Central Perk

duminică, 25 decembrie 2011

Mish's Global Economic Trend Analysis

Businesses Exit California and Illinois; Tax and Destroy Policies of Governors Quinn and Brown; Unemployment Rates By State

Posted: 25 Dec 2011 11:09 PM PST

Businesses have tad it with poor business conditions in two of the most dysfunctional states in the union, California and Illinois.

In an editorial, the Orange County Register reports Even profitable firms fleeing California

Democratic reaction to the news that Waste Connections, a $3.6-billion company and major Sacramento-area employer, is headed to Houston to seek a friendlier business climate tells other businesses all they need to know about the attitudes of those who run California's government.

State Senate President Pro Tem Darrell Steinberg, D-Sacramento, gave these clueless and snarky remarks in response to the news: "In this instance you have a company that is, in fact, profitable, making significant revenue gains in 2011 and 2010. That doesn't speak to a bad business climate here in California when a good company is able to thrive in that way. So whatever Mr. Middelstaedt's (company CEO) reasons are to leave the great state of California, I know I'm pushing back."

Is it really the Senate president's role to determine the proper profit margin for a privately owned company? Talk about arrogance.

"The decision by Waste Connections to relocate, despite the 17 percent revenue increase and the $18 million cost to move to Texas, illustrates that businesses will endure short-term costs to ensure long-term prosperity," wrote state Sen. Mimi Walters, R-Laguna Niguel, in response to Steinberg's message. Walters quotes business-relocation expert Joe Vranich of Irvine, who notes that businesses typically save 40 percent in costs by leaving California because of lower taxes and more manageable regulations found elsewhere.

If California wants to improve its business climate and reduce its double-digit unemployment rate, its officials need to understand what companies such as Waste Connections are saying, rather than simply dismiss their concerns.

Businesses Bargain for Better Deals in Illinois

The Chicago Tribune lists 10 companies with an eye in exiting the state in Illinois companies eyeing an exit

Chicago's huge futures exchange owner CME Group has joined a growing list of companies threatening to leave Illinois as a result of the state's corporate tax increase earlier this year. Illinois pushed through the 45 percent corporate tax increase in January, trying to address one of the biggest budget shortfalls of any state in the U.S. But the move proved to be a risky step -- since then, both small and large companies have complained about the increase, and some have received incentives to stay put.

Also on the list: Sears, Motorola Mobility, Caterpillar, Navistar, Mitsubishi, US Cellular, Jimmy John's, and continental Tire.

Small Businesses, Taxpayers Screwed

On December 12, Illinois House approved CME-CBOE, Sears tax deal. Indeed, most of the above companies negotiated huge tax breaks and will stay in Illinois at least for a while.

Small companies with no clout and no leverage as well as taxpayers in general are the ones paying the price for the seriously misguided policies of Democratic Governors Pat Quinn, and Jerry Brown.

Tax-and-Destroy Policies

The tax-and-destroy policies of Illinois and California, coupled with the the massive public union pandering in both states got me wondering about respective unemployment rates, state by state.

