Central Perk

duminică, 13 februarie 2011

Mish's Global Economic Trend Analysis

Irish Bailout Falls Short; Irish Debt Rating Cut to Junk by Moody’s; Power of the "Trump Card"
German ex-Finance-Minister Bows Out of ECB President Race; Still More Goldman Sachs Tentacles
Former Sun CEO on Jobs: "We aren't doing manufacturing; we aren't doing design; we aren't doing computers. It's all moving to Asia"

Irish Bailout Falls Short; Irish Debt Rating Cut to Junk by Moody’s; Power of the "Trump Card"

Posted: 13 Feb 2011 04:09 PM PST

In the wake of the collapse of the Irish government, finance minister Brian Lenihan suspended capital injections for Allied Irish Bank, the Bank of Ireland, and EBS Building society until elections are held on February 25.

Fine Gael leader Enda Kenny said Anglo Irish Bank will not get another cent if his party is elected. However, the Chairman of Anglo Irish Bank said Anglo needs another €15bn.

In response, Irish Debt Rating Cut to Junk by Moody's

Moody's cut the ratings of Irish banks to junk status on Friday following Dublin's decision to defer previously agreed capital increases until after this month's general election.

This follows similar action by Standard & Poor's last week.

Moody's said recent announcements "call into question the government's willingness to provide additional support to the banks beyond that which has already been provided to date, and reflect the increasing risk of some type of burden-sharing with senior creditors."

Moody's acknowledged the "huge fiscal burden faced by Irish taxpayers" as a result of the banking sector bail-out. But as a result it said there was an "increasing risk that this burden could be shared not only by subordinated creditors but by senior creditors, most likely through distressed exchanges."

Fine Gael stretches lead in Irish election campaign

The Financial Times reports Fine Gael stretches lead in Irish election campaign

Ireland's opposition centre right Fine Gael party has stretched its lead ahead of the February 25 general election with an opinion poll giving it an outside chance of an overall majority.

A poll by Red C for the Sunday Business Post newspaper put Fine Gael on 38 per cent, up 3 points, ahead of Labour on 20 per cent, with the governing Fianna Fail party on 15 per cent.

The most likely outcome is Fine Gael will seek to form a government with Labour, its traditional coalition allies.

But analysts say as a party approaches 40 per cent of the first preference votes under Ireland's complex proportional representation system there is a chance of securing the 83 seats needed for an overall majority in the 166-seat Dail or lower house of parliament.

The latest poll confirms momentum is behind Fine Gael, a party traditionally supported by big farmers and urban professionals and business.

With Fianna Fail blamed for the humiliating bail-out by the European Union and the International Monetary Fund, and with all the opposition parties pledged to renegotiate the deal, the election campaign has switched to other issues.

The issue that has caught the public's attention is Fine Gael's pledge not to increase taxes just as this month households see their pay packets cut by the tax hikes announced in the December budget.

Michael Noonan, the party's finance spokesman, has attacked Labour as "the high tax party".

Even before the campaign opened, Labour dropped its plan for a 48 per cent top rate of tax, a policy adopted by Sinn Fein, which in the latest poll has seen its support slip from 13 per cent to 10 per cent.

Ireland Should tell IMF and ECB "Go to Hell"

It seems like voters are fed up with taxes everywhere. From this side of the Atlantic I certainly understand a low-tax, renegotiate-the-bailout approach.

I also approve the talk "Anglo Irish Bank will not get another cent". That is exactly the correct starting point.

Thus, Ireland should tell the IMF and EU and especially Jean-Claude Trichet at the ECB where to go, and bondholders can eat 100% of the loss. Whether or not Fine Gael can pull that off remains to be seen.

Irish parties pledge to re-negotiate EU-IMF bailout

The Montreal Gazette reports Irish parties pledge to re-negotiate EU-IMF bailout

As Ireland's election campaign heats up, the prospects of success in a battle to ease the terms of a massive EU-IMF bailout have become a key issue, even as Brussels insists it is non-negotiable.

To a humiliated nation, the opposition parties are holding out the hope that they can re-negotiate the terms of the 85 billion euro ($115 billion) bailout package if they gain power after the February 25 vote.

