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duminică, 20 decembrie 2015

Mish's Global Economic Trend Analysis

Spanish Election: Two-party Dominance Ends; Rojoy's PP Party Fails to Win Majority; Vote Buying Spanish Style; Fragile Coalition Possibilities

Posted: 20 Dec 2015 03:42 PM PST

Spanish Election Results

Mariano Rajoy may be the first leader of a country to be re-elected having imposed harsh austerity measures, but he will either need to find a coalition partner, or form what is likely to be a fragile minority government.

There are 350 Seats in the Spanish legislature and the results look like this.

People's Party (Conservatives): 122 seats, 28% of vote
PSOE (Socialists): 93 seats, 22% of Vote
Podemos (Eurosceptic, Anti-Austerity Socialists): 69 seats, 20.5% of vote
Ciudadanos (Anti-corruption, nationalistic party): 28 seats, 14% of vote

This result complicates things greatly. Many expected PP and Ciudadanos would have enough seats form a majority. Ciudadanos had been polling above 20% with Podemos sinking.

Like PP, Ciudadanos is very much against the separatists in Catalonia, and very pro-euro.

But 122 + 28 does not come close to the 176 needed for an outright majority. The socialists and conservatives could form a government, but how stable would that be?

PSOE, Podemos, and Ciudadanos could in theory form a coalition but huge philosophical differences abound. Podemos is eurosceptic while Ciudadanos is very pro-Europe. In addition, Podemos is open to separatist elections and Ciudadanos would never go along.

A minority government with Rajoy remaining in power is possible but that might not be stable either.

Two-party Dominance Ends

The Guardian reports People's party wins Spanish election but without absolute majority.

The PP and Socialists earned a combined vote share of around 50%, compared to the 70-80% in combined votes in past general elections. "The two-party political system is over and we are entering a new era in our country," Podemos' Iñigo Errejón said on Sunday as results began rolling in.

Podemos did notably well in Catalonia, suggesting widespread approval for its campaign promise to hold a referendum on independence for the north-eastern region. Preliminary results suggested a coalition backed by Podemos and Barcelona en Comú was poised to take first place in the region.

In order to be able to govern for the next four years, the PP will have to rely on other parties, suggesting a protracted process of negotiations lies ahead for political leaders.

Several scenarios are possible. The PP could form a minority government, particularly since Ciudadanos leader Albert Rivera said last week his party would abstain from a vote of confidence in order to allow the party with the most seats to govern. The scenario is a risky one for the PP, as a minority government could fall easily, triggering new elections.

"Reaching a deal between the Socialists, Ciudadanos and Podemos is not going to be straightforward ... but if the alternative is leaving the country without a government, the pressure will be on the parties," Federico Santi, a London-based analyst with the Eurasia Group, told the Associated Press.

Vote Buying Spanish Style

Rajoy, 60, remains the most popular option with Spaniards over the age of 55, buoyed in part by his party's consistent support for pensions. Even as his government was slashing spending for public wages, education and research, pensions were raised. Not only is this the demographic that is most likely to vote, it has also grown by more than a million people since the 2011 election, while those under the age of 34 years have dropped by almost a million.

Spain's pension promises are not sustainable of course, but getting reelected always takes precedence over everything else, including economic realities.

Mike "Mish" Shedlock

Why Does GDPNow Model Sometimes Move Counter to Economic Releases?

Posted: 20 Dec 2015 12:06 PM PST

I am sometimes puzzled as to why the Atlanta Fed GDPNow Model moves counter to what one would normally expect following economic news releases.

For example, on December first, construction spending hit an 8-year high. On the same day the ISM was a huge disappointment.

I expected the net overall result of those to be a small net minus, with construction adding to GDP and ISM subtracting.

I commented on that idea in GDPNow Forecast for 4th Quarter Dips to 1.4% Following Weak ISM and Strong Construction Reports. Here are a few snips.

Construction Spending Beats Estimates

The consensus estimate for construction spending was +0.6% but the actual month-over-month reading was +1.0%.

Construction Contribution to GDP

As noted earlier today, this morning's ISM report was a disaster. (See Manufacturing ISM Contracts; Lowest Reading Since June 2009; Glimmers of Hope Extinguished). But the construction report looked good.

Combined with ISM spending, I would have expected the net result of today's reports to be an overall small minus.

Actual GDPNow Forecast Results were dramatically different.

GDPNow Forecast Sinks 0.4 Percentage Points to 1.4 Percent.

Construction Subtracts From GDP vs. Prior Estimate

Compared to the November 27 report that included new home sales, construction appears to have subtracted approximately 0.09 percentage points and ISM roughly another 0.31 percentage points. Other reports in between may have contributed but those should be the main factors.

