| Cameron Attempts to Snatch Defeat from Jaws of Victory; Euro Project Intellectually, Morally, Democratically Bankrupt Posted: 12 Dec 2011 08:52 PM PST It is disgusting to see UK Prime Minister David Cameron all but throw away the victory he achieved when he vetoed the Merkozy treaty. Please consider these sniveling, apologetic snips from the New York Times article Cameron Says His Veto on Europe Treaty Protects Britain Mr. Cameron, a Conservative, seemed at pains to offer soothing words to those afraid that he had so alienated his European allies that Britain was bound to leave the European Union altogether.
"Britain remains a full member of the E.U., and the events of the last week do nothing to change that," Mr. Cameron said. "Our membership of the E.U. is vital to our national interest. We are a trading nation, and we need the single market for trade, investment and jobs."
Olli Rehn, the European commissioner for economic and monetary affairs, said Britain could hardly wall off its financial industry, the bustling City of London. "I regret very much that the United Kingdom was not willing to join the new fiscal compact, as much for the sake of Europe and its crisis response as for the sake of British citizens and their perspectives," Mr. Rehn said. "We want a strong and constructive Britain in Europe, and we want Britain to be at the center of Europe, and not on the sidelines. If this move was intended to prevent bankers and financial corporations in the City from being regulated, that is not going to happen."
Mr. Rehn also offered a reminder that Britain had approved "the six-pack of new rules tightening fiscal and economic surveillance" that goes into force on Tuesday. "The U.K.'s excessive deficit and debt will be the subject of surveillance like other member states," he said, "even if the enforcement mechanism mostly applies to the euro area member states."
Mr. Cameron faced a few gentle questions about whether to hold a national referendum on Britain's membership in the European Union, something the anti-Europe faction dearly wants, he batted them briskly away. Threats From Rehn Clearly Olli Rehn will stop at nothing to get what he wants, and by sucking up to the EU, Cameron practically admits he is willing to sell the UK down the river next time, for a few useless promises. UK not to Blame Telegraph writer Boris Johnson nails it with We're right about the euro - that's why Europe is angry I know some people are unsettled to see all these powerful Europeans getting so very, very cross. Angela Merkel has said that we weren't even negotiating properly. Nicolas Sarkozy can hardly bring himself to mention Britain by name and has been filmed apparently refusing to shake David Cameron's hand. Across the Continent, the papers are full of wrathful headlines about the general arrogance and stupidity of the Englanders/Anglais/Inglesi. I watched some poor Lib Dem Euro MP who seemed about to explode with disgust at the UK's handling of the recent summit.
And there must be many people in this country who find themselves a bit spooked by the vitriol of the criticism. For some days, the BBC has been telling us in sepulchral tones that we are "isolated" and "marginalised" – as if a decision had been taken to abandon us in our misty island like a bunch of woad-painted savages.
Now look. It wasn't the Anglo-Saxon bankers who caused the trouble in the eurozone, Sarkozy mon ami. It was the utter failure of the eurozone countries – starting with France, incidentally – to observe the Maastricht rules. It was the refusal of the Greeks to control their spending or to reform their social security systems. In Greece and Italy, the democratic leaders have been effectively deposed in the hope of appeasing the markets and saving the euro; and what makes the leaders of the eurozone countries even more furious is that it doesn't seem to be working.
They blame David Cameron for "vetoing" a new EU treaty, when really he has done no such thing. It is perfectly open to the other EU countries now to go ahead and form their own new fiscal rules. If they want, they can decide to create an economic government of Europe. They may decide that now is the time – even though electorates are already feeling alienated from the political process – to hand sensitive decisions on tax and spending to unelected bureaucrats. It strikes me that this would be an amazingly dangerous thing to do, since the peoples of this Supra National And Fiscal Union (Snafu) would rapidly discover that they could no longer remove their government from office. I doubt very much that it would work, since there seems no particular reason why national governments should respect a collection of new "binding" rules any more than they respected the "binding" rules of Maastricht – not unless there is some secret proposal to enforce them by violence with a Euro-army.
