Sunday, January 27, 2013

Obama's Orwellian radio address on "irresponsible behavior"

From the Weekly Standard:
"Here in America, we know the free market is the greatest force for economic progress the world has ever known. But we also know the free market works best for everyone when we have smart, commonsense rules in place to prevent irresponsible behavior," Obama began.

"That’s why we passed tough reforms to protect consumers and our financial system from the kind of abuse that nearly brought our economy to its knees. And that’s why we’ve taken steps to end taxpayer-funded bailouts, and make sure businesses and individuals who do the right thing aren’t undermined by those who don’t.

"But it’s not enough to change the law – we also need cops on the beat to enforce the law. And that’s why, on Thursday, I nominated Mary Jo White to lead the Securities and Exchange Commission, and Richard Cordray to continue leading the Consumer Financial Protection Bureau.

"Mary Jo White has decades of experience cracking down on white-collar criminals and bringing mobsters and terrorists to justice. At the SEC, she will help complete the task of reforming Wall Street and keep going after irresponsible behavior in the financial industry so that taxpayers don’t pay the price."
It is so perfectly and completely the opposite of reality that I find it difficult to find the words.

I can't think of one major financial industry executive that was prosecuted for irresponsible behavior. I haven't seen any tough reforms to protect consumers. I haven't seen any cops enforcing financial laws, just coddling of banks and wrist slaps. There were monstrous bailouts by Bush, approved and extended by Obama. The federal government still owns a large piece of Citibank and General Motors. Taxpayers are still paying for the bailouts of Fannie, Freddie, Bear Stearns, Bank of America, Goldman Sachs, Merrill Lynch, Morgan Stanley, and more. The statements in the radio address seem to go much farther than just spin. It is calling white, black and vice versa. I can only shake my head in disbelief.

Tuesday, January 22, 2013

CFNAI back to Yellow Alert

The Chicago Fed National Activity Index is a composite index built from 85 monthly indicators. A reading of zero is historical trend growth, a reading above zero is faster and below zero is slower growth.


The composite for December was 0.02 and the three month moving average was -0.11. The last two months have shown some improvement back toward long term trend growth, but the three month moving average posted a 10th consecutive negative reading. It has moved out of the red alert zone back into yellow alert.

Tuesday, January 15, 2013

California LAO analysis of insolvent UI fund

For years, I've charting the decline into insolvency of the California Unemployment Insurance Fund. The fund balance now rests near all time lows of negative ten billion dollars (-$10,000,000,000). A negative balance is possible and California can continue to pay unemployment insurance claims only because of loans from the federal government for which it is now paying interest.

Even if California runs a $1 billion surplus in 2013, it would need to do so for more than 10 years in a row and put every penny of that surplus toward repaying the federal government for the unemployment loans plus interest. It is possible that the federal government will forgive these gigantic loans some day, but for now, my expectation is that California will have to repay the loans.

The Legislative Analyst's Office (LAO) recently released an Overview of the Governor's Budget in California. On page 37 of the report, the insolvent unemployment fund was addressed:
Federal Loans Total About $10 Billion. The UI Fund has been insolvent since 2009, primarily reflecting recession-related growth in unemployment benefit payments that exceeded the available fund balance. The state has borrowed from the federal government since 2009 to continue paying unemployment benefits, and the outstanding loan from the federal government is projected to be $10.2 billion at the end of 2013. The Governor’s budget does not propose a solution to the ongoing UI Fund deficit, but instead specifies that the Secretary for Labor and Workforce Development will initiate a series of meetings by February 1, 2013 to discuss solutions to repay the federal loan and stabilize the financial condition of the UI Fund. The budget also assumes a $291 million General Fund interest payment on the federal loan for 2013-14.

Effects of the Continuing Insolvency. For each year that the state carries a federal loan balance, UI taxes paid by employers are incrementally increased. The proceeds from these increased tax revenues are used to pay down the principal on the state’s federal loan. Absent corrective action, the administration projects that the federal loan will not be fully repaid until sometime after 2020. Until then, state interest payments on the federal loan remain a significant annual liability.

Recommend Various Actions to Address Program’s Financial Health. We have previously found that California’s UI program has a structural mismatch between its revenues and benefit costs that predates the recent recession and cannot be sustained for the long term. In our October 2010 report, California’s Other Budget Deficit: The Unemployment Insurance Fund Insolvency, we recommended a balanced approach of tax increases, benefit reductions, and eligibility changes to address the long-term financial health of the UI program. These policy options are still viable, and could be phased in over several years if the goal were to minimize the potential adverse economic effects of such proposals on UI beneficiaries and employers.
The LAO analysis highlights the continued, long term insolvency of the fund, the ongoing interest expense to the state, and the increasing cost to employers to try to rebuild a positive fund reserve. This is another legacy from the Financial Crisis in 2008.

Sunday, January 6, 2013

Gold vs. US debt linear regression update

The chart below is based on data since 2001. The R-squared is 0.93.

Best fit price is 1,764.62.
One sigma below is 1,682.91.
One sigma above is 1,846.32.
Two sigma below is 1,602.69.
Two sigma above is 1,926.54.

The next chart is based on data since 1971. The R-squared is 0.76.

Best fit price is 1,429.76.
One sigma below is 1,208.74.
One sigma above is 1,650.77.
Two sigma below is 986.36.
Two sigma above is 1,873.16.

Usual and customary disclaimers. Correlation is not causation. This is not investment advice.

Tuesday, January 1, 2013

Happy New Year (cliff edition)

We have a deal, but it hasn't been voted on yet. We are in living in The Space in Between.

Update 1/2/2013: We have a deal approved by Congress that will be signed by the President. The CBO estimates the deal to add $3.9 trillion to the deficit over 10 years. Wow. I always believed the debt/deficit were out of control, but I expected some kind of token resistance to it from Congress. Apparently, it is pedal to the metal from all branches of the federal government.