An article today titled ‘Is China Leading a Global Recovery?’ says “Increasingly, many companies see China as their ticket to surviving—and even thriving—in a post-recession world because of its insatiable appetite for goods as it moves toward a consumer-driven economy”.  The article also says “a lot of people are starting to believe America and China are in two very different boats” and includes interview comments with executives of major companies - at least one of which is quoted as saying:  “Is China going to lead the global economy out of this slump?  I wouldn’t think so”.  For the following 20,000 foot reasons that is the camp I am in:

•    first, from everything I have read I believe it will take China many years to develop a consumer based economy that will to an important degree be significantly internalized and self-sufficient;

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An article this morning titled ‘Recession eases; GDP dip smaller than expected’ reports U.S. GDP fell 1% in Q2, and that the U.S. economy has now contracted for a record four straight quarters for the first time on record dating to 1947.  This has led to predictions such as “The recession looks to have largely bottomed in the spring. Businesses have made most of the adjustments they needed to make, and that will set up the economy to resume growing in the summer” (Joel Naroff, president of Naroff Economic Advisors).  The article goes on to say  “Even if the recession ends later this year, the job market will remain weak. Companies are expected to keep cutting payroll through the rest of this year, but analysts say monthly job losses likely will continue to narrow”, and “unemployment — now at a 26-year high of 9.5 percent — will keep rising. The Fed says it will top 10 percent at the end of this year. Businesses will be unlikely to boost hiring until they’re certain the recovery has staying power”.  Note the Fed thought only 3 months ago U.S. unemployment would top out at 8.5% - watch for the July numbers which ought to begin to surface next week.

See my post earlier this week on ‘the meaning of economic recovery’, and consider my ongoing comments related to what I see it the importance of focusing on absolute numbers, not percentages.  Even if U.S. GDP returns to positive territory in the next quarter or Q4, unless U.S. job losses strongly reverse (which I don’t see happening) in my view ‘so what’.  All comments on recovery based on ‘a slowing of bad results’ to me are similar to the common result you get when you ask people “How’s it going”.  How many people have you asked that question of to be told “no good”, “terrible”, ‘badly”, etc.  I’ll bet you not many – that certainly has been my life-experience with asking that question.

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An article today titled ‘Unemployment spreads distress in U.S. home loans’ says RealtyTrac reports that cities in California, Florida, Nevada and Arizona dominated in numbers of foreclosures in H1, 2009.  The article says “the source of the mortgage trouble has swung from lax lending standards to unemployment” and that RealtyTrac in its midyear metropolitan foreclosure report says that “More than 20 percent of areas with above-average foreclosure activity were in Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina in the first half of the year. That shift points to growing unemployment more than to fallout from subprime and adjustable-rate loans”.  RealtyTrac reported a record 1.9 million foreclosure filings on more than 1.5 million properties in H1 2009, and forecasts 4 million filings for the year.

That there would be a co-orelation between unemployment and foreclosures makes sense to me, and for me this ties into my ongoing concern that until Job losses are reversed for extended period of months any meaningful U.S. economic recovery is unlikely.

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An article this morning reports on a  Wall Street Journal/NBC poll titled ‘WSJ/NBC Poll: Insecurity Spreads in the Labor Market’ that found although 44% of those Americans think the economy will improve in the next 12 months, only 60% said they were ‘somewhat or very satisfied’ with their job security – down 8% from April and 10% from January.  It seems to me this does not bode well for either near-term increases in retail sales  or U.S. Federal, State and Municipal revenues in 2009.  I think we can look to an even larger U.S. Federal Government Deficit in 2009 than currently is being forecast.

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An article today titled ‘Geithner: US to address deficits after recovery’ says just that. I consider this type of ongoing rhetoric ‘off the charts’.

• First, general statements without specific reasoning behind them as to how something is going to be accomplished simply ought to be disregarded – irrespective of the topic such statements address; and,

• Second, does Geithner think that the Chinese (and for that matter all other thinking people in the world) don’t understand my first point?

