San Diego Housing Bubble News and Analysis

It's now official. Much of the hype about global warming is nothing but a complete scam.

Thanks to hackers (or an insider) who broke into The University of East Anglia's Climatic Research Unit (CRU) and downloaded 156 megaybytes of data including extremely damaging emails, we now know that data supporting the global warming thesis was completely fabricated.

Inquiring minds are reading Hacked: Hadley CRU FOI2009 Files on The Reference Frame by Luboš Motl, a physicist from the Czech Republic.
The University of East Anglia's Climatic Research Unit (CRU), usually working together with the Hadley center (recall HadCRUT3 global temperatures), has been hacked.

So far, the most interesting file I found in the "documents" directory is pdj_grant_since1990.xls (Google preview, click) which shows that since 1990, Phil Jones has collected staggering 13.7 million British pounds ($22.6 million) in grants.

Phil Jones, the main criminal according to this correspondence, has personally confirmed that the website was hacked and that the documents are authentic. See Briefing Room.

He says that he "can't remember" what he meant by "hiding the decline." Well, let me teach him some English. First, dictionaries say that hide means

1. to conceal from sight; prevent from being seen or discovered: Where did she hide her jewels?
2. to obstruct the view of; cover up: The sun was hidden by the clouds.
3. to conceal from knowledge or exposure; keep secret: to hide one's feelings.
4. to conceal oneself; lie concealed: He hid in the closet.
5. British. a place of concealment for hunting or observing wildlife; hunting blind.
6. hide out, to go into or remain in hiding: After breaking out of jail, he hid out in a deserted farmhouse.
Here Are A Few Choice Emails

From: Phil Jones
To: ray bradley ,mann@virginia.edu, mhughes@ltrr.arizona.edu
Subject: Diagram for WMO Statement
Date: Tue, 16 Nov 1999 13:31:15 +0000
Cc: k.briffa@uea.ac.uk,t.osborn@uea.ac.uk

Dear Ray, Mike and Malcolm,
Once Tim's got a diagram here we'll send that either later today or first thing tomorrow. I've just completed Mike's Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) amd from 1961 for Keith's to hide the decline. Mike's series got the annual land and marine values while the other two got April-Sept for NH land N of 20N. The latter two are real for 1999, while the estimate for 1999 for NH combined is +0.44C wrt 61-90. The Global estimate for 1999 with data through Oct is +0.35C cf. 0.57 for 1998. Thanks for the comments, Ray.

Cheers
Phil

Prof. Phil Jones
Climatic Research Unit Telephone +44 (0) 1603 592090
School of Environmental Sciences Fax +44 (0) 1603 507784
University of East Anglia
Norwich Email p.jones@uea.ac.uk
NR4 7TJ
UK

===================================

From: Gary Funkhouser
To: k.briffa@uea.ac.uk
Subject: kyrgyzstan and siberian data
Date: Thu, 19 Sep 1996 15:37:09 -0700

Keith,

Thanks for your consideration. Once I get a draft of the central and southern siberian data and talk to Stepan and Eugene I'll send it to you.

I really wish I could be more positive about the Kyrgyzstan material, but I swear I pulled every trick out of my sleeve trying to milk something out of that. It was pretty funny though - I told Malcolm what you said about my possibly being too Graybill-like in evaluating the response functions - he laughed and said that's what he thought at first also. The data's tempting but there's too much variation even within stands. I don't think it'd be productive to try and juggle the chronology statistics any more than I already have - they just are what they are (that does sound Graybillian). I think I'll have to look for an option where I can let this little story go as it is.

Not having seen the sites I can only speculate, but I'd be optimistic if someone could get back there and spend more time collecting samples, particularly at the upper elevations.

Yeah, I doubt I'll be over your way anytime soon. Too bad, I'd like to get together with you and Ed for a beer or two. Probably someday though.

Cheers, Gary
Gary Funkhouser
Lab. of Tree-Ring Research
The University of Arizona
Tucson, Arizona 85721 USA
phone: (520) 621-2946
fax: (520) 621-8229
e-mail: gary@ltrr.arizona.edu
================================================

There is much more in that first link on The Reference Frame, including ways to download all the data yourself. Thanks Luboš!

Hadley CRU says leaked data is real

When this story broke, many assumed it was a fake. Nope.
Hadley CRU says leaked data is real
The director of Britain's leading Climate Research Unit, Phil Jones, has told Investigate magazine's TGIF Edition tonight that his organization has been hacked, and the data flying all over the internet appears to be genuine.

In an exclusive interview, Jones told TGIF, "It was a hacker. We were aware of this about three or four days ago that someone had hacked into our system and taken and copied loads of data files and emails."

"Have you alerted police?"

"Not yet. We were not aware of what had been taken."

Jones says he was first tipped off to the security breach by colleagues at the website RealClimate.
Alert The Police?

Yes, someone ought to alert the police and have Phil Jones and everyone else involved in this fraud arrested.

Market Ticker On The Scam

Carl Denninger was also commenting on the scam on Friday in "Global Warming" SCAM - Hack/Leak FLASH.
.....
Yes, I have the file. So do a few million other people.

There's enough evidence in there, in my opinion, of outrageously fraudulent conduct to make this the scandal of the 20th and 21st century.

Sorry folks, there's no science here - this is, from what I see, a massive and outrageous fraud, and now that the documents have been confirmed as authentic, it is time to pull the curtain down on this crap and start locking up all of the proponents - starting with AL GORE.

Here are some interesting "meta statistics" on the documents, and the number of times the words referenced appear:

• Fraud: 79
• Falsify: 6
• Inflate: 14
• Conceal: 5
• Hide: 19

Just for starters.

If you think that's bad, you might like this - from the file "ipcc-tar-master.rtf":

47 out of 91 models listed in Chapter 9 assume that carbon dioxide in the atmosphere is increasing at the rate of 1% a year when the measured rate of increase, for the past 33 years, has been 0.4% a year. The assumption of false figures in models in order to boost future projections is fraudulent. What other figures are falsely exaggerated in the same way?

And then there's this...

From: Phil Jones p.jones@uea.ac.uk
To: "Michael E. Mann" mann@meteo.psu.edu
Subject: IPCC & FOI
Date: Thu May 29 11:04:11 2008

Mike,

Can you delete any emails you may have had with Keith re AR4? Keith will do likewise. He's not in at the moment - minor family crisis.

Can you also email Gene and get him to do the same? I don't have his new email address.

We will be getting Caspar to do likewise.

I see that CA claim they discovered the 1945 problem in the Nature paper!!
Cheers
PhilRules Of The Game

Here is an interesting snip on Rules of the Game posted in What's Up With That?
I downloaded the zip file, unpacked it, browsed a bit. I opened a .pdf file entitled “RulesOfTheGame.pdf”. Very interesting document. Most compelling is that I broke open the metadata for this file. The file date stamp is Oct. 3, 2006, the metadata says it was created Oct 14, 2005 using QuarkExpress v.6.1 (released in 2004). All properties and metadata for this file definitely appear genuine to me.

Interesting that this document describes methods of convincing the public of the “crisis”.

Excerpt:

a new way of thinking

Once we’ve eliminated the myths, there is room for some new ideas. These principles relate to some of the key ideas emerging from behaviour change modeling for sustainable development:

5. Climate change must be ‘front of mind’ before persuasion works
Currently, telling the public to take notice of climate change is as successful as selling tampons to men. People don’t realise (or remember) that climate change relates to them.

6. Use both peripheral and central processing Attracting direct attention to an issue can change attitudes, but peripheral messages can be just as effective: a tabloid snapshot of Gwyneth Paltrow at a bus stop can help change attitudes to public transport.

7. Link climate change mitigation to positive desires/aspirations Traditional marketing associates products with the aspirations of their target audience. Linking climate change mitigation to home improvement, self-improvement, green spaces or national pride are all worth investigating.

8. Use transmitters and social learning People learn through social interaction, and some people are better teachers and trendsetters than others. Targeting these people will ensure that messages seem more trustworthy and are transmitted more effectively.

9. Beware the impacts of cognitive dissonance Confronting someone with the difference between their attitude and their actions on climate change will make them more likely to change their attitude than their actions.
How To Avoid Taxes On Grants
Mike Abbott (17:06:59):

Here’s a quote from one of the emails:

“Also, it is important for us if you can transfer the ADVANCE money on the personal accounts which we gave you earlier and the sum for one occasion transfer (for example, during one day) will not be more than 10,000 USD. Only in this case we can avoid big taxes and use money for our work as much as possible.”Reducing "Blips"
Ric Werme (19:43:43):

This sounds like a “get rid of the MWP,” I hope it’s just a what if
speculation/exploration that might lead to research directions.

tux:mail> cat 1254108338.txt
From: Tom Wigley
To: Phil Jones
Subject: 1940s
Date: Sun, 27 Sep 2009 23:25:38 -0600
Cc: Ben Santer

Phil,

Here are some speculations on correcting SSTs to partly explain the 1940s warming blip.

If you look at the attached plot you will see that the land also shows the 1940s blip (as I’m sure you know).

So, if we could reduce the ocean blip by, say, 0.15 degC, then this would be significant for the global mean — but we’d still have to explain the land blip.

