Mish's Global Economic Trend Analysis

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• Oligarchs and their "Pocket Armies" Take Over Oil Company in Kiev; Ukraine Begs for More Money; Three-Way Civil War?
• Idle (and Extremely Late) Threat of the Day by Fed's Bullard: Raise Rates or Face ‘Devastating’ Bubbles
• Plotting the Trust (or Lack Thereof) in Greek Banks; Greece Capital Flight in Pictures
• Spanish Anti-Euro Party Podemos Wins 15 Seats in Regional Election

Oligarchs and their "Pocket Armies" Take Over Oil Company in Kiev; Ukraine Begs for More Money; Three-Way Civil War? Posted: 23 Mar 2015 01:39 PM PDT Ukraine Begs for More Money The IMF foolishly agreed to give Ukraine a four-year $40 billion bailout on March 12. Already, Ukraine's Finance Minister Begs for More Money. Natalie Jaresko told the Financial Times in an interview that a four-year, $40bn, IMF-led bailout finalised this month — including restructuring $15bn of debt — was enough to stabilise the financial and banking system. But that was a "first step".  Ukraine needed billions more to restart growth, rebuild shattered infrastructure, and deal with the effects of the eastern conflict that has killed at least 6,000 people, wounded 15,000 and displaced more than a million. "I believe strongly that the G7, and frankly speaking the broader G20, has a responsibility now to support Ukraine in a much bigger way financially," Ms Jaresko said. Interesting Debate "I end up hearing this burden-sharing argument between different parties. The Americans say the Europeans should do more, the Europeans say the Americans should do more. That's an interesting debate, but no one's paying a greater cost than the Ukrainian people," said Jaresko. Yes, it is an interesting debate. But missing from the debate is a Ukraine civil war that is still ongoing. Money to rebuild shattered infrastructure will do no such thing. Instead it will go for more war-mongering. Money will also go straight into the pockets of the corrupt officials running the country and the corrupt oligarchs battling to take over the country. Oligarch Takes Over Oil Company in Kiev The battle over what's left of Ukraine has now reached Kiev with the takeover of oil company Ukrnafta by oligarch Igor Kolomoisky and his private army. Please consider Poroshenko Warns Rival Over 'Pocket Army'. Ukraine's President Petro Poroshenko warned on Monday that no regional governor would be allowed a "pocket army", after armed men took up positions around an oil company in which Igor Kolomoisky, the billionaire oligarch and governor, is battling to retain control. The stand-off threatened to escalate into a full-blown clash between the country's wealthy president and a rival oligarch who has long been one of Ukraine's richest men but since last year's Ukrainian revolution has also developed a political power base. Mr Kolomoisky accepted the role of governor of the central Dnipropetrovsk region last year as Ukraine's new government tried to stabilise the country after the president at the time, Viktor Yanukovich, was toppled by anti-government protests. He has also funded volunteer militias fighting Russian-backed separatists in Ukraine's east. The billionaire has long exercised management control over Ukrnafta, an oil producer, despite owning only 42 per cent. But a law passed by Kiev's parliament has attempted to enable the state, which owns 50 per cent of the company plus 1 share, to retake full control. In an unusual scene, camouflage-clad guards in full military gear, some armed with assault rifles, surrounded Ukrnafta's headquarters in central Kiev on Sunday. Mr Kolomoisky said the men were from a private security company summoned by the company's management, not by him. He also said they did not come from one of the volunteer military battalions that he supports. Private "Security" Company Here a picture of what a private security company in Ukraine looks like. Anecdotes from Ukraine Reader "Ellen" Writes ... Hello Mish, Western media seldom talks about Ukraine's inner problems. In my country, wealth divided between several groups of ultra-rich oligarchs. Some control the bank system, others the power system, and another the oil companies. Recently the battles between them have escalated. We now have armed fighters on streets of Kiev guarding national oil companies. I don't care which oligarch wins because I know that the people of Ukraine will lose in any case. The situation now looks like Feudal Europe in early Middle Ages. Each wealthy baron strives to be a king and have own army and own land with serves. Porochenko has support of America and EU but zero respect in Ukraine. Powerful oligarchs battle for pieces. Some think that Ukraine oil was taken under control by USA, though Porochenko. This seems logical to me. Best regards Ellen Desperation Increases Reader John whose sister lives in Lviv, Ukraine writes ... Hello Mish There is a lot of political wrangling going on, with the oligarchs starting to go at one another. It looks to be shaping up as Poroshenko vs Kolomoisky. Stay tuned on this as we head towards the beginning of April. The following is from my sister. "Right now, everyone here is worrying about the tax and utility hikes coming in April. It's gonna be devastating. I