Mish's Global Economic Trend Analysis

---

• European Banks have $650 billion Exposure to Ireland; Germany’s Economy Minister says "EU Cannot Throw Money from Helicopters"
• City of Hamtramck, Michigan Seeks Bankruptcy
• EU President Proclaims "Survival Crisis"; Everyone Wants a Bailout of Ireland Except Ireland; Austria tells Greece to Get Stuffed; Currency Ping-Pong
• Investigation of Bernanke's Proclaimed "Success" of QE II at Lowering Rates
• Hugo Salinas-Price Comments on Kitco and Nadler

European Banks have $650 billion Exposure to Ireland; Germany’s Economy Minister says "EU Cannot Throw Money from Helicopters" Posted: 16 Nov 2010 09:00 PM PST In case you were wondering about why there is intense pressure on Ireland to accept a bailout from the EU and the IMF, look no further than the fact that European banks have $650 billion Exposure to Ireland. Nonetheless, in a clear backhand slap in the face to Ben Bernanke, Germany's Economy Minister says "the European Union cannot throw money from Helicopters". Let's explore this messy situation with a peek at a couple of articles. Pressure Mounts on Ireland The New York Times reports New Push for Ireland to Consent to a Bailout As Ireland tried to fend off pressure to accept a bailout on Tuesday and other European nations raised objections to participating in a rescue plan, Europe again found itself confronting a crisis of confidence in the euro and, ultimately, in its ability to manage its economic problems. A very public struggle over how to grapple with the latest market unease over the fiscal stability of several European countries illustrated the touchy questions of sovereignty and difficulty of reaching consensus that have kept Europe from reacting quickly. The latest episode also raises questions about tapping an existing bailout fund that Europe created earlier this year to prevent a debt crisis in Greece. The pressure on Ireland grew as officials feared that market jitters could spread rapidly if nothing was done, putting the squeeze on other fiscally weakened countries, like Portugal and Spain, the fourth-largest economy in the euro zone. But officials in the more fiscally sound nations, like Germany and Finland, raised concerns about turning over money to nations without a coherent plan. The European Union cannot "throw money from helicopters," Germany's economy minister, Rainer Brüderle, said during a visit to Rome. "You have to create confidence in institutions, in the state, in public authorities." European Bank Exposure to Ireland Explains Bailout Push The New York Times reports Banks' Exposure Stirs EU Contagion Worries All told, European banks were sitting on more than $650 billion of exposure to Ireland as of March 31, according to the Bank for International Settlements. The U.K. banks are the international lenders with the most at stake. As of March 31, the latest data available, the banks had exposure of about $222 billion to a variety of Irish institutions, according to BIS. That's about one-fourth of the world's exposure to Ireland. About $42 billion of the U.K. banks' exposure is in the form of lending to Ireland's battered banking sector. German banks aren't far behind the U.K. They had a total of almost $206 billion in exposure to Ireland, according to the BIS, including $46 billion of exposure to the country's banks. Rat's Ass Perspective The other countries in the EU do not give a rat's ass about Ireland. All they really cares about is $650 billion in loans on the books of UK, German, French, Italian, and Spanish banks. The US is of course the third most interested party and will no doubt apply pressure on the IMF to apply pressure on Ireland to accept some sort of bailout. Ireland is sitting on a pile of cash. That cash will last much longer if Ireland defaults and that I believe is just what Ireland should do. The IMF may be prepared to "Help" but I repeatedly ask and answer whether or not it can do any such thing in IMF Ready to "Help" Ireland; Can the IMF "Help" Anyone? The short answer is for Ireland to tell the EU and IMF to "Stuff It". Every country for itself. There is simply no reason for Irish citizens to bailout UK, German, French, and US banks. 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.

