Japan Manufacturing PMI Shows Output and News Orders Down at Accelerated Rate

Economic conditions in Japan continue to accelerate to the downside as PMI signals sharpest deterioration in operating conditions since April 2011

Key Points:

Output and new orders down at accelerated rates
New export business decreases at sharpest rate in 15 months
Average costs fall to greatest extent since November 2009

July data from Markit/JMMA showed manufacturing output falling at the sharpest rate in 15 months, as both new orders and new export business decreased at accelerated rates.



After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ Index™ (PMI™) posted 47.9 in July, down from 49.9 in June, a level indicative of a moderate deterioration in operating conditions. Moreover, the latest index reading was the lowest in 15 months. All three market groups registered a worsening of business conditions, with investment goods producers noting the steepest deterioration.

Japanese manufacturing production declined for a second successive month in July, and at an accelerated rate. The overall reduction in factory output reflected lower levels of incoming new business, according to survey respondents. The pace of reduction in new work was solid, and the steepest since April 2011. New export orders also decreased in July, for the fourth month running, with the rate of reduction the fastest in 15 months. Companies mentioned demand weakness in China, Europe and the United States.

It should be very clear now that the global economy in aggregate is back in recession, yet other than my call on July 11, 2012 Case for US and Global Recession Right Here, Right Now there has been scant attention to this possibility in media reports.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Actor Marcus Giamatti Lists Hollywood Manor House

SELLER: Marcus Giamatti
LOCATION: Los Angeles, CA
PRICE: $999,000
SIZE: 2,310 square feet, 4 bedrooms, 3 bathrooms

YOUR MAMAS NOTES: Thanks to The Bizzy Boys at Celebrity Address Aerial (and a listing that brazenly announces the home is "celebrity owned"), Your Mama learned that actor/musician/writer Marcus Giamatti—older brother of Oscar-nominated actor Paul Giamatti (Sideways, John Adams, Saving Private Ryan) and the son of a former president of Yale who later became the Commissioner of Baseball who banned naughty-naughty Pete Rose from baseball—listed his house in the Hollywood Hills last week with an asking price of $1,049,000, already reduced to $999,000.

Mister Giamatti, not as famous and lesser lauded than his younger brother, has none-the-less been toodling reasonably successfully around Tinseltown since the mid-1980s and claims a long list of television credits that include a couple of stints on daytime soap stories (The Young and the Restless, Another World, Guiding Light). Over the years he also shook his Yale-trained money maker in scads and scores of boob-toob programs that include (but are far from limited to) Medium, The Mentalist, Monk and, recently, Revenge. He is perhaps best known as Peter Gray on Judging Amy, canceled back in 2005, and is a well-regarded stage actor with numerous credits both on- and off-Broadway (Young Man From Atlanta, Measure for Measure).

He maintains a side-gig as an accomplished bass guitarist and session musician. He swam varsity at tiny, artsy Bowdoin College, has a degree in African Ethnomusicology—his thesis was on Ashanti Tribal Funeral Music—and currently writes an occasional feature article for some baseball publication we've never heard of (MLB Insider's Club Magazine).

Clearly he's an interesting guy with deep and thoughtful interests and that's reflected in his and his missus's chosen day-core and furnishings that strike an admirably eclectic if—hmm, well, uh—nerve-wracking hodgepodge hot mess where English Country floral prints mix like oil and water with a dollop of Victoriana, a dose of Arts and Crafts, a smattering of 1980s contemporary (glass block), a soupçon of French bistro and a little bit of a whole lotta other things. This may be any number of people's ideal of decorative perfection but, in all honesty, for Your Mama it's a difficult-to-digest stew. Our opinion on the matter is of little consequence and, certainly, much of the frippery will exit the scene with the Giamatti family when they decamp to their next place of residence, wherever that may be.

Property records show Mister Giamatti and his not-famous second wife purchased the property in the Hollywood Manor neighborhood January 2008 for $827,000. Current listing information shows the updated and upgraded two-story house of unknown architectural style—listing information calls in a "Mid Century," which, technically if not stylistically, it is since it was built in 1940—spans 2,310 square feet and contains a total of 4 bedrooms and 3 bathrooms.

A sharply curved front façade and roof line hint at the rather peculiar shape of some of the interior spaces including the curved, multi-sided living room with hardwood floors, fireplace and screened French doors to the spacious back deck. The adjoining formal dining room also has a curved wall and wood floors that run in a different direction than those in the living room.

A wide opening joins the dining room to the fully-renovated if florid center island kitchen complete with snack bar; custom, Colonial blue raised panel cabinetry, some with leaded glass doors; granite and riveted copper counter tops; medium-grade stainless steel appliances; and a chunky, two-tub copper farmhouse sink.

For some most perplexing and deeply distressing reason the honey-colored hardwoods in the living and dining rooms ends abruptly at the kitchen where the floors are darker and redder, like cherry or mahogany. We get that the kitchen designer was trying to—ahem—set a mood in the kitchen but to install two different colors of wood floors in the same house where they butt right up against each other is, in our humble and utterly meaningless opinion, a decorative crime of punishable proportions. Now, children, if the kitchen designer how opted for an appropriately chosen tile or stone floor material, that may very well have made some damn sense. But two radically different hardwoods like that? Hunny, no. It gives Your Mama a body-wide case of the hives.

Anyhoo, two of the four bedrooms and one of the three bathrooms are located, as per listing information on the main (upper) level. A third guest/family bedroom (with private bathroom) and the master suite (with attached bathroom, private deck and two walk-in closets) are well situated for maximum privacy on the lower level.

The back of the house opens through numerous screened French doors to a huge deck with over-the-tree-tops canyon views. A step-down portion of the deck is shaded by a slatted ramada for tempering the hot glare of the scorching (and somewhat relentless) southern California sunshine and a long and sorta-grand stairway (fashioned with oh-so-humble railroad ties) connects the various nooks and crannies of the landscaped and terraced grounds that include flat grass pads and—as per listing information—a handful of plum and lemon trees.

The hardly fancy Hollywood Manor 'hood is home to a number of (fairly low wattage) Showbiz types who include Morgan Fairchild (who has lived there for years), Brigitte Nielsen (who recently paid $600,000 for a fixer), and Paul DiMeo (whose house is also currently on the market for $1.1 million. Not a lesbian in real life L Word Actress Erin Daniels just sold her house in the Hollywood Manor (for a bit more than asking) and moved a mile or so down the hill to a contemporary crib in Toluca Lake.

