State Takeover of Pennsylvania State Capital Harrisburg Likely Coming Up as City Council Rejects Mayor's Fiscal-Recovery Plan

State Takeover of Pennsylvania State Capital Harrisburg Likely Coming Up as City Council Rejects Mayor's Fiscal-Recovery Plan

Harrisburg, Pennsylvania is bankrupt and has been for years. Instead of recognizing that simple fact, the mayor and most of the city council have been looking for miracles.

There are no miracles and there will be no miracles. Fortunately, and at long-last, the city council rejected Mayor Linda Thompson's scheme of selling city assets to deal with debt issues.

Harrisburg now faces a state takeover.

Please consider Harrisburg City Council Rejects Fiscal Plan to Rescue Pennsylvania Capital
Harrisburg’s City Council rejected a fiscal-recovery plan proposed by Mayor Linda Thompson, putting state aid at risk and leaving Pennsylvania’s capital in financial limbo.

By a vote of 4-3, the council turned down the mayor’s blueprint, which called for asset sales. The proposal wouldn’t provide a guaranteed fix of the city’s debt problems and, by selling off assets, raised the possibility of higher taxes later, said Councilman Brad Koplinski.

“It is a plan, yes, but it’s an unreliable one,” Koplinski said. “It’s making sure that Wall Street gets paid and Main Street gets the shaft.”

The decision means the city has no procedure to deal with more than $300 million of debt, or five times its general-fund budget. Harrisburg helped finance improvements to a municipal incinerator that hasn’t generated enough revenue to pay its costs. The city of about 49,500, where a third live below the poverty level, may skip a $3.3 million payment next month.

The move may hasten a state takeover, Councilwoman Patty Kim said last week.
Inquiring minds note that the Patriot-News Editorial board says Harrisburg should approve flawed Act 47 plan because a state takeover will be even worse

The real question for Harrisburg City Council tonight when it votes to accept or reject Mayor Linda Thompson’s fiscal recovery plan is whether local control or a state takeover is better for city residents.

A yes vote on the plan means local officials will lead with help from the state and county. A no vote means that what happens in Harrisburg will be left to either a state-appointed panel or the courts.

There is certainly plenty to dislike in Mayor Linda Thompson’s plan. It is horrendously written with many grammatical errors. The mayor also added new initiatives that are not fully vetted or clearly funded, such as the blight program.

Perhaps the biggest concern to most taxpayers is the property tax increase. It is likely to be higher than $50 a year for the average homeowner. That is a best-case scenario if assets are sold, union contracts renegotiated and hundreds of little changes made.

But despite this plan’s flaws, what is the alternative?

The city’s creditors are pursuing lawsuits that would force Harrisburg to pay immediately.

Bankruptcy is off the table. The state is forbidding it for at least a year, and it’s almost certain the Legislature and governor would extend that ban.

The editorial board lacks common sense. Regardless of what anyone says, Harrisburg is bankrupt.

The citizens of Harrisburg certainly do not need higher taxes, and the city needs to get rid of a mayor who cannot type English sentences properly.

There simply is no alternative to bankruptcy and now the courts can and will deal with bondholders who refused to take proper haircuts and also deal with untenable public union contracts as well.

Moreover, one nice bankruptcy will lead to another, and another, exactly the relief cities need. Public unions will get what they have coming to them: slashed benefits and contracts tossed out by the courts.

What can possibly be better than that? Certainly not higher taxes.

Mike "Mish" Shedlock

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Obama Spent $535 Million on Solyndra Solar Energy Firm in 2010; Firm Went Bankrupt Today; Pricetag $486,363 Per Job Saved for 18 Months

The federal government should get out of the business of picking technology and "green" winners. Government backing of alternate energy companies has been nothing short of disastrous.

A solar energy firm touted by the administration in 2010 as a as a "gleaming example of green technology" today announced bankruptcy. 1,100+ employees will be fired.

Please consider Solyndra Filing a Disaster for Obama
President Obama faces political catastrophe in the form of Solyndra -- a San Francisco Bay area solar company that he touted as a gleaming example of green technology. It has announced it will declare Chapter 11 bankruptcy. More than 1,100 people will lose their jobs.

During a visit to the Fremont facility in spring of 2010, the President said the factory "is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. "

It's not his statements the administration will regret; it's the loan guarantees. The President was celebrating $535 million in federal promises from the Department of Energy to the solar startup. The administration didn't do its due diligence, says the Government Accountability Office. "There's a consequence if you don't follow a rigorous process that's transparent," Franklin Rusco of GAO told the website iWatch News.
Seen and Unseen

The "seen" math is simple enough. $535 million divided by 1,100 is roughly $486,363 per job saved, now job lost.

That is just the "seen" consequence. The "unseen" consequences are not directly calculable but by giving Solyndra money, other companies that the free market would have preferred have been harmed, perhaps permanently harmed.

