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Thursday, May 23, 2013

China manufacturing contracts in May, after months of fitful near-stagnation, sez the HSBC Purchasing Managers' Index which dropped to 49.6 from 50.4 in April (under 50 = contraction), a seven-month low. A harbinger: New Orders in April had dropped to a five-month low. Ominously, in May, New Orders as well as New Export Orders fell again, as did Employment, Backlog of Work, Quantity of Purchases, among others. “The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds,” said Hongbin Qu, Chief Economist of Asian Economic Research at HSBC. “A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery.” Not very pretty. Though we’ve seen the manufacturing slowdown coming, the reaction on the Asian stock markets is brutal....

Nikkei crashes over 1,400 points, an 8.6% dive peak-to-valley from its morning high of 15,943, after having been up 300 points, to its current low of 14,573.... and still diving. For the day, it’s down 1,060 points so far, or 6.8%. That’s what happens when the air hisses out of a central-bank money-printing induced bubble. The hot money wants to get out.

Wednesday, May 22, 2013

H-P revenues plunged 10.1%, worse than expected, with PC revenues down 20%. Only uptick: lowly printing supplies, such as cartridges, paper, ink, up a measly 2%. Earning didn't "completely crater" like Dell's earnings, CEO Meg Whitman consoled her investors. But H-P had a huge write-off not long ago, and who knows what they plowed into it to make subsequent quarters look better. They always do that. Write-off accounting puts some lipstick on expenses, though it can’t do much about revenues. Props up operating income. “You can feel the turnaround taking hold at H-P,” Whitman said. Indeed, feel. Because there's no visible turnaround in the numbers. Nevertheless, stock jumped 13% after hours.

Justice Department admits: drones killed 4 Americans, in a letter sent to Congressional leaders. One of them was Anwar al-Awlaki, in September 2011 in Yemen. While widely reported, the government had never fessed up to it. The other three were Samir Khan (in the same strike); Awlaki’s son Abdulrahman al-Awlaki, also in Yemen; and Jude Mohammed, in Pakistan. Last year, Attorney General Eric Holder had outlined the government’s legal rationalizations behind knocking off Americans overseas – for example when they pose an “imminent threat of violent attack” and when capturing them is inconvenient. While the whole concept is iffy, the rubbery term "imminent" came under particular fire. But certainly, it won’t be abused; after all, there’s a Nobel Peace Prize winner in the White House.

Delta Air Lines rebels against taxpayer subsidies for Boeing because they benefit state-owned foreign airlines that compete with Delta. The US Export-Import bank is helping Boeing sell wide-body jets by helping foreign airlines buy them. CEO Richard Anderson said Delta would be “perfectly willing” to accept a “total moratorium” on financing of jets, which it also benefits from. "We are trying to do whatever we can to get a level playing field in a world where my government decides that they would rather have my competitors in the marketplace than Delta," he said. In April, Delta sued the Ex-Im Bank to put a stop to these shenanigans. It noted that 46% of the $106.6 billion in the Ex-Im Bank's activities are for aircraft loans or loan guarantees. Emirates and Korean Air were among the biggest beneficiaries, and as Anderson told Reuters, they could get funding without "the balance sheet of the US government." Ah the complex web of government handouts.

BOJ Governor Haruhiko Kuroda accepts jumpy yields on Japanese Government Bonds that nearly tripled from the April 5 low of 0.315% to today’s 0.90%, exact opposite of what money-printing and bond-buying is supposed to accomplish. Japanese investors have been fleeing JGBs; inflation, if it rises to 2% or more as per plan, will eat them up without compensation from yield. Add yen devaluation to make a nasty investment. He lost a bit of his brashness: "I am not expecting long-term interest rates to increase sharply considering the strong downward pressure being exerted on them by our quantitative and qualitative easing," he said at the press conference after the BOJ’s two-day huddle that left monetary policy unchanged, with the spigot wide open, committed to buying ¥50 trillion in JGBs a year, or 70% of all new bonds the government is issuing. "I believe it is quite possible to prevent any spikes in long-term interest rates," he said with even less certainty, then submitted to fate and accepted rising yields: "If expectations for economic recovery and inflation strengthen sharply, that could outweigh the risk-premium reducing effect and result in increases in interest rates," he said.

Japan trade deficit soars 69.7% in April to ¥879.9 billion, from April a year ago, the tenth months in a row of trade deficits, the worst series since 1980, and the worst April ever. For each of the last three Aprils, the deficit was worse than in the prior one; same for March, February, and January. The trend is relentlessly awful. Abenomics is deepening the hole, but it’s digging at a faster rate. The weaker yen nudged up exports 3.8%, but imports jumped 9.4%. Don’t blame oil: imported crude oil volume dropped 2.2%. Exports to China stagnated, but imports jumped 13.3%; the deficit skyrocketed 60.2%. However, exports to the US rose 14.8% while imports stagnated; the trade surplus leaped 32.5%. Japan exports twice as much to the US as it imports. Perhaps someone in the White House will someday get Japan to open up its auto market. The trade balance with Western Europe flipped from a surplus a year ago to a deficit; exports fell 3.5% and imports rose 11.4%. Abenomics and the money-printing binge have heated up consumption of imported luxury goods and other items that can’t be produced in Japan. For the rest, Abenomics appears to be a giant miscalculation. The graph for the years 2011, 2012, and 2013 shows the worsening trend:

Despite the awful trade data that was much worse than economists had hoped for, the Nikkei jumped 246 points or 1.6%, to 15,627 – oblivious to reality for months now, drunken with money the Bank of Japan is printing.

