Mish's Global Economic Trend Analysis

85% of Atlantic City Flooded; New York Subway in Jeopardy; Markets Closed Again Tuesday; Hurricane Sandy Image from Space
Hurricane Sandy Update: First $100+ Billion Storm in U.S. History?
Retail Sales in Spain Plunge 10.9%, Largest Drop on Record; All Pain, No Gain
EU Bureaucracy has Lost Control of Italy; Social Mood Turns Black

85% of Atlantic City Flooded; New York Subway in Jeopardy; Markets Closed Again Tuesday; Hurricane Sandy Image from Space

Posted: 29 Oct 2012 06:54 PM PDT

As many as 2 million customers are without power as Sandy slammed into New Jersey and New York.

The markets will be closed again on Tuesday but may resume on Wednesday, the final trading day of the month. New York's mass transit system remains shut and it is unclear when service will be restored.

Here is an Image of Hurricane Sandy from Space from a New York Post Tweet.

Large Nor'Easter on Steroids

Accuweather (Premium) says Northeast Catastrophe Unfolding.

An extremely rare and dangerous storm, "Sandy," has roared in from the Atlantic Monday evening. Inundations have already occurred and will get worse through the first part of Monday night.

According to Expert Senior Meteorologist Steve Wistar, "Sandy is unfolding as the Northeast's Katrina in terms of impact."

There is the potential from the central New Jersey coast to New York City and western Long Island have some of their worst coastal flooding on record with Sandy tracking into New Jersey.

High Winds, Power Outages and Downed Trees

Sandy will not be your typical hurricane as it moves in from the southeast. Hurricanes are small and compact. Damaging wind gusts will reach from Boston to Washington, D.C., and inland to the central Appalachians.

Sandy will be more like a large nor'easter on steroids. It could have the impact of a Category 2 hurricane in some locations.

85% of Atlantic City Flooded

The Wall Street Journal reports Flooded Atlantic City Feels the Early Brunt.

"This is the worst-case scenario for us," said Tom Foley, Atlantic City's director of emergency management. "In 28 years, I've never seen weather this bad."

Officials called for a mandatory evacuation of the entire county, closed the casinos, closed county and municipal roadways, installed a curfew of 6 p.m. to 6 a.m. and summoned the National Guard to assist with a rescue effort in Atlantic City that grew increasingly urgent as the storm bore down.

Agence France-Presse/Getty Images

About 3,000 of the city's 40,000 residents people stayed, Mr. Foley said. One woman had a fatal heart attack as she tried to evacuate, Gov. Chris Christie said. Her name wasn't immediately released.

New York Subway in Jeopardy

Please consider Salt Water Puts Subway 'In Jeopardy'

Before Hurricane Sandy was expected to make landfall Monday, the Metropolitan Transportation Authority worked to seal off openings that could allow corrosive salt water to sweep into the system and incapacitate trains into the coming weekend. Still, the threat of an extended shutdown loomed over a system that carries 5.2 million passengers a day and is essential to the city's economy.

The subway system is "in jeopardy," MTA Chairman Joseph Lhota said Monday. "Our subway system and salt water do not mix."

The MTA closed down its entire regional network of rails and buses on Sunday evening and expect it will remain dark at least until Wednesday morning. Agency officials couldn't say how quickly the subway could be brought back into operation if the storm left the system awash in water from what were predicted to be surges as high as 11 feet. They said a timetable would depend on the amount of water that actually reached the 14 subway tunnels under the Harlem and East rivers, where the system is most exposed to catastrophic flooding.

Klaus Jacob, a research scientist at Columbia University's Lamont-Doherty Earth Observatory, wrote in a report last year that it could take as long as 29 days to pump out a full inundation of the tunnels.

"You can't order a part from Westinghouse or General Electric GE that is 100 years old," Mr. Jacob said. MTA workers will have to clean and test flooded equipment, "then you cross your fingers and hope that it works," he said.

Broken Window Fallacy Yet Again

With every catastrophe comes some economic illiterate talking about the stimulus benefits of it all. Presumably they have not read about the Broken Window Fallacy.

