sâmbătă, 23 iunie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Eurozone 1% Shell Game Stimulus Mirage; Meaning of Necessary; "Real" Stimulus

Posted: 23 Jun 2012 10:57 PM PDT

Germany, France, Italy, and Spain have agreed to spend 1% of GDP on new stimulus measures.

Where is the money coming from? They will not say. Most likely from somewhere else, better known as nowhere.

The Guardian reports Eurozone big four pledge 1% of GDP to underwrite banks and stimulate growth.
The leaders of the eurozone's biggest economies announced on Friday night that 1% of the European Union's GDP was to be set aside to help the continent grow its way out of the financial crisis. But doubts were immediately expressed as to what share of the package – said to be worth €130bn (£105m) – would be genuinely new money.

After several hours of apparently tense discussions, there was no immediate agreement on a plan outlined by Italy's prime minister, Mario Monti, on Thursday, aimed at stabilising Europe's banks and protecting countries under attack in the markets.

"There was an agreement between all of us to use any necessary mechanism to obtain financial stability in the eurozone," said Mariano Rajoy, the Spanish prime minister, afterwards.

But the German chancellor, Angela Merkel, insisted that the EU must take full advantage of the instruments already at its disposal. Her remark suggested she is wary of two new funds – to guarantee bank depositors and as a lender of last resort to ailing banks – understood to have been on the agenda at Friday's talks.

In a sign that tempers are becoming increasingly frayed before next week's crucial summit, the normally gentlemanly Monti used his closing remarks to attack France and Germany publicly.

Nicholas Spiro, of Spiro Sovereign Strategy, said: "The pact has a shuffling of the deckchairs feel to it."
Meaning of "Necessary"

I added emphasis to the word "necessary" in the above clip. However, I cannot take credit for it.

Instead, credit goes to Financial Times writer Martin Wolf for his column The G20 on the eurozone and fiscal policy
This week's G20 communiqué dealt with the eurozone. Let us examine it closely.

"Euro area members of the G20 will take all necessary measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks."

 The crucial word here is "necessary". We can safely say that agreement on what this means is altogether lacking.
Real Stimulus

There is no stimulus plan. It's a shell game. No new funds have been promised for stimulus. Rather, previously earmarked funds will simply be given that label.

Bear in mind that I am not in favor of stimulus plans anyway, at least monetary ones.

The best stimulus plan Europe and the US could possibly do is modify work rules making it easier to fire (and therefore hire) workers, scrap prevailing wage laws, end collective bargaining of public unions, scrap tariffs, and eliminate farm subsidies.

Instead, France is taking a giant step backwards as noted in Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

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.

Three Key Reasons Housing Not Coming Back: Demographics, Student Debt, No Jobs

Posted: 23 Jun 2012 11:34 AM PDT

Consumers Not Ready to Borrow Again

Ben Bernanke is trying like mad to stimulate credit and lending but to no avail. It's an uphill battle because of demographics, student debt, and lack of jobs.

Citing falling debt-service needs, some economists think consumers may be ready to go on a borrowing spree. They are badly mistaken.

I agree with Jed Graham on Investor's Business Daily who says falling debt-service needs is an illusion. Graham makes the case in Consumer Credit Impaired By Under-45 Job, Debt Woes.
Nearly four years after a borrowing binge gave way to financial crisis, have households slashed enough debt to take on new credit and start spending again?

Yes, says a growing chorus of economists, with some evidence to back them up. The Federal Reserve's ratio of debt service payments to disposable income is at its lowest level since 1994.

But that traditional measure is a poor guide today, as credit-hungry adults under 45 bear the brunt of the jobs, housing and student loan crises.

Considering where more of the income is coming from (government supports), who's earning a bigger share of wages (baby boomers) and which type of debt has been on the rise (student loans), re-leveraging may be a long way off.
Not Ready to Borrow



Graham's analysis is correct. Here are some points from the article that will explain why.

Demographics

  • The number of full-time workers younger than 45 has fallen by 9 million, or more than one in seven, Labor Department data show. 
  • The number of full-time workers ages 55 and older has climbed by 8.5 million. 
  • The 35-44 population has shrunk by 4.5 million over the past 12 years. 
  • The huge baby boomer cohort has aged while Generation X is unusually small. 

