ECRI Index-The Growth Index Slips Again
Guest post by Doug Short.
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) is now at 0.6 as reported in today’s public release of the data through April 20. This is the second consecutive week-over-week decline since January 6th. However, the underlying WLI rose fractionally from an adjusted 123.8 to 124.1 (see the fourth chart below).
The History of ECRI’s Recession Call
ECRI’s weekly leading index has become a major focus and source of controversy ever since September 30th of last year, when ECRI publicly announced that the U.S. is tipping into a recession, a call the Institute had announced to its private clients on September 21st. Here is an excerpt from the announcement:
| Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.
ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down — before the Arab Spring and Japanese earthquake — to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.” (Read the report here.) |
The Spanish Banking Sector (and more)
The Trader has been covering the Spanish economy over the past year. Our readers know we have been extremely bearish on the outlook for the Spanish economy and the stock market. We won’t go on about the state of the Spanish economy here, but we would like to provide objectivity on majority of the topics covered on our site. Therefore, we provide you Banco de Espana’s latest presentation on the Spanish economy, banking sector and much more. Don’t forget it is the “Banco de Espana”…
Full amusing reading here.
Monti’s honeymoon over?
Chart presented without comments, courtesy Scott Barber.
Productivity, The Miracle of Compound Interest and Poverty
On the subject of working more, producing more, but going into debt to buy it. Must read by one of the few truly great economists, Michael Hudson.
Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.
Why hasn’t this occurred in recent years? In light of the enormous productivity gains since the end of World War II – and especially since 1980 – why isn’t everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?
News That Matters
All you need to read and more below.
GDP forecasts rising
Guest post by Doug Short.
On Friday of next week (April 27th) we’ll get the Advance Estimate for Q1 GDP from the Bureau of Economic Analysis. Meanwhile, the Wall Street Journal’s April Survey of economists is now available. Let’s see what their crystal ball is telling them about Q1 GDP (download the WSJ Excel File).
First, some context: The BEA’s Final Estimate for Q4 GDP came in at 3.0 percent, unchanged from the 3.0 percent Second Estimate, which was a downward revision from the Preliminary Estimate of 2.8 percent. The average GDP since the inception of quarterly GDP reporting in the late 1940s is 3.3 percent, which is nearly double the 1.7 percent 10-year moving average of GDP through the end of 2011 (illustrated here).
The April WSJ survey consensus, both the median (middle) and mean (average), is for a Q1 GDP of 2.2 percent. The mode (the most frequent forecast) was a slightly less optimistic 2.0 percent.
Private to public sector arbitrage
Spain is continuing to dominate the news. Bad Bank loans are hitting new record levels, while the (European) tax payers are paying for the stupidity. From Bloomberg.
Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors.
Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasuryshow. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data.
In Spain, stronger banks such as Banco Santander SA, the country’s largest lender, can handle losses from their sovereign holdings. Photographer: Denis Doyle/Bloomberg
German and French banks, meanwhile, have cut holdings of those countries’ bonds, as well as Irish and Greek debt, by as much as 50 percent since 2010 in some cases. That leaves domestic firms on the hook for a restructuring such asGreece’s last month and their main financier, the European Central Bank, facing losses. Like Greece, governments would have to rescue their lenders with funds borrowed from the European Union.
“The more banks stop cross-border lending, the more the ECB steps in to do the financing,” said Guntram Wolff, deputy director of Bruegel, a Brussels-based research institute. “So the exposure of the core countries to the periphery is shifting from the private to the public sector.” (Full article here).
Spain- Next Eurozone Domino
The Trader has written extensively on the Spanish collapsing economy over the past year. With investors having shifted focus from the relatively small Greek problems, 
Spain is the new burning point, but we still feel few understand what is really about to happen in Spain and the domino that is about to hit the rest of Europe. Spain is the 12th largest Economy of the World. Unemployment is huge, growth is negative, the property market is rotten and the banking system is to put it mildly, “unhealthy”. The banking sector is holding black holes in the balance sheets, but few seem to be willing to understand this fact. Let’s see how long before something “big” happens in Spain.
Meanwhile here are some must see charts to enjoy by Scott Barber of Reuters;
Will there be a “corralito” in Spain (in order to prevent a bank run)?
Guest post by Gonzalo Lira. In late 2001, while everyone was in shock over 9/11, the Argentines were going through a little shock of their own: The “Corralito”.
Argentina was bankrupt, a product of a stagnant economy, rampant crony-corruption, and—most important of all—of having its currency fixed to the dollar. This currency peg had created a huge credit bubble, and of course massive capital outflows as a result, eventually leading to the depletion of foreign reserves by the government and an inability to raise more funds on the open markets.
In other words, sovereign bankruptcy.
Coupled to these problems, in the months leading up to the December 2001 crash, people were aware that the country was going bankrupt—so they were quickly converting all their Argentine pesos into dollars, and then sending this money to safe havens overseas.
To solve these problems of sovereign insolvency and massive capital flight, and at the same time to stabilize the situation, on December 1, 2001, the Argentine government imposed the infamous corralito—literally, the “little bullpen”: A series of measures designed to hold in capital and prevent it from fleeing the country, while devaluing the currency to a more realistic, sustainable rate of exchange.
Debts that can’t be paid, won’t be
Hudson on the “unpayable” Debt.
A common denominator runs throughout recorded history: a rising proportion of debts cannot be paid. Adam Smith remarked that no government ever had repaid its debt, and today the same can be said of the overall volume of private-sector debt. One way or another, there will be defaults – unless debts are paid in an illusory fashion, simply by adding the interest charges onto the debt balance until the sums finally grow to so fictitious a magnitude that the illusion of viability has to be dropped.
But freeing an economy from illusion may be a traumatic event. The great policy question therefore concerns just how the various types of debts won’t be paid. The choice is between forfeiting property to foreclosing creditors, or writing debts down at least to the ability to pay, and possibly all the way down to make a fresh start. Somebody must lose, and their loss will appear on the other side of the balance sheet as another party’s gain. Debtors lose when they have to forfeit their property or cut back other spending pay their debts. Creditors lose when the debts are written down or go bad.
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