This morning’s U.S. jobs report, Mr. Bernanke’s postponement strategy?

Today’s Detailed Commentaries North America >> United States: This morning’s U.S. jobs report This month’s U.S. job report reported that non-farm payrolls increased by 163,000 in July, higher than the 100,000 broadly estimated. The report also said that the unemployment rate increased by 1/10^th of 1% to 8.3% in July.

While this may give President Obama some solace as he indirectly debates Mr. Romney on U.S. economic performance, I suggest you don’t make up a placard declaring U.S. economic recovery, and parade down ‘main street’ with it today. Much more will be said on this in the next days, and may be reported here again on Monday. Topical Reference: U.S. jobs increase in July, but jobless rate edges higher, from The Globe and Mail, from Reuters, Lucia Mutikani, August 3, 2012 – reading time 3 minutes. North America >> United States: Mr. Bernanke’s postponement strategy? On Wednesday, August 1 Chairman Bernanke provided an update on the Federal Reserve’s position on the U.S. economy. He commented briefly in a negative tone on U.S. GDP growth, unemployment, consumer spending and the housing sector. He said the Fed’s U.S. inflation expectations remained stable. He reconfirmed the Fed’s policy of reinvesting in U.S. treasuries until December 2012.

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Mr. Bernanke did not announce the further quantitative easing the financial markets were broadly thought to be looking for, and that is said to be one of the primary reasons those markets have declined somewhat over the past two days. My comments:

• if the financial markets indeed are instantaneously influenced (positively or negatively) by the addition or non-extension of U.S. quantitative easing I think that:
• in these uncertain and volatile economic times this confirms the financial markets today to be largely trading markets; and,
• this is highly worrisome because I see quantitative easing as simply an extension of the ‘over-levered postponement game’ that has been played out since 2008;
• that ‘over-levered’ postponement game’ has succeeded to date in doing little but keep the U.S. (and to some degree World) very leaky economic boat afloat, but hasn’t propelled it to meaningful economic growth – and hence has not propelled it to meaningful economic recovery;
• the Federal Reserve presumably has only ‘so many arrows in its quiver’. Its lack of introduction of new quantitative easing at this time may be nothing more than it playing a waiting game to see what plays out in the Eurozone. Who wants to run out of bullets before a war is over?; or,
• in the face of continued U.S. monthly trade deficits, ever increasing National Debt, and all the other negative economic issues currently facing the United States as (or perhaps better said, ‘some of which were’) articulated by Mr. Bernanke in his Wednesday update, perhaps the Federal Reserve doesn’t have as many bullets in its arsenal as some would have us all believe.

Topical Reference: Fed Statement Following August Meeting, from Real Time Economics, The Wall Street Journal, August 1, 2012 – reading time 3 minutes. Brief Commentaries prompted by world headlines Asia >> China: Are Chinese consumer sales slowing? There are suggestions is news releases this morning that China’s consumer sales may be slowing. These are based on discounts being offered by Chinese restaurants (including McDonald’s) and retailers, and is attributed to (in summary) slowing Chinese growth. This is also being said when Chinese year/year retail sales growth in Q2 2012 is reported at +14%, and hence ought to be taken with the proverbial ‘grain of salt’. Because China’s economic growth, stability, or decline is likely to have a potential major impact on economic activity in the developed countries – particularly the more ‘resource dependent’ ones – China’s retail sales and other economic metrics bear watching closely. Topical References: Retailers in China are offering discounts, pointing to deflationary pressure, from Also Sprach Analysis, August 3, 2012 – reading time 2 minutes; and China’s Conflicted Consumers, from China Real Time Report, the Wall Street Journal, Tom Orlik and Laurie Burkitt, August 3, 2012 – reading time 3 minutes. Eurozone >> Cyprus: Fitch, Moody’s and S&P downgrade Cyprus Fitch, Moody’s and S&P all downgraded Cyprus credit ratings further on August 2. Cyprus is a very small country. The Eurozone does not need another, however small, member economic bailout to address at this time – as much for economic credibility reasons as for any other reasons. Topical Reference: S&P downgrades Cyprus, from Ekathimerini, August 2, 2012 – reading time 3 minutes. Eurozone >> Germany: Downturn becoming ‘entrenched’ in Germany? Germany’s economy seems itself to be running into ‘downturn problems’. Germany is the Eurozone’s economic anchor. If Germany’s economy burps, can its voters be far behind in ‘belching’ when Germany is one of – if not the principal – funder of the bailouts of other Eurozone countries. Watch what happens with Germany’s economy in the next weeks and months. I will have some first hand ‘feet on the street’ information from Germany at the end of next week, and will report on that on or about August 12. Topical Reference: Downturn ‘entrenched’ in Germany amid poor eurozone PMI, from The Telegraph, August 3, 2012 – reading time 2 minutes. Eurozone >> Slovenia: Moody’s downgrades Slovenia Following from my commentary on July 27 with respect to Slovenia’s worsening economic prospects, Moody’s has now downgraded that country’s bond rating by three notches to now sit only two notches above a ‘junk’ rating. Moody’s is reported as saying it did this “because of the funding challenges the (Slovenia) government faces and ‘substantial’ risks to (Slovenia’s) financial system”. Like Cyprus (see commentary today) Slovenia is a very small country. Slovenia joined the Eurozone only five years ago, in 2007. Once again, the Eurozone does not need another, however small, member economic bailout to address at this time – as much for economic credibility reasons as for any other reasons. Topical Reference: Downturn ‘entrenched’ in Germany amid poor eurozone PMI, from The Telegraph, August 3, 2012 – reading time 2 minutes. Brief Country Risk Commentaries prompted by world headlines South America >> Bolivia: Third business nationalization in three months Yesterday Bolivia announced the nationalization of a silver indium mine owned by Canadian company South American Silver. The mine is said to be worth U.S.$2 billion. This is the third foreign owned business nationalization by Bolivia in the last three months. The President of the Bolivian Confederation of Private Entrepreneurs is reported as saying this was a “bad omen” for investors, and will “breed doubts over the investment environment and distrust of the government”. It is hard to disagree. Topical Reference: Bolivia nationalizes Canadian-run silver mine, from China.org, August 3, 2012 – reading time 2 minutes. Important Snippets From Today’s Commentaries Snippet #1: If the financial markets indeed are instantaneously influenced (positively or negatively) by the addition or non-extension of U.S. quantitative easing I think that:

• in these uncertain and volatile economic times this confirms the financial markets today to be largely trading markets; and,
• this is highly worrisome because I see quantitative easing as simply an extension of the ‘over-levered postponement game’ that has been played out since 2008.

Snippet #2: The ‘over-levered’ postponement game’ has succeeded to date in doing little but keep the U.S. (and to some degree World) very leaky economic boat afloat, but hasn’t propelled it to meaningful economic growth – and hence has not propelled it to meaningful economic recovery. Snippet #3: Germany’s economy seems itself to be running into ‘downturn problems’. Germany is the Eurozone’s economic anchor. If Germany’s economy burps, can its voters be far behind in ‘belching’ when Germany is one of – if not the principal – funder of the bailouts of other Eurozone countries. Snippet #4: The President of the Bolivian Confederation of Private Entrepreneurs is reported as saying Bolivia’s third business nationalization in three months was a “bad omen” for investors, and will “breed doubts over the investment environment and distrust of the government”. It is hard to disagree.