Mish's Global Economic Trend Analysis

Limits of Voluntary Deal Hit as Greek Bondholders Draw Line in the Sand; Separating Fact from Fiction in Selective Reporting
Australia Roundup: Oceanfront Homes for 65% Off; Chain Sales and Contingent Offers; Retailers Brace for More Job Cuts; Cusp of a White-Collar Recession
Irish Journalist Hounds ECB Official Regarding Irish Taxpayer Bailout of French and German Banks
Gingrich Blows Away Romney 40% to 28%; Victory Horrifies Republican Establishment; Looking Ahead, Who is the New Torch Bearer of Freedom?

Limits of Voluntary Deal Hit as Greek Bondholders Draw Line in the Sand; Separating Fact from Fiction in Selective Reporting

Posted: 22 Jan 2012 11:01 PM PST

The bickering over a half percentage point reduction on the discount rate continued over the weekend as Greek Bondholders Draw Line in the Sand

Private owners of Greek debt have made their "maximum" offer for the losses they are willing to accept, the bondholders' lead negotiator has said, implying that any further demands could kill off a "voluntary" deal and trigger a default.

One banker said Friday's demand by official creditors, led by the International Monetary Fund, for a further interest rate cut of 50 basis points on new long-term bonds to be swapped for existing Greek debt "may have put a voluntary deal out of reach".

Mr Dallara said the IIF's position tabled with Greek authorities on Friday night – believed to include a loss of 65-70 per cent on current Greek bonds' long-term value – was as far as his side was likely to go.

"I think it's clear we are at the limits of a voluntary deal," Mr Dallara said, recalling that eurozone heads of state had committed to keeping the restructuring voluntary at a high-stakes EU summit in October. "It is clear to me we are at a crossroads."

The IMF wants to put Greece on a path for a debt-to-GDP ratio of 120 percent by 2020. Anyone remember the original proposal a year or so ago? The idea then was austerity measures would put Greece at an 80 percent debt-to-GDP ratio by 2013-2014.

That Fantasyland proposal was soon followed by haircuts of 21% on Greek debt which I said would not work, then 50% which I said would not work, and now 65-70% which once again I suggest will not work.

Greece is in a depression and things are going to get worse. Portugal and Spain are also in depressions.

Ambrose Evans-Pritchard thinks Italy is headed for depression as well. Please see Money Supply Figures Suggests Italy Headed Into Depression; Non-Performing Spanish Loans Hit 134 Billion Euros, 7.51% of All Loans, Highest in 17 Years; Eurozone Unemployment Charts for a discussion.

Granted, 2020 is a long way off, but recall the Maastricht Treaty requires a debt-to-GDP ratio of no more than 60%.

European Debt-to-GDP Ratios

CNN has a nice interactive map of European Public Debt at a Glance.

Germany, France, Belgium, Italy, Portugal, Ireland, Spain, and Greece are all in violation. In fact, 13 out of 17 nations are in violation of the treaty. Estonia, Slovenia, Finland, and Luxembourg are the only exceptions.

The map is from 2010 and some countries such as Spain that were on the edge before are no longer on the edge.

Greek Talks Hit a Snag Over Rates

The New York Times reports Greek Talks Hit a Snag Over Rates

Greece's private creditors, which hold about 206 billion euros, or $265 billion, in Greek bonds, are resisting accepting a lower rate. They argue that they are already faced with a 50 percent loss on their existing bonds and that the lower rate would increase the hit they would take.

It would also make it more difficult to describe the deal as voluntary. A coercive deal, bankers warned, could lead to a technical default and the initiation of credit-default swaps, or insurance, an outcome that all sides were trying to avoid.

[Mish: No - not ALL sides are trying to avoid that]

With the Greek economy forecast to shrink by 6 percent this year and 3 percent next year, the ultimate goal of Greece's lowering debt to 120 percent of gross domestic product by 2020 is seeming more and more unrealistic. With G.D.P. plummeting, the International Monetary Fund is insisting that Greece's debt load — currently 160 percent of G.D.P. — be reduced more quickly and that the private sector pay its fair share.

A majority of the funds the monetary fund has disbursed so far has been paid out to Greece's bondholders as opposed to helping Greece itself. Of the close to 20 billion euros that the fund has disbursed, two-thirds has gone to repay bondholders — an increasing number of which have been hedge funds betting that this trend will continue.

CDS Holders Have Vested in in a "Credit Event" Not a Deal

Hedge funds that have plowed into Greek debt did so with credit default swaps. Those CDS holders would be made whole on any "credit event".

They have no vested interest in reaching a deal. So not "all" sides want to reach a deal as stated in the article.

