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nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
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Competitive Theories: "Deflation Warning" vs. "Inflation is Nearly Everywhere"

pt., 19/12/2014 - 02:22
Theory #1: Break-Even Rates Provide "Deflation Warning"

Bloomberg is sounding a Deflation Warning as 2-Year Break-Even Rates Go Negative.

Break-even rates are the difference between treasuries and the same-duration Treasury Inflation-Protected Securities (TIPS). The break-even rate turned negative yesterday for the first time since 2009.

In theory, break-even rates reflect investors’ expectations for inflation over the life of the securities.

When break-even rates are negative, it's an indication investors expect price deflation for the duration, in this case for two years.

From Bloomberg ...
The drop in the break-even rate followed a Labor Department report yesterday that showed consumer prices dropped 0.3 percent in November, the most in almost six years, on tumbling energy prices. Principal and interest payments on Treasury Inflation Protected Securities are indexed to changes in the consumer price index, so a lower than forecast CPI diminishes the value of projected future payments from TIPS.

The break-even rate dropped to negative 0.035 percent yesterday. The difference was 0.024 percent today.

The negative break-even rate represents “an uncertainty premium that maybe oil could fall to $40 a barrel,” said Donald Ellenberger, who oversees about $10 billion as head of multi-sector strategies at Federated Investors in Pittsburgh. “The shortest-term TIPS are very influenced by the direction of the consumer price index. It’s telling you inflation on the short-end could turn negative.”

Fed Chair Janet Yellen downplayed the notion at the press conference after the conclusion of yesterday’s two-day policy meeting. Falling break-even rates may represent a decline in the inflation premium risk or the range of inflation outcomes investors are taking into consideration, she said. One of the justifications for the Fed to raise rates for the first time since 2006 is to keep consumer price increases from getting out of control.Out of Control Consumer Prices?

Color me extremely skeptical regarding out of control consumer prices. In fact, I side with this headline: Krugman, Fighting Consensus, Says 2015 Fed Rate Increase Is Unlikely.
Paul Krugman, challenging the consensus of economists and the Federal Reserve’s forecasts, said policy makers are unlikely to raise interest rates in 2015 as they struggle to spur inflation amid sluggish global economic growth.

“When push comes to shove they’re going to look and say: ‘It’s a pretty weak world economy out there, we don’t see any inflation, and the risk if we raise rates and it turns out we were mistaken is just so huge’,” the 2008 Nobel laureate said in Dubai. “It’s certainly a real possibility that they’ll go ahead and do it, but probably not, and for what it’s worth I and others are trying to bully them into not doing it.” Agreement With Krugman

Aside from that last sentence, I am in general agreement with Krugman.

Please read carefully. Although I endorse Krugman's belief about how the Fed will react, I do not endorse the policy itself.

Krugman precisely summed up how economic illiterates at the Fed think (and that is how Krugman, thinks as well).

No bullying by Krugman is needed. The Fed already thinks like he does.

Jean-Claude Yellen

Please consider Krugman's December 10th column Jean-Claude Yellen.

In his post, Krugman says Jean-Claude Trichet’s decision to raise rates in Europe in 2011 "a big mistake", just as the Swedish Riksbank’s early rate hike was a "mistake", just as Japan’s rate hike in 2000 was a "mistake".

The notion that a quarter-point hike caused Europe's problem is absurd. Moreover, I propose Krugman understands just that.

Keynesian or Austrian theory aside, the notion that one interest rate can serve the likes of widely differing fiscal policies in Germany, France, Spain, Ireland, Grecee, etc. is preposterous. Krugman has to know that!

If I am wrong, and Krugman cares to disagree, then I welcome the rationale.

Krugman continues ...

"Suppose, on the other hand, that the Fed raises rates, and it turns out that it should have waited. This could all too easily prove disastrous. The economy could slide into a low-inflation trap in which zero interest rates aren’t low enough to achieve escape — which has happened in Japan and is pretty clearly happening in the euro area."

Yes Japan is in a trap, and the reason is Japan did precisely what Krugman wanted - wasted money on inane projects to "stimulate" the economy!

Reasonable people would intuitively understand that as soon as stimulus was removed, the recovery would end too (over and over and over again).

And any economist with an ounce of common sense would understand that the buildup of debt would require lower and lower interest rates to service! The alleged "trap" happens precisely because central bank fools fight short-term imbalances, creating long-term problems in the wake.

I don't think the Fed will hike, but they sure as hell should have long ago. Repetitive bubbles of increasing magnitude bring upon the very thing Krugman rails about!

I will expound more on rate hikes and inflation in a bit, but for now let's continue with more of Krugman's rant this time in block quotes because of the length
My guess — and it’s only that — is that they [the Fed] have, maybe without knowing it, been bludgeoned into submission by the constant attacks on easy money. Every day the financial press, many of the blogs, cable financial news, etc., are full of people warning that the Fed’s low-rate policy is distorting markets, building up inflationary pressure, endangering financials stability. Hard-money arguments, no matter how ludicrous, get respectful attention; condemnations of the Fed are constant. If I were a Fed official, I suspect that I would often find myself wishing that the bludgeoning would just stop, at least for a while — and perhaps begin looking for an opportunity to prove that I’m not an inflationary money-printer, that I can take away punchbowls too.

But the objective case for a rate hike just isn’t there. The risks of premature tightening are huge, and should not be taken until we have a truly solid recovery that includes strong wage gains and inflation clearly on track to rise above target. We don’t have any of that, and if the Fed acts nonetheless, it has the makings of tragedy.Objective Case

Krugman does not see the "objective case" for rate hikes for the simple reason he is totally clueless about what constitutes inflation!

That assertion brings up my point of view ...

Inflation is Nearly Everywhere You Look

Inflation is not quite everywhere, just nearly everywhere. Looking for price deflation? Yes, you can find it in the price of gasoline.

And across the board there is little CPI inflation, nor will there be any time soon. And on those scores I am in complete agreement with Krugman!

But that's not what inflation is really about. Inflation is really about the expansion of money supply and credit. When those soar, so does "real" inflation.

Any realistic look shows there is inflation in home prices (not in the CPI), sovereign bond prices (not in the CPI), equity prices (not in the CPI), student loans (not in the CPI), junk bond prices at amazingly low yields (not in the CPI), tuition (underrepresented in the CPI for many), and healthcare costs (underrepresented in the CPI in general).

Break-Even Theory Irrelevant

The break-even rate theory warns about consumer prices. That theory may or may not be correct. I think the theory is accurate, but it matters not given all the things it totally or partially ignores. Break-even theory is totally irrelevant "at best", but more likely counterproductive.

In contrast, asset bubble breakages are relevant. And the Fed just blew the second or third biggest asset bubble in history following the advice of Krugman.

Now Krugman wants to bully the Fed into halting the hikes. The irony is that it's already far too late to hike. The bubbles have been blown. By definition they will pop. And when they pop economic illiterates like Krugman will say "I told you so" while blaming the Fed for irrelevant actions like rates hikes of 0.25%.

Economic Illiterates Caused the Problems

Economic illiterates at central banks following horrible advice from fellow economic illiterates like Krugman are the ones who caused the problem in Europe, in Japan, and in the US.

Opposite Extreme Illiterates Make Krugman Look Good

Unfortunately, economic illiterates of the opposite extreme, people like Peter Schiff, John Williams, etc., have been screaming about the blow-up of the US dollar and/or hyperinflation for so long they actually make Krugman's theories look reasonable by comparison (at least for now).

Deflation Will Return

Credit deflation (and that's what's important) will return (fueled by a decline in asset prices). Policies espoused by Krugman and enacted by central banks will be the cause.

Asset Deflation vs. Consumer Price Deflation

For more on asset deflation (the real concern) vs. consumer price deflation (a welcome event), please see ...


I particularly would like to see Paul Krugman answer my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

I even challenge Krugman to a debate, with proceeds going to charity. I doubt Krugman will respond for the simple reason I will be a far more formidable challenge than the hyperinflationists who have been as wrong as he is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Students Support Deporting US Citizens to Allow Illegal Immigrants to Stay

czw., 18/12/2014 - 20:23
Here's an amusing but totally unscientific informal poll on how to tackle the illegal immigrant problem.

Students were asked if they would sign a petition to deport US citizens on a one-for-one basis in exchange for allowing illegal immigrants to stay in the US.



Link if video does not play: Deport US Citizens to Keep Illegal Immigrants?

The people who conducted this experiment said about 2/3 of the college students signed the petition.

What does this suggest, if anything, about the quality of our education system? Or is it simply proof that people in general do not listen?

Support for the Plan

Such questions aside, I actually think this is a brilliant plan, with just one minor modification: We have to have sufficient grounds for deporting.

I suggest war crimes are sufficient grounds. More specifically, I propose we deport to an international war crimes tribunal a select group of the worst war crimes offenders.

Top Five War Crimes Candidates

  1. Former Vice President Dick Cheney
  2. Former President George Bush 
  3. Former Defense Secretary Donald Rumsfeld 
  4. Former CIA director George Tenet
  5. President Barack Obama - for drone policy

Cheney, Bush, and Rumsfeld would be on charges of various war crimes, bombings, and torture. Tenet would be for torture. Obama would be for indiscriminate killing of innocent men, women, and children via his drone policy.

Doesn't that look like a good start?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Napoleon vs. Cheney: "Interrogation That Actually Works"; Icing on the "Hate-Cake"

czw., 18/12/2014 - 03:11
Not only is torture against international law, it also produces no useful intelligence. Common sense is enough to prove that statement.

If someone threatened to rape your sister, kill your mom,  or shackled you until you were half-dead while feeding you up your anus, you would say nearly anything to ease the pain. So would I, and so would everyone else. Anyone who disagrees is either a liar or a fool.

Even Napoleon recognized that fact.

Warning: This is a very long post. Please allow adequate time to read and digest what follows. I sincerely appreciate your effort to reading this post in entirety. Thanks.

