marți, 27 august 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Currency Lessons: Think a Sinking Currency is Always Good For Manufacturers?

Posted: 27 Aug 2013 07:48 PM PDT

Currency Lessons

Brazil learned a currency lesson first, now India. Is Australia next? Japan?

The lesson I am talking about is the widely held misconception that a sinking currency will make manufacturers more competitive and thus help the economy.

A friend from Australia emailed such thoughts to me a few days ago regarding the sinking Australian dollar.

But recall what Brazil's finance minister said on March 3, 2012 in a currency war declaration on the US: "When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil"

In a flash forward to August 25, 2013 we see Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures.

Let's now turn our attention to the Indian Rupee.

50% Decline in Rupee in Two Years



Conventional Wisdom vs. Reality

My Gosh! With a 50% selloff, conventional wisdom suggests India ought to be in heaven.

Here is a bit of reality: Currency collapse confounds India Inc
Indian companies such as Whirlpool of India Ltd say they can't plan more than a couple of months out as a fast-falling rupee currency drives up the cost of imports, forcing them to raise prices even as consumer spending crumbles.

Companies that import finished goods or raw materials are the worst hit as they scramble to hold onto margins while balancing the need to raise prices without deterring buyers.

"We are now planning for a month or three months at best unlike six months or a year earlier," said Shantanu Dasgupta, vice president for corporate affairs and strategy at Whirlpool of India, the local arm of Whirlpool Corp (WHR), the world's largest home appliance maker.

"A week back in our office we were working at (a rupee exchange rate of) 62 and now it's at 64 and looks like soon it will fall more and hit 67. How can a business operate when the currency is on a free-fall?" H.S. Bhatia, head of the enterprise business at television maker Videocon Industries, said in an August 21 interview.

Indian shoppers are not only cutting back on big-ticket purchases such as refrigerators, TVs or expensive branded apparel but even staples including soaps, ketchup and cosmetics.

A survey by the Associated Chambers of Commerce and Industry in June found monthly bills for the middle class jumped by 15 to 20 percent in a month across major cities as the falling rupee drove up prices of petroleum products and edible oil.

A paper in August by the same group found that even deep-pocketed consumers were cutting back, with five-star hotels and fine dining restaurants registering a decline of 20 percent in sales in the past three months after prices of imported food ingredients and spirits rose.
How Can Businesses Operate in A currency Freefall?

There's theory and then there's practice. Brazil and India have both noticed the distinction.

Crude Daily Chart



As I watch the price of crude soar with tensions rising in the Mideast I wonder when Japan (which imports nearly all of its energy needs) will realize how misguided its inflationist policies are.

History suggests Japan will notice long after it's far too late for Japan to do anything about it.

In the meantime, please consider Japan Finance Minister Seeks Record Debt Servicing on Interest on National Debt; What's Next?

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.

Is Obama Another Bush Clone? Another Nixon Clone?

Posted: 27 Aug 2013 12:45 PM PDT

Case For Nixon

Guardian writer Jeff Jarvis says As a Democrat, I am disgusted with President Obama.
I voted for Obama reluctantly, but never did I imagine he would become another Richard Nixon.
 
What are you thinking, Mr President?

Is this really the legacy you want for yourself: the chief executive who trampled rights, destroyed privacy, heightened secrecy, ruined trust, and worst of all, did not defend but instead detoured around so many of the fundamental principles on which this country is founded?

Never did I imagine that you would instead become another Richard Nixon: imperial, secretive, vindictive, untrustworthy, inexplicable.

As a journalist, I am frightened by your vengeful attacks on whistleblowers – Manning, Assange, Snowden, and the rest – and the impact in turn on journalism and its tasks of keeping a watchful eye on you and helping to assure an informed citizenry.

As a citizen, I am disgusted by the systematic evasion of oversight you have supported through the Foreign Intelligence Surveillance Act (FISA) courts; by the use of ports as lawless zones where your agents can harass anyone; by your failure on your promise to close Guantánamo, and this list could go on.

As an internet user, I am most fearful of the impact of your wanton destruction of privacy and the resulting collapse of trust in the net and what that will do to the freedom we have enjoyed in it as well as the business and jobs that are being built atop it.

You can't argue that Armageddon is on the way and that al-Qaida is on the run at the same time.

No, I think it is this: secrecy corrupts. Absolute secrecy corrupts absolutely. You have been seduced by the idea that your authority rests in your secrets and your power to hold them.

Transparency is another principle you promised to uphold but have trammeled instead.

You could decide to end what will be known as the Obama Collect it All doctrine and make the art of intelligence focus rather than reach.

