Nearly every week, ChrisMartenson.com enrolled members enjoy a fresh podcast of “Off The Cuff,” an informal discussion on the markets between Chris and Mike “Mish” Shedlock, publisher of the extremely popular economic blog Mish’s Global Economic Trend Analysis.
We’re making this week’s Off the Cuff podcast available to the public-at-large to build awareness for an important cause that Mish is championing. Earlier this week, he shared with readers that his wife Joanne suffers from ALS, better known as Lou Gehrig’s Disease.
After several years of juggling an intense publishing schedule (describing Mish as ‘prolific’ is a gross understatement) while caring for his wife on his own, he’s created an online raffle as a means to raise funds for important ALS research, patient care, and education. We support his efforts and wish Mish and Joanne all the best.
Click here to learn more about the raffle.
In this week’s Off the Cuff, Chris and Mish look at the impact of the recently-released Fed minutes and the worsening situation in Europe (no, the problems there haven’t gone away).
On Tuesday, the Fed released its minutes, which showed that only two out of 10 voting members saw the case for additional monetary stimulus at this point. Markets, counting on additional easing measures, were disappointed; stocks and bonds dropped, and the precious metals have been clobbered.
To Chris, this affirms his long-held position that it’s nearly impossible to conduct actual “investing” these days, as asset prices are dictated by what the Fed members decide more than any other factor. If you have capital in the markets, you’re really speculating instead.
Mish is equally amazed that the market is entirely dependent on central bank policy vs. fundamentals, and he sees Europe as a prime example. In the EU, sovereign bond yields are moving higher as the ECB has announced it is ending the LTRO. Amazing. An injection of over $1 trillion was only able to stabilize rates for about 4 months…
Spain, in particular, is looking increasingly vulnerable. Its prime minister recently announced that Spain has serious economic problems that are folly to underappreciate (a rare admission for a politician to make). Its latest bond auction saw scarily weak demand, and the interest rates on its sovereign debt have resumed climbing at concerning speed. Nearly 57% of its budget is spent on pensions, unemployment benefits, and debt interest payments! The bailouts have not worked, yet at this rate, another bailout in the near future seems in the cards. Where will this end?
And the rest of Europe is faring little better. Portugal and Italy are teetering. Their weakness (along with Spain’s, Ireland’s, and Greece’s) will hit the “stronger” EU countries like Germany — at the same time that wage price pressure is rising in Germany.
Meanwhile, civil unrest simmers higher in a number of countries. Political backlash against the ruling parties is making it harder for coalitions to form to get real changes made. Demonstrations and outbreaks of violence are on the rise.
And back in the US, the positive news (when you can find any) is anemic. Mish predicts a substantial slowdown in the US economy in the next month.
The takeaway: Proceed with caution.
Click the play button below to listen to this week’s Off the Cuff with Mish & Chris (runtime 24m:25s):
Chris Martenson: Welcome to Off the Cuff, where Mish and Chris discuss the week’s events informally and without a script. Welcome, Mish. There is so much to talk about here. We have got just incredible market stuff that I want to get to. But, of course, the first thing I want to get to is that remarkable post you had about your wife Joanne’s condition, and what you are doing in order to help raise money for a very, very important cause and foundation. Can you talk to us about that?
Mish Shedlock: Sure. My wife has ALS. It is commonly called Lou Gehrig’s Disease. She has got a form called Progressive Bulbar Palsy. And I think it is labeled differently only depending upon where it starts. Lou Gehrig had a problem swinging a bat. That is where it was first noticeable for him. He could not swing with the same speed. And literally, three or four months later he was gone.
Well, medical care is a lot different now than it was back in those times. They catch things a little bit earlier. And she has got a form of Progressive Bulbar Palsy that is – Bulbar relates to muscles in the throat. So, the first thing to go for her was the ability to talk. And then the ability to chew and swallow. She has been on the feeding tube entirely since March of last year. So, a little bit more than a year.
And up until about, even October, we actually managed to get out and golf. Now, she could only hit the ball about 40 yards, but she could still walk around on the course. Now, she can barely walk at all. And pretty soon she is going to be immobile.
I mean, that is just the nature of the disease. It is very relentless. Sometimes it is slow and steady. Sometimes it – the degradation is pretty fast. Her dad died of it and her granddad died of it. And his grandfather died of it. So, anyway, I am trying to raise money to support ALS research.
