Mish's Global Economic Trend Analysis

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• Another US Foreign Policy Success: Isis Controls Half of Syria after Palmyra Seizure
• Existing Home Sales Lower Than Any Economist's Estimate; Rising Supply a Good Thing?
• Philly Fed Region "Weak but Stable"; Kansas City Region "Declines More Sharply"
• China Manufacturing PMI Contracts Third Month, Output Index at 13 Month Low

Another US Foreign Policy Success: Isis Controls Half of Syria after Palmyra Seizure Posted: 21 May 2015 08:32 PM PDT Congratulations are in order for team Bush and team Obama for another stunning US foreign policy success: Isis Controls Half of Syria after Palmyra Seizure. Fighters from the Islamic State of Iraq and the Levant (Isis) have seized the Syrian city of Palmyra, home to a Unesco world heritage site, putting nearly half of Syrian territory in the jihadi group's hands and sparking fears that treasured antiquities may be destroyed. Isis announced it had "complete control" of the city on Thursday, and state television said President Bashar al-Assad's forces had withdrawn from the city, which is known to most Syrians by its Arabic name Tadmur. Ancient Palmyra is known to the world for its iconic avenue of Roman columns, and was a cultural crossroad of the ancient world. The city dates back to the 1st century, when it was an oasis on a trade route linking eastern civilisations with the Roman empire. Its ruins lie to the southwest of modern Tadmur. "Palmyra is an extraordinary World Heritage site in the desert and any destruction to Palmyra [would be] not just a war crime but . . . an enormous loss to humanity," Unesco head Irina Bokova said in a video. Isis has developed a reputation for destroying or selling cultural treasures. Earlier this year it filmed its fighters smashing Assyrian artefacts at sites in northwestern Iraq. Moderate Rebels Defect In case you are wondering how this happened, please consider this IBTimes report from March 7, 2015: US-Backed Moderate Syrian Rebels In North Defect; Obama Strategy Set Back. It was supposed to be a crucial instrument of the Obama administration's aims in Syria, an ostensibly moderate rebel fighting force that would keep the pressure on the authoritarian regime in Damascus without aiding the ruthless jihadist forces that have captured much of the country. But the soldiers of Harakat Hazzm -- the first Syrian rebel group to receive arms from the CIA -- disbanded this week. As a result, much of northern Syria is in the hands of the extremists, and the United States is left with no palatable ally in the area in the midst of a regional conflict that continues to spiral out of control. Hillary Backs Moderates Please recall that Hillary was in favor of backing "moderate" rebels. But it is not just Democrats who want to back "moderates". Chief warmonger, Republican Senator John McCain, does as well. Has anyone bothered to question if we are even backing the right person? Iran is actually our ally here. Iran wants to help the US fight ISIS. The only problem is Iran backs Syrian president Assad, while the goal of the US is to overthrow Assad to alleged "moderates". Roots of Crisis This is exactly the kind of idiocy one can expect when you think you can "nation build". Without a doubt the roots of this crisis date back to the inane decision by George Bush to invade Iraq. But please recall that Hillary was in favor of invading Iraq as well. The non-amusing fact in this mess is the policies of George Bush, Obama, and Hillary Clinton are similar if not identical. Yet, Republicans blame Obama and Democrats blame Republicans. The only candidate who has an alternative plan to this mess is Senator Rand Paul. Contemplating Success Some may ask "Mish, how the hell can you call this disaster a success?" The answer is simple: In spite of what they may say, the goal of mainstream Republicans and Democrats is obviously perpetual war. A destruction of a major historic site in Palmyra will have even some peacemongers clamoring for retaliation. Make no bones about it, the takeover of Palmyra was a major US foreign policy success, provided you understand the goal. 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.

Existing Home Sales Lower Than Any Economist's Estimate; Rising Supply a Good Thing? Posted: 21 May 2015 12:26 PM PDT Existing Home Sales Disappoint Economists overestimated existing home sales today, rounding out another impressive day of overoptimism. New home sales came in at a seasonally adjusted 5.04 million annualized rate. The Bloomberg Consensus Estimate was 5.22 million. 5.04 million was below the lower end of the consensus range of 5.10 M to 5.32 M. Existing homes sales are not living up to springtime expectations, down 3.3 percent in April to a 5.04 million annual rate which is just below the low-end Econoday forecast. Three of 4 regions show contraction in April with the sharpest decline, minus 6.8 percent, in the South, which is by far the largest housing region. Year-on-year, total sales are still up a respectable 6.1 percent. Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months. And another positive is a 4.1 percent rise in the median price to $219,400 which is up 8.9 percent year-on-year. But this report in sum is a disappointment, failing to point to any building momentum. Strength in the housing sector may be switching, from existing home sales to new home sales at least based on this report compared to the historic surge earlier this week in housing starts & permits. But housing data month-to-month are always volatile and, on net, it's too soon to decipher how strong the spring housing season is right now. Existing Home Sales Existing Home Sales Month's Supply Rising Supply a Good Thing? Bloomberg says "Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months." That strikes me as circular reasoning, if not completely ridiculous. Month's supply will automatically rise when sales decline. Supply rising in 2005 was a sign of a major problem coming up. Apparently it's different this time. The Goldilocks' theory, which I find absurd, is that low supply is what's holding back buyers. 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.

