Mish's Global Economic Trend Analysis

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• Ukraine Hikes Discount Rate from 6.5% to 9.5%, Overnight Rate to 14.5% to Halt Crash of Hryvnia
• 52% Say Taxes Too High, 54% Say Taxes Fair; Too High But Fair?
• GMO 7-Year Real Return Forecast: US Equities Negative For 7 Years
• Pro-Russia Separatists Defy Ukraine Deadline; Russia Promises to Protect Protesters From Violence; US Treasury Signs $1 Billion Ukraine Loan Guarantee
• Steve Keen Hired as Chief Economist for IDEA Economics; Best Wishes to Keen and IDEA
• California Drought Updates: Reader Anecdotes, Well Drilling Boom, Images; Drought Spawns Gold Panning Rush

Ukraine Hikes Discount Rate from 6.5% to 9.5%, Overnight Rate to 14.5% to Halt Crash of Hryvnia Posted: 14 Apr 2014 11:10 PM PDT The Ukrainian Hryvnia has plunged six consecutive weeks to new record lows. Since the beginning of the year, the Hryvnia has fallen from 8.26 to the US dollar, to 13.16 to the US dollar, a decline of 37.2% On Monday, the Ukraine central bank pulled out the bazooka with a massive set of rate hikes. Kiev's central bank raised the benchmark discount rate from 6.5 per cent to 9.5 per cent and the overnight loan rate from 7.5 per cent to 14.5 per cent on Monday night. "The central bank considers it necessary to take the step to increase the value of the national currency, to restrain inflation and to stabilise the situation on the money market," the central bank said in a statement. Foreign exchange reserves have fallen to barely two months' import cover, and the finance ministry warned in March that it expected the economy to contract by at least 3 per cent this year. The International Monetary Fund offered an $18bn package in late March to help Kiev face its economic crisis while it faces mounting external pressure from Russia, which has warned that it will halt gas exports to Ukraine unless it covers its unpaid bills. David Cameron on Monday agreed to accelerate work on further possible sanctions against Russia after discussing the crisis with Angela Merkel, German chancellor, and François Hollande, French president. But Britain remains cautious about imposing sanctions that could have an impact on the City of London's reputation as an open global financial centre and on companies, notably BP, which have big investments in Russia. British officials confirmed BP has warned ministers of possible repercussions if relations with Moscow deteriorate: the company has a 20 per cent stake in Rosneft, the Kremlin-controlled oil company. Ukraine has 2 months of reserves left. Escalating sanctions will make the situation worse. IMF looting is sure to follow. 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.

52% Say Taxes Too High, 54% Say Taxes Fair; Too High But Fair? Posted: 14 Apr 2014 07:24 PM PDT A curious result from a Gallup survey on taxes shows 52% Say Taxes Too High, 54% Say Taxes Fair click on either chart for sharper image Question #1: Do you consider the amount of Federal Income Tax you have to pay is too high, about right, or too low? Question #2: Do you regard the income tax which you have to pay is fair? Very curious "too high but fair" results. 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.

GMO 7-Year Real Return Forecast: US Equities Negative For 7 Years Posted: 14 Apr 2014 02:28 PM PDT Here is a chart from GMO Asset Forecasts that expresses how I feel as well. 7-Year Global Real Return Equity Forecasts click on chart for sharper image Value and growth within large and small stocks, and REITs, as of March 31, 2014 Estimated returns are negative for US large caps, US small caps, and REITs for every period shorter than seven years. If accurate (and I believe it is), what will that do to pension plans? For further discussion, please see LA Commission Studies Pension Crisis, Recommends New Commission; Bankruptcy Inevitable. For a followup, also see Reader Question on the Inevitable Los Angeles Bankruptcy; What About Chicago? 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.

