Mish's Global Economic Trend Analysis

---

• Obama's Secret Letter to Iran About ISIS: Good Idea? Foolish Cooperation? Hidden Agenda?
• Riots in Brussels: 100,000 Protest Austerity, Overturn Cars, Throw Fire Bombs; Wherefore Art Thou Austerity?
• "Whatever It Takes" Stage Two; Headwinds Explain Why Draghi Will Fail This Time
• Prepare for War: Obama Asks Congress for ISIS War Authorization; Republican Hawks Have War Plan Prepared; Clinton-McCain?!

Obama's Secret Letter to Iran About ISIS: Good Idea? Foolish Cooperation? Hidden Agenda? Posted: 06 Nov 2014 06:14 PM PST Big splash in the news today following the Wall Street Journal report Obama Wrote Secret Letter to Iran's Khamenei About Fighting Islamic State. Obama's exact letter has not been published (yet), but the subject matter includes shared interests in combating ISIS coupled with hope of progress on nuclear talks. The Journal reports "cooperation on Islamic State was largely contingent on Iran reaching a comprehensive agreement with global powers on the future of Tehran's nuclear program by a Nov. 24 diplomatic deadline" according to correspondents briefed on the letter. As with Russia more recently, the sanctions against Iran did not work, and will never work. Sanctions in general don't work, period. The Republican response is as one might expect. Worse yet, Senators Mark Kirk (R., Ill.) and Robert Menendez (D., N.J.) introduced bipartisan legislation to intensify sanctions. "The best way to prevent Iran from getting a nuclear weapon is to quickly pass the bipartisan Menendez-Kirk legislation—not to give the Iranians more time to build a bomb," Mr. Kirk said Wednesday. Good Idea to Open Dialog with Iran? Was Obama's letter to Iran a good idea? Of course it was. Dialog is generally a good idea. Obama's letter opening up discussions with Iran is one of the few things he has done right. Of course, this dialog comes on the heels of unwise sanctions, so all it does is get us back to where we should have been years ago. In the meantime though, the odds of success have improved dramatically. The Journal reports "U.S.-Iran relations have thawed considerably over the past year, following the election of President Hasan Rouhani. He and Mr. Obama shared a 15-minute phone call in September 2013, and Messrs. Kerry and Zarif have regularly held direct talks on the nuclear diplomacy and regional issues." Foolish Cooperation Instead of viewing dialog as an opportunity, Republican and Democrat economic illiterates attacked Obama. The result was foolish bipartisan cooperation culminating in Menendez-Kirk legislation. Lovely. Rest assured whenever Democrats and Republicans in Congress act fast on anything, the result can never be good. Race is On The race to snatch defeat from the jaws of victory is on.  Can Obama secure a deal with Iran before November 24? Will the deadline be extended? Will the above questions be moot thanks to unusual bipartisan cooperation? Hidden Agenda? Behind all the hyperbole, one has to wonder if Obama has a hidden agenda. If sanctions on Iran lift, the price of crude will likely sink further. In turn, that would hurt Russia pretty badly. For further discussion, please see Ruble Slide Continues; Russia Forced to Abandon Currency Intervention as Reserves Dwindle. Right for Wrong Reason? Obama and McCain have been somewhat united on sanctions on Russia, with the McCain accusing Obama of not doing nearly enough. So even if Obama is doing the right thing, I have to wonder if he is doing the right thing for all of the right reasons. Regardless, the right thing is the right thing, and for that, Obama sees bipartisan legislation in the opposite direction. Such is the extremely sorry state of US foreign policy. History Lesson on Sanction Criminality Many will disagree with my thoughts on dialog with Iran and sanctions. They are wrong. One of the best posts I have ever seen on the idiocy of sanctions was a guest post on ZeroHedge, whose origin is the Tanosborn Online article Sanctions: Diplomatic Weapons of Mass Criminality. I highly encourage everyone to click on and read link in entirety. Here are a few snips: Obama finds himself looking at Russia in much the same way as FDR did looking at Japan in 1941. In July 1941 the US imposed an oil embargo on Japan, demanding that it get out of China, de facto curbing any hegemonic aspirations or influence that nation might have or hope to have in Asia. The economic reality forced by the American sanctions on Japan left the Land of the Rising Sun with just two options in the summer-fall of 1941: surrender its aspirations or resort to war. Seventy-three years later, America once again inflicts economic sanctions on another nation, Russia; a nation solely trying to defend its borders, perhaps also exercising the natural desire to influence, help create economic synergy in the Eurasian geopolitical region. Those aspirations of self-preservation and economic success should be judged at face value, and not antagonistically, as the US is now doing with extreme, venomous propaganda. Sanctions are just another form of warfare, where the weapons can inflict destruction and pain, and be just as explosive. One thing we can be sure of in modern times: sanctions will prove to yield long term ill will, in many cases providing multiplying seeds of vengeance and terrorism which we may not confront now but our children and their children certainly will. America has for decades plowed and seeded hostility with sanctions in fertile grounds where terrorism will thrive and come back to haunt us. And, foolishly, the US continues this idiotic practice. America does not need a Sanctioner-in-Chief enacting foolish edicts from the White House, but a leader in international cooperation, a leader that will safeguard this nation's safety and legitimate interests, but also respect other nations… and their legitimate interests. As of right now, the US has de facto declared war in Russia… and, unless Obama lifts the sanctions now in-place, the economic fate in Russia will soon likely determine that nation's willingness to bet all its nuclear chips and call America's bet at the political international poker table. Sanction Idiocy If you think I am wrong about sanctions, please read the article again and again until you comprehend. It provides a much needed history lesson on the idiocy of economic sanctions. One more point: Events today have nothing in common with Hitler's "Final Solution" including a master race and extermination of Jews, so spare me the comparisons about Chamberlain ceding territory for peace. Events today are a direct result of US meddling in Ukraine internal affairs with the usual bad consequences. I strive to change opinions of others who see things differently, and Sanctions: Diplomatic Weapons of Mass Criminality is one of the best written arguments against sanctions I have ever seen. Want more on the idiocy of sanctions? I can oblige: Mish Sanction Articles. By the way, I had written everything above that snip and everything that follows before I read the article. My position on sanctions has not changed one bit as my previous articles show. Question of Degree Without a doubt, Obama is a warmonger. He is just not as big of a warmonger as Republican Senators McCain and Kirk, or Democrats Hillary Clinton and Senator Robert Menendez. Unfortunately, the mid-term elections do not bode well for peace. Nor do prospects of Hillary winning the 2016 Democratic nomination. Clinton-McCain?! Hillary is every bit as bad as McCain. Political aspirations demand that position. They are a pair of like minds, made in hell, differing only on some social agendas. As I said, Prepare for War: Obama Asks Congress for ISIS War Authorization; Republican Hawks Have War Plan Prepared; Clinton-McCain?! Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Riots in Brussels: 100,000 Protest Austerity, Overturn Cars, Throw Fire Bombs; Wherefore Art Thou Austerity? Posted: 06 Nov 2014 01:43 PM PST In Search of Austerity In spite of the fact there has been little-to-no austerity to speak of in Europe, or anywhere else in the world for that matter, (rising government debt proves that claim), France moans about austerity, Spain moans about austerity, Italy moans about austerity, and economists like Krugman moan about austerity. There is certainly no austerity in Belgium either. Nonetheless, the BBC reports 100,000 Protest Austerity in Brussels. Riot police have fired tear gas and water cannon during clashes with demonstrators as at least 100,000 people marched through Brussels in the first mass protests against government austerity measures. Protesters overturned cars and threw paving stones and fireworks during the protest against economic reforms that will extend the pension age, contain wages and cut public services. The government says the austerity measures are essential to keep the budget deficit within European Union constraints. In the above link, the BBC has a nice video of overturned cars and trucks. The riots are actually far worse as the following images show. Gallery of Riot Images Please check out the Sky News Gallery of Riot Images Here are two of six images. Wherefore Art Thou Austerity? Austerity, austerity, wherefore art thou austerity? Austerity is a curious thing. It's nowhere to be found. Nonetheless, economists and governments constantly complain about it. Citizens in Greece, Spain, France, and Belgium have taken to the streets to protest it. Today we have riots in Brussels. I sense this is just the start of the protest against austerity even though it's nowhere to be found. At the heart of the matter is a lack of jobs and rising income inequality. Austerity caused neither. Central banks and government policies did. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

