Mish's Global Economic Trend Analysis |
- We Want to Have Our Cake And Eat It Too; Another Hotel California Setup; One Million Tiny Miseries
- Debt Sells Like Hot Cakes as Corporations Raise Cash; Bernanke Fed Distortions
- Yield Curve: Where To From Here? Extreme Complacency in Face of Bernanke Shift
| We Want to Have Our Cake And Eat It Too; Another Hotel California Setup; One Million Tiny Miseries Posted: 09 Jan 2013 07:47 PM PST UK prime minister David Cameron has promised to renegotiate terms of its membership in the EU and put the measure to a popular referendum. In response, Business leaders warn UK's David Cameron that leaving the EU would be bad for economy. Top business executives have warned U.K. Prime Minister David Cameron that he could damage Britain's economy if he seeks to renegotiate the terms of its membership in the 27-country European Union.We Want Our Cake And Eat It Too Note that it is not just UK businesses that want their cake and eat it too. So does Cameron. The irony is that everyone is tired of the nonsensical nannycrat rules of the EU, and those rules will only get worse as time goes on. For example, the nannycrats in Brussels are hell-bent on financial transaction taxes, high VATs, and onerous corporate income taxes. The bureaucrats also have gone along with absurd crop subsidies demanded by France. The result is everyone in Europe overpays for food (and nearly everything else) on account of tariffs that have not saved a single job. For now, the EU has backed down on a ridiculous airline carbon tax scheme, but rest assured the subject will come up again. Indeed, all the nannycrats did in November was suspend the proposal for a year, hoping for less opposition next time. One Million Tiny Miseries Bureaucrats never give up on stupid ideas, they just set them aside for a while. Proof is in the pudding. In the EU, inane rules, regulations, and fees are everywhere you look. In case you think I am exaggerating, Pater Tenebrarum has an excellent writeup in his post One Million Tiny Miseries Inflicted by Government Policy Hotel California Setup Cameron sees some of those things and wants to renegotiate special rules for the UK. In effect, he wants to have his cake and eat it too, just like the business leaders. His hope is to keep the nannyrules he likes, and toss out a plethora of rules he doesn't like. The problem with his approach is this is a Hotel California setup. As with the Euro, you can check in anytime you like, but it is damn hard to leave. If Cameron commits (or the referendum passes), sometime down the road, after he is gone as Prime Minister (which could be rather soon), some other prime minister is likely to agree to god-knows-what, and without a referendum giving UK citizens any say in the matter. Note that had it not been for that absurd transaction tax idea last December, Cameron may have signed on the dotted line already. US Voices Concern The Telegraph reports US publicly voices concerns over Britain leaving EU Philip Gordon, the US assistant secretary responsible for European affairs, said that Britain's membership of the EU was "in the American interest".One Last Chance to Get this Right The UK has one last chance to get this right. The way to get this right is simple: Ignore pleas from the US, put the matter to a vote (including an option to leave the EU as opposed to renegotiate terms), openly campaign to exit, then politely tell the EU to go to hell when the result comes in. Simply put, it is preposterous to expect one nation out of 27 to have significant leverage over a group of dedicated nannycrats, all wanting some inane rule, regulation, or tax. In the meantime, expect nannycrat proponents to pound the airwaves with threats of Armageddon sometime before the vote. It will be interesting to see if common sense secures a victory over the nannycrats, the socialists, and the half-baked conservatives expecting to have their cake and eat it too. Don't count on it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Debt Sells Like Hot Cakes as Corporations Raise Cash; Bernanke Fed Distortions Posted: 09 Jan 2013 12:05 PM PST In five January business days, corporations sold $52.75 billion in debt according to Informa Global Markets. MarketWatch highlights that point in companies sell debt like hot cakes Companies have flooded the market with new debt to start the year, even after the recent jump in Treasury yields, as they deem market conditions good enough and eager buyers plentiful enough to make deals go smoothly.On the sovereign side, MarketWatch reports Mexico issued $1.5 billion in 30-year bonds at a record low yield of 4.19%. Turkey sold $1.5 billion in 10-year debt at a record low 3.47% Flooding the Market With Debt
Little to No "Net Cash" As a result of these operations, cash on corporate balance sheets will rise. In turn, expect to see more nonsensical reports about "cash on the sidelines". I have discussed this point many times before. On May, 11, 2012, In Cash Cow Liquidity Comparison: Where's the Cash and Where's the Debt? A Look at the Top 50 Companies, I noted "net cash on hand at the top 50 companies is negative to the tune of $1.479 trillion. If one considers short-term investments to be cash equivalents, then net cash is negative $1.251 trillion. Only if long-term investments are included does the number go positive." At the time of that report, cash was approximately $4.554 trillion and debt was $4.503 trillion. Simply put there is no net cash on the sidelines. Companies are raising cash, but they are also raising debt. Apple and Microsoft are two companies with genuine cash on the books. I will do a "Cash Cow" update again. Bernanke Fed Distortions By the way, this action is one of the severe distortions of actions by the Bernanke Fed. In pushing rates low, those on fixed income have to accept pathetic yields on treasuries and corporate bonds. This has had a net positive effect on equities but it has also royally screwed those needing income to survive. For further discussion, please consider Hello Ben Bernanke, Meet "Stephanie" Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Yield Curve: Where To From Here? Extreme Complacency in Face of Bernanke Shift Posted: 09 Jan 2013 12:46 AM PST After a somewhat lengthy hiatus, Curve Watcher's Anonymous is taking a good long look at the US treasury yield curve. Treasury Yield Curve  click on chart for sharper image QE Ending in 2013? There have been three consecutive headfakes higher in treasury yields only to see yields plunge to new lows on repeated QE announcements by Bernanke. Is the fourth time a charm? Certainly Bernanke is not about to hike interest rates as Greenspan did. But what happens to the long end of the curve if Bernanke simply ends QE later this year? The question stems from Minutes of the December FOMC Meeting released last week. While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased. Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program's efficacy and costs at upcoming FOMC meetings.Extreme Complacency in Face of Bernanke Shift Steen Jakobsen, chief economist for Saxo Bank in Denmark reflects on the minutes of the latest FOMC meeting in his post on Tuesday Two Ways to Be Happy. There were two ways to be happy: improve your reality, or lower your expectations ― Jodi Picoult, Nineteen Minutes.Bernanke's Legacy Problem Bruce Krasting notes Ben Bernanke Is Facing A Legacy Problem The surprise of the week was not the goofy ending to the cliff. It was the minutes from the Fed.Reflections on the Fed's Balance Sheet Bruce notes that there are two schools of thought regarding the Fed's balance sheet.
Bruce opines that most Fed watchers believe that size is what matters. He sides with ZeroHedge that the flow is what counts. I agree as well, especially at policy turning points. Neither Zerohedge, nor I, nor Bruce, think the Fed is going to reduce its balance sheet by selling assets. It would put too much upward pressure on interest rates. Steen Jakobsen is in that camp as well. Yet, if we are correct that flow is what matters, then the Fed going from huge balance sheet additions to a neutral stance, ending QE would be a big thing. This holds true whether the Fed winds down slowly (the most likely scenario) or the Fed halts abruptly (which could put an even larger shock on the system). Guessing Game Of course, all of us may be in fantasy land. Perhaps Bernanke has no intention of halting QE in spite of what the minutes suggest. That was indeed my first thought when I read them. However, if it's not a headfake, both the stock market and the bond market could be in for quite a rough ride given the extreme complacency and the "belief bubble" that the Fed can do no wrong. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More  |
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