Juggling Dynamite

Europe is again coming apart at the seams as the extend and pretend liquidity stitches of the past couple of years have once more worn through revealing a still torn, and now even more indebted, society. See this excellent update: The wheels are coming off the whole of southern Europe.

Alastair Newton, senior political analyst at Nomura, explains that October will be a crucial month for Europe due to sensitive reviews in Greece, France and Italy. Here is a direct video link.

China meanwhile, who was the biggest spender in efforts to stimulate the world out of the great recession of 2008, is now drowning in a fresh and intensified credit crisis. According to the IMF’s estimates, loans have jumped from $9 trillion to $23 trillion since 2008, a faster pace of debt build-up than in any major episode of the past century. See: China defies IMF on mounting credit risk and need for urgent reform.

At the same time, see: The End of QE looms on signals from UK and US. Central Banks and governments had hoped that if they spent, bad debts could be recovered, mistakes covered up, and a robust recovery would grow the world out of insolvency. 5 years later, the globe finds itself back in recession with more debt than ever. Time to knock off zeros and let reckless actors take their losses. Time to start fresh and direct available precious cash flow back into productive investment in lasting infrastructure and people. Only then can a true recovery begin.

This morning brought some disappointing housing data for the bulls who have placed great growth optimism on continued strength in this area. The recent back up in interest rates triggered falling mortgage applications in 9 of the past 10 weeks, now down 44% year over year, for the largest decline over 10 weeks since the US economy was last relapsing in December 2010 (when interest rates were moving higher in response to the first round of QE). In a directly related story Bernanke just admitted in his Capitol Hill Q&A that if rates were to tighten here “the economy would tank” (his words). And right on cue, we learned today that US housing starts for June clocked their biggest miss to expectations since 2007 and that US housing permits registered their biggest drop vs expectations ever in the data’s history. All disappointing, but the real rub is this: every time the Fed has announced more QE in the past 3 years, interest rates (including mortgage rates) have increased not decreased. The Fed has now earned its rightful role in harming credit-addicted asset markets and the economy whatever they do and don’t from here.

Housing starts were like a Debbie Downer Wednesday morning, bringing negativity to the housing recovery party. June housing starts fell 9.9% to an annualized rate of 836,000—the lowest level since August 2012 and far below what economists had expected.

“Today’s report was really surprising,” says Yelena Shulyatyeva, U.S. economist for BNP Paribas. “We should be more cautious about our optimism.”

Here is a direct video link.

Turtles and tortoises have been roaming the planet for 200 million years, but now many of them are endangered by poachers. Lesley Stahl reports.Here is a direct link.