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Mish's Global Economic Trend Analysis |
US Warmongers vs. Merkel; Why Ukraine is None of Our Business Posted: 07 Feb 2015 12:59 PM PST A huge rift between Europe and the US has opened up in regards to dealing with the situation in Ukraine. The US hawks led by Senator John McCain want to send arms to Ukraine, but German chancellor Angela Merkel sees things much differently. Chancellor Merkel says Ukraine Crisis Won't be Solved by Military Means. Speaking at the Munich security conference on Saturday, the German chancellor said she wanted to secure peace in Europe with Russia and not against it.Merkel, Hollande Visit Putin On Friday, French president Francois Hollande and Chancellor Merkel took the unusual step of flying to Russia to meet with Russian president Vladimir Putin. The five-hour meeting ended with a Promise of More Talks. Details are scant which likely means little progress was made. McCain Blames US for Ukraine's Use of Cluster Bombs Meanwhile back in the states, head warmonger Senator John McCain says US Partially to Blame for Ukraine's Use of Cluster Bombs. The US is partially responsible for Ukraine's indiscriminate use of cluster bombs in the country's east, US Senator John McCain told Russia's Sputnik news agency. According to McCain, it is due to the US failing to send Kiev other arms.Lawmakers to Obama - Arm Ukraine Now Congress seldom unites on anything but war. And here we go again. The Hill reports Lawmakers to Obama - Arm Ukraine Now. The White House came under bipartisan pressure from both sides of the Capitol to provide weapons to Ukraine Thursday.McCain Calls for Bill Requiring the President to Arm Ukraine Reuters reports McCain calls for bill requiring U.S. arms to Ukraine if Obama does not act. U.S. lawmakers will write legislation requiring the United States to send arms to Ukraine if President Barack Obama does not move to send weapons, Republican Senator John McCain said on Thursday.Dead-on-Arrival That's yet another ridiculous dead-on-arrival proposal. Why Ukraine is None of Our Business A CATO Institute commentary by Doug Bandow accurately explains U.S. Should Stay Out of the Russo-Ukrainian Quarrel: Why the Conflict in Ukraine Isn't America's Business. Fighting over the Donetsk airport between Ukraine's military and separatist forces backed by Russia has flared anew. The U.S. has begun providing heavier weapons as well as personnel training to Kiev. The conflict could go on for a long time, with Kiev and Moscow locked in a small hot war and the U.S. and Russia stuck in a larger Cold War lite. An extended confrontation would be in no one's interest, especially America's.Bandow goes over every point in detail. Please give it a read. 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. |
Is Colonel Cassad Accurate? Reader Q&A; Huge Trap? Posted: 06 Feb 2015 11:42 PM PST Reader comments are sometimes quite amusing. At other times they are quite on target. Of course, beauty is in the eyes of the beholder. For example on February 3, reader Yuri Sergeev asked "WHAT HAPPENED TO THE "ENCIRCLED" Illovaisk Ukrainian troops? Did I tell you that Colonel Cassad is a simple pro-Kremlin troll who is full or crap? I did? Well, here you are." Are bold caps meant to impress, or do they mean something else? Meanwhile reader Fedwatcher commented "It is important to know when you have lost and need to step away from the table. Because neocons run our government (yes Obama is also a neocon), we keep digging the hole deeper and weaken our position. We can afford to lose this battle while Putin cannot." Let's examine those questions and comments starting with Yuri Sergeev's question on encirclement. Map of Major Military Operations February 4, 2015 click on chart for sharper image I ask reader Yuri "What the hell is it about that map that you dispute?" Personally, I do not give a damn what Colonel Cassad stands for or what side he is on. All I care about is the accuracy of what he says. And unlike most of Western news media, Cassad is not all one sided. When the separatists take a hit, Cassad says so. That immediately raises Cassad's stature (in regards to accuracy of reporting) in my eyes. That map is a few days old, taken roughly at the time Yuri made his comment. From a Kiev perspective, I am sure a chart looks worse today. Rebels Advance On Friday, Reuters reported Advancing Ukraine Rebels Appear to Capture Frontline Town. Pro-Russian rebels appeared to be in full control on Wednesday of one of the towns that has been a principal target of their advance, as they attempt to surround a nearby garrison of Ukrainian forces.Point in Dispute Kiev reports Vuhlehirsk is "contested". Reuters says "Rebels patrolled casually and were in a boisterous mood, using positions in the town to fire artillery on Debaltseve." If you are a fool or a mindless Kiev troll, then no doubt you side with Yuri Sergeev. Otherwise, the map (and in this rare case - Reuters) speaks for itself. Huge Trap I am not a military expert. But please study the above map carefully. Note the expansion at the top of the map increasing the distance Ukrainian support lines have to go. It appears as if the separatists have purposely left the main road open to entice more Ukrainian military forces to their doom. Finally, please note the contraction in the middle, increasing the need for Ukraine to send supplies to the nearly-encircled Ukrainian forces to the southeast. Undoubtedly, such thoughts make me a Kremlin Troll as well. Military experts, please feel free to weigh in. 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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But if we did, it would take a lot to speak up in a useful way. It's difficult to be a generous skeptic. Not only do we have to be clear and cogent and actionable, but we cross a social boundary when we speak up. We might be rejected, or scolded, or made to feel dumb. And of course there's the risk that we'll get our hopes up that something will improve, only to see it revert to the status quo.
