Mish's Global Economic Trend Analysis

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• Brussels Puts Spain Under Surveillance; Brussels Denies Putting Spain Under Surveillance
• Breakout in Japanese 10-Year Bond Yield
• Triple Dip Recession in France; It's Not the Weather
• In Rare Praise of Teachers

Brussels Puts Spain Under Surveillance; Brussels Denies Putting Spain Under Surveillance Posted: 15 May 2013 11:15 PM PDT Here is an amusing set of back-to-back headlines regarding Spain. Via Mish-modified Google translate from La Vanguardia Brussels Puts Spain Under Surveillance for Economic Imbalances Spain will be placed under European supervision and its political leeway in deciding what reforms the economy agree will be reduced. European monitoring will take place in the labor market and a review of the pension system and some economic reforms from now must be agreed with Brussels. Spain gets "two extra years to reduce the deficit to make reforms to improve the competitiveness of the economy" in exchange for increased reinsurance the sources said. It will be the first time the EU put in place the new mechanism adopted following the outbreak of the crisis to allow Brussels to monitor the implementation of the reform agenda, make proposals and, above all, ensure that measures are taken According to the schedule. This sort of preemptive rescue aims to give the impression to markets that are under control and problems being solved, which is crucial in the case of this country case to avoid asking the rescue. Brussels Denies Spain Put Under Surveillance Via Google translate from El Economista, Brussels Denies Spain Put Under Surveillance. The European Commission (EC) has denied today that it has decided to put under surveillance to Spain for their excessive macroeconomic imbalances and restated preliminary analysis indicates reform plan that the country is broadly taking adequate steps to correct its problems. "I've seen the press reports, speaking on decisions yet to be taken, based on anonymous sources who always suggests a dubious credibility," said community spokesman Economic and Monetary Affairs, Simon O'Connor, in the daily briefing of the EC. EU sources have stressed that the preliminary analysis of the national reforms of Spain "is very positive and nothing is going in that direction" of the country placed under surveillance, but recalled that this possibility exists in the excessive imbalances procedure, such and as agreed at the time. The idea that anything positive is happening in Spain that would allow it to meet its budget targets is of course preposterous. Indeed, Spain was granted two more years because it could not possibly meet its targets. Of course, Italy cannot meet its targets, France cannot meet its targets, Slovenia cannot meet its targets, and in fact no country in Europe is likely to meet its budget deficit target. Should the denial be correct, it's simply a sign that the larger countries are now so off-target on their own accord, they have granted kick-the-can extensions elsewhere. However, I suspect the first headline is the accurate one and Brussels is simply looking for a word less harsh-sounding word than "surveillance". 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.

Breakout in Japanese 10-Year Bond Yield Posted: 15 May 2013 10:57 AM PDT Curve Watchers Anonymous has its eye on global interest rates. For example, please consider this chart of 10-Year Japanese bonds. click on chart for sharper image Chart courtesy of Steen Jakobsen, chief economist at Saxo Bank in Denmark. I have been paying close attention to Japanese yields in light of this statement by the Bank of Japan chief: "I do not expect a sudden spike in long-term bond yields." I commented on the statement on Saturday in Expect a Spike in Long-Term Japanese Interest Rates; Currency Crisis Just Around the Corner. As a Yen-followup, please consider Will Shinzo Abe Succeed with Constitutional Changes to Militarize Japan and Further Destroy the Yen? 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.

Triple Dip Recession in France; It's Not the Weather Posted: 15 May 2013 12:46 AM PDT France slipped into its third recession in four years as Germany barely went into positive territory, underperforming general expectations. The Financial Times reports France contracts in 1st quarter as Germany returns to growth French GDP shrank by 0.2 per cent in the first quarter, the same rate of decline as the final three months of 2012, according to Insee, the national statistics office. Investment, measured by gross fixed capital formation, remained weak, falling a further 0.9 per cent after 0.8 per cent in the fourth quarter. Exports fell and construction output fell. The second consecutive quarter of contraction put France back into recession, its third in four years. Germany, by contrast, managed to swing back into growth, but only barely. First-quarter GDP grew by 0.1 per cent, up from a downwardly revised contraction of 0.7 per cent in the fourth quarter of last year, according to a preliminary estimate by the Federal Statistics Office. The German growth figures were likely to have been dragged down by poor weather and many economists are expecting it to continue to grow as exports pick up. The country's powerful engineering union, which includes the carmaking sector, agreed a pay deal with employers on Wednesday, giving workers a pay rise of 3.4 per cent in July and a further 2.2 per cent in May 2014. It's Not the Weather Blaming the German slowdown on the weather is complete silliness. More importantly, the idea that German exports will rise given stated pay raises and a weak and weakening eurozone economy is absurd. For more on the eurozone, and France in particular, please see Social Mood Darkens in Europe, Especially France, as Eurozone Economy in Freefall. 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.

In Rare Praise of Teachers Posted: 14 May 2013 11:59 PM PDT I do not frequently stand with teachers. It's not that I have anything against teachers. I don't. Teaching is an honorable profession. Those who understand my stance, know full well my problems sit with teachers' unions, administrators, and union work rules. Far too often I hear requests for tax increases allegedly "for the kids" when really the tax increases are for the teachers and administrators, not the kids. Something Different Today, I want to report something different. I want people to know that sometimes teachers want to do something that is genuinely for the kids. In this instance, state law does not permit it. Please consider Michigan District Fires All Teachers, Closes Every School. Summer break has started very early for kids in one Michigan school district. Buena Vista schools have been closed for five days already, and on Monday, the district's website stated that the school would be closed until further notice. For good reason, this decision has parents, and the community, up in arms. The problem in Buena Vista is that the school district, educating approximately 450 kids, is out of money. All the teachers have been laid off and a financial emergency has been declared. The district has suffered from declining enrollment, which, in turn, has led to a loss of $3 million in state funding since 2010. In an effort to keep schools open, teachers said they would work without pay. This is not possible under Michigan law so educators have been left in limbo. To make matters worse, the staff has also lost their health insurance. The Buena Vista School District website states that they consider it their "highest calling to be entrusted with the care and education of the community's children." Buena Vista Announcement From the Buena Vista School District Website: 3. Teachers have offered to work for free until Friday, May 10. Why did the District lay them off? Michigan law requires that employers pay employees for work performed. We thank the teaching staff for their dedication, and understand their frustration. However, we must follow the law. Over the past day, many staff who have been laid off have asked how they may volunteer their time. Staff who make the personal decision to do so should contact the District regarding the logistics of that volunteering. However, we must stress that under current circumstances, there is no ability to compensate staff for their services and there is no indication that there will be money for such compensation at any time in the future. 7. How should teachers and staff obtain their belongings from their classrooms and work areas? The District buildings will remain open and, we understand, the Principals have volunteered to remain in their buildings, on an unpaid basis, into the indefinite future. Staff should report to their building principals and, in an orderly fashion, collect their belongings. Additionally, staff should turn in, to their building principal, their school-issued items, such as keys, phones, laptops, etc. For the sake of order, we ask that these tasks be completed by Friday, May 10, 2013. That notice came out on May 1. I salute the teachers in the Michigan Buena Vista School District for having the kids best interest at heart when they volunteered to work for free to close out the school year. Sadly, a blatantly bad Michigan law did not permit such action. 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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