But even if the Snafu has little prospect of success, there is no reason for David Cameron to commit this country to a project that is intellectually, morally and democratically bankrupt. Intellectually, Morally and Democratically Bankrupt Indeed the Euro project is exactly as Boris Johnson describes. And that is precisely why Cameron should have gone on the offensive and put membership in the EU to popular vote instead of making sniveling, apologetic statements to appease Merkel and Sarkozy, both of whom will be gone after the next set of elections. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Hussman as Short-Term Bearish as He Gets; What About the Long-Term Picture? Three Key Points Posted: 12 Dec 2011 11:31 AM PST I cannot recall a time when fund manager John Hussman as short-term bearish as he is now. The title of his recent article says it all: Hard-Negative With the exception of extreme market conditions (see Warning- Examine All Risk Exposures , and Extreme Conditions and Typical Outcomes ), I try not to wave my arms around about near-term market risks, but I think it's important to cut straight to the chase here. The present market environment warrants unusual concern, in my view. Based on a wide variety of evidence and its typical market implications over an ensemble of dozens of subsets of historical data, the expected return/risk profile of the stock market has shifted to hard-negative. This places us in a tightly defensive position. This isn't really a forecast in the sense that shifts in the evidence even over a period of a few weeks could move us to adjust our investment stance, but here and now we observe conditions that have often produced abrupt crash-like plunges. This combination of evidence includes elevated valuations, overbullish sentiment, market internals best characterized as a "whipsaw trap" on the basis of typical follow-through, heightened credit strains, and clear evidence (on reliable forward-looking indicators) of oncoming recession, among other factors. Long-Term Too Bullish? It's important to note that Hussman is not making a prediction. Rather it's Hussman's assessment that the risk-reward setup at the present time merits extreme caution. I share that view. It's the next few paragraphs where I wonder if Hussman is actually over-bullish. On a valuation front, we estimate that the S&P 500 is likely to achieve an average total return over the coming decade of about 4.8% annually. This is certainly better than the projected returns that we have observed over much of the past decade, but then, the past decade has produced virtually no total return for equity investors at all.
click on chart for sharper image
We estimate that the S&P 500 would have to trade at about the 800 level in order to achieve 10-year prospective returns of 10% annually. Importantly, even a magical "fix" out of Europe would do nothing to change that algebra. Is 60 Years Long Enough? I am wondering if 60 years is long enough. We have had huge PE expansion-contraction cycles in both directions in the past 60 years but there has not been... - Consumer Deleveraging Cycle
- Negative Demographic Shock
Might it be the case the US stock market follows something more like the Nikkei? Certainly, even if it is not that extreme. Negative Returns for a Decade? Let's revisit a table I posted in Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think, on February 7, 2011. | Annualized Rates of Return with Starting PE 21 or Greater |
|---|
| Year | PE | AR 1 | AR 10 | AR 20 |
|---|
| 1901 | 22.7 | 9 | 4 | 3 | | 1902 | 22.0 | -12 | 4 | 3 | | 1928 | 21.3 | 33 | -2 | 2 | | 1929 | 27.6 | -16 | -4 | 0 | | 1930 | 21.5 | -30 | -3 | 1 | | 1964 | 22.6 | 7 | 1 | 4 | | 1965 | 23.3 | -3 | 0 | 5 | | 1966 | 21.3 | 8 | 2 | 6 | | 1967 | 21.6 | 7 | 1 | 7 | | 1968 | 21.5 | 0 | 1 | 6 | | 1995 | 22.7 | 21 | 7 | ? | | 1997 | 31.0 | 19 | 4 | ? | | 1998 | 36.0 | 18 | 1 | ? | | 1999 | 42.1 | 4 | -1 | ? | | 2000 | 41.7 | -17 | ? | ? | | 2001 | 32.1 | -16 | ? | ? | | 2002 | 25.9 | -2 | ? | ? | | 2003 | 24.1 | 17 | ? | ? | | 2004 | 26.4 | 7 | ? | ? | | 2005 | 26.0 | 9 | ? | ? | | 2006 | 26.0 | 13 | ? | ? | | 2007 | 26.8 | -16 | ? | ? | | 2010 | 23.0 | ? | ? | ? | Variance over Time - The first year rate-of-return ranges from -30 to +33.
- The annualized rate-of-return for the first decade ranges from -4 to +7.
- The median rate-of-return for the first decade is +1.