And I want to everyone to know what you have done here for me, too, that website that is on the ALS Center. That is in my blog where people click to donate money. Adam, your staff, and you developed that website with images from the Les Turner Foundation. You put that together. So, a lot of thanks go to you, Chris. And I really, really appreciate that because that is a very well designed website – far better than I could have done on my own.
And I had some other help from some other people. And Gold Money is a sponsor. And Sitka Pacific is a sponsor. So I am very pleased with how people are chipping in here to help me.
Chris Martenson: Great. Adam deserves the lion’s share of that credit. And so talk to us about this raffle a little bit here. I think this is a pretty exciting raffle. I know some people who probably are interested in this.
Mish Shedlock: It is an exciting raffle; half the money to the ALS Foundation, half to the winners. I have got an extremely lofty goal. I do not know if I can meet that goal or not, but the ALS Foundation would be happy. Actually they are pleased already. We raised over one hundred thousand dollars on the first day.
Chris Martenson: Nice.
Mish Shedlock: And if we sell all 30,000 tickets — and we’re giving away 10 prizes — and the bottom prize, if we sell all of those tickets, would be a hundred thousand dollars. So, one in 3,000 people will win at least a hundred thousand dollars. That is if we sell them all. And the odds go up, actually, if we do not sell all of those tickets. So – but the prize will be smaller.
But anyway, I mean, compare that to say winning the lottery, which is what, one in a hundred fifty four million to one odds of winning? So, this you have got a one in 3,000 chance if we sell all those tickets of winning. At least a hundred thousand; and if we do sell all of them, the top prize will be a million. Now, maybe the prizes are way less than that, but the odds will go up. So, this supports a good cause. And the Les Turner ALS Foundation, they are absolutely thrilled with the results from the first day.
Chris Martenson: Excellent. And so where do people find this, right now? What is the URL for that?
Mish Shedlock: Well, the easiest way to find it would probably be to search my blog for Mish and ALS. I have not tried that, but I believe that would work. Right now, it is about the sixth or seventh post down on my recent post list. Or, people can just e-mail me. Just contact me off of my blog. There is a contact button inside.
Chris Martenson: Mish, how do I find this blog?
Mish Shedlock: Because it is a really long URL name, even longer than mine on my blog. So, but just search down the left-hand side. Or, do a search for Mish ALS. If that doesn’t turn it up, hit the contact button on my blog. I will be happy to direct people to it.
Chris Martenson: Excellent. I am going to make it even easier. If you are listening to this off of this website at ChrisMartenson.com, just scroll down. The link is going to be right there at the bottom along with this podcast right now. Okay, fantastic odds on that, by the way. If anybody has looked at the lottery, your dollar -adjusted potential earnings off that is usual well below a dollar per dollar spent. This would be higher than that. So, it has got a pretty good potential return there.
Hey, I am going to turn to the markets now. Yesterday at wot o’clock, if anybody was watching their screens, all kinds of things happened. Gold got clobbered. The dollar sprang up. Treasurys started gyrating. What happened? What happened was minutes were released. They were published by the Fed Tuesday afternoon at two o’clock. That showed that only two out of ten policy-setting FOMC members, those are the voting members, saw the case for additional monetary stimulus.
I have always said, “We’re all speculators now.” Well, this was a grand moment of speculation. If you were speculating that those minutes, which are just words, were going to disappoint you could have gone short a number of things. Gone long some other things. And made some really good coin yesterday. Of course, that is not investing. We all have to guess what is going to be in those minutes. And then how the market is going to react. But it is pretty clear that today we are in a market environment where if there is more stimulus, we will get more market upside. And if there is not stimulus, the market will be disappointed.
That is the world we are in right now. And it is crazy, but there we are. And, of course, the spillover has continued on into today with additional stock market weakness, commodity weakness. All kinds of disappointment out there over the idea that the Fed is not going to just continue to print more soon. And that is what I see.
Mish Shedlock: It is pretty amazing, Chris. It is pretty amazing, Chris, that we have got a market that is entirely dependent. Not on the fundamentals, unless you call printing money a fundamental. It is entirely dependent on what central banks do. And I am watching sovereign yield bonds – sovereign bond yields in Spain, Italy, and Portugal today. All up pretty strongly.
Actually, Spain hit a high today of 5.71 percent. So, we are going to be back above six on another route like we had today. And, what happened there? Things – the yields in Europe stopped dropping the minute the ECB said, “You know what? We don’t think we’re going to do anymore LTRO programs.” Long-Term Refinance Operations; so, they stopped that. That halted
Chris Martenson: Hold on – hold on.
