Mish's Global Economic Trend Analysis

Whoa! The 10x Difference Between TrimTabs December Jobs Estimate of 38,000 New Jobs and ADP’s Estimate of 325,000 Begs an Explanation
Fed White Paper discusses REO-to-Rental Program, says Further Modification of HAMP Would "involve additional taxpayer funding, overriding private contract rights"
Hungary Marches Down Hyperinflation Path; What About the US?

Whoa! The 10x Difference Between TrimTabs December Jobs Estimate of 38,000 New Jobs and ADP’s Estimate of 325,000 Begs an Explanation

Posted: 05 Jan 2012 07:27 PM PST

For the second consecutive month, ADP has forecast an unusually high estimate of private job creation for the BLS payroll report. This month ADP's estimate is 325,000 jobs. Last month, and on many other occasions, ADP's estimates and the BLS reports were miles apart. Is one better than the other?

While pondering that question, this month Trim Tabs has stepped up to the plate with a forecast of 38,000 jobs.

Explaining Trim Tabs 38,000 Jobs Estimate

Madeline Schnapp, Editor of "TrimTabs Weekly Macro Analysis" and "TrimTabs Employment NewsFlash" provided a transcript of the above video.

Video Transcript

Hello from Sausalito California Today is Thursday January 5, 2012. I am Madeline Schnapp with Today's Macro Musings.

On Tuesday, January 3rd TrimTabs released its December jobs estimate which showed the U.S. economy added only 38,000 new jobs. Today, ADP released its December jobs estimate pointing to job growth of a stunning 325,000 new jobs, almost 10 times TrimTabs estimate. In addition, the consensus estimate for the BLS report this Friday is for 150,000 jobs. Whoa! The differences between the three estimates begs the question of what is going on here?

Before we answer that question, a few observations are in order. First, we challenge the notion that the BLS should be the standard bearer for job growth in the U.S. because its estimates are frequently revised, ranging from a few percent to several hundred percent. For example, in August, the BLS revised its estimate up from 0, a showing an economy on the verge of recession, to 104,000 showing an economy experiencing positive but weak economic growth. Second, the BLS and the ADP estimates are based on surveys that are incomplete when released. The BLS survey is only about 70% to 75% complete when it releases its first estimate. Finally, seasonal adjustments from November through January are enormous and range from a low of 800,000 jobs to a high of 2.1 million jobs to account for the huge number of holiday seasonal jobs that come and go during the holiday season.

TrimTabs jobs estimate, on the other hand, is based on daily income tax withholdings to 130 million wage earners.

Historically, our jobs estimates have been more accurate than the BLS'. BUT and this is the big BUT, like ADP and the BLS, December and January are the most challenging months for the following reasons: First, if there are tax law changes, they typically expire or go into effect in December or January; second, there are two or three holidays in December, Veteran's Day, the optional Christmas eve holiday, and Christmas day; finally, December kicks off bonus season which adds non job-growth taxable income to payrolls from late December through March. TrimTabs makes adjustments for these one time calendar effects but some years are more difficult than others as this one might be.

Given the trends in tax withholdings the last few months, there is no way that job growth was a whopping 325,000 in December, certainly not permanent job growth. If there was a big jump in permanent job growth in December we would have seen it in our other real-time indicator, TrimTabs Online Jobs Index. That index, however has declined 8.0% since October which means that hiring managers are sitting on the sidelines until more clarity emerges about economic growth this coming year.

The proof, as always, is in the pudding. Soon the BLS will release its benchmarked results for the year ending March 2011 which will allow us to truth our model. Let me tell you, we eagerly await those results.

Tax Law Changes to the Forefront

Note that the number one reason cited by Trim Tabs for the difficulty in making December jobs estimates is tax law changes.

I mentioned tax changes on Tuesday in Manufacturing ISM Highest Since June; Expiring Business Tax Credits Explain Why; Enjoy it While You Can As US Decoupling Won't Last.

For amusement purposes, I will step out on a limb and guess 78,000 jobs in Friday's BLS report.

