Saturday, October 2, 2010

Where’s the growth?

Manufacturing output slipping back towards recession in UK and US

Factory output in Britain, the US and a number of recession-hit eurozone countries fell back sharply last month as evidence mounted that the recovery in the west over the past 18 months is stalling. Snapshots of manufacturing published today showed industry in Britain and America heading back towards recession, with Spain and Ireland joining Greece in witnessing a contraction in output.

Posted by devo @ 08:51 PM (1902 views)
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32 thoughts on “Where’s the growth?

  • tyrellcorporation says:

    More QE on the way guys! Hence I’m buying a house and gold miners, Physical gold and silver. Like the terminator, they will not stop until high inflation is assured and debt is being erased by it.

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  • 1. tyrellcorporation said… More QE on the way guys! Hence I’m buying a house and gold miners, Physical gold and silver.

    And that my friends is capitulation.

    For what it’s worth, I think you’re right.

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  • “Where’s the growth?”. Have you read the article you posted? The growth is in most of the worlds biggest economies: the US, the UK, France,Germany and China. It’s a patchy picture and growth is less than it was in some countries and more than it was in others (China and France). Accelerating growth is growth and slowing growth is also growth. In the article only Spain and Ireland actually contracted. Elsewhere, Brazil and India also experienced growth.

    From the article:

    British PMI: 53.4 (“a reading above 50 indicates that production is rising”)
    America: 54.4 (“a reading above 50 indicates that production is rising”)

    Bernanke: “Even though our economy is stabilised and growing

    “an easing of manufacturing GROWTH in Germany but an improvement in France”.

    “Manufacturing output in China is recovering faster than financial markets had been expecting”

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  • 3. flashman said “Have you read the article you posted?”

    Yes I have. The growth you refer to is as artificial as the zeros on a central banker’s computer.

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  • Strictly speaking, it’s your posted article that refers to growth (rather than me). You asked the question “where’s the growth”. I read the article you posted and answered your question using data and statements lifted directly from it. Perhaps you should have chosen an article that better matched your question or maybe your title should have been something like, “the growth referred to in this article is as artificial as the zeros on a central banker’s computer”.

    I’d like to read some well reasoned or credible articles that explain why the growth we have been experiencing is artificial (and why that matters). It’s obvious that a small portion of the growth derives from stimulus but that was the whole point of the stimulus. They hope to encourage growth that will eventually become entirely self sustaining. As techieman points out, they’ve always succeeded in the past.

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  • I’d like to read some well reasoned or credible articles that explain why the growth we have been experiencing is artificial (and why that matters). It’s obvious that a small portion of the growth derives from stimulus but that was the whole point of the stimulus. They hope to encourage growth that will eventually become entirely self sustaining

    Thanks Flash – the growth we experienced was a debt fuelled bounce for the purposes of an election. And during the summer, things started looking up a bit – but now looking around at where I live, I’m not seeing any ‘growth’ at all. The decline seems to be continuing; more shops closing down, more people I know out of work, the membership stats – for the company I work for – are declining fast again, I am getting less offers for work than I was in the summer. We may not go back into a full-blown recession, but it will definitely feel like one.

    As techieman points out, they’ve always succeeded in the past

    Eventually, they have succeeded, but this time it could take many years. Although, more QE is a foregone conclusion.

    In any event, I am beginnning to really cut back on my spending.

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  • “In any event, I am beginning to really cut back on my spending.”

    Yes, a lot of people are thinking like that at the moment. This is a sentiment that has to be taken seriously.

    Things are finely balanced because the domestic (in both senses of the word) economy is faltering but at the same time a few of our exporters (some services, some manufacturers, and commodities/miners etc) are expanding. It’s almost impossible to calculate how much of our economy is derived from stimulus but I find it hard to believe that stimulus is entirely responsible for a Chinese businessman buying a Bentley or a Brazilian housewife giving her sick child some British pharmaceuticals. It’ll be interesting to see how it pans out. The picture is so cloudy at the moment that it would take a brave or foolish man to predict a certain outcome.

