NOT the Weather (6 Dead Overnight)

Remember, it has nothing to do with the weather. Nothing at all. Overall crime is down!!!

• Just months after Alease Davies’ oldest son was murdered in the Back of the Yards neighborhood, her youngest son was injured Friday evening in a drive by shooting a few blocks away.
  
  “I said, ‘Oh my God, not again. It’s only been five months,” said Davies, who now lives in Calumet City. “Am I cursed, or what?”
  
  The injured man was one of six people shot within 10 minutes in two incidents on the South Side, authorities said. Lavelle Davies and another person was shot in the 1100 block of West 51st Street. On the 4200 block of South Wells, four people were shot — including a man who was fatally shot while sitting on his couch by bullets from outside the home.
  

You ain't cursed Mama - you just raised an entire family of assholes.

So that's a quadruple shooting and a double within 10 minutes. Way to go Chicago! If only we could get a triple in there. What's that you say?

• Three men were hospitalized in critical condition after being shot in the Uptown neighborhood, officials said.
  
  The shooting happened at 9:27 p.m. near the 5000 block of North Winthrop Avenue, said Chicago Fire Department Chief Joseph Roccasalva.
  
  The shooting left a 22-year-old, a man in his 30s, and another man whose age was not available, critically injured, Roccasalva said.

Double, triple, four-bagger. A single would mean we hit for the cycle tonight.

Fortunately, we already have, but those haven't made the papers yet since the media are busy with the multiple shootings. 012 and 002 had singles that we know of already. So we're up to at least a dozen shot overnight with two being fatals. That brings the yearly total up in the neighborhood of 485 before December even started.

Overall crime is down - but shootings and killings aren't. And aren't likely to be any time soon.

UPDATE: Media reports are 6 dead with 16 shot just in the past 14 hours or so.  Rahm is unavailable for comment and McCrimeIsDown is hiding under the bed.

Janitors Laid Off

This is great - SEIU campaigns hard for Obama, gives countless millions of dollars to democrats, provides tens of thousands of foot soldiers to ring bells and answer phone banks.  And the pay off?

• Dozens of union airport workers were holding a prayer vigil outside Mayor Rahm Emanuel’s house on Thursday, asking him to reconsider a decision to hand custodial work at O’Hare International Airport to a new company that doesn’t use union labor.
  
  CBS 2[...] reports the O’Hare janitors and window washers will lose their jobs in just over two weeks, when a new contractor takes over custodial work at the airport.
  
  [...] Union custodial workers employed by Scrub, Inc., are being pushed at O’Hare out after Emanuel awarded a new janitorial contract to United Maintenance, a non-union firm. 

 But Rahm is pro-union.  And Obama is pro-union.

How's that feeling right about now?

And that double-dip recession you hear about?  Started back in July evidently.  Strap in people, a rough 2013 is on tap.

Winter Parking Ban

If you're reading this and your car is parked out on someplace like Western Avenue right about now, and it's still in the 40 degree range, and it'll be 60 on Saturday and Sunday.....

It's a sure bet your car is/will be hooked up on a tow truck before 3 AM.

Winter Parking Rules! Betting is hot and heavy this year - the over/under stands at 200 cars towed. Last year was only 188, but Rahm really needs money this year.

This is Police Work?

From the comments:

• The 001 dist TACT team has been assigned to work a gang funeral at 1936 s Michigan. Not standby, not radio alert, not special attention. Assigned. Start time is 0830 ON POST at 0900. pathetic.

Now we provide security for private gang events.  This is what people are paying taxes for?

Pretty soon, we'll be checking ID's at the door for their parties. Meanwhile, 016 and 022 burn.

Rumor Central

Rumor has it that the Chief Financial Officer for the City of Chicago suffered a burglary to her home yesterday.  Can anyone confirm?

That would be kind of poetic in nature - the head bean-counter providing Rahm with the reasoning to gut the department ends up a victim of the dwindling numbers that cannot hold the street any more.

Japan Manufacturing Contracts at Sharpest Rate for 19 Months; New Orders and Output Plunge; Watch the Yen

In Japan things have gone from Grim to Grimmer. The Markit/JMMA Japan Manufacturing PMI™ shows Japanese manufacturing sector contracts at sharpest rate in 19 months.

Key points:

Output and new orders both continue to decline
Capital goods producers register sharpest falls in production and sales
Inventories and employment cut amid subdued economic outlook

Summary:

Operating conditions in the Japanese manufacturing sector continued to worsen in November. The deterioration was driven by falls in output, new orders and employment as the economic climate remained difficult. Amid an uncertain outlook, manufacturers also cut inventory levels and lowered purchasing activity.

Investment goods producers also recorded the steepest fall in staffing levels during November. With the consumer and intermediate market groups also registering reductions in employment, a net fall in total manufacturing payroll numbers was recorded for the second month in succession.

Reduced sales and a subdued economic outlook were reported to have led to the reduction in staffing levels in the latest survey period. Similar factors led to declines in inventories and purchasing activity over the month. The fall in stocks of raw materials and semi-manufactured goods was the steepest in over a year-and-a-half, while input buying was pared to the steepest degree since April 2011.

Watch Japan's Current Account and the Yen

On November 12, in Japan Plunges Into Deep Recession; GDP Shrinks 3.5% Annualized; Japan Current Account Turns Negative First Time in 30 Years I noted that Japan trade deficit hits record as relations with China poisoned.

Japan Current Account Turns Negative

The trick for Japan is how to finance its national debt, now at a majorly unsustainable 235% of GDP.

Japan was able to do so for years on account of its current account surplus, of which trade is typically the largest component.

You can now kiss that surplus goodbye because Japan Current Account Turns Negative

Bug in Search of Windshield

As my friend John Mauldin suggests, Japan is a bug in search of a windshield. I highly doubt Japan can make it to 2022 or even 2017 before it runs into serious issues.

Actually, Japan has extremely serious issues already, it's just that the market is ignoring them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue.

Global imbalances are mounting. I suspect within the next couple of years (if not 2013) Japan will resort to the printing press to finance interest on its national debt and the Japanese central bank will start a major currency war with all its trading partners to force down the value of the yen.

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

Important New Legal Principle

Yesterday the General Court of the European Union ruled ECB right not to disclose Greece-related documents.

The European Central Bank was right to refuse access to documents on the economic situation in Greece to a journalist in 2010, because disclosure would have undermined the public interest, the General Court of the European Union ruled.

"Disclosure of those documents would have undermined the protection of the public interest so far as concerns the economic policy of the European Union and Greece," the court ruled on Thursday.

New Legal Principle

Eurointelligence offered this interpretation of the ruling:

The European Court has thus established an important legal principle. If you claim to act in the public interest, you can break the law. And the definition of the public interest is of course, a political one.

Unfortunately, that is quite an accurate assessment. The ruling can be appealed the the European Court of Justice within the next two months, but I do not have high hopes for a different result.

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

Peter Schiff Backs Down from Debate with Mish 3rd Time After Agreeing to Do So

Peter Schiff was on Capital Account with Lauren Lyster on Tuesday. For that show, he was asked, and he agreed to debate me on hyperinflation. Thus, I semi-expected to be on the show as well.

I even received email confirmation from the Capital Account producer last Sunday Friday.

The headline of the email was "Peter Schiff is Good".

The body of the email was "I let Schiff's people know that you were the guy he will be debating and they were cool with it so we are definitely on for next Tuesday at 12:30pm your time."

Minus Mish (which I will gladly explain below), here is the Schiff interview with Lauren Lyster.



Lauren challenged Schiff with "Whatever happened to hyperinflation?"

I heard an amusing response from Schiff as follows "I still say that hyperinflation is a worst case scenario. I never say we are going to have it for sure."

Really Peter? Really? Never?

Here is a partial transcript of a Schiff Audio On US Hyperinflation

The whole idea is to get out of the US Dollar. It is on the verge of collapse. The people who don't get out of the US dollar are going to be completely broke and that is obvious. Look at what Ben Bernanke did. Interest rates are zero. Money is free.

