Mish's Global Economic Trend Analysis

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• California Group Seeks to End Collective Bargaining; Why Collective Bargaining is Extortion
• Phoenix Property Scam Targets Australian and New Zealand Buyers
• What's Inside the BLS Magic Black Box?

California Group Seeks to End Collective Bargaining; Why Collective Bargaining is Extortion Posted: 05 Feb 2011 09:49 PM PST Unions are upset and protesting mightily about an effort by Ohio State Senator Shannon Jones that would ban collective bargaining in the state of Ohio. The bill would also abolish salary schedules for public employees and instead require merit pay. I praised the bill in Ohio Bill To Kill Collective Bargaining for State Employees. Shane Atwell picked up on my post and added some great comments in his article Good News: Efforts in Ohio and California to Abolish 'Collective Bargaining' One thing he noticed that I had not heard yet is a measure in California that will also end collective bargaining. The Sacramento Bee discusses the situation in Group aims to end collective bargaining for public employees A Santa Barbara-based organization that wants to end union representation of California government employees has revved up its campaign contribution collection machinery for a run at putting the idea to a statewide vote. Lanny Ebenstein, UC Santa Barbara economist, head of the California Center for Public Policy and president of the Santa Barbara County Taxpayers Association is named in the state filing as the reform group's treasurer. If his name seems familiar, it's probably because Ebenstein authored "Reforming Public Employee Compensation and Pensions." a report that purported to show that California public employees' pay and benefits are "unjust." We spoke to Ebenstein a few weeks ago. His group wants to put up a ballot measure that would end collective bargaining for all city, county, regional and state employees in California. The reason, he says, is that unions have too much influence and the pay and perks their members receive are leeching money from government services, like education. There is precedent for this: At least 18 states forbid collective bargaining for some categories of government workers, according to the Wall Street Journal. Virginia and North Carolina prohibit it for all public employees. And GOP governors in Wisconsin and Ohio are threatening to change state collective bargaining laws if they don't get union concessions. Collective Bargaining is Extortion I certainly commend the efforts of Lanny Ebenstein and the California Center for Public Policy and will support the group as best I can. I also want to direct your attention to Shane Atwell's rock-solid rationale as to why collective bargaining is extortion. 'Collective bargaining' is not what its name indicates. In fact, it means exactly the opposite of what you'd guess. Collective bargaining refers to the obligation of an employer to recognize the elected representatives of a group of workers and his further obligation to negotiate with those representatives. This last part is what makes 'collective bargaining' extortion. Under collective bargaining laws, employers have to recognize an elected union and have to negotiate with them. Imagine if the tables were turned and employers had the right to 'employer bargaining', under which the employer could demand whatever pay reductions or workday increases he wanted, the employees had to negotiate with the employer, and employees couldn't quit! [Such an arrangement] could only be classified as slavery. The right to terminate the employer-employee relationship is a fundamental right of both employer and employee. Employment should be mutually beneficial to employer and employee and open to termination by either when it becomes non-beneficial (limited of course by any voluntary contractual agreements). Collective bargaining laws have achieved two things for unions and union members. First the negotiations strongly tend in one direction until the employer moves his operations offshore [or to another state not subject to collective bargaining]. This ratcheting is inevitable given that employers are forbidden their ultimate tool: terminating employment. Second, the misnamed [term] 'collective bargaining' has given an aura of moral righteousness to the unions who pretend to be fighting for true American values like the freedom of association. [However], they are fighting for values quite foreign to [the United States], values that come from Marxist collectivism, i.e. the expropriation of the property of employers and the negation of their rights. [Therefore, wages and benefits garnered under collective bargaining arrangements are fraudulent in nature and should therefore be subject to revision.] Contact your representatives and urge them to fight collective bargaining. [Please] support ballot initiatives [to restrict or eliminate collective bargaining] when they appear. Any text in brackets above is mine. Thanks Shane. And good luck to Lanny Ebenstein in his mission to help right the wrongs in California. 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.

Phoenix Property Scam Targets Australian and New Zealand Buyers Posted: 05 Feb 2011 12:20 PM PST A friend in New Zealand is inquiring about "hot property deals" in Phoenix. Greg writes ... Hello Mish I am concerned for a friend and I wonder if you can offer any comments. I am not sure how I will approach her but she may be getting into a high risk investment. Seems an opportunity arose to travel from Australia to Phoenix Arizona. My friend has noted "a tremendous opportunity" to buy sure-thing investments as depicted in the video below. Seems way too good to be true. I don't know if I can stand by and watch a friend (a solo mum, no less) drop tens of thousands into a high risk gamble, and make a bad choice. Thanks Greg Wellington, New Zealand Alleged Hot Deals in Phoenix Video Link: http://www.youtube.com/watch?v=2j-l9R8DJdU&feature=player_embedded First Rule of Investing Hello Greg, the cardinal rule in investing is "If it sound too good to be true, it is." This is what I want you to ask your friend What the hell can you possibly know living in Australia about this operation and alleged opportunity, that locals in the US who avoid this like the plague don't? Have you ever managed rental property or been a landlord before? Have you ever managed properties 7,500 miles away? Do you know anything about water problems (lack of it) in Phoenix? What makes you think those growth estimates are accurate? Do you know anything about the city's fiscal problems, other problems? If these deals were any good, it would not take someone 7,500 miles away to spot them! However, it might take someone 7,500 miles away to get suckered into one. If there are bargains to be found (and perhaps there are), who is going to find them? Some starry-eyed person from down under comparing Phoenix prices to prices in Sydney, or a local property professional in the Phoenix area who understands the Phoenix market and already makes a living buying distressed properties? 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.

