Mish's Global Economic Trend Analysis

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• Opposition Leader Rejects Co-Government, Demands Resignation of Papandreou; Basking in the Clouds of Denial
• Eurozone's Waterloo; Papandreou Forced to Cancel Referendum; Democracy Dies to Protect Banks; Germany's Dilemma: The Eurocratic Nanny Zone Vote
• Bank of America Employees Flood Rivals with Resumes; BNP, ING Book Charges on Greek Debt, Slash Jobs; "Project New BAC" on Rip-Roaring Start
• ECB Cuts Rate .25 to 1.25% in Surprise Move; Draghi Says Exit of Any Nation From Euro ‘Not in the Treaty’; Half-Truths and Blatant Lies; Case for Gold
• Greek PM is History says Governing Socialist Lawmaker; Papandreou has Single Vote Majority in 300 Seat Parliament; Emergency Cabinet Meeting Called
• Italy, Spain Sovereign Debt Yields Soar, German Yields Drops; Wording of the Resolution Still an Open Question; Markets Won't Wait

Opposition Leader Rejects Co-Government, Demands Resignation of Papandreou; Basking in the Clouds of Denial Posted: 03 Nov 2011 12:13 PM PDT It is exceptionally difficult to keep up with news stories in Europe. Every minute there is a new twist. What's clear is that no one is in charge, of anything. Via Email from Steen Jakobsen at Saxo bank .... Leader of opposition [Antonis Samaras] just finished talking in parliament He rejects any co-government, short, medium or long-term with the ruling Pazok party He demands PM resigns at once (which the PM says he will not) and creation of a new short-term emergency government - to calm the Greek people and the rest of Europe. An emergency government that will first and foremost secure the 6th payment to Greece, the realization of the latest debt package, Greece' membership in EUR and Eurozone and then once the waters have calmed ( most likely within 3 months) to hold elections The Finance Minister takes the stand after Samaras, asking if he is truly ready to do what he says, i.e. accept every single detail of the debt package, which is a must to ensure not only the 6th but also future payments to Greece. That he cannot pick and choose within the package- that it is an all or nothing package. This because Samaras has clearly in previous week said he agrees with the haircut but not with the specific austerity measures defined in the package. Greek opposition leader walks out of parliament CTV reports Greek opposition leader walks out of parliament Greece's Opposition leader Antonis Samaras is continuing his calls Thursday for Prime Minister George Papandreou to resign, even going so far as to lead his party in a dramatic walkout during a parliamentary debate on government confidence. Papandreou was said to be ignoring the calls for his resignation, after scrapping his plan for a referendum on the European bailout deal. CTV's London Bureau Chief Tom Kennedy said Papandreou outlined his plans during an impassioned emergency cabinet meeting Thursday. "He described all Greeks as soldiers in an army that must fight for the salvation of the country, so you can see the rhetoric he's using," Kennedy told CTV News Channel. Basking in the Clouds The market is still basking in the clouds of a canceled referendum and the defeat of democracy, and has not reacted to this latest news. Thus we have to wait and see what the vote of confidence looks like tomorrow. 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.

