German Retail Sales "Unexpectedly" Fall in December, November Revised Lower; Unexpected by Whom?

I am amused to report German Retail Sales Unexpectedly Fall in December

German retail sales fell unexpectedly in December, dropping 1.4 percent on a monthly basis in real terms, preliminary data showed on Tuesday.

The notoriously volatile indicator was down 0.9 percent on an annual basis. Economists polled by Reuters had forecast retail sales to rise 0.9 percent on the month and 2.3 percent on the year.

November retail sales were revised downwards to a fall of 1.0 percent on the month, from a previously reported decrease of 0.9 percent. On an annual basis sales were also revised downwards to a gain of 0.9 percent from 1.4 percent.

More Amusement

I am even more amused by Barclays Capital Research (via email) that suggests "household consumption to be a major GDP growth driver in 2012."

German retail sales (real, sa, excluding cars/petrol) unexpectedly fell again in December, by 1.4% m/m (-0.9% y/y), according to the Federal Statistical Office (Destatis). The weak November figure was slightly revised down to -1.0% from a previously reported -0.9%. On average, retail sales in Q4 2011 were 0.7% below their level in Q3 2011 in real terms, indicating a weak performance of household consumption in last year's final quarter.

In nominal terms, food and non-food sales both rose 0.3% (y/y), but food sales fared significantly worse in real terms (-1.7%, y/y) than non-food items (-0.5% y/y), reflecting higher food prices. Among non-food items, sales of home furnishings and fixtures and building materials stood out, growing by 3.6% in real terms (y/y), indicating continued strong activity in residential construction in Germany.

Improving consumer sentiment, as reported by GfK, suggests that the notoriously volatile retail sales could pick up again soon. We expect household consumption to be a major GDP growth driver in 2012.

Household Consumption Major GDP Driver?!

Points of Contention

1. My reaction to Barclays is "Please be Serious". It is quite obvious that Europe is in a recession already.
2. It is also obvious that austerity measures in Greece, Portugal, Spain, and France will deepen the recession.
3. It is equally obvious the recession will be long and deep.
4. Finally, given that Germany depends on exports, especially to European countries, it should be obvious that Germany will be impacted, much more than economists and analysts think.

Then again, in reference to number 4 above, that is precisely why the falloff in retail sales was "unexpected" in the first place. Analysts and economists crunch numbers, looking in the rear view mirror instead of thinking ahead.

Watch for analysts' reports in the months ahead to comment on "unexpected" declines in German consumer sentiment, further "unexpected" declines in German industrial output, further "unexpected" drops in GDP, and further "unexpected" drops in retail sales.

Bear in mind, given the above cited "volatility" in retail sales, we just might see an unexpected "rise" in German economic numbers for a month or so. If so, don't make anything of it. It won't last.

Math Addendum

If it's fair for me to criticize Barclay's it is equally fair for them to criticize me.

In response to Greek Bond Math (Assuming the Deal Goes Through) ; Merkel Faces Backlash Over Deal; Political Zugzwang I received an email from a credit analyst at Barclays who prefers to remain anonymous. Here are his personal thoughts ...

The majority of the 145bn is for paying down existing debt, it is not additional debt

Current debt ~330bn split 120bn/210bn public/private
Post restructuring ~220bn split 120bn/100bn public/private

The 145bn then pays off ~80bn of the publicly held debt that matures + government deficit over 8 years + recapping the Greek banks (45bn)
So the net the government debt would end up at ~285bn (220+145-80)

Your basic point stands (debt is unsustainable), but worth getting the numbers right.

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

You Ain't Seen Nothin' Yet; Another Trillion (or Two) Euro LTRO Coming Next Month

Last month, European banks tapped the ECB for €489bn in a long-term refinance operation dubbed LTRO. On February 29, another round of LTRO is coming up and expect banks to go for the gusto. Banks like cheap money to speculate and that is exactly what they will do.

The Financial Times reports Banks set to double crisis loans from ECB

European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.

Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29.

“Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.”

Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold.

Unlimited Money for Three Years at One Percent

The ECB is offering unlimited money to banks for three years, at one percent. Banks are salivating because the first round went well.

The money is supposed to go for bank lending but it won't. Why should banks lend? They have a guaranteed profit by speculating in Spanish or Italian bonds, assuming of course Spain and Italy do not need bailouts coupled with a writedown on government debt.

However, that's quite a risk, and in my opinion Spain will need such a writedown. If so, Germany will be on the hook once again.

For a discussion about how futile this is, please see Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned

Money Supply Will Soar, Lending Won't

Don't expect the next LTRO to make it into the real economy. It won't. Rather the LTRO will fuel more bank speculation and more leverage in government bonds. Money supply will soar, lending won't and this rates to be good for gold.

In the meantime, please sing along with Bachman Turner Overdrive (and the ECB).



Link if video does not play: Bachman Turner Overdrive - You Ain't Seen Nothing Yet .

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

Portugal's Debt Will Be Restructured; 3-Year Government Bond Yield Tops 25%; CDS at Record High, Implies 72% Chance of Default

Inquiring minds are watching Portuguese government bonds soar into the stratosphere, with record-high bond yields across the entire yield curve.

In all the images below, the numbers are accurate but the charts reflect yesterday. I have mentioned this to Bloomberg a number of times to no avail.

Portugal 2-year Government Bonds



Portugal 3-year Government Bonds



Portugal 5-year Government Bonds



Portugal 10-year Government Bonds



Notice the opens and the lows in the charts above.

Bloomberg reports "The Frankfurt-based ECB bought Portuguese government bonds today, according to three people with knowledge of the transactions, who declined to be identified because the deals are confidential. A spokesman for the ECB declined to comment when contacted by phone."

My take is the ECB foolishly attempted to manipulate Portugal's bond market at the open, then was blown out of the water in the process. The ECB recklessly bought Greek bond and learned nothing from it.

Portugal's Debt Will Be Restructured

Adrian Miller, a fixed-income strategist at GMP Securities LLC, talks about the outlook for the European debt crisis. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan."



Link if video does not play: Portugal's Debt Will Be Restructured

CDS at Record High, 72% Chance of Default

Bloomberg reports Credit default swaps implied a 72 percent chance Portugal will default within five years.

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

Brussels Hit by First Coordinated Strike in Nearly Two Decades; Spain to Miss Deficit Reduction Goals; France Halved 2012 Growth Forecast to 0.5 Percent; Ten Things to Expect in Europe

The Financial Times reports Brussels hit by strike as EU leaders meet.

A general strike brought widespread disruption to Belgium on Monday, as European Union leaders arrived for a summit in Brussels with a focus on boosting employment across the region. Trains, shipping, air travel and public transport were all hit by the trade union action, called in response to reforms enacted hastily by the new government of Elio Di Rupo.

It is the first time in nearly two decades that unions from all sectors of the economy have co-ordinated a strike. As well as schools, the postal service and other branches of the public sector, some private enterprises were affected as unions flexed their muscles.

The strikes in the EU’s capital are a reflection of union discontent across the continent, worried that austerity measures will jeopardise the recovery. A Europe-wide “day of action”, bringing together unions from across the continent, is planned for February 29.

Voter distress and open dissent is no where close to peaking.

Spain to Miss Deficit Reduction Goals

Courtesy of Google Translate, please consider Spain deficit to Hit 6.8% in 2012 and 6.3% in 2013, according to IMF

6.8% is far from the 4.4% that the European Commission has imposed
IMF predicts two years of recession, with declines of 1.7 and 0.3% in 2012 and 2013

Spain will not meet deficit reduction goals of the European Commission in 2012 and 2013. Specifically, the IMF projects that the deficit will be within 6.8% of GDP in 2012 and 6.3% in 2013, when Brussels requires, at most, a deficit of 4.4% this year and 3% next.

The agency, predicts a recession of two years for the Spanish economy, ending the last three months of this year with a contraction of 2.1%. This indicates the organization in the latest update to its Global Growth Outlook, published today in Washington.

France Halved 2012 Growth Forecast to 0.5 Percent

Yahoo! Finance reports EU leaders struggle to reconcile austerity, growth

European leaders struggled to reconcile austerity with growth on Monday at a summit that approved a permanent rescue fund for the euro zone and was trying to put finishing touches to a German-driven pact for stricter budget discipline.

Officially, the half-day 27-nation summit was meant to focus on ways to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But disputes over the limits of austerity, and Greece's unfinished debt restructuring negotiations with private bondholders, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.

