Mish's Global Economic Trend Analysis

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• Currencies on the Move: Yen-USD Busts Through 1.00 Barrier; Australian Dollar, Euro Slump; The Uplifting "Abenomics Bra"
• Action Plan to Save Slovenia is Trifecta of Stupidity
• ECB Ponders Buying Toxic Debt of the Periphery; Don't Worry, It Will Be "Fiscally Neutral" and Temporary

Currencies on the Move: Yen-USD Busts Through 1.00 Barrier; Australian Dollar, Euro Slump; The Uplifting "Abenomics Bra" Posted: 09 May 2013 01:24 PM PDT There are some interesting moves in the forex markets today. Most notably the Yen cracked the 1.00 barrier. Yen Daily Chart click on chart for sharper image After flirting with 1.00 for three weeks, the Yen fell through today. Is it the new Abenomicsa Bra? The Japanese division of lingerie maker Triumph International unveiled on Wednesday an "Abenomics" bra, a special edition it says offers a "growth strategy" and a potential lift towards Japan's elusive inflation target. "We hope that, as the Japanese economy grows, we can also help bust sizes to get bigger," said Triumph spokeswoman Keiko Masuda. Its benefits for Japan's policymakers were less clear. The Uplifting Abenomics Bra Australian Dollar Intraday Action click on chart for sharper image Top to bottom swing is about 2.5 cents vs the US dollar. That is a big swing, without (thankfully) a bra for Prime Minister Julia Gillard on display. However, a high school student threw a sandwich at Gillard today. The student in question, Kyle Thompson, has been suspended for 15 days for the incident but denies he did it, local TV reported. [Kyle Thompson, Student]: "I hit the sandwich out of the kid's hand because he threw it and there was another one so I hit it out of his hand," he said. When asked why the prime minister was targeted he said, "maybe because nobody likes her." Although there was the occasional boo, most children cheered and jostled to shake Gillard's hand during the school visit. Currency Moves Unfinished Business The end of my previous post was accidentally cutoff. Here is the tail end of Action Plan to Save Slovenia is Trifecta of Stupidity. Trifecta of Stupidity Is there not one bureaucrat who can be fired? What about changes to work rules to make the country more productive? Is every cent Slovenia spends necessary? Hiking taxes in a recession is the single worst thing a country can do, yet Slovenia proposes a trio of them. When Slovenia slumps further into the gutter (and it will if they implement even a portion of these proposals), Keynesian clowns will holler "austerity ruined Slovenia". Nothing could be further from the truth. Tax hikes in a recession are not austerity, they are stupidity, and Slovenia is going for the tax-trifecta of a tax on wages, a hike in the VAT, and a hike on property taxes. Unemployment, already at 13.5%, will hit 20% if this plan is implemented. 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.

Action Plan to Save Slovenia is Trifecta of Stupidity Posted: 09 May 2013 10:05 AM PDT As Slovenia struggles to avoid an inevitable bailout, it pursues a plan that will instead make the size of the eventual bailout larger. Please consider the inane "Action Plan" for Eurozone Straggler Slovenia. The new government of struggling eurozone member Slovenia is expected to announce Thursday an action plan aimed at avoiding a bailout, reportedly including privatisations, "crisis" taxes and austerity cuts. Moody's last week cut its rating on Slovenia two notches to "junk", the economy has been in recession since 2011, unemployment stands at 13.5 percent and voters are fed up with their political leaders. According to leaked details, Bratusek is eyeing a "crisis" levy of 0.5-5.0 percent on all wages, to hike in 2014 value-added tax (VAT), a tax on property and other measures to boost state revenues. Trifecta of Stupidity Is there not one bureaucrat who can be fired? What about changes to work rules to make the country more productive? Is every cent Slovenia spends necessary? Hiking taxes in a recession is the single worst thing a country can do, yet Slovenia proposes a trio of them. When Slovenia slumps further into the gutter (and it will if they implement even a portion of these proposals), Keynesian clowns will holler "austerity ruined Slovenia". Nothing could be further from the truth. Tax hikes in a recession are not austerity, they are stupidity, and Slovenia is going for the tax-trifecta of a tax on wages, a hike in the VAT, and a hike on property taxes. Unemployment, already at 13.5%, will hit 20% if this plan is implemented. 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.

ECB Ponders Buying Toxic Debt of the Periphery; Don't Worry, It Will Be "Fiscally Neutral" and Temporary Posted: 09 May 2013 01:08 AM PDT In an effort to stimulate small and medium (SME) lending the ECB considers acquiring banks toxic debt of the periphery. Via mish-modified translate from Spanish Libre Mercado. The European Central Bank (ECB) could "soon" start buying bad debts of Southern European countries in an attempt to end the fragmentation in the eurozone and boost funding to SMEs, as confirmed by the German ECB representative Jörg Asmussen. "It's part of the debate on lending to SMEs," Asmussen said when asked about the measure, which was unveiled by the German newspaper Die Welt. The ECB has an "open mind" to do everything "within our mandate" to solve this problem, Asmussen explained in an appearance before the Economic Affairs Committee of the Parliament. The goal, the German banker continued, is "revive the market asset-backed securities, particularly those backed by loans to SMEs, of course with strict supervision." In any case, the ECB representative stressed that "liquidity is not what is preventing banks from lending" but "the lack of capital." For his part, Vice President of the Commission responsible for Economic Affairs, Olli Rehn, has said that in "many parts of southern Europe" live SMEs "financial trap". "We are facing severe financial fragmentation in Europe, where similar types of companies must pay for credit interest rates significantly higher in southern Europe compared to the core countries," said Rehn. "It is very important that each European institution, within its mandate, work to overcome this funding and liquidity trap in southern Europe," he insisted. "We have to complete the repair of the banking system as soon as possible, ensure its capitalization, build a banking union and resolve the liquidity trap," stated the economic vice. Asmussen seeks a complete banking union "as soon as possible" to break the "negative interaction" between banks and states and prevent recurrence of crises such as Cyprus. "The Cypriot case has been a salutary reminder of the importance of establishing a banking union as soon as possible. Only then will we be able to break the negative interaction between states and their banking systems," said the representative of the ECB during a hearing in the Economic Affairs Committee on Cypriot case. The German banker also stressed that the EU must "urgently" a framework for resolution of financial institutions that include "a set of clear and known in advance" about how the losses will be shared among the different creditors, establishing a "preference for depositors". "The new framework should put depositors at the top of the hierarchy of creditors and ensure that the role of deposit insurance funds in the settlement is limited to guarantee to depositors" with less than 100,000 euros. The ECB also wants a unique mechanism of resolution "with a strong central authority to take impartial decisions to minimize time and costs of the resolution." This authority should have a resolution fund that has temporary public support and is "fiscally neutral". Scary Stuff Talk of "temporary public support" ought to scare everyone in Germany to death. Heck, this kind of talk should scare the UK to death as well. It serves as a warning signal for the UK to exit the EU while it can.  Fiscally Neutral? Supposedly the proposal will have a "resolution fund" that is "fiscally neutral". Hmm... Neutral to who? Taxpayers? Banking union? Who does that benefit? Within Mandate? Asmussen says the ECB has an "open mind" to do everything "within our mandate" to solve this problem. Since when is it under ECB mandate to buy toxic debt of Southern European countries to stimulate SME lending? Uncertainty Principle Yet Again Seems to me banks lent too much money already to SMEs and are choking on losses. Is it within ECB mandate to provide capital to failing institutions? I think not. Nonetheless, the Fed Uncertainty Principle is at play once again. Simply substitute ECB for Fed in the following corollary. Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking. 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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