Eurozone's Waterloo; Papandreou Forced to Cancel Referendum; Democracy Dies to Protect Banks; Germany's Dilemma: The Eurocratic Nanny Zone Vote Posted: 03 Nov 2011 10:41 AM PDT Cowards Win For Now We will not get to see the precise wording of Prime Minister George Papandreou's referendum because enough cowards in the Greek parliament in conjunction with blackmail by Merkel and Sarkozy have put an end to Papandreou's regime. Thus, the on-off on-off Greek referendum is once again set to "off" this time permanently. Equity markets reacted positively to the referendum cancellation and also to the surprise rate cut by the ECB, but the euphoria will not last (except perhaps for gold). Please see ECB Cuts Rate .25 to 1.25% in Surprise Move; Draghi Says Exit of Any Nation From Euro 'Not in the Treaty'; Half-Truths and Blatant Lies; Case for Gold for a a discussion. Grand Plan Becomes Eurozone's Waterloo Steen Jakobsen, chief economist at Saxo Bank says The Grand Plan for Europe became the Waterloo of the Eurozone The pre-Cannes meeting between Merko-zy and Papandreou did not change the mind of the Greek Prime Minister. The vote of confidence or more precisely the lack of it, is still going ahead and will probably culminate tomorrow, Friday. This morning the Greek Finance Minister is indicating his displeasure with the PM by publicly opposing Papandreou - this is political posturing developing into a contention for the leadership of the political party PASOK. There is a brief rally in the market based on the idea, wrongly in my opinion, that the finance minister can and will take over and win a confidence vote, but the facts remains the same: Greece has been pushed too far and has not complied with the austerity it promised We are beyond any proper solution for this mess and only the 'blame game' remains with Greece potentially leaving the EURO inside of the next three months. Note also that the influential newspaper Bild Zeitung this morning is calling for Greece to be thrown out of the EU and to have a German referendum on the bailouts. Waterloo of EU Last week's EU Summit looks more and more like the Waterloo of the EU. The EU has overstretched its ability and resources and the next 48 hours is yet again about saving the concept of the Eurozone as a powerful, pragmatic way of conducting fiscal and monetary policies, but in reality we have become saturated with debt, empty promises, and a political system which is reduced to producing plans for later plans. Weak Economies, Weak Leaders, and Greece on the Brink I have not agreed with much in the New York Times recently, but today's editorial Greece on the Brink is nearly flawless. Here are a few snips. Europe's leaders should have paid more attention to the distress of ordinary Greeks and less to the distress of well-heeled European bankers. Rather than trying to punish the "profligate," they should have thought about the consequences of condemning Greece to years of negative growth, soaring unemployment and rising taxes with nothing promised in return except that maybe, a decade from now, its ratio of debt to gross domestic product might get back down to the problematic levels of 2008-9. Greece needs to make serious, painful reforms, including doing away with antiquated labor rules, streamlining a bloated public sector and selling off poorly managed state assets. Mr. Papandreou was already making real progress. But it was becoming impossible to keep laying off thousands of state workers while austerity choked off any realistic possibility of their finding private sector jobs or to keep slashing social benefits and services while the numbers of poor and unemployed surged. It is late but, we hope, not too late to avert a full meltdown. Europe's leaders need to renegotiate the pending Greek bailout deal to emphasize reform and growth over unremitting austerity and offer other bailout applicants the same approach. If they want any of the money lent to Greece paid back, Athens needs room to grow and earn. Chancellor Angela Merkel of Germany, President Nicolas Sarkozy of France and others are now rushing to blame the Greeks for the summit package's rapid unraveling. They need to take their own full share of responsibility for this crisis — and finally fix it. Democracy Dies to Protect Banks The spot-on sentence is "Rather than trying to punish the 'profligate', they should have thought about the consequences of condemning Greece to years of negative growth, soaring unemployment and rising taxes with nothing promised in return except that maybe, a decade from now, its ratio of debt to gross domestic product might get back down to the problematic levels of 2008-9." Indeed, resolution of this mess has been 100% about how to bail out banks at taxpayer expense even though banks brought this mess on to themselves by treating sovereign debt as if it had zero risk. Worse yet, banks plowed into sovereign debt trades with massive leverage. Eurozone is Unfixable My one quibble with the article is the Eurozone is not fixable. Merkozy and the EMU ought to be spending time on developing a full blown Euro exit strategy for nations because there has never been a currency union in history that has survived without a fiscal union in place at the same time. Germany is Last Hope for Sensible Democratic Referendum EMU officials and political opportunists like Merkozy may have been able to ram through some sort of forced agreement in a majorly undemocratic fashion but fortunately the German supreme court has insisted on a referendum for major treaty changes. Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details. Today, democracy died in Greece. The last hope for a sensible democratic action culminating in a relatively sanguine breakup of the Eurozone rests with Germany. German voters will get their chance sooner or later. Here is the choice German voters will face: German citizens agree to join a full-blown Eurocratic Nanny Zone (ENZ) giving up sovereignty on nearly everything that matters. The Eurozone breaks apart. There are no other choices, only half-way proposals to temporarily forestall the inevitable. Either way, there will be much pain for Germany. 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.