Tuesday, May 21, 2013

“Apple does not use tax gimmicks,” Apple wrote without twitching an eyebrow apparently, in response to a Senate investigation that showed that it sheltered at least $74 billion in profits from US taxes between 2009 and 2012 by using a "complex web" of offshore mailbox companies. One such Irish subsidiary with no employees and no physical existence made $30 billion in profits and didn't pay a dime to a single government anywhere, not even Ireland. Legal, and proof that the US corporate tax dodge code is a scam that bestows a tax-free environment and other welfare handouts to certain companies, while raking less fortunate and often smaller companies over the coals.

Impact of cheap natural gas in the US: the construction of 97 chemical and plastics plants that use natural gas as feedstock has been announced, with investments over $71 billion, sez the American Chemistry Council (ACC). Among them, in Texas alone: Dow Chemical’s plan to plow $4 billion into ethylene crackers and Exxon Mobil’s plan for an ethylene cracker and two polyethylene plants. Others lining up: Chevron Phillips Chemical, LyondellBasell, and Mitsui & Co. Via OilPrice.com. These companies vigorously oppose the export of liquefied natural gas (LNG) as they fear it would raise prices in the US to the levels natural gas trades for on the world markets. Their pleas fell on deaf ears, a dilemma and opportunity I wrote about.... The Quiet Triumph Of Oil And Gas In Obama’s Policies

Japanese Government Bonds: "Absolutely no guarantee" that Japanese investors will continue to buy them, warned an advisory panel to Finance Minister Taro Aso. Investors who lose confidence in the JGB can easily invest their funds overseas, the report nervously pointed out. Some have already made that shift. Hence the recent spike in yields, despite the Bank of Japan, which is mopping up around 70% of the flood of new bonds that the deficit spending of Abenomics generates. Investors only have to pick up the remaining 30%, but they appear to be reluctant to do so. Why is anyone outside of a government controlled institution still buying this crap?

Finding excuses: Japan supermarket sales dropped 1.9% in April, on a comparable-store basis, from April 2012, with food sales down 0.4% and clothing down 8.8%. Blamed was the "unseasonably cold weather." When sales edged up in February and March, the credit went to Abenomics, not the weather or some other silly thing. A broader media trend: when economic data points are positive, Abenomics gets the credit; when they’re negative, the weather and other reasons are dragged into the scenery, sometimes by their hair.

Mystery pollution in China: unknown foul-smelling goo emerges from cracks in the street, becomes huge, finally gets cleaned up ... and remains unknown.

Monday, May 20, 2013

“Every 10 years or so, banks make some horrible mistake and it usually starts with easy money,” said Mike Pinto, vice-chairman of M&T Bank, a regional US bank. “We are worried about the competitive atmosphere. It creates the temptation to do silly things.” He was talking about the credit bubble. US banks made $1.55 trillion in business loans through April, up 10% from last year; banks are falling all over each other trying to goose their profits by making risky loans. US corporations have also sold a record amount of bonds at record low yields and with historically low protections for investors. So now banks are loading up their balance sheets with business loans that will come to haunt them. But no problem. It will just be part of the next financial crisis that will give the eager Fed another opportunity to hand trillions to TBTF bankers to bail them out.

UK wages propaganda war against Scotland, which will hold an inconvenient independence referendum in September 2014. A new report by the UK Treasury, the third in the series, claims that the Scottish banking sector – composed of two large banks, Bank of Scotland and Royal Bank of Scotland, plus smaller ones – would put an independent Scotland at risk. Its assets would be 1250% of Scottish GDP, while the Cypriot banking sector, which brought down Cyprus, was 700% of GDP, the report said ominously. For the UK overall, banking assets are 492% of GDP, also very high. But the UK has “credibility” in the markets to manage that risk, something Scotland would lack. A "feeble attempt to undermine confidence in Scotland's ability to be a successful independent country," retorted Scotland's Finance Secretary John Swinney. "The Treasury, true to form, will outline what is in its own best interests, not what is in the best economic interests of the people of Scotland." He called these assertions misleading; "In terms of share of GDP, in fact, financial services are actually smaller for Scotland at 8.3% than the UK at 9.6%. So if the argument is about risk, then the risk is with the UK," he said.

