Mish's Global Economic Trend Analysis

What's the #1 Predictor of Success in Love?
Chicago Suburbs $1 Million+ Home Sales "Not Totally Dead" Yet; Rush for the Exit
Apple's Balance Sheet Math: Does Apple Really Have $203 Billion in Usable Cash on Hand as Widely Reported?
China's Forex Reserves Drop Most On Record: What Does It Mean? Inflation Tsunami?

What's the #1 Predictor of Success in Love?

Posted: 08 Oct 2015 07:28 PM PDT

Here's an interesting article that just came my way from the Washington Post. It's about success in love. Please consider The One Number that's Eerily Good at Predicting Success in Love.

When people are looking for a significant other, they often try to find someone whose values, education, earnings, hobbies and even height match their own. But new research suggests there's one promising measure for finding a committed partner that most daters overlook -- credit scores.

A new working paper from the Federal Reserve Board that looks at what role credit scores play in committed relationships suggests that daters might want to start using the metric as well.

The paper analyzed a large proprietary data set of 12 million randomly selected U.S. consumers from the credit reporting agency Equifax over a period of about 15 years. Researchers used an algorithm to find a swathe of committed couples, including some who live together and are not legally married.

They found that people with higher (i.e. better) credit scores are more likely to form a committed relationship, as the chart below shows. This was true even after controlling for other differences between partners, like education level, race or income.

The researchers also found that having higher credit scores when they started the relationship meant that couples were less likely to separate over the next few years, as the chart below shows. In fact, for every extra 100 points in the couple's average credit score when beginning the relationship, their odds of splitting in the second year fell by around 30 percent.

Couples in general are more likely than two randomly selected people to have similar credit scores. Over time, the credit scores of couples actually tend to converge, the study found, from about 55 points to about 22 points over the first four years of the relationship. But if the gap between the individual credit scores was wider at the beginning of their relationship, the couple was more likely to break up as time went on, the researchers found.

Trust But Verify

"What's your sign?" is so 60ish passé. Today, you need to ask "What's your credit score?" in some sort of polite manner, of course.

You could also get right to the nitty-gritty and pay for a credit search.

Practical Tip

In the "trust but verify" category I offer this tip on what not to say: "Sweetie, what's your social security number? I need it to do a credit check on you."

Mike "Mish" Shedlock

Chicago Suburbs $1 Million+ Home Sales "Not Totally Dead" Yet; Rush for the Exit

Posted: 08 Oct 2015 12:38 PM PDT

"Not Totally Dead" Yet

In the Chicago suburbs of Burr Ridge, Naperville, and Hinsdale, sales of high-end real estate hit a huge slump this summer that still continues.

For example, Crain's Chicago reports the city of Burr Ridge, has 100 homes on the market for at least $1 million, but only 14 have sold at that price in the past six months.

Crain's Chicago has the details in This suburb has too many $1 million-plus homes for sale (emphasis mine).

"It's been disquietingly slow, brutally slow getting these sold," said Linda Feinstein, the broker owner of ReMax Signature Homes in neighboring Hinsdale. "It feels like the brakes have been on for months."

Sales slowed down all over the Chicago area this summer, and sometimes potential sellers don't get the message soon enough, which creates an over-stock of inventory.

"It's not as busy as we'd all like it to be, but it's not totally dead," said Dave Ricordati, a Coldwell Banker agent with three $1 million-plus listings, the newest of which has been on the market since July. "I mean, it's not 2009 or 2010," when the real estate market was at a virtual standstill.

Another factor in the backlog, said Linda Saracco, a ReMax Signature agent who's been working Burr Ridge for over 30 years, is that "a lot of our sellers are baby boomers who bought in the '80s or '90s, built up a lot of equity in their homes and are ready to cash it in."

When the market doesn't deliver a buyer who's willing to pay the price they want, "they're not taking it. They'll wait and see if they can get their number."

Her prediction: They won't.

Ready to Cash In But No Buyers

I have to commend ReMax agent Linda Saracco for her accurate, honest assessment "They won't [get their price]".

