Skyscraper Index: China Next Up?

Brazilian Bubble Blog (June 2012): Skyscraper Index Never Fails: China plans world’s tallest building

According to CNN, China is planning the construction of the world’s tallest building to be ready by early 2013, a 220-story structure which would cost the Chinese about US$628 million. Once completed, it will surpass Dubai’s Burj Khalifa to become the tallest structure in the world. The building will also outshine China’s current skyscraper poster boy: the 632-meter Shanghai Tower.

CNN (June 2012):  It took Dubai more than five years to build the 828-meter Burj Khalifa, the world’s tallest building (for the moment, anyway).

But Chinese architects and engineers reckon they need a mere 90 days to leave the Emiratis in the dust.

At least, that's what they've claimed.

Wikipedia: The Skyscraper Index is a concept put forward in January 1999 by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, which showed that the world's tallest buildings have risen on the eve of economic downturns. Business cycles and skyscraper construction correlate in such a way that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for recession. Mark Thornton's Skyscraper Index Model successfully sent a signal of the Late-2000s financial crisis at the beginning of August 2007.

The buildings may actually be completed after the onset of the recession or later, when another business cycle pulls the economy up, or even cancelled. Unlike earlier instances of similar reasoning ("height is a barometer of boom"), Lawrence used skyscraper projects as a predictor of economic crisis, not boom.

Source: http://brazilianbubble.com/skyscraper-index-never-fails-china-plans-worlds-tallest-building/
Source: http://www.ritholtz.com/blog/2012/04/skyscraper-index/
Source: http://en.wikipedia.org/wiki/Skyscraper_Index
Source: http://www.cnngo.com/shanghai/life/sky-city-chinese-company-proposes-worlds-tallest-building-098182

Got a Great Public Sector Pension or State Retiree Health Benefits? Now Watch Your Children and Grandchildren Suffer...

Summary: Too many lofty promises were made to workers of older generations, and too little (or nothing) was contributed by workers for their mathematically-flawed pension schemes and now we are dealing with the fallout. Changes are happening to reduce the gigantic funding holes, but the most pain will be felt by younger workers. Older workers, you should thank irresponsible policy-makers, your unions, and now, your children, grandchildren, and great-grandchildren for their generosity for paying for your what is "owed" to you.

The Pew Center on the States (June 2012):

States continue to lose ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health care, due to continued investment losses from the financial crisis of 2008 and states’ inability to set aside enough each year to adequately fund their retirement promises. States have responded with an unprecedented number of reforms that, with strong investment gains, may improve the funding situation they face going forward, but continued fiscal discipline and additional reforms will be needed to put states back on a firm footing.

Though states have enough cash to cover retiree benefits in the short term, many of them—even with strong market returns—will not be able to keep up in the long term without some combination of higher contributions from taxpayers and employees, deep benefit cuts, and, in some cases, changes in how retirement plans are structured and benefits are distributed. 

Many experts say that a healthy pension system should be at least 80 percent funded.

States have not done nearly enough to set aside money for their retirees’ health care and other non-pension benefits such as life insurance. As of fiscal year 2010, they had put away only 5 percent of their total bill coming due for those benefits.

States’ public sector retirement funding gap for both pensions and retiree health benefits grew by $120 billion, from $1.26 trillion to $1.38 trillion, from fiscal year 2009 to 2010. The largest part of that year-over-year growth was the increase in pension liabilities ($126 billion), which outpaced the growth in pension assets ($29 billion). The total public pension liability in 2010 was about $3.07 trillion; assets were $2.31 trillion, leaving a $757 billion gap.

Retiree health care and other benefits liability in 2010 was $660 billion; states had assets to pay $33.1 billion, leaving a $627 billion hole.

To manage long-term pension obligations, nearly every state has moved to reduce its retirement bill in the last three years. Between 2009 and 2011, 43 states enacted benefit cuts or increased employee contributions, or did both.

The most common actions included asking employees to contribute a larger amount toward their pension benefits; increasing the age and years of service required before retiring; limiting the annual cost-of-living (COLA) increase; and changing the formula used to calculate benefits to provide a smaller pension check. States also have cracked down on abuses, such as the practice of “spiking” final pay to get a larger pension check by including overtime pay and sick leave. 

