Mish's Global Economic Trend Analysis

Economic Bust in Australia:Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans;Record Low Property Transactions
Google Expects "Full Recovery" of Missing Blogger Posts
Investor Poll Says Tax Hikes Needed; 60% Think No Budget Agreement by October 1; McConnell Wants Medicare Cuts Before Hiking Debt Ceiling
Blogger Back Up
Weekly Unemployment Claims an Elevated 434,000; Moving Average Trending Higher for a Month
Orange County Lifeguards Make $200K Annually, Can Retire at Age 50 With 90% Pay

Economic Bust in Australia:Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans;Record Low Property Transactions

Posted: 13 May 2011 12:36 PM PDT

Those looking for bad news can find plenty of it in Australia, which in my opinion is soon headed for recession and rate cuts.

Near-Record Corporate Bankruptcies

Please consider Rising rents, cautious consumers behind rise in insolvencies

The number of companies entering insolvency in March reached a near-record high of just under 1,500, according to the corporate regulator, with cautious consumers and rising rents believed to be behind the worrying result.
Figures from the Australian Securities and Investments Commission show the number of company collapses reached 1,491 in March, versus 1,299 in February and 640 in January.

The 1,491 figure is one of the highest ever figures released by ASIC since the late 1990s, and a significant rise on March 2010′s figure of 1,313.

Small Business Council of Australia chief Peter Strong warns we might not have seen the worst yet, with the impact of the flooding and Cyclone Yasi in summer not yet reflected in the numbers.

Record Low Property Transactions

The Sunday Times reports WA suffers record low property transactions

THE State Government has confirmed that WA's declining property market has hit rock bottom, with property activity last month falling to 16-year lows.
"The low April figure came on the back of March which was the worst for 14 years, and January and February which saw the lowest activity for nearly two decades," he said.

Rock Bottom?

What makes anyone think this is the bottom?

Employment Unexpectedly Falls Most Since 2009

Bloomberg reports Australian Employment Unexpectedly Falls Most Since 2009, Currency Weakens

Australian employers unexpectedly cut workers in April by the most since 2009 as hiring weakens in states less affected by the nation's mining boom, sending the local currency tumbling and stocks lower.
The number of full-time jobs declined by 49,100 in April, the most since February 2009, and part-time employment rose by 26,900, today's report showed. Australia's participation rate, which measures the labor force as a percentage of the population over 15 years old, fell to 65.6 percent in April from 65.8 percent a month earlier, it showed.

Last month's decline in jobs brings to 26,300 the number of net new positions created in the first four months of the year, the weakest January-through-April period of employment growth number since 1999.

Economists in a Bloomberg News survey forecast a 17,000 increase in April, according to the median of 21 estimates. The jobless rate held at 4.9 percent.

The RBA said in its May 6 quarterly policy statement that "most leading indicators point to further growth in employment over the months ahead, although at a slower pace than in 2010." It also predicted the jobless rate would fall to 4.25 percent by December 2013.

RBA Calls For Unemployment Rate to Drop

What the hell is it that the RBA sees that I don't? The property bust is underway and going to accelerate, retailers are going under, and consumers are tapped out.

How exactly does that translate to lower unemployment rate?'

I certainly have to laugh at the economists in that Bloomberg survey because the employment report came out after the reported rise in corporate bankruptcies.

Here is one more piece of the puzzle to consider.

Rise in Bad Home Loans

The Age reports a Rise in CBA bad home loans

Commonwealth Bank's decision to aggressively grow its mortgage market share at the height of the financial crisis is starting to cause indigestion after it revealed an increase in the number of housing loans starting to turn bad.
Further stress in the housing market could emerge with CBA chief executive Ralph Norris predicting the Reserve Bank could issue as many as two interest rate increases by October.

"We're obviously expecting the Reserve Bank to increase rates and there's possibly one or two rises to come in the next six months," Mr Norris told an investor briefing.

Mr Norris was speaking as CBA confirmed it was on track for a record profit result after it reported third-quarter earnings of $1.7 billion.

Even with demand for credit expected to remain subdued until after next month, the latest performance so far should see the bank deliver cash earnings of $6.8 billion.

This will comfortably beat last year's profit result of $6.04 billion.

But CBA's experience with an 11 per cent jump in the number of missed payments on housing loans in the March quarter follows a similar run-up in arrears by ANZ and Westpac.

Usually such a sudden increase in lending arrears would be a cause for concern in the banking sector given their large exposure to mortgages. But Mr Norris pointed to natural disasters such as Queensland's floods causing stress among some homeowners.

Norris Way to Optimistic

I disagree with the CBA chief executive Ralph Norris on nearly every point.

I highly doubt the RBA hikes twice more.
I expect cuts as the Australian economy slumps into a big recession.
I expect delinquencies to rise further.
I expect profits at CBA have peaked or will soon do so.

Except for my economist friend Steve Keen, I have to ask: Has anyone down under learned anything from the property bust in the US?

The Balance Sheet Is The Future

Let's now review Peter Atwater's post on Bank Earnings 102 also from September 2007.

