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Saturday, January 14, 2012

Mish's Global Economic Trend Analysis

Retail Investors Shun Speculation and Stuff Money under the Mattress; Is this a Contrary Indicator?
Ceridian Fuel Index Positive for Third Month but "Too Small to Make Up for Lost Ground Last Six Months"
EU Iran Oil Embargo Likely Delayed Six Months; Obama Sends Teams of Consultants Worldwide Hoping to "Manage Supply and Demand of Oil"; Phased In Oil Shock
Greek 1-Year Bond Yield Tops 408 Percent; Hard Default Appears Imminent
Greece Bank Creditor Group Says Talks ‘Paused for Reflection’; S&P to Cut Some Euro Zone Countries on Friday; Euro Sinks to New Low for the Move
ECB Says Credit Crunch Averted; Yet ECB Overnight Deposits Again Hit Record High; Skyrocketing ECB Balance Sheet

Retail Investors Shun Speculation and Stuff Money under the Mattress; Is this a Contrary Indicator?

Posted: 13 Jan 2012 05:35 PM PST

Madeline Schnapp at TrimTabs writes via email ...

TrimTabs flow research shows that retail investors are stuffing money into the mattress. So tell me again how all this money printing by the Fed has helped retail investors?

Best,
Madeline

Via Press TrimTabs says "Retail Investors Shun Speculation and Stuff Money under the Mattress".

Sausalito, CA – January 13, 2012 – TrimTabs Investment Research said today that in the first 11 months of 2011, investors poured eight times more money into checking and savings accounts as they did into stock and bond mutual funds and exchange-traded funds.

"The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets," said TrimTabs Executive Vice President David Santschi. "But retail investors aren't taking the bait."

In a research note, TrimTabs explained that $889 billion poured into checking and savings accounts in the first 11 months of 2011 (complete data for December 2011 is not available). This inflow was more than eight times greater than the $109 billion that flowed into stock and bond mutual funds and ETFs.

"It's remarkable that inflows into checking and savings accounts outstripped inflows into stock and bond mutual funds and ETFs in each of the first 11 months of 2011," said Santschi.

Santschi added that in the latest three months from September 2011 through November 2011, the $139 billion inflow into checking and savings accounts was almost 13 times higher than the $11 billion inflow into stock and bond mutual funds and ETFs.

"Most portfolio managers desperately want to believe the economy will improve so they can pocket bigger bonus checks for 2012 than they'll be taking home for 2011," said Santschi. "But the economy isn't likely to get off to the races as long as investors are stuffing most of their money under the mattress."

Money Under the Mattress Video

Link if video does not play: Santschi's Daily Edge 1/12/2012: The Real Money Goes under the Mattress

Is this a Contrary Indicator?

Retail investors are frequently a contrary indicator. Is that the case here or is this simply reality setting in? Another option is boomers out of work via retirement (forced or voluntary) need to tap into their savings to live or to maintain lifestyle.

My guess is retiring boomer demographics is clearly in play here, and a combination of related ideas are the driving force behind what TrimTabs reports.

Retail investors finally realize things are not as good as portrayed by government and mainstream media
Retail investors believe things are not going to get better soon
Volatility is unnerving
Some boomers are tapping savings to maintain lifestyle
Some are tapping savings because they are out of a job and have to

Simply put, retail investors have given up and are not coming back. Some can't because they have no job. Others won't because they have had enough.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Ceridian Fuel Index Positive for Third Month but "Too Small to Make Up for Lost Ground Last Six Months"

Posted: 13 Jan 2012 10:38 AM PST

Inquiring minds are digging into the Ceridian-UCLA Pulse of Commerce Fuel Index for December 2011 report released today.

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.2 percent in December following the 0.1 percent increase in November and the 1.1 percent increase in October. Unfortunately, the combined effect of the three consecutive positive months was not enough to offset the weakness of trucking last summer and the PCI in December 2011 is 1.2 percent below its June 2011 level and 0.7 percent below its level a year ago in December 2010.

With all three months of the fourth quarter now available, we are able to make an informed assessment of the likely rate of growth of fourth quarter GDP. The fourth quarter PCI was up over the third quarter; but only by 0.5 percent at an annualized rate. The good news here is that this positive 0.5 percent growth of rate for the PCI in the fourth quarter was much better than the third quarter, which suffered a decline at an annualized rate of 4.2 percent.

The PCI annualized rate of growth of 0.5 percent in the fourth quarter is consistent with an estimated GDP growth of 2 percent or less. Although Wall Street economists have jacked up their "backcasts" for fourth quarter GDP growth to 3 percent or higher, the fundamentals as indicated by the fourth-quarter PCI are not so favorable.

Many of these Wall Street economists are basing their improved forecasts on expectations regarding a healthy contribution of inventories to GDP growth. The PCI does not support this view. The PCI measures inventories destined for factories, stores and homes, and the third quarter decline in the PCI correctly anticipated the large negative contribution of inventories to GDP growth. The BEA estimate of the inventory contribution to GDP growth for the third quarter has been varying around -1.5 percent as the data are revised, and is currently at -1.4 percent. That is almost as large as the estimated GDP growth of 1.8 percent. Absent that inventory negative, the rate of growth would have been 2.2 percent.

The fourth quarter PCI of plus 0.5 percent suggests only a modest positive contribution of inventories in the fourth quarter, which implies a GDP forecast that is not as optimistic as many Wall Street economists believe.

