luni, 21 noiembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Official Denial in Greece Regarding "Indefinite Liquidity and Banking Stability"; Is a Worthless Guarantee Twice as Good When Doubled?

Posted: 21 Nov 2011 05:33 PM PST

Things are really humming along in Greece, complete with an official denial of instability in the Greek banking system.

Please consider Government Doubles Bank Guarantees
State guarantees to Greek commercial banks are to double from 30 billion to 60 billion euros in order to secure liquidity in the market, Finance Minister Evangelos Venizelos told lawmakers in Athens on Monday.

Addressing Parliament's Financial Affairs Committee, Venizelos said that ensuring the market's cash flow continues will secure the liquidity of the banking system and safeguard bank deposits.

"The Greek banking system is guaranteed with indefinite liquidity and there is no issue with the stability of the system. This is the case for all eurozone countries," Venizelos said.
"Official Denial" is Ominous


The concept of official denial comes from British television sitcom, Yes, Minister.

"The first rule of politics," Sir Humphrey, the wily civil servant in the show, insists is: "never believe anything until it is officially denied."

In case you missed it please see Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)

The statement by Venizelos "there is no issue with the stability of the system" is an ominous sign. So is the doubling of state "guarantees". The sane thing to do in Greece is immediately pull all your funds from Greek Banks.

For further discussion, please see History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What's the Rational Thing to Do?

That is not a prediction, it is a statement saying "do not take any chances".

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.

Mission Accomplished: Nothing; Kerry Says No Problem "Lawmakers Have a Year"; Boehner's, Pelosi's "Moral Obligations" Fly Out the Window; McCain's Hypocrisy; Look for US Debt Downgrades

Posted: 21 Nov 2011 03:11 PM PST

The official "deadline" for the alleged SuperCommitte to come to an agreement is November 23. However, the Congressional Budget Office (CBO), needs to have reached a deal today.

The Super Wimps failed in their mission as anyone with any common sense might have guessed. There simply is no sense of urgency.

This paragraph from the Bloomberg article Supercommittee Is Said to Be Poised to Announce Failure of Talks says all you need to know:
Senator John Kerry of Massachusetts, a Democrat on the panel, said lawmakers have a year before the automatic spending cuts are set to occur. "We have an election between now and then and a lot can take place," he said in an interview on Bloomberg Television.
Yes indeed, the real deadline is not tomorrow but rather 2013. A lot can happen by then, including a decision to not cut anything at all.

Boehner's Moral Obligation Goes Out the Window
Boehner, an Ohio Republican, and House Minority Leader Nancy Pelosi, a California Democrat, have said they support the trigger. "The markets should know that the deficit reduction will occur," Pelosi said on Nov. 3. Boehner has said he "personally" feels a moral obligation to uphold the cuts.

So much for Boehner's "Moral Obligations" and Pelosi's promise to do something.

McCain Goes One Step Further

McCain, even went one step further.
Senator John McCain, an Arizona Republican, and Representative Maxine Waters, a California Democrat, are already trying to use legislative levers to stop the automatic cuts from taking effect.
Cuts? Who Needs Cuts?

Clearly McCain is a hypocrite. Were it not for an even worse setup in Europe, the US dollar would be taking a pounding here.

Expect US Debt Downgrades

Look for further downgrades of US debt by Moody's, Fitch, and S&P.

To even things out, look for downgrades of France as well.

"Super Committee" Idiocy

Please consider what I had to say on July 25, 2011 in "Super Committee" is Super Idiocy
Super Committee Nonsense

I thought it was Tim Geithner who came up with the "Super Committee" idea but he was merely silly enough to latch on to it. The latest hare-brained scheme comes from Senate Minority Leader Mitch McConnell and Majority Leader Harry Reid.

Constitutional concerns aside, abdicating legislative responsibility to a super committee with super powers is idiotic. Besides didn't the Gang-of-Six just attempt to do something similar? And where did that plan go after a year of wrangling?

Is a 12 man committee more likely to agree to something than a 6 man committee? Anyone who thinks so has mush for brains.

Of course the whole idea might be to save face for both parties so that no one has to do anything but point fingers and blame the other side for lack of sensible action.

