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Saturday, January 7, 2012

Mish's Global Economic Trend Analysis

Fed to Announce Monetary Penalties for Robo-Signing and Unsafe Practices ; Another Whitewashing Move by the SEC

Posted: 07 Jan 2012 11:24 AM PST

The always behind-the-curve Fed seeks to fine mortgage servicers for unsafe practices and robo-signing with an amount dependent on allegedly independent review by consultants.

Federal Reserve Governor Sarah Bloom Raskin on Saturday said the Fed must impose monetary penalties on banks who entered into an April agreement with regulators over how to fix problems in their mortgage servicing businesses.

"The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law," Raskin said in remarks prepared for delivery to the Association of American Law Schools. "The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties."

In April, 14 mortgage servicers, including Bank of America and JPMorgan Chase entered into a settlement with the Fed, the Office of the Comptroller of the Currency and the now defunct Office of Thrift Supervision on steps that have to be taken to correct and improve their servicing practices, such as providing borrowers with a single point of contact for questions.

As part of the agreement, these mortgage servicers have hired consultants to review foreclosures that took place in 2009 and 2010 to see if any were improper.

Regulators have said these reviews will help determine the size of any penalties the servicers will have to pay.

Expect Trivial Penalties, Spread a Mile Wide

Don't expect this announcement to amount to much of anything. Penalties, if any will be trivial and the fines are nearly guaranteed to not benefit those harmed in any substantial way. Instead, expect fines to be spread out to include those not harmed at all.

Another Whitewashing Move by the SEC

Similarly, don't expect much of anything from this feeble announcement: SEC to demand admission of wrongdoing in some cases

Securities regulators will no longer let companies settle civil cases without admitting or denying the charges if they have already admitted wrongdoing in parallel criminal cases.

The policy change, announced by Securities and Exchange Commission Enforcement Director Robert Khuzami on Friday, applies only to instances where a defendant has already admitted to violating criminal laws.

It comes just over a month after a federal judge in New York rejected a proposed $285 million settlement between the SEC and Citigroup, in part because the bank had not admitted to wrongdoing. However, in that case, no parallel criminal charges have been filed.

It seemed "unnecessary" for the SEC to include its traditional "neither admit nor deny" approach if a defendant had already been criminally convicted of the same conduct, Khuzami said.

In one of the most egregious examples, Bernard Madoff pleaded guilty for his role in a multi-billion dollar Ponzi scheme in 2009, but neither admitted nor denied the allegations in a settlement with the SEC.

In rejecting the Citigroup accord, U.S. District Judge Jed Rakoff said the SEC's failure to require Citigroup to admit or deny its charges left him with no way to know whether the settlement was fair. Rakoff also called the $285 million payout "pocket change" for the third-largest U.S. bank.

The Citigroup settlement was intended to resolve charges that the firm sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt.

"My take on things is it is all about managing the press," said James Cox, a professor at Duke Law School. The agency "looked pretty silly before Judge Rakoff the other day," he said.

This policy "non-change" borders on the absurd. The ruling only applies to only to instances where a defendant has already admitted to violating criminal laws. Notice that the ruling does not even apply to the Citigroup case in which a Judge Blasted the the SEC.

"Doesn't the S.E.C. have an interest in what the truth is?" Judge Rakoff asked, in reference to the commission's longstanding practice of not forcing a defendant to admit any wrongdoing when settling a case.

Judge Rakoff called the contempt power — a judge's ability to punish a party for disobeying a court order — "the backbone of the judiciary." He questioned whether the S.E.C. was really serious about ever seeking an injunction against repeat offenders.

"It's just for show," Judge Rakoff said.

"We're not saying that we will never use injunctive relief," said the S.E.C. lawyer.

"Hope springs eternal," the judge replied.

The S.E.C.'s current enforcement action against Citigroup is at least the fifth time that the commission has reached a settlement with the bank related to civil fraud accusations.

SEC Fine vs. Citigroup Gain

Please consider SEC Tired of Fighting Big Banks-Calls Federal Judge Rakoff Refusal to Approve Citigroup Settlement-Shortsighted.

