Mish's Global Economic Trend Analysis

Meeting with Saxo Bank Chief Economist; My Speech in Copenhagen; Images of Stockholm and Copenhagen
U.S. Economic Policy Explained by Single Picture
Manufacturing ISM Prices Paid Hits Another High, Up 22nd Consecutive Month; Inflation Hysteria?
Bin Laden Killed, Buried at Sea; Text of President's Speech; Celebration Images; Boost to the Stock Market?

Meeting with Saxo Bank Chief Economist; My Speech in Copenhagen; Images of Stockholm and Copenhagen

Posted: 02 May 2011 09:50 PM PDT

A few weeks ago I was invited by Christian Lauridsen, senior manager of Saxo Ebank to give a talk on the global economy for the benefit of Saxo Bank clients. I jumped at that chance and was in Europe all last week.

On Thursday, I met with Steen Jakobsen, Chief Economist for Saxo, for several hours. Unbeknown to me, Steen had been reading my blog for years as had a few others at Saxo Bank.

Before our respective speeches, (we each talked for 20-30 minutes to Saxo clients), Steen joked with me about my often repeated phrase "Keynesian Clowns". I asked him if he thought I was being too hard on US economists and he replied "not hard enough".

Global Imbalances

I had a speech prepared in advance but ended up ad-libbing much of it, starting with an admission that I thought 2011 would be the year that something would matter but so far it hasn't.

I touched on the sovereign debt crisis in Europe, China overheating, property bubbles in Australia and Canada, rate hikes in Europe, and state cutbacks in the US.

However, the point I stressed most was on valuations, and how little value I see in general.

Steen and I Both Like Japanese Equities

I do like Japanese equities and also gold, but the latter can correct significantly at any time.

Steen also likes Japanese equities for the same reasons that I see: After 20+ years of deflation, many Japanese corporations are trading at book value with little or no debt on their balance sheets. That is in distinct contrast to the equity valuations elsewhere.

One difference of opinion I had with Steen is that I am bearish on the Yen, but he is bullish, at least for a while.

There were about 60 people in the room and I asked how many had investments in Japan. Only a few hands went up. I asked the same question at a recent gold conference show I attended and only one hand out of 120 went up.

The best time to buy something is when everyone ignores the sector. The same was true of gold in 2000.

Valuation and Leverage

Steen commented on the presentations in his post last Friday Steen's Chronicle: Who's going to pick up the tab?

Last night I had the pleasure of speaking at a Saxo EBANK seminar in Copenhagen with the world famous blogger Mike "Mish" Shedlock -he of the Mish's Global Economic Trend Analysis blog.

First, I must note that it was a novel experience for me in my twelve years of speaking engagements to be out-gunned on the negative side on my investment outlook. In the past, so many have asked me after my presentations: 'Steen, you are always selling everything – what are we supposed to BUY? Clearly, I need to bring Mish along on more of these speaking gigs and play off his gloom to make my views appear a bit more cheery.

Mish raised several critical themes and issues in the current financial environment, but the most interesting was the often forgotten focus on leverage in the US – which we all know is high, but do we really understand exactly how high?

....

Please click on the preceding link for the rest of Steen's discussion.

Images of Stockholm and Copenhagen

In addition to the presentation at Saxo bank, I was able to visit Stockholm for two days and spent the rest of the time in Copenhagen. Both cities are beautiful and very photogenic. I even managed to get in a round of golf in both cities.

Tivoli, the world's oldest amusement park is a must see attraction in Copenhagen, even if you are not interested in rides, which in general I am not. Here are some images I managed to grab between rounds of golf, blogging, and meeting with Saxo.

Click on any image for more resolution and size. If you see a +sign on any image, click a second time for maximum sharpness.

Copenhagen Ships and Businesses Along Canal

Copenhagen Kayaker and Ships

Copenhagen Tivoli Amusement Park Daffodils and Stage

Copenhagen Tivoli Amusement Park Gardens

Copenhagen Tivoli Amusement Park Willow Trees and Buildings

Copenhagen Tivoli Amusement Park Gardens Along Canal

Copenhagen Tivoli Amusement Park Lolipops in Window

Copenhagen Tivoli Amusement Park Dixieland Band

Copenhagen Tivoli Amusement Park Springtime Flowers

Copenhagen Tivoli Amusement Park at Night

Copenhagen Tivoli Amusement Park Lanterns at Night

Copenhagen Botanic Garden, Wife Joanne

Stockholm, Stained Glass Windows, St. Gertrude Church, Old Town

Stockholm, Old Town, Cobblestone Alleyway

Stockholm Palace Guard

Stockholm, Flowers on Restaurant Table

Stockholm, Flowers At Store Entrance, Old Town

Stockholm, Old Town

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

U.S. Economic Policy Explained by Single Picture

Posted: 02 May 2011 12:42 PM PDT

The following image is courtesy of Dominic Frisby and Pola Gruszka. Via Email, Frisby said "I'd be delighted if you wanted to use this this."

