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Tuesday, January 26, 2016

Mish's Global Economic Trend Analysis

Financial Engineering Chart of the Day: Fed Balance Sheet vs. S&P 500
French Taxi Drivers Burn Tires Block Airports in Mass 24-Hour Strike; 20% of French Flights Cancelled
How Healthy Is the Labor Market, Really?
Retail Sales vs. Consumer Confidence; Unwarranted Fed Faith in Wrong Surveys

Financial Engineering Chart of the Day: Fed Balance Sheet vs. S&P 500

Posted: 26 Jan 2016 11:25 PM PST

Fed Balance Sheet vs. S&P 500

I was playing around with some ideas on the St Louis Fed "Fred" database and came up with this.

Mike "Mish" Shedlock

French Taxi Drivers Burn Tires Block Airports in Mass 24-Hour Strike; 20% of French Flights Cancelled

Posted: 26 Jan 2016 06:24 PM PST

Unfair Competition

The nation pastime in France is striking against "unfair competition". To French socialists, the term "unfair competition" means any competition.

On Tuesday French unions decided once again to do something about the unfairness: make everyone miserable as best they can.

Flights Cancelled

Bloomberg reports Taxi Drivers Take to the Streets in 24-Hour French Strikes.

France endured mass strikes on Tuesday as taxi drivers, air traffic controllers, civil servants and teachers demanded more purchasing power, job creation and an end to disruptive competition to traditional industries.

Hundreds of taxi drivers took to the streets of Paris, burning car tyres and blocking routes to principal airports in a demonstration that spread disruption across the capital.

A protest by air traffic controllers prompted France's Civil Aviation Authority to ask airlines to cancel 20 per cent of their flights in France.

The strikes stand to create further problems for President François Hollande and his socialist government as he battles with low economic growth and record unemployment. Mr Hollande has promised not to run for re-election in 2017 if he does not manage to reverse the upward trend in joblessness.

On Tuesday, hundreds of taxi drivers blocked the road at Paris's Porte Maillot, one of the capital's principal entry points. By early morning, they had already succeeded in blocking one direction of the eight-lane highway. Television images showed the strikers lighting fireworks and dragging metal barriers in front of commuter cars desperate to pass.

Waving flags and burning tyres, the taxi drivers were protesting about the rise of disruptive competition such as Uber, the US ride-sharing application, and Heetch, a French ride-sharing app that has become popular among young people.

Among other things, they argue that minicab drivers working with services such as Uber do not have to pay the elevated prices for a regular licence — which have reached as high as €240,000 — and therefore compete under different conditions.

In June last year, police in riot gear used tear gas to break up a protest by taxi drivers, who had all but stopped transport to and from the capital's airports.

Economic Emergency

With today's strike, the economic emergency in France just got bigger. On January 18, I noted Hollande Declares "Economic Emergency" to Save Jobs - His.

Emergency Effort to Save Hollande's Job

With a national election 15 months away and unemployment not falling, a crisis in France emerged: French president Francois Hollande's own job is at risk.

Having promised to step down as president if unemployment in France fails to drop this year, Hollande took the necessary action.

He declared a state of emergency to save jobs, namely his.

Hollande's job creation proposal centered around training schemes and apprenticeships. Few if any jobs would be created with such schemes. However, unemployment would drop because people in those programs are not considered unemployed.

How to Create Jobs

The primary reason French companies will not hire workers is that it's so damn hard to get rid of them later if they do.

Add to that mountains of regulations including inane laws that tell businesses when they can or cannot open the doors.

If Hollande wants to create jobs, this is what he needs to do.

Make it easier for businesses to fire workers.
Let any business that wants to do so, open the doors on Sunday.
Reduce unemployment benefits.
Get rid of countless regulations telling businesses what they can and cannot do.
Get rid of tariffs and subsidies.
Cut taxes, both corporate and personal. Become a pro-business country.

He won't do that because it would cost Hollande his job.

And saving one's ass is always the top priority, so much so, it's now a national emergency.

Mike "Mish" Shedlock

How Healthy Is the Labor Market, Really?

Posted: 26 Jan 2016 05:08 PM PST

What's the "official" unemployment rate vs. economic reality?

In my analysis of the monthly jobs reports on the first Friday of the month, I make a statement similar to this:

"The official unemployment rate is 5.0%. However, if you start counting all the people who 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 9.9%. Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job."

There is no way to track disability fraud for sure, But I suspect it's 75% of those on disability.

Hornstein-Kudlyak-Lange Non-Employment Index (NEI)

While not addressing disability fraud or forced retirement issues, Richmond Fed economists Andreas Hornstein and Marianna Kudlyak, and McGill University economist Fabian Lange came up with the Non-Employment Index (NEI) as a better way to track the true health of the labor market.

The NEI differs from the standard unemployment rate as a measure of resource utilization in two important ways:

1. It counts not only the unemployed, but also those out of the labor force. The latter is a diverse group that includes individuals who want a job (such as the marginally attached who are willing and able to work and sought employment in the past, but have stopped searching) and those who do not want a job (such as retirees, the disabled, students, and those who are neither retired, nor disabled, nor in school).

2. It weights the different groups of non-employed (that is, both the unemployed and people out of the labor force) according to their labor market attachment, or the likelihood that a non-employed person will transition back into the job market. Specifically, each group is weighted by its historical transition rate to employment relative to the highest transition rate among all groups (the transition rate of the short-term unemployed).

An additional version of the NEI is calculated to include people who are working part time but would like to work full time, a category called "part time for economic reasons" (NEI+PTER).

During the period prior to June 2007, there was a close linear relationship between the standard unemployment rate and the NEI.

Why Does it Matter for Policy?

The decline of the unemployment rate after the 2007-09 recession has coincided with an increase in the number of individuals out of the labor force. These observations lead to the question: Post-2007, is there substantial labor market weakness beyond what is measured by the unemployment rate? For example, discouraged individuals who are not counted in the labor force aren't included in the standard unemployment measure, but they do factor into labor market resource utilization. Economic research has shown that discouraged workers are not as distinct from those counted as unemployed as they might appear. They return to work at rates similar to those who have been unemployed for longer than 26 weeks. Therefore, excluding discouraged workers or similar groups from the standard unemployment measure may misstate the degree to which resources in the labor market are utilized.