Bernanke is going to run up printing presses as fast as he can. This is pure inflation Latin American style. This is hyperinflation; this is Zimbabwe; this is the identical monetary policy of the Weimar Republic.

I am just as convinced that people who have their money in US dollars are going to be just as broke as people who have their money with Madoff.

I do not know how much time you have. With the dollar dropping 5% a week at this point, could it snap back? But what if it keeps falling? What if it's down 5% next week? And 5% the week after that? And then what if it drops 10%? and another 10%? At some point a year from now the dollar could be dropping 5% a day.

The inflation rate in Zimbabwe is over 100 million percent a year.

Unfortunately that audio display of nonsensical hype has been removed. Conveniently perhaps?

Now, in a massive display of revisionist history, Schiff claims that hyperinflation is a "worst case scenario".

In a further amusing turn of events, Schiff further backs down from his previous hyperinflation stance telling Lauren Lyster: 

"At some point the specter of hyperinflation is so enormous, and the dangers so apparent that will change. But before we get to that point w will have very very high inflation. Much, much higher than  we had in the 1970s. If inflation is 30% a year or 40% a year, technically is it hyperinflation? Probably not."

Really?  When?

Semi-Expectations

Before offering further comments on the prospect of 30-40% annual inflation, let's back up to the opening paragraph where I stated "I semi-expected to be on the show as well."

Actually, I fully expected Schiff to wimp out, and I even told the producer in a phone conversation, in advance, that the debate would never happen.

"But he Schiff's people agreed to it", said the producer.  "It will never happen" said I, and it didn't. [Correction note, this was a phone conversation. I recalled "Schiff" but made the change to "Schiff's people" by request.]

You see, I have been through this multiple times before.

Schiff once told Max Keiser that he would debate anyone.  Max asked me if I would debate Schiff. I replied "of course, but Schiff will not debate me."  When Max said Shiff agreed, I said "set it up then".

As with Capital  Account, once Schiff found out who he was debating, he backed out.

The reason I told Max that I was certain Schiff would back out is that I went through the exact same setup with a CNN radio affiliate.

Charles Goyette Fundraiser

When Peter Schiff was running for Senate, best selling author and radio talk show host Charles Goyette  (who happens to like both of us), tried to patch things up between Schiff and I.

Goyette agreed to moderate a discussion between us, and I told Schiff that I was willing to stress the things I agreed with him about (and there are a few). I even told Schiff we could record the session and if Schiff did not like the results we would not play it.

I did not grant myself the same "no play" opportunity.

Yet, Schiff would not even agree to that. And a fundraiser Goyette planned for Schiff never happened.

By the way, Goyette has two excellent books that I highly endorse. Goyette's latest book is Red and Blue and Broke All Over: Restoring America's Free Economy. Here is my review of his first book, The Dollar Meltdown.

Ironically, both Schiff and I endorsed Goyette's first book on the back cover.

Question of the day: How many Senate candidates will pass up a fundraiser opportunity from a NY Times best-selling author out of a personal grudge?

Bear in mind I even did a post I Endorse Peter Schiff For Senate.

That's one hell of a grudge folks. Since then I put up with numerous email challenges such as "Are you afraid to debate Peter Schiff?"

I draw the line with this documented wimp-out by Schiff coupled with his blatant revisionist history.

Agreements With Schiff

I have two major agreements with Schiff.

1. We both like gold and silver. 
2. We both agree with the need for small government. 

I was willing to stress those points in a three-way conversation with Goyette and Schiff but that never happened.

Right now, with the 10-year treasury yield at 1.62% I see no value in treasuries. Schiff would surely agree with that position (going much further of course, to outright loathing of US treasuries).

Like Schiff, I also think the US will indeed have a day of reckoning. However, I think the Yen, the British Pound, and the Euro are all likely to have a day of reckoning first.

Being too US dollar focused (to the point of outright hatred of the US dollar), has been a major Schiff downfall. So has been his love of China (which I will also gladly debate Schiff about anytime he wants).

Sad State of Affairs

This whole saga has been a sad state of affairs. And topping off the list is having to read Paul Krugman blast Schiff in his post on Thursday Varieties of Error

Some readers may recall the “Peter Schiff was right” campaign of 2009, a sort of public-relations blitz claiming that Schiff, an Austrian-oriented commentator, had foreseen everything correctly. It wasn’t really true even then; still, Schiff became a fixture of right-wing TV shows, constantly warning about how expansionary monetary and fiscal policies were about to produce hyperinflation.

Well, Cullen Roche catches a TV host actually putting Schiff on the spot, pointing out that he’s been predicting that hyperinflation since 2008, so where is it?

Good question. And I’d like to pursue the question a bit more, not just or even mainly about Schiff, but more broadly about the role of predictions — including wrong predictions — in economics. ...

I certainly have no problems with Krugman blasting Peter Schiff, because quite frankly Schiff deserves it.

Peter Schiff was wrong about massive inflation in 2008 and in my opinion, Schiff still is wrong today.

So why does Schiff refuse to debate me? He gave Capital Account an excuse something along the lines of not wanting to give me any credibility by debating me.

The ultimate irony is that Schiff needs credibility, not me.

I believe the most likely reason he will not debate me is he is afraid of debating anyone sufficiently able to challenge his ideas. It's easy when you can stand up and preach. It's much tougher facing someone who does not bow down at your feet.

Pragmatic Capitalism

Krugman linked to an article on Pragmatic Capitalism by Cullen Roche. So, let's take a look at Roche's article What About That Hyperinflation?

Regular readers know I am a big fan of getting called out on things. Not because I like to be wrong or making other people look silly, but because I sincerely enjoy the constructive criticism. Over the years I’ve been wrong about plenty of things. That’s totally normal in this business. When you write as much stuff as I do about things as hard to understand as the monetary system then you’re bound to get tripped up. It’s one incredibly long learning curve we’re all walking on here and I doubt anyone ever gets to the end of it. The world of money and finance is one big complex puzzle and I enjoy working with readers and other people trying to solve that puzzle. Anyone who tells you they’ve solved it is probably lying or misleading.

Anyhow, there’s a real power in being wrong. The quote “there are no mistakes, only lessons” is completely true if you actually live your life that way. I like to say “it’s in being wrong that we learn to be right”. So when I see people being called out for their mistakes (in a respectable and mature way) I think that should generally be applauded because it provides the platform for learning and improvement.

So I loved it tonight on RT when Lauren Lyster asked Peter Schiff “what about the hyperinflation…you’ve been predicting since 2008?” I’ve had a lot of fun over the years at the expense of the people who called for hyperinflation in 2008 (Schiff certainly wasn’t the only one), but I’ve only done that because it provides a great lesson for many others. Obviously, Schiff is sticking to his guns, but that’s not the point here. The point is to seriously consider why was Schiff wrong and why I have been right? Was I working from a superior understanding of the monetary system? Or have I just been lucky? You need to decide that for yourself, but you need to really explore those questions and truly consider both approaches and why one seems to have worked out far better than the other.

In regards to hyperinflation I do not think Krugman, Roche, or I were lucky. Rather, I think hyperinflationists in general made four major errors.

Four Major Errors

1. Schiff and many others simply fail to understand the role of credit in a credit-based economy. 
2. Many of those calling for hyperinflation were too US-dollar focused. 
3. There are numerous currency problems elsewhere that should have been easily seen. 
4. There is an absurd faith in China (of all places) even though money supply growth in China has far exceeded money supply growth in the US.

I could actually go on with numerous other flaws in many hyperinflationist's calls but they are now so obvious that even Peter Schiff has felt a need to resort to revisionist history to duck them.

Austrian Point of View

The problem I have with Krugman's pounding of Schiff is the lumping by Krugman of Austrians as if there was one Austrian point of view. There's not. I have been harping for years about those four points above, as well as numerous other reasons hyperinflation is highly unlikely.