From a Napoleon Letter to Louis Alexandre Berthier in November 1798: "The barbarous custom of having men beaten who are suspected of having important secrets to reveal must be abolished. It has always been recognized that this way of interrogating men, by putting them to torture, produces nothing worthwhile. The poor wretches say anything that comes into their mind and what they think the interrogator wishes to know."

Precisely.

"I'd Do It Again in a Minute"

Regardless of the complete futility and illegality of torture, former vice president Dick Cheney Pushes Back on Torture Report: 'I'd Do It Again in a Minute'.
"I'd do it again in a minute," Cheney told Meet the Press's Chuck Todd, offering an unqualified condemnation of the Senate Intelligence Committee's investigation into the Bush administration's post-9/11 interrogation methods used at foreign "black sites," which many regard as torture.

When asked about rectal feeding, which the Senate torture report said at least five detainees were subjected to, Cheney acknowledged that it was not approved as part of the program and said he believed it was done for "medical reasons." The Senate report said there is no evidence medical need was a factor for rectal hydration.

Cheney also didn't blink when asked about the report's findings that at least 26 of 119 detainees were wrongfully held, including two former CIA operatives and a mentally challenged man.

"I'm more concerned with the bad guys that were released than the few that were, in fact, innocent," said Cheney, adding that the man who became ISIS's leader, Abu Bakr al-Baghdadi, was held in custody by the U.S. military in Iraq before being released in 2004.No Concern for Innocents

There you have it. Dick Cheney does not give a rat's ass about innocent people swept up in the process, about people tortured to death, or for that matter about anything else.

Our CIA kidnapped people on German soil and elsewhere, took them off to torture camps, only to find they got the wrong guys.

Wrong People Kidnapped, then Tortured

A search for Wrong German Citizen Kidnapped Tortured turns up many links.

And let's not forget that one of Cheney's reasons for invading Iraq was "Hussein tortured people".

Dick Cheney is the epitome of hypocrisy.

Hypocrisy aside, Dick Cheney is also a war criminal under international law and any reasonable moral standard.

If anyone in this world deserved to be kidnapped then tortured, Dick Cheney is right at the top of the list. Yet, as I have commented before, two wrongs don't make a right, so that is not action I advocate.

"Interrogation That Actually Works"

Instead of torture, let's consider "The Humane Interrogation Technique That Actually Works".
The Senate Intelligence Committee report released this week found that the CIA tortured terror suspects by, among other things, putting hummus in a man's anus, forcing suspects to stand on broken feet, and blasting detainees with songs such as "Rawhide" at loud volumes on repeat.

Many of the interrogators' actions were shocking and cruel, but some might argue (and some have argued) that torture is a necessary tool for extracting information. This, too, is dubious. The Senate investigation revealed that the CIA learned most of the valuable intelligence it gathered during this period through other means.

Military leaders have known about the pointlessness of torture for centuries. A quote by Napoleon, which was widely shared after the report's release, reads, "It has always been recognized that this way of interrogating men, by putting them to torture, produces nothing worthwhile. The poor wretches say anything that comes into their mind and what they think the interrogator wishes to know."

A study published this year by Jane Goodman-Delahunty, of Australia's Charles Sturt University, interviewed 34 interrogators from Australia, Indonesia, and Norway who had handled 30 international terrorism suspects, including potential members of the Sri Lankan extremist group Tamil Tigers and the Norwegian-based Islamist group Ansar al Ismal. Delahunty asked the interrogators what strategies they used to gain information and what the outcomes of each interrogation session were.

The winning technique, as BPS Research Digest notes, was immediately clear: Rapport-building interrogation is more effective than torture.

This isn't just theoretical, either. One former U.S. Army interrogator told PRI this week that he was able to break through to an Iraqi insurgent over a shared love of watching the TV show 24 on bootleg DVDs.

"He acknowledged that he was a big fan of Jack Bauer," he told PRI. "We made a connection there that ultimately resulted in him recanting a bunch of information that he had said in the past and actually giving us the accurate information because we had made that connection."

Torture can either be viewed as a punishment or as a way to gain life-saving intelligence. International conventions prohibit the former. Psychology studies suggest it's ineffective at the latter. Which brings us, once again, back to the question: Why do it?Torture Doesn't Work — So Here's What Does

Please consider Torture Doesn't Work — So Here's What Does.


A former US Army interrogator says it's possible to "bond" with an insurgent during questioning, and building the relationship starts the moment the detainee arrives at the military facility.

Iraqi militant groups, he says, prepared their members to expect torture by the US military — and it wasn't just propaganda: The torture and abuses at the Abu Ghraib prison, exposed at the start of the war, were well-known. This was also several years after the CIA's far more extensive torture program, detailed in a gruesome report released on Tuesday by the Senate Intelligence Committee.

But Andrew says he saw none of that with his unit, and, in fact, when detainees weren't dealt with harshly, they got confused. "We use techniques that manipulate people, but we don't physically or psychologically harm them," he says. Instead the interrogator might talk about the detainee's family and offer tea.

"They see that this isn't the big, bad American facade that they were led to believe," he says. "It changes their perspective, and almost turns their mindset against their organization, and they're thinking, 'Why would they lie to me?' And then they're more willing to actually share secrets with us."

Andrew says the Iraqi detainees he questioned knew their rights under international law. Copies of the Geneva Conventions, he says, were posted in their cells.

"I was working within the guidelines, and within my conscience," he notes. "I never harmed anybody, I never threatened anybody, and I think at the end of the day, if anything, I provided them with that ounce of hope, at least, that things would get better as long as they told the truth."Ticking Time Bomb Fallacy

Research Digest says People's support for torture in "ticking time bomb scenarios" is influenced by their desire for retribution.
In the wake of a report published yesterday into the CIA's use of torture, many people are shocked and appalled. Yet one defense of the practice remains popular - "the ticking time bomb scenario".

This is the idea that torture is justified if a suspect knows the location of bomb in a public place, and many lives would be saved if he or she were coerced into telling authorities the location in time for it to be deactivated. The new Senate Intelligence Committee report describes how the ticking time bomb scenario was in fact used by the CIA to defend its use of torture or "enhanced interrogation".

The ticking time bomb scenario is usually presented as a "utilitarian" argument for the moral good of torture in certain circumstances, when one person's suffering is preferable to the deaths of many. Some commenters have gone as far as claiming that most people endorse torture in the ticking bomb situation.

A new study puts this to the test. Joseph Spino and Denise Cummins surveyed hundreds of people online asking them for their views about the acceptability and appropriateness of torturing a suspect in variations of the classic ticking bomb scenario. In particular the researchers were interested in whether people's views vary according to changes in the "hidden assumptions" with which the scenario is loaded.

The researchers found that people's endorsement of torturing a suspect is reduced when they are told that torture is likely to be ineffective (which, by the way, is true), and when they are told other interrogative methods are available. The researchers also found that people's support for torture increased when they were told the suspect was a terrorist, or that the suspect was guilty of actually planting the bomb. People's increased support in this context was not because they thought the suspect was more likely to hold information about the bomb. This suggests that the participants' endorsement of torture was based on retribution, rather than being a cool utilitarian judgment.

Spino and Cummins said their results show that people's support for torture in the ticking time bomb situation depends on a "highly idealised" and "highly unrealistic" set of assumptions being met. Tick, Tick, Bull, Shit

In Tick, Tick, Bull, Shit, Foreign Policy magazine says "Don’t believe the CIA’s ticking time bomb excuse when it says it had to torture."
The ticking bomb scenario is a powerful hypothetical, and it’s one that several former CIA directors really, really hope you’ll keep in mind this week to counterbalance all those not-so-nice revelations contained in the just-released Senate Select Committee on Intelligence (SSCI) report on CIA interrogations.

But there’s one major problem with the ticking bomb scenario: It’s entirely irrelevant — morally and legally.

First, in real life you don’t get actual ticking bomb scenarios, with their certainty, simplicity, and urgency. In real life, you get ambiguity and uncertainty. You get conflicting information about the nature, magnitude, and timing of threats, and conflicting information about the identity of planners and perpetrators. Sometimes, you get information that’s just plain wrong: As the SSCI report notes, more than two dozen people tortured by the CIA were detained in error. In some cases, they were victims of simple cases of mistaken identity. ...

If waterboarding a suspected terrorist might produce valuable information and save lives, why draw the line at waterboarding? Why not pull out a suspect’s fingernails with a pair of pliers? Why not sexually assault the suspect, or start chopping off limbs?

For that matter, if efficacy is all that matters, why draw the line at suspected terrorists? Why not torture, rape, or kill the suspect’s wife, mother, and children in front of him? That might be effective, too.

Why stop there? Why not take a leaf out of the Old Testament, and slaughter the first-born sons of every extremist we can find? Or just commit genocide to eliminate the populations that seem to produce the most terrorists?

Once we start justifying immoral actions based on their utilitarian outcomes, there’s no principled place to stop.

That ticking sound? It’s a false alarm, intended to induce panic and overwhelm logic.

Ignore it. Not only is it morally wrong and intended to produce panic, it doesn't even work. But whether it works or not, torture can never be morally justified.

Emails From Both Sides

For my coverage of the torture issue, I have received many emails on both sides of the camp. Some have been appreciative, others not.

In response C.I.A. Director Brennan, a Proven Liar, Defends Torture; Brennan Should be Fired Immediately, then Prosecuted along with Other CIA Directors and Cheney, reader Randy replied "I agree with every word that Mish has written here! It should be raining pitchforks right now in D.C.!"

A US Army Major Responded "I'm sad and horrified to read the details of the CIA's torture program. To me, it represents the sickest form of consequentialism, one that has run roughshod over any type of moral authority the U.S. can claim in offering its leadership to the world. I'm further upset that my fellow brothers and sisters in uniform will most likely underwrite this disastrous program, as the enemy will now be all too eager to respond in kind to any American serviceman or woman unlucky enough to endure capture. I only wish we had the moral courage to make those responsible accountable for these unmistakable atrocities."