[Here is] one simple rule for financial services firms: The income statement is the past. The balance sheet is the future.
Let me repeat it again. The income statement is the past and the balance sheet is the future, especially now.

At the top of a credit cycle, the income statement for a financial institution shows "the best of times", but buried in the balance sheet is "the worst of times" to come.

I commented on that many times including Questions Linger Over Lehman's Balance Sheet on March 25, 2008. "Judging from what's happening to its balance sheet, Lehman's future looks bleak."

The more leveraged one is to real estate the bigger the ultimate bust. Commonwealth Bank is likely to be punished severely for its willingness to expand into risky assets at the top of the bubble.

Addendum:

Anyone who thinks short sellers and options traders sunk Lehman or Bear Stearns is mistaken. Leverage killed both companies. Leverage would have and should have killed Citigroup as well, had not the Fed and Congress stepped in with ill-advised bailouts.

This article is a repost not knowing how long the original will be down. For details on missing posts please see Google Expects "Full Recovery" of Missing Blogger Posts

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

Google Expects "Full Recovery" of Missing Blogger Posts

Posted: 13 May 2011 12:17 PM PDT

As many of you are aware, Blogger posts on Thursday were wiped out across the board (all blogs) when Google restored Blogger to a state from Wednesday, having to back out maintenance gone awry.

I just spoke with the head of the Google Blogger team and he expects "full recovery" of any missing posts, sometime later today.

I am missing a post on Australia and another one on weekly unemployment claims numbers. Hopefully both will be back online soon.

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

Investor Poll Says Tax Hikes Needed; 60% Think No Budget Agreement by October 1; McConnell Wants Medicare Cuts Before Hiking Debt Ceiling

Posted: 13 May 2011 11:47 AM PDT

In a Bloomberg poll, 60% believe budget issues will not be resolved by October 1, the start of the fiscal year. Meanwhile the battle between Republicans and Obama lingers on.

Senate Minority Leader McConnell Seeks Cuts to Medicare and Medicaid in U.S. Debt-Cutting Talks, but Obama Wants Tax Hikes.

Senate Minority Leader Mitch McConnell said he wants "significant" near-term cuts in federal agency budgets paired with longer-term reductions to programs like Medicare and Medicaid in exchange for his support for a boost in the U.S. debt limit.

McConnell, a Kentucky Republican, said he will insist on big policy changes in the Medicare and Medicaid health-care programs to help restore the nation's fiscal balance. He urged Obama to help specify adjustments both parties can embrace. Doing so now, with bipartisan support, would help nullify the policy changes as issues in the 2012 elections, he said.

"We can do something important for the country together, and this is the opportunity," the top Senate Republican said. "That is the importance of this debt ceiling moment. It is the one time when we have to come together, and we need to come together to do something really significant."

Republican support for any deficit-cutting plan is critical in both chambers. Republicans control the House, and while Democrats control 53 seats in the 100-member Senate, that's well short of the 60 needed to end a filibuster that blocks legislation.

McConnell's push for strict limits came as House Speaker John Boehner, an Ohio Republican, said he wants any deal to lean in favor of specific cuts to programs, including entitlement programs. He expressed skepticism about broad longer-term limits on debt, deficits or spending.

"I don't want phony caps, I don't want phony targets" because "Congress has found a way to wiggle out of them," Boehner said. Congress must act now to curb spending, the speaker said, as otherwise "the markets will act for us very soon."

Global Investors Say Tax Hike Needed to Cut U.S. Deficit

Please consider a Bloomberg Poll that shows Investors Say Tax Hike Needed to Cut U.S. Deficit

Global investors, by an almost 2-to-1 majority, believe the U.S. government won't be able to substantially cut its budget deficit without raising taxes, rejecting a core stand of congressional Republicans.

Investors are also pessimistic about prospects for a deal to cut the federal deficit, a Bloomberg survey found. Almost 6 out of 10 doubt President Barack Obama and Republicans will reach an agreement by the start of the new fiscal year on Oct. 1, according to a quarterly Bloomberg Global Poll of 1,263 investors, traders and analysts who are Bloomberg subscribers.

"I don't think raising taxes is a particularly good idea, but it might be the only option," says Thomas Larsen, a trader at Nordea Treasury in Copenhagen and a poll participant.

Even with pessimism over a long-term deal, more than 7 of 10 poll respondents are confident Congress will raise the $14.29 trillion debt limit and stave off a default on U.S. obligations. The government will run out of options for avoiding default by about Aug. 2, according to Treasury Secretary Timothy Geithner.

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

Blogger Back Up

Posted: 13 May 2011 09:35 AM PDT

Note To All

My site did not vanish. Nor did I stop posting by design. Blogger was completely down for some time and unavailable for posting at other times.

Google backed out posts from Thursday on and is in the process of adding them back now.

I had no way to communicate this to anyone. I will be adding a Twitter widget to the blog and as long as the blog is viewable, I will have a means of communication.

Calculated Risk added the widget to his site last week and I will do so to mine later today.