The reforms that states have enacted in the last three years mostly affect future state workers, as it is legally difficult to reduce benefits for current employees and retirees.

Source: http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_Pensions_Update.pdf
Source: http://www.zerohedge.com/news/us-retirement-benefits-underfunding-rises-record-14-trillion

What Other Elements Can be Used as Money?

Source: http://www.slatev.com/video/why-gold-why-not-argon/

Chris Martenson on the Next 20 Years

In Summary:


Economy (Must Grow) + Energy (Can't Grow) + Environment (Depleting) = 20-Year Outlook Alarming.

Source: http://www.youtube.com/user/GoldMoneyNews/featured?v=8WBiTnBwSWc
Source: http://www.peakprosperity.com/

Greece's Path Once it Leaves or Gets Kicked Out of the Euro

Whether Greek elections today (or August if they can't form a coalition, again) start the exiting process, Greece will ultimately leave the Euro one way or another.

Here's Bloomberg's prediction for events following an exit. If it's anything like Argentina in 2001, then it covers a three-year timeframe.



Source: http://www.bloomberg.com/video/94651351-here-s-what-happens-if-greece-leaves-the-euro.html

Sovereign Defaults of the Past Ain't Got Nothing on the PIIGS

Don't worry, Greece, Portugal, and Ireland are just specks compared to large European countries like Italy, France, and Germany.

Just make sure you don't compare them to prior sovereign defaults. Or come to the realization that any one of those specks defaulting have large consequences on the rest of the EU members, such as no longer being part of the bailing-out group and joining the being-bailed-out group. Oh wait, that's already the case. Once they get bailouts, they are on the receiving side and their commitments to the bailing-out group disappear and their Italian, French, and German friends get to pay a larger portion. I can't see anything that could possibly go wrong with that.

Source: http://p.twimg.com/AiZgN2qCQAA66aK.jpg:large
Source: Barclays Capital
Source: Things that Make You Go Hmm... (June 10, 2012)

Spain is Ok -- For Real This Time

Remember the good old days? From April 2012?
http://stockuponcannedgoods.blogspot.com/2012/04/spain-is-ok.html

Spanish Economy Minister Luis de Guindos ruled out seeking a bailout hours before Standard & Poor’s cut the country’s credit rating to three levels above junk and a report showed unemployment jumped close to a record.
“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late yesterday. “We don’t need it.”


 The Economist, June 10, 2012:

Whatever the €100 billion ($126 billion) made available by euro-zone countries to recapitalise Spain's banks looks like, the Spanish government would really rather not call it that. "In no way is this a rescue," said Luis de Guindos, Spain's economy minister, while announcing that a deal to rescue Spain's banks had been done in a two-and-a-half-hour conference call with the 17 euro-zone finance ministers on June 9th. "It's a loan with very favourable conditions."

Turns out Spain needed $126 billion, at least for now. "...very favourable conditions"? Ok, now let's see what Portugal and Greece have to say about their bailouts and the conditions that came with them.

But fret not, everything is fine in Spain, because remember, it's the banks that generate all economic productivity in a country, right? And drive unemployment down?

Source: http://www.economist.com/blogs/newsbook/2012/06/spains-banks

Best Source of Advice for Buying a House

Just saw a ridiculous NAR commercial on reasons to buy a house.  Couldn't find it on youtube yet, but found this commercial from 2008.

National Association of Realtors commercial from 2008: "On average, the value of a home doubles every ten years."

Listen to them, they know what they're talking about.

Case Shiller Index:

Source: http://www.youtube.com/watch?v=MIZqTUal6As

It Could be Worse?

State of the US Labor Market:

• The share of long-term unemployment is at its highest level since the Great Depression (42%).
• Fully 54% of college degree graduates under the age of 25 are either unemployed or underemployed.
• 45 million Americans are on food stamps — one in seven residents.
• 47% of Americans are on some form of government assistance.
• The employment-to-population ratio for 25-54 year olds is now 75.7%, lower than it was when the recession supposedly ended in June 2009.
• The number of people not in the labor force has swelled eight million since the recession ended; absent that effect, the unemployment rate would be 12% right now.
• The number of people confident enough to leave their jobs fell 11% in May for the second month in a row to 891k, the lowest since November 2010.
• The ranks of the unemployed who have been looking fruitlessly for work for at least 27 weeks jumped 310k in May, the sharpest increase since May 2011.
• The unemployment rate for males aged 16-19 is 27% and for males between 20 and 24 it is 13%. Draw your own conclusions from a social (in)stability standpoint.
• One in seven Americans are either unemployed or underemployed.
• Only one in six of the youth are working full-time and three-in-five are living with their folks or another relative (as per the NYT).
• A mere 16% of the 2009-2011 graduating class has found full-time work, while 22% are working part-time. Even those hired from 2006-08, just 23% are working full-time.
• According to a poll cited in the NYT, just 14% of high-school grads today believe they will have a more successful financial future than their parents.