For a discussion of the broken window theory, please see Government Bailouts and the Stock Market - The Seen and the Unseen.

With the broken window in mind, please consider some complete economic nonsense in the Reuters article Economy may skirt direct hit from Hurricane Sandy.

Economists say some of the impact caused by businesses closing will be offset by reconstruction efforts, and point to catastrophic storms like Katrina, which devastated New Orleans but did not deal lasting damage to the national economy.

Peter Morici at the University of Maryland estimates that Sandy will cause about $35 billion to $45 billion in losses and damages but then be followed by as much as $36 billion in recovery spending.

Evan Gold, a senior vice-president at Planalytics, a Philadelphia consulting firm that advises businesses on weather-related matters, was more realistic as was Mark Zandi at Moody's.

Zanzi estimates regional GDP is $2.5 trillion and the cost to the region is about $10 billion a day if the region's economy grinds to a halt.

Evan Gold states "If consumers in this part of the country are spending hundreds, if not thousands, of dollars to buy things like generators, or after the storm, to do clean-up, that is likely going to cut into budgets that people might have for their holiday shopping".

Broken windows and floods have a net economic cost, not a benefit.

In general, it is never of economic benefit to have productive assets destroyed. It is also never of economic benefit to waste money on stimulus programs that have no realistic payback.

Keynesian clowns still have not figured this out.

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

Hurricane Sandy Update: First $100+ Billion Storm in U.S. History?

Posted: 29 Oct 2012 01:16 PM PDT

Sandy is classified as a Hurricane 1 status, a low-grade hurricane. However, don't let that fool you in terms of impact. It's not the absolute magnitude of the hurricane, but rather the magnitude vs. what the infrastructure can handle that matters.

Barometric pressure is 27.76, the lowest pressure recorded for a storm in the Northeast. Sandy is unprecedented in size as well. The hurricane is likely to reach shore with a full moon high tide raising storm surges several more feet.

Accuweather notes "The storm surge will reach generally 5-10 feet with up to 15 feet possible in a locations along and to the north of where the center makes landfall. When a 2-foot tide this evening is combined with 10- to 20-foot wave action, water will reach more than 30 feet above sea level in places. ... Total damage from Hurricane Sandy may well exceed Katrina's $96 billion. This could be the first $100+ billion storm in U.S. history."

New Jersey, New York, Washington DC, West Virginia, Pennsylvania, Maryland, Vermont, and Connecticut have all declared states of emergency. Parts of New Jersey are under mandatory evacuation. At least 60 million people will be affected.

As Sandy Barrels Toward New Jersey Coast, the hurricane remains on track to become a historic storm for the mid-Atlantic and southern New England.

New Jersey and New York City face for very dangerous conditions and catastrophic damage. As of 2:40 p.m. EDT Monday CNN, nearly 300,000 customers are without power in seven states. New Jersey has the most at 92,000. Over 7,000 flights have been cancelled.

Damaging and life-threatening impact from the giant, powerful storm will reach as far inland as the central Appalachians and will span the coast from North Carolina to southern New England.

The record tide gauge in Atlantic City New Jersey is 9.0 feet. Sandy is at 8.25 feet now, and a near-lock to surpass the previous high, perhaps by many feet. Moderate to major flooding is already occurring in the Chesapeake Bay.

The Chesapeake Bay near Kiptopeke, Va., is at major flood stage of 5.95 feet, less than one foot below the record high of 7.1 feet set on March 7, 1962.

The Chesapeake Bay Bridge Tunnel, Va., is at 6.71 feet. This is also only 1 foot below the record flood stage of 7.5 feet set on Sept. 18, 2003.

In the Appalachian mountains, blizzard whiteout conditions with as much as two feet of snow are expected.

You can follow the Path of Hurricane Sandy on Accuweather.

You can also follow the life threatening storm on Weather Channel.

The Weather Channel reports peak tide levels may top those from both Hurricane Irene by 2 feet and the the previous record from the Dec. 1992 Nor'easter and Hurricane Donna in 1960.

