Mish's Global Economic Trend Analysis

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• Real Estate Delinquency Rate Hits 17.7% in Spain, Total Delinquencies Approach 7%
• Italy Debt Rating Lowered by S&P with Negative Outlook; S&P Futures Drop 10 Points in 5 Minutes; Euro Drops in Tandem
• Late Payments at Spanish Banks, Cooperatives, Credit Institutions Hits 7%, Highest Since 1995
• No Hiding Spots Except Despised US Dollar: Equities Red, Metals Red, Energy Red, Grains Red
• Gallup Polls Show Years of Stagnation in Job Creation, Unemployment, Consumer Spending; Bank Stocks Signal Financial Recovery is Over
• Humiliated Greece Seeks to Avoid Humiliation and Blackmail; Bailout and Adjustment Fatigue by Germany and Greece

Real Estate Delinquency Rate Hits 17.7% in Spain, Total Delinquencies Approach 7% Posted: 19 Sep 2011 07:14 PM PDT Via Google Translate, Late payment of Real Estate Loans Hits Record 17.7% More than three years after the bursting of the housing bubble, banking has yet to digest the glut of brick that was in the boom years. In fact, instead of improving, deteriorating assets linked to this sector is growing by leaps and bounds. As reported today by the Bank of Spain , delinquencies in the housing sector has risen in the second quarter in more than two percentage points to 17.8% of total loans to these activities. Furthermore, as has been happening since the beginning of the crisis , the percentage with which they closed in June represents the highest level of arrears that collect statistics supervisor, which collects data disaggregated by sector since 2000 and, therefore, not reflect the evolution of the crisis of the early 90's. From the monitor data, delinquencies rose from 6.69% to 6.93% in June, which in money equals a total of 124,700 million euros in loans for which collection is considered doubtful. 124.7 Billion Euros of debt is in doubt on a total loan pool of 1.79 Trillion Euros (Also see Late Payments at Spanish Banks, Cooperatives, Credit Institutions Hits 7%, Highest Since 1995) Does anyone really think Spanish taxpayers can cover that debt as well as sovereign debt with no losses to bondholders? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Italy Debt Rating Lowered by S&P with Negative Outlook; S&P Futures Drop 10 Points in 5 Minutes; Euro Drops in Tandem Posted: 19 Sep 2011 05:17 PM PDT S&P 500 futures plunged a quick 10 points on news Italy Rating Lowered by S&P, Outlook 'Negative' Italy's credit rating was cut by Standard & Poor's on concern that weakening economic growth and a "fragile" government mean the nation won't be able to reduce the euro-region's second-largest debt burden. The rating was lowered to A from A+, with a negative outlook, S&P said in a statement. The company said Italy's net general government debt is the highest among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously anticipated. S&P also said it lowered its outlook for Italy's annual average growth to 0.7 percent for 2011 to 2014, from a prior projection of 1.3 percent. "We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," it said. "Italy's economic growth prospects are weakening and we expect that Italy's fragile governing coalition and policy differences within parliament will continue to limit the government's ability to respond decisively to domestic and external macroeconomic challenges," S&P said. Italy's downgrade may aggravate a volatile political situation -- Berlusconi faces four trials -- after a decade with virtually no economic growth that has undermined debt reduction. Its government debt was 119 percent of gross domestic product last year, more than any euro country after Greece. S&P 500 Futures, 5-Minute Chart click on chart for sharper image Euro Futures, 10-Minute Chart click on chart for sharper image The market could easily be 2% higher or 2% lower 15 minutes from now. That's how silly this crapshoot now is. Intermediate-term there is absolutely no reason to be in this market unless you are hedged or mostly riding gold. Barring dramatic bailout news (and perhaps even if there is some dramatic bailout news), expect Italian debt will likely be clobbered on this news. Longer-term it is Spain, Italy, and France that matters most, but short-term all eyes have been on bankrupt Greece, awaiting a proper burial. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Late Payments at Spanish Banks, Cooperatives, Credit Institutions Hits 7%, Highest Since 1995 Posted: 19 Sep 2011 03:18 PM PDT Courtesy of Google Translate and also my friend Bran who lives in Spain, please consider Financial System Late Payments Verge on 7%. The delinquency rate of the Spanish financial system credit (banks, cooperatives and credit institutions) rose in July to 6.936% against 6.690% in June, according to data released today by the Bank of Spain. The delinquency rate remains at its highest level in 16 years, since February 1995. When compared with July 2010, the data show a significant increase in bad debts, because in that month was in the 5.483%. Of the total of 1.79 billion in loans, doubtful loans are 124.618 million, compared with 100.527 million from the same month last year. That seems like a small total of loans so I am not precisely sure what they are measuring. Bran writes "True figures would be much higher given the effort to keep bank assets 'performing'. However, the above late payment numbers gives a clear indication of the rate of change. Things are deteriorating rapidly." Addendum: From Bran - That is 1.79 trillion in loans of which 124 billion is delinquent. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

