Mish's Global Economic Trend Analysis

Greek 1-Year Bond Yield Hits 1,006%

noreply@blogger.com (Mike Mish Shedlock) — Tue, 06 Mar 2012 01:28:00 +0000

As a matter of curiosity more than anything else, I occasionally take a peek at Greek bond yields. Today, the Greek 1-year yield topped 1,000% for the first time.

The following chart courtesy of Bloomberg.

To be specific, the yield is a nice 1,066.661%

That yield reflects the idea that 1-year bonds will be nearly worthless before the month is over.

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

Report Shows Netherlands Would Benefit by Leaving Eurozone; Country by Country Aggregate Costs; Dutch Freedom Party Wants Euro Exit Referendum; Critical Juncture for Eurozone

noreply@blogger.com (Mike Mish Shedlock) — Mon, 05 Mar 2012 22:50:00 +0000

Report Shows Netherlands Would Benefit by Leaving Eurozone

Inquiring minds are reading a 73 page detailed report The Netherlands & The Euro that explains country by country why Italy, Greece, Portugal, and Spain are going to need lots more money, and the Netherlands and Germany will end up footing the bill.

The study highlights the fundamental flaws of the Economic and Monetary Union (EMU), the damage done by the euro to date to the Netherlands, and the potential costs down the road. The report conclusion is Netherlands should exit the EMU.

Here are some snips from the report regarding the finances of Italy, Spain, and Portugal.

Italian Projections

It cannot be assumed that roll-over of existing debt as it matures can be done with private lenders, as in the past. Italy has virtually zero real growth, and interest rates that, at 6% or so, are 4-5% ahead of likely future inflation. A government debt burden well over 100% of GDP in a country whose real interest rate exceeds its real growth rate by 4% or more is theoretically unsustainable. The debt ratio is almost certain to mount indefinitely. In this context, it is realistic to analyse a scenario in which financial markets conclude that Italy has slipped into the “Greek trap”. In that case, official Eurozone financing will be needed not just for the budget deficit, but to refinance maturing debt as well. This would be a major added burden, as Italy’s maturities are €305 billion in 2012, €175 billion in 2013, and €140 billion in 2014 and 2015, before falling below €100 billion a year. In this scenario, financing Italy within the Eurozone could quadruple in cost to a five-year average of €250 billion a year.

All of the above highlights the risk that Italy’s debt will increase its net ratio to GDP from 100%. But the SGP, Maastricht criteria, and recent pact to “save” the euro, all require that Italy reduce its gross debt ratio to 60% of GDP or less. Clearly there is not the slightest chance of this within decades, unless Italy quits the euro and inflation rises. The setting of this target is fantasy – the 60% number is arbitrary, relating to no rational (or achievable) objective, though for Italy in the euro, with negligible potential nominal growth, the sustainable limit of government debt is clearly far below the current level.

Spanish Projections

Portugal is in desperate trouble – well beyond rescue, with business net debts at 16 times net cash flow – and Spain, and possibly France, in serious trouble: their ratios of around 12 times net cash flow being about that of Japan in 1996 that was followed by six years of zero growth. The analysis here will focus on Spain, its grim conclusions simply being grimmer for Portugal. French risks will be seen to be less.

The Spanish government has actively pursued a tighter fiscal stance, in line with the current Eurozone insistence on austerity. It is likely to prove counter-productive. Unemployment has already mounted from 8% in late 2007 to over 20%. The government’s GDP estimates have ceased to be credible, registering a real decline of just under 5% in the recession, with negligible recovery since. It is highly improbable that such a recession, less than that of the US, Germany or Britain, would lead to a 12 percentage-point rise in unemployment, even with the lay-off of masses of low-productivity casual construction labour, much of it migrants from eastern Europe. But, as elsewhere, denial followed by bluff has been the standard Eurozone response to critics throughout the crisis. Almost certainly, the true fall in GDP has been much greater.

Spain’s business finances, in the context of austerity, are caught in the same vice as Italy’s government finances. As long as they stay in the Euro, austerity is worsening, not reducing, the debt problem. The only solution to these debt problems is growth, and that is precisely what the Berlin-Brussels-Paris political élite is ensuring will not happen.

The risk, obviously, is to the Spanish banking system. Even after Japan’s six-year “drying-out” period, its banks had to undergo a substantial debt write-down in early 2003 (8% of GDP) before economic recovery became sound. In Spain, it is unlikely that exaggerated asset values – especially in real estate, but also in business generally – can withstand the coming economic downswing. Once they start to tumble, the call on the government to bail out the banks could cause its debt to soar. This is like Ireland a couple of years ago, when it dealt with the business debt problem, so that government debt, which has soared, now accommodates the business debt excesses of the boom. A recession in Spain now probably implies serious debt service problems in business, asset liquidation leading to falling asset prices, and major bank write-offs requiring government recapitalisation. There is a major danger that current austerity policies will lead straight to depression.

Portugal Projections

Portugal will probably be out of the EMU quickly if Greece goes, and this will bring the focus onto the two large Med-Europe countries, Italy and Spain, of which Italy will probably be “next up”. The debt crises of Ireland, Portugal and Spain (in order of overall debt/GDP ratio, all of them with a higher ratio than Greece or Italy) lie in the private sector, and are therefore “slowburn”.

In Portugal, where the chief export market is potentially recessionary Spain, where cost competitiveness is worse than Spain, and the business debt burden much higher at 16 times net cash flow, as is government debt relative to GDP, the private sector is actually still in deficit – the current-account deficit is larger than the budget deficit.

It is almost impossible to see how Portugal can avoid a crash. It is a poorer country than Greece, so the Franco-German decision to insist on no further government debt write-offs after Greece means the country is likely to be returned to penury – having in any case had very little growth since it joined the euro at its inception.

In this projection of Portuguese financial needs, the assumption is that coping with the extremity of business debt ratios creates a crisis that requires the write-off of existing debt over three years, as in Greece above. The projected government debt of zero in 2015 is therefore fictitious in the sense that the existing debt will have been replaced by a large volume of government debt to finance a banking recapitalisation. This could be substantially larger than Ireland’s 2010 31% of GDP, as Portugal’s business debt is larger than Ireland’s was. Portugal’s future debt capacity will be extremely low, as it has negligible potential growth and, assuming it stays in the euro, no inflation either – yet market interest rates are likely to be quite high.

Austerity + Subsidy – Not a Cure

In summary terms, curing a country’s excessive debt problem requires one (or more) of the three ‘de’s: devaluation, default or deflation. The Eurozone has ruled out the first two – and adopting the third seems likely to achieve a fourth ‘de’: depression.

With unchanged Eurozone membership, the only method of adjusting costs and prices in Med-Europe to be competitive without extreme and constantly reinforced austerity, leading to depression, would be stimulation of rapid inflation in The Netherlands and Germany for a decade or two; and acceptance over that adjustment period of large fiscal subsidy payments to the deficit countries – not loans to be repaid later, but unrequited transfers. Such transfers are already happening through banking systems being subsidised by access to the ECB’s repo “window” to finance themselves at interest rates well below those paid by their own governments

The danger for The Netherlands is that the potential for subsidy needed by Med-Europe is open-ended. All official scenarios are based on a rapid reversion to recovery, both in Eurozone economies and financial markets. Official scenarios never anticipate recession or financial crisis. This is part of the problem. The imbalances that are poisoning the Eurozone economies cannot be acknowledged because their cure, once they are acknowledged, clearly requires major exits from the euro, or its disbandment. Unacknowledged, they remain unaddressed, so continued financial deterioration is likely, unless the core Eurozone countries step in and provide the continuing subsidies outlined above.

Aggregate Potential Costs of Current EMU Membership

Dutch Freedom Party Wants Euro Exit Referendum

Bloomberg reports Dutch Freedom Party Wants Euro Exit Referendum

The Dutch Freedom party wants voters in the Netherlands to decide in a referendum whether the country should return to the guilder, De Telegraaf reported today, citing an interview with party leader Geert Wilders.

The Freedom Party hired Lombard Street Research to investigate the cost of maintaining the Euro zone and alternative scenarios if countries elect to leave, according to a statement by London-based FTI Consulting. The report will be presented in The Hague on March 5.

How Significant is the Dutch Freedom Party?

Inquiring minds may be wondering how big and influential the Dutch Partij voor de Vrijheid (‘PVV’, the Party for Freedom) might be. It's a good question, too. The short answer is the PVV is a critical part of the coalition holding the Netherlands government together.

Reuters explains in commentary from November, Analysis: Populists exploit euro zone crisis to gain influence

In the Netherlands, eurosceptic politician Geert Wilders is staging a campaign which could push the minority government to the brink of collapse after barely a year in power.

Last week, Wilders proposed that the Netherlands should hold a referendum on whether to ditch the euro and embrace the Dutch guilder again, pending a study of the long-term economic costs.

The government relies on the support of Wilders's Freedom Party (PVV), even though it is not in the ruling coalition.

PVV won the third-largest number of seats in parliament in elections last year, mainly because of its tough stance on immigration and Islam. It has a pact with the coalition of Liberals (VVD) and Christian Democrats (CDA), giving the pro-euro government the majority it needs to pass legislation.

Wilders denies he wants to bring down the government over the euro but he is playing up a split on a major issue between the coalition and the party on which it relies for survival.

"The euro and Europe is the key element of our foreign policy. How can we have a split between VVD-CDA who strongly support Europe, and PVV? This is the most dangerous issue for our cabinet," Eijffinger told Reuters.

"If you disagree on such enormously important issues then it becomes harder and harder to avoid accidents. At a certain moment it will accelerate."
The Freedom Party has become the second-most popular party in Dutch opinion polls, mainly because it opposes the costly bailouts of the euro zone's heavily indebted members.

By proposing a referendum, Wilders has heightened tensions between his party and the government. The euro zone debt crisis has already toppled several governments and now threatens to engulf Dutch Prime Minister Mark Rutte.

Rutte has shot down the idea of quitting the euro, saying it would be disastrous for the export-oriented Dutch economy.

But his government has been criticized for supporting bailouts of countries such as Ireland and Portugal, and a stability fund intended for future rescues as the euro zone debt crisis spreads like wildfire to bigger economies like Italy.

Opinion polls suggest many Dutch still hanker for the guilder, and resent having to pay for Europe's more profligate members, particularly while the Dutch government is cutting spending on healthcare, education, and social security benefits.

A poll at the weekend found 32 percent favored quitting the euro, 60 percent were against leaving, and 43 percent wanted a referendum on whether to return to the guilder. Another poll found that a majority wished the country had stuck with the guilder.

With elections due in 2013, Austria's Freedom Party is neck and neck with the governing Social Democrats and ahead of the conservative People's Party, the junior party in the coalition.

"Now even Paris and Berlin are thinking about splitting up the euro zone. We in the Freedom Party suggested this at the start of the euro crisis because in truth it is the only correct solution. This is the only way to save Europe," Strache said.

In an interview with the newspaper Oesterreich in May, he warned: "We have to get out of the euro before it plunges us into the abyss. We need a new currency along with other strong-currency countries."

Critical Juncture for Eurozone

This new report could very well topple the government of Dutch Prime Minister Mark Rutte. Put that bit of news together with the fact that French Presidential candidate wants to redo portions of the just signed "Merkozy" treaty. Polls show French president Nicolas Sarkozy will not survive the next set of elections.

German chancellor Angela Merkel is rapidly losing support as well. Ironically, the breakup of Merkel's coalition might be to a coalition wanting to lend still more support the nanny-zone.

Regardless, the net effect of the demise of the governments of Germany, France, and the Netherlands would be for far more feuding, adding to the overall pressure for a eurozone breakup.

The eurozone is at a critical juncture now. If governments in the Netherlands, Germany, and France collapse, and I think they will, the eurozone could be nearing the inevitable breakup stage already.

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

Eurozone Services and Composite PMI Back in Contraction; Italy, Spain, France at New Lows

noreply@blogger.com (Mike Mish Shedlock) — Mon, 05 Mar 2012 18:58:00 +0000

Markit Eurozone Services and Composite PMIs show renewed contraction due to drop in services activity, making it extremely difficult to deny that Europe is in a recession. Let's take a look at some numbers.

Markit Eurozone Composite PMI®

The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.3 in February, dropping below the earlier flash estimate of 49.7. The final reading confirmed that business activity contracted in February, having briefly returned to growth in January following four months of decline at the end of last year.

Key points:

Final data confirm slide back into contraction, as drop in services activity offsets marginal rise in manufacturing output

Strong downturns still evident in Italy and Spain

Employment and prices charged fall as firms seek to cut costs and win new sales

Markit Eurozone Services PMI®

Service sector weakness poses new recession risk

Key points:

Service sector activity contracts for fifth time in six months

Ongoing fall in new business leads to job losses

Growth in Germany contrasts with steeper declines in Italy and Spain

Business confidence hits seven-month high

Of the four largest euro countries, only Germany showed expansion in February, and the rate of growth slowed from January’s seven-month high. The French service sector stagnated, ending a two-month period of mild expansion. Both Spain and Italy registered steep contractions, with the rates of decline gathering momentum in both cases.

Nations ranked by business activity (February)

Ireland 53.3 12-month high

Germany 52.8 2-month low

France 50.0 3-month low

Italy 44.1 4-month low

Spain 41.9 3-month low

Spanish service providers reported a further particularly steep drop in payroll numbers, and employment also fell sharply in Italy’s service sector. French headcounts rose only slightly, while services employment growth in Germany slowed to the weakest since June 2010.

