Mish's Global Economic Trend Analysis

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• Will Le Pen Be on the Ballot Against Sarkozy and Hollande? Does it Matter?
• Bernanke Finally Says Something That Seems to Make Sense "8.3% Unemployment Understates Labor Weakness"; Critique of Bernanke's 2014 Pledge; Perfectly Useless Projections
• Spotlight China: Electricity Consumption Drops Sharply; Central Bank Vows Housing Support; Oil Imports From Iran Fall Again; Asia Real-Estate Bull Turns Bearish

Will Le Pen Be on the Ballot Against Sarkozy and Hollande? Does it Matter? Posted: 08 Feb 2012 04:30 PM PST Not many people realize this but in spite of polling anywhere between 16% and 22% in recent election polls, Marine Le Pen might not be included on the French presidential ballot. The reason is Le Pen needs 500 signatures by elected official supporting her campaign. Le Pen says she only has 350. I had been aware of this for some time but figured she could scrape up 500 signatures from a pool of 47,000 or so bureaucrats eligible to sign. Perhaps not. Please consider Le Pen attacks all sides over 'pathetic' poll Far-right Front National leader Marine Le Pen slammed a poll in a Sunday newspaper that asked people how they would vote if she was not on the ballot paper. The prospect could be a reality if Le Pen fails to get 500 elected officials to sponsor her candidacy. Under French law, any presidential candidate needs 500 signatures from elected representatives in at least 30 different departments across the country or in France's overseas territories. Le Pen told RTL radio on Thursday that she was still 150 short of the target number and risked being excluded from the vote on April 22nd. A Sunday newspaper, Journal du Dimanche, published an opinion poll at the weekend showing that the fortunes of current president Nicolas Sarkozy improve markedly without Le Pen in the picture. In that case, Sarkozy and his Socialist rival François Hollande would each get 33 percent of the vote. Current polls give the president around 24 percent compared to Hollande's 30 percent. Le Pen is just behind on around 20 percent, threatening to overtake the president and secure a place in the final two-way runoff on May 6th. Le Pen told a meeting in Toulouse on Sunday that the scenario in the poll was "the dream of the political class." "If I'm not there will you vote for Nicolas Sarkozy, for François Hollande?" she said, as the audience booed and whistled. "There is your response to their pathetic opinion polls and pathetic manipulations," she said. Does it Matter? The answer is not straight forward. It depends on the meaning of "matter". Le Pen was not going to win. If she is off the ballot, More first-round votes will go to Nicolas Sarkozy than François Hollande. However, in the second round of voting (recall French elections are two-stage with the top two candidates competing in a runoff), Polls show Hollande beating Sarkozy by 58% to 42% margin. Even if she bumped off Sarkozy, she would not win. Nor will Sarkozy win. Thus from a candidate point of view, one might say it does not matter. However, the process is certainly a defeat of democracy. Nothing is served by a process of keeping her off the ballot. Indeed, if she is as bad as Sarkozy claims, then voters should recognize that as well. The 36,000 mayors and 11,000 other bureaucrats eligible to vote have to do so publicly. Le Pen has a challenge into the French Supreme Court on the secret ballot issue. That case will be heard on February 22 as noted by Reuters in French far right say big parties muzzling democracy. 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.

Bernanke Finally Says Something That Seems to Make Sense "8.3% Unemployment Understates Labor Weakness"; Critique of Bernanke's 2014 Pledge; Perfectly Useless Projections Posted: 08 Feb 2012 10:19 AM PST I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness. Federal Reserve Chairman Ben S. Bernanke said the 8.3 percent rate of unemployment in January understates weakness in the U.S. labor market. "It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work," Bernanke said today in response to questions at a hearing before the Senate Budget Committee in Washington. "There are also a lot of people who are either out of the labor force because they don't think they can find work" or in part- time jobs. "The 8.3 percent no doubt understates the weakness of the labor market in some broad sense," Bernanke said today, while noting that some job indicators are improving. Fed officials last month estimated that the world's largest economy will grow 2.2 percent to 2.7 percent this year, according to the central tendency estimate, while the unemployment rate will average 8.2 percent to 8.5 percent in the fourth quarter. Disagreements Already I agree with most of  the above analysis, but the more Bernanke or the Fed talks, the quicker a disagreement is bound to arise. The problem above is the Fed's growth projection. The Fed could be right, I just highly doubt it. Let's put it this way, Bernanke has been seriously wrong so many times on economic projections that perhaps by accident he finally gets one correct. "8.3% Unemployment Understates Labor Weakness" Some things are so obvious even Bernanke seems to understand. His labor weakness statement is one of them. I said similar things on Monday, with far more details and reasons, in Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics? Please click on link for a series of charts showing just how weak the recovery has been and just how understated the unemployment rate is. Critique of Bernanke's Pledge to Hold Rates to Zero Through 2014 The strange thing here is that although Bernanke seems to understand the likeliness of further economic weakness, most analysts and writers are tooting the horns of an economic recovery, while chastising Bernanke for promising to hold rates low until 2014, as if the decline in unemployment rate is meaningful. I disagree with the Fed's rate decision for a different fundamental reason: a bunch of academics chasing their tails cannot effectively set interest rates (only the market can). That simple fact has been proven is spades. Analysis of Bernanke's "Labor Weakness" Statements Unfortunately, Bernanke's statements offer surprising little economic insight. For example, please consider the Fed's estimate that the "unemployment rate will average 8.2 percent to 8.5 percent in the fourth quarter". Perfectly Useless Projection Let's assume Bernanke is correct. Is that a meaningful projection? The short answer is the projection, even if totally accurate, is perfectly useless. Let's analyze "why? in light of Bernanke's estimate that it takes 125,000 jobs a month to keep up with demographics (birthrate plus immigration). Three Cases In Which Unemployment Rate Stays Flat Is the Fed projecting 125,000 per month in line with expected demographics? Is the Fed expecting 200,000 jobs a month with a rising participation rate that holds the unemployment rate steady? Is the Fed expecting 50,000 jobs a month with a falling participation rate that holds the unemployment rate steady? It would be more useful (assuming there is any use to Bernanke's statements which is certainly debatable) to know just what he is thinking because those three scenarios are vastly different in terms of economic significance, even though they all project the same 8.2 percent to 8.5 percent unemployment rate prediction. In other words, the Fed's projection, even if accurate, is totally useless, not that anyone should be paying any attention to what he says in the first place. 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.