Extra fun fact: Mister and Missus Giamatti's real estate agent is a fella named Alastair Duncan who happens to be a part-time actor (The Girl With the Dragon Tattoo, The Batman) and who's marital wagon is hitched to Emmy-nominated actress Anna Gunn (Breaking Bad, The Practice Deadwood).

listing photos: Hollywoodland Realty

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ESM Banking License? Not Happening as Merkel Allies Harden Opposition

So far it's been nothing but hot air and no action from ECB president Mario Draghi after he pledged to do whatever it takes to save the euro.

One of the highly-touted ideas as of late has been a ESM banking license. However, the idea is not really new, and has been shot down repeatedly already. Nonetheless eurocrats like Jean-Claude Juncker, chairman of the eurogroup, keep bringing the idea up as if the answer will change. 

It won't. Bloomberg reports Merkel Allies Harden Opposition to Granting ESM Bank License

German Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move.

The rules of the European Stability Mechanism don’t provide for refinancing through the ECB, the ministry in Berlin said today in an e-mailed response to questions. The ministry isn’t holding talks on the topic nor are secret meetings taking place on such proposals, it said.

France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported today, citing a European Union official it didn’t name. Leading ECB governing council members are among those who now back the idea, the newspaper said.

Lawmakers from all three parties in Merkel’s coalition immediately repudiated the suggestion. It is a “dangerous attempt” to bypass the ban on the central bank financing states directly, said Hans Michelbach of the Bavarian Christian Social Union. The Free Democratic Party’s Rainer Bruederle told Die Welt newspaper such a mechanism is a “wealth-destroying weapon,” while Norbert Barthle of Merkel’s Christian Democratic Union said it won’t happen.

“Those who try to circumvent their own rules through the back door lose their legitimacy in the eyes of the public,” Michelbach said in an e-mailed statement. “Financing debt by means of the printing press leads to growing inflation dangers.”

One would hope this message would sink through the thick heads of the eurocrats, but it probably won't.

 OK Mario, ball is in your court. What are you going to do?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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100,000 Workers in Spain Will Not be Paid Because Regional Government of Catalona is Broke

The crisis in Spanish regional governments continues to escalate. El Pais reports Catalona Will Not Pay Hospitals or Private Centers and 100,000 workers are affected.

This month, the Government of Catalona cannot tackle  payments owed to hospitals, schools, residences, social organizations, and children in care centers and workshops. These are the services provided by entities, public and private, funded by the Government but managed not depend on it.

The move affects up to 7,500 associations and some 100,000 workers, according to the third sector.

The news that the Government could not meet its commitments this month was confirmed on Monday after several days of negotiations with the affected entities. Sources from the Departments of Health and Welfare explained ten days ago it "could not meet the payments this month." Welfare, however, has ensured that other non-contributory pensions paid or the minimum income.

The federations that warn-grouped after an emergency meeting with Social Welfare that many of them are on the verge of "collapse" in a situation "unprecedented". And is that the default is added to other cuts that have affected the sector this year, as 56% of the budget on labor market policies.

The Catalan Association of Relief calculated that 63% of companies cannot meet the payroll this month. To alleviate this choke, Acra has asked for help from families, proposing that advance a couple of months of contributions.

This is not the first time that the Government is obliged to defer payment of the concerts. It happened last September when he could only address 65% of the amount and the rest was paid by the end of the year.

The idea that Spain can avoid a complete sovereign bailout seems pretty absurd at this point. The solution, of course, is a combination of default, a eurozone exit, work rule reform, and pension reform, but so far there is no rational discussion of those ideas at the highest levels.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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In Tom Cruise Real Estate News...

...in case any of y'all care, soon-to-be-divorced Tom Cruise is rumored to be looking at swank (and private) spreads in some of the more expensive communities around New York City where he can play daddy-host to daughter Suri when his visitation times come around.

Blah, blah, blah, blah, blah, blah, blah, blah.

So the story goes in the New York Post this morning, Mister Cruise recently took Suri along to peep and poke around an unlisted, 11-acre waterfront spread with a 13,500 square foot main manse in the sleepy river side enclave of Sneden's Landing, NY.

Mister and soon-to-be ex-Missus Cruise already maintain a number of luxury residences that include a Beverly Hills estate bought in 2007 for just over $30,000,000, a gated compound above Mulholland Drive in the Hollywood Hills—bought for close to $10,000,000 in 2005 and rumored by celebrity (property) gossips to be some sort of Scientology retreat, but we don't have any proof of that—a secluded mountain estate in Telluride, CO that Mister Cruise owned long before he ever married Katie, and at least one apartment at the American Felt Building in lower Manhattan's East Village.

There are rumors and reports Tom and Katie coughed up $15,075,000 for a six-story, 8,000+ square foot brownstone in Greenwich Village in summer 2009 but, in truth, we're not convinced they did and certainly we haven't seen any hard evidence of that.

And, of course, let's not forget the New York City apartment soon-to-be-third-ex-Missus Cruise secretly leased—or "secretly" leased, depending on your level of cynicism regarding the matter—as part of her marriage exit strategy. Other high-profile (full and/or part-time) residents of the building are rumored and reported to include Javier Bardem and Penelope Cruz, Lisa Stansfield, Bobby Flay, Kyle MacLachlan, and, up in one of the penthouse pads, Nick Jonas.

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Today in Pictures - St. Elizabeths

After nearly a century of being vacant, the District government opened the east side of St. Elizabeths to the public this weekend.  While construction on the federally-owned west side continues in anticipation of a new home for multiple agencies, the District is still creating a plan for what to do with their half - 183 acres with some of the most notable vistas and architecture in the city - which the federal government turned over to the city 25 years ago.  DC's portion still holds patients like John Hinckley Jr., though far fewer patients than the thousands that filled the asylum in the last century.

Washington D.C. real estate development news

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Recent Gold Hype Sounds Like Grade-School Chant; Five Non-Hype Reasons to Own Gold

Reader David emailed a link to GATA, SHAKA ZULU, And The Coming Gold/Silver STORM! with a note "please see fit to write about this!!!"

The article is by Bill Murphy, the Gold Anti-Trust Action Committee (GATA) chairman. Here are the key snips.

To get right to the point, three quality sources told me three weeks ago that the gold and silver markets were going to take off in August and I have been pounding the table on such ever since.

It is time for things to happen. As you know by now, I have been jumping up and down for fireworks to happen in August. We shall see. All I can say is that what has been brought to my attention over last three week period from the "best of" sources all points to the same conclusion. It will be nitty gritty time SOON. Perhaps that “soon” is “now” the way gold has traded the past three days.

If what I think I know is correct, it will be time to pour it on our adversaries and send them running for the hills.

Grade-School Chant

As I read that, I was wondering what exactly I was supposed to comment on. Murphy has three sources, all unnamed. 

Worse yet, Murphy will not even state what the news is. The entire posts smacks of the playground chant "I know something you don't know, a ha, and a hen, and a ho ho ho."

