David Collum: We’ve Got A Recession Coming

Submitted by Adam Taggart via PeakProsperity.com,

Whether or not you’ve had time yet to plow your way through David Collum’s excellent 2016 Year in Review, our annual podcast with Dave always brings additional color to light — and this year’s is no exception.

Any model based on an assumed 7.5% return is doomed. As you get low returns, our pensions get in trouble. And whenever the returns shoot above the norm they say “Well, this is excess.” And they scoop it up. So every time they are above water they scoop it up. How? They stop contributing. They start using the money for other stuff. Think of a sine wave oscillating about the mean — even if you guessed the mean correctly, if every time it is on the high side you skim it you’ll never get the mean; and that’s what the pension managers have done. And companies just stop contributing to pension plans and started calling the retained funds “profits”, which causes equities to go up and makes the thing get out of whack.

 

We’ve got a recession coming, one of the full-blown kind. And I don’t know what will happen. My prediction is that it is going to be a bad one. But what a lot of people don’t realize is that is when things start unwinding, counter party risk kicks in and faulty business models start showing up as bad and they start collapsing. All the accounting problems that built up behind the scenes so that the people cook the books to get their bonuses up and they made these crazy assumptions — under the protective cloak of a recession, CEOs can get away with announcing anything because they say Hey, don’t look at me. It’s a recession. So they write down huge blocks of cost. This actually exacerbates the downswing because people are dumping all their cooked books and getting all the fraud off their books so they don’t have to fess up to the fact that they cooked them. In actuality, they’re getting ready to then start building up their stock options again from some bottom somewhere.

 

This is going to unwind. It has to unwind. This is like a person who weighs 850 pounds — they’re not going to make it into their 90s, right? 

Click the play button below to listen to Chris’ interview with David Collum (49m:26s).

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Israel pressing ahead with settlements after UN vote

The Jerusalem municipality is due to act on Wednesday on requests to construct hundreds of new homes for Israelis in areas that Israel captured in 1967 and annexed to the city, drawing fresh criticism from the United States that settlement activity puts Middle East peace-making at risk. Israel is still fuming over the resolution approved last Friday by the United Nations Security Council that demands an end to settlement activity in the occupied West Bank and East Jerusalem. US State Department spokesman Mark Toner said he was aware of press reports about plans for more settlement building. “We would hope that the UN Security Council resolution would serve as a wake-up call, a call to action, an attempt to alert […]

Nation’s Second Largest Union “Prepares To Fight-Back Against” Trump’s “Extremist-Run Government”

Republican control of all three branches of government in Washington DC has the nation’s second largest labor union worried about what a Trump administration might mean for their already declining membership and corresponding union dues.  In response, the Service Employees International Union (SEIU) which represents nearly 2 million government, health care, and building-services workers and wields an annual budget of $300 million, has taken steps to slash its budget by 30% in an effort to hoard cash “to fight-back against” Trump’s “extremist-run government”.  Per an internal memo from SEIU President Mary Kay Henry reviewed by Bloomberg:

“Because the far right will control all three branches of the federal government, we will face serious threats to the ability of working people to join together in unions,” SEIU President Mary Kay Henry wrote in an internal memo dated December 14. “These threats require us to make tough decisions that allow us to resist these attacks and to fight forward despite dramatically reduced resources.” After citing the need to “dramatically re-think” how to implement the union’s strategy, Henry’s all-staff letter announces SEIU “must plan for a 30% reduction” in the international union’s budget by January 1, 2018, including a 10 percent cut effective at the start of 2017.

 

Asked about what the memo could mean for its current campaigns, SEIU didn’t offer specifics. “As we prepare to fight-back against the forthcoming attacks on working people and our communities under an extremist-run government, we know we must realign our resources and streamline our investments to buttress and broaden our movement to restore economic and democratic opportunity for all families,” said spokeswoman Sahar Wali. “As part of this process, we are currently looking at possible ways to improve our budgets.”