Thanks to Dominick and Pola.
Original comic at http://dominicfrisby.net/blog

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

Manufacturing ISM Prices Paid Hits Another High, Up 22nd Consecutive Month; Inflation Hysteria?

Posted: 02 May 2011 09:24 AM PDT

Today the Institute for Supply Management issued the April 2011 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in April for the 21st consecutive month, and the overall economy grew for the 23rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

WHAT RESPONDENTS ARE SAYING ...

"Rapidly rising raw material costs putting extreme pressure on profits." (Food, Beverage & Tobacco Products)
"Plastic resin product prices are climbing so fast that [suppliers] are attempting to increase prices on orders already accepted but not [yet] delivered." (Chemical Products)
"Customers are rebuilding safety stock levels of inventory, and also trying to buy ahead of material price increases." (Plastics & Rubber Products)
"Market continues to get stronger month over month. Recovery is faster than anticipated." (Transportation Equipment)
"Pressure from offshore suppliers continues to mount with exchange rate increases and seasonal demand for capacity." (Miscellaneous Manufacturing)

Manufacturing ISM April 2011

Prices Paid

The ISM Prices Index registered 85.5 percent in April, 0.5 percentage point higher than the 85 percent reported in March and the highest reading since July 2008 when the index registered 88.5 percent. This is the 22nd consecutive month the Prices Index has registered above 50 percent. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, 17 report paying increased prices during the month of April. No manufacturing industry reported paying lower prices on average in April.

Inflation Hysteria Part II

Invictus with a guest post on the Big Picture Blog comments on Short Memories (Fade the Inflation Hysteria, II)

Flashback to June 2008 (only three short years ago):

Headline CPI was running very close to 5.0 percent. The Fed funds rate was at 2.0 percent. Brent crude was $132/barrel. The Fed's June 2008 minutes mentioned the word "inflation" 110 times ("deflation" and "disinflation" combined: zero), and also contained this caveat (emphasis mine):

With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate; indeed, one member thought that policy should be firmed at this meeting.

Fast forward one year:

Headline CPI was -1.2 percent (so much for the public's ability to foretell inflation trends, but who didn't know that?). The Fed funds rate had been lowered to its current range of 0.00 – 0.25 percent. Brent crude was $69/barrel. The Fed minutes were, amazingly, discussing "reduced concerns about deflation."

Current day:

Bernanke's prepared remarks and Q&A on Wednesday mentioned the word "inflation" 82 times. (The word "deflation": twice.) It is unfortunate that "inflation" was far and away the dominant theme on Wednesday, swamping "jobs," "employment," and "unemployment" which, in my opinion, should have been the focus.

Of course, no two business cycles or economic environments are exactly the same, but it is unlikely that we will enter a period of sustained high inflation absent a more taut labor market, and that, unfortunately, still seems a ways off.

Inquiring minds may wish to read Fade the Inflation Hysteria, part I.

Amidst all the screams of hyperinflation, I side with Invictus that high inflation is unlikely, adding that hyperinflation is preposterous.

Instead, I propose we are in the midst of a central bank sponsored liquidity surge (not just the Fed but also the central bank of China) that has fueled another speculative bubble in commodities.

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

Bin Laden Killed, Buried at Sea; Text of President's Speech; Celebration Images; Boost to the Stock Market?

Posted: 02 May 2011 06:38 AM PDT

Last night President Obama announced that Bin Laden was killed in a gunfight in Pakistan. The New York Times reports Qaeda Leader Killed by U.S. Forces, Found in Raid on Mansion; Buried at Sea

In a dramatic late-night appearance in the East Room of the White House, Mr. Obama declared that "justice has been done" as he disclosed that American military and C.I.A. operatives had finally cornered Bin Laden, the Al Qaeda leader who had eluded them for nearly a decade. American officials said Bin Laden resisted and was shot in the head. He was later buried at sea.

The news touched off an extraordinary outpouring of emotion as crowds gathered outside the White House, in Times Square and at the Ground Zero site, waving American flags, cheering, shouting, laughing and chanting, "U.S.A., U.S.A.!" In New York City, crowds sang "The Star-Spangled Banner." Throughout downtown Washington, drivers honked horns deep into the night.

