Goldman Subpoenaed by FCIC after Sending Billion Pages of "Rubbish" to Panel

The Financial Crisis Inquiry Commission (FCIC) is annoyed at the prospect of wading through billions of pages of "rubbish" that Goldman sent in response to an inquiry.

Here's the result: Goldman Subpoenaed by FCIC After Panel Says Firm Hindered Probe

Goldman Sachs Group Inc. was subpoenaed by the Financial Crisis Inquiry Commission after panel members said the most profitable firm in Wall Street history engaged in a document “dump” to hinder a probe.

Goldman Sachs sent more than a billion pages of documents, FCIC Vice Chairman Bill Thomas said on a conference call with reporters today.

“We did not ask them to pull up a dump truck to our offices and dump a bunch of rubbish,” said Angelides, 56, who previously served as California’s treasurer. “This has been a very deliberate effort over time to run out the clock.”

Thomas said the panel’s requests to Goldman Sachs go back “several months.” Information the firm turned over didn’t comply with what was asked for and has put FCIC investigators in the position of “searching through the haystack for the needle,” he said.

“We expect them to provide us with the needle,” he said.

Federal prosecutors in New York are also investigating transactions by Goldman Sachs to determine whether to bring charges, people familiar with the matter said April 29. The company hasn’t been accused of criminal misconduct.

Finra Finds "Widespread Use Of High-Speed Algorithmic Trading" Was Likely Cause For Flash Crash

Zerohedge reports Finra Finds "Widespread Use Of High-Speed Algorithmic Trading" Was Likely Cause For Flash Crash

From Reuters: "Regulators probing the mysterious May 6 "flash crash" in the stock market are unlikely to find a single cause, though the widespread use of high-speed algorithmic trading was in general likely behind it, the head of the Financial Industry Regulatory Authority said on Monday. "We won't stop until we finish the analysis. But I think the answer is there is unlikely to be a single cause," Finra CEO Rick Ketchum told Reuters on the sidelines of a conference here. "It is much more likely to be a proliferation of algorithmic trading that was all subject to the same triggers and didn't have the same controls."

Unfortunately I cannot find any external reference to that quote from Reuters or anywhere else. The only reference I can find trace back to Zero Hedge.

If FINRA has indeed determined that high-speed trading is a problem, and in response kills the practice, it will eat into profits at Goldman.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Reminder: Edward Gonzalez for California District 16 - San Jose, Silicon Valley

If you are a Republican or Libertarian in California District 16, San Jose, Silicon Valley, please write in Edward Gonzalez on Tuesday, June 8!

Edward Gonzalez is in a unique position in California District 16 which includes San Jose and Silicon Valley. There are no Republicans running in the primary, yet he is running as the Libertarian candidate. California allows one person to run on multiple tickets.

Here is an explanation from Gonzalez...

Hi Mish,

The primary is June 8th. I am currently on the ballot as a Libertarian, running against an incumbent democrat, Zoe Lofgren. There is no Republican on the ballot, so I have also submitted myself to be the write-in candidate for the Republican Party. I need 2,053 Republicans to write me in. I have over 50 volunteers helping, each walking their own neighborhood with my postcards. If I get the write-ins, I will appear on the general election ballot as a Libertarian/Republican.

Thank you for the support.

Sincerely,

Edward Gonzalez

It is highly unlikely that a Libertarian can win an open election as a Libertarian party candidate. However, Ron Paul proves a Libertarian running on a Republican party candidate can easily win.

My good friend, talk show host Charles Goyette, interviewed each of 5 candidates I am recommending. The interviews are about 15 minutes long.

Please click on this link to download and play the Edward Gonzalez Interview with Charles Goyette.

• If you are a Republican in California District 16, please write in Edward Gonzalez.


• If you are a Libertarian, please shun the Libertarian primary, take a Republican primary ballot, and do the same: write in Edward Gonzalez.

It is not often voters get a chance to elect a candidate of the quality of a Ron Paul or Edward Gonzalez.

If you live in California District 16, please write in Edward Gonzalez. He only needs 2,053 Republicans write-in votes. If you are a Libertarian, do not check the Libertarian box, instead wrote-in Edward Gonzalez as a Republican.

Please call and Email your friends in the district to do the same!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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UK Prime Minister Warns "Years of pain ahead, No Trampoline Recovery"; Time for U.S. Public Unions to Share the Pain Too

In contrast to US cheerleaders foolishly predicting a "Checkmark Recovery" (see Disputing the Alleged "Checkmark Recovery") British Prime Minister Cameron says "Years of pain ahead"

DAVID CAMERON has warned that the economy is in a far worse state than previously thought and signalled that Britain faces years of “pain” as the spending axe falls.

The prime minister indicated a sharp downgrade in official growth forecasts and revealed that welfare and public sector pay would bear the brunt of budget cuts.

It is understood that tough measures being considered to help control the £156 billion budget deficit include benefit freezes and cuts in child tax credits. There are also likely to be below-inflation pay rises for state employees on top of next year’s planned freeze.

The prime minister said there would be no “trampoline recovery” of the economy. He warned there was a “serious problem” with forecasts inherited from Labour of robust 3% growth next year.

“There is a huge amount of debt that has got to be dealt with. Crossing our fingers, waiting for growth and hoping it will go away is simply not an answer,” he said.

“The country has got an overdraft. The interest on that overdraft is swallowing up things that the nation should otherwise be spending money on. We have got to take people with us on this difficult journey.”

Cameron gave a clear hint of the priorities for the emergency budget in two weeks’ time. “You have to address the massive welfare bills,” he said. “You have to address public sector pay bills. You have to address the size of the bureaucracy that has built up over the past decade.

“Otherwise you will have to make reductions across the board which you don’t want to do. We need to address the areas where we have been living beyond our means.”

However, he refused to rule out an increase in Vat, which many analysts believe will go up from 17.5% to 20%.

Cameron signalled a softening of his stance on capital gains tax, which is due to go up this month from 18% to nearly 40% to help pay for the Lib Dem aim of taking the low-paid out of income tax.

Facing a growing rebellion from Tory backbenchers, the prime minister said he was considering some sort of relief for investors selling assets such as shares or second homes that they had held for a long time. “I totally understand the arguments,” Cameron said. “I did not come into politics to punish people who want to do the right thing and save.”

"Welfare and Public Sector Pay Would Bear the Brunt of Budget Cuts"

Ding-Ding-Ding, except for the tax hikes, the UK almost has a winning policy. Why should there be any raises for government workers, especially the top end? If public workers think they can do better in the private sector, I say let them try.

In the US, we need to add military spending to that mix to have the ideal platform. It is time to exterminate both union pestilence and military waste beyond what is genuinely needed to defend the US.

In regards to military spending I think we can easily get by with 15-30% of what we are currently spending. However, I would settle out of court right now for a quick 50% reduction to be reviewed again in a few years.

Time to Share the Pain

In spite of the incessant howling of public union members (some write me nearly every day), most public union members have not felt any impact in this recession. It's time to share the pain.