Yet, we have to suffer from another "I told you so" kind of post from Krugman even though some of us Austrians have been in agreement with Krugman all along that "hyperinflation is nonsense".

Krugman concludes his article with "But as far as I can tell, very, very few people have been willing to let the evidence speak."

I agree, and the final irony is that I can say the same about Krugman.

Why can't Krugman look at Japan and see the US is heading down the same path,  except that Japan will have its currency crisis first. What happens after that is uncharted territory.

After all, Schiff is right that the path the US is on is not remotely sustainable. I think even Krugman would agree. It's just that Schiff's timing, endgame, and sequence of events between now and "eventually" are horrendously off.

Side Note on Comment System

Many people have been unable to login and leave comments. I believe the problem has been rectified.

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

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

Another Rahm Lie

There have been several, but a few pertain directly to the Police Department.

First there was the infamous "500 hundred more street cops" which was just an exercise in double counting.

Then the "hiring is keeping up with retirements" as District numbers dwindled, time off was denied and 1,200 spots were eliminated with the stroke of a pen.

Now comes the "combined Districts will lose no manpower. Rahm and G-Mac promised residents of the affected Districts that not one officer would be lost to cover their neighborhoods. They promised this on numerous occasions at a number of meetings. Yesterday, we pointed out that 002 and 019, both "combination" districts would be losing officers to Area teams, which are being sent all over the place.

Of course, if the residents who were lied to don't seem to care, or they were bought off by Rahm in some way, shape or form, we can't see G-Mac being unhappy to do Rahm tells him to do.

Surprise...NOT!

As expected, Cook County corruption at all levels:

• Attorney Sladjana Vuckovic was acquitted tonight of charges she improperly gave her personal cell phone to a client who was being questioned in the murder of a Chicago police officer.
  
  A Cook County jury deliberated a little less than three hours before acquitting Vuckovic of two counts of bringing contraband into a penal institution.

Officers of the court know better that to do what this bottom-feeder did.  Or at least they're supposed to.  It is amazing how the only people held 100% responsible for their every single action and can never even plead "human error" to anything are the police.

Quinn "Most Unpopular"

Another surprise from Springfield:

• With only one in four Illinois voters approving his job performance, Gov. Pat Quinn is the least popular in the country and would lose in head-to-head pairings against two of three Republicans eying his job in 2014, a newly commissioned survey found Thursday.
  
  Just 25 percent of voters in Illinois approved of the work Quinn is doing, while 64 percent disapprove, the Democratic-leaning Public Policy Polling firm found. That level of support made him “the most unpopular governor [it] has polled on anywhere in the country this year,” the polling firm said.
  
  If a general election were held today, Quinn would lose to state Sen. Kirk Dillard (R-Hinsdale) by a 44 percent to 37 percent and to state Treasurer Dan Rutherford by a 43 percent to 39 percent margin, the firm reported.
  

You know what this mean? Primary Battle!

• Beyond measuring how Quinn might match up against potential Republican opponents, the Public Policy Polling survey also showed the governor is vulnerable in a primary, though no Democrat has stepped forward and openly declared he or she is planning to take on Quinn in 2014.
  
  The firm found that Quinn would trail Bill Daley, the ex-U.S. Commerce secretary and former Mayor Richard M. Daley’s brother 37 percent to 34 percent, and the spread would be even wider if Attorney General Lisa Madigan took on Quinn, the firm said.
  
  In a hypothetical matchup, Quinn would trailer her by a 64- to 20-percent deficit.
  

This of course, is what Madigan has been grooming Lisa for for years - The King of all Thieves leaving everything to his daughter. That way Madigan succeeds where Shortshanks failed (at least so far).

New Meaning of the Word Voluntary; Bond Buyback Balancing Act

It is a deep stretch of the imagination to twist arms and appeal to "patriotic duty" in an effort to coerce someone to do something they really do not want to, then call the action "voluntary".

It is yet another thing to claim something is voluntary yet tell them it is "required". The latter has happened (again), when it comes to Greek debt.

The Financial Times reports Athens banks told of debt buyback ‘duty’

Yiannis Stournaras made clear the country’s four largest banks, which together hold about €17bn of government bonds, would be required to sell their entire holdings even though the buyback is billed as “voluntary”.

It was the “patriotic duty” of Greek bankers to ensure the success of the buyback, due to be launched next week by the country’s debt management agency with up to €14bn of additional European funding, Mr Stournaras said on Wednesday.

Yet Athens bankers appeared reluctant to be forced into a sale that would weaken their balance sheets and discourage local investors from participating in rights issues expected early next year as part of a €24bn recapitalisation of the sector.

“The banks stand to lose some €4bn by having to sell their bonds at around 33 cents on the euro,” said one Athens banker.

About half the €62bn of bonds issued in a partial restructuring of Greek debt last February are held Greek banks, pension funds, state entities and individual investors.

The debt management agency is set to announce details next week of the buyback scheme, which would be completed by December 12, the day before eurozone finance ministers are due to give the green light for disbursing the Greek aid payment.

"Voluntarily Forced"

Whereas Greek banks may be "voluntarily forced" (as if such a ludicrous idea even exists) into steep losses, anyone else holding such debt sure will not be.

Once again this whole notion of "voluntary" rests on arbitrary decisions as to what will trigger credit default swaps.

In that regard, please recall that in October 2011, the labeling of labeling 50% haircuts on Greek debt as "voluntary" proved many “Standard” Credit Default Swaps on Greece Are a Sham.

Thus, nothing really "new" is happening here. "Voluntary" means whatever the biggest players want it to mean (always to their advantage of course).

Bond Buyback Balancing Act

Bloomberg discusses this setup in Greek Bond Buyback Hostage to Below-Market Prices.

Greek efforts to ease indebtedness by repurchasing its own bonds at less than their face value depend on investors accepting below-market prices rather than holding out for an improved offer.

Balancing Act

The new bonds have collective action clauses, which in a second restructuring would allow a preset majority -- typically at least 66 percent -- to force holdouts to take part, according to Gabriel Sterne, an economist at Exotix Ltd. in London. Still, enforcing the CACs risks triggering credit-default swaps and being put into default by the ratings firms to deal with a rump of bondholders, he said.

“Would it be worth the fight with the hedge funds?” he said. “I just don’t think they would want to go there yet again.”

“If the buyback price is forced up too high, it will be unpalatable to Greece and the European authorities, and the buyback will fail,” Sterne said. “The incentive not to participate is likely to be strong. The average value of the bonds for those that do not participate could rise sharply if there is very high participation.”

Sterne, a former IMF official, estimates that the strip might go as high as 50 cents on the euro assuming there is broad participation, compared with 24 cents if the buyback fails.

Bondholders probably will call the finance ministers’ bluff, said Peter Tchir, the founder of New York-based TF Market Advisors.

“Now that the Eurogroup has made a condition out of the bond repurchase, it is almost the obligation of the bondholders to hold their feet to the fire,” he said. “I can’t see bondholders accepting last week’s prices without trying for more.”

CACs and the Balancing Act

Got that? No one wants to trigger Collective-Action-Clauses thereby "forcing participation" because it would trigger CDS contracts. Yet participation must be high enough so the Troika can pretend the results help Greece.

Given the incentive to not participate in the offer is huge,  Greek banks were told their participation in the voluntary offer was required.

Thus, we see these preposterous games yet again as to what is "voluntary" and what isn't. Moreover, forcing Greek banks to take more losses means they will again need to raise capital (a perpetual state of affairs for Greek banks).

Of course any sensible person realizes none of this will actually help Greece. Instead, it will enable huge pretending games go on a bit longer, perhaps long enough to get German Chancellor Merkel reelected, which seems to be the real issue in play, not the well-being of Greece.

Side Note on Comment System

Many people have been unable to login and leave comments. I believe the problem has been rectified.

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

ECRI Sticks With Recession Call

The ECRI is sticking with its "US is already in recession" call based on four coincident indicators. Very few agree, but for what it's worth (perhaps nothing) I am one of those in agreement.

