What Will Your Bank Look Like 5 Years From Now? How Will Pizzas Be Delivered? Do You Tip a Drone?

Every time I walk into my bank, I typically notice several offices in plain view of customers, each with a manager or loan office sitting doing nothing.

On other occasions, there may be a wait to see an officer, perhaps even a long wait.

What if there were queues of bankers at all times, and a no-wait policy? What might that cost?

Actually, it would be far cheaper.

Express Banking

The Telegraph reports computers lined up to replace humans in bank branches.

Several major banks are understood to be in talks to introduce "express" branches, which would be similar to self-service checkouts in supermarkets. These smaller outlets would be almost completely devoid of human interaction.

If trials are successful, the new format is likely to be adopted across Britain, sources said, with larger branches slimmed down and staff numbers reduced in branches.

Martin Shires of banking technology firm NCR said: "As early as next year, you could see one of the major high street banks buying a convenience store location and fitting it out with ATMs that mean you can do 95pc of your transactions through self-service. Within five years this will be a common sight."

The new branches would be smaller and fitted with screens and telephones so that customers could call a specialist department for assistance. This might include a video link similar to the Skype internet telephone service.

Ed Salvesen, a researcher at Brewin Dolphin, the investment manager, said while it is likely that some staff will retained in branches, in-person banking could become a rarity. "Face-to-face communication is slowly being faded out," he said. 

Mr Shires said the technology would allow banks to open for longer, as machine-led branches would be significantly cheaper to run. He said a pilot scheme of express branches in the US had reduced operating costs by up to 50pc, with some staff redeployed from branches to video call centres.

Drone for Deliveries

Amazon made a big splash last week with news of using drones for deliveries.

Amazon, the world's largest online retailer, is testing unmanned drones to deliver goods to customers, Chief Executive Jeff Bezos says. The drones, called Octocopters, could deliver packages weighing up to 2.3kg to customers within 30 minutes of them placing the order, he said.

However, he added that it could take up to five years for the service to start. The US Federal Aviation Administration is yet to approve the use of unmanned drones for civilian purposes. "I know this looks like science fiction, but it's not," Mr Bezos told CBS television's 60 Minutes programme.

Amazon Prime Air

On it's website, Amazon is excited about Prime Air.

The goal of this new delivery system is to get packages into customers' hands in 30 minutes or less using unmanned aerial vehicles.

Putting Prime Air into commercial use will take some number of years as we advance the technology and wait for the necessary FAA rules and regulations.

Amazon Test Flight



Do You Tip a Drone?

Dominos does not deliver to my area. Nor Does Pizza hut. Yet, I am less distance away from their stores than many places they will deliver to. I am just in a different town. A drone with a GPS would have no problems whatsoever delivering to my address.

And it would be cheaper and faster, for me, as well as the pizza place to not have to bother with human carriers or tips.

Like Amazon, Domino's Tests Delivery of Pizza by Remote-Controlled Drone.

The company's DomiCopter—a joint effort by U.K. drone specialist AeroSight, Big Communications and creative agency T + Biscuits—is an eco-friendly machine capable of carrying pizzas in heatwave bags for impressive distances without refueling. Sadly, it's also a threat to the labor force of guys who get stoned in their cars and forget where you live.

Jamba Juice Vending Machines

Bloomberg reports As Smoothie Store Sales Slow, Jamba Juice Turns to Machines

McDonald’s (MCD) is in the smoothie market, and others like Dairy Queen and Panera (PNRA) spent the summer promoting their rival drinks.

But the smoothie chain is hoping to see improvement from something it calls “JambaGo,” a self-serve machine that can be installed in cafeterias, schools, and convenience stores. Jamba Juice makes money by selling the prepackaged, pre-blended smoothie ingredients to JambaGo vendors, like a soda maker selling syrup to the owner of a soda fountain. The advantages: Jamba doesn’t need to build a store and the labor costs are much lower compared with hiring staff to concoct made-to-order drinks.

About that $15 an Hour Minimum Wage

I received hundreds of emails and comments to my post Battle for $15 minimum Wage; Should Companies Pay Workers More? Wal-Mart a Savior or a Pariah?

But as I reflect on what is on the horizon at Amazon, at Dominos, at banks, and with Jamba Juice Vending machines, it seems the $7.25 an hour minimum wage is far too high already.

Regardless, every increase in minimum wage will further encourage businesses to seek alternatives to human employment.

Obamacare does the same thing.

More Questions to Consider

• Does Jamba Juice even need stores?
• Why can't McDonald's drive-up windows have a central dispatch (in India)?
• What about touch screen fast-food service robots? Might they not even take on a human form?

I can certainly envision McDonald's paying $15 an hour, but with 75% fewer human employees. The same applies to every fast-food company in the world.

You can force fast food and other places to pay a higher minimum wage, but you cannot force them to hire someone.

And the higher the minimum wage, and the higher the costs of Obamacare, the greater incentive to seek alternatives.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Debt Deflation in Spain: Record 4.7% Decline in Household Credit, Business Lending Down 10%

Kiss any notion of a Spanish recovery goodbye.

Via translation, El Pais reports Household credit suffers record fall in October despite the rescue.

Credit in Spain continues to show signs of weakness, year and a half after the Troika bailout.

Statistics from the Bank of Spain show that household credit fell 5.2% in October to 793.940 billion euros. If we look at the evolution of the cash flow of borrowed money, the net change in assets is a decrease is 4.7%.

In October, the credit borrowed to buy homes fell 4.7%, maintaining its rate of collapse, to 614.860 billion euros. Lending to businesses fell 10% in October, to 1.081 trillion euros.

In both cases, the amount of money borrowed is at its lowest level since 2007.

Debt Deflation?

Precisely!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Expect the "Practically Virtually Impossible"

The collapse of Spanish housing left the banking system with as much as 51 billion euros of deferred tax assets(DTAs), mostly from 2011, that can be used against future profits for as long as 18 years.

Because the DTAs depend on future and unknowable profits, the DTAs cannot be fully counted as core capital. To get around Basel capital rules, El Diario reports Spain Guarantees 30 Billion in DTAs.

Multimillion dollar losses banks have generated billions in tax credits in just two years. The official estimate is that the sector hoards 51 billion in such tax advantages.

