Central Perk

vineri, 23 octombrie 2015

Mish's Global Economic Trend Analysis

China Renews Commitment to Global Easing Party; US Tightening by Force

Posted: 23 Oct 2015 12:58 PM PDT

Fresh on the heels of an ECB announcement of more QE and the further lowering of the excess reserve rate already at -0.2%, China Nervously Joins Global Easing Campaign.

China's central bank cut benchmark interest rates for the sixth time this year in a bid to support an economy which is forecast to grow at its slowest annual rate in 25 years.

The move comes a day after the European Central Bank indicated it would extend its quantitative easing programme and cut its deposit rate in a bid to boost the eurozone's sluggish recovery.

The People's Bank of China's actions, combined with Thursday's ECB announcement and market doubts over the US Federal Reserve's commitment to raise interest rates this year, highlight a wider nervousness in official circles over the health of the global economy.

Expectations for global growth have already been revised down to 3.1 per cent in 2015, the lowest International Monetary Fund forecast since 2009, and analysts are concerned that prospects for next year are also dimming.

The PBoC said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent and the one-year benchmark deposit rate to 1.5 per cent — its lowest on record — from 1.75 per cent.

The central bank also cut the share of customer deposits banks must hold in reserve, injecting Rmb560bn ($90bn) of cash into the banking system to counteract the cash drain from capital outflows in recent months. The required reserve ratio was lowered by 0.5 percentage points to 17.5 per cent.

Official figures released earlier this week showed China's economy expanded at its slowest pace since 2009 in the third quarter. The data showed the challenges facing China's leaders in achieving their growth target of around 7 per cent for the year.

"We see rising [downward] pressures on [renminbi] and [offshore renminbi] exchange rates as PBoC will find it difficult to strike a balance between monetary policy easing and a stable exchange rate," Zhou Hao, China economist at Commerzbank, wrote on Friday.

That last sentence above on downward renminbi pressures echoes what I sated earlier on currency reserves and the desire to hold yuan. For discussion of this tie-in, please see IMF Prepared to Bless Yuan As Reserve Currency; Reason to Celebrate? Any Real Significance?

Renewed Commitment

US Tightening by Force

Global cuts outside the US are the rough equivalent of US tightening. The world has effectively decided the Fed is not going to hike as much as they want (if at all). In response, other countries force the issue by cutting rates and strengthening the US dollar, all in the mad attempt to gain competitive export advantages.

In the competitive QE and currency debasement process, central bankers have blown the biggest equity and junk bond market bubbles in history. When those bubbles collapse (and they will, but at an undetermined time), the world will see another huge round of asset deflation, likely accompanied by significant price deflation.

In effect, central banks do not see their misguided price deflation and credit stimulus exercises as the very cause of the weak growth environment the world is in.

Mike "Mish" Shedlock

IMF Prepared to Bless Yuan As Reserve Currency; Reason to Celebrate? Any Real Significance?

Posted: 23 Oct 2015 11:32 AM PDT

IMF Blessing Coming Up

Bloomberg reports IMF Said to Give China Strong Signs of Reserve-Currency Blessing.

The IMF has given Chinese officials strong signals in meetings that the yuan is likely to win inclusion in the current review of the Special Drawing Rights, the fund's unit of account, said three people who asked not to be identified because the talks were private. Chinese officials are so confident of winning approval that they have begun preparing statements to celebrate the decision, according to two people.

At least $1 trillion of global reserves will convert to Chinese assets if the yuan joins the IMF's reserve basket, according to Standard Chartered Plc and AXA Investment Managers.

While the SDR is not technically a currency, it gives IMF member countries who hold it the right to obtain any of the currencies in the basket to meet balance-of-payments needs. The equivalent of about $280 billion in SDRs were created and allocated to members as of September, compared with about $11.3 trillion in global reserve assets.

