Mish's Global Economic Trend Analysis

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• Get the H* Out OR Shut the F* Up
• Wading Through Molasses: "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?"
• Eurozone Retail PMI Sinks Again

Get the H* Out OR Shut the F* Up Posted: 08 Jan 2015 04:52 PM PST If you live in Saudi Arabia, Iran, Iraq or any nutcase country with no freedom of speech (many of which the US supports), you need to do one of two things ... Get the H* Out Shut the F* Up If you don't the consequences are likely to be severe. For example, please consider the plight of Saudi Arabian blogger Raif Badawi. He was sentenced to 10 years in prison and 1,000 lashes. His crime was "insulting Islam" in his "Free Saudi Liberals" website. The Guardian explains in Saudi blogger to be publicly flogged on charges he insulted Islam. A Saudi blogger who was sentenced last May to 10 years in prison and 1,000 lashes will be publicly flogged for the first time after Friday prayers outside a mosque in the Red Sea coastal city of Jeddah, according to a person close to his case. Raif Badawi was sentenced on charges related to accusations that he insulted Islam on a liberal online forum he had created. He was also ordered by the Jeddah criminal court to pay a fine of 1m Saudi riyals, or about $266,000. Amnesty International has said that Badawi is to receive 50 lashes once a week for 20 weeks. Third Moral In an even more preposterous ruling, his lawyer was sentenced to 15 years imprisonment and barred from traveling for another 15 years after being found guilty by an anti-terrorism court of "undermining the regime and officials", "inciting public opinion" and "insulting the judiciary". So not only had you better shut up or get out, the third moral to this story is "you better not defend someone who doesn't shut up." Following his arrest, his wife and children left the kingdom for Canada, most likely so they can say what they want about this travesty of justice. Fourth Moral For appealing the ruling, Badawi will be in prison ten years, up from the original seven. Thus, the fourth moral to this story is "If you elect to stay but don't shut your mouth, don't appeal absurd decisions or the result will be even worse." Where's Obama? Inquiring minds may be asking "Where is President Obama on this?" The answer is "The same place George Bush would have been: Silent." As a musical tribute to this entire ridiculous affair, I offer ... Link if video does not play "Silence is Golden". 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.