NEI Chart

The above chart is from the Fred Blog How healthy is the labor market, really?

The article gives you the means to recreate the chart. It does not allow you to see how the authors determined the weights.

My suspicion is that their index undercounts massive disability fraud (those people who would want a job had they not been able to bilk the system). Then again, those people are not likely to be looking for a job, until the fraud stops.

Fraud and similar issues aside, this chart is a step in the right direction in terms of understanding how over-hyped the decline in the unemployment rate has been.

For those interested in how disability fraud has artificially lowered the labor force I can provide numerous examples.

Disability Fraud

I have written about Disability Fraud at least a dozen times.

60 Minutes: Mainstream Media Finally Catches on to Disability Fraud: 60 Minutes Reports on "Disability USA"

Steve Kroft on 60 Minutes reports on the alarming state of the federal disability program, which has exploded in size in the last six years and could become the first federal benefits program to run out of money.

NPR: Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide

How Easy is it to Get Disability?

Hale county's Dr. Timberlake asks a simple question to all his patients. "What grade did you finish?" If you claim "back pain" and do not have a degree, Timberlake believes you are disabled.

The Disability Deal

Getting disability seems easy enough in some states, and especially easy in Hale County Alabama. But is disability better than minimum wage? The answer is yes. NPR author Chana Joffe-Walt explains: ....

States Promote Fraud: States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There?

This all goes back to 1996 when president Bill Clinton promised to "end welfare as we know it". He did indeed do just that, and fraud is the result.

Why?

The federal government pays disability, but states pay part of welfare costs. This creates a huge incentive for states to actively promote disability fraud (simply to get people off state-sponsored welfare programs).

Results of Clinton Ending Welfare "As We Know It"

Every month 14 million Americans receive a disability check.
In 1961 the leading cause of disability was heart disease and strokes, totaling 25.7% of cases. Back pain was 8.3% of cases.
In 2011 the leading cause of disability was a hard to disprove back pain, totaling 33.8% of cases. The second leading cause was an equally difficult to disprove "mental illness" at 19.2%. Strokes and heart disease fell to 10.6%.
In West Virginia, a whopping 9% of the population collects disability checks. In Arkansas, 8.2% are on disability, and in Alabama and Kentucky, 8.1% collect disability. In Alaska, Hawaii, and Utah, the figure is 2.9%.
In Hale County Alabama 1 in 4 receive disability checks.
Nearly every case in Hale County Alabama has Dr. Perry Timberlake in common.
Those on Supplemental Security Income, a program for children and adults who are both poor and disabled is nearly seven times larger than 30 years ago.
Once people go onto disability, they almost never go back to work. Fewer than 1 percent of those who were on the federal program for disabled workers at the beginning of 2011 have returned to the workforce.

Dr. Timberlake asks a simple question to all his patients. "What grade did you finish?" If you claim "back pain" and do not have a degree, Timberlake believes you are disabled.

Timberlake gets paid for his "analysis".

States are willing to go along thanks to Bill Clinton who "ended welfare as we know it", creating an even worse disability fraud scheme in the wake.

There has been no president since, Republican or Democrat, willing to stop fraud at the federal level. And clearly Obama is doing his best to expand fraud.

Disability Deal Explained

If Democrats give enough free benefits to enough people, no one can ever vote them out of office.

Mike "Mish" Shedlock

Retail Sales vs. Consumer Confidence; Unwarranted Fed Faith in Wrong Surveys

Posted: 26 Jan 2016 11:32 AM PST

Conference Board Consumer Survey

The consumer conference board does a paper survey every month on consumer confidence.

The board's technical notes say (emphasis mine) "The targeted responding sample size - approximately 3,000 completed questionnaires - has remained essentially unchanged throughout the history of the CCI."

I called up the board with a simple question: How many surveys do you send out to get 3,000 completed questionnaires?

The very snooty person who answered the phone told me to look in the technical notes. However, the information isn't there or I cannot find it. I had already read the technical notes before I called. Besides, my question was quite simple.

Retail Sales vs. Consumer Confidence

The Fed places a lot of faith in this survey. Yellen cites strong consumer confidence frequently, as did Bernanke before her.

The numbers are out today. Consumer confidence is up. In general, confidence been high and rising for years.

Happy consumers are supposed to be shopping like mad, especially given the collapse in the price of gasoline.

Let's investigate those theories from today's Econoday Report.

Alleged ties of this survey to consumer spending appear to be a complete bunch of hooey.

I keep wondering if paper surveys are part of the problem. Are the people who respond to random paper surveys more likely to be happier than those who don't?

New York Fed Survey

The New York Fed also does a survey. Every month, the New York Fed interviews a rolling group of 1200 people to produce a detailed Survey of Consumer Expectations.

Here are the results of the Fed's latest survey.

One Year Look Ahead Household Spending Projections

click on chart for sharper image

Given the Fed places so much faith in various consumer confidence numbers, I have a simple question: Why don't they believe their own survey?

Mike "Mish" Shedlock

Monday, January 25, 2016

Mish's Global Economic Trend Analysis

"Temporary" Capital Controls Coming to China?

Posted: 25 Jan 2016 09:56 PM PST

Massive Reserve Hemorrhage

China hemorrhaged $663 billion of its reserves since June 2014 in a misguided attempt to prop up the yaun. Once the biggest buyer of US treasuries China Starts Dumping U.S. Government Debt.

Note the irony of that headline. Misguided analysts long clung to the belief that the US dollar would go to hell when China started dumping treasuries, "certificates of confiscation" as they were commonly called.

Instead, China has used a significant portion of its reserves to prop up the Yuan. It still has about $3.3 trillion left according to estimates, but China cannot keep the current pace up forever.

"Temporary" Capital Controls the Solution?

The Financial Times reports Capital Controls May be China's Only Real Option.

Chinese officials readily admit that communication has not been their strong point when it comes to dealing with international investors. Policymakers have now made it explicit that they have no wish to engineer a big devaluation. However, they are much less forthcoming about how they plan to reconcile a desire for currency stability with the realities of capital flight and a slowing economy.

