Mish's Global Economic Trend Analysis

Shifting Sentiment in Spain: 2011 vs. 2015; Could an Anti-Euro Party Win the 2015 Spanish National Election?
No Rebound in Manufacturing: "Surprisingly Weak" Industrial Production Numbers; How Long Can Auto Sales Hold Up?
Time Pressure Thesis; Let's Play Ball; Greece 2-Year Bond Yield Hits 28.5%

Shifting Sentiment in Spain: 2011 vs. 2015; Could an Anti-Euro Party Win the 2015 Spanish National Election?

Posted: 15 Jun 2015 02:31 PM PDT

Maps of municipal elections in Spain in 2011 vs. the recent 2015 elections show a remarkable change in leadership.

click on chart for sharper image

PP - Blue - People's Party - Party of Prime Minister Mariano Rajoy
PSOE - Red - Spanish Socialist Workers' Party - typically the largest competitor in what was once primarily a two-party system, but is no longer
PNV - Green - Basque Country
CiU - Yellow - Convergence and Union
Podemos - Purple

The alliances are very complex, but note the rise of Podemos (purple).

Also recall that the Podemos "Economic Manifesto" Calls for Debt Restructuring, Spain to Abandon the "Euro Trap".

I believe Podemos has tempered some of those claims (possibly an election ploy), but party leader, Pablo Iglesias, is very close friends with Greek Prime Minister Alexis Tsipras.

For the first time in 24 years, PP did not carry the vote in the Madrid municipal election. Instead, Manuela Carmena, a Podemos-backed, anti-austerity candidate is now Madrid's new mayor.

National Elections This Year

Spanish national elections are this year (on or before December 20), with no date set as of yet.

The most likely dates are purported to be October 25 or a Sunday in November other than November 1, All Saints Day, a religious holy day for Catholics.

Election Outlook

At this juncture it is impossible for any party to get a majority of votes.
So what happens?

Wikipedia reports on 2015 Spanish Election details.

Unlike other neighboring countries' practice, such as Portugal, Greece or Italy, elections in Spain that result in hung parliaments rarely result in coalition governments at the national level. Rather, the party with the most seats has historically formed a minority government with the confidence and supply support of other parties, relying on legislature pacts or, in the event of a party holding a working majority (not absolute but large enough to govern on its own right), ad hoc agreements and/or variable geometry pacts, in order to pass legislation through the Congress.

Opinion Polls

This could get very interesting, especially if Podemos can pull off an upset. And it won't even be that much of an upset according to recent opinion polls.

click on chart for sharper image

It's very conceivable that an anti-euro party will find itself in power, in Spain, later this year!

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

No Rebound in Manufacturing: "Surprisingly Weak" Industrial Production Numbers; How Long Can Auto Sales Hold Up?

Posted: 15 Jun 2015 11:52 AM PDT

Following the rebound in consumer spending (heavily weighted to subprime auto sales), economists expected a rebound in Industrial Production.

Instead, last month was revised lower, and this month was not only negative but also lower than any economist's estimate in the Bloomberg Econoday Consensus Range.

The hawks may have some good arguments at this week's FOMC meeting but they won't have anything convincing to say on the manufacturing sector which, instead of rebounding from a weak first quarter, appears to be slowing further. All the main numbers in today's industrial production report are below low-end forecasts with the headline at minus 0.2 in May and April revised 2 tenths lower to minus 0.5. May is the fourth negative reading in the last six months with the other readings at no change. Capacity utilization fell 2 tenths to 78.1 percent which is the lowest rate since January 2014.

The manufacturing component fell 0.2 percent in May for the third negative reading in five months. Weakness in May was concentrated in consumer goods and construction supplies, the latter a disappointing indication for the housing sector. The mining component, at minus 0.3 percent, has really been hit hard by weakness in the energy sector but, in a plus, contraction here seems to be easing. The utilities component is positive but just barely at plus 0.2 percent.

Turning back to manufacturing, vehicles are actually a very big positive with a third outsized gain in a row, at plus 1.7 percent in May vs 2.0 percent and 4.0 percent in the two prior months. This reflects very strong consumer demand for cars and trucks underscoring unit vehicle sales which, in previously released data, are the strongest in 10 years. Excluding vehicles, however, the decline in May manufacturing slips another tenth to minus 0.3 percent. Another area of strength is capital goods which is showing life in the durable goods report and which here, tracked in the business equipment subcomponent, shows a 0.2 percent gain for May.

Otherwise, however, this report is surprisingly weak and echoes this morning's equally surprisingly weak Empire State report for June. Though there are no separate readings on exports in either of this morning's reports, weakness here appears to be pulling down the manufacturing sector.

Revisions

The Fed's Industrial Production and Capacity Utilization report shows there has not been a positive report all year, but December 2014, February and March 2015 were revised from negative numbers to zero. January and April were revised lower from previously reported negative numbers.

click on chart for sharper image

Market Groups

Among the major market groups, only business equipment and business supplies registered production gains in May, with increases of 0.2 percent and 0.1 percent, respectively. The production of consumer goods decreased 0.3 percent, as declines for both consumer energy
products and non-energy nondurables outweighed a gain for durable consumer goods.

