Mish's Global Economic Trend Analysis

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• New Euro Accord Consists of 23 Countries; UK, Hungary to Exit New Treaty; Expect More Exits; Treaty Signers Need to Collectively Pony Up $268 billion to IMF
• Finland, Netherlands, Ireland Threaten to Torpedo Merkozy Plan; Finnish Parliament Rules Proposed Treaty changes "Unconstitutional"
• Draghi Reiterates "Treaty Prohibits "Monetary Financing"; Market Sinks; Draghi Fuels then Sinks Rumor ECB will Step Up Bond Purchases; Europe Moves Towards Abyss
• Separating Fact From Fiction on the Fed's Loans; How Much Was it? Bloomberg Stands By Its Reporting
• Temporary and Contract Employment in Contraction Every Week vs. Same Week Year Ago Since Mid-August

New Euro Accord Consists of 23 Countries; UK, Hungary to Exit New Treaty; Expect More Exits; Treaty Signers Need to Collectively Pony Up $268 billion to IMF Posted: 08 Dec 2011 09:21 PM PST Tonight we have news that only 23 of 27 nations will agree to new treaty. Please consider New euro accord to include 23 countries The president of the European Council said Friday that a new intergovernmental treaty meant to save the euro currency will include the 17 eurozone states plus six other European Union countries — but not all 27 EU members. German Chancellor Angela Merkel praised the plan. "I have always said, the 17 states of the eurogroup have to regain credibility," she said. "And I believe with today's decisions this can and will be achieved." Herman Van Rompuy, president of the European Council, said the countries would provide up to euro 200 billion ($268 billion) in extra resources to the International Monetary fund. French President Nicolas Sarkozy said early Friday he would have preferred a treaty among all the members of the European Union. But that could not be achieved, he said, because the British proposed that they be exempted from certain financial regulations. He said the new accord should be ready by March. UK, Hungary Exit Treaty; Czech Republic and Sweden Consult with Respective Parliaments The BBC reports Summit abandons EU-wide treaty change Attempts to rescue the euro will focus on a deal among the 17 nations that use the single currency, French President Nicolas Sarkozy has said. Speaking at a news conference after nearly 10 hours of talks, Mr Sarkozy said he would have preferred a new treaty among all the EU members. But he said that British Prime Minister David Cameron had proposed a protocol to be written in the deal allowing London to opt-out on proposed change on financial services. "We could not accept this," Mr Sarkozy said. Mr Sarkozy added that Hungary also decided to remain outside the proposed treaty, while the Czech Republic and Sweden wanted first to consult with their parliaments. Expect More Exits Fortunately for Cameron, Sarkozy would not give into his demands. This makes Sarkozy the culprit even though Cameron handled the situation badly. The UK should take the next step and exit the EU and all of its nonsensical rules completely. The losers who stay in the proposed Merkozy treaty get the pleasure of forking over a collective $268 billion to the IMF. Expect the number who stay in to shrink. Then in May, unless the proposed treaty is further watered down, expect some of the 17 EMU (Eurozone) members to refuse to ratify the treaty. 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.