Estimates are that Citigroup made a $3.8 billion profit from the bogus investment portfolio. The investors lost over $700 million. The $285 million offer to settle is a joke. The Judge made clear he would not allow corporations to continue to buy their way out of fraud from "a cost of doing business" fund. The Judge demands the truth to be revealed and the public protected.

Public service is a public trust. Federal employees have a duty to protect the public interest. Apparently, the SEC forgot their duties and the fact that the Court is the final arbiter. The legal team at the SEC that crafted the Citigroup deal need to remember they are federal service not bank employees. It's refreshing to see Judge Rakoff remind government workers who employs them. show.php?db=special&id=138

Rakoff's words to the SEC and big banks has been globally hailed as public policy genius. Thank you Judge Rakoff.

The trial is scheduled for July 16, 2012.

While essentially ignoring billions of dollars in repeated fraud allegations against Citigroup, the SEC brought full weight down on Martha Stewart over (drum roll please) ... $45,673.

Martha Stewart went to prison and was fined $30,000. Since then, no one has gone to prison or even been criminally indicted in $trillions of dollars of fraud in the global financial crisis. And unless someone does admit criminal action, the SEC reserves the right to do more whitewashing without seeking admission of guilt.

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

German Factory Orders Drop Most in Nearly 3 Years; Icing On the European Recession Cake

Posted: 07 Jan 2012 12:31 AM PST

It is amusing to see how other writers portray a story vs. what I would say about the same data.

For example, Bloomberg columnist Rainer Buergin reports German Factory Orders Declined Most in Almost Three Years.

Please consider Buergin's interpretation of the story vs. mine. Both follow.

Bloomberg: German factory orders dropped the most in almost three years in November as the euro region economy edged toward a recession and global demand weakened.

Mish: German factory orders dropped the most in almost three years in November as the European recession deepened.

Bloomberg: Orders, adjusted for seasonal swings and inflation, slipped 4.8 percent from October, when they surged a revised 5 percent, the Economy Ministry in Berlin said in a statement today. That's the biggest drop since January 2009. Economists forecast a decline of 1.8 percent, according to the median of 25 estimates in a Bloomberg News survey.

Comment: That paragraph is fine.

Bloomberg: While the euro region's sovereign debt crisis has clouded the outlook and cooling global growth is hurting export orders, Europe's biggest economy may still avert a recession.

Mish: The euro region's sovereign debt crisis, coupled with austerity measures and rising taxes in Greece, Spain, Italy, France has clarified the outlook, and it's not pretty. The European recession will be extremely harsh and Germany will not escape.

Bloomberg: Unemployment at a two-decade low is helping to bolster consumer sentiment, service industries expanded in December and business confidence unexpectedly rose for a second month.

Mish: German unemployment at a two-decade low has temporarily helped boost consumer sentiment. In addition, service industries expanded in December and business confidence unexpectedly rose for a second month. However, do not expect those conditions to last. Any notion that Germany will escape a brutal European recession is complete silliness. Indeed, Germany and the entire Eurozone is already in a recession. Conditions will worsen as tax hikes and austerity measures take an enormous toll. Fundamentally, hiking taxes in the midst of a recession is the worst possible thing to do, yet various officials, including Nicolas Sarkozy, the president of France are clamoring for still more tax hikes.

Escalating trade wars between France and Spain are icing on the recession cake. For details please see ...
"Social VAT" Trade Wars Heat Up Between Spain and France

Brussels Recommends Sucking Spain Dry with Increased VAT; France to Raise Sales Tax to Protect Jobs; Is There Any Point or Reason for the Eurozone?

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

Friday, January 6, 2012

Mish's Global Economic Trend Analysis

Barnes & Noble in Trouble; What's the Next Chapter?
Employment Trends Since 1955
LPS Mortgage Monitor Shows Little Improvement in New Problem Loan Rates, First Time Delinquencies Slowly Rising Since April, Cures to Current Status Decline
Nonfarm Payroll +200,000 ; Labor Force Drops Another 50,000 ; Those Not in Labor Force Rises by 194,000 ; Unemployment Rate 8.5%; Notes from Trim Tabs on the BLS Report
Profit Warnings at Target, Kohl’s, J. C. Penney, American Eagle

Barnes & Noble in Trouble; What's the Next Chapter?

