Central Perk: Mish's Global Economic Trend Analysis

marți, 2 noiembrie 2010

Mish's Global Economic Trend Analysis

Irish Bond Yields at All Time High; One Month Away From a Bailout; Pessimism Bubble "Faith-Based" Cure
Mid-Term Election Does Matter - It Really Does
9 Years of Housing Backlog at Current Sales Pace; Chris Whalen on Troubled Banks "Bank of America is at Top of Restructuring List"

Irish Bond Yields at All Time High; One Month Away From a Bailout; Pessimism Bubble "Faith-Based" Cure

Posted: 02 Nov 2010 12:49 PM PDT

Yields on Irish bonds are soaring once again. Bloomberg reports Ireland May Have One Month to Stave Off Bailout

Irish Finance Minister Brian Lenihan may have just one month to stave off an international bailout.

The extra yield that investors demand to hold Irish 10-year bonds over German bunds surged to a record today as Lenihan tries to put together a 2011 budget by Dec. 7 that convinces investors he can get the country's finances in order.

The premium on Irish bonds has doubled since August and is now wider than the spread on Greek debt four days before it sought a European Union-led bailout in April. That's putting pressure on Lenihan to cut the deficit and overcome both an economic slump and the rising cost of bailing out the country's banks.

While Ireland doesn't need to raise money this year, its 20 billion euro ($28 billion) cash pile may only last until the middle of 2011. Lenihan will pave the way for the budget when he publishes a four-year roadmap for cutting the deficit in the next two weeks.

Ireland's bond premium rose 13 basis points to 475 basis points today. That's 46 basis points above the level on Sept. 30, when the country's National Treasury Management Agency canceled debt auctions scheduled for October and November.

"There's a pessimism bubble out there on Ireland right now," said John McHale, an economics professor at Galway University in western Ireland. "To break that, the government's four-year plan needs to convince investors we won't need a bailout and we won't default. It needs to be as detailed as possible and include legislation where possible."

German proposals to put in place a permanent debt-crisis mechanism at EU level are also adding to Ireland's problems, says Harvinder Sian, a London-based analyst at Royal Bank of Scotland Group Plc. While German Chancellor Angela Merkel reiterated today that she wants to force bondholders to foot some of the bill of any future bailout of a euro member, some officials argue that could spook investors at a time when countries such as Ireland and Portugal are trying to cut deficits.

"Up to last week, I would have said that Ireland could avoid a bailout by taking the measures needed to reduce the deficit," said Sian. "Now, the measures being proposed by Angela Merkel are casting a shadow, not just on Ireland, but across the periphery."

Faith Based Cure

It's a faith based system. Believe there will be no bailout and no default and it won't happen. Really?!

Sorry folks, especially economic professors, it does not work that way.

Interestingly, market action suggests an Irish debt blowup does not matter but a potential Greece blowup did. Your faith in the ECB hath saved you ... until of course Spain and Italy face the same problems and the Greek debt blows sky high anyway.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mid-Term Election Does Matter - It Really Does

Posted: 02 Nov 2010 11:10 AM PDT

In response to Election Predictions - How Big the Blowout? I received a fair number of comments from cynics who say the "election just does not matter, that nothing will change".

Sadly, this defeatist attitude is part of the reason we are in this mess.

To be sure, we are not going to see a return to a gold standard as a result of this election. We are unlikely to rewrite healthcare until it blows sky high (but that may be sooner than anyone thinks). Nor will we eliminate the Fed. And unfortunately, we will not stop war mongering.

Those are certainly very important issues, but they are not the only issues. At stake is the crucial direction of the country in regards to critical issues that desperately need a different direction.

For example, Cap-and-Trade is dead. That is a good thing. Many of Obama's socialist policies are dead in the water as well. The following headline highlights one key issue of critical importance.

Labor Unions Fear Rollback of Rights if G.O.P. Wins

Please consider Labor Unions Fear Rollback of Rights if G.O.P. Wins

Organized labor is deeply worried about what happens after Tuesday. By many measures, labor unions have been the Republicans' fiercest, biggest-spending opponents in this year's campaign, laying out more than $200 million in hopes of safeguarding the Democratic majorities in the House and Senate.

So it should be no surprise that Republicans, who appear to stand a good chance of winning control of the House or the Senate, are signaling that they plan to push bills and strategies to undermine labor's political clout and its ability to grow.

One bill that is popular among Republicans would prohibit employers from ever agreeing to unionization through "card check," a process often used today in which an employer recognizes a union as soon as a majority of workers sign pro-union cards — without holding a secret-ballot election. Another bill would severely crimp labor's campaign spending by barring unions from using any portion of a union member's dues for political purposes unless the member first gives written permission.

