Central Perk

duminică, 10 iunie 2012

Mish's Global Economic Trend Analysis

Socialists Score Well in First Round of French Parliamentary Elections, Poised to Take Control of Assembly and Senate for First Time Ever; Economically Insane Ideas Coming Up
S&P Futures Open +15,Nasdaq +32, US Dollar Index Opens Down on Spain Bailout News
Rajoy Proclaims "Victory", Says It's Not a Bailout "It's a Credit Line"; Existing Bondholders Subordinated
Details of the Secret "Nannyplan" Emerge; Proposed Nannygroup Uniforms

Socialists Score Well in First Round of French Parliamentary Elections, Poised to Take Control of Assembly and Senate for First Time Ever; Economically Insane Ideas Coming Up

Posted: 10 Jun 2012 07:30 PM PDT

Be prepared for the Socialists to wreck France. The Guardian reports French Socialists on course to score absolute majority in parliament and President François Hollande is about to get a free hand in his response to country's economic crisis.

The left has scored well in the first round of French parliamentary elections, leaving the Socialist party within reach of an absolute majority that would give François Hollande, the president, a free hand in his approach to dealing with the economic crisis.

The Socialists need 289 out of the 577 seats in the national assembly to take an absolute majority in the final runoff on Sunday 17 June.

First-round results show the Socialists are predicted to take between 275 and 315 seats, according to polling company TNS Sofres, and could make up the numbers with the backing of their electoral allies, the Greens.

The first round vote results suggest that the broad left will dominate parliament. Early results and estimates showed the left in general taking 47%, the right 35% and the far-right Front National 13%.

One of the biggest defeats of Sunday evening was Jean-Luc Mélenchon, the firebrand hardline leftist from the Front de Gauche. He had stood in a high-profile, deprived Pas-de-Calais constituency in a personal battle against Front National leader Marine Le Pen, but was knocked out in the first round.

Le Pen will now face a Socialist in the runoff. Mélenchon said he was disturbed by Le Pen's high score and would continue to fight the far right.

If the Socialists win an absolute majority, it would be the first time in modern history that the party had control of both houses of the French parliament: the assembly and the senate.

Implications Not Pretty

I applaud the throw the bums out mentality. However, the new bums will be at least as bad judging from proposed financial transaction taxes, rollbacks in retirement age, and economically insane plans to restrict layoffs.

Economically Insane Ideas Coming Up

Last Friday, citing Reuters, I reported Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

Today, the Financial Times confirms the proposal in its report France plans law to make firing harder

Michel Sapin, labour minister, said part of an "urgent" response to joblessness was to penalise companies that seek to increase dividends and maximise profits by shifting production to lower-cost locations – dubbed "stock market redundancies".

"The main idea is to make redundancies so costly that it's not worth it," he told France Info radio.

Mr Sapin, who said he planned to introduce legislation after the summer, said the level of compensation for fired workers and the cost of converting an abandoned plant to new use should be made sufficient to deter businesses from resorting to redundancies.

Such a move would be in defiance of calls from business for an easing of the country's already weighty employment protection legislation, which was singled out last week by the European Commission as one of the structural factors inhibiting the French labour market.

But the government, which is hoping to win a parliamentary majority in National Assembly elections on June 10 and 17, is under pressure from trade unions to take action in the face of a wave of redundancies threatened or under way across a number of French industries, particularly carmakers, telecoms companies, banks and airlines.

If Hollande goes down the path he has stated, the French economy will soon enough be in ruins, likely in need of a bailout.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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S&P Futures Open +15,Nasdaq +32, US Dollar Index Opens Down on Spain Bailout News

Posted: 10 Jun 2012 03:08 PM PDT

S&P Futures Opened up 15 points and Nasdaq futures up about 20 points but soared to +32 points in seconds as if something was solved by this bailout in Spain. It wasn't. Nonetheless, shorts appear for the moment scrambling to cover. When reality sets in is anyone's guess.

On a delayed feed basis the US dollar index now down about 90 cents, gold is up about $12 and silver up about 46 cents.