We do not need a pay freeze for public employees, we need to privatize as many of them as possible and cut the pay and especially benefits of the rest.

I wholeheartily endorse the plans of cities to outsource police and fire department duties.

For a prime example, please consider San Carlos California Ponders Dissolving Police Department, Outsourcing Duties; Redwood City Mayor says "It's the Wave of the Future".

In New Jersey, Governor Christie Leads the Way on school vouchers, union dues, and economic change.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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G-20 an Amazing Success; Another Look at the Impossible

In relative terms, as economic summits go, the recent G-20 meeting was a spectacular success.

Unfortunately, one might not get that impression from the Bloomberg headline G-20 Coordination Fails as Governments Clash on Recovery Recipe.

Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.

At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand.

Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.

At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand.

The conundrum is that governments are all trying to harness a rebound in trade, which the Netherlands Bureau for Economic Analysis last week estimated grew 3.5 percent in March, more than double February’s pace.

Companies from French beverage maker Pernod Ricard SA to Japan’s Toshiba Corp. and Nissan Motor Co. are counting on foreign demand to stoke earnings.

In the U.S., President Barack Obama aims to double exports over five years, while China is refusing to bow to international pressure to allow an appreciation in the yuan, which it has held at 6.83 per dollar for almost two years to help its exporters.

Japan’s new prime minister, Naoto Kan, enters office with a reputation for favoring a weak yen after saying as finance minister that he wanted the currency to fall “a bit more.” French Prime Minister Francois Fillon said June 4 the euro’s drop below $1.20 is “good news” after a gain that was “penalizing our exports.” Britain’s Osborne said last week in Beijing he is “keen” to make the U.K. more trade-driven.

‘Who Will’ Buy?

“If everyone’s expecting to export their way out of trouble, who will be buying?” said Alvin Liew, a Singapore- based economist for Standard Chartered Plc. “Countries may resort to inward-looking policies and protectionist sentiment.”

Merkel Says Recovery Can’t Trump Cutting of Budget Deficits

Treasury Secretary Tim Geithner and German Chancellor Angela Merkel had a big disagreement over policy action.

Please consider Merkel Says Recovery Can’t Trump Cutting of Budget Deficits

German Chancellor Angela Merkel said economic growth can’t come at the expense of reductions in budget deficits, hinting at differences with the U.S. over the pace of paring public spending.

The German government “believes we must not achieve growth at the expense of high deficits,” Merkel told a news conference. Treasury Secretary Timothy Geithner, who attended a meeting of G-20 finance chiefs in South Korea that ended today, called on Japan and European countries such as Germany to boost domestic demand to complement the U.S. “shift towards higher savings.”

Merkel is pressing European countries for budget savings to protect the stability of the euro, which has declined 16 percent versus the dollar this year amid investor concern about deficits in countries such as Greece. She’s heading a two-day Cabinet meeting starting tomorrow in Berlin to set budget cuts for 2011.

Merkel Seeks ‘Decisive’ German Cuts

For more details on Merkel's proposals, please consider Merkel Seeks ‘Decisive’ German Cuts as Geithner Urges Spending.

Chancellor Angela Merkel said Germany is poised for a “decisive” round of budget cuts that will shape government policy for years to come, fueling disagreement with U.S. officials who favor measures to step up growth.

Speaking at the start of two days of Cabinet talks in Berlin called to identify potential annual savings of 10 billion euros ($12 billion), Merkel said Europe’s debt crisis underscores the need for efforts to ensure the euro’s stability.

“It’s not exaggerated to say that this Cabinet conclave will give important direction for Germany in coming years, years that will be decisive,” Merkel told reporters today before the meeting in the Chancellery. “We can only spend what we receive in income.”

Merkel’s government is reining in its deficit and urging fellow euro-region states to do likewise to thwart a sovereign- debt crisis. The Defense Ministry said last week there are “no taboos” when it comes to potential savings, including a possible reduction in the army’s size by 100,000 active-duty soldiers plus scrapping conscription.

Tax rises, welfare cuts and the loss of about 10,000 civil servant posts are among other measures being considered, Deutsche Presse-Agentur reported, citing unnamed government sources. The Cabinet seeks to cut almost 30 billion euros through the end of its legislative term in 2013, Bild newspaper said yesterday, without saying how it got the information.

ECB Advocates Tightening as U.S. Urges Domestic Demand Growth

It's not just German Chancellor Angela Merkel who disagrees with Geithner. So does European Central Bank President Jean-Claude Trichet.

Please consider ECB Advocates Tightening as U.S. Urges Domestic Demand Growth

European Central Bank President Jean- Claude Trichet and Treasury Secretary Timothy F. Geithner diverged on prescriptions to sustain growth, with Europe set to tighten budgets and the U.S. seeking stronger domestic demand.

The impact of narrower budget gaps “on growth could not be considered negative because it would improve confidence,” Trichet told reporters yesterday after meeting with Group of 20 finance chiefs in Busan, South Korea. The need for such action is clear in “old industrialized economies,” he said.

The remarks underline determination within the 16-nation euro area to shrink budget deficits in the wake of a sovereign debt crisis that has led to a 750 billion-euro ($913 billion) rescue fund for the region’s weakest members. The emphasis contrasts with the message delivered to the G-20 by the U.S., which wants countries with trade surpluses, including China and Germany, to stoke demand to help sustain the global recovery.

International Monetary Fund estimates backed up Geithner’s concern. Managing Director Dominique Strauss-Kahn said at a press briefing that efforts to cut budget deficits in rich countries could hurt growth over the next two years. Stimulus measures implemented in the last two years that haven’t expired yet should remain in place in advanced economies, he said.

A study by the fund showed that fiscal consolidation, without market deregulations that would bolster domestic demand, could shave as much as 2.5 percentage points off global growth and cost 30 million jobs worldwide.

The Busan meeting ended with no agreement on a universal bank levy and with finance chiefs pledging to work toward a November deal on increasing capital requirements for lenders.

G-20 An Amazing Success

With all the heated debate and every country doing what they want, inquiring minds just my be asking "How the heck can you call this a success?"

That's a good question so let's highlight the positives.

Defining G-20 Success

• Merkel and Trichet politely told Geithner to go to hell. Given that Geithner needs to be fired, this is a positive event.
• Europe is more concerned about sovereign debt issues than stimulating growth. Only fools like Geither and the IMF would argue against that.
• No one paid any attention to Geithner or the Keyenesian clowns at the IMF, most notably, IMF Managing Director Dominique Strauss-Kahn.
• There was no agreement on a universal bank levy. A universal tax is the wrong approach to risk management and it punishes banks with good lending practices.
  
• Geithner made a complete fool out of himself.
• A dozen cheers for German Chancellor Angela Merkel who said “We can only spend what we receive in income.” Finally Someone gets it.
  

What more could you possibly ask for?

Another Look at the Impossible

In G20 Heated Debates; Europe Politely Tells Geithner Where To Go I took a look at the impossible.

