University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots

Inquiring minds are reading about student riots at the University of California.

Students at the University of California’s flagship Berkeley campus took to the streets on Friday night, vandalizing university buildings, burning trash cans and clashing with police in the latest expression of frustration over cuts to the educational budget in California.

In November, the University of California Board of Regents voted to raise tuition by 32 percent. At the same time, professors were asked to take pay cuts or be furloughed, classes were eliminated and class size increased. Protests erupted across the University of California system, particularly at UC Davis and UCLA.

Student Loan Defaults Soar

Please consider Defaults on student loans rising

Every year, tens of thousands of college students and graduates stop making payments on their student loans.

For more than a decade, that loan-default rate was in decline because the federal government toughened penalties for schools with high shares of defaults. Now, the rate is increasing again and not just because of the economy.

The problem is particularly acute in Arizona, which has the nation's highest overall default rate on federal student loans: 9.8 percent in fiscal year 2007, the latest figures available.

But more than default rates, it is the high levels of debt that are provoking alarm among consumer advocates. That has heightened scrutiny of for-profit schools.

Tuition at for-profit schools can easily top $10,000 a year. The average loans for a student who earned a bachelor's degree totaled $32,650 in the 2007-08 school year, compared with $17,700 at public universities. At community colleges, the average for two-year degrees was $7,125.

In Arizona, for-profit schools are booming. They have more than doubled the number of students they serve in the past five years, and more students are at for-profit schools than all three of the state's public universities combined.

Last school year, for-profit schools enrolled nearly 468,000 students, according to the Arizona State Board for Private Postsecondary Education, a state agency that licenses and regulates most for-profit schools. About 55 percent were from Arizona, and the rest lived elsewhere and attended school online.

In December, the University of Phoenix settled a whistleblower lawsuit in federal court for $78.5 million over recruiter-pay practices. Two former enrollment counselors sued in 2004, alleging the school defrauded the government of billions of dollars in financial aid and violated federal law by paying recruiters based on enrollment. The company said the pay practices were legal because enrollment was not the sole determinant. The university did not admit any wrongdoing.

Nationally, for-profit schools had the highest share of defaults in the United States in 2007: 11 percent. Community colleges had a nearly 10 percent rate, and private, non-profit universities had the lowest rates, at 3.7 percent, according to the U.S. Department of Education.

Student Loan Scam

The article mentions various reforms such as curbing recruiters, requiring more up-front disclosure, and educating borrowers about the loan process.

The real problem is the entire student loan system is a scam. The government guarantees student loans so colleges have every reason to make the loans no matter how poor the student or how high the cost of education relative to job pay upon graduation.

Government guaranteeing the loans makes the money readily available to all takers driving up the cost of education.

My friend "BC" had this to say....

Millennials had better learn quickly that they face coming of age through middle age and end of life in a world in which they will be forced to consume one-third to half as much in per capita energy terms and associated material production and consumption.

Thus, they should be rioting to cut taxes and to cut government including cutting funding for places like "Berzerkley" and the many worthless programs and costly administrative and pension payouts.

What "Berzerkley" or a state or private university confers on the vast majority of students is a "credential" and "legitimacy" within the existing division of labor and state tax farm. Their "education" is mostly in terms of being conditioned to conform to the costly state superstructure, including submitting to tax, wage, and debt servitude for life.

What they will "learn" in terms of actual occupational skills, self-reliance, and productive wealth creation they could learn at a much lower cost (and higher return to them) than 4+ years of university "education" by actually doing something productive, paid or not, as a youth.

Rioting for more government largess extracted eventually from their meager paychecks in the future is suicide and merely sustains for a while longer the system they perceive themselves to be opposing or attempting to reform.

They are wasting their valuable time and youthful vitality rioting against the intractable state when they could be using their time and efforts to form productive private associations in parallel or outside the existing division of labor and social and political superstructure.

Expect More Riots

My friend "HB" countered with ....

There will be more riots, and over more issues. Students are traditionally always the first to riot, since most of them are young and rebellious, and therefore it's easier to get them to engage in street protest and vent their anger.

The only groups that may even be more riot prone are French farmers and Greek public workers.

How Good Is That Education?

Pray tell what is someone going to do with a degree in English literature, social science, journalism, history, French, political science, or math?

Exactly how many jobs are available in those areas compared to the number of students getting such degrees?

Sadly, we can even ask the same questions about computer science. In the late 1970s all the way to 2000, a degree in computer science came with a near-guaranteed job. Now, computer science graduates must compete against someone from India or Russia who is willing to work for a lot less than they ever imagined.

In the early 1970s tuition at a top school like the University of Illinois was $250-$400 a semester. Now tuition is $10,000 with no guarantee of a job.

But hey, as long as government is guaranteeing student loans, places like the University of Phoenix are glad to offer an "education" to everyone coming their way.

Education System Benefits Recruiters, Administrators, Teachers, Staff

Funding schemes, loan guarantees, influence peddling, and especially government meddling have combined to make education a great deal for recruiters, administrators, professors, and staff.

Unfortunately, there is little benefit to the students for the price they pay. Indeed, the biggest education many students will receive is to learn how compound interest combined with poor salaries will make them a debt slave for life.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bear Stearns Boogie Man Yet Again

Once again a series of videos is making the rounds touting how evil short sellers destroyed Bear Stearns. I was asked to comment on this.





The video makes a bunch of assumptions

1. That whoever bought way out of the money Bear Stearns PUTs "knew" something and illegally acted on it.
2. The same institution that bought the PUTs was illegally shorting shares.
3. There is a conspiracy to protect those evil doers.

How The System Really Works

Fact #1: When someone buys PUTs the market maker or counterparty who sold them is short those PUTs. This is a mathematical statement of fact.
Fact #2: The market maker who sold the PUTs, shorts stocks as a hedge against those short PUTs.
Fact #3: The lower the share price, the more shares the market maker has to short to stay delta neutral.
Fact #4: Market Makers are not governed by naked shorting rules

The video alleges that it was the person buying way out of the money PUTs that was doing the shorting. The reality is the market makers who sold PUTs were most likely those doing the allegedly "illegal" naked shorting.

To stay delta neutral, the market makers were forced to short more shares the lower the price dropped. Also remember this happened with every PUT at every strike all the way down, not just on that batch of way out of the money PUTs.

It should not take a genius to figure out how easily this could spiral out of control.

Who Was Shorting?

It was probably Goldman Sachs, Citigroup, Morgan Stanley, Merrill Lynch or whoever sold the PUTs. Moreover, those market makers probably lost money shorting because of how quickly the stock plunged.

The irony is everyone blames the naked sellers for making a fortune by short selling when the PUT sellers lost more on the PUTs they were short than they gained shorting the shares.

Did Someone Know Something?

The video alleges that someone "knew something". Well someone did know something, and that something is what we all knew: Bear Stearns was not only the most leveraged of the large institutions, but also held the highest concentration of subprime mortgage garbage.

Also other institutions could see or at least feared a run on the bank at Bear Stearns and started pulling money.

Three Reasons To Buy Puts

Someone might have bought those PUTs speculating on a cascade as described above. They probably got a great deal because the seller erroneously figured it would never happen.

Are there other reasons for buying those PUTs? Yes, certainly. Someone holding Bear Stearns might have wanted to buy cheap PUTs as a protection against total calamity.

There is also a distinct possibility that someone was acting on a rumor and took a chance.

Those are three logical alternatives to the popular conspiracy theory that Naked Short sellers and "someone who knew something" conspired to sink Bear Stearns.

