vineri, 1 ianuarie 2016

Seth's Blog : Expectations



Expectations

Lower the expectations that you'll find an easy way out.

Raise your expectations for what you can contribute.

Lower your expectations for how effective that next shortcut is going to be. 

Raise your expectations about what technology can do for you if you patiently push it.

Lower your expectations about how an angry fight can help you win something you care about.

Raise your expectations for how much consistent daily action can transform your status quo.

Lower your expectations of finding a fairy godmother.

But raise them about the power of concrete goals that keep you from hiding.

{Level up. Everything I write about hinges on the idea that we are capable beings. Capable of making decisions, of taking responsibility, of raising and lowering our expectations.

As we move into a new year, today's a perfect day (in many countries, a legal holiday) dedicated to thinking about levelling up, about what it means to make new choices about what we will do next.

That's why today is a good day to tell you that we've opened applications for the fourth session of the altMBA workshop. 

altMBA alumni work at companies large and small, unknown and famous, but what what they all have in common is that they've made a choice. They've acknowledged that they are capable of levelling up, and they have.

You will learn to see differently and more important, to help others take action.

It's your turn. I hope you'll take a look before our deadline on Wednesday.}

Happy new year.

       

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joi, 31 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Expect a Huge Jump in Layoffs in 2016; Eye on Initial Unemployment Claims: Have they Bottomed?

Posted: 31 Dec 2015 12:53 PM PST

I have a watchful eye on initial unemployment claims. They have been trending higher (unexpectedly of course) since mid-October.

Initial Claims 2015



Econoday economists were surprised by the jump.
Initial jobless claims unexpectedly jumped 20,000 to 287,000 in the December 26 holiday week, the highest level since the July 4 holiday week. The Econoday consensus expected an increase of 3,000 to 270,000. The 4-week moving average was up 4,500 to 277,000 in the December 26 week, the highest since the July 18 week. The level of continuing claims increased 3,000 to 2.198 million in the December 19 week. The seasonally adjusted insured unemployment was unchanged at 1.6 percent in the December 19 week. It should be noted that readings in this report can be volatile during the holiday weeks.
Long-Term Perspective



A long-term chart shows the claims are still at historic lows dating all the way back to the 1970s. Does that imply there is little cause for concern?

Let's look at the chart another way.



That chart shows recessions sometimes start with year-over-year changes still negative and sometimes not. Moreover, there is a tremendous amount of noise as evidenced by huge swings that did not lead to recession.

Low claims in and of themselves are pretty inconclusive even though huge spikes tend to mark recessions.

Where to in 2016?

Jobs have been strong, but some of us believe part-time jobs and Obamacare artifacts have skewed the numbers. Regardless, jobs are a hugely lagging indicator, even if you believe the numbers.

Since there was a burst of seasonal hiring, it stands to reason there will be a burst of seasonal firing.

With corporate profits under pressure from rising wages, and with many big box retailers struggling, upcoming layoffs are likely to be huge.

Recent PMI reports provide clues as to where things are headed:


Manufacturing is in an outright recession, and services are weakening.  It stands to reason, jobs will follow.

We will find out in the January jobs report, to be released Friday, February 5, 2016.

Mike "Mish" Shedlock

Chicago PMI Crashes, New Orders and Backlogs Plunge to May 2009 Level; Service Economy Headed for a Slowdown?

Posted: 31 Dec 2015 10:48 AM PST

The Unexpected Strikes Chicago Again

It was another disastrous month for the Chicago PMI. Economists expected a bounce back from last month's unexpected dip into negative territory. Instead the numbers reflect what's best described as a two-month crash.

The Econoday Consensus Estimate was a guess of 50 in a range of 48 to 53. The actual reading of 42.9 was far below any economist's estimate.
The December Chicago PMI tumbled to a reading of just 42.9, down 5.8 points. The reading was a fresh 6-1/2 year low and the seventh contraction this year. It also was far below expectations of a breakeven reading of 50.

The biggest contributor to the decline was a 17.2 point plunge in order backlogs, to 29.4, marking their eleventh consecutive month in contraction. December's reading was the lowest since May 2009. The index also was depressed by ongoing weakness in new orders, which contracted at a faster pace, down 5.3 points to 38.8, the lowest level since May 2009. Both production and employment fell into contraction.