Of course, the SEIU is likely most worried about so-called “Right to Work” laws which allow workers the choice to decline paying fees to the unions that represent them.  But if unions are providing such a great service for their membership then shouldn’t workers to happy to pay their dues?

In Michigan, for example, Republicans in 2012 passed a private sector “Right to Work” law that let workers decline to fund the unions representing them, a public sector law doing the same for government employees, and a third law stripping University of Michigan graduate student researchers and  home-health aides of their collective-bargaining rights. Afterwards, SEIU’s Michigan healthcare local lost most of its membership.

 

With Republican dominance in Washington, the threats to SEIU will get more grave—everything from slashing health-care spending to passing a federal law extending “Right to Work” to all private-sector employees could be on the table. One of the most widely expected scenarios is that a Trump appointee will provide the decisive fifth vote on the Supreme Court’s labor cases. The court already ruled in 2014 that making government-funded home health aides pay union fees violated the First Amendment, and a future case could apply the same logic to all government employees, effectively making the whole public sector “Right to Work.” SEIU was bracing for such a ruling earlier this year, in a case called Friedrichs v. California Teachers Association, but got an unexpected reprieve when Scalia’s death left the court tied four to four. With several similar cases brought by union opponents already making their way through lower courts, it may not last for long.

In the past few years, the SEIU has been most vocal about it’s “Fight for $15” campaign which has drawn support from the likes of Bernie Sanders.  Of course, the effort seemingly ignores the cost of living differences between the Midwest and large metropolitan areas like San Francisco and New York City in arguing that a $15 minimum wage is somehow perfect for the entire country.

Fight for $15

 

According to the “Fight For $15” website, the organization started with just a few hundred fast food workers in New York City and has since spread to over 300 cities and a variety of industries.  Meanwhile, the organization also claims to have “won” mandates for a $15 per hour minimum wage in multiple jurisdiction across the U.S. including New York and California.

The Fight for $15 started with just a few hundred fast food workers in New York City, striking for $15 an hour and union rights.

 

Today, we’re an international movement in over 300 cities on six continents of fast-food workers, home health aides, child care teachers, airport workers, adjunct professors, retail employees – and underpaid workers everywhere.

 

For too long, McDonald’s and low-wage employers have made billions of dollars in profit and pushed off costs onto taxpayers, while leaving people like us – the people who do the real work – to struggle to survive.

 

That’s why we strike.

 

When we first took the streets, the skeptics called us dreamers – said a $15 wage was “unwinnable.”

 

We won $15 an hour across New York State and California.

 

We won $15 in Seattle, and huge raises in cities from Portland to Chicago.

 

We won $15 for Pennsylvania nursing home workers and all hospital employees at UPMC – Pennsylvania’s largest private employer.

 

And we won’t stop fighting until we turn every McJob into a REAL job.

As we’ve pointed out before, sometimes defining a “victory” can be difficult…this doesn’t look like a “win” to us:

McDonalds Kiosk

 

And neither does this:

Uber

 

In conclusion:

Min Wage

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<b>Crude Oil</b> Futures Trading Signals

Crude Oil Futures Trading Signals Watch Binary Options Winning Trading Method On Mt4 Platform Free Futures Trading Advisory Alerts, Signals and …The post <b>Crude Oil</b> Futures Trading Signals appeared first on crude-oil.top.

Egyptian official calls on Addis Ababa to stop accusing Cairo of supporting Ethiopian opposition

An Egyptian Foreign Ministry official called on Addis Ababa to stop what Cairo believes to be the provocation of crises between the two countries against the backdrop of Ethiopian accusations in October  that Cairo supports the anti-government Oromo ethnic group. The two countries have been at loggerheads since Ethiopia started to construct the Grand Ethipian Renaissance Ethiopian Dam, which Egypt fears could reduce its share of Nile water. “Addis Ababa knows well that Egypt has nothing to do with internal events in Ethiopia, but its attempts to involve Egypt’s name in the internal events it is going through will not be of use,” the Egyptian official told the UAE-based media outlet “24”. “[Egyptian] relations with Ethiopia – no matter how […]