However, with real retail sales growing more rapidly than the PCI over the last two quarters, the first half of 2012 may be an inventory-rebuilding period, allowing inventories to make a substantial contribution to GDP growth. This would be very supportive of the recent improvement in the labor market, which may finally be entering a positivefeedback loop during which more jobs help create even more jobs.

Here is a video with Chief PCI® economist, Ed Leamer, on the December results.

3-Month Ceridian Index Moving Average

click on chart for sharper image

Ceridian fuel usage is diesel fuel for truckers. For Gasoline usage and petroleum usage in general, please see Year-Over-Year Gasoline and Petroleum Usage Charts; Shares Decline as Chevron Warns of Weaker 4th Quarter Earnings.

Ceridian Index vs. Retail Sales

That divergence between trucking fuel usage and retail sales is about to resolve to the downside for retail sales.

For details, please see Retail Sales Up Scant .1% in December, Core Retail Sales Decline; Chart of Retail Sales Adjusted for Population Growth and Inflation

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

EU Iran Oil Embargo Likely Delayed Six Months; Obama Sends Teams of Consultants Worldwide Hoping to "Manage Supply and Demand of Oil"; Phased In Oil Shock

Posted: 13 Jan 2012 09:48 AM PST

Under pretense of looking for other sources of oil, EU Iran Oil Embargo Over Nuclear Work Said Likely to Be Delayed Six Months

A European Union embargo on imports of Iranian (OPCRIRAN) oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, two EU officials with knowledge of the talks said.

The embargo, which would need to be accepted by the 27- nation bloc's foreign ministers on Jan. 23, is also likely to include an exemption for Italy, so crude can be sold to pay off debts to Rome-based Eni SpA (ENI), Italy's largest oil company, according to the officials, who declined to be identified because the talks are private.

A ban on petrochemical products would start sooner, about three months after EU ministers agree to the measure, one official said yesterday. Once a decision is made, member states would be barred from concluding new oil contracts with Iran or renewing those that are due to expire, while existing deals will be terminated within six months, according to a second diplomat today. Long-term contracts constitute the bulk of Europe's purchases of Iranian oil.

Phasing in the European embargo would satisfy the concern of nations most dependent on Iranian crude, including Italy, Greece and Spain, the first EU official said. Those three nations accounted for 68.5 percent of EU imports from Iran in 2010, according to European Commission data.

As Europe weighs its embargo, President Barack Obama's administration has sent teams worldwide to consult with countries on managing the supply and demand of oil, according to an administration official who briefed reporters in Washington.

OPEC's other members would be able to make up for a drop in Iranian oil supply if the EU agrees to an embargo, said Chakib Khelil, the group's former president. Even so, prices may temporarily rally to as high as $200 a barrel on news of any such blockade, he said today in London.

"It should be possible to replace, at least, the European consumption of Iranian oil," Khelil said in an interview with Mark Barton on Bloomberg Television's "On the Move."

Obama's Arrogance Coupled With Economic Idiocy

Anone who thinks president Obama can manage the supply and demand of oil is a fool. Sending teams worldwide in an attempt to do that is not only the height of arrogance, it is economic idiocy

Phased In Oil Shock

Iran is OPEC's second largest oil producer. Bloomberg estimates that Iran pumped 3.58 million barrels of crude a day last month.

The idea that Iran's oil supply can easily be replaced is pure nonsense.

Phasing in an embargo is the same as phasing in higher prices smack in the midst of an already guaranteed monster European recession.

Given that US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon" this move by the US and Europe is not only economic suicide, it is an illegal act of war as well.

Can China Benefit From Obama's Move?

Superficially, the only possible beneficiary to Obama's and the EU's economic warfare is China.

For details, please see China Snubs Geithner on Iran Oil; China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols; Retired Admiral Warns "US Policy Benefits the Chinese"

However, it's important to understand that Chinese "benefit" is an illusion, in isolation.

In aggregate, oil-dependent countries including China cannot conceivably benefit from an oil shock or higher oil prices because global trade will collapse. OPEC exporters may temporarily benefit from higher prices but the expense will be falling usage and a strengthening worldwide recession.

If one wonders why Iran may want nuclear weapons, the US and EU have certainly given Iran sufficient reasons.

How to Stop the Madness

This proposed embargo is economic idiocy as well as an act of war by the US and EU on Iran.

Once again I point out that President Obama has continued the inane policies of President Bush. Newt Gingrich and Mitt Romney would do the same.

If one wishes to end the economic and war-mongering madness, there is only one electable choice: Ron Paul.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Greek 1-Year Bond Yield Tops 408 Percent; Hard Default Appears Imminent

Posted: 13 Jan 2012 08:49 AM PST

In conjunction with a "Pause for Reflection" and stalled talks by Greece Bank Creditor Group over the benefits of further "voluntary" cuts on Greek debt, yield on 1-year Greek bonds soared over 400%.

A hard default appears imminent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Greece Bank Creditor Group Says Talks ‘Paused for Reflection’; S&P to Cut Some Euro Zone Countries on Friday; Euro Sinks to New Low for the Move

Posted: 13 Jan 2012 08:10 AM PST

Less than a day ago ECB president Mario Draghi was bragging "Credit Crunch Averted" noting the Euro's first weekly gain in five-weeks. Unfortunately for Draghi, there was still one day left in the week.

Greece Bank Creditor Group Says Talks 'Paused for Reflection'

Bloomberg reports Greece Bank Creditor Group Says Talks 'Paused for Reflection'

Talks between Greece and its creditor banks were put on hold after negotiations in Athens failed to yield an agreement.

A proposal put forward by the steering committee representing financial firms has "not produced a constructive consolidated response by all parties," the Institute of International Finance said in an e-mailed statement today. "Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach."

