The False Recovery Narrative: Even The Financial Times Is Shilling For The Money Printers

The sloth and mendacity of the mainstream financial press apparently knows no bounds. Below is a ringing expose by Jeff Snider that catches even the mighty Financial Times with its pants around it ankles.

The FT led its post on German industrial production for February with a declarative sentence that implied Draghi's QE madness was already working like a charm---even during the month before it actually incepted. Said the FT regarding the February figures:

The European economic engine is accelerating.

Not exactly. That affirmation was based on a 0.2% February gain from the prior month reading. But the January number had been drastically revised down in the same report. To wit, what had been reported as a 0.6% gain for January was revised down to a 0.4% decline-------meaning that the miniscule February gain had started from a 1% lower level. Rather than two consecutive months of rising production, as the FT lead implied, German industrial production is now well below its year-end level. Its faltering, not accelerating.

Having failed to mention any of this, the report then made the preposterous  claim that the February delta was a "beat". That's because the tiny 0.2% gain bested the 0.1% consensus forecast.

Right. By an infinitesimal fraction of difference, February was higher than January based on the older, much higher originally reported level. Have the FT's blithering hacks no shame? Not only did they fail to note the big January revision, but they actually posted the chart below which characterizes what was a big step backward as a report which "tops" the forecasts:

And that wasn't even the half of it. The real story is that the trend of German industrial production has actually turned down again. The supposedly "accelerating" number for February was actually 1.6% below February of 2014, and the six month moving average has now rolled over, too.

ABOOK April 2015 Germany IP YY 6

As to Draghi's vaunted "whatever it takes" ukase and now massive bond-buying program, the fact is that German industrial production in February was 1% below the like month of 2012 before this latest round of central bank stimulus even started. And its still 5.7% below the level of February 2008!

Beyond all that, as explained below, these German industrial production numbers, like the incoming data everywhere, reflect faulty seasonal adjustments and are being goosed upward by a "trend cycle component" for which there is no apparent justification whatsoever. As Snider put it,

Acceleration is not a word that should properly be associated with anything here.

This is not about economic data quibbling; its just another instance of the absolute subservience of the mainstream media to an economic narrative that is manifestly untrue based on a palpably failed monetary policy regime that remains nevertheless unquestioned.

After all, we have had nearly two decades of ZIRP and QE in Japan to no avail. Likewise, after 75 months of ZIRP and massive money printing the US there is no evidence of "escape velocity" or even any acceleration at all beyond the normal regenerative powers of private capitalism.

So why does monthly statistical noise wrapped in the rounding errors of the Eurozone data mills get seized upon as proof that Draghi's final destruction of honest pricing in the government bond market----where already nearly $3 trillion of European issues are trading at negative interest rates----is working? Because financial journalist are in the land of central banking Oz and are too domesticated to even look behind the curtain.

If they did, they might note that seven years on from the crisis and after a one-time explosion of export shipments to China and the DM that is rapidly cooling by the day, Germany's real GDP is still only 3% above its pre-crisis level. That's not "acceleration"; its stall speed.

Historical Data Chart

The fact is, Europe is in the throes of a permanent fiscal crisis of the welfare state which will eventually destroy the euro, with Greece undoubtedly leading the way. The more probable future is that foreign demand for German engineering goods and luxury cars dries up just as the multi-hundred billion bill for its foolish underwriting of the fiscal profligacy of France and the PIIGS comes due.

The notion that the tide of red ink has been stopped is utterly belied by the facts. The Eurozone will soon cross the 100% public debt to GDP milestone. And at that point, what will accelerate is not the GDP, but the absurd 1% or lower yields on most of the Eurozone's 10-year bonds.

Historical Data Chart

At the end of the day, this same false "recovery" narrative has been played over and over all around the planet since the 2008 crisis, and the subsequent on-set of all-in monetary madness at the central banks. It has now become so embedded in the markets and the media that it has reached the status of a full bore mania.

Only people caught up in a mania could think the European economy led by the German locomotive is "accelerating". In fact, the structural headwinds of high taxes, massive public date and debilitating dirigisme throughout the European national states and the Brussels superstate mean that its economy is going nowhere and, indeed, hasn't even reached its pre-crisis high water mark.

Historical Data Chart

Nevertheless, the European stock markets continues to rise----driven by nothing more than the ECB's gift of free carry trade funding and the greatest bond market windfalls in recorded history. Hot money from everywhere in the global casino has flowed into Europe for one last gulp of the central bank Cool-Aid.

Ironically, it is the German stock market----- up by 55% since the crisis on the back of a tiny 3% gain in real GDP----that is headed for the biggest fall. The revilers in the monthly rounding error noise contained in the "incoming data" have apparently failed to notice that the due bill for the catastrophe known as the euro is already addressed to Berlin.

