Mish's Global Economic Trend Analysis

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• Australia Considers Paperless Passports Based on Fingerprints, Face Recognition, Eye Scans; We Know Who You Are!
• Tracking Manufacturing's Perpetual Overoptimism
• Housing Starts Plunge 11% to 7-Month Low: Single-Family Down 2.4%, Multi-Family Down 25%; Hidden Strength?

Australia Considers Paperless Passports Based on Fingerprints, Face Recognition, Eye Scans; We Know Who You Are! Posted: 18 Nov 2015 03:18 PM PST Australia, New Zealand Consider Paperless Passports In the wake of fake passports and people smuggling in the EU refugee crisis, here's a potential solution from Australia: The Cloud Could Soon Let Aussies Travel Without a Passport. Australians could soon leave their old paper passports at home if a new proposal endorsed by Foreign Affairs Minister Julie Bishop goes ahead. The digital passport would include identity and biometrics data, according to the outlet, meaning Australians could easily be recognised at the border without showing any documents. "We're in discussions with New Zealand and if we're able to put in place the appropriate requirements, including security, then it's something we'd like to trial and implement," Bishop told the media on Thursday. She also advised new technologies could assist in making passports even more secure. "Australia prides itself on having one of the most secure passports in the world, but by embracing and harnessing new technologies, we might be able to do better," she said. Australians currently have access to ePassports, which have been issued since 2005. An ePassport contains a chip storing information about the passport holder such as their photo, name, sex and passport number. Combined with Australia's SmartGate technology in many local airports, it allows people to enter the county without speaking to a customs officer after a machine compares a live image of the traveller with the one stored on the passport. It's unclear at this point how the government would address concerns about hacking and privacy breaches that are an unfortunate byproduct of any type of cloud storage. Whether the photos or biometrics of Australian citizens could be stored by foreign customs agencies, or even passed onto foreign law enforcement, is also an issue that would have to be addressed. The use of images culled from passports and drivers licenses for purposes beyond their original intention is already a matter of debate in Australia. In September, the government announced it would be spending A$18.5 million (US$13.1 million) on the National Facial Biometric Matching Capability. This program allows agencies and law enforcement around the country to examine millions of photographs of Australians held in existing databases to put "a name to the face" of criminal suspects. We Know Who You Are! Link if video does not play: Scene from Goodfellas. Cloud Passports Coming Lost passports would become a thing of the past under a cloud system. But do you trust the government or the cloud as a safe-keeper of your personal data? Foreign Minister Julie Bishop admitted security standards would have to be met to store personal information in the cloud, but hopes the idea could go global. Absolute Security? Australians are assured of "Absolute Security" reports SBS News. The risk of impersonation via copy of facial features, fingerprints, and eye data seems remote, but a hacker who modified stored data could cause a traveler to be locked out of returning home. Total Tracking Most importantly, the government will know who you are, where you have been, when you were there, and how much you spent, etc., no matter where you are, once all tracking mechanisms are fully in place. Like it or not, it's pretty clear such systems are coming. Mike "Mish" Shedlock 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.

Tracking Manufacturing's Perpetual Overoptimism Posted: 18 Nov 2015 11:17 AM PST On Monday, the Fed regional reports kicked off with the Empire State report, a survey of manufacturing conditions in the general New York region. The survey asks manufacturers about activity, new orders, hiring, workweek hours, prices paid, prices received, inventory levels, and overall conditions. For details please see Empire State Manufacturing Negative Fourth Month, Work Week Lowest Since Mid-2011. The survey also asks manufacturers what they think general conditions will look like in six months. Here is the chart presented in the Empire State Survey. Current Business Conditions vs. Expected Conditions Six Month From Now To see if there is any merit in tracking future projections, I downloaded the data, and shifted the projections ahead by six months to plot current conditions vs. what the manufacturers expected to happen. Current Business Conditions vs. Expected Business Conditions (For Now - Made Six Month Ago) Perpetual Overoptimism The perpetual overoptimism is impossible to miss. Here are the readings for 2015. Month/Year Current Conditions Expected Conditions 1/2015 7.78 46.10 2/2015 6.90 46.08 3/2015 -1.19 42.39 4/2015 3.09 46.84 5/2015 -1.98 39.31 6/2015 3.86 48.35 7/2015 -14.92 25.58 8/2015 -14.67 30.72 9/2015 -11.36 37.06 10/2015 -10.74 29.81 In 167 months, nearly 14 years of data, there were only five months (just under 3% of the time) in which current conditions exceeded projections made six months previous! Month/Year Current Conditions Expected Conditions 2/1/2002 13.80 -11.92 6/1/2009 0.28 -3.65 7/1/2009 12.56 -5.55 8/1/2009 20.93 3.53 9/1/2009 33.68 28.27 Recession History The above pattern should not be hard to spot. Overoptimism only dies at or near recession troughs. Useless Survey Projections  It's amazing how much focus is on totally useless "expectations". Rare pessimism seems to mark bottoms, but the rest of the time the look-ahead projections are only good for those in need of a laugh. By the way, I expect another "Peak" line at the top of the above table sometime reasonably soon.   Mike "Mish" Shedlock 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.