The Real Deal

• Neither naked shorting nor someone acting on inside information brought down Bear Stearns.
• Bear Stearns brought this upon itself.
• Bear Stearns deserved to go under.

Blaming naked shorting for the demise of Bear Stearns is ridiculous. The market makers shorting Bear Stearns did so for purely mathematical reasons, to remain delta neutral, and did not even profit from it. Moreover, unless someone can prove insider trading, whoever bought those PUTs deserves whatever profit they made.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Sunday Funnies 2010-03-07: Lighter Side of the News

How To Design A Stop Sign




http://www.youtube.com/watch?v=Wac3aGn5twc

Comment On Business Insider

Check out this comment (typos and all) someone posted on the Business Insider

There is a strong notion that this attack on public unions and unions in general is well organized and planned. And the very reason for this attack is that unions are still the only force that protects ordinary people and is able to resist the influence of powerful financial oligarchic groups. So these groups are trying to defeat this only force that can stop their dark plans.

Elite has financial power, but financial power is helpless against well organized crowd. And Unions is the only framework that can this crowd. Eliminate unions and this crowd can be easily controlled and manipulated.

Read Mish's blog (http://globaleconomicanalysis.blogspot.com/), it's amazing how hard he is trying to discredit unions. In EVERY his article he is doing every possible effort to lay blame for the crisis on unions. You just can't help thinking that Mish is really in tight connection with some secret service and is bushing unions because he is ordered to do so.

Additional benefit of blaming unions is that unions can be used to redirect public anger and frustration for all the current economic problems.

If all this right, it means that all this economic mess is well planned and staged and is a part of some other bigger plan. That is really scary.

That's right folks, I have been caught. I confess ...

I am really tight in connection with a secret service ordered to bash unions as part of even scarier, bigger, dark plans that will soon be apparent to everyone. Under threat of death I cannot name the secret service I am part of, or precisely what those scary, dark plans are.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Iceland Rejects IceSave; Does No Mean No?

Those looking for good news can find it in Iceland. However, good news for Iceland is bad news for the UK and the Netherlands.

Please consider Iceland Rejects Icesave Bill in Referendum, Early Results Show

Icelanders overwhelmingly rejected a bill that would saddle each citizen with $16,400 of debt in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank, first results show.

Ninety-three percent voted against the so-called Icesave bill, according to preliminary results on national broadcaster RUV. Final results may be published tomorrow morning.

The bill would have obliged the island to take on $5.3 billion, or 45 percent of last year’s economic output, in loans from the U.K. and the Netherlands to compensate the two countries for depositor losses stemming from the collapse of Landsbanki Islands hf more than a year ago.

“Ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview yesterday.

Failure to reach an agreement on the bill has left Iceland’s International Monetary Fund-led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached.

‘Obsolete’

Political leaders have already moved on and are trying to negotiate a new deal with the U.K. and the Dutch, making the bill in today’s vote “obsolete,” Prime Minister Johanna Sigurdardottir said on March 4.

Icelanders used the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island’s financial system to create a debt burden more than 10 times the size of the economy.

The nation’s three biggest banks, which were placed under state control in October 2008, had enjoyed a decade of market freedoms following the government’s privatizations through the end of the 1990s and the beginning of this decade.

Protesters have gathered every week, with regular numbers swelling to about 2,000, according to police estimates. The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled.

Icelanders have thrown red paint over house facades and cars of key employees at the failed banks, Kaupthing Bank hf, Landsbanki and Glitnir Bank hf, to vent their anger. The government has appointed a special commission to investigate financial malpractice and has identified more than 20 cases that will result in prosecution.

Prime Minister Johanna Sigurdardottir Is Obsolete

Notice how Prime Minister Johanna Sigurdardottir calls the will of 93% of Icelandic citizens "obsolete". The reality is she will soon be obsolete and voted out of office. Such arrogance is not tolerated anywhere.

Perhaps the best thing to do is default and suffer the consequences. Even if it is not the best thing to do, that is what 93% of Icelandic voters want to do, so that is what Iceland should do.

Fitch downgraded Iceland's debt to Junk. Moody's and the S&P threatened to do so. Note how pathetic Moody's and the S&P are in threatening (not doing), even after the fact. Does anyone give a rat's ass about that downgrade now?

Iceland does not need help from the IMF when it will saddle every citizen with $16,400 of debt. Fools in the UK and Netherlands rushed in to Icelandic banks and the fools in the UK and Netherlands are the ones who should suffer the consequences.

It was perfectly obvious Iceland was in an unsustainable situation so the prudent thing to do would be to get the hell out of the way.

By defaulting on debt, Iceland will send a much needed message "Don't do stupid things".

Note the stupidity of debt downgrades now. By defaulting on debt, Iceland will be better prepared and able to pay off any new debt, much more so than if it was saddled with IMF loans with a noose attached to the necks of every Icelandic citizen.

The sensible thing to do would have been to downgrade that particular debt in advance, and raise the debt rating on Iceland for everything coming up. Moody's and the S&P have it backwards.

Does No Mean No?

Inquiring minds just may be asking "Does No Really Mean No?" It's a good question too. Some hints can be found in Iceland PM plans to stay on after Icesave vote.

Iceland's prime minister vowed on Friday to stay in office even if her government loses a weekend referendum over foreign debts, citing progress in efforts to reach a new deal with creditors.

Prime Minister Johanna Sigurdardottir said talks on a new accord over repayment for $5 billion (3.3 billion pounds) in "Icesave" debts to Britain and the Netherlands, key to unblocking vital aid to the North Atlantic island state, had made "considerable" progress.

"It is a great misunderstanding that this referendum is about the life of this government. We have no intention of resigning," Sigurdardottir said on Friday.

Britain and the Netherlands have already offered easier terms, so there is no reason for voters to back the old deal.

"It's of utmost importance that we don't over-interpret whatever message comes out of this. We want to be perfectly clear that a "no" vote does not mean we are refusing to pay," Finance Minister Steingrimur Sigfusson told reporters.

"We will honour our obligations. To maintain anything else is highly dangerous for the economy of this country."

I would suggest that overriding the will of 93% of the population is under-interpreting the message. But hey, to politicians everywhere, no does not mean no, it means whatever the politician wants it to mean.

What's highly dangerous is the attitude that the wishes of 93% of the people is irrelevant.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Missouri Budget Overstates Revenues By Up To $1 billion; Indiana Revenue Falls Short; Budget Battles In Washington; Budget Gaps In Kansas

Budget news from state after state is grim. When will this matter? No one knows but service cutbacks are coming, as are huge layoffs.

Missouri Budget Overstates Revenues By Up To $1 billion

The Kansas City Star is reporting Nixon's budget may have overestimated Missouri revenues by up to $1 billion

The state budget presented six weeks ago by Missouri Gov. Jay Nixon may have overestimated revenues by as much as $1 billion, lawmakers warned Tuesday.

The stunning deficit could force lawmakers to go beyond program and service cuts to consider major structural changes to state government.

“It is clear that even as Missouri’s economy begins to rebound, state revenues will continue to lag for a prolonged period of time,” Nixon, a Democrat, said in a statement Monday. “As a result, we will need to downsize the scope of state government, while protecting necessary services to the citizens of Missouri.”

That announcement was underscored Tuesday by the release of state revenues for February, which showed a year-to-date decline of 12.7 percent compared with this time last year, and a 14.6 percent drop in revenues for February.

