Sad News For Greece? Will Greece Kiss Troika's Ass?

I am convinced the best thing for Greece is to tell the troika where to go. And recent events (at least until today) suggested Greece would do just that.

On the other hand, extreme sentiment is usually wrong. It may not be, it just usually is. So please consider the British betting site, William Hill.

Sentiment is so lopsided that the British betting site William Hill No Longer Accepts Bets On Greece.

"No player seems interested in betting that Greece remains in the euro zone until the end of the year."

Greek Capitulation?

Wow. Zero bets is mathematically as lopsided as it gets.

Meanwhile, please consider Tsipras Reshuffles Negotiating Team to Sideline Varoufakis.

Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market.

Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week.

The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12.

The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent.

The socialist opposition Pasok party said the government was “emasculating Mr Varoufakis . . . and attempting to send a message to the Europeans and the IMF indicating political will for an agreement”.

While Mr Varoufakis retained his position as finance minister, Euclid Tsakalotos, deputy foreign minister for economic affairs, was appointed coordinator of the new team. The Oxford-educated economist is close to Mr Tsipras and his appointment was seen as an attempt to shield the new team from Mr Varoufakis.

A government official insisted the finance minister would remain involved, heading a new “political negotiating team” and would remain “in the frame of collective decision-making and execution” by the leftwing Syriza-led government.

Negotiation Shuffle

Betting sites and reality are not exactly the same thing.

Yet, given the "negotiation shuffle" the odds Greece is willing to kiss the Troika's ass just moved up quite a bit, even without German Chancellor Angela Merkel injecting herself into the picture.

This is not a good development for Greece in my opinion.

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

4th Straight Negative New Orders Reading for Dallas Fed Manufacturing Survey

New orders in the Dallas Fed manufacturing survey came in negative for the sixth straight month today.

Weakness was expected due to collapse in oil prices, but the business activity range number was lower than any Bloomberg Consensus estimate.

Bloomberg Consensus



Texas Manufacturing Weakens Again

The Dallas Fed reports Texas Manufacturing Activity Weakens Again

Texas factory activity declined in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second negative reading in a row, coming in at -4.7.

Other measures of current manufacturing activity also reflected continued contraction in April. The new orders index edged up but remained negative at -14. The growth rate of orders index held steady at -15.5, posting its sixth consecutive negative reading. The capacity utilization index pushed further negative to -10.4, its lowest level since August 2009, and the shipments index edged up but stayed below zero at -5.6.

Perceptions of broader business conditions remained quite pessimistic for a fourth month in a row. The general business activity index stayed negative but ticked up to -16 in April, while the company outlook index moved down to -7.8, reaching its lowest reading in nearly two and a half years.

Dallas Fed Results



click on chart for sharper image

Weakness remains nearly everywhere one looks. The one bright spot had been the monthly jobs report, at least until last month. That "weather" report comes out Friday.

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

Reader Question: Is the Minimum Wage Really a Maximum Wage?

A reader asked me if I ever hired someone for the minimum wage. He also believes the minimum wage is really a maximum wage.

From Drew ...

Mish, I’m curious if you have ever had to actually pay someone minimum wage to work for you week in, week out, year after year?

I’ve signed plenty of paychecks myself, and honestly, I could never employ someone and pay the minimum wage knowing it was not enough for that person to live on, regardless of whether or not the “market” says I could hire them for that price. I have willingly paid more, and they always very much appreciated it, and I also felt like I got more effort since they knew I was paying them more. But I know that’s not how large corporations work.

I believe you would argue whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer.

If that is correct, then what bothers me is that we have so many businesses whose profitability relies on keeping these wages as low as possible, for as long as possible, no matter how it affects them, no matter how many are on food stamps, subsidized housing, subsidized daycare, subsidized transportation (bus and train passes), all of which are costs not borne by the business but still must be paid in order for that employee to work for minimum wage.

I believe there must be an ethical or moral argument that for a business to be considered profitable it must be profitable for the various entities that rely on that business to produce its profits. The supplier won’t deliver the goods if they are not making a profit, and when Wal-Mart demands a few cents off each pallet next year, it’s the lowest guy on the pyramid that ends up paying for it.

Strangely enough, according to the history of the minimum wage it began with King Edward III setting a maximum wage for laborers in 1348 after the Black Plague.