The government now guarantees 60 percent of the DTAs, some 30 billion euros over the next fifteen years. To make full use of the DTAs banks will have to generate 100 billion euros in profits. If sufficient results are not achieved, the state will have to come to the rescue with public debt, charged to the taxpayer.

Why 100 billion? Because corporate tax takes 30% of the profits of the company. Sources of Finance estimate that at least multiply by 3.3 the DTA to get the benefits that would be necessary to consume these benefits. And then, as always, a lot of fine print.

According to finance minister Luis De Guindos, it is "practically virtually impossible" for taxpayers to be at risk.

The "Practically Virtually Impossible"

The article contains an analysis of various banks including Bankia, CaixaCatalunya Bank, and Santander.

The fine print is critical because some of the banks have no hope of using the DTAs. Rather, they will auction them off in a raffle.

I suspect we will not have to wait until 2029 for the "practically virtually impossible" to happen. Will the eurozone even hold together that long?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

"Emerging Market Slowdown to Last for Years"; Comments from Saxo Bank Chief Economist

Citing a need for structural reforms, Paul Polman, CEO of Unilever, the world's third largest Fast-Moving-ConsumerGoods (FMCG) company says the emerging market slowdown is here to stay.

Before diving into the report on Unilever, let's take a look at the definition of FMCG corporations.

Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods (CPG) are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, and grocery items. Though the profit margin made on FMCG products is relatively small, more so for retailers than the producers/suppliers, they are generally sold in large quantities. FMCG is probably the most classic case of low margin/high volume business. Many of the players on the retailer side such as Walmart, Carrefour, Choithram, Tawseel, Sheel, Walgreens or Metro Group and supplier side are among the largest and most recognized global companies.

Fast-moving consumer electronics are a type of FMCG and are typically low priced generic or easily substitutable consumer electronics, including mobile phones, MP3 players, game players, and digital cameras which are of disposable nature.

Global leaders in the FMCG segment include Johnson & Johnson, Colgate-Palmolive, Anheuser-Busch InBev, Henkel, Kellogg's, S.C. Johnson, Dr Pepper Snapple Group, Beiersdorf, Mars Inc., Heinz, Nestlé, Reckitt Benckiser, Unilever, Procter & Gamble, L'Oréal, The Coca-Cola Company, General Mills Inc., PepsiCo, Mondelēz and Kraft Foods.

Slowdown Here to Stay

Bloomberg reports Emerging Market Slowdown to Last for Years

Unilever (UNA) Chief Executive Officer Paul Polman said the economic slowdown in emerging markets is here to stay as many countries need to enact structural reforms to adjust to new conditions after the boom of recent years.

“They are still relatively stronger economies, but still fragile,” Polman said. “And you see that growth coming off now a little bit, obviously not being helped either by lower demand coming from Europe and the U.S. This will last a few years. And it will only be corrected if some of the reforms have been made in these places.”

“I am always surprised that I am the one who sort of has to announce there’s a slowdown in emerging markets,” Polman said, speaking Nov. 29 at a reception where he was awarded the 2013 World Wildlife Fund Duke of Edinburgh Conservation Medal for Unilever’s efforts to reduce environmental damage.

“Emerging markets are clearly decelerating, but will always grow faster than the developed world,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. “Unilever is the emerging market play -- given 60 percent of sales are there, what Polman says on them has a lot of weight.”

More on FMCGs

The World of CEOs cites Unilever as the third largest FMCG. Here is a list of Leading FMCG Corporations and the products they have.

Comments From Saxo Bank Chief Economist

Steen Jakobsen, Saxo Bank chief economist pinged me with these thoughts on emerging markets as well as countries in need of structural reform.

Unilever is THE EMG company of the world. In the equity space, EMG earnings should come under some pressure and soon.

Likewise and probably a better play is to short the French luxury makers and CAC40 direct. Short Luxury and short France. Both trades are definitely high on my 2014 list.

A quick look at the CAC40 (the France stock market index), shows the CAC40 includes companies like L'Oréal (personal products), Groupe Danone (a food products corporation), LVMH (clothing and accessories), and Carrefour (food retailers and wholesalers).

France is also a country with uncompetitive labor costs and a huge need for numerous structural reforms.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Battle for $15 minimum Wage; Should Companies Pay Workers More? Wal-Mart a Savior or a Pariah?

On Friday, Salon reported Breaking: Massive Black Friday strike and arrests planned, as workers defy Wal-Mart.

Defying the nation’s top employer and a business model that defines the new U.S. economy, Wal-Mart employees and allies will try to oust shopping headlines with strike stories, and throw a retail giant off its heels on what should be its happiest day of the year. By day’s end, organizers expect 1,500 total protests in cities ranging from Los Angeles, Calif., to Wasilla, Alaska, including arrests in nine cities: Seacaucus, New Jersey; Alexandria, Virginia; Dallas; Minneapolis; Chicago; Seattle; and Ontario, San Leandro, and Sacramento, California.

On December 1, the New York Times reported Wage Strikes Planned at Fast-Food Outlets.

Seeking to increase pressure on McDonald’s, Wendy’s and other fast-food restaurants, organizers of a movement demanding a $15-an-hour wage for fast-food workers say they will sponsor one-day strikes in 100 cities on Thursday and protest activities in 100 additional cities.

The movement, which includes the groups Fast Food Forward and Fight for 15, is part of a growing union-backed effort by low-paid workers — including many Walmart workers and workers for federal contractors — that seeks to focus attention on what the groups say are inadequate wages.

The fast-food effort is backed by the Service Employees International Union and is also demanding that restaurants allow workers to unionize without the threat of retaliation.

Officials with the National Restaurant Association have said the one-day strikes are publicity stunts. They warn that increasing pay to $15 an hour when the federal minimum wage is $7.25 would cause restaurants to rely more on automation and hire fewer workers.

On Aug. 29, fast-food strikes took place in more than 50 cities. This week’s expanded protests will be joined by numerous community, faith and student groups, including USAction and United Students against Sweatshops.

Fight For 15

Inquiring minds are investigating the Fight for 15 website. Here is a snip.

Stand with striking Chicago fast food and retail workers!

We, hundreds of fast food and retail workers, went on strike at 30 stores in the Loop and the Magnificent Mile to demand $15 an hour and the right to form a union without retaliation. Employers like McDonalds, Whole Foods, and Sears are raking in enormous profits while workers like us, mostly adults with families, don’t get paid enough to cover basic needs like food, rent, health care and transportation.