Although Obama clearly rushed this pathetic company for a nice photo-op, this is not a simple case of the president failing to do his homework as the GAO implies. The government has no business promoting this kind of crap in the first place.

In this case, it is rather amazing how fast Solyndra wasted over half a billion US taxpayer dollars, so fast I suspect fraud.

In general, if companies cannot survive without government subsidies then they should not survive at all.

Solyndra could not survive even with massive government subsidies. The same happened to many ethanol companies as well. Speaking of which, taxpayers pay though the nose for ethanol subsidies and tariffs both at the pump and in the price of corn, in turn, the price of beef as well.

Mike "Mish" Shedlock

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Illinois Loses Most Jobs in Nation Following Tax Hikes

Thanks to Illinois governor Pat Quinn and the Illinois legislature Illinois Loses Most Jobs in the Nation
In a trend that continues to worsen, more Illinoisans found themselves unemployed in the month of July.

Illinois lost more jobs during the month of July than any other state in the nation, according to the most recent Bureau of Labor Statistics report. After losing 7,200 jobs in June, Illinois lost an additional 24,900 non-farm payroll jobs in July. The report also said Illinois’s unemployment rate climbed to 9.5 percent. This marks the third consecutive month of increases in the unemployment rate.

Illinois started to create jobs as the national economy began to recover. But just when Illinois’s economy seemed to be turning around, lawmakers passed record tax increases in January of this year. Since then, Illinois’s employment numbers have done nothing but decline.

When it comes to putting people back to work, Illinois is going backwards. Since January, Illinois has dropped 89,000 people from its employment rolls.

A combination of high taxes, overspending and red tape do nothing but chase away job creators and leave too many citizens without jobs. Springfield needs to act now and reverse course.
Inquiring minds may also wish to check out the foreclosure pipeline in Illinois, 7th worst in the nation at 128 months (over 10 years).

See First Time Foreclosure Starts Near 3-Year Lows, However Bad News Overwhelms; Foreclosure Pipeline in NY is 693 months and 621 Months in NJ for more details on the mortgage mess everywhere.

Illinois Unemployment Rises from 9.1% to 9.5% after Tax Hike

Please listen to CEO of the Illinois Policy Institute John Tillman on WLS AM on the Fiasco in Illinois. It is an excellent interview that gets much better as it progresses.

A tip of the hat to John Tillman for an excellent, must-hear interview.

I have little to add to this miserable report other than to emphasize Pat Quinn is the worst governor in the nation. He will not be re-elected. Unfortunately, taxpayers will suffer the consequences of his stupidity for the full length of his term.

Mike "Mish" Shedlock

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Three in 10 Workers Worry Over Layoffs, Double the Level in August 2008

If you are looking for the reason Consumer Confidence Plunged to 44.5, Lowest Since April 2009 the answer can be found in a recent Gallup poll regarding fear of being laid off.

Please consider In U.S., Worries About Job Cutbacks Return to Record Highs
American workers' concerns about various job-related cutbacks have returned to the record highs seen in 2009, after improving slightly in 2010. In terms of the most significant employment risk measured, 3 in 10 workers currently say they are worried they could soon be laid off, similar to the 31% seen in August 2009 but double the level recorded in August 2008 and for several years prior.

Separately, 30% of workers say they are worried their hours will soon be cut back, and 33% worry their wages will be reduced. An even larger number, 44%, worry their benefits will be reduced, making this the most prevalent job-related concern.

Workers are least likely to be concerned that their company will move jobs overseas; however, at 13%, this is by one percentage point the highest level of concern since Gallup began measuring it in 2003. Most of the five items tested are at or near record highs this year.
Why Only 13% Worry About Jobs Leaving Overseas?

Some may be wondering why so few worry about jobs leaving for overseas.

The answers are straight-forward.

  • So many have already lost their jobs overseas so they are no longer worried about it
  • Those working in government positions have no such fear
  • Those working at retail stores such as Pizza Hut, Nail Salons, Home Depot, the corner bar, and Walmart have no such fear
  • Those working in most healthcare positions, especially doctors and nurses have little fear for now even with medical tourism
  • Those working in education have little fear for now even though online education will someday instill that fear
  • Some simply do not understand the risks

Mike "Mish" Shedlock

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Morning Update/ Market Thread 8/31 - Clear the Debt or Wallow Edition…

Good Morning,

End of month dreams and QE fantasy are my versions of what is responsible for the hyper-manic-inflate-at-any-cost moronic mentality, which of course, has led to a fluffy higher feel not-so-good queasy kind of “market.” Along with the queasy fantasy of higher stocks (for the time being), the dollar is lower, bonds are higher (watch out), oil is slightly lower, gold slightly lower, silver is higher, and food commodities are flat this morning but still high enough to make one choke.

