Saturday, August 31, 2013

Japan Seeks to Hike Taxes then Waste Money on Stimulus to Make Up for Decline in Spending; Currency Crisis Awaits

Politicians and economic illiterates frequently assume two wrongs make a right. Here is a case in point: Japan panel backs sales tax hike coupled with stimulus.
Japan's government won backing for a controversial decision to raise the national sales tax in 2014 after influential members of a special advisory panel said the step would not threaten economic recovery or business confidence if it was coupled with other stimulus.

Prime Minister Shinzo Abe convened the panel to hear a wide range of views on whether to press ahead with a planned hike in the consumption tax to 8 percent from the current 5 percent in April. Unless Abe changes the plan, the sales tax will be raised to 10 percent in October 2015.

Advocates, including officials at the Ministry of Finance, say raising the tax would be an important first step in trying to lower public debt, which is the worst among industrialized countries at more than twice the size of Japan's economy.

When Japan last hiked the sales tax from 3 percent to 5 percent in 1997, consumer spending tumbled by 13 percent in the quarter after the higher tax went into effect. That was followed by a recession.
Two Wrongs Don't Make a Right

When you cherry pick a panel, and the panel has a pre-determined outcome, the answer always comes out the way you expect.

Thus Abe's blue ribbon panel concluded tax hikes won't hurt. And for good measure, if by some chance they do, the panel suggested wasting those tax dollars on stimulus.

Good grief!

Appearances of Success

 Appearances of success are not the same as success.

It is conceivable that such a preposterous plan might "appear" to work for the simple reason Japan's two lost decades might have finally played out on their own accord.

However, that will not make the policy successful in any real sense. Raising taxes and then wasting the money are never good solutions to anything. Two wrongs don't make a right.

Similarly, economists currently praise Abe's move to weaken the Yen. The Japanese economy is strengthening, but what if it was about to anyway?

More importantly, it's way too early to be singing praises anyway. Japan's national debt is still rising (and that is another reason Abe needs to hike taxes).

Currency Crisis Awaits

I still think the Yen is going to collapse, and that will hardly be any good for a nation that imports most of its energy and food.

A  currency crisis awaits Japan, and when it happens, those singing the praises of Abe will be forced to reconsider (too late of course).

Mike "Mish" Shedlock

Berlusconi Threatens to Topple Italian Government if Expelled From Senate

Former prime minister Silvio Berlusconi, convicted of tax fraud, Threatens to Topple Letta If Expelled From Senate
Silvio Berlusconi threatened to bring down the Italian government if Prime Minister Enrico Letta’s Democratic Party votes to expel the three-time former premier from the Senate.

“We’re not available to keep the government going if the left decides to prevent the head of the People of Liberty from remaining in politics,” Berlusconi told a rally organized by the Army of Silvio supporters’ association late yesterday, according to a statement released by the group.

Letta is struggling to contain tensions that have strained his coalition government since Italy’s top court upheld Berlusconi’s tax-fraud conviction on Aug. 1. The Democratic Party, the biggest force in the coalition, has said Berlusconi’s expulsion from the Senate is required by an anti-corruption law enacted in December 2012.

Berlusconi softened his rhetoric today, saying he “didn’t issue an ultimatum” and that he wants the government to continue to govern. Yet in comments broadcast by SkyTG24, he said it’s “absurd” to assume that the People of Liberty would remain in Letta’s coalition if the Democratic Party forced his removal from the Senate.
What About Never?

Bloomberg notes "The process to strip Berlusconi of his Senate seat may take weeks or months before an eventual vote in the full chamber is called."

The Letta coalition would immediately dissolve if  Berlusconi carried out his threat. The best way to make sure he doesn't is to not have a vote. The second best way would be to have a vote and decide that tax fraud is insufficient grounds to expel someone from the Senate in spite of the law.

Either way, there is justice for politicians (and bankers), and there is justice for everyone else.

In general, this is the way it is everywhere, but most countries draw the line at conviction. Italy doesn't.

Mike "Mish" Shedlock

Friday, August 30, 2013

Friday's Letters

Dear friends, I had a very bad week. It sucked and that's putting it very mildly. Sometimes when things are bad or not going our way, we forget to pause for a moment and reflect on the good. For this reason, I'm going to stop and reflect on the good things that happened this week:

1. My husband started back to college after a two year "sabbatical."
2. I got some awesome hugs and love from my babies at work. Something about a hug from a two-year-old makes things a lot better.
3. I've partnered with BlogHer to be a Social Media Influencer - more on that later.
4. Bella is finally big enough to jump up on the couch by herself. We're still trying to finesse it though (sometimes we misjudge and ricochet off...).
5. I'm alive. My loved ones are around me. God is good.

Here's to a brighter future!

In case you missed it....

Judge Disses CalPERS Lawsuit Hoping to Stop San Bernardino Bankruptcy; City Eligible "as a matter of law based on incontrovertible facts"

In a common sense ruling sure to have union advocates howling, a Federal judge says San Bernardino, California eligible for bankruptcy
Judge Meredith Jury of the U.S. Bankruptcy Court for the Central District of California, said the city of 210,000, located 60 miles east of Los Angeles, was eligible for bankruptcy protection "as a matter of law based on incontrovertible facts."

The tentative ruling came despite objections by the California Public Employees' Retirement System, or Calpers. The $260 billion pension fund is the city's biggest creditor.

San Bernardino filed for bankruptcy protection one year ago.

If the jury affirms the ruling, it would clear the way for the city to negotiate with its creditors and produce a final bankruptcy plan on which the judge will ultimately have to rule.

 The ruling also sets up a high-stakes battle between Calpers and other creditors, including Wall Street bondholders and insurers, over how they will be treated in the bankruptcy.

The preliminary ruling follows a similar judgment for the city of Stockton, California, which was found eligible for bankruptcy protection in April.

"I don't think anyone in this courtroom seriously thought the city was anything but insolvent," Jury said. A city must be insolvent and have proof to have negotiated in good faith with creditors to be eligible for Chapter 9 municipal bankruptcy.

Calpers argues that it should not be treated like other creditors and must be paid in full because of California state law. Bondholders argue that federal bankruptcy law trumps state statutes and say Calpers should be forced to fight with other creditors over how much they are paid under an exit plan.

The judge said the one creditor who wanted her to dismiss the bankruptcy was Calpers. But she said: "If Calpers gets all the money they want, under what they say is their statutory right, who isn't going to get paid? All the employees? How is that going to help Calpers?"
If CalPERS gets stiffed and it should (and so should bondholders dumb enough to buy San Bernardino bonds), it will pave the way for cities across the nation to finally get out from under the unfair burden of preposterous union wage and benefit agreements.

This was a welcome ruling.

Mike "Mish" Shedlock

Freedom Fries are Out - French Fries and French Toast Back In

UK Will Not Join War Against Syria

Yesterday UK Prime Minister David Cameron Lost House of Commons Vote on Syria.
Western efforts to co-ordinate action against the Assad regime in Syria over charges of chemical attacks against civilians were dealt a blow on Thursday night when UK prime minister David Cameron lost a vote in the House of Commons on the issue.

After the vote Mr Cameron said: “It’s clear to me that the British parliament and the British people do not wish to see military action; I get that, and I will act accordingly.”

Mr Cameron had already had to backtrack on his initial plan to secure parliamentary approval for intervention on Thursday in the face of widespread opposition.
Financial Times Warmongers Pounced Quickly

Today, the Financial Times warmongers and interventionists whined The Syria vote brings to an end decades of delusion
This week’s events will have an impact. They will strengthen a rising US perception that Britain is an ally pulling back from the world. Mr Cameron’s decision to call a referendum on EU membership fits this picture. Why would Britain weaken itself further by disengaging from Europe?

There lies the danger. It is one thing for Britain to confront reality. In its own way, the US has been doing the same by rationing its interventions in the Middle East. But, even as a diminished power, Britain still has something worthwhile to offer in helping to sustain global order.