Bank of America Employees Flood Rivals with Resumes; BNP, ING Book Charges on Greek Debt, Slash Jobs; "Project New BAC" on Rip-Roaring Start Posted: 03 Nov 2011 09:05 AM PDT Damages related to Greek debt exposure continue to mount. ING and BNP have both taken writeoffs related to Greek debt and both are cutting jobs. Expect more damage related to sovereign debt in Spain, Portugal, and Italy as well as general writeoffs related to the European recession. Please see Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse for a discussion of the recession. In the US, Bank of America is shedding up to 30,000 jobs and BofA employees have flooded rivals with resumes. Here are a few key articles to consider. ING to Cut 2,700 Jobs to Cope With Deteriorating Market Please consider ING to cut 2,700 jobs, takes Greek hit Dutch financial services group ING Group (ING.AS) (ING.N) said on Thursday it would cut 2,700 jobs at its Dutch banking operations to cope with a deteriorating market, which led to Greek and other impairments. ING's announcement follows job cuts by other big Dutch lenders. Nationalised Dutch bank ABN AMRO ABNNV.UL is shedding 2,350 jobs -- some 9 percent of its workforce -- as the state readies it for a return to private hands, while Rabobank said it planned 1,200 job cuts to save costs. ING, which said it would go ahead with its plan to list its insurance operations by the end of 2013, took a 467 million euro writedown on Greek government bonds to put them at market value and said it has written down all its bonds to market value. BNP Books $2.76 Billion Charge on Greek Debt France's biggest listed bank BNP Paribas (BNPP.PA) reported a 72 percent slide in third-quarter earnings on Thursday after it booked a bigger-than-expected 2 billion-euro ($2.76 billion) charge on Greek debt and sold billions of euros' worth of government bonds. The charge equated to 60 percent of BNP's sovereign exposure to the crisis-wracked Greek economy and reflected last month's pledge from private-sector creditors to write off a bigger chunk of their Greek debt, the bank said in a statement, though it added the plan was still "shrouded by uncertainty." Describing the bank's Greek provisioning as "adequate" for the time being, BNP Chief Executive Baudouin Prot nonetheless did not rule out a Greek sovereign debt default, telling Reuters Insider TV it would be "unpleasant" but manageable. "A (Greek) default certainly would be manageable. Unpleasant, but manageable," he said. "I think that (BNP's provisioning) is adequate...We will see as things go." "We will have some staff reductions as we implement the deleveraging plan," he said. "We are working the numbers and we will make announcements to the different platforms in mid-November." Adequate for the Time Being The key phrase in the above article is the statement by BNP CEO that "Greek provisioning is 'adequate' for the time being". The emphasis needs to be on "time being" because the heart of the batting order, Portugal, Spain, and Italy are next up to the plate. "Time being" for Portugal and Italy may be a matter of days. Bank of America Employees Flood Rivals with Resumes Please note the increasing number of financial sector layoffs everywhere you look. ING, BNP, and ABN have all announced huge layoffs. In the US, Bank of America Employees Flood Rivals with Resumes Bank of America Corp employees are flooding rival companies with resumes as a major cost-cutting program gets under way at the second-largest U.S. bank. Competitors say they are getting an influx of calls, emails and LinkedIn connection requests as the bank embarks on a plan to slash 30,000 jobs over the next few years. The employees are scouting jobs in retail, commercial and investment banking, bankers and recruiters said. In recent months, Bank of America has laid off employees, including senior leaders, in consumer, human resources, capital markets and other areas, people familiar with the situation said. The cuts are part of a round of 3,500 layoffs announced in August and the first wave of Project New BAC, which takes its name from the company's stock symbol. Bank of America said it had 288,739 employees on September 30, up from 288,084 three months earlier, but about 2,000 have been told they will be let go. Efficiency at "New" Bank of America Those last two paragraphs highlight the efficiency of "Project New BAC". After announcing as many as 30,000 layoffs, supposedly 3,500 quickly, headcount is up by 655. Also note that Bank of America has dropped its plan to charge customers $5 a month for debit cards following a customer backlash after the fee was announced in September. For details, see the Wall Street Journal article BofA Retreats on Debit Fee, Citing Uproar. Yes indeed, "Project New BAC" is off to a rip-roaring start ... of the same blatant incompetence we have learned to expect from the "Old" Bank of America. 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.

