Mish's Global Economic Trend Analysis

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• NJ School Superintendent Bitches about Making $175,000 a year, Gov. Christie says “Let Me Help You Pack”
• Sugar Prices Fall Record 12% in London, Most in 22 Years in NY; Soybeans, Corn Lock-Limit Down
• QE II Bet Starts to Unravel
• European Bond Market Meltdown; ECB is Buyer of Only Resort for Greece, Ireland and Portugal

NJ School Superintendent Bitches about Making $175,000 a year, Gov. Christie says “Let Me Help You Pack” Posted: 12 Nov 2010 07:48 PM PST Every time I listen to NJ Chris Christie I want to stand up and salute. Today is no different. Please watch this 4 minute video where Chris Christie blasts LeRoy Seitz, Superintendent of Schools for the Parsippany School District about Seitz's threat to leave the state if his salary is reduced to $175,000. NorthJersey.com has more details in Governor sets sights on Seitz contract Last week the Parsippany-Troy Hills Board of Education voted 6-2 to renew Superintendent LeRoy Seitz's contract, which included a 2 percent per year salary increase. What made the contract noteworthy, aside from the dozens of people that spoke out against it and the tongue lashing the Board and the Superintendent received from Gov. Chris Christie was that the contract Seitz is currently working under doesn't expire until July 1, 2011. The Board began contract negotiations during the summer, at about the same time the Christie administration released information about a plan to cap chief administrator's salaries and tying the numbers to the enrollment in the district. By finalizing the contract now the Board effectively agreed to give Seitz a salary well above the governor's proposed cap for almost five years. At the Board meeting Mark Tabakin, the Board attorney, told the gathering of about 90 people that the cap is still in the proposal form, that the contract was approved by the County Executive Superintendent Kathleen Serafino and that it is a legal action. "People are upset," he acknowledged, "but it's up to the will of the Board." The controversial contract drew township residents and protesters from as far away as Clifton and Hackettstown, who were outraged over the Board's end run around the proposed cap. At times the dissenters were so vocal Board President Anthony Mancuso, who remained calm and in control throughout the proceedings, had to call for a 10-minute recess to let the outbursts subside. The police were also called during one of the breaks though they never had the need to take action. When the public was allowed to speak the floodgates opened. Taking a sarcastic tact the first speaker Roman Hoshovsky said, "How can anyone be expected to live on $200,000?" Then he produced an empty canister and proposed using it as a collection jar in businesses around town to raise money for Seitz. Barbara Hackling pointed out the Board had laid off teachers and refused to negotiate with the paraprofessionals, "but found money for him." Karen Blunt, a 36-year Parsippany resident and a paraprofessional in the district said, "He [Seitz] is looking out for his future. I haven't had a raise in 4 years who is looking out for my future?" The day before the meeting Seitz is quoted in the Daily Record as saying, "Because of the proposed salary caps, I have to look at my future and the financial welfare of my family. I certainly would have options if I didn't feel the compensation in this district, or New Jersey, is appropriate." The governor reacted to Seitz's veiled threats to leave New Jersey and go to a nearby state where there is no state salary. "I will say in response to Mr. Seitz, 'Let me help you pack.' We have real problems in our state that we have to fix and we don't have the time, nor the money, nor the patience any longer for people who put themselves before our citizens," Christie railed. I Applaud LeRoy Seitz A tip of the hat goes to LeRoy Seitz for being such an arrogant SOB that that the meeting to discuss the new contract overflowed with citizens fed up with school board greed. It is not easy standing up to thugs who want nothing more but to raise your taxes. But the voters did. That's how riled up they were. I recommend voters in the Parsippany School District send a message to the ignoramuses who agreed to give LeRoy Seitz a new contract. Vote them off the school board. Fortunately it takes approval from another level to agree to that raise, so the raise is not a done deal yet. New Jersey taxpayers are fed up, and rightfully so. If LeRoy Seitz thinks he can get $212,000 elsewhere, more power to him. The same holds true for every public "servant". If you can get more in the private sector, shut up and do it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Sugar Prices Fall Record 12% in London, Most in 22 Years in NY; Soybeans, Corn Lock-Limit Down Posted: 12 Nov 2010 05:39 PM PST In yet another sign that the QE II Bet is Unraveling, over a month's worth of gains in the sugar futures market went into the dustbin in two days. Bloomberg reports Sugar Prices Fall Record 12% in London, Most in 22 Years in N.Y. Refined-sugar prices plunged by a record in London, and raw-sugar futures in New York tumbled the most in 22 years as speculation that China will boost borrowing costs roiled commodity markets. China may increase interest rates soon in a bid to cool inflation, according to Bloomberg News survey. Raw materials tumbled on concern that demand for crops will ease in the Asian nation, the biggest consumer of many commodities. Prices also fell after ICE Futures