You could decide to respect the efforts of whistleblowers as courageous practitioners of civil disobedience who are sacrificing much in their efforts to protect lives and democracy. If they are the Martin Luther Kings of our age, then call off Bull Connor's digital dogs and fire hoses, will you?

You could try to reverse the damage you have done to the internet and its potential by upholding its principles of openness and freedom.

You could. Will you?
Case For Bush

Next consider Syrian warmongering turning Obama into Bush's 'clone'
US president Barack Obama is repeating the pattern of actions of his predecessor, George W. Bush, in his push for a military solution in Syria, Foreign Affairs Committee chairman of the Russian Duma, Aleksey Pushkov said.

"Obama is fiercely moving towards war in Syria, just like Bush moved towards war in Iraq. Just like in Iraq, this war won't be legit and Obama will become Bush's clone," Pushkov wrote on his Twitter page on Sunday.

On Sunday, US Secretary of Defense Chuck Hagel stressed that the US military is ready to expedite a military plan in Syria if the order comes from the country's president.

"President Obama has asked the Defense Department to prepare options for all contingencies. We have done that and we are prepared to exercise whatever option – if he decides to employ one of those options," Hagel said.
Who Declares War?

From Wikipedia:

"Article I, Section 8, Clause 11 of the United States Constitution, vests in the Congress the power to declare war, in the following wording:  [Congress shall have Power...] To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water"

Isn't bombing other countries an act of war? Well, such inconveniences does not stop warmongering presidents in either party.

Reflections on a Moral Obscenity

In response to Reflections on "A Moral Obscenity": How Long Ago Was a War Against Syria Decided? reader Terry writes ...
"Yup, it was just those war-mongering conservatives and neocons that forced Bush to remove Saddam Hussein from power. Oh wait…. What did they do after that? Oh yeah,  they then immediately helped the Iraqi people establish a government elected by the Iraqi people and then prepared to leave."
Yes and No. It was indeed Dick Cheney and a bunch of warmongering authors of Project for the New American Century that led Bush down an idiotic path.
With its members in numerous key administrative positions, the PNAC exerted influence on high-level U.S. government officials in the administration of U.S. President George W. Bush and affected the Bush Administration's development of military and foreign policies, especially involving national security and the Iraq War.
Results Are In

To what avail? Did the war in Iraq do the US good? Iraq good? Anyone good but the warmongers who want perpetual war?

The answer is no, of course not. We wasted over $1 trillion dollars bombing the hell out of Iraq on a pack of lies.

There were no WOMDs in Iraq. Bush lied and so did Rumsfeld.

Hussein and Al Qaeda were enemies. There was no Al Qaeda in Iraq in Hussein's regime, but Iraq is a hotbed of Al Qaeda activity now.

Under Hussein there was religious tolerance. Now, Catholics are killed for their religion. The Sunnis and Shiites are also killing each other.

No Success Stories

Yes, Hussein was a brutal, evil dictator, but Iraq is worse off now. Pater Tenebrarum makes an excellent case in Iraq and Other Interventionist 'Success Stories'.

Please give it a read.

CIA Files Prove America Helped Saddam as He Gassed Iran

Inquiring minds may also want to read Foreign Policy Magazine article from yesterday CIA Files Prove America Helped Saddam as He Gassed Iran
The U.S. government may be considering military action in response to chemical strikes near Damascus. But a generation ago, America's military and intelligence communities knew about and did nothing to stop a series of nerve gas attacks far more devastating than anything Syria has seen, Foreign Policy has learned.

In 1988, during the waning days of Iraq's war with Iran, the United States learned through satellite imagery that Iran was about to gain a major strategic advantage by exploiting a hole in Iraqi defenses. U.S. intelligence officials conveyed the location of the Iranian troops to Iraq, fully aware that Hussein's military would attack with chemical weapons, including sarin, a lethal nerve agent.

The intelligence included imagery and maps about Iranian troop movements, as well as the locations of Iranian logistics facilities and details about Iranian air defenses. The Iraqis used mustard gas and sarin prior to four major offensives in early 1988 that relied on U.S. satellite imagery, maps, and other intelligence. These attacks helped to tilt the war in Iraq's favor and bring Iran to the negotiating table, and they ensured that the Reagan administration's long-standing policy of securing an Iraqi victory would succeed. But they were also the last in a series of chemical strikes stretching back several years that the Reagan administration knew about and didn't disclose.

U.S. officials have long denied acquiescing to Iraqi chemical attacks, insisting that Hussein's government never announced he was going to use the weapons. But retired Air Force Col. Rick Francona, who was a military attaché in Baghdad during the 1988 strikes, paints a different picture.

"The Iraqis never told us that they intended to use nerve gas. They didn't have to. We already knew," he told Foreign Policy.
The Enemy of My Enemy is My Friend

Note the hypocrisy and the idiocy of US foreign policy best described as "the enemy of my enemy is my friend".