Candidates are meeting the full force of the hostility to the bailout terms and the question of why taxpayers have to pay for the mistakes of bankers as they canvas door-to-door.

An IMF review last week appeared to recognise there are difficulties, saying that while the public response to the bailout has remained favorable "a lingering domestic perception of inequitable burden sharing persists."

The republican Sinn Fein is offering the most radical solutions for the economy and the bailout, although it has little chance of being elected.

It wants no further drawdown of IMF/EU funding, the reversal of many budget cuts and the "burning" of bondholders who lent to reckless banks whose lending plunged Ireland into economic purgatory.

But Bloxham stockbrokers sounded a warning to politicians on Friday about their anti-European rhetoric.

"Throwing down ultimatums to Brussels and rubbishing 'Frankfurt's way' might win votes... but it could make life difficult for the next government and cement anti-EU sentiment as a potent political force in a country with a history of putting the brakes on EU ambitions," its analysts said in a note.

The stockbroker said that with the interest rate on the IMF's portion of the loan tied to a fixed formula, opposition parties are focusing their ire on the EU, which at Germany's insistence added a three-percent margin on the rate it is charging for 45 billion euros worth of loans.

"However, giving voters false hope about how much Ireland could save from a reduction in the EU bailout interest rate may come back to haunt both parties and hasten a new government's early demise," Bloxham said.

Preposterous IMF Statements

The statement by the IMF that "public response to the bailout has remained favorable" is one of the most preposterous lies I have ever seen.

What's with this nonsense by Bloxham Stockbrokers?

To be sure there is little to be gained by a reduction in interest rates. That's why Ireland should default if the ECB and IMF will not restructure.

Please note who is in control here. It certainly is not the IMF or ECB. All Ireland needs to do is tell Jean-Claude Trichet to "Go to Hell". That would set the appropriate tone for "negotiation".

If Bloxham thinks that will cost votes to any party, they are sadly mistaken.

Irish Bailout Falls Short

The New York Times reports Irish Bailout Hits Snags

Bank Losses Could Outstrip Rescue Funds; Political Threats

On Wednesday, Ireland's departing finance minister postponed an injection of cash into the banks that was planned for the end of February, saying a new government should make the decision. Top opposition officials are far less keen to bolster banks.

While the next government appears eager to get a better bailout deal, talks with its primary funder, the European Union, will be delicate. Other EU countries, particularly France, are keen to extract a pound of flesh by eroding Ireland's low corporate-tax rate. The major Irish parties are united in their zeal to preserve it.

A spokesman for the European Commission, the EU's executive arm, maintained that the deal wasn't up for negotiation. It was "decided with the state of Ireland," Amadeu Altafaj said Friday. "It's not, let's say, a program that has been agreed with a particular government and is subject to changes because of that."

Ireland's main leverage in the talks will be threatening to impose losses on holders of Irish banks' debt. At the insistence of the European Central Bank, which fears such "haircuts" would spook investors and worsen the euro zone's crisis, Ireland's government refrained from such a move last year.

But Fine Gael hopes to use the threat of a "haircut" to extract concessions from the EU and International Monetary Fund.

"The only card we have to play is the bondholders," a senior Fine Gael official said Friday. "If we can't get a better deal … we're going to be left with no options but to restructure the debt of the banks to protect the sovereign."

Anglo Irish Bank's chairman, Alan Dukes, fanned the flames. Speaking that evening at a conference, Mr. Dukes predicted that Ireland's banks need "somewhere in the region of €50 billion of new capital" to absorb their losses. Officials from Ireland's two main political parties said Mr. Dukes was overestimating the carnage.

Moreover, the plan provides just half of the €133.9 billion Ireland would need through 2013 to recapitalize banks, pay its bills and pay back its borrowings, including short-term debt, according to estimates released this past week by the European Commission.

Power of the Trump Card

When you have a trump card, you do not threaten to play it, you simply play it.

Ireland need not pay a "pound of flesh" as the Times suggests. There is no need for Ireland to bargain away its corporate tax structure. After all, if France does not like Ireland's advantage, France is free to change its corporate tax structure.