Other creditors are upset that the ECB itself will not partake in haircuts. The ECB holds 55 billion of the 206 billion euros of Greek debt. The rest of the EMU according to fixed percentages are on the hook for that debt.

The Times reports ...

The [ECB's] refusal to take a loss has been regularly cited by investors as unfair, and many have said that they will sue Greece if they have to take a loss while the bank does not.

To get around this, officials are now discussing the possibility that Europe's rescue fund might lend money to Greece to allow it to buy the bonds back from the European Central Bank at the price the bank paid for them — thought to be about 75 cents on the euro. The central bank would then not have to take a loss on these holdings. By selling them back to Greece, it would remove itself as an obstacle to a broad restructuring agreement.

Separating Fact from Fiction in Selective Reporting

The proposal is for the ECB to sell its bonds back to Greece so that Greece will then take a hit.

With that in mind, look at this preposterous claim by a senior official "The bonds' rate "is the only issue," said a senior official directly involved in the negotiations. "We have to accommodate the needs of the Greek economy."

I see two sentences and two lies. Indeed the entire article is crammed pack with lies made by various IIF and EMU officials.

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

Australia Roundup: Oceanfront Homes for 65% Off; Chain Sales and Contingent Offers; Retailers Brace for More Job Cuts; Cusp of a White-Collar Recession

Posted: 22 Jan 2012 11:20 AM PST

Reader "Brisbane Bear" from down under sent potpourri of links on the dwindling prospects for the Australian economy.

Oceanfront Homes for 65% Off

In apples, rot starts at the periphery and spreads to the core. In real estate, rot starts in condos and vacation homes, then slowly encompasses city after city.

Please consider Investors snap up coastal property bargains in Queensland.

While prices soar in some coastal towns close to mining centres, astute buyers are managing to secure ocean- front homes in traditional tourist locations for $500,000 or more off peak prices as vendors cave after years of trying to sell.

One buyer scored an oceanfront unit in a marina development at Cardwell, halfway between Cairns and Townsville, for $157,000 - almost $300,000 less than it sold for in 2006. The unit had been on the market for three years.

A penthouse with ocean views in the same development sold for $570,000 less than its 2007 sales price.

RP Data senior analyst Cameron Kusher said buyers of the most affordable seaside holiday homes needed to be prepared for a long commute. But he said coastal market values had fallen across Queensland, meaning bargains could even be found in popular locations.

Chain Sales and Contingent Offers

When all else fails, buyers accept any offer they can get including contingent sales as noted by The Age in Risky ride on the vendor-go-round.

SELLING a home is stressful at the best of times. Failing to sell at auction in the midst of a property downturn can be its own kind of nightmare.

But imagine if it turned out that the only way to sell your home depended on the buyer having to sell theirs first.

It is a scenario Gavin and Verity Carson never considered when their Abbotsford terrace house went to auction and was passed in.

After later negotiations with a bidder broke down, they were left at a loss about what to do next. Looming was the threat of a lengthy wait in the private sale market, already flooded with thousands of unsold homes.

"All the people that had been interested were no longer interested - we had to really start the campaign from scratch," Mr Carson said, adding that they already faced a $10,000 advertising bill for the auction.

"Ideally, we would have sold at auction," Mr Carson said. "We did end up taking a lower value than we were expecting but that's really just indicative of the market at the moment. We're glad that it's over - put it that way."

In Britain, subject-to-sale transactions can often evolve into "chain" sales involving multiple properties that must all settle on the same day.

Retailers Brace for More Job Cuts

Following a dismal Christmas selling season, Retailers brace for job cuts

THE battered retail industry is bracing for a fresh wave of job cuts, with the crucial Christmas shopping season failing to deliver a much-needed surge in sales.

Analysts predict a clutch of struggling retailers will fall into administration in March, joining a list of failures over the past year that includes the booksellers Borders and Angus and Robertson, and the clothing retailers Colorado and Fletcher Jones.

At the same time as they slash costs in their stores, retailers are pouring resources into information technology - pinning hopes of a return to growth on tightening the link between physical and online shopping.

In November, a month when typically volumes rise in the run-up to Christmas, retail sales fell from a 0.2 per cent growth in October to no growth in November, while department store sales in trend terms fell 0.2 per cent.

"You've seen the Bureau of Statistics retail sales for November, and it's pretty dismal," said a David Jones spokeswoman, Helen Karlis.

"There's no sugar coating, it's just what's happening. Flat growth is probably a good thing in this environment."

The Australian National Retailers Association's chief executive, Margy Osmond, said retailers looked at the flat November retail sales with disappointment ''and concern''.

"At this stage, many retailers have chosen to reduce staff hours rather than lose valuable people, but there is a real concern in the sector about keeping jobs," she said.

