Mish's Global Economic Trend Analysis

Denials Mount as Greece Robs Peter to Pay Paul; Shell Games and Check Kiting
Déjà Vu Weather? No, It's a Recession!
Peugeot Introduces Self-Driving Car Features for 2018
Nothing Magical About 2% Inflation Target Says Bernanke

Denials Mount as Greece Robs Peter to Pay Paul; Shell Games and Check Kiting

Posted: 17 Apr 2015 07:36 PM PDT

Denials in Greece about its sorry state of affairs are now so ridiculous that even some ardent Greek supporters are likely laughing out loud (off the record of course).

Please consider Greece Scrapes Bottom of Barrel in Hunt for Cash to Stay Afloat.

Greece will need to tap all the remaining cash reserves across its public sector -- a total of 2 billion euros ($2.16 billion) -- to pay civil service wages and pensions at the end of the month, according to finance ministry officials.

Greece's finance ministry denied that it would need to tap remaining cash reserves to meet salary payments, without providing any figures.

"News agencies' reports that refer to the state's cash reserves are groundless, we categorically deny them," the ministry said in a short statement on Friday.

"This is the last bit of cash that the Greek state has," a senior finance ministry official, who requested anonymity, told Reuters.

For months, the government has been borrowing from different parts of the state administration, including the Athens subway system, to pay the wages and pensions of public sector workers. Now, however, it is reaching the end of the line.

Finance ministry officials say the state's cash balance will be negative from April 20 if the government does not extract the 2 billion euros in cash deposits remaining in various public bodies, including a handful of pension funds and regional administrations.

Without that money, the state would be 1.6 billion euros short of what it needs to pay month-end salaries and wages.

Regular tax revenues, which start flowing in early in the month, should help the state's financial position of course. Tax revenues had begun to slip early in the year, when Tsipras' government was elected, but have stabilized since to around 4 billion euros a month.

Still, the financial pressure will not subside because Athens faces a new round of payments to the IMF next month. It needs to give the IMF 950 million euros by May 12 -- then domestic commitments kick in once again.

Shell Games and Check Kiting

One can only keep these rob Peter to Pay Paul shell games going so long. Eventually they always blow up. Of course, if Greece convinces creditors to lend it more money, of if the Troika decides to unleash more funds, perhaps Greece can make it until June.

None of those seem likely to say the least. And even if Greece pulls off one more shell game miracle, this will all blow up in June anyway unless tax revenue soars between now and then.

The game in play at the moment is for the Greek government to lay the blame for Grexit on the Troika. That is still possible if the ECB cuts off funding or imposes capital controls.

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

Déjà Vu Weather? No, It's a Recession!

Posted: 17 Apr 2015 01:01 PM PDT

New Seasonal Pattern?

Yesterday Fed Governor Stanley Fischer proclaimed U.S. Economy Should Rebound After 'Poor' First Quarter.

"There's definitely a rebound on the way already, and we'll see at what speed it proceeds," Mr. Fischer said during an interview on CNBC. "The first quarter was poor. That seems to be a new seasonal pattern. It's been that way for about four of the last five years.

Richmond Fed President Jeffrey Lacker said Wednesday that he thinks a "strong case" can be made to raise rates at the Fed's June policy meeting, and suggested the economy's recent performance may have been weighed down by temporary factors.

U.S. wage growth has been stagnant for years, but many economists expect pay raises will accelerate as the labor market continues to tighten. "There are more signs every day, and lots of papers come through my computer explaining that this is the turning point, right now," Mr. Fischer said. "But they've been coming for a while."

Déjà Vu All Over Again

The Atlanta Fed Macro Blog investigates Fisher's claim in Déjà Vu All Over Again.

Output in the first quarter has grown at a paltry 0.6 percent during the past five years, compared to a 2.9 percent average during the remaining three quarters of the year.

What's causing this pattern? Well, it could be we just get really unlucky at the same time every year. Or, it could be a more technical problem with seasonal adjustment after the Great Recession (this paper by Jonathan Wright covers the topic using payroll data). It also seems likely that we can just blame the weather (see this Wall Street Journal blog post).

Whatever the reason for the first-quarter weakness, it appears to be happening again. Our current quarterly tracking estimate—GDPNow—has first-quarter growth hovering just above zero. As for the rest of the year, we'll have to wait and see. We of course hope it follows the postrecession pattern.

Pattern Real or Imaginary?

Is there really a pattern?

I see two weak Q1s, one weak Q3, and one weak Q4.

If you call anything under 2% annualized growth weak, then Q2 had two weak quarters as well. Is this a pattern or a random fluctuation?

Regardless, Fisher's claim that a poor Q1 "seems to be a new seasonal pattern. It's been that way for about four of the last five years" is false. What really happened was two "bad" as opposed to "weak" Q1 quarters in five years, and that brought down the Q1 average.

Even if that constitutes a pattern, it's as likely to be random or meaningless than "new seasonality".

Questioning Fisher's Optimism

If this winter took a couple ticks off GDP, and even if there is a "pattern", does that warrant Fisher's Optimism?