Agreeing to reduced interest rates in exchange for corporate tax changes would be a horrible deal for Ireland. Its tax rate advantage is its only way to grow out of this hole.

Magic Words

When you have a trump card, the magic word is not "Please". The magic words are "Go to Hell". Unfortunately most politicians are far too polite to say those words. Yet, Jean-Claude Trichet and the IMF need to be put in their place, and those three words will do it nicely.

After that, negotiations would go much more smoothly, with the ECB, the IMF, and Ireland negotiating an appropriate haircut. The alternative for the ECB is a 100% haircut - a simple default.

That is the power of a trump card, and Ireland has it, not the ECB, and not the IMF.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

German ex-Finance-Minister Bows Out of ECB President Race; Still More Goldman Sachs Tentacles

Posted: 13 Feb 2011 11:15 AM PST

Another German contender for ECB President has bowed out of the race. First it was Axel Weber, long thought to be the frontrunner. Now German ex-minister Steinbrueck rules out taking ECB job.

Ex-finance minister Peer Steinbrueck said he was not interested in the role as he shared the same views as outgoing Bundesbank President Axel Weber.

Both men oppose the ECB policy of buying government bonds from countries with high debt levels. Mr Steinbrueck said he would have had a "minority" view at the Bank.

"I am not available for this job," he told Sueddeutsche Zeitung.

The ECB has been buying risky government bonds if international investors have either shied away from buying government debt, or demanded too high a rate for it.

The bank bought Portuguese government bonds last week after yields rose to record highs in early trading, sparking renewed fears about Portugal's ability to raise money on the international markets.

Yields fell quickly after the ECB's intervention.

We don't want no transfer union

Please consider The Economist article We don't want no transfer union

German behaviour is guided by more than petty politics. In adopting the euro the Germans thought they were joining a condominium, in which every member would keep order on their own property, and not a messy commune. Now the crisis threatens that understanding. The Greek bail-out and the €750 billion ($980 billion) war chest created in May to defend the euro look to many Germans like a violation of the "no-bail-out clause" in the Maastricht treaty that created the euro. The government insists it is not, because the aid is voluntary and temporary. The constitutional court is evaluating this claim. The proposed successor, a permanent facility plus procedures to impose losses on creditors of insolvent countries, needs a treaty revision to pass constitutional muster.

Clearly Weber and Steinbrueck have sent a strong message they expect the Maastricht Treaty to be honored. Current ECB President Jean-Claude Trichet trashed the treaty with support of the rest of the board.

With Weber and Steinbrueck bowing out of the race, Mario Draghi Ex-Goldman Sachs Managing Director is Leading Candidate to Replace Trichet as ECB President.

Goldman Sachs Tentacles Everywhere

Inquiring minds are investigating the career details of Mark Carney governor of the Bank of Canada.

Before joining the Canadian public service, Carney spent thirteen years with Goldman Sachs in its London, Tokyo, New York and Toronto offices. His progressively more senior positions included co-head of sovereign risk; executive director, emerging debt capital markets; and managing director, investment banking.

Please consider the Canadian Association of Income Trust Investors article Mark Carney exempted Goldman Sachs from Flaherty's income trust tax

Flaherty's income trust was structured by Mark Carney in such a way that only the little investor was taxed and the big guys were given a free ride. Not only were the big guys given a free ride, this tax was imposed in such a way that the big guys were able to prey upon the small investor and expropriate wealth from the small investor in the amount of some $35 billion.

What would you expect from the architect of Flaherty's income trust tax, Mark Carney, who spent his entire career at Goldman Sachs and wouldn't have dealt with a single Canadian retail investor in his entire career and evidently doesn't give a hoot about them and probably perceives them as ripe for the picking.

I cannot discuss the merits of that Canadian case because I do not know them. However, it is clear that Goldman Sachs has tentacles slowly infiltrating every nook and cranny, including various Central Banks and the SEC.

SEC Names ex-Goldman Sachs Employee to Oversee Asset Managers and Hedged Funds

While on the subject of ex-Goldman Sachs employees turning up in high-power jobs, please consider SEC Taps Goldman Sachs Executive as Division Head

The Securities and Exchange Commission has named Goldman Sachs Asset Management Chief Investment Officer Eileen Rominger to head its division overseeing asset managers and hedge funds.

