Sings of a global slowdown continue. The HSBC China Services PMI shows China Composite Output and New Orders Both Fall for First Time in Seven Months.
HSBC China Composite PMI ™ data (which covers both manufacturing and services) signalled a contraction of private sector output in China, following a six-month sequence of growth. That said, the rate of reduction was fractional overall, as signalled by the HSBC Composite Output Index posting at 49.8 in February down from 50.8 in January.
Staffing levels declined at manufacturing companies again in February and at the quickest rate in nearly five years. In contrast, service sector firms expanded their payroll numbers for the sixth month running. However, service sector firms were more cautious toward s taking on more staff, as the rate of job creation eased to a five-month low. Consequently, employment levels fell modestly at the composite level.
Backlogs of work decreased across both the manufacturing and service sectors in February. Though only slight, it was the first reduction of work-in-hand at goods producers since July 2013. Meanwhile, outstanding business at service providers fell at a moderate pace that was the quickest in a year. As a result, unfinished business declined marginally at the composite level.
Commenting on the China Services and Composite PMI™ data, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said: “The HSBC China Services PMI suggests that service sector growth seems to be stabilising at a relatively low level. However, combined with the weaker manufacturing PMI, the overall strength of economic growth is moderating and this is starting to weigh on employment growth. Beijing policy makers can and should fine-tune policy to avoid growth deceleration in the first half of the year.”
Comment on the Comment
The comment by Hongbin Qu is ridiculous for two reasons. First and foremost, the idea that central banks can fine-tune anything is ridiculous. History proves just that.
Second, even if central banks could assure short-term growth, it is always at an expense. Hongbin Qu ignores that expense.
If anything, China has overinvested in everything from vacant houses, to vacant malls, to vacant shopping centers, to unused trains and airports. To prevent further malinvestments, China actually needs to slow (and it will).
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/03/china-composite-output-and-new-orders.html#j4JKVMJ0REUtfgdD.99
Weekly unemployment initial claims unexpectedly rose to 348,000 this week.
The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but the underlying trend suggested no shift in labor market conditions.
Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 348,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 fewer applications received than previously reported.
Economists polled by Reuters had forecast first-time applications for jobless benefits slipping to 335,000 in the week ended Feb. 22, which included the Presidents Day holiday.
While last week’s increase pushed them to the upper end of their range so far this year, it probably does not signal labor market weakness as claims tend to be volatile around federal holidays.
Weekly Claims Since 1967
Once claims bottom then start to rise, the above chart shows a recession usually follows. The only exception was 1993, smack in the middle of an internet boom.
It's impossible to know if claims have indeed bottomed, but a secondary pattern shows this is an area in which claims bottomed five out of the last six times. If claims bottomed again now, it would make six out of seven.
This "unexpected" event coincides with numerous other "unexpected" events, nearly all of them weaker than expected.
String of Unexpected Events
Reuters said this "probably does not signal labor market weakness". I suggest weakness is nearly everywhere you look.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/weekly-unemployment-claims-unexpectedly.html#lYTiQP2IFeZ2GcHH.99
Telegraph writer Ambrose Evans-Pritchard is back at it. In arguably his worst article ever, Pritchard complains France is Looking Straight Down the Barrel of a Deflation Shock.
Pritchard bemoans the horrors of falling prices and says "There is a technical solution to this. It is called QE. The European Central Bank can lift the entire EMU system off the reefs by launching a monetary blitz to meet its own M3 growth target of 4.5pc."
Pritchard ignores the fact that equity prices are back in bubble land. He ignores the fact that QE did not bring inflation to Japan. He ignores the fact that consumers desperately need falling prices. He ignores the fact that falling consumer prices do not stop consumers from buying anything.
Pritchard complains "French President François Hollande must now pay the price for kowtowing to the contraction polices of the eurozone."
Pritchard knows full well France is bound by eurozone policies. The only way France cannot "kowtow to the contraction polices of the eurozone" is if France leaves the eurozone. But Pritchard never mentions that. Instead he whines about falling prices.
One Centrally Bad Idea
Pritchard clings to the centrally bad idea that falling consumer prices will cause consumers to perpetually delay purchases.
In the real world, people have to eat. They have to buy gasoline for their cars. They have to buy clothes when they wear out. They have to heat their homes.
Those are relatively inelastic demands.
But there is also no evidence consumers will hold off for long on discretionary spending either. Every Christmas, shoppers line up for bargains. People continue to upgrade TVs, computers, monitors as they wear out, or simply because prices are lower and quality is up since they last bought.
