Mish's Global Economic Trend Analysis

Posted: 01 May 2011 09:07 PM PDT

Inquiring minds are watching silver futures get smacked this Sunday evening. Here are a couple of charts to consider.

Silver 15 Minute Chart

Silver Monthly Chart

The monthly chart looks ominous. It seldom pays to chase spikes like that, regardless of fundamentals or perceived fundamentals.

Where to From Here?

I was not even going to comment on silver tonight because of my sale last Wednesday as noted in Taking Silver Profits - Swapping Silver for Gold.

What changed my mind was a post this evening by Zero Hedge: More On The Silver Dive: "Massive Sell Orders" Coupled With Bolivian Nationalization Halt Combine For Perfect Weak Hand Shakeout Storm

Looks like the old sell into low volume trick to flush the stops and kill the weak hands has worked again. Throw in last week's two CME margin hikes and Friday night's margin bonanza by MF Global, and one had a perfect storm set up for another wipe out in silver to start the week.

In the meantime, silver promptly managed to retrace over 50% of the move shortly after the dump. At this point whatever holders remain following last week's margin action and this evening's fine example of shock and awe will likely need far more energy and capital to be shaken out by the same entities whose primary goal is to prevent the surge in silver and ongoing capital-sapping collateral calls. Since none of the actual fundamentals before the long-term trajectory in silver (and gold) have changed, this appears like a rather attractive entry point.

Lastly, one should recall that silver had a mini 10% correction last week and not only promptly recovered but nearly passed the $50 level shortly thereafter. This time will not be any different.

I Don't Know, Zero Hedge Doesn't Either

Perhaps Zero Hedge is correct. Silver may be headed higher, much higher. However, he sure as hell does not know.

Ironically, in spite of saying "this time will not be any different", he is banking precisely on "this time is different".

The reason is parabolic spikes never end well. The problem is figuring out when they may end. As for me, I see nothing attractive about buying silver at $43 in a parabolic spike, when it was $17 less than a year ago.

Technically, there is minor support at $30 but there is no major support until the low $20's.

That said, I have been wrong many times before and I may be wrong again. However, I do not see a good buy-the-dip setup here, in parabolic spike correction that may have just started, when anti-dollar sentiment is extreme, in a seasonally unfavorably period for precious metals.

Regardless of what happens, there is a lot of merit for being on the silver-sidelines until August when seasonal factors are more favorable, and rabid bullishness may have worn off.

Of course, this time could be different.

What's Going On?

If silver corrects further, expect GATA and all of the silver conspiracy advocates to come out of the woodwork screaming "manipulation".

Instead, I propose the "real deal". If silver corrects hard, it is because everyone and their brother is already "all in". When no buyers are left to support silly prices, crashes happen.

Should silver propel higher, then it will be because the pool of greater fools has not yet exhausted itself.

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

Governor Quinn Holds Illinois Cities Hostage Over Budget Proposal; Cities Face Massive Cash Crunch

Posted: 01 May 2011 08:34 AM PDT

In spite of the biggest tax hikes in the history of Illinois, the state is still $8 billion in a budget-deficit hole. Instead of cutting expenses, Governor Quinn wants to borrow $8.75 billion to pay the bills. Currently, Illinois is just starting to pay bills from November 2010.

To get approval for his preposterous proposal, Quinn threatens cities' revenue sharing unless they hop on board his plan. Currently $1 billion a year is distributed from state income tax collections to cities, based on population.

Amazingly, Quinn's budget director says this is "not a hostile message".

Please consider Quinn wants to withhold cities' money as pressure to borrow billions

Gov. Pat Quinn wants to stop nearly $100 million in monthly payments to Chicago, the suburbs and other Illinois towns if lawmakers won't let him borrow billions of dollars to pay overdue bills, according to a confidential memo the Tribune obtained Thursday.

The proposal, outlined in the memo and quietly distributed to top legislators, represents a pressure tactic by the Democratic governor. He hopes mayors from Zion to Cairo will squeeze their town's lawmakers to help get him the loan he wants.

Acknowledging the backlash from cities, Quinn budget director David Vaught said mayors and other community leaders should "come help us get the debt restructured, and then you would get paid. That's the message to them. It's not, it's not a hostile message. … We have a cash crunch here, and we need your help getting out of it."

Chicago would be hit hardest, with the city getting about $220 million in the last budget year from that pot of money. Mayor-elect Rahm Emanuel already faces a money shortfall that could total $1 billion in day-to-day expenses and employee pension costs.

The Quinn administration's gamble comes a day after Republican Comptroller Judy Baar Topinka revealed the state would be slightly more than $8 billion in the red when the budget year ends June 30, pending any new moves by Quinn or legislators. The state this week is just getting around to paying bills dated Nov. 5.