Oh sure, the media says the data is great! That’s why the stock market ramped all night long and into the morning, yeah, that’s the ticket… it was the ADP report, yeah… no, wait, it was the rumor of another bailout, yeah, that’s the ticket…

Hello, “Consumer” Confidence crashed yesterday, as in cratered for the month of August. It plunged from the last already depression era read of 55.9 (1985 = 100 on this scale), all the way down to only 44.5. For those who do math, that’s a 20% one month plunge to depths reserved for times of great fear and anxiety – a dim outlook of the future is definitely there. And guess what? Retail Sales follow Consumer Confidence fairly closely. Not that I believe the Retail Sales Index, but I do believe they track one another, and so take a look at this chart showing the two together. Look closely, and you’ll see that when consumer confidence falls, so too do sales:

Don't panic, but August is a cliff month, and as more economic reports come out for that month, I think the picture is going to be pretty ugly, even with trumped up data.

It was reported this morning that Canada’s Q2 GDP turned negative for the first time in two years, also not a good sign for the trend.

The completely hypocritical and morally reprehensible Mortgage Banker’s Association reported that Purchase Applications supposedly rose by .9% in the prior week, but that Refinancing Activity fell by a whopping 12.2 crazy % in just one week. Whatever, these guys are clowns, their reports belong in the trash, and you will almost always be better off by doing the exact opposite of what they suggest. Here’s Econocomplicit:


Rates are coming down but points paid are going up which the Mortgage Bankers Association says is pulling down volume of refinancing applications which fell 12.2 percent in the August 26 week. A plus is that the purchase index ended three weeks of heavy decline though with only a mild 0.9 percent gain. Rates are near 10-month lows, at 4.32 percent for 30-year lows for a seven basis point decline in the week. Points for 30-year loans increased to 1.30 from 0.88 (including origination fee) for 80 percent loan-to-value ratio loans.

Turning to Employment, the first report out for August is the Challenger Job-Cut Report which actually showed improvement, falling from 66,414 to 51,114. This report has not, however, correlated well with the actual Employment Report which comes out Friday, but it’s still used to set expectations for the clown brigade:


In what may be good news for Friday's employment report, layoff announcements slowed in August to 51,114 from July's 66,414. These data are not seasonally adjusted which clouds month-to-month assessments which are especially sensitive to seasonal change. But a look at year-on-year rates of change shows a slower rate of deterioration this month, to 47% against August 2010's level of 34,768 from 59% against July 2010's 41,676.

The report makes special note that announcements of government layoffs, centered in the military, are the heaviest of any sector this month. Challenger, Gray & Christmas, an outplacement firm that compiles the report, warns that federal layoffs, tied to the need to lower the deficit, are likely to remain heavy this year and through the next several years.

The semi-worthless ADP Report also is used to set expectations, and they are saying that Nonfarm Payrolls fell from 114,000 in July to 91,000 in August, of course July was revised down, and this report was way off the mark last month. I’m not 100% sure, but I suspect this report is a part of the manipulate the markets, profit from HFT swings, rob ordinary people blind, scheme that the Wall Street boys run on the public. I don’t trust this data, and I don’t trust them – hence I say I would rather give my money to a known convicted felon than these guys, at least with the felon the pretense is gone:


ADP is calling for a 91,000 rise in private payrolls for August, down from a revised total of 109,000 in July. Expectations for Friday's non-farm payroll headline are plus 67,000 which would be lower than July's 117,000. Markets are showing no significant initial reaction to today's report.


Chicago PMI and Factory Orders are set to come out just after the open.

Macroeconomic Debt Saturation is the diagnosis. The cause of the disease is giving private individuals the power to produce money from nothing, then allowing them to corrupt all systems with it.

The cure is certainly not more “stimulus,” nor is it more “quantitative easing” which the private crooks at Goldman and JPMorgan are calling for. No, the cure is to remove the debt saturated condition and if you don’t want it to return, then you must also remove the crooks. Japan did not learn that lesson, and there they sit, wallowing in an economic and nuclear wasteland. Wallowing in their own waste, literally.

Wallowing in our own waste is the good/optimistic version of what’s in our future if we fail to clean out the debt along with the roots of the problem.

Until we put the clowns to bed, put on your nuclear rose colored glasses and get real, because it’s easy come for the fluff, and soon it’ll be easy fluff go.

Seismic shifts rocking the tech business

Commentary: Fearful executives are scrambling to deal with change

By Therese Poletti, MarketWatch
SAN FRANCISCO (MarketWatch) — Over the weekend, pundits debated what motivated those on the East Coast who refused to evacuate their homes before Hurricane Irene struck, and whether they were fearless, stupid or just distrustful of authority.