No Hiding Spots Except Despised US Dollar: Equities Red, Metals Red, Energy Red, Grains Red Posted: 19 Sep 2011 11:11 AM PDT Equities, foreign equities, and most commodities (including gold), are down sharply on the day. About the only winners are the US dollar, US treasuries, the Yen, and German Bonds. Currency Futures Energy Futures Grain Futures Metal Futures US Equity Futures European Equities $SSEC Shanghai China Stock Index Italian 10-Year Government Bonds No Hiding Spots Except Despised US Dollar If you have not done so already done so, please consider the possibility there will be no hiding spots except for US dollars and short-term US treasuries (yielding nothing) in a renewed strong downturn. I expect gold to hold up in a major decline, but I could easily be wrong. One encouraging sign is the $HUI gold miner index is down less than a percent even though gold is down by 2% and the S&P and Dow are down by almost 2% as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Gallup Polls Show Years of Stagnation in Job Creation, Unemployment, Consumer Spending; Bank Stocks Signal Financial Recovery is Over Posted: 19 Sep 2011 09:49 AM PDT Recent Gallup polls show that Three Years After Crisis, Little Sign of Economic Relief in U.S. There has been no improvement in underemployment (counting part-time workers) from a year ago Job creation has been in a narrow range since October 2010 Consumer spending has been stagnant since January 2009 Economic confidence is near the lows seen at the depth of the depression click on any chart for sharper image Economic Confidence: Back at Recessionary Levels Americans' confidence in the U.S. economy is now at its lowest point since February 2009 -- near the conclusion of the recession that officially ended in June 2009. Gallup's Economic Confidence Index was -52 in August, above its financial crisis lows, but much lower than the -21 to -35 range measured from June 2009 to June 2011. Americans' current level of economic confidence -- which represents their views on the current state and future direction of the nation's economy -- is decidedly negative. Seventy-seven percent said the economy was getting worse in August, the highest -- by far -- since February 2009, the month in which Congress passed a $787 billion stimulus bill in hopes of lifting the U.S. economy out the depths of the recession. Job Creation: Improved From 2009-2010 Lows, but Far From Early 2008 Levels The +13 Job Creation Index for August falls into the +10 to +15 range Gallup has measured since October 2010. The good news is that for nearly a year, Gallup has found consistently higher rates of net new job creation (the difference between hiring and letting go) than it did for the first two years after the global economic collapse. The not-so-good news is that the current rate of job creation is still just half of the +26 score Gallup found when it began tracking this metric in January 2008, when the nation was already technically in a recession. Currently, 32% of workers say their employer is hiring and 19% say their employer is letting workers go, compared with 40% and 14%, respectively, in January 2008. Underemployment and Employment: Stuck at Year-Ago Levels Gallup found 18.5% of workers underemployed, including 9.1% unemployed, in August 2011. These figures are based on Gallup's measure of employment, which is not seasonally adjusted. Both of the current figures are statistically similar to what they were a year ago, meaning the employment situation in the U.S. is no better now than it was at that time. Consumer Spending: Nowhere Near 2008 Levels Americans' spending has remained essentially stagnant since it fell dramatically in January 2009. Spending in stores, restaurants, gas stations, and online has averaged $66 per day so far in 2011 -- similar to the $65 is 2010 and $64 in 2009. This compares with an average of $96 per day in 2008. That year, Americans' daily spending ranged from $81 to $114 per day in monthly averages. Since 2009, monthly spending averages have ranged between $58 and $75. No Real Recovery Clearly there has been no real recovery from the point of view of consumers. There was a financial recovery that is now crumbling, led by bank stocks. BAC Bank of America $BKX Banking Index C Citigroup Banks Stock fueled the decline in 2008 and have done so this year as well. There was never a recovery in the real economy and now bank stocks signal the financial recovery is over as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Humiliated Greece Seeks to Avoid Humiliation and Blackmail; Bailout and Adjustment Fatigue by Germany and Greece