The budget Nixon presented to lawmakers in January totaled $23.8 billion, of which $7.2 billion came from the state’s general revenue fund, largely made up of tax revenues. The shortfall being discussed could represent 10 percent — or more — of the $7.2 billion that the General Assembly controls.

“This is a crisis in the state budget that we have never, ever seen before in the state of Missouri,” said Sen. Kurt Schaefer, a Columbia Republican and vice chairman of the Appropriations Committee.

Year-over-year revenues have never declined as they have since 2008, said Schaefer, who added that it was a fiscal reality that would require a new approach to balancing the budget.

“We are way beyond cutting a few hundred thousand here, a few hundred thousand there,” Schaefer said. “This is a whole-scale restructuring that’s going to have to occur.”

Just what that restructuring will look like — and what departments, programs and services might be affected — is still unclear.

Dear Governor Nixon, please give New Jersey Governor Chris Christie a call. He has some ideas for you.

Budget Battles In Washington

The Olympian is reporting Republicans eye state workers’ pay

Republicans in Olympia say they have an alternative to raising taxes: slash compensation for state workers.

The minority party has demanded that Gov. Chris Gregoire or the Legislature bring employee unions back to the bargaining table. The contracts that run through 2011 would have to be renegotiated before lawmakers could tamper with pay or benefits.

“I don’t think we’ve asked them to give up much at all,” Sen. Joe Zarelli, the top Republican on the Senate budget-writing committee, said of state employees.

It’s unclear, however, how going back to negotiations would persuade workers to give up anything.

Unions such as the Washington Federation of State Employees have ruled out changes, pressing the Legislature to raise tax revenues to fill a $2.8 billion shortfall.
Republicans eye state workers' pay

Dear Governor Gregoire, stop being a union patsy at the expense of the majority of your constituents. Please give New Jersey Governor Chris Christie a call. He has some ideas for you.

Budget Gaps In Kansas

The Kansas City Business Journal is reporting Parkinson adjusts Kansas budget to cover $106M gap

Gov. Mark Parkinson has made additional budget adjustments to bridge a $106 million budget imbalance in the current fiscal year in light of continuing revenue declines.

Parkinson also criticized the Legislature for going on a “tax-cutting binge” to the tune of $9 billion that benefits special interest groups and not the average Kansan.

“It’s not just the recession that has put us into this current situation,” Parkinson said.

Specifically, Parkinson cited the elimination of estate taxes and franchise taxes and a tripling in the number of sales tax exemptions in recent years.

Dear Governor Parkinson, stop being a socialist fool. Citizens are taxed enough. Please give New Jersey Governor Chris Christie a call. He has some better ideas for you.

17 Consecutive Bad Months In Indiana

The Courier Press is reporting Indiana receipts again fall short of projections

Indiana has now had 17 consecutive months of bad fiscal news.

A new revenue report on Tuesday showed that Indiana took in $85.5 million less in tax dollars in February than was predicted less than three months ago.

That puts the state $869 million below what lawmakers expected when they passed the budget for the fiscal period beginning in July, and $113 million below what they hoped for when that projection was scrapped in favor of a new one in December.

Gov. Mitch Daniels did not immediately order any budget cuts, but since it’s been 17 months since actual revenues met projections, he said further spending reductions might be necessary if revenues continue to sag.

“We’ll just have to keep looking at it. There’s not a state in the union that’s done as much as we have, and we’re not out of tricks yet,” Daniels said.

Dear Governor Daniels, stop looking and start acting. Wikipedia says you are "widely cited as a rising star within the Republican party." Rising stars don't sit and twiddle their thumbs or look for tricks to solve budget problems. Silly Wabbit, Tricks Are For Kids. Please give New Jersey Governor Chris Christie a call. He has some genuine ideas for you.

Time For Action, Not Looking

In case you missed it, New Jersey Governor Chris Christie laid it on the line in a speech to about 200 mayors at the New Jersey League of Municipalities.

Chris Christie Actions

• He froze aid to schools
• Challenged school boards.
• Wants to change arbitration rules for public workers
• Requests public-private salary and benefits parity
• Demands pension reform
• Property tax hikes not an option
  
• Wants to get rid of programs like COAH
• Is not thinking about the next election

Please see Governor Christie: "Time to Hold Hands and Jump Off the Cliff" - Chris Christie For President for an amazingly candid appraisal of the sorry state of affairs in New Jersey.

His speech is a model for governors across the country. We don't need union apologists, socialist fools, or magicians running state governorships. We need leaders willing to lay it on the line with decisive ideas coupled with action.

Reckless government spending, not a recession is what caused this mess. The recession just made the problem noticeable sooner. Since spending is the problem, higher taxes cannot be the solution. Higher taxes just encourage more reckless spending.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Credit Union Pays Savers to Close Their Accounts; Deposit Insurance Makes Saving Accounts a Losing Proposition for Banks

Nevada Federal Credit Union has too much money and does not know what to do with it. Worse yet, sitting in cash is costing the credit union money.

Insurance premiums are the culprit. On top of any deposit premium paid to customers, insurance runs .4%. Yet short term treasuries yield .25%.

Nevada Federal sees no good lending opportunities so it is paying customers to close accounts.

Inquiring minds are reading Credit union: Pul-lease take your money.

Nevada Federal Credit Union has a deal for big savers: Withdraw your money and you'll get a bonus.

The credit union is investing in short-term Treasurys and earns about one-quarter of 1 percent on those government securities on average, but it was paying 0.4 percent to customers with savings.

In addition, the credit union expects the National Credit Union Administration to boost deposit insurance premiums by 0.15 percent to 0.4 percent this year.

For each $100 million in deposits, that premium increase will increase Nevada Federal's costs up to $400,000 yearly, Brad Beal, chief executive officer said.

Starting Monday, the credit union has cut the variable interest rates on deposits held by members that only save money to zero.

"We're losing money, and they are not making money," Beal said.

So the credit union will pay these savers a $25 bonus for withdrawing amounts between $25,000 and $49,999. The bonus jumps to $50 for amounts up to $74,999 and goes to $75 for larger sums.

Perverted System

The National Credit Union Administration (NCUA) and FDIC parasites siphon off deposit insurance money from good institutions not willing to take risks, to support institutions taking excessive risks.

In turn, banks and credit unions sitting with high levels of cash lose money on deposits and the customers make zero percent interest, thanks to the Bernanke Fed holding interest rates at zero.

Nevada Federal Credit Union is fed up with paying money to the National Credit Union Share Insurance Fund (NCUSIF) for sitting in cash, so it is paying depositors to withdraw that cash.

Is this a perverted system or what?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Construction Developer Says Banks Suddenly Playing Hardball, Asks "Mish, What's Going On?"

Today I received an email from "Construction Insider" concerned about banks suddenly playing hardball and calling in construction loans.

Construction Insider writes:

Hi Mish

I work in the construction business and something has been creeping to the forefront of my attention for the past few weeks and now it seems to be moving full steam ahead.

Banks are forcing developers/builders (especially smaller ones) to give up their properties (unsold homes and lots).

Banks say the reason is that the properties in question are no longer performing assets. I am sure there are some loans out there that are not performing and the owners are going under. I am equally sure that there are plenty of developers that are still selling homes - just not at the pace originally planned on the pro formas.

Having inside information on one of these scenarios that happened today, I cannot help but wonder what is really going on? The bank told a small developer/builder I work for that they were taking back his ongoing subdivision.

He is selling houses and updated pro formas would indicate that the current sales pace would exhaust all remaining lots within 33 months. Yet the bank stated they would only give him until April 15 to find alternative financing. The bank is also willing to let him buy the subdivision at a 33% discount to what is currently owed.