Spain's economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.

France halved its 2012 growth forecast to a mere 0.5 percent in another potentially ominous sign for President Nicolas Sarkozy's troubled bid for re-election in May. Prime Minister Francois Fillon said the cut would not entail further budget saving measures.

Conservative Spanish Prime Minister Mariano Rajoy, attending his first EU summit, said Madrid was clearly not going to meet its target of 2.3 percent growth this year. That has raised big doubts about whether it can cut its budget deficit from around 8 percent of economic output in 2011 to 4.4 percent by the end of this year as promised.

European Commission President Jose Manuel Barroso hinted Brussels may ease Spain's near-unattainable 2012 deficit target after it updates EU growth forecasts on February 23.

Bickering Continues

It is quite rare, if not unprecedented, for the head of the European Parliament to criticize what Merkel and Sarkozy hailed as "progress", yet that is exactly what happened.

European Parliament President Martin Schulz told the leaders the new fiscal treaty was unnecessary and unbalanced, because it failed to combine budget rigor with necessary investment in public works to create jobs.

"To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do," a British official said.

Merkel has said she will not discuss the issue of the ESM/EFSF's ceiling until the next EU summit in March. Meanwhile, financial markets will continue to worry that there may not be sufficient rescue funds available to help the likes of Italy and Spain if they run into renewed debt funding problems.

The sticking point is German public opinion which is tired of bailing out the euro zone's financially less prudent.

Ten Things to Expect in Europe

1. More bickering
2. More strikes
3. More emergency meetings
4. More trade wars, especially between Spain and France
5. Tobin Tax will backfire in France
6. Missed budget estimates across the board
7. Missed growth estimates across the board
8. Deep and lengthy recession will affect entire global economy
9. Recession will include France and Germany contrary to popular belief
10. End of Sarkozy's political career

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

Greek Bond Math (Assuming the Deal Goes Through) ; Merkel Faces Backlash Over Deal; Political Zugzwang

Rumors that a deal will be reached "soon" have gone on for weeks. Indeed announcements of an expected agreement today have already hit new snags.

For the sake of argument, let's assume a deal does go through, then crunch the latest numbers to see what the situation looks like from the point of view of Greece (and the lenders as well) before and after the deal.

The place to start is the current projection for the size of the next needed bailout.

Please consider Greece Needs EU145 Billion in Second Aid Package

Greece requires 145 billion euros ($192 billion) as part of a second aid package for the cash- strapped country, 15 billion euros more than was agreed in October 2011, Der Spiegel reported, citing an unidentified official from the so-called troika of European Commission, European Central Bank and International Monetary Fund.

Greece needs more money because the country’s economic situation is worsening, the German magazine cited the official as saying. The gap can’t be filled by contributions from private creditors alone, it said.

Bigger Bailout Needed

So, presuming a deal goes through, Greece is going to take on another 145 billion euros of debt, up from 130 billion last week.

Let's now turn our attention to the latest deal rumors.

Private Investors Near Deal on Greek Debt

Bloomberg reports Private Investors Near Deal on Greek Debt

Let's assume for the moment that "near" really means "near" and not five weeks from now when undoubtedly Greek conditions will have deteriorated further, requiring of course a bigger bailout. Here are the pertinent ideas from the article to consider.

• Investors holding euro206 billion in Greek bonds would exchange them for new bonds worth 60 percent less
• The new bonds' face value is half of the existing bonds. They would have a longer maturity and pay an average interest rate of slightly less than 4 percent.
• The deal would reduce Greece's annual interest expense on the bonds from about euro10 billion to about euro4 billion.
• When the bonds mature, instead of paying bondholders euro206 billion, Greece will have to pay only euro103 billion.
• The deal would reduce Greece's debt load by at least euro120 billion
• Greece faces a euro14.5 billion bond repayment on March 20, which it cannot afford without additional help

Three Essential Facts 

1. The new deal will reduce existing debt by 120 billion
2. The new bailout funds will take the debt load up by 145 billion
3. The net result is an increase in Greek debt of 25 billion

[Note: That math is incorrect - See Addendum]

This is supposed to work? The reduced interest rate to 3.6% will of course help Greece. But what is the interest rate on new debt?

Regardless, given Greece's deteriorating financial condition, exactly how long will it take before the EU and IMF realize once again that Greece cannot possibly pay back the new 145 billion?

In whose best interest is this deal? I fail to see how it benefits anyone.

Merkel Faces Backlash Over Deal

The Financial Times reports Merkel faces backlash over EU pact

Angela Merkel, the German chancellor, is facing growing political pressure at home to demand stricter fiscal discipline from her eurozone partners at an extraordinary European Union summit in Brussels on Monday.

She also faces a potential revolt by conservative members of the German parliament over any call for more taxpayers’ money to bail out the ailing Greek economy.

“If the Greeks don’t put the reform programme into effect, there can be no more help,” said Horst Seehofer, leader of the Bavaria-based Christian Social Union, in an interview with Spiegel magazine.

Philipp Rösler, economy minister and leader of the liberal Free Democratic party, junior partners in Ms Merkel’s government, threw his weight behind the call for stricter control over the Greek programme. “If the Greeks cannot do it themselves, there must be stronger leadership and supervision from outside, for example from the EU,” he said.

On the eve of the EU summit, which is supposed to finalise a formal treaty on budget discipline, Ms Merkel’s supporters in the German Bundestag are also calling for those rules to be made tougher.

“As it stands, the draft treaty does not go far enough,” a senior official of the Christian Democratic Union in the parliament said on Sunday. He said the centre-right group wanted sanctions to be imposed more automatically for excess debt and deficits, and a tighter timetable for all 17 eurozone members to introduce a binding commitment to balanced budgets in their national constitutions.

Political Zugzwang

Zugzwang is a term in chess. A player has to make a move but every move weakens the position. Pass is not an option.

Merkel is in such a no-win position. Everything she does will put her under attack by someone. Doing nothing, is an option in politics but not chess. However, doing nothing also exposes Merkel to attack.

Attacks Fly

Check out this nonsense from former European Commission chief Jacques Delors who says Resistance to eurozone bailout boost 'scandalous'

Former European Commission chief Jacques Delors on Sunday blasted the reluctance of eurozone countries like Germany to boost the size of the Greek bailout and create a system of eurobonds to facilitate lending.

"It is scandalous. You cannot be a member of the euro cooperation and at the same time say no to elementary demands for solidarity with other members within the framework of existing agreements," the prominent European federalist said in an interview with Dagens Nyheter, Sweden's daily of reference.

"We have to save Greece together. What has been done so far is too little, too late," he added.

Delors, who was commission chief between 1985-95 and a key player in creating the framework for the euro's 1999 launch, said it was "out of the question" to push Greece out of the eurozone and insisted the solution was for "Greece to privatise more of its economy."

"The euro countries also must together introduce common eurobonds, ... not to finance the current debt but to create greater efficiency and connectivity in the financial and monetary system," the 86-year-old Frenchman said.

The creation of such a "eurobond," which would pool the debt of the entire monetary bloc in a bid to reassure markets and facilitate lending, has long been a contentious issue among top policymakers, with the European Commission and France being in favour of such an instrument but Germany strictly opposed for now.

"It is a mistake of German Chancellor Angela Merkel to refuse to go along with such bonds," Delors said.

Delors' Self-Serving Pomp

What's scandalous if for political hacks like Delors to assume the Eurozone is worth saving, then tell everyone else how to go about it without taking into consideration any restraints others may have.

I suggest the euro is not worth saving. For the sake of argument, however, let's assume the eurozone is worth saving, and start with a look at Merkel's options.


Merkel's Predicament

1. If Merkel proposed Eurobonds, her coalition would collapse and she would be ousted. Moreover, the German supreme court would certainly demand a referendum which would fail. The irony then, is if Merkel did what Delores asked, the eurozone would fly apart right here right now.
2. If Merkel proposed significantly more bailout money, her coalition would also collapse and once again the proposal would be at risk of a challenge from the German supreme court.
3. If Merkel does nothing, she takes heat from political dimwits like Delors and an entire gamut of other nanny-zone supporters. She also takes heat from her coalition.
4. If Merkel steps up the pressure on Greece she hears it from her political opposition, from Delors, and from a whole host of parties representing a myriad of political views.