This is precisely what happens when everyone heads for the exit door at the same time.

Case-Shiller Chicago Update

The Crain's report got me thinking about the most recent Case-Shiller Home Price Update.

Let's put a spotlight on Chicago where things are also "not totally dead" .... yet.

Chicago Year-Over-Year-Price Changes

Chicago Home Price Index

Chicago had a huge boom followed by a huge bust that never quite recovered.

Economic Rot vs. Home Price Rot

Unlike overall economic weakness that starts at the periphery and spreads to the core, real estate rot frequently starts at the high end as buyers balk.

Each drop in high-end prices progressively hits the next lower home price group level.

Illinois Rush

A rush for the exit in Illinois is underway. And why shouldn't there be one? Who can really afford such prices anyway?

Certainly not millennials with a mountain of student debt or those stuck in low-wage jobs.

A major part of the problem is the overall set of asset bubbles thanks to loosey-goosey policies at the Fed.

But why a rush to the exit in Illinois and not everywhere?

In Illinois, we have a second problem: State of Illinois policies.

Oh Come Oh Come Emanuel

No, I won't do a musical tribute with that title (accepting your thanks in advance). But Mayor Rahm Emanuel is crazy if he thinks tax hikes are the way out of Chicago's fiscal mess.

Yet, on September 23, I noted Chicago Tax Collector Hath Arrived With Massive Tax Hike: Emanuel Says "No Stone Unturned"

Worse yet, Emanuel says he's "Not Done Yet [hiking taxes]" and he will leave "no stone unturned" in the search for revenues.

Bet Your Bottom Dollar

You can bet your last dollar on this: When politicians promise to raise your taxes, they will, and by more than they say.

Emanuel will raise property taxes by the most in Chicago history. And that's not going to affect property values or the desire to cash out? What Fantasyland is Emanuel living in?

It's not just Chicago. Illinois has a litany of problems that make people want to leave. Citizens want to leave. And they will.

But not at the property prices they expect.

Mish Proposal

On May 4, in Beware, the Tax Man Has Eyes on YouI wrote ...

To spare the citizens of Illinois massive tax hikes, the only reasonable course of actions are as follows:

Halt defined benefit pension plans for new employees
Eliminate collective bargaining of public unions
Scrap Davis Bacon and all prevailing wage laws so that cities do not have to overpay for services
Enact right-to-work legislation
Pass bankruptcy legislation allowing cities, municipalities, and other taxing bodies the right to declare bankruptcy

Had options 1-4 been done a decade ago, Illinois would not be as bad off as it is today. Now, even those measures cannot and will not fix the problems.

Advice Not Accepted

The tax man did not listen. He never does.

Related Articles

On March 2, I noted Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!

On April 1, I noted the Shockingly Bad Fiscal Health of Chicago (and the Financial Engineering Chicago Uses to Hide that Fact).

On September 29, Illinois Policy Institute Vice President Michael Lucci noted Food Stamp Growth Outpaces Illinois Job Creation 5-4 During Recovery.

Get Me the Hell Out of Here

Finally, please consider my August 13 article Get Me the Hell Out of Here.

Policies in Illinois are to hugely blame for this "rush to the exit" by businesses and ordinary taxpayers alike.

The net business flight and high-end wealth flight from Illinois to other states will now accelerate thanks to policies in the city of Chicago and the state of Illinois in general.

Mike "Mish" Shedlock

Apple's Balance Sheet Math: Does Apple Really Have $203 Billion in Usable Cash on Hand as Widely Reported?

Posted: 08 Oct 2015 10:56 AM PDT

Apple's latest 10-Q quarterly filing shows that it has nearly $203 billion in cash or cash-equivalents.

10-Q Page 31

Current Assets

Diving into a more colorful Nasdaq Summation I made the following clips (highlights in yellow are mine).

Totaling actual cash, short-term investments, and over $168 billion in long-term investments, we arrive at the $202.848 billion number on the 10-Q.

