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Mish's Global Economic Trend Analysis

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• Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation
• Legal Basis for War in Syria? Amazing Three-Point Logic!
• Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets
• Housing Early Warning Stress Indicator On Rise

Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation Posted: 25 Sep 2014 10:15 PM PDT Here's the question of the day: Does GDP stand for Gross Domestic Product or Grossly Distorted Procedures? One of the reasons I ask is the latest push by countries to include prostitution and drugs sales in GDP calculations. Italy: Cocaine Sales to Boost Italian GDP in Boon for Budget. USA: The Fiscal Times reports How Hookers and Drug Dealers Could Boost US GDP. Spain: economists estimate that prostitution, illegal drugs, and adjustments will increase GDP since 2010 by 2.42%. That's cumulative, not additive. Methodological changes, such as counting weapons as an "investment" represents 1.55 percentage points of the change. France: Here's a shocker ... France says No Sex, Please, We're French. In short, France will not include sex or illegal drugs in its measure of GDP. UK, Ireland, Italy: The WSJ mentions the UK, Ireland, Italy, and even the United Nations in its report Sex, Drugs and GDP: the Challenge of Measuring the Shadow Economy. From the preceding link, the WSJ reports ... The U.K. could add as much as $9 billion to the value of its GDP by including prostitution and about $7.4 billion by adding illegal drugs, by one estimate, enough to boost the size of its economy by 0.7%. Not to be outdone, Italy will include smuggling as well as drugs and prostitution. Other nations in Europe are also poised to fall in line with a European Union call to standardize and broaden GDPs. The EU is following a "best practices" directive laid out in 2008 by the United Nations. Best Practices Directive The "best practices" push is on to count sex, except in France (where perhaps it would send GDP soaring to unbelievable heights). Yet, no one counts people raising their own vegetables, a genuine product. Teen Sex As long as we are counting prostitution, why not count consensual sex? What about sex between husbands and wives? What about teen sex? Isn't the product the same? Are we counting products and services or not? If husbands did not get sex from their wives, wouldn't some of them pay to get sex elsewhere? Is or isn't sex a service? Some might argue that prostitution is a service because it's paid for, but teenage sex is not a service because it isn't paid for. OK, but that leads to a discussion on imputations. Imputations The average person has heard of GDP. The average person has not heard of the imputations that go into calculating GDP. Q: What are GDP imputations? A: They are an assumed value of goods and services that trade at no price. The biggest example of imputed GDP is the alleged value derived from living in your own home. The government figures that if you did not own your own home, you would pay someone rent. It adds the presumed amount of rent you would pay to rent your home from yourself to GDP. Another US GDP imputation is the "value" of "free" checking accounts. Government assumes that since you do not pay for your free checking account GDP is underestimated by the value of the "free" account. Never mind that banks take your checking account deposit, lend it out overnight, earn interest on it, and your money really isn't there at all. Government imputes a value on the practice. Imputation Totals Inquiring minds may be wondering how much imputations add to US GDP. The following figures are from 2013. They calculate these things in arrears to allow for any needed GDP smoothing. GDP: $16.7681 trillion. Imputations: $2.6935 trillion GDP Minus Imputations: $14.0746 Imputation Contribution to GDP = $2.6935 / $16.7681 = 16.06%  Here are a few specifics. Owner-occupied housing The imputed valued of people renting houses from themselves is $1.21 trillion. Imputed Interest If I loan you $100 and you pay me back a month later and I don't report it, that's a no-no. Perhaps the government also factors in credit card purchases paid off each month on which no interest is paid. However, it's calculated, the total in this category is $932 billion. The Fed provides numerous Imputation Charts including imputed interest paid to the rest of the world, imputed health and life insurance, and imputed personal savings. Mish Proposal As long as we are imputing the above, why not impute the value of free sex, mowing your own lawn, and scratching someone's back? Seriously, if I scratch your back and you scratch mine, why doesn't that add to GDP just as prostitution, free checking accounts, and paid massages add to GDP? Think how much we can raise GDP calculations if we just get each other to scratch each other's backs 15 minutes a day! Add in some extra sex and drugs and the economy will be booming in short order. 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.

