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nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
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Polish Voters Elect Eurosceptic President; Disenchantment with Brussels Spreads

pon., 25/05/2015 - 19:58
Andrzej Duda outed president Bronisław Komorowski, the pro-Brussels incumbent centrist Civic Platform party president, in an election over the weekend. Komorowski was expected to win.

The Duda Victory Sent Shockwaves Through Polish Politics, and no doubt Brussels as well.
The win for the socially conservative, nationalist, eurosceptic party, which saw Mr Duda oust Bronisław Komorowski, the government-backed incumbent from the presidential palace, represents a significant lurch to the right in Polish politics. It has sent shockwaves through the country’s political establishment that could ultimately topple the ruling party in October after eight years in power.

Backed by both the country’s restless, anti-establishment youth and its conservative pensioners, Mr Duda’s election, which was unthinkable just a few months ago, represents a significant and far-reaching rejection of the ruling Civic Platform party.

Mr Duda has called for a repatriation of more powers from Brussels to individual member states, an effort that chimes with British prime minister David Cameron’s attempts to renegotiate the UK’s relationship with Europe ahead of a referendum on its EU membership.

The vote illustrated deep divides in Polish society. Despite headline growth figures since 2008 that are almost twice as large as any other EU member, the fruits of Poland’s economic boom have not been equally shared.

Strikingly, all of the country’s poorer eastern regions backed Mr Duda, while the more prosperous western regions supported Mr Komorowski without exception.

In rural areas, 62 per cent of voters backed Mr Duda, according to an exit poll, while Mr Komorowski carried 59 per cent of votes from the country’s cities.Poland Vote




Disenchantment with Brussels Spreads

The Polish unemployment rate is a modest 7.8%. Youth unemployment is 20.5% as of March. Both numbers are better than France and far better than Spain.

See Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

Poland and Spain are two countries with the highest growth rates, yet voters are increasingly agitated, as they should be.

The nannycrat policies of the eurozone (and EU in general), are not good for growth prospects or jobs. 

Yesterday I reported Angry Voters Handed Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid.

Euroscepticism and/or general disenchantment with Brussels is on the rise in Spain, France, Greece, the UK, and now Poland.

On March 29, I reported Sarkozy, Le Pen Triumph Over Socialists in Second Round of Local Elections.

In the May UK election a Clean Sweep by UK Conservatives Masks Huge Rifts.

Cameron's party unexpectedly received a majority of votes UKIP, the eurosceptic UK Independence Party is now the third largest party in the UK although it only won a single parliamentary seat.

There is much disenchantment with Brussels, and it is spreading.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Angry Voters Hand Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid

pon., 25/05/2015 - 01:44
The Spanish economy will supposedly grow at three percent. The bad news is Spanish employment is well over 20 percent and is also expected to stay that way.

Angry voters unhappy with that setup took it out big time on PP, the party of prime minister Mariano Rajoy.

Please consider PP Suffers Heavy Regional Losses. Spain’s ruling Popular party suffered heavy losses in Sunday’s string of regional and local elections, as two upstart movements made dramatic gains at the expense of the country’s established parties.

The PP still emerged as the biggest party in nine of the 13 regional contests, but its ability to head governments at both the regional and local level was severely curtailed. According to preliminary results, the party of Mariano Rajoy, Spain’s prime minister, failed to obtain an absolute majority even in its historical strongholds — meaning it can govern only with the support of at least one of its rivals.

The PP suffered a particularly marked decline in Madrid. Esperanza Aguirre, its high-profile candidate for mayor, beat a coalition of leftwing groups only by the smallest of margins but has little prospect of forming an administration. A similar leftist alliance also scored an upset triumph in Barcelona, meaning Spain’s two principal cities are now likely to be led by a pair of charismatic, leftwing women from outside the political establishment: Manuela Carmena in Madrid and Ada Colau in Barcelona.

The ruling party’s losses were mostly the gain of two political newcomers, the anti-austerity Podemos movement and the centrist Ciudadanos party. Both were on track to enter regional parliaments in force in several key regions, potentially handing them the role of kingmakers. Podemos was also the leading force behind the two municipal victories in Madrid and Barcelona.

Sunday´s elections took place in 13 of Spain’s 17 regions and in more than 8,100 municipalities, providing a crucial test of the national mood ahead of general elections later this year. The overall picture, based on preliminary results, confirm what polls have been saying for months: frustrated voters are turning away from the established parties in ever greater numbers, converting Spain’s decades-old two-party regime into a much more volatile four-horse race.Like Syriza in Greece, Podemos had been running on an anti-austerity platform. Podemos went even further, threatening to exit the euro.

Voters simply do not believe in the recovery. Nor should they with youth unemployment near 50% and overall unemployment near 23%.

For discussion of Spanish unemployment, please see Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Greece Will Default on June IMF Repayment Says Interior Minister; Greek Choice Same As It's Always Been

nie., 24/05/2015 - 19:11
One way or another the crisis in Greece is highly likely to come to a head in June.

Greek finances are in such sorry shape it needs a third bailout or it will be unable to meet payment obligations in August. And unless an agreement in June is reached to unleash more funds, Greece will not make it to August.

Today we learn, Interior minister warns Greece will default on June IMF repayment.
Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.

“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.

He claimed the EU and IMF were pressuring Greece to make unacceptable concessions in the current bailout talks in return for unlocking €7.2bn of aid frozen since last year.

Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.

Given the repeated warnings from Greek officials that bankruptcy is imminent, some officials have begun to disregard such threats, believing Athens is now using them as a negotiating tactic.

But a senior Greek official with knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June 5 and June 19, unless a deal is struck.

“We won’t accept blackmail that says it’s either liquidity with a memorandum [the Greek term for a bailout programme] or bankruptcy”, Mr Voutsis said.

The government has ruled out a domestic default on payment obligations to Greece’s 2.9m pensioners and 600,000 public sector workers, saying they have first claim on the country’s shrinking resources.

People who have spoken to Mr Tsipras say he is in a dour mood and willing to acknowledge the serious risk of an accident in coming weeks.

One official in contact with the prime minister said: “The negotiations are going badly. Germany is playing hard. Even Merkel isn’t as open to helping as before.”Recall that Greece was only able to make the May IMF payment by borrowing money from the IMF.

That emergency credit line has been entirely used up. For details, please see Greece Empties IMF Reserve Account to Pay IMF; Liquidity "Terribly Urgent" Says Finance Minister.

Although we have seen crisis after crisis come and go with various kick-the can mechanisms, at some point there is no can left to kick. Is this finally the time?

'Catastrophic' Eurozone Rupture

The Telegraph reports Greece to Miss IMF payments Amid Fears of 'Catastrophic' Eurozone Rupture.
Finance minister [Yanis Varoufakis] said that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the ECB, IMF and EU “to do their bit” and “meet us one-quarter of the way”.

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added.

Mr Varoufakis' and Mr Voutsis' words followed a declaration from Alexis Tsipras, the Greek prime minister, that bargaining with Greece's creditors would soon come to a close.

"Rest assured that in this negotiation we will not accept humiliating terms," Mr Tsipras told Syriza's central committee. "The overwhelming majority of Greek people want a solution and not just an agreement ... it supports the government in this tough negotiation," he added.

