Mish's Global Economic Trend Analysis

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• Canada New Home Sales Plunge 64 Percent; Lowest August on Record
• Bernanke Declares War on Canadian Economy (Rest of the World Too)
• Spain Warns Catalonia Separatists of Treason Charges in Military Court; Looming Showdown between Spain and Catalonia
• Proposal to Leverage ESM to 2 Trillion Euros; Is Merkel's Rubber Stamp Ready?

Canada New Home Sales Plunge 64 Percent; Lowest August on Record Posted: 24 Sep 2012 10:23 PM PDT New home sales in Canada plunged 64% in the wake of government's changes to insured mortgages (30yr to 25yr) and home equity line of credit restrictions (80% max to 65% max) which took effect in July. Lowest August on Record Reader Corey emailed the above comments and a news link from the Canada BILD Association: New Home Sales Slip in August. According to RealNet Canada Inc., BILD's official source of new home market intelligence, the 1,242 homes sold in August 2012 add up to the lowest monthly sales since 2009 and the lowest August on record. Year-to-date sales have remained on par with 2010 but below its record-breaking 2011 predecessor. "The federal government has been working on reducing household debt levels and recently adjusted mortgage lending rules. August was the first full month with the new rules in place and it appears these regulations have affected consumer confidence, resulting in significantly reduced sales of new homes," explained BILD President and CEO Bryan Tuckey. "BILD will be carefully monitoring new home sales during the next three months to see if this decline becomes a trend." August '12 Low Rise High Rise Total Region 2010 2011 2012 2010 2011 2012 2010 2011 2012 Durham 182 206 119 7 7 12 189 213 131 Halton 241 610 75 24 283 15 265 893 90 Peel 202 281 267 89 63 66 291 344 333 Toronto 18 47 22 751 1,027 469 769 1,074 491 York 356 385 114 108 587 83 464 972 197 GTA 999 1,529 597 979 1,967 645 1,978 3,496 1,242 GTA % Chg -60.95% -67.21% -64.47 Jan-Aug 11,212 12,357 10,710 12,347 18,055 13,591 23,559 30,412 24,301 "Slip" hardly seems the operative word. Crash is more like it. Also consider Bernanke Declares War on Canadian Economy (Rest of the World Too) 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 Declares War on Canadian Economy (Rest of the World Too) Posted: 24 Sep 2012 06:35 PM PDT The financial world cheered when Bernanke announced QE3 until it works (which is essentially forever, because it never will work). Bruce Stewart, writing for the Winnipeg Free Press, is one of few who figured out QE for what it really is: A Beggar-Thy-Neighbor competitive currency debasement policy hoping to sink the US dollar. Not that QE would work anyway, but one problem for Bernanke, is most of the rest of the world is doing the same thing. Please consider Bernanke declares war on Canadian economy Did you smile or cheer when U.S. Federal Reserve Chairman Ben Bernanke announced Quantitative Easing III (and the markets went up)? He just declared war on your job, and the whole Canadian economy. Of course, so did the European Central Bank, the central bank of the Peoples' Republic of China and others. All of them are engaged in the same practice. They're printing money. Gobs of it, in programs that have no end point. Some are doing it to apply stimulus to revive their economies. Some are doing it to play extend-and-pretend games to hold their banks together. For a country like Canada, with an economy in reasonably good shape, a government that's not out of control, banks that are healthy and dependent on exports, it's a declaration of war. The game everyone else is playing is "beggar thy neighbour." All this excess cash, whatever its stated purpose, is designed to bring their currencies down. Well, we could play the game: Mark Carney could drop our interest rates to zero, and print money like it's going out of style. The government could launch a larger Economic Action Plan II and rack up the deficits. Both would lower the Canadian dollar. It would also send the price of a litre of gasoline and a week's groceries through the roof - food and fuel have gone up 35 to 40 per cent in the countries that are playing the "print and hope" game -- and anyone living on a fixed income, or anyone planning to collect their pension, would be in deep trouble. It's hard to live on zero interest. But there is something else we can do. Think quality. Follow, in other words, the model the Germans used to become a high wage, high prosperity country. It means running our businesses differently. You don't have to compete with call centres parked in Asian countries on cost if your business answers the phone and its employees are empowered to provide service on the spot. You don't have to compete with low-cost labour in other locations if you produce a product of such high quality and strong features that labour costs are a tiny fraction of its worth. High service -- high quality products. These have a market in Canada (where the value of the Canadian dollar is a plus, if some components or tools must be imported), and as well as abroad because of their quality. ... Global Beggar-Thy-Neighbor Currency Debasement It's an interesting article well worth a read in entirety. However, Stewart dramatically underestimates  what a housing bubble crash will do to Canada, and what a European collapse in trade will do to Germany. Nonetheless, Stewart hits the nail on the head with his thesis about beggar-thy-neighbor tactics. Economists in general do not howl about Bernanke, but they all bitch about China pegging the yuan to the dollar. It's all blatant beggar-thy-neighbor manipulation, and a great reason to get rid of central banks. None of these tactics will create a single job. Addendum: New home sales in Canada plunged 64% in the wake of government's changes to insured mortgages (30yr to 25yr) and home equity line of credit restrictions (80% max to 65% max) which took effect in July. Read more Canada New Home Sales Plunge 64 Percent; Lowest August on Record   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.