Legal Basis for War in Syria? Amazing Three-Point Logic! Posted: 25 Sep 2014 02:30 PM PDT The hypocrisy of the US is on full display. We have imposed preposterous sanctions on Russia following its takeover of Crimea. Given that Crimea actually had a vote, and the vote was overwhelming, one can legitimately argue the Crimea takeover was democracy in action. Rigged or not, it's 100% certain the vote would have gone in favor of Russia. Votes? Constitutions? Who Gives a Damn? Who gives a damn about votes? Some claim the vote was illegal by Ukraine's constitution. But what good are constitutions anyway? The US doesn't give a damn about the US constitution let alone the constitution of any other nations (unless of course it serves our purpose). Legal Basis for Troops in Iraq? On September 5th, the Guardian commented on the legality of US troops in Iraq: Legal basis for Iraq troop deployment called into question as days wear on. The legal basis for the recent introduction of more than 1,000 US ground troops in Iraq was called into question on Friday, after the White House confirmed that it does not consider itself bound by time limits that usually constrain such deployments. Under the terms of the 1973 War Powers Resolution, troop deployments into war zones may not last longer than 60 days, unless Congress explicitly authorises military force. As no congressional authorisation yet exists – Congress returns from its August recess next week – lawyers have wondered about the solidity of the legal grounding for the latest US war in Iraq. Obama's ISIS Plan Legal? On September 12, Salon asked: Is Obama's ISIS plan legal?. President Obama's legal basis for "destroying ISIS" is a stretch. But who's going to stop him? Congress? Ha! "Moderate" Collateral Damage It's tough distinguishing friends from enemies, especially when allies don't agree who the enemies are, and our enemies have the same primary goal as us! For example, the Financial Times note Syria Rebels Dismayed by US Air Attacks on Non-Isis Groups. In the course of Syria's nearly four-year civil war, Ahmed Hamadi an anti-regime rebel, often hoped western intervention would help his cause. But when it finally came, it killed his neighbours and their children. Door Number One or Door Number Two? When you go about killing moderates and their kids, do you think the remaining moderates and kids will love us for our freedom-fighting ways? Or do you think we created more extremists? Hitting Oil Targets Today the Financial Times reports US took out Syria's Oil Refineries. US-led coalition strikes targeted at least six oil refineries held by militants from the Islamic State of Iraq and the Levant (Isis) in eastern Syria overnight, hitting at one of the group's main sources of financing. Did Blasting Oil Refineries Help? "This was a really important strike because of oil's significance to Isis," said an activist who uses the nom de guerre Thaer al-Khalidiya. "But unfortunately its impact is diminished by how unpopular the strikes are becoming, and by how little it seems to be affecting the group's military operations in Syria." Strikes Becoming Unpopular Civilian casualties were also reported in strikes on southeastern Hassaka countryside, which could increase the negative popular sentiment. According to the Syrian Observatory for Human Rights, around seven non-Isis fighters and civilians were killed, including one child and several women. It said 15 Isis militants were killed. It is impossible to independently verify the figures. Gee - Who coulda thunk that killing innocent kids might become unpopular? Besides, why aren't these ingrates happy with our fantastic hit ratio? We killed 15 ISIS members and only 7 innocent victims. The cost of hundreds of tomahawk missiles and bombs per ISIS member killed is clearly irrelevant. The US Has plenty of money. If we run out, we can always print more. What about ISIS weapons? Inquiring minds may be asking "What about ISIS weapons?" That's a good question given nearly all of them are US made, confiscated by ISIS in Iraq. Here's the answer: Redur Xelil, a spokesman for Syria's main Kurdish force, known as the People's Protection Units (YPG), said some coalition strikes had hit the area but targeted Isis bases far from the front lines, many of which had already evacuated. He pleaded for more strikes near the front to help the YPG win the battle. "The bases of ISIL and all their heavy weapons, vehicles and equipment are in the open air and visible to everyone," he said, using an alternative acronym for Isis. "But they have not yet been targeted by the air strikes." There you have it. We don't target weapons, instead we cripple Syria's infrastructure. Mistakes Bound to Happen Unfortunately, such mistakes happen when you Drop a Month of Bombs in Two Days on Syria. Strikes. Rationale for Fighting ISIS One rationale for the bombings is that an ISIS cell threatened the US. Exactly how credible was that? The Guardian reports US officials unclear on threat posed by obscure al-Qaida cell in Syria. Three days after the United States unexpectedly launched air strikes against an al-Qaida cell in Syria, officials are offering varied and conflicting explanations on the precise nature of the threat posed by the group. Hours after Tomahawk missiles slammed into