Current Liabilities

Cash Much Smaller Than You Think

I don't often dive into balance sheets, but did so after reading a Market-Watch opinion by Brett Arends.

Arends writes Apple's real cash pile is 99% smaller than you think.

Actually I can quibble with that number a bit, but right off the top one can easily subtract liabilities to get a better picture of what Apple really has.

Subtract all the liabilities and you are at $55.374 billion.

That's a very good number, but a far cry from media hype. For example CNN Money points out Apple has $203 billion in cash.

The title is "technically" accurate, but CNN Money ignores the debt while making the claims "It's fair to wonder why Apple needs all this cash. It's one thing to save for a rainy day. But Apple seems to be acting like Noah and preparing for a 40-day flood. Apple may face even more pressure to do something productive with its $200 billion war chest instead of letting it collect dust in Ireland and other tax havens."

Tax Haven Math

Returning to the 10-Q we see this note: "As of June 27, 2015 and September 27, 2014, the Company's cash, cash equivalents and marketable securities held by foreign subsidiaries were $181.1 billion and $137.1 billion, respectively, and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S."

Arends points out the tax liability on that $181.1 billion held offshore is $59.2 billion.

Maybe there is another tax repatriation holiday, but maybe not. And if not, there is another $59.2 billion liability to deal with.

In short, Apple could not spend its alleged cash-on-hand without going deeper in debt.

Some of the numbers I took from Nasdaq do not precisely match Arends'. For example, he notes $31.5 billion in "off-balance-sheet" liabilities. That's a number suspiciously close to $31.296 billion in "other liabilities" as noted in my clips.

If "off-balance-sheet" is not included in my totals, then subtract another $31.5 billion.

Distortions of Reality

The key point is that all of these glowing "cash-on-hand" reports that you read are distortions of reality.

The primary distortion is reported cash positions ignore debt. I have gone through this exercise before, and after subtracting liabilities, US corporations actually have negative net cash in aggregate.

The secondary distortion, as Arends points out, but I had not done so previously, is reported cash positions fail to take in tax liabilities.

The last time I conducted my analysis was in 2013, so perhaps it's time for an update. A small handful of companies actually have positive net cash. Apple was one of them then, and is one of them now.

Yes, companies in general could spend their reported cash numbers, but to do so would further leverage their balance sheets with debt.

Mike "Mish" Shedlock

China's Forex Reserves Drop Most On Record: What Does It Mean? Inflation Tsunami?

Posted: 08 Oct 2015 12:29 AM PDT

Bloomberg reports China's Foreign Reserves Post Record Quarterly Drop on Yuan.

China's foreign-exchange reserves fell by a record in the third quarter as the central bank sold dollars to support the yuan after a surprise Aug. 11 devaluation sparked the currency's steepest slide in two decades.

The stockpile plunged by $180 billion in the three months through September to $3.51 trillion, according to Bloomberg calculations based on data released by the People's Bank of China on Wednesday.

China's Forex Reserves

Note that China's Forex reserves are down about $500 billion from the 2014 peak. So what's it mean?

"Bombshell Event of the Year"

Peter Schiff predicted a Bombshell Event in November of 2013.

Bombshell Quotes

The following "bombshell" quotes are from The Schiff Report (11/22/2013).

"If the Fed were to pull back, if it was to taper and eventually stop buying bonds, it's not only the absence of Fed buying that would crush the market, private buyers, particularly the leveraged speculators, why would anybody buy a 10-year treasury yielding what, 2.8%, or even a 30-year treasury at 3.9%, why would you do that?"

"But here's the biggest bombshell of the week, maybe of the year. While everybody was focusing their attention on what the Fed didn't even say, they were pretending the Fed said they were going to taper ... nobody paid attention to what China actually did say. Because China announced the mother of all tapering. China finally came out and admitted that a further expansion of their foreign currency reserves is no longer in China's interest."