No it doesn't. Fisher's optimism is only reasonable if the weakness was entirely weather related and the underlying fundamentals are the same.

Neither is true. In fact, I think a recession has started.

It's a Recession

The US dollar is up 22% since the beginning of the year. That is sure to hurt exports.
The US economy lost over 100,000 high-paying oil related jobs. See the WSJ report Oil Layoffs Hit 100,000 and Counting
Hikes in minimum wage by Walmart, McDonalds, etc. will not only hurt corporate profits, but they will slow expansion plans. Would you want to buy a McDonald's franchise with all this pressure for $15 wages?
Credit conditions are recessionary, and you cannot blame this on the weather. See my report Credit Crunch Underway: Can Recession Be Far Behind?
Equities and junk bonds are in a clear blowoff bubble. A huge correction is long overdue. Indeed, it would take a 33% haircut just to get equities back to reasonable valuations.

Finally, this is the start of the 7th year of an expansion. The San Francisco Fed notes "NBER records show that, over the period from the mid-1940s until 2007, the average recession lasted 10 months, while the average expansion lasted 57 months, giving us an average business cycle of 67 months or about 5 years and seven months."

I am increasingly confident in my recession call. In fact, unless data immediately rebounds and holds over the next two months, a recession has likely started.

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

Peugeot Introduces Self-Driving Car Features for 2018

Posted: 17 Apr 2015 11:34 AM PDT

Not wanting to be left behind in the race for autonomous cars, French manufacturer Peugeot says the 508 Peugeot Model will contain "self-driving aids for bottleneck situations." Via translation from l'informaticien.

Imagine a car that automatically adapts to a bottleneck ahead, handling the "accordion " for you. All drivers who have experienced long minutes of wait will welcome what Peugeot will do in 2018.

Peugeot has not yet fully detailed his concept: it is not known if the driver will completely do something else for a traffic jam or if it will still "attend" the car in one way or another. Other manufacturers are working on these kinds of concepts, including the BMW-Mercedes-Audi Germans.

Driverlesscar Evolution

This is yet another way people will get accustomed to letting technology take over. If drivers get comfortable letting the car drive in slow-speed setups and parking, that comfort will quickly spread to higher speeds and more situations.

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

Nothing Magical About 2% Inflation Target Says Bernanke

Posted: 17 Apr 2015 12:44 AM PDT

It's pretty rare for former Fed chair Ben Bernanke to say much of anything that makes any sense. He recently did, just not in context.

"I don't see anything magical about targeting 2 percent inflation," Bernanke told a conference in Washington sponsored by the International Monetary Fund.

Given that inflation targeting is quite stupid, that sentence in isolation may cause some to believe common sense seeped into Bernanke's brain.

Alas, his brain actually went into reverse: Bernanke Open to Raising Inflation Target Fed Struggles to Meet.

Former Federal Reserve Chairman Ben S. Bernanke suggested that he would be open to an increase in the central bank's 2 percent inflation target.

"I don't see anything magical about targeting 2 percent inflation," he told a conference in Washington sponsored by the International Monetary Fund.

His comments come as the Fed and other major central banks are struggling to prevent their economies from falling into a disinflationary trap of diminished expectations. IMF officials have proposed that the monetary authorities raise their inflation goals to help limit the danger of future deflation.

Some economists, such as professor Laurence Ball of Johns Hopkins University in Baltimore, have called on the Fed to raise its target to 4 percent. Others, such as Scott Sumner of Bentley University in Waltham, Massachusetts, argue that the Fed should adopt a goal for the growth of nominal gross domestic product, rather than focusing on a price index.

Bernanke pointed to a number of practical difficulties in making a change in the Fed's objective. Such a switch could cause confusion among the public about the central bank's intentions and undermine its credibility, he said.

[And pray tell, what credibility is that?]

Bernanke also made the case in his presentation for keeping the Fed's balance sheet big in the aftermath of the financial crisis.

[Is that an indication he is clueless about how to unwind it?]

"Most other major central banks have permanently large balance sheets and are able to implement monetary policy without problems," he said.

[Just like no one could see housing as a problem until the bubble burst?]

Bernanke said he was not making a recommendation about how big the balance sheet ultimately should be. Instead, he said, he was trying to encourage debate about the issue.

Open For Debate

If Bernanke genuinely wants debate, I am game. In fact, I bet we could raise millions of dollars for charity if he was.

But he won't. He is no more willing to debate than my dead Aunt Martha is likely to ring my doorbell tomorrow.

Besides, please notice the framework for discussion. It is not about whether there should be an inflation target (of course there should be no such thing), but rather how high it should be and whether or not there should be any limits on Fed asset purchases.

But hey, since the Fed cannot hit 2% inflation, why not strive for 6%, 8% or 18%? What does it matter anyway?

Any idiotic number is as good as any other given the Fed has no credibility in hitting targets while ignoring every asset bubble that comes along. Besides, we all know that in spite of Bernanke's comments, it really is magic.

It Really Is Magic

Link if video does not play Oh Ho Ho It's Magic

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

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Mish's Global Economic Trend Analysis

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