“I continue to say that I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters yesterday in Paris. President Nicolas Sarkozy “and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports,” he said.

French President Nicolas Sarkozy comment on the Euro highlights the impossible task of making everyone happy.

The US, EU, UK, Japan, and China all want a weaker currency. It cannot be done.

Today's statements from Alvin Liew, a Singapore-based economist for Standard Chartered Plc. sums up the situation nicely ...

“If everyone’s expecting to export their way out of trouble, who will be buying?” Countries may resort to inward-looking policies and protectionist sentiment.”

As a result of reckless over-spending by nearly every country on the planet, it is impossible to both save and spend at the same time. Saving is the correct thing to do, even though it means more near-term pain.

Geithner needs to fired. He is hopelessly out of touch with reality. That everyone ignored him at the G-20 conference is not only a step in the right direction, it is the absolute best one could ever expect to come from an economic summit.

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

Chris Christie on Teachers' Unions, Vouchers, Union Dues, Change: "We are going to lead the way!"; Ron Paul-Chris Christie for President, VP

Partial Transcript

My argument is not with the teachers in New Jersey. My argument is with the union who collects $730 a year from every teacher in mandatory dues. And if you don't want to join the union you have to pay 85% of that. It's like the Hotel California. You can check in any time but you can never leave.

[Union Dues] for the teacher's union - [bring in] - $130 million a year. What do they spend that money on? An army of lobbyists in the state house .... and $6 million on negative advertising against me since March 16th.

That's dues money coming from teachers, mandatory, they have no choice, and from all of you [taxpayers]. Because their salaries come from your property taxes.

Now if you don't think this is a screwy system, I don't know what is.

The fight is about who is going to run public education in New Jersey, the parents and the people they elect, or the mindless faceless union leaders who decide that they are going to be the ones to run it because they have the money and the authority to bully around the school boards and local councils.

If we don't win this fight there are no other fights left. This is the fight we have to fight and this is the fight we have to win for our kids.

Christie Slams Teachers' Union

Here is a second video that is a must play.



Partial Transcript

In New Jersey we say this: With a teachers’ union that collects $130 million in dues a year from its 200,000 members across our state, in a state that has been dominated politically, by a state NJEA that in every way can dominate the legislature and a series of governors, if we can make this happen in New Jersey in the course of the next four years, there is no excuse for anyone, anywhere, not to get this done.

We are going to lead the way. [Loud Applause]

Our basic principle is this: Parents and children deserve a choice. This is a very, very simple straightforward principle, that you would think in the abstract that no one could disagree with. But let's not stop there. Let's add the layer onto it, that parents and children who are being failed by a public school system whose costs are exorbitant and whose results are insulting, deserve a choice. [Loud Applause]

We do not have to look far around the country from where we are right now to know that voucher programs and experiments in school choice are working. You know here in DC those in that program are now reading 19 months ahead of their colleagues who are outside of those programs.

This isn't a coincidence. We know that there are over five million children trapped in over 10,000 failing public schools. And I use the word trapped and I use it directly.

Public Unions, Not Individual Teachers, Are The Problem

The problem as Christie points out is not the majority of the teachers, but rather the teachers' union that is always begging for more money "for the kids" when the money is not for the kids but for the union itself.

Public unions need to be eliminated.

The first step is to make it illegal for public unions to lobby government. Then I would like to see all corporations lose the right to bribe [lobby] government officials.

Unions and corporate lobbyists are nothing more than groups of organized thugs, bribing and threatening politicians, at the expense of taxpayers. It is time to put an end to it.

Thank God Chris Christie is leading the way. I would support a Ron Paul, Chris Christie ticket for President, Vice-President in one second flat (in either order).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Iran Dumps Euro Reserves for Dollars; Debt Crisis in Japan; Govt Sponsorship of Newspapers; Govt to Collect ATM Records, Addresses of Bank Customers

Here are a few stories from the past week that caught my eye.

Iran Sells Euro Reserves for Dollars

With all the talk a year ago over pricing oil in Euros, this headline sure has me laughing: Iran Selling 45 Billion Euros of Reserves for Dollars

Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify.

The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31.

Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said.

Iran’s shift out of euros has been prompted by the single currency’s decline, said Jaam-e-Jam, which is owned by the state broadcaster. Other central banks, including those of the Persian Gulf states, also are selling their euro reserves, it said.

Japan May Spark Next Sovereign Debt Crisis

Bloomberg reports Japan May Spark Next Sovereign Debt Crisis

Japan may spark the next global debt crisis unless the nation’s new leader addresses its widening fiscal deficit, Kusano Global Frontier Co. said.

“If bond yields spike, Japanese financial institutions will take a heavy blow, shaking the nation’s financial system,” Kusano said.

Government Sponsorship of Newspapers

Government sponsorship of newspapers is certainly on my list of things we absolutely do not want to see but if the FTC gets its way, it could be coming. Please consider FTC floats Drudge tax

The Federal Trade Commission (FTC) is seeking ways to "reinvent" journalism, and that's a cause for concern. According to a May 24 draft proposal, the agency thinks government should be at the center of a media overhaul.

The ideas being batted around to save the industry share a common theme: They are designed to empower bureaucrats, not consumers. For instance, one proposal would, "Allow news organizations to agree jointly on a mechanism to require news aggregators and others to pay for the use of online content, perhaps through the use of copyright licenses."

In other words, government policy would encourage a tax on websites like the Drudge Report, a must-read source for the news links of the day, so that the agency can redistribute the funds collected to various newspapers. Such a tax would hit other news aggregators, such as Digg, Fark and Reddit, which not only gather links, but provide a forum for a lively and entertaining discussion of the issues raised by the stories. Fostering a robust public-policy debate, not saving a particular business model, should be the goal of journalism in the first place.

The report also discusses the possibility of offering tax exemptions to news organizations, establishing an AmeriCorps for reporters and creating a national fund for local news organizations. The money for those benefits would come from a suite of new taxes. A 5 percent tax on consumer electronic devices such as iPads, Kindles and laptops that let consumers read the news could be used to encourage people to keep reading the dead-tree version of the news. Other taxes might be levied on the radio and television spectrum, advertising and cell phones.

4-Day School Weeks Gain Popularity

Cash-strapped school districts turn to 4-day school weeks to save money.

Peach County [Georgia] is one of more than 120 school districts across the country where students attend school just four days a week, a cost-saving tactic gaining popularity among cash-strapped districts struggling to make ends meet. The 4,000-student district started shaving a day off its weekly school calendar last year to help fill a $1 million budget shortfall.

It was that or lay off 39 teachers the week before school started, said Superintendent Susan Clark. "We're treading water," Clark said as she stood outside the headquarters of her seven-school district. "There was nothing else for us to do."

The results? Test scores went up.

So did attendance — for both students and teachers. The district is spending one-third of what it once did on substitute teachers, Clark said. And the graduation rate likely will be more than 80 percent for the first time in years, Clark said.

