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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (35488)	8/16/2005 10:41:32 PM
From: yard_man	Respond to of 116555

Bought a Nissan truck in 01 -- engine is ok -- still going pretty good at 130k miles -- but the body was just plain cheap -- Honda's are definitely a cut above Nissan, imo.

To: patron_anejo_por_favor who wrote (35488)	8/19/2005 8:38:07 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Proudly Made in the USA Mish has happy news for those that want something to cheer about. Tonight I cooked dinner and grated some Parmesan cheese with a product my wife bought but I never used before. It is the "Microplane Zester Grater", "designed in the woodshop, perfected in the kitchen". Proudly made in Russellville, Arkansas. Mish is pleased to report that it worked perfectly. I even like the case it sits in so it doesn't get jostled around in the drawer and get dull. amazon.com Other products made by microplane amazon.com Here is another review: microplane.com microplane.com Yes folks, this is the very first Mish Household Tip of the Week that does not some kind of disaster behind it. Mish

To: patron_anejo_por_favor who wrote (35488)	8/19/2005 10:33:12 PM
From: mishedlo	Respond to of 116555

United Kingdom: MPC rate decision and the future course of UK monetary policy [I am on the other side of this bet - Mish] David Miles (London) morganstanley.com It is self evident from the voting figures — a 5:4 majority for a rate cut with the Governor voting against the 25bp reduction to 4.5% — that the decision made by the Monetary Policy Committee at the Bank of England on August 4 was, as we had always expected, very finely balanced. It is also likely that future decisions will be finely balanced. Given the economic backdrop it is not surprising that the decision to reduce rates was anything but clear-cut. As the minutes observe: “CPI inflation was on target at 2.0% in June, a little higher than expected. Although there was continuing uncertainty about the reasons for the recent increases in CPI inflation, the oil price was likely to have played a sizable role through both direct and indirect channels, and looked set to do so for some time given the continued rise in oil prices. The pressure of demand on supply in early 2004 was also likely to have played a significant role in the rise in inflation towards the target.” Yet growth had clearly slowed in the first half of this year — though even here there was uncertainty about the scale of that slowdown and an expectation that provisional figures for output might be revised up: “The evidence from the labour market was also broadly consistent with growth somewhat below trend. Nevertheless, on balance it still seemed likely that recent ONS output data would eventually be revised up a little. The June Index of Production release had been provided to the Committee ahead of publication. The June outturn, together with revisions to earlier months, suggested stronger-than-expected manufacturing output in Q2. On the basis of these numbers, it was possible that the ONS might subsequently revise up the preliminary GDP growth estimate in the next release.” Whether consumer spending would grow at closer to trend in the second half of the year was also hard to judge: “Overall, the indicators did not yet provide a clear steer as to whether the stronger consumption growth now expected for Q2 would be maintained into the second half of the year, or whether the weakness over the first half of the year — taking Q1 and Q2 together — would continue.” All in all with output close to full capacity, inflation already at the 2% target — and expected to rise a bit more yet — and with a reasonable chance that growth would naturally pick up in the second half it is not surprising that some members felt the case for a rate cut in August was not compelling. It is also clear that those who did, on balance, feel that a 25bp cut was warranted did not presume that further rate cuts were likely to be desirable: “For these members, there was no presumption on the future direction of interest rates”. Where next? It is clear that rates at 4.5% — a level consistent with the MPC’s central expectation being that inflation is close to 2% two years ahead — might persist for some months. There should be no expectation that further rate cuts are highly likely. With the evidence so finely balanced, and given the 5:4 vote, it is not implausible that the rate cut in August is reversed, though that might be more likely a few months down the line than in the next month or so. One reason that a reversal in the near term is somewhat less likely (even if some of those who voted for a cut may decide that starting with a blank slate they would even now judge 4.75% to be the right rate) is given in the outline of the case made by some of those who voted against a rate cut in August: “Given the difficulty in explaining a reversal of a decision soon after a turning point, should that prove necessary in the light of future data, it was advisable to accumulate a little more evidence than usual before changing interest rates. While a decision not to cut rates would be a significant surprise, the Committee’s latest projections did not support the current market view that a sequence of interest rate cuts was likely to be needed to meet the inflation target in the medium term”. Paradoxically — though perhaps intentionally — in spelling this out so clearly they make the chances of a rate reversal somewhat higher since it has now been flagged that such a move might well prove sensible in the light of new information over the next few months. Our central guess remains that rates may stay at around 4.5% for the rest of this year — but that the next move in rates is rather more likely to be up than down. As a central forecast we assume a rate rise of 25bp (from 4.50% to 4.75%) in the first half of 2006.