Source: http://www.zerohedge.com/news/us-labor-market-full-blown-depression

Food Stamp Nation

ZH: ...at 22,257,647, the number of US households receiving the "SNAP treatment" rose to an all time high, even as the benefit per household dropped to the second lowest ever.

It's Free Swipe Your EBT!:

My EBT, my EBT, I just swipe my EBT!:

Source: http://www.zerohedge.com/news/record-number-us-households-foodstamps
Source: http://www.fns.usda.gov/pd/34SNAPmonthly.htm
Source: http://www.youtube.com/watch?v=NzspsovNvII
Source: http://www.youtube.com/watch?v=o64Fz-KW1Dk

The Fed Knows Best...

Prof. Antony Davies of Duquesne University on interest rates and Fed intervention manipulation:

Source: http://www.youtube.com/user/LearnLiberty

Source: http://www.zerohedge.com/news/are-low-interest-rates-good

Instinct (or Perhaps Just Plain Gut Reaction) on Banks

I've always been annoyed by Ally Bank's commercials. Especially this one:

I have a suggestion, leave the money with the people for months and see how that works out.

Of course, my instinct of not liking Ally Bank was correct.

USA Today (May 14, 2012): Ally Financial, the former GMAC, which still owes taxpayers about $12 billion of the $17.2 billion in loans it got as part of the General Motors and Chrysler bailouts, has nudged its home mortgage subsidiary into bankruptcy court to try end the drag of its toxic mortgage assets on Ally's profitable businesses, such as car loans and direct banking.

...

Taking ResCap into bankruptcy carries political implications because it's a part of the auto bailout that didn't turn out as planned. The government still owns 74% of Ally, and it's repaid only $5.5 billion of $17.2 billion it got in the bailout so it could keep offering car dealer and buyer financing for GM and Chrysler. Ally received more than twice the taxpayer help as Chrysler.

Source: http://content.usatoday.com/communities/driveon/post/2012/05/auto-bailout-ex-gmac-puts-mortgage-unit-in-bankruptcy/1#.T8wwhrA7X4s

Source: http://www.youtube.com/watch?v=6r_Ld2h6Wnw

Fed Actions Juicing the Stock Market? Say it Ain't So!

So there's this belief that the action of printing money by the Federal Reserve leads to inflated asset prices. That belief is correct. Apparently, printing more money and flooding it into the market leads to higher stock prices, higher oil prices, and higher bonuses for bankers.

This chart was published on March 19, 2012:

The red circle marks March 19 for the S&P 500:

Looks like the Fed needs to initiate another Quantitative Easing program.

Here's what the Fed's balance sheet looks like:

Impact? This:

Source: http://www.zerohedge.com/news/operation-twist-coming-end-preview-market-response
Source: http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=%5Egspc;range=20120102,20120601;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
Source: http://www.ritholtz.com/blog/2012/01/living-in-a-qe-world/

Buy! Buy! Buy a House!

Doug Short (June 1, 2012): The Fed's latest strategy for managing the economy, Operation Twist, has a month to go. The program was announced on September 21st of last year with the stated purpose of selling $400 billion in shorter-term Treasury securities by the end of June 2012 and using the proceeds to buy longer-term Treasury securities. The Fed assumed this would put downward pressure on longer-term rates, which would stimulate the economy through "a broad easing in financial market conditions." In other words, more loans at lower rates.

See how much the government loves homeowners? It's willing to sacrifice those dependent on fixed income (retirees and pension funds) and inflation-dependent entitlements (social security) to entice others with lower interest rates to buy houses.

Don't worry, now that the world is scared out of its mind with Europe, money is now flowing into Treasury bonds, suppressing rates even further.

