Mish's Global Economic Trend Analysis

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• Retail Sales "Unexpectedly" Decline; December Revised Lower, GDP Estimates Follow
• Meet Janet Yellen "The Chair"
• Italy's Prime Minister Letta Resigns Under Pressure; Party backs Renzi; Rise of the Oligarchy; Trial by Fire Coming Up
• ECB Seriously Considering Negative Interest Rates; New Central Bank Mottos

Retail Sales "Unexpectedly" Decline; December Revised Lower, GDP Estimates Follow Posted: 13 Feb 2014 02:41 PM PST In a rare, back-to-back performance, retail sales in the US fell for the second month after a downward revision put December sales into the red. Blame the Weather In a blame the weather tactic Reuters reports Retail Demand a Bit Cooler. While the two straight months of declining sales most likely reflected frigid temperatures, there were also signs of general weakness creeping in as online sales also fell. Stripping out automobiles, gasoline, building materials and food services, so-called core sales fell 0.3 percent. Core sales for December were revised to only a 0.3 percent rise from a previously reported 0.7 percent advance. November's core sales figure was also revised down. Core sales correspond most closely with the consumer spending component of gross domestic product. The downward revisions to November and December core sales suggest that fourth-quarter consumer spending and economic growth were not as strong as initially thought. GDP Estimates Bloomberg reports Retail Sales in U.S. Unexpectedly Fell 0.4% in January Sales at U.S. retailers declined in January by the most since June 2012 amid bad weather and uneven progress in the labor market, signaling the economy was off to a slow start in 2014. The 0.4 percent decrease followed a revised 0.1 percent drop in December that was previously reported as an increase, according to Commerce Department figures released today in Washington. The median forecast in a Bloomberg survey of economists called for no change. Jobless claims unexpectedly climbed last week, other data showed. After the drop in retail sales, Goldman Sachs cut its tracking estimate for first-quarter growth to 1.9 percent from 2.3 percent, Credit Suisse lowered to 1.6 percent from 2.6 percent, and Morgan Stanley reduced its projection to 0.9 percent from 1.9 percent. Retail Sales Charts Here are a couple of Retail Sales charts from the census department. The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differ ences, but not for price changes, were $427. 8 billion, a decrease of 0.4 percent (± 0.5%)* from the previous month, but 2.6 percent (±0. 9%) above January 2013. Total sales for the November 2013 through January 2014 period were up 3.4 percent (±0.5%) from the same period a year ago. The November to December 2013 percent change was revised from +0.2 percent (± 0.5%)* to -0.1 percent (±0.3%)*. Percentage Changes This month the major increase was gasoline sales. Is that a good thing?  More importantly, note that general merchandise sales are barely up year-over-year. Auto sales and parts is what fueled the overall year-over-year advance. How long can that last? 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.

Meet Janet Yellen "The Chair" Posted: 13 Feb 2014 01:34 PM PST In one of her first official pronouncements, Federal Reserve chief Janet Yellen Lays Down the Law, Seeks Gender-Neutral Title of "chair" rather than "chairwoman". This prompted a humorous email discussion of ideas between a few friends including Pater Tenebrarum at the Acting Man blog (see Not a Woman, Just a Chair). Pater states ... With a nod to inspirational guidance provided by our friends BC and JJ, we hereby  present a few pictures by our graphics artist Morty Leydenfrost (note that in spite of superficial similarities in methodology, Morty isn't really an economics/markets guy and was hitherto actually not aware of the inimitable work of Williambanzai7). Here are a few images his team created. Easy Chair Taper Chair Rocking Chair on Fur Given that I have nothing but scorn for Bernanke and Yellen, the images seem appropriate. Nonetheless, apologies offered to anyone who does not see the humor. 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.