"Whatever It Takes" Stage Two; Headwinds Explain Why Draghi Will Fail This Time Posted: 06 Nov 2014 11:55 AM PST "What's it all about Alphie" is a sing-along that most have heard. Take out the word "Alphie" and substitute "Draghi" and the answer is "Assuage Investors" in yet another can-kicking exercise. ECB president Mario Draghi hopes that if he continues with his kick-the-can tactics long enough, that  something good will eventually happen. Hope is really all the ECB has. Meanwhile, Draghi Reinforces ECB Stimulus Momentum to Assuage Investors. Having already cut interest rates to record lows and saying they can go no lower, Draghi is now focused on boosting the ECB's balance sheet. He told reporters today that he expects to increase assets back toward March 2012 levels. That's 3 trillion euros, or about 1 trillion euros [$1.2 trillion] more than the current level. The ECB has issued long-term loans to banks and started buying covered bonds in the hope of flooding the economy with enough liquidity to ease credit constraints. Purchases of asset-backed securities are due to start this month. "We are quite confident that the impact on our balance sheet size will be adequate, will be significant, will be sizable," Draghi said. "The main message is that our balance sheet will keep expanding in the coming months and will continue expanding while the balance sheets of other central banks is bound to contract." Berenberg Bank economist Christian Schulz said he sees a 60 percent chance the ECB will enter the 1.4 trillion euro market for investment grade non-financial corporate bonds next month. "Whatever It Takes" Revisited Draghi's famous "Whatever it takes ... And believe me, it will be enough" statement in July of 2012, resolved the Eurozone sovereign bond crisis (for now) (see Eurozone Target2 Imbalances Rise Again, Led by Italy), but it did not spur lending. His move to boost the balance sheet of the ECB will not spur lending either. Headwinds explain why. Headwinds No structural problems in the eurozone have been fixed. A lower Euro may help exports in general but it will do nothing to help the competitiveness of Spain, Italy, or France as compared to Germany. Europe is a demographic mess. With an aging population and low birthrates, pension promises cannot possibly be met. France and Germany are increasingly at odds. The rise of Marine LePen in France, Beppe Grillo in Italy, and euroscepticism in general elsewhere.  The UK threatens to leave the EU. There has been little real reform or austerity anywhere.  Government spending accounts for 56% of French GDP. France, Italy and Spain fail year after year to meet budget requirements. European banks are way over-leveraged, especially in so-called risk-free sovereign bonds. No one really believes the latest round of stress tests. The global economy, especially China is slowing. Export growth will slow accordingly. There is no juice, only risk associated in the ECB buying sovereign government bonds. Let's explore point number 10 in more detail starting with a look at government bond yields. 10-Year Government Bond Yields Spain: 2.16% France: 1.19% Italy: 2.38% Germany: 0.83% US: 2.37%. Note that nearly all of Europe has lower borrowing costs than the US. Spain 10-Year Bond Yield click on chart for sharper image Question of the Day If a decline in yield from 7.74% in July of 2012 to 2.16% today did not spur lending, then why would any further decline, even to 0% spur lending? The answer is "It Won't". If you think otherwise, please note that German bonds have negative yields in every timeframe two years or shorter. Germany 2-Year Yield As remarkable as it may sound, you actually have to pay money (receive negative interest rates) for the privilege of lending money to Germany for two years. Yet, economic dunderheads want Draghi to buy sovereign bonds. Should the ECB do that (and it probably will), the ECB faces two risks. European sovereign bonds are already way overpriced thanks to "Whatever it Takes" phase 1. Buying bonds could trigger a constitutional crisis in Germany. Such actions are against Germany's constitution and the treaties that created the eurozone. Of course, in these "Whatever It Takes" moments, no one gives a damn about constitutions, treaties, or anything else. Worse yet, economic fools embark on policies that cannot possibly work even if they were legal. The higher inflation Draghi seeks is actually counterproductive! Europe's demographics make the matter worse. For a discussion of that absolute absurdity in seeking higher inflation, I have some suggested reading. Suggested Reading Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" "Will These Central Bank Morons Ever Learn?" asks Albert Edwards at Societe General James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan.  Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices Sisyphean Fed Struggle to Create Inflation Here are a few snips from my Monday commentary Sisyphean Fed Struggle to Create Inflation. My comments are in response to a statement made by Bill Gross in his Janus Investment Outlook that "simple math" shows the "real economy needs money printing". Gross needs to replace "simple math" with "exponential math" coupled with the fact central banks can (for a while) target prices in general, but they cannot target wages or the prices they want. Back to the Drawing Board The Fed expanded money supply by $4 trillion dollars and the CPI is up less than 2%! What's the Fed going to do for an encore when the global economy slumps, US jobs with it, and prices of goods services, and assets sink? Expand money supply by $8 trillion? $16 trillion? $32 trillion? Buy equities? Buy more than 100% of debt issuance like Japan? How nuts does it get? Gross concludes with "The real economy needs money printing". I suggest Gross go back to the drawing board and come up with a different answer. With Japan, Europe, and the US central banks all in economic wonderland, a currency crisis of immense proportions and a breakup of the eurozone are on deck. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Prepare for War: Obama Asks Congress for ISIS War Authorization; Republican Hawks Have War Plan Prepared; Clinton-McCain?! Posted: 06 Nov 2014 12:37 AM PST Prepare for war. Where? Syria, Iraq, Russia, Iran, China, anywhere and everywhere. Warmonger in chief, senator John McCain wants troops in Syria, arms for Ukraine, an examination of "China's continued encroachment in the south China Sea", and an investigation into warming relations with Iran. McCain is set to take over as head of the Senate Armed Services Committee. Expect the other party of war, the Democrats, to cooperate. On Wednesday, Obama Asked Congress to Authorize Islamic State War. After insisting for months that he has all the authority he needs to launch the airstrikes already under way against the radical Sunni group, Obama reversed course and called for a new authorization for the use of military force a day after his party lost control of the Senate. "The world needs to know we are united behind this effort and the men and women of our military deserve our clear and unified support," Obama said yesterday at a White House news conference. The Senate Foreign Relations Committee will hold hearings on the U.S. role in Iraq and Syria beginning next week, Senator Robert Menendez, the panel's chairman, said in a statement. The New Jersey Democrat has said a congressional authorization should be "appropriate in scope and duration to meet the threat and sustain the fight" without having an "indefinite duration." Obama has approved airstrikes against the extremists who have seized swaths of Iraq and Syria, and he's deployed U.S. military teams to assess and advise the Iraqi military. The administration has said it's carrying out the offensive under the use-of-force authorization Congress approved after the Sept. 11, 2001, terrorist attacks, as well as under his constitutional powers as commander in chief. Bill to Authorize Perpetual War President Obama previously said that he does not need authorization to strike ISIS because of his "constitutional powers as commander in chief". Excuse me for asking but what powers are those? Since when does the president get to declare war? I guess it's time to formalize the transfer of power to declare war from Congress to the president. Menendez wants a bill "appropriate in scope and duration to meet the threat and sustain the fight" without having an "indefinite duration." Translation: Menendez wants an indefinite duration, an open ended agenda, and no cost limits. McCain will surely see the bill gets revised that way. No president would ever refuse to sign such a bill. And when it happens, the power to declare war will formally be handed over from Congress to the president. Not that it matters in the least. Presidents do what they want, when they want. Republican Hawks Have War Plan Prepared The American public surely does not want war, and we cannot afford more wars either. But who gives a damn about that? Multiple wars are now baked in the cake as Republican Hawks Already Have a War Plan for ISIS, Ukraine, and Obama. The Republican victory in the 2014 midterms is less than 24 hours old. But already, the hawkish wing of the GOP is planning an ambitious battle plan to revamp American foreign policy: everything from arming Ukraine's military to reviewing the ISIS war to investigating the U.S. intelligence community's role in warming relations with Iran. In an interview Wednesday, Sen. John McCain, the incoming chairman of the Senate Armed Services Committee, said he has already discussed a new national security agenda with fellow Republicans Bob Corker and Richard Burr, the likely incoming chairmen of the Senate Foreign Relations Committee and Senate Select Committee on Intelligence. "Burr and Corker and I will be working closely together on everything," McCain said. "For example, arms for Ukraine's [government], examination of our strategy in the Middle East, our assets with regard to [Russian President Vladimir] Putin in the region, China's continued encroachment in the south China Sea." McCain said his first order of business as chairman of the Senate Armed Services Committee will be to end the budget rule known as sequestration, which requires the U.S. military to cut its budget across the board. "I want to start an examination of our policies in the world and then find out whether we have the capability to meet these expectations," McCain said. Rep. Devin Nunes, the Republican likely to replace Rep. Mike Rogers as the next chairman of the House Intelligence Committee, told The Daily Beast Wednesday that he would like to begin digging into the administration's Iran talks—in particular, the role played in those talks by the U.S. intelligence community. "There is going to be real scrutiny from the House and Senate in what's taken place on the entire Obama administration's tenure dealing with the Iranians," Nunes said. On Wednesday Obama said he would ask Congress to vote on the new war against ISIS during the lame duck session of Congress that starts in December. "I think it's time for an AUMF [Authorization for the Use of Military Force], I do," McCain said. "The one passed after 9-11 specifically talks about the perpetrators of the 9-11 attacks and ISIS has exceeded that definition." Budget-hypocrite McCain never says how he is going to pay for these wars. McCain even voted for sequestration. To be fair, he called that his worst vote ever. But also to be fair, he should say how we pay for all this. McCain Prefer Hillary Over Rand Paul? Curiously, in a 2013 New Republic interview, McCain said "Tough Choice" Between Hillary Clinton and Rand Paul should those be the two nominees. McCain answered "tough choice", when asked who he would support in 2016 should it come down to Hillary Clinton and Rand Paul. Senior editor Isaac Chotiner who conducted the interview stated "in a way he seemed to be joking a little bit, but he didn't correct it at all." Here's the video with Chotiner's explanation. Clinton-McCain Axis Said McCain of Hillary when asked about her performance as Secretary of State "I think she did a fine job. She's a rock star. She has, maybe not glamour, but certainly the aura of someone widely regarded throughout the world." Distancing herself from president Obama, Hillary has since recommended nearly the same strategy as McCain when it comes to dealing with Syria and ISIS. Clinton-McCain 2016 Anyone? So which is the party of war? They both are. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States