Companies frequently sought to boost sales by cutting prices, and average prices charged for services fell for the fifth time in the past six months as a result. Price trends varied markedly by country, however, ranging from ongoing upward pressure in Germany to steep falls in Spain and, to a lesser extent, Italy. France registered a slight fall in prices charged for services, reflecting the stagnation of new business flows in February.

In contrast to the trend for charges levied by service providers, input prices in the sector rose for the twenty-seventh straight month, pushed up in many instances by higher fuel and energy prices.

Profit Squeeze

Note that prices received fell for the fifth month in six, but prices paid rose for the twenty-seventh straight month.

Let's take a look at the second biggest economy, France, to see what is coming up.

Markit France Services PMI®

French service sector output stagnates in February, despite rise in new business.

Key points:

Final Markit France Services Activity Index(1) at 50.0 (52.3 in January), 3-month low.

Final Markit France Composite Output Index(2) at 50.2 (51.2 in January), 2-month low.

Recent growth of French service sector output slowed to a halt in February, as activity levels stagnated. This was despite a marginal rise in new work intakes, with poor weather impeding output. Nonetheless, backlogs of work declined again, albeit only slightly. A mild increase in staffing levels was indicated. Future expectations strengthened markedly in February, albeit remaining below the long-run series trend. Meanwhile, strong competition led to a further reduction in output prices despite solid input cost inflation.

Spain is in an economic depression as are Greece and Portugal. Italy is not in a depression but it is a basket case as shown by the business activity above.

See that positive GDP in the France chart? Don't expect it to last because it won't.

Moreover, austerity measures across the board coupled with a slowdown in Asia strongly indicate the vaunted German export machine is about to break down as well.

The European recession will be both long and deep.

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

Disingenuous Recession Explanations from ECRI Regarding Coincident Indicators; An Email Response From ECRI; Does the ECRI Even Believe Its Own Indicators?

noreply@blogger.com (Mike Mish Shedlock) — Mon, 05 Mar 2012 09:13:00 +0000

Late last month in ECRI Sticks with Recession Call on CNBC; More than a Bit of an Exaggeration by Achuthan to Make His Call? I questioned the ECRI's use of coincident indicators to make a claim regarding recession

I count three instances between 1990 and 2000 where ECRI coincident indicators flagged a recession by the methodology Achuthan cited.

I have numerous other problems historically with ECRI claims, including their alleged "perfect" track record. Please see A Look at ECRI's Recession Predicting Track Record for details.

This time, I happen to think Achuthan has very valid points. However, once again, Achuthan has a hard time articulating them in a purely factual manner in spite of the fact he is clearly bright and articulate.

Email Response From ECRI

In response to that article, reader "Art" sent an email to the ECRI and received this email back from Melinda Hubman, ECRI Managing Director, Operations.

Hi Art,

Actually, it is incorrect to say that the U.S. Coincident Index (USCI) year-over-year growth rate dropped even more in ~91, 95 & 98 and no recession followed.

We have attached an Excel file showing the straightforward calculations, based on the USCI data available from ECRI’s website (http://www.businesscycle.com/reports_indexes/allindexes).

The latest USCI growth rate is 1.94% (which can be rounded off to 1.9%). In January 1996, it had dropped only to 2.06% (which can be rounded off to 2.1%). This was certainly not below current readings. Of course, no recession followed.

In 1998, the USCI growth came nowhere near current readings, so the question doesn’t arise. It wasn’t until January 2001 that it fell below 2%, and the recession began two months later.

The attached worksheet marks all months when USCI growth, rounded off to one decimal place, fell to 2.1% (marked in blue) or to 2.0% or below (marked in red).

If you look at all the occasions in the last 50-plus years when USCI growth fell to 2.0% or below (marked in red), it is clear that recessions began around those dates (obviously, we don’t include the occasions when USCI growth had risen through 2.0% following the recessions).

In sum, it is precisely accurate to claim that y-o-y USCI growth has never dropped to current readings in the past 50-plus years without a recession ensuing.

Kind regards,

Melinda Hubman
Managing Director, Operations
ECRI

Disingenuous Response

I am rather amazed at the disingenuous response from the ECRI.

The ECRI rounded down 1.94% to 1.9% then rounded up 2.06% to 2.1% to make their claim. Really! You cannot make this stuff up.

The ECRI sent an excel spreadsheet to reader Art, and I took that exact spreadsheet and created a chart from it. Here is my chart.

ECRI Year-Over-Year Percent Change in Coincident Indicators

click on chart for sharper image

Incredulous Defense

Somehow the ECRI wants us to believe that a year-over-year plunge in coincident indicators from 3.71% to 1.94% (a 1.77 percentage point drop in 15 months) is more important than the 1995-1996 plunge from 5.23% to 2.06% (a whopping 3.17 percentage point drop in 12 months).

I am not the only one in disbelief of this ridiculous position.

Georg Vrba, P.E. wrote a pair of articles on Advisor Perspectives on the subject.

Is There Something Magic About 2 Percent?

I want to continue the discussion with a point Vrba missed, specifically the "magic" 2 percent threshold.

Melinda Hubman, ECRI Managing Director, took great "rounding" pains to defend a dip below 2 percent as if a decline to 1.94 percent was significant but a far bigger percentage point decline to 2.06% was not.

Indeed.

Spotlight 2007

Please take a good look at that chart created using ECRI data, supplied by the ECRI. What I want you to focus on is the decline in March of 2006 from 3.76% to 1.80% in October of 2007, all the way to 1.05% in February of 2008.

Please consider this image clip from the November-December 2007 ECRI Outlook (now conveniently redirected by the ECRI to another spot).

Got that?

The ECRI in its November-December 2007 Outlook, in spite of that massive drop in coincident indicators, in spite of a recession that I believe should have been obvious, actually said "this weakness is not pronounced, pervasive and persistent enough to be recessionary"!

Coincident indicators did not appear to be a concern at all in 2007, now (out of the blue), they are paramount.

Saturday, January 05, 2008
ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation

"WLI growth is now at its worst reading since the 2001 recession. However, the WLI's recent decline is not based on pervasive weakness among its components, suggesting that a recession could still be averted," Achuthan said.

Somehow a recession that had already started could be avoided.

Friday, January 25, 2008
ECRI Says There Is A Window of Opportunity for the US Economy

The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession.

If we have a recession this year, it would turn out to be the most widely anticipated recession in history. Clearly, the pessimism of consumers and business managers could cause them to cut spending, creating a self- fulfilling recession prophecy. But there is another side to the story.

At turning points, a few months’ lag in policy action can be immensely costly. If it spells the difference between a recession and a soft landing, a couple of months’ delay can end up costing a couple of million jobs and couple of hundred extra basis points in rate cuts – and still not have the same effect. What a stitch in time can accomplish early in a down cycle cannot be achieved, even with far more aggressive action, a few months down the road. At best, forceful but delayed action can mitigate the severity of a recession.

Amazingly, in a recession that was now two months old, with coincident indicators all the way down to 1.05%, the ECRI saw a "Window of Opportunity" to avoid a recession.

What's even more amazing is the ECRI's discussion of a "soft landing"!

Friday, March 28, 2008
ECRI Calls it "A Recession of Choice"

The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession.

The bottom line is that the outcome was not pre-ordained. Policy-makers had a choice about the speed with which stimulus took effect. If they had understood this, their actions could indeed have averted this recessionary downturn.

ECRI Digs Deeper and Deeper Holes

At the end of March the ECRI was still in denial about the recession that was then four months old! Amazingly, the ECRI has the unmitigated gall to claim a perfect track record at predicting recessions.

By the way, according to the Excel spreadsheet sent to Art, the ECRI monthly coincident index was .62 on March 1, 2008 and .32 on April 1, 2008 (the ECRI having finally thrown in the towel just 4 days prior).

In attempting to defend the indefensible, and by attempting "mind over indicators" the ECRI has dug a hole that is impossible to get out of.

Does the ECRI Even Believe Its Own Indicators?

I have to ask a serious question. Does the ECRI even believe its own indicators?

If it does, then why did the ECRI refuse to see a recession in late 2007 that should have been blatantly obvious? If it does, then why all these contortions now?

The only explanation I can come up with is Achuthan and the ECRI form an opinion, then twist and turn past history to defend it.

In this case, the ECRI made extensive use of coincident indicators to make its point, having totally ignored coincident indicators in similar conditions as recently as 2007. When you do that, you miss things, serious things, as I pointed out above.

As a result, the ECRI looks ridiculous.

On Making Mistakes

Regardless of how it may look, I do not have anything against the ECRI per se. Everyone makes mistakes. I have made dozens and I will make dozens more. The only way to not make mistakes is to not predict anything. However, I do have problems with people twisting facts and making claims known to be inaccurate.

The problem the ECRI has is twofold.

Pretending they have a perfect track record when they don't
Twisting and contorting their own indicators to say what they want them to say

One can only get away with each of those for so long. Indeed, on point number two, I would have to say the ECRI's interpretation has been good enough, long, enough, to generally mask the problem.

However, repeated cover-ups eventually blowup in spectacular fashion, just as they have done now.

About That 2012 Recession Call

In spite of all the above, I happen to like the ECRI recession call. Yes, I am biased, but it is hard to find anyone who is not.

I was way early in 2006 when the yield curve inverted, and I was early again this time, but never emphatic as was economist David Rosenberg with his June 13, 2011 "99% chance of US recession by 2012"

To go out on a limb, I think GDP in 2012 is going to hugely surprise on the downside, and 1st Quarter GDP may be as low as zero to .5%. A negative number (or more likely a revised negative number) would not shock me in the least.

If so, there is still room for the ECRI to be correct. The ECRI needs (by its own admission) a recession by mid-year to be correct. It will be interesting to see how much they twist and turn a few months from now.

However, even if GDP tanks big time, the NBER (the official designator of recessions) may not acknowledge the recession for another six months to a year.

In general, delayed NBER calls explain why the ECRI can also get away with late calls. However, it fails to explain why the ECRI stuck its neck out so early this time. The most likely explanation is as described earlier: "mind over indicators".

I don't care that much, recognizing that perfection is simply impossible. However, it does pose a big problem to the ECRI because they pretend they are perfect even though facts prove otherwise.

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

Australia Services Index Plunges to Significant Contraction; Bleakest of Views From Retail Shops; Retail and Housing Bloodbath Coming Up

noreply@blogger.com (Mike Mish Shedlock) — Mon, 05 Mar 2012 01:54:00 +0000

Two more signs surfaced today that suggest Australia is headed for if not in recession.

Australia Services Index Plunges, Now in Contraction

Bloomberg reports Australian February Services Fall to Lowest in Almost a Year

Australia’s services industry declined in February to the lowest level in almost a year, driven by a drop in new orders as the gap between resources and other industries widens, a private survey showed.

The performance of services index sank to 46.7 last month from 51.9 in January, the weakest reading since March last year, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. Fifty is the dividing line between expansion and contraction.

Today’s report, based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.

Australia Service Index Components

Index sank to 46.7 from 51.9
Selling prices fell to 44.2 from 46.9
Employment measure slid to 47.5 from 51.2
Sales declined to 47.5 from 49.4
New orders plunged to 45.6 from 54.1
Wages indicator dipped to 57.7 from 57.8

This is nothing short of an absolute disaster. That wages have held up is not good news either. Think retailers or any other service industries will be hiring? If so, think again.

Bleakest of Views From Retail Shops

The Herald Sun comments on the Bleakest of views from the shopfronts.

THE Australian retail sector is in trouble like it's never been before. Not even in the dark days of the 1990 recession.

That should have been made blindingly clear when Woolworths, our biggest and most successful retail group, unveiled on Thursday its first drop in profit in nearly 20 years.

Yes, Woolies is getting out of electronics because it stuffed up with Dick Smith.

This story is repeated, with varying degrees of intensity, across all retail.

The casualty list is long and growing. From women's fashions - one of the mainstays of shopping - to housewares and home furnishings, to the big department stores.

Sales are struggling, profits are plunging, jobs are being slashed and names are disappearing from high streets and shopping centres.

The article concludes with complete economic drivel...

The numbers from the big listed retailers, such as Harvey Norman and David Jones, are ominous enough. We are not really seeing the havoc wreaked across small mum-and-dad retailing.

Lower interest rates would help, leaving more money in consumers' pockets.

That's why it's not wise to rule out further rate cuts, just because of the continued boom in the resources sector.

The jobs and spending from the boom, at least, put some floor under retail. But for the foreseeable future it's going to be good for shoppers.

Not so good for shopkeepers. Or the broader economy.

Retail and Housing Bloodbath Coming Up

There is so much misguided drivel in the article that I hardly know where to start.

Here is some nonsense about a shopper's sweet spot: "For shoppers, it's something of a sweet spot. They've never had it so good. The $100 you spend in a supermarket buys you about 5 per cent more in goods than it did a year ago."

Retail prices in Australia are absurd. A 5% reduction in prices is hardly a bargain. As for the notion mining will carry the economy, forget about it. Commodity prices are going to plunge, and besides, commodities are not a big driver of jobs anyway.

