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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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Hyperventilation Charade: EU Demands Another €2.1 Billion from UK, "We Won't Pay," Says Furious Cameron

pt., 24/10/2014 - 21:54
Things are about to get more interesting in the EU as a review of budget procedures shows the UK, Greece, and Italy owe more money, but Germany and France will get money back.

Curiously, this came about following a review of non-profit organizations from churches and universities to trade unions, charities and sports clubs. The time period is 2002-2009.

Cameron's Obvious Bluff

UK prime minister David Cameron is already battling French President Francois Hollande abroad, and UKIP at home.

Thus, Cameron's limited choice is to bluff as usual: "We Won't Pay," Says Furious Cameron.
In a vivid display of public fury at European Union technocrats, British Prime Minister David Cameron refused to pay a surprise 2.1-billion-euro bill on Friday as EU leaders ordered an urgent review of how the budget figures were arrived at.

"It's an appalling way to behave," Cameron said. "I'm not paying that bill on Dec. 1. If people think I am they've got another thing coming. It is not going to happen."

EU ministers will hold an emergency meeting on the issue next month. Cameron said he wanted to understand the technical calculations and was also ready to mount a legal challenge.

EU officials insisted the revision, which also saw Italy and even crisis-hit Greece asked to pay more while France and Germany would get rebates, was part of an annual statistical exercise handled by civil servants, not politicians.

Cameron noted that annual revisions to the payments had never been so great - an effect, EU officials said, of a once-in-a-generation review of how national incomes are calculated that found Britain was richer than it had previously declared.

Officials at EU statistics office Eurostat said that was a result mainly of taking more account of money flowing in 2002-09 to non-profit organizations - from churches and universities to trade unions, charities and sports clubs.

Cameron has demanded reforms and plans a referendum on EU membership if he manages to secure re-election next May.

His Eurosceptic opponents, gaining ground fast on his Conservative Party, accused the premier of misleading voters.

"David Cameron once claimed that he had reduced the EU budget -- but the UK contribution went up and now, quite incredibly, our contribution goes up a second time. It's just outrageous," said UKIP leader Nigel Farage.

"The EU is like a thirsty vampire feasting on UK taxpayers' blood. We need to protect the innocent victims who are us."Hyperventilation Charade

It's easy to see through Cameron's hyperventilation charade.

Cameron did not really say "We won't pay" as the Reuters headline states. Rather, Cameron stated "I'm not paying that bill on Dec. 1".

The latter statement would be true if Cameron paid the bill on any date before or after December 1, or the amount changed by a penny.

This is the kind of wishy-washy nonsense that Cameron pulls all the time. Unfortunately, conservative believers fall for it every time.

Similarly, Cameron promises an up-down vote on UK membership in the EU, but only if he is reelected. Would he even keep that promise? Who the hell knows?

Cameron's pledge is to first get the EU to change its rules more to the UK's liking. If he succeeds, then and only then will he offer the vote (and of course he has to win reelection on top of it).

Odds Cameron gets the rule changes he seeks are approximately 0%. You know it, I know it, the world knows it, and even Cameron knows it.

The promise of a 2017 up-down vote is nothing more than an election ploy coupled with blatant arrogance.

Liar, Not a Conservative

As I have stated before, Cameron is a liar, not a conservative. He is in a coalition bed with the Liberal-Democrats, a pro-euro, pro-Labour, pro-climate-change, free education, and progressive tax party.

With that set of bed-mates, no conservative in their right mind should believe a damn thing he claims to stand for.

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

Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way?

pt., 24/10/2014 - 19:05
There's some interesting discussion points in the UK-based Absolute Return Partners October 2014 Letter, by Niels C. Jensen, most of which I agree with, others not.
Japan-Style Deflation in Our Backyard?

It is no secret that we have been long-standing believers in deflation being a more probable outcome of the 2008-09 crisis than high inflation. What has changed over the past six months is that the world has begun to move in different directions. Whereas rising unit labour costs in the U.S. make outright deflation in that country quite unlikely, the same cannot be said of the Eurozone.



Japan-style deflation across the Eurozone is no longer an outrageous thought. As you can see from chart 1, there is a close link between CPI and demographics. That has certainly been the case in Japan and I don’t see any reasons why it should be any different in Europe. The negative demographic trends are perhaps not as acute in Europe as they were in Japan in the early to mid 1990s, so one might expect a less dramatic outcome here, but the writing is on the wall. Furthermore, Japan’s problems were multiplied due to an almost complete lack of political recognition and willingness to take drastic action. At least, with Mario Draghi in charge of the ECB, there seems to be a willingness to do something. Deflation and "Willingness To Do Something"

Jensen is mistaken about Japan's willingness to take action. Japan has a debt-to-GDP ratio of 250%, highest of any major developed country, as a direct consequence of fighting deflation.

Japan piled on debt, built bridges to nowhere, and engaged in other wasteful spending, all of which made matters worse. Taking on debt to fight deflation is insane. Yet that is exactly what France and Italy want now!

Japan's QE certainly did not help either. Both policies addicted Japan to 0% interest rates forever (until of course Japan blows up).

To suggest that the ECB can do something meaningful with European demographics being what they are, the flaws in the euro being what they are, and lack of willingness for France and Italy to initiate badly-needed structural reforms, is simply wrong.

Holding down interest rates and state-sponsored stimulus will have the identical result as in Japan.

As for wages, they are actually rising not only in the US, but also in Europe as I pointed out in European Service Prices Plunge at Steepest Rate Since January 2010; Reflections on Keynesian Stupidity.

In the US, the Fed did stave off for now, another round of price deflation. However, that came at the expense of creating monstrous asset bubbles.

The bursting of asset bubbles is inherently deflationary, and much more damaging than falling prices because of the impact asset prices have on asset-based loans.

I propose falling prices should be welcome across the board.

Behind the Curve?
Is the Fed Falling Behind the Curve?

As mentioned earlier, the picture in the U.S. – and to a degree also in the UK - is quite different. The Fed increasingly looks like it is behind the curve with the Fed Funds rate remaining unchanged despite a significant rise in unit labour costs.



Not only does that suggest a meaningful rise in the U.S. policy rate over the next couple of years – and therefore also possibly a further rise in longer term rates - but it also suggests a relatively strong U.S. dollar. Forward rates on the Fed Funds rate suggest it will reach 1.50% by June of next year; however, if the latest estimates for unit labour costs are painting a true picture of inflation in the pipeline, one could argue that the Fed Funds rate could go substantially higher. Behind the Curve? Which Way?

Curiously, St. Louis Fed Governor James Bullard says Fed Should Consider Delay in Ending QE because "Inflation expectations are declining in the U.S."

That's nonsense of course because of the asset bubbles the Fed spawned. With interest rates so low across the world, the chase for yield is on.

Opportunity in Japan
Which Equity Markets Offer Most Potential?

One area I have not elaborated on yet is Japan. There are strong indications that Japan has finally turned the corner economically. At the same time, return on equity has returned to pre-crisis levels in Japan, but valuations have not.

Japanese return on equity is back to an all-time high



With a more or less fully priced U.S. equity market and a Federal Reserve Bank at risk of falling seriously behind the curve, and a Europe where it is hard to see where growth is going to come from (ex. U.K.), Japan looks remarkably interesting, and I expect it to be one of the better performing mature equity markets over the next few years. Just don’t forget to hedge your currency risk. I am not saying that the Yen will fall, but there is enough uncertainty surrounding the Yen that I would rather not have to worry about that aspect.Japanese Equities and the Yen

It's certainly debatable whether Japan has turned the corner economically. Nonetheless, on a valuation basis alone, I have been recommending a yen-hedged position in Japanese equities.