Rominger will come to the SEC after nearly 30 years in the investment management business, according to an SEC press release Tuesday.

She managed equity funds at Oppenheimer Capital and at Goldman before becoming Goldman's chief investment officer for its global portfolio management teams.

As I said a couple days ago, all we need now to complete the picture is for an ex-Goldman employee to run for president of the United States and for another ex-Goldman employee to replace Bernanke at the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Former Sun CEO on Jobs: "We aren't doing manufacturing; we aren't doing design; we aren't doing computers. It's all moving to Asia"

Posted: 13 Feb 2011 12:54 AM PST

Scott McNealy, ex-CEO of Sun Microsystems, is concerned about job prospects in Silicon Valley. However, what he has to say applies to jobs in general, not just high technology, and not just in California.

Please consider Former Sun CEO Worries About Region's Prospects

Even as Silicon Valley's unemployment rate eases and many local technology companies post positive financial results, Scott McNealy is pessimistic.

Santa Clara County's jobless rate fell to 10.4% in December from 11.3% a year earlier. But Mr. McNealy, the co-founder and former chief executive of computer maker Sun Microsystems Inc., doesn't think Silicon Valley's emerging sectors such as social networking and "green" technology are going to make up for jobs lost as sectors such as software and computers consolidate.

WSJ: When did you see Silicon Valley begin to recover from the recession, and how far along has it come?

Mr. McNealy: It's not a terribly job-filled recovery. Productivity gains continue to push the need to hire out.

I see a migration from the early days of the Valley. We aren't doing manufacturing; we aren't doing design; we aren't doing computers. It's all moving to Asia and other places where there are lots of technical engineers who are willing to work at a more reasonable salary because they don't have to spend $3.5 million on a home and pay half of it to taxes.

I think every new transition has created less job opportunity as technology has become very leveraged. I don't think our education system, our regulations, our government policies have kept pace with the changes that technology is driving.

Maybe I'm sounding like an old guy, but [Silicon Valley] ain't what it used to be. I, for one, don't think this is the best place in the world to start a company.

WSJ: What needs to change in Silicon Valley to foster job creation?

Mr. McNealy: It's not the Valley. It's the overhead and the overhang, the clouds brought in by Sacramento and Washington, D.C., the regulations, the deficit and the misallocation of resources. It's all of those things. Obviously, I'm a believer in the private sector and in personal responsibility.

The biggest issues with the Valley are local, state and federal governmental overreach and overregulation. It's over-pensioned, over-unionized and over the top.

WSJ: Are there any unconventional indicators that you watch to judge the health of the local economy?

Mr. McNealy: It's not very scientific, but my boys all play a pretty expensive, but middle-class sport: ice hockey. I see very clearly that there are a lot more financial strains on the families of the hockey teams here in the Bay Area. Families vote not to go to the tournament in Colorado Springs or their kids vote not to do the highest level of hockey because it's too expensive. Or they drop out of hockey altogether. It's significantly worse than it was a couple years ago.

The journal pointed out social networking and green jobs. However, McNealy dismissed both, and rightfully so. Social networking may make a few venture capitalists rich but it certainly will not be a big source of jobs. McNealy didn't say it, but even most "green jobs" have moved to Asia.

Besides, if it takes government subsidies (and most green jobs do), it isn't worth doing. It's time for smaller government, not more of it.

It was interesting to see McNealy say "the biggest issues with the Valley are local, state and federal governmental overreach and overregulation. It's over-pensioned, over-unionized and over the top."

That is undoubtedly true but it was somewhat surprising to see given that Silicon Valley itself is not heavily unionized. The union effects, however, are both far-reaching and very damaging. I am happy to see McNealy point that out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : Familiarity breeds respect

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Familiarity breeds respect

It's nice to sign a letter, "sincerely yours," but far more powerful, I think, to sign it, "with respect." It says something compelling about the recipient, something earned.

I realized the other day that I'd been working with the trio of Megan, Corey and Gil at Squidoo for five years, since we founded the company. And that I've been with Anne, my trusted bookkeeper, for more than ten years, David at GTN for almost as long, and Lisa, my agent, for more than seventeen. In an amazing bit of time travel, I've been doing projects with my friend Red for more than thirty.