If he is unable to obtain this backing, the bank will let him walk away without penalty or consequence so they can write it off.

I have been on the phone trying to put some of these pieces together. It seems there are many banks doing the same thing. However, there is apparently no interest [or ability - Mish] from anyone wanting to pick up land/lots at 30% - 50% discounts to today's prices.

Another interesting point is that the banks all state that they must have these situations written off or taken care of by the end of Q2.

These are the immediate questions running through my head:

Why the end of Q2? And why do so many banks seem to be simultaneously doing this?

Is it possible that there is some government incentive to the banks to meet this timeline? And how much will this cost the taxpayers?

There is something extremely concerning about this whole thing, especially from the standpoint that many banks appear to be acting in concert, all with the same specific timeline. Any thoughts you have would be greatly appreciated.

Construction Insider

For questions like these, I turn to my "California Business Banker" to see what he thinks.

"California Business Banker" responds:

Hi Mish

Your construction industry source raises an interesting issue. Since I work for a relative healthy bank, I don't see that in my bank.

However, we have had federal auditors in the bank for the past couple weeks and I've noticed an interesting development. They are getting tougher on banks recognizing loans that they view as a problem and pushing for downgrades.

So, the very problem might be federal auditors are forcing banks to down grade loans to a doubtful status. In such cases as nonperforming real estate assets, this essentially forces the bank to do something more than wait and see if the developer can turn his investment and pay off the bank.

It forces banks to resolve the issue mostly by enforcing their rights on the collateral, which is why they are probably recommending the developer walk away, so they can their hands on the collateral sooner (maybe deeding it over to the bank) versus going through foreclosure and potential bankruptcy on behalf of the client, which can draw out the process for months.

Most banks would like to get in, fire sell it or sell the note, and move on and not expand the loss by waiting over time.

It wouldn't surprise me a bit, if conceptually this or something very close to this is what's going on.

The auditors reviewing one of my loans want to down grade the loan simply because the owners personal credit score has declined. Bear in mind the client is profitable and meets all of their financial covenants.

Personal credit is a red flag but usually not a reason to down grade loans, unless there are other reasons as well. This tells me the federal auditors are getting tougher across the board.

Hope that sheds some light.

California Business Banker.

Signs Say Wave of FDIC Takeovers Coming in 3rd Quarter

Thanks "Construction Insider" and "California Business Banker".

Putting 1 and 1 together, I sense the FDIC has decided to take problem loans by the horns, forcing banks to address those problems. Banks with enough capital to take huge writedowns will survive, those that don't, won't. Many won't.

If the above scenario applies to commercial real estate as well as housing, expect a huge wave of FDIC bank takeovers in the third and fourth quarters, spilling over into next year. In the meantime, expect to see more lending contractions as banks fearful of this regulatory crackdown respond with further cutbacks in business lending, especially small business lending.

Addendum:

"Rebel Farmer" writes:

A friend of mine is a loan officer at a small regional bank here in Oregon. She told me last week that she cannot get any of her mortgage loans clients approved for loans because the bank has raised the qualifications so high that NO ONE is being approved for home loans. These are all borrowers who are more than qualified. If she does not make her quota this month for closed loans, per her boss, she will be getting her pink slip on March 31.

There is definitely something going on at banks for all types of loans. They are hunkering down. My banker friend believes also that there is going to be a massive failure of many banks in the near future.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jobs Contract By 36,000; Unemployment Rate Steady At 9.7%; No Snow Effect

Today the BLS reported 36,000 job losses with the unemployment rate holding at 9.7%. Before diving into the numbers let's analyze the snow job ahead of the report.

Speaking before Congress, Fed Chairman Ben Bernanke harped about snow, warning policymakers will "to be careful about not overinterpreting" the upcoming data." In the wake of that warning, economists busily upped their projections for job losses in February, some by as much as 220,000 jobs.

I talked about that yesterday in Range of Snow Impact on Jobs: Negligible to 220,000; Have Your Snow Job Decoder Ring Handy?

Snow Job Decoding

Did 220,000 people not receive any pay for the period in question?

Color me skeptical.

In terms of the unemployment rate, the blizzards will not have an effect. In terms of the reported jobs number there will be an impact but the most likely impact is in the number of hours worked.

Regardless, expectations as to the importance of the blizzard range from negligible all the way to 220,000. Whatever the affect was, it will be over by next month although I have seen analysis that says the effects will last until May.

In today's job report, the BLS chimed in about snow, confirming the above.

BLS Confirms Bernanke's Snow Job

Effect of Severe Winter Storms on Employment Estimates

Major winter storms affected parts of the country during the February reference periods for the establishment and household surveys.

In the establishment survey, the reference period was the pay period including February 12th. In order for severe weather conditions to reduce the estimate of payroll employment, employees have to be off work for an entire pay period and not be paid for the time missed. About half of all workers in the payroll survey have a 2-week, semimonthly, or monthly pay period. Workers who received pay for any part of the reference pay period, even one hour, are counted in the February payroll employment figures.

While some persons may have been off payrolls during the survey reference period, some industries, such as those dealing with cleanup and repair activities, may have added workers.

In the household survey, the reference period was the calendar week of February 7-13. People who miss work for weather-related events are counted as employed whether or not they are paid for the time off.

Should Bernanke Have Known That?

Yes. Did he know that and make misleading statements hoping to get economists to up their estimates of job losses hoping to beat the number? Probably not, but who knows? The most likely explanation is that Bernanke is once again clueless about the real economy and in this case reporting procedures as well, just as he has been for his entire career.

As for those projecting losses of 200,000 and 220,000 on account of snow, you be the judge. Meanwhile, on to the jobs report.

Jobs Contract By 36,000

This morning, the Bureau of Labor Statistics (BLS) released the February 2010 Employment Report.

Nonfarm payroll employment was little changed (-36,000) in February, and the unemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and information, while temporary help services added jobs..

Unemployment Rate - Seasonally Adjusted



Nonfarm Payroll Employment - Seasonally Adjusted


Ignoring that outlier circled above, jobs have contracted 26 consecutive months.

Establishment Data



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Highlights

• 36,000 jobs were lost in total vs. 26,000 jobs lost last month.
• 64,000 construction jobs were lost vs. 77,000 lost last month.
• 00,001 manufacturing jobs were added vs. 20,000 added last month.
• 42,000 service providing jobs were addedvs. 20,000 added last month.
• 00,000 retail trade jobs were added vs. 42,000 added last month.
• 51,000 professional and business services jobs were added vs. 30,000 added last month.
• 32,000 education and health services jobs were added vs. 23,000 added last month.
• 07,000 leisure and hospitality jobs were added vs. 00,000 added last month.
• 18,000 government jobs were lost vs. 7,000 added last month.
• 48,000 temporary help jobs were added vs. 50,000 added last month
  

Professional services contributed 51,00 jobs to the plus side, but 50,000 of them were part-time jobs!

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Index of Aggregate Weekly Hours

Work hours were down one tick to 33.8 but this could be a snow effect. Short work weeks contribute to household problems. Moreover, before hiring begins at many places, work weeks will increase.

Birth Death Model Revisions 2009



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Birth Death Model Revisions 2009



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Birth/Death Model Revisions

The BLS Birth/Death Model methodology is so screwed and there have been so many revisions and up it is pointless to further comment other than to repeat a few general statements.

Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.

The BLS added massive numbers of jobs every month to its model, all through the recession. Those jobs never existed. Last month the BLS made these revision to job totals to reflect errors in its Birth/Death model.