Not to me personally, but FTM Daily notes Evangelical Christian Leaders Rush to Defend CIA Torture. Writing for FTM Daily, Jerry Robinson says "Real patriotism is a willingness to challenge the government when it’s wrong, even when that wrong is committed by people on your own side of the political aisle. That our leaders in Washington would be playing politics with clear claims of U.S. war crimes simply reveals the absolute depths that some people will go to win an argument".

Reader Allen writes ...
Hi Mish,

I have subscribed to your blog for several years despite the fact that I am what you would call a Liberal. I seldom agree with you but I want to keep an open mind and realize I do not own the truth — although sometime I wish you were across the breakfast table from me so that I could scream at you after I read what you write.

But I cannot tell you enough how much I appreciate your condemnation of the CIA’s secret detention and torture program. It is a betrayal of all our values, whether we are on the right or the left, and it is especially scary because of the precedents it set.

On a more practical level, it completely destroys our moral authority to challenge similar behavior anywhere else in the world and may, in the long run, prove to be a strategic blunder.

You are a powerful and important voice challenging the coordinated campaign to discredit the Senate majority’s report. I hope you continue to write about this. In the long run, this may be the most important subject you write about.

Best regards,
Allen KatzoffThanks Allen. Powerful I am not, but I do agree this is an extremely important topic.

Reader Rich hits the nail on the head with the fewest words: "No justification - No benefit - No excuse"

Not everyone see it that way. For example reader Lon McCarley called my torture posts a "losers' chicken sh*t solution".

Hypocrites Need to Look in Mirror

In a followup email Lon called me a hypocrite. So did reader Joe who also accused me of backing Obama.

Joe writes "I had many friends and family members die on 9-11 so my perspective is clearly different from yours. Perhaps if you saw your three nieces lose their father your perspective might be different."

In an email conversation, Joe called my link about kidnapping and torturing of the wrong German citizen "unfortunate".

No Joe, it's not "unfortunate"; it's illegal. Imagine Germany kidnapping US citizens on US soil, then torturing them, then admitting it was "unfortunate".

If it's OK for the US to kidnap German citizens, send them off to Afghanistan or wherever and torture them .... then logically it is OK for every other country on the planet to have the exact same rights.

My position is clear and consistent.

I do not condone torture and I do not condone Obama's drone policy. I have written about the counterproductive policies of Obama's drone policy on many occasions.

US Drone Policy

November 25, 2014: War on Terror: Drones Target 41 but Kill 1,147 Mostly Innocent men, Women, and Children

March 19, 2014: Negative Sum Game.

September 01, 2013: Terrorists Won the War on Terror; 74% of Pakistanis View US as Enemy, 60% Have No Confidence in Obama.

The hypocrites in this world (many republicans, many democrats, and many of the evangelical right) support torture. They sound like Nixon "when the president does it, it's not illegal).

I do not care whether someone is a liberal, conservative, or a hypocrite. I know five things about torture.

  1. Torture does not pay. It's actually counterproductive.
  2. The US has lost its moral authority (assuming it ever had one in the first place)
  3. Dick Cheney is a liar and a hypocrite.
  4. Dick Cheney is a chickenhawk who quipped "I had other priorities in the '60s than military service". He managed to get 5 deferments.
  5. Dick Cheney is a war criminal who deserves to be in prison along with several CIA directors and those carrying out torture orders.

Dick Cheney War Criminal

Former Minnesota Governor Jesse Ventura has the same opinion (see Jesse Ventura on Dick Cheney: A 'chickenhawk' war criminal who should be in jail).

We don't need Jesse Ventura to tell us what's right or wrong about Dick Cheney. It's obvious. Cheney has wrapped himself in the US flag as if that makes him above the law.

I stand by what I have said.

The above articles on the total uselessness of torture speak volumes. The attacks on moral grounds are even more important.

Many readers sent various reports from CIA officials and others in support of torture, citing its effectiveness. Not a damn one of those reports is believable.

What would you expect the top CIA officials to say: We got nothing out of it? Torture doesn't work and we proved it?

Of course these liars are going to deny the truth. Their ass is on the line!

Even if the CIA can cite examples of gaining "intelligence", serious questions remain: Could the CIA have gotten the same information sooner, without torture? Studies suggest "Yes".

Chickenhawk Counterattack

We invaded Iraq for purpose of revenge and to carry out chickenhawk wishes. Now that we have made a total mess of things, the people who f*d it up the most blame Obama.

Of course, Obama is also at fault. And it's infuriating. US drone policy makes more enemies than it does anything else.

No Joe, my position would not be any different if I lost loved ones in 911. The 911 attack does not give the US the right or the "moral authority" to stoop to the level of terrorists.

Majority Say Torture is Acceptable

Yesterday, I reported New Poll Shows US Citizens in Every Demographic Support Torture (Republicans, Democrats, White, Black, Young, Old).

I have never been so disgusted in all my writing career, than after reading that poll.

Atheists have better moral standards on torture than Christians.

Christian advocates claim abortion is wrong because it kills innocent human lives, a very questionable thesis that depends entirely on when life begins.

Whatever your view, unless you have been religiously brainwashed, there is room for debate.

On the other hand, torture that has ended in death, and US drone policy that has done the same to an even greater extent, are supported overwhelmingly by the "religious wrong".

To these hypocrites, the unborn are far more important than the born, including innocent women and children.

Questions on Poll Bias 

A close friend of mine questioned the poll. So did reader Richard who made comment, then asked a question.

Comment: "I couldn't agree more with your stance on torture. Thank you for putting your opinion out for all to see."

Question: "Is there any hope that these polls are tainted?"

Reader Larry also picked up on the question bias thesis and proposed five new poll questions:

  1. Is it OK for the US to torture suspects to get information? 
  2. Is it OK for foreign governments to torture US suspects to get information? 
  3. Is torture OK even if the persons tortured have not been proven guilty? 
  4. Is suspicion alone sufficient grounds for torture? 
  5. If your son or daughter were in the military and captured, would you expect them to be held indefinitely and tortured because that is the American way?

I suspect the poll results would be different with those questions, but how much different?

Why Torture?

If Torture does not work, and it doesn't, why do it?

Explaining Torture

  1. Torture is condoned and defended at the highest levels.
  2. People want to believe our leaders, even when it's proven they are liars.
  3. Torture and the desire for revenge go hand in hand.
  4. Bad things stir up hate.
  5. Extreme emotions and logical thinking seldom, if ever, go hand in hand.

Of those reasons, numbers one and two are key.

Head of the Luftwaffe, and Nazi Gestapo founder, Hermann Wilhelm Göring explained in prison following the Nuremberg Trials.

Goering at the Nuremberg Trials
Göring: Why, of course, the people don't want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

Gilbert: There is one difference. In a democracy, the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars.

Göring: Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country. Icing on the "Hate-Cake"

Polls aside, torturing never does any good, ever. Reputable studies, as cited above prove it!

And when innocent people are killed, we make more enemies than we had before. But as Nazi Gestapo founder, Hermann Wilhelm Göring states "people can always be brought to the bidding of the leaders."

And so they have.

Thoroughly Disgusted

Reader Ben writes ...
Hello Mish

Thanks for your blog, I'm a daily reader. I am equally flabbergasted at how many torture apologists there are in the U. S.

Even in the comments section of your blog there is an abundance of folks defending torture. The assumptions folks are making include that the tortured folks are guilty without any kind of due process or review of any evidence against the suspects. As others have noted, many folks who ended up in Guantanamo were likely innocent. At least one in 5 according to the CIA’S own stats did not meet the criteria for detention. This is a likely the result of the high rewards offered for "terrorists". KIDS were detained as well as random farmers, etc. We tortured innocent people. Anyone defending this should better explain this to me.

When we went into Iraq the battle cry was "Remember 9/11", totally unrelated to the event. Now, folks are citing ISIS beheadings as justification for torture. These bogus justifications are spoken by the politicians and bureaucrats responsible for our torture program to redirect the debate and, frankly, keep themselves from being prosecuted for their immoral, illegal acts.

I am completely disgusted with the actions of my government and the response of a large percentage of our citizens.

Thanks for sharing your opinions on the topic. It's good to see some of our moral compasses still know true North.

Regards, Ben KirchmeyerUS Government Interrogator Chimes In

Reader Peter, a US government interrogator chimes in ...
Hey Mish,

Having conducted over 2000 interrogations of my own in support of a variety of different government operations, I can say that you are 100% correct. Torture doesn't work. Not when you want the truth, and not when you want to retain your humanity. Thanks for keeping a spotlight on this. It's a blight on our nation and is quite indicative of a government run amok and too separated from its original mission.

PeterHate Us for Our Freedoms?

No one "hates us for our freedoms" as the claim goes. They hate us for our blatant hypocrisy, for our might-makes-right attitude, and for our constant meddling where we have no business at all.

Torture and defense of it by Dick Cheney, by flag-waving hypocrites, and by brainwashed fools who believe everything the CIA and torture advocates claim, is icing on the extremely counterproductive hate-cake, sure to cause more global misery.

Perpetual War

Those looking for a reason the "Battle for Perpetual War is Won" need look no further than torture-supporting hypocrites, wrapped in a US flag, and singing a "holier-than-thou" tune.

Addendum:

In spite of the above logic, twisted minds persist with "Tick, Tick, Bull, Shit". For example: In a comment to this post, reader Jay K asks ...
Assume you are the President, and the country has just been attacked on the country's soil in which thousands of citizens where killed. You are concerned that other attacks, in a manner which are of course unknown, are imminent. The military (or intelligence agency) has captured a person who is believed (say with 50% probability) to have information regarding possible future attacks. Your CIA director tells you that interrogation has failed, and recommends torture methods. Suppose there is only a 1% probability of gaining novel and useful information from such torture methods to head off a 2nd attack (of which, say, for argument's sake there is a 25% chance of occurring).

Yes or no?

And, my understanding is that you are arguing that there is an absolute ZERO probability of EVER gaining any useful information via torture.Jay's comment and question was pure "Tick, Tick, Hypothetical, BullShit" at it's finest.