US Dollar Index First 20 Minutes

click on chart for sharper image

The pertinent question is what happens to Spanish bond prices.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Rajoy Proclaims "Victory", Says It's Not a Bailout "It's a Credit Line"; Existing Bondholders Subordinated

Posted: 10 Jun 2012 10:39 AM PDT

In the too stupid to make up category, Rajoy defends 'victory' for EU credibility

Mariano Rajoy, the embattled Spanish prime minister, has defended the eurozone's €100bn bailout for Spanish banks as a victory for European credibility.

He repeated Spanish assertions that the EU aid was different from the full bailout programmes previously provided to Greece, Ireland and Portugal by the EU and the International Monetary Fund, which involved detailed austerity targets and monitoring.

"There's no conditionality of any kind. This does not affect the deficit," Mr Rajoy said, placing the new loan deal in the context of his centre-right government's efforts to restructure the banking system, cut the budget deficit and reform the labour market since it took power less than six months ago.

Economists and analysts say the EU loan nevertheless amounts to a rescue for Spain because the money will go to the state Fund for Orderly Bank Restructuring and was necessary only because Spain itself could not access the sovereign bond markets at a reasonable price.

An opinion poll published on Sunday in the newspaper El País showed that 78 per cent of Spaniards had "little or no" confidence in Mr Rajoy, whose Popular party won an overwhelming election victory over the Socialists in November.

Victory or Defeat?

If a 100 billion euro bailout is a "victory" then what constitutes defeat?

The answer of course is a restructuring or default.

Once the rest of the European banks sell all their exposure to Spanish debt, a restructuring or default is exactly what will happen, just as with Greece.

No Strings Attached?

Rajoy says there were "no strings attached". Complete details have yet to emerge but there is one major string already. It's called subordination.

Spanish Bondholders to Rank Behind Official Loans After Bailout

Bloomberg reports Spanish Bondholders to Rank Behind Official Loans After Bailout

Investors holding bonds issued by Spain and its banks will rank behind official creditors in the queue for payment after the nation asked for a bailout of as much as 100 billion euros ($125 billion).

Rajoy said the agreement was "the opening of a credit line," rather than a bailout such as those received by Greece, Ireland and Portugal, and the conditions of the loan affected the financial industry, the sovereign is ultimately responsible for it.

"The risk is now all Spanish bonds are inferior to the ESM," Steen Jakobsen, chief economist at Saxo Bank A/S in Hellerup, Denmark, wrote in a note. "Finland already declared that if this loan is coming from EFSF they want collateral."

"This is state financing, and the risks of an equity injection into the banks will stay with Spain," said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. "Spain needs a systematic restructuring of its banking system, which could entail haircuts to subordinated bank debt.

Holders of the subordinated debt of banks that Spain has to rescue will probably have to accept losses, according to Gary Jenkins, director of Swordfish Research Ltd. in Amersham, England.

"Whilst Spanish politicians tried to claim that this was not a bailout it is of course a de-facto bailout of Spain itself," Jenkins wrote in a note.

Key Statement

"Holders of the subordinated debt will probably have to accept losses". So who wants to hold that debt given what happened to Greece?

It will be interesting to see if there is initial euphoria in the bond markets. Regardless, sooner or later (probably sooner), selling pressure will eventually overtake any initial excitement of this alleged "victory".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Details of the Secret "Nannyplan" Emerge; Proposed Nannygroup Uniforms

Posted: 10 Jun 2012 12:18 AM PDT

EU nannycrats are marching forward with plans without regards to Germany or German constitutional issues.

The plan is dead on arrival because it includes eurobonds and other questionable items, but nannycrats do not care about such issues.

List of Nannycrats Working on the Master Nannyplan

European Union Commission President Jose Manuel Barroso
European Council President Herman Van Rompuy
Euro group head Jean-Claude Juncker
European Central Bank President Mario Draghi

Notably missing is anyone representing Germany although the plans include eurobonds. Even if one ignores the eurobond issue, the nannyplan cannot possibly fly.

I pieced together details from an article on Reuters: Europe works on new euro zone bond plan

The original source is cited as Der Spiegel but as is typical in economic articles, no links to external sources are provided.

I happen to believe that if you quote someone you ought to have the decency to put in a link, but these days few do. Rant aside...

