Home Refinance Calculator

Wednesday, July 25, 2012

Mish's Global Economic Trend Analysis

UK GDP Disaster Far Worse Than It Looks; UK Growth in 2012 "inconceivable"
"Actual" New Home Sales First 6 Months of 2012 vs. Prior Years; Reflections on the Housing Recovery
ESM Banking License? Rumors of Non-Solution Send Sovereign Yields Lower; Purposeful Non-Elaboration
Spain 2-Year Treasury Yield Tops 7%, Inversion Between 5 and 10 Year Yields; Spain Sovereign Debt Restructuring Coming Up

UK GDP Disaster Far Worse Than It Looks; UK Growth in 2012 "inconceivable"

Posted: 25 Jul 2012 02:51 PM PDT

The global recession picked up steam today with news of a UK GDP Shock.

The economy shrank by 0.7pc in the second quarter – far more than the 0.2pc fall expected, as record rainfall and the Jubilee holiday added to pressure from austerity cuts and the eurozone debt crisis.

It marks the third successive quarter of contraction, leaving Britain in its longest double-dip recession in more than 50 years.

The Office for National Statistics showed broad-based weakness across the private sector, with construction output down 5.2pc, industrial production down 1.3pc and services output – which accounts for 77pc of the economy – falling 0.1pc. Only public-sector services output, and business services registered any growth.

"I think it's inconceivable that there'll be positive growth this year," said Gerard Lyons, chief economist at Standard Chartered, forecasting a 1.3pc fall in GDP.

Victoria Clarke, economist at Investec, said the economy would now have to grow by 1.2pc in both the third and fourth quarters for the economy to expand by just 0.1pc in 2012 overall.

In March, the Office for Budget Responsibility, the government's independent fiscal watchdog, forecast 0.8pc growth this year, which now looks wildly optimistic.

UK GDP Disaster Far Worse Than It Looks

A drop of .7% might not seem that shocking in the US, but that's because the US uses annualized reporting while most of the rest of the world does not.

I asked Doug Short at Advisor Perspectives to show UK GDP as it would be presented in the US.

UK GDP Quarter-by-Quarter Annualized

click on chart for sharper image

Presented that way, UK GDP does look like a disaster. Of course the results were a disaster regardless of how presented, but the US peculiar method of reporting may not be obvious to US readers following European news.

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

"Actual" New Home Sales First 6 Months of 2012 vs. Prior Years; Reflections on the Housing Recovery

Posted: 25 Jul 2012 10:42 AM PDT

New home sales unexpectedly plunged today, with the biggest drop in over a year.

New U.S. single-family home sales in June fell by the most in more than a year and prices resumed their downward trend, suggesting a set back for the budding housing market recovery.

The Commerce Department said on Wednesday sales tumbled 8.4 percent to a seasonally adjusted 350,000-unit annual rate, the lowest rate in five months. The percent decline was the largest since February 2011.

May's sales pace was revised up to 382,000 units from the previously reported 369,000 units, taking some of the sting from the report.

Economists polled by Reuters had forecast sales at a 370,000-unit rate last month. Compared to June last year, new home sales were up 15.1 percent.

Actual New Home Sales

Reader Tim Wallace provides a look at actual new home sales, six-month running totals, not seasonally adjusted, not annualized, vs. prior years.

click on chart for sharper image

Reflections on the Housing Recovery

Even with today's reported decline, new home sales have likely bottomed on an annual, cumulative-total basis.

However, don't expect much in terms of recovery.

Debt overhang is immense, and student debt is particularly problematic. Lack of jobs coupled with high student debt is capping family formation. Kids out of college are deep in debt and holding off getting married, starting families, and therefore buying houses.

Moreover, home sizes will trend lower and price recovery will be anemic because of boomer demographics. Retired boomers looking to downsize have few buyers able or willing to buy.

Bank-owned real estate (REOs) and shadow inventory are hugely underestimated. That too will pressure prices and sales.

The good news is home sales will add to GDP.

The more realistic news is structural headwinds are immense, demographics are poor, and job prospects for college graduates are poor. The bottom in new home sales may be in, just don't expect anything close to a normal housing-led recovery, because it's not going to happen.