Expect normal postings.

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

Weekly Unemployment Claims an Elevated 434,000; Moving Average Trending Higher for a Month

Posted: 12 May 2011 07:01 AM PDT

After last week's unexpected, and massive jump to 478,000 new unemployment claims, this week settled in at a high but expected 434,000 initial claims.

Please consider the Department of Labor Unemployment Insurance Weekly Claims Report for the week ending May 7, 2011.

In the week ending May 7, the advance figure for seasonally adjusted initial claims was 434,000, a decrease of 44,000 from the previous week's revised figure of 478,000. The 4-week moving average was 436,750, an increase of 4,500 from the previous week's revised average of 432,250.

Weekly Claims Moving Average Trending Higher for a Month

The report does not say but the 4-week moving average revision was higher by 1,000.

Seasonally Adjusted 4-Week Moving Average of Initial Claims

2011-04-09 .....396,750
2011-04-16 ......399,250
2011-04-23 .....409,000
2011-04-30 .....432,250
2011-05-07 .....436,750

Unless there are downward revisions, next week the moving average will be higher again if the number of weekly claims exceeds 404,000.

4-Week Moving Average of Initial Claims

Note: The St. Louis Fed has not yet updated their data. That above graph does not show the revision last week or this week's number. However, the trend is clearly up for a month and assuming another number around 436,000 next month, the 4-week moving average would jump to approximately 446,000.

Last Week's Explanations Reviewed

Please consider U.S. Jobless Claims Unexpectedly Jump on Auto Shutdowns

The number of claims for U.S. unemployment benefits unexpectedly rose last week, pushed up by auto-plant shutdowns and other unusual events that seasonal variations failed to take into account, the Labor Department said.

A spring break holiday at schools in the state of New York prompted workers to file claims, which the seasonal adjustment factors didn't expect last week, the Labor Department official said. In addition, Oregon began a new emergency benefits program for the long-term unemployed that also pulled in some new claimants, he said. Finally, auto plant shutdowns due to parts shortages caused by the earthquake and tsunami in Japan also contributed to the increase, the official said.

Last Week's Excuse Evaluated

The data is now in to evaluate last week's excuse. From this week's report ...

The largest increases in initial claims for the week ending April 30 were in New York (+24,431), Michigan (+3,948), Wisconsin (+3,746), North Carolina (+2,749), and Ohio (+2,319), while the largest decreases were in New Jersey (-4,004), California (-3,145), Massachusetts (-2,966), Puerto Rico (-2,713), and Florida (-2,156).

Oregon is not on the map so throw that bogus excuse out the window. While Michigan, Ohio, and Wisconsin are up a bit the total of all three states is 10,013. Together with New York, we have a grand total of 34,444, assuming the unlikely event that all of those claims were related to the excuses given.

If so, that would have put last week's number at 443,556 or 50,000 higher than the recent bottoming at the 390,000 level.

440,000 is an elevated number, consistent with a slowing economy and the April jump in unemployment that mainstream media essentially disregarded.

For more on jobs and how the unemployment rate is calculated please see

Digging Still Deeper In Friday's Jobs Report; What's the Real Unemployment Rate?

BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful

Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate

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

Orange County Lifeguards Make $200K Annually, Can Retire at Age 50 With 90% Pay

Posted: 11 May 2011 06:46 PM PDT

Those looking for more public union insanity can find it in Orange County California. The Orange County Register reports Lifeguarding in OC is totally lucrative; some make over $200k.

When thinking about career options with high salaries, lifeguarding is probably not one of the first jobs to come to mind. But it apparently should. In one of Orange County's most desirable beach destinations, Newport Beach, lifeguards are compensated all too well; especially compared with the county annual median household income of $71,735.

According to a city report on lifeguard pay for the calendar year 2010, of the 14 full-time lifeguards, 13 collected more than $120,000 in total compensation; one lifeguard collected $98,160.65. More than half the lifeguards collected more than $150,000 for 2010 with the two highest-paid collecting $211,451 and $203,481 in total compensation respectively.

Currently, Newport Beach has 13 full-time active lifeguards and hires about 210 seasonal and part-time "tower" guards, Newport Beach City Manager David Kiff told us. Lifeguards are organized as part of the fire department. The Lifeguard Management Association represents the 13 full-time, salaried employees in collective bargaining with the city whereas the Association of Newport Beach Ocean Lifeguards represents the part-time, seasonal lifeguards.

In a phone conversation, Brent Jacobsen, president of the Lifeguard Management Association, defended the lifeguard pay in Newport Beach: "We have negotiated very fair and very reasonable salaries in conjunction with comparable positions and other cities up and down the coast." "Lifeguard salaries here are well within the norm of other city employees." And therein is the problem: Local public worker pay has become all too generous and out of line with private sector equivalents.

The OC Register article pretty much says it all. Union leaders claim preposterous salaries look reasonable based on the absurd rationale that preposterous union salaries are everywhere you look.

By the way why are lifeguards organized as part of the fire department?

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

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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