Birth/ Death Number for February 2010

The reported number for this month is +97,000 jobs. This early in the cycle, I highly doubt it. Nonetheless, the BLS will stick to its model, making back revisions as necessary, until its model is in alignment with reality.

BLS Payroll Revisions



Household Revisions

The above table does not affect the unemployment rate. Revisions to the Household Survey do. Here are the household revisions.



Bingo. Just like that the population shrank as did the civilian labor force.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

Household Data

In February, the number of unemployed persons, at 14.9 million, was essentially unchanged, and the unemployment rate remained at 9.7 percent.

The number of long-term unemployed (those jobless for 27 weeks and over) was 6.1 million in February and has been about that level since December. About 4 in 10 unemployed persons have been unemployed for 27 weeks or more.

In February, the civilian labor force participation rate (64.8 percent) and the employment-population ratio (58.5 percent) were little changed.

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) increased from 8.3 to 8.8 million in February, partially offsetting a large decrease in the prior month. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

Persons Not in the Labor Force

About 2.5 million persons were marginally attached to the labor force in February, an increase of 476,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 1.2 million discouraged workers in February, up by 473,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding
the survey for reasons such as school attendance or family responsibilities.

Table A-8 Part Time Status

Note: many table numbers changed last month. Two months ago, and for as long as I remember, this used to be Table A-5.



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The chart shows there are 8.8 million people are working part time but want a full time job. A year ago the number was 8.7 million.

The key take-away is there are still millions of workers whose hours will rise before companies start hiring more workers.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is. Note: many table numbers have changed. Two months ago, and for as long as I remember, this used to be Table A-12.



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Grim Statistics

The official unemployment rate is 9.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 16.8%.

I believe both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a much slower pace than last year.

Most economists expect to see the unemployment rate slowly drift lower. Time will tell which view is correct.

Looking ahead, there is no driver for jobs. Moreover, states are in forced cutback mode on account of shrinking revenues and unfunded pension obligations. Shrinking government jobs and benefits at the state and local level is a much needed adjustment. Those cutbacks will weigh on employment and consumer spending for quite some time.

Expect to see structurally high unemployment for years to come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Case-Shiller CPI Now Tracking CPI-U; Real Interest Rates Are Once Again Negative

It's been about 4-5 months since I last talked about Case-Shiller CPI (CS-CPI). Case-Shiller CPI is formulated by substituting the Case-Shiller housing index for Owner's Equivalent Rent (OER) in the CPI for all urban consumers (CPI-U) index, commonly shortened to CPI.

For a complete description of the reasons and methodology for making this substitution, please see What's the Real CPI?

With year-over-year home prices flattening, the effect of substituting the Case-Shiller housing index for Owners' Equivalent Rent in CPI calculations has worn off as the following charts show.

CS-CPI vs. CPI-U



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OER vs. Case-Shiller Housing Index



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My friend "TC" who produced the charts had this to say...

CS-CPI – January 2010

CS-CPI has risen YOY for the third month in row and measures +2.4% YOY. Meanwhile the government’s CPI-U also has risen YOY three consecutive months and measures +2.6% YOY (see first graph). The divergence between the two is to due to using the Case Shiller 20 city index, rather than the government’s housing metric of Owners’ Equivalent Rent (OER). The OER now makes up an amazing 25.2% of CPI, it's heaviest percentage on record.

While the divergence was huge during the housing boom (due to OER underestimating home prices) and even wider during the housing bust (due to OER overestimating home prices), it is now relatively small.

January 2010 OER is at +0.4% YOY, while the Case-Shiller 20 city index for January will likely read -0.3% YOY for only a 70 basis point divergence as noted in the second chart.

What the charts shows is how low real interest rates were (and thus the Fed Funds Rate was) between 2003 and 2006. Greenspan missed the negative real interests that fueled the housing bubble by focusing on rent as opposed to housing prices.

Likewise, starting in 2007 real interest rates were high, even after Bernanke cut rates to zero.

With home prices stabilizing and OER falling, CS-CPI and CPI-U are tracking together. Moreover, real interest rates which had been positive since mid-2006 (as measured by CS-CPI), are once again negative.

Yet, If housing takes another turn down and OER continues to drop (both of which I suspect will happen), we can easily see the Fed Funds Rate, CPI-U, and Case-Shiller CPI converge towards zero, especially if energy prices drop as well.

That deflationary combination is not what Bernanke is hoping for at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Seven in Ten Putting Off Retirement Do So for Financial Reasons; What are the Implications?

Here is an interesting pair of articles, one on California the other on boomers postponing retirement for financial reasons.

In California, it's no surprise that economists are surprised at just how bad things are. Please consider California job losses grow.

"The economy was a lot worse than everybody thought," said Howard Roth, chief economist with the state's Department of Finance. "The job market is weaker than we figured."

It appears California lost 871,000 jobs in 2009, suggests an estimate provided by the state Employment Development Department.

"This is the worst recession for California since the Great Depression," said Brad Kemp, director of regional research with Beacon Economics.

If those estimates hold up when final revisions are released this month, the actual job losses in the state would be far more grim than first believed. In the initial EDD estimate, released Jan. 22, the EDD reported California employers chopped 579,000 jobs from payrolls in 2009.

"We will have a really big downward revision," Roth said.

That would translate into an 292,000 more jobs that were lost, on top of the prior losses.

Seven In Ten Boomers Put Off Retirement For Financial Reasons

Inquiring minds are noting More Than Seven-in-Ten Workers Age 60+ Are Putting Off Retirement Due to Financial Restraints, According to a New CareerBuilder Survey

The economy continues to change the retirement timeline for many mature workers, leaving them with tough decisions about their futures. More than seven-in-ten (72 percent) workers over the age of 60 who said they are putting off their retirement are doing so because they can't afford to retire financially, according to a new survey by CareerBuilder. When comparing genders, the survey found that three-quarters (76 percent) of female workers over the age of 60 who said they are putting off retirement are doing so because they can't afford it, while 68 percent of males said the same.

Note: The title of the article on Yahoo Finance: More Than Seven-in-Ten Workers Age 60+ Are Putting Off Retirement Due to Financial Restraints, According to a New CareerBuilder Survey is misleading.

The correct take-away is "Of those putting off retirement, 7.2 out of 10 do so for financial reasons". Another key number is how many are putting off retirement. That the article does not say, but unprecedented debt levels are no doubt a big problem, with serious implications.

What Are The Implications?

This is proof of a statement I made years ago that boomers would be competing against their kids and grandkids for jobs at Walmart.

Other boomers in good paying jobs are reluctant to give them up.

Implications

• The labor pool participation rate will stay elevated instead of contracting as much as one might have thought. In turn ...
• The unemployment rate will stay elevated longer than economists think.
• Kids out of college will have a harder time finding jobs.
• Kids out of college will be forced to move back in with their parents.
• Kids out of college will have no way of paying back college loans.
• Parents who co-signed for their kids education will come to regret it.
• The above factors will pressure discretionary spending of both boomers and those just out of college.
• Those out of college will postpone family building.
• Postponement of family building will further pressure housing prices.
• Bankruptcies, foreclosures, credit card defaults, and walk-aways will continue longer than economists think.
  

The deflationary pressures of the cycle described above are immense.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Range of Snow Impact on Jobs: Negligible to 220,000; Have Your Snow Job Decoder Ring Handy?

Having read Weekly Unemployment Claims At 469,000; Prepare for Friday's BLS Snow Job, inquiring minds just might be asking "What is the range of estimates given by economists for the impact of February blizzards?"