Over time, you don't just come to trust valued colleagues like these, they also earn respect. Once you understand someone's sensibilities and goals, it's natural to see the world through their eyes and to embrace their motives and tactics. Once you've seen their work under pressure and in quieter moments, you get a sense for what they believe in. In a world of quick projects and short engagements, this sort of relationship is priceless.

It's easier than ever to start relationships that can turn into ones like these. Just as hard as its ever been to make them last.

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sâmbătă, 12 februarie 2011

Mish's Global Economic Trend Analysis

Ex-Goldman Sachs Managing Director is Leading Candidate to Replace Trichet as ECB President
Is this more like 2007 or 1998?
Gas Pump Prices Hit Highest Level Ever for Mid-February; Gas Price Seasonality, Where to from Here?

Ex-Goldman Sachs Managing Director is Leading Candidate to Replace Trichet as ECB President

Posted: 12 Feb 2011 01:54 PM PST

ECB President Jean-Claude Trichet's term expires in October. Alex Weber president of Bundesbank (Germany's Central Bank), an inflation hawk was widely recognized to be the leading candidate to replace Trichet.

However, that idea came to a crashing end last week when Alex Weber resigned from Bundesbank.

Supposedly Trichet's replacement is a wide-open race. However, Mario Draghi, an Ex-Goldman Sachs Managing Director has the clear inside track.

Please consider Axel Weber Resigns Bundesbank, Throws ECB Race Open

Bundesbank President Axel Weber resigned, ending three days of confusion and opening the field for candidates from Finland to Italy to become the next chief of the European Central Bank.

Weber, 53, "expressed the wish to resign" and will leave office on April 30 with a successor to be named during the next week, Steffen Seibert, a German government spokesman, said today after Weber met in Berlin with Chancellor Angela Merkel. Weber is leaving for "personal reasons" after deciding to step down a year early on Feb. 8 and then being asked by Merkel to postpone the announcement, the Bundesbank said.

Attention shifts from Weber to the qualities of other candidates who, according to 1991's Maastricht Treaty, must be from the euro area and boast "recognized standing and professional experience in monetary or banking matters." Likely meeting that criteria are central bankers Mario Draghi from Italy, Luxembourg's Yves Mersch and Erkki Liikanen of Finland. German Klaus Regling, head of Europe's bailout fund, may also do so even if he lacks monetary policy experience.

This week's decline in the euro against the dollar suggests the "FX market is not pleased" by the loss of Weber given his status as an inflation fighter, said Lutz Karpowitz, a currency strategist at Commerzbank AG in Frankfurt. The ECB's credibility may nevertheless be safe given "the assessment of a central bank should not depend on one person alone," he said.

Philosophical Reasons For Weber Leaving

Weber is not leaving for "personal personal" per se. He is leaving because of huge feuds with current President Jean-Claude Trichet, and the likelihood he would be in disagreement with the the rest of the ECB as well.

For example, please consider ECB's Trichet Rejects Weber's Call to End Bond Purchase Program

European Central Bank President Jean-Claude Trichet rejected Bundesbank President Axel Weber's call to end the bond purchase program that has provided a lifeline for European governments and banks trying to shore up their finances.

"This is not the position of the Governing Council, with an overwhelming majority," Trichet said when asked to respond to Weber's Oct. 13 call for an end to the program, according to the a transcript of an interview published yesterday in Italian newspaper La Stampa.

Weber, who also sits on the ECB's 22-member decision-making council, said the risk of "exiting too late" from the emergency measures was greater than pulling out too soon. The remarks, the strongest from any ECB official advocating a removal of stimulus, came as governments and banks in Ireland, Portugal and Greece struggle to convince investors they can control their finances in the aftermath of this year's sovereign debt crisis.

"Trichet is sending a clear signal to Weber," said Carsten Brzeski, an economist at ING Group NV in Brussels. "The majority seems to favor a safety belt option for the moment and isn't comfortable with sending conflicting signals to the markets."