Here is a Bloomberg video to consider.



Also consider The Tell-Tale Chart by the ECRI.

Following our September 2011 recession call, we clarified its likely timing in December 2011. Based on the historical lead times of ECRI’s leading indexes, we concluded that, if it didn’t start in the first quarter of 2012, it was very likely to begin by mid-year.

But we also made it clear at the time that you wouldn’t know whether or not we were wrong until the end of 2012. And so it’s interesting to note the rush to judgment by a number of analysts, already asserting that we were wrong.

So, with about a month to go before year-end, what do the hard data tell us about where we are in the business cycle? Reviewing the indicators used to officially decide U.S. recession dates, it looks like the recession began around July 2012. This is because, in retrospect, three of those four coincident indicators – the broad measures of production, income, employment and sales – saw their high points in July (vertical red line in chart), with only employment still rising.



If you look at the size of the simultaneous declines in industrial production and personal income since July, that combination has never occurred outside a recessionary context in over half a century – but it’s occurred in every recession. This leads us to conclude that we are most likely already in a recession that began around mid-2012.

Now, please remember that, following our recession call, central banks really ramped up their efforts, and have literally been pumping more money into the economy than at any time in the history of humanity – and this is the upshot. No wonder the Fed is now all in.

So how come hardly anybody recognizes the recession? Perhaps it’s because of real-time data showing positive growth in GDP and jobs, and the lack of a recent salient shock.

Revisionist History

Some of that is revisionist history, notably the idea that in September 2011, the ECRI gave itself until December of 2012 to be proven correct. Rather, the ECRI kept changing dates waiting for data to match its call.

I have no problems with errors. I do have problems with revisionist history.

ECRI revisionist history wipes away an error in the other direction in 2007, claiming to predict a recession it clearly did not predict.

I presented an analysis at the time of the ECRI's September 2011 recession call in ECRI Calls Recession Based on "Contagion in Forward Indicators"; Just How Timely is the Call?

The revisionist history in regards to "no misses" is plain to see. The ECRI totally blew the call in 2007 and early 2008. That is not the galling part. Calls are easy to miss. The galling part is the ECRI's revisionist history related to the blown call.

The ECRI's integrity will remain in question as long as it continues to perpetuate the myth of a perfect record. The simple fact of the matter is no one has a perfect track record at calling recessions, interest rates, the stock market or anything else.

Flashback November 2007 ECRI Vol. XII, No. 11: Weakness In Leading Indicators Not Yet Recessionary

Please consider the following image snip. Highlighting is mine.



One month later the US was in recession, and in galling revisionist history the ECRI later referred to that highlight in yellow as "predicting" a recession, even though on Friday, January 25, 2008
ECRI Says There Is A Window of Opportunity for the US Economy

The U.S. economy is now in a clear window of vulnerability, given the plunge in ECRI’s Weekly Leading Index (WLI) since last spring. Yet there is a brief window of opportunity within that window of vulnerability to avert a recession. That is why ECRI has not yet forecast a recession. ....

This is why, having correctly predicted the last two recessions in real time without crying wolf in between, we are not forecasting one yet.

Achuthan Winging It or Sticking to His Model?

Clearly the ECRI failed to predict the 2007 recession on time. I am now wondering "Did the 2007 miss influence an ECRI to jump the gun in the opposite direction this time?"

That line of questioning has me further wondering if Achuthan has been winging it based on coincident indicators and his personal opinion of what is likely, instead of simply following his own model (with a track record of claims based on leading indicators, not coincident ones).

Regardless, the ECRI claim to have never missed a recession is inaccurate twice (2007 and 2011) even if the ECRI has the call correct now.

Revisionist history aside, I do believe Lakshman Achuthan has the call correct. Today's GDP revision higher does little to change that belief. Contrary to popular belief, recessions frequently start with positive GDP typically revised lower much later.

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

French Unemployment Highest in 14 Years (And It's Going to Get Much Worse)

According to Google translation from Le Monde, October marks the 18th consecutive month of rising unemployment. A second article from Le Monde discusses the Rise in Unemployment for October.

Unemployment has risen sharply again in October. According to statistics released Wednesday, November 27 by employment center and the Ministry of Labour, the number of applicants for employment who had no activity during the month (Class A) increased by 46,500 people, including DOM. In September, he had jumped nearly 47 000 people. Worse, counting the unemployed reduced activity (category B and C), the increase reached 73,600 people!

Such explosion had not been seen since March 2009. With 4,870,800 people registered at employment center, the number of job seekers Class A, B and C reached a level never seen before, as far back as statistics. For those in category A, the level was not as high for fourteen years, in May 1998. Since the accession of François Hollande at the Elysee Palace, very bad numbers keep on coming: nearly 230,000 people have registered at employment center and since May.

In detail, it is over 50 years old who suffer most from the increase in October, with nearly 2% increase in a month for this category. Rising long-term unemployment is still very high, with nearly 11.5% of registered job seekers concerned about one year.

French Unemployment vs. US Unemployment

Those outside France need a bit of perspective on various classes of unemployment cited above. This is my understanding, pieced together from two different sources.

• Class A: Jobless people that have had no activity at all during the past month.
• Class B: Jobless people having worked less than 78 hours during the past month ("short reduced activity")
• Class C: Jobless people having worked more than 78 hours during the past month ("long reduced activity").
• Class D: Looking for a job, but currently sick, or in internship, or in state-sponsored "professional development" courses, etc
• Class E: Those in state-sponsored low-pay "community service" jobs

The official unemployment rate only comes out quarterly.

Reader Andrea offers these comments ...

For the sake of clarity, the official unemployement rate is given by the National Institut of Statistics (INSEE) each three months, not the ministry of labor class A-E activity. The distinction is similar to the weekly unemployment stats in the US vs. the official monthly unemployment and jobs report.

Moreover, and also similar to the US, many jobless people are not counted as unemployed because they have not been actively searching for a job.

Hollande Threatens to Nationalize Steel Plants Over Layoffs

Economic insanity in France continues at a steady pace. The latest bit of insanity is Hollande's Threat to Nationalize Steel-Maker Mittal.

French President Francois Hollande has met the owner of steel giant Arcelor Mittal, after saying he would discuss nationalising one of its plants.

Arcelor Mittal - which employs some 20,000 people across France - announced in October that it intended to shut down the Florange plant's already inactive furnaces, saying they were uncompetitive in such difficult trading times.

The company gave the government 60 days in which to find a buyer for the furnaces, a deadline which expires on Saturday.

The move provoked an angry reaction from the French government, which accused Arcelor Mittal of breaking a 2006 commitment to keep the blast furnaces running - a claim denied by the steel giant - and criticised the firm for refusing to sell off the site as a whole.

France's minister for industrial recovery, Arnaud Montebourg, accused the steelmaker on Monday of "lying" and "disrespecting" the country. He has since retracted a remark that Arcelor Mittal was no longer welcome in France.

Economic Ignorance Wins the Day

Pater Tenebrarun blasted the nationalization threat in his post Economic Ignorance Wins the Day Again in France.

France's minister of industrial insanity, Arnaud Montebourg (sometimes referred to as 'Mountebank' in these pages, for obvious reasons) once again proves that the leopard cannot change its spots. After wrangling incessantly with Arcelor-Mittal over its decision to close two long idled and evidently loss-making steel furnaces, he has now decided to openly declare war against the company.

Here is a brief summary of the economic facts of life for the hyperactive minister:

There is vast overcapacity for steel in the world. In China alone, some 200 million tons of production capacity appear to be the fruit of malinvested capital due to China's real estate and infrastructure bubble that has resulted from an unhealthy credit boom. This means that in China alone 200 million tons of production are likely loss making at present and will eventually have to be idled and/or liquidated.

It makes no sense to keep loss-making capacity going in Europe as well. That will only further misdirect scarce resources that are more urgently required elsewhere.