Mish's Global Economic Trend Analysis

---

• Ruble Slide Continues; Russia Forced to Abandon Currency Intervention as Reserves Dwindle
• Eurozone Target2 Imbalances Rise Again, Led by Italy
• Worst Election Performance by Sitting President's Party Since Truman; Republicans Take Senate, Increase Lead in House and Governorships

Ruble Slide Continues; Russia Forced to Abandon Currency Intervention as Reserves Dwindle Posted: 05 Nov 2014 05:13 PM PST In the wake of falling oil prices, tensions in Ukraine, and sanction madness that hurts both Russia and the Eurozone, the ruble has been on a huge slide. Ruble Daily Chart Since June the Ruble has slid from about 34 to the US dollar to 44.9 to the US dollar. That is a decline of 24 percent. A long-term chart shows an even bigger decline. Ruble Weekly Chart Since the beginning of 2011 the Ruble has gone from 28 to the US dollar to 44.9 to the US dollar. That's a decline of  37.6 percent. Russia's Attempts to Stabilize the Ruble Fail The decline has been pretty orderly until about June of this year. To halt recent decline, Russia hiked interest rates on October 31 to 9.5% from 8.5%. As the first chart shows, that huge rate hike did not halt the slide. Russia had also been intervening in the currency markets to the tune of about $2.5bn a day, but that's not a sustainable action. Indeed, declining reserves forced the Russian Central Bank to Abandon Ruble Support. The Central Bank of Russia announced an effective free float of the rouble on Wednesday, a step which triggered a fresh plunge in the currency but is intended to eventually stabilise it. The rouble's slide has accelerated in recent weeks, partly because the central bank's policy of automatic intervention was an easy target for speculators making one-way bets. Previously, the bank had been committed to interventions worth $350m each time the rouble fell outside the band – a policy that was easy for speculators to exploit and in recent weeks had cost it up to $2.5bn a day. Following the announcement, the rouble was down almost 3 per cent against the dollar by late afternoon in London, briefly falling below Rbs45 to the dollar for the first time and nearing a symbolic threshold of Rbs50 against the central bank's euro-dollar basket. By accelerating the transition to a fully flexible exchange rate regime – originally planned for the end of the year – the Central Bank of Russia appears to be putting its trust in market forces instead of foreign exchange controls to fight off the risk of a financial crisis. Floating the ruble is the right thing to do. The Ruble will eventually find the right level. Some seriously misguided economists suggested capital controls, but that is more likely to cause panic than stabilization. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Eurozone Target2 Imbalances Rise Again, Led by Italy Posted: 05 Nov 2014 10:27 AM PST Eurozone Target2 imbalances are on the rise again, led by Italy. Target2 Refresher Course Before showing the latest Target2 numbers, inquiring minds may need a refresher course as to what Target2 is, as well as the problems associated with rising imbalances. Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the "Club-Med" countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe. Pater Tenebrarum at Acting Man provided this easy to follow example "Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been 'acquired' is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment." Also, if people in one country (Cyprus, Greece, Italy, Spain, anywhere) no longer trust their banks, they may pull their deposits and park them elsewhere. Please see Reader From Europe Asks "Can You Please Explain Target2?" for a more compete discussion including responsibility percentages (i.e. if Greece leaves the eurozone, what percentage of the liability falls on Germany, France, Spain, etc.) If Greece, Spain, or Italy elects to abandon the Euro, euro-based claims in those countries would receive an immediate haircut. Watch Italy The recent rise in imbalances is not that large, but it primarily rests on the shoulders of Italy. With that backdrop, Variant Perception says Target2 Imbalances Widen Again – Watch Italy. Target2 – the payment system used for intra-eurozone transfers – has widened again, with the largest two-month move since mid 2012. A look into its breakdown reveals that it is Italy that is almost completely responsible for the increase in liabilities. Ceteris paribus, an increase in the Target2 liabilities of a central bank means capital leaving the country in question, eg through the importing of goods. Over the last two months, Target2 liabilities have increased by €67.1bn, while government deposits have fallen €56.6bn, so the net leakage abroad of liquidity in Italy is €10.5bn. Still, this is the largest such two-month net fall in liquidity since April 2012. This is worth monitoring since Portugal's Target2 liabilities flared up in April 2010 just before government bond yields spiked; Ireland's Target2 liabilities swelled up in late summer 2010 as deposit flight took root; and Spain and Italy's Target2 liabilities accelerated just before the eurozone crisis reached its nadir and breakup of the EMU looked imminent. Target2 Assets vs. Liabilities The above blip in the last two months does not seem that significant, but it looks more important if you see it all comes from one place. Target 2 Italy Charts from Variant Perception. I added the trendline arrows in the second chart. In this context, Italy, which had been on the mend since July 2012, has reversed course strongly in the last two months. Italy liabilities are 200 billion euros, and that poses a big theoretical risk. Target2 Imbalances January 2007 - April 2014 Wikipedia has some good information (but also some fluff about how Target2 makes things more stable). Here is a long-term chart from Wikipedia. Target2 imbalances dramatically improved after ECB president Mario Draghi came out with his "Whatever it takes ... And believe me, it will be enough" statement in July of 2012. In response, Jens Weidman, German economist and president of the Deutsche Bundesbank (Germany's Central Bank), nearly resigned. Weidman said in a Spiegel interview that "bond buying made it look as if ECB was financing governments directly — and shouldn't go ahead". Target2 treats all assets and liabilities equal, regardless of country. The mechanism is one of the huge structural flaws in the euro system itself. Ultimately, what cannot be paid back, won't. Alternatively, the ECB will make up the difference via printing press. Either way, German banks on the surplus side will take a hit. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Worst Election Performance by Sitting President's Party Since Truman; Republicans Take Senate, Increase Lead in House and Governorships Posted: 04 Nov 2014 11:09 PM PST I watched the returns all evening from Start to finish, not that anything was much in doubt. I expected the Republicans would finish stronger than the polls suggested, and they did by a huge margin. Senate Results Republicans picked up at least 7 Senate seats with Alaska and Louisiana yet to come. The final tally will likely be +9, giving Alaska and Louisiana to the Republicans, and Virgina (undecided as I type) to the Democrats. Republicans won a Senate seat in North Carolina with odds of that happening listed at 25%. So-called close votes in Iowa, Kansas, and Colorado were not that close at all. It could have been much worse. In Virginia, Republican Ed Gillespie nearly pulled off an amazing victory over Democrat Mark Warner. In New Hampshire, Republican Scott Brown nearly pulled off a huge upset over Jeanne Shaheen. Governors In Illinois, Governor Quinn held a tiny but consistent lead in the polls over challenger Bruce Rauner. The election was not that close even though Rauner had a lot of baggage. In Maryland, Republican Larry Hogan beat Democrat Anthony Browns in a shocking upset. In Massachusetts, Republican Charlie Baker upset Martha Coakley. The last serving Republican governor in Massachusetts was Mitt Romney, elected in 2002. In Florida, Republican Rick Scott defeated Republican-turned-Democrat Charlie Crist in a very close race. In Wisconsin, Republican Scott Walker has the distinction of winning his third election in four years, counting a recall.  GOP Pickups: Illinois, Maryland, Arkansas, Massachusetts Democrats scored a pickup in Pennsylvania The Gubernatorial score as I type is 31-15 and will likely get worse for Democrats. House Republicans picked up at least 10 seats.  Democrats had 257 House seats following the 2008 election. They lost seats in every election since then.  Republicans will end up with something like 246 House seats following this election. There are 435 seats so the math will be something like  246-189 in favor or Republicans.  Under Obama, Democrats stand to lose at least 60 seats in total, the "biggest loss by a president's party since Harry Truman", said CNN. What's It Mean? The key question is "what does it all mean?" The short answer is this vote is an anti-Obama vote as much as anything else. I watched Senator Ted Cruz on CNN Tuesday evening. Wolf Blitzer asked Cruz twice if he would back Mitch McConnell as majority leader. Cruz twice refused to answer. Expect Cruz to mount a challenge to McConnell for Senate majority leader. Cruz told Blitzer we need "much more legislation". Good grief. How about dismantling rules and regulations? And how about dropping no-win divisive issues like abortion and focusing on things the country needs? Without a doubt Hillary will distance herself from president Obama further and further. She will also do everything she can to get the majority of female votes. Ron Paul Chimes In On Tuesday Ron Paul Tweeted "Republican control of the Senate = expanded neocon wars in Syria and Iraq. Boots on the ground are coming!" Senator Rand Paul is going to have to take a stand, and hopefully the right one. You cannot disenfranchise 65% of the women in the country and expect to get elected. If Republicans nominate another Neanderthal determined to wage more wars while taking away freedom of choice, expect to see Hillary in the White House in 2016. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States