Industry Groups

Manufacturing output fell 0.2 percent in May, as a decrease of 0.7 percent in the output of nondurables was partially offset by a small increase in the production of durables. The largest gain among durable goods industries was recorded by motor vehicles and parts; its index increased 1.7 percent. Results for other durable goods industries were mixed, with none posting a gain or loss exceeding 0.7 percent. Almost all major nondurable goods industries registered declines, with the largest drop, 1.6 percent, occurring in the petroleum and coal products industry.

How Long Can Auto Sales Hold Up?

The bright spot once again is autos. It was a big factor in in my June 11 report Retail Sales Bounce as Expected; How Much Longer Can Subprime Auto Sales Lead?

I still maintain auto sales are going to collapse at some point, likely out of the blue, and it will surprise the economists when it does happen. I don't know when, but suggest some time this year. Next month would not surprise me in the least.

Car sales are registered when dealers take delivery. At the turn, dealers who have been loading up are going to take some pretty steep losses on inventory they will have a hard time unloading.

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

Time Pressure Thesis; Let's Play Ball; Greece 2-Year Bond Yield Hits 28.5%

Posted: 15 Jun 2015 10:36 AM PDT

On Sunday, Greece walked out of talks with the Troika after 45 minutes. Does the rest of Europe want a deal more than Greece?

Regardless, Both Sides in Greek Bailout Crisis Harden Positions.

Both sides in the deadlocked Greek bailout crisis hardened their positions on Monday, a day after the collapse of the latest talks to broker an agreement between the cash-strapped government in Athens and its international creditors.

With two weeks to strike a deal before Greece's next loan repayment is due, Alexis Tsipras, the Greek prime minister, accused creditors of "political motives" behind the latest rejection of his proposals and claimed to be "shouldering . . . the hopes of the people of Europe".

Mr Tsipras says further pension cuts are a "red line" that cannot be crossed after successive bailout reductions that have reduced the average pension by more than 40 per cent.

"The Greek government has been negotiating with a specific plan and documented proposals. We will wait patiently until the institutions adhere to realism," the premier added.

In a rhetorical flourish, Mr Tsipras also said: "We are not simply shouldering a history laden with struggles. We are shouldering the dignity of our people, as well as the hopes of the people of Europe. We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy."

Mario Draghi, president of the ECB, called on Athens to rethink it position urgently and offer a new proposal to reopen negotiations. "While all actors will now need to go the extra mile, the ball lies squarely in the camp of the Greek government to take the next steps," he said.

François Hollande, the French president, said on Monday that "turbulent" times were looming "if we don't reach an agreement". "Let us not waste time and let's restart the negotiations as soon as possible," he said on the sidelines of the Paris air show.

Without the endorsement of the bailout monitors the chances of an amicable agreement on Thursday are remote, raising the prospect that eurozone negotiators may resort to the "take it or leave it" strategy used on Cyprus at a eurogroup meeting two years ago.

Let's Play Ball

The appeal by Hollande and the ECB does indeed suggest the creditors want a deal much more than Greece does.

And if so, it appears my thesis about Greece purposely drawing this process out for months without really wanting a deal is the correct one.

Who has the Ball?

The ball is actually in the hands of those who most want a deal. For months, Germany has stated the eurozone is prepared for a default and Greece is bluffing.

If so, why the massive angst? Who's bluffing whom?

Who's the Novice Game Player?

Flashback February 3, 2015: Bloomberg writer Leonid Bershidsky commented "By the time the EU is done with the Syriza novices, Greece's debt may be a little lower, but the government's radicalism will be a tattered banner."

On the same day Hans-Peter Friedrich, a deputy leader of the Merkel's Christian Democratic caucus, said "Greece, not Germany, is under time pressure".

German finance minister Wolfgang Schäuble said "Europe had already pushed its generosity to Greece to the absolute limit. We need solidarity in Europe, and besides we cannot be blackmailed."

Time Pressure Thesis

My Reply to the three of them, in Germany's "Time Pressure" Thesis; Noose Tightens on Europe was as follows:

Bershidsky is another in a long line of persons who do not understand simple math. Time will tell who is waving the "tattered banner" over what can and cannot be paid back. My bet, one way or another, is on the alleged "novices".

Reader Mailbag

Reader "AC" pinged me today with these thoughts.

Hello Mish

Indeed I think you are right. Tsipras voluntarily made the talks go on and on. If you think about it, that was in its best interest: Greeks could withdraw money and prepare, he could study other plans (Russia?), and he could study the behavior of his counterpart.

The last point is key in understanding who has the loaded gun. My feeling is that EU/ECB want a deal (their deal) and Tsipras doesn't.

I expect large concessions from the eurozone leaders at the very last minute, just one second before default should be officially declared.

Best regards,

AC

Too Little, Too Late

I expect concessions as well.

But will they be enough? Can they be enough?

I rather doubt it. The first reason is German public opinion is overwhelmingly against the idea.

The second reason is Greece will need yet a third bailout. See Third Greek Bailout? Another €53.8 Billion Needed?

Taking on another €53.8 Billion or so hardly seems possible. Meanwhile, Check out the action on 2-year Greek debt.

Greece 2-Year Bond Yield Hits 28.5%

The one-year return on Greek 2-year bonds is -92.57% according to Investing.Com.

I stick with what I have said previously, Greece has Nothing to Lose by Default.

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

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Monday, June 15, 2015

Mish's Global Economic Trend Analysis

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