Sunday, June 30, 2013

Fasting

Summer turned to fall, and fall to winter, but A.B. continued vigorous. During the fourth and fifth months, the fellows thought it prudent to supplement his daily vitamin with potassium, but that was all. They could find no reason to halt the fast, and A.B. was so determined to reach his target of 180 pounds that he probably would not have heard of it anyway. He celebrated a year without food with a glass of water. Seventeen days later, 276 pounds the lesser, he reached his mark. He ate, but not from hunger.
A.B. did not recidivate. Over the next five years, he added just sixteen pounds to his 180. His case was reported in the Postgraduate Medical Journal in 1973, and The Guinness Book of Records cited him for “Longest Fast,” although Guinness later removed the honor for fear of inspiring unsupervised imitators. “Heaviest Weight Dangled from a Swallowed Sword” remains.
http://www.colorado.edu/eeb/courses/buchwald/1040/hrap_files/Starving.pdf

Friday, June 28, 2013

NYSE margin debt declines

NYSE margin debt just declined from its all time high in April 2013.  The last two times this happened, 2000 and 2007, the stock market crashed just a few months later.  So this is a leading indicator of a stock market crash.

People assume that the new money from the Fed is flooding in to the stock market, but that is not happening. The new money from the Fed is sitting in excess reserves. The stock market was rising based on borrowed money.  Obviously interest has to be paid on this, even if it is fairly cheap, say 6%.  So unless the stock market keeps rising on an annualized basis by more than the interest rate, the whole process shifts in reverse, money flows out, and as the market drops, more margin calls are made.  It is possible that one month is an anomaly, so we should wait to see what happens with the June numbers.  But unless there is a new high in margin debt in June, we could see a crash in September or October.

For more info see http://advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php

Wednesday, June 26, 2013

Miami is doomed!



If you believe in global warming, the ocean will rise by more than 70 feet and Miami will drown.  "Even if we cut carbon pollution overnight, it won't save us. Ohio State glaciologist Jason Box has said he believes we already have 70 feet of sea-level rise baked into the system." (Source)

Goodbye Miami, it was nice knowing you.

American boss held hostage by Chinese workers over pay dispute

 

This is what you get for creating jobs in China.

Yesterday's Cities of Tomorrow

Garden City Concept By Howard

See http://listverse.com/2010/02/13/top-10-amazing-cities-you-will-never-visit/


MXC - Minnesota Experimental City
http://minnesota.cbslocal.com/2013/06/22/a-dome-city-that-almost-happened-in-minnesota/

Falling down



The next support is about 1550, so this may just be a minor correction.

Gold may fall to $1100/oz.

Cycles

From http://goldsilverworlds.com/investing/2013-start-of-seismic-shifts-in-money-metals-markets/

Stocks & Bonds 

Charles Nenner Research (source)
Stocks should peak in mid-2013 and fall until about 2020.  Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years.  He bases his conclusions entirely on cycle research.  He expects the Dow to fall to around 5,000 by 2018 – 2020.
Kress Cycles by Clif Droke (source)
The major 120 year cycle plus all minor cycles trend down into late 2014.  The stock market should decline hard into late 2014.
Elliott Wave Cycles by Robert Prechter (source)
He believes that the stock market has peaked and has entered a generational bear-market.  He anticipates a crash low in the market around 2016 – 2017.
Market Energy Wave (source)
He sees a 36 year cycle in stock markets that is peaking in mid-2013 and down 2013 – 2016. “… the controlling energy wave is scheduled to flip back to negative on July 19 of this year.” Equity markets should drop 25 – 50%.
Armstrong Economics (source)
His economic confidence model projects a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015.  The decline into January 2020 should be severe.  He expects a world-wide crash and contraction in economies from 2015 – 2020.
Cycles per Charles Hugh Smith (source)
He discusses four long-term cycles that bottom roughly in the 2010 – 2020 period.  They are:  Credit expansion/contraction cycle;  Price inflation/wage cycle; Generational cycle;  and Peak oil extraction cycle.
Harry Dent – Demographics (source)
Stock prices should drop, on average for the balance of this decade.  Demographic cycles in the United States (and elsewhere) indicate a contraction in real terms for most of this decade.
Sun Spot Cycles
They are due to peak in the summer of 2013 and decline into 2019.  Market tops often occur at or near peaks in sun spots.  This is an approximate 10 – 13 year cycle.  Economic and political upheavals tend to occur at or near the peak of sun spot cycles.
Lucky 13
1987, 2000, and 2013 marked stock market highs, all 13 years apart.

