Mish's Global Economic Trend Analysis |
- Former Hasbro CEO Says "Providence Should Consider Bankruptcy"; An Option Chicago Needs
- Existing Home Sales Bounce Essentially a Mirage; Supply Drops to 11-Year Low: Is that a Problem?
- Fourth Industrial Revolution: Robots, Artificial Intelligence Will Destroy 5.1 Million Jobs by 2020
- China Openly Pledges to Sink the Yuan vs. the Dollar
| Former Hasbro CEO Says "Providence Should Consider Bankruptcy"; An Option Chicago Needs Posted: 22 Jan 2016 12:40 PM PST Providence, the capital of Rhode Island, is in such bad financial straits that Former Hasbro CEO Alan Hassenfeld has this scary message for state officials Providence Should Consider Bankruptcy. In a candid interview with the Providence Business News, Hassenfeld said he fears Providence is in deeper trouble "than anyone comprehends" and that officials should consider bankruptcy in order to right the ship.Illinois Needs Bankruptcy Solution A least Rhode Island offers cities and municipalities a choice. Illinois has no provision for municipal bankruptcies. As a direct consequence, Illinois cities and school districts sink deeper and deeper in debt, even though taxes go higher and higher. Illinois "Too Big a Risk" Chicago was supposedly on the "short list" of cities GE was considering for its new headquarters. But GE instead selected Boston. GE said "Illinois Too Big a Risk". GE accurately cited Chicago schools, pensions, corporate tax rates, financial meltdowns, budget holes, and a rock-bottom state debt rating. Too many risks? You bet. So what is mayor Emmanuel and the Illinois legislature going to do about it? Tax Hikes and More Tax Hikes Mayor Rahm Emanuel's solution to this mess was to make the biggest tax hike in history. On October 28, 2015 I commented Chicago's Sheep Dogs Approve Mayor's Tax on Sheep; Quote of the Day "It's Not a Piece of Art". The "sheep" in question are Chicago taxpayers who will need to pony up a historic property tax hike of $589 million to fund the city's police and fire department pensions. Deal or No Deal 25 cents out of every Illinois taxpayer dollar goes to Illinois pensions. Yet, Illinois has the worst funded state pensions in the entire nation. On January 20, I reported "B" Word Hits Chicago: Illinois Governor Proposes Bankruptcy for Chicago Public School System. To appease the unions and save his own job in the process, mayor Emanuel's spokeswoman, Kelley Quinn, responded "The mayor is 100 percent opposed to Gov. Rauner's 'plan' to drive CPS bankrupt," Emanuel's. I commented "When a politician's job depends on not understanding a problem, there's no way in hell the problem will be understood." Yesterday I read Illinois governor Bruce Rauner and the Democrats agreed on a pension deal. Just hours later the deal fell through. A headline that yesterday said "deal reached" today says "Rauner backs Cullerton pension plan - but Cullerton says it's not his plan". The fundamental difference is over collective bargaining. Cullerton said he believes collective bargaining should continue to exist, but Rauner disagrees. No Deal Governor Rauner says "reforms first". Emanuel and the Democratic legislature say "money first". Rauner would be a fool to accept that offer. So we sit. Illinois still does not have a budget for 2015. A quick check of my calendar says it's already 2016. I applaud Rauner's holdout. Chicago should not get one dime until Illinois gets needed changes in bankruptcy law, and until cities can escape the enormous expense of prevailing wages laws and collective bargaining. Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Existing Home Sales Bounce Essentially a Mirage; Supply Drops to 11-Year Low: Is that a Problem? Posted: 22 Jan 2016 10:56 AM PST Home Sales Bounce Misleading December existing Home Sales bounced a whopping 14.7% from November's dismal showing. But most of that bounce is a mirage. Last month, new documentation rules pushed sales into December. Smoothing out the distortions, the average of the last two months was 5.11 million. That's well below the 5.43 average of the prior six months. So, there were indeed distortions last month, but there is also underlying weakness. Bloomberg Econoday reports ... Existing home sales bounced back sharply in December, up an outsized 14.7 percent to a 5.46 million annualized rate that just tops Econoday's top-end forecast. Year-on-year, sales are up 7.7 percent in a major contrast with the minus 3.8 percent rate of November. But November was an unusual month skewed lower by new documentation rules that pushed sales into December. Averaging the two months together shows a 5.11 million rate that is well below the 5.43 average of the prior six months. Total sales for 2015 came in at 5.26 million, well up from 4.94 million in 2014.Price Appreciation Is price appreciation a plus or a minus? Bloomberg says "price appreciation is a rising plus". I suggest that with every increase in price, homes become less and less affordable. Supply Drops to 11-Year Low Bloomberg says "Total homes on the market fell to 1.79 million from November's 2.04 million with supply relative to sales falling to only 3.9 months, far below 5.1 months in November." Why did supply relative to sales plunge? Because November sales were skewed to the downside and December to the upside. Expect a rebound in supply numbers next month. Existing Home Sales With Distortions Smoothed  If you smooth the distortions, today's reported bounce is no more than a mirage. Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fourth Industrial Revolution: Robots, Artificial Intelligence Will Destroy 5.1 Million Jobs by 2020 Posted: 22 Jan 2016 10:01 AM PST Fourth Industrial Revolution Coming A new study on the "Future of Jobs" by the World Economic Forum at Davos claims a Fourth Industrial Revolution is Coming. The Fourth Industrial Revolution includes developments artificial intelligence, robotics, nanotechnology, 3-D printing, genetics, and biotechnology. Although no industrial revolution has ever destroyed jobs, the study concludes a net 5.1 million jobs will vanish in the world's 15 leading countries. Those countries account for roughly two-thirds of the global workforce. The report is a 167 page PDF slog. Here are a couple of tables I created from the report data. Job Family Losers
Job Family Gainers
I understand the losses, at least part of them. But gains in financial operations? Everything Rosy but Healthcare Curiously, the following chart from the report makes everything look rosy except healthcare.  I don't accept that chart, at least for the implied reasons. Yet, after boomers die off en masse, I foresee all kinds of health-related jobs will vanish until the next retirement boom hits. Trucks and Taxis What about truck and taxi drivers? I expect millions of truck hauling and taxi jobs will vanish soon, in the USA alone, by 2025. I searched the report for the word "truck" and found this lone reference: "Advanced robots with enhanced senses, dexterity, and intelligence can be more practical than human labour in manufacturing, as well as in a growing number of service jobs, such as cleaning and maintenance. Moreover, it is now possible to create cars, trucks, aircraft, and boats that are completely or partly autonomous, which could revolutionize transportation, if regulations allow, as early as 2020." That paragraph was under the category "Advanced Robotics and Autonomous Transport" given a disruptive weighting of 9%. Let's dig deeper with a look at disruptive weightings. Technological Drivers of Change
The last column is my set of abbreviated notes, condensed from descriptions in the report. The first three columns are as presented in the report. Discussion of Disruptive Factors I fail to see what big advances in computing power will do. Nor do I see crowdsourcing as a big factor. I suspect crowdsourcing is one of those things with huge potential that never really flies because there is no money in it for anyone. Remote sensors will eliminate the need for some humans, but hasn't that been underway for quite some time? If not, we can certainly get rid of all the meter maids. On the energy side, fracking is an environmental disaster, and a bust for now, perhaps for a long time. And much of the clean energy systems only work with government subsidies. Battery technology will likely improve and replace or greatly reduce the need for gasoline. If so that will be very disruptive indeed. But will batteries destroy jobs or just disrupt them? Gas stations could become battery switching stations. That may require people to change the batteries, but it will also eliminate gas delivery and gas production jobs. Regardless, this type of change won't be in place by 2020. I struggled mightily with the report's 34% rating for "Mobile Internet". It's possible for huge numbers of teaching jobs to vanish with classes over the internet. And applications like Uber will also have an impact. Yet, this category is over-rated. Biggest Disruptive Force My number one job destructive force is advanced robotics and autonomous transport. Uber ties into this category as well. Uber is adding jobs for now. In the not so distant future, long-haul trucking jobs, Uber driving jobs, and all taxi driving jobs will vanish. Millions of driving jobs of all kinds will vanish in the US alone, by 2025 though, not 2020. Mike "Mish" Shedlock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| China Openly Pledges to Sink the Yuan vs. the Dollar Posted: 22 Jan 2016 01:38 AM PST China Drops Dollar Peg If China was really serious about doing what every major country in the world does, it would float the yuan. On Thursday, I saw this MarketWatch headline: China Serious about Dropping Dollar Peg. I was totally unimpressed after reading the article. China will not do the one thing it has needed to do for decades: Let the Yuan float. China still insists on setting artificial pegs that the market openly mocks. China Pledges to Sink the Yuan DAVOS, Switzerland--A senior Chinese official Thursday affirmed China's intention to decouple its currency from the U.S. dollar, while the head of the International Monetary Fund urged Beijing to improve communication with markets about changes to its foreign-exchange regime.Stability Nonsense The entire notion that a peg creates stability is complete nonsense. But don't listen to me. Instead, ask Switzerland. China's last peg worked, until it didn't. That peg did help China's export model as long as the US dollar was sinking. Now China pledges to peg to a basket. In other words, China wants to sink the yuan. Supposedly this will create stability. To reach stability, China openly admits instability. Reserve Currency Nonsense People keep telling me the Yuan will soon be the world's reserve currency. I have openly mocked such pronouncements for a decade. I mock such pronouncements again today. China's bond markets are neither big enough nor liquid enough to handle the task. And China still cannot get off currency pegs. China Drops Currency Peg It Cannot Defend China Dropped the dollar peg. To what? To a floating peg! Why? Because China cannot defend the existing dollar peg. China disguised that fact with a "serious" announcement pretending to be something else. Price of Stability Expect huge volatility. It's coming. Instability is the price we have to pay for stability. Mike "Mish" Shedlock |
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