Mish's Global Economic Trend Analysis |
- European Crisis Through Eyes of 11-Year Old in Comic he Created
- "I Want You All Fired" Yet Another Fantastic Video from Nigel Farage, Speaking to European Parliament
- Greece Turns to Iran for Oil as Credit Shut Down Elsewhere; EU Considers Oil Sanctions on Iran
- Slovenian Bond Yield Breaks 7%, First Time Since Euro Entry in 2007; Might Slovenia Exit the Eurozone First?
- Whack-a-Mole Euphoria; Reflections on 6-Sigma Events
- We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission; Reflections on "Dangerous and Insane"
| European Crisis Through Eyes of 11-Year Old in Comic he Created Posted: 11 Nov 2011 11:11 PM PST Reader Geoffrey writes ... Dear MishPanel 1 of 2. Click on panels for sharper image.  Panel 2 of 2.  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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| Posted: 11 Nov 2011 03:32 PM PST Farage asks MEPs "What planet are you on?", then proposes they all be fired. It's an awesome video. Please play it as a stark contrast to everyone wanting to keep the Eurozone intact, at any cost. 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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| Greece Turns to Iran for Oil as Credit Shut Down Elsewhere; EU Considers Oil Sanctions on Iran Posted: 11 Nov 2011 02:00 PM PST Greek suppliers concerned about the potential default of Greece have shut off financing for oil. In turn this has caused Greece to turn to Iran. However, the EU is now threatening to impose more sanctions on Iran over nuclear issues. If the EU acts that stupidly, the Greek economy will shut down. Please consider Greece turns to Iranian oil as default fears deter trade Nov 11, 2011EU Considers Oil Sanctions on Iran Reuters reports EU mulls new sanctions against defiant Iran Nov 10Economic Insanity Banning Iranian oil would be the kiss of death for the Greek economy and economic insanity in general for Europe. Given the oversupply of economically insane ideas lately, it is difficult to predict the outcome. 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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| Posted: 11 Nov 2011 12:03 PM PST Slovenian Prime Minister Borut Pahor's government was toppled in a no-confidence vote on September 20 and the crisis in Slovenia has worsened ever since. Bloomberg reports Slovenian Bond Yield Breaks 7%, First Time Since Euro Entry Slovenia's 10-year government bonds slid for a fourth day, with the yield topping 7 percent for the first time since the nation adopted the euro in 2007, as the debt crisis in Europe roils markets.Slovenia Must Tackle Debt Bostjan Vasle, Slovenia's chief economic forecaster, says Slovenia Must Tackle Debt as Recession Looms Slovenia's next government must cut public spending as the likelihood of the nation sliding into a recession because of the euro region's debt crisis increases, according to the government's forecasting institute.Recession 100% Guaranteed Some of these bureaucrat's comments are rather humorous, such as "We can't rule out the possibility economic growth will be negative in some quarters." Good grief. Negative growth is 100% guaranteed. Might Slovenia Exit the Eurozone First? Slovenia had no business joining the Eurozone in the first place. With all eyes on Greece, perhaps it is Slovenia that says goodbye first. The first thing Slovenia has in its favor is the ECB and IMF did not blow hundreds of billions of euros attempting to rescue it. The second thing it has in its favor is recent grief immediately after joining the Eurozone. Let's see what a new government brings. Hopefully a sensible one that exits the EMU, proving the world will not end when a country does. 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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| Whack-a-Mole Euphoria; Reflections on 6-Sigma Events Posted: 11 Nov 2011 10:14 AM PST Hooray! The Borg Technocrats have saved us already, even though they have yet to lift a metallic finger. The Borg took a huge whack not at a mole actually, but an Italian Elephant. This event instantaneously brought upon mass-euphoria. The market has more-or-less been in a continual state of euphoria recently having been saved (by something), for the 83'rd time in the last 63 days. Today's euphoria is about falling yields on Italian government debt. The yield on 10-Year Italian bonds is down 44 basis points to 6.45%. The yield on 2-year government bonds is down a whopping 70 basis points to 5.70%. Is this another 6-Sigma event? I will get back to that in a moment, but first consider a few charts. Italy 2-Year Government Bonds  Spain 2-Year Government Bonds  France 2-Year Government Bonds  While the Italian elephant took a big whack, the Spanish mole did not. France, an even bigger elephant than Italy, barely budged in relation to the huge recent surge in yields. This should give notice that the rise in French yields cannot be blamed on the huge gaff by the S&P, accidentally sending out a notice of a rating change lower on France (that the S&P immediately took back). The irony is the S&P should cut the rating of France. Reflections on 6-Sigma Events In my article France, the New Elephant in the Room I stated ... "The two-day move in French bond yields vs. German is likely a 6-sigma event. Today alone, the 2-year yield rose 27 basis points vs. 2 for Germany." Almost One inquiring mind intrigued by the idea, sent in the following charts with the comment "no credit required. It was your idea: I just put it into my Bloomberg. Love your site." 2-Year Bonds France vs. Germany  click on chart for sharper image 10-Year Bonds France vs. Germany  click on chart for sharper image As shown in the upper-right of each chart with a label of "Off Avg StDev" the first chart depicts a 5.79 sigma event, the second a 5.92 sigma event. 