Mish's Global Economic Trend Analysis

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Hollande Asks ECB to Engage in Japanese Style Currency Debasement Posted: 17 May 2013 11:44 AM PDT French president Francois has had enough of austerity but claims he "cannot do it alone". The Financial Times reports François Hollande goes on 'offensive' over stalled EU economy. François Hollande promised an "offensive" to bring "more growth and less austerity" to Europe as he launched a bid to resurrect his presidency. Mr Hollande said the first priority of his second-year "offensive" was a four-point plan to "get Europe out of its torpor" – concentrating on combating youth unemployment and a strategy of investment. "The number one objective is changing Europe's direction to have more growth and less austerity," he said. "I cannot do it alone," he said, adding that the European Central Bank could "put in liquidity, as is happening in Japan, which has allowed a fall in the yen and helped exports". The president promised a 10-year investment programme in digital, energy, health and infrastructure sectors to regenerate growth, saying that it could in part be financed by the sale of some of France's big state corporate holdings, which have a total market capitalisation of about €60bn. But he made clear that any sales would not be at the expense of ceding state control or influence over vital companies. Economic Illiteracy Not only is the Hollande in praise of competitive currency debasement which mathematically cannot work if every country does it (not that it can work anyway without long-term consequences), he also wants to sell France government holdings "without ceding state control or influence over vital companies". Good luck with that. No one in their right mind would want to buy companies under such conditions. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

How Clueless Are Manufacturing Future Expectations? Posted: 17 May 2013 01:16 AM PDT Month in and month out I see unwarranted optimism in Europe and in the US. For example, on Thursday I stated "Philly Fed Slips Into Contraction (Again); Current Conditions Recessionary, Future Expectations Far Too Optimistic". Here is the chart I posted: That chart got me to wondering "just how wrong are future expectations historically?" The data is available, all one has to do is chart it. I asked Doug Short at Advisor Perspectives if he could produce a chart of future expectations offset by six months to see how expectations actually matched what did happen. Doug graciously produced a pair of charts. click on either chart for sharper image Future Expectations Shifted 6 Months Back vs. Actual Results Note that manufacturers in the Philly region are especially clueless during recessions as to how fast things will improve. They can be wildly off at other times too, as shown by the black ovals. Since the Philly Fed index is generally noisy (huge month-to-month random fluctuations), we decided to smooth out the lines by showing a 3-month rolling average of current conditions vs. a 3-month rolling average of future expectations. Future Expectations Shifted 6 Months Back vs. Actual Results (3-Month Rolling Averages) Charts by Doug Short, annotations in purple and black by Mish. Optimistic Expectations Generally speaking, manufacturers' expectations about future conditions are wildly off for many months before during and after recessions. In the double-dip recession of 80-82, it took 43 months from the end of the first recession for expectations to match reality, then the lines immediately diverged again. Mid-cycle there were a couple of periods where expectations generally matched reality (as noted by close lines with repeat crossovers). The first was 1985 to 1987, and the second was 1996 to 1999.  In the 1974 and 1980 recessions expectations plunged ahead of the recession. Both appear to be oil related because it has not happened since. Key Points Wide variances in expectations vs. current conditions tend to be way over-optimistic.  Current spread of expectations vs. reality is in recession territory, albeit not quite as pronounced (yet) vs. earlier recessions. Addendum: The heading on the charts originally said six moths forward. It should have said backwards. The caption on the chart itself was correct. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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