Mish's Global Economic Trend Analysis

Purposeful Class Warfare? Breathing Room for Rupee? Sheer Stupidity? Ridiculous Comment of the Day
"Bubbles Ben to be Replaced by Calamity Janet"
Fed Bizarro World; One-Sided Risk Assessment; The $64 Trillion Question
So, It's No Tapering After All; Reaction is Telling
Spain on Track to Meet Budget Targets Says Economy Minister; Data Strongly Suggests Otherwise
Closer Scrutiny of Participation Rates by Sex and Age

Purposeful Class Warfare? Breathing Room for Rupee? Sheer Stupidity? Ridiculous Comment of the Day

Posted: 18 Sep 2013 10:54 PM PDT

In response to "Bubbles Ben to be Replaced by Calamity Janet", reader "Robert" responded via email "Try thinking of the Fed not as headed by inept persons, but as run by persons whose deliberate intention is to bring about the sort of destruction it is in fact bringing about."

I replied "Don't buy it. I am not a believer in such conspiracy theories. But I am a big fan of Occam's Razor: The simplest workable theory is most likely to be correct. In this case, the simple theory is: They are economic idiots."

Breathing Room for Emerging Markets

Some people think the Fed's actions are purposeful, but in a favorable sense. For example, please consider Bernanke Buys Time for Brazil to India as Rupee Leads Rally

The Federal Reserve's surprise decision to refrain from scaling back monetary stimulus provided a respite to investors in emerging markets, where currencies are in the midst of their worst rout in two years.

"It gives everyone some breathing time," Denise Simon, an emerging-market fixed income manager at Lazard Asset Management, which oversees $147 billion, said by phone from New York. "It certainly takes some of the immediate pressure off the more vulnerable countries. Emerging markets will continue to correct on the upside as the result."

The rupee strengthened 2.6 percent against the dollar at 12:18 p.m. in Hong Kong and Thailand's baht appreciated 2.1 percent, heading for the biggest gain in six years. The Malaysian ringgit increased 2.3 percent and one-month non-deliverable forwards on the rupiah rose 2.2 percent. The Jakarta Composite index jumped 4.4 percent and India's S&P BSE Sensex Index added 2.9 percent.

The Brazilian real and Turkish lira jumped more than 2 percent yesterday, while the Indian rupee led gains in Asia today, after the Fed said it will keep buying $85 billion of debt a month. Indonesia's Jakarta Composite Index advanced the most since October 2011 and JPMorgan Chase & Co.'s index for dollar-denominated bonds in developing nations posted the biggest rally in almost three months.

Fed Chairman Ben S. Bernanke held back from paring monetary stimulus to support economic growth, soothing investors who had dumped emerging-market assets since May as higher U.S. interest rates sparked capital flight. A group of the 20 most traded emerging-market currencies lost 7.4 percent between May and August, the most in two years.

The decision came at a time when economic data from China to Brazil are showing signs of improvement and helps countries most dependent on foreign financing such as Brazil and India, said Simon.

Real, Rand Strengthen

The rupee strengthened 2.6 percent against the dollar at 12:18 p.m. in Hong Kong and Thailand's baht appreciated 2.1 percent, heading for the biggest gain in six years. The Malaysian ringgit increased 2.3 percent and one-month non-deliverable forwards on the rupiah rose 2.2 percent. The Jakarta Composite index jumped 4.4 percent and India's S&P BSE Sensex Index added 2.9 percent.

The real led the rally in developing-nation currencies yesterday, gaining 3.2 percent to 2.1860 per dollar.

Strategists at Citigroup Inc. yesterday advised clients to buy the Mexican peso and bet 10-year interest-rate swaps will fall, saying the Fed's decision boosts investor risk appetite.

"This has created a much better environment for risky assets," Paul Denoon, who oversees $25 billion as the head of emerging-market debt at AllianceBernstein Holding LP (AB), said in a phone interview from New York. "It's important because one of the concerns for the market is the large external financing needs for developing countries. This creates stability."