Each passing day delivers more reasons to be disgusted with leaders of both parties.
Mission a Brilliant Success, Achieves 100% of Its Goals

The Super Committee accomplished nothing, as expected, and more importantly, as designed.  Neither political party really wanted to do anything about the deficit (because it would cost them votes). By D.C. standards this mission was a "brilliant success". It achieved its purpose, which was to do nothing. Both parties got the smoke-and-mirrors delay they wanted, while pointing fingers at the other side.

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.

"New Stress High in Our Indicators": Bond Spreads, CDS, Demand Deposits, Euro Basis 3-Month Swaps; Money Market Warning Signals

Posted: 21 Nov 2011 11:06 AM PST

Here are some charts and commentary from Steen Jakobsen, chief economist at Saxo Bank in Copenhagen.

Via email, Steen writes ...
We have a new stress high in our indicators. Core Europe is under pressure.

In Europe the two new Super technocrats (Papademos and Monti) meets with EU officials over the course of next two days. Expect "compliance" to be the buzz-word, but Greek opposition party chief resists EU/IMF pressure on pledge: "…there is no need to provide written guarantee because his word can be trusted"

There is rising concern about Greece, and with S&P down nearly 19 points on the open of Europe, it looks like a new level of alertness.

So keep an eye out on ECB and its now massive support program – below is the Gross amount bought – the key this week is last week intervention size.

Safe travels,

Steen Jakobsen | Chief Economist
ECB Securities Markets Programme (Bond Purchases‎) in Millions of Euros



That's quite a bit given the ECB's insistence it will not be a lender of last resort.

Last week there was much ado over nothing when the ECB said it would "limit" the amount of purchases to 20 billion Euros a week. The interventionists all complained.

Did anyone bother to do the math on that? 20 billion euros * 52 = 1.04 trillion Euros and interventionists screamed bloody murder.

Reuters says ECB keeps handbrake on as bond buys hit 8 billion euros.

Handbrake Math, Intervention Math

8 billion euros * 52 = 416 billion Euros, nearly as big as the EFSF.

Moral of the story: There is never enough intervention to suit interventionists.

Why?

Intervention never works. All it can do is create a bigger problem elsewhere.

Stress Indicators

Meanwhile please ponder these charts from Saxo Bank that form the basis of Steen's assertion "We have a new stress high in our indicators."

click on any chart for sharper image

France - Germany 10-Year Government Bond Spread



Italy and Belgium 5-Year US$ CDS



Italy and Greece Demand Deposits



Denmark - Germany 10-Year Government Bond Spread




Euro Basis 3-Month Swaps



Money Market Warning Signals

On November 3, there was an article in the Wall Street Journal that will help explain the significance of Euro Basis Swaps. Please consider Three-Month Euro Dollar Cross Currency Basis Swap Widens
Swapping euros into dollars is becoming extremely expensive, according to a leading indicator that is at its widest level since December 2008.

The three-month euro/dollar cross-currency basis swap is at minus 118 basis points versus minus 102 basis points on Wednesday. That's still shy of the minus-215 level it reached amid the financial turmoil of October 2008, but the indicator is now trading at levels where bankers say it is flashing warning signals about the functioning of money markets.

The debt crisis in Europe has created stronger demand for dollars, making it more pricey to get access to such funding. Banks and other firms that operate globally and need dollars have had limited access to the greenback, as investors have been wary of lending to them, so they have been relying more heavily on the euro-dollar swap market to meet their financing needs. This route has become increasingly more costly for them.

Traders say the three-month cross currency basis swap is showing greater stress than the one year swap because borrowers want to fund themselves past the end of the year. They also do not want to be seen as leaning on central banks for long-term funding, which is an option for them.
The Euro Basis 3-Month Swap continues to widen, a clear sign of increasing stress.

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.

Ron Paul Smacks Bob Schieffer on Face The Nation

Posted: 21 Nov 2011 09:59 AM PST

I used to have a modicum of respect for Bob Schieffer, host of Face the Nation. Not anymore. Instead of conducting an interview, Schieffer acted with clear intent to discredit Ron Paul. It backfired on Schieffer when Paul held his ground and refused to be cutoff by Schieffer's biased comments.



Link if YouTube Video does not play: Ron Paul on Face the Nation

Ron Paul supporters should check out and participate in Paul's SuperVoter Bomb. Any amount will help.

