Mish's Global Economic Trend Analysis

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• Rats on Sinking Ship Scramble for Last Exit; Get While the Gettin' is Still Possible
• Understanding Gasoline Sales "By Refiners"
• Deja Vue All Over Again; ECB Says Bond Buying Program Available; Sweet Talkin' Guys
• Slow Road to Hell: Spain Entertains VAT Hike

Rats on Sinking Ship Scramble for Last Exit; Get While the Gettin' is Still Possible Posted: 11 Apr 2012 10:28 PM PDT Like rats on a sinking ship, the Greek prime minister Lucas Papademos seeks his exit before the total and complete destruction of Greece. If you prefer a different analogy, like Pontius Pilate, prime minister Papademos washes his hands of this sordid affair. The New York Times reports Snap Elections for Greek Parliament Are Set for Early May Greece's interim prime minister, Lucas Papademos, called for snap elections on Wednesday, opening the way for a contest that promises to be the most fiercely fought in decades but which might not yield a definitive result, potentially putting the debt-racked country's international bailout plan in jeopardy. In a televised address to the nation on Wednesday night, Mr. Papademos said he had gained the approval of President Karolos Papoulias to dissolve Parliament and go to elections on May 6. "The current government has completed the key task that it was assigned," he said. "A new government, with a fresh popular mandate, will be tasked with continuing the effort to reconstruct the economy." Public anger has been swelling against the politicians who approved austerity measures and are perceived as having created the dysfunctional state that created the conditions for the debt crisis. Opinion polls show that the two parties in the interim government have lost major support. A poll conducted by the firm Public Issue for Skai television and the Kathimerini daily newspaper showed the conservative New Democracy party holding on to its lead with 19 percent and the Socialists edging up to 14.5 percent. The Coalition of the Radical Left (known as Syriza) would garner 13 percent in elections, the survey showed, with the more moderate Democratic Left winning 12 percent and the Communist Party 11 percent. A new center-right party called Independent Greeks, which opposes the government's austerity drive, is shown to be polling at 11 percent. Some smaller parties were teetering on the 3 percent threshold for entering Parliament, given the survey's margin of error of plus or minus 2.9 percentage points. The poll, conducted by telephone, surveyed 1,226 people nationwide from April 3 to 9. Some expect that the elections will produce a hung Parliament and require a second round of voting. This is not a case of "get while the gettin' is good" but rather "get while the gettin' is still possible at all. 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.

Understanding Gasoline Sales "By Refiners" Posted: 11 Apr 2012 11:27 AM PDT Reader David sent in a link to an alarming looking chart of gasoline sales on the EIA's website U.S. Total Gasoline Retail Sales by Refiners (Thousand Gallons per Day) David notes a stunning plunge from 41,972,600 to 28,433,900 (-31%) in the last four months. click on chart for sharper image I asked Tim Wallace what to make of this. Wallace writes ... Hello Mish I queried the EIA and as I expected the key to understanding the chart is the statement the chart shows retail sales by refiners. I have been closely following the divestiture of the retail outlets by the majors such as Exxon and BP over the past couple of years, accelerating now because there is NO MONEY in retail, just in exploration and distribution - basically through the wholesale level. Therefore the sales by the refiners at the retail level is of course rapidly plummeting. It's an interesting measure which has no validity whatsoever on total usage/demand. Regards, Tim Correctly Depicting the Plunge Gasoline sales have indeed plunged in a shocking manner, just not as shocking as it appears in the above chart. Please consider my April 6 post Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage for Jan, Feb, March 2012 The above chart shows total petroleum and gasoline usage for Jan-Feb-March 2012 usage vs. the same three months in prior years. That method is the correct way of understanding gasoline usage. 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.

