Mish's Global Economic Trend Analysis

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

Spanish Finance Minister in Germany Pleads for Temporary Credit Line to Halt an "Imminent Financial Collapse" Posted: 23 Jul 2012 08:22 PM PDT Spain faces a bond rollover of €28 Billion in October and is rightfully scared about 2-year bond rates of 6.5%. El Economista notes the Spanish economy minister is at a meeting in Berlin to discuss Government Request for a Credit Line to Save the Year and forestall an imminent financial collapse. This is a heavily Mish-modified translation from the article .... Luis de Guindos will meet with Wolfgang Schäuble to negotiate measures noting the ECB is already 19 weeks without buying debt. Eeconomy minister, Luis de Guindos, now travels to Germany for talks with German Finance Minister, Wolfgang Schäuble. The appointment is key because Spain is running out of time. With the 10-year bond about 7.5% and the risk premium on the 632 basis points, Guindos nevertheless insisted that Spain will not have to ransom all for a full sovereign bailout. Instead, he asks for the European Central Bank (ECB) to resume purchases of Spanish bonds in the market. Guindos believes Mario Draghi is not the problem. Rather, bond purchases have stopped primarily because Germany is opposed. To mutate this position and to convince Schauble to give permission to his emissaries at the ECB, Jörg Asmussen, and Jens Weidmann, Luis de Guindos traveled to Germany Analysts are unanimous: An imminent financial collapse is at stake. If pressure on Spanish bonds continues and Treasury loses its access to the bond market, Spain cannot cope with the massive debt maturity that awaits him in October, close to the 28 billion euros. Amounts may be even greater if Spain has to funnel money to the regions requesting the help of special liquidity fund. Therefore, sources close to the government have admitted they are considering other alternatives. For example, the negotiation of a temporary line of credit with which to address the maturity of its debt, and perhaps even financial assistance for Spain's regional governments. This option is based on a premise well known in the eurozone, of buying time. A credit line would serve to dampen fears today, waiting for the agreements reached at the June summit, including the implementation of a single banking supervisor and an operational Stability Mechanism. For starters, when it comes to these bailouts, there is no such thing as "temporary". Regardless, I believe Germany will reject the request, thereby forcing Spain into a full sovereign bailout. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Austerity Hits Cisco Systems as 1,300 Layoffs Coming; Chipmaker Renesas Cuts 5,000 Jobs; Investigating Mass layoffs Posted: 23 Jul 2012 07:04 PM PDT For the second consecutive year, Cisco Systems is in Austerity Mode, looking to shed 1,300 employees. Cisco Systems is to lay off around 1,300 workers, as part of the company's ongoing austerity programme aimed at saving $1bn a year. The firm said the cuts were being implemented to simplify its operations and adjust to changing economic conditions around the world. The job cuts represent around 2% of Cisco Systems' 65,000 strong workforce. Last year the firm, the world's largest maker of computer networking equipment, had shed 10,000 posts. Cisco warned that growing economic uncertainty was creating an environment in which it was becoming increasingly difficult to clinch business deals. Chipmaker Renesas Cuts 5,000 Jobs The BBC also notes Chipmaker Renesas Cuts 5,000 Jobs Renesas Electronics, the world's fifth biggest chipmaker, has announced a restructuring plan that will lead to at least 5,000 job cuts. It is getting rid of half its 19 plants and cutting 12% of its workforce. The plan is part of an agreement to get financial help from creditor banks and its three top shareholders: NEC, Hitachi and Mitsubishi Electric. Investigating Mass layoffs According to BLS data, Mass layoffs, defined as termination of 50 or more employees simultaneously, have actually been declining and are at the lowest point since 2007. However, corporations did not exactly go on a hiring spree in the recovery and thus have been running lean. Should the economy go into a recession (I think we are back in one), companies may have to take it to the chin in profits or in layoffs. I suspect  both. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Social Media Panic in Italy: "Enough of this Agony; Give Us Back the Lira" Posted: 23 Jul 2012 11:49 AM PDT Black Monday messages on Facebook and Twitter have gone viral in Italy as people have had enough of austerity, job losses, and uncertainty. La Stampa reports on Panic in the Network. What follows is a Mish-revised translation of select ideas and quotes from the article. My specific comments are in brackets. Black Monday breaks early in the morning on websites across the world and social networking spreads alarm. "Withdraw money from bank accounts" is the appeal of Andrew to Facebook friends. Pseudo-analysis on the alleged benefits of a return to the lira go around the net. "Enough of this sad agony. Bring back the old