Mish's Global Economic Trend Analysis |
- China Manufacturing Contraction Continues Second Month; Japanese Manufacturing Sentiment Turns Negative; Asia Pacific Equities Sink
- Rick Perry, Unfit for Office, ANY Office
- "Decision was rational. I put it into a model" says Hungarian Economics Professor who took Mortgage in Swiss Francs, then Clobbered on 40% Currency Move
- On the Titanic towards Economic and Democratic Disaster
- Dear Nouriel Roubini: The Fundamental Case for Gold Has Not Changed; To Understand, All Roubini Need Do is Look in a Mirror
Posted: 14 Dec 2011 11:47 PM PST All Asia-Pacific Equity indices are in the red tonight following more bad news from China and Japan. Asia Pacific Equities Japanese Manufacturing Sentiment Sinks Bloomberg reports Japan Manufacturing Slides on Europe Crisis Japan's largest manufacturers became more pessimistic than economists expected and China reported the first decline in foreign direct investment since 2009 as Europe's crisis drags down the global economy.China Manufacturing Contraction Continues Second Month MarketWatch reports China manufacturing cools further Chinese manufacturing activity extended its decline in December, as production at factories and the volume of new orders generated eased from the previous month, according to the preliminary reading of an HSBC survey, released Thursday.In response to the weakening fundamentals of China, the Shanghai Stock index is down again this evening, having fallen back to March 2009 lows. $SSEC Weekly Chart click on chart for sharper image That snapshot is as of yesterday's close. The Shanghai Index is down another 2% this evening to 2,182, approximately where the dashed blue line is in the above chart. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Rick Perry, Unfit for Office, ANY Office Posted: 14 Dec 2011 08:09 PM PST Rick Perry is out to prove to everyone on the planet why he is unfit for office, any office. A recent video does just that. Please consider Rick Perry 'Strong' Ad Goes Viral, Sparks Parodies Maybe Rick Perry should have worn a different jacket.Joke is not the correct word for Rick Perry. Use your imagination as to what is. However, Rick Perry certainly is the brunt of jokes. First the insensitive and politically foolish video by Rick Perry ironically titled "Strong". "Strong" Link if video does not play: Rick Perry "Strong" There are numerous parodies of that video, many of them quite funny. One of my favorites takes off on the jacket aspect. "Jacket" Link if video does not play: Rick Perry - "Jacket" ("Strong" Parody) The Huffington Post has links to their Seven Favorite "Strong" Parodies. Perry is finished. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 14 Dec 2011 03:49 PM PST In case you need further proof that economics professors are frequently clueless about economics, please consider Austrian Banks Facing Payback as Hungary's $22 Billion Debt Slaves Revolt When Hungary's former central bank governor was buying a house two months before Lehman Brothers Holdings Inc. collapsed and the country sought an emergency bailout, he received an offer he couldn't refuse.In Models We Trust The decision to take out mortgages or other long-term debt in a foreign currency is not rational unless one is fully prepared for these kinds of currency fluctuations. Not only was the professor unprepared, he was silly enough to base his move on a model. Haven't these geniuses heard about the demise of Long Term Capital Management? The short story is future Nobel Prize winners, Myron Scholes and Robert C. Merton along with John Meriwether made leveraged bets based on a model that said bond rates would converge over time. The firm was initially successful with annualized returns of over 40%. However, LTCM blew up in 1998 following the Russian financial crisis in which bond spreads "unexpectedly" widened. Professor Bod made a leveraged bet (that's what most mortgages are), that based on a model, Hungary's currency (the Forint) would be stable against the Swiss Franc. Why any model would presume such a thing is beyond me. Why anyone would trust such a model is even more ridiculous. But that's just what the professor did. Hungarian Currency Crisis There is much more to the story including a bailout of Hungary by the IMF and debt restructurings that spilled over into Austria. To help homeowners, [prime minister] Orban imposed currency losses on banks including Erste Group Bank AG and Raiffeisen Bank International AG (RBI) that may total 900 million euros ($1.2 billion), according to Cristina Marzea, an analyst at Barclays Capital. Faced with the risk Orban would impose further measures, lenders have offered to accept $2.2 billion of additional losses if the government promised to take no further action. If it doesn't, banks are threatening they may withdraw from the country.Everyone in Hungary has suffered from this mess to varying degrees. Banks made stupid mortgage loans believing they would be paid back regardless of currency fluctuations. Borrowers took out stupid mortgage loans ignoring the possibility of huge currency swings. Worse yet, the IMF is in the picture bankrolling Hungarian banks as foreign lending has all but dried up. It's never good to be in a position of borrowing money from the IMF. Did Bod learn anything? Of course not. Bod explains ... The plan "is easy to explain from a political viewpoint. It's cheap for the government, expensive for the banks, good for voters." The plan was not good for voters in general (at least voters who did not take out stupid loans based on models). The plan however was good for Bod, but not as good as if he had stayed away from his faulty economic model in the first place. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
