Mish's Global Economic Trend Analysis

Spain Records Largest First Quarter Deficit in History; Tax Revenues Plunge 6.7% Year-Over-Year; Surprising Comments from German Finance Minister Wolfgang Shäuble
Book Supporting Euro Exit Becomes Instant Bestseller in Portugal; AfD Update
Speculative Gold Bets at 5-Year Low; Metal Will Get “Crushed” Says Credit Suisse

Spain Records Largest First Quarter Deficit in History; Tax Revenues Plunge 6.7% Year-Over-Year; Surprising Comments from German Finance Minister Wolfgang Shäuble

Posted: 28 May 2013 10:17 PM PDT

Spain keeps digging a bigger and bigger hole as the latest economic reports show.

In spite of massive tax hikes, overall revenue is down 5.3% YoY
Tax collections are down 6.7% YoY
VAT collection is down 9.9% in spite of a September increase in the VAT rate
Non-interest expenses are up 1.1% from a year ago
As compared to the first quarter of 2011, tax revenues have plunged by 58%
As compared to first quarter of 2011, personal income tax and other direct taxes have fallen almost 35%.

Those numbers are courtesy of Libre Mercado which reports Spanish Government has Largest January to April Deficit in History.

Surprising Comments from German Finance Minister Wolfgang Shäuble

So what does Shäuble have to say about this?

Please consider these Google-translated snips from the Libre Mercado report Wolfgang Schäuble supports Rajoy's policies and Cites "impressive" Results of the Spanish reforms.

Schäuble is convinced that "Spain has made enormous progress in recent years under the Government of Mariano Rajoy". So much so that now Spain "has a strong economy, reduced labor costs, has significantly increased its exports and has done a good job in restructuring its banking sector, also after the trial of the Troika".

Spain, on the right track

In this sense, on financial reform, says that "all international agencies agree that Spain is on the right path" also "regarding to the recapitalization of the banks." Asked if it is all done in the Spanish financial system reform, Schäuble gave their trust to the minister of economy and competitiveness Spanish: "It is my duty to give advice to my colleague and friend Luis de Guindos , he knows better than me what has to do ".

Over four-page interview in the Journal of Vocento, Schäuble never tires of positive messages about the Spanish economy. Not only speaks of "tremendous advances" for Spain Rajoy has achieved, but doubts that at one point made investors wary of the Spanish economy "no longer exists", not least because "Spain reject outright the possibility of not repay the loans made." "The state capital need could not be funded under acceptable conditions. This is the only reason that Spain has had to seek help from the European Stability Mechanism to recapitalize their banks," he added before insisting that "the figures and results "of Spain and its reforms" are impressive. "

What is Shäuble smoking?

Most likely Shäuble's comments are some sort of election ploy for chancellor Angela Merkel. If that's not it, he has lost his mind.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Book Supporting Euro Exit Becomes Instant Bestseller in Portugal; AfD Update

Posted: 28 May 2013 10:08 AM PDT

In an interesting development in the battle to see which country is bright enough to exit the euro first, a book urging a return to the Escudo (the prior Portuguese currency) became an instant a bestseller in Portugal.

The Wall Street Journal reports Idea of Euro Exit Finds Currency in Portugal.

A book by a Portuguese economist achieved a small feat on its release last month: It instantly topped Portugal's bestseller list, overtaking several diet books and even the popular erotic novel "Fifty Shades of Grey."

The book, "Why We Should Leave the Euro" by João Ferreira do Amaral, has helped ignite a public debate in Portugal about the real cause of the country's economic pain: Is it only the hated austerity needed to secure European bailout loans, or is the euro?

Public lectures, TV debates, newspaper columns and some politicians are starting to explore a question that until recently was confined to university seminars: whether the country has a realistic path to recovery inside the euro.

Portugal "has no chance of growing fast within a monetary union with a currency this strong," Mr. Ferreira do Amaral said in a recent interview. "Thankfully, this issue has stopped being taboo, and there is now a lot of discussion here and abroad." The book is in its fourth edition, selling more than 7,000 copies so far—a lot for an economics tract in the small Portuguese market.