For Greece itself, using the common currency is now like using a “foreign currency”, and any exit from the eurozone would be “a disaster”, Mr Varoufakis said.

He continued: “Trying to get out of it is tantamount to announcing a devaluation 10 months in advanced.” Economists warn that if Greece were to leave the euro area, it could trigger huge levels of capital flight.

In turn, Greece would almost certainly have to resort to capital controls in order to stem the tide of money out of the domestic economy.

Ratings agency Moody's has warned that there is now a "high likelihood" of such controls, which might be necessary to keep the Greek financial system alive. An estimated €30bn has been withdrawn from the country's banks since snap elections were called in December 2014.

Mr Varoufakis said that at some point the Greek government would have to make a choice between paying salaries and paying international creditors. Greek Choice Same As It's Always Been

The choice Greece faces now is precisely the same choice four years ago: Whom to pay.

Greek citizens overwhelmingly want to stay on the euro, but they do not want further cuts in pensions accompanied by higher taxes and more layoffs.

So which is it? By fighting to retain pensions, Tsipras will at least have some cover if and when Greece returns to the Drachma.

Meanwhile, the smart money has already left. Those with euro deposits in Greek banks above and beyond what is needed to make immediate payments are fools.

I have been pounding the table for months warning Greek citizens to pull their money out. This may be the last chance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Project Bookend: BoE Emails Guardian Top Secret Documents on Brexit, Including PR Notes on How to Deny the Project

sob., 23/05/2015 - 18:49
Incompetence at Its Finest

Here's a major laugh for a long holiday weekend in the US: Secret Bank of England taskforce investigates financial fallout of BrexitBank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum.

The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian.

According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend.

The revelation is likely to embarrass the bank governor, Mark Carney, who has overhauled the central bank’s operations and promised greater transparency over its decision-making.

MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

The email indicates that a small group of senior staff are to examine the effect of a Brexit under the authority of Sir Jon Cunliffe, who as deputy director for financial stability has responsibility for monitoring the risk of another market crash.

The email, from Cunliffe’s private secretary to four senior executives, was written on 21 May and forwarded by mistake to a Guardian editor by the Bank’s head of press, Jeremy Harrison.Secret Agent Man

I offer the following musical tribute in "honor" of secret projects of the Bank of England.



Link if video does not play: Jonny Rivers - Secret Agent Man 1966

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Rand Paul: Unleashing the American Dream

sob., 23/05/2015 - 18:23
Those living in or near Chicago have the opportunity to hear Senator Rand Paul in a discussion about how to transform Chicago, the state of Illinois and the U.S. with liberty-based public policy solutions.

  • Date:  Wednesday, May 27, 2015 from 12:30 PM to 2:00 PM (CDT)
  • Location: The 1871 Center at the Merchandise Mart, 222 West Merchandise Mart Plaza Chicago, IL 60654.



Cost of the event is $10.

The topic is "Unequal economic opportunity, failing schools and a broken criminal-justice system," as opposed to the Chicago pension crisis that I have been talking about lately.

Senator Paul is reaching out to minorities in inner cities, and that is a good thing.

I am trying to see if they can arrange a live video feed, but the preliminary indication is no.

The Illinois Policy Institute is sponsoring the event. To purchase a ticket or for media queries, please contact Eventbrite at Unleashing the American Dream.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Yellen Yap: Point by Point Rebuttal

pt., 22/05/2015 - 20:33
Inquiring minds are reading Fed Chair Janet Yellen's Outlook for the Economy speech, delivered today at the Providence, Rhode Island Chamber of Commerce.

Here are a few snips from what I believe to believe is a way over-optimistic assessment. I provide rebuttals following each statement.

Yellen: The U.S. economy seems well positioned for continued growth. Households are seeing the benefits of the improving jobs situation, and consumer confidence has been solid.

Mish: The economy is not positioned for much, if any, growth. Consumer confidence is not solid, and consumer spending plans have been sinking like a rock. See Consumer Confidence Plunges Below Any Economist's Estimate; Consumers Shock Economists.

Yellen: The drop in oil prices amounts to a sizable boost in household purchasing power. The annual savings in gasoline costs has been estimated at about $700 per household, on average, and savings on heating costs--especially here in the Northeast, where it was so cold this winter--are also large. Given these energy savings on top of the job gains, real disposable income has risen almost 4 percent nationally over the past four quarters. Households and businesses also are benefiting from favorable financial conditions. Borrowing costs are low, supported by the Fed's accommodative monetary policies. And credit availability to both households and small businesses has improved. 

Mish: Any savings on energy went up in smoke on rental increases and rising health care costs. See CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned.

Yellen: In recent months, as I noted earlier, there has been some softness in the economic data. Recent indicators of both household spending and business investment have slowed, and industrial output has declined. The Commerce Department's initial estimate was that real gross domestic product was nearly flat in the first quarter of 2015. If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen.

Mish: In a shock to economists, consumers are doing exactly what they said they would do, not what economist's models predicted consumers would do.



For what consumers said they would do, please see Household Spending Growth Expectations Plunge; Recession Already Started?

For what consumers actually did, please see Dismal Retail Sales Numbers Suggest Recession Likely Underway.

Yellen: Putting it all together, the economic projections of most members of the FOMC call for growth in real gross domestic product of roughly 2-1/2 percent per year over the next couple of years, a little faster than the pace of the recovery thus far, with the unemployment rate continuing to move down to near 5 percent by the end of this year. And for inflation, as I noted earlier, my colleagues and I expect inflation to move up toward our objective of 2 percent as the economy strengthens further and as transitory influences wane.

Mish: The economic projections of the Fed have been and remain laughable.

Here is an amusing chart of the Fed's own pathetic performance from Honey I Shrunk the Kids.

.

Yellen: Given this economic outlook and the attendant uncertainty, how is monetary policy likely to evolve over the next few years? Because of the substantial lags in the effects of monetary policy on the economy, we must make policy in a forward-looking manner. Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.

Mish: The Fed is far too late. The obvious bubbles in equities and junk bonds are proof enough. The Fed has never once in history tightened in a forward-looking manner. Panic reactions are the norm.

Yellen: If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.

Mish: The idea that consumer price deflation is damaging is downright idiotic. Even the BIS recognizes that fact. For discussion, please see Historical Perspective on CPI Deflations: How Damaging are They?

Fed Consistently Wrong

The Fed has been consistently wrong as discussed in Why Are Economists' Predictions So Damn Awful?

The Fed has been so wrong, so many times, and in so many ways. Why anyone bothers to listen to such speeches other than to poke fun at them remains a mystery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned

pt., 22/05/2015 - 18:43
The CPI came in exactly in line with the Bloomberg Consensus option today.




It's the details, not the overall number that is worrying. Medical care and rents have been rising rapidly.

The Fed likes to ignore food and energy costs. They have their chance to prove it.

From Bloomberg ...
Pull forward that rate hike is what some of the hawks are thinking after reading today's consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components.

Excluding food and energy, core prices rose 0.3 percent which doesn't seem that much but is outside Econoday's high-end forecast for 0.2 percent. It is also the highest since January 2013. The year-on-year rate for the core is plus 1.8 percent which, after dipping to 1.6 percent earlier in the year, is closing in on the Fed's general inflation target of 2.0 percent.