Tuesday, June 25, 2013

Import Growth Rate




Note:  The import growth rate only turns negative when there is a recession.  The FRED chart is current only as of Q4 2012. It is possible that it is a fluke that in one quarter the imports dipped slightly.  However, it is more likely that we are entering into a recession right now.

Monday, June 24, 2013

Doomsday Scenario

Glenn Hubbard portrait.jpg
Glenn Hubbard

Hubbard's main argument is that the US must reduce its long-term deficit, and that if it's not addressed, then within 20 years the US will see a "doomsday scenario" of virtually no social spending and monstrous taxes.

Read more: http://www.businessinsider.com/glenn-hubbards-doomsday-scenario-2013-6

Sunday, June 23, 2013

Historia de un Amor




Ya no estás más a mi lado, corazón
En el alma solo tengo soledad
Y si ya no puedo verte Porque
Dios me hizo quererte
Para hacerme sufrir más
Siempre fuiste la razón de mi existir
Adorarte para mí fue religión
Y en tus besos yo encontraba
El calor que me brindaba
El amor y la pasión
Es la historia de un amor
Como no hay otro igual
Que me hizo comprender
Todo el bien, todo el mal
Que le dio luz a mi vida
Apagándola después
Ay que vida tan obscura
Sin tu amor no viviré...

Oye Como Va


Oye como va mi ritmo
Bueno pa' gozar, mulata

Saturday, June 22, 2013

Fan Fair


Source:http://www.thedenvereye.com/fan-fare-discount-city/

In Aurora, Colorado sits one of the ugliest buildings ever built - Fan Fair Discount City.  It sits on 10 acres of land on Havana Street.  It was built in 1961, and used as a discount warehouse for about twenty years before being abandoned in the mid-80s. It has been an eyesore ever since.  It is surrounded by a chain link fence and grass is growing in the cracks in the parking lot.

The logical thing to do would be to tear it down and redevelop the site.  Unfortunately, it is contaminated with asbestos and benzene and it will cost more than $1 million to demolish it.  The City of Aurora voted in 2013 to buy the property for $4 million - after it has been demolished.  The developer seems to be in no hurry to start the demolition, and estimated costs keep rising.  Meanwhile, historical preservationists want it placed on the National Register of Historic Places to celebrate its ugliness, which makes it even more necessary to preserve (" In a world of diminishing resources, it makes less and less sense to demolish and replace even a difficult and controversial piece of architecture.").

And so it sits, a black hole of urbanity, sucking the life out of the surrounding area.

Friday, June 21, 2013

Tin

This silvery, malleable post-transition metal is not easily oxidized in air and is used to coat other metals to prevent corrosion. The first alloy, used in large scale since 3000 BC, was bronze, an alloy of tin and copper.

The chart below shows prices in "tonnes", which are 1000 kg, or 2204 lbs.  Tin prices were hit heavily along with other commodities.  Compared to other base metals it has a relatively high price (about $9.00/lb vs. $6.30 for nickel) and it has much lower stocks (14000 tonnes vs 186000 for nickel).
Source:http://www.lme.com/metals/non-ferrous/tin/

Thursday, June 20, 2013

Silver falls off the cliff


Source:http://www.kitcosilver.com/

The Bronze Swan

I previously wrote about China moving to a Copper Standard.  Well, that era is coming to an end.

"In all the hoopla over Japan's stock market crash and China's PMI miss last night, the biggest news of the day was largely ignored: copper, and the fact that copper's ubiquitous arbitrage and rehypothecation role in China's economy through the use of Chinese Copper Financing Deals (CCFD) is coming to an end.
Copper, as China pundits may know, is the key shadow interest rate arbitrage tool, through the use of financing deals that use commodities with high value-to-density ratios such as gold, copper, nickel, which in turn are used as collateral against which USD-denominated China-domestic Letters of Credit are pleged, in what can often result in a seemingly infinite rehypothecation loop (see explanation below) between related onshore and offshore entities, allowing loop participants to pick up virtually risk-free arbitrage (i.e., profits), which however boosts China's FX lending and leads to upward pressure on the CNY.
Since the end result of this arbitrage hits China's current account directly, and is the reason for the recent aberrations in Chinese export data that have made a mockery of China's economic data reporting, China's State Administration on Foreign Exchange (SAFE) on May 5 finally passed new regulations which will effectively end such financing deals."

The price of copper is now dropping like a rock and is now down to $3.06/lb

Wednesday, June 19, 2013

These Foolish Things

Copper is still dropping



It looked like it had bottomed out in May but it clearly has resumed its downward slide.