The minimum wage law we have now is really a maximum wage for unskilled labor, since according to the theory the wage paid would fall below the minimum set if not fixed by law. How Orwellian they have managed to turn it around and make it sound good by calling it a minimum when it really is a maximum wage. This can easily be seen by the mega-corporations that rely on paying minimum wage, and your earlier contention that every dollar increase in the minimum wage would mean marginal locations closing and fewer jobs for unskilled workers.

If they called it a maximum wage, how much easier it might be to organize labor?

Well, I wish I had figured this out a long time ago. At least now I know the truth.

Thanks.

Drew

Questions First

First, let's address Drew's question: I have not employed anyone, at any wage, other than myself (self-employed).

Minimum Equal Maximum?

Drew is wrong about minimum being maximum and proof is voluntary pay hikes by Walmart and McDonald's.

Living Wage Nonsense

The one thing Drew is correct about is that I would indeed argue "whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer".

The primary concern of the employer is to make enough profit to stay in business. The primary concern of a public business is to maximize shareholder returns.

It must be that way. If the goal of businesses was hiring people rather than to make a profit, no one would bother!

There are numerous businesses that could not make a profit at $15 an hour. I wonder how many independently owned McDonald's franchises would go under at a $15 minimum wage.

In theory, businesses could raise prices. In fact, they would have to.

But how many people think fast-food is already overpriced? It's a given that the higher the minimum wage the lower the employment if for no other reason than the drop in customer demand.

 I have seen studies that attempt to disprove that statement. Such studies are nonsense. Because of population growth and saturation of stores, employment tends to go up over time in spite of minimum wage hikes, not because of them.

Government Subsidies

Someone asked me the other day "Why is it OK for Walmart and McDonald's to pay wages so low the employees have to be subsidized by the government?"

I responded with four questions:

1. Would we be better off if Walmart hired no one?
2. Who sets subsidies?
3. Are subsidies too high?
4. How many people on fixed income want and need low prices they would not get if everything had a higher price?

The only way to pay people more is to hike prices or accept lower profit. That sponsors still more questions.

1. What does higher prices do to those on fixed income with little savings?
2. Do we throw retirees under the bus like Bernanke did for the benefit of a marginal number of people who get higher wages?

Many people are not worth the minimum wage. Some businesses have so little profit they can only afford minimum wage

If McDonald's workers don't want to work there, why don't they quit? Why don't they find another job or start their own business?

Make the minimum wage $15 and I 100% guarantee you there will be fewer stores and lower overall employment.

Blame the Fed

If money went further, no one would be upset at the current minimum wage. In fact, if money went far enough, people would be thrilled by the current minimum wage.


The problem is not lack of a "living wage". The problem is the Fed demanding higher prices in a deflationary world.

Businesses are not to blame for higher prices and income inequality. Those protesting Walmart and McDonald's ought to be picketing the Fed.

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

Greece Boils Over; No Rules, Just Right; German Rabbits

The inevitable in Greece gets closer and closer. Looking back, I wonder how many rabbits in the hat there were. More importantly, how many still remain?

I believe the answer to the latter question is zero.

Yet, I also point out the propensity of German chancellor Angela Merkel to prolong the "not on my watch" inevitable. Meanwhile, the pot is far more advanced than "simmering".

Greece Boils Over

The Financial Times reports EU Frustration Over Greece Boils Over at Eurogroup Meeting.

Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them.

Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May.

Eurozone officials briefed on the closed-door, three-hour meeting said Yanis Varoufakis, the Greek finance minister, specifically warned that cash was so tight that government coffers might run dry in a matter of weeks.

The antagonism between Mr Varoufakis and other ministers became so severe during the eurogroup session that Slovenia’s finance minister suggested if bailout talks did not progress more quickly the eurozone should prepare a “Plan B” to deal with a Greek default.

The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged.

Default Necessary but Grexit Not?

Financial Times writer Wolfgang Münchau says Default Necessary but Grexit Not.

Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse.

My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.

The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.

My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster.

On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later.

It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit.

Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt.

No Rules, Just Right

There is no "rule" that says "Default is synonymous with exit".

There is common sense. If Greece does not run a primary account surplus (ability to meet funding needs except for debt interest and debt repayments), then how the hell is Greece going to meet those needs?

IMF? US? Russia? ECB? Man in the Moon?

The answers are no, no, no, no, and no.

In French, it's non, non, non, non, et non.

