25.1.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


UK Headed for Triple Dip Recession? Impact on EU Exit Vote

Posted: 25 Jan 2013 05:11 PM PST

There is much talk of a triple dip recession in the UK. It depends on how you define it. If you call a recession two consecutive quarters of decline in GDP, with any quarter of positive growth ending the recession, then answer is yes.

Here is a chart from the Telegraph article UK heads for triple dip as GDP contracts 0.3pc to consider.



Double Dip?

The blue rectangles are mine. I see two recessions not three.

With 9 quarters in between recessions, one might ask "Is this even a double-dip setup?" I suggest yes, but there is no clear agreed-upon definition of how many quarters can be between recessions to call it a double-dip.

From the Telegraph ...
The official figures were the fourth quarter of negative growth in the last five and mean that the UK flatlined for last year as a whole – posting zero growth.

The economy is smaller than it was in September 2011 and still 3.3pc below its pre-crisis peak.

Making matters worse, there was scant evidence in the data that the economy is rebalancing from consumption to manufacturing. Output by Britain's factories fell by 1.5pc in the quarter and by 1.8pc for the year as a whole – the first annual decline since 2009.

Howard Archer, economist at IHS Global Insight, described the situation as "dire" and added: "We believe the economy is essentially flat at the moment. We suspect that GDP will not return to the level seen in the first quarter of 2008 until the first half of 2015 – a gap of seven years."
Dire Situation

The article notes that 4th quarter GDP was impacted by an unusually long maintenance period for North Sea crude production. However, even if one subtracts that effect, GDP was still negative.

The chance UK GDP will not return to the 2008 level until 2015 is indeed a dire setup.

Impact on EU Exit Vote

This economic mess puts a lot of pressure on Prime Minister David Cameron by the Labour Party , for Cameron to abandon austerity measures.

Bear in mind that Cameron has promised to hold a referendum on a UK exit only if he wins reelection,  and even then only after he renegotiates the EU treaty. Simply put, Cameron has not promised a damn thing. It's nothing but an election ploy, that will likely backfire.

Moreover, if the economy remains sour as I expect, Cameron is likely to lose the next election and the UK's chance to quickly and easily get out of the EU (which the UK should do in my opinion), will go right down the drain.

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

Much More Beneath the Surface of the Italian Bank Scandal; How Big Are the Derivative Losses?

Posted: 25 Jan 2013 10:57 AM PST

Yesterday I commented on how Italy's 3rd largest bank hid derivative losses,how it might affect the upcoming Italian elections, and why ECB president Mario Draghi should be under fire as well.

For details, please see Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter for the Italian Authorities" (To Sweep Under the Rug).

As is typically the case, there is more going on than mainstream media reports. I bounced my article off reader Andrea who is from Italy but now lives in France. Andrea writes ....
The article you reported is very well done and describes almost all the facts of the situation.

What is not reported is that Giuseppe Mussari, the recently resigned head of ABI (Italian Bank Association) was the CEO of Banca Monte dei Paschi di Siena at the time of the derivative losses. He resigned following the scandal, but this casts a very negative shadow on the overall banking system. It also makes open a discussion about the widespread belief (repeated as a mantra by the whole political class) that the Italian banks were wiser than foreign counterparts, not involved in toxic things and therefore not needing huge bailouts or supports like anywhere else in the world.

This scandal blasted like a bomb in the campaign. Monti is most likely the one who will be hurt. However, It's unclear who can take advantage. The center-left was at the government only 2 years (2006-2007), so it is quite hard to find evidence to give the blame just to them.

The Economy Ministry and Bank of Italy are blaming each other about the lack of supervision, for different reasons. The probable truth is that both lacked of supervision for their respective parts.

Most likely prosecutors will open an investigation (they are obliged by law to do so in Italy if they are informed of a possible crime) and this could lead to further discoveries.

I think that for Monti to appear in the Parliament to speak about this in the middle of the campaign and with his image of "friend of the finance world" could be a very painful and delicate exercise

So, to summarize, I think we are at the beginning of the story. In an Italy under a bombing of taxes, huge recession and lack of credit from the banks to the real economy, this will be hard to be swept under the rug. The message "the taxes you pay are used to help banks getting out of their toxic speculations" is very easy to deliver in such circumstances.

Best regards,

Andrea
Tangled Web of Giuseppe Mussari

Inquiring minds may be interested in the tangled web of places where Giuseppe Mussari had tentacles.

Could he and did he hide all of this from the Bank of Italy, then headed up by current ECB president Mario Draghi?

How Big Are the Derivative Losses?

While pondering what Dragi knew or didn't, let's turn our focus on actual losses. Reuters reports Monte Paschi Shares Plunge on Derivative Loss Fears
Shares in Banca Monte dei Paschi di Siena, Italy's third-biggest lender, fell more than 5 percent for the second day in a row on Wednesday on worries of mounting losses on some financial derivative positions which it took in 2008 and 2009.

The price had already dropped 5.7 percent on Tuesday after reports that it is expected to book a loss of at least 220 million euros ($292 million) on one particular derivatives deal related to its debt holdings done three years ago.

That deal, called Alexandria and designed by Japanese bank Nomura, is one of several troubled structured transactions the bank is reviewing to assess their impact on its accounts, Monte dei Paschi said on Tuesday.

At least one other derivative trade, a 2008 deal with Deutsche Bank, is also thought to be under scrutiny, analysts and banking sources say.

The loss on the deal with Nomura is the latest setback for Monte dei Paschi, which requested 3.9 billion euros in state aid to plug a capital hole stemming from its government bond portfolio and hedging bets gone wrong. The bank had already raised its state aid request by 500 million euros in November, citing a possible hit on its capital from past structured transactions still in its portfolio.

But some analysts are beginning to question whether that 500 million cushion will be enough to cover for any losses linked to the derivative contracts. Italian newspaper Il Fatto Quotidiano quoted an anonymous source on Tuesday as saying the loss on the Nomura trade alone could amount to 740 million euros.

