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luni, 2 noiembrie 2015

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Election day

Every day, people vote.

They vote for brands, for habits, for the people they trust. They vote for where they will place their attention, their money and their time.

The big difference is that you can do just fine in today's election without winning a majority of votes. Most elections aren't winner-take-all.

The people at the edges, the special interest groups and the weird ones matter a lot when you don't need a landslide to make a difference.

The magic is this: As soon as you stop acting like you need every single vote, you can earn the votes of the people you seek to serve.

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duminică, 1 noiembrie 2015

Mish's Global Economic Trend Analysis

Greek Banks Need €14 Bn Recapitalization Following Latest Stress-Free Tests

Posted: 01 Nov 2015 05:34 PM PST

Greek banks did much better than expected in the latest ECB stress test (undoubtedly stress-free). The ECB's adverse scenario shows Greek banks only underfunded to the tune of €14 Billion.

A scramble is now underway to raise that amount and Stabilize the Greek Banking Sector.

Greece's four big banks will this week finalise recapitalisation plans to raise €14bn the European Central Bank says they require, in the latest move to stabilise the Greek economy.

After a weekend in which the ECB announced the result of stress tests for the banks and the Greek parliament passed legislation paving the way for the state to inject more funds into the sector, a senior Greek banker said the banks' needs were manageable, but stressed that time was short.

Much attention has focused on whether the recapitalisation of the four banks — Piraeus Bank, National Bank of Greece, Alpha Bank and Eurobank — will dilute international investors' equity stakes.

"So far, so good . . . the outcome of the stress tests could have been much worse," the banker said. He was referring to the ECB's finding that the banks would be short of €14.4bn of capital under the so-called "adverse scenario", where lenders must be able to withstand a worsening of economic and financial conditions. "But there's still a lot of work to be done in a very short time."

The banks have until Friday to present their recapitalisation plans for approval by the European Central Bank's single supervisory mechanism.

One person with knowledge of the discussions added that the government would steer clear of heavily diluting international investors' equity.

"We're looking at a 25 per cent direct equity stake for the Greek state and 75 per cent in the form of cocos [hybrid bonds that convert into equity only if a bank's capital falls below a certain level]," this person said.

In addition, the senior banker also suggested that it would be counter-productive to "bail-in" senior bondholders to any recapitalisation by imposing losses on them, even though such a course of action might be possible under the new framework legislation.

"It is clear that if adopted [a bail-in] would become a legal minefield that could affect the sector's overall stability," the banker said.

Stress-Free Results

Heaven forbid bondholders take any losses. And of course the €14 Billion stress-free result was better than anyone expected: nudge-nudge, wink-wink.

As we all know, bondholders generally don't lose (except to bail out public unions and public pension plans as in GM, Detroit, and various California cities).

Mike "Mish" Shedlock

Seth's Blog : It's not your fault

It's not your fault

... but it might be your responsibility.

That's a fork in the road on the way to becoming a professional.

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sâmbătă, 31 octombrie 2015

Mish's Global Economic Trend Analysis

China Contraction Unexpectedly Continues Third Month

Posted: 31 Oct 2015 09:50 PM PDT

Given that economists hardly expect anything bad ever, this headline is hardly shocking: China's Factory Activity Shrinks for an Unexpected Third Month.

Activity in China's manufacturing sector unexpectedly shrank for a third straight month in October, an official survey showed on Sunday, fueling fears that the economy may be cooling further in the fourth quarter despite a raft of stimulus measures.

The official Purchasing Managers' Index (PMI) was at 49.8 in October, the same pace as in previous month and lagging market expectations of 50.0.

To shore up growth, the government has cut interest rates six times since November and lowered the amount of cash that banks must hold as reserves four times this year. The latest cut in interest rates and banks' reserve requirement came in late October.

Beijing has also ramped up infrastructure spending and eased restrictions on home purchases to revive the flagging property market.

Gee. Who Coulda Thunk?

Mike "Mish" Shedlock

€238 Billion Nonperforming Loans at Spanish Banks Despite ECB's Helping Hand

Posted: 31 Oct 2015 09:08 AM PDT

Via translation, El Confidential comments on the Banking Drag of €238 Billion Nonperforming Loans at Spanish Banks.

The profitability of banks has plummeted. And only the loose monetary policy of the ECB has improved the results. That is underscored by a report on the performance of Spanish banks by International Financial Analyst (AFI).

The report estimates the Spanish banking sector accumulated €238 Billion poor credit and foreclosed assets (8.8% of the balance), with coverage average of 44%.

Only the ECB's monetary policy, its strategy of zero interest rates and asset purchase, keeps the banks alive.

The ROE of the banking sector, has been reduced by 6.8 points, reaching levels of 5.3%, mainly due to higher capital requirements.