German Rabbits

All that's left is a rabbit in a German hat.
Or not.

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

New Problem, Old Tracks

The San Francisco Bay Area Region Transportation system (BART) has a major problem: aging tracks that border on unsafe.

The San Francisco Chronicle details the problem in BART has New Problem: Old Tracks.

The nearly half-century-old system needs to replace its worn steel rails and cross ties. The problem has produced derailments, a drop in train speed in several trouble spots, and a repair schedule that will close the tracks in Oakland over an estimated 11 weekends.

Track maintenance is nothing new for transit systems as equipment and track wear out. But the scale of the problem and BART’s essential role in carting nearly 400,000 daily riders to work, school and appointments make the task important. It’s imperative that the system focus on improving service as quickly as it can — or risk public concerns about safety and reliability.

Rail Refresher Solution

The following video sent by reader Justin is the exact solution. Meet the "Rail Refresher"



That is one of the most amazing pieces of equipment I have ever seen.
How many workers will it replace?

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

ECB Buys Negative Yield Covered Bonds; Trade Guaranteed to Blow Up

In a move 100% guaranteed to blow up at a later date, the ECB Said to Start Buying Covered Bonds With Negative Yields.

The European Central Bank started buying covered bonds with negative yields as its asset-purchase program reduces the supply of the highly rated debt, according to two people familiar with the matter.

The central bank bought the debt in the past two weeks, said the people, who asked not to be identified because the information is private. The notes were from Germany, one of the people said.

The ECB has bought 69.7 billion euros ($75.5 billion) of covered bonds since October as part of its latest measures designed to stimulus growth in the euro area. The accumulation of assets is driving down yields and the central bank now holds about 15 percent of the market, according to ABN Amro Bank NV.

“The ECB has caused this situation by being a big buyer and has exacerbated the already negative net supply of covered bonds,” said Joost Beaumont, a fixed-income strategist at ABN Amro in Amsterdam. “If the ECB buys more, yields will go still lower and that’s going to affect the ECB itself.”

The ECB, which is also buying government bonds and asset-backed debt, has said it will buy negative-yielding securities up to its cash deposit rate of minus 0.2 percent.

An ECB spokesman declined to comment on its covered debt purchases.

“Supply in positive yields is getting scarce and the ECB may have no other choice to fulfill its targeted purchase volume than to buy negative-yielding bonds,” said Tobias Meyer, an analyst at Norddeutsche Landesbank in Hanover, Germany.

Trade Guaranteed to Blow Up

I agree with Beaumont's comment this is "going to affect the ECB itself".

In fact I will go one further and suggest this is a "trade guaranteed to blow up", I just cannot say when or even in precisely what ways.

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

Durable Goods Orders Up but Core Capital Goods Negative Again

Durable goods orders are somewhat of a mixed bag today, but beneath the headline rise, weakness is easy to find.

The Bloomberg Consensus was for a 0.5% rise, and the actual result was a whopping 4% gain due to transportation.

Yet, transportation for last month was revised lower, and excluding transportation durable goods orders shrank.

More importantly, core capital goods orders declined for at least four consecutive months.

Let's dive into the Census Report on Durable Goods for more details. Here is a table of key items I made from the report.

Item	Mar	Feb	Jan	Feb-Mar %Chg	Jan-Feb % Chg	Dec-Jan % Chg
Total New Orders	240,175	230,911	234,272	4.0	-1.4	1.9
Ex-Transportation Orders	159,917	160,174	162,227	-0.2	-1.3	-0.9
Ex-Defense Orders	228,119	222,394	224,652	2.6	-1.0	2.2
Transportation Orders	80,258	70,737	72,045	13.5	-1.8	8.9
Capital Goods Orders	89,673	85,588	86,723	4.8	-1.3	7.1
Non-Defense Capital Goods Orders	80,213	77,504	79,214	3.5	-2.2	-0.3
Defense Capital Goods Orders	9,460	8,084	7,509	17	7.7	-6.3
Core Capital Goods Orders	68,189	68,537	70,062	-0.5	-2.2	-0.3
Core Capital Goods Shipments	69,611	69,889	69,789	-0.4	0.1	-0.6

Line items (except the last line which shows shipments) are new orders, in millions of dollars, seasonally adjusted. Core capital goods exclude defense and aircraft.

Once again this was another weak economic report excluding aircraft orders that have long lead times and are frequently cancelled.

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