"If losses above 500 million euros emerged, the group would struggle even more to fix its capital position," Comi said.

Nomura said on Tuesday the trade had been approved by the Italian bank's board and its then chairman Giuseppe Mussari, but Monte dei Paschi said the Alexandria deal had never been submitted to its board for approval. Mussari stepped down late on Tuesday as head of Italy's banking association, denying any wrongdoing.
This mess should hit Draghi and the ECB, but they will do everything possible to sweep it under the rug. Nonetheless, it is highly likely to impact the elections as Andrea notes.

If the losses are big enough, Banca Monte dei Paschi di Siena faces nationalization.

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

Yen Set for 11th Weekly Drop; Japan Records Largest Trade Deficit in History

Posted: 25 Jan 2013 12:25 AM PST

After a couple of headfakes higher on the daily charts Yen Set for 11th Weekly Drop.
The yen headed for a record stretch of weekly losses against the dollar as data showing a decline in Japanese consumer prices added to the case for further monetary stimulus from the central bank.

The Bank of Japan announced open-ended easing and a 2 percent inflation target this week. The Japanese currency remained weaker after touching a 2 1/2-year low as Governor Masaaki Shirakawa said he will make "considerable efforts" to reach the price target. The Dollar Index rose before U.S. data forecast to show home sales increased.

Consumer Prices

Japanese consumer prices excluding fresh food fell 0.2 percent in December from a year earlier, the statistics bureau reported in Tokyo today, the seventh decline in eight months.

Prime Minister Shinzo Abe, who took office last month, has called for "bold monetary policy" to beat deflation and drive the yen lower. The BOJ on Jan. 22 doubled its inflation target to 2 percent and announced open-ended asset buying from 2014.

BOJ board members said Japan's economy is weakening and the central bank will continue with "powerful" monetary easing, according to the minutes released today of the December meeting when it expanded its asset-purchase program by 10 trillion yen ($110 billion).

Shirakawa reiterated in remarks in Tokyo today that while the central bank is conducting aggressive easing, achieving the price-gain target isn't easy.
Japan Records Largest Trade Deficit in History

The Financial Times reports Japan Records Largest Trade Deficit in History
Japan's trade deficit nearly tripled in 2012 to Y6.93tn ($77bn), an unprecedented shortfall for the traditional export powerhouse that could colour debate about the so-called currency wars as Tokyo pursues policies that push down the value of the yen.

The sharp expansion of the deficit, from Y2.56tn in 2011, is a reminder of the increasingly complex challenges facing Japan's economy and its new government, which has promised aggressive measures to end a two-decade malaise.

The monetary shift was crystallised on Tuesday when the BoJ set a target of 2 per cent inflation, but has alarmed some of Japan's trading partners. Germany, the UK and China have warned that efforts to weaken the yen could lead to a spiral of competitive devaluations among major economies – a so-called currency war.

On Thursday Mr Abe said the government would continue to consider a possible revision to the Bank of Japan law to ensure the central bank keeps easing monetary policy.

"Given the need for continued bold monetary easing, I want to keep in mind" the potential legal revision, Mr Abe said in an interview with Kyodo News.

Thursday's trade data highlighted just how sharply the country's global trade position has deteriorated. In December, exports were down 5.8 per cent compared with the same month a year earlier, while imports rose 1.9 per cent.

Exports to China, where some consumers have been shunning Japanese products amid an international dispute over control of islands in the East China Sea, fell 15.8 per cent, but shipments to Europe and the US were also down.
Currency Wars

Without a doubt, currency wars have ramped up to a new high. It's hard to say when or where this stops, but those who thought Shinzo Abe was bluffing, need think again.

However, and as I have said repeatedly, a weaker yen will not do Japan any good.

There is every potential for the decline in the Yen to quickly get out of control, and I suspect it will. When it does, Abe may not be able to stop a devastating slide that is likely to harm consumers more than it helps Japanese manufacturers.

Be careful of what you wish.

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

24.1.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter for the Italian Authorities" (To Sweep Under the Rug)

Posted: 24 Jan 2013 04:06 PM PST

When Mario Draghi (now ECB President), had oversight of the Italian bank system as Bank of Italy Governor, the Italian bank Monte dei Paschi di Siena (Italy's third largest bank) hid information on the derivatives transactions between 2006 and 2009.

This information is just now out, and shares of the bank have plunged 22% in a few days. Mario Draghi ought to be under fire, but he says it's a "Matter for the Italian Authorities".

The Mish translation is "It's a Matter for the Italian Authorities, to Sweep Under the Rug".

With that backdrop, let's take a look at the other Super-Mario (Mario Monti) who is Under Fire Over bank Crisis.
Mario Monti, Italy's prime minister, was forced to offer to recall parliament on Thursday amid questions about his government's handling of the financial crisis at Monte dei Paschi di Siena and the role of the central bank.

Shares in Italy's third-largest bank by assets, which has requested a second state bailout in four years, have fallen more than 22 per cent in the past few days since revelations five days ago of derivatives transactions that may force the 500-year-old bank to restate hundreds of millions of euros of losses.

Supervision of the struggling institution by the Bank of Italy while Mario Draghi, European Central Bank president, was governor has come under attack as an increasingly fierce political outcry erupts in the run-up to national elections next month.

Among the most vocal criticisms of the central bank, which traditionally has oversight of the Italian banking system, was Mr Draghi's long-time rival Giulio Tremonti, the former finance minister who is again running for office on February 25 for the centre-right.

In a sign of the severity of the situation, Giorgio Napolitano, Italy's head of state, made a rare entry into the financial arena. "If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy," he told reporters.

In a statement released late on Wednesday, the central bank said Monte dei Paschi had "hidden" information on the derivatives transactions struck between 2006 and 2009, a period during which Mr Draghi was governor.

The Bank of Italy said the "true nature" of some of the deals emerged only recently, "following the discovery of documents kept hidden from the supervisory authority and brought to light by the new management of MPS."