We are risking our jobs as we continue to stand up and say ENOUGH. And we need everyone who supports us to join us. It’s time to give every worker a chance to survive and thrive – and strengthen Chicago’s economy.

Applicants a Mile Long

Whenever Wal-Mart opens up a store it gets tens of thousands of applicants for a couple hundred openings. People want the jobs.

Here's the deal. If you don't like the job, then don't take it.

It really is as simple as that.

Should Companies Pay Workers More?

The economic illiterates think companies should be forced to pay $15 per hour. Is it even possible?

Let's do the math.

Wikipedia reports Wal-Mart is the largest retailer in the world as well as the biggest private employer in the world with over two million employees.

In its last annual report, for the 12 months ending January 31, 2013, Wal-Mart had $16.999 billion in net income.

That sounds like a lot of money, and it is, but not as much as you might think. I do not have a breakdown in headcounts, pay scales, or number of part-time employees, but let's assume that half of the 2 million workers make $8 an hour (75 cents above above minimum wage) and work 30 hours a week.

$15 an hour would be an increase of $7 per hour. $7 multiplied by 30 hours per week, multiplied by 52 weeks a year, multiplied by 1 million workers is $10.92 billion, well over half Wal-Mart's profit.

There would also be a large number of full-time employees making above $10 per hour but less than $15 per hour.

Bump up those employees to $15 per hour and the company would not even be profitable at $15 per hour minimum. Moreover, sales would plunge at Wal-Mart, as would sales at McDonald's and Wendy's.

The pressure to automate would be great, and marginal stores would surely close. Yet, prices across the board would soar, and so would yields on US Treasuries (and of course interest on the national debt would skyrocket).

Then, how long would it take to discover that $15 was not a "living wage"? Less than a year?

Wal-Mart a Savior or a Pariah?

The idea that raising the minimum wage to $15 would fix anything is ridiculous.

I am not totally unsympathetic to the plight of those struggling, but I am totally unsympathetic about minimum wages because the problem is the Fed, not minimum wage laws.

Cheap money coupled with rising minimum wages encourages investment into automation as opposed to hiring of individuals. Cheap money also drives up costs of goods and services.

And given that cheap money primarily benefits those with first access to it (the banks and the already wealthy), it is not surprising that people are struggling.

Rather than protest Wal-Mart (a company that does the world a service by providing over 2 million direct jobs and millions more indirect ones), people ought to be protesting the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Obamacare will Work Really Well By 2017, Promise! Website Unstable but Fixed for Vast Majority (Defined as 80%)

David Plouffe, former Obama senior adviser and ABC News contributor says Obamacare Will ‘Work Really Well’ By 2017

Former Obama senior adviser and ABC News contributor David Plouffe said on “This Week” Sunday that the Affordable Care Act will “work really well” when all states run their own health care exchanges and fully expand Medicaid – actions that may not be seen until President Obama is out of office in 2017.

“This program was designed to be implemented by the states. And in most of the states that are running their exchanges it’s going quite well,” Plouffe told ABC’s George Stephanopoulos. “You talked about Medicaid expansion. I think it’s just a fact, and it may take until 2017 when this president leaves office, you’re going to see almost every state in this country running their own exchanges eventually and expanding Medicaid. And I think it’ll work really well then.”

Video



Work "really well" for whom? If Plouffe means the average (and shrinking) middle-class worker, he is out of his mind.

Website "Unstable" but Fixed for Vast Majority (Defined as 80%)

ABC News reports White House Declares Obamacare Website Fixed, But Problems Persist

Two months after the troubled launch of its signature health care initiative, the Obama administration on Sunday announced that its online insurance marketplace now functions smoothly for the “vast majority” of consumers seeking to shop for and enroll in coverage.

Today “is not a magic moment but a process of continual improvement over time,” said Julie Bataille, communications director for the Centers for Medicare and Medicaid Services, which manages the website.

The report identifies as root causes of the problems ”hundreds of software bugs, insufficient hardware and infrastructure.” It says technical teams have implemented 400 fixes, with more than 300 coming online in the last three weeks.

“We now believe the HealthCare.gov site works for the vast majority of users,” Bataille said.  The administration has defined “vast majority” as 80 percent of consumers looking to enroll online.

Still, significant problems persist with the system.

The report implies that the website continues to experience unscheduled outages at least 5 percent of the time, and officials signaled that there are still concerns about slow-downs during high traffic periods.

HHS Secretary Kathleen Sebelius advised consumers in a blog post Saturday to visit the site at off-peak times — mornings, nights and weekends — to avoid delays and potential congestion. Officials said today they are not yet ready to begin aggressively summoning people to the site until it’s demonstrated to be stable.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Don’t Be an Armsby

Move over Kunta Kinte, Solomon Northup is back! Actually, there is no objective basis for ranking Roots and 12 Years a Slave as they served two very different Americas. The former, which first aired in 1977, struck viewers still healing from the Civil Rights Movement of the 1950s and the urban uprisings of the 1960s and still coping with the overt bigotry of All in the Family’s Archie Bunker and his ilk. The latter is hitting theaters with the nation’s first African American president in his second term and with racism, though still a potent force, lurking deep in institutional crevices and exposed to public scrutiny only occasionally, by series like HBO’s The Wire.

As a period piece, 12 Years a Slave is extremely well executed. It is so good, in fact, that I hope that some well-heeled individual or well-endowed foundation will buy the rights and make it available to the world for free. Yes, people can read the book for free on Google and elsewhere online but the big screen version supersedes the text in some respects. The savagery of the whipping scenes, followed by tenderness of the post-whipping care that slaves provided each other, belie the slavers’ claims that it was the enslaved who were the savages. The hanging scenes expose how powerless the enslaved ultimately were: Northup watches helplessly as two slaves are strung up while later slaves go about their daily activities as Northup himself tiptoes in the mud with a noose about his neck for hours on end. Similarly, the wailing of a mother separated from her children by sale will not be soon forgotten by most viewers.

Director Steve McQueen has gotten the details right too. The overseers and slave traders are suitably grimy and ignorant. The economic activities depicted, shopping in stores, picking cotton, cutting cane, milling, and so forth, are accurately portrayed. Masters lust after their chattel, as we know many did, and their wives respond in authentic ways. And Paul Giamatti plays a scumbag slave trader oh so well. In short, professors can show this film in class confident that students will come away with an accurate glimpse into antebellum American chattel slavery.