Central bank guidance is most effective when the policy is clear and it is relatively straightforward to work out how it will evolve in response to changes in economic data. At present, the reality in China is that the PBoC has no clear course of action and wants to leave itself flexibility.

No amount of clarification would help to varnish the underlying problem: capital flight. The corruption clampdown and a lack of investment opportunities at home are driving Chinese people to take their money out of the country, just as the prospect of higher US interest rates is prompting companies to pay off dollar debt. Fear of a devaluation has fuelled the outflows. Far from seeking a weaker renminbi, the central bank has been forced to spend a big chunk of its reserves to prop it up

This goes against the grain of recent liberalising measures, which last year helped China win the renminbi's inclusion in the International Monetary Fund's special drawing rights basket, alongside traditional reserve currencies. However, the IMF has become far more willing to accept the case for temporary capital controls since quantitative easing sparked huge flows of hot money into emerging markets.

Capital controls are not a long-term solution but, at present, they are the correct step for Beijing to take in a very difficult situation. However, they will only work if China uses the breathing space to articulate a clear policy to rebalance its economy and liberalise its currency in the longer term — a process that will take many years.

Yuan's Fall Is Just 'Noise' Amid Deeper China Woes

The Wall Street Journal hits the nail on the head with this headline: Yuan's Fall Is Just 'Noise' Amid Deeper China Woes.

When the financier George Soros attacked the British pound in 1992 and famously "broke the Bank of England" he was trading on a conviction that the currency was misaligned.

Britain devalued after squandering its reserves in a vain defense. Mr. Soros walked off with $1 billion or more. To the surprise of many, though, the U.K. economy soon picked up once the pound found its proper level.

China's raging battles with currency speculators are unlikely to end as happily for the country. That's because turmoil in the currency markets reflects a much more perilous imbalance than an overvalued yuan: China is now lopsidedly dependent on ever larger inputs of local bank credit to keep sputtering growth from declining further.

The country is already littered with "zombie" factories, empty apartment blocks that form ghostly suburbs, mothballed power stations and other infrastructure that nobody needs. But yet more wasteful projects are in the pipeline, even as the government talks about cutting industrial overcapacity.

"That's the misalignment—everything else is noise," says Rodney Jones, the Beijing-based principal of Wigram Capital Advisors, who was a partner at Soros Fund Management during the 1990s.

If debt keeps piling up at the current rate, China faces an eventual financial crisis, perhaps leading to years of subpar growth, mirroring the fate of Japan after its bubble burst in the early 1990s.

Mr. Jones argues that global equity markets haven't property adjusted to this risk, even after a 16% decline in U.S. dollar terms from their May peak. "The world will have to learn to live without demand from China," he says. "It'll come as a shock."

Managing a Crisis of China's Own Doing

As we sit here discussing "temporary" measures that often seem to last decades, we need to step back and ask: What caused this mess?

The answer is a ridiculous growth targets. To hit 7% growth targets for years on end, China had to waste a lot of money on projects, many of which are now worthless.

While the boom lasted, China, like Japan before it, was considered an "economic miracle".

To top it off, China did not float the yuan, but now wants to defend an untenable target.

Unlike the above writers, I suggest China do what it should have done a decade ago: float the yuan and stop micro-managing the economy.

Sure there will be a lot of short term pain. But short term pain is a lot better than three lost decades as Japan is experiencing

Mike "Mish" Shedlock

Dallas Fed Region Activity Plunges to Lowest Reading Since 2009; Production Collapsed

Posted: 25 Jan 2016 11:28 AM PST

Those expecting a bounce in manufacturing following an alleged improvement in the Philadelphia Region were mistaken.

In Philadelphia, all that really happened was that things got worse at a decreasing rate.

Dallas Region Collapse

The Dallas Fed General Activity Index plunged to -34.6 from a revised reading last month of -20.1. The Econoday Consensus Estimate was -14.0 in a range of -17.0 to -10.0. The production index, also plunged. Last month the index was in positive territory at 12/7. It's now -10.2.

Manufacturing data from the Dallas Fed, along with that of the Kansas City Fed, have been offering the most striking evidence of oil-related contraction. Dallas' general activity index came in at an extremely negative score of minus 34.6 for the January report which is the lowest reading since the beginning of the recovery in 2009.

New orders are falling deeper into contraction as are unfilled orders. Hours worked are now in the negative column as is employment. And finally falling into contraction -- and in a big way -- is the production index which had through last year, despite long weakness in orders, held in positive ground, but not anymore with the reading at minus 10.2 for a nearly 23 point monthly plunge. Price data in this report remain well into the minus column, at nearly double-digit monthly declines.

Manufacturing reports this month have been mixed, with this and Empire State pointing to another buckling but not the most closely followed report, the Philly Fed which is pointing to stability for the sector. Watch for the Richmond Fed report tomorrow and the Kansas City report on Thursday.

Production vs. Activity

Price of oil and gas is so low, production is a money-losing effort. This month we finally see the production spigots have been turned to low throttle. It's a needed step for oil prices to bottom.

Mike "Mish" Shedlock

Sunday, January 24, 2016

Mish's Global Economic Trend Analysis

Debunking the Myth "Consumer Spending is 67% of GDP"
Crowdfunding Review: Exploding Kittens; Bankrupt Zano; Will Crowdsourcing Ever Work?
East Coast Blizzard - Some Love It: Legal Sledding on Capitol Hill First Time in 140 Years; Panda "Tian Tian" Loves Snow
Rajoy Says Leftist Parties Causing "Terror in Europe" as Spanish Government About to Fall

Debunking the Myth "Consumer Spending is 67% of GDP"

Posted: 24 Jan 2016 10:55 PM PST

Consumer Spending Myth

It is widely believed that consumer spending accounts for approximately two-thirds of the economy. A few of us dispute that claim.

Reader Gary writes "You had made the comment more than once that manufacturing is really a much larger part of GDP than is frequently quoted. I could not find how you got there, but ZeroHedge has a nice Pie Chart that shows what you have stated."

It's Only a Manufacturing Recession

The chart Gary referenced is from "But It's Only A Manufacturing Recession, What's The Big Deal" - Here's The Answer.

I am not sure of the origin of that chart, or its precise accuracy, but the essential idea rings true.

GDP Illusion

In Is the US Economy Close to a Bust, Pater Tenebrarum at the Acting Man Blog points out ...

