Mish's Global Economic Trend Analysis |
- Has Ambrose Evans-Pritchard Lost His Mind?
- Incredibly Anemic Performance of Chinese Stock Market; Decoupling in Reverse?
- Crude Futures Have Risen Significantly, So Why are Gasoline Prices Relatively Low?
- EU Bank Writedowns to Exclude Pre-2013 Debt; French Bond Yields Drop Most on Record; Italian Bond Yields Drop Below 7%
Has Ambrose Evans-Pritchard Lost His Mind? Posted: 02 Dec 2011 12:02 AM PST The question of the day is "Has Ambrose Evans-Pritchard Lost His Mind?" The reason I ask stems from his post on The Telegraph You are all wrong, printing money can halt Europe's crisis This will enrage many readers — especially the "Austrian" internet vigilantes — but I have to say it.Pritchard Wants to Save the Unsaveable Pritchard clearly has it in for Germany. Why I do not know. What's disappointing about his article is that he predicted well in advance that the Euro experiment would end in failure. Rather than bask in the glory of being correct early and often, he has now lost his mind attempting to save the unsaveable. If that's not losing one's mind, what is? Monetary Printing Rebuttal I could spend a lot of time writing a rebuttal to Pritchard's monetary printing thesis, but I do not have to. Pater Tenebrarum wrote an excellent rebuttal on November 29. Please consider Central Banks and Monetary Cranks Monetary Cranks Unite!Always Wrong to Bail Out Banks Bear in mind that much of the austerity measures Pritchard rails against are designed to bail out the French and German banks. On that point Pritchard is correct. It is always wrong to force tax hikes and other austerity measures on private citizens simply to bail out reckless bank behavior. Every Austrian economist in the world would agree. Pritchard Poses False Dichotomy Pritchard poses a false dichotomy: print money or impose various austerity measures like hiking taxes to bail out banks. Why do either? I wrote about this disgusting situation on Thursday in EU Bank Writedowns to Exclude Pre-2013 Debt; French Bond Yields Drop Most on Record; Italian Bond Yields Drop Below 7% EU officials have hatched a plan to make banks and bondholders take losses for risks, not now of course, but after 2013. In the meantime, taxpayers will shoulder 100% of the losses for bank lending stupidity. On this confidence inspiring news, European bonds rallied sharply.Bailing Out Banks at Taxpayer Expense is 100% Wrong Bailing out banks that take stupid risks is always wrong, in every situation. Taxpayers will suffer from higher inflation (notably in food and energy), wages will not rise, banks will pass out big bonuses once they are bailed out, and taxpayers will still be stuck with the debt. That by the way is exactly what happened in the US and it is one of the reasons hiring is anemic and lending is weak. In the US, but even more so in Europe, banks cannot lend because they are capital impaired. The solution is not austerity and higher taxes, but rather a writedown of that debt. However, various structural reforms surely are needed, free-market reforms. France needs to stop protecting farms at the expense of the UK, Greece needs to get rid of its public union problems, Italy needs to shed a plethora of inane rules and regulations. I can go on and on about structural problems in the US, UK, EU, and every European country. Printing money will not fix a single structural problem, all it will do is bail out the banks (yet again), leaving private citizens with debt they cannot pay back or inflation that punishes savers. Yes, Ambrose Evans-Pritchard has indeed lost his mind because printing money will not solve a damn thing. It will only provide an illusion of temporary success, requiring still more printing when the stimulus dies. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Incredibly Anemic Performance of Chinese Stock Market; Decoupling in Reverse? Posted: 01 Dec 2011 08:24 PM PST Every day I watch the relative performance of various equity markets. Since April, the Shanghai index has been the last to rally and the first to go down. $SSEC Shanghai Composite Index click on chart for sharper image On recent news China Cuts Bank Reserve Ratios by .5 Percentage Points; Central Banks Cut Rates on Dollar Swap Lines global equities soared. However, the Shanghai stock index stands alone in failing to hold the gains, a pattern I have seen and commented about for months. Note the Shanghai Index was the last global index to rally in late October. Also note that in November the index gave up nearly the