There is a deeper layer here as well, one that I hope professors will explore in their classrooms. In short, we’re all Solomon Northup now. We may get a glimpse of slavery, as Northup did in a flashback scene to his pre-abduction life in Saratoga Springs, New York, but we do nothing about it, confident that slavery is something that happens to somebody else, somebody far removed from us in time or space. We cannot believe that our loved ones could ever end up in bondage but the simple fact is that it could happen, that it already has happened to millions of people worldwide, including untold numbers of Americans both at home and overseas. (Exact figures are disputed but not the point here.) Our abduction and sale are unlikely, but so was it for Northup. His trusting nature and high market value ($1,000 at the time, or approximately a quarter million dollars today) put him at risk and bad luck sealed his fate. Today, females and children are most at risk, both to be prostituted and put to forced labor, but in some areas adult men are still prized as agricultural field hands, fishers, or industrial workers. The remote possibility of abduction must be weighed against the high cost of losing a cherished one to slavers, even if you are one of the lucky few to possess Liam Neeson’s “very particular set of skills.”

We simply do not know what percentage of the enslaved are ever emancipated from modern bondage. Surely some perish and others never recover their former identities (including possibly Northup himself, who disappeared with nary a trace in 1857). Although modern forms of slavery take place all around us, the enslaved are trapped by invisible chains similar to those that prevented Northup from trying to escape, the fear of corporal punishment and even death. While Northup, a Dickensian surname to be sure, had to contend with the great physical distance from the Louisiana plantations where he was forced to whip his fellow slaves to freedom in the North, he did not have to worry about slavers killing his family like many slaves today must.

Spreading the word about modern slavery can help people to avoid abduction in the first place but just as importantly it can help to turn everyone into Brad Pitt, or rather Bass, the Canadian laborer who Pitt plays in 12 Years. Bass was antislavery but he not an abolitionist hero. He was just a handsome working stiff who saw injustice and risked his own neck and livelihood to save a fellow human being in trouble. He probably did not know that free blacks were abducted and enslaved by the hundreds (possibly thousands) but he was intelligent enough to see that Northup’s story was plausible. Had white wage laborer Armsby (played by Garret Dillahunt) been more intelligent, or at least more informed, he might have chosen to help Northup instead of taking Northup’s money and ratting him out to the master.

Maybe by next fall term, professors can show 12 Years a Slave to their students legally and at no cost. It is good enough to be used as a straight up period piece to supplement lectures or readings on antebellum American chattel slavery but the connections to modern slavery should be explored in classrooms as well. Like Northup, most of us know a little about modern slavery but rest content in our comfortable middle class lives barely cognizant that we, too, could fall victim to slavers. More likely, we could be cast to play a potential savior and will have to choose between Armsby and Bass. Let’s help our students to pick the latter every time.

Puerto Rico the Next Detroit?

Puerto Rico has been in recession for 8 years. The unemployment rate is 15% and debt has piled up to the tune of $70 billion. For Comparison purposes, California public debt is $96 billion and Detroit debt was $18 billion. Wall Street rates Puerto Bonds at one step above junk.

How did Puerto Rico get into trouble? The short answer is the same way as Detroit: loss of industry coupled with lavish pensions.

The Washington Post reports Puerto Rico confronts a rising economic misery.

Boxes and wooden crates filled with household items bound for the U.S. mainland are stacked high in the Rosa del Monte moving company’s cavernous warehouse, evidence of the historic rush of people abandoning this beautiful island.

The economy here has been in recession for nearly eight years, crimping tax revenue and pushing the jobless rate to nearly 15 percent. Meanwhile, the government is burdened by staggering debt, spawning comparisons to bankrupt Detroit and forcing lawmakers to severely slash pensions, cut government jobs and raise taxes in a furious effort to avert default.

Officials in San Juan and Washington are adamant that a federal bailout is not on the table, but the situation is being closely monitored by the White House, which recently named an advisory team to help Puerto Rican officials navigate the crisis.

The island’s problems have ignited an exodus not seen here since the 1950s, when 500,000 people left for jobs on the mainland. Now Puerto Ricans, who are U.S. citizens, are again leaving in droves.

Puerto Rico lost 54,000 residents — 1.5 percent of its population — between 2010 and 2012 alone. Since recession struck in 2006, the population has shrunk by more than 138,000 to 3.7 million, with the vast majority of the outflow headed to the mainland.

The brutal combination of a long recession, a shrinking population and overwhelming debt has left Puerto Rico’s political leaders struggling to manage a conundrum: How do they tame at least $70 billion in debt while marshaling the resources to grow a shrinking economy and battle corrosive social problems, including a homicide rate that is nearly six times the U.S. average?

Like states, the commonwealth of Puerto Rico cannot file for bankruptcy. Also, Puerto Rico’s constitution offers bondholders strong guarantees that they would be paid before pensioners and public workers if the government went broke.

Puerto Rico’s expansive web of debt includes standard government bonds as well as those floated by public corporations, including authorities for water and sewer, highways and electric power. Together, those bills have nearly tripled since 2000, as successive administrations turned to the bond market to plug gaping budget deficits. In addition to the $70 billion in government debt, the government also faces $37 billion in unfunded pension obligations, according to Morningstar.

Since 1996, the number of factory jobs in Puerto Rico plummeted from 160,000 to 75,000.

And while government workers make up about a quarter of the commonwealth’s workforce — much higher than the U.S. average of 16 percent — their ranks are shrinking as the pervasive debt and economic problems careen toward a reckoning. Now, just over 41 percent of working-age Puerto Ricans are in a job or even looking for one.

As work has disappeared, more Puerto Ricans have relied on the government to survive: About a third of the commonwealth’s population relies on food stamps, and residents of the island are twice as likely as those on the mainland to receive Social Security disability benefits, according to researchers.

Public Debt



Municipal Bankruptcies



Homicide Rate



Expect Default

Job flight, high crime rates, and huge pension woes in Puerto Rico seem similar to the problems in Detroit. However, there is no constitutional provision that allows US states and Commonwealths to declare bankruptcy.

Compounding the problem, Puerto Rico passed a massive set of tax hikes including corporate taxes, a broadened sales tax and a new gross receipts levy, hoping to get its budget under control. Given that tax hikes in the middle of a recession are about the worst possible choice, the situation is ominous.

