Mish's Global Economic Trend Analysis

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• Unions vs. Banks: Reader Question Regarding Greek Privatization
• Greek Sovereignty Massively Limited; You Cannot Roll Over What You Do Not Have; Railing Against the Truth; EU Seeks to Curb Big Three Rating Firms
• "Hamster Wheel Economy"
• Portuguese 10-Year Government Bond Yield Soars to 13.05%; Italy, Portugal, Ireland, all Fresh New Highs; Focus On the "Unsaved"
• Services ISM "Unimpressive"

Unions vs. Banks: Reader Question Regarding Greek Privatization Posted: 06 Jul 2011 11:14 PM PDT Reader Jeddy spots what he thinks is a conflict in my typical "privatization" message and inquires Hello Mish I'm confused about your stance in Portuguese 10-Year Government Bond Yield Soars to 13.05%; Italy, Portugal, Ireland, all Fresh New Highs; Focus On the "Unsaved" Usually you think privatization is the answer to everything. Why have you changed your mind? Please elaborate on the idea of self-rule, and how that interacts with the concept of rule by an elite group of rich people inside your country (internal looting of public sector assets and 'jobs') as opposed to outside your country (imposed privatization). Jeddy Hello Jeddy, thanks for asking. There is no conflict. I am indeed in favor of privatizing government services. I am not in favor of doing so under duress for the explicit purpose of raping taxpayers for the benefit of banks. I have many times been accused of being a shill for banks. The idea is preposterous. No one has railed against bank bailouts more than I have. Rolling List of High Profile Fraud Targets This list is incomplete. I have stopped updating it, it got so long. October 10, 2010: FDIC Authorizes $1 Billion Lawsuits Against Failed-Bank Executives; Token Search for Low-Profile Scapegoats April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed March 2, 2010: Geithner's Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says "Don't Trust Your Government" January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels January 26, 2010: Questions Geithner Cannot Escape January 07, 2010: Time To Indict Geithner For Securities Fraud October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation July 17, 2009: Paulson Admits Coercion; Where are the Indictments? June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl" April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis I am not in favor of bailouts. Nor I am in favor of privatizing government services under duress for the explicit purpose of raping taxpayers to benefit of banks. Greece desperately needs reform. Its pension structure and union protectionism must change. The same is true in the United States. Unions attack me for that position. However, I am not willing to rape Greek citizens for the benefit of French banks to achieve that end. Sadly, that is exactly what is happening. Unions should take a hit and so should banks. Anyone taking that stance is attacked from both sides, and I have a ton of emails to prove it. 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.

