Despite all the unwarranted attention on Greece, life does go on elsewhere. Here are some notes from analysts at the excellent boutique brokerage and research firm Evercore and ISI:
1) Deflation looming in Europe
The ECB may have its hands full with Greece but it also failing to get traction on prices in the eurozone. The currency area's consumer price inflation is just 0.1% month over month and 0.2% year over year, well below the 2% target. This is getting uncomfortably close to deflation.
2) Unemployment is out of control
Eurozone unemployment is at a stunning 11.1%. Greek unemployment is over 25% and youth unemployment is 50%! In Greece overall, employment and GDP are both down 25% from 2010 levels.
3) The ECB balance sheet is surging
No wonder the ECB is still trying to buy bonds to push down rates. Its balance sheet rose $88 billion in the past week.
4) Confidence growing in bigger economies
U.S., U.K. and German consumers are finally feeling comfortable enough to buy, as sales and confidence is growing.
Pending house sales and existing house sale were both up 1% month over month in June and +7.8% year over year. This is the best positive of all and it is happening because employment and wages are up, affordability is good, household formation has strengthened (my 30 year old niece and her longtime boyfriend finally decided to buy a house and get married), inventories are lean and rents are up sharply. The biggest negative is mortgage rates are now 4.17% on average, but don't look for sympathy to me because my first mortgage in L.A. came with a 11.5% interest rate.
For the first time in ages, low income households are also looking up as wages are rising. Ikea raised its minimum wage in late June by 10% to $11.87, following in the footsteps of Wal-Mart and other chains. Incomes for the bottom 99 percent of US families rose 3.3% last year, to $47,213, the biggest gain in the past 15 years, ISI analysts reported.
A strong driving season will also boot sales overall. Bloomberg reports that 35.5 million Americans will drive during the July 4 holiday weekend, the most since 2000.
5) Weakness in 3 of 4 BRIC countries
ISI notes extreme volatility in the Chinese stock market; an increase in hyper-violent terror attacks; Puerto Rico loan defaults; a botched Iran nuclear deal; the Russian economy; and the Brazilian economy, which is plunging are all causes for concern.
-- Jon D. Markman
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