So how is Puerto Rico's debt going to be paid back? The answer is it won't. Although, bankruptcy is out of the question, nothing can stop a default except a bailout by the US. Given that handouts from this Republican Congress are unlikely, look for Puerto Rico to default.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Provision in Obamacare Likely to Force Up Cost of Many Family Plans

In an ongoing trend, unrelated to Obamacare, companies have been passing on more and more healthcare costs to employees.

However, an ACA gotcha has impacted the way costs are passed on, with families taking a bigger hit than individuals at many companies.

Please consider Companies Prepare to Pass More Health Costs to Workers.

Many employers are betting that the Affordable Care Act's requirement that all Americans have health insurance starting in 2014 will bring more people into their plans who have previously opted out. That, along with other rising expenses, is prompting companies to raise workers' premium contributions, steer them toward high-deductible plans and charge them more to cover family members.

The changes as companies roll out their health plans for 2014 aren't solely the result of the ACA. Employers have been pushing more of the cost of providing health insurance on to their workers for years, and firms that aren't booking much sales growth due to the sluggish economy are under heavy pressure to keep expenses down.

A quirk of the Affordable Care Act could make it more appealing for companies to raise rates for family coverage than for individuals, said Vivian Ho, a Rice University health-care economist.

Starting in 2015, companies employing 50 or more people must offer affordable health-care coverage to anyone working 30 hours a week or more. But affordability is measured using the cost of individual coverage, capping the cost at 9.5% of income, Ms. Ho said. Raising family rates could help companies recoup costs without running afoul of that limit, she said.

Gannett Co., which owns more than 80 newspapers and 23 television stations, expects one factor in its increased health costs to be the addition of more employees to its insurance plans due to the ACA rules, according to a person familiar with the company's projections.

To address an overall increase in costs, Gannett has replaced the two plans for families it used to offer its workers with a single high-deductible plan that requires employees to pay the first $3,000 of medical costs each year, according to workers at the Indianapolis Star, one of the company's papers. For those with individual coverage, who make up a little over half of Gannett's insurance pool, the figure is $1,500.

The company also scrapped a sliding scale that let lower-income workers pay lower premiums. For some employees, the result was a 60% jump in monthly premiums for family coverage, to $575 from about $360.

Gannett said more than half of its employees will see premiums fall by 12%.

United Parcel Service Inc. made headlines in August when it said that it would bar spouses from its nonunion health plan if they could get coverage at their own jobs. The company said it expected to see an increase in its health-care costs in part from adding employees to its plan who currently opt out.

About 6% of employers ban coverage for spouses who can get it elsewhere, and another 6% impose an explicit surcharge for covering a spouse, according to Mercer. American Electric Power Co., for example, began imposing a $50 monthly surcharge this year to cover spouses with access to insurance at their own workplace. AEP said 92% of its employees usually sign up for coverage, so it doesn't expect a surge of new enrollment.

In another shift this year, companies have become increasingly aggressive about steering employees toward plans in which they pay more of the initial costs for their care in exchange for lower premiums.

Trucking and logistics company Ryder System Inc. has replaced one of its two insurance options with one such high-deductible plan. Ryder is encouraging employees to choose the new option in part by raising the cost of more traditional coverage.

Winners and Losers

Half of Gannett employees will see a 12% drop in premiums. But others will see a 60% rise. And for those who do see premiums decline, the drop will be solely because they are forced into high deductible plans.

Obamacare created a pool of winners and losers, with some of the losers far worse off than before. Many people were hardly affected at all, at least initially. In aggregate, ACA did nothing to lower overall costs, it just shifted costs around in an inefficient manner, making things worse than before. 

The most widely reported "success" has been the enrollment of tens of thousands of people into Medicaid. Because of cost sharing that kicks in later, many states are likely to regret that effort.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Black Friday Roundup: Walmart has 10M Transactions in 4 Hrs; Exhausted Shoppers Head Home; Fights Break Out at Walmart; Real Fight is Online

In some locations, people pushed, shoved, and fought their way through the shopping aisles. In other locations, traffic was normal.

All in all, I suspect people once again bought more junk they do not need and cannot afford.

Here is a sampling of the news.

Walmart Processes 10 Million Transactions in 4 Hours

The New York Times reports Exhausted Shoppers Head Home, Replaced by the Next Wave.

While some malls across the country were busy during the traditional postholiday shopping on Friday, the crowds at others seemed sparse to some regular customers, who compared them to a regular weekend’s atmosphere. Perhaps it’s possible that the earlier Thanksgiving hours and the increase in online shopping — with so many e-tailers offering competitive deals — had lessened the desire to peruse racks of clothes inside some physical stores.

Still, customers sensed there were deals to be had on both days, and parking lots at some malls were jammed again on Friday. On both Friday and Thursday, some customers complained about their fellow shoppers. Holly Schneider, another shopper at the Leesburg outlets, said prices were far better than consumer behavior. “People are rude, just really rude,” Mrs. Schneider said. “There’s no personal space. It’s like you’re not even there. They’re bumping into you, knocking you down. They don’t see you. They see where they’re going.”

IPad Airs and several televisions sold out on Target.com by midmorning on Thursday. Walmart announced that the company had sold 1.4 million tablets on Thanksgiving Day. Walmart also said it had processed more than 10 million transactions at its registers from 6 p.m. to 10 p.m. Thursday, including lower-tech items like nearly two million dolls.

Over all, online sales were up nearly 10 percent over last year by Black Friday afternoon, according to IBM Digital Analytics Benchmark.

Walmart Black Friday Fight

What would Black Friday be without a fight? 



Link if video does not play: Wal-Mart Black Friday Fight

Real Fight Was Online

The Wall Street Journal reports On Black Friday, the Real Fight Was Online.

Brick-and-mortar retailers mounted a furious defense on Black Friday to head off incursions into one of the industry's biggest shopping days by such online rivals as Amazon.com Inc.

The tactics were evident in stores and on websites as millions of holiday shoppers lined up to spend their dollars on highly touted deals.

Chains like Macy's Inc. opened on Thanksgiving for the first time, and giants like Wal-Mart Stores Inc. and Target moved their deals earlier Thursday, shifts intended to retrieve valuable shopping time that had been ceded to e-commerce, where the doors never close.