Posted: 06 Jan 2012 04:45 PM PST

Retail sales are up but profits are down as noted in Profit Warnings at Target, Kohl's, J. C. Penney, American Eagle

However, shrinking profits are one thing, huge losses another.

On Thursday, Barnes & Noble increased its projected loss per share for the current fiscal year to between $1.10 and $1.40, from the 30 cents to 70 cents it reaffirmed one month ago.

I have commented before that brick-and-mortar book stores are in serious trouble. It's time to move Barnes & Noble to the top of the list.

The Wall Street Journal reports Barnes & Noble Seeks Next Chapter

The nation's largest bookstore chain warned Thursday it would lose twice as much money this fiscal year as it previously expected, and said it is weighing splitting off its growing Nook digital-book business from its aging bookstores.

Ironically, Barnes & Noble had been one of the first to recognize the potential of digital books. In 1998, it invested in NuvoMedia Inc., maker of the Rocket eBook reader, and the bookseller actively supported digital-book sales. But in 2003, it exited the still-nascent business, saying there wasn't any profit in it.

It wasn't until 2009 that Barnes & Noble re-entered the business, introducing its Nook e-reader. By then, Amazon had been selling its Kindle device for about two years, and was offering best sellers for $9.99, a fraction of what hardcover best sellers are priced at.

Apple introduced its iPad tablet in January 2010. Amazon responded with its competing Kindle Fire tablet this past September, and in November, Barnes & Noble introduced its Nook Tablet.

To promote the Nook, the retailer returned to national TV advertising in 2010, after a 14-year hiatus, buying spots on popular programs such as "American Idol."

The heavy Nook investment has squeezed Barnes & Noble's bottom line.
Barnes & Noble said in a statement on Thursday it was "in discussions with strategic partners including publishers, retailers and technology companies in international markets." It said that could lead to expanding the Nook business overseas.

What's the "Next Chapter"?

The Journal reports Barnes & Noble is also considering a plan to spin off its Nook business. If it does, can it make a profit selling books the old-fashioned way? If it doesn't, does if have the resources to compete against Amazon and Apple?

Either way, the "Next Chapter" for Barnes & Noble just might be bankruptcy court. It took me a second to catch the play on words in the WSJ article because the first thought I had was "Chapter 7" and a word was missing.

Bear in mind, even if that happens, it can take years to play out. GM was terminally ill for a decade before it succumbed to the inevitable.

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

Employment Trends Since 1955

Posted: 06 Jan 2012 11:41 AM PST

Reader Tim Wallace sent some comments and a nice chart in response to Nonfarm Payroll +200,000 ; Labor Force Drops Another 50,000 ; Those Not in Labor Force Rises by 194,000 ; Unemployment Rate 8.5%; Notes from Trim Tabs on the BLS Report

Wallace writes ....

Hello Mish

On today's labor report: Note how the labor force has flat lined for four years even though population growth has averaged 1.5 million for the past 55 years. From 1993 to 2007 population growth was 1.7 million per year!

Thus, the labor force should not suddenly turn flat since retirements do not even come close to explaining the chart. Yet, suddenly the work force has just been frozen in time although the population continues on the same upward trend.

The work force is literally one million smaller than during Bush's last year in office. This is statistically impossible, at least judging from historic trends.

We also are still 5.6 million people below the employment number of the peak year in 2007. So, practically speaking we have approximately 11.6 million more people unemployed than in 2007.

If we add the additional 6 million that should be counted as available for the labor force, the unemployment number at the U-3 level surges past 11% as you have said numerous times.

Tim

Employment Trends

click on chart for sharper image

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

LPS Mortgage Monitor Shows Little Improvement in New Problem Loan Rates, First Time Delinquencies Slowly Rising Since April, Cures to Current Status Decline

Posted: 06 Jan 2012 10:39 AM PST

The LPS' Mortgage Monitor Report Shows Halt in Delinquency Decline; Foreclosure Starts Down Nearly 30 Percent in November. Via Email ...