buildings near Aleppo believed to be used by Khorasan, an obscure group said to be focused on exporting terrorism from Syria, the US military described it as involved in "imminent attack plotting" against western targets. Yet it is unclear what Khorasan was planning, how far that planning advanced, and whether the US itself was a target. Nor is the US confident as yet that it has either killed Khorasan's leaders or significantly degraded any threat Khorasan may pose. Bomb First, Ask Questions Later A senior US official briefing reporters the day after the strike said that Khorasan was "nearing the execution phase" for an attack "in Europe or the homeland". Hours before the strike, however, a different senior official had told the Guardian there was no indication of an imminent domestic threat from the group. Yet on Thursday, the Pentagon's chief spokesman dismissed questions about how mature any attack planning was, saying it was "near the end stages of planning an attack a western target". "I don't know that we can pin that down to a day or a week or a month or six months. Doesn't matter. Far better to be the left of a boom than the right of it," said Rear Adm John Kirby, using military jargon about periods before and after an attack. Aspirations vs. Reality Leaks to the New York Times and the Washington Post cast doubt on the maturity of an attack emerging from Khorasan. Anonymous officials were cited as saying it was unclear if Khorasan had picked out targets, deployed operatives to execute them or otherwise set a specific plan in motion, with one describing Khorasan's planning as "aspirational". Perpetual War Is the US war on Syria constitutional according to Syria's constitution? Better yet, is the US war on Syria constitutional even according to ours? On September 13, the Guardian reported Obama's legally dubious Isis campaign is just a way to continue perpetual war. Authot Trevor Tim wrote "The question isn't whether this is war. It is. The question is how long until we're clamouring for ground troops in Iraq again." I am in complete agreement. Following a Pentagon statement that this was the "beginning of a sustained campaign" that could last years, I penned Battle for Perpetual War is Won. Undeclared War "We did not request the regime's permission. We did not co-ordinate our actions with the Syrian government. We did not provide advance notification to the Syrians at a military level, or give any indication of our timing on specific targets," said Jen Psaki, the state department spokeswoman." Interestingly, Syria's Deputy Foreign Minister called the US a "Natural Ally" stating We're 'Fighting the Same Enemy. "When it comes to terrorism, we should forget our differences… and forget all about the past," said deputy foreign minister Faisal Mekdad. "It takes two to tango...We are ready to talk." Talk? Who wants that? Why talk when the battle for perpetual war has been won? Legal Knots Let's return to the question of legalities, this time specifically in regards to Syria. The Guardian reports US ties itself in legal knots to cover shifting rationale for Syria strikes. US government lawyers have invoked Iraq's right to self-defence and the weakness of the Assad regime as twin justifications for US bombing in Syria, in a feat of legal acrobatics that may reopen questions over its right to intervene in the bitter civil war. In a letter to the United Nations secretary general, Ban Ki-moon, released near 24 hours after attacks began, US ambassador Samantha Power argued that the threat to Iraq from Islamic State, known as Isis or Isil, gave the US and its allies in the region an automatic right to attack on its behalf. The brief letter did not mention the US invasion of Iraq in 2003, which rested on erroneous claims of weapons of mass destruction and arguably contributed to its current instability, but stresses instead the country's right to self-defence in the face of this new threat. The US also argued that there was legal right to pursue Isis inside Syria due to the weakness of that country's government – a regime the US has been actively urging be undermined by rebel groups for much of the past two years. Amazing Three-Point Logic! States must be able to defend themselves and Syria cannot.  One reason Syria cannot defend itself is the US actively supports those who attempt to topple Syrian president Assad.  Because Assad is struggling to defend himself (from us), we allegedly have a legal basis to defend Syria. For purpose of crippling another country, oil refineries are "prime targets".  By taking out Syrian refineries, Syria is even less likely to defend itself from those who wish to topple the Syrian government. Meanwhile, the US is in yet another undeclared war with Congress sitting on its ass, unwilling to do anything with elections coming up. Bright Side Please look on the bright side! US GDP goes up every time we drop a bomb and the bomb is replaced with more bombs.   The more innocent kids we kill, the more enemies we make.  The more enemies we make, the more bombs we drop.  The more bombs we drop the more US GDP goes up and the more money the CEOs of defense companies make. As an alternative, I offer my own sure-fire solution: The Moderate's Prayer. 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.

Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets Posted: 25 Sep 2014 11:16 AM PDT What's Russia to do? Stand back and let the US and Europe escalate sanction after sanction, or respond in kind? Either way, Russia loses. I believe Europe has the worst of it, but both suffer. Hope for Sanity Appears to Be Lost Cause By responding in kind, Russia hopes to put some sanity in the heads of US and EU officials. But with brains as dense as Obama, McCain, and various EU officials, hope for sanity appears to be a lost cause. Sanction Madness Escalates: Italy Seizes Hotel of Putin Ally Two days ago sanction madness hit a new extreme: Italy seizes Putin ally Arkady Rotenberg's property assets. The Italian tax police have seized €30m in assets, including a luxury hotel in Rome and two villas in Sardinia, controlled by Arkady Rotenberg, a longtime ally of Russian president Vladimir Putin targeted by US and EU sanctions.  The move comes amid continued tensions between Russia and the EU over Ukraine, and ahead of a possible visit by Mr Putin to Milan next month for a summit with European and Asian leaders that could offer a chance to rebuild some bridges. Speaking to Russian newswire Interfax, Mr Rotenberg said: "I have been subject to sanctions for several months. Nothing surprises me anymore. But what puzzles me is that the current situation involves real estate to which the sanctions do not apply. Sanctions only apply to accounts and assets which I do not have in Italy." Russia Threatens Law Allowing Seizure of Foreign Assets Response from Russia was swift. Moscow Times reports Draft Law Allows Russia to Seize Foreign Assets in Response to Sanctions. Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to Western sanctions over the Ukraine crisis. The draft, which was submitted to parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for an individual whose property is seized in foreign jurisdictions. Italian authorities this week seized property worth about 30 million euros ($40 million) belonging to companies controlled by Arkady Rotenberg, an ally of President Vladimir Putin targeted by the U.S. and European Union sanctions. The draft law, published on a parliamentary database, would allow for compensation for Russian citizens who suffer because of an "unlawful court act" in a foreign jurisdiction and clear the way to foreign state assets in Russia being seized, even if they are subject to international immunity. Russian laws require three readings in the lower house and the approval of the upper house before going to Putin to be signed into law. Blue Ribbon for Sanction Craziness What would happen if Russia were to act in kind, by seizing McDonald's Real Estate Empire in Russia, Starbucks, or Exxon? Does Russia have more assets in the US (for the US to seize) or does the US have more assets in Russia (for Russia to seize)? The question is moot. Illegal seizure of assets under the guise of "sanctions" is not a good idea. Sanctions in general are crazy, but in the ever-escalating madness, Italy is now in the lead for the much-coveted blue ribbon for sanction craziness. 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.

