Mish's Global Economic Trend Analysis

---

• Interesting Hussman Tweets on Case Shiller PE, Institutional Selling, Book Values
• Durable Goods: Seen and Unseen (the Good, the Bad, the Ugly)
• Only Hope For Italy is Bankruptcy
• General Obligation Bondholders Beware: Detroit Bankruptcy Affirmed, Governor Shielded From Lawsuits; Triumph of Math Over Unions

Interesting Hussman Tweets on Case Shiller PE, Institutional Selling, Book Values Posted: 25 Jul 2013 07:07 PM PDT Here are a few interesting John Hussman Tweets from today. On Valuations Valuation Note: Shiller earnings = 6.3% of current S&P revenues vs. historical norm of 5.3%. At normal margins, Shiller P/E would now be 29 On Institutional Unloading vs. Retail Buying Institutions have never dumped more stock onto retail investors as they have in the past 4 weeks. On Book Value (Re-tweeted by Hussman) Chanos says more companies >3x book value now than March 2000. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Durable Goods: Seen and Unseen (the Good, the Bad, the Ugly) Posted: 25 Jul 2013 12:32 PM PDT Inquiring minds are digging into the latest Durable Goods Report by the Census Bureau. New orders for manufactured durable goods in June increased $9.9 billion or 4.2 percent to $244.5 billion, the U.S. Census Bureau announced today. This increase, up four of the last five months, followed a 5.2 percent May increase and was at the highest level since the series was first published on a NAICS basis in 1992. Excluding transportation, new orders increased slightly. Excluding defense, new orders increased 3.0 percent. Transportation equipment, also up four of the last five months, led the increase, $9.9 billion or 12.8 percent to $87.1 billion. This was led by nondefense aircraft and parts, which increased $6.5 billion. Durable Goods Seasonally Adjusted Durable Goods Seasonally Adjusted Monthly Percent Change June 2013 May 2013 April 2013 May-June April-May March-April Total: Shipments………… 229,757 229,773 226,915 0.0 1.3 -0.6 New Orders………… 244,494 234,581 223,003 4.2 5.2 3.6 Excluding transportation: Shipments………… 160,646 160,465 160,211 0.1 0.2 -0.4 New Orders…………… 157,420 157,369 155,774 0.0 1.0 1.8 Excluding defense: Shipments……… 217,464 217,701 215,110 -0.1 1.2 -0.3 New Orders……………… 230,302 223,629 213,124 3.0 4.9 2.6 Manufacturing with unfilled orders: Shipments…… 161,645 161,836 158,586 -0.1 2.0 -0.9 New Orders……… 183,051 173,160 161,842 5.7 7.0 4.8 Primary metals: Shipments………… 24,915 24,379 24,698 2.2 -1.3 0.6 New Orders……… 25,405 25,466 25,307 -0.2 0.6 2.3 Fabricated metal products: Shipments……… 28,943 29,009 29,090 -0.2 -0.3 2.2 New Orders…… 29,617 29,593 29,712 0.1 -0.4 1.2 Machinery: Shipments………… 34,217 34,624 34,255 -1.2 1.1 -2.3 New Orders……… 35,392 34,572 34,396 2.4 0.5 1.2 Computers and electronic products: Shipments……… 27,471 27,259 27,569 0.8 -1.1 -3.1 New Orders……… 21,661 22,239 21,541 -2.6 3.2 4.6 Computers and related products: Shipments……… 2,283 2,307 2,336 -1.0 -1.2 -5.9 New Orders………… 2,265 2,313 2,362 -2.1 -2.1 -3.7 Communications equipment: Shipments…………… 4,049 4,117 3,960 -1.7 4.0 0.6 New Orders………… 4,620 5,233 4,543 -11.7 15.2 11.9 Electrical equipment, appliances, components Shipments………… 10,300 10,405 10,195 -1.0 2.1 -0.8 New Orders………… 10,519 10,712 10,358 -1.8 3.4 0.1 Transportation equipment: Shipments………… 69,111 69,308 66,704 -0.3 3.9 -1.0 New Orders………… 87,074 77,212 67,229 12.8 14.8 8.0 Motor vehicles and parts: Shipments………… 45,161 44,564 45,158 1.3 -1.3 2.3 New Orders……… 45,340 44,758 45,127 1.3 -0.8 2.3 Nondefense aircraft and parts: Shipments……… 11,840 12,637 9,709 -6.3 30.2 -10.0 New Orders……… 27,267 20,750 12,346 31.4 68.1 18.4 Defense aircraft and parts: Shipments……… 4,627 4,669 4,618 -0.9 1.1 -9.5 New Orders……… 5,107 4,303 4,106 18.7 4.8 42.8 All other durable goods: Shipments……… 34,800 34,789 34,404 0.0 1.1 0.8 New Orders……… 34,826 34,787 34,460 0.1 0.9 1.3 Capital goods: Shipments………… 84,187 85,510 80,950 -1.5 5.6 -3.8 New Orders……… 103,596 95,064 83,807 9.0 13.4 5.4 Nondefense capital goods: Shipments……… 74,253 75,770 71,394 -2.0 6.1 -3.5 New Orders……… 91,601 86,190 76,374 6.3 12.9 3.5 Excluding aircraft: Shipments……… 65,822 66,399 65,164 -0.9 1.9 -2.1 New Orders…… 69,526 69,013 67,531 0.7 2.2 1.2 Defense capital goods: Shipments……… 9,934 9,740 9,556 2.0 1.9 -5.7 New Orders……… 11,995 8,874 7,433 35.2 19.4 29.9 Easily Seen  Note how orders for aircraft can skew the overall numbers. A closer look at the "New Orders" components will show precisely what I mean. New Orders Total +4.2% Excluding Transportation +0.0% Primary Metals -0.2% Fabricated Metals +0.1% Machinery +2.4% Computers and Electronic Products -2.6% Computers Related Products -2.1% Communications Equipment -11.7% Electrical Equipment -1.8% Transportation Equipment +12.8% Motor Vehicles and Parts +1.3% Non-Defense Aircraft and Parts +31.4% Defense Aircraft and Parts  +18.7% Other Durable Goods +0.1% One quick glance at new orders will give you the "easily seen" look at the durable goods numbers. Although such analysis is "easily seen" not many bother. Instead, many rely on the baseline reported number. But what about the "not-so" easily seen? I am talking about constant revisions and the overall use of the report in general. Revisions Alan Hartley of Black Cypress Capital says Beware Revisions. Today the U.S. Department of Commerce reported new orders for manufactured durable goods. One data point often analyzed by investors within the report is "non-defense capital goods ex aircraft". This is considered a good proxy for business capital spending in the U.S. That is all well and good, but we find the data less useful than most. Why? Heavy revisions. Take June 2012 for instance. When non-defense capital goods ex aircraft (non-seasonally-adjusted) was originally reported in 2012, it was $67,693. The following month it was revised to $66,452. It was then revised to $64,906. Today June 2012 was revised yet again to $68,555. Over the course of the year, June 2012 looked as though it had fallen nearly 5% from June 2011, only to be revised today to show an actual gain of 0.5%. History of Non-Defense Capital Goods Ex-Aircraft Revisions  Here is the telling chart that  Hartley put together. Core Durable Goods "Core Durable Goods" are the "total durable goods orders excluding transportation equipment. The