The only component to expand at a faster pace was supplier deliveries, although some companies noted that the rise was influenced more by logistics issues during the holiday season and in preparation for Chinese New Year on February 8. The PMI continued to feel the ill effects of general sluggish demand and lower energy prices, which have left their mark on Chicago area companies, along with the stronger U.S. dollar. Moreover, well above normal temperatures has impacted many businesses that rely on cold weather.
Ahead of the release this is what Econoday had to say:
The Chicago PMI is a one of a kind, a regional report that tracks the whole scope of the economy, at least for Chicago. Big swings are the norm but one isn't expected for December with the consensus calling for what would be a small 1.3 point gain for this index to dead even 50, which is about where this index has been trending.
Chicago PMI Index vs. ISM



It does not appear to me the index has been trending around 50 as Bloomberg suggests. The three jumps above 50 are counter-trend in a series that has been weakening for about a year.

Service Economy Headed for a Slowdown?

The Chicago PMI is a bit different because it contains a mix of both manufacturing and service companies. That makes matters worse given economists generally consider the service economy to be in good shape.

Last month when the PMI dipped for the 6th time in 10 months (now 7th time in 11 months), I asked the question Service Economy Headed for a Slowdown?

Here is the pertinent snip: 
Bloomberg proposes the volatility of the report should limit its impact on the month's outlook.

I suggest volatility is a sign of a trend change as well as underlying weakness. And the backlog of orders, one place where there has been consistent contraction for 10 months, does not bode well for future hiring needs.

All things considered, the Chicago PMI is a warning that the service economy may be on its last legs.
Reflections on the Weather

This month, Bloomberg relies on the old standby: the weather.

Damn that weather. It's always too hot, too cold, or too right. This month it was too pleasant.

Heading into the reports, it's pretty clear the economists did not know the Chicago weather was too good, otherwise they would have lowered their forecasts.

Economists only learned Chicago's weather was too good following the PMI release today. Amazingly, economists don't even know about massive snowstorms until economic reports come out weeks later.

Sorry State of Chicago

Weakening services coupled with the biggest property tax hike in history will not do wonders for the Chicago economy.

For more on the sorry state of affairs in Chicago and the state of Illinois as a whole, please see ...


Mike "Mish" Shedlock

Seth's Blog : Fighting entropy



Fighting entropy

It's not easy to run a supermarket. Low margins, high rents, perishable products... Even A&P, once dominant, is now gone.

My new favorite supermarket, by a large margin, is Cid's. 

It's not that he's in a perfect location, or that his store has the advantage of no competition.

How does he do it? Fair prices, great stuff where you least expect it, a staff that cares...

He's in the store, every day. And his son is too.

My only theory is this: He fights mediocrity every single day.

He regularly refuses to compromise when compromise might be easier in the short run.

Mostly, he cares. A lot.

Entropy and the forces of mediocrity push hard. People who care push back.

       

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miercuri, 30 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


NSA Spied on Israeli Prime Minister During US-Iran Nuclear Negotiations

Posted: 30 Dec 2015 01:28 PM PST

In an unexpected confirmation of what every thinking person realized upfront, the Guardian reports US 'spied on Binyamin Netanyahu during Iran nuclear deal talks'
Despite Barack Obama's promise to curtail eavesdropping on allies in the wake of the Edward Snowden revelations about the scale and scope of US activities, the National Security Agency's (NSA) surveillance included phone conversations between top Israeli officials, US congressmen and American-Jewish groups, according to the Wall Street Journal.

The White House did not confirm or deny the report. Ned Price, spokesman for the National Security Council, said on Wednesday: "We are not going to comment on any specific alleged intelligence activities. As a general matter, and as we have said previously, we do not conduct any foreign intelligence surveillance activities unless there is a specific and validated national security purpose. This applies to ordinary citizens and world leaders alike."

Relations between Obama and Netanyahu have often been described as strained. The NSA reports allowed Obama administration officials to peer inside Israeli efforts to turn Congress against the Iran deal, the Wall Street Journal said.

The surveillance allegedly revealed how Netanyahu and his advisers had leaked details of the US-Iran negotiations, which they learned through Israeli spying operations. Last March, Israel denied reports that its security forces spied on the negotiations between Tehran and major powers over Iran's nuclear capacities.
Security Threats

Who constitutes a validated national security threat? The answer is anyone and everyone still breathing.

Mike "Mish" Shedlock

A "Mish Together" January 5, 2016

Posted: 30 Dec 2015 12:22 PM PST

Chris Temple, a friend of mine, and author of the National Investor newsletter is passing my way (Crystal Lake, Illinois) on his annual snowbird trip from Wisconsin to Florida.

I know Chris as a fellow panelist at several Chicago Area Natural Resources conferences.

I invited him over for dinner, but after some discussion, we elected to open the invite to anyone who is in the area and wants to come for dinner, or just drinks and appetizers for those who prefer something light.