A visitor plays with a tablet PC at the Intel booth during Computex in Taipei on May 31, 2011.
Perhaps the analogy is a stretch, but recent upheavals in the tech market could lead one to ponder whether it is better to stay and fight against conventional wisdom - or bail quickly at the first sign of trouble. In other words, the contrast in the approach of Research In Motion Ltd.RIMM -0.31% CA:RIM +6.44%   and Hewlett-Packard Co.HPQ -0.19%  .
The business for both personal computers and mobile phones is changing fast. PC demand is flat at best, with growth going to tablets like the iPad. Smartphones have shifted from being mobile email devices to web-surfing, media consuming all-in-one tools.
So far, RIM is proving to be the stubborn one, staying behind to guard the fort as the storm hits. Its line of keyboard-based BlackBerrys is looking more aged by the day against its sleeker touch-screen rivals, and both investors and customers are voting with their feet. But the company is effectively doubling-down on its bet, releasing a slew of similar-looking phones on a spruced up operating system this year in the hopes of keeping customers on board.

The purpose of the markets is to redistribute wealth from the many to the few

Yes, yes, I know what you are going to say … about how the markets allow corporations to raise capital in order to expand … yadda, yadda, yadda!
But, while this is a function of the markets, it is not the purpose. The purpose is to make a very few people very wealthy at the expense of the many. If the markets fail to fulfill this purpose, then the markets will cease to exist.
The wealth distribution takes place over very extended periods of time (decades, even generations). But, we see this concept operating over shorter time periods. Like the present, for example.
I believe the U.S. stock market has topped. I believe that the bear market we are entering will make a few people very wealthy at the expense of the many. The process is like the tide, coming in one wave at a time.
Some of the questions I ask myself often about any given market include:
  • How is this market going to best pick people’s pockets?

  • How will the market go about accomplishing this pocket picking?

  • How will the market impose the maximum penalty and pain on the maximum number of market participants (traders)?

  • What price action needs to take place to make the greatest number of market participants the most complacent?

Containers Slump to 50-Year Low as Sales Slow

The container-shipping industry is contending with the longest stretch of near-zero rates in its half-century history on the Asia-to-Europeroute, as a capacity glut combines with the slowest growth in trade since 2009.
Commerce on the world’s second-busiest container route rose 4.2 percent in the second quarter, the weakest since the end of 2009, Woking, England-based Container Trade Statistics Ltd. estimates. Rates excluding fuel surcharges were “practically” zero in July and little changed this month, the worst run ever, said Menno Sanderse, an analyst at Morgan Stanley in London.
While growth in container volumes has slowed for four consecutive quarters, it’s still nowhere near the 22 percent contractions seen in the first half of 2009. Europe normally imports more goods this quarter as shops begin stockpiling for the December holidays. That gain may be curbed this year as retailers anticipate mounting concern about economies and jobs will hurt consumer spending.

First Time Foreclosure Starts Near 3-Year Lows, However Bad News Overwhelms; Foreclosure Pipeline in NY is 693 months and 621 Months in NJ

The LPS Mortgage Monitor August 2011 Mortgage Performance Report Shows First-Time Foreclosure Starts Near Three-Year Lows. That's the good news.

The Bad News

  • Average Loan in Foreclosure Is Delinquent for Record 599 Days
  • Of the nearly 1.9 million loans that are 90 or more days delinquent but not yet in foreclosure, 42 percent have not made a payment in more than a year with an average delinquency of 397 days, also a new record.
  • As of the end of June, 4.1 million loans were either 90 or more days delinquent or in foreclosure, as delinquencies remain two times and foreclosures eight times pre-crisis levels.
  • On average, at the current rate of foreclosure sales, judicial foreclosure states would require 111 months to work through inventories of loans that are 90 or more days delinquent or in foreclosure as compared to non-judicial states, which would be able to clear the inventories in approximately 32 months.
  • Most of the foreclosure “outflow” is back into delinquency
  • Loans deteriorating over 90 days still outnumber foreclosure starts 2:1
  • Foreclosure starts outnumber sales by a factor of almost 3:1

Here are a few charts from the LPS Mortgage Monitor Report

click on any chart for sharper image

First time foreclosure starts near three year lows

42% of Loans 90 Day Delinquent+, Not Made a Payment in 12 Months or More

Most of the foreclosure “outflow” is back into delinquency

Loans deteriorating over 90 days still outnumber foreclosure starts 2:1

Foreclosure starts outnumber sales by a factor of almost 3:1

The pipeline ratio in judicial states is more than 3 times that of non-judicial

States with highest percentage of non-current loans: FL, MS, NV, NJ, IL

States with the lowest percentage of non-current loans: MT, WY, AK, SD, ND

Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

The Foreclosure Pipeline in New York is 693 months (over 57 years) and 621 Months (over 51 years) in New Jersey!

Mike "Mish" Shedlock

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Retail Giant in Australia Warns of Massive Price Deflation and Falling Sales, "Hardest Christmas in Retailer Lives" Coming Up

The CEO of Harvey Norman, Australia's largest electrical and furniture chain, warns of massive price cuts and a Christmas Retail Shocker.
"Retailers will have the hardest Christmas in their lives," said the boss of the country's biggest electrical and furniture chain .

"I see unemployment going up, small businesses going under, manufacturing under huge duress and tourism hit very badly. I don't think the outlook will improve."

He said Harvey Norman would crank up its online strategy in October, but he didn't expect it to return profits.