I’ve chosen 0.15 here deliberately. This still leaves an ocean blip, and i think one needs to have some form of ocean blip to explain the land blip (via either some common forcing, or ocean forcing land, or vice versa, or all of these). When you look at other blips, the land blips are 1.5 to 2 times (roughly) the ocean blips — higher sensitivity plus thermal inertia effects. My 0.15 adjustment leaves things
consistent with this, so you can see where I am coming from.I downloaded the document and found some interesting stuff

Wang Fabrications
From: "D.J. Keenan"
To: "Steve McIntyre"
Cc: "Phil Jones"

Subject: Wang fabrications
Date: Tue, 19 Jun 2007 20:45:15 +0100
X-Mailer: Microsoft Outlook Express 6.00.2900.3138
X-UEA-Spam-Score: 0.0
X-UEA-Spam-Level: /
X-UEA-Spam-Flag: NO

Steve,

I thought that I should summarize what has happened with the Wang case.

First, I concluded that the claims made about Chinese stations by Jones et al. [Nature, 1990] and Wang et al. [GRL, 1990] were very probably fabricated. (You very likely came to the same conclusion.)

Second, some investigation showed that Phil Jones was wholly blameless and that responsibility almost certainly lay with Wang.

Third, I contacted Wang, told him that I had caught him, and asked him to retract his fabricated claims. My e-mails were addressed to him only, and I told no one about them. In Wang's reply, though, Jones, Karl, Zeng, etc. were Cc'd.

Fourth, I explained to Wang that I would publicly accuse him of fraud if he did not retract. Wang seemed to not take me seriously. So I drafted what would be the text of a formal accusation and sent it to him. Wang replied that if I wanted to make the accusation, that was up to me.

Fifth, I put a draft on my web site--
http://www.informath.org/apprise/a5620.htm
--and e-mailed a few people, asking if they had any recommendations for improvement.

I intend to send the final version to Wang's university, and to demand a formal investigation into fraud. I will also notify the media. Separately, I have had a preliminary discussion with the FBI--because Wang likely used government funds to commit his fraud; it seems that it might be possible to prosecute Wang under the same statute as was used in the Eric Poehlman case. The simplicity of the case makes this easier--no scientific knowledge is required to understand things.

I saw that you have now e-mailed Phil (Cc'd above), asking Phil to publish a retraction of Wang's claims: http://www.climateaudit.org/?p=1741#comment-115879
There could be a couple problems with that. One problem is that it would be difficult for Phil to publish anything without the agreement of Wang and the other co-authors (Nature would simply say "no").

Another problem is that your e-mail says that you presume Phil was "unaware of the incorrectness" of Wang's work. I do not see how that could be true. Although the evidence that Phil was innocent in 1990 seems entirely conclusive, there is also the paper of Yan et al. [Advances in Atmospheric Sciences, 18: 309 (2001)], which is cited on my web page. Phil is a co-author of that paper.

Phil, this proves that you knew there were serious problems with Wang's claims back in 2001; yet some of your work since then has continued to rely on those claims, most notably in the latest report from the IPCC. It would be nice to hear the explanation for this. Phil?

Kind wishes, Doug

That is just an accusation but it looks pretty damning.

This whole thing with tree rings is pretty fascinating. There was a reference in the emails to this site: Ross McKitrick: Defects in key climate data are uncovered
Only by playing with data can scientists come up with the infamous ‘hockey stick’ graph of global warming

Beginning in 2003, I worked with Stephen McIntyre to replicate a famous result in paleoclimatology known as the Hockey Stick graph. Developed by a U.S. climatologist named Michael Mann, it was a statistical compilation of tree ring data supposedly proving that air temperatures had been stable for 900 years, then soared off the charts in the 20th century. Prior to the publication of the Hockey Stick, scientists had held that the medieval-era was warmer than the present, making the scale of 20th century global warming seem relatively unimportant. The dramatic revision to this view occasioned by the Hockey Stick’s publication made it the poster child of the global warming movement. It was featured prominently in a 2001 report of the U.N. Intergovernmental Panel on Climate Change (IPCC), as well as government websites and countless review reports.

Steve and I showed that the mathematics behind the Mann Hockey Stick were badly flawed, such that its shape was determined by suspect bristlecone tree ring data. Controversies quickly piled up: Two expert panels involving the U.S. National Academy of Sciences were asked to investigate, the U.S. Congress held a hearing, and the media followed the story around the world.

The expert reports upheld all of our criticisms of the Mann Hockey Stick, both of the mathematics and of its reliance on flawed bristlecone pine data. ...

Thus the key ingredient in most of the studies that have been invoked to support the Hockey Stick, namely the Briffa Yamal series, depends on the influence of a woefully thin subsample of trees and the exclusion of readily-available data for the same area. Whatever is going on here, it is not science.

I have been probing the arguments for global warming for well over a decade. In collaboration with a lot of excellent coauthors I have consistently found that when the layers get peeled back, what lies at the core is either flawed, misleading or simply non-existent.

Ross McKitrick is a professor of environmental economics at the University of Guelph, and coauthor of Taken By Storm: The Troubled Science, Policy and Politics of Global Warming.That article is a fascinating read in and of itself, implicating U.S. climatologist Michael Mann.

By the way, I am questioning if this was really the work of hackers. It could just as easily be an inside job of some disgruntled worker deciding to expose the CRU.

It's a good thing Cap-And-Trade "Three-Card Monte" Dead For 2009.

Now let's kill it permanently. Global warming is a hoax.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Inquiring minds are watching The Geography Of A Recession, a time lapse unemployment visualization from the start of the recession until now.

Click on the link to play. This is undoubtedly my shortest post ever.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Citigroup is whining that new regulations eliminate pricing for risk. So what does it do? Jack up rates is the answer. To lower interest rates, Citi customers must spend more.
For Citibank credit card holders, there is one way to escape the bank's rate hikes currently under way: Meet a monthly spending requirement.

Those who meet the spending minimum -- in some cases $750 a month -- will be able to get a rebate on their total interest charges for that month. The rebate could cover some or all of the interest rate hike. Customers also need to make payments on time to qualify for the rebate.

Without giving specifics, Citi said the monthly spending requirements and interest rate hikes will vary depending on the cardholder's credit history.

About half of its customers will be able to erase 50 percent to 100 percent of their rate increases through the rebates. Citi said its rebates will be based on interest charges for an entire balance, not just monthly charges.

With 92 million credit cards in circulation last year, Citi was the second largest card issuer in the country, according to CreditCards.com. Chase was the largest with 119.4 million cards, and Bank of America was third with 80.2 million cards.

The change by Citi comes as the industry rushes to adjust to sweeping reforms to start in February that will limit when and how much card issuers can hike interest rates. In a statement, Citi said the actions were necessary given elevated losses from souring loans and "regulatory changes that eliminate repricing for that risk."

The bank also noted that "customers who do more business with us will have the most opportunity to reduce their rates." Of course, consumers could need to spend more than they otherwise would to qualify.Disingenuous Whining

Notice how Citigroup is whining they cannot price for risk.

So what do they do but lower rates for those clients taking on more risk by charging more. Common sense would say that the lower the balance the less the risk.That's the case for Lindsey Pappas, a 25-year-old public relations professional in San Francisco. She received a letter from Citi Wednesday that her interest rate was being hiked to 19.99 percent, up from 14.99 percent.

If she spends $750 a month, however, she can get a refund for part of the higher interest rate charges. The problem is that Pappas is trying to pay off a $5,000 balance on the card, so she tries not to charge any money on it.

"I'm just going to have to deal with the higher interest rate. Spending that much would be irresponsible," she said. "Spending that much would be irresponsible" said Lindsey Pappas. Indeed it would be. The irony is Citigroup complains about "regulatory changes that eliminate repricing for that risk" then voluntarily turns around and encourages customers to take on more risk while pricing less for it.

Such policies will drive away less risky clients while keeping the poor ones.

Is it any wonder Citigroup is in trouble?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Yesterday Dallas Federal Reserve President Richard Fisher threw a little cold water on the V-shaped recovery madness everyone seems to be buying into these days.

Please consider Fed's Fisher: GDP Growth In Third Quarter Likely Lower Than Reported.Speaking at a conference in Tyler, Texas, Fisher said he was willing to venture that the increase would not be "as robust as originally reported."

He did say, however, that the growth rate would still be positive - though it would be closer to a rate of 2.5 percent - and that growth would also be positive for the fourth quarter.

Even though he said economic growth would be positive, Fisher cautioned that the high unemployment rates would cause recovery from last year's financial crisis to be slow. Managing Expectations

Got the idea the Fed is attempting to manage expectations? If so, that is precisely what the Fed is doing.
When asked about the dollar at a question and answer session following his speech, Fisher said that lower interest rates have not increased the risk of the dollar declining in value. Rather, he said, the weakening of the dollar was due to other major currencies entering the world's economic system.

"You'd expect with more participants that there might be some kind of rebalancing," but such evolution would be orderly and gradual, he said.Let me get this straight: The dollar is falling because "other major currencies [are] entering the world's economic system".

Is he serious? What this proves is these guys absolutely cannot think beyond their prepared remarks.

The Effect of Stimulus

A $trillion in stimulus (not counting bank bailouts) and other stimulus measures not labeled "stimulus" because everyone is getting tired of the word, only got us 2.5%-3.0% of GDP growth.

Dave Rosenberg was talking about GDP in today's Breakfast with Dave
Heightened appetite for risk does not mean that credit problems have gone away as we see the global speculative-grade corporate default rate rise 12 basis points in October, to 9.71%. And Fitch just published a report indicating that the U.S. banks can expect to see 10% of their $1.1 trillion of direct commercial real estate loans default and that the regional banks can expect to see “significant” cuts in their credit ratings.

DOWNGRADE TO GROWTH FORECASTS? THAT DOES SEEM TO BE THE CASE

Dallas Federal Reserve Bank President Fisher suggested yesterday that the Q3 real GDP print will be taken down from 3.5% at an annual rate to 2.5% — despite massive government stimulus. (Is that all you get for your money?) And the Philadelphia Fed survey of professional forecasters shows that this collection of 41 economists just took down their 2010 Q1 GDP call to 2.3% from 2.5% and for next year’s Q2 to 2.4% from 2.8%.