February 28, 2010

Please consider Payrolls Probably Declined in February: U.S. Economy Preview

Payrolls probably fell by 50,000 after declining 20,000 in January, according to the median forecast of 62 economists surveyed by Bloomberg News before the Labor Department’s March 5 report.

“Even leaving aside the effects of inclement weather, the economy still appears to be shedding jobs,” said Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Although businesses have stopped cutting inventories and are beginning to invest more, they have been more hesitant to increase their hiring.”

“The weather will certainly play a role,” said Raymond Stone, managing director and an economist at Stone & McCarthy Research Associates in Skillman, New Jersey, who projects payrolls will be reduced by as many as 200,000 because of the storms. His overall forecast is for a decline of 150,000 and he referenced a snow-related payroll drop in January 1996.

March 3, 2005

All that snow talk got economists to revise their forecasts. On February 28, the estimate was -50,000. The jobs estimate is now -65,000.

Please consider Weather to Make U.S. Jobs Report Hard to Decode, Economists Say

Amid signs that the U.S. economic recovery is about to start creating jobs, the influence of bad weather will make the government’s February employment report difficult to decipher, economists said.

The world’s largest economy probably lost 65,000 jobs last month, more than triple the 20,000 drop in January payrolls, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department’s March 5 report.

Snow in parts of the country that caused some businesses to temporarily close during the government’s survey week may potentially depress the payroll count by as much as 220,000 workers, according to Joel Prakken at Macroeconomic Advisers LLC. One thing is certain, the Labor Department will not precisely quantify the storms’ effect.

“The inability to gauge the impact of weather-related distortions with any real degree of precision means Friday’s employment report is one of the least important in quite some time,” David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said today in a note to clients.

Household Survey

Any divergence from established patterns for the month will help inform economists of the snow’s impact. About 290,000 people on average say bad weather has prevented them from getting to work, according to February figures going back three decades.

The most recent storm of similar intensity that occurred during a survey week was in January 1996. The current data for payrolls that month, which have gone through several revisions since the initial estimate, show a 19,000 drop in employment.

Snow Analysis

Raymond Stone, an economist at Stone & McCarthy Research Associates projects payrolls will be reduced by as many as 200,000 because of the storms. His overall forecast is for a decline of 150,000 and he referenced a snow-related payroll drop in January 1996.

Snow Fact

The most recent storm of similar intensity that occurred during a survey week was in January 1996. The current data for payrolls that month, which have gone through several revisions since the initial estimate, show a 19,000 drop in employment.

Snow Analysis

The government’s survey week may potentially depress the payroll count by as much as 220,000 workers, according to Joel Prakken at Macroeconomic Advisers LLC.

Snow Fact

Payroll count might be depressed by 220,000 workers?
How?

For the household survey: Who is counted as employed?

Persons also are counted as employed if they have a job at which they did not work during the survey week, whether they were paid or not, because they were:

• On vacation
  
• Ill
  
• Experiencing child-care problems
  
• Taking care of some other family or personal obligation
  
• On maternity or paternity leave
  
• Involved in an industrial dispute
  
• Prevented from working by bad weather

For the establishment survey: What is the CES definition of employment?

Employment is the total number of persons on establishment payrolls employed full or part time who received pay for any part of the pay period that includes the 12th day of the month. Temporary and intermittent employees are included, as are any employees who are on paid sick leave, on paid holiday, or who work during only part of the specified pay period.

Thanks to Caroline Baum for the above links.

Snow Job Decoding

Did 220,000 people not receive any pay for the period in question?

Color me skeptical.

In terms of the unemployment rate, the blizzards will not have an effect. In terms of the reported jobs number there will be an impact but the most likely impact is in the number of hours worked.

Regardless, expectations as to the importance of the blizzard range from negligible all the way to 220,000. Whatever the affect was, it will be over by next month although I have seen analysis that says the effects will last until May.

Based on the 4-week moving average of weekly unemployment initial claims, something in the neighborhood of 60,000 to 100,000 jobs lost would seem reasonable. Guesses are always a pot shot, but let me guess an optimistic 85,000 jobs lost.

However, I have no idea what kind of seasonal adjustment nonsense the BLS will pull off, or if further revisions to the Birth-Death adjustments are coming. Those adjustments could balance out or have a cumulative effect, with widely varying results.

If the number is much higher, just don't blame it on the weather. And whatever it is, short of a preposterous -10,000 or better, try not to be surprised.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Weekly Unemployment Claims At 469,000; Prepare for Friday's BLS Snow Job

Inquiring minds are investigating the Unemployment Weekly Claims Report for March 4, 2010.

In the week ending Feb. 27, the advance figure for seasonally adjusted initial claims was 469,000, a decrease of 29,000 from the previous week's revised figure of 498,000. The 4-week moving average was 470,750, a decrease of 3,500 from the previous week's revised average of 474,250.

Weekly Unemployment Claims



The weekly claims numbers are volatile so it's best to focus on the trend in the 4-week moving average. That 4-week average has not show any improvement for quite some time.

4-Week Moving Average of Initial Claims



4-Week Moving Average of Initial Claims Detail



The 4-week moving average of claims for the last three weeks is above where it was on December 12, 2009 and just slightly better than it was on December 5, 2009. By this measure, the recovery has stalled.

Blaming The Weather

A week ago in "Nascent" Recovery or "Nascent" Economic Collapse? I noted how economists were blaming the weather for last week's rise in weekly claims and possible jump in the monthly job report.

Weather Related Questions

I have a few simple questions for all the dim-bulb economists now blaming the weather:

• "Did you not know there was a snowstorm on the East coast?"
• "If you did, then why didn't you factor it in to your estimates?"
• "How can you be surprised by something you knew?"
  

Bernanke's Snow Job

To refresh your memory, last week Bernanke blamed the weather for the jump in claims and warned about overinterpreting the data.

From Yahoo Finance Jobless claims rise due to weather-related factors.

"Federal Reserve Chairman Ben Bernanke told a congressional committee that the snowstorms are likely to have a short-term -- but not permanent -- effect on unemployment and layoffs. He said policymakers will "have to be careful about not overinterpreting" the upcoming data."

Summers Shovels Snow

Inquiring minds are reading Summers Shovels Snow on Winter’s Job Prospects by Caroline Baum.

Summers came out of virtual retirement Tuesday to tell CNBC the blizzards last month were likely to distort February’s employment statistics. It’s “very important to look past whatever the next figures are to gauge the underlying trends,” the White House economic adviser said in a TV interview.

What he really meant was, it’s important to look past bad numbers.

At the risk of inspiring accusations of naivete from conspiracy theorists convinced government agencies cook up the numbers in the basement, I decided to go to the source.

The only people who know the numbers several days before the release work at the Bureau of Labor Statistics, according to Tom Nardone, assistant commissioner for current employment analysis at the BLS.

“Larry Summers did not have the number when he made his comment,” Nardone said.

Economists surveyed by Bloomberg News expect a decline of 65,000 in February non-farm payrolls. Trotting out Summers to lay the groundwork for what clearly isn’t good news and what could be worse news is standard operating procedure for any White House. Why traders are so invested in their conspiracy theories is beyond me.

Now let’s turn to the weather. There were two snowfalls that overlapped with the survey reference period last month: Feb. 4-7 and Feb. 9-11. For the household survey, if you have a job and were absent in the reference week, you are counted as employed whether or not you were paid. You can read about it here: Who is counted as employed?

