Mish's Global Economic Trend Analysis

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• "Inconceivable" Negative Interest Rates on Mortgages in Portugal and Spain, with Italy On Deck
• France Considers Forcing Google to Disclose Search Algorithm; Too Much Satisfaction!
• Experts Confounded: Retail Sales Rise First Time in Four Months, But Weaker Than Expected
• Spotlight on China: Margin Debt, Trading Accounts, Construction Equipment

"Inconceivable" Negative Interest Rates on Mortgages in Portugal and Spain, with Italy On Deck Posted: 14 Apr 2015 11:22 PM PDT The vast majority of mortgages in Portugal, and a huge number in Italy and Spain are tied to Euribor, the rate it costs European banks to borrow from each other. If Euribor drops low, enough banks will have to pay borrowers. It has already happened in Spain. The WAll Street Journal reports Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers. Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers. At least one Spanish bank, Bankinter SA, the country's seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes. Interest rates have been falling sharply, in some cases into negative territory, since the European Central Bank last year introduced measures meant to spur the economy in the eurozone, including cutting its own deposit rate. The ECB in March also launched a bond-buying program, driving down yields on eurozone debt in hopes of fostering lending. In countries such as Spain, Portugal and Italy, the base interest rate used for many loans, especially mortgages, is the euro interbank offered rate, or Euribor. The rate is based on how much it costs European banks to borrow from each other. Portugal's central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take "precautionary measures" in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor. In Spain, a spokesman for the central bank said it is studying the issue. Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don't include any clause on what happens if benchmark rates go below zero. In Spain, Bankinter has been forced to deduct some clients' mortgage principal payments because an interest-rate benchmark tied to Switzerland's currency has dipped into negative territory. An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor. Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%. In Portugal, interest rates on most mortgages are linked to a monthly average of three- and six-month Euribor. Both have been steadily sinking and are hovering just above zero. Inconceivable Payback Reflections on the Inconceivable link if video does not play: Princess Bride. 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.

France Considers Forcing Google to Disclose Search Algorithm; Too Much Satisfaction! Posted: 14 Apr 2015 01:18 PM PDT Too Much Satisfaction! Heaven forbid consumers actually like something too much. If they do, they buy it or use it more than they buy or use competing products.  And when that happens, well it must be "unfair" competition. Lord knows we cannot possibly tolerate too much consumer satisfaction. So, with that line of thinking Europe to Accuse Google of Illegally Abusing its Dominance. Google will on Wednesday be accused by Brussels of illegally abusing its dominance of search in Europe, a step that ultimately could force it to change its business model fundamentally and pay hefty fines. Margrethe Vestager, the EU's competition commissioner, is to say that the US group will soon be served with a formal charge sheet alleging that it breached antitrust rules by diverting traffic from rivals to favour its own services, according to two people familiar with the case. A decision on charges is to be taken by the college of 28 EU commissioners on Wednesday. Some commissioners are concerned that Ms Vestager has, according to one source, restructured and narrowed the case she inherited from her predecessor Joaquín Almunia. As well as search issues, the investigation has looked at allegations that Google illegally scrapes content from rivals, locks some publishers into using Google search ads, and makes it hard for advertisers to move campaigns to rival search engines. Almost 20 complainants against Google want the search engine to abide by strict rules that ensure its formula treats its own services — providing results for travel, shopping and maps — no differently from rivals. Google and the commission declined to comment. On top of the pressure from Brussels, this week Google is also under scrutiny in France where lawmakers are considering an initiative that would force it to hand over its secret formula for ranking websites. Google supporters feel the commission's volte-face on a settlement reflected politics rather than an independent assessment. No EU antitrust case has ever been extended to three settlement offers, or been revived after complainants were formally warned that their case was about to be rejected. On top of the pressure from Brussels, this week Google is also under scrutiny in France where lawmakers are considering an initiative that would force it to hand over its secret formula for ranking websites. The French senate is likely to adopt a bill this week which would allow the country's national telecoms regulator to monitor search engines' algorithms, with sweeping powers to ensure its results are fair and non-discriminatory. If approved, the proposal would give Arcep, France's telecoms regulator, powers to scrutinise any search engine that had sufficient power to "structure the functioning of the digital economy". Google would be required to provide links to at least three rival search engines on its homepage, and disclose to users the "general principles of ranking". Requiring Google to disclose its algorithms is tantamount to requiring Google give away its trade secrets and patents for free. Requiring Google to list other search engines is like requiring Ford dealerships to sell GM autos. Search Engine Choices  People can choose from any number of search engines. Here are the Top 15 Search Engines. I show a selection below.  Bing DuckDuckGo Dogpile LXQuick Yahoo ASK AOL WOW No Tracking DuckDuckGo bills itself as the "Search Engine That Does Not Track You". No tracking is an important issue to some people, not others. If the issue becomes important enough, Google will have to change its model or it will lose traffic to DuckDuckGo. That is how change should happen, not by EU witch hunts. By the way, I do not believe Google locks any publishers into using Google search ads. If someone wants to use non-google ads, they are free to do so. If the results are not as good, well, maybe the higher price of Google ads is worth it. Why Do People Use Google Search? Search users use Google for a simple reason: They like it. It does not matter why. In the eyes of the EU, Google provides too much satisfaction. And the EU will not allow 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.

