Mish's Global Economic Trend Analysis

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• European Bond Spreads Show ECB Losing the Containment War on Italian Bond Yields
• How Many Unemployed Have Exhausted All Benefits?
• IMF Officials say Troika Expected to Approve September Greek Loan Tranche; Papandreou, IMF Clearly Delusional; Greek 1-Year Bond Yield Hits 139%
• Greek 1-Year Debt Yield Hits 108%, Still No Comment From Trichet; U.S. and Germany 10-Year Yields at New Record Lows
• Juncker Lies to Forefront; Greece Hikes Property Tax via Electricity Bills; European Banks Sink; Downgrades Coming

European Bond Spreads Show ECB Losing the Containment War on Italian Bond Yields Posted: 12 Sep 2011 11:11 PM PDT Curve Watchers Anonymous is taking a look at 10-year bond yields and bond spreads in the Eurozone. Interest on 10-Year bonds in Italy are down from the spike high after the ECB stepped in with purchases as shown in the following chart. However, the chart also shows rates have inched back up and have now taken back about half of the ECBs effort. Italy 10-Year Government Bonds Spreads vs. Germany are another way of looking at things. Here is a table I put together with data from Bloomberg as of Sunday evening. Country 10-Yr Yield Spread vs. Germany Germany 1.77 0.00 France 2.48 0.71 Belgium 3.90 2.13 Spain 5.16 3.39 Italy 5.41 3.64 Ireland 8.64 6.87 Portugal 11.14 9.37 Greece 20.55 18.78 While some countries have gotten much tighter (notably Ireland), others have gotten worse, notably France. I asked Chris Puplava at Financial Sense if he could chart that idea over time. Greece is so far removed for other countries and it so distorted the charts we removed it. 10-Year Government Bond Spreads vs. Germany On a spread-basis, the only country whose yields have collapsed is Ireland. Italy, Belgium, France and Spain are at or close to spread highs. Also note how France is creeping up. 1-Year Government Bond Spreads vs. Germany Portugal does not have a 1-year symbol so the math is not on a consistent basis with the others. On 1-year spreads, Italy, Spain, and Belgium are at new highs, suggesting the ECB is losing the containment war on Italian bond yields. 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.

How Many Unemployed Have Exhausted All Benefits? Posted: 12 Sep 2011 08:01 PM PDT Reader "Mike" is wondering how many unemployed have exhausted all benefits. Hello Mish I was wondering if you would hazard an estimate as to the current number of unemployed who have exhausted all benefits. I know BLS and Department of Labor don't keep track of that population. I did see your estimate last year in Question of the Day: How Many People Have Exhausted All Their Unemployment Benefits? Do you have an update? Thanks Mike I pinged Tim Wallace who made the previous estimate, and here is Tim's response. Hello Mike(s) This is a hard one to answer because I cannot find any government numbers in my searches. I can however tell you these facts: In January of 2009 there were 133,886,830 people in the state unemployment pool footnotes in the weekly unemployment report. Today there are 125,807,339, a loss of 8,079,491 unemployment insurance covered positions. The federal EUC2008 extended program at that same time covered 2,147,837 people. Today the various federal extended programs cover 7,169,176, a net increase of 5,021,339 covered people at the federal level. Since we know there were 8,079,491 people who have totally dropped off the state level roles and there is a net increase at the federal level of 5,021,339 people, we can safely assume that 3,058,152 people have exhausted all benefits - they are no longer covered on either sets of roles. However, it is more complicated than that. We know also that in the years leading up to this economic depression, covered employees rose by an average of 1.9 million people per year - people entering the workforce in positions with benefits. Given the economy has been harsh for several years, not all the 1.9 million new job seekers have found positions. Let's assume 1/2 of them did (2,000,000 in two years), and that number is reflected in the 125.8 million covered workers. Let's also assume 2 million younger workers took jobs of older, higher priced workers who were displaced and lost benefits. It could easily be greater. Adding 2 million to line three and rounding up a bit, I would reasonably assume that roughly 5,100,000 people have exhausted all unemployment benefits. Another interesting thing to note and remember is that social security payouts which averaged an annual increase of about 3% net after COLA adjustments increased by 8% net in FY 2009. They are back to tracking 3% now in the past two years as there is no COLA adjustments and that is the net increase. I would safely say that a large number of people who took the hit in 2009 simply retired and never re-entered the workforce. There is absolutely no excuse for this information to not be a readily accessible from the BLS or Department of Labor. Tim Thanks Tim Hello Mike, the answer seems to be a minimum of 3 million and more likely 5 million or so. 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.