On the Titanic towards Economic and Democratic Disaster Posted: 14 Dec 2011 12:46 PM PST Here is another entertaining video from Nigel Farage. In this video Farage proclaims the UK will eventually exit the EU. Link if video does not play: On the Titanic towards Economic and Democratic Disaster Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 14 Dec 2011 09:39 AM PST In response to Dollar Soars vs. All Major Currencies Following FOMC No Hint of QE3; Looking Ahead, What's Next? I received the following email question from a reader. Still standing by your position? The euro has tanked, US dollar has shot up, and lo-and-behold gold drops $150. Sigh. What does it take for people to realize movements in the US dollar have been irrelevant to the price of gold for nearly six years? Don't believe me? Please consider the following chart. Gold vs. the US Dollar click on chart for sharper image Day in and day out someone writes me concerned about strength in the US dollar and what it might mean for gold. Still others email that gold will soar because the US dollar is plunging and will continue to plunge. However, the US dollar is about where it was at the start of 2005 (a bit higher actually). The US dollar has seen or crossed this level six times. In effect there has been no net movement in the US dollar for six years. Meanwhile in every instance, with each cross of 80.50 level on the US dollar index, there has been an upward trend in the price of gold. At the beginning of 2005 gold was at $435. The US dollar index was 80.5. Now gold is $1640 with the US dollar index a half-point higher at 81.0 Is there any conceivable reason I should change my position on gold (or for that matter the US dollar). Hyperinflation Theories Remain Laughable Hyperinflation theories remain as silly as ever. Try as he might, Bernanke has not been able to stimulate lending or credit growth to any significant degree since 2007. Consumers are stuck in their houses, unable to move, owing far more on them than they are worth. Students are mired in student loans. Demand for dollars from Europe as well as to pay US debts has soared. It is preposterous to assume hyperinflation will result from these conditions, especially since Bernanke will not act to destroy banks. I currently like the US dollar (as I have on and off since 2005). However, that statement in relation to fiat currencies, not vs. gold. More importantly, I still like gold in spite of the fact I expect the US dollar to strengthen, and in spite of the fact the US has gone into deflation twice (based on credit, not consumer prices) since 2007. For further discussion as to a realistic approach to what inflation and deflation are all about, please see
Reasons to Own Gold Have Not Changed The fact of the matter is gold does well in deflation. It also does well in times of credit stress. There is immense credit stress right now in sovereign debt in Europe. Moreover, central banks have on-and-off stepped on the monetary pedal in unison to combat recessions and deflation. Gold has reacted to that. Recently, gold has reacted to Fed statements regarding QE3 and bond buying by the ECB. Gold may or may not track short-term fluctuations in the US dollar, but on a long-term basis it is clear that it doesn't. History suggests central banks will step up the printing presses again. When that happens, I expect gold to make another all-time high, perhaps just as the US dollar index makes another plunge below the 80.5 mark from well above it. I Don't Know, They Don't Either I do not know what the price of gold will be tomorrow, or next week, or any point in the future. No one else does either. Moreover, even if someone were blessed with the knowledge of where the US dollar index would be three years from now, that person would still be clueless about the price of gold. Yet, I have lots of people asking me where gold will be and others telling me where it will be (based on the US dollar). All anyone can really say is the fundamentals for gold are strong because the fundamentals for credit stress and central bank printing are strong. When I perceive those fundamentals have changed, my position will change. In the meantime, we have had a relatively trivial drop in the price of gold to which many gold bugs threw in the towel in disgust. Clearly, gold is not the fantastic bargain it was six years ago, but it is still a relative bargain as long as the fundamentals hold, no matter how the US dollar meanders over time. Maybe this correction steepens, and maybe it doesn't, but the fundamental case for gold has not changed one bit. Reflections on a Tweet I wrote the above this morning at 5:00AM for posting sometime today (with a title simply on the fundamentals of gold). Well low-and-behold (to use my reader's phrase), I wake up to see this tweet posted by Nouriel Roubini on ZeroHedge "Gold at a 7 weeks low down to 1635. Where is 2000 gold dear gold bugs?" Dear Nouriel Roubini As noted above, the fundamental case for gold has not changed. In a single sentence, the fundamental case for gold is that Monetartist clowns and Keynesian fools will eventually get their way. When it comes to bailouts and printing money, it is nearly given central banks will try it, with more and more force, each time. The irony Nouriel, is you are begging them to do just that, every step of the way. Gold has only fallen because central bankers ignored (for the time being), your foolish recommendations to print and spend more money. If central banks do not resort to the printing press, if governments do not give in to more absurd Keynesian stimulus ideas, and if the US budget deficit is brought under control, then, yes, gold may have topped. How likely is that? Nouriel, if you want to better understand the fundamentals of gold, I advise you to look in the mirror and recite your "cure" for the economy. How long have you been bearish on gold anyway? For something like forever or simply the last 1000 points? Regardless of your answer, the monetary policies you yourself espouse would have us at $2000 right now. Instead, central banks have actually acted more rationally (for the time being) than many expected. No one can predict short-term movements, but it would behoove you to understand long-term fundamentals or gold will make you look like a fool, yet again. Addendum: Flashback October 22, 2009: Nouriel Roubini: Big Crash Coming Roubini: I don't believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there's slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there's no inflation, and there's not going to be for the time being.I do not care about wrong predictions. I do care about wrong thinking., especially consistently wrong thinking. Roubini's thinking has been and remains consistently wrong. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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