The very last thing the market economy needs in order to function smoothly is a 'minister of industrial renewal' (Montebourg's official job description), or any other type of  'economy minister'. The very best thing such ministers could do to help the economy would be to resign immediately.

Property Rights Thrown Under the Bus

Montebourg makes it sound as though Arcelor-Mittal, a private company, were deputized to the French government to help it fulfill whatever political aims it pursues – as though the government could simply draft private companies to aid it in attaining its socialist goals.

This case is going to have repercussions that go far beyond the fate of the loss-making furnaces and Mittal's continued presence in France. By threatening the company with nationalization if it doesn't comply with the government's wishes, Montebourg is signaling that his government has absolutely no respect for property rights.

If Mittal closes the two furnaces (which as noted above have been idled for many months already), then the people employed there will lose their jobs which is of course unfortunate. However, this is a typical case of the road to hell being paved with good intentions: by threatening the expropriation of Mittal, Montebourg ultimately risks far more jobs than merely those at the two furnaces.

There is a lesson that Mr. Montebourg has yet to absorb: No government can dispense with the laws of economics by decree. It might as well attempt to order the sun not to shine or issue an edict that gravity be abolished.

Expect Unemployment to Soar

Those looking for reasons French unemployment is going to soar, need only read Pater Tenebrarum's sterling rebuttal of France's plans to nationalize Mittal to save steel jobs when the world is awash in cheap steel.

What company wants to hire workers when they will be unable to fire them later if need be?

I talked about this many times before, but in case you missed it, please consider my June 8th article Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

Industry Minister Arnaud Montebourg is also planning legislation that would force companies to sell plants they want to get rid of at market prices to avoid closures and job losses.

Four Things, All of Them Bad

1. Mass layoffs will occur before the law passes.
2. Companies will move any jobs they can overseas.
3. Ongoing, if it's difficult to fire people, companies will not hire them in the first place.
4. Corporate profits will collapse along with the stock market should the need to fire people arise.

The proposal to force companies to sell plants rather than fire workers as outlined by Industry Minister Arnaud Montebourg and Labour Minister Michel Sapin is nothing short of economic insanity.

Europe Going Downhill Fast

Many people doubted Hollande would be foolish enough to carry out his job threats. They were wrong. In addition, Hollande massively hiked various taxes and also seeks a financial transaction tax.

Such actions prompted my June 16 report, "France Has At Most Three Months Before Markets Make Their Mark" .

No one should at all be surprised to learn in early November that France suffered the sharpest fall in service sector business activity for a year. For details, please see Dreadful Economic Data in Germany, Italy, Spain, France.

Things are going downhill fast in all of Europe and the bottom is nowhere near in sight.

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

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

What Shortages?

As assorted districts continue to send two officers to the 016 District just to man the beat cars overnight (something the aldercreature in the 41st Ward seems to think doesn't happen and the west side aldercreatures seem ignorant about), now comes word that 002 and 019 are being required to surrender an entire tactical team to the Deputy Chief of their respective Areas for "redeployment."  This is in addition to the teams/cars already being send out of District on a daily basis.

If someone downtown would just admit that we need an entire redistricting plan, we could avoid all of this redeployment and "right-sizing" that has become prevalent as manpower dwindles across the board.

Unknown Hero

Over the Thanksgiving holiday, one of our own stepped up:

• An off-duty Chicago police officer was credited with busting two teens and a 12-year-old who robbed a woman on Thanksgiving, police said.
  
  The cop, who police did not name, darted out of a holiday gathering after the panicked robbery victim sought refuge, then tracked the trio down and held them until other cops arrived.
  
  The incident unfolded about 9:15 p.m. when the alleged thieves — two 15-year-olds and a 12-year-old — approached the 20-year-old woman from behind as she walked in the 3000 block of South Princeton Avenue.

No info if this is part of a pattern that had been developing in the Bridgeport area, but all three were captured and charged.

Word is that they were just about to turn their lives around, being 15, 15 and 12.

Three CPD Injured

Rollover accident:

• Three Chicago police officers were injured when their car flipped over while swerving to avoid a stopped car on the South Side this morning, officials said.
  
  The crash happened shortly before 11:30 a.m. near the 7000 block of South Stony Island Avenue, police said.
  
  Three tactical officers were responding to a call when their car lost control while trying to avoid a car and it flipped over, according to Police Supt. Garry McCarthy.

All injuries were described as "non-life threatening," but that can be misleading. Hopefully, all recover in short order.

Indebted Dragon: The Ponzi Scheme Driving China's Construction Economy

In Indebted Dragon, Professor Lynette Ong from the University of Toronto discusses how the Chinese economy relies on land as collateral to borrow money while paying the interest on the loans by selling and leasing the land.

Ong notes this makes China susceptible to two problems: a real estate bubble and political instability stemming from displaced farmers whose land has been taken from them.

The subtitle to Ong's article is "The Risky Strategy Behind China's Construction Economy".

I suggest "Ponzi Scheme" is a more apt description than "Risky Strategy". Let's take a closer look.

For four decades, the Chinese economy has grown by between seven and ten percent each year. It is the envy of the world, despite its relatively sluggish recent performance. Visitors to Beijing, Shanghai, and other major Chinese cities are quickly awed by impressive skyscrapers, glittering shopping malls, new highways, and high-speed rail lines, all of which leave the impression that China is a developed economy -- or at least well on its way to becoming one. Even in some smaller cities in inland provinces, government buildings make those in Washington and Brussels appear meager. In an area of Anhui Province that is officially designated an "impoverished county," the government office block looks exactly like the White House, only newer and whiter.

Underwriting the impressive facade, however, is an incredibly risky strategy. Governments borrow money using land as collateral and repay the interest on their loans using funds they earn from selling or leasing the same land. All this means that the Chinese economy depends on a buoyant real estate market to keep grinding. If housing and land prices fall dramatically, a fiscal or banking crisis would likely soon follow. Meanwhile, local officials' hunger for land has displaced millions of farmers, leading to 120,000 land-related protests each year.

RISKY BUSINESS

The recklessness can be traced to two things: First, local Chinese officials are evaluated for promotions and other rewards based on how well the economy they manage performs. Construction and real estate activities are among the most straightforward ways to stimulate growth. White-elephant construction projects thus offer eager officials a perfect opportunity to impress their political superiors, even if massive developments do not necessarily make any economic sense. Take, for example, the city of Ordos in Inner Mongolia: Its elaborate urban infrastructure and its sea of new flats and office blocks are nearly all unoccupied, making it China's largest ghost city.

SHOW XI THE MONEY

On the surface, banks' balance sheets have remained healthy despite these debts, since banks tend to roll over or "ever green" loans by issuing new loans to help borrowers "repay" old ones. In addition, local governments have been able to make their interest payments using their land as collateral.

Classic Ponzi Behavior

Perpetually rolling over an ever-growing number of loans to pay off prior loans is classic Ponzi behavior.

SOEs and Overstated GDP

Ong concludes with ...

"Given slower growth rates and falling real estate prices this year, the frequency of land expropriation is slowing down. But the truth remains that much of urbanization in China is a state-driven phenomenon, using resources drawn from the financial sector. 

Although the central government recognizes the seriousness of the problem, it seems to lack any real resolve to tackle the issue head on. Muddling through seems to be so much easier. So until a major slowdown in the economy happens, the Chinese real estate market will continue on its current course."

The first two sentences are undoubtedly true. State-Owned-Enterprises (SOEs) are a huge drain on the real Chinese economy while making GDP look far better than it really is.

For more on the overstatement of Chinese GDP, please see How Sustainable are China's Copper, Cotton, Steel Imports? What About Chinese Purchases of Canadian and Australian Real Estate? Fresh Thinking on Balance of Payments

Ghost Malls, Ghost Cities, Infrastructure Malinvestment

As noted by Ong, and on numerous occasions by me, China is home to numerous vacant cities. For a discussion, please see World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

The Video of Ghost Cities is a must see eye-opener for those overly bullish on China.