"Now what does that mean? If China isn't going to expand its balance sheet anymore, that means it has to stop buying treasuries. .... [very long winded and incorrect analysis] ... The truth is, if China means what it says, the Fed is going to have to back up the truck. Not just not taper, but they are going to have to significantly increase the amount of monthly QE that they do, in order to pick up China's slack. That's what's going to happen in 2014. If Janet Yellen surprises me and tapers, she's going to be untapering quick, because she is going to have to pick up missing demand that the Chinese no longer supply."

"When China stops expanding its balance sheet, that also means that the Chinese currency is going to appreciate, and China said it will allow that appreciation to happen. ... US is going to get hit with a tsunami of inflation. ... I think we have broken the short-term downtrend in oil ... Consumers not only will have to deal with higher interest rates, they will also have higher fuel bills."

Remarkable Set of Wrong Predictions In One Video

Fed would not taper (Tapering finished)
No one would buy 10-year treasuries at 2.8% (yield is now 2.04%)
Fed would have to pick up slack when China stopped accumulating treasuries (Nope)
Downturn in oil over (Nope - clearly not then - perhaps now)
Higher fuel bills (Nope - clearly not then - perhaps now )
US consumers will see higher interest rates (Nope - But is the Fed going to hike now? Peter care to predict?)
Tsunami of inflation (Clearly laughable)
Yuan will appreciate when China stops buying treasuries (Nope - China had to prop up the yuan)

Painful Analysis

I believe we have a perfect 8-8, all from a single video.

That said, I agree with Schiff's view that QE was unwarranted. The reason is not that it would unleash a "tsunami of inflation" but rather QE helped spawn bubbles that will pop.

I also agree with Schiff on other things like free markets.

But, another round of asset deflation is coming (I believe Schiff would agree), and in such an environment there is no reason to expect treasury yields to soar.

China actually had to devalue the yuan because of market pressures. In August, Bloomberg phrased it this way "China Sells U.S. Treasuries to Support Yuan"

Capital flight in China is a huge problem, precisely where Schiff never would have thought.

And here's a final bit of icing that China bulls need to ponder: The yuan overtook Japan's yen to become the fourth most-used currency for global payments in August, rising to its highest ranking ever and boosting its claim for reserve status at the International Monetary Fund.

Drumroll ....

The proportion of transactions denominated in yuan climbed to a record 2.79 percent in August, from 2.34 percent in July, according to a Society for Worldwide Interbank Financial Telecommunications statement on October 6, 2015.

Predictions

It is not easy to make predictions (especially about the future) to paraphrase Yogi Berra. I have made a number of questionable calls myself.

In 2013 I sided with the ECRI on a recession, but at least we had a slowdown. I have another US recession call in now. It may or may not happen, but I did call a Canadian recession right on the nose this year.

I called a top on the S&P 500 about 500 points ago. Oops. Painfully awful.

I failed to see how another round of QE would ignite the markets. In retrospect, it think much of what we see has more to do with ECB president Mario Draghi's "whatever it takes" speech than anything the Fed did. Regardless, I missed it.

I believe another asset bubble bust is around the bend. And if that is true, I fail to see how high inflation comes from it.

I did call the 2007 top within a few percent. And I remained steadfast throughout that hyperinflation or even high inflation was an absurdity. Yet, I liked gold, and still do (but without ever putting any price targets on it).

Beauty and accuracy is in the eyes of the beholder, but I point out my own mistakes or someone will do it for me.

As hard as it is to get everything right, it is equally difficult to get everything wrong. But there it is, in video form.

Bernanke is not the only one who needs to self-assess (see Ben Bernanke: Superman or Fool?). So do I, Peter Schiff, and everyone else in the industry, continually.

Inflation Tsunami?

Someday, one of these inflation tsunami calls will be correct, but I think we see another deflationary asset bubble burst first.

Given monstrous levels of debt at the consumer and corporate levels, given the US is not Brazil, and given poor demographic characteristics, I am waiting for an explanation as to how we get an asset bubble burst that results in an inflation tsunami. I did not understand in 2004, 2008, 2012, 2014, and I still don't know now.

Mike "Mish" Shedlock

Economy News

8.10.15

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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