11.9.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

RBS, 4 Other Banks Warn of Relocation to England if Scots Vote Yes; Catalans Stage Mass Protest for Independence

Posted: 11 Sep 2014 11:12 PM PDT

Tale of Two Countries

Fearmongering in Scotland hits fever pitch as RBS and four other banks threaten to leave the country if Scotland votes "Yes" for independence.

In Spain, Catalans staged a huge protest in favor of independence. The Spanish government hopes Scotland will vote "No" even though it seeks to halt a Catalan vote altogether.

Let's take a close look at these stories starting with Scotland.

RBS, 4 Other Banks Warn of Relocation to England if Scots Vote Yes

On the fearmongering front, RBS warns it would relocate to England if Scots vote Yes.
Royal Bank of Scotland led a host of banks employing more than 35,000 people in Scotland who warned that they would relocate their headquarters south of the border in the event of a Yes vote in the Scottish independence referendum next week.

"RBS believes that it would be necessary to re-domicile the bank's holding company and its primary rated operating entity (The Royal Bank of Scotland plc) to England," it said in a statement on Thursday.

The move, which followed a similar announcement from Lloyds Banking Group on Wednesday, was swiftly echoed by Clydesdale Bank, TSB Bank and Tesco Bank, which all individually confirmed they would set up London-based entities if Scotland voted to leave the UK.

The recently floated TSB Bank, which has more than a quarter of its loans north of the border, said it planned to move its main high street banking subsidiary's domicile from Edinburgh to London. TSB's parent company and head office are already all in London, but it has more than 2,000 staff in Scotland, out of a total of 8,000.

"Although the implications of Scottish Independence remain unclear, it is likely that in the event of a Yes vote, TSB will establish additional legal entities in England," it said, adding that it expected there to be enough time between a Yes vote and the start of independence to implement any changes.

With some polls showing the two sides neck-and-neck a week before the vote, business leaders have become more outspoken about the impact of a Yes vote. Retailer Next said on Thursday it feared that independence would push up prices in its stores north of the border.

Sir Charlie Mayfield, chairman of John Lewis, said independence could force the retailer to adopt a different pricing regime in Scotland due to potential currency and tax changes.

The announcements came after a co-ordinated effort by the Better Together campaign, the Treasury and Number 10 to persuade businesses to speak up in favour of the union. On Thursday morning, more than 100 Scottish business leaders jointly signed a letter organised by Better Together urging Scots to vote No, arguing that the economic risks of separation were not worth taking.

Standard Life, the FTSE 100 insurer that is one of the largest employers north of the border, said on Wednesday that it was planning to shift large parts of its business out of the country if Scotland voted for independence. "This transfer of our business could potentially include pensions, investments and other long-term savings," it said.
20 Point "No" Lead Vanished

This one is close. Hopefully Scotland does the right thing and votes for independence. In the wake of a fever-pitch fearmongering effort by Cameron, banks, and others, it's hard to say.

The only reason Cameron allowed this vote in the first place is because he thought it was a guaranteed proposition. The "No" voters once had a 20-point lead in the polls.

Mass Protest in Barcelona

Meanwhile, in Spain, Catalans stage mass protest in Barcelona to back referendum
The Catalan independence movement held a mass rally in Barcelona on Thursday as part of an intensifying campaign in support of a planned November referendum on the region's future political status.

Dressed in red and yellow, the colours of the Catalan flag, hundreds of thousands of protesters assembled on Gran Via and Avenida Diagonal, two of the city's main arteries. Seen from the air, the rally formed the shape of a giant V, described by organisers as a symbol of Catalonia's desire to vote.

The Catalan demonstration was staged a week before Scotland's independence referendum, and less than two months before the planned plebiscite in the Spanish region. The Spanish government has said repeatedly that it will not allow the Catalan vote to go ahead, arguing that the country's constitution allows no space for regional self-determination.

The constitutional court is set to rule on the issue in the weeks ahead, and is widely expected to side with Madrid. Catalan leaders will then have to decide whether to press ahead with their ballot or comply with the court ruling and develop an alternative strategy.

Speaking hours before the demonstration, Artur Mas, the Catalan president, renewed his calls on Madrid not to stand in the way of the November vote. "The message [today] is, 'We want to vote. We are a nation. We want to decide our own political future.'"
Let the Voters Decide

Why shouldn't the Catalan voters, like Scottish voters, get to decide their own fate?

The only apparent answer is Spain knows full well they would vote for independence. Had Cameron realized the vote in the UK would have been this close, I rather doubt he would have allowed it.

Yet, as I have stated before, it's far better to settle such issues by vote than by civil war.