Deja Vue All Over Again; ECB Says Bond Buying Program Available; Sweet Talkin' Guys Posted: 11 Apr 2012 09:21 AM PDT ECB Says Bond-Buying Program Available The ECB went from loading up on sovereign debt and making a huge mess of it when Greece defaulted, to the LTRO program which has not made a big mess yet but will. Things are about to go full-circle as the ECB threatens once again to make another mess of things with sovereign bond purchases. The Bundesbank, Germany's central bank protested bond purchases the last time (correctly), and will do so again, likely to no avail, and with the same predictable results. CNBC reports ECB Official Says Bond-Buying Program Available ECB Executive Board member Benoit Coeure, the ECB board member in charge of market operations, said the central bank still had the Securities Market program (SMP) in place allowing it to purchase debt of euro zone nations, should the need arise. "We are seeing today growing signs of normalization on a whole group of market segments ... but the situation in recent days shows that this normalization remains fragile," Coeure told a conference in Paris. Referring to Spain, where sovereign debt yields have spiked amid concerns over the government's ability to cut its deficit, Coeure said: "The political will is there, which makes me think that what is happening at the moment in the market does not reflect the fundamentals." "There is no reason why the situation does not normalize in Spain as well." "We have an instrument for intervention, the SMP, which has not been used recently but which exists." His comments appeared to open the door to the ECB reactivating its bond-buying program — a policy option which would meet strong resistance from the Bundesbank and other ECB policymakers from the euro zone's healthier "core" economies. Preposterous Statements It's difficult to tell if Benoit Coeure is a liar or an idiot or some combination thereof, but the idea that "fundamentals" in Spain are good, and the idea that there are "growing signs of normalization" are both preposterous. It has taken trillions of dollars of intervention to make things look stable, but stable they aren't. Yields in Italy and Spain rose substantially the moment the LTRO ended. Spain now appears poised to make matters much worse for itself with a disastrous tax hikes. For details, please see Slow Road to Hell: Spain Entertains VAT Hike Deja Vue All Over Again Steen Jakobsen, chief economist as Saxo Bank in Denmark, borrows a phrase from baseball manager Yogi Berra and says it's a case of "Deja Vue all Over Again". Via email ... It seems the long awaited pay-back to: extend-and-pretend policies has started. The problem list is forever increasing, but my ranking would be: Spain: The government played an extremely bad hand of Poker and lost. First response to this crisis will be 'bad bank' rescue funded by EFSF most likely (but with tough conditions due to Spain bad behavior). The Spanish government has been playing hike-and-seek and is losing even Brussels support. The 10-year bond yield closed around 6 pct yesterday after 4.5 pct less than two weeks ago. Please also see my piece from last week: The rain in Spain is mainly in the plains French Election: Sarkozy has been bad news forever and looks to be even more bad news post April 22nd. His opponent is playing the 'Mitterand card' - replaying the Grand Times of France in Europe. Sarkozy is improving in the polls but still trails in the May 6th 2nd round by at least 10 percentage points. Bad Economics: As indicated in our Q1 Outlook - Perfect Storm - the economic reality will and should ultimately catch up to bad policies. Compounding macro mistakes not only crowds-out the micro economy but it also place false hope in voters and investors instead of a resolution for reforms. Europe is in free-fall economically and the six cylinder engine is down to only one or two working. Asia: Data, mainly China leaves less than needed room for cuts and the general easy monetary policy which the market hopes for. The new 'openness' brought forward by the outgoing elite is sign of weakness not strength. The internal dynamics is falling apart as housing bubble does its Third Act in China ( after First and Second Act in Europe and the US) - house prices and sales down 15-25 pct in latest surveys. Lack of Policy Tools: The slower growth and falling markets have made market increase probabilities of more QE either sterilized or not. However .... FOMC is split down the middle - more so than generally accepted by the liquidity junkies The actual amount needed to make an impact is GIGANTIC – The FED have increased its balance sheet to in excess of 3 trillion US dollar, so to make a 'dent' they need to print/buy another 1 trillion - unrealistic! We will get more but only to keep the 'game going' and not enough to make an impact. This means Bernanke and FED will try to sweet talk market into believing they can do more. Academic papers clearly show the initial talk of QE (before implementation) is 75 pc of the net effect! What Remains is More of the Same Under financed government funding Undercapitalized banks An economic situation which looks, feels and taste like 'Japanisation' with decades of printing, low growth, and no reforms Lack of reforms - but more austerity (saving ourselves to prosperity) If I was concerned in December 2011 then I am getting more scared now. Policy makers are left with nothing but to talk-and-pretend, and they will. However, time is running out and all we got coming is some more easy money, the exact reason we are here entering into the third or fifth wave down. For the balance of this week the market is oversold and looking for more QE, but ultimately we risk that we are now repeating the trading patterns of 2010 and 2011 with tops now in place, the only difference being, everything has been tried before. As the quote goes: History repeats itself, historians repeat each other (Phillip Guedalla). Time to bring the alertness to RED I am sorry to say. Steen Front-Running the Sweet Talk 75% of the benefit of QE comes before implementation because banks are tipped off in advance of the program before anyone else with details as to the size and scope of the Fed's operations. The banks front-run the trade knowing what and when the Fed will buy, then start unloading when the Fed becomes the buyer of last resort. At some point however, sweet talk and sweet actions will no longer work as I said yesterday in Lollipops and Tantrums; Is the Fed Promoting Recovery or Desperation? QE "Appears" to Works Until It's Obvious it Never Did One Lollipop Too Many One of these times, and I have to admit I expected it long ago, the market will not be satisfied with another lollipop. At that point, instead of cheering another lollipop, the market will throw up like a child who has eaten three donuts and five lollipops too many. Sweet Talkin' Guys For now, in honor of the Fed, the ECB, and the Central Bank of China, I offer you this tribute to Sweet Talkin' Guys. Link if video does not play: The Chiffons - sweet talking guy 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.