"Our sales in technology, computers and television have been hit badly because of price deflation," he said." Televisions were the biggest offender.

"Prices have dropped by so much we have to sell three times as many TVs to get the same revenue.

"The same goes for computers -- they are half their price of a year ago -- and we have to sell twice as much to stand still.

"Even whitegoods and washing machines are 10 per cent cheaper today.

Mike "Mish" Shedlock

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Eurozone Retail Sales Drop 4th Straight Month; Confidence Drop Most Since 2008; EU GDP .2%; Leading Indicators Negative; S&P Fantasyland Forecast

The Eurozone economy is in shambles. Retail sales are down for the 4th consecutive month, consumer and economic confidence have plunged.

Yet, economic denial runs deep. Government GDP estimates in Spain and Italy are preposterous, as are S&P growth forecasts. Let's take a look at the reports.

Eurozone Retail Sales Drop 4th Straight Month

Finfacts reports Retail sales in Eurozone fell for the fourth month in a row in August

Retail sales in the Eurozone fell for the fourth month in a row in August, according to Markit’s latest PMI (Purchasing Managers' Index). A stronger rise in German retail sales was not enough to offset weakness in France and Italy, the two next-largest euro economies. The overall rate of decline accelerated slightly to the fastest since October 2010.

The third-largest euro economy, Italy, registered another steep fall in retail sales in August. The monthly rate of contraction was broadly similar to that posted in July, remaining stronger than the long-run series average. Italian retail sales have fallen continuously for the past six months.

Retailers’ inventories of goods for resale rose for the sixth month running, the longest sequence in three years. Moreover, the rate of growth strengthened to a robust pace.

Consequently, the value of goods purchased by Eurozone retailers fell slightly in August. Moreover, the volume of purchases fell more sharply, as average purchase prices continued to rise rapidly during the month. This sustained inflationary pressure, added to weak sales demand, led to a further marked deterioration in retail gross margins during August.

A combination of falling sales and cost pressures led retail employment to slow almost to a halt in August. Latest data marked a third successive month of net job creation in the sector, but at only a negligible rate.
European Economic Confidence Falls Most Since December 2008

Bloomberg reports European Economic Confidence Falls Most Since December 2008
European confidence in the economic outlook plunged the most since December 2008 this month as a persistent debt crisis roiled markets and clouded growth prospects across the 17-nation euro region.

An index of executive and consumer sentiment in the single- currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today. That’s the lowest since May 2010. Economists had forecast a decline to 100.2, according to the median of 29 estimates in a Bloomberg News survey. In the U.S., consumer sentiment dropped to the lowest level in more than two years, a separate report showed.

The euro area’s economic prospects are deteriorating as national governments cut spending in a bid to narrow deficits and tackle the debt crisis. Economic and Monetary Affairs Commissioner Olli Rehn signaled yesterday that the EU may reduce its 2011 growth forecast from 1.6 percent on concerns that financial turbulence could spill into the broader economy.
"Hard Fall" in Spain

In Spain, via Google translate Tourism only Saving Grace in Economic Debacle here are some bullet points I gathered.

  • Director of a major research service says the Spanish economy is in a "hard fall"
  • Cement consumption is down 20%
  • Electricity consumption down 1%
  • Private sector spending fell 3.6%
  • Tourism is up but hotel prices are at 1995 levels
  • Unemployment still rising

"Nothing indicates that between August and November, things will change for the better, as indicated by the index of economic sentiment. The slowdown in economic activity in the European Union (to which targets 65% of Spanish exports) anticipates a slowdown in overseas sales.

The Government fears the worst, mainly due to the stagnation of private consumption, dependent on the creation of employment and compensation of employees. And none of these variables shows signs of recovery."

Eurozone GDP .2%, Leading Indicators Negative

Balkans Business News reports The Eurozone GDP fell short of expectations

Eurozone GDP growth below expectations in 2Q. Data for the US had already disappointed earlier. The Eurozone GDP reading - at 0.2% - fell short of expectations as well (0.4% q/q). In particular, very slow growth in Germany and stagnation in France have been a drag on growth.

Asia did not contribute to y/y growth any further in this month. In fact, Europe was the only destination contributing at all (both within and outside of the Eurozone). This seems likely to be the most important explanation for the German growth slowdown, as exports have been one of the main growth drivers so far.

Leading indicators are not on bright side, either. The global growth slowdown is already reflected in lower y/y growth rates of Eurozone industrial production. In addition, the OECD leading indicator has - similar to the ZEW Index in Germany - turned negative. Hence, it seems likely that industrial production growth will lose steam too. Inventories of finished goods have increased as well, which is a negative signal, even beyond lower production expectations. Sentiment on financial markets could be drag on private consumption, too. Private consumption is not an important growth driver in the Eurozone. However, a deterioration of sentiment could be dampening final demand.

