Central Perk

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

Seth's Blog : "When I want your opinion..."

"When I want your opinion..."

As you get better at your job, people will ask for feedback.

The most powerful feedback is based on data and experience. "Actually, no, we shouldn't put the Crockpots on sale, because every time we run a promo our Crockpot sales have been dwindling, and anyway, the big online store still sells them for less than we do."

These are facts, things we can look up and argue about whether they matter.

It's also interesting to get feedback based on testable hypotheses: "No, I don't think you should call it that, because many of our customers will assume you mean a form of marijuana."

This is only your opinion so far, but without too much trouble, we can dig in and find out if your take on it is widely held.

But often, people will show you something where facts and hypotheses aren't really germane. "Should we paint the door of the building beige or red?" In moments like this, there are three ways to be helpful:

a. You can acknowledge that this is a matter of taste, find out what the boss likes and let her own the decision.

b. You can engage in a dialogue with the boss about what her strategy is when making this decision. Bring facts and data to the table. A thoughtful dialogue with a rational, trusted colleague can open all sorts of doors in decision making.

c. You can acknowledge that your opinion is an opinion, and not try to make it sound like a fact or even a testable hypothesis. "Boss, the logo choice is always a crap shoot, but at first glance, my uninformed opinion is that it's too garish."

All three of these approaches make it far more likely that your fact-based feedback and hypotheses are taken more seriously next time.

[Today's the day that bestselling author Al Pittampalli's book, Persuadable, launches. His new book is a big deal, a research-based, practical guide to help us understand that people who change their minds are actually the most likely to change the world. A must read. Al keeps challenging our perceptions and helping us make a difference with our work.]

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luni, 25 ianuarie 2016

Mish's Global Economic Trend Analysis

"Temporary" Capital Controls Coming to China?

Posted: 25 Jan 2016 09:56 PM PST

Massive Reserve Hemorrhage

China hemorrhaged $663 billion of its reserves since June 2014 in a misguided attempt to prop up the yaun. Once the biggest buyer of US treasuries China Starts Dumping U.S. Government Debt.

Note the irony of that headline. Misguided analysts long clung to the belief that the US dollar would go to hell when China started dumping treasuries, "certificates of confiscation" as they were commonly called.

Instead, China has used a significant portion of its reserves to prop up the Yuan. It still has about $3.3 trillion left according to estimates, but China cannot keep the current pace up forever.

"Temporary" Capital Controls the Solution?

The Financial Times reports Capital Controls May be China's Only Real Option.

Chinese officials readily admit that communication has not been their strong point when it comes to dealing with international investors. Policymakers have now made it explicit that they have no wish to engineer a big devaluation. However, they are much less forthcoming about how they plan to reconcile a desire for currency stability with the realities of capital flight and a slowing economy.

Central bank guidance is most effective when the policy is clear and it is relatively straightforward to work out how it will evolve in response to changes in economic data. At present, the reality in China is that the PBoC has no clear course of action and wants to leave itself flexibility.

No amount of clarification would help to varnish the underlying problem: capital flight. The corruption clampdown and a lack of investment opportunities at home are driving Chinese people to take their money out of the country, just as the prospect of higher US interest rates is prompting companies to pay off dollar debt. Fear of a devaluation has fuelled the outflows. Far from seeking a weaker renminbi, the central bank has been forced to spend a big chunk of its reserves to prop it up

This goes against the grain of recent liberalising measures, which last year helped China win the renminbi's inclusion in the International Monetary Fund's special drawing rights basket, alongside traditional reserve currencies. However, the IMF has become far more willing to accept the case for temporary capital controls since quantitative easing sparked huge flows of hot money into emerging markets.

Capital controls are not a long-term solution but, at present, they are the correct step for Beijing to take in a very difficult situation. However, they will only work if China uses the breathing space to articulate a clear policy to rebalance its economy and liberalise its currency in the longer term — a process that will take many years.

Yuan's Fall Is Just 'Noise' Amid Deeper China Woes

The Wall Street Journal hits the nail on the head with this headline: Yuan's Fall Is Just 'Noise' Amid Deeper China Woes.

When the financier George Soros attacked the British pound in 1992 and famously "broke the Bank of England" he was trading on a conviction that the currency was misaligned.

Britain devalued after squandering its reserves in a vain defense. Mr. Soros walked off with $1 billion or more. To the surprise of many, though, the U.K. economy soon picked up once the pound found its proper level.

China's raging battles with currency speculators are unlikely to end as happily for the country. That's because turmoil in the currency markets reflects a much more perilous imbalance than an overvalued yuan: China is now lopsidedly dependent on ever larger inputs of local bank credit to keep sputtering growth from declining further.

The country is already littered with "zombie" factories, empty apartment blocks that form ghostly suburbs, mothballed power stations and other infrastructure that nobody needs. But yet more wasteful projects are in the pipeline, even as the government talks about cutting industrial overcapacity.

"That's the misalignment—everything else is noise," says Rodney Jones, the Beijing-based principal of Wigram Capital Advisors, who was a partner at Soros Fund Management during the 1990s.

If debt keeps piling up at the current rate, China faces an eventual financial crisis, perhaps leading to years of subpar growth, mirroring the fate of Japan after its bubble burst in the early 1990s.

Mr. Jones argues that global equity markets haven't property adjusted to this risk, even after a 16% decline in U.S. dollar terms from their May peak. "The world will have to learn to live without demand from China," he says. "It'll come as a shock."

Managing a Crisis of China's Own Doing

As we sit here discussing "temporary" measures that often seem to last decades, we need to step back and ask: What caused this mess?

The answer is a ridiculous growth targets. To hit 7% growth targets for years on end, China had to waste a lot of money on projects, many of which are now worthless.