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

ESM Banking License? Rumors of Non-Solution Send Sovereign Yields Lower; Purposeful Non-Elaboration

Posted: 25 Jul 2012 08:53 AM PDT

The mantra of eurocrats is quite obvious: When times get tough, roll out already discarded rumors and hope they stick for a while.

Earlier today yield on 2-year Spanish bonds hit 7.14%. The yield now is a still unsustainable 6.42%.

What happened?

The answer is another silly rehash of something the German constitutional court probably would not allow, and is not even being seriously discussed at the moment anyway: a banking license that would allow the ESM to use leverage.

European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe's rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full- scale Spanish bailout.

"I think there are pro arguments for this," Nowotny, who heads Austria's central bank, said in an interview in his office in Vienna yesterday. "There are also other arguments, but I would see this as an ongoing discussion," he said, adding he's "not aware of specific discussions within the ECB at this point."

Granting a banking license to Europe's permanent bailout fund, the European Stability Mechanism, would give it access to ECB lending, easing concerns that its 500 billion-euro ($602.5 billion) cash pot won't be enough if Spain or Italy require aid. While ECB President Mario Draghi said on May 24 that such a move amounts to the central bank financing governments, which is prohibited by European Union law, publicly-owned credit institutions such as the European Investment Bank are exempt.

"It is not something that is only in the field of monetary policy, so this is part of a broad discussion," Nowotny said. He declined to elaborate.

Purposeful Non-Elaboration

Declining to elaborate was a good move from the standpoint of politics. The more that is said about rehashed ideas, the less believable the rumor is. Note that the ECB has already rejected this idea, so has the German central bank and numerous German politicians.

Moreover, no one really wants to discuss this issue now anyway, fearing it might impact a German constitutional court ruling coming up in September.

The game plan, if there is one (other than obvious BS), is to sneak this idea in later, after a favorable court ruling. However, if Merkel really supported this idea, it would have happened already.

It is quite possible the constitutional court picks up on this chatter, and puts an end to the idea even if it approves the ESM. Let's hope so.

Regardless, leverage will not solve anything, anyway. This rehash of a discarded idea might calm the markets for a few days, but that is likely it.

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

Spain 2-Year Treasury Yield Tops 7%, Inversion Between 5 and 10 Year Yields; Spain Sovereign Debt Restructuring Coming Up

Posted: 24 Jul 2012 11:49 PM PDT

Those wondering when the yield on Spain's 2-year government bond would exceed 7% now have an answer. Today is the day.

Note: the lines on the charts below reflect yesterday's close. The numbers in green accurately reflect today's price movements.

Spain 2-Year Government Bond Yield

Of further interest please note the inversion at the long end of the curve. The yield on 5-year treasuries now exceeds that on the 10-year treasury.

Spain 5-Year Government Bond Yield

Spain 10-Year Government Bond Yield

Synopsis

2-Year Yield + 36.5 basis points to 7.007%
5-Year Yield + 12.5 basis points to 7.717%
10-Year Yield + 2.7 basis points to 7.648%

The inversion is slight but the massive yield increase on the shorter end is significant. If this action continues, and I expect it will, the market is pricing in a sovereign debt restructuring of Spain, including bond haircuts.

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

Tuesday, July 24, 2012

Mish's Global Economic Trend Analysis

Record Low Yields Once Again on US Treasuries
Germany in Recession: Private Sector Sees Fastest Falls in Output and New Business Since June 2009; New Export Orders Collapse
Mish on Capital Account: Discussion of Social Media Panic in Italy, Soaring Yields in Spain, and the Upcoming 20th Euro Summit, Bound to be Another Failure

Record Low Yields Once Again on US Treasuries

Posted: 24 Jul 2012 12:18 PM PDT

Curve watcher's anonymous is noting record low yields across most of the US Treasury yield curve.

US Treasury Curve 2012-07-24

click on chart for sharper image

The above image is just off the absolute lows. The 30-year touched 2.45% and 10-year 1.39%.

