Mish's Global Economic Trend Analysis

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• Men in Black Seek Answers; Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?"
• Federal Spending Per Non-Government Worker
• Slovenia Under Pressure; Risk of Next Cyprus Already at Hand
• Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow
• Another "Euro Is Saved" Moment in Pictures
• Merkel's Vision: "United States of Germany"

Men in Black Seek Answers; Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?" Posted: 25 Mar 2013 11:08 PM PDT SAREB, Spain's bad bank, has received assets (primarily bad loans) from Bankia, NCG Banco, Catalunya, Caixam, Banco de Valencia and others. Bankia, a component of Spain's nationalized bank system has been one disaster after another. Guru's Blog reports that has you invested €37,500 in the IPO of Bankia at €3.75 per share, it would be worth 70€ today, a loss of 99.81%. Had you waited to buy at the bargain basement price of €0.26, your investment would be worth €1,009, a loss of 97.3%. That's quite the loss. Bankia shareholders have been wiped out. Recovery is impossible. Men in Black Seek Answers The question at hand now is "What Happened to the €41 billion Spain received in two tranches of ESM money for bank recapitalization?" That's a good question and one the "men in black" want to know as well. El Confidencial reports Troika Will Return to Spain in May to Investigate Bankia The troika, made up of the European Commission, the ECB and the IMF threaten an upcoming visit to Spain, during the last week of the month of May. The 'men in black' come this time seeking to clear up some of the derivatives in the famous bank bailout. Specifically, the Troika will put a magnifying glass on Spain to check in detail the fate of the more than 41 billion euros delivered to the Government of Mariano Rajoy. The effective distribution of the two tranches of the ESM bailout is troubling supervisors. They also do not understand the development of other obligations as set out in a memorandum of understanding (MoU) signed last July. One of the aspects of most concern in community media is the convoluted relationships between entities that have received public aid and the bad bank (SAREB) reluctantly created by the Spanish Government. The 'men in black' do not understand why the SAREB has called for a draconian discount on the  transfer of the assets of the bubble, then claim an extra 25% margin on retail prices. The spread in absolute terms is about €13 billion over the €51 billion in assets acquired by the bad Bank. It's an amount equivalent to 30% of the resources used in the capitalization of problem institutions. International supervisors also question with some suspicion the mode and manner by which the banks have not been able to find market for their properties. Finance minister Luis de Guindos said on Friday the solution will be to force all banks to loosen their pockets and spend another €2 billion, an extraordinary spill. The troika believes that this formula is not the most equitable since precisely the entities that have been nationalized will need new cash contributions. This was an exceptionally difficult piece to translate. I believe I have the gist correct but if you read Spanish you may wish to refer to the original El Economista Article. The key point is the "men in black" will be in Spain trying to figure out what happened to €41 billion in ESM tranches that Spain received to recapitalize its banks. They also want to understand why SAREB cannot sell its properties. The answer to the latter question is easy enough to figure out. Banks valued the assets too high, there is no market for them, and writeoffs will be even bigger than previously estimated. In short, SAREB will need still more money. The "men in black" will not be pleased. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Wine Country Conference I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease). Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease. To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013 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.

Federal Spending Per Non-Government Worker Posted: 25 Mar 2013 06:16 PM PDT Here is a pair of interesting charts from reader Tim Wallace. Ratio of Workers click on chart for sharper image Tim used non-seasonally adjusted numbers from the BLS, subtracting the number of government employees from total employed to produce the above chart. Spending Per Non-Government Worker click on chart for sharper image Tim used government spending records as posted on the White House website and data from the first chart to compute the amount of spending per non-government worker. Obama claims the cutbacks will hurt the economy. Federal government spending now amounts to $31,679 per non-government employee, annually. This is a spending problem,  not a revenue problem. 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.