Mr. Ferreira do Amaral is getting some high-profile backers. This month, Supreme Court of Justice President Luís António Noronha Nascimento called for Portugal and other Southern European countries to quit the euro, warning the gap between Europe's richer and poorer states will keep widening otherwise.

Whether the debate gains traction depends on the economy, analysts say. Portugal's government insists the long-awaited recovery will arrive in 2014, but many economists doubt that. If the recession continues, politicians will need to enact even more budget cuts to meet EU deficit targets. "It may become too hard for politicians to sell austerity measure after austerity measure," says Antonio Costa Pinto, political scientist at the University of Lisbon. "This could create the perfect environment for a shift of ideas."

A year ago, only 20% of Portuguese wanted to leave the euro. It would be interesting to see a similar poll in a few weeks after debate over the book escalates.

Exit Discussion in Multiple Countries

Beppe Grillo Supports "Referendum on the Euro Within a year"
1000 professionals and economists signed on to a Euro Exit Manifest and Jose Carlos Diez says "Spain Must Have a Plan to Exit the Euro"
The anti-Euro AfD party is gaining traction in Germany.
The UK Independence Party UKIP is Jubilant following Local Elections

AfD Update

On April 23 I wrote Political Prediction: Merkel Loses Chancellorship in September as Support for AfD Soars. At that time, I noted "I have been watching the iPhone app Wahl-O-Meter and AfD has risen from 5% of the vote to 6.6% now."

Wahl-O-Meter support for AfD now clocks in at 8.9% and the Green Party is down to 10.5% from 11.4%. Wahl-O-Meter is not a statistically valid poll, yet I have been told by reader Bernd (not AfD party leader Bernd Lucke) that Whal did better than polls in predicting results of previous German elections.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Speculative Gold Bets at 5-Year Low; Metal Will Get “Crushed” Says Credit Suisse

Posted: 28 May 2013 12:07 AM PDT

Sentiment is never a perfect timing instrument.Yet, with Hedge Fund Bets on Gold at Five-Year Low I am comfortable stating the gold bull market is not over.

Hedge funds are the least bullish on gold in more than five years as speculation about the pace of money printing by central banks whipsawed prices, driving volatility to a 17-month high.

Money managers cut their net-long position by 9 percent to 35,686 futures and options as of May 21, the lowest since July 2007, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 6.7 percent to a record 79,416. Net-bullish wagers across 18 U.S.-traded commodities slid 2.1 percent, as investors became more bearish on coffee and wheat.

Investor sentiment is "negative towards gold," and physical demand has started to slow, Suki Cooper, a New York-based analyst at Barclays Plc, said in a May 24 report. The metal will get "crushed" and trade at $1,100 in a year and below $1,000 in five years as inflation fails to accelerate, Ric Deverell, the head of commodities research at Credit Suisse Group AG, said in London on May 16.

"I would be underweight the commodities at this point until we start seeing a pickup in global growth and a self-sustaining recovery here in the U.S.," Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion. "The global economy has been decelerating, and China is struggling."

Metal Will Get "Crushed" Says Credit Suisse

Unlike copper, gold is not an industrial commodity so a slowing global economy is simply not that pertinent. It appears to me that neither Ric Deverell at Credit Suisse, nor Chad Morganlander at Stifel Nicolaus has a clue about what the fundamental driver for the price of gold is.

Granted sentiment is poor, but bull markets tend to end on good news with extreme positive sentiment (such as we see now with US equities), and bear markets end on bad news and extreme pessimism.

Speculative positioning in gold is at a 5-year low on little over a 30% drop in price. That is hugely negative sentiment for such a routine drop. Bull markets do not end that way. They end with the masses becoming true believers.

I strongly suspect the bull market in gold will not end until after the public embraces gold in a major way.

Mike "Mish" Shedlock

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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