Mish Shedlock: Halted the rally in sovereign bonds. And now they are going back up.
Chris Martenson: So, you are saying that the LTRO2 dumped about a trillion of new money into the system. And that managed to support sovereign bond yields. For what? I have to get my short-term calendar out. What, about a month and a half?
Mish Shedlock: No, since December. So, what do you have? December, January, February, March – for four months, Chris.
Chris Martenson: Well, those took a little while to start taking off. I remember there was a month where everybody was scratching their head, saying, why is all this money parked at the ECB?
Mish Shedlock: Yes. But when the banks realized, they were, oh, my God. There is no stigma from getting the money from the ECB. So, they all piled up. But you know who piled up the most? It was the weakest banks, the – in the worst countries that piled up. Some of the stronger banks are actually saying, you know what? We do not want this money. We are going to pay it back early.
Not so in Spain. In the Spanish banks – levered up on this garbage. And if yields in Spain inch back up above 6 percent, they are going to be underwater on these frigging bonds they bought. So, that is the mess that they are going to be in. Well, it depends on where they bought them at. The yields hit, it looks like it is interpolating this chart. Maybe at 6.7 percent. But, how many of these banks bought them right there? They probably did not. If they bought them right around 6, which is the rate maybe in December. They are going to be underwater pretty soon. And all – and on top of it, Spain now is talking about…I don’t know if you saw this…two days ago they came out and they said, this is… We are going to guarantee the debt for the regional governments. Yes, yes, so now you have got another reason to not wait. So, they are saying, well, the regional bond yields are too high.
Okay, so we can lower those by Spain guaranteeing them. But at what expense? By the expense of all of the yields going north. Actually it was when Spain came out and said that. That yields started rising. And it is… They have been actually rising now, I think in anticipation of this. And in anticipation of the end of the LTRO here.
Chris Martenson: Yeah.
Mish Shedlock: And it is not. It is not accelerating yet. But today was the first acceleration we have seen. And it – and it would not surprise me to see this accelerate like this. You know, say, three days out of five. And then if that happens, we are going to have, we are going to have yields at Spain back at 6.5 percent. And then what is Super Mario going to do to that?
Chris Martenson: Well, there are all kinds of stuff going on in Spain, which if you are careful and you are reading about it is there for everybody to see. There have been the riots. And there has been a lot of unhappiness around the austerity. But it was just this morning, I believe, that Prime Minister Mariano Rajoy came out and said, this is a quote. “Spain is facing an economic situation of extreme difficulty. I repeat, of extreme difficulty. And anyone who doesn’t understand that is fooling themselves.”
So, this is the Prime Minister saying, listen we have a really serious situation going on. They just had a five-year auction of notes that came out. That, today, I believe they were hoping to sell three and a half billion Euros. They sold two point five nine.
Mish Shedlock: Wow.
Chris Martenson: So, almost a billion Euros less than their max target. And here is the big thing. Last month when they conducted a five-year auction, the rate was 3.3 percent. And this time it went off at 4.3.
Mish Shedlock: There you go.
Chris Martenson: So, can you imagine in the United States ten-year Treasury notes or five-years going off a full percent higher on a month over month basis? I mean, and this is after the LTRO2. So, yeah, the banks as you mentioned at the beginning are now going to face a situation where they’re underwater on the Spanish bonds that they bought…
Mish Shedlock: Yes.
Chris Martenson: …with bailout money, which was given to them to help bail them out from the prior sets of bad decisions they have. We now have a failed bailout on a bailout, which will necessitate, of course, a, bailout, I guess. I mean, where is this going? Duh, is anybody besides us going the Emperor has no clothes? This is just – this is ridiculous to me at this point. We have – we have crossed into some strange territory.
Mish Shedlock: There are some pretty amazing numbers coming out here – of Spain here. My friend Brand, who lives in Spain. And he sends me e-mails literally everyday. Links from Spain; and I cannot post them all obviously. But I pick and choose which ones I want to post. And yesterday I posted one. And they are in Spanish, too.
So, I send them through Google Translator. And the translations are not always good. So, sometimes I really revise them. And sometimes I just say, “My God, this is really difficult. But you can get the gist, so go ahead and read it.” But anyway, the one from yesterday says, “Fifty-seven percent of the Spanish budget is devoted to pensions, unemployment benefits, and interest.” Now, what the hell do you think of that? Fifty-seven percent is devoted to pensions, unemployment benefits, and interest. And where is the unemployment rate going? And where is interest going? So, you tell me…
Chris Martenson: Wow!