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

Retail Sales in Spain Plunge 10.9%, Largest Drop on Record; All Pain, No Gain

Posted: 29 Oct 2012 10:14 AM PDT

In a seriously misguided effort to balance its budget, In early September Spain Passed Largest VAT Hike In History.

I wrote at the time, "Stunning Ineptitude Will Make History Books".

Spain's unemployment rate is over 25% and the youth unemployment rate is near 53% yet the fools in the Spanish government hiked taxes yet again, this time by the largest amount in history.

Spain's handling of this economic implosion is sure to make the history books as a prime example of complete ignorance in how to deal with a fiscal crisis.

History in the Making

That prediction took a single month to pan out. Reuters reports Spain retail sales decimated by VAT hike.

Spanish retail sales fell at their fastest pace on record in September as already battered consumer confidence took another hit from a hike in value added tax, driving many shoppers to trade down to cheaper products.

Sales fell 10.9 percent year on year, Monday's National Statistics Institute data showed, reflecting an economy struggling through its second recession in three years and plagued by chronically high unemployment.

The drop was the biggest in calendar-adjusted terms since current records began in January 2004, and marked the 27th monthly decline in a row.

"It's clear there are no signs the crisis is abating," economist at Nomura Silvio Peruzzo said. "The headline (retail) figures show a sharp drop and indicate that domestic demand is not going to be anywhere near what the government is anticipating."

All Pain, No Gain

The last thing Spain needs is ridiculous tax hikes. Clearly they are counterproductive. So why do the jackasses keep hiking taxes?

That's a good question, and here is the two-part answer.

Counterpart jackasses in Brussels insist upon it
The government in Spain refuses to change work rules and shrink government, something that desperately needs to be done

To be sure more pain is coming to Spain. Shrinking government and reducing pensions would be painful as well, but at least there would be long-term benefit. Hiking taxes is all pain and no gain.

Spain really needs to exit the euro, and it will, but not before the entire country is in the gutter and the masses have finally have had enough.

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

EU Bureaucracy has Lost Control of Italy; Social Mood Turns Black

Posted: 29 Oct 2012 01:24 AM PDT

In Italy, former prime minister Silvio Berlusconi waged a full frontal attack on technocrat prime minister Mario Monti, Germany, Angela Merkel and the EU imposed austerity during a 1.5 hours press conference near Milan.

The problem for Brussels is Berlusconi can force a vote because by withdrawing his support to Monti's government, the current coalition will collapse.

The People of Liberty party needs to consider that "with a no-confidence vote by us, we would determine a situation that would be interpreted in a certain way by the financial markets and would cause early elections," Berlusconi told reporters yesterday near Milan. "We will consider these facts and decide whether to immediately withdraw our support of the government."

Such a step would likely force President Giorgio Napolitano to call early elections, before a vote due by May. It also would probably fan Europe's debt crisis, as Monti's austerity policies have contributed to a decline in Italy's bond yields, with markets more focused on Spain in recent months.

"It's impossible to say what is in Berlusconi's head now, but if he decides to end his support to Monti, early elections become almost inevitable," said Roberto D'Alimonte, a professor of politics at Rome's LUISS University. "Berlusconi would lose the elections anyway, but would likely get more votes thanks to an anti-austerity platform and that would increase his party's bargaining power in the next parliament."

In Sicily, exit polls show the candidate of Beppe Grillo's Movimento 5 Stelle (Giancarlo Cancellieri) as the winner for the Regional Governor position with 27% of the votes.

Reader "AM" who is from Italy but now lives in Hong Kong writes ...

Hello Mish

I am also an Italian citizen living in Hong Kong. I have been away from Italy since 1995 but I still read and follow Italian (and European) news and politics. I believe the EU will not hold together over the medium term and some countries, for example Belgium, Italy and Spain, might not survive the collapse of the EU in the current form and might even break up.