Convincing The Public

President Obama is on a media blitz to convince the US public to support another inane war. Obama is using the same tactics as Bush and for that matter Hitler.

Does that sound too harsh? It isn't.

Interview With Gestapo Founder on Drumming Up Support For War

From an interview with Hermann Göring Nazi founder of the Gestapo, Head of the Luftwaffe, in a  jail cell during the Nuremberg War Crimes Trials (18 April 1946) ....

Göring: Why, of course, the people don't want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

Gilbert: There is one difference. In a democracy, the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars.

Göring: Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

So Which Is It?

Is Obama another Bush clone or another Nixon clone?

The correct conclusion (in regards to foreign policy but not domestic policy) is both.

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.

China Warns US About Cutting Tapering Too Soon, Proposes BRIC Foreign Currency Fund

Posted: 27 Aug 2013 10:04 AM PDT

The focus for the entirely useless upcoming G20 meeting is fear over US tapering, capital flight, and liquidity.

Reuters reports Ahead of G20, China urges caution in Fed policy tapering.
The U.S. Federal Reserve must consider when and how fast it unwinds its economic stimulus to avoid harming emerging market economies, senior Chinese officials said on Tuesday.

The warning by China's Vice Finance Minister Zhu Guangyao and central bank Vice Governor Yi Gang came as economies from Brazil to Indonesia struggle to cope with capital flight as U.S. interest rates rise ahead of an expected tapering off in the Federal Reserve's bond buying program that unleashed liquidity across the world.

The United States - the main currency issuing country - must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy," Zhu said.

China will refrain from providing stimulus to the world's second-largest economy, which he said was on track to grow around 7.5 percent this year - in line with the government's target.

"On monetary policy, the focal point (of G20) will be on how to minimize the external impact when major developed countries exit or gradually exit quantitative easing, especially causing volatile capital flows in emerging markets and putting pressures on emerging-market currencies," Yi said.

Yi said a $100 billion foreign-currency fund being discussed by countries that make up the BRICS grouping of Brazil, Russia, India, China and South Africa will be set up in the foreseeable future. He said China would provide "a big share" of the funds but he did not give details.

"It will not exceed 50 percent," he said.

The BRICS' leaders have agreed to set up the fund to help ward off currency crises.
Useless G-20 Meeting

The G-20 meeting will be useless. After praising growth, motherhood, and apple pie, every country will do whatever it wants and there will be no agreements on agricultural tariffs, or anything else of substance.

Useless $100 Billion Currency Fund Proposal

The $100 billion BRIC foreign currency fund will be equally useless, assuming it even happens.

Recall that Brazil alone just hatched a $60 billion intervention scheme (see Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures.

How far would $100 billion go? Not very. Is China going to back India with a mere $40 billion fund? If you think so, please tune into Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles.

And what about the non-BRIC countries like Indonesia?

So what good does pooling do if the countries all need the money at the same time? (like they do now).

Nonetheless, it's a safe prediction this proposed BRIC currency scheme will be blown up way out of proportion by some bloggers as the end of US dollar hegemony or some other nonsense.

For further discussion, please see my interview with GoldBroker on Gold, France, a Currency Crisis, and Other Things.

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.

Gold, France, a Currency Crisis, and Other Things

Posted: 26 Aug 2013 11:52 PM PDT

Here is an interview I did with Fabrice Drouin Ristori at GoldBroker regarding gold, France, and other topics that I would like to share.

Fabrice Drouin Ristori: Mish, you write a lot of commentaries about the European economic crisis, going from bad to worse. For instance Portuguese Bond Yield Spiked to 8%, How do you see the European situation evolve in the coming months ? Do you expect more bail-ins in the Eurozone?

Mish: More bail-ins are 100% certain. On August 20, German Finance Minister Wolfgang Schäuble officially admitted "Greece Will Need More Aid". Rest assured it will not stop with Greece. Spain and Portugal will need additional aid. Don't rule out Italy. The Italian economy is crumbling in a nightmare of regulatory nonsense and work rules.

FDR: Real estate already collapsed in Greece, Spain, Ireland but remains near all-time high in France and Sweden. You wrote "French real estate was massively overvalued: by 50% based on the price-to-rent ratio, and by 35%, based on disposable income. It makes France the most overvalued real estate market in the world based on disposable income, and the fourth most overvalued one based on rents." With an overvalued real estate market, bails-in and banking risks, how can investors protect themselves in this uncertain economic environment?  

Mish: The easiest way is to stay liquid, shun leverage, hold some gold and wait for better opportunities. The stock market bubble certainly got much bigger than I expected over the past two years. The Fed (central bankers in general) also blew a huge bubble in bonds, especially corporates. As proof of how silly thing have gotten,  covenant-lite loans (where debt is repaid not in cash but in debt) have made a comeback.