Whether or not the Yen plunges will have to do with Abenomics, and how Japan eventually handles (or doesn't) zero percent rates.  

Jensen's comment that US equities are "more or less fully priced" is silly. US equities are priced well beyond perfection in one of the biggest valuation bubbles in history.

Pension Fund Piling On

Jensen concludes with an interesting chart and comments about piling on.
Investors (well, most investors) continue to pile in to equities, as if they are the solution to their return challenge.

   

Pension funds are one example of such investors. If such pension funds have fixed obligations (called defined benefit plans in the UK), they currently struggle to generate the level of re turns they need to meet their obligations.

Even if there are good reasons to believe that the prolonged rally can continue for a little longer, there are equally good reasons to believe that the current equity bull market may end in tears. Such is the disconnect between stock valuations and economic fundamentals in some markets. Disconnects

I agree with Jensen on Japanese equities, hedging the Yen, and the prospects of deflation in Europe.

The chart on asset allocations is particularly interesting. Investors are overweight equities just as they were were in 2000 and 2007, and I believe with dire consequences.

Jensen says "Statistically, equity markets fall 40-50% (as they did in 2008-09) only a couple of times in a life time, so why somebody is forecasting the next bloodbath to be around the corner is quite frankly beyond me."

It seems to me that equities plunged in 2000 and again in 2007. So that was twice in a seven year timespan. Given valuations are equally extreme now, caution is more than in order.

Japan prove stocks can stay depressed for decades. And that can happen again, someplace else, besides Japan.

Central Bank Action

I disagree with Jensen on the need for the ECB to do anything about falling prices. For discussion, please see Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

Inquiring minds may also wish to consider James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan.

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

European Service Prices Plunge at Steepest Rate Since January 2010; Reflections on Keynesian Stupidity

pt., 24/10/2014 - 02:52
The Markit Flash Eurozone PMI shows the steepest fall in output prices since the global crisis began. The PMI also shows renewed job losses in spite of an otherwise stable PMI.
The Eurozone saw a marginal upturn in growth of business activity in October, according to the flash PMI results. The headline Markit PMI ™ rose from September’s ten-month low of 52.0 to 52.2, signalling the first upturn in the pace of expansion for three months. However, the index remained below the average seen in the third quarter, and was the second-weakest reading seen so far this year.



Backlogs of work fell at the fastest rate since June of last year, dropping in both services and, to a lesser extent, manufacturing.

Service providers reported the first cut in payroll numbers since March, though manufacturers reported a slight upturn in employment. Prices were increasingly being cut in order to help boost sales. Average prices charged for goods and services showed the largest monthly fall since February 2010, having now fallen almost continually for just over two-and-a-half years. Charges for services fell at the steepest rate since January 2010 while a more modest decline was seen in the manufacturing sector, where prices fell only marginally and to a lesser extent than in September.

Price cuts occurred despite overall input costs rising in October, pointing to a further squeeze on operating margins. That said, manufacturing input prices fell for the second month running. Finally, business optimism about the year ahead in the service sector fell to the lo west since June of last year.

Markit Comments

"The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show the region teetering on the verge of another downturn. Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year. Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions."

"While the survey suggest s the euro area has so far avoided a slide back into recession this year, a renewed downturn cannot be ruled out. Growth is so anemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting."

“The survey data are broadly consistent with GDP rising 0.25% in the third quarter, but unless demand picks up soon, growth could weaken again in the fourth quarter and deflationary forces could intensify."My Comments

Prices received plunge the steepest since January 2010, but input prices are up. The latter is in spite of Brent crude dropping from 112 to 84-86 since June, and 98 to 84-86 since the end of September!

Rising wages in Germany help explain (see French Private Sector Output Falls at Sharpest Rate in Eight Months; Tale of Two Europes)

Isn't that what everyone wants? Yet competition for new business is so intense that "Prices were increasingly being cut in order to help boost sales."

Reflections on Keynesian Stupidity

Fancy that. Businesses are cutting prices to increase sales! Meanwhile Keynesian economists tell us that prices need to go up to increase sales.

Any business in Europe raising prices now would soon go out of business due to no sales at all.

And forget about the equally stupid Keynesian theory that consumers will hold off purchases when prices fall. They won't.

For discussion, please see Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

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

French Private Sector Output Falls at Sharpest Rate in Eight Months; Tale of Two Europes

czw., 23/10/2014 - 21:17
France

Looking for growth in Europe? You won't find it in France, but you can still find it in Germany (for now).

The Markit Flash France PMI shows French private sector output falls at sharpest rate in eight months.
Key Points

  • Flash France Composite Output Index falls to 48.0 (48.4 in September), 8-month low
  • Flash France Services Activity Index falls to 48.1 (48.4 in September ), 8-month low
  • Flash France Manufacturing Output Index falls to 47.6 (48.4 in September ), 2-month low
  • Flash France Manufacturing PMI falls to 47.3 (48.8 in September), 2-month low

Summary

The latest flash PMI data signalled a deepening downturn in France’s private sector economy during October. The seasonally adjust ed Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped to 48.0, from 48.4 in September. That was its lowest reading since February, albeit indicative of a moderate rate of contraction overall. Faster declines in output were recorded in both the services and manufacturing sectors during October.

Employment in the French private sector fell further in October, extending the current period of contraction to one year. Furthermore, the rate of decline quickened to the sharpest since April 2013. Similarly solid rates of job shedding were registered across the services and manufacturing sectors. Staffing levels were cut in line with reduced workloads.

Outstanding business at French private sector firms fell for the sixth month running, and at the fastest pace since May 2013. Lower backlogs were signalled by service providers and manufacturers alike.

Divergent trends continued to be observed for input and output prices during the latest survey period. Input costs rose for a seventeenth consecutive month, albeit at a moderate pace. Increases were signalled in both the services and manufacturing sectors. Conversely, output prices decreased further in October. The rate of decline in charges was considerable, having accelerated to the sharpest in five years. Firms in both sectors cut their selling prices, citing intense competitive pressures and tough negotiations with clients.

Comment

Jack Kennedy , Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “The French economy remained stuck in reverse gear in October , as crumbling demand dragged activity lower. New orders fell at the sharpest p ace in 16 months, leading firms to make deeper cuts to output and employment. Companies scrabbled to attract new business by slashing their output prices to the greatest extent in five years, despite a further rise in input costs, underlining the extent of the pressures facing businesses at present.  Germany

The Markit Flash Germany PMI shows Output growth maintained as manufacturing strengthens.

Key Points

  • Flash Germany Composite Output Index at 54.3 (54.1 in September), 3-month high.
  • Flash Germany Services Activity Index at 54.8 (55.7 in September), 4-month low.
  • Flash Germany Manufacturing PMI at 51.8 (49.9 in September), 3-month high.
  • Flash Germany Manufacturing Output 53.3 (51.0 in September), 3-month high.

The seasonally adjusted Markit Flash Germany Composite Output Index rose marginally from September’s 54.1 to 54.3 in October, thereby extending the current sequence of private sector output growth to a year-and-a-half.

Input prices continued to increase during October, largely driven by higher staff costs in the service sector. Manufacturers, on the other hand, reported a further decline in costs. That said, the overall rate of cost inflation picked up slightly since September. Despite higher input prices, charges fell for the first time since June last year, thereby squeezing on companies’ profit margins. Anecdotal evidence suggested that firms lowered their output prices amid increased competitive pressures.

Service providers reported a sharp drop in confidence in October, with the level of positive sentiment the weakest in nearly two years. Survey participants commented on economic risks in Southern Europe, slower new order growth and a subdued business climate.