The extremely weak economic growth in Italy does not seem sufficient to lower Italian unemployment significantly in the coming year. Even in countries that are in better economic shape, such as Germany, slower growth will slow down the recovery on the labor markets, too. We therefore expect the decline in the unemployment rate to be even more gradual than expected so far.
GDP Forecast +1.8% 2011, +1.6% 2012!?

In spite of that horrendous news optimism reigns supreme as the following paragraph shows:
We have revised our 2011 GDP forecast for the Eurozone from +2.0% to +1.8%. Additional austerity measures by governments as a result of the recent turbulence on the financial markets, as well as the weak sentiment, should also dampen economic growth in 2012. Hence, we also slightly revise our GDP growth forecast for 2012 from +1.6% to +1.4%.
I have no idea how you get any growth out of this horrendous mix, let alone fantasy projections of 1.8%, but the S&P has the same conclusion.

S&P Fantasyland Forecast

Please consider S&P trims euro zone growth outlook

Ratings agency Standard and Poor's lowered its economic growth forecasts for the euro zone on Tuesday, but said the shared currency bloc was not headed toward a new recession.

Public and private institutions have been scrambling to revise down their growth outlooks for Europe as a stream of weak data have pointed to sharply slowing activity in recent months.

S&P said in a new report it forecast growth of 1.7 percent in 2011 and 1.5 percent in 2012, down from estimates in July of 1.9 percent and 1.8 percent respectively.

For Germany, Europe's biggest economy, S&P cut its 2012 forecast to 2.0 percent from 2.5 percent previously, down sharply from the 3.3 percent it expects to see this year.

It trimmed its forecasts for France to 1.7 percent in 2011 and 2012, in line with recently downwardly revised French government estimates. Previously, S&P had forecast the euro zone's second-biggest economy would grow 2.0 percent and 1.9 percent in 2011 and 2012 respectively.

S&P cut its 2012 outlook for Spain to 1.0 percent from 1.5 percent previously, still better than the 0.8 percent growth it forecasts for 2011.

Outside the euro zone, S&P trimmed its forecast for Britain, estimating its economy would grow 1.3 percent in 2011 and 1.8 percent in 2012, down from 1.5 percent and 2.0 percent respectively.

Despite the bleaker outlook, S&P did not see Europe sinking back into recession.

"We continue to believe that a genuine double dip will be avoided given the still existing avenues for growth, although we recognize that downside risks are significant," S&P said in a report. "In particular, we will closely monitor trends in consumer demand over the coming quarters," it added.

S&P economic forecasts do not seem any better than their debt ratings. Country by country I will take the "under" line vs. S&P estimates. Odds are strong Europe is already in a recession, and these guys cannot see one coming.

Mike "Mish" Shedlock

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Tracking Tuesday- Quick Midweek Update on Unemployment, Gold, QE3, Consumer Confidence, Case Shiller, New York State Thruway Shutdown, and Everybody's Favorite- Fukushima

It's Tuesday afternoon. It's time for a midweek update.

There has been an overwhelming amount of news the past few weeks - gold, Irene, total Euro banking sector economic meltdowns, BofA going bust and then being bailed out by a senile old fool two Plavix pills short of the grave, verified total U.S. economic meltdown, Fukushima going full global nuclear, WWIII about to break out in the Middle East and a whole list of other things we'd need days to discuss - then a quick check at "the markets" shows the DOW at nearly 12,000 again, on zero volume. Literally. At least from the carbon based lifeforms. Which begs the question - what is a stock really worth if there is nobody to trade it? Better yet, how does an global economic depression justify stock valuations of 1200x earnings set by high frequency computers? The short answers are, nothing and it doesn't.

Speaking of hurricanes, it's ironic that it has taken MSM and so many "experts" this long to start to figure out that there never was a recovery and it's pretty much "light's out" for the global economy going forward. Even CNN is reporting that "the economic slowdown is here to stay." But hell doesn't freeze over and the fat lady doesn't sing until CNBS joins that bandwagon. Last we heard, they're still talking "Green Shoots" and 5% GDP growth for 2011. Yes, you are allowed to laugh out loud.

While they talk "job growth" and "positive economic activity," we talk reality. Like the reality of unemployment, which is about to get much worse - we don't hide the fact that the real unemployment continues to grow exponentially. Need proof? If McDonald's "Hiring Day" in which over a million people signed up for didn't lock that in, try this for size, and then do the math. All the figures you need to extrapolate a good estimate of the job condition in this country are there.

Of interest to gold bugs, is this piece about confiscation of gold coins by the feds. Smells very much like executive order 6102 redux. How much gold does Libya have again? Oh, right. Not enough to fill all physical demand should paper take delivery but they sure will try. Oops.

Even better news for gold bugs is the Federal Reserve comments on QE3 which is now guaranteed in at least two forms and at least one new friendly name - Operation Twist(er) (aka, take your money and give it to the banksters 3.0.) As we like to say, gold is never old when the economy catches a cold and Dr. Deficit is at the printing machine helm. Ok, so it doesn't rhyme, but you get the point.