money", Paul insists. "In 2000 we had the lira. We were producing more, exporting more, and children were living better, the results of monetary sovereignty" says Magdi Cristiano Allam on Twitter. "We are on the brink of the abyss and the top EU cazzeggiano [slang for F* around]," accuses Ivan. The tones on social networks are apocalyptic: "This is not a crisis, it's the end of capitalism." On the forum of the economics of printing a black player sees: "Folks, we begin to pray, after Greece's up to us. We are at the end titles, to every man for himself." Then there are the usual conspiracy theories regarding the IMF, ECB, Germany, the White House, U.S. investment banks, the Bilderberg and the Trilateral Commission. All guilty of "working for the failure of Italy and Spain." "We must defend ourselves from the American speculation, but Merkel holds us hostage," Roberto tweets. Everyone looks to Mario Draghi: The "ECB needs to intervene at once" says David Sassoli MEP [Member of European Parliament]. "We're towards the end of the line like Greece and Spain?" Asks Matthew. The stubborn "spread" climbs the ranking of most used words in the blogosphere. [Presumably spread refers to interest rate differentials between Italy and Germany] Catherine accuses the government, political parties, unions, and banks. "It takes courage," writes Catherine on the Facebook page of La Stampa. Catherine then rattles off a recipe based on "Electoral Law, priority to industry, limiting immigration, elimination of environmental bulls**t, and zero bureaucracy." Small investors are bewildered: "If I buy U.S. government bonds and Italy out of the Euro, those are always in dollars, right?" asks Stephanie C. on Facebook. Schools May Not Reopen After Summer Break Please note that Italian provinces warn cuts may close schools Italian regional authorities may not be able to open schools after the summer break if spending cuts planned in the government's latest spending review are carried through, the head of the Union of Italian Provinces (UPI) said on Monday. "With these cuts we won't be able to guarantee the opening of the school year," UPI President Giuseppe Castiglione told reporters in Rome. Piero Lacorazza, president of the province of Potenza in southern Italy, said the comment was "not an exaggeration", adding that "half of the provinces are in serious financial difficulty". More Panic in Brussels Than on Social Media In case you missed it, please consider Ten Major Italian Cities On Verge of Financial Collapse Also note a Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy. In terms of sheer panic, I bet eurocrats in Brussels are in a bigger state of panic than what you saw on Twitter. Here is a thought of mine that is worth repeating: Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected. Beppe Grillo may be just that person. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ten Major Italian Cities On Verge of Financial Collapse Posted: 23 Jul 2012 08:40 AM PDT The economic situation in Italy has reached a critical phase as Ten major cities face risk of crash The word "crash" implies bankruptcy. Milan, Naples, and Turin are among the cities. The Association of Municipalities plans to demonstrate in Rome against new cuts, hoping to sends a clear message to prime minister Mario Monti that will "force his hand". What follows in blockquotes is an "as is" translation from La Stampa. There are ten major Italian cities with more than 50,000 inhabitants, who are a step away from the crash. Naples and Palermo at the top of the "black list", although a task force for weeks at Palazzo Chigi is doing everything possible to avoid the worst. Then Reggio Calabria, finished in red already in 2007-2008 and is now being investigated by the judiciary. And then so many other governments, large and small (like Milazzo), perhaps far virtuous, could be forced to ask for the "collapse", which means dissolution of the council, entrance of the Court of Auditors and prefectural commissioner. At risk are at least a dozen large cities' trust in the government technicians who are monitoring the situation. "The situation is becoming more difficult every day," confirms the president of ANCI Graziano Del Rio. Pointing the finger at yet another cut in transfers, against the measures introduced by the spending review, and that raises the alarm of many fellow mayors. "By cutting the residual assets of a sudden it is clear that financial statements do not fit anymore." In itself the principle, Del Rio argues, is not even wrong, "but is more gradual to allow time for the mayors who have used this method to adapt. Why else would even virtuous municipalities, such as Salerno, at this point are at risk." Based on data available to the Interior Ministry that the phenomenon of Commons have declared bankruptcy in the last two years has literally exploded from 1-2 cases a year has passed about 25, including north-central governments also where this type the phenomenon was unknown until recently. Striking in the case of Alexandria, whose mayor just a few weeks ago, threw in the towel under the weight of 100 million euros of debt. The same fate had previously befallen smaller