Readings showing pressure are outside energy including medical costs (up a very steep 0.7 percent in the month) and education costs (up 0.5 percent). Shelter costs, reflecting rising rents, came in at plus 0.3 percent for the 3rd time in 4 months which is the hottest streak for this reading since way back in late 2006 and early 2007. Also standing out are gains in furniture (up 1.3 percent) and used cars (up 0.6 percent).

Oil prices have been on the rise but not energy costs, at least in the April report which fell a heavy 1.3 percent. Gasoline fell 1.7 percent in the month. Two other readings also showed downward pressure: airfares (minus 1.3 percent) and apparel (minus 0.3 percent). Food costs were flat.

The headline CPI is down 0.2 percent year-on-year which looks downright deflationary. But the lack of pressure is due entirely to energy which is down a very deflationary 19.4 percent year-on-year. Energy prices are bound to firm given the recent move in oil from the high $40s for WTI to $60. That and emerging price pressures through the bulk of the consumer economy raise the risk that inflation may be brewing after all.The CPI Seasonally Adjusted Numbers from the BLS look even worse.

Seasonally Adjusted

  • All Items Less Food and Energy rose 0.3% (following a rise of 0.2% in March and 0.2% in February)
  • Medical Care jumped 0.9% in April (following a rise of 0.4% in March).
  • Used Cars jumped 0.6% (following a rise of 1.2% in March and 1.0% in February).
  • Shelter rose 0.3% (following a rise of 0.3% in March and 0.2% in February) 

Supposedly energy prices declined 1.3%. Gasoline led the way with a 1.7% decline. Does that seem believable?

Health Insurers Seek Hefty Rate Boosts

Worse yet, planned Obamacare premiums are about to explode, setting the stage for debate over federal health law’s impact.

The Wall Street Journal reports Health Insurers Seek Hefty Rate Boosts.
Major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact.

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25%.

All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act.

“This year, health plans have a full year of claims data to understand the health needs of the [health insurance] exchange population, and these enrollees are generally older and often managing multiple chronic conditions,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, an industry group. “Premiums reflect the rising cost of providing care to individuals and families, and the explosion in prescription and specialty drug prices is a significant factor.”Poor Retail Sales Explained

Economists have been struggling to explain poor retail sales and the slump in consumer attitudes. All their models suggested consumers would increase retail spending thanks to the decline in gasoline prices.

The economists all forgot to factor in the Obamacare effect and rising rents. This is just round one.

For further discussion please see ...


To wrap it up, please consider Why Are Economists' Predictions So Damn Awful?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Another US Foreign Policy Success: Isis Controls Half of Syria after Palmyra Seizure

pt., 22/05/2015 - 05:32
Congratulations are in order for team Bush and team Obama for another stunning US foreign policy success: Isis Controls Half of Syria after Palmyra Seizure. Fighters from the Islamic State of Iraq and the Levant (Isis) have seized the Syrian city of Palmyra, home to a Unesco world heritage site, putting nearly half of Syrian territory in the jihadi group’s hands and sparking fears that treasured antiquities may be destroyed.

Isis announced it had “complete control” of the city on Thursday, and state television said President Bashar al-Assad’s forces had withdrawn from the city, which is known to most Syrians by its Arabic name Tadmur.

Ancient Palmyra is known to the world for its iconic avenue of Roman columns, and was a cultural crossroad of the ancient world. The city dates back to the 1st century, when it was an oasis on a trade route linking eastern civilisations with the Roman empire. Its ruins lie to the southwest of modern Tadmur.

“Palmyra is an extraordinary World Heritage site in the desert and any destruction to Palmyra [would be] not just a war crime but . . . an enormous loss to humanity,” Unesco head Irina Bokova said in a video.

Isis has developed a reputation for destroying or selling cultural treasures. Earlier this year it filmed its fighters smashing Assyrian artefacts at sites in northwestern Iraq.Moderate Rebels Defect

In case you are wondering how this happened, please consider this IBTimes report from March 7, 2015: US-Backed Moderate Syrian Rebels In North Defect; Obama Strategy Set Back. It was supposed to be a crucial instrument of the Obama administration's aims in Syria, an ostensibly moderate rebel fighting force that would keep the pressure on the authoritarian regime in Damascus without aiding the ruthless jihadist forces that have captured much of the country. But the soldiers of Harakat Hazzm -- the first Syrian rebel group to receive arms from the CIA -- disbanded this week.

As a result, much of northern Syria is in the hands of the extremists, and the United States is left with no palatable ally in the area in the midst of a regional conflict that continues to spiral out of control.Hillary Backs Moderates

Please recall that Hillary was in favor of backing "moderate" rebels.

But it is not just Democrats who want to back "moderates". Chief warmonger, Republican Senator John McCain, does as well.

Has anyone bothered to question if we are even backing the right person?

Iran is actually our ally here. Iran wants to help the US fight ISIS. The only problem is Iran backs Syrian president Assad, while the goal of the US is to overthrow Assad to alleged "moderates".

Roots of Crisis

This is exactly the kind of idiocy one can expect when you think you can "nation build".

Without a doubt the roots of this crisis date back to the inane decision by George Bush to invade Iraq. But please recall that Hillary was in favor of invading Iraq as well.

The non-amusing fact in this mess is the policies of George Bush, Obama, and Hillary Clinton are similar if not identical. Yet, Republicans blame Obama and Democrats blame Republicans.

The only candidate who has an alternative plan to this mess is Senator Rand Paul.

Contemplating Success

Some may ask "Mish, how the hell can you call this disaster a success?"

The answer is simple: In spite of what they may say, the goal of mainstream Republicans and Democrats is obviously perpetual war.

A destruction of a major historic site in Palmyra will have even some peacemongers clamoring for retaliation.

Make no bones about it, the takeover of Palmyra was a major US foreign policy success, provided you understand the goal.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Existing Home Sales Lower Than Any Economist's Estimate; Rising Supply a Good Thing?

czw., 21/05/2015 - 21:26
Existing Home Sales Disappoint

Economists overestimated existing home sales today, rounding out another impressive day of overoptimism.

New home sales came in at a seasonally adjusted 5.04 million annualized rate.

The Bloomberg Consensus Estimate was 5.22 million. 5.04 million was below the lower end of the consensus range of 5.10 M to 5.32 M.
Existing homes sales are not living up to springtime expectations, down 3.3 percent in April to a 5.04 million annual rate which is just below the low-end Econoday forecast. Three of 4 regions show contraction in April with the sharpest decline, minus 6.8 percent, in the South, which is by far the largest housing region. Year-on-year, total sales are still up a respectable 6.1 percent.

Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months. And another positive is a 4.1 percent rise in the median price to $219,400 which is up 8.9 percent year-on-year.

But this report in sum is a disappointment, failing to point to any building momentum. Strength in the housing sector may be switching, from existing home sales to new home sales at least based on this report compared to the historic surge earlier this week in housing starts & permits. But housing data month-to-month are always volatile and, on net, it's too soon to decipher how strong the spring housing season is right now.Existing Home Sales



Existing Home Sales Month's Supply



Rising Supply a Good Thing?

Bloomberg says "Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months."