Ridiculous Comment of the Day

The ridiculous comment of the day goes to Paul Denoon who says "This creates stability."

Really? The Fed buying $85 billion in assets a month creates stability? Denoon must live in Bizarro World along with Ben Bernanke and the rest of the Fed.

In Fed Bizarro World; One-Sided Risk Assessment; The $64 Trillion Question I asked "How in the hell is the Fed going to normalize interest rates with a recovery in full bloom, with interest rates three or four full percentages points below normal?"

Some people prefer short-term stability even when the outcome is long-term disaster.

The Sooner the Better

A more sensible comment comes from Brazilian state development bank president Luciano Coutinho who expects currency volatility to increase because the Fed didn't start tapering.

"For us, the sooner it starts and ends, the better. I would rather see it start today and have some date to finish because then we will feel the whole impact. The worst thing is the uncertainty."

Let's see how long this rally in emerging market currencies lasts. I suspect not long.

Common Sense Comment of the Day

Looking for non-conspiratorial common sense? Then please consider this statement I received by email from Pater Tenebrarum at the Acting Man Blog:

"I am deeply convinced that they really have no friggin idea what they are doing. And eventually we will all find out they had no idea."

Bingo.

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

"Bubbles Ben to be Replaced by Calamity Janet"

Posted: 18 Sep 2013 03:06 PM PDT

The quote of the day goes to David Stockman. In a Bloomberg video, Stockman claims (and I agree) "Bubbles Ben to be Replaced by Calamity Janet".

Partial Transcript

They are stumbling into the endgame of this whole misbegotten spree of QE, ZIRP, and massive manipulation of financial markets.

We are going to basically replace bubbles Ben with calamity Janet.

She has no clue how to wean wall street from the pathetic addiction to this massive stimulus, easy money that has been going on for the entire century.

I backed that up because she has spent her whole life as a monetary bureaucrat in the Fed system, and has no clue what honest capital and genuine free markets are about.

[She] believes the entire system has to be run by a monetary politburo, turning all the dials and short-term interest rates and yield curves and the entire financial system.

She is part of group-think, part of the Keynesian consensus that 12 people are running a $16 trillion economy.

They are delusional.

Link if video does not play: Yellen Has No Clue How To Run the Fed

Stockman

David Stockman was Ronald Reagan's Budget director.

Stockman is also the author of The Great Deformation: The Corruption of Capitalism in America and the #1 New York Times bestseller The Triumph of Politics: Why the Reagan Revolution Failed.

For more on Stockman, please see ...

End of U.S. Imperium—Finally!?

Heart of the War-Mongering Hypocrisy

Stockman nails the heart of US war-mongering hypocrisy with this question [on Syria]:

"After having rained napalm, white phosphorous, bunker busters, drone missiles, and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans, and countless more, Washington now presupposes to be in the moral-sanctions business?"

There is much more in the article. Please take a look.

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

Fed Bizarro World; One-Sided Risk Assessment; The $64 Trillion Question

Posted: 18 Sep 2013 01:08 PM PDT

The reaction to the FOMC no tapering news was a simple one "Party on dudes, in anything and everything, and in a big way."

For some intraday 5-minute charts of the US dollar, gold, the HUI, treasuries, and the S&P 500 stock market index please see So, It's No Tapering After All; Reaction is Telling.

How long this party lingers on will be interesting to see. Even though most market observers felt there would be some sort of minimal taper announcement today, is it really that relevant the Fed decided to keep asset purchases at $85 billion rather than $75 billion or $65 billion?

The one-day reaction says yes. And that is another indication of just how addicted to stimulus this market is. It is also an indication of something bigger (which possibly explains the reaction).

Until proven otherwise, the Fed is on a QE-to-Eternity mission. It wants to drive down interest rates until it believes in a recovery.

The $64 Trillion Question

The $64 trillion dollar question ($64 million buys nothing, and $64 Billion hardly anything at all) is "Then what?".

How in the hell is the Fed going to normalize interest rates with a recovery in full bloom, with interest rates three or four full percentages points below normal?