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  • “I’d like to read some well reasoned or credible articles that explain why the growth we have been experiencing is artificial (and why that matters).”

    Then go to Zero Hedge and register to post comments; I anticipate that someone with your knowledge of economics would be welcomed with open arms.

    For myself, I will continue to find pertinent articles, cherry-pick quotes and attempt to generate debate. Infuriating to someone like you, I know – but you have to admit it works.

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  • I think the general view of the technically minded people on this site id that QE has not worked and can not work because inflation is not created by printing money, rather is it generated by bank lending. if there is no demand for loans, there will be no inflation.

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  • “For myself, I will continue to find pertinent articles”

    I think you may have missed my point. The article you presented was a complete mismatch to your title (i.e. not particularly pertinent).

    For the sake of debate, what % of UK/international growth do you think is derived from stimulus and what data or reasoning do you have to back up your assertions? It’s easy to create a sound bite but a sound bite that is not backed up with data and/or sound reasoning is harmful to the quality of debate. While we are at it, I don’t think you’ve ever given an opinion on the future direction of UK house prices?(opinions like this are quite useful on a house price website). Remember to back it up with data and/or sound reasoning.

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  • Devo, an example of sound reasoning and/or data would be to accuse me of being one of the biggest risk takers on this site and then backing it up by saying I make leveraged trades where losses can exceed my initial deposit.

    Data and/or sound reasoning indeed…

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  • It is the articles that are pertinent, not my mischievous titles – as you well know.

    “It’s easy to create a sound bite”

    Yes it is, and that’s important. It means the likes of me can find articles and opinions which resonate, then present them to the likes of you to debate. The internet is a great leveller, isn’t it?

    “an opinion on the future direction of UK house prices?”

    My opinion is of limited value, though I realise the likes of you and techie like to use them as a means of measuring the sentiment of the ‘great unwashed’.

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  • Fair enough devo. Good answer

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  • “where losses can exceed my initial deposit”

    I appreciate that you’re relatively new to trading and perhaps I should not be too hard on someone who has the guts and initiative to self-teach but if you don’t understand that there any many types of trade and events that can cause a trader to lose “more than your initial deposit”, then you should not be trading. I can’t believe I’m bothering with this but do a google search with the words “trading trader lose more than initial deposit”. You’ll see several hundred explanations and warnings.

    I have had occasional disagreements with techieman (actually far more agreements that disagreements) but the guy has an absolute and total grasp of the mechanics of trading. He’s been in the pits (if you don’t respect that, then you should) and has taken his lumps for more than two decades. I recognise that this is a forum for keen amateurs but sometimes there is no substitute for hard won professional experience. At the risk of sounding (even more) arrogant, he’s the only person on this site that I would talk to about the mechanics of trading, as an equal. As you know, I really don’t enjoy talking about trading but techieman occasionally does and I would suggest that you use this site to pick his brains. I apologise (genuinely) if this post is a bit condescending but I am quite alarmed by your trading naivety and I hate the joy the industry takes in fleecing wide eyed individuals whose only aspiration is to put some food on the table. I wont further debate this with you because I have a stance on trading chat. Again, apologies if this post is a bit condescending but be careful out there and good luck to you. You might not like this post now but one day you might thank me for it.

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  • tyrellcorporation says:

    ‘And that my friends is capitulation’

    Damn right Devo! Even after trillions of stimuli across the globe, growth is muted or contracting. The only thing that is increasing is the volume of fiat money, asset prices and commodity prices. This is not a proper recovery, the bounce was built on nothing other than even cheaper credit and a smattering of optimism. Jobs aren’t being created at anything like the levels needed to create self-sustaining growth and all I can see looming on the horizon is another monetary blitz.

    Deflation might be the threat most feared at the MPC but I believe the switch to very high inflation will be dramatic. I paid £4.50 for a bottle of beer in a bar the other day, 8 months ago it was £3.70. A Subway Sub-of-the-day was £1.99 8 months ago and it is now £2.40. These are everyday items that are gaining price rapidly – and my savings are withering fast.