That strikes me as circular reasoning, if not completely ridiculous. Month's supply will automatically rise when sales decline.

Supply rising in 2005 was a sign of a major problem coming up. Apparently it's different this time. The Goldilocks' theory, which I find absurd, is that low supply is what's holding back buyers.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Philly Fed Region "Weak but Stable"; Kansas City Region "Declines More Sharply"

czw., 21/05/2015 - 19:46
More weak economic reports came out today. Let's take a look at two regional manufacturing reports.

Philly Fed Region "Weak but Stable"

The Bloomberg Economic Consensus for the Philadelphia Fed Business Outlook Survey was 8.0. Economists got the leading sign correct, but the consensus estimate was a tad high with the index posting 6.7.
Activity in the Mid-Atlantic manufacturing sector is slow but stabilizing, based on the Philly Fed's general conditions index which came in at 6.7 for May, down slightly from 7.5 in April and against Econoday expectations for 8.0.

The best news in the report is a slight uptick in new orders, to 4.0 from 0.7. This isn't searing but is at least in the plus column as are shipments, at 1.0 from minus 1.8. Employment, at 6.7, is also in the plus column.

Manufacturers in the region are reporting significant price contraction, especially in costs which is a surprise given the rise underway in oil prices. Manufacturers are also reporting declining prices for finished goods as well. These inflation readings, if repeated in subsequent reports, will give the edge to the doves at the Federal Reserve.

A plus in the report is a healthy reading of 33.9 for the 6-month outlook, down only slightly from April's 35.5 and up from 32.0 in March. The manufacturing sector, hit by weak exports and trouble in the energy sector, has yet to find its footing this year but this report, which is very closely watched, points to stability that in turn hints at a rebound in the months ahead.Weak Demand

In light of rising energy prices, price contraction especially in finished goods tells the real story: very weak demand.

The six-month outlook is meaningless. Such readings are perpetually overoptimistic except at the bottom of recessions.

Industrial production will go nowhere with readings like these. I suggest things appear to be "stabilizing" before the next decline.

Philly Fed vs. Industrial Production




Kansas City Fed Consensus Way Too Optimistic

The range of economists' estimates for the Kansas City Fed Business Outlook Survey was -1 to +1. Economists were not even close on this one.
The early indications on May's manufacturing activity have been slightly positive, that is until the Kansas City Fed report where the composite index is in deeply negative ground at minus 13. This is the weakest of the recovery for this reading and follows an already weak minus 7 in April.

New orders this month are deeply negative, at minus 19, as are backlog orders at minus 21. These readings, reflecting contraction for export orders and trouble in the energy sector, point to significant trouble for the region's manufacturing activity in the months ahead.

Shipments are already in contraction, at minus 9, as is employment, at a deeply negative minus 17 that contrasts with mostly positive employment indications in other reports.Kansas City Region "Declines More Sharply"

The Federal Reserve Bank of Kansas City reports Tenth District Manufacturing Declines More Sharply.
According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined more sharply in May and producers’ expectations also fell, with both reaching their lowest levels since mid - 2009.

“Factories in our region saw an even sharper decline in May than in March or April, as exports fell further and energy - related producers saw another drop in orders,” said Wilkerson. “However, firms’ overall still plan a modest in crease in employment over the next six to twelve months.”

The month-over-month composite index was -13 in May, down from -7 in April and -4 in March. The last time the composite index was lower was in April 2009. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to declines in durable goods manufacturing, including a continued decline in aircraft production and further weakness in metals and machinery. In addition, several nondurable goods plants also reported sluggish activity, particularly for plastics and food production.

Production fell most sharply in energy-producing states like Oklahoma and New Mexico, but it was also down in most other District states. The majority of other month - over - month indexes also decreased from the previous month . T he production index contracted from -2 to -13, and the shipments and new orders index es also fell. The order backlog, employment, and new orders for exports indexes edged higher but still remained well below zero. The finished goods inventory index increased from - 1 to 0, while the raw materials inventory index dropped into negative territory.Recession in KC Region



If it appears the KC region is in recession, it's because it probably is. Nonetheless, favorable expectations six months out refuse to die.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

China Manufacturing PMI Contracts Third Month, Output Index at 13 Month Low

czw., 21/05/2015 - 11:20
The slowdown in China continues as the HBSC Flash PMI shows Output contracts at strongest rate in just over a year.

Key Points

  • Flash China Manufacturing PMI™ at 49.1 in May (48.9 in April). Two-month high.
  • Flash China Manufacturing Output Index at 48.4 in May (50.0 in April). 13-month low.



Commenting on the Flash China Manufacturing PMI survey, Annabel Fiddes , Economist at Markit said: “The Flash China Manufacturing PMI pointed to a further deterioration in operating conditions in May , with production declining for the first time in 2015 so far. “Moreover, softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near - term, as companies tempered production plans in line with weaker demand conditions. “On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required.

The positive note is "deflationary pressures are strong so that leaves scope for stimulus." Isn't that a hoot?

And if there was strength, that would be a positive as well. I guess it's simply impossible for things not to be bullish.

Two Point Summary

  1. Economy weak - stimulus needed - stimulus is bullish
  2. Economy strong - no stimulus needed - also bullish

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Morley the Robot Master Chef; Cognitive Cooking

śr., 20/05/2015 - 22:22
Want Lobster bisque? Morley, the robot master chef can cook that up for you in about 30 minutes.



Please consider Robot Master Chef Cooks 2,000 Recipes, Cleans Up, Does the Dishes.
A California company, Morley Robotics, has teamed with the UK’s Shadow Robot Company, to develop a smartphone-controlled robot master chef capable of cooking world-class fare just as Chef Watson. The robot was unveiled at a recent event at Hanover Messe Robotic Technology Fair in Germany. The Robot Chef created a “lobster bisque” for the event in about 30 minutes.

The Morley Robot Master Chef, the product of over two decades of research and development, has two robotic hands, each containing 24 motors, 26 micro-controllers and 129 sensors. The arms have been designed and programmed to match the movements of a professional human chef. Owners will still have to lay out ingredients, but once that’s done the robot will do the rest, including cleaning up and washing the dishes.

As Chef Ramsay has shown on his TV shows, many restaurants simply have terrible chefs. Soon, restaurant startups may be able to rent a Morley robot chef to train their human cooks in how to prepare palatable food. The world may become a better place if restaurant owners are able to get rid of temperamental “prima donna” chefs.
Morley Video



Want New Recipes?

If you want new recipes, just team up Morley with IBM's Watson, the computer that trounced everyone at the game of Jeopardy.

IndustryTap reports IBM’s Watson Has A New Gig: World Class Chef
Earlier this year, IBM’s Watson computer teamed with New York’s Institute of Culinary Education. Watson and his handlers are now creating recipes that combine ingredients available to humans the world over in novel ways, raising eyebrows in the process. One of Watson’s creations was the Austrian Chocolate Burrito.

The biggest knock against Watson was that (s)he wasn’t creative and so this became a challenge for IBM engineers to overcome. The team set out teaching Watson about existing data on food, human proclivities and cooking techniques.

With thousands of ingredients to choose from and a “knowledge” of how ingredients are typically combined, Watson has gone off the beaten path and come up with mind-boggling recommendations for new dishes that are getting rave reviews.Cognitive Cooking



Watson on the Road

To show the creative cooking power of Watson, IBM took the show on the road.