There were good arguments for, as well as against, acting to deter Mr Assad’s regime from using chemical weapons. For all the cuts, Britain still has a sizeable military, a first-rate diplomatic service and a permanent seat on the UN Security Council. To leave behind the delusions that were the legacy of empire should not be to pull up the drawbridge against a dangerous world.
France Stands Firm

France 24 News reports France stands firm on Syria despite shock UK vote
France has not changed its position on a possible military intervention in Syria, President François Hollande said on Friday, following a vote in Britain’s parliament against the motion.

Hollande told French daily Le Monde in an interview that he supported taking “firm” punitive action in response to a Syrian chemical weapon attack he said had caused “irreparable” harm, adding that he would work closely with France’s allies to punish Syrian President Bashar al-Assad’s regime.
Mercy! Freedom Fries are Out.
The White House will again serve French Fries and French Toast.

Related Stories

  1. Tired of Perpetual War? What Can You Do About It?
  2. War of "Non-Intervention"
  3. Is Obama Another Bush Clone? Another Nixon Clone?

Mike "Mish" Shedlock

Thursday, August 29, 2013

Wal-Mart is not Costco; So Why Should it Pay Like Costco?

President Obama, the unions, and Democrats in general are attempting to force Wal-Mart to raise its minimum wage.

In Seattle, there is an absurd push by activists to raise the minimum wage to $15 per hour for fast food workers, retail clerks, baristas and other minimum wage workers.

Venture capitalist Nick Hanauer said there's no time to waste. What the nation needs is money in the hands of regular consumers. "A higher minimum wage is a very simple and elegant solution to the death spiral of falling demand that is the signature feature of our economy".

Trader Joe's Lesson

Sophie Quinton for The Atlantic says The Trader Joe's Lesson: How to Pay a Living Wage and Still Make Money in Retail
Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

"Retailers start with this philosophy of seeing employees as a cost to be minimized," says Zeynep Ton of MIT's Sloan School of Management. That can lead businesses into a vicious cycle. Underinvestment in workers can result in operational problems in stores, which decrease sales. And low sales often lead companies to slash labor costs even further. Middle-income jobs have declined recently as a share of total employment, as many employers have turned full-time jobs into part-time positions with no benefits and unpredictable schedules.

QuikTrip, Trader Joe's, and Costco operate on a different model, Ton says. "They start with the mentality of seeing employees as assets to be maximized," she says. As a result, their stores boast better operational efficiency and customer service, and those result in better sales. QuikTrip sales per labor hour are two-thirds higher than the average convenience-store chain, Ton found, and sales per square foot are over 50 percent higher.
A Different Model

Yes, Ton, you are exactly correct. QuikTrip, Trader Joe's, and Costco do have a different model and it would behoove someone at MIT's Sloan School of Management to figure out differences in that model, and why retail sales at Trader Joe's beat those of Wal-Mart by 50% on a square footage basis.

Why Wal-Mart Will Never Pay Like Costco

Bloomberg writer Megan McArdle hits the nail on the head with her analysis of the situation in Why Wal-Mart Will Never Pay Like Costco.
Wal-Mart is trying to move into Washington, a move that said local housing blog has not enthusiastically supported. Hence, we’ve been treated to a lot of impassioned reheatings of that old standby: “Costco shows it’s possible” for Wal-Mart to pay much higher wages. The addition of Trader Joe’s and QuikTrip is moderately novel, but basically it’s the same argument: Costco/Trader Joe’s/QuikTrip pays higher wages than Wal-Mart; C/TJ/QT have not gone out of business; ergo, Wal-Mart could pay the same wages that they do, and still prosper.

Obviously at some level, this is a true but trivial insight: Wal-Mart could pay a cent more an hour without going out of business. But is it true in the way that it’s meant -- that Wal-Mart could increase its wages by 50 percent and still prosper?

Upper-middle-class people who live in urban areas -- which is to say, the sort of people who tend to write about the wage differential between the two stores -- tend to think of them as close substitutes, because they’re both giant stores where you occasionally go to buy something more cheaply than you can in a neighborhood grocery or hardware store. However, for most of Wal-Mart’s customer base, that’s where the resemblance ends. Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco's business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.

As it happens, that matters a lot.  Costco has a tiny number of SKUs in a huge store -- and consequently, has half as many employees per square foot of store. Their model is less labor intensive, which is to say, it has higher labor productivity. Which makes it unsurprising that they pay their employees more.

But what about QuikTrip and Trader Joe’s? I’m going to leave QuikTrip out of it, for two reasons: first, because they’re a private company without that much data, and second, because I’m not so sure about that statistic. QuikTrip’s website indicates a starting salary for a part-time clerk in Atlanta of $8.50 an hour, which is not all that different from what Wal-Mart pays its workforce.

Trader Joe’s is also private, but we do know some stuff about it, like its revenue per-square foot (about $1,750, or 75 percent higher than Wal-Mart’s), the number of SKUs it carries (about 4,000, or the same as Costco, with 80 percent of its products being private label Trader Joe’s brand), and its demographics (college-educated, affluent, and older). “Within a 15–minute driving radius of a potential site,” one expert told a forlorn Savannah journalist, “there must be at least 36,000 people with four–year college degrees who have a median age of 44 and earn a combined household income of $64K a year.” Costco is similar, but with an even higher household income -- the average Costco household makes more than $80,000 a year.

In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket ... which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).

Wal-Mart’s customers expect a very broad array of goods, because they’re a department store, not a specialty retailer; lots of people rely on Wal-Mart for their regular weekly shopping. The retailer has tried to cut the number of SKUs it carries, but ended up having to put them back, because it cost them in complaints, and sales. That means more labor, and lower profits per square foot. It also means that when you ask a clerk where something is, he’s likely to have no idea, because no person could master 108,000 SKUs. Even if Wal-Mart did pay a higher wage, you wouldn’t get the kind of easy, effortless service that you do at Trader Joe’s because the business models are just too different. If your business model inherently requires a lot of low-skill labor, efficiency wages don’t necessarily make financial sense.

If you want Wal-Mart to have a labor force like Trader Joe’s and Costco, you probably want them to have a business model like Trader Joe’s and Costco -- which is to say that you want them to have a customer demographic like Trader Joe’s and Costco. Obviously if you belong to that demographic -- which is to say, if you’re a policy analyst, or a magazine writer -- then this sounds like a splendid idea. To Wal-Mart’s actual customer base, however, it might sound like “take your business somewhere else.”
Think Beyond Minimum Wage

Profit per employee at Wal-Mart is $7,428. At Costco it's $10,625. Because of the difference in business model, it is illogical to assume Wal-Mart will have higher profit if only it paid Costco wages.

Activitists like Nick Hanauer and Zeynep Ton of MIT's Sloan School of Management need to go beyond their simplistic model of raising minimum wages and actually think about why things are as they are.

Neither one of them can distinguish a symptom of a problem from the problem. The problem is not that wages are too low, the problem is the Fed (central banks in general) are hell-bent on causing price inflation (and wages did not keep up).

The solution is to get rid of the Fed, not to raise minimum wages (which will only encourage businesses to seek ways to eliminate more employees).


Manufacturing employment was devastated by outsourcing to China. Why? Global Wage Arbitration: Unrealistic employee costs made it profitable to move.

In Italy, in just this past month, an Italian factory owner moved company to Poland while staff are on holiday
Earlier this month, the owner of an electrical components factory in the north of the country waved his employees off on their summer holidays. Then, without informing them, he moved the entire operation, lock, stock and barrel, to Poland.

Fabrizio Pedroni, 49, said he was driven to the drastic course of action because his factory, located near the city of Modena, had not turned a profit for five years and he was being strangled by high salaries, crippling taxes and dismal rates of productivity.

Moving the factory to Eastern Europe was the only way of saving his company, which was founded 50 years ago by his grandfather.
I commend the Italian business owner for his move. The bureaucrats and socialists are of course howling like mad.

The difference between manufacturing and fast food, is the latter must occur locally. But force higher minimum wages and you are guaranteed to see more fast-food robots.

Robot Wars

Those with jobs will benefit from a hike in the minimum wage (but what about everyone else?). What about those on fixed income? What about the marginal worker who loses a job (or cannot get a job in the first place)?