Wading Through Molasses: "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?" Posted: 08 Jan 2015 12:30 PM PST I received an interesting question from reader Michael yesterday. Michael asked "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?" Reader Michael did not think so. Take a moment before reading further to think about how I might answer and how John Williams at Shadowstats might answer. My Response If the average standard of living has gone up, then we have had growth. Better cars, more cell phones, bigger houses, better stuff in general, says we have had growth. In spite of inane inflationary policies of the Fed and corruption in politics everywhere, rising productivity over time was the enabler of growth. However, some of that growth has been at the expense of debt (and future expansion). We have borrowed growth from the future. Those expecting a return to high growth are mistaken. Wading Through Molasses I asked Pater Tenebrarum at the Acting Man blog if he agreed with my response. He chimed in as follows: Yes, I would agree with that, absolutely.  However, monetary inflation has so distorted prices and made the growth look far bigger than it really was. Essentially the problem is that the market economy must constantly battle against the destructive policies of governments and central banks. It is like wading through molasses. If you look at the actual improvements in the standards of living in more detail, most of it has to do with the computer industry in the widest sense. Even improvements in health care can be put down to increased computerization. Hi tech remains the one area that develops so quickly, the political class is too slow to regulate it to death, and the central banks cannot keep it from providing better things at lower prices, because its productivity growth is so fast it more than balances out the negative effects of money printing and credit expansion. In virtually every other aspect, there are at most a few improvements due to the expansion in international trade, but little else. Spotlight on Trade To Pater's comment I would add that protectionists in Congress, countless Keynesian economists, and unions everywhere seek to label China a currency manipulator, then add tariffs. Doing so would instantly kill any growth due to trade expansion.  Also recall that Republican nominee Mitt Romney ran on that destructive platform. Krugman "Was" Right In 1997 Krugman wrote a brilliant article "In Praise of Cheap Labor", stating "Bad jobs at bad wages are better than no jobs at all". I wrote about Krugman's position in Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All? Please check it out. Krugman "was" right. However, the definition of "was" requires one to go back to 1997. Somewhere along the line Krugman acquired the "conscience of a liberal" and he has been wrong ever since. Theater of the Absurd GDP Proposal Let's also take a look at GDP as measured using Shadowstats CPI as the deflator. Please consider GDP, Real GDP, and Shadowstats "Theater of the Absurd" GDP. Shadowstats GDP click on chart for sharper image Doug Short Writes ... I find this "alternate Real" GDP to be interesting (in a bizarre sort of way), but I personally see no credibility in the hyper-negative GDP it produces. On the contrary, I see this chart as further evidence that the alternate CPI, despite its popular among many critics of government data, is a misguided concept. Alternate Nonsense Bizarre is a polite way of putting things. I would call it total nonsense. For Williams to be correct one would have to believe the economy was in a recession the vast majority of the time for the last 25 years. Williams has a huge following, mainly by the hyperinflationist crowd. Williams himself has been predicting hyperinflation for some time. December 12, 2010: Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal   May 25, 2011: Hyperinflation Nonsense in Multiple Places All of the hyperinflation calls have been missed by a mile. I wrote that back on May 31, 2012 so the chart is dated. But it would not look much different now, adding only another two years of recession. Further Debunking Shadowstats CPI On March 25 2013, Doug Short wrote Regression to Trend: Debunking the Alternate CPI. Doug's post contains a more recent version of the above GDP chart. It also contains additional commentary well worth a look. Here is a chart and some of Doug's comments. I'll close with one more example of why I completely reject the Alternate CPI as a valid metric. Let's consider real median household incomes since 1967, the year of the earliest Census Bureau data. Adjusted for inflation using the government's CPI, the $7,143 median household income has only risen 4% from 1967 to 2011, the latest full year of Census Bureau data. If we make the inflation adjustment using the Shadowstats Alternate CPI, the median household income has declined by 70%. As I commented when I originally posted this household income chart last year, the Alternate CPI is a completely bizarre outlier. What this deflator is telling us translates into something like this: If we chain the 1967 median household income of $7,143 in 2011 dollars, it would have had the purchasing power back then of $166,683. Yes, Virginia There Has Been Growth Unless one buys the shadowstats CPI theory, there has indeed been growth. Perhaps that growth has been overstated by a little, perhaps by a lot.The fact that the central banks including the Fed have so distorted pricing mechanisms makes it hard to tell. Regardless, there are easy-to-see implications of past actions on future growth. Future Growth Implications Growth came in spite of central bank policies, not because of them Growth was at the expense of mountains of debt fueled by poor monetary policies at the Fed and poor fiscal policies by governments The existing mountain of debt at every level (government, personal, corporate) is 100% guaranteed to slow future growth Effectively we have borrowed current growth from the future. Looking ahead, growth surprises will be predominantly on the downside for years to come. Addendum Comments Here's an interesting observation from reader Charlie Smith at Fort Pitt Capital Group: "The average US citizen is living 5 years longer than 35 years ago. What is more valuable than life?" Lacy Hunt at Hoisington Investment Management responded "Some people are going to have a real hard time when the CPI prints zero or possibly even slightly negative over the first half of this year. I see that you did not forget the inflation/deflation debate at the Casey Conference last September in which you and I participated on the deflation side. Warm regards, Lacy." 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.

Eurozone Retail PMI Sinks Again Posted: 07 Jan 2015 11:49 PM PST Markit reports the Eurozone Retail PMI shows further drop in sales at year-end. Key Points: Retail sales fall at faster rate in December Rates of contraction accelerate in France and Italy , while growth eases in Germany Wholesale price inflation remains close to November's recent low Summary: Latest PMI® data from Markit showed deteriorating trends with in the eurozone retail sector in December. Sales decreased a cross the big-three euro area economies combined, reflective of further contractions in France and Italy , as well as a growth slowdown in Germany. Adjusted for seasonal factors, the headline PMI  dipped to 47.6 in December, from November's 48.9, signalling a solid and accelerated decrease in overall sales. Trade was also down sharply compared with the corresponding month of 2013, with the year-on-year rate of decline faster than in November. Imbalances strengthen as structural problems go unsolved. 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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Damn Cool Pics

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You Can’t Choose Who You Love Posted: 08 Jan 2015 01:34 PM PST These interesting pairings show that love is truly in the eye of the beholder.