That my friends is political zugzwang and that is precisely why she called for Greece to Cede Sovereignty to Eurozone "Budget Commissioner".

Her proposal elevated the ire of Greeks as well as the likes of political hacks like Delors. Yet, that option is the one that made the most sense.  It was her least-worst option, that also bought her and the eurozone the most time.

It is the only option that has any chance of working.

By making those demands, she has a chance of keeping her coalition together. Indeed, if her demand are met or if Greece exits the eurozone in response, she might even be viewed as a hero!

Simply put, she is doing everything she can to keep the eurozone together. For doing the best she possibly can under the circumstances, she gets nothing but grief.

I think the best thing for the Eurozone would be for Germany to exit. The irony is that would likely happen if Merkel embarked down the path demanded by eurofools like Jacques Delors.

Addendum:

I received an email from a credit analyst at Barclays who prefers to remain anonymous. Here are his personal thoughts ...

The majority of the 145bn is for paying down existing debt, it is not additional debt

Current debt ~330bn split 120bn/210bn public/private
Post restructuring ~220bn split 120bn/100bn public/private

The 145bn then pays off ~80bn of the publicly held debt that matures + government deficit over 8 years + recapping the Greek banks (45bn)
So the net the government debt would end up at ~285bn (220+145-80)

Your basic point stands (debt is unsustainable), but worth getting the numbers right.

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

Why the Tobin Tax is a Bad Idea; Sweden's Experience With the Tax; Details of Sarkozy's Proposed Tax; Sarkozy Wants to "Provoke a Shock"

There is massive theoretical as well as actual real life evidence that financial transaction taxes will backfire, but that never stops politicians hell-bent on plowing ahead with "it's different this time" horrendous ideas.

Via Google Translate from Les Echos, please consider Sarkozy's stock exchange tax as of August 1

The 0.1% tax on financial transactions will apply from 1 August. In addition to equities, derivatives and high frequency trading are also covered.

Drawn up in haste, the tax on financial transactions is still the subject of intense discussions with the banking sector. A meeting has yet to take place on Monday to clarify the exact scope of covered products.

Many things are acquired, however: the tax will be paid by the people who buy a financial product, not by those who sell it. As reported Sunday, by the head of state, it will amount to 0.1% regardless of the nature of the product purchased (equities, derivatives) and will apply from 1 August, leaving a few months to Germany to eventually join the movement.

Three types of products involved

The law affects three different types of products: stocks, derivatives (including the famous' credit default swaps ", CDS) and high frequency trading-that is to say execution in microseconds of financial transactions by the only way of computing. This activity represents a huge chunk of transactions (about one-third). But most of the computers being located in London, the government will struggle to reach this activity. Still: he wants to show that tackles the most speculative operations.

Sarkozy Wants to "Provoke a Shock"

Bloomberg provides more details in Sarkozy Says France to Tax Financial Transactions From August

France plans to unilaterally impose a 0.1 percent tax on financial transactions starting in August, President Nicolas Sarkozy said, brushing aside opposition from the nation’s banks.

“What we want to do is provoke a shock, to set an example,” Sarkozy said late yesterday on French television from Paris. “There’s no reason why deregulated finance, which brought us to the current situation, can’t participate in the restoration of our accounts.”

“CDSs, which are speculative instruments against sovereign debt, will be taxed and online speculative purchases will be taxed,” he said.

Ernst & Young, an accounting company, has said in a report that while an EU transaction tax itself may raise as much as 37 billion euros, its net effect could be negative by between 2 billion euros and 116 billion euros by decreasing economic activity and reducing revenue from other taxes.

Socialist candidate Francois Hollande leads in the French presidential election polls. He has the support of 31 percent of voters in the first round, 6 points more than Sarkozy, and his second-round lead has risen to 20 points at 60 percent, according to a CSA poll published last week. Hollande, too, has pledged to impose a tax of financial transactions, if he’s elected.

Sweden’s Experience with the Tobin Tax

The Peterson Institute for International Economics presents Sweden’s Experience with the Tobin Tax

The Swedish Social Democratic government enacted a transaction tax on stocks, bonds, options, and some other securities in 1983. The tax, named after the economist James Tobin, was abolished by the new nonsocialist government in 1991.

The tax rates varied from 0.1 percent on ordinary stock trade to 0.15 percent on treasuries and 1 percent on options.

The Tobin tax in Sweden was a devastating failure that nobody would like to revive.

1. The expectation had been that the tax revenues would be 1.5 billion Swedish krona (SEK), but they stopped at SEK80 million.

2. Most Swedish trade in securities disappeared and went abroad, mainly to Oslo and London, and never returned. Soon after, the previously tiny Oslo stock exchange overtook the Stockholm stock exchange, and it is still the larger of the two stock exchanges.

There is no way that the current non-socialist Swedish government would accept a Tobin tax, as they know the security trade would leave the European Union.

In general, the Nordic and Baltic governments are amazed by what they view as a combination of arrogance, incompetence, madness, and slowness in Brussels, Paris, Berlin, and London. These sentiments are rather stronger in this region than in Washington. These countries are run by people who know how to handle crises, but they are effectively excluded from EU decision making.

Sarkozy's Pledge of Going it Alone

That discussion is all one should need to read to determine France would be acting very foolishly to implement such a tax.

Sarkozy thinks Germany would "soon" follow. As we have seen in the Eurozone, political decisions seldom if ever happen soon. Moreover, why would Germany act instead of watching France for a while?

Ironically, as soon as Germany saw the results in France (which likely would be soon), there is little chance they would implement such a foolish thing ever.

But what if all the European countries agreed to do it? We already know the UK opted out, but for the sake of argument, let's assume even the UK agreed.

The first that that would happen would be a mad scramble to execute transactions in the US, Switzerland, or Hong Kong. Nonetheless, let's assume the long arm of the law still managed to tax those transactions. What then?

Expect Increased Volatility, Decreased Trading Volumes, Lower Share Prices

The Adam Smith Institute offers a Comparative Study of the Potential Effects of a UK Tobin Tax. Here are some snips.

Sweden’s Experience with the Tobin tax

The rise and fall of the only case of a “pure” Tobin tax began in Sweden, when a 0.5% tax on the purchase of all equity securities (and stock options) was introduced on 1st January 1984. The tax applied to both domestic and foreign customers, and was levied directly on registered Swedish brokerage services.

Until 1987, inter-broker trades were considered intermediate (and hence exempt). ‘Round trip’ taxation effectively made the net taxation 1%, or 100 basis points. This was doubled in 1986, and later to include fixed income. Furthermore, a tax on stock options of 2% was introduced (1% relating to the premium, 1% upon exercise).

Understandably, investors devalued their assets to reflect the present value of future tax payments on the marginal share. The 2.2% average decrease in share prices on the announcement day added to the -5.35% index return over the 30 day period including the announcement. A further 1% share price reduction was seen in 1988 in reaction to the rate doubling.

Decreased Trading Volumes

Decreasing trading volumes led to secondary effects such as a reduction in capital gains taxes, almost entirely netting the (exceptionally low) tax revenue being generated.

Despite the tax being higher on equities, it was the fixed income market that suffered most. Despite the ‘low’ 0.003% tax levied on 5-year bonds, trading volumes dropped by 85% alone in the first week after implementation. Futures trading fell by 98%, and the options market was virtually non-existent.

Liquidity

All market participants would be subject to the tax; a Tobin tax is unable to discriminate between de-stabilising trades and those which provide liquidity, information and tradefinancing. With short-term trading providing invaluable liquidity to the market, an incapability to segregate individual trader motivations will therefore lead to a reduction in both liquidity and welfare-enhancing trade, in addition to increasing market susceptibility to individual shocks.

Robin Hood

Whilst the Tobin tax’s roots lie in economic theory, its current appeal is evidently political. The Robin Hood imagery drives the tax’s public support. It is its ‘stealing from the rich to give to the poor’ appeal that attracts many of its advocates, not the belief in its realistic economic capability. Understandably, some people are more-easily influenced by a well publicised, celebrity-endorsed Robin Hood Tax marketing campaign than by econometrical analysis or time series data.

Capital Flight

The experience of Sweden is one of capital flight. Odds are it would happen again.

The ATM Effect

The Adam Smith article contained an interesting analogy regarding ATM usage. When fees were zero, people would think nothing of doing an ATM transaction for $20. With fees of $2, you have to be pretty desperate to do an ATM transaction for $20. Instead, you would do one for your maximum limit. Some only use an ATM in an emergency and keep a pile of cash in their house instead.