Greek Sovereignty Massively Limited; You Cannot Roll Over What You Do Not Have; Railing Against the Truth; EU Seeks to Curb Big Three Rating Firms Posted: 06 Jul 2011 03:51 PM PDT Jean-Claude Junker, the man who says "When it becomes serious, you have to lie", apparently has had a sudden splash of honesty, stating Greek sovereignty to be massively limited. Greece faces severe restrictions on its sovereignty and must privatize state assets on a scale similar to the sell off of East German firms in the 1990s after communism fell, Eurogroup chairman Jean-Claude Juncker said. "The sovereignty of Greece will be massively limited," he told Germany's Focus magazine in the interview released on Sunday, adding that teams of experts from around the euro zone would heading to Greece. "One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone," Juncker said. Massive Loss of Sovereignty is an Insult If I was Greek, I would take a statement regarding massive loss of sovereignty as an insult, not help. Thus, true to form, in aggregate, Juncker's statements are a collective lie. EU Seeks to Curb Big Three Rating Firms Bloomberg reports EU Seeks to Curb Big Three Rating Firms After Portugal Downgrade. European policy makers lashed out at rating companies after Moody's Investors Service cut Portugal's debt to junk, reviving calls to curtail their clout. German Finance Minister Wolfgang Schaeuble said the grip of the big three rating companies had to be broken when asked about Moody's downgrade. "I have said before that we have to curb the influence of the rating agencies," Schaeuble told reporters in Berlin today. There's a need to "break up" the companies' dominance, he said. European Commission President Jose Barroso said he "deeply" regrets the timing and magnitude of Portugal's downgrade by Moody's and said proposals for increasing regulation of the rating companies in Europe would come out this year. The moves by Moody's "do not provide for more clarity. They rather add another speculative element to the situation," Barroso told reporters in Strasbourg today. The commission, the European Union's executive arm, "is looking into the regulation of rating agencies to determine whether there are some measures that need to be taken with regard to the prevention of possible conflicts of interest and other matters," he said. "Developments since the sovereign- debt crisis show we need to take a further look at reinforcing our rules." Truth Not Appreciated I agree with Schaeuble regarding the need to "break up" the rating agencies. I have spoken about this many times. The key article is Time To Break Up The Credit Rating Cartel. Everyone readily accepted lies about US housing debt that anyone with an ounce of common sense could have spotted an ocean away. However, I have to laugh at the irony and motivation of Schaeuble's proposal. The fact of the matter is Moody's , Fitch, and the S&P are finally telling the truth about something. Greek Banks Ready for Debt Rollover Please consider Greek Banks Ready for Debt Rollover as Investors Meet to Discuss Aid Plan Greek banks are willing to roll over their government bonds as part of a European Union aid plan, Finance Minister Evangelos Venizelos said, as debt-holders meet in Paris today to discuss their role in rescuing the country. "The Greek banks are ready to participate," Venizelos said yesterday in an interview with Bloomberg Television in Athens. "We must respect absolutely the voluntary character of this procedure. This is very sensitive and I give a very crystal clear answer on this topic." About 20 banks and insurance companies are meeting in Paris to discuss the role of bondholders in a new Greek aid plan, said the Institute of International Finance, a banking-lobby group hosting the gathering. Talks began last week in Rome under the auspices of IIF Managing Director Charles Dallara, a former U.S. Treasury official. Incredibly Funny For Multiple Reasons The above story is incredibly funny for more than one reason. For starters Venizelos' statement regarding the "absolutely the voluntary character of this procedure" is straight out of the Jean-Claude Juncker "lie when it's serious" playbook. Venizelos goes on to say he wants to "take the opportunity but not the risk." Everyone knows there is nothing "voluntary" about the debt rollover proposal. The idea is so preposterous even the rating agencies cannot stomach the lie. More importantly ... You Cannot Roll Over What You Do Not Have The Wall Street Journal reports Greek Rescue Snarled by Sales Europe's hopes for a significant contribution by private bondholders to a new bailout for Greece are fading, as it becomes clear that banks have sold off a substantial proportion of their Greek government-bond holdings despite pledges by some of the institutions not to do so. Greece has about €64 billion ($93 billion) of benchmark bonds coming due in the next three years, among other liabilities, and euro-zone leaders had hoped that private lenders would voluntarily take on longer maturities in order to improve the country's battered finances. Euro-zone officials have described €30 billion as their target for private-sector participation in the new bailout. Governments want holders of Greek bonds that mature before the end of 2014 to agree to reinvest some of the money as the bonds mature. But the €30 billion target appears increasingly unrealistic. The problem is that the banks and insurers at the negotiating table no longer hold as much of the debt maturing through 2014 as they did a year ago. In May of last year, German banks and insurers made a nonbinding pledge to maintain about €8 billion in Greek debt and loans for three years. Yet the current Greek debt holdings of those institutions suggests they have sold some of their holdings anyway. In an interview with Der Spiegel, the German weekly, Chief Executive Officer Michael Diekmann said Allianz had fulfilled its commitment under last year's pledge not to sell into "a falling market." He also said that the insurer had agreed not to sell only for as long as it made "economic sense." Analysts said banks were likely to have sold off short-term Greek debt because it trades at a smaller discount to face value than does longer-term debt. Meanwhile, hedge funds and other investors, who are likely to have bought up the paper, are less likely to be persuaded to engage in the debt rollovers being proposed by euro-zone governments. Pledge Not to Dump as Long as it Made Economic Sense Banks dumped some Greek debt and lightened their load. Pray tell what's wrong with that? Everyone should be happy about this, except perhaps banks that were not smart enough to dump when the dumping was good. Could that be French banks by any chance? Pondering the After the Dump Options The chain of amusement continues as Bankers Ponder Greek Debt Options. Bankers on Wednesday wrapped up their latest meeting on a private-sector contribution to alleviate Greece's debt crisis, and the chairman of BNP Paribas SA said they were now pondering a range of options. "There are a number of technical propositions that have been made," said BNP Paribas chairman Michel Pébereau on French radio station BFM. "I hope we'll find a solution that satisfies those who don't want a default and at the same time the effort from the private sector to accompany the action of public powers." The banks are trying to figure out a way to participate in a deal to repackage Greece's debts so that European taxpayers don't have to supply all the funds—but they want to do so in a way that avoids Greece being declared in default. The main proposal on the table is a French plan to roll over part of Greece's debt that will reach maturity before 2014. However, Standard and Poor's said Monday this plan would leave participating bondholders worse off, and therefore would probably lead to Greece being declared in "selective default." Stiffing the Taxpayers Please notice the key sentence "The banks are trying to figure out a way to participate in a deal to repackage Greece's debts so that European taxpayers don't have to supply all the funds—but they want to do so in a way that avoids Greece being declared in default." Why should taxpayers have to supply any funds? Was it taxpayers that made stupid bets or banks? Those who made stupid bets should pay for them. Betting on Bailouts As I see it, the secretive dumping transferred some of the risk to hedge funds and others betting precisely on a guess that taxpayers will indeed pony up 100% and debt will be paid back. This takes us back to my June 27 article Leading German Economist Buys Greek Bonds On Belief in "Boundless Stupidity of German Government", Says Bailout Programs Will Exacerbate Problems Stefan Homburg, a leading German economist believes the bailout of Greece is exactly that wrong thing to do and will exacerbate bankruptcy problems. Nonetheless Homburg invested a "considerable sum" in Greek bonds on belief in the "boundless stupidity of the German government to pay up". The only thing that makes any sense is a full and complete default. To any extent banks dumped bonds, the better off they will be in a default situation. Make the speculators and the banks not bright enough to dump foot the bill, not taxpayers. 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.

