Mish's Global Economic Trend Analysis

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• China Flash Manufacturing PMI at 9-Month Low, New Export Orders Plunge at Sharpest Rate Since March 2009
• Fed to Deliver More Stimulus "Fairly Soon"; How Much Stimulus Does It Take? Sell the News Event Coming Up?
• Indiana's Voucher System Doubles, Public Schools Fight Back With Billboard Ad Campaign; Three Sure-Fire Ways To Improve Schools
• CBO Expects 2013 "Fiscal Cliff" Recession Because of Automatic Spending Cuts and Tax Hikes

China Flash Manufacturing PMI at 9-Month Low, New Export Orders Plunge at Sharpest Rate Since March 2009 Posted: 22 Aug 2012 09:31 PM PDT Adding to the grim news on global growth, the HSBC Flash China Manufacturing PMI shows new export business declines at sharpest rate since March 2009. Key points Flash China Manufacturing PMI™ at 47.8 (49.3 in July). 9-month low. Flash China Manufacturing Output Index at 47.9 (50.9 in July). 5-month low. China PMI China New Export Business Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "Falling orders dragged down the August flash PMI to a nine-month low, suggesting Chinese producers are still struggling with strong global headwinds. To achieve the stated policy goal of stabilizing growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months." Absurd Proposal Notice the sheer absurdity of the proposal: "Beijing must step up policy easing to lift infrastructure investment in the coming months". China is loaded up with malls with no shoppers, trains with no passengers, and even entire cities where no one lives, and economists want or expect China to start more infrastructure projects.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Fed to Deliver More Stimulus "Fairly Soon"; How Much Stimulus Does It Take? Sell the News Event Coming Up? Posted: 22 Aug 2012 07:49 PM PDT Analysts poring over the July 31 - August 1, 2012 Fed Minutes quickly honed in on the following paragraph. I put the key sentence in italics. The Committee had provided additional accommodation at its previous meeting by announcing the continuation of the maturity extension program through the end of the year, and more time was seen as necessary to evaluate the effects of that decision. Nonetheless, many members expected that at the end of 2014, the unemployment rate would still be well above their estimates of its longer-term normal rate and that inflation would be at or below the Committee's longer-run objective of 2 percent. A number of them indicated that additional accommodation could help foster a more rapid improvement in labor market conditions in an environment in which price pressures were likely to be subdued. Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action. One member judged that additional accommodation would likely not be effective in improving the economic outlook and viewed the potential costs associated with such action as unacceptably high. At the conclusion of the discussion, members agreed that they would closely monitor economic and financial developments and carefully weigh the potential benefits and costs of various tools in assessing whether additional policy action would be warranted. What's the Definition of Many? There are 12 voting members on the FOMC. Is "many" three, four, or seven? I think the wording of the Fed minutes was purposely vague, hoping to get a "bang for no buck". Nonetheless, the Wall Street Journal, Bloomberg,  Reuters, the Chicago Tribune, the Hill, the Daily Beast, and numerous other sites are all expecting another round of QE. Of course I expect another round as well, just not necessarily at the next meeting. Indeed I think the Fed will take a pass at the next meeting unless all hell breaks loose before the next meeting which is September 12-13. Otherwise, I expect a "Fed does not want to interfere with the election" type of statement. How Much Stimulus Does It Take? Please note that the federal government is running budget deficits exceeding $1 trillion for four years running. That deficit is well beyond any stimulus the Fed could possibly provide. Yet, unemployment rate is still above 8 percent. Counted accurately, the unemployment rate is probably between 10 and 11 percent. Include part-time workers who want a full-time and it is close to 20 percent. Also note that Fed stimulus has goosed the stock market and commodities but done little if anything for the real economy. Indeed, low interest rates have crucified savers on fixed income, and will punish pension plans the moment equities take a turn for the worse. Sell the News Event Coming Up? There is no more good news to be had from more QE, except of course for those holding gold. And while everyone is pouring over every word the Fed says as if there is any real meaning to the words "many members", should the Fed actually cut rates in September, I would expect the reaction to be a "sell the news" event.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Indiana's Voucher System Doubles, Public Schools Fight Back With Billboard Ad Campaign; Three Sure-Fire Ways To Improve Schools Posted: 22 Aug 2012 09:29 AM PDT Indiana has the nation's largest school voucher system and it is about to double in size. In response, Indiana public schools wage unusual ad campaign. Struggling Indiana public school districts are buying billboard space, airing radio ads and even sending principals door-to-door in an unusual marketing campaign aimed at persuading parents not to move their children to private schools as the nation's largest voucher program doubles in size. Unlike voucher programs in other states that are limited to poor families and failing school districts, the Indiana subsidies are open to a much broader range of people, including parents with a household income up to nearly $64,000 for a family of four. The median income for an Indiana family of four was just over $67,000 in 2010, making many of the state's nearly 1 million public school students eligible for vouchers. Last year, the effect of the new vouchers was limited because the law passed just four months before the start of school, and many parents were still unfamiliar with the program. But this year, more than 8,000 students have already applied for vouchers, and there is room for up to 15,000. The number of participants could grow even more next year, when the ceiling on the number of vouchers is eliminated. Leaders of poor urban schools, which suffered the most defections last year, are especially worried. A district loses $5,300 to $8,400 for each student who leaves. After 113 of its students departed for private schools last year, the Evansville Vanderburgh district spent $5,700 to erect two billboards and place ads at bus stops to tout the district's theme of "Bringing Learning to Life." In Fort Wayne, public schools lost 392 students to vouchers last year, the most in the state. That cost the district more than $2.6 million in state aid and led officials to cut 10 art, music and physical education teaching positions at elementary schools. School staff members have gone to the homes of students who switched to private schools last year or who dropped out and asked them to come back. The district is touting its magnet schools, teaching methods that include Montessori and Reggio and a performing arts and visual arts school. How To Improve Schools There are three sure-fire ways to improve schools. Increase competition Eliminate public unions Merit pay Indiana's voucher system addresses method number one. If everyone pulls their kids out of public school, number two would happen by force. Unfortunately, that is not a reasonable expectation. Note the math in Fort Wayne. The district lost 392 students to vouchers at a cost to the district of $2.6 million in state aid. The district responded by cutting 10 positions. Is the cost of a teacher plus benefits really $260,000? Regardless, union rules are based on seniority, not merit, and it is impossible to get rid of poor teachers, even sexual predators, if they have been in the system long enough. Thus, an unfortunate side effect of Indiana's voucher system is the distinct possibility that poor inner-city schools may get stuck with the worst teachers and the worst students whose parents cannot afford the extra cost of private education. Should that happen, the voucher system might get the blame when the real problem is public unions.  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

