| Chicago Mayor Rahm Emanuel Reverses Course, Now in Support of Massive Tax Hikes and Non-Reforms; Approval Rating Plunges Posted: 14 May 2014 08:29 PM PDT Those who thought Mayor Rahm Emanuel would bring change to the city of Chicago thought wrong. As with president Obama, people in Chicago believed in change, but all they got was promises, lies, and the status quo. Thus it should be no surprise that Rahm Emanuel's Reelection Bid Is Not Looking So Hot Right Now. Conducted on Wednesday by McKeon & Associates for the Chicago Sun-Times' Early & Often page, the survey found that only 29 percent of Chicago voters would support Emanuel if the mayoral election were held today. The results also showed that only one in five Chicago voters believe Emanuel is doing a better job than his predecessor, former Mayor Richard M. Daley.
"Right now, Rahm is not connecting," McKeon said, according to the Sun-Times report. "If he doesn't do that, he's gonna lose."
Back in February 2011, Emanuel easily ousted five rivals with 55 percent of the vote, avoiding a runoff by earning the simple majority. By August 2013, a Crain/Ipsos poll showed Emanuel's approval rating had dipped to a point where only two percent of Chicagoans strongly supported his job performance. Backtracking on Tax Hikes and ReformsTed Dabrowski at the Illinois Policy Institute has some interesting facts on Emanuel's flip-flop on taxes and pension reform. Via email, Dabrowski writes ... In 2012, Mayor Rahm Emanuel traveled to Springfield to call for Chicago pension reforms. Testifying at the Statehouse is a rare move for a Chicago mayor.
Emanuel's proposal included raising the retirement age for city workers and freezing cost-of-living adjustments for retirees. He also wanted 401(k)-style retirement plans for new employees, which would have provided more retirement options for city workers.
Emanuel cautioned that without these reforms, "Chicago's economy and the quality of life will falter."
Two years later, that Rahm Emanuel and those reform proposals are gone.
Now, Emanuel's recently released pension "fix" for the city's municipal workers and laborers has almost no elements of reform. Instead, it relies heavily on property-tax hikes and increased worker contributions to keep the collapsing systems from going bankrupt.
The plan calls for a five-year, $750 million property tax increase on Chicagoans.
But what Emanuel and supporters of the plan don't tell you is how much more in property tax increases they'll call for to bail out the city's other pension funds. Both the city and Chicago Public Schools face $1 billion operating shortfalls, and neither seems willing to take on spending reforms.
The teachers' pension fund alone is roughly the same size as the municipal and laborers' pension funds combined. If the politicians stick with their same fix, Chicago taxpayers could expect another tax hike similar to the one already proposed.
Police and firefighter pensions, the worst funded of the lot, might need half as much.
Don't forget about the park district and transit pension funds.
Is this the Rahm/Madigan plan? Both politicians roll out their fixes and tax hikes in doses so that no one can figure out how much it will all cost.
City workers aren't spared, either. They, too, are being asked to put more money into a system that is collapsing. Under Emanuel's plan, laborers and municipal workers will contribute 30% more toward their pensions once the increase is phased in.
The problem with the Rahm/Madigan plan is that it does nothing to solve the actual crisis. They just use more tax hikes and employee contributions to prop up a failed defined-benefit system run by the same politicians who bankrupted it in the first place.
Sadly, many in the press and the political elite think the city can get away with another round of fake reforms. They refuse to see that politicians are just throwing more good money after bad plans.
The bottom line is politicians control pensions, and they've run them into the ground. It's time to take that control away and put it where it belongs – with the workers.
We have a new reform plan for Chicago that picks up where the 2012 Rahm Emanuel left off. It gives workers control over their own retirements, and makes the tough choices necessary to bring about real retirement security for city workers.
It also does what Emanuel's current plan doesn't do. It aims to end the city's crisis and to preserve Chicago's status as a world-class city.
