Mish's Global Economic Trend Analysis

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• Negotiating a Diplomatic Solution in Ukraine: How and Why That Will Happen
• Mitt Romney, Tim Pawlenty, Rick Santorum Call for Higher Minimum Wage; Tweedle-Dum vs Tweedle-Dee
• Canadian Employment Unexpectedly Declines Second Time in Three Months; Low Interest Rates in Canada for Years to Come
• 25-54 Labor Force vs. Employment; Men vs. Women; Cyclical vs. Structural

Negotiating a Diplomatic Solution in Ukraine: How and Why That Will Happen Posted: 09 May 2014 07:50 PM PDT A very close high school friend, Dave Wise, published an article Towards a Diplomatic Solution in Ukraine on a John Hopkins University site. Dave happens to be friend "F1" who I referred to on Tuesday in Annexation by Force; Three-Part Reality; Actions vs. Words; Paper Legalities. Dave believes the solution to this involves the UN and international law. In an email exchange Dave commented ... "The reality is that the international community overwhelming does not recognize the annexation. Annexation by force is no longer how the world does business and that is what is at stake here. That is why it cannot be allowed to stand." He repeated that viewpoint in depth, in the link at the top. I maintained (and still do) a Three-Part Reality. Three-Part-Reality Crimea is again part of Russia whether the world community likes it or not. The annexation will stand. The only thing that can change the above outcome is another major war. Can You Get There From Here? Dave states the "internal transfer of Crimea to Ukraine by Khrushchev in 1954 was essentially an internal transfer within the USSR and should have probably been undone given the long history of Crimea and the fact that Crimea is the location of numerous important Russian military bases, not the least of which being the home port of the Russian Black Sea fleet in Sevastopo." On that we certainly agree. Yet, under Dave's "diplomatic solution" thesis, Russia is entitled to Crimea only if recognized by international law, including an "orderly  secession" in accordance with the Ukrainian constitution, in which "Crimea would be established as a protectorate of the United Nations" before a legitimate vote returned Crimea to Russia. Quite frankly, that international law solution is laughable. Once again Dave, F2, and I exchanged emails on the topic. I chimed in ... In spite of all the anti-Russian rhetoric, note that Putin still has not invaded Eastern Ukraine even though he has had numerous opportunities. As far as Dave's proposal goes, he once again bases it on some sort of "international law" thesis even though he admits Crimea should not be part of Ukraine. As a practical matter, if Russia initially tried to abide by Dave's vision of "international law", Crimea would still be part of Ukraine unless Ukraine agreed to the proposal or the US and Europe imposed Sanctions on Ukraine. The odds of that were essentially zero. Ironically, Dave's vision of "international law" as the "diplomatic solution" is only possible now because Russia did not pursue an "international law" solution in the first place! F2, my lawyer friend replied ... Yep, Mish, on this we agree. There will be a diplomatic solution. Its formulation will have nothing to do with law. After the decision-makers, the decision-makers' top assistants, security, and the really important personal valets are out of the room, the government bureaucrat lawyers will be left with a bare light bulb to write up something that explains what was done in legalese. And the legal document will describe the solution as accurately as Genesis describes the creation of the universe. The best thing about this mess is Putin did not invade Ukraine and a diplomatic solution is not only possible but a near-certainty. That said, Ukraine may fester over this internally for years. 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.

Mitt Romney, Tim Pawlenty, Rick Santorum Call for Higher Minimum Wage; Tweedle-Dum vs Tweedle-Dee Posted: 09 May 2014 01:41 PM PDT In the past few days, three candidates who ran for the last Republican presidential nomination, including nominee Mitt Romney, have endorsed a higher minimum wage. Yahoo!Finance asks Mitt Romney Calls for Higher Minimum Wage. Does it Matter? Mitt Romney, the GOP presidential nominee in 2012, called on Republicans Friday to raise the minimum wage, going against the congressional leadership of his own party. Related Stories "I think we ought to raise it, because frankly, our party is all about more jobs and better pay, and I think communicating that is important to us," Mr. Romney said on MSNBC's "Morning Joe." In recent days, two other Republican presidential hopefuls from 2012 – former Minnesota Gov. Tim Pawlenty and former Sen. Rick Santorum of Pennsylvania – have also called for a minimum wage hike. The trend may signal that in presidential politics, some Republicans see the issue as a way to soften the party's image across a broad electorate. On MSNBC, Romney linked his support for a higher minimum wage to the GOP's effort to reach out to working Americans, including Hispanics. Romney lost the Hispanic vote to President Obama, 71 percent to 27 percent.  "I also believe that key for our party is to be able to convince the people who are in the working population, particularly the Hispanic community, that our party will help them get better jobs and better wages," Romney said. Matter in What Sense? The senate has blocked debate on the issue. It needs 60 votes to advance but only has 52. The fact that Mitt Romney flip-flopped twice (from for, to against, to for) does not change Senate math. Nonetheless, Romney's flip-flopping does raise this question once again: From Obamacare to war-mongering to minimum wage, what real differences were there between Obama and Romney? About all I can come up with is war-mongering and abortion. On the war-mongering front I remain convinced that if Romney had won the US would have attacked Iran and we would be engaged in a hopeless trade war with China. Non-Differences There are probably a few other differences, but arguably not on anything the President can directly control. Here are some distinct non-differences. Obamacare and Romneycare are essentially the same. Obama promised cuts in military spending but didn't deliver. No essential difference. Obama promised to get rid of the Guantanamo Bay detention camp but didn't. No essential difference. Romney called Russia our number one enemy. Obama now acts that way. No essential difference. Obama considers Snowden a traitor. So does Romney. No essential difference.  Did either Obama or Romney have a realistic plan to eliminate the deficit? No, they didn't. The 2012 election offered a classic choice of Tweedle-Dum vs. Tweedle-Dee. I said so at the time and numerous Republicans attacked me for that view. Perhaps Republicans can see the truth now, but I doubt it. Self-assessment by bureaucrats and political parties is about zero. Hopefully the 2016 election provides a real choice. Don't count on it. However, you can count on bluster, huffing and puffing, finger-pointing, and name calling even if there are few real differences. 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.

