Huge Cracks in the Global Recovery Thesis

Huge Cracks in Global Recovery Thesis; Industrial Production Unexpectedly Drops in Germany, France; UK Weaker than Expected

Before taking a look at industrial production, let’s take a look at how uneven the jobs recovery has been.

The New York Times reports A Jobs Recovery Is Happening Faster for Some Countries Than Others

THE financial crisis and the severe recession that followed destroyed jobs in every industrialized country. While many countries have started to recover, in only one major one, Germany, has unemployment declined to a level lower than it was in September 2008.

When the downturn began, Germany had about 25 percent of the population in the euro zone and a similar share of the unemployed workers. Its population share is about the same now, but it has only 17 percent of the unemployed.

If the euro zone were a fiscal union rather than just a monetary one, there would have been automatic subsidies through unemployment benefits and other programs for the weaker areas. If there were easy labor mobility in the zone, more workers would have moved to Germany. If there were separate currencies, the German mark would have appreciated against the other European currencies.

As it is, none of that happened. Many Germans resent the need to bail out other countries, and many people in those countries resent being forced to cut wages and payrolls in the name of restoring competitiveness

Full analysis at Mish’s

In a 15 month investigation, the EU found that that the Chinese government was significantly subsidising its coated fine paper industry by giving cheap loans, allocating land below market value and granting various tax incentives which are illegal practices under WTO rules. After this first-ever anti-subsidy proceeding launched by the EU against China, the EU today imposes definite countervailing duties ranging from 4% to 12% on this high quality paper imported from China. The investigation also brought to light that Chinese producers of coated fine paper exported their products to the EU at dumped prices, hence the EU will impose anti-dumping duties ranging from 8% to 35.1%, depending on the producer.

“This is the first time ever we put in place measures against the strategic and targeted subsidisation of a specific industry by the Chinese government. All these subsidies are not in line with the obligations China has signed up to when joining in 2001 the World Trade Organisation. Today’s measures will restore effective and fair trade conditions on the EU market”, said John Clancy, EU Trade Spokesman.

Full press release here

What If the U.S. Treasury Defaults?

Stanley Drukenmiller says it’s OK

”People aren’t going to wonder whether 20 years ago we delayed an interest payment for six days. They’re going to wonder whether we got our house in order.’

‘A financial crisis is surely going to happen as big or bigger than the one we had in 2008 if we continue to behave the way we’re behaving,” says Stanley Druckenmiller, the legendary investor and onetime fund manager for George Soros. Is this another warning from Wall Street that Congress must immediately raise the federal debt limit to prevent the end of civilization?

No—Mr. Druckenmiller has heard enough of such “clamor and hyperbole.” The grave danger he sees is that politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any conditions to control spending.

One of the world’s most successful money managers, the lanky, sandy-haired Mr. Druckenmiller is so concerned about the government’s ability to pay for its future obligations that he’s willing to accept a temporary delay in the interest payments he’s owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs.

“I think technical default would be horrible,” he says from the 24th floor of his midtown Manhattan office, “but I don’t think it’s going to be the end of the world. It’s not going to be catastrophic. What’s going to be catastrophic is if we don’t solve the real problem,” meaning Washington’s spending addiction.

ABU DHABI, United Arab Emirates — Late one night last November, a plane carrying dozens of Colombian men touched down in this glittering seaside capital. Whisked through customs by an Emirati intelligence officer, the group boarded an unmarked bus and drove roughly 20 miles to a windswept military complex in the desert sand.

The Colombians had entered the United Arab Emirates posing as construction workers. In fact, they were soldiers for a secret American-led mercenary army being built by Erik Prince, the billionaire founder of Blackwater Worldwide, with $529 million from the oil-soaked sheikdom.

Mr. Prince, who resettled here last year after his security business faced mounting legal problems in the United States, was hired by the crown prince of Abu Dhabi to put together an 800-member battalion of foreign troops for the U.A.E., according to former employees on the project, American officials and corporate documents obtained by The New York Times.

The force is intended to conduct special operations missions inside and outside the country, defend oil pipelines and skyscrapers from terrorist attacks and put down internal revolts, the documents show. Such troops could be deployed if the Emirates faced unrest or were challenged by pro-democracy demonstrations in its crowded labor camps or democracy protests like those sweeping the Arab world this year.

The U.A.E.’s rulers, viewing their own military as inadequate, also hope that the troops could blunt the regional aggression of Iran, the country’s biggest foe, the former employees said. The training camp, located on a sprawling Emirati base called Zayed Military City, is hidden behind concrete walls laced with barbed wire. Photographs show rows of identical yellow temporary buildings, used for barracks and mess halls, and a motor pool, which houses Humvees and fuel trucks. The Colombians, along with South African and other foreign troops, are trained by retired American soldiers and veterans of the German and British special operations units and the French Foreign Legion, according to the former employees and American officials.

In outsourcing critical parts of their defense to mercenaries — the soldiers of choice for medieval kings, Italian Renaissance dukes and African dictators — the Emiratis have begun a new era in the boom in wartime contracting that began after the Sept. 11, 2001, attacks. And by relying on a force largely created by Americans, they have introduced a volatile element in an already combustible region where the United States is widely viewed with suspicion.

Read the full article at the NYT

Why rents matter

Interestingly, it was the house price to rent ratio and the house price to income ratio that alerted some economists to the severe overvaluation in the US housing market (precious few as those economists were).  It is worth examining why this ratio is an indicator of potential house price overvaluation and why it applies to both residential and investment housing.

Full article

Full story at the NY post

A top French politician who heads the International Monetary Fund was hauled off an Air France flight at Kennedy Airport today on suspicion of sodomizing a Manhattan hotel maid, sources told The Post.

Three Port Authority detectives took Dominique Strauss-Khan into custody in the plane’s first-class cabin just two minutes before it was due to depart for Paris, said police sources.

Strauss-Khan, 62, was turned over to NYPD officers from the Midtown South precinct.

Around noon today, a maid at the hotel knocked on the door of Strauss-Khan’s room.

After letting the maid in, Strauss-Khan allegedly threw the maid on the room’s bed and forced her to perform oral sex on him, said police sources.

Barron’s Roundtable member Felix Zulauf spoke to the German-language Handelsblatt about the European sovereign debt crisis and financial markets in an article published today. Like Jeremy Grantham, he has turned bearish. Credit Writedowns has translated that article.

Title: Italy is Next

The euro will break apart. At least that is what stock market Guru Felix Zulauf expects. Handelsblatt spoke to the Swiss investment banker about his expectations for the stock market.

Frankfurt. Mr. Zulauf, you were always a big critic of the euro. How is the crisis going?

Felix Zulauf: Debt problems are never solved by more debt. In Greece, an epic drama is playing out. The Greeks are broke. The Irish are too.and the Portuguese are close.

Read the full article

If you’re getting a bikini wax in Brazil, you’re likely to find that the cost is rising. And if you’re an economic policy maker, that’s a problem.

As with more prosaic services ranging from car repair to dentistry, the price of waxing is rising faster than most components of the nation’s economy. That’s pushing inflation above the government’s target and may force central bank President Alexandre Tombini to prolong interest-rate increases this year.

Full story and more on Brazilian waxes here

(Reuters) – President Barack Obama, under pressure from Republicans and the public to bring down gasoline prices, announced new measures on Saturday to expand domestic oil production in Alaska and the Gulf of Mexico.

High fuel prices have dented Obama’s ratings in opinion polls and threaten to dampen the economic recovery that is critical to his re-election in 2012.

Full story click here