I believe the answer is simple "It isn't". And if that is indeed the case, what was that huge selloff in gold all about in the first place?

10 Burning Questions for Bernanke

Bloomberg writer Caroline Baum has Ten Burning Questions for Bernanke (written ahead of the announcement). The first of which is a series of questions similar to what I asked above.

I generally spend Federal Reserve Chairman Ben Bernanke's post-meeting press conference hoping one of the reporters will ask what for me are the burning questions of the day. Since they never do, and in all likelihood won't later today, I'm going to ask them myself. Here goes.

1. Chairman Bernanke, the Fed's economic projections continue to put long-run full employment at 5 percent to 6 percent. The neutral funds rate -- the rate that will keep the economy growing at its noninflationary potential in perpetuity -- is thought to be about 4 percent. The Federal Open Market Committee has pledged not to raise the funds rate at least until the unemployment rate hits 6.5 percent, and there has been talk of lowering that threshold, perhaps to take the sting out of tapering.

Assuming those parameters are accurate, the funds rate will be 400 basis points below neutral at a time when the economy is approaching full employment. Do you see any risks associated with that strategy? Do you think forward guidance can minimize what are sure to be significant dislocations in financial markets?

The above emphasis on strategy risk is mine

One-Sided Risk Assessment

Risks? Does the Fed Ever See Risks?

Actually the Fed sees risks all the time. But it's all one-sided. The Fed never sees risk in tightening too little. The Fed always sees risks in tightening too much.

The result is a series of bubbles of ever-increasing amplitude.

Today, the Fed is worried about a pissy taper in reducing asset purchases from $85 billion to $75 billion.

Fed Bizarro World

In Fed Bizarro World, $75 billion in asset purchases monthly is "too tight". Let that sink in.

Reflections on Gold

And somehow that "tight" policy was supposed to be bad for gold.

Well, it was, for a while. And perhaps it will remain so. But perhaps not, and that is how I am betting.

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

So, It's No Tapering After All; Reaction is Telling

Posted: 18 Sep 2013 12:19 PM PDT

Party on Dudes. The Fed says "No Tapering". Here is a snip from the FOMC Statement.

The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

Gold

US Dollar

S&P 500

$TNX 10-Year Treasury Yield

$HUI - Unhedged Mining Index

I expected some sort of minimal taper with a wishy-washy statement. So did the market or we would not have seen this kind of oversized reaction in stocks, bonds, the dollar, and gold.

More comments shortly.

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

Spain on Track to Meet Budget Targets Says Economy Minister; Data Strongly Suggests Otherwise

Posted: 18 Sep 2013 11:45 AM PDT

On September 16, Spain's economy minister, Luis de Guindos, said Spain on Track to Meet Budget.

Spain is on track to meet the 2013 budget deficit target it agreed on with its European Union partners and should emerge from recession before the end of the year, the economy minister said on Monday.

After the financial crisis burst Spain's construction bubble in 2008, "no doubt 2014 will be the first year when Spain will have some recovery," the minister said.

Given the depth of Spain's recession, the European Commission agreed in May to give Madrid more time to reach its budgetary targets. Mr. de Guindos said he expected Spain's deficit to fall to the new target of 6.5 percent of gross domestic product — rather than the initial target of 4.5 percent — from 7 percent last year.

Although officials from the International Monetary Fund and other creditors started another review of Spain's banking progress on Monday, Mr. de Guindos suggested that "Spanish banks don't have an important capital need," implying that Spain would not require an extension of its bank bailout.

How many lies and distortions can one man present in a few short paragraphs?

If by some miracle Spain meets this year's target, it is only because the target changed 4 times in the past two years.

Yet, I still have to ask: how likely is that?

Spain Budget Deficit Soars

On September 17, Dow Jones Business News reported Spain Budget Deficit Soars

Spain's government said late Monday the country's budget deficit stood at 5.3% of gross domestic product in the first seven months of the year, an indication that the euro zone's fourth-largest economy may miss its deficit target for the fourth consecutive year.