OK Jay K, suppose the authorities are 50% sure your son or daughter is involved with a group that may be planning to bomb a school. Is it OK for the authorities to pull out your kid's fingernails? Cut off limbs? Threaten to torture your kids friends? Where does your support for tick, tick, hypothetical bullshit stop?

The answer of course is "torture is always morally wrong". But hypocrites only see it that way when it affects them adversely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Pass the Cigars: US Lifts Some Restrictions on Cuba; Why Now?

śr., 17/12/2014 - 23:12
Sanctions and embargoes don't work. And in the case of Cuba, it took the US 52 years to partially realize that.

In 1962, President John F. Kennedy signed into law a Cuban trade embargo. I have long known how foolish Kennedy's decision was (and the decision of every president since).  But I did not know until today how blatantly hypocritical Kennedy's action was.

A clip from Cigars All Around in the Financial Times explains: 

The day before Kennedy signed the law, "Kennedy ordered an aide to buy him 1,000 Petit Upmanns cigars. It was only after Kennedy got word that his request had been carried out that he authorised the new regulations that banned Cuban imports and would have made the purchase illegal."

Wow.

For 52 years, the US embargo poisoned he Cuba-US relationship. What good did it do? Did it drive Castro out of power? Or did it help keep Castro in power?

I suggest the latter.

Free trade is always beneficial and always better than war or cold war. US goods flowing into Cuba and tourists with money would have done more for a regime change than pressure.

Hopefully it won't take 52 years for the US to realize the stupidity of sanctions on Russia. Don't hold your breath.

Cuba's Support of Terrorism

The Financial Times notes "Obama ordered a six month review of Cuba’s designation as a 'state sponsor of terrorism'. Even the State Department no longer attempts to justify this label, which devalues Washington’s word on international terrorism issues and triggers international financial sanctions against Cuba."

In other words, we've been lied to for years about Cuba. Hardly shocking.

Why Now?

I would like to suggest Obama is taking this step because it's the right thing to do, but that's not what is likely happening.

I believe this sentence explains what's going on. "In 2000, Cuban-American voters broke three-to-one for Republicans in the presidential election. But in 2012, exit polls showed Cuban-Americans splitting 50:50."

When push comes to shove, expect a choice to be made on how many votes that decision may win. Right vs. wrong is simply not part of the decision-making process!

Regardless, doing the right thing for the wrong reason is better than doing the wrong thing for the right reason.

So pass the cigars. Just don't smoke the damn things unless you want cancer of the tongue and mouth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

FOMC Statement: Does Change From "Considerable Time" to "Patient" Make Any Difference Whatsoever?

śr., 17/12/2014 - 21:50
Today the Fed made its much awaited FOMC Announcement.

Pundits poring over the statement have generally concluded as does the Financial Times, that Fed Signals Tightening by Mid-2015.

Why?

Because the Fed dropped its forecast that it will keep low interest rates for a "considerable time".

Now the Fed says it can be "patient" in judging when to start raising rates.

The Financial Times claims the "new language is designed to reassure markets that rate rises are not imminent."

If rate hikes are not imminent, what difference does the change make?

Three Dissents

Hawk: Richard Fisher objected because "improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate"

Dove: Narayana Kocherlakota believes "the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target."

Data Dependent: Charles Plosser believes "the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements."

Of the three dissents, there is one hawk, one dove, and one statement can be interpreted any way you want, but generally seems neutral. What Plosser failed to say is what he would have done today, if he was running the show.

As for where interest rates should be now, the answer is clearly "not here" based on numerous asset bubbles the Fed is too blind to see.

In terms of what to expect down the road, it's quite preposterous to pore over every word as if it means anything. Actions speak louder than words.

Expectations vs. Reality

The market expected a word change, so the Fed made one. But a lot can happen in the next six months. The US could be back in recession next month, or the next four job reports can be 500,000 each.

Those are extremes of course, but they are possible.

"Patient for a Considerable Time"

If a slowdown comes at all,  and I believe one is coming, then expect the Fed to be "patient for a considerable time" whether the fed mentions  the words "considerable time" again or not.

Viewed that way, the language change is meaningless.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Gasoline Expenditure Forecast at Lowest Levels in 11 Years

śr., 17/12/2014 - 20:38
The US Energy Information Administration (EIA) forecasts U.S. Household Gasoline Expenditures in 2015 On Track to be the Lowest in 11 Years.
The average U.S. household is expected to spend about $550 less on gasoline in 2015 compared with 2014, as annual motor fuel expenditures are on track to fall to their lowest level in 11 years. Lower fuel expenditures are attributable to a combination of falling retail gasoline prices and more fuel-efficient cars and trucks that reduce the number of gallons used to travel a given distance.

Household gasoline costs are forecast to average $1,962 next year, assuming that EIA's price forecast, which is highly uncertain, is realized. Should the forecast be realized, motor fuel expenditures (gasoline and motor oil) in 2015 would be below $2,000 for the first time since 2009, according to EIA's December 2014 Short-Term Energy Outlook (STEO).

The price for U.S. regular gasoline has fallen 11 weeks in a row to $2.55 per gallon as of December 15, down $1.16 per gallon from its 2014 peak in late April and the lowest price since October 2009. Gasoline prices are forecast to go even lower in 2015. Gasoline prices are falling because of lower crude oil prices, which account for about two-thirds of the price U.S. drivers pay for a gallon of gasoline.

Increases in fuel economy are also contributing to lower motor fuel expenditures, as cars and trucks travel farther on a gallon of gasoline. According to the Environmental Protection Agency, the production-weighted fuel economy of cars has increased from 23.1 miles per gallon (mpg) for model-year (MY) 2005 cars to almost 28 mpg for MY2014, an increase of about 21%. Similarly, the fuel economy for trucks has increased 19%, from 16.9 mpg to 20.1 mpg in the same time frame.Expenditure Forecast



The expenditure forecast is not surprising given the drop in oil prices.

West Texas Crude



I commented on oil factors in What's Behind the Plunge in Oil? Winners and Losers? Boon to Spending or Recessionary?

Short and Longterm Factors

  1. Slowing global economy, especially China and Europe
  2. US production expansion
  3. OPEC pumping above quotas – they all cheat
  4. Iran embargo failing
  5. Increased fuel economy
  6. Attitudes of millennials towards cars and driving

I give heaviest weight to number one, but they all cascade. Points 5 and 6 play out slowly over time.

At some juncture, point 6 will reverse from being a drag on consumption to an expansion of consumption, but that could take a long time. Demographic attitudes take a long time to peak.

Boon to Spending or Recessionary?

Credit Suisse Group economists think cheaper oil will make "Fed tightening in the first half more likely."

Is it that simple? I think not, siding with Early Slowdown Signs Emerge for U.S. Oil States After Crude Slide. After leading the U.S. economic recovery out of recession, some of the nation's top oil states are showing early signs of a slowdown as a result of the plunge in crude prices.

In Houston, Texas, the first oil industry layoffs have been announced, with realtors there predicting a sharp decline, up to 12 percent, in home sales next year.

Alaska's 2015 fiscal year budget revenue forecast will have to be lowered by almost $2 billion, according to Fitch Ratings, because of the sharp drop in the state's forecast crude prices. That will widen Alaska's budget gap to almost $3.4 billion, Fitch said in a Dec. 11 report.

States such as Texas, North Dakota, Alaska, Oklahoma and New Mexico are all likely to feel strains next year, Wells Fargo Securities municipal analyst Roy Eappen said in a recent report.

Meanwhile, household sentiment in Texas, Louisiana, Oklahoma and Arkansas where memories of the catastrophic 1980s oil crash are still fresh, weakened in October more than any other region, according to a report by Decision Analyst Inc. The Texas-based research company surveys monthly thousands of homeowners in the Census Bureau's nine regional divisions.

The West South Central division, comprising those four states, had seen the strongest growth for four years, but in October survey lagged the rest of the nation, with economic gauges improving in six regions and two recording no change.View on 2015

The energy shakedown, currency volatility in numerous countries, a slowdown in China, numerous Eurozone problems, and bubbles in bonds and equities do not bode well for 2015.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

New Poll Shows US Citizens in Every Demographic Support Torture (Republicans, Democrats, White, Black, Young, Old)

śr., 17/12/2014 - 07:05
The disgusting poll of the week by the Washington Post shows From moderate Democrats to White Evangelicals, Nearly Every Demographic Group Believes Torture Can Be Justified.

The Post says "nearly" but they are being generous. Close scrutiny shows "every" group supports torture.

Here's the question at hand: "Looking ahead, do you feel that torture of suspected terrorists can often be justified, sometimes justified, rarely justified, or never justified."

Disgusting Results Part One



Disgusting Results Part Two



Comments and Analysis

There is not a single group in any age, in any race, in any party, or in any religious affiliation where a majority says torture is always wrong.

Only by adding "rarely justified" to "never justified" can one find any majority disapprovals.

In that combined group, only the Democrats, Liberals, No Religion, and Liberal Democrats take a generally opposing stance.

Torture Approved at Every Level

It's no wonder the CIA tortures. They have support at every level.

No one objects until it's done to them or their families. But then it's too late. When it happens to them no one will care.

Torture in the Name of Jesus

Do it in the name of Jesus, you can justify it in the end. Of course ISIS feels exactly the same way.



Link if video does not play: "Do it in the Name of Jesus"

Torture Always Counterproductive

I am thoroughly sickened by these results, but I have an explanation: People have been totally brainwashed by fearmongering and phony "time bomb analogies" they believe torture will produce results.

The fact of the matter is torture never has and never will produce the desired results.

Torture is 100% without a doubt counterproductive. It never works and is never justified. I can prove it, and will do so later today.

I am proud to take a moral stand on the issue of torture while Evangelical Protestants, and "alleged" Conservatives lead the way in moral corruption.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Ruble Moves 25% Intraday; Bid/Ask Spread at Latvia Currency Exchange Goes Wild; Ruble a Buy?

wt., 16/12/2014 - 22:10
Reader "Luke" from Riga, Latvia emailed an amusing image he took today of exchange rates at the Latvian currency exchange "Marika".