The IIF's Charles Dallara and Jean Lemierre had met for a second day in Athens with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos, aiming for a deal in the euro area's first large restructuring. The committee had offered a 50 percent nominal reduction of Greece's sovereign bonds in private investors' hands and as much as 100 billion ($127 billion) of debt forgiveness, the IIF said.

Greece hasn't yet decided whether to submit legislation that could force holders of the nation's debt to take part in a bond swap, according to a government spokesman who said his earlier remarks on the matter were misinterpreted.

European Debt Downgrades

Reuters reports S&P to Cut Some Euro Zone Countries on Friday

Standard & Poor's is set to downgrade the credit ratings of several euro zone countries later on Friday, but not those of Germany and the Netherlands, a senior euro zone government source said.

Another source confirmed "several" countries would be hit.

French TV, citing a government source, said France's credit rating would be downgraded and another source said Slovakia, the euro zone's second poorest country currently rated A+ by S&P, would suffer the same fate.

Euro Sinks to New Low for the Move

On some combination of the above news, the Euro reversed strong gains, falling to a new low for the move, down to 1.2627 from a high of 1.2884. That is a very big intraday currency swing of 2.57 cents vs. the US dollar.

Euro 15 Minute Chart

Creditors "Paused for Reflection, so should Mario Draghi.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

ECB Says Credit Crunch Averted; Yet ECB Overnight Deposits Again Hit Record High; Skyrocketing ECB Balance Sheet

Posted: 13 Jan 2012 01:45 AM PST

Following a relatively tiny two-day rally in the Euro the ECB blows its horn with a statement Credit Crunch Averted

The euro rose, extending its first weekly gain versus the dollar in six weeks, as Italian bonds advanced and after European Central Bank President Mario Draghi said policy makers have averted a credit shortage.

The 17-nation currency climbed against all but two of its 16 major counterparts as Spanish debt also rallied as Italy prepared to sell notes today. The Dollar Index (SPX) dropped for a second day before a U.S. report forecast to show consumer confidence improved this month, reducing demand for the U.S. currency as a haven.

Draghi said the central bank's massive injection of cash into the financial system last month is beginning to flow through into credit markets. "There are tentative signs of stabilization of economic activity," he said in Frankfurt after the ECB's policy meeting yesterday. Policy makers kept the benchmark rate at a record low of 1 percent after two straight quarter-point reductions.

Draghi's Statement in Perspective

After a 5-week decline, some snapback in the Euro is to be expected. The impetus is just as likely to be the action by the ECB to hold interest rates at 1% as anything else.

Actually, given extreme bearish sentiment on the Euro, no reason at all is needed for a euro relief rally.

For a look at sentiment including charts of record-high short interest on Euro futures, please see Euro Suffers Longest Losing Streak Since 2010; Record High Speculative Short Positions; Big Specs vs. Currency Movements; Not Timing Devices written January 8.

ECB Overnight Deposits Again Hit Record High

As for the idea a "credit crunch has been averted", please consider the Wall Street Journal report for January 13 that says ECB Overnight Deposits Again Hit Record High

Euro-zone banks' overnight deposits with the European Central Bank hit yet another all-time high Thursday, likely reflecting continued funding pressures in the banking sector as well as the approaching end of the reserve period.

Banks deposited €489.906 billion ($627.77 billion), the central bank said Friday, up from €470.632 billion Wednesday.

The daily deposits have been extremely high since banks in December tapped the ECB for its first-ever three-year loan. ECB President Mario Draghi Thursday said the extra long-term facility has been successful at preventing a serious credit contraction in the banking sector. The ECB launched the operation to address the fact more than €200 billion in bank loans was coming due in the first quarter, Mr. Draghi added.

Some analysts attribute that the ever-increasing deposits to the fact that banks are hoarding their excess funds—a good deal of which originate from the three-year ECB loan—by channeling them back to the central bank.

However, Mr. Draghi dismissed that idea at his press conference Thursday. He said the banks drawing on the ECB's refinancing operation are "by and large" different from those banks that have been depositing their funds with the ECB overnight.

European Banks Hoarding Cash

European banks aren't lending now, nor will they lend any time soon as discussed in German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash

Skyrocketing ECB Balance Sheet

The reason for debt rally is not that a credit crunch has been avoided, but rather, the ECB has become the lender of only resort, bloating its balance sheet to record levels.

Please consider Swelling ECB Balance Sheet Brings Relief, Poses Risk For Euro

The European Central Bank's increasingly swollen balance sheet has helped calm volatile markets, but some believe it could itself become a problem and bring more volatility to the 17-nation currency bloc.

Nearly a year's worth of anticrisis lending measures have sent the ECB's books to a record EUR2.73 trillion, some 29% of the euro zone's gross domestic product. This expansion, capturing both the collateral pledged by banks receiving funds from the central bank and the sovereign bonds it has purchased for its own account, has been welcomed by bond investors, who see it as a stabilizing force. But the excess liquidity bodes for a weaker euro, and has some wondering if the ECB's own solvency could eventually be in peril.

Many investors are concerned that a default in the Hellenic republic could ricochet across the 17-nation currency bloc. That could renew an assault on other euro-zone bond markets that are already distressed.

More worrisome are relaxed collateral rules. When the ECB introduced a three-year tender last month at generous 1% interest rates, more than 500 banks gorged themselves on a record EUR489 billion of the central bank's cash. Some commentators worry that a worsening of peripheral bond markets could endanger securities pledged by the banks, posing a considerable solvency threat to the central bank.