U.S. raised margins on contracts by 65 percent. Europe announced plans to increase sugar exports. Refined-sugar futures for March delivery fell $91.50, or 12 percent, to close at $677.10 a metric ton, marking the biggest drop ever. The price fell 2.8 percent yesterday after the EU said it also plans to lift import duties. Raw-sugar futures plunged 3.45 cents or 12 percent, to settle at 26.21 cents on ICE. The single-day drop and this week's slide of 17 percent were the most since July 1988. The margin requirement, or amount of money traders must keep on deposit, rose to $4,970 per speculative contract from $3,010, ICE said. Raw Sugar Daily Raw Sugar Weekly I see no reason why sugar couldn't or even shouldn't fall back to the 14-18 area, wiping out the entire runup. Soybeans, Corn Lock-Limit Down It's not just sugar that got whacked hard. Please consider Soybeans, Corn Plunge as Commodities Drop on China Rate Concerns Soybeans and corn fell the most allowed by the Chicago Board of Trade on speculation that China will raise interest rates soon, cubing demand for commodities. Equities in China tumbled the most since August 2009 after a report yesterday showed that consumer prices in October rose 4.4 percent from a year earlier, the fastest pace since 2008. China is the world's biggest consumer of soybeans and second- largest user of corn. The Thomson Reuters/Jefferies CRB Index of 19 raw materials fell 3.6 percent, the most since April 2009. "The risk of rising Chinese rates increases the chances for demand to slow," said Dale Durchholz, the senior market analyst at AgriVisor LLC in Bloomington, Illinois. "The message is, China is taking a more aggressive stance to cool inflation and push speculative money out of commodities." Corn futures for March delivery dropped 30 cents, or 5.2 percent, to close at $5.48 a bushel, the biggest drop since Oct. 1. The price has gained 46 percent since the end of June, reaching a 26-month high of $6.175 on Nov. 9, after adverse weather reduced the size of the U.S. crop. Soybeans also fell on speculation that China will reduce imports because the government may sell supplies to damp inflation, said Greg Grow, the director of Agribusiness for Archer Financial Services Inc. in Chicago. The country may begin selling from inventories next week to limit gains in food prices, said Cao Huimin, an analyst at China Cereals & Oils Business Net, a researcher in Beijing. The sales may total as much as 2.6 million tons, she said after discussions with cash traders. "Chinese release of soybean stocks next week cast a negative shadow over the market," Grow of Archer Financial said. "Most of today's weakness in commodities was an exodus of funds and speculators." Soybeans Weekly Soybeans did not hit the speculative peak they did in summer of 2008, but there is virtually nothing to like about this price action technically or fundamentally. Technically I would expect a pullback to the 1000 area. Bear in mind I am a long-term commodity bull. However, this love-fest with QE II has gotten more than a little bit out of hand. To make matters worse, China is clearly overheating, something I have warned about all year. Think twice about buying this dip. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

QE II Bet Starts to Unravel Posted: 12 Nov 2010 10:54 AM PST Signs in the yield curve, municipal bonds, junk bonds, and commodities suggest the one-way "sure thing" QE II bet has started to unravel. Curve Watchers Anonymous is particularly interested in the yield curve. Yield Curve 2010-11-12 click on any chart in this post to see a sharper image A representative of Curve Watchers Anonymous said "I have never seen action like this before. The middle part of the curve is blowing up even as the long bond rallies. The action indicates that everyone who front-ran the Fed purchases is now unloading to the Fed. " The 5-year is off 14 basis points while the 30-year is up 8. This is quite unusual to say the least. Municipal Bond Fund Shellacking A tip of the hat to Barry Ritholtz for noticing the California Muni Bond Fund Shellacking Since so many of you have asked: These funds are getting mangled on expectations of — All Aboard! Munis and California joining Ireland on the default train. Even the general Muni funds have lots of California Exposure PCK PIMCO California Municipal Income Fund II PML PIMCO Municipal Bond Fund II click on chart for sharper image JNK Lehman High Yield Bond Fund Metals Grains It remains to be seen if this is the start of a serious correction or just another dip-buying opportunity (in literally everything), but with sentiment sky-high and nearly everyone believing QE II is a one-way bet, I am more inclined to believe the former. As far as gold goes, I do not expect the shellacking we saw in 2008. In fact there might not be much of a pullback at all. However, I can easily be wrong. As far as equities go, action in junk bonds will be particularly important. If and when the corporate bond market cracks, it will be all over for equities. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

