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Mish's Global Economic Trend Analysis

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• No Hiding Places
• EU Twists the Screws on Spain With Inane Requests
• China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%
• China Manufacturing PMI Hits Nine-Month Low as Output and New Orders Decline

No Hiding Places Posted: 20 Jun 2013 10:45 AM PDT I have been wondering for well over a year when the day would come that there are no hiding places. Today is one such day: US equities down, Asia equities down, European equities down, Treasuries down, European bonds down, foreign currencies down, commodities down. The one and only hiding place today is the one asset everyone loves to hate: the US dollar. Asia/Pacific Equities European Equities US Equities The top three lines in the above chart are S&P 500 futures, Nasdaq 100 futures, the DOW index. Currencies Looks like the Swiss Franc was a small winner today too. Metals Meat Energy Financials Grains It was a struggle but I found two more winners: Red wheat and Spring wheat. When Liquidity Dries Up If you were invested in nearly anything on the long-side today except US dollars, you lost money. This is what happens when liquidity dries up after a prolonged period with every market running on speculation, fumes, QE, pretense from the Fed, and a bubble belief that the Fed (central banks in general) can levitate markets forever. Two Key Questions Will the Fed back off its statements if the market dives? Will it matter even if the Fed does? I do not know timing, but at some point the market is not going to react kindly when the Fed goes back to the QE well one time too many. What I do know is fundamentals will eventually trump liquidity, and this could be the start of it.  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.

EU Twists the Screws on Spain With Inane Requests Posted: 20 Jun 2013 09:33 AM PDT The economic madness in the EU continues unabated. In return for granting Spain an extension on meeting 3% deficit threshold of the stability act, Vice President of the Commission responsible for Economic Affairs, Olli Rehn, said Wednesday it is "crucial" that Spain and other countries that will benefit from an extension to correct its excessive deficit in return accelerate reforms to improve competitiveness. Specifically Rehn Requests Pension reform Labor reform review Increase in the VAT on certain products and fuels Elimination of income tax deductions on individuals and corporations The above via google translate from La Vanguardia. I can certainly agree with point number one. But what's with a "review" on labor reform rather than action? Points three and four are inane. Demanding tax hikes in the middle of a depression is economic suicide. Yet, Rehn wants a hike in the VAT and tax hikes on individuals and corporations. Spain (the world in general) needs lower taxes and less government, not the opposite.  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.

China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25% Posted: 19 Jun 2013 11:41 PM PDT The clampdown on China's shadow banking continues today, with Money Rates at Record Highs as PBOC Lets Cash Crunch Build China's benchmark money-market rates climbed to records as the central bank refrained from using reverse-repurchase agreements to address a cash crunch in the world's second-biggest economy. The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 percent in Shanghai, according to a daily fixing announced by the National Interbank Funding Center. That was the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gauge of the one-day rate touched a record 25 percent. Deposit Auction Banks paid 6.5 percent for 40 billion yuan of six-month deposits from the Finance Ministry at an auction today, the highest rate since March 2012 and up from 4.8 percent at the previous sale on May 23. The yield on one-year government bonds surged 56 basis points to 4 percent, according to the National Interbank Funding Center. That's the highest level on record for a benchmark note of that maturity. The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose 46 basis points to 4.95 percent as of 1:07 p.m. in Shanghai, according to data compiled by Bloomberg. It jumped a record 51 basis points yesterday and touched an all-time high of 4.99 percent today. Shadow Banking Clampdown Charlene Chu, head of Fitch's China financial institutions estimated China's total credit, including off-balance-sheet loans, swelled to 198 percent of GDP in 2012 from 125 percent four years earlier. That percentage exceeded ratios preceding banking crises in Japan and South Korea. It appears as if China is finally serious about its shadow banking problem (and that's a good thing ) yet it's far too late to prevent an economic implosion. For more on the huge impending slowdown in China please see Pettis on China, Europe, Japan: Bad News for Those Looking for Growth Epic Glut of Graduates Depresses Wages; Fake Job Offers Taint Hiring Statistics Cash Squeeze in China, Interest Rate Swaps Rise Most in 22 Months; China's Credit Bubble About to Pop; Shadow Banking Crackdown 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.

China Manufacturing PMI Hits Nine-Month Low as Output and New Orders Decline Posted: 19 Jun 2013 11:27 PM PDT The HSBC Flash China Manufacturing PMI™ is in contraction, at a nine-month low, with output and new orders in decline. Key points Flash China Manufacturing PMI™ at 48.3 (49.2 in May). Nine-month low. Flash China Manufacturing Output Index at 48.8 (50.7 in May). Eight-month low. China Flash Manufacturing PMI™ Summary Production/Exports/PMI Those bullish on China growth prospects need to reconsider. 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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