China is also home to the world's largest shopping mall and it sits empty. For a discussion and video, please see How Will China Handle The Yuan?

A week ago I reported Sky City: China to Build World's Tallest Building, 220 Stories, in 90 Days

Unlike Ong, I see no realistic way China can "muddle through" for much longer given the bubble is busting in China right now, but that is my only objection to a very well written article.

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

Student-Loan Delinquencies Surpass Credit Cards, 37.5% of Graduates Work in Jobs Requiring No Degree; Who is to Blame? What About Solutions?

As costs of college soars (with thanks to absurd union salaries and benefits, as well as absurd administrator salaries and benefits), those attending college have increasing trouble paying back loans.

The fully expected consequence is Student-Loan Delinquencies Now Surpass Credit Cards.

The proportion of U.S. student loan balances that are in delinquency — that is, unpaid for 90 days or more — surpassed that of credit-card balances in the third quarter for the first time, according to the Federal Reserve Bank of New York. [no link provided]

Of the $956 billion in student-loan debt outstanding as of September, 11 percent was delinquent — up from less than 9 percent in the second quarter, and higher than the 10.5 percent of credit-card debt, which was delinquent in the third quarter. By comparison, delinquency rates on mortgages, home-equity lines of credit and auto loans stood at 5.9 percent, 4.9 percent, and 4.3 percent respectively as of September.



Since the NY Fed’s data began in 2003, the share of student debt which is delinquent has nearly doubled, from a starting level of 6.13 percent, while credit-card delinquency has steadily drifted lower since peaking at 13.74 percent in mid-2010 in the wake of the financial crisis.

Moreover, the actual rate of student loan delinquency is far higher than the official tally suggests. According to the New York Fed [no link provided], “these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle.”

In other words, the real delinquency rate for loans in the current repayment cycle is “roughly twice as high,” per the Fed — which would put it north of 20 percent.

37.5% of Graduates Work in Jobs Requiring No Degree

In its article Student Loan Debt Hits Another New Record: Study, Senior CNBC Correspondent Scott Cohn cites a study noting these facts.

1. The average college student who graduated in 2011 had $26,600 in student loans
2. Two-thirds of last year’s college graduates had student loan debt
3. 37.8 percent of recent graduates are working in jobs that do not require a college degree
4. State budget cuts, which have led to large tuition increases, fewer grants, and an increasing need for college students and their families to borrow money to finance their education
5. 96 percent of graduates from four-year, for-profit colleges took out student loans, borrowing 45 percent more than graduates of other types of colleges.

Cohn mentioned the word "study" fourteen times without once providing a link to the study, or even mentioning the name of the study. I suspect this is some kind of record, just not one anyone should be proud of.

Such semi-plagiarism is quite frankly inexcusable.

Who is to Blame?

I receive emails from readers all the time blaming the problem on point number four above, state budget cuts.

Nonsense.

Taxpayers are overburdened too much already.  States have cut back on the percentage of money to education out of sheer necessity as education costs have risen far faster than anything else including health care and energy.

Here are some charts and comments from my post What Role Does Government Play in Price Inflation?

Inflation Comparison - Select Components Since 1978


Inflation Comparison - Current CPI Components Since 2000


The above charts are from Doug Short at Advisor Perspectives. Doug creates excellent charts every month on various CPI components. Rather than reinvent the wheel, I asked Doug for a set of custom charts.

Specifically, I had asked Doug to go back to 1971 for both charts.

Unfortunately, data for components in the first chart only goes back to 1978, and in the second chart not even that far.

The reason I asked for a starting year of 1971 is that's when I started college.

Tuition at the University of Illinois in Fall of 1971 was $250 a semester for engineers (My degree is in civil engineering). Current University of Illinois Tuition is $8,278 per semester for Illinois residents, $15,349 for non-residents.

Note that tuition difference: $250 in 1971 vs. $8,278 today.

Note Areas of Highest and Lowest Price Inflation

The least government interference is in apparel and recreation. The most government interference in the free market is education and health care.

Education is rife with "no child left behind" madness, free tuition for veterans, and for-profit school scams that flourish only because student loans cannot be discharged in bankruptcy.

Chasing the American Dream, Gone Bust

I have talked about this many times before. One key post is Trading Caps and Gowns for Mops; Why Go to College If There Are No Jobs? Chasing the American Dream

Some People Do Not Belong in College

Pelletier perpetuates the myth everyone belongs in college. Many don't. Arguably at least half don't. In Portland Oregon, ACT scores show less than half of test-takers are ready for college math

Useless Degrees

Pray tell what good is a degree in English, history, PE, or political science other than teaching English, history, PE, or political science? And how many of those teaching jobs are even available?

Yet colleges churn out thousands of graduates, year after year, with perfectly useless degrees.
Debt Slaves

President Obama promotes education as the answer to the unemployment problem. Other presidents have done the same thing. However, throwing money at the problem has done nothing but raise the cost of education for everyone, leaving many graduates debt-slaves for life, with totally useless degrees.

Whenever government sticks its nose into solutions, costs escalate. We saw it in housing, with hundreds of affordable home programs artificially increasing demand, and with Bush's "Ownership Society" artificially increasing demand, etc., etc. We see the same thing now in health care.

Expect such problem to grow until they blow sky high, which appears to be right at hand.

Mish's Six Point Education Proposal?

1. Increase competition by certifying more online schools
2. Make student debt dischargeable in bankruptcy
3. Abolish the student loan program
4. Abolish Pell Grants
5. Get rid of unions driving up costs
6. End all support for for-profit colleges

I assure you that if those actions were taken cost of college education would crash. But no one really wants that, any more than they want affordable housing.

Politicians gain far too much in campaign contributions from unions, from for-profit schools, and from banks wanting to make kids debt-slaves, to really address the problem.

Legislators would rather pretend they want to do something rather than actually doing something because it suits their purpose (getting reelected). Unfortunately, millions of students will pay the price as debt-slaves for life.

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

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

Disbarment is too Lenient

Anyone want to bet how this one turns out?

• The trial of a lawyer charged with letting her murder-suspect client use her cellphone in an Area 2 interrogation room two years ago started Tuesday with testimony from a Chicago Police officer who made the suspect get off the phone.
  
  The video recording in the interrogation room had been turned off to maintain attorney-client privilege for suspect Timothy Herring Jr. and his lawyer, Sladjana Vuckovic. But when Lt. Brendan Deenihan walked by and heard the voice, he said Herring Jr. appeared to be talking to himself.
  
  “It was a one-way conversation, which was odd since he was with his attorney,” Deenihan testified Tuesday, describing what he heard before he peered in and saw Herring chatting on Vuckovic’s cellphone. Herring had been arrested in connection with the fatal shootings of Chicago Police evidence technician Michael Flisk and former CHA Police Officer Stephen Peters.
  
  Investigators will never know if or how Herring used those phone calls to advance his own case, Cook County prosecutors argued at the opening of Vuckovic’s trial.
  
  Vuckovic, a CTA lawyer who was acting as a First Defense Legal Aid volunteer when she counseled Herring, is accused of bringing contraband to a penal institution, a charge that her attorney claims is excessive.
  

A CTA lawyer? That tells us "heavy" right there. And a bleeding heart to boot.

The trial continues in Room 402 (Judge Clay) today. Stop by if you want to see the face that abets the evil.

Trooper Killed

This didn't get much coverage in Chicago - apologies to the ISP for the oversight:

• Trooper Kyle Deatherage, who recently transferred to the Illinois State Police motorcycle unit to spend more time with his young family, was struck and killed by a truck Monday morning during a traffic stop along Interstate 55 near Litchfield.
  
  Deatherage, 32, of Highland, entered law enforcement as a Madison County sheriff’s deputy in 2004 and moved to the state police in May 2009.
  
  Nelda Christin, an aunt, said the family was devastated by the loss. Deatherage was married to Christin’s niece, Sarah, and they have two children, Kaylee, 4, and Camden, 10 months old.
  