Unemployment Rates for States Monthly Rankings Seasonally Adjusted Nov. 2011^p
Rank	State	Rate
1	NORTH DAKOTA	3.4
2	NEBRASKA	4.1
3	SOUTH DAKOTA	4.3
4	NEW HAMPSHIRE	5.2
5	VERMONT	5.3
6	IOWA	5.7
7	WYOMING	5.8
8	MINNESOTA	5.9
9	OKLAHOMA	6.1
10	VIRGINIA	6.2
11	UTAH	6.4
12	HAWAII	6.5
12	KANSAS	6.5
12	NEW MEXICO	6.5
15	LOUISIANA	6.9
15	MARYLAND	6.9
17	MAINE	7.0
17	MASSACHUSETTS	7.0
19	MONTANA	7.1
20	ALASKA	7.3
20	WISCONSIN	7.3
22	DELAWARE	7.6
23	PENNSYLVANIA	7.9
23	WEST VIRGINIA	7.9
25	ARKANSAS	8.0
25	COLORADO	8.0
25	NEW YORK	8.0
28	TEXAS	8.1
29	MISSOURI	8.2
30	CONNECTICUT	8.4
31	IDAHO	8.5
31	OHIO	8.5
33	ALABAMA	8.7
33	ARIZONA	8.7
33	WASHINGTON	8.7
36	INDIANA	9.0
37	NEW JERSEY	9.1
37	OREGON	9.1
37	TENNESSEE	9.1
40	KENTUCKY	9.4
41	MICHIGAN	9.8
42	GEORGIA	9.9
42	SOUTH CAROLINA	9.9
44	FLORIDA	10.0
44	ILLINOIS	10.0
44	NORTH CAROLINA	10.0
47	MISSISSIPPI	10.5
47	RHODE ISLAND	10.5
49	DISTRICT OF COLUMBIA	10.6
50	CALIFORNIA	11.3
51	NEVADA	13.0

Not a Red vs. Blue or Rustbelt Issues

High unemployment is not a red-state vs. blue-state issue. Nor is there a clear rust-belt trend. Moreover, Nevada, is among the more business friendly states but like Florida the hardest hit by the housing bust. Illinois was not so hard-hit but parts of California were.

However, California and Illinois have many things in common:

Harsh business environments
High tax rates
Both states are among the most pro-union states
Both states lack right-to-work laws

That California and Illinois suffer from business flight and high unemployment should not be surprising.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Christmas Laughs: How Not to Teach a Bullfrog to Play Video Games; Grandma Got Indefinitely Detained (A Very TSA Christmas)

Posted: 25 Dec 2011 11:04 AM PST

This remake of "Grandma Got Run Over by a Reindeer" is better than the original. It's cute but also reflects a very sad state of affairs.

Grandma Got Indefinitely Detained

Link if video does not play: A Very TSA Christmas

This next video will have you laughing for sure. Please play to the end. It's only 27 seconds long.

How Not to Teach a Bullfrog to Play Video Games

Link if video does not play: Teach a Bullfrog to Play "Ant Crusher"

Merry Christmas Everyone

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : An empty Kindle...

An empty Kindle...

More than 5,000,000 people got a Kindle today. If you're looking for something to put on it, I've been working hard on that all year... (plus some bonus titles worth a download.)

Have fun!

• Email to a friend •

Seth's Blog : Gift wrapped

Gift wrapped

A wrapped present is tranformed when it is opened. Anticipation turns into information, and frequently, one is worth far more than the other.

Too often, we overlook the value of imagination and dreams and the _____. We figure, as marketers or managers or leaders or engineers that all we have to do is meet the spec, fill in the blank and we can prove we did a good job.

Often, though, the story a person tells herself is worth more that the object itself.

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sâmbătă, 24 decembrie 2011

Mish's Global Economic Trend Analysis

"Full Faith and Credit" of General Obligation Bonds Comes to Critical Test in Alabama Bankruptcy

Posted: 24 Dec 2011 06:37 PM PST

General obligation bonds are thought to be perfectly safe because they are backed by the ability to tax, no matter what it takes to pay off the obligation. I have been waiting for a test of this theory and that time is at hand.

Jefferson County Alabama filed the biggest bankruptcy in the history of the US and has stopped paying interest on its general obligation bonds. For background details, please see Jefferson County Alabama Hires Bankruptcy Firm; Record Municipal Bankruptcy Coming; Death Spiral Swaps and JPMorgan Fraud Revisited.

The key issue now is what happens to the "Full Faith and Credit" theory now that the county has defaulted following a bankruptcy declaration.

Please consider Bankruptcy Filing Raises Doubts About a Bond Repayment Pledge.

People who own what is considered the safest type of municipal bond may be in for a surprise.