Comment

Oliver Kolodseike, economist at Markit and author of the Flash Germany PMI®, said: “T he latest flash PMI results suggest that Germany’s private sector economy expanded at the start of the fourth quarter. Activity increased at a slightly stronger rate than in September and encouraged companies to take on additional workers. However, margins were under pressure, as companies reduced their charges despite rising input costs.

Our panellists reported that they reduced their charges in a response to increased competitive pressures. “While the service sector remained the driving force in terms of output growth , manufacturing recovered some of the ground it had lost last month, with the headline PMI edging back into expansion territory and signalling an improvement in operating conditions in the sector. “However, there are still some uncertainties about the near-term. New orders increased at the slowest pace in over a year and service providers reported a sharp drop in sentiment, suggesting that output growth may come under pressure in coming months.”Tale of Two Europes

For now, it's still a tale of two Europes. Germany (and some smaller Northern European countries) vs. everyone else. Such divergences will not last forever. The slowdown in China and the ridiculous sanctions on Russia will both take their toll on all of Europe.

The Sick Man of Europe is Europe; Blame the Socialists, Progressives, Greens, and the Euro Itself.

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

Late Payments by Ibex Companies Hits €47 Billion, 169 Days (3 Times Legal Time Limit); Ibex vs. DOW

czw., 23/10/2014 - 18:45
Lack of significant improvement in payments by IBEX companies to suppliers is yet another sign there isn't much of a recovery in Spain.

La Vanguardia reports Late Payments by Ibex Companies Hits €47 Billion, 169 days (nearly 3 times the legal time limit). Ibex is the name of the Spanish stock market exchange.

Via translation from La Vanguardia. Delinquency of the Ibex 35 exceeds 47 billion euros and the average payment is 169 days late, almost three times the limits set by law, according to the latest report of the Platform Multisectoral against delinquency (PMcM), made from the data published by the National Securities Market Commission (CNMV).

In 2012, the average payment of listed non-financial corporations was 191 days, while in 2013 totaled 184, down 4%.

Construction and real estate had a 10% improvement. Trade and services improved 4%. Despite this improvement, the data shows that the construction sector and real estate remains the one with the greatest delay in settlement of bills. Their average payment reached the 288 days in 2013, while in 2012 exceeded 300.

Behind them are trade and services, with 253 days, nine fewer than in 2012.

PMcM president, Antoni Cañete said that "these data show that some of these big companies are financed at the expense of their own providers, mostly SMEs and freelancers". "This situation, is produced by the dominant position of Ibex companies, shows abuse and violation of the law, "added Cañete.IBEX vs. DOW

La Vanguardia notes that in the DOW, the average collection period of industrial companies is 105 days, followed by service and trade at 70 days and energy at 60 days.

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

Saxo Bank CIO Jakobsen Predicts Another "Shock Drop" in Markets; Addicted to Cheap Money

śr., 22/10/2014 - 18:52
Inquiring minds are tuned into the Saxo Bank's 4th Trading Debate on Volatility and Performance.

Another "Shock Drop" in Markets

Saxo Bank CIO Steen Jakobsen says Another 'Shock Drop' is Coming and it's Coming Soon
Steen takes the view that central bank policy is creating a 'fantasy land' for investors and he points out that the recent 'day dive' in markets was a closer reflection of reality.

Steen outlines his suggestions for trading ahead of another dip in mid November with targets for the S&P 500 around 1810 and the Dax at 8000 - 7800.China Replicates West's Mistakes Says Trading Panel

Martin O'Rourke, Managing Editor of Saxo's TradingFloor.Com says China 'Replicates' West's Mistakes
"China's lesson from the Asia crisis of the 1990s was never to be beholden to the West for debt," Director at Fathom Consulting Danny Gabay said. "Our concern is China will mismanage what increasingly looks like a hard landing."

"China has effectively managed to replicate the mistakes of the West since the global financial crisis," said Gabay. "The Chinese will ultimately be defaulted upon."

Addicted to Cheap Money

Societe Generale macro strategist Kit Juckes also warned of some tough times ahead. "We're getting deeper into a mess. We're addicted to cheap money and the addiction is getting stronger."Martin Wolf Bearish on Markets and China

In another Trading Debate panel Martin Wolf Says He's Bearish on Markets.
Martin Wolf, chief economics commentator at the Financial Times and one of the main speakers at Saxo Bank's #TradingDebates event in London today. "The world is never out of the woods and people will always get lost in them," he said.

"The Chinese growth model is collapsing and they know it," says Wolf. "China will disappoint on the downside and we will see the negative impact of that on commodities," he added.

As to how this will affect trading and traders the world over, Wolf is equally blunt: "I would expect more turbulence," he said.

"All the problems that existed before the crisis are still with us, with the addition of the problems created by the crisis," he warned.Major Bear Market Coming 

My view is that 1810 on the S&P would be only the beginning of the bear market that is to come. 1500 or even 1200 on the S&P would not shock me.

Once sentiment reverses for good (and it will), I highly doubt that even more cheap money will help the markets. But I offer no timeframe.

In contrast, Steen made a call with a timeframe and a short-term one at that.

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

US Airdrops Load of Weapons Into Hands of ISIS

śr., 22/10/2014 - 18:17
In yet another embarrassing moment for the Obama administration, Isis Claims it has US Airdrop of Weapons.
A US airdrop of arms to besieged Kurds in Kobani appears to have missed its target and ended up in the hands of Islamic State (Isis) militants.

Video footage released by Isis shows what appears to be one of its fighters for in desert scrubland with a stack of boxes attached to a parachute. The boxes are opened to show an array of weapons, some rusty, some new. A canister is broken out to reveal a hand grenade.

The Pentagon said it was investigating the claim but admitted that one of its airdrops had gone missing.

The Pentagon spokesman, Rear Admiral John Kirby, told reporters that analysts at Centcom headquarters in Tampa, Florida, were examining the video. “We’re still taking a look at it and assessing the validity of it,” he said. “So I honestly don’t know if that was one of the one dropped.”

“I do want to add, though, that we are very confident that the vast majority of the bundles did end up in the right hands. In fact, we’re only aware of one bundle that did not.”

The airdrops were carried out by three C-130 planes. The video shows a man in camouflage clothes and balaclava looking through the boxes of munitions. He says they were dropped by US forces and had been intended for the Kurds. He described them as the spoils of war.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

McDonald's Vows Fresh Thinking After Net Income Declines 30%; Mish Offers Some Advice

śr., 22/10/2014 - 03:34
A 30% net income decline for McDonald's is quite startling to most. I wonder why such a decline took so long.

In response to that pathetic performance, McDonald’s Vows Fresh Thinking.
McDonald’s Corp. outlined plans for what it called fundamental changes to its business as it reported one of its worst quarterly profit declines in years, driven by problems in nearly every major part of its business.

The 30% decline in net income for the period ended Sept. 30 was the latest in a string of disappointing results for the world’s largest restaurant chain. It is struggling with weak sales in Asia, Europe and, most important, its home market in the U.S.

In the U.S., an increasingly complicated menu has slowed service and McDonald’s once reliable base of younger customers have defected to fast-casual chains boasting customized ordering and fresh ingredients, including Chipotle Mexican Grill Inc., and specialty-burger places such as Five Guys.

McDonald’s has focused so far on efforts including increased staffing at busy times, and has shaken up its management ranks, including replacing the head of its U.S. business for the second time in less than two years. But the changes have yet to boost sales or profit.

The 4.1% decline in McDonald’s September U.S. same-store sales marked the worst monthly U.S. same-store sales performance since February 2003.

