Central Perk

miercuri, 13 mai 2015

Mish's Global Economic Trend Analysis

Calpers Wins Pension Lawsuit, Not Good News for Chicago (or Bondholders in General)
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Dismal Retail Sales Numbers Suggest Recession Likely Underway: Overall +0.0%, YoY +0.9%, Department Stores -2.2%

Calpers Wins Pension Lawsuit, Not Good News for Chicago (or Bondholders in General)

Posted: 13 May 2015 01:34 PM PDT

Judge Rejects Bondholders' Lawsuit Over Pension Debt

In bankruptcy, the federal courts have ruled that cities can reduce pension obligations. They can, but they don't have to. In Detroit, bondholders were sacrificed to maintain police and fire pensions with minimal haircuts.

On Monday, U.S. Bankruptcy Judge Meredith Jury ruled against bondholders in favor of Calpers in the San Bernardino bankruptcy. She acknowledged that her decision is likely to be seen as unfair to the municipal bond market and might even discourage investors from buying pension obligation bonds in the future.

Please consider Calpers' Pension Hammer Forces 'Unfair' Bond Ruling by Judge.

California's public retirement fund holds so much power over local officials that pension-bond investors can't expect equal treatment when a city goes bankrupt, a judge said in a ruling that she acknowledged seems "unfair."

"What I see as unfair, and might seem unfair to the outside world, does not matter under law," Jury said, referring in part to the powerful remedies Calpers can seek if the city doesn't honor its contract.

Monday's ruling sticks with a pattern seen in the bankruptcies of Stockton, California, and Detroit, said Marilyn Cohen, president of Envision Capital Management in El Segundo, California.

Up to Cities

Federal bankruptcy courts have many times ruled that cities can cut pension obligation, but nothing forces them to.

For example, in the Stockton California bankruptcy, a federal judge ruled that Stockton could have tried to reduce its obligation to Calpers. However, Stockton chose not to do so, arguing that fighting Calpers would take too long and could endanger employee pensions.

Conflict of Interest

I believe Stockton's rationale is nonsense. Instead, I propose Stockton city officials had a conflict of interest.

City officials wanted to preserve their own pensions.

Chicago Connection

So what does this have to do with Chicago and the state of Illinois in general?

Lots, so let's tie it all together.

As a result Tuesday's Illinois Supreme Court Ruling that the 2013 Pension Reform Law Is Unconstitutional Moody's cut Chicago's bond rating two notches to junk. Moody's specifically cited Chicago's pension crisis.

I discussed this yesterday in Chicago Bond Rating Cut to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth.

In light of the San Bernardino ruling today, cities that have huge pension issues will see bond yields soar.

The Chicago Board of education is already paying 285 basis points more than other cities because of pensions. If bondholders keep getting hammered, those yields will rise further.

Pass a Bankruptcy Law, Give Taxpayers a Chance

A Chicago Tribune editorial by Henry J. Feinberg, says Pass a Bankruptcy Law, Give Taxpayers a Chance.

Under federal law, state governments can't file for bankruptcy. Local governments can do so if their states give them permission. A bill now before the Illinois legislature would extend that permission to Illinois municipalities, most of which now can't seek protection under bankruptcy law.

The right way is to amend House Bill 298 so people who hold Illinois bonds have a "secured first lien," the fancy words needed in the law to make sure bondholders are first in line to get their money back. Passing this amended bill would do three things that the state's local governments have not been able to accomplish for decades.

Three Reasons to Amend Bill 298

Feinberg cites three reasons to amend the pending bankruptcy bill.

First, it would bring opposing sides to the table to have meaningful discussions about how to save the borrower, in this case the local government, from financial ruin.
Second, the government could ask the bankruptcy court to modify labor contracts and order the parties to renegotiate the terms of collective bargaining agreements.
Finally, a law that puts bondholders first in line to get repaid would be a stroke of fairness that would help Illinois cities, school districts and other local governments avert a short-term solution like Detroit's. There, some people who had lent money to the city by buying its bonds lost two-thirds of their investment. Meanwhile, members of the politically powerful police and firefighter unions took no cuts to their pensions (their cost-of-living adjustment was reduced). Other workers took a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase, The Detroit News reported.

I agree with Feinberg on all three points. Bankruptcy is the only real solution for many of these plans and many cities as well.