There is no "floor" under retail. The bottom is going to fall out, and unemployment is going to soar. In turn, rising unemployment will clobber Australia's already deep-in-trouble housing sector.

As for small shops, they are completely doomed. Store owners with little leeway on wages will not get the income they need to pay taxes, interest, utilities, and rent.

Expect an across the board retail and housing bloodbath because one is coming.

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

Ron Paul on Face the Nation Blasts Rush Limbaugh's Insincere Apology, Santorum's Fake Conservatism, Government Mandates; Rooting for Santorum; 10 Things That Should Be Clear

noreply@blogger.com (Mike Mish Shedlock) — Sun, 04 Mar 2012 23:27:00 +0000

Ron Paul was on Face the Nation today discussing Rush Limbaugh, Rick Santorum, and Government Mandates.

CBS News reports Paul: Limbaugh apologized for personal gain.

Republican presidential candidate Rep. Ron Paul said an apology by conservative talk radio host Rush Limbaugh to Georgetown Law student Sandra Fluke for calling her a "slut" and a "prostitute" was not sincere, and was made only because it best served Limbaugh.

"He's doing it because some people were taking their advertisements off of his program. It was his bottom line he was concerned about," Paul said.

Paul referred to three companies that pulled advertisements from Limbaugh's show following incendiary remarks Limbaugh made about Fluke for testifying before a mock Congressional committee in favor of free contraception insurance coverage at Georgetown, a Jesuit university. [One company's spokesman said that Limbaugh's comments "do not align [with] our values." Another pulled out "Due to continued inflammatory comments - along with valuable feedback from clients and team members" about the remarks.]

Although Paul disagreed with Limbaugh's remarks and called them "over the top," he said the government should not mandate that insurance companies provide contraception coverage.

"This is philosophically and politically important because, does the government have a mandate to tell insurance (companies) what to give?" Paul asked, and then responded to his own question: "So they're saying that the insurance companies should give everybody free birth control pill, that strikes me as rather odd."

Paul was specific in his attack against former Pennsylvania Senator Rick Santorum and his support (as Senator) for Planned Parenthood dollars in a government funding bill.

"He pretends to be the champion of social values," Paul told Schieffer. "That to me is rather bizarre, and that's why I call him a fake conservative."

Attack by Limbaugh Awakens a ‘Stop Rush’ Campaign

The New York Times reports Attack by Limbaugh Awakens a ‘Stop Rush’ Campaign

Some of the same activists that persuaded advertisers to boycott Glenn Beck’s television show on Fox News in 2009 are now mobilizing against Rush Limbaugh in the wake of his verbal attacks on a Georgetown University law school student this week.

Actually, they are remobilizing. A Twitter account, “Stop Rush,” which has been dormant since late 2010, woke up on Wednesday, when Mr. Limbaugh first called the student, Sandra Fluke, a “slut.”

On Friday, as complaints from “Stop Rush” and others about Mr. Limbaugh’s comments mounted, a handful of companies said that they had halted their advertising on “The Rush Limbaugh Show,” at least temporarily.

One of the companies, Quicken Loans, wrote on Twitter, “Due to continued inflammatory comments — along with valuable feedback from clients and team members — QL has suspended ads on Rush Limbaugh program.”

Two mattress companies, Sleep Train and Sleep Number, made similar statements on Friday. A representative of Sleep Number wrote on Twitter, “Recent comments by Rush Limbaugh do not align w/ our values, so we made decision to immediately suspend all advertising on that program.”

Limbaugh the Epitome of Everything Wrong With Republican Party

Rush Limbaugh and his ilk are the epitome of everything wrong with the Republican party. Limbaugh is a chickenhawk, a sexist, was fired from sports broadcasting for being a racist, was arrested on drug charges, and was addicted to pain killers.

Yet the blazing hypocrite stated "Drug use, some might say, is destroying this country. And we have laws against selling drugs, pushing drugs, using drugs, importing drugs. ... And so if people are violating the law by doing drugs, they ought to be accused and they ought to be convicted and they ought to be sent up."

Asinine talk might appeal to the far right, but the far right is not going to carry the day. Republicans need to be seeking the middle ground and independents. Divisive attacks on abortion, birth control pills, and refusal to consider military cuts are not going to win over independents.

Rooting for Santorum

New York Times columnist Joe Nocera says he is Rooting for Santorum.

I’m rooting for Rick Santorum to win the Republican nomination. Seriously.

You probably think that is because it would be the best possible outcome for President Obama. No doubt it would be. If Santorum were the Republican nominee for president, the independents disenchanted with Obama would come flocking back; their fear of Santorum’s unyielding brand of social conservatism would far outweigh their reservations about the incumbent president. A Santorum nomination would likely lead to an epic defeat, ranking with Richard Nixon’s 49-to-1 state landslide victory over George McGovern in 1972, or Ronald Reagan’s 49-to-1 state whipping of Walter Mondale 12 years later.

But it’s not the Democrats I’m really concerned with. It’s the Republicans. For more than a decade now, moderate Republicans have been an endangered species, either losing elections or choosing to retire in the face of a hard-line challenger.

During the McGovern-Mondale era, the Democrats were exactly where the Republicans are now: the party had been taken over by its most extreme liberal faction, and it had lost touch with the core concerns of the middle class, just as the Republicans have now.

One person who was drummed out is Lincoln Chafee, the governor of Rhode Island, a Republican turned independent. “I care about deficits,” he told me, “but, on social issues, I believe that people should have the right to make their own decisions.” As a result, he said, “I realized that there wasn’t any room in the Republican Party for me.”

When I asked him what it would take to change the Republican Party, he had a quick answer: “What it usually takes is a good drubbing at election time.”

If Mitt Romney takes the nomination and then loses to Obama, the extremists who’ve taken over the party will surely say the problem was Romney’s lack of ideological purity. If, however, Santorum is the nominee — and then loses in a landslide — the party will no longer be able to delude itself about where its ideological rigidity has taken it.

An alcoholic doesn’t stop drinking until he hits bottom. The Republican Party won’t change until it hits bottom. Only Santorum offers that possibility.

The Republican party needs to get rid of the extreme right-wingers like Limbaugh and Santorum, the phonies like Mitt Romney, and the war-mongers like McCain. If they did, they could hold the center for decades (assuming there was anything left of the party).

10 Things That Should Be Clear

It should be clear by now that cutting taxes and spending more money will not shrink the budget.
It should be clear by now the US cannot afford to have troops in 140 countries
It should be clear by now that wars are expensive and we cannot afford more of them
It should be clear by now that some bargaining is needed to bring the deficit under control
It should be clear by now that some tax hikes coupled with genuine structural reforms to rein in collective bargaining of public unions would be a good idea
It should be clear by now that republicans need independents and the center to win
It should be clear by now that the war on drugs cannot be won, should not be fought, and US prisons are overloaded at great expense as a result
It should be clear we need less government on social issues, on drugs, on war-mongering, on taxes, on education, on spending, on everything, not just half of everything along party lines.
It should be clear that Mitt Romney, Rick Santorum, and Rush Limbaugh are not the future of the Republican party
It should be clear Republicans risk losing to a very weak, unpopular Democrat president in the midst of economic uncertainty and miserably high unemployment rates

Those things should be clear but obviously they are not. Perhaps a Democrat landslide is what it takes to make the case clear.

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

Super Tuesday Delegate Rules and Preview; Brokered Convention Revised Math

noreply@blogger.com (Mike Mish Shedlock) — Sun, 04 Mar 2012 09:55:00 +0000

On Monday February 27, I laid out the Mathematical Case for Brokered Convention. Since then, Michigan, Wyoming, and Washington have posted results. The table below reflects those results.

I made additional changes to my super Tuesday estimates based on new information regarding delegate rules. For example, many states have minimum percentages to receive any delegates and this favors Mitt Romney and Rick Santorum except in Georgia where rules heavily favor Gingrich.

Finally, the LA times and Krem have posted different explanations for how the Idaho caucus works. There are now three possible scenarios for Idaho in play (depending on which explanation is correct).

Totals through March 3 in the table below are from Real Clear Politics 2012 Republican Delegates.

March 6 Super Tuesday numbers are my estimates.

State	Primary	Count	Romney	Santorum	Gingrich	Paul
Total to Date	-	374	166	72	33	29
Iowa	Jan 3	28	6	7	0	0
New Hampshire	Jan 10	12*	7	0	0	3
South Carolina	Jan 21	25	2	0	23	0
Florida	Jan 31	50*	50	0	0	0
Nevada	Feb 4	28	14	3	6	5
Minnesota **	Feb 7	40	2	17	1	4
Colorado **	Feb 7	36	9	17	2	1
Maine **	Feb 11	24	9	3	0	7
Michigan	Feb 28	30*	16	14	0	0
Arizona	Feb 28	29	29	0	0	0
Wyoming **	Feb 29	29	10	8	1	6
Washington **	Mar 3	43	12	3	0	3
Georgia	Mar 6	76	24	6	46	0
Ohio	Mar 6	66	36	30	0	0
Tennessee	Mar 6	58	20	38	0	0
Virginia	Mar 6	49	49	0	0	0
Oklahoma	Mar 6	43	12	21	10	0
Massachusetts	Mar 6	41	38	3	0	0
Idaho **	Mar 6	32	18	0	0	14
North Dakota	Mar 6	28	8	7	6	7
Alaska	Mar 6	27	10	11	3	3
Vermont	Mar 6	17	15	2	0	0
Super Tuesday Est	Mar 6	811	396	190	131	53

* States penalized half of their delegates.
** Not all delegates assigned, or assigned to candidates who have dropped out
*** Idaho Rules are in Question. See explanation below.

Thru Super-Tuesday (If Idaho Splits)
Romney: 396
Santorum + Gingrich + Paul: 374
Other: 41

Thru Super-Tuesday (If Idaho Goes to Paul)
Romney: 378
Santorum + Gingrich + Paul: 392
Other: 41

Thru Super-Tuesday (If Idaho Goes to Romney)
Romney: 410
Santorum + Gingrich + Paul: 360
Other: 41

As you can see there is a decent-sized swing in play for Idaho, depending on the exact caucus rules. Even assuming Romney wins 100% of the Idaho delegates, he would still have barely over 50% of the delegates to date. However, that would probably, but not necessarily be enough as he would pick up some of those 41 and he rates to do reasonably well in California.

Nonetheless, even if Romney does as outlined above, the possibility for a brokered convention still exists. If Romney does worse than expected on Super Tuesday, it's a whole new ball game. It would also be a whole new ballgame if Romney were to do poorly in California, or split the delegates three ways here on out.

Super Tuesday Delegate Rules, Preview, Estimates

The rules for each primary are from the LA Times article Super Tuesday 2012: What's at stake and who's in the lead

Except where noted, polls are from Real Clear Politics Super Tuesday Poll.

GEORGIA PRIMARY
Delegates at stake: 76
How it works: 34 delegates will be awarded proportionally to any candidate receiving more than 20% of the statewide vote. The winner in each of the state's 14 congressional districts will earn another two delegates, and the second-place finisher will win one, unless one candidate wins more than 50% in a district.

Georgia Predictions
Gingrich wins all 14 districts for 28
Romney comes in second in all 14 districts for 14
Gingrich gets 52% of 34 for 18
Romney gets 28% of 34 for 10
Santorum gets 20% of 34 for 6

Totals
Gingrich: 46
Romney: 24
Santorum: 6
Paul: 0

OHIO PRIMARY
Delegates at stake: 66
How it works: 15 delegates will be awarded on a proportional basis to any candidate receiving more than 20% of the statewide vote. If a candidate has more than 50%, though, he wins all 15. Another three delegates will be awarded to the winner in each of the state's 16 congressional districts.
In both cases, voters are electing delegates who have pledged to vote for a presidential nominee. Santorum, it should be noted, did not file delegate lists in all of the congressional districts.
The final three delegates are the elected state party leaders.

Santorum is not on the ballot in 3 of 13 districts.
See Family of three GOP delegates gets Santorum on ballot in an Ohio district for an explanation.

Ohio Predictions
Of the 15 at-large

Romney: 7
Santorum: 8

Of 16 Districts
Romney wins 3 by default and 6 contested for 27 delegates
Santorum wins 7 contested for 21 delegates

State Party Leaders give Romney 2, Santorum 1

Totals
Romney: 36
Santorum: 30

TENNESSEE PRIMARY
Delegates at stake: 58
How it works: 28 delegates will be awarded on a proportional basis to any candidate receiving more than 20% of the statewide vote. If one candidate has more than 66% of the vote, he wins all 28. In the nine congressional districts, a candidate will win all three delegates if he wins 66% of the vote. If the winner and runner-up both have between 20% and 66% of the vote, the winner receives two delegates and the runner-up gets one. The other three delegates are the elected state party leaders.

A more recent MTSU Poll show those percentages are holding.

Tennessee Predictions
Of the 28 at-large Santorum wins 18
Of the 28 at-large Romney wins 10

In the 9 Congressional Districts Santorum wins all 9 for 18
Romney come in second in all 9 for 9

State party leaders give 2 to Santorum, 1 to Romney

Totals
Romney: 20
Santorum: 38

VIRGINIA PRIMARY
Delegates at stake: 49
How it works: 13 delegates will be awarded proportionally to any candidate receiving 15% of the vote. But because there are only two candidates on the ballot -- Romney and Paul -- it will likely be winner-take-all. Three delegates will also be awarded to the winner in each of the 11 congressional districts.

