Mish's Global Economic Trend Analysis

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• 97% of Spain's Social Security Pensions are Invested in Spanish Government Debt
• Competitive Easing Madness; Japan to Double Monetary Base; Draghi Signals More Easing; Yen Plunges
• Daily Show "Monsanto Bill": In Budget Bill Congress Inserts Provisions on Genetically Modified Foods and Gun Control
• CalPERS Pension System in the Crosshairs of Stockton Bankruptcy Dispute

97% of Spain's Social Security Pensions are Invested in Spanish Government Debt Posted: 04 Apr 2013 10:44 PM PDT Looking for a disaster waiting to blow sky high? I have one right at hand. El Economista reports 97% of pensions are invested in Spanish government debt in 2012. The Reserve Fund of Social Security in 2012 increased their holdings of Spanish debt to 97% of total assets, up from 90% who had in late 2011. Over 70% of purchases are recorded in the second half of 2012, according to Bloomberg points, after the critical moment when ECB President Mario Draghi, undertook to do "whatever it takes" to defend the euro. A message that helped ease the constraints and helped drive Spanish debt. In 2007, the money invested in financial assets were divided fairly (50%) between Spanish debt and foreign debt, but this proportion began to change in 2008. In September 2012, for the first time in history the government had to dip into the reserve fund to pay the payroll to pensioners. A total of 3,063 million euros were drawn from this instrument, to which were added to the 3,530 million in November Moncloa needed to fund the pension increases. Comparison to GM This exactly reminds me of the stupidity of GM investing its assets in GM bonds. Expect similar results in Spain. 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.

Competitive Easing Madness; Japan to Double Monetary Base; Draghi Signals More Easing; Yen Plunges Posted: 04 Apr 2013 11:09 AM PDT Escape Velocity Central bankers have gone totally mad. The stunning news of today is a new pledge by Japan to double its monetary base in two years as the Bank of Japan Unveils Aggressive Easing. The Bank of Japan will aim to double the monetary base over two years through the aggressive purchase of long-term bonds, in a dramatic shift aimed at ridding Japan of the deflation that has dogged the country for almost two decades. Haruhiko Kuroda on Thursday announced his arrival as central bank governor with a "new phase of monetary easing", a move that comes after Prime Minister Shinzo Abe told the bank to target a 2 per cent rate of inflation. "We can't escape deflation with the incremental approach that's been taken until now," Mr Kuroda said after the announcement. "We need to use every means available." "I am confident that all the policies we need to achieve 2 per cent inflation in around two years are now in place," he said. Yen Plunges As one might expect on such a surprise announcement, the Yen had a spectacular plunge. Draghi Signals More Easing Bloomberg reports German Yields Fall to 8-Month Low as Draghi Signals More Easing German government bonds rose, pushing 10-year yields to the lowest since August, after European Central Bank President Mario Draghi signaled further stimulus is possible should economic conditions deteriorate. French and Austrian 10-year yields fell to records as Draghi said monetary policy will "remain accommodative for as long as needed" to boost growth. Spanish and Italian bonds pared gains as the ECB president said the central bank won't immediately implement measures to ease funding strains for smaller companies. Fed Uncertainty Principle This is all in accordance with the Fed Uncertainty Principle corollary three. Corollary Number Three: Don't expect the Fed [central banks in general] to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem. Japan is eventually going to achieve "escape velocity" on deflation, and I assure you Japanese citizens will not like the results when it happens. When the Japanese bond market finally reacts to this inane policy, there is going to be a global currency crisis. 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.

Daily Show "Monsanto Bill": In Budget Bill Congress Inserts Provisions on Genetically Modified Foods and Gun Control Posted: 04 Apr 2013 09:52 AM PDT Please watch the first part of last night's Daily Show. In a bill that funds the government for another six months, and already signed by president Obama, a couple of interesting provisions were inserted into the bill. One provision prohibits the government from restricting genetically modified foods. A second provision negates the government's ability to enforce gun legislation.  These provisions clearly do not belong in a bill to allow the government to stay in operation. Worse yet, members of Congress did not know they voted for them as no one ever bothers to read legislation. The provisions were put in anonymously in committee. The person or persons amending the bill can do so without leaving fingerprints. One might think that a member of the president's staff would look at this stuff, but obviously there is no review any step of the way by anyone. As Nancy Pelosi says, "We have to pass the bill to see what's in it". 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.

CalPERS Pension System in the Crosshairs of Stockton Bankruptcy Dispute Posted: 04 Apr 2013 09:20 AM PDT A few days ago a federal judge sided with the city of Stockton, validating its bankruptcy. See Judge Rules Stockton CA Bankruptcy is Valid, City Acted in Good Faith. Bondholders screamed, but the ruling made sense. What did not make sense (except from the point of view of politicians protecting their own undeserved pensions), was that while Stockton defaulted on other payments, it kept funding its CalPERS pension obligations. Shouldn't government employees who were responsible for this mess share some of the fallout? I think so, and I would suggest before other bondholders or at least equal to other bondholders. The issue now is whether federal bankruptcy takes precedence over California law.  CalPERS in the Crosshairs The Huffington Post describes the setup in Stockton Pensions Present Problem In Bankruptcy At the conclusion of a three-day trial, a judge on Monday formally granted the city Chapter 9 protection, over the objections of creditors who questioned whether it was fair for the city to fully meet its obligations to the state pension system while other debt holders go partly paid. The issue – whether federal bankruptcy law trumps the California law that requires pension fund debts to be honored – could have huge implications across the state and the rest of the nation, experts say. "The fear is that there is going to be a run on the bank," said bankruptcy attorney Michael Sweet, who has been monitoring the Stockton trial. "Everyone is going to be cutting CalPERS" payments if Stockton is allowed to do it. Last year, the Congressional Joint Economic Committee reported that unfunded pension obligations across the nation amount to more than $2.8 trillion and may be as high as $4.4 trillion. Illinois lacks funds for nearly 72 percent of the pensions it guarantees, while California and Texas are short by more than half. North Carolina's debt is lowest but is still more than a third short of what its system has promised to pay out. Either the judge will decide that CalPERS obligations must be cut and the state will appeal, or he will say state law forbids CalPERS from negotiating and the creditors likely will appeal. Throw CalPERS in the Pot In spite of this huge runup in stocks and bonds, pension funds are still underfunded by a minimum of $2.8 trillion. If these undeserved pensions have priority, taxpayers will be on the hook for them. For the sake of the average taxpayer, let's hope CalPERS is thrown in the mix and benefits are not just cut, but massively slashed, and those who have the highest benefits cut the most. Stockton argues it needs high benefits to maintain its workforce. That is like saying you need cancer to save your breasts. 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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