4.7.12

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

In 2010 Obama Promised to Double Exports by 2015; So How's He Doing?

Posted: 04 Jul 2012 10:52 PM PDT

Purportedly the US is going to decouple from the global economy, led by exports. I believe otherwise, which got me to thinking about pledges president Obama made in January 2010.

On January 27, 2010 Obama pledged to double exports by 2015.

Miracles and Mysteries Investigated

The humorous comment at the time, as noted by the New York Times a day later, (see above link), was made by Leslie H. Gelb, president emeritus of the Council on Foreign Relations, who asked "How will he perform this miracle? It really is a mystery."

With that backdrop, inquiring minds may be wondering what has actually happened. Not to fear, I have a set of charts that will unravel the mystery.

ISM Manufacturing: New Export Orders Index



Manufacturing New Export Orders - Percent Change From Year Ago



Let's hone in since the promise was made.



Bear in mind those are manufacturing numbers, not total numbers, and not actual dollar numbers at all.

Even though they provide serious clues as to what is happening, we need to dig further.

Let's take a look at "Real Net" Export Orders. "Real" means inflation adjusted. "Net" subtracts imports.

Real Net Export Orders



Please note the left scale. It is negative.

There is no point in honing in further, you can easily see the grim results as they are. Still, those are "real" (inflation adjusted) "net" export orders. US trade deficit subtracts from those results.

To give president Obama further benefit of the doubt, let's look at exports only, ignoring the trade deficit, but still adjusted for inflation.

Real Exports of Goods and Services



Real Exports since 2010



Mystery Solved

Once again, please look closely at the numbers on the left scale. You would have to be freaking nuts to think exports will double by 2015 at this pace (or for that matter at any conceivable pace).

Simply put, President Obama is light-years away from his pledge to double exports. In terms of "net" exports, there has been no progress at all.

The mystery has been solved. The pledge to double exports was pure bullsheet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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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.

France to Set Top Marginal Tax Rate at 75%, Permanently Increase Wealth Taxes, Hike Surcharges on Banks and Energy Companies; Further Tax Hikes Next Year; France Poised to Implode

Posted: 04 Jul 2012 02:16 PM PDT

Many told me that French president Francois Hollande was making idle campaign pledges on tax hikes and worker rules, and the he would not follow through. Well he did, at least on taxes.

The Financial Times reports Wealthy hit hardest as France raises taxes
France's socialist government announced a big one-off increase in wealth taxes on Wednesday, by far the biggest single element in a €7.2bn package of new levies aimed at meeting this year's budget deficit target that also included surcharges on banks and energy companies.

The supplementary 2012 budget, required to ensure the government hits its deficit target of 4.5 per cent of gross domestic product this year, was weighted overwhelmingly towards taxes on the rich and big companies as ministers said planned spending cuts would mainly take effect from next year.

An extra €2.3bn will be raised by an exceptional tax charge on all those with net wealth of more than €1.3m.

Citing an "an extremely difficult financial and economic situation", Pierre Moscovici, the finance minister, said: "The wealthiest households and the big companies will be asked to contribute. In 2012 and 2013, the effort will be particularly large."

Further tax increases for next year, when the government is expected to have to find €33bn in savings to bring the deficit down to 3 per cent of GDP, will be spelt out in the autumn. They will include President Francois Hollande's election pledge of a 75 per cent marginal rate on annual incomes of more than €1m – and permanent increases in wealth taxes.

Overall, public spending as a proportion of GDP, second only to Denmark in Europe, will rise slightly this year to 56.2 per cent before falling slowly to 53.4 per cent in 2017. The tax burden will, however, keep rising to 46.5 per cent – also one of the highest in Europe.
France Poised to Implode

On June 16, in "France Has At Most Three Months Before Markets Make Their Mark" says German Official I wrote ...
If socialists take control of both houses in French parliament as expected, president François Hollande would have free rein to carry out his stated policies such as hire more public workers, raise taxes on the rich, and Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"
Socialists did win both of Parliament.