The ECB told the Financial Times that it was a matter for the Italian authorities and declined to comment.

Italy's centre-right party, led by Silvio Berlusconi, has seized on the issue to attack its centre-left opponents, who have had long institutional ties with MPS. "Monte dei Paschi is close to collapse," commented Angelino Alfano, secretary of the People of Liberty. "This is an example of how the left would govern the country."

Il Giornale, a Milan daily owned by the Berlusconi family, ran banner headlines saying the more than €4bn paid by Italians in a widely hated property tax imposed by Mr Monti was in effect going to prop up a failed bank.

Analysts remain concerned that the derivative losses, which are expected to push the bank to a €2bn annual loss for 2012, may increase the risk of the bank being partially nationalised as it will force the state to take an equity stake because the bank will not be able to repay its bail out bonds.
Sweeping Efforts Underway

Note the curious statement by Giorgio Napolitano, Italy's head of state (a largely ceremonial post): "If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy."

IF the situation is serious? Is there a question here?

I think not. And I wonder what Mario Draghi actually knew. Efforts are probably underway to determine if Draghi actually said anything about this in writing.

Meanwhile, there is a good chance Italy's third largest bank may be nationalized, and an even larger chance this will affect national elections coming up in February.

However, Please don't worry. Apparently it's not serious.

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

Walmart Explores Offering Private Health Insurance for Small Businesses; In Praise of Walmart

Posted: 24 Jan 2013 09:07 AM PST

Once again I am here to sing the praises of Walmart. Over the years I have done so on many occasions.

Many misguided souls take the other side. They blame Walmart for ruining mom and pop grocery stores, mom and pop hardware stores, etc.

Not me, I praise cheaper prices. Moreover, it's what consumers voted for with their hard-earned dollars.

If anyone wants to pay more for stuff, all they have to do is shop at a mom and pop hardware store, grocery store, or pharmacy. Most don't because they want a bargain.

Today, I have good news. Walmart-style competition may be on the way in the healthcare business.

The Orlando Business Journal writes Wal-Mart exploring private health insurance exchange for small biz.
Wal-Mart is exploring the idea of building a private health insurance exchange tailored to offer cheaper health insurance to small businesses, a vice president told Orlando Business Journal Jan. 11.

Marcus Osborne, vice president of health and wellness payer relations for Wal-Mart Stores Inc. (WMT), spoke to OBJ after his keynote speech at the Foundation of Associated Industries of Florida's 2013 Health Care Affordability Summit. Osborne said Wal-Mart wants to work with insurers and managed care companies to find new, low-cost health insurance options tailored for small companies, which historically have limited options.

The idea is to offer those products through a health insurance exchange — or as Osborne said, simply a marketplace — that would leverage Wal-Mart's buying and marketing power to make the exchanges widely available and used. "It would allow small employers to piggyback Wal-Mart," Osborne said. "We haven't got it all figured out, but it's one of the things we're looking at."

"The biggest problem today small employers face from a health insurance perspective is they have no alternatives," Osborne said. "If they find anything, they've got to take it. There's something wrong with that."
In Praise of Walmart

Obamacare is going to raise the cost of healthcare. Walmart will lower costs. I have been waiting for this since Summer of 2008.

Flashback June 22, 2008: Trade Wars, Health Care, and Wal-Mart
This post is about trade wars, tariffs, health care, and Wal-Mart. I will tie these themes together starting with a look at Wal-Mart and health care.

I have many disagreements with Jim Jubak, but he hits the nail on the head with Let Wal-Mart fix US health care.
I know who can fix our broken health care system -- and who can't:
  • Not presumptive Republican nominee John McCain. He proposes a tax credit of $5,000 per family to encourage us to buy private health insurance.
  • Not Democratic presidential candidate Hillary Clinton. She proposes universal health insurance supported by tax credits.
  • Not Democratic presidential candidate Barack Obama. He proposes a mix of public and private health insurance with government subsidies to those who don't qualify for government insurance plans such as Medicaid.
I say, let Wal-Mart Stores (WMT) do it. Hold your guffaws. Stifle your impulse to scoff. Control those sputters of rage.

Wal-Mart has done more to expand coverage and lower costs in the past year than any government program to come out of Washington in the past 10 years. And I'd bet the new programs that this company -- known for stiffing its own part-time workers on health care benefits -- has announced in the past year will do more to expand coverage and cut costs than anything likely to come out of a McCain, Clinton or Obama first term.

Letting Wal-Mart run the health care system would fix many of those problems. It's a company that understands how low prices can build market share and thus increase profits. Furthermore, it's a company with a culture of cutting costs that has shown no compunction in pushing suppliers to the wall over price. The Wal-Mart motto ought to be, "Make it cheaper, or we'll find someone who can." I'd love to see that attitude brought to bear in health care.
Inquiring minds will want to read the rest of the article. It's surprisingly good.

Jubak makes a compelling case. He never said this explicitly but I will. "We do not need higher wages or higher prices. We need lower prices and a dollar that buys more".
Hopefully a good idea, long overdue, is about to happen. I repeat what I said in 2008: "We do not need higher wages or higher prices. We need lower prices and a dollar that buys more".

Walmart-style competition would do just that.

My primary fear is regulators will kill the idea based on trumped up charges of some sort (or bribes from healthcare providers who fear competition) before the idea takes hold.

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

Gallup Poll on Obama's Proposals to Address Gun Violence; Republicans and Democrats Agree on 7 of 9 Items; Is Now the Time?

Posted: 23 Jan 2013 11:45 PM PST

Gallup has an interesting poll on Gun control. Republicans, Independents, and Democrats are in agreement far more than one might have thought.

Of course I am talking about the population in general, not the extremists on both sides of the aisle in Congress.

Poll questions were specifically worded by Gallup to follow President Obama's "Now is the Time" gun control agenda.