There is no story here, there is not even a rumor. There is only a rumor of a rumor. I am commenting because I was asked.

Seasonality

Murphy has at least one thing going for his call: seasonality. August is generally (but not always) a good time to buy gold.

If nothing happens, Murphy will be on his bull horn complaining of manipulation, singing the same tired chant about gold shorts suppressing the price of gold.

Manipulations

Is the gold market manipulated?  A better question is "what isn't?" Certainly the Fed manipulates interest rates. The LIBOR scandal proved banks acted to manipulate LIBOR. The rating agencies manipulated pure garbage into AAA rated securities.

Nearly everything is manipulated to some degree. However, I do not believe it is possible to manipulate prices for decades against the long-term trend.

If there has been an effort to suppress the price of gold it certainly has failed miserably. Gold has gone from $250 to $1900 and is now $1620.

Yet, every time gold declines the conspiracy clowns scream manipulation as if the price can never go down ever. Now they are singing playground chants.

Five Reasons to Own Gold

There are plenty of reasons to own gold without all the needless hype.

1. Gold is a nice insurance policy against a currency crisis and I think one is coming. When or what country kicks things off that crisis, I don't know, but I suspect it is more likely to be the Japan, Italy, or some other country in Europe as opposed to the US.
2. Gold, contrary to popular myth, is actually a great hedge against deflation in the senior currency (clearly the US dollar).
3. Physical gold is a currency that is not someone else's liability and cannot be printed electronically.
4. Central banks (not just the Fed) have been pouring on the liquidity as the global economy moves from one crisis to another. Odds strongly favor more coordinated central bank liquidity moves, and those liquidity moves tend to benefit gold in the long-haul.
5. Should the world return to a gold standard with a 100% gold-backed dollar, $1600 an ounce will likely look like an extreme bargain. 

GATA would be wise to stop the needless hype and instead concentrate on fundamentals because "I know something but I ain't sayin' what" is sure a silly thing for anyone to be banking on.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Shades of 2006: That's What Australia Housing Bubble Looks Like From US Perspective

The Australia housing market did not bust when it should of and the delay is going to be painful. The bigger the bubble, the bigger the crash, and the Australia bubble is bigger than we saw in the US.

On a timeline basis, Australia is about where the US was in 2006, essentially  a state of denial.

Developers are offering massive incentives such as cars, furniture, and vacations to move homes while chanting the ever-popular "now is a great time to buy a house" mantra.

Gifts Galore

The Age reports Gifts galore boost flagging unit sales

Developers are slashing apartment prices and handing out tens of thousands of dollars in incentives - including rebates, cars, furniture and holidays - to lure buyers into Melbourne's new-unit market.

While many industry players say the offers are good news for buyers, others worry that the discounting could fuel a "race to the bottom" that could harm property values.

"There's no question there are a lot of apartments under construction, so everyone's trying to attract attention to get people to inquire about theirs," said Robert Pradolin, general manager at developer Australand.

"It's probably a very good time to buy because there are a lot of incentives around, but buyers still need to be really careful that they are picking a place based on its location, quality and who the developer is."

In one case, Maxx Apartments announced a "massive St Kilda apartments sale" in a series of large advertisements. The promotion saw $121,000 cut from the cost of a two-bedroom flat and the price of a $415,000 one-bedroom unit reduced by 18 per cent.

Late last year, a $65,000 Mercedes was offered to the first buyer of one of four luxury apartments that remained unsold in a Brighton development. Rubicon Pacific used the teaser despite already dropping prices by $150,000 to $200,000 on apartments first listed at up to $1.3 million.

Other developers have followed suit, launching campaigns that provided $5000 to $20,000 rebates on top of the $13,000 available to first home buyers before July 1. Some have tried to lure investors with offers of guaranteed rental income for up to five years.

Agency Castran Gilbert said the offer of a holiday for two to Palm Cove for buyers in the Brunswick West development Portez led to a 50 per cent spike in inquiries.

No Auction Bidders

Similar to the US condo bust in which bidders vanished overnight, The Age notes Empty auctions: 'op shop' listings

What if you put your house up for auction but nobody turned up? Not even the neighbours for a stickybeak?

Well, that happened at the weekend, with agents from Hocking Stuart and Buxton real estate left standing alone in the pouring rain.

Auctioneers put their hammers away for two houses in Elwood, with the owners deciding to cancel at the last minute due to no interest at all. In all, eight auctions were put off.

Inner west agent Craig Stephens, managing director Jas H Stephens, said it was "rare to have no one rock up" to an auction, but he has noticed an increasing number of buyers waiting to negotiate after auction.

"It's definitely a buyers market at the moment and those buyers are being a bit fickle," he said. "But good houses in good streets still sell and some property is being sold one or two weeks after auction."

He said many vendors were holding off, with a pick up in listings for auctions in late September and early October. "It looks as though there could be a pick up in supply in the second half of the year," he said.

Hocking Stuart agent David Sullivan said the owner of its property that had zero attendees did not want to comment. Buxton did not return calls.

This is how downturns major start: price wars, incentives, and still no bidders. Given that it's only 2006, Australia has a long way to the bottom.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Beyonce and Jay-Z Do it Temporarily in the Hamptons

In case you ain't already heard...

According to the New York Post, procreating international entertainment industry power couple Beyoncé and Jay-Z coughed up several hundred thousand clams to lease a significant estate in the Hamptons for the month of August (2012). But, seriously, does that surprise even the most half-hearted of celebrity (real estate) watchers among us? These are, after all, the same lavish living lovebirds who regularly drop hundreds of thousands of dollars to rent mansion-sized boats for a few days at a time.

The hip-hopping couple, who each possess the sort of fame and super-stardom that allows them to be known around the planet by just one name, like Cher, Oprah, Madonna and Charo, reportedly shelled out somewhere in the neighborhood of $400,000 to lease Sandcastle, a hokey-named, Hamptons-famous estate in sleepy but impossibly swank Bridgehampton, NY currently listed for sale with a reduced from $50,000,000 but still boo-tox blistering asking price of $43,500,000.

The children may (or may not) recall that two summers ago direct marketing lady-mogul of a certain age named Cheryl Mercuris plunked down a bone rattling half a million bucks to lease the behemoth Sandcastle for just two weeks in August. Miz Mercuris, bless her Tampa (FL)-based heart, made no bones about the fact that she wanted to spend a little time in the Hamptons so that she could do the hokey-pokey (or whatever) with some quality, wealthy men. She did not, so the story goes, snag a man that summer of it but she must have had a sufficiently good time that the next summer (2011) she returned for the entire month of July.

Anyhoo, the best way to take in the shopping center-sized Sandcastle is not with a bunch of over processed "prose" from Your Mama but rather by the numbers and with listing photos.

