Mish's Global Economic Trend Analysis

Tech Sector Layoffs Surge to Three-Year High
Job Losses and Unemployment Skyrocketing in China; Thinner, Taller iPhone 5
U.S. Treasuries a Buy or a Short?

Tech Sector Layoffs Surge to Three-Year High

Posted: 19 Jul 2012 04:59 PM PDT

I am starting to think the next jobs report is going to be downright miserable. New orders have plunged and mass layoffs are on the rise.

Please consider Tech sector layoffs surge to three-year high

During the first half of the year, 51,529 planned job cuts were announced across the tech sector, representing a 260 percent increase over the 14,308 layoffs planned during the first half of 2011. Things are so bad so far this year that the figure is 39 percent higher than all the job cuts recorded in the tech sector last year.

Hewlett-Packard proved to be the major force behind this year's uptick in planned layoffs, after the company announced in May that it would cut 30,000 jobs. Those layoffs will be completed by the end of fiscal 2014, and shave off 8 percent of HP's entire workforce.

It was also a tough beginning of the year for Sony and Nokia, both of which said they would lay off 10,000 employees. Panasonic and Olympus are also eyeing layoffs to make their operations more nimble.

The issue in the tech sector, according to the outplacement firm, is that success is increasingly finding its way to a short list of companies. All others are hoping they can stay afloat or revive their operations around new ideas. And all of that could lead to more cuts across the industry in the coming months.

"We may see more job cuts from the computer sector in the months ahead," John A. Challenger, CEO of Challenger, Gray & Christmas, said today in a statement. "While consumers and businesses are spending more on technology, the spending appears to favor a handful of companies. Those that are struggling to keep up with the rapidly changing trends and consumer tastes are shuffling workers to new projects or laying them off altogether."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Job Losses and Unemployment Skyrocketing in China; Thinner, Taller iPhone 5

Posted: 19 Jul 2012 11:39 AM PDT

In the video below Jefferies Managing Director Peter Misek discusses the coming iPhone 5 with Emily Chang on Bloomberg TV.

Misek reports the iPhone will be significantly thinner and taller because of new technology he did not expect to be available for at least another year.

What really caught my eye, however, was a segment in the middle of the video regarding grim statistics on sales and employment in China starting at about the 2:26 mark.

Link if video does not play: Details on iPhone 5 Emerge

Partial Transcript

Emily Chang: Another thing you say is smart-phone and PC demand in China is dropping off significantly. What exactly is going on there?

Peter Misek: We came back from China really depressed, I have to say. It appears that mainland China is correcting significantly. The statistics the government publishes, frankly we think are largely fabricated. So you have to rely on other statistics such as retail sales, electricity usage, mall traffic, etc. And what we saw, and what we heard was pretty grim. We think consumer electronic sales could be falling double-digits year-over-year in June and thus far in July. And we think the catalyst frankly is job losses. The premier of China was on this morning basically saying the labor situation is severe, meaning job losses are accelerating and unemployment is skyrocketing. That is causing the Chinese consumer who naturally saves more than we do, to save even more.

Plunging New Orders Everywhere

The rise in Chinese unemployment ties in perfectly with my July 6 report Plunging New Orders Suggest Global Recession Has Arrived.

The grim data also fits in with the email yesterday from Michael Pettis yesterday: "China Rebalancing Has Begun"; What are the Global Implications?

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

U.S. Treasuries a Buy or a Short?

Posted: 19 Jul 2012 01:27 AM PDT

I had a nice conversation the other day with Lacy Hunt at Hoisington Investments. We agree on many aspects of the global economy and I have a few excerpts of Hoisington's latest forecast below.

First, let me state that if you are looking for someone who has called the US treasury market correct this past decade, look no further than Hunt.

While I have been US treasury bullish (on-and-off ) for years (more on than off), and I can also claim to have never advocated shorting them (in contrast to inflationistas running rampant nearly everywhere), Lacy has correctly been a steadfast unwavering treasury bull throughout.