Finland, Netherlands, Ireland Threaten to Torpedo Merkozy Plan; Finnish Parliament Rules Proposed Treaty changes "Unconstitutional" Posted: 08 Dec 2011 07:23 PM PST So much for the idea of the Merkozy plan making it to March or May for a vote. It may not make it to tomorrow. The Telegraph reports Euro summit rocked by row over veto plan Hours before leaders arrived in Brussels , the Finnish parliament ruled that treaty changes proposed for the European Stability Mechanism (ESM) were "unconstitutional". The summit was further put at risk with news that after failing stress tests, European banks need to raise €115bn (£98bn) in fresh capital to satisfy regulators. Finland's grand committee said decisions made by the ESM – the eurozone's permanent bail-out fund set for launch in 2012 – had to remain unanimous, and not changed to the "qualified majority" that French president Nicolas Sarkozy and German chancellor Angela Merkel have agreed. The Finns are backed by the Netherlands, which fears proposals to withdraw veto powers from the ESM is an erosion of democracy and would make it vulnerable to funding bail-outs without recourse. Meanwhile, the Irish want to block plans for the "convergence and harmonisation" of the eurozone's "corporate tax base". The rebellion is a serious threat to German and French plans to sign treaty changes today along the lines laid out in their joint letter on Wednesday. In it, the leaders said they hoped all 27 European Union countries would sign. Mr Cameron has demanded that two legal "protocols" to protect City and to preserve EU single market are inserted in any new EU treaty. The draft British text does not create any new opt-outs but seeks to protect Britain's financial sector from a tide of EU legislation. Jean-Claude Juncker, head of the Eurogroup bloc of finance ministers of eurozone states, said he would "not accept" summit diversions about what "the UK will not do what all the others have to do". However, Mrs Merkel and Mr Sarkozy have urged agreement from the 17 eurozone nations. Mr Sarkozy said: "If we do not reach a deal, there will be no second chance." Easily Predictable This is exactly what one should expect to happen when two arrogant fools (Merkel and Sarkozy), think they can sit in a corner and decide the fate of 27 nations or even 17 of them. I wrote about this on Wednesday in Merkozy Dog-and-Pony Show is Nothing but Fleas; Immense Arrogance, Loose Cannons, No Credibility Merkozy Dog-and-Pony Show is Nothing but Fleas As with grand plans for the EFSF, still not finalized, the Merkozy plan has morphed into nothing but budget rules that the EMU will not be able to enforce because Sarkozy would not cede fiscal control to the EU. Merkel will not accept Eurobonds, because she can't, by German supreme court ruling. By any reasonable standard, the Merkozy dog-and-pony show is in reality neither dog nor pony but rather all fleas. Immense Arrogance Reader Andrea emails ... Hi Mish, My comment (and I think I am not alone in Europe): This is a Franco-German agreement drawn and agreed between France and Germany without any involvement or contribution of any kind at any level of the other 25 countries. Why the hell should the other 25 countries (parliaments or people) approve that? Irritation, even rage against the Franco-German tandem deciding for everybody is mounting quite fast in other European countries. The odds to get this plan approved are basically 0. Best regards, AC EU leaders were fearing Cameron would sink the agreement. Instead, we have an appropriate yet unexpected (by EU officials, not me) decision by Finland, the Netherlands, and Ireland. As an aside, Cameron's correct move should have been to stand up to the Merkozy nonsense without bargaining. Instead he was willing to sell the rest of Europe down the river as long as he got UK exclusions he wanted. What a wimp. Bear in mind, they will probably work out yet another watered-down compromise to top the already watered-down flea-ridden Merkozy compromise. If so, it may still be up to Cameron to prove he is a wimp. I suspect he will do just that if given the chance. 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.

Draghi Reiterates "Treaty Prohibits "Monetary Financing"; Market Sinks; Draghi Fuels then Sinks Rumor ECB will Step Up Bond Purchases; Europe Moves Towards Abyss Posted: 08 Dec 2011 11:27 AM PST The main news in today's European roundup is the reiteration by ECB president Mario Draghi EU Treaty Prohibits "Monetary Financing" At a news conference in Frankfurt, European Central Bank President Mario Draghi said on Thursday that the European Union treaty prohibits "monetary financing." He was responding to a reporter's question about why the central bank doesn't ramp up its bond-buying program. He also said that the ultimate decisions and political responsibility are in the hands of EU leaders, which will meet in Brussels on Thursday evening and Friday. Draghi Fuels then Sinks Rumor ECB will Step Up Bond Purchases The market has rallied for weeks on expectation the ECB would eventually get around to a massive bond buying program. The irony is Draghi personally fueled rumors the CEB would step up purchases (see ECB Ready to Push Boundaries on Interest Rates and Bond Purchases; One Size Fits Italy). So Draghi got out of this what he wanted: A big plunge in Italian and Spanish debt yields, by doing nothing more than yapping. The second irony is that Draghi is in essence a liar. He cannot come out and say the ECB is providing "monetary financing" with its bond purchases, even though that is exactly what the ECB is doing. The ECB is under scrutiny by the German central bank, the German supreme Court, and German voter opinions. You have to give him credit for walking a fine line that has not brought out huge protests in Germany. Europe Moves Towards Abyss Fill Zuchi, native Italian, and founder of the Zebra Fund says Europe Moves Towards Abyss. At one point in the discussion Zuchi states "Popular Discontent Could Sink Any EU Plan". Indeed. As I have been saying for weeks ... "Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the bail out debt foisted on their country to be null and void. That person will be elected." Market, European Bonds Sink On news there is no news, only rumors and promises to do something by March (See Eurozone Treaty Changes to be Finalized in March, Then a Vote in May, Then Country-Specific Referendums, Then?) the European bond market stages a mini-revolt after a several-day rally on hot-air from Draghi and Merkozy. Italy 10-Year Government Bonds Italy 2-Year Government Bonds That's quite a reversal off the lows. There is still an amazing disconnect between equity market performance and bond market performance over the past two months. Except for a few recent days, reversed today on Draghi's comments, the bond market has responded if the situation is on the edge of the abyss. Meanwhile the equity markets act as if the ECB is going to print in a big way, eurobonds are coming, as are treaty changes. I think the bond market has things correct. Can the equity markets hold on until May to find out? 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.