Prediction
Romney wins all 49

OKLAHOMA PRIMARY
Delegates at stake: 43
How it works: 25 delegates will be awarded on a proportional basis to any candidate receiving more than 15% of the statewide vote, unless one candidate has more than 50%, in which case he wins all 25. In each of the state's five congressional districts, three delegates will be awarded proportionally to candidates with 15% of the vote, unless, again, one had more than 50% of the vote in that district. The other three delegates are the elected state party leaders.

Oklahoma Predictions
Santorum wins 48% of 25 for 12
Romney wins 28% of 25 for 7
Gingrich wins 24% of 25 for 6

15 district Delegates
Santorum wins 7
Romney wins 4
Gingrich wins 4

Santorum wins 2 party leader votes, Romney 1

Totals
Romney: 12
Santorum: 21
Gingrich: 10

MASSACHUSETTS PRIMARY
Delegates at stake: 41
How it works: 11 delegates will be awarded proportionally to any candidate receiving more than 15% of the statewide vote. Another three delegates will be awarded based on the vote in each of the state's nine congressional districts, again proportionally to any candidate receiving more than 15% of the vote. The other three delegates are the elected state party leaders.

Based on the rules it appears Santorum will be lucky to win even a handful.
Totals
Romney 38
Santorum 3

IDAHO CAUCUSES
Delegates at stake: 32
How it works: According to the Idaho Republican Party, a secret vote will be held at each county caucus, lasting several rounds. In each round, the candidate with the least number of votes is eliminated until one reaches 50%. County results will then be tabulated statewide, with 29 delegates awarded proportionally based on the final tallies. The other three delegates are the elected state party leaders.

Note: That description from the LA Times differs considerably from this
Idaho Caucus Explanation:

Voters will go to locations for their county and use ballots or tokens to support a candidate on Tuesday, March 6th. There are five candidates for Idaho voters to choose from and they will keep voting until a winner is selected.

In each round the candidate with the fewest votes or anyone with less than 15% is out of the race. The voting ends at the county level when there is a final vote for two candidates or one has more than 50% of the vote for that county.

The delegates assigned for that county will then represent the winning candidate. Counties will report their winner to the state office in Boise. If one candidate has more than 50% of the vote for all of Idaho, they get all 32 delegates. Otherwise, the candidates split delegates they won in each county

Predictions
Assuming the LA Times is correct, the delegate totals will be split between Mitt Romney and Ron Paul. Otherwise Paul or Romney will win them all.

Scenario 1: Mitt Romney: 18 Ron Paul: 14
Scenario 2: Mitt Romney 32
Scenario 3: Ron Paul 32

NORTH DAKOTA CAUCUSES
Delegates at stake: 28
How it works: The caucuses will begin the process of allocating delegates to the national convention, but all 28 will remain unbound, meaning they can ultimately vote for whichever candidate they choose.

Predictions
This is somewhat of a crapshoot but no one is likely to dominate and Paul's organization in caucus states should help.

Romney: 8
Santorum: 7
Paul: 7
Gingrich: 6

ALASKA DISTRICT CONVENTIONS
Delegates at stake: 27
How it works: 24 delegates will be awarded on a proportional basis to candidates, based on the statewide vote, at individual district conventions. The other three delegates are the elected state party leaders.

Predictions
This is another crapshoot but one that favors Santorum and Romney
Totals
Romney: 10
Santorum: 11
Paul: 3
Gingrich: 3

VERMONT PRIMARY
Delegates at stake: 17
How they're awarded: 11 delegates will be awarded on a proportional basis to any candidate receiving more than 20% of the statewide vote, unless one candidate received a majority. Another three delegates will be allocated to the overall statewide winner. The final three delegates are the elected state party leaders.

Rules are such that Romney will walk away with the lion's share
Predictions
Romney: 15
Santorum: 2

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Brazil Declares New Currency War on US and Europe; Japan Losing Balance of Trade Battle

noreply@blogger.com (Mike Mish Shedlock) — Sun, 04 Mar 2012 02:12:00 +0000

In hope-against-hope scenario, countries with balance-of-trade surpluses struggle to maintain it. Put Japan, Germany, Brazil, and China in that group.

In that group, Japan is losing the Balance of Trade Battle.

Japan’s trade deficit widened to a record level in January, as falling exports combined with surging imports of energy.

Imports rose 9.8 per cent from a year earlier, while exports were down 9.3 per cent, resulting in a record monthly deficit of Y1.48tn ($19bn).

Last year Japan’s trade balance fell into an annual deficit for the first time since 1980, driven by subdued global demand and soaring fossil fuel imports in the wake of the Fukushima nuclear power crisis.

Japan reported a trade deficit equivalent to 1475 Million JPY in January of 2012. Exports have been the main engine of Japan's economic growth in the past six years. Japan imports raw materials and processes them into high technology products. Japan’s major exports are: consumer electronics, automobiles, semiconductors, optical fibers, optoelectronics, optical media, facsimile and copy machines. Its main trading partners are The United States, China and European Union.

Brazil Declares New Currency War on US and Europe

The Financial Times reports Brazil declares new ‘currency war’

Brazil has declared a fresh “currency war” on the US and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country’s struggling manufacturers.

Guido Mantega, the finance minister who was the first to use the controversial term in 2010, said the government would not “sit by passively” as developed nations continue to pursue expansionary monetary policies at the expense of Brazil.

“When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil,” he said on Thursday after announcing changes to the so-called IOF tax.

In a presidential decree, the government extended the existing 6 per cent financial transactions tax on overseas loans maturing in up to three years. Previously, the levy was applied only to loans with maturities of under two years.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries’ policies from causing the “cannibalisation” of emerging markets.

The move comes as Brazil’s central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real’s near 9 per cent surge against the US dollar this year.

Brazilian Real vs. US Dollar

The chart shows the Brazilian Real has pretty much been on a tear vs. the US dollar since 2003. Now Brazil is concerned about loss of exports, just as Japan is concerned about loss of exports.

Mathematically speaking, the desire for every country to be net exporters is impossible. Massive trade wars are on the horizon as a result.

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

Vancouver B.C. vs. Donegal Ireland Real Estate: What Will $890,000 Buy?

noreply@blogger.com (Mike Mish Shedlock) — Sat, 03 Mar 2012 20:16:00 +0000

Inquiring minds seeing new data on Vancouver's massively overpriced real estate just might be seeking new comparisons to other places. First, Let's take a look at what $890,000+- will buy in Vancouver.

Vancouver Real Estate

2119 East 3rd Ave, Vancouver
MLS® Number V934050
Listing Price: $899,500
Description: "This 1 ? story home has been extensively renovated over the last few years. The spacious kitchen has birch cabinets and Soapstone counters and opens to a 20x12' deck. On this level are 2 B/Rs and a modern 4pce bath. Upstairs has an office/den area, a 4pce bath and a big master B/R with a W/I closet and 12x8 view deck. The bsmt has a 1 B/R suite rented at $960 P.M. and the attached garage has been converted to a workshop with French doors opening to the fenced garden, with B/I bench, a patio and a kid's sandbox. "

That creative listing puts a new meaning to the the word "upstairs". Is the number of stories listed at "1?" really in question?

2564 East Pender Street, Vancouver
MLS® Number V930595
Listing Price: $899,000
Description: "Complete Transformation! Brand New Envelope! Hardie plank & cedar shingles, new windows, new electrical panel, new HW tank, new plumbing. Spacious 3 level home on extra deep lot!"

I believe it's safe to say the above creative listing puts a new meaning to the phrase "extra deep lot!"

At least the above homes were arguably livable. Check out this next beauty, and guess the price without looking too far ahead.

1016 East 7th Ave, Vancouver
MLS® Number V930461
Listing Price: $899,000
Description: "Opportunity knocks! Builders and investors need look no further if they desire a view property with multi-family zoning (RM-4). This property overlooks China Creek Park, with amazing views of the North Shore mountains and close to Commercial Drive and two skytrain stations. Priced at lot value, the property is being sold 'As Is, Where Is.'"

Congratulations to those who guessed the "opportunity knocks" price of $899,000 for this "As Is, Where Is" bargain complete with "amazing views", presumably through the opening where one would normally expect to find a workable door as opposed to the windows that are all boarded up.

All of the above listings are from Vancouver East Homes From $850,000 to $900,000

Donegal, Ireland

With those bargain listings in hand, let's consider a single property sale that just took place in Ireland. The previous price for the Sandhouse Hotel located in Donegal, Ireland sold at auction was $6 million.

Please consider Spectacular Irish hotel, massive discount price

Paul Diver has purchased a spectacular 55 bedroom hotel overlooking the Donegal coastline for a mere $860,000, down from the $6 million price the original owners sought for the Sandhouse Hotel three years ago.

Diver, who managed the Sandhouse Hotel in Rosnowlagh for 20 years, was delighted to secure the 50 staff members their jobs. He told msnbc.com on Friday that he had been willing to go "a bit higher" when the hotel was auctioned this week in Dublin, but was delighted when his reserve-price bid was accepted by the auctioneers.

Overall, Irish real estate prices have crashed since 2007-08, when the so-called "Celtic Tiger" economy collapsed. Home values have fallen more than 60 percent below their peak five years ago, and commercial properties have suffered similar declines.

There you have it: "amazing views" in Vancouver for $899,000 vs. "amazing views" in Donegal for $860,000.

It is indeed "different" in Canada.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Eurozone Wrapup: Unemployment Rate 10.7%, Highest Since 1999; Manufacturing PMI Contracts 7th Month; German Retail Sales Unexpectedly Fall

noreply@blogger.com (Mike Mish Shedlock) — Sat, 03 Mar 2012 09:51:00 +0000

There was lots of Eurozone news this week outside of the typical Greek default fodder. Nearly all of that news was not pretty. Let's take a look at the key stories.

Eurozone Unemployment Rate 10.7%, Highest Since 1999

The Telegraph reports Eurozone unemployment hits record high of 10.7pc

Data from Eurostat showed that the region lost 185,000 jobs in one month, with the vast gap between North and South growing ever wider. The figures for the previous four months were also revised upwards sharply. There are now more than 450,000 more people without jobs than assumed a month ago.

Klaus Baader from Societe Generale said the outlook was "deteriorating drastically" in the region. "Economic slowdown and fiscal austerity has hit the labour market much harder than previously thought."

Eurozone inflation nudged up to 2.7pc, while the latest PMI data for February confirmed that Euroland's manufacturing is still contracting, though the index rose slighty to 49. The "misery mix" of rising unemployment and inflation is a nasty headache for policymakers, threatening incipient stagflation.

Spain's jobless rate continued its relentless climb to 23.2pc, rising to 49.9pc for youths.

The jobless toll rose to 14.8pc in both Ireland and Portugal, though the latter began its austerity drive later. Dimitris Drakopoulos from Nomura said Portugal's economy is likely to contract by 4.4pc this year and another 2.7pc next year, a slightly milder version of the fiscal asphyxiation that brought Greece to its knees.

Eurostat's 19.9pc rate for Greece is already out of date. The Hellenic Statistical Authority said the country lost 126,000 jobs in November alone, pushing the rate to 20.9pc.

At the other extreme, Austria's jobless rate fell to 4pc. Germany's unemployment is at a 20-year low of 5.8pc, and some regions are crying out for skilled workers.

Italian Unemployment Hits Record

Please consider Italian unemployment hits record

The unemployment rate in the eurozone continued to rise in January, hitting another record high. There are now 16.9 million people out of work in the bloc, Eurostat said.

In Italy, the unemployment rate rose to 9.2% in January, the highest since monthly records began, the national statistics agency Istat said.

Italian unemployment had stood at 8.9% in December, but it is now at the highest rate since the first quarter of 2001, as the country finds itself in a second recession in four years.

‘Double whammy’

Meanwhile, separate data from Eurostat showed that inflation in the euro area rose to 2.7% in February, rising slightly from 2.6% in January. It marks the 15th month in a row that inflation has been above the ECB’s target of just below 2%.

Howard Archer, chief European economist at IHS Global Insight, said it amounted to a “double whammy of bad news” for the eurozone. “This is particularly bad news for consumers, as they are not only facing high and rising unemployment, but also still squeezed purchasing power,” he said.

French Unemployment Rate Hits 9.4 Percent

Please note French unemployment up to 9.4 per cent in Q4 of 2011

France's unemployment rate rose by 0.1 per cent in the fourth quarter of 2011 to 9.4 per cent of the active population, state statistics agency INSEE said on Thursday.

The 0.1 per cent rise applied to both the increase from the third quarter of 2011 and the year-on-year increase from the fourth quarter of 2010.

France's growing joblessness is a major issue as President Nicolas Sarkozy bids for re-election in an April-May two-round presidential election.

Eurozone Unemployment Rates at a Glance

Eurozone Average 10.7%
Spain 23.2%
Greece 20.9%
Ireland 14.8%
Portugal 14.8%
Latvia 14.7%
Lithuania 14.3%
Estonia 11.7%
Cyprus 9.6%
Italy 9.2%
France 9.4%
Germany 5.8%
Luxembourg 5.1%
Netherlands 5.0%
Austria 4.0%

Take a look at those varying unemployment rates. That is what a "one size fits Germany" interest rate policy and misguided currency union will do.