Of course, low rates are only good if you can get a bank to loan you money (hint: it won't). Banks won't loan money because: (1) they've learned not to trust people buying homes (especially those that exercise their American right to walk away from mortgages); (2) they've learned that housing prices can fall (and Americans will choose to walk away from mortgages); (3) they've learned that when housing prices fall, people will stop paying their mortgages and with the effective American legal system, it will take over 600 days to foreclose; (4) the only people who want to borrow are people not worthy of borrowing (sorry unworthy people, your time to shine was circa 2000-2006); and (5) with borrowing rates so low, it's easier to borrow from the US government for the short-term, and invest in longer-term US government bonds.

The next chart shows the month-over-month changes of the Top 20 Case Shiller Index. Did you hear about those recent price gains on the news (which, by the way, were because banks were still preventing REOs from hitting the market)? Well, look at them in all their glory (those two little bars at the end):

 Look at all that real estate sales activity!:

Look at all those housing starts and permits!:

Look at the Top 20 Composite Case Shiller!:

In summary, please, please, please buy a home! Don't let the Fed's good deeds of mass market manipulation of interest rates at the expense of old farts and disabled people go to waste.

Source: http://advisorperspectives.com/dshort/updates/Treasury-Yield-Snapshot.php

Source: http://www.zerohedge.com/news/march-case-shiller-misses-expectations-housing-set-quadruple-dip

Source: http://www.zerohedge.com/news/guest-post-housing-recovery-hope-and-reality

Source: http://www.zerohedge.com/news/case-shiller-misses-expectations-unadjusted-home-prices-lowest-decade

Source: http://www.cnbc.com/id/45507581/Average_Foreclosure_Time_Sets_New_Record

Work Hard for the Money

Zero Hedge (June 2, 2012): Finally, yesterday, the BLS' latest jobs report confirmed that our concerns have been valid all along: as of May, part-time jobs just as disclosed by the Bureau of Labor Statistics hit an all time high, over 28 million! These are people who traditionally have zero job benefits, including healthcare and retirement, and which according to the BLS "work less than 35 hours per week." In other words, as little as one hour per week of "work" is enough to classify one a part-time worker. More disturbing: the increase in part-time jobs in May compared to April: 618,000, or the fifth highest on record. It gets better: when added with the 508,000 increase in part-time jobs in April, this is the largest two month increase in part time-jobs in history. Which means of course that full time jobs in May must have declined: sure enough, at a -266,000 drop in full time jobs, the quality composition of the NFP report was just abysmal and makes any reported "increase" in those employed into a sad farce.

So, with the economy transitioning to a part-time workforce, you think the chart below will improve?:

Source: http://www.zerohedge.com/news/americas-transition-part-time-worker-society-accelerates-part-time-jobs-hit-record
Source: http://www.streettalklive.com/images/stories/home-sales-newandexisting-052512.png

The Value of Time in Europe

Greece has been in the world's slowest train wreck -- two years (at least) and counting.

If Greece gives the EU the finger, which it should if it cares about its people instead of its creditors, the rest of the PIIGS will eventually follow. Here are two simple outcomes (note: both outcomes will be very painful): (1) Stay in the EU as a debt slave and have austerity forced down their throats ensuring prolonged recessions or (2) Leave the EU, switch to their respective currencies, watch people's life savings lose over 30% to overnight devaluation (unless they moved their money into Euros beforehand), and work their way to competitiveness (from prolonged recessions).

Since 2008, over 2 trillion Euros have been thrown at the problem. Read news on Europe today to see if those problems have been resolved. All 2 trillion Euros have bought were a few years for banks to squeeze a little more money out of the system and enable those paying attention to take precautionary measures (America, we're in the same boat).

Solution? Why not another 2 trillion Euros?

Source: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/05-2/Brandywine%20Global%20Q1%202012.pdf
Source: http://www.zerohedge.com/news/europes-bailout-costs-one-chart-%E2%82%AC2-trillion-and-counting

Bank Bailouts Explained

Dear 50% of Americans (yes, only 50% of you pay taxes),

Thank you for your apathy and generosity.

- Bankers

Source: http://www.youtube.com/watch?v=yipV_pK6HXw
Source: http://omidmalekan.com/
Source: http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/