Officer Injured

South:

• A Chicago police sergeant was seriously injured this morning when his squad car was struck by another vehicle in a crash that authorities suspect was alcohol-related, officials said.
  
  The officer collided with a green Ford at about 2:22 a.m. near the intersection of 59th Street and California Avenue in the Chicago Lawn neighborhood, police said.
  
  No details of the accident were available, but a police spokesman said alcohol was suspected in the crash and that charges were pending against the second driver.

Best wishes for a speedy recovery.

Dallas Fed Proposes Ending "Too Big To Fail", Urges Removal of Failed CEOs, Breakup of Banks

Richard Fisher, governor of Dallas Fed wants to end "Too Big To Fail" and Urges Removal of CEOs of Bailed-Out Banks

The Federal Reserve Bank of Dallas said taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts and the removal of chief executive officers and boards of directors.

“A set of harsh, non-negotiable consequences” for requesting U.S. Treasury assistance might also include “clawbacks” to gain cash and stock bonuses paid the top management team during the prior two years, the Dallas Fed said today in a slide presentation on its website.

The proposal reflects Dallas Fed President Richard Fisher’s view that large U.S. banks need to be split apart because they operate with an implied government safety net that puts their risks of failure on taxpayers.

End Too Big to Fail Now

Please consider the Dallas Fed Slideshow Why We Must End Too Big to Fail – Now

Concentration Intensifies the Impact of Mistakes

“Human weakness will cause occasional market disruptions. Big banks backed by government turn these manageable episodes into catastrophes.”

Close But Not Quite Correct

I have one major  disagreement with the proposal. Fisher said "taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts ..."

I say taxpayer aid to banks should never happen. Banks and bondholders should take the hit.

However, it is refreshing to see this kind of talk. It would be a major step in the right direction. Unfortunately, Bernanke is against it.

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

Steen Jakobsen on CNBC Squawk Box on the lack of European reforms, the French economy, elections, intervention in the bond markets, and gold

Saxo Bank chief economist Steen Jakobsen was on CNBC Squawk Box on the lack of European reforms, the French economy, elections, and intervention in the bond markets, commodities in general, and gold and copper specifically.



Select Quotes From Above Video

• Both French candidates [Hollande and Sarkozy] are pretty poor for Europe and more importantly for France.
• The fact remains we have only seen 15% of the reforms promised in the UK, Spain has just started on the road to reform, and Greece is still struggling to get reforms. We are not getting any reforms in Europe in my opinion.
• What the bond market has become today is an interventionist market controlled by the ECB and their ability to go into program and buy.
• The problem remains at all times that access to credit is not there. Governments continue to take a bigger and bigger slice of the credit cake.
• I am very optimistic that when we come out of this very, very harsh recession in the next two to four quarters we will have seen the low politically and economically, hence we will have 10 years of excellent returns in equities.
• Right now I am starting to go increasingly short. May 2 was the peak last year and I think we have exactly a repeat of 2011 and 2010.
• I like gold a hedge against the naive printing of money [by central bankers] that continues to be the case. I am surprised that agriculture has done so poorly in the first quarter.
• Commodities are a short-term trade as long as we have extend-and-pretend as a policy. Think about it. What would you rather own long-term? Some liability on the government of Greece, Spain, even Germany, or buy a mining industry that is producing every single day?

Unwarranted Optimism?

I am in general agreement with most of Steen's views. However, unlike Steen, I am not bullish on copper or base metals in general.

My reasons are as described in 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

Whether or not Europe comes out of this recession with a bang or a whimper is entirely dependent on whether or not there are any structural reforms in the next two years or not, and whether or not the eurozone even survives.

The good scenario in my opinion is a breakup of the Eurozone. The quicker that happens the quicker Europe bottoms and the sharper the rebound (but only if accompanied by sufficient reforms). If the   public sector remains above 50% of the French GDP (currently about 56%), don't look for a recovery in France.

Color me skeptical about a huge recovery in Europe with socialists in control, no real reforms implemented, and most importantly, aging demographics that will place still more burdens on European taxpayers unless there is dramatic pension reform.

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

Mish on Capital Account May 1: Discussion of Europe, Austerity, Paul Krugman, Jobs, and the Greenspan Contrarian Indicator (GCI)

Once again it was a pleasure to be on Capital Account with Lauren Lyster Tuesday afternoon. We discussed Europe, austerity measures, Paul Krugman, whether or not the Fed could create jobs, and the Greenspan Contrarian Indicator.

Link if video below does not play: Mish Tackles Paul Krugman and the Greenspan Contrarian Indicator (GCI) .



For more on the GCI, Please see Contrary Indicator Alert: Greenspan Says U.S. Stocks ‘Very Cheap,’ Likely to Rise

I have a lot of fun doing these. I do not come in until after the 6 minute mark but Lauren had some excellent comments before I came on.

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

China Manufacturing "Expands" at Faster Pace; China Manufacturing "Contracts" 6th Consecutive Month; Confused by Conflicting Headlines?

