Central Perk

miercuri, 27 ianuarie 2016

Mish's Global Economic Trend Analysis

Chicago Board of Education Yanks $875 Million Bond Sale Over 7.75% Yield; Five Questions for Chicago
Oil Inventory Hits "Levels Not Seen in 80 Years"; Crude Jumps on News Russia May Cooperate with OPEC
New Home Sales Surge but Prices Down Sharply; Prices Have Room to Fall; Is Everybody In?

Chicago Board of Education Yanks $875 Million Bond Sale Over 7.75% Yield; Five Questions for Chicago

Posted: 27 Jan 2016 06:45 PM PST

On Wednesday, the Chicago Board of education pulled the plug on a proposed $875 Million Bond Sale.

Facing hefty yields, the financially ailing Chicago Public Schools (CPS) postponed Wednesday's planned $875 million bond sale and will evaluate the timing on a day-to-day basis, a school official said.

The nation's third-largest public school system is struggling with a structural budget deficit of at least $1 billion. Its fiscal woes led Illinois Governor Bruce Rauner and Republican lawmakers last week to push for a state takeover and potential bankruptcy for CPS - moves that were quickly shot down by Chicago Mayor Rahm Emanuel, who controls the school system, and leaders of the Democratic-controlled legislature.

A pre-pricing marketing scale circulated by underwriters on Tuesday for the "junk"-rated general obligation bonds showed yields topping out at 7.75 percent with coupons of 7.25 percent for bonds due in 2041 and 7 percent for bonds due in 2044. That yield indicated a so-called credit spread over Municipal Market Data's benchmark triple-A yield scale of as much as 506 basis points.

That spread was wider than the 464 basis-point spread the school system's 19-year bonds were fetching in secondary market trading last week.

Five Questions for Chicago

Will the yields be any lower tomorrow? Next week? Why?
How the heck is the school district going to close a hole of at least $1 billion?
Will Emanuel push for yet another massive tax hike just to pay teacher pensions?
How can another tax hike do anything but postpone the problem?
Since the most likely outcome is bankruptcy, why was the yield offering so good?

Reflections on Bankruptcy

In regards to question number five, 7.75% seems very attractive given the high likelihood those bonds will soon be worthless.

Heck, even 10% would be a bargain for the city and a horrid deal for the bondholders.

But that's not the way markets work. No one thinks bankruptcy is coming until it's a few weeks away. And of course, for bankruptcy to be possible, the Illinois legislature has to approve it.

Governor Bruce Rauner needs to hold firm until Emanuel begs the union-controlled Illinois legislature to pass a municipal bankruptcy bill.

"I'll Be a Better Mayor"

In his mayoral victory speech, Emanuel promised "I'll Be a Better Mayor".

Stepping back, recall that Emanuel defeated Cook County Commissioner Jesus "Chuy" Garcia in a runoff on April 7, 2015.

In debates ahead of the runoff, Emanuel said Garcia's promises would require tax hikes to fund them. Emanuel called tax hikes failed "politics of the past."

Emanuel forgot to say he would undertake the same failed measures as Garcia, only much bigger.

Six months later, Emanuel passed the largest property tax hike in Chicago history. And in the understatement of the year, Emanuel commented "It's Not a Piece of Art".

With that I have one final question for the mayor.

Bonus Question

Hello Rahm, when will you put city taxpayers and the good of the city itself ahead of the unions and your perpetual reelection campaign that's currently nothing but lies and deceit followed by monstrous tax hikes?

Mike "Mish" Shedlock

Oil Inventory Hits "Levels Not Seen in 80 Years"; Crude Jumps on News Russia May Cooperate with OPEC

Posted: 27 Jan 2016 12:49 PM PST

"Levels Not Seen in 80 Years"

The supply glut in oil storage continues as crude. Inventories hit new all-time highs this past week.

The above charts from EIA Weekly Supply Data shows the crude inventory of 494,920,000 (not counting strategic reserves) passed the previous high of 490,912,000 set on April 24, 2015.

Reserves, including the Strategic Petroleum Reserve (SPR), reached 1,190,038 barrels, also a record high.

