Signs of global economic recovery proliferate

It looks like the world economy is accelerating, except, of course, in the US where health care uncertainties are delaying hiring and investment.  AP Moller-Maersk, which accounts for 15% of global sea freight, has just raised its 2013 profit forecast.  It says global sea freight will increase 2-3% this year and 4-6% in 2014 and 2015.  Meanwhile, the Bank of England says that unemployment is falling faster than expected.

Why is the US slowing down when the rest of the world is speeding up?

Japan grew at an annual rate of 4% in the first half of 2013. The Chinese PMI came in at 51.4, ahead of expectations, and they reported that industrial production showed the best growth in 18 months. Spain reported positive Q3 GDP and Greece as well, exceeding forecasts, due to strong exports. Ireland reported the 16th month of declining unemployment, which is now 13.2%. Important: It should be noted that Ireland's unemployment rate is reported on a U-6 basis, which includes part-time and discouraged workers. Our U-6 rate is 13.6%, so Ireland's unemployment rate is now below that of the US.


In light of the good world news, why is the US slowing down? I suppose it is because of Obamacare. Businesses don't really know the full implications of the law and are holding back on hiring and switching people from full- to part- time. It will take awhile to sort all of this out. I attended a presentation on the implications of Obamacare for Massachusetts organized by the Federation of Small Businesses on Wednesday. The presentation was given by people from MassHealth and an independent benefits specialist. The 37 business represented there were confused, nervous and a little scared. The benefits specialists said that many of his clients in the less-than-50-employee size were opting for salary in lieu of health care. (There is no penalty or fines for small businesses that don't offer health care.) That is, they are increasing salaries by the current cost of health insurance and cancelling their group plans

Let the debt cancellation begin!

It is beginning to look like debt cancellation, which Andrew Capon very amusingly discussed in his Christmas essay in Euromoney, "A Christmas Carol fit for a King," ( Inside Investment, Dec 2012 ) is the only way out for Japan and those other countries that aspire to be like Japan.

It's really a painless solution that involves no austerity and benefits everyone. The central bank simply buys government debt and cancels it, thus reducing the stock of government debt. Interest rates stay low because a shortage of debt is created. No government expenditures need to be curtailed and it is not necessary to raise taxes. (Tax could be reduced, in fact.) Inflation is avoided because households remain burdened with debt and their spending is restrained.


So when does the debt cancellation start?

Advice to ambitious whippersnappers: Get government work

Here is a quote from today's BLS employee compensation report. Government work is a much better deal than private industry for employees. That is therefore where the most capable among us will go.

"Private industry employers spent an average of $28.89 per hour worked for total employee compensation in December 2012, the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $20.32 per hour worked and accounted for 70.3 percent of these costs, while benefits averaged $8.57 and accounted for the remaining 29.7 percent. Total compensation costs for state and local government workers averaged $41.94 per hour worked in December 2012. Total employer compensation costs for civilian workers, which include private industry and state and local government workers, averaged $30.84 per hour worked in December 2012."

Graft disguised as civil service employment in Greece

There is an interesting article on Greece's "efforts" to reduce its civil service "work" force over the past few years in the New York Times today.

http://www.nytimes.com/2013/06/12/world/europe/greece.html?smid=pl-share

The state used to employ about 1/3 of the country's "workers," but this number has shrunk to about 1/4. Further reductions have become somewhat intractable, with even "temporary" "workers" getting court injunctions that prevent their discharge.

It doesn't bother me that some people don't work; work is over-rated and the value of leisure is not appreciated as much as it should be. On the other hand, I don't believe someone else should pay for my leisure. Unless, of course, there are volunteers. . . Anyone?

More holders of physical gold and fewer of gold ETFs

Even as China yesterday approved the listing of gold ETF's domestically, investors are increasingly interested in owning physical gold directly. Deutsche Bank has just opened a vault in Singapore, where JP Morgan and the the Singapore Mercantile Exchange have one, and Morgan is reopening its New York vault and Baclays's is opening a new one in London. (see article below.) Gold is moving from the more speculative ETFs to longer term holders.

Lincoln

From the FT: 

"Deutsche opens Singapore gold vault for wealthy investors

By Josh Noble in Hong Kong 

"Deutsche Bank has become the latest bank to tap the growing appetite for precious metals vaults, opening a safe deposit in Singapore capable of holding up to 200 tonnes of gold to meet storage demand in Asia.

"The opening of the vault comes as banks seek to tap into rising demand from wealthy investors for direct access to physical bullion rather than holding exchange traded funds, futures and options on the metal.

"Over the past two years, JPMorgan has reopened an old vault in Manhattan and built a facility in Singapore. Barclays, meanwhile, opened a precious metals vault in London late last year.

"Mark Smallwood, Deutsche’s head of wealth management in Asia, said investors globally were now paying closer attention to where their gold was stored, and that the new facility would help meet the changing demands of Asian investors.

'“Until now, our private clients have traded and invested in significant amounts of gold through the London spot market and exchange traded funds,” said Mr Smallwood. “There is a growing recognition among investors that they might want to have at least part of their allocation in physical bars.”
"
"Deutsche’s decision to locate its new vault in Singapore is a boost for the city-state’s efforts to become the regional centre for gold trading. Last year Singapore removed sales tax on gold investment in an effort to boost its role in the market.

"Many Asian investors have used the recent falls in the spot price to load up on the precious metal. Fevered retail buying in April left many banks, jewellers and even the Hong Kong gold exchange without enough stock to meet demand.

"Deutsche Bank expected to see strong demand from wealthy clients looking to use physical gold as collateral for other trading activity, added Mr Small-wood.

'“Asian clients like to make all their assets work very hard for them. Even though they may be holding gold for a potential catastrophic event, they recognise that it might not happen tomorrow,” Mr Small-wood said.

"The new facility will be located in the Singapore Freeport, already home to storage facilities run by auction house Christie’s and wine investment manager Stamford Cellars.

"Other banks, such as JPMorgan, already have gold vaults in Singapore, which are largely focused on institutional clients. . . "
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The US banks are awash with liquidity but aren't making loans

. . . or is it that borrowers won't borrow?

The remarkable and unprecedented since 1987 slump continues. (The only thing approaching normal is commercial and industrial lending.) At the same time, banks are maintaining $1.9 trillion in excess reserves at the FED.

Two graphs below: