Central Perk: 27 feb. 2014

joi, 27 februarie 2014

Mish's Global Economic Trend Analysis

Inside Ukraine: Mish Reader Who Speaks Ukrainian and Russian Challenges Western Media View of Events
Weekly Unemployment Claims "Unexpectedly" Rise; Claims in Recession Pattern?
Are Drone, Workerless Ocean Freight Ships Coming? What About Jobs? Insurance? Inflation?

Inside Ukraine: Mish Reader Who Speaks Ukrainian and Russian Challenges Western Media View of Events

Posted: 27 Feb 2014 06:00 PM PST

I received an interesting email regarding Ukraine from reader Jacob Dreizin, a US citizen who speaks both Russian and Ukrainian.

Jacob comments on media bias and offers the "full scoop" on Ukraine.

First, let's take a look at events that happened earlier today.

Pro-Russia Gunman Seize Crimea Parliament

Bloomberg reports Gunmen Seize Crimea Parliament as Ukraine Backs New Premier.

Gunmen occupied the parliament in Ukraine's Crimea region as lawmakers in the capital approved a new cabinet after last week's ouster of Viktor Yanukovych.

About 120 trained and well-armed men took over the parliament and government buildings in Simferopol, according to Serhiy Kunitsyn, a lawmaker for former boxing champion Vitali Klitschko's UDAR party. They raised the Russian flag.

Fistfights broke out yesterday near Crimea's parliament as hundreds of demonstrators demanded a referendum on breaking the region off from Ukraine and joining Russia. They were met by several thousand Tatars, chanting "Crimea isn't Russia!"

The proposed Crimean referendum has no legal basis, Unian said, citing the Central Election Committee. The Constitution requires a nationwide referendum to change territorial status.

Crimea's Parliament Seeks Referendum on Region's Future

The Financial Times reports Crimea's Parliament Calls for Referendum on Region's Future

Ukraine plunged further into crisis on Thursday after unidentified pro-Russian gunmen seized Crimea's regional parliament, prompting legislators there to call a referendum on the autonomous peninsula's future.

The raid in Simferopol, Crimea's capital, intensified east-west tensions over Ukraine. Fears mounted that separatists could prevail in the largely pro-Russian peninsula after a pro-western leadership assumed power in Kiev after last week's toppling of president Viktor Yanukovich.

Hours after scores of armed men seized Crimea's legislature, Vladimir Konstantinov, the Speaker, said an extraordinary parliament session had voted to hold a referendum on the peninsula gaining more autonomy on May 25 – the date already set for snap presidential elections across Ukraine.

Mr Yatseniuk told the national parliament as his government was sworn in that the country was "on the brink of collapse and being torn apart". He called for members of the UN Security Council to preserve the nation's territorial integrity.

The escalation of events in Crimea and Mr Yanukovich's claims still to be in power pose a severe challenge to Ukraine's new leaders even as they grapple to stabilise the country's tottering economy. Joking grimly about his role yesterday, Mr Yatseniuk said he would be leading a "government of suicides".

Hryvnia Plunges Another 9.8% Today

Clearly things are not going well. A default looms. Now let's hear what reader Jacob Dreizin has to say.

Ukraine - The Full Scoop

Hi Mish,

The last Ukrainian government was awful, but as someone who speaks the language and has been reading the local news for hours each day, I want you to know there are two sides to this story.

The Western media is not reporting accurately and in a balanced way as to what's going on in Ukraine, both in the run-up to the fall of the regime, and now, in the aftermath.

There is a "reign of terror" in Kiev and some other areas right now.

Offices and even private homes associated with the former ruling party and its communist allies have been ransacked or burned by militias even though Yanukovich's mansion has been left alone.

An independent member of parliament who critiqued certain positions of the main nationalist party was assaulted and had to go to hospital with a concussion. Also, some public officials in the central/western regions have been detained and beaten-up.

Other pro-Russia citizens have been rounded up and taken away by militias, with no warrant. We have no idea if, how, or where they are being held.

The ultra-nationalist umbrella groups that direct the militias have just announced they will essentially take charge of Central Elections Commission HQ and monitor its work during the upcoming national vote. How fair will the vote be?