entire October rally. Yesterday the index gapped up strong but gave back much of the gains. The night is young, but so far today (morning in China) the index is strongly in the red, down 34 points (1.44%) to 2,352 as of 11:12 PM EST. Chinese Manufacturing in Contraction Earlier today I commented China Manufacturing PMI Plunges to 32-Month Low of 47.7; Reflections on Stocks Rallying on "Bad News" Yesterday stocks rallied on news China Cuts Bank Reserve Ratios by .5 Percentage Points and Central Banks Cut Rates on Dollar Swap Lines.Decoupling in Reverse? The equity markets can rally all the want on deteriorating fundamentals but it will not change the facts one bit. Europe is in recession, Australia is in recession, Chinese manufacturing is in recession, and the US cannot carry the global economy on its own. Note the irony in that last sentence. Peter Schiff and others mistakenly thought in 2008 the global economy would decouple from the US economy. The idea was silly then and it is silly now (in reverse). The US will not decouple from the global economy. China is slowing and faces a hard landing, Europe is in recession, and a Fed inspired rally in commodities will end in pain given the slowdown in China and Europe. Gold may be the exception. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Crude Futures Have Risen Significantly, So Why are Gasoline Prices Relatively Low? Posted: 01 Dec 2011 04:06 PM PST West Texas Intermediate Crude is back above $100 from a plunge to $76 at the beginning of October. Brent is $112. So why are gasoline prices lagging the rally in crude? Reader Tim Wallace writes Hello Mishclick on charts for sharper image Gasoline Usage Gasoline Usage Growth What About Cash-for-Clunkers and Better Fuel Mileages in General? I asked Tim Wallace how cash-for-clunkers and better fuel mileages may have played into the decline. Here is his response. There are over 250,000,000 vehicles registered in the USA. In the average year there used to be about 6% are "retired" - scrapped - out of the fleet. In the Cash for Clunkers year the scrap rate was 14,000,000 cars, coming close to 5.6% "retired". My hard and fast assumption is a drop in demand due to reduced driving for whatever reason.Thanks Tim! Gasoline Futures West Texas Intermediate Crude Brent Crude Neither gasoline futures nor gasoline prices at the pump can be explained by the action in crude prices. Falling demand, which should also affect profit margins, appears to be at play. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 01 Dec 2011 09:30 AM PST EU officials have hatched a plan to make banks and bondholders take losses for risks, not now of course, but after 2013. In the meantime, taxpayers will shoulder 100% of the losses for bank lending stupidity. On this confidence inspiring news, European bonds rallied sharply. Bloomberg reports EU Bank Writedown to Exclude Pre-'13 Debt The European Union may exempt bank debt issued before 2013 from proposals forcing investors to take losses at failing lenders, said a person familiar with the plan.Three Key Provisions
French Bond Yields Drop Most on Record; Italian Bond Yields Drop Below 7% Please consider French Yields Drop Most in 20 Years, Spain Bonds Rise France's 10-year yields fell the most since 1991 as the nation sold 4.3 billion euros ($5.79 billion) of bonds due between 2017 and 2041. Spanish notes rose for a fourth day as it auctioned 3.75 billion euros of securities, the maximum target. Italy's 10-year yields fell below 7 percent for the first time in a week as European Central Bank President Mario Draghi signaled the ECB may do more to fight the crisis as long as governments push the euro area toward a fiscal union.Spain 2-Year Government Bonds Italy 2-Year Government Bonds Portugal 2-Year Government Bonds Germany 2-Year Government Bonds Since the market likes a free lunch at taxpayer expense it's no wonder the debt markets rallied somewhat. However, to what extent the market will believe "no losses" and for how long remains to be seen. Spreads to Germany are still enormous across the board. If this idea of "no losses" was believable, 2-year Spanish and Portuguese bonds should trade at the same yield as Germany. It is interesting that Portuguese debt did not rally today. With a no loss guarantee, Portuguese 2-year debt is the leveraged-bet bargain of a lifetime at 18%. The market clearly does not believe this "no loss" idea and neither do I. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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