City of Hamtramck, Michigan Seeks Bankruptcy Posted: 16 Nov 2010 07:10 PM PST Lost in the shuffle of affairs in Ireland, the Detroit News reports Hamtramck seeks state permission to file for bankruptcy The city of Hamtramck, desperate for cash, has asked the state for permission to take an unprecedented step: filing for bankruptcy. City Manager Bill Cooper said the city of roughly 20,000 people is staring at a $3 million deficit, fueled by a dispute with Detroit. Unless Hamtramck files for bankruptcy, it won't be able to pay its nearly 100 employees or 153 retirees, he said. Many Michigan municipalities are under severe financial pressure following a crippling recession that has seen tax revenues plummet. The Detroit Public Schools considered bankruptcy last year but opted against it. Caleb Buhs, a Department of Treasury spokesman, said the department received the letter Monday and officials are studying it. Under a 1990 law, only an emergency financial manager appointed by the state can take a city into bankruptcy, he said. No Michigan municipality has declared bankruptcy before or since the law was passed, he said. Bill Nowling, a spokesman for Gov.-elect Rick Snyder, said Snyder is monitoring what he believes is a growing problem in Michigan. "The issue right now is to get a handle on exactly how many municipalities out there are at the point where Hamtramck is," Nowling said. "There are probably several that are sitting on the bubble." Nonunion employees have taken a 5 percent pay cut and are paying 15 percent of the health care premiums for spouses and families. The union employees have not agreed to those provisions, and Cooper said a bankruptcy filing could help "force the unions to the table." In his letter to the state, Cooper said the city has approached the police, fire and municipal unions on several occasions and won only minimal concessions. Moving "quickly to bankruptcy," Cooper wrote, would allow the city to "set aside" the current union contracts and solve the budget problem. "While this step may seem radical in its approach, it is the only approach that will quickly and effectively allow us to address our shortfall," he wrote. I commend the approach of Hamtramck city manager Bill Cooper. The public unions have bankrupted the city and numerous other cities in Michigan and elsewhere. Moreover, I await the bankruptcy filing for a major city like Houston, Miami, or Los Angeles, all of which are without a doubt "walking dead". The sooner they file bankruptcy the better off all of those cities will be. 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.