One thing that we cannot stress often enough is that the manufacturing sector is far more important to the economy than its contribution to GDP would suggest. Since GDP fails to count all business spending on intermediate goods, it simply ignores the bulk of the economy's production structure. However, this is precisely the part of the economy where the most activity actually takes place. The reality becomes clear when looking at gross output per industry: consumer spending at most amounts to 35-40% of economic activity. Manufacturing is in fact the largest sector of the economy in terms of output.

In The GDP Illusion Tenebrarum writes ...

Sure enough, in GDP accounting, consumption is the largest component. However, this is (luckily) far from the economic reality. Naturally, it is not possible to consume oneself to prosperity. The ability to consume more is the result of growing prosperity, not its cause. But this is the kind of deranged economic reasoning that is par for the course for today: let's put the cart before the horse!

In addition to what Tenebrarum states, please note that government transfer payments including Medicaid, Medicare, disability payments, and SNAP (previously called food stamps), all contribute to GDP.

Nothing is "produced" by those transfer payments. They are not even funded. As a result, national debt rises every year. And that debt adds to GDP.

Real GDP is constantly overstated because it's obscured by a cloud that hides monetary inflation and ignores both debt and bubbles.

Mike "Mish" Shedlock

Crowdfunding Review: Exploding Kittens; Bankrupt Zano; Will Crowdsourcing Ever Work?

Posted: 24 Jan 2016 07:24 PM PST

Crowdsourcing Hype

Robots and artificial Intelligence will destroy 5.1 million jobs by 2020 says a study on the "Future of Jobs".

Crowdsourcing was one of the big factors noted in the study.

My comment last Friday was "I suspect crowdsourcing is one of those things with huge potential that never really flies because there is no money in it for anyone."

More accurately, I should have said "no net money for anyone but the promoters".

This weekend, readers emailed a series of article on a cwowdsourcing that I had not seen.

Crowdsourced Zano Implodes

Please consider the January 18 Media.Com article How Zano Raised Millions on Kickstarter and Left Most Backers with Nothing.

The gist of the story is one of Zano, a drone-maker that sought to raise $190,000 to put a prototype into production. The company raised millions but the drones could not fly.

Said one person involved: "I unpacked my Zano and tried to fly it indoors, as I guess most people did. It really didn't go very well at all, banging into the wall. So I took it down to a local park and tried to fly it there. After 10 or 15 seconds, it would just go off and do its own thing, zipping off sideways until it got out of range. Basically, it was just awful. The video was pretty poor quality too."

The promotional videos displayed smooth, professional shots.

"As [with] any commercial video, people are going to edit out the takes that aren't as good."

The article notes "UK market analyst firm Juniper Research predicts that that investments made in technology via crowdfunding platforms will increase sevenfold from an estimated $1.1 billion last year to $8.2 billion by 2020. If we want a democratic, open, freely accessible alternative to banks and venture capitalists, then we will have to accept occasional failures like Zano along with runaway successes like Pebble, Oculus Rift, and Veronica Mars."

Media.Com concludes with some sobering bullet points ...

Financial pressures led the creators to ship Zano units that they knew were not ready, and additionally to favour pre-order customers in the hope of receiving additional revenues.
The liquidation is proceeding in a professional manner, but is unlikely to result in any refund, however small, to any Kickstarter backer.
I do not believe that the creators possessed the technical or commercial competencies necessary to deliver the Zano as specified in the original campaign.
Kickstarter, and other crowdfunding platforms, should reconsider the way that they deal with projects involving complex hardware, massive overfunding, or large sums of money. There should be better mechanisms to identify weak projects before they fund, as well as new processes to provide mentorship, support and expert advice to newly-funded projects.

Related Articles

October 30: Crowdfunding for Internet Stock Sales Approved by SEC
November 2015: When Crowdfunding Projects Go Wrong
January 21: Kickstarter Digs Deep Into Case of Doomed Drone

Biggest Crowdsourcing Efforts

Bloomberg reports on the Biggest Crowdfunding Campaigns of 2015, cleverly commenting "no the Greek Bailout did not make the list".

Exploding Kittens and Russian Roulette

I confess. I never heard of "Exploding Kittens" or anything else the crowds are funding.

"Exploding Kittens is a highly strategic kitty-powered version of Russian Roulette. Players take turns drawing cards until someone draws an exploding kitten and loses the game. The deck is made up of cards that let you avoid exploding by peeking at cards before you draw, forcing your opponent to draw multiple cards, or shuffling the deck," wrote the creators in the official webpage. "So if you're into card games or laser beams or weaponized enchiladas, please help us make this game a reality. We think you'll love it as much as we do," they added.

Expect More Beanie Babies

Maybe the crowds can identify popular games in advance, maybe not. But when it comes to serious applications, any expectation that crowdsourcing will be a disruptive force seems silly.

The crowds also brought us Beanie Babies and Pet Rocks. Expect more of the same.

I commented on truly disruptive processes in Fourth Industrial Revolution: Robots, Artificial Intelligence Will Destroy 5.1 Million Jobs by 2020.

Mike "Mish" Shedlock

East Coast Blizzard - Some Love It: Legal Sledding on Capitol Hill First Time in 140 Years; Panda "Tian Tian" Loves Snow

Posted: 24 Jan 2016 12:56 PM PST

Not everyone hates the unusual blizzard that dumped 2 feet or more of snow in Washington D.C. and other locations on the East coast.

Giant Panda Stars at National Zoo

Please consider Giant Panda Stars at National Zoo in Reaction to Blizzard.

"A frolicsome giant panda called Tian Tian appeared to be capturing the bulk of the online attention as videos and other images emerged of animals at the National Zoo in Washington, D.C., as they encountered Saturday's accumulating snowfall."

Legal Sledding on Capital Hill

DC Residents Flock to Capitol Hill for First Legal Sledding in 140 Years.

Just in time for the blizzard that dumped more than 2 feet of snow across the mid-Atlantic, kids and adults took their sleds to Capitol Hill, legally, for the first time in more than 140 years.

In a provision from December's spending bill, Capitol Police will halt their enforcement of the sledding ban as long as conditions are safe.

