Posts
Greece
'Selective Default' And Geithner's 'Selective Memory'
6
December, 2012
Late
last night S&P placed Greece into “Selective Default” again.
This is not the first time that Athens has been placed in the
jailhouse and perhaps it seems like one more ho-hum event but perhaps
not. The old bonds that were restructured were governed under Greek
law but this second re-structuring is governed under British law.
There may be challenges in the British courts as to the legality of
“reliance” and “fairness” and it may be that the legal
complaints mire the entire process in the courts for some period of
time. This could then stop the next round of the Troika funding and
cause all kinds of rancor in Europe. Then a “Selective Default”
raises the issues, once again, of the $90 billion in Greek
derivatives, the Greek bank bonds guaranteed by the country and now
at the ECB, some central banks and some commercial banks where some
clause may get triggered. Various clauses in repos, inter-bank
lending contracts and guarantees by Athens of various corporate
entities could also get triggered as the time it could take to drag
through the British courts invalidates any repatriation sections of
some contracts. The second and multiple times denied PSI during the
first go-round may not prove to be such a slam dunk as thought by
many and so I bring it to your attention.
In
the meantime the European mandated austerity measures for Greece have
driven their unemployment rate to over 26% as they replace Spain as
having the highest unemployment rate on the Continent. The youth
unemployment rate rose to 57% in Greece last month as I expect, any
day, for Europe to outlaw the calculation of unemployment as
hazardous to goals of the European Union. You may well laugh or
snicker but who knows what these people could do these days. If they
don’t like it; they don’t count it. If the ratings agencies opine
negatively then they must be admonished and minimized. One can almost
hear Rehn or Barroso invoking the rights of a united Europe to not be
marginalized by these type of calculations.
In
the meantime, because Americans hate to be left out of anything, we
continue to behave like fools. The raising of the tax rate on the
wealthy will operate the country for about eight days and it seems
like the savants in Washington have forgotten that there are three
hundred and forty-eight days left in the year. There has not been one
proposal from Obama that has addressed the social policies of the
nation that cannot be afforded. Secretary Geithner’s ,“We are
prepared to go over the fiscal cliff,” has all of the dramatics of
some bluff on World Wide Poker. The focus on redistribution of wealth
is a secondary consideration when you cannot pay your bills. The debt
ceiling debate is no better as all we are doing is adding more debt
to a total that cannot be afforded now as the Fed grinds out more
money, more Quantitative Easing and more highly questionable policies
for the future of our nation. I propose that unhappy Americans unite,
buy the Abaco islands from the Bahamas, they need the money, and
begin our own island nation and let the 46.5 million on food stamps
fend for themselves. I honestly feel that way some days as the idiocy
in Washington D.C. seems to recognize no boundaries.....
ECB Leaves Rates Unchanged, Significantly Downgrades 2013 Economic Forecast; Is Italy Falling Into the Abyss?
6
December, 2012
Earlier
today the ECB left its benchmark rate at a record low .75% stating
the rate was "very accommodating". What's more interesting
is the ECB's Significant
Downgrades To Growth And Inflation Forecasts.
The ECB downgraded its 2012 GDP forecast to a range of -0.6% to -0.4% from -0.6% to -0.2% previously, its 2013 GDP forecast to a range of -0.9% to 0.3% from -0.4% to 1.4% previously, and said its 2014 GDP forecast was for a range of 0.2% to 2.2% growth in the euro area.
On inflation, the ECB forecasts 2.5% inflation in 2012 versus a range of 2.4% to 2.6% previously. 2013 inflation forecasts were lowered to a range of 1.1% to 2.1% from 1.3% to 2.5% previously. In 2014, the ECB sees inflation in a range of 0.6% to 2.2%.
In
the Q&A period following the meeting, ECB president Mario Draghi
refused to answer the first question from a reporter regarding
whether Italy is falling into the abyss.
Is
Italy Falling Into Abyss?
Draghi
would not address the question, but I will. Let's take a look at
the Markit/ADACI
Italy Services PMI® released
yesterday, for clues regarding the abyss.