Riot police returning to their bases in western Ukraine were forced to attend public assemblies in which they had to get on their knees and beg forgiveness (whether or not they were involved in any abuses.) Some have already fled their homes and are living as refugees.

Also, one of parliament's very first post-revolution decisions was to revoke the right of local governments to do business in non-Ukrainian languages, such as Russian. Another law has been proposed to effectively ban the broadcast or rebroadcast of television or radio from Russia. There are still other proposed bills aimed at provoking and oppressing the Russian or Russian-speaking population.

Lastly, while the new legal authorities are investigating the killing of around 70 protestors, no one is looking into the deaths of at least 13 policemen (at least 10 from gunshot wounds) or several ruling party workers who were killed in an attack on their office.

It's much easier to pretend this is about democracy, human rights, the peoples' choice, etc. while looking the other way now that "our guys" have won. We have seen this movie before. And I fear it will only get worse from here.

Yes, the former government led by President Viktor Yanukovych was corrupt. But the leading opposition figure, who was just released from jail was named by U.S. Federal prosecutors as an unindicted co-conspirator in the massive corruption schemes of a former Ukrainian prime minister who served time in U.S. Federal prison for money laundering and other charges after having made off with what is believed to be hundreds of millions of dollars, much of it not yet recovered.

Feel free to use my name. I put in my time in uniform, and I'm not afraid that some pro-war, pro-intervention chickenhawks might call me a traitor for supporting the "wrong" side. I have earned my right to say whatever I want.

All the best,

Jacob Dreizin

Ukrainian Language Usage

Comments by Jacob got me interested in who speaks what, where? Here is an interesting chart from Wikipedia on usage of Russian Language vs. Ukrainian language.

The problem is obvious.
There is a serious chance Ukraine splits in two. If it doesn't issues can fester for years, if not decades.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Weekly Unemployment Claims "Unexpectedly" Rise; Claims in Recession Pattern?

Posted: 27 Feb 2014 11:17 AM PST

Weekly unemployment initial claims unexpectedly rose to 348,000 this week.

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but the underlying trend suggested no shift in labor market conditions.

Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 348,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 fewer applications received than previously reported.

Economists polled by Reuters had forecast first-time applications for jobless benefits slipping to 335,000 in the week ended Feb. 22, which included the Presidents Day holiday.

While last week's increase pushed them to the upper end of their range so far this year, it probably does not signal labor market weakness as claims tend to be volatile around federal holidays.

Weekly Claims Since 1967

Recession Pattern?

Once claims bottom then start to rise, the above chart shows a recession usually follows. The only exception was 1993, smack in the middle of an internet boom.

It's impossible to know if claims have indeed bottomed, but a secondary pattern shows this is an area in which claims bottomed five out of the last six times. If claims bottomed again now, it would make six out of seven.

This "unexpected" event coincides with numerous other "unexpected" events, nearly all of them weaker than expected.

String of Unexpected Events

The unexpected rise in initial unemployment claims followed
The Philly Fed Unexpected Contraction which followed
The unexpected decline in industrial production (the most since May of 2009), which followed
The unexpected decline in retail sales which in turn followed
The unexpectedly weak jobs report in February
Which followed a Huge Miss in ISM; Largest Decline in New Orders in 4 Years
Which followed a Big Miss: Nonfarm Payrolls +74,000 vs. 205,000 Expected in January

Reuters said this "probably does not signal labor market weakness". I suggest weakness is nearly everywhere you look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Are Drone, Workerless Ocean Freight Ships Coming? What About Jobs? Insurance? Inflation?

Posted: 27 Feb 2014 09:29 AM PST

Here is the question of the day: Are drone, workerless ocean freight transport ships coming?

If shippers can pull it off, the cost saving would be immense. But what about the job losses? Insurance? Inflation?

Let's explore the questions with a look at the Bloomberg article Rolls-Royce Drone Ships Challenge $375 Billion Industry.

In an age of aerial drones and driver-less cars, Rolls-Royce (RR/) Holdings Plc is designing unmanned cargo ships.