Slovenia Under Pressure; Risk of Next Cyprus Already at Hand Posted: 25 Mar 2013 04:39 PM PDT If you thought you could take a breather following the crash of Cyprus, you were wrong. Bloomberg reports Slovenia's Nascent Cabinet Under Pressure to Avoid Cyprus Fate. Slovenia's six-day-old government is being urged to prevent the nation becoming the euro region's next bailout battleground. Prime Minister Alenka Bratusek's Cabinet must quickly carry out a plan to revamp the country's ailing lenders, the central bank said yesterday. The former Yugoslav nation needs about 3 billion euros ($3.9 billion) of funding this year, while banks need 1 billion euros of fresh capital, the International Monetary Fund said last week. European Union officials are striving to contain a debt crisis that prompted Cyprus to join Greece, Portugal, Ireland and Spain in agreeing on a bailout. Slovenian banks such as Nova Ljubljanska Banka d.d. are struggling with surging bad loans that equal a fifth of economic output, fueling investor concern that it may be next to seek aid. Most Vulnerable Slovenian and Hungarian banks are the most vulnerable in the region with non-performing loans at about 20 percent and growing, analysts at Standard & Poor's Ratings Services, led by Paris-based Pierre Gautier, wrote yesterday in a research note. Nova Ljubljanska, the nation's biggest lender, reported a loss of 275 million euros in 2012, its fourth consecutive negative result. Nova Kreditna Banka Maribor d.d., which had a 205 million-euro loss last year, fell to the lowest level since its 2007 listing after a debt-equity swap increased the government's stake to 79 percent. The shares plunged more than 40 percent last week and were unchanged at yesterday's close at 79 euro cents in Ljubljana. The government vowed to stick with a bank-recapitalization plan of as much as 4 billion euros, though with unspecified modifications, as surging bad loans fuel investor concern that the country may require a rescue. Story Ends in Disastrous Bailout Anyone who has followed Ireland, Greece, Cyprus, or Portugal knows how this story will end: In yet another disastrous bailout followed by the destruction of the Slovenia economy. 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.

Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow Posted: 25 Mar 2013 01:17 PM PDT Most Cypriot banks will open tomorrow but capital controls remain and the two largest banks will remain shut while the ECB "monitors the situation" and regulators determine precise haircuts. CNN Money reports Big Cyprus banks to stay shut after bailout Most banks in Cyprus will open again Tuesday for the first time over a week. But the two biggest lenders at the heart of a €10 billion European Union rescue will stay shut for two more days to give regulators time to prepare for a run on deposits. Deposits of over €100,000 at Bank of Cyprus and Popular Bank will be frozen until they have been restructured. Popular Bank will be split up, its viable assets and insured deposits transferred to Bank of Cyprus, and its non-performing loans moved into a bad bank that will be wound down. Big depositors at Popular Bank face complete wipe out, along with shareholders and bondholders. The losses facing big depositors as part of a deposit-equity conversion at Bank of Cyprus have yet to be determined but could be around 30%, a Cypriot government minister said Monday. Again, shareholders and bondholders will be tapped first. The big unknown is how small depositors will react, or what restrictions they'll face when they try to access their money from Tuesday. The Cypriot parliament last week gave the government powers to implement temporary capital controls. Cyprus will be ruined for a decade. Expect GDP to plunge by as much as 30%. Since Big depositors at Popular Bank face complete wipe out, Cyprus may as well have done this on its own and left the Euro. 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.

Another "Euro Is Saved" Moment in Pictures Posted: 25 Mar 2013 09:25 AM PDT Euro 20 Minute Chart click on any chart for sharper image US Dollar 20 Minute Chart Gold 20 Minute Chart Rescue Me I was looking for a video by Aretha Franklin but the above by Fontilla Bass will have to suffice. The idea that Cyprus was in any way shape or form "rescued" by the Troika is preposterous. The good news appears to have worn off already. Next up Spain. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Note: Some ATT users (not a fault of ATT) received timeouts on my "Wine Country Conference" link (see below). If you were one of them, please try again. The problem has been fixed. Wine Country Conference I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease). Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease. To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013 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.

Merkel's Vision: "United States of Germany" Posted: 25 Mar 2013 12:13 AM PDT Following brutal negotiations with EU finance ministers, the IMF and various European government officials, Cyprus finally agreed to measures that her highness, Angela Merkel would accept. This time she held her ground. Previously, Merkel compromised every key position she has ever held in the sake of political expediency. For example, Merkel went to the well twice on Greece to appease her opponents. She repeatedly caved in to demands from French president Nicolas Sarkozy. She reversed her stand on nuclear energy following German polls. So why did Merkel draw the line at Cyprus? To Merkel everything is a play to win the next election and ultimately to preserve her legacy. She is willing to play hardball now for one reason only. Public opinion is decisively against further bailouts, and anything but exceptionally harsh terms on Cyprus would hurt her election chances in September. She fears the rise of the eurosceptic Alternative for Germany (AfD) Party and the best way to take some wind out of the AfD sails is to show she cares about austerity. Merkel's Vision Merkel's vision is not a United States of Europe. Rather, Merkel's vision is for a "United States of Germany".  In this light, every move she has made makes perfect "political" sense, solidarity be damned. That Cyprus and Greece were ruined in the process is acceptable "collateral damage". If Spain is not careful, it will become the next "collateral damage". 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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