"The quality of the balance sheet deteriorates as it expands, which is doubly problematic," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

European banks are dumping sovereign debt at record levels on the ECB. Germany and France are on the hook. 10-year Italian bonds are down substantially, but the rate is still 6.5% with the ECB the buyer of only resort.

Good luck with that policy as Europe heads into a massive recession.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Friday, January 13, 2012

Mish's Global Economic Trend Analysis

Slovenia, Back in Recession, Scrambles to Avoid Economic Crash
Retail Sales Up Scant .1% in December, Core Retail Sales Decline; Chart of Retail Sales Adjusted for Population Growth and Inflation
Year-Over-Year Gasoline and Petroleum Usage Charts; Shares Decline as Chevron Warns of Weaker 4th Quarter Earnings

Slovenia, Back in Recession, Scrambles to Avoid Economic Crash

Posted: 12 Jan 2012 08:58 PM PST

Slovenia, like Hungary is on the brink of fiscal disaster. Unlike Hungary, Slovenia is in the Eurozone.

The Guardian reports Slovenia scrambles to avoid economic crash as Zoran Jankovic, leader of largest party, fails to form a government to deal with debt issues.

Slovenia was on Thursday scrambling to convince international lenders that it can avoid following Hungary's footsteps, after the leader of the country's largest party failed to form a government.

MPs rejected the centre-left Zoran Jankovic as new prime minister, despite calls for a new government to deal with the country's increasing debt and threats of a further cut to its sovereign debt rating.

Slovenia, which was the first post-communist country to join the euro in 2007, was downgraded A1 from Aa3 in December by ratings agency Moody's. Officials fear that political uncertainty and reliance on exports to the EU will trigger a further downgrade and a steep rise in borrowing costs. The country is already being forced to borrow at rates above 7%.

Jankovic, whose Positive Slovenia party gained the most votes at a snap election in December, needed the support of at least 46 out of 90 parliamentary members but only managed to gain the support of 42.

The president and members of parliament now have up to 14 days to nominate new candidates with Janez Jansa, head of the centre-right Slovenian Democratic Party, the second strongest party in parliament, the most likely to win.

In 2007, not long after it joined the euro, the European Central Bank warned Slovenia that a prolonged spending binge risked an economic crash.

The country, which has a population of 2 million, was badly hit by the global crisis and its economy shrank by 8% in 2009. After a mild recovery in 2010, recent data showed that another recession was possible, as the economy contracted by 0.5% in the third quarter of 2011.

Jansa, who was prime minister from 2004 to 2008, has pledged to cut the budget deficit, speed up privatisation and selectively raise the retirement age.

Slovenia's political crisis started in September, when parliament ousted the centre-left government of prime minister Borut Pahor over internal coalition squabbles and its inability to enforce reforms that would speed up economic growth.

All of the main credit agencies have cut Slovenia's ratings since September and put it on a negative watch. Fitch said last week that Slovenia needed to form a new government urgently and come up with a plan to narrow its budget deficit to maximise its chance of averting another rate cut.

There is absolutely no way to prevent a massive European recession nor is there any way to prevent various economies like Greece, Portugal, Spain, Slovenia, and Hungary from outright economic crashes.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Retail Sales Up Scant .1% in December, Core Retail Sales Decline; Chart of Retail Sales Adjusted for Population Growth and Inflation

Posted: 12 Jan 2012 09:22 AM PST

Following all the glowing retail sales reports for Christmas, the actual numbers reported today show a mere .1% rise. Excluding autos which rose 1.5%, retail sales actually declined.

MarketWatch reports U.S. retail sales rise scant 0.1% in December

Sales at U.S. retailers increased 0.1% in December, the government said Thursday, in a report that bucked expectations of stronger sales during the holiday period.

"Apparently, all those reports of a robust holiday shopping season were made by people too much into the holiday spirits as retail sales did not surge in December," said Joel Naroff, president of Naroff Economic Advisors, Inc.

Electronics were touted as one of the strongest sectors for holiday shopping. But the Commerce Department's data showed a 3.9% monthly decline at electronic stores.

Sales at online retailers, another supposed holiday hotspot, fell 0.4%.

Sales at the nation's malls were lower in December. Sales at general merchandise stores fell 0.8%, including a 0.2% decrease at department stores.

Excluding a 1.5% rise in motor vehicles sales, retail sales for the month fell 0.2% — much weaker than the 0.3% gain expected.

Sales at gasoline stores fell 1.6% in December. Excluding autos and gasoline, sales were flat on the month.

So-called "core" sales, which exclude autos, gasoline, and building materials, fell 0.2% in December. This was the one and only drop in core sales seen during 2011.

Some Retail Sales Components

Retail Sales +.1%
Core Retail Sales -.2%
Gasoline Store Sales -1.6%
Electronics -3.9%
General Merchandise -.8%
Autos +1.5%
Furniture +1.0%
Building Materials and Hardware +1.6%
Leisure, Sports, Hobbies, Reading -.4%
Health and Personal Care +.6%
Food and Beverage -.2%
Restaurants and Bars +.7%
Non-store outlets and online stores -.4%

Retail Sales Adjusted for Population Growth and Inflation

Doug Short has some interesting charts in his report Retail Sales: A Disappointing 0.1% in December

The Retail Sales Report released this morning shows that retail sales in December were up 0.1% month-over-month (but the Census Bureau notes that the statistical confidence range is ±0.5%). That was well below the Briefing.com consensus forecast of 0.4% and Briefing.com's own expectation of 0.5%.