Pro-Russia Separatists Defy Ukraine Deadline; Russia Promises to Protect Protesters From Violence; US Treasury Signs $1 Billion Ukraine Loan Guarantee Posted: 14 Apr 2014 10:40 AM PDT There is no sign of tension easing in the Ukraine today. Russia promises to protect the protesters from violence as the Separatists Defy Ukraine Deadline. Pro-Russia separatists occupying government buildings in up to 10 cities and towns in eastern Ukraine on Monday defied a deadline from Kiev to surrender as Moscow promised to "protect" people in the region from violence. Oleksandr Turchynov, Ukraine's acting president, responded by appealing to Ban Ki-moon, UN secretary-general, to deploy peacekeepers to the region as the government implements its "antiterrorist operation" against separatist protesters. There was no immediate response from the UN to Mr Turchynov's request. The development came as pro-Russian demonstrators seized more government buildings in eastern Ukraine and refused to leave those they had taken earlier despite the government threatening to deploy the military against them. Dozens of pro-Russian separatists seized the regional police building in the eastern town of Horlivka, increasing their grip over the coal mining and steel producing regions of Donetsk and Lugansk where at least seven government buildings have been seized over the past week. Video aired on television showed leaders of the grouping, some dressed in camouflage, standing on the stairway entrance to Horlivka's local police headquarters addressing crowds who cheered them on. In Slavyansk, armed men in military fatigues who described themselves as Cossacks stood guard at the local administration building and a few others patrolled the town's streets. In an attempt to placate anti-Kiev sentiment, Mr Turchynov on Monday said in a meeting with MPs that the authorities were "not against holding a referendum" to determine the country's fate. "I am convinced that a majority of Ukrainians in this referendum, which could take place on the same day as the [snap] presidential elections if [parliament] adopts such a decision, will vote for an undivided, united and Unitarian Ukraine," he added. US Treasury Signs $1 Billion Ukraine Loan Guarantee Earlier today the EU approved another €1bn of assistance for Ukraine and cut import restrictions on Ukrainian goods coming into the EU. Meanwhile the US Treasury Signs $1 Billion Ukraine Loan Guarantee. Today, the U.S. Treasury Secretary Jacob J. Lew announced the signing of a $1 billion loan guarantee agreement for Ukraine.  This guarantee, when completed, will complement the Government of Ukraine's International Monetary Fund (IMF) reform program and underscores the United States' commitment to Ukraine. "The Ukrainian people have demonstrated tremendous courage as they have charted an independent course for their country and demanded a government that truly reflects the will of the people.  The United States has been at the forefront of building international support for Ukraine, and holding Russia accountable for its violation of Ukrainian sovereignty and destabilizing action," said Secretary Lew in his remarks at the U.S. Treasury Department today.  "I would like to congratulate Minister Shlapak on the progress he and his team have made in putting in place a comprehensive economic reform program together with the IMF.  The United States very much wants to see Ukraine prosper, and we will continue to stand with the Ukrainian people as they move forward to realize their long-held aspirations." Jacob Lew or Clark Kent? Will of the People? Jack Lew stated "The Ukrainian people have demonstrated tremendous courage as they have charted an independent course for their country and demanded a government that truly reflects the will of the people. " Mr Turchynov on Monday said in a meeting with MPs that the authorities were "not against holding a referendum" to determine the country's fate. That would be excellent news, if it were true. Unfortunately, both statements are a lie.  Turchynov is only in favor of a rigged vote. Why should Kiev get to vote on what is best for Donetsk? I propose letting each Ukrainian area vote for itself. Eastern Ukrainian areas would likely vote to leave. By the way, why shouldn't the people decide? 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.