Legend

Brown: $IRX 3-Month Treasury Bill Discount Rate
Blue: $FVX 5-Year Treasury Note Yield
Orange: $TNX 10-Year Treasury Note Yield
Green: $TYX 30-Year Long Bond Yield

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

Germany in Recession: Private Sector Sees Fastest Falls in Output and New Business Since June 2009; New Export Orders Collapse

Posted: 24 Jul 2012 08:28 AM PDT

The vaunted German export machine is sinking into the abyss. The Markit Flash Germany PMI® shows German private sector sees fastest falls in output and new business since June 2009.

Key Points

Flash Germany Composite Output Index(1) at 47.3 (48.1 in June), 37-month low.

Flash Germany Services Activity Index(2) at 49.7 (49.9 in June), 10-month low.

Flash Germany Manufacturing PMI(3) at 43.3 (45.0 in June), 37-month low.

Flash Germany Manufacturing Output Index(4) at 42.8 (44.8 in June), 37-month low.

Summary:

The seasonally adjusted Markit Flash Germany Composite Output Index fell for the sixth month running in July, to 47.3 from 48.1 in June. The index has posted below the 50.0 no-change value in each month since May, and the latest reading signalled the fastest pace of private sector contraction since June 2009.

Manufacturers suffered a sharper drop in business activity than service providers during July, as well as a greater loss of momentum relative to the situation in June. The latest reduction in manufacturing production was the steepest for just over three years, while new orders received in the sector dropped at the fastest pace since April 2009. Service providers recorded only a marginal decrease in business activity, although the rate of contraction was the joint-fastest in three years.

Across the private sector as a whole, new business intakes fell at the quickest rate since June 2009, with manufacturers and service providers both recording much sharper declines than during the previous month. Lower levels of new work have been recorded in the service economy during each month since April, and the latest reduction was the fastest for exactly three years. Meanwhile, in the manufacturing sector, new export orders declined at the steepest rate since May 2009, which contributed to a thirteenth successive monthly fall in total new business volumes.

July data pointed to a sharp and accelerated fall in outstanding business across the German private sector. ....

Flashback January 09, 2012: Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year"

In what is likely the silliest comment of the year so far, Christine Lagarde says Europe may avoid recession this year

Flashback January 12, 2012: German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash

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. ...

Flashback February 23, 2012: Don't Worry, It's Only a "Mild Recession"

The economic clowns in the EU have finally acknowledged something that was blatantly obvious at least six months ago (and a lot longer if one factored in the likely effects of multiple austerity programs in numerous countries).

However, the economists' new conclusion is about as silly as the "no recession" call that preceded it. The new forecast: there will be a recession in the eurozone but not the EU and it will be "mild".

Such nonsense went on for months actually. Economists were behind the curve every step of the way even though it should have been blatantly obvious what was about to happen.

Global Recession Revisited

On July 6 I wrote Plunging New Orders Suggest Global Recession Has Arrived

Clearly I am not changing that prognosis although I do wish to reiterate the definition of "global recession as per my post Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness; Permabears?

Contrary to popular myth, recession does not mean two consecutive quarters of economic contraction. Rather, two consecutive quarters of economic contraction is a sufficient, but not necessary condition.

In the US, the NBER is the official designator of recession start and end points. Many recessions have started with GDP still growing.

The "Conditions for Global Recession" are even looser. "The International Monetary Fund (IMF) considers a global recession as a period where gross domestic product (GDP) growth is at 3% or less. In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession."

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

Mish on Capital Account: Discussion of Social Media Panic in Italy, Soaring Yields in Spain, and the Upcoming 20th Euro Summit, Bound to be Another Failure

Posted: 24 Jul 2012 12:20 AM PDT

I had the pleasure of being back on Capital Account with Lauren Lyster on Monday for a discussion of social media panic in Italy, soaring yields in Spain, and the end of the line for Greece.

I come in at about the 18 minute mark, but positioned the video to automatically start play at the 17:15 mark, which is the start of the segment.

That way you can hear a brief introduction from Lauren.

For detailed information about the discussion in the above video, please see...