  “He was a wonderful person,” Christin said. She said he switched to motorcycle duty because it allowed him to move from the night shifts to days, and see more of his growing family.
  
  Hiram Grau, director of the state police, issued a statement saying, “Our hearts are heavy with grief, but they are also strengthened by Trooper Deatherage’s brave calling.”

Prayers only for Trooper Deatherage here please.

Reflections on Complacency, Valuations, Bear Market Troughs, Patience

Inquiring minds are reading John Hussman's article on Overlooking Overvaluation.

Our estimates of prospective stock market return/risk, on a blended horizon from 2-weeks to 18-months, remains among the most negative that we’ve observed in a century of market data.

On the valuation front, Wall Street has been lulled into complacency by record profit margins born of extreme fiscal deficits and depressed savings rates. Profits as a share of GDP are presently about 70% above their historical norm, and profit margins have historically been highly sensitive to cyclical fluctuations. So the seemingly benign ratio of “price to forward operating earnings” is benign only because those forward operating earnings are far out of line with what could reasonably expected on a sustained long-term basis.

On the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That’s about the same point they reached at the beginning of the 1965-1982 secular bear period, as well as the 1987 peak. Stocks are far less overvalued than they were in the late-1990’s, but it is worth noting that nearly 14 years of poor market returns have resulted simply from the retreat from those bubble valuations to the current rich valuations. If presently rich valuations were to retreat again to undervalued levels that have accompanied the start of secular bull markets (see 1982 for example), stocks would produce yet another extended period of dismal returns. That prospect certainly isn’t the reason for our present defensiveness, but it’s worth understanding the dynamic that has produced the pattern of market returns we’ve observed over time.

At present, the return of the S&P 500 over the past decade – though below average – has actually overshot what would have been expected in 2002. This reflects the fact that valuations today are still well above their norms. Unless we assume that valuations will remain rich forever, this doesn’t portend well for returns going forward.

We remain convinced that stocks are richly valued here. A fairly run-of-the-mill normalization of valuations in the course of the present market cycle would imply bear market losses of about one-third of the market’s value, without even establishing significant undervaluation. Then again, there’s no assurance that valuations will normalize, or that stocks will experience a bear market here. Maybe Wall Street is correct that profit margins will remain forever elevated and The New Global Economy™ will never again witness “normal” valuations on these measures at all. There’s no shortage of analysts who effectively embrace that view by focusing only on forward-operating earnings.

Not Different This Time

Hussman's message has been the same for quite some time. I am in the same camp.

For now, the market has other ideas. Yet, to bet on a sustained market advance, one has to believe "It's different this time".

I do not believe it will be different this time, although (and as we have seen), market valuations can remain in the stratosphere for lengthy periods of time.  However, in such instances the market will eventually take back excess gains as it did in 2000-2001 and again in 2008 through the first quarter of 2009.

What If?

Hussman wrote "If presently rich valuations were to retreat again to undervalued levels that have accompanied the start of secular bull markets, stocks would produce yet another extended period of dismal returns."

I've thought about this quite a bit over the past year, and I fail to see a way the stock market does not return to low valuations seen at the end of previous long-term bear markets. Demographics, debt levels, and reversion-to-mean tendencies simply will not support the rosy scenarios of growth most advisors assume.

If so, that means a 10-year P/E at or below 10, possibly for a number of years. The impact for boomers and on pension plans will be stunningly negative.

No Hiding Places

Up to this point, the real loss from stocks could have been compensated by one's allocation to bonds. However, from this point forward, with the 10-year treasury yield at 1.65% and pension plan assumptions at 8%, it's highly likely both stocks and bonds will be a drag on a 50/50 portfolio's real return, and especially on expected (needed) rates-of-return.

This reversion-to-the-mean, slow-growth dynamic, as it unfolds, seems likely to usher in the final exodus from "investing" by the boomers. It will also leave a scar on those in their 20's and 30's today, which will keep them out of the markets for some time.

Need For Patience

I honestly believe the only investors, even professionals, who will make it through this exodus intact will be those who are able to hold some real assets and cash, and have the patience to wait, with the 'patience' part being the most critical.

There will be plenty of opportunities to buy into the stock market for cyclical rallies, but most investors who try to trade will end up losing money because few have the patience to wait for good opportunities, while others will throw in the towel at precisely the wrong times.

That's life in a secular bear market, and few understand bear market dynamics. Fewer still actually realize how stacked the odds are against a sustained advance and why that is precisely so.

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

John Hussman is one of the speakers at my "Wine Country" Economic Conference on April 5, 2013. Click on Image to Learn More

678 Parkers; $105,000 in Fines

And one whole bunch of blame looking for a place to land:

• It might just be a world record.
  
  At the very least one particular car has set a City of Chicago record for having been issued the most parking violations ever and having accumulated the most parking fines in the city’s history.
  
  The city claims Jennifer Fitzgerald owes over $100,000 in parking tickets.
  
  No, that’s not a typo or a few misplaced zeros on the end.
  
  The amount is actually 105,761 dollars and 80 cents to be precise.
  
  This is the total mind boggling debt the City of Chicago says the 31 year old, single mother of one, allegedly owes for parking violations on a single vehicle.
  

The story involves a car parked in an employee lot at O'Hare for three years and numerous policies for removal of said car ignored for those three years. But you know who's going to look worst in this event.

The Police Department.

Granted, it was probably hilarious to see the car parked where it was for years on end, covered in faded orange paper that was a few hundred Parking Violation Notices. But at some point, someone ought to have written the thing up as "abandoned" and stopped papering it. At least, that's the way it's going to play out with the ongoing lawsuit. We've got as much (or more) of a sense of humor as the next copper, but the affected citizen might make off with some taxpayer dollars over this silliness. Hopefully, no copper catches time over it.

The Expired Meter has the entire story and they're getting some mileage out of it.

Ain't This the Truth?

By Lisa Benson of the Washington Post Writers Group.

Cuddly Coyotes at Wrigley

Aren't they the cutest things on four legs?

• Photographer Will Byington is used to snapping shots of Wrigleyville’s party animals.
  
  But Byington found himself photographing a whole different breed Friday night when, while taking pictures of bands playing at the Cubby Bear, he spotted two coyotes in front of Wrigley Field.
  
  “They hung out there for like five minutes, a lot longer than I would ever think they would,” Byington said. “I’ve lived in Wrigleyville for eight years, and I’ve never seen anything like it.”
  
  Despite cars whizzing by and tipsy bar-goers screaming at the animals, the coyotes seemed unfazed.
  
  “They seemed content,” Byington said. “It’s almost like they’re eyeing McDonald’s.”

"content."

Of course, when the yuppies' cats and dogs start disappearing, the coyotes will be "content...and well fed." And the hipsters will be pissed the police didn't do anything, ignoring the fact that Animal Control has up to zero trucks working overnight.

Remember, "For the Children"

Or is it "For Your Safety?"  We can't keep all of Rahm's (and Daley's) bullshit straight.

Once again, here's an interesting side effect that gives lie to the "safety" argument people:

• They were installed at dangerous intersections to reduce the number of crashes, but New Jersey's controversial red-light cameras have actually seen an increase in collisions, according to a new state report.
  
  A New Jersey Department of Transportation analysis of two dozen intersections that have had the automated traffic cops for at least a year found that accidents — particularly rear-end crashes — have increased, and the collisions are more costly.
  
  Rear-end collisions at the intersections were up by 20 percent, from 286 the year before the cameras were installed to 343 the year after, according to the report made public yesterday. Overall, accidents increased from 577 crashes the year before the cameras were installed to 582 the year after. The "crash severity cost" — which takes into account vehicle and property damage, emergency response and medical care — increased by nearly $1.2 million after the cameras were installed.

But of course, we'll hear that things are different in Illinois in general, Chicago specifically.  Just like the anti-gun people claiming 49 other states have to be wrong and only Illinois is getting it correct, while the streets of Chicago run red with blood.