Mish's Global Economic Trend Analysis

---

Vote! Posted: 04 Nov 2014 01:53 PM PST 1. If you haven't yet voted, and are a registered US citizen, please consider voting. 2. If you are not a US citizen, don't vote. 3. If you live in Chicago (or elsewhere) and have already voted, please don't vote again. 4. If you are dead (even if you are registered in Chicago), don't vote. This rule supersedes rule number one. A tip of the hat to reader Everett for the much needed point four. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

EC Slashes Eurozone GDP Forecasts (But Not Enough); Goldman's Model Shows Europe in Recession Now Posted: 04 Nov 2014 10:21 AM PST The European Commission slashed Eurozone GDP Estimates (yet again), yet they remain in positive territory. Revision Summary The EC revised Ireland, Malta, and Slovenia up.  Greece and Netherlands were flat.  The EC revised every other country lower from forecasts made in May of 2014. Notably, the EC cut the Germany forecast from 2% to 1.1% now. France went from 1.5% to 0.7%. Still Too Optimistic The revised forecast still seems very rosy. Unless one uses the strict definition of two consecutive quarters of declining growth, Europe is arguably in recession right now. Greece, Spain, and Italy are actually in economic depressions. Greece GDP may be positive, but from a crushingly low level and Greek unemployment remains over 26 percent. Youth unemployment is over 50%. It's tough to view the state of affairs as anything other than an economic depression with unemployment rates that high. France is at best treading water, and Germany has slowed markedly. Absurd sanctions on Russia hurt the entire Eurozone, and the slowdown in China is icing on the cake. Goldman's Model Shows Recession As I was pondering the ridiculousness of those European Commission forecasts, Zerohedge reported Europe In Triple-Dip Recession, Goldman's Internal Model Finds. Goldman's model is called "Retina". Text snip below is from Goldman, as reported by ZeroHedge. No link available. Since our previous update in mid-October, RETINA's median estimate of Q3 GDP growth has moved deeper into negative territory, driven largely by a disappointing print for area-wide industrial production in August. The downside risks to our +0.1%qoq [quarter over quarter] judgemental forecast for Q3 GDP now look skewed to such an extent that our point estimate no longer falls within a 50% confidence interval around RETINA's median reading. RETINA Sees Negative GDP Growth From mid-September to mid-October, RETINA's median estimate for third-quarter GDP growth (the red line in Chart 1) fell from around +0.3%qoq to just short of -0.2%qoq. Following a disappointing contraction in area-wide August IP [Industrial Production] on 14 October, RETINA's median estimate fell a further 10bp -- yet deeper into negative territory. Having stabilised at around -0.3%qoq in the past fortnight, RETINA's median estimate is now some 40bp weaker than our current judgemental forecast for Q3 GDP growth. This is yet more pessimistic than the latest available poll among other private-sector economists (collated on 8 September), which envisaged Q3 growth of around +0.35%qoq. Retina Summation Retina vs. Eurostat Summation Eurostat's Eurozone Q3 GDP Estimate: 0.9% Goldman's Initial "Judgemental" Forecast: 0.4% Goldman's Revised "Judgemental" Forecast: 0.1% Goldman's "Retina" Forecast: -0.3% Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States

Mish's Global Economic Trend Analysis

---

• Sisyphean Fed Struggle to Create Inflation; Faber on Gross' Deflation Theory, Japan's Bond Ponzi Scheme, and Gold
• 166 Local Tax Increase Proposals on California Ballots; Not For the Kids
• Cameron's Lies Reach "Point of No Return" Warning From Merkel; Chameleon Politics

