Mish's Global Economic Trend Analysis

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• Small Business Optimism Sinks On "Precipitous Decline in Hiring Plans"; Is Lack of Credit an Issue?
• Venezuela’s Hyperinflation Anatomy; Army Storms Caracas Electronics Stores; Total Economic Collapse Underway; Could This Happen in US?
• Moody's Warns of Scranton Bankruptcy; Fitch Downgrades Chicago Citing Pension Problems; Liberal Fantasyland

Small Business Optimism Sinks On "Precipitous Decline in Hiring Plans"; Is Lack of Credit an Issue? Posted: 12 Nov 2013 03:58 PM PST The National Federation of Independent Business (NFIB) reports Small Businesses Optimism Takes a Tumble largely due to a precipitous decline in hiring plans. Fall arrived literally this month, as small business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions. Of the ten Index components, seven turned negative, falling a total of 27 percentage points. The stalemate in early October over funding the government as well as the failed "launch" of the Obamacare website left 68% of owners feeling that the current period is a bad time to expand; 37% of those owners identified the political climate in Washington as the culprit—a record high level. NFIB chief economist Bill Dunkelberg: "Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future. The average value of the Index since the recovery started is 91—8 points below the thirty-five year average through 2007 and well below readings typically experienced in a recovery. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the disastrous healthcare law and little else. We shouldn't expect skies to turn blue anytime soon." Is Lack of Credit an Issue? The short answer, as I have commented numerous times before, is "no". Credit Markets Six percent of the owners reported that all their credit needs were not met, unchanged from September. Twenty-eight percent reported all credit needs met, and 53% explicitly said they did not want a loan. Only 2% reported that financing was their top business problem. Twenty-eight percent of all owners reported borrowing on a regular basis, down 2 points and a record low.  A net 6% reported loans "harder to get" compared to their last attempt (asked of regular borrowers only), up 1 point from September. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 8 percent, 1 point worse than September. A surprising result in an economy with the most aggressive monetary policy in history. Commentary by Chief Economist Bill Dunkelberg Typical of the reporting by the "mainstream media" on the economy, CNN (Your Money, Nov 2) asserted that stingy credit was dragging down the small business sector; no mention of the impact of Washington antics.  Banks are once again being blamed for the slow recovery, not the Administration's policies (or lack thereof). However, only 2% of NFIB members cite credit and interest rates as their top business problem, and a record 66% expressed no interest in a loan, obviously due to their dismal view of the future of the economy. It's not a problem of credit supply; it's a lack of credit demand due primarily to poor economic prospects.  Consumer sentiment is sympathetic to that notion as optimism posted declines in October, signaling that customers are less optimistic as well. The healthcare law is revealing itself to be everything opponents feared. But what else could be expected when a few hundred people (in one party) decide to restructure 15% of the economy. Nobody read the bill, nobody understood the whole thing, the big picture. Now, as it dissembles, a panicked Administration is throwing even more tax dollars at the project in an effort to stem the hemorrhaging. No surprise in Washington, apparently firms that supported the Obama campaign were awarded contracts for most of the work.  Kind of like giving Ms. Pelosi's husband the exclusive right to dispose of our unneeded post office real estate - what a deal. For numerous charts and other analysis, please see the 23-page NFIB November Report. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Venezuela’s Hyperinflation Anatomy; Army Storms Caracas Electronics Stores; Total Economic Collapse Underway; Could This Happen in US? Posted: 12 Nov 2013 10:17 AM PST A total economic collapse in Venezuela is now underway. In a futile battle against high prices, President Nicolás Maduro ordered the military to enforce an order that the Daka electronics chain reduce its prices to October levels. The store did not comply and the result was chaos. Bloomberg reports Army Storms Caracas Electronics Stores, Shoppers Follow The government-ordered military occupation of a Venezuelan electronics chain has brought out a reserve force in its wake: a line of shoppers that stretched for three blocks from a store in eastern Caracas today. "You have to take advantage of the government regulations because it was too expensive to buy before," said Maryorie Cacique, 33, as she stood in the line with her three children in hopes of getting a 90 percent discount on an air conditioner in the army-occupied Daka store. Black Market "There are no economic reasons for the shortages and price increases we are seeing," Maduro said late yesterday in a national address in which he read the Koran, Bible and Torah. "This is not because of a lack of dollars. It's political." Chief price regulator Eduardo Saman said Nov. 9 on state television that it's illegal for stores to raise prices on existing inventory. The government has set prices for everything from medical services to flour. Venezuela Sinks Deeper Into Hyperinflation The Financial Times reports Venezuela Sinks Deeper Into Hyperinflation Prices rose 5.1 per cent in October, the second highest monthly increase in over three years, according to the the Central Bank of Venezuela (BCV). The price jump brings accumulated inflation for the first 10 months of 2013 to 54.3 per cent – well into hyperinflation territory, which analysts at Goldman Sachs define as seasonally adjusted annualised rates of more than 40 per cent. At the root of Venezuela's economic woes is a tangled web of price and currency controls which, together with problems in the oil industry that supplies 96 per cent of export revenues, have generated a shortage of foreign currency, on which the import-dependent economy relies. Path to Hyperinflation 1. In May of 2009 Chávez Seized Assets of Oil Contractors after which Chavez stated "our people will never again be anyone's slave". 2. In June of 2010 Venezuela Nationalize U.S. Firm's Oil Rigs. "A former soldier inspired by Cuba's Fidel Castro, Chavez has made energy nationalization the linchpin in his 'revolution'. He has also taken over assets in telecommunications, power, steel and banking." In May of 2012, USA Today reported Venezuela's PDVSA oil company is bloated, 'falling apart'. Beatriz Rodriguez sits in a long line under a sweltering sun, waiting for state oil company Petróleos de Venezuela to deliver cylinders of natural gas she uses to cook her family's meals. "I complained, and they told me I should use firewood," Rodriguez, a mother of three, fumes. "Firewood, they told me. And we're supposedly an oil power." Venezuelan President Hugo Chávez points to the state takeover of his country's oil industry as one of his revolution's great successes. He boasts that his renegotiation of oil agreements made by his predecessors has improved oil production and allowed Venezuelans to guide the direction of its major export. Reliance on oil revenue has led to the abandonment of other economic sectors. Much tillable farmland remains idle amid attempts by Chávez to increase food output, and Venezuela continues to import two-thirds of its food. Chávez uses oil revenue to subsidize the cost of the imported food, but shortages of basic goods are not unusual. Chávez has also used the oil wealth to underwrite artificially low domestic gasoline prices of 11 cents a gallon, which is among the cheapest in the world. PDVSA's payroll has more than doubled to 115,000 employees since Chávez took office in 1999, and debt has risen 10-fold since 2006 to $34 billion. Those increases have seemingly accomplished little: Venezuela's oil production has dropped more than 25% since 1998 to its current 2.4 million barrels a day, according to OPEC. 3. As with all government takeovers, output plunges and costs soar. 4. In March 2013, Venezuela devalued the Venezuelan bolivar by 46.5% and created a new currency exchange control regime.  5. On November 5, 2013 Venezuela tightens control of foreign exchange President Nicolas Maduro is tightening control of Venezuela's foreign exchange system and intensifying the pursuit of currency speculators that the government accuses of waging an "economic war" against his rule. As mounting shortages and galloping inflation undermine Maduro's leadership, the president took to the airwaves Wednesday to announce a slew of measures he said are designed to protect Venezuelans from "parasitic bourgeoisie" speculators. "Get your papers in order, get your shop in order," Maduro said in a rambling three-hour speech, during which he also attacked popular eBay-like retailer MercadoLibre.com for setting prices artificially high. "If you're looting the people it doesn't matter what your name is, the law will find you." Maduro's speech was widely anticipated after Venezuela's currency plunged to a record low 58 bolivars per dollar on the black market this week — nine times the official rate of 6.3 per dollar. The president said Tuesday that he and his advisers worked past midnight to prepare the economic package. 