CBO Expects 2013 "Fiscal Cliff" Recession Because of Automatic Spending Cuts and Tax Hikes Posted: 22 Aug 2012 08:23 AM PDT Automatic tax hikes and spending cuts will go into effect in 2013 causing a "fiscal cliff" recession according to the CBO. Massive spending cuts and tax hikes due next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, Congress' budget referee said on Wednesday. The Congressional Budget Office said failure to avoid the so-called "fiscal cliff" of expiring tax cuts and automatic spending reductions would cause U.S. gross domestic product to shrink 0.5 percent in 2013. Previously, the non-partisan CBO forecast full-year GDP growth of 0.5 percent. The first half of 2013 will be particularly difficult, the CBO said in its mid-year forecast update. Tax hikes and spending cuts will cause GDP to shrink 2.9 percent in the first half, compared with a prediction in May for a 1.9 percent contraction. There will still be a slight bounceback in the second half of 2013, but it will be weaker, with growth of only 1.9 percent, compared with a previous forecast of 2.3 percent growth. The main reason for the gloomier outlook is that the fiscal cliff is steeper than CBO previously estimated because of extensions earlier this year of a payroll tax cut and federal unemployment benefits, the CBO said. It also said the general global and U.S. economic outlooks have dimmed since its last report, another factor weighing on its projections. I think the US is in recession right now and it's just a matter of when the NBER backdates it. The amusing thing is the CBO is looking for a "solution". There is no solution. The US is a fiscal train wreck waiting to happen,  More government spending is not the solution, it's the problem. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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