Gold is still dropping


Tuesday, June 18, 2013

Nickel





German automobile factory

Best cities for children in the US

These cities have had the biggest increase in the number of children under age 15 from 2000 to 2010.  This is based on the absolute not percent increase.  These are the cities of the future, where they are struggling to build new schools to keep up with the growth.
  1. Dallas-Fort Worth-Arlington, TX 266,000
  2. Houston-Sugarland-Baytown, TX 243,000
  3. Atlanta-Sandy Springs-Marietta, GA 206,000
  4. Phoenix-Mesa-Glendale, AZ 188,000
  5. Riverside-San Bernadino-Ontario, CA 132,000
  6. Las Vegas-Paradise, NV 107,000
  7. Austin-Round Rock-San Marcos, TX 102,000       
  8. Charlotte-Gastonia-Rock Hill, NC-SC 94,000 
  9. Washington-Arlington-Alexandria, DC-VA-MD-WV 81,000 
  10. Raleigh-Cary, NC 78,000
  11. San Antonio-New Braunfels, TX 74,000 
  12. Orlando-Kissimmee-Sanford, FL 68,000 
  13. Denver-Aurora-Broomfield, CO 65,000 
  14. Nashville-Davidson--Murfreesboro--Franklin, TN 52,000 
  15. Tampa-St. Petersburg-Clearwater, FL 46,000
The biggest losers, where families are fleeing.

  1. Los Angeles-Long Beach-Santa Ana, CA -356,000 
  2. New York-Northern New Jersey-Long Island, NY-NJ-PA -271,000 
  3. Detroit-Warren-Livonia, MI -150,000 
  4. Chicago-Joliet-Naperville, IL-IN-WI -100,000 
  5. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD -69,000

Source: http://www.newgeography.com/content/003351-america-s-baby-boom-and-baby-bust-cities

Besame Mucho

Monday, June 17, 2013

Puttin on the Ritz

The Elements

Kotlikoff's Fiscal Gap

Kotlikoff.jpg
Laurence Kotlikoff

I have no idea how Laurence Kotlikoff calculates his numbers, but he claims that there is a "fiscal gap" as follows:

2009 $184 trillion
2010 $202 trillion
2011 $211 trillion
2012 $222 trillion.

No word on 2013 yet.  My own calculation comes up with about $87 trillion.  I'd like to know how he does it.  It has something to do with extending the CBO's Alternative Fiscal Scenario.

Update:  I think he is using a method introduced by economist Alan Auerbach, who wrote a 2004 paper called: "Sources of the Long-Term Fiscal Gap".  This sees Defense and Homeland Security spending as an "unfunded liability".

Another global crisis this fall?


Marie-Hélène Caillol

"... it’s actually a second world crisis which is looming, once again caused by the United States. Ultimately this five-year period will have been nothing other than taking a step back to enter into an even bigger crisis, which we have called “the crisis squared”. .. the situation has got worse. The Chinese economy confirms its slowdown (1) as well as Australia (2), emerging countries’ currencies are disconnecting (3), bond interest rates are rising, UK salaries are continuing to fall (4), riots are affecting Turkey and even peaceful Sweden (5), the Eurozone is still in recession (6), the news filtering out of the United States is no longer cheerful (7)…  the dollar as the pillar of the international monetary system has been the carrier of all the United States’ colds to the rest of the world, and this destabilising pillar is now at the heart of the global problem because the United States is no longer suffering from a cold but bubonic plague. "
http://www.leap2020.eu/GEAB-N-76-is-available-Alert-for-the-second-half-of-2013-Global-systemic-crisis-II-second-devastating-explosion-social_a14266.html

Comment: I'm just repeating this, but I don't believe it, not this year at least.  I don't doubt that another crash is coming, but I see the fall of 2015 as a more likely timeframe.