About that 5.8% German Unemployment Rate

Is Germany's unemployment rate really 5.8%? I think not. Wolf Richter comments on the German Unemployment Obfuscation.

Richter counts up all the groups that don't count and comes up with 1,701,534. That number is a bit off the mark given the officially unemployed number is 3,081,706 but 5,394,064 people actually received unemployment compensation.

There's still more obfuscation as shown in the following snip.

People 58 and older are excluded from the official unemployment numbers, even if they're desperately looking for a job. They don’t receive unemployment compensation but, conveniently, pre-retirement compensation. So they don't count for the simple reason that they're too old to count. That’s the German baby-boom generation. They're turning 58 in massive numbers and fall unceremoniously off the unemployment lists. In September 2011, the last month for which official numbers were available: 374,592.

Add them to the 5,394,064 official recipients of unemployment compensation to obtain 5,768,656.

And what about those who aren’t eligible for unemployment compensation? While they receive “social aid” and other forms of support, they don’t count as unemployed.

So, like in the US, the actual number of unemployed people and the actual unemployment rate remain a mystery, despite the confidence-inducing but false sense of accuracy that these grotesquely unrounded numbers provide. And in the end, unemployment in Germany is probably close to double the official headline number.

So what's the real German unemployment rate?

German Retail Sales Unexpectedly Fall

Bloomberg reports German Retail Sales Unexpectedly Fall

German retail sales unexpectedly declined in January as rising oil prices fueled inflation.

Sales, adjusted for inflation and seasonal swings, fell 1.6 percent from December, when they increased 0.1 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 22 estimates in a Bloomberg News survey showed

Europe’s debt crisis is curbing growth across the euro area, Germany’s largest export market, and higher energy costs pushed inflation to 2.5 percent last month. Still, unemployment is running at a two-decade low and recent data suggest the country may avoid a recession. Consumer confidence will increase to a 12-month high in March, [consumer research group] GfK SE (GFK) predicted this week.

German companies may create as many as 250,000 new jobs this year, the DIHK national industry and trade chambers said on Feb. 17, citing a survey.

Avoid a Recession?

What the hell is Bloomberg writer Jeff Black smoking? The recession is right here, right now. As for jobs creation, forget about it. The European-wide recession is going to be long and deep, so who pray tell is Germany going to be exporting to?

By the way, why was this drop unexpected? I have been calling for it for some time, and it's going to get worse, much worse.

Eurozone Manufacturing PMI® Contracts 7th Consecutive Month

Inquiring minds are reading the Markit Eurozone Manufacturing PMI® Report.

The Eurozone manufacturing sector showed further signs of stabilisation in February. The seasonally adjusted Markit Eurozone Manufacturing PMI® rose to a six-month high of 49.0, unchanged from the earlier flash estimate and above January’s 48.8.

New Orders Fell 9th Month

New orders fell for the ninth month running (though slightly less than indicated by the flash release), with the downturn in demand generally remaining broad-based by nation as only Austria and the Netherlands reported increases. Greece saw record falls in both output and new orders.

Export Orders Fall 8th Month

The level of new export orders fell for the eighth month running, albeit at the weakest pace since last July. The drop in foreign demand was led by a steep reduction in Greece and marked falls in Spain and Germany, the region’s largest exporter.

Muted pricing power resulting from weak demand and strong competition meant that the rise in costs was largely absorbed by manufacturers.

German job creation slowed sharply

Job losses were reported for the third time in the past four months in February. The steepest falls in employment were seen in Greece and Spain, though further marginal cuts in staffing levels were also signalled in Italy, the Netherlands, Austria and Ireland.

Stabilization? Really? No, Not Really!

Given the drop in new orders, export orders, and German employment, coupled with rising input prices and a huge profit squeeze, it takes a real stretch of the imagination to even hint at stabilization. Moreover, austerity measures in Spain, Portugal, Greece, France, and Ireland suggest things are going to get much worse.

There is no way the vaunted German export machine stays intact in the face of those facts.

Within two months, and probably next month, the bottom will fall out of numerous eurozone production and retail sales numbers. Moreover, the lid will blow off the top of numerous eurozone unemployment numbers.

In both cases, the biggest "unexpected" downward surprises will be in Germany, even though it should be perfectly obvious what is going to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bank of America Clash with Fannie Mae Intensifies; Insurance Disputes Put Taxpayers On the Hook For Still More Losses

noreply@blogger.com (Mike Mish Shedlock) — Fri, 02 Mar 2012 22:52:00 +0000

Taxpayers are already on the hook for $180 billion in losses at Fannie Mae and Freddie Mac. That number is going to rise, perhaps significantly.

The clever synonym for more taxpayer losses is "treasury Advance". With that understanding, please consider Fannie Mae's Losses Narrow but Treasury Advance Requested.

Fannie Mae is reporting a net loss of $2.4 billion for the fourth quarter of 2011 compared to a net loss of $5.1 billion in the third Quarter. For the entire 2011 year it reports a net loss of $16.9 billion compared to $14.0 billion in 2010.

The net worth of the company had a net deficit of $4.6 billion as of December 31 reflecting the $1.9 billion loss and its payment to Treasury of $2.6 billion in senior preferred stock dividends during the fourth quarter compared to $2.5 billion in Quarter Three. The Federal Home Mortgage Finance Agency (FNFA), conservator of Fannie Mae, will submit a request to the Treasury Department for a draw of $4.57 billion to eliminate the net worth deficit.

Bank of America Clash with Fannie Mae Intensifies

In simple terms, Fannie Mae will cost taxpayers another $4.6 billion. That's not the worst of it.

Taxpayers may be on the hook for still more losses as BofA Clash With Fannie Intensifies.

Bank of America Corp. said it’s facing more demands by Fannie Mae for refunds on flawed home loans because mortgage insurers who cover defaults rejected 25 percent more claims last year.

Unresolved insurance rejections rose to 90,000 at the end of 2011 from 72,000 the year earlier, Bank of America said last week in its annual filing with regulators. Last year’s denials equal $1.2 billion in unpaid loan balances, according to a note yesterday by Compass Point Research and Trading LLC.

The rejections heighten tension between Brian T. Moynihan, the bank’s chief executive officer, and U.S.-owned Fannie Mae in their disputes over who must pay for billions of dollars in failed loans made during the housing boom. When mortgage insurers deny claims, the two firms are left to squabble over whether losses will be borne by bank shareholders or the taxpayers who bailed out Fannie Mae.

Shorter Deadline

Pressure on Bank of America, the second-biggest U.S. lender by assets, may rise in July when Fannie Mae shrinks the amount of time it gives a bank to appeal an insurer’s denial to 30 days from 90 days before pressing for a refund. Repurchase costs probably would rise if the firm is forced to adhere to Fannie Mae’s policy, Bank of America has said.

Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities for sale to investors. Both firms were seized by the U.S. in 2008 to stave off collapse, and have collectively drawn more than $180 billion in taxpayer funds. The bill is likely to rise -- Fannie Mae this week requested $4.6 billion more from the U.S. Treasury Department -- and the firms’ regulator is pressing banks for refunds on bad loans to limit the bailout’s cost to the public.

Insurance Disputes

Bank of America is involved in legal disputes with mortgage insurers, including MGIC, saying the firms are denying valid claims.

In the second half of last year, Bank of America has “materially increased” the percentage of denials it argues are improper, Milwaukee-based MGIC said this week in a filing. AIG’s mortgage guarantor said last week that lenders were devoting more resources to reversing rejections.

Bank of America has committed about $42 billion to deal with flawed mortgages, foreclosures and writedowns since the start of 2007. The lender accounts for half of Fannie Mae’s pending repurchase demands after insurance denials, the Washington-based firm said this week in an annual filing.

Outstanding repurchase claims against Bank of America from all sources jumped 22 percent to a record $14.3 billion as of Dec. 31, the lender said in January. That increase was fueled in part by other demands from Fannie Mae. The mortgage financing firm has started asking for refunds on loans that have performed for 2 years or more before defaulting, requests Bank of America has deemed invalid.

More Public Money

Fannie Mae faces its own squeeze and asked for more public funds this week after posting a $2.4 billion loss in the fourth quarter. The company said that while Bank of America has failed to “honor repurchase obligations in a timely manner,” it still expects to get reimbursed.

“If we collect less than the amount we expect from Bank of America, we may be required to seek additional funds from Treasury,” the company said in the Feb. 29 filing.

By the way, look at the potential losses mounting up at Bank of America if Fannie Mae does succeed on those push-backs. Think Bank of America has sufficient reserves for credit losses? I don't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Money for Debt Swaps but No Money for Greece; Eurozone Delays Rescue Funds on Failure to Meet Conditions

noreply@blogger.com (Mike Mish Shedlock) — Fri, 02 Mar 2012 17:49:00 +0000

The Financial Times reports Eurozone delays Athens rescue funds

Eurozone members have delayed approval of more than half of the €130bn bail-out for Greece after deeming that Athens has yet to meet all the terms set as the price of a second rescue.

However, finance ministers from the 17-country currency bloc meeting in Brussels signed off on funds to underpin a €206bn debt swap to cut the value of the Greek bonds held by private investors.

Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said Greece’s official creditors would “finalise in the next few days” an assessment of Greece’s steps to enshrine the bail-out conditions into law.

But he added that the full bail-out would only be completed on a successful completion of the debt swap with private bondholders.

The ministers decided that Athens had yet to meet all the conditions to secure the €71.5bn portion of the bail-out destined for the Greek government. The balance of the rescue funds – which, when combined with other incentives and instruments to be used in the debt swap comes to some €93bn – was agreed.

There is not much new information here actually. Greece was supposed to have met conditions at the end of October, then November, then January, then February.

Every time Greece failed and it did not matter. The EMU granted extension after extension.

However, with the debt swap and protection of the ECB, and with a bond payment due on March 20, time has run out for extensions. The sane thing to do would be for the EMU, IMF, and ECB to accept the very simple fact that Greece is bankrupt and there is no point in giving Greece another nickel, thereby forcing Greece out of the Eurozone.

All parties should have recognized that years ago actually, but stubborn ideology got in the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Public Pension Ponzi Scheme; New York Cities Borrow From Pension Plan to Make Contributions

noreply@blogger.com (Mike Mish Shedlock) — Fri, 02 Mar 2012 15:51:00 +0000

In the worst possible form of kicking the can down the road, at the worst possible time as well (given the lofty overvalued condition of the stock market), To Pay New York Pension Fund, Cities Borrow From It First.

When New York State officials agreed to allow local governments to use an unusual borrowing plan to put off a portion of their pension obligations, fiscal watchdogs scoffed at the arrangement, calling it irresponsible and unwise.

And now, their fears are being realized: cities throughout the state, wealthy towns such as Southampton and East Hampton, counties like Nassau and Suffolk, and other public employers like the Westchester Medical Center and the New York Public Library are all managing their rising pension bills by borrowing from the very same $140 billion pension fund to which they owe money.

Across New York, state and local governments are borrowing $750 million this year to finance their contributions to the state pension system, and are likely to borrow at least $1 billion more over the next year. The number of municipalities and public institutions using this new borrowing mechanism to pay off their annual pension bills has tripled in a year.

Public pension funds around the country assume a certain rate of return every year and, despite the market gains over the last few years, are still straining to make up for steep investment losses incurred in the 2008 financial crisis, requiring governments to contribute more to keep pension systems afloat.

Nationwide, the cost of public retiree benefits has soared in recent years, and states including California, Connecticut and Illinois have been borrowing to pay, or even deferring, their pension bills. Many states are worse off than New York. New Jersey is still paying off bonds issued in 1997 to close a hole in its pension system.

But New York appears to be unusual in allowing public employers to borrow from the state’s pension system to finance their annual contributions to that system.

In Poughkeepsie, which is contributing $3.6 million into the state pension system this year and borrowing nearly $800,000, Mayor John C. Tkazyik, a Republican, said rising pension costs and new federal accounting requirements for retiree health coverage could have dire consequences.

“It could bankrupt the city,” Mr. Tkazyik said, adding that the city had cut its work force, to 367 from 418 employees, in four years as it struggled to compensate.

Perverted Math

Only with the most perverted actuarial math can anyone fund a pension plan by borrowing from it.

Unfortunately, it's not just cities that are borrowing money from plans to fund them. New York state borrowed $575 million in the current fiscal year, and $782 million in the next, under Gov. Andrew M. Cuomo's proposed budget.

The True One Percent

The following video may come across as a bit over-the-top in terms of presentation, but the examples are accurate.

Link if video does not play:Government Employees: The True 1%

Public Pension Ponzi Scheme

As I have commented on numerous occasions, defined benefit pension plans are going to bankrupt numerous cities and states. Several smaller cities have already gone bankrupt over union salaries and pensions.

Numerous other cities are on deck. The public pension Ponzi scheme will fly apart as soon as one major city declares bankruptcy to get those pension benefits tossed out in court.

Realistically speaking, numerous cities such as Los Angeles, Houston, and San Diego are already bankrupt, as are second tier cities like Oakland, Newark, Cincinnati, and Baltimore and others too numerous to list, they just have not admitted it yet.

Simply put, pension promises have been made that cannot and will not be kept.

In the meantime, defined benefit plans need to end, city services privatized or eliminated, Davis-Bacon and prevailing wages laws scrapped, national right-to-work laws implemented, and at the top of the list, collective bargaining of public union workers need to stop immediately.