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.

New Currency Controls in US at Currency Online; Capital Flight and Forced Repatriation in Europe

Posted: 21 Nov 2011 08:52 AM PST

A securities analyst sent a note this morning "I just received this today from a company I have used for 3 years."

He was referring to a memo from Currency Online regarding Restriction of our service to USA based clients
Regrettably I write to inform you that, due to changes in legislation, we will be unable to continue to offer our international money transfer services to clients located in the United States of America (USA). As a result, any existing transactions that you have outstanding with Currency Online will be completed in the normal way, however you will be unable to undertake any new transfers.

Below we have anticipated some of the questions you may ask. Should you have any further questions please email us at customercare@currencyonline.com or call us on our free phone number 1866 420 7697.

Q: Can I still access my online account?
A: Yes. While you will be unable to undertake further FX transactions with Currency Online, you can still log into your account and have full access to review funds held on account plus any current and historical transactions.
Q: What happens to my existing FX transactions?
A: Simply complete the contract as normal. Please ensure you deliver your funds by the agreed value date and we will pay your purchased funds to the nominated beneficiary.
Q: What do I do if I have a Market Order in place?
A: As the outcome of a market order is an FX transaction we will unfortunately need to cancel any outstanding Market Orders you have. We shall, if we have not already done so, be calling you directly.
Q: What if I am no longer located in the USA?
A: Simply provide us with your new proof of address and you will be able to continue to use our services as normal.

Once again, please accept our sincere apologies for any inconvenience this may cause. We will of course let you know should we resume our services to US based clients. In the meantime, we thank you for your support and understanding.

The team at Currency Online
Capital Flight and Forced Repatriation in Europe


Bruce Krasting had an excellent article over the weekend on ZeroHedge regarding Capital Flight and Forced Repatriation
Put yourself in the mind of a Greek who had some savings in a local bank. What would you do? You would do whatever you could to get your money to high ground. It would be perfectly reasonable for you to do that. And that is exactly what the Greeks have done. They've moved billions of Euros to Swiss banks in an effort to preserve their wealth. In the process they have crippled the Greek banks and have added to the downward spiral in Greece and the rest of the EU.

There was (IMHO) a very significant development on this front last week. A move is being made in Brussels to "force" the Swiss government/banks to transfer all of the assets of Greek citizens back to the Greek banks. For a Greek this means that your money is hostage. It has been functionally expropriated. It will be transferred into a banking system that is fraught with risk. Some portion of the money that goes back to Greece will certainly be lost.

I have talked with some who I know in Athens. They are out of their minds with this development.

BRUSSELS — The European Commission is helping Greece negotiate an agreement with Switzerland to repatriate as much as $81 billion believed to be hidden in Swiss bank accounts, a high level European Union executive body official said Nov. 17.


$81 billion? That's massive. This is not the shopkeeper or pensioner. This is big bucks and that means the Greek shippers. It is a fact that the Greek government doesn't tax the foreign earnings of the shippers. Call that a mistake, but that is the law. As a result, the shippers have held huge bucks in Switzerland. It's not dirty money. Right or wrong, there was no legal tax on this.

The European Commission is working with Switzerland and Greece stop what it believes is an ongoing exodus of money from Greek bank accounts into Swiss and other offshore banking centers, the EU official said.

The only way to stop capital flight is to address the underlying causes of the flight. That can't happen in Greece for years. The alternative is to trap the money, force it to go where it is at most risk. The owner of the money will have no choice. Any rights they might have to preserve their assets will be abrogated.

I'm amazed at this development. The Swiss government/banks are obligated to cooperate with EU tax authorities when there is evidence of tax fraud. But that is not what this is about. The people in Brussels and Bern know that. The fact is that the Greek tax system is so screwed up that there simply are no taxes levied on certain types of income/capital (the shippers). No doubt, some of the Greek cash that is in Switzerland is there because of tax avoidance. But the vast majority is simply safe haven money.

The word "Repatriation" sounds nice enough but really it means "Theft and expropriation". There will be nothing voluntary about this. There will be little (if any) due process.
If you have money in Greek banks, get it out now. If it's a small amount put it under the mattress. If it's a large amount, I am not sure where to tell you to put given pressure on Switzerland and illegal requests from the EU.

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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