The results are in: Americans Back Obama's Proposals to Address Gun Violence.
Most Proposals Have Bipartisan Support

Although Democrats show more support than Republicans for each proposal, majorities of both partisan groups favor seven of the nine proposals. That includes nearly universal support among Republicans and Democrats for requiring criminal background checks for all gun sales. A majority of Republicans also favor a ban on armor-piercing bullets and increasing penalties for straw purchasers, as well as the various school security, police funding, and mental health funding proposals tested.

The two proposals favored by majorities of Democrats, but not Republicans, relate to enacting bans on the sale of guns or ammunition.
Support for Proposals by Political Affiliation



click on table for sharper image

Discussion

My personal check list is sure to disappoint some Republicans, some Democrats, some Independents, and some Libertarians. So be it.

  1. Requiring criminal background checks for all guns is a seemingly reasonable thing to do. Overall, 92% of the people favor such an action. Checks will not stop a desperate criminal, but it may stop others. Nonetheless, I have reservations as explained below.
  2. The proposal to increase mental health programs for youth will not be affordable. What would likely start out as a modest program will end up costing tens if not hundreds of billions of dollars down the road once bureaucrats get behind it. Ask taxpayers if they support increasing taxes to pay for the programs and I bet the answer is different. The same applies to other funding questions.
  3. Similarly, we do not need funding to increase training. Police departments have ample money already. Money is wasted in union graft, overpaid officers, and untenable pension programs. There is nothing wrong with increased training. However, there is everything wrong with assuming extra funds are needed.
  4. Increasing penalties for straw purchasers may not help a lot. However, it cannot hurt either. In conjunction with item 1, there may be a modest benefit. If not, at least item 4 will not cost anything.
  5. Funding 15,000 extra police is of course ridiculous. Having extra officers may not be. The solution is getting rid of collective bargaining of public unions to drive down costs, not to throw more money at the problem.
  6. By now you should be tuned into my line of thinking. Funding school emergency response plans is also ridiculous. This is not to say I oppose having a plan. Rather, I simply oppose spending additional taxpayer money on the idea. Schools ought to be doing this already. All it takes is for schools to schedule time with police departments to go over some common sense ideas. Do this for one school and it will apply to thousands. Throw money at it, and every school will seek 1000 times more money than they need.
  7. There is absolutely no need for anyone to have an assault weapon to protect themselves. Nor do citizens need hand grenades, nuclear missiles, or any other such devices. It is beyond idiotic to ascertain assault weapons are constitutionally protected.
  8. A ban on armor-piercing bullets is of course a no-brainer. There is no legitimate use of armor-piercing bullets for private citizens.
  9. A ban on magazines with over 10 rounds is also a common-sense proposal. No one can possibly need more than 10 rounds in a clip to defend themselves in public or in their homes. 

Cost Effective Analysis

From a cost-effective standpoint, the items that would likely do the most good, at the least cost, were the items that had the least support. Items 7, 8, 9, and 4 would not cost a dime. I solidly support all four.

I support preparing emergency plans (item 6), but that should not cost a dime either. As worded, I have to vote no.

I am fearful that the most supported idea (item 1) will end up costing too much in relation to the benefit. I voted yes, for now, but I  need to see details of the plan as well as realistic measures of the cost.

As it stands, I am solidly in favor of 4 things that will not cost a dime. Those 4 items will not trudge on any conceivable rights either. I support an additional item, with reservations.

Once again, if Gallup asked taxpayers if they support increasing taxes to pay for these programs, I bet the answers would be different and the order of priorities would be different.

How Helpful Are Concealed Weapons?

Inquiring minds may be interested in a post by Barry Ritholtz How Helpful Are Concealed Weapons?

Click on the link to see a couple of interesting videos.

Note that Barry took a lot of flak for his post. Read the comments and see for yourself. I side with Barry.

The most sensible comments came from Disinfectant and GreenTom.

Disinfectant says ...
It is amazing, but not at all surprising, that so many watch these videos and utterly fail to understand the message. The point is simple and should be uncontroversial – unless you are well trained, defending yourself with a gun in a live scenario is very difficult; your body and mind are not prepared for this. It doesn't matter how often you go to the gun range or how heroic you imagine yourself to be. Going through the motions of protecting yourself, getting the gun out, then firing at the target (and ONLY at the target) does not happen naturally.

To the critics: nowhere does it imply that a gun will never be useful in defense. Obviously, if you are not in the immediate line of fire and can take cover, you will have more time to prepare yourself. But if the shooter is standing right in front of you, your odds are likely much lower than you think. And as far as anecdotal evidence goes, I'm sure 0% of you can actually say that you have been in such a situation and performed as flawlessly as your imagination would have you believe.
GreenTom says ...
I'd agree this is kind of staged, but more rigorous studies show the same thing. Study below reports that people carrying weapons are about 5 times more likely to be shot than those who don't carry. It's funny, I predict a lot of negative reactions to this comment, but does anyone really claim that escalating a robbery to a gunfight isn't a risky move?
Investigating the Link Between Gun Possession and Gun Assault

Here is the study cited by GreenTom: Investigating the Link Between Gun Possession and Gun Assault
...Individuals in possession of a gun were 4.46 times more likely to be shot in an assault than those not in possession. Among gun assaults where the victim had at least some chance to resist, this adjusted odds ratio increased to 5.45.

Among a long list of issues facing the American public, guns are third only to gay marriage and abortion in terms of people who report that they are "not willing to listen to the other side." In concert with this cultural rift, scholarly discussion over guns has been similarly contentious.1 Although scholars and the public agree that the roughly 100 000 shootings each year in the United States are a clear threat to health, uncertainty remains as to whether civilians armed with guns are, on average, protecting or endangering themselves from such shootings.
I commend Barry for taking a controversial stand on a controversial topic. Most bloggers stay away from controversial subjects, generally out of fear of offending readership. As my readers know full well, I will not shy away from controversial topics either.

By the way, gun control may not seem like an economic topic but it is. Many of Obama's proposals will require significant expenses to implement down the road (even if hidden initially).