The Wolf of Wall Street Trailer

New List of Top 25 Supercomputers


Tianhe-2

The nearest big city is listed first.
  1. Changsha, China.  "MilkyWay-2/Tianhe-2". 
  2. Knoxville, TN. "Titan", ORNL.
  3. San Francisco "Sequoia", LLNL.
  4. Osaka-Kobe, Japan. "K".
  5. Chicago, "Mira", Argonne.
  6. Austin, TX. "Stampede", Univ. of Texas.
  7. Juelich (Rhine/Ruhr), Germany, "JuQueen".
  8. San Francisco, "Vulcan". LLNL
  9. Leibniz (Munich), "SuperMUC".
  10. Tianjin, "Tianhe-1A".
  11. Pau (Paris), "Pangea".
  12. Rome, "Fermi".
  13. Washington DC, "DARPA".
  14. Cincinnati, "Spirit". AFRL.
  15. Paris, "Curie".
  16. Shenzhen, "Nebulae".
  17. Denver (Cheyenne, WY), "Yellowstone", NCAR.
  18. Manchester, UK, "Blue Joule".
  19. San Francisco, "Pleiades". Ames.
  20. Tokyo, "Helios".
  21. Tokyo, "Tsubame".
  22. Albuquerque, "Cielo".
  23. Edinburgh, UK. "DiRAC".
  24. San Francisco, "Hopper", NERSC.
  25. Paris, "TERA-100".
Source: http://www.top500.org/list/2013/06/

See also http://aftermath2022.blogspot.com/2012/06/top-50-supercomputer-locations.html

Sunday, June 16, 2013

The Blackbird

The coolest plane ever. They should build some more.

Saturday, June 15, 2013

Titanium

Titanium is the the ninth-most abundant element in the earth's crust (4400 ppm), and the fourth most abundant metal (after aluminum, iron and magnesium) so it is much more abundant than copper, which is the 26th most abundant element at 100 ppm.  However, it is very expensive to refine.

It is considered a strategic metal and is used in high-performance airplanes and submarines.  It has a high strength-to-weight ratio.  (Beryllium has a higher strength-to-weight ratio, but it is also much more expensive - over $200/lb, and it is also toxic.  Magnesium also is very strong, but it has a low melting point - only 1200 F).

$20 Dollar Saint Gaudens Design 1 Kilo Titanium Bullion Bar
Source:http://www.providentmetals.com

Titanium is one of the few non-precious metals (along with copper, nickel and tin) that is available in bullion form for investing.  A 1 kilogram bar costs about $80, and a 1 pound bar costs about $40.  Could titanium be an option for a wealthy investor who wants to diversify his portfolio? (Umm, no, at least not until prices stabilize).


Source: http://www.metalprices.com/p/TitaniumFreeChart

Spot prices for titanium are around $10/lb.  (6Al 4V means 6% aluminum, 4% vanadium, and it is the most commonly used titanium alloy. The aluminum makes it stronger and the vanadium makes it more ductile.)

Thursday, June 13, 2013

30 year deficit to exceed $100 trillion



Source:http://www.nationalreview.com/article/350983/ron-johnsons-transformative-proposal-jonathan-strong

The deficit over the next 30 years will exceed $100 trillion, as will the national debt.  The biggest problem is interest which will exceed 8.5% of GDP by 2034.  I previously thought that interest exceeding 5% of GDP indicates a serious problem.

Update: I tried to recreate the numbers, and while I don't have them exactly, I think I am close.  Using similar assumptions, this shows that the annual deficit will be $896 billion in 2023 (per the CBO), then it will jump to $1.5 trillion in 2024, $2.2 trillion in 2027, $3.2 trillion in 2030, and $4.0 trillion in 2032.  The main cause is high interest payments - over $1 trillion/year by 2026 and $2 trillion by 2033. But it also forecasts high defense spending, jumping from $600 billion/year in 2023 to $1.0 trillion in 2024.  I think the forecast is too pessimistic.  But then again, the SS trust fund will run dry by 2033, and we are certain to have another recession by then. And just cutting defense spending won't solve the problem.

So I give the Senate Republicans an A for effort.  I'd like to see the CBO projections for the year 2024 and following, but they don't want to discuss it.

Wednesday, June 12, 2013

Rhodium


Source:http://www.goldeneaglecoin.com/Other_Metals

Rhodium is the 5th precious metal, joining gold, silver, platinum and palladium. The 5 ounce bar shown is on sale for $5,850.  Current spot price per ounce is $1,175.  Only 25 tons of it are mined per year, mostly from South Africa, and almost all of it is used industrially in catalytic converters for automobiles.

The price for Rhodium hit $10,100 per ounce on June 19, 2008 before dropping below $1000 per ounce by the end of 2008.  The price is currently on a downward trend, similar to the other precious metals.