In other words, people buy when bargains are many and stop buying when bargains are few.
Pritchard's solution is the same as that of many charlatans before him: Force prices up.
The Fed succeeded. As a result, people now bitch and moan about "living wages". Of course "living wages" are a moving target. Force prices higher and the more it takes to keep up with them.
People want $15 an hour for standing behind a cash register and handing you a sack of the worst food money can buy. It's ridiculous.
Hardly anyone ever points out the fact that wages have not kept up with inflation precisely because the Fed has done exactly what Pritchard wants.
People do not blame the Fed, nor do they blame economic illiterates like Pritchard. Instead they blame allegedly evil corporations like McDonalds and Walmart.
Actually, the world needs more Walmarts. I hope Walmart enters the health-care business in a big way. Costs would come down overnight. It would also be great if Walmart could directly compete with banks on financial services.
Costs Rising Faster than Wages
The problem is not that wages are too low, but rather costs rise faster than wages. Why does that happen? Because of the very central bank polices espoused by Monetarists like Pritchard.
Pritchard and others will note that falling home prices will slow bank lending and consumer credit. That is correct. OK, but what's the real problem?
The real problem is monetary inflation artificially jacked up the prices of assets (homes, cars, equities) upon which unsustainable loans were made. Rather than admitting that simple and obvious fact, Monetarists propose the solution is still more monetary printing which will do nothing but create even bigger asset bubbles.
|Year||2% Annual Inflation||4% Annual Inflation||6% annual inflation||10% annual inflation|
The above table shows what the price of something that costs $100 in year one will cost 49 years later at various inflation rates.
None of these inflation charlatans discuss what happens if wages do not keep up. Nor do they discuss the incentives businesses have to outsource jobs or automate because of high wages.
Amazingly, many people in academic wonderland are not satisfied with 2% annual inflation. They want 4% inflation or higher. For example, Laurence Ball at John Hopkins University claims to make a Case for Four Percent Inflation.
Ball is "grateful for suggestions from Olivier Blanchard, Daniel Leigh, Gregory Mankiw, and Richard Miller. This paper is prepared for the Central Bank Review, published by the Central Bank of the Republic of Turkey."
His paper was written in April 2013.
How is the Turkish Lira doing since that paper came out? Let's take a look.
Hmm. Once inflation steps in it seems difficult to turn it off.
Ball cited Gregory Mankiw, an economic professor at Harvard, who had an even more inane idea of drawing a number out of the hat every year and making currency ending in that digit worthless.
The effect would be 10% price inflation and lord only knows what asset price inflation would occur were Makniw to get his way.
Mankiw claims expiring currency would be a benefit. I responded Time For Mankiw To Resign
These charlatans sit in their academic ivory towers void of common sense and real world economics.
Of course economically asinine proposals from those in academic wonderland is expected behavior by corollary number four.
For the sake of completeness, here is a complete recap.
Law of Bad Ideas: Bad ideas don't go away until they have been tried and failed multiple times, and generally not even then.
Corollary One: Left alone, bad ideas get worse over time.
Corollary Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse.
Corollary Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented.
Corollary Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists.
Corollary Five: No politically acceptable idea is so bad it cannot be made worse.
Corollary Six: Bad ideas lead to more bad ideas to fix problems caused by previous bad ideas.
Although there is strong evidence that consumers will hold off making asset purchases (homes, stocks, bonds), when asset prices fall, there is not a shred of evidence of a meaningful reduction in consumer purchases due to falling consumer prices.
The irony is that QE tends to foster asset bubbles that ultimately crash, not a price rise in general goods.
Central banks in general, and the Fed in particular, are excellent examples of those in power, hell bent on implementing various bad ideas.
For further discussion please see Deflation Theory Reality Check.
Also see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?
In yet another irony in this madness, monetarist polices benefit those with first access to money, namely the banks and the already wealthy. Yet the same academics screaming for higher inflation are typically the same ones screaming about income inequality.
The amount of damage caused by one central thesis "falling prices are a bad thing" is staggering. And to fix problems inherent in that central thesis, countless other bad ideas are sure to follow.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/monetarism-abenomics-qe-minimum-wage.html#ldCWBQgj4gmrSZaz.99
The situation in Ukraine grows more desperate by the hour. President Viktor Yanukovic had already replaced the head of the army. Today Yanukovic replaced the head of all armed forces.
Given that lower ranks are divided in support, calling out the military could start an all-out civil war.