6-Sigma Events Financial Risk Manager has this explanation of 6-Sigma Events. A six sigma event assumes a 99.99996 % probability of occurrence. For a daily horizon this translates into one event happening once every 2,500,000 days.That such event happen far more frequently than expected says that assumptions of financial models simply are not correct. S&P 500 Futures 10-Minute Chart  I expect that gap to fill sooner rather than later as whack-a-more euphoria wears off. Don't worry, there is no reason to expect the current trend of 83 euphoric events in 63 days will end any time soon. On the other hand, don't expect any of these euphoric events and announcements from Borgs will accomplish anything. Finally, do expect more 6-sigma events, with increasing frequency, in spite of what the odds suggests. Borg technocrats and EMU bureaucrats will make sure of that. 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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| Posted: 11 Nov 2011 12:15 AM PST Two days ago, Financial Times columnist Martin Wolf made an attempt at Thinking through the unthinkable. The "unthinkable" was the breakup of the Eurozone. Reflections on the Easily Thinkable For starters, a eurozone breakup is hardly unthinkable given that no currency union in history has ever survived in the absence of a fiscal union, and the Eurozone has no such fiscal union. I suppose one might not want to think about history while praying for a miracle union, but the German Supreme court gratefully put a kibosh to the bureaucratic nanny-zone of never-ending regulation with a definitive ruling that no more German taxpayer funds can be out at risk without a common voter referendum. 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. I do not want to dwell on the "easily-thinkable unthinkable", I want to focus on poor economic theory within Wolf's post in regards to proposed solutions to the crisis. Four Proposed Solutions Wolf quoted Nouriel Roubini's proposed list of solution.
Wolf points out that option 2 will morph into option 4. I concur while pointing out that is the path we are on, also in agreement with Wolf. Wolf points out that German would veto option 3 but fails to point out the absolute silliness of the idea in the first place, which I will get to in a moment. Option 4 is where we are headed, and the debate ought to be how to do that correctly instead of how to achieve the impossible option 1 which Germany would also veto. I propose, as has Michael Pettis before me, that the best solution is to have Germany exit the Eurozone rather than Greece, then, Portugal, then Spain exit in succession. Breakup Inevitable but How? Here is a snip from France, Germany have "Intense Consultations" on Smaller Eurozone; Breakup Inevitable, but How? Realization the Eurozone is no longer tenable is at long last at hand. In fact, "intense discussions" have been underway for months but are just now admitted to by senior EU officials. ....Logistics of Denial Micahel Pettis presented a more detailed discussion of various breakup scenarios as well as a discussion on the "Logistics of Denial", in my September 16 article Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied) In his opening gambit, to the lead question "Will the eurozone survive?" Wolf surmises "I suspect the answer is, no." Thus, it would be more helpful to debate the merits of "how" a breakup should happen, which countries should leave, and details on how that happens rather than hoping it won't. Unfortunately, Wolf pines near his conclusion "[we] must go back to the first on the menu of options laid out by Mr Roubini. Potentially solvent countries would be financed and the eurozone would grow its way out of the crisis." History and Common Sense As noted earlier, unless there is a complete fiscal-nanny-zone with a one size fits all policy, option 1 cannot possibly work. Germany would veto option 1, for solid reasons. Moreover, and more importantly, option 1 would not work anyway for the same reason option 3 cannot work: Printing money never solves anything. How many times does this have to be proven before it sinks in? Japan offered mammoth quantities of fiscal and monetary stimulus and all it has to show for it is debt in excess of 200% of GDP. Economist Richard Koo pines the lesson was Japan did not do enough stimulus. Sheeesh. Cash-for-clunkers, multiple tax credits for housing, QE 1, QE 2, a trillion in fiscal stimulus and a myriad of other fiscally insane programs did not create jobs or a lasting recovery. No amount of stimulus would work because the problem is debt. Yet, the Army of Krugmanites propose we need to do more. Greenspan resorted to loose monetary policy and it created the biggest housing bubble the world has ever seen. Now Cristina Romer proposes GDP targets by the Fed to which I responded in Dear Christina ... in light of the facts I presented above in regards to the experiences of Japan, the excess reserves at the Fed, the increase in inflation with no increase in jobs, and the number of people on fixed income destroyed by the rise in price level while getting 0% on their CDs, you have a hell of a lot more explaining why "It's different this Time". For starters the Fed does not control GDP so the suggestion in and of itself is blatantly idiotic. The Fed can encourage spending but cannot force it. A trillion dollar mountain of excess reserves of banks is proof enough, yet the Monetarists want more. No matter how much money one throws at a problem it is never enough. We had a housing bubble followed by a crash. Throw enough money around and we will have another bubble and a bigger crash, or simply a massive debt problem from which there is no escape. The average eighth-grader can easily understand this. The average economist cannot because they are so tied up in monetary theory that has no real world application. In September, Bernanke himself said he was puzzled by weak consumer spending. Bernanke is puzzled over something an eighth-grader can easily figure out. Consumers have a mountain of debt and are underwater in their mortgages. Debt is made worse by declining real wages, global wage arbitrage, and a dearth of jobs. ZIRP did nothing to create jobs but it did affect food and gas