Reflections on Libertarianism 

I am certain to be charged by some of violating Libertarian beliefs.

However, libertarianism is not anarchy. Rules exist to protect property. Reasonable legislation will prevent some of these incidents, and no amount of legislation will stop all of them.

Moreover, common sense says that encouraging average citizens or teachers to walk around with assault weapons or concealed guns (the actual remedy proposed by some gun advocates) would cause a lot of needless deaths and property damage as a result would-be John Wayne types trying to be heroes, but accidentally killing innocent bystenders. 

Reflections on the Constitution

As passed by Congress, the Second Amendment reads "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed."

As ratified by the states, the Second Amendment reads "A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed."

Notice the dispute over commas. Also note how the concept of a "well regulated militia" is completely dropped by gun advocates.

The Supreme Court did rule the Second Amendment protects an individual's right to possess a firearm, unconnected to service in a militia.

Regardless, the rights to bear arms to protect oneself certainly can and should have limits.

To clarify that its ruling does not invalidate a broad range of existing firearm laws, the majority opinion, written by Justice Antonin Scalia, said:

"Although we do not undertake an exhaustive historical analysis today of the full scope of the Second Amendment, nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms."

One does not need bazookas, hand grenades, missiles, assault weapons, armor-piercing bullets, or 10-clip magazines to defend one's person or one's house. Those items all need to be outlawed.

Gun advocates argue we need to enforce existing laws, while arguing against every law on the books. Meanwhile, state-to-state variations in laws make enforcement a nightmare, at best.

Now Is The Time

Obama says "now is the time". I agree but only where costs are low and benefits high. There are four (perhaps five) items out of nine on the president's agenda that meet that criteria.

My top three ideas are 7, 9, and 8 (pretty much in that order, but possibly 9 ahead of 7 which I will leave to the experts). Unfortunately, Republicans are likely to fight 7 and 9 (if not 7, 8, 9, and 1).

Given the sad state of Congressional compromises, Republicans may even agree to waste taxpayer money on programs simply to appease voters who clearly want something done.

Unfortunately, the end result is highly likely to be a combination of the most money spent for the least benefit.

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

"Wine Country" Economic Conference Hosted By Mish

I am hosting an economic conference in April, in Sonoma, California. Please consider attending.
Click on Image to Learn More

23.1.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


China Flash PMI at 2-Year High; Don't Expect Too Much More

Posted: 23 Jan 2013 06:54 PM PST

China manufacturing PMI is at a 24 month high. At 51.9, it's not all that much to get terribly excited about, nor is it all that unexpected.

Nonetheless, conditions show a temporary rise following a lengthy bout of contraction.

The HSBC Flash China Manufacturing PMI™ shows Operating conditions improve at the quickest pace in two years.
Key Points

Flash China Manufacturing PMI™ at 51.9 (51.5 in December). 24-month high.
Flash China Manufacturing Output Index at 52.2 (51.9 in December). 22-month high.

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

"At 51.9, January's HSBC China manufacturing PMI rose for the fifth consecutive month to the highest level in two-years, heralding a good start to the New Year. Thanks to the continuous gains in new business, manufacturers accelerated production by additional hiring and more purchases. Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months."
"Steam to the Recovery?"

I will take the other side of the steam to the recovery thesis. You cannot build much steam on inventory replenishment with weak (and weakening) external demand. Any steam needs to come from internal demand, and not internal demand caused by artificial stimulus measures.

Unfortunately artificial stimulus is all there is. I commented on this uptick in advance. For discussion, please see in Pettis: Nine Things to Watch in 2013; Unwarranted Outbreak of Optimism in China and Europe; The Great Rebalancing.

All is not what it seems. With China, it seldom is.

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

Why I'm a Deflationist Who Likes Gold - Interview on Goldmoney

Posted: 23 Jan 2013 11:40 AM PST

On Tuesday I had a nice opportunity to Chat with GoldMoney's Andrew Duncan.

I explain why I am a deflationist who likes gold, why most of the Austrians went wrong in ignoring credit, how hyperinflationists are too US-centric in their approaches, and why credit events are more likely (at least in the short-term) to happen in Japan, China, or Europe.

I also discuss currency wars, the deflationary forces of robots on jobs and the balance of trade. On the humorous side, I answer the question as to what I would do if I were put in charge of the Fed. 



Click on the top link for more GoldMoney podcasts.

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

Top Gaining and Losing Jobs in the "Recovery"

Posted: 23 Jan 2013 09:21 AM PST

This is part three in a series of articles on jobs gained and lost since December 2007.

The first article was an interactive map from Tableau: Job Gains and Losses in the Recovery by Job Type (Healthcare, Education, Mining, Construction, Finance, Real Estate, etc).

The second article Job Gaining and Job Losing Industries 2007-2012 displayed data in an interesting pie chart fashion by Salil Mehta who has a blog on Statistical Ideas.

This article contains another look at the data, but focus is on jobs gained or lost in the recovery.


Data for all three posts is courtesy of Economic Modeling Specialists.

The recession ended in June of 2009, but the data I have is annual. Data in the following charts uses December of 2009 as a proxy for the start of the recovery. Once again, pie charts are by Salil Mehta.

Click on any chart for sharper image.

Top Losing Jobs in the Recovery



Top Gaining Jobs in the Recovery



For comparison purposes here are the December 2007 thru December 2012 charts once again.

Job Gaining Industries 2007-2012



Job Losing Industries 2007-2012



Notes

  • From 2007 thru 2012, 12 industries lost jobs.
  • Since December of 2009, there were only 5 industries that lost jobs (and utilities only barely).
  • As far as government jobs go, we can certainly afford to lose more.
  • Information was a solid job loser every period


Gainers vs. Losers Analysis

If one listens to all the ads from for-profit schools as well as retraining hype from President Obama, one might actually think we need more IT training. As I have stated repeatedly, one cannot retrain a brick-layer into a programmer. Besides, there is a vast sea of skilled programmers (already trained) who do not have a job.