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

Monday, July 23, 2012

Mish's Global Economic Trend Analysis

Spanish Finance Minister in Germany Pleads for Temporary Credit Line to Halt an "Imminent Financial Collapse"
Austerity Hits Cisco Systems as 1,300 Layoffs Coming; Chipmaker Renesas Cuts 5,000 Jobs; Investigating Mass layoffs
Social Media Panic in Italy: "Enough of this Agony; Give Us Back the Lira"
Ten Major Italian Cities On Verge of Financial Collapse
Full Spanish Bailout Coming Up; New Record High Yields on Spanish Bonds; Misguided Faith in Can-Kicking

Spanish Finance Minister in Germany Pleads for Temporary Credit Line to Halt an "Imminent Financial Collapse"

Posted: 23 Jul 2012 08:22 PM PDT

Spain faces a bond rollover of €28 Billion in October and is rightfully scared about 2-year bond rates of 6.5%.

El Economista notes the Spanish economy minister is at a meeting in Berlin to discuss Government Request for a Credit Line to Save the Year and forestall an imminent financial collapse.

This is a heavily Mish-modified translation from the article ....

Luis de Guindos will meet with Wolfgang Schäuble to negotiate measures noting the ECB is already 19 weeks without buying debt.

Eeconomy minister, Luis de Guindos, now travels to Germany for talks with German Finance Minister, Wolfgang Schäuble. The appointment is key because Spain is running out of time. With the 10-year bond about 7.5% and the risk premium on the 632 basis points, Guindos nevertheless insisted that Spain will not have to ransom all for a full sovereign bailout.

Instead, he asks for the European Central Bank (ECB) to resume purchases of Spanish bonds in the market.

Guindos believes Mario Draghi is not the problem. Rather, bond purchases have stopped primarily because Germany is opposed. To mutate this position and to convince Schauble to give permission to his emissaries at the ECB, Jörg Asmussen, and Jens Weidmann, Luis de Guindos traveled to Germany

Analysts are unanimous: An imminent financial collapse is at stake. If pressure on Spanish bonds continues and Treasury loses its access to the bond market, Spain cannot cope with the massive debt maturity that awaits him in October, close to the 28 billion euros. Amounts may be even greater if Spain has to funnel money to the regions requesting the help of special liquidity fund.

Therefore, sources close to the government have admitted they are considering other alternatives. For example, the negotiation of a temporary line of credit with which to address the maturity of its debt, and perhaps even financial assistance for Spain's regional governments.

This option is based on a premise well known in the eurozone, of buying time. A credit line would serve to dampen fears today, waiting for the agreements reached at the June summit, including the implementation of a single banking supervisor and an operational Stability Mechanism.

For starters, when it comes to these bailouts, there is no such thing as "temporary". Regardless, I believe Germany will reject the request, thereby forcing Spain into a full sovereign bailout.

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

Austerity Hits Cisco Systems as 1,300 Layoffs Coming; Chipmaker Renesas Cuts 5,000 Jobs; Investigating Mass layoffs

Posted: 23 Jul 2012 07:04 PM PDT

For the second consecutive year, Cisco Systems is in Austerity Mode, looking to shed 1,300 employees.

Cisco Systems is to lay off around 1,300 workers, as part of the company's ongoing austerity programme aimed at saving $1bn a year.

The firm said the cuts were being implemented to simplify its operations and adjust to changing economic conditions around the world.

The job cuts represent around 2% of Cisco Systems' 65,000 strong workforce.

Last year the firm, the world's largest maker of computer networking equipment, had shed 10,000 posts.

Cisco warned that growing economic uncertainty was creating an environment in which it was becoming increasingly difficult to clinch business deals.

Chipmaker Renesas Cuts 5,000 Jobs

The BBC also notes Chipmaker Renesas Cuts 5,000 Jobs

Renesas Electronics, the world's fifth biggest chipmaker, has announced a restructuring plan that will lead to at least 5,000 job cuts.

It is getting rid of half its 19 plants and cutting 12% of its workforce.

The plan is part of an agreement to get financial help from creditor banks and its three top shareholders: NEC, Hitachi and Mitsubishi Electric.

Investigating Mass layoffs

According to BLS data, Mass layoffs, defined as termination of 50 or more employees simultaneously, have actually been declining and are at the lowest point since 2007.

However, corporations did not exactly go on a hiring spree in the recovery and thus have been running lean.

Should the economy go into a recession (I think we are back in one), companies may have to take it to the chin in profits or in layoffs. I suspect both.