So, most of the time, we don't bother.
But when someone does care enough (about you, about the opportunity, about the work or the tool), the ball is in your court.
You can react to the feedback by taking it as an attack, deflecting blame, pointing fingers to policy or the CEO. Then you've just told me that you don't care enough to receive the feedback in a useful way.
Or you can pass me off to a powerless middleman, a frustrated person who mouths the words but makes it clear that the feedback will never get used. Another way to show that you don't care as much as I do. And if you don't care, why should I?
One other option: you can care even more than I do. You can not only be open to the constructive feedback, but you can savor it, chew it over, amplify it. You can delight in the fact that someone cares enough to speak up, and dance with their insight and contribution.
Because then, if you're lucky, it might happen again.
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Mish's Global Economic Trend Analysis |
Posted: 06 Feb 2015 12:19 PM PST Just as Detroit is coming out of bankruptcy, the entire county is about to go under. This will be especially aggravating because Detroit pensioners are already extremely upset with the pension haircuts they received. In the "too late to complain now" category, Wayne County now seeks to overturn the Detroit bankruptcy settlement. Lawyers will have a field day with this setup. Cries of Betrayal Crain's Detroit Business reports Pension Cuts, Interest Paybacks from Bankruptcy Prompt Cries of Betrayal. Pension checks will shrink 6.7 percent for 12,000 Detroit retirees beginning in March. Making matters worse, many also must pay back thousands of dollars of excess interest they received.Simple Math Lesson (Yet Again) This just goes to show you: What cannot be paid, won't. Hot Air Category Here's one for the meaningless "hot air" category: Wayne County Threatens Detroit Bankruptcy Deal. Wayne County is threatening to unravel a breakthrough deal that settled Detroit's bankruptcy case unless it receives land or more than $30 million — money the city needs to bankroll Detroit's revitalization.Too Late It's far too late to go whining about something approved months ago. Worse yet, Wayne County has far bigger problems. Wayne County in Serious Financial Difficulty Over Pensions On Thursday, Wayne County Executive Warren Evans went over the county's finances at a news conference. His conclusion Wayne County Finances are in Trouble, Could Worsen. Wayne County needs to close a $70 million budget deficit, shore up pension plans that are nearly $1 billion underfunded and keep its general fund from running out of money in 2016, county Executive Warren Evans said of a recent financial review.Solvency Crisis This is not a "Liquidity Crisis", it's a solvency crisis. Wayne County is bankrupt. The only solution is a bankruptcy filing followed by pension haircuts. Pension Promises Not Sacrosanct As I have stated many times, pension promises are not sacrosanct no matter how much unions pretend that they are. Instead of fighting this, I suggest unions ought to figure out how to protect the pensions of the most people. Instead, they will likely engage in futile time-wasting fights only have a unilateral, across-the-board pension solution imposed by the courts. My idea, which will be quickly discarded by the unions, is to quickly agree to a plan that caps benefits at some level so that haircuts do not fall most on those who get the least. America Watch Closely! America, please watch closely. What's happening in Michigan, won't stay in Michigan! In spite of this massive rally in both stocks and bonds, Wayne County pension assets have declined, and are on a pace for that decline to continue. Any turndown in stocks and bonds will crush pension plans across the country. This will get very serious, very soon. 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. |
Posted: 06 Feb 2015 10:21 AM PST Initial Reaction Wages rebounded from the dip last month (but don't get too excited as per details below). Also, there were big upward revisions to many prior numbers. The unemployment rate rose this month because of a huge increase in the labor force. The civilian institutional population also leaped this month, and apparently these newly-found people are all looking for work. In yet another anomaly, unemployment rose by 291,000, but that was tempered by a rise in employment of 759,000. This was certainly a strange report. Revisions are at the heart of it. This is just one month, and the household data has been exceptionally volatile lately. Revisions
BLS Jobs Statistics at a Glance
January 2015 Employment Report Please consider the Bureau of Labor Statistics (BLS) November 2014 Employment Report. Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. Click on Any Chart in this Report to See a Sharper Image Unemployment Rate - Seasonally Adjusted Nonfarm Employment January 2011 - January 2015 Nonfarm Employment Change from Previous Month by Job Type Hours and Wages Average weekly hours of all private employees was stationary at 34.6 hours. Average weekly hours of all private service-providing employees was flat at 33.4 hours. Average hourly earnings of production and non-supervisory private workers rose $0.07 to $20.80. Average hourly earnings of production and non-supervisory private service-providing employees rose $0.08 to $20.61. Last month we reported wages of both categories declined by $0.06. In effect, this month wiped out last month's losses and a bit more. Let's look at this another way. Since November, Average hourly earnings of production and non-supervisory private workers rose $0.03, from $20.77 to $20.80 (a penny and a half a month). Since November, average hourly earnings of production and non-supervisory private service-providing employees rose $0.04 from $20.57 to $20.61 (2 cents a month). From this perspective, wages are rising about 1% a year. For discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution? Birth Death Model Starting January 2014, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back. Table 15 BLS Alternate Measures of Unemployment click on chart for sharper image Table A-15 is where one can find a better approximation of what the unemployment rate really is. Notice I said "better" approximation not to be confused with "good" approximation. The official unemployment rate is 5.7%. 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 in the last row labeled U-6. U-6 is much higher at 11.3%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years. 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. For further discussion of a more accurate measure of the unemployment rate, please see Gallup CEO Calls 5.6% Unemployment Rate "The Big Lie": What's a Realistic Unemployment Rate? 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. |
Sowing Inflation, Reaping Deflation Posted: 06 Feb 2015 12:52 AM PST I received several requests to comment on an article written by Antal E. Fekete entitled the Counter-Productive Monetary Policy of the Fed. The subtitle of his article is "Sowing Inflation, Reaping Deflation". It's 16 pages long and not an easy read. In general terms, I agree with Fekete. Without a doubt Fed policy is counter-productive, for many reasons, some of which Fekete does not even mention.