    Severe stagflation is where we’re at IMO and for indebted governments across the globe this is the best case scenario as poor growth warrants inflationary stimulus.

    Get out of cash.

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  • it’s not all bad tyrell. We’ve just gone 5-0 up against the Yanks for the day and there’s a chance we’ll draw the last one. One hole to go and only one shot behind.

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  • “As you know, I really don’t enjoy talking about trading but techieman occasionally does and I would suggest that you use this site to pick his brains”

    Flash well thanks for the compliment, but as a lairy local you know we only talk about it when we have bagged our last bar! So ive been quiet of late :). After all you are only as good as your last trade.

    Anyway – i was wondering if you saw some of the stuff posted on what merv said re the August inflation numbers. My own view was that his position is now pretty clear, but there was some lively discussion and the usual personal snipes. I just wondered what you thought. In particular i posted the question raised by the guy from Dow Jones i.e. http://www.housepricecrash.co.uk/newsblog/2010/09/blog-printy-printy-30460.php from 3 and http://www.housepricecrash.co.uk/newsblog/2010/09/blog-for-the-inflationists-august-inflation-report-30459.php.

    As myself being an amateur in the economics world i was wondering what your take is? I have also been looking at some of steve keen’s stuff and I must say i like his explanation of why the mutliplier isnt translating the increase in base money into a trickle (well flood really) down. To be fair to him he said it wouldnt work before the crisis started basing his work on minsky.

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  • if this post is a bit condescending but I am quite alarmed by your trading naivety and I hate the joy the industry takes in fleecing wide eyed individuals whose only aspiration is to put some food on the table.

    Trading is something I really would want to stay away from. Actually, I read an interesting article the other day about how fixed it was, and how it’s becoming more so. It’s to do with the robots….. The gist of the article is that it is very, very difficult to make anything from it, even for a professional trader. No thanks.

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  • My own view was that his position is now pretty clear

    Perhaps you should write and tell him – may help him make up his mind.

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  • yep as i said “the usual personal snipes.”

    “its to do with robots” HFTs and Algos per chance? Thanks now i have someone to blame :).

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  • techie: I gave it a quick read. Good stuff. The argument about whether credit money creates fiat money or vice versa is a bit of an enigma. At the moment there are a lot of people coming down on the side of credit money creating fiat money. I’m not so sure because it’s generally accepted that too much fiat money causes inflation. Ergo, in order to control inflation all you’d have to do is reduce the credit money that supposedly creates the fiat money. Well credit money has been reduced quite a lot of late and inflation had ticked up a bit which somewhat threatens the theory. The theory might still hold water because the lags between credit money creation and fiat money creation (and vice versa) are so large and non linear that it is hard to tell what caused or created what. Personally I think they are so interdependant that there can be no chicken or egg. It’s a huge subject and I’m a bit pissed after our magnificent Ryder cup day but I suppose its about time I contributed to the HPC inflation/deflation debate. Maybe next week there’ll be a suitable post? My observation is that at the moment the classic money supply/credit money/fiat money theories are not doing their job too well. My theory is that they temporarily stop working when there are big changes in the size and dynamic of the world economy. Our current status quo is that so many millions or even billions of people have suddenly joined us in demanding their share of food and commodities that we are experiencing mild inflation when classic calculation tells us that there should be deflation. In other words the new demand dynamic temporarily trumps the theory. However, throughout history the supply of food, commodities and goods eventually catches up with the newly ramped up demand levels and the money supply type calculations start predicting inflation/deflation with more accuracy. I know that some people insist that we are fatally running out of resources etc but technology tends to accelerate in times of dire shortage and new resources are created (a simple example of technology responding to a shortage or need was when the Germans choked-off the supply of rubber and we had to create a new tyre material)

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  • Thanks Flash – i must admit due to my pretty basic Economics, i did always think that the multiplier would kick in and do what it says on the bernie box [bb]. However unlike some i am open to trying to suss out reasons why it hasnt done what it says on the side of the bb, even though it “obviously” should Keen supplies that explanation.