"There is only one single currency; there is one Governing Council, only one monetary policy decision, and one president, who is also the porte-parole of the Governing Council," Trichet told La Stampa.

Weber was never in favor of the ECB's bond program to begin with, and that caused a feud at the outset.

Weber felt the ECB was not only violating the Maastricht Treaty, but making unsound decisions on monetary policy as well. Given Weber was in a distinct minority on many decisions he decided to say to hell with it.

Mario Draghi is now recognized as the leading candidate to replace Jean-Claude Trichet.

Mario Draghi's Background

Inquiring minds are interested in Mario Dragh's Background

Mario Draghi is a member of the Governing and General Councils of the European Central Bank and a member of the Board of Directors of the Bank for International Settlements. He is also governor for Italy on the Boards of Governors of the International Bank for Reconstruction and Development and the Asian Development Bank. In April 2006 he was elected Chairman of the Financial Stability Forum, which became Financial Stability Board in spring 2009.

He graduated from the University of Rome, received his Ph.D. in economics from the Massachusetts Institute of Technology, and subsequently served as professor of economics at the University of Florence from 1981 to 1991.

Prior to taking the helm of the Bank of Italy, he was vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee (2002-2005). He was director general of the Italian Treasury (1991-2001), chairman of the European Economic and Financial Committee, a member of the G7 Deputies, and chairman of OECD Working Party 3. He was appointed chairman of the Italian Committee for Privatisations in 1993, and, from 1984 to 1990, was an executive director of the World Bank.

Mario Draghi's Role In Greek Debt Swaps Under Review

Please consider Mario Draghi and Goldman Sachs, Again

March 17, 2010

The latest revelations regarding the Goldman-Greece relationship (on the Senate floor, no less) clearly indicate that Goldman was a lead manager of Greek debt issues in spring 2002, i.e., when Mr. Draghi was on board.

This raises three entirely reasonable and straightforward questions.

Was Mr. Draghi involved in the Goldman-Greece relationship? Sources indicate that this was very much part of his set of responsibilities, but this may be disputed.
If Mr. Draghi was involved in marketing Greek debt, did he at that time know the true Greek debt numbers - i.e., was he aware of the "debt swap" arrangement? Perhaps his Goldman colleagues concealed that information from him.
And when/if Mr. Draghi became aware of the inherent misrepresentation involved this transaction, did he take steps to fully informed investors (and any relevant regulatory bodies)? Again, it is entirely possible he learned of this matter only recently and from the newspapers.

SEC Names ex-Goldman Sachs Employee to Oversee Asset Managers and Hedged Funds

While on the subject of ex-Goldman Sachs employees turning up in high-power jobs, please consider SEC Taps Goldman Sachs Executive as Division Head

The Securities and Exchange Commission has named Goldman Sachs Asset Management Chief Investment Officer Eileen Rominger to head its division overseeing asset managers and hedge funds.

Rominger will come to the SEC after nearly 30 years in the investment management business, according to an SEC press release Tuesday.

She managed equity funds at Oppenheimer Capital and at Goldman before becoming Goldman's chief investment officer for its global portfolio management teams.

All we need now to complete the picture is for an ex-Goldman employee to run for president of the United States and for another ex-Goldman employee to replace Bernanke at the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Is this more like 2007 or 1998?

Posted: 12 Feb 2011 09:21 AM PST

In Thursday's Breakfast with Dave, Dave Rosenberg asks the question Is this the time to be going long?

My question is a bit different, but this is what Rosenberg had to say.

Sorry, but that time has passed. But we will probably get another kick at the can because we are sure that the "event risk", which caused so much turbulence and buying opportunities in 2010 will come around again in 2011. But this is one overextended U.S. stock market, that is for sure.

We have a dividend yield on the S&P 500 of 1.8% with a 10-year bond yield at 3.7%. Somehow that is just slightly less appealing than the 3.6% dividend yield and 2.8% bond yield we had at the March 2009 market lows. The dividend yield, by the way, is where it was at the market peak in October 2007. Food for thought.

The cyclically-adjusted P/E ratio on the S&P 500 is now 23.3x, where it was back in May 2008. At the lows, it was trading at 13.3x. So if we are talking about the best entry point from a value perspective, it was then, not now.

