miercuri, 22 iunie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Poll: Are You Confident in Ben Bernanke?

Posted: 22 Jun 2011 01:20 PM PDT

CNBC is conducting a poll: Are You Confident in Ben Bernanke?
The Fed makes its announcement on the state of the economy Wednesday at 12:30 p.m. Then at 2:15 p.m. Fed Chief Ben Bernanke will address the media in the form of a news conference. With that in mind, we want to know if you have confidence in the way Mr. Bernanke is handling the economy?
Here are the humorous results of the CNBC poll as of 3:06 PM Central 2011-06-22.



Of course this prompts me to ask the same question.



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

Fed Lowers GDP and Inflation Forecast, Disingenuously Frets Over Fiscal Recklessness; Over and Under Bets

Posted: 22 Jun 2011 12:04 PM PDT

The Fed has lowered (yet again) its economic forecast. It also lowered its inflation expectations, primarily because of falling gasoline prices.

Please consider Fed dims outlook for jobs and growth for 2011
Federal Reserve officials are more pessimistic about prospects for economic growth and employment than they were two months ago.

In an updated forecast, the Fed estimated Wednesday that the economy will grow between 2.7 percent and 2.9 percent this year. That's down from its April estimate of between 3.1 percent and 3.3 percent. The downgraded revision is an acknowledgment that the economy has slowed, in part because consumers have been squeezed by higher gasoline prices.

Growth at the rate the Fed is projecting won't be enough to significantly lower unemployment, now at 9.1 percent. The Fed estimates that unemployment will still be around 8.6 percent to 8.9 percent by the end of the year.

Growth would need to pick up in the second half of this year to meet even the reduced estimates of the private economists and the Federal Reserve. The economy grew at an anemic 1.8 percent annual rate in the first three months of the year. Many economists believe the economy is expanding only slightly more in the current quarter.

The Fed trimmed the top range for overall inflation in the new forecast. That reflects the fact that the spike in energy prices earlier this year has begun to recede.

The central bank now sees inflation rising 2.3 percent to 2.5 percent this year, as measured by a price gauge tied to consumer spending. That compares with an April forecast that showed a higher upper range of 2.8 percent.

The Fed estimates that "core" inflation, which excludes energy and food, will increase 1.5 percent to 1.8 percent. That's slightly higher than its April forecast of an increase of 1.3 percent to 1.6 percent. The revised estimate is still within the Fed's comfort zone for inflation.
Over and Under Bets

I will take the "over" on the Fed's unemployment rate and the "way-under" on GDP. From where I sit, this economy has all but stalled.

Disingenuous Fretting Over Fiscal Issues

Bloomberg reports Fed Officials Fretting Over Fiscal Recklessness
Federal Reserve Chairman Ben S. Bernanke is stepping up his call for the government to rein in the federal deficit -- just not now.

The central bank chief and his lieutenants are expressing concern that Congress's failure to close what Dallas Fed President Richard Fisher called the nation's "fiscal sinkhole" puts the economy at risk. At the same time, they say that acting too quickly may choke off a recovery hobbled by an unemployment rate above 9 percent.

Lawmakers such as Senator Pat Toomey, Republican of Pennsylvania, and Senator Ben Nelson, Democrat of Nebraska, are insisting on spending cuts as a condition for an agreement to raise the debt limit. Bernanke, in a June 14 speech, said the limit shouldn't be used as a bargaining chip to force cuts, and that failing to raise the cap could cause "severe disruptions" in financial markets.

"I urge the Congress and the administration to work in good faith to quickly develop and implement a credible plan to achieve long-term sustainability," Bernanke said.

Politics of Budget

The Fed is "concerned with the playing around and the politics of the budget," said Robert Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. "Their belief is that fiscal stimulus is the way to get out and get the economy growing faster."

While Fed officials are urging lawmakers to adopt a long- term plan to lower budget deficits and the debt, they are warning against cutting too quickly.