Mish Shedlock: Is this sustainable, Chris? Is not that amazing? That is an amazing stat. Let us see if I can break it down. There is 37 percent to pensions, 9 percent unemployment benefit, and 10.5 is the interest payments. Well, the interest payments are going to go up. Unemployment benefits are going to go up. We know unemployment is rising right now. This is from last month. And the unemployment rate already jumped up to 23.6 percent.
I think Spain is going to be 25 percent within a couple of months. So they are going to have to start slashing these pensions and unemployment checks. And then what? And then are we going to have riots? So, people do not understand what is going on and how critical this situation is in Spain. And then the minister is warning out there. Chastising people, saying, well, we are not Greece. And I said, My God. Here we go. We have got an official denial.
Chris Martenson: It is official.
Mish Shedlock: It is official. It is…Spain is going to implode. I don’t know how anyone could not come to that conclusion.
Chris Martenson: Well, they are going to need another bailout. I believe that is what the prime minister was sort of hinting at and getting around to, they are going to have to because it has been proven. And it is just a mathematical fact, I think at this point. You cannot slash your way to austerity to promise land either. Because that is just a spiral that has to bottom out all on its own. As you are slashing your budgets.
And, of course, that is impacting your GDP, which means your debt-to-GDP ratios are not good. Your deficit-to-GDP ratios are usually, typically, getting worse. Spain has an incredible unemployment problem at this point and time. And so all of that against that is sort of our backdrop. And then we find out the LTRO effect has already worn off just a few months later.
You know what, Mish? Slap me, because if five years ago, you said, “Chris, Europe is going to dump a trillion dollars into the market. And it’s gonna goose it for three or four months.” I would have said, “You’re nuts.” That is just no. That would be the kind of money that you could think about a two or three year massive business cycle building off of. And it just got swallowed up into some kind of black hole.
Mish Shedlock: I just found the official denial here. It came from the EU, from the Spanish economy minister, who said, “any suggestions that Madrid needed emergency international funds was absurd.” And ding, ding, ding, that is what I said – ding, ding, ding. The alarm bells. The odds that Madrid needs emergency international funds is immediate is my reaction to that. So, we have got a different position presented officially than what the rational person would think when they see this.
And by the way, I don’t know if you noticed this, but two days ago market came out with the PMI. German manufacturing is back in contraction, and everyone was surprised about this but me, and in Priba View [PH], and a few people that read our blogs. But the consensus was surprise here, because they thought that Germany was going to decouple. Germany is not going to decouple. How can Germany decouple when they export to the Eurozone and they export to China? And China is slowing dramatically.
And Spain, Italy are – and France are now in contraction. So, who is this vaunted export machine of Germany going to export to? I keep asking this question. And every month the market comes out with their PMI reports. And every month they are way too optimistic. Last month they said, well, okay. Or two months ago, they said, well, Germany would keep the Europe – would keep Europe out of a recession. And I said, “What?” And then this last month they said, “Oh, well, Europe is in a recession, but Germany is going to decouple.”
And now, this month they are saying, well, we think everything is in a recession now. They finally admitted it. But they said it might be mild and short. And every month they weight behind the curve figuring out what is going on here. Europe is imploding right now. Spain, Greece, and Portugal are in an outright depressions, and it is going to get worse. And that is – has to drag Germany down. There is no way it cannot.
Chris Martenson: And let us – let us talk about Germany for just a minute. Because Super Mario Draghi, he had to come out and just nix the idea of an ECB early exit from this whole stimulus program. Because this is just hours after the prime minister of Spain came out and said what he said. And against that at the same time in Germany. Workers are winning some of their biggest pay increases in decades.
Mish Shedlock: Yes.
Chris Martenson: Because of the inflation that has been stoked. So, Germany is rightly concerned about inflation. They have been feeling it. Once the workers start to get the pay increases, now you have got that wage and price spiral sort of locked in. and it starts to move. So that is one set of pressures on one side.
Completely on the other side, you have got countries swirling the exact opposite direction into deflation. I cannot think of a greater way to put more pressure onto a situation. And there is Mario hanging out in the middle at the ECB. Wondering what do I do? Do I put more money in or do I start to withdraw it? Those are the two pressures that are being faced there right now. So, I think what you get is paralysis.
My analysis here would be that we are not going to see much more activity out of the ECB at this point. I think that is what the markets are smelling as well.