Best Buy Co. kept some deals hidden until customers showed up at stores, and retailers put more deals on the Web to better compete with Amazon on its own playing field.

In the early predawn hours of Thanksgiving, Jason Goldberger huddled with his team on the 20th floor of a Target Corp. building in Minneapolis to make sure everything was ready at the chain's most important store: Target.com.

Mr. Goldberger, who runs Target's website and mobile business, arrived at 2 a.m., His staff split into two conference rooms. One held a technology team responsible for the workings of the site. The other had people comparing Target's deals with offers from Amazon.com and Walmart.com.

Such big retailers as Wal-Mart and Target continue to struggle to keep up with Amazon on the Web. Despite years of effort, online sales still typically account for only around 2% of sales for the two chains.

But both companies are investing heavily to catch up. Target expects to spend more on technology next year than it does building and upgrading new stores. This year, it made virtually all of its Black Friday deals available online.

Store chains used rolling discounts to keep shoppers lingering and competitors' guessing. On Friday at 8 a.m. Wal-Mart started "Manager's Specials," which included unannounced promotions set by individual store managers who received a set budget to spur sales.

Flagging bargains too early risks having competitors match or beat prices. Market Track LLC, which tracks pricing on the Web, said Best Buy had advertised a Samsung gas range for $699 in its Black Friday flier. On Wednesday, Sears dropped its price for the oven to $599. By Thursday, Best Buy and hhgregg Inc. had matched the lower price.

It's far too early to tell if stores actually did better than last year or not. The answer depends on what people bought: loss leader sales items, stuff in general, or high-markup items.

According to a couple of close friends, store traffic was lighter than usual in my area, at least later in the day. I did not venture out personally.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Texas Welfare Recipient Says "Working is Stupid"

Please consider the viewpoint of a 32-year old Austin Texas welfare recipient who says working is stupid because she gets nearly free housing, food stamps, a welfare check, and other handouts.



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

France Minister of Industrial Renewal has New Target in his Sights

Arnaud Montebourg, Minister of Industrial Renewal of France, has a new target in his sights, the French public procurement group UGAP.

Here is some background information about UGAP. Montebourg's complaint follows.

The Union of Public Purchasing Groups (UGAP), the French public procurement centre operates under the supervision of the Ministries of Economy and Finance and the Ministry of Education. UGAP's overall objective is to strengthen the social and environmental performance of public procurement, without increasing the cost of services offered.

Alice Piednoir, Sustainable Development Policy Officer & Purchasing Manager, says "We centralise applications and mutualise costs in order to propose offers that are financially successful. We ensure that the inclusion of social and environmental requirements in our bidding do not cause additional costs to the services offered."

Montebourg Targets UGAP Over "Made in France"

Montebourg is upset that UGAP does not supply enough products made in France, and he threatens to dissolve the group.

Via translation from Le Monde, Arnaud Montebourg Targets UGAP Over "Made in France"

Arnaud Montebourg has a new target in his sights: UGAP, the main central purchasing agency for state and local communities.

UGAP does not provide enough support for French companies in the eyes of the minister of productive recovery . In response, Montebourg threatens to apply for dissolution of the company.

"I consider that there is a serious problem with patriotic UGAP ," thundered the minister Tuesday, November 26 , before the presidents of the regions he received at Bercy. UGAP has a global order book except for France .

Montebourg is willing to overpay for everything as long as it's made in France.

Is it any wonder French government spending accounts for 56% of French GDP, highest in the EU (not that there is anything productive about that setup).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

25% of Spanish Would Consider Leaving Spain for Economic Reasons; But Where Would They Go?

The employment and pay situation in Spain is so bad that 33% struggle to pay their bills. More importantly, 25% would consider leaving the country for better opportunities.

Via translation from La Vanguardia, please consider One in three Spaniards have no money after paying their bills.

One in three Spanish claims to have no money left after paying the bills, according to a report on consumer payments. The study further reveals that 25% would be think of emigrating because of their economic situation. The same percentage say do not have enough money for a decent life.

Those are the most conclusive findings in the study Consumer Payments 2013, made by the Credit Management firm Intrum Justitia which surveyed 10,000 consumers from 21 European countries with the aim of understanding their payment behavior.

In regard to Spain, the percentage of citizens who say they have no money after paying the bills is higher than the European average, which stands at 26 percent, although some countries like Greece, Estonia and Hungary reach 40 percent.

If they have to prioritize in order to pay bills, the Spaniards choose to pay for the latest mobile phone and internet purchases. And if they can get savings on their household budgets, 79% do so by reducing leisure and clothing  expenses.

Another revealing statistic is that 25% of Spaniards say they do not having a sufficient amount of money for a decent life.  Estonia leads this ranking with 52%, followed by Hungary with 47% and Greece with 44%.

Eight in ten think that the Government lacks good financial control, compared to an average of 60 percent for the EU.

Trapped in Spain

25% would leave for better opportunities, but where would they go? The same question applies to Greece, Portugal, and Estonia.

The answer is nowhere. There are too few jobs elsewhere,  and plenty of xenophobia in France and other countries that are struggling as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Cotton Balls Go Rotten; Bale of a Tale of State Planning

Two years ago China amassed half the global supply of Cotton with huge price supports in an effort to encourage more cotton production. China "succeeded".

Farmers produced, and the state paid more for cotton than farmers could get elsewhere. Worldwide supplies soared, but the cotton was withheld from the market.

China's Cotton Policy "Success" Story



Bale of a Tale of State Planning

Please consider China Cotton: Bale of a Tale

It is never easy to put a positive spin on buying high and then selling low. Then again, the cotton that China plans to start selling from its vast state reserves this week, at a price below what it paid for this year’s harvest, might be rather hard actually to spin, period. Cotton can go brittle if stored for a long time. The China National Cotton Reserve will be auctioning bales that came off farms in 2011.

Still, what a marvellous monument to state planning has been created, even if the buying programme might finally end overall next year. China started its stockpiling to encourage farmers to plant cotton when prices looked set to go south two years ago (price volatility threatened a crisis for the nation’s cotton industry). But it has ended holding about 10m tons, or more than half of global inventory. It is now considering direct subsidies to cotton farmers instead.

Australia took a decade to get rid of every last thread of its wool reserves after ending its own farmer support policy in 1991. In the process, the farming industry suffered plenty of damage. But free-market innovation won out over state control in the end. The Australians probably made the fine merino wool in your suit. Not to spin a tale, but perhaps a similar process can work for the Chinese.