SDR status is significant as "a seal of approval" from the IMF that the yuan is indeed an internationalized currency, AXA analysts said in May. The yuan can get a potential weighting of about 13 percent, according to an estimate by Bank of America Merrill Lynch in March. HSBC Holdings Plc said in an April note that the yuan's share could be 14 percent, reflecting China's importance in global exports.

SDR Fact Sheet

Inquiring minds are investigating the IMF SDR Fact Sheet for more details and history on Special Drawing Rights.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.

SDR Basket Definition

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, the SDR was redefined as a basket of currencies. Today the SDR basket consists of the euro, Japanese yen, pound sterling, and U.S. dollar. The value of the SDR in terms of the U.S. dollar is determined daily and posted on the IMF's website. It is calculated as the sum of specific amounts of the four basket currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.

The basket composition is reviewed every five years by the Executive Board, or earlier if the IMF finds changed circumstances warrant an earlier review, to ensure that it reflects the relative importance of currencies in the world's trading and financial systems.

SDR Interest Rate

The SDR interest rate provides the basis for calculating the interest charged to borrowing members, and the interest paid to members for the use of their resources for regular (non-concessional) IMF loans.

Buying and selling SDRs

IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to sell SDRs in order to adjust the composition of their reserves. The IMF may act as an intermediary between members and prescribed holders to ensure that SDRs can be exchanged for freely usable currencies.

Role and Valuation of SDRs

The IMF makes loans in SDRs which in turn can be converted to other currencies. As of today, the total valuation is an equivalent valuation of about $280 billion.

The Basket of SDR Rates and Weights looks like this.

IMF Basket Math

I added the column in dark blue. If the Yuan were indeed to make up 13-14%, the percentages would adjust accordingly. But assume 14% and do the math.

14% of $280 billion is $39.2 Billion. Certainly nothing to get excited over.

I am not quite sure how Standard Chartered Plc and AXA Investment Managers concluded "At least $1 trillion of global reserves will convert to Chinese assets if the yuan joins the IMF's reserve basket."

My guess is they assume that when the IMF puts the yuan in the SDR basket, countries will hold more yuan reserves outside of SDRs, a conclusion I certainly would not presume.

Global reserves total about $13 trillion in US dollar equivalents. $1 trillion of that would be about 7.69% of reserves. So even if countries started collecting yuan, we are still not talking about a huge portion of global reserves in yuan.

Yuan Peg Math

The Yuan is pegged to the dollar. As long as that peg is in place, one may as well keep dollars instead of yuan in reserves, assuming the exchange rate is steady.

But China recently devalued the yuan. It makes far more sense to hold dollars, not yuan, if one expects another devaluation.

Global Reserves

Rank	Country	Official Reserve Assets (in billions of U.S. dollars)
1	China	$3,887.70
2	Japan	$1,260.50
3	Saudi Arabia	$732.30
4	Switzerland	$545.40
5	Taiwan	$419.00
6	Russian Federation	$385.50
7	Republic of Korea	$363.60
8	Brazil	$363.50
9	Hong Kong	$328.50
10	India	$320.60

The above Top 10 Global Reserve Countries from Investopedia.

The top 10 totals $8.6 trillion out of $13 trillion in reserves. The table is a bit out of date. For example, China's reserves are now estimated to be about $3.5 trillion.

It's important to realize that China accumulated those $3.5 trillion in reserves by running a trade surplus with other countries, over the years, heavily US weighted, to that approximate number.

Similarly, most of Japan's reserves represent the accumulated trade surplus Japan has with the US.

Does China have an accumulated trade deficit with the rest of the world to arrive at the $1 trillion reserve estimate of Standard Chartered Plc and AXA Investment Managers?

Mapping China's Balance of Trade

Foreign Policy Magazine does an excellent job of Mapping the World's Winners and Losers from China Trade

The deeper the red the bigger the trade deficit. China has a big trade surplus with US, Canada, and most of Europe with the exception of Germany.

China has a January-July trade deficit with Germany of about $1.8 billion, $768 million with Japan, and $3.2 billion with Australia.