Date: Tuesday, January 5, 2016
Time: 7:00 PM
City: Crystal Lake, Illinois
Place: Village Squire Restaurant - 4818 Northwest Highway - Crystal Lake, Illinois

For those who want to come a bit earlier, Chris and I will be at the bar at 6:30 PM.

There are several Village Squire locations. Pick the one in Crystal Lake. Here's a Google Map.

If you can make it, please: Send an Email Confirmation.

After dinner, there is a nearby karaoke bar for those who want to sing or have further discussion over drinks.

It should be a fun evening. You can ask questions about anything that is on your mind.

Mike "Mish" Shedlock

Pending Home Sales Decline 0.9%, Well Below Lowest Estimate; About that "Know Before You Owe" Theory

Posted: 30 Dec 2015 11:06 AM PST

Today the NAR released the Pending Home Sales Index, a measure of expected sales on existing homes. The Econoday Consensus Estimate was for a 0.5% rise in a range of 0.0 to 2.4%.

No economist got the sign correct. The index unexpectedly declined 0.9% month-over-month, well below even the lowest economist's estimate.
Pending home sales in November declined for the third time in four months as buyers continue to battle both rising home prices and limited homes available for sale. The pending home sales index was down 0.9 percent but up 2.7 percent from a year ago. Modest gains in the Midwest and South were offset by larger declines in the Northeast and West.

November's dip continued the modestly slowing trend seen ever since pending sales peaked to an over nine year high back in May. NAR said that home prices rose too sharply in several markets, there were mixed signs of an economy losing momentum and waning supply levels all contributed to headwinds in recent months despite low mortgage rates and solid job gains.

The Northeast decreased 3.0 percent but is still 4.3 percent above a year ago. In the Midwest the index rose 1.0 percent and and is now 4.1 percent above November 2014. Pending home sales in the South increased 1.3 percent and are 0.5 percent higher than last November. The index in the West declined 5.5 percent but remains 4.5 percent above a year ago.

Recent History Of This Indicator

Pending home sales are expected to rise a solid 0.5 percent in November vs. a softer 0.2 percent rise in October. The expected gain would point to a badly [needed?] increase for final sales of existing homes which were depressed in November by new disclosure rules and related time delays.
About that "Know Before You Owe" Theory

Ahead of the release, Bloomberg parroted the NAR line that disclosure rules affected November existing home sales.

I wrote about the rule changes on December 22, in Existing Home Sales Plunge 10.5%, NAR Blames "Know Before You Owe"; What's the Excuse for Last Month?

The rule change, dubbed "Know Before You Owe", was a simplification of disclosure rules. It became effective on October 3. I failed to see how a decline in November was related to simplification of rules that actually took effect the previous month.

Bear in mind, that the NAR called a dip in October "disturbing" but in November placed the entire blame on the "Know Before You Owe" rules.

If the rule change theory was correct, delays in November would have pushed into expected closings in December. The Econoday economist guessing a rise of 2.4% probably believed that theory. Instead, we see a plunge.

Of course the index itself could be wrong, so we have to wait for the actual December numbers. But as it sits, the most likely thing is blaming "Know Before You Owe" was simply a bad call.

Today, the NAR blames "home prices that rose too sharply in several markets".  I find that a much better theory, especially if we replace the word "several" with the word "most".

What about the NAR's perpetual "never a better time to buy" thesis? Is the NAR willing to toss that theory on the ash heap of history?

Don't hold your breath.

Mike "Mish" Shedlock

Drastic Action

Posted: 30 Dec 2015 12:28 AM PST

In Misguided Plans to Fix the Fed Part 1: Bernie Sanders I proposed abolishing the Fed. That's something I have stated many times over the past decade.

Nonetheless, reader Harold wonders is that action would be a bit drastic. Harold writes ...
Hello Mish:

Don't you think totally abolishing the Fed is a bit drastic.  Theoretically if they could be stripped of any political influence and let the free market set interest rates their endless bubble production would be muted. I think their function of providing liquidity as a lender of last resort serves a useful function. Wasn't this the original purpose for creating the fed in 1913? I think their function has been bastardized by politicians and they have evolved into a tool of the government and the financiers. Free market capitalism can run the economy otherwise. 

I hope you have a healthy happy New Year.  Thanks for the great commentary.

Harold
Hello Harold. No I don't believe my solution to end the Fed is drastic.

Look at things this way: How can anyone determine the precise amount of steel, of oranges, of oil that the economy should produce?

If you do not think that is possible, then please tell me how a set of jackasses (or geniuses if you prefer) can possibly know where interest rates or the money supply should be?