ECB Cuts Rate .25 to 1.25% in Surprise Move; Draghi Says Exit of Any Nation From Euro ‘Not in the Treaty’; Half-Truths and Blatant Lies; Case for Gold Posted: 03 Nov 2011 08:25 AM PDT In a surprise move the ECB cut rates by 25 basis points. They had plenty of reasons to do so such as German PMI contraction, Eurozone contraction, postponement of the EFSF bond sale, and the surprise referendum in Greece. Surprises and emergency meetings to address the surprises are the order of the day as Bloomberg reports German Two-Year Notes Climb After ECB Unexpectedly Cuts Key Rate to 1.25% Italian securities jumped as the ECB's Governing Council cut the rate to 1.25 percent, a move predicted by just four of 55 economists in a Bloomberg survey. The median estimate forecast no change. Greek two-year yields rose above 100 percent for the first time after European leaders yesterday suspended aid to the nation pending a vote they said would determine whether it stays in the euro area. Significant cuts to growth forecasts are likely, Mario Draghi said in his first press conference as ECB President. "The ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half and beyond," Draghi said at a press conference in Frankfurt. "The economic outlook remains subject to particularly high uncertainty and intensified downside risks." When you don't want say anything you say something like "the economic outlook remains subject to particularly high uncertainty and intensified downside risks" which is of course what Draghi said. It is also meaningless because it is what everyone on the planet should understand already. Exit of Any Nation From Euro 'Not in the Treaty' In response to a reporter's question, Draghi says Exit of Any Nation From Euro 'Not in the Treaty' European Central Bank President Mario Draghi said on Thursday that an exit of a member from the euro area is not in the treaties governing the European Union. "It's not in the treaty," he said in response to a reporter's question. "We are all bound by the treaty. We cannot really conceive of situations which are not envisaged in the treaty." Half-Truths and Blatant Lies It is certainly true the Eurozone treaty has no provision for exit. However, his second sentence "We cannot really conceive of situations which are not envisaged in the treaty" is a blatant lie. Of course he can conceive of a Eurozone exit because German Chancellor Angela Merkel and French President Nicolas Sarkozy threatened Greece with expulsion yesterday. Even without that threat, one would have to be a fool to think or believe nations will always honor treaties. The simple explanation is Draghi told a lie on purpose. The irony is the lie serves no purpose. Meanwhile on some combination of rate cuts and the possibility that Prime Minister George Papandreou will not last long enough to even get a vote on the referendum (see Greek PM is History says Governing Socialist Lawmaker; Papandreou has Single Vote Majority in 300 Seat Parliament; Emergency Cabinet Meeting Called for details), S&P futures swung a whopping 40 points in overnight action. S&P 500 Futures, 15-Minute Chart click on chart for sharper image Yo-Yo on Steroids As I said yesterday, the equity markets are acting like a yo-yo on steroids rallying every time there is a hint of a bailout and falling every time it appears there is a change in bailout plans. This is certainly not a healthy stock market. It is however, good for the price of gold, up more than $200 from the recent low. Gold Daily Chart There is absolutely nothing for the markets to be giddy about. China is slowing, Europe is in a recession, and the US is in recession or headed for one. Moreover, and as I have repeatedly said, the heart of the Eurozone "batting order", Portugal, Spain, and Italy have yet to be fully heard from. Meanwhile the bond market finally did react to the rate cut with the Italian 10-Year yield falling by 5 basis points. Italy 10-Year Government Bond Yield Lovely. Case for Gold It takes a 25 basis point cut to get a 5 basis point reaction if one measures to the previous day. At that pace the 10-year yield will be at 5.75% with gold at something like $2200 and the ECB's rate at .25% matching the Fed Fund Rate. Then what? Things look a little better (or worse) depending on your point of view if measured from the day's high yield at 6.40%. However, the ECB certainly will not be in a position to cut rates every time Italian bond yield surge forward. Moreover, if the ECB becomes the buyer of only resort for Italian bonds, it will quickly consumer the entire EFSF. All things considered, this euphoria over a rate cut is senseless, and if you are looking for reasons to own gold or to get out of equities, you have both. 