Meanwhile, the S&P 500 is currently trading as if the economy is going to expand at nearly a 5.0% rate in the coming year. If the consensus is right, then fair-value in the S&P 500 is closer to 900 than it is to 1,100. This by no means suggests that the speculative run is over; it only means that the folks allocating their capital to the stock market today do not adhere to the adage of ‘buying low and selling high’ and are very likely the same folks who were buying at the top back in 2007 when “excess liquidity” themes were all the rage.The Stall Rate

I am of the belief that the first 2.0-2.5% of GDP is fluff hedonics, imputations, distortions, and unproductive spending that does nothing nor produces anything.

Heck, it is likely much higher than that, but Bernanke has stated that the economy needs to grow faster than 2.5% to gain any jobs. Now bear in mind the name of the game is not just to gain jobs, but to gain 100,000 jobs or more because that is his estimate as to how fast the labor market is expanding. Please see Bernanke's Outlook For Recovery and What It Means For Jobs for details.

At 2.5% GDP or even higher, unemployment will keep rising even as the effect of the stimulus is starting to drop off. Meanwhile the much touted ECRI leading indicators dropped 1.4 points and hit an eight week low. Those green shoots (which was in reality nothing more than government throwing money around), are starting to die on the vine, even as Obama is concerned about rising deficits and inflation hawks on the Fed are rattling cages about removing stimulus.

Those touting a "V-shaped recovery" are forewarned: Shockingly bad news is on the horizon and it is the shape of an "L" or "WWW".

Addendum:

I quoted Rosenberg above as saying "And Fitch just published a report indicating that the U.S. banks can expect to see 10% of their $1.1 trillion of direct commercial real estate loans default and that the regional banks can expect to see “significant” cuts in their credit ratings."

What the report actually said was "possible" not "expect" although it is entirely possible that Rosenberg was reading between the lines as to what Fitch meant. Here are the actual pertinent statements in the report as sent to be by one of the major brokerages.
Therefore, Fitch expects rating actions taken as a result of its CRE review will be concentrated among the midsized regional and smaller banks. In most cases, rating actions will likely be limited to one notch, but more significant downgrades are quite possible among the banks with the greatest exposure.

Banking companies that see their TCE/TA ratios fall below the 4% threshold will likely see ratings downgraded by a notch, with further downgrades possible for those firms that fall considerably below that level. That being said, Fitch acknowledges that it has already taken a number of rating actions on banks in the past year, so further downgrades may not be imminent for all firms low on capital, as their current rating levels may already reflect that risk.

Fitch does not intend to use the severe stress to help determine a specific rating level; however, results of the severe stress may help the rating committee determine the appropriate Rating Outlook for a specific company. Fitch anticipates that most banks or thrifts that would generate TCE/TA ratios far below the 4% benchmark under the severe stress will likely see their Rating Outlook remain at or move to Negative in the future. Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Massive fiscal problems confront California once again. Let's start with a look at California students hit with 32% hike in tuition.California undergraduates and their parents just got hit with a 32% increase in tuition by next summer.

With hundreds of angry students chanting outside their meeting at UCLA, the California Board of Regents approved the $2,500, two-step fee hike, which will raise the basic tuition at the 10-campus University of California system to $10,300 a year. That's three times what it cost a decade ago. Other fees, books, and room and board adds an additional $16,000.

With the state $21 billion in the hole and slashing funding for education, the regents said they had no choice. At the same time, UC is restricting new admissions in a bid to save money.

More increases seem inevitable.

UC President Mark Yudof has asked for $913 million more next year for the UC system and says he "can't make any promises" to not raise fees again if the state doesn't come through. "When you have no choice, you have no choice," Yudof said after a regents' committee endorsed the fee plan Wednesday. "I'm sorry."

California Deficit Hits $21 Billion

California is back in another deep hole. A $21 Billion Fiscal Shortfall Could Mean More Cuts, Higher Taxes and the Return of IOUs to Meet Obligations. Please consider Budget Gap Widens in Sacramento.
California is deep in red ink again, according to a new report projecting that the cash-strapped state faces a $21 billion budget shortfall through June 2011.

Facing so much fiscal red ink, Californians could see another round of spending cuts and tax increases. Since September 2008, state lawmakers have enacted three budgets to close a cumulative $77 billion shortfall. They closed the gap largely through spending cuts and tax increases, but also with federal-stimulus funds and one-time accounting gimmicks. At one point, California was so close to insolvency it was forced to issue IOUs.

The report's conclusions now raise the likelihood of another lengthy impasse among the state's hyper-partisan legislators that could threaten California's solvency and force officials to again resort to IOUs.

Republicans, including Gov. Arnold Schwarzenegger, are opposing tax increases. Democrats, who control the state legislature but fall short of the two-thirds majority needed to pass budgets, vow to resist new spending cuts.

Mr. Schwarzenegger, who will release a budget proposal in early January, has said the state needs more across-the-board cuts. "I think it's important not to raise revenues, not to raise taxes," he said Wednesday at a conference in Milan, Italy. "We have to live within our means."

The new budget report said $6 billion of the projected shortfall in the current fiscal year is largely due to unrealistic budget assumptions about tax revenue and spending on schools and prisons.

A chunk of the remaining $14 billion deficit forecast for the 2010-2011 fiscal-year budget would result from the expiration of temporary budget solutions, such as use of federal-stimulus funds and accounting gimmicks, according to the report.California Gridlock II Coming

History is about to repeat. A $21 billion budget deficit gridlock threatens to send Sacramento back into gridlock.
"There is no more to cut from our schools," California Teachers Assn. President David Sanchez said Tuesday. "There is no more meat on this bone. . . . The next step is amputation."

In higher education, Chancellor Charles Reed of the Cal State University system said this month that he will plead for $884 million in funds from Sacramento next year. The University of California will ask for $913 million more for its 10-campus system, President Mark Yudof has said.

"If ever there was a time to fight for and invest in the institution best positioned to power this state from recession, now is that time," Yudof said in a statement. UC students, meanwhile, are coping with a staggering 32% fee hike.

California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status. (Neither was realistic, he determined.)

The state's financial problems predate the current recession and the gimmicks used to paper over the deficit, experts say. Year in and year out, state government spends roughly $10 billion more than it collects in tax revenue.

Political divisions in Sacramento, where support from both parties is necessary to pass a budget, have repeatedly stymied efforts to plug that hole. The task probably won't be easier next year as various interests try to muscle one another to the sidelines.Budget Woes In San Francisco

It's not just the sate that is in trouble. The San Francisco Chronicle reports S.F. home value drop, jobless drain city budget.
San Francisco's lowered home values and high unemployment rates have created another unwelcome side effect: far less revenue coming into city coffers than expected.

A report released Monday by the controller's office shows that property tax revenues will likely be $35 million less than anticipated in the 2009-10 fiscal year that began July 1. Payroll tax revenues will probably be $24.8 million less than expected, the report said.

To make matters worse, some city departments are going over budget, including shortfalls of $5.1 million in the Fire Department, $4 million in the Sheriff's Department and $3.2 million in Superior Court.

"I don't even know if I have words to describe how bad this is," said Steve Kawa, Mayor Gavin Newsom's chief of staff. "It may be the perfect financial storm," Kawa said. "It's going to be incredibly difficult to find a way to balance next year's budget without some severe impacts."

In the near term, the fight over midyear cuts could get ugly. Already, several supervisors are at odds with the mayor over the supervisors' plan to approve spending $7 million to rescind more than 500 layoff notices going into effect this week for city and school district workers.

Supervisor Sean Elsbernd said he expects the $35 million figure to wind up being conservative. He said 350 property owners had filed appeals by this time two years ago, and their properties were worth a total of $2 billion. This year, the 4,000 property owners represent property totaling $25 billion.

Elsbernd said that's why the board needs to get serious about major fiscal reform, including employee health benefits and retirement systems.

"These numbers are dramatic," he said. "We need to go after the big money now. A clip here, a clip there doesn't get it done."Rest assured everyone in California is going to get clipped one way or another, and probably multiple ways at once.

What an incredible mess.

Yet, there is still little talk about cutting pensions, fixing the prison system, privatizing services, or doing anything about illegal immigrants. Those are items that should be at the top of the discussion list.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Chalk up a rare victory for the little guy (and the nation itself). The Bill To Audit Federal Reserve Passes Key Hurdle
In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.

Backers of the Watt amendment pressed their case on Wednesday by sending a letter from a "political cross section of prominent economists" backing a measure like Watt's. HuffPost reported, however, that those economists might well have be prominent, but they certainly aren't a "political cross section." Seven of the eight economists in question have extensive connections to the Fed -- and half of them are currently on the Fed payroll. Those affiliations were not noted in the letter.

The playbook in Washington often goes like this: When a measure that threatens the establishment builds enough momentum that it must be dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."

And it particularly rankles the center that a pair of "wingnuts" are behind a successful effort to challenge the prevailing order. [See Grayson Called "Wingnut" By New York Times].

For anyone remaining confused, the debate was further clarified by the central bank itself: Federal Reserve Vice Chair Don Cohn and General Counsel Scott Alvarez spent much of the day calling committee members, urging them to oppose the Paul-Grayson amendment in favor of Watt's, a member of Congress who asked for confidentiality told HuffPost.

Paul's opponents also placed a letter from former Fed chairmen Alan Greenspan and Paul Volcker on the seats of every committee member. Such a move is in violation of House rules and Grayson was able to have the letters removed.