Amazingly, the Investors Intelligence survey now shows 53.4% bulls and 23.3% bears. At the March 2009 lows, these numbers were basically reversed.

Equity portfolio manager cash ratios today are at 3.5%; at the March 2009 lows they were closer to 6%. As an aside, the last time the liquidity ratio was as low as it is today was in September 2007.

Back at the March 2009 lows, economic indicators like the ISM was at 36 and all we could do from there was to look up. Today it is at 61 and … well, you know which way it's going from here.

When Will Global Imbalances Matter?

Everyone is partying, upping forecasts, jumping on the bandwagon, etc. Bernanke is openly bragging about his successes.

Rosenberg asked and answered his question, but I have a slightly different one: Is this more like 2007 or more like 1998 with 2 more years of partying before another crash?

No one knows for sure. Heck, most are not even aware of the question, oblivious to how overvalued this market is.

If you are in the that group, please see Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think.

As in 2007, everyone thinks they can or will get out in time. Mathematically it's impossible. Moreover, dip buying is now so firmly entrenched (again), that few will recognize the turn when it happens.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Gas Pump Prices Hit Highest Level Ever for Mid-February; Gas Price Seasonality, Where to from Here?

Posted: 12 Feb 2011 12:24 AM PST

Yahoo!Finance reports Gas pump prices highest ever for this time of year

U.S. gasoline prices have jumped to the highest levels ever for the middle of February. The national average hit $3.127 per gallon on Friday, about 50 cents above a year ago.

The price is about 6 percent higher than on this date in 2008. The next day, pump prices began a string of 32 gains over 34 days. They rose 39 percent over five months, eventually hitting an all-time high of $4.11 per gallon in July.

Although gas prices are expected to rise, most experts aren't expecting a reprise of 2008, when the price spike forced many drivers to join car pools and trade in gas-guzzling SUVs for fuel-efficient cars.

"It would be a mistake to think we're going to have that all over again," said OPIS chief oil analyst Tom Kloza.

He says oil demand will slide in the U.S. by May, as refineries slow fuel production while they switch to summer blends of gas. World oil consumption also may not rise as much as expected.

And Kloza contends that oil traders are more cautious now, after getting burned when oil plunged to $33 per barrel in early 2009, just six months after hitting $147 per barrel. Even the most bullish traders no longer think they can chase commodity prices higher without risk, he says.

Still, Kloza expects gas to reach $3.50 to $3.75 per gallon this spring because of the usual run-up in prices ahead of the summer driving season. That would mean an increase of 12 to 20 percent from the current level.

Crude Futures - Monthly Chart

click on chart for sharper image

Crude futures for now have stalled right at 50% retrace level of the 2008 plunge in spite of the recent turbulence in Egypt.

Unleaded Gasoline Futures - Monthly Chart

click on chart for sharper image

Unleaded gasoline futures and gas pump prices follow the price of crude as one might expect.

Note the seasonal nature of the moves. Gasoline prices (and crude futures) tend to rise from January until June or July in most years.

In 2007, there was a ramp from the beginning of the year that ended in April, followed by a pullback until July. From then it was straight up for a full year.

2009 was back to the familiar pattern of continued strength from the beginning of the year until July. 2010 had a July low instead of a high, similar to 2007.

Crude Futures - Daily Chart

click on chart for sharper image

Prices at the pump may be up, but crude prices are down since the start of the year as noted by the dashed line. Prices at the pump will head lower eventually if crude prices keep sliding.

Inability for crude prices to continue higher with events in Egypt and the Mideast might be meaningful. Moreover, interest rate hikes in China could start weighing on commodity prices in general, especially if those hikes come at a pace faster than expected.

There are a lot of variables in play, including seasonality, rate hikes in China, the extremely overbought reflation trade, Quantitative Easing, and price action weakness (except for a 2-day pop now taken back) in the face of events in Egypt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : Evil plans, Enchantment and Orange County, California

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Evil plans, Enchantment and Orange County, California

Worth considering, three to pre-order:

Hugh MacLeod's new book is out this week. Once again, it will shatter your status quo. Possibly beyond repair.

