial transactions tax on overseas loans maturing in up to three years. Previously, the levy was applied only to loans with maturities of under two years.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries' policies from causing the "cannibalisation" of emerging markets.

The move comes as Brazil's central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real's near 9 per cent surge against the US dollar this year.

Brazilian Real vs. US Dollar

The chart shows the Brazilian Real has pretty much been on a tear vs. the US dollar since 2003. Now Brazil is concerned about loss of exports, just as Japan is concerned about loss of exports.

Mathematically speaking, the desire for every country to be net exporters is impossible. Massive trade wars are on the horizon as a result.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Vancouver B.C. vs. Donegal Ireland Real Estate: What Will $890,000 Buy?

Posted: 03 Mar 2012 12:16 PM PST

Inquiring minds seeing new data on Vancouver's massively overpriced real estate just might be seeking new comparisons to other places. First, Let's take a look at what $890,000+- will buy in Vancouver.

Vancouver Real Estate

2119 East 3rd Ave, Vancouver
MLS® Number V934050
Listing Price: $899,500
Description: "This 1 ? story home has been extensively renovated over the last few years. The spacious kitchen has birch cabinets and Soapstone counters and opens to a 20x12' deck. On this level are 2 B/Rs and a modern 4pce bath. Upstairs has an office/den area, a 4pce bath and a big master B/R with a W/I closet and 12x8 view deck. The bsmt has a 1 B/R suite rented at $960 P.M. and the attached garage has been converted to a workshop with French doors opening to the fenced garden, with B/I bench, a patio and a kid's sandbox. "

That creative listing puts a new meaning to the the word "upstairs". Is the number of stories listed at "1?" really in question?

2564 East Pender Street, Vancouver
MLS® Number V930595
Listing Price: $899,000
Description: "Complete Transformation! Brand New Envelope! Hardie plank & cedar shingles, new windows, new electrical panel, new HW tank, new plumbing. Spacious 3 level home on extra deep lot!"

I believe it's safe to say the above creative listing puts a new meaning to the phrase "extra deep lot!"

At least the above homes were arguably livable. Check out this next beauty, and guess the price without looking too far ahead.

1016 East 7th Ave, Vancouver
MLS® Number V930461
Listing Price: $899,000
Description: "Opportunity knocks! Builders and investors need look no further if they desire a view property with multi-family zoning (RM-4). This property overlooks China Creek Park, with amazing views of the North Shore mountains and close to Commercial Drive and two skytrain stations. Priced at lot value, the property is being sold 'As Is, Where Is.'"

Congratulations to those who guessed the "opportunity knocks" price of $899,000 for this "As Is, Where Is" bargain complete with "amazing views", presumably through the opening where one would normally expect to find a workable door as opposed to the windows that are all boarded up.

All of the above listings are from Vancouver East Homes From $850,000 to $900,000

Donegal, Ireland

With those bargain listings in hand, let's consider a single property sale that just took place in Ireland. The previous price for the Sandhouse Hotel located in Donegal, Ireland sold at auction was $6 million.

Please consider Spectacular Irish hotel, massive discount price

Paul Diver has purchased a spectacular 55 bedroom hotel overlooking the Donegal coastline for a mere $860,000, down from the $6 million price the original owners sought for the Sandhouse Hotel three years ago.

Diver, who managed the Sandhouse Hotel in Rosnowlagh for 20 years, was delighted to secure the 50 staff members their jobs. He told msnbc.com on Friday that he had been willing to go "a bit higher" when the hotel was auctioned this week in Dublin, but was delighted when his reserve-price bid was accepted by the auctioneers.

Overall, Irish real estate prices have crashed since 2007-08, when the so-called "Celtic Tiger" economy collapsed. Home values have fallen more than 60 percent below their peak five years ago, and commercial properties have suffered similar declines.

There you have it: "amazing views" in Vancouver for $899,000 vs. "amazing views" in Donegal for $860,000.