IMF Officials say Troika Expected to Approve September Greek Loan Tranche; Papandreou, IMF Clearly Delusional; Greek 1-Year Bond Yield Hits 139% Posted: 12 Sep 2011 09:11 AM PDT The humane thing to do to a rabid dog is put it out of its misery. The humane thing to do to Greece is the same. Instead, officials in Germany, the EU, and IMF insist on putting Greece through another round of austerity measures inhumane torture in return for "one more" tranche of money. Disgustedly, but not at all unexpectedly IMF officials say Troika Expected To Approve Greek Loan Tranche This Month Greece's creditors are expected to give the thumbs-up for the disbursement of the next tranche of its 2010 bailout pact later this month after the Greek government announced new taxes to cover a EUR2 billion revenue shortfall, said two senior International Monetary Fund officials familiar with the matter. The IMF officials, who have direct knowledge of the talks, warned, however, that this was Greece's last chance and that the scheduled December installment would be more difficult to arrange unless budget targets are met. The Greek government and its so-called troika of creditors--the IMF, European Union and European Central Bank--are scheduled to meet again this week to discuss the payout of the next EUR8 billion tranche amid worries in financial markets that Greek austerity steps so far haven't met the troika's conditions. The two IMF officials dismissed speculation of an impending Greek default or exit from the euro-zone. But they said Greece nonetheless remains the biggest problem for the common currency and that it is imperative that Athens follows up on its promises to cut down the public sector and tackle tax evasion. The IMF officials said allowances must be made for the harshness of Greece's recession. This contrasts with ultimatums from some of its euro-zone partners, with Germany in particular warning that this month's next payout to Greece from its bailout agreement would be withheld if Athens failed to close a widening budget gap. Finance Minister Evangelos Venizelos Sunday imposed a new property tax over the next two years to cover the EUR2 billion revenue shortfall, in line with a promise to Greece's creditors in exchange for receiving fresh aid. Without the aid, Greece will run out of cash within weeks, according to senior Greek officials. Greece has been reluctant to take new austerity measures that it said would deepen a recession the government blames for its inability to meet this year's deficit target of 7.6% of gross domestic product. It forecasts a deficit of around 8.2% of GDP, and argues that existing measures are enough to close the gap. The troika sees the deficit at 8.8% to 9% this year and asked Greece to for fresh austerity moves. "I think this is Greece's last chance," the first official said. "If promised reforms are not implemented by the next review in December, things for Greece will become much more difficult with the next loan tranche far from certain. The Greek government knows that emergency measures like new taxes can only get them to a point before the population reacts in a dramatic way. They need sustainable measures with a smaller public sector where everyone is paying his fair amount of taxes. Only then the country can return to a sustainable path." Taxes on the Dead Raising taxes on the dead cannot possibly help. Yet, that is precisely what Germany, the IMF, and the EU want Greece to do. Papandreou, IMF Clearly Delusional Papandreou is not only willing to go along with the program, he gave a "we need to get with the program, rally speech" based on it. Papandreou effectively said "I am pleased to announce we are going to raise your electric bills so we can bail out French and German banks." Papandreou is delusional and so is the IMF. There is no conceivable way hiking property taxes can help Greece. The real world seems to agree. Greece 1-Year Government Bond Yield 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.

Greek 1-Year Debt Yield Hits 108%, Still No Comment From Trichet; U.S. and Germany 10-Year Yields at New Record Lows Posted: 12 Sep 2011 02:35 AM PDT Greece 1-Year Government Bond Yield I have been expecting Greek yields to surpass 100% and here we are, and still with no comment from ECB president Jean-Claude Trichet. Meanwhile U.S. the 10-Year treasury yield hit a new all-time low of 1.89% and the German 10-Year bond yield hit a new all-time low of 1.72% Yield on the 10-year Italian bond rose .06 to 5.47%. So, what's Trichet going to do for his going away party? 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.

