Mish's Global Economic Trend Analysis

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• Man Works 1 Day for Chicago, Goes on Extended Leave for 15 Years, Gets $158,000 Annual Public Pension at Taxpayer Expense, Now Working for Hedge Fund
• Hidden Losses, Lack of Liquidity at Spanish Banks; No Bidders for State Owned CAM
• Bizarro World Inflation; About that 2011 Hyperinflation Call ...
• Hello Global Recession
• Asia Bloodbath Follows US Selloff on Wednesday; Europe Bloodbath Follows Asia Bloodbath; US Futures Red for Thursday

Man Works 1 Day for Chicago, Goes on Extended Leave for 15 Years, Gets $158,000 Annual Public Pension at Taxpayer Expense, Now Working for Hedge Fund Posted: 22 Sep 2011 06:27 PM PDT If you need evidence on how corrupt self-serving unions and union officials can be, then please consider Ex-labor chief's 1-day rehire nets $158,000 city pension A retired Chicago labor leader secured a $158,000 public pension — roughly five times greater than what a typical retired public-service worker in the Windy City receives — after being rehired for just one day of active duty on the city payroll, local news reports said. According to The Chicago Tribune, Dennis Gannon stands to collect approximately $5 million in city pension funds during his lifetime. He now draws the pension while working for a hedge fund, the Tribune reported. Gannon, former president of the Chicago Federation of Labor, was able to take a long leave from a city job to work for a union and then receive a city pension based on a high union salary. That arrangement is allowed under a state law signed by Gov. Jim Thompson on his last day in office in 1991, according to an investigation by the Tribune and WGN-TV. The change has enabled a couple dozen labor leaders to become potential millionaires. What is different in Gannon's case is that he became eligible for the especially lucrative pension deal only because the city rehired the former Streets and Sanitation Department worker for one day in 1994, before granting him an indefinite leave of absence, according to the investigation. He retired from the city job in 2004 at age 50. Gannon's pension is so high that it exceeds federal limits and required Chicago's pension fund to file special paperwork with the Internal Revenue Service to give it to him, the Tribune reported. "I am extremely proud of my many years of service to the city of Chicago and the working men and women of organized labor," Gannon wrote in a statement provided to the Tribune. The tribune reports ... The pension came on top of Gannon's union salary, which had grown to more than $240,000. He now draws the pension while working for a hedge fund, Grosvenor Capital Management, that does work with public pensions, including the Teachers Retirement System of Illinois. The firm also was one of Mayor Rahm Emanuel's largest campaign contributors. Chicago Teacher's Pensions Massively Underfunded Care to see the results Gannon presided over? Please consider Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State? Illinois has the worst public pension plans in the country as of April 2010. I am sure it is still true today. See link for more details. Gannon says "I am extremely proud of my many years of service to the city of Chicago" I believe he means one day of service for which he will collect $4 million for ripping off taxpayers for his own personal gain. Yes, that is something to be damn proud of. For Dennis Gannon to go on leave after 1 day shows this was all planned from the outset. Moreover, by granting the leave, the corrupt Streets and Sanitation Department went along with it all the way. Any guesses as to how many bribes and payoffs were associated with this chain of events? It is time to end public unions entirely and all the associated graft. 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.