Sandcastle, just about 1.5 miles from the beach, encompasses 11.5 pancake flat acres and includes a gated and complicated series of interconnected driveways and motor courts, farm views, and (approx.) 31,000 square feet of luxury living on three full floors, including a 40-foot long living room with two fireplaces and a library/office sheathed floor and ceiling with high gloss wood work and paneling.

Altogether the compound-like estate has, according to current listing information, 12 bedrooms and 12 bathrooms, including a sprawling, 2,800 square foot master suite with private sun deck and a marble- (or maybe onyx-) floored lady's pooper far larger—we guesstimate—than the average two-bedroom tenement apartment in lower Manhattan.

In addition to all the usual accouterments to be expected in a super-pricey summer rental in the Hamptons—60-foot swimming pool, spa and sunken tennis court with pergola-shaded viewing terrace—the self-contained estate also includes a 4,000 square foot poolside entertaining pavilion with adjoining outdoor kitchen; a 10-seat home theater with swanky adjustable seats; a full spa with massage area and steam room; a state-of-the-art two-lane bowling alley and squash/racquetball court, media lounge with (at least) five tee-vees sunken into the wall—breathe, breathe, breathe—a disco with full bar; indoor rock climbing wall and skateboard half-pipe—because everyone needs one of those in the basement; a children's performing area—whatever that is; an 8-car garage with hydraulic lifts and, not to be outdone by Jerry Seinfeld, a baseball diamond in the back yard.

Good grief.

Call Your Mama old fashioned—and Lord knows we've been called far worse—but iffin we we're gonna spend big bucks and a few weeks in the Hamptons this (or any other) summer, we'd much prefer something less, well, all-inclusive. All Your Mama requires for few weeks beach vacation happiness—and we really could use some beach vacation happiness—is a simple and charming shack on (or even near) the beach, a beat-up bicycle, 10 pounds of fresh corn and tomatoes, a handful of novels including at least one preferably unauthorized biography, a couple of Costco-sized bottled of gin, a smart phone—we're beholden and handcuffed to a base level of daily technology just like everybody else, and a diverse and endless supply of candy.

Whatever do people like Jay-Z and Beyoncé do with all this house? Do they ride the half pipe? Climb the rock wall thingy? Do they take 8 cars on vacation? With 12 bedrooms, the compound easily sleeps 24. Do they have a dozen more house guests at any one time? Is that how they roll? With a dozen or more family members, assistants, domestic staff and hangers on lurking around at all times?

listing photos: Corcoran

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Eurozone Retail Sales Sink 9th Month; 17th Month of Contraction in Italy; Margins Collapse in France; Germany Barely Above Contraction

Eurozone retail sales continue to dive and not even Germany is immune. German manufacturing has been in contraction off-and-on, and retail sales are once again on the verge contraction as well.

Let's take a look at some reports.

Italy Retail Sales Slump Extends to 17th Month

Markit reports Downturn in retail sales continues in July

Summary:

July data pointed to a further reduction in activity in the Italian retail sector, with sales down markedly both on the month and compared with levels one year ago. The rates of decline in employment, purchasing activity and inventories all accelerated, while profitability continued to deteriorate sharply. Cost pressures, however, eased to the weakest in 20 months amid stronger competition between suppliers.

The downturn in Italy’s retail sector extended to a seventeenth month in July. Furthermore, the rate of contraction in like-for-like sales accelerated from the previous month and was marked. This was signalled by the seasonally adjusted Italian Retail PMI® posting 40.7, down from 41.7 in June.

Italian retailers generally fell short of their targets set for July.

Employment levels continued to fall during July, extending the ongoing sequence of contraction to 55 months. Moreover, after slowing to the weakest in eight months during the preceding survey period, the rate of job shedding accelerated and was
marked overall.

Sales Fall Sharply in France

Markit France PMI shows Record Drop in Retail Margins

French retailers encountered another tough month in July. Sales fell at a sharper rate on both a monthly and an annual basis, while margins were squeezed to the greatest extent in the survey history. The pace of job shedding accelerated [fastest rate in nearly three years], while retailers scaled back their purchasing of goods and lowered their inventories.

The headline Retail PMI® remained below the 50.0 no-change mark for a fourth successive month in July. At 46.7, down from 48.9 in June, the index signalled an acceleration in the monthly rate of decline in sales.

Gross margins in the French retail sector continued to decline in July. Moreover, the latest fall was the sharpest in the history of the survey. Panellists indicated that margins were squeezed by the need to engage in substantial discounting and promotional activity in the face of an increasingly competitive trading environment.

German Retail Sales on Verge of Contraction

Markit reports German Retail PMI hits three-month low during July

The recent rebound in German retail sales faded in July, with like-for-like sales rising only marginally since the previous month. At 50.3, down from 52.4 in June, the seasonally adjusted Germany Retail PMI signalled the slowest expansion in the current three-month period of growth.

German retailers indicated that their actual sales fell short of their initial plans in July, and by the greatest margin since January. Anecdotal evidence mainly cited weaker than anticipated underlying consumer demand. July data indicated that retailers are downbeat about their prospects for reaching sales targets in one month’s time. The degree of negative sentiment was the most marked since that recorded in December 2009.

Eurozone Retail Sales Sink 9th Month

Markit reports Eurozone retail sales fall for ninth month running in July

Key points:

Revenue downturn continues at faster rate
Near-record drop in gross margins
Wholesale price inflation strengthens



Eurozone retail sales fell on an annual basis for the fourteenth successive month in July. The rate of contraction was little-changed from June’s sharp pace, and much faster than the long-run average for the survey. Sales fell rapidly in Italy, extending the current sequence of decline to two-and-a-half years. France also posted a steep fall, the fifth in successive months. Sales were up compared with a year earlier in Germany, and at the fastest rate since March.



Retailers cut back on staffing in July. The current period of job shedding now stretches to four months, and the rate of reduction accelerated to a 32-month record. French and Italian retailers reduced their workforces on average, with the steeper decline posted among the latter. Italian retailers have shed staff every month since January 2008. In contrast, German retailers raised headcounts for the twenty-sixth successive month.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Pete Wentz, (San Fernando) Valley Boy

BUYER: Pete Wentz
LOCATION: Studio City, CA
PRICE: $1,050,000
SIZE: 2,000 square feet (approx.), 3 bedrooms, 3 bathrooms

YOUR MAMAS NOTES: Listen chickens, we know many of y'all prefer to hear about the real estate doings of tawdry reality denizens like Teresa Giudice, Promethean sports figures like Tim Tebow and Michael Phelps and/or mega-stars like itty-bitty tweener tycoon Justin Beiber. We do too. But sometimes we gotta dip down to the lower echelons of fame if only to clear out the celebrity real estate cobwebs that sometimes clutter up the desktop of my trusty laptop computer.