Accumulate such totals for 10 years and one does not come close to $1 trillion.

Reason to Celebrate?

The reason China celebrates is not because there is any real significance to the IMF's move, but rather because China wants the prestige of being in the elite group of SDR reserve currencies.

SDR Concept Meaningless and Useless

At $280 billion, SDRs have no global significance.

And since any currency is convertible to another instantaneously, at will, the notion of a "basket" as to having any significance is meaningless, regardless of the total!

People who discuss baskets of currencies overlook these obvious points, so expect to read a slew of nonsensical reports on the significance of this meaningless announcement.

Global Reserve Currency Discussion

The Yuan is not about to replace the US dollar as the world's reserve currency.

To become the world's reserve currency, a country needs the largest, most liquid bond market in the world, a freely floating currency, free markets, and likely a stable, freely elected government.

China does not come close to meeting any requirement needed to replace the US dollar as the world's reserve currency, let alone all of them.

Mike "Mish" Shedlock

Damn Cool Pics

Fun Facts You Probably Never Knew About Back To The Future

Posted: 23 Oct 2015 05:47 PM PDT

Fans of "Back to the Future" recently celebrated "Back to the Future Day" on October 21, 2015. The day has come and gone but the film's legacy lives on. Here are a few fun facts you might not know about the movie franchise.

Seth's Blog : Gravity and entropy, denied

Gravity and entropy, denied

The 747 is a very large plane. But that doesn't mean it's easier to get off the ground--in fact, it's more difficult.

As your project and your organization grows in size, it's tempting to hope that at some point it will take care of itself. That customer service will get better without a herculean effort to keep it un-industrialized. That quality will be consistent, without extraordinary efforts from truly committed people.

Alas, that's not what happens. Gravity sets in with scale, and almost all the forces push in one direction--away from amazing.

Danny Meyer runs more than a dozen well-known restaurants, and the reason that they're well known is that he and his staff act like they own one restaurant, a brand new one, one with something to prove. It's tonight or never.

Also! As your project and your organization develop over time, randomness and unpredictability occurs. Entropy is a force of nature... over time, stuff gets more scrambled, not more orderly. Things decay. Left alone, just about anything we create fades to mediocrity or instability.

Which is why we can't leave it alone.

If you want to dream, it's fun to talk about self-managed teams, crowd-built organizations, autonomous excellence. And if you can find it, by all means, congratulations. For the rest of us, though, the challenges of scale and time will always involve extraordinary effort from dedicated people, doing the heavy lifting to fight off the almost unstoppable forces of mediocrity.

Don't scale because you think there's a pot of gold over that rainbow. Scale because you're ready and eager to do heroic work, every day, forever.

Once you know what you're in for, like the engineers at Boeing, you can invest in bigger jets and make sure they're working.

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joi, 22 octombrie 2015

Mish's Global Economic Trend Analysis

Mayor of Barcelona Prepares New Digital Local Currency
As Draghi Hints at More QE, German Bond Yields Hit Record Low Negative Yields; Economic Madness
Existing Home Sales Up 4.7% Following Last Month's 5% Decline; Home Price Weakness

Mayor of Barcelona Prepares New Digital Local Currency

Posted: 22 Oct 2015 09:04 PM PDT

The new mayor of Barcelona, Ada Colau, says Preparations Underway for New Local Digital Currency.

The objective of the currency, whose name will be decided after a participatory process, is to "promote local businesses."

Libre Mercado says the plan looks more like a publicity campaign for Barcelona. The Bank of Spain called the currency "impossible besides undesirable".

I point out that Barcelona is the capital and largest city of Catalonia, the second-largest city in Spain and the center of one of the largest metropolitan areas in Europe.

Please note the connection: Pro-independence parties in Spain won an outright majority in the recent Catalonia regional election.

Reuters reported Victorious Separatists Claim Mandate to Break with Spain.

