Mish's Global Economic Trend Analysis |
- Omaha Mayor Faces Recall Vote on January 25; Unbalancing Omaha's Budget; Time for Mayoral Boot
- China Secretly Buying US Treasuries Via UK Accounts? Trade Deficit Math; "Hot Money" Math
- Huge Margin Squeeze: Restaurants, Hotels, Cruise Lines Unable to Pass on Rising Food and Energy Prices; China's Role in Commodity Bubble
| Omaha Mayor Faces Recall Vote on January 25; Unbalancing Omaha's Budget; Time for Mayoral Boot Posted: 21 Jan 2011 06:00 PM PST Taxpayers everywhere have had it with higher taxes. At an increasing pace, they have taken matters into their own hands. Last summer an Omaha man, fed up with the Omaha's property tax hike, restaurant tax hike, and the mayor's public union pandering, launched a recall campaign. The vote is Tuesday, January 25. Mayor Jim Suttle is now whining (or do I mean begging) to stay in office. Please consider Omaha mayor says city will suffer if he's recalled. The mayor of Omaha said Friday the city's improving financial situation could be at risk if voters recall him in Tuesday's special election and create turmoil in the city's leadership.Mayor Suttle Is Mistaken Mayor Sutttle lied about tax hikes and lies again now. He pandered to unions instead of cutting expenses and renegotiating contracts. Now he brags he "balanced the budget". What he fails to point out is that he "unbalanced the budget", for business owners and the average taxpayer. Why? Because he did not have what it takes to deal with union salaries, excessive pensions, especially with police and firefighters. Recall Campaign Background Congratulations to Anthony FastHorse, who launched the recall campaign. FastHorse said filling out the recall affidavit needed to begin a petition drive required just a few strokes of a pen, but he said his actions spoke volumes. You Can Help If you live in Omaha, please vote and get your friends to vote. Talk to businesses and point out that if the mayor raised taxes once to bail out the public unions, that he will do it again and again. Please visit the Mayor Suttle Recall site, and pledge time or money. It's time for a boot. Here's my recommendation for Omaha: Get someone to run who will outsource the entire police department to the local sheriff's association. That move alone will save enough money to roll back property tax hikes. Good Luck Omaha! Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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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| China Secretly Buying US Treasuries Via UK Accounts? Trade Deficit Math; "Hot Money" Math Posted: 21 Jan 2011 01:04 PM PST Floyd Norris at the Wall Street Journal thinks China May Be Masking Its Purchase of U.S. Securities For eight years after the United States resumed running large budget deficits in 2002, China was the largest lender, buying a fifth of the new Treasury securities sold during that span — an expenditure of more than $900 billion. During 2006, China financed more than half the American deficit. When the financial crisis struck hardest, China spent more than $100 billion on Treasuries over the two-month period of September and October 2008.Who Is Buying US Debt? Here are two charts from the graphic: Who Buys U.S. Debt? China  Foreign Buyers and Sellers  See the article for more charts including treasury purchases by US banks and other domestic buyers. Trade Deficit Math The two charts above are not believable for a mathematical reason that Norris did not explicitly state: When the US runs a deficit, some other nation must (as a function of pure math) accumulate US assets. Those assets could be dollar reserves, treasuries, investments in US companies, US property, or US equities. Remember when China tried to buy Unocal, a petroleum producer, for $18.4 billion? The state department nixed the idea as a security concern. The same thing happened when Dubai tried to buy a US port. Eventually those dollars will come home, they have to, as a function of math. In the meantime, passing the buck like a hot potato does not work. Pro-Cyclical "Buy Commodities" Math Some people suggest China should buy oil with those dollar reserves. They never bother to ask the next question: what would Saudi Arabia do with the dollars? If instead, China bought copper from Australia, what would Australia do with the US dollars? Another aspect of the "buy commodities" trade is that it would put upward pressure on commodities at a time China is already overheating. Trade math aside, commodity buying would be a pro-cyclical mistake by China leading to bigger booms and bigger busts. One humorous aspect of all this alleged selloff of US treasuries by China is the hyperinflationist rant "China is Dumping Treasuries" when the reality is that China is likely accumulating US dollars or US treasuries a function of trade deficit math. My one quibble with Norris' article is his statement "If China has been buying through money managers, it may be easier at some point for it to begin selling Treasuries through the British channel without others understanding where the selling pressure is coming from." While technically