One of those cobwebs to be swept away is the modest (if not exactly cheap) residence 30-something year old entrepreneurial musician Pete Wentz scooped up a few months ago for $1,050,000 in the conveniently located San Fernando Valley community of Studio City, CA.

Once upon a time Studio City was the Brooklyn of Los Angeles. Wasn't so long ago nobody rich and/or chic in New York went to Brooklyn or—heaven forfend—actually lived there and if they did they certainly didn't admit it to anyone socially or professionally important. Howevuh, like Brooklyn, over the last 10 or so year it has become a lot more geographically acceptable to live in Studio City. Of course, Brooklyn was infiltrated by arty-farty hipsters and Studio City went to young families with good jobs and ludicrously expensive, hi-tech strollers, but still there's a kind of real estate parity. Oh my, how Your Mama wanders when we have gin for breakfast...

Mister Wentz, tatted up like a convict, reached the to-date pinnacle of his success and celebrity in the mid-Aughts when he was the kohl-eyed and boy-kissing lead singer of a rock band called Fall out Boy. Remember them? Since long before and since Fall Out Boy went on a semi-permanent hiatus in 2009 and his brief marriage to "singer" and (h)actress Ashlee Simpson went kaput in 2011, Mister Wentz has stayed busy as a greeter at Wal-Mart with a new-ish experimental electropop-ska duo called Black Cards, a record label (Decaydance Records), clothing company (Clandestine Industries), a not very active film production company (Bartskull Films), and a budding bar franchise (Angels and Kings).

The  original, downtown New York City Angels and Kings closed some time ago but there are now versions in Barcelona, Chicago and Los Angeles. Interestingly, at least one of the AK bars is co-owned by celebrity gossip slinger Perez Hilton who, some may recall, frequently and regularly gave Mister Wentz's ex-wife Ashlee scathing how-tos and what-fors on the Twitter and on his ridiculously trafficked blog. Those two bitches just hated each other and now he's in business with her ex. Ouch. Anyhoo...

In June 2006 Mister Wentz, then single and in his mid-20s, dropped $1,625,000 to buy a 2,700 square foot, privately-situated bachelor pad in the Hollywood Hills. It wasn't long after he hooked up with, quickly impregnated and then married Miss Simpson, the younger and less successful sister of bubble gum pop singer turned pioneering reality tee-vee star turned retail clothing super-tycoon (and new mommy) Jessica Simpson.

He packed up and moved in to her much larger, celeb-style 7,100 square foot Beverly Hills (Post Office area) mansion just down the winding road from Demi Moore and Mark Wahlberg she'd bought in the early days of 2007 for $4,500,000. In October 2008, a few months after their May nupitals, he finally unloaded his bachelor pad in the Hollywood Hills for $1,600,000.

We're not sure where Mister Wentz went in the immediate aftermath of his split from Miz Simpson in early 2011 but we do know that she took a hair-raising loss of nearly a million bucks—not counting carrying costs, maintenance, improvements and real estate fees—when she sold her/their big house in Bev Hills in April 2011 for $3,699,000. For some celebs losing a million bucks ain't no thang to kvetch about but we can imagine for an increasingly low wattage Showbizzer like ex-Missus Wentz it might, maybe sting a little. But we digress into ex-Missus Wentz's real estate bidness yet again...

At some point Mister Wentz decamped his marital homestead in the Hills of Beverly and eventually he began to hunt for a new bachelor pad. In April of this year (2012), according to property records and previous reports, Mister Wentz shelled out a probably financially practical but very-modest-by-celeb-standards $1,050,000 to acquire an updated and upgraded 1940s cottage nestled into a quiet and thickly treed hillside above Studio City, CA.

Listing information from the time of the sale shows the two story residence—set behind that detached two car garage and a tall teak fence Your Mama imagines is now equipped with state-of-the-art security cameras—measures in at 2,000 square feet and includes 3 bedrooms and 3 bathrooms plus separate guest quarters with an additional bathroom. For the record, the Los Angeles County Tax Man calls it at 1,653 square feet with 4 bedrooms and 3 bathrooms.

The main, open plan living space has yellow-blond wood floors, a wood-burning fireplace (oddly) tucked under the stairs, and a wide bank of mullioned French doors that connect a pergola-shaded and wisteria draped red brick patio enveloped in a forest of trees and the full width of the rear of the residence.

We sincerely hope Mister Wentz has already made or plans to make alterations to the galley-style kitchen where listing photos from the time of his purchase show the counter tops slathered in (not entirely awful) azure tiles with bone-colored grouting and the (dated-looking) flat-front cabinets painted white. We can certainly cotton to a white kitchen cabinet, but these just look so ordinary, like Gene Simmons without all his war paint. The appliances are—or were—mid-grade and also white and the hulking, white refrigerator is, technically, located in the adjoining laundry room.

A den/potential bedroom (and bathroom) on the lower floor also open up to the lushly planted backyard. There is a second bedroom (and bathroom) upstairs along with the master suite. We're not really sure where the separate guest quarters mentioned in marketing materials are located.

Either Mister Wentz likes to tinker and putter around in a teeming, high-maintenance garden or he doesn't mind having Jefe and his brother Jaime on the property several times a week pruning, trimming, and taming the the grounds as necessary. In addition to the wisteria-draped veranda, there's a large brick terrace to the side of the house, on which the previous owners installed a very modern, free-standing outdoor fireplace, and various pathways that connect a tree-shaded spa, Japanese tea house—a teak ramada, really—a children's play house, waterfalls and an architectural koi pond.

Now children, use yer noggins, okay? The furniture and day-core seen in listing photos belongs to the seller of the property and does not reflect the personal style and/or whatever sort of decorative sensibility Mister Wentz may (or may not) have.

listing photos: Rodeo Realty

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The Ground Floor

Beau Thai, a Thai restaurant, will open a second DC location at 3162 Mt. Pleasant St. in the Mt. Pleasant neighborhood.  The restaurant is taking over the interim library location.

Unleashed by Petco, the smaller, more unique version of Petco, is opening it's second store in the District at 1200 First St, NE.  The proposed start date for the project is late August.

The new Southeast Asian restaurant from restauranteur Mark Kuller, owner of Proof and Estadio, has a name:  Quan.  Grizform Design Architects has been awarded the contract to design the interior.  Details are scarce but the interior will have a "clean Asian feel."

Mayfair & Pine, a gastro pub, has opened in the old Town Hall space in Glover Park.  The husband/wife chef team of Emily Sprissler (a contestant on Top Chef season 2) and Jason Cote will head the kitchen.