The survey of establishments is a bit trickier. If you were paid for work you did in any part of the pay period that includes the 12th of the month, whether you worked or not, worked a full or reduced week, you are counted as employed, Nardone says. If you didn’t work that week but got paid, you’re still counted. You can read the BLS definition of employment here: What is the CES definition of employment?

Only if you didn’t receive any pay for the entire pay period are you not counted as employed. (The federal government closed its Washington offices for four of five work days, and those folks got paid.)

What categories of workers would be affected? Primarily part-time workers and new hires as counted in the payroll survey.

Temporary Distortions

The fact that the blizzards last month affected highly populated areas along the East Coast and occurred during the key week for both surveys suggests there will be some depressing effect on payrolls. The major effect will be reflected in a reduction in hours worked.

Here’s the good news: What the weather taketh away in February, it giveth back in March and April. All the distortions are temporary. Businesses with a long-term outlook aren’t about to change hiring plans because of a few feet of snow.

A month from now, if the expected snapback in employment is too robust, Summers might be back to damp enthusiasm about employment growth that’s too good to be true.

Thanks Caroline, But Who Wants Facts?

Summers and Obama will be happy to take credit for the improvement in March (if any) but continue to blame the weather if there is no snapback.

Indeed, Summers purposely laid the groundwork for blaming the weather for Friday's report no matter what it is. Moreover, Summers and Bernanke (no conspiracy here - just each acting individually in their own best interest to buy time) trotted out statements practically begging economists to overshoot their estimates of snow damage.

Finally, while all this talk is on snow, there is next to no talk about how hiring a million census workers will temporarily affect the jobs statistics. That "temporary" effect is likely to last until June, but don't expect Summers to talk about that.

Instead expect economists to be surprised tomorrow no matter what the number.

Surprise Surprise Surprise

For all of Bernanke's and Summers' attempted snow jobs, it should be intuitively obvious that the "primary effect will be reflected in a reduction in hours worked" on the East coast as noted by Baum. The unemployment rate should not be impacted at all.

Nonetheless, I am looking forward to three surprises tomorrow.

1. The jobs report was much better than expected in light of the snow
2. The jobs report was much worse than expected because of the snow
3. The unemployment rate was much worse and much better than expected because of the snow.

Expect economists, easily surprised by anything and everything, to be surprised by all of the above, at the same time. Pay no attention to the obvious conflicts in the above projected surprises. Economists are seldom concerned with logic. Thus, when Friday's job report is out, don't be surprised by economists being surprised about multiple conflicting things.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Is anyone else sick of this "Nascent Recovery" talk?

The buzzword of the day is "nascent". It means "beginning to exist or develop". The word is everywhere you look.

Moreover, talk of "nascency" seems like it has been going on forever. Perhaps because it has. Here are some prime examples.

March 3, 2010 - Big Picture: Read it here first: St. Louis Fed Tracks Nascent Expansion

The St. Louis Fed has made it official, at least through their lens. The recession ended in June 2009. As you read here first in January, late last year the St. Louis Fed discontinued the use of recession shading (thereby signalling its end) in its graphs as of mid-2009.

They have now retooled their Tracking the Recession page to Tracking the Economy, and the default graphs are indexed to 100 in July 2009 (the economy’s apparent trough).

Feb 26 2010 - FXStreet: Canada: export sector is betting on nascent recovery

Today, we were very pleased by the results of a survey published by Statistics Canada. As Today’s Hot Chart shows, factories plan to increase their investment in machinery & equipment by 8.8% in 2010. Furthermore, the improvement is fairly widespread, 14 major industries out of 20 having reported an increase. The increase planned in 2010 in these productivity enhancing investments is of the same order of magnitude than the one that followed the recession that took place at the beginning of the decade. This occurs despite the fact that this heavily export-dependant sector is now facing the challenge of a strong CAD. Nevertheless, Canadian manufacturers chose to position themselves in order to take advantage of the nascent U.S. recovery.

February 24, 2010 - Bloomberg: Bernanke Says ‘Nascent’ Recovery Requires Low Rates

Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires.

February 2, 2010 - Todays’s Zaman İstanbul: Manufacturing sees nascent recovery in Q3 productivity.

Turkey’s manufacturing industry productivity increased by 0.9 percent in the third quarter of 2009 as compared to the same months of 2008, data from the National Productivity Center (MPM) have revealed. ....

February 2, 2010 - Aclara: Despite A Nascent Recovery, Prospects For U.S. Finance Companies In 2010 Are Mixed

Note: That is an ad wanting $500 for a report about the "nascent recovery"

November 19, 2009 - Wall Street Journal: Dell Trails Tech Peers in Nascent Recovery

Dell Inc.'s quarterly profit dropped 54% despite recent signs of recovery in the technology sector, raising questions about the personal-computer maker's strategy of focusing on profitability at the expense of market share.

September 2, 2009 - Seeking Alpha: Robert Shiller on the Nascent Recovery

August 20, 2009 - CNN: IMF: 'Nascent recovery' under way

The International Monetary Fund's chief economist described a "nascent" global recovery on Wednesday, but warned that US policymakers walked a tightrope in timing the end of the fiscal stimulus.

June 23,2009 - LiveMint: Truant rains could nix nascent recovery

The threat to the Indian monsoon, which has barely progressed in the last two weeks, increased on Monday when a top meteorological organization raised the risk levels of the occurrence of a weather phenomenon, El Nino.

A setback to the monsoon could nix the nascent economic recovery that is currently under way.

June 4, 2009 - CBS MoneyWatch: Higher Mortgage Rates Could Snuff a Nascent Housing Recovery.

March 28, 2009 - Business Line: Are steel and cement leading a nascent recovery?

If the performance of the steel and cement industries is any indication, a nascent recovery in economic activity seems under way.

December 7, 2008 - Seeking Alpha: Weekly Rewind: Signs of a Nascent Recovery?

February 2, 2008 - CBS News: U.S. Stocks Hope To Cement Nascent Recovery

(MarketWatch) NEW YORK (MarketWatch) -- Investors will attempt to cement a nascent recovery in stocks next week, seeking help from earnings growth outside the battered financial sector and trying to gauge whether much lower interest rates will be enough to prevent the U.S. economy from sliding into recession.

February 2, 2008 - MarketWatch: U.S. stocks hope to keep bullish momentum going

NEW YORK (MarketWatch) -- Investors will attempt to cement a nascent recovery in stocks next week, seeking help from earnings growth outside the battered financial sector and trying to gauge whether much lower interest rates will be enough to prevent the U.S. economy from sliding into recession.

The original title of that post was U.S. Stocks Hope To Cement Nascent Recovery. Apparently someone had second thoughts or back revised it away. Here is the actual link: http://www.marketwatch.com/story/us-stocks-hope-to-cement-nascent-recovery-2008220100

Whoever revised the title at MarketWatch, forget to tell CBS News.

Nascent Recovery Talk

That was just a small sample. I did a google search for nascent recovery and turned up 74 pages of entries.

How long can something be nascent? This happy talk has been going on for two full years at least.

Of course I made my own contribution on nacency.

Thursday, February 25, 2010: "Nascent" Recovery or "Nascent" Economic Collapse?

Fed Chairman Ben Bernanke is one of the best contrarian indicators one could possibly find. Yesterday, Bernanke told the House Financial Services Committee that the U.S. economy is in a “nascent” recovery.

Given his historical track record of complete failure on matters like housing, the recession, and jobs, his yapping about the “nascent” recovery suggests the very best we can expect is for the recovery to stall, and more likely enter a double dip recession if not completely collapse.

