vineri, 1 iunie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Edge of a Precipice; Doublethink Extraordinaire; Spain in Discussions With US Regarding Bank Aid; Gold Soars; Geithner to the Rescue?

Posted: 01 Jun 2012 11:20 AM PDT

George Orwell coined the term doublethink in his classic book 1984. Doublethink is the power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them.

Have you listened to the conflicted beliefs coming from Spain lately?

Conflicted Beliefs

  1. "I don't know if we are on the edge of a precipice, but we are in a very, very difficult situation"  said Spain's finance minister, Luis de Guindos, at a conference on Thursday night.  "Madrid needs assistance, no strings attached" says Spain's deputy prime minister, Soraya Sáenz de Santamaria. Meanwhile, Guindos has made overtures to the ECB, EU, and now US treasury secretary Tim Geithner to help capitalize Spanish banks.
    2.  
  2. Guindos, Santamaria, and prime minister Mariano Rajoy insist Spanish banks are sound and Spain does not need any international assistance

Geithner to the Rescue?

The Financial Times reports Spain and US hold talks on bank aid
Madrid has begun openly discussing outside assistance for its troubled banking sector, with a top Spanish official saying she had raised the issue with Tim Geithner, the US Treasury secretary, who urged the EU to "find a solution" to stabilise Spain's banks.

Soraya Sáenz de Santamaria, Spain's deputy prime minister, said after a meeting with Mr Geithner that the two had discussed proposals to recapitalise Spanish and other European banks "without state intervention and without conditions," a clear reference to Madrid's wish to get EU bailout assistance without strings attached.

"It's something in the debate, and we've been discussing that possibility," Ms Santamaria said. "Treasury secretary [Geithner] has indicated that we are working in the same direction and that we must find a solution to the banks, because the problem is not just a problem in Spain as a nation, but our financial system."

Madrid has insisted it will not need an international rescue, with the government in complete opposition to any form of externally imposed programme as seen in Greece, Portugal and Ireland.

Luis de Guindos, Spain's finance minister, travelled to Germany earlier this week to meet his counterpart, but received no compromise from Berlin on its opposition to European funds being injected directly into troubled banks.

"I don't know if we are on the edge of a precipice, but we are in a very, very difficult situation," Mr De Guindos said at a conference on Thursday night.
De Guindos is globe-trotting the world, holding meetings with the EU in Brussels, with French president Hollande in France, with Germany's finance minister in Berlin, with treasury secretary Tim Geithner and the IMF in the US, asking for "assistance with no strings attached" while insisting "Spain does not need a rescue and its banks are not in trouble".

This is exactly the kind of Orwellian story that is nearly impossible to make up.

In response, gold is bucking the overall market trend as is the $HUI unhedged miner index up nearly 7% on the day as of 1:30 central while the overall market is down 3.3%.

So what can Geithner really do? Nothing is the answer. What did Geithner say? Undoubtedly something along the lines and as pertinent as "Rah! Rah! Rah! Ciscoom Bah!"

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.

Another Payroll Disaster: Jobs +69,000, Employment Rate +.1 to 8.2%, April Jobs Revised Lower to +77,000; Long-term Unemployment +310,000

Posted: 01 Jun 2012 08:57 AM PDT

Quick Notes About the Unemployment Rate

  • US Unemployment Rate rose .1 to 8.2%
    •  
  • In the last year, the civilian population rose by 3,653,000. Yet the labor force only rose by 1,307,000. Those not in the labor force rose by 2,345,000.
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  • This month the Civilian Labor Force rose by 642,000. Last month the Civilian Labor Force fell by 342,000.
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  • Those "Not in Labor Force" decreased by 461,000. Last month those not in the labor force increased by 522,000. If you are not in the labor force, you are not counted as unemployed.
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  • Those "Not in Labor Force" fell to 87,958,000 from last month's record high of 88,419,000.
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  • By the Household Survey, the number of people employed rose by 422,000. Last month employment fell by 169,000.
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  • By the Household Survey, over the course of the last year, the number of people employed rose by 2,479,000.
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  • Participation Rate rose .2 to 63.8%
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  • There are 8,098,000 workers who are working part-time but want full-time work, an increase of 245,000
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  • Thus of the the net of 422,000 people presumably hired by the household survey, 245,000 were for part-time jobs.
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  • Long-Term unemployment (27 weeks and over) rose by 310,000.
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  • Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

These numbers and the monthly swings in the numbers are well past the point of believability and will be revised at some point in my opinion.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

Jobs Report at a Glance

Here is an overview of today's release.

