The Economy, The Weather And Chili

The Search for Excuses

Recently yours truly and a few friends considered what excuses might be presented next time economic data come in 'weaker than expected'. The  exchange was motivated by a recent article on Zerohedge regarding Goldman Sachs, which is beginning to lower its overly ambitious economic growth forecasts once again (this time the 3.9%!!! predicted for Q2), as well as another article published at Marketwatch, on the economic forecast of Morgan Stanley economist Ted Wieseman. According to Wieseman, the extreme winter weather hasn't 'derailed' the US economy in Q1, although the weak performance forces him to cut his growth forecast for the whole year. Otherwise  his feet remain firmly planted in the consensus camp: 'escape velocity' is within our grasp!

“The cold and wet winter set the U.S. economy back, but it didn’t knock it off the rails, according to Ted Wieseman, an economist for Morgan Stanley and the winner of the April Forecaster of the Month award from MarketWatch.”

In spite of the fact that he has won the 'forecaster of the month' award in April, we are not inclined to accept his forecast for the rest of the year as holy writ just yet. After all, 'just you wait for the second half!' has been the battle cry for the past five years, and yet here we are, still stuck in the 'weakest recovery of the entire post WW2 era'. Apparently, economists are not considering the enormous structural damage the economy has suffered due to unprecedented monetary pumping by the Fed.

In the course of the above mentioned bantering, a number of possible excuses for future 'misses' were proposed, such as:

Memorial Day,  heatwave, euro depreciation, yuan depreciation, yen depreciation, yen appreciation, high rates, low rates, leaving early for summer holidays (because the economy is booming so can take more leisure). Also mentioned were lunar eclipse, and of course, 'El Nino'.

Blaming Bad Weather in Advance

The boys from the NSA seem to have duly forwarded this e-mail exchange to Shinzo Abe, who in turn forwarded it to the BoJ. We are just guessing here, but it could be that Japan's government let it be known that it is looking for useful excuses as to why 'Abenomics' keeps not working, so any helpful suggestions are apparently passed on to it right away.

The sales tax hike is in the past, the Ukraine situation is beginning to wear thin as an excuse, but El Nino is definitely serviceable, because it hasn't even happened yet. It isn't even certain that it will happen, but who cares about such details? In this case, it is therefore actually useful as an advance excuse:

“Bank of Japan officials are concerned that cooler-than-normal weather triggered by El Nino this summer will curb spending and weigh on an economic rebound after a sales-tax increase, according to people familiar with the matter.

The officials are watching out for potential weakening in consumer spending and sentiment that could add to risks facing the economy from weak exports and developments in Ukraine, according to the people, who asked not to be named because the discussions were private. With an export recovery that could be gradual, the effects of El Nino require close monitoring, the people said.

The Japan Meteorological Agency this week forecast a 70 percent chance El Nino will occur, the highest since its last occurrence in 2009, bringing lower temperatures that could continue through autumn. Dai-ichi Life Research Institute economist Toshihiro Nagahama sees a risk that cooler weather could reduce growth by as much as 0.9 percentage point in the third quarter.

“We can’t rule out the potential that the El Nino this summer causes unexpected damage to Japan’s economy,” Nagahama said. “This could affect the decision to raise the sales tax from October next year as the growth rate in July-September is critical for that judgment.”

Perfect! Actually, the culprits will be Japan's beer drinkers, who allegedly have a tendency to get less inebriated whenever El Nino strikes:

“Cold weather triggered by El Nino could depress consumer spending on summer clothes, air conditioners, beer and other drinks, weighing on growth, Nagahama said.

Average monthly temperatures in Tokyo during the El Nino from May 2009 to March 2010 were 0.2 degrees Celsius lower than the 30-year average, according to data from Japan’s weather agency. Beer shipments by such companies as Kirin Holdings Co. and Asahi Breweries Ltd in July 2009 were the lowest for that month since records began in 1992, as colder weather and heavy rains deterred drinkers.

The risk for Prime Minister Shinzo Abe and the central bank is that the damage could sap strength from a bounce in an economy forecast to return to growth in the third quarter after shrinking an annualized 3.3 percent this quarter due to the effects of the sales tax increase, according to a May 2-8 survey of economists by Bloomberg News.”

Once again the idea is that the economy's health depends on 'spending' and consuming. However, apart from that one must wonder: Is it really a tenable conclusion that a fall in temperatures by 0.2 degrees Celsius will cause people to drink less beer? Human beings are not even able to discern a temperature difference of 0.2 degrees, unless they have a highly accurate thermometer at their disposal.

We actually doubt that the average Japanese beer drinker is serenely contemplating his digital thermometer and declaring: “Oh no! The temperature is 0.2 degrees below average! That was it for beer drinking this year, I quit!”

It seems more likely to us that different reasons accounted for the beer abstinence recorded in the summer of 2009. If we recall correctly, this was at the tail end of a huge financial and economic crisis. Perhaps Japan's beer drinkers  temporarily switched to Sake to drown their sorrows more efficiently?

Japanese beer: beer makers are allegedly trembling at the thought that temperatures could turn out to be 0.2 degrees C lower than normal this year. The horror!

Anyway, it is clear that such common sense deliberations aren't going to keep Japan's government from blaming El Nino if economic data turn out to be weak this summer, but what if El Nino doesn't arrive on the scene as planned?  Maybe we should send a package of ready-made excuses to Tokyo, so they can pick whatever seems suitable…

The Nikkei: poised just above an important lateral support level. The declining triangle suggests that it will most likely break – via BigCharts – click to enlatge.

How to Save the Day – Eat More Chili

Evidently, Abenomics urgently needs a little bit of global warming to get back into gear. If you want to help Shinzo Abe to succeed, you should therefore boost your carbon footprint as quickly as possible. One possible measure is to increase one's chili intake, or that of other bean-heavy food, as that will tend to increase the  frequency of gastro-intestinal discharge. This in turn should lead to the desired climate feedback effects, based on the chemical composition of the resulting flatus, which is as follows:

“Nitrogen: 20-90%
Hydrogen: 0-50%
Carbon dioxide: 10-30%
Oxygen: 0-10%
Methane: 0-10%”

The percentage of methane depends on the presence of certain bacteria, which not everybody has. However, as you can see, CO2 will definitely be produced. If enough people were to put their mind to it, Japan's economy could be farted back to health!