It's time to abolish collective bargaining, a practice that makes slaves out of everyone. I make the case in ...

Collective Bargaining neither a Privilege nor a Right

Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!

Clearly, huge battles loom over these issues.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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President Obama's Lies Regarding U.S. Dependency On Foreign Oil

noreply@blogger.com (Mike Mish Shedlock) — Fri, 02 Mar 2012 07:13:00 +0000

The Los Angeles times notes Obama, chart in hand, presses his case on gas prices

As rising gas prices are putting pressure on politicians to act, President Obama called on Congress to vote quickly to eliminate subsidies for the oil industry, returning to a favorite target the president.

Obama repeated his case, outlined in a speech last week, that there is "no silver bullet" to rising gas prices. He highlighted his administration's effort to reduce dependence on foreign oil and boost development of alternative energy.

This week he introduced a new prop to illustrate his point. As Obama spoke, a chart popped up on television screens behind him. The graph showed U.S. dependence on foreign oil falling since 2005 -- from 60% of net imports to 45% in 2011.

The White House handed out copies to the crowd. Obama told them to take it home -- "it makes for a great conversation piece at parties."

"Now, one reason our dependence on foreign oil is down is because of policies put in place by our administration and my predecessor’s administration. And whoever succeeds me will have to keep it up."

Really? No, Not Really?

The Facts show that President Obama is disingenuous at best, and a blatant liar at worst. I lean towards the latter. Reader Tim Wallace provides charts to prove it.

Petroleum Distillates Usage

click on chart for sharper image

That looks pretty good, doesn't it? But what the heck does it have to do with reduction in foreign demand, and more importantly, Obama's role (or lack thereof) in achieving those gains.

For the answer to those most pertinent questions, let's display the usage in terms of foreign demand.

Petroleum Distillates Percentage Usage

Chart Explanations

Reader Tim Wallace writes ...

Hello Mish -

I almost went apoplectic today reading on line that the President is now claiming to have cut our dependency on foreign oil, and that the US has imported less each year of his Presidency.

Foreign oil imports have indeed dropped throughout his Presidency, but as the attached charts show, there is a reason for that drop - a tremendous decline in USA usage overall. This is because of a declining economy, NOT because of "alternate sources" or any of the other lies tossed our way by the government.

Of more interest is the fact that although the amount of foreign oil has declined, it has grown as a percentage of our overall supply.

During the Obama Presidency we have become more dependent on foreign oil, not less!

His entire speech was disingenuous at best.

Tim

There you have it. President Obama absolutely did not cut dependency on foreign oil. In fact, foreign oil dependency rose from roughly 37% to 40% under his administration. To be more precise, foreign petroleum usage in his administration went from 37% to a peak of 41% last year, currently at 39.9%.

The only way Obama can take credit for the decline in consumption caused by the recession, is to take credit for the recession itself.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Huge Problem With Bernanke's 2% Inflation Target Explained in Pictures

noreply@blogger.com (Mike Mish Shedlock) — Thu, 01 Mar 2012 20:22:00 +0000

Ben Bernanke wants prices to rise 2%. There are numerous problems with such a proposal, the first being increases in money supply sometimes lead to asset bubbles and not increases in prices of consumer goods.

Indeed the Fed completely ignored (if not encouraged) the housing bubble because home prices are not in the CPI. A housing bubble and a housing crash was the result.

The second major problem with inflation targeting is prices may go up, but wages may not necessarily follow. Indeed they haven't. Let's start with a graph of 2% price inflation over time.

Inflation Targeting at 2% a Year

click on any chart for sharper image

Real Disposable Personal Income

That chart nicely shows a slight parabolic pattern similar to the start of the first chart. However, that growth is a mirage based on population changes. Let's factor out population increases.

Real Disposable Personal Income Per Capita

Real Disposable Personal Income Per Capita Detail

Income Gap Discussion

That "Income Gap" is not the only problem. One must also consider "skew". As a result of Fed policies, there have been some income gains, but only at the top end.

"Per Capita", by definition, averages out those gains.

In reality, a select few percent have done exceptionally well as a result of Bernanke's tremendously misguided policies. Another few percent have simply done well, and another perhaps slightly larger group have barely kept up.

The bottom 80 percent or so have fallen much further behind than the per capita charts suggest.

Except for the banks, brokers and bondholders, and everyone else bailed out by the Fed, most have been clobbered by Fed policies.

Ironically, many of those bailed out have the unmitigated gall to whine about their plight. Please See Unbelievable Stress of Making "Only" $200,000 After Taxes for details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Unbelievable Stress of Making "Only" $200,000 After Taxes

noreply@blogger.com (Mike Mish Shedlock) — Thu, 01 Mar 2012 07:53:00 +0000

People who have nothing to eat, no job, and are about to be tossed out of their homes in foreclosure, really do not know what stress is.

To fully appreciate stress, please consider the sorry "plights" of Andrew Schiff, marketing director for Euro Pacific Capital, Daniel Arbeeny, a Wall Street headhunter, and hedge-fund manager Richard Scheiner.

Bloomberg describes the out-and-out horror stories of all three in Wall Street Bonus Withdrawal Means Trading Aspen for Coupons

Andrew Schiff said the $350,000 he earns, enough to put him in the country’s top 1 percent by income, doesn’t cover his family’s private-school tuition, a Kent, Connecticut, summer rental and the upgrade they would like from their 1,200-square- foot Brooklyn duplex.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”

Wall Street’s cash bonus pool fell by 14 percent last year to $19.7 billion, the lowest since 2008, according to projections by New York state Comptroller Thomas DiNapoli.

“It’s a disaster,” said Ilana Weinstein, chief executive officer of New York-based search firm IDW Group LLC. “The entire construct of compensation has changed.”

Wall Street headhunter Daniel Arbeeny said his “income has gone down tremendously.” On a recent Sunday, he drove to Fairway Market in the Red Hook section of Brooklyn to buy discounted salmon for $5.99 a pound.

$17,000 on Dogs

Richard Scheiner, 58, a real-estate investor and hedge-fund manager, said most people on Wall Street don’t save.

Scheiner said he spends about $500 a month to park one of his two Audis in a garage and at least $7,500 a year each for memberships at the Trump National Golf Club in Westchester and a gun club in upstate New York. A labradoodle named Zelda and a rescued bichon frise, Duke, cost $17,000 a year, including food, health care, boarding and a daily dog-walker who charges $17 each per outing, he said.

He described a feeling of “malaise” and a “paralysis that does not allow one to believe that generally things are going to get better,” listing geopolitical hot spots such as Iran and low interest rates that have been “artificially manipulated” by the Federal Reserve.

Poly Prep

The malaise is shared by Schiff, the New York-based marketing director for Euro Pacific Capital, where his brother is CEO. His family rents the lower duplex of a brownstone in Cobble Hill, where his two children share a room. His 10-year- old daughter is a student at $32,000-a-year Poly Prep Country Day School in Brooklyn. His son, 7, will apply in a few years.

“I can’t imagine what I’m going to do,” Schiff said. “I’m crammed into 1,200 square feet. I don’t have a dishwasher. We do all our dishes by hand.”

He wants 1,800 square feet -- “a room for each kid, three bedrooms, maybe four,” he said. “Imagine four bedrooms. You have the luxury of a guest room, how crazy is that?”

Summer Rentals

The family rents a three-bedroom summer house in Connecticut and will go there again this year for one month instead of four. Schiff said he brings home less than $200,000 after taxes, health-insurance and 401(k) contributions.

“I wouldn’t want to whine,” Schiff said. “All I want is the stuff that I always thought, growing up, that successful parents had.”

Imagine the Stress

Imagine the stress of renting a three-bedroom summer home for only one month instead of four.
Imagine the stress of only making $350,000 pre-tax
Imagine the stress of making a mere $200,000 after tax and IRA contributions, and having to wash dishes by hand
Imagine the stress of being able to send your kids to the $32,000-a-year for the Poly Prep Country Day School in Brooklyn

Imagine the stress knowing full well that none of the above is enough, yet not being able to whine about it.

“I wouldn’t want to whine,” Schiff said. “All I want is the stuff that I always thought, growing up, that successful parents had.”

This is more than nauseating, so if you need to excuse yourself to take care of matters, please do so now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Gold Plunges Over $100; Some Blame Bernanke; What Did He Say? Nothing (However, I have 5 Different Interpretations of Nothing)

noreply@blogger.com (Mike Mish Shedlock) — Thu, 01 Mar 2012 02:06:00 +0000

It was a wild ride in gold today with a top to bottom over $100 as show in the following chart.

Some Blame Bernanke For "Committing to Nothing"

Bloomberg reports Gold Falls in ’Manic’ Plunge as Bernanke Damps Stimulus Bets

Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity.

“People were expecting that the Fed would loosen policies, even if the perception is that the economy is doing well,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “The investor sentiment changed as the Fed committed to nothing. This is the manic nature of the market.”

Bernanke Hints at More QE

In video commentary Fox News says Bernanke Hints at More Quantitative Easing

Hints at More QE? Really? How about this interpretation?

Door is Open, But Not For A While

The Wall Street Journal reports Comex Gold Tumbles On Bernanke Testimony.

"Bernanke's comments to Congress left the door open for more QE," said Steve Scacalossi, a director of precious metals with TD Securities, in a note. "But his statements that employment is recovering at a better than expected rate implies that if QE is coming, it won't be for a while."

QE Increasingly Improbable

The LA Times says Bernanke's testimony in Congress pushes down gold, silver prices

Federal Reserve Chairman Ben S. Bernanke's words carried a great deal of weight in the commodity markets — so much so that they squashed the prices of gold and silver.

Bernanke told Congress that the U.S. economy was probably headed for modest growth this year, adding that the current increase in oil and gas prices probably would reverse before sparking long-term inflation.

The presentation Wednesday signaled to many investors that the Fed's embarking on another round of quantitative easing was an increasingly improbable scenario.

"When Bernanke didn't mention the possibility of another round of monetization, that was enough to take the fizz out of everything," said independent commodities analyst Dennis Gartman. "Before today, gold was looking quite strong, but today it just gave up the ghost."

Overall Dovish Undertones With Markedly Less-Dovish Testimony

Yahoo! Finance reports Euro Tanks, U.S. Dollar Surges on Bernanke Testimony

Federal Reserve Chairman Ben Bernanke was on Capitol Hill today testifying in front of the Committee on Financial Services. Despite overall dovish undertones, the chairman’s testimony was markedly less-dovish than recent Federal Reserve communiqués, boosting the U.S. Dollar across the board.

Bernanke's Actual Testimony

Please consider Semiannual Monetary Policy Report to the Congress, Testimony by Ben Bernanke.

A quick sscan shows Bernanke did not mention the word "quantitative" once. The Only reference to "easing" was in relation to constraints on motor vehicle parts in Japan related to the earthquake.

Bernanke did say growth would be close to or somewhat above second half of last year but "fundamentals that support spending continue to be weak". More specifically the Fed forecasts "2.2 to 2.7 percent, considerably lower than the projections they made last June"

He also said "housing affordability has increased dramatically" but "potential buyers lack the down payment ... others are reluctant to buy a house now because of concerns about their income"

In regards to unemployment, Bernanke said "With output growth in 2012 projected to remain close to its longer-run trend, participants did not anticipate further substantial declines in the unemployment rate over the course of this year. Looking beyond this year, FOMC participants expect the unemployment rate to continue to edge down only slowly toward levels consistent with the Committee's statutory mandate."

That's "markedly less dovish"? Really?

What does that mean for QE?

Nothing. That's what.

People can and did read into Bernanke's testimony what they wanted to hear. Others judged the market reaction, and wrote a corresponding explanation to fit.

One thing's for certain, that was hardly an upbeat assessment of the economy especially in light of the statement that "global financial markets posed significant downside risks".

Here's the deal. If the economy tanks the Fed is likely to do another round of QE. The same holds true for another LTRO by the ECB.

By the way, a couple of the links above came via email from Pater Tenebrarum at the Acting Man Blog, who in turn got them from Lance Lewis. Thanks!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Economy Grew 3.0% Annualized, Faster Than Expected in 4th Quarter; Or Did It?

noreply@blogger.com (Mike Mish Shedlock) — Wed, 29 Feb 2012 18:48:00 +0000

Reuters reports Economy grew faster than expected in fourth quarter

Gross domestic product expanded at a 3 percent annual rate, the quickest pace since the second quarter of 2010, the Commerce Department said on Wednesday in its second estimate.

The reading, which was up from the 2.8 percent pace the government reported last month and reflected modest upward revisions to almost all components of GDP, added to the recent run of fairly upbeat economic reports.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, was raised to a 2.1 percent rate of increase from 2 percent. At the same time, growth of real disposable income was revised up to a 1.4 percent rate from 0.8 percent.

"Consumers are spending from rising income rather than digging into their savings to spend," said Shulyatyeva.

Business investment in capital goods was lifted to a 2.8 percent pace from 1.7 percent, but still weak compared to the recent trend. Outlays on home building were firmer than previously estimated, while investment on nonresidential structures was modestly weak.

While a rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the increase was revised down to $54.3 billion from $56.0 billion.