If you do not know the answer, here's a hint: Robot Wars in China; Burger Flipping Robots Serve 360 Gourmet Burgers an Hour

For further discussion, please see World's Dumbest Idea.

Socialist fools never think about such things (until problems arise such as massive outsourcing to China or increasing use of robots instead of humans locally). Then instead of realizing what the real problem is, the socialists and union activists scream for tariffs to protect the jobs and taxes on robots. Somehow, in their twisted minds, its better for everyone in the country to pay twice as much as before for underwear if it saves 500 underwear manufacturing jobs.

Technology moves on. I do not claim that getting rid of the Fed will eliminate robots. However, the inflationary practices of the Fed coupled with misguided polices of bureaucrats and the artificial suppression of interest rates have exacerbated the problem.

Academic Wonderland

Here's the deal. The problem has gotten worse ever since Nixon closed the gold window. Removal of ties to the gold standard allowed central banks to inflate at will, and governments to spend at will (and both did). The result was shrinkage of the middle class and declining real wages for everyone but those in the top 10%.

I propose we attack the real problem rather than the symptom of the problem. Unfortunately, Zeynep Ton and thousands of others in Academic Wonderland would rather attack symptoms instead of problems.

Mike "Mish" Shedlock

DIY Weekend 8/29

Welcome back to my DIY Weekend LINK PARTY!! Every Thursday, I host this link party to showcase my top three DIY project picks from the last week and give you a chance to show off your latest projects. You can link up to just about any topic and share your tips, tricks, projects and more! If you don’t have a blog to link up with, take a minute to browse the links! There really are some great blogs out there with wonderful ideas. For example, our three showcase projects above:

Just a few house rules for you!

1.) Link up any crafts, recipes, home decor, tips, etc.

2.) PLEASE be sure to link to your specific post not your general blog. 

3.) PLEASE visit and comment on the post before you and after you, on top of any others that catch your eye. Everyone loves comment love!

4.) And most importantly... HAVE FUN!!

Celebrating Life: Greetings From Germany

Greetings from Munich and Rothenburg ob der Tauber,  in Germany.

Actually, I am now back in the states, having returned from a fantastic European trip with Liz, on a delayed honeymoon following our June wedding.

Click on any image below for a larger, sharper view.

Rothenburg ob der Tauber is rated as the best preserved medieval town in Germany.

Stone Walls Surrounding City of Rothenburg ob der Tauber

Rothenburg Entry Point Tower Known as the "Burgtor"

Rothenburg ob der Tauber - Markusturm Hotel (where we stayed)

Rothenburg ob der Tauber - Flowers and colorful buildings


Mural at the Pizzeria Italia in Rothenburg
Question of Identity: How many people can you identify in the mural below?

Answers at bottom of page.

Munich New Town Hall part of Marienplatz in Munich, Bavaria, Germany - Passing Storm at Sunset

Nymphenburg Palace

Picture of Liz in the Nymphenburg Palace

Pagodenburg - Royal Tea House at Nymphenburg Palace

Dining at an Outdoor Restaurant

Question of Identity Answers

Link to Rothenburg image in new window: Rothenburg Mural

I suspect the hardest person for most people to identify will be the person at the far right. I got it in about 15 seconds. Think out of the box!

From Left to Right

Laurel and Hardy
Clark Gable
John Wayne
Charlie Chaplin
Marilyn Monroe
James Dean
Humphrey Bogart
Fred Astaire
Cary Grant
The Pizzeria Owner

Celebrating Life

I met Liz through Selective Search as noted in my June 17 post Celebrating Life: I Got Married on Friday.

Please click on the previous link for more on our story, how we met, and images from some trips we took in June shortly before we were married.

Greetings From Prague

On the European trip, we also visited Prague. Please see Celebrating Life; Greetings From Prague for some images.

Mike "Mish" Shedlock

Reflections on Peak Oil, India, Asia, and Global Growth; What's the Mathematical Outcome?

In response to Currency Lessons: Think a Sinking Currency is Always Good For Manufacturers? my friend "BC" pinged me with a few comments.

  1. India has a trade deficit of 10% of GDP.
  2. 70% of India electricity generation is from fossil fuels.
  3. 100% of India oil consumption is imported.
  4. 20% of India natural gas consumption is imported.
  5. India's Domestic crude oil and natural gas proven reserves are equivalent to 4-5 and 11-12 years of consumption at the 10-yr. trend rate.
  6. India is a disaster of national and regional instability in the making and not far behind Turkey and MENA [Middle East and North Africa].
  7. The ongoing economic decline or collapse and social disintegration in MENA, Turkey, Pakistan, Indonesia, India, and parts of China, will make the economic, social, and political landscape increasingly difficult, if not impossible, for most of us.

What's the Mathematical Outcome?

India wants to maintain 6% growth. China wants to maintain 7.5% growth. The US wants to maintain growth. Europe desperately wants to resume growth. Every country on the planet wants to increase exports relative to imports.

Ignoring Turkey, Indonesia, Pakistan, Africa, and the Mideast, the wants and needs of India, China, Europe and the US are mathematically impossible. That every country on the planet wants to increase exports relative to imports is mathematically impossible in and of itself.

History suggests that war is the inevitable outcome of such tensions, and clearly tensions are building.

Mike "Mish" Shedlock

Wednesday, August 28, 2013

Tired of Perpetual War? What Can You Do About It?

The warmongers are flooding the airwaves, beating the drums of war, even though UN inspectors have not even had time to investigate whether Syria uses chemical weapons.

The Financial Times is at the head of the list.

Financial Times Case #1

Writer Gideon Rachman says Echoes of the Iraq war are eerie but misleading.
The probable lack of a UN resolution authorising the use of military force in Syria does carry an unfortunate echo of Iraq. Indeed, the UN basis for war in Syria could be even harder to establish than over Iraq. While Messrs Bush and Blair were unable to get a second UN resolution on Iraq – unequivocally establishing the right to use force – they were, at least, able to argue that an earlier UN resolution gave them a legal basis for war. On Syria, partly because of the experience of Iraq, it seems unlikely that the Russians and Chinese will even agree to a weak first resolution.

However, while the international legal context on Syria has echoes of Iraq, the international political context is very different. In 2003, the open split in the western camp was arguably even more disturbing than the lack of a proper UN resolution. The fact that President Jacques Chirac of France and Chancellor Gerhard Schröder of Germany stood shoulder-to-shoulder with President Vladimir Putin of Russia in opposition to the war with Iraq will stay long in the memory.

This time, the French, far from leading the opposition to military action, are in the forefront of those calling for the use of force. The Germans also seem to be supportive. Turkey, another important US ally that refused to co-operate on Iraq, is also onside on Syria. Russia, it is true, remains adamantly opposed to military action over Syria. But this time it has no overt supporters in the western camp.

What about the failure to think through the consequences of military action? In some respects, the risks may be even greater with Syria.

But the other big difference between Iraq then and Syria now is more reassuring. It is clear that the scale and ambitions of any military intervention will be far, far smaller this time around. The Iraq war involved a full-scale land invasion, with the express purpose of toppling the regime and then reconstructing the country. In Syria, by contrast, even the most gung-ho interventionists are insistent that they are not contemplating putting “boots on the ground”.
Financial Times Case #2

Compromise? Who needs it? Let's just go to war. Financial Times writers Jim Pickard and Elizabeth Rigby say Cameron’s volte-face robs Syria vote of purpose.
MPs who rushed back early from their holidays for a historic Commons vote on military action in Syria will instead be engaging in a little more than a grand parliamentary gesture after David Cameron was forced into a last-minute compromise by Labour.

The prime minister started the day with ambitions to put military action against Syria into motion with a decisive vote in the Commons. But he ended it with little more than a “dog’s motion” after Ed Miliband threatened to vote down his plans.

The Labour leader had previously signalled that he broadly supported of plans to back the US in a missile strike on Syria after several conversations with the prime minister this week.

But his position shifted after Ban Ki-moon, UN secretary-general, said inspectors in Syria needed more time to gather evidence of the alleged chemical attack in eastern Damascus.
Time? We Don't Need No Stinkin' Time

Time? Who needs time? Who needs approval either?