On their off day, students who don't have other options attend "Monday care" at area churches and the local Boys & Girls Club, where tutors are also available to help with homework. The programs generally cost a few dollars a day per student.

I sure would have loved a 4-day week when I was a kid.

Greece to sell stakes in railways, utilities

In an effort to plug its budget deficit Greece to sell stakes in railways, utilities.

Greece's cash-strapped government will sell off stakes in a string of state-owned companies -- including a rail operator, two water companies, the Post Office and several casinos -- to pay off debt, officials said Wednesday.

Finance Minister George Papaconstantinou said the rail company is losing euro1 billion ($1.2 billion) a year and that routes causing the greatest financial losses will be scrapped.

Under the planned sell-off announced Wednesday, Greece will sell a 49 percent stake in rail operator Trenose and yield management control. It will also reform the broader Hellenic Railways group, which has accumulated debts of some euro 10 billion and runs daily losses of close to euro 3 million.

"Clearly this situation with the railways cannot be allowed to continue," Public Works and Transport Minister Dimitris Reppas said.

He said the government would reevaluate Hellenic Railways workers' skills, keep those who were needed and transfer others to different public sector jobs -- as Greek law forbids the sacking of civil servants.

The government will also sell a 10 percent stake in the greater Athens water company and a 23 percent stake in the water company in Greece's second largest city, Thessaloniki.

Papaconstantinou said the state would sell 39 percent of the country's Post Office. The state will retain a 51 percent stake in all the companies named Wednesday in the privatization bid, and proposes to fully privatize a string of state-owned casinos.

For starters it is absolutely insane to have a law that forbids firing civil servants. What the hell is it going to do with the workers a private company does not want?

More importantly, what company in its right mind would buy into a scheme that gives government 51% control? That is surely a recipe for disaster. Finally, what private corporation wants to buy money losing operations?

"The Greek state owns huge real estate assets, whose precise value has never been calculated," Papaconstantinou said.

Other than the casinos, the operations Papaconstantinou is describing might be worth nothing.

Govt to Collect Addresses, ATM Records of Bank Customers

Under guise of financial reform Senate Democrats Pass Bill Allowing Govt to Collect Addresses, ATM Records of Bank Customers

Senate Democrats united to pass a financial regulatory bill that allows the government to collect data on any person operating in financial markets at any level, including the collection of personal transaction records from local banks that list customers’ addresses and ATM receipts.

The Senate voted 59-39 on Thursday to pass the bill, the chief aim of which is to more-heavily regulate the financial industry. The bill now goes to a conference committee in the House of Representatives, where differences between the House and Senate versions will be ironed out.

The bill, if it becomes law, would create the Bureau of Consumer Financial Protection and empower it to “gather information and activities of persons operating in consumer financial markets,” including the names and addresses of account holders, ATM and other transaction records, and the amount of money kept in each customer’s account.

The new bureaucracy is then allowed to “use the data on branches and [individual and personal] deposit accounts … for any purpose” and may keep all records on file for at least three years and these can be made publicly available upon request.

Senator Shelby slammed the new consumer bureaucracy, saying that it was meant not to protect consumers but to “manage” them by monitoring their behavior.

“Mr. President, make no mistake, behind the veil of anti-Wall Street rhetoric is an unrelenting desire to manage every facet of commerce under the guise of consumer protection.

“They may be interested in protecting consumers, but they are more interested in managing them,” Shelby said.

Shelby also criticized the idea that Americans need government to watch over their every financial move, saying that it was better to allow people the freedom to make their own choices and fail than to never allow them the freedom to choose at all.

I side 100% with Senator Shelby.

This bill has absolutely nothing to do with financial reform or protecting consumers, but everything to do with more government spying on activities of its citizens. Taxpayers have to foot the bill for this outrageous behavior.

"Big Brother" just got bigger.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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G20 Heated Debates; Europe Politely Tells Geithner Where To Go

Demands for more stimulus fell by the wayside as concern over sovereign defaults and budget deficits caught the attention of G20 participants. Reading between the lines, it seems Europe politely told Geithner to go to hell.

G-20 Officials Had Heated Debate on Europe

South Korea's deputy finance ministers says G-20 Officials Had Heated Debate on Europe

There’s been “a lot of heat” in the discussions, Shin Je Yoon, deputy minister for international affairs at South Korea’s finance ministry, told reporters in Busan today during a break in a meeting of G-20 officials.

Shin said the European crisis was the dominant issue discussed by G-20 officials, with mixed views about the possibility of the region’s sovereign-debt woes spreading to other parts of the world.

Hot Air From Geithner on the Yuan

Geithner Says G-20 Discussed More Flexible China Yuan Policy

Finance officials from the Group of 20 nations discussed how a shift towards a higher U.S. savings rate can be complemented by a “more flexible exchange rate policy” in China as well as stronger domestic demand in Japan and Europe, Treasury Secretary Timothy Geithner said today after a meeting in Busan, South Korea.

That discussion was totally useless. China will do what it wants when it wants until the market (not hot air from Washington) forces China's hand.

G20 Drops Support For Fiscal Stimulus

The Financial Times reports G20 drops support for fiscal stimulus.

Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.

The meeting of the Group of 20 finance ministers and central bank governors in Busan, South Korea, also dropped proposals for a global banking levy, instead giving countries leeway to do what they thought best for their domestic circumstances.

The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances. “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated.

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it added. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

These words were in marked contrast to the G20’s previous communiqué from late April, which called for fiscal support to “be maintained until the recovery is firmly driven by the private sector and becomes more entrenched”.

Many other finance ministers accepted market realities had changed the G20’s policy, Christine Lagarde, French finance minister, said: “There’s a large majority for whom redressing the public finances is priority number one. For a minority, it’s supporting growth”.

The Minority Speaks

Speaking for the minority, Geithner Tells G-20 Reliance on U.S. Will Curb Growth.

Treasury Secretary Timothy Geithner told his Group of 20 counterparts that the pace of the global recovery depends on domestic demand in Japan and Europe, and countries shouldn’t rely on spending by U.S. consumers.

“The necessary shift towards higher savings in the United States needs to be complemented by stronger domestic demand growth in Japan and in the European surplus countries, and sustained growth in private demand” and end to the yuan peg in China, Geithner wrote in a letter before a two-day G-20 meeting in Busan, South Korea that ended today.

Geithner’s remarks underscore signs of differences over how quickly to rein in public spending, with the Treasury chief warning that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.” French Finance Minister Christine Lagarde said yesterday that budget consolidation is “priority No. 1” for most G-20 members.

European Central Bank President Jean-Claude Trichet told reporters that Europe’s best contribution to the global rebound is to achieve fiscal sustainability.

There’s been “a lot heat, a lot of heat,” in the G-20 talks, Shin Je-Yoon, deputy minister for international affairs at South Korea’s finance ministry, told reporters today.

“I continue to say that I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters yesterday in Paris. President Nicolas Sarkozy “and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports,” he said.