I have a question into the Atlanta Fed regarding construction contribution to GDP.

My Question to Atlanta Fed

Construction Spending was up 1% month-over-month today. I would have expected this to add to your GDPNow forecast.

Instead it subtracted.

Bloomberg Econoday made this comment: "The housing data in this report are not only favorable but the pop higher in related permits, in data previously released with the housing starts & permits report, hints at further gains ahead. This report points to a solid fourth-quarter contribution from construction."

Instead it appears the construction report subtracted 0.09 vs. the prior estimate. Can you explain?

Thanks
Mish

Reply from Atlanta Fed

I received a reply from Patrick Higgins at the Atlanta Fed on December 8. I missed his reply as it somehow went into my spam bucket.

Higgins writes ...

Hi Mike,

This far away from the GDP release, the forecasts of nonresidential structures and residential investment depend importantly on an estimate of a dynamic activity factor very similar to the Chicago Fed National Activity Index (CFNAI). As of December 1, the estimate of that factor for November (and the forecast for December) was heavily influenced by the ISM Manufacturing Index since there was very little data for November released at that point. Like the CFNAI, the dynamic factor has mean 0, standard deviation 1. As of the GDPNow release on Nov 25, the model had forecasted values for the dynamic factor of -0.06 for November and -0.05 for December (i.e. both were essentially 0, or trend). These changed to -0.72 for November and -0.31 December after the data on December 1. Since then, the estimates of the dynamic factors for November and December have returned close to their November 25 readings. You can see these values in row 5 of the tabs Residential and NonresStructures of the Model. You can also see how they feed into forecasts of the monthly data but clicking the formula bar for any of the teal shaded cells. For example, cell FV9 of tab Residential.

If you simply replace the December 1st estimates of the dynamic factor with the estimates as of last GDPNow release on November 25th, the December 1 nowcast for residential investment growth becomes 6.5% [instead of 4.5%] and the December 1 nowcast for nonresidential structures investment growth becomes -0.4% [instead of -1.1%]. So the nowcasts for these components depend importantly on the dynamic factor even though that is not a direct input into GDP. Once we get closer to the GDP release, the dynamic factor becomes less important as the model relies more heavily on actual released data.

Pat

Thanks Pat.

That may be a bit complicated for most to follow, but it provides a nice explanation as to why the GDPNow model moves counter to what one might otherwise conclude on release of the data.

By the way, I have found the folks at the Atlanta Fed as well as the BLS very helpful in answering questions like these.

Mike "Mish" Shedlock

Seth's Blog : The edges

The edges

Is the universe infinite?

If it's not, the first question a smart person will ask is, "so what happens at the edge?"

That's how we define things... by the moments where they begin and end, by their edges.

This clearly applies not just to the universe, but to every project and concept and institution in our lives.

What does your organization not do?

When does this promotion/product/service end?

What's it like to start? To end it?

Defining the edges of performance and the promises you make defines who you are and what you do.

We live in the middle but we understand at the edges.

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sâmbătă, 19 decembrie 2015

Mish's Global Economic Trend Analysis

Growth in Service PMI Shrinks Sharply

Posted: 19 Dec 2015 06:22 PM PST

On Friday, the PMI Flash Services reading registered growth that fell sharply, not only well below the Econoday Consensus estimate of 56.1, but also substantially below the lowest estimate of 55.8.

The services PMI is slowing sharply this month, to 53.7 vs 56.1 for the final November reading and vs 56.5 for the flash reading. This is the lowest reading in a year reflecting the slowest growth in new orders since January and a fifth straight month of contraction in backlog orders. Optimism over future growth is understandably down, reflecting what the report says is a subdued global outlook, election uncertainty and softer demand in the energy sector. Price readings remain subdued with inputs at their weakest pace since February. Despite weakness in orders and the downcast outlook, hiring is described as "resilient". Given weakness in global demand, the service economy is the nation's bread and butter and today's report, though only one data point, hints at slowing for the economy.

I tend not to report on the Markit readings for services, instead reporting on ISM readings. But this was sharp divergence. The next ISM services report will be interesting to watch.

If services contract, recession will be at hand.

Mike "Mish" Shedlock

How Chicago "Works": Tax and Graft; Who Benefits?

Posted: 19 Dec 2015 02:28 PM PST

On October 28, the Chicago City Council passed the largest property-tax hike in modern city history by a vote of 36-14, approving Mayor Rahm Emanuel's 2016 budget proposal.

Taxpayers will have to fork over another $588 million property-tax hike to be phased in over the next four years.