Housing Early Warning Stress Indicator On Rise Posted: 25 Sep 2014 10:03 AM PDT A chart in the latest Black Knight Mortgage Monitor Release caught my eye. For five months, the number of properties and the percentage of properties 30-days delinquent has been on the rise (arrows added). click on chart for sharper image Key Indicators The mortgage delinquency rate jumped nearly 5% in August, reaching its highest point since February. The year-over-year change in 30-day delinquencies is a negative 4.8%. Another month like August would nearly reverse the year-over-year downtrend in delinquencies. The inventory of  30-day delinquent homes rose by 146,000. Another month like August would reverse the year-over-year change. 90-day delinquencies do not show the same ominous trend as 3-day delinquencies, but 90-day delinquencies first require 30-day delinquency then 60-day delinquency. So far, the 90-day stats have not rolled over, but with the 30-day uptrend this long, it likely will. 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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Damn Cool Pics

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• White Tiger Kills Boy Inside Delhi Zoo [Video]
• People Still Fall For The iPhone 6 In The Microwave Prank
• Scary Joker Mask

White Tiger Kills Boy Inside Delhi Zoo [Video] Posted: 25 Sep 2014 04:34 PM PDT A white tiger attacked and killed a young man who appeared to have jumped over a barricade into an enclosure at the Delhi zoo on Tuesday, officials said. Witnesses said the tiger grabbed the young man by the neck as horrified onlookers at the National Zoological Park near Sundar Nagar screamed and threw sticks and stones to try and save him.

People Still Fall For The iPhone 6 In The Microwave Prank Posted: 25 Sep 2014 02:42 PM PDT Apple fans have just been trolled in a hilarious way. An infographic was created using Apple's style. It claimed that the new IOS 8 was capable of charging your iPhone through microwave frequencies under the name of a new technology called the Apple Wave. Naturally, the smartest of the Apple herd rushed to their microwaves, loaded their shiny new iPhone 6s, powered their microwave up to high, and set it for 5 minutes. Little did they know, the prank was originally created on 4chan.

Scary Joker Mask Posted: 25 Sep 2014 02:31 PM PDT This Joker mask is creepy.

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The 2014 #MozCon Video Bundle Has Arrived!

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The 2014 #MozCon Video Bundle Has Arrived! Posted: 24 Sep 2014 05:13 PM PDT Posted by EricaMcGillivray Your advanced course, the videos from MozCon 2014, is finally here. Whether you're looking for the latest dive into SEO, wondering what you should be doing with mobile, or figuring out how to step up your PR, the MozCon videos have a bit of everything from leading industry experts. For MozCon 2014 attendees, you should've received an email with your unique URL for a "free" copy of the videos, included in your ticket cost. MozCon 2014 was the best ever! I know, we say that every year, but I swear on Roger's antenna that it really was. We've settled into our new home at the Washington State Convention Center, and hosted 1,400 people at this year's gathering (a sellout crowd!). There were 28 future-focused sessions, cram-packed with advice and actionable recommendations from some of the industry's most innovative minds. Topics ranged from SEO and A/B testing to analytics and content marketing. Here's a taste: How did attendees like the sessions? This year, 43% of attendees took our post-MozCon survey, and here's what they had to say about the content: 56.3% said 80%+ were perfect and 36.6% said 50%+ were interesting. Tell me more about these videos If you're wondering why it takes two months to produce and perfect these videos post-MozCon, it's because we go the extra mile to create something easy-to-digest for you. Our videos show both the presenter and their presentation, so you don't have to hide the presenter's face to flip through a slide deck. You can also download each deck, so you've got easy access to links and reference tools. For $299 for Moz Pro subscribers ($399 for non-subscribers), the 2014 MozCon Video Bundle gives you instant access to: 28 videos (over 17 hours) from MozCon 2014 Stream or download the videos to your computer, tablet, phone, phablet, or whatever you've got handy Downloadable slide decks for all presentations Buy the 2014 MozCon Video Bundle Non-subscribers: Save $100 by signing up for a free 30-day trial of Moz Pro! The 2014 free presentation Each year, we release one of the top presentations for everyone to watch for free. Last year, we gave away  Kyle Rush's on CRO, and the year before, Wil Reynold's #RCS. This year, check out "Prove Your Value" with Dana DiTomaso, partner at Kick Point; she talks you through the best ways of reporting your work to your client or boss. Still not convinced? Enjoy our cat Pinterest board. Or, if you're super-excited about MozCon and interested in the live show, buy your early bird ticket for MozCon 2015. We sold out this year, and expect to do so again, so get 'em while they last! Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. Think of it as your exclusive digest of stuff you don't have time to hunt down but want to read!