In response, McDonald’s Chief Executive Don Thompson on Tuesday said it would simplify its menu starting in January, in part to remove low-selling products, and plans to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant.

By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.

“The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers,” Mr. Thompson said. “Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they’re served.”Advice for McDonald’s

  1. Serve better food
  2. Let customers have it the way they want it
  3. Let customers have it when they want it

McDonald’s is nearly hopeless. On many occasions while traveling, I have chosen to not eat at all rather than eat at McDonald's. It happened just this past weekend.

Don't want McDonald's "special sauce" (I fail to understand why anyone does), and you have to wait an extra 5 minutes (at least) to get it your way.

In contrast, Wendy's has some nice salads and a very good chicken sandwich.

The one and only thing I like at McDonald’s is their breakfast sandwiches. Breakfast sandwiches may not be healthy, but at least they are very tasty. I like the bacon, egg, and cheese biscuit.

If McDonald’s would offer breakfast 24 hours a day I would eat there more often. Instead, if you walk in one minute past breakfast time you cannot get breakfast. That has happened to me on many occasions.

I say "F* McDonald’s" unless I am certain I can get there before their arbitrary breakfast cutoff time which seem to vary by location and day of the week.

Lunch and dinner at McDonald’s? I'd rather not eat at all!

My advice for McDonald’s is simple: Forget about "atmosphere", expensive renovations, and the ridiculous notion of the “McDonald’s Experience”.

Other than "fast" (in theory but not necessarily in practice for those who custom order) there is no “McDonald’s Experience” except for the occasional "McPlayground" that demographically speaking appeals to fewer and fewer (especially with  rising costs of feeding a family).

I have a simple suggestion: serve better food, the way customers want it, when they want it. And lower prices would certainly help. 

Correction

I originally stated a decline in revenues of 30%. I meant to say net income.

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

James Grant Conference Video: Inflation Expectations, Growth, Policy Problems; Europe Has Become Japan

wt., 21/10/2014 - 20:15
Here's an interesting video from the recent James Grant Conference. The title of this year's conference is Investing Opportunistically, Separating the Beta from the Alpha.

The first five minutes are introductions and attendee notes you may wish to skip over. The opening speech was by Marc Seidner, CFA at GMO, on inflation expectations.

Note: you may have to click on the play arrow twice to start the video.



Last year at this time a majority thought tightening was inevitable and bonds were attractively priced for those who thought otherwise now, tightening in Europe and Japan is totally priced out and even in the US, inflation expectations are down as noted by forward yield curves.

Seidner commented that 100% of strategists were negative on bonds heading into 2014 but I can name a couple exceptions, notably Lacy Hunt at Van Hoisington.

Lackluster GDP



Tepid Inflation - UK, US, EU, Japan



Historically, when inflation has been this low, talk was of easing further not tightening.

Inflation Expectations



One-Year Inflation Expectations



US Dollar, Euro, Yen, British Pound Forward Curves



"Europe Has Become Japan"

Seidner says that if he was washed up on an island and could periodically see one chart to let him know the state of the global economy the above chart would be the one as it shows interest rates, implied path of monetary policy, and the divergence between the US and the rest of the world.

"From this perspective of the bond market, Europe has become Japan. ... There is an inconsistency in my mind between a path of forward interest rates that reflect such slow economic growth that interest rates never get off zero-bound [and believing] there will be enough growth to enable high-debt countries to delever safely," said Seidner.

James Grant on Price Discovery and Inflation

James Grant takes the podium at about the 25 minute mark with a joke about the title of his publication, Grant's Interest Rate Observer.

Grant asked for sympathy for his business model, because "Ladies and gentlemen, we have no interest rates. We used to have them and they were swell. Some of your parents may have lived off them."

Grant complained about PHDs with no real world experience running things. He properly noted “Interest rate suppression is price control by another name.”

"Can prices even be measured?” asked Grant? I think not, and have stated so many times.

Grant stands up to the “universal notion that prices ought to rise and if they don’t rise something is wrong. I read the most extraordinary thing in the Financial Times the other day. It said that the failure of prices to accelerate meaningfully in this lame recovery was a dark cloud over the world’s economy.

Dark cloud? Dark cloud?” asked Grant.

The world has come to accept the notion that prices must go up and need to go up, yet Grant cites numerous periods in US history where prices fell and there was no panic and no problems. Notably, prices fell for 25 years in the final quarter of the 19th century reflecting the progress of the age.

Grant challenged Fed Chair Janet Yellen to "please explain the difference between progress on one hand and deflation on the other".

Two days ago, I wrote Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" also in response to an article in the Financial Times.

I had not yet seen the above video, and I am pleased to be of the same mind as Grant: There is no economic benefit to rising prices.

Grant concluded with the idea "Gold is the anti-debt. It is money that cannot be conjured on a computer screen. It is that money that has no counterpart on the balance sheet of a central bank indicating that it's a liability.  It's money pure. It's out of favor.  So we at Grant's continue to carry a torch for gold."

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

M&A Deals Fail At Highest Rate Since 2008

pon., 20/10/2014 - 23:23
In yet another potential market topping sign, M&A Deals Fail At Highest Rate Since 2008
The value of deals that fail to complete has reached its highest level since 2008, in the latest sign that the best year for mergers and acquisitions since the financial crisis will also feature a number of high-profile failures.

Three large deals collapsed last week, adding to the list of wrecked deals and coinciding with a sharp jump in equity market volatility that sapped confidence in stocks and put a chill on the market for initial public offerings.

The biggest blow to dealmaking prospects came as US pharmaceutical group AbbVie unexpectedly dropped its support for a $55bn takeover of UK rival Shire. The sudden U-turn has undermined the prevailing belief among bankers that a US Treasury crackdown on deals that allow US companies to lower their tax obligations by moving abroad would have little impact.

So-called tax inversions have featured prominently in this year’s resurgent M&A market accounting for at least a dozen deals. But the chances of Pfizer, the US pharma company, reviving its $120bn pursuit of the UK’s AstraZeneca have been greatly diminished as a result of AbbVie’s decision, several people close to the situation recently told the Financial Times, casting doubt on the year’s biggest withdrawn deal returning.

A total of $573bn worth of deals have been withdrawn, setting this year up to surpass the $640bn in deals that went uncompleted in 2008, according to Dealogic.

Bruce Embley, partner at Freshfields, said: “It’s slightly unusual to have an M&A cliff coming without also seeing an adverse impact on equity capital markets. So I wonder if we look back on this moment as an anomaly or whether it is the start of something more volatile.”Deals Withdrawn or Doubtful



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

Eurozone Rotting to the Core; Four Possibilities; Beyond the Math

pon., 20/10/2014 - 20:26
On October 6, I noted German Factory Orders Slump 5.7%, Most Since January 2009.

The previous month was up 4.9%, so I averaged the two months noting "The average result is a decline of 0.4% per month, for the last two months. That process also means four consecutive months of decline."

German numbers were particularly volatile allegedly due to timing of school holidays, but there is no way to smooth out four consecutive months of decline as anything other than overall weakness.

Germany Slashes Forecasts

On October 14, and as expected in this corner, Germany Slashes its Economic Forecasts.
In stark contrast with the rosy forecasts made just six months ago of 1.8 per cent growth this year and 2 per cent in 2015, the government forecasts gross domestic product to expand 1.2 per cent in 2014 and 1.3 per cent next year.

The data follows last week’s release of dire German factory figures, which stoked fears among top financial officials gathered in Washington for the International Monetary Fund’s annual meeting that economic weaknesses at the heart of the eurozone could undermine the global recovery.