Latvia is on the Euro.



Notes

  • Pērk means buy.
  • Pārdod means sell.
  • The bid/ask spread for euros to British Pounds (GBP) at this particular exchange is a hefty 4.7%.
  • The bid/ask spread for euros to Rubles (RUB) at this particular exchange is an amazing 43%.

Needless to say no one was buying rubles at that exchange.

Ruble Moves 25% Intraday



If one looked at the open vs. the close the move was only 3.18%. However, the move bottom to top was 25.64%!

Thus, wild bid/ask spreads at currency exchanges reflects wild moves in the currency itself.

Ruble a Buy?

Inquiring minds may be wondering is the Ruble is a buy or if Russian stocks are a buy. I believe they are. So does Pater Tenebrarum at the Acting Man blog - emphasis mine.

He took that position earlier today in his post From Ruble to Rubble in a Heartbeat.
Does this move make much sense? We actually don’t think so – oil is certainly very important for Russia’s economy, but a recent Study of the Russian Economy concludes that the energy industry actually contributes only 16% to total economic output in Russia.

Moreover, Russia’s money supply growth has been slowing quite sharply in recent years (admittedly we are not up-to-date on what has occurred in this respect in the most recent months).

The Rate Hikes in Perspective

It is a good bet that the ruble is by now egregiously undervalued, even in light of the oil price decline and economic sanctions. Russia’s central bank is actually known for being quite conservative. Instituting massive rate hikes in such a situation is certainly a better approach than wasting foreign reserves in market interventions. Hong Kong once hiked rates into triple digit territory for a little while to defend its peg against speculative selling. Obviously, the main objective is simply to increase the cost of carry for traders shorting the currency and at the same time make the currency more attractive to those looking for high yields. It seems rather unlikely that Russia’s economy actually needs base rates between 17 to 18% right now, but as a preemptive measure to cool speculation against the currency, such rate hikes probably make sense. We suspect there will be more central bank moves to come before the situation calms down again – especially as the rate hikes have not had much of an effect yet (that is actually an understatement).

Conclusion

Situations like this one very often turn out to have been great opportunities in hindsight. Readers may recall the Russian crisis of 1998 – anyone buying shares and bonds in Russia when the news and the market action were at their very worst made out like a bandit in the end (those brave enough to wade in were eventually rewarded with absolutely stunning gains in this particular case). Of course in a panic sell-off, (or its corollary, a blow-off move), being early by just a few days can be pretty painful in the short run. Nevertheless, this is one of those times when it seems to us that opportunity beckons for those able to stand the risk. There is probably no hurry, we will certainly keep a very close eye on developments.My position is the same. Generally Pater and I are on the same page. See above link for charts on Russia money supply growth and Russia's central bank balance sheet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Spanish Newspaper Association Asks Government to Stop Google News Closure "To Protect Rights of Citizens and Businesses"

wt., 16/12/2014 - 20:29
Last Friday, I reported Google News Closes in Spain.

The closure was a direct result of an inane new law in Spain that requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not.

I commented ...

"There is absolutely no way, anyone, anywhere, benefits from a news vacuum other than corrupt leaders and tiny media outlets that support corrupt leaders. Spanish publications may think they won a victory, but they will soon find out otherwise when their traffic slumps and ad revenue right along with it."

The law was passed at the request of the Spanish Newspaper Publishers' Association. Results were both swift and amusing.

Please consider this extremely ironic result: Spanish Newspaper Publishers’ Association Now Asks Government To Help Stop Google News Closure
AEDE announces it wants the Spanish government and EU competition authorities to stop Google closing Google News: “to protect the rights of citizens and businesses”.

The main media lobby behind Spain’s new intellectual property law, which caused Google to announce late on Wednesday night that it was to close Google News in Spain, has now said it wants the Spanish government and European competition authorities to intervene to stop Google shutting down the service.

The Spanish Newspaper Publishers’ Association (AEDE) issued a statement last night saying that Google News was “not just the closure of another service given its dominant market position”, recognising that Google’s decision: “will undoubtedly have a negative impact on citizens and Spanish businesses”.

Irene Lanzaco, a spokeswoman for AEDE, told The Spain Report by telephone that “we’re not asking Google to take a step backwards, we’ve always been open to negotiations with Google” but, she said: “Google has not taken a neutral stance”.

“Of course they are free to close their business, but one thing is the closure of Google News and quite another the positioning in the general index.”Rights of Citizens

Apparently the rights of citizens and businesses in Spain includes free services from Google.

Actually, it goes even further. As I commented last week, Google News makes no money and does not even have advertising on the site.

Neutral Stance Irony

The AEDE wants a "neutral stance".

Here's a second irony. If Google actually provided a "neutral stance", it would seek to make money either off advertising or by charging the AEDE for promoting its news publishers.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

What's Behind the Plunge in Oil? Winners and Losers? Boon to Spending or Recessionary?

wt., 16/12/2014 - 11:43
What's Behind the Plunge in Oil?

In the wake of a widely unexpected, huge oil price decline, I have received many questions and comments.

Some speculate US pressure on Saudi Arabia to punish Russia. Others think "big oil" is out to punish the frackers.

I responded to a friend today that the explanation is simple. No conspiracy theories needed. This was my proposal.

Explaining the Plunge in Oil

  1. Slowing global economy, especially China and Europe
  2. US production expansion
  3. OPEC pumping above quotas – they all cheat
  4. Iran embargo failing
  5. Increased fuel economy
  6. Attitudes of millennials towards cars and driving

I give heaviest weight to number one, but they all cascade.

To maintain revenue with US producing more of its own oil, OPEC members cheated more to maintain revenue. Increased fuel economy and attitudes of millennials are longer-term factors, but they become more important as demand drops due to the slumping global economy.

Discarding Conspiracy Theories

I am a big fan of Occam's Razor, a principle that suggests the simplest workable explanation is likely to be the best one. (For a tie-in to bank lending, please see Occam's Razor and Bank Lending.)

In this case, a slowing global economy thesis is a far simpler explanation than the notion that the US pressured Saudi Arabia and OPEC, and both of them agreed to cooperate, simply to punish Russia at the request of the US.

Did that happen? Not likely!

OPEC and or "Big Oil" attacks on frackers are equally ridiculous for exactly the same reason.

Reflections on the Price of Oil

Just minutes after I responded to my friend, a contact emailed an interesting report on "The Price of Oil" by Dieter Helm.

Helm dismisses peak oil, I don't (and to a certain extent he misses the construct), but much of the rest of what he has to say is accurate enough.

Helm states "Around the world high prices triggered the search for new supplies."

That's certainly a true statement, but in the next breath he states "It has turned out that the earth’s crust has plenty of oil and gas left, that R&D is not confined to non-fossil fuels, and that there are physically abundant supplies for decades to come. The problem is not an imminent shortage of oil and gas, but rather a super-abundance, enough to fry the planet many times over."

The idea of a "super-abundance" of oil is ridiculous. The US saw an increase in production not because there is abundant supply, but rather because prices got high enough to make diminishing supply profitable to exploit. After all, that's what peak oil is about.

And with this plunge in oil, new development has come to a halt. Many of these drillers are not profitable at these prices and huge numbers of bankruptcies will result.

OPEC to the Rescue?

Helm is on target with comments regarding OPEC.
It is claimed that OPEC will come to the rescue. Since the oil producers have squandered the revenues from the price increases, they now need high prices to keep on buying off their populations, especially in the Middle East where Arab Spring revolutions in several countries has scarred authoritarians and dictators. It is claimed that many of the key players need a price of $90 a barrel or more. The idea that because of the waste and corruption and populist spending, these countries can therefore enforce a particular price on the market is nonsense. A price can only be imposed if they all agree, they all actually cut production and the consequences of their behaviours is not to cut demand and increase non -­‐ OPEC supplies. None of this is likely to be true.

The first point to note is that OPEC’s market power is waning. The US (and North American) production has transformed the market. The US is still over 20% of global GDP. Half its trade deficit was oil and gas. Now the US and the rest of North America are well on their way to rough energy balance. That is an enormous withdrawal of demand from OPEC. Europe is also reducing demand and economic growth is flat. China is slowing down and developing alternative supplies. It is now much harder in theory for OPEC to call the market. But even if it did want to fix the price, the mechanics are also a whole lot harder than they were in the 1970s, the last time it really had much impact.

There are two myths about OPEC. The first is that Saudi Arabia can on its own increase or decrease production enough to make a difference. This is true now only in the very short term, and it would have to make a really big reduction to offset other increases, it would make a big hole in its budget and the result would be to encourage an even faster diversification away from it, notably by the U.S.

....

Second, the fracking genie is out of the bottle. Lots and lots of countries will apply the new technologies. Some of this will be gradual and largely unnoticed outside the industry. More will be got from existing conventional reserves, and gradually new reserves will be opened up. There is no shortage of shale reserves around the world.It is highly likely there are substantial shale reserves. But at what price point cost-wise do they make sense to develop? And what about pollution costs and environmental cleanup?

All of this has come together now in the perfect storm for oil producers.

Innovation

People keep asking me "where will the jobs come from?" And I keep responding along the lines "I don't know, but innovation creates jobs over the long haul".

Right now we are in a "creative destruction" phase where the internet created massive numbers of jobs, but now seems to be taking them away. But what about the future?

Helm has some ideas.
For many bright young researchers in the universities, their commitment to develop new low carbon energy supplies is a further source of optimism about technical progress, and their motivation is exogenous to price. It is the one bit where the market’s reach is limited. The likely product of this research is very large, and indeed is already producing a bewildering number of options and opportunities.His thesis on energy (and mine on jobs) needs to happen before we blow ourselves up over trade wars, currency wars, energy wars, and religious wars.

Winners and Losers

The winners in this oil selloff are generally oil importers. The losers are the exporters.

The Financial Times has this interesting graphic of Winners and Losers of Oil Price Plunge.



Big Winners

From the above graphic it would appear that Europe is the big winner.

