Mish's Global Economic Trend Analysis

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• Financial Engineering Chart of the Day: Fed Balance Sheet vs. S&P 500
• French Taxi Drivers Burn Tires Block Airports in Mass 24-Hour Strike; 20% of French Flights Cancelled
• How Healthy Is the Labor Market, Really?
• Retail Sales vs. Consumer Confidence; Unwarranted Fed Faith in Wrong Surveys

Financial Engineering Chart of the Day: Fed Balance Sheet vs. S&P 500 Posted: 26 Jan 2016 11:25 PM PST Fed Balance Sheet vs. S&P 500 I was playing around with some ideas on the St Louis Fed "Fred" database and came up with this. Mike "Mish" Shedlock 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.

French Taxi Drivers Burn Tires Block Airports in Mass 24-Hour Strike; 20% of French Flights Cancelled Posted: 26 Jan 2016 06:24 PM PST Unfair Competition The nation pastime in France is striking against "unfair competition". To French socialists, the term "unfair competition" means any competition. On Tuesday French unions decided once again to do something about the unfairness: make everyone miserable as best they can. Flights Cancelled Bloomberg reports Taxi Drivers Take to the Streets in 24-Hour French Strikes. France endured mass strikes on Tuesday as taxi drivers, air traffic controllers, civil servants and teachers demanded more purchasing power, job creation and an end to disruptive competition to traditional industries. Hundreds of taxi drivers took to the streets of Paris, burning car tyres and blocking routes to principal airports in a demonstration that spread disruption across the capital. A protest by air traffic controllers prompted France's Civil Aviation Authority to ask airlines to cancel 20 per cent of their flights in France. The strikes stand to create further problems for President François Hollande and his socialist government as he battles with low economic growth and record unemployment. Mr Hollande has promised not to run for re-election in 2017 if he does not manage to reverse the upward trend in joblessness. On Tuesday, hundreds of taxi drivers blocked the road at Paris's Porte Maillot, one of the capital's principal entry points. By early morning, they had already succeeded in blocking one direction of the eight-lane highway. Television images showed the strikers lighting fireworks and dragging metal barriers in front of commuter cars desperate to pass. Waving flags and burning tyres, the taxi drivers were protesting about the rise of disruptive competition such as Uber, the US ride-sharing application, and Heetch, a French ride-sharing app that has become popular among young people. Among other things, they argue that minicab drivers working with services such as Uber do not have to pay the elevated prices for a regular licence — which have reached as high as €240,000 — and therefore compete under different conditions. In June last year, police in riot gear used tear gas to break up a protest by taxi drivers, who had all but stopped transport to and from the capital's airports. Economic Emergency With today's strike, the economic emergency in France just got bigger. On January 18, I noted Hollande Declares "Economic Emergency" to Save Jobs - His. Emergency Effort to Save Hollande's Job With a national election 15 months away and unemployment not falling, a crisis in France emerged: French president Francois Hollande's own job is at risk. Having  promised to step down as president if unemployment in France fails to drop this year, Hollande took the necessary action. He declared a state of emergency to save jobs, namely his. Hollande's job creation proposal centered around training schemes and apprenticeships. Few if any jobs would be created with such schemes. However, unemployment would drop because people in those programs are not considered unemployed. How to Create Jobs The primary reason French companies will not hire workers is that it's so damn hard to get rid of them later if they do. Add to that mountains of regulations including inane laws that tell businesses when they can or cannot open the doors. If Hollande wants to create jobs, this is what he needs to do. Make it easier for businesses to fire workers. Let any business that wants to do so, open the doors on Sunday. Reduce unemployment benefits. Get rid of countless regulations telling businesses what they can and cannot do. Get rid of tariffs and subsidies. Cut taxes, both corporate and personal. Become a pro-business country. He won't do that because it would cost Hollande his job. And saving one's ass is always the top priority, so much so, it's now a national emergency. Mike "Mish" Shedlock 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.

