Mish's Global Economic Trend Analysis |
- Obamacare Creates Incentive to Work Less; CBO Estimates Obamacare Will Cost 2 Million Full-Time Equivalent Jobs by 2017
- Treasury Debate: Gundlach (Bull) vs. Rosenberg (Bear); Price Inflation on Hold; What About Gold?
- Controversy in Detroit: What's a Fair Settlement of Bondholder and Pension Obligation Claims?
Posted: 04 Feb 2014 02:11 PM PST MarketWatch reports Obamacare plans to exceed $1 trillion, create reluctant workers. The CBO projects that insurance subsidies and related spending will account for increasing chunks of deficit spending, starting at $20 billion this year and steadily increasing to $159 billion in 2024, for a collective cost of just under $1.2 trillion. The cumulative total from the ACA for the next decade could reach $1.35 trillion.Labor Market Effects of the Affordable Care Act Inquiring minds are also in interested in labor force projections. For that let's dive into the massive 182 page PDF CBO Budget and Economic Outlook 2014 to 2024 report. Incentive to Work Less On PDF page 44 (Report page 38) a curious footnote reads "By providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to work less." A detailed explanation is found in Appendix C on PDF page 123. How Much Will the ACA Reduce Employment in the Longer Term?Don't worry. This won't cost 2 million jobs, only 2 million equivalent full-time jobs. Perhaps a many as 6 million work fewer hours each week. The CBO did not estimate the breakdown. Regardless, that cannot possibly happen, can it? Didn't Obama claim ACA would create jobs? Hmm. What else did he promise? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
Treasury Debate: Gundlach (Bull) vs. Rosenberg (Bear); Price Inflation on Hold; What About Gold? Posted: 04 Feb 2014 12:11 PM PST I happen to like 10-year US treasuries here, and have since rates got near 3%. I believe job growth is way overstated due to double-counting of part-time jobs, the global economy is slowing more than economists expect, and the US economy is slowing more than economists expect. Betting Against Treasuries a Fool's Game? Jeffrey Gundlach CEO of DoubleLine Capital goes even further. Gundlatch claims Betting Against Treasuries a Fool's Game. The market was "entering 2014 struck by a greater consensus entering any year that I can remember, that the dollar has to do well, gold is for losers and bond yields will rise," said Jeffrey Gundlach, chief executive officer of DoubleLine Capital, which manages $49 billion. "Things were so lopsided in terms of that positioning. That was late in that way of thinking."Gundlach (Bull) vs. Rosenberg (Bear) One long-time bond bull recently turned bearish, and he sees no reason to change course. Yields will reverse and end the year at 3.5% to 3.75% as the economy improves, according to David Rosenberg, the chief economist at Gluskin Sheff & Associates.Will the US Economy Accelerate? David Rosenberg thinks the economy is going to accelerate. If the economy does accelerate, the Fed will increase tapering, not reduce it. Looking for another opinion? Marc Faber Bullish on Treasuries and Gold Taken from a Barron's roundtable discussion, ZeroHedge reports Marc Faber Warns "Insiders Are Selling Like Crazy... Short US Stocks, Buy Treasuries Gold". Faber: What I recommend to clients and what I do with my own portfolio aren't always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.Curious Position US treasuries are a curious position for someone frequently in the hyperinflation camp, which brings up this humorous conversation from Barron's. Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don't own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.Price Inflation on Hold If the economy implodes (or even modestly declines) US Treasuries will benefit. Even a frequent hyperinflationist and firm disbeliever in paper assets gets it! Here's my claim: Deflation Will Return: Europe First, Then US Strong consumer price inflation, is on hold for a long time. US hyperinflation in this environment is next to impossible. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
Controversy in Detroit: What's a Fair Settlement of Bondholder and Pension Obligation Claims? Posted: 04 Feb 2014 09:49 AM PST A huge battle between pensioners and bondholders is on. Last week, a Bond rating agency blasted Governor Rick Snyder's $350-million Detroit pension rescue plan as being too favorable to creditors at the expense of bondholders. Today, the New York Times reports Detroit Turns Bankruptcy Into Challenge of Banks. Amy Laskey,a managing director at Fitch Ratings, said in a recent report that she sensed an "us versus them" orientation toward debt repayment. And in the view of bondholders, bond insurers and other financial institutions, it only grew worse last week after the city circulated its plan to emerge from bankruptcy and filed a lawsuit on Friday.What's a Fair Settlement? Last summer, Gov. Rick Snyder of Michigan said the intent was to "determine the best path forward that respects, and is fair to, pensioners and all parties." In bankruptcy, the court has an obligation of fairness. However, it's not unprecedented for judges to take one side or another. Until now, the article claims "municipal bondholders have not had losses of principal forced on them by a court." Here is a key point: Both the pension obligations and bondholder debt are unsecured debt. Why not treat both pensioners and bondholders equally? The proposal currently on the table is for pensions to get 50 cents on the dollar (a 50% haircut) and bondholders 20 cents on the dollar (an 80% haircut). I have a simple proposal. Give everyone 35 cents on the dollar (a 65% haircut). Neither side would be happy, but the ruling would be fair. I also recommend the court trash the city's defined benefit plan entirely, or Detroit will be back in bankruptcy in a number of years. Finally, if bondholders do not think they got a fair shake, they will demand higher interest rates going forward. Regardless of what the judge decides, the Detroit bankruptcy settlement will affect municipal bond interest rates going forward, not just in Michigan, but nationally. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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