Egyptian official calls on Addis Ababa to stop accusing Cairo of supporting Ethiopian opposition

An Egyptian Foreign Ministry official called on Addis Ababa to stop what Cairo believes to be the provocation of crises between the two countries against the backdrop of Ethiopian accusations in October  that Cairo supports the anti-government Oromo ethnic group. The two countries have been at loggerheads since Ethiopia started to construct the Grand Ethipian Renaissance Ethiopian Dam, which Egypt fears could reduce its share of Nile water. “Addis Ababa knows well that Egypt has nothing to do with internal events in Ethiopia, but its attempts to involve Egypt’s name in the internal events it is going through will not be of use,” the Egyptian official told the UAE-based media outlet “24”. “[Egyptian] relations with Ethiopia – no matter how […]

Is The “Deplorable Economy” Flashing Warning Signs About Overall Economic Growth Prospects?

For months we’ve been warning that soaring auto sales represent nothing more than the latest bubble created courtesy of low interest rates, deteriorating lending standards in the form of stretched maturities and weaker credit profiles, and an insatiable demand for auto securitizations from yield-thirsty pension funds which wall street is happily trying to meet (see here, here and here).

Of course, with subprime auto ABS issuance soaring past 2006 levels last year…

Auto ABS Issuance

 

…and total outstanding auto loans up 34% over the previous peak set back in 2005, it’s not that difficult to understand our concern.

Auto ABS Outstanding

 

Meanwhile, as Craig Kennison of Baird’s Consumer Leisure Group points out, the “Deplorable Economy” (i.e. demand for big-ticket discretionary goods like RV’s, boats and 4-wheelers) may also be getting “ahead of itself” despite the expectation of lower taxes rates from the Trump administration.

We like ideas exposed to the deplorable economy, but our powersports checks suggest the Trump-trade may be ahead of itself. Early 2017 could repeat the trading action in early 2016, when many stocks bottomed only after management teams reset expectation. Look for a post-Christmas sale on deplorable ideas like Polaris. We also would look for discounts in the marine space, including Brunswick and MasterCraft, which should benefit from a boot in wealth fueled by a higher stock market, healthy real estate values, and tax cuts. Beyond a job, a tax cut for individuals remains the single most important catalyst for discretionary spending (but a corporate tax cut may be a more important factor for stocks). With that in mind, we favor stocks with heavy U.S. exposure and higher tax rates that have the potential to drop.

 

We are optimistic that policy changes will benefit our coverage universe but see huge risks in trade policy and international exposure. A NAFTA reboot could harm Polaris and BRP. Meanwhile, Harley-Davidson could benefit from policies favoring the American worker – but a strong dollar and foreign retaliation may make life more difficult overseas.

 

A wealth effect among affluent consumers (and expanding credit availability) fueled robust demand for big-ticket recreation products from 2010-2015. However, in 2016, a divergence in growth between various Leisure categories emerged – and our view of the wealth effect became more nuanced. We saw that Leisure categories whose wealth effects are tied to the stock market and real estate values (e.g., marine, RV) continued to grow, while categories whose wealth effects are tied more heavily toward oil and ag prices (e.g., powersports) saw a sharp decline in demand in 2016. We see a bottom forming in oil and ag markets which we believe supports stable to modestly increasing demand in the powersports space in 2017 – and expect fundamentals to support continued steady growth in the marine and RV markets over the next year.

As Kennison notes, the expansion of cheap credit has driven the demand for “Deplorable Toys” like towable RVs to 131% of their previous peak demand set before the “great recession.”  Meanwhile, demand for autos has also surpassed the previous peak while demand for other big-ticket toys have also soared over the past two years.

Deplorable Economy

 

And for those that would dismiss the importance of soaring RV sales, perhaps the following chart can help put their relevance to the broader economy into perspective.

What do #RV sales and #GDP have in common? A lot, actually. via @Yamarone and @BloombergBrief #economics pic.twitter.com/vTRLTwaVvZ

— Anne Riley Moffat (@A_Riley17) February 12, 2015

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