Here's a couple of paragraphs from Fekete's article that caught my eye. My thesis that falling (as distinct from low but stable) interest rates destroy capital across the board is admittedly controversial. I would welcome its examination 'without fear and favor' by a competent and unbiased panel that could also examine the superiority of "self-liquidating credit" over credit based on government debt (that could be called, tongue-in-cheek, "self-perpetuating debt"). We shall look at three destructive effects of a rate cut: (a) the increase in the liquidation value of debt, (b) labor's deteriorating terms of trade, (c) the fading of depreciation quotas."If the interest rate is cut in half, to liquidate the debt will cost twice as much." Let's discuss that last sentence. I asked my friend Keith Weiner if he could explain what Fekete was saying. He replied ... Compute the present value of a stream of payments. Suppose you must pay $100 a year for 10 years. The net present value is not simply $100 X 10 = $1,000. Each future payment must be discounted using the prevailing interest rate. If the rate is 10%, then we get the sum of the series: $90 + $81 + $72.90 ... = $586. If the interest rate is cut in half to 5%, then the sum of the series is $762.Fed Poison Keith discussed the above points in detail on a Forbes article he wrote The Fed Poisons The Stock Market. The problem I have with Fekete's model is I'm a practical guy. While I agree debt is a slice of a government IOU, and that every piece of paper is an IOU, debts between people and corporations can be extinguished. Keith understands this as well; we discussed it on the phone. So let's return to the statement once more "If the interest rate is cut in half, to liquidate the debt will cost twice as much." Start with an interest rate of say 1%. It will cost twice as much if the rate drops to 0.5%. Twice as much again to 0.25%. Twice as much again to 0.125%. etc. etc. There is an infinite number of times one could halve the interest and never get to zero. In the process, the debt would supposedly cost infinitely more to pay off. Instead of halving the rate, let's suppose the Fed just cut the rate to zero. Then what would happen if the Fed hiked? A curious thing would happen in Fekete's model. It would not matter whether the Fed hiked the rate to .1%, 1%, or 100% because a zero-divide situation would occur and any move off zero would make it infinitely less costly to pay off. Let's not confuse a percentage change in a theoretical perpetual bond, with real-world experiences in which one can pay back debt, one can refinance, and one cannot (yet anyway) get a perpetual bond. In the real world, slashing interest rates in half from 8% to 4% is a big deal. Cutting interest rates from 0.2% to 0.1% is meaningless although both theoretically double the liquidation value. There is a real world aspect worth mentioning that I believe both Fekete and Weiner would agree with: The lower the Fed pushes interest rates, the more debt ends up in the system. The aggregate debt does become harder and harder to pay off, and it makes it harder and harder for the Fed to hike. We are rapidly approaching a point where central banks in general will find it impossible to hike, even if they wanted to. Japan is at that point already. Acting Man Chimes In I pinged my response to Pater Tenebrarum at the Acting Man blog. He chimed in with similar thoughts. To his reply I added a few of my thoughts, inline, in braces ... Some bonds are 'callable', which means they can be redeemed at par prior to maturity. But whether bonds trade at a premium due to declining yields-to-maturity or a discount due to rising yields-to-maturity's is largely an accounting artifact from the point of view of a corporation. They will simply let the bond mature, and replace maturing debt with new debt at lower rates.Conclusion I don't think it's valid to put mathematical formula to this mess as the math gets pretty screwy as one approaches zero. And as a practical matter, perpetual bonds don't quite exist. Consumer and corporate debt can be extinguished even if the dollar itself is debt. Secondarily, as bubbles get bigger, I propose the damage caused by the Fed isn't even linear. The important point is that the Fed's monetary policy is extremely counterproductive. Fekete, Weiner, Tenebrarum, and I are all in agreement on that key essential point. 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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