Mish's Global Economic Trend Analysis

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• TrimTabs on Debt and Disability Claims: How Much Debt Does it Take to Generate $1 in GDP? Disability Fraud vs. Expiring Unemployment Benefits Revisited
• ECRI Repeats Recession Call Based on Coincident Indicators, Especially Income
• Cash Cow Liquidity Comparison: Where's the Cash and Where's the Debt? A Look at the Top 50 Companies

TrimTabs on Debt and Disability Claims: How Much Debt Does it Take to Generate $1 in GDP? Disability Fraud vs. Expiring Unemployment Benefits Revisited Posted: 11 May 2012 09:39 AM PDT In response to 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate I received a nice email from Madeline Schnapp, Director, Macroeconomic Research at TrimTabs Investment Research. Madeline Writes ... Hello Mish, I loved your disability graph so decided to expand on that theme some more and took a look at the relationship between the trend in disability recipients and the roll off of recipients of emergency and extended unemployment insurance programs. Should we dare say there is a stunning relationship! Enjoy, Best, Madeline Amazing Achievement is Fraud  First consider a few snips from my previous post, then we will take a look at what TrimTabs has to say. In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000. In the last month, actual employment fell by 169,000, but the unemployment rate dropped by .1%. That is an amazing "achievement" to say the least. Since Mid-2010 2.2 Million Went on Disability Notice the jump in claims after the recession was allegedly long-over. The timing coincides with unemployment benefits expiring at 99 weeks. Supposedly higher taxes will fix the problem. I say "nonsense". Trim Tabs Weekly Macro Analysis  Please consider snips from the TrimTabs Weekly Forecast for May 8, 2012. A recent post on the popular ZeroHedge financial blog compared the annualized growth in federal debt to the annualized growth in GDP in Q1 2012. ZeroHedge reported that while U.S. government debt rose by $359.1 billion in Q1 2012, the U.S. GDP grew only $142.4 billion. Durden noted that, "It now takes $2.52 in new federal debt to buy $1 worth of economic growth." See Chart Of The Day: Change In Q1 American Debt And GDP The surprising observation prompted us to examine the relationship between growth in debt and growth in GDP from 1975 through 2012. What we found is both astonishing and frightening. From 1974 to 1980, each $1 increase in GDP was accompanied by an increase in debt of between 20 and 47 cents. Since 2009, however, each $1 increase in GDP has been accompanied by a whopping $2.50 increase in debt. At some point, the amount of debt required to generate $1 of GDP will suffocate the economy and trigger another financial shock. In Q1 2012, GDP rose $142 billion, while debt rose $355 billion. In other words, it took $2.50 in debt to generate $1.00 in GDP. We wanted to understand how this relationship compared to those that prevailed in previous decades. The graph below shows our findings. click on chart for sharper image From 1974 to 1980, each $1 increase in GDP was accompanied by an increase in debt of between 23 and 53 cents. Since 2009, however, each $1 increase in debt has been accompanied by a whopping $2.41 increase in debt. At some point, the amount of debt required to generate $1 of GDP will suffocate the economy and trigger another financial shock. Another recent post on the popular Global Economic Trend Analysis blog (hat tip to Mish Shedlock) suggested the recent declines in the unemployment rate were due, in part, to the rapid increase in enrollment in disability because people on disability are no longer counted as unemployed. Please see 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate In his blog post Shedlock reported, "Since mid-2010, precisely the time million of U.S. citizens used up all of their 99 weeks of unemployment insurance, disability claims have risen by 2.2 million." Mish's observation prompted us to dig a little deeper into the relationship between the number of people exhausting extended and emergency unemployment benefits compared to the increase in disability recipients. What we discovered was interesting, to say the least. click on chart for sharper image From July 2010 to April 2012, the decline in the number of people collecting extended and emergency unemployment benefits was 2.46 million. Over the same time period the number of people collecting disability benefits increased by 2.20 million. We suspect the similarity in the inverse relationship is more than coincidence. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