That median rate of return going forward will be influenced in an unknown but likely negative fashion from the current starting point and high PE valuations for the years that have yet to be determined. Annualized Rates-of-Return Starting PE Less Than 13 The following table shows annualized rates-of-return for the current year, the 10th year, and the 20th year for each year in which the PE started at 13 or lower. | Annualized Rates of Return with Starting PE 13 or Less |
|---|
| Year | PE | AR 1 | AR 10 | AR 20 |
|---|
| 1913 | 11.9 | -3 | 4 | 4 | | 1914 | 11.1 | 7 | 5 | 5 | | 1915 | 11.5 | 18 | 7 | 5 | | 1916 | 12.0 | -3 | 7 | 6 | | 1917 | 8.8 | -7 | 10 | 6 | | 1918 | 6.4 | 20 | 14 | 7 | | 1919 | 6.5 | -5 | 15 | 5 | | 1920 | 5.3 | -11 | 13 | 5 | | 1921 | 5.4 | 26 | 10 | 5 | | 1922 | 7.5 | 6 | 1 | 3 | | 1923 | 7.9 | 9 | 4 | 5 | | 1924 | 8.4 | 26 | 4 | 5 | | 1925 | 10.1 | 16 | 2 | 4 | | 1926 | 11.7 | 24 | 5 | 4 | | 1932 | 8.1 | 32 | 5 | 9 | | 1933 | 11.1 | 13 | 5 | 8 | | 1934 | 12.2 | 9 | 5 | 8 | | 1942 | 9.2 | 34 | 13 | 11 | | 1943 | 11.0 | 10 | 10 | 10 | | 1944 | 11.3 | 21 | 11 | 10 | | 1947 | 11.2 | 5 | 12 | 10 | | 1948 | 10.7 | 2 | 12 | 10 | | 1949 | 9.9 | 24 | 5 | 4 | | 1950 | 11.2 | 24 | 15 | 10 | | 1951 | 12.0 | 23 | 12 | 9 | | 1953 | 12.0 | 21 | 10 | 9 | | 1974 | 10.9 | 5 | 8 | 9 | | 1975 | 10.2 | 19 | 9 | 10 | | 1976 | 11.5 | -2 | 10 | 10 | | 1977 | 10.4 | 0 | 12 | 11 | | 1978 | 9.4 | 9 | 11 | 12 | | 1979 | 8.9 | 16 | 12 | 12 | | 1980 | 8.8 | 10 | 10 | 12 | | 1981 | 8.5 | -5 | 11 | 10 | | 1982 | 7.3 | 33 | 12 | 9 | | 1983 | 9.6 | 1 | 10 | 8 | | 1984 | 9.4 | 17 | 10 | 9 | | 1985 | 10.7 | 25 | 10 | 8 | Variance over Time - The first year rate-of-return ranges from -11 to +34.
- The annualized rate-of-return for the first decade ranges from +4 to +15.
- The median rate-of-return for the first decade is +10.
Three Key Points - Starting valuation matters
- Starting valuation is bad
- The median rate-of-return for the first decade with these starting valuations is +1
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Will Sarkozy Survive the First Round in French Elections? Regardless, Sarkozy's Replacement Will Be Worse; Socialist challenger François Hollande Would Renegotiate EU Deal; Bickering Before Ink is Dry Posted: 12 Dec 2011 09:47 AM PST French elections are done in two rounds. The top two candidates by popular vote square off in round two. Things do not look good for French president Nicolas Sarkozy, especially for round two. However, he may not make it that far. Le Parisian has the results of the latest French Election Polls. Round 1 François Hollande 31.5%; Nicolas Sarkozy 26%; Marine Le Pen 13.5%; Francois Bayrou 13% Round 2 François Hollande 57% Nicolas Sarkozy 43% The gap between Hollande and Sarkozy in the first round is deceptively close. The reality is Sarkozy would lose handily if it came down to those candidates. Euroskeptic Marine Le Pen has fallen quite a bit but the first round race may change significantly as a result of recent political developments. Reader Andrea writes ... Hello Mish
Over then last days a few significant things happened for the French presidential elections.
Bayrou declared himself officially a candidate: Bayrou is the center of the political landscape and after his declaration and the media coverage he had, the polls showed quite a strong increase of his possible score. Now we have to see if it will hold, increase or if it is just a temporary effect of this media coverage.
He surged six points in the latest poll. in the last elections he got more than 18% of the first round vote.
The most interesting piece of news is that former prime minister Dominique de Villepin has declared this weekend he will be candidate.
De Villepin is from the right-wing side and he was member of Sarkozy's party until a few months ago. He left to create his own party and actually the relations between the 2 have always been very bad. The announcement was quite surprising because it seemed that de Villepin had abandoned the idea to be candidate.
This could be another issue for Sarkozy because for sure almost any vote de Villepin will get will be a vote that otherwise would have gone to Sarkozy, and could be a danger for his position at the first round.
For the moment there are no polls made after the announcement and his media coverage. So let's see what will be the impact of this in a few days. In my opinion there are increasing odds to see a situation with several candidates of the centre-right part political parties having a very close position and therefore an uncertain first round result.
Sarkozy may be bumped off in round one as a result. Sarkozy's Replacement Will Be Worse The unfortunate irony is that as bad as Sarkozy is, Hollande would be worse. Please consider Socialist challenger François Hollande would renegotiate EU deal François Hollande, who is the Socialist Party candidate for next year's presidential elections in France and currently leading in opinion polls, says if he were elected he would re-negotiate last week's EU fiscal pact.