true, please remember the math. Were the US to start running trade surpluses with China, then China certainly would be an outright seller of treasuries or US$ reserves. How likely is that? "Hot Money" Math Consider "hot money" accumulating in China. Hedge funds and others are betting in size on an appreciation of the Yaun. That requires China to hold dollar reserves for when the trade unwinds. When hedge funds do bail on the trade, that would cause China to dip into its dollar reserves and buy Yuan. However, the current state of affairs (inflows betting on Yuan appreciation) is not consistent with falling treasury reserves in China. For an analysis of the "hot money" trade and bets on Yuan appreciation, please see "Consensus Nonsense"; Is the Yuan Undervalued? Who Wins a Currency War? Property Math In regards to toll roads, bridges or US properties, such offers by China would be as noticeable as its failed attempt to buy Unocal. However, buying shares of IBM, Apple, or other US corporations is certainly possible and could be masked, at least up to the point where position sizes required SEC notification. The risk is in buying overvalued assets in a pro-cyclical setup. All things considered, one look at an implausible $356 billion in treasuries sitting in the UK likely tells the real story of what is happening: China is masking purchases of US treasuries. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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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| Posted: 21 Jan 2011 10:15 AM PST Energy, meat, vegetable and coffee prices are up. Pricing power is not. The result is a huge margin squeeze that affects profits at restaurants, hotels, cruise lines, and travel-related businesses in general. The Wall Street Journal picks up the story in As Food Prices Soar, Eateries Scramble Soaring global food prices, particularly for meat, sugar and coffee, are putting pressure on the restaurant, travel and hotel sectors as they pursue a fragile recovery. In a bid to offset added costs without passing them on to price-sensitive consumers, many companies are scrambling to renegotiate contracts, find cheaper suppliers and reconfigure menus.PPI Index Up Again Please consider the Producer Price Index Report for December 2010. The Producer Price Index for Finished Goods rose 1.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.8 percent in November and 0.4 percent in October and marks the sixth straight rise in finished goods prices. Finished Goods About three-fourths of the December rise in the finished goods index can be traced to prices for energy goods, which increased 3.7 percent. Also contributing to the broad-based advance in the finished goods index, prices for consumer foods and for goods other than foods and energy moved up 0.8 percent and 0.2 percent, respectively. Finished Energy The index for finished energy goods climbed 3.7 percent in December, its third consecutive monthly advance. Roughly sixty percent of the December rise is attributable to a 6.4-percent jump in gasoline prices. Increases in the indexes for home heating oil and liquefied petroleum gas also contributed to higher prices for finished energy goods. Finished Foods The index for finished consumer foods rose 0.8 percent in December after moving up 1.0 percent in November. Over three-fourths of the December advance can be linked to prices for fresh and dry vegetables, which surged 22.8 percent. Higher prices for meats also were a major factor in the increase in the finished consumer foods index.
Every step of the way, a decreasing portion of costs are passed on. Even less passes through to consumer prices. This is why those screaming about "rampant inflation" always point to raw commodity prices. Those prices, as I continue to point out, are primarily a reflection of unsustainable credit expansion in China, not a falling US dollar. US Dollar Weekly Chart  click on chart for sharper image For all the paranoid screaming, hyperventilation, and hyperinflationist nonsense concerning the US dollar, the chart shows the US dollar to be almost exactly where it was a year ago, and higher than it was three years ago. Amusingly, a monthly chart shows the US dollar index is where it was in 1990, 1992, and 1995. US$ Monthly Chart  click on chart for sharper image To be fair, the US$ index was at 164.72 in 1984. It is half that today. In that sense, the dollar has already crashed. However, from the point of view of 1990 on, it is at a point it has touched in 8 different years. Hyperinflation? Please be serious. To understand commodity prices and the PPI, one needs to look at China. Here are a couple of posts to consider Is the Yuan Undervalued? "Consensus Nonsense"; Is the Yuan Undervalued? Who Wins a Currency War? Vacant China City Stories
China Addresses Symptoms of its Problem, not the Problem Itself Shanghai Prepares for Property Tax to Curb 'Speculative' Buying; China Addresses Symptom NOT Problem Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List 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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