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12 Common Reasons Reconsideration Requests Fail

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12 Common Reasons Reconsideration Requests Fail Posted: 07 Jan 2015 01:48 PM PST Posted by Modestos This post was originally in YouMoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of Moz, Inc. There are several reasons a reconsideration request might fail. But some of the most common mistakes site owners and inexperienced SEOs make when trying to lift a link-related Google penalty are entirely avoidable.  Here's a list of the top 12 most common mistakes made when submitting reconsideration requests, and how you can prevent them. 1. Insufficient link data This is one of the most common reasons why reconsideration requests fail. This mistake is readily evident each time a reconsideration request gets rejected and the example URLs provided by Google are unknown to the webmaster. Relying only on Webmaster Tools data isn't enough, as Google has repeatedly said. You need to combine data from as many different sources as possible.  A good starting point is to collate backlink data, at the very least: Google Webmaster Tools (both latest and sample links) Bing Webmaster Tools Majestic SEO (Fresh Index) Ahrefs Open Site Explorer If you use any toxic link-detection services (e.g., Linkrisk and Link Detox), then you need to take a few precautions to ensure the following: They are 100% transparent about their backlink data sources They have imported all backlink data You can upload your own backlink data (e.g., Webmaster Tools) without any limitations If you work on large websites that have tons of backlinks, most of these automated services are very likely used to process just a fraction of the links, unless you pay for one of their premium packages. If you have direct access to the above data sources, it's worthwhile to download all backlink data, then manually upload it into your tool of choice for processing. This is the only way to have full visibility over the backlink data that has to be analyzed and reviewed later. Starting with an incomplete data set at this early (yet crucial) stage could seriously hinder the outcome of your reconsideration request. 2. Missing vital legacy information The more you know about a site's history and past activities, the better. You need to find out (a) which pages were targeted in the past as part of link building campaigns, (b) which keywords were the primary focus and (c) the link building tactics that were scaled (or abused) most frequently. Knowing enough about a site's past activities, before it was penalized, can help you home in on the actual causes of the penalty. Also, collect as much information as possible from the site owners. 3. Misjudgement Misreading your current situation can lead to wrong decisions. One common mistake is to treat the example URLs provided by Google as gospel and try to identify only links with the same patterns. Google provides a very small number of examples of unnatural links. Often, these examples are the most obvious and straightforward ones. However, you should look beyond these examples to fully address the issues and take the necessary actions against all types of unnatural links.  Google is very clear on the matter: "Please correct or remove all inorganic links, not limited to the samples provided above." Another common area of bad judgement is the inability to correctly identify unnatural links. This is a skill that requires years of experience in link auditing, as well as link building. Removing the wrong links won't lift the penalty, and may also result in further ranking drops and loss of traffic. You must remove the right links. 4. Blind reliance on tools There are numerous unnatural link-detection tools available on the market, and over the years I've had the chance to try out most (if not all) of them. Because (and without any exception) I've found them all very ineffective and inaccurate, I do not rely on any such tools for my day-to-day work. In some cases, a lot of the reported "high risk" links were 100% natural links, and in others, numerous toxic links were completely missed. If you have to manually review all the links to discover the unnatural ones, ensuring you don't accidentally remove any natural ones, it makes no sense to pay for tools.  If you solely rely on automated tools to identify the unnatural links, you will need a miracle for your reconsideration request to be successful. The only tool you really need is a powerful backlink crawler that can accurately report the current link status of each URL you have collected. You should then manually review all currently active links and decide which ones to remove.  I could write an entire book on the numerous flaws and bugs I have come across each time I've tried some of the most popular link auditing tools. A lot of these issues can be detrimental to the outcome of the reconsideration request. I have seen many reconsiderations request fail because of this. If Google cannot algorithmically identify all unnatural links and must operate entire teams of humans to review the sites (and their links), you shouldn't trust a $99/month service to identify the unnatural links. If you have an in-depth understanding of Google's link schemes, you can build your own process to prioritize which links are more likely to be unnatural, as I described in this post (see sections 7 & 8). In an ideal world, you should manually review every single link pointing to your site. Where this isn't possible (e.g., when dealing with an enormous numbers of links or resources are unavailable), you should at least focus on the links that have the more "unnatural" signals and manually review them. 5. Not looking beyond direct links When trying to lift a link-related penalty, you need to look into all the links that may be pointing to your site directly or indirectly. Such checks include reviewing all links pointing to other sites that have been redirected to your site, legacy URLs with external inbound links that have been internally redirected owned, and third-party sites that include cross-domain canonicals to your site. For sites that used to buy and redirect domains in order increase their rankings, the quickest solution is to get rid of the redirects. Both Majestic SEO and Ahrefs report redirects, but some manual digging usually reveals a lot more. 6. Not looking beyond the first link All major link intelligence tools, including Majestic SEO, Ahrefs and Open Site Explorer, report only the first link pointing to a given site when crawling a page. This means that, if you overly rely on automated tools to identify links with commercial keywords, the vast majority of them will only take into consideration the first link they discover on a page. If a page on the web links just once to your site, this is not big deal. But if there are multiple links, the tools will miss all but the first one. For example, if a page has five different links pointing to your site, and the first one includes a branded anchor text, these tools will just report the first link. Most of the link-auditing tools will in turn evaluate the link as "natural" and completely miss the other four