Now Germany has a real reason to exit the euro: Goldman Sachs CEO Lloyd Blankfein wants it to stay! A bad sign. In an interview with the Welt, he said Germany had profited from the euro the most – from his point of view, “Germany” is “Germany Inc.” But real wages for working Germans have declined since the introduction of the euro, and workers have had a hard time, while wages in Greece, Spain, and other countries have shot up. Though German workers now have jobs, unlike people in Spain and Greece, they earn less than they used to in real terms. For that privilege, German taxpayers (not Germany Inc.) must pay a price, he said, namely bailing out banks and speculators who hold the crappy debt of periphery countries. He predicted utter economic mayhem for Germany if it left the euro. No, German taxpayers will have to bail out weaker countries, he said. And he raved about the "political project" behind the euro, the ultimately total integration of Europe (and of course, he defended TBTF banks, which were more secure, he said, than smaller ones). My question: is Goldman now seriously long the euro?

Weekend, May 18 - 19, 2013

Sales skid at S&P 500 companies: 458 companies of the 500 in the index have reported their Q1 results so far: earnings were up a measly 3.4% year-over-year, but sales fell 0.2%. Not exactly the foundation for the gigantic undying stock market rally that has plowed through whatever economic and corporate bad news with nary a twitch. When will this separation of reality from stock prices end? Someday, one way or the other! He who can pinpoint that day will make a lot of money.

Central bank success story: The global market for luxury goods grew 38.6% in three years. From $200 billion in 2009, luxury goods sales jumped 13% in 2010, 11% in 2011, and 10% in 2012, to end up at $275 billion. Despite the Eurozone debt crisis and austerity, despite the earthquake and tsunami in Japan in 2011... no matter what happened in those three years, luxury goods boomed, sez the the just released "Worldwide Luxury Markets Monitor," by Bain & Company for Fondazione Altagamma (PDF). “Absolute luxury items (high-end products with no logo, highest quality materials, and exquisite craftsmanship) lead the way,” the report reassured us, but there were some losers, including “watch consumption” which crashed in China. The report confirmed what we’ve seen everywhere: when central banks hand out trillions to their cronies, it doesn’t do much for the real economy as a whole, nor for employment, but it does one heck of a job at the very top of the pyramid.

"Threat of Default": US hits debt limit on Saturday, but by using a slew of shuffle maneuvers, shell games, tricks, and devices, the US won't actually run out of money until "after Labor Day," Treasury Secretary Jacob Lew told Congress in a letter. In his previous statement, the US would be "okay until Labor Day." Today, he was more frantic. He begged Congress to get its act together and do something "sooner rather than later" to “remove the threat of default.” In its infinite wisdom, Congress had suspended the debt limit till May 18, rather than dealing with it. The debt, though still over the limit, declined in April and early May; tax extractions were fattened by asset bubbles. But since May 10, the debt has once again been rising.

Friday, May 17, 2013

US Consumers haven’t felt this good since July 2007, just before all heck broke loose. An "encouraging sign," Reuters sez. For short sellers? The preliminary results of the Thomson Reuters/University of Michigan's consumer sentiment index jumped to 83.7 in May from 76.4 in April. Big part of the reason: households in the upper third of the income bracket felt flush from the ballooning stock market – the wealth effect. The Fed giveth.... They were able to brush off the payroll tax increase, which Wal-Mart shoppers, as we’ve seen, had a harder time brushing off. The Consumer Expectations index rose to 74.8 from 67.8. And the Current Economic Conditions index leaped to 97.5 from 89.9, the highest since October 2007, a month before the stock markets began to swoon. Impeccable timing, the hallmark of consumers.

Car sales in the EU crept up 1.7% in April, from a horrible April last year. The fact that the parade of ever worsening numbers has finally stopped, at least for a moment, was greeted with a huge sigh of relief. The details of the report aren’t that rosy: sales in the UK, now the second largest market after Germany, jumped 14.8%. Without the UK, sales for the rest of the EU actually dropped 0.46%. It wasn't exactly a smooth trend across the member states: Greece finally seems to have hit bottom, and sales increased 20.9%; in Denmark, they jumped 30.7% and in Finland 142.6%; but they crashed 26% in the Netherlands and 51.9% in Cyprus; they rose 3.8% in Germany but dropped 5.3% in France.

Deafening US media hype: Japan Core Machinery Orders jumped 14.2% in March, seasonally adjusted, from February. The eternal money-printing and fiscal-stimulus apologists dragged it out as proof that Abenomics is working massively. Alas, these are highly volatile big-ticket items, though “core” orders exclude container ships, nuclear reactors, etc., which are even more volatile. To iron out the volatility, the Cabinet Office also offers quarterly numbers. Soooo, core orders in the first quarter of 2013 were actually 4.8% lower than in the first quarter of 2012, when Noda was prime minister. Kampai!

The Japanese take care of their college grads: 93.9% of all those who graduated on March 31, the end of the academic year, had jobs by April 1, the beginning of the business year. This was the second year in a row that the percentage increased, so it’s NOT related to Abenomics, please! College recruitment, like so many things in Japan, is a highly structured process with the idea to get pretty much everyone squared away before the end of the academic year. But those who miss this entry into Japan Inc. have the greatest difficulty getting through the door later. The system is unforgiving punitive to those who don’t toe the line.