A Republican-led House or Senate is expected to be more eager than a Democratic-controlled one to approve free trade agreements that unions oppose, and to be more reluctant to enact stimulus plans that unions have supported, like the recent bill that gave states $26 billion to help save the jobs of teachers, police officers and other government employees. A Republican-controlled House or Senate would probably block a labor-backed bill that would give firefighters and police officers in every state the right to unionize.

"We fear that the Republicans are on the march, and that's why we're doing everything we can to stop them," said Gerald W. McEntee, president of the American Federation of State, County and Municipal Employees, which is spending $91 million in the two-year campaign cycle.

"Most certainly, the issue of card check will be dead," said Doug Heye, a spokesman for the Republican National Committee. "That will be a victory for businesses large and small."

Mr. Heye said that many Republicans were likely to support legislation that would bar unions from spending members' dues on politics unless members first "opted in." Under current law, unions can spend a member's dues on politics unless the member first opts out, a little-known procedure that few workers have followed.

If the Republicans win control of the House, Representative John Kline, a Minnesota Republican, is expected to succeed George Miller, a Democrat from San Francisco, as chairman of the House Education and Labor Committee.

Mr. Kline is chief sponsor of the Secret Ballot Protection Act, a bill with 115 House co-sponsors that would bar employers from agreeing to unionization through card check. He has also criticized two policies that are favorites of construction unions: the Davis-Bacon Act, which requires that contractors on federal public works projects pay workers the prevailing wage, usually near the union wage, even if they are not unionized; and project labor agreements, which tend to tilt the awarding of federally financed construction projects toward unionized contractors.

Public Unions Have Bankrupted Cities and States

It is undeniable that public unions and their overly generous pension plans have bankrupted cities and states. It is important, indeed it is crucial that Congress address this issue.

We should not fear a rollback of labor "rights". Rather, we should fear NOT rolling back labor "wrongs".

We simply cannot afford another 2 years of Obamanamics with his public union pandering.

Bringing Public Union Issues to the Forefront

I am grateful for those like Jack Dean at Pension Tsunami and Steve Greenhut have brought these issues to the public's attention.

Please see Book Review: Five Thumbs Up for Steve Greenhut's Plunder! if you have not done so. Then read the book if you haven't! I assure you it will open your eyes as to what is happening and the importance of these battles.

Also check out Cal Watchdog "Your Eyes on California". Greenhut is one of the writers.

Local Level Politics

Mayors in cities across the country are beginning to learn that towing the Public union line is going to be a liability.

Propositions in California cities to rein in union excesses are taking shape in a big way, no doubt with the help of people like Jack Dean and Steve Greenhut.

State Level Politics

Chris Christie is a shining star. He stands above all the rest when leading the way on unions and fiscal sanity. I backed him form the beginning.

Before the election, cynics told me it would not matter. They were wrong. It certainly did matter. The proof is now obvious.

Pension Plans $3 Trillion in the Hole

Public pension plans are $3 trillion in the hole. For details, please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?

Please look at that map and tell me the election does not matter.

Pensions are the single largest issue cities and states face. Republicans taking over state legislatures, state governorships, and Congress will help resolve this issue.

Governor Chris Christie is leading the way.

Krugman Whining a Sign of Change in the Right Direction

One way you know the election matters is by the amount of whining Paul Krugman does. That whining gets louder each day. He wants more big government and more spending.

It's not going to happen, thanks to this election.

It should be crystal clear this election is about bailouts and fiscal spending. Conservatives have had enough. Sure there will be waste. However, there will be far less waste with the incoming Congress than the outgoing one.

Unfortunately, the one thing this election will not do is create jobs overnight. Yet in Congress, and in numerous state and local elections across the country we are slowly taking a step in the right direction when it comes to fiscal madness.

It's a start, but an important start.

If more cynics would stop bitching and moaning that nothing will change and start actively helping those like Jack Dean and Steve Greenhut to spread the word, while backing candidates like Chris Christie wherever they are, we would be even further along with this effort.

So yes, this election does matter. Don't let anyone tell you otherwise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

9 Years of Housing Backlog at Current Sales Pace; Chris Whalen on Troubled Banks "Bank of America is at Top of Restructuring List"

Posted: 02 Nov 2010 01:23 AM PDT

In a story that highlights just how severe and lingering the housing crisis is, the Wall Street Journal reports Number of the Week: 107 Months to Clear Banks' Housing Backlog

107: How many months it would take to sell banks' current and shadow inventory of foreclosed homes.

Banks' vast pile of foreclosed homes doesn't appear to be diminishing. That's a troubling sign for the future of the housing market.

Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.

Taking possession does not reduce shadow inventory since those are homes the banks will have to sell whether they are currently on the market or not. Regardless, the important number remains the same, a grand total of 107 months of inventory at the current sales pace.

Chris Whalen Video Discussing Bank Restructuring, Inventory

Select Quotes

You can't prevent restructuring. It's going to happen. Bank of America is at the top of the list. The bondholders and shareholders are going to get a haircut.