Steve Keen Hired as Chief Economist for IDEA Economics; Best Wishes to Keen and IDEA Posted: 14 Apr 2014 09:01 AM PDT On March 30, the newly formed Institute for Dynamic Economic Analysis (IDEA) announced it hired Steve Keen to serve as its chief economist. Via email IDEA stated "Steve will guide the organization's research and educational programs. IDEAeconomics was inspired in large part by his work, and we are honored to launch (coming early May) under his guidance. IDEA is dedicated to building the economics Steve has worked on for years. Our collaborations will be informed by his networks among the media and within the profession. Steve is the person best equipped to lead us in our mission to reform economics." From the above link ... Economics is broken. Conventional economics has missed badly in its forecasts, provided an incoherent explanation of economic events and failed to produce effective policy. There is another way. An economics that incorporates debt and money. An economics that is proven by history and practice, statistics and theoretical consistency. IDEA is dedicated to an economics that works for investors, business leaders, policy makers and, most importantly, everyday people who have been denied proper insight into the forces shaping their real lives. Our approach builds on a long tradition of classical, Keynesian and Post-Keynesian thought. We will develop, support and promote the economics that makes sense, partnering with others to establish a definitive and functional alternative to the orthodoxy that has failed. Message From Steve Keen On Sunday Steve Keen sent this email out to Friends, Supporters, Collaborators: The economic crisis that began in 2007 took mainstream economics by surprise, but it was anticipated by non-orthodox scholars whose approach to economics was inspired by Hyman Minsky. One might have thought his would display the desperate need for an alternative to the Neoclassical orthodoxy and strengthen the position of Minsky scholars in academic institutions. But after the crisis and now five long years of slump, this alternative is even less likely to be developed at universities than it was before the crisis. Having been right, Minskian economists are no longer invisible and can no longer be ignored, but we can be attacked and marginalized. Since Neoclassical economists are entrenched as the gatekeepers who vet grant proposals, Neoclassical economists will receive the vast majority of research funds. The alternative economics the real world desperately needs will not be funded and developed by the existing research bodies. The concerned public has to take up the baton. Hence the formation of IDEAeconomics. The aim at IDEA is to harness the energy and intelligence of private citizens to develop a realistic, dynamic, monetary approach, so guidance from economists can allow us to avoid financial crises — rather than blindly leading us into them. When IDEA approached me to be its Chief Economist, I accepted. I was free to do so because the non-mainstream University economics program where I taught was shut down in 2013. My main tasks here at IDEA will be to write Finance and Economic Breakdown, a formal, dynamic, complex systems development of Hyman Minsky's Financial Instability Hypothesis, and (2) to develop the open source system dynamics program Minsky, which makes easy what mainstream economics has found to be near impossible: to construct and test strictly monetary, dynamic models of the economy. We are also working on the shorter-term projects Alan detailed in our last message to you. And beyond these, but perhaps more important, there is the need to educate and enliven the broader discussion. We can do this, inject a coherent voice through media, speaking directly to audiences and collaborating with the like-minded. All of that can be supported by your contribution to IDEAeconomics. We are engaged in a project that needs to be done and done well, before it is too late. The evidence is in. Economists, policy-makers and the broader public need to change their thinking and develop an economics that works rather than one of beautiful myths built on dangerous fallacies. You can help make that happen, and it won't happen without you. Best, Steve Keen Best Wishes to Keen and IDEA Best wishes to Steve Keen in his new job. He taught me much about debt deflation and ideas. We do not agree on everything (notably some, but not all aspects related to fractional reserve lending, which I consider fraudulent). Regardless, the idea behind IDEA is certainly worth supporting. Once again, good luck and best wishes to Steve. 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.