Wanting The Impossible

French President Nicolas Sarkozy comments on the Euro highlights the impossible task of making everyone happy. The US, EU, UK, Japan, and China all want a weaker currency. It cannot be done.

Nothing But Hot Air

The G-20 meeting was useless. The market had already forced Europe's hand with the action in credit defaults spreads in Greece, Portugal, and Spain as compared to Germany.

The same thing happened in the UK when Gordon Brown was tossed out of office.

US, Japan, China Day of Reckoning is Coming

Trichet's comment that the best contribution to the global rebound is to achieve fiscal sustainability is certainly accurate. Unfortunately, that comment will fall on deaf ears as Geithner, Bernanke, and the Obama Administration clowns are completely clueless.

At some point, the market will get extremely tough with the US, China, and Japan in regards to deficit spending, interest rates, currency pegs, and financing debt. However, there is no telling exactly when those days of reckoning will come or in what order they happen.

Kiss the Illusion Goodbye

With global stimulus efforts playing second fiddle to default concerns, a double-dip recession is just around the corner. Please see Hungary Tries To Calm Markets; Europe Headed Back in Recession, US Will Not Decouple for further discussion.

The Keynesian clowns will be howling that reduced stimulus killed the recovery. However, the reality is there was no recovery in the first place, only an illusion caused by unsustainable stimulus.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Hungary Tries To Calm Markets; Europe Headed Back in Recession, US Will Not Decouple

Hungarian officials are attempting to distance themselves from Friday's economic statements regarding the "Very Grave Situation" in Hungary. Please consider Hungary Backtracks on Talk About Default.

Hungary's government on Saturday tried to calm investors and distanced itself from earlier comments by officials claiming that the country was close to defaulting on its debts.

State Secretary Mihaly Varga, a former finance minister, described talk of a default ''exaggerated ... and unfortunate,'' adding that the new, center-right government of the Fidesz party was committed to the 2010 budget deficit of 3.8 percent of GDP set by the previous administration even if ''immediate and urgent'' steps were needed to achieve it.

''Hungary has made serious progress in consolidating its public finances over the last couple of years,'' Olli Rehn, Europe's commissioner for economic and monetary affairs, told reporters after a meeting of the Group of 20 in South Korea on Saturday. Any talk of a risk of default ''is widely exaggerated,'' he said.

''The claim that the country is on a brink of sovereign default and risks following the Greek path does not hold up against the facts,'' said a report on emerging markets from Goldman Sachs analyst Magdalena Polan. ''Hungary has already faced a crisis and asked for IMF and EU assistance in late 2008. In this context, Hungary is some 18 months ahead of Greece.''

The report also noted that Hungary still had access to unused parts of the rescue package of 20 billion euros ($27 billion) it was granted in 2008 and that the country could ''roll over'' or replace its maturing debt with new loans ''without a problem.''

Sounds like to me Hungary is still on life support.

For a look at the comments that rattled the markets on Friday, please see Dollar Soars; Euro, Euro/Swiss, Forint Hit New Low; Hungary’s Prime Minister says Economy in "Very Grave Situation, Default Talk Not an Exaggeration"

Today's comments that ''immediate and urgent'' steps are needed to hit budget targets aren't exactly reassuring.

Finally, just because Hungary blew up 18 months before Greece does not mean it can't or won't do so again.

Europe Headed Back In Recession

Let's just see what happens to the European economy when Greece, Spain, Italy, France, Portugal, Hungary, and the UK (anyone else?) simultaneously implement various austerity programs while Germany raises taxes.

Europe will be back in recession in no time flat. That's a needed adjustment, but the politicians and economists will not see it that way, and the economic cheerleaders will not know what hit them.

No Decoupling

Remember the ridiculous decoupling theories in 2007 and 2008 about how Europe and China would decouple from the US market and be unaffected by a recession in the US?

Now we hear the same theory in reverse, that the US economy will not be negatively impacted by a slowdown in Europe and Asia.

All of the economic cheerleaders who got it wrong in 2008 are going to get it wrong again.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Genuine Checkmark Recovery Spotted - Guess Where

In response to Disputing the Alleged "Checkmark Recovery" reader Dave Bellamy informed me that I missed one.

Dave writes ...

Dear Mish,

I read and heard you reports on the "checkmark recovery" - very good!

Anyway, I found a checkmark! The chart is below.

Keep up the great work. A dose of realism is so refreshing. It's strange, but whenever I hear you talking about the union workers in the USA it reminds me so much of the 1970s in Britain, all the same stuff, the 1978-79 'Winter of Discontent' culminating in the major election victory and reveral of policy in 1979 when Mrs. Thatcher came into power.

We got all the stories about British car workers in the nationalized car company talking their pillows to work so they could sleep on the nightshift and all that fun! The irony was also that, after these companies had been nationalized, their financial losses had ballooned. As you might expect with a blank cheque from the taxpayer via the Labour government. Now 30 years later, we are in similar position with rampant excess government again.

Dave

Gold Weekly



click on chart for sharper image

Thanks Dave!

There's no doubt about it. That is what a genuine checkmark recovery looks like.

By the way, gold has had quite a runup. If the stock market collapses again (and I think that is likely), I do not know if gold follows this time or not. No one else does either, although many pretend to.

Should a pullback happen, I do think the $975-1000 area would hold this time, noting that the last correction was to the $680 level.

Gold can easily be at the start of a blowoff stage, but I am more inclined to think there will be another pullback first.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Dollar Soars; Euro, Euro/Swiss, Forint Hit New Low; Hungary’s Prime Minister says Economy in "Very Grave Situation, Default Talk Not an Exaggeration"

The situation in Europe is taking a turn for the worse as the Prime Minister of Hungary says Hungarian economy is in a "very grave situation and talk of a default is not an exaggeration".

Please consider Hungary’s Forint Weakens to 12-Month Low; Bonds, Stocks Plunge

Hungary’s forint weakened to the lowest level in a year, the nation’s stocks plunged and government bond yields had the biggest increase since November 2008 after a spokesman for Prime Minister Viktor Orban said the economy is in a “very grave situation.”

The forint depreciated 2.1 percent to 287.73 per euro at 2:28 p.m. in Budapest, the weakest level since June 2009. The extra yield investors demand to own Hungary’s debt over U.S. Treasuries rose 93 basis points, the most since November 2008, to 4.12 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index. The BUX Index of equities tumbled 7 percent.

Hungary’s economy is in a “very grave situation” because the previous government manipulated figures and lied about the state of the economy, Orban’s spokesman Peter Szijjarto said at a press conference in Budapest today. Talk of a default is “not an exaggeration,” Szijjarto said. European equities and U.S. stock-index futures fell after the comments.

Hungary secured a 20 billion-euro ($24 billion) loan from the IMF, the European Union and the World Bank in October 2008 to avoid default as the global financial crisis spurred investors to avoid the country and sent the economy into a recession.