JACKSONVILLE, Fla. - Jan. 6, 2012 - The November Mortgage Monitor report released by Lender Processing Services, Inc. hows that while mortgage delinquencies at the end of November 2011 were nearly 25 percent less than the January 2010 peak, the trend toward fewer loans becoming delinquent, which dominated 2010 and the first quarter of 2011, appears to have halted. At the same time, new problem loans - those loans seriously delinquent as of the end of November that were current six months prior - have not improved significantly in the last year. This degree of stagnation indicates that while the situation is not getting markedly worse, it is not improving either, and inventories of troubled loans remain significantly higher than pre-crisis levels across the board.

Here are a sampling of charts from the December 2011 Mortgage Performance Observations

click on any chart for sharper image

Delinquencies vs. Foreclosures

New Problem Loan Rates

First Time Delinquencies Slowly Rising

Cures to Current Decline

Foreclosures back to 90+ Days Delinquent

History suggests those rollbacks from foreclosure to 90+ days delinquent will soon be back in foreclosure and eventually REO (bank real estate owned).

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

Nonfarm Payroll +200,000 ; Labor Force Drops Another 50,000 ; Those Not in Labor Force Rises by 194,000 ; Unemployment Rate 8.5%; Notes from Trim Tabs on the BLS Report

Posted: 06 Jan 2012 08:20 AM PST

Quick notes about the "falling" unemployment rate (Trim Tabs Comments Follow):

In the last year, the civilian population rose by 1,695,000. Yet the labor force only rose by 274,000. Those not in the labor force rose by 1,421,000.
In December, the Civilian Labor Force dropped by 50,000.
In December, those "Not in Labor Force" rose by a whopping 194,000, In November, those "Not in Labor Force" rose by a staggering 290,000. If you are not in the labor force, you are not counted as unemployed.
Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Notes from Trim Tabs on the BLS Report

Madeline Schnapp at Trim Tabs Pinged me with a few of her notes this AM.

Hello Mish

A couple of things to keep in mind re: the BLS employment December release.

1. December seasonals were -821,000 jobs (high, although not as high as January's will be, +2.1 million +/-).

2. The BLS survey reporting period contained five weeks in December as opposed to four.

3. The BLS survey is incomplete. The response rate in December was 71.5%.

Best,

Madeline Schnapp
Director, Macroeconomic Research
TrimTabs Investment Research

For Trim Tabs estimate for today, please see Whoa! The 10x Difference Between TrimTabs December Jobs Estimate of 38,000 New Jobs and ADP's Estimate of 325,000 Begs an Explanation

Revisions to November Report

November Payrolls Revised lower from 120,000 to 100,000
November Unemployment Rate revised up from 8.6% to 8.7%
November count of Those Not in Labor Force revised from 487,000 to 290,000 which helps explain the slight revision upward in November unemployment rate.

Jobs Report at a Glance

Here is an overview of December Jobs Report, today's release.

US Payrolls +200,000
US Unemployment Rate Declined .2 (from revised number) to 8.5%
Civilian labor force fell by 50,000
Those Not in Labor Force rose by 194,000
Participation Rate steady at 64.0%, nearly matching a low last seen in 1984
Actual number of Employed (by Household Survey) rose by 176,000
Unemployment fell by 226,000 (194,000 of which comes from those dropping out of labor force)
Civilian population rose by 143,000
Average workweek for all employees on private nonfarm payrolls was +.1 to 34.4 hours
The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged higher 0.1 hour to 33.7 hours in November.
Average hourly earnings for all employees in the private sector rose by 4 cents to $23.24
Government employment decreased by 12,000
The private sector has only recovered 36 percent of jobs lost in the peak-to-trough period of January 2008 to February 2010.

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

After two months of increases, once again the labor force fell. This is not a good sign. Moreover, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

December 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) December 2011 Employment Report.

Nonfarm payroll employment rose by 200,000 in December, and the unemployment rate, at 8.5 percent, continued to trend down, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining.