As the day wore on and support held for the Paul-Grayson side, the Fed still could hope that both would pass. Watt's amendment, which included additional restriction, would then trump Paul's.

To counter that possibility, the Paul-Grayson side moved to fully replace Watt's amendment with theirs, leaving only one amendment to vote on. The motion carried and the amendment passed in a landslide.

Frank said he was opposing the Paul amendment because it could be perceived as influencing monetary policy, which can have inflationary pressure. "Perception is very important in monetary policy," said Frank.

He urged a no vote, yet 15 Democrats bucked him, voting with Paul.

"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards. Listen To Grayson



Clearly Grayson has this story cold. Equally as clearly, Barney Frank is a liar who never supported a true audit the Fed proposal in the first place.

Thanks to the Huffington Post for running these stories. Also thanks go to everyone who called, phoned, or faxed in support for the Ron Paul, Alan Grayson amendment.

Bear in mind there will be other attempts to water down this bill and/or to change it dramatically in the Senate. Be prepared to phone, fax, and call in again as necessary.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

In response to Freefall In Small Business Loans I received an email from "ABO" the CEO and owner of a bank.

ABO, who has been in the banking business 30 years, writes:
Mish,

I was reading the article you wrote concerning the difficulty of securing small business loans and President Obama promising assistance via the Small Business Administration - SBA.

Most small banks run from the SBA. Reasons are many. Suggesting that the SBA is a solution is naive or dishonest. The problem starts with the government and they only make things worse!

To your list of reasons as to why banks do not lend I would add;

5) Bank regulators are pursuing a reign of terror, too late, after ignoring massive problems for years. They let this mess happen by ignoring safety and soundness and instead focused on important things like CRA and other compliance issues. Safety and soundness were ignored for political goals. Common sense was abandoned! What kind of regulator lets the majority of banks take brokered deposits and have a loan to deposit ratio of 120% or more with a concentration in one area such as commercial real estate. Any fool knows the danger that scenario poses! With a 6% capital ratio and virtually 100% of deposits invested in commercial real estate how likely would a bank be to survive? Even a 3% drop in real estate prices puts the bank out of business. Small undercapitalized banks are scared to death, as they should be. Yet, well capitalized banks with sound practices now fear the reign of terror.Enormous Paperwork With SBA

One of the problems that ABO alluded to on SBA loans under the American Recovery and Reinvestment Act of 2009 (ARC) is the sheer volume of paperwork involved.

From CNN Money: "This is the stack of paperwork the Browns filled out for their ARC loan. They got $14,000, less than half of what they applied for."



Hunkering Down In The Fast Food Business

"Hunkering Down", a fast food restaurant owner writes:
I discovered your blog a while back, and I have become a faithful reader. You have been spot on in my opinion in most of your commentary. I have a small business, an independant fast food restaurant, we've been in our location since 1988.

We have survived the recessions, new competitors, and many other ups and downs of the joys of capitalism, but I am not sure we are going to live through the governments meddling in the current financial disaster.

Last year we had 21 employees, now we have 11. Fortunately I was blessed with a better accountant than Bernanke. Mine told me when I was nattering on in 2007 (yes 07) about getting a 50,000 dollar loan for improvements that there was a horrible recession coming. He suggested that I pay down my debts and basically go into hibernation mode if I wanted to get through this. And thank goodness we did.

Adding salt in the wounds of those who did not see this coming, the Obama administration is scaring businesses to death with threats of huge taxes, health mandates, card check unionization, and cap and trade on one hand, and sheer ignorance of economics on the other.

Is a tax credit of FICA wages supposed to make me spend 20,000 a year on a new hire? Really? Money to pay the rest of his wage is going to come from....where exactly? Businesses are not going to hire to get a tax credit of FICA, they will hire when they need to. The program is useless for job stimulation, but costly for the deficit.

Any business person with a lick of sense is hunkering down, and the ones without sense are being forced to hunker, BECAUSE THERE IS NO BUSINESS! No, I don't want a loan. A loan (debt) is the last thing I or anyone else who is trying to surf the tsunami of this economy wants.

This is the "can't make him drink" economy whether you are a consumer, or a business person. The mess is compounded government officials riding horses with the saddles on backwards. The rest are either nuts or criminals, so there you are.

Multiply me by thousands of sensible others, and you see where we are headed.

Sincerely,
"Hunkering Down"Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

When you can't change public opinion any other way, you buy it. That is the message from Huffington Post today in Economists Opposing Fed Audit Have Undisclosed Fed Ties.
As the debate over an audit of the Federal Reserve intensifies in the House, one camp is trotting out eight academics that it calls a "political cross section of prominent economists."

A review of their backgrounds shows they are anything but.

In a letter to the House Financial Services Committee earlier this month, all eight wrote that they support the type of amendment now being introduced by Rep. Mel Watt (D-N.C.). Watt's approach purports to increase Fed transparency while it actually would tighten restrictions on any audits that could go forward.

But far from a broad cross-section, the "prominent economists" lobbying on behalf of the Watt bill are in fact deeply involved with the Federal Reserve. Seven of the eight are either currently on the Fed's payroll or have been in the past.

The Fed connections are not outlined in the letter sent around to committee members on Wednesday, but are publicly discernible through a review of their resumes, which are all posted online.

In September, Huffington Post reported that the Federal Reserve has accomplished a soft form of effective control over the field of monetary economics simply by employing -- and being the means for career advance -- for an overwhelming proportion of the discipline.

Let's run the traps:

Frederic Mishkin is a former board member, having served from 2006-2008. His career at the Fed stretches back to 1977 and he currently holds two positions: one as a member of the Center for Latin American Economics at the Federal Reserve Bank of Dallas, where he's been since 1996; and another as an academic consultant to the Federal Reserve Bank of New York, where he's been since 1997.

Anil K. Kashyap is currently a consultant with the Federal Reserve Bank of Chicago, a position he's held since 1991. He's also on the economic advisory panel of the New York branch and was a consultant there in 2003. He was a visiting scholar at the division of monetary affairs at the Board of Governors of in1994, 2001 and 2005 and at the division of international finance in 1997.

Pete Klenow was a visiting scholar at the Federal Reserve Bank of Minneapolis from 1994-1999, 2003-2004, 2006 and again this year. From 2000-2003 he was also a senior economist at that branch. He's currently a visiting scholar at the Federal Reserve Bank of San Francisco, a position he's held since 2005. He was a visiting scholar at the Federal Reserve Bank of Kansas City from 2004-2006.

Ricardo J. Caballero was a visiting scholar at Federal Reserve Bank of Boston from 2004-2005 and a visiting scholar at the Federal Reserve Board on multiple occasions.

Robert Hall was a research assistant at the Board of Governors of the Federal Reserve System from 1982-1984 and an economist there from 1988-1991.

Thomas Sargent was an adviser to the Federal Reserve Bank of Minneapolis from 1981 to 1987 and continues to write frequently for Fed-sponsored journals.

Micheal Woodford is currently on the Monetary Policy Advisory Committee of Federal Reserve Bank of New York, a position he's held since 2004. He's also listed as a consultant to the research department there dating back to 2005. In the past, he's been a visiting scholar at the Board of Governors and various regional branches in 1987, 1993-1998 and 2000-present, often at multiple banks in the same year. That list of economists is anything but unbiased. The conflict of interest is clear, loud, and undeniable.

Audit The Fed Needs Your Help ... Again!

Please help.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Typically, one of the best thing Congress ever does is nothing. And so it is again with the Cap-And-Trade energy bill. Thankfully, Senate Climate Bill Delay Raises Doubt on Chance for U.S. Law.
The U.S. Senate won’t try to pass a bill limiting U.S. greenhouse-gas emissions for months, clouding the prospects for final legislation as the Obama administration focuses on health care and the economy.

“We’re going to try to do that sometime in the spring,” Senate Majority Leader Harry Reid, a Nevada Democrat, said of climate-change legislation in remarks to reporters yesterday. He didn’t cite a reason for the delay.

President Barack Obama had sought Senate action on a measure, already passed by the House, in time for talks in Copenhagen next month on a new global climate treaty. The Senate slowdown further jeopardizes the measure’s chances of passage, Whitney Stanco, an analyst in Washington for Concept Capital, said in a report today.

“The spring timeline would push the debate closer to the 2010 mid-term elections, potentially setting lawmakers up for a difficult vote before they face their constituents in the ballot box,” said Stanco, whose company advises investors.

Senator Barbara Boxer, a California Democrat and chairman of the panel, said this week that lawmakers will be too busy debating health care, job creation and banking legislation to take up cap-and-trade proposals. “By the time you turn around, it’s March,” Boxer told reporters.

“The Senate is far from the 60 votes needed to move a climate-change bill and that is unlikely to change as long as the economy continues to underperform,” said Thomas Mann, a political analyst at Washington-based Brookings Institution in an e-mail yesterday. “If Obama succeeds in getting a health- reform bill and financial regulation, I think his energies in 2010 will be focused on jobs and the economy.” Sins of Emission

Inquiring minds are reading Sins of Emission in the Wall Street Journal, how the ethanol boondoggle is an environmental catastrophe.
OCTOBER 29, 2009
Donning FDR's cape, Eisenhower's stripes and JFK's boat shoes, President Obama observed in Florida on Tuesday that his "clean energy economy" will require "mobilization" on the order of fighting World War II, building the interstate highway system and going to the moon. Of course, the only "mobilization" going on at the moment is on behalf of ethanol, whose many political dispensations the biofuels lobby is finding new ways to preserve even as the evidence of its destructiveness piles up.

