Central Perk

vineri, 11 iulie 2014

joi, 10 iulie 2014

Mish's Global Economic Trend Analysis

UK Prime Minister David Cameron's #1 Priority: Maintenance of Government Spying
Amazon Charges Penny for Shipping Following France Ruling Shipping Cannot Be Free; "No Competition" Laws
Steen Jakobsen on "Zero Bound Bubbles" and the "Vital Flaw in Pimco's Bullishness"

UK Prime Minister David Cameron's #1 Priority: Maintenance of Government Spying

Posted: 10 Jul 2014 09:50 PM PDT

UK's prime minister, David Cameron, is so in love with state monitoring of internet and phone calls that he supports an emergency data law to underpin security surveillance

David Cameron is to push though emergency laws to allow police and security agencies to maintain access to phone and email data, amid warnings that vital security operations were about to be compromised without it.

Telecoms operators and the security services told the prime minister they were on the cusp of having to curb some of their most important electronic eavesdropping activities after a European Court of Justice ruling struck down the legal framework that allowed telecoms companies to retain data for a year, according to government and industry figures.

Operators were also threatening to delete details of UK customers' data for fear of being sued by them, unless the coalition set down a clearer legal framework around intercepting terrorist and criminal communications.

Mr Cameron said his main priority was to "keep people safe" as he and his deputy prime minister Nick Clegg announced the new legislation.

Snatching Defeat From the Jaws of Victory

For once, the European Court made a step in the right direction. Unfortunately, in a desperate attempt to snatch defeat from the jaws of victory, Cameron, a statist wearing a conservative mask, seeks to undo privacy rules.

I would loudly cheer Cameron being dumped on the ash heap of history in the next UK election except for one thing: The Labour party candidate who would likely replace him would be even worse.

What a totally disgusting state of affairs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Amazon Charges Penny for Shipping Following France Ruling Shipping Cannot Be Free; "No Competition" Laws

Posted: 10 Jul 2014 10:05 AM PDT

Under "unfair competition" laws France has decided it is far better for consumers to pay full price for goods than to receive a discount. Striking out at Amazon, France passed a law dubbed the "Anti-Amazon Law", that banned free shipping. Amazon's response was to charge a penny, but sadly it can no longer offer discounts on books.

The Wall Street Journal reports Amazon Shelves French Book Discounts.

Amazon.com Inc. ended all book discounts in France on Thursday, and began charging a token penny for shipping books, bowing to a new French law aimed at protecting local bookstores from what they had described as "unfair competition" from the U.S. online retailer.

The new law, which went into effect Thursday morning, essentially forbids online booksellers from applying government-regulated discounts to the cover prices of books. They can mark down shipping under the new law--often called the "Anti-Amazon" law--but they cannot offer it free.

The new law is the latest step by European governments--particularly France's--to rein in what they see as the growing power of a group of largely American tech companies. The French government said last month that it aims to propose new regulations at a European level to ensure a "level playing field" for European companies against U.S. firms.

Amazon has been under particular pressure lately. The European Union is looking into its tax arrangements in Luxembourg. In Germany, its unions have been striking over wages. The company is also in the midst of a bitter dispute with Hachette Book Group, part of France's Lagardère SCA FR:MMB -3.44% , over e-book pricing, in which its negotiating tactics have included removing preorder buttons on coming Hachette titles.

"Publishers and bookstores are organizing against the unacceptable commercial pressure exercised by Amazon," France's main bookstore association, which had lobbied for the new law, said in a statement. "We have repeatedly denounced the 'dumping' and unfair competition by online retailers, particularly Amazon."

Books and bookstores have long been a cause célèbre in Europe, where many countries including France and Germany regulate book prices. The underlying law modified on Thursday dates back to 1981, and forced vendors to sell books with a maximum discount of 5% off the cover price. The law aimed to protect France's still vibrant array of smaller bookstores against bigger chains, though they are now starting to hurt.

No One Looks Out For the Consumer

Who is watching out for the consumer? Answer: no one. When you reward inefficiency, ineptitude, and rudeness, the result is more inefficiency, more ineptitude, and more rudeness.

People who have to pay more for books, have less money to spend on something else. And if they feel books are not a bargain, they don't buy them.

France supposedly wants more tourist dollars. Good luck with that, when everything is overpriced and the government tells store owners what hours they can or cannot be open.

Petition of the Candle Makers

Ironically, French economist Frederic Bastiat lampooned protectionism back in 1845 when he penned 'Petition of the Candle Makers', mocking the sun's "unfair trade advantage" over candle-makers.