"The large boost to GDP growth from stock building in the fourth quarter is unlikely to be repeated in first quarter but the household accounts provide a much more encouraging backdrop for consumer spending," said Peter Newland, a senior economist at Barclays Capital.

Excluding inventories, the economy grew at a 1.1 percent rate, rather than the 0.8 percent initially reported. That was still a sharp step-down from the prior period's 3.2 percent pace.

The report also showed exports were not as strong as previously thought, but imports are also not growing strongly, leaving a smaller trade gap that was less of a drag on growth.

It also showed still moderate inflation pressures, though a

price index for personal spending rose at a 1.2 percent rate instead of 0.7 percent.

GDP Price Indices

The rise in income is nice but excluding the inventory correction, the rise in GDP was anemic.

Moreover, please note Excel Spreadsheet Table 4.--Price Indexes for Gross Domestic Product and Related Measures: Percent Change From Preceding Period in the BEA's GDP Report.

My friend BC Writes

Does anyone actually believe prices decelerated at a 70% quarterly annualized rate in Q4?

Had the trend rate of the deflator held from Q1-Q3, annualized real GDP for Q4 would be 1.3% instead of 3%, 1.2% yoy, and a slight contraction q-q for real final sales and barely 1% yoy (historically recessionary).

It would not surprise me were the NBER in 3 quarters or more to date a recession as having begun in Q1 '12 after the economy stalled in Q4 '11.

BTW, the Treasury withholding receipts from Jan. to Feb. indicate a contraction in employment, which fits with Gallup's self-reported employment survey.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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World Bank Warns of Economic Crisis in China; Only 3% Growth for Decade Says Michael Pettis

noreply@blogger.com (Mike Mish Shedlock) — Wed, 29 Feb 2012 08:32:00 +0000

A World Bank report to be released next week warns of an economic crisis in China unless state-run firms are scaled back. The Wall Street Journal discusses the report in New Push for Reform in China

An exclusive preview of an economic report on China, prepared by the World Bank and government insiders considered to have the ear of the nation's leaders, offers a surprising prescription: China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms.

"China 2030," a report set to be released Monday by the bank and a Chinese government think tank, addresses some of China's most politically sensitive economic issues, according to a half-dozen individuals involved in preparing and reviewing it.

The report warns that China's growth is in danger of decelerating rapidly and without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the "middle-income trap." A sharp slowdown could deepen problems in the Chinese banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

It recommends that state-owned firms be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship.

China's Difficult Transition From an Unsustainable Growth Model

Peak oil, a housing bubble, bad debts and over-reliance on investments with no genuine economic feasibility guarantee China's current boom is not sustainable. China bulls are in for a ride awakening when various bubbles pop.

As for recommendations, the report proposes a sharp increase in the dividends that state companies pay their owner (the government) in order to boost revenue and pay for new social programs.

Does China need to increase competition, break apart, and privatize the state-owned monopolies?
Or should China simply increase the dividends?

I vote for the former as does Michael Pettis at China Financial Markets.

Via email, Pettis says:

The report is good as far as it goes, but it doesn’t go far enough. Of course increasing SOE dividends to the government for use in social programs will transfer wealth from the state sector to the household sector, but if the total profitability of the SOE sector is less than one-fifth to one-eighth of the direct and indirect subsidies transferred from the household sector, as I have argued many times, then even 100% dividends is not enough to slow the transfer significantly, and remember the transfers have to be reversed, not merely slowed. This proposal falls in the better-than-nothing category, but just.

What we really need are much more dramatic transfers, for example wholesale selling of assets, with the money used either to clean up bad loans or delivered directly to households. According to the article, however, “neither the World Bank nor the DRC proposed privatizing the state-owned firms, figuring that was politically unacceptable.”

This is the problem. The best solution for China, economically, seems to be off limits because it will be politically difficult. In that case the second best solution, a gradual build-up of government debt as growth slows for many years, is the most likely outcome.

And how much will growth slow? The World Bank report apparently doesn’t say, but the consensus has been slowly moving down towards 5-6% annual growth over the next few years.

That’s better than the crazy numbers of 8-9% most analysts were predicting even two years ago (and some still are), but it is still too high. GDP growth rates will slow a lot more than that. I still maintain that average growth in this decade will barely break 3%. It will take, however, at least another two or three years before a number this low falls within the consensus range.

And by the way when it does, metal prices should fall sharply. Copper prices have done reasonably well in the past few months as Chinese buyers have restocked, as we suggested might happen to our clients last fall. With the recent easing we may see more strength in copper over the next month or so, but I have little doubt that within two or three years copper prices are going to be a whole lot lower than they are today. Chinese investment demand simply cannot hold up much longer.

Sad State of Political Acceptability

The report makes feeble recommendations to ensure the proposals are "politically correct". This is a bad practice for three reasons.

You only damage your own credibility
You presume perhaps incorrectly what is politically acceptable
You plant false hope that incorrect solutions will work, when it's clear they will not

It would be far better list the alternatives and the limitations of those alternatives, then provide an honest assessment rather than assume something cannot be done. Unfortunately, telling people what they want and expect to hear is the sad state of political pandering everywhere.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Sharpen the Mower: Spain Needs Triple the Budget Cuts and Tax Hikes to Meet EMU Imposed Budget Targets

noreply@blogger.com (Mike Mish Shedlock) — Tue, 28 Feb 2012 23:35:00 +0000

Conditions in Spain have deteriorated at a rapid pace. As little as a few months ago the Spanish economy was foolishly projected to grow at .7%. Now it expected to contract 1%.

Likewise, Spain's budget deficit was supposed to shrink to 6% in 2011 and 4.4% in 2012. Instead it rose to 8.51 percent in 2011, up from a revised estimate of 8.2% which was up from a revised estimate of 6.5%.

I think you can see a clear pattern here and as a result, the EU Commission Pressures Spain for Explanations.

Spain must explain soon to the European Commission why its 2011 budget deficit was substantially higher than expected and deliver clear future budget plans, the Commission said on Tuesday.

Spain's 2011 budget deficit came to 8.51 percent of GDP, the finance minister said on Monday, up from early estimates of 8.2 percent and far above forecasts from the Commission for something nearer 6.5 percent.

"We need to understand the causes of this significant slippage," Commission spokesman Olivier Bailly told a regular briefing in Brussels.

Spain will have to come up with more than 40 billion euros in savings to meet that target, implying spending cuts that most economists see as impossible given that the economy is already slipping into recession and the jobless rate is the highest in the European Union at 23 percent.

Bailly said Spain also needed to deliver its 2012 budget estimates in the coming weeks, not at the end of March, saying the task in hand was so great it could not be delayed.

Sharpen the Mower

My friend Bran notes that Spain now needs to come up with another 30 billion Euros in budget cuts on top of the 15 billion promised. Moreover, those cuts need to be spread out over 9 months, not 12.

This set of facts prompted the Spanish Gurus Blog to write Sharpen the mower. Spain's deficit exceeds 90 billion euros.

Specifically, Spain's budget deficit is 91.3 billion euros, 8.51% of GDP. So it should not take a wizard to realize the simple mathematical fact that team Rajoy has not yet begun with budget cuts and tax increases, if by 2012 Spain is to meet the 4.4% of GDP deficit target set by creditors.

The measures announced in December were only an appetizer. Instead of sharpening the blades, I think a good lawn mower would be more practical.

The announced cuts and tax increases of last December (income tax, capital gains), are expected to generate about 14,900 million.

To meet the objective of a 4.4% deficit, in 2012 the government deficit should not exceed 46,500 million euros.

To do so requires a nearly 30 billion euros hole to be filled, with the aggravating circumstance that it's now March and those 30 billion euros need to come in the next 9 months.

This figure is double the cuts and tax increases approved last December. So Rajoy has quite imagination if he expects this to happen.

I modified that translation substantially, but I am pretty sure I have it accurate. Spain's unemployment is already 22.9%. What pray tell would another 30 billion in cuts or tax hikes do to that number?

By the way, to go from 15 to 45 is tripling (not doubling) the tax hikes and cuts.

Many structural reforms pertaining to jobs and work rules are quite necessary. The accompanying tax hikes are not and the Spanish economy is poised to implode as a result.

Not to worry, EU commissioner Jean-Claude Juncker promises to "examine the situation with calm and serenity".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Damn the Voters, Full Bailouts (and Existing Policies) Ahead

noreply@blogger.com (Mike Mish Shedlock) — Tue, 28 Feb 2012 18:48:00 +0000

What's "too complicated" for France is not "too complicated" for Ireland. The Financial Times reports Ireland calls vote on European treaty

Dublin will hold a referendum on the eurozone fiscal treaty, plunging Europe into months of uncertainty and potentially placing a question mark over Ireland’s future membership of the euro.

Enda Kenny, Ireland’s prime minister, said on Tuesday that the government had decided to hold a referendum following advice supplied by the attorney-general that “on balance” the Irish constitution required the treaty to be put to a vote.

He said he would sign the treaty at a European Union summit on Friday and within a matter of weeks the government would organise a referendum commission – an independent body appointed to explain the subject matter of a referendum to the public.

An opinion poll last month found 73 per cent of the public felt a vote should be held on the treaty, which would tighten budget rules for the 17 countries sharing the euro. Some 40 per cent of the 1,000 people questioned in the Sunday Business Post/Red C poll said they would support the treaty, 36 per cent were opposed and 24 per cent were undecided.

The government’s decision to hold a referendum follows a threat by the Sinn Féin party to challenge in the Supreme Court any decision not to give the public a say. Irish officials have privately acknowledged it would be more difficult to win a referendum if the government was seen to have been forced to hold a vote by the Irish courts.

The Irish public have twice rejected EU treaties, only to approve them in second referendums. In 2008 the Lisbon treaty was rejected only to be approved in a second referendum held 18 months later.

Logic of Signing a Treaty then Voting on It

In the real world it makes no sense to sign a treaty then vote on it. In the political world it is a way of telling voters their wishes do not matter, that politicians will hold a referendum as many times as it takes to get a treaty signed.

In a massive landslide, Irish voters swept out Ireland's previous prime minister, only to have Enda Kenny come along and do the exact same things as the politician he replaced.

US Budgets and Bailouts

That is exactly what happened in the US 2008 presidential elections as well. Obama carried out the same bailout policies and the same war mongering policies as Bush.

There is plenty of rhetoric for change, just no real change that anyone can see. Both sides want to do something about the budget, neither side does.

Obama wants to close corporate tax loopholes, then just a few days ago proposed a new set of loopholes for manufacturing, just as Santorum and Romney have proposed. The net result would be an increase in the budget deficit.

There are differences between the parties on social issues, but nothing happens there but hot air.

Romney vs. Obama What's the Difference?

Not your grandfather’s Republican Party; President Obama and Mitt Romney are Nearly One and the Same!

Obama Seeks to Prove He is More Like Romney; Obama vs. Romney - What's the Difference?

Germany Bailouts

Voter sentiment in Germany is overwhelmingly against giving more money to Greece. So why did Chancellor Angela Merkel ram through more aid for Greece?

The answer as explained many times is all Merkel cares about is her legacy, and that legacy says no country can leave the eurozone. Merkel does not give a damn about what is good for Greece, or what her own constituents want either.

French Promises

French President Nicolas Sarkozy will not hold a referendum claiming it's "too complicated". In reality, Sarkozy knows the referendum would be about him (See Referendum on a Person or on a Treaty?).

Everywhere you look, it's a case of "Damn the Voters, Full Bailouts (and Existing Policies) Ahead". Politicians have decided, things are "too complicated to change". Expect a cornucopia of promises from politicians, just don't expect any real change.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Referendum on a Person or on a Treaty?

noreply@blogger.com (Mike Mish Shedlock) — Tue, 28 Feb 2012 17:49:00 +0000

Reader Andrea from Italy, but who now lives in France adds some insight into Sarkozy's "Treaty Too Complicated For A Vote" excuse.

Andrea writes ...

Hi Mish,

I can add some more info.

Sarkozy started his presidential campaign pledging to be the "president of the people" and saying he wants to give to the people the power to decide about some issues: particularly he said he is going to propose a referendum about a couple of issues, immigration laws and unemployement benefits. As you can easily imagine, these are "minor" subjects for a referendum, normally dealt by executive power.

So, it is very contradictory that he does not want a referendum about the European Treaty, even more in the light of the fact that in recent years France held two referendums about Europe: one about Euro introduction and another about approval of the European treaty signed in 2006 (possibly as complicated as this one). Clearly he knows the topic is a referendum on his own policies and he wants to avoid this.

Regards,

Andrea

On second thought, the treaty is too complicated (for his own personal good), not too complicated for the good of France.

President of the people? Is there a president (leader) of the people anywhere? Certainly not Germany, Ireland, Greece, Italy, the United States, Australia, Canada, or anywhere else.

I am tired of the endless brutal lies from politicians everywhere. Unfortunately, such lies on both sides of the Atlantic are going to get much worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Sarkozy Breaks Campaign Pledge, Says Treaty Too Complicated For A Vote

noreply@blogger.com (Mike Mish Shedlock) — Tue, 28 Feb 2012 05:53:00 +0000

French president Nicolas Sarkozy is campaigning on a pledge to consult people directly on "significant issues". However, despite trailing in polls, Sarkozy refuses to agree to referendum on EU fiscal treaty.