I don't have a breakdown of healthcare and social services jobs, but the distinction between nurses, social workers and temporary care givers in terms of pay is without-a-doubt dramatic. I expect the economy added far more lower paying jobs than it did high-paying registered nursing jobs.

Accommodation and food service jobs certainly tend to be low-paying jobs. Indeed, many food service jobs are part-time only, with no benefits at all. I suspect most waste management jobs are low-paying jobs as well.

Compare the job gains in the recovery with job losses since 2007.

Construction, manufacturing, and information tend to be relatively high-pay jobs. In the period 2007-2012 the economy shed roughly 2.36 million construction jobs, 1.98 million manufacturing jobs, and 380,000 information jobs (a total of 4.69 million high-paying jobs). Note that construction and information lost jobs even in the recovery. 

Simply put, the US shed more high-paying jobs in the recession than the economy gained jobs of any kind (high or low-paying) in the recovery.

Involuntary Part-Time Employment



Part-Time Job Analysis

Its better to have a part-time job than no job. However, it's certainly better to have a full-time job than a part-time job if one is seeking full-time employment.

Roughly an additional 5 million workers went to involuntary part-time employment during or shortly after the recession. Only about one million of those jobs are now full-time, not necessarily in the same field, or at the previous pay scale.

Unemployment Rate Artificially Low

The official unemployment number is artificially low because it does not include any of the following:

  • Involuntary retirement to collect social security
  • Involuntary part-time-employment
  • Involuntarily education (e.g. kids remaining in school because there are no jobs)

My simple definition of unemployment is anyone who wants a jobs, is physically able to work a job, and does not have a job. By that definition, unemployment would certainly be North of 10%, and likely North of 11% (not even counting involuntary part-time employment).

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

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Let Elderly People 'Hurry Up and Die', says Japanese Finance Minister; "Heaven Forbid if You are Forced to Live"; Shades of Dr. Kevorkian

Posted: 23 Jan 2013 12:05 AM PST

Taro Aso, Japan's Finance Minister who has a serious problem with foot-in-mouth disease says Let Elderly People 'Hurry Up and Die'
Taro Aso said on Monday that the elderly should be allowed to "hurry up and die" to relieve pressure on the state to pay for their medical care.

"Heaven forbid if you are forced to live on when you want to die. I would wake up feeling increasingly bad knowing that [treatment] was all being paid for by the government," he said during a meeting of the national council on social security reforms. "The problem won't be solved unless you let them hurry up and die."

Aso's comments are likely to cause offence in Japan, where almost a quarter of the 128 million population is aged over 60. The proportion is forecast to rise to 40% over the next 50 years.

To compound the insult, he referred to elderly patients who are no longer able to feed themselves as "tube people". The health and welfare ministry, he added, was "well aware that it costs several tens of millions of yen" a month to treat a single patient in the final stages of life.

In 2008, while serving as prime minister, he described "doddering" pensioners as tax burdens who should take better care of their health.

In 2001, he said he wanted Japan to become the kind of successful country in which "the richest Jews would want to live".

He once likened an opposition party to the Nazis, praised Japan's colonial rule in Taiwan and, as foreign minister, told US diplomats they would never be trusted in Middle East peace negotiations because they have "blue eyes and blond hair".
Shades of Dr. Kevorkian

Judging from the insensitive nature of comments on health issues on top of all his previous gaffes, Aso is clearly unfit for office.

However, a couple things he stated make perfect sense. For example "Heaven forbid if you are forced to live on when you want to die."

That is the way I personally feel as well. It brings to mind Dr. Jack Kevorkian
Jacob "Jack" Kevorkian commonly known as "Dr. Death", was an American pathologist, euthanasia activist, painter, author, composer and instrumentalist. He is best known for publicly championing a terminal patient's right to die via physician-assisted suicide; he claimed to have assisted at least 130 patients to that end. He famously said, "dying is not a crime".

In 1999, Kevorkian was arrested and tried for his direct role in a case of voluntary euthanasia. He was convicted of second-degree murder and served eight years of a 10-to-25-year prison sentence. He was released on parole on June 1, 2007, on condition he would not offer suicide advice to any other person.
Dr. Jack Kevorkian's "60 Minutes" Interview

Please consider Dr. Jack Kevorkian's "60 Minutes" Interview which contains a video of Dr. K. himself injecting a patient who suffered from Lou Gehrig's disease, with a dose of lethal drugs.
Of all the interviews he conducted for "60 Minutes," Mike Wallace often said none had a greater impact than this one.

Dr. Jack Kevorkian had long been a public advocate of assisted suicide for the terminally ill. From 1990 to 1998, he claimed to have helped end the lives of some 130 willing subjects. In September of 1998, Dr. Jack Kevorkian videotaped himself injecting Thomas Youk, who suffered from Lou Gehrig's disease, with a dose of lethal drugs.


Whose Decision Is It?

To me this is a decision best left between an individual and a doctor, or an individual (and their family), and a doctor. I have signed papers saying I do not want to be artificially kept alive in certain situations.

When my mother died of cancer, my father was asked by the doctor "do you want us to try and revive her?" I faced a similar setup myself, when my wife Joanne died.

Terri Schiavo Case

Let's not forget the Terri Schiavo Case. By any practical measure, Terri Schiavo was dead. She had no functioning brain. Yet it took a 7 year battle for her husband to get the right to remove her feeding tube.

George Bush signed legislation to keep her alive. in 2003 Florida Governor Jed Bush signed "Terri's Law" forcing the state to keep a dead woman breathing against the wishes of her husband.

Many of the statements by Taro Aso are of a different nature but some reflect attitudes regarding interference by government that we have seen in the US.

What About Costs

Finally, there is an issue with costs. Even if someone wants to be kept alive, what are the bounds on costs? Does it make sense to spend millions of dollars to keep someone alive for another year?