Obama to Close "Skills Gap"; Where? How? Why is the Middle Class Shrinking? Living Wages

President Obama says there is a "skills gap". A quick search says that many misguided souls believe the president.
For example Forbes writer Rich Karlgaard says The Skills Gap Exists.

Karlgaard believes the "gap is sure to grow as the population ages and industries from health care to manufacturing are altered by technology. Outsourcing to China won’t be the answer, either. Its population is aging the fastest of all the major economies."

Vicki Needham writing for The Hill says Skills gap is hampering labor market.

Needham, citing a report by Deloitte says "job creation in the United States is hampered by a lack of highly skilled and adaptable workers whose talents don't match current job openings".

The Atlantic comments on Solving the Manufacturing Skills Gap.

Eighty percent of the manufacturing companies in the United States say they cannot find enough workers with the proper skills to fill open positions at their facilities. That's the number President Barack Obama cited, as he announced the Military-to-Civilian Skills Certification Program, in June 2012.

"If you can maintain the most advanced weapons in the world, if you're an electrician on a Navy ship, well, you can manufacture the next generation of advanced technology in our factories like this one," Obama said, speaking from the floor of a Honeywell plant in Minnesota.

But the problem is that veterans have had trouble getting hired, as Obama said, "simply because they don't have the civilian licenses or certifications that a lot of companies require."

Skills Don't Pay the Bills

The above columnists express widely believed economic hooey.

In contrast, Adam Davidson, in his New York Times column, Skills Don’t Pay the Bills, precisely summarizes the problem in four deep thoughts.

Deep Thoughts

1. There is no skills gap.
2. Who will operate a highly sophisticated machine for $10 an hour?
3. Not a lot of people.
4. As a result, there is going to be a skills gap.

Davidson visited the engineering technology program at Queensborough Community College in New York City led by instructor Joseph Goldenberg whose manufacturing classroom consisted of "nothing but computers".

With that introduction, inquiring minds tune in a bit closer to some snips from Davidson.

Nearly six million factory jobs, almost a third of the entire manufacturing industry, have disappeared since 2000. And while many of these jobs were lost to competition with low-wage countries, even more vanished because of computer-driven machinery that can do the work of 10, or in some cases, 100 workers. Those jobs are not coming back, but many believe that the industry’s future (and, to some extent, the future of the American economy) lies in training a new generation for highly skilled manufacturing jobs — the ones that require people who know how to run the computer that runs the machine.

Running these machines requires a basic understanding of metallurgy, physics, chemistry, pneumatics, electrical wiring and computer code. It also requires a worker with the ability to figure out what’s going on when the machine isn’t working properly. And aspiring workers often need to spend a considerable amount of time and money taking classes like Goldenberg’s to even be considered. Every one of Goldenberg’s students, he says, will probably have a job for as long as he or she wants one.

And yet, even as classes like Goldenberg’s are filled to capacity all over America, hundreds of thousands of U.S. factories are starving for skilled workers. Throughout the campaign, President Obama lamented the so-called skills gap and referenced a study claiming that nearly 80 percent of manufacturers have jobs they can’t fill. Mitt Romney made similar claims. The National Association of Manufacturers estimates that there are roughly 600,000 jobs available for whoever has the right set of advanced skills.

The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

Goldenberg, who has taught for more than 20 years, is already seeing it up close. Few of his top students want to work in factories for current wages.

It’s easy to understand every perspective in this drama. Manufacturers, who face increasing competition from low-wage countries, feel they can’t afford to pay higher wages. Potential workers choose more promising career paths. “It’s individually rational,” says Howard Wial, an economist at the Brookings Institution who specializes in manufacturing employment.

Situation in a Nutshell

• Companies cannot afford to pay so much that they lose money.
• Companies would rather invest in technology and robots to reduce the need for labor, than to pay workers more money
• A shift manager at McDonald's can make $14 an hour, comparable to what manufacturing jobs pay
• Union wages and benefits are a major problem

High Cost of Education

The problem is actually quite a bit deeper. Given the preposterously high cost of education in the US, students graduate from college with an expectation they need to make more than they can to pay off student debt.

The same holds true (and even more so) for those going back to school as well as those attending for profit colleges such as the University of Phoenix.

Here are a few eye openers:

Education Bubble: Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion

Debt for Diploma Schemes: Debt for Diploma Schemes and the Cookie Monster Principle

Off-Balance-Sheet Budget Fraud: Budget Deficit Accounting Fraud and the Off-Balance-Sheet Student Loan Scam; Time to Scrap Entire Student Loan Program

Pell Grant Debt Zombies: For Profit Schools Turn Students Into Debt Zombies; It's Time To Kill The Entire Pell Grant Program

Buried in Debt: Subprime Goes to College; Students Buried in Debt; Who is to Blame?

Living Wage Nonsense

Keynesian and Monetarist clowns conclude that wages are not high enough. The masses lament for "living wages".

The problem is not that wages are too low, but rather costs are too high. Ben Bernanke, president Obama, union sympathizers and other misguided fools seek to drive wages up.

The results are what any rational person should expect: loss of jobs to Asia, loss of jobs to technology, prices rising faster than wages, and overall debt soaring to the moon.

Reflections on Affordable Housing, Education, Medicine

There are hundreds of "affordable housing" programs. Every damn one of them drove costs higher by artificially creating demand right up until the pool of greater fools ran out. Then, as soon as housing crashed, government and the Fed made a concerted effort to drive back up prices.

In effect, no one really wanted affordable housing. Rather they all wanted "affordable housing slush funds".

The same holds true for education and health care.

Why is the Middle Class Shrinking?

The simple fact of the matter is there is absolutely nothing wrong with falling prices. Indeed the average guy on the street would welcome falling prices. The Fed, however, says no.

The first result of Fed policy (coupled of course with Fractional Reserve Lending) is rising prices of essential goods and services coupled with falling real wages.

The second result of Fed policy was a real estate and financial asset crash.

The third result of Fed policy is reduced demand for credit (which constitutes deflation in my book).

Since the Fed never learns, we have seen reckless rounds of QE following reckless rounds of QE hoping to stimulate jobs and lending. Yet, people actually wonder "Why the middle class is shrinking"

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

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

Rise of Intelligent Machines Will Open "Pandora's Box" Threatening Human Extinction

As robots keep replacing human workers in manufacturing and now retail and food servicing, fears have arisen that artificial general intelligence (AGI) machines will  threaten mankind when "intelligence escapes the constraints of biology" and machines can design and create their own offspring.

If that idea sounds far-fetched, then please consider Cambridge boffins fear 'Pandora's Unboxing' and RISE of the MACHINES.

Boffins at Cambridge University want to set up a new centre to determine what humankind will do when ultra-intelligent machines like the Terminator or HAL pose "extinction-level" risks to our species.

A philosopher, a scientist and a software engineer are proposing the creation of a Centre for the Study of Existential Risk (CSER) to analyse the ultimate risks to the future of mankind - including bio- and nanotech, extreme climate change, nuclear war and artificial intelligence.

Apart from the frequent portrayal of evil - or just misguidedly deadly - AI in science fiction, actual real scientists have also theorised that super-intelligent machines could be a danger to the human race.

Jaan Tallinn, the former software engineer who was one of the founders of Skype, has campaigned for serious discussion of the ethical and safety aspects of artificial general intelligence (AGI).

Tallinn has said that he sometimes feels he is more likely to die from an AI accident than from cancer or heart disease, CSER co-founder and philosopher Huw Price said.

Humankind's progress is now marked less by evolutionary processes and more by technological progress, which allows people to live longer, accomplish tasks more quickly and destroy more or less at will.

Both Price and Tallinn said they believe the rising curve of computing complexity will eventually lead to AGI, and that the critical turning point after that will come when the AGI is able to write the computer programs and create the tech to develop its own offspring.

"We need to take seriously the possibility that there might be a ‘Pandora’s box’ moment with AGI that, if missed, could be disastrous. With so much at stake, we need to do a better job of understanding the risks of potentially catastrophic technologies.” said Price.

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