I don't know about you, but I'm Sure Glad The Recession Ended. In theory, that should mean use of the word "nascent" will soon behind us. In practice, don't count on it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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New Jersey Firefighter Quits Union Over Volunteer Duties; What is a Public Servant?

Inquiring minds are interested in the story of Michael Schaffer, a Cherry Hill, New Jersey firefighter brave enough to take a stand against union greed.

Schaffer resigned from his union over its policy forbidding members from volunteering for departments that employ union members or are targets for union expansion.

Please consider South Jersey firefighter takes stand against union.

For more than three decades, Michael Schaffer has willingly run into burning buildings. He's performed CPR on children. He's freed people trapped in crashed vehicles. Last June, the union Schaffer has belonged to for 21 years brought him up on charges for volunteering with the fire department where he resides.

The International Association of Fire Fighters forbids members from volunteering for departments that already employ some IAFF firefighters or are viewed as targets by the IAFF for expansion.

Schaffer's hometown firehouse is all-volunteer and employs no union workers directly. But through mutual aid agreements, the firehouse -- in the West Berlin section of Berlin Township -- makes runs in neighboring towns that employ some IAFF firefighters.

Rather than risk expulsion by his "brothers" for doing something that he loves and that runs in the family, Schaffer resigned last month from his union, Cherry Hill Firefighters Local 2663.

"Especially with the economic times, if we went to a paid department, it would kill our town with taxes. People would have to move out," said West Berlin Fire Chief Joe Jackson. Jackson, who is also Berlin Township's police chief, said he backs Schaffer in this dispute.

Schaffer must still pay $35 out of every pay period to the union because of contract obligations, though he receives none of the union benefits. He said he harbors no ill will toward the IAFF, but hopes union leaders rethink their approach to enforcing the rule.

"I don't work for the union. I work for the fire department. This in no way is going to affect my job at all," Shaffer said. "I don't feel any repercussions so far. I stood by what I thought was right."

What is a Public Servant?

The key to this story is Michael Schaffer's comment "I don't work for the union. I work for the fire department. I stood by what I thought was right."

What a refreshing comment.

I would like to hear a teacher say "I don't work for the teachers' union, I work for the school district, for the benefit of the kids. As a public servant, I have a duty to work for what is in the best interest of the children I teach, not the best interest of me or the union."

I would like to hear a police officer say "I don't work for the police union, I work for the city. As a public servant, I have a duty to protect the city, not rape the taxpayer. Public servants should serve, not be served."

I realize it's a novel concept, but we would all be better off if public servants served someone besides themselves.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ISM Service Sector Expands, Backlog of Orders and Employment Still Contracting; Public Sector Catchup Coming

The service sector is in expansion for the second straight month, with the diffusion index sitting at 53. Anything over 50 is in expansion. Let's take a look at some tables from the February 2010 Non-Manufacturing ISM Report On Business®.

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction



NMI (Non-Manufacturing Index)

In February, the NMI registered 53 percent, indicating growth in the non-manufacturing sector for the second consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

NMI HISTORY



INDUSTRY PERFORMANCE (Based on the NMI)

The nine industries reporting growth in February based on the NMI composite index — listed in order — are: Information; Arts, Entertainment & Recreation; Transportation & Warehousing; Public Administration; Professional, Scientific & Technical Services; Other Services; Retail Trade; Wholesale Trade; and Finance & Insurance.

The eight industries reporting contraction in February — listed in order — are: Educational Services; Health Care & Social Assistance; Management of Companies & Support Services; Construction; Utilities; Accommodation & Food Services; Real Estate, Rental & Leasing; and Mining.

While clearly the best report in years, it is a mixed bag. Moreover it is hard to tell if February is an outlier or just sideways consolidation based on easier year-over-year comparisons.

City, State Cutbacks Coming

The service sector started to expand in September 2009, but went nowhere for 5 months. Of course, every expansion starts somewhere. However, the effect of city and state cutbacks which I guarantee are coming, have not yet been felt.

For example, please consider Governor Christie: "Time to Hold Hands and Jump Off the Cliff"

In an amazingly candid appraisal of the sorry state of affairs in New Jersey, Governor Chris Christie laid it on the line in a speech to about 200 mayors at the New Jersey League of Municipalities.

The speech is 24 minutes long and well worth a listen because it is both an honest admission of the problem, and a refreshingly accurate appraisal of what the solutions are. He chastised the legislature, unions, municipalities, and affordable housing initiatives while promising to do something about all of those.

You have to listen to the speech to believe it.

Points Covered

• He froze aid to schools
• Challenged school boards.
• Wants to change arbitration rules for public workers
• Requests public-private salary and benefits parity
• Demands pension reform
• Property tax hikes not an option
  
• Wants to get rid of programs like COAH
• Is not thinking about the next election

I applaud Chris Christie. Not only is he saying the things that need to be said, he is acting with executive actions, freezing 375 government programs out of 378 suggestions. That is leadership, something sadly lacking from president Obama and Congress.

Regardless of how you feel about it, city, state, and municipality cutbacks are coming.

15,000 Layoffs Coming In San Francisco

Even San Francisco recognizes the need to do something about budget constraints. Bear in mind most of those 15,000 workers will be rehired, but at reduced hours. Please consider Up to 15,000 City Workers Bracing for Pink Slip Friday.

As many as 15,000 unionized city workers are anticipating layoffs on Friday in part of a work-week reduction plan in which most of them will be re-hired at reduced, 37.5-hour weeks.

The 3,000-strong Local 21, meanwhile, claims that such a forced work week reduction would be a violation of their contract -- though labor says the City Attorney disagrees. Vallejo promised "We'll lawyer up" if members are dismissed as part of the 37.5-hour scheme.

Similar themes are playing out across the country.

Please consider Ohio Mayor Seeks To Eliminate Public Unions

Mayor Robart: "...As we can see from the desperate economic and fiscal woes of California, New Jersey, New York and other states with dominant public unions; this has become a major problem for the U.S. economy and smaller “d” democratic governance. The agenda for American political reform needs to include the breaking of public unions' power to capture an even larger share of private income."

With the above articles in mind, and you can easily find thousands more article about forced layoffs at the city, state, and local level, let's return once more to the ISM report.

Services Employment

Employment activity in the non-manufacturing sector contracted in February for the 26th consecutive month. ISM's Non-Manufacturing Employment Index for February registered 48.6 percent. This reflects an increase of 4 percentage points when compared to the seasonally adjusted 44.6 percent registered in January.

Two industries reported increased employment, nine industries reported decreased employment, and seven industries reported unchanged employment compared to January.

The industries reporting an increase in employment in February are: Retail Trade; and Transportation & Warehousing. The industries reporting a reduction in employment in February — listed in order — are: Educational Services; Real Estate, Rental & Leasing; Mining; Accommodation & Food Services; Utilities; Health Care & Social Assistance; Information; Public Administration; and Wholesale Trade.

Inventory Replenishment

The only services industries reporting an increase in employment are the two industries that would show the strongest growth in an inventory replenishment cycle, trade and transportation.

Let's not confuse inventory replenishment with the start of a robust expansion.

Public Sector About To Play Catchup

From a jobs perspective, let's also not get too carried away in thinking a big round of hiring is coming. Instead, it's time to think that the public sector is about to play catchup to the private sector on the downside.

It's a must needed adjustment and one that will happen whether anyone wants it or not. Layoffs and benefit reductions in the public sector have barely begun. This will put pressure on jobs and wages for years to come.

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