Bear in mind there is likely to be many revisions to these numbers, so even if one is wrong tomorrow, it does not mean a guess was really wrong.

Following the Trim Tabs estimate, I gave a list of questions to Madeline Schnapp regarding Europe, oil, Japan and other fundamentals. She promised to respond later in more detail. I will post the questions and answers when she does.

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

Fed White Paper discusses REO-to-Rental Program, says Further Modification of HAMP Would "involve additional taxpayer funding, overriding private contract rights"

Posted: 05 Jan 2012 01:00 PM PST

Inquiring minds are digging into a Fed white paper regarding The U.S. Housing Market: Current Conditions and Policy Considerations.

Here are a couple of key snips. The bold headings are mine.

Overriding Private Contract Rights

Broadly speaking, HAMP emphasizes modifications in which the net present value to the lender of the modification exceeds the net present value of pursuing a foreclosure. It should be recognized that other types of loan modifications may be socially beneficial, even if not in the best interest of the lender, because of the costs that foreclosures place on communities, the housing market, and the broader economy. However, although policymakers might very well decide that the social costs--while obviously difficult to gauge--are great enough to justify additional loan modifications, lenders are unlikely to be willing to make such modifications on their own. Moving further in this direction is thus likely to involve additional taxpayer funding, the overriding of private contract rights, or both, which raises difficult public policy issues and tradeoffs.

REO to Rental Program

REO to Rental Program Design The data cited earlier suggest that a government-facilitated REO-to-rental program has the potential to help the housing market and improve loss recoveries on REO portfolios. The FHFA released a request for information on August 10, 2011, to collect information from market participants on possible ways to accomplish this objective and received more than 4,000 responses. An interagency group in which the Federal Reserve is participating is considering issues related to the design of a program that would facilitate REO-to-rental conversions. As no such program currently exists, predicting its success or efficacy is difficult. Ongoing experimentation and analysis will be a crucial component of developing such a program.

Jan. 5 (Bloomberg) -- Fed's White Paper released yesterday suggests that further HAMP loan modifications "likely to involve taxpayer funding, overriding of private contract rights".

Fed concerned about moribund housing market as "barriers to refinancing blunt the transmission of monetary policy to the household sector"; falling home prices increase "the loss in aggregate housing wealth"
Fed states that "this paper does not discuss alternatives for longer-term restructuring of the housing finance market"
Adds "there is bound to be some tension between minimizing the GSE's near-term losses and risk exposure and taking actions that might promote a faster recovery in the housing market"

I have the article but cannot find a link. Will update with a link when I have it. I am not in favor of REO rental programs at taxpayer expense (or any other programs at taxpayer expense). Moreover, I certainly am against trampling of property rights at any time, regardless of the reason.

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

Hungary Marches Down Hyperinflation Path; What About the US?

Posted: 05 Jan 2012 09:03 AM PST

As I watch political events in Hungary, I cannot help but think Hungary is on a path towards hyperinflation.

Please consider Der Spiegel report 'Democracy Is Being Trampled On in Hungary' and see if you agree.

The European Commission on Tuesday announced that it was combing through both the new constitution, which took effect on Jan. 1, and a new law pertaining to Hungary's central bank, the Magyar Nemzeti Bank (MNB), to determine if they adhere to European Union treaties. Furthermore, the Commission said on Tuesday that the EU and the International Monetary Fund (IMF) have not yet decided whether to resume negotiations over much-needed financial assistance for Budapest.

It didn't take long for markets to react. Yields on 10-year Hungarian bonds spiked to 10.7 percent on Wednesday, continuing a sharp rise since the talks over a €20 billion ($26 billion) EU/IMF aid package for Hungary collapsed in December. The country's currency, the forint, plunged to an all-time low against the euro on Wednesday morning. Both Standard & Poor's and Moody's slashed Hungary's credit rating to junk status in the weeks before Christmas. Hungary needs to refinance debt worth €4.8 billion in the coming months.

The aid talks were broken off due to concerns about new laws regulating the central bank, pushed through by Orban's center-right Fidesz party, which controls two-thirds of the seats in parliament. Of particular concern are provisions which allow the government to appoint the bank's vice presidents, thus infringing on MNB's independence. Furthermore, the law increases the number of vice presidents from two to three, allowing Orban to appoint one immediately.