Beware the Tax Man

Tax hikes cannot possibly address the shortfall. As discussed on May 4, in Beware, the Tax Man Has Eyes on You, the potential hike for Illinoisans is staggering.

Nuveen estimated 50% property tax hikes would be necessary. Those hikes were just for Chicago. They did not include money to bail out other Illinois pension plans. Nor did it address the $9 billion budget deficit for the state.

Finally, Nuveen's estimate assumed pension plans would make their plan assumption of 7% returns or higher.

Stock Market Bubble Will Hit Pensions

I believe another serious decline in the stock market is likely. So do some of the biggest fund managers in the world.

Please check out Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises.

Pension promises were not made in good faith.

Rather, pension promises were the direct result of coercion by public unions on legislators, mayors, and other officials willing to accept bribes because they shared in the ill-gotten gains of backroom deals at taxpayer expense.

Illinois taxpayers cannot be held accountable for coercion of public officials by public unions.

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

Blog Comments Down

Posted: 13 May 2015 10:52 AM PDT

I have posted on this before, but many people missed it.

JS-Kit/Echo went under. Along with that development, the comment system on this blog no longer works.

I am looking for a replacement but have not been able to get Disqus to work. I also need to strip out all of the Echo code, but have not done so because some of it I may need to handle peculiarities of this blog.

If someone is familiar with Disqus and blogger and is free to help, I would appreciate it.
Thanks.

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

Dismal Retail Sales Numbers Suggest Recession Likely Underway: Overall +0.0%, YoY +0.9%, Department Stores -2.2%

Posted: 13 May 2015 09:10 AM PDT

Economists were surprised by the dismal retail sales report this morning. That's not surprising because economists are nearly always surprised.

The Bloomberg Consensus retail sales estimate was a rise of 0.2%, but sales came in at 0.0% and the details were ugly, emphasis mine.

Consumer confidence may be strong but it still is not translating to strength for consumer spending. Retail sales were unchanged in April vs Econoday expectations for a 0.2 percent gain. Excluding autos, sales did rise but only barely at plus 0.1 and below expectations for 0.5 percent, while excluding both autos and gasoline, sales rose 0.2 percent vs expectations for a 0.4 percent gain.

The surprising part of the report isn't the weakness in motor vehicles, which was signaled by weak unit sales and which fell 0.4 percent in the month, but weakness in some of the core readings including department stores which fell a very steep 2.2 percent and electronics & appliances which fell 0.4 percent for a 7th straight decline. Both furniture and food & beverages also show declines.

Year-on-year rates show just how weak growth in the retail sector has been. Total retail sales are up only 0.9 percent year-on-year, down from 1.7 percent in March. This is the lowest rate since late 2009. Excluding motor vehicles, year-on-year sales are unchanged, again the lowest reading since late 2009. Ex-auto ex-gas, sales are up a respectable 3.4 percent but, compared to 3.9 percent in March, are going in the wrong direction.

Estimated Retail Sales

The Census Department offers this Table of Retail Sales.

click on chart for sharper image

Note the huge patch of negative numbers this month. At least people are still eating out and drinking more.

Also note the negative numbers in the November 2014 through January 2015 column.

Economists expected the decline in gasoline sales (down 7.2%) to translate into increased sales elsewhere. It didn't.

I am scratching my head over Bloomberg's statement "consumer confidence may be strong ...". What the heck is Bloomberg talking about?

Does Bloomberg even read its own numbers? Here is a snip from the Bloomberg Consumer Confidence Level Report for April 2015, released on 4/28/2015.

Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn't likely to get off to a fast start, at least as far as this report goes.

The most striking weakness in April is the assessment of future conditions with the expectations component down 8.5 points to 87.5 for the weakest reading going all the way back to September. And the most striking weakness among the sub-components is employment, where fewer see more jobs opening up 6 months from now and more see fewer jobs available. This spills over into income where fewer see an increase ahead and more see a decrease.

But also weak is the present situation component which is down more than 2-1/2 points to 106.8 for its weakest reading since December.

The Fed is not looking at those numbers either. In the latest FOMC report the Fed specifically stated "consumer sentiment remains high".

I mocked the Fed on April 29 in Fed Cites Weather, "Transitory" Factors in FOMC Statement; What About Consumer Sentiment?

Autos Only Reason YoY Sales Are Positive

Autos are now the only thing keeping retail sales positive year-over-year. And auto sales are driven by subprime loans. How long is this party going to last?