The latest embarrassment arrives via the peer-reviewed journal Science, not known for its right-wing inclinations. A new paper calls attention to what the authors (led by Princeton's Tim Searchinger) call "a critical accounting error" in the way carbon emissions from biofuels are measured in climate-change programs world-wide.

The Science study argues [the Cap-and-trade program] is a false economy, because it doesn't consider changes in land use. If mature forests are cleared to make room for biofuel-growing farms, then the carbon that would otherwise accumulate in those forests ought to be counted on ethanol's balance sheet as well.

Cap-and-trade programs exacerbate the problem because developed countries (where emissions are putatively capped) get credit for reductions from ethanol—despite the fact that their biofuels are generally grown in developing countries (where emissions aren't capped). So if Malaysians burn down a rain forest to grow palm oil that ends up in German biodiesel, Malaysia doesn't count the land-use emissions and Germany doesn't count the tail-pipe emissions.

By way of a solution, Mr. Searchinger and his coauthors modestly suggest doing away with the regulatory three-card monte and counting net ethanol emissions from where they are actually emitted. But this is political heresy on Rep. Henry Waxman's Energy and Commerce Committee, which passed its own cap-and-tax program in July with the votes of farm-state Democrats, because the bill all but banned the Environmental Protection Agency from studying land-use changes. So much for letting "the science" guide public policy.

In Florida, Mr. Obama said the only people who could oppose his climate plan are "those who are afraid of the future." On this one, at least, the President is right.Green Hell

Not only is Cap-And-Trade environmentally unsound, it would be crippling to many businesses. However it would benefit GE.

Please consider Boxer pays off GE in climate bill
Sen. Barbara Boxer’s climate bill set to be released today contains a provision that will compensate General Electric quite nicely for its lobbying and media efforts promoting climate legislation.

Section 821(c) requires that, by December 12, 2012, the EPA set standards for greenhouse gas emissions from “new aircraft and new engines used in new aircraft.”

General Electric is the world’s largest manufacturer of commercial and military jet engines, a business worth about $12 billion in annual revenues.

So the Boxer bill would compel airlines and the military, when purchasing new aircraft and new aircraft engines, to purchase more expensive “green” engines made by GE, according to standards set by the current and GE-lobbied Obama administration.

Keep in mind that GE CEO Jeff Immelt is member of President Obama’s Economic Recovery Advisory Council.

More evidence that GE’s political action committee (GEPAC) meant what it said in its August 19, 2009 e-mail to employees by John Rice, the CEO of GE Technology Infrastructure:

Dear Colleagues:

I would like to invite you to join me in an important initiative available to GE leaders — the GE Political Action Committee (GEPAC). This year, Senior Professional Band (SPB) employees will have the choice to join other eligible employees to become members of GEPAC.

The intersection between GE’s interests and government action is clearer than ever. GEPAC is an important tool that enables GE employees to collectively help support candidates who share the values and goals of GE. While we must continue to engage elected officials to help them better understand our various businesses and how legislation affects our Company and our customers, we must also make sure that candidates who share GE’s values and goals get elected to office. ....For the rest of the Email please see GE seeks support for GE-minded politicians.

Cap and Tax Fiction

Please consider another Wall Street Journal on Cap and Tax Fiction
To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.As the saying goes ...

It's time to update the old saying "What's Good For GM Is Good For America"

Here is the new saying ... "What's Good For GE Is Bad For America"

For more on GE and how corporate cronyism is helping destroy the country, please see GE CEO Plays Kiss Ass With Obama.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

It's time to make some phone calls. It will take less than 10 minutes. Here are the Democrats who support the auditing of the fed.

Rep. John Adler, NJ: (202) 225-4765
Rep. Travis Childers, MS: (202) 225-4306
Rep. Steve Driehaus, OH: (202) 225-2216
Rep. Rubén Hinojosa, TX: (202) 225-2531
Rep. Suzanne Kosmas, FL: (877) 956-7627
Rep. Dan Maffei, NY: (202) 225-3701
Rep. Brad Miller, NC: (202) 225-3032
Rep. Walt Minnick, ID: (202) 225-6611
Rep. Ed Perlmutter, CO: (202) 225-2645
Rep. David Scott, GA: (202) 225-2939
Rep. Brad Sherman, CA: (202) 225-5911
Rep. Jackie Speier, CA: (202) 225-3531

Please call them and ask them to support the Ron Paul/Alan Grayson amendment and NOT the Mel Watt BS amendment to the bill.

Vote(s) will be held in the coming days.

Please call Mel Watt too: (202) 225-1510
Mel Watt's contact info.

Watt claims to support full auditing and increased transparency, yet his amendment completely removes all effect and substance and purpose from the bill itself. Thus his claim is beyond disingenuous, in deep outer space.

For more on Mel Watt's effort to gut Ron Paul's bill, please see the Huffington Post article Audit The Fed Effort Under Threat In House.

Phone Your Own Representative

For a list of phone and fax numbers for Congress please see Speak Out - Audit the Fed, Then End It!

Call Democratic Central Committee

On October 8, in Audit The Fed Revisited Jacob Dreizin offered this advice.Without a flood of citizen lobbying, they will most likely water down H.R. 1207 into something meaningless, or else ignore it altogether.

The committee Democrats' central phone number is (202) 225–4247, and the fax is (202) 225-6952. Alternately, and perhaps more effectively, you can politely email some or all of the committee's most senior Democrat staff directly, as follows:

Committee staff director and chief counsel: Jeanne.Roslanowick@mail.house.gov

Committee deputy chief counsel: Lawranne.Stewart@mail.house.gov

Committee communications director: Steven.Adamske@mail.house.gov (or possibly Steve.Adamske@mail.house.gov)Call The Capital Switchboard

Conservative For Change has this advice in Ron Paul's Audit the Fed Bill Gutted.
It is time to get on the phone with everyone in Washington...Congressman and Senators and demand action against the illegal Federal Reserve. Call the Capitol Switchboard 202-224-3121 and speak with everyone you can! Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

After optimists talked up rising housing starts for several months as green shoots, improving conditions, etc., reality came knocking in full force with the New Residential Construction Report For October 2009.
BUILDING PERMITS

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 552,000. This is 4.0 percent below the revised September rate of 575,000 and is 24.3 percent below the October 2008 estimate of 729,000.

Single-family authorizations in October were at a rate of 451,000; this is 0.2 percent below the revised September figure of 452,000. Authorizations of units in buildings with five units or more were at a rate of 85,000 in October.

HOUSING STARTS

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent below the revised September estimate of 592,000 and is 30.7 percent below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent below the revised September figure of 511,000. The October rate for units in buildings with five units or more was 48,000.

HOUSING COMPLETIONS

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 740,000. This is 1.9 percent above the revised September estimate of 726,000, but is 29.9 percent below the October 2008 rate of 1,055,000.

Single-family housing completions in October were at a rate of 528,000; this is 10.7 percent above the revised September figure of 477,000. The October rate for units in buildings with five units or more was 200,000.Total Privately Owned Housing Starts



Looking at the chart it is hard to make a case for optimism in the first place.

Before the housing numbers release this was the Bloomberg headline

Builders Probably Broke Ground on Most U.S. Houses in 11 Months
Builders in October probably broke ground on U.S. houses at the fastest pace in 11 months, and consumer prices held below the Federal Reserve’s long-range goal, economists said reports today may show.

Housing starts rose 1.7 percent to an annual rate of 600,000, the most since November 2008, according to the median forecast of 77 economists in a Bloomberg News survey.

Government tax credits and lower prices and borrowing costs may spur residential sales and construction in coming months, indicating housing will help the economy recover.

“Housing is starting to turn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. Housing Starts Forecast



The lowest number out of 77 economists was 570,000. The number came in at 529,000.

Some might claim that concern over the $8,000 housing tax credit is to blame. Well even if so, what exactly does that say about the recovery when government has to give away money to home buyers?

Who Wants A House?

I keep asking "Who wants a house, can afford a house, and does not yet have a house?" Unfortunately there is no such survey, but the number cannot be that high. Yet, when you give away tax credits that can be used for closing costs the number can go up ... for a while.

Then what?

Is it possible all the pent-up demand is exhausted already? Unless today's release is an outlier, that is a reasonable explanation.

Notice what happened in the last recession. Housing never slowed at all. We also had loose credit, declining lending standards, liar loans, a credit bubble, and promotion of housing by Greenspan and Bush's "Ownership Society".

The bigger the boom, the bigger the bust.

Now we are on the backside of peak credit, with a huge, albeit declining inventory. Furthermore, declining inventory ignores pent-up foreclosures, shadow inventory (banks holding foreclosures off the market hoping prices rise), and increasing inventory in rental units.

Speaking of rental units, starts of 5-unit structures hit a new record low.

Privately Owned Housing Starts 5-Unit Structures or More



This is a recovery?

Government can continue to "stimulate housing". However, it will be at the expense of multi-unit properties, but even then, only for a while. Eventually, pent-up demand will fall to zero unless government increases the tax credit or otherwise modifies the program.

Signs are pent-up demand is reaching exhaustion already.

This is exactly the problem with all these Keynesian stimulus ideas and exactly why the only solution is to let housing prices fall to where they are genuinely affordable, where there is real, as opposed to artificial demand.

“Housing is starting to turn,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York.

Indeed it has, for the worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

In what should be no surprise, banks are cutting back on small business loans. Please consider Small business loans: $10 billion evaporates.Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.

The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April.

Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.

While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.The article details the plight of Frank and Ingrid Brown who owns retail art and gift shops and wants to expand.

They applied for $35,000 in small business loans and "after filling out mountains of paperwork, the couple got a loan for $14,000 -- less than half the $35,000 they applied for. Frank complained "By the time you get through everything, it is not even worth it."