Falling oil prices enable producers to pass on lower prices for the benefit of consumers and producers alike. One would never know for all the European bitching and moaning over price deflation.

Nonetheless, the biggest winner in all of this is Japan, not Europe. Falling oil prices are the one thing that has saved Abenomics from complete disaster.

Big Losers

The biggest losers are easy enough to identify, but the chart has it wrong as Saudi Arabia.

Arguably the two countries most punished by falling oil are Russia and Venezuela. The latter I expect to default sometime in 2015.

The Financial Times notes one of the ironies in this mess. "As late as October, a 'key concern' of the International Monetary Fund was the risk of an oil price spike caused by geopolitical tensions. Instead, rising production and weaker demand growth have left suppliers competing to find willing customers."

As usual, the IMF worries about the wrong things with a perpetually overoptimistic view of the global economy.

Central Banks Enter the Fray

I commented on the Russia impact in Moscow Hikes Interest Rates to 17% from 10.5% in Emergency Middle-of-Night Action.

Bloomberg chimed in on the winners and losers debate with Oil Spilling Over Into Central Bank Policy as Fed Enters Fray.
Norway’s central bank stunned investors last week by cutting its main interest rate to head off a “severe downturn” due to plunging oil prices. Ninety minutes later, Russia’s central bank raised its benchmark to bolster a currency weakened by crude’s decline.

The split among two of the largest oil exporters shows how the slump in the price of crude to its lowest in five years will make 2015 a year of divergence for global central banks and increased volatility in financial markets.

The U.S. Federal Reserve enters the fray this week. Some economists expect it to drop the commitment to hold rates near zero for a “considerable time.” Hiring is accelerating and officials including Vice Chairman Stanley Fischer have emphasized the boost to consumer demand from oil’s decline.

Cheaper oil “lends support to our expectation of monetary-policy divergence next year, making Fed tightening in the first half more likely, while pushing other central bankers to be relatively more dovish,” Credit Suisse Group AG economists led by Neville Hill and James Sweeney said in a Dec. 12 report to clients.Boon to Spending or Recessionary?

As noted above Credit Suisse Group AG economists think cheaper oil will make "Fed tightening in the first half more likely."

I propose it's not that simple. Indeed, I am willing to take the other side of the bet, in line with the Reuters article Early Slowdown Signs Emerge for U.S. Oil States After Crude Slide.
After leading the U.S. economic recovery out of recession, some of the nation's top oil states are showing early signs of a slowdown as a result of the plunge in crude prices.

In Houston, Texas, the first oil industry layoffs have been announced, with realtors there predicting a sharp decline, up to 12 percent, in home sales next year.

Alaska's 2015 fiscal year budget revenue forecast will have to be lowered by almost $2 billion, according to Fitch Ratings, because of the sharp drop in the state's forecast crude prices. That will widen Alaska's budget gap to almost $3.4 billion, Fitch said in a Dec. 11 report.

States such as Texas, North Dakota, Alaska, Oklahoma and New Mexico are all likely to feel strains next year, Wells Fargo Securities municipal analyst Roy Eappen said in a recent report.

Meanwhile, household sentiment in Texas, Louisiana, Oklahoma and Arkansas where memories of the catastrophic 1980s oil crash are still fresh, weakened in October more than any other region, according to a report by Decision Analyst Inc. The Texas-based research company surveys monthly thousands of homeowners in the Census Bureau's nine regional divisions.

The West South Central division, comprising those four states, had seen the strongest growth for four years, but in October survey lagged the rest of the nation, with economic gauges improving in six regions and two recording no change.That's a lot of weakness. And given the Fed responds to stock market declines with dovish statements, the Fed just may have its hands tied in 2015.

Watch Junk Bonds!

Junk bonds, especially energy junk bonds have been crushed lately as I noted on December 11, in $550 Billion Energy Junk Bond Bubble Busts; "Whac-A-Mole" Distortions in Multiple Markets.

If energy prices decline, expect a spillover into all junk bonds. In fact, junk bonds are also at huge risk if the Fed tightens. And if Credit goes, speculative stocks will follow.

It will not take much to push the economy over the edge. Yes, I have said that for some time. And no it has not happened yet.

But every delay of the inevitable pushed asset prices higher and higher. Equity prices are currently more richly priced than any time in history with the exception of 1929 and the 2000 tech bubble.

Stocks are a sell on their own accord. The energy shakedown, currency volatility in numerous countries, a slowdown in China, numerous Eurozone problems, and bubbles in bonds and equities do not bode well for 2015.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

China Flash Manufacturing PMI in Contraction, at 7-Month Low

wt., 16/12/2014 - 08:58
The slowdown in China continues, as evidenced by contraction in China Flash Manufacturing PMI, now at a seven-month low.
Key points:

  • Flash China Manufacturing PMI™ at 49.5 in December (50.0 in November ). Seven-month low.
  • Flash China Manufacturing Output Index at 49.7 in December (49.6 in November ). Two-month high.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The HSBC China Manufacturing PMI dropped to a seven-month low of 49.5 in the flash reading for December, down from 50.0 in November. Domestic demand slowed considerably and fell below 50 for the first time since April 2014. Price indices also fell sharply. The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”China PMI and Production



The question, as always is whether or not this is just more meandering around above and below the expansion-contraction line.

I propose energy is the key tell. With prices plunging, how much traction does the global economy have?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Moscow Hikes Interest Rates to 17% from 10.5% in Emergency Middle-of-Night Action

wt., 16/12/2014 - 00:15
I commented earlier today, that you do not defend a currency by foolishly wasting foreign reserves. The Russian central bank came to the same conclusion.

In an emergency middle-of-the-night central bank action, Moscow Lifts Interest Rates to 17%.
Russia has lifted its key interest rate to 17 per cent, hours after the rouble suffered its worst drop since 1998.

“The decision was driven by the need to limit the risks of devaluation and inflation, which have recently significantly increased,” the central bank said in a statement.

The move in the middle of the Moscow night followed a day during which the rouble had tumbled more than 10 per cent as the implications of the fall in oil prices for the country’s energy-dependent economy triggered a rout across Russian markets.

In the bleakest official forecast yet from Moscow, the Russian central bank warned that the country could see a 4.5 per cent to 4.7 per cent contraction in GDP next year if oil prices remained at $60 a barrel.

So far this year, it has lost half its value against the dollar, making it the world’s worst-performing major currency, ahead of the Ukrainian hryvnia.


Traders said the central bank had intervened several times during Monday trading but had failed to halt the slide in the rouble for more than a few minutes on each occasion.

The central bank on Monday forecast that capital outflow from Russia would total $120bn in 2015, nearly matching the $134bn estimated to leave the country this year. It also predicted outflows of $75bn in 2016 and $55bn in 2017.US$ vs. Ruble



At the end of 2013 the Ruble closed at 33.20-per-US$. It touched a low of 66.84-per-US$, a decline of slightly over 50% before settling today at 65.60, just under a 50% decline for the year.

Russia Serious About Halting Ruble Slide

That massive 6.5 percentage point hike may or may not stop capital flight and currency depreciation, but it does show Russia is very serious about the effort. 6.5 percentage points is genuine bazooka action.

Huge Recession Baked in Cake

Even if the hike stops the currency slide, it will come at a cost. A massive Russian recession is baked in the cake.

That recession will spill over into Eastern Europe including the eurozone.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Insolvent Scranton PA Pensions Rise 80%, Fire Fund to Run Out of Money in 2.5 Years; Bankruptcy Looms

pon., 15/12/2014 - 21:08
The city of Scranton hiked property taxes 57% and garbage collection fees 69% to shore up police and fire pension funds that will run out of money anyway, in 5 years and 2.5 years respectively.

Amusingly (to outsiders) but certainly not to Scranton taxpayers, Scranton Pensions Increased as Much as 80 Percent as a result of inane mayoral promises.
The 2011 court ruling that awarded huge raises and millions of dollars in back pay to Scranton firefighters and police officers was a windfall for retirees too, with some seeing a more than 80 percent hike in their pensions between 2008 and 2012, a Times-Tribune investigation found.

The increase, most of which was paid in 2011, made the retirees among the highest paid in Pennsylvania, the newspaper’s review of the Public Employee Retirement Commission records revealed.

The increased pensions come at a time when Scranton, in distressed status since 1992, is struggling to survive. Faced with a $20 million deficit, council enacted a 2014 budget with massive tax increases — hikes of nearly 57 percent in property taxes and 69 percent in garbage fees. The recently passed 2015 budget hiked property taxes 19 percent.

The plans’ actuary, Randee Sekol, recently cited the raises as one of the key factors that have pushed the funds closer to insolvency. With a deficit of $78.8 million as of 2012, the fire fund is projected to run out of money within about 2½ years, while the police fund, with a deficit of $62 million, has less than five years left.

The city had no choice but to approve the pension hikes, issued under former Mayor Chris Doherty’s administration, because they are contractually obligated under the union contracts, said city solicitor Jason Shrive.No Choice?!

Of course the city had a choice. Actually, the city had two reasonable actions and curiously, Shrive even mentioned one of them.
Last week, the city asked the fire and police pension boards to forgo that increase. Both boards rejected the request.

Mr. Shrive made the request based on a section of the Class 2A city code that states no increases can be granted to retirees if an actuary determines the fire and police funds are not actuarially sound. Scranton is the only Class 2A city in the state.

Mr. Shrive acknowledged that the union contracts obligate the city to pay the retirees’ raises, but he said he believes state law, which mandates the city follow the Class 2A code, takes precedent.Tell, Don't Ask

Given Class 2A law, you don't ask police and fire for cuts, you tell them. Then if they fight, you make the final step:

Declare Bankruptcy on the Spot

The police and fire departments would have to plead their case in federal bankruptcy court, most likely getting haircuts of 50% or more.

Ultimately, bankruptcy is where all these cases are headed. Taxpayers certainly don't deserve preposterous tax hikes while inept politicians look for ways out, because there are no ways out.