don't like beating up the government in this state of war, but they're digging themselves an even bigger hole." "They are taxing poor working pensioners which will bring in a paltry million or so, raising utilities by almost 300% in April, and inflation up to 30% and rising. People leave (especially youngsters) as fast as possible. The OSCE is as blind as ever, as is the World Bank and IMF. I have nothing positive to report, but the war continues, with people dying and maimed every day." [John continues] This is the absolute first time that I have ever seen or heard my sister say anything negative about the current regime or junta as we call them. What this means is the average Ukrainian is up against the wall financially and there is nothing more that the government can take from them. Events are a recipe for yet another disaster. I do not like to speculate, but I expect that the Junta will try and pull off something to distract the masses, but by now, the people are too wise for this nonsense, and oligarchs want their say. John Carpetbaggers vs. Oligarchs On December 3, I wrote Enter the Carpetbaggers: Ukraine's New Finance Minister a US Citizen, New Economy Minister from Lithuania "Now that Ukraine's gold has been sold off, the only thing left to complete the plundering is to send in the carpetbaggers. That process is now underway. Ukraine's just-named "Finance Minister" is a US citizen, and Ukraine's new "Economy Minister" is from Lithuania. To get around legal issues associated with having foreigners in top level government positions, Ukraine made the appointees Ukrainian citizens. Three-Way Civil War? Kiev was happy with the oligarchs and their private armies (Igor Kolomoisky is rumored to have 10,000), as long as they were battling the separatists. Now it seems the oligarchs have turned on their masters in Kiev. Another overthrow, this time by an oligarch, could easily be in the works. 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.

Idle (and Extremely Late) Threat of the Day by Fed's Bullard: Raise Rates or Face ‘Devastating’ Bubbles Posted: 23 Mar 2015 11:08 AM PDT The laugh of today comes from Fed non-voting member James Bullard who says Raise Rates or Face 'Devastating' Bubbles. The US risks inflating asset price bubbles with "devastating consequences" if it leaves interest rates at zero, according to a senior Federal Reserve official. James Bullard, head of the Reserve Bank of St Louis, told the Financial Times on Monday the Fed "should get on with normalisation" as soon as possible so that it does not have to raise rates more aggressively later causing significant market volatility. The unemployment rate dipped to 5.5 per cent in February, its lowest rate since 2008, and was poised to go below 5 per cent by the third quarter of the year, Mr Bullard said. Recalling the tech bubble in the 1990s and the housing bubble of the 2000s, he said: "Zero [interest rates] is too low in that kind of environment. I wouldn't be comfortable with that. A zero rate would feed into an asset price bubble". "When asset bubbles start, they keep going until they blow up out of control with devastating consequences." The policy maker dismissed the softer US economic data that has emerged so far this year as temporary and said that the current low inflation was caused by cheap energy prices and would move up once the oil market stabilised. He said that the dollar was unlikely to soar much higher when the Fed raised rates as markets had already priced this move into the exchange rate. Growth, he added, was likely to be running about 1 percentage point above its long-run trend and this would continue to push unemployment down towards the 3.8 per cent low of the 1990s and the 4.2 per cent low of the 2000s. How Many Ways Can One Person Be Wrong? I agree with Bullard that asset bubble blowups have enormous consequences. The problem is that Bullard apparently does not realize we are already in one of the biggest asset bubbles in history. The asset bubble has already been fed. As far as growth running above trend, Bullard is in outright Fantasyland. Whereas Bullard says the current weakness is "temporary", I confidently predict a recession. It would not surprise me in the least if the US is already in one. Powder Keg Bullard said he was not especially concerned about the high prices already in bond markets because central banks had the tools and the communication abilities to soothe concerns in these areas. "Bond markets already have very high prices and low yields. You could wonder whether that's a powder keg ready to explode, but central banks conduct policy so we can mitigate these concerns." Just like the Fed mitigated the dot-com bust and the housing bust? Do central banks conduct policy to mitigate bubbles or cause them? Squirrels and Blind Nuts Proving that even a blind nut is not always squirrely, Bullard did say something I agree with: Bullard said that the dollar was unlikely to soar much higher when the Fed raised rates as markets had already priced this move into the exchange rate. On second thought, Bullard is likely to be right about the dollar primarily because the Fed is not going to get in as many rate hikes as the market has priced in. 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.