"Hamster Wheel Economy" Posted: 06 Jul 2011 11:50 AM PDT Trimtabs says the U.S. economy added 171,000 jobs in June. However, real wage and salary growth is -2.0% year-over-year when adjusted for 3.6% inflation and 2% payroll tax cut. Via Email ... The U.S. economy added 171,000 jobs in June, reports TrimTabs Investment Research. The June gain follows increases of 127,000 in May and 181,000 in April. "Employment growth accelerated in June after reaching an interim peak in March followed by a slowdown in April and May," says Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. "The rapid increase in oil prices earlier this year spooked everyone. Hiring managers put the brakes on hiring until oil prices moderated." TrimTabs employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees. They are historically more accurate than initial estimates from the Bureau of Labor Statistics. TrimTabs cautions that while employment improved in June, the improvement may be temporary. Several other economic indicators suggest that economic growth is likely to remain sluggish for the foreseeable future: Adjusted for the 3.6% annualized increase in inflation, wage and salary growth was only $90 billion annualized in June. When corrected for the $114 billion Federal stimulus coming from the 2% payroll tax reduction, real wage and salary growth is -2.0%. The housing market remains depressed despite low mortgage interest rates. Since there are an estimated 12 million underwater homeowners, 6.4 million delinquent mortgages, and 24 million unemployed or underemployed workers, it will take several years before housing makes a meaningful contribution to economic growth. Vehicle sales, an important component of durable goods sales, declined in June. Sales fell to 11.4 million annualized units in June from 11.8 million in May. While part of the decline can be attributed to inventory problems, sales are sluggish due to consumer's unwillingness to take on a big purchase in the face of economic uncertainty. Three of the five Federal Reserve manufacturing districts—New York, Philadelphia, and Texas—reported deteriorating manufacturing conditions in June as manufacturers struggled to adjust to high input prices. "The rebound in employment in June is likely to cheer equities, but the improvement could prove fleeting," cautions Schnapp. "What we may be seeing is a hamster wheel economy where the economy is finally creating jobs, but net of inflation, income growth is barely positive. Subtract government stimulus, and income growth is actually negative." Going Nowhere Fast Despite the alleged "improvement" in jobs, TrimTabs describes the economy as a "Hamster Wheel Economy" -- the hamster runs faster and faster in its wheel but goes nowhere. Don't Count on a Big Rebound The "rebound" in employment will only cheer the markets if there is a significant rebound. Last month the BLS report was +54,000 jobs. I except to see a rebound above that anemic total. However, I will take the "way under" line on Trimtabs +171,000 jobs estimate for Friday's jobs report. Anything under +125,000 and the unemployment rate is likely to tick up, perhaps significantly. 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.

Portuguese 10-Year Government Bond Yield Soars to 13.05%; Italy, Portugal, Ireland, all Fresh New Highs; Focus On the "Unsaved" Posted: 06 Jul 2011 09:41 AM PDT By now, everyone knows that "Greece is Saved" even though 2-year government bonds are trading today at 28.3%, up from 26.62% at the open. Let's turn our attention away from Greece to the "Not Saved Yet" group of countries including Spain, Portugal, Ireland, and the big Kahuna, Italy. Portugal 10-Year Government Bonds - 13.05% Ireland 10-Year Government Bonds - 12.43% Greece 10-Year Government Bonds - 16.82% Spain 10-Year Government Bonds - 5.61% Italy 10-Year Government Bonds - 5.12% Please note that 10-year yields in Italy are now approaching 10-year yields in Spain. Also note that yields are not up across the board in Europe. Germany 10-Year Government Bonds - 2.93% Today's Scorecard Country Yield Change New High Saved Spread to Germany Germany 2.93 -0.08 0 Portugal 13.05 +2.03 Y 10.12 Ireland 12.43 +0.89 Y 9.5 Greece 16.82 +0.30 Y 13.89 Spain 5.61 +0.13 2.68 Italy 5.12 +0.12 Y 2.19 I don't know about you, but I am sure glad "Greece is Saved". I look for equally impressive results when Portugal, Ireland, Spain, and Italy are "saved". 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.

Services ISM "Unimpressive" Posted: 06 Jul 2011 08:23 AM PDT Manufacturing rebounded last month largely on the "strength" of inventory rebuilding, but the services ISM came in weaker than expected. Nigel Gault, chief U.S. economist at IHS Global Insight, summed things up nicely in one word "unimpressive". Please consider the June 2011 Non-Manufacturing ISM Report On Business® click on chart for sharper image Expectations were for 53.7, the index came in at 53.3. This was not a disaster, it just was not very good. Employment was the one bright spot, but it was up a statistically meaningless .1. Backlog of orders is contracting, as is the backlog of manufacturing orders. I expect more weakness coming in both the services ISM and the manufacturing ISM in the months ahead. Inventory rebuilding will not sell cars, boats, or durable goods in general. In case you missed it, please see Manufacturing ISM Weaker Than it Looks; Digging Into the Numbers; Inventory Restocking Accounts for Much of the Rise 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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