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vineri, 24 mai 2013

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Seth's Blog : Overcoming the impossibility of amazing

Overcoming the impossibility of amazing

If you set your bar at "amazing," it's awfully difficult to start.

Your first paragraph, sketch, formula, sample or concept isn't going to be amazing. Your tenth one might not be either.

Confronted with the gap between your vision of perfect and the reality of what you've created, the easiest path is no path. Shrug. Admit defeat. Hit delete.

One more reason to follow someone else and wait for instructions.

Of course, the only path to amazing runs directly through not-yet-amazing. But not-yet-amazing is a great place to start, because that's where you are. For now.

There's a big difference between not settling and not starting.

• Email to a friend •

Mish's Global Economic Trend Analysis

France Private Sector Implosion Continues
Another Warning Call for Depositors! Bank of Spain Says Spanish Banks Need €10bn More Loan Loss Provisions; Mish Asks €10bn or €100bn?
Christine Lagarde, Head of IMF, In Court Facing Questions on Embezzlement and Fraud
Japanese Bond Rout Continues; BoJ Vows to Curb Bond Turbulence; Curbing Turbulence is Theoretically Easy
Nikkei Plunges 1,143 Points (7.32%); Global Equities Hammered; Start of Reflation Bubble Bust?

France Private Sector Implosion Continues

Posted: 23 May 2013 10:36 PM PDT

Here's some news that caught my eye earlier today when I was on the road: The Markit Flash France PMI® shows French private sector output continues to fall at marked rate in May.

Key points:

Flash France Composite Output Index unchanged at 44.3

Flash France Services Activity Index unchanged at 44.3

Flash France Manufacturing PMI rises to 45.5 (44.4 in April), 9-month high

Flash France Manufacturing Output Index up to 44.3 (44.1 in April), 9-month high

Summary:

The downturn in French private sector output continued in May. Unmoved from April's reading, the Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, posted 44.3. Although remaining above the levels registered in Q1, the latest reading was indicative of a marked rate of contraction in overall activity.

Comment:

Jack Kennedy, Senior Economist at Markit and author of the Flash France PMI®, said:
"May's unchanged PMI reading points to ongoing struggles for the French private sector economy. Activity has continued to fall at a marked pace in Q2 so far, suggesting that another drop in GDP could well be on the cards following the recent confirmation that France was in recession during the previous two quarters. PMI data highlight continued pressure on employment and operating margins, as the difficult business climate facing French companies persists."

Mish Comments

Scores below 50 designate contraction, and scores in the 44-range designate substantial contraction, so those 9-month highs just go to show how awful conditions are.

With French president Francois Hollande at the helm of France, and the nannycrats in Brussels in control elsewhere, don't expect conditions to get much better any time soon.

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

Another Warning Call for Depositors! Bank of Spain Says Spanish Banks Need €10bn More Loan Loss Provisions; Mish Asks €10bn or €100bn?

Posted: 23 May 2013 12:34 PM PDT

Here's an optimistic headline on the Financial Times that could easily be off by a factor of 10 or more: Spain's banks need €10bn more provisions.

Spanish banks will need to put aside extra provisions of up to €10bn to cover loans that borrowers will struggle to repay, according to an internal estimate by the Bank of Spain.

According to recent data, Spanish banks rolled over more than €200bn of loans before they expired – often because corporate borrowers would be unable to repay their debt on time and in full. The €10bn estimate is the first official assessment of the likely impact of the central bank's new approach towards these refinanced loans.

The Bank of Spain believes that the risks emanating from this practice, known as "extend and pretend", have not been fully covered and is pressing all banks to reclassify their refinanced loans according to tighter standards by the end of September. The new regime will make it harder for banks to treat refinanced loans as if they were performing normally, in turn forcing lenders to take additional provisions.

"Our banks will need more provisions," a senior official at the Bank of Spain told the Financial Times. "The provisions will affect their results, but the question is by how much. We cannot know for sure but we think the impact will be between €5bn and €10bn [in provisions] across the system."

€10bn or €100bn?

Banks rolled over €200bn of loans because they could not pay debt on time, pretending the loans were current, and the Bank of Spain estimates the risk at a mere €10bn.

Who do they think they are they fooling?

Will 70% of those loans be paid back? 50%? 20%? I don't know but I strongly suggest it sure will not be 95%.

Given the perpetual over-optimism on Spanish bank losses, I estimate there is a 0% chance the losses on this disclosure will be as little as €10bn.

That said, I do not know what the existing loan loss provisions are, but if they are high enough (extremely doubtful), then there is some chance the losses will be on the order of €30bn or so (on the general principle things are typically 300% worse than the optimistic scenario).

This does not factor in losses on Spanish government bonds when Spain eventually seeks a massive bailout. Realistically, Spanish banks are insolvent.

Another Warning Call!

By the way, this is yet another warning call "If you have money in Spanish banks, move it somewhere else immediately!"

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

Christine Lagarde, Head of IMF, In Court Facing Questions on Embezzlement and Fraud

Posted: 23 May 2013 10:47 AM PDT

Christine Lagarde, head of the IMF, is in court today addressing her role in a $366 million payout to Bernard Tapie, a close friend of former president Nicolas Sarkozy who was also Lagarde's boss at the time. Lagarde was Sarkozy's finance minister.