prices and effectively destroyed anyone on fixed income. I would think that should be obvious, but obviously it's not because Bernanke is puzzled over it. This is what happens when academics become addicted to economic models that do not work in periods of debt deflation (assuming they ever worked at all). Original Sin Krugman is a big believer in the idea "debt does not matter". He made the mistake of using Italy as the prime example. Oops! Guess what? Debt matters. Now Krugman is attempting to pass off a foolish statement by blaming Original Sin for the Euro Crisis. One question that keeps coming up is, how can I reconcile my scorn for warnings about bond vigilantes with what is happening to Italy? This seems especially pointed because I have in the past used Italy's ability to carry debt exceeding its GDP as an illustration that debt concerns were overblown.Krugman finishes with "More on all this later, I hope." I hope so too, starting with my questions
Krugman Joins the Euro Cannot Work Parade For all Krugman's pissing and moaning about imposed austerity measures on Europe, he now has the gall to blame the mess in Italy on "Original Sin" (which I might add also applies to Greece, Portugal, and Spain). Oh well, it's a start. Perhaps we can get Krugman discussing the best way to break up the Eurozone instead of everyone pretending Roubini Option 1 is still in play. As an aside, if Krugman turns to Japan for his "debt does not matter" model, he will be wrong again. Two Things We Can Say for Certain
All it takes to crush Japan is rising interest rates or a collapse in its export model. Given the cyclical nature of a great many things, one or the other or both will. And when it does, Japan will not be able to get financing. Debt matters when it matters, and it eventually will. Until it does, we have to put up with foolish statements from major economists that it doesn't, followed by excuses when they are proven wrong. America and China must crush Germany into submission Wolf's article was hard enough to take but it was followed by an even more preposterous article by Ambrose Evans-Pritchard. Please consider America and China must crush Germany into submission As we watch Italy's 10-year bond yields near 7.5pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order.Reflections on "Dangerous and Insane"
The world will not end if banks fail. Forcing the 1% (banks and bank bondholders) to take a hit will not cause the world to end either, nor will it cause lending to cease. Please, let's stop the blatant hyperbole that suggests otherwise. The ECB could have and should have let Greece default. "We Say No To Default" said a dangerously arrogant ECB president Jean-Claude Trichet. Trichet loaded up the ECB balance sheet with Greek debt against the advice of Axel Weber. Trichet's move blew up in his face, and I for one am glad to see it. If only he would have learned something from it. The hubris of central bank wizards and economists is dangerous and insane. Indeed it is central bank wizardry combined with fractional reserve lending and insane levels of government bureaucracy that is at the root of the problem. Corruption, Bloated Bureaucracy, Poor Productivity My advice for Pritchard would be to stop writing dangerously insane ideas and start reading fellow columnist Nick Squires who has the common sense to write Italy's debt crisis: doomed by corruption, bloated bureaucracy and poor productivity Insane Welfare System I would also recommend Pritchard, Krugman, and Wolf read Eight Reasons Why Italy Is Such a Mess Wacky Welfare SystemPublic Union Pension Woes Bear in mind that is just one of the eight reasons Foreign Policy Magazine mentioned. The author called the pension system "wacky". I call it fiscally insane. Italy currently has more pensioners than workers. Is that insane or what? In light of the above, can someone, anyone explain how Roubini's option number 3 "Permanent financing by the core of an uncompetitive periphery" can possibly work? By the way, the same public union pension problem exists in the US and it is the cause behind massive state and city deficits. Our system will blow up as well, just give it time. Instead of focusing on those problems (and for the US I propose scrapping Davis Bacon, ending all prevailing wage laws, and ending collective bargaining for public unions) Krugman wants more freaking fiscal stimulus. Quite frankly, it's insane. Want a compromise? Give me those three things and I will even take higher taxes. Exceptionally Sound Advice My friend Pater Tenebrarum offers exceptionally sound advice in The 'Technocrats' Are Coming What's the EU All About?Crush Into Submission You cannot fix a problem unless you understand it. Moreover, even if you do understand the problem, you cannot fit it with unsound theory. The discussion from Wolf, Pritchard, Roubini, Romer, the vast army of Krugmanites, and the smaller army of equally misguided Monetarists suggests they do not fully understand the problem, nor do they understand sound economic theory as to what it takes to fix it. To use Pritchard's catchy title, I respond "We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission." That is the mission, and it is a desperately needed mission at that. To accomplish the mission we must prove to the group, to their satisfaction, their solutions are nonsensical. Unfortunately, the only way I can think of doing that is to give the group everything it wants, then watch it blow sky high. That means turn on the global printing presses, bail out the public pension plans, pour more money into Medicare and Medicaid, create a "living wage" indexed to inflation, give Krugman his tariffs, and declare China a currency manipulator. Not enough jobs? No problem, the government can easily create them. That's what the vast army of Krugmanite Borgs thinks. There is only one problem with the idea. When the plan blows sky high, Krugman would say "It wasn't enough". 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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