Key Points
Business activity and new work fall at accelerated rates
Steepest decrease in employment since June 2009
Input price inflation weakest for a year
Output across Italy’s service sector decreased at a marked and accelerated rate in November, as highlighted by a drop in the seasonally adjusted Markit/ADACI Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago – from October’s reading of 46.0 to 44.6. That stretched the ongoing sequence of contraction to a year-and-a-half.
Contributing to the decrease in activity was a further reduction in the volume of new business placed with Italian service providers in November. The latest drop was sharper than one month before, and attributed by the survey panel in part to lower disposable incomes and a lack of credit.
With incoming new work decreasing, services firms directed more resources towards the clearing of backlogs, which fell for the twenty-first straight month in November. Moreover, the rate of decline was the fastest since August 2009. That was despite a considerable decrease in operating capacity within the sector, as businesses continued to cut staff numbers over the month. In fact, the decline in employment was the most pronounced since June 2009 and close to the series record. Panellists commented on reduced working days and the non-renewal of temporary contracts.
Comment
Phil Smith, economist at Markit and author of the Italy Services PMI® said:
“These data, showing business activity at service providers contracting at a marked and accelerated rate in November, mark a turnaround from the general trend seen in recent months when the pace of decline had eased steadily. Furthermore, a sharper decrease in new business inflows points to further weakness in coming months and adds to the suggestion that Italy’s largest sector is some way off a return to growth. Firms were quick to react to the renewed downturn, reducing employment levels at near survey-record pace over the month amid efforts to lower costs. The sharpest decrease in backlogs since August 2009 shows that there remains a substantial degree of excess capacity, giving businesses more room to cut staff numbers.”
I
believe that answers the question. More specifically, "Yes,
Italy has fallen into the abyss." Expect France to fall into the
abyss as well, and expect Spain and Greece to stay in the
abyss.
Draghi might have spooked everyone if he gave the answer I just did. Thus, it's no wonder that he failed to address the question.
My answer also explains the significant downgrades in the overall eurozone
forecast (likely way too optimistic still).
France Unemployment Rate
Hits 10.3%, Youth
Unemployment at Record
High 24.9%; New Business
Activity Plunges
6
December, 2012
President
Francois Hollande's economically insane policy "Make
Layoffs So Expensive For Companies That It's Not Worth It" continues
to reap negative rewards.
Reuters reports French jobless rate hits 10.3 pct, highest in 13 years
France's unemployment rate rose to 10.3 percent in the third quarter of 2012, its highest since the third quarter of 1999, fr om 10.2 percent in the previous quarter, data published by national statistics office INSEE showed on Thursday.
Youth unemployment rose more markedly, with the jobless rate edging up to 24.9 percent, from 23.6 percent, among people under 25 years old. That was higher than any quarter on records going back to the start of 1996.
On the non-ILO measure issued by the Labour Ministry, the picture is even bleaker, with October data showing mainland jobless totals at 3.1 million, the highest in 14 years.
Francois Hollande, who took over in May as France's first Socialist president in 17 years, has promised to reverse the upward trend by the end of 2013.
How high will it get before it reverses? While pondering that question, please note the Markit France Services PMI® shows new business falls at sharpest rate since April 2009
Summary
French service providers reported another decrease in business activity during November. Although the slowest in three months, the rate of contraction was solid. Underlying the drop in activity was a marked and accelerated contraction of new business. Backlogs of work and employment both decreased, albeit at weaker rates.
Composite data showed that business activity across the French private sector fell for the ninth month running in November. The rate of contraction remained considerable, despite easing to the slowest in three months.
The level of new business placed with service providers in France decreased for the eighth month running in November. The rate of contraction was substantial, having accelerated to the sharpest since April 2009. Panel members commented that general market conditions remained tough, with clients cancelling projects and making fewer invitations to tender.
With manufacturers also registering a steep (albeit slower) decline in new orders, overall new business across the French private sector continued to contract at a marked pace in November.
Expect
a plunge in GDP and further plunge in employment to cacth up to the
PMI plunge in the above chart.
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