miercuri, 13 aprilie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Housing Denial in Australia Feeds Off Same Myths We Heard in the US

Posted: 13 Apr 2011 07:16 PM PDT

It is amusing to watch Australian analyst after analyst cite the same silly myths regarding housing that we saw in the united states. First consider a sampling of the nonsense we heard in the US.

  • There is no national housing bubble
  • There is a housing shortage in Florida, San Diego, Las Vegas, Phoenix, etc.
  • There is never a better time to buy than now
  • Home price cannot possibly drop where Boomers are moving
  • Seattle housing will not drop because the local economy is strong

Florida was ground zero in the US bubble bursting and for the next two years we heard things like.

  • Las Vegas is not Miami
  • Phoenix is not Las Vegas or Miami
  • San Diego is not Phoenix, Las Vegas, or Miami
  • Chicago is not San Diego, Phoenix, Las Vegas, or Miami
  • Seattle is not Chicago, San Diego, Phoenix, Las Vegas, or Miami

For varying reasons every city thought "it's different here". Yet the bubble bust spread from city to city and eventually engulfed the entire country.

Similar denial runs deep in Australia.

Please consider Australia Housing Cracks Emerge Across Queensland Coast
Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by a fifth since 2008 as cracks emerge in a housing market that's so far escaped the rout seen in the U.S., U.K. and Ireland.

The median apartment price in the tourism and retiree town 150 kilometers (93 miles) north of Brisbane has slumped 21 percent in three years to A$570,000 ($594,000), according to the Real Estate Institute of Queensland. Sales have more than halved across Queensland state's Sunshine coast, home to "Crocodile Hunter" Steve Irwin's Australia Zoo, and the Gold Coast, known for its surfing beaches and casinos.

"We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values," said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS), who asserts Australian home prices are as much as 40 percent overvalued. "We're seeing that now in parts of Queensland."

Economists and analysts at organizations including RP Data, Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) have said the weakness in home prices along Queensland's southeastern coast is unlikely to spread as low unemployment and a shortage of homes underpins prices.

"A lot of sellers are cutting prices and are preparing to meet the marketplace," said John Newlands, Gold Coast spokesman for the real estate institute and principal at an LJ Hooker franchise in Surfer's Paradise, a northern Gold Coast suburb that's home to the world's tallest residential tower. "In 2011, more investors will start to come back into the marketplace as prices fall."
Look at those last two paragraphs. I believe that is the typical attitude. It is the same nonsense we saw in the United States.

To be fair, the article did mention that Gerard Minack, a market strategist at Morgan Stanley, believes Australian home prices are as much as 40 percent overvalued. However, that opinion is in the minority.

Five Facts

  1. It's Not Different in Australia
  2. There is Not a Shortage of Housing
  3. Australia is in a Bubble
  4. Now is Not a good time to Buy
  5. It's Better to Sell Now than Next Year


In the US, countless sellers walked the market down, hoping to get prices they could have gotten "last month" as Realtors in every city gave reasons why "It Can't Happen Here"

Well it could and did. It turns out there was not a shortage of housing in Phoenix, San Diego, or Las Vegas. It only appeared there was a shortage because inept Fed policies fueled bubble mentality. Moreover, prices eventually crashed in places where there were limited properties for sale.

Home prices simply will not forever stay monstrously elevated over wage growth and the cost to rent even if there is a shortage.

Yet, the same denial is happening in Australia in spite of the fact the US provides a clear model of what happens to prices once the pool of greater fools runs out.

For more on the Australian housing bubble and the pool of greater fools, please see
Australian Home Sales Sink, Luxury Units Sell for Half Cost; New Home Loans at 10-Year Low; Australia Retailers in Deep Trouble; Party Officially Over

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.

I have a simple proposal: Balance the budget by 2022 come hell or high water

Posted: 13 Apr 2011 11:21 AM PDT

In what amounts to baby steps, Obama Said to Seek $150 Billion Defense Cuts Beyond Gates's Plan
President Barack Obama, as part of his plan to reduce the nation's long-term debt, will propose cutting $400 billion from the Pentagon's budget through the 2023 fiscal year, extending cuts beyond those sought by Defense Secretary Robert Gates, a person familiar with the plan said.

Gates met with Obama and Vice President Joe Biden in the Oval Office yesterday afternoon to discuss the president's plan. Gates proposed in January cutting $78 billion from defense spending over five years, amid pressure to curb trillion-dollar federal deficits. The planned $400 billion in cuts would be spread out through fiscal 2023.

Obama will outline reductions in entitlement spending and increased taxes on the wealthy while seeking to draw a sharp contrast with Republican proposals, according to another person familiar with the plan. He'll draw on the findings of the Simpson-Bowles debt commission, including overhauling the tax code to bring in more revenue, and proposals he has already set out in his 2012 budget.
What is the Goal?

Proposals are flying, but do we have a goal? If so what is it?

Right now Democrats, Republicans, and the president are playing tiddly-winks for political points.

Before we can talk about cuts, there must be a goal in mind. I have a simple proposal: Balance the budget by 2022 come hell or high water.

In regards to military spending, cutting 400 billion over 12 years is barely a start. I think we should cut $200 billion a year minimum over 12 years, a total savings of $2.4 trillion dollars.

