Mish's Global Economic Trend Analysis

Close-Up Look at Illinois' Unemployment Rate, Collective Bargaining, and Right to Work Laws; Illinois Employment Collapse
You Too Can Make Millions "Flipping" Houses
Ukraine Government Delays Vote, Currency Hits Record Low, Default Feared; Ukraine Asks for $35B, Bank Runs Underway
Bye Bye Mt. Gox: Bitcoin Exchange Website Appears to Have Been Deleted; Value of MtGox Bitcoins Plummets to $135

Close-Up Look at Illinois' Unemployment Rate, Collective Bargaining, and Right to Work Laws; Illinois Employment Collapse

Posted: 25 Feb 2014 05:18 PM PST

Michael Lucci at the Illinois Policy Institute has some interesting comment regarding unemployment in Illinois and why it matters.

Via email from Lucci ...

A smaller and smaller percentage of adults are working to support the entire state population. Why does this matter?

Because a booming economy provides the benefits of opportunity and upward mobility. But not only that. Growing the number of taxpayers is essential for funding core government services and pension bills. The only other tools legislators have are tax hikes, which have done more to chase away taxpayers than to fund the government.

The percentage of the working-age population that is employed fell by 5.6 percentage points, from 65 percent in January 2008 to 59.4 percent in December 2013. This percentage, called the employment ratio, has been described by economist Paul Ashworth as the "best measure of labor market conditions."

The Great Recession hit the jobs market in January 2008. Since then, Illinois has seen a greater decline in its employment ratio than any other state in the Midwest.

Illinois has 380,000 fewer people employed now than before the recession. According to the Bureau of Labor Statistics, unemployment is still up by nearly 200,000 people, and at least 185,000 people have given up and left the labor force.

There is no solution to the state's fiscal problems without a booming economy and a growing tax base. Job No. 1 for Springfield is to create a business-friendly environment. That begins with cuts to the fourth-highest corporate tax rate and ninth-highest tax burden nationally.

Reforming the ninth most expensive regulatory system and the fourth most expensive workers' compensation system would lead to welcome opportunities for job seekers.

Indiana and Michigan have led the Midwest in pro-jobs labor reforms by allowing their workers to choose whether to join a union. Illinois is surrounded by states making positive reforms. It's time for officials to get in the game.

Michael Lucci
Director of Jobs and Growth

Illinois vs. Wisconsin

My slight quibble with the article is Lucci left out Wisconsin for comparison.

Following governor Walker's courageous anti-union stance, Wisconsin's state budget went from a $2 billion deficit to a nearly $1 billion surplus. And all this happened with hardly any public-sector employees losing their jobs. Wisconsin is poised to offer its people $500 million a year in tax relief. It looks like Walker picked the right strategy.

Illinois is in a bigger mess. The state's pensions are underfunded by at least $100 billion. Powerful teacher unions can shut down schools to win pay hikes from nearly broke school districts. A temporary tax increase is liable to be made permanent – or worse, replaced with a progressive income tax that will chase more middle-class families and businesses out of our state.

Lucci may have left out the Wisconsin comparison, but his associate Paul Kersey didn't.

Please consider Kersey's take: Wisconsin's labor reforms reach three-year mark: Should Illinois have followed Walker's lead?

Union-Busting is a Godsend

Here is my take: Actual Wisconsin results prove Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids

It's time to implement national right-to-work laws and put an end to public union collective bargaining nationally.

I salute governor Scott Walker for leading the way. Senator Rand Paul wants to do the same thing nationally. I also salute Senator Paul's efforts.

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

You Too Can Make Millions "Flipping" Houses

Posted: 25 Feb 2014 12:25 PM PST

I have been under constant barrage of unsolicited phone calls recently. The phone calls typically begin with the same lie: "Mr. Shedlock you told a colleague of mine a few months ago to call you back when we have a really good investment opportunity".

Given that I never ask anyone to call back, they are known liars from the start. Depending on what kind of mood I am in, I may hang up immediately or listen long enough to hear what kind of nonsense they are peddling.

I asked one of the liars the name of his colleague that called. He answered George. I said "George who?".

The caller got exasperated and replied "Washington".

The predominant thing these guys are peddling is the opportunity to lose a lot of money fast, frequently in the oil or natural gas industry. But lately the charlatans have pestered me with real estate opportunities, shorting gold, and buying microcap stocks I have never heard of (most likely the classic pump-and-dump) variety.

This is the kind of thing that happens at market tops. Everyone wants in, and the fraudsters come out in force to take advantage.

Nonetheless, I offer my standard warning: Just because this activity happens at peaks, does not mean this is the peak.

Sentiment typically gets more extreme than anyone thinks possible.

Social Media Bubble

Facebook recently paid $19 billion for WhatsApp, a company with 55 employees and no revenue.

Supposedly this is a good deal because WhatsApp is growing fast. It is growing fast because it has a cute texting app that it gives away for free.

How many customers would it have if it starts charging? Enough for a $19 billion valuation? Not a chance.