Jen Angotti is a DCRE agent licensed in DC and VA.  She also writes Concrete Jungle DC, a blog about real estate and design.

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51% of Germans Believe Germany Better Off Outside Eurozone, 71% Favor Greece Leaving; Implications on Constitutional Court Ruling

A recent poll says 51 percent of Germans now believe Germany would be better off without the euro.

The Emnid poll for the Bild am Sonntag mass circulation weekly showed 51pc of Germans believed Europe's top economy would be better outside the 17-country eurozone. Twenty-nine percent said it would be worse off, AFP reports.

The survey also showed that 71pc of Germans wanted Greece to leave the euro if it did not live up to its austerity promises.

Economy Minister Philipp Roesler told Bild am Sonntag there were "considerable doubts whether Greece is living up to its reform promises."

Implications on Constitutional Court Ruling

That poll, with only 29% believeing the euro is a good thing, suggests that if the German constitutional court forced Merkel to put the euro to a referendum, that Germany would vote to leave the eurozone.

On September 12, the German constitution court is expected to rule on the ESM as well as the fiscal treaty chancellor Angela Merkel signed in March.

Is it any wonder ECB president Mario Draghi is loathe to do anything but talk before the court meets?

Should the court rule both are OK, eurocrats like Jean-Claude Juncker will immediately seek to change what the ESM can do, including the use of leverage.

Let Voters Decide

Given that Germany is better off outside the eurozone, and the eurozone is arguably better off without Germany, hopefully, the constitutional court will say it's time to put all of this to voters, including whether Germany should stay in the eurozone.

Unfortunately, I expect the court will OK both the ESM and the Merkozy treaty, but give further warnings to Merkel and the ECB that 500 million euros is the limit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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JCPenney to Eliminate All Checkout Clerks, Instead Using RFID Chips and Self-Checkout; End of JCPenny? How Many Jobs At Risk?

By 2014 JCPenney PLans to Eliminate All Check-Out Clerks, and instead use self-checkout machines and RFID chips.

Struggling retailer JCPenney is making some big changes that will affect customers and its clerks. The store is getting rid of its check-out counters.

CEO Ron Johnson said it will remove check-out counters in stores and replace them with a system that won't require clerks. It's all part of an effort to return the department store chain to profitability.

Shoppers will be able to use self check-out machines, similar to those found in grocery stores.

JCPenney is also planning to replace traditional bar codes on price tags with high-tech radio frequency identification, or "RFID" chips to make purchases faster.

Johnson told "Fortune" magazine he hopes to phase out check-out counters by 2014.

End of JCPenny?

My first thought was a question: Will this work?

A move to entirely self-service is a risky bet-the-company type of move.

Given that many large grocery stores have both self-checkout and manned checkout lanes, I suspect in reality that JCPenny will not go big-bang with this concept but instead will use a series if trials to see how customers respond.

How Many Jobs At Risk?

I personally loathe self-checkout but it's not my opinion that counts. If there are enough who think like me, and JCPenny does go big-bang, this move will the death of JCPenny.

However, If I am wrong, then note that JCPenny has 1100 stores so we are talking about the elimination of lots of jobs. Also note that if the move by JCPenny is successful, other stores will follow.

Finally, even if this ends up as a half-way measure, we are talking about the elimination of tens of thousands of jobs if other stores follow suit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Foreigners Dump Nearly €80 Billion in Spanish Debt; Haircuts Come After More Dumping

Through the first half of the year, foreigners reduced Spanish debt by Nearly €80 Billion as banks in Spain gobbled up more of the toxic garbage.

Foreign investment in Spanish public debt has decreased by €78.168 billion in the first six months of the year, standing at  €203.271 billion euros, compared to  €281.439 billion which reached the end of 2011. This is a break of 27.7% over last year.

The largest decreases were recorded in February and March, at nearly €25 billion each month.

Analysts note that Spanish financial institutions that are supporting strongly the Treasury issues and thus raising their level of debt thanks to interventions by the ECB.

Contrary to popular belief, the LTRO and other ECB financing programs that allowed Spain to accumulate more Spanish bonds is not a favor to Spain but rather a favor to foreigners who are now unloading the debt.

Just as happened with Greece, as soon as foreigners dump enough Spanish debt, haircuts on the bonds will come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Federal Bankruptcy Court Lets Stockton, California Cut Retiree Health Care Benefits; Flood of City Bankruptcies Coming

In a welcome, common sense ruling, Court lets Stockton, Calif. cut retiree health care

A federal bankruptcy judge on Friday cleared the way for Stockton, California to cut health care benefits for retirees while it is in bankruptcy proceedings.

Stockton is seeking Chapter 9 protection from its creditors and said that it would cut retiree health benefits while it reorganizes. Retired employees sued to stop those cuts.

Judge Christopher Klein on Friday issued a temporary order denying the bid to stop the benefit cuts, and he said a formal decision was on its way.

Stockton's attorneys had argued that bankruptcy law gave the city wide latitude on how to spend its revenue while it prepares a plan to restructure its finances.

"For the reasons explained in the forthcoming decision of this court, the Application for Temporary Restraining Order and Preliminary Injunction or in the Alternative for Relief from Stay is DENIED," Klein wrote.

Flood of City Bankruptcies Coming

This is a good start for what needs to happen. The next step needs to be huge clawbacks on promised benefits, preferably top down, so that those with the highest pension benefits bear the brunt of the hit. 

As soon as cities realize this is the way out, a flood of bankruptcies will be on the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Schäuble Rejects ECB Help for Spain; Full Bailout Still Coming

As any clear-thinking person should have expected, Schäuble rejects ECB help for Spain

Berlin - For days, it is speculated that the European Central Bank (ECB) is planning, together with the bailout fund EFSF Spanish government bond buy - so come back to Spain to cheaper capital. The "Sueddeutsche Zeitung" According to the euro countries willing to support this approach . Federal Finance Minister Wolfgang Schäuble (CDU), but has now dismissed the reports in an interview with the newspaper "Welt am Sonntag".

"No, at this speculation is not true," Schäuble said the newspaper. The Finance Minister said it was already a sufficiently large aid package for Spain have been laced.

The 100-billion-euro package to recapitalize Spanish banks also close an emergency aid of 30 billion €. "The short-term financial requirements of Spain is not so great", said Schäuble, "the painfully high interest rates - but the world will not, if you have to pay for some bond auctions a few percent more."

Full Bailout Still Coming

Schäuble is saying the right things. For starters, ECB backdoor bailouts of Spain are likely against the German constitution. Even if they weren't, why should German taxpayers accept the risk of any of these leveraged proposals that have been circulated, and recirculated?

It's important to understand that the near-7% current market rate does not affect interest on prior bonds (only the current value of them). However, high rates do reflect the interest Spain would have to pay to float new bonds or rollover existing ones.