    As you say the (as keen would say) Neo classical theories arent working. His paper is pretty good in that it gives the “we have this thing called a printing press” and then explains why that printing press hasnt worked, as i said he explains why he thinks it wont work. Of course eventually it will work, but by then it will just compound the inflation problem. i liken it to putting water in a bucket, when only a full bucket will do.

    There is a hole in that bucket so pouring in water doesnt work since the hole is large enough to ensure that all the new water escapes and the bucket never gets to the fill line. Then someone fixes the hole but the water cant be turned off quickly enough and everything overflows.At that point in time everyone says – see i told you that would happen.

    I spose the debate is is the hole getting bigger or smaller, and will the tap be opened further.

    I also think listening to what merv says is very instructive and helpful whether you agree with what he says or is doing or not. At least you know their rationale and then can judge when they will do the opposite, knowing what they are looking at.

    As for the ryder cup – i know 2 things its all down to the singles….. and Tiger hates the wet!

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  • Sorry to butt in on a private discussion, but I would like to make the following points:-

    However, throughout history the supply of food, commodities and goods eventually catches up with the newly ramped up demand levels and the money supply type calculations start predicting inflation/deflation with more accuracy.

    The demand levels are probably a pretty good match, but it’s the cost of transportation, and well, if there is a natural disaster, it’s all going to effect the price. Oh, and the cost of living in those areas going up too….like China.

    I know that some people insist that we are fatally running out of resources etc but technology tends to accelerate in times of dire shortage and new resources are created

    It depends on the technology as sometimes viable replacements cannot always be found – like oil. Though, generally I think that commodities are especially undervalued – even the metals – as it is now very, very expensive to get the stuff out of the ground and to refine them.

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  • The following comment within the guardian article sums it up for me:

    “We are in a depression, we never got out of it. The upswing we had in the economy earlier in the year was an illusion created by throwing money at the problem QE1.”

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  • tyrellcorporation says:

    Expect QE2, and maybe QE3 for good measure…

    I read recently that a good proportion of QE1 ended up being invested by the banks in SE Asia. Global imbalances magnified yet further.

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  • No need to apologise

    A- it’s a blog so no messages are private

    B – we know you can’t resist

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  • I also think listening to what merv says is very instructive and helpful whether you agree with what he says or is doing or not.

    Merv I think has rather more in common with politicians these days. I mean, what on earth was he doing at the TUE conference?

    “We are in a depression, we never got out of it. The upswing we had in the economy earlier in the year was an illusion created by throwing money at the problem QE1.”

    It looks increasingly likely – especially with the amount of non-cooperation going on these days, internationally speaking.

    Expect QE2, and maybe QE3 for good measure…

    Easy to start, not always easy to stop. QE 100 anyone?

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  • TUE conference?

    *Sorry, TUC*

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  • hpwatcher: natural disasters can indeed cause spikes in inflation but they tend to be temporary. Conversely, there can also be bumper crops and mineral finds that have the opposite effect. You are also right that it sometimes it takes a long time to come up with new technology or a new way of utilising resources but sometimes there are large waves of beneficial innovation that appear in a short space of time. It’s one of the reasons that inflation/deflation ebbs and flows and why it is so difficult to hang your hat on one outcome.

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  • Keen’s work makes a lot of sense (speaking as someone who studied economics to a post grad level). However, its the judgement of his expert colleagues that matter and not someone who left this field to the pointyheads. The video techiman posted seems to show he has fans. If I have it right, in essense we should be observing M4, whose growth has dropped since 2007, I believe. CPI does not include asset price inflation or deflation (at least not directly) and it is not really something that the BOE seemed interested to target. Only if it really rocketed would they be forced to. They are trying to get M4 to stablize and it isnt. For those interested in falling house prices, this is good news. The less M4 money about, the more their money is worth in assets. It does not really matter if food prices are increasing since that is a very small percentage of total expenditure.

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  • It’s one of the reasons that inflation/deflation ebbs and flows and why it is so difficult to hang your hat on one outcome.

    Very true. Though, generally the government always seems to make sure that prices go up in the end – gives em’ control over their debts

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