How Healthy Is the Labor Market, Really? Posted: 26 Jan 2016 05:08 PM PST What's the "official" unemployment rate vs. economic reality? In my analysis of the monthly jobs reports on the first Friday of the month, I make a statement similar to this: "The official unemployment rate is 5.0%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is 9.9%. Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job." There is no way to track disability fraud for sure, But I suspect it's 75% of those on disability. Hornstein-Kudlyak-Lange Non-Employment Index (NEI) While not addressing disability fraud or forced retirement issues, Richmond Fed economists Andreas Hornstein and Marianna Kudlyak, and McGill University economist Fabian Lange came up with the Non-Employment Index (NEI) as a better way to track the true health of the labor market. The NEI differs from the standard unemployment rate as a measure of resource utilization in two important ways: 1. It counts not only the unemployed, but also those out of the labor force. The latter is a diverse group that includes individuals who want a job (such as the marginally attached who are willing and able to work and sought employment in the past, but have stopped searching) and those who do not want a job (such as retirees, the disabled, students, and those who are neither retired, nor disabled, nor in school). 2. It weights the different groups of non-employed (that is, both the unemployed and people out of the labor force) according to their labor market attachment, or the likelihood that a non-employed person will transition back into the job market. Specifically, each group is weighted by its historical transition rate to employment relative to the highest transition rate among all groups (the transition rate of the short-term unemployed). An additional version of the NEI is calculated to include people who are working part time but would like to work full time, a category called "part time for economic reasons" (NEI+PTER). During the period prior to June 2007, there was a close linear relationship between the standard unemployment rate and the NEI. Why Does it Matter for Policy? The decline of the unemployment rate after the 2007-09 recession has coincided with an increase in the number of individuals out of the labor force. These observations lead to the question: Post-2007, is there substantial labor market weakness beyond what is measured by the unemployment rate? For example, discouraged individuals who are not counted in the labor force aren't included in the standard unemployment measure, but they do factor into labor market resource utilization. Economic research has shown that discouraged workers are not as distinct from those counted as unemployed as they might appear. They return to work at rates similar to those who have been unemployed for longer than 26 weeks. Therefore, excluding discouraged workers or similar groups from the standard unemployment measure may misstate the degree to which resources in the labor market are utilized. NEI Chart The above chart is from the Fred Blog How healthy is the labor market, really? The article gives you the means to recreate the chart. It does not allow you to see how the authors determined the weights. My suspicion is that their index undercounts massive disability fraud (those people who would want a job had they not been able to bilk the system). Then again, those people are not likely to be looking for a job, until the fraud stops. Fraud and similar issues aside, this chart is a step in the right direction in terms of understanding how over-hyped the decline in the unemployment rate has been. For those interested in how disability fraud has artificially lowered the labor force I can provide numerous examples. Disability Fraud I have written about Disability Fraud at least a dozen times. 60 Minutes: Mainstream Media Finally Catches on to Disability Fraud: 60 Minutes Reports on "Disability USA" Steve Kroft on 60 Minutes reports on the alarming state of the federal disability program, which has exploded in size in the last six years and could become the first federal benefits program to run out of money. NPR: Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide How Easy is it to Get Disability? Hale county's Dr. Timberlake asks a simple question to all his patients. "What grade did you finish?" If you claim "back pain" and do not have a degree, Timberlake believes you are disabled. The Disability Deal Getting disability seems easy enough in some states, and especially easy in Hale County Alabama. But is disability better than minimum wage? The answer is yes. NPR author Chana Joffe-Walt explains: .... States Promote Fraud: States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There? This all goes back to 1996 when president Bill Clinton promised to "end welfare as we know it". He did indeed do just that, and fraud is the result. Why? The federal government pays disability, but states pay part of welfare costs. This creates a huge incentive for states to actively promote disability fraud (simply to get people off state-sponsored welfare programs). Results of Clinton Ending Welfare "As We Know It" Every month 14 million Americans receive a disability check. In 1961 the leading cause of disability was heart disease and strokes, totaling 25.7% of cases. Back pain was 8.3% of cases. In 2011 the leading cause of disability was a hard to disprove back pain, totaling 33.8% of cases. The second leading cause was an equally difficult to disprove "mental illness" at 19.2%. Strokes and heart disease fell to 10.6%. In West Virginia, a whopping 9% of the population collects disability checks. In Arkansas, 8.2% are on disability, and in Alabama and Kentucky, 8.1% collect disability. In Alaska, Hawaii, and Utah, the figure is 2.9%. In Hale County Alabama 1 in 4 receive disability checks. Nearly every case in Hale County Alabama has Dr. Perry Timberlake in common. Those on Supplemental Security Income, a program for children and adults who are both poor and disabled is nearly seven times larger than 30 years ago. Once people go onto disability, they almost never go back to work. Fewer than 1 percent of those who were on the federal program for disabled workers at the beginning of 2011 have returned to the workforce. Dr. Timberlake asks a simple question to all his patients. "What grade did you finish?" If you claim "back pain" and do not have a degree, Timberlake believes you are disabled. Timberlake gets paid for his "analysis". States are willing to go along thanks to Bill Clinton who "ended welfare as we know it", creating an even worse disability fraud scheme in the wake. There has been no president since, Republican or Democrat, willing to stop fraud at the federal level. And clearly Obama is doing his best to expand fraud. Disability Deal Explained If Democrats give enough free benefits to enough people, no one can ever vote them out of office. Mike "Mish" Shedlock 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.

Retail Sales vs. Consumer Confidence; Unwarranted Fed Faith in Wrong Surveys Posted: 26 Jan 2016 11:32 AM PST Conference Board Consumer Survey The consumer conference board does a paper survey every month on consumer confidence. The board's technical notes say (emphasis mine) "The targeted responding sample size - approximately 3,000 completed questionnaires - has remained essentially unchanged throughout the history of the CCI." I called up the board with a simple question: How many surveys do you send out to get 3,000 completed questionnaires? The very snooty person who answered the phone told me to look in the technical notes. However, the information isn't there or I cannot find it. I had already read the technical notes before I called. Besides, my question was quite simple. Retail Sales vs. Consumer Confidence The Fed places a lot of faith in this survey. Yellen cites strong consumer confidence frequently, as did Bernanke before her. The numbers are out today. Consumer confidence is up. In general, confidence been high and rising for years. Happy consumers are supposed to be shopping like mad, especially given the collapse in the price of gasoline. Let's investigate those theories from today's Econoday Report. Alleged ties of this survey to consumer spending appear to be a complete bunch of hooey. I keep wondering if paper surveys are part of the problem. Are the people who respond to random paper surveys more likely to be happier than those who don't? New York Fed Survey The New York Fed also does a survey. Every month, the New York Fed interviews a rolling group of 1200 people to produce a detailed Survey of Consumer Expectations. Here are the results of the Fed's latest survey. One Year Look Ahead Household Spending Projections click on chart for sharper image Given the Fed places so much faith in various consumer confidence numbers, I have a simple question: Why don't they believe their own survey? Mike "Mish" Shedlock 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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