To: patron_anejo_por_favor who wrote (35488)	8/19/2005 10:37:16 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Japan: General Election & Fiscal Policy - Reform Inevitable morganstanley.com Takehiro Sato (Tokyo) Spending cutbacks unavoidable no matter who forms the next administration The month of August typically features ministry preparations, including floating various new ideas, for budget requests submitted at end-August as the foundation for the following fiscal year’s initial budget. Recent political upheaval such as Diet dissolution and the resulting general election, however, have cast a shadow over this schedule. Yet the new administration still has to prepare the F2006 budget at some point. Media reports indicate that the MoF will maintain the August deadline for budget requests and move ahead with budget planning. This has not been confirmed. The fiscal policy outlook is unclear given the possibility of a new administration taking office. However, we expect the F2006 budget to strongly incorporate fiscal structure reforms, regardless of whether reformers seeking a small government or conservatives interested in a larger government form the new administration, since debt servicing costs and social guarantee outlays are quasi-fixed items and Japan’s fiscal policy already has fairly limited flexibility. Social guarantee costs are largely decided without major reforms. We have prepared an outline of the F2006 budget and the JGB issuance plan using some rough assumptions. Our conclusion is that spending cutbacks are unavoidable no matter who forms the next administration. Debt servicing costs at nearly ¥20 trillion of the projected ¥82.5 trillion F2006 budget We conservatively estimate that the government will collect ¥46.0 trillion in tax revenue, up ¥2.0 trillion from the F2005 initial budget, assuming higher tax revenues in F2006 and upside from eliminating special income tax cut incentives. We project ¥3.8 trillion in non-tax revenue, on par with F2005. Let’s turn next to spending. We forecast ¥19.5 trillion in debt servicing costs (¥10 trillion in fixed-rate redemption and ¥9.5 trillion in interest payments), remaining at more than 40% of tax revenue. We expect a ¥0.6 trillion Y to Y decline in regional tax grants to ¥15.5 trillion due to fiscal cutbacks by local governments, although the outlook for reforms in tax distribution between national and local governments promoted by the Koizumi administration is unclear at this point. As for the general spending, however, the Koizumi Cabinet has just set a ceiling for F2006 general budget requests on August 11, in which it will be only a ¥0.2 trillion rise to ¥47.5 trillion, even reflecting natural growth in social guarantee costs with the aging society. These values limit total spending to ¥82.5 trillion, a ¥0.3 trillion increase from F2005 and suggest that the government will need to issue ¥32.7 trillion in new fiscal resource bonds (-¥1.7 trillion YoY). This might be favorable for the bond market if new fiscal resources bonds appear likely to be mostly unchanged or even somewhat lower. The main challenge, however, is a steady rise in JGB redemption value as an aftermath of fiscal stimulus measures implemented a decade ago in supplementary budgets. Longstanding issue: Sustainability of government debt There is constant uncertainty about whether the market can smoothly absorb the additional issuance value with the economy close to overcoming the recent mini adjustment phase and bank lending nearly bottomed out. Healthy current account surpluses and debt repayment to rectify corporate balance sheets have funded Japan’s fiscal deficit during asset deflation. Looking ahead, the current account surplus is unlikely to disappear considering steady expansion of the income account surplus. But corporate balance sheet corrections will not last indefinitely. In fact, flow of funds data for Jan-Mar indicate a slight rise in fund-raising by the private, non-financial sector in F2004 for the first time in eight years since 1996. It might seem unusual for companies to expand fund-raising when they have abundant surplus liquidity at hand. We think it could suggest that balance sheet cutbacks are finally ending after companies eliminated financial leverage under pressure from asset deflation. In other words, companies might be shifting to forward-looking