new orders numbers are closely followed by market participants as they provide indications on current economic conditions as well as future production commitments in the manufacturing sector." Today we see Durable Goods Excluding Transportation is +0.0%. If June 2012 is any guide, the number may be off by 5% in either direction. Of what use is that? And the reported baseline number of +4.2% is even more useless. Non-defense aircraft orders are up a whopping 31.4% on the strength of 287 new orders for Boeing aircraft. Such orders are extremely volatile, and cancelable. The Good, The Bad, The Ugly The Good: The basline number was up  The Bad: The overall core number was flat; Numerous core numbers were negative  The Ugly: Over the course of the next year (or longer), the census bureau is likely to significantly revise all of the numbers in multiple directions, multiple times. The bad and the ugly clearly outweigh any good in this report. So don't take today's surprisingly good number seriously. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Only Hope For Italy is Bankruptcy Posted: 25 Jul 2013 08:44 AM PDT Via Mish-modified Google translation from Libre Mercado (LM), Enrico Colombatto, Professor of Economics at the University of Turin says in an interview "The only hope for Italy is the bankruptcy of the State" Enrico Colombatto (EC), Professor of Economics at the University of Turin and director of the Center of Economic Research in the Piedmontese town, offers a groundbreaking proposal: "Do not pay the debt." It seems unthinkable, but he believes it will be the only way to start fresh, leaving those who have lent money to irresponsible politicians pay for their mistake. LM: Spain and Italy have very large states, but they are very inefficient. Our laws are stifling, heavy. EC: In Italy, the public sector is not intended as an aid to the production of wealth and public goods and services. It has been conceived as an observatory to generate political consensus and to please the own clientele. The concept of public is of assistance but not to the public, but the public sector employee. The beneficiary of the public sector is dependent on this sector, not the public. LM: After six years of crisis we have more spending, more laws, more intervention, ... Where does change start? EC: By the mentality. It has aggravated the welfare spirit that we have within us. The state is the problem, not the solution. LM: It's counter-intuitive, but when politicians fail, they want more power. And politicians who are succeeding all want more power to the state. In Spain, demonstrations call for a public banking as a solution to problems. Can we escape this trap? EC: If we think that the state is the solution, all the problems are going to focus in that perspective. The problem is cultural and ideological. It starts when our children go to school and get to talk about social justice. Children are taught the state should solve every problem: pensions, sickness, education ... The solution is to drop the veil that protects the state. In bankruptcy, people will realize that giving loans to the State, and state guarantees are useless. LM: A few days ago there was a poll in which the public demanded more taxes. EC: It is a matter of propaganda. The State says "do not worry, I will only raise taxes on the rich". However, the rich pay more, but also the poor. For example, in Italy, the Monti government introduced a tax on real estate, and 85% of Italians are owners. This is a middle class tax hike. And a country that stifles and suffocates its middle class can not grow. LM: From your perspective as a university professor, do you have bad omens in regards to a lost generation for Italy and Spain? EC: Yes and no, It could be 50 years, not just 15. The key will be in the new political class. LM: Some people think it might not be so bad that we intervene. They prefer to let Germany or the troika decide instead of our politicians. EC: Because the Germans have many Spanish and Italian bonds, they always favor higher taxation so Southern Europe can pay back those loans. I trust the Chinese more than the Germans. We need a new ruling class because the existing system is corrupt and must be eliminated - No IMF, EU bureaucrats, or Germany. LM: Where to begin? EC: You have to start by deregulation. Monti's government has made things worse, especially in the labor market. The regulation is where it was 10 years ago ... well, maybe as it was 150 years ago. LM:  It is always said that Spain and Italy need to get to compete globally, but many of the labor laws limit the growth of companies, with more regulation and more taxes to the largest companies. EC: Yes, there are two elements. First regulation, both in general and the labor market in particular, changes to the size of companies. Often the entrepreneur thinks "it's not worth growing, because I will have many new demands." There is also an issue of tax evasion: it is much harder to do it when you're big. And finally, we have the element of funding. To grow need a functioning credit market. And in Italy in the last thirty years, the credit market has served to finance the public debt. There are so many resources that should be used to finance the growth of businesses, but only served to finance the growth of the state. As a result, businesses remain small, because they are funded with self-financing. LM: Correct. But with this in mind, is there way out of this? Because Italian public debt is the highest in Europe after Greece. EC: The only hope is the default by the State. We paid about 90,000 million euros in interest. And along with this, we have to face the return of credit. It can't be done. LM: And the financial system does not collapse? EC: Why? The underlying conviction is that we will emerge from the crisis by printing money. It is a politically attractive solution, but destructive. The last example in Europe led to Nazism. I do not think we'll get to that, of course, but inflation certainly create social problems and tensions. The question is who should pay? The one who has financed the bad debtor [Spanish or Italian politicians] or the community via higher taxes? The European socialist solution is that losses should be disseminated throughout the population. But this has failed. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