While the boom lasted, China, like Japan before it, was considered an "economic miracle".

To top it off, China did not float the yuan, but now wants to defend an untenable target.

Unlike the above writers, I suggest China do what it should have done a decade ago: float the yuan and stop micro-managing the economy.

Sure there will be a lot of short term pain. But short term pain is a lot better than three lost decades as Japan is experiencing

Mike "Mish" Shedlock

Dallas Fed Region Activity Plunges to Lowest Reading Since 2009; Production Collapsed

Posted: 25 Jan 2016 11:28 AM PST

Those expecting a bounce in manufacturing following an alleged improvement in the Philadelphia Region were mistaken.

In Philadelphia, all that really happened was that things got worse at a decreasing rate.

Dallas Region Collapse

The Dallas Fed General Activity Index plunged to -34.6 from a revised reading last month of -20.1. The Econoday Consensus Estimate was -14.0 in a range of -17.0 to -10.0. The production index, also plunged. Last month the index was in positive territory at 12/7. It's now -10.2.

Manufacturing data from the Dallas Fed, along with that of the Kansas City Fed, have been offering the most striking evidence of oil-related contraction. Dallas' general activity index came in at an extremely negative score of minus 34.6 for the January report which is the lowest reading since the beginning of the recovery in 2009.

New orders are falling deeper into contraction as are unfilled orders. Hours worked are now in the negative column as is employment. And finally falling into contraction -- and in a big way -- is the production index which had through last year, despite long weakness in orders, held in positive ground, but not anymore with the reading at minus 10.2 for a nearly 23 point monthly plunge. Price data in this report remain well into the minus column, at nearly double-digit monthly declines.

Manufacturing reports this month have been mixed, with this and Empire State pointing to another buckling but not the most closely followed report, the Philly Fed which is pointing to stability for the sector. Watch for the Richmond Fed report tomorrow and the Kansas City report on Thursday.

Production vs. Activity

Price of oil and gas is so low, production is a money-losing effort. This month we finally see the production spigots have been turned to low throttle. It's a needed step for oil prices to bottom.

Mike "Mish" Shedlock

Damn Cool Pics

Celebrities Who Won An Oscar With Less Than 20 Minutes Of Screen Time

Posted: 25 Jan 2016 06:36 PM PST

These celebrities proved that it's not the length of the time you're on the screen that counts, it's what you do with it.

Anthony Hopkins, 'The Silence of the Lambs' (1991)
Screen time: 16 minutes
Although the final time count is debated (some say it's only 12 minutes), Hopkins' portrayal of Dr. Hannibal Lecter was a short one. This didn't stop the Academy from awarding him Best Actor in 1992.

Gloria Grahame, 'The Bad and the Beautiful' (1952)
Screen time: 9 minutes, 52 seconds
Less than 10 minutes landed Grahame the Best Supporting Actress Oscar for her performance as Rosemary. She held the record for winning an Oscar for the shortest-timed role for 25 years.

Anne Hathaway, 'Les Miserables' (2012)
Screen time: 15 minutes
Maybe it was the fact that she cut off all her hair and lost 25 pounds to play the unlucky Fantine, but Hathaway nabbed the statue for Best Supporting Actress despite only being in 15 minutes of a 158-minute movie.

Anthony Quinn, 'Lust for Life' (1956)
Screen time: 8 minutes
Quinn's character Paul Gaugin stole the screen and won him the 1957 Best Supporting Actor award.

Ned Beatty, 'Network' (1976)
Screen time: 5 minutes, 53 seconds
He only had one scene as corporate chairman Arthur Jensen, but apparently that was plenty of time to warrant an Oscar nomination for Best Supporting Actor. When defending his opinion that no actor should ever turn down a role, he jokingly said, "I worked a day on 'Network' and got an Oscar nomination for it."

Judi Dench, 'Shakespeare in Love' (1998)
Screen time: 8 minutes
Dench won Best Supporting Actress for her role as Queen Elizabeth, and when accepting the Oscar she joked, "I feel for eight minutes on the screen, I should only get a little bit of him."

Ingrid Bergman, 'Murder on the Orient Express' (1974)
Screen time: 14 minutes, 18 seconds
Bergman won the only Oscar (Best Supporting Actress) out of 6 nominations for the movie in 1975. Out of her 14 minutes onscreen, 5 of them were in one interrogation scene that was shot in one take.

Viola Davis, 'Doubt' (2008)
Screen time: 8 minutes
Accounts differ on the actual time Davis played a mother whose son may have been molested onscreen, but she still competed against her co-star Amy Adams for Best Supporting Actress in 2009. The award ended up going to Penelope Cruz for 'Vicky Christina Barcelona.'

Ruby Dee, 'American Gangster' (2007)
Screen time: 10 minutes
Dee's 70 year career was rewarded in 2008 with her first and only Oscar nomination for her brief role as Denzel Washington's mother in the Ridley Scott crime epic.

David Niven, 'Separate Tables' (1958)
Screen time: 15 minutes, 38 seconds
Niven scored his first and only Oscar for Best Actor when he played Major Pollock, a war vet whose hidden past is revealed in a seaside hotel during off-season.

Beatrice Straight, 'Network' (1976)
Screen time: 5 minutes, 40 seconds
Onscreen for an even shorter time than her co-actor Beatty, Straight stole the record from Gloria Grahame and won the Oscar for Best Supporting Actress for her performance as Louise Schumacher, the jilted wife of William Holden's character in the movie.

Hermione Baddeley 'Room at the Top'' (1959)
Screen time: 2 minutes, 20 seconds
Had she won, Baddeley would have knocked both Straight and Grahame out of the water with her record. However, she was just nominated for Best Supporting Actress in 1960 with a little over 2 minutes of screen time.