For further discussion, please see Will Tears and Promises Save the Day for the "No" Vote for Scotland? Lesson for Ukraine: Voting is Better than Civil War.

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.

Fishing for Trout With Rope and Mashed Potatoes; Mentality of Jackasses; Gas Pains

Posted: 11 Sep 2014 01:46 PM PDT

The EU stepped up its sanctions today after forcing all the ducks in line with the position of president Obama. Russia immediately responded in kind with actions on cars, clothes, and energy.

The Financial Times reports Russia Threatens to Cap Western Car and Clothing Imports.
Russia threatened to escalate a growing trade dispute between the Kremlin and the EU, saying it could cap western car and clothing imports.

The fresh warning came as EU diplomats ended a week-long deadlock on Thursday over a new round of sanctions against the Kremlin, and agreed to trigger measures to block Russia's largest state-owned oil companies from raising money on European capital markets.
Forcing Ducks In Line
The measures were due to go into effect at the start of the week, but several EU countries balked, arguing they needed more time to assess whether the Kiev-brokered ceasefire would take hold.

Diplomats said the decision by EU ambassadors to press ahead came after Herman Van Rompuy, the European Council president, held a conference call on Thursday with the leaders of the four European countries in the Group of Seven leading industrialised nations – Germany's Angela Merkel, France's François Hollande, Britain's David Cameron and Italy's Matteo Renzi – to finalise the measures.
Russia's Response
Speaking after the EU announcement, Vladimir Chizhov, Russia's permanent representative to the EU, told Russian newswires: "Russia has no other choice but to go for certain countermeasures."
Russia Tightens Gas Supplies to Poland

Also consider Russia Tightens Gas Supplies to Poland.
Poland's state gas group PGNiG said on Wednesday that Gazprom had delivered 20 per cent less gas on Monday and 24 per cent less gas on Tuesday than it was contracted to supply. Kiev confirmed Poland had been forced to stop re-exports to Ukraine in response to these cuts.

Igor Prokopiv, head of Ukraine's gas pipeline operator, confirmed the knock-on effect in Ukraine.

"At 2pm Poland stopped reverse gas flows to Ukraine which had been in the range of 4m cubic metres," he told journalists in Kiev. "Today Poland put in an order for 11 mcm a day, and Russia confirmed orders for 7mcm. Those 4mcm are our reverse flows." 

Energy supplies are one of Ukraine's most serious vulnerabilities. It is one of the world's least efficient energy consumers and its supply crunch is being compounded by falling coal production in the Donbass region, which has been affected by conflict. Ukraine needs to import about half of its consumption of about 50 bcm annually and analysts reckon it would be hard to weather the winter without imports of 5bcm to 10bcm

The volumes of reverse-flows are modest in comparison with Ukraine's needs. Slovakia is exporting some 21 mcm/d, Hungary can supply 16 mcm and Poland can send 4 mcm.
Priorities vs. Solidarity
Ukraine complained last month that reverse flows were running at far less than potential capacity; Hungary for example is sending only about 3 mcm, because its priority is to fill its own storage facilities in readiness for a stand-off with Russia.
Gas Pains

The above statements sum up the position quite nicely, don't they? In essence it's a big F*You to Ukraine.

Better Ukraine to be totally without gas than for the rest of Europe to suffer from any gas pains.

Sanctions Never Work

As a result of previous sanctions, and counter-sanctions fruit is rotting in the fields, and European GDP is under pressure. Please consider


Small Price Theory

Who cares if history says sanctions don't work? Who cares if a recession ensues? Not to worry, it's a "small price to pay" say sanction supporters.

I encourage everyone to read my previous discussions on the absolute silliness of the "small price" theory.


Air Flight Restrictions

On September 8 I noted Russia threatens to block commercial air traffic over Russian airspace. Costly re-routes on the way. See EU Threatens New Sanctions; Russia Responds with Threats on Natural Gas and Airspace Flight Restrictions.

Mentality of Jackasses

In the above article I commented ...
Why EU and US economic-jackasses think sanctions will accomplish anything positive or change Russia's behavior one bit is at first glance a bit of a mystery.

However, economic-jackasses by definition are going to do stupid things, so we should expect more and more of the same failed tactics.
Reader Terry responded "I'm astounded that you, a libertarian, belittle the EU for economic sanctions. The EU has nothing but economic sanctions to make Russia pay any kind of price for invading its neighbors."

Sanction Irony - Putin's Popularity Hits 87%

I am amused by the silliness of Terry's comment. For starters, no Libertarian would ever be in favor of sanctions. 

Invariably, the average citizen ends of paying the price. And that holds true for both sides.

Time Magazine explains how sanctions really work: Putin's Popularity Soars to 87% in the Face of Adversity

Expect Putin to cave in on account of sanctions? Think again. The bigger the sanctions, the greater the hardships on those who impose them.