China manufacturing is reported to be in contraction and expansion simultaneously. The Chinese government reports expansion. The HBSC PMI says China is in contraction for the 6th consecutive month.

Obviously this is impossible, so the question is "who to believe?"

China Manufacturing Expands at Faster Pace

Bloomberg reports China’s Stocks Rise Most in Two Weeks on Manufacturing, Fee Cut

China’s stocks rose the most in two weeks after manufacturing expanded at a faster pace and the nation’s two stock exchanges said they will cut trading fees by 25 percent to attract investors.

Citic Securities Co. and Haitong Securities Co. led brokerages higher on speculation the regulators’ move may boost stock trading. Jiangxi Copper Co. and Yunnan Copper Industry Co. (000878) gained more than 9 percent after the Purchasing Managers’ Index rose to 53.3 in April, the fastest pace in a year.

“We’re definitely going to have a major bull market ahead,” Jerry Lou, the chief strategy officer at Morgan Stanley Huaxin in Shanghai, said in an April 24 phone interview.

China Manufacturing Contracts 6th Consecutive Month

Markit reports China Manufacturing Sector Operating Conditions Deteriorate at Marginal Rate

April data pointed to further reductions in manufacturing output and new business, although rates of decline were marginal in both cases. Consequently, companies remained cautious with regards to hiring, highlighted by the index measuring trends in manufacturing employment reaching its lowest level in 37 months.



After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 49.3 in April, up from 48.3 in March. That indicated a sixth successive month-on-month worsening of manufacturing sector operating conditions in China.

Key points

• Manufacturing output and new orders both fall at marginal rates
• Employment down at fastest rate in over three years
• Input cost inflation remains subdued

Comment

Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The upward revision to April’s final PMI reading, compared to the flash estimate, confirms that the pace of China's slowdown is stabilized. The 8.1% y-o-y GDP growth is likely to be the cyclical trough. As easing measures are starting to work and additional easing measures are on the way in the light of accommodative inflation outlook in the coming months, we expect Chinese GDP growth to bottom out in 2Q and recover modestly to over 8.5% in 2H.”

Cyclical Trough Coming Up?

What is with these perpetually bullish comments on Markit? I am seriously at a loss here.

For months on end we heard nonsense about no recession in Europe, followed by no recession in Germany, followed by calls for a short recession.

Then the bottom fell out days ago as noted in Eurozone Manufacturing PMI Hits 34 Month Low; German Manufacturing Hits 33 Month Low; Orders Drop Steeply Across the Board.

Absurd Predictions

Here we are again with preposterous predictions of a cyclical bottom in China.

I do not know what the next quarter will bring, or even the next several quarters,  but these guys are not on the ball nor are they in left field. Frankly, they are not even in the ballpark.

If China GDP posts a cyclical bottom at 8.1% I will eat my hat. I believe, along with Michael Pettis at China Financial Markets that China will "average" 3.5% GDP or less for the rest of the decade.

For details, including two bets Pettis made with The Economist please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

If China growth slows to 3.5% or lower on average, the bottom will be far less, perhaps even negative. Regardless, the idea that China's GDP will bottom at 8.1% is absurd.

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

Economics 101 - Again

On one hand, we should be happy that aldercreatures have jobs instead of wandering around in alleys eating food out of garbage cans (because that's all they would be qualified to do in the real world).

On the other hand, it means we have to listen to dumb shit like this:

• Health advocates and retailers squared off Tuesday on a plan to fight soaring obesity rates by taxing Chicago consumers of soda pop, energy drinks and other sugary beverages anywhere from 15 to 30 cents a container to a penny an ounce.

  The City Council’s Health Committee held a marathon hearing on a proposal by its chairman, Ald. George Cardenas (12th), to follow the lead of 33 states that already impose a sales tax on sugary beverages. Six other states slap on excise taxes in addition to a sales tax.

  For retailers, fighting the proposal comes down to money. They’re still hurting from the city’s imposition of a Cardenas-championed tax on bottled water.

And has there been an impact study done on the decline in sales of bottled water since Daley (and Cardenas) started taxing it? We're pretty sure we saw one. We also saw the full skids of water being moved at Sam's Club, WalMart, Costco and other "big box" stores just outside of city limits.

Now Cardenas wants to drive even more retail out of the corporate limits. You know, those entry level jobs everyone seems so hepped up on....until it actually comes to creating them we suppose.

It's a Bird! It's a Plane!!

BLAM!!! Now it's missile bait:

• The government is warning small-plane pilots they could be shot down if they violate a no-fly zone in Chicago during the NATO summit.

  The Federal Aviation Administration has issued a flight advisory for May 19 to 21, banning non-commercial aircraft from flying within 10 nautical miles of downtown Chicago and below 18,000 feet.

  “The United States Government may use deadly force against the airborne aircraft if it is determined that the aircraft poses an immediate security threat,” according to the advisory.

Should be a fun time.