Hundreds of people took advantage of the newly changed policy during the record-breaking blizzard on Saturday. The Hill was quickly populated with sleds, inflatable mattresses, inner tubes and other creative forms of transport.

"It took an act of Congress, but children are finally welcome to sled down on #CapitolHill," Speaker of the House Paul Ryan tweeted on Saturday.

Best Thing From Congress in Years

Is sledding on Capitol hill the best thing Congress has done in years? I struggle to come up with anything better.

Mike "Mish" Shedlock

Rajoy Says Leftist Parties Causing "Terror in Europe" as Spanish Government About to Fall

Posted: 24 Jan 2016 12:10 PM PST

Following a December election that has left Spanish politics deeply fragmented, People's Party (PP) leader, Prime Minister Mariano Rajoy's has been unable to secure the majority coalition he needs to rule.

Unless someone has a majority, it is the role of the king, otherwise a largely ceremonial role, to see if anyone can build a coalition. First chance goes to the party receiving the most votes.

Here's a sequence of events with brief translations and a couple of comments from reader Bran who lives in Spain. The clips are from last Friday through today. Links are in Spanish.

Rajoy declines the offer by the king to try to form a government. However the news is later tempered with his words "I haven't renounced the right to be chosen, it is that right now I don't have the votes". Friday - http://politica.elpais.com/politica/2016/01/22/actualidad/1453478212_032444.html
During the round of meetings with the king, Iglesias (leader of Podemos) announced without any warning that he would seek to form a coalition with PSOE based on proportional representation of power in the government with Sanchez as president and himself as vice president and ministers also proportionally assigned. Iglesias includes IU (left) as part of the tripartite and asks for a Catalan referendum. Apparently Sanchez was only informed of the offer when he went to meet the king. Friday - http://politica.elpais.com/politica/2016/01/22/actualidad/1453461680_098827.html
Sanchez's first reaction was a cautious welcome, saying "Voters would not understand if I and Podemos did not understand each other". He says he will hold talks with Podemos over the weekend. However Iglesias carried on his overt approach by tweeting his position with statements like "the historic possibility that he (Sanchez) will become president is a smile from destiny that he should be thankful." Friday - http://politica.elpais.com/politica/2016/01/22/actualidad/1453464023_797332.html
Reactions of the regional heads and ex-heads of the PSOE, including previous party leader Rubalcaba was not favorable. Rubalcaba stated "It is the first time I have heard an offer of accord to form a Government while gravely insulting the party with which you hope to govern with." There is even a new hash tag #Respetoal PSOE "Respect PSOE" Friday - http://politica.elpais.com/politica/2016/01/22/actualidad/1453496560_129777.html?rel=cx_articulo#cxrecs_s
Message from Bran on Saturday: "Hello Mish, I'll keep posting through the politics but if you are thinking of writing on it, be careful not to be caught off guard. There are more twists and turns than we might imagine.
Rajoy, having resigned his candidature, but still offering it, launches straight into the offensive from his self-declared position of opposition, labeling Sanchez "mortgaged and undignified" for hypothetical agreements with Podemos politica. Saturday - http://politica.elpais.com/politica/2016/01/23/actualidad/1453545112_869649.html
Sanchez refuses to pick up the gauntlet, broadcasting that he will not present himself as candidate for now because that right still belongs to Rajoy because PP has the most seats. Sanchez also smacked down Podemos in the process, saying his own candidacy won't be launched by blackmail. The actual word Sanchez used is "chantaje", which means "story telling leverage", a bit lighter than blackmail. Saturday - http://politica.elpais.com/politica/2016/01/23/actualidad/1453553795_291625.html
PP says Podemos offer to align with PSOE "causes terror in Europe". Saturday - http://ecodiario.eleconomista.es/politica/noticias/7299394/01/16/El-PP-asegura-que-la-oferta-de-Gobierno-de-Pablo-Iglesias-ha-causado-terror-en-Europa.html
Sanchez now says he will attempt to form a government if the king asks him to. Saturday - http://politica.elpais.com/politica/2016/01/23/actualidad/1453553795_291625.html
Rajoy says that PSOE/Podemos coalition will not be able to govern because he will use the PP majority in the senate to block it. Saturday - http://ecodiario.eleconomista.es/politica/noticias/7299046/01/16/Rajoy-amenaza-a-la-union-PSOEPodemos-No-podran-gobernar-tenemos-la-mayoria-en-el-Senado.html
Yanis Varoufakis, former finance minister of Greece says the troika will tie the hands of a PSOE/Podemos government. Saturday - http://www.eleconomista.es/economia/noticias/7299442/01/16/Varoufakis-advierte-que-la-Troika-ataria-las-manos-de-un-Gobierno-PSOEPodemos.html
Bran comment on Sunday: "All sorts of covert and overt activity is taking place. For now, all the political leaders reject coalitions that can reach a majority. We will have to see how the PSOE/Podemos relationship pans out, because they will still need to pick up additional seats from fringe parties to reach a majority."

Breaking the Logjam

The Financial Times reports Podemos Proposes Leftwing Coalition to Break Spain Logjam.

The anti-austerity Podemos party on Friday made an audacious move towards breaking Spain's post-election political logjam, proposing a three-way coalition government with the Socialists and the United Left party.

"If the PSOE [the Spanish Socialist party] wants it, there can be a government of change," Pablo Iglesias, the Podemos leader, told a news conference in Madrid.

He was speaking after meeting Felipe VI, the Spanish monarch, whose constitutional role includes proposing the next head of government to parliament.

Another complication is that the Socialists, Podemos and the United Left would still not hold a majority in parliament. The three parties together control 161 seats in the 350-seat parliament, meaning they would be 15 votes short of an absolute majority.

To win the premiership and pass future legislation, they would need either the support or the abstention of smaller regional parties, including the two parties that support Catalan independence from Spain. For the Socialists, a party that prides itself on its staunch defence of Spanish unity, it would be a deeply uncomfortable situation.

The proposal made by Mr Iglesias marks the first concrete offer to create a left-of-centre government coalition since Spain went to the polls in December. The election produced a deeply fragmented parliament that leaves neither the right nor the left an obvious path towards a stable majority.