Canadian Employment Unexpectedly Declines Second Time in Three Months; Low Interest Rates in Canada for Years to Come Posted: 09 May 2014 10:42 AM PDT In response to an unexpected weakening in Canadian employment, the Canadian Dollar Weakens. The Canadian dollar weakened the most in seven weeks after employment unexpectedly declined for the second time in three months in April, boosting bets the Bank of Canada may lower interest rates to support economic growth. The currency dropped from almost the strongest level against the U.S. dollar in four months as employment fell by 28,900 in April and the participation rate declined to the lowest in more than 12 years, Statistics Canada said in Ottawa. The Canadian currency sank to a 4 1/2 year low of C$1.1279 on March 20, two days after Bank of Canada Governor Stephen Poloz said he couldn't rule out interest-rate cuts. Today's job report "will add to ammunition that Poloz has in his back pocket to remind people that the economy isn't running at full steam and the desire for a weaker currency to help the export sector," Ken Wills, a senior corporate dealer at CanadianForex, said by phone from Toronto. "This number was definitely a big miss. It will weigh on the currency." Canada's currency plunged after employment dropped last month following a 42,900 gain in March, and compared with a 13,500 job increase forecast by economists surveyed by Bloomberg News. Accommodation and food service jobs led the decline by industry, falling by 32,200. The unemployment rate remained at 6.9 percent, as predicted in a Bloomberg survey, while 25,600 people left the labor force to push the participation rate to 66.1 percent, the lowest since November 2001. "Exports are still sluggish and not enough to support growth," said Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc., who expects a 10-year yield of 2.95 percent in the fourth quarter. "The sensitivity of U.S. exports to Canadian growth has also decreased, so there is a case there to be cautious." The loonie has tumbled 4 percent this year against a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the worst performance in the group. Low Interest Rates in Canada for Years to Come Like Fed counterparts in the US, Bank of Canada's Stephen Poloz says Interest Rates to Remain Low for Years to Come. Canadians can expect to enjoy relatively cheap borrowing costs for some time to come — perhaps years — even after the economy returns to full capacity and the Bank of Canada starts hiking interest rates, bank governor Stephen Poloz said Thursday [April 24, 2014]. The central banker told a luncheon in Saskatoon that the economy has room to grow before it can be considered to be firing on all cylinders, but even when it does — likely sometime in early 2016 — Canadians shouldn't expect a sudden increase in interest rates to fight inflation. Room to Cut With today's Canadian jobs report you can forget all about rate hikes. Instead start thinking about rate cuts to "boost exports". Canada did get in three rate hikes, so there is "room" so to speak for three cuts. The Fed, the ECB, and Bank of Japan already have rock bottom rates. Canada was there for a while and may get there again. How can every country cut rates to boost exports? Mathematically it's impossible, but it certainly doesn't stop central banks from trying, and at a huge expense to savers and everyone on fixed income. 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.

25-54 Labor Force vs. Employment; Men vs. Women; Cyclical vs. Structural Posted: 09 May 2014 12:52 AM PDT Recovery talk goes on and on. Assuming there is a genuine recovery as opposed to a financial recovery, where would one most likely find evidence? I propose evidence should be apparent in those out of school, yet not retired. More specifically, we should see evidence in the age 25-54 demographic. Let's take a look. Civilian Labor Force Participation Rate 1990-Present The participation rate is the percentage of people who are either employed or actively seeking work. Where is the recovery? Some might accuse me of cherry picking a timeframe on the above chart. OK. Here is a longer-term chart. Civilian Labor Force Participation Rate 1950-Present Women entered the workforce en masse in the 1960s to 1990s. Leveling off is understandable, but why the decline? Reader Tim Wallace dives in further, breaking out women vs. men. 25-54 Labor Force and Employment, Men and Women The cheerleaders will tout the rise in employment. However, the rise in employment is from the depths of recession hell. In percentage terms, the male participation rate for age group 25-54 is the lowest in history. The female participation rate for age group 25-54 is the lowest in 24 years. Cyclical vs. Structural Former Fed Chairman Ben Bernanke stated the unemployment problem is cyclical. I believe unemployment is a demographic-based structural issue. If anyone has any credible evidence that shows the unemployment problem is cyclical in nature, not structural, please send it. 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.

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