"Rhodium is a non-exchange-traded commodity and because it does not trade on the commodity exchanges it cannot be bought on margin like other commodities. Thus it cannot be bought using futures, exchange traded funds, contracts for differences (CFD’s), spread betting or other derivatives. Rather, investors must opt for the far more conservative and safer route of owning the actual physical metal itself rather than paper derivatives. Rhodium is finite and the rarest of precious metals. In a finite planet with a rapidly growing population and money printing and currency debasement on a scale not seen in modern times, rhodium is likely to at least preserve value in the coming years."
http://moneyweek.com/investing-in-commodities-precious-metals-rhodium-93413/

"“Rhodium is the most price-inelastic of the platinum group metals on both the supply and demand sides of the price equation”. That means that when there is a surplus or deficit of rhodium, the price goes up or down dramatically and hardly balance the market of the metal. ... Rhodium tends to occur along with deposits of platinum and is primarily obtained as a byproduct of mining and refining platinum. That’s why even high rhodium price, doesn’t change the supply, because there is no rhodium mine in the world but mines of platinum.  Rhodium has suffered huge price decline and the downside seems limited. The upside potential is compelling. 
http://octafinance.com/2011/rhodium-investment/


Monday, June 10, 2013

New Cities in Africa

Eko Boulevard, Business District. North aspect
Eko Atlantic

See http://edition.cnn.com/2013/05/30/business/africa-new-cities-konza-eko/index.html

From the Konza technopolis outside Nairobi, to King City near the emerging port of Takoradi, Ghana, through the luxurious Eko Atlantic on Victoria Island in Lagos, these urban projects are designed to offer high-quality services and modern infrastructure. They're typically branded as smart and futuristic, combining leisure facilities, business opportunities and social amenities for their residents -- from schools and medical centers to shopping malls, theaters and restaurants.

The capital and biggest city of Rwanda has launched an ambitious urban development plan to transform itself into the "center of urban excellence in Africa." The bold and radical 2020 Kigali Conceptual Master Plan includes all the hallmarks of a regional hub for business, trade and tourism. It envisages Singapore-like commercial and shopping districts boasting glass-box skyscrapers and modern hotels, as well as green-themed parks and entertainment facilities.


Sunday, June 9, 2013

Net Worth


2013:Q1: 70,349.12 Billions of Dollars
2012:Q4:  67,346.45
2012:Q3:  65,949.30
2012:Q2:  63,930.29
2012:Q1:  64,185.04
2011:Q4: 61,327.67
2011:Q3: 59,206.51

Most of the increase is in stocks and real estate.  I think it will go up to 80,000 before crashing.

Saturday, June 8, 2013

Real GDP dropping

Source: http://market-ticker.org/akcs-www?singlepost=3216019

Karl Denninger, the blogmaster of the Market-Ticker.org site, believes that GDP has actually been dropping and at an accelerating pace.  I'm not sure that I agree, but it is worth considering.  I think the idea is that GDP should be able to grow without an increase in debt.

The counter-argument, which I am setting forth but not necessarily advocating as a good thing, is that debt can continue to increase forever.  As long as the interest is paid it can continue to grow.

Kenya is becoming a tax haven

Read http://thinkafricapress.com/kenya/secrecy-savannah-kenya-being-moulded-be-africa-flagship-tax-haven
Kenya, it seems, may be in the sights of the tax haven capital of the world: The City of London. This time, the Corporation of the City of London is trying to expand its shadow economy into Kenya. The City of London and its ‘independent’ lobbying arm, CityUK, have been conducting high-level negotiations to help the country develop as an ‘International Financial Centre’. This may sound like a benign and even worthwhile activity. Kenya, after all, must develop, and being an International Financial Centre sounds like a good way of going about it. But what does being an “International Financial Centre” actually mean? When speaking to business insiders, the Kenyan authorities are clear. Alex Owino, a project manager at Kenya’s Finance Ministry, told a meeting in the City of London in 2011 that they plan for Nairobi to become a regional ‘offshore’ financial services hub, modelled on Ireland.
Here is an article from a magazine in Kenya.
Nairobi’s vision of following the footsteps of London, and becoming a global financial centre, has started taking shape with a financial firm appointed to deliver the work — TheCityUK — seeking partners to participate in the development of the project. This month will mark another chapter where top UK City businesses and officials are expected to receive a high-level Kenyan delegation to London to discuss plans to transform Nairobi into a world-class financial centre or destination. The bodies appointed to deliver the work, under the sponsorship of the Lord Mayor of the City of London and the Ministry of Finance in Kenya, are TheCityUK and the Kenyan Capital Markets Authority (CMA). Experts say the success of the project — aligned to objectives of Vision 2030 of positioning Kenya to attract fund flows into the country to support productive economic activities — depends on the proposed 5,000-acre Konza Technology City in Machakos County that would provide the vital high speed Internet infrastructure.


Proposed Konza Techno City

Watch the promotional video of Konza Techno City.  See also my previous post about Konza.  They call it the "Silicon Savannah" of Africa.