Cognitive Cooking - IBM Watson (Image Courtesy www.satelliteoffice.tv)

Chefs? Who needs em?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

LA to Gradually Hike Minimum Wage to $15 by 2020; Already Weak Growth Prospects Just Got Worse

śr., 20/05/2015 - 19:58
In yet another triumph of stupidity over common sense, a triumph that is sure to cost jobs, slow growth, and encourage more robotic replacement of workers, Los Angeles' Minimum Wage on Track to go up to $15 by 2020
The Los Angeles City Council on Tuesday backed a plan to raise the city’s minimum wage to $15 per hour, joining a trend sweeping cities across the country as elected leaders seek to boost stagnating pay for workers on the lowest rungs of the socio-economic ladder.

Lawmakers agreed to draft an ordinance raising the $9-an-hour base wage to $15 by 2020 for as many as 800,000 workers, making L.A. the largest city in the nation to adopt a major minimum-wage hike. Chicago, San Francisco and Seattle already have approved similar increases, and raising the federal minimum wage has moved to the forefront of the Democratic Party’s agenda.

The first wage boost — to $10.50 per hour — to take effect in July 2016.

Some labor leaders have expressed dissatisfaction with the gradual timeline elected leaders set for raising base wages. But on Tuesday the harshest criticism of the law came from business groups, which warned lawmakers that the mandate would force employers to lay off workers or leave the city altogether.

“The very people [council members’] rhetoric claims to help with this action, it's going to hurt,” said Ruben Gonzalez, the Los Angeles Area Chamber of Commerce’s senior vice president for public policy and political affairs.

He predicted that many businesses would absorb their new labor costs by laying off employees, reducing work hours or moving out of the city entirely.

It's simple math,” Gonzalez said. “There is simply not enough room, enough margin in these businesses to absorb a 50-plus percent increase in labor costs over a short period of time.

Councilman Mitchell Englander, the council’s only Republican, cast the lone opposing vote. In a statement, he said the council action could “make it impossible for entire industries to do business” in Los Angeles.

The very last thing that we should be doing as a city is creating a competitive disadvantage for our businesses with those in neighboring cities,” said Englander, who represents the northwest San Fernando Valley.

The council plan approved Tuesday would raise wages higher than the mayor’s proposal, albeit more gradually. Businesses and nonprofit groups with 25 or fewer employees would have until 2021 — an extra year — to comply. Some nonprofits that train and rehabilitate disadvantaged workers, such as the homeless or former gang members, could also take advantage of the extension.

After that, yearly wage increases would be pegged to the consumer price index — a key provision of the law that backers say addresses past failures to adjust the minimum wage for inflation. Opponents said automatic pay increases based on inflation would be a further hit to businesses.Simple Math

I side with Gonzalez on the "simple math" and Englander on competitive disadvantages.

This move is 100% guaranteed to cost jobs. Proponents of such measures inevitably say things like "studies show that hikes in minimum wages don't hurt employment."

Such studies only look at the "seen". Population trends and productivity have kept growth intact. Employment rose in spite of hikes in minimum wages, not because of those hikes.

The obvious fact is many struggling businesses will go under. That effect will be seen, but perhaps small. What we won't see is how many stores, businesses, and franchises will not open because of labor costs.

And it's hard now to estimate the push on businesses to further automate, but wage and benefit hikes pressure businesses in that direction.

Experiment Guaranteed to Fail

Councilman Paul Koretz said "This is an experiment. If anyone tells you they know exactly how this is going to go … they’re not being honest with you."

Well, I don't pretend to know "exactly" how this is going to go. But I do know the consequences will be slower growth, fewer stores, and higher unemployment than there otherwise would be.

San Francisco Chronicles 

San Francisco recently hiked the minimum wage to $15. In immediate response, Borderlands Books announced it would close.

A second bookstore owner, Brian Hibbs, owner and operator of Comix Experience, an iconic comic-book and graphic-novel shop on San Francisco’s Divisadero Street and supporter of the wage hike had second thoughts once he saw the math.

Hibbs calculated that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. The amusing thing is Hibbs describes himself "progressive capitalist".

“We’re for a living wage, for a minimum wage, in principle. But I think any law that doesn’t look at whether people can pay may not be the best way to go," says Hibbs.

For icing on the hypocrite's cake, Hibbs asks "Why can’t two consenting people make arrangements for less than x dollars per hour?"

Progressive Capitalism?

I wrote about Hibbs in Capitalism for Me, Socialism for Thee; Progressive Capitalism?


There is no such thing as "progressive capitalism". The idea is as ridiculous as being a Jewish Christian Atheist.

In response to Capitalism for Me, Socialism for Thee, several readers said businesses can just raise prices.

For books that have a set price, it's not that easy. But even in cases where stores can raise prices, what about the decline in traffic?

Already Weak Growth Prospects Just Got Worse

Fast food dining and retail shopping is not price inelastic. The cost of fast food is already prohibitive. So hiking prices is 100% guaranteed to cost some traffic.

The bigger unseen is store expansion. Rising labor costs will have every business cutting expansion plans over what they would have done in the absence of these wage hikes.

Economic common sense is all it takes to realize that already weak growth prospects just got a lot worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

CNBC's Santelli and Mish Discuss Municipal Bonds; Egan-Jones on Chicago; S&P Blames Moody's; Message to Bondholders

śr., 20/05/2015 - 08:07
I was back on CNBC with Rick Santelli on Tuesday May 19. The topic once again was municipal bonds with a spotlight on Chicago. Here are a pair of videos.

Live Santelli Exchange

CNBC's Rick Santelli discusses Chicago's credit downgrade and municipal bond crisis, with Mike Shedlock, Sitka Pacific Capital Management.



Link if video does not play: Santelli Exchange: Illinois' unfunded pension liabilities

What's next for Chicago's debt crisis?

In an extended segment, CNBC's Rick Santelli discusses Chicago's municipal bond crisis with Mike Shedlock, Sitka Pacific Capital Management.



Link if video does not play: What's next for Chicago's debt crisis

The slides in the videos are courtesy of the Illinois Policy Institute. Santelli drew an amusing schematic of the 2011 tax hike showing where the money went. Here is the original chart.



John Cullerton: "Tax increase helped state pay bills and debt." October 28, 2014.

In the second segment, I mentioned Mike Madigan, Speaker of the Illinois House. I know full well Madigan is Speaker, but the words "House Speaker" did not come out of my mouth. I was thinking of mentioning John Cullerton, "Senate President", and those were the words that came out of my mouth.

In Illinois, Madigan and Cullerton are the two guys that control every bit of legislation.

Beware, the Tax Man Has Eyes on You

In case you missed it, please consider my May 4, article Beware, the Tax Man Has Eyes on You: Potential Hike for Illinoisans is Staggering.

Nuveen estimates that property taxes in Chicago will need to rise by 50% to bail out Chicago pensions. I believe the required tax hike would be much higher.

When Nuveen came up with the 50% property tax hike, it did not include tax hikes to bail out other Illinois pension plans. Nor did it address the $9 billion budget deficit for the state. Nor did it consider the possibility (I believe likelihood) of negative stock market returns for years to come.