links, some of which may contain manipulative anchor text. The more links that get missed this way the more likely your reconsideration request will fail. 7. Going too thin Many SEOs and webmasters (still) feel uncomfortable with the idea of losing links. They cannot accept the idea of links that once helped their rankings are now being devalued, and must be removed. There is no point trying to save "authoritative", unnatural links out of fear of losing rankings. If the main objective is to lift the penalty, then all unnatural links need to be removed. Often, in the first reconsideration request, SEOs and site owners tend to go too thin, and in the subsequent attempts start cutting deeper. If you are already aware of the unnatural links pointing to your site, try to get rid of them from the very beginning. I have seen examples of unnatural links provided by Google on PR 9/DA 98 sites. Metrics do not matter when it comes to lifting a penalty. If a link is manipulative, it has to go. In any case, Google's decision won't be based only on the number of links that have been removed. Most important in the search giant's eyes are the quality of links still pointing to your site. If the remaining links are largely of low quality, the reconsideration request will almost certainly fail.  8. Insufficient effort to remove links Google wants to see a "good faith" effort to get as many links removed as possible. The higher the percentage of unnatural links removed, the better. Some agencies and SEO consultants tend to rely too much on the use of the disavow tool. However, this isn't a panacea, and should be used as a last resort for removing those links that are impossible to remove—after exhausting all possibilities to physically remove them via the time-consuming (yet necessary) outreach route.  Google is very clear on this: Even if you're unable to remove all of the links that need to be removed, you must be able to demonstrate that you've made several attempts to have them removed, which can have a favorable impact on the outcome of the reconsideration request. Yes, in some cases it might be possible to have a penalty lifted simply by disavowing instead of removing the links, but these cases are rare and this strategy may backfire in the future. When I reached out to ex-googler Fili Wiese's for some advice on the value of removing the toxic links (instead of just disavowing them), his response was very straightforward:   9. Ineffective outreach Simply identifying the unnatural links won't get the penalty lifted unless a decent percentage of the links have been successfully removed. The more communication channels you try, the more likely it is that you reach the webmaster and get the links removed. Sending the same email hundreds or thousands of times is highly unlikely to result in a decent response rate. Trying to remove a link from a directory is very different from trying to get rid of a link appearing in a press release, so you should take a more targeted approach with a well-crafted, personalized email. Link removal request emails must be honest and to the point, or else they'll be ignored. Tracking the emails will also help in figuring out which messages have been read, which webmasters might be worth contacting again, or alert you of the need to try an alternative means of contacting webmasters. Creativity, too, can play a big part in the link removal process. For example, it might be necessary to use social media to reach the right contact. Again, don't trust automated emails or contact form harvesters. In some cases, these applications will pull in any email address they find on the crawled page (without any guarantee of who the information belongs to). In others, they will completely miss masked email addresses or those appearing in images. If you really want to see that the links are removed, outreach should be carried out by experienced outreach specialists. Unfortunately, there aren't any shortcuts to effective outreach. 10. Quality issues and human errors All sorts of human errors can occur when filing a reconsideration request. The most common errors include submitting files that do not exist, files that do not open, files that contain incomplete data, and files that take too long to load. You need to triple-check that the files you are including in your reconsideration request are read-only, and that anyone with the URL can fully access them.  Poor grammar and language is also bad practice, as it may be interpreted as "poor effort." You should definitely get the reconsideration request proofread by a couple of people to be sure it is flawless. A poorly written reconsideration request can significantly hinder your overall efforts. Quality issues can also occur with the disavow file submission. Disavowing at the URL level isn't recommended because the link(s) you want to get rid of are often accessible to search engines via several URLs you may be unaware of. Therefore, it is strongly recommended that you disavow at the domain or sub-domain level. 11. Insufficient evidence How does Google know you have done everything you claim in your reconsideration request? Because you have to prove each claim is valid, you need to document every single action you take, from sent emails and submitted forms, to social media nudges and phone calls. The more information you share with Google in your reconsideration request, the better. This is the exact wording from Google: " ...we will also need to see good-faith efforts to remove a large portion of inorganic links from the web wherever possible." 12. Bad communication How you communicate your link cleanup efforts is as essential as the work you are expected to carry out. Not only do you need to explain the steps you've taken to address the issues, but you also need to share supportive information and detailed evidence. The reconsideration request is the only chance you have to communicate to Google which issues you have identified, and what you've done to address them. Being honest and transparent is vital for the success of the reconsideration request. There is absolutely no point using the space in a reconsideration request to argue with Google. Some of the unnatural links examples they share may not always be useful (e.g., URLs that include nofollow links, removed links, or even no links at all). But taking the argumentative approach veritably guarantees your request will be denied. Cropped from photo by Keith Allison, licensed under Creative Commons. Conclusion Getting a Google penalty lifted requires a good understanding of why you have been penalized, a flawless process and a great deal of hands-on work. Performing link audits for the purpose of lifting a penalty can be very challenging, and should only be carried out by experienced consultants. If you are not 100% sure you can take all the required actions, seek out expert help rather than looking for inexpensive (and ineffective) automated solutions. Otherwise, you will almost certainly end up wasting weeks or months of your precious time, and in the end, see your request denied. Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. Think of it as your exclusive digest of stuff you don't have time to hunt down but want to read!