In a falling market short-term traders provide liquidity (so do those shorting). Yet, Robin Hood proponents will drive those short-term traders away.

"In thinner markets, each trade would have a larger impact on price; resulting in less fluidity within the currency inventories of broker-dealers, the ‘liquidity providers’ of the market."

I fail to see how reduced liquidity and increased volatility will not be the result.

Four Reasons Tobin Tax is a Bad Idea

1. It would encourage capital flight (I know hedge funds that have contingency plans to move their entire operations to the Caribbean if such a tax is passed)
2. It would drive out short-term traders who provide much needed liquidity
3. Reduced liquidity would lead to increased volatility at the worst times
4. Pension plans  and mutual funds would bear much of the brunt of the tax. Rest assured market makers will find a way to pass their costs on.   

The results in Sweden are conclusive. A ‘low’ 0.003% tax levied on 5-year bonds caused trading volumes dropped by 85% in the first week after implementation.

Five-year US treasuries now yield .74%. Three-month treasuries yield .05%. Corporate bond yields are pathetic. How much of that do you want to take away?

Excluding bonds is not the answer. Liquidity and capital flight arguments suggests this idea should never get off the ground for any transactions.

By the way, buyers of CDS are often hedgers. Tax them heavily and there will be less interest in the underlying bonds. I would also point out that the speculators Sarkozy want to drive out of the market just happen to provide liquidity. Short sellers eventually cover, and provide fuel for rallies. Day traders will step into falling markets when others won't.

Sarkozy will "provoke a shock" alright, and it may crash the markets when he does.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Hollande Vows to Tax the Rich, Take Pay Cut; Sarkozy Promises German-Style Reforms; Merkel Cannot Save Sarkozy, But She Can Hurt Herself Trying

Politics are heating up in France and Germany as French president Nicolas Sarkozy clings to his political life and German chancellor Angela Merkel is under increasing pressure over more bailouts.

The Financial Times reports Merkel to join Sarkozy on campaign trail

German chancellor Angela Merkel promised to join Nicolas Sarkozy on the campaign trail as the French president took to the airwaves on Sunday to launch a set of German-style structural reforms aimed at seizing the initiative in his uphill re-election attempt.

Ms Merkel’s Christian Democrat party said she would “actively support Nicolas Sarkozy with joint appearances in the election campaign in the spring”. The announcement caused surprise in Paris as Mr Sarkozy, also of the centre-right, has yet officially to declare his candidacy for the election, which will take place over two rounds on April 22 and May 6.

The pledge by the German leader underscored the close ties she and Mr Sarkozy – together now habitually dubbed “Merkozy” – have built during the eurozone crisis, despite clear tensions between them at times. Ms Merkel pointedly avoided overt backing for David Cameron, the British Conservative party leader, in the 2010 UK general election.

Her intervention represented a clear rebuke to Mr Hollande. He has promised to renegotiate the new “fiscal compact” for the eurozone forged by Ms Merkel and Mr Sarkozy, due to be signed at a European Union summit in Brussels on Monday. He criticised it in his manifesto for lacking any growth stimulus and called for eurobonds and a revised pro-growth role for the European Central Bank, both strongly opposed by Berlin.

Sarkozy Proposes German-Style Reforms

Hoping to give a lift to his faltering campaign, Sarkozy to bring in German-style reforms

French president Nicolas Sarkozy unveiled German-style labour market reforms on Sunday as part of a package of measures aimed at reinvigorating the economy and his re-election prospects, hours after German chancellor Angela Merkel promised to join him on the campaign trail in an unusual show of cross-border support.

He announced a €13bn cut in France’s labour costs, which are among the highest in Europe, by reducing social charges on employers. The cut would be funded by an increase from October – well after the election – in value added tax to 21.2 per cent from the current level of 19.6 per cent, plus an extra tax on financial income.

Citing reforms made under former German chancellor Gerhard Schröder, who recently visited Mr Sarkozy, the president also proposed allowing companies more freedom to negotiate flexible working hours and pay levels with local unions – further eroding the significance of France’s statutory 35-hour working week. Similar moves in Germany had “created job, jobs and more jobs”, Mr Sarkozy said.

He announced the introduction of a long-promised financial transaction tax from August, saying the 0.1 per cent levy would include credit default swaps and “speculative computer trades”. France is determined to pioneer a full-blown FTT in the eurozone. “What we want to do is provoke a shock, to show an example,” he said.

Mr Sarkozy’s determination to push ahead with the shift of some welfare funding to VAT – known in France as “social VAT” – just months before the election was described by one parliamentary deputy from his UMP party as “political suicide”.

It has been flatly rejected by Mr Hollande and the president himself specifically ruled out an increase in the general VAT rate as recently as last October.

Will Sarkozy Please Make Up His Mind?

With today's announcement it appears the financial transaction tax is once again on the table. Sarkozy announced it, even to the point of "France Going Alone" if the EU would not approve. Then Sarkozy Dumps Financial Transaction Tax After Pressure From Banks. Now the proposal albeit in a modified form is back on the table.

In my opinion a financial transaction tax is economic insanity. It will reduce liquidity and perhaps cause a market crash.

Indeed all these taxes are economic insanity. Europe is headed into a huge recession. Increasing the VAT is the last thing one should want to do.

Hollande Vows to Raise Taxes for Rich and Banks

Meanwhile socialist challenger François Hollande sings a populous tune and vows to raise taxes for rich and banks.

François Hollande has outlined plans to raise taxes from the country’s banks, big companies and higher earners to close the country’s budget deficit and fund job creation in his bid to defeat Nicolas Sarkozy in France’s presidential election.

In a 60-point manifesto, the opposition Socialist party candidate also pledged to reopen the issue of pension reform, challenging one of the key achievements of Mr Sarkozy’s term of office.

The manifesto included a call to renegotiate the new eurozone “fiscal compact”, saying its emphasis on austerity aggravated the economic situation. He said the pact and the role of the European Central Bank should be re-shaped to favour growth, and he called for the creation of eurobonds to overcome the sovereign debt crisis.

Mr Hollande proposed finding all of the €29bn additional savings he said had to be made by 2013 through taxes. These would be raised by increasing levies on higher earning individuals, upping taxes on banks and removing a series of tax breaks for big corporations.

“If there are sacrifices to be made, and there will be, then it will be for the wealthiest to make them,” Mr Hollande said.

He insisted, however, that although the overall burden of taxes on the French economy would grow to almost 47 per cent of GDP by 2017 from 45 per cent this year, this was exactly in line with the current government’s own proposals.

Mr Hollande’s manifesto included €20bn of new spending measures, mostly to fund the hiring of 60,000 teachers, tens of thousands of new jobs for young people and support for small and medium-sized businesses.

A poll published yesterday by CSA put Mr Hollande on 31 per cent in the first round of voting, ahead of Mr Sarkozy on 25 per cent, with the socialist taking 60 per cent in a second round runoff against the incumbent.

Presidential Pay Hikes May Sink Sarkozy

Bear in mind that one of the first things Sarkozy did after the 2007 elections was to raise his salary from 100,000 euros to 240,000, a 140% increase. Much voter resentment lingers over that pay raise.

In contrast The Telegraph reports French front-runner pledges to cut his pay by 30 per cent as he aims to become next president

Francois Hollande, the front-runner to become France's next president pledged to cut his and his government's pay by 30 per cent on Sunday, as he hit out at the rich while seeking to dispel niggling doubts he has what it takes to become his country's next leader.

With just three months to go before elections, poll after poll suggests Socialist Mr Hollande will secure a comfortable victory over the unpopular Nicolas Sarkozy, his conservative rival and the incumbent.

Hollande's economic plan does not have to make any sense, and it does not have to be any better than Sarkozy's. Rather, Hollande's plan merely has to resonate with voters. A 20-point lead in second-round polls shows he has done just that.

I do not believe Merkel can save Sarkozy. Moreover and if she doesn't, her political stunt will hurt her own chances down the road.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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72% of Irish Want Referendum on Fiscal Treaty; Irish Prime Minister is a Disgrace

Unless it's a "sure thing" the last thing politicians want is a voter referendum. Simply put, politicians never stand for democracy.