The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. December retail sales adjusted accordingly rose 0.1% month-over-month but only 2.4% year-over-year, far less than the 6.5% nominal YoY increase.

Consider: During the past 20 years, the U.S. population has grown by 23% while the dollar has lost about 39% of its purchasing power to inflation. When we adjust accordingly, the rebound in retail sales from the bottom in April 2009 merely gets us back to the per capita spending of December 1999, over twelve years ago.

Retail sales have been recovering since the trough in 2009. But the "real" consumer economy, adjusted for population growth is still in recession territory — 7.0% below its all-time high in January 2006.

Considering the massive 50% off entire store sales that it took to clear merchandise in December, this may have been the last gasp of this economic "recovery".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Year-Over-Year Gasoline and Petroleum Usage Charts; Shares Decline as Chevron Warns of Weaker 4th Quarter Earnings

Posted: 12 Jan 2012 08:32 AM PST

Here is the latest chart from Tim Wallace on gasoline and petroleum usage.

click on chart for sharper image

Wallace writes...

Hello Mish

Chevron is reporting weaker than expected results.

As we discussed earlier I was expecting this one due to the obvious disconnect on gasoline prices and petroleum futures. Gasbuddy has a great site for seeing this one coming when you lay the gas prices on the petroleum graphs.

Tim

Chevron Warns of Weaker 4th Quarter Earnings

MarketWatch reports Chevron warns of weaker fourth-quarter results

Chevron Corp. CVX -2.52% said late Wednesday it expects fourth-quarter earnings to come in "significantly below" its third-quarter results. In its interim quarterly report, Chevron said earnings from its "upstream" exploration and production business will be comparable to its third-quarter results while earnings from its "downstream" refining and marketing operations are likely to fall from the previous quarter's results to break-even. The San Ramon, Calif.-based oil company blamed weak refining margins and refining volumes for the downbeat earnings outlook. The company is scheduled to release its fourth-quarter results on Jan. 27. Chevron shares fell as much as 2% to $105.61 in after hours trade.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Wednesday, January 11, 2012

Mish's Global Economic Trend Analysis

China Snubs Geithner on Iran Oil; China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols; Retired Admiral Warns "US Policy Benefits the Chinese"
Europe’s $39 Trillion Pension Time Bomb Explodes in 2012; Simple Proposal to Fix the Problem
German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash
Debt Trap Looms in India on Convertible Bonds; Borrowing Costs May Quadruple for Indian Corporations
Greek Crisis Has Pharmacists Pleading for Aspirin; Bailout Money Used for Military Spending

China Snubs Geithner on Iran Oil; China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols; Retired Admiral Warns "US Policy Benefits the Chinese"

Posted: 11 Jan 2012 10:42 PM PST

The US' complete ineptitude on oil policy is in the spotlight just as predicted. A pair of articles will show what I mean.

China Snubs Geithner on Iran Oil

Bloomberg reports China Snubs Geithner on Iran Oil, Japan Plans Cut

U.S. Treasury Secretary Timothy F. Geithner's efforts to tighten economic sanctions on Iran over its nuclear program won backing from Japan a day after China rejected limiting oil imports from the country.

China, which counts Iran as one of its top petroleum suppliers, yesterday snubbed the U.S., with a vice foreign minister saying his nation "opposes imposing pressure and sanctions."

'Halfway Solution'

"Japan will try and seek a halfway solution where they'll try and limit imports from Iran and boost imports from other Middle Eastern countries that are also U.S. allies," said Razeen Sally, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Given its military alliance with the U.S., Japan "is much more susceptible to U.S. pressure than China," he said.

Halfway Idiocy

Razeen Sally, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore is an economic dunce. Oil is fungible. It makes no difference where one gets the oil.

If Japan gets oil from Saudi and China gets more oil from Iran nothing changes. However, if there is any supply disruption prices will rise. Simply put, if Iran pumps less oil prices will rise unless Saudi Arabia or other supplies makes up the difference.

If Iran oil is shut off, Saudi and other supplies cannot make up the difference. If there is a partial shutdown, and China buys Iranian oil to make up the difference nothing at all changes unless China uses pressure to get a better deal.

I mentioned such problems were likely in Geithner Seeks Support for Iran Oil Sanctions From China; What Should China's Response Be? Shoddy Reporting by Bloomberg on Oil Story

What Should China's Response Be?

I propose this:

Dear Secretary Geithner

In light of the fact that the US Defense Secretary announced on Face the Nation that "Iran Not Trying to Develop Nuclear Weapon" China will not support a US-Led oil embargo.

Moreover, we will consider any efforts by the US or Europe to block Iranian exports to be economic warfare against China.

We call on the United States to dump their unfounded economic attack on Iran immediately.

That would set the proper tone for discussion and make the Obama administration as well as Republican warmongers look foolish in the process.

Unfortunately, China is unlikely to do that. Instead, If the US and Europe are stupid enough to ban Iranian oil, China would have additional leverage on those disputed Iran oil contracts mentioned above.

It took precisely one day to prove the above highlighted theory correct.

China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols

Please consider China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols

China stands to be the biggest beneficiary of U.S. and European plans for sanctions on Iran's oil sales in an effort to pressure the regime to abandon its nuclear program.

As European Union members negotiate an Iranian oil embargo and the U.S. begins work on imposing sanctions to complicate global payments for Iranian oil, Chinese refiners already may be taking advantage of the mounting pressure. China is demanding discounts and better terms on Iranian crude, oil analysts and sanctions advocates said in interviews.