State Central Planning

In autumn of 2011, a clothing importer told me the price of clothes was about to soar because of a huge shortage of cotton. Clothing prices rose a few percent, but nothing like what many expected.

But there never was a cotton shortage. Rather there was huge accumulation of cotton by China at ridiculous prices. So now, what to do with it?

If China holds on to the cotton long enough, the matter will take care of itself as the "cotton balls go rotten".

Money does not go rotten in the same way, but rotten results from Fed and central bank money manipulation policies are eventually headed this way. Centralized state planning of anything never works over the long haul.

Huge boom-bust bubbles in housing and the stock market are proof enough.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Happy Thanksgiving!

Happy Thanksgiving to you and your loved ones!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Time for Banks to Be Banks, Not Hedge Funds or Slush Funds; Free Money Math vs. 100% Gold Backed Dollar

In the wake of all the misguided pleas for negative interest rates in Europe (hoping to get banks to lend), comes news US banks warn Fed interest cut could force them to charge depositors. 

Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.

Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.

The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.

Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering.

Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.

Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.

“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.

Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.

About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.

Excess Reserves



Free Money Math

The Fed pays .25% interest on excess reserves.
A quarter of a percent on $2.4 trillion happens to be $6,000,000,000 (six billion) annually.

Time for Banks to Be Banks, Not Hedge Funds or Slush Funds

Printing money that just sits overnight at the Fed allowing banks to make risk-free profits on $2.4 trillion in excess reserves is of course ridiculous.

It is also ludicrous for banks to complain about the take-away of free money that it should not be getting in the first place.

The Fed has so distorted the economy that no true pricing mechanism exists on anything.

Should banks feel the need to charge depositors interest on deposits, then so be it. That's the way it should be in the first place.

100% Gold Backed Dollar

In a true free market economy, with a 100% gold-backed dollar (where one dollar represented a fixed amount of gold, as opposed to a fixed price of gold), banks would of course charge a fee for safekeeping and other services.

The closer we get to that model the better, regardless of complaints by banks or others.

Notice the emphasis on safekeeping.

A 100% gold backed dollar would not stop lending. It would stop fractional reserve lending, lending of money in demand accounts, and lending of money for greater terms than the bank has use of funds.

Banks could not lend money available on demand (checking accounts), but they could lend money in interest bearing accounts such as CDs, for the term of the CD.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

War Between Spain and Germany Erupts Over Next Round of Watered Down Stress Tests; Germany Complains About the "Carry Trade"

On October 23, ECB president Mario Draghi announced new bank stress tests. At the time, I offered a "Draghize" Translation. Here is a small snip.

Translating Draghize

For those of you who do not speak Draghize I offer these translations.

Draghize: "Banks do need to fail to prove the credibility of the exercise".
Mish: We are carefully scrutinizing several non-critical banks, looking for a couple of scapegoats, hoping to fool the public regarding the credibility of the exercise.

Draghize: "If they do have to fail, they have to fail. There’s no question about that."
Mish: If any big banks are in trouble. They won't fail. There’s no question about that.

Draghize: "The test is credible because the ultimate purpose of it is to restore or strengthen private sector confidence in the soundness of the banks, in the quality of their balance sheets"
Mish: The test is credible because we say it is.

War Erupts Over How Much to Water Down Stress Tests

Via translation El Confidencial reports War between Spain and Germany Erupts Over the Hardness of Stress Tests

The new stress tests of European banks have caused the outbreak of a new confrontation between the governments of Spain and Germany. Until now, it was Spain who argued in favor of a tough exercise, similar to what Spain had to undergo when seeking bailout funds.

By contrast, Germany (supported by France and Italy) preferred more lax exercises that do not bring to light the shame of their banks balance sheets of billions in toxic assets, including Spanish mortgage securitizations.

But now the German authorities found one flank to counterattack: the huge public debt exposure of Spanish banks, which they believe should be penalized in these exercises, which can be catastrophic for our financial system when it just starts to lift head.

Sovereign Debt Not All Risk-Free

The German authorities consider that if the tests need to be hard, then they should be hard in every way, including sovereign debt. In addition, the German central bank seeks to distinguish between the sovereign debt of their country and peripherals. It is what they call "enforce the triple A".

The penalty is a recurring request from the Bundesbank. Its president, Jens Weidmann, has warned several times about the risk posed by this link between governments and entities, and has called for a regulatory change that public debt is not considered a risk-free asset.

"It makes no sense that risk-free treatment is given to BBB Spain titles. Sovereign debt cannot all be considered as zero risk equally. Only those with the highest rating can be considered risk free" is the argument from Germany.

Germany Complains About the "Carry Trade"

Weidmann's claim is deeper than a mere fight stress tests estate. In its latest monthly report, the Bundesbank takes offense at the stratospheric rise in the positions of the Spanish banking debt: an increase of 133 billion euros over two years, to around 300 billion euros today. This is explained by the famous carry trade with which banks borrow very cheap on the open bar ECB liquidity at 0.75%, then invest in public debt paying 4% interest.

Spanish officials claim it makes no sense to penalize these asset as if they were bad loans. But the answer to this argument is simple: a stress test is by definition a simulation of a worst case scenario that the current (or adverse stressed scenario) and that scenario should take a further fall in bond prices and an increase yields.

If the Bubdesbank imposes its criteria, the result can be disastrous for some of our institutions. Some industry sources are confident that the Spanish government reaches a deal with the German to "not to hurt each other."

Germany Convinced of Easy Stress Tests

Via translation, also consider Merkel stands up to Guindos Regarding Stress Tests

According to a source familiar with the situation, "Germany is convinced that the test will be very light because of so much opposition to make the stress tests a serious exercise."

In fact, postponing these tests from the last quarter of 2013 to the first quarter of 2014 is another sign of the imposition of the German thesis. Neither France nor Italy wants very rigorous stress tests so as to not aerate the shame of their own banks.

French reluctance is justified by the enormous exposure with their banks in recent years. As for the Italians, "they are in a state of denial as that Spanish banks had before the disaster," explain the sources cited. "And the worst is that they usually get away with it, not least because Mario Draghi is Italian."

"Deal to Not Hurt Each Other"

In return for watering down stress tests on certain toxic assets that French banks, German banks, and Italian banks do not want, industry sources think a deal will be reached to also not include skyrocketing sovereign debt of Spanish banks.

