26.4.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Jim Chanos: China: The Edifice Complex - Wine Country Conference Presentation

Posted: 26 Apr 2013 12:25 PM PDT

Jim Chanos' speech, "China: The Edifice Complex", is available at Wine Country Conference Speaker Presentations.

Click on the link and scroll down to find the correct video. Allow 45 minutes or so for viewing.

The videos are the actual presentations, and we are making a couple of them available each week for three weeks.

John Hussman's presentation "An Unstable Equilibrium" was posted last week.
My Presentation "A Brief Lesson in History" is also available as are my "Opening Remarks".

Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.

If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.

All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.

Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.

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

Moving Ahead with "Pension Progress"

Posted: 26 Apr 2013 11:22 AM PDT

Buried in a transportation bill that President Obama signed on July 6, 2012, was a change to make it appear pension plans are better funded than they really are.

The bill was called Map-21 "Moving Ahead for Progress in the 21st Century Act".

Here is a catchy logo and stated goals.



Supposedly the three core principles of the bill are:

  1. Raise the bar to enter the industry and operate on our roads;
  2. Hold motor carrier and drivers to the highest safety standards to continue operations; and
  3. Remove the highest risk drivers, vehicles, and carriers from our roads and prevent them from operating.

MAP-21 took effect October 1, 2012. Budget is $561 million in fiscal year (FY) 2013 and $572 million in FY 2014 for the Agency's administrative expenses and grant programs.

Pension Progress?

So what does this have to do with pensions? Nothing of course (except for the fact that this is another one of those bills that you have to pass to see what's in it, and more importantly how the bill works in real life.)

Buried in the Text of Map-21 is SEC. 40312. PENSION FUNDING STABILIZATION.

"(I) IN GENERAL- If a segment rate described in clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this clause) is less than the applicable minimum percentage, or more than the applicable maximum percentage, of the average of the segment rates described in such clause for years in the 25-year period ending with September 30 of the calendar year preceding the calendar year in which the plan year begins, then the segment rate described in such clause with respect to the applicable month shall be equal to the applicable minimum percentage or the applicable maximum percentage of such average, whichever is closest. The Secretary shall determine such average on an annual basis and may prescribe equivalent rates for years in any such 25-year period for which the rates described in any such clause are not available."

No one reading that would likely figure out the implication (at least without a great deal of effort). However I can give you a real life example.

Implications of the Bill

Reader Mark writes.
Hello Mish

I wasn't aware that the federal laws had been altered to make the pensions seem more solvent.

Apparently there is a new federal law, MAP-21 (Moving Ahead for Progress in the 21st century Act), that changes how pension plans are allowed to project future earnings/liabilities based on the interest rate calculation period.

Attached is a recent notice we received as plan participants, and how our pension plan magically improved due to the law.

Mark
Map-21 Real Life Progress Report



click on image for better view

Details

  • This company went from being 77.80% funded to 90.93% funded.
  • This company had a shortfall of $713 million but it's now $249 million.
  • The company's minimum contribution dropped from $197 million to $123 million.

How did this magic happen?

Easy: Prior to Map-21 pension plans had to determine liabilities based on a 2-year average of interest rates. After Map-21 companies could use a 25-year average of interest rates. As a result, companies get to contribute less when interest rates are low.

I would like to point out this is precisely when companies ought to be contributing more! It is extremely difficult to meet plan assumptions when corporate bond yields are in the gutter.

Ain't "Transportation" Grand?

Here's two more questions: What was the "real" purpose of this bill? Did it have anything to do with transportation?

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

Consumer Prices Dip Another .9% in Japan; Will It Take Until 2015 for Japan to Experience Price Inflation?

Posted: 26 Apr 2013 01:11 AM PDT

In spite of fact the Yen is down about 12% on the year, consumer prices in Japan are still falling and some are already clamoring for still more monetary stimulus.

Please consider Bank of Japan Sees Inflation Nearing Target in 2015.
Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent. The BOJ this month said that it expects prices to keep declining for "the time being."

Eisuke Sakakibara, an ex-Finance Ministry colleague, has predicted Kuroda will fail to achieve the 2 percent price goal, and former BOJ board member Atsushi Mizuno sees the central bank hitting a "wall of reality" as bond purchases escalate risks of a market bubble.

Policy makers may come under pressure to expand stimulus should prices continue to drop.

"It's unrealistic -- they won't be able to reach their target in two years, or even in five," said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. Extra easing may be needed as early as October, when the BOJ releases new price forecasts, he said.

Policy board members themselves are divided over the outlook for inflation, with some anticipating that consumer prices won't even rise at half the rate they set as a target this month. While the highest of their projections for fiscal 2015 is for a 2.3 percent consumer-price gain excluding the tax increase, the lowest is 0.8 percent.
Belief Bubble?

This is really quite stunning. It seems no one believes the Bank of Japan can do anything to stop prices from falling. JPMorgan chief Japan economist thinks Japan will fail to hit price targets for another 5 years!

Wow. This is precisely the kind of sentiment one sees at the end of trends. Nearly everyone thinks the trend will last forever, and nothing can stop it.

Instead, I suggest Japan will eventually succeed in spades and will be extremely unhappy with the result once it happens.

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

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