They also applied for a $50,000 credit line and were only approved for $10,000.

So what is it they need, $35,000, $50,000, or $85,000? If I was a bank I would be extremely nervous about making loans to expand small retail gift shops in this environment especially when they want a large line of credit to go along with it.

Bear in mind we do not have all the facts, nor does the article. But these tales of woe are useless without the facts. I see no reason to believe this couple is a good business risk. Perhaps they are, perhaps they are not but my inclination is to side with the banks.

Pump Runs Dry

Flashback March 16, 2009 Obama: Pumping money into small biz
President Obama vowed Monday to ease the financial plight of the nation's small businesses, which have been hit hard by the recession.

"Small businesses are the heart of the American economy," Obama said in a speech at the White House. "They're responsible for half of all private sector jobs, and they created roughly 70% of all new jobs in the past decade. They're not only job generators, they're at the heart of the American Dream."

Many small businesses, drowning from dried-up coffers and unpaid bills, are having a tough time getting loans from lenders.

"Too many entrepreneurs can't access the capital to start, operate or grow their business," Obama said. "Too many dreams are being deferred or denied by a form letter canceling a line of credit."

The stimulus bill allocated $730 million for direct spending on small-business programs, including expanded financial support for the SBA's two key lending initiatives, the 7(a) and 504 programs. Under those programs, the SBA guarantees loans made by banks to small-business borrowers. If the business defaults, the SBA picks up the tab for the insured portion of the loan.Supply Side Economics Lesson

The articles are presenting things from the supply side as if there is a supply problem (banks are refusing to lend and there is not enough money to lend). Yet, Keynesians and Monetarists in general can hardly moan about the supply of money.

The Fed Funds Rates is zero, Bank excess reserves are close to a $trillion, another $trillion is stimulus is floating around.

Combined, all this money could do is raise GDP estimates up to a now downward revised 2.5% (probably low-balled so we can beat the street by a couple tenths yet again).

See 3rd Quarter GDP +2.5% : Is That All? for details.

So Why Aren't Banks Lending?

1) There are no credit-worthy businesses that want to borrow.

2) Consumers are tapped out and do not want to borrow.

3) Banks are scared to death of pending commercial real estate losses, credit card losses, residential real estate losses, home equity lines of credit losses, and losses in general.

4) Asset prices are simply too high (and banks know it) and the securitization market has dried up

Demand Side Economics

Let's now take a look at the demand side of things.

It's easy to find cases like the plight of the Brown family as noted above and trump up "Banks aren't lending tales". But what if there are fewer credit-worthy businesses that want to borrow?
More to the point, what if in general, actual demand for small business loans is plunging?

Actually there is no "what if" there is simply "is".

For proof, inquiring minds are digging for facts in the latest Fed Senior Loan Survey.

Please consider these charts.

Demand for C&I loans from small firms



Lending Standards For Small Firms



There you have it. 85.5% of banks responding to the survey have lending standards that basically remained the same yet 44.6% of banks report moderately weaker demand for loans, with only 8.9% reporting moderately stronger demand for loans.

There is plenty of money available for lending. However, there are fewer businesses wanting loans, and fewer still credit worthy businesses who want loans. That is what the data shows but it is not what is being reported.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Fitch is warning Insurers Face $23 Billion Loss on Commercial Property.
U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., may lose as much as $22.6 billion on investments in commercial real estate through 2011, Fitch Ratings said.

Losses on investments in apartment buildings, offices, shopping malls and other commercial real estate will begin to increase in the next 6 months to a year as rents decline and vacancies increase, said Fitch Senior Director Andrew Davidson. Life insurer losses on commercial real estate have been “virtually nil” so far, he said.

“It will be more of a 2010 and 2011 issue,” Davidson said in an interview today. “It will put some stress on the capital positions as they realize the losses.”

Life insurers held more than $450 billion in commercial loans and mortgage-backed securities at the end of 2008, Fitch said in a related report. The delinquency rate on U.S. CMBS rose to 4.01 percent at the end of October, almost seven times what it was a year ago, Moody’s Investors Service said yesterday.

MetLife has recorded three straight quarterly losses and Hartford Financial Services Group Inc. has lost money since June 2008 as investments that include those backed by commercial and residential mortgages dropped in value. New York-based MetLife and Prudential have said commercial mortgage defaults will climb in the next year.

The credit crisis has driven $138 billion worth of U.S. commercial properties into default, foreclosure or debt restructuring, according to New York-based Real Capital Analytics Inc. Commercial real estate prices have plunged almost 41 percent since October 2007, the Moody’s/REAL Commercial Property Price Indices show. With that plunge in commercial real estate prices, there will be staggering losses percentage-wise on any foreclosures. Perhaps the insurance companies can survive the hit, but small undercapitalized, over-leveraged banks will not be able to do so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Economist Brad DeLong, Department of Economics, U.C. Berkeley, is getting increasingly pessimistic. DeLong says: Chance of Great Depression Now 5%...
For 2 1/4 years now I have been saying that there is no chance of a repeat of the Great Depression or anything like it--that we know what to do and how to do it and will do it if things turn south.

I don't think I can say that anymore. In my estimation the chances of another big downward shock to the U.S. economy--a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more--are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it.

We could cushion the impact of another big downward shock by a lot more deficit spending--unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government's money is as good as anybody else's. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing problem after 2030.

The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments.

...
So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do?Depression Debate

For starters it is clear we are in a depression. However, this gets back to the Depression Debate: Is This A Depression?

I say it is, for reasons given in the article. However, while this is "A" depression, this is clearly not the "Great Depression". Delong calls it 1/3 of the Great Depression. For the sake of argument let's accept that.

Who's To Blame?

DeLong is blaming Democrats and Republicans for not wanting to spend enough. He is right about the increasing odds, yet he is badly misguided as to the the reason why.

The problem is debt. One does not cure a debt problem by going deeper in debt. We should have let failed banks actually fail instead of making zombies out of them. We are repeating the very same mistakes Japan made, and ironically Delong's wants to to make the same mistakes only much bigger.

Sadly, that is how Keynesian economists think.

Rather than not doing enough, I claim U.S. Faces Second Lost Decade "Because" of Misguided Stimulus.

Repeating The Mistakes of the Great Depression

We have made all the wrong policy decisions just as Hoover and FDR did in the 1930's. Contrary to popular belief, it was not failure to keep up the stimulus that lead to a relapse in the late 1930's, but a rather a whole series of policy errors on top of the basic problem: Eventually stimulus will always run dry because by definition it must, and when it does the artificial boom ends but the debt overhang still remain.

WWII ended the Great Depression at a huge expense to the rest of the world.

The US was a shining beacon of growth after the war for the easily explainable reason that our productive capacity was not destroyed while productive capacity was destroyed everywhere else.

Debt Implosion

Japan is on the verge of imploding right now with debt-to-GDP at close to 200%. Yet somehow, Keynesian economists think more debt and more stimulus is the answer.

What the administration should have done is let failed banks fail. Instead we propped them up, just as Japan did.

So much capital has been wasted propping up failed banks, that the risk of another serious implosion has increased. I think it is much higher than the 5% DeLong says.

However, let's be careful here. Social safety nets are much bigger now than in the 1930's. Another "Great Depression" will look much different because of food stamps, foreclosure policy, unemployment insurance, etc.

In another implosion, expect those nets to expand. Such a policy response would cost jobs and prolong the agony of course, but it will be tried. Indeed, it has already. Fannie Mae is renting foreclosed houses back to people.

The US government is in effect the nation's biggest landlord.

Assessing The Odds

I have the odds of a severe downturn at 15% (unemployment exceeds 13% perhaps by a lot) and a less severe fashion at 30% (unemployment exceeds 12% or higher). In both of these scenarios there is a double dip recession. This is the "L" or "WW" scenario. In the milder form we flirt in and out close to recession for a number of years and unemployment essentially flatlines for years before finally turning lower.

"Muddle Through" means things do not get much worse nor do they get much better (Unemployment tops out under or near 12% and we do not double dip or if we do it is barely noticeable). Unemployment peaks, then very slowly starts to drop. Let's put the odds of "Muddle Through" at 35%. "Muddle Through" might be labeled a "U Shaped Recovery" but it would feel more like an "L". Realistically this is about the best we can hope for.

Slightly better than muddle through has about a 15% chance (A genuine U-Shaped Recovery). Unemployment peaks, then drops at a modest pace.

The vaunted V-Shaped recovery with strong growth in jobs has about a 5% chance in my estimation. Even in a V-Shaped recovery, the odds of unemployment dropping to 6% or less by 2015 are close to zero.

In general, expectations about what this recovery will look like are far too optimistic, perhaps even by me.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

GE, the financial company masquerading as a manufacturer, has its eyes on the Pot of Government Stimulus Gold.
The financial crisis hasn't been kind to General Electric Co. Its stock has lost almost half its value, the government has stepped in to prop up its enormous financial arm, and sales have slumped in core industrial businesses.

But Chief Executive Jeffrey Immelt now has his eye on a huge new pool of potential revenue: Uncle Sam's stimulus dollars. Mr. Immelt, a registered Republican, quips about the shift in thinking in the nation's corner offices: "We're all Democrats now."

GE has high hopes for the strategy. It says that over the next three years or so it could bring in as much as $192 billion from projects funded by governments around the globe, such as electric-grid modernization, renewable-energy generation and health-care technology upgrades.

The company is just starting to see a payoff. Last month, for example, President Barack Obama announced $3.4 billion in government-stimulus grants for power-grid projects. About one-third of the recipients are GE customers. GE expects them to use a good chunk of that money to buy its equipment.