François Hollande said he would renegotiate the pact to add what he said was missing from the deal. "I'd see to it that we add…ECB intervention, Eurobonds and a financial bail-out fund to respond to what is today the pressure of the markets"
All of these measures were explicitly opposed by Germany in the run-up to last week's deal.
Hollande's Socialists have accused Sarkozy of capitulating to German pressure, while he has accused them of undermining French policy by criticizing the deficit reduction plan. Got that? Hollande wants - ECB intervention
- Eurobonds
- Financial Bail-Out Fund
Bickering Before Ink is Dry The ink is not even dry yet and already the likely next president of France vows to renegotiate the terms in a manner unacceptable to Germany, Finland, the Netherlands. Round one of the presidential election is April 22. Round two is May 6. Given the situation in Finland, there may not be a deal even on paper (and certainly not signed), by the time Sarkozy is booted. Then the process can start all over again with another summit. After Merkel is booted, the process can again start fresh. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Hell Will Freeze Over Before Finland Signs Treaty; Europe's Blithering Idiots Make UK the Lone Winner Posted: 12 Dec 2011 01:32 AM PST Reader Janne from Finland claims "hell will freeze over" before Finland signs the Merkozy deal as it is structured right now. Janne also claims Finland will "loan" money to the IMF and it will not be in the budget. From Janne .... Hello Mish
My collection and translation of news shows this new treaty is in serious trouble.
Finance minister Jutta Urpilainen (social democrats/SDP) says Finland has only two options after the EU-summit: Either unanimity is required in ESM decisions as agreed before or Finland will drop out of ESM.
She does NOT see any other options based on the statement by Finnish Parliaments Constitutional Committee.
Loan Not Gift
Prime Minister Jyrki Katainen says that Finnish contribution to strengthening the IMF is 3.8 billion euros and this money will be a loan from the Bank of Finland to IMF so this will NOT be part of the Finnish budget.
Timo Soini,leader of the main opposition party The Finns party(PerusSuomalaiset) is very worried about the decisions made in Brussels and thinks particularly bad is the plan to remove unanimity and move to majority decisions regarding ESM.
85% Rule Against Finnish Constitution
Soini says that majority decisions in ESM are against the Finnish Constitution as confirmed recently by Finnish Parliaments Constitutional Committee. There was a clear mandate from Finnish Parliament that majority decisions in ESM are against Finnish Constitution and this EU-agreement should have never been agreed to.
If this goes through Finland will become responsible for others debts in way where we can NOT influence it or stop it. Soini thinks especially worrying is that large euro-countries may themselves withdraw from responsibility.
Germany, France and Italy can each stop the use of ESM if they so choose. This is unbelievable when smaller countries right to decide has been taken away.
Soini thinks much discussed and fiercely demanded investor responsibility(PSI) in ESM is completely watered down.
These instruments are created to remove investor responsibility and make taxpayers pay profits to gamblers.
Finland Expects Private Sector Involvement
Limiting so-called private-sector involvement to the terms accepted in International Monetary Fund bailouts was part of a package agreed upon in Brussels early today as leaders met to forge tighter economic bonds to stem the crisis according to Bloomberg and other news sources.
Reporting is different in Finland where Prime Minister Katainen said Finland got what it wanted when it comes to investor responsibility and that Private Sector Involvement will be fulfilled.
Treaty Footnotes:
"subject to confirmation by Finnish Parliament"
Finland had its own views through the EU statement . Though not the text itself, but in a footnote.
Footnotes can be found in the morning released a 7-page statement at the bottom of page 6. Here in the EU countries declare that the emergency fund EVM can act by qualified majority, 85 per cent.
A footnote states that this condition is dependent on the Finnish Parliament's approval.
Prime Minister Jyrki Katainen said earlier on Friday that Finland was the only country that opposed the proposal by qualified majority. The Constitution of Finland on Thursday, the committee said that the proposal of a qualified majority is Finnish unconstitutional. No Support for Passage
Center-party(Keskusta) who is also in opposition joins The Finns Party(Perussuomalaiset) in opposing majority decisions in ESM as does government party Christian Democrats:
Center party parliament group leader Kimmo Tiilikainen promises NO support at all to the idea that Finland would approve majority decisions in ESM and withdraw from insisting unanimity. Katainen and Urpilainen can clean up their own mess. Center party will NOT relinquish Finnish sovereignty and Finnish decision making to countries who have repeatedly violated EU-agreements.