Guy Kawaski's beautifully titled book Enchantment, which comes out in March, will help you think differently about persuasion.

And I'll be the guest of Linked Orange County on March 2 for a speech in the evening. Get early bird (half price) pricing for a few more days.

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"It's Time Washington Acted as Responsibly as Our Families Do"

Your Daily Snapshot for
Saturday, Feb. 12, 2011

"It's Time Washington Acted as Responsibly as Our Families Do"

The President previews his budget, explaining that it will help the government live within its means, while still investing to make sure America wins the future.

Watch the video.

Weekly Wrap Up

Quote: "America has always used the building of our infrastructure networks to take our economy forward and to build out American industry. The Wireless Initiative is going to bring that to the 21st Century. It's going to take it to the next level, because that's the American way."--Austan Goolsbee, chairman of the Council of Economic Advisers, explaining the National Wireless Initiative on the White Board.

Open for Suggestions: The Consumer Financial Protection Bureau wants to hear from you. Check out the new ConsumerFinance.gov, share your suggestions for the bureau and watch video responses.

Out-Building: This week, the President puts forward plans to build up the nation's infrastructure, investing in things like high speed rail, and expanding broadband access so all of America's families will be equipped to win the future:

He traveled to Marquette, Michigan to unveil his National Wireless Initiative, which aims to bring high-speed wireless internet access to 98% of American families.
Vice President Biden and Transportation Secretary Ray LaHood took the Amtrak Acela train from D.C. to Philadelphia to announce a six-year plan to invest in high-speed rail.
Secretary of the Interior Ken Salazar, along with Secretary of Energy Steven Chu, outlined plans to develop wind energy off the coast of Virginia.
Treasury Secretary Tim Geithner explained the immediate and long-term benefits of infrastructure investment, creating jobs today building the foundation for the economy of tomorrow.

"Time to Invest in America": President Obama visits the Chamber of Commerce to talk about how investing in America's workers will keep our economy growing.

West Wing Week Video: "The New Electrification"

Let's Move! Turns One: The First Lady's Let's Move! initiative celebrates its first anniversary with events across the country.

Egypt: "There are very few moments in our lives where we have the privilege to witness history taking place. This is one of those moments. This is one of those times. The people of Egypt have spoken, their voices have been heard, and Egypt will never be the same." Watch the President's remarks.

Blowing in the Wind... Offshore: A new strategy that will guide a national effort to accelerate development of coastal wind projects while driving down costs, helping us meet President Obama’s goal of powering the nation with 80% clean electricity by 2035.

Celebrating Black History Month: February is Black History Month, and WhiteHouse.gov is featuring African Americans from across the Administration whose work is contributing to the President's goals for winning the future. Senior Advisor to the President Valerie Jarrett also shared a special message on National Black HIV/AIDS Awareness Day.

Voices of Health Reform: Nan Warshaw is a small business owner in Chicago, Illinois, who is benefiting from the small business tax credits in the Affordable Care Act. Read more about her story.

Protecting Intellectual Property: President Obama signs an Executive Order establishing two intellectual property enforcement advisory committees tasked with improving the Federal Government’s intellectual property enforcement efforts.

New Trade Initiatives: Ron Kirk, the U.S. Trade Representative, announces new progress on trade initiatives during testimony before Congress.

Making Home Affordable: Jacqueline of Hialeah, Florida shares her story of home-ownership thanks to the Making Home Affordable Program through the Department of the Treasury.

Working Together in Detroit: Secretary of Labor Hilda Solis publishes an op-ed in the Detroit Free-Press on the importance of American auto companies to work with labor to keep the auto industry growing.

IssueMap at FCC.gov: The Federal Communications Commission launches IssueMap, the first product that lets users visualize the relationship between data in America and the communities the data come from.

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Seth's Blog : The danger of repeating signals

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The danger of repeating signals

Kevin shares this great quote from the Count of Monte Cristo:

"I have been told," said the count, "that you do not always yourselves understand the signals you repeat."

"That is true, sir, and that is what I like best," said the man, smiling.

"Why do you like that best?"

"Because then I have no responsibility. I am a machine then, and nothing else, and so long as I work, nothing more is required of me."

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