About that secret inflation in Argentina: famously, no one is allowed to accurately track or discuss inflation, but all the whisper numbers floating around peg it at over 20% annually. Now confirmation has come from official sources: wage negotiations between unions and the government of President Cristina Fernández Kirchner. Unions are her base. In fact, she personally met with the leaders of six unions that represent about 2 million workers, or 40% of all workers covered by wage negotiations, and made a deal, similar to the deals she’d made with Railway and Bus Drivers’ unions. The agreed-upon wage increases this year to keep the purchasing power of her voters intact? The closest estimate to official CPI that Argentina has? 24%!

Thursday, May 16, 2013

Last time French-made cars were sold is the US? 1980? Long time ago. But... French-made models of the Toyota Yaris are coming to the US, Canada, and Mexico, apparently to keep the plant in Onnaing, near Valenciennes, busy. Car sales in Europe have been catastrophic, and plant shutdowns and layoffs are hard to do, especially in France where even thinking about it causes a huge political ruckus. In 2012, 182,841 Yaris were sold in Europe, accounting for 22% of Toyota's total European sales - a highly successful model at the low end of the lineup. North America will get US versions, not EU versions. So no diesels.

Plunging price of gasoline shaves 0.4% from Consumer Price Index in April. Total energy prices dropped 4.3%, with gasoline down 8.1%. We’ll remember those days fondly because that cheap gasoline is now history; prices have been climbing in May! Food prices rose 0.2%. Core CPI, which excludes food and energy, rose 0.1%. For the 12-month period, CPI is up 1.1% and core CPI 1.7%. The Fed might complain that this is below target; but it’s still inflation, and it still whittles down the value of your and my dollars, and everything denominated in them, and it’s still higher than the interest that banks pay on most deposits and CDs, though it’s better than 4.3%, as we had some months in 2011.

Another blow to US manufacturing: Philadelphia Fed's Business Outlook Survey – for manufacturing in eastern Pennsylvania, southern New Jersey, and Delaware – dropped into the negative, to -5.2 in May, from 1.3 in April (below zero = decline). The New York Fed's Empire State Manufacturing survey, reported yesterday (below), had also pointed at a contraction. Ominous: new orders dropped to -7.9, the worst since June last year, from -1 in April; the Workweek Index dropped to -12.4, and the Employment Index dropped to -8.7. Manufacturing is only a small part of the US economy, and this region is a small part of the US, so we’re not going to panic just yet...

US Housing Bubble confirmed: Heard an ad on the radio on how to get rich quick by flipping houses – and we’ll show you how. It conveniently offered an 800-number. Something or other was free.... but keep your credit card handy. These kinds of things usually appear late in a bubble.

Death penalty for financial fraud in China. A court in Wenzhou slapped a local, 39-year-old gal, former general manager of Wenzhou Xinfu Investment Consulting Co., with the maximum penalty available, death, for having illegally raised funds for investments starting in 2007. Everything worked fine until October 2011, when her scheme collapsed and she ended up defaulting on a 428 million yuan loan ($69.6 million). Leaves open the question if they’d slap the same penalty on TBTF bank CEOs every time their banks need a bailout. A bit draconian maybe, but something the US might want to consider as well, after not having prosecuted anyone responsible for the financial crisis and for the Fed’s bailouts that followed, though they did hound, as in China, small-scale crooks like Bernie Madoff.

Bad loans at Chinese commercial banks swelled by 6.8% in the first quarter, to 526.5 billion yuan ($85.6 billion), the sixth consecutive quarter of increases, raising the non-performing loan ratio to 0.96%. And NPLs are expected to rise further. One of the many elements in a boundless debt-fueled scheme that will eventually, like the micro-case above, unravel.

The Japanese Diet rubber-stamped the ¥92.6 trillion ($926 billion) budget for fiscal 2013, which started April 1. A breath-taking ¥43 trillion ($425 billion) will have to be borrowed to make ends meet - that's 46.4% of the total outlays! But no problem. Abenomics will get Japan out of its fiscal quagmire, one way or the other, by printing money. Government spending on public works – welfare spending for Japan Inc. – will rise to ¥5.3 trillion. In a show of rare fiscal discipline, welfare spending for the poor will be cut by ¥67 billion. Priorities of Abenomics are becoming clear.

Japanese GDP growth less than a year ago! The economy grew 0.9% in the first quarter 2013 from Q4 last year, or a 3.5% annual rate. Private demand was up some, with investment in housing being fairly strong, but corporate investment lackluster. Public demand – government spending and investment, including boondoggles – jumped, as promised by Abenomics. Exports rose, and so did imports, but not as much. All seasonally adjusted. Great? Give credit to Abenomics for that 0.9% growth in GDP? Because it was the fastest growth since... oops, well, since the first quarter of 2012, when the economy grew 1.3%. Abenomics can't even keep up with Noda's maligned era.

