Merry Christmish

[JayB]

Predictions for 2011 from Mike "Mish" Shedlock. Making predictions is difficult, particularly about the future - but I suspect that at the end of 2011 this list will be more right than wrong. We'll see.

 

"Ten Economic and Investment Themes for 2011

 

1. US Municipal Bankruptcies Head to Center Stage

 

Look for Detroit and at least one other city in Michigan to go bankrupt. Also look for increasing discussions regarding bankruptcy from Los Angeles, Miami, Oakland, Houston, and San Diego. Those cities are definitely bankrupt, they just have not admitted it yet. The first major city to go bankrupt will cause a huge stir in the municipal bond market. Best to avoid Munis completely.

 

2. Sovereign Debt Crisis Hits Europe

 

The ECB and EU are hoping things return to normal and they can deal with things more calmly in 2013. The markets will not wait. Expect a new Parliament in Ireland to want to renegotiate whatever horrendous deal Prime Minister Brian Cowen agrees to. Portugal and Spain will need bailouts. The surprise play in Europe will be Italy, a country not on anyone's front burner. Italy will come under intense credit market pressure, and when it does the whole Eurozone comes unglued. Europe's banks are insolvent and ECB president Jean-Claude Trichet will have a choice, haircuts or massive printing.

 

3. Cutbacks in US Cities and States

 

With Republican governors holding a majority of governorships, with Republicans holding a majority in the House, and with a far more conservative Senate, there is going to be little enthusiasm for increasing aid to states. There will be some aid to states of course, but nowhere near as much as needed to prevent cutbacks. Expect to see a huge number of layoffs and/or cutbacks in services. Cutbacks in cities and states will be a good thing, but that will counteract other gains in employment. The unemployment rate will stay stubbornly high.

 

4. Public Unions Under Intense Attack

 

Public unions will face increasing hostility, not only in the US but also the Eurozone and UK. Look for Congress to consider legislation to kill collective bargaining. If it passes, the president would veto it. The problem however will not go away. Cities and states in distress will increasingly outsource every contract they can.

 

5. China Overheats, Multiple Rate Hikes Coming

 

China, everyone's favorite promised land, has a hard landing. China will grow at perhaps 5-6% but that is nowhere near as much as China wants, or the world expects. Tightening in China will crack its property bubble and more importantly pressure commodities. The longer China holds off in tightening, the harder the landing.

 

6. Property Bubble Bursts Wide Open in Australia and Canada

 

Australia, having largely avoided the global recession runs out of luck this time around. Look for the Australian economy to fall into outright recession. Look for Canada to slow dramatically as its property bubble pops. The US property bubble is much further progressed, by years, than Australia, Canada, and China. This matters immensely.

 

7. US Avoids Double Dip

 

The tax cut extensions and the payroll tax decrease will keep the US out of recession. However, growth estimates are still too high. The tax cut extensions do nothing more than maintain the status quo while the payroll tax deduction is just for a year. Most will use it to pay down bills. Look for GDP at 2.0-2.5%. That is the stall rate.

 

8. Year That Something Matters

 

For the global equity markets, this will be the year that something matters. Certainly nothing mattered in 2010, and optimism for equities is at extreme levels. I have no targets other than a suggestion this is an extremely poor time to invest in darn near anything.

 

9. Decoupling in Reverse

 

I do not think any countries decouple in 2011, including China. However, on a relative basis, the US could. Europe is a basket case, China is overheating, Australia is headed for recession, the UK is going nowhere, and 2.0-2.5% growth in the US just might look damn good compared to anything else. Bear in mind far more than 2.0-2.5% US growth is priced in, but on a relative basis that is likely to smash the performance of the Eurozone, Australia, and Canada. China may grow 5.0-6.0% but with 10% priced in, overweight China, the emerging markets and the commodity producing countries is a serious mistake. Actually, equities are a mistake in general and so are commodities. Finally, falling commodity prices would be US dollar supportive and supportive of a decreasing US trade deficit as well, especially if grain prices stay high while oil sinks. Should grains stay firm while other commodities sink, it would help boost US GDP.

 

10. US Dollar to Strengthen

 

Look for the US dollar to strengthen because of the net effect of all the above issues."

[Kimmo]

And what is your 6 month outlook for 10 year treasuries? they've been hammered for three weeks straight now.

[Fairweather]

I like #4. It has gotta happen soon.

[Kimmo]

[video:yahoo]http://www.mortgagenewsdaily.com/channels/video/190626.aspx

[Off_White]

I like #4. It has gotta happen soon.

 

It's prognostication, not a smorgasbord. You don't get to choose the ones you like.

 

"Can I get seconds on the union busting?"

 

"No, shut up and pay for Tacoma's bankruptcy you tool."

 

 

[prole]

"No, shut up and pay for Tacoma's bankruptcy you tool."

 

And why not? Tacoma, like working Americans, has been absolutely basking in the prosperity created by the boom. Time to give it back folks.

[olyclimber]

[video:youtube]4CgT4N0zU1M

[JayB]

And what is your 6 month outlook for 10 year treasuries? they've been hammered for three weeks straight now.