Mr Rajoy, the leader of the conservative Popular party, has proposed a centrist alliance between his own party, the Socialists and the centrist Ciudadanos party. The Socialists have so far rejected the prime minister's offer.

Problems Facing Leftist Coalition

PSOE insists Catalonia stay united with Spain
Podemos is open to Catalan elections
The third group of fringe parties needed to form a coalition demand Catalonia independence

Spanish Government About to Fall

The most likely possibilities are a new election (if no one can achieve a majority), or an unstable coalition of leftist parties.

Barring an unlikely last minute miracle, the government of Mariano Rajoy is over. New elections are in the cards immediately, or a bit down the road after an unstable coalition of some sort falls apart.

Either way, Rajoy is burnt toast.

Mike "Mish" Shedlock

Saturday, January 23, 2016

Mish's Global Economic Trend Analysis

Arrogant Trump: "I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters"

Posted: 23 Jan 2016 03:30 PM PST

At an Iowa rally earlier today, Donald Trump made the arrogant claim "I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters".

CNN reported Trump refused to clarify what he meant.

Donald Trump boasted Saturday that support for his presidential campaign would not decline even if he shot someone in the middle of a crowded street.

"I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters," Trump said at a campaign rally here.

After the event, Trump declined to answer when asked by CNN to clarify his comments.

Teflon Trump

At what point does making arrogant, seemingly idiotic statements matter?

No doubt his campaign is working on damage control now.

Here's the likely explanation: "Trump was obviously referring to being attacked and responding in kind."

Reaction So Far - Positive

Then again, perhaps Trump can just brush it off. NPR has this Report on Trump.

NPR's Don Gonyea reports that so far, the reaction to Trump's remarks has followed a familiar pattern.

"His audiences love it. His opponents try to use it against him — but so far, to no avail," Gonyea reports. "I talked to some of his supporters and they say, 'Yeah, sometimes he makes me cringe, but I still like him and I still think he's the right thing for America.' "

One supporter, who spoke to ABC News, said he found Trump's point clear — but mentioned Trump could have articulated it differently.

"He probably could've worded it a little bit better," campaign volunteer Brandon Fokkema said.

Fed Up

One thing's for sure: Former New York City mayor, Michael Bloomberg is so fed up with both Democratic and Republican candidates, that despite the longshot odds, Bloomberg Contemplates Running for President as Independent.

Mike "Mish" Shedlock

Bloomberg Contemplates Running for President as Independent; Longest of Longshots

Posted: 23 Jan 2016 03:10 PM PST

Former New York Mayor, billionaire Michael Bloomberg, is fed up with Donald Trump, the republicans in general, Bernie Sanders, and Hillary Clinton's shift to the left to fight Sanders.

As a direct result of being fed up with everyone but himself, Michael Bloomberg Mulling Run for President as Independent.

Mr. Bloomberg, 73 years old, has long contemplated a run at the White House. But the unlikely rise and continued strength of Donald Trump, along with polls suggesting Hillary Clinton's campaign may be flagging, have driven the billionaire businessman closer than ever before to entering the race, a close adviser said Saturday.

Eyeing a potential opening for the first time, Mr. Bloomberg has retained a consultant to help him run on the independent ballot in state primaries. He has commissioned polls to test his path to victory. And he has directed the close circle of advisers who worked for him as mayor and have remained by his side over the past two years since he left office to begin mapping out a blueprint for a run, one adviser said.

That adviser said the former mayor has been upset by what he sees as extremist rhetoric from Republicans in the race, as well as a leftward turn from Mrs. Clinton, who is fending off an unexpectedly strong challenge in the Democratic primary from the more liberal Vermont Sen. Bernie Sanders.

If he runs, Mr. Bloomberg is likely to face hurdles with voters, especially those outside the Northeast, where he is better known. A recent poll by Morning Consult showed Mr. Bloomberg receiving 13% support from voters, Democrat Hillary Clinton getting 36% and Republican Donald Trump 37%. The same poll found that 43% of voters either hadn't heard of Mr. Bloomberg or had no opinion. Morning Consult said the poll was conducted from Jan. 14 to Jan. 17 among a sample of 4,060 registered voters around the country.

Longest of Longshots

Should he choose to run, Bloomberg would be the longest of longshots. But, he has a lot of money to waste.

Should he choose to do so, would it help or hurt Trump?

Mike "Mish" Shedlock

Friday, January 22, 2016

Mish's Global Economic Trend Analysis

Former Hasbro CEO Says "Providence Should Consider Bankruptcy"; An Option Chicago Needs
Existing Home Sales Bounce Essentially a Mirage; Supply Drops to 11-Year Low: Is that a Problem?
Fourth Industrial Revolution: Robots, Artificial Intelligence Will Destroy 5.1 Million Jobs by 2020
China Openly Pledges to Sink the Yuan vs. the Dollar

Former Hasbro CEO Says "Providence Should Consider Bankruptcy"; An Option Chicago Needs

Posted: 22 Jan 2016 12:40 PM PST

Providence, the capital of Rhode Island, is in such bad financial straits that Former Hasbro CEO Alan Hassenfeld has this scary message for state officials Providence Should Consider Bankruptcy.

In a candid interview with the Providence Business News, Hassenfeld said he fears Providence is in deeper trouble "than anyone comprehends" and that officials should consider bankruptcy in order to right the ship.

"I'm not sure, and this will shock you, I'm not sure if we shouldn't pull a Detroit or Central Falls and level the playing field and start all over," Hassenfeld told PBN.

Hassenfeld is among the most prominent Rhode Islanders to publicly suggest Providence should consider bankruptcy.

In 2011, tiny Central Falls filed for Chapter 9 bankruptcy, slashing pensions and ordering 4% annual tax increases for five straight years in order to improve the city's finances. Under new Mayor James Diossa, the city has earned high praise for helping the city recover, but Central Falls had the state's fourth-highest residential property tax rate ($27.63 per $1,000 of assessed value) and second-highest commercial tax rate ($39.67 per $1,000) in 2015, according to the state Division of Municipal Finance.

Illinois Needs Bankruptcy Solution

A least Rhode Island offers cities and municipalities a choice.

Illinois has no provision for municipal bankruptcies. As a direct consequence, Illinois cities and school districts sink deeper and deeper in debt, even though taxes go higher and higher.