“If there is a decision to use force to clear the protesters, it can be done but will start a civil war,” said Ihor Smeshko, former head of Ukraine’s SBU security services. “The army is so far neutral, but if it is pulled into this conflict it will be a point of no return. Army personnel are themselves split 50/50 in their views of Ukraine.”
The government prepared the way for using the army on Wednesday, when the defence ministry said the military could be deployed in “antiterrorist” operations. Authorities and legal experts had previously said the army could only be used within Ukraine if a state of emergency was imposed.
Mr Yanukovich on Wednesday night also replaced the head of all Ukraine’s armed forces with the former navy chief – just weeks after he already replaced the head of the army – in what appeared to be a move to ensure loyalty in the top ranks.
“[The Yanukovich government] have put their placemen into the army,” said James Sherr, a Ukraine scholar at London’s Chatham House think-tank. “But still the question is what proportion of units would obey such orders?”
Financial Crisis Threatens Russia
The Telegraph reports Financial crisis threatens Russia as Ukraine spins out of control
The dramatic escalation of Ukraine’s civil conflict and fears of Russian military intervention have sent financial tremors across Eastern Europe, turning the region into the new fulcrum of the emerging market crisis.
“This has suddenly gone from a domestic Ukrainian story into a geopolitical clash,” said Lars Christensen, from Danske Bank.
The Russian ruble has fallen to a record low against the euro, with contagion reaching Poland, Hungary and Romania in recent days. “The moves in Russia are very like the events during the war in Georgia in 2008. Markets are pricing in the risk of Russian intervention,” he said.
Regis Chatellier, from Societe Generale, said there is a “high risk” that Ukraine will be pushed into default on its €60bn sovereign debt, triggering a credit shock for Russian banks. Sberbank and VTB are both large holders of Ukrainian bonds. Global emerging market bond funds hold 3pc of their portfolio in Ukrainian debt. “The spillover effect of a Ukrainian default would be significant, but not systemic,” he said.
The decision by the Ukrainian nationalist stronghold of Lvov this week to declare “independence” from Kiev has upped the ante, creating a volatile climate in which the Ukrainian army may be forced to intervene to head off civil war.
“Ukraine is on the verge of splitting into two countries. We’re looking at events that we have not seen in Europe since the break-up of Yugoslavia,” said one City economist with links to Lvov. “When you have this level of hatred and mistrust, anything can happen.”
Ukraine’s foreign reserves are down to survival levels. Russia has so far kept the country afloat with a $3bn loan, the first tranche of a $15bn bailout, but further payments are in doubt.
Russia faces the choice of large losses from a default or the ever rising costs of propping up Ukraine's economy. Military intervention to subjugate the rebels in the Catholic strongholds of Western Ukraine orbit could lead to a quagmire.
The International Monetary Fund said in a report for the G20 summit this weekend that emerging market woes are the key risk for global recovery, warning that a trifecta of “capital outflows, higher interest rates and sharp currency depreciation” could set off a corporate debt crisis.
Societe Generale said in a new report that emerging markets have risen from 18pc of world output to 40pc over the past 20 years, implying that a broad upheaval in these countries today would have “much greater ramifications for the global economy”.
US$ vs. Ruble
Euro vs. Ruble
It is impossible to know what's ahead. A civil war could break out tomorrow, but so could another cease fire. The military could even oust the president.
The longer this simmers, the more pressure there is on emerging markets and the more pressure there is on any banks that lent money to Ukraine. Meanwhile, check out the collapse in the Ukranian Hryvna.
Euro vs. Hryvna
So far, things are still orderly. If a full scale civil war breaks out, it won't be.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/#4IlUWEZfwTuWUGVb.99
The situation in Ukraine grows worse by the day. Here is a recap of recent events.
Reuters: Ukraine police charge protesters after nation's bloodiest day
Ukrainian riot police charged protesters occupying a central Kiev square early on Wednesday after the bloodiest day since the former Soviet republic, caught in a geopolitical struggle between Russia and the West, won its independence more than 22 years ago.
At least 18 people, including seven policemen, died on Tuesday during hours of violence between security forces and civilians who have staged protests against President Viktor Yanukovich since last November.
Many were killed by gunshot and hundreds more were injured, with dozens of them in a serious condition, police and opposition representatives said.
The riot police moved in hours after Moscow gave Ukraine $2 billion in aid for its crippled economy which it had been holding back to demand decisive action to crush the protests.
Nationwide demonstrations erupted after Yanukovich bowed to Russian pressure and pulled out of a planned far-reaching trade agreement with the European Union, deciding instead to accept a Kremlin bailout for the heavily indebted economy.