Hidden Losses, Lack of Liquidity at Spanish Banks; No Bidders for State Owned CAM Posted: 22 Sep 2011 01:38 PM PDT The following translations are quite choppy, but the gist should be easy to understand. No one believes the Bank of Spain regarding potential writeoffs on banks it has taken over, especially CAM. CAM has 40% Delinquency Rate, Risk of 17.5 Billion Euros Exposure to CAM brick is around 17,500 million with a 40% default 2011-09-21 The Caja del Mediterráneo (CAM), taken over and operated by the Bank of Spain, has a risk to construction and property development of around 17.5 billion euros, with a delinquency rate greater than 40%. Big Banks Not Willing to Bid on CAM The bank of Spain wants to auction off CAM. No one wants it. Banks ask to exclude bad assets for a bid on the CAM 2011-09-21 The big banks are not willing to risk a penny by the CAM. First, because they do not trust the real hole in the accounting. And second, because the economic and current market circumstances advise extreme caution. Some institutions have already taken this message to the Bank of Spain, and have asked for the creation of a bad bank, with assets of more than 17 billion (apartments, home loans and equity to developers). This entity would take toxic assets of the intervened Caja that would then be excluded from the auction and, therefore, would remain under the umbrella of the Bank Restructuring Fund (Frob). Industry sources say that this model has already been used in the case of Caja Castilla La Mancha , whose industrial portfolio, the main problem of La Mancha, was excluded from the package that eventually was awarded Cajastur, and is now owned by the Deposit Guarantee Fund (FGD) . The same sources acknowledge, however, that previously the legislation and the situation were different . The Bank of Spain is reluctant to grant this request, but considers all the possibilities of fear of an unsuccessful bid, which would be a resounding failure in the process of restructuring of the sector. The regulator considers that articulating a bad bank could set a precedent and private investors would have opened the door for these conditions apply to entities where the FROB enters this September-CatalunyaCaixa, Unnim NovaCaixaGalicia - when acquiring the remaining participation in them. Bank of Spain Changes Conditions on Auction to Sell CAM Bank of Spain Changes Conditions on Auction to Sell CAM 2011-09-20 The plight of the markets and the financial sector has caused a radical change in the method of the Bank of Spain to sell the CAM. As noted in El Confidential September 12, the Bank of Spain has offered to potential buyers an EPA that covers 90% of all losses surfacing in the most deteriorated assets of the CAM -primarily promoter credit and troubled realty- over the next 10 years, except for the first 2.5 billion, where coverage is 80%. The lack of liquidity has become so acute that the entities are looking for any formula to take it out from under the stones: deposits at 4% (Popular, Pastor) or even 5% (CatalunyaCaixa, if only for part of the money), and the latest shout, high-yield promissory notes that allow banks to avoid Government penalization of the super deposits (Sabadell, Santander).In this frame of mind, to take the monstrous maturities of CAM can be suicidal for almost anyone. But it's not just that.The buyer of CAM, including Santander and BBVA would have to raise capital to absorb the 70 billion of its stock, despite having EPA. And in this capital expansion, the market punishment would be terrible: they would have to place at a price so low that the cost of capital would be tremendous, impossible to renabilize with the levels of ROE (return on capital) expected in a foreseeable future.The deadline for receiving expressions of interest closes on September 26, while not indicating offers are firm. If there are no interested investors, the Bank of Spain will have to consider the hash and the piecemeal sale of the CAM. For ease in understanding I flipped the order of those articles. Note that even with guarantees, and a change in conditions, no one wants to bid on CAM. Here is one more concern. Three Savings Banks Hid Losses of 2.5 Billion Euros Three Savings Banks in Spain Hid Losses of 2.5 Billion Euros 2011-09-20 three cases yielded higher losses to 2,500 million euros, resulting from a dramatic increase in arrears (in some cases nearly quadrupled compared to the official announcement before he entered the Bank of Spain). The problem is that these entities had passed without difficulty supposedly strict regulatory controls. Although the Government insists that there are no surprises and that the financial system is recapitalized and in recovery, with this background it is not surprising that there are still many who do not rely finish. 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.

Bizarro World Inflation; About that 2011 Hyperinflation Call ... Posted: 22 Sep 2011 08:04 AM PDT Time has run out for that 2011 hyperinflation call made by numerous people. Hyperinflation is not synonymous with all-time low yields across the entire US treasury curve. Yield Curve as of 2011-09-21 It seems hyperinflationists forgot to factor in the possibility the Euro, the British Pound, and the Yen (yet to come), just all may be far worse hiding places than the US dollar. Not in Love With Dollar It's not that I am in love with the dollar. Indeed I am not. I like gold. Historically, gold does well in periods of deflation and periods of credit stress. I also point out that gold fell from $850 to $250 from 1980 to 2000 with inflation every step of the way. Gold is decidedly not a hedge against inflation in any practical sense. As measured by credit (and numerous other factor) the US is back in deflation now. I offered strong proof in Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over. As a followup please see Bernanke's Waterloo; Midst of Deflationary Collapse or Brink of Inflationary Disaster? 12 Specific Recommendations Don't Get Hung Up on the Term "Deflation" I get emails nearly every day about prices. I also get emails nearly every day about money supply. Here's the deal: If money supply is your measure of inflation, we are in it and likely will be for a long time. If the CPI is your measure of inflation, we are in it, and may remain in it more often than not. That really has been my stance for years. Nothing has changed. People get hung up on the term "deflation". Perhaps I should have made up a new name. After all, the term "stagflation" was invented to explain what Keynesian clowns thought impossible (rising inflation and a recession). Keynesian thinking should have died right then and there. Unfortunately it didn't, and the economy still suffers today because it didn't. Regardless of what you think about the Fed manipulating the yield curve (and they are), the market has to accommodate. For example, the ECB bought and is still buying Italian bonds. Here is the result. Italy 10-Year Government Bond Yield Here is Germany for comparison purposes. Germany 10-Year Government Bond Yield The ECB also bought Greek debt then threw in the towel. Greece 1-Year Government Bond Yield The Fed and ECB can suggest, not mandate. If the market refuses to go along there is little central banks can do about it. Bernanke's Waterloo Here is a snip from Bernanke's Waterloo mentioned above. Hyperinflation is complete silliness at this point. Were it to come, it would be an act of Congress that would create it, not an act of the Fed, and the Fed would probably have to play along. I doubt the Fed would. For all its many faults, the Fed does not want to destroy banks. Hyperinflation would do just that. The Republican dominated House wants little or nothing to do with more stimulus. Certainly US government debt is going to mount, but it is going to mount in Japan, the Eurozone, and the UK as well. Moreover, Eurozone structural issues matter now, while US government debt will matter more in the years to come. Midst of Deflationary Collapse or Brink of Inflationary Disaster? Although the Keynesian and Monetarist economists have missed the boat on what is happening and why, Austrian minded folks who fail to understand the importance of credit and how little the Fed can do to revive it have blown the call as well. It pains me to see articles like On the Brink of Inflationary Disaster by Austrian economist Robert Murphy. We are clearly in the midst of a deflationary collapse as noted in Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over Focus on Money Supply Alone is Fatally Flawed Deflation is about credit, it is also about attitudes that govern the demand for credit. As I have stated many times over the years, and as stated above in the Contrary Investor, there is nothing the Fed can do to force businesses to expand or banks to lend. That point explains why Austrian economists who focus on money supply alone have failed and will continue to fail. Until consumer demand returns, businesses would be foolish to expand. Unfortunately, the Fed's misguided easing policies have stimulated commodity speculation thereby increasing manufacturing costs, while simultaneously clobbering those on fixed income and reducing final consumer demand. I wrote about the plight of those on fixed income in Hello Ben Bernanke, Meet "Stephanie" back in January. Please give it a read if you have not yet done so. Reversion to the Mean Nonsense Yet the emails still pour in. Someone even told me collapsing housing prices, the collapsing stock market, etc, was not a result of deflation but rather "reversion to the mean". What about 2-year treasuries at .2%. Let's forget about that. Let's forget about jobs, let's forget about banks not lending (because they can't), let's forget about countless things and conveniently label everything else reversion to to the mean. Imagine the reaction I would get if short-term treasury yields rose to 3% and I called it "reversion to the mean". Bizarro World Definitions Let's not call this deflation. Instead let's label this "banana soup" or "disinflation" as some propose. I am tired of arguing about "definitions". The term "deflation" in and of itself is meaningless. However, the lack of jobs, collapsing housing prices, inability of banks to lend, defaults, competitive currency devaluations, and everything else any reasonable person would equate with deflation are not meaningless. I choose to believe that if vast majority of the symptoms match the disease most would associate with "deflation" we are in it, even if one or two symptoms don't match. You are free to believe otherwise, but please do not tell me I am wrong. I am right, based on my definition: Deflation is a net decrease in money supply and credit with credit marked to market. If you think we are in a period of inflation with 10-year treasury yields at 1.8% and short-term yields frequently negative, then we are. Not on planet earth of course, but on Bizarro World. It's all in the definition. 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.

