A very hoary joke tells the story of an East European Jew, just arrived in New York and not speaking a word of English, who leaves Ellis Island with a brand new name: Sean Ferguson. Asked to explain his newly-minted Irish provenance, he tells how his fellow-travellers on the ship warned him that his Yiddish name would not be well-received by the immigration officers and that he was better off thinking of a new name for himself — one with an American ring. Unable to do so, he hears various suggestions from his mates and uncertainly settles on one — let’s say, Andrew Jones.
Bottom line: The pace of economic expansion, as measured by the GDP data, fell to an annualized rate of 1.7% in the second quarter. The 2.5% rate of growth for the first half of 2014 reflects the relatively high rate of 2.8% recorded in January-March. However, whereas the first quarter data, which immediately looked to be inconsistent with the general picture of the economy for the period they covered — and were indeed revised upward in later estimates — the Q2 data are very plausible, and may even be adjusted downward. In any event they confirm that the economy was weakening before Operation Protective Edge and they set the scene for a much weaker — and possibly negative — third quarter.
Until very recently — mid- to late-July, to be exact — American and European stock markets were marching steadily higher. In many cases, new all-time-high levels were being achieved with monotonous regularity.
Yet a closer examination of the trading activity on many of these markets revealed a much less rosy picture. First, not all stocks were still rising. Indeed, by mid-year, MOST stocks in the US were falling, not rising, and many were significantly (i.e. 10% or more) below their highs for the year. Drilling further down revealed that, over time, fewer and fewer shares were taking part in the ongoing rally — but these were the largest companies, meaning the ones with the largest market capitalization. A few big, broad-shouldered behemoths were effectively carrying the whole market upwards.
Bottom line: The Consumer Price Index (CPI) rose by 0.1% in July — but it has risen by the same amount for the seven months ending in July! For the 12-month period through July the index shows a rise of only 0.3%. In short, as we have been warning for some time, the Israeli economy is slipping into deflation. Indeed, once housing prices are excluded, the data show that deflation is already here.
Bottom line: The trade data for July contained no good news; rather there were several indications that things are getting worse. Exports continued to display weakness almost across the board, while imports are now clearly contracting as well — suggesting that the domestic economy was weakening even prior to Operation Protective Edge in Gaza.
Don Corleone: Tattaglia is a pimp. He never could have outfought Santino. But I didn’t know until this day that it was Barzini all along.
– The Godfather, Part 1
Last week, Israel had its Barzini moment. The Israeli public, with the very active assistance of the Israeli media — and, I am pretty certain, thanks to an intense ‘educational’ effort on the part of the government, the army and the ‘intelligence community’ — was made aware of the fact that the war in which it was/is engaged is not merely with Hamas. The terrorist organisation running Gaza is, of course, the primary entity engaged in firing mortars at the areas immediately adjacent to the Gaza Strip, small rockets to the nearby towns and cities and much larger ones at the Tel Aviv conurbation and other, more distant, targets. Hamas is, furthermore, the organisation that has painstakingly constructed the network of tunnels that unexpectedly became the focus of the recent military incursion, as well as the much larger network within Gaza city, which serve as shelter, barracks, communications and much else for Hamas’ commanders and rank and file. As such, it remains the immediate enemy.
Read the bulletin: The Barzini Moment — 7th August 2014
Whilst you were understandably busy with local developments, the world carried on spinning — increasingly out of control. Anyone who follows the global financial markets will be aware that they are almost all going down, but let’s spell this out briefly.
To start with, what has not gone down over the last several weeks? Primarily, the US dollar and the prices of many countries’ government bonds. That already hints at a tough situation, because these are “haven assets”, meaning they are what investors buy when they are selling riskier assets. Interestingly, precious metals have not benefited from their usual haven status, but have rather suffered price declines. Oil has fallen much harder — which is quite amazing, under the circumstances. Most other commodities have seen falls, with wheat being an exception.
I mentioned last week that most people in the world, and virtually everyone in Europe, is far more focused on and concerned about the crisis between ‘the West’ – meaning the US and EU – and Russia over the shooting down of the Malaysian airliner, than they are about the fighting in Gaza. You wouldn’t know that from the Israeli media, and indeed most Israelis, who are understandably riveted to reports in the local media, do not know that. But not only is that the case, it may even be objectively justified. After all, the Financial Times reported a few days ago that a senior Russian official, close to Putin, said that the court decision requiring Russia to pay 50 billion dollars in compensation for its effective seizure of Yukos, formerly one of the country’s biggest corporations, was not a matter of concern, because “Europe is heading into a war”. Even it wasn’t August ’14, Europeans would have cause for concern…
From the Halls of Montezuma
To the Shores of Tripoli;
Thus opens the battle hymn of the United States Marines. The Halls of Montezuma sound Mexican — and so they were, so it’s not surprising that the marines saw action there. But what about ‘the shores of Tripoli’? Whether the Tripoli being referred to is the one in Lebanon or the one in Libya, it’s rather a long way from home for our intrepid warriors.
Nevertheless, the historical record is clear: the shores of Tripoli, in what we now call Libya, were visited by the marines in 1805, long before the Mexican-American War brought them to the Halls of Montezuma — in fact, not long after the US came into being. They were there as part of the First Barbary War, launched in 1801 by President Thomas Jefferson — and the enemies then were the Barbary Pirates, operating out of the Barbary States — Morocco, Algeria, Tunis and Tripolitania (now eastern Libya). These naughty people — any association with the term ‘barbarians’ is clearly politically incorrect and therefore wrong — engaged in raids on American ships, in which they captured both booty and prisoners and then ransomed them back to the US at exorbitant prices.
Bottom line: Jerusalem, we have a problem. The trade data for June were unsatisfactory, but what is far worse is that they represent another link in a steadily deteriorating trend. This review will focus on the data for the first half of the year, which present a coherent — and distinctly negative — picture.