Unemployment Rate - Seasonally Adjusted

Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted

Notice that actual employment is lower than it was nearly 10 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted

click on chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

In the last year of the weakest recovery on record, 2.5 years old, the economy averaged about 137,000 jobs a month.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Nonfarm Employment - Payroll Survey Monthly Details - Seasonally Adjusted

Nonfarm Employment - Payroll Survey Annual Details - Seasonally Adjusted

In 2011, the private sector added 1.9 million jobs, while government lost 280,000 jobs. Professional and business services had the largest employment gain (+452,000), followed by education and health services and leisure and hospitality (+427,000 and +268,000, respectively). These three industries contributed 60 percent of all private-sector job gains over the year.

To put the net 1,640,000 jobs in perspective, it takes about 1,524,000 jobs to keep the unemployment rate flat. The unemployment rate is lower only because those not in the labor force rose by 1,421,000.

Average Weekly Hours

Index of Aggregate Weekly Hours

Average Hourly Earnings vs. CPI

"Success" of QE2 and Operation Twist

Over the past year, average hourly earnings of all private-sector employees have increased by 2.1 percent. The Consumer Price Index for All Urban Consumers (CPI-U) was up 3.4 percent from November 2010 to November 2011.
Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011

Birth-Death Notes

Do NOT subtract the Birth-Death number from the reported headline number. That is statistically invalid.

Historically, it has been exceptionally rare to see negative numbers in birth-death adjustments in months other than January and July. Data for much of this year actually seems reasonable.

Household Survey Data

click on chart for sharper image

In the last year, the civilian population rose by 1,695,000. Yet the labor force only rose by 274,000. Those not in the labor force rose by 1,421,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status

click on chart for sharper image

Part-time status shows some improvement vs. a year ago but remains elevated and the data series is choppy.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers. Digging under the surface, the drop in the unemployment rate is nothing but a statistical mirage.

The official unemployment rate is 8.5%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 8.6%, U-6 is much higher at 15.6%. Both numbers would be way higher were it not for millions dropping out of the labor force over the past few years.

In the last year alone, the civilian population rose by 1,695,000. Yet the labor force only rose by 274,000. Those not in the labor force rose by 1,421,000. That puts a huge damper all all reported unemployment rate statistics.

Things are much worse than the reported numbers would have you believe. The entire economic picture is on very thin ice given the clear slowdown in the global economy.

Addendum:
Please see a follow-up to this post: Employment Trends Since 1955

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

Profit Warnings at Target, Kohl’s, J. C. Penney, American Eagle

Posted: 06 Jan 2012 12:24 AM PST

It easy enough to increase sales if you discount enough. Profits are another matter as I have warned repeatedly throughout the Christmas season. Nordstrom and Macy's did well but 4th quarter earnings estimates missed guidance in a number of high-profile retailers.

The New York Times reports Retail Sales Edged Up in December After Stores Cut Prices Sharply

Sales at stores open at least a year at major retail chains rose 3.4 percent compared with December 2010, according to data compiled by Thomson Reuters, just above the 3.3 percent that analysts had expected.

But the cost of propping up sales was high. Profits "were a mess" for many retailers, said Paul Lejuez, an analyst at Nomura Equity Research. Consumers were buying less than retailers had expected, and stores had to mark down inventory to get it out the door by Christmas.

"Retailers came in with pretty conservative assumptions, and they were hoping to blow them out of the water — they really didn't," said David L. Bassuk, managing director and head of the retail practice at AlixPartners, a consulting firm. Retailers were resorting to promotions like " '50 percent off our whole store,' '60 percent off our whole store,' which is when you can see times are tough," he said.

Thursday's Retail Earnings Announcements

Target reduced its fourth-quarter earnings expectations to $1.35 to $1.43 a share from prior estimates of $1.43 to $1.53 a share.
Kohl's reduced its fourth-quarter earnings expectations to $1.70 to $1.73 per share, from $1.93 to $2.04 a share.
J. C. Penney reduced its fourth-quarter earnings expectations to $.65 to $.70 from $1.05 to $1.15 a share.
American Eagle reduced its fourth-quarter earnings expectations to $.33 to $.35 per share from $.40 to $.44 cents.
Macy's raised fourth-quarter earnings expectations to $1.55 to $1.60 a share, up from $1.52 to $1.57 a share.

Much of the chatter from Black Friday on was more hype than reality. The bottom line - profit - looks anemic at best at many major retail chains.

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

Thursday, January 5, 2012

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
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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
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