  • US Payrolls +69,000 - Establishment Survey
  • US Unemployment Rate rose .1 to 8.2% - Household Survey
  • Average workweek for all employees on private nonfarm payrolls fell .3 hours to 34.4 hours
  • The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours.
  • Average hourly earnings for all employees in the private sector rose by 2 cents.

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

May 2012 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) May 2012 Employment Report.

Nonfarm payroll employment changed little in May (+69,000), and the unemployment rate was essentially unchanged at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care, transportation and warehousing, and wholesale trade but declined in construction. Employment was little changed in most other major industries.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Employment is finally above the total just prior to the 2001 recession.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



click on chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Since a recent employment low in February 2010, nonfarm payrolls have expanded by 4.1 million jobs. Of the 8.8 million jobs lost between January 2008 and February 2010, approximately 46.7% percent have been recovered.

Statistically, 125,000+- jobs a month is enough to keep the unemployment rate flat. For a discussion, please see Question on Jobs: How Many Does It Take to Keep Up With Demographics?

The average employment gain over the last 27 months has been 139,000, barely enough (statistically speaking) to make a dent in the unemployment rate.

Yet, the civilian unemployment rate has fallen from 9.8% to 8.2%.

Current Report Jobs



Average Weekly Hours



Average weekly hours for all employees on private nonfarm payrolls declined to 34.4 hours in May. Average weekly hours for production and nonsupervisory employees remained unchanged at 33.7 hours.

Average Hourly Earnings vs. CPI



Except in the depths of the recession when the CPI plunged into negative territory, wages have not kept up with the CPI.

"Success" of QE2 and Operation Twist

  • Over the past 12 months, average hourly earnings have increased by 1.7 percent. In April, the Consumer Price Index for All Urban Consumers (CPI-U) had an over-the-year increase of 2.3 percent. For about a year beginning in late 2010, price increases outpaced increases in earnings. Since the third quarter of 2011, however, the gap between the two has narrowed.
    •  
  • Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011



Birth Death Model Adjustments For 2012



Birth-Death Note

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

Household Survey Data



click on chart for sharper image

In the last year, the civilian population rose by 3,653,000. Yet the labor force only rose by 1,307,000. Those not in the labor force rose by 2,345,000.

That is an amazing "achievement" to say the least, and as noted above most of this is due to economic weakness not census changes.

Decline in Labor Force Factors

  1. Discouraged workers stop looking for jobs
  2. People retire because they cannot find jobs
  3. People go back to school hoping it will improve their chances of getting a job
  4. People stay in school longer because they cannot find a job

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Part Time Status



click on chart for sharper image

There are 8,098,workers who are working part-time but want full-time work.

BLS Alternate Measures of Unemployment



click on chart for sharper image

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said "better" approximation not to be confused with "good" approximation.

The official unemployment rate is 8.2%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 14.8%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Duration of Unemployment



Note the huge drop in duration of unemployment in the 15-26 week category accompanied by an even larger increase in the long-term unemployed category.

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers.

Digging under the surface, the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

Last month the seasonally adjusted Civilian Labor Force fell by 342,000. This month it rose by 642,000.This is beyond statistical noise, to the point of pure statistical bullsheet.

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.

Mish on Capital Account: Spotlight on GDP, Spexit, Grexit and My Ideas on How to Breakup the Eurozone

Posted: 01 Jun 2012 07:23 AM PDT

Once again it was a pleasure to be on Capital Account with Lauren Lyster. The show is live TV with the studio in Washington D.C. with the feed to my house over Skype.

The clip below was taped. The audio connection dropped twice but most of that was edited out in the video below.

The main topics were US GDP, hyperinflation, Ireland, and a eurozone breakup. I present my ideas on how a breakup should happen.



Link if video does not play: Mike Shedlock on the Spexit, the Grexit and Running for the Eurozone Exit!

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.

Hyperbolic Selloff Coming? IMF Discusses Spanish Contingency Plans; Madrid Denies Plans; Hispabonos Dropped From Cabinet Discussion

Posted: 31 May 2012 11:28 PM PDT

The latest word of the day is the already approved, then denied, then tabled plan to implement hispabonos was dropped from discussion at Friday's cabinet meeting according to La Vangauardia.
The approval of so-called hispabonos, which will allow the autonomous communities in the markets financed through the state with a lower cost, will be delayed at least a week after the Government has decided not to take it to the Council Ministers tomorrow.

According to government sources, this issue will not be among the topics to be discussed Friday by the Council, although it had considered that possibility.

The Prime Minister, Mariano Rajoy, guaranteed to last Friday CiU spokesman in Congress, Josep Antoni Duran Lleida, the instrument chosen to help the regions would be launched "soon", while government sources explained being worked on the model chosen.
Mish Translation

Prime minister Mariano Rajoy has no idea what to do.

