Mish's Global Economic Trend Analysis

Massive Fireball Explosions in Chinese Port City of Tianjin Kill 17; Video Footage, Images, Logistics, Reader Anecdotes
29 Page Memo Proves Greek Parliament is Puppet Government Run by Germany; Devil Details and EU Guarantees
Don't Worry, There's Only One Cockroach

Massive Fireball Explosions in Chinese Port City of Tianjin Kill 17; Video Footage, Images, Logistics, Reader Anecdotes

Posted: 12 Aug 2015 04:56 PM PDT

A shipment of explosives went up in flames in the Chinese city of Tianjin. The Guardian reports least 17 Dead and Hundreds Injured.

Hundreds of people have been injured and at least 17 killed after a series of devastating blasts sent a fireball hundreds of metres into the air at an industrial port in northern China.

A shipment of "dangerous goods" in a warehouse went up in flames shortly before midnight local time (1600 GMT), state media reported, causing explosions so strong that they shook homes on the other side of the city and sent flaming debris arching over nearby high-rise buildings.

Hundreds of injured people crowded into hospitals, arriving on foot and by car after emergency services were overwhelmed.

"When the first explosion happened, it felt like a earthquake," said Chen Bingzhi, who lives about 4km from the explosion site. "The whole building was shaking. I live on the fifth floor and all the windows are broken."

The first blast was equal in strength to the detonation of three tons of TNT, while the second was the equivalent of 21 tons of the explosive, the China Earthquake Networks Centre said. The explosions, which took place within 30 seconds, were so strong that they registered at a nearby earthquake monitoring centre, the official People's Daily reported on Twitter. The US Geological Survey registered a series of seismological actions at a seismometer station in Beijing, which is more than 160km from the blast.

Videos posted on social media showed a pillar of flame that dwarfed nearby high-rise buildings, and shook homes several miles away. The blasts ripped offices and homes apart, and sent chunks of masonry flying through the air, pictures showed. One car was crushed by the debris and another was half buried in a crater in the road.

Video Footage

Link if video does not play: Tianjin Explosion.

Images

Logistics and Reader Anecdotes

Reader Brian writes...

Hello Mish

Tianjin is something like the 10th largest port in the world by volume. If a lot of exports were in port or waiting for shipping, I would imagine there could be some significant damage.

Quoting from a social media spot I found: "I work for a Logistics company in the US and we have many shipments there right now. The office is upside down right now. It's not relevant to my company but many ocean carriers actually lost many crew members that were on the ships. Condolences to the crew member's families. Our staff usually leaves at 4:30ish, it's 5:20 right now and everyone are still here. People that called off for today are now all here. Doesn't looking like we're leaving soon since it's morning in China and people are waking up. Angry customers (because they didn't buy insurance) are calling in to see whether if there shipments are okay. We have absolutely no way of finding out. Our average wait time increased from 20 seconds to over 40 minutes now."

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

29 Page Memo Proves Greek Parliament is Puppet Government Run by Germany; Devil Details and EU Guarantees

Posted: 12 Aug 2015 09:48 AM PDT

Puppet Government

The Financial Times reports Memo Reveals Extent of Control Bailout Monitors Will Have on Greece.

The 29-page memo details what Greece will have to do in order to get a third bailout program. The memo covers damn near every aspect of Greek finances, effectively making the Greek parliament a puppet government of Germany.

Devil Details

The Greek government will have its hands bound on everything from overall budget planning to drug pricing, tourist rentals, farmers' fuel tax breaks and the finer points of personal bankruptcy.
Greece must eliminate recent cross-border withholding taxes.
Overhaul the tax administration.
Progressively raising the pension age to 67.
Cut pharmaceuticals prices.
Reverse recent protective labour laws.
Open up a range of sectors to fuller competition.
Liberalize energy supplies for consumers by 2018.
Commit to a broad range of fiscal, financial, regulatory and pensions reforms.
A task force will decide how to setup a €50bn privatization fund, with specific demands coming out in December.
Greece must go from a primary account deficit of of 0.25 percent this year to surpluses of 0.5 per cent next year, 1.75 percent in 2017 and 3.5 percent in 2018 and beyond.

A one line preamble note reads "the recovery strategy takes into account the need for social justice and fairness".

Tsipras also won a "guaranteed minimum income" but the Financial Times revealed details.

I suspect what we are really talking about is some form of minimum unemployment insurance, with lots of restrictions and controls.

Growth Projections

EU officials believe the Greek economy will contract 2.3 per cent in 2015 and 1.3 per cent in 2016. They also predict Greece will bounce back in 2017 with growth of 2.7 per cent that year, before accelerating to 3.1 per cent in 2018.

In an over-under bet, I will take the "under" on GDP growth in 2017-2018 even though many of the reforms will help Greece over the long haul.

The notion that Greece will have a 3.5 percent primary surplus in 2018 and beyond, is unquestionably absurd.