At what point do we say "you get food, comfort care, and pain relievers" but that's it?

I do not have a precise answer but I can precisely say we need to have a serious discussion on the topic.

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

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22.1.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Sarkozy, Under Investigation in France for Fraud, Plans to "Dodge New 75% French Tax Rate by Moving to London and Setting Up £1bn Private Equity Fund"

Posted: 22 Jan 2013 02:05 PM PST

To the victor, belongs the spoils.

Had former French president Nicolas Sarkozy won reelection, he certainly would not be under investigation for illegally funding his campaign, nor there would be an investigation regarding his involvement in fraudulent arms sales to Pakistan.

Perhaps Sarkozy wants to escape such charges, or perhaps he wants to move for tax reasons, but regardless of why, the latest political scandal is Sarkozy's plans 'to dodge new 75% French tax rate by moving to London with wife Carla and setting up £1bn private equity fund'
Nicolas Sarkozy is preparing to move to London to set up a billion pounds plus investment fund, it was claimed today.

If the move goes ahead, the controversial Frenchman will become the latest to escape a potential top tax rate of 75 per cent in his home country.

He and his former supermodel third wife Carla Bruni-Sarkozy would be likely to settle in an affluent district like South Kensington – so becoming the most high profile Gallic celebrity couple in the city.

But the former president is under investigation for corruption in France, and if he does cross the Channel there will be outrage.

Details of the planned move were uncovered during a raid by fraud police on Sarkozy's Paris mansion last June.

It came within weeks of Mr Sarkozy losing his immunity against prosecution after being defeated by Socialist rival Francois Hollande in the May presidential election.

Now the hugely respected investigative news site Mediapart reports that the 'first draft' of Mr Sarkozy's London project was found by detectives examining his computer files.

Mr Sarkozy is said to have taken the money from Liliane Bettencourt, the I' Oreal heiress – a claim the politician denies, but for which he could still receive a prison sentence.

He is also being investigated over numerous other funding scandals, including one linked to arms sales to Pakistan, and another in which he is said to have used millions in taxpayers' money to pay friends to produce opinion polls while he was in office.

Mediapart suggests that the planned London move would create a 'conflict of interest' – not only because Sarkozy is being investigated, but because a former French president should not choose the UK as a base to make his fortune.
France Abuzz Over Sarkozy Plans

The Telegraph reports France abuzz over Nicolas Sarkozy 'London private equity fund' claim
On Tuesday night, France was rife with speculation – hotly denied [Not Really - at least by Sarkozy - Mish] that Nicolas Sarkozy plans to set up a £800 million private equity fund across the Channel in London.

The former French president, who left office in June, has been using his new job as a highly paid international conference speaker to try and stump up capital for the new venture, according to Mediapart, the respected investigative website.

Mediapart said the former leader's plan to launch a private equity fund in London is currently in the "exploratory" stage and that no company has yet been officially created.

Sources close to Mr Sarkozy dismissed the alleged plan as an "intellectual construction", with one telling The Daily Telegraph the former leader "does not confirm anything in the article". [No Confirmation, but No Denial either - Mish]

However, the website cited "very precise financial and industry sources" as saying plans are definitely afoot.

With the help of Alain Minc, a businessman and confidant, Mr Sarkozy has since October been seeking to recruit investors during a string of conferences, the first two for Brazilian group PTB Pactual, which has a large private equity arm.

Yesterday, Mr Minc denied playing any role in creating such a fund.

"It is absurd to think he would move to London and stop paying taxes in France." "Nicolas Sarkozy doesn't need me to meet the world's biggest funds," he told Le Figaro. "He has a thousand contacts and hasn't made up his mind about what he wants to do."

[The statement by Minc is not exactly a denial either - Mish].

Laurent Mauduit the Mediapart journalist who wrote the article, said: "I note Minc denies things I never wrote." "I never said he would physically move to London but planned to set up his company there," he told The Daily Telegraph.
Sarkozy Neither Confirms, Nor Denies Story

Notice that Sarkozy did not confirm anything in the Mediapart article, but did not deny anything either.

Minc's statement "He has a thousand contacts and hasn't made up his mind about what he wants to do" is certainly plausible. So is his statement "Nicolas Sarkozy doesn't need me to meet the world's biggest funds." Neither is a denial of anything.

Evidence suggests Sarkozy is indeed planning a move to the UK, probably for multiple reasons.

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

Meet "Baxter" the Robot Out to Get Your Minimum-Wage, No Benefits, Part-Time Job, Because He's Still Much Cheaper; Fed Cannot Win a Fight Against Robots

Posted: 21 Jan 2013 11:52 PM PST

The federal Minimum wage in the US is $7.25 per hour. Ten states have higher minimum wages with Rhode Island clocking in 50 cents higher at $7.75.

Costs to the employer are higher of course, even if the employer ducks benefits by using part-time workers.

For starters, employer contributions to Social Security are 6.2% of hourly wages which adds another 45 cents to employer costs. That brings employer costs up to $7.95 per hour minimum, not counting training costs, vacation (if any), sick-time disruptions, and other such costs.

Of course, employers must also factor in the cost of Obamacare.

Small businesses do not have to provide health-care, but under employer responsibility provisions of the affordable care act, businesses that employ more than 50 workers will pay a steep penalty in 2014 if they don't.

Click on the preceding link to see a nice flow chart of the penalty process.

What IF?

What if companies, small or large, did not have to worry about Obamacare? What if they did not have to worry, about training, sick-leave disruptions and weather-related disruptions? What if companies only had to pay $3.00 per hour, rivaling wages in China?

Meet Baxter



Baxter - The Automation Robot

MIT Technology Review discusses Baxter in Small Factories Give Baxter the Robot a Cautious Once-Over.

Chris Budnick, head of Vanguard Plastics, a small injection-molding operation in Southington, Connecticut is considering the use of Baxter for one process that is not yet automated: stacking and packing textured, plastic cups, which Vanguard sells for 2 cents apiece to a medical company.