In spite of the growing pessimism, however, Berlin still expects Germany to avoid a recession, defined as two successive quarters of contraction. After a 0.2 per cent decline in the three months to June, Berlin forecasts some growth in the third quarter, contrary to the forecasts made by some bank economists. German Manufacturers Cut Jobs

A recession in Germany is a given, but when? Its export model has held up better than I expected given a clear slowdown in the global economy.

Today, we have another sign a German recession will come sooner rather than later: German Companies Tread Unfamiliar Territory with Job Cuts.
When the flow of containers began to slow at the docks in Duisburg a few months ago, workers at the world’s largest inland port got an early indication that Germany’s export machine had begun to falter.

Container volume at Duisburg, which sits at the confluence of the Rhine and Ruhr rivers, is still expected to grow strongly this year. But the outlook for the docks – as with the rest of German business – is suddenly looking less certain.

German exports tumbled 5.8 per cent in August compared with July – the biggest drop since the peak of the global financial crisis in January 2009. The economy now risks slipping into recession in the third quarter, and the government has already lowered its growth forecasts for 2014 and 2015.

Indeed, with Chinese demand slowing, Russian orders slumping and the eurozone still in the doldrums, some companies have been left with a surfeit of production capacity and workers.

In the meantime, German companies are tightening their belts. Siemens, the engineering conglomerate, is poised to cut jobs at its German energy division due to a slump in European demand for its large gas turbines. The company would not confirm a German radio report that 1,200 jobs are at risk, out of a total of 118,000 in Germany.

Volkswagen, Europe’s biggest carmaker by sales, announced a €5bn annual cost-savings drive in July which may include a reduction in the use of temporary staff, its chief executive Martin Winterkorn, has said.

Rainer Hundsdörfer, chief executive of EBM Papst, a family-owned manufacturer of industrial fans, said it was “important not to be too pessimistic” because he believed Germany was experiencing a temporary lull and not “on the cusp of another crisis”.Over-Reliance On Exports

Wolfgang Münchau writes Germany’s Weak Point is Reliance on Exports.
One of the biggest misconceptions about the eurozone has been a belief in the innate strength of Germany – the idea that competitiveness reforms have transformed a laggard into a leader. This is nonsense. The German model relies on the presence of an unsustainable investment boom in other parts of the world. That boom is now over in China, in most of the emerging markets, in Russia certainly. What we saw last week is what happens once the world returns to economic balance: Germany reverts to lower economic growth.

Previously, the main characteristic of the eurozone had been strong growth in the core that partially offset contraction in the periphery. Now both the core and the periphery are weak. And policy is not responding sufficiently. Add the two together and it is not hard to conclude that secular stagnation is not so much a danger as the most probable scenario.Beyond the Math

I agree with Münchau on stagnation (actually, I think recession is a given and another eurozone crisis will follow). However, and is typically the case, I strongly disagree with Münchau regarding what to do about it.

It's a mathematical certainty that every country cannot have a trade surplus. Yet every country want's to export its way out of the mess. Germany in particular wants every country to be more like Germany.

It's mathematically impossible for other countries in the eurozone to become more like Germany unless Germany becomes less like Germany.

Math Not the Problem

It's safe to assume Münchau would agree on trade surplus math. But math isn't the problem.

France is an economic basket case because of inane socialistic policies, work rules, farm rules, and business restrictions in general. Italy is in a similar situation, but with an even more tangled government bureaucracy coupled with a monstrous debt-to-GDP ratio.

Both France and Italy want more exemptions from budget rules and more time to meet deficit targets. But more government spending can hardly be the answer. Government spending already accounts for about 57% of French GDP. France is in desperate need of less, not more government spending.

Reform alone is insufficient. The euro is fundamentally and fatally flawed.

Four Eurozone Possibilities

  1. Somewhere along the line, Greece, Italy, or France, is going to have enough of recession and stagnation and leave the euro in a disorderly eurozone breakup.
  2. Germany and the Northern European states need to bail out the rest of Europe.
  3. Germany can leave the eurozone in an orderly eurozone breakup.
  4. Decades of stagnation if the nannycrats succeed in keeping the eurozone intact.

Option two sounds nice but is fatally flawed. Germany would never agree to bailouts of that nature, and constitutionally couldn't if it wanted to. Besides, Italy and France are too big. Regardless of how unpalatable, there are no other options.

Widening Budget Rules Won't Help

Germany won't agree to modifying budget deficit rules, and even if it did, what good would it do?

The problem with Europe is not budget rules or too little government spending. Rather, the problem is too much government  and inane work rules on top of a structurally flawed euro.

Structural problems led to massive trade distortions and other imbalances within the eurozone, compounding the already serious productivity issues.

The eurozone experiment failed. The best option now is an orderly breakup. I believe Münchau knows that, but refuses to admit it publicly.

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

Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"

pon., 20/10/2014 - 05:33
The ECB has been concerned about falling consumer prices. I propose that's 100% stupid, yet that's the concern.

When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.

With that backdrop, credit the Financial Times for the absurd headline of the week: Eurozone Fails to Benefit from Weak Currency as Oil Price Slides.
Pity the policy makers given the job of rescuing the eurozone from deflation.

The unorthodox steps the European Central Bank has taken since June – including a programme of private-sector asset purchases – have caused a steep fall in the euro. The single currency is down 8.4 per cent against the dollar and 4.75 per cent on a trade-weighted basis from its peaks this year.

The weaker exchange rate will ease pressure on the ECB in its fight to raise inflation back to its target of just below 2 per cent. Mario Draghi, the central bank’s president, has said the currency’s earlier strength explains 0.4 percentage points of the fall in inflation since 2012. In that year, prices were growing 2.7 per cent a year.

But just as this depreciation is starting to fuel inflation, the ECB must contend with a fall in oil prices that all but wipes out the effect of a sliding currency. A weaker euro should swiftly raise the cost of imported energy. Instead, Brent crude has fallen 9 per cent in euro terms this month alone. This is the main reason why eurozone inflation fell again in September to 0.3 per cent, a five-year low – a figure confirmed by data on Thursday.

“The drop in oil prices is a problem for the ECB,” says Marco Valli, an economist at UniCredit, adding, however, that the situation would have been far worse without the single currency’s fall.

“The impact on inflation is already visible and significant – if you still had the euro at 1.40 to the dollar, eurozone inflation would probably be zero.” Pity the Keynesian Fools

Financial Times writers Delphine Strauss and Claire Jones say "pity the policy makers." I say pity the fools who believe the thesis of their article.

There is absolutely no benefit to rising consumer prices. Things are even worse if prices rise but wages don't.

The very essence of rising standard of living is more goods at lower prices thanks to innovation and rising productivity. And there is no reason to believe wages will rise (or keep up with prices) if prices do rise.

Challenge to Keynesians
 
I challenge Strauss and Jones (or anyone else but especially Keynesians and Monetarists) to prove rising prices provide an overall economic benefit.

Sure, those with first access to money benefit (the banks, the already wealthy, and government bodies via taxation). But that is at the expense of everyone else.

The absurd underlying notion behind the battle cry for inflation is that if prices fall people will stop buying things and the economy will collapse.

Reality Check Questions

  1. If price of food drops will people stop eating?
  2. If the price of gasoline drops will people stop driving?
  3. If price of airline tickets drop will people stop flying?
  4. If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  5. If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  6. If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  7. Will people delay medical procedures in expectation of falling prices?
  8. If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Deflationary Spiral Nonsense

I have discussed this many times before, most recently in Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices
The idea that falling prices are bad for the economy is ridiculous. Taking out insurance against falling prices is even more absurd.

Ask any consumer if he wants lower gas prices, lower food prices, lower hotel prices, lower computer prices, or lower prices on any consumer items and the answer will be yes.