Orban, who took over May 29 after winning elections by pledging to cut taxes and stimulate the economy, yesterday failed to get EU approval for looser fiscal policy.

Whatever You Do, Don't Tell The Truth!

Here is an interesting quote from the article.

“The new government needs to think a bit more clearly about communication with the market. You simply cannot talk like this in these markets” said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc, in an e-mailed comment.

Translation "No matter what the problem is ... please don't tell the truth!"

US$ Index Weekly



Euro vs. Dollar Weekly Chart



On news of the "Save the Euro Plan" the Euro bounced all the way up to 1.31 (see previous red candle). However, the Euro could not hold the gains for even a few days.

Now, the Euro is making fresh new lows.

Euro Swiss Weekly



This is a chart of the Euro vs. the Swiss Franc. I think it is the most interesting of the lot because the Swiss Central Bank has openly intervened in the currency markets in an attempt to suppress the Swiss Franc.

Swiss franc intervention cost a billion a day in April

Inquiring minds are reading a May 21, 2010 Financial Times Alphaville article Swiss franc intervention cost a billion a day in April

Data just released show that the SNB increased its holdings of foreign currency by an extraordinary CHF28.5 billion in April – almost CHF1 billion a day. This means that, in the first four months of this year, Herr Hildebrand had gobbled up CHF58.9 billion of a money nobody else much wanted to own – on top of which we have to add what is likely to be a sizeable sum of flight capital ‘absorbed’ in the first turbulent weeks of May (€9.5 billion on Wednesday morning alone, according to market rumour).

Making a simple estimate that the overall intervention this month has at least matched that undertaken in April (a decidedly conservative guess), the Bank will have amassed around CHF80 billion so far this year, a total of which the mighty PBoC would not be ashamed and one, even more remarkably, equivalent to around 45% of the Confederation’s entire private national income for the period.

Not only has the SNB therefore seriously diluted its existing citizen-shareholders’ equity stake in their own country (think about it), it has gone some good way into turning the Swissy into the Hong Kong Dollar of Europe, since fast approaching 70% of the asset side of its balance sheet is currently being held in the form of forex (160% of the monetary base, 38% of M1), putting the once-proud Swissy well on track to degenerating to mere currency board status.

With Hildebrand maintaining the stance in the Swiss press that reserves were, if anything, too low, before his shopping spree – and with the ECB’s ability to create extra Euros being both essentially limitless and in inverse proportion to its Northern members’ desire to hold them – the Swiss are in danger of selling out their remaining economic and monetary independence in the name of a mercantilist desire to buffer their admittedly important exporters from the malfeasance of their neighbours’ governments.

Alphaville attributed the above snip to Sean Corrigan of Diapason Commodities.

Currency Intervention Simply Does Not Work

As I have said before many times. Currency intervention simply does not work.

For a look at Japan's currency intervention in 2003-2004, and other currency intervention madness, please consider Currency Intervention And Other Conspiracies

Once again the results speak for themselves.

Swiss Franc Libor Falls; SNB May Curtail Intervention

After amassing billions in Euros in a foolish as well as losing attempt to suppress the Swiss Franc vs. the Euro, I find myself laughing at this Bloomberg headline just yesterday: Swiss Franc Libor Falls; SNB May Curtail Intervention.

The rate banks say they pay for three-month loans in Swiss francs fell to a record low, potentially sparking inflation and compel the nation’s policy makers to let the currency rise, according to Citigroup Inc.

The Swiss National Bank has intervened to curb the currency’s gains by pumping francs into the market, said Michael Hart, a foreign-exchange strategist at Citigroup in London. That risks stoking inflation, which accelerated a more-than-forecast 1.4 percent in April, he said. The SNB says consumer-price growth may be 2.2 percent in 2012.

“It indicates they will need to tighten policy and stop intervention over the coming months,” Hart said yesterday in a phone interview. “The SNB has flooded the market with liquidity as a result of the interventions.”

The Swiss franc was little changed at 1.4153 per euro as of 11:50 a.m. in London.

As of right now, the Euro fell to 1.40 vs. the Swiss Franc after touching a new low for the move this morning at 1.393.

I think Michael Hart, Citigroup's foreign-exchange strategist in London is off his rocker in suggesting the Swiss national Bank is about to tighten. However, if they do, the Swiss Franc will go soaring vs. the Euro.

Look at the holes central bankers dig attempting to defeat the markets. The track record of central bankers learning anything from the failures of other central bankers is a perfect zero percent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jobs Increase by 431,000, only 20,000 Excluding Census; Unemployment Rate Drops to 9.7%; A Look at the Details

This morning the BLS reported an increase of 431,000 jobs. 411,000 of those jobs were temporary workers for Census 2010. Headline unemployment fell .2% to 9.7%.

Hidden beneath the surface the BLS Black Box - Birth Death Model added 215,000 jobs.

However, as I have pointed out many times before, the Birth/Death numbers cannot be subtracted straight up to get a raw number. It contributed to this month's employment total for sure, but the BLS will not disclose by how much.

In addition to census hiring, temporary help services employment added 31,000 jobs. temporary help services employment has risen by 362,000 since September 2009.

On the whole, this was a very weak jobs report especially with all the hype coming from various administration officials and economic cheerleaders.

Both the birth/death numbers and temporary help jobs are problematic.

The drop in the unemployment rate will all be taken back by August when the census workers are let go.

As I said last month, I still do not think the top in the unemployment rate is in and expect it may rise substantially June through August, and keep rising at a modest pace thereafter for most of the rest of the year. Time will tell.

Employment and Recessions

Calculated risk has a great chart showing the effects of census hiring as well as the extremely weak hiring in this recovery.



click on chart for sharper image

The dotted lines tell the real story about how pathetic a jobs recovery this has been. Bear in mind it has taken $trillions in stimulus to produce this.

May 2010 Report

Please consider the Bureau of Labor Statistics (BLS) May 2010 Employment Report.

Total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010, the U.S. Bureau of Labor Statistics reported today. Private-sector employment changed little (+41,000). Manufacturing, temporary help services, and mining added jobs, while construction employment declined. The unemployment rate edged down to 9.7 percent.

Unemployment Rate - Seasonally Adjusted



Nonfarm Payroll Employment - Seasonally Adjusted

Since September 2009, temporary help services employment has risen by 362,000.

Establishment Data



click on chart for sharper image

Highlights

• 431,000 jobs were added
• 35,000 construction jobs were lost
• 29,000 manufacturing jobs were added
  
• 37,000 service providing jobs were added
• 6,000 retail trade jobs were lost
  
• 22,000 professional and business services jobs were added
• 17,000 education and health services jobs were added
• 2,000 leisure and hospitality jobs were added
  
• 390,000 government jobs were added

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

Production and non-supervisory work hours rose one tick to 33.5 hours and average hourly earnings rose 4 cents.

Birth Death Model Revisions 2009



click on chart for sharper image

Birth Death Model Revisions 2010



click on chart for sharper image

Birth/Death Model Revisions

The BLS Birth/Death Model methodology is so screwed up 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 those revisions to job totals to reflect errors in its Birth/Death model.

