Mish's Global Economic Trend Analysis

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• I'll Believe It When I See It
• 60% of Spanish Companies are Losing Money, Social Unrest Evident; Unemployment Rate Drops
• Glass Half Missing? What About Healthcare Premiums? What's the Hit to GDP?

I'll Believe It When I See It Posted: 03 Jan 2013 04:04 PM PST Here's one for the "I'll Believe It When I See It" file: Backlash pushes Republicans to seek cuts. A conservative backlash against Republicans over their deal with Barack Obama to lift taxes has hardened the party leadership's resolve to demand huge spending cuts as the price for increasing the country's borrowing limit. Mitch McConnell, the Republican Senate minority leader, rejecting Mr Obama's statement that he would not negotiate over the issue, said the debt ceiling debate in coming months was the ideal time to force the administration to cut outlays. "The President may not want to have a fight about government spending over the next few months, but it's the fight he is going to have, because it's a debate the country needs," Mr McConnell said in an opinion article on Yahoo.com. Mr McConnell, who is up for election in 2014, and his Republican colleagues in the Senate, have been stung by criticism on the right for their role in brokering a deal with the White House over the fiscal cliff. The final deal, negotiated between Mr McConnell and Joe Biden, the vice-president, was passed overwhelmingly in the Senate, marking the first time Republicans in Washington have voted for income tax increases in more than two decades. The administration had also wanted to adopt a proposal first advanced by Mr McConnell, which would have curtailed the ability of Congress' to refuse to limit the debt ceiling. But Mr McConnell no longer seems to support this plan and also says that the fiscal cliff agreement is the last time Republicans will support tax increases. "The moment he [Obama] and virtually every elected Democrat in Washington signed off on the terms of the current arrangement, it was the last word on taxes. That debate is over," he said. Does anyone believe the Republicans will really hold out for budget cuts? I sure don't after all the white flag waving we have seen. I sure hope I am wrong, but what I fully expect is another can-kicking exercise in which Republicans cave in on cuts to entitlements in return for Democrats caving in on cuts to military. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  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.

60% of Spanish Companies are Losing Money, Social Unrest Evident; Unemployment Rate Drops Posted: 03 Jan 2013 12:00 PM PST Via Google translate from Libre Mercado, Joan Rosell, the president of the Spanish Confederation of Employer Organizations (CEOE) has estimated 60% of Spanish Companies are Losing Money. This is a Mish-modified translation of some key snips. In an interview with the newspaper La Razon, Rosell said that "social unrest is evident and the business world is no exception." The private sector "has already made ​​all the restructuring that had to do and the decline in employment in the private sector has virtually stopped. Now is the time for restructuring the public sector." After defining the first year of Mariano Rajoy's government as a year of shock, Rosell has considered that the Spanish economy has "superfluous fat on many sides: Central government, regional and local. We are a hyper-regulated country". Still, the CEOE president has identified several dynamic sectors in the economy, such as tourism, and exports (automobile, capital goods, power and chemical), and Rosell points out that Spain is gaining positions and externally against France , Italy or Germany. Unemployment Rate Drops According to the Financial Times, Spain's unemployment rate fell in December. This is the first drop in unemployment since July. However, that drop follows heavy job losses in the prior two months. Spain saw a slight drop in the number of registered unemployed in December, in a welcome but most probably fleeting boost to the recession-plagued economy. According to figures released by the ministry of labour on Thursday, the number of unemployed Spaniards fell by 59,094 between November and December. This followed two months of heavy back-to-back job losses, and left the overall number of unemployed 1.2 per cent lower at just under 4.85m. December is usually a relatively strong month for the Spanish jobs market, as retailers, restaurants and other service providers bolster their staff ahead of the Christmas season. Even by that standard, however, the past month was exceptionally buoyant: according to Spain's labour ministry, the drop in the number registered unemployed was the largest on record. Raj Badiani, an economist with IHS Global Insight, described the December figures as a "rare piece of good news", but pointed out that the rise in employment was the result of a "temporary fillip to short-term service sector employment". Most economists expect the Spanish unemployment rate to remain above 25 per cent in 2013, and for the economy as a whole to endure another year of recession. Hyper-Regulation with Bloated Public Sector Here is the problem in a nutshell: Spain is indeed a hyper-regulated economy, with a banking system that is insolvent, a hugely bloated public sector, unemployment over 25%, and youth unemployment over 50%. Structural problems remain and over half of businesses are losing money. Don't get too excited about a seasonal rebound in hiring. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  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.

Glass Half Missing? What About Healthcare Premiums? What's the Hit to GDP? Posted: 03 Jan 2013 09:09 AM PST I have seen Fiscal Cliff analysis written from two perspectives 1. Republicans Caved In 2. Democrats Caved In Theory number 1 (Mine and others) says Congress punted the ball and Republicans waived the white flag. Given that virtually nothing has been done about the deficit, I fail to see how there can possibly be any debate on this. Yet there is. Theory number 2 (primarily liberals) still blames Bush for the "Bush Era" tax cuts, while moaning about spending cuts that did not happen, and bitching that not enough tax hikes occurred on the wealthy. Curiously, the "Bush Era" tax cuts are now the "Obama Era" tax cuts and even the AMT problem was allegedly fixed. A subset of the proponents of perspective number 2, people are bitching the "temporary 2-percent reduction in Social Security taxes" just expired.  Payroll taxes will jump from 4.2% to 6.2% of income for everyone. In the glass half missing theory, this will cause a 1% hit to GDP so it should not have been done. This set of folks wanted "temporary" to become permanent, while simultaneously bitching about the "Bush Era" tax cuts. Lost in the entire debate is how the country can possibly afford any of this. What About Healthcare Premiums? Let's assume for the moment that the expiring payroll tax cut will amount to a hit on GDP of about 1 percent. Reader Greg writes ... Hello Mish One thing I have not heard a lot of chatter on is the size of the increase in healthcare premiums most small to medium-sized companies are experiencing.  I have involvement with 3 companies and all three have seen quotes from current providers with an average increase over 30%.  It's hard to extrapolate this, as in small companies it only takes 1 or 2 serious illnesses to jack the costs.  However, I've yet to talk to anyone that has seen anything less than a 10% jump.  And if employers pass along 30-40% of the costs to employees that could add another 1-2% out of each employees paycheck, which doubles the whole FICA thing. Greg I am not quite sure how to total this either, but Obamacare is having some peculiar effects to say the least. Many businesses are shifting even more to part-time employment, and given there are no incentives anywhere to reduce healthcare costs, those costs will continue to rise, taking a bite of the checks of workers, and giving employers additional reasons to not hire in the first place. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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