Housing Starts Plunge 11% to 7-Month Low: Single-Family Down 2.4%, Multi-Family Down 25%; Hidden Strength? Posted: 18 Nov 2015 10:33 AM PST The crowing over last month's rise in multi-family starts is over (or at least it should be over). Here's a September recap, followed by this month's surprise to the downside. In September starts jumped 6.5% led by multi-family starts which surged 18.3%.  Single-family starts were up 0.3%. See Housing Starts Surprise to Upside Led by Multi-Family, Permits Surprise to Downside for more details. Housing Starts Plunge 11% to 7-Month Low October wiped away all of September's good news and then some with an extremely weak 1.060 million (SAAR Seasonally Adjusted Annualized Rate) coupled with aggregate lower revisions to September data. 1.060 million starts was far below Econoday Consensus Estimate of 1.162 million SAAR and also well below the lowest estimate of 1.125 million. Pulled down by a big drop in multi-family homes, housing starts fell a steep 11.0 percent in October to a 1.060 million annualized rate that is far below Econoday's low estimate. Starts for multi-family homes, which spiked in September following a springtime jump in permits for this component, fell back 25 percent in the month to a 338,000 annualized rate. Single-family starts fell a much less severe 2.4 percent to 722,000. And there is important good news in this report. Permits are up, rising 4.1 percent to a 1.150 million rate that hits the Econoday consensus. Single-family permits are up 2.4 percent to a 711,000 rate with multi-family up 6.8 percent to 439,000. Housing completions fell back in October, down 6 percent to a 965,000 rate that reflects lower work in the Northeast and Midwest. Homes under construction rose 0.9 percent to a recovery best 938,000 rate and are up a very strong 16.4 percent year-on-year, pointing, despite the slip in starts, to ongoing strength for construction spending, at least for October. But the big drop in starts is definitely a negative for the near-term construction outlook, though the rise in permits points to subsequent strength. Hidden Strength? Bloomberg points out "important good news". Let's sort out the reality. Last month permits were down 5% this month they are up only 4.1%. last month's starts were revised lower from 1.206 million to 1.191 million (a 15,000 -1.24% negative revision) Last month's permits were revised up whereas permits were revised higher, to 1.105 million from 1.103 million, but that is only a positive revision of 2,000 and it's on activity that is not even taking place. Temporary Setback Using similar analysis as Bloomberg, Reuters writer Lucia Mutikani says U.S. Housing Starts Hit Seven-Month Low; Setback Seen as Temporary. U.S. housing starts in October fell to a seven-month low, weighed down by a steep decline in the construction of multi-family homes, but a surge in building permits suggested the housing market remained on solid ground. Rapidly rising household formation, mostly driven by young adults leaving their parental homes and a strengthening labor market, is supporting the housing sector. Economists had forecast housing starts dropping to only a 1.16 million-unit pace last month. Many viewed the weakness in October as being related to land and labor shortages, constraints that have been flagged by home builders. "Structural issues including a shortfall in immigrant labor are inhibiting construction. The supply shortage in the single-family market is not likely to be alleviated any time soon," said David Nice, an economist at Mesirow Financial in Chicago. Labor Shortage? If there is a shortfall in labor, how come it did not affect last month? I suppose one could say last month's surge caused this month's labor shortage, so let's investigate that idea in pictures. Pay particular attention to the third chart below that shows single-family construction below the average in the 1960s! Permits, Thousands of Units Permits, Percent Change From Year Ago Single Family Starts, Thousands of Units Single Family Starts, Percent Change From Year Ago Questions Am I alone in failure to see the "important good news" as well as the alleged "rapidly rising household formation, mostly driven by young adults leaving their parental homes."? Is Mutikani reading Bloomberg on permits, scripting the NAR on housing shortages and household formations, or did she arrive at those conclusions on her own? Women Not Leaving the Nest For another perspective on nesters not leaving the nest, please see Women Not Leaving the Nest in Record Numbers; Marriage and Kids, Who Can Afford Them? Mike "Mish" Shedlock 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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