Posted: 19 Sep 2011 08:44 AM PDT Bailout fatigue and adjustment fatigue have set in. Germany is tired of waiting for Greek reforms, and Greek citizens are tired of the adjustments that that Germany and the IMF demand. Moreover, in an attempt to prevent what has already happened, Greece seeks to avoid 'humiliation' with more cuts Greece will try to avoid international "blackmail and humiliation" by speeding up reforms and civil-service staff cuts, the finance minister said Monday, hours before holding an emergency teleconference with creditors. Out of patience with the Socialist government's delays on promised reforms, Greece's partners and creditors are threatening to cut the cash lifeline without which the country would go bankrupt in less than a month. "We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," said Amadeu Altafaj Tardio, a spokesman for the European Commission. Greece's economy is expected to contract by about 5.5 percent this year -- more than the 3.5 percent earlier assumed -- and a further 2.5 percent in 2012, according to new government and IMF estimates. The government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 percent of gross domestic product. When it became obvious earlier this month that there was a more than euro2 billion ($2.75 billion) shortfall in the budget, Greece's creditors threatened to withhold the sixth installment of a euro110 billion rescue package agreed upon in May 2010. IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes, arguing that Athens should give up the "taboo" of firing public servants. "I have compared Greece to a Mercedes that can go 120 kilometers per hour but is only going 40 because it has so much sludge in the engine," Traa told the conference. "If you can do it (staff cuts) up front, you get over it much more quickly. Whether society can support that is a different issue," Traa told the AP. "Our experience is that ... if you do things gradually that may induce the public getting very tired. Adjustment fatigue is something that happens in every country." EU, ECB, IMF Agree to Throw $302.8 Billion At Greece to Prevent a $40 Billion Default The EU, ECB, and IMF could have and should have let Greece default two years ago. The cost would have been around $40 billion. Instead Greece received $152.6 billion, in aid agreed in spring 2010. That money has already been wasted. A second bailout of $150.2 billion was agreed in July but not yet squandered. This blatant stupidity helped contribute to the massive undercapitalization of European banks. Throwing more money at Greece in belief Greece can meet 2012 growth and budget targets is delusional. Yet that the remains the plan. Greeks Discuss Drastic Moves to Receive Aid The New York Times reports Greeks Discuss Drastic Moves to Receive Aid The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt. Over the weekend, European finance ministers issued stern warnings at a meeting in Poland that failure to meet financial targets would imperil the release of the payment. The payment is just one installment in a larger package of 110 billion euros, or $152.6 billion, in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, or $150.2 billion, was agreed to in July, though that has yet to be ratified. Greece officials are being pressed to put thousands of civil servants deemed to be "surplus" on a standby status at a reduced wage. The government has not yet pushed ahead with this measure, which is very unpopular in a country where nearly one million people out of a population of 11 million work for the government. Several Greek news media outlets, including the influential center-left newspaper To Vima, on Sunday cited an internal government e-mail that set out priorities by Greece's foreign creditors aimed at raising much-needed revenue quickly. These include cuts in the pensions of Greek sailors and employees of the state telecommunication company OTE, the immediate merger or abolition of 65 state agencies and the freezing of state workers' pensions through 2015. Adding to the Greeks' dilemma is that the proposed cuts come as the Greek economy is contracting faster than expected. Last week, Mr. Venizelos warned that the economy would shrink much more sharply this year than anticipated — by 5.3 percent instead of the 3.8 percent originally forecast in May. The budget deficit is on track to reach 8.2 percent of gross domestic product this year, well ahead of the original estimate of 7.4 percent. The original aid package requires Greece to reduce its deficit to 7.5 percent of gross domestic product this year, and below 3 percent by 2014, according to the International Monetary Fund. Despite the dire circumstances, Mr. Venizelos denied rampant speculation that the country was on the brink of default. Second Official Denial We now have a second "official denial", this one from Greece. The implications are obvious. Please read Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied) for a discussion. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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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