 

Good question.

 

Seems like the sheer volume of debt we're issuing and anxiety about the long-term fiscal picture here is putting upward pressure on yields, and the "tallest midget in the room" phenomenon vis-a-vis debt issued by folks in the Eurozone is putting downward pressure on yields as all of the folks with real-savings look for a safer place to park their money.

 

All I've really concluded is that I don't have what it takes to do anything but hunker down and hope that the purchasing power of the dollar remains relatively steady.

 

The guy below (guy who scrutinized Enron's books and led the short-selling charge) has some interesting thoughts on China:

 

http://www.charlierose.com/view/interview/10960

 

[j_b]

GOP Kills Bonds Program: Secret Plan to Bankrupt States, Bust Public Employee Unions?

Posted by Art Levine on @ 6:02 pm

 

The tax deal that passed Congress doesn’t just cost the federal government $850 billion in lost revenues. It also pushes state governments closer to defaulting on loans by failing to extend a federal subsidy program for states that has allowed them to raise billions and avoid bankruptcy. Cash-strapped state such as California and Illinois could indeed default on their loans, which would also cause the vital market in municipal bonds to plummet, a trend already underway.

 

So with states across the country facing a $140 billion shortfall next year, some experts and union advocates also see the GOP opposition to extending the bonds subsidy –despite its support from even some Republican mayors and governors — as part of a broader scheme to bust public employee unions and wipe out pensions.

 

 

http://blogs.alternet.org/speakeasy/2010/12/17/gop-kills-bonds-program-secret-plan-to-bankrupt-states-bust-public-employee-unions/

 

[Fairweather]

I like #4. It has gotta happen soon.

 

It's prognostication, not a smorgasbord. You don't get to choose the ones you like.

 

"Can I get seconds on the union busting?"

 

"No, shut up and pay for Tacoma's bankruptcy you tool."

 

 

Not union busting--public employee union busting. If your big gummint daddy is as benevolent as you believe, there should be no reason for public sector unions to hold the rest of us (read: the private sector) over a barrel for extravagant pensions and benefits--or to even exist.

[j_b]

better benefit packages in the public sector was explicitly understood to be a trade off for lower wages. Funny how regressives forgot that part, where public employees on average earned less than private sector employees but got better benefits and better job security. Of course, now that they forced private sector employees to compete with sweat shops from the land of the bottom cost so their effective wages haven't increased in 30 years, they claim that public employees earn too much. freaking hypocrites.

[JayB]

I like #4. It has gotta happen soon.

 

It's prognostication, not a smorgasbord. You don't get to choose the ones you like.

 

"Can I get seconds on the union busting?"

 

"No, shut up and pay for Tacoma's bankruptcy you tool."

 

 

Not union busting--public employee union busting. If your big gummint daddy is as benevolent as you believe, there should be no reason for public sector unions to hold the rest of us (read: the private sector) over a barrel for extravagant pensions and benefits--or to even exist.

 

 

Anyone defending public sector unionization should consider what Fiorello LaGuardia, FDR, and George Meany thought of the idea.

 

How, exactly, does the unionization of public employees, already covered by civil service rules, benefit the public?

[AlpineK]

[video:youtube]

[JayB]

better benefit packages in the public sector was explicitly understood to be a trade off for lower wages. Funny how regressives forgot that part, where public employees on average earned less than private sector employees but got better benefits and better job security. Of course, now that they forced private sector employees to compete with sweat shops from the land of the bottom cost so their effective wages haven't increased in 30 years, they claim that public employees earn too much. freaking hypocrites.

 

Strong argument if the highest function of tax money is to provide government employees with the most comfortable, secure living that the taxing/borrowing capacity can support.

 

Not terribly convincing if the highest function of tax revenues is to deliver services that no other institution in society can as efficiently as possible.

 

I'm sure the guy taking ferry tickets in a booth for $18+ dollars an hour in pay, plus the value of his benefits, plus the future costs of his pension - likes the deal he's getting.

 

I'm also sure that the savings from automating that position or contracting it out to whomever is willing and qualified to sit in a booth and issue tickets, for whatever it costs to employ them - would be much better spent on funding the basic health plan, keeping borderline psychotic transients on their meds, etc, etc, etc, etc.

 

 

 

 

[j_b]

Reading JayB ask what is better for the public good is nauseating enough but he still hasn't understood that once everybody earns the minimum wage there won't any money for services.

[JayB]

Reading JayB ask what is better for the public good is nauseating enough but he still hasn't understood that once everybody earns the minimum wage there won't any money for services.

 

Of course - 97% percent of the private sector workforce, ~93% of which is non-unionized makes more than the minimum wage, and your claim pre-supposes that everyone currently working for the government would continue doing so for minimum wage - so that's certainly a strong argument.

 

Now that you've established that the only thing standing between the present and a future in which everyone is earning the minimum wage are public sector unions, you can identify the many other ways in which the unionization of public sector employees benefits the public.