Some businesses and taxpayers will simply flee, joining what now is best viewed as the "Great Illinois Exodus".

Taxpayers Lose, Who Wins?

Someone always benefits from these tax-and-spend schemes. Who is it?

The Illinois Policy Institute has the answer in Meet the politicians who stand to get rich off of Chicago's massive property-tax hike.

The Players

As the tax hikes hit Chicago families and businesses, a who's who of the state's political machine will continue to line their pockets off of a property-tax game in which their connections are priced at a premium.

Illinois House Speaker Mike Madigan and Chicago Alderman Ed Burke both run law firms specializing in the lucrative field of Cook County property-tax appeals, one of the most inefficient, corrupt systems in urban politics. Illinois Senate President John Cullerton is a member of a large law firm that handles a range of issues, including property-tax law. The three have held political office in Illinois for a combined 126 years.

The Game

The property-tax-assessment process in Cook County is convoluted by design. But here's how it works in simple terms:

First, the Cook County Assessor's Office assesses the value of every property in the county. The value of any given property is reassessed once every three years. This "assessed value" is then used to calculate the property taxes owed by each property owner.

Property owners can then appeal that assessed value in a number of ways. They can file a request with the assessor asking for a reduction, appeal the valuation to the Cook County Board of Review, file a lawsuit in which a judge will decide the value, or the property owner and the Cook County State's Attorney will enter into a settlement agreement over the value.

Flawed property valuations and the process required to fix them are a cash cow for law firms, including those of Madigan, Burke and Cullerton, which know what strings to pull. These law firms handle the ways in which the assessed value of a property is appealed: the request with the assessor, the appeal to the Cook County Board of Review, and lawsuits.

The Cook County Board of Review – which exists solely to field appeals for assessments by the Cook County Assessor's Office – processed appeals for more than 400,000 properties in 2013.

What doesn't add up is nearly two-thirds of those appeals were successful: an astonishing number that reveals a faulty assessment process ripe for savvy attorneys.

Choose not to appeal your assessment and the government pockets the extra money. Choose to hire a politically connected law firm and that law firm typically pockets anywhere from 25 to 50 percent of the "winnings." And each reduction for a politically connected business means an increase in property taxes for those lacking the right political connections.

Investigative reporting from the Illinois News Network revealed Madigan's six-person firm, Madigan & Getzendanner, earned close to $10 million in tax refunds for its clients from April 2013 through April 2014. Madigan's spokesperson Steve Brown has said that the House speakers' law firm, which services mainly commercial clients, charges a flat fee for its services. The Chicago Sun-Times' Tim Novak broke the story in 2014 that Madigan's firm had saved Mesirow Financial Services $1.7 million dollars by slashing the valuation of its River North headquarters by 60 percent. Mesirow manages $300 million in state pension funds and employs Madigan's son, Andrew.

Every year from 2010 to 2014, Cook County Assessor and Democratic Party Chairman Joseph Berrios declared the building that housed Mesirow was worth at least $330 million. In each of those years, Madigan's law firm successfully contested that valuation to the tune of $5 million in tax breaks annually, according to Novak's research.

That's the game in a nutshell.

Other Winners

In addition to politically connected law firms specializing in tax appeals, the public unions benefit, and corrupt politicians who support tax hikes to buy votes from public unions also win.

The losers are the businesses and taxpayers in Illinois.

Great Illinois Exodus

In increasing numbers, residents and businesses have voted with their feet as noted in Get Me the Hell Out of Here.

For further discussion, please see ...

Mike "Mish" Shedlock

Seth's Blog : The next

The next

Two hundred years ago, we had great-great-greats who lived in the dark, without much in the way of healthcare, commerce or opportunity.

Today, we complain that the MRI was chilly, or that the wifi on the transatlantic plane wasn't fast enough or that there's nothing new going on at the mall.

It's human nature to recalibrate. But maybe it's worth fighting that off, for an hour or even a day.

The world around us is uneven, unfair and yes, absolutely, over-the-top amazing.

Boring is an attitude, not the truth.

Possibility is where you decide it is.

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vineri, 18 decembrie 2015

Mish's Global Economic Trend Analysis

Two Important Points on the Yield Curve and Spreads
Fed Funds Effective Rate Shows Fed Did Indeed Hike by 25 Basis Points
Kansas City Manufacturing Region Back In Contraction, Employment in Severe Contraction
Yield Curve and Spreads: Fed's Real Policy Error in Pictures; What's Next?

Two Important Points on the Yield Curve and Spreads

Posted: 18 Dec 2015 12:15 PM PST

In my post this morning on Yield Curve and Spreads: Fed's Real Policy Error in Pictures; What's Next? there were two important points I intended to make but didn't. First here's a repeat of two charts.