EU President Proclaims "Survival Crisis"; Everyone Wants a Bailout of Ireland Except Ireland; Austria tells Greece to Get Stuffed; Currency Ping-Pong Posted: 16 Nov 2010 12:48 PM PST A mad dash to "save Ireland" is underway by the EU and by the IMF. Numerous reports of an Irish bailout are floating around everywhere. The only problem with the rumors is that Ireland says the rumors are false and it does not need a bailout. EU President Proclaims Survival Crisis Bloomberg reports Ireland Weighs Aid as EU Spars Over Debt-Crisis Remedy Ireland was in talks over a financial rescue as European Union leaders battled to shield Portugal from the resurgent debt crisis and doubts surfaced over Greece's economic health. "We are in a survival crisis," EU President Herman Van Rompuy said at the European Policy Centre in Brussels today. "If we don't survive with the euro zone we will not survive with the European Union." Public clashes among EU officials over how to defuse Europe's debt bomb marked a new stage in the crisis triggered by Greece's near-default in May that forced the EU to set up a 750 billion-euro ($1 trillion) rescue fund to keep the euro intact. A European Central Bank official threatened to end economy- boosting measures. "We are discussing with both the ECB and the IMF and of course the Irish," EU Economic and Monetary Affairs Commissioner Olli Rehn said on his way into the meeting. "The real problems are in the banking sector," not with the government, "but these are connected." Ireland is negotiating with the EU and International Monetary Fund about aid to shore up the state's finances, furnish capital for the country's banks and spare it from tapping the bond market for an extended period, the European official said on condition of anonymity. "There is a risk of contagion," Portuguese Finance Minister Fernando Teixeira dos Santos said in an interview yesterday. "But there's a big difference between saying there is a risk of contagion and saying help is imminent or that we are going to ask for help." Risk of Contagion The Portuguese Finance Minister's statement is like saying you have a risk of getting measles after red blotchy rashes and Koplik's spots appear. The risk is not that contagion starts, but rather that it spreads to Spain then the big kahuna, Italy. Ireland Denies Rumors While the EU and IMF are scrambling around announcing secret agreements to bail out Ireland, it seems they forget to get the blessing of Ireland. Please consider Irish leader slams EU aid rumors as `ill-informed' Irish Prime Minister Brian Cowen has denounced recent international media claims that Ireland is seeking, or needs, an European Union bailout as "ill-informed and inaccurate." Ireland has denied persistent rumors in recent days that it is negotiating terms of an euro80 billion bailout from the European Union. Other eurozone members have seen their own borrowing costs rise amid investor fears of an Irish debt default and have called on Ireland to accept aid. EU "Cranks Up Pressure" on Ireland MarketWatch elaborates on the above denial in Ireland's Cowen: No application for aid Addressing parliament in Dublin, Brian Cowen said rising borrowing costs were a "concern," but noted that Ireland is projected to have enough cash on hand to meet its funding needs through the middle of next year. It's appropriate for Finance Minister Brian Lenihan to discuss initiatives to address high borrowing costs in the euro zone with fellow European finance ministers, Cowen said. The Wall Street Journal reported that European officials were working on an aid package that could include 80 billion to 100 billion euros ($108 billion to $136 billion) in credit to shore up confidence in the nation's public finances, as well as a package of aid for Irish banks worth €45 billion to €50 billion. A meeting of euro-zone finance ministers was under way in Brussels. Finance ministers from all 27 European Union nations are set to meet Wednesday. European officials have reportedly cranked up pressure on Ireland to accept a bailout in an effort to keep Dublin's fiscal woes from driving up borrowing costs in Spain, Portugal and other so-called peripheral countries in the euro zone. Overall, there are growing signs of a potential compromise that would allow the government to save some political face by saying that bailout funds are intended to recapitalize the banking system, said Simon Derrick, chief currency strategist at Bank of New York Mellon. The Great Compromise As best as I can tell from the above is that the current master plan is for the EU and IMF to bailout Ireland, but Ireland can save face if they call it a "peanut butter sandwich" instead of a bailout. IMF Prepared to "Help" The IMF may be prepared to "Help" but I ask and answer whether or not it can do any such thing in IMF Ready to "Help" Ireland; Can the IMF "Help" Anyone? The short answer is Ireland to tell the EU and IMF to "Stuff It" which is what Austria just today told Greece. Austria tells Greece to get stuffed While pondering the above game of semantics, Please ponder Austria tells Greece to get stuffed Europe's hastily assembled bailout fund already seems to be coming apart at the seams, and that's before Ireland has even tapped into it. Austria is refusing to contribute to the next tranche of bailout money for Greece, citing the country's failure to meet conditions. Yesterday it emerged there is serious slippage in Greece's deficit reduction programme. The way things are going, the facility will fail even before its wider fault lines have been fully exposed. Europe is making things up as it goes along, and a pretty desperate job it is making of it too. The extraordinary thing to outsiders trying to analyse these events is just how poorly prepared Europe was to cope with sovereign debt crises within its midst. Indeed the no bailout clause contained in the Maastricht Treaty seemed to deny the possibility of there ever being one. It's all a terrible mess, or as Terry Smith, chief executive of Tullett Prebon, puts it, "that's what happens when some botched repair starts to come apart in a hurricane". Quite so. P.S. Standby for a statement from the Irish government at 5pm gmt. Ireland is expected to dress up agreement to use the bailout facility as a banking bailout package rather than a sovereign debt bailout. P.P.S. The Irish PM's statement has turned out to be a damp squib. Ireland has not applied for a bailout, he has reiterated, and he complains of "exaggeration" by many analysts. Currency Ping-Pong click on chart for much sharper image Stepping back it is quite amusing to watch the game of currency Ping-Pong between the dollar and the Euro, with the Euro collapsing in the face of Greece bailouts only to go soaring when Bernanke spoke of QE II, now sinking yet again in the face of Irish and Portuguese contagion. 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.