6. Army seizes goods, imports dry up, merchandise unavailable at any price. Currency collapses additional 90% on black market. Total Economic Collapse Underway The army can raid stores precisely once, after which imported goods will not be available at any price. Oil export revenues have plunged, while costs soared following the nationalization of the  oil industry. Amusingly, Chavez billed the takeover as his greatest success. For now, meat and produce availability will depend on whatever the government can confiscate from local growers. However, agricultural products will not last long because fertilizer and feed will vanish at government set prices. A total economic collapse is at hand. Hyperinflation a Political Event Please note that hyperinflation is a political event, not a monetary one. In the case of Venezuela, a series of incredibly stupid political errors is behind the collapse of the currency. Political error is the root cause of every hyperinflation. For an historical country-by-country analysis of hyperinflation events please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything?. For further discussion of hyperinflation theory vs. practice, including an analysis of absurd calls for US hyperinflation, please see Hyperinflation Nonsense in Multiple Places. US Hyperinflation calls have been, and remain nonsensical. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Moody's Warns of Scranton Bankruptcy; Fitch Downgrades Chicago Citing Pension Problems; Liberal Fantasyland Posted: 12 Nov 2013 12:20 AM PST It is truly pathetic watching politicians flop like fish out of water trying to prevent something that was clearly inevitable long ago. Please consider Moody's warns of bankruptcy in Scranton as city faces $20 million budget gap. Moody's warned investors that Scranton could be facing the threat of default or bankruptcy thanks to a $20 million budget gap for the fiscal year that begins Jan. 1. Scranton has more than $195 million in outstanding debt, according to Moody's. A similar crisis hit the city in July 2012, which lead to Mayor Chris Doherty cutting all city workers' pay to minimum wage for several weeks, a move that made national headlines. "A second liquidity crisis could have more severe effects, including additional defaults," Moody's warned. To generate revenue necessary to address its debt, Scranton has considered taxing commuters and alcoholic drinks, though neither has been approved by the city council. The Pennsylvania Economy League, which is overseeing Scranton's Act 47 recovery plan, warned last month the city would have to raise taxes to avoid a default at the beginning of the 2014 fiscal year. Scranton also faces more than $100 million in unfunded pension debt, on top of the $195 million in other debt owed. Adding to Scranton's financial woes is the need to borrow another $28 million to pay a court-mandated settlement with the city's police and firefighter unions. Tax Hike is Pure Idiocy The numbers say everything that needs to be said. It is absolutely impossible for Scranton to dig out of this hole, I do not care how much taxes are raised. All tax hikes can do is harm more working class citizens for the benefit of undeserving public union workers. Liberal Fantasyland Whatever judge awarded the police and fire workers $28 million is an idiot or a genius, depending on his or her intent. If the intent of the ruling was to make it clear to everyone on the planet that the only solution for Scranton was bankruptcy, then the judge succeeded. If as I suspect, the judge actually thought police and fire fighters would receive $28 million, then the judge is living in liberal fantasyland. Fitch Downgrades Chicago Citing Pension Problems Yahoo!Finance reports Fitch downgrades Chicago bond ratings Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes. It also dropped the rating on $497 million in sales tax bonds — paid for by both the city's local sales tax and its share of the state sales tax. And the rating was downgraded on $200 million in commercial paper notes, financed by a general obligation pledge from any available city fund. Friday's downgrade stems from "the lack of meaningful solutions" to the city's pension situation. City and fire pension programs have no more than 30 percent of the money needed to cover obligations. Scranton is several steps deeper in the hole than Chicago, but the problems are quite similar. Neither city can possibly pay pension promises. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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