Yield Curve 1998-2015 (Year-End Values)

Click on either chart for sharper image.

Values for 2015 are from the December 16 close, the day the Fed hiked.

Yield Curve Differentials 1998-2015 (Year-End Values)

Two Important Points

The tightening of the yield curve so early in the lead-up and initial stage of Fed rate hikes is both unprecedented and recessionary-looking.
It's highly likely that tightening reflects bond market concerns about a slowing economy and various economic bubbles that are about to pop.

If the economy was strengthening as widely believed, the yield curve ought to be widening, not collapsing.

Greenspan's first hike in four years was on 2004-06-30. Check out the yield curve and differentials ahead of and right after that hike. Compare to today.

Those who believe the yield curve must invert before a recession hits, need think about those two important points in addition to taking a look at recession in Japan.

A recession without a preceding yield curve inversion has not happened in the US before, but neither have yield spread differentials collapsed in the initial stages of a Fed tightening cycle.

Mike "Mish" Shedlock

Fed Funds Effective Rate Shows Fed Did Indeed Hike by 25 Basis Points

Posted: 18 Dec 2015 11:16 AM PST

I was on record stating a belief the Fed would effectively hike by 1/8 point. I had that belief because that is what the Fed Fund Futures implied.

Regardless, I was wrong. If someone is going to prove you wrong it may as well be yourself.

Here is a table of Effective Fed Funds Rates straight from the New York Fed. I created the table from their downloadable data.

Effective Fed Funds Rate

Date	Effective Rate	Low	High	Std. Dev.	Target Rate
2015-12-17	0.37	0.25	0.59	0.05	0.25-0.50
2015-12-16	0.15	0.08	0.55	0.04	0.00-0.25
2015-12-15	0.15	0.09	0.31	0.04	0.00-0.25
2015-12-14	0.15	0.07	0.31	0.04	0.00-0.25
2015-12-11	0.14	0.07	0.38	0.04	0.00-0.25
2015-12-10	0.14	0.07	0.38	0.04	0.00-0.25
2015-12-09	0.14	0.06	0.38	0.04	0.00-0.25
2015-12-08	0.13	0.06	0.35	0.04	0.00-0.25
2015-12-07	0.13	0.06	0.35	0.04	0.00-0.25
2015-12-04	0.13	0.06	0.35	0.04	0.00-0.25
2015-12-03	0.13	0.06	0.35	0.04	0.00-0.25
2015-12-02	0.13	0.04	0.35	0.04	0.00-0.25
2015-12-01	0.13	0.07	0.35	0.05	0.00-0.25
2015-11-30	0.08	0.04	0.31	0.06	0.00-0.25
2015-11-27	0.12	0.02	0.35	0.05	0.00-0.25
2015-11-25	0.12	0.06	0.35	0.04	0.00-0.25
2015-11-24	0.12	0.05	0.35	0.05	0.00-0.25
2015-11-23	0.12	0.07	0.35	0.05	0.00-0.25
2015-11-20	0.12	0.07	0.35	0.04	0.00-0.25
2015-11-19	0.12	0.05	0.35	0.05	0.00-0.25
2015-11-18	0.12	0.05	0.35	0.05	0.00-0.25
2015-11-17	0.13	0.07	0.35	0.05	0.00-0.25
2015-11-16	0.13	0.06	0.35	0.05	0.00-0.25
2015-11-13	0.12	0.06	0.35	0.04	0.00-0.25
2015-11-12	0.12	0.05	0.35	0.04	0.00-0.25

Previous effective rates hovered around 12.5 basis points. That is 1/8 of a point. A quarter-point (25 basis points) hike would have been to 37.5. An eighth-of-a-point hike would have been to 25 basis points. Today we are at 37.

Mike "Mish" Shedlock

Kansas City Manufacturing Region Back In Contraction, Employment in Severe Contraction

Posted: 18 Dec 2015 10:37 AM PST

The Kansas City manufacturing index is back in contraction as expected in this corner after a brief wonderland experience last month that took the diffusion index to +1.

Economists don't guess about this region, so let's dive into the details straight from the 10th District Fed Report.

.

The first three columns show the Fed surveys about 100 manufacturing companies. The diffusion index is formed by subtracting the number of companies with a decrease from the number of companies with an increase. The last column is a seasonal adjustment.

The bad news in manufacturing goes on, and on, and on. This is the eighth contraction in nine months.

Mike "Mish" Shedlock

Yield Curve and Spreads: Fed's Real Policy Error in Pictures; What's Next?