Student Debt

  • Student debt has soared to nearly a trillion dollars. About two-thirds of it is held by those under 40.
  • Among those age 30-39, 25% have student loan debt, with an average balance of $28,500. 
  • New York Fed research shows that of 37 million student loan borrowers last fall, only 39% were paying down their balances.

Jobs

To Graham's analysis I would add the jobs picture is bleak.


Those were points 7-10 in my analysis 12 Reasons US Recession Has Arrived (Or Will Shortly)

Housing

Let's put it all together and look at the picture from the point of view of housing.

  1. Kids are graduating from college deep in debt with poor job prospects.
  2. Those with too much debt and too little income are sharing apartments or moving back home, not buying homes and starting families.
  3. Boomers are looking to downsize, not buy more toys and larger houses.
  4. Shadow inventory of sellers waiting for higher prices is immense, yet generation X and Generation Y represent small pools of potential buyers


Factor in the rapidly slowing Chinese economy (China Manufacturing PMI 7-Month Low, Sharpest Decline in New Export Orders Since March 2009 coupled with Europe in the midst of a severe recession, and it's difficult if not impossible to see just where US growth will come from.

Nonetheless, I believe housing is bottoming. I made the case in New American Dream is Renting; Reflections on Renting Houses, Cars, Books, Clothes; Will Rentership Fuel the Next Boom? What About Home Prices?

However, even "if" housing is bottoming, don't expect either housing or the economy to go anywhere fast.  Prospects for family formation are fundamentally very weak and overall economic fundamentals are very weak as well.

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.

Greece Asks Troika For Moon; Time Means Money

Posted: 23 Jun 2012 08:42 AM PDT

It will be interesting to see how long the coalition in Greece will last after Germany shoots down Bailout Easing Proposals by Greece to ....

  • Cut the VAT
  • Freeze layoffs
  • Extend timeline to reduce its deficit by two years
  • Recapitalize lenders
  • Provide more help for the unemployed
  • Accelerate payments to providers of government services.

Bloomberg reports Greece Seeks at Least Two-Year Extension to Bailout Goals noting that "New Democracy, Pasok and the Democratic Left agree that plans to cut 150,000 public-sector jobs should be scrapped."

Loosening of Pledges Unacceptable

The coalition parties (New Democracy, Pasok, Democratic Left) can agree to whatever they want. They may as well agree the moon is made of green cheese while requesting slices on a platter.

Immediately following the election in Greece German chancellor Angela Merkel stated Greece must stick to commitments
German Chancellor Angela Merkel said on Monday a new Greek government had to meet commitments made to international lenders.

Speaking to reporters at a Group of 20 leaders' meeting, Merkel said any loosening of agreed reform pledges after Sunday's narrow election victory for Greece's pro-bailout parties would be unacceptable.
The Troika may agree to trivial changes, hoping to keep the coalition together. Don't expect that tactic to work for long as the Greek economy continues to implode.

Meanwhile, Alexis Tsipras, the "radical left" party leader, can comfortably sit back in opposition and say "I told you so".

Time Means Money

Not only will Greece not get any significant changes in the agreed upon terms, a key Merkel ally wants Greece to speed things up because "it  has already wasted a lot of time due to the new elections."

Please consider Merkel Ally Rejects Bailout Concessions for Greece
As New Democracy tries to form a government in Greece, there have been suggestions that the terms of the EU bailout could be relaxed. But now a senior member of German Chancellor Merkel's conservatives has insisted the deal stands. Athens needs to "make up for lost time," he told SPIEGEL ONLINE.

In an interview with SPIEGEL ONLINE, Volker Kauder, 62, floor leader of the conservatives' parliamentary group, rejected granting concessions to Athens, saying that the country has already wasted a lot of time due to the new elections. "In the case of Greece, time can mean a lot of money," he said. "That's why I can't imagine that we could make changes in that regard."

"It would be appropriate if the new (Greek) government were to say: Yes, we will try to make up for lost time," Kauder said. The new government could, for example, try to speed up the pace of the privatization of state assets, he said.

Kauder implicitly criticized Westerwelle's suggestion that the bailout terms could be relaxed. The German government shouldn't "send any signal" that the agreed-upon austerity measures can be changed, he said.

The conservative politician also emphasized that all countries that have received EU-led bailouts should be treated the same. "The Irish and Portuguese can't come and demand to renegotiate (the bailout deals) as well," he said. "Agreements have to be adhered to."
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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