Keynesian Theory vs. Practice

Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it's precisely the opposite.

If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.Asset Deflation vs. Consumer Price Deflation

What central bankers should fear is falling asset prices, more specifically, loans made on assets in an asset bubble.

The irony is central banks create asset inflation by fighting something everyone on the planet should welcome.

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

Nonperforming Spanish Loans Near All-Time High as Overall Credit Shrinks

nie., 19/10/2014 - 18:25
Huky Guru posted a couple of interesting charts on his blog today about shrinking credit but rising percentage of nonperforming Spanish bank loans: NPLs of banks rebounded to 16.59%. Seven points higher than in the 1994 crisis.

Spanish Bank Shrinking Credit



Nonperforming Loans



The "real" numbers are normalized to account for a change in methodology.  Today's number is just off the all-Time high of 16.73 percent in January of 2014. The "official" high was 13.62% in December of 2013.

Both sets of numbers are "far above the crisis in 1994, when nonperforming loans peaked at 9.15%."

The above charts provide further evidence the recovery in Spain is imaginary.

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

FBI Director Warns Google and Apple "If You Don't Decrypt Phones, We'll Do It For You"

sob., 18/10/2014 - 19:45
The Fourth Amendment to the US Constitution is crystal clear in meaning.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

FBI Director, James Comey, an Obama appointment, does not give a damn what the Constitution says.

In a recent speech, Comey warns If Apple and Google Won't Decrypt Phones, We'll Force Them ToEveryone is stoked that the latest versions of iOS and Android will (finally) encrypt all the information on your smartphone by default. Except, of course, the FBI: Today, its director spent an hour attacking the companies and the very idea of encryption, even suggesting that Congress should pass a law banning the practice of default encryption.

It's of course no secret that James Comey and the FBI hate the prospect of "going dark," the idea that law enforcement simply doesn't have the technical capability to track criminals (and the average person) because of all those goddamn apps, encryption, wifi network switching, and different carriers.

"Encryption isn’t just a technical feature; it’s a marketing pitch … it’s the equivalent of a closet that can’t be opened. A safe that can’t be cracked. And my question is, at what cost?" Comey said. "Both companies [Apple and Google] are run by good people, responding to what they perceive is a market demand. But the place they are leading us is one we shouldn’t go to without careful thought and debate."Safe That Cannot be Cracked

A safe that cannot be cracked and a door that cannot be opened except by the rightful owner is precisely what everyone should want. It's what the Constitution explicitly states. Instead, Comey wants the right to read your papers and search your effects.

Perhaps it’s time to suggest that the post-Snowden pendulum has swung too far in one direction—in a direction of fear and mistrust," claims Comey.

Excuse me, but what pendulum is Comey talking about?

The privacy pendulum has not budged an inch in the right direction. Not one new privacy law has been passed or even discussed.

To prove how much above the law these law-enforcement jackasses are, one Pentagon official stated "I would love to put a bullet in Snowden's head".

No one threatening to kill Snowden has been censured.

For blatant disrespect of the US Constitution, Comey ought to be fired, but there's nary a peep from Obama.

I suggest we need a cultural change from the top down starting with a president who understands and respects the Constitution.

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

Free Market Response to Ebola

pt., 17/10/2014 - 23:52
In response to Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering one person responded that I was "over-cooking the Ebola crisis".

Amusingly, another reader accused me of "underplaying the crisis".

A third reader asked "what is the free market response?" A similar question arose in a comment to Acting Man's post The Ebola Outbreak – A Black Swan.

Before tackling the free market issue, let's first review the government's response to date.

  • Airport restrictions but only at 5 airport, not all of them
  • Temperature taking procedures initiated
  • In spite temperature worries, a nurse self-reported to the center for disease control that she had an elevated temperature and ebola patient contact, but was told go ahead and fly

Think about the act of temperature taking. Whoever administered the test would have been in close contact with everyone on or entering the plane. Is that a good idea? Do sneezes and coughs happen?

Enough said.

Free Market Response

It's 100% certain the free market response would not have been the government's response to date.

And what about my proposal of flight bans from epidemic countries?

Government mandated is not free market by definition. But, it's entirely possible my solution is what the free market would have arrived at!

Three Questions I Asked Previously

  1. Is there a chance of spreading the disease by coughing or sneezing? Yes.
  2. Would I want to sit on a plane next to someone who was in contact with an ebola patient? No, and neither would anyone else.
  3. Would I want to sit on a plane next to someone from a country where ebola is viral? No, and neither would anyone else.

Those are common sense questions that airlines may have asked themselves. Airports may have asked similar questions. But airlines do not initiate travel bans in this over-regulated society. Neither do airports.

I read a comment that airlines are being greedy. How so? Airlines are not in position to ban flights from specific countries for medical reasons. 

And the last thing airlines need is plane decontamination efforts to fill an extremely tiny number of seats from those arriving from select African countries.

I pinged Pater Tenebrarum at Acting Man with this comment "I believe the free market response is that airlines would have banned travel from certain African countries."

He responded "Absolutely, but there are many other ways in which we could expect an unhampered market economy to respond to such a situation. In fact, I intend to take up the challenge and write a post about it."

Was I correct? We will never know.

I simply proposed what I thought the free market solution would be in absence of protocols from the center for disease control. I look forward to reading Pater's response.

In the meantime, we know with absolute certainty the government's response was pathetic. We also know McCain's Proposal for an Ebola Czar is equally, if not more pathetic.

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

Irony of the Day: Yellen Moans About Income Inequality; Seven Things That Cause Inequality

pt., 17/10/2014 - 19:30
Those seeking the irony of the day will find it comes straight from the mouth of the Fed Chair. Please consider Janet Yellen Bemoans Rising US Inequality.
Janet Yellen decried rising inequality on Friday in an unusual speech that may lead to accusations of politicising the US Federal Reserve.

Speaking at a conference in Boston, the Fed chairwoman said she was “greatly concerned” by rising income and wealth inequality, and asked whether it is compatible with American values.

Her remarks will delight the Democrats who championed her as Fed chair, but risk a backlash from Republicans, who may feel she is using the platform of the central bank to promote the causes of their political rivals.

It marks a big step in defining Ms Yellen’s term at the Fed. She has tried to popularise the role, meeting with unemployed people, and now speaking out on issues beyond monetary policy. Despite recent turmoil in financial markets, Ms Yellen made no reference to economic conditions or Fed policy in her speech.

“The extent of and continuing increase in inequality in the United States greatly concern me,” said Ms Yellen. “The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression.”Look Inward Janet!

Instead of bemoaning income inequality as "incompatible with American values", the Chair ought to look at the cause of it.

Seven Things That Cause Inequality

  1. Fed-sponsored bank bailouts
  2. Fed interest rate suppression that punishes savers and those on fixed income
  3. Fed QE to goose financial assets (primarily held by the wealthy)
  4. Fed-sponsored inflation that benefits those with first access to money: banks, the already wealthy, and government (via property and other taxes)
  5. Government deficit spending, war-mongering, and other inflationary policies
  6. Government interference in the free markets, especially housing, health care, and education

Is Inequality Always a Bad Thing?

Notice, I said seven but only listed 6. Here's the bonus 7th: Innovation.

Those who invent better ways of doing things (or simply do things better than anyone else) often succeed wildly.

But the 7th is the way it should be. It is the essence of free-market-capitalism. Looked at properly, income inequality is actually a necessity!

It's the way income inequality is achieved that makes it good or bad.

Of seven major things that cause income inequality, four are Fed-sponsored, two are government-sponsored, and one is as it should be.

Which one does Yellen bitch about? The 7th of course.