Posted: 18 Dec 2015 01:38 AM PST

Inquiring minds may be interested in a detailed look at the yield curve and spreads between various durations following the Fed's Wednesday rate hike. Let's start with a long-term chart from 1996 to 2015.

Yield Curve 1996-Present

click on any chart for much sharper image

Legend

Red-Black: 30-Year Yield
Orange: 10-Year Yield
Blue: 5-Year Yield
Green: 3-Year Yield
Purple: 2-Year Yield
Pink: 1-Year Yield

Notes

The above chart shows month-end closing yields except for December 2015 which is as of December 18.
The Fed stopped 30-year bond auctions on August 9, 2001.
The Fed resumed 30-year bond auctions on February 9, 2006.
The yield and various spreads on the 30-year bond are imprecise between those dates.

Spotlight on Spreads and Inversions

It is very difficult to see spreads and inversions over such a long duration in the above chart. There are simply too many data points.

For ease in viewing, I took year-end closing numbers (except the current year which is as of close on December 16, the day of the hike), and plotted them in Excel.

Yield Curve 1998-2015 (Year-End Values)

Yield Curve Differentials 1998-2015 (Year-End Values)

Bubbles of Increasing Amplitude Over Time

In the above chart, my statement "Fed's Real Policy Error is to Encourage Massive Speculation, First in Housing, then Everywhere. Bubbles Reblown, Only Bigger" is a play on John Hussman's post this week entitled Deja Vu: The Fed's Real "Policy Error" Was To Encourage Years of Speculation.

Unfortunately, here we are again. The Fed has blown another bubble at least as big as the bubble in 2007 and 2000.

A friend recently commented something along the lines "there is no way this is bigger than the 2000 bubble".

Actually, it is bigger in many ways. While it's true the dotcom bubble had huge numbers of stocks that went completely bust and never recovered, that bubble was predominantly centered around technology. Energy, mining, consumers staples, and non-technology smallcaps were not in bubble territory.

In 2007, housing and financials were in a massive bubble. Today, valuations are stretched nearly everywhere you look except mining and energy.

Median P/E ratios are at an all-time high. For details please see Stocks More Overvalued Now Than 2000 and 2007 No Matter How You Look at Things.

What's Next?

"What's next?" is a key question that everyone seems to be asking. Yet, in aggregate, market participants do not seem concerned about the obvious bubbles and likely answers.

Many think that a recession cannot be on the horizon because the yield curve is not inverted. However, Japan proves otherwise. Things change at zero bound.

Although the belief that rates cannot go negative has been shattered, I do not ever expect to see the day when 10-year yields are even more negative than 3-month yields.

Four More Hikes Coming?

Are four more hikes coming in 2016? I doubt that, but see Saxo Bank's Real Forecast for 2016; Mish Comments and Projections for a differing opinion.

Meanwhile, watch that yield curve carefully. If the Fed hikes and the curve inverts, immediately kiss the recovery goodbye. If the Fed does not get in its stated hikes, it will likely be because the Fed is worried about a recession that is long overdue and already baked in the cake.

Finally, for everyone who thinks the economy is about to take off, please explain ....

Trucking: Massive Collapse in Trucking Shipments Every Month Since June
Industrial Production: Industrial Production Declines Most in 3.5 Years, Down Eighth Time in Ten Months
Inventories: How to Uncover Hidden Economic Weakness!

If you think manufacturing is no longer relevant, please think again.

Mike "Mish" Shedlock

Damn Cool Pics

This Girl Used An Experiment To Find Out What Guys Like On Tinder

Posted: 18 Dec 2015 06:28 PM PST

This 24 year old girl decided to run a little experiment on Tinder. She photoshopped her breasts to make them look bigger to see if that's what guys actually like. The results were positive to say the least.

According to the company she received 34 per cent more matches when her profile pics were digitally enhanced to DD breast cup, compared to her natural A-cup size.

The A-cup Carla got 602 positive swipes but DD-cup Carla got 809, 34 per cent more.

You're Going To Be Shocked When You See How Much Weight Mark Hamill Has Lost

Posted: 18 Dec 2015 06:12 PM PST

When Mark Hamill showed up to the world premiere of "Star Wars: The Force Awakens" nobody expected him to look like this.

Here's Mark Hamill at Comic-Con in 2012

This picture was taken Monday Dec. 14, 2015, at the world premiere of "The Force Awakens."

duminică, 20 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Seth's Blog : The edges

The edges

More Recent Articles

sâmbătă, 19 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Seth's Blog : The next

The next

More Recent Articles

vineri, 18 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Damn Cool Pics

Damn Cool Pics

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