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 PM is History says Governing Socialist Lawmaker; Papandreou has Single Vote Majority in 300 Seat Parliament; Emergency Cabinet Meeting Called Posted: 03 Nov 2011 02:57 AM PDT Will Prime Minister George Papandreou last long enough to even get a vote on the referendum he wants? We will not find out the wording on the referendum if the Prime Minister does not last long enough for the vote. As defections mount, Papandreou is down to a single vote majority and Yahoo! Finance reports a Greek governing Socialist party lawmaker says Prime Minister Papandreou is 'history' A Greek governing Socialist lawmaker says Prime Minister George Papandreou is "history," as lawmakers revolt against a planned referendum on the country's hard-won international bailout package. Dimitris Lintzeris said in a statement Thursday that Papandreou must convene an emergency meeting of party lawmakers. Papandreou' has already summoned a cabinet meeting at noon, after Finance Minister Evangelos Venizelos broke ranks with him on the referendum proposal. Earlier Thursday, Socialist lawmaker Eva Kaili also said she would not support the government in Friday's confidence vote, and urged Papandreou to reverse his decision to call a referendum . Without Kaili's support, the governing Socialists hold a one-seat majority in the 300-member parliament. In the course of about 2 hours S&P futures rallied nearly 20 points erasing a pre-market decline. S&P 500 Futures 15 Minute Chart Yo-Yo on Steroids Although the equity markets act like a yo-yo on steroids, the more important bond market saw no benefit to the potential ouster of Papandreou. A quick check shows the charts in my previous post are still valid. Here they are again for convenience. Italy 2-Year Government Bond Yield Italy 10-Year Government Bond Yield Spain 2-Year Government Bond Yield Spain 10-Year Government Bond Yield Germany 2-Year Government Bond Yield Germany 10-Year Government Bond Yield Unless something changes in a hurry, yield on Italian 10-year bond will be North of 7% and perhaps even 8% by the time the referendum is held. However, there may be no referendum if Papandreou is ousted. 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.

Italy, Spain Sovereign Debt Yields Soar, German Yields Drops; Wording of the Resolution Still an Open Question; Markets Won't Wait Posted: 03 Nov 2011 02:22 AM PDT Greek prime minister George Papandreou has called for a voter referendum in early December. However the wording of the referendum is still in question. If Papandreou is smart, he will stick it Angela Merkel and Nicolas Sarkozy with two distinct questions, the first on the Eurozone, the second on terms of the EFSF bailout. Please see Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum? for a discussion. It is conceivable I gave him too much credit. We will find out soon enough when the exact wording of the referendum is released. I suspect we may not see the wording until after the vote of confidence. Papandreou must first survive a vote of confidence on Friday. Assuming he does survive, will the markets wait a month for resolution to the referendum? We have strong hints this morning from the bond market that it won't. Italy 2-Year Government Bond Yield Italy 10-Year Government Bond Yield Spain 2-Year Government Bond Yield Spain 10-Year Government Bond Yield Germany 2-Year Government Bond Yield Germany 10-Year Government Bond Yield Unless something changes in a hurry, yield on Italian 10-year bond will be North of 7% and perhaps even 8% by the time the referendum is held. 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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