strategies that target higher capital efficiency by increasing financial leverage, rather than simply utilizing surplus liquidity to buy back and retire their own shares or increase shareholders’ compensation. While this shift is a sign of the economy moving in the right direction, it also affects the domestic savings-investment balance and could raise some concerns about the sustainability of government debt. BoJ support as a last resort Government choices are limited to fiscal austerity or increased public purchases with JGB issuance and market absorption values heading for record highs in F2006. The former will depend on the economic policies of the new government formed after the general election scheduled for September 11. We previously explained that government options are highly restricted due to the natural upward trend in debt servicing costs. Policy flexibility is minimal even if anti-reformists interested in a larger government gain control. We would not expect delays of more than 1-2 years in the full elimination of special income tax reduction incentives (expected in F2006) and a consumption tax hike (F2008). The latter choice is taboo, but could enable the government to postpone concerns about near-term market conditions. A recent example is the additional round of refinancing for the BoJ refinancing portion approved in the F2005 budget preparation process. The government and BoJ agreed to a renewal of TBs, which were issued in F2004 to replace long-term JGBs held by the Bank reaching maturity, in F2005. This strategy reduced market absorption for F2005 by nearly ¥10 trillion from the initial forecast. A similar move in F2006 could also trim ¥10 trillion from market absorption and alleviate market conditions concerns. The Bank has not commented on whether it will continue such support from F2006. The above-mentioned approach clearly raises issues and might violate Article 5 of the Fiscal Law, which prevents fiscal deficit financing by the central bank. However, opinions are split on whether this means that the Bank is enslaved to the government’s debt management policy. The total value of TBs owned by the BoJ does not change even if it reduces refinancing to TBs. This happens because Bank refusal to accept TB refinancing forces the MoF to issue TBs in the market to cover the shortfall, and the Bank ultimately has to purchase the TBs in buying operations to counter capital shortages in the short-term money market. The only difference is whether the BoJ purchases TBs directly from the MoF or from the market. In either case, government efforts to avoid increasing issuance of medium- and long-term JGBs are inflating TB holdings at the BoJ. This process circumvents the BoJ’s banknote rule on medium/long-term JGB holdings (a rule to limit the medium- and long-term JGB holding within the amount of bank notes in circulation) since the duration of TBs held by the Bank is effectively being lengthened. Reforms inevitable The BoJ’s increased involvement in the debt management policy was initially an emergency measure addressing the 2008 crisis. However, the redemption peak in F2008 is simply the first peak and BoJ holdings of short-term JGBs will continue piling up unless the central government delivers a surplus in the primary balance. The government could become addicted to the solution described above. Also, we anticipate greater instability in Japan’s policy management if the general election on September 11 produces a minority government. All bills will have trouble passing given the current power balance in the Upper House, requiring a coalition for each individual bill. Renewed concerns about a debt crisis might emerge in the market, and the bond market will send warning signals to the central government against resorting to deficit financing. Yet we think the clear threat of such conditions should force the next government, regardless of its make-up, to pay close attention to fiscal discipline. In conclusion, we do not anticipate a major policy shift from the current government’s reform emphasis. A non-reformist administration, meanwhile, would have difficulty in surviving due to market pressure. I personally therefore have a favorable view of the latest political upheaval as a constructive step toward a regrouping of Japan’s political world. I also expect a constructive reaction from asset markets.