Shenzhen is the San Jose of China


San Jose, CA

San Jose (including the rest of Silicon Valley) is considered to be a Gamma+ Global City.  It has the headquarters of many high-tech companies including Adobe, Apple, Cisco, eBay, Facebook, Google, HP, Intel, and Yahoo.  Santa Clara County has a population of about 1.8 million and a GDP of about $170 bn/year, and is growing more than 10%/year. It is one of the wealthiest areas in the US.

NASDAQ is a stock exchange located in New York City, but most of the largest stocks (e.g. Apple) in it are headquartered in Silicon Valley.  To make this comparison work, I have to pretend that NASDAQ is located in San Jose.  It would also help to pretend that there are a few more skyscrapers there.



Shenzhen neighbors Hong Kong and has a population of 3.5 million in its urban area and 10.3 million in its metropolitan area, with a GDP of about $180 bn/year (in the metro area).  It is considered to be a Beta- Global City, one level above San Jose.  "Being southern mainland China's major financial centre, Shenzhen is home to the Shenzhen Stock Exchange as well as the headquarters of numerous high-tech companies. Shenzhen is also one of the busiest container ports in China."  "Shenzhen is in the top ranks among mainland Chinese cities in terms of comprehensive economic power. It ranked fourth in GDP among mainland Chinese cities in 2001, while it ranked the top in GDP per capita during the same period. Its import and export volumes have been first for the last nine consecutive years.".

The Kingkey 100 is the tallest building in Shenzhen with a height of 439m, similar to the Willis Tower in Chicago (442m).  The Ping An Finance Center, at a height of 660m (including spire), is expected to be completed in 2016, and will be the second-tallest building in the world after the Burj Khalifa.

Get Happy



Forget your troubles
Come on get happy
You better chase all you cares away
Shout hallelujah
Come on get happy
Get ready for the judgment day

The sun is shining
Come on get happy
The lord is waiting to take your hand
Shout hallelujah
Come on get happy
We're going to the promised land

We're heading across the river
Wash your sins away in the tide
It's all so peaceful on the other side

Shout hallelujah
Come on get happy
You better chase all your cares away
Shout hallelujah
Come on get happy
Get ready for the judgment day

Friday, June 7, 2013

The Nicaraguan Canal



It would only need to be 10km long and would shorten the distance between New York and San Francisco by nearly 800km (500 mi) because it runs east-west instead of north-south like the Panama canal.  It would also allow much bigger ships to pass through.  Most importantly it would end the monopoly of the Panama canal.  And now it is becoming a reality.

"Nicaragua has awarded a Chinese company a 100-year concession to build an alternative to the Panama Canal, in a step that looks set to have profound geopolitical ramifications.
The president of the country's national assembly, Rene Nuñez, announced the $40bn (£26bn) project, which will reinforce Beijing's growing influence on global trade and weaken US dominance over the key shipping route between the Pacific and Atlantic oceans."
http://www.guardian.co.uk/world/2013/jun/06/nicaragua-china-panama-canal

Thursday, June 6, 2013

Moonlight Sonata 3rd

Looks easy ;)

Apoplithorismosphobia

... is the irrational fear of deflation.




TCMDO



Fred just released the latest TCMDO numbers.  It is 56,999 (billion) as of 3/31/2013. This is an increase of over 500 billion in just 1 quarter.  It should hit 60,000 by 9/30/2014 at this pace.

Where is this increase coming from?


Mostly from corporate and US Treasury bonds.

The IMF is angry with Europe


Christine Lagarde, head of the IMF.

She thinks these guys are idiots:


Jose Manuel Barroso, president of the European Commission.


Mario Draghi, president of the European Central Bank

" I came to realise the depth of anger amongst IMF officials against Germany, Frankfurt and Brussels. As one of them put it to me in no uncertain terms, “the Europeans forced us into a program for Greece that sullied the IMF’s image (sic)”. More importantly, the IMF was livid that Germany was proclaiming a banking union in order to ensure that it never actually happens."
--http://yanisvaroufakis.eu/2013/06/06/the-imfs-anger-and-what-it-means-for-the-eurozones-crashing-periphery/

"The European Commission on Thursday defended its handling of the Greek debt crisis, saying it "fundamentally disagrees" with criticism voiced by the International Monetary Fund."
http://abcnews.go.com/International/wireStory/eu-rejects-imf-criticism-handling-greek-crisis-19337225