For further discussion please see my April 23, article Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises.

Egan-Jones Chimes In

On Monday, I gave Sean Egan of the rating agency Egan-Jones a ring. I asked him how he would rate Chicago General Obligation bonds. Egan replied "deep in junk territory".

Here is a table I put together of various rating agencies, incorporating Sean Egan's response.

Rating AgencyDateRating LevelOutlookS&P5/14/2015A-3 Levels Above JunkNegativeKroll 5/11/2015A-3 Levels Above JunkStableFitch 5/15/2015BBB+3 Levels Above JunkNegativeMoody's5/12/2015Ba1JunkNegativeEgan-Jones5/18/2015"Deep Into Junk"Negative
S&P Blames Moody's

Here's an amusing take on passing the buck courtesy of Pensions & Investments on the Debt Downgrades.
Chicago's problem now is that it faces “short-term interference,” S&P said. “That said, we recognize that the city has a diverse tax base and a management team that has good policies in place. These are an important foundation for any city that needs to address the challenges that this city is facing.”

Lois Scott, the city's chief financial officer, said in a statement: “The city of Chicago's financial crisis is real, urgent, and has been decades in the making. The downgrade by Moody's of the city's credit — a decision they say was driven by the Illinois Supreme Court's reversal of the state pension reform bill — has substantially magnified the city's challenges and will add real costs to Chicago's taxpayers. In fact, S&P noted Friday that its own downgrade is driven by the short-term pressures on the city's fiscal position that were created by Moody's actions earlier this week. However, unlike Moody's, S&P recognizes the city's efforts to not only address its legacy liabilities, but that it has the right tools in place to address the challenges it faces.Rate Shop Whores

For a discussion of how the SEC is to blame for the current environment of Fantsayland bond ratings please see Rate Shopping Whores and Chicago's Bond Rating.

In that link I explain in detail how it is that one rating agency has Chicago "deep in junk" while others have Chicago rated "A-".

99% Haircut

The Bond Buyer reports San Bernardino Chapter 9 Plan Gives Bondholders Worst Cut of All.
San Bernardino, Calif. is now planning to give bondholders significantly worse treatment than they have received in any municipal bankruptcy to date, Moody's Investors Service said in a comment piece Monday.

The bankruptcy plan of adjustment city officials presented to the city council on Thursday "proposes to eliminate 99% of the principal value of its pension obligation bonds, while committing to pay 100% of its unfunded pension liability," Moody's credit analysts wrote.

"The implication of the ruling is that the use of POB proceeds to fund pensions is irrelevant to how the bonds are to be treated in bankruptcy, and therefore retirees are under no obligation to share losses with bondholders," according to Moody's.

"The ruling and the plan of adjustment are credit negative for San Bernardino's POB investors." Moody's wrote in the comment. San Bernardino proposed in its adjustment plan to only provide pension obligation bondholders with a 1% recovery.

In Stockton, POB holders received a roughly 41% recovery, while bondholder recovers in Vallejo were roughly 60%. Vallejo did not have POBs.

"By leaving pensions untouched, however, the city's financial operations will remain strained by rising pension costs," Moody's wrote about San Bernardino. "Under the city's projections, pension costs will nearly double over 10 years to nearly 19% of expenditures."Bondholders and Taxpayers Screwed 

San Bernardino city officials made a purposeful decision to screw bondholders and taxpayers.

"By leaving pensions untouched, however, the city's financial operations will remain strained by rising pension costs. Under the city's projections, pension costs will nearly double over 10 years to nearly 19% of expenditures," says Moody's.

Moody's dramatically understates the problem because it did not factor in the likelihood of negative returns on stocks and bonds.

Conflict of Interest

Federal bankruptcy courts ruled four times that cities can cut pensions. So far, cuts have been token. In the case of San Bernardino, nonexistent.

Why?

The answer is "conflict of interest". City officials wanted to preserve their own ill-gotten and undeserved pensions. On that basis, U.S. Bankruptcy Judge Meredith Jury may have made a very bad ruling.

Message to Bondholders

The decisions in Detroit, Stockton, San Bernardino, and Vallejo send a clear message to bondholders:

Don't buy or hold municipal bonds in any municipality plagued by pension woes because you will be screwed if you do.

That is why I agree with a Chicago Tribune editorial by Henry J. Feinberg, says Pass a Bankruptcy Law, Give Taxpayers a Chance.

Pending Illinois legislation, Bill 298 will allow Illinois municipalities to go bankrupt, a badly needed measure. Feinberg's editorial seeks to amend House Bill 298 so people who hold Illinois bonds have a "secured first lien," the fancy words needed in the law to make sure bondholders are first in line to get their money back.

My concern is not for bondholders, rather it's for the taxpayers. In the great financial crisis bailing out the banks at taxpayer risk was precisely the wrong thing to do.

In this case, taxpayers are punished once again. They will have to pony up for inevitably higher borrowing costs. And the sorry situation is that none of the cities really solved any long-term problems.

In bankruptcy, the city could have at least done something to protect taxpayers down the road. Instead, corrupt and greedy city officials protected their own interests.

When the stock market takes another dive, and it will, San Bernardino pensions will again be deeply underfunded. 

Another Crisis Coming

Since no long-term issues have been solved anywhere, expect another pension crisis down the road in a number of already bankrupt California cities.

Meanwhile, I repeat my warning: Don't buy or hold municipal bonds in any municipality plagued by pension woes because you will be screwed if you do.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Another Perspective on Today's Strong Housing Numbers

wt., 19/05/2015 - 18:59
Following today's better than expected housing numbers (See Housing Starts and Permits Surge Most in Seven Years) Doug Short at Advisor Perspectives pinged me with these comments.
Mish – I started tracking these for the first time today – complete historical data. These are two of the noisiest series of all time.

Take a look at the charts, especially the population-adjusted versions. You’ll see why you need at least a 3-month moving average to get an idea of the real trend direction and slope. And check out where the latest data points put us relative to the total series.

Starts: New Residential Housing Starts Surge in April
Permits: New Residential Building Permits Rise 10.1% in April

Bottom line: take the April data with a grain of salt … maybe a tablespoon full.Privately Owned Housing Starts



click on any chart for sharper image

Housing Starts as Percent of Population



The above from Doug Short

Here is a chart and comment I posted yesterday in Home Builders Optimistic Despite Decline in Traffic; Housing Market Index Declines.

NAHB Housing Market Index



If you ask the builders, sales conditions are very good with a score of 59. Sales expectations rose to an excellent score of 64. Meanwhile, actual lookers score a very poor 39.

Average it all together and you get the totally useless chart above.

Housing Market Index Components

Yesterday afternoon I asked the NAHB for the subcomponent data. Here is a chart I put together today from that data.



Note the actual traffic of prospective buyers vs. sales expectations six months out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Robots on Verge of Replacing Human Anesthesiologists

wt., 19/05/2015 - 15:59
Those in medical school pondering career specialties need consider which fields may soon vanish to robots. Anesthesiology is one field in the robotic spotlight.