European Bond Market Meltdown; ECB is Buyer of Only Resort for Greece, Ireland and Portugal Posted: 12 Nov 2010 08:58 AM PST Thing's don't matter until they do. Ireland finally matters. So does Portugal. The big event happens when Spain and/or Italy matters, and that is just a matter of time. In the meantime, a huge feud is developing between European Central Bank President Jean-Claude Trichet, Bundesbank President Axel Weber (the likely successor to Trichet), and German Chancellor Angela Merkel. Right now, ECB's Trichet Is Buyer of Only Resort as Debt Crisis Worsens. European Central Bank President Jean-Claude Trichet is the buyer of only resort as the euro area's bond market melts down. Just six months after he threw out his rule book to prevent Greece's debt crisis from splintering the euro area, the 67-year old Frenchman may again be the only policy maker able to prevent the collapse in Irish and Portuguese bonds from spreading. That may require him to ignore opposition from Bundesbank President Axel Weber to the ECB's bond-buying program and expand purchases of sovereign assets, according to Citigroup Inc. and Royal Bank of Scotland Group Plc. "The ECB's lack of action is puzzling to say the least and begs the question as to whether it's fulfilling its financial- stability mandate," said Jacques Cailloux, chief European economist at Royal Bank of Scotland in London. "The more the ECB waits, the bigger the purchase program will have to be." With Greece, Ireland and Portugal "now having virtually lost access to capital markets," Cailloux said the ECB must "extend dramatically" its bond purchases. He called on it to buy Spanish assets to limit contagion and spend an additional 100 billion euros by the beginning of next year. So far, the ECB has spent a total of 64 billion euros. One potential obstacle is Weber, a contender to replace Trichet as ECB president next year, who said last month that the central bank should terminate its purchase program. Weber is not the only German publicly disagreeing with Trichet. Chancellor Angela Merkel has quarreled with the central bank chief, whose tenure runs out on Oct. 31, 2011, over the terms of a permanent rescue facility now being debated by the European Union. Trichet says Merkel's demand that bondholders be forced to share the cost of a future bailout risks undermining investor confidence. It was Merkel's push for burden-sharing at a European Union summit last month that triggered this month's sell-off, according to David Mackie, [chief European economist at JPMorgan Chase & Co.] Spain's Economy Stalls Inquiring minds note Spain Stagnates as Austerity Bites Spain's economy stalled in the third quarter, the Bank of Spain estimated, as the deepest austerity measures in three decades undermined the recovery. Gross domestic product was unchanged from the previous three months and expanded 0.2 percent from a year earlier, the central bank in Madrid estimated in its monthly bulletin today. The economy grew 0.2 percent from April to June, as consumers brought forward purchases ahead of a sales-tax increase in July. Industrial production fell the most in seven months in September, a separate report showed today. Output contracted an annual 1.4 percent, compounding an annual decline of 12.7 percent in the same month last year, the National Statistics Institute said. "This was an exceedingly poor outcome given that industrial output had fallen by 12.7 percent year-on-year in September 2009," Raj Badiani, an economist at IHS Global Insight in London, said in a note. It "suggests the sector is struggling to regain its pre-crisis levels." Spain's government, which expects GDP to fall 0.3 percent in 2010 in a second year of contraction, slashed public workers' pay by 5 percent in June and raised value-added tax to 18 percent from 16 percent in July. The measures, passed as contagion from Greece's debt crisis swept through the southern euro region in May, aim to cut the deficit to 6 percent of GDP in 2011 from 11.1 percent last year. Efforts to contain the shortfall and restore growth may come under renewed pressure as the extra yield investors demand to hold Spanish debt rather than German equivalents climbs. As Irish borrowing costs rose to a euro-era high, the Spanish spread widened to a four-month high of 203 basis points from 194 basis points yesterday. It reached a euro-era high of 221 basis points on June 16. Finance Minister Elena Salgado has repeatedly ruled out any contraction in quarterly GDP this year after the economy emerged from a recession in the first quarter. The government forecasts unemployment, at 19.8 percent in the third quarter, will fall to 19.3 percent in 2011. Spain's finance minister can rule out whatever the hell he wants, but that does not make it so. With rising taxes, austerity measures, 20% unemployment, and falling industrial output, it is beyond silly to rule out a GDP contraction. What's even sillier are predictions of a "smooth recovery". Nonetheless, the Bank of Spain said "It is to be expected that the stagnation in the third quarter is transitory. Once the one-off effects linked to the value-added tax increase have passed, the economy will return to the path of smooth recovery." Nonsensical statements like that will send Spanish bonds soaring when the economy slips further. The finance minister and the central bank went out of their way to create unrealistic expectations that cannot possibly be met. Right now Spanish spread widened to a four-month high of 203 basis points while Irish debt spreads hit a record 650 basis points higher than the equivalent German bond. Yields on Iris debt topped 9%. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Addendum: Many people noticed my blog was down this AM. I do not know what happened until I talk with Google. I picked a bad day to sleep in. I suspect someone tried to hack my blog. It happened once before. I believe it happened once to Naked Capitalism as well. Mish Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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