EU Weighs Sanctions, Emergency Meeting Called
Financial Times: EU weighs sanctions against ‘authors of violence’ in Kiev
Europe’s top diplomats have been summoned to an emergency meeting in Brussels today after EU leaders called for sanctions against the Ukrainian government in response to a bloody crackdown that killed more than two dozen people.
The push for sanctions against Viktor Yanukovich, Ukraine’s president, and his allies marks a significant shift for the EU, which has so far insisted on a diplomatic response to the crisis. But it is not guaranteed the unanimous support required by the 28-member bloc, amid fears from some member states that a harder approach could push the country closer to civil war.
A group led by France and Poland will push for sanctions at an emergency meeting of foreign ministers in Brussels. Although they are backed by Germany and the Czech Republic, several countries – including Italy, the Netherlands and Finland – are reluctant to move quickly. Spain prefers a diplomatic solution rather than sanctions.
The Obama administration said on Wednesday that it had placed 20 Ukrainian officials on a visa blacklist as a result of the violence in Kiev on Tuesday.
In the first sign of the EU’s economic pressure coming to bear on Ukraine, the head of the EU’s investment bank said that it had halted investments there. Werner Hoyer, president of the European Investment Bank, said that he had suspended activities in Ukraine, where the EIB has pledged to invest more than €1bn since 2011 in ventures such as a metro line and an air traffic control system.
Civil War Feared
Financial Times: Ukraine Facing Most Dangerous Hour for Many Years
The crisis in Ukraine appeared to be spinning out of control on Wednesday, leaving the former Soviet republic facing its most dangerous hour not just since independence in 1991 but for many decades.
While anti-government protesters tore up cobblestones along Khreshchatyk, Kiev’s main avenue, as weapons to resist a second night-time assault by riot police, Donald Tusk, Polish prime minister, warned that the world might be witnessing “the first hours of a Ukrainian civil war”.
“There is no civil war between the east and west of Ukraine,” said Olexiy Haran, a political scientist and member of the protest co-ordinating committee. “There are no people in the east of Ukraine who are going to die for Yanukovich.”
But a civil war was under way, he added, between “the people of Ukraine, and the Berkut [special police] and titushki” – the nickname for hired, pro-regime thugs that authorities have used in Kiev and elsewhere to beat up protesters.
With only about 4,000-5,000 Berkut police, and perhaps 15,000-20,000 well-trained and equipped interior ministry troops, analysts say the government would struggle to prevail over widespread and determined opposition, especially in the west. But plenty of blood could potentially be spilled along the way.
“This week we realised it isn’t easy to resist when you’re not armed and you are facing people who are using real bullets,” said Mr Haran.
Ukraine Leader Denounces Coup
Reuters: Ukraine leader denounces coup bid, West readies sanctions.
Ukrainian President Viktor Yanukovich accused pro-European opposition leaders on Wednesday of trying to seize power by force after at least 26 people died in the worst violence since the former Soviet republic gained independence.
The White House urged Ukraine to pull back riot police, call a truce and talk to the opposition. But the Ukrainian security services said they were launching an "anti-terrorist operation" across the country after the seizure of government buildings, arms and ammunition dumps by "extremist groups".
Protesters have been occupying central Kiev for almost three months since Yanukovich spurned a far-reaching trade deal with the EU and accepted a $15-billion Russian bailout instead.
The sprawling nation of 46 million, with an ailing economy and endemic corruption, is the object of a geopolitical tug-of-war between Moscow and the West. That struggle was played out in hand-to-hand fighting through the night, lit by blazing barricades on Kiev's Independence Square, or Maidan. As dusk fell on Wednesday, protesters braced for more police action.
After a night of petrol bombs and gunfire on Independence Square, black smoke billowed from a charred trade union building that protest organizers had used as a headquarters.
When fighting subsided at dawn, the square resembled a battle-zone, the ground charred by Molotov cocktails. Helmeted young activists used pickaxes, and elderly women their bare hands, to dig up paving to stock as ammunition.
Amid a tense standoff in the central Kiev square, thousands of protesters, many masked and in combat fatigues, confronted police across makeshift barricades for a second straight day.
Priests intoned prayers from a stage while young protesters in hard-hats improvised forearm and knee pads to protect themselves against baton blows. Others prepared petrol bombs.
"They can come in their thousands but we will not give in. We simply don't have anywhere to go. We will stay until victory and will hold the Maidan until the end," said a 44-year-old from Ternopil who gave only his first name of Volodymyr.