If lawmakers instead decide to pass legislation allowing Quinn to stop the local payments, the suspension could be retroactive to February and last through year's end.

Suburban leaders say such a move by the state would cripple their budgets. In Tinley Park, the state income tax payments make up about 11 percent of village revenue. Elgin gets $683,000 a month from that state source. In Naperville, it's a little less than $1 million a month.

Quinn's Proposal Dead On Arrival

Senate Republican leader Christine Radogno said she will "absolutely not" support Quinn's borrowing plan. Even Democrats are balking.

Note that balancing the $8 billion deficit-hole just stops the bleeding. It will not pay $8.75 billion in current bills.

Massive Cash Crunch Coming

What cannot be paid, won't be paid and a massive cash crunch in Illinois cities is coming and/or the state will default on payments to vendors. Illinois cities may be forced to fire workers, raise property taxes or raise local sales taxes to make up for shortfalls in expected money from the state.

Step aside California; all things considered Illinois wins hands down for fiscal insanity, corruption, union pandering, and for setting an anti-business environment.

Note that cities cannot reduce expenses because of inane work rules that pander to unions. Illinois Public Labor Relations Act granted public employees and employers the right to bargain collectively and prevailing wage laws guarantee that all public work projects will pay some preposterously high wage.

The combination of those Illinois laws, in conjunction with untenable wage and benefit promises made to police, fire, teachers' unions has threatened the solvency of nearly every city in the state.

Instead of acting to help cities, Governor Quinn strengthened prevailing wage laws several time.

Madigan honored with "prevailing wage" award

Inquiring minds are reading Madigan honored with "prevailing wage" award

Illinois Attorney General Lisa Madigan accepted an award from the state's Building Trades Council in Bloomington for her previous pro-union legislation. The Reuben G. Soderstrom Prevailing Wage Award is given annually. Madigan says she's honored and will continue with the same work. She says she's now working on a bill to enhance penalties for criminal violations of the prevailing wage act. Madigan says under the law, violations would be a class four felony.

"I think the real impact would be, that it would provide for debarment," Madigan said. "In other words, employers, contractors who are found to have criminally violated the Illinois Prevailing Wage Act will not be allowed to bid on contracts for a period of four years."

Democrats Running Illinois Into the Ground For Decades

Lisa Madigan is daughter of Michael Madigan, Speaker of the Illinois House every year since 1983 except 1994-1996. Clearly Democrats have been running Illinois into the ground for decades.

Instead of attempting to fix those structural problems, Governor Quinn with "leadership" from Michael Madigan ...

Hiked the personal income tax rate from 3% to 5% (a 67% hike in rates).
Hiked the corporate income tax rate from 4.8% to 7% (a 46% hike in rates).

Note that corporations also have to pay a 2.5% "personal property replacement tax" effectively making the state corporate income tax rate 9.5%.

Blatant Lies By Governor Quinn

The Daily Herald notes that On the campaign trail, Gov. Pat Quinn told voters he'd veto any income tax hike that would raise Illinois' rate over 4 percent.

I believe that is one of the fastest proven lies in political history.

Sales Taxes

Illinois has a middle of the road sales tax, at least until you consider various local surtaxes.

Here is a nice table from Wikipedia.

Home Rule

With "Home Rule" Illinois has the top sales tax rate in the nation.

With that, inquiring minds might be wondering about "Home Rule". To help explain, please consider the following snip courtesy of the Illinois Department of Revenue.

Depending upon the location of the sale, the actual sales tax rate may be higher than the fundamental rate because of home rule, non-home rule, water commission, mass transit, park district, and county public safety sales taxes.

Lovely, isn't it. Note that sales taxes may rise because of home rule or non-home rule.

Gasoline Taxes January 2011

Diesel Taxes January 2011

Overburdened Taxpayers

What have Illinois taxpayers received for all these tax hikes?

Praise from the SEIU
The election of Pat Quinn
The Reuben G. Soderstrom Prevailing Wage Award
Praise from Illinois teachers' unions
Severely underfunded pension plans, the worst in the nation. Please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State? for details
Numerous cities on the verge of bankruptcy
An extremely hostile business environment

In spite of those tax hikes, Illinois is still $8 billion over budget and still cannot pay its bills. This is what Democratic leadership has done to Illinois.

Meanwhile states like New Jersey under leadership of Governor Chris Christie, Wisconsin under leadership of Governor Scott Walker, and Ohio under leadership of Governor John Kasich have all taken steps to fix structural problems in their respective states.

It's time to stop this insanity at the national level. We desperately need to scrap Davis-Bacon and all prevailing wage laws and enact national right-to-work laws.

I wish Governor Christie would change his mind and run for president. Barring his position on military spending of which I am unaware, he is the ideal candidate.

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

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Sunday, May 1, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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