Mish's Global Economic Trend Analysis

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• Durable Goods Boost Third Quarter GDP Estimate to 1.4% Annualized
• Unidentified Investors Lend Belgium €50 Million, for 100 Years, With Flexible Conditions, at 2.5% Interest
• Durable Goods Orders Surprise to Upside, Led by Autos

Durable Goods Boost Third Quarter GDP Estimate to 1.4% Annualized Posted: 26 Aug 2015 02:53 PM PDT Durable goods orders this morning leapfrogged all economic estimates (see Durable Goods Orders Surprise to Upside, Led by Autos). Yet the GDPNow Forecast only rose by .01%. The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.4 percent on August 26, up from 1.3 percent on August 18. The forecast for real GDP growth increased 0.1 percentage point to 1.4 percent after this morning's advance report on durable goods from the Census Bureau. The report boosted the model's forecast for equipment spending in the third quarter from 7.7 percent to 8.9 percent, and led to a slight improvement in the contribution of real inventory investment to third-quarter GDP growth. GDPNow August 26, 2015 It's been entertaining and informative watching the evolution of these forecasts. Really big swings in some economic numbers often barely budge the expected result. GDP growth of 1.4% is hardly the material on which rate hikes have historically been based. Mike "Mish" Shedlock 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.

Unidentified Investors Lend Belgium €50 Million, for 100 Years, With Flexible Conditions, at 2.5% Interest Posted: 26 Aug 2015 11:10 AM PDT In yet another sign of economic madness, investors have concluded that rates in Belgium are likely to stay low for decades to come. Via translation, please consider Unidentified Investors Lent Belgium €50 Million for 100 Years at 2.5% Interest. The director of the Belgium debt agency, Jean Deboutte, announced Belgium borrowed 50 million euros, for a hundred years at an interest rate 2.5 percent. The borrowing for a hundred years is via EMTN loans. These are loans with more flexible conditions than the traditional OLO government bonds. Who granted Belgium the loan is unknown. "These are professional investors. Goldman Sachs International contacted us stating that it had investors who were interested in such a long term investment," said Deboutte. According Deboutte, hundred year life of this debt shows that investors have great confidence in the reliability of Belgium as a good payer. EMTN Defined I looked up the term "EMTN". It stands for Euro Medium Term Note.  If 100 years is "medium term", dare I ask the definition of "long term"? 100 years at 2.5% and flexible conditions. What can possibly go wrong with that? In the grand scheme of things €50 Million is a trivial amount to the global economy. Nonetheless,  the transaction does reflect how one-sided sentiment is in belief of perpetually low rates. Mike "Mish" Shedlock 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.

Durable Goods Orders Surprise to Upside, Led by Autos Posted: 26 Aug 2015 10:08 AM PDT Durable goods orders surged in July, beating the top-end of Bloomberg Consensus Estimates. Despite the surge, year-over-year orders are still in the red. Exports have been weak but they didn't hold down July's durable orders which, for a second straight month, are strong, and strong nearly across the board. New orders rose 2.0 percent in the month which easily beat out top-end Econoday expectations for 1.2 percent. Excluding transportation, orders rose 0.6 percent which is near the top-end forecast for 0.7 percent. Capital goods data show special strength with nondefense ex-aircraft orders up 2.2 percent following June's 1.2 percent gain and with related shipments up 0.6 percent following a gain of 0.9 percent. Motor vehicles led the industrial production report for July and they're a standout in this report also. Orders for vehicles surged 4.0 percent in the month on top of June's 0.8 percent gain. Vehicle shipments are right behind, up 3.9 percent following a 0.9 percent gain. Commercial aircraft, a center of strength for the nation's factory sector, fell back with orders down 6.0 percent following June's 70 percent surge. The good news continues with total shipments up 1.0 percent vs June's 0.9 percent gain which are very strong readings. Unfilled orders rose 0.2 percent while inventories, reflecting strength in shipments, were unchanged. The factory sector has had a tough year, that is up until June when demand for vehicles began to take hold. This report speaks to domestic strength and should help offset ongoing concerns over global volatility. In a special note on year-on-year change, total new orders are down 19.6 percent which reflects an aircraft comparison with the Farnborough airshow in July last year. Excluding transportation, orders are down 2.5 percent which is an improvement vs declines of 4.5 and 2.7 percent in the prior two months. Monthly vs. Yearly The skew in aircraft orders made the year-over-year comparisons this month (yellow highlight) especially tough. Next month, the year-over-year comparison (pink highlight) will be especially easy. Discounting the huge swings, this is the first time durable goods have had consecutive month-to-month gains in a year. Once again autos lead the way. I keep wondering how long that can possibly last. Mike "Mish" Shedlock 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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