"The sanctions against Iran strengthen the Chinese hand at the negotiating table," Michael Wittner, head of oil-market research for Societe Generale SA in New York, said in a phone interview. Chinese refiners are likely to win discounts on Iranian crude contracts as buyers from other nations halt or reduce their purchases of Iranian oil to avoid being penalized by U.S. and European sanctions, he said.

At the same time, the U.S. is bearing most of the cost of air and sea patrols and surveillance in the Strait of Hormuz, through which transit 17 million barrels a day of crude, or 20 percent of world supplies. China, the No. 2 importer of oil after the U.S., enjoys protection for the shipping lanes without paying a cent, retired Admiral Dennis Blair, a former U.S. Director of National Intelligence, said in an interview.

"Policing the region imposes a cost on us, and benefits the Chinese," Blair said in an interview. A few Iranian officials recently have threatened to shut the passage if the U.S. and Europe enforce tough oil sanctions.

China's oil executives are expected to demand lower prices for Iranian crude, said Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defense of Democracies, an advocacy group in Washington.
Reducing Purchases

Dubowitz estimates that if China were the only remaining buyer of Iranian crude, it might command as much as 40 percent discounts. Among the other major refiners of Iranian oil, India has increased orders from Saudi Arabia, and Japanese and South Korean officials say they are gradually reducing their dependence on Iran, Dubowitz said.

Inane US Oil Policy

The US picks up the tab for China to get cheaper oil as prices rise elsewhere. In light of the fact US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon" , US policy is inane.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Europe’s $39 Trillion Pension Time Bomb Explodes in 2012; Simple Proposal to Fix the Problem

Posted: 11 Jan 2012 03:44 PM PST

Europe's pension time bomb has gone off. European demographics are among the worst in the world and Europe is heading into a huge, prolonged recession on top of it.

Please consider Europe's $39 Trillion Pension Risk Grows as Economy Falters

Even before the euro crisis, people were worried about Europe's pension bomb.

State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.

Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report.

Stable or falling birthrates, plus rising life expectancies, are adding to pressures, with the proportion of economic output devoted to spending on retirement benefits projected to rise by a quarter to 14 percent by 2060, according to the ECB report.

Europe has the highest proportion of people aged over 60 of any region in the world, and that is forecast to rise to almost 35 percent by 2050 from 22 percent in 2009, according to a report from the United Nations. That compares with a global estimate of 22 percent by 2050, up from 11 percent in 2009.

The number of people aged over 65 in the 34 countries in the Organization for Economic Cooperation and Development is forecast to more than quadruple to 350 million in 2050 from 85 million in 1970. Life expectancy in Europe is increasing at the rate of five hours a day, according to Charles Cowling, managing director of JLT Pension Capital Strategies Ltd. in London.

In so-called developed countries, the average lifespan will reach almost 83 by 2050, up from about 75 in 2009, the UN said.

By 2060, the average French pension benefit will be 48 percent of the national average wage, compared with 63 percent now, said Stefan Moog, a researcher at Freiburg University in Freiburg, Germany.

State pension obligations in France and Germany are three times the size of their economies, according to data compiled by Mercer. It's more sustainable in France than Germany because of France's higher birthrate.

Last year, there were 4.2 people of working age for every pensioner in France. The ratio will fall to 1.9 by 2050, according to a report by Economist magazine in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period.

Simple Proposal to Fix the Problem

The punchline to this economic disaster came in the middle of the article: "Pension managers and governments are relying on economic growth to safeguard the promises they make."

Europe will be lucky to average 1% growth in the next 5 years. However, I have an idea guaranteed to fix the problem.

Every country but Greece should exit the Euro but keep pension plans denominated in euros. The value of the Euro will sink to zero as Greece goes into hyperinflation. Thus, pension plans denominated in Euros will quickly be solvent. At that point the plans can be converted back to their respective currencies with obligations that can be paid with a few ounces of gold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash

Posted: 11 Jan 2012 09:24 AM PST

There are numerous signs the entire Eurozone is in recession, including Germany. Nonetheless economic dunces talk as if recession can be avoided. For making just that claim, I blasted the IMF on Monday in Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year".

Let's ponder a sampling of data released today that proves without a doubt Europe is already in recession.

German Economy Contracts in $4th Quarter

Bloomberg reports Germany May Be on Brink of Recession

Europe's largest economy shrank "roughly" 0.25 percent in the fourth quarter from the third, the Federal Statistics Office in Wiesbaden said today in an unofficial estimate.

The weaker global economy and waning demand from debt- stricken euro-area neighbors have eroded German foreign sales, the main pillar of its economic expansion. Net trade contributed 0.8 percentage point to growth last year, with exports up 8.2 percent and imports gaining 7.2 percent. In 2010, exports increased 13.7 percent.

"All in all, the German economy has remained relatively resilient," said Annalisa Piazza, an economist at Newedge Group in London. "Signs of moderation have recently emerged but we expect the German economy to remain afloat in the coming quarters, maintaining its role as the major engine of growth for the euro area."

2012 Forecast

German growth will slow to 0.6 percent this year before recovering to 1.8 percent in 2013, the Bundesbank predicted on Dec. 19. The European Central Bank, which has cut interest rates to a record low and flooded the banking system with cash during the debt crisis, last month reduced its 2012 growth forecast for the 17-nation euro region to just 0.3 percent.

Preposterous Growth Forecast

The growth forecast for Germany and the Eurozone are both preposterous.

If Europe heads into a prolonged recession (and it has already started), Germany cannot help but get sucked into it. Approximately 28 percent of German GDP is derived by exporting goods to EU countries and Switzerland.