"Public opinion in Britain is largely sceptical of intervention, with a YouGov poll showing 50 per cent opposed and 25 per cent in favour."

Who cares about that? Obviously not Cameron.

Financial Times Case #3

In US and UK face fight to keep attack plan on track writers James Blitz and John Aglionby in London and Richard McGregor in Washington speak of the need to "keep the war on track".
The US and Britain were battling to keep their plans for a weekend military strike against Syria on track after the UN secretary-general said time was needed to investigate allegations that the regime had used chemical weapons against civilians.

As the White House and Downing Street prepared to unveil evidence setting out how they claim Syrian government forces launched chemical weapons in an attack last week, officials in London said the Security Council had a “responsibility to act” in response to the atrocity.

Mr Cameron earlier tweeted: “We’ve always said we want the UN Security Council to live up to its responsibilities on Syria. Today they have an opportunity to do that.”
To be completely fair, the third article just provides evidence that warmongers want to rush to war as opposed to the writers making a case for war.

Nonetheless, I am quite tired of wars, warmongers, and their ilk, and articles slanted towards making a case for war.

Boehner Sends Letter to Obama Over Syria

In contrast to perpetual war proponent John McCain who hopefully will retire soon, the Wall Street Journal reports House Speaker Boehner Sends Letter to Obama Over Syria demanding an explanation of the mission.
House Speaker John Boehner (R., Ohio) is sending a letter to President Barack Obama criticizing his level of consultation with lawmakers about potential military action against Syria and demanding a clear explanation of any mission in advance of its start.

Separately, 114 House lawmakers—some 97 Republicans and 17 Democrats—have signed a letter calling on Mr. Obama to seek congressional authorization before embarking on military action in Syria.

Together, the letters mark an intensification of pressure on Mr. Obama to consult with Congress about the potential move against Syria for the regime's alleged use of chemical weapons.

Mr. Boehner's letter calls on Mr. Obama to inform Americans and members of Congress of his objectives, policy goals and overarching strategy in Syria before the first missiles are launched, according to a copy reviewed by The Wall Street Journal. Mr. Boehner also asks Mr. Obama to address the cost of a potential mission and to provide the White House's legal justification for the use of force in Syria, including why administration officials believe none of the military options under consideration require congressional approval.

"[I]t is essential that you provide a clear, unambiguous explanation of how military action . . . will secure U.S. objectives and how it fits into your overall policy," Mr. Boehner wrote.

He called on Mr. Obama to "personally make the case to the American people and Congress for how potential military action will secure American national security interests, preserve America's credibility, deter the future use of chemical weapons, and, critically, be part of our broader policy and strategy."
Perpetual War

Obama should make the case, but he won't. Bush should have made the case and he didn't. Colin Powell looked like a complete idiot in front of the UN as a consequence.

The only people who care about such things are opponents to the party in power. Republicans still support Bush. Democrats still support Obama.

If Mitt Romney won the election and wanted to intervene in Syria (and it is 90% certain he would have), would Boehner have sent the same letter?

Heck, would Boehner have raised an eyebrow if Romney wanted to attack Iran (and it is 90% certain he would have)?

The answers to both questions is "No".

If you have come to the conclusion perpetual war is nearly certain regardless what political party controls the White House, you are likely correct.

Tired of War?

If you are tired of war and needless interventions, please support someone who may actually do something about it. That person is Rand Paul.

Unfortunately, the task is not easy. Warmongers will try and discredit Rand Paul every step of the way.

Mike "Mish" Shedlock

Mortgages Plunge 42% from Year Ago in Spain, 38th Consecutive Drop; Signs of Recovery? Spain Need Another Bailout?

Prime Minister Mariano Rajoy wants you to believe the Spanish economy is improving. One look at housing suggests any improvement is an illusion.

Here are some highlights from a translation of the La Vanguardia article Mortgages plummet 42.2% in June

  1. The number of mortgages for home purchase in June fell 42.2% compared to June of 2012
  2. Mortgages declined every month for 38 months. June signed just 14,053 home mortgages, the lowest monthly figure of the last ten years.
  3. The six-month total from January to June 2013 was 115,895 signed mortgages. That is less than the one-month total for May of 2007 which had 118,669 signed mortgages.
  4. The average value of mortgages dropped, down 9% from a year ago to 97,495 euros.
  5. This was the worst half-year since the data series for this indicator began, in 2003.

Signs of Recovery

The Telegraph says More pain in Spain but signs of recovery.
The latest government figures show that in June Spain's exports surged 10.5pc from a year earlier, a boom that nearly wiped out the nation's trade deficit. Spain's trade deficit was €106m in June, a steep drop from the €2.7bn deficit registered a year earlier and a figure heralded by the conservative government of Mariano Rajoy as a long period of recession was finally coming to a close.

Last month Spain's national statistics agency reported that GDP had decreased by only 0.1pc in the second quarter of 2013 compared to the first, which saw a bigger decline of 0.5pc. That and a drop in unemployment figures, largely considered to be a result of seasonal hiring in the tourism industry, are the first signs of the "light at the end of the tunnel" that the government has been promising since initiating a series of deeply unpopular austerity measures.

Ministers and officials have been keen to hammer home the message that the worst of the crisis has passed. "Our economy has turned the corner and we are at the start of a change in trends which will allow us, with effort, to create jobs again. The foundations have been laid," Rajoy said at an event in July, shortly before leaving Madrid for his summer holidays. Luis de Guindos, Spain's Economic Minister meanwhile was quick to point out that "the recession has come to an end".
Foundations? What Foundations?

I would like to ask Rajoy "precisely what foundations have been laid?"

  1. Is the banking crisis over?
  2. Is Spain out of the Eurozone?
  3. Was there pension reform?
  4. Work rule reform?
  5. Have banks written off all bad property loans?
  6. Are Spanish banks recapitalized.

The answer to each of those question is "No".

Spain Need Another Bailout?

Here is a bonus question "Does Spain need another bailout?"

The answer to that question is "yes".

The Telegraph continues ...
"It's no secret that domestic demand remains very weak because spending is massively impaired by unemployment and austerity," Gilles Moec, analyst at Deutsche Bank, said in a recent report. "Whenever the economy starts breathing, you'll have additional pressure to start cutting the deficit, so we get in to additional austerity and spending will fall. It's going to be a choppy ride."

But perhaps the biggest single factor hampering Spain's recovery is the crippling unemployment which, at almost 27pc, is more than twice the European average. Almost 6m out of 47m Spaniards are without a job – or a quarter of the workforce – and many labour market economists believe that those numbers are unlikely to change dramatically even once Spain returns to growth.
The average Joe on the Street knows Rajoy is a liar.
Spaniards on the street scoff at proclamations of an end to the crisis. "Until the time comes when I don't need to worry how I am going to pay my mortgage and feed my family, then I won't believe what this government says about the crisis being over," said Mercedes Rivas, a 39-year-old supermarket worker from Madrid. She is the sole bread winner in a family of five, after her husband lost his job in construction four years ago, and earns just €800 a month.
End of Recession? When?

Spain's Economic Minister says "the recession has come to an end".

The IMF does not think Spain will return to growth until 2015, and even then only 0.3%. And the IMF has been overly-optimistic every step of the way. Nonetheless, let's assume the IMF finally has things correct and Spain grows 0.3% in 2015.

Is that a "recovery" or stagnation at the bottom with a 25% unemployment rate on top of it all.

Mike "Mish" Shedlock

War of "Non-Intervention"

The ludicrous headline of the month goes to Financial Times writer Richard McGregor who claims Barack Obama marshals his forces for war of non-intervention in Syria.
All official US statements, be they on the record or in behind-the-scenes briefings, are peppered with words such as “limited”, “surgical”, and “intermediate”, to emphasise how any action will be quarantined to a few days.

The US-led attack on Syria, in other words, is not about intervening in the civil conflict. It is about not intervening.

The ghosts of Iraq still hover over every decision to go to war, no matter how limited and quarantined the US may want such action to be.