Its actually already in the mail.

German DAX Index
^GDAXI Chart

^GDAXI data by YCharts

 By Jeff Snider at Alhambra Partners


Rhetorically, I wondered yesterday what it was that economists and the media were actually looking at when opining about certain economic topics. That was in relation to German factory orders which are clearly moving in the “wrong” direction, to which that is supposed to be set aside in favor of “sentiment” and the ephemeral “confidence.” Neither of those words really apply here, just as they haven’t much in many years, as what it all really amounts to is rationalizing some form of monetary policy. A central bank does something, especially of significance, and it is just accepted that it will work.

This morning we get a companion to German factory orders in German industrial production. It was ugly, and undeniably so – or so you would think. But here is the Financial Times describing, in as little detail as possible, how this is great news for Europe.

The European economic engine is accelerating.


Industrial production climbed 0.2 per cent in Germany from a month earlier, eclipsing expectations for a 0.1 per cent gain, as the production of energy and capital goods rose, according to the latest figures from the Bundesbank.

As if to totally confirm the monetary bias and the above rationalization, they end the short piece with:

The results will be heralded as good news from the European Central Bank, which announced in late January plans to unleash a controversial easing programme. While the €60bn a month bond buying scheme went into effect in March, word of the programme led to an increase in business confidence, including several manufacturing surveys which have climbed.

Germany’s IP figure was for February (whereas yesterday’s factory orders were already into March) so to tie it all to QE the FT has decided that the mere announcement was enough in January. Therefore, everything that comes after must be really good because QE, apparently, cannot fail even from the moment of conception.

What really happened in Germany was atrocious. The adjusted figure, which includes the standard ARIMA-X seasonality from the US Census as well as a trend-cycle component (more on that below), was indeed +0.2% over January. However, that increase only took place because January was revised from +0.6% to -0.4%! An entire percentage point was taken off January and February was only marginally better, but the FT wants you to believe there is high acceleration and that QE is already working.

There are rationalizations that we have come to expect and then there are blatant forms that are so transparent as to question why they even bothered to attempt it. Away from the adjusted figures, German IP was 1.6% below February 2014, coming after January’s serious decline of 3.2% year-over-year (second derivatives: February was declining slower, so that equals acceleration).

ABOOK April 2015 Germany IP YY

The argument for acceleration was thin before, but in this context it is nowhere to be found. Ever since about June, that “dollar” again, there isn’t much doubt as to which way industry in Germany is heading. This is itself an “unexpected” outcome because the weaker euro is supposed to be a huge boost (and it was if only to German exports, which again suggests that Europe isn’t actually faring well internally). To emphasize that even more, the 6-month average is now negative again, as this latest retrenchment is quite visible and obvious.

ABOOK April 2015 Germany IP YY 6

In this wider context, the pattern that emerges is not anything favorable to even a single month. Comparing February 2015 to prior February’s shows just how dire the situation in Europe actually is. German IP in this latest estimate is actually 1% below February 2012, and an astounding 5.7% below February 2008. Acceleration is not a word that should properly be associated with anything here.

ABOOK April 2015 Germany IP Index

This data is completely and comprehensively bereft of anything that might be heralded by even those just slightly biased toward QE. Further, the Statistisches Bundesamt helpfully provides their breakdown of trend-cycle, unlike the BLS’s numbers from which we can only infer by the divergence of their output from everything else.

ABOOK April 2015 Germany IPTrend Cycle

The trend-cycle adjustment to the final month-to-month variation is still nearly as high as it has been in the entire post-2009 period. Like everything else of developed economy statistics, this shows yet again that the mainstream and orthodox interpretation of cycle, which boosts actual figures and estimates, is not at all appropriate. Compare the trend-cycle estimate to everything else, especially from 2012 onward, and you can plainly see that they have it entirely backwards – the trend is not rising post-2012 as it is clearly falling and all over the world.

That means that the “heralded” +0.2% is as much trend-cycle statistical guessing as actual growth and, indeed, acceleration. I understand that the FT is a mainstream outlet with an interest in maintaining the monetary status quo, but you would think that a truly rational interest would wait at least a few months for actual confirmation before jumping fully and headfirst into the QE pool.

Maybe this aggravation is related to the fact that QE hasn’t worked anywhere else, failing quite obviously right now in Japan with even the US finally falling under a serious cloud of suspicion. In other words, there is the same “rational expectations” reason for trying to get ahead of the curve and make everyone believe QE can work before it actually does. That is, after all, the way modern monetary policy is crafted, to “influence” rather than actually accomplish anything. In terms of Germany and its industry, that is abundantly clear by absence of actual progress for years (which includes the enormous and prior ECB “solutions”) and the fact that March factory orders are already sadly still captured by the same decay.

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