Mish's Global Economic Trend Analysis

Pimco CEO says "Europe is Kicking the Can, Bondholder Haircut Coming"
Streaming Error
Eddie & JoBo Show - WLS 890 - 8:05 PM Saturday - I 'm on Discussing Governor Quinn Recall
Chinese Bank Lending Spree Continues; $75 Billion New Loans First Week in January Alone; Inflation Gone Amuck
Hello Mayor Daley ... About Your Plan to Poach Business from Oregon and Other States: No Business Owners in Their Right Mind Would Move to Illinois

Pimco CEO says "Europe is Kicking the Can, Bondholder Haircut Coming"

Posted: 15 Jan 2011 08:26 PM PST

Pimco co-CEO Mohammed El-Erian says European Bond Investors Must Accept Losses

"The main issue right now is the integrity of the eurozone is getting weaker and weaker as we delay the problem," El-Erian tells CNBC. "They are simply kicking the can down the road."

"Ultimately there will be a haircut to bonds issued by certain governments in the eurozone, and the longer we delay that recognition the bigger the problem and the more disorderly the process will be."

El-Erian believes U.S. municipal bonds are an especially interesting market now.

"We are in the midst of a massive adjustment in the state and local level that we're going to have to undertake," he says.

"The key issue when you invest in municipals is two things: It's not just in the rate risk, it's interest rate and credit risk, and therefore be highly differentiated. You want to be very high up in the credit curve."

In regards to Europe, El-Erian is not saying anything I did not say a year ago. In regards to Munis, he brings up several factors.

1. Rate Risk
2. Default Risk
3. Differentiation

I certainly agree. However, even if one can navigate number 3 (and I expect PIMCO to be able to do just that), you still have rate risk and you have something he did not mention, sentiment.

While sentiment will certainly impact rates, if several major municipalities blowup, or even if people think they might, there could be a massacre in munis across the board.

I see little reason to invest in munis until that happens. In the meantime, default risk is unappreciated in general, even though I disagree with Meredith Whitney who I believe overstates the problem.

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

Streaming Error

Posted: 15 Jan 2011 08:26 PM PST

In reference to Eddie & JoBo Show - WLS 890 - 8:05 PM Saturday - I'm on Discussing Governor Quinn Recall ...

Unfortunately there was a streaming error with the audio on WLS 980. WLS did not point to the live feed but a prior show. I am told this was only the second time it happened.

I may be able to get an MP3 of my segment. If so I will post it. I was on 18 minutes. Time went by very quickly.

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

Eddie & JoBo Show - WLS 890 - 8:05 PM Saturday - I 'm on Discussing Governor Quinn Recall

Posted: 15 Jan 2011 03:47 PM PST

I received an email moments ago from Eddie Volkman at WLS AM 890 Chicago asking me to be on for a live 18-20 minute segment tonight. The discussion will be on Governor Quinn, the tax hikes, how those tax hikes will impact the state of Illinois, and what we can do about it.

Hey Mike...

I'm Eddie Volkman from "The Eddie & JoBo Show" now on WLS-AM, 7-9pm Saturdays. Wondering if we could get you on with us to talk about your Quinn recall. The whole tax thing is obviously a huge topic right now and listeners are fuming. We'll be talking about it in the 7 o'clock hour tonight. Sorry for short notice but I came across your blog and it's quite intriguing! Thanks!

Eddie Volkman

Click here to listen live

Call in 312-591-8900
Or text "WLSAM" to 68683
or tweet to @wlsam890

Tune in, it should be fun.

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

Chinese Bank Lending Spree Continues; $75 Billion New Loans First Week in January Alone; Inflation Gone Amuck

Posted: 15 Jan 2011 11:10 AM PST

China wants to rein in inflation, or so it says. It also wants 10% growth per year as far as the eye can see. It does not want to float the Yuan, and it does not want to hike interest rates. Nor does China want to do anything about credit gone amuck.

In other words, China wants the proverbial "free lunch". Given there is no free lunch, China is overheating. Please consider China bank loans near 500 billion yuan in January

Chinese banks continued their lending frenzy in the beginning of the year, doling out 500 billion yuan ($75.6 billion) in new loans in the first week of January alone, putting fresh pressure on the central bank to tighten policy to put a lid on inflation.

The loan figure includes about 210 billion yuan extended by the "Big Four" state lenders, sources with direct knowledge of the figures told Reuters on Wednesday.

The overall lending figure would roughly equal the new loans extended during all of December. New lending in December reached 480.7 billion yuan, meaning China overshot the government's target of keeping bank loans to 7.5 trillion yuan in 2010.