It currently costs Budnick $9.00 an hour to have a staffer from a temporary agency to do the job.

Budnick is now considering Baxter to replace that agency job.

Let's tune in to the MIT story for additional details about Baxter and the job Baxter will replace.
Baxter was conceived by Rodney Brooks, the Australian roboticist and artificial-intelligence expert who left MIT to build a $22,000 humanoid robot that can easily be programmed to do simple jobs that have never been automated before.

Brooks's company, Rethink Robotics, says the robot will spark a "renaissance" in American manufacturing by helping small companies compete against low-wage offshore labor. Baxter will do that by accelerating a trend of factory efficiency that's eliminated more jobs in the U.S. than overseas competition has. Of the approximately 5.8 million manufacturing jobs the U.S. lost between 2000 and 2010, according to McKinsey Global Institute, two-thirds were lost because of higher productivity and only 20 percent moved to places like China, Mexico, or Thailand.

The ultimate goal is for robots like Baxter to take over more complex tasks, such as fitting together parts on an electronics assembly line. "A couple more ticks of Moore's Law and you've got automation that works more cheaply than Chinese labor does," Andrew McAfee, an MIT researcher, predicted last year at a conference in Tucson, Arizona, where Baxter was discussed.

Baxter comes with two arms, a vision system, and 360° sonar (which it uses to detect people nearby), but for the cup-stacking job it will also need a specially designed gripper, which Rethink is now developing. Rethink is also developing software so that the robot can communicate with other machines, such as a conveyor belt, telling it to move forward or stop.

So how important will Baxter really be to Vanguard? Budnick couches his answer in baseball terminology. "Baxter is a potential double," he says. "Maybe a home run if it can use both its arms."
60 Minutes Discusses Baxter

Inquiring minds are listening to a 13 minute video on 60 Minutes that discusses "The Age of Robots", and Baxter.



Link if video does not play: 60 Minutes on Robots

Please play the video. It's well worth your time.

60 Minutes Quotes and Idea

  • Percentage of Americans with jobs is at a 20-year low
  • Routine middle-skill jobs are being eliminated fastest
  • Software robots and physical robots replace wanted jobs
  • There are heavily automated warehouses where there are no human workers, right now
  • "You'd think the robots would run into each other but it never happens"
  • One robot saves 1.5 people
  • New Categories of jobs are in the sights of automation
  • eDiscovery replaces legal jobs
  • US manufacturing is making a comeback, but without the jobs
  • Investment in robots has increased 30% since the recession ended
  • Baxter costs $22,000 and can be trained in a matter of minutes
  • Baxter costs $22,000 and lasts 6,500 hours, about $3.40 per hour
  • Buying a robot is like hiring a Chinese worker
  • "Workers in China and India are more in the bulls-eye of the automation tidal-wave than the American worker"
  • Even if manufacturing returns to the US most of the jobs will go to robots
  • "Work as we currently think of it will be largely done by machines"
  • What people will do is the $64,000 question

Email Exchange With Friends

Here is an interesting Email exchange I had with a few friends, one of which sent me the MIT article.

"Bob" writes "Buy American is a big theme with the robotics guys. My future son-in-law won't even buy his tux from a Hong Kong tailor. He refuses to buy anything from China. They view themselves as abolishing Chinese slave labor by making it uneconomic."

"John" responded "What do those people then do to feed themselves?"

"Bob" replied "The easy answer is that it isn't our duty or problem to keep a slave state prospering and fed. You are not going to wipe out China's slave labor overnight. If China's elite sees that its low wage slave labor will no longer reap profits, they will do what other slave masters have done: educate its people so that they can compete in an economy where there are no slave conditions."

In Praise of Cheap Labor

"Mish" says, I fail to see where the above line of thinking goes.

We have come to a point where the minimum wage is 200% too much. How does hiring Baxter at $3.40 per hour prevent slave labor in China? Is no job better than some job?

Baxter is a hugely deflationary force. Increasing the minimum wage only exacerbates the problem.

Oddly enough, Paul Krugman agrees, or at least he once did before he became the "Conscience of a Liberal".

Want proof? Please consider In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All?

Taxing Robots Cannot Work

Economist Paul Krugman and others are now pondering heavy taxes on robots. Is that the answer?

How can it be? Paying more people to do nothing (or to do jobs robots can do cheaper) cannot possibly solve anything. Such practices encourage the birth of more people when there are fewer jobs to be had.

Two Realities

Either technology creates jobs long-term or it doesn't. I believe it does, and on that score I am an optimist (I just cannot say when it will happen).

Let's assume I am wrong. Then taxing robots to meet some artificial living-wage standard can hardly be the answer. Encouraging the birth of more unneeded, unproductive people is a sure-fire way to start a major war.

In either reality, Krugman is wrong.

Fed Cannot Win a Fight Against Robots

The problem is not that wages are too low. Rather, the problem is expenses are two high.

The remedy then is certainly not higher minimum wages (which previously encouraged more outsourcing and now encourages more robots), but rather making the dollar go further.

In that regard, it's a mad world in which the central bankers and the Keynesian clowns are both hell-bent on forcing wages and prices up, when every attempt to do so accelerates the use of more robots.

There is nothing wrong with falling wages provided costs fall as well. Who (other than Keynesian clowns and misguided union activists) does not want lower prices?

Moreover, falling prices as a result of increasing productivity over time is the natural state of affairs. For example, one farmer today produces as much goods as 100 farmers a few decades ago.

Certainly the price of agricultural goods is up over that time frame, but far less than the corresponding increase in money supply and credit (the true measure of inflation).

Robots an Invincible Force

Central banks are powerless to stop the advance of technology. Robots in particular are an invincible force.

Resistance is futile.

The Fed, central banks, and governments around the globe need to embrace technology and its deflationary forces. Otherwise, the result will be a sad combination of fewer jobs, rising population, higher prices, and a ultimately a major war.

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

I am hosting an economic conference in April, in Sonoma.
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