Mish Shedlock: Well, also, Super Mario is under pressure here. I don’t know if you saw it. But, for his popularity – was pretty strong. It was like 64 percent for awhile. But it has dipped down to 40 percent and maybe the high 30s now. So, people in Italy are now getting fed up of his austerity programs. And it is an absolute catastrophe in Greece, actually, what is going on. The support there for the Trioka appointed — the appointed official; no one elected these guys — Has dropped now like something like 15 percent.
So, you have got some far right, and some far left, and some communists. And the radical groups in Greece, both extremes, are taking over. I don’t know how they are going to come up with any kind of coalition there in Greece that is going to be able to hold to those agreements that they have pushed through. There is no popular support for these things at all.
They are trying to backtrack at – them at all. I really thought that there was going to be that holiday in Greece in March. I don’t know. Maybe we see it. Maybe we see it right after the elections. Or maybe we see a surprise Easter holiday here in Greece where they closed the banks and reopen and announce the Drachma.
Something is going on there. The Greek one-year bond. I do not think that thing is trading yet. Because all of these agreements still have not been worked out. It is absolutely amazing here what is going on in Greece. And you do not even see anything on it.
Let me just do a quick check here. Greek ten-year bonds are at 22 percent. Ok, let me see if I can get a Bloomberg quote on the one-year bond. The last quote I had was as of 3/09. It is still there and the yield is 1,143 percent. But there is no quote on it. That is the last quote from March 9th. The people do not even realize these things are not even trading. The one-year bond because Greece is not making its commitments because of all of these agreements that are still unsettled; amazing, right.
Chris Martenson: Well, it is amazing. Maybe the ECB should buy some of those bonds, if they could. And then they could record them at par. And record the gains. And then ship the gains out to some of the member countries like they did last time. That would be a nice little trick right there if you could do it. Good work if you can get it, by the way.
Mish Shedlock: Yeah, meanwhile, back in the U.S., the ISM was what? A services ISM was a little bit cheery or something, they claim? I am wondering how much of this is weather related? I am wondering how sustainable this is. Certainly a piece of it has to do with car sales. And for the life of me, I can just tell you flat out, I do not understand it. But people are buying cars.
Chris Martenson: Well, the dealer inventory is rather high. So, that counts on the – on the sales.
Mish Shedlock: Yes, it is, but I mean, at some point. The channel [sic] or something has to stop. So, there is probably some. I am sure there is a lot of channel stuffing. But there is probably some genuine car sales behind that. Whatever reason, I don’t know. It is certainly not sustainable here. And, if you want a prediction from me. I think there is a strong chance that the seasonal adjustment is here in March.
We have got a jobs number coming out on Friday. I think next month is going to be a disaster. But ADP is saying 200,000 jobs this month. I will take a wild guess. It is 50,000 jobs after we see – or, the unemployment rate jumping a couple of tenths of a percent after we see — some of these seasonal adjustments come back into play. Where March takes away some of this warm weather from January and February. Not sure about that, Chris. I don’t know.
Chris Martenson: All right.
Mish Shedlock: But I think we are going to see a substantial slowdown in the United States within a month.
Chris Martenson: All right, well let us start tracking those numbers in next week’s podcast. That is all the time we have this week. I want to remind everybody that if you want to support a really good cause, the ALS Foundation is doing some really good work on Aminotropic Lateral Sclerosis, which, by the way, was something I did research on once upon a time in a past life.
So, at any rate, I know that there is really good progress being made. And we are getting new understandings all the time. And you could both support that and have a pretty decent risk-adjusted shot at a really nice haul. And good luck to everybody who is going to be playing in that game. I certainly will be. And that is it for now. Do you have anything else?
Mish Shedlock: Well, thanks again, Chris for your support – for Adam’s support. You did a tremendous job of putting together that website for the ALS Foundation. And if you cannot afford a two hundred dollar ticket, you can always make a donation even of ten dollars on the website. Any amount is appreciated. It goes straight to ALS research.
I picked the Les Turner Foundation because their expense ratio was the lowest of any of the foundations of ALS. It was actually surprisingly low. I remember the number on there. It says something like 12 percent right now. So – though – so the money you donate to this is really going to go for research. It is a good cause. It is a very devastating disease.
A lot of pressure on me. And as bad as things here are on me, you can just imagine how bad they are on my wife, a very independent kind of person who now literally needs help doing everything, even just standing up.
So, I appreciate your support, Chris. And thank you. And I guess with that we will catch you in seven.
Chris Martenson: All right, we will see you next week.
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And don’t forget to check out Mish’s raffle!