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Seth's Blog : Symptoms and diseases

 

Symptoms and diseases

A fever is a symptom. There's an underlying disease that causes it. Giving you a fever (sitting in a sauna) doesn't make you sick, and getting rid of the fever (in a cold bath, for example) doesn't always get rid of the illness. 

The New York Times bestseller list used to be a symptom, the symptom that a book was really popular. Now, it’s so easy to game and fake that some people have confused themselves into thinking that being on the list can actually cause your book to be popular.

It’s easy to be fooled into paying a lot to hire a salesperson who is leaving a fast-growing company. After all, it seems like hot-shot gifted salespeople are often the cause of a company growing fast. In fact, we often see that a fast-growing company seems to produce hot-shot salespeople (or programmers or whatever).

Does the really buzzy launch party make the movie good, or does a good movie get a better party?

Sometimes cause and effect can be flipped (enthusiastic people can become happy, or happy people become enthusiastic) but it’s often worth keeping track of which part of the process you’re trying to invest in and which part you're working to create.

Spending time and money gaming symptoms and effects is common and urgent, but it's often true that you'd be better off focusing on the disease (the cause) instead.

       

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Mish's Global Economic Trend Analysis

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• Housing Prices, "Real" Interest Rates, and the "Real" CPI
• Law of Excuses: It's Always Something (But Never the Right Thing)!
• The Moderate's Prayer; Applications Now Being Taken; Distinguishing Friends From Enemies