What voters want is a different thing: 72% of Irish Want Referendum on Fiscal Treaty

The Irish government faces intense pressure to hold a referendum on the eurozone fiscal treaty after a poll that showed almost three quarters of the public want a vote on the agreement.

In an opinion poll published on Sunday, 72 per cent of people surveyed said the treaty, which would tighten budget rules for the 17 countries sharing the euro, should go to a vote.

Some 40 per cent of the 1,000 people questioned in the Sunday Business Post/Red C poll said they would support the treaty, 36 per cent were opposed and 24 per cent were undecided.

Sinn Féin has threatened to challenge in the Irish Supreme Court any decision not to hold a referendum, a move that could plunge Europe into months of legal uncertainty.

Last week several leftwing groups, including Sinn Féin, the United Left Alliance, the Workers’ party, and Eirigi launched a “Campaign Against Austerity Treaty”, demanding the government hold a referendum.

Irish Prime Minister is a Disgrace

Enda Kenny, Irish prime minister, says he will only hold a referendum if "legally required".

Here is a bit of history on Kenny.  He was swept into office in the wake of the global financial crisis. Voters were overwhelmingly opposed to bank bailouts and tossed out previous prime minister Brian Cowen in a massive landslide. It did not matter.

Kenny treated voters to more of the same. He entered agreements to bail out Eurozone banks, screwing Irish citizens in the process, just as Cowen had done.

Now, 72% of Irish citizens demand a referendum. Furthermore, every EU treaty since 1987 has been put to a vote.

Precedent alone says a referendum is "legally required". More importantly Kenny is "morally obligated" to hold a referendum. However, don't talk to politicians about morals, and don't expect any either.

Enda Kenny is a moral and ethical disgrace.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Sunday Funnies: Financially Suspicious Minds

This Sunday Funnies cartoon is courtesy of Merle Hazard who says "We Can't Go On Together with Suspicious Minds, Because Were Leveraged too Much Baby"



Concept by Merle Hazard, Art by Grey Blackwell. The cartoon also appeared on Jon Shayne's Blog.

Here is a list of Songs and videos by Merle Hazard, not to be confused with Merle Haggarg.

Inflation or Deflation? 



Link if video does not play: Inflation or Deflation

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Flip Flop, Flip Flop; Sarkozy Hell-Bent on Proving to the UK and the World that He Hasn't a Clue; Cardinal Rule of Allies

It is quite amusing to watch the self-destruction of Nicolas Sarkozy, president of France. Sarkozy got into a feud with UK prime minister David Cameron over a tax on financial transactions. Then under pressure from French banks withdrew support of the tax.

For a wrap-up, please see Triumph of One and the Price of Arrogance; Merkozy Treaty to Fail on Legal Grounds; UK Should Thank Sarkozy

One might think that Sarkozy would have had enough of self-inflicted damage, but one would be totally wrong. Flip-Flop, Flip-Flop is back again to flip.

Sarkozy to Announce VAT Increase of 1.6 Points, Introduce Tobin Tax

Via Google translate from Le Monde, please consider Sarkozy will announce Sunday a VAT increase of 1.6 points

Nicolas Sarkozy was expected to announce Sunday night a VAT increase of 1.6 point, we learn from several sources. VAT standard rate will be increased to 21.2%, a record in France. This increase is more limited than expected, will ease the burden on labor. This VAT is to take effect this year. The reduced rate would remain unchanged.

There will be no increase in the rate of the CSG on wages, an increase of taxation on property as possible.

The President will also announce the introduction of a Tobin tax to the French, a stamp duty extended. The implementing rules are not yet clear.

Companies with more than 250 employees, forced to have 4% of apprenticeship contracts will be subject to heavy penalties for noncompliance.

Why should the UK want to subject itself to this flip-flopping jackass? The appropriate thing for Cameron to do would be to stay as far away from Sarkozy as he can.

Cardinal Rule of Allies

Hard-line socialist candidate François Hollande is arguably a greater fool, but at least he would be easier to ignore, and more importantly, a person less likely to flip-flop.

It is better to have an enemy you can trust than an alleged ally that you can't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greeks Reject German Plan for EU Budget Commissioner; On the Verge of a Deal, Yet Again; Political Reality

Europe has been on the "verge" of a deal for two weeks. However, a deal is meaningless if Germany insists on budget controls. Actually a deal now is meaningless even if Germany does back down because at some point Greek politicians will have had enough. Here are the latest stories.

Yahoo! Finance reports Greece, creditors on verge of clinching debt deal

Greece and its private creditors said on Saturday they were piecing together the final elements of a debt swap and expected to have a deal ready next week, essential for sealing a new bailout and avoiding an uncontrolled default.

After muddling through round after round of inconclusive talks, the negotiations are in their final phase - though it appeared unlikely that a preliminary deal would be secured in time for a European Union summit on Monday.

Greek bondholders said the two sides were finalising a deal along the lines of a proposal made by Jean-Claude Juncker, the chairman of euro zone finance ministers.

The bondholders' comments suggested creditors had accepted Juncker's demand for a coupon, or interest rate, of below 4 percent on new, longer-dated bonds that Athens will swap for existing debt.

Greeks Reject German Plan for EU Budget Commissioner

It would be foolish to throw another 130 billion euros down the Greek rathole, but if Germany backs down it could happen.

The BBC reports Greeks reject German plan for EU budget commissioner

Greek officials have reacted angrily to a leaked German proposal for an EU budget commissioner with veto powers over Greek taxes and spending.

The Greek government said it must remain in control of its own budget.

The European Commission says it wants to reinforce its monitoring of Greek finances, but Greece should retain sovereign control.

Under the German proposal, a budget commissioner would have veto powers over Greek budgetary measures if they were not in line with targets set by international lenders.

Greece would also legally commit itself to servicing its debt, before spending any money in any other way.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the Financial Times quotes the German plan as saying.

Under the proposals, European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy, a German official told the Reuters news agency. He was speaking on condition of anonymity.

The austerity measures have angered many Greeks. In Athens on Friday, protesters tried to blockade inspectors from the "troika" of institutional lenders - the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) - into their hotel.

Elections in Greece are due to take place in April.

Political Reality

Mark Lowen BBC News, Athens provides additional color commentary.

In reality, Greece's finances are already to a large extent controlled by foreign forces. The debt-stricken country has received enormous bailouts from the EU and IMF conditional on deep cuts and fiscal reforms drawn up largely by officials in Brussels.

This new German proposal is clearly prompted by the widespread concerns that Greece is not succeeding in bringing its budget into order. Reforms have been slow and the budget deficit remains above target.

But ceding more control to Brussels would be deeply unpopular here. Most Greeks are against the austerity programme demanded by the EU and IMF.

And much popular anger is directed at Germany as Europe's paymaster general. The fact that Berlin has raised this latest plan won't soften sentiments here.

The popularity of technocrat, temporary prime minister Lucas Papademos has plunged from 75% to 8%. Greek citizens are clearly fed up. Anger is going to erupt big time soon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Triumph of One and the Price of Arrogance; Merkozy Treaty to Fail on Legal Grounds; UK Should Thank Sarkozy

The arrogance of French president (soon to be ex-president) Nicolas Sarkozy is about to bite the Eurocrat nanny-zone officials big time.

In December, Sarkozy insisted on a financial transaction tax and other concessions that the UK alone would not sign. In what was billed as a triumph of 26 of 27 is soon going to be viewed as a triumph of one over 26.

The Merkozy treaty that 26 nations signed can never legally fly.

Triumph of One

Der Spiegel reports Critics Question Merkel's Fiscal Pact Proposal

The final decision is planned for the next European Union summit on Monday. There leaders from 26 of the 27 member states plan to finalize the new fiscal pact, the agreement pushed hard by Chancellor Angela Merkel requiring signatories to adhere to strict fiscal policy guidelines.

But the high expectations awakened by Merkel are unlikely to be fulfilled. Several elements in the agreement are of questionable legality. It can't be written as an EU treaty because Great Britain won't sign it, which means it will only be an "inter-governmental agreement" between the 17 euro-zone countries and a handful of other countries participating voluntarily.

It's turning out to be a big handicap. On the one hand, the European Commission's hands are tied, because it can only act on behalf of all 27 EU members. Despite Merkel's wish, the Commission cannot legally take those that violate budgetary rules to the European Court of Justice. According to the fiscal pact proposal, national governments can only do this among themselves. But no country has ever taken legal action against another in EU history. Such a case would be seen as a gross violation of diplomatic etiquette.