Rolls-Royce's Blue Ocean development team has set up a virtual-reality prototype at its office in Alesund, Norway, that simulates 360-degree views from a vessel's bridge. Eventually, the London-based manufacturer of engines and turbines says, captains on dry land will use similar control centers to command hundreds of crewless ships.

Drone ships would be safer, cheaper and less polluting for the $375 billion shipping industry that carries 90 percent of world trade, Rolls-Royce says.

The European Union is funding a 3.5 million-euro ($4.8 million) study called the Maritime Unmanned Navigation through Intelligence in Networks project. The researchers are preparing the prototype for simulated sea trials to assess the costs and benefits, which will finish next year, said Hans-Christoph Burmeister at the Fraunhofer Center for Maritime Logistics and Services CML in Hamburg.

Even so, maritime companies, insurers, engineers, labor unions and regulators doubt unmanned ships could be safe and cost-effective any time soon.

Crew costs of $3,299 a day account for about 44 percent of total operating expenses for a large container ship, according to Moore Stephens LLP, an industry accountant and consultant.

The potential savings don't justify the investments that would be needed to make unmanned ships safe, said Tor Svensen, chief executive officer of maritime for DNV GL, the largest company certifying vessels for safety standards.

While each company can develop its own standards, the 12-member International Association of Classification Societies in London hasn't developed unified guidelines for unmanned ships, Secretary Derek Hodgson said.

"Can you imagine what it would be like with an unmanned vessel with cargo on board trading on the open seas? You get in enough trouble with crew on board," Hodgson said by phone Jan. 7. "There are an enormous number of hoops for it to go through before it even got onto the drawing board."

100% Guaranteed to Happen

Anyone who does not think drone, workerless ships will happen, cannot think clearly.

Skeptics did not think the auto would replace horses or trains. Skeptics thought flight was impossible. Even simple constructs we now take for granted such as coffee on airplanes was once considered ridiculous.

So yes, driverless cars and workerless ocean ships are 100% guaranteed. The only question is "what timeframe?"

I do not have an answer to that question, but let's not bury our heads in the sand over what is inevitable.

Furthermore, it's likely workerless ships arrive before driverless trucks hit mainstream.

After all, the ocean is a vast place and there are no road or other constraints except in docking. If landing is a major concern, how difficult would it be to helicopter in crews specifically for the final landing?

What About Jobs?

Let's get a grip on the problem of jobs. Yes, many will vanish. But others will appear. I cannot name one technological advancement in history that did not ultimately create more jobs than it destroyed.

Examples

Lightbulbs replaced candles
Cars replaced horses
Trains replaced the Pony Express
Personal computers
Internet replacing libraries

Can someone tell me why it's supposed to be different this time?

What About Inflation?

Therein lay the problem. Driverless cars, the internet, and other price-deflationary advances have outstripped central banks ability to inflate prices and wages.

Try as they might, central banks have only managed to foster asset bubbles (they don't even see) not the 2% price inflation they want.

Yet they keep trying. Prices went up but not as much as central banks want. Wages rose less than prices, especially for those on the bottom end. Home prices soared so Congress initiated countless affordable home programs. Then home prices crashed and Congress and the Fed acted to prop up home prices.

No one really wanted affordable homes, they just wanted ill-advised affordable home programs. Now people scream about income inequality and for higher minimum wages.

This all stems from one bad idea - central banks fostering inflation.

One Bad Idea Leads to Another, and Another

In the effort to produce 2% inflation, One Bad Idea Leads to Another, and Another

That construct is corollary number six of the greater "Law of Bad Ideas".

Can the Fed Prevent Boom-Bust Cycles?

Heck no, the Fed causes them! For details, see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?

Also consider Deflation Theory Reality Check.

Losing Battle

Such are the challenges the Fed faces, and they are losing the battle because the advancement of technology is inherently price-deflationary. Technollogy has overtaken the Fed's (central bankers in general) ability to inflate consumer prices.

Here's the irony: Ridiculous efforts to prevent price-deflation cause asset bubbles that inevitably collapse, which in turn bring the very conditions central banks wish to prevent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com