Slow Road to Hell: Spain Entertains VAT Hike Posted: 10 Apr 2012 11:39 PM PDT Of all the inept policy moves in the midst of a clear depression, hiking taxes is right at the top of the list. Yet, that is the path Spain is on, because it will not meet its budget projections. Here is a link to an amusing "as is" Google translation of an article on El Econimista whose headline reads "The Government will raise the VAT if they fail the current fiscal". What caught my eye was the translation of the last sentence that reads "Therefore, it is possible that eventually have to raise this popular tax before the deadline." I was laughing out loud at that sentence because taxes are never popular. To be sure, I did not precisely understand the correct context of that sentence. My friend Bran who lives in Spain provides a better translation of the last sentence as follows: Therefore it is not ruled out that the 'populares' (a common term used to denote the PP political party) would have to raise the VAT before planned. That certainly makes more sense. However, the rest of the translation is suspect as well. Self-Destruction Coming Up Gonzalo Lira who lives in Chile, and with whom I have had (and still do) vehement disagreements regarding hyperinflation, graciously supplies the gist of the entire article in spite of those disagreements. Lira writes ... Hello Mish The upshot of the piece is that if the tax amnesty doesn't work, Spain will somehow have to raise money to meet the Brussels-imposed deficit targets for 2012 and 2014. However, the Spanish government is loathe to raise taxes, much less the VAT, because the government is aware of how counterproductive to the economy raising the VAT would be. Tacitly, it sounds like they're worried about a popular backlash to raising the VAT, or any other tax. Nevertheless, Brussels is pushing for tax increases. Carlos Floriano (PP spokesman and Vice Secretary) says that anything and everything will be done to meet the 5.3% deficit target this year, and the 3% target for 2013. Nonetheless, he's reiterating that raising taxes and VAT is not on the table. According to the Ministro de Hacienda (eq. to Treasury Secretary), if the tax amnesty and the hard-core tax collection of "impuestos IRPF" (literally "income tax on physical people"—personal income tax) are not successful, then maybe other measures will be considered, including presumably raising the VAT. The last paragraph says that Brussels doesn't think any of this stuff will work. The very last sentence is a colloquial expression. The essential idea is that if all else fails, Brussels will push Spain to implement a hike in the VAT sooner than expected. From the tone of the article, the eurocrats in Brussels are the "Evil Empire". Thus, the article is an attempt to make the government look good, sensible, and trying to help the Spanish working man. Frankly, reading the tea-leaves, it's as if the government and the reporter are setting up the eurocrats as the bogey man. Slow Road to Hell Lira had some choice but unprintable words to say about the "wisdom" of these tax hikes. I certainly agree. The stupidity in Brussels is staggering. The one sure-fire way to destroy Spain, right here, right now, is to hike taxes. Spain should see the writing on the wall and default now. If Spain doesn't, it will face a slow road to hell just as happened to Greece. 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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