How much his death will affect Al Qaeda itself remains unclear. For years, as they failed to find him, American leaders have said that he was more symbolically important than operationally significant because he was on the run and hindered in any meaningful leadership role. And yet, he remained the most potent face of terrorism around the world and some of those who played down his role in recent years nonetheless celebrated his death.

Given Bin Laden's status among radicals, the American government braced for possible retaliation. A senior Pentagon official said late Sunday that military bases in the United States and around the world were ordered to a higher state of readiness. The State Department issued a worldwide travel warning, urging Americans in volatile areas "to limit their travel outside of their homes and hotels and avoid mass gatherings and demonstrations."

The strike could exacerbate deep tensions with Pakistan, which has periodically bristled at American counterterrorism efforts even as Bin Laden evidently found safe refuge on its territory for nearly a decade.

When the end came for Bin Laden, he was found not in the remote tribal areas along the Pakistani-Afghan border where he has long been presumed to be sheltered, but in a massive compound about an hour's drive north from the Pakistani capital of Islamabad. He was hiding in the medium-sized city of Abbottabad, home to a large Pakistani military base and a military academy of the Pakistani Army.

The house at the end of a narrow dirt road was roughly eight times larger than other homes in the area, but had no telephone or Internet connections. When American operatives converged on the house on Sunday, Bin Laden "resisted the assault force" and was killed in the middle of an intense gun battle, a senior administration official said, but details were still sketchy early Monday morning.

Al Qaeda sympathizers reacted with disbelief, anger and in some cases talk of retribution. On a Web site considered an outlet for Al Qaeda messages, forum administrators deleted posts by users announcing Bin Laden's death and demanded that members wait until the news was confirmed by Al Qaeda sources, according to the SITE Intelligence Group, an organization that monitors radicals.

"Bin Laden was not a Muslim leader; he was a mass murderer of Muslims," Mr. Obama said. "Indeed, Al Qaeda has slaughtered scores of Muslims in many countries, including our own. So his demise should be welcomed by all who believe in peace and human dignity."

Full Text of President's Speech

CBS News has the Full text of Obama's speech on bin Laden's death

On its home page the New York Times has a Series of 20 Images following the announcement. Here are a few of them.

Symbolic Victory

In many ways this is nothing but a symbolic victory, representing a failure of US politics and priorities as much as a triumph. The US could have and should have killed Bin Laden a decade ago.

Instead we invaded Iraq because Secretary of Defense Donald Rumsfeld said "Iraq has More Targets".

Thus we wasted trillions of dollars fighting a war that should never have been fought, letting the mastermind of 911 escape.

US policy was so misguided that some misguided conspiracy theorists asked Did We Let Osama Get Away on Purpose?

The New York Times reported this weekend that we sent in 36 U.S. Special Forces troops to get Osama bin Laden when we knew he was in Tora Bora. By contrast, we sent nearly 150,000 soldiers to get Saddam Hussein. In case you're keeping count at home, we got Saddam and we didn't get Osama. What does that tell you about this administration's priorities? This goes beyond incompetence. If you send only 36 soldiers to get somebody in the middle of Afghanistan, it means you don't want to get him.

It gets worse. The piece in the Sunday New York Times Magazine also says there was an American commander with 4,000 marines standing by within striking distance. Brig. Gen. James N. Mattis requested permission to join the fight. He was denied.

Why wouldn't you want to send in whatever we have at our disposal to get the guy who attacked us on 9/11? Why would you care so little about the person who actually attacked this country and so much about someone like Saddam who had no role in attacking us?

Occam's Razor

Most of you know that I am not a believer in most conspiracy theories. Instead I am a big fan of Occam's Razor which suggests the simplest explanation is most likely the correct one.

In this case, government arrogance, misplaced priorities, revenge, oil, and stupidity are right at the top of the list of possible explanations for dropping the ball on Bin Laden.

Boost to the Stock Market?

Equity futures are green and commodity futures slightly negative except for silver which was hammered earlier for 12% but has now recovered nearly half. See Silver Plunges 12%, What's Going On? for a discussion.

Will the death of Bin Laden propel the market higher? No, it won't. After 10 years, Bin Laden is for all practical purposes irrelevant to the equity markets.

Should the market advance from here, it will be because of a triumph of liquidity over common sense, signifying the pool of greater fools has not yet run out.

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

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Mish's Global Economic Trend Analysis

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