Now that Hollande has followed through on his pledge to hike taxes, there is every reason to believe he will follow through on his inane proposal to make it nearly impossible for businesses to fire people. If he continues with that promised path, France will implode.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
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.

Graphical Look at the Spanish-Italian Summit "Victory"; Where to From Here?

Posted: 04 Jul 2012 10:00 AM PDT

Spain 10-Year Government Bond Yield



Italy 10-Year Government Bond Yield



Germany 10-year Government Bond Yield



Where To From Here?

A one day rise in the yield of Spanish and Italian debt will not mean much if this is a consolidation following a big two-day drop.

However, the same can be said in reverse. If this is all or nearly all Spain and Italy get out of the summit, the Euro will have to be saved for the 20th if not 100th time.

Note that the latest summit changed no fundamentals (see EU Summit Winner Was Merkel).

Also note that Merkel's hands may be heavily tied preventing further concessions from her (see Merkel Coalition About to Splinter Over Creation of "European Monster State").

Thus, I suspect it will not be too long before yields head North in a major way. Don't be surprised if today is the start.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
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.

Merkel Coalition About to Splinter Over Creation of "European Monster State"

Posted: 03 Jul 2012 11:12 PM PDT

Winning the Summit but Losing the War

German chancellor Angela Merkel was the EU Summit Winner. She gave next to nothing to Italy and France, and a pittance to Spain.

However, there was a price to that pittance, and it could cost Merkel dearly. Please consider German Party Leader Threatens To Axe Coalition
Chancellor Angela Merkel faces growing resistance to her European policy from within her own coalition. Horst Seehofer, the leader of the powerful CSU party, sharply criticized the outcome of last week's EU summit, and threatened to let the coalition government collapse if Berlin makes any more concessions to ailing euro members.

Bavarian governor Horst Seehofer, the leader of the conservative Christian Social Union party (CSU) which is part of Chancellor Angela Merkel's center-right federal government coalition, has criticized the outcome of last week's European Union summit and threatened to let the government collapse if Berlin makes any further financial concessions to ailing euro member states.

"The time will come when the Bavarian government and the CSU can no longer say yes. And I wouldn't then be able to support that personally either," Seehofer said in an interview with Stern magazine released on Tuesday. "And the coalition has no majority without the CSU's seats."

The CSU is the Bavarian sister party to Merkel's Christian Democratic Union.

Germany's billions of euros in aid and guarantees were already "borderline," said Seehofer, who is known in Germany for his combative, occasionally populist style. "My biggest fear is that the financial markets will ask: Can Germany cope with all that? That is the point I regard as the most dangerous of all."

'European Monster State'

Seehofer also criticized a suggestion by Finance Minister Wolfgang Schäuble that Germany should hold a referendum on a new constitution that could relinquish national powers to Brussels. "Hands off our constitution! We have this constitution to thank for the most stable state and the most stable democracy there has ever been in German history. We don't want a different constitution," said Seehofer.

He said he wouldn't accept the transfer of major powers to a "European monster state." He said he would turn the next general election and the Bavarian regional election, both scheduled for 2013, into a vote on Europe. "We will put this question to the people."
End of the Line

Merkel has given the minimum each step of the way. However there have been too many give-aways to count. Each cave-in, no matter how small, has had a cumulative effect. Each time she makes a concession, she adds risk of an adverse ruling in the constitutional court or risk of increased political fallout.

Her latest pre-planned escapade in Brussels puts her at risk of both.

The constitutional court already had the ESM under review. Additional challenges will be filed. I suspect the court will OK the treaty but with a stern warning. And speaking of stern warnings, CSU party leader Horst Seehofer just issued one in no uncertain terms.

This may be the end of the line of what Merkel can agree to without a referendum. When yields head North again in Spain and Italy (and they will because nothing has been solved), Merkel will be in serious trouble.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
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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