Banks lent 7.95 trillion yuan ($1.2 trillion) in 2010, overshooting Beijing's target and highlighting the need for more decisive policy tightening. In the past, China used loan quotas to keep a handle on lending. This year, the central bank has pledged to refine that system with regular calibrations of reserve requirements.

Rampant, Understated Inflation

7.5 trillion yuan is about 1.14 trillion US dollars. You are not going to have that kind of credit expansion, while building entirely vacant cities in the process.

China's official inflation is 5%. Unofficially, estimates are 10% as noted in China's Foreign Exchange Reserves Jump by Record $199 Billion; Cost Push Inflation from China? Don't Count On It!

However, that does not count increases in home prices. It is an enormous mistake to ignore property bubbles, as the US found out, and as China, Australia, Canada, and the UK are going to find out.

China's Vacant Cities

In case you missed it, please consider Amazing Satellite Images Of The Ghost Cities Of China on the Business Insider.

"There's city after city full of empty streets and vast government buildings, some in the most inhospitable locations. It is the modern equivalent of building pyramids. With 20 new cities being built every year, we hope to be able to expand our list going forward."

More Vacant China City Stories

Implosion of the China "Fabric City" Frenzy

10 Signs of Speculative Mania in China

Email from a Chinese on China's Real Estate Bubble

China property bubble will overheat until it implodes. In the meantime, regardless of what China reports on the CPI, inflation remains a huge problem. Once again, those looking for inflation can find it in China, not the US, where consumer credit is contracting.

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

Hello Mayor Daley ... About Your Plan to Poach Business from Oregon and Other States: No Business Owners in Their Right Mind Would Move to Illinois

Posted: 15 Jan 2011 12:34 AM PST

Mayor Daley had a plan to persuade businesses to come to Illinois. Unfortunately for Illinois, it was a horrendously executed plan. Mayor Daley forgot to lift a finger in the last election against Governor Quinn.

Now Daley is whining.

This is a piss poor time to be whining about higher taxes. Had Daley made any appropriate remarks regarding tax hikes by Quinn before the election, Illinois would have had a different governor.

About That Plan ...

Oregon Live reports So much for Chicago talk of poaching Oregon business

In the wake of the Measure 66 and 67 tax increases approved by Oregon voters a year ago, Chicago Mayor Richard Daley quickly said he'd be recruiting Oregon businesses to move to his own supposedly more business-friendly city.

Wonder what Daley is saying now that Illinois legislators have approved a stunning 66 percent increase in the state's income tax?

Here's some of the fine print, if you want to more deeply compare the two states: Under the new bill, the Illinois personal income-tax rate - 5 percent - will still be much lower than Oregon's. But Illinois has high sales taxes. In 2008, just as the recession was first hitting, the total state and local tax burden in Illinois $4,346 per capita compared to $3,719 in Oregon, according to the Tax Foundation. Because Oregon had a lower per capita income, however, Illinois residents paid 9.3 percent of their income in state and local taxes and Oregonians paid 9.4 percent.

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 this is one of the fastest proven lies 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.

Businesses moving into Illinois just might beware of moving into cities or counties with high "Home Rules".

Which places might that be?

Well Mayor Daley's Cook County of course, but it could be anywhere.

Gasoline Taxes January 2011

Diesel Taxes January 2011

Gasoline and Diesel Charts courtesy of the American Petroleum Institute.

Truckers, Take The South Central Route

As a courtesy to my trucker friends, it appears avoiding fillups in California, Illinois, Indiana, New York, and Pennsylvania is of paramount concern.

My advice to Wisconsin would be to drop Diesel taxes to match Missouri's 41.7 in order to secure the Northern fillup route.

Any trucker going cross country and filling up in Illinois, Indiana, New York, or Pennsylvania is clearly nuts. Truckers probably know this, but state legislatures don't.

Property Taxes

Fiscal insanity goes beyond massive personal income and corporate tax hikes. Cities in Illinois have among the highest property taxes in the nation. I pay over $14,000 a year on a home I think I could sell for $600,000.

Bear in mind about four years ago I challenged the assessment (and won), which reduced my taxes to about $12,500. My taxes are now back up to over $14,000. Does anyone think property valuations have risen in the last four years?

Gubernatorial Bribery, Corruption - Elect, Indict, Repeat

Illinois Issues Online is asking Will democracy, Illinois style, ever change?