What's Inside the BLS Magic Black Box? Posted: 05 Feb 2011 01:49 AM PST Inquiring minds have asked "I'm curious if you can translate the -339 birth/death adjustment this quarter. It seems completely out of context." I believe I can shed some light on the overall process and the finalized numbers. However, the black box itself is impenetrable. Here is the process: The BLS takes seasonally unadjusted numbers for jobs and seasonally unadjusted model-derived birth-death numbers and meshes them inside a magic black box. The box slices and dices the numbers, then spits out the seasonally adjusted "establishment number". As a side note, when tossing the unadjusted numbers inside its black box, rumor has it the BLS employees collectively sing Oh Ho Ho It's Magic. I cannot confirm that rumor officially. Nonetheless, here is a fitting tribute. In the monthly "Ta Da!" the BLS cleverly gives us the seasonally adjusted commingled result (that's the official monthly establishment number). The BLS also gives us the not seasonally adjusted birth death model number. It makes as much sense to subtract those numbers as it does to subtract 3 bananas from two oranges, yet people keep trying. It would help if the BLS divulged the black box methodology or the unseasonably adjusted jobs number, but it doesn't. This rightfully arouses suspicion. Interestingly, the BLS cannot give us the seasonally adjusted birth death number because it does not have the number to give! It's all crunched together in the impenetrable black box. January Effect The January phenomenon is interesting. The birth-death number for January is always a huge negative number. Do businesses have a propensity to go out of business precisely in January (and only January), come hell or high water, recession or not? It must be so because for 5 years (until November 2010), the only other month I recall seeing negative a birth-death number is in July. Flashback December 4, 2009: Jobs Contract 23rd Straight Month; Unemployment Rate Drop to 10.0% Birth Death Model Revisions 2008 - April thru December click on chart for sharper image Birth Death Model Revisions 2009 click on chart for sharper image In 2008 and 2009, smack in the middle of the recession, the BLS said more jobs were created by new businesses than lost by businesses going out of business, every month but January. Here is a table I produced that shows the same thing in 2007 . Presumably, NET new business job expansion occurs like clockwork (except for January). This mysteriously changed for the first time I recall in years of watching, in November of 2010. Flashback December 3, 2010: After All the Hype, Jobs Up an Anemic 39,000; Unemployment Rises to 9.8%; Quicksand of Stimulus Birth Death Model Revisions 2010 click on chart for sharper image I am actually shocked to see birth-death adjustments not only back in the solar system, but also back on planet earth. I cannot recall the last negative number in any month but January or July. Curiously, smack in the middle of an expansion, we now have one isolated case of net business contraction, although we had NET new business job expansion every month the entire recession, except January. Hold Your Horses Please note the BLS revised their model this month, and something entirely new and exciting is happening: The latest revisions show we now have net birth-death job destruction in January, July, September, and November. Let's take a look. Flash Forward February 4, 2011: Labor Force and Unemployment Statistical BS Birth Death Model Revisions 2010 (as reported last month) Birth Death Model Revisions 2010 (as reported this month) Once again, this is all massaged inside the BLS black box. All we know is the whole damn thing did not make any sense then, and these revised negative numbers out of the blue now sure do not correlate with anything we have seen before. I suppose all those self-employed business owners selling trinkets on E-Bay may have collectively tossed in the towel this year, but otherwise it is hard to explain. Quarterly Benchmarks The BLS has taken it's black box to the next magic level - quarterly instead of annual benchmarks. Please consider Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey Effective with the release of preliminary January 2011 employment estimates in February 2011, BLS began updating the Current Employment Statistics (CES) net birth/death model component of the estimation process more frequently, generating birth/death residuals on a quarterly basis instead of annually. This will allow CES to incorporate Quarterly Census of Employment and Wages (QCEW) data into the birth/death model as soon as it becomes available. This more frequent updating will help to reduce what is known as the "post-benchmark revision" in the CES series. There will be no change to the timing or frequency of the current CES monthly or annual releases. Benchmarking to the QCEW will continue to be done on an annual basis. The first monthly estimates to be affected by this change will be for the reference month of April 2011. 2003-2010 Birth-Death Model Annual vs. Quarterly Benchmarks In fairness to the BLS, the latest revisions (assuming they are correct), only subtracted 405,000 jobs in 2009. That is a decent-sized revision, but not a massive one. This lends credence to the idea that too much attention is given to the birth-death numbers. Regardless, the quarterly process does seem much more reasonable than anything we have seen before. Moreover, it would have been interesting to see month-by-month revisions for 2009. Perhaps we would have seen some more negative months. That may have made some of the 2009 months look as if they were from this solar system instead of Bizarro World. Summation The BLS refuses to describe the magic in its black box magic. Suspicion will rightfully remain until that happens. The way the BLS reports these numbers (purposely or not) makes it impossible to do math on the monthly numbers. This leads to confusion and wild assumptions. Quarterly benchmarks appear to be a significant improvement. Looking back at the data presented above, year in and year out (even the positive years), the weakest and therefore the most likely negative birth-death months going forward are in order January (a lock), followed by November, September, and July. The January effect may be explainable, the rest is somewhat curious. 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.

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