As the report makes clear, higher capital requirements (to maintain solvency) are here to stay, so it is difficult for the results of the fixed income portfolios in recent years to be repeated in the short term.

In fact, unrealized gains associated with these portfolios have declined more than 50% in 2015. This means that banks are eating the benefits associated with the decline in interest rates.

In the words of AFI, ECB monetary policies have contained the fall in the profitability of the sector in recent years, and this has benefited "substantially" the peripheral countries including the Spanish banking system.

Non-performing assets could be reducing the annual profitability of the sector up by 5.4 percentage points according to the report.

With treasury yields low or negative in Eurozone countries, the recapitalization benefits of ECB policy (banks loading up on their own sovereign bonds) have run their course. In case of another downturn, there will be little else the ECB can do.
.
Mike "Mish" Shedlock

Seth's Blog : Witch hunts make no sense

Witch hunts make no sense

They are based on a fallacy: "I am irrationally afraid and persecuting this innocent person will make me feel better."

Which is expressed by those in power as: "There's a good reason I'm afraid and punishing this person will make that reason go away."

Hunting witches never makes things better. Partly because there are no witches.

But mostly because it's really unlikely that we're afraid for a good reason (our fear is just about always irrational). And of course, our irrational fear has nothing to do with the person or the group we're using a scapegoat.

So much more useful and productive to say, "I'm afraid," and leave it at that.

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vineri, 30 octombrie 2015

Mish's Global Economic Trend Analysis

Personal Income, Consumer Spending Rise Less Than Expected; PCE Price Index Negative; 4th Quarter Acceleration Coming Up?

Posted: 30 Oct 2015 11:21 AM PDT

Personal Income, Consumer Spending Weaker Than Economists Expect

Today's Personal Income and Outlays report came in below Consensus Estimates.

Inflation is not building based on the Fed's favorite reading, the core PCE price index which inched a lower-than-expected 0.1 percent higher in September with the year-on-year rate steady and flat at only plus 1.3 percent. These results will not lift the odds for a December hike at the next FOMC.

Income and spending data also came in below expectations, at plus 0.1 percent each vs expectations for plus 0.2 percent each. Income got no boost from wages & salaries in September which were unchanged following, however, strong gains of 0.5 percent in the two prior months that underscore this morning's employment cost index which shows pressure in the third quarter. Spending in September was pulled down by a 1.2 percent plunge in nondurable goods that likely reflects the low price of fuel. Spending on durable goods, driven by vehicles, rose a strong 0.8 percent with spending on services up a solid 0.4 percent.

Other details include a 0.1 percent decline for the total PCE price index, again an effect likely based on fuel. Here the year-on-year rate is barely over zero at plus 0.2 percent. The savings rate continues to edge higher, up 1 tenth to 4.8 percent in a gain that hints at strength for future consumer spending.

Third-quarter consumer activity slowed in September, pointing to lack of momentum for October consumer data. Still, the consumer is in charge in the U.S. economy and, given low unemployment, the outlooks for holiday spending and fourth-quarter acceleration are favorable.

4th Quarter Acceleration?

Action in shippers except those most impacted by online shipping, store hiring plans, new home sales, and consumer spending expectations do not point to a robust acceleration in holiday spending.

Housing

I sometimes wonder if Bloomberg reads its own reports. Let's take a look at the new home sales numbers that came out on Monday as reported by Econoday.

The housing outlook just received a jolt! New home sales fell to an annual rate of 468,000 in September which is 67,000 below Econoday's low-end estimate and the lowest rate since November last year. Making matters worse is a steep 33,000 downward revision to August.

The drop in sales together with a rise in homes on the market made for a big surge in supply, to 5.8 months from 4.9 months in August and 5.5 months from September last year. This turns around what had been a market of very thin supply to one of nearly adequate supply, with 6.0 months considered the balancing point between supply and demand. Homes on the market rose 4.2 percent in the month to 225,000 units.

New home sales contribute to sales. People buy furniture, appliances, etc., etc.

Shipping

Testosterone Pit reports And Now Trucking is Suddenly Slowing Down.

September is the beginning of the holiday shipping season. Volume should be sharply higher. But it's not happening. US Freight Shipments Have Worst September since 2010.

FedEx does expect increased volumes, but I would attribute that to online purchases. Increasing online purchases will not balance out weak in-store sales.

Store Hiring Plans

Perhaps stores are mistaken, but they are not ramping up for holiday sales according to outplacement firm Challenger, Gray & Christmas is correct.

For details, please see Weak Holiday Hiring Coming Up?

Household Spending Estimates

Every month, the Fed conducts a survey of consumer spending projections. Here are the results of the latest Fed Spending Survey.