Speaking of con... fidence, Consumer Confidence just plunged to the lowest since April 2009 and looks more and more like the makings of 2008 all over again but much, much more. This should help the markets rally today. Because, as you know, it's super bull...ish. Oh, and the Case Shiller housing index? Plunged 4.5% YoY while the MSM spins housing recovery KoolAid garbage. Oops. QE3, are you ready for it? Gold sure is.

In the aftermath of Hurricane Irene, a 100 mile section of the New York State Thruway is closed as well as the light rails to NYC. Should be bullish for productivity.

Finally, for the Fukushima in all of us (literally), here are three updates which require no commentary from us.

-"Nuclear plant worker dies of acute leukemia, TEPCO denies radiation"
-"Survey finds higher radiation than Chernobyl evacuation zone over wide area of 165 locations in Japan"

Drink up. 

So that's all for now. We'll update once we begin returning to a more normal, "normal."

Consumer Confidence Plunges to 44.5, Lowest Since April 2009; Case Shiller Home Index at 2003 Levels, Down 5.9% vs. Year-Ago

In a healthy economy, consumer confidence would be 90. Instead it is slightly less than half that.

Please consider U.S. Consumer Confidence Falls to Two-Year Low
The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.

“This paints a picture of underlying demand weakening,” said Bricklin Dwyer, an economist at BNP Paribas in New York, whose forecast of 45 was most accurate in a Bloomberg News survey. “Consumers are seeing their wealth deteriorate. We’ve seen a huge decline continuing in the housing market. They’ve also been hit on the chin by the equity markets.”

The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009.

Today’s confidence report is in line with other figures. The Thomson Reuters/University of Michigan final index of consumer sentiment dropped this month to the lowest level since November 2008. The Bloomberg Consumer Comfort Index has been hovering at levels previously consistent with recessions.

The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9.

The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009.

Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.
Housing Prices Drop 5.9% vs. Year-Ago

S&P reports Nationally, Home Prices Went Up in the Second Quarter of 2011 According to the S&P/Case-Shiller Home Price Indices.

Bear in mind that number is not seasonally adjusted. In other words, it really didn't happen. Let's look at some details to show why.

click on any chart below for sharper image

As of June 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up versus May – Portland was flat. However, they were all down compared to June 2010. Twelve of the 20 MSAs and both Composites have now increased for three consecutive months, a sign of the seasonal strength in the housing market. None of the markets posted new lows with June’s report. Minneapolis posted a double-digit 10.8% annual decline; Portland is not far behind at -9.6%. Thirteen of the cities and both composites saw improvements in their annual rates; however; they all are in negative territory and have been so for three consecutive months.

The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 5.9% decline in the second quarter of 2011 over the second quarter of 2010. In June, the 10- and 20-City Composites posted annual rates of decline of 3.8% and 4.5%, respectively. Thirteen of the 20 MSAs and both monthly Composites saw their annual growth rates improve, although remaining in negative territory in June.

The National Index was up 3.6% from the 2011 first quarter, but down 5.9% compared to a year-ago,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities – Las Vegas, Miami, Phoenix and Tampa – as well as the weakest of all, Detroit. These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together.

Nationally Home Prices at 2003 Levels

The only valid comparison for not seasonally adjusted prices is vs. a year ago, otherwise one must use seasonally adjusted number. Here are a pair of charts from the report.

All 20 Cities Down vs. Year ago

Seasonally-Adjusted vs. Not-Seasonally-Adjusted

Not seasonally-adjusted, home prices fell in only two cities. Seasonally-adjusted, home prices fell in 13 of 20 cities. The difference is a slight decline this quarter vs. a headline gain of +1%.

Mike "Mish" Shedlock

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Morning Update/ Market Thread 8/30 - Roller Coaster, Hope You’re Enjoying the Ride Edition…

Good Morning,

Equity futures are rolling lower this morning with both the dollar and bonds rising to erase yesterday’s moves. Oil is lower, gold is on the up ramp as is silver, while food commodities are free falling into the gap up that was created yesterday! Wee, isn’t this fun?

Yeah, if you’re 8 years old it’s real exciting and you want to experience those emotional highs and lows again – what fun! But to call these “markets,” or to claim that feeding your money into them is “investing” is a long, long stretch from my point of view. We are so far away from the concept of investing that it’s hardly recognizable.

When one invests, for real, they are providing capital for someone else to use in a productive manner. You know, old fashioned things likes real goods and services that create real jobs. Not today. Today “investing” goes like that roller coaster ride for most Americans, but not if you’re Warren Buffett. No, no… Warren does something entirely different – he uses his money to buy his way into face time with the President where he suggests that he’d be happy to provide a few billion to help shore up an insolvent and worthless bank if only the good people will guarantee his “investment” and provide a guaranteed return of hundreds of millions.