"The government has moved in next door, and it ain't leaving," Mr. Immelt said at the International Economic Forum of the Americas in Montreal in June. "You could fight it if you want, but society wants change. And government is not going away."

The 53-year-old executive supported the presidential campaign of Sen. John McCain, yet scored an invitation onto the President's Economic Recovery Advisory Board, led by former Federal Reserve Chairman Paul Volcker. Inside GE, he pushed his managers hard to devise plans for capturing government money.

As part of that effort, GE has promoted policy proposals such as a government-backed power-grid modernization, and pressed the government to increase the size of stimulus grants for that purpose. It also has helped customers design projects and apply for government money, with the expectation that those customers will then buy GE equipment.

GE isn't in agreement with the Obama administration on some proposals. Its GE Capital financial unit, which contributed nearly half of its earnings in recent years, received government backing for its debt when the credit markets seized up last fall. Now GE is lobbying against proposals that would separate GE Capital or its industrial-loan company from the parent company. More regulation on its finance division seems inevitable. The company also is opposed to health-care proposals that would result in $40 billion in fees on health-care device makers such as GE.

Mr. Immelt concluded that the company needed to capitalize on the surge in government spending. According to two people present at the meeting, Mr. Immelt told the group that business people needed to support the Democrats' stimulus package.

By January, Mr. Immelt had become a leading corporate voice in favor of the $787 billion stimulus bill, supporting it in op-ed pieces and speeches. Reporters who called the Obama administration for information on renewable-energy provisions in the legislation were directed to GE.

As the bill worked its way through Congress, GE lobbyists pressed for grants, tax cuts or rebates aimed at businesses GE is engaged in, including provisions worth more than $80 billion for energy projects, appliances, health-care information systems and wind farms.

When the stimulus package was rolled out, Mr. Immelt instructed executives leading the company's major business units "to put together swat teams to get stimulus money, and [identify] who to fire if they don't get the money," says a person who heard him issue the instructions.

In February, a few days after President Obama signed the stimulus plan, GE lawyers, lobbyists and executives crowded into a conference room at GE's Washington office to figure out how to parlay billions of dollars in spending provisions into GE contracts.

Separately, Mr. Immelt got an invitation to serve on the President's Economic Recovery Advisory Board, which would afford him access to the president's economic inner circle.

GE spent $7.55 million lobbying in the second quarter, a 34% increase from the year-earlier period and more than any other single company, according to federal data compiled by the Center for Responsive Politics.This just goes to show you, if you have enough clout and you are are willing to kiss Obama's ass, he just may be willing to kiss yours. This is the way the game works, so someone may as well be blunt about it.

Everyone wants a handout for themselves or their company while not wanting anyone else to get one. It does not matter one iota to these corporations how much of the stimulus is wasted. All that matters is how much they get.

In October, amidst all the excitement of companies beating 5 times watered down earnings estimates, GE managed to lay an egg as noted in Earnings Disaster At GE; Profit Drops 45%; Revenues Lag.

In my review I stated "The best way to think of GE is as a finance company masquerading as a manufacturing company. This was essentially the business model of GM as well, except GE is better at it. "

That prompted an immediate Email from Anne Eisele, GE Director, Financial Communications, who said "GE generated $18.4 billion in Infrastructure orders this quarter alone. That's $500 million more in real, live manufacturing-related orders than we booked last quarter. We have $174 billion in non-financial (read: manufacturing) equipment and services backlog. At the same time, we're making good on plans to reduce the size of our financial services company so that it contributes only about 30% of company earnings. To say that GE is simply a finance company masquerading as a manufacturing company is not only incorrect, it's absurd."

I asked what percentage of earnings financial services provided now and when would it get down to 30%. I did not receive a reply back.

However I would like to point out the catchy phrase at the end of her email "GE imagination at work".

Indeed, "We're all Democrats now" is pretty imaginative. Moreover, the campaign was a success. Immelt got an invitation to serve on the President's Economic Recovery Advisory Board where he can now pitch products and ideas that will be good for GE whether they do a damn thing for the US or not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Japan is off and running or so they say (for the nth time in 20 years). Yet inquiring minds will be quick to note Japan Deflation Concern Rises Even as Growth Quickens.
The acceleration of Japan’s economy to the fastest growth pace in more than two years masked a slide in prices of goods and services that threatens to temper the nation’s recovery.

The domestic demand deflator, a measure of price levels that excludes the cost of imports, fell 2.6 percent in the third quarter from a year earlier, the most since 1958, Cabinet Office figures showed yesterday in Tokyo. At the same time, gross domestic product jumped 4.8 percent, the most since early 2007.

Sustained price declines threaten to curtail a corporate- profit rebound that’s already been insufficient to spur a rally in Japan’s shares this quarter. The report prompted Deputy Prime Minister Naoto Kan to say the government may outline an emergency-spending package as soon as today, adding that “I’m concerned we’re entering into a deflationary situation.”

“This isn’t sustainable growth and the government knows it -- that’s precisely why they’re talking about the GDP deflator,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.

Consumer prices in the world’s second-largest economy have fallen for seven straight months, undermined by the deepest recession in the postwar era. Even after seven months of gains in factory output, about one third of Japan’s factories sit idle.

“It might be a decade before the job market returns to the level of health we had a year or two ago,” he said. “The number of jobs may recover but not wages. It’s very fragile.”

A price war over jeans is a sign of that fragility. Discount retailer Don Quijote Co. last month started selling jeans for 690 yen ($7.70), undercutting Aeon Co., Japan’s largest supermarket chain, which has been offering them for about $9. Fast Retailing Co., the operator of Uniqlo stores, started the battle in March with pairs at $11.

“Japanese domestic demand is still dependent on price declines to grow,” said Naomi Fink, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. Good News For Turkey Buyers

In the US, Thanksgiving Dinner Costs Less to Make This Year.
Families can anticipate the biggest decline in the cost of preparing Thanksgiving dinner since 2000, according to the American Farm Bureau Federation.

This year’s survey, released yesterday, put the cost of feeding 10 people at $42.91. The grocery bill fell 3.8 percent, the steepest reduction since its 4.3 percent drop at the start of this decade. The slump was also the first since 2004.

Milk dropped the most out of a dozen items surveyed, according to the bureau. The cost of a gallon of whole milk fell 92 cents to $2.86. Turkey slid 44 cents to $18.65, based on the cost of a 16-pound bird.I am not sure where these clowns shop but turkey (at least a frozen one) should cost well under $1 a pound.

CheapoLife reports Safeway Best Price Sale Deals – November 11-17, 2009
Safeway comes through with some of the lowest prices for your Thanksgiving Day dinner this year!

Safeway frozen turkey, Grade A, up to 16 pounds, $5.88 with $10 additional purchase.

Safeway boneless, skinless chicken breast, $1.99 per pound.

Rancher’s Reserve boneless beef top round London broil, $1.88 per pound.

Jumbo raw shrimp, 21-25 count per pound, sold in a 2 pound bag at $4.99 per pound.A 16 pound turkey for $5.88 = 37 cents a pound. At that price, buy buy several and freeze them. Have one at Thanksgiving, one at Christmas and have an Easter turkey instead of an Easter ham.

Can they even raise a 16 lb turkey, clean it, wrap it, freeze it, ship it, and stock it for $5.88? I highly doubt it. Farmers are probably buying turkeys at that price.

What a deal. Unfortunately, it looks like that deal has expired. Nonetheless, if you are paying more than $.79 a pound or so, you are paying way too much.

Notice how Japan is concerned about falling prices on jeans and other things. The Japanese government has blown trillions over the years attempting to prop up prices. As a result, debt is now approaching 200% of GDP. The Yen will implode if Japan keeps this up.

Attempting to force up prices while unemployment is high and rising is pure insanity. Sadly the US is making exactly the same mistake.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The man that never saw it coming can't see it coming again. Please consider Bernanke Says ‘Not Obvious’ Asset Prices Misaligned.
Federal Reserve Chairman Ben S. Bernanke said it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.

“It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said today in response to audience questions after a speech in New York. “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”

“The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future,” Bernanke said. If that was the best approach then why didn't the Fed do it?
On the possibility of using interest rates to pop bubbles, “we can never say never,” Bernanke said today. “We have to keep an open mind.”It's hard to keep an open mind when it is closed to anything but academic formulas and Keynesian and Monetarist claptrap that has no real life application.

The most ridiculous thing Bernanke said was "the Fed is 'attentive' to changes in the dollar’s value and “will help ensure that the dollar is strong.”

There is not a person on the planet that believes that.

Indeed, every time I hear Bernanke speak I wonder the same thing....

Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning.



Meredith Whitney Calls For Double Dip Recession

Meredith Whitney says Stocks Overvalued, Recession Will Return.

Stocks are overvalued and the US economy is likely to fall back into a recession next year, well-known analyst Meredith Whitney told CNBC.

"I haven't been this bearish in a year," she said in a live interview. "I look at the board and every single stock from Tiffany (TIF) to Bank of America (BAC) to Caterpillar (CAT) is up. But there is no fundamental rooting as to why these names are up—particularly in the consumer space."



I am disappointed in one thing: Her comments about sideline cash were silly. Please see "Buy The Dip" Mentality Fully Entrenched for a discussion of sideline cash.

She is right on several things:

• The US consumer was going through the biggest credit contraction ever—even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
• The banking sector is not adequately capitalized and will need to raise more capital in the coming year.
• The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. The government's mortgage modification program won't result in any major improvement in homeowners' ability to stay above water, she added.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Earlier today, At the Economic Club of New York, Fed Chairman Ben Bernanke gave his Outlook for the Economy and Policy.