Wednesday, May 15, 2013

Megabanks "are NOT too big to jail," claimed Attorney General Eric Holder today in a heroic about-face at a House Judiciary hearing, after he'd explained to the Senate Judiciary Committee in early March why exactly they were indeed too big to jail. The Justice Department has not prosecuted any megabanks despite their shenanigans leading up to the Financial Crisis and continuing to this day. A debacle I wrote about.... 'Regulatory Capture' Emasculated The Regulators Of Megabanks.

French purchasing power plunges 1.5% per capita, and 0.9% for all households together in 2012 (difference due to population growth), the worst performance since 1984. Combination of: disposable income creeping up only 0.9%, and prices rising 1.9%. Ah yes, the many benefits of "moderate" or even "below-target" inflation.

Tough day for US manufacturing: industrial production dropped 0.5% in April, after increasing in February and March; year-over-year, it's up only 1.9%. Within it, manufacturing fell 0.4%; fingers point at motor vehicles and parts, down 1.3%. Capacity utilization fell 0.5% to 77.8%, and is 2.4 percentage points below long-term average. Add to that: the New York Fed's Empire State Manufacturing Survey for May dipped into the red (-1.43, from 3.05 in April). Employment sub-indices were mixed, with number of employees up slightly, but hours worked down sharply. Darkest cloud: new orders were negative. Executive optimism for the next six months declined, second month in a row. Not an exemplary picture of a growing economy.

"My question is, who is going to jail?" wondered House Speaker John Boehner about the IRS scandal. So why didn't he and other Republicans ask that question after the financial crisis, the largest scandal in the US ever?

Swooning energy prices, particularly gasoline, pushed down wholesale prices by 0.7% in April, seasonally adjusted. Food prices also dropped, a godsend for those of us who like to eat, with veggies and meat down the most. Without food and energy, which are highly volatile, the core Producer Price Index rose 0.1%. For the 12-month period, the unadjusted PPI is up a scant 0.6%. If they could just keep it that way!

Warning shot: Russian car sales plunged 8% in April. For the year, they are now 2% below the same period last year, a record year during which sales had jumped 11% from 2011. The good times appear to be over. Is the EU malaise heading east?

Europe stuck in recession: the Eurozone economy shrank 0.2% in the first quarter, from Q4, the sixth quarter of recession in a row, another glorious record. The 27-nation EU contracted 0.1%. Year over year, they’re down 1.0% and 0.7% respectively. Germany's economy inched up 0.1% in Q1, after having plunged 0.7% in Q4, thus barely avoiding the red stamp of recession. Both quarters combined, Germany is in the hole. The lousy performance in both quarters surprisingly surprised pundits. France is formally in a recession; its economy contracted 0.2% in Q1, third contraction in four quarters. Italy and Spain both shriveled 0.5%. Unperturbed, German stocks, while down a smidgen for the day so far, are still above their prior all-time intra-day high of July 2007. This will be seen as the greatest accomplishment of the central bank money-printing binge: separating (at least temporarily) stock markets from reality and allowing them to float in a dream world.

China's pile of foreign exchange grew by 294 billion yuan to 27.363 trillion yuan ($4.41 trillion) in April, according to the People's Bank of China, the fifth month in a row of increases. For the first four months of 2013, the monthly influx averaged 400 billion yuan, nine times the average in 2012. Earlier this month, the State Administration of Foreign Exchange, the top forex regulator, had threatened to crack down on foreign money flooding the country. China is where the hot money goes – on the bet that the yuan will continue to rise against the dollar which, through the arduous and heroic efforts of the Fed, will continue to lose value.

Nikkei jumps 2.29%, to 15,096, highest since December 28, 2007. If it keeps going like this, it will be above 40,000 soon. This thing has become a joke – even more so than the US stock markets. Japanese government bonds continue their descent, pushing yields up, with the 10-year JGB hitting 0.90% but then settled down at 0.85%. The yen skidded.

Tuesday, May 14, 2013

Ex-leaders of consumer electronics: Sharp's huge loss is a sign of how Japanese powerhouses have lost the edge to Korean, US, and Chinese rivals. A doozy: ¥545 billion ($5.3 billion) in red ink, a record in its storied century-long history. A top exec reshuffle has been announced, but it won't fix the real issue that is bedeviling Sharp and other Japanese consumer electronics companies, once world leaders, now not even also-rans. Abenomics won't be able to cure that either. This isn't an issue of costs and exchange rates, but of innovation, products, and now increasingly brand (they squandered it).

China's white paper on human rights, helpfully issued in English so that foreigners like me can get their brains washed, starts out promisingly: "Since the arrival of the 21st century, the Chinese people have been making constant efforts in advancing human rights protection along the path of building socialism with Chinese characteristics under the leadership of the Communist Party of China (CPC) and the Chinese government." Further into it, the paper clarifies priorities: "China has a population of over 1.3 billion. For such a populous country, it would be impossible to protect the people's rights and interests without first developing the economy to feed and clothe the people." Money before rights. But it also points out how the government has become much more transparent in many ways, which few people will dispute (text in full).

