Mish's Global Economic Trend Analysis

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• Portuguese Socialists Threaten "Economic Atomic Bomb"; Fitch Sets France Rating Outlook to Negative; Head of French Central Bank Attacks UK and Rating Agencies
• Italy's "Vote of Confidence" Charade
• France in Recession; Italy in Recession; Poles Protest; Credit Agricole Quits Commodity Business; Poetic Irony and Credit Crunch Math

Portuguese Socialists Threaten "Economic Atomic Bomb"; Fitch Sets France Rating Outlook to Negative; Head of French Central Bank Attacks UK and Rating Agencies Posted: 16 Dec 2011 11:20 AM PST Splintering and dissent continues in a major way as Christian Noyer, head of the Bank of France, attacks the fiscal rating of the UK following a negative outlook review of France by the rating agencies. In Portugal, socialists talk openly of default as a weapon. Portuguese Socialists Threaten "Economic Atomic Bomb" Ambrose Evans-Pritchard at The Telegraph writes Talk of 'nuclear default' sums up Left's anger at EU dictates Tempers are fraying in austerity-racked Portugal. A top socialist politician was taped at a party dinner calling for diplomatic warfare against the EU's northern powers and issuing threats of debt default. "We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won't pay," said Pedro Nuno Santos, vice-president of the Socialist Party in the parliament. "Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble," he said. The comments came as Portugal slides deeper into recession, with the economy expected to contract by 3pc next year. Protesters marched through Lisbon on Thursday denouncing plans by the new conservative government to raise the working week to 42 hours. Wages are being cut 16pc for higher paid, and 8pc for lower paid public workers. The parliament passed a fresh austerity budget earlier this month under the terms of its €78bn loan package from the EU and the International Monetary Fund. Mr Nuno Santos said Europe's southern states should join forces to resist the austerity dictates and contractionary policies being imposed by the core powers. "It is incomprehensible that the peripheral countries don't do what the French president and the German Chancellor do. They should unite," he said. Fitch Sets France Rating Outlook to Negative Bloomberg reports France's AAA Outlook Cut; Fitch Reviews Others Fitch Ratings lowered France's rating outlook and put the grades of nations including Spain and Italy on review for a downgrade, citing Europe's failure to find a "comprehensive solution" to the debt crisis. "Of particular concern is the absence of a credible financial backstop," Fitch said in an e-mailed statement. "In Fitch's opinion this requires more active and explicit commitment from the ECB." Without a full solution, Fitch said the crisis will persist, "punctuated by episodes of severe financial market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt." Head of French Central Bank Attacks UK and Rating Agencies In response to various outlook downgrades of France, Christian Noyer, head of the French central bank attacked the rating agencies and amusingly the UK. When is the last time a major central bank head attacked  the debt rating of another country? I cannot recall such a time but it has happened now. Please consider UK 'should be downgraded' before France, says ECB's Christian Noyer Britain should have its AAA credit rating before France, according to Christian Noyer, head of the French central bank, as the war of words between the two countries heats up following David Cameron's EU treaty veto. "The downgrade does not appear to me to be justified when considering economic fundamentals," Mr Noyer said in an interview with local newspaper Le Telegramme de Brest. "Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping," he went on. "Frankly, the agencies have become incomprehensible and irrational. They threaten even when states have taken strong and positive decisions," the central banker said. "One could think that the use of agencies to guide investors is no longer valid." French Foreign Minister Alain Juppe said yesterday that decisions by rating agencies were "sometimes subjective and political", and that any loss of France's top-notch AAA rating would be regrettable but not disastrous. With that attack on the UK it is plain to see the poisonous atmosphere following the do-nothing over-hyped treaty proposal of Merkozy has gotten much worse. 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's "Vote of Confidence" Charade Posted: 16 Dec 2011 10:23 AM PST There is nothing like setting up a straw-man that a mouse and two fleas can blow over. Nonetheless, that is what Italy's technocrat Prime minister has set out to do, as noted by the BBC article Italy's Monti faces confidence vote over austerity My first thought, based on the headline, before reading the article, was "please, spare me the sap". My tune did not change after reading the article. The only rational explanation to the Italian "vote of confidence" is that Italy is on such shaky grounds that it desperately needs publicity, hoping to artificially boost confidence in Italian bonds. I suggest this is a staged event, known in advance to pass with flying colors. In reality, if there was genuine confidence, there would be no need to hold a "vote of confidence". Thus, these confidence-seeking charades are anything but confidence-building. History suggests one of these votes will fail sooner or later, or politicians will resign in advance of such a vote. And that is exactly what happened in Greece and Italy this past year. 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.