Nannyplan Details

Plans will create a "genuine fiscal union" in which individual member states would no longer be able to independently take on new borrowing.
Governments would only be able to decide how to spend money that is covered through their revenues.
Any country that needs more money than it takes in would have to report that need to the group of euro finance ministers.
Finance ministers will decide which financial levels are justified and would then issue joint euro bonds to finance these new borrowing needs.
"The exclusive group of ministers would be led by a full-time chair, who could ultimately rise to the position of European finance minister"
This "powerful group of finance ministers" would be controlled by a new European body in which representatives of national parliaments would have seats.

Nannyplan Synopsis

The proposal is to create group of nannies (similar in theory to the Fed except the decisions are primarily fiscal).
The group of nannies will be headed by a master-nanny (think someone like Bernanke or in this case Jean-Claude Trichet). The nanny-master will originally be a full-time chair. However, that person could ultimately rise to the position of "European Finance Minister (EFM)", but also known as "Grand Poobah".
The nannies will be controlled by elected politicians who will no doubt appoint a master-nanny who will do what the majority wants.

Grand Poobah Uniform

I am pleased to report that I have obtained an image of the "Grand Poobah" uniform.

The term "Grand Poobah" appeared in the cartoon series The Flintstones. The "Grand Imperial Poobah" was leader of the men's group "Loyal Order of Water Buffaloes".

Wikipedia says ...

"Grand Poobah is a term derived from the name of the haughty character Pooh-Bah in Gilbert and Sullivan's The Mikado (1885). In this comic opera, Pooh-Bah holds numerous exalted offices, including "First Lord of the Treasury, Lord Chief Justice, Commander-in-Chief, Lord High Admiral... Archbishop of Titipu, and Lord Mayor" and Lord High Everything Else. The name has come to be used as a mocking title for someone self-important or high-ranking and who either exhibits an inflated self-regard or who has limited authority while taking impressive titles."

"Grand Poobah" is a far more fitting name for the proposed "European Finance Minister" position.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : Compared to magical

Compared to magical

The easiest way to sell yourself short is to compare your work to the competition. To say that you are 5% cheaper or have one or two features that stand out--this is a formula for slightly better mediocrity.

The goal ought to be to compare yourself not to the best your peers or the competition has managed to get through a committee or down on paper, but to an unattainable, magical unicorn.

Compared to that, how are you doing?

• Email to a friend •

sâmbătă, 9 iunie 2012

Mish's Global Economic Trend Analysis

Spain Blinks: Accepts €100 Billion Bailout Via EFSF/ESM; FROB to Receive the Money

Posted: 09 Jun 2012 03:02 PM PDT

After months of denials, a short Eurogroup Statement shows Spain will submit a formal request to Brussels for a bailout. Here is the statement in full.

The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.

The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request. The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance. Beyond the determined implementation of these commitments, the Eurogroup considers that the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.

Treasury Secretary Tim Geithner issued this meaningless statement on Spain following the Eurogroup announcement.

We welcome Spain's action to recapitalize its banking system and the commitment by its European partners to provide support. These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area.

Lip Service to Reforms

In the Eurogroup statement, notice the lip service to Spain's "significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks".

It will be interesting to see the final terms but this bailout surely will not be the no-strings-attached request Spain had sought.

Once again, this is the wrong approach. Bondholders should have been wiped out. Instead, Spanish taxpayers will be put on the hook for another hundred billion euros.

If another hundred billion euros is all it takes, I will be amazed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Bailout Lite? There's Really No Such Thing; €30 Billion Needed? It's Now €100 Billion; Contagion of Economic Idiocy

Posted: 09 Jun 2012 10:22 AM PDT

A few days ago Spain was purportedly going to need another €30 billion to €70 billion to recapitalize Spanish banks. I suggested the amount would be at least triple that and it did not take long to do so.

Yahoo! Finance reports Spanish bailout could reach 100 billion euros

A bailout for Spain's teetering banks, once requested by Madrid, could amount to as much as 100 billion euros, two senior EU sources told Reuters on Saturday.

Spain has not yet made a formal request for European aid but it could come during a conference call of euro zone finance ministers, the sources, who were both on an earlier call to discuss the technicalities of a rescue, said.