Ted Dabrowski Radical Change NeededI am not a huge cheering fan of the Illinois Policy Institute's proposal, but it does have a couple of things going for it: - It is a pragmatic proposal
- It has a better chance of passing than the radical approach I think is necessary
The operative word in the above bullet point list is "better". Don't take that to mean good. In all likelihood, Chicago will keep hiking taxes, people will flee, the tax base will shrink, another recession will hit, and the next liar will come along with promises of reform and not deliver. Failure to Deliver Not Surprising That Emanuel failed to deliver is hardly surprising. Promises of reform are nearly always lies. Sadly, Emanuel was actually the better of the two choices in the last election. My fear is the choices in the next election will be even worse. Unless and until someone is willing and able to actually stand up to Chicago unions, more of the same kind of lies and backtracking is in store. Ultimately, Chicago's financial mess blows up in bankruptcy court, just as happened in Detroit. Certainly the city of Chicago looks better than Detroit and has far better services, pay, and demographics. Chicago is a beautiful, vibrant-appearing city. Yet, outward appearances are deceiving. beneath the surface things are not so pretty. Chicago is on the verge of bankruptcy unless there is serious pension and work-rule reform now, not four elections from now. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Coming Major Slowdown in Germany - How to Play It Posted: 14 May 2014 11:49 AM PDT A huge slowdown in Germany is on the way, yet few see it. Steen Jakobsen, chief economist at Saxo bank writes via email ... Back from major trip to Brazil, Uruguay, US and Spain.
The one thing which to me is being ignored by the market is the coming slow-down in Germany. The market can of course go up in times of weaker growth, but my big "thing" is that no one believes Germany economically is slowing despite very negative macro changes in the last twelve months:
- The China rebalancing will cost Germany export volume.
- Germany has the most expensive energy policy in Europe – a drive away from atomic power dependency to a less obvious dependency on Russian gas.
- The Ukraine crisis impacts Germany. According to the Federation of German Wholesale, Foreign Trade and Services (BGA) about 6.200 German companies are doing business in Russia.
- The coming Chinese devaluation of the Yuan will significantly lift Chinese import prices.
I had to write a monthly OP-ED for Swiss Financial newspaper and as I sat down to verify my long held opinion that Germany would slow-down in Q4 I was surprised to find Germany already seeing relative dramatic slow-down signs:
Germany and China Interlinked
click on any chart for sharper image
Citigroup Surprise Index – Europe
[Mish note: An explanation of the Surprise Index follows the email from Steen]
German 10 Y Bund & Citigroup's Surprise Index
German Manufacturing Exports YOY & GDP Chain GDP YOY
Conclusion/Strategy
I have constantly argued for this slow-down being logic based on Germany's Asia dependency on export volume growth but with poor policy responses from Germany on energy and a neglected understanding of the Russian exposure the market is in for very negative surprise on growth as we leave 2014. More than 6.200 German companies are involved in Russia – The Economist claims more than 300.000 jobs depends on Russia export. Russia is Germany's 11th biggest export market & its 7th biggest import market. Germany now imports more than 70% of its energy and which more than 25% comes from Russia. Merkel has created a risky energy policy which makes her impotent in international dealings.
Europe and Germany must soon own up to the fact that we are energy deficient. We run major short position in energy. That should be the main topic for the next EU Council Minister meetings, but instead they are going to celebrate the crisis is finally over…. The King is dead – long live the King.
I have been long core European bonds since Q4 last year – that position combined with short EUR and AUDUSD remains the only three trades I have on, and also the only three trades I have done in the last three months. Our rule of stock market lagging real economy by three month would indicate that DAX is getting very close to "full price". I have presently no positions in stocks, but I am looking for way to short either naked or against Nikkei over next week. We need a catalyst to upset the status quo.
Safe travels,
Steen Surprise Index NotesCitigroup's surprise index measures weighted historical standard deviations of positive and negative surprises (actual economic releases vs. median Bloomberg survey expectations). The surprise index for Europe has been trending lower since mid-January. It went negative in mid-March and has been there ever since. Wine Country Conference NotesSteen spoke at Wine Country Conference II. Germany and China were part of his presentation. Videos will be out within a week or so. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Housing Starts in China Plunge 25%; Did China's Property Bubble Finally Burst? Posted: 14 May 2014 09:11 AM PDT Reports of the pending collapse of China property bubble have circulated for years, including some on this blog. To date, each slowdown was soon followed by another boom to still higher prices. Here we are again, in another slowdown. China Housing Starts Market Cools, Sales Volume Dries UpThe New York Times reports China's Sizzling Real Estate Market CoolsAfter almost two decades of nearly unceasing increases in real estate prices and construction across China, one of the world's longest-running bull markets finally seems to be stalling, with broad consequences for the country's economy and possibly its politics.