Congress is so wary of having its fingerprints on the issue that its leaders seem more than happy not to have to vote on a Syrian attack. In the House of Representatives, John Boehner, the Republican Speaker, and Nancy Pelosi, the Democratic leader, have asked only for consultation.

Perennial hawks such as John McCain in the Senate have long pressed for a more interventionist US role in Syria. “If this isn’t aimed at regime change, then what is it aimed at?” he said with visible frustration on Wednesday.

The US is readying the release of its evidence of the Assad’s regime’s complicity, probably on Thursday, in what Anthony Cordesman, of the Center for Strategic and International Studies in Washington, called “the US intelligence community’s most important single document in a decade”.

Memories of Colin Powell’s now discredited presentation to the UN before the Iraq invasion on Saddam Hussein’s weapons of mass destruction remain raw in the US system, no more so than in the intelligence community.

As Mr Cordesman says, the US has lost its credibility to assert that Mr Assad ordered the use of the chemical weapons and it will be difficult to regain it with a document that is necessarily constrained about revealing its sources.

“The US government may trust the US government,” he says. “That is not a trust the world shares, and recent polls indicate that it may not be a trust American people share as well.”
Ridiculous Thesis

You can either have a war or not have a war. You can intervene or not intervene. You cannot, in any way, have a war of non-intervention. War is intervention.

The entire article sounds like something from George Orwell's '1984'.

If by some chance you have not read the book, please do. And if you have, consider reading it again.

Huffington Post notes George Orwell's '1984' Book Sales Skyrocket In Wake Of NSA Surveillance Scandal.

Good Riddance to McCain

If anyone should know how stupid wars are it it should be John McCain. He sat as a prisoner of war in Vietnam for six years in one of the stupidest wars in history. And he wants more wars in spite of the fact that the wars in Iraq and Afghanistan solved nothing, and if anything increased the number of US enemies.

I wait for the day McCain retires.

Important Documents?

Anthony Cordesman certainly misses the mark calling a document on chemical usage "US intelligence community’s most important single document in a decade".

If we are not going to war, then precisely what use is the document, even if it is true?

Trust Us

I do give Cordesman credit for the general idea I paraphrase as follows: "The US government may trust the US government but the American people sure don't".

Of course it was Obama who stated "Trust Us" to which Reason.Com responds ... "Somebody needs to tell the president that it's not that a lack of trust in government leads to some problems, it's that a litany of problems involving the use and abuse of government's coercive power have eroded any basis for trust."

Mike "Mish" Shedlock

Tuesday, August 27, 2013

Currency Lessons: Think a Sinking Currency is Always Good For Manufacturers?

Currency Lessons

Brazil learned a currency lesson first, now India. Is Australia next? Japan?

The lesson I am talking about is the widely held misconception that a sinking currency will make manufacturers more competitive and thus help the economy.

A friend from Australia emailed such thoughts to me a few days ago regarding the sinking Australian dollar.

But recall what Brazil's finance minister said on March 3, 2012 in a currency war declaration on the US: "When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil"

In a flash forward to August 25, 2013 we see Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures.

Let's now turn our attention to the Indian Rupee.

Decline in Rupee in Two Years

Conventional Wisdom vs. Reality

One US$ gets you 50% more rupees than it did two years ago (a 33% decline in the Rupee). My Gosh! With that kind of selloff, conventional wisdom suggests India ought to be in heaven.

Here is a bit of reality: Currency collapse confounds India Inc
Indian companies such as Whirlpool of India Ltd say they can't plan more than a couple of months out as a fast-falling rupee currency drives up the cost of imports, forcing them to raise prices even as consumer spending crumbles.

Companies that import finished goods or raw materials are the worst hit as they scramble to hold onto margins while balancing the need to raise prices without deterring buyers.

"We are now planning for a month or three months at best unlike six months or a year earlier," said Shantanu Dasgupta, vice president for corporate affairs and strategy at Whirlpool of India, the local arm of Whirlpool Corp (WHR), the world's largest home appliance maker.

"A week back in our office we were working at (a rupee exchange rate of) 62 and now it's at 64 and looks like soon it will fall more and hit 67. How can a business operate when the currency is on a free-fall?" H.S. Bhatia, head of the enterprise business at television maker Videocon Industries, said in an August 21 interview.

Indian shoppers are not only cutting back on big-ticket purchases such as refrigerators, TVs or expensive branded apparel but even staples including soaps, ketchup and cosmetics.

A survey by the Associated Chambers of Commerce and Industry in June found monthly bills for the middle class jumped by 15 to 20 percent in a month across major cities as the falling rupee drove up prices of petroleum products and edible oil.

A paper in August by the same group found that even deep-pocketed consumers were cutting back, with five-star hotels and fine dining restaurants registering a decline of 20 percent in sales in the past three months after prices of imported food ingredients and spirits rose.
How Can Businesses Operate in A currency Freefall?

There's theory and then there's practice. Brazil and India have both noticed the distinction.

Crude Daily Chart

As I watch the price of crude soar with tensions rising in the Mideast I wonder when Japan (which imports nearly all of its energy needs) will realize how misguided its inflationist policies are.

History suggests Japan will notice long after it's far too late for Japan to do anything about it.

In the meantime, please consider Japan Finance Minister Seeks Record Debt Servicing on Interest on National Debt; What's Next?

Mike "Mish" Shedlock

New Business Cards!

My new business cards arrived last week and I couldn't be more excited to share them. Looking back, it's a little ridiculous how much I stressed over them. Seriously! I even cried at one point because I was so frustrated. For me, it is much more challenging to design something for myself than someone else, because I become more critical for some reason. However, I guess the stressing and the crying episode were worth it in the end because I am in love with them!

I hope you like them as much as I do!

Is Obama Another Bush Clone? Another Nixon Clone?

Case For Nixon

Guardian writer Jeff Jarvis says As a Democrat, I am disgusted with President Obama.
I voted for Obama reluctantly, but never did I imagine he would become another Richard Nixon.
What are you thinking, Mr President?

Is this really the legacy you want for yourself: the chief executive who trampled rights, destroyed privacy, heightened secrecy, ruined trust, and worst of all, did not defend but instead detoured around so many of the fundamental principles on which this country is founded?

Never did I imagine that you would instead become another Richard Nixon: imperial, secretive, vindictive, untrustworthy, inexplicable.

As a journalist, I am frightened by your vengeful attacks on whistleblowers – Manning, Assange, Snowden, and the rest – and the impact in turn on journalism and its tasks of keeping a watchful eye on you and helping to assure an informed citizenry.

As a citizen, I am disgusted by the systematic evasion of oversight you have supported through the Foreign Intelligence Surveillance Act (FISA) courts; by the use of ports as lawless zones where your agents can harass anyone; by your failure on your promise to close Guantánamo, and this list could go on.

As an internet user, I am most fearful of the impact of your wanton destruction of privacy and the resulting collapse of trust in the net and what that will do to the freedom we have enjoyed in it as well as the business and jobs that are being built atop it.

You can't argue that Armageddon is on the way and that al-Qaida is on the run at the same time.

No, I think it is this: secrecy corrupts. Absolute secrecy corrupts absolutely. You have been seduced by the idea that your authority rests in your secrets and your power to hold them.

Transparency is another principle you promised to uphold but have trammeled instead.

You could decide to end what will be known as the Obama Collect it All doctrine and make the art of intelligence focus rather than reach.

You could decide to respect the efforts of whistleblowers as courageous practitioners of civil disobedience who are sacrificing much in their efforts to protect lives and democracy. If they are the Martin Luther Kings of our age, then call off Bull Connor's digital dogs and fire hoses, will you?

You could try to reverse the damage you have done to the internet and its potential by upholding its principles of openness and freedom.

You could. Will you?
Case For Bush

Next consider Syrian warmongering turning Obama into Bush’s 'clone'
US president Barack Obama is repeating the pattern of actions of his predecessor, George W. Bush, in his push for a military solution in Syria, Foreign Affairs Committee chairman of the Russian Duma, Aleksey Pushkov said.