Some headlines from the "Corriere della Sera" from this weekend for your information that might turn out to be eventful over time and some related considerations of mine:

Record Vote Avoidance in Sicily

Key Points

Only 47% of the people eligible voted yesterday in the regional elections in Sicily vs. close to 60% in 2008.

The results will become available later today and there are no official exit polls, but one partial exit poll in the Palermo province projects the candidate of Beppe Grillo's Movimento 5 Stelle (Giancarlo Cancellieri) as the winner for the Regional Governor position with 27% of the votes.

Whoever wins will not be able to govern Sicily without complex and likely most unstable alliances with other parties because of the extreme fragmentation due to the decline of the established parties.

The mainstream media is desperately trying to support the established parties, especially the moderate small political centre parties (including trying to break up Berlusconi's PdL party in order to ferry votes to the centre).

Their problem is that the centre and centre-left are crumbling. Instead of the rise of a moderate centre, the nationalistic and local right is rising: Movimento 5 Stelle is projected at over 20% of the national vote.

Berlusconi Attacks Monti and Germany

Berlusconi is back with a frontal attack to Mario Monti, Germany, Angela Merkel and the EU imposed austerity during a 1.5 hours press conference near Milan on Saturday, 10/27.

Berlusconi might withdraw support to Monti's government already this week leading to early national elections in January or February. This will be fought tooth and nail by the Italian and EU establishments.

Berlusconi wanted to announce the withdrawal of his support for Monti's government already during the call on Saturday but his family and counselors managed to convince him ponder the decision for a few more days.

This is a major, major political event in Italy and in the EU

Berlusconi is back and might even form a new party if he cannot fully reform the PdL, his current party, part of which has been drifting toward supporting Monti for a second mandate.

Berlusconi can and will force a vote because by withdrawing his support to Monti's government, he is accelerating the events, forcing his opponents, such as the PD (Partito Democratico, the reformed communists) to quickly drop support for the current government too because it will be fatal to any party to get to the elections still supporting Monti which is now a major liability for anyone close to him and his government.

The EU bureaucrats have managed to impose an unelected government onto Italy but now the situation is exploding in their face and they seem to be genuinely surprised by the events i.e. the massive rise of the right in all its forms (localist, nationalist, radical, anti EU, anti Euro and populist).

The political situation in Italy is fragmenting into at least five major aggregation areas: i) PD (reformed communists) estimated at 25% of the national vote; ii) Movimento 5 Stelle at 20% to 30%; iii) Berlusconi, possibly with his new party, for which there are no estimates and which just announced an alliance with Lega Nord, let's pencil in 20% together with Lega Nord; iv)The moderate, fragmented, catholic centre supporting Monti which is rapidly losing strength and that we can model at 20%; v) The radical left (communists) at 10%;

The establishment is in panic. This was first page news on all Italian newspaper on Saturday evening and already on Sunday there has been a massive onslaught against Berlusconi from all sides. Expect and EU onslaught shortly.

Think what you want about Berlusconi's ethics and morals but he has an uncanny ability to assess the secular mood (he is a media tycoon after all) and where popular sentiment is going and he has just seen a major opening now at the right of all established parties and against the EU.

Northern Italy has been fermenting with protests and is becoming radical. The paradox is that the rich part of the country is collapsing under the Euro and the EU driven austerity, crushed by competition from Germany, competition from Asia and other emerging region with weaker currencies and improving technology and skills and by high commodity and energy costs.

Angela Merkel seems to have misread the situation, underestimated Berlusconi and made major strategic blunders by openly driving out Berlusconi and getting an enemy for life and by openly supporting the failed Sarkozy reelection bid. Sarkozy is now gone, Hollande is now openly confronting her and Berlusconi could be back, possibly indirectly pulling the levers of Italy's next government as party president.

Angela Merkel is increasingly despised in Italy (and beyond) with a speed which I found surprising. The social mood of the country is turning black very quickly.

Expect massive fireworks in Italy and in the EU shortly. I believe that the EU bureaucracy has lost control of Italy but have not realized it yet. The EU is also about to lose control in Spain, Greece and possibly France.

Best Regards,
AM

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

Economy News

29.10.12

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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