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Seth's Blog : The paradox of rising expectations

The paradox of rising expectations

Perhaps this is what your organization desires: To be more trusted, to have people willing to pay more, choose you more often, expect more...

Of course, over time, good work will lead to higher expectations. And the paradox is that this will sooner or later lead to disappointment. Raised expectations tend to be exponential... they grow faster and faster.

Raise expectations forever and even Superman is going to let us down.

One possible path is to do what Bob Dylan has done several times—destroy them. Veer left when everyone expects you to veer right.  Launch something that makes no sense. Reset expectations instead of raising them.

Hard to do if you're a public company, but probably worth considering if you're a human intent on making your art.

       

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Mish's Global Economic Trend Analysis

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• Caution!
• Germany Buckles on Greece Already; Advantage Syriza
• Eurozone Falls Into Deflation; ECB About to Do Something Stupid
• ECB Considering Three QE Options; Eight Reasons Why ECB's Plan Will Fail; Something Up Draghi's Sleeve?

Caution! Posted: 07 Jan 2015 06:01 PM PST Reader Curt emailed the following image. I typically do not post such images unless I know who to attribute. In this case, the image appears to be recent, has not gone viral, and is pertinent. If the owner steps up, I will gladly attribute the image to its owner. "Caution. Floor Covered with Political Promises" The message itself, although use before, is still timeless. It applies to everything from Obamacare to Greece, to statements from the Fed. "Caution!" also applies to the stock market, junk bonds, the dollar, sovereign bonds, the Yen, GDP estimates, and in fact damn near everything. 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.