Comments From EIA Weekly Report

Here are some interesting comments from the Weekly EIA Report.

"At 494.9 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 3.5 million barrels last week, and are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories decreased by 4.1 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 6.2 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories decreased by 1.0 million barrels last week."

Crude Jumps on News Russia May Cooperate with OPEC

Despite the record inventory surge, crude jumped a bit from extremely oversold levels on news Russia Dangles Prospect of OPEC Cooperation.

Oil futures surged on Wednesday, after Russia said it was discussing the possibility of co-operation with OPEC, fanning hopes that a deal was in the works to reduce oversupply that sent prices the lowest levels in a dozen years last week.

Russia's energy ministry said possible coordination with the Organization of the Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.

"I remain skeptical, at the end of the day, about that happening as the oil producers are looking at the other guy to cut production while maintaining their own levels," Andrew Lipow of Lipow Oil Associates said.

Crude was looking firm before the Russia news on the back of a U.S. Energy Department report showing a surprise spike in demand for refined products like heating oil last week, when a massive blizzard hit the U.S. Northeast.

The U.S. Energy Information Administration said inventories of distillates, fell more than 4 million barrels, trumping expectations for a rise of about 2 million.

Economists Surprised Again

Despite the small drawdown in fuel oil please recall the report stated "Distillate fuel inventories are near the upper limit of the average range for this time of year."

Economists can be surprised by anything including the possibility blizzards and cold weather may increase the demand for fuel oil in the Northeast!

Mike "Mish" Shedlock

New Home Sales Surge but Prices Down Sharply; Prices Have Room to Fall; Is Everybody In?

Posted: 27 Jan 2016 10:17 AM PST

December new home sales surged well over the high end Econoday estimate.

The outlook for the housing sector just got a boost from a sharp jump in new home sales, up 10.8 percent to a 544,000 annualized rate that is 44,000 over the Econoday consensus and 24,000 over the high estimate. The gain, however, may have been boosted by discounting as the median price slipped 2.7 percent to $288,900 for a year-on-year rate of minus 4.3 percent.

With builders slow to bring new homes to market, low supply remains a central factor holding back sales. Supply did rise 6,000 in the month to 237,000 but supply relative to sales fell back to 5.2 months from 5.6 months. A reading of 6.0 months is considered to be the balance point between supply and demand.

Regional data show a 32 percent sales surge in the Midwest where the year-on-year rate of 39 percent is the strongest. Sales in the West and Northeast both rose 21 percent in the month with the year-on-year rate in the West, which is a key region for new housing, up 22 percent while the Northeast, which is a very small region in this report, down 6.5 percent on the year. The South, which is the largest region, shows a fractional gain in the month and no change on the year.

For full year 2015, new home sales rose 14.7 percent to 501,000 from 437,000 in 2014. Sales of new homes have been noticeably higher than prices, suggesting that prices have room to accelerate. This report follows special strength in existing home sales with both perhaps benefiting from December's warm weather but with both pointing nevertheless to new momentum for 2016.

Negative Momentum

Why did sales surge 39% in the Midwest? Because this was one of the warmest December on record even discounting global warming silliness.

Bloomberg calls this "new momentum" for 2016. Indeed it is, but that momentum is negative.

This statement by Bloomberg caught my eye: "Sales of new homes have been noticeably higher than prices, suggesting that prices have room to accelerate."

Prices Have Room to Fall

I suggest home prices have room to fall. Curiously so does Bloomberg, albeit in different ways, and in a different article.

Please consider Bloomberg's article The Surge in U.S. Mansion Prices Is Now Over, published just two days ago.

The world's economic woes -- from China to Russia to South America -- are damping sales in the high-end real estate market. Haywire overseas stock markets and dropping currency values caused in part by plummeting oil prices are dulling demand for mansions, penthouses and winter escapes.

Luxury Pfft

Prices for the top 5 percent of U.S. real estate transactions remained flat in 2015 while all other houses gained 4.9 percent, according to data from Redfin Corp., a real estate brokerage and data provider.