"A decision on Spain will only be taken ... by the ministers (in a second call). Madrid has not officially asked for help yet," one of the officials said. "The statement will mention 100 billion euros as an upper limit."

€100 Billion Upper Limit? Until When?

When I said triple the reported amount, I meant triple the upper end of the reported amount. Bear in mind I am just guessing. However, history shows that I am more likely to be on the low end than the high end.

As with Greece, every economic number from Spain is revised to the downside, month in and month out.

For now, the EU economic wizards will likely concoct a number just under that alleged "upper limit". My best guess is €90 billion. Then within six months, possibly as soon as the money is handed over, more problems will surface, more meetings will take place, and still more money will be stolen from Spanish taxpayers and handed over to the banks and bondholders.

Bailout Lite?

There is no such thing as a "bailout lite". Sure, they can ease conditions on Spain, but what kind of message does that send Greece with elections coming up on June 17.

Moreover, the odds the Spanish economy starts recovering later this year as forecast are virtually zero percent. Then what? Then Spain will need another "bailout lite" and still more extensions.

In the meantime, the odds France and Italy hit their budget deficit targets are also close to zero.

Contagion of Economic Idiocy

Combine the above ideas with the worst economic plan in history to combat high unemployment (please see Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It") and an economic disaster awaits the eurozone.

My conclusion is that Europe is about to suffer from contagion of the worst kind: contagion of economic idiocy on bailouts, on employment, and nannycrat nonsense.

The humorous quote of the day comes from "FamilyMan" who offers these thoughts on France's proposals to stem unemployment:

As a US citizen, I applaud the French strategy. Since we can't fix America, we need other countries to be even more insane than we are! Can we get France to implement a $500 euro an hour minimum wage to "wipe out poverty"?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Damn Cool Pics

Super Creepy Creepy Justin Bieber Fan Video

Posted: 08 Jun 2012 09:49 PM PDT

Justin Bieber has a new fragrance called Girlfriend and has launched a contest for his fans where you rewrite his song 'Boyfriend' and turn it into your own 'Girlfriend' version. One girl's fanvideo really stands out from the crowd. This entry definitely deserves to be the winner of the Justin Bieber 'Girlfriend' Sing-Off Contest.

Jobs That Could Kill You [Infographic]

Posted: 08 Jun 2012 09:39 PM PDT

Risky jobs are worth it for those paychecks, right? Actually, a lot of them pay less than you'd think. Check out some of the deadliest jobs with the least monetary reward for your risk, and get a glimpse of some of the best-paying ones, too!

There were 4,547 fatal workplace injuries in the United States in 2010. 9% were caused by exposure to harmful substances or environments. 16% were caused by contact with objects and equipment. 18% were caused by assaults and violent acts. 39% were caused by transportation incidents. 4% were caused by fires and explosions. 14% were caused by falls.

Click image to see a larger version.

Via Becomecareer

A "State Dinner" just for kids

Saturday, June 9, 2012

A "State Dinner" just for kids

Calling all kid chefs: Here's your chance to share your favorite delicious and nutritious lunch recipe with First Lady Michelle Obama.

Let's Move!, the First Lady's initiative to solve the problem of childhood obesity within a generation, is looking for parents or legal guardians of creative kid chefs from all over the country to submit their child’s recipe for a healthy and nutritious lunch.

So if your kids have some skills in the kitchen, we hope you'll take the time to share their recipes. We'll invite a winning child and their parent or legal guardian from each state and territory to join us for a Kid's "State Dinner."

The rules are simple: All entrants (parents or legal guardians of kids ages 8-12) are encouraged to reference the MyPlate nutritional guidelines to ensure recipes meet healthy standards. Recipes should include each of the food groups, either in one dish or as parts of a lunch meal, including fruit, veggies, whole grains, protein and low-fat dairy foods.

Then in August, Let's Move! will team up with the Department of Education, USDA, and Epicurious for a Kid's "State Dinner." Winning recipes will be published in an online book to help share these new, healthy lunch time ideas.

You have until June 17 to submit your recipe, so get cooking and share what you think we should serve for lunch at the White House:

http://www.letsmove.gov/kids-state-dinner

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