Nonetheless, the EU and President Obama want to "do something". So they do. And to get support, they flash the "patriotism card". Unthinking sheep fall in line every time.

Fishing for Trout With Rope and Mashed Potatoes

In spite of the fact that sanctions are counterproductive, the "EU has nothing but sanctions to try" so that's what they do. Next, mainstream media parrots fall in line. Ultimately,  and under the guise of patriotism, the sheep and ducks fall in line as well.

The sanction approach is similar to fishing for trout with rope and mashed potatoes because that's all you have to fish with.

Actually, sanctions are far worse.

Fishing for trout with mashed potatoes and rope only wastes time and potatoes. Sanctions waste more time, a tremendous amount of money, and the bigger the sanctions, the greater the loss of jobs and economic output.

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.

Don't Like the Rules? Then Ignore Them: Shoot First, Ask Questions Later

Posted: 11 Sep 2014 12:01 PM PDT

In politics, if you don't like the rules, you ignore them. This philosophy only works if you are big enough and powerful enough to get away with it. I have some recent examples.

Shoot First Ask Questions Later

The Guardian comments Obama's Legal Rationale for Isis Strikes: Shoot First, ask Congress Later.
For expanded Isis strikes, president relies on legal authority he disavowed only a year ago. Obama said he would welcome congressional support but framed it as optional, save for the authorisations and the $500m he wants to use the US military to train Syrian rebels.

Yet one of the main authorities Obama is relying on for avoiding Congress is the 2001 wellspring of the war on terrorism he advocated repealing only last year, a document known as the Authorization to Use Military Force (AUMF) that few think actually applies to Isis.

Taken together with the congressional leadership's shrug, Obama has stripped the veneer off a contemporary fact of American national security: presidents make war on their own, and congresses acquiesce.

The constitution envisions the exact opposite circumstance. 
More Obama Examples 

Changes on the fly to Obamacare? Hey, why not? Who is going to stop him?

Immigration rule changes? Why not?

It matters not that Obama would be overstepping his bounds in a matter that should be left to Congress. It matters not that Only 26% in Favor of Obama's Amnesty Plan for Illegal Immigrants.

Republicans and Democrats Alike

It's not just Obama. Bush and Cheney wanted a war with Iraq so they lied to get one. Some $3 trillion later, many warmongering fools still think Bush was correct. Yet, we are now fighting in Iraq for the third time as a result.

FDR Burns Crop, Confiscates Gold

FDR confiscated everyone's gold and burned farmers' crops, two of many blatantly illegal, even treasonous acts by FDR. He is revered by Keynesian economists for breaking the law because he got away with it and they believe it worked. (It didn't).

End analysis says that if presidents think they can get away with it, they do what they want. Constitution be damned.

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.

53% of Chinese Expect War With Japan

Posted: 10 Sep 2014 11:59 PM PDT

Even with battles over energy, disputed islands, and recent militarism by Japan, one might not have expected this polling result: Majority in China Expect War with Japan.
China and Japan are heading towards military conflict, according to a majority of Chinese surveyed on ties between the Asian powers in a Sino-Japanese poll.

The Genron/China Daily survey found that 53 per cent of Chinese respondents – and 29 per cent of the Japanese polled – expect their nations to go to war. The poll was released ahead of the second anniversary of Japan's move to nationalise some of the contested Senkaku Islands in the East China Sea.

Relations between Japan and China have soured since Japan bought three of the tiny islands – which China claims and calls the Diaoyu – in 2012. Japan defended the move as an effort to thwart a plan by the anti-China governor of Tokyo to buy them, but China accused it of breaching an unwritten deal to keep the status quo.

According to the poll, 38 per cent of Japanese think war will be avoided, but that marked a nine point drop from 2013. It also found that a record 93 per cent of Japanese have an unfavourable view of their Chinese neighbours, while the number of Chinese who view Japanese unfavourably fell 6 points to 87 per cent.
Energy Production

Given global restraints on the production and use of energy, my view is that it is impossible for China to keep growing 7% a year as most expect.

I believe China will be lucky to grow 3% on average for the next decade.

Questions of the Day

  • If China attempts to maintain 7% growth for another decade, where will the energy resources come from?
  • If China doesn't maintain high growth, what about mounting Chinese unrest due to lack of jobs?
  • What happens when Abenomics fails?
  • What about US, EU, and Japanese pushes for higher inflation even though wages don't keep up?
  • What about Ukraine and the US-EU feud with Russia?
  • What about ISIS?
  • What abut Syria?

My point? The global economy is a tinderbox, waiting for a catalyst to explode.

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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