Hollande Asks ECB to Engage in Japanese Style Currency Debasement

French president Francois has had enough of austerity but claims he "cannot do it alone". The Financial Times reports François Hollande goes on ‘offensive’ over stalled EU economy.

François Hollande promised an “offensive” to bring “more growth and less austerity” to Europe as he launched a bid to resurrect his presidency.

Mr Hollande said the first priority of his second-year “offensive” was a four-point plan to “get Europe out of its torpor” – concentrating on combating youth unemployment and a strategy of investment. “The number one objective is changing Europe’s direction to have more growth and less austerity,” he said.

“I cannot do it alone,” he said, adding that the European Central Bank could “put in liquidity, as is happening in Japan, which has allowed a fall in the yen and helped exports”.

The president promised a 10-year investment programme in digital, energy, health and infrastructure sectors to regenerate growth, saying that it could in part be financed by the sale of some of France’s big state corporate holdings, which have a total market capitalisation of about €60bn. But he made clear that any sales would not be at the expense of ceding state control or influence over vital companies.

Economic Illiteracy

Not only is the Hollande in praise of competitive currency debasement which mathematically cannot work if every country does it (not that it can work anyway without long-term consequences), he also wants to sell France government holdings "without ceding state control or influence over vital companies".

Good luck with that. No one in their right mind would want to buy companies under such conditions.

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

How Clueless Are Manufacturing Future Expectations?

Month in and month out I see unwarranted optimism in Europe and in the US.

For example, on Thursday I stated "Philly Fed Slips Into Contraction (Again); Current Conditions Recessionary, Future Expectations Far Too Optimistic".

Here is the chart I posted:



That chart got me to wondering "just how wrong are future expectations historically?" The data is available, all one has to do is chart it.

I asked Doug Short at Advisor Perspectives if he could produce a chart of future expectations offset by six months to see how expectations actually matched what did happen. Doug graciously produced a pair of charts.

click on either chart for sharper image

Future Expectations Shifted 6 Months Back vs. Actual Results



Note that manufacturers in the Philly region are especially clueless during recessions as to how fast things will improve. They can be wildly off at other times too, as shown by the black ovals.

Since the Philly Fed index is generally noisy (huge month-to-month random fluctuations), we decided to smooth out the lines by showing a 3-month rolling average of current conditions vs. a 3-month rolling average of future expectations.

Future Expectations Shifted 6 Months Back vs. Actual Results (3-Month Rolling Averages)



Charts by Doug Short, annotations in purple and black by Mish.

Optimistic Expectations

Generally speaking, manufacturers' expectations about future conditions are wildly off for many months before during and after recessions.

In the double-dip recession of 80-82, it took 43 months from the end of the first recession for expectations to match reality, then the lines immediately diverged again.

Mid-cycle there were a couple of periods where expectations generally matched reality (as noted by close lines with repeat crossovers). The first was 1985 to 1987, and the second was 1996 to 1999. 

In the 1974 and 1980 recessions expectations plunged ahead of the recession. Both appear to be oil related because it has not happened since.

Key Points

• Wide variances in expectations vs. current conditions tend to be way over-optimistic. 
• Current spread of expectations vs. reality is in recession territory, albeit not quite as pronounced (yet) vs. earlier recessions.

Addendum: The heading on the charts originally said six moths forward. It should have said backwards. The caption on the chart itself was correct.

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

EU Emissions Trading in Tatters (As It Should Be)

The Wall Street Journal reports Emissions trading in Europe in Tatters.

The European Union's flagship program to fight global warming—a regional carbon-emissions trading system—suffered a major blow Tuesday when legislators rejected a proposal aimed at saving the market from collapse.

After the European Parliament's rejection, spooked investors drove the already depressed price of carbon emission permits down by nearly half. Benchmark electricity prices also fell. Europe's Emissions Trading System, launched in 2008, was intended to protect the environment by raising the cost of polluting and encouraging businesses to invest in cleaner technologies.

Slack demand for electricity because of the recession and an abundance of permits helped push the price of emitting a ton of carbon below €5 ($6.60) earlier this year, from nearly €30 in 2008.

On Tuesday, the price dropped to €2.55 before recovering partially to €3.20.

Without some intervention to reduce supply, "the ETS will almost certainly collapse," said Kash Burchett, a London-based analyst at consulting company IHS Energy.

"Prices will likely sink below €1 per ton as participants recognize that there is no political will at present to restore the market mechanism to functioning order," he said.

Scheme Flawed From the Start

"Today's vote is a historic failure," said Joris den Blanken, EU climate policy director at environmental advocacy group Greenpeace.

Really? No not really.

Today's vote is one of the few common sense things the EU has done in years. Giving existing polluters credits that they could sell, and credits that new polluters had to buy, is preposterous.

Hopefully this will bury the idea forever, but don't count on it. Please note that I am not praising pollution. I am against this method of doing something about it.

I also disagree with the entire concept of man-made "global warming" in the first place. Even if it exists, the odds that government will do something reasonable about it is close to zero.

For further discussion of EU clean energy silliness, please see Paul Krugman "Was" Right.

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