General Obligation Bondholders Beware: Detroit Bankruptcy Affirmed, Governor Shielded From Lawsuits; Triumph of Math Over Unions Posted: 25 Jul 2013 01:43 AM PDT As hoped and expected Detroit Bankruptcy Protections Affirmed, Snyder Shielded. Detroit can enjoy the protections of bankruptcy, including immunity from lawsuits related to the case, a federal judge ruled, extending that shield to Michigan Governor Rick Snyder. U.S. Bankruptcy Judge Steeven Rhodes in Detroit today blocked lawsuits by public employee groups and pension funds who allegd the state overreached in seeking court protection from creditors. Such claims must be heard in bankruptcy court, Rhodes said. His ruling gives the city the opportunity it said it needs to address $18 billion in debt without disruptions. Chapter 9 of the U.S. Bankruptcy Code, which covers municipalities, typically prevents creditors from taking actions against the debtor that might interfere with reorganization. City unions and pension officials claim Snyder, 54, violated Michigan's constitution by authorizing Orr to file for bankruptcy. Pension funds for retired city workers sued in state court to have the filing declared illegal. Barring lawsuits against Snyder related to the bankruptcy would be unfair to Michigan's citizens, said Sharon Levine, an attorney for the American Federation of State, County & Municipal Employees, part of the AFL-CIO. "We're taking away very fundamental constitutional rights," Levine said. Michael Artz, a lawyer for the American Federation of State, County & Municipal Employees, said outside court after the hearing that while the question of the constitutionality of the Chapter 9 filing should have remained in state court, the union "will fight whatever court we're in." Fights by AFL-CIO Welcome I welcome these fights by the AFL-CIO. Indeed I hope they spend every cent they have because they are going to lose. And when they lose, others cities will decide to escape preposterous unions contracts and pension benefits via bankruptcy. General Obligation Bondholders Beware Several people emailed me that that bondholders should have nothing to worry about because the bonds are backed by tax revenue. Really? If that was the case, then there should be little to no difference in interest rates between such bonds. But there is. Just like there is a difference between Greek bonds and German bonds, even though we heard the ECB say for years "we say no to default". Well guess what? The market was correct, not the ECB. All bets are off in bankruptcy court because you cannot tax a hollow shell. And what is Detroit but a hollow shell? Triumph of Math Over Unions As for pension claims and the Michigan constitution? Same thing: You cannot pay what you do not have. This is the triumph of math and common sense over union greed, arrogance, threats, and coercion.  Future Rating Impact The Bond Buyer says Detroit Filing Could Impact Future Rating Analysis CHICAGO - As Detroit enters into what would be the largest municipal bankruptcy in the U.S., ratings agencies said the outcome may have a negative impact on unlimited-tax general obligation bonds in future credit analysis. Detroit emergency manager Kevyn Orr's restructuring plan treats the city's unlimited-tax general obligation bonds as unsecured, on par with the its lowest-secured debt, such as retiree health care benefits. The move marks a departure from traditional treatment of ULTGOs, typically considered among the strongest municipal debt. Orr's plan, if accepted by a bankruptcy judge, may affect the way Fitch Ratings analyzes ULTGOs in the future, the ratings firm said in a comment released Friday. Fitch analyst Amy Laskey said in a telephone interview that it's still uncertain how broad the impact would be if a bankruptcy judge approved Orr's plan. "These are issues we're talking about internally, how broadly that might extend," Laskey said. "It would certainly make us reexamine the value to credit quality of having that unlimited-tax pledge versus other tax-supported obligations," she said. "Our feeling was that with unlimited-tax general obligation bonds you have the pledge to levy property tax without limitation to pay the debt, and that seemed somewhat more secure [than other tax-supported bonds]," said Laskey. "They do give you a little more financial flexibility because you have the ability and the obligation to pay for them, which you don't have for limited-tax bonds, certificates of participation, or lease revenue bonds." If the city moves into Chapter 9, the case could set precedents when it comes to treatment of ULTGOs, she said. Once again, I cite common sense: you cannot tax a hollow shell. Bondholders took a risk for higher yield, just as did buyers of Greek debt. If there was no risk, yields on Detroit bonds would not have been higher in the first place. So, pensioners and bondholders both should take it on the chin. Detroit Will Be In Bankruptcy 'For A Long Time' Harvey Miller, partner at Weil, Gotshal & Manges, tells Bloomberg Law's Lee Pacchia that Detroit's recently filed Chapter 9 bankruptcy case will not be an easy restructuring. In addition to the profound economic challenges facing the city and the limited ability of a bankruptcy court to force changes on its government, the fundamental tension between bondholders, pensioners and taxpayers could mean Detroit will remain in tangled up in litigation for a long duration of time. "There's going to be a lot of legal fighting in this," he says. Link if video does not play: Harvey Miller on Detroit Chapter 9 Expect a lot of municipal bond downgrades before too long. Downgrades are coming, deserved, and welcome. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

Read More ..