I commented Pro-Independence Parties in Catalonia Unite to Form Government; Showdown with Madrid Coming Up

That showdown now includes a new digital currency.

Mike "Mish" Shedlock

As Draghi Hints at More QE, German Bond Yields Hit Record Low Negative Yields; Economic Madness

Posted: 22 Oct 2015 11:53 AM PDT

Quantitative easing in the eurozone to the tune of €1.1 trillion has not raised consumer price inflation as the ECB had expected.

But neither bureaucrats nor central planners ever evaluate the effectiveness of their programs. Rather, when something does not work, they do more of it, until it does work, with no regard for the economic bubbles or other negative consequences.

Those expecting more monetary madness were rewarded today when the ECB Opens the Door to December Stimulus as expected.

The European Central Bank signalled it would expand its €1.1tn quantitative easing programme in December and cut its deposit rate should the slowdown in emerging markets threaten the eurozone's economic recovery.

The euro plunged 1.67 per cent against the dollar to $1.116 after Mario Draghi, the ECB's president, said policymakers' measures would need to be "re-examined" in December.

He said the central bank stood ready to adjust the "size, composition and duration" of its QE package. At the moment, it is buying €60bn of mostly government bonds a month and has said it will continue to do so at least until September 2016.

Government bond yields, which move inversely to prices, fell across the region, with Italian and Spanish benchmark 10-year borrowing rates dropping to the lowest level since April and the shorter-term two-year German borrowing rate hitting a record low of minus 0.32 per cent.

As well as expanding the QE programme, the ECB could also break an earlier promise to leave interest rates unchanged and cut its deposit rate further into negative territory, a move which is likely to further weaken the euro if implemented.

The ECB president said cuts into negative territory by other central banks, such as the Swiss National Bank and Scandinavian authorities, had led the ECB to reassess where the lower boundary for interest rates lay.

"We've seen the experience of other central banks and now we're thinking about that," Mr Draghi said.

With that, let's take a look at some currency and interest rate reactions.

German 2-Year Bond Yield

German 2-Year Bond Yield Weekly

Italy 10-Year Bond Yield

Spain 10-Year Bond Yield

US 30-Year Bond Yield

Euro/US Dollar

In Europe, there were large interest rates swings in nearly every county. In Germany the move was primarily in short-term durations. In the peripheral countries, the swings were in longer term durations.

In the US, treasury yields declined, but the move was muted.

In Forex, Draghi got an oversized move where he wanted as the Euro sank vs. the US dollar.

A strong US dollar has hurt US manufacturers so the Fed will likely not be pleased with this competitive currency debasement.

Economic Madness

Quite frankly it's nothing but economic madness to demand consumer price inflation.

Nonetheless, central banks are not only bound and determined to achieve inflation, but with methods that failed for decades in Japan and more recently in both Europe and the US.

My Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" is still unanswered.

Mike "Mish" Shedlock

Existing Home Sales Up 4.7% Following Last Month's 5% Decline; Home Price Weakness

Posted: 22 Oct 2015 09:44 AM PDT

Existing home sales bounced this month, coming in just above the high end of Econoday Economists' Estimates.

Existing home sales bounced back very strongly in September, up 4.7 percent to nearly reverse the prior month's revised decline of 5.0 percent, a decline that now looks like an outlier. The month's annual sales rate, at 5.55 million, is just beyond Econoday's top-end forecast and the second best reading of the recovery. The year-on-year percentage gain, at plus 8.8 percent, is back where it was during the sales gains of the spring.

The gain is centered entirely in the single-family component which rose 5.3 percent to a 4.93 million rate to underscore the strength of demand. Sales of condos, which cost less, were unchanged at a 620,000 rate.

But the report's price data, in an echo of this morning's FHFA report, are on the soft side, down 2.9 percent for the median to $221,900. Year-on-year, the median is just over 6 percent, at 6.1 percent.