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

Social Media Panic in Italy: "Enough of this Agony; Give Us Back the Lira"

Posted: 23 Jul 2012 11:49 AM PDT

Black Monday messages on Facebook and Twitter have gone viral in Italy as people have had enough of austerity, job losses, and uncertainty. La Stampa reports on Panic in the Network.

What follows is a Mish-revised translation of select ideas and quotes from the article. My specific comments are in brackets.

Black Monday breaks early in the morning on websites across the world and social networking spreads alarm. "Withdraw money from bank accounts" is the appeal of Andrew to Facebook friends.

Pseudo-analysis on the alleged benefits of a return to the lira go around the net. "Enough of this sad agony. Bring back the old money", Paul insists.

"In 2000 we had the lira. We were producing more, exporting more, and children were living better, the results of monetary sovereignty" says Magdi Cristiano Allam on Twitter.

"We are on the brink of the abyss and the top EU cazzeggiano [slang for F* around]," accuses Ivan.

The tones on social networks are apocalyptic: "This is not a crisis, it's the end of capitalism." On the forum of the economics of printing a black player sees: "Folks, we begin to pray, after Greece's up to us. We are at the end titles, to every man for himself."

Then there are the usual conspiracy theories regarding the IMF, ECB, Germany, the White House, U.S. investment banks, the Bilderberg and the Trilateral Commission. All guilty of "working for the failure of Italy and Spain." "We must defend ourselves from the American speculation, but Merkel holds us hostage," Roberto tweets.

Everyone looks to Mario Draghi: The "ECB needs to intervene at once" says David Sassoli MEP [Member of European Parliament].

"We're towards the end of the line like Greece and Spain?" Asks Matthew.

The stubborn "spread" climbs the ranking of most used words in the blogosphere. [Presumably spread refers to interest rate differentials between Italy and Germany]

Catherine accuses the government, political parties, unions, and banks. "It takes courage," writes Catherine on the Facebook page of La Stampa. Catherine then rattles off a recipe based on "Electoral Law, priority to industry, limiting immigration, elimination of environmental bulls**t, and zero bureaucracy."

Small investors are bewildered: "If I buy U.S. government bonds and Italy out of the Euro, those are always in dollars, right?" asks Stephanie C. on Facebook.

Schools May Not Reopen After Summer Break

Please note that Italian provinces warn cuts may close schools

Italian regional authorities may not be able to open schools after the summer break if spending cuts planned in the government's latest spending review are carried through, the head of the Union of Italian Provinces (UPI) said on Monday.

"With these cuts we won't be able to guarantee the opening of the school year," UPI President Giuseppe Castiglione told reporters in Rome.

Piero Lacorazza, president of the province of Potenza in southern Italy, said the comment was "not an exaggeration", adding that "half of the provinces are in serious financial difficulty".

More Panic in Brussels Than on Social Media

In case you missed it, please consider Ten Major Italian Cities On Verge of Financial Collapse

Also note a Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy.

In terms of sheer panic, I bet eurocrats in Brussels are in a bigger state of panic than what you saw on Twitter.

Here is a thought of mine that is worth repeating:

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

Beppe Grillo may be just that person.

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

Ten Major Italian Cities On Verge of Financial Collapse

Posted: 23 Jul 2012 08:40 AM PDT

The economic situation in Italy has reached a critical phase as Ten major cities face risk of crash

The word "crash" implies bankruptcy. Milan, Naples, and Turin are among the cities. The Association of Municipalities plans to demonstrate in Rome against new cuts, hoping to sends a clear message to prime minister Mario Monti that will "force his hand".

What follows in blockquotes is an "as is" translation from La Stampa.

There are ten major Italian cities with more than 50,000 inhabitants, who are a step away from the crash. Naples and Palermo at the top of the "black list", although a task force for weeks at Palazzo Chigi is doing everything possible to avoid the worst. Then Reggio Calabria, finished in red already in 2007-2008 and is now being investigated by the judiciary. And then so many other governments, large and small (like Milazzo), perhaps far virtuous, could be forced to ask for the "collapse", which means dissolution of the council, entrance of the Court of Auditors and prefectural commissioner.