France in Recession; Italy in Recession; Poles Protest; Credit Agricole Quits Commodity Business; Poetic Irony and Credit Crunch Math Posted: 16 Dec 2011 12:28 AM PST The latest Merkozy treaty proposal is far more hype than reality. What little has been agreed to will be taken back as treaty cracks appear everywhere. Worse yet, numerous austerity measures are counterproductive. Thus, it should not be surprising that headlines regarding the real European economy (as opposed to Eurocratic wishes) are generally horrific. Here are a few stories that caught my attention. France in Recession Via Google Translate, La Tribune reports France Enters Recession INSEE forecasts have rarely been so dark. The institute provides, in its memo on the economy in December, a decline in French GDP for the current quarter (- 0.2%) and below (- 0.1%). In other words, the recession. For this scenario is not only French but also European. The euro area show indeed a decline in GDP of 0.3% in fourth quarter 2011 and 0.1% in first quarter 2012 (see chart) and will benefit the end of a carry-over for 2012 does not exist (0.1%). The economic downturn is rooted in the turmoil in financial markets this summer, said INSEE. Since June, the risk premium on the interbank market (interbank security required to support each other in three-year horizon) climbs, as well as differences in interest rates of 10-year bonds of major countries in the area are growing (almost 6% in Spain and Italy, 2% for Germany). The above translation is choppy, but surely you get the drift. Italy in Recession Reuters reports Confindustria slashes 2012 Italian growth forecast The main employers' lobby Confindustria on Thursday slashed its 2012 growth forecast for Italy to -1.6 percent from +0.2 percent, warning that even that estimate was optimistic and based on a gradual easing of the euro zone debt crisis. Italy is already in recession, began shrinking on a quarter-on-quarter basis in the third quarter of this year, and will emerge only in the third quarter of 2013, the employers' federation said. The country will grow slowly in 2013, by 0.6 percent, Confindustria predicted. Growth forecasts for both 2012 and 2013 are "optimistic" and based on Italian bond yields falling below 5 percent by April, according to the group's latest revision of its forecasts. Yields on benchmark 10-year bonds are currently over 7 percent. Prime Minister Mario Monti's 33-billion-euro austerity package will weigh on growth, but is necessary to prevent the country sliding into a default, Confindustria said. Thousands of Poles protest against new EU treaty Inquiring minds note Thousands of Poles protest against new EU treaty About 5,000 Poles protested in Warsaw against closer European integration after the government agreed to a new EU treaty for closer fiscal cooperation to tackle economic crisis. The protesters waved Polish flags and at one point chanted "Disgrace!" during the rally organised by the main opposition, the conservative, euro-sceptic Law and Justice (PiS) party. The peaceful demonstration took place on the 30th anniversary of a crackdown by communist authorities against the pro-democratic opposition lead by the Solidarity trade union, Reuters reports. As he addressed the crowd, PiS leader Jaroslaw Kaczynski drew a parallel between the 1981 Poland's subjugation under the Martial Law to the Soviet Union and the current government's support for deeper EU integration. "PiS will lead the fight for a truly sovereign Poland where Poles themselves can decide on what is most important for them, can build their prosperity on their own, because we can afford that," he said. Poland, the largest former communist state in the EU, is still outside the euro zone and has so far avoided the recession engulfing much of the 27-nation bloc. Credit Agricole Quits Commodity Business Reuters reports Credit Agricole quits commodity trade as crisis bites Credit Agricole, the formerly farm-focused bank that had boosted its energy trading in recent years, warned on Wednesday of losses and write-downs as it struggles to cope with the credit crunch. The cuts come just weeks after rival Societe Generale (SOGN.PA) shut down its year-old U.S. gas and power trading desk, and leader BNP Paribas (BNPP.PA) consolidated. The deepening euro zone debt crisis has hit French banks hard as traditional sources of dollar funding have evaporated and as they face pressure to meet tougher capital requirements. Volatile commodity prices, dimmer growth prospects and tougher regulation are also forcing some firms to question the outlook for the decade-long boom in trading raw materials. Cargill Inc. CARG.UL, which has voiced a bleaker economic outlook for next year than most of its peers, is cutting 125 jobs worldwide from its energy, transportation and metals operations as part of plans to reduce 2,000 or 1.4 percent of its global workforce over the next six months. Trade sources said more companies may follow. "What is happening with Credit Agricole is certainly a major trend across banking where the entire commodities trading business is shrinking," said a senior commodities trader who recently left a major bank for an independent trading house. Mainstream Media Admits Obvious Mainstream media, corporations, and analysts have finally admitted what I have been saying for two months: Europe is in recession. Poetic Irony The story of Credit Agricole is symbolic of the banking sector everywhere. Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital for numerous reasons including new Basel requirements. The unfortunate irony is banks may be shedding profitable organizations simply because there is still a bid for the assets. Credit Crunch Math In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what that can, not what they want to. In essence, distressed sellers weaken themselves by shedding profit centers to retain assets for which there is no bid. Then again, there is no legitimate need for banks to be undertaking some of those operations in the first place. Various ironies and poetic justice abound. 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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