California Drought Updates: Reader Anecdotes, Well Drilling Boom, Images; Drought Spawns Gold Panning Rush Posted: 14 Apr 2014 12:04 AM PDT An email from reader "Bombillo" got me looking at the drought situation in California once again. Bombillo writes ... Hi Mish, Hope all is well with you. I see you have your wine conference coming up with a great speaker roster! The California drought is now going to grind into the brutal summer season with the full effects to be seen shortly. I have read that since the San Joaquin Valley is not going to be receiving any irrigation water from Federal canal projects (first time ever) a half million acres of land will go fallow this year there. Since ag is going to be shut down, the workers that man those operations are moving elsewhere. This in turn is causing a collapse in student enrollment at the public schools where school district funds are allocated on per pupil attendance. There is talk about giving the districts money even though there will not be anyone in these schools. I am not certain how all this will play out but the price of beef, produce of all type, fruits and nut prices will go up nationwide, if not worldwide. We have members of the Franzia and the Mondavi families at the resort right now, and even though they have a high value added product their water costs and access have them worried. Life has a way of playing these tricks but after wailing about these things it looks very much as though a huge El Nino is building up (unusually high ocean water temps in the eastern Pacific) something we haven't seen since 1998.  This means a torrential rainy season is likely coming up for the winter of 2014/15. One has to wonder though, with ever more people and ever more stretched/stressed supply chains, how close to some sort of disaster we are. I read your interesting article about the Inevitable Bankruptcy of Los Angeles, a response to a question really, posed by a home owner in LA wanting to know what affect he may see from a pension system collapse. Your comment was to expect tax increases and invention of new taxes. I have first-hand experience with two outrageous tax grabs that prompted me to write state congressmen, not that it will do any good whatsoever. Bombillo California Drought Spawns Well Drilling Boom ABC News reports California Drought Spawns Well Drilling Boom. The scarcity of irrigation water in drought-stricken California has created such a demand for well drilling services that Central Valley farmer Bob Smittcamp is taking matters into his own hands. He's buying a drilling rig for $1 million to make certain he has enough water this summer for thousands of acres of fruit and vegetable crops. "It's like an insurance policy," said Smittcamp, who knows two other farmers doing the same thing. "You have to do something to protect your investment." With California in a third dry year, well drilling is booming across the nation's most productive agricultural region, and some drilling companies are booked for months or a year. In some counties, requests for permits to dig new wells have soared, more than doubling over this time last year. Farmers expect to get only a fraction — if any — of the water they need from vast government-controlled systems of canals and reservoirs interlacing the state. In an effort to make up the difference, they are drilling hundreds of feet deep to tap underground water supplies. Smittcamp estimates that he spends $4,000 an acre tending his peach and grape crops before the harvest. If a well were to run dry mid-season with nobody to call, Smittcamp said he could lose that investment — and perhaps entire orchards or vineyards.  The price to dig a well depends on the depth and ground composition, drillers say, costing a farmer anywhere from $50,000 to $500,000 before installing the pumps. Tapping groundwater has other costs. The water that was deposited underground naturally over thousands of years isn't being replaced as rapidly as it's being drawn, causing the ground in the Central Valley to sink in a process called subsidence. In California, there is little if any regulation of groundwater pumping by the state.  In most years, Central Valley farmers draw one-third of their water from wells, while the remaining two-thirds comes from California's State Water Project and the federal Central Valley Project. Most farmers expect to receive no water from either this summer, and that ratio is dramatically shifting to underground water supplies, which could eventually run dry. Matt Rottman, president of Rottman Drilling Co. based in Lancaster, said his mid-sized firm of three rigs is backlogged 15 months. For a recent job near Bakersfield, his crew dug a 1,840-foot well. Three wells coming up later this year in the Central Valley will hit depths of 2,000 feet.  This summer, Smittcamp said he has to come up with two-thirds of his water that would normally come from the state and federal water deliveries. "This year, we get none out of the projects," he said. "So we've got to pump the whole enchilada." California Drought Monitor Here's a link to California Drought Monitor updates. The above map is from April 8 (released April 10). Images The Atlantic has a series of 25 interesting California drought images in its report California's Historic Drought. Houseboats are docked at Bridge Bay in Shasta Lake, which is 100 feet (30 meters) below its normal levels, in Shasta, California, on January 23, 2014. Now in its third straight year of drought conditions, California is experiencing its driest year on record, dating back 119 years, and reservoirs throughout the state have very low water levels. (Reuters/Robert Galbraith) A car sits in dried and cracked earth of what was the bottom of the Almaden Reservoir on January 28, 2014 in San Jose, California. (Justin Sullivan/Getty Images) An empty boat marina at Folsom Lake, at 17 percent of capacity, in Folsom, California, on January 22, 2014. (Reuters/Robert Galbraith) Drought Spawns Gold Panning Rush Three consecutive years of below-normal rainfall have left reservoirs at a fraction of their normal depth, seriously threatening farms in the state that grows half the nation's fruits and vegetables. California Governor Jerry Brown has declared a drought emergency and signed a $687 million drought-relief package into law, and 125 additional firefighters have been hired already in anticipation of a dangerous upcoming fire season. One bright spot: gold prospecting. Amateur prospectors are flocking to the Sierra Nevada foothills, taking advantage of lower water levels to search for gold in riverbeds that have been unreachable for decades. The above images and gold rush text courtesy of the Atlantic. Personal Anecdote Our home is on well water. We hit an underground river at 30 feet. That is too shallow to be usable for drinking, so they kept drilling. We hit water again at 80 feet. I do not remember the cost precisely, but I believe it was something like $500 (good for up to 100 feet) in 2001, not the $50,000 to $500,000 mentioned in the above drilling boom article. 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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