Mr Sarkozy, who is trailing the socialist François Hollande in opinion polls seven weeks before the presidential election, came under pressure to promise a referendum on the pact after he pledged to consult the people directly on significant issues if re-elected.

“No,” he replied when asked on French radio yesterday if he would put the treaty to a public ballot. “If you’re dealing with a treaty with 200 articles, 250 articles, I can’t see how you’d formulate a clear question.”

The French electoral calendar means the treaty cannot be passed by parliament until after the election. Mr Hollande has said he will seek to renegotiate parts of the deal if he wins, a move that has been criticised by Mr Sarkozy and German Chancellor Angela Merkel.

Arnaud Montebourg, a prominent party figure who came third in the presidential primary last autumn and has been campaigning for Mr Hollande, went further than the candidate by predicting the treaty “will never be ratified”.

Mr Montebourg said a left-wing majority in France would never vote for the pact, while there was “not a majority” in favour of it in Ireland, the UK or other European countries. “The ‘Merkozy’ treaty would inflict austerity on all of Europe and plunge us dangerously into recession,” he said.

Too Complicated To Form a Clear Question?

Sarkozy says "I can’t see how you’d formulate a clear question.”

Mish Attempt to Formulate Clear Question For Voters

Punch Yes to Approve Treaty
Punch No to Disapprove Treaty

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Capital Flight From Italy, Greece, Portugal Accelerates; Two Trillion Fantasy; Merkel Weaker Every Week; Crude and Geopolitical Risks

noreply@blogger.com (Mike Mish Shedlock) — Mon, 27 Feb 2012 16:49:00 +0000

Via Email, here is a nice summary of European events from Steen Jakobsen at Saxo Bank in Denmark. Topics include the G20 Summit, Extend-and-Pretend Dogma, Capital Flight , and Geopolitical Risks.

Steen Writes ...

Two Trillion Fantasy

This week-end's G-20 came and went without any real new information. Yes, the policy makers wants us to believe ultimately IMF will have 2 trillion US dollars at its disposal.

No, the US, UK and rest of non-Europe is not really interested before we all get more clarification on how Europe will ring fence the debt crisis.

This is more and more Wall Street vs. Main Street: Underfunded banks buys underfunded government bonds and underfunded governments guarantees underfunded banks.

The real loser being the unemployed - Edward Heath put it more elegantly: Unemployment is of vital importance, particularly to the unemployed.

Meanwhile the real economy and unemployment is exploding higher adding further burdens to already stretched government deficits.

The new EU forecast for GDP growth in 2012 of minus .3% from this past Friday down from plus .05% is great example of how EU and the debt crisis non-solutions continues to lack behind fundamentals. Soon the rising disconnect will hit the politicians games of buying time.

Capital Flight

Merkel Weaker Every Week

Chancellor Merkel is weaker, week after week. She soon will have to rely on SPD votes if she continues down this path. 62 percent polled over weekend are against giving more money to Greece and 2/3 don't believe Greece can be saved according to German newspaper Bild.

Finland will have an interesting vote this week. Follow it closely.

The G20 did not give more credibility to more funds but they sure talked the talk of extend-and-pretend dogma.

Geopolitical Risks

Crude: We are potentially a few weeks from some sort of confrontation unfortunately. IEA report from Iran is due this week. Israel's time window is closing if you believe the media coming out of Israel. Iran's finances are running out of time as well. Iran failed to pay for Indian rice last week.

High energy prices will soon spill-over into gasoline and survey data and will start to impact data and sentiment negatively.

Greece Controlled Default: Greece will have a controlled default and a vacation from Europe.

Portugal CDS Spreads: Portugal is the real issue and containment is almost impossible. CDS spreads suggest the probability of default within five years is about 65 percent.

Nice money printing week,
Steen Jakobsen

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mathematical Case for Brokered Convention; How Ron Paul Can Throw a Big Wrench Into Romney's Campaign

noreply@blogger.com (Mike Mish Shedlock) — Mon, 27 Feb 2012 08:33:00 +0000

There are 2,286 republican delegates. It takes 1,144 delegates to win the Republication nomination. With four candidates remaining, many are wondering about the likelihood of a brokered convention where no candidate wins in the first round.

Conventional wisdom suggests there will not be a brokered convention. From where I sit, one is increasingly likely.

Following is a table of delegates won so far (totals from Real Clear Politics Delegate Count), plus my projections of all primaries and caucuses through Super-Tuesday on March 6 (based on recent polls).

State	Primary	Count	Romney	Santorum	Gingrich	Paul
Total to Date	-	243	99	47	32	20
Iowa	Jan 3	28	6	7	0	0
New Hampshire	Jan 10	12*	7	0	0	3
South Carolina	Jan 21	25	2	0	23	0
Florida	Jan 31	50*	50	0	0	0
Nevada	Feb 4	28	14	3	6	5
Minnesota	Feb 7	40	2	17	1	4
Colorado	Feb 7	36	9	17	2	1
Maine	Feb 11	24	9	3	0	7
Michigan	Feb 28	30*	13	11	2	4
Arizona	Feb 28	29	29	0	0	0
Washington	Mar 3	43	13	17	5	8
Georgia	Mar 6	76	19	22	27	8
Ohio	Mar 6	66	19	27	13	7
Tennessee	Mar 6	58	16	25	7	10
Virginia	Mar 6	49	49	0	0	0
Oklahoma	Mar 6	43	11	18	9	5
Massachusetts	Mar 6	41	28	8	2	3
Idaho	Mar 6	32	32	0	0	0
North Dakota	Mar 6	28	10	12	3	3
Alaska	Mar 6	27	10	11	3	3
Vermont	Mar 6	17	11	4	1	1
Super Tuesday Est	Mar 6	782	359	202	104	72
If Paul Wins Idaho	Mar 6	782	327	202	104	104

* States penalized half of their delegates.

Thru Super-Tuesday Scenarios
Romney 359 Others 423 (Romney wins Idaho)
Romney 327 Others 455 (Romney loses Idaho)

Notes

I assigned delegates by expected percentages based on recent polls except in winner-take-all setups. All state delegates were assigned to the above four candidates.
In no instance did I assume Romney would do worse than his most recent polls. In several instances I bumped up Romney's poll percentages substantially.
Points one and two were not done to favor Romney per se, but rather to to give a modest boost to the prevailing idea there would not be a brokered convention.

Michigan Prediction

30 Delegates
Percent: Romney-40% Santorum-35% Gingrich-8% Paul-12%
Delegates: Romney-13 Santorum-11 Gingrich-2 Paul-4
Real Clear Politics Michigan Primary Poll

Arizona Prediction
29 Delegates
Arizona is "Winner Take All"
Romney wins all 29 Delegates
Real Clear Politics Arizona Primary Poll

Washington Prediction
43 Delegates
Percent: Romney-30% Santorum-38% Gingrich-12% Paul-17%
Delegates: Romney-13 Santorum-17 Gingrich-5 Paul-8
Real Clear Politics Washington Caucus Poll

Georgia Prediction
76 Delegates
Percent: Romney-24% Santorum-26% Gingrich-33% Paul-10%
Delegates: Romney-19 Santorum-22 Gingrich-27 Paul-8
Real Clear Politics Super Tuesday Poll (Georgia, Ohio, Oklahoma, Massachusetts, Vermont)

Ohio Prediction
66 Delegates
Percent: Romney-26% Santorum-38% Gingrich-19% Paul-10%
Delegates: Romney-19 Santorum-27 Gingrich-13 Paul-7

Tennessee Prediction
58 Delegates
Percent: Romney-26% Santorum-40% Gingrich-12% Paul-16%
Delegates: Romney-16 Santorum-25 Gingrich-7 Paul-10
Vanderbilt University Tennessee Primary Survey

Virginia Prediction
49 Delegates
Romney wins all 49 Virginia delegates.
Virginia has a proportional allocation with a twist. Should any candidate take 50% in a district, the candidate will all votes in the district. In a display of complete ineptitude, Santorum and Gingrich failed to collect and turn in enough signatures on time and are not on the ballot. Romney is currently polling about 53% and Paul 23%, but Paul can only win delegates if he outright wins a district.

Oklahoma Prediction
43 Delegates
Percent: Romney-23% Santorum-42% Gingrich-20% Paul-9%
Delegates: Romney-11 Santorum-18 Gingrich-9 Paul-5

Massachusetts Prediction
41 Delegates
Percent: Romney-64% Santorum-16% Gingrich-6% Paul-8%
Delegates: Romney-28 Santorum-8 Gingrich-2 Paul-3

Idaho Prediction
32 Delegates
Romney wins all 32 Idaho delegates
January Straw Poll Results Romney-34% Santorum-10% Gingrich-12% Paul-43%
February Straw Poll Results Romney-45.4% Paul 42.7%

A third straw poll will be held March 1-3 and my answer may change based on the results of that poll.

Ron Paul or Mitt Romney will likely take all of the delegates based on the explanation below. Whether or not Paul or Romney takes all the votes depends entirely on whether or not Gingrich or Santorum can win any counties which at this time looks doubtful.
Idaho Caucus Explanation:

Voters will go to locations for their county and use ballots or tokens to support a candidate on Tuesday, March 6th. There are five candidates for Idaho voters to choose from and they will keep voting until a winner is selected.

In each round the candidate with the fewest votes or anyone with less than 15% is out of the race. The voting ends at the county level when there is a final vote for two candidates or one has more than 50% of the vote for that county.

The delegates assigned for that county will then represent the winning candidate. Counties will report their winner to the state office in Boise. If one candidate has more than 50% of the vote for all of Idaho, they get all 32 delegates. Otherwise, the candidates split delegates they won in each county

I cannot find any recent polls for North Dakota, Alaska, or Vermont. Romney should do extremely well in Vermont and fair at best in North Dakota and Alaska.

North Dakota Prediction
28 Delegates
Percent: Romney-35% Santorum-40% Gingrich-10% Paul-10%
Delegates: Romney-10 Santorum-12 Gingrich-3 Paul-3

Alaska Prediction
27 Delegates
Percent: Romney-35% Santorum-40% Gingrich-10% Paul-10%
Delegates: Romney-10 Santorum-11 Gingrich-3 Paul-3

Vermont Prediction
17 Delegates
Percent: Romney-64% Santorum-16% Gingrich-6% Paul-8%
Delegates: Romney-11 Santorum-4 Gingrich-1 Paul-1

How Ron Paul Can Throw a Big Wrench Into Romney's Campaign

I purposely bumped up Romney's percentages to see if a brokered convention would still be possible. I also awarded Romney all 32 delegates in Idaho even though that race is a statistical dead-heat with Ron Paul.

If Ron Paul wins Idaho, and the rest of my numbers above are close, the odds of a brokered convention are well above 50 percent in my estimation. There may be a brokered convention anyway, provided Santorum, Paul, and Gingrich stay in to the end.

Fuzzy Math

The New York Times discusses The G.O.P.’s Fuzzy Delegate Math.

There are 2,286 delegates to the Republican National Convention, of which 1,144 are required to clinch a majority. The Web site TheGreenPapers.com, which has extensive information on delegate-selection procedures in each state, divides them into two broad categories, what it calls “hard” and “soft.” Hard delegates are formally bound to a candidate on at least the first ballot at the convention, while soft delegates are not.

Although this is a useful conceptual framework, it probably simplifies things too much. Instead, Republican delegates exist along something of a spectrum between bound and unbound, pledged and unpledged, hard and soft.

Contributing to the confusion is that there are a series of three interrelated ideas about delegates which are often treated as interchangeable, even though they are not:

Bound vs. Unbound Delegates. Is the delegate officially bound to a particular candidate on at least the first ballot at the convention?

Pledged vs. Unpledged Delegates. Whether or not she is formally bound to a candidate, will the delegate’s candidate preference be known in advance of the convention and reported upon by the news media?
.
Elected vs. Selected Delegates. Was the delegate selected through some relatively direct means, such as based on the popular vote in the state’s primary? Or through some indirect means, like through the series of conventions that often take place in caucus states, and which may not correspond to the popular vote there?

Category of Delegates

Legal Challenges on the Way

I did not take any of the bound, unbound, super-delegate counts into consideration. However, I was rather generous to Romney in other ways.

Moreover, there are legal challenges pending in Arizona and Florida. Winner-Take-All primaries are a violation of Republican National Committee rules if held before April 1. As it stands, Romney 50 Florida delegates and 29 Arizona delegates that could dramatically change the totals.

Should Romney loses those challenges and also lose Idaho, a brokered convention would be all but certain.

If Wishes Were Fishes

If wishes (mine) were fishes, then Ron Paul would win the nomination outright. A more realistic wish is for a brokered convention because Romney, Santorum, and Gingrich are all likely to lose to Obama.

I believe Paul would defeat Obama although polls don't currently support that idea.

Republicans Need to Face the Facts

Of the four candidates, only Ron Paul balances the budget, only Ron Paul wants to stop the war-mongering, only Ron Paul does not alienate the majority of women, only Ron Paul can ignite a fire in independents, and independents (not the radical right), are the key to this election.

Republicans are not going to vote for Obama so appealing to the far right makes little sense in terms of an overall strategy. Moreover, independents are likely horrified by the war-mongering and misguided statements on religious and social issues of all the candidates but Paul.

If Republicans lose this election, it will be because they all outdid each other in foolish attempts to appeal to the far right on issues where a huge majority of the population of the US is in the middle.

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