Following a brief period in which it seemed that US foodstamp recipients may have peaked, with those living in poverty maxing out at 46.514 million in December 2011, and then declining modestly for the next few months, June saw a new surge in those Americans living in poverty and thus eligible for foodstamps, with 173,600 new entrants into the system, bringing the total to a new all time high of 46.670 million and once again rising fast. Furthermore, with subsequent emergency events affecting the heartland due to the drought, the administration has made sure even more Americans will be eligible going forward. As a result expect the July and August numbers to promptly surpass 47 million on their way to the psychological resistance level of 50 million. Indicatively, the 173,600 increase in Foodstamps recipients in June was three times greater than Americans finding jobs (64,000, most of which part-time) according to the BLS. Finally, a new record was also breached for American households on foodstamps, which now hit 22.4 million, an increase of 106,298 households. The average benefit per household decline once more, this time to $276.5. Not an all time low, but just above it.
Manufacturing ISM Misses, Third Month In Contraction Territory; Biggest Miss In Construction Spending In One yearSo much for the transitory bounce in positive economic reports from August. While hopes were high that maybe, just maybe, the virtuous cycle has once again been restored and the Fed's intervention would be unneeded, the August Manufacturing ISM just printed at 49.6, down from July's 49.8, and well below expectations of 50. This was the third contraction in a row and joins the global PMI which as we reported yesterday now has 80% of the world in contractionary territory. The kicker was the Prices Paid category which soared to 54.0 from 39.5, a whopping 14.5 surge, which together with the always hollow Inventories category which rose from 49.0 to 53.0, and Employment, which dipped from 52.0 to 51.6, were the only categories in the 50+ region. Everything else is now contracting. And in other news, Construction spending (remember "housing has bottomed") plunged from 0.4% to -0.9%, on expectations of an unchanged print, which was the biggest miss in a year, and the biggest drop in also a year.
While hardly saying anything new, more and more pundits are waking up to the reality that faced with an environment of epic capital outflows predicated by a complete loss in the system (see Greece), Spain simply can not survive. We wrote about the record outflow in Spanish deposits last week (here and here) and the fact that with banks urgently seeking to plug liquidity holes, coupled with soaring NPL levels, in the absence of actual profits they are forced to sell all those SPG bonds they had been purchasing during the open ponzi phase, where ECB funding would be recycled by local banks to meet primary market demand. Overnight even the New York Times has finally understood this simple identity: record outflows = the end. And now, the banks begin to chime in, pointing out what is patently obvious: from Nomura - "Spain will need full-blown bailout which will include more active role of ECB in Spanish bond markets."
Iron ore prices, which have fallen by 24% in the past month, have been front and center in our views on the China debacle recently. Following the RBA's decision not to cut rates last night we thought Macquarie's recent insight into just how bad an impact a sustained weakness in demand could have on the Australian economy was worthwhile, as hope seems to remain that the destocking among Chinese steel mills will end at some point and demand will re-emerge phoenix-like (though we strongly suspect not). The relative resilience of the AUD suggests that most investors believe that iron ore prices will recover over the next few months. But if they don’t then this could be the 'Wile E. Coyote moment' for the AUD, as GDP drops 3ppt, unemployment rises 4ppt, and busienss investment is slashed 20% below consensus.
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Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months. Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low. We tend to advise a buy and hold strategy for the majority of clients. For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on October 31st.
- The ESM Violates the Law And EU Treaties (Welt)
- Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain (NYT)
- RBA stays put for third straight month (SMH)
- Why PBOC will not cut rates: China’s Repo Rate Drops Most in Six Months as PBOC Injects Cash (Bloomberg)
- Manufacturing Downturn Spreads Gloom Across Asia, Europe (WSJ)
- "Sources" tell Dutch Dagblad that Weidmann is isolated in his objection to ECB monetization (Reuters, FD)
- Europe Bank Chief Hints at Bond Purchases (WSJ)
- Australia's Fortescue slashes capex as iron ore mkt drops (Reuters)
- Loan rates point to eurozone fractures (FT)
- U.S. nears deal for $1 billion in Egypt debt relief (Reuters)
- Majority of New Jobs Pay Low Wages, Study Finds (NYT)
Global Manufacturing Update Indicates 80% Of The World Is Now In Contraction
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