Cost cutting would continue in the retail area, said the Commonwealth Bank's retail analyst, Andrew McClennan.

"But also there is no doubt there are going to be significant layoffs through further business failures," he said.

Cusp of a White-Collar Recession

Please consider Bank on white-collar crisis

AUSTRALIA is on the cusp of a white-collar recession with insiders warning that thousands of jobs are at risk in the finance sector, after it emerged yesterday that ANZ planned to cut 700 jobs.

But The Saturday Age has established the job cuts will total as many as 1000 by the end of this year, which will be more than the bank shed at the height of the global financial crisis.

They come a day after the Royal Bank of Scotland announced plans to close its investment banking business, leading to the loss of more than 200 jobs in Australia.

Economists have warned Australia is vulnerable to a recession this year with a wholesale funding squeeze in Europe raising debt costs for banks such as ANZ.

Experts say thousands of jobs will be lost from the industry this year as banks scramble to adjust to an era of low credit growth and higher funding costs.

This comes on top of cuts of 2150 jobs between March 2009 and last September in ANZ's Australian division. "We have run a policy of shedding jobs through attrition since October last year," an executive said.

"Temps have not been rehired once their contract has expired. Secondments have been stopped. We have outsourced two whole floors of operations staff from a [Melbourne] office to Manila [in the Philippines]. If you count all those jobs since October, along with what will be announced in the next week … we will lose more staff than we did as a result of the GFC."

Australia is not on the "Cusp of a White-Collar Recession", Australia is smack in the midst of a general recession affecting nearly all aspects of the economy but mining. As China slows, mining will slow as well.

Expect the real estate rot to spread to the core, sooner rather than later. The collapse in commercial real estate values, condos, and homes will be stunning.

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

Irish Journalist Hounds ECB Official Regarding Irish Taxpayer Bailout of French and German Banks

Posted: 22 Jan 2012 10:16 AM PST

The video below is from a European Central Bank press-conference in Ireland. Journalist Vincent Browne demands that the ECB representative explain why the ECB required the Irish people to bail out a bank's uninsured creditors. The bureaucrat mouths bland reassurances, then asserts (despite all appearances to the contrary) that the question has been answered. Browne doesn't let up.

Link if video does not play: Irish journalist humiliates EuroBank technocrat who won't stop ducking hard questions

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

Gingrich Blows Away Romney 40% to 28%; Victory Horrifies Republican Establishment; Looking Ahead, Who is the New Torch Bearer of Freedom?

Posted: 22 Jan 2012 03:11 AM PST

In spite of a carefully timed announcement by Newt Gingrich's ex-wife Marianne on an "Open Marriage, Mistress Proposal", Gingrich rallied from a 16 point deficit on January 3 to a stunning 12 percentage point slaughter of Mitt Romney less than three weeks later.

South Carolina Primary Results

The Associated Press announces these South Carolina Primary Results.

This goes to show you that "It ain't over until it's over."

Dog Whistle Politics

The Financial Times reports Victory Horrifies Republican Establishment

Gingrich didn't just win the primary. He crushed Mr Romney, by more than ten percentage points, and that after the former Massachusetts governor had a lead of similar dimensions over Mr Gingrich just a week before the poll.

At least among Republicans, Mr Gingrich is so battle-scarred that no matter what dirt is thrown at him – even the fact that his ex-wife said he wanted an "open marriage" – it no longer sticks.

Mr Gingrich is also twice the natural politician that Mr Romney is, and was able to tailor his message on the campaign trail in South Carolina to rouse that state's voters.

Although he denied it, his continuous references to Barack Obama as a "food stamp president" was called out by some commentators as classic dog whistle politics in a state with a long history of racial tension.

Mr Gingrich will be thrilled with his victory. The Republican establishment, however, will be horrified, because its members think he is unelectable and tarnished in a general election.

If Mr Gingrich wins Florida, expect a huge campaign against him, not from the White House, but from within the Republican party itself.

Who is the New Torch Bearer of Freedom?

I will take flack for this but it's all over for Ron Paul. He finished a disappointing 4th. I do not like the news but I cannot ignore it.

This will not stop me one bit from pointing out the flaws of Gingrich, the flaws of Romney, and the flaws of the Republican and Democratic parties in general. Indeed I hope and expect Ron Paul to carry his message to the end in an attempt to change the Republican platform.

The Republican party needs a new torch bearer. New Jersey governor Chris Christie walked away from the opportunity. Christie was not the perfect candidate, rather he was an acceptable candidate.

Nonetheless, one thing is certain. Neither Gingrich nor Romney is the future of the Republican party. Both are failed politicians of the failed past.

A new torch bearer will not come from the existing Republican establishment. My eyes turn towards Rand Paul.

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

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Sunday, January 22, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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