Investigation of Bernanke's Proclaimed "Success" of QE II at Lowering Rates Posted: 16 Nov 2010 10:24 AM PST Curve Watchers Anonymous is investing Bernanke's claim that QE II has already been a success at lowering treasury rates. Yield Curve as of 2010-11-16 click on chart for sharper image Curve Watchers Anonymous admits the "Success" of QE II in sending commodity prices soaring but given the price squeeze it has put on businesses, QE II looks more like a pyrrhic victory than a success. Price Squeeze or Success? Please consider NY Fed Manufacturing Survey: New Orders Index Plummets 37 Points to -24.4, Sharpest Drop Since September 2001; Prices Received Negative Price Indexes Fall Indexes for both prices paid and prices received were below their October levels. The prices paid index fell 8 points to 22.1, suggesting that the pace of price increases had slowed in November. The prices received index dropped below zero, falling 11 points to -2.6 — a sign of slight downward pressure on selling prices. Employment indexes were also lower. The index for number of employees fell 13 points but, at 9.1, remained above zero, indicating that employment levels were modestly higher in November. The average workweek index, however, fell below zero, to -13.0, indicating that the average length of the employee workweek was shorter. Prices Paid vs. Prices Received Small Business Squeeze Please consider NFIB Report Shows Lack of Sales Still #1 Problem of Small Businesses, Inflation Barely Registers Sales and Taxes are Two Biggest Problems Inflation Is A Non-Issue Historically inflation measured as a big concern in the mid-to-late 1970's. Inflation concerns spiked again in the summer of 2008 along with gas prices. In spite of a huge recent rally in commodities there is no fear of inflation now. From the report "Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years." The number of business owners raising prices is a net negative 5%. The profit squeeze continues as small businesses are not able to pass along rising input prices. The result is easy to spot: " far more owners report that earnings are deteriorating quarter on quarter than rising." Economists Petition Fed to End QE II QE II has been such a success that in an Open Letter to Bernanke 23 Economists Complain About QE II; GOP Lawmakers Call for Abandoning $600 Billion Bond Purchase Bernanke defended QE II based on a "Dual Mandate", something I say is tantamount to hiding behind a "Curtain of Idiocy". If you missed it, please click on the above link to see why. Sell the News Meanwhile the QE II "sure-thing" bet continues to unwind in commodities, global equities, and the yield curve. The Fed was buying in the heart of the curve, and Curve Watchers Anonymous is watching the heart of the curve blow up in unusual ways. I talked about this in QE II Bet Starts to Unravel Signs in the yield curve, municipal bonds, junk bonds, and commodities suggest the one-way "sure thing" QE II bet has started to unravel. Curve Watchers Anonymous is particularly interested in the yield curve. Yield Curve 2010-11-12 click on any chart in this post to see a sharper image A representative of Curve Watchers Anonymous said "I have never seen action like this before. The middle part of the curve is blowing up even as the long bond rallies. The action indicates that everyone who front-ran the Fed purchases is now unloading to the Fed. " ... I have another chart from today that shows this kind of unusual action as well. Bear in mind those are point in time snapshots I managed to catch. They may not be indicative of a full day's price action at all. However, they do show unusual patterns suggestive of unwinding of various "sure-fire" trades that cannot lose. They also show just how much Bernanke has distorted things. Regardless of how you interpret the charts, it is crystal clear Bernanke did not lower rates, nor did QE II do a damn bit of good for business owners in the real economy. 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.

Hugo Salinas-Price Comments on Kitco and Nadler Posted: 16 Nov 2010 08:26 AM PST One of the readers of this blog is Hugo Salinas-Price a businessman from Mexico and a strong proponent of silver and gold backed currency. We exchange emails several times a month. In response to "Midas Crush" - MarketWatch Attempts to Explain "Why Gold is a Bad Investment" I received the following comments from Hugo and have his approval to share them. Hello Mish! Kitco's Jon Nadler is forever doing his best to discredit gold. This is like trying to discredit the Law of Gravity. At the same time, Nadler is Chief Economist for Kitco, which sells gold and silver and also stores those metals for customers. Why Kitco should employ him as their economist is a mystery. It's enough of a mystery that I would not dream of keeping precious metal deposits in the custody of Kitco. Kitco employing Nadler is like having a whaling company contributing to Greenpeace. Best regards Hugo In case you missed it, and/or to help explain the above email, please see Nadler Nonsense "Gold Is Not in a Bull Market". 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610