Plotting the Trust (or Lack Thereof) in Greek Banks; Greece Capital Flight in Pictures Posted: 23 Mar 2015 09:33 AM PDT Greece Capital Flight in Pictures Using Target2 Imbalances as a measure of capital flight and trust that Greeks have in their banks, here are two charts that pretty much tell the full story. Greece Target2 Imbalance January 2014 to February 2015 Between October 2014 and February 2015, over 52 billion euros have fled Greek banks. Go back to June when things appeared to be healing and capita flight is about 60 billion euros. Greece Target2 Imbalance Every February Since 2008 Charts created with data from Euro Crisis Monitor. Target2 Discussion For a discussion of Target2, what it means and how it works, along with a discussion of who is really to blame for the crisis in Europe, please see From ZIRP to NIRP: Virtues of Germany vs. the Vices of Greece; What About "Speece" and Gold? The record Target2 deficit for Greece was 109.315 billion euros in November of 2011. The Greek Target2 deficit exceeded 100 billion euros for 14 of 15 months between September of 2011 and November of 2012. On July 26, 2012 ECB President Mario Draghi said the ECB was "ready to do whatever it takes" to preserve the single currency. "Believe me, it will be enough," said Draghi. Confidence in the euro resumed. With a bit of a lag, confidence in Greek banks also returned.  Between February of 2012 and June of 2014 nearly 77 billion euros flowed back into Greek banks. Confidence in Greek banks waned with the rise of Syriza, accelerated ahead of the January 2015 Greek national election, then continued its decline following the election. Runs on Greek Banks The above charts nicely depict capital flight and the run on Greek banks. On January 9, I commented Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold On January 25, 2015 I reported Syriza Trounces New Democracy; Greeks Stop Paying Taxes; Run on Greek Banks Escalates; Get Out! Greeks held back paying taxes because they figured Syriza Alexis Tsipras would work out a new deal with the Troika and for Greek taxpayers. A new deal never happened, and the run on the banks continued. In spite of the fact that Greek banks are in need of cash, the ECB has been very reluctant to provide it. See ECB Revokes Greek Bonds as Collateral; ECB vs. Novices; Brass Knuckles. Greece Warns Merkel of 'Impossible' Debt Payments Today the Financial Times reports Greece's Leader Warns Merkel of 'Impossible' Debt Payments. Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be "impossible" for Athens to service debt obligations due in the coming weeks if the EU fails to distribute any short-term financial assistance to the country. The warning, contained in a letter sent by Mr Tsipras to the German chancellor and obtained by the Financial Times, comes as concerns mount that Athens will struggle to make pension and wage payments at the end of this month and could run out of cash before the end of April. "Given that Greece has no access to money markets, and also in view of the 'spikes' in our debt repayment obligations during the spring and summer . . . it ought to be clear that the ECB's special restrictions when combined with disbursement delays would make it impossible for any government to service its debt," Mr Tsipras wrote. He said servicing the debts would lead to a "sharp deterioration in the already depressed Greek social economy — a prospect that I will not countenance". Mr Tsipras was rebuffed in efforts to secure quick financing from either the ECB or eurozone lenders at Thursday's Brussels meeting with Ms Merkel and a small group of other EU leaders — including French president François Hollande and ECB chief Mario Draghi. No Cash for Greek banks Adding fat to the Greece fire, Spain says No Cash for Athens Until Reforms in Place. Greece's cash-starved government will not receive any money from the eurozone rescue fund until all its proposed reforms have been implemented, the Spanish economy minister has said. "We will see whether the list of reforms is comprehensive enough or not. [But] there will not be any disbursement before there is a real test that the reforms have been approved and implemented. That is the approach," Luis de Guindos said in an interview with the Financial Times, dashing Greek hopes that the presentation of a new reform list alone could unlock fresh funds for Athens. Politics Triumphs Over Rational Thinking Spain could benefit from a rule change itself but fearing the rise of the Spanish anti-euro party Podemos, does not want to appease Greece in any way. Recall that Podemos "Economic Manifesto" Calls for Debt Restructuring, Spain to Abandon the "Euro Trap" For further discussion, please see Greecification of Spanish Politics and the Lies of Spain's Ministers. I believe this foolish move will backfire in a big way in the Spanish national elections later this year. Get Out While You Can! If you have money in Greek banks, get it out now! I have been saying that for months, and the smart money is doing just that. 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.

