Central Perk: 5 dec. 2015

sâmbătă, 5 decembrie 2015

Mish's Global Economic Trend Analysis

"No Limit" to Economic Madness
Monthly Macro Update November: Mish Video With Gordon Long
Another Obama Clean Energy Fiasco, Potentially Involving Largest Bankruptcy in Spanish History; Appeal of Clean Energy

Posted: 05 Dec 2015 06:58 PM PST

Last week the markets were upset because ECB president Mario Draghi did not do enough to combat deflation.

Draghi Recap

ECB would continue its €60bn-a-month bond buying program for another 6 months until March 2017 "or beyond".
ECB reduced key interest rate to a historic low of minus 0.3 percent.
ECB pledged to buy more assets with the proceeds of its existing bond purchases.
ECB announced it would buy municipal bonds in addition to standard government debt.

That Japanesque set of actions seems like one hell of a package but the market expected far more.

I commented on the package in Euro Surges, Bonds Sink as ECB's Rate Cut to -0.3% and Pledge of More QE Until March 2017 "or Beyond" Not Dovish Enough.

Offending Markets

Heaven forbid an central banker offends the market with an undesired announcement. Not upsetting the markets is the only "tool" central bankers have left.

So Mario Draghi followed up with a new pledge 'No limit' to ECB Action to Hit Targets.

The ECB pledged on Thursday to continue its €60bn-a-month bond buying quantitative easing plan until March 2017 and cut a key interest rate to a fresh record low of minus 0.3 per cent. But the measures disappointed investors that have come to rely on Mr Draghi to smash expectations, with a broad market sell-off after the ECB failed to deliver deeper cuts and an increase in the pace of QE.

In an attempt to reassure markets that the ECB has more firepower should inflation remain low, Mr Draghi said in New York on Friday that the central bank had "the power to act, the determination to act and the commitment to act".

He added: "There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate." He said there was "no doubt that if we had to intensify the use of our instruments to ensure we achieve our price stability mandate, then we would."

The central bank's mandate is for inflation of just below 2 per cent, a goal that it has missed substantially for the past two years when prices have risen by less than 1 per cent annually.

ZeroHedge has an interesting take on The Inside Story Why The ECB Decided "The Markets Needed To Be Disappointed" And How It All Fell Apart.

Here is an amusing video of a Draghi lie corrected on the spot.

The key moment is right at the end when Draghi corrects an obvious lie that the audience laughs at. Rest assured there is no limit to Draghi's madness.

Mike Mish Shedlock

Monthly Macro Update November: Mish Video With Gordon Long

Posted: 05 Dec 2015 05:52 PM PST

Every month, I will be getting together with Gordon Long to produce a video discussion of video macro events of the past month.

This is the second video we have done. Prior to that, I had been with Long on three or four occasions, but not on any kind of schedule.

This month we discusses the EU refugee crisis, another Japanese recession, the US subprime auto sector, the likelihood of a US recession, and other topics.

It's a 30 Minute video, which we call Mish's Monthly Macro Update.

The link provides a text synopsis and some charts as well as as a video play link.

Mike "Mish" Shedlock

Another Obama Clean Energy Fiasco, Potentially Involving Largest Bankruptcy in Spanish History; Appeal of Clean Energy

Posted: 05 Dec 2015 11:39 AM PST

On the clean energy front, team Obama keeps plugging away with failure after failure. This go around involves a clean energy company in Spain that increasingly appears as if it will become the largest bankruptcy in Spanish history.

Sudden Insolvency

Please consider Abengoa: Another Story Of Sudden Insolvency.

Throughout this current year, 99 companies across the world have defaulted, the second highest figure in the decade after the 2009 crisis, according to S&P. Spanish firm Abengoa could be added to the list.

Besides being involved in renewable electricity generation and converting biomass into biofuel, it is also one of the world's leading power lines builders and a top engineering and construction firm. It employs 24,000 people worldwide.

The Andalucian company has amassed dozens of very important infrastructure projects in the past few years all over the world, from the U.S. to China and Latam. The problem is that with a gross debt pile of some €8.9 billion, and exposure to Spanish and international banks of around €20.2bn, Abengoa has found, and continues to find it difficult to get them off the ground.

Abengoa had no problem in getting Citi to lead a €100 million (£70million) share sale in July to raise funds for the group at a price of €2.80 a share (now they are worth €0.44). A particularly embarrassing situation for the US bank.

Furthermore, days after the Citi-led share sale, Abengoa revealed it was seeking to raise €650 million of capital and dispose of €500 million of assets. It also alerted the market that its free cash flow for the year would be as much as €800 million lower than previously forecast. But its executives didn't dare tell the truth. While investors began to worry, they had no problem in saying the company didn't need more capital.

Another person who didn't expect such a terrible outcome is Obama. His administration awarded the company about $2.7 billion for two majors projects — the Solana Generating Station in Arizona and the Mojave Solar Project in California. Republicans and other critics of renewables were short of time to remind Obama of his previous failure with Solyndra in 2011. This left taxpayers responsible for more than $530 million. These people reminded the President that the administration's meddling in the energy sector leads to disaster for taxpayers.capital.

Appeal of Clean Energy

I am all in favor of clean energy. I just have one mandatory requirement: no government involvement or subsidies.

Governments have a tendency to back losers as team Obama has shown. Worse yet, backing losers takes money away directly or indirectly from other companies, possibly with better technologies.

If a project requires subsidies to be viable, then it's not viable, period. If venture capitalists want to pour money into such projects, I am all in favor of that too. But none of these projects should be at taxpayer expense.

Finally, without governments sloshing money around, the free market on its own accord will sort out the winners and losers. Government waste and backing of loser companies and loser technologies just adds to the delays.

Mike "Mish" Shedlock

Seth's Blog : Expecting the unexpected

Expecting the unexpected

Are you doing your work for an ordered market? A region where there is stability and rules and predictable outcomes? Some examples: selling to people who have purchased before, entering a market with established competitors, contributing to a media ecosystem that works in mostly predictable ways...

The alternative are blue sky arenas where unpredictability is the rule, not the exception.

Most of us don't live and work on the frontier, and we plan our lives accordingly.

Life on the frontier brings its own rewards (and risks) but there's never an advantage in imagining that it's stable. It's hard to be surprised if you establish up front that you're likely to be surprised.

It helps to know the rules of physics in the universe where you are choosing to live.