Without hispabonos (central bank guarantees of regional debt) the regional governments are going to have an exceptionally difficult time financing new debt or rolling over existing debt. Yet with guarantees, Spain faces more debt downgrades and higher yields overall.

When you don't know what to do, the default choice is to table the discussion and pray for a miracle.

IMF Discusses Contingency Plans

The Wall Street Journal reports IMF Begins Talk On Spain Contingency Plans
The European department of the International Monetary Fund has started discussing contingency plans for a rescue loan to Spain in the event that the country fails to find the funds needed to bailout its third-largest bank by assets, Bankia SA, BKIA.MC +0.19% people involved in the handling of the Spanish crisis said Thursday.

Both the EU and IMF want to avoid having to bailout Spain at all costs, the people said, but initial planning is under way given that the country is struggling to raise a EUR10 billion shortfall in funds to bail out Bankia. The stakes are extremely high because a three-year rescue loan for Spain could be as much as EUR300 billion, one person said, although any bailout could involve smaller, shorter-term loans.

"A better picture will emerge after the IMF review of the Spanish economy starting June 4," one of the people said. "But thoughts are already being discussed (within the European department)".

"Some say a Spanish bailout is inconceivable, but it's equally inconceivable that preparations are not being made for such an eventuality," the person added.
Spain's Economy Minster Says IMF Rescue Plan is Nonsense

Economy minister Luis de Guindos calls the rescue plan "nonsense" stating IMF report sees 70% of Spanish banks as healthy
Economy minister, Luis de Guindos, has described as "nonsense" that the IMF is preparing a plan if Spain fails to rescue Bankia funding. Moreover, says the institution will publish a report saying that 70% of Spanish banks is healthy.

The economy minister has also advanced to the June 11 will be released a first report of the International Monetary Fund concluded that 70% of Spanish banks is "perfectly" healthy and the remaining 30%, which is Bankia, would have "more difficult" to overcome the stress test posed by this organism.

However, De Guindos has stated that the IMF's stress test provides a hypothetical decline in GDP of 4% this year and 2% for next year, prospects "unreal," said.

"The report goes on to say that 70% of Spanish banks can overcome the situation without capital," he underlined Guindos, in an attempt to instill confidence in the situation of Spanish banks.
Anyone who thinks Spain's banks other than Bankia are "perfectly healthy" is a liar or insane.

Hyperbolic Selloff Coming?

The Telegraph reports Spain faces 'total emergency' as fear grips markets
Markets are on tenterhooks as Spanish yields test levels that forced the European Central Bank to respond last November with its €1 trillion liquidity blitz. "Nobody is short Spanish debt right now because they are expecting ECB intervention," said Andrew Roberts, credit chief at RBS. "If it doesn't come -- if we take out 6.8pc -- we're going to see a hyberbolic sell-off," he said.

Brussels floated the idea on Wednesday for a eurozone "bank union" and use of the European Stability Mechanism -- which has not yet been ratified by most states -- to rescue banks and sever the dangerous nexus between crippled lenders and crippled states.

The proposals were shot down instantly by Berlin. Such plans amount to debt-mutualization, a form of back-door eurobonds. German opposition is "well known", said the Kanzleramt.

LSE Professor Paul De Grauwe accused the ECB of cherry-picking treaty clauses to justify inaction and failing to carry out its crucial mandate of financial stability. "They should buy Spanish and Italian bonds to cap yields at 300 basis points over Bunds, and let the lawyers argue about it for the next ten years," he said.

Eurozone data released on Wednesday show that private credit and all key measures of the money supply contracted in April, suggesting that ECB's €1 trillion liquidity blitz over the winter has failed to gain traction.

Guy Mandy, credit strategist at Nomura, said the ECB has lost sight of the big picture and risks losing the euro altogether if if fails to restore basic confidence. "They need to weigh up events on a grander scale, stop worrying about moral hazard, and do the job of a central bank," he said.
Academic Wonderland and a Lesson on Moral Hazzard

LSE professor Paul De Grauwe is a complete fool trapped in academic wonderland.

If the market thinks the yield of Spanish and Italian debt should be greater than a 300 basis point spread to German bunds, then the ECB would soon be the proud owner of 100% of Spanish and Italian debt.

It is rather amazing that a professor cannot figure out that simple truism.

Economic fools like De Grauwe are part of the problem. They brainwash students into believing total and complete nonsense.

As for "doing the job of a central bank and stop worrying about moral hazard" I can say the same thing about Guy Mandy.

Neither cares one iota that the German constitution does not allow what they propose. Neither bothered to figure out this mess has gotten bigger every step of the way because central banks ignored moral hazard.

Indeed, central banks are by their very existence the epitome of moral hazard.

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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