Court Authority in Question

Even if it comes to that, the authority of the European Court of Justice's (ECJ) remains in question. The treaty proposal states that the Luxembourg judges can impose fines of up to 0.1 percent of a country's GDP if they don't properly anchor the debt brake in their national law.

But these sanctions aren't actually provided for by EU law. In fact, they deviate from Article 126 of the Lisbon Treaty. And, according to Matthias Ruffert, a European law expert at the University of Jena, it is likely that all 27 EU members will have to ratify the fiscal pact for any ECJ sanctions to be binding.

Other lawyers argue that the sanctions would not be as binding as other ECJ verdicts. Because the fiscal pact terms involve only an intergovernmental agreement, they aren't EU law, which means they don't automatically come before national law, says European law expert Ronan McCrea, from University College London. Thus, in the case of an emergency, it would be easier for a national government to disregard such a verdict.

Another issue that EU leaders must resolve on Monday is who will be allowed to attend future EU summits. The fiscal pact proposal states that the President of the European Parliament can be invited. But this doesn't go far enough for representatives of the people, who think he or she should be automatically present, in addition to presidents of the European Commission, the European Council and the European Central Bank.

For most observers of the EU summit, the fiscal pact is only interesting as a side issue. In fact, many see it as nothing more than one of Merkel's pet ideas, and Luxembourg Prime Minister Jean Asselborn even went so far as to tell SPIEGEL ONLINE in a recent interview that it was a "waste of time and energy."

UK Should Thank Sarkozy

British Prime Minister David Cameron would actually have signed that fool treaty has it not been for the crap Sarkozy tried to force down Cameron's throat. It would have been a big mistake.

Thus, British citizens should thank Sarkozy, because it was Sarkozy's arrogance that doomed the treaty. A humorous irony is that six days ago Sarkozy Dumps Financial Transaction Tax After Pressure From Banks.

Kiss Sarkozy Goodbye

Because of numerous gaffs, Sarkozy will not be reelected. Indeed, he may not even survive the first round of voting. On January 19, I reported Le Pen Inches Closer to Bumping Off Sarkozy in First Round of French Elections; Interesting Crossover Vote Opportunity for Hollande Supporters to Dump Sarkozy.

On January 21, The Guardian reported Marine Le Pen and France's Front National sense their time has come

The conjunction of the eurozone crisis, the loss of France's triple-A credit rating, and rampant unemployment, currently at a 12-year high, has given unexpected credibility to Le Pen's anti-Europe, anti-immigration stance. The economic storm has created what political pundits and pollsters believe may be a now-or-never moment for the Front National after 40 years spent largely in the political backwaters.

Poll after poll places Le Pen third with 21.5%, hovering just behind Sarkozy at 23.5%, and with the Socialist party's François Hollande well in the lead for the first round of the presidential vote in April. If the opinion polls are accurate, it is perfectly feasible, allowing for the accepted margin of error, for Le Pen to reach the second-round run-off a fortnight later. Some surveys show support for the FN candidate to be considerably higher, topping 30%.

The days when the FN, then run by Le Pen's father, Jean-Marie, now 83, could be dismissed as the loony fringe of French politics have long gone. Some of its policies have been anxiously emulated by Sarkozy's government as it shifts to the right, giving them a mainstream respectability.

UK Wins Regardless

The UK wins if Le Pen wins because if she wins the Eurozone breaks up. That would be a good thing in my opinion. However, Le Pen is not going to win.

Hard-line socialist François Hollande is going to win regardless of who the final two candidates are in the election. Sarkozy has made too many mistakes and the socialists will never vote for Le Pen.

Socialist Hollande is likey worse than centrist Sarkozy. The saving grace however, is Hollande has promised to rework the Merkozy treaty which would doom the whole thing, signed by 26 or not.

Thus, the whole mess will soon come flying apart unless Cameron snatches defeat from the jaws of a "Triumph of One" victory by signing a revised treaty before the French presidential elections.

In the meantime. expect more Bickering Over Who's at the "Three-Speed" European Table.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bickering Over Who's at the "Three-Speed" European Table

Last month, in an effort to snub the British and prime minister Cameron who would not go along with the Tobin Tax concept, French president Nicolas Sarkozy forced through a rule change that excluded non-euro member nations from sitting at the table.

This move has ruffled the feathers of Poland who thinks it should be at the table. Please consider Poland bristles at idea of ‘invitation-only’ summits

“If Poland does not obtain the appropriate status as a participant in meetings of the eurozone that give the feeling that we are participating in a certain part of the decision-making process… then it will be difficult for us to sign the fiscal pact,” Mr Tusk [Donald Tusk, the Polish prime minster] said this week. “We will not accept such a model.”

The principal opponent of the Polish move, diplomats said, has been France, where president Nicolas Sarkozy has long viewed the new pact as a way to create a “two-speed Europe”, with eurozone countries moving into a tighter subgroup as the remaining 10 nations gradually become less integrated with their brethren in the single currency.

French objections centre around Poland’s unwillingness to be subject to the treaty’s main elements – a series of debt and deficit limits that will be enforced by fines, which would now only affect eurozone members – and to contribute to the eurozone’s new €500bn bail-out system. Without shouldering such burdens, France has argued, Poland should not be allowed at the table.

Last year, Mr Tusk angrily rebuffed a Franco-German “pact for the euro” which would have had eurozone members commit to budget and economic measures that went beyond current EU strictures. Eventually, the agreement was renamed the “euro-plus pact” and Poland, along with some other non-euro countries, became signatories.

Three Speed Europe

Clearly we have the Euro Pact, the Euro-Plus Pact, and the 27-nation EU-Pact. That sounds like three tables to me. Poland demanded the topic be debated on Monday in a gathering of European heads of state. The Financial Times says the "prospect could lead to another summit that stretches late into the night."

I say count on it. If there is another disagreement on a major issue will there be a 4th table? Meanwhile, I have to ask why the British would want to be at any table.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Capital Account: Snow stories from Davos and "muddle-through" economics with Mish

I was on Capital Account with Lauren Lyster once again on Friday. She was covering the economic forum in Davos so the interview was with Demetri Kofinas. I come in about the 17 minute mark.



Link if video does not play: Snow stories from Davos and "muddle-through" economics with Mish

I believe the "RT" channel is picked up on Comcast but I could not find it on ATT U-verse.

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

NGUYỄN QUANG LẬP

NQL: Tạm gọi bài này là khai bút đầu xuân...

Mình có ông chú ruột không làm chức tước gì nhưng mình rất tự hào, ấy là chú Lình, con út của ông nội, em trai của ba mình. Xưa chú nổi tiếng nấu ăn ngon nhất tỉnh Quảng Bình. Chú đã từng nấu cơm cho Bác Hồ trong tuần Bác vào thăm Quảng Bình vào năm 59-60 chi đó thế kỉ trước.

  Hồi ở lính mình được coi là đứa nấu nướng vụng nhất Ban kĩ thuật trung đoàn, cứ mỗi lần anh em trong ban tổ chức nấu nướng nhậu nhẹt thể nào mình cũng được phân công bửa củi và xách nước. Hai việc đó nặng nhất nhưng mình lại thích, thà làm ào ào xong rồi nghỉ hơn là ngồi khom lưng nhặt một mớ rau. Anh Thành đại úy thường vẫn sai mình làm việc vặt, khi thì nhổ lông vịt lông gà khi thì đâm ớt tỏi làm nước mắm, việc nào mình cũng làm  anh ngứa mắt. Lần nào anh cũng xòe cái răng vàng ra cười cười, nói mày như thằng tiểu tư sản, chẳng làm cái đéo gì ra hồn. Mình nhăn răng cười, nói em ăn giỏi hơn anh, được chưa? Rồi mình khoe chú Lình nấu ăn giỏi, đã từng nấu cơm cho Bác. Chẳng ai tin, cho là mình bốc phét. Anh Phúc trung úy cười cái hậc, nói thằng này hơi bị ngu, khoe gì lại khoe có ông chú nấu ăn cho Bác. Cả nước không còn ai biết nấu ăn cho Bác, phải cậy đến chú mày à.

