Mish's Global Economic Trend Analysis

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• Charts from Lacy Hunt's Presentation at Casey Research October Conference
• Marine Le Pen's Eurosceptic "National Front" Party Takes Lead in France National Poll
• High-Tech Robotic Wine: The Future of Winemaking is Robots

Charts from Lacy Hunt's Presentation at Casey Research October Conference Posted: 09 Oct 2013 11:24 PM PDT Last week, Dr. Lacy Hunt, Executive Vice President of Hoisington Investment Management Company, made a presentation at the Casey Research 2013 Summit. I am a big fan of Dr. Hunt, and he graciously agreed to let me post some of the charts from his 42 page PDF. I selected charts on a theme of US debt vs. Debt in other countries. The charts that follow are from Lacy Hunt. The comments that follow are mine. US Private and Public Debt as Percent of GDP click on any chart for sharper image The above chart looks (and is) extremely alarming. But how does it compare with debt in other countries? Major Countries Private and Public Debt as Percent of GDP Many other major countries are as bad off as the US. But those charts show public and private debt. Inquiring minds may be interested in public debt alone. Government Liabilities as Percent of GDP highlighting mine US vs. Europe It would be very interesting to see stats on China, but detailed stats were not available. For now, please compare the US to France, Japan, the UK and even Germany. Germany is widely viewed as the bastion of fiscal sanity. Is it? The above table suggests otherwise, and the closer you look,  the worse off Germany seems. Recall that Spain's deficit is projected to hit 100% of GDP next year. I wrote about Spain recently in Pensions, Unemployment, Interest on Public Debt, Consume 54% of Spain's Budget; Debt Hits 100% of GDP; Expect Plan "B" or Plan "C". If Spain, Italy, or Greece exits the eurozone, then Germany will be left holding the bag for its share of the defaults. And if peripheral Europe stays in the Eurozone, expect another decade of no growth for all of Europe, not just peripheral Europe. China's Hidden Debt In China, credit is on an explosive trend up (again). Hidden debt is massive. See Bulls and Bears Debate China: Property Bubble Expands Again; GDP Growth Picks Up; Economic Recovery Underway? No Says Michael Pettis US Centric Focus Curiously, most bloggers ignore vitally important global data, and focus solely on the US, primarily money supply. In Ron Paul Ruins a Great Economic Rant, Being Seriously Wrong on One Key Point, I was critical of a statement made by Ron Paul "At some point the Fed's policies will result in hyper-inflation". I happen to be a huge fan of Ron Paul and his libertarian philosophy in general, but such statements do not stand up to close scrutiny. To be fair, I do not know precisely what Paul meant by "at some point", but economic advice beyond a 5-10 year timeframe is at best useless. One reader emailed me ... "YOU fail to understand HYPERINFLATION is a PANIC event, when governments lose control. And whilst you keep banging the drums of no hyperinflation and nonexistant deflation, you keep missing the big picture which is of EXPONENTIAL INFLATION, a trend around which asset prices oscillate. Understand this Hyperinflation is a feedback loop. It emerges FROM the midst of an exponential inflation trend as a consequence of government deficit spending and central bank money printing - QE! Hyperinflation is a Political Event Actually, I do understand that hyperinflation happens when governments lose control. More specifically, hyperinflation is not even a result of a monetary event (but rather the result of a political one). I have written about the politics of hyperinflation at great length on numerous occasions. For a discussion regarding the politics of hyperinflation (including Weimar Germany, Argentina, Chile, other countries), please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything? Glut of Labor, Dearth of Jobs When I look around (globally), and