Reuters reports IMF's Lagarde in court for French arbitration case.

IMF chief Christine Lagarde was questioned in court by French magistrates on Thursday over her role in a 285-million-euro ($366 million) arbitration payment made to a supporter of former president Nicolas Sarkozy.

Lagarde risks being placed under formal investigation at the hearing for her 2007 decision as Sarkozy's finance minister to use arbitration to settle a long-running court battle between the state and high-profile businessman Bernard Tapie.

Under French law, that step would mean there exists "serious or consistent evidence" pointing to probable implication of a suspect in a crime. It is one step closer to trial but a number of such investigations have been dropped without any trial.

In Paris, Lagarde flashed a smile at waiting media as she arrived at court with her lawyer and said: "It's a pleasure to see you."

They were not expected to emerge until the end of the day's proceedings, which could run into late evening. The decision on whether to place her under investigation or give her "supervised witness" status will be announced at the end of the hearing, which could last into Friday.

Lagarde is not accused of financially profiting herself from the payout and has denied doing anything wrong by opting for an arbitration process that enriched Tapie. With interest, the award amounted to 403 million euros.

However a court specializing in cases involving ministers is targeting her for complicity in the misuse of funds because she overruled advisers to seek the settlement.

If Lagarde is formally charged with embezzlement or fraud, she may be asked to resign as head of IMF whether she is convicted or not.

It's difficult to say how much of this is political maneuvering by current French president Francois Hollande, but it's equally difficult to dismiss the charges outright.

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

Japanese Bond Rout Continues; BoJ Vows to Curb Bond Turbulence; Curbing Turbulence is Theoretically Easy

Posted: 23 May 2013 08:42 AM PDT

Curve Watchers Anonymous has been watching a major selloff in Japanese bonds. Here are a couple charts to consider.

10-Year Japanese Government Bond Yield

5-Year Japanese Government Bond Yield

Since March 4, the 5-year yield has gone from 0.1% to 0.43%. Although a mere .33 percentage points, the move represents a 330% percent rise in in yield.

One Month Changes

Charts courtesy of Bloomberg

Note: Those charts were snapshots taken last evening. This morning, yields have settled down, for now.

Bank of Japan Vows to Curb Bond Turbulence

NewsDay reports Bank of Japan vows market steps to curb bond turbulence

The Bank of Japan vowed yesterday to take necessary steps to reduce volatility in bond markets that has threatened to jeopardise the government's fight to end deflation and revive growth.

BOJ Governor Haruhiko Kuroda vowed to take steps needed to reduce volatility in the JGB market, but he disappointed some bond investors by sticking with the strategy of leaving it to BOJ bureaucrats to address the problem by tweaking the bank's market operations.

Indeed, Kuroda played down any economic impact from the bond moves, where the benchmark yield recently had its biggest three-day spike in a decade as investors struggle to cope with the overwhelming impact of the BOJ's radical money expansion.

"I don't think the recent rise in yields is having a big impact on the economy," Kuroda told a news conference after a two-day BOJ policy meeting.

No Impact "Yet"

In absolute terms there is not much impact, yet. However, I put an emphasis on the word "yet", a word Kuroda conveniently left out.

Curbing Turbulence is Theoretically Easy

It's theoritically easy to curb turbulence. Central banks can in fact control any single economic variable they want such as interest rates, money supply, or even the price of gold.

To control bond turbulence, all the Bank of Japan has to do is corner the market. To do so would be quite similar to the Swiss National Bank putting a cap on the value of the Swiss Franc or the Bank of China controlling the exchange rate of the Yuan vs. the US dollar.

To set a price, the Bank of Japan would have to be willing to buy every single bond offered at that price. It could pick any price it wanted, but the lower the interest rate, the more bonds it would have to buy. At a low enough price, it would have to buy every security.

Damn the Consequences

The problem with controlling interest rate turbulence (or any other factor) is the consequences. If the Bank of Japan does buy every Japanese government bond, it will have no control over things like the value of the Yen, the CPI, various asset bubbles that may form, or in the extreme case - Japanese hyperinflation.

Practical Ridiculousness

If you reflect on what's theoretically possible for more than a second, you will see the practical ridiculousness of the Bank of Japan's statement on curbing turbulence. And what applies to Japan applies even more so the Fed's dual mandate of "low inflation and job growth".

Simply put, it is impossible for a central bank to control more than one variable at a time, and the consequences of controlling even a single variable are rather extreme when the market refuses to play along.

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

Nikkei Plunges 1,143 Points (7.32%); Global Equities Hammered; Start of Reflation Bubble Bust?

Posted: 22 May 2013 11:49 PM PDT

The Nikkei plunged a whopping 1,143 points as the following chart shows.

Global Equities Hammered

It's not just the Nikkei that's being hammered. Asia-Pacific is in a rout as well.

click on chart for sharper image

Start of Reflation Bubble Bust?

Is this the start of the great reflation unwind? I don't know, but we should all hope so.

The bigger the bubble the bigger the crash, and this Fed (central bank in general) sponsored equity and corporate bond bubble is enormous.

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