It is indeed "different" in Canada.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Eurozone Wrapup: Unemployment Rate 10.7%, Highest Since 1999; Manufacturing PMI Contracts 7th Month; German Retail Sales Unexpectedly Fall

Posted: 03 Mar 2012 01:51 AM PST

There was lots of Eurozone news this week outside of the typical Greek default fodder. Nearly all of that news was not pretty. Let's take a look at the key stories.

Eurozone Unemployment Rate 10.7%, Highest Since 1999

The Telegraph reports Eurozone unemployment hits record high of 10.7pc

Data from Eurostat showed that the region lost 185,000 jobs in one month, with the vast gap between North and South growing ever wider. The figures for the previous four months were also revised upwards sharply. There are now more than 450,000 more people without jobs than assumed a month ago.

Klaus Baader from Societe Generale said the outlook was "deteriorating drastically" in the region. "Economic slowdown and fiscal austerity has hit the labour market much harder than previously thought."

Eurozone inflation nudged up to 2.7pc, while the latest PMI data for February confirmed that Euroland's manufacturing is still contracting, though the index rose slighty to 49. The "misery mix" of rising unemployment and inflation is a nasty headache for policymakers, threatening incipient stagflation.

Spain's jobless rate continued its relentless climb to 23.2pc, rising to 49.9pc for youths.

The jobless toll rose to 14.8pc in both Ireland and Portugal, though the latter began its austerity drive later. Dimitris Drakopoulos from Nomura said Portugal's economy is likely to contract by 4.4pc this year and another 2.7pc next year, a slightly milder version of the fiscal asphyxiation that brought Greece to its knees.

Eurostat's 19.9pc rate for Greece is already out of date. The Hellenic Statistical Authority said the country lost 126,000 jobs in November alone, pushing the rate to 20.9pc.

At the other extreme, Austria's jobless rate fell to 4pc. Germany's unemployment is at a 20-year low of 5.8pc, and some regions are crying out for skilled workers.

Italian Unemployment Hits Record

Please consider Italian unemployment hits record

The unemployment rate in the eurozone continued to rise in January, hitting another record high. There are now 16.9 million people out of work in the bloc, Eurostat said.

In Italy, the unemployment rate rose to 9.2% in January, the highest since monthly records began, the national statistics agency Istat said.

Italian unemployment had stood at 8.9% in December, but it is now at the highest rate since the first quarter of 2001, as the country finds itself in a second recession in four years.

'Double whammy'

Meanwhile, separate data from Eurostat showed that inflation in the euro area rose to 2.7% in February, rising slightly from 2.6% in January. It marks the 15th month in a row that inflation has been above the ECB's target of just below 2%.

Howard Archer, chief European economist at IHS Global Insight, said it amounted to a "double whammy of bad news" for the eurozone. "This is particularly bad news for consumers, as they are not only facing high and rising unemployment, but also still squeezed purchasing power," he said.

French Unemployment Rate Hits 9.4 Percent

Please note French unemployment up to 9.4 per cent in Q4 of 2011

France's unemployment rate rose by 0.1 per cent in the fourth quarter of 2011 to 9.4 per cent of the active population, state statistics agency INSEE said on Thursday.

The 0.1 per cent rise applied to both the increase from the third quarter of 2011 and the year-on-year increase from the fourth quarter of 2010.

France's growing joblessness is a major issue as President Nicolas Sarkozy bids for re-election in an April-May two-round presidential election.

Eurozone Unemployment Rates at a Glance

Eurozone Average 10.7%
Spain 23.2%
Greece 20.9%
Ireland 14.8%
Portugal 14.8%
Latvia 14.7%
Lithuania 14.3%
Estonia 11.7%
Cyprus 9.6%
Italy 9.2%
France 9.4%
Germany 5.8%
Luxembourg 5.1%
Netherlands 5.0%
Austria 4.0%

Take a look at those varying unemployment rates. That is what a "one size fits Germany" interest rate policy and misguided currency union will do.

About that 5.8% German Unemployment Rate

Is Germany's unemployment rate really 5.8%? I think not. Wolf Richter comments on the German Unemployment Obfuscation.