Something clearly happened to consumer spending expectations this year. Of course, consumers can spend away anyway. I don't know what they will do, nor does anyone else.

Regardless, the signs seem to point to weaker or flat 4th quarter spending, not an acceleration.

Mike "Mish" Shedlock

More Pain Ahead For Brazil?

Posted: 30 Oct 2015 10:06 AM PDT

As a guest post, here is the opinion of IMD Professor Carlos A. Primo Braga on on the economic, political and psychological drivers of Brazil's currency slide.

Real Depreciation in Brazil

What a difference a year makes! For visitors to Brazil, a steak lunch in a top restaurant would have cost USD $120 per capita in October 2014 (not including caipirinhas or wine). Today the same meal costs roughly USD $65. The Brazilian real has experienced one of the most dramatic depreciations among currencies from emerging economies over the last 12 months. The good news is that this adjustment will help the tradable sector of the economy improve its international competitiveness. For an economy which is currently in free-fall (with an expected GDP contraction of roughly 3% in 2015), this is most welcome even though the low exposure of the Brazilian economy to international markets implies that this help will be at best moderate in terms of its macroeconomic impact. The bad news is that this will add to inflationary pressures and it will also impact the financial health of corporations that have borrowed abroad.

International Depreciation Trends

Over the last two years, many countries have experienced significant movements in the value of their currencies. As discussed in detail in the latest World Economic Outlook of the IMF (October 2015), these changes have often extrapolated the range of historical adjustments experienced by major currencies. Among industrialized countries the US dollar and the Swiss franc have appreciated more than 10%, while the Japanese yen has depreciated more than 30% in real terms (since mid-2012). Many emerging economies have also experienced significant depreciation of their currencies. The Brazilian real - which was identified by Morgan Stanley in 2013 as one of the so-called fragile five (a group that also included the Turkish lira, the Indian rupee, the South African rand, and the Indonesian rupiah) - has depreciated more than 35% in real terms since 2014 against a basket of relevant currencies of major trading partners. Actually, with the exception of the Indian rupee, the currencies of the other members of the "fragile five-club" have been among the worst performers among emerging economies currencies over the last two years.

Currency War Irony

It is ironic that Brazil, which as recently as 2010 had warned about the dangers of a "currency war" - reflecting concerns about interventions by major monetary authorities to limit upward pressures on their currencies in an effort to boost net exports - is now leading the "contest" in terms of global depreciation trends.

First, the current political gridlock associated with the tug-of-war between the Executive branch and Congress, amid the reverberations of the Petrobras corruption scandal, does not help. There is not only a crisis of governance, but also a crisis of ethics. The logic of the mob seems to be leading the country to the lowest common denominator for ethical behavior in the absence of credible leadership. Needless to say, this creates a field day for speculation against the real.

Second, the international environment does not help. This goes beyond the implications of the Chinese slow-down for Brazil. In reality, the current crisis provides another illustration of the behavior under stress of complex financial networks. The triggering event may be small in macroeconomic terms - e.g., the losses associated with the Petrobras scandal - but resulting collateral damage can be substantial, particularly, when the external environment suggests that in the near term additional headwinds will impact the country (for example, the expected increase of US interest rates). In short, markets tend to overshoot in their expectations about the future of a currency under stress.

There is, however, a silver lining. Economics does not stop operating below the Equator. As already mentioned, the depreciation of the real is impacting the tradable sector in a positive manner. Actually, the depreciation, combined with the slow-down of the economy, has translated into a substantial decrease in the Brazilian current account deficit (by roughly 30% compared with last year). Moreover, Brazilian assets are becoming increasingly attractive to foreign investors. In sum, no foreign exchange crisis is expected in the near future. But the economic crisis and the fate of the real will continue to be driven by the political imbroglio. In other words, more pain ahead.

Carlos A. Primo Braga

End Guest Post - Guest Post Guidelines

This is actually the first unsolicited guest post I recall using.

I receive at least one offer a week from people offering to write guest posts, then asking me what I want them to write. I typically do not respond to such offers.

The above post is an example of what I want to see: A well thought out, already written article (not a proposal), that strongly pertains to the global economy, generally in-line with my own views, and offered with no strings attached, contains no overwhelmingly self-promotional links, and absolutely no product or service endorsements of any kind. If the author has a blog or website, I will link back to it, as I did at the top.

If you care to submit articles with those guidelines, I will consider them.

To date, the only guest posts on my blog were those where I requested reprint rights, or those from readers like Tim Wallace who send me much-appreciated articles accompanied with charts without even vying for a "guest post".

Mike "Mish" Shedlock

luni, 2 noiembrie 2015

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Seth's Blog : Election day

Election day

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