Hi hi tức chết đi được, chuyện nào mình bốc phét thì mấy ông tin sái cổ, chuyện mình nói thật thì chẳng ai tin. Hồi đó mình có lên sân khấu trung đoàn đọc bài thơ do mình sáng tác ( xưa mình đọc thơ trên nền nhạc hơi bị được, he he), không nhớ bài gì nữa, chỉ nhớ mỗi câu: “ Đêm tôi đi qua dãy phố nhà em/ tiếng dương cầm níu chân tôi dừng bước.” Mấy anh trong Ban phục mình lắm, nói thằng Lập tài, cưa được gái Hà Nội, mấy em  biết chơi đàn dương cầm là chảnh lắm thế mà nó cưa được. Hi hi .

Thủa chú Lình còn bé, ông bà nội mình chết bom, ông bác Vĩnh Tường (  ông bác ruột) đem ba con trai của ông bà nội về nuôi, đó là ba mình, bác Trang và chú Lình. Ông  Vĩnh Tường hồi đó thuộc hàng giàu có nhất tỉnh, năm 1953 vô Sài Gòn, chẳng mấy chốc thuộc hàng giàu có nhất Sài Gòn. Nhắc đến tên ông, nhiều người sống ở Sài Gòn từ 1955-1975 vẫn còn nhớ. Vì giàu có mà ông Vĩnh Tường nuôi ba anh em ăn học, không phải làm gì. Nhưng chỉ ba mình là ham học, bác Trang thì mải chơi, chú Lình học giỏi nhưng chỉ thích nấu ăn không chịu học.

Thấy ba mình ham học, ông Vĩnh Tường quí lắm, ông không có con trai nên chọn ba mình làm con nuôi, được hưởng tập ấm. Ông Vĩnh Tường vô Nam, chú Lình và ba mình theo cách mạng ở lại Bắc, chỉ bác Trang đi theo. Mình nghe ba mình kể, nói bác Trang ham chơi lắm, ông  Vĩnh Tường giao cho một xí nghiệp để làm ăn, bác cũng bán nốt lấy tiền tiêu xài chơi bời, chơi cho đến già, khi chết không vợ con gì.

 Ba mình kể chú Lình rất ham nấu ăn. Ở trong lớp tiếng Pháp, cô giáo người Pháp hỏi học trò, nói học tiếng Pháp để làm gì. Ai cũng trả lời học  để giúp dân giúp nước, chú Lình trả lời thẳng tưng, nói học để đọc sách dạy nấu ăn bằng tiếng Pháp. Nhà ông Vĩnh Tường nhiều đồ ăn, tha hồ chế biến. Chú Lình suốt ngày chui vào bếp, không đi chơi cũng chẳng đi học. Sợ mang tiếng bắt cháu chắt làm việc, ông  Vĩnh Tường đuổi chú  ra khỏi bếp, bắt đi học. Đuổi hôm trước, hôm sau chú lại lẻn vào bếp. Ông  Vĩnh Tường bắt được, quát nạt doạ đánh.  Chú  khóc, nói con chỉ muốn nấu ăn thôi, nấu ăn cũng là nghề. Ông Vĩnh Tường nghe nói thế thì ngạc nhiên lắm, trợn mắt nhìn chú, nói mi nói thiệt chơi? Chú nói thiệt. Ông nói mi định lập nghiệp bằng nấu ăn à, chú nói dạ.

Ông  Vĩnh Tường  ok liền, giao cả cái bếp cho chú. Từ đó chú Lình trở thành đầu bếp số 1 của nhà ông  Vĩnh Tường. Khách của ông Vĩnh Tường toàn khách sang, ăn uống rất sành, hết thảy đều nức nở khen ngon, nói cu Lình còn nấu ngon hơn mấy ông ba Tàu ở Chợ Lớn. Nghe nói quan đầu tỉnh ở Đồng Hới ( tên gì quên mất rồi) vẫn thường ra Ba Đồn chơi, lần nào cũng vào thăm ông Vĩnh Tường, lần nào ông Vĩnh Tường cũng bày tiệc, sai chú nấu nướng. Ăn lâu quen mồm, nhậu ở đâu ngài cũng đem chú Lình ra so sánh, nói món ni ngon như  cu Lình, món kia không bằng cu Lình, lâu ngày có tên là món cu Lình (Món gì cũng quên mất rồi).  Sau đó chú rời nhà ông Vĩnh Tường theo Việt Minh, hòa bình lập lại, chú vào làm cho Giao tế tỉnh ( Giống như sở ngoại vụ bây giờ), chú nhanh chóng nổi tiếng khắp tỉnh về tài nấu nướng.

Mình đã được mục sở thị tài nấu nướng của chú Lình. Ấy là ngày giỗ đầu ba mình, nhà làm 60 mâm, mời chừng 300 người là họ hàng và bạn bè, đồng chí của ba mình. Một mình chú Linh đứng bếp, có bốn năm chị em phục vụ nhưng chú chỉ cho rửa ráy rau thịt và sắp món chứ không ai được đứng bếp cùng chú. Chỉ duy nhất với một cái chảo, chú xoay trở đảo điên làm ra 6, 7 món cho ba trăm người, 8 giờ sáng vào bếp, đúng 11 giờ là dọn ra tăm tắp không mâm nào thiếu một món gì, ai cũng xuýt xoa khen ngon. Chỉ cần ngửi hơi là chú biết mặn hay nhạt, nhìn hơi chú biết loãng hay đặc, chín nhừ hay chín vừa, rất tài.

 Xưa đại tướng Nguyễn Chí Thanh về gây dựng phong trào Gió Đại Phong ở Quảng Bình, đi đâu cũng mang chú đi để chú nấu ăn cho. Đại tướng rất thích đi săn, kiếm được con gì ngon là Đại tướng nhất định chờ chú  tới nấu, không cho ai nấu. Một khi nghe điện thoại của Đại tướng, nói đồng chí cu Lình đâu rồi, cấp cứu cấp cứu… là chú biết Đại tướng vừa săn được con gì đó ngon, đang chờ chú đến chế biến, nấu nướng.

Bác Hồ về thăm tỉnh Quảng Bình 1 tuần, cả tuần ăn uống của Bác đều do chú lo. Một bữa ăn của Bác chỉ có 6 đồng ( Khoảng 600 ngàn đồng bây giờ), bữa nào Bác cũng mời chừng 4,5 người khách nhưng với tài chế biến của chú, mâm cơm của Bác rất nhiều món, món nào cũng ngon. Bác Hồ rất thích, có hôm Bác gật gù xuýt xoa khen, nói đến cà pháo chú Lình làm cũng khác người, ăn cứ ngậm mà nghe.

 Ra Hà Nội, Bác Hồ viết thư về tỉnh, Bác nhắc nhiều chuyện trong đó có câu: “ Một tuần Bác ở Đồng Hới, chú Lình nấu ăn cho Bác rất ngon” . Năm 1992 mình đọc một bài báo tỉnh Quảng Bình kể chuyện chú Lình nấu cơm cho Bác, có “cải chính” không những viết thư khen, Bác còn tự tay vẽ một  tờ giấy khen gửi về cho chú. Mình hỏi chú có không, chú cười lắc đầu, nói có mô. Nhưng mình nghi chú giấu, chú sợ lộ ra thể nào  bảo tàng tỉnh cũng tới xin, không cho không được mà cho thì tiếc lắm, hi hi.

Prepare for Greece to Leave Eurozone; German Government Calls for Greece to Cede Sovereignty Over Tax and Spending Decisions to Eurozone "Budget Commissioner"; Text of the German Demands

Prepare for Greece to exit the Eurozone. Germany has made a request that in my opinion practically guarantees that outcome. The Financial Times has a pair of articles on the matter but the conclusion above is mine.

German Government Calls for Greece to Cede Sovereignty to Eurozone "Budget Commissioner"

Please consider Call for EU to Control Greek Budget

The German government wants Greece to cede sovereignty over tax and spending decisions to a eurozone “budget commissioner” to secure a second €130bn bail-out, according to a copy of the proposal obtained by the Financial Times.

In what would amount to an extraordinary extension of European Union control over a member state, the new commissioner would have the power to veto budget decisions taken by the Greek government if they were not in line with targets set by international lenders. The new administrator, appointed by other eurozone finance ministers, would take responsibility for overseeing “all major blocks of expenditure” by the Greek government.

Even before Germany circulated its proposal, the EU and International Monetary Fund had presented a 10-page list of “prior actions” Athens must implement before the new bail-out is agreed. According to a copy of the document, also obtained by the FT, Greece must cut an additional 150,000 government jobs within three years.