Inflation hits Japan: wholesale prices rose for 5th month in a row in April, by 0.3% from March, with the index at 101.4 (2010 prices = 100). Electricity, gas, water, lumber, and wood products jumped over 3%. Some of it was due to the weakening yen that made imported fuels and raw materials more expensive. How exactly higher prices would cure Japan’s economic ills remains a mystery, though it will give a stylish haircut to all those owning Japanese Government Bonds....

Japanese Government Bonds skid once again: yields rose, for the 10-year JGB to 0.85%, from 0.79% yesterday, from 0.69% on Friday, and from 0.315% on April 5, the day they went bonkers. While yields are still ultra-low, the rise has been relentless, not at all what the BOJ wants – and now there's also volatility, rare sight in the JGB market. Japanese institutions and individuals are buying foreign bonds with higher yields to diversify out of the yen that has been doomed by Abenomics to decline. If this turns into a massive dumping of yen, if the BOJ cannot keep it under control, the selloff might turn into a rout, and the BOJ and government-controlled institutions will be the only ones left buying. In sympathy, mortgage rates are creeping up, as are bank loans. The opposite of what Abenomics wants to accomplish. Free money is suddenly becoming more expensive.

Click for Older Rumblings....

VIDEOS

Wolf Richter on Max Keiser's "On The Edge"
"The Pauperization of America"

Wolf Richter on the Keiser Report
"Where the Money Goes to Die"

Clarke and Dawe: European Debt Crisis
Two favorite Australian Comedians

Clarke and Dawe: Quantitative Easing
Big industrial-strength printers, all facing the window

The Fastest Drive Ever Through San Francisco
Don't try to do this yourself

humanERROR - by "Frying Dutchman"
Powerful, lyrical appeal to the Japanese. Slams nuke industry, MSM, bureaucrats, and politicians.

Friday

Sep212012

Catalonia Cries for Independence, Spain Might Break Apart, And Its Military Threatens To “Crush” The “Vultures”

Friday, September 21, 2012 at 5:29PM

Spain has enough problems: a debt crisis, a hangover from a housing bubble, unemployment of over 25%, youth unemployment of over 50%, massive demonstrations against “structural reforms” that the government is trying to implement in its desperate effort to keep its chin above water.... And now it has a new one: the possible breakup of the country. The military has already chosen sides.

It started last week in Barcelona, capital of the Autonomous Region of Catalonia, the richest region in Spain. Of the 7.5 million Catalans, between 600,000 and 1.5 million—an astounding 8% to 20% of the population!—protested in the streets, demanding independence.

Antagonism between Catalonia and Spain has simmered for a long time. But the financial fiasco that Spain is mired in deepened the fissures. Out-of-money Catalonia had to ask the central government for a bailout. Catalans are frustrated. They claim that under the current fiscal setup, Catalonia transfers €16 billion annually to the central government, and that these transfers bankrupted the region. Now, in exchange for the bailout, the central government has imposed austerity measures that cut into health care, education, and other services.

On Thursday, Catalan President Artur Mas met with Prime Minister Mariano Rajoy, originally to beg him for a new tax deal. But the massive demonstration in Barcelona had added independence to the agenda. Rajoy brushed him off, with references to the constitution that didn’t allow regions to secede.

“Constitutions may or may not be modified, but they do not subjugate the will of the people,” Mas lamented after the meeting. As leader of the Democratic Convergence of Catalonia and chairman of the governing Convergència i Unió (CiU) coalition, he represents the middle class and has supported Catalan independence only in an ambiguous manner. Until now. “Catalonia will follow its path,” he said. Parliament would meet next week to “consider the next steps.”

“Illegal and lethal,” howled Foreign Minister José García-Margallo and threatened Catalonia with exclusion from the EU if it chose independence. Decisions in Brussels as to which country will be allowed to accede to the EU have to be unanimous, and Spain’s veto would bar Catalonia “indefinitely,” he said.

Nevertheless, Friday morning, CiU spokesman Francesc Homs pushed that agenda further: after the elections—early elections could be held on November 25—Parliament may initiate the path to independence. This could be by referendum, but there would be alternatives, he said, “for example” a parliamentary vote to declare statehood.

The CiU hasn’t yet decided how to articulate its demand for statehood in its electoral program, but the strategy toward independence is an “irreversible process,” Homs said. He described Spain as a “lion” attacking the Catalan “gazelle” whose sole weapon is “agility.” And the threat of getting kicked out of the EU? “Catalans are European citizens,” he said, and he didn’t know how it would be possible to kick them out. But he wasn’t worried about the all-important business community. “We won’t lose investments if things are expressed democratically,” he said.

The response was immediate. Catalan independence would be a “tremendously huge problem“ for businesses, said Joan Rosell, president of the Spanish Confederation of Employers’ Organizations (CEOE), which represents state-owned and private sector enterprises. Employers, he said, supported a single market as a way out of the current turmoil.

Declaring statehood would have no legal value, Deputy Prime Minister Soraya Saenz de Santamaria declared at a press conference after the Council of Ministers. And the government didn’t welcome early elections, she said; “political instability” would aggravate the crisis. But she threw Mas a bone: the government would be willing to consider reforming the financing model of the Autonomous Regions.