Philly Fed Region "Weak but Stable"; Kansas City Region "Declines More Sharply" Posted: 21 May 2015 10:46 AM PDT More weak economic reports came out today. Let's take a look at two regional manufacturing reports. Philly Fed Region "Weak but Stable" The Bloomberg Economic Consensus for the Philadelphia Fed Business Outlook Survey was 8.0. Economists got the leading sign correct, but the consensus estimate was a tad high with the index posting 6.7. Activity in the Mid-Atlantic manufacturing sector is slow but stabilizing, based on the Philly Fed's general conditions index which came in at 6.7 for May, down slightly from 7.5 in April and against Econoday expectations for 8.0. The best news in the report is a slight uptick in new orders, to 4.0 from 0.7. This isn't searing but is at least in the plus column as are shipments, at 1.0 from minus 1.8. Employment, at 6.7, is also in the plus column. Manufacturers in the region are reporting significant price contraction, especially in costs which is a surprise given the rise underway in oil prices. Manufacturers are also reporting declining prices for finished goods as well. These inflation readings, if repeated in subsequent reports, will give the edge to the doves at the Federal Reserve. A plus in the report is a healthy reading of 33.9 for the 6-month outlook, down only slightly from April's 35.5 and up from 32.0 in March. The manufacturing sector, hit by weak exports and trouble in the energy sector, has yet to find its footing this year but this report, which is very closely watched, points to stability that in turn hints at a rebound in the months ahead. Weak Demand In light of rising energy prices, price contraction especially in finished goods tells the real story: very weak demand. The six-month outlook is meaningless. Such readings are perpetually overoptimistic except at the bottom of recessions. Industrial production will go nowhere with readings like these. I suggest things appear to be "stabilizing" before the next decline. Philly Fed vs. Industrial Production Kansas City Fed Consensus Way Too Optimistic The range of economists' estimates for the Kansas City Fed Business Outlook Survey was -1 to +1. Economists were not even close on this one. The early indications on May's manufacturing activity have been slightly positive, that is until the Kansas City Fed report where the composite index is in deeply negative ground at minus 13. This is the weakest of the recovery for this reading and follows an already weak minus 7 in April. New orders this month are deeply negative, at minus 19, as are backlog orders at minus 21. These readings, reflecting contraction for export orders and trouble in the energy sector, point to significant trouble for the region's manufacturing activity in the months ahead. Shipments are already in contraction, at minus 9, as is employment, at a deeply negative minus 17 that contrasts with mostly positive employment indications in other reports. Kansas City Region "Declines More Sharply" The Federal Reserve Bank of Kansas City reports Tenth District Manufacturing Declines More Sharply. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined more sharply in May and producers' expectations also fell, with both reaching their lowest levels since mid - 2009. "Factories in our region saw an even sharper decline in May than in March or April, as exports fell further and energy - related producers saw another drop in orders," said Wilkerson. "However, firms' overall still plan a modest in crease in employment over the next six to twelve months." The month-over-month composite index was -13 in May, down from -7 in April and -4 in March. The last time the composite index was lower was in April 2009. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in durable goods manufacturing, including a continued decline in aircraft production and further weakness in metals and machinery. In addition, several nondurable goods plants also reported sluggish activity, particularly for plastics and food production. Production fell most sharply in energy-producing states like Oklahoma and New Mexico, but it was also down in most other District states. The majority of other month - over - month indexes also decreased from the previous month . T he production index contracted from -2 to -13, and the shipments and new orders index es also fell. The order backlog, employment, and new orders for exports indexes edged higher but still remained well below zero. The finished goods inventory index increased from - 1 to 0, while the raw materials inventory index dropped into negative territory. Recession in KC Region If it appears the KC region is in recession, it's because it probably is. Nonetheless, favorable expectations six months out refuse to die. 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.

China Manufacturing PMI Contracts Third Month, Output Index at 13 Month Low Posted: 21 May 2015 02:20 AM PDT The slowdown in China continues as the HBSC Flash PMI shows Output contracts at strongest rate in just over a year. Key Points Flash China Manufacturing PMI™ at 49.1 in May (48.9 in April). Two-month high. Flash China Manufacturing Output Index at 48.4 in May (50.0 in April). 13-month low. Commenting on the Flash China Manufacturing PMI survey, Annabel Fiddes , Economist at Markit said: "The Flash China Manufacturing PMI pointed to a further deterioration in operating conditions in May , with production declining for the first time in 2015 so far. "Moreover, softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near - term, as companies tempered production plans in line with weaker demand conditions. "On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required." The positive note is "deflationary pressures are strong so that leaves scope for stimulus." Isn't that a hoot? And if there was strength, that would be a positive as well. I guess it's simply impossible for things not to be bullish. Two Point Summary Economy weak - stimulus needed - stimulus is bullish Economy strong - no stimulus needed - also bullish 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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