Who wants a car, needs a car, can afford a car, and can get a car loan?

Retail Sales Flashbacks

January 14 - Economists Still Upbeat: Retail Sales Drop Seen as "Blip"
February 13 - Economists Blame Weather: Retail Sales "Unexpectedly" Decline; December Revised Lower, GDP Estimates Follow.
April 14 - Experts Confounded: Retail Sales Rise First Time in Four Months, But Weaker Than Expected.

Household Spending Growth Expectations Plunge; Recession Already Started?

Every month the Fed does a Survey of Consumer Expectations for inflation, earnings growth, income growth, and consumer spending growth.

Yesterday, I stuck my neck out regarding consumer spending projections: Household Spending Growth Expectations Plunge; Recession Already Started?

Downloading data from the Fed, I produced this chart.

click on chart for sharper image

This is what I said yesterday...

Spending Analysis

In spite of rising earnings and income estimates, "median household spending growth expectations retreated significantly from the last month" in the Fed's words.

Should these spending projections prove to be correct, a US recession that few if any economists see coming, has already started.

The Fed's own survey shows spending sentiment is weak. The data shows how weak. Amusingly, the Fed says "consumer sentiment remains high".

And Bloomberg does not believe its own sentiment numbers either.

Following today's report, I move my position from a recession may have started to a recession is now likely underway.

I suspect economists and the Fed will still believe it's "transitory". If so, look for the term "technical recession" because no one seems to believe it. Heck, they do not even believe their own data.

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

Damn Cool Pics

12 Huge Mistakes You Never Noticed In Famous Movies

Posted: 13 May 2015 11:12 AM PDT

It's easy to get sucked into a movie and not notice the small details. But these big mistakes were right in front of your face the whole time and you probably didn't even notice them.

What The Comic Book Avengers Look Like Compared To Their Film Adaptations

Posted: 13 May 2015 10:51 AM PDT

Sometimes characters have a tough time making the transition from the comic books to the big screen but The Avengers look like they jumped right off the page.

Hulk – Mark Ruffalo

Thor – Chris Hemsworth

Captain America – Chris Evans

Nick Fury – Samuel L Jackson

Scarlet Witch – Elizabeth Olsen

Iron Man – Robert Downey Jr

Vision – Paul Batteny

Black Widow – Scarlett Johansson

Hawkeye – Jeremy Renner

Quicksilver – Aaron Taylor Johnson

Inverse Document Frequency and the Importance of Uniqueness - Moz Blog

Inverse Document Frequency and the Importance of Uniqueness

Posted on: Wednesday 13 May 2015 — 02:13

Posted by EricEnge

IDF content uniqueness

In my last column, I wrote about how to use term frequency analysis in evaluating your content vs. the competition's. Term frequency (TF) is only one part of the TF-IDF approach to information retrieval. The other part is inverse document frequency (IDF), which is what I plan to discuss today.

Today's post will use an explanation of how IDF works to show you the importance of creating content that has true uniqueness. There are reputation and visibility reasons for doing this, and it's great for users, but there are also SEO benefits.

If you wonder why I am focusing on TF-IDF, consider these words from a Google article from August 2014: "This is the idea of the famous TF-IDF, long used to index web pages." While the way that Google may apply these concepts is far more than the simple TF-IDF models I am discussing, we can still learn a lot from understanding the basics of how they work.

What is inverse document frequency?

In simple terms, it's a measure of the rareness of a term. Conceptually, we start by measuring document frequency. It's easiest to illustrate with an example, as follows:

IDF table

In this example, we see that the word "a" appears in every document in the document set. What this tells us is that it provides no value in telling the documents apart. It's in everything.

Now look at the word "mobilegeddon." It appears in 1,000 of the documents, or one thousandth of one percent of them. Clearly, this phrase provides a great deal more differentiation for the documents that contain them.

Document frequency measures commonness, and we prefer to measure rareness. The classic way that this is done is with a formula that looks like this:

idf equation

For each term we are looking at, we take the total number of documents in the document set and divide it by the number of documents containing our term. This gives us more of a measure of rareness. However, we don't want the resulting calculation to say that the word "mobilegeddon" is 1,000 times more important in distinguishing a document than the word "boat," as that is too big of a scaling factor.