Sisyphean Fed Struggle to Create Inflation; Faber on Gross' Deflation Theory, Japan's Bond Ponzi Scheme, and Gold Posted: 03 Nov 2014 05:20 PM PST Sisyphean Fed Struggle Earlier today in The Trouble with Porosity and Prosperity Bill Gross mentioned the possibility of deflation in the US and spoke of the Fed's Sisyphean struggle to create inflation. Before the advent of central banks in the early 20th century, prices were just as likely to go up as down. The world of the 1930s and the more recent lost decades of Japan give testament. Prices change – and while they usually go up these days, sometimes they do not. We are at such a moment of uncertainty. That one or the other should be favored, is a fascinating debate. Currently, almost all central bankers have a targeted level of inflation that approaches 2%. Some even argue for higher levels now that deflationary demons approach in peripheral Euroland. They argue that the 2% level is sort of like a firebreak. Once inflation approaches zero, goes their theory, the deflationary firestorm is difficult to stop. With interest rates at zero and quantitative easing approaching potential political maximums, there is little water left to pour on the flames. Best then to keep inflation at a reasonable 2% so that the zero hour never comes. They have a point, but then how to explain to the average 30-year-old citizen that if so, his/her retirement dollar will only be worth half as much come 65, and if inflation averages 3%, it will only be worth a third. Actually, a 30-year-old citizen of the 1970s (yours truly), has experienced a 75% depreciation of his purchasing power. Jim Grant, one of the most gifted financial historians of our day, has long argued that economies did just fine during bouts of deflation in the 18th and 19th centuries – in fact, in many cases, they did better. America in the 1880s was a period of good deflation with output rising by 2% to 3% from 1873 to 1893. But Grant must know, I suspect, that our modern finance based economy is not your 19th century Oldsmobile, if there had been one. Stopping the printing press sounds like a great solution to the depreciation of our purchasing power but today's printing is simply something that the global finance based economy cannot live without.  Why not? Simple math, I suppose. Our 2014 U.S. Oldsmobile requires 4% nominal growth just to keep it running, and Euroland economies need at least 3%. Having created outstanding official and shadow banking credit of nearly $100 trillion with an average imbedded interest rate of 4% to 5%, the Fed presses must crank out new credit (nominal growth) of approximately the same 4% to 5% just to pay the interest rate tab. That of course wasn't the case in Grant's 19th century version – there was very little debt to service. But now at 500% to 600% of GDP (shadow debt included), it's a Sisyphean struggle just to stay above water. Inflation, in other words – or in simple math – is required to pay for prior inflation. Deflation is no longer acceptable. Such is the dilemma facing central bankers (and supposedly fiscal authorities) in 2014 and beyond: How to create inflation. They've made a damn fine attempt at it – have they not? Four trillion dollars in the U.S., two trillion U.S. dollar equivalents in Japan, and a trillion U.S. dollars coming from the ECB's Draghi in the eurozone. Not working like it used to, the trillions seem to seep through the sandy loam of investment and innovation straight into the cement mixer of the marketplace. Prices go up, but not the right prices. Alibaba's stock goes from $68 on opening day to $92 in the first minute, but wages simply sit there for years on end. One economy (the financial one) thrives while the other economy (the real one) withers. The real economy needs money printing, yes, but money spending more so, and that must come from the fiscal side – from the dreaded government side – where deficits are anathema and balanced budgets are increasingly in vogue. Until then, Grant's deflation remains a growing possibility – not the kind that creates prosperity but the kind that's the trouble for prosperity. Faber on Gross' Deflation Theory and Japan's Bond Ponzi Scheme In a Bloomberg TV interview,  Trish Regan asked Marc Faber about Gross' deflation theory. Faber also discussed  Japan's latest QE endeavor. Faber stated: Japan is Engaged in a Ponzi Scheme.  Click on link to watch video. Transcript TRISH REGAN: Hello, Marc. Always good to see you. What do you think here about what Bill Gross is saying? Do you think in fact deflation is a real possibility. MARC FABER: Well, I think the concept of inflation and deflation is frequently misunderstood because in some sectors of the economy you can have inflation and in some sectors deflation. But if the investment implication of Bill Gross is that – and he's a friend of mine. I have high regard for him. If the implication is that one should be long US treasuries, to some extent I agree. The return on 10-year notes will be miserable, 2.35 percent for the next 10 years if you hold them to maturity in each of the next 10 years. However, if you compare that to French government bonds yielding today 1.21 percent, I think that's quite a good deal, or Japanese bonds, a country that is engaged in a Ponzi scheme, bankrupt, they have government bond yields yielding 0.43 percent. Well I think they're engaged in a Ponzi scheme in the sense that all the government bonds that the Treasury issues are being bought by the Bank of Japan. REGAN: So Japan's engaged in a Ponzi scheme. What about the US? We've done our share of money printing. We've had record low interest rates for six years. FABER: I think the good news is – for Japan is that most countries are engaged in a Ponzi scheme and it will not end well. But as Carlo Ponzi proved, it can take a long time until the whole system collapses. Faber on Gold Here are a few excerpts courtesy of Bloomberg that did not appear in the above video. REGAN: I know you have been bullish in gold for – well, pretty much forever, Marc. But now we're in a situation where gold is at a four-year low. Goldman now predicting 10, 15 down [percent]. Soc Gen saying $1,000. Where do you see gold finishing the year? FABER: I would say Goldman Sachs is very good at predicting lower prices when they want to buy something. I would say, yes, we are down from $1,900 to $1,160 or something like this, and it's been a miserable performance since 2011. However, from the 1990 lows we're still up more than four times. So I just looked at performance tables over 10 years and 15 years. Gold hasn't done that badly, has done actually better than stocks. Now I personally, I think that we may still go lower. It's possible. I'm not a prophet, but I'm telling you I want to own some gold because I don't trust the financial system anymore. I think the whole thing is going to collapse one day and then I'll be happy to have some assets. But of course the custody is important. I wouldn't hold my gold at the Federal Reserve because they will lend it out. I wouldn't hold my gold in the US at all. REGAN: Okay. So you want gold even at these levels. Where do you see – you still see it going lower however as we close out the year? FABER: I don't know whether it will go lower, but I think by the time I die, it will be meaningfully higher. I'm now 68 and I don't think it will be 100 [I will die at 100]. I'm not that optimistic. Mish Comments on Gross' Deflation Theory Gross and Faber are primarily talking about prices (price inflation and deflation, not monetary inflation and deflation. However, Gross mixes the two when he discusses printing presses and credit math. Nonetheless, Gross' context is clear. I run into this myself and dislike having to write "price", "monetary", or "credit" in front of every inflation or deflation reference when context should make it clear. Good Deflation vs. Bad Deflation Bill Gross says "Deflation is no longer acceptable." I suggest, ordinary consumer price deflation will not hurt banks one bit. The problem for the Fed is not price deflation, but asset-price deflation. Gross should be able to figure this out. Interestingly, Gross even spoke of  "good deflation with output rising by 2% to 3% from 1873 to 1893." The truth of the matter is falling consumer prices never have and never will hurt banks. The alleged "bad deflation" which Gross did not mention is in regards to falling asset prices. If banks extend loans on houses or other investment property, and the loans go sour,  banks become capital impaired, unable or unwilling to lend. The irony is the Fed (central banks in general), cause asset price inflation (followed by deflationary asset price busts), when they attempt to create 2% inflation willy-nilly as if consumer price deflation is bad. "Bad Deflation" Doesn't Really Exist Actually, there is no such thing as "bad deflation". All deflation is inherently good. Deflation is the natural state of affairs as a result of rising productivity and technological advancements. Falling prices means more affordability for more people. Deflation only seems bad when banks make poor lending decisions on risky assets, then become capital impaired when the loans go bad. Why does that happen? Easy ... The Fed has created a moral hazard. Banks believe the central bank will always bail them out if they get in trouble. And so far they have. So banks keep making risky loans, and investors keep plowing into riskier and riskier assets. Bubbles of Increasing Amplitude Via the moral hazard of bailouts, the Fed sponsors bubbles and crashes of increasing amplitude over time. But the biggest bubble of all is belief central banks will always be able to handle these busts. Gross needs to replace "simple math" with "exponential math" coupled with the fact central banks can (for a while) target prices in general, but they cannot target wages or the prices they want. Back to the Drawing Board The Fed expanded money supply by $4 trillion dollars and the CPI is up less than 2%! What's the Fed going to do for an encore when the global economy slumps, US jobs with it, and prices of goods services, and assets sink? Expand money supply by $8 trillion? $16 trillion?  $32 trillion? Buy equities? Buy more than 100% of debt issuance like Japan? How nuts does it get? Gross concludes with "The real economy needs money printing".  I suggest Gross go back to the drawing board and come up with a different answer. Suggested Reading for Bill Gross Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" "Will These Central Bank Morons Ever Learn?" asks Albert Edwards at Societe General James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