Pater Tenebrarum has interesting discussion in his commentary "Social Media Bubble".

Flipping Yet Again

Meanwhile, this farcical ad popped up on my screen just today.

Want to know what "As seen on TV" means?"

Typically it is a sleazy phrase that means they ran an ad somewhere on TV, at least once.

Such ads usually run on an obscure channel at 3:00AM. But hey, it's "as seen on TV". They never said "in a show".

Please note the little asterisk that reads "results based on effort".

Also note a word is missing. Here is the split sentence combined "Learn How to Get Started Flipping Houses Than Merrill - Star of A&E's "Flip This House"

The ad makes no sense unless your mind inserts the word "Better" right after the word "Houses".

I have a simple question: didn't we try this before?

Addendum:

I have a few minor corrections.

I said "WhatsApp has no revenue". I should have said "WhatsApp has essentially no revenue." It did have $20 million in revenue. For that $20 million in revenue it got a $19 billion buyout - $950 for every $1 of revenue.

The revenue stems from the fact that WhatsApp charges a tiny fee for its service, but only after the first year of free service. That is my second correction. I should have said "essentially free".

Rest assured competition will drive price down to the break-even point or nearly so.

Finally, I never heard of "Than Merrill" a person's name. So I guess the ad reads OK, but it still is ridiculous.

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

Ukraine Government Delays Vote, Currency Hits Record Low, Default Feared; Ukraine Asks for $35B, Bank Runs Underway

Posted: 25 Feb 2014 10:53 AM PST

The Ukrainian Hryvnia fell to a record low today with warnings from Russia regarding defaults.

Russia had pledged bailout loans to Ukraine, but following the overthrow of president Viktor Yanukovych, Russia suspended the bailout. Ukraine now needs money from elsewhere.

Russia Warns of Ukraine Default

Bloomberg reports Ukraine Delays Government Vote as Russia Warns of Default.

Acting President Oleksandr Turchynov pushed back a parliamentary vote to Feb. 27 from today as he attempts to win agreement with protest leaders who orchestrated the revolt.

With Yanukovych on the run after weeks of anti-government protests turned deadly, Ukraine's new leaders are grasping for a financial lifeline as Russia weighs the fate of a $15 billion bailout it granted in December. Russia's deputy finance minister said there's a high chance Ukraine will default.

While Ukrainian assets have benefited from the momentum for financial aid, government bonds snapped three days of gains. The yield on dollar debt due 2023 was up 30 basis points at 9.554 percent at 5:32 p.m. in Kiev. The hryvnia plunged 6.4 percent to a record 9.8 per dollar, data compiled by Bloomberg show.

Ukraine risks default without "significantly favorable changes" in its political crisis, Standard & Poor's said Feb. 21 as it cut the nation's credit rating to CCC, leaving it eight levels short of investment grade.

Russia's Deputy Finance Minister Sergei Storchak echoed those concerns. Russia won't be the party to declare default, though it's under no legal obligation to disburse the remaining $12 billion of the bailout, he told reporters in Moscow today.

Lawmakers yesterday moved quickly to appoint Stepan Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. Kubiv plans to invite an International Monetary Fund mission, the Unian news service reported, without giving details. The central bank imposed capital controls this month to stem the hryvnia's slide.

Ukraine Asks for $35B, Bank Runs Underway

The Financial Times reports Ukraine's interim government asks for $35bn in loans.

Ukraine said on Monday that it needed $35bn in aid over the next two years, including urgent loans within two weeks, but the international community seemed unlikely to start talks on a big rescue package before elections in May.

Yuriy Kolobov, Ukraine's acting finance minister, said Kiev would pursue the short-term loans from individual countries, singling out the US and Poland as potential lenders.

But Radoslaw Sikorski, Polish foreign minister, said that Ukraine should look to the International Monetary Fund for assistance.

Despite the urgency from Kiev, the IMF is insisting that tough conditions will have to be agreed before any loans are paid out. This is increasing pressure on countries to provide more immediate support bilaterally.

But analysts said there were signs of capital flight, including the start of runs on some Ukrainian banks, draining Kiev's already meagre dollar reserves. Officially, Ukraine has slightly more than $17bn in reserves, down from an already low $20.4bn at the end of last year.

The hryvnia currency has also hit five-year lows. The country of 46m people must pay back some $12bn of its $73bn debt this year.

Will Aid Come Quickly Enough?

Financial Times blogger Peter Spiegel asks Will Ukraine Aid Come Quickly Enough?

Almost all major economic powers were out on Monday saying that any aid package would have to wait for a full International Monetary Fund programme. But such "stand-by arrangements" can take months to negotiate – and IMF officials have made clear they want a new government firmly in place before those negotiations can begin, so that may mean we're waiting until after May's presidential elections.

So will Ukraine make it until then? Analysts are dubious, and the Ukrainian finance ministry's declaration on Monday that they are seeking bilateral loans from the US and Poland in the next week or two certainly implies that they're not sure they can make it that long either.