This is the reason we take the Log Base 10 of the result, to dampen that calculation. For those of you who are not mathematicians, you can loosely think of the Log Base 10 of a number as being a count of the number of zeros - i.e., the Log Base 10 of 1,000,000 is 6, and the log base 10 of 1,000 is 3. So instead of saying that the word "mobilegeddon" is 1,000 times more important, this type of calculation suggests it's three times more important, which is more in line with what makes sense from a search engine perspective.

With this in mind, here are the IDF values for the terms we looked at before:

idf table logarithm values

Now you can see that we are providing the highest score to the term that is the rarest.

What does the concept of IDF teach us?

Think about IDF as a measure of uniqueness. It helps search engines identify what it is that makes a given document special. This needs to be much more sophisticated than how often you use a given search term (e.g. keyword density).

Think of it this way: If you are one of 6.78 million web sites that comes up for the search query "super bowl 2015," you are dealing with a crowded playing field. Your chances of ranking for this term based on the quality of your content are pretty much zero.

massive number of results for broad keyword

Overall link authority and other signals will be the only way you can rank for a term that competitive. If you are a new site on the landscape, well, perhaps you should chase something else.

That leaves us with the question of what you should target. How about something unique? Even the addition of a simple word like "predictions"—changing our phrase to "super bowl 2015 predictions"—reduces this playing field to 17,800 results.

Clearly, this is dramatically less competitive already. Slicing into this further, the phrase "super bowl 2015 predictions and odds" returns only 26 pages in Google. See where this is going?

What IDF teaches us is the importance of uniqueness in the content we create. Yes, it will not pay nearly as much money to you as it would if you rank for the big head term, but if your business is a new entrant into a very crowded space, you are not going to rank for the big head term anyway

If you can pick out a smaller number of terms with much less competition and create content around those needs, you can start to rank for these terms and get money flowing into your business. This is because you are making your content more unique by using rarer combinations of terms (leveraging what IDF teaches us).

Summary

People who do keyword analysis are often wired to pursue the major head terms directly, simply based on the available keyword search volume. The result from this approach can, in fact, be pretty dismal.

Understanding how inverse document frequency works helps us understand the importance of standing out. Creating content that brings unique angles to the table is often a very potent way to get your SEO strategy kick-started.

Of course, the reasons for creating content that is highly differentiated and unique go far beyond SEO. This is good for your users, and it's good for your reputation, visibility, AND also your SEO.

Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. Think of it as your exclusive digest of stuff you don't have time to hunt down but want to read!

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Seth's Blog : Imperfect substitutes

Imperfect substitutes

One of the driving factors in setting prices is understanding the issue of substitutes. If there are four kinds of bottled water and one is half the price of the others, guess which will generate all the sales? They are quite close to perfect substitutes, so take the cheap one.

Even though all the movies at the multiplex cost $12 a seat, you can't often substitute one for another to save money. You don't go to Mall Cop merely because it's $2 less. Movies aren't commodities, and the substitutes aren't perfect at all.

Last year, I asked a photographer to license a photo for a project. The photographer asked for too much—he had every right to, it was his photo after all, and if I wanted that photo, I had to pay him. But the thing is, I didn't need 'that' photo, I just needed 'a' photo. The available substitute was imperfect but acceptable.

The reason that ebook prices are less important than in many other industries is that the substitutes for Makers or In Search of Excellence are quite imperfect--if you want to know what that book said, the only way to really know is to read it.

Your job then, isn't to merely set your price low enough to keep people from seeking substitutes. It's to create a product or service unique or connected or noteworthy enough that the other choices are ever more imperfect.

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marți, 12 mai 2015

Mish's Global Economic Trend Analysis

Moody's Cuts Chicago Bond Rating to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth
Senate Democrats Throw Obama Under the Bus: Fast Track Trade Bill Stalls; Right For Wrong Reasons
Greece Empties IMF Reserve Account to Pay IMF; Liquidity "Terribly Urgent" Says Finance Minister
Household Spending Growth Expectations Plunge; Recession Already Started?

Moody's Cuts Chicago Bond Rating to Junk; City Faces $2.2 Billion in Various Termination Fees; Irresponsible to Tell the Truth

Posted: 12 May 2015 03:59 PM PDT

The shockingly bad fiscal health of Chicago just got a lot worse. Not only were Chicago Teachers "Insulted by a 7% Pay Cut Offer", the Illinois Supreme Court ruled Illinois' 2013 pension reform is unconstitutional.