Italy's Prime Minister Letta Resigns Under Pressure; Party backs Renzi; Rise of the Oligarchy; Trial by Fire Coming Up Posted: 13 Feb 2014 11:40 AM PST Under severe pressure following weeks of messy name-calling, Italy's prime minister Enrico Letta resigned. 39-year-old Florence mayor, Matteo Renzi, will stand in. President Napolitano refuses to call for elections, so questions of legitimacy are sure to arise, and indeed have already. The Financial Times reports Letta to stand down as Italy's PM after party backs Renzi. Italy's prime minister Enrico Letta has been ousted after a brutal power struggle with party leader Matteo Renzi. The centre-left Democratic party on Thursday overwhelmingly backed the 39-year-old mayor of Florence to replace Mr Letta as head of the left-right coalition government.   Mr Renzi, the 39-year-old mayor of Florence, is now on his way to becoming Italy's youngest ever prime minister. He won the vote in a meeting of the party's leadership committee by 136 in favour and 16 against. Two abstained. Within minutes of the vote, the prime minister issued a statement effectively saying the game was over. Mr Letta said he would submit his resignation to Giorgio Napolitano, the Italian head of state, on Friday following the outcome of the leadership meeting. Reflecting what some Democrats feel about the spectacle of the party devouring one of its own, Pippo Civati, a leftwinger on the leadership committee, compared the treatment of Mr Letta to the way a giraffe at Copenhagen's zoo was euthanised last Sunday to prevent inbreeding. Mr Civati might have added that the remains of the young giraffe were fed to the lions. Mr Renzi, twice elected mayor of Florence and overwhelming winner of primaries for the party leadership in December, has never stood in national elections and faced a barrage of ridicule in major newspapers on Thursday. Corriere della Sera's popular cartoonist, Giannelli, lampooned the young ambitious reformist, reminding him of all his previous declarations – that he would never play the backroom deals that characterised many of Italy's postwar governments, that he only wanted to come to power through elections, that he would not oppose Mr Letta and that he would never form a coalition with the centre-right. That Mr Renzi might reverse course on all those fronts, risking immediately his public credibility, is feeding a sense of alarm in his camp. "I am shocked by the speed at which all of this is happening, and the events leave me very doubtful," one confidant, who asked not to be named, told the Financial Times. "Though officially people around Renzi are exulting, in reality there is a lot of irritability. Rise of the Oligarchy I have been following this crisis for some time on both Eurointelligence and the Financial Times. It's been clear for months that Letta would not survive and Renzi would be in. Mud-slinging has been all over the Italian newspapers. Yesterday, on the Huffington Post Italy, writer Lucia Annunziata commented A dramatic crisis, a ridiculous management We now know that neither Matteo Renzi nor Enrico Letta fear the warnings of history. Ridicule is the only proper term to define the political climate. A relay of government, ie, a change in the leadership of the country is played between two individuals who discuss face to face as if it was their place to decide among themselves how, when, and if, who assumes power when neither of them was voted in. The succession of Renzi to Letta, if it happens, it really is a serious passage of the republic. Whatever the reason to support it, or want it, at the end of this path we will end up with the third prime minister not voted since 2011. This means that we are on the path of evolution wonderfully Italy, the only European nation in a Oligarchic Republic. The careless manner in which you treat today places and ways of institutions, is the first sign of this evolution. Oligarchies in fact they do not need good manners - so do not have to answer to anyone. But maybe it's just in the last few hours to remind the two contenders that this evolution is not an obligation. There is still a way if they want to: work to get elections as soon as possible before the system swallows both their identity.  State of Delusion Before today's resignation, Eurointelligence commented on Letta's Desperate Budget Deficit Situation. A good characterization of the Letta's government's state of delusion came in a statement by Fabrizio Saccomanni [Italy's minister of Economy and Finance], who said yesterday that no matter what happens politically, the good work of the government needs to continue with interruptions. If something is not sustainable - like Italy's economic trajectory in the monetary union - then the continuation of the status-quo is about the last thing you want. This is ultimately what the dispute with Renzi is all about. We thought that Letta's commitment to new deficit rules lack credibility and conviction. With a debt-to-GDP ratio of 130% and still rising it is far from clear that more generous deficit rules are going to solve the problem. What Italy needs to do politically is to force a different type of macroeconomic adjustment inside the eurozone and a completely different banking union - in additional to implementing parallel economic reforms at home. Instead, Letta's policy has been to stay off everybody's radar screen. A shocking recent example was his opposition to a bad bank on the grounds that it would draw attention to the desperate state of the country's banking system, and might accelerate a downgrade. In our view, due to the inaction of his government we have progressed beyond the point where Italy can manage this transition on its own- even with Renzi in the driving seat. Trial by Fire Coming Up Letta is gone and Renzi is in, but what does that mean? Italy desperately needs work rule reform, smaller government, and commitment to tackle its bloated debt, now at 130% of GDP. Can Renzi face those challenges and survive? How? Eurointelligence wants a "completely different banking union" but that's as likely as rainclouds on the moon. Euriontelligence also says it's "far from clear that more generous deficit rules are going to solve the problem." Actually, it's crystal clear that more generous deficit rules will compound the problem, not solve it. I read Eurointelligence not for its solutions and recommendations (which frequently are ridiculous), but rather because it frequently has a very good synopsis of the symptoms of the problems at hand. A trial by fire in the form of rising interest rates is coming up. Let's see how Renzi, Germany, and the ECB respond. 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 Seriously Considering Negative Interest Rates; New Central Bank Mottos Posted: 13 Feb 2014 01:48 AM PST Central bankers need new mottos. I happen to have a few proposals. It takes effort to fail, and we try harder. If at first you don't succeed, repeat what doesn't work. The 1% are our friends, and we hope it shows. ECB Seriously Considering Negative Interest Rates Appropriate mottos out of the way, let's turn our attention to the silly idea of the day: negative interest rates. Via translation from El Economista, please consider ECB Seriously Considering Negative Interest Rates. Coeuré Benoit, a member of the European Central Bank government, said today that the ECB is 'seriously' considering negative interest rates. Mario Draghi has repeatedly recognized that there is a debate within the ECB on the pros and cons of negative rates that would seek to force banks to lend. Forcing capital impaired banks to lend is blatantly stupid. The expected result is higher losses. As a fundamental matter, it's actually mathematically impossible to lend excess reserves. For discussion, please see Notes From Steve Keen on "Lending Reserves" Regardless of the mathematical impossibility, people (even central bankers) want banks to lend their reserves to stave off deflation. The deflation-fighting idea is also ridiculous as noted in Deflation Theory Reality Check: Why Inflation is Severely Understated; Feel Good Effect With the above in mind, additional motto suggestions are welcome. Addendum: I received a number of interesting mottos from readers. The best one was from Steve who proposes "We don't care. We don't have to, because we own you." 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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