"No issue is more important than a credible commitment for getting our fiscal house in order, but at a pace that does not forestall a sustained recovery," William C. Dudley, president of the Federal Reserve Bank of New York, said in a June 7 speech.
Keynesian and Monetarist clowns never want to do anything now. Instead they want to appear as if they will support fiscal and monetary soundness, tomorrow.

In practice, tomorrow never comes. The Fed's statements on fiscal policy are disingenuous claptrap, at best.

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

Papandreou Survives for Now; No One Cheers, Nothing has Changed; Nonsensical Proposal from German Finance Minister to Save Greece

Posted: 22 Jun 2011 05:59 AM PDT

Greek prime minister George Papandreou survived a vote of confidence as expected. However, nothing has changed. Greece will now default later rather than sooner. Papandreou will not survive the next election given support of a mere 20% of the Greek population.

Spanish 10-year government bonds are still an elevated 5.5%, unchanged following the vote of confidence. Meanwhile, Portuguese bonds have worsened, with 10-year yield hitting a new high of 11.34%.

No One Cheering, Nothing is Fixed

No one is cheering loudly (except protesters) for the simply reason nothing is fixed.

Structural problems remain in the economies of Greece, Spain, Ireland, and Italy. The Euro itself has structural problems.

Greek Government Survives Vote of Confidence

Reuters reports Greek government survives vote, battles on to avert bankruptcy
Speaking just hours after the vote, Mohamed El-Erian, head of Pimco, the world's biggest bond fund, said he expected Greece to end up defaulting on its debt.

"For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default," El-Erian told a conference in Taipei.

All of Papandreou's Socialist Party deputies voted solidly with the government, handing him a victory by 155 votes to 143 with two abstentions, while thousands of protesters besieged the parliament building, shouting insults at politicians and shining hundreds of green laser lights at the building and at Greek police.

Most analysts remain skeptical that Greece will be able to reduce its vast public debt pile of 340 billion euros, 1.5 times its annual economic output and more than 30,000 euros for each of its 11.3 million people, even if the reforms are implemented.

As parliament debated the confidence motion, demonstrators stepped up their protests in the square, where hundreds have camped for weeks to show their opposition to more austerity, which has deepened the worst recession for 37 years.

"I believe we should go bankrupt and get it over with. These measures are slowly killing us," said 22-year-old student Efi Koloverou. "We want competent people to take over."

Glykeria Madaraki, a 39-year-old unemployed woman, said: "God help us. There is no way these people are getting us out of the crisis. I feel insecure and I see my country being sold off. They didn't ask what we think about all this. I want elections."

Inside parliament the opposition poured similar disdain on the government.

"This is not a program to salvage the economy, it's a program for pillage before bankruptcy," said Alexis Tsipras, head of the small opposition Left Coalition.
Needed Reforms or Program for Pillage?

The correct answer to the above question is both.

Many of the reforms Papandreou has agreed to are indeed necessary. To be competitive, the retirement age in Greece cannot be 7 years earlier than in Germany. Greek public unions need to be shown the door.

However, it's a huge mistake to think reforms and austerity will do anything for Greece any time soon.

Pledging of assets at fire-sale prices won't help.

Time for common sense on Greece

Martin Wolf says it's Time for common sense on Greece
[The Greek] debt profile has moved from horrible to still worse: in the initial programme the ratio of gross debt to GDP was forecast to peak at 149 per cent of GDP in 2012. In the March review this had already jumped to 159 per cent. Second, the economy looks extraordinarily uncompetitive. The most telling indicator is the combination of the still huge current account deficit with a deep recession. This external deficit cannot now be financed in the market. Third, prospects for the current account deficit are seen to be deteriorating sharply: initially, the IMF forecast the current account deficit at 2.8 per cent of GDP in 2014; in the March review, it forecasts this at 5.5 per cent of GDP. Fourth, without a surge in exports, it will be impossible to return to sustainable growth. But such a surge will require a big reduction in nominal costs. If this is feasible at all, which I doubt, this will raise the ratio of debt to GDP still more.