Mish's Global Economic Trend Analysis

---

• Obama's HAMP Program a Stunning Success
• Unions and Fundamental Freedoms: Two Upcoming U.S. Supreme Court Cases
• Gold Backwardation Conspiracy Nonsense

Obama's HAMP Program a Stunning Success Posted: 24 Jul 2013 11:37 AM PDT Obama had lofty goals of helping 4 million Americans keep their homes with his Home Affordable Mortgage Program (HAMP). Here are some quick facts: HAMP modified 1.2 million mortgages (70% less than the target) 306,000 re-defaults Another 88,000 at risk The re-default rate is an alarming 30% The re-default rate of those in since 2009 is 46% CNNMoney has additional details in Watchdog: Borrowers in Obama housing program re-defaulting. Borrowers who received help through the government's main foreclosure prevention program are re-defaulting on their mortgages at alarming rates, a federal watchdog said in a report released Wednesday. Nearly 1.2 million mortgage modifications have been completed since the Home Affordable Modification Program (HAMP) was first launched four years ago. Yet more than 306,000 borrowers have re-defaulted on their loans and more than 88,000 are at risk of following suit, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found in its quarterly report to Congress. In addition, the watchdog found that the longer a homeowner stays in the HAMP modification program, the more likely they are to default. Those who have been in the program since 2009, are re-defaulting at a rate of 46%, the inspector general found. Stunning Success HAMP is certainly a failure compared to stated goals. However, as government programs go, it's easy to make a case that HAMP was a tremendous success. Here's why. "As part of the Troubled Asset Relief Program, Treasury allocated $19.1 billion to the HAMP program. So far, it has spent $4.4 billion". The typical government program wastes far more than initially allocated. This government program only wasted $4.4 billion out of a projected waste of $19.1 billion. It does not get much better than this! Unfortunately, there is still a big push to waste more money. Christy Romero, the head of SIGTARP says "Treasury pulled out all the stops for the banks, they should do the same for homeowners". This same "two wrongs make a right" genius also says "Treasury needs to research why so many borrowers are dropping out of the program." Really? What's to research? People are underwater in their homes (still), without a job, or struggling in minimum wage part-time jobs. But hey, give a bureaucrat money to waste and they will.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Unions and Fundamental Freedoms: Two Upcoming U.S. Supreme Court Cases Posted: 24 Jul 2013 10:04 AM PDT What follows is a guest post regarding two important union cases that the US Supreme Court will hear. Unions and Fundamental Freedoms by David. A. Bego The U. S. Supreme Court has agreed to hear two cases in the next year which will determine whether persons will be protected in their exercise of the fundamental right to either choose whether to engage in union representation or to abstain from such representation, and to make such decision absent intimidation from either the union or their employer via the secret ballot election — the same process we use to elect our local, state and federal government officials. Interestingly, both cases stem from the President's attempt to provide political payback to his allies in Big Labor through the Rogue NLRB. In the first case, the U.S. Supreme Court will decide if the President acted unconstitutionally when he made several recess appointments to the agency charged with oversight of labor-management disputes, the National Labor Relations Board. The lower courts, culminating in the U.S. Third Court of Appeals both found the appointments unconstitutional (see Supreme Court to Consider Obama Recess Appointments and Appeals Court Nixed Obama's Recess Appointments). This case not only has important implications concerning the further shredding of our constitution  through ignoring the tenant of the separation of powers of the branches of government by appointing his nominees without review and agreement by the legislative branch. In the case of the NLRB, the Obama appointees seek to achieve Card Check through Regulation vs. Legislation. Simply put, the goal is to eliminate employees' rights to a secret ballot election and replace it with Card Check as the means for employees to determine if they wish union representation. If you listened to the Administration's and Big Labor's rhetoric, what could be more simple and fair? Unfortunately, it is a process of coercion and intimidation as chronicled in The Devil at Our Doorstep. A process aptly named Death by a Thousand Cuts, which forces employers and employees to capitulate and be subjected to the terms of the so called Neutrality Agreement through ruthless Corporate Campaigns. The so-called "neutrality agreement" is hardly neutral and subjects both the employees and the employer to labor intimidation. The second case involves a question of the validity of Big Labor's sacred cow, the aforementioned Neutrality Agreement (see BNA – Supreme Court Agrees to Review LMRA Case Involving Section 302, Neutrality Agreement). To appreciate this case and its relevance, one must understand why this agreement is so important to big labor. As documented in previous blogs, unions have been on a steady decline since 1947 when Congress, following more than a decade of union corruption, passed the Taft-Hartley Act. Of the many important provisions of the Act, perhaps none was more so than the guarantee of the secret ballot election which, for all intents and purposes, eliminated card check. Since its peak prior to passage of the Taft-Hartley Act, union membership has dropped from approximately 35-40% of the workforce to a low of 11.3% today. Statistics gathered by the federal Bureau of Labor Statistics, included a drop of approximately 400,000 members in the last year alone. Big Labor, realizing its imminent demise, understands it must reinstate card check to survive and is relying on the President and his rogue NLRB to allow them to exploit a little known and hidden clause in the Taft-Hartley Act that allows unions and employers to mutually agree to representation through card check. Unfortunately, it is very rarely an agreement achieved through mutual consent. It is predominantly achieved by Big Labor through outright intimidation of employers and employees. What is interesting about this particular case is that it has been brought by an employee disgusted with the intimidation and the fact he believes his rights to a secret ballot election and protection of privacy have been violated. One thing certain about these cases is that the justices of the Supreme Court will receive a tremendous amount of pressure from the Administration and its Big Labor buddies to overturn the decisions of the lower courts. The Gasping Dinosaurs, already headed toward extinction, understand all to well that if these decisions are upheld it will be the end of Big Labor as we know it in this country (see If ruling goes Against Labor Union, Organizing Could Get Even Harder). Additionally, the President and his party know all to well they need Big Labor's financial and ground support to continue to win elections, as well as increase their grip on and expand an already oversized government. Even more frightening for the future of the United States is what could occur if these decisions are overturned. If they are, the current administration will feel empowered to continue to appoint radical people to high positions, not just in the NLRB, but all areas of government. If they can eliminate the secret ballot election for union recognition and trample on the constitution to appoint government officials how long will it be before they expand these programs to every corner of the government? Can you imagine no secret ballot elections to determine our government officials and instead all being appointed by the President?  These are landmark cases. About Bego David A. Bego is the President and CEO of EMS, an industry leader in the field of environmental workplace maintenance, employing nearly 5,000 workers in thirty-three states. Bego is the author of "The Devil at My Doorstep," and the just released sequel, "The Devil at Our Doorstep," based on his experiences fighting back against one of the most powerful unions in existence today. Mish comment: This article originally appeared on UnionWatch, a site to which I also contribute. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Gold Backwardation Conspiracy Nonsense Posted: 24 Jul 2013 01:01 AM PDT Business Insider says "Traders Are Talking About A Gold Conspiracy Theory And There's Evidence To Back It Up" No discussion about gold is complete without a good conspiracy theory. While most theories are easily dismissed, some stay around for a while due to a confluence of circumstantial evidence surrounding it. Wall Street veteran Art Cashin addresses one such theory in this morning's Cashin's Comments. From Cashin: All That Glitters Is Not Arbitrage – Monday, spot gold spiked up $45 and the media pundits pointed to things from China to the FOMC. While all the cited may have been factors, veteran traders saw the bulk of the move resting in a conspiracy story. In my mid-day email to friends I had noted this: Gold soars as NYT story on metal warehouses fans flames of conspiracy theorists that gold warehouse stores have been "lent" out. That theory also aided by backwardation (spot price far above near future)..... Unfortunately, we are not sophisticated enough to answer these questions.  But email us at moneygame@businessinsider.com if you can. Email is on the Way Consider what follows as my email to Business Insider and Cashin. People like conspiracy theories for two reasons: Conspiracy theories are sexy and fun to discuss Traders want to blame someone else for their poor trades. Simply put, if gold goes up, it's because it should (and the traders are brilliant for understanding that). If gold gold down, it must be a conspiracy (because the traders cannot possibly be wrong). Investigating Backwardation My friend Nick at Sharelynx Gold emailed me earlier today regarding the alleged backwardation in gold. Nick writes.... Hello Mish The attached chart shows gold's current spread band of all the active futures vs the spot price of gold. Shown in the top window are the active futures. Shown in the bottom window is the Last/Near Future spread. (this needs to go below zero for a full inversion) Gold Futures Spread click on any chart for sharper image Gold Chat Bron at Gold Chat posts the following amusing set of charts that may be easier to understand. Gold Futures Spread Oil Futures Spread Now That's Backwardation! Recall the definition of backwardation: Current price above future delivery price. There are many reasons this can happen with commodities, but the typical explanations are: temporary short-term supply shortage, expected future supply, or expected falling demand. Supposedly this can never happen with gold because "gold is money". Leaving aside the philosophical question as to whether or not gold is money, presume for a moment that it is. Using the above oil chart as a basis (assuming the gold chart were the same), backwardation implies that someone could borrow money today and pay it back in 2018 for 80 cents. Logically, that shouldn't happen. Acting Man Chimes In My friend Pater Tenebrarun at the Acting Man Blog (see his recent post Gold and Gold Stocks – More Signs of Life) chimed in with this email comment: There is no persistent and deep backwardation in gold, so it is definitely not something to get alarmed over just yet. However, it is still notable that the nearby futures repeatedly slip into slight backwardation versus spot. Moreover, the gold forward rate has recently turned negative. That means that people are now paying more interest for gold in a gold-dollar swap than for dollars. That happens only rarely. Of course all of this happens mainly because interest rates are so low. If interest rates were higher, then it would really be worth getting exercised over. Still, GOFO only rarely turns negative and it often marks a low when that happens. Philosophical Question The philosophical question regarding whether or not "gold is money" is an interesting one. If indeed "gold is money" (not an ordinary commodity like corn, copper, or oil), then severe backwardation implies skepticism as to whether future gold contracts will really be delivered. Thus, backwardation claims fuel all sorts of theories about gold shortages, gold leasing, and price suppression. However, the charts provided by Nick at Sharelynx and Bron at Gold Chat show that claims of backwardation are essentially nonsense. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

