Central Perk

joi, 16 iulie 2015

In search of metaphor

The best way to learn a complex idea is to find it living inside something else you already understand.

"This," is like, "that."

An amateur memorizes. A professional looks for metaphors.

It's not a talent, it's a practice. When you see a story, an example, a wonderment, take a moment to look for the metaphor inside.

Lessons are often found where we look for them.

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Mish's Global Economic Trend Analysis

Bailout Fallout: Juncker Lies to Cameron in Revival of ESM; British Taxpayers Protected in Deal
Hey Janet, It's July 15!
Empire State Manufacturing: New Orders Negative 4th Time in 5 Months; Slight Bounce in Industrial Production
China Denies its GDP is Inflated; Chinese Stocks Resume Plunge With 3% Slide; Business Outlook Index Drops to Record Low

Bailout Fallout: Juncker Lies to Cameron in Revival of ESM; British Taxpayers Protected in Deal

Posted: 15 Jul 2015 11:11 PM PDT

In 2010, Jean-Claude Juncker, current European Commissioner president, made a pledge to UK Prime minister David Cameron, to never again use the ESM to bail out another eurozone country.

Cameron's concern was that he did not want to put British taxpayers at risk for eurozone sponsored bailouts.

To the shock of Cameron, the ESM came back into play in the latest Greek bailout deal.

Did Cameron not know that Juncker was a confirmed and self-proclaimed liar? I think not, so any shock display must be fake, for political show only.

British Taxpayers Protected

To smooth over UK concerns, Chancellor of the Exchequer, George Osborne, worked out an ESM Arrangement to Protect UK Taxpayers, but political damage and mistrust lingers.

British taxpayers will not be left exposed for another Greek bailout, George Osborne hopes, under a compromise struck with Jean-Claude Juncker.

The Chancellor is prepared to back the European Commission president's controversial plan to revive a mothballed bailout programme that draws in the entire EU, in exchange for guarantees that British liabilities will be underwritten to protect UK taxpayers.

Mr Juncker's decision to tear up a binding written agreement given to Britain in 2010 that the European Financial Stability Mechanism would never again be used to rescue the Eurozone has further soured relations with David Cameron, who now doubts whether he is able to trust him.

"Of course you can't trust Juncker. That is why he [Cameron] didn't vote for him," a source close to the Prime Minister said. Mr Cameron today endorsed an explosive call from the International Monetary Fund for Greek debt reflief.

Mr Osborne had furiously denounced Mr Juncker's plan to revive the EFSM, which uses the EU budget as collateral on cash raised on the open market, to provide up to 7 billion euros in bridging loans to Greece to stave off collapse as it is hit with 12 billion euros of debt repayments in the coming weeks. Leaving British taxpayers exposed was a "non-starter," he said on Tuesday. "The euro zone needs to foot its own bill."

Under a compromise backed by the Commission, the EFSM rescue package still go ahead. But Britain's £690 million in liabilities, as well of those of other non-eurozone states, will be insured using Greek funds known as SMP profits held by the European Central Bank.

Stephen Booth, of the Open Europe think tank, said Mr Juncker's decision to toss aside an agreement made by 28 heads of government to mothball the EFSM and to make the Eurozone responsible for its own bailouts raises "fundamental issues of trust".

EU officials argued the agreement made at a summit in December 2010 was merely "political" and had no legal force.

"Today's developments are a boon to those who would like to see the UK leave the EU, and for good reason," said Mr Booth. "This type of political agreement, so readily jettisoned in a moment of Eurozone panic, is precisely the type of agreement Cameron may, at least in part, be relying on to secure his negotiations and sell them to the British public. This episode will only increase the domestic pressure for the UK to secure treaty changes to underpin EU reforms."

Mr Cameron secured the assurance in exchange for backing greater Eurozone integration. He subsequently told the Commons it was a "black and white, clear and unanimous agreement that from 2013 Britain will not be dragged into bailing out the eurozone."

Agreements Made to Be Broken

Cameron must know that EU agreements are made to be broken, and broken at a moments notice for political purposes.

Cameron seems to believe things of this nature will not happen again, and again, and again. He even pledged an up-down vote on UK membership in the EU on the stated belief that he can bend the minds of Brussels more to the UK's liking.

Question of the Day

If Cameron really believes what he says, he is a complete fool. This brings us to the question of the day: Does Cameron really believe what he says, or is it just a political act?

Either way, the fallout and collateral damage from the third Greek bailout has just begun.

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

Hey Janet, It's July 15!

Posted: 15 Jul 2015 01:10 PM PDT

In Congressional testimony today, Yellen Reiterates She Expects Rate Hike This Year.

Federal Reserve Chair Janet Yellen told Congress Wednesday that the Fed still plans to begin raising interest rates this year amid an improving economy but that it will likely push them up gradually.

But the often-contentious hearing before the House Financial Services Committee repeatedly veered into sharp exchanges about the Fed's accountability to lawmakers.

On the economy, Yellen said, "Prospects are favorable for further improvement in the US labor market and the economy more broadly. In her semi-annual monetary policy testimony, she added that the Fed "expects US GDP growth to strengthen over the remainder of this year and the unemployment rate to decline gradually."

Yellen added that low oil prices and job growth should bolster consumer spending while the negative effects of a strong dollar and low oil prices on exports and business investment diminish.

She didn't provide more specifics about the timing of the first hike in the Fed's benchmark rate since 2006, reiterating that it will depend on the progress shown by the economy and labor market. Many economists expect the Fed to act as early as September; others say the central bank is likely delay the move until December or even 2016.

Hey Janet, What Day Is It?

For those not in a time warp or on the other side of the International date line, it's July 15.

A quick check of the FOMC calendar shows Fed policy meetings on July 28-29, and September 16-17.