ECRI Repeats Recession Call Based on Coincident Indicators, Especially Income Posted: 11 May 2012 08:22 AM PDT Once again Economic Cycle Research Institute's Lakshman Achuthan repeats his recession call, this time saying within three months. His call is based on coincident indicators, especially income. According to Achuthan, income growth in the last three months is lower than at the start of any of the last 10 recessions. Link if video does not play: Why U.S. Economy is Heading Back Into Recession Once again I tend to agree with him, yet once again I find some things that sound rather disingenuous. When asked "Can the Federal Reserve do anything about this?", Achuthan responded "no". Specifically Achuthan replied "It's so ironic. We're all free-marketeers. .... the free market has indigenous inherent business cycles which means ups and downs. It's ironic that we think that the Fed or other policies could just stave off a recession". I agree. However, the statement represents one hell of an attitude change as the following flashbacks show. Window of Opportunity Friday, January 25, 2008 ECRI Says There Is A Window of Opportunity for the US Economy The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI's Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession. .... This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet. ECRI Denial The ECRI laid it on pretty thick, openly mocking the "best advertised [recession] in history" while claiming "This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet." The irony is the recession was about 2 months old at the time. Recession of Choice Friday, March 28, 2008 ECRI Calls it "A Recession of Choice" The U.S. economy is now on a recession track. Yet this is a recession that could have been averted. In January, given the plunge in the Weekly Leading Index, we declared that the economy had entered a clear window of vulnerability. Yet we emphasized the brief window of opportunity within that window of vulnerability for timely policy stimulus to head off a recession. It is a somewhat different story with regard to GDP, because the cyclically volatile manufacturing sector still accounts for 36% of GDP. A mild downturn in that sector should limit the decline in GDP in this recession. Question for Achuthan If it was a recession of choice in 2008 (after the recession already started), why isn't it a question of choice now? Of course, it is entirely possible Achuthan has changed his mind about what is or isn't possible. Then again, is that change of heart a new fundamental belief or simply a necessary statement because his call is now recession as opposed to no recession in late 2007 and early 2008 (while later taking credit for predicting a recession). It is not my intent to keep bringing this discrepancy up, but Achuthan has come out with yet another reason for his call that is dramatically different that what the ECRI has stated before. The key point however is the forecast, and on that score I side with Achuthan. I also side with Achuthan that he Fed cannot do much to stave off recessions. History will show who is correct. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

Cash Cow Liquidity Comparison: Where's the Cash and Where's the Debt? A Look at the Top 50 Companies Posted: 10 May 2012 11:35 PM PDT In light of  renewed banter about corporations being flush with cash following Apple's stellar earnings, I thought it would be instructive to take a look at the top 50 companies by market cap in the following ways: Debt and liabilities vs. cash Debt and liabilities vs. cash plus short-term investments Debt and liabilities vs. cash plus both short-term and long-term investments  With thanks to Ross Perez at Tableau Software for compiling the data for my idea, please consider the following interactive graph. Note the ability to change the "cash" metric in the upper right of the graph. Liquidity Comparison Richard Shaw has an excellent article on Seeking Alpha that discusses cash, short-term investments, and long-term investments and what they mean: Comparing Liquidity Of Microsoft And Apple And Both Compared To Other Cash Rich Companies. Bottom line: net cash on hand at the top 50 companies is negative to the tune of $1.479 trillion. If one considers short-term investments to be cash equivalents, then net cash is negative $1.251. Only if long-term investments are included does the number go positive. Clearly there is not as much "sideline cash" as most are led to believe. By the way, the notion of sideline cash is bogus in the first place. No Such Thing As Idle Sideline Cash For those who want a second opinion, John Hussman has written about sideline cash on several occasions. Please consider There's No Such Thing as Idle Cash on the Sidelines. The amount of "sideline cash" has been rising for years and will keep doing so unless money supply contracts. Yet the S&P 500 was clobbered in 2008 and early 2009 anyway. Why? Stock prices rise and fall on sentiment changes every single day, not because money flows into or out of the market. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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.

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