Ukraine has been rocked periodically by political turmoil since independence from the Soviet Union more than 22 years ago, but it has never experienced violence on this scale.
Debt Default Contagion
Financial Times: Violence increases fears of debt default contagion
The worsening violence in Ukraine is adding to the strains on emerging markets, as investors weigh the risks to neighbouring economies and the potential for a Ukrainian debt default to trigger a renewed sell-off in the assets of other countries.
The chaos unfolding in Kiev hit central and eastern European currencies on Wednesday, with Poland’s zloty falling 0.5 per cent to 4.1478 against the euro. Hungary’s forint, already under pressure from persistently dovish monetary policy, fell about 1 per cent to 227.43 against the dollar, while the Romanian leu slipped 0.6 per cent. Fears over Ukraine also exacerbated a sharp fall in Russia’s rouble.
Donald Tusk, Poland’s prime minister, urged the country’s parliament “to prepare Poland and Europe for the most dramatic possibilities”, in a speech that showed the degree of concern felt in the country most directly exposed to Ukraine’s turmoil.
“The implications for neighbouring countries should not be underestimated,” said Simon Quijano-Evans, head of emerging market research at Commerzbank,” noting that investors had previously underplayed the risks of unrest around the Arab world.
“A default could have a destabilising impact,” said Koon Chow, head of emerging markets strategy at Barclays Capital. Ukraine could only be a trigger for a return of gloom to emerging markets – but with emerging markets still fragile after the last month’s sell-off, and political crises deepening from Venezuela to Thailand, “we didn’t need much”.
On behalf of Mish readers globally, I send best wishes to the citizens of Ukraine.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/spotlight-on-ukraine-riots-in-kiev.html#dsU2EftbaPFDeuM0.99
Inquiring minds just may be wondering "Is Chicago Mayor Rahm Emanuel a Friend of Taxpayers or Businesses?"
In case you are wondering, please consider what Illinois Policy Institute writer Jacob Huebert says via email.
Chicago Mayor Rahm Emanuel recently proposed an ordinance that would regulate popular ride-sharing services such as Uber and Lyft in Chicago.
Emanuel often claims that he wants Chicago to be friendly to new businesses, innovation and technology. Unfortunately, his proposal is anything but friendly to these “transportation network” services, and would force them to either severely change the way they operate or leave the city entirely.
Where other cities have changed their laws to accommodate these new services, Chicago appears determined to continue using the law to protect established taxi companies from competition at everyone else’s expense.
Here are seven of the proposal’s worst anticompetitive features.
1. Ride-share companies can’t own vehicles – or help drivers buy them
One provision of the ordinance says that the operator of a ride-share service cannot “own, provide financing for the obtaining, leasing, or ownership of, or have a beneficial interest in transportation network vehicles.”
As it stands, neither Uber nor Lyft actually owns any cars or employs any drivers – they just bring drivers and passengers together. But who’s to say some future entrepreneur won’t find a way to make it economical for the “network” to also own vehicles or help its drivers buy them? And how does preemptively banning this help the public? In fact, it doesn’t do anything for the public; it’s just a way to stop ride-sharing companies from finding new ways to outcompete established taxicab companies.
2. No taxis allowed
Currently you can use Uber to summon three types of vehicles: black luxury cars, taxis and budget “UberX” cars. The taxis you can hail with Uber are normal, licensed Chicago cabs, and drivers have signed up to participate; it’s no different from calling for a cab by telephone or flagging one down on the street, except that it’s much more convenient.
The proposed ordinance would eliminate the taxi option for Uber customers by prohibiting taxis from participating in licensed transportation networks. How that could possibly benefit the public is a mystery. If the city adopts this rule, it will be destroying something that makes everyone’s lives easier for no good reason.
3. No advertising
Under the ordinance, advertisements wouldn’t be allowed on the inside or outside of vehicles. In the short term, that might not matter because, as things stand, Uber black cars, UberX cars and Lyft cars don’t have any ads in them or on them; only taxis have ads.
But maybe Uber, Lyft or a future service will want its cars to have ads. And maybe some customers wouldn’t mind seeing ads, especially if it meant cheaper fares.
Apparently the city wants to give taxis a monopoly on the vehicle-advertising business. That not only doesn’t serve a legitimate governmental purpose; but it also violates the First Amendment.
4. No airport drop-offs
Uber and Lyft cars already aren’t allowed to make airport pickups. Under the new ordinance, they wouldn’t be allowed to drop off passengers, either. This, of course, serves no purpose except to protect taxi companies from competition.