Please consider this Washington Post headline quote: "We are Convinced the Machine can do Better than Human Anesthesiologists".
I wrote recently about Sedasys, a machine that automates anesthesia. It’s a first-of-its-kind device in the United States. Only four hospitals use it for now. It's restricted to colonoscopies in healthy patients.

But Sedasys, in development for 15 years, is no longer on the true cutting edge of what’s possible with automated anesthesia.

A machine with the clunky name of iControl-RP is. It's an experimental device that pushes the boundaries of how much responsibility is turned over to technology. It monitors brain wave activity. And it's even been tested on children.
One of the reasons that Sedasys was approved by U.S. health regulators is that it's a conservative leap forward. The device is innovative, but it doesn’t decide alone how much anesthesia to give to a patient.

It’s an open-loop system. The initial dose is pre-determined based on a patient's weight and age. And Sedasys only reduces or stops drug delivery if it detects problems. Only a doctor or nurse can up the dose. That gave regulators a level of comfort.

But the iControl-RP makes its own decisions. It is a closed-loop system.

This new device, being tested by University of British Columbia researchers, monitors a patient’s brain wave activity along with traditional health markers, such as blood oxygen levels, to determine how much anesthesia to deliver.

“We are convinced the machine can do better than human anesthesiologists,” said Mark Ansermino, one of the machine’s co-developers, who works as director of pediatric anesthesia research at the university’s medical school in Vancouver.

Sedasys dips its toes into what’s possible. The iControl-RP dives right in.

Anesthesia is tricky. It’s often compared to flying a plane – keeping a patient hovering in just the right plane of consciousness. It’s called depth of hypnosis. Surgeons don’t want patients writhing on the table. And patients don’t want to be aware of the operation. Of course, no one wants patients to die, a distinct possibility if too much of an anesthesia drug is delivered.

The iControl-RP aims to thread that needle by using an EEG to scan a patient’s brain waves to make sure the sedation is adequate. And it looks at heart and breathing rates and blood oxygen levels to make sure the patient is not slipping too deeply into sleep. The machine’s algorithm makes all the medical decisions that a doctor usually does.

Ansermino said anesthesiologists are not very good at maintaining just the right amount of sedation. This is especially important in children, where studies show that deep sedation can have negative longterm cognitive impacts on infants and toddlers.

The iControl-RP team says it has struggled to find a corporate backer for its project. Ansermino, the anesthesiologist in Vancouver, thinks he knows why.

“Most big companies view this as too risky,” he said.

But, he said, a device like this was inevitable.

“I think eventually this will happen,” Ansermino said, “whether we like it or not.”Anesthesiology Robots Coming Like It or Not

I side with Ansermino. These devices will happen, like it or not. Look for approval in Canada first, then Europe. The US will then be forced to catch up.

Meet iControl-RP Your New Anesthesiologist



The iControl-RP, which fully automates anesthesia for operations, stands on the right. On the left are traditional anesthesia monitors that would be used by a human doctor. UNIVERSITY OF BRITISH COLUMBIA PHOTO

Clinical Trials in Canada

iControl-RP is in Clinical Trials in Canada. The study is currently recruiting participants.

It's increasingly important to choose your career wisely. Healthcare in general may be a good choice, but select fields in healthcare will go to robots.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Housing Starts and Permits Surge Most in Seven Years

wt., 19/05/2015 - 15:03
In one of the few economic bright spots recently, housing starts surged beating Bloomberg Consensus Estimates. Highlights

There were hardly any indications before today, but the spring housing surge is here. Today's housing starts & permits report is one of the very strongest on record with starts soaring 20.2 percent in April to a much higher-than-expected annual rate of 1.135 million with permits up 10.1 percent to a much higher-than-expected 1.143 million. Both readings easily top the Econoday high-end forecast of 1.120 million for each. The gain for starts is the best in 7-1/2 years with the gain in permits the best in 7 years. Today's report is an eye-opener and will re-establish expectations for building strength in housing, a sector held down badly in the first quarter by severe weather.

Recent History Of This Indicator

Housing starts & permits have been some of the most disappointing data on the calendar, underscoring how weak the new home market really is. Excuses were abundant during the heavy weather of the first quarter but those excuses won't apply to the latest report which is for April. Both starts and permits are expected to show big gains from depressed levels. Housing Starts



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Why Are Economists' Predictions So Damn Awful?

pon., 18/05/2015 - 21:53
Economists have bought into the transitory soft patch thesis of the Fed, hook line and sinker. Please consider Economists’ Forecast: Here We Grow Again.
Forecasters in the latest Wall Street Journal survey estimated the U.S. economy contracted at a 0.3% pace in the first quarter because of hits from winter weather and the West Coast port slowdown. But the panel, on average, sees annualized economic growth of 2.8% in the second quarter, supported by stronger job gains and wage growth.

The survey of 62 economists, not all of whom answered every question, showed a widespread expectation that consumers would start spending again after several months of avoiding the mall. The May survey was conducted before the Commerce Department reported retail sales were flat in April, but some economists played down the number.

“The April spending numbers will look better once we get information on services,” said Stuart Hoffman of PNC Financial Services. “That’s where consumers are spending their money, and the April increase in restaurant sales points to greater demand for services overall.”

On average, nonfarm payrolls are expected to rise by 223,000 per month for the final three quarters of 2015, better than the 184,000 pace of the first quarter. The unemployment rate is forecast to fall to 5.1% by the end of this year from 5.4% in April.

Gregory Daco of Oxford Economics said the worst of the pain may have already occurred, especially since energy companies reacted quickly to cheap oil by cutting payrolls and capital-spending plans. “While trade and energy will still have an impact, the drag will be less in the second half,” he said.

“Solid job growth and low energy prices could stir spending,” said Michael Moran of Daiwa Capital Markets.Pathetic Performance

Here is an amusing chart of the Fed's own pathetic performance (from Honey I Shrunk the Kids).

.

The date of that post is November 14, 2014. Pay particular attention to that green 2015 line.

Here is the evolution of the Atlanta Fed "GDPNow" first quarter GDP Forecast as of April 2, 2015.

GDPNow Estimate for 1st Quarter - April 2, 2015




The Atlanta Fed at least has a model that makes adjustments. It is not the official Fed forecast.

Next consider a chart from my May 14 post Second Quarter GDP Forecast: Blue Chip vs. GDPNow; Where Might the Fed be Wrong?.

GDPNow vs. Blue Chip



Why the Awful Predictions?

Inquiring minds may be asking "Why Are Economists' Predictions So Damn Awful?"

I was discussing this just yesterday with a small group that shares thoughts every day.

My friend "BC" commented ... "The parasitic 'money-for-nothing' accumulation of money-inflation-induced financial 'wealth' is now a huge net cost to productive economic activity and the capacity of society to sustain its standard of living. Few eCONomists can frame the situation in this way because they are beholding to Wall Street and the top 0.001-1% owners of the rentier-socialist corporate-state at the expense of the middle class".

Pater Tenebrarum at the Acting Man blog replied ... "I totally hate how they have managed to buy off economists. There was time when economists were a thorn in the side of the ruling classes. Previously, the profession required one to tell impolitic truths. Today's economists are spokesmen for the most viciously statist ideology and have essentially become servants of the beast, paid far above their market value for the propaganda services they render."