see a glut of labor, a dearth of jobs, and pressure on wages. People are still deleveraging. These are not conditions of hyperinflation. Heck, they are barely inflationary at all (in this sense I am referring to prices of consumer goods, not asset prices). The Fed wants QE to spur lending and job creation. But the Fed can only make money available for lending. It cannot control where the money goes (or if it goes anywhere at all). The Fed cannot force people to borrow or banks to lend. Currently, money piles up as excess reserves. Excess Reserves Bubbles, Bubbles  $2.3+- trillion dollars is parked at the Fed as excess reserves. For all its herculean efforts, the Fed (central bankers in general) did not spur lending or job creation. However, the Fed did create another bubble in assets (especially stocks and corporate bonds). I suggest the Fed would be hard-pressed to create hyperinflation even if it wanted to (and it most assuredly doesn't want to). On the other hand, Congress could easily create hyperinflation (in theory), simply by giving everyone in the US $5,000,000 per month to spend. That would surely do it, but that's not about to happen (in practice), and it's the "in practice" that matters. One at the debt ceiling debate is enough to conclude Congress is not going to be sending multiple $5,000,000 checks to everyone in the US.   The Case for Gold I fully expect the Fed to continue its efforts to spur economic growth, but I do not expect the Fed to succeed. In the meantime, and unless it's different this time, gold stands to be the beneficiary (sooner rather than later, and well within reasonable investment horizons). Here is the pertinent chart from US Debt Already Exceeds Debt Limit by $48 Billion Minimum; Gold vs. Debt Ceiling. US Debt and Debt Limit vs. Gold click on chart for sharper image The Case for Treasuries Amusingly, the case for treasuries is similar. The Fed is highly unlikely to hike and probably will be far slower at tapering than most think. Growth will be far lower than most think. That combination is not enough to ensure treasury yields drop, but it is enough to suggest treasury yields are not likely to soar out of sight. For further discussion, please see Case for Gold vs. the Case for Treasuries; Is Bill Gross Talking His Book or Talking Reality? So here we are. One does not have to like US treasuries, but it sure would behoove analysts predicting massive inflation to consider the entire global picture instead of focusing solely on US money supply growth. Global Picture Glut of labor - nearly everywhere Dearth of jobs - nearly everywhere Pressure on wages - nearly everywhere Consumer attitudes towards borrowing and going into debt have soured  - US and Europe Demographics of Aging Boomers - US, Japan, Europe Student loans turn kids fresh out of college into debt slaves - US Low household formation - Many countries including US Household deleveraging - US and Europe Property bubbles in China, Australia, Canada, UK Credit explosion in China Massive overbuilding of infrastructure in China Massive problems, inefficiencies, and hidden debt related to SOEs in China  Technology trends suggest more layoffs in widespread industries - everywhere European banks leveraged to the hilt in their own sovereign bonds European banks in worse shape than US banks Abenomics - Japan  Insufficient retirement savings - everywhere Yes, I understand the Fed is doing "all it can". And it has created bubbles as well as economic distortions everywhere. But bubbles, by definition, collapse. And collapsing bubbles are deflationary. So forget about hyperinflation (or even strong price inflation), and focus on collapsing bubbles, consumer attitudes towards lending and borrowing, the glut of labor, the dearth of jobs, increasing competition, Abenomics, and the demographic need to save for retirement. All things considered, I fail to see how one can look at the global picture and conclude price inflation in the US is imminent. 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.