Germany Buckles on Greece Already; Advantage Syriza Posted: 07 Jan 2015 01:36 PM PST Now that Germany's ridiculous bluff  that "Greece does not matter any more" failed to produce the desired reaction, German Lawmakers Say Greek Debt Talks Possible After Vote. Germany is leaving the door open to discussing debt relief with Greece's next government, lawmakers in Chancellor Angela Merkel's coalition said, signaling a more flexible stance than her administration has taken publicly. While writing off Greek debt isn't on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country's parliamentary elections on Jan. 25, the lawmakers from Germany's two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said. "There should be talks with any government that emerges from the election," Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house's finance committee, said in an interview. "You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too." A senior lawmaker from Merkel's Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn't renege on its austerity commitments. The lawmaker asked not to be named because coalition discussions are private. The comments by lawmakers suggest there's leeway in German policy even as CDU leaders publicly refuse to offer Greece concessions. Merkel's defense of the euro is under attack by Alternative for Germany, an anti-euro party founded in 2013 that's won seats in three state assemblies and the European Parliament. A Finance Ministry spokeswoman in Berlin declined to comment on possible Greek debt relief. Merkel Displeased Speculation about Greece's future in the euro area surged after Der Spiegel magazine reported this week that Merkel would be prepared to let the most-indebted country leave the bloc. Her comments today were her first on Greece since the report. Merkel's spokesman, Steffen Seibert, says Germany's goal remains for Greece to pursue its economic overhaul and stay in the euro, and the chancellery's "political leadership" isn't working on blueprints for a Greek exit. Merkel was displeased with the Spiegel report because market turmoil may drive more voters to Syriza, according to a person with direct knowledge of her views who asked not to be named citing internal discussions. Advantage Syriza The immediately preceding paragraph seems backwards. I suggest those statements by German politicians will allow Alexis Tsipras, head of the Greek radical-left party Syriza, to make the claim "See... I was right. We can renegotiate the debt". And if that is how Greek voters take it, those statements should all but seal the election for Syriza. In fact, if Tsipras plays his cards properly and avoids fatal gaffs in the coming days, I now expect him to win enough seats outright as opposed to him needing to reach out to coalition partners. For coalition possibilities, please see Greek Polls Show Syriza on Cusp of Victory; Greek Political Party Analysis; Intentions Matter Not. Grexit Likely? The likelihood of Greece's leaving the euro is "very low," Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in an interview with Bloomberg Television yesterday. "The reality is that the vast majority of Greeks want to stay in the euro. I think they correctly realize that if they drop out, the situation is going to get much, much worse." Questions of the Day Since when do the opinions of citizens matter? The US attacked Iraq against voter wishes. Obamacare was rammed through against voter wishes. Massive bank bailouts took place in the US and elsewhere against voter wishes. Voters wanted criminal prosecutions of bank fraud. Did that happen? What voters wanted didn't happen. And what they did want, didn't happen. Why should voter opinions matter in Greece when they don't matter anywhere else? Hardball This is all about hardball and how much Tsipras wants to press the issue. If Germany agrees to cut interest to zero, delay the start of payments, and stretch out payments for decades, Tsipras is likely to say OK, even if he has to agree to more austerity for a while. However, every financial improvement in Greece gives it more and more leverage down the line in further requests. Let's return to a statement from the article "While writing off Greek debt isn't on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible ... lawmakers from Germany's two biggest governing parties said." Excuse me for pointing out that changing the terms are in fact bondholder haircuts. Thus, Tsipras already got some of what he promised, and that will strengthen his hand. 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.