This safe debt, called a general-obligation bond, is said to be the next strongest thing to Treasuries because it is backed by a "full faith and credit" pledge. That means the government that issued it will pay it on time, no matter what.

But now Jefferson County, Ala., has stopped paying such debt, breaking with convention and setting up a fundamental test of what full faith and credit truly means.

The few places that have gone bankrupt with general obligations outstanding have sent reassuring signals, making payments even though they were not required to in bankruptcy. Orange County, Calif., the previous Chapter 9 record-holder, took a few extra months to pay some maturing debt, but it compensated investors for the delay by giving them almost a full percentage point more interest than it otherwise owed them.

The small city of Central Falls, R.I., has been duly paying its general-obligation debtholders in Chapter 9 this year, bolstered by a new state law giving those investors priority over everybody else.

Jefferson County, by contrast, is taking advantage of the automatic stay granted in bankruptcy, which bars creditors from demanding payments or grabbing collateral. Officials say they stopped sending cash to the county's paying agent in November and will not send any money this month, either.

Bankruptcy experts have long known that in theory a municipality could use the stay to revoke its full faith and credit pledge, but they have not watched a big distressed city or county go through with it. "You've got a case here where the rubber has hit the road," said Kenneth N. Klee, a bankruptcy lawyer representing Jefferson County, whose debt grew out of poorly conceived efforts to finance a court-ordered rebuilding of its sewer system.

The county's nonpayment is not its only surprise. Like many places, it used newfangled instruments to circumvent constitutional limits on how much debt it could legally issue. In Alabama, counties are required to hold a referendum before issuing any general-obligation bonds. So Jefferson County has not issued such bonds since the 1950s. Instead, it issues warrants, which look nearly identical but do not require the referendum.

Official disclosures promote the county's warrants as "general obligations," toward which "its full faith and credit have been irrevocably pledged." Sounds good, but what does it really mean? Conventional wisdom has it that if a government defaults on a general obligation, its creditors can take it to court, where the judge will order it to raise taxes — as much as it takes, no matter how painful.

But that now appears to be a hollow threat in Jefferson County. Counties in Alabama do not have the legal authority to raise taxes. Only the state can do that.

Mr. Klee, the county's bankruptcy lawyer, said about 40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes, as the term implies.

"Jefferson County made a very different decision than Rhode Island did," Mr. Klee said. "Rhode Island put bondholders ahead of its citizens, and Jefferson County is not going to do that."

He called the notion that a full faith and credit pledge was inviolate, and that a debtor must honor it even in bankruptcy, "a myth and a scare tactic."

"The issue of full faith and credit," Mr. Klee said, "is whose full faith and credit?"

Rhode Island legislature screwed taxpayers by bailing out bondholders. Alabama tried hard to do the same, but fortunately Jefferson County filed anyway.

A major twist is Jefferson County had no legal authority to issue general obligation bonds without first holding a voter referendum. Jefferson County did not have a voter referendum and instead issued warrants. Does it matter the warrants were promoted as "Full Faith and Credit" obligations?

I have had it with the notion that bondholders can never take a loss. The best court ruling would be those are indeed general obligations bonds, but bankruptcy changes the game. My guess is the courts will duck the issue based on the fact Jefferson County never issued a referendum.

Still, it would be a huge victory for taxpayers in a major court case, assuming the county's attorney is correct in that "40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

College Football Nothing But a Free Farm-System for the NFL; Who are the Winners and Losers in the Current System?

Posted: 24 Dec 2011 11:03 AM PST

While watching the myriad of college bowl games this holiday season, many of them between teams that have no business being in bowl games at all, please step back and ponder who the winners and losers of this system are.