Moody's Cuts Chicago Bond Rating to Junk

As a result of the Supreme Court ruling, Illinois' already horrendously underfunded pension plans are even more underfunded.

In a decision today, citing pension analysis, Chicago Rating Cut to Junk by Moody's.

Chicago had its credit rating cut to junk by Moody's Investors Service after the Illinois Supreme Court's rejection of a state pension-overhaul plan reduced the city's options for fixing its own underfunded system.

The two-level downgrade to Ba1 affects $8.1 billion of general obligations, which were already the lowest-rated among the 90 biggest U.S. cities, excluding Detroit. The outlook is still negative. Moody's has dropped the city seven levels since July 2013.

The reduction to the highest level of junk "incorporates expected growth in the city's highly elevated unfunded pension liabilities," Moody's said Tuesday. After the May 8 court ruling, "we believe that the city's options for curbing growth in its own unfunded pension liabilities have narrowed considerably."

The deterioration in the credit standing of the third-most-populous U.S. city underscores how pension promises are squeezing the finances of states and localities nationwide. Moody's downgrade compounds Chicago's fiscal struggles: its counterparties can immediately demand as much as $2.2 billion in accelerated principal, accrued interest and termination fees, New York-based Moody's said in the report.

The company's decision may raise borrowing costs in the $3.6 trillion municipal market: The city of 2.7 million was planning to issue about $383 million of bonds as soon as next week, data compiled by Bloomberg show. Some investors had already deemed its bonds speculative grade.

"While Chicago's financial crisis is very real and at our doorsteps, today's irresponsible decision by Moody's to downgrade the city's credit by two steps goes far beyond that reality," Mayor Rahm Emanuel said in a statement.

Irresponsible to Tell the Truth

Apparently it's irresponsible to tell the truth: Chicago is broke and its pension system is insolvent.

The Chicago Board of Education (CBOE) is already on the hook for $600 million in various termination fees when the CBOE debt was downgraded. Now the city itself is junk, and rightfully so.

If Emanuel disagrees, then what are his ideas to fix the problem?

Oh, I remember, Emanuel wants the state to bail out the CBOE.

Here's a question I keep asking: How is a state that has a $9 Billion Budget Deficit Hole going to bail out a single school district that is $1.5 billion in the hole?

Want another Emanuel idea? If so I have one: Emanuel hopeful Chicago pension reforms will survive even though state's didn't.

The "handwriting is on the wall" for Chicago's plan to save two of four city employee pension funds, but Mayor Rahm Emanuel didn't want to see it Friday.

Hours after the Illinois Supreme Court unanimously overturned state pension reforms, Emanuel argued that his plan to raise employee contributions by 29 percent and sharply reduce cost-of-living benefits to save the Municipal Employees and Laborers pension funds stands a better chance of survival.

He refused to discuss the "catastrophic outcome" that awaits Chicago if he's wrong.

"Options for saving the defined benefit plans are now clearly limited. But a constitutional amendment to clarify what future benefits can be changed is definitely in order, as is taxing retirement income and other changes to benefit state and local government," said Civic Federation President Laurence Msall.

At the earliest, the Illinois General Assembly could put a constitutional amendment on the ballot in November 2016. But even if it passes, it would affect only future retirees.

In the meantime, Msall said Emanuel should get to work with the new City Council on a cost-cutting and revenue-raising plan to fund pensions without jeopardizing essential services.

The combined, $30 billion pension crisis at the city and public schools has already dropped the city's bond rating to just two levels above junk status.

Emanuel's Backup Plan?

Emanuel does not have a backup plan. I do.

On May 8, and in regards to the Illinois Supreme Court ruling, I stated "Today's ruling more than ever shows the need to pass a bankruptcy law."

And the state as a whole needs a constitutional amendment to allow pension cuts even if that only affects decisions going forward.

Apparently Moody's agrees.

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

Senate Democrats Throw Obama Under the Bus: Fast Track Trade Bill Stalls; Right For Wrong Reasons

Posted: 12 May 2015 03:21 PM PDT

Democrats Throw Obama Under the Bus

In rare political reverse alignment, Senate republicans voted for Obama's Fast Track proposal while Sen. Tom Carper, D-Del., was the only Democrat to vote with Republicans.