Eurozone Falls Into Deflation; ECB About to Do Something Stupid Posted: 07 Jan 2015 11:29 AM PST As expected, the Eurozone fell into deflation last month, but details show energy and unprocessed food are the only things in decline. Services are up 1.2%. Please consider the Eurostat Flash Inflation Estimate for December 2014. Euro area annual inflation is expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistical office of the European Union. This negative rate for euro area annual inflation in December is driven by a fall in energy prices (-6.3%, compared with -2.6% in November), while prices remain stable for food, alcohol & tobacco (0.0%, compared with 0.5% in November) and non-energy industrial goods (0.0%, compared with -0.1% in November). The only annual increase is expected for services (1.2%, stable compared with November). click on chart for sharper image Economists Howl Over Welcome Event Economists are in shock over what should be a welcome event. Deflation is exactly what consumers need. Some say this increases the likelihood the ECB will act on January 22. Actually, it does nothing of the kind. The ECB is already 100% certain to do something counterproductive, and odds cannot exceed 100%. Please consider three statements in today's Financial Times article Eurozone falls into deflation for first time since October 2009. "It's impossible for the ECB to not pull the trigger later this month," said Carsten Brzeski, an economist at ING-DiBa. "It is more a question of how vague policy makers can be without disappointing markets."   Anatoli Annenkov, of Société Générale, said: "The figure feeds into the game plan of launching new measures very soon. There's no real point in waiting — inflation will fall further in the months ahead."   James Ashley, economist at RBC Capital Markets, said that while oil prices were a factor, "the far more important question is why inflation is anywhere near 0 per cent in the first place". "The inconvenient truth for policy makers is that, in large part, that is a reflection of the failure of policy (both fiscal and monetary)," he added.  Challenge to Keynesians   Here's my take on why whatever the ECB does cannot and will not work: ECB Considering Three QE Options; Eight Reasons Why ECB's Plan Will Fail; Something Up Draghi's Sleeve? As for inflation, I am still waiting for economists to respond to this: Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit". What central bankers "ought" to fear is asset-price deflation, not routine price deflation. And the irony is that by fighting routine price-deflation that should be welcome, they create destructive asset bubbles guaranteed to pop, eventually sinking all the loans made based on inflated assets, and jeopardizing banks in the process. It's so obvious, yet Keynesian-trained fools cannot see it. Saying Something Stupid In honor of the ECB about to say (and do) something stupid, I present ... Link if video does not play: Saying Something Stupid 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.

ECB Considering Three QE Options; Eight Reasons Why ECB's Plan Will Fail; Something Up Draghi's Sleeve? Posted: 07 Jan 2015 12:58 AM PST On January 22, ECB president Mario Draghi is expected to announce a plan of action to stimulate Europe via a QE policy of purchasing government bonds. Details were supposed to be hush-hush but the options are out of the bag in bright daylight. Reuters reports ECB is Considering Three Options according to a Dutch paper. Buy government bonds in a quantity proportionate to the given member state's shareholding in the central bank. Buy triple-A rated government bonds, driving their yields down to zero or into negative territory. The hope is that this would push investors into buying riskier sovereign and corporate debt. Have national central banks do the buying, so that the risk would "in principle" remain with the country in question. Every one of those options looks ridiculous. German bond yields are already negative out to 5 years and barely above zero out to 10 years. Yield on the German 10-year bond is 0.454% while the 10-year French bond yield is 0.738% and the 10-year Spanish bond yield is 1.64%. For comparison purposes, the 10-year US treasury note yields 1.96%. These bonds already are hugely overpriced given the risk of a messy eurozone breakup. Option three is the most ludicrous because the peripheral countries are already overloaded in their own bonds. Race to Negative 10-Year Yields In a previous post, I stated Japan leads Germany in race for a negative yield on 10-year bonds. However, I overlooked first-place Switzerland. Japan is actually in second place and Germany third. Both Germany and Switzerland have negative yields all the way out to 5 years. For further discussion and charts, please see In Race to Negative Rates on 10-Year Bonds, Switzerland Leads Japan. As for ECB president Mario Draghi's plan to fix the eurozone via QE, I see eight major reasons whatever he does won't work. Eight Major Problems There are widely differing fiscal policies between eurozone member states. There are widely differing work rules and productivity between member states. There are widely differing social agendas between member states. As a result of 1-3 above, a one size fits all interest rate policy cannot and will not work. Regardless of what Draghi says, there is no fiscal or banking union between member states, and no monetary union has ever survived without such unions. Numerous European banks are undercapitalized and massively leveraged in sovereign bonds that are priced well beyond perfection. European peripheral countries have debts that cannot and will not be paid back. When peripheral debt defaults or is restructured, reverberations will hit the core. The idea that all those structural issues can be fixed with monetary policy is ludicrous. Yet, that is the plan, even though driving yields lower will add more risk to the system. Something Up Draghi's Sleeve? I am highly suspicious of the leak highlighting three options Draghi is allegedly considering. I suspect he will try to surprise the market with some other details. It matters not. There is nothing Draghi can possibly do to fix all the eurozone structural issues mentioned above. 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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