What I call bad information bubbles happen when the market responds to bad information in a way it would not have if it properly understood it.
Like when stocks go up when markets think QE is good for stocks, for example. Or when markets go up because they think lower budget deficit reports are good for stocks. etc.
Good for stocks, bad for people theme:
Renault SA, France’s second-biggest carmaker, last week reported unexpected growth in first-half profit as labor-cost cuts and higher vehicle prices more than offset slumping sales. Paris-based Alcatel-Lucent SA today reported second-quarter earnings that topped analysts’ estimates.
Start spending freely transferable dollar tax credits rather than dollars.
The rest follows as previously discussed.
This is from Bloomberg news.
The question remains, will consumer spending pick up after the initial shock of the tax hikes and sequesters?
Or will growth continue to be low due to the reduced income from those pro active fiscal adjustments?
“The GDP report may also show consumer spending, which accounts for about 70 percent of the economy, grew at a 1.6 percent annualized rate, from April through June, according to the Bloomberg survey median. The prior quarter’s 2.6 percent pace was the strongest since the first three months of 2011.
Payroll Tax
Some of the slowdown in consumption may have been the lingering effect of the payroll tax, which reverted to its 2010 rate of 6.2 percent in January after holding at 4.2 percent for two years, resulting in lower take-home pay.
At the same time, gains in property values and share prices are lifting consumer confidence and helping households keep spending. A July 30 report from the Conference Board, a New York-based research group, will show its sentiment gauge in July was little changed from the five-year high reached in June.
Dozens killed as Egypt security forces clash with Morsi supporters in Cairo
By Ayman Mohyeldin, Marian Smith and Elizabeth Chuck
July 26 (NBC) — At least 100 people were killed early Saturday when riot police fired on protesters supporting deposed Egyptian President Mohammed Morsi in Cairo, activists said.
The Anti-Coup Alliance, an umbrella coalition of Morsi supporters, also said at least 5,000 people were injured near the clash in the Nasr City neighborhood of the capital.
ECB Says Bank Loans to Private Sector Shrink Most on Record
By Jeff Black
July 25 (BN) — Lending to companies and households in the 17-member euro area fell the most on record in June in a sign the region is still struggling to shake off its longest-ever recession.
Loans to the private sector dropped 1.6 percent from a year earlier, the Frankfurt-based European Central Bank said today. That’s the 14th monthly decline and the biggest since the start of the single currency in 1999.
The rate of growth in M3 money supply, which the ECB uses as an indicator for future inflation, fell to 2.3 percent in June from 2.9 percent in May, according to today’s data. That’s below all 30 estimates in a Bloomberg survey of economists.
M3 grew 2.8 percent in past three months from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.
Claims were looking to be lower due to auto workers working through the usual layoff period, but they remained high on the seasonally adjusted basis and looks to have rebounded from the April soft spot and subsequently gone sideways.
The EU has been struggling with something like we might be faced with- proactive deficit reduction and a private sector not stepping up to ‘borrow to spend’ to fill the gap.
Today’s durable goods shipments shortfall has caused further reductions in Q2 GDP estimates. Yes, new orders look promising, and Q3 estimates are still in the 2.5% range. And I remain on the lookout for signs of the credit expansion needed to support those forecasts in the context of the reduced federal deficit and the aggressive automatic fiscal stabilizers that remove income and savings of net financial assets as the economy grows.
Today’s combo of lower stocks and higher bond yields has been the typical response to an increased tapering possibility, along with the recently increased possibility of Summers as Fed chairman, with his presumably higher inclination to hike rates than Yellen.
Note that with the downward revisions it looks like things went flattish for housing through at least May, presumably due to the fiscal adjustments. And June is subject to revision the same way the prior months were, all with the backdrop of Q2 estimates now revised down towards 0.
Most are now looking for the fiscal pressure to let up in Q3, and therefore are expecting stronger numbers, while others see it lingering through Q3.
I see further risk that the fiscal damage has sufficiently slowed the growth of the consumer’s income to the point the growth in consumer spending continues to decelerate below the approx. 2.5% estimates I’m seeing for Q2.
In any case I don’t see jobs staying at 200,000/mo with GDP near flat for long.
The question is how the gap closes- higher GDP or fewer jobs.
Now this is serious!
Beer sales take a knock from payroll tax hike
By Arjun Kharpal
July 23 (CNBC) — U.S. beer sales declined in the first half of 2013 fueled by the payroll tax hike and a jump in unemployment among young men, according to research published on Tuesday.
The beer market posted 1 percent growth in 2012, in-line with pre-recession averages, driving hopes that the worst was over for the industry.
But beer sales dropped 3 percent in the three months to May 2013 and are down 2.6 percent in the year to date, Bernstein Research analysts said in a note.