Read More ..

Mish's Global Economic Trend Analysis

---

• China Manufacturing PMI Declines at Quickest Pace Since Last August
• 99% Believe the Economic Situation in Spain is Bad; How Much Worse Can This Get?
• About that Austerity in Spain: There Isn't Any
• Scranton Needs 117% Property Tax Hike to Balance Budget; Simple Truth: Scranton is Bankrupt
• Fools Say "Sell the Gold Rally"

China Manufacturing PMI Declines at Quickest Pace Since Last August Posted: 23 Jul 2013 08:50 PM PDT The HSBC Flash China Manufacturing PMI shows China Manufacturing PMI Declines at Quickest Pace Since Last August. Key points Flash China Manufacturing PMI™ at 47.7 (48.2 in June). Eleven-month low. Flash China Manufacturing Output Index at 48.2 (48.6 in June). Nine-month low. PMI, Production, Exports Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "The lower reading of the July HSBC Flash China Manufacturing PMI suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking. This adds more pressure on the labour market. As Beijing has recently stressed to secure the minimum level of growth required to ensure stable employment, the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilise growth." Fine Tuning Needed? Regarding Hongbin Qu's comment that "China needs to introduce additional fine-tuning measures to stabilise growth". Mish says "please be serious". China is supposedly growing at 7-8%. Such growth is not sustainable with or without "additional fine tuning". Belief in central planners runs high. Such belief is foolish. We do not need fine tuning, we need to eliminate fine tuners. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

99% Believe the Economic Situation in Spain is Bad; How Much Worse Can This Get? Posted: 23 Jul 2013 06:33 PM PDT According to the latest Eurobarometer, 99% believe that the economic situation in Spain is bad. Via Google translate from La Vanguardia. 79% of Spanish unemployment considered as the main problem of the country and 99% believe that the economic situation in Spain is bad, according to the latest Eurobarometer survey published today. In comparison, 51% on average in the European Union (EU) believes that the main challenge for the country is 72% unemployment and the economic situation is bad. Regarding the future, almost half of the Spanish respondents, 46%, believes that the country's economic situation will remain the same over the next twelve months, compared to 15% who think it will improve and 37% who think it will be worse. 62% do not believe that the economic crisis has already had its biggest impact on the labor market and therefore the economy is recovering slowly, and, on the contrary, they think that "the worst of the crisis is yet to come". How Much Worse Can This Get? The good news is 99% negative consensus has little room to drop. However, 15% think the economy will improve, 37% think it will worsen, and 46% think it will remain the same. 2% don't know. That score can worsen, and it probably will. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