Housing Prices, "Real" Interest Rates, and the "Real" CPI Posted: 24 Sep 2014 01:35 PM PDT With housing prices still rising, albeit more slowly, inquiring minds might be wondering about "Real" interest rates and the "Real" CPI? CPI Distortions I believe the CPI is hugely distorted, but not for the same reasons as everyone else. Home prices used to be in the CPI but the BLS now uses OER (Owners' Equivalent Rent). OER is a measure of actual rental prices as well as fiction. The BLS determines OER from a measure of rental prices and also by asking the question "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?" If you find that preposterous, You are not the only one. Regardless, rental prices are simply not a valid measure of home prices. OER Weighting in CPI OER has the single largest weight of any component in the CPI, at 23.957%. Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?" HPI-CPI Periodically, Black Knight Financial Services provides the actual data behind their HPI (Home Price Index), a measure of actual prices. We can use that data to see what the CPI would look like if we put actual home prices in the CPI instead of OER. I call this the "HPI-CPI". I passed on an Excel spreadsheet of the Black Knight HPI aggregate housing prices to Doug Short at Advisor Perspectives and we produced the charts below. Notes Click on any chart to see a sharper image Data as of June 2014 Annotations in purple by me Let's start with a look at the rate of increase in home prices vs. the rate of increases in OER. Comparative Growth in HPI vs. OER From 1994 until 1999 there was little difference in the rate of change of rent vs. housing prices. That changed in 2000 with the dot.com crash and accelerated when Greenspan started cutting rates. The bubble is clearly visible but neither the Greenspan nor the Bernanke Fed spotted it. The Fed was more concerned with rents as a measure of inflation rather than speculative housing prices. Two Inflation Indexes Year-over-Year The above chart shows the effect when housing prices replace OER in the CPI. In mid-2004, the CPI was 3.27%, the HPI-CPI was 5.93% and the Fed Funds Rate was a mere 1%. By my preferred measure of price inflation, real interest rates were -4.93%. Speculation in the housing bubble was rampant. In mid-2008 when everyone was concerned about "inflation" because oil prices had soared over $140, I suggested record low interest rates across the entire yield curve. At that time the CPI was close to 6% but the HPI-CPI was close to 0% (and plunging fast). As measured by HPI-CPI real interest rates were positive from mid-2006 all the way to 2010, even when the Fed Funds rate crashed to .25%. That shows the power of the housing crash and how badly the Fed misplayed the housing bubble. Real rates went positive again in mid-2010 until early 2011. CPI and HPI-CPI Variance From Fed Funds Rate The above chart shows two measures of "Real" interest rates. The Blue line is the Fed Funds Rate minus the CPI. The Red line is the Fed Funds Rate minus the HPI-CPI. Both measures show how the Fed has pushed real rates into negative territory. However, the rate of growth in home prices is slowing. If home prices actually start to decline, which I believe likely, HPI-CPI will show outright deflation. And even with the Fed Funds rate at 0.25%, real rates will again be positive as measured by HPI-CPI, but perhaps not by the Fed who uses the CPI as its measure of price inflation. 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.

Law of Excuses: It's Always Something (But Never the Right Thing)! Posted: 24 Sep 2014 10:11 AM PDT The out-of-the-blue excuses countries come up with for not making budget deficit targets are rather amusing. For example and via translation from La Vanguardia, France Blames Deficit on Jihadist Terrorism, Lack of Inflation. French Prime Minister, Manuel Valls, said today that his country's military missions against jihadist terrorism, along with public investment in education and security make it difficult to meet deficit limits. "If we reduce our military budget, where are we going?" In regards to "where are we going?", I have a proposal: If France would cut public spending in general, by a third, reduce taxes by as much, and roll back all socialist regulations, I suggest "up", and in a very dramatic fashion. Instead, Valls proposes Wimpy's philosophy Eat Now, Pay Later. The "spiral of debt" which is France, which has not achieved a balanced national budget in four decades, is "unsustainable". However, the French prime minister stressed his commitment to fiscal stabilization and fiscal consolidation, and explained to a large group of German businessmen reforms to labor, tax and administrative level, which aims to save up to 50,000 million for 2017 . 2017 - I Can Hardly Wait I will gladly pay you in 2017 for a hamburger today. Between now and then, how how many excuses can France come up with to push the date back further? Valls vs. Wimpy Law of Excuses Shockingly, no one has yet proposed "The Law of Excuses", so I get to claim it. I dedicate the law to France: It's Always Something (But Never the Right Thing)! 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.