The report places part of the blame on Europe:
"C. How well did the Troika arrangement work?
62. There was no clear division of labor. Fund collaboration with the World Bank on country programs rests on an agreed division of labor. There was no such clarity in the assignment of responsibilities across the Troika. The EC needed to be involved in all aspects of the program to ensure conformity with European laws and regulations. While the Fund had experience designing fiscal adjustment, the EC had its own fiscal targets from Maastricht. The EC had structural reforms expertise, but so too did the Fund, particularly in the fiscal area. And from the Fund’s perspective, the EC, with the focus of its reforms more on compliance with EU norms than on growth impact, was not able to contribute much to identifying growth enhancing structural reforms. In the financial sector, the ECB had an obvious claim to take the lead, but was not expert in bank supervision where the Fund had specialist knowledge.
The Fund’s program experience and ability to move rapidly in formulating policy recommendations were skills that the European institutions lacked. "

Ouch.  Translation:  Europeans are a bunch of idiots.  We never should have listened to you.  You screwed up Greece.  I can't wait for Nigel to chime in.

Wednesday, June 5, 2013

More on Medicaid

I just realized that we should be looking at the total Medicaid projected expenditures, not just the Federal portion. It really is a federal program that the states are sort of coerced to share in the cost.  Since I am looking at total systemic debt, the total 10-year Medicaid cost should be included. Here is the 10-year total cost in red:



Source:https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/downloads/MedicaidReport2012.pdf , page 22.

This is so outdated that it includes 2012 in the projections.  But it's the latest hard data that we have.  The 2012 report was released about March 1, 2013, so the next one won't be out for another 9 months.

The total ten-year cost is 5576.9 billion.  Instead of looking at the specific years, I am looking at a reasonable estimate for 10 years worth of expenditures.  Rounding this to $5.6 trillion, it makes total systemic debt $87.2 trillion.

This is a huge number.  But on the bright side, it isn't increasing very fast.  A little inflation would make it easier to pay down or keep current with the debts.  But in our debt-based system, how do you cause inflation?  The only way is through government deficit spending in categories other than entitlement spending, which are already included in the total.  Maybe that is a partial explanation of why we don't have inflation and  even have a little deflation.  Creditors (and by this I include beneficiaries of entitlements) want paid back.

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What was the previous number?  The previous 2012 systemic debt was $81.9 trillion, plus the $5.6 trillion for Medicaid, gives a revised 12/31/12 systemic debt total of $87.5 trillion.  Yea that's higher than the current number, due to revised estimates for unfunded SS and Medicare liabilities.

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Using the 2011 Medicaid Report, the 10 year total is 6637.1 billion or $6.6 trillion, so it actually decreased by $1 trillion in one year.  Adding this to the previously calculated 2011 systemic debt of $79.1 trillion gives a revised 12/31/11 systemic debt total of $85.7 trillion.

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What about 2010?  The 10 year total from the 2010 Medicaid Report is 5994.0 billion or $6.0 trillion.  Adding this to the previously calculated 2010 systemic debt of $73.5 trillion gives a revised 12/31/10 systemic debt total of $79.5 trillion.

So the increase from 2010 to 2011 was 6.2 trillion.  What caused this?  Mostly an increase in the unfunded liabilities of Social Security and Medicare.


Medicaid Liabilities

How should Medicaid be treated?  Is it an unfunded liability?  The proponents of Medicaid say no:
Medicaid costs are met primarily by Federal and State general revenues, on an as-needed basis; the States may also rely on local government revenues to finance a portion of their share of Medicaid costs. The Federal financing is authorized through an annual appropriation by Congress. These funds are then spent through daily draws from the general fund of the Treasury in the amounts required to pay that day’s Federal matching amounts on the State program expenditures. As a result, Medicaid outlays and revenues are automatically in financial balance, there is no need to maintain a contingency reserve, and, unlike Medicare, the “financial status” of the program is not in question from an actuarial perspective.
Source: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/downloads/MedicaidReport2012.pdf
So because Medicaid is annually appropriated by Congress it is not an unfunded liability.  However, the "users" of Medicaid certainly have an expectation that it will continue.  I think that to the extent it is in the 10-year budget, it is reasonable to rely on it, and it should be considered to be a liability or debt. (And the flip side is that it is an "asset" to beneficiaries).  And to keep it simple, it shouldn't be discounted to net present value.  So without further ado, here is the Medicaid liability:


So I think this $4.1 trillion should be added to the number I call "systemic debt", which is currently at $81.6 trillion.  So systemic debt is really $85.7 trillion.

And what is the significance of "systemic debt" again? It is most of the debt (and also the flip side, wealth) in the United States and indeed the world.  The "system" has a commitment to paying this debt, or at least keeping current on it.