In practice, the Fed has never once spotted a bubble or bust in advance. Nor does the Fed have any foresight in predicting economic growth. The Fed is perpetually overoptimistic as are economists in general.

Setting the price of orange juice would be far simpler than setting interest rates.

The Fed may have an alleged "function" but the result has been boom-bust cycles of increasing amplitude over time.

Mike "Mish" Shedlock

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Seth's Blog : It's not a problem if you prepare for it



It's not a problem if you prepare for it

Buffalo famously gets a lot of snow. Growing up there, though, no one really freaked out about it, because we had machines to get rid of it and the attitude that it was hardly a problem worth hyperventilating over.

Most problems are like that. When we prepare for them and get used to them, they're not problems anymore. They're merely the way it is. 

{Learn to see}.

 
       

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marți, 29 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Checking Back In Regarding a "Sure Thing"

Posted: 29 Dec 2015 11:01 AM PST

Several readers sent emails prior to the Fed hike on December 16 that the stock market would collapse immediately following a rate hike.

I commented on that sentiment in Knowing the Unknowable; Reflections on the Fed Hike. Here's a snip.
"Epocalypse" Now

The first person, an economic blogger, tells me a global economic collapse of biblical proportion is coming. He labels the collapse an "epocalypse" and offered a guest-post article that I passed on.

I responded "No one knows the precise timing of a collapse. There might not even be one.
Stocks could do a slow decline like Japan for years."

You can start a countdown, because yesterday he pinged back "Check in with me at the end of the week."
Checking Back In

I gave "Epocalypse" more than the few days he asked. The end of the week would have been the 18th. It's now the 29th.

This is what I see.



Curiously, the market is right where the market closed on the day of the hike. Anyone who bought short-term CALLs or PUTs expecting high volatility lost money.

The rate hike was the most telegraphed Fed move in history. No one had any advantage in knowing the Fed would hike.

I can list up with more reasons than most as to why the markets are over-valued and pension plans extremely vulnerable. For example ...

  1. Stocks More Overvalued Now Than 2000 and 2007 No Matter How You Look at Things
  2. Bubble Debate; Equity Allocations vs. Shiller PE; Simple World
  3. Death Watch Illinois: Despite Massive Stock Market Rally, Illinois Pension Liabilities Go Up, and Up, and Up
  4. Apocalypse Illinois: IOUs Projected to Hit $10.5 Billion, $163 Billion Total Accumulated Liabilities

Nothing above is a timing indicator. And as we have seen, a rate hike is not a precise timing indicator either.

Had a serious decline started on the day of the Fed hike, "Epocalypse" would have been nothing more than lucky, but he likely would have thought he was a genius who "knew" something.

Can an "Epocalypse" start tomorrow?

Sure, why not? But it could also start a month from now or six months from now. We could also see a slow drift down for years like Japan. We could even see stocks do nothing for years while valuations catch up to smoothed earnings.

The one thing we do know is history suggests stocks are hugely over-valued. But I don't know when valuations matter. No one does.

Mike "Mish" Shedlock

Get Your Money Out of Italian Banks Now! Austerity and Bail-Ins Fan Populist Flames; Italy's 5-Star Movement to Challenge Renzi

Posted: 29 Dec 2015 09:29 AM PST

Austerity and Bail-Ins Fan Populist Flames

The Italian economy is growing, albeit barely. But Italy is still saddled with massive amounts of debt.

Citizens are upset about a recovery that has passed most of them by. For example, youth unemployment is a whopping 39.8%.

That's a lot of potential voters rightfully upset about things. For them, promises are many, and gains are nonexistent.

Topping off the discontent, Italy Bank Rescues Spark Bail-In Debate as Anger at Renzi Grows.
In 2013, Sergio Picinotti, a 63-year-old unemployed man living with his elderly mother, invested much of their nest egg of €40,000 in a bond issued by Banca Etruria, their local bank based in the medieval Tuscan city of Arezzo.

"They said 'what are you doing keeping that in your checking account? Put it here, you'll earn 4 per cent flat," Mr Picinotti recalls. "A friend at the bank told me: 'Trust me, it will take the third world war to shut down Banca Etruria'."

Today, Mr Picinotti has lost all that money, but Banca Etruria never closed: in fact it was saved from collapse last month along with three other small banks in a dramatic rescue operation engineered by the centre-left Italian government led by Matteo Renzi.

The trouble is there was a price to pay: under the terms of the deal, several thousand subordinated bondholders such as Mr Picinotti were wiped out along with Banca Etruria shareholders, while holders of senior debt and depositors were spared.

"They stole it all, I'm living on the edge," says Mr Picinotti.