His speech contains much self-serving claptrap about how Federal Reserve policy save the day. Nowhere has the Fed admitted its role in creating the mess.

Bernanke thinks printing money and borrowing from the future via cash-for-clunkers can have lasting benefits. I think that if anything lasting comes from cash-for-clunkers, it will be net-negative.

Bernanke is still extremely concerned about commercial real estate, bank lending, and jobs. On those issues he is certainly right to be concerned. Here are a few snips from the speech.
Bank Lending Practices

Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices shows that banks continue to tighten the terms on which they extend credit for most kinds of loans--although recently the pace of tightening has slowed somewhat. Partly as a result of these pressures, household debt has declined in recent quarters for the first time since 1951. For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

While I am on the topic of bank lending, I would like to add a few words about commercial real estate (CRE). Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks' books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans. In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.

The Job Market

In addition to constrained bank lending, a second area of great concern is the job market. Since December 2007, the U.S. economy has lost, on net, about 8 million private-sector jobs, and the unemployment rate has risen from less than 5 percent to more than 10 percent.6 Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II.

Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone.

With the job market so weak, businesses have been able to find or retain all the workers they need with minimal wage increases, or even with wage cuts. Indeed, standard measures of wages show significant slowing in wage gains over the past year. Together with the reduction in hours worked, slower wage growth has led to stagnation in labor income. Weak income growth, should it persist, will restrain household spending.

The best thing we can say about the labor market right now is that it may be getting worse more slowly. Declines in payroll employment over the past four months have averaged about 220,000 per month, compared with 560,000 per month over the first half of this year. The number of initial claims for unemployment insurance is well off its high of last spring, but claims still have not fallen to ranges consistent with rising employment.

Although economic pain is widespread across industries and regions, different groups of workers have been affected differently. For example, the unemployment rate for men between the ages of 25 and 54 has risen from less than 4 percent in late 2007 to 10.3 percent in October--nearly double the rise in unemployment among adult women. This discrepancy likely reflects the high concentration of job losses in manufacturing, construction, and financial services, industries in which men make up the majority of workers. From the perspective of America's economic future, the effect of the recession on young workers is particularly worrisome: The unemployment rate among people between the ages of 16 and 24 has risen to 19 percent--and among African American youths, it is now about 30 percent. When young people are shut out of the job market, they lose valuable opportunities to gain work experience and on-the-job training, potentially reducing their future wages and employment opportunities.

The Outlook for the Economy and Policy

I return now to the outlook for the economy and policy. As I noted, I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions. Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.

In the business sector, manufacturing activity has been expanding and should be helped by the continuing strength of the recovery in the emerging market economies, especially in Asia. As the recovery takes hold, enhanced business confidence, together with the low cost of capital for firms with access to public capital markets, should lead to a pickup in business spending on equipment and software, which has already shown signs of stabilizing.

I have discussed two of the principal factors that may constrain the pace of the recovery, namely, restrictive bank lending and the weak job market. Banks' reluctance to lend will limit the ability of some businesses to expand and hire. I expect this situation to normalize gradually, as improving economic conditions strengthen bank balance sheets and reduce uncertainty; the fallout for banks from commercial real estate could slow that progress, however.

Jobs are likely to remain scarce for some time, keeping households cautious about spending. As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect. Mapping The Bernanke Recovery

Inquiring mind just might be interested in mapping those statements. Let's assume it takes 100,000 jobs per month to absorb new entrants, decreasing to 70,000 a month by 2020.

Bernanke says jobs will be scarce for some time. He did not define "scarce" or give a timeline. However, let's assume jobs will be scarce only for 1 year. Also let's assume unemployment will rise for about a year (while jobs are scarce), level off, then start dropping in accordance with the paragraphs in red above.

Scenario "B"



Scenario "B" Data



click on chart for sharper image

Scenario "B" Suggests 100,000 jobs per month from 2010 through 2013 will be needed to keep up with birthrate and immigration. I took the liberty of helping out Bernanke by assuming demographics would start lowing the number of jobs requited.

I also assumed no bump in the participation rate as discouraged workers currently out of work start looking. Then again, perhaps Bernanke factored that in to his 100,000 estimate. However, judging from other things he has said in the past, I do not believe that to be the case.

Scenario "B" also assumes no double dip recession or any kind of recession for that matter all the way through the end of 2020 even though the Fed must at some point tighten to reduce its balance sheet.

Moreover, in spite of what Bernanke said in his speech about housing and commercial real estate, I have the Bernanke forecast as assuming +100,000 jobs a month starting in 2011, and adding a minimum of 120,000 jobs a month for 6 consecutive years while simultaneously subtracting jobs needed to keep up with the birth rate and demographics all the way through 2020.

Yet even under this optimistic scenario, unemployment will still be above 10% at the end of 2014 and will not dip below 8% until the end of 2020.

To play around with these parameters in a downloadable spreadsheet, please see the addendum to Mish Unemployment Projections Through 2020.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I received an Email this morning from Charles Goyette about the state of our banking system.
One Day At The Bank Branch
By Charles Goyette

An old farmer walked into a rural branch of Washington Mutual to open a savings account. Being a conservative sort, he asked, “What happens if Washington Mutual goes broke?”

“Well,” said the branch manager, “in that case I suppose we’d be taken over by somebody like Chase Bank, and they’d make sure you got your money back.”

“But what happens,” asked the farmer, “if Chase goes broke?”

“In that case,” the manager answered, “you’d get your money back from the F.D.I.C.”

Not satisfied, the old farmer asked, “And if the F.D.I.C. doesn’t have enough money?”

“Then your money would be covered by the United States government.”

“And if the government is bankrupt?” he asked suspiciously.

“Then the Federal Reserve would just print you up some new worthless dollars.”

“But what if the Federal Reserve is finally put out of business?” asked the old man.

“Well, in that case, you’d lose all your money,” said the manager. “But really, wouldn’t it be worth it?”Thanks Charles

Gold in Euros, U.S. Dollars, Australian Dollars, and Yen



All charts with 20 week (100-day) Moving Averages.
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Chart courtesy of The Privateer

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Last week in Mish Unemployment Projections Through 2020 I posted a chart and tables of what unemployment might look like in what is best described as an optimistic "muddle through" scenario with no recessions for another decade.

Still even with those optimistic projections I came up with this grim chart of unemployment projections.



Unemployment Scenario 1 Data



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Downloadable Spreadsheet

Shortly after writing the above article, I received a call form John Mauldin asking if I would post the spreadsheet so people could make their own assumptions and projections about how fast the economy would add jobs.

I thought that was a good idea so I added an addendum to my post.

You can download the spreadsheet and change parameters for the monthly average number of jobs the economy will create, and the number of monthly jobs required just to keep up with the birthrate and immigration and the spreadsheet will produce a chart of what the unemployment rate will look like for your assumptions.

See the addendum in the above link for table usage notes and download instructions.

Mauldin's Scenarios

John Mauldin and I did some playing around over the phone and he mapped out two additional scenarios, one of them a double dip scenario and the second an extremely optimistic scenario.

Let The Good Times Roll

You can see what John came up with in If This is Recovery…
What would it take to get back to 5% unemployment? I played with the spreadsheet and came up with the following numbers, which get us below 5% by 2020. I assume no recessions for the next ten years, and 2 million new jobs a year after 2011, which I start off with almost 1.5 million jobs. Of course, we have never done that, but let’s be optimistic.



And the graph below shows the unemployment numbers for the Good Times
Scenario.


Under John's extremely optimistic jobs creation forecast, unemployment is still above 8% at the end of 2015. Please note that John is not calling for that to happen, instead we played around to see just what it would take to get unemployment to 5% by the end of 2020.

Also note the optimistic assumptions as to how many jobs it would take keep up with the birth rate and immigration. In 2013 we assumed we would only need 110,000 jobs to keep up with population growth, and only 80,000 jobs a month for 2016-2017, and then a mere 60,000 jobs a month all the way through 2020.

That is making some pretty optimistic assumptions about boomers retiring, no longer looking to work.

Of course, boomers might need to work and want to work, but be too discouraged to look for work. In that case, the effect would show up in U-6 unemployment not U-3 (the official unemployment rate) that the spreadsheet maps.

John also mapped a mild double-dip scenario, yet one in which the economy come roaring back immediately afterwards.

Inquiring minds will want to take a look at John's assumptions and also to see he has to say about sales tax data.

Mildly Pessimistic Scenario

Let's see what happens on a mildly pessimistic scenario. I will assume a mild-double dip, followed by reasonably strong growth, no additional recessions through 2020, but with a slightly less optimistic forecast on how many jobs are needed to keep up with birthrate and immigration.



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For this scenario I assumed a mild double dip where 100,000 jobs a month would be lost, followed by job gains of 120,000, then 170,000, then 150,000 for three years before tapering off. I also decreased the participation rate (indirectly), by assuming the number of jobs needed to keep employment steady would drop a bit slower from 110,000 in 2013 to 70,000 in 2020.

Mildly Pessimistic Chart



Is that possibility so unrealistic? I think not, yet look at the result: Unemployment does not dip below 10% until 2020.

Please download the spreadsheet (available in the top link), read my assumptions, then factor in your own assumptions about job growth, outsourcing, productivity, stimulus plans, housing, etc., whatever you want and see for yourself just how hard it will be to get unemployment under 8%, let alone under 6%.

Remember back a decade or so ago when economists thought it was not possible to have unemployment below 7% without a lot of inflation. What if they were correct and the 5% we have had this decade was an outlier? Is that so farfetched?

If after playing around with the spreadsheet you come to the conclusion that we are going to have structurally high unemployment for a decade, I believe you have come to the right conclusion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.