Obama is fiercely moving towards war in Syria, just like Bush moved towards war in Iraq. Just like in Iraq, this war won’t be legit and Obama will become Bush’s clone,” Pushkov wrote on his Twitter page on Sunday.

On Sunday, US Secretary of Defense Chuck Hagel stressed that the US military is ready to expedite a military plan in Syria if the order comes from the country’s president.

“President Obama has asked the Defense Department to prepare options for all contingencies. We have done that and we are prepared to exercise whatever option – if he decides to employ one of those options," Hagel said.
Who Declares War?

From Wikipedia:

"Article I, Section 8, Clause 11 of the United States Constitution, vests in the Congress the power to declare war, in the following wording:  [Congress shall have Power...] To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water"

Isn't bombing other countries an act of war? Well, such inconveniences does not stop warmongering presidents in either party.

Reflections on a Moral Obscenity

In response to Reflections on "A Moral Obscenity": How Long Ago Was a War Against Syria Decided? reader Terry writes ...
"Yup, it was just those war-mongering conservatives and neocons that forced Bush to remove Saddam Hussein from power. Oh wait…. What did they do after that? Oh yeah,  they then immediately helped the Iraqi people establish a government elected by the Iraqi people and then prepared to leave."
Yes and No. It was indeed Dick Cheney and a bunch of warmongering authors of Project for the New American Century that led Bush down an idiotic path.
With its members in numerous key administrative positions, the PNAC exerted influence on high-level U.S. government officials in the administration of U.S. President George W. Bush and affected the Bush Administration's development of military and foreign policies, especially involving national security and the Iraq War.
Results Are In

To what avail? Did the war in Iraq do the US good? Iraq good? Anyone good but the warmongers who want perpetual war?

The answer is no, of course not. We wasted over $1 trillion dollars bombing the hell out of Iraq on a pack of lies.

There were no WOMDs in Iraq. Bush lied and so did Rumsfeld.

Hussein and Al Qaeda were enemies. There was no Al Qaeda in Iraq in Hussein's regime, but Iraq is a hotbed of Al Qaeda activity now.

Under Hussein there was religious tolerance. Now, Catholics are killed for their religion. The Sunnis and Shiites are also killing each other.

No Success Stories

Yes, Hussein was a brutal, evil dictator, but Iraq is worse off now. Pater Tenebrarum makes an excellent case in Iraq and Other Interventionist ‘Success Stories’.

Please give it a read.

CIA Files Prove America Helped Saddam as He Gassed Iran

Inquiring minds may also want to read Foreign Policy Magazine article from yesterday CIA Files Prove America Helped Saddam as He Gassed Iran
The U.S. government may be considering military action in response to chemical strikes near Damascus. But a generation ago, America's military and intelligence communities knew about and did nothing to stop a series of nerve gas attacks far more devastating than anything Syria has seen, Foreign Policy has learned.

In 1988, during the waning days of Iraq's war with Iran, the United States learned through satellite imagery that Iran was about to gain a major strategic advantage by exploiting a hole in Iraqi defenses. U.S. intelligence officials conveyed the location of the Iranian troops to Iraq, fully aware that Hussein's military would attack with chemical weapons, including sarin, a lethal nerve agent.

The intelligence included imagery and maps about Iranian troop movements, as well as the locations of Iranian logistics facilities and details about Iranian air defenses. The Iraqis used mustard gas and sarin prior to four major offensives in early 1988 that relied on U.S. satellite imagery, maps, and other intelligence. These attacks helped to tilt the war in Iraq's favor and bring Iran to the negotiating table, and they ensured that the Reagan administration's long-standing policy of securing an Iraqi victory would succeed. But they were also the last in a series of chemical strikes stretching back several years that the Reagan administration knew about and didn't disclose.

U.S. officials have long denied acquiescing to Iraqi chemical attacks, insisting that Hussein's government never announced he was going to use the weapons. But retired Air Force Col. Rick Francona, who was a military attaché in Baghdad during the 1988 strikes, paints a different picture.

"The Iraqis never told us that they intended to use nerve gas. They didn't have to. We already knew," he told Foreign Policy.
The Enemy of My Enemy is My Friend

Note the hypocrisy and the idiocy of US foreign policy best described as "the enemy of my enemy is my friend".

Convincing The Public

President Obama is on a media blitz to convince the US public to support another inane war. Obama is using the same tactics as Bush and for that matter Hitler.

Does that sound too harsh? It isn't.

Interview With Gestapo Founder on Drumming Up Support For War

From an interview with Hermann Göring Nazi founder of the Gestapo, Head of the Luftwaffe, in a  jail cell during the Nuremberg War Crimes Trials (18 April 1946) ....

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

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

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

So Which Is It?

Is Obama another Bush clone or another Nixon clone?

The correct conclusion (in regards to foreign policy but not domestic policy) is both.

Mike "Mish" Shedlock

China Warns US About Cutting Tapering Too Soon, Proposes BRIC Foreign Currency Fund

The focus for the entirely useless upcoming G20 meeting is fear over US tapering, capital flight, and liquidity.

Reuters reports Ahead of G20, China urges caution in Fed policy tapering.
The U.S. Federal Reserve must consider when and how fast it unwinds its economic stimulus to avoid harming emerging market economies, senior Chinese officials said on Tuesday.

The warning by China's Vice Finance Minister Zhu Guangyao and central bank Vice Governor Yi Gang came as economies from Brazil to Indonesia struggle to cope with capital flight as U.S. interest rates rise ahead of an expected tapering off in the Federal Reserve's bond buying program that unleashed liquidity across the world.

The United States - the main currency issuing country - must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy," Zhu said.

China will refrain from providing stimulus to the world's second-largest economy, which he said was on track to grow around 7.5 percent this year - in line with the government's target.

"On monetary policy, the focal point (of G20) will be on how to minimize the external impact when major developed countries exit or gradually exit quantitative easing, especially causing volatile capital flows in emerging markets and putting pressures on emerging-market currencies," Yi said.

Yi said a $100 billion foreign-currency fund being discussed by countries that make up the BRICS grouping of Brazil, Russia, India, China and South Africa will be set up in the foreseeable future. He said China would provide "a big share" of the funds but he did not give details.

"It will not exceed 50 percent," he said.

The BRICS' leaders have agreed to set up the fund to help ward off currency crises.
Useless G-20 Meeting

The G-20 meeting will be useless. After praising growth, motherhood, and apple pie, every country will do whatever it wants and there will be no agreements on agricultural tariffs, or anything else of substance.

Useless $100 Billion Currency Fund Proposal

The $100 billion BRIC foreign currency fund will be equally useless, assuming it even happens.

Recall that Brazil alone just hatched a $60 billion intervention scheme (see Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures.

How far would $100 billion go? Not very. Is China going to back India with a mere $40 billion fund? If you think so, please tune into Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles.

And what about the non-BRIC countries like Indonesia?

So what good does pooling do if the countries all need the money at the same time? (like they do now).

Nonetheless, it's a safe prediction this proposed BRIC currency scheme will be blown up way out of proportion by some bloggers as the end of US dollar hegemony or some other nonsense.

For further discussion, please see my interview with GoldBroker on Gold, France, a Currency Crisis, and Other Things.

Mike "Mish" Shedlock

Monday, August 26, 2013

Gold, France, a Currency Crisis, and Other Things

Here is an interview I did with Fabrice Drouin Ristori at GoldBroker regarding gold, France, and other topics that I would like to share.

Fabrice Drouin Ristori: Mish, you write a lot of commentaries about the European economic crisis, going from bad to worse. For instance Portuguese Bond Yield Spiked to 8%, How do you see the European situation evolve in the coming months ? Do you expect more bail-ins in the Eurozone?

Mish: More bail-ins are 100% certain. On August 20, German Finance Minister Wolfgang Schäuble officially admitted “Greece Will Need More Aid”. Rest assured it will not stop with Greece. Spain and Portugal will need additional aid. Don’t rule out Italy. The Italian economy is crumbling in a nightmare of regulatory nonsense and work rules.