Actual Text of Proposal

The Financial Times posted on its website the complete text of the proposal. Here are snips from Assurance of Compliance in the 2nd GRC Programme

1. Absolute priority to debt service
Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its comittments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

2. Transfer of national budgetary sovereignty
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.

Expect Greek "Bank Holiday" Soon

Perhaps I am mistaken but I do not see any chance Greece will agree with this proposal.

German and IMF demands make meaningless any hint of a deal "soon". Germany has signaled it has had enough and will not throw another 130 billion euros down a rathole. The IMF signaled the same thing but not as emphatically.

Thus, if Germany does not back down and the IMF insists on a 10-page list of “prior actions” a Greek exit from the Eurozone is at hand. 

Look for a "bank holiday" in Greece soon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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2010-2011 Originations Best Default History on Record; Delinquencies Down 25% from Highs, Foreclosure Inventory Near Peak Level

Here are a couple of interesting charts from the LPS Mortgage Monitor, January 2012 Mortgage Performance Observations report. Data as of December, 2011 Month-end.

click on any chart for sharper image

Originations Decline

Government Responsible for Most Refinance Activity

Quality of Loans Improves

Foreclosure Inventory Near Peak Level



Horrendous Performance of Loans in Foreclosure in Judicial States



The quality of recent loans has gone up and delinquencies are lower, but the rest of the data shows numerous problems. Foreclosure inventory is near record levels and more foreclosures wait in the wings. Home sales has stalled and home prices continue to decline according to Case Shiller.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GDP on Recession Track; Real GDP +2.8%, Misses Estimates; Inventory Replenishment Accounts for 1.9 Percentage Points; Five-Year Treasury Yield Hits Record Low

The headline real GDP number of 2.8% does not sound too bad until you dig beneath the surface. A full 1.9 percentages points of that 2.8% was inventory replenishment. Real GDP vs. a year ago is +1.6% and that is on a recession track as well.

Five-Year Treasury Yield Hits Record Low

Bloomberg reports Treasury Five-Year Yield Declines to Record Low as GDP Misses Forecast

Treasury five-year note yields fell to a third consecutive record low after slower-than-forecast U.S. growth added to speculation the Federal Reserve will expand asset purchases to spur economic growth.

Ten-year note yields fluctuated as stockpile rebuilding accounted for 1.9 percentage points of the 2.8 percent economic expansion, sparking concern growth may be weaker than expected in the first three-months of this year. Fed Chairman Ben S. Bernanke said Jan. 25 he’s considering additional bond purchases to boost growth after the Federal Open Market Committee announced that the target lending rate would stay low through late 2014.

Yield Curve over Time

click on chart for sharper image

Stock Symbols in Above Chart

• $IRX Brown: 3-Month Yield
• $FVX Blue: 5-Year Yield
• $TNX Orange 10-Year Yield
• $TYX Green: 30-Year Yield

Sustained economic weakness is the only reasonable explanation for this decline in yields. Yes, there is Fed intervention. However, the reason the Fed is intervening is "sustained economic weakness".

However, the Fed's actions are counterproductive. Driving down interest rates does not encourage bank lending, rather it does five things the Fed does not want.

Five Unwanted Results of Fed Policy

1. Low interest rates clobbers those on fixed income - See Hello Ben Bernanke, Meet "Stephanie"
 
2. Low interest rates and quantitative easing encourages bond market speculation and sure profits instead of bank lending - See Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned
 
3. Low interest rates encourage commodities speculation especially food and energy and that puts a price squeeze on manufactures. Input prices rise, but demand and prices decline. - See Chart of the Day: Apparel Import Data in Square Meters and Dollars; J.C. Penney's Slashes Prices on All Merchandise by "At Least 40%", Offers Every Day Low Pricing
 
4. Low interest rates drives up the price of gold - See Gold, Silver, $HUI React to Bernanke Pledge to Hold Rates near Zero "At Least" through Late 2014; Hello Stephanie, Ben Promises More of the Same
 
5. The beneficiaries of the Greenspan Fed and the Bernanke Fed policies have been the 1% not the 99%

Fed Policy Not Working

Fed policy is not working, nor will it work.

This is what happens when an academic wonk with no real-world practical thinking sits in a box with other academic wonks with no real world experience and they collectively divine economic policy as if they were god.

The Fed is responsible for the housing bubble, the resultant collapse, and the anemic economic recovery.

GDP on Recession Track

Here is an interesting chart from Doug Short regarding Real GDP and the Next Recession

click on chart for sharper image

Doug Short writes ...

As the chart illustrates, the latest YoY real GDP, at 1.6% is up from last quarter's 1.5% (to two decimal points it's 1.56% versus 1.46% for Q3). At 1.6% the YoY number is below the level at the onset of all the recessions since quarterly GDP was first calculated — with one exception: The six-month recession in 1980 started in a quarter with lower YoY GDP (at two decimal places it was 1.42% versus today's 1.56%). And only on one occasion (Q1 2007) has YoY GDP dropped below 1.6% without a recession starting in the same quarter. In that case the recession began three quarters later in December 2007.

In contrast to popular belief, recessions typically start with GDP in positive territory. As you can see, Real GDP vs. a year ago is +1.6% and that is consistent with a recession track.

It is highly likely Bernanke was aware in advance that a full 1.9 percentages points of that 2.8% rise in GDP was inventory replenishment when he pledged on Wednesday to "Hold Rates near Zero "At Least" through Late 2014" and opened the door for another round of Quantitative easing as well.

Nonetheless, for reasons noted above, another round of quantitative easing will be counterproductive. The beneficiaries of Bernanke policy will be the 1%, not the 99%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Portugal 10-Year Government Bond Yield at Record High

With an involuntary Greek debt restructuring in the works (see Greek Debt Solution Likely to Trigger Credit Default Swaps) it's time to focus on the next involuntary debt restructuring.

Portugal 10-Year Government Bond Yield



Expect a currency crisis to erupt in Portugal at any time. Round-after-round of emergency meetings (and all of them will fail), are just around the corner.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greek Debt Solution Likely to Trigger Credit Default Swaps

European finance ministers and politicians have come to the conclusion that a deal, even one involving a credit event, is better than no deal at all. Thus it is increasingly likely the Greek Debt Wrangle will trigger credit default swaps.

Opposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.

Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts

“Politicians seem less concerned than before about CDS triggers,” said Michael Hampden-Turner, a credit strategist at Citigroup Inc. in London. “Having a payout on Greek CDS is probably better than the alternative: a loss in market faith of the product’s ability to provide a hedge against sovereign risk.”

Officials, including former European Central Bank President Jean-Claude Trichet, have insisted that a swaps trigger was unacceptable because traders would be encouraged to bet against indebted nations and worsen the crisis.

Greece said it may impose losses on investors who fail to support the debt restructuring by adding a so-called collective action clause, or CAC, into its bond documentation. That would force holdouts to accept the same terms as the majority.

Use of CACs would trigger a restructuring credit event and a payout of default swaps, according to rules from the International Swaps & Derivatives Association.

“A CAC is looking increasingly like the best option,” Citigroup’s Hampden-Turner said. “That route seems to tick a lot of boxes: they don’t have a bond default, the official sector gets treated differently than the private sector, and everybody has to participate in the exchange without anybody getting paid in full.”

ECB Opposition

While the ECB oppose any involuntary restructuring of Greek debt, policy makers such as Dutch Finance Minister Jan Kees de Jager say they aren’t against a credit event.

The softer stance signals Greece is unlikely to get sufficient participation in a voluntary bond swap to make its debt burden sustainable.

The ECB is now alone in its opposition to a credit event. Then again, the ECB alone was against haircuts, soft defaults etc.

As late as May 7, 2011 former ECB president Jean-Claude Trichet insisted there would be "no Greek debt restructuring". I wrote about it in Trichet Reiterates Restructuring "Not on the Agenda", Market Reiterates "Trichet is a Pompous Fool".

Since then there have been two restructurings, and we are now headed for an involuntary restructuring that will trigger credit default swaps.

I suspect an effort will be made to placate the ECB somewhat so that the ECB does not take a loss on the 40 billion euros of Greek debt it stupidly bought, but otherwise, the ECB is about to have this crammed down their throats.

Portugal waits on deck.

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