Thus, high rates reflect extreme stress and are unsustainable for the long-term, but they are not an immediate killer for Spain.

Regardless, Spain is deep in recession and there is no way it can meet its deficit targets. A full bailout of Spain is a certainty.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Union Station Master Plan Released

Train shed looking southwest, Image courtesy of Amtrak

Amtrak released details this week of a much-talked-about $7 billion plan for Union Station's tracks, platforms, concourses, and parking that will dramatically overhaul the space.

Under the Union Station Redeveloment Corporation, Union Station is already undergoing a renovation of its Grand Hall.

In a move officials acknowledged was belated, they said the plan would help the nation's capital catch up with other parts of the world with high-speed rail service.  The plan, they said, would eventually triple the station's passenger capacity and double the train service over the next 20 years.  The plan goes hand in hand with plans for a 1.5 billion dollar project by Akridge development, Amtrak's private partner in the project, to develop the air rights over the train tracks into a $1.5 billion mixed-use project called Burnham Place.

Amtrak and Akridge, Amtrak's private partner on the project, released the master plan this week in a press conference attended by city glitterati, including embattled mayor Vincent Gray.

Greenway looking north along 1st Street, Image: Akridge

Burhnam Place, named after Union Station's original architect Daniel Burnham, is part of Amtrak's master plan, and will be developed by Akridge and architectural firm Shalom Baranes.  Developers plan, over the next 15 years, to build a 3-million square-foot mixed use development over the train tracks.  

In 2006, Akridge purchased the air rights to a total of 15 acres over the Union Station rail yard. The $10 million dollar sale marked the first sale of air rights by the federal government. As reported by DCMud, the conceptual construction plan began to move solidly forward and Shalom Baranes was selected as the architect in 2008.

Interior view of the train shed, Image courtesy of Amtrak

The plan envisions 500 hotel rooms, 100,000 square feet of retail, and 1,300 residential units built on a concrete platform over the tracks and supported columns placed throughout the rail yard.  Akridge went through years of technical negotiations with Amtrak before deciding on a construction plan, and the Smart Growth Alliance and Urban Land Institute (ULI) have both voiced support for the project.

Developers emphasize that the project will feature elements that enhance public space and amenities. One such feature includes a 1.5 mile elevated greenway with a bike lane along the west side of the station that will link the NoMa neighborhoods with Union Station and the Metro and connect to the Metropolitan Branch Trail.

Historic control tower into restaurant, Courtesy: Akridge

Plans also call for a "grand plaza" fronting both sides of H Street that will lead into a brand new Train Hall in what developers say will be "a grand northern entrance to Union Station."  

The plan also calls for pedestrian connections with adjoining neighborhoods, a new entrance near First and K Streets, NE, and a plan to turn the K Tower - a control tower - into a restaurant.

Will office workers and urban sky dwellers feel the rumbling of high-speed trains below them?  That remains to be seen.  What is certain is that the plan makes an ambitious promises to bring more natural light into Union Station, even while building above it.  

Plan overview. Image Courtesy of Akridge.  

Blue represents office space, 

Beige is residential, 

Green / yellow is naturally lit space,  and 

Brown is hotel space.

Red circles are vertical connections,

Red arrows are station entrances.

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Friday Floor Plan Porn: Steven A Klar

SELLER: Steven A. Klar
LOCATION: New York City, NY
PRICE: $100,000,000
SIZE: 8,000 square feet, 6 bedrooms, 9 bathrooms

YOUR MAMAS NOTES: Good grief! We suggest y'all grab a smidge of your favorite mood stabilizer—we're already on our second gin & tonic—and steel yourselves for this one, butter beans. With houses and apartments at the highest of the high end in both Los Angeles and New York selling like water in the desert it seems like everyone with a trophy property—or a property they think is a trophy—wants on the high-priced real estate bandwagon.

Petra Ecclestone (in)famously plunked down $85,000,000 last year for Candy Spelling's 56,000 square foot faux-French-something pile in Los Angeles where rumors have begun to circulate on the real estate gossip grapevine that billionaire widow Dawn Arnall and financier Jeff Greene both want $150,000,000 for their baronial, multi-acre estates, hers in Holmby Hills and his up off Coldwater Canyon in Beverly Hills.

In New York City, L.A.-based billionaire David Geffen just dropped $54,000,000 on Denise Rich's titanic, 12,000 square foot Fifth Avenue duplex, international casino tycoon Steven Wynn dumped a stroke-inducing $70,000,000 on an elegant duplex on Central Park South and Hamad Bin Jasim Bin Jabr Al Thani—the Prime Minister of Qatar and the very same fella who was (allegedly) nixed from buying two of reclusive heiress Huguette Clark's Fifth Avenue apartments due to concerns about his 2 wives, 15 children and extensive security detail and entourage—is widely rumored and reported to have coughed up somewhere above $90,000,000 for two full floors atop a still under construction building on West 57th Street.

Today, we first learned at the crack of down from our sleepless aide de camp Hot Chocolate, an eight-sided, three (and some) floor penthouse pad atop a Midtown Manhattan tower popped up on the open market with an international publicity assuring $100,000,000 price tag.

Property records indicate the wedding cake-shaped penthouse is owned by Steven A. Klar, a second generation, Long Island-based builder of middle-brow housing developments with yawn-spurring names like Ponds Edge in Muttontown, The Waterways at Moriches and Hidden Ridge at Scarsdale.

Property records we peeped aren't specific about what Mister Klar paid for the tower topping triplex but it does appear he's owned the place since 1994.

Current listing information shows the octagonal penthouse occupies the entire 73rd-75th floors—plus a wee bit of the 72nd floor—of Midtown Manhattan's City Spire building. The suburban (mc)mansion-sized penthouse measures in at around 8,000 square feet with another 3,000 or so square feet of wrap around terraces on two levels, according to listing details, with honest-to-goodness 360 degree city views. There are a total of six bedrooms and five full and three half bathrooms.

Listing information states the interiors were done by internationally renown interior decorator Juan Pablo Molyneux, whose own opulent Manhattan townhouse recently came up for grabs with a puffy $48,000,000 price tag. Really? Despite all the heavy-duty moldings, the inlaid marble and Parquet de Versailles-style hardwood floors, the lyre back Chippendale chairs and forest's worth of mahogany mill work, the day-core is just so painfully ordinary, drab and, yes, gravely comatose. These are adjectives rarely used when describing Mister Molyneux's more characteristically multi-layered and splendidly sumptuous work. It all looks like a supposed-to-be-really-fancy corporate apartment, luxurious but utterly devoid of personality. In Your Mama's humble and utterly meaningless opinion and with all due respect, this is not some of Mister Molyneux's best work, by far.