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).

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing practice is clearly another.

Household Data

The number of unemployed persons was 15.0 million in May. The unemployment rate edged down to 9.7 percent, the same rate as in the first 3 months of 2010.

The number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.8 million. These individuals made up 46.0 percent of unemployed persons, about the same as in April.

The number of unemployed reentrants to the labor force fell by 286,000 in May, offsetting an increase in April.

The civilian labor force participation rate edged down by 0.2 percentage point to 65.0 percent.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 343,000 in May to 8.8 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

[Mish Note: In January the number was 8.3 million]

Persons Not in the Labor Force

About 2.2 million persons were marginally attached to the labor force in May, unchanged from a year earlier. 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.

Table A-8 Part Time Status



click on chart for sharper image

The key take-away is there are 8,809,00 of workers whose hours may rise before those 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.



click on chart for sharper image

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 16.6%.

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.

Keep in mind that huge cuts in public sector jobs and benefits at the city, county, and state level are on the way. These are badly needed adjustments. However, the union parasites will not see it that way, nor will the politicians.

All things considered, this report looks anemic on the surface and even worse with a close inspection of the details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Video Exposes Systemic Fraud by Census Bureau Supervisors

Conservative activist James O'Keefe alleges fraud by Census Bureau



The video shows three levels of supervisors promoting or ignoring the padding of hours by census employees.

Hiring and Firing of Census Employees Multiple Times

Many people sent me articles or videos about the hiring and firing of census workers multiple times to pad the employment report.

I cannot address whether or not the hiring and firing of the same employee multiple times is taking place.

However, I can state that it will not do a damn thing for the unemployment stats. The unemployment numbers come from a phone survey not from repetitive hirings and firings.

Even the headline jobs number would not be affected. That number comes from the establishment survey. One is either on the payroll or not.

The only issues at play that I can think are:

1. If someone goes through training twice and gets paid for it.
2. If supervisors are being paid on the basis of how many hires they have made.

I do not know if either of those apply, but the idea that supervisors are hiring and firing census workers to pad the employment numbers simply does not fly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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San Carlos California Ponders Dissolving Police Department, Outsourcing Duties; Redwood City Mayor says "It's the Wave of the Future"

Three cheers for San Carlos California for starting to face the reality that unions are sucking the city dry. It's not a done deal yet, but San Carlos considers outsourcing police duties.

The city of San Carlos, facing a multimillion-dollar budget deficit brought on by the recession and rising employee costs, is considering a money-saving measure that is all but unheard of in the Bay Area - dissolving its Police Department and outsourcing the job of law enforcement.

After 85 years of having its own police force, supporters of the idea say, it's time for San Carlos to hand the job either to the San Mateo County Sheriff's Office or to neighboring Redwood City to eliminate nearly two-thirds of next year's $3.5 million deficit.

San Carlos is not a high-intensity policing assignment. The number of violent crimes in an average year is 27, and there have been only three homicides in the city of 28,000 over the past decade.

In May, the San Carlos City Council held a special session to review policing proposals by the sheriff's office and Redwood City police. The city is expected to decide this month whether to disband the force and select one of the agencies.

"We have two attractive offers from two professional organizations," said Mayor Randy Royce, who believes the city should scrap its force. "I am just elated to have two great proposals. We can't go wrong either way."

Can't Go Wrong

I concur with Mayor Randy Royce. My only question for Royce is "What took you so long?"

I am still waiting for some major city like San Diego, or LA to decide the same thing.

Taxpayers will kiss you.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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MasterCard Study Says Consumer Spending Has Taken A Break

Michael McNamara, Vice President, Research and Analysis for SpendingPulse, observes Consumer Takes a Respite as Spending in Many Sectors Declines.

The momentum in consumer spending that was building through the first quarter, seems to be taking a breather in the second quarter of 2010, at least so far. Financial volatility in the capital markets and ongoing macroeconomic issues could account for this shadow cast over the recovery in consumer spending. Some sectors seem to be responding to specific disruptive events, such as the expiration of the Federal housing tax credits, where previously we'd noticed a beneficial "echo" effect on housing related categories such as Furniture and Furnishings.

In addition, Memorial Day occurring a week later than it did last year, could have pushed some spending into June, 2010. Nevertheless, we continue to see strength in pricing, and in most categories, we are registering solid increases in the SpendingPulse Price Index, indicating that inventories continue to be aligned to demand, and retailers have not had to return to steep discounting.

Price Wars

In response to Michael McNamara's statement "retailers have not had to return to steep discounting" I counter with Foreclosure Life Raft; Price Wars at Walmart; Electrical Demand Drops Two Straight Years, First Since 1949.

Wal-Mart, Target, Costco, others are clearly in the midst of price wars hoping to capture market share.

YouTube Commentary From McNamara

Here’s a short YouTube video with additional commentary from Michael McNamara.



Factors in Spending Respite

McNamara discusses several factors in the spending respite.

• Some Memorial Day sales falling into June instead of May. This may benefit June sales.
• Financial market volatility impacts big ticket items and durable goods.
• The end of $8,000 housing tax credits pushed forward big ticket spending items like furniture and appliance.
  

Spending Trends

Interestingly, apparel sales and footwear showed a significant decline although online apparel sales were up 20-30% depending on category.

Furniture sales were down 9% compared to a year ago. This was in spite of a mini-rush to buy housing ahead of the expiring tax credit. Perhaps we see a bump in furniture and appliance sales in June or July after some of those home purchases close, but that will be the last hurrah in my opinion.

Luxury retail spending showed an increase of 9.7% compared to May of last year. Luxury sales reflect a recovery in the financial markets as opposed to the real world job loss recovery that most experience.

Moreover, comparisons for luxury sales going forward start to get harder going forward.

Finally, McNamara notes that "eCommerce growth is moving well ahead of brick and mortar sales at +13.7% year over year". Sales tax avoidance anyone?

Expect to see more weakness going forward as housing tax credits expire and other stimulus efforts diminish just in time for the November elections.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Public Union Parasites Move To Bar California Bankruptcies

Outrageously overpaid California public union parasites have every intention of sucking the last drop of blood out every taxpayer.

Regardless of the cost to taxpayers, and even though their bloated benefit programs vastly exceed what the private sector gets, nothing will get in the union's way of protecting the overgenerous benefits they have, while still demanding more money from taxpayers, no matter what fiscal shape any of the cities are in because of those contracts.

Assembly Bill 155 Places Hurdles On Bankruptcies

Sadly, California's corrupt politicians, bought and paid for by the unions, are all too willing to go along with a Scheme to Bar City Bankruptcies.

A bill that clamps down on municipal bankruptcy filings is headed for Gov. Schwarzenegger's desk, which is bad news for Los Angeles and other cash-strapped California cities.