In addition, the committee which sets monetary policy has been expanded, with new members to be appointed by the Fidesz-run government.

Weakens Legal Protections

Potentially more damaging, however, is the fact that the new constitution grants parliament the right to merge the central bank with a financial oversight authority, the head of which would then be appointed by the government. Were the Orban government to take advantage of the provision, it would mean that the supposedly independent central bank president would have to answer to an Orban-appointed superior.

Hungarian Protests over Constitutional Changes

The Spiegel headline "Democracy Is Being Trampled On in Hungary" is accurate. For another opinion please consider Hungary set for protests over constitution.

Supporters of the opposition green-liberal party LMP protest in Budapest on 23 December. Photograph: Zsolt Szigetvary/EPA

Thousands of people were expected to protest in Budapest on Monday night after the government made sweeping changes to the Hungarian constitution that opposition figures say are an attack on democracy.

The demonstration near the city's opera house comes amid rising anger with the ruling Fidesz party, which critics – including the US secretary of state, Hillary Clinton – fear is eroding individual liberties and media freedom while undermining the independence of the judiciary and other state institutions.

Although Fidesz won enough votes in the last elections to command a super-majority, polls suggest its support has plunged over the last year and a half. Peter Kreko, research director at the Budapest-based thinktank, the Political Capital Institute, said: "In May 2010, 45% of voters chose Fidesz. But polls now show just 20% of people still support the party. There is a huge disillusionment with politics in Hungary now."

Hungary Currency Hits Record Low, Bond Auctions Cancelled

Bloomberg reports Forint Hits Record Low as Default Swaps Soar

The forint fell to 321.1 against the European common currency at 5 p.m. in Budapest. The previous record was 317.92 on Nov. 14. The cost of insuring Hungarian bonds using credit- default swaps climbed to a record 708 basis points from 650 yesterday, data provider CMA said.

Hungary, the EU's most-indebted eastern member, received its second sovereign-credit downgrade to junk last month when Standard & Poor's followed Moody's Investors Service in taking the country out of the investment-grade category on Dec. 21.

Hungary's state debt management agency rejected all bids at a government bond exchange auction today as the increase in yields rendered "an extension of the maturity not worthwhile," the agency said in an e-mailed statement. The auction offered the chance for investors to swap government securities due in 2013 for 10-year notes.

Hyperinflation a Political Event

Hyperinflation is a complete loss of faith of currency.

Misguided souls preaching hyperinflation in the US for years on end have yet to grasp the fact that hyperinflation is not really a monetary event as much as a political event.

For a discussion, please see Hyperinflation Nonsense in Multiple Places.

In the above link, I provide explanations of Weimar Germany, Argentina, Zimbabwe, and numerous other countries showing the hyperinflation process is political not monetary, and also reasons why hyperinflation in the US is is extremely unlikely.

In contrast to the US, Hungary, via political actions is now on path that can lead to government takeovers of the printing presses and a loss of faith in the Forint (Hungary's currency). If voters retake control before it's too late or the government does not take over the printing presses (and constitutional freedoms are restored), a meltdown may be avoided. Unfortunately the political signs are not encouraging.

If I Only Had a Bank!?

As much as I despise the Fed, an independent Fed is better than having government bureaucrats, President Obama, or public unions in California determine monetary policy.

Please consider this scary video by Ellen Brown.

The idea that North Dakota, a small loosely-populated farm state is in good shape only because it has a state bank is preposterous. Worse yet, Brown takes that absurd position to the extreme, with a proposal to end the Fed and put California politicians (state politicians in general) in charge of printing money to support union causes.

Note that if Ellen Brown got her way, it would take a political event, not a monetary one to change direction.

Moreover, should populist Ellen Brown get her way, I would have to rethink my US hyperinflation position. She is another one of those who understands various problems with the Fed, but proposes a solution that is worse, putting state politicians in charge of printing presses.

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

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Thursday, January 5, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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