Self-Preservation Bias

I have commented on this before as well. Investment firms typically get paid on investments, not counting cash. The way to get people invested in something is to be 100% bullish, 100% of the time.

Moreover, you never get fired for being too bullish. Heaven forbid you miss a big rally even if it is as speculative as the dot-com boom in 1999 or the housing boom in 2006.

Explaining the Bias

  1. The Fed as no vested interest in spooking anyone
  2. Home builders and realtors always say "now is a good time to buy a home"
  3. The sell side investment houses always come up with reasons to buy stocks.
  4. No one ever gets fired for being too bullish

As a self-preservation mechanism, economists are trained to be bullish. A good example of a trade bias is the National Association of Home Builders' Housing Market Index.

In spite of consistently poor traffic for years, home builders have maintained very strong expectations of future home sales.

Recent Economist Misses


Economists have been very wrong for at least five months. And in general, they have been far too optimistic for years.

It all adds up to perpetual economic overoptimistic bias with subsequent downgrades.

Recession Odds



In spite of the fact first quarter GDP is highly likely to be negative, economists believe there is only a 1.2% chance the US is in recession.

Whether or not you think a recession is likely, 1.2% is totally absurd.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Home Builders Optimistic Despite Decline in Traffic; Housing Market Index Declines

pon., 18/05/2015 - 19:44
The National Association of Home Builders' Housing Market Index once again reveals positive builder sentiment even though new home sales are weak. The HMI is Derived from a monthly survey that NAHB has been conducting for 30 years.

The index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Index Lower Than Expected, But Positive

A new release came out today and although the index was positive, the Bloomberg Consensus Number was lower than any economist's forecast.


The housing market index has long been signaling strength in the new home market that has yet to appear, but the signal is less strong in May. The index fell 2 points from April to 54 which is below the low-end Econoday forecast.

Weakness in traffic has been a major feature of this report, underscoring the lack of first-time buyers in the housing sector. A plus in today's report is a 1 point gain in future sales, a component that is well out in front at a very strong 64.Traffic vs. Expectations

Traffic is weak, but future expectations are very strong. The disconnect suggests more than a little bit of builder overoptimism. Let's dive into the actual report for a closer look.

The NAHB reports Builder Confidence Falls Two Points in May.
“Despite this month’s slight dip, builder confidence in the new home market remains above the 50-point benchmark,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. “Overall, the second quarter of 2015 is shaping up to be very solid.” 

“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said NAHB Chief Economist David Crowe. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.

The index’s components were mixed in May. The component charting sales expectations in the next six months rose one point to 64, the index measuring buyer traffic dropped a single point to 39, and the component gauging current sales conditions decreased two points to 59.NAHB Housing Market Index



If you ask the builders, sales conditions are very good with a score of 59. Sales expectations rose to an excellent score of 64. Meanwhile, actual lookers score a very poor 39.

Average it all together and you get the totally useless chart above.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Rate Shopping Whores and Chicago's Bond Rating

pon., 18/05/2015 - 10:29
Moody's vs. S&P Rating of Chicago

On May 12, Moody's downgraded Chicago's GO bonds to Junk.

I commented on that downgrade in Moody's Cuts Chicago Bond Rating to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth.

On May 14, S&P Downgraded Chicago General Obligation Bonds from A+ to A-. That rating is three levels above junk.

Two Questions

  1. Why was the S&P slow in the downgrade?
  2. Why does Moody's rate Chicago as junk while the S&P rate Chicago three levels higher than junk.

Rate Shopping Whores

The answer to both questions is rate shopping.

Mark Glennon at WirePoints explains S&P, slated to rate upcoming Chicago bond sale, goes comparatively easy on downgrade. Hmmm.

"Chicago plans to price offerings of $201 million and $182 million on May 19, as reported yesterday by Bloomberg. And guess who is one of the two agencies slated to rate the new offering, hired by the city? You take it from here. What a system."

Origin of Rate Shopping

It did not use to work like this. And I have been harping about the underlying problem for years. A good starting point is my September 28, 2007 post Time To Break Up The Credit Rating Cartel.

Here is a recap.

The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business.

Low and behold the SEC came along in 1975 and ruined a perfectly viable business construct by mandating that debt be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). It originally named seven such rating companies but the number fluctuated between 5 and 7 over the years.

Establishment of the NRSRO did three things (all bad):

  1. It made it extremely difficult to become "nationally recognized" as a rating agency when all debt had to be rated by someone who was already nationally recognized.
  2. In effect it created a nice monopoly for those in the designated group.
  3. It turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn't sell it. Of course this led to shopping around to see who would give the debt the highest rating.

Instead of rating agencies getting paid on the basis of how well they rated debt, the rating agencies got paid on how much debt they rated!

Explaining CDO Garbage Rated AAA

If you were looking for a reason all that CDO tranch garbage was ever rated as AAA, you now know. Rating agencies made money by rating it AAA.

Back to Mark Glennon: "Guess who is one of the two agencies slated to rate the new offering, hired by the city?"

Looking for another questionable Chicago debt rating? If so, I just happen to have one.

On May 11, BusinessWire reported Kroll Bond Rating Agency Assigns A- Rating with a Stable Outlook to Six Series of Reoffered City of Chicago, Illinois General Obligation Bonds.

Please note KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO).

Kroll Background

How did Kroll break into the bond rating business? A February 2011 New York Times article explains: A Corporate Sleuth Tries the Credit Rating Field.
FEW people ever penetrate the dark side of money, but Jules Kroll is one of them. Fortunes plundered, ransoms paid, deals cut — the uncovering of such secrets, and the million smaller confidences that are his history, have made Mr. Kroll a rich man.

Which is why his latest venture seems at once so unusual and yet so very Kroll. At 69, an age when other multimillionaires are working on their backswings, he is getting into — of all things — the credit ratings business.

You might wonder why anyone pays attention to them anymore. After all, the financial crisis of 2008 and 2009 laid bare the conflicts at the heart of the ratings game. The world learned that the three dominant services — Moody’s, Standard & Poor’s and Fitch — had stamped sterling ratings on mortgage investments that turned out to be nearly worthless. It was a lesson that nearly brought down the financial system.

Some small ratings services have challenged the establishment by having investors — that is, the people who actually buy securities — pay for ratings. But for all his talk about shaking up this industry, Mr. Kroll is hewing to the status quo. Like Moody’s, S.& P. and Fitch, Kroll Bond Ratings will be paid by the issuers, just as the big three are.

“What does he know about giving me a rating on a security?” asks Richard X. Bove, an analyst at Rochdale Securities.

 Mr. Kroll, for his part, is thinking big — as he always has. He wants to grab 10 percent of this $4 billion-a-year industry within five years.

But even that seemingly modest goal may be a reach. Moody’s and S.& P. each have about 40 percent of the ratings market. The remainder is spread among Fitch and several lesser-known agencies.

“I think it’s a tough industry to break into, but if anyone can do it, it’s Jules Kroll,” says Michael Charkasky, the chief executive of Altegrity, which acquired Kroll Inc. last year. How To Gain Market Share

Gaining market share is easy. All you have to do is give junk an AAA rating when the other guy won't.

The debt rating scam is such that you lose business if you do the job better than others. I repeat what I said in 2007: Time To Break Up The Credit Rating Cartel.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

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