A discussion of the nitty-gritty of independence has broken out. Hot topic: the distribution of central government debt. Would Catalonia have to carry 20% or 16%? Or none because Spain issued the bonds and not Catalonia? Would Catalonia be better off within Spain or as independent state? Would it even be financially viable? Rumors are swirling that members of the governing coalition have asked the European Commission if Spain can legally stop Catalans from seceding, and if it can expel an independent Catalonia from the EU via its veto power. As there is no law that would allow secession, there is also no law regulating it. So everything is up in the air. But the fact that this is getting serious attention, shows just how far the process has already gone.

And the military staked out its role. Colonel Francisco Alaman promised to crush the “vultures” if they chose independence. “Independence for Catalonia? Over my dead body,” he said. “Even if the lion is sleeping, don’t provoke the lion, because he will show the ferocity proven over centuries.” Words of the crazed fringe? Apparently not. “Deeply-rooted thinking in large parts of the armed forces,” explained retired Lt-Gen Pedro Pitarch. And it opened a whole new chapter in the Eurozone saga that, despite all assurances to the contrary, simply keeps getting more uncertain.

When the German Constitutional Court nodded with a stern smile on the ESM bailout fund and the Fiscal Union treaty, politicians breathed a sigh of relief. The German revolt was over. But steam is billowing once again from the misaligned pipes of the Eurozone, this time in France, where the Fiscal Union treaty had been silenced to death. Read.... A French Rebellion Against Unelected Bureaucrats: “European Coup D’Etat And Rape Of Democracy”

And here is the hilarious but brutally truthful video from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes better than anything else the entire Eurozone debt crisis.

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Reader Comments (9)

Excellent reporting Wolf. Thank you.

It amazes me how many moving parts this has. It would also amaze me to see the ESM commit resources to Spain with the issue of Catalan (and Basque?) independence seemingly coming to a head.

Your words are ominous regarding prospects for military intervention. It certainly would open a whole new chapter in this tragedy. And I fear that it would spread to other countries rapidly.

One of the most interesting aspects of the Catalan-Spanish struggle may be what it portends for Germany's future role in the European context. Those who dream of the establishment of a peacefully functioning transfer union as the EMU's salvation are horribly mistaken. Those who would endeavor to establish such a union without a popular mandate, but through the clever machinations of unelected bureaucrats - are setting the stage for future revolution.

September 21, 2012 |

blankfiend

It is probably the start of Mitts's 53% being fed up with Barney's 47% but of course in a much wider context. And Europe is much worse than the US. The Western world is 'oversolidaritised'. Too many people receive something to keep the whole system affordable. Too many receivers staying put. With money still coming in what is the need for change?

This is imho especially relevant re the middleclasses (in Europe the by far most important source of tax revenue), they are likely to see around zero real income growth for the coming period (sometimes even at best), while states have at some (not to far away point) stop borrowing to fill the gap/deficit mainly caused by all the transfers and someone is still expected to pay for it all.

It looks like Catalunya is just one thing. Non-Western immigrants is another. Poor elderly without own resources. Structurally unemployed yet another one. Region permanently on the drip (Southern half of Spain and italy, Eastern Germany/Bremen/Berlin, Northen part of England to name a few). South going for permanent transfer union. East Europe mainly joining the EU for financial benefits (next to protection from Russia, but hardly to be nicely European).
With usually as main problem that the programms are sold at first to the payers as temporarily but a lot of the time ending as permanent.

As said with no or negative growth in real income (for the ultimate payers, the European middleclasses) this is the time that will very likely start to play. And if history showed one thing it is that you should not p... off the middleclasses, they are nearly always the ones that started successful revolutions. It usualy take some time before they are that far, but they usually also have to stamina to finish the job.

From another angle Europe has a solidarity deficit or social deficit. See eg Sloterdijk. Meaning that the taxpayers want all the social stuff but are not really willing to pay for it all. That is why governments need deficits to finance the gap. Basically sov debt wirks as a subsidy on a structurally lossmaking activity. With of course the huge differences that one time it will have to be repaid and somewhere down the road it will be impossible to boorw further.
Raising taxes is very unlikely to work longer term (several countries look at the peak of the Laffer). Confirmed with the experience of the last few decades. Europe got its economy started again by lowering top rates of income taxes and be tax-friendly (relatively at least) to business.
So their system need also from this angle a change. More important if these structural issues are not adressed like now or papered over with higher taxation things are unlikely to start again.

September 22, 2012 |

Rik

Thanks for a very interesting article.

+ Scotland looking for independence from the UK.
+ Germany's Bayern are also fed up with paying for the North ( and now the ESM/EU ).

Bayern has always considered independence. There was a joke some 30 yrs. ago that Strauss had already closed the borders.

One wonders whether the EU's plan is to destroy Nation States from the inside - via austerity - protests - arguments - escalation... and dare I say "civil war" ?

September 22, 2012 |

Aleph0

Do you read history Mr Richter? A bankrupt central government & political instability, Catalonian independence & military belligerance.