Prices may have to firm further to pull more homes into the market where supply is very thin, at 4.8 months vs 5.1 months in August and 5.4 months a year ago. Six months of supply is generally considered the balancing point for supply and demand. In actual numbers, there were 2.21 million existing homes up for sale in the month for a 2.6 monthly decline and a 3.1 percent year-on-year decline.

Regional sales data are remarkably even with the Northeast showing an outsized monthly gain of 8.6 percent for an 11.8 percent year-on-year rise. The Midwest is out in front in year-on-year terms, at plus 12.0 percent, with the South, which is by far the largest housing region, lagging at the back with a 5.7 percent year-on-year gain. All regions posted gains in the month.

This report, which wraps up a busy and mostly positive week for housing data, is a big plus for the housing outlook, suggesting that demand for existing homes may be catching up with demand for new homes.

Demand For New Homes

That last statement by Econoday is amusing.

For starters, new home sales are not all that strong, and it is new home sales that contribute most to GDP and family formations.

You cannot sell what you don't start, so let's take a look at numbers from my October 20 article Housing Starts Surprise to Upside Led by Multi-Family, Permits Surprise to Downside

Single-Family Starts

That chart add quite a bit of needed perspective on the housing "recovery".

Existing Home Sales

Builders better be hoping that existing homes sales don't "catch up" to new home sales. And they also better be hoping that price trends in new homes don't match weakness in existing prices.

Home Price Weakness

Trends in Suburbia:Chicago Suburbs $1 Million+ Home Sales "Not Totally Dead" Yet; Rush for the Exit
Case Shiller: Striking Weakness in Home Prices

And what about optimism vs. actual buyer traffic? I'm glad you asked.

Homebuilder Confidence Soars to Highest Level in 10 Years Despite Falling Traffic.

Mike "Mish" Shedlock

Seth's Blog : The two-review technique

The two-review technique

As you work on your project (your presentation, your plan, your speech, your recipe, your...) imagine that it's the sort of thing that could be reviewed on Amazon.

Now, write (actually write down) two different reviews:

First, a 5 star review, a review by someone who gets it, who is moved, who is eager to applaud your guts and vision.

And then, a 1 star review, an angry screed, not from the usual flyby troll, but from someone who actually experienced your work and hated it.

Okay, you've got two reviews, here's the question:

Are you working to make it more likely that the 5 star reviews are more intense, more numerous and more truthful than ever, or...

Are you working to minimize the number of 1 star reviews?

Very hard to obsess about both, since they tend to happen together.

The thing is, if you work to minimize criticism, you have surrendered the beauty and greatness of what you've set out to build.

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miercuri, 21 octombrie 2015

Mish's Global Economic Trend Analysis

Turkey Demands More Money From EU, Vows Not to Become 'Concentration Camp' for Migrants
Merkel Seeks to "Europeanise" Border Controls; Emergency EU Meeting Called
Does the Sum of the Parts Equal the Whole?

Turkey Demands More Money From EU, Vows Not to Become 'Concentration Camp' for Migrants

Posted: 21 Oct 2015 06:29 PM PDT

The problem with paying bribes, is the request for more money never stops.

I discussed the bribe setup on October 16, in Bargaining With the Devil: Germany Bribes Turkey With Aid Package, EU Sidelines Highly Critical Report on Turkey's Free Speech Record.

In return for holding more refugees, Turkey demanded ...

€3bn in fresh funds
Unblocking about five chapters in Turkey's EU membership negotiations
Visa-free access for 78 million Turks to the Schengen border-free area by 2016

Merkel was prepared to go along with that request, but things have changed already.

Turkey's 'Concentration Camp'

Shortly after meeting with Merkel, Turkey upped its monetary demand and placed other demands as well.

Turkish Prime Minister Ahmet Davutoglu now says Turkey Should Not Become 'Concentration Camp' for Migrants.

Turkey wants fresh funding from the European Union in exchange for stopping migrants streaming to Europe but should not be expected to turn itself into a "concentration camp" for refugees, Prime Minister Ahmet Davutoglu said on Monday.

