miercuri, 21 ianuarie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Central Bank Impotence: ECB as Impotent as Obama

Posted: 21 Jan 2015 05:49 PM PST

Yesterday, President Obama gave a State of the Union Address that contained a series of proposals for US Congress on raising taxes, free education, and carbon taxes.

I commented Obama Howls at the Moon.

Every Obama proposal is Dead-on-Arrival. Obama may as well fired a spaceship at the sun. The spaceship would melt long before it got there.

Draghi vs. Obama

On Thursday, in just a few hours, ECB president Mario Draghi gets his "moment in the sun". And like Obama who telegraphed his speech in advance, rumor has it ECB Eyes €50bn Monthly Bond Purchases.

So What?

Many may be wondering "Can it possibly matter?"

Actually, it does matter, but only in the negative sense. As Steen Jakobsen chief economist of Saxo Bank in Denmark explains "Euro is Not a Good Idea and ECB About to Make Biggest Mistake in History" .

Steen's rationale, fully explained in a subsequent post is that Lower Interest Rates May Reduce Consumption. That is a proposition that Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management both agree with.

Lacy Hunt pinged me with this thought ...

"Academic research indicates that QE in the US contracted rather than expanded economic activity, just as it did in Japan. Thus, Steen could have made the even stronger case that since it didn't work in the US or Japan, it will not work in for the ECB."

For a detailed explanation, please see Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph.

Gaming the Reaction

I have no particular insights into what ECB president Mario Draghi will say tomorrow. Yet, I suspect he will attempt some surprise move. Surprise moves seem to be the central bank move of the day.

Regardless, whatever the ECB does, those in Germany will say he did too much. Keynesian and Monetarist clowns will howl he did too little, especially if the initial reaction is bad.

Central Bank Impotence

Here's the deal: Like president Obama, the ECB is impotent. Both bark at the moon. They only thing the ECB can do is make matters worse. Obama cannot do anything at all.

If the initial reaction from Draghi's announcement is good (something I highly doubt), it will die soon enough.

Central bank credibility is blowing up in smoke left and right. It started with "Rabbit Hole Intervention" by the Swiss National Bank. (See Wild Moves in Swiss Franc as Switzerland Abandons Euro Peg; Morals of the Story).

Credibility declined more with the announcement Denmark Announces Currency Peg is "Secure".

Central bank credibility took another plunge today with the surprise rate cut by the Canadian Central Bank. Here's my take: Canadian Recession Coming Up: Yield Curve Inverts Following Unexpected Rate Cut; Loonie at Six-Year Low.

Transparency?

Fancy that. Multiple central bank shocking announcements in short order. What happened to the alleged increase in central bank transparency?

Looking Ahead

Later this year, the Fed is supposed to hike rates. 100% of economists expect just that!

Well, what if the Fed does not hike? Or what if the Fed does not hike as much as the market expects? And what will gold do if that happens?

That's a lot of "what ifs", but since when have 100% of economists ever been right?

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.

Canadian Recession Coming Up: Yield Curve Inverts Following Unexpected Rate Cut; Loonie at Six-Year Low

Posted: 21 Jan 2015 01:06 PM PST

Currency wars pick up steam today with still more unexpected central bank actions. Please consider Canadian Central Bank Unexpectedly Lowers Interest Rates.
Canada's dollar sank the most in more than three years after the central bank unexpectedly cut interest rates, saying crude oil's collapse will slow inflation and weigh on the economy.

The currency reached the weakest level in almost six years after the Bank of Canada reduced economic forecasts and lowered the benchmark rate target to 0.75 percent, from 1 percent, where it's been since 2010. Government bonds climbed, pushing yields on two-, 10- and 30-year debt to record lows. Crude, Canada's biggest export, has tumbled more than 50 percent since June amid a global glut.

"They are taking pre-emptive steps," Thomas Costerg, an economist at Standard Chartered Bank, said in a phone interview from New York. "If oil prices remain under pressure, you could potentially see further cuts. This was not expected, and it's going to put pressure on the loonie."
Preemptive Steps

How much more preemption before the derivative bubble blows sky high? On that question we find out more tomorrow.

US Dollar vs. Canadian Dollar



click on chart for sharper image

Since mid-2011 the "loonie" has lost about 24% vs. the US dollar. However, the dollar is a lot weaker than its Canadian counterpart compared to late 2001.

Canadian Yield Curve Inverts
 
  • 30-year: 2.044% (Today's Low 1.998%)
  • 10-Year: 1.426% (Today's Low 1.366%)
  • 05-Year: 0.791% (Down 19 basis points, an 18% decline)
  • 03-Year: 0.590% (Down 27 basis points, a 31% decline)
  • 02-Year: 0.560% (Down 29 basis points, a 34% decline)
  • 01-Year: 0.580% (Down 34 basis points, a 37% decline)
  • 01-Month: 0.640% (Down 22 basis points, a 26% decline)

Blue Ribbon Announcement

Canada wins the blue ribbon for the first G-7 yield curve inversion since central bankers started unleashing competitive "preemptive" rate cuts.

Yield on the Canadian 1-year note, 2year-note, and 3-year note are all inverted (lower than yield on the 1-month note).

In addition, yield on on the 1-year note is inverted with the 2- and 3-year notes.

I smell a Canadian recession (and more surprise actions). A bust of the Canadian real estate bubble, one of the biggest in the world, is also on the way.

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.

Job Site of the Future: Unmanned Bulldozers and Drones for Routine Construction

Posted: 21 Jan 2015 11:17 AM PST

Why pay an expensive bulldozer driver for foundation work when a drone from the sky paired with an unmanned bulldozer on the ground can compute 3-D plans and do the job better and faster?

Construction workers move over. You are next to be unneeded, unwanted, and unloved.

The Wall Street Journal reports Drones' Next Job: Construction Work.
Construction-equipment maker Komatsu Ltd. has plans to solve a potential shortage of construction workers in Japan: Let drones and driverless bulldozers do part of the work.

Tokyo-based Komatsu said Tuesday it plans to use unmanned aircraft, bulldozers and excavators to automate much of the early foundation work on construction sites.

Under Komatsu's plans, U.S.-made drones would scan job sites from the air and send images to computers to build three-dimensional models of the terrain. Komatsu's unmanned bulldozers and excavators would then use those models to carry out design plans, digging holes and moving earth.

The drones, made by San Francisco startup Skycatch Inc., and construction equipment would move along largely preprogrammed routes. The goal is to automate the construction site, leaving humans to program the machines and then push a button to send them to work. Human operators would also monitor progress and can jump in to take control of a machine if necessary.

Companies have started employing automated trucks and other equipment at mines in recent years, but Komatsu's program appears to be one of the most ambitious plans to automate work in a setting as dynamic as a construction site.

The Skycatch drones are programmed to automatically fly over a set area and use sensors to collect data on the terrain below. The drones even return to ground stations and swap in new batteries when power is running low.
Job Site of the Future

"We think this is the future job site," said Akinori Onodera, president of the Komatsu.

The future comes fast these days. Most likely, this will be routine in a few years or so.

Meanwhile, the Fed (central banks in general), and governments are hell-bent on policies that are guaranteed to make matters worse.

Low interest rates to finance such operations, coupled with rising minimum wage demands provides maximum leverage for drones, unmanned vehicles, hardware robots, and software robots to replace humans far quicker than otherwise would happen.

Further Review


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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