Germany Wants More Strings

ZeroHedge reports DAX Crashes After Germany Warns Greek Bailout "Insufficient"

ZeroHedge lists some additional demands by Germany, citing the Bild and Bloomberg. As frequently happens, there is no link to Bloomberg or Bild and searches for items in the list all point start back to ZeroHedge.

I suspect this may be a rehash of a report that ties back to the July 11 article Germany Says Greece's Latest Proposal to Creditors "Insufficient" on the English edition of EFE.

EU Guarantees

Reuters reports Germany Examining Whether EU Can Guarantee Greek Debt to IMF

The German government is looking at whether the European Union could provide guarantees for Greek debt to the International Monetary Fund (IMF) in order to keep the Fund on board and avoid the need for major debt relief, German weekly Die Zeit reported.

Without citing its sources, the paper reported on Wednesday that the idea meant that "if Greece ran out of money, the Europeans would jump in and the IMF would suffer no losses. In return, the Fund would no longer demand extensive debt relief."

The plan would thus fulfill two key demands made by German Chancellor Angela Merkel - keeping the IMF involved and avoiding a debt writedown.

In other words, Germany wants to load this bailout on taxpayers, hoping that will satisfy the IMF. But isn't that just another illegal transfer mechanism?

And with such a guarantee, why would the IMF need to be involved at all?

Regardless, this is another one of those smelly sleight-of-hand proposals, that stinks to high heavens.

Bailout Won't Work

The former Greek finance minister made a simply claim today that I endorse 100%: Bailout Won't Work .

Former Greek finance minister Yanis Varoufakis has said the latest Greek bailout deal "is not going to work". Mr Varoufakis, speaking on the BBC's World at One, said that others negotiators in Tuesday's agreement felt the same way.

He said: "The Greek finance minister… says more or less the same thing.

He added that he had seen the "finance minister of Germany go to the Bundestag and effectively confess this deal is not going to work".

"The International Monetary Fund... is throwing up its hands collectively despairing at a programme that is simply founded on unsustainable debt... and yet this is a programme that everybody is working towards implementing."

He added: "Ask anyone who knows anything about Greece's finances and they will tell you this deal is not going to work."

I'm Your Puppet

In honor of the puppet government in Greece, run by Germany and the creditors, I offer this musical tribute.

Link if video does not play: I'm Your Puppet.

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

Don't Worry, There's Only One Cockroach

Posted: 12 Aug 2015 01:00 AM PDT

Yesterday, I reported China Joins Currency War With Surprise Devaluation, Biggest One-Day Move on Record.

The yuan fell about 2% vs the dollar yesterday, the biggest one-day currency move since 1993.

Economists surmised this was a "one time" event. I begged to differ.

China Pushes Yuan Sill Lower

Today we learn, China Pushes Yuan Down Further, Fuels Fears of Currency War.

China's yuan hit a four-year low on Wednesday, falling for a second day after authorities devalued it in a move that sparked fears of a global currency war and accusations that Beijing was giving an unfair advantage to its struggling exporters.

Spot yuan in China fell to 6.44 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday's devaluation.

The currency fared worse in international trade, touching 6.57.

The central bank, which had described the devaluation as a one-off step to make the yuan (CNY=CFXS) more responsive to market forces, sought to reassure financial markets on Wednesday that it was not embarking on a steady depreciation.

One Time Event

Supposedly, the move yesterday was a one time event.

In essence, China said "Don't worry, there's only one cockroach.

Clearly there are more than one. In fact, it is nearly impossible for there to be only one cockroach.

Second Cockroach Sighting

The Guardian reports China Stuns Financial Markets by Devaluing Yuan for Second Day Running.

China stunned the world's financial markets on Wednesday by devaluing the yuan for the second day running, sparking fears that the world's second largest economy is in worse shape than investors believed.

The currency hit a four-year low on Wednesday after the People's Bank of China set the yuan's daily midpoint even weaker than in Tuesday's devaluation.

With the bank having said that Tuesday's move was a "one-off depreciation", the rapid drop in the value of China's currency – around 4% in the last two days – dealt a blow to appetite for risky assets, and markets across the region plunged amid concerns that Beijing has embarked on a damaging currency war.

The Australian dollar, often seen as a proxy for the Chinese economy, fell again to a fresh six-year low of US$72.25c, having been sold off heavily on Tuesday. The US dollar, on the other hand, rose strongly again against all Asian currencies.

Oil was hit, too, with Brent futures were down 31c at $48.87 per barrel at 0251 GMT. US crude was trading at $43.02 per barrel, down 6 cents from Tuesday when it marked its lowest settlement since March 2009. Key industrial and construction materials nickel, copper and aluminum also hit six-year lows.

Fed Tightening, Yuan Weakening

We've been down this path before. It is mathematically impossible for every country to devalue its currency to boost exports. Yet Japan, the eurozone countries, and China seek to do that.

The US was in the same position as well, with inane QE stimulus, now tapering off with eyes on rate hikes.

So here we are central bankers: What's your next move?

Extremely damaging trade wars threaten.

For further reading, please see Reader Question: Is China a Currency Manipulator?

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

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Wednesday, August 12, 2015

Mish's Global Economic Trend Analysis

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