About that Austerity in Spain: There Isn't Any Posted: 23 Jul 2013 11:23 AM PDT I have long contended there is little austerity in Spain and there certainly isn't much reform either. I now have some numbers to back that up. Via Mish-modified Google-translation from El Economista, please consider personnel costs rise despite full state salary freeze. Despite the 5% snip in public salaries in 2010, the subsequent wage freeze in 2011, the elimination of extra pay in 2012 and the current freeze in Administration salaries, the overall payroll became cheaper by a only 2.1% year-over-year to December last year. The budget of expenses and monthly payments, which has been updated recently by the General Comptroller of the State Administration (IGAE), casts doubt on the effectiveness and / or proportionality of adjustments labor. For example, until the end of May, the state paid 14.17 million euros to its temporary staff, an increase of 9.5% over last year. This upward trend in payments to temporary staff is constant from the beginning of this exercise. since, January 31, 2013, these state payments increased 21.3 percent (4.13 million total) about 3.4 million higher than the same month a year earlier. It may seem paradoxical, but in the last two two years, the State Administration has virtually the same costs for temporary staff. What it cut one year, it added back the next, in nearly the same amount. Similarly, spending on senior positions in May 2012 was 29.7 million euros. It is now 29.86 million euros, an increase of 0.5%. According to the General Comptroller, remuneration to civil servants decreased 2% from a year earlier. However, despite this saving palpable in payrolls of officials, the State has not been able to lower their personnel costs, since payments until May totals amounted to EUR 10.184 million (10.139 million last year) , an increase of 45 million, representing an increase of 0.4%. When Keynesian clowns point to Spain and say "austerity doesn't work", ask them "where is the austerity?" Also ask "where is the labor reform?" Then ask "where is the pension reform?" Then kindly point out there is little to no austerity, and little to no reform, but there has been massive tax hikes, exactly the wrong thing to do. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Scranton Needs 117% Property Tax Hike to Balance Budget; Simple Truth: Scranton is Bankrupt Posted: 23 Jul 2013 09:25 AM PDT Those looking for the next city to go bankrupt should consider the possibilities in Scranton. The Pennsylvania Economy League projects Scranton could be looking at $18 million deficit, 117 percent tax hike in 2014. Scranton taxpayers could face a 117 percent increase in taxes next year as the city's finances continue to spiral out of control. A new analysis by the Pennsylvania Economy League projects an $18 million deficit for 2014, an amount so massive it outpaces the approximate $17 million the struggling city collects annually in just property taxes. Though council members did not extensively discuss the PEL letter Thursday, council Finance Chairman Frank Joyce said after the meeting, "The tax increase they (PEL) recommend is far too expensive for taxpayers to handle." Mr. Joyce suggested that perhaps the city could refinance debt to implement a financial maneuver called a "scoop," in which higher debt service payments due next year are scooped out of the budget and swapped with lower payments due in future years. The city implemented such a scoop for the 2013 budget by refinancing debt to have lower debt-service this year than it otherwise would have had, Mr. Joyce noted. "The city's definitely going to need help," Mr. Joyce said. "Maybe we can refinance debt to lessen the tax impact through a scoop. It may be viewed by some as kicking the can down the road, but it may prove to the state that we need a (countywide) sales tax." Inane Discussion PEL's proposal to raise property taxes is absurd. So are proposals for a countywide tax to bail out Scranton. City bureaucrats and the PEL can hem and haw and piss and moan, but can-kicking exercises, "scoops", and tax hikes will only make the problem worse. It's time for Scranton to face the simple truth. It is bankrupt. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Fools Say "Sell the Gold Rally" Posted: 22 Jul 2013 11:02 PM PDT Lee Munson of Portfolio LLC says "Sell the gold rally". The question for investors and speculators alike is if gold has at long last marked the end of a wrenching nearly two-year pullback from the 2011 highs over $1,900. Lee Munson of Portfolio LLC says any rally marks a chance to make a graceful exit from their positions. "Investors are confusing the fact that [gold] holds its value super long, hundred-year periods of time versus inflation versus making actual growth," Munson says in the attached video. "It just holds its value. That's not a reason to hold anything." Those who quibble with that analysis, parsing the numbers to maximize the apparent returns of gold versus stocks are missing the point. Gold has worked over shorter periods as a speculative vehicle but the die hard goldbugs have seen minimal returns at best and dramatically underperformed stocks. Since 1940 adjusted for inflation the only period over which gold has outperformed stocks is 2000 - 2010; and that lead is slipping fast. History suggests gold is extremely volatile in shorter terms but dramatically lags U.S. equities for the truly committed gold enthusiasts. Munson has simple advice for gold investors enjoying the terrific rally from the recent lows. Sell. "Exit out of the trade. Get serious. Get real." Disingenuous or Clueless? I do not profess to know what the price of gold will be at any time, but Munson seems to think he does, so much so that he screams sell after a measly rally. Munson is certainly clueless about the fundamentals of gold. If you don't understand the fundamental driver (and it's not jewelry or central bank selling) please consider Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold? Gold outperformed between 2000 and 20010 for a reason. And that reason is global central bank debasement of currency. Gold also outperformed in the late 70s for the same reason, but it did get ahead of itself. Additional Reading Ritholtz on Gold and on Making Predictions; How Secular Bull Markets End; Winning vs. Investing Nouriel Roubini Seriously Misguided on Gold, on Equities, on Economic Growth, on Money Speculative Gold Bets at 5-Year Low; Metal Will Get "Crushed" Says Credit Suisse Cash, Bonds, Equities, or Gold? You have to put your money somewhere (and somewhere includes cash). This is not about being a "die hard gold bug". This is about understanding the case for gold as it exists now. The fundamentals of gold are strong, yet sentiment is so extreme that bears says "gold is unsafe at ANY price". Now Munson says this puny rally is a chance to exit. With sentiment this extreme in the face of strong fundamentals and a rally, I like my chances here. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

Read More ..