Given the Fed generally gives rate hike notice the meeting before, it seems to me you have about two weeks to decide if you are going to hike in September.

Surprise cuts happen all the time, but how many times have we not heard a stern warning before a hike? (Has there ever been an exception before a hike?)

Then again, it's different this time. You have had the kid gloves on for four years.

Questions for Janet

Do the kid gloves ever come off?
When will you know?
When will we know, that you know?

As you have reiterated ad nauseam, it's "data dependent". So let's take a look at the most recent data.

Anemic Manufacturing and Industrial Production: Empire State Manufacturing: New Orders Negative 4th Time in 5 Months; Slight Bounce in Industrial Production
Retail Sales Dismal: Retail Sales Unexpectedly Sink Below the Lowest Economist's Estimate

Manufacturing production declined three times in the last six reports and today showed zero growth. Industrial production barely bounced. Retail sales are dismal.

It's not that I don't think you should hike. Indeed, I think you have blown massive bubbles everywhere thanks to loosey-goosey Fed policies.

Is that your real concern?
Are you hiding behind a charade of "data dependent" statements?
Or are you blind as a bat?
Can you say?
Do you even know?

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

Empire State Manufacturing: New Orders Negative 4th Time in 5 Months; Slight Bounce in Industrial Production

Posted: 15 Jul 2015 12:37 PM PDT

A couple of new economic reports were out today. Both highlight ongoing weakness in manufacturing.

Empire State New Orders Negative 4th Time in Five Months

Bloomberg Econoday economists called the Empire State Manufacturing number correctly, but it was a weak one. The consensus estimate was 3.5 vs. the actual report of 3.86.

The manufacturing sector isn't picking up any steam this month based on the Empire State index which came in only just above zero, at 3.86. The new orders index, ominously, is in negative ground at minus 3.50. This is the fourth negative reading in five months for new orders which points squarely at slowing overall activity in the months ahead.

And hiring this month has slowed, to 3.19 vs June's 8.65 in yet another soft signal. Price data show moderation for inputs at 7.45 vs 9.62. One plus in the report is a slight uptick in the 6-month outlook to 27.04 vs 25.84.

Slight Bounce in Industrial Production

Following unexpected negative numbers in April and May, an Industrial Production bounce in June came pretty much in line with Economist's Expectations.

A plus 0.3 percent rise in June industrial production looks respectable but still overstates strength. The gain follows two prior months of sizable contraction, at minus 0.2 percent and minus 0.5 percent, and reflects a jump higher for utilities and for mining. Manufacturing, and the key component for the series, is unchanged for a second straight month -- truly dead in the water at a year-on-year rate of only plus 1.8 percent.

Motor vehicle production is very weak in the June report, down 3.7 percent and more than offsetting a 0.8 percent rise for hi-tech production, a 0.7 percent gain for chemicals, and a 1.4 percent jump for furniture. Retail sales of vehicles surged back in May but turned lower in June which doesn't point to much of a rebound for vehicle production later this summer.

One sign of strength is a 2 tenths uptick in the overall capacity utilization rate to 78.4 percent. But here too, the gain reflects gains for utilities and mining and not manufacturing where capacity utilization actually fell 1 tenth to 77.2 percent.

This report offers the first conclusive data on the manufacturing sector during June while this morning's earlier release of the Empire State report offers the first anecdotal look at July. And the verdict? A manufacturing sector that is being hurt by weakness in exports and that's dragging down the economy's growth.

Coupled with dismal retail sales numbers, the economy does not look that robust to me.

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

China Denies its GDP is Inflated; Chinese Stocks Resume Plunge With 3% Slide; Business Outlook Index Drops to Record Low

Posted: 15 Jul 2015 01:03 AM PDT

China Denies GDP Inflated

Chinese GDP came in at 7% beating estimates (not that anyone really believes it, and I sure don't), but the good news stops there.

CNBC reports Shanghai Composite Widens Losses After China GDP.

Asian equities were mixed on Wednesday, with Shanghai stocks deepening losses despite better-than-expected Chinese gross domestic product data.

The world's second-largest economy grew 7 percent on year in the April-June period, unchanged from the previous quarter but slightly better than Reuters estimates for a 6.9 percent rise. A spokesperson for the country's statistics bureau insisted that the figure was accurate, denying accusations that it was inflated, Reuters reported. Other data released on Wednesday showed June industrial output and retail sales also beating forecast

Chinese Stocks Resume Plunge With 3% Slide

The above image captured approximately 2:45AM central.

China Business Outlook Index Drops to Record Low

Markit reports China Business Outlook Index Drops to Record Low in June.

Optimism towards business activity, new business and employment falls to record low.
Business revenues and profits forecast to rise at slower rates.
Inflationary pressures set to ease.

The latest Markit Business Outlook Survey indicated that confidence among Chinese companies declined to a record-low this summer. A net balance of +23 percent of firms expect activity levels to rise over the next year, down from +30 percent in February and the lowest reading in nearly six years of data collection.

Optimism Towards New Work Hits Fresh Low

In line with the trend for activity, optimism towards new business also fell in June. A net balance of +21 percent of Chinese companies expect new workloads to increase over the coming year, down from +28 percent in February and the lowest reading seen since the survey began in late-2009.

Business Revenues Expectations Revised Down

Reduced optimism towards activity and new business growth led companies to temper their expectations for business revenue s growth for the year ahead. June data indicated that a net balance of +20 percent of firms expect business revenues to increase over the next year, down from +27 percent in February and a new series low. As a result, confidence towards profits growth also declined to a record low in June, as highlighted by a net balance of +14 percent in the latest survey period.

When does China adopt the Fed's line ... "It's all transitory"?

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

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Seth's Blog : In search of metaphor

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