Separating Fact From Fiction on the Fed's Loans; How Much Was it? Bloomberg Stands By Its Reporting Posted: 08 Dec 2011 10:32 AM PST The Fed and the Wall Street Journal have both taken issue with Bloomberg's article Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress In response to the above article, the Fed went on a publicity campaign, lashing back at Bloomberg and others (but did not mention anyone by explicit name) in this Memo to Congress. Bloomberg Stands By Its Reporting Bloomberg pounced on the Fed with a point-by-point rebuttal Bloomberg News Responds to Bernanke Criticism of U.S. Bank-Rescue Coverage which should have ended the debate. Essentially, Bloomberg stands by its numbers and the way it reported them, not necessarily the way others reported them, including my own headline, Banks Make $13 Billion on $7.7 Trillion in Secret Fed Loans; SEC Stands by Does Nothing The only thing inaccurate in my post was the title. This title would be technically accurate "Banks Make $13 Billion on $7.7 Trillion in Secret Fed Loans and Pledges; SEC Stands by Does Nothing". However, to be perfectly fair, pledges far exceeded actual loans. At any rate, Bloomberg's response should have ended the issue right then and there but for some inexplicable reason David Wessel at the Wall Street Journal felt the need to chime in with Separating Fact From Fiction on the Fed's Loans Wessel essentially did a Fed Suck-Up in his piece, which is of course what one might expect from this line in his article: Full disclosure: My 2009 book, "In Fed We Trust," recounted the Fed's handling of the crisis favorably. Fed's "Mealy-Mouthed" Memo Felix Salmon hands the round to Bloomberg in Smackdown of the day: Bloomberg vs the Fed In a six-page letter today addressed to the Senate Banking Committee, Ben Bernanke lashes out at "a series of articles–one just last week–concerning the Federal Reserve's emergency lending activities". He says those articles "have contained a variety of egregious errors and mistakes". And he encloses "a memo prepared by Board staff that addresses some of the most serious errors and claims in those articles". Nowhere in those six pages is a single article actually identified. The Fed memo, similarly, has no named author. And the whole thing is available only as one of those PDFs-from-a-copy-machine, which makes it impossible to copy-and-paste or to search. The Fed put the letter up on its website and made sure that various economic journalists, like myself and Binyamin Appelbaum, knew all about it. But the whole thing is an incredibly passive-aggressive way of attacking Bloomberg, which, to reiterate, is never actually named. Bloomberg did not let the opportunity go to waste. It's clearly the main object of the Fed's ire, but because it isn't named, it can do two rather clever things in its official response. The first is to respond to the Fed's complaints by citing various different stories it's written over the years — since the Fed never actually specified which story or stories it had issues with. And the second is to simply deny that it said what the Fed is complaining about at all. When the Fed, for instance, says that "the articles misleadingly depict financial institutions receiving liquidity assistance as insolvent," Bloomberg simply and effectively replies that it "never described any of the financial institutions mentioned in its bailout stories as insolvent". The Fed has various blogs; it could easily have used one to single out specific errors in the Bloomberg article, which Bloomberg would then have had to respond to directly. But instead it just writes a memo talking vaguely about "these articles", and in doing so plays straight into Bloomberg's hands. Bloomberg has won this particular round, just because it's being very open about what it's saying, while the Fed memo seems mealy-mouthed and less than fully open about what it's trying to say. If you're going to complain about "egregious errors and mistakes", it behooves you to be specific about exactly where the errors and mistakes lie, and to quote them directly. If you don't do that, you automatically look as though you have a weak case, and you open yourself up to counterattacks like the one from Bloomberg. So Bloomberg wins — and the Fed ends up looking even worse. Maybe next time the Fed will be a bit more transparent and heartfelt and honest. It will find itself in a much stronger position if it goes there. *Update: You will find the fact that the banks never borrowed more than $1.2 trillion in the article, but it's subtle enough that I missed it on multiple readings. At the top of the piece, we're told that the banks"required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day". 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.

Temporary and Contract Employment in Contraction Every Week vs. Same Week Year Ago Since Mid-August Posted: 08 Dec 2011 12:51 AM PST The Wall Street Journal reports Demand for Temp Help Cools Demand for temporary help is cooling. An index of temporary and contract employment, based on a survey of staffing firms, was 1.1% below its year-earlier level for the week ended Nov. 27. Temporary employment often is viewed as a good gauge of the labor market's overall health, but it can slip when employers sign temporary workers on to permanent positions. To put the above chart in better context, here is a chart of ASA Temporary and Contract Employment Index by the American Staffing Association since 2006. Year-Over-Year Comparisons 2006-2011 Since week 33 (mid-August), demand for temporary and contract help is below where it was for the same week in 2010. Although 2011 is substantially better than 2008 and 2009, it is now lagging 2010 and considerably lagging 2006 and 2007. With the labor force dropping y-o-y by 67,000 vs. an expected increase of 1.5 million (125,000 per month), (see Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force) it is hard to believe this decline is due to employers signing temporary workers on to permanent positions. Instead, consider the possibility employers are slowly dumping temps and contract workers, and permanent employees may be next. 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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