And that is the heart of our current malaise. "We" are committed to not letting the number shrink (i.e. a foreclosure should lead to a write-down, but instead the bank will keep the zombie property off the market until conditions improve).  But "we" also don't want the number to increase too quickly, or it will quickly become inflationary.  So we are driving with one foot on the break and the other on the gas and wondering why we are not getting anywhere.

Tuesday, June 4, 2013

QE4 and excess reserves


All of the extra cash created by the Fed is just sitting in bank accounts.  What is the difference between an investment in US treasuries, and a deposit in the Fed, which invests in treasuries?  Not much, except the latter pays less interest.  However, the risk of a drop in the value of the bonds has passed from the investor to the Fed.

See also: http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-quantitative-easing-is-sitting-there-gathering-dust-instead-of-helping-the-economy.html

Monday, June 3, 2013

Will you still love me




These are almost identical but I like the second one better for some reason.

Changchun is the Detroit of China



Changchun is the capital and largest city of Jilin province, located in the northeast of China.  It has a population of 3.4 million in its urbanized area.  "Known as China's Automobile City, Changchun is an important industrial base with a particular focus on the automotive sector."  "Despite the city’s extensive, rather grimy suburbs and rust belt feeling, the city center and the three development zones display modernity and steady development".  (Source).  "Today the capital of China’s northern Jilin Province stands as “China’s Detroit” as the country’s largest automobile producer. The Changchun Automotive Economic Trade and Development Zone is home to the country’s biggest wholesaler of used cars, automotive spare parts and tires." (Source).

Jilin has a northerly continental monsoon climate, with long, cold winters and short, warm summers. Average January temperatures range from -20 to -14°C



Detroit is the largest city in the state of Michigan, with 5.2 million in its greater metropolitan area. "Detroit and the surrounding region constitute a major center of commerce and global trade, most notably as home to America's 'Big Three' automobile companiesGeneral MotorsFord, and Chrysler. " The northern part of the Lower Peninsula [of Michigan] and the entire Upper Peninsula has a more severe climate, with warm, but shorter summers and longer, cold to very cold winters. 


Guangzhou is the Los Angeles of China



Guangzhou (formerly Canton) is the capital and largest city of Guangdong province with a population of 12.8 million, making it the 3rd largest city in China (behind Shanghai and Beijing).  "Guangzhou is the main manufacturing hub of the Pearl River Delta, one of mainland China's leading commercial and manufacturing regions. In 2009, the GDP reached ¥911.28 billion (US $133.5 billion), per capita was ¥89,498 (US $13,111)."  "As the largest city in one of China's wealthiest provinces, Guangzhou attracts farmers from the countryside looking for factory work."  "The elevation of the prefecture generally increases from southwest to northeast, with mountains forming the backbone of the city, and the ocean comprising the front. Tiantang Peak (天堂顶, meaning Peak of Paradise in Chinese), which stands 1,210 m (3,970 ft) above sea level, is the highest mountain in Guangzhou."  "Summers are wet with high temperatures, high humidity and a high heat index. Winters are mild and comparatively dry."



Los Angeles is the most populous city in the U.S. state of California and the second most populous in the United States, after New York City, with a population at the 2010 United States Census of 3,792,621 "The city is the focal point of the larger Los Angeles–Long Beach–Santa Ana metropolitan statistical area and Greater Los Angeles Area region, which contain 12,828,837 and nearly 18 million people respectively as of 2010, making it one of the most populous metropolitan areas in the world and the second largest in the United States."  "Nicknamed the City of Angels, Los Angeles is a global city, with strengths in business, international trade, entertainment, culture, media, fashion, science, sports, technology, education, medicine and research and has been ranked sixth in the Global Cities Index and 9th Global Economic Power Index." "The Los Angeles combined statistical area (CSA) has a gross metropolitan product (GMP) of $831 billion (as of 2008), making it the third largest in the world, after the Greater Tokyo and New York metropolitan areas."  " The highest point in the city is 5,074 ft (1,547 m) Mount Lukens, located at the northeastern end of the San Fernando Valley. "

Guangzhou and Los Angeles are sister cities.

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Foshan is a neighboring city to Guangzhou and part of the same metropolitan area.  It has a population of 3.6 million in the city proper, and is a manufacturing and industrial base.


The Riverside-San Bernadino metropolitan area, also called the "Inland Empire", has more than 4 million people in its urbanized area and is adjacent to Los Angeles. "Some of the nation's largest manufacturing companies have chosen the Inland Empire for their distribution facilities".