FDR: We have seen an important campaign against gold in the mainstream media, with Roubini's predictions and with bearish arguments like "The U.S. Federal Reserve could cut stimulus sooner rather than later" or "The Dollar is strong" to name a few. Do you really think these arguments are accurate?

Mish: I have been in a very tiny minority who likes gold while simultaneously suggesting the US dollar would not collapse. It didn't and it won't (at least any time soon). China is printing more than the US, the crisis in Europe is far from over (I expect a disorderly breakup), Australia is tied to a Chinese economy that is rapidly slowing, and the Bank of England headed by Mark Carney promises more QE. On a relative basis, that makes it tough for the dollar to collapse relative to other major fiat currencies. However, fiat currencies in general can sink against gold. And sentiment against gold has been massive, with Bloomberg leading the parade. For further discussion, please see Losing Faith in Gold at the Wrong Time; Did Paulson's Sale Mark the Bottom? Who's Left to Sell?

FDR: What are the fundamentals that will drive the gold market in the future ? Have these Fundamentals changed since the last all-time high in summer 2011 when gold traded at $1900?

Mish: Most people do not really understand gold. On May 28, I discussed sentiment in Speculative Gold Bets at 5-Year Low; Metal Will Get "Crushed" Says Credit Suisse. As far as fundamentals go, please see my June 26 article Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold?

FDR: In your June 13 article "Mish Buys a Basket of Miners" you said "gold is a far safer play than silver" can you tell us why ?

Mish: Silver is an industrial commodity that is used up. Gold has little industrial use. Silver can and does plunge more than gold in pullbacks. The latest plunge in silver was far greater than the corresponding plunge in gold. I do like silver at current prices, but one needs to be aware of high volatility in both directions.

FDR: In May of 2012 you wrote "I'm Swapping Some Gold for Silver". Today silver close to $23 and was available below $20. Do you continue to swap more gold for silver?

Mish: I didn't, but I may. The curious thing is I posted a belief for silver to fall back to the low $20s when it was close to $50. After it bounced twice in the mid-to-high $20s I changed my mind. I had it correct initially, but did not wait.

FDR: How do you weight your miners compare to you precious metals holdings in your investment portfolio?

Mish: I have more physical gold and silver than miners. The percentage varies. My ratio may be something like 3:1 right now. It can move in either direction.

FDR: Gold was down in June but at the same time premiums surged in China. Do you think the spread in between the gold paper price and the price of physical gold will continue to widen ? If so, Does that mean that the mechanism of price discovery for gold is broken in a way?

Mish: The only spread to speak of between "paper gold" and physical gold is a tiny commission or bid-ask spread. Those with accounts at various gold brokers can confirm. Thus, reports of huge paper-to-physical price differentials are nothing but hype, typically based on spreads on coins, when coins are in short supply. I do not advise investing in coins because of those spreads.

FDR: Anything else you wish to add?

Mish: Yes, thanks for asking. I do expect a full-blown currency crisis at some point and I expect gold to be the beneficiary. The global spotlight has been on Europe, and spotlights are typically a sign that problems will strike elsewhere. Japan is a crisis-in-waiting, and the emerging markets are taking a beating now, especially Brazil and India. I discussed India on Tuesday in Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles. These things have a way of spreading, so don't be surprised if India kicks off some sort of Asian contagion currency crisis. Also, complacency in Europe is again on the rise, so don't discount Europe. One can never predict these things with perfect timing, even if the end-game is relatively clear.

FDR: I would like to thank again Mr. Mike Shedlock for taking the time for this interview.

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.

Japan Finance Minister Seeks Record Debt Servicing on Interest on National Debt; What's Next?

Posted: 26 Aug 2013 11:16 PM PDT

Be prepared for more stories like this because they are surely coming: Japan MOF to seek record debt-servicing costs in Fiscal Year 2014/15
Japan's Finance Ministry will request a record 25.3 trillion yen ($257 billion) in debt-servicing costs under its fiscal 2014/15 budget, up 13.7 percent from the amount set aside for this year, a document obtained by Reuters showed on Tuesday.

The decision, aimed at guarding against any future rise in long-term interest rates, underscores the increasing cost Japan must pay to finance its massive public debt.

The country's debt is double the size of its $5 trillion economy and is the biggest among major industrialized nations.
Watch What Happens Next

  1. If interest rates rise to a mere 3%, it will consume 100% of all revenues
  2. If Japan monetizes interest payments, the Yen will collapse

So, what's it going to be? Both?

My best guess is #2 happens whether or not #1 does any time soon.

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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