5. No time-and-distance pricing
Perhaps the proposal’s worst feature is that it would prohibit Uber and Lyft cars from charging passengers based on “a combination of distance travelled and time elapsed during service,” which is how they charge customers now. Instead, the cars would have to charge a prearranged flat fee or charge customers based on either time or distance – but not both.
That’s nonsensical. It’s only rational to charge customers based both on time and distance, because both affect the driver’s costs, and there’s no way to account for traffic conditions in advance. That’s why taxis charge based on both time and distance – and it’s why taxi companies don’t want Uber and Lyft to be able to use this method for charging customers.
6. Mandatory emblems
The ordinance would also require all cars in a given network to have an “emblem” on the outside of their car to identify which network they’re in. Lyft already does this with its cars’ pink mustaches. Uber, however, doesn’t – and its black cars’ logo-free appearance is part of what gives Uber cars their distinct cool, classy vibe.
Forcing Uber to add a logo serves no legitimate purpose. Customers don’t need a logo to identify their Uber car for several obvious reasons: (1) the Uber app shows them their driver’s name and picture, along with the car’s license plate number; (2) the Uber app lets the customer see where the car is on a map when it’s on its way and when it arrives; and (3) Uber drivers identify themselves upon arrival and confirm that they have the correct passenger.
So the only purpose of this requirement is to make Uber cars a little less special – that is, once again, to hamper competition for the taxi companies’ benefit.
7. Big Brother-style GPS tracking
The ordinance would also require the networks to allow the city to monitor all of their vehicles at all times by GPS. But the city has no legitimate need to know where every Uber or Lyft driver is at all times – let alone where their passengers go. If the city needs particular GPS information for a law-enforcement purpose – if, say, a car was implicated in a crime – it can always get a warrant for that data.
Citizens should be disturbed by this invasion of privacy, which violates the Fourth Amendment’s protection against unreasonable searches and seizures.
Citizens should also be disturbed by a city government that’s more concerned about pleasing a politically connected special-interest group than in letting consumers choose the services they like best. And they should be disturbed that government officials are more interested in continuing cronyism for as long as possible than in letting Chicago thrive in the 21st century.
Chicagoans should demand that city officials either remove these features from the proposed ordinance or, better yet, scrap it entirely and replace it with one that simply declares that these transportation services are legal and may continue operating as they have been.
Liberty Justice Center
Is Chicago Like France?
Unfortunately, the answer is yes, if not worse.
For sake of comparison, please consider the New Law in France: Limos Must Wait 15 Minutes Minimum Before Picking Up Rides
To explicitly answer my lead question, Mayor Rahm Emanuel is no Friend of Taxpayers. Rather Emanuel is a friend of political cronies who undoubtedly contribute to his election campaign.
But hey: Chicago is the "City that Works". The question is "For Whom?"
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/is-chicago-mayor-rahm-emanuel-friend-of.html#hhqVvg5AQgVBpejp.99
Prices of many goods in Argentina soared in the past two weeks. US brands are at the forefront of the action. Via translation from Lanacion, In two weeks, Warehouse Prices Rose 30%, with mayonnaise, cookies, and coffee leading the way. Officially, prices are up 3.3%. In reality, prices are up 30%.
According to official data, the price of food and beverages was up 3.3%. A tour of various supermarkets in the city of Buenos Aires, found escalating inflation is much higher in stock products, perfumery and milk.
Here are some price increases from the article. Please use relative price increases. They use the $ symbol for pesos.
Currency Devaluations Hit P&G Earnings
Inquiring minds may be wondering how this affects earnings of US multinational corporations.
Forbes explains Venezuela, Argentina Currency Devaluations Hit P&G Expected Sales And Earnings.
Retail investors aren’t the only ones suffering from the woes of the emerging markets: Procter & Gamble PG +2.06% is feeling the pain of foreign currencies, too. Due to devaluations in currencies like the Venezuelan bolivar, Argentine peso and Turkish lira, to name a few, the consumer product giant said that it is lowering its outlook for its full-year 2014 sales and earnings.
P&G, which in January announced second quarter earnings results that were already feeling the ill effects of foreign exchange rates, said Tuesday afternoon that it would incur a charge between $230 million and $280 million, or 8 cents to 10 cents per share, a one-time charge resulting from revaluing its Venezuelan balance sheet in the wake of a change in the way the Venezuelan bolivar is valuated. Venezuela uses a de-facto dual-exchange rate system, but policy changes recently enacted by the Venezuelan government are affecting the way that certain imports — i.e, certain P&G products — are exchanged.