In the meantime, collective bargaining of public unions needs to go the way of the dinosaur. Public unions and the hack politicians who support unions have wrecked more city and state budgets than the next 10 things combined.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Russian Ruble, Turkish Lira, Ukrainian Hryvnia Hit Record Lows; Global Currency Crisis on Deck

pon., 15/12/2014 - 20:05
As oil continues to slide so does the Ruble. Emerging market currencies have gone on for the ride as have the currencies of Eastern European countries, especially Ukraine. The Russian Ruble, Turkish Lira, and Ukrainian Hryvnia are at or near record lows.

Russian Ruble - RUB



Since the beginning of the year, the Ruble has gone from 32.99-per-US$ to 65.51-per-US$. That's a decline of 49.64%.

Ukrainian Hryvnia - UAH



Since the beginning of the year the Hryvnia has gone from 8.21-per-US$ to 15.75-per-US$. That's a decline of 47.87%. 

Turkish Lira - TRY



Since the beginning of the year, the Lira has gone from 2.15-per-US$ to 2.37-per-US$. That's a relatively modest decline of 10.23%. However, the lira slide since the beginning of 2013 (not shown on chart) is 25.74%.

Traders Pressure Russian Central Bank

Bloomberg reports Ruble Tumbles Most Since 1998 as Traders Pressure Central Bank.
The ruble tumbled the most since 1998, sliding past 60 for the first time, as traders tested Russia’s willingness to defend the currency amid an oil slump that’s pushing the economy toward recession.

The ruble weakened 9.1 percent to 64.0005 per dollar at 7:57 p.m. in Moscow, the steepest slide on a closing basis since the year Russia defaulted on local-currency debt. The 10-year government bond yield rose 23 basis points to 13.23 percent. Three-month implied volatility for the ruble climbed to a six-year high as the rout triggered the Bank of Russia to sell foreign exchange, according to BCS Financial Group and MDM Bank.  

Traders are pressing the central bank to buy more rubles to limit a selloff that has wiped out 22 percent of the currency’s value this month.

“The collapse of the ruble has intensified amid falling oil prices and a central bank that failed to deliver a decisive actions to counteract the ruble decline,” Bernd Berg, a London-based emerging-market strategist at Societe Generale SA, said in e-mailed comments. “Russia is facing the risk of a currency and confidence crisis.”

The ruble’s slump takes its 2014 depreciation to 48 percent, surpassing Ukraine’s hryvnia for the first time as the world’s worst performer among peers tracked by Bloomberg. Failure to Halt Decline

Bernd Berg commented the "[Russian] central bank failed to deliver a decisive actions to counteract the ruble decline. Russia is facing the risk of a currency and confidence crisis."

That's a true but very misleading statement.

The worst thing Russia could do would be to blow its currency reserves in a foolish attempt to stop the Ruble slide. Were Russia to blow its currency reserves, Russia would cause or exacerbate a crisis, not prevent one.

The best thing for Russia to do is let the decline play out.The market will eventually find a level. In the meantime, there is little or nothing Russia can do.

Global Currency Crisis on Deck
 
Yes, Russia is facing a currency crisis. So is Ukraine, Turkey, Venezuela, and numerous other countries.

I believe a global currency crisis is in the works.

For more on the global currency crisis thesis, please see Next Phase in Currency Wars: Yen Plunge, Yuan Devaluation, and "Tidal Wave of Westbound Deflation".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Tired of the Bears? Get Bearcrow!

pon., 15/12/2014 - 02:58
This is a non-economic comedy post, but I think you will enjoy it.

In the video below, I take a big swing at the Chicago Bears football team and secondarily Obamacare. Watch the video to see the tie-in.

Best Played Full Screen - Control in Bottom Right of Video



Link if video does not play: Meet BearCrow.

If you like this video, please pass it on!

Dysfunctional Bears

Video was produced before Chicago Bears offensive coordinator Aaron Kromer admitted he was the source of a Cutler "absolutely killed" the bears comment.

Kromer issued a tearful apology late last week.

In the past few weeks there have been reports of locker room fights, talk of "buyer's remorse" about Cutler, and now a blubbering offensive coordinator crying in the locker room.

Select Still Captures From Video

Jay Cutler Wanted "Sacked or Alive"



Introducing BearCrow - Guaranteed to Cure Your "BWA"



Buy Our Sister Product "BearNausea" ... "You've Got Mail"



More Inside a "Ding Dong" Than Cutler's Head



BearCrow Supports Local Schools



Buy BearCrow - Do It For The Kids



"BWA" Recognized Disease Under Obamacare



Dr. N.E. Thingoes Sure to Prescribe BearCrow and BearNausia



Hot Off the Press Announcement



Phone Operators Standing By



Mish Production



Film Credits

  • Mish: Script, Props, Announcer
  • Friend Kathy: Phone Operator
  • Neighbor Mike: Afflicted with and Cured of "BWA"
  • Mike's son Cole: Top Investigator Homer Sherlock
  • Mike's son Noah: Support the Kids
  • Liz, my Wife: Videographer
  • Friend MaryBeth: Stage Assistant

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Draghi About to Quit ECB?

pon., 15/12/2014 - 02:32
Rumor has it that Draghi is so fed up with German opposition to everything he wants to do with stimulus and sovereign debt bond buying that he is about to leave the ECB.

The Fiscal Times asks Why the Hell Does Mario Draghi Want to Leave the ECB Now!?
What would happen to Europe’s prospects for recovery if Mario Draghi left his job as president of the European Central Bank? Would Draghi’s plans to implement an ambitious policy of monetary stimulus get bulldozed by German inflation hawks and others favoring continued austerity across the Continent?

Even a week ago there seemed little reason to ask such questions. Not anymore. Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets.

This could be as soon as January, depending on a variety of circumstances in Frankfurt and Rome, according to well-placed sources who include a prominent private investor and a senior journalist in Rome. “Draghi wants out, fed up and stymied by Berlin,” one of these sources wrote in a note just before the weekend. In a subsequent message: “I am hearing from several [official] sources that he is entirely fed up with the monetary politics he confronts.”

Some observers in Italy reckon that Draghi thinks he has done all he can at the ECB. But it’s some and some on this point.

“There are others here who say Italy now needs a president who can reassure Europe as to the direction of Italian reform policies,” my journalist colleague in Rome tells me. “Draghi rates high in this respect.”

Why would Draghi cash in a position of considerable international influence to take up the figurehead presidency of a mid-sized European power?

Again, no simple answers. Contrary to appearances, Draghi may have concluded recently that he won’t prevail against his austerian adversaries, some sources suggest. It is more likely that, as everyone has already concluded, he recognizes that there are no promising alternatives to succeed Giorgio Napolitano, who is expected to step down as president early next year. “Draghi’s a last resort for Italian politicians,” in the estimation of one informed source.

For his part, Draghi denies that he has any presidential ambitions—or any plans to pack up in Frankfurt, for that matter. But my sources advise that we assign these assertions zero credibility. Draghi went home in mid-November to deliver a speech on ECB policy to students at the University of Rome, and the occasion was widely taken to be a toe in the water prior to a full-dress presidential candidacy.

Another factor evident here is Prime Minister Matteo Renzi. One, sources say he appears to think he can make more use of Draghi in Frankfurt than at home. Two, there are indications he doesn’t want a figure of Draghi’s weight and international stature crowding into his picture frame.

The weakness of other candidates—Romano Prodi, a former prime minister, and Giuliano Amato, a former interior minister and now a member of the constitutional court—again comes into play. Even with the failed speech and Renzi’s probable resistance in view, a source in Rome concludes, “If Draghi opens the door it won’t be difficult to reach the needed consensus. He’ll get it if he wants it.”Draghi's "Small" Tactical Retreat Ahead of QE

The Financial Times discusses Draghi's Tactical Retreat Ahead of QE.

The ECB made some statement changes ahead of the much ballyhooed QE program expected next year, so much so that it appears the ECB does not have any real target.

But there is a difference between a "small" tactical retreat and being so fed up that Draghi is about to leave. So which is it?

I picked up the above links from ZeroHedge Mario Draghi: Goodbye ECB, Hello Italian Presidency?

I offered my own opinion on a possible move of ECB president Mario Draghi back to Italy way back on November 13.

Next Phase: Currency Wars, Deflation, Yuan Plunge

Please consider Next Phase in Currency Wars: Yen Plunge, Yuan Devaluation, and "Tidal Wave of Westbound Deflation".
Deflation Shockwave Thesis

  1. Next phase of currency wars is underway.
  2. Abe will "do whatever it takes" to produce inflation in Japan.
  3. Abe will soon "lose control of the situation".
  4. Yen sinks to 145 to US dollar.
  5. China will respond by devaluing Yuan.
  6. "Tidal Wave of Deflation" heads West.
  7. US brands China a "currency manipulator"
  8. Global currency crisis ensues
  9. Gold soars

Points 1-6 from Albert Edwards at Society General. I added points 7-9.

It may play out this way, but if so, perhaps it takes longer than March. I will give a big tip of the hat to Edwards if it plays out that way within a couple of years (whether or not my points 7-9 happen).

My only disagreement with Edwards is on a tangential issue. The problem in the eurozone is not Mario Draghi or Germany.

Draghi cannot do "whatever it takes" to spur credit and inflation because the primary problem in the eurozone is structural, with the euro itself. A key secondary problem is productivity issues between member states. The secondary issue cannot be resolved (except at the expense of Germany and the Northern states) if every country remains on the Euro.

There is little Draghi can do to spur credit creation in Europe given the above constraints, productivity issues, bank leverage, the Maastricht Treaty, and increased infighting among member states, some of which want to violate the treaty and others not.

Draghi's Next Move - Back to Italy?

Neither Draghi, nor Germany, nor any Asian countries will be pleased by Japan's attempt to boost exports by driving down the Yen. This will make it all the more frustrating for Draghi. Calls will mount for Draghi to "do something".

I suggest Draghi might just quit, then head back to Italy, perhaps as next president, perhaps to run for prime minister. If Draghi is smart, he will get out of the way before crisis hits rather than during the next crisis.

