Mish's Global Economic Trend Analysis |
- Portuguese Debt About to Implode? What About Spain?
- Huge Miss in ISM; Largest Decline in New Orders in 4 Years; Weather to Blame?
- Loan Rates in Argentina Reach 65% Annually; Is 65% a Good Rate?
- Why are Taxpayers Subsidizing Big Mac Buyers?
Portuguese Debt About to Implode? What About Spain? Posted: 03 Feb 2014 07:22 PM PST Is Portugal about ready to implode? That's what one hedge fund manager believes. For now, interest rate action suggests otherwise. We will explore the case for implosion but first consider this chart of 10-year sovereign bonds. Portugal 10-Year Sovereign Debt Yield One certainly could have made a fortune plowing into 10-year Portuguese bonds. Does that mean Portugal is out of the woods? I don't think so, and neither does Tortus Capital hedge fund manager David Salanic. The New York times describes the setup in A Lonely Bet Against Portugal's Debt, but I am more interested in Tortus Capital's thesis. Salanic maintains the status quo is not sustainable. Here is his overall thesis. Portugal Debt Implosion Thesis
Salanic does a fantastic job presenting his case in a 62 page document, Rehabilitating Portugal. I recommend reading the presentation in entirety, but here are a few charts. click on any chart for a sharper image Solidarity Missed Deficit Targets Missed GDP Targets Wishful Thinking Subordination Debt Financing Credit Ratings Inability to Outgrow or Devalue Debt Corporate Debt Levels Debt to GDP Debt to Revenue Interest Expense vs. Revenue Target 2 Liabilities ECB Liabilities Mish Comments That was a lot of charts, but there are another 40 or more in the article. I didn't count. Other than target 2 imbalances (debt owed to other countries), Spain appeared at least as bad in most of the comparison charts. Portugal alone is enough to sink the Eurozone given ECB leverage. I have said repeatedly there is absolutely no way the Eurozone can stay intact and the above analysis strongly supports my claim. That bond yields are so low in spite of the fundamentals is not an indication things are getting better. Rather, it is a strong sign of a bubble-supportive speculative mentality that central banks have fostered. I do not know what the catalyst for a breakup will be, or when it happens, but Portugal is clearly back on my radar of things to watch. Sincere thanks to Tortus Capital fund manager David Salanic for an outstanding report. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Huge Miss in ISM; Largest Decline in New Orders in 4 Years; Weather to Blame? Posted: 03 Feb 2014 10:10 AM PST Expectations for continued growth in the US remain overoptimistic. For example Bloomberg reports the median forecast of 85 economists surveyed by Bloomberg called for a decrease in ISM to 56 from a December reading of 56.5. Instead, the index plunged to 51.3, a number marginally above the expansion-contraction reading of 50. Here are the numbers from the January 2014 Manufacturing ISM Report On Business® ISM at a Glance
ISM Report Snips PMIWeather to Blame? The median forecast was for an index reading 56. It came in at 51.3, an enormous miss. A number of ISM respondents and economists blamed the weather. Cold weather certainly did not help auto sales any, but didn't the economists know the weather was cold when they made their forecasts? I think the economy is slowing more than economists realize, even if weather is partially responsible for this. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Rates in Argentina Reach 65% Annually; Is 65% a Good Rate? Posted: 03 Feb 2014 09:25 AM PST Emerging markets continue to crumble, and the spillover on major economies is obvious. Problems always start somewhere, usually at the periphery. Via translation from Lanacion, please consider Credit Is More Expensive. Following the peso devaluation and sharp hike in interest rates by the central bank, interest rates on loans increased as much as 11 percentage points.Is 65% a Good Rate? If Argentina is in the midst of full-blown hyperinflation, then any loan rate is a good rate, because the peso will soon become worthless. If banks believe that is likely, they may publish rates, but credit will completely dry up. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Why are Taxpayers Subsidizing Big Mac Buyers? Posted: 03 Feb 2014 01:17 AM PST A friend of mine who wishes to remain anonymous claims the following:
Specifically, my friend asks "Why are Taxpayers Subsidizing Big Mac buyers?" His proposed solution is to raise the minimum wage to the poverty level, about $23,550 for a family of four. My friend claims the employer, not the taxpayer will pick up the tab. Seen and Unseen My otherwise bright friend is not bright enough to examine the seen and the unseen costs and benefits of his proposal. It's a given that those who are employed by McDonalds and WalMart will be better off, provided they retain their jobs. That's a pretty big "provided". But it's far worse than that. Here are 10 things I came up with (and it only took a few minutes to do so). I am sure my list is incomplete.
Moreover, for all the bashing of WalMart, please note that it pays one of the highest corporate tax rates in the country. Other Problems With Minimum Wage Laws Minimum wages impair the liberty of workers and employers to freely enter into voluntary contracts. They are extremely unfair to unskilled and low-skilled workers, many of whom will either lose their jobs or no longer find any. Young entrants into the labor force won't even have a chance to improve their lot by gaining job experience because they won't be allowed to offer their labor for less than the minimum wage, even if they want to. Instead they will become dependent on handouts. Issue of Fairness The government cannot wave its hand and order nature around. Economic laws will remain valid regardless of legislation and regulations. And that means that all those whose labor is simply too expensive at the new minimum wage will be priced out of the market, typically the lowest skilled and poorest workers. It matters not if anyone thinks that is 'fair'. It is simply what is going to happen. Please consider points number five, nine, and ten one more time: When corporations don't open stores they otherwise would have, construction jobs are lost, shipping jobs are lost, merchandising jobs are lost, corporate income taxes do not rise as they would have, and property tax collection does not rise as it would have. Vacant stores are a form of blight. They reduce property tax collection and lower rent prices. Marginal store closings and refusal to open new marginal stores will most likely happen in the very neighborhoods most desperately in need of jobs and services. The above points should be so obvious, my friend should be embarrassed with his simplistic "hike the minimum wage" solution. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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