Specifically, the policy changes dictate that the state-run currency rate between the bolivare and the dollar is now 11.4 bolivares per one U.S. dollar; P&G, meanwhile, had calculated the value of its foreign transactions using the other, 6.3-bolivare-per-USD rate, thus the near-$300 million charge P&G now expects to incur on its third quarter balance sheet.
In reevaluating its outlook, P&G also took into consideration the recent devaluation of the Argentine peso, Turkish lira, South African rand, Russian ruble, Ukrainian hryvnia and Brazilian real. Of the group, the Argentine peso has proven the biggest problem, declining 20% to 8 pesos per dollar.
All told, P&G’s full-year sales growth forecast is 2%, down from a prior range of 3% to 4% for fiscal year 2014. The company also lowered its earnings-per-share growth forecast to 3% to 5%, down from prior guidance of 5% to 7% growth.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/two-week-price-inflation-in-argentina.html#3dMRrB9lcvzJIDPG.99
If you repeat something completely inane enough times, do people, even economic writers, believe it?
To understand the context of my question, please consider the Bloomberg article Price Slowdown for Cars, Baby Clothes Raises Fed Concerns by Michelle Jamrisko and Ilan Kolet.
Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve’s drive to guide the economy away from the precipice of deflation.
The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg.
The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring.
Emphasis in red is mine.
In the following discussion, except where prefixed, the term "deflation" means a drop in consumer prices (even though that is a miserable definition).
I use that definition for point-of-discussion purposes only, simply to show the ridiculous nature of widely held beliefs.
"A persistent drop in prices prompts households to delay purchases in anticipation of even lower costs" say the authors of the above article.
I have heard that theory expressed hundreds, if not thousands of times. I suggest a reality check.
Reality Check Questions
Other than meaningless examples like waiting a few days for known sales, can anyone come up with anyconsumer item that people will delay purchasing simply because prices are falling?
Except in cases of extreme inflation or hyperinflation, I take the opposite view.
I propose people will delay purchases if prices are too high and/or they think they cannot afford something.
Take the worn-out coat as an example. If prices are too high, some will consider making that coat last another year. Perhaps they get the coat, but not the hat they also wanted.
Unless wages keep up, people can only spend what they make or what they can get credit for.
Where's the Evidence?
I cannot come up with a single consumer item that people will routinely delay purchasing simply because prices are falling. Can you?
Is there any hard evidence that shows people significantly delay purchases (other than asset purchases) when prices fall? (Please don't respond with insignificant delays ahead of pre-announced sales or year-end car clearances).
Even if people did delay consumer purchases (which they don't), why would it matter? Can People delay forever?
Asset prices, especially financial assets and real property, are another story.
People, especially those in debt, will indeed delay purchasing real estate if they expect better prices next year. History also shows people are reluctant to buy stocks and bonds if they fear lower prices.
Both of those are significant, but neither is represented in the CPI.
Corollary: People like bull markets in equities and bonds no matter how ridiculous the price.
PEs to Consider
Amazon: AMZN : The PE of Amazon is 592, Valuation is $160 Billion
Linked In: LNKD : PE of Linked In is 837, Valuation is $23 Billion
Facebook : FB: Facebook PE is 106, Valuation is $165 Billion
Priceline : PCLN : PE of Priceline is 36, Valuation is $64 Billion
Hertz : HTZ: PE of Hertz is 37, Valuation is $12 Billion
Starbucks : SBUX : PE of Starbucks is 483, Valuation is $57 Billion
Boston Beer (Samuel Adams) : SAM : PE of Boston Beer is 43, Valuation is $3 Billion
I could go on and on but I won't.
At current earnings, investors in Amazon will have to wait 592 years for a positive return on earnings. More realistically, they would have to wait forever because Amazon does not pay a dividend.
In the above list, the only company that pays a dividend is Starbucks, and it is a paltry 1%.
The only thing those companies have going for them is investors are willing to bid up asset prices to preposterous heights.
Why Inflation is Severely Understated
Krugman and others lord it all over those who predicted massive price inflation. I did too, and still do!
Along with Krugman, I laugh at those expecting a huge outbreak of "price inflation". Unlike Krugman, I understand what is going on.
The fact is, we currently have massive inflation. However, instead of inflation being visible in the form of higher consumer prices, inflation is visible in the form of asset price bubbles.