Spain is looking to bring its budget deficit to 6.5% of GDP this year, down from 10.6% last year. The target, set by the European Union Commission, was already relaxed earlier this year from a previous 6.3% of GDP, but many economists say even the easier target may be hard to attain, as the economy was in recession at least until the second quarter, and only moderate economic growth is anticipated in the second half, which should keep tax receipts at low levels.

Just Monday, think tank Funcas said 19 economists surveyed were expecting, on average, that the economy will grow 0.1% in the third quarter from the second, and Spain will post a budget deficit of 6.7% of GDP for the full year. The economists surveyed are also expecting that Spain will miss next year's deficit target, of 5.5% of GDP.

This is important because a string of large deficits has driven Spain's government debt to the highest level in over a hundred years. Last week, the country's central bank said debt stood at 92.2% of GDP as of June--well above the year-end target of 91.4% of GDP.

This reinforces the view held by many private sector economists, and the International Monetary Fund, that Spain's government debt will rise significantly above 100% of GDP before it peaks, despite government assurances to the contrary.

Spain's Budget Deficit €54 Billion Through July

Via translation from Guru's Blog, please consider Spain's Budget Deficit Rises to €54 Billion Through July.

Let's try not to lose the debt and deficit data since our politicians have a special ability to change forecasts as if nothing had happened.

The deficit totaled €54.293 billion in the first seven months of the year, and representing 5.27% of GDP against a target of 6.5% set for the full year, according to the latest data released Monday by the Ministry Finance and Public Administration.

The odds of meeting the deficit target, barring last-minute window dressing is quite low.

Total government debt is €947.184 billion, a new record. The ratio of public debt to GDP level is 92.6%, according to the Bank of Spain.

Recall that in September 2012, the government forecast for year-end 2013 was debt-to-GDP ratio 90.5%. Unless miracles, we will be well above that figure.

By the way, the total debt of €87.660 billion in short-term securities matures within one year.

Is Spain going to meet even four-times reduced targets? I highly doubt it.

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

Closer Scrutiny of Participation Rates by Sex and Age

Posted: 18 Sep 2013 02:53 AM PDT

Mainstream media and bloggers have noted the declining participation rate. Few provide much detail. Those who did provide detail, primarily looked at broad categories such as 16-19, 20-24, 25-54, and 55+.

There is plenty of ground between age 25 and 54. And what is happening at retirement age and beyond? Lumping everyone 55 and older into a single bucket is problematic.

I gave a call to the BLS and found a wealth of information on finer breakdowns that merits a closer look.

I passed the data on to reader Tim Wallace who produced the following charts.

Notes:

Data is not seasonally adjusted.
Comparison is August of 2013 to August in prior years.
Some of the age groups do not have data for the early years. This explains sharp vertical lines for some years.
These charts are for males. I will provide a look at female participation rates in a second post.

click on any chart for sharper image

Male 16-29

Overall, this group is about 25% of the male population.

The decline in age group 16-17, 18-19, and 20-24 can be reasonably explained as an increasing number of kids going to college.

There is only a minor decline in the participation rate of those aged 25-29.

Male 30-49

Overall, this group is about 33.5% of the male population.

30-49 should be prime working years. Some people might be able to retire after 20 years of service, but that does not apply to anyone under the 40.

Some people may have dropped out of the labor force by going back to school, but disability fraud and welfare likely explains some if not most of this decline.

Male 50-64

Overall, this group is about 25% of the male population.

This is where the charts get interesting. At age 60-64 the participation rate ticks back up.

Fewer people are able to retire at age 60 than 20 years ago.
Fewer people are able to retire at age 62 than 10 years ago.

You can see this in the age of workers at many fast food restaurants.

Male 65+

Overall, this group is about 13% of the male population.

Men in all of these age groups are increasingly reluctant to retire, especially those aged 65-69.The participation rate in the 65-69 age group is up from 25% to about 38%.

Incentive For Fraud

I noted in detail how disability fraud works in States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There?

As a followup, also see Want to Get on the Disability Gravy Train? There's an App For That!

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

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Wednesday, September 18, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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