But the reverberations of the bank rescue have also been felt far beyond Tuscany: as Europe prepares to institute new rules from next year which would force losses on bank creditors and big depositors, the saga of Banca Etruria serves as a cautionary tale to politicians and policymakers about the public backlash that could follow any future "bail-ins".

On a national level, anger has been mounting towards Mr Renzi for his handling of the affair. It has created an unlikely hotbed of discontent with the 40-year-old prime minister and former mayor of nearby Florence in a region that is traditionally sympathetic to his own political party at a time when he is already battling declining polling numbers.

The Banca Etruria case has also revived worries about the health of the Italian banking sector, which remains saddled by more than €200bn of non-performing loans (NPLs) and has barely started to increase lending again after the end of a bruising triple-dip recession. It has also raised questions about the effectiveness of regulators at the Bank of Italy and Consob, the stock market regulator. Italian officials have defended the solidity of their banks and the work of their regulators, and pointed to new reforms of small bank governance. But Francesco Galietti, an analyst at Policy Sonar in Rome, said: "If there was such a kerfuffle with four regional banks, what will a large resolution look like?"
Italy's 5-Star Movement to Challenge Renzi

With the above bailout and unemployment backdrop, it should not be surprising to see the eurosceptic Five Star Movement on the Rise.
When the populist Five Star Movement burst into Italian politics in 2009 during the financial crisis, it was defined by uncompromising protests and the burly, sardonic figure of its leader, the comedian Beppe Grillo.

But the Five Star Movement is now attempting to change its face from that of one of Europe's most eccentric — even clownish — political parties. The transformation aims to achieve what seemed like a fantasy only a year ago: to govern the country and challenge the centre-left government led by prime minister Matteo Renzi.

Mr Grillo, 67, has removed his name from the party logo, signalling that he may soon step aside. His most likely heir is Luigi Di Maio, a 29-year-old smooth-talking Neapolitan with polished looks, tight-fitting dark suits and moderate tones.

"The perception of the movement has changed," Mr Di Maio tells the Financial Times. "At the beginning there was the idea that this was a protest movement . . . But we crashed through that wall. We want to govern."

The odds of that happening are increasing. The Five Star Movement is now Italy's second party. After trailing Mr Renzi's Democratic party by nearly 20 percentage points a year ago, recent polls suggest the margin has shrunk to about 5 percentage points — 32 per cent to 27 per cent.

The Five Star Movement has won a few municipal races — clinching control of small cities such as Parma, Livorno and Ragusa. The results have been mixed. The mayor of Livorno, for example, has faced harsh criticism after a scandal over uncollected rubbish broke out in the Tuscan port city.

A bigger test of the Five Star Movement's strength is to come next year, when local elections will be held in some of Italy's largest cities. The big prize is Rome, the scandal-ridden capital where Five Star has been riding high in the polls after the resignation of Democratic party mayor Ignazio Marino in October.

The Five Star Movement's platform has been based on a few key pillars that have drawn supporters from both the right and the left: opposition to corruption, environmentalism, and a referendum on euro membership, which Mr Di Maio blames for many of Italy's economic woes.

"The real failure of monetary union is to think that countries in the south should travel at the same speed as the ones in the north," he says.

Lately, his party has been lashing out at Italy's rescue of four small banks, which wiped out thousands of retail investors holding junior debt.

"Their goal was to save the bankers, not the citizens," Mr Di Maio wrote on his Facebook page last week. There are some signs he has tried to moderate Mr Grillo's sharper edges. Mr Di Maio recently helped broker a deal with Mr Renzi's PD for the appointment of three constitutional judges.

And he is keen to distance himself from another populist party shaking Europe's establishment, France's far-right National Front. Its rise reflects a "climate of general indignation", says Mr Di Maio. Yet the Five Star Movement, he insists, is not a populist toxin but its antidote: "We're the natural spokesman of citizens. We are a barrier against hatred and extremism".
Get Your Money Out of Italian Banks Now!

The goal is always to bail out the banks at any expense, especially that of taxpayers. The bail-ins in December are a huge warning shot at what's highly likely in 2016.

If you have money in weak banks after this mess, you are crazy. Cyprus, Greece, and Italy have all provided warning shots. I have been warning about these setups for years. And in 2016, banks can go right after depositors if necessary.

It will be very interesting to watch target2 imbalances (a measure of capital flight) following this bail-in debacle. The political scene looks interesting as well. Renzi's days may well be numbered.

If the Renzi government falls, it's highly likely it will be to a eurosceptic party. In this regard, Greece was a sideshow. Italy is the real deal.

Mike "Mish" Shedlock