Look at it this way: If we take all of the cuts the Ryan has proposed and all of the cuts the administration has proposed, we are still not there. However, if we add them together, then kill the department of energy and the department of education, and cut still more from the defense budget, we might have a solid chance at balancing the budget in 10-12 years.

In other words we need more defense cuts + some of Rand Paul's ideas + some of Paul Ryan's ideas + some of Obama's ideas.

We will not get anywhere without a goal. So the first thing we should do is set one.

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.

25,000 out of 70,000 Illinois State Employees are on Workers' Comp

Posted: 13 Apr 2011 08:05 AM PDT

The cost of doing business in Illinois is staggering. Such is the nature of a bottom-feeding government and union-driven model that adds inefficiencies everywhere you look and also in places you don't.

For example, over 35% of Illinois state employees are on workers' comp. That statistic would be bad enough in isolation, but Illinois also has the highest costs in the nation, by far.

Please consider Workers' comp reform is too important to state business climate not to address, soon
If you need a local example to illustrate in real dollar terms just what it means to have the second highest workers' comp costs in America - behind only Alaska, by the governor's own admission - look no further than Morton-based CORE Construction Group Ltd., which operates nine companies in five states.

Marc Collins, associate risk manager for CORE, compared five years' worth of claims between the local construction firm Otto Baum Company and Sun Valley Masonry, another of their holdings in Phoenix, Ariz. The two companies are of similar size, with about the same number of employees. What he discovered was that local claims averaged $32,807 each over that time frame, compared to $6,212 in Arizona.

Caterpillar - which obviously deals in much bigger numbers - has an even more dramatic story. In 2008, "the total incurred cost of the injuries at the Illinois plant was seven times higher than the cost of the injuries at the Indiana plant." The jobs are essentially the same.

It's not just the wage coverage while injured employees aren't working for months or even years, but the medical bills and often the settlement beyond that (all tax free, by the way). In fact, "even if the medical fee schedule were reduced by 30 percent, Illinois would still have the second highest rates in the nation, but our employers could save up to $500 million," acknowledges the governor's office.

The startling statistics do not end there, unfortunately. State government is an employer, too, with approaching 70,000 full- and part-time workers. And from that pool there are currently 25,000 open workers' comp claims. That's a breathtaking number. It is impossible to believe all of those are legitimate.

Apparently federal investigators have questions, too, as they've launched a criminal probe following reports by the Belleville News-Democrat of alleged abuses of the system at Menard Correctional Center in Chester, where more than half the staff - 389 people, most of them prison guards and including the warden - have been paid some $10 million for on-the-job injuries such as those occasioned by locking and unlocking cell doors. (Yes, you read that correctly.)

Meanwhile, a quarter of the 32 arbitrators who decide injury claims for others have filed claims themselves, reported the paper.
Illinois vs. the Second Worst State

  • Hernia: $18,700 in Illinois, the next closest state comes in $6,300 less.
  • Shoulder or Elbow Injury: $24,000 in Illinois, compared to about $14,300 for the runner-up
  • Arthroscopic Procedure: Illinois is double its nearest competitor, more than triple the median

I am seldom surprised by graft in Illinois where public union handouts, inefficiencies, bribery, coercion, and corruption are second to none, but 35% of state employees on workers' comp, including 25% of arbitrators who do nothing but decide injury claims has to take the cake for workers comp insanity.

Worst-in-the-Nation "bragging rights" are at stake. I challenge California, New York, and New Jersey to top that.

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.

Bullish Sentiment Stampede

Posted: 13 Apr 2011 12:45 AM PDT

I have mentioned several times recently that bullish sentiment is extreme. If anything, "extreme" seems like an understatement as noted in Bullish Sentiment: Turning into a Stampede?
The latest Elliott Wave Theorist reports that a "bullish consensus" has also crystallized among a wide range of investors and financial professionals:

  • "Individual investors (AAII poll)—most bullish in six years
  • Newsletter advisors (I.I. poll 20-week average)—most bullish in seven years
  • Futures traders (trade-futures.com poll)—most bullish in four years
  • Mutual fund managers (% cash)—most bullish ever
  • Hedge fund managers (BoAML survey)—most bullish ever
  • Economists (news-org polls)—unanimously bullish
  • Top global strategists (three national year-ahead panels)—unanimously bullish
  • Even most 'bears' on the economy are bullish on stocks because of inflation!"

Patterns of investor psychology are not new. In fact, they repeat themselves. Consider this quote in 1960 from Richard Russell of Dow Theory Today:

"Psychology during bear market rallies seems to follow a fairly consistent pattern. 'During secondary reactions [upward] in bear markets,' wrote [Robert] Rhea, 'it is a fairly uniform experience for traders and market experts to become very bullish.'"

Those words are as true today as they were 50 years ago.
Sentiment Not a Timing Indicator

Sentiment is never a timing indicator because things always go further in both directions than people think.

Regardless, I am sticking with my assessment this is not a good time to be long the market. In case you missed them, I gave my rationale in a couple of recent articles.


Please note that "not a good time to be long" is not the same as a "good time to be short". It may or may not be a good time to short.

However, the longer the "Bullish Sentiment Stampede" lasts, the better the odds. Finally, if you missed the rally and are thinking of getting in now, I have a one word suggestion: "Don't".

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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