municipalities like Riomaggiore (SP), Castiglione Fiorentino and Barnsley in the province of Como. There is a problem of keeping budgets and there is an even stronger cash. Often the mayor in office is empty. "At 4 months from the closing of accounts 2012 - Del Rio says - even the 500 million cuts to transfers planned for this year are very heavy. They represent a very significant part of our budgets and delete it at once not only creates other problems of cash but also disrupts the objectives of the Stability Pact." For this reason the Association of Municipalities, which will return tomorrow to demonstrate in Rome against the new cuts, sends a clear message Monti: "Attention to force his hand, because this step forward the day when common as Milan, Naples and Turin will leave the Stability Pact will this gesture only plows in the accounts of the entire state. " Del Rio concludes: "We are open to reason, but things should be done wisely. And above all we must take into account that in recent years as municipalities have already given 22 billion euros. " Eurointelligence sums up the article this way: Over 10 Italian big cities are on the verge of financial collapse. Debts, derivatives and mistakes: the Italian municipalities are in crisis. After the default of Alessandria, a big city in Piedmont (North-Western Italy), there are several risks for Turin, Milan, Napoli, Palermo, Reggio Calabria and other cities with over 50,000 inhabitants. "Too much debts, over 10 metropolitan cities should ask to Corte dei Conti (the Italian Court of Auditors) for an orderly default," Graziano Del Rio, chairman of Italian Association of Commons, said to La Stampa. In last week the Sicily has asked for a financial support and has claimed over €1bn of credits to Italian government. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Full Spanish Bailout Coming Up; New Record High Yields on Spanish Bonds; Misguided Faith in Can-Kicking Posted: 23 Jul 2012 01:32 AM PDT Inquiring minds are watching the implosion of Spanish bonds. Spain 10-Year Government Bonds Spain 2-Year Government Bonds 5.76% was the previous close. Yield is currently up 44.5 basis points at 6.2%. The high yield was 6.255%, easily topping the previous high of 6.09%. Full Spanish Bailout Coming Up El Pais reports Full Spanish Bailout Increasingly Likely "The financial credibility of Spain is close to zero. Fiscal credibility is zero. The political credibility is zero. Investors have been sentenced to Spain. The Government has wasted no time in recent months has squandered the credit granting him an absolute majority, has lost some confidence in European institutions and the whole market with a succession of errors, many of them for a bad communication strategy is correct now without success. Too late? Can not say such things in public, but without a change of attitude are you doomed to a full recovery. " "I see little chance that Spain is free," says Ken Rogoff, a Harvard professor and head of the IMF execonomista. "Spain will continue with serious growth problems and stop until there is a massive deleveraging. This can be achieved with painful structural reforms, especially in the labor market. Also with a sustained inflation in countries like Germany, which can be ruled out given the degree of obsession with the ECB. And take away significant restructuring and debt, the best approach but politically the most difficult. Most likely, this is made more than a decade of anemic growth and high unemployment, combined to a greater or lesser extent with the previous recipes, "says Rogoff, who predicts a sort of social depression (if it is not as friction unemployment 25%). Wolfgang Münchau, who heads the think tank Eurointelligence Brussels, says the austerity measures at the trough "are really crazy, prolong and deepen the recession even raise the deficit contractionary effect. It is amazing that governments keep repeating mistakes made decades ago. " With these rods, there is little room: "Spain is no longer fully sovereign, because the government can no longer funded. Yes, I expect a complete audit, "says Martin Wolf resounding, economic commentator for the Financial Times header. Misguided Faith in Can-Kicking As is typical, that translation is a bit choppy. However, one can surely get the gist of it. Also as usual, Wolfgang Münchau misdiagnoses the problem. Hiking taxes is a problem, but so is Keynesian claptrap. It is not feasible for governments to spend their way out of problems. Nor is it possible for monetary stimulus to solve the problem. If such proposed solutions actually worked, Japan would not be in dire straits today. Keynesian and monetary stimulus proposals are nothing more than gigantic can-kicking exercises. They only appear to work because experience shows the can will be kicked much further than anyone thought possible. The intermediate result is misguided faith in can-kicking. The final result however, is typically something that ends up like Greece or Japan, with can-kicking proponents like Münchau and Paul Krugman, screaming every step of the way for still more can-kicking as the solution. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.