At the beginning of the year, the National Bank of Ukraine reported that it held $17.8bn in reserves. That may sound like a lot, it's down a whopping $2.6bn from the month before – a 13 per cent decrease. And there are suddenly a lot of demands on the remaining reserves.

First, in order to keep the Ukrainian hryvnia from completely tanking during the crisis, the central bank has had to purchase huge volumes of the currency on the open market. A new report issued today by the Institute of International Finance – the association of all major global financial institutions – said that in January alone, the central bank spent $1.7bn shoring up the hryvnia.

The second, potentially more troubling development is what the IIF believes to be an accelerating run on Ukrainian banks, with depositors demanding withdrawals in dollars. Since the IIF is an association of banks, their data is probably pretty good on this. They figure that reserves probably fell by another $3.5bn-$4bn by the end of last week due to those dollar withdrawals.

According to an investor presentation made by the finance ministry last year, 16.3 per cent of its $73.1bn in national debt must be repaid this year. That's about $12bn. In its downgrade of Ukraine last week, Standard & Poor's estimated that it's closer to $13bn, when you add the debts of the state-owned gas company Naftogaz.

As S&P noted, if the central bank runs short of dollars to defend the hryvnia in the currency markets, that could lead to a rapid devaluation. Indeed, it's already dropped about 16 per cent since the start of the year. With 46.5 per cent of Ukrainian debt denominated in dollars, and another 3.2 per cent in euros, a rapid devaluation means the value of those debts suddenly goes up, and the cost of refreshing reserves goes up, too.

In other words, not a pretty picture. And one that could get a lot worse very quickly unless someone steps in to stanch the bleeding.

Ukraine Hryvnia

The above chart pegs the value at 9.155 to the dollar.

Recent reports say the hryvnia was down 7 percent at one point Tuesday, to 9.8 hryvnia per dollar.

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

Bye Bye Mt. Gox: Bitcoin Exchange Website Appears to Have Been Deleted; Value of MtGox Bitcoins Plummets to $135

Posted: 24 Feb 2014 11:46 PM PST

The "MtGox" bitcoin exchange site that handled a vast majority of bitcoin transactions is now unavailable at best.

More likely, money at Mt. Gox has vanished by fraud.

Yesterday, Reuters reported Mt. Gox's CEO resigns from Bitcoin Foundation.

Today the Wall Street Journal notes Bitcoin Exchange Mt. Gox's Website Appears to Have Been Deleted

The website of embattled bitcoin exchange platform Mt. Gox was unavailable Tuesday and appeared to have been deleted.

Attempts to reach the Mt. Gox homepage yield an answer from the server but display no data, indicating the server is functioning but that the site has no content.

The Tokyo-based bitcoin exchange has frozen bitcoin withdrawals since the beginning of February, stoking fears of bankruptcy from its investors and those in the broader bitcoin community.

Value of MtGox Bitcoins Plummets to $135

Also consider MtGox bitcoin plunges as website disappears

The website of Tokyo-based bitcoin exchange MtGox went down on Tuesday after the value of the virtual unit sank to about a quarter of that on other platforms and Japanese regulators said they were unable to step in.

Visitors to the www.mtgox.com domain got a blank page when they tried to log on, more than two weeks after the firm suspended cash withdrawals as claims swirled of a bug in the software underpinning bitcoin.

Consternation has grown since MtGox stopped processing external transactions on February 7, claiming there was a problem with the program that powers the currency, and allows it to be transferred between users or swapped for goods and services.

The value of the unit on the exchange has gone into freefall since then. Around midday on Tuesday, a bitcoin was worth $135, compared with the $522 quoted by the CoinDesk bitcoin price index, which tracks the price of the currency on major exchanges.

In January a bitcoin was worth more than $900 at MtGox, one of the world's oldest exchanges for the unit.

MtGox, which has not responded to repeated AFP requests for comment, issued a statement last week saying it had moved its headquarters within Tokyo due to "security problems" and was still working on "re-initiating bitcoin withdrawals".

It did not give details of the security problems.

"The move, combined with some other security and technical challenges, pushed back our progress," the firm said Thursday in their most recent public statement.

Earlier this month, the company brought down its system and stopped processing client requests to withdraw money held at its "wallet", citing a problem with the technology.

Problem with technology or a problem with fraud? I strongly suspect the latter.

Rise and Collapse of Bitcoin

Bitcoin rose from pennies to over $1200. But that was only good if you collected it.

Bitcoin Wisdom has some live charts. Here is the Mt. Gox exchange.

It is quite possible that Mt. Gox bitcoins are nearly worthless. If so, some paper millionaires lost it all.

I will also toss out another idea that I have not seen discussed: The bitcoins are still at Mt. Gox, and people are panic selling to fraud perpetrators who purposely shut down the site to induce a panic.

Either way, it's a mess.

I was never at ease with the idea of bitcoins, and this fiasco certainly makes me happy I am not involved with Mt. Gox.

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

Economy News

25.2.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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