At risk are at least a dozen large cities' trust in the government technicians who are monitoring the situation. "The situation is becoming more difficult every day," confirms the president of ANCI Graziano Del Rio. Pointing the finger at yet another cut in transfers, against the measures introduced by the spending review, and that raises the alarm of many fellow mayors. "By cutting the residual assets of a sudden it is clear that financial statements do not fit anymore." In itself the principle, Del Rio argues, is not even wrong, "but is more gradual to allow time for the mayors who have used this method to adapt. Why else would even virtuous municipalities, such as Salerno, at this point are at risk."

Based on data available to the Interior Ministry that the phenomenon of Commons have declared bankruptcy in the last two years has literally exploded from 1-2 cases a year has passed about 25, including north-central governments also where this type the phenomenon was unknown until recently. Striking in the case of Alexandria, whose mayor just a few weeks ago, threw in the towel under the weight of 100 million euros of debt. The same fate had previously befallen smaller municipalities like Riomaggiore (SP), Castiglione Fiorentino and Barnsley in the province of Como.

There is a problem of keeping budgets and there is an even stronger cash. Often the mayor in office is empty.

"At 4 months from the closing of accounts 2012 - Del Rio says - even the 500 million cuts to transfers planned for this year are very heavy. They represent a very significant part of our budgets and delete it at once not only creates other problems of cash but also disrupts the objectives of the Stability Pact." For this reason the Association of Municipalities, which will return tomorrow to demonstrate in Rome against the new cuts, sends a clear message Monti: "Attention to force his hand, because this step forward the day when common as Milan, Naples and Turin will leave the Stability Pact will this gesture only plows in the accounts of the entire state. " Del Rio concludes: "We are open to reason, but things should be done wisely. And above all we must take into account that in recent years as municipalities have already given 22 billion euros. "

Eurointelligence sums up the article this way:

Over 10 Italian big cities are on the verge of financial collapse. Debts, derivatives and mistakes: the Italian municipalities are in crisis. After the default of Alessandria, a big city in Piedmont (North-Western Italy), there are several risks for Turin, Milan, Napoli, Palermo, Reggio Calabria and other cities with over 50,000 inhabitants. "Too much debts, over 10 metropolitan cities should ask to Corte dei Conti (the Italian Court of Auditors) for an orderly default," Graziano Del Rio, chairman of Italian Association of Commons, said to La Stampa. In last week the Sicily has asked for a financial support and has claimed over €1bn of credits to Italian government.

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

Full Spanish Bailout Coming Up; New Record High Yields on Spanish Bonds; Misguided Faith in Can-Kicking

Posted: 23 Jul 2012 01:32 AM PDT

Inquiring minds are watching the implosion of Spanish bonds.

Spain 10-Year Government Bonds

Spain 2-Year Government Bonds

5.76% was the previous close. Yield is currently up 44.5 basis points at 6.2%. The high yield was 6.255%, easily topping the previous high of 6.09%.

Full Spanish Bailout Coming Up

El Pais reports Full Spanish Bailout Increasingly Likely

"The financial credibility of Spain is close to zero. Fiscal credibility is zero. The political credibility is zero. Investors have been sentenced to Spain. The Government has wasted no time in recent months has squandered the credit granting him an absolute majority, has lost some confidence in European institutions and the whole market with a succession of errors, many of them for a bad communication strategy is correct now without success. Too late? Can not say such things in public, but without a change of attitude are you doomed to a full recovery. "

"I see little chance that Spain is free," says Ken Rogoff, a Harvard professor and head of the IMF execonomista. "Spain will continue with serious growth problems and stop until there is a massive deleveraging. This can be achieved with painful structural reforms, especially in the labor market. Also with a sustained inflation in countries like Germany, which can be ruled out given the degree of obsession with the ECB. And take away significant restructuring and debt, the best approach but politically the most difficult. Most likely, this is made more than a decade of anemic growth and high unemployment, combined to a greater or lesser extent with the previous recipes, "says Rogoff, who predicts a sort of social depression (if it is not as friction unemployment 25%).