Quite the contrast, no? And it’s certainly not the first time that he’s used the taxpayer to his benefit. That type of inequity is a marker – it signifies that “other events” are going to be fueled and that major league change is enroute.

Consumer Confidence is released at 10:00 Eastern, we’ll report that depression era read inside of today’s Daily Thread.

This morning the Case-Shiller quarter 2 report for the month of June came out. This report is somewhat better than May’s, especially in the 10 city figures, but if you take the time to read the report you’ll find that the National Index year over year number is still negative by a whopping 5.9%! That’s a ton of price movement in the downward direction, don’t let the happy talk fool you. Here’s Econofool:


Home prices were trending flat in June with Case-Shiller's adjusted composite 10 index, which is a three-month average, holding unchanged for a second straight month (prior month revised from plus 0.1 percent). The composite 20 index edged 0.1 percent lower for a second straight month with 11 of the 20 cities showing declines in June. Seasonality is at play during spring and summer which is a strong time for home sales and, in what is a mild positive, seasonality is also at play this year as well. Unadjusted data show 1.1 percent gains for both the composite 10 and composite 20 indexes during June following 1.0 percent gains for both in May.

In contrast to month-to-month comparisons, year-on-year comparisons are less affected by seasonality with the adjusted composite 10 down 3.9 percent vs minus 3.8 percent for the unadjusted composite 10. The composite 20 shows deeper contraction at an adjusted minus 4.6 percent and an unadjusted minus 4.5. The trends for the report's year-on-year rates have been flat to slightly negative.

Weak home prices remain yet another negative for the American consumer whose foremost battle however is with the soft jobs market. Watch for comments on housing in today's FOMC minutes followed by construction spending data on Thursday.

Now, do yourself a favor and compare that mild assessment with what you read on pages 1 & 2 of the actual report… That’s where you’ll read about the National Index and places line Minneapolis and Portland that are down 10%+ in the past year alone:

Case-Shiller June 2011

WEE! Nice roller coaster on that chart! Must be another great “investment.” Oh yeah, we’ve all seen the real estate price roller coaster by now, so I won’t show it again – I think that young boy’s reaction on the down stroke says it all.

But remember, I think a very large anchor is about to be removed from the housing market, that is the Option-ARM resets are at peak right now and from this point forward their drag on the market will lessen rapidly:

Just remember, do not get up until the roller coaster has come to a complete stop!

In all seriousness, this probably will not mark the bottom of the market as the market has tended to lag about 6 to 9 months behind both the Subprime and Option-ARM waves, so be careful in making assumptions.

Hope you’re enjoying the ride!

Wells Fargo Says 12 States in Economic Contraction

According to a Wells Fargo report, 12 States in Contraction, Alabama in Recession.
The report from the San Francisco-based bank said Alabama was one of 12 states experiencing an economic contraction in July and "likely slipped into a recession."

The report, written by senior economist Mark Vitner and economist Michael A Brown, said more states "are likely to fall into negative territory within the next six months" because of a persistent decline in manufacturing jobs.

Of the 12 states cited in Wells Fargo's report, five were in the South. Joining Alabama were Georgia, South Carolina, North Carolina and Virginia. The other seven states were Michigan, Nevada, Montana, Illinois, Indiana, Vermont, and Alaska.
12 Down 38 to Go

The amusing thing was Alabama state officials in denial.

Some farm states may avoid a recession this time around, but otherwise a clear picture has emerged: US In Recession Right Here, Right Now

Mike "Mish" Shedlock

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Investors Balk at Pitfalls of Banking in Korea

Hong Sung Sook, a 67-year-old Seoul housewife, says she’s getting ready to pull $100,000 of savings out of Standard Chartered Plc (STAN)’s South Korean unit and put it in a local bank. Paul Yoo, 60, the former country head of Lone Star Funds, is locked up in jail and refuses to talk to the press.
Their stories help explain why six years have passed since any overseas investor has taken over a Korean financial company valued at more than $500 million, according to data compiled by Bloomberg. South Korean President Lee Myung Bak’s latest effort to sell Woori Finance Holdings Co. collapsed this month after the taxpayer-rescued firm failed to attract any bids from abroad.
Standard Chartered’s efforts to base pay on performance enmeshed it in the longest strike inKorea’s banking history, while Dallas-based Lone Star’s third attempt to exit a 2003 investment is entangled in court. Public mistrust of buyout firms, political opposition to government-backed reforms and abrupt regulatory changes may also deter fresh entrants.
“It’s clearly negative for foreign investors in any country to see a strike like this,” said James Rooney, chief executive officer of consulting firm Market Force Co. in Seoul. “Foreign investors can’t rely on South Korea’s government as rules are changed all the time.”
About 2,700 staff at Standard Chartered First Bank Korea Ltd. resumed duties yesterday for the first time in two months, while warning of further stoppages unless the company withdraws the new salary system. The union says performance-based pay would lead to job and wage cuts, while the company, known as SC First Bank, says it will improve competitiveness.

Last Straw