Both President Tayyip Erdogan and Davutoglu, whose AK Party faces a general election on Nov. 1, are keen to avoid any impression of weakness in dealing with European nations they say have only just realized Turkey's value in the migrant crisis and are digging in their heels on the funding issue.

"We can't accept this idea that 'we've given this to Turkey, and Turkey is satisfied, so all migrants should stay in Turkey'," Davutoglu said in an interview on Turkey's Ahaber TV. "Nobody should expect Turkey to become a country housing all migrants, like a concentration camp."

EU leaders at a summit in Brussels last week said they had agreed on a migration "action plan" with Ankara, and German Chancellor Angela Merkel said the figure of 3 billion euros ($3.4 billion) had been discussed.

But a day after meeting Merkel in Istanbul, Davutoglu said that sum would have come from "IPA" funds - money already earmarked for Turkey as an EU membership candidate - and that Ankara wanted fresh cash in a sum to be reviewed each year.

"The 3 billion euro IPA fund proposal is no longer on the table as we have said we will not accept it," Davutoglu said.

"As for fresh resources, we're talking about a 3 billion euro amount in the first stage. But we don't want to fixate on this because the requirements may go up, and the assessment for this would need to be done annually."

Merkel on Sunday offered Turkey the prospect of support for faster progress on its bid to join the EU, as well as an accelerated path to visa-free travel for Turks, a priority for many in the nation of 78 million.

In return, she expected Turkey to agree more quickly to take in migrants sent back by the EU, under so-called "readmission agreements" that Davutoglu has said he would sign up to only if there is progress on liberalizing the visa regime.

Population of Germany, France, UK

If the EU admitted Turkey, it would replace Germany as the most populous country in the EU.

Islam in Turkey

Wikipedia reports ...

97.8% of the population identifies as Muslim, but only 23% is really religious. Most Muslims in Turkey are Sunnis, forming about 72%, and Alevis of the Shia denomination form about 25% of the Muslim population.

Although Turkey was secularized at the official level, religion remained a strong force at the popular level. After 1950 some political leaders tried to benefit from popular attachment to religion by espousing support for programs and policies that appealed to the religiously inclined. Such efforts were opposed by most of the state elite, who believed that secularism was an essential principle of Kemalist Ideology. This disinclination to appreciate religious values and beliefs gradually led to a polarization of society. The polarization became especially evident in the 1980s as a new generation of educated but religiously motivated local leaders emerged to challenge the dominance of the secularized political elite.

By 1994 slogans promising that a return to Islam would cure economic ills and solve the problems of bureaucratic inefficiencies had enough general appeal to enable avowed religious candidates to win mayoral elections in Istanbul and Ankara, the country's two largest cities.

What the Hell is Merkel Doing?

The Daily Beast reports Merkel Wants Turkey in the EU to Win Re-Election

This week, the German chancellor Angela Merkel visited Turkey. There she announced that she will push to accelerate Turkey's accession to the European Union. That is pretty surprising statement from a politician who was elected ten years ago, in 2005 on the promise that Turkey would never join the EU. In May 2010 Merkel went even further and ruled out the possibility of Turkey becoming member of the European club.

The obvious reason why Merkel wants to appease Turkey is another promise she made: that Germany would host 800,000 refugees. Refugees reacted so enthusiastically that they started to come in the thousands. When even the Christian Social Union, the sister party of Merkel's Christian Democratic Union in Bavaria, started revolting, Merkel quickly realized that this might not have been the best decision to win the next election.

The subsequent plan was then to spread the refugees over the member-states of the EU. This plan too was hardly welcomed by many European countries. Four countries voted against the plan, but were forced to take their part of the quota for refugees. Everybody knows that the European plan will quickly need to be updated as refugees keep coming. It seems improbable that Merkel can push a new plan through. The only possible way to stop the flow of refugees is to convince Turkey to keep them there and stop them from traveling on to Europe.