Wolfgang Münchau, who heads the think tank Eurointelligence Brussels, says the austerity measures at the trough "are really crazy, prolong and deepen the recession even raise the deficit contractionary effect. It is amazing that governments keep repeating mistakes made decades ago. " With these rods, there is little room: "Spain is no longer fully sovereign, because the government can no longer funded. Yes, I expect a complete audit, "says Martin Wolf resounding, economic commentator for the Financial Times header.

Misguided Faith in Can-Kicking

As is typical, that translation is a bit choppy. However, one can surely get the gist of it.

Also as usual, Wolfgang Münchau misdiagnoses the problem. Hiking taxes is a problem, but so is Keynesian claptrap. It is not feasible for governments to spend their way out of problems. Nor is it possible for monetary stimulus to solve the problem.

If such proposed solutions actually worked, Japan would not be in dire straits today.

Keynesian and monetary stimulus proposals are nothing more than gigantic can-kicking exercises. They only appear to work because experience shows the can will be kicked much further than anyone thought possible. The intermediate result is misguided faith in can-kicking.

The final result however, is typically something that ends up like Greece or Japan, with can-kicking proponents like Münchau and Paul Krugman, screaming every step of the way for still more can-kicking as the solution.

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

Sunday, July 22, 2012

Mish's Global Economic Trend Analysis

German Vice Chancellor "Very Skeptical" Greece Can Be Rescued, Euro Exit has "Lost its Terror"; Will Defeat Be Snatched From the Jaws of Victory Once Again?

Posted: 22 Jul 2012 09:14 PM PDT

At long last, everyone is willing to wave the white flag on a Greece exit from the eurozone. Please consider German Vice Chancellor 'Very Skeptical' Greece Can Be Rescued.

German Vice Chancellor Philipp Roesler said he's "very skeptical" that European leaders will be able to rescue Greece and the prospect of the country's exit from the euro had "lost its terror."

Roesler, who is Germany's economy minister, told broadcaster ARD that Greece was unlikely to be able to meet its obligations under a euro-area bailout program as its international creditors hold talks this week in Athens. Should that be the case, the country won't receive more bailout payments, Roesler said.

"What's emerging is that Greece will probably not be able to fulfill its conditions," Roesler said today in an ARD summer interview. "What is clear: if Greece doesn't fulfill those conditions, then there can be no more payments."

Greece Behind on Asset Sales, Spending Cuts, Deficit Targets

Adding additional details to the above story, Bloomberg makes a nice understatement with
Greece Back at Center of Euro Crisis as Exit Talk Resurfaces

Greece retakes its position at the heart of the European debt crisis this week as its creditors assess how far off course the country is from bailout targets, raising again the specter of its exit from the euro.

Greece's troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- will arrive in Athens tomorrow amid doubts the country will meet its commitments and reluctance among euro-area states to put up more funds should it fail.

Greek Prime Minister Antonis Samaras's three-way coalition, formed last month after a June 17 election ended a six-week political deadlock in the country, has scrambled to assemble budget cuts to convince troika officials.

Finance Minister Yannis Stournaras has identified about 8 billion euros of spending cuts and savings for the next two years out of 11.5 billion in additional cuts required.

The Greek government is also behind on state asset sales, having so far brought in 1.8 billion euros, a fraction of the 50 billion euros it aims to raise by 2020, half from sales in company stakes and half from real estate. The state is unlikely to generate more than 300 million euros this year, short of the about 3 billion euros targeted for 2012, according to the outgoing chief of the state's asset-sales fund, Costas Mitropoulos.

Once taboo, the possibility that Greece could exit 17- member monetary union has been voiced by European officials this year who consider the fallout from such a scenario would be the lesser evil against a seemingly perpetual crisis.

Roesler, who is Germany's economy minister as well as the Free Democratic chairman, told ARD that a curtailment of aid to Greece would lead to a sovereign default, which would in turn lead to "Greeks coming to the conclusion that it is probably wiser to leave the euro area."

Will Defeat Be Snatched From the Jaws of Victory Once Again?

The ducks for a Greece eurozone exit are lined up once again. Admittedly, every time the ducks had been lined up for default previously, defeat has been snatched from the jaws of victory.

I say that because Greece really does not belong in the euro. Of course, no other country belongs there either because the euro was fatally flawed from the beginning and the sooner this mess goes down the toilet the better off Europe will be.