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us."

"No Competition" Laws

"Unfair competition" laws should be called what they really are: "No competition" laws, complete with higher prices, poor service, and higher unemployment.

What's next? Outlawing Kindle? Taxing eBooks as "unfair competition" against "real" books? What about taxing those who use free solar energy instead of candles?

With France, one never knows.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Steen Jakobsen on "Zero Bound Bubbles" and the "Vital Flaw in Pimco's Bullishness"

Posted: 09 Jul 2014 11:54 PM PDT

Steen Jakobsen, chief economist and CIO of Saxo Bank has some interesting observations on the illusion of low interest rates and the vital flaw in Pimco's bullishness at a market peak.

Please consider From Here to Eternity in the Age of Low Interest Rates.

Eternity is here. Eternity in low interest rates for longer. Eternity in excess return from stock markets, eternity in no growth, eternity in low productivity, eternity in chasing yields. The chasing yield game now joined by central banks like the Swiss National Bank and recently also big investors like Pimco, who at the top of the market no longer sees the stock market in a bubble!

The main common denominator is low interest rates – so where the market and Pimco mathematically correctly uses the low interest rates for longer as an input which produces a superior return, a few of us who were around in 1987,1992, 1998, 2000, and 2007/08 know that market tends to mean-revert. This concept that if we have a superior return over a longer period, it will need to be met by a negative performance to average "out" is dead now.

Stock Market Bubble

We have a generation of traders and investors who see any dip as a buying opportunity and policy makers who argues everything being equal, it's better to have a stock market bubble than disorderly markets and depression.

The illusion is almost perfect now – probably the best argued and most confidently performed illusion in my career.

Zero Bound Rates

We learn in economics that the marginal cost of capital is the true allocator of capital. Whoever can and will pay the highest marginal price of money gets it – in today's world.

However, EVERYONE and I mean everyone inside the 20 percent of the economy which is the listed companies and banks get whatever credit they want and need indiscriminately of their marginal cost and risk. The land of zero bound rates.

To make the example even more clear, this afternoon I could go to my bank manager with a proposal to put 100 or even 1,000s of hot dog stands on the main street in Fredensborg(where I live) – my expected return will be infinite as long as the interest rate is zero!!!!!

To make the mistake, in my opinion, of thinking that ANY analysis can really be done when we are at zero percent is the vital flaw of Pimco, SNB, policy makers and the stock market, so I am not saying the Dow at 100,000 is not possible, neither will I second guess Pimco's new found bullishness, I am merely applying history, maths, engineering and economics laws to the issue.

Having spent this week with major policy makers in Switzerland at an offsite I am not comforted. They all agree with… me!

They accept that their monetary policy exclusively goes to the 20 percent of the economy which is the listed companies. While they are concerned about how markets' valuation, they are more concerned about the lack of growth and their inability to reach their inflation targets.

My bigger point here is that this is not "different times", the system's low volatility will be replaced by higher volatility, the zero bound leads to bubbles by definition unless you of course believe in eternity and most importantly, mean-reversion and compounding remains the two most powerful tools in finance.

Strategy

• Germany is slowing down – will reach zero growth by Q1-2015. It will remain the "biggest surprise" in Europe
• Growth overall will disappoint again…..
• Euro growth will be sub: 1% - the US sub 2% (yes, despite nonfarm payrolls which I deem to be a useless indicator for US economy)
• The Fragile Five will start to weaken soon….ZAR and BRL remains my favorite shorts, and outside F5 I am short AUD. The long side right now is EUR, JPY
• Long German bunds, Danish government bond, and 10-Year US ….. I see new lows in yield by Q1-2015
• Equity: Like Nikkei, Israel, Russia, Korea relatively: Short DAX, SPX against it
• Corporate bonds in clear bubble. Long-term default rate now below yield.
• Stock market: Don't see a top yet, but remain with my higher conviction that the timing of a 30 percent sell off happens in H2 of 2014. Risk reward is skewed: 10 percent upside vs. 30 percent downside.

What's the Downside?

The mean-reversionists like Steen, John Hussman, myself, and a shrinking handful of others have been ridiculed to death recently.

Nonetheless, I stay convinced, and in general agreement with Steen on the major points above except the potential downside. Whatever upside is left, mean reversion says the downside will grow with it.

History suggests bear markets will destroy many bears, some by turning bullish at the top, others by turning bullish way too soon after a correction.

And given the oft-stated downside has been something like 30% for at least two years, I suggest the downside may be a lot deeper or last a lot longer than most bears think.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com