Spotlight China: Electricity Consumption Drops Sharply; Central Bank Vows Housing Support; Oil Imports From Iran Fall Again; Asia Real-Estate Bull Turns Bearish Posted: 08 Feb 2012 12:54 AM PST Inquiring minds are tired of the spotlight on Greece (believe me I am as sick as anyone of Groundhog Day). Given the world will not end when Greece defaults, whether in March of this year or next, let's turn our attention to a country far more significant. Chinese Electricity Consumption Fell Massively In January Business Insider reports Chinese Electricity Consumption Fell Massively In January, And The Chinese New Year Doesn't Explain It Ultra-brief note here from Nomura's Zhiwei Zhang : According to the China Securities Journal, China's electricity consumption in January fell by 7.5%. We estimate this may be the first decline since 2002 (excluding the financial crisis period in 2008-09), indicating industrial production may have slowed sharply in January. They don't have any more answers here at the moment, except they say that if you're thinking it has something to do with the New Year, then you are incorrect. For now it's just one of those things that make you go hmm... China Pressures Iran On Oil Prices China has stepped up the pressure on Iran in the face of Europe's oil embargo. Business World reports China's Oil Imports From Iran Reduced Again China will reduce its crude oil imports from Iran for a third month, sources said today, as the two remain divided over payment and price terms, although they plan to meet again for talks as early as this week. China is the top buyer of Iranian oil and also the fastest expanding major oil importer, putting it in a strong position to negotiate for better terms after it more than halved imports for both January and February. The reductions for March-loading supplies will be largely the same, if not deeper, than the previous two months, industry officials with direct knowledge of the supply situation told Reuters. China, which buys around 20 percent of Iran's total crude exports, cut its January and February purchases by about 285,000 bpd, just over one half of the total average daily amount it imported in 2011. China Central Bank Vows Housing Support In a sure sign that property prices in China are crashing faster than the Chinese government wants, China Central Bank Vows Housing Support China's central bank pledged support for first-home buyers as a crackdown on real-estate speculation threatens to trigger a property slump in the world's second- biggest economy. Officials will increase support for construction of affordable housing and ensure that "loan demand from first-home families" is met, the People's Bank of China said on its website yesterday evening. Policy makers aim to limit public discontent by making housing more affordable, with Vice Premier Li Keqiang, a possible contender to be the next premier, describing the distribution of low-cost homes as a key test of government credibility. At the same time, the ruling Communist Party aims to avoid the economic "hard landing" that Fitch Ratings said yesterday is a key global risk. "The government doesn't want to see home transactions slide too fast -- that may hurt economic growth," said Lu Ting, a Hong Kong-based economist at Bank of America Corp. Too Late to Prevent a Hard Landing Given the massive size of China's property bubble, it's far too late to prevent a crash landing. The only way to prevent crashes is to not let bubbles get so big in the first place. Asia Real-Estate Bull Turns Bearish MarketWatch reports Asia Real-Estate Bull Turns Bearish Asia's gradually cooling property markets aren't the great buys they once were, according to one expert in the region, who says better bargains can be found in the depressed markets in the West. Tim Murphy, the Hong Kong-based chief executive officer of property advisory group IP Global, says he's telling his clients to look more towards New York and San Francisco for deals, although London also ranks well in terms of rental yield in some projects. Back home in Asia, the only market he likes is Malaysia, where average prices in its big cities are about one-tenth of those in Hong Kong, while its commodity-backed economy should outperform its export-dependent regional rivals. What's changed? Murphy says the ongoing debate in Asia during the current soft patch is being driven by inflation concerns that were absent during previous periods of economic weakness. Specifically, he sees a "role reversal" from the regional crisis that unfolded in 1997, as fresh barriers to foreign investment and speculative activity are now enacted across many parts of Asia, while hard-hit cities in the West are offering tax breaks and other concessions as incentives to invest. Today, governments around the region, and particularly in China, are wary that too much liquidity could stoke a U.S.-style housing bubble and inflict long-term damage upon the economy, he said. "Singapore and Hong Kong are two of the freest economies in the world, yet you pay more in stamp duties [real-estate transaction taxes] now than you would in London, because they are very worried about the markets continuing to overheat," Murphy said. Infomercial for Property-Advisory Firm IP Global As much as I agree with the headline message, I have to comment the same message could have and should have been said years ago. Given the illiquid nature of real estate, one cannot sell on a dime when the market turns. "We see what's happening as a great chance for Asians to buy overseas at the moment," Murphy said, adding that in December he opened an office in Shanghai to tap the growing interest among China's newly wealthy for overseas homes.  Given the entire two-page article was about Murphy and his firm, I have to ask "Was that an news story by MarketWatch or an infomercial for Tim Murphy?" Regardless, anyone who bought in China in the last couple years and has not sold yet is now likely trapped. 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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