To see inflation, all you have to do is open your eyes and look at lofty valuations of stocks and bonds.
Deflation Coming Up
Don't hold your breath waiting for a surge in "inflation". We already had it. Instead, expect various equity and corporate bond bubbles to implode.
With the busting of various bubbles, asset prices will drop, and so will credit marked-to-market on any loans banks made on those asset bubble. So rather than expecting a huge surge in inflation, I expect deflation in terms of credit and prices.
Misguided Fed Policy
In an absurd attempt to prevent price deflation on consumer goods, the Fed has spawned asset bubble after asset bubble, each with a greater amplitude.
Given exceptionally poor jobs and wage growth, the very thing consumers need to survive is falling prices!
Yet, the Fed tries to prevent just that, all based on the idiotic premise "A persistent drop in prices prompts households to delay purchases in anticipation of even lower costs".
Feel Good Effect
Bubbles make people feel wealthy, and that exuberance spawns all sorts of poor economic decisions about what people can afford.
When asset bubbles collapse (as they always do), that's when people finally realize they spent too much and pull in their shopping horns.
Those expecting a huge pickup in price inflation, a spike in US GDP, or a big boom in housing, all based on misguided perceptions of "pent-up housing demand" or equally misguided theories about "excess reserves", fail to understand how Fed boom-bust and bank-bailout policies preclude such outcomes.
Further Deflation Discussion
For further deflation discussion please see ...
The Fed's attempt to spur inflation in a deflationary world causes the very thing the Fed fears most (an economic slowdown caused by a collapse in asset prices). In turn, a collapse in the valuation of assets causes bank losses and reduces desirability and even ability of banks to lend.
The Fed is fighting the wrong battle. It's a collapse in asset prices (not consumer prices) that will restrict bank lending and cause consumers to hold off on consumer purchases.
The only correct approach is to not spawn bubbles in the first place. (Please see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?)
Return of Deflation
The current "feel-good" effect will not last forever, look out below when it wears off. Deflation, in terms of consumer prices, asset prices, and credit will return.
Misguided Fed policy ensures that outcome.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/deflation-theory-reality-check-why.html#osQwwECUK5idGmH1.99
The inevitable shape-of-things-to-come has finally arrived in a major California city. I am pleased to report Voters in bankrupt San Bernardino sweep old guard from power.
Residents of bankrupt San Bernardino, California on Tuesday voted to complete a rout of the city's pro-union old guard, electing business-friendly pragmatists who have pledged to try to reduce pension costs and take on vested interests.
As San Bernardino enters into a fourth month of mediation with its creditors, the biggest of which is Calpers, California's giant retirement system, voters on Tuesday elected Carey Davis as the crisis-hit city's new mayor.
Davis, a businessman and political novice, ran in part on a campaign to reduce the city's pension obligations. In an interview in November, when he became one of two mayoral candidates, he said the city had to cut spending on police and fire departments, currently more than 70 percent of the budget.
"You have to roll the pensions back," Davis said in November. Davis did not return calls on Wednesday.
Davis will play a big role in how the city approaches negotiations with its creditors. He will be part of a small team of elected officials who represent the city as the debtor in the bankruptcy.
Along with Detroit, the biggest U.S. city to seek Chapter 9 protection, San Bernardino is likely to set precedent on whether retirees or Wall Street bondholders suffer the most when a city goes broke.
Davis defeated a San Bernardino political veteran, Wendy McCammack. She ran for mayor despite having been ousted by voters from her own council seat in a recall election in November.
Also on Tuesday, another political novice, Henry Nickel, became a new council member, saying he wanted to take on special interests. Nickel's biggest challenger was Randy Wilson, a police sergeant endorsed by the police union, the only candidate for that seat who did not support pension reform efforts.
Tuesday's results follow elections in November, when the balance of power in San Bernardino's seven-member council shifted dramatically away from an old guard reluctant to take on unions and reduce pension obligations.
After Tuesday night, six of seven council members are now on record as saying they want to explore reducing San Bernardino's pensions, along with Davis, the new mayor, and a new city attorney, Gary Saenz.
Expect a Hard Line On CalPERS
This kind of broad sweep eventually had to happen. I am not sure why it took so long, but even Taxifornia is finally fed up with public unions and the damage they cause. One bankrupt city after another will go this route.
Mike "Mish" Shedlock
Read more at http://globaleconomicanalysis.blogspot.com/2014/02/residents-of-bankrupt-san-bernardino.html#sLWYzVmMWPHKo0OY.99
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