Illinois "Too Big a Risk"

Chicago was supposedly on the "short list" of cities GE was considering for its new headquarters. But GE instead selected Boston.

GE said "Illinois Too Big a Risk".

GE accurately cited Chicago schools, pensions, corporate tax rates, financial meltdowns, budget holes, and a rock-bottom state debt rating.

Too many risks? You bet. So what is mayor Emmanuel and the Illinois legislature going to do about it?

Tax Hikes and More Tax Hikes

Mayor Rahm Emanuel's solution to this mess was to make the biggest tax hike in history.

On October 28, 2015 I commented Chicago's Sheep Dogs Approve Mayor's Tax on Sheep; Quote of the Day "It's Not a Piece of Art".

The "sheep" in question are Chicago taxpayers who will need to pony up a historic property tax hike of $589 million to fund the city's police and fire department pensions.

Deal or No Deal

25 cents out of every Illinois taxpayer dollar goes to Illinois pensions. Yet, Illinois has the worst funded state pensions in the entire nation.

On January 20, I reported "B" Word Hits Chicago: Illinois Governor Proposes Bankruptcy for Chicago Public School System.

To appease the unions and save his own job in the process, mayor Emanuel's spokeswoman, Kelley Quinn, responded "The mayor is 100 percent opposed to Gov. Rauner's 'plan' to drive CPS bankrupt," Emanuel's.

I commented "When a politician's job depends on not understanding a problem, there's no way in hell the problem will be understood."

Yesterday I read Illinois governor Bruce Rauner and the Democrats agreed on a pension deal. Just hours later the deal fell through.

A headline that yesterday said "deal reached" today says "Rauner backs Cullerton pension plan - but Cullerton says it's not his plan".

The fundamental difference is over collective bargaining. Cullerton said he believes collective bargaining should continue to exist, but Rauner disagrees.

No Deal

Governor Rauner says "reforms first". Emanuel and the Democratic legislature say "money first".

Rauner would be a fool to accept that offer. So we sit.

Illinois still does not have a budget for 2015. A quick check of my calendar says it's already 2016.

I applaud Rauner's holdout.

Chicago should not get one dime until Illinois gets needed changes in bankruptcy law, and until cities can escape the enormous expense of prevailing wages laws and collective bargaining.

Mike "Mish" Shedlock

Existing Home Sales Bounce Essentially a Mirage; Supply Drops to 11-Year Low: Is that a Problem?

Posted: 22 Jan 2016 10:56 AM PST

Home Sales Bounce Misleading

December existing Home Sales bounced a whopping 14.7% from November's dismal showing. But most of that bounce is a mirage.

Last month, new documentation rules pushed sales into December.

Smoothing out the distortions, the average of the last two months was 5.11 million. That's well below the 5.43 average of the prior six months.

So, there were indeed distortions last month, but there is also underlying weakness.

Bloomberg Econoday reports ...

Existing home sales bounced back sharply in December, up an outsized 14.7 percent to a 5.46 million annualized rate that just tops Econoday's top-end forecast. Year-on-year, sales are up 7.7 percent in a major contrast with the minus 3.8 percent rate of November. But November was an unusual month skewed lower by new documentation rules that pushed sales into December. Averaging the two months together shows a 5.11 million rate that is well below the 5.43 average of the prior six months. Total sales for 2015 came in at 5.26 million, well up from 4.94 million in 2014.

Single-family homes led December's bounce, surging 16.1 percent to a 4.82 million rate and a 7.1 percent year-on-year gain. The trend for condos has been much stronger with the year-on-year gain at 12.3 percent and with monthly growth in December at 4.9 percent to a 0.640 million rate.

Low supply in the market has been a big negative for sales and is a major concern in this report. Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November and sizably below 4.4 months in December 2014. Supply right now of existing homes is as low as it's been in nearly 11 years, a factor the report warns that may slow sales during the spring.

But low supply is a plus for prices where data in this report are firming. The median is up 1.9 percent in the month to $224,100 for a very respectable 7.6 percent year-on-year gain.

Regional data show wide sales gains led by the West at 23.2 percent on the month followed by the South at 14.6 percent. Year-on-year, the Northeast is out in the lead at plus 11.9 percent followed by the Midwest at 9.9 percent.

Housing is showing some life but gains, including those for new homes, are being held back by lack of supply. Still, price appreciation is a rising plus and is well above other price areas including wage growth.

Price Appreciation

Is price appreciation a plus or a minus?

Bloomberg says "price appreciation is a rising plus".

I suggest that with every increase in price, homes become less and less affordable.

Supply Drops to 11-Year Low

Bloomberg says "Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November."

Why did supply relative to sales plunge?

Because November sales were skewed to the downside and December to the upside. Expect a rebound in supply numbers next month.

Existing Home Sales With Distortions Smoothed

If you smooth the distortions, today's reported bounce is no more than a mirage.

Mike "Mish" Shedlock

Fourth Industrial Revolution: Robots, Artificial Intelligence Will Destroy 5.1 Million Jobs by 2020

Posted: 22 Jan 2016 10:01 AM PST

Fourth Industrial Revolution Coming

A new study on the "Future of Jobs" by the World Economic Forum at Davos claims a Fourth Industrial Revolution is Coming.

The Fourth Industrial Revolution includes developments artificial intelligence, robotics, nanotechnology, 3-D printing, genetics, and biotechnology.

Although no industrial revolution has ever destroyed jobs, the study concludes a net 5.1 million jobs will vanish in the world's 15 leading countries. Those countries account for roughly two-thirds of the global workforce.

The report is a 167 page PDF slog. Here are a couple of tables I created from the report data.

Job Family Losers

Job Family Losers	Job Losses in Thousands
Office and Administrative	4,759
Manufacturing and Production	1,609
Construction and Extraction	497
Arts, Design, Sports, Media	151
Legal	109
Installation and Maintenance	40
Total	7,165

Job Family Gainers

Job Family Gainers	Gains in Thousands
Business and Financial Operations	492
Management	416
Computer and Mathematical	405
Architecture and Engineering	339
Sales and Related	303
Education and Training	66
Total	2,021

I understand the losses, at least part of them. But gains in financial operations?

Everything Rosy but Healthcare

Curiously, the following chart from the report makes everything look rosy except healthcare.