Currency Crisis Coming Up

When China reacts (and China will react if the Yen hits 145 to the dollar, perhaps before that point), the US will scream and the protectionists in Congress will call on Obama to label China a "currency manipulator".

Political necessity ensures the largest screams will not be about Japan, but about China, when China reacts to pressure from Japan.

Labeling China a currency manipulator would of course make matters much worse, but that is precisely what I expect from Congress should China devalue. Global trade would then collapse amidst competitive currency debasement. Finally, under such a scenario, gold would likely soar.Albert Edwards pinged me with a comment agreeing with points 7-9 regarding currency manipulation, a global currency crisis, and gold.

Everyone is guessing of course. But Keynesians, led by Paul Krugman are all screaming for still more stimulus even though it clearly wrecked Japan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Hugo Salinas Price Asks Mexico for Silver Coin to Calm the National Tantrum

nie., 14/12/2014 - 19:36
My friend, Hugo Salinas Price is on a mission to get Mexico to adopt a silver coin as legal currency. It's a mission I endorse 100%. His plea to the government in Mexico was written in Spanish but I asked Hugo for a translation.

In English, please consider A Silver Coin that is Money To Calm the National Tantrum in Mexico. When a baby is having a tantrum because he’s tired or sleepy, the best thing to get baby to forget what bothers him is by distracting him with anything you may have at hand: a pair of glasses, a rattle, or a bunch of keys.

The Mexican people are tired and angry, and they are having a great tantrum. It is impossible to correct or eliminate in short order the causes of their anger. What we need is to distract the angry population with some good news that will catch the popular attention and imagination.

For nine years I attempted to convince the Federal Congress of Mexico to approve legislation that would monetize the “Libertad” silver ounce, which is minted by the Mexican Mint; the coin would then have value for a given number of Mexican pesos, by means of a quote on the part of our Central Bank. The quote would be a floating quote, somewhat higher than the value of the silver ounce on the international markets, and would increase with increases in the value of silver on the markets, but never fall (in Mexican pesos value) if the price of silver should fall.

My efforts did not meet with success, but the project gathered quite a bit of support in the Congress, both on the part of Federal Congressmen as well as on the part of Federal Senators. An insignificant dispute between the PRI and the Leftist PRD caused the PRD to withdraw its support, which the PRI required to pass the legislation. .... Hugo's Silver Currency Idea Explained

For a detailed explanation of how Hugo's silver currency proposal would work, please see Silver, liquid and illiquid, the 'modified open mint' and gold & silver as parallel monetary systems by Hugo Salinas Price.

Role of Gold in Trade

For a discussion of trade imbalances and the role of gold, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Consumer Price Deflation for 15 Consecutive Months in Spain, CPI Now -0.4 Percent

nie., 14/12/2014 - 17:50
Spain is in the midst of consumer price deflation going on 15 months. Inflation is -0.4% and falling. El Confidential reports Deflation is Cast in the Spanish Economy ... and No Disasters (For Now).



It is rare to see publications looking at the bright side of deflation, but here you have it.

Via translation ...
The data speak for themselves. And leave no shadow of doubt about the collapse of prices. The Consumer Price Index (CPI) ended in November yoy at -0.4%. But what is more important: far from having touched the ground, continue to fall in the coming months. Func considers in particular that the CPI will end 2014 at -0.8%. In the first two months of 2015, the index will continue to plummet to -1% in February. A general fall in prices over a significant period of time constitutes deflation.

If the analysis is done taking into account not only the IPC, which covers only the rate of change in consumer purchases - but all the prices that influence inflation (as producer prices), the result is likewise significant.

Core inflation, which excludes from the calculation energy and food products, in November stood at -0.1%.

The upside is a recovery of purchasing power. And indeed, according to Social Security, pensions have earned 713 million in purchasing power this year because they were up 0.25%, when the CPI in November to November stood at -0.4%. Therefore, a gain of 0.65% purchasing power. Between 2013 and 2014, the government estimated the gain purchasing power of pensions was 2.085 billion euros. Also, wages have risen agreement 0.6% above the CPI.

Deflation positively influences the competitiveness of the Spanish economy. While the HICP in Spain stood at -0.5% yoy, the HICP in the euro zone is 0.3%. The favorable price differential Spain continues to consolidate. HICP vs. US CPI

HICP is the Harmonized Consumer Price Index. It differs from the US CPI as follows.
The HICP differs from the US CPI in two primary aspects. First, the HICP attempts to incorporate rural consumers into the sample while the US maintains a survey strictly based on the urban population. In actuality, the HICP does not fully incorporate rural consumers since it only uses rural samples for creating weights; prices are often only collected in urban areas.

The HICP also differs from the US CPI by excluding owner-occupied housing from its scope. The US CPI calculates "rental-equivalent" costs for owner-occupied housing while the HICP considers such expenditure as investment and excludes it.Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

France Goes After Actor Salaries; Sunday Shopping "Reform" French Style

sob., 13/12/2014 - 22:19
A move is underway in France to cut aid to movies if the salaries of the stars is too high a percentage of the cost of production.

The Wall Street Journal reports In France, Popular Actors May Pay for Change in Funding for Films. Effective Jan. 1, the Centre National du Cinéma, the government agency that funds film production, will shun films in which the pay to the star actors exceeds a certain percentage of production costs. The limit varies depending on the budget; it is set at 5% for films costing between €8 million and €10 million.

“Public money isn’t meant to pay salaries exceeding that sort of amount,” CNC spokeswoman Françoise Pamps said.

In recent years, rising pay for top French actors such as Mr. Dujardin, who won an Oscar in 2012 for his performance in “The Artist,” has claimed a bigger portion of movie budgets in France, forcing producers to rein in other spending. The trend has sparked controversy in France, where, excluding state financial support, the industry loses money, according to data from the CNC.

The attempt to cap the pay for the likes of Mr. Dujardin, Gérard Depardieu, and Marion Cotillard points up how the government’s system to protect France’s film industry from world competition is becoming less sustainable as the domestic economy stagnates.

The cherished French model insulates the country’s film producers from market pressure through a complicated cross-subsidy managed by the CNC. The aid is generated by a levy on each movie ticket sold in the country, as well as payments imposed on TV channels and DVD sales.

In trade negotiations, the film subsidy has been targeted by the U.S. and other countries as an unfair market intervention, but France has stuck to its guns. During recent talks for a free-trade agreement between the U.S. and the European Union, the French government insisted, successfully, on keeping culture off the table.

According to an annual ranking compiled by Le Figaro newspaper, the best-paid French actors—mainly popular local comics little known abroad like Dany Boon —charged in excess of €1.5 million ($1.85 million) per movie in 2013. Mr. Boon’s agent didn’t answer emails seeking comments.Preposterous Film Setup

The entire process is preposterous from start to finish. France should get out of the movie-making business altogether. Instead it pays subsidies to films that the free market would never create, then to pay for that boondoggle it charges a tax on every ticket, every DVD, and every TV station.

With all that graft, it's no wonder some actors are overpaid.

Yet, it's highly likely that some are actually underpaid. The problem is government would have absolutely no way of knowing. With all the subsidies and taxes, it's impossible to know who is overpaid and who isn't.

What we do know is that dozens of bad films are subsidized in the name of "preserving culture". It's the same setup in France's agricultural industry, and everywhere else one looks as well.

For example, please consider Sunday shopping rules.

France Seeks to Liberalize Sunday Shopping

France-24 reports France Wants to Increase Sunday Shopping. The French government wants shops to open on more Sundays, according to a proposed reform to be unveiled this week, but the measure is running into opposition.

In a country where stores are currently subject to tight restrictions on opening hours, the move is seen as a spur to much-needed consumption in an economy badly in need of a boost.

Town halls would be allowed to grant trading licences on 12 Sundays a year, compared to the current five Sundays annually. In addition, local officials would be obliged to grant five Sundays a year whereas currently they can decide to grant none.

But the measure has run into opposition in France where, unlike in many of its European rivals, the idea of Sunday as a day of rest still attracts considerable support.

Opposition to the Sunday opening comes from all points of the political spectrum, as well as from the Catholic and union lobbies.

An opinion poll published on Friday showed that 62 percent of respondents were in favour of shops opening on Sundays, although 60 percent said they would be reluctant to work on that day.Sunday Shopping "Reform" French Style

  • Towns halls could approve shopping on 12 Sundays up from the current 5
  • Local officials would be obliged to offer 5 Sunday shopping days

This is so controversial, debate is at the highest levels. Prime Minister Manuel Valls said "Paris in particular was at risk of seeing visitors go elsewhere to spend unless retail laws were loosened." Nonetheless, Valls noted "there will be a debate" about the proposal.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Bill Gross: "New Natural Interest Rates is Zero or Negative"

pt., 12/12/2014 - 23:43
In an interview with Bloomberg's Tom Keene, Janus Capital's Bill Gross said that he left PIMCO 'in good hands.' Gross said, "…it’s obviously an opportune situation at Janus. Running $2.5 billion is different than running $2 trillion, so it makes it more flexible for me."



link if video does not play: "New Natural Interest Rates is Zero or Negative"

Gross said that the Federal Reserve may become more "dovish" after oil price drop and would have to take lower prices "into consideration."

If he would give advice to Stanley Fischer, Gross said, “the Fed as the central banker of the world basically has to worry about financial conditions not just in the United States but the world. And so next week in terms of their language and their stance going forward, they should be very cautious about any type of tightening indications.”

Gross also told Keene:

  • Fed must adjust to drop in oil price
  • 'New natural' interest rate is 'zero percent or lower'
  • Very little liquidity in corporate bonds

Economic Illiteracy

In response to the above video, Pater Tenebrarum at the Acting Man blog pinged me with:

"Good grief, the world is brimming with economic illiteracy. If the "natural interest rate" were at zero or negative, we would all stop consuming altogether and would soon starve to death, because that would imply everything - even a slice of bread - one year hence would be worth more to us than one we can eat right now."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

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