Comparatively Speaking

I was asked earlier today if I thought Greece would recover if it returned to the Drachma. My answer was something along the lines of "At least it has a chance". For comparison purposes, Greece has no chance of a meaningful recovery in the euro.

In that regard, there is absolutely no point in any further delays, something I correctly said three years ago as well.

In the short-term Greece is likely doomed either way. In the long-term Greece has a chance once it rids itself of the shackles of the euro. Hyperinflation may be Greece's destiny, but if so, I see no point in delaying it.

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

IMF Seeks to Halt Aid to Greece; September Bankruptcy Awaits; Dominoes Will Fall

Posted: 22 Jul 2012 10:08 AM PDT

According to Der Spiegel, the IMF Wants to Stop Aid to Greece as soon as the ESM is up and running in September. At that time Greece would become bankrupt.

This is a Mish-modified translation from German:

The patience of the International Monetary Fund (IMF) with Greece comes to an end: According to to information obtained by SPIEGEL, senior IMF officials told EU leaders in Brussels that the IMF was no longer willing to provide additional funds for Greece.

The Troika estimates that Greece needs between ten and 50 billion € to meet targets, but many governments in the euro zone are no longer willing to shoulder new burdens. In addition, countries like the Netherlands and Finland, have linked their support because the IMF was involved.

The risk of withdrawal of Greece from the monetary union is now held in the countries of the Euro-zone control. To limit the risk of contagion to other countries, governments want to wait for the start of the new bailout ESM.

The judgment of the German Constitutional Court regarding the ESM on September 12th will come into play.

Dominoes Will Fall

I picked this story up from Roel at Automatic Earth. Here are some interesting point of view from Automatic Earth that I generally agree with.

It'll be a lot of fun seeing the IMF, and European leaders, try to deny the article and its implications. From what I understand, they want to wait until the ESM is effective, and then dump Greece. The article may trump any such intentions. Some things only work in secret, and once Pandora's box is open, they no longer do.

I still think it would be curious that the ESM, supposedly good for €700 billion or so (if not more), would be used to "save" Spain and perhaps Italy, but not Greece. For countries like Portugal and Ireland, dumping Greece would mean they need to get very nervous about being the next one thrown under the wheels and off the back end of the wagon.

The message might become that any and all reform and austerity measures demanded must be adhered to very strictly or else. Politicians in these other "borderline" countries might go along with it all, but will the people? Do the Irish really enjoy the idea of being strangled into submission? And will Spain really be "saved" once real debt numbers are known?

It seems far more likely that getting rid of Greece will be merely the first step in dissolving the entire eurozone. The rest of the dominoes can then fall in rapid succession.

There's more in the AE article including a discussion of the resignation of Peter Doyle, former division chief in the IMF's European Department, who, upon resigning, shared a few of his thoughts on the fund: "After twenty years of service, I am ashamed to have had any association with the Fund at all..."

Everyone Prepared to Pull the Plug

DW has a bit more information in IMF to provide no new funds to Greece

In an article published on its website, Spiegel cites unnamed senior European Union sources in Brussels who told the news magazine that the International Monetary Fund (IMF) had signaled it would not contribute to any further aid for Greece.

The report comes ahead of a planned visit to Athens by a team of auditors from the troika of the European Commission, the European Central Bank (ECB) and the IMF. They are to conduct another inspection of the new government's economic program to determine whether Greece is doing enough to comply with the terms of its second international bailout to merit receiving the next tranche of funds.

Just this past week, leading Greek politicians pushed back talks on how to cut almost 12 billion euros ($14.6 billion) from the budget after it became clear that they were far from reaching a comprehensive agreement.

On Friday, the ECB increased the pressure on Greece to comply with the terms of the bailout when it announced that it would stop accepting the country's bonds as collateral in return for ECB funding, at least until after a positive verdict from the troika.

In a further indication that patience may wearing thin among Greece's paymasters, German Foreign Minister Guido Westerwelle on Saturday ruled out the possibility of relaxing the conditions of Athens' second bailout.

Many signs suggest that everyone is finally ready to pull the plug on Greece. Hundreds of billions of euros have been wasted in the last three years attempting to stop the unstoppable.

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