Spain Warns Catalonia Separatists of Treason Charges in Military Court; Looming Showdown between Spain and Catalonia Posted: 24 Sep 2012 10:17 AM PDT The Spanish military warned officials who do not guard the sovereignty and constitution of Spain. Specifically, Spain is prepared to bring charges of treason in a military court against separatists. Via Google translate, please consider military warn of the consequences of promoting "fracture of Spain" Spanish Military Association (SMA) has warned Monday that those who cooperate or allow "fracture" of Spain should "respond with all the utmost rigor" in the courts in the field of military courts by the "serious charge high treason." In a statement, the association warns that "the highest office" and "governments" should take "appropriate action immediately to remove any hint of secession without armed forces look serious and unpardonable in tessitura to comply scrupulously strictly with the mission and that the Constitution gives them to ensure the sovereignty, independence and territorial integrity of our country. " "If it had unfortunately-warn-act, there must be no doubt that those who have allowed, participated or assisted in reaching this last time but repeated threat of fracture of Spain, by commission, omission or out of your constitutional positions shall be accountable to the fullest extent of all so serious charge of treason before the courts in the field of military jurisdiction. " For this association, the attitude of the president of the Generalitat of Catalonia, Artur Mas, and members "separatists" of Parliament is "inappropriate and unacceptable" and "not consistent with any of the ways with the duty and responsibility as representatives of the state, are required to observe and exercise ". According to AME, current events in Catalonia are the result of "a frightening economic crisis and other manifestly disastrous political management by the formations that incur a high treason to voluntarily maintain a system of electoral representation that encourages the emergence and establishment of separatist nationalism to give in to his blackmail votes to stay in power. " Chasing Rainbows Last week, on the heels of a massive Barcelona march for Catalan independence, the English version of El Pais noted this warning from King Juan Carlos: "This is no time to be chasing rainbows" In a clear and blunt message aimed at Catalonia's pro-independence supporters, King Juan Carlos on Tuesday asked all Spaniards to remain united in the same spirit as that of the Transition as the country tries to tackle the current political, economic and social crises. "We are at a decisive moment for Europe and Spain that can either save or ruin the welfare which has cost us so much to accomplish," the monarch said in an open letter posted on the Royal Family's newly designed website, which was launched last week. "In these circumstances, the worst thing we can do is to divide forces, encourage dissent, chase rainbows and deepen wounds. These are not good times to dissect meanings or to debate whether there are dogs or hounds who threaten our model of coexistence." Last week 600,000 people marched in Barcelona in support of independence for the region. Catalan premier Artur Mas spoke of the need to supply the region with "the structures of a state." Looming Showdown With Separatists In Looming Showdown between Spain and Catalonia, Eurointelligence reported "The King's letter went down like a lead balloon among Catalan politicians, who pretended the letter did not refer to Catalonia's recent independence rally." In a way Spain is a microcosm of the wider Euro crisis: just as the European authorities' chosen solution to the Euro crisis includes striping member states of fiscal policy autonomy, so is the Spanish government arguing that the Autonomous Communities need to be reined in. Finance minister Cristobal Montoro promises that there will be no Troika "men in black" in Spain while he seems to enjoy the opportunity to send his own "men in black" to the Regions. The phrase seems to have struck a chord, since Mas-Colell also said yesterday that there would be no "men in black" in Catalonia. The whole political circus would be comical if it didn't relate to a dire economic situation for real people and if nationalistic tensions hadn't been so problematic in the past century: at one point last week the issue of the day was whether FC Barcelona would continue to play in Spain's La Liga in the event of independence. Andreu Mas-Colell According to Wikipedia, Andreu Mas-Colell is a "Spanish Catalan economist, an expert in microeconomics and one of the world's leading mathematical economists. He is the founder of the Barcelona Graduate School of Economics and a professor in the department of economics at Pompeu Fabra University in Barcelona, Catalonia, Spain. He has also served several times in the cabinet of the Catalonian government. His textbook on microeconomics is the most used graduate microeconomics textbook in the world." 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.

Proposal to Leverage ESM to 2 Trillion Euros; Is Merkel's Rubber Stamp Ready? Posted: 24 Sep 2012 08:50 AM PDT Now that Merkel has caved in on virtually everything else, is it time for her to cave in on use of leverage for the ESM? Please consider German deputy minister says ESM leverage being discussed. German Deputy Finance Minister Steffen Kampeter said on Monday there is a discussion going on in Europe about leveraging the new permanent bailout scheme for the euro zone - and he promised that Germany's parliament would be consulted. "If Europe decided to leverage the ESM (European Stability Mechanism) - and this discussion is going on - we would of course involve the German Bundestag (parliament's lower house)," Kampeter told Reuters. Spiegel magazine reported in its latest edition that the euro zone wanted to leverage the ESM for a total capacity of more than 2 trillion euros, in a similar arrangement to that involving its predecessor, the European Financial Stability Facility (EFSF). Merkel's Rubber Stamp Ready? Regardless of what she says right now, it is highly likely Merkel's rubber stamp is ready. If so, consulting the German Bundestag is rather like asking one of those black eight ball devices a question, but the only answers are yes, and maybe. In this case, the nannycrats will keep asking until the answer is yes. The ESM is supposed to have €500 billion of firepower of which Germany's contribution is €190 billion. The nannycrats want to leverage that to €2 trillion. If they do, losses of 25% will wipe out the entire ESM. Yet, if Spain, exits the eurozone (which I still think is highly likely) losses will far exceed Germany's commitment. On September 12, the German constitutional court foolishly approved the ESM, warning German parliament must approve any increase in Germany's ceiling of €190 billion. How is that horse out of the barn exercise going to work, once losses exceed €190 billion? Not to worry, if Merkel signs off on use of leverage, her rubber stamp approval for even bigger losses must be ready by function of math. There won't even be a need to vote, the losses will be immediate and realized. 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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