Will Hoisington catch the turn?

That I cannot answer. However, one look at Japan suggests the actual turn may be a lot further away than people think.

For a viewpoint remarkably different than you will find anywhere else, please consider a few snips from the Hoisington Quarterly Review and Outlook, for the Second Quarter 2012 (not yet publicly posted but may be at any time).

Abysmal Times Confirm the Research

In the eleven quarters of this expansion, the growth of real per capita GDP was the lowest for all of the comparable post-WWII business cycle expansions. Real per capita disposable personal income has risen by a scant 0.1% annual rate, remarkably weak when compared with the 2.9% post-war average.

It is often said that economic conditions would have been much worse if the government had not run massive budget deficits and the Fed had not implemented extraordinary policies.

This whole premise is wrong.

In all likelihood the governmental measures made conditions worse, and the poor results reflect the counterproductive nature of fiscal and monetary policies. None of these numerous actions produced anything more than transitory improvement in economic conditions, followed by a quick retreat to a faltering pattern while leaving the economy saddled with even greater indebtedness. The diminutive gain in this expansion is clearly consistent with the view that government actions have hurt, rather than helped, economic performance.

Economic conditions have been worse in euro-currency zone countries, the UK, and Japan. All three of these major economies have also resorted to massive deficit financing and highly unprecedented monetary policies, and all have substantially higher debt to GDP levels than the United States.

The UK and much of continental Europe is experiencing recession to some degree. Whether Japan is in or out of recession is a pedantic point since the level of nominal GDP is unchanged since 1991. Even such prior stalwarts of the global scene such as China, India, Russia and Brazil are plagued with deteriorating growth. In such circumstances a return to the normal business cycle of one to two rough years, followed by four to five good years, remains highly unlikely in the United States or in these other major economic centers.

Based upon the historical record of effects of excessive and low quality indebtedness, along with the academic research, the 30-year Treasury bond, with a recent yield of less than 3%, still holds value for patient long-term investors. Even when this bond drops to a 2% yield, it may still have value in relation to other assets.

If high indebtedness is indeed the main determinant of future economic growth and further government "stimulus" is counterproductive, then a prolonged state of debt induced coma may so limit returns on other riskier assets that a 30-year Treasury bond with a 2% yield would be a highly desirable asset to hold.

Those were the ending paragraph of Hoisington's four-page 2nd quarter review. I added paragraph breaks for ease in reading.

Are US Treasuries "Undervalued"?

I will respond to my own question with another question: Undervalued compared to what?

Certainly I would not advocate blindly buying 30-year year US treasuries with the intention of holding on to them for 30 years. Nor would Lacy Hunt.

Likewise, I see no real value in holding 10-year US treasuries for the next 10-years either.

Then again, I have stated the US may go in and out of deflation for as long as a decade. If that does happen, treasuries may easily outperform for that entire period.

One look at the Japanese stock market shows what might happen.

Three Lost Decades

click on chart for sharper image

I do not believe that is the path for US equities. However, I may very well be wrong. It is always important to consider what happens if you are wrong. Few bother to do just that.

If I am wrong (and that is certainly a decent chance), then what does that say about the potential for US treasuries?

Rather than advocating buying or shorting treasuries here, I am advising people to do something different:

Think!

Please consider all aspects of a trade, and in this case, what might easily happen to the widely espoused notion "US Treasuries are a Short". Also think about who is on the other side of the trade and why.

Short-term, US treasuries are overbought. Otherwise, they are hugely unloved.

People have been saying Japanese treasuries are a short for at least two decades. They will eventually be correct, and in my opinion much sooner than US treasury shorts (ignoring short-term US volatility).

Think about this: Bull markets do not end with the asset class being universally despised except by dedicated funds and foreign governments (the latter primarily for balance-of-trade purposes only).

Rather, bull markets end with nearly everyone becoming a believer.

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

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Thursday, July 19, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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