166 Local Tax Increase Proposals on California Ballots; Not For the Kids Posted: 03 Nov 2014 11:17 AM PST There are 166 tax increase proposals on the ballot in California. 118 of them are bond proposals. It matters little what the proposals are for. Forget about any claim, "it's for the kids". Politicians have a way of doing whatever they want with the money once the tax hikes pass. Ed Ring writing for Union Watch notes new tax revenue is in too many cases, suspiciously equal to the amount that pension contributions need to be raised in the next few years. But wait, doesn't money have to be spent on what the bond proposal says it's for? If you think so, please consider this guest post by Ed Ring. Note: everything that follows until the last line is from Ring. California's $12.3 Billion in Proposed School Bonds: Borrowing vs. Reform "As the result of California Courts refusing to uphold the language of the High Speed Rail bonds, the opponents of any bond proposal, at either the state or local level, need only point to High-Speed Rail to remind voters that promises in a voter approved bond proposal are meaningless and unenforceable." Jon Coupal, October 26, 2014, HJTA California Commentary If that isn't plain enough – here's a restatement: California's politicians can ask voters to approve bonds, announcing the funds will be used for a specific purpose, then they can turn around and do anything they want with the money. And while there's been a lot of coverage and debate over big statewide bond votes, the real money is in the countless local bond issues that collectively now encumber California's taxpayers with well over $250 billion in debt. Over the past few weeks we've tried to point out that local tax increases – 166 of them on the November 4th ballot at last count, tend to be calibrated to raise an amount of new tax revenue that, in too many cases, are suspiciously equal to the amount that pension contributions are going to be raised over the next few years. For three detailed examples of how local tax increases will roughly equal the impending increases to required pension contributions, read about Stanton, Palo Alto, and Watsonville's local tax proposals. It is impossible to analyze them all. As taxes increase, money remains fungible. More money, more options. They can say it's for anything they want. And apparently, bonds are no better. At last count, there are 118 local bond measures on the November ballot. And not including three school districts in Fresno County for which the researchers at CalTax are "awaiting more information," these bonds, collectively, propose $12.4 billion in new debt for California taxpayers. All but six of these bond proposals (representing $112 million) are for schools. Refer to the list from CalTax to read a summary of what each of these bonds are for – "school improvements," "replace leaky roofs," "repair restrooms," "repair gas/sewer lines," "upgrade wiring," "renovate classrooms," "make repairs." To be fair, there are plenty of examples of new capital investment, "construct a new high school," for example, but they represent a small fraction of the stated intents. On November 4th, Californians are being asked to borrow another $12.3 billion to shore up their public school system. They are being asked to pile another $12.3 billion onto over $250 billion of existing local government debt, along with additional hundreds of billions in unfunded retirement obligations for state and local government workers. They are being asked to borrow another $12.3 billion in order to do deferred maintenance. We are borrowing money to fix leaky roofs and repair restrooms and sewers. This is a scandal, because for the past 2-3 decades, California's educational system has been run for the benefit of unionized educators and unionized construction contractors who work in league with financial firms whose sales tactics and terms of lending would make sharks on Wall Street blush. These special interests have wasted taxpayers money and wasted the educations of millions of children. Their solution? Ask for more money. Nobody should suggest that California's public schools don't require investment and upgrades. But before borrowing more money on the shoulders of taxpayers, why aren't alternatives considered? Why aren't educators clamoring for reforms that would cut back on the ratio of administrators to teachers? Why aren't they admitting that project labor agreements raise the cost to taxpayers for all capital investments and upgrades, and doing something about it? If their primary motivation is the interests of students, why aren't they supporting the Vergara ruling that, if enforced, will improve the quality of teachers in the classroom at no additional cost? Why aren't they embracing charter schools, institutions whose survival is tied to their ability to produce superior educational outcomes for far less money? Why don't they question more of these "upgrade" projects? Is it absolutely necessary to carpet every field in artificial turf, a solution that is not only expensive but causes far more injuries to student athletes? Is it necessary to spend tens of millions per school on solar power systems? Does every high school really need a new theater, or science lab? Or do they just need fewer administrators, and better teachers? And to acknowledge the biggest, sickest elephant in the room – that massive, teetering colossus called CalSTRS, should teachers, who only spend 180 days per year actually teaching, really be entitled to pensions that equal 75% of their final salary after only 30 years, in exchange for salary withholding that barely exceeds what private employees pay into Social Security? Thanks to unreformed pensions, how many billions in school maintenance money ended up getting invested by CalSTRS in Mumbai, Shanghai, Jakarta, or other business-friendly regions? How much money would be saved if all these tough reforms were enacted? More importantly, how much would we improve the ability of our public schools to educate the next generation of Californians? Would we still have to borrow another $12.3 billion? Here's an excerpt from an online post promoting one of California's local school bond measures: "It will help student academic performance, along with ensuring our property values. If you believe that strong schools and strong communities go hand in hand, please vote…" Unfortunately, such promises are meaningless and unenforceable. The debt is forever. Ed Ring is the executive director of the California Policy Center. End Guest Post I will have some comments on the Illinois Gubernatorial election later this week. Real Clear Politics has Governor Pat Quinn in a slight lead over Republican challenger Bruce Rauner. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  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.

Cameron's Lies Reach "Point of No Return" Warning From Merkel; Chameleon Politics Posted: 03 Nov 2014 10:12 AM PST Hot Water Over Lies UK Prime Minister David Cameron is in increasingly hot water on a number of fronts as his lies become more and more transparent. Cameron has pledged to hold an up-down referendum on UK exit from the EU but only on the condition he wins the next election and even then, only on his promise that he can get an overhaul of EU rules for benefit of the UK. Promise or a lie? I suggest the latter. "Point of No Return" Warning From Merkel And without using the word lie, German Chancellor Angela Merkel warned UK could leave EU if David Cameron insists on migrant quotas. Germany would be prepared to accept that Britain will have to leave the European Union if David Cameron insists on restricting the number of immigrants from the bloc who can live and work in the UK. Mr Cameron's bid to curb levels of migration from the EU is taking Britain to a "point of no return", according to Der Spiegel. Mr Cameron has said that he will reform Britain's relationship with the EU before holding an in-out referendum in 2017. The Prime Minister used his speech last month to the Tory Party conference to pledge to put reform of the freedom of movement principle would be "at the very heart of my renegotiation strategy for Europe". However, Angela Merkel, the German chancellor, has said that she would not support any plans to change the freedom of movement rules that allow an unlimited number of EU migrants to live and work in the UK. At a recent summit in Brussels, Mrs Merkel is reported to have told Mr Cameron that Germany would not accept any of his demands of freedom of movement and told him: "That's it." What's Next for Cameron? Inquiring minds may be asking "What's Cameron's Next Move?" The answer is the same as always: Lie. Cameron the Chameleon Right, wrong, or indifferent, Cameron will give into Merkel without admitting it.  No lie is too great if he thinks it will help keep him in office. Cameron is a chameleon who wants to appease UKIP, appease the greens, appease Labour, appease the Liberal Democrats, appease the Tories, appease Scotland, appease your aunt Martha and my uncle Ben. If he had an ounce of integrity he would hold that up-down vote now. But he won't. Instead, look for creative excuses, more wishy-washy statements, and above all, more lies disguised as promises.   Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States

Mish's Global Economic Trend Analysis

---

• Bank of Japan Buying Over 100% of Japanese Bond Issuance; Steen Jakobsen Expects "FantasyLand Will Give Way to RealityLand"
• Weaker China PMI, Especially New Orders and Exports
• 215,000 Doctors (1 in 4 Nationally, 70% in California) Refuse Obamacare Patients Over Payment Issues