Marine Le Pen's Eurosceptic "National Front" Party Takes Lead in France National Poll Posted: 09 Oct 2013 12:34 PM PDT Given the extreme economic mess socialist president Francois Hollande has made in France, it should not be too shocking to discover a surge in the popularity of the National Front, a far-right, eurosceptic political party led by Marine Le Pen. A recent poll by Le Nouvel Observateur shows the National Front is in the lead for the first time ever. Poll Results To show just how far the socialists have fallen out of favor, UMP is a center-right political party, once led by former president Nicolas Sarkozy who lost the last presidential election to Francois Hollande. Le Pen "Ready for Elysee" National Front leader, Marine Le Pen tells news agency ANSAmed 'I am ready for Elysee'. Le Pen spoke in an interview with ANSAmed on the same day an IFOP survey for the Nouvel Observateur showed her right-wing party leading in the polls ahead of the 2014 European elections - an absolute first for France. "Yes, I feel I am ready for the Elysee", Le Pen assured ANSAmed over the phone. She is "not surprised" at the results of the survey. "Today we are the leading party. The Socialists and the Union for a Popular Movement (UMP) can only win if they make a deal and form a pact of national unity", added Jean-Marie Le Pen's daughter, who came in third after current Socialist President Francois Hollande and outgoing UMP president Nicolas Sarkozy in the 2012 presidential elections. Le Pen went on to explain that hers "is not an extreme right party" but rather a "patriotic, extremely democratic one". It stands for more "popular referendums" with a "Gaullist vision" of national sovereignty and independence. "Also, we are not against a market economy", she continued. Asked whether she thinks her party resembles Italy's anti-establishment, anti-euro 5-Star Movement (M5S), Le Pen said that "there is no movement like ours right now. Ours is a mature party, with 40 years of history behind it. The M5S movement is a recent one, born of citizens' exasperation at the current crisis". Le Pen, who opposes the EU and the single currency, reiterated the need to liberate France from the yoke of the Brussels technocrats - and of others. "It's time to put an end to the status quo. We no longer want to be vassals of the United States or the Gulf monarchies", she warned. French Legend Delon 'Supports' Far-Right France24 reports French Legend Delon 'Supports' Far-Right. French actor Alain Delon said he supports France's far-right party, the National Front, in an interview published in a Swiss newspaper on Wednesday. The movie star was popular in the 1960s and was once referred to as the "male Brigitte Bardot." French film star Alain Delon has come out in support of France's far-right political party the National Front (FN).In an interview published on Wednesday in the Swiss daily Le Matin, the actor, whose career has seen him appear in some 100 films, described the National Front's growth as "uplifting." Delon went to on to say that he "approves" the party's progress, which he attributed to a general sense of gloom due to what, he called, was a lack of political action. "The National Front, like the MCG [Geneva Citizens' Movement] in Geneva, is very important…I encourage it and I perfectly understand it," he said in comments published in the newspaper. "For years, the Le Pen father and daughter team [Jean-Marie, former head of the National Front, and Marine, its current leader] have been fighting, but they've been fighting a lonely battle," he said. "Now, for the first time, they are no longer alone. They have the French people…And that it's reaching Geneva, that's incredibly important. They're fed up there too." Francois Hollande is toast. What follows remains to be seen. But a healthy dose of euroscepticism and anti-Brussels sentiment should be a welcome event to anyone rightfully fearful of the socialist nannycrats in Brussels. Speaking of which, European Parliamentary Elections will be held between May 22 and May 25, 2014. It will be a welcome state of affairs (as well as quite entertaining) to see Euroskeptic UKIP party leader Nigel Farage get some good company in parliament. Here is a very entertaining speech by Farage to parliament in September 2013. 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.

High-Tech Robotic Wine: The Future of Winemaking is Robots Posted: 09 Oct 2013 10:22 AM PDT Winemaker Hall Vineyard is one of the first in Napa Valley California utilizing optic technology to replace hand sorting grapes. Bloomberg Television's Rachel Crane traveled to Hall Vineyards in the heart of Napa to get the season's first taste of high tech wine. A robot takes pictures at 10,000 frames per second and analyzes the grapes instantly, selecting the ones that meet Steve Leveque's programmed specifications. Leveque is Hall's Director of Winemaking. A puff of air blats out unwanted grapes. The robot does the job of 60 laborers in just a few hours. Leveque expects a return on his robotic investment in a couple of years.  Eight winemakers in Napa Valley have invested in robotic technology. link if video does not play: Future of Winemaking is High-Tech Robots The future of winemaking is robots, and the future is now. A quick check on Hall's Winemaker page says "HALL is truly devoted to making great wine—going about achieving that in all the right ways: Organically farmed vineyards, hand-sorted fruit, gravity-fed tanks, native yeast fermentations." - Steve Leveque Given the future has arrived, Hall needs an update on that page to say "robot-sorted fruit". 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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