Mish's Global Economic Trend Analysis

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• Sweden Central Bank Governor Proposes the Obvious: Mortgages Should be Paid Back in One's Lifetime
• Ukrainian Warplanes Miss Targets, Hit Civilians
• ISM Correction Heartburn
• Over 40% of Nearly 2 Million Modified Loans Facing Resets are Underwater
• Manufacturing ISM Expands 12th Month, But Less Than Forecast

Sweden Central Bank Governor Proposes the Obvious: Mortgages Should be Paid Back in One's Lifetime Posted: 02 Jun 2014 11:22 PM PDT The average mortgage obligation in Sweden will not be paid back until the borrower hits age 140. The Governor of the Bank of Sweden, Stefan Ingves, has a problem with that. Via translation from La Tribune, please consider Will Swedes Continue to Borrow for so Long? In Sweden, it is very common for mortgage repayment to occur at such a slow pace that the life expectancy of the borrower must be 140 years on average repay their mortgage. And household debt is expected to reach 177% of disposable income by 2015. Stefan Ingves, the Governor of the Bank of Sweden proposes to reduce the duration of mortgage debt of Swedish households from beyond their life expectancy. Such a requirement is "considered obvious in many places in the world," Ingves stressed. "In Sweden, approximately 40% of borrowers do not pay down mortgages at all. Among those who do, more than 40% do so in such a way that it will take 50 years or more to avoid being indebted," he said. "We know it is not uncommon for households to have debt ratios of 600% (annual disposable income)," Ingves added. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ukrainian Warplanes Miss Targets, Hit Civilians Posted: 02 Jun 2014 04:45 PM PDT In response to Mish Reader Who Speaks Russian and Reads Ukrainian Updates the Situation in Ukraine, Reader Larry writes "Thank you for this vital news. Please encourage your friend Jacob to keep it coming." Unfortunately, the news is not good. Jacob emailed today ... At least one, possibly two Ukrainian warplanes attacked central Lugansk city this morning. The main target seemed to be the rebel-held regional government building (keep in mind, there are plenty of civilians working there, doing their regular jobs.) However, the rockets went flying all over the place. At least one hit a park near the government building (see below). At least one hit a road near the government building and a number of civilians were killed on a sidewalk just outside the building (photos of fatalities, further below.) Jacob Dreizin Questions of the Day Is this really the solution? If the separatists killed innocent civilians, would it be all over the news? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