Illinois' reputation for corruption is well-documented. Nine men have served as governor in the past 50 years. Two — Democrat Otto Kerner and Republican George Ryan — were convicted of crimes they committed while in office. (Ryan is appealing his conviction.) Democrat Dan Walker also was imprisoned after he left office, but for crimes unconnected to his tenure as governor. And Republican William Stratton was indicted for tax evasion in connection to his use of campaign funds, but he was ultimately acquitted.

As Democratic Gov. Rod Blagojevich begins his second term, federal investigations of his administration's hiring and contract practices continue. His fundraiser and political adviser Antoin "Tony" Rezko has been indicted for an influence-peddling scheme. Though Blagojevich has not been charged with any wrongdoing himself, based on the persistent federal prosecutor's previous record, it's fair to say that could change. It is possible, in other words, that the majority of Illinois governors who served during the past half century could end up being indicted on corruption charges.

That so many Illinoisans at state government's apex have been accused of crime raises the question of whether there is a culture of corruption.

Culture of Corruption

That article is from 2007 and is clearly out of date. Blagojevich was convicted on one of 24 counts so add Blago to the convicted list. He stands retrial on 23 deadlocked charges after a Judge Refuses to Overturn Rod Blagojevich Conviction.

That story is as of October 27, 2010. How Blago escaped conviction on 23 other charges is quite a mystery to me.

The official score is 3 out of the last 10 Illinois governors were convicted of crimes while in office and a 4th convicted after he left. A 5th was charged and acquitted.

Can any other state match that?

About That Corporate Tax Hike

Illinois hiked its corporate tax rate to 7% from the current 4.8%. Several people sent emails stating that 7% did not sound so bad.

However, they failed to consider that Illinois collects from all businesses a 2.5 percent "personal property replacement tax".

As a result of the decision, small businesses will now be paying a tax rate of 7 percent, up from the current 4.8 percent. However, added together with the 2.5 percent personal property replacement tax Illinois mandates, business owners' tax burden will now reach 9.5 percent.

"This will hurt business in the state," Steven Slack, president of Home State Bank, told the Northwest Herald. "I know several manufacturing clients being courted by other states; they could leave and take all those jobs with them."

No Business In Their Right Mind Would Move To Illinois

If you were a business owner would you want to move to Illinois in the face of huge corporate tax hikes, a whopping 67% personal income tax hike, massive property taxes, and a tax prone political liar as governor?

For every incoming business (they will all be trumped up), there will be dozens of corporate downsizings, and several complete exoduses (with little to no fanfare).

Illinois desperately needs jobs. However, a culture of corruption and high taxes is driving them away.

What You Can Do About It

If you are fed up with corruption, vote buying, and massive tax hikes then you need to take a stand.

Campaign To Recall Illinois Governor Pat Quinn Underway

My Campaign To Recall Illinois Governor Pat Quinn Is Underway

I have exciting news this morning. I am launching a campaign to recall Illinois governor Pat Quinn.
This is not a frivolous effort. It is a serious undertaking and one in which I intend to see to the end. It will take hard work and lots of volunteers but we will be successful.

I need volunteers to ...

Gather signatures
Talk to state legislative representatives to get them on board
Provide legal help
Design a website
Help with advertising

We need to be successful because Governor Quinn has plans that will destroy Illinois.

Will You Stand Up To The Injustice?

There are many tasks to be performed and I will need volunteers from every county to gather signatures. I estimate we need about 520,000 signatures. My goal is to get 700,000.

If you can volunteer, time, web design, advertising, legal help, or any kind of general assistance, I would appreciate it. We need to put a stop to Quinn's proposals that will drive businesses and jobs out of the state and massively raise your taxes as part of the bargain.

Call To Action

I wrote the above call to action post on Sunday, January 9, 2011. Since then I have had over 200 volunteers (up from a hundred a couple days ago). I have 10 web designers, 3 lawyers (up from 1), and numerous business owners volunteer as well.

Work on a website is underway. I have secured the appropriate domain names. One business owner who employs about 100 people graciously volunteered services of his legal department.

This is going to be a long slug, no doubt about it. Yet other than leave the state, there is little else we can do. I do need business owners to contact their legislative representatives and pressure them to sign the petition to Recall Quinn.

There are 118 state representatives and 59 state senators. To get started, all we need are 20 reps (10 each party), and 10 senators (5 each party), before we start the signature gathering process.

Please contact your representatives and get them on board. In the meantime, please email Recall Governor Pat Quinn Today (RecallQuinnToday@gmail.com) and lend your support to the effort to save the state of Illinois from Quinn's fiscal recklessness.

Please state in the email what you can do to help. If you live in Illinois or have friends in Illinois, please email this article to them.

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

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Saturday, January 15, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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