Juncker Lies to Forefront; Greece Hikes Property Tax via Electricity Bills; European Banks Sink; Downgrades Coming Posted: 12 Sep 2011 02:06 AM PDT Acting on the theory "what the world needs now is lies sweet lies" EU's Juncker says euro zone prepared to boost EFSF "We will do everything that will be needed in order to defend the euro," Juncker told newsagency Market News International, who added that that included increasing the size of the EFSF. Juncker was also quoted as saying the euro zone would present "a proper solution in the next couple of days" to address Finland's demand for collateral in exchange for further Greek aid. The only realistic ways to address Finland's concern for collateral are: 1. Talk Finland out of it 2. Get Greece to provide collateral In regards to a bigger EFSF, even if the German parliament passes the increase (and it may not), it won't be enough. Finland, the Netherlands, and Austria will not go for larger increases so my BS meter says Juncker is engaging in his favorite pastime, telling lies to placate the public. The markets are not buying a word of it. Greece Hikes Property Tax via Electricity Bills At some point one would think that tolerance for more self-inflicted pain would run out. So far, when it comes to Greece, one would be wrong. Please consider Greek Finance Minister Announces Fresh Property Tax as PM Uses Annual Speech as Rallying Call Finance Minister Evangelos Venizelos heralded fresh austerity measures over the weekend, chiefly a new property tax, a day after Prime Minister George Papandreou insisted that his government would do everything necessary to plug a gaping budget deficit and secure the next installment of emergency funding on which the country's solvency depends. Noting that the next two months would be "hellish," Venizelos told a press conference earlier Sunday that the government had no option but to do "everything necessary" to cover a budget shortfall, estimated at 2 billion euros, following a deeper-than-expected recession. The new charge, the latest in a series of tax increases, will range from 50 cents to 10 euros per square meter according to the value of the property and will apply for two years, Venizelos said, noting that the tax would be added to electricity bills to thwart would-be tax evaders. There will be concessions for the disabled, the unemployed and large families. In an apparent dig at EU leaders' procrastination in honoring the terms of a second bailout to Greece, Papandreou said the country "would not become the scapegoat for institutional problems and populism in Europe." Papandreou concluded by appealing to Greeks' sense of nationalism and responsibility, appealing to business owners to pay taxes and to young Greeks not to leave. "Greece can become a different county. But this cannot happen without you," he said. Papandreou Clearly Delusional Papandreou effectively said "I am pleased to announce we are going to raise your electric bills so we can bail out French and German banks." Papandreou is delusional. There is no conceivable way hiking property taxes can help Greece. European Banks Sink; Downgrades Coming Please consider European Banks Valued at Post-Lehman Lows Show Sovereign Risks Are Growing Investors are valuing European banks at levels not seen since the depths of the credit crunch that followed the collapse of Lehman Brothers Holdings Inc. as concern over a Greek default and debt contagion escalates. A Bloomberg index shows 46 lenders trading at 0.56 times book value, the cheapest since the post-Lehman lows of March 2009, signaling investors estimate their net assets are worth less than the companies claim and are demanding discounts for perceived risks. Valuations reflect the impact of a potential sovereign default for some banks, according to Barclays Capital analysts led by Jeremy Sigee. BNP Paribas (BNP), Societe Generale and Credit Agricole tumbled in Paris trading on a possible ratings cut by Moody's Investors Service, extending their more than 40 percent slide in the last three months. France's three largest banks by market value may have their credit ratings cut as early as this week because of their Greek holdings, two people with knowledge of the matter said. Societe Generale said today it plans to sell 4 billion euros ($5.4 billion) in assets by 2013 to reassure investors about its finances. The lender said it holds about 900 million euros of Greek bonds and has "no significant" Irish or Portuguese debt. The 90 banks that underwent European stress tests would face an estimated capital shortfall of 350 billion euros if Greek, Portuguese, Irish, Italian and Spanish government bonds were written down to market values, according to Nomura analysts led by Jon Peace. No "practical" amount of capital can prepare them for a large sovereign debt impairment or default, Nomura said in a note on Sept. 7. Downgrade Coming Up Via Google Translate, RTL reports Rating of three French banks may be degraded French banks threatened by a bad blow. The Perfect Storm market: Crédit Agricole, BNP Paribas and Societe Generale should undergo degradation of their notes in the coming days by the rating agency Moody's, due to their exposure in the Greek crisis. Since 1 January, the Societe Generale saw its market value fall by 56%. The CAC 40 in the above image is the French stock market index, a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Paris Bourse. French banks are likely reacting to market forces, not a downgrade by Moody's. 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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