Stronger Dollar

The stronger dollar is driving South American buyers away from the 23,000 condos in the pipeline for Miami's downtown area, said Peter Zalewski, owner of South Florida development tracker CraneSpotters.com. Buyers signed about one-fourth fewer pre-construction contracts last year than in 2014, according to Anthony M. Graziano, senior managing director at Integra Realty Resources Inc., which tracks condo data for the Miami Downtown Development Authority.

In nearby Sunny Isles, Florida, faraway currency fluctuations are endangering the sale of a $3.7 million condominium.

In Houston, the plunge in oil prices to a 12-year low is killing the luxury boom. Sales for homes priced at $500,000 or more dropped 17 percent in December from a year earlier, according to the Houston Association of Realtors.

Manhattan resale prices for the top 20 percent of the market peaked in February and have fallen every month since, according to an analysis through October by listings website StreetEasy.

Even in San Francisco, where the market for luxury properties remains strong, the inventory of listings for $2 million or more jumped in October to a record level, said Patrick Carlisle, chief market analyst for Paragon Real Estate.

"More sellers are jumping in and more buyers are holding off because they're worried about where the volatility is going," Carlisle said.

Buyers are now on the hunt for deals, said Nela Richardson, chief economist at Redfin.

"There's a limit even to what a wealthy person will spend," she said.

Is Everybody In?

Bloomberg did not make the necessary connection, but they did provide the chart. Let's tie up some loose ends.

In bonds, rot starts with junk and spreads to the core. With homes, price rot starts at the high end.

With Chinese West-coast buyers now not feeling so wealthy after a 47% plunge in the stock market, and with "Temporary" Capital Controls likely on the way, that segment of the high-end market is toast.

The strong dollar is having the same effect in Florida. And in New York, well ... "There's a limit even to what a wealthy person will spend."

And every decrease in the price at the high end, affects every level below it. A mansion that was $1,000,000 but is now $900,000 will affect the price of homes listed for $850,000 to $900,000, etc., all the way down the ladder.

Is Everybody In?

Let's return to the Econoday "room to accelerate" misanalysis.

If homebuilders could sell more expensive homes, they surely would. And at the very high end, it appears we have hit the peak. That group is "all in".

It was one hell of a bubble-reblowing effort by the Fed, but another slide lower awaits. New homes prices will likely get cheaper and cheaper with more and more features added.

In turn that will lower the price of similar existing homes. This stuff does cascade. We have seen it before.

Lack of Supply

There's plenty of talk about lack of supply. Actually, there's an ample supply of homes. There's just no supply at prices people are willing and able to pay.

Expect lower, not higher prices. And if you need to get out, beat the rush, if you still can.

Mike "Mish" Shedlock

Damn Cool Pics

Women Around The World Are Now Embracing This Bizarre Trend

Posted: 27 Jan 2016 02:48 PM PST

Another new bizarre fashion trend is making waves and women are loving it. The trend called is called "Aegyo sal" and the point of it is to create bags under your eyes to make yourself look sleep deprived. Women all over the world this that it makes them look young and happy but really it just makes them look like they have a bad hangover.

Wank Wipes

Posted: 27 Jan 2016 02:27 PM PST

Wank Wipes are the world's first condom shaped wet wipe that eliminates the mess of masturbation.

Via kickstarter

Seth's Blog : Without a doubt

Without a doubt

Occasionally, people in power come to the conclusion that doubt is a problem.

They conflate confidence with certainty.

Along the way, things worked out for them. They had a willingness to leap, some lucky breaks and a lot of hard work. So they seduce themselves with the black and white dichotomy of certainty. Because, after all, they were certain and look what happened. It all worked out.

Certainty is a form of hiding. It is a way of drowning out our fear, but it's also a surefire way to fail to see what's really happening around us.

If you're certain, you're probably not prepared for the unexpected, and sooner or later, you're going to be badly surprised.

People without doubt aren't looking hard enough.

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marți, 26 ianuarie 2016

Mish's Global Economic Trend Analysis

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

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

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

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

miercuri, 27 ianuarie 2016

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Damn Cool Pics

Damn Cool Pics

Seth's Blog : Without a doubt

Without a doubt

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