Mish's Global Economic Trend Analysis

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• French Egg Producers Smash 300,000 Eggs and Demand Government Action to Raise Prices
• When Will Spanish Banking System Collapse?
• Ambrose Evans-Pritchard's Disingenuous Strawman "Defend Europe, If You Still Dare"

French Egg Producers Smash 300,000 Eggs and Demand Government Action to Raise Prices Posted: 09 Aug 2013 04:03 PM PDT Farmers in France are on an egg-smashing rampage in protest of low prices. Farmers in northwest France have vowed to escalate an egg-smashing rampage they began this week in protest at low prices and rising production across the EU. The protesters say a 2012 European directive, which obliges egg producers to improve the wellbeing of hens by increasing the size of their cages, has forced them to invest millions of euros to cover the upgrade. On Tuesday night masked members of the informal collective vented their frustration by dumping 100,000 eggs – about 5 per cent of their output – from the backs of vehicles in the small Brittany town of Ploumagoar. A day later, they descended on Carhaix. On Thursday, it was the turn of Morlaix, where they left 100,000 smashed eggs outside the tax office. Residents were quick to complain about the smell. The producers have called on the government to help co-ordinate a 5 per cent reduction in the country's production, and to designate a special site where eggs can be destroyed. On Friday, Sébastien Salliou, a local producer, said that prices had sunk so low that he was now selling 100 eggs at €4.50, even though his break-even price was €7. He also said that the European directive had forced him to spend about €2m on infrastructure adjustments for his business of 100,000 hens. Collective Insanity The farmers want the government to "do something" such as put a quota on eggs or create a "special site where eggs can be destroyed". If that is not bureaucratic insanity, what is? Rather than receive €4.50 for 100 eggs, the farmers would rather receive nothing. Actually, the farmers should be fined for cleanup costs so they should receive less than nothing for smashing their production in public places, creating a smelly mess in the process. I have a simple solution. If you do not like the price, don't produce the eggs. Selling eggs for €4.50 when it costs €7 to produce them is not smart business. 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.

When Will Spanish Banking System Collapse? Posted: 09 Aug 2013 09:18 AM PDT The question on my mind today is "When will the Spanish banking system collapse?" Spain's exposure to Portuguese sovereign debt and unrealized losses on real estate loans are two reasons a collapse in inevitable. The Spanish banking system passed a so-called "stress test" in 2012, but sovereign government bonds are are not included in the evaluation. We saw how well that worked with Greece (over and over again), and with Cyprus as well. It was Cypriot exposure to Greek bonds that collapsed the Cypriot banking system. With that backdrop, please consider Will Portugal Bring Down the Spanish Banking Sector? At its peak in the second quarter of 2008, France's exposure to Greece totaled $86 billion. That exposure has since plummeted, partly because French banks took advantage of the ECB's Securities Market Programme (SMP) during 2010-11 to fob off Greek bonds, effectively forcing a eurozone mutualization of the debt. SMP was terminated in September 2012. What is much less widely known is that Spanish bank exposure to Portugal today, as shown in our Geo-Graphic, is higher than French bank exposure to Greece in early 2010, despite the fact that the Spanish banking sector is only 40% the size of the French. Spanish bank stress tests in 2012 suggested that the capital hole was more manageable than widely feared, but those tests looked only at the domestic lending books; foreign assets were excluded. A restructuring of Portuguese sovereign debt similar to the one completed by Greece, which involved haircuts of over 50%, could wreak havoc on Spain's banking system. Yet delaying restructuring, as Greece is showing, may simply drag down Portugal—whose debt-to-GDP ratio is expected to approach 125% next year—faster and further, worsening creditor losses. Without an SMP to mutualize Spanish bank exposure to Portugal, the way it mutualized French bank exposure to Greece, delaying a Portuguese restructuring will also do nothing to help Spain weather the shock. The euro area has already lent Spain €41.3 billion to recapitalize its banks, but finding a politically palatable way to convert that debt into mutualized eurozone equity may be a necessary cost of sustaining the European single currency. Stress-Free Tests Recall that seven banks that now make up Bankia collapsed over bad real estate loans. Exposure to Greek bonds was not even the issue with Bankia, and the banks allegedly passed stress tests. Bankia needed a bailout, then another. And it is going to need another. Also recall that Greek bonds suffered thru round after round of haircuts which in turn caused a collapse in the Cypriot banking system. Sometime down the line, the same thing is going to hit Spanish banks. 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.

Ambrose Evans-Pritchard's Disingenuous Strawman "Defend Europe, If You Still Dare" Posted: 09 Aug 2013 01:06 AM PDT Inquiring minds are reading the Telegraph article "Defend Europe, If You Still Dare" by Ambrose Evans-Pritchard. The youth jobless rate in Greece has just reached 64.9pc. Little to add. This is pure policy error. Europe has needlessly pushed the whole EMU bloc into a deep double-dip recession, and the longest unbroken contraction since World War Two. Keynesians warned them. Monetarists warned them. Anbody with any common sense warned them, but no, they believed in their quack theories of expansionary fiscal contraction — even when conducted without the anaesthetic of monetary stimulus. European policymakers are like the generals of Verdun, the Somme, and Passchendaele, sending their youth straight into the barbed wire. Europe's leaders still blame this crisis on America. You can only laugh or cry. Is anybody on this comment thread really willing to defend EMU any longer? Message to Ambrose Yes, Ambrose, the Monetarist and the Keynesians did indeed warn Brussels. The Austrians warned Brussels as well. So did the eurosceptics. So stop pretending Keynesian or Monetarist policy was the right response. The problems in Europe are structural and many. The euro is a structural problem, the "one size fits Germany" interest rate policy by the ECB is a structural problem, trade deficit settlement via Target 2 mechanisms is a structural problem. Work rules, pensions, and unions are a structural problem of varying magnitude in various countries, with Greece, Italy, Spain, and France at the top of the list. European policymakers are indeed "like the generals of Verdun, the Somme, and Passchendaele, sending their youth straight into the barbed wire". However, spending money countries do not have can hardly be a solution to those structural issues! Pray tell Ambrose, what good would it do? What problems does it fix? The same applies to monetarist idiocy of printing more money and having all of it sit as excess reserves at banks.  It is the Austrian-eurosceptics that have it right. The eurozone needs to break up. Greece, France, Italy, Spain, and Portugal are in serious need of work rule reform, pension reform, and public sector reforms of all sorts. Instead you pour it on as if the Keynesians and Monetarists had something other than can-kicking exercises in mind. They don't and you don't either which is quite sad given you were one of the original euroscpetics. 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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