Christian Democrat leader and interior minister Päivi Räsänen says that Finland should NOT give up unanimity requirement in ESM. Hell Will Freeze Over Before Finland Signs Treaty The above snips are Janne's translations (except for one Google Translation in blockquotes, indented a second time) of stories as they appear in Finland. Janne also has some personal comments and a prediction as follows. ... This deal is a total swindle by bankers: NO more investor responsibility, NO more Private Sector Involvement(PSI). Taxpayers will pay the profits to bankers and speculators. Democracy and Sovereignty crushed.
This deal compounds the problems by piling more debt on the fiscally irresponsible and the fiscally prudent ensuring total destruction in all countries of europe in a few years under crushing debt and continual malinvestment and destruction of competetiveness.
Taxpayers will pay the future bill IF the markets believe this newest set of fairytales and wishful thinking from the incompetent and anti-democratic EU-leadership duo Merkozy and Brussels bureaucrats.
However...
The Finnish Parliament will NOT confirm this agreement signed by Jyrki Katainen and this should have been crystal clear to the Merkozy duo before the summit because grand committee of Finnish Parliament stated this clearly in advance.
ESM is dead in the water and once again thanks to the arrogant crushers of democracy and destroyers of sovereignty Merkel and Sarkozy absolutely NOTHING has been solved.
It would require 133 seats(2/3 of parliament) to approve recent EU-agreement where unanimous decision making has been removed from ESM. Since The Finns party led by Timo Soini and Center Party are both opposed this will NOT happen.
Further the Social Democrats (In Finnish government with Coalition party and a bunch of smaller parties) have also said through Finance minister Jutta Urpilainen that they will NOT support majority decisions in ESM and one smaller party Christian Democrats also said the same recently. Practically only real supporter is Mr. Katainen who is the most euro enthusiastic politician in Finland.
So hell will freeze over before current EU-agreement which removes unanimity from ESM goes through Finnish Parliament. Europe's Blithering Idiots Ambrose Evans-Pritchard has some choice (and accurate) words in a scathing attack on Europe's blithering idiots and their flim-flam treaty As Sir Mervyn King said last week, the disaster was caused by current account imbalances (Spain's deficit, and Germany's surplus), and by capital flows setting off private sector credit booms.
The Treaty proposals evade the core issue.
Did France and Germany really have to cause this rift by throwing in an assault on the City that has precious little do with the EMU crisis? Yes, I suppose they did.
Given that Merkozy cannot bring themselves to accept that Europe's debacle stems from the euro itself, from a 30pc currency misalignment between from North and South, and from an over-leveraged €23 trillion banking bubble that German, French, Dutch, Belgian regulators allowed to happen… given that, yes, I suppose they have to find a scapegoat.
They have to whip up a witchhunt against somebody, so why not Anglo-Saxon bankers? Nasty reflexes are at work. German and French politicians in particular should be very careful about inciting populist hatred against a group that makes such easy prey. We have been there before.
The Europols have not begun to work out a viable solution to their deformed and unworkable currency union, and perhaps no such solution exists. The system will lurch from crisis to crisis until it blows up in acrimony.
Does France, for that matter, really want to be locked into a clammy embrace with an ever stronger Germany? The whole purpose of monetary union for Paris was to tie down a reunited Germany with silken cords. France now finds its own hands tied because of EMU, reduced to a humiliating side-kick.
But the vain and hysterical little man now in the Elysée will soon be gone. A leader will emerge once more with a "certaine idée de la France".
As for Britain, let us seize the moment of liberation, and enjoy it. Escape the Euro Prison! I cannot possibly agree more with Pritchard's statement " Seize the moment of liberation, and enjoy it." Indeed Pritchard should be grateful for the arrogance of Merkozy. Cameron's Pledge to " Fight from Within" is entirely wrong. In a highly entertaining video interview with Nigel Farage has exactly the right idea: Escape Euro Prison! Unmitigated Gall and Arrogance Imagine knowing full well that Finland cannot go along with and also knowing full well that voters stand no chance of passing it either. Instead of working with Finland, Merkozy had the gall and arrogance to to relegate Finland to a footnote in the treaty. So yes, this "flim-flam" treaty proposal will blow up in acrimony, probably before March, or it will be further weakened at the insistence of 1 vs. 16. Regardless, the Euro ship is headed down, torpedoed by arrogance of two leaders whose only concern is their own political legacy. Sarkozy and Merkel can bask in the limelight of false hope for now, but both will be gone in the next elections. History will not be kind to Merkozy, nor to Jean-Claude Trichet, nor any of the other Eurofools who think politics trumps economic reality. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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