Is That Merkel's Plan?

If that indeed is the plan, it was not well thought out. Between 2 and 2.5 million Syrian refugees are in Turkey. And there are another 75 million Turks that just may decide they would rather be in Germany.

Merkel's plan to take 800,000 refugees was amazingly short-sighted from the start. And the plan to pay bribes to Turkey will not work either. In fact, the bribe scheme appears to have blown sky high before it was even tried.

So it's back to the drawing board with Merkel calling an emergency meeting hoping to "Europeanise" Border Controls as noted earlier today.

This update wraps up some loose ends while pointing out additional features of the "no-win" position that Merkel brought upon herself voluntarily.

Mike "Mish" Shedlock

Merkel Seeks to "Europeanise" Border Controls; Emergency EU Meeting Called

Posted: 21 Oct 2015 11:19 AM PDT

Emergency EU Meeting Called

Animosity over millions of migrants entering the EU has finally reached the crisis stage. In an emergency meeting this weekend, called by German chancellor Angela Merkel, EU Leaders to Hammer Out Continental Response to Migrant Crisis.

European leaders will hold an emergency summit this weekend in an attempt to bring order to the tide of migrants crossing the western Balkans.

The hastily arranged meeting in Brussels comes after weeks of tit-for-tat border closures in Hungary, Slovenia and Croatia, which have led to thousands of migrants being stranded in increasingly difficult conditions in southeastern Europe.

The crisis has triggered a dramatic deterioration of relations between governments in the region, with Slovenian prime minister Miro Cerar attacking Croatia's handling of the situation. Slovenia this weekend called in the army to help cope with the influx, sparking concern among diplomats in Brussels.

At the meeting on Sunday, Ms Merkel is expected to push for increased efforts to "Europeanise" border controls. The chancellor believes that unless the influx is brought to a halt, finding a solution to where refugees will be resettled or relocated will be nearly impossible.

In an effort to ease the pressure, German chancellor Angela Merkel will meet leaders from nine other countries on the so-called "western Balkans route", which has become the main route for people trying to reach Europe.

Brussels's plans involves a potential "structural" resettlement programme early next year. Officials will look at basing the proposals on recommendations from UNHCR, which has called on the EU to take in up to 200,000 people from refugee camps in countries such as Turkey and Lebanon.

This mass resettlement will come on top of the agreed "relocation" of 160,000 asylum seekers from Italy and Greece to other EU countries, which was introduced after a fierce diplomatic bust-up between Berlin and its eastern neighbours.

Berlin has attempted to toughen its stance on refugees and is considering using military transport aircraft to ferry unsuccessful asylum seekers back to their homelands in a bid to win over an increasingly sceptical German public.

The eight EU member states set to attend the summit are Austria, Bulgaria, Croatia, Greece, Hungary, Romania and Slovenia, along with Germany, which is still the favoured destination for most people heading to Europe. Non-EU countries including Macedonia and Serbia will also attend the meeting.

Migration Path

Border Controls

Germany-Austria
Germany-Switzerland
Germany-Czech Republic
Austria-Slovenia
Austria-Slovakia
Austria-Hungary
Slovenia-Croatia

Closed Borders

Hungary-Slovenia
Hungary-Croatia
Hungary-Serbia
Turkey-Bulgaria

Merkel Seeks to "Europeanise" Border Controls

Catchy phrases like "Europeanise border controls" won't do a damn thing. What the hell does "Europeanise" border controls even mean? I doubt if the Chancellor herself has any idea.

Merkel opened herself up to this mess by ram-rodding through a hugely unpopular proposal to relocate 160,000 asylum seekers from Italy and Greece to other EU countries over the course of a year.

I said that would be woefully short and it was. Now they seek another 200,000 more and it won't stop there.

As it stands, there are over 2 million refugees in Turkey, many of whom are making their way towards the border with Greece.

If the refugees in Turkey make their way to the EU, it's a potential influx of 164,000 a month.

Greece cannot handle the inflow.