The Moderate's Prayer; Applications Now Being Taken; Distinguishing Friends From Enemies Posted: 23 Sep 2014 11:39 PM PDT Distinguishing Friends From Enemies It's tough distinguishing friends from enemies, especially when allies don't agree who the enemies are, and our enemies have the same primary goal as us! For example, please note Syria Rebels Dismayed by US Air Attacks on Non-Isis Groups. In the course of Syria's nearly four-year civil war, Ahmed Hamadi an anti-regime rebel, often hoped western intervention would help his cause. But when it finally came, it killed his neighbours and their children. "We asked for western strikes to come and support our fight to free Syria, not to kill us," sighed the Army of Islam fighter. He described by phone how he pulled out the bodies of women and children from the wreckage of a residential building destroyed in the village of Kafr Daryan, about 50km west of Aleppo. Collateral Damage to Moderates The problem for Ahmed Hamadi was that no one could possibly tell him and the moderate 3-year old kids from real extremists and their extremist 3-year old kids. This may be shocking news, but not even John McCain can tell the difference. Want proof? Well, who doesn't these days? So here goes: Oops! Sen. McCain Met Syrian Rebels Accused of Kidnapping. If you want more proof, please see Strange Bedfellows: To Fight ISIS, US Now Supports Iranian Revolutionary Guard, Other Terror Groups. Solution Offered Far be it from me to stand back and criticize others without offering solid proposals at least as good as those coming from Washington D.C., especially senator McCain, president Obama, and Hillary Clinton. The clear solution to the problem at hand is to come up with a simple scheme that will allow us to identify the good guys and the bad guys. I propose shirts that say "I am a moderate", or better yet "I am a good guy" and "I am a bad guy". In addition, I also propose shirts that say "I am a 3-year old Potential Extremist" and "I am a 3-year old Probable Moderate" to separate the bad 3-year old kids from the good 3-year old kids. Shirts may be difficult to read, so we need to color-code them. Finally, before we can pass out the color-coded shirts, we need to take applications. Moderate Rebel Application Form  New Yorker columnist Andy Borowitz devised the perfect Moderate Syrian Rebel Application Form. To eliminate potential mistakes by all involved, there are only six questions on the application: 1. As a Syrian rebel, I think the word or phrase that best describes me is: A) Moderate B) Very moderate C) Crazy moderate D) Other 2. I became a Syrian rebel because I believe in: A) Truth B) Justice C) The American Way D) Creating an Islamic caliphate 3. If I were given a highly lethal automatic weapon by the United States, I would: A) Only kill exactly the people that the United States wanted me to kill B) Try to kill the right people, with the caveat that I have never used an automatic weapon before C) Kill people only after submitting them to a rigorous vetting process D) Immediately let the weapon fall into the wrong hands 4. I have previously received weapons from: A) Al Qaeda B) The Taliban C) North Korea D) I did not receive weapons from any of them because after they vetted me I was deemed way too moderate 5. I consider ISIS: A) An existential threat to Iraq B) An existential threat to Syria C) An existential threat to Iraq and Syria D) The people who will pick up my American weapon after I drop it and run away 6. Complete the following sentence. "American weapons are…" A) Always a good thing to randomly add to any international hot spot B) Exactly what this raging civil war has been missing for the past three years C) Best when used moderately D) Super easy to resell online Sheer Brilliance If the above application form by Andy Borowitz is not brilliant, what is? Coupled with passing out color-coded shirts based on the results, the overall process seems foolproof. A couple of questions will easily explain: Q1: If this plan had been in place would McCain have had his picture taken with kidnappers? Q2: If Obama had this plan in place, would he have blown up the friends and neighbors of Ahmed Hamadi? The answer of course is "clearly not". Fallback Plan Nonetheless, I can hear the naysayers spoofing my plan already. For example, some may claim color-coding will fail because Obama, McCain, and some fighter pilots are color blind. Others may wonder if Obama can read without a teleprompter.  As for ability to read, rest assured, Obama is not going anywhere near Syria. Admittedly, color-blindness is a legitimate concern. However, I am quite sure if we all pray hard enough, color blindness can be cured overnight. It takes the perfect prayer, and I penned it just this evening. The Moderate's Prayer Al Qaeda Who Art in Syria Moderates Be Thy Name Damascus Come Assad Be Done The Almighty Obama Has Said Give us this Day Our John McCain And Lead us Not into China But Deliver us from Russia Amen It's Foolproof! My plan is not only far better than anything Obama and McCain have come up with, it's actually foolproof! In fact, the Moderate's Prayer alone is so good, I now propose we not waste money on applications, shirts, or bombs. All we have to do is recite the above prayer enough times and moderates will win the day. Please do your part! 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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