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

Greece 10-Year Bond Yield Soars to 9% as Prime Minister's Gambit Explodes; Snap Elections Likely, and Opposition Syriza Would Win

pt., 17/10/2014 - 05:50
In the last three days, yield on the Greek 10-year government bond soared from 6.6% to over 9% before settling at 8.917%.



Prime Minister Antonis Samaras' Gambit Explodes

Greek bonds yields had already been climbing with the rise of the radical left Syriza party in recent polls. Icing on the yield-cake was a seriously misguided election ploy by prime minister, Antonis Samaras that blew up in his face.
Greece’s beleaguered prime minister, Antonis Samaras, used a bold gambit last week to win a confidence vote and preserve a coalition government with sagging support: he promised lawmakers that the country would evict its bailout lenders by the end of the year.

Yet Mr Samaras’s plan to make a clean exit from an EU rescue programme and cut short a companion lifeline from the International Monetary Fund appears to be backfiring in dramatic fashion.

Yields on Greece’s long term bonds pushed above 9 per cent on Thursday to their highest level this year as investors doubted that the government had the ability to finance itself without help – let alone press ahead with economic reforms.

Adding to the premier’s woes, Syriza, the radical left opposition party, has increased its lead in opinion polls and threatens to come to power within a few months – an outcome even some members of Mr Samaras’s centre-right New Democracy party now consider probable.

The trigger would be February’s presidential election, where the coalition will have to corral 25 extra votes to secure victory for its candidate. If it cannot, snap elections will be called in March. SYRIZA Widens Lead Over Samaras' New Democracy

Recent polls shows SYRIZA Has Clear Lead Over New Democracy.
A new GPO poll conducted for Mega TV gives SYRIZA a 6.5 percentage point lead over New Democracy.

The survey, whose results were shown on the Anatropi program late on Monday, also places centrist To Potami in third place.

According to the poll, SYRIZA gathers 26.7 percent, New Democracy 20.2, To Potami 6, Golden Dawn 5.7, the Communist Party 5.7, PASOK 4 percent, Independent Greeks 3 percent, LAOS 2.1, ANTARSYA 1.6.

Other parties gained a combined 4.7 percent, while 18.2 percent of respondents said they have not decided yet.

The poll also suggests that the majority of Greeks do not want the presidential election in February to lead to early national polls. The results showed that 55.7 percent are against early elections, while 40.3 percent are in favor.Snap Elections Likely

Even though Greek voters do not want early elections, polls show that outcome is highly likely unless Antonis Samaras somehow hijacks the election or picks up a huge percentage of the undecided electorate.

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

WalMart Margins Set to Plunge? Will Rest of Retail Follow? What About Jobs?

czw., 16/10/2014 - 17:21
Retail sales reports on Wednesday have me thinking about the strength of the economy, commercial construction, jobs, and profit margins.

Let's start with a look at retail sales.

The Wall Street Journal reports U.S. Retail Sales Falter Amid Signs of Global Slowdown.

Similarly, Bloomberg reports Weaker Retail Sales Signal Smaller Spending Boost.
Retail sales dropped more than forecast in September on a broad pullback in spending that indicates American consumers provided less of a boost for the economy in the third quarter.

The 0.3 percent decrease followed a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed today in Washington. Sales fell at auto dealers, furniture stores, building-supply outlets and clothing merchants. The median forecast in a Bloomberg survey of economists called for a 0.1 percent drop.

“The fact that real wages and salaries haven’t picked up that dramatically, it puts a ceiling on how much spending can accelerate,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “It seems like relatively widespread softness in spending. The pickup in consumption that we’re all waiting for hasn’t quite taken off yet.” Slower Store Openings

Reuters reports Wal-Mart to Slow Store Openings, Invest More in Ecommerce
Wal-Mart Stores, the world's largest retailer, said on Wednesday it would open fewer stores in the U.S. in the next fiscal year and ramp up spending on e-commerce.

The retailer will open 180-200 of its small format stores, called Neighborhood Markets, in the next fiscal year through January 2016, Greg Foran, head of the U.S. business, told a meeting of investors and analysts. That compares with its plan to open 270-300 of the small format stores in the current fiscal year.

Foran said Wal-Mart would open 60-70 Supercenters, its large format store, in the next fiscal year, compared with a plan for 115 openings, including conversions, this year.Fewer Stores, Less Hiring

Fewer stores means less construction and less hiring. The former is transitory, the latter more lasting. If this is the trend at Wal-Mart, can Target and other retailers be that far behind?

If so, what does that say about trucking growth to stock the stores, and truckers eating at restaurants along the way? Of course, one also needs to consider the long-term growth aspects of trucking in general.

With trucking in mind, please consider RoboTrucks from Mercedes-Benz to Hit US Highways Within 10 Years; Mish Supply Chain Proposal.

Bleak Outlook for Sales and Profit

Here's a story that really caught my eye: Wal-Mart offers bleaker outlook for sales and profit growth.
Wal-Mart Stores Inc., facing a retail slump and a decline in traffic to big-box chains, cut its annual sales forecast and predicted slower profit growth over the next three years.

Sales will rise 2% to 3% this fiscal year, the Bentonville, Ark., company said Wednesday at its annual meeting with analysts. Wal-Mart had previously projected growth of 3% to 5%, though it indicated in February that it expected to come in at the low end of that forecast.

Chief Executive Doug McMillon is trying to reignite growth at a company hampered by shaky retail spending and slow shopper foot traffic. Wal-Mart's same-store sales — an industry benchmark of health — haven't risen in six quarters. To bounce back, the company is opening fewer big-box locations, focusing instead on smaller neighborhood stores and its e-commerce site.

The 47-year-old executive, who took charge of the company in February, said he sees plenty of room for improvement when visiting Wal-Mart stores on surprise visits. McMillon said stores need to boost in-stock levels — a measure of the merchandise available on shelves for customers to buy. They also should address long checkout lines and improve staffing by increasing the number of worker hours. Margins Set to Plunge

If CEO Doug McMillon is indeed concerned about stock levels and long checkout lines, then he has to commit to more inventory in spite of missed sales targets. More importantly, he will have to hire more employees if he wants to shrink checkout lines.

The latter is good news for hiring, but horrid news for profit margins. Moreover, extra hiring news is balanced by a cutback in store growth.

It is easy to spin the hiring news however one wants. However, stock market levels are more than a bit inflated vs. overall earnings and margin projections.

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

Pain Trade, Treasury Bears, Margin Calls

czw., 16/10/2014 - 07:38
I have been warning US treasury bears for quite some time, but I now wonder if we have seen a bit of short-term capitulation.

Before discussing further, let's first look at a Mish Mailbag.

Reader Rob writes ...
Hi Mish

I was thinking that margin calls would be made after today and could pull the market down further by Friday. Do you think margin calls would be made to any degree yet?

Also your article Stock Buybacks Peaked With Stock Market in 2007: History About to Repeat? would be a great post on Business Insider.

Thanks, RobBond Market vs. Equities

Generally I stay away from short-term prognosis. As for equities, all I can offer is general advice: Huge plunges do not happen in overbought conditions, but rather oversold conditions.

Even so, the tendency is to bounce not plunge. Are equity dip buyers about to give up? I don't know, but nor does anyone else (but when it happens the plunge is likely to be spectacular).

To me the bond market is far more interesting. I am on record as a treasury bull in belief the US economy is far weaker than most think. My position changes from time to time, and perhaps yields are at a short-term bottom.

A few charts may help explain.

$TYX 30-Year Treasuries



From top to bottom yield on the 30-year treasury went from 2.935% to 2.677%, a swing of 25.8 basis points. That's an enormous move.