[j_b]

you still refuse to acknowledge that effectively competing with people making a few dollars a day, without accounting for environmental degradation, implies there won't be a tax base to pay for services. But, please, keep focusing on the details to build your strawman rather than address the concepts.

[ivan]

i've lived and taught in two states, one w/ a very strong teachers union (wa), two w/o (va & nc) - not sure as how either system shows the other up - no signficant difference between the two that i've seen as a worker, or a taxpayer

[Kimmo]

Seems like the sheer volume of debt we're issuing and anxiety about the long-term fiscal picture here is putting upward pressure on yields, and the "tallest midget in the room" phenomenon vis-a-vis debt issued by folks in the Eurozone is putting downward pressure on yields as all of the folks with real-savings look for a safer place to park their money.

 

No one was buying treasuries. stagnant. hence, higher rates. why? a lot of talk about the recovery taking hold, giving better yields in other markets? so i read.

 

 

QEII doing nothing because it was already priced into the markets months ago on initial rumors?

 

i personally have no friggin idea where treasury (and mortgage) rates will go in the near future. my feeling is that they will stabilize near current rates or climb a bit higher, testing the recovery, if you will. then the feds will shift to mortgage backed security purchasing, if rates don't pull back a bit....

[Fairweather]

i've lived and taught in two states, one w/ a very strong teachers union (wa), two w/o (va & nc) - not sure as how either system shows the other up - no signficant difference between the two that i've seen as a worker, or a taxpayer

 

I suppose you could look at student achievement as one metric. My guess is that an inverse correlation exists.

[Fairweather]

[ivan]

i've lived and taught in two states, one w/ a very strong teachers union (wa), two w/o (va & nc) - not sure as how either system shows the other up - no signficant difference between the two that i've seen as a worker, or a taxpayer

 

I suppose you could look at student achievement as one metric. My guess is that an inverse correlation exists.

i'm sure jay would love to lend a hand and crunch what metrics exist to compare the 3 states i listed - your guess is just that, a guess - firsthand, i know that its damn easy to game a metric, and practically anybody can show progress so long as they're not total retards - but does what you're measuring even make sense? and how exactly? my last year in va i got 100% of my kids (who were 100% free and reduced lunch) to pass a state test where the passing grade was something like a 35% for a 4 question multi-choice format! i was hailed as a genius but fled the state for the promised land anyhow but seriously, tell me what meaningful analysis springs from that? how does that make for hallowed macroeconomic/political digestion? the reality of education is much more complicated and silly

[mattp]

I'm sure the guy taking ferry tickets in a booth for $18+ dollars an hour in pay, plus the value of his benefits, plus the future costs of his pension - likes the deal he's getting.

 

Question for Jay: does the guy in the ferry booth earn $18+ an hour or is this like your bus driver example? I really don't know, but I'd be surprised (and agree with you that it is excessive) if that is the prevailing wage for toll booth attendants.

[JayB]

Name Position Agency Pay Type Fulltime Percentage Base PayDescending

PAULA M TICKET SELLER/A Department of Transportation Hourly 100 $23.83

AMANDA TICKET SELLER/A Department of Transportation Hourly 100 $23.83

BETTY L TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DONALD E TICKET SELLER/A Department of Transportation Hourly 100 $23.83

KRISTEN A TICKET SELLER/A Department of Transportation Hourly 100 $23.83

LEWIS H TICKET SELLER/A Department of Transportation Hourly 100 $23.83

TERRIE TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DOROTHY A TICKET SELLER/A Department of Transportation Hourly 100 $23.83

GENEVIEVE J TICKET SELLER/A Department of Transportation Hourly 100 $23.83

AMY M TICKET SELLER/A Department of Transportation Hourly 100 $23.83

JESSICA M TICKET SELLER/A Department of Transportation Hourly 100 $23.83

RONELL S TICKET SELLER/A Department of Transportation Hourly 100 $23.83

IRENE TICKET SELLER/A Department of Transportation Hourly 100 $23.83

TARESA M TICKET SELLER/A Department of Transportation Hourly 100 $23.83

ERNEST E TICKET SELLER/A Department of Transportation Hourly 100 $23.83

NANCY C TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DELORES E TICKET SELLER/A Department of Transportation Hourly 100 $23.83

LORI A TICKET SELLER/A Department of Transportation Hourly 100 $23.83

LISA A TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DANIEL M TICKET SELLER/A Department of Transportation Hourly 100 $23.83

CARLOS C TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DANA R TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DEBORAH L TICKET SELLER/A Department of Transportation Hourly 100 $23.83

DONALD R TICKET SELLER/A Department of Transportation Hourly 100 $23.83

CAROLE D TICKET SELLER/A Department of Transportation Hourly 100 $23.83

 

Etc, etc, etc......

 

http://www.thenewstribune.com/soundinfo/statesalaries/

[JayB]

Not sure what the average is - but something tells me you could staff the ticket booths with people who are qualified to sit in a booth and hand people tickets...for far less than the state is currently paying in wages, benefits, and pensions.

 

I can also think of quite a few other, more socially beneficial things that the state could be doing with tax revenues.