FDR: Real estate already collapsed in Greece, Spain, Ireland but remains near all-time high in France and Sweden. You wrote "French real estate was massively overvalued: by 50% based on the price-to-rent ratio, and by 35%, based on disposable income. It makes France the most overvalued real estate market in the world based on disposable income, and the fourth most overvalued one based on rents." With an overvalued real estate market, bails-in and banking risks, how can investors protect themselves in this uncertain economic environment?  

Mish: The easiest way is to stay liquid, shun leverage, hold some gold and wait for better opportunities. The stock market bubble certainly got much bigger than I expected over the past two years. The Fed (central bankers in general) also blew a huge bubble in bonds, especially corporates. As proof of how silly thing have gotten,  covenant-lite loans (where debt is repaid not in cash but in debt) have made a comeback.

FDR: We have seen an important campaign against gold in the mainstream media, with Roubini's predictions and with bearish arguments like "The U.S. Federal Reserve could cut stimulus sooner rather than later" or "The Dollar is strong" to name a few. Do you really think these arguments are accurate?

Mish: I have been in a very tiny minority who likes gold while simultaneously suggesting the US dollar would not collapse. It didn’t and it won’t (at least any time soon). China is printing more than the US, the crisis in Europe is far from over (I expect a disorderly breakup), Australia is tied to a Chinese economy that is rapidly slowing, and the Bank of England headed by Mark Carney promises more QE. On a relative basis, that makes it tough for the dollar to collapse relative to other major fiat currencies. However, fiat currencies in general can sink against gold. And sentiment against gold has been massive, with Bloomberg leading the parade. For further discussion, please see Losing Faith in Gold at the Wrong Time; Did Paulson's Sale Mark the Bottom? Who's Left to Sell?

FDR: What are the fundamentals that will drive the gold market in the future ? Have these Fundamentals changed since the last all-time high in summer 2011 when gold traded at $1900?

Mish: Most people do not really understand gold. On May 28, I discussed sentiment in Speculative Gold Bets at 5-Year Low; Metal Will Get “Crushed” Says Credit Suisse. As far as fundamentals go, please see my June 26 article Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold?

FDR: In your June 13 article "Mish Buys a Basket of Miners" you said "gold is a far safer play than silver" can you tell us why ?

Mish: Silver is an industrial commodity that is used up. Gold has little industrial use. Silver can and does plunge more than gold in pullbacks. The latest plunge in silver was far greater than the corresponding plunge in gold. I do like silver at current prices, but one needs to be aware of high volatility in both directions.

FDR: In May of 2012 you wrote "I'm Swapping Some Gold for Silver". Today silver close to $23 and was available below $20. Do you continue to swap more gold for silver?

Mish: I didn’t, but I may. The curious thing is I posted a belief for silver to fall back to the low $20s when it was close to $50. After it bounced twice in the mid-to-high $20s I changed my mind. I had it correct initially, but did not wait.

FDR: How do you weight your miners compare to you precious metals holdings in your investment portfolio?

Mish: I have more physical gold and silver than miners. The percentage varies. My ratio may be something like 3:1 right now. It can move in either direction.

FDR: Gold was down in June but at the same time premiums surged in China. Do you think the spread in between the gold paper price and the price of physical gold will continue to widen ? If so, Does that mean that the mechanism of price discovery for gold is broken in a way?

Mish: The only spread to speak of between “paper gold” and physical gold is a tiny commission or bid-ask spread. Those with accounts at various gold brokers can confirm. Thus, reports of huge paper-to-physical price differentials are nothing but hype, typically based on spreads on coins, when coins are in short supply. I do not advise investing in coins because of those spreads.

FDR: Anything else you wish to add?

Mish: Yes, thanks for asking. I do expect a full-blown currency crisis at some point and I expect gold to be the beneficiary. The global spotlight has been on Europe, and spotlights are typically a sign that problems will strike elsewhere. Japan is a crisis-in-waiting, and the emerging markets are taking a beating now, especially Brazil and India. I discussed India on Tuesday in Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles. These things have a way of spreading, so don’t be surprised if India kicks off some sort of Asian contagion currency crisis. Also, complacency in Europe is again on the rise, so don’t discount Europe. One can never predict these things with perfect timing, even if the end-game is relatively clear.

FDR: I would like to thank again Mr. Mike Shedlock for taking the time for this interview.

Mike "Mish" Shedlock 

Japan Finance Minister Seeks Record Debt Servicing on Interest on National Debt; What's Next?

Be prepared for more stories like this because they are surely coming: Japan MOF to seek record debt-servicing costs in Fiscal Year 2014/15
Japan's Finance Ministry will request a record 25.3 trillion yen ($257 billion) in debt-servicing costs under its fiscal 2014/15 budget, up 13.7 percent from the amount set aside for this year, a document obtained by Reuters showed on Tuesday.

The decision, aimed at guarding against any future rise in long-term interest rates, underscores the increasing cost Japan must pay to finance its massive public debt.

The country's debt is double the size of its $5 trillion economy and is the biggest among major industrialized nations.
Watch What Happens Next

  1. If interest rates rise to a mere 3%, it will consume 100% of all revenues
  2. If Japan monetizes interest payments, the Yen will collapse

So, what's it going to be? Both?

My best guess is #2 happens whether or not #1 does any time soon.

Mike "Mish" Shedlock

Reflections on "A Moral Obscenity": How Long Ago Was a War Against Syria Decided?

Secretary of State John Kerry says the use of chemical weapons in Syria is "a moral obscenity".

With that clue (and many others), note that Obama prepares wary US public for war with Syria.
The White House has begun to prepare a wary US public for military action in Syria, with a flurry of well-publicised meetings of the administration’s national security team, backed by a statement by secretary of state, John Kerry, calling the regime’s use of chemical weapons “a moral obscenity”.

Mr Kerry said on Monday President Bashar al-Assad’s forces’ responsibility for the use of chemical weapons in an attack which left hundreds dead last week was “undeniable”, cementing a sharp about-turn in Washington’s response to the issue.

Mr Obama said last year the use of chemical weapons would cross a “red line” in a conflict which the US has stayed out of, apart from promising to funnel weapons to some anti-Assad forces. Subsequently, however, when faced with allegations that chemical weapons had been used, administration officials had suggested they could not be conclusively traced back to Mr Assad’s military.

The US is now moving quickly, and together with its Nato allies, could launch air strikes as early as Thursday or Friday this week, said individuals familiar with internal administration deliberations.
Chemical Weapons Questions

Q: Were chemical weapons used in Syria?
A: Highly likely

Q: By Assad, the rebels, or both?
A: Good question (and no one knows the answer for sure)

Q: Does it matter?
A: Apparently not. The US is headed for war anyway.

We Know Where They Are

Reflect back on the inane war in Iraq. Recall Donald Rumsfeld's statement regarding Weapons of Mass Destruction: "we know where they are".

We didn't know then. Do we know now?

Does it matter? Apparently not.

Iraq War Quotes

Please consider a few Iraq War Quotes.
11/15/1999, Dick Cheney, CEO of Halliburton (later, Vice President)

"Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow." (at the  London Institute of Petroleum)

10/11/2000, George W. Bush, Candidate for President

"I don't think our troops ought to be used for what's called nation building."

10/29/2001, Michael Leeden, American Enterprise Institute

"Just wage a total war against these tyrants; I think we will do very well and our children will sing great songs about us years from now."

02/13/2002, Kenneth Adelman, a member of the Pentagon's Defense Policy Board

"Liberating Iraq would be a cakewalk."

09/18/2002,  Donald Rumsfeld, Secretary of Defense (before Congress)

"We do know that the Iraqi regime has chemical and biological weapons. His regime has amassed large, clandestine stockpiles of chemical weapons -- including VX, sarin, cyclosarin and mustard gas. ... His regime has amassed large, clandestine stockpiles of biological weapons—including anthrax and botulism toxin, and possibly smallpox." (presentation to Congress)

10/7/2002, George W. Bush, President

"The Iraqi regime . . . possesses and produces chemical and biological weapons. It is seeking nuclear weapons. We know that the regime has produced thousands of tons of chemical agents, including mustard gas, sarin nerve gas, VX nerve gas."
Curiously, every statement except the first one by Dick Cheney was a blatant lie or blatant stupidity (take your pick).