Anyhoo, the main living spaces, as shown on the floor plan (above) included with current marketing materials, features an octagonal foyer and adjoining reception gallery with inlaid green marble floor; six-sided and 40-foot long formal living and dining rooms; and an eat in kitchen with center island, butler's pantry, three refrigerators, direct access to the trash chute, and half  bathroom. The floor plan shows extensive storage and closet space in the rear hall that runs between the kitchen and the media room where (the inelegantly and somewhat inconveniently located) access to the upper floors is via a staircase or private elevator.

A second, switchback staircase in the rear hall descends to a walk-in wine cellar and self-contained studio-style suite complete with separate entrance, bedroom/sitting room, two closets, galley kitchen and attached bathroom with wall of city-view windows. This is a perfect set up for a live-in staff person, aging relative, boorish house guest or bratty teenager.

The middle floor, ringed by a narrow terrace guaranteed to make even a daredevil's nether region clench and cramp with High Anxiety, has a bookshelf and closet lined central gallery around which spoke four bedrooms, each with private bathroom. One of the bedrooms is much smaller than the others (and located down the same window-lined corridor as the laundry room) and was probably intended for use by a live-in domestic worker. Two of the bedrooms are divided by what's labeled as a "Conference Room" on the floor plan but could easily be pressed into use as a shared sitting room.

The master suite, privately situated all alone on the top floor, includes a wide entry gallery, reasonable-sized bedroom, adjacent and very narrow sitting room with convenient refrigerator, and a giant bathroom all done in dark wood and green and black marble. A long, window-lined closet/dressing room bends around the penthouse's private elevator to a rear entrance. This is a most excellent situation for a resident who employs a valet or hairdresser who can discreetly enter the suite through the rear entrance in the closet, do their business and leave without ever having to enter the more intimate areas of the suite.

Probably this could be a magnificent if quirky penthouse but, for what it's worth—and it ain't worth a damn thing—Your Mama thinks this place needs to be gutted and completely re-worked to resolve some of the less than optimal circulation patterns. Anyone want to give it a go?

The dome-topped, mixed-use City Spire building stands more than 800 feet tall and offers residents of this 300-and-some units full service amenties such as full-time dooman, a concierge, fitness center with swimming pool, children's play room, an on-site underground garage and a ground floor Dean & DeLuca market for gorgeous if expensive gourmet groceries and prepared foods. For all that Mister Klar's coughs up a total of $19,472 in monthly common charges and real estate taxes.

listing photos and floor plan: Prudential Douglas Elliman

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Sharp Decline in Earnings and Revenue Estimates; Chart Explains Four Major Waves of Earnings Growth

For the first time in three years, US Quarterly Earnings are Poised to Drop.

Third-quarter earnings of Standard & Poor's 500 companies are now expected to fall 0.1 percent from a year ago, a sharp revision from the July 1 forecast of 3.1 percent growth, Thomson Reuters data showed on Thursday.

That would be the first decline in earnings since the third quarter of 2009, the data showed.

Earnings in the tech sector are now expected to rise only 5.8 percent — less than half the forecast of 13.1 percent growth, according to an estimate at the start of the month, Thomson Reuters data showed.

The materials sector is forecast to see an earnings drop of 11.4 percent for the third quarter, worse than the forecast of a 3.3 percent decline at the start of July, Thomson Reuters data showed. Slumping commodity prices and reduced demand from China have hurt that sector.

Sales Look Worse Than Earnings

While earnings performance has held up so far for the second quarter — with results in from about half of the S&P 500 companies — revenue has looked much gloomier.

Just 41 percent of companies have beaten revenue estimates, the lowest since the first quarter of 2009 and only the fourth time in the past 10 years that the beat rate was under 50 percent.

Revenue growth is expected to have increased just 1.2 percent for the second quarter, Thomson Reuters data showed.

Don't Worry Companies Will Still "Beat the Street"

 In spite of those downgrades, history suggests corporations will still "Beat the Street".
even in 2008 and 2009 the majority of firms beat estimates. Here is the way the process works:

• Corporations give analysts "tips" regarding profit expectations.
• Those profit expectations are purposely low.
• Wall Street analysts lower estimates, if necessary, as the quarter progresses such that corporations can "beat the street".
• If corporations are going to miss and need an extra penny, they change tax assumption or make other "one time" adjustments as necessary.
• Corporations beat the street by a penny with "pro-forma" (after adjustment) reporting.

Percentage of Companies that "Beat the Street"



click on chart for sharper image

The last time companies failed to "beat the street" was third quarter of 1998. At the earnings trough in third quarter of 2008, 58% of companies in the S&P 500 still managed to "beat the street".

The above chart from Understandings Earnings Estimates by James Bianco on the Big Picture Blog.

Corporate Profits

Inquiring minds may be interested in charts of corporate profits.

click on any chart for sharper image

Corporate After-Tax Profits As Percent of Real GDP



Four Major Waves of Earnings Growth

1. A stunning rise in corporate profits as a percent of GDP started when Nixon closed the gold window, effectively ending the last semblance of the gold standard. In response, the trade deficit soared as did an exodus of manufacturing jobs. 
2. A second massive rise in corporate profits began with the Greenspan Fed-sponsored internet bubble culminating in 2000 with a liquidity push out of misguided fears of a Y2K crash.
3. The third big jump in corporate earnings started in 2001 when the Greenspan Fed (followed by the Bernanke Fed), ignited housing and debt bubbles of epic magnitude. Financial profits soared at the expense of the greater fool going deep in debt buying houses right before the housing bust.
4. In 2009, the Bernanke Fed slashed interest rates across the board, clobbering those on fixed income, to bail out banks. A side-effect was lower interest rates on corporate bonds which also  added to corporate profits.

Bubbles Don't Benefit Real Economy

Government sponsored repatriation tax holidays along the way also added to corporate profits, as did the Fed paying interest on Excess reserves now sitting at about $1.5 trillion parked at the Fed.

Little of this benefited the real economy or produced any lasting jobs. Housing and finance jobs collapsed in the global financial crisis and are not coming back. Nor is another internet boom on the horizon.

With each crisis, the shrinking middle class has suffered at the expense of banks and corporations able to export jobs and capital. Small US Corporations not able to get the same tax benefits as GE, Apple, Google, Microsoft, etc., have not benefited from Fed policy.

Four Solutions

1. End fractional reserve lending
2. Return to the gold standard
3. End the Fed and its bubble-blowing policies 
4. Revise corporate tax policy so as to not give breaks to corporations that export jobs and hold profits overseas. US-based small manufacturers are at a huge disadvantage to corporations like GE that pay negative tax.

Regarding point number 2, please consider Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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