Mish's Global Economic Trend Analysis

---

• How to Lie Without Saying a Thing
• 1984 EU Style: EU Launches "Independent" News Agency Because 172 EU Spokespersons "Do a Lousy Job"
• World's Dumbest Idea

How to Lie Without Saying a Thing Posted: 22 Jul 2013 12:33 PM PDT There are rare exceptions, but the general way to tell when a politician is lying is if his lips are moving. Another way to tell is if the politician's lips aren't moving. Chancellor Merkel and finance Minister Schäuble have said Germany will not agree to a transfer union. But what about mountains of unrepaid southern European debt held by public creditors? By now, both Merkel and Schäuble know that debt cannot and will not be paid back. They also both know that German taxpayers will soon be on the hook. But as a matter of political expediency, Schäuble keeps quiet on mounting cost to Germany of Europe's woes. When Mr Schäuble visited Athens last week, the leftist Greek newspaper Avgi welcomed him with the abrasive headline: "Hail Schäuble! We who are about to die salute you." Aware of the acrid political atmosphere in Athens, Mr Schäuble came bearing gifts: €100m in state-backed loans for small and medium-sized Greek businesses. But what Greece really needs, to kindle a flame of hope in its future, is another restructuring of its foreign debt. Conventional wisdom holds that it would be suicidal for Mr Schäuble, or any German politician, to speak this unpalatable truth to voters before Germany's September 22 national election. Unlike the Greek debt haircut of March 2012, which clipped private sector lenders, any future restructuring would shear the locks of official creditors, including Germany, which now hold over 90 per cent of Greece's debt. So far, the bailouts of Greece, Ireland, Portugal, the Spanish financial sector and Cyprus have cost German taxpayers much in loans and guarantees, but not one cent in hard, unrecoverable cash. Indeed, the €110bn EU-International Monetary Fund rescue of Greece in May 2010 was as much about protecting German banks, which had lent recklessly across southern Europe, as it was about restoring Greece's financial health. A second Greek debt restructuring would not shock German taxpayers and destabilise the political scene, although legal hurdles might need to be jumped at the nation's constitutional court. More dangerous, for its impact on German political and public opinion, would be the dropping of a different penny: the growing possibility that debt write-offs, or extra financial aid, will have to be made available not just to Greece but to Portugal and Cyprus. Spain's banks are not wholly out of the woods, either. As for Cyprus, the duration and intensity of its economic and social collapse are unmeasurable. The question, then, that threatens to dominate German public debate is: "Greece, Portugal, Cyprus . . . Where will we Germans draw the line?" The only certainty is that no answer will come before September 22. Certainties Chancellor Merkel and finance Minister Schäuble will continue to lie, before, during, and after the election. German taxpayers will be on the hook for bailouts in Greece, Cyprus, Spain, and Portugal.  The entire mess will unravel soon. The major uncertainty is the trigger country is not yet known. It could be Greece, Portugal, Spain, Italy, or even Germany (the latter if Germans come to their senses and vote for AfD in a huge way). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

1984 EU Style: EU Launches "Independent" News Agency Because 172 EU Spokespersons "Do a Lousy Job" Posted: 22 Jul 2013 10:06 AM PDT If you are a bureaucrat who does not like the way news is reported, the 1984-style thing to do is launch your own "independent" news agency to make sure someone reports the news the way you want the news reported. The EU did just that in an attempt to 'filter' the news to its own liking. The European Commission is launching its own "independent" news service, complete with editors, web designers and "experts in journalism/journalists." In its call for tenders, the Commission laments that "reporting on EU affairs is often scarce, irregular, lacks a broader European perspective and citizens do not have any specialized platform where they can find and share quality content on EU affairs." By our count, the Commission employs 122 Already spokespersons, press officers and media secretaries to talk up its policies, and another 50-odd staffers in its Directorate General for Communications. That department's € 103.7 million annual budget covers funding for the Presseurop clipping service, Euranet Euronews TV and Radio broadcasts. The EU Also Boasts its own YouTube channel, several newsletters and even a bookstore, que Publishes everything from posters to children's literature. But Europeans still lack "critical understanding of EU affairs," says the Commission, que is why it needs its own agency to "filter, select, and explain the news to the U.S. Citizens, and to do it with quality journalism standards." The successful bidder will receive an annual budget of up to €3.2 million and offer third-party and original content "with a balanced and neutral point of view." Translation The successful bidder agrees to publish only the propaganda the EU sees fit. Bear in mind, the European commission's latest opinion poll finds That 57% of European citizens "distrust" EU Institutions, while only 30% have a "positive" impression. Supposedly, having its own news propaganda agency will help those stats. Instead, I propose the move will create more distrust. How can it not? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