Think German exports to the rest of Europe are going to rise forever? Think again, starting with a look at the Eurozone's 4th largest economy.

Spain's Industrial Output Plunges 7%

Economic Times reports Spain's Industrial Output Plunges 7%.

Spain's industrial output plunged by 7.0 percent in November compared to a year earlier, its biggest drop in more than two years, official data showed on Wednesday.

Economists have warned that Spain may have already entered a recession, with a likely contraction in the last quarter of 2011 and the first quarter of 2012.

The official growth forecast for 2011 stands at 0.8 percent.

The fall in production accelerated in November after a decline of 4.2 percent in October, according to Wednesday's figures.

"All the industrial sectors displayed negative year-on-year rates," the institute said in a statement.

The fall in production was sharpest in the consumer goods sector, at 16.3 percent. Energy fell 5.2 percent.

Industrial production fell 1.4 percent on average from January to November compared to the same period a year earlier, the figures showed.

The November figure was the worst since October 2009 when output fell 9.1 percent during the first wave of the economic crisis.

Spanish Minister Sees Recession Risk

Bloomberg reports Spain Industrial Output Falls, Minister Sees Recession Risk

Spanish industrial production fell the most in two years in November as Budget Minister Cristobal Montoro warned that the euro area's fourth-largest economy is on the edge of a recession.

Spain's economy is close to entering a recession, Montoro told lawmakers in Madrid as they began examining Prime Minister Mariano Rajoy's first package of austerity measures. The plan was announced on Dec. 30 after the new government learned that the 2011 budget gap will be a third larger than forecast.

Interpreting Bureaucratese

Spain has been in recession for two quarters already (assuming it ever got out of recession that started in 2007), yet talk is still Spain "may" fall into recession. Just what the heck does it take for these bureaucratic clowns to admit the obvious?

Actually, if one knows how to interpret "bureaucratese" they already have. When bureaucrats talk of "risk of recession" it is a sure-fire sign the economy is already in one.

UK Trade Deficit Widens

Please consider Pound Weakens to Three-Month Low Versus Dollar After Trade Deficit Widens

The pound fell to a three-month low versus the dollar after a government report showed the trade deficit widened more than economists forecast, fueling bets the central bank will need to add more stimulus to spur growth.

Sterling declined versus all its 16 major counterparts and gilts advanced after the British Retail Consortium said shop- price inflation slowed in December to the lowest in 16 months. The Bank of England will keep its bond-purchase target unchanged at 275 billion pounds ($422 billion) at a policy meeting tomorrow, according to a Bloomberg News survey.

"The trade data is worse than expected, and it has negative connotation on sterling," said Jane Foley, a senior currency strategist at Rabobank International in London. "There is also some outside talk about possibility that the Bank of England may expand the target for bond purchases. The consensus view is that it remains unchanged."

With the Eurozone in deepening contraction, don't expect the UK to export its way out of its economic mess either.

European Banks Wisely Hoard Cash

Please consider Europe Banks Hoarding Cash Resist Draghi

Banks are hoarding the European Central Bank's record 489 billion-euro ($625 billion) injection into the banking system, thwarting attempts by policy makers to avert a credit crunch in the region.

Almost all of the money loaned to 523 euro-area lenders last month wound up back on deposit at the Frankfurt-based central bank instead of pouring into the financial system, ECB data show. Banks will use most of the three-year loans to meet their refinancing needs for this year and next, analysts at Morgan Stanley and Royal Bank of Scotland Group Plc estimate.

"It's illusory to think that the measure will translate into credit generation," Philippe Waechter, chief economist at Natixis Asset Management in Paris, said in an interview. "It will assuage some of the anxiety banks have regarding their liquidity needs. But they've engaged into a massive overhaul of their strategy and shrinkage of their balance sheets, which is, coupled with the deteriorating economy, not compatible with increasing credit."

Governments are urging European banks to keep lending to companies and individuals while requiring them to raise an additional 114.7 billion euros of core capital by June to weather a deepening sovereign-debt crisis.

Euro-area banks have more than 600 billion euros of debt maturing this year, the Bank of England said in its financial stability report last month. The first ECB loan offering should help cover about two-thirds of that amount, Goldman Sachs Group Inc. analysts say. Morgan Stanley's Van Steenis estimates banks may reduce assets by as much as 2.5 trillion euros in two years, a process known as deleveraging.

The volume of loans to households and companies in the 17- nation euro area shrank in November for the second consecutive month, the ECB said on Dec. 29. Loans were still up 1.7 percent over the year-earlier period, slowing from a 2.7 percent increase in the 12 months through October.

Expect Severe European Recession

Telling banks to lend in the midst of a deepening recession with numerous austerity measures yet to kick in is simply absurd. If banks did increase loans, it would add to bank losses. The smart thing for banks to do is exactly what they are doing, parking cash at the ECB.

Austerity measures in Italy, Spain, Portugal, Greece, and France combined with escalating trade wars ensures the recession will be long and nasty.

For additional details please see ...

"Social VAT" Trade Wars Heat Up Between Spain and France

Brussels Recommends Sucking Spain Dry with Increased VAT; France to Raise Sales Tax to Protect Jobs; Is There Any Point or Reason for the Eurozone?

Don't expect the US to be immune from a Eurozone recession and a Chinese slowdown. Unlike 2011, it will not happen again.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Debt Trap Looms in India on Convertible Bonds; Borrowing Costs May Quadruple for Indian Corporations

Posted: 11 Jan 2012 07:54 AM PST

Let's turn our focus on a different country today, and ponder the plight of Indian convertible bonds.