Bank of Japan Buying Over 100% of Japanese Bond Issuance; Steen Jakobsen Expects "FantasyLand Will Give Way to RealityLand" Posted: 02 Nov 2014 11:23 PM PST Steen Jakobsen has some interesting comments on China and Japan in his latest email. Steen discusses China's "official" PMI which is different than the Markit PMI on China that I covered earlier (see Weaker China PMI, Especially New Orders and Exports). Emphasis in italics mine. Steen Writes ... Greetings, China's official manufacturing PMI report just came out – and it's weaker than projected. The print was 50.8 vs. 51.2 expected. Orders backlog looks especially weak. Fathom Consulting in London is calling for China's growth to slow to 5 percent over next year or so. Not sure I fully agree, but it's certainly possible. China Momentum The world is now reduced to: Japan QE Infinite (Helicopter money next) – BOJ is buying more than 100% of issuance from Ministry of Finance now! ECB can't move needle, but can talk... Fed now voicing EUR concerns again (MNI news).... US house market cooling, shale gas industry bankrupt German/EZ GUARANTEED recession (just updated SENTIX ECO vs. growth showing -2% by Q2 if nothing changes) Disinflaton/deflation trends accelerating to downside w. commodities, energy (which is excellent lead for "anchored" inflation expectations..) Yes, world should rejoice, take stocks & US dollar higher making sure EM engine is killed totally.... the "surprise" will be that China gets desperate before ECB does, as China clearly has voiced unhappiness with Japan's policy of devaluations. World only has two engines of growth: EM and US... both are running out of fuel.....US corporates enjoyed 14 years straight years of weaker US dollar – in S&P 500 46% of sales is from overseas, profit has risen 3x faster than sales since 2009, 2y money up considerably in price. End of financial engineering? Good news is – soon there is NO alternative but for companies to invest – but there are only two things which is certain: Volatility will rise Government bond prices will continue down (10 Yr US to hit 1.5% - and November is in our models indicating significant lower yield – so be forewarned) Being the simple man I am - I have only one trading view: Lower yields (since Q4-2013), one economic view: Disinflaton/deflation will be the catalyst for asset sell off as Fantasy-land is replaced by Reality-land. FX view: US dollar will peak in Mid-November……one timing view: LOW in this economic/inflation/Nonsense is Q2-Q3 2015 Derivative views of that being: Sharp sell-off in UK housing (and Middle East, Norway, Australia – where lending to mortgages is close to 70% of lending in many banks), Low in inflation expectations by Q1 early (signal buy on Gold and metals)……. Working on Outrageous Predictions 2015 – input very welcome. Safe travels, Steen Three Key Steen Opinions Japan QE Infinite (Helicopter money next) – BOJ is buying more than 100% of issuance from Ministry of Finance now! Disinflaton/deflation will be the catalyst for asset sell off as Fantasy-land is replaced by Reality-land. China to get desperate before ECB does, as China has voiced unhappiness with Japan's policy of devaluations. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Weaker China PMI, Especially New Orders and Exports Posted: 02 Nov 2014 10:49 PM PST The HSBC China Manufacturing PMI shows weaker expansions of output and new orders. Key points Output and new order growth weakens to five-month low New export business expands at slowest pace since June Input costs and output charges both fall markedly Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "The HSBC China Manufacturing PMI rose to 50.4 in the final reading for October, up from 50.2 in September, and unchanged from the flash reading released earlier. Compared to the flash readings, the new orders and new export orders sub - indices saw small downward revisions, but both remained in expansion territory" Manufacturing PMI Since mid-2011, Chinese manufacturing PMI has spent more time in negative (contracting) territory than expansion. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  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.

215,000 Doctors (1 in 4 Nationally, 70% in California) Refuse Obamacare Patients Over Payment Issues Posted: 02 Nov 2014 05:28 PM PST It's not just patient sentiment against Obamacare that has soured lately. A stunning 215,000 doctors (and rising) refuse to accept Obamacare patients. "Affordable" Care Act Gary Franchi ended the above video with this thought: "It seems the biggest lie Obama told was calling his wide sweeping healthcare law - affordable". Related Stories CNN Money: Got Obamacare, can't find doctors  Miami Herald: Some South Florida docs decline to accept Obamacare Forbes: When Will The Government Start Forcing Doctors To See Obamacare Patients?  Daily Kos: Doctor Refuses Patient Because She Has Obamacare Godfather Politics: Doctors Refusing Obamacare Patients Good News - Bad News Good News: You're covered Bad News: Your choice in doctors is shrinking fast What was that Obama said? Wasn't it something like ... If you have a plan you can keep it, and you can keep your doctor too. Addendum Some people have questioned the stats. I did so too. But what do the stats mean? And how many people are on "Obamacare" vs. those covered in grandfathered plans and traditional employer plans? On September 18, Politico reported 7.3 Million in Obamacare plans, Beats CBO Forecast. The Population of the US is 316.1 million as of 2013. Of course, those enrolled may have multiple family members. So, double the 7.3 million to get 14.6 million. Even so, we are talking about less than 5% of the population. Double that to 10% if you like. Is it now so inconceivable a high percentage of doctors would refuse to deal with Obamacare plans?  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States

Mish's Global Economic Trend Analysis

---

Christmas Shopping Season Starts Today: Walmart Leads the Way with Price Cuts on 20,000 Items for the Holiday Season Posted: 01 Nov 2014 11:58 AM PDT In the past few years the Christmas shopping season moved from the "Black Friday"  the day after Thanksgiving, to earlier and earlier starts on Thanksgiving, then to the day before Thanksgiving. Today Walmart leapfrogged the pack with 20,000 items on sale for the holiday season. When Halloween ends on Friday, Walmart will be switching over its stores to greet the holiday season. On Saturday, the retailer will offer more than 20,000 "rollbacks" or sale prices on items including groceries and popular brands such as Disney "Frozen," Teenage Mutant Ninja Turtles, Samsung, and Dell. Then, on Monday, Walmart will relaunch its 24-hour holiday cyber savings event, in which customers can take advantage of free shipping on millions of items from Walmart.com. Orders must exceed $50 for free shipping. Walmart said it has expanded its online offerings to include 7 million items – one million more than last holiday season. At the current rate of accelerated progression, the Christmas shopping season will soon move to October, then September. Christmas year round, anyone? Commenting on the news, Janet Yellen said "Damn Walmart to hell! They should be raising prices not lowering them".  Actually, I made that up, but it's likely what's going on in her mind. Indeed, it's precisely the way Keynesian and Monetarist clowns think. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Chris Martenson and Mish Audio on Bank of Japan's Surprise Move on Friday Posted: 01 Nov 2014 12:14 AM PDT Every other Wednesday or so, Chris Martenson and I get together for a podcast. Sometimes one of us or the other is out of town, and sometimes Chris has other guest speakers. Because of scheduling difficulties, Chris and I got together today instead of Wednesday. I asked Chris to make today's podcast generally available. For our take of Friday's BoJ surprise move, please play the audio on Chris' Peak Prosperity site: Off the Cuff: Japanese Central Bank Throws Granny Under the Bus. The audio is about 25 minutes long. The podcasts are not scripted. Chris and I just talk "off the cuff" on events of the day or the week. In case you missed my Friday commentary, please see Nikkei Futures Up Limit, Yen Collapses, Dollar Up, Gold Down as BoJ Pledges "Unwavering Determination" to Get 2% Inflation Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, United States