World's Dumbest Idea Posted: 22 Jul 2013 12:53 AM PDT The title of this post stems from an article on Forbes by Steve Denning who writes about "radical management, leadership, and innovation" Denning says Milton Friedman is the The Origin Of 'The World's Dumbest Idea'. No popular idea ever has a single origin. But the idea that the sole purpose of a firm is to make money for its shareholders got going in a major way with an article by Milton Friedman in the New York Times on September 13, 1970. emphasis mine For starters, the actual title of Friedman's article is "The Social Responsibility of Business is to Increase its Profits". Denning substituted the word "sole" for "social". I did a search of the article and the word "sole" was not to be found. Regardless if it is the "social" or "sole" responsibility, it is preposterous to propose anything other than "The primary goal of a for-profit corporation is to make money for shareholders". To state otherwise may not be the "world's dumbest idea" but it sure is inane. Via email exchange, my friend Pater Tenebrarum at the Acting Man Blog stated "I don't often agree with Friedmann, but on this point I do agree with him. A company's profits are the outward sign that it has successfully served consumers. If not the profit/loss system, by what system should it be determined?" "These screeds all want to replace the plans of consumers and producers with THEIR plan. In the end it always comes down to even more government control over our lives. We know how that has worked out so far." Precisely. Ironies Abound The first irony in Denning's ramblings is precisely the fact that corporations frequently do not put shareholders' interests first, but they should. Instead, corporations frequently put the interests of the CEO and top executives first. One look at the astronomical pay and stock options of executives proves the point. Another problem is corporations frequently buy favors from government to gain unfair advantages over their competition. The second irony is GE, a company Denning praises, is one of the worst offenders you can find. Denning concludes "Shareholder value is obsolete. What we are seeing is a paradigm shift in management, in the strict sense laid down by Thomas Kuhn: a different mental model of how the world works." No Paradigm Shift Denning praises Apple as an example of a paradigm shift. I contend that Apple succeeds precisely because it puts shareholder interest first, the rest follows. For high-tech companies like Apple and Google, that means (as Denning states) "a different way of treating people: a shift from a world in which people are manipulated as things (resources, eyeballs, demand) to a world in which people are interacted with as human beings." High Tech vs. Manufacturing  What applies to certain high-tech companies does not apply to the vast majority of manufacturing and retail sales businesses. Consider a typical drive-up fast-food restaurant. Does it matter if a human passes you a sandwich instead of a robot? If the robot was attractive, friendly and lowered the cost of the sandwich, nearly everyone would choose the robot. And I can point to far more examples of robots replacing humans than Denning can of corporations treating employees a "different way". Shareholders Best Served by Robots The unfortunate fact is shareholders are frequently best served by getting rid of employees and replacing them with robots. The second unfortunate fact is Bernanke exacerbates the problem by holding interest rates so low that it's easy for corporations to make a software or hardware robotic decision. The idea of a "paradigm shift" is in Denning's head. Making money for shareholders is the goal. How companies achieve that goal varies from company to company. Denning cherry picks the examples that suit his misguided model. Robots Don't Complain About Being Mistreated There is no new paradigm, and there won't be one. Making money is the reason companies exist. In some high-tech instances, corporations may treat employees nicer, but in most situations, the profit motive means replacing humans with robots that have no feelings whatsoever about being mistreated. Corporations won't mistreat robots (or people they don't employ). And that is the biggest irony of all in Denning's new paradigm theory that treating people better, not profit, is how the corporate model works. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

Read More ..

Mish's Global Economic Trend Analysis

---

Idiocy vs. Common Sense in Detroit; Judge Rules Bankruptcy Invalid; What's Next? Posted: 21 Jul 2013 11:22 AM PDT On Friday, a Michigan Circuit Judge Rosemarie Aquilina ruled Detroit bankruptcy is unconstitutional. On Friday, a circuit court judge in Ingham County ruled that Detroit's federal bankruptcy filing violated a part of Michigan's constitution that protects union pensions. She ordered it withdrawn, a day after Detroit became the largest U.S. city in history to file for chapter nine bankruptcy. Judge Rosemary Aquilina also said the filing did not honor President Barack Obama's work for the city, who she said "took [Detroit's auto companies] out of bankruptcy." Aquilina said she would send a copy of her order to Obama. "It's cheating, sir, and it's cheating good people who work," the judge told assistant Attorney General Brian Devlin. "It's also not honoring the (United States) president, who took (Detroit's auto companies) out of bankruptcy." The Detroit News reported "attorneys representing the pension boards hurried into Aquilina's court to ask for a restraining order" on July 18, but Michigan Gov. Rick Snyder (R) and Detroit's emergency manager Kevin Orr "beat them by a few minutes" in filing for bankruptcy. The filing did not deter lawyers for union pension boards, who can use "court maneuvers to slow down federal bankruptcy proceedings." Idiocy The whole point of bankruptcy court is to resolve debt issues that cannot be paid. It is impossible for Detroit to meet its pension obligations and the only way to resolve the issue is in bankruptcy court. Common Sense In a common sense position, Michigan Governor Says Detroit's Bondholders Part of Bankruptcy Governor Rick Snyder of Michigan said today that the bondholders of the city of Detroit should expect to be "part of the process" of the largest municipal bankruptcy in U.S. history "Realistically, if you step back, if you were lending to the city of Detroit in the last few years, didn't you understand there were major issues and problems?" Snyder, a Republican, said on the CBS's "Face the Nation" today. "Look at the yields they're obtaining compared to other bonds. They were getting a premium." The plight of city pensioners is "one of the other tragic situations" in the Detroit bankruptcy, Snyder said on CBS. He said that during discussions with creditors, "no one" wanted to represent retirees, so he has asked the federal judge in the case to assemble a group of retirees to speak for them. Pension Funding "Short-term through the end of the year, there won't be any change," Snyder said. "Beyond that, the real question also is, to the degree those pension plans are funded, that they're our assets, that they are not part of this process." "It's the unfunded piece, and there's a terrible history there of mismanagement and poor investment that should get aired out in public and should be part of this discussion," Snyder said on CBS. In contrast to the idiotic circuit court ruling, the statements by governor Snyder represent a fresh breath of common sense. 1. Bondholders knowingly took risks so they must take a haircut. 2. The funded assets of the pension plan cannot be touched 3. Bankruptcy court will resolve the unfunded portion What's not to like about that? And in regards to point number three, I would hope the burden falls on the highest pension beneficiaries (most likely city officials, police, firefighters) but also taking into account length of service, rather than something like 50% haircuts across the board. What's Next? I expect the circuit court ruling will be overturned with prejudice, the pension plans will take a huge haircut, boldholders will take some haircut, and the overall fairness of the final decision as to how pension haircuts will be applied is up in the air. Many other cities will follow Detroit's lead. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610

Read More ..