Bloomberg reports Debt Trap Looms in Convertibles Due After 25% Sensex Plunge

Indian companies with a record $5.3 billion of convertible bonds due this year may see borrowing costs more than quadruple after the worst performance among the world's 10 biggest stock markets.

Reliance Communications Ltd., Suzlon Energy Ltd. (SUEL) and Tata Steel Ltd. (TATA), sold a third of the total debt, according to data compiled by Bloomberg. Their shares are trading as much as 88 percent below the bond conversion prices. Should they choose to issue debt that can't be converted into equity to meet repayments, companies will face an average yield of 6.92 percent on dollar-denominated bonds, a HSBC Holdings Plc index shows, compared with 1.55 percent on convertible notes, according to Barclays Capital data.

"Companies are heading into a debt trap," Raj Kothari, a convertible bond trader at Sun Global Investments Ltd., said in a phone interview from London on Jan. 4. "Companies have no option but to repay the debt."

Cash levels for Indian borrowers relative to their interest commitments fell to a five-year low after the central bank raised interest rates a record 13 times since March 2010 to combat inflation and as operating profits declined, Standard & Poor's Indian unit Crisil Ltd. (CRISIL) said in a report this month. Corporate earnings will probably post the biggest drop in three years in the financial year ending March, according to analysts' estimates compiled by Bloomberg.

Reliance Communications, India's second-largest mobile- phone operator, is due to repay $925 million of convertible debt on March 1, the largest amount by any Indian company this year, according to data compiled by Bloomberg.

All except for $116 million of the bonds due this year were sold before 2008, according to data compiled by Bloomberg, as investors were attracted by the Sensex trebling in value in 2006 and 2007.

"Equity prices have gone below the conversion prices on convertible bonds," Samir Shah, head of technical analysis at BP Equities Pvt. said in a phone interview from Mumbai on Jan. 6. "There's no option for companies but to repay the debt."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greek Crisis Has Pharmacists Pleading for Aspirin; Bailout Money Used for Military Spending

Posted: 11 Jan 2012 01:04 AM PST

The Greek economy is now totally and completely dysfunctional. The government has resorted to price controls on goods to contain costs. However, price controls do nothing but cause shortages.

The sad result has Pharmacists Pleading for Aspirin.

For patients and pharmacists in financially stricken Greece, even finding aspirin has turned into a headache.

The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country's 500 most-used medicines. Even when drugs are available, pharmacists often must foot the bill up front, or patients simply do without.

Official Denial of Pharmaceutical Tragedy

Without a doubt the medical crisis in Greece is a tragedy underway. Proof comes from Nicolaos Polyzos, secretary general of the Ministry of Health, who says "It would be unrealistic to deny that there are many difficulties regarding all public services due to the financial crisis. However, this cannot justify characterizing the current picture of (the) health sector in Greece as a tragedy."

Apparently shortages of 500 drugs including aspirin is not a tragedy.

Shortages Caused by Price Controls

As part of an effort to cut its own costs, Greece has mandated lower drug prices in the past year. That has fed a secondary market, drug manufacturers contend, as wholesalers sell their shipments outside the country at higher prices than they can get within Greece.

Strained government finances only make matters worse. Wholesalers and pharmacists say the system suffers from a lack of liquidity, as public insurers delay payments to pharmacies, which in turn can't pay suppliers on time.

"Wholesalers simply do not have the money anymore to play bank to the pharmacies," Heinz Kobelt, secretary general of the European Association of Euro-Pharmaceutical Companies, said in a telephone interview.

Reimbursement fraud compounds the drain on the country's health resources, Richard Bergstrom, director-general of European Federation of Pharmaceutical Industries and Associations, said in an interview. Drugs shipped elsewhere yet submitted for reimbursement to public insurers as if they had been prescribed to patients cost Greece more than 500 million euros a year, Bergstrom said, citing figures he said he got from the Ministry of Health.

In a later e-mail, Bergstrom said he had personally seen packs of drugs with Greek reimbursement stickers on the market outside of Greece, suggesting that exporters were reimbursed and able to ship the packs abroad.

"If the pack is exported, the exporter is obliged to 'cancel' the code, a bar code, by using a black pen," Bergstrom wrote. "But this is not monitored."

Plenty of Money Though for Military Spending

Via choppy Google translation, please consider Fine weapons for Athens

Frigates, tanks and submarines: A Greek military passes any savings package. And Germany benefited.

The Gift of the Greek Ministry of Defense has the man in the head: up to 60 fighter aircraft fighter for maybe € 3.9 billion euros. French frigates for about four billion, patrol boats worth 400 million euros, as much is the necessary modernization of the existing Greek fleet. Then it still lacks of ammunition for the Leopard tank , also would have two American Apache helicopters will be replaced. Oh, and one would like to buy German U-boats, total price: two billion euros.

What the man who goes in and out of Greece's Defence Ministry, in an Athens cafe is because of the sounds absurd. A State which is on the verge of bankruptcy and is supported by billions of the European Union wants to buy tons of weapons?

According to the just-released report, Arms Export in 2010 after the Portuguese, the Greeks - a state on the verge of bankruptcy - the largest buyers of German war weapons.

According to the just-released report, Arms Export in 2010 after the Portuguese, the Greeks - a state on the verge of bankruptcy - the largest buyers of German war weapons.

Bailout money first goes to French and German banks. What is left over goes for weapons systems.

Meanwhile, price controls and fraud have made aspirin hard or impossible to get. To top it off, Germany and France want still more tax hikes and austerity measures.

Greece will default soon. It's all over. Nothing is left but a corrupt hollow shell.

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