The market's scepticism about the ability of Greece to become creditworthy is warranted. It rests on awareness of two facts: the massive indebtedness and the lack of competitiveness. The fact that the Greek people are unwilling to bear the pain merely makes the already implausible quite inconceivable. If this was the state of, say, Finland, one might just believe it. Rightly or wrongly, few believe that today's Greece is another Finland.

When an outcome is inevitable, it is necessary to plan for it. In this case, that outcome seems to most informed observers inevitable. I can see little merit in having Greece default to the public sector years of agony hence rather than to the private sector soon. The best policy is to act pre-emptively. One aspect of such pre-emption would consist of acting to shore up other fragile eurozone members and financial systems more strongly than now. In at least one case, Ireland, that might require debt restructuring. This will also surely require a further move toward a eurozone-wide financial system, with matching fiscal support.

Yet the principal requirement now is to recognise unpleasant reality. One cannot make the incredible credible by endless delay. One can only make the recognition of reality more painful when it finally comes. The time has surely come to recognise the reality of the Greek predicament and act at once on the wider ramifications for its partners.
Schäuble wants to turn Greece into a hub for renewable energy

Euro Intelligence reports on German Finance Minister's Proposal to Save Greece.
Wolfgang Schäuble thinks that Greece will be very competitive as a potential exporter of renewable energy in the future. "One approach could be to push the Mediterranean countries stronger to participate in our push towards renewable energy, for example with solar energy", Schäuble told the weekly Die Zeit. "Greece has many more hours of sun per year than we do in Germany and it could export electricity to us. With that the Greek economy would have a competitive and desired export product. Without this and other growth perspectives I would be very hard pressed to burden the German tax payer with the considerable risk of a new (rescue) program (for Greece)."

Schäuble has so far not made a single plausible proposal about how to return Greece to sustainability. When he talks about solar energy at a time like this, he tells us that they really clueless.
That proposal by Schäuble shows just how unlikely it will be for officials to display the common sense that Martin Wolf requests.

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

Cash Crunch in China, Government Bill Sale Canceled, 7-Day Repo Rate Hits 8.81%

Posted: 22 Jun 2011 03:39 AM PDT

Bloomberg reports China Money Rate Reaches Three-Year High as Bill Sale Suspended
China's money-market rate climbed to the highest level in more than three years as a worsening cash crunch prompted the central bank to suspend a bill sale.

The seven-day repurchase rate, which measures interbank funding availability, has more than doubled since June 14, when the People's Bank of China ordered lenders to set aside more money as reserves for a sixth time this year. The central bank suspended a sale of bills tomorrow, according to a statement on its website today.

"Banks have to hoard cash to meet the regulator's capital or loan-to-deposit requirements by the end of every quarter," said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation's sixth-largest lender. "So we won't see the shortage easing."

The seven-day repo rate gained 47 basis points, or 0.47 percentage point, to 8.81 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 8.93 percent, the highest level since October 2007.

The yield on the 2.77 percent government bond due May 2012 gained two basis points to 3.63 percent, according to the Interbank Funding Center.
Shibor Rates - Overnight to 1 Year as of 2011-06-22



Here is a link to Shibor, Shanghai Interbank Offered Rates
Shibor (Shanghai Interbank Offered Rate) is calculated, announced and named on the technological platform of the National Interbank Funding Center in Shanghai. It is a simple, no-guarantee, wholesale interest rate calculated by arithmetically averaging all the interbank RMB lending rates offered by the price quotation group of banks with a high credit rating. Currently, the Shibor consists of eight maturities: overnight, 1-week, 2-week, 1-month, 3-month, 6-month, 9-month and 1-year.

The price quotation group of Shibor consists of 16 commercial banks. These quoting banks are primary dealers of open market operation or market makers in the FX market, with sound information disclosure and active RMB transactions in China's money market.
Soaring short-term rates is a sign of lack of credit stress and lack of liquidity.

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