$TNX 10-Year Treasuries



From top to bottom yield on the 10-year treasury went from 2.169% to 1.868%, a swing of 30.1 basis points. That's an even bigger move.

In both cases, yields traded well off the lows.

While the same can be said in equities, I have a lot more faith in the bond market (despite Fed manipulations).

Simply put, the bond market does not believe the recovery story and neither do I.

Pain Trade

Bloomberg reports Biggest Pain Trade Gives 37% Loss to Bond Bears Getting It Wrong.
What a dismal time for bond traders who were optimistic about growth.

Investors who poured more than $1 billion this year into a $3.8 billion leveraged exchange-traded fund that bets against long-dated U.S. Treasuries are suffering a 10.7 percent loss this month alone, Bloomberg data show. The fund is down 36.5 percent this year, a small window into the magnitude of pain in a market where many traders have been wagering debt prices would fall.

Treasuries have defied predictions across Wall Street for higher yields all year, and yesterday’s move is sending bond bears into a tailspin. Yields on 10-year Treasuries fell the most since March 2009, trading below 2 percent for the first time since June 2013 as a decline in retail sales prompted traders to reduce wagers the Federal Reserve will start raising interest rates next year.

The move is in part driven by traders covering their short bets, according to Jack Flaherty, an investment manager at GAM USA Inc. in New York.

Primary dealers had the biggest short position on benchmark government notes at the beginning of the month since June 2013. They had a net $20.7 billion wager against notes maturing in the seven-to-eleven year range in the week ended Oct. 1, Fed data show.

We keep thinking we’re getting capitulation trades, but clearly there’s a lot more skeletons in the closet than we thought,” Ira Jersey, an interest-rate strategist at Credit Suisse Group AG (CSGN) in New York, wrote in an e-mail. “We’re also seeing more flight to quality buyers out of global asset classes that are considered ‘riskier.’”  Economic News, Not Ebola

Bloomberg has the story right: There's a lot of hidden skeletons.

In contrast, CNN blamed the stock market decline on ebola. (See Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering; Where's the Common Sense?)

Where to Now

Where to from here? I found treasuries attractive at the beginning of the year, and I also mentioned them at a Casey Conference presentation I made in September.

Long-term treasuries are no longer the value they were then, but that does not make them a short. Convince me a recovery is coming and the Fed will hike and I will change my tune.

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

Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering; Where's the Common Sense?

czw., 16/10/2014 - 04:44
Ebola Fearmongering

I seldom watch TV. But today I am on the road and watched CNN from a restaurant. I did not have sound, but I did see captions.

CNN's headline story was ridiculous. CNN placed the blame for the intraday DOW plunge of 460 point on ebola.

There was no mention of the 21-Point Plunge in Empire State manufacturing Index. Nor was there any mention of weak consumer spending.

What about PEs in the stratosphere? No mention of course. (For discussion, please see Stock Buybacks Peaked With Stock Market in 2007: History About to Repeat?)

Instead, CNN assumed the DOW plunge was based on ebola.

Obama's Lame Response

Fear is in the air, and it's easy to assign blame. A few simple questions will help explain.

  1. Is there a chance of spreading the disease by coughing or sneezing? Yes.
  2. Would I want to sit on a plane next to someone who was in contact with an ebola patient? No, and neither would anyone else.
  3. Would I want to sit on a plane next to someone from a country where ebola is viral? No, and neither would anyone else.

To stop the spread of the disease and the accompanying panic, I have a fourth question:

Why isn't there a flight ban on those from Guinea, Liberia, and Sierra Leone (and every other country where there is a major outbreak)?

Instead, we take temperatures even though the incubation period is as long as three weeks.

To top it off, today we learn 2nd Texas Worker with Ebola Took Flight With Elevated Temperature, and the Center for Disease Control OK'd the flight.
New shortcomings emerged Wednesday in the nation’s response to the Ebola virus after it was revealed that a second nurse was infected with Ebola at a hospital here and that she had traveled on a commercial flight the day before she showed symptoms of the disease.

The nurse, Amber Joy Vinson, 29, was on the medical team that cared for the Ebola victim Thomas Eric Duncan after he was admitted to the hospital on Sept. 28 and put in isolation. Vinson should not have traveled on a commercial flight, federal health officials said, when she boarded Frontier Airlines Flight 1143 on Monday, en route from Cleveland to Dallas-Fort Worth.

One official said Vinson had called federal health officials before boarding the plane to report having a slightly elevated temperature but was allowed to fly.Second Texas Nurse with Ebola Transferred to Special Facility

The Guardian reports Second Texas Nurse with Ebola Transferred to Special Facility.
Concerns over US response intensify after reports say the nurse told the CDC that she had a fever but was still allowed to fly.The second nurse diagnosed with Ebola in Texas is to be transferred from Dallas to a special bio-containment unit in Atlanta, officials announced on Wednesday, as they acknowledged failings in the response to the arrival of the virus in the US.

The Centers for Disease Control and Prevention (CDC) also said that the 29-year-old nurse, Amber Vinson, flew on a commercial flight from Cleveland, Ohio to Dallas with a low-grade temperature a day before she was diagnosed. While in Ohio, she also reportedly travelled from Cleveland to Akron.

Concerns about the US response to the crisis intensified on Wednesday night when it was reported that Vinson told the CDC that she had a slight fever before she boarded the flight but was not told to stay put.

Vinson is the second healthcare worker to have contracted Ebola at Texas Health Presbyterian hospital in Dallas, which treated Thomas Eric Duncan, a Liberian who was the first patient in the US to be diagnosed with Ebola. Another nurse, 26-year-old Nina Pham, was diagnosed at the weekend. Both had cared for Duncan, who died in an isolation ward on 8 October.

The second infection called into question the Dallas hospital’s ability to protect staff treating Ebola patients, and raised concerns about the quality of the initial response to Duncan’s diagnosis by state and federal agencies.

Dr Tom Frieden, the CDC director, conceded on Wednesday that Vinson should not have been allowed to take the flights to Ohio. “We will, from this moment forward, ensure that no other individual who is being monitored for exposure undergoes travel in any way other than controlled movement,” Frieden said.

According to Frieden, the two nurses who contracted Ebola in Dallas had “extensive” contact with Duncan in the days before he was diagnosed, when he was extremely ill, excreting large quantities of highly contagious body fluids. Protocols? What Protocols?

“Were protocols breached? The nurses say there were no protocols,” said National Nurses United Co-President Deborah Burger in a call with reporters Wednesday.

Is the US attempting to contain the disease or not?

In typical US fashion, no one can come up with proper protocols until after panic sets in.

Texas governor Rick Perry cut short a trip to Europe to deal with the ebola crisis in Texas, and President Obama cancelled a campaign trip to deal with the outbreak.

Where's the Common Sense?

In response to McCain Calls for Ground Troops in Syria and an Ebola Czar; Secret Friends a couple of people claimed I was overly downplaying the risk of ebola.

I plead not guilty. Before these latest incidents, I emailed there should be flight bans and procedures to stop the risk of spreading (and that was always my expectation).

What I did not see (but easily could have) was the totally inept response from this administration.

However, even Obama now realizes the situation is serious. He must, because he cancelled a campaign fundraiser. What can possibly be more serious than that?

So, rest assured, unless ebola quickly mutates, the odds of a massive outbreak in the US is extremely unlikely (provided of course common-sense protocols are finally adopted).

Will Common Sense Finally Prevail?

Well, not quite. I actually expect the underwhelming response so far will go overboard in the other direction by orders of magnitude.

Here's an easy prediction: This will culminate with a claim from Obama that he saved us all from ebola.

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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