Hello Global Recession Posted: 22 Sep 2011 07:46 AM PDT If you did not know it before, you should know it now: The global economy is in recession. US Treasury Yield Curve Germany Government Bond Yield Curve UK Government Bond Yield Curve Japan Government Bond Yield Curve Australia Government Bond Yield Curve Brazil Government Bond Yield Curve Charts courtesy of Bloomberg Huge equity market gaps down have a tendency to be bought, but I do not care where the market closes today. Nor do I do care or whether the EU or IMF manages to pull one more preposterous "Greece will not default" attempt out of its tattered hat. These curves are not synonymous with growth and we are not going to see growth either. Germany, Australia, and Brazil curves are inverted. Short-term yields are so low in the US and Japan that there is no room for inversion. No Hiding Places On September 19th I wrote No Hiding Spots Except Despised US Dollar: Equities Red, Metals Red, Energy Red, Grains Red No Hiding Spots Except Despised US Dollar If you have not done so already done so, please consider the possibility there will be no hiding spots except for US dollars and short-term US treasuries (yielding nothing) in a renewed strong downturn. I expect gold to hold up in a major decline, but I could easily be wrong. One encouraging sign is the $HUI gold miner index is down less than a percent even though gold is down by 2% and the S&P and Dow are down by almost 2% as well. Currencies Today there are indeed no hiding spots. Currencies other than the US dollar and Yen are clobbered. Note in particular the bleak picture in the "hard" currencies of Australia and Canada. There is no reason to believe the Loonie or the Australian dollar will be a safe haven. When China slows (and it will), it will hit the commodity currencies hard. I have been saying that for months. See Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions for details. Gold, Metals Smashed Commodities across the board are an ocean of red. I still expect gold to hold up well, at least on a relative basis. I could be wrong. There may indeed be no hiding places in this downturn. 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.

Asia Bloodbath Follows US Selloff on Wednesday; Europe Bloodbath Follows Asia Bloodbath; US Futures Red for Thursday Posted: 22 Sep 2011 01:50 AM PDT Unless there is a dramatic change in the European markets in the next few hours, there is going to be significant follow-through to the post-FOMC selloff in the US. Here are a few screen shots as of approximately 3:30 AM Central. Asia Pacific Europe US Futures S&P 500 Down 18 points - 1.6% Nasdaq 100 Index Down 31 Points - 1.4% We have seen futures turn around countless times. Unless the ECB or EU has another rabbit in its hat, this one will stick. 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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