I don't accept that chart, at least for the implied reasons. Yet, after boomers die off en masse, I foresee all kinds of health-related jobs will vanish until the next retirement boom hits.

Trucks and Taxis

What about truck and taxi drivers? I expect millions of truck hauling and taxi jobs will vanish soon, in the USA alone, by 2025.

I searched the report for the word "truck" and found this lone reference: "Advanced robots with enhanced senses, dexterity, and intelligence can be more practical than human labour in manufacturing, as well as in a growing number of service jobs, such as cleaning and maintenance. Moreover, it is now possible to create cars, trucks, aircraft, and boats that are completely or partly autonomous, which could revolutionize transportation, if regulations allow, as early as 2020."

That paragraph was under the category "Advanced Robotics and Autonomous Transport" given a disruptive weighting of 9%.

Let's dig deeper with a look at disruptive weightings.

Technological Drivers of Change

Driver of Change	Rated as Top Trend	Expected Timeframe	Condensed Notes
Mobile internet and cloud Technology	34%	2015-2017	Rapid spread of internet-based service models
Advances in Computing Power and Big Data	26%	2015-2017	Ability to handle the unprecedented flood of data
New Energy Supplies and Technology	22%	2015-2017	New technologies like fracking and new energy supplies will have profound geopolitical and environmental repercussions
Internet of Things	14%	2015-2017	Remote sensors
Crowdsourcing and Peer-to-Peer Platforms	12%	Impact Felt Already	With peer-to-peer platforms, companies and individuals can do things that previously required large-scale organizations.
Advanced robotics and Autonomous Transport	9%	2018-2020	Robots more practical than humans in manufacturing and service jobs. Autonomous vehicles could revolutionize transportation.
Artificial Intelligence and Machine Learning	7%	2018-2020	Voice recognition will make automation of tasks long regarded impossible for machines
Advanced Manufacturing and 3D printing	6%	2015-2017	On demand production has far-ranging implications
Advance Materials, Biotechnology, Genomics	6%	2018-2020	Life science breakthroughs will have profound impact on medicine and agriculture. Bio-engineering critical to pharmaceuticals, plastics and polymers, biofuels.

The last column is my set of abbreviated notes, condensed from descriptions in the report. The first three columns are as presented in the report.

Discussion of Disruptive Factors

I fail to see what big advances in computing power will do. Nor do I see crowdsourcing as a big factor.

I suspect crowdsourcing is one of those things with huge potential that never really flies because there is no money in it for anyone.

Remote sensors will eliminate the need for some humans, but hasn't that been underway for quite some time? If not, we can certainly get rid of all the meter maids.

On the energy side, fracking is an environmental disaster, and a bust for now, perhaps for a long time. And much of the clean energy systems only work with government subsidies. Battery technology will likely improve and replace or greatly reduce the need for gasoline. If so that will be very disruptive indeed.

But will batteries destroy jobs or just disrupt them?

Gas stations could become battery switching stations. That may require people to change the batteries, but it will also eliminate gas delivery and gas production jobs. Regardless, this type of change won't be in place by 2020.

I struggled mightily with the report's 34% rating for "Mobile Internet".

It's possible for huge numbers of teaching jobs to vanish with classes over the internet. And applications like Uber will also have an impact. Yet, this category is over-rated.

Biggest Disruptive Force

My number one job destructive force is advanced robotics and autonomous transport. Uber ties into this category as well.

Uber is adding jobs for now. In the not so distant future, long-haul trucking jobs, Uber driving jobs, and all taxi driving jobs will vanish.

Millions of driving jobs of all kinds will vanish in the US alone, by 2025 though, not 2020.

Mike "Mish" Shedlock

China Openly Pledges to Sink the Yuan vs. the Dollar

Posted: 22 Jan 2016 01:38 AM PST

China Drops Dollar Peg

If China was really serious about doing what every major country in the world does, it would float the yuan.

On Thursday, I saw this MarketWatch headline: China Serious about Dropping Dollar Peg.

I was totally unimpressed after reading the article.

China will not do the one thing it has needed to do for decades: Let the Yuan float. China still insists on setting artificial pegs that the market openly mocks.

China Pledges to Sink the Yuan

DAVOS, Switzerland--A senior Chinese official Thursday affirmed China's intention to decouple its currency from the U.S. dollar, while the head of the International Monetary Fund urged Beijing to improve communication with markets about changes to its foreign-exchange regime.

For years, China has hitched the yuan's value to U.S. dollar, but its central bank signaled in December that it would break the peg and instead manage the Chinese currency against a basket of 13 currencies.

"We're serious about the basket approach," said Fang Xinghai, a senior economic adviser to the Chinese leadership, at a panel organized by the World Economic Forum here Thursday. "It's a decided strategy."

With a crawling peg, the yuan has appreciated with the strengthening U.S. dollar, hurting Chinese manufacturers while the economy is weakening. Decoupling the yuan from the dollar could help Beijing's effort to rekindle growth.

"There's some catch-up to do" when it comes to adjusting the yuan's value against the dollar, said Mr. Fang, a director-general in the Office of the Central Leading Group on Economic and Financial Affairs, which functions like the White House's National Economic Council. "Once we're done with it, the yuan will be stable again," he said.

Stability Nonsense

The entire notion that a peg creates stability is complete nonsense. But don't listen to me. Instead, ask Switzerland.

China's last peg worked, until it didn't. That peg did help China's export model as long as the US dollar was sinking.

Now China pledges to peg to a basket. In other words, China wants to sink the yuan. Supposedly this will create stability.

To reach stability, China openly admits instability.

Reserve Currency Nonsense

People keep telling me the Yuan will soon be the world's reserve currency. I have openly mocked such pronouncements for a decade. I mock such pronouncements again today.

China's bond markets are neither big enough nor liquid enough to handle the task. And China still cannot get off currency pegs.

China Drops Currency Peg It Cannot Defend

China Dropped the dollar peg. To what? To a floating peg!

Why? Because China cannot defend the existing dollar peg. China disguised that fact with a "serious" announcement pretending to be something else.

Price of Stability

Expect huge volatility. It's coming.

Instability is the price we have to pay for stability.

Mike "Mish" Shedlock