My high-school friend David Wise takes a critical look at college football in a Real Clear Sports article proclaims it's Time for Colleges to Rein In Football

Since 1985 college tuition has increased nationally by 498 percent compared with 115 percent for prices overall – an unsustainable bubble. Higher education commentators Andrew Hacker and Claudia Dreifus have commented that a large portion of this additional college tuition revenue is being funneled into athletics and not towards education. Over the same time the average compensation of public college football coaches has increased 750 percent compared with 32 percent for professors. The two colleges that will play for the BCS championship this season spend $1,320 per every member of the student body ($204,919 per player) to support the football programs.

In the words of Dr. James J. Duderstadt, the former president of the University of Michigan, athletics "has drifted so far from the educational purpose of the university. They exploit young people and prevent them from getting a legitimate college education. … We are supposed to be developing human potential, not making money on their backs."

And the failure of colleges is not just in things such as the whopping 51 percent disparity between the graduation rates of African-American and white players on last year's BCS champion Auburn Tigers or the combined 34 percent graduation rate for all players on the 2005 champion the Texas Longhorns. Colleges and the education system in general are failing young men who at age 22 graduate at the rate of 100 males for every 187 females.

In a time of crushing state government deficits and student loan debt, it makes absolutely no sense for American universities to operate as free farm systems for the NFL and NBA. At a time when the American competitive position in the world is under more stress than ever, we cannot allow our universities – an area in which American still holds undisputed world leadership – to erode. Rather than have the NFL subsidize college sports, a cure that would be worse than the disease, there are other options.

The low point this year is to be found in the "Kraft Fight Hunger Bowl," which features two teams whose seasons were so disastrous that they both just fired their head coaches and one team, UCLA, which enters the bowl game with a losing record.

This year it is possible that almost a third of the games (10 out of 35) could end up with a so-called "bowl team" with a losing season. And some collection of attorneys general out there should examine whether the Supreme Court's prohibition against "horizontal restraint" in the 1984 landmark case NCAA v. The Board of Regents of the University of Oklahoma is being observed.

Who are the Winners and Losers?

Wise points out that of the 30,000 kids in college football, only abut 310 are ever seriously considered for the NFL.

The rest may get passing grades, but how many of them actually get an education? We all hear that bowl games are "big money makers" but for who?

In the "Kraft Fight Hunger Bowl", Illinois 6-6 just fired its coach. UCLA 6-7 just fired its coach. Both states are financial basket cases.

Both schools will probably sustain large losses participating in these useless bowls that should not even be held. Taxpayers of Illinois and California will make up the difference.

I propose a name change from the "Kraft Fight Hunger Bowl" to the "Tidy Toilet Bowl" because both teams belong in the toilet, not in bowl games. No matter who wins, one team is sure to end up with a losing season and taxpayers of both states will foot the bill for this monstrosity.

Please consider the winners and losers in the current setup.

Who Loses?
The students
The Players
Taxpayers
Teachers who are quasi-forced to give passing grades to kids so they can stay eligible

Who Wins?
The NFL who avoids having a farm system
Advertisers
College coaches and their staff who make preposterous salaries

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Damn Cool Pics

Star Wars: The Old Republic Flash Mob in Time Square
Darth Vader Sculpture Made Out of Old Cutlery
Odd Things to Be on a Leash

Star Wars: The Old Republic Flash Mob in Time Square

Posted: 23 Dec 2011 10:22 PM PST

A crowd of people with lightsabers joined forces with the Jedi and Sith to freeze battle in a flash mob at Time Square in New York City. It was done to help promote Star Wars: The Old Republic, which was released on the same day.

Darth Vader Sculpture Made Out of Old Cutlery

Posted: 23 Dec 2011 10:04 PM PST

French artist Alain Bellino sculpted this Darth Vader bust out of old pieces of metal, including silver spoons for the eyes and cabinet hinges on the mask.

Odd Things to Be on a Leash

Posted: 23 Dec 2011 09:05 PM PST

BuzzFeed collected this silly little gallery full of hilarious images of odd things on leashes. Some of them are questionable in terms of strangeness (people leash their kids all the time, right?) while others are truly weird, and really make you wonder what we humans will be leashing up next?