It the governor signs Assembly Bill 155, it would place a hurdle in the path of filing for Chapter 9 municipal bankruptcy. The bill stipulates that a city may only file for bankruptcy with the approval of the California Debt Investment Advisory Commission, which provides information on debt to public agencies.

"California's taxpayers who rely on public safety, senior, park and library services, as well as those who own and operate businesses in our communities, deserve every effort that state and local government can make to avoid the long-term devastation of bankruptcy," the bill says.

In particular, the bill says it intends to protect retirement pensions and health benefits for public employees, which would be disrupted and renegotiated in the wake of bankruptcy.

This could have a direct impact on the state's largest city, Los Angeles, which is facing a huge budget shortfall. The city's former mayor, Richard Riordan, is calling for bankruptcy as the current mayor, Antonio Villaraigosa, is proposing deep cuts to city payrolls, according to news reports.

Union Parasites and Corrupt Politicians Cause Devastation

Bankruptcy does not cause long-term devastation. Forever increasing taxes to support union parasites does.

Given that one cannot negotiate with parasites, mosquitoes, termites or other pestilence, the only reasonable solution is to exterminate them. Public unions need to be made illegal, and every service imaginable immediately outsourced to non-union shops.

Public unions are the problem and bankruptcies are one solution. If Schwarzenegger has an ounce of common sense he will veto this bill.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Disputing the Alleged "Checkmark Recovery"

One of the silliest cases I have seen to date regarding the alleged recovery comes from James Altucher, president of Formula Capital.

Altucher Says It's Not a 'V', It's Even Better, Look for New Highs by 2012



Partial Transcript

Aaron Task: Joining me now is James Altucher who says, not only is the recovery not over, and not only is it a "V Shaped Revovery, it's checkmark shaped recovery. James you are wildly optimistic on the US economy right now?

James Altucher: I don't want to say "wildly" because that sounds almost insane, and everyone is going to comment on these message boards that I'm completely whacko. At the same time if you look at all the data, go to the federal reserve website and look at every single chart of economic data, nonfarm payrolls, retail sales, inventories, it's all a "V" or a checkmark. ... The Debate is over. It's already been a "V" the question is "Does it continue?" I think it does.

Completely Whacko

Yes James, you are completely whacko. I did go to the Fed website as you suggested and here are some charts to consider.

Civilian Unemployment



In terms of civilian employment there was a fast checkmark in the 70's 80's and 90's but there is no sign of a "V" now, let alone a checkmark.

Auto Sales



Auto sales are now back to where they were in early 1980. This is the most miserable auto sector recovery ever in terms of actual numbers. Moreover, the data worse than it looks if one factors in population growth.

Looking for a checkmark? If you hold up the chart and look in a mirror you might see a nice one now, but the real one from 1980 vanishes.

Total Consumer Credit



With consumer credit, there is no "V" nor checkmark, nor any recognizable improvement, rather an unprecedented plunge dating all the way back to 1940.

Total Bank Credit



Total bank credit has had a recovery of sorts off an unprecedented plunge. However it is not anything one should properly call a "V".

Housing Starts



Housing starts is one of the few genuinely leading indicators. 1990 and 2000 certainly had "V" shaped recoveries. However the chart clearly shows it it preposterous to call the current blip a "V" shaped recovery. Housing starts are still below every trough all the way back to 1960.

Moreover, it has taken repeat $8,000 tax credits to even get that little blip.

As with auto sales, the proper way of viewing this is on a population adjusted basis (not shown), which would make that miserable chart look far worse.

Sick Mortgage Market

Finally, Fannie, Freddie, and the FHA now account for 90% of mortgage market. Please see FHA Volume is Sign of ‘Very Sick System’ for details.

Recovery? Please be serious. We have had a recovery in financial assets reflecting a $trillion thrown at anything that would move, and those anemic charts are all we have to show for it.

So where does Altucher get his checkmark theory?

This chart will show how.

Housing Starts Percent Change From Year Ago



There's your checkmark. Please compare to the previous chart.

If you believe that constitutes a checkmark recovery (or even a "V" shaped recovery), then you are only fooling yourself.

Addendum:

Flashback July 10, 2008.

Forget Your Fears: 'Everything Is Cheap,' James Altucher Says

James Altucher, managing partner of Formula Capital, says "fear of the unknown" is obscuring opportunity for investors.

On an enterprise value/cash flow basis, almost "everything is cheap," Altucher says, recommending investors buy index ETFs to get exposure to a market the author, columnist and investor believes is "dirt cheap."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Foreclosure Life Raft; Price Wars at Walmart; Electrical Demand Drops Two Straight Years, First Since 1949

Citing reduced electrical demand American Electric Power will keep 10 units off line most of the year.

American Electric Power Inc., one of the nation's biggest power generators, says 10 of its smaller, coal-fired generating units will remain off line for much of the year because of lower demand for electricity.

The company said the units will be kept in "extended startup status," during off-peak months beginning Tuesday. The plan will allow the company to redeploy workers at several coal-fired units projected to run less frequently over the next few years.

During peak months of July, August and January, these units will be available as they have been in the past.

The recession has dampened demand for electricity, especially from industrial customers. Electricity demand fell for the past two years, the first time that has happened since 1949.

Price Wars at Walmart

Inquiring minds note Wal-Mart cuts prices to boost sales.

Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to re-ignite sales in America.

The sharp cuts at U.S. stores, which came ahead of the Memorial Day holiday weekend, have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.

Wal-Mart is bearing the cost of some of the deep price cuts, not its suppliers, according to Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC, based on discussions with industry officials.

According to Pecoriello, on a basket of five food items, from Coke to Lay's potato chips, the total price was $11.23 at Wal-Mart, 24 percent less than it was a year ago. It's also almost 14 percent lower than Kroger and almost 26 percent lower than Safeway, according to Pecoriello's estimates. The firm gathers pricing data representing 15,000 stores across the country.

That doesn't include Wal-Mart's move to lower cans of name-brand Coke and Pepsi further in the past few days, from the announced discounted price of $5 to as low as $3.77 in certain markets. The original price was $6.98 for a 24-pack.

Pecoriello noted in his report that Target was selling 12 packs of soda for $2, roughly matching Wal-Mart's price, while Kroger was selling 12 packs for $2.50, less than a year ago.

When an item you like is on sale, buy 5-10 times as much of it as you normally would, making a point to only buy items on huge sales. Otherwise, If you mind the price of meat, most everything else will take care of itself.

Please get a freezer for storing meat. Sale prices on meat have not gone up for a decade. Food is a tremendous bargain.

Foreclosure Life Raft

Sales at Walmart and Target are chicken feed compared to having a mortgage and not paying it. Please consider Owners Stop Paying Mortgage ... And Stop Fretting About It

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

For borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’”

One and a Half Years of Not Paying Rent

The average length of time for the foreclosure process in Florida and New York is over 18 months. For Mr. Tsiogas who stopped paying $2,500 a month, that comes to $45,000 in found money.

That's quite a chunk of change to spend at Walmart or better yet to save up for a few year's rent when you finally do lose your property.

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