A couple of articles showcasing the recovering economy. Just to point out the epic failure of Zerohedge et. al. Click on the links to see the pretty pictures. I'm not going to copy/paste them today.

Fresh glimmers of hope for the eurozone (technical)

By Ambrose Evans-Pritchard Economics Last updated: August 30th, 2012

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Very quickly, for the handful of readers who share my quirky interest in monetary data.

By the way, any commentator on this thread who wilfully conflates Monetarism and Keynesian demand theory one more time is disqualified and sentenced to Dante’s 8th Circle of Hell (Bolgia IX) for sowers of discord and schism.

Seminator di scisma, fuor vivi.

The most useful M1 monetary gauge for the eurozone – real six-month M1 growth – has continued to churn higher.

The July data suggest that EMU money contraction bottomed out in April and May. The core is now rising fast, and Ireland is moving into their camp.

Typically, this is a leading indicator of industrial output by around six months. It is a pattern, not a prediction.

Here are the charts from Simon Ward at Henderson Global Investors:

Click to enlarge

Click to enlarge

Just so there is no misunderstanding, this does not mean the eurozone is "recovering". Far from it.

It would suggest – ceteris paribus, and depending on events in the US, China, and the global oil markets, etc – that eurozone output will trough in the Autumn.

Recession may well get worse for a while before the money effects feed through, but the potential outlook for early 2013 is better.

Mr Ward says surging money growth in Germany is the real political risk. This may test the patience of Bundesbank and the German professoriate to breaking point.

At the end of the day, there is no plausible way to set policy for the North and South of the eurozone. The structure is unworkable.

They can hold it together but only by creating endless distortions for one area or the other, with an endless lurch from one crisis to another, until the maniacs who created monetary union are finally hanged from lampposts by a justly enraged mob. One notes dispassionately, however, that mobs aren’t what they used to be.

Be that as it may, money cycles within EMU’s Bataan Death March can be powerful. They can lift equities a long way. Conversely, they can clip the wings of AAA safe-haven bonds enough to hurt.

You can be absolutely certain that hedge funds – usually operating on a three-month time-frame – are paying very close attention to the money data and whatever they think about the viability of EMU or the Second Coming of the D-Mark.

Personally, I think there are still risks that the global mini-slump of the last few months could tip into a "bad equilibrium" or a "negative feedback loop" to borrow the vogue terms of the IMF, if we are not very careful.

The Draghi Plan may be derailed. The six dissenting Fed hawks at the regional banks may block QE3. Capital flight from China may turn the current hard-landing into the kind of crisis that almost nobody (except Prof Victor Shih, Caixin’s Andy Xie, Also Sprach Zarathustra, and a few others) have even begun to think about.

But here at least is something for the bulls, for a bit.


Are the Big Four Indicators Rolling Over?
By Doug Short08/30/2012


Note from dshort: This commentary has been revised to include today's release of the July Real Income Less Transfer Payments data. This is the last of the Big Four to be updated through July.

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general understanding that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

Industrial Production
Real Income (excluding transfer payments)
Real Retail Sales

us monthly

The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature a chart four-pack of these indicators along with the statement that "the charts plot four main economic indicators tracked by the NBER dating committee." In his July 10th Bloomberg TV interview, ECRI's Lakshman Achuthan cites these four at about the 2:05 minute point in his remarks. He says, and I quote "When you look at those four measures, they are rolling over."

Are they really rolling over? First, here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linked PDF file with details on the calculation of two of the indicators.

The FRED charts are excellent. They show us the behavior of the big four indicators currently (the green line) as compared to their best, worst and average behavior across all the recessions in history for the four indicators (which have start dates). Their snapshots extend from 12 months before the June 2009 recession trough to the present.

The latest update to the Big Four was today's release of the July Real Income Less Transfer Payments data (the red line in the chart below), which rose 0.3 percent over last month, which matched the consensus expectations.

Background Analysis: The Big Four Indicators and Recessions

The charts above don't show us the individual behavior of the Big Four leading up to the 2007 recession. To achieve that goal, I've plotted the same data using a "percent off high" technique. In other words, I show successive new highs as zero and the cumulative percent declines of months that aren't new highs. The advantage of this approach is that it helps us visualize declines more clearly and to compare the depth of declines for each indicator and across time (e.g., the short 2001 recession versus the Great Recession). Here is my own four-pack showing the indicators with this technique.

four indicators 30 aug 2012

Now let's examine the behavior of these indicators across time. The first chart below graphs the period from 2000 to the present, thereby showing us the behavior of the four indicators before and after the two most recent recessions. Rather than having four separate charts, I've created an overlay to help us evaluate the relative behavior of the indicators at the cycle peaks and troughs. (See my note below on recession boundaries).

21st century recessions

The chart above is an excellent starting point for evaluating the relevance of the four indicators in the context of two very different recessions. In both cases, the bounce in Industrial Production matches the NBER trough while Employment and Personal Incomes lagged in their respective reversals.

As for the start of these two 21st century recessions, the indicator declines are less uniform in their behavior. We can see, however, that Employment and Personal Income were laggards in the declines.

Now let's look at the 1972-1985 period, which included three recessions -- the savage 16-month Oil Embargo recession of 1973-1975 and the double dip of 1980 and 1981-1982 (6-months and 16-months, respectively).

recessions 1972 to 1985

And finally, for sharp-eyed readers who can don't mind squinting at a lot of data, here's a cluttered chart from 1959 to the present. That is the earliest date for which all four indicators are available. The main lesson of this chart is the diverse patterns and volatility across time for these indicators. For example, retail sales and industrial production are far more volatile than employment and income.

recessions since 1959
Are the Big Four Rolling Over?

As of the latest data, no, they are not collectively rolling over. Here is the big picture since 1959, the same chart as the one above, but showing the average of the four rather than the individual indicators. This chart clearly illustrates the savagery of the last recession. It was much deeper than the closest contender in this timeframe, the 1973-1975 Oil Embargo recession. While we've yet to set new highs, the trend has collectively been ever upward.