Mish's Global Economic Trend Analysis

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Italy "Unexpectedly" Slips Back Into Recession Posted: 06 Aug 2014 11:26 PM PDT The optimism of mainstream economists is rather curious. Economics appears to be right up there with faith-healing as the most optimistic profession on the planet. Here is a case in point: Bloomberg reports Italy Unexpectedly Returns to Recession. Italy unexpectedly returned to recession and German factory orders dropped the most since 2011 as slowing global growth and rising tensions with Russia over Ukraine threaten the euro area's recovery. Italy's economy shrank 0.2 percent in the second quarter after contracting 0.1 percent in the previous three months. German orders slid 3.2 percent in June from May. Both reports were worse than forecast by economists in separate Bloomberg News surveys. The renewed recession in Italy, the euro area's third-biggest economy, will weigh on the region's second-quarter gross domestic product figures. The currency bloc's economy expanded 0.2 percent in the three months through March, and the ECB predicts growth of 1 percent this year. Today Italy, then France, then Germany. All will be "unexpected".  Bad news is seldom if ever expected. But what the heck. Let's increase sanctions on Russia, and pray to God Russia does not retaliate. 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.

US Dependent on Russia for NASA Launches; Well, Guess What? Russia Fires Back With More Sanctions: NASA, Pepsi, McDonald's, Autos in Spotlight Posted: 06 Aug 2014 11:50 AM PDT Not many people realize the US is dependent on Russian Soyuz rockets to ferry astronauts to the international space station. Former former NASA administrator Michael Griffin told ABC News "We're in a hostage situation. Russia can decide that no more U.S. astronauts will launch to the International Space Station and that's not a position that I want our nation to be in." That bit of news came out late July, and is under review by Russia today. Chicken, Cheese, McDonald's in Spotlight On July 31, Slate reported Russian Response to New Sanctions Could Devastate McDonald's McChicken with Cheese Market. Bloomberg reported, Russia Eyes Banning U.S. Chicken Facing tougher sanctions over Ukraine, Russia said yesterday it may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald's Corp. (MCD) cheese for safety. "It's a troubling continuation/expansion of trade as a geopolitical tool," Gary Blumenthal, president of World Perspectives Inc., a Washington-based agricultural consulting firm, said in a phone interview. Gary Blumenthal made a sensible comment, ignored universally, as are most sensible ideas. NASA, Pepsi, Autos in Spotlight Ealier today, the Russian Itar-Tass news agency reported Russia's retaliation to foreign sanctions may be heavy. Russia can and must respond to foreign sanctions in a balanced way, but at the same time the retaliation must be strong enough to let the countries that imposed the restrictions feel its effects, says the director of the Globalization Problems Institute Mikhail Delyagin, in the past an aide to Russia's prime minister. Russian President Vladimir Putin on Tuesday asked the government to consider retaliatory measures in response to western sanctions against Russia, but in a way that would not harm the interests of domestic manufacturers and consumers. The government is now in the process of discussing the possibility of banning European air carriers from flying to Asia and back through Russian air space. The measure was proposed after Russia's lowcoster Dobrolyot declared it was cancelling all flights due to sanctions - its contracts for leasing Boeing liners of US manufacture had been annulled. Earlier, Vladimir Putin warned that the authorities might take a closer look at who was operating in the Russian energy market and in what way. "Russia's response to Western sanctions may vary from country to country. In relations with the United States Russia may raise the question of banning US fast food outlets, which treat their customers to products harmful to health. The same applies to the marketing of PepsiCo products and genetically modified goods from the US," the expert said. "Also, Russia may stop letting NASA use its rockets as a means of delivering cargoes to the International Space Station, a service the United States is so much interested in. Or, if asked to go ahead with space cooperation, Moscow may address Washington with its own conditions," Delyagin said. "As far as Germany as Russia's main economic partner in the European Union is concerned, the two countries have strong bonds in power engineering and the automobile industry. But Russia may as well import high precision machine tools from advanced countries in the Asia-Pacific Region, which will surely result in direct losses for German manufacturers," the analyst said. "Most countries in the European Union may find rather sensitive the possibility of banning Asia-bound flights over Russian territory. The government is considering such an option at the moment. In my opinion it would be a far more elegant move to keep the air space open, but to considerably raise transit fees European air carriers pay for flying over Siberia and to used the extra revenues to improve Russia's air traffic control service on the ground," Delyagin said. "The United States and the European Union have no intention of confining themselves to the sanctions that have been introduced already. For that reason Russia may eventually declare its walkout from the World Trade Organization and within a six-month deadline to cancel its obligations to foreign partners in view of force majeure circumstances," the analyst pointed out. Russia Bites Back With Still More Food Bans The Financial Times reports Russia Bites Back With More Food Bans Russia has hit back at western sanctions over the Ukraine crisis with import bans on agricultural produce and food products from the US and EU in a wide-ranging retaliatory step designed to hurt foreign farmers. In theory, the order allows Moscow to ban all agricultural and food products from the US, the EU, Canada, Japan and Australia – a scenario economists say could do significant damage to agricultural-exporting nations. Russia imports more than 40 per cent of its food and the country's retailers say a quick switch to domestic sources is impossible. The central bank and the parts of the government in charge of economic policy have also argued that broad food import bans could drive up inflation, which stood at 7.9 per cent in the first half of the year. The Russian cabinet is expected to approve details of the ban on Thursday. The Kremlin said the government would prevent a spike in food prices and would start "real-time monitoring" of commodity markets. The decree will allow Moscow to vastly expand its curbs on agricultural imports, a measure it has often used to show its displeasure with trading partners. Over the past two weeks alone, the Russian government's veterinary and phytosanitary regulator and its consumer rights watchdog have banned imports of Romanian beef, Polish fruit and vegetables, Latvian pork, Ukrainian dairy products, cereals and juice, and plant products from Moldova. On top of that, individual shipments of Latvian milk powder and fish, Ukrainian cheese and American frozen shrimp have been turned back. Who's Winning? Clearly, no one is. Punishing Russia is tantamount to punishing oneself, and vice versa. Yet, Russia felt forced to retaliate. Otherwise, Russia ran the risk of never-ending sanction escalation from the West. If Russia was smart, it would threaten to double natural gas rates immediately unless all parties involved would agree to sit down at the table to discuss things. By all parties I mean Russia, rebels, Ukraine, EU. The problem for Russia is that it needs natural gas revenues. Thus, a threat to raise rates would be more credible than a threat to shut supplies. The US really has no business in this fight, although it does have the biggest cheerleaders in McCain and Obama. This is largely a crisis of US and EU making.  The US also stirred the pot in the first place, and that led to the overthrow of former Ukrainian president Viktor Yanukovych. The primary role of the US now is head cheerleader. I propose we stop the cheering, the fighting, and the sanctions, and instead start talking. 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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