To proceed, the bill needed a super-majority of 60 votes. In a vote likely to shock president Obama, Fast Track Failed 52-45

Senate Republicans have been working with the Obama administration to reauthorize fast track negotiating authority aimed at assisting Obama in finalizing a trade pact with 11 Asia-Pacific nations. Fast track authority authorizes the president to submit to Congress negotiated trade deals that can only be approved or rejected, not amended, on an expedited basis.

The Senate Finance Committee approved the bill, 20-6, in a bipartisan vote last month. Chairman Orrin Hatch, R-Utah, and Senate GOP leaders believed they had reached an agreement with the panel's top Democrat, Sen. Ron Wyden, D-Ore., to begin debate this week on the fast track legislation, with assurances that it would move in tandem with a trade adjustment assistance package to aid American workers negatively affected by trade deals.

However, Democrats en masse demanded Tuesday that Republicans include in the deal two additional, committee-approved bills: a non-controversial measure supporting African economies and a customs enforcement measure that includes controversial language aimed at cracking down on China for currency manipulation.

Wyden announced Democrats could not move forward unless there was assurances that "all four of the measures I've described are actually enacted."

Republicans balked. "What I'm not going to put up with is the minority trying to craft a bill before we even get on it. That's just simply unacceptable," said Senate Majority Leader Mitch McConnell, R-Ky.

Democrats' maneuvering also puts them at odds with the White House, which opposes the currency manipulation language because it says it could threaten the underlying Trans-Pacific Partnership the administration is trying to finalize. The White House has also raised concerns that the measure would fray diplomatic relations with China and potentially undermine the Federal Reserve.

"If it were part of (trade promotion authority), we all know it would kill it," McConnell said.

"What the Democrats are doing today by trying to block us from even getting on this legislation is throwing their own president under the bus," added Sen. John Thune, R-S.D.

Democrats Gang Up on Obama

Also consider Senate Democrats gang up to delay fast-track trade bill.

"What we just saw here is pretty shocking," said Senate Majority Leader Mitch McConnell, a Republican, after the Senate voted 52-45 - short of the 60 votes needed - to pave the way for debate on "fast-track" trade authority for Obama.

The vote marked a victory for Senate Democratic leader Harry Reid, an outspoken opponent of fast-track, after weeks of speculation that the toughest fight would be in the House of Representatives and not the Senate.

Under fast track, Congress can either approve or reject trade deals negotiated by the administration but not amend deals like the TPP, a potential legacy-defining achievement for Obama.

The failure to garner the necessary votes came after pro-trade Democrats, including Senator Ron Wyden of Oregon, insisted that fast track be bundled together with three other trade bills, including one that would impose import duties on countries that manipulate their currencies for unfair trade advantage.

Wyden said the four bills together were a package that would "throw out the 1990s NAFTA playbook on trade" and provided an opportunity to create jobs.

As Democratic support for the measure melted away, Senate Finance Committee Chairman Orrin Hatch, a Republican who was a major force for fast track, declared to reporters that the measure "may be dead."

But following the vote, Democrats predicted it would come back.

Negotiations on the TPP are nearly complete, but trading partners have said they want to see fast-track legislation enacted before finalizing the pact, which will stretch from Japan to Chile.

The TPP would create a free trade zone covering 40 percent of the world economy - making it the biggest trade deal since the North American Free Trade Agreement liberalized trade between the United States, Canada and Mexico.

Democrats Right For Wrong Reasons

Currency manipulation charges at this point are rather silly. The Wall Street Journal reported on May 3, the IMF close to declaring the Yuan fairly valued for the first time in a decade.

More importantly, whether or not the yuan is fairly valued is moot. The trade imbalance problem is not the yuan or pegs, the problem is the trashing of the gold standard by Nixon. For discussion, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited.

TPP Not a Free Trade Agreement

My big objection to this mess is that the Trans-Pacific Partnership (TPP) has little to do with free trade. Only 5 of 29 chapters in the bill discuss trade. The rest is global warming nonsense and other items. And we do not even know what is in the proposal because negotiations were secret for 5 years.

Moreover, the New York Times says Trans-Pacific Partnership Seen as Door for Foreign Suits Against U.S..

I discussed the above and more in Obama's Trans-Pacific Partnership Fiasco vs. Mish's Proposed Free Trade Alternative; How Will TPP Function in Practice?

An Excellent Free Trade Agreement in One Sentence

I am in favor of free trade. An excellent free trade agreement would consist of precisely one line of text. I propose the following agreement:

"All tariffs and all government subsidies on all goods and services will be eliminated effective June 1, 2015."