Don't know if it's peculiar to Spain but it's all very 1930's.

September 22, 2012 |

Breaking state sovereignty is exactly what Rothschild banking wants!
You guys better say no! To Centralized banking or and turn back austerity
I think the people of Spain are getting tired of these puppet rulers.

At least there not eating Rothchild GMO and getting poisoned like we are
in the states. jonkirby2012.wordpress.com

PS Cancer has a switch and radiation is its turn on .. see was Oswald killed for JFK or Mary's Monkey!?

September 22, 2012 |

jonkirby2012.wordpress.com

@Mary's Monkey
I ordered the book in Jan .. unfortunately it never arrived .. made me wonder !

"Secrecy" is the biggest enemy IMO.

Considering that Govts. are supposed to be acting in "our name" (LOL), the least they could do is to let us know what they are doing "in our names".

The Internet is of course the PTB's biggest nightmare , which is why they are striving to control it.
"Freedom of Speech" ... as long as it's their "speech" I guess.

September 22, 2012 |

Aleph0

The articles has, I believe, two sides. One is what is says about Spain. The other, what is says about Europe.
That there is a Catalan issue now in Spain, that is true. The demonstration in Barcelona last 11th September was very attended and, the most important thing, it is politically relevant. But before anyone jumps into conclusions, please inform yourselves better on what is really going on there and in the rest of Spain. Because the atmosphere is quiet and the tension is not as high as you might believe. On top of that the mention that the article and a number of other ones have made to the statement of a retired Army officer are totally off-mark. There is simply NOT a military element to this issue now, nor is it forseen to be one. Talking about that is plain nonsense.
But before we keep talking about it, let's remember the US went to war to protect the Union in 1861. So less preaching would be welcomed...
The real reason why independence is now an issue in Spain is because local elites in Barcelona have been trying to blame on Spain and its alledged starving of funds the savage cuts the Catalonian Government is now making in health, education and many things more (except political institutions, which they do not touch at all). And they are making the cuts because the previous regional Government has bankrupted the region with its never ending spending in whichever pet project or pork barrel you might imagine, without control from Madrid. Barcelona now has to go, cap in hand, to Madrid looking for funds, the one they have depleted (Catalonia is now the most indebted region in Spain, by far) and, however, it still insists in a brinkmanship game, which is difficult to understand or appreciate.
As for Europe, Catalonia and the Basque Country in Spain, join Flanders and Wallonia in Belgium, Scotland and Northern Ireland in the UK, Azores in Portugal, Färöer Islands in Denmark, Padania in Italy, Bavaria in Germany, Friesland in the Netherlands, Brittany and Corsica in France, and others (including Quebec in Canada). Just to name a few. However, Spain is, like France or England, the oldest state in Europe. So, there is plenty of experience accumulated to deal with the situation.
It is true, and it is also a possible (unintended or not) consequence of the EU project that the Nation state is in crisis in some regions. It is also worth recalling, the ideology or attitude behind many of those separatists is simple, plain, clear and deep xenophobia. Which, I believe, should never be deemed worth of respect. Do you know it is impossible to go to a school teaching in Spanish in Catalonia? Every child there is to receive his/her education in Catalan. And all decisions by courts granting the parents the right to choose the language had been ignored so far. Make no mistake. The regional authorities in Catalonia are committed to independence. But it is not that clear that the local population will go to the end with them. And, certainly, Spain is a nation. And as every nation, it doesn't appreciate secession from itself. The first Constitution in Spain is dated in 1812. The Spanish nation was already recognized there. And Catalonia has never been independent.

September 22, 2012 |

Francisco Aguilera

Francisco - thanks for your excellent comment. I do want to point out that I’m not preaching. I’m simply describing problems and potential problems in the Eurozone.

The US is deeper in debt than Spain. The difference is that the Fed can do whatever it wants to. Its course of action is to destroy the dollar in order to fund its cronies and the sins of Congress. Spain doesn’t have that possibility. Hence the stress on its debt.

The independence issue is important for the rest of the world (not just Spain) because it shows that the economic uncertainties in the Eurozone are still rising, despite what everyone is trying to make us believe.

September 22, 2012 |

Wolf Richter

Wolf thank you for your excellent article, I think describes quite well the situation in Catalonia

I am not agree with Francisco Aguilera at all. All his references about catalan language is nothing related with the economical crisis and the huge amount of money that Catalonia pays to Madrid for a really poor return in services.

Spanish nacionalist people like Antonio, always they use catalan culture as a weapon to wear out catalan goverment.

If spanish goverment is so democratic why they don't allow to ask catalan people with a referendum?. Let's see what they want!

The "real" reason (same way as you state) to me, is Madrid has created a strong economical lobby, with a strong spanish nacionalist press media that relies on the Catalonia transfers.

Please find more information below link,from an economist called Xavier Sala Martin.

http://salaimartin.com/randomthoughts/item/420-the-pursuit-of-happiness.html

September 24, 2012 |

Antoni bofarull

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