Experts Confounded: Retail Sales Rise First Time in Four Months, But Weaker Than Expected Posted: 14 Apr 2015 10:45 AM PDT The Bloomberg retail sales consensus estimate was for a 1.1% gain. Sales did rise for the first time in four months, but not as much as expected. Retail sales in March rebounded 0.9 percent after dropping 0.5 percent in February. The market consensus for March was for a 1.1 percent boost. Excluding autos, sales gained 0.4 percent, following no change in February. Expectations were for a 0.6 percent increase. Gasoline sales dipped 0.6 percent after 2.3 percent increase in February. Excluding both autos and gasoline sales rebounded 0.5 percent after declining 0.3 percent in February. Expectations were for a 0.4 percent increase. Experts Confounded Please consider U.S. Retail Sales Rise for First Time in Four Months. U.S. retail sales rose for the first time in four months in March, but the gain wasn't enough to offset weaker spending during the winter months as consumers continued to largely pocket savings from cheaper gasoline prices. "This outcome confounds all the standard consumer-spending models," J.P. Morgan chief U.S. economist Michael Feroli said in a note to clients. "Job gains, wealth gains, low gas prices and very high consumer sentiment would all point to solid consumer spending increases." "The rebound we had been waiting for was rather soft and disappointing," Laura Rosner, an economist at BNP Paribas, said in a note to clients. Paying less at the pump should free up money for U.S. consumers to spend elsewhere. But many are socking that money away, or using it to pay down debt. Possible Explanations Consumers did not realize how much the weather has changed for the better. The standard models  are bogus. Reports of strong jobs are more myth than reality. I opt for a combination of two and three. 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.

Spotlight on China: Margin Debt, Trading Accounts, Construction Equipment Posted: 14 Apr 2015 01:25 AM PDT In response to my April 1, post China Margin Debt Soars to Record 1 Trillion Yuan; Another Central Bank Sponsored Bubble I received an email from reader Nicolas. He writes ... Hello Mish Happy Monday. I find your output excellent an I hope that you are flattered that you are followed by private banks is Switzerland. Quick question on your last note; please can you tell me what (Bloomberg/Reuters) code you use for Chinese Margin debt? i.e. where can I cross-reference the Trillion Yuan figure you quote? Best regards and many thanks, Nicolas I certainly was unaware I was followed by banks in Switzerland. Thanks! The Bloomberg data is from SSE Margin, in Chinese. I asked my friend Chris Puplava at Financial Sense if he was aware of a Bloomberg tracking symbol. We do not believe there is such a symbol for margin. However, Chris did locate this interesting chart of the Shanghai stock market vs. new accounts that is available on Bloomberg. Shanghai Stock Index vs. New Accounts click on chart for sharper image I get lots of data from readers, and I appreciate it! In regards to China, reader Norman writes ... Hello Mish, Thanks for your "straight talk" on important issues impacting our financial lives. You recently sent information concerning China's GDP. A good indicator of growth is found in sales of construction equipment. Construction equipment manufacturer Komatsu lists its equipment orders by location. The numbers speak for themselves concerning growth and China. Keep up the good work! Norman Komatsu Orders click on chart for sharper image Komatsu is just a single manufacturer. It may not be representative of all such activity and orders. But given the collapse in commodity prices such as iron ore, I suspect it is. If so, this segment of the Chinese economy looks like a disaster. Those expecting a rebound in Chinese housing or construction are likely mistaken. The new game in town is clearly stock market speculation. Chinese Growth My post Reality Check: How Fast is China Growing? Global Recession at Hand is also consistent with the China rapid slowdown thesis. 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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