Spanish Anti-Euro Party Podemos Wins 15 Seats in Regional Election Posted: 23 Mar 2015 12:57 AM PDT Spain has a largely 2-party system, but unlike France, there is no round two if a single political party fails to get a majority. Instead, political parties must form a coalition. And that is precisely what happened in Spanish regional elections over the weekend. Podemos Wins 15 Seats The Guardian reports Spanish Anti-Austerity Party Podemos Wins 15 Seats in Andalusia. Podemos, the Spanish anti-austerity party, will be a prominent force in Andalusia's regional parliament after it won 15 seats in the party's first election since its ally Syriza triumphed in Greece. The Socialists, who have held power in Andalusia for more than three decades, will continue to govern the region. Lead by Susana Díaz, they won 35% percent of the vote, earning them 47 seats, shy of an outright majority. "Andalusians have made their voices heard through the ballot box," Díaz, 40, said on Sunday as the results came in. The election held up Spain's two-party system, albeit in a weakened state. The People's party came in second with 27% of the vote, or 33 seats, but the party of prime minister Mariano Rajoy was the biggest loser on the day as the result was a steep drop from the 50 seats it won in the 2012 elections. The Andalusian election generated considerable interest far outside the region's boundaries. Spain this year will see municipal, regional and general elections across the country and many saw the Andalusian race as a crucial window into electoral sentiment. The race was also Podemos's first test since Syriza's win in the Greek elections. With Andalusia's unemployment rate sitting at 34% – the highest in Spain – and the Socialists entangled in allegations of misusing hundreds of millions of euros in public funds, the election was widely seen as one of Podemos's first runs at turning discontent into votes. On Sunday, the party touted their results as the first step in a change sweeping Spain. "The change has begun and will continue," Podemos candidate Teresa Rodríguez said. Podemos's supporters had previously downplayed their chances in Andalusia, pointing to voters' unwavering support of the regional Socialist party. But in one corner of Spain, Podemos exceeded all expectations: Cádiz. Home to Rodríguez and where the unemployment rate exceeds that of Greece, Podemos placed first in this city, earning 29% of the vote. Podemos's 15 seats could put them in a prime position of influence over the Socialists, who came eight seats short of a majority. With the Socialists on the hunt for coalition partners, be it formal or on an ad-hoc basis, Podemos now faces a unique dilemma. Any alliance with the Socialists could dilute Podemos's message of change, while an outright refusal to forge alliances could destabilise the regional parliament and lend credibility to opposition claims that a vote for Podemos is a vote for instability. "It's going to be tough for them to show that they're in the opposition but to show that they're not a threat to the system," said Torreblanca. The real test for Spain's bipartisan system will come as the Andalusian parliament begins with Podemos and Ciudadanos thrown into the mix, said Torreblanca. "With these results they're not powerful enough to overthrow the system, but they're powerful enough to change the system. They're going to introduce a new sort of dynamism, more accountability and more transparency." Political Reality Podemos is not just anti-austerity. Podemos is also anti-euro (see Podemos "Economic Manifesto" Calls for Debt Restructuring, Spain to Abandon the "Euro Trap". "Podemos is now part of Spain's official political reality" quipped my friend Bran who lives in Spain. Political reality is also in play in France over the weekend. See Hollande's Party (PS) Trounced by Sarkaozy (UMP) and Le Pen (FN) in French Local Elections. 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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