Prices are falling for both new and old apartments. The volume of deals is drying up. And developers are pulling back, furloughing workers and delaying new projects. In the latest sign, housing starts plummeted 25 percent in April from a year ago, the Chinese government announced on Tuesday.
"You can't predict how the bursting of a Chinese real estate bubble plays out because it plays out in very small steps," said Joel H. Rothstein, a partner in the Beijing office of the Paul Hastings law firm who specializes in Asian real estate.
China's real estate market correction — some economists are even calling it the popping of a bubble — is partly the result of a deliberate decision by the country's leaders in Beijing.
Economic data released on Tuesday also included a deceleration in industrial production, with growth in steel and cement output slowing to a crawl. Retail sales also grew more slowly than expected in April, and the furniture market stalled as fewer families moved into new homes.
According to Centaline, one of China's largest real estate brokerage firms, transactions over the May 1 holiday weekend fell by half in Beijing and Shanghai from a year ago. The weekend is traditionally one of the two biggest real estate buying times of the year, along with a weeklong national holiday at the start of October.
A national survey released in March by the Southwestern University of Finance and Economics in Chengdu, China, found that households across the country had 66 percent of their assets in their homes, a figure that rises to 84 percent in Beijing. The comparable figure for the United States, where stocks and bonds are more popular, is 41 percent. Financial Vulnerabilities in ChinaIn its May Financial Stability Report, the Reserve Bank of New Zealand warns about financial vulnerabilities in China. There is a risk of a disorderly correction to the lending and property boom in China, resulting in a sharp slowing in Chinese growth. The unregulated shadow banking sector has played a strong role in the recent credit boom, with the share of credit growth financed by the sector rising from 11 percent in 2006 to 32 percent in 2013. Much of this credit has been lent to the increasingly indebted local government sector, to fund property development and infrastructure investments. Moreover, the flow of funding to the shadow banking sector may not adequately reflect the risks involved: some shadow banking products are distributed by banks, potentially creating a perception that they are implicitly guaranteed. Did China's Property Bubble Finally Burst? In the Financial Times opinion section, writer George Magnus says This time China's property bubble really could burst. In the past few years, predictions that the sector was about to implode at any moment have not been borne out – but now is the time for the world to pay attention. Property activity indicators have been trending lower since mid-2013, and the downturn in the sector now threatens to turn into a bust. At best, China is entering a deflationary phase at a time of global fragility.
The greater risk to China lies in the pervasive consequences of any property bust. Property investment has grown to account for about 13 per cent of gross domestic product, roughly double the US share at the height of the bubble in 2007. Add related sectors, such as steel, cement and other construction materials, and the figure is closer to 16 per cent.
As the property slowdown has kicked in, housing starts, completions and sales have turned markedly lower, especially outside the principal cities. Inventories of unsold homes in Beijing are reported to have risen from seven to 12 months' supply in the year to April. But when it comes to homes under construction and total sales, the bulk is in "tier two" cities, where the overhang of unsold homes has risen to about 15 months; and in tier three and four cities, where it is about 24 months.
The anti-corruption crackdown, often targeting individuals who have built up ostentatious property wealth, has poured cold water over the market, in which, according to a recent investment bank report, the richest 1 per cent of households is estimated to own about a third of residential property. Elsewhere, the tightening of credit terms, including funding costs for property developers, especially in the shadow banking sector, is taking its toll. Rates of return on commercial property and infrastructure, and cash flows for developers and local government, have been deteriorating.
The crunch in the property market, and for the economy, will come when land and property prices fall more broadly across the country. Official data still show that property prices in 70 cities were 8 per cent higher in March than a year ago – but prices have actually fallen since the end of 2013. If this is the real deal, and I believe it is, China is going to slow much more than consensus opinion suggests. Imports and exports to and from all countries that deal with China will slow, and China's demand for copper, steel and other commodities will slow as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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