For still more on the foolishness of TPP please see

Democrats want to add to the bloated agreement with still more nonsensical madness.

Ironically, that's a good thing. The best hope now is Democrats succeed in adding so much garbage to the bill that even Republicans won't vote for it.

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

Greece Empties IMF Reserve Account to Pay IMF; Liquidity "Terribly Urgent" Says Finance Minister

Posted: 12 May 2015 11:11 AM PDT

Greece said it would make its payment to the IMF on time and it did, one day early in fact. How? Greece Taps IMF Reserve Account.

Greece emptied an IMF holding account to repay 750 million euros ($840 million) due to the fund, a Greek central bank official said, avoiding default but underscoring the dire state of the country's finances.

Greece, like all other International Monetary Fund members, holds reserves from the IMF that are denominated in Special Drawing Rights (SDR), a basket of international currencies. The reserves must be kept at a certain level or the country must pay interest if its holdings fall below its "allocation" of SDRs from the IMF.

A government official told Reuters that Athens used about 650 million euros from the SDR holdings account and 100 million euros from its cash reserves to make the payment on Monday.

The Greek central bank official confirmed the account had been tapped after government officials met the central bank chief last week to figure out how to make the payment.

As of the end of March, Greece had about 554 million SDRs, equivalent to 695 million euros, according to IMF data.

The last time Greece made a significant withdrawal from its SDR holdings was in November 2011.

Made a day early, the IMF payment calmed immediate fears of a Greek default, but Finance Minister Yanis Varoufakis said on Monday the liquidity situation was "terribly urgent" and a deal to release further funds was needed in the next couple of weeks.

"The central bank governor put forth the idea to tap the 650 million euros in the holding account, which needed IMF approval," the official said, declining to be named.

"Governor Stournaras made the arrangement with the IMF and on Saturday we got their okay and the account was unlocked."

Going, Going, Gone

Here are a few additional details from the Financial Times.

Asked whether Greece's decision to tap its IMF funds was a cause for alarm, Valdis Dombrovskis, the European Commission vice-president in charge of eurozone policy, said: "It's for the experts to look into the issue before I can comment."

Like every IMF member, Greece is allocated a stock of the IMF's own notional currency — known as Special Drawing Rights — but they are rarely tapped. Greece's allocation of SDRs is normally worth about €985m, but the account stood at €700m at the end of March, the most recent data publicly available.

Although IMF members are allowed to use the account at their own discretion, it is highly unusual to use the funds to repay the IMF itself.

Yanis Varoufakis, the finance minister, said after a meeting of eurozone finance ministers in Brussels on Tuesday: "The liquidity issue is a terribly urgent issue . . . From the perspective [of timing], we are talking about the next couple of weeks."

"It's marginal at the moment whether the government will be able to cover the public sector payroll at the end of May even if it delays most other payments," said one Athens official with knowledge of the government's cash position.

Greece is supposed to refill those reserves over the next "several weeks". How is that supposed to happen?

Add repayment of IMF reserves to the amount of the next "bailout" that Greece needs.

This charade is beyond ridiculous.

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

Household Spending Growth Expectations Plunge; Recession Already Started?

Posted: 12 May 2015 02:47 AM PDT

Every month the Fed does a Survey of Consumer Expectations for inflation, earnings growth, income growth, and consumer spending growth.

In the microeconomic data overview, the Fed provided charts for the first three sets of expectations. I downloaded the data and created my own chart of spending expectations.

First let's consider some details from the report. Emphasis mine.

The results from the April 2015 Survey of Consumer Expectations indicate that one-year ahead inflation expectations fell while three-year ahead inflation expectation increased. The median one-year and three-year ahead expected rates of inflation now stand at 2.7% and 3.0%, respectively. While earnings and household income growth expectations were largely unchanged, median household spending growth expectations retreated significantly from the last month.

Inflation Expectations

Earnings Expectations

Income Expectations

Household Spending Expectations

click on chart for sharper image

Spending Analysis

In spite of rising earnings and income estimates, "median household spending growth expectations retreated significantly from the last month" in the Fed's words.

In general, I do not place much faith in these estimates, especially inflation expectations. That said, the spending estimates do ring true with weak economic data that we have seen for six months.

Should these spending projections prove to be correct, a US recession that few if any economists see coming, has already started.

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

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