The referenced article says “China has huge investments in the United States and has worried it could be undermined by U.S. budget deficits”. I have commented on China’s concerns about this in previous posts. From my perspective China would be foolish indeed not to be concerned – hence I anticipate a step-up in the numbers of strategic investments China will make in the near-term both inside and outside China. A problem I see China having with spending its U.S.$ on investments it considers strategic is that the amount of U.S.$ China holds is so large it will be very difficult for China to find ‘good homes’ for all of those $.

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Yesterday it was reported that U.S. New House sales increased by 11% in June over May (in units 384,000 versus 346,000), and at the same time the Libor Rate (the London Interbank Offered Rate) fell below 0.5%, the latter thought by some to be the ‘strongest signal yet that confidence has returned to the credit markets’ – see article discussing these things by clicking here.  That said, at the high of the ‘boom’ in post-2000 U.S. house sales – reached in July, 2005 – were 1.4 million in one month.  At the same time the average house price fetched in June decreased from May to $206,200, 11.2% less than the average house price in July 2005 ($229,500).  For me it follows, consistent with my ongoing commentary to pay attention to absolutes and not percentages, that while it is clear U.S. New Home Sales increased month/month in June there is no reason to jump to a conclusion that ‘all is well with the U.S. economic world’ and that near-term meaningful recovery is ensured any time soon.

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An article today titled ‘Report: BofA planning to cut 10 pct of branches’ says the Wall Street Journal reported on Tuesday that the Bank of America CEO said he is planning to shrink the bank’s 6,100 branch network by about 10%.  This would amount to closing about 600 branches, obviously with related job losses being an undisclosed multiple of that number.  This is not good news from a job loss point of view and hence, at least in my view, not positive in the context of U.S. economic recovery.

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Last fall I wrote a Series of 11 Posts on this Blog collectively titled ‘Gold as an Investment’.  Readers can find those posts in the Blog archives.  I came to a number of conclusions summarized in those post, two of which are:

•    the world changed economically for the U.S. and the rest of the world in 1971 when Bretton Woods was abandoned and the U.S. $ became the world fiat ‘Reserve Currency’.  It was after that time that governments more strongly influenced (if not dictated) inflation rates and, importantly from my perspective, the U.S. began running consistent year/year net trade deficits that escalated throughout the post-1973 period – and have escalated and continue to escalate hugely after 1999; and,

•    that whereas most commentators focus on their view as to the likely increase/decrease in the gold price and see gold as an ‘inflation hedge’, I think the better focus is on gold in the context of its purchasing power in both inflationary and deflationary periods.

I think anyone with an interest in furthering their understanding of gold ought to read an article today titled ‘The day the Dollar died – and the day Gold was reborn’.  While the article does not reach the specific conclusions about gold that I have reached it does provide some history and ‘food for thought’.

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The following Reports or Consensus Reports (C) will be released this week (EST).

Monday, July 27:

10:00 AM – U.S. New Home Sales (C)

Tuesday, July 28:

7:45 AM – U.S. ICSC-Goldman Store Sales; 10:00 AM – U.S. Consumer Confidence (C)

Wednesday, July 29:

8:30 AM – U.S. Durable Goods Orders (C)

Thursday, July 30:

3:50 AM – Germany Unemployment Rate;5:00 AM – European Monetary Union Economic Sentiment; 8:30 AM – U.S. Jobless Claims (C); 4:30 PM – U.S. Money Supply

Friday, July 31:

5:00 AM – European Monetary Union Unemployment Rate; 8:30 AM – U.S. GDP (C);8:30 AM – Canada Monthly GDP

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An article today titled ‘Are Unemployment Statistics Meaningless? Are Spillover Effects Zero?’ again raises what I think to be a critically important issue.  There currently is a lot of rhetoric focused on the possibility that ‘economic recovery’ is upon us in both Canada and the U.S.  I keep saying that in my view economic recovery must include job gains – particularly in the U.S.  I raised the issue in a post last week of ‘which industries are going to create those jobs’.  Everything I read seems to suggest education and health care as the U.S. ‘job creators’.  If those two ‘employer types’ are being counted on by the U.S. Administration as the principal ‘job creators’ I think someone is smoking something.  As I read it, the referenced article agrees.  I suggest you read it.

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