Pentagon Had Plan in 2001 to Attack Seven Countries in Five Years, Including Syria

Want proof?

Fair enough. I would too.

Please consider this 2007 article Gen. Wesley Clark Says Pentagon Had Plan in 2001 to Attack Seven Countries in Five Years.

Better yet, please play the video: General Wesley Clark: Wars Were Planned – Seven Countries In Five Years (Syria Included)

15 Signs

Via ZeroHedge here are 15 Signs That Obama Has Already Made The Decision To Go To War With Syria

What Do US Citizens Want?

I am glad you asked.

As Syria war escalates, Americans cool to U.S. intervention.
Americans strongly oppose U.S. intervention in Syria's civil war and believe Washington should stay out of the conflict even if reports that Syria's government used deadly chemicals to attack civilians are confirmed, a Reuters/Ipsos poll says.

About 60 percent of Americans surveyed said the United States should not intervene in Syria's civil war, while just 9 percent thought President Barack Obama should act.

The Reuters/Ipsos poll, taken August 19-23, found that 25 percent of Americans would support U.S. intervention if Syrian President Bashar al-Assad's forces used chemicals to attack civilians, while 46 percent would oppose it. That represented a decline in backing for U.S. action since August 13, when Reuters/Ipsos tracking polls found that 30.2 percent of Americans supported intervention in Syria if chemicals had been used, while 41.6 percent did not.

Taken together, the polls suggest that so far, the growing crisis in Syria, and the emotionally wrenching pictures from an alleged chemical attack in a Damascus suburb this week, may actually be hardening many Americans' resolve not to get involved in another conflict in the Middle East.
"A Moral Obscenity"

Those looking for "A Moral Obscenity" now have it.

I am willing to define the term as follows:  A pre-ordained war, on inconclusive evidence, with only 9% support (24% even IF chemicals were used by Assad).

Mike "Mish" Shedlock

American Homes 4 Rent Update

In Second Biggest US Landlord, Owner of 20,000 Homes, Terminates 15% of Staff Following Loss I inadvertently made this comment about American Homes 4 Rent: "56% of their properties are not rented and the group still wants to spend $100 million a month to buy 800-1000 more homes."

A careful reader noted that it is 56% of the homes rented, and thus 44% not rented. Apologies offered.

I posted this correction.


I originally posted "56% of their properties are not rented". The person who caught my typo, said "I would be worried silly if only 56% of my properties were rented".

Not to worry, this is OPM (Other People's Money) American Homes 4 Rent is playing with. I am sure the CEO and executive staff of AMH will do quite well no matter what happens, even if AMH goes bust and takes down all the investors in the process.

Mike "Mish" Shedlock

Second Biggest US Landlord, Owner of 20,000 Homes, Terminates 15% of Staff Following Loss

Steen Jakobsen, chief economist at Saxo bank pinged me with a few comments this morning.

1. The 2nd biggest employer in the US is a TEMP AGENCY –   Kelly Services (with more than 550,000 people working for them in the average year). GE is 3rd largest with 300,000. Wal-Mart is first with over a million employees.

2. American Homes 4 Rent, the 2nd biggest landlord following Blackrock shed 15% of staff following a second quarter loss.

Please consider American Homes 4 Rent Said to Fire Employees After Loss.
American Homes 4 Rent (AMH) yesterday fired a group of workers, with a focus on acquisition and construction staff, after the housing landlord reported a fiscal second-quarter loss, according to a person with knowledge of the terminations.

The company, owner of almost 20,000 single-family homes, has cut about 15 percent of its workforce this year, including an earlier round of terminations before its initial public offering last month, said the person, who asked not to be identified because the information is private. The Malibu, California-based company, which raised $705.9 million in the IPO, had a net loss of $14 million, or 15 cents a share, on revenue of $18.1 million in the quarter ended June 30, according to a statement this week.

Single-family landlords have struggled to turn a profit while acquiring homes faster than they can fill them with tenants. Hedge funds, private-equity firms and real estate investment trusts have raised more than $18 billion to purchase more than 100,000 rental houses in the past two years. American Homes 4 Rent, founded by B. Wayne Hughes, is the largest single-family landlord after Blackstone Group LP’s Invitation Homes, which has spent more than $5 billion on 32,000 homes.

American Homes 4 Rent executives Peter Nelson, Jack Corrigan, Sara Vogt-Lowell and Janice Stack didn’t respond to e-mails and telephone messages seeking comment on the firings.

The landlord is slowing its property purchases, with plans to spend as much as $100 million a month on 800 to 1,000 additional homes, Corrigan, the company’s chief operating officer, said on an Aug. 21 earnings conference call.

“As far as being able to put money to work, I mean we could easily ramp back up to $300 million-a-month pace if we have clarity that we would have that capital available,” he said. “But we don’t want to get too far out over our skis.”

American Homes 4 Rent owned 19,825 properties for an investment of $3.4 billion as of July 31, according to its earnings statement. About 56 percent of the company’s homes were leased as of June 30.
Only 56% of their properties are rented and the group still wants to spend $100 million a month to buy 800-1000 more homes.

Don't  worry! They could triple that "but they don’t want to get too far out over their skis”.

Really?! What if they already are?

Such silliness explains why existing home sales are relatively robust compared to new home sales. The latter is now slumping because of higher mortgages rates.

Any downturn in the property market will sink this group. And such a downturn may easily be at hand.

For further discussion, please see New Home Sales Plunge 13.4% in July, June Revised Lower; Blame Rising Mortgage Rates


I originally posted "56% of their properties are not rented". The person who caught my typo, said "I would be worried silly if only 56% of my properties were rented".

Not to worry, this is OPM (Other People's Money)  American Homes 4 Rent is playing with.  I am sure the CEO and executive staff of AMH will do quite well no matter what happens, even if AMH goes bust and takes down all the investors in the process.

Mike "Mish" Shedlock

Durable Goods Orders Plunge 7.3%, Nondefense New Orders for Capital Goods Plunge 15.4%; Plunge to Accelerate?

US treasuries rallied a bit again today, with the 10-Year yield down 12 basis points in two days to 2.80% in the wake of a huge plunge in durable goods orders as reported by the commerce department.
New Orders

New orders for manufactured durable goods in July decreased $17.8 billion or 7.3 percent to $226.6 billion

Transportation equipment, down following three consecutive monthly increases, led the decrease, $16.7 billion or 19.4 percent to $69.7 billion. This was led by nondefense aircraft and parts, which decreased $14.5 billion.


Shipments of manufactured durable goods in July, down three of the last four months, decreased $0.8
billion or 0.3 percent to $228.8 billion. This followed a 0.1 percent June decrease.

Computers and electronic products, also down three of the last four months, drove the decrease, $0.9 billion or 3.2 percent to $26.6 billion. This followed a 1.1 percent June increase.


Inventories of manufactured durable goods in July, up three of the last four months, increased $1.3 billion or 0.4 percent to $379.1 billion. This was at the highest level since the series was first published on a NAICS basis, and followed a 0.2 percent June increase.

Transportation equipment, up fourteen of the last fifteen months, led the increase, $0.7 billion or 0.6 percent to $117.1 billion.

Capital Goods

Nondefense new orders for capital goods in July decreased $14.2 billion or 15.4 percent to $78.0 billion. Shipments decreased $1.0 billion or 1.4 percent to $73.6 billion. Unfilled orders increased $4.4 billion or 0.7 percent to $610.2 billion. Inventories increased $0.6 billion or 0.3 percent to $171.3 billion.
New Durable Goods Orders

New Durable Goods Orders Excluding Transportation

New Durable Goods Orders - Nondefense Capital Goods

Plunge to Accelerate? 

Is this the plunge that accelerates or is another bounce coming?

Given the "unexpected" plunge in new housing and the rise in mortgage rates, I suggest an acceleration to the downside.

For further discussion, please see New Home Sales Plunge 13.4% in July, June Revised Lower; Blame Rising Mortgage Rates; Starts 896,000 - Sales 394,000 - Hmmm.

Mike "Mish" Shedlock