Real Solution

The problem will not go away unless and until there is a broad consensus effort to stop all economic refugees while simultaneously removing the refugees' incentive to relocate.

One convenient choke point is the small border between Turkey and Greece. I suggest Greece should block it. That might force Turkey close off its Southern border.

Why do the refugees want to relocate to Germany?

Because Germany offers the most free services, food, and shelter. There is an unlimited demand for free food free shelter, and free services.

And that is the crux of the problem. The EU needs to remove the incentive for economic refugees to relocate to European countries coupled with much tighter border controls.

But Merkel refuses to do that. As it stands, this crisis will be her undoing. As I said the other day, "Peak Merkel" has arrived.

Mike "Mish" Shedlock

Does the Sum of the Parts Equal the Whole?

Posted: 20 Oct 2015 11:56 PM PDT

In a curious event, ZeroHedge reports The September Jobs Report Was Even Worse: U.S. States Lost A Total of 22,000 Jobs.

Zero Hedge noted that the month-over-month total of nonfarm payrolls was -22,000 while the nonfarm total was well over 100,000 nationally.

He posted this chart.

Those numbers match my totals. And as ZeroHedge reports, 28 states lost jobs while 22 gained.

But it's not that simple. From the same data, here is a table of nonfarm payrolls for the last three months.

Nonfarm Payrolls (In Thousands)

Jul States Sum	Aug States Sum	Sep States Sum	Jul National	Aug National	Sep National	Jul-Aug Nat	Aug-Sep Nat	Jul-Aug States	Aug-Sep States
143,071	143,218	143,197	142,093	142,229	142,341	136	112	147	-22

Yes, month over month, states lost 22,000 jobs. But also notice that state totals overall beat national totals by 856,000 jobs.

Which stat do you believe?

I have been aware of this discrepancy for a long time, and have been working on this data with the Michael Lucci and Connor White at Illinois Policy Institute since July.

Here is an email we received from Tyler Downing at the BLS on July 22.

Hello Connor,

Thank you for contacting the Current Employment Statistics (CES) program.

CES independently develops national and state and area employment, hours, and earnings series. Both sets of estimates are based on the same establishment reports; however, CES uses the full establishment survey sample to produce monthly national employment estimates, while CES uses only the state-specific portion of the sample to develop state employment estimates.

State and area estimates use smaller amounts of sample by industry than the national industry estimates. This increases the error component associated with state and metropolitan level estimates. For this reason, aggregating state data to the national level will also sum this error component, resulting in different estimates of U.S. employment, hours, and earnings. Summed state level CES estimates should not be compared to national CES estimates.

Estimates for states and areas are produced using two methods. The majority of state and area estimates are produced using direct sample-based estimation. However, published area and industry combinations (domains) that do not have a large enough sample to support estimation using only sample responses have been estimated using modeling techniques.

Random Results

As noted above, the current state summation actually exceeds the national total, even though the latest month-over-month state total summation is negative.

When I first went through this exercise many months ago, I thought there was a serious issue but concluded there wasn't.

To verify, Michael Lucci and I went through the process of downloading a year's worth of history but the results appeared random.

Double Counting Part-Time Jobs?

This is not a validation of the overall BLS process by any means.

I remain firmly convinced the BLS is double counting part-time jobs. And in a recent phone conversation, a BLS analyst admitted it was possible.

I asked a simple question: Why don't you sort out duplicate social security numbers?

The answer I received was "we would like to but we do not have access to the data for privacy reasons".

A decent sort-merge algorithm could hash this out easily, but only if the BLS had access to SS numbers.

So here we are wondering why the sum of the parts exceeds the whole overall, while we frequently see the opposite effect month over month.

The much-maligned BLS appears to blame, but in actuality, it appears as if the BLS does not have access to the data they need to produce valid numbers.

Are major discrepancies like these better than no numbers at all?

Mike "Mish" Shedlock

vineri, 23 octombrie 2015

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