ISM Correction Heartburn Posted: 02 Jun 2014 11:47 AM PDT ISM twice revised its manufacturing numbers today, then issued this Correction Notice. ISM ® has discovered an error in its software programming for calculating the May 2014 Manufacturing PMI ® that was released at 10 a.m. ET this morning. "We apologize for this error. We have recalculated and confirmed that the actual index indicates that the economy is accelerating ," said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management ® (ISM ® ) Manufacturing Business Survey Committee. "Our research team is analyzing our internal processes to ensure that this doesn't happen again," he added. "The May PMI ® registered 55.4 percent, an increase of 0.5 percentage point from April's reading of 54.9 percent, indicating expansion in manufacturing for the 12th consecutive month. The New Orders Index registered 56.9 percent, a n increase of 1.8 percentage points from the 55.1 percent reading in April, indicating growth in new orders for the 12th consecutive month. The Production Index registered 61.0 percent, 5.3 percentage point s above the April reading of 55.7 percent. Employment grew for the 11th consecutive month, registering 52.8 percent, a decrease of 1.9 percentage points below April's reading of 5 4.7 percent. The Supplier Deliveries Index registered 53.2 percent, 2.7 percentage points below the April reading of 55.9 percent. Comments from the panel reflect generally steady growth, but note some areas of concern regarding raw materials pricing and supply tightness and shortages." Correction Heartburn CNN Money reported Oops! Heartburn in Stock Market After Data Mix-Up Oops! Manufacturing index corrected: The Institute for Supply Management's initial manufacturing showed an unexpected dip to 53.2 in May from 54.9 in April. That meant the pace of manufacturing expansion slowed a bit. Investors had expected a spring pickup. But then, according to multiple reports, ISM corrected itself by saying manufacturing activity actually improved to 56. That helped ease concerns about the economy, and the Dow Jones industrial average quickly climbed back into positive territory on the reports. But then ISM corrected itself a second time, saying the correct reading is 55.4. ISM has not responded to several requests for comment from CNNMoney. In spite of the upgrade, ISM still came in below consensus, but this was a better showing than originally posted. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Over 40% of Nearly 2 Million Modified Loans Facing Resets are Underwater Posted: 02 Jun 2014 10:25 AM PDT Black Knight's April Mortgage Monitor shows almost 2 million modifications face interest rate resets, and 40 percent of those resets are underwater. Email News Release "We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture," said Kostya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher -- over 40 percent. In addition, another 18 percent of modified borrowers have 9 percent equity or less in their homes. Given that the data has shown quite clearly that equity -- or the lack thereof -- is one of the primary drivers of mortgage defaults, these resets may indeed pose an increased risk in the years ahead. "From a broader perspective, it's also important to note that more than one of every 10 borrowers is in a 'near negative equity' position, meaning the borrower has less than 10 percent equity in his or her home. This is particularly pronounced in New Mexico and Southern states. At a local level -- and we look at both mortgage performance and Home Price Index (HPI) data down to ZIP code granularity -- such slim margins in equity can have a significant effect on overall negative equity levels with even slight variations in HPI. So, while the overall situation for underwater borrowers has improved significantly, there are still areas in the country where borrowers are hovering at the edges." Mortgage Monitor Charts April 2014 Summary Data Total Delinquencies click on any chart for sharper image New Originations Loans Facing Reset Percentage Underwater Underwater loans facing reset is one major problem. A second problem is the declining volume of new originations and home sales.  A chart of new single-family homes sold will highlight the second problem. New Single-Family Home Sales Housing is weakening in a number of ways. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Manufacturing ISM Expands 12th Month, But Less Than Forecast Posted: 02 Jun 2014 08:45 AM PDT US Manufacturing as measured by the June 2013 Manufacturing ISM Report On Business® rose for the 12th month. ISM at a Glance Series Data May Index Apr Index Percentage Point Change Direction Rate of Change Trend (Months) PMI™ 53.2 54.9 -1.7 Growing Slower 12 New Orders 53.3 55.1 -1.8 Growing Slower 12 Production 55.2 55.7 -0.5 Growing Slower 3 Employment 51.9 54.7 -2.8 Growing Slower 11 Supplier Deliveries 52.5 55.9 -3.4 Slowing Slower 12 Inventories 53.0 53.0 +0.0 Growing Same 4 Customers' Inventories 46.5 42.0 +4.5 Too Low Slower 30 Prices 60.0 56.5 +3.5 Increasing Faster 10 Backlog of Orders 52.5 55.5 -3.0 Growing Slower 4 Exports 56.5 57.0 -0.5 Growing Slower 18 Imports 54.5 58.0 -3.5 Growing Slower 16 ISM vs. Consensus Bloomberg reports ... Highlights Growth rates, in contrast to Markit's report released earlier this morning, slowed in ISM's manufacturing sample, to a composite 53.2 vs April's 54.9. Employment growth slowed noticeably, to 51.9 from April's 54.7. Growth in new orders also slowed noticeably, to 53.3 from 55.1, as did growth in backlog orders, to 52.5 vs 55.5. Supplier deliveries improved which is another sign of deceleration in activity. Production also slowed, but only slightly to 55.2. Inventory readings on net look a little heavy compared to April. Prices paid, in contrast to other signs of slowing, show a little pressure, at 60.0 vs 56.5. Today's results from the manufacturing sector are mixed, with Markit showing definite acceleration and ISM showing definite deceleration. Together they probably point to little change for the manufacturing sector relative to April. The Dow is moving to opening lows in immediate reaction to the ISM report. Market Consensus Before Announcement The composite index from the ISM manufacturing survey for April rose 1.2 points to a better-than-expected level of 54.9. Employment, which has been very soft in this report, bounced 3.6 points higher to a respectable 54.7. New orders were at a solid 55.1, unchanged from March, with new export orders up 1.5 points to a very strong 57.0. Backlog orders were solid at 55.5. Production was little changed from March at 55.7-a still notably positive reading. This lukewarm report suggests the weather related bounce is over and slower manufacturing growth resumes. Addendum: ISM issued this Correction Notice on Manufacturing ISM ® has discovered an error in its software programming for calculating the May 2014 Manufacturing PMI ® that was released at 10 a.m. ET this morning. "We apologize for this error. We have recalculated and confirmed that the actual index indicates that the economy is accelerating ," said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management ® (ISM ® ) Manufacturing Business Survey Committee. "Our research team is analyzing our internal processes to ensure that this doesn't happen again," he added. "The May PMI ® registered 55.4 percent, an increase of 0.5 percentage point from April's reading of 54.9 percent, indicating expansion in manufacturing for the 12th consecutive month. The New Orders Index registered 56.9 percent, a n increase of 1.8 percentage points from the 55.1 percent reading in April, indicating growth in new orders for the 12th consecutive month. The Production Index registered 61.0 percent, 5.3 percentage point s above the April reading of 55.7 percent. Employment grew for the 11th consecutive month, registering 52.8 percent, a decrease of 1.9 percentage points below April's reading of 5 4.7 percent. The Supplier Deliveries Index registered 53.2 percent, 2.7 percentage points below the April reading of 55.9 percent. Comments from the panel reflect generally steady growth, but note some areas of concern regarding raw materials pricing and supply tightness and shortages." In spite of the upgrade, ISM still came in below consensus, but this was a marginally better showing than originally posted. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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