Richter counts up all the groups that don't count and comes up with 1,701,534. That number is a bit off the mark given the officially unemployed number is 3,081,706 but 5,394,064 people actually received unemployment compensation.

There's still more obfuscation as shown in the following snip.

People 58 and older are excluded from the official unemployment numbers, even if they're desperately looking for a job. They don't receive unemployment compensation but, conveniently, pre-retirement compensation. So they don't count for the simple reason that they're too old to count. That's the German baby-boom generation. They're turning 58 in massive numbers and fall unceremoniously off the unemployment lists. In September 2011, the last month for which official numbers were available: 374,592.

Add them to the 5,394,064 official recipients of unemployment compensation to obtain 5,768,656.

And what about those who aren't eligible for unemployment compensation? While they receive "social aid" and other forms of support, they don't count as unemployed.

So, like in the US, the actual number of unemployed people and the actual unemployment rate remain a mystery, despite the confidence-inducing but false sense of accuracy that these grotesquely unrounded numbers provide. And in the end, unemployment in Germany is probably close to double the official headline number.

So what's the real German unemployment rate?

German Retail Sales Unexpectedly Fall

Bloomberg reports German Retail Sales Unexpectedly Fall

German retail sales unexpectedly declined in January as rising oil prices fueled inflation.

Sales, adjusted for inflation and seasonal swings, fell 1.6 percent from December, when they increased 0.1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 22 estimates in a Bloomberg News survey showed

Europe's debt crisis is curbing growth across the euro area, Germany's largest export market, and higher energy costs pushed inflation to 2.5 percent last month. Still, unemployment is running at a two-decade low and recent data suggest the country may avoid a recession. Consumer confidence will increase to a 12-month high in March, [consumer research group] GfK SE (GFK) predicted this week.

German companies may create as many as 250,000 new jobs this year, the DIHK national industry and trade chambers said on Feb. 17, citing a survey.

Avoid a Recession?

What the hell is Bloomberg writer Jeff Black smoking? The recession is right here, right now. As for jobs creation, forget about it. The European-wide recession is going to be long and deep, so who pray tell is Germany going to be exporting to?

By the way, why was this drop unexpected? I have been calling for it for some time, and it's going to get worse, much worse.

Eurozone Manufacturing PMI® Contracts 7th Consecutive Month

Inquiring minds are reading the Markit Eurozone Manufacturing PMI® Report.

The Eurozone manufacturing sector showed further signs of stabilisation in February. The seasonally adjusted Markit Eurozone Manufacturing PMI® rose to a six-month high of 49.0, unchanged from the earlier flash estimate and above January's 48.8.

New Orders Fell 9th Month

New orders fell for the ninth month running (though slightly less than indicated by the flash release), with the downturn in demand generally remaining broad-based by nation as only Austria and the Netherlands reported increases. Greece saw record falls in both output and new orders.

Export Orders Fall 8th Month

The level of new export orders fell for the eighth month running, albeit at the weakest pace since last July. The drop in foreign demand was led by a steep reduction in Greece and marked falls in Spain and Germany, the region's largest exporter.

Muted pricing power resulting from weak demand and strong competition meant that the rise in costs was largely absorbed by manufacturers.

German job creation slowed sharply

Job losses were reported for the third time in the past four months in February. The steepest falls in employment were seen in Greece and Spain, though further marginal cuts in staffing levels were also signalled in Italy, the Netherlands, Austria and Ireland.

Stabilization? Really? No, Not Really!

Given the drop in new orders, export orders, and German employment, coupled with rising input prices and a huge profit squeeze, it takes a real stretch of the imagination to even hint at stabilization. Moreover, austerity measures in Spain, Portugal, Greece, France, and Ireland suggest things are going to get much worse.

There is no way the vaunted German export machine stays intact in the face of those facts.

Within two months, and probably next month, the bottom will fall out of numerous eurozone production and retail sales numbers. Moreover, the lid will blow off the top of numerous eurozone unemployment numbers.

In both cases, the biggest "unexpected" downward surprises will be in Germany, even though it should be perfectly obvious what is going to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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