Conclusion: expect another stress-free test.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Reader Reflections on Socialism Theory vs. Practice

In response to Record Number of French Corporate Bankruptcies; Socialist Theory vs. Practice; What Went Wrong? I received a number of noteworthy comments via email and as direct comment to my blog.

Reader Jay commented ...

The first thing all you capitalism bashers need to understand is that capitalism is not what we have in this country. We have crony capitalism/socialism/fascism at work right now. We have never had real capitalism.

Jay replied to the ridiculous comment by "ClimbingSand " The rich have socialism, the poor have dog eat dog Capitalism.

Acting Man Commented ...

Via email, Pater Tenebrarum at the Acting Man Blog hit the nail precisely on the head. Here is his comment:

I would point out that socialism works neither in practice nor in theory. It is already the theory that is wrong, as the concept must fail due to the calculation problem. Economic calculation is literally impossible under socialism, and so no rational socialistic economy is possible. If the whole world were to adopt socialism, we would soon live from hand to mouth, as the division of labor would completely collapse within a few short years.


Thanks Pater!

I take this opportunity to point out that his blog is still having "technical difficulties", related to his current host. Pater is looking for a new host site, and hopefully his blog will be back up, and running soon.

Pater has taught me a lot over the years. He is the person who introduced me to Austrian economics.

I highly recommend bookmarking his site. It will be back up soon.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Record Number of French Corporate Bankruptcies; Socialist Theory vs. Practice; What Went Wrong?

The number of French business bankruptcies hit a record in the third quarter of 2013 and the yearly total is on a pace that will come close to the total reached in the dark days of the great financial collapse in 2009.

Via translation here are a few articles from Le Monde.

Corporate Liquidations Reaching New Heights in France

The newspaper L'Autre Journal has filed for bankruptcy.

Michel Butel, the former boss of the newspaper does not admit defeat so far, and promises new adventures. But under another name ...

In the last twelve months, 43,981 companies were liquidated after having filed for bankruptcy, according to the records of the credit insurer Coface. This is a record number of third quarter bankruptcies.

Mory Ducros, Largest Bankruptcy in France for a Year

With 5,200 jobs at stake, the bankruptcy of transport company Mory Ducros is in social terms the heaviest recorded bankruptcy this year. The previous failure of this magnitude was Neo Security, the second largest French security firm, which was declared insolvent in April 2012. At the time, it employed him as more than 5,000 people.

Some 62,500 company s should file for bankruptcy this year, almost as much as during the dark year of 2009, according to credit insurer Coface. The number of bankruptcies may be slightly lower in 2014.

Ayrault Wants to "Save as Many Transport Jobs" as Possible

Transport company Mory Ducros, which employs 5,200 people in France, announced during a special Works Council (EWC) on Friday its request for receivership with the Commercial Court of Pontoise and the appointment of a temporary administrator.

Unions of the company are very pessimistic. "It is feared between 2,000 and 3,000 job cuts," said Fabian Tosolini, national secretary of the Federation of Transport of the French Democratic Confederation of Labour (CFDT). This is one of the biggest bankruptcy filings since the start of François Hollande term, and one of the largest ever happened to France since the collapse of Moulinex in 2001.

Following the bankruptcy announcement, Prime Minister Jean-Marc Ayrault commented "We are looking for all solutions, site by site, with the social partners, of course. Where we can find the buyers, everything will be done to save the maximum number of jobs. This is a very difficult job."

Arnaud Montebourg, the Minister of Industrial Renewal, is "mobilized" on this issue. Potential buyers have expressed interest but no proposal has been expressed.

Frédéric Cuvillier, Minister of State Transport added "Everything will be studied: first how to consolidate the rescue at least 2,000 jobs, and then look at how we can ensure the recovery or offer jobs to those who are victims of this plan." The Minister announced that he wanted "to meet as soon as possible" with management and the unions.

The prime minister, the minister of industrial renewal, and the minister of state transport are all mobilized. How comforting.

Understanding Montebourg

To understand Montebourg, take a look at some "Made in France" images.

Montebourg "advertises Made in France" while holding Moulinex blenders and wearing classical "marinière" shirts.
He is literally the object of tons of sarcastic comments and gags.

When telecom operator Free was awarded the fourth mobile license in France and launched its very low cost service, Montebourg said that Free had done more for purchasing power of French people than all the actions of then president Nicolas Sarkozy.

But when Montebourg became Minister he started a very aggressive campaign against Free and its pricing, accusing them of destroying French jobs.

The above Montebourg clip courtesy of reader "AC" who lives in France (see Made in France: Montebourg Ridiculed in Text and Pictures; France Goes After "Red Bull" Energy Drinks to Finance Social Security).

Hopefully "AC" will not be arrested for "insulting the president". That's not precisely a joke. (See Founder of French Website "Hollande Resignation" Arrested, Car Impounded for "Insulting the President")

More on Montebourg

If you are interested in other absurdities by the Minister of Industrial Renewal, simply search my blog for Arnaud Montebourg.

What Went Wrong?

The answer to this question should be obvious: The socialist policies of president Francois Hollande went deeply wrong.

In particular, I would like to point out my June 8, 2012 post Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It".

Hollande's layoff clampdown solution according to Labour Minister Michel Sapin is to "make layoffs so expensive for companies that it's not worth it." ....

To which I commented:  Ongoing, if it's difficult to fire people, companies will not hire them in the first place.

Couple that preposterous idea with a set of tax hikes so huge that even the socialists complained:

See Hollande's Tax Everything Plan Blows Sky High With Riots by Farmers

Socialist Theory vs. Practice

In theory, Hollande proposed "Make Layoffs So Expensive For Companies That It's Not Worth It". In practice, his policies harmed many companies so badly they could not possibly stay in business!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Jobs vs. Employment Analysis Suggests Huge Obamacare Impact (And Way Less Job Growth than Anyone Thinks)

Every month (on average), for about a year, there has been a startling discrepancy between employment as measured by the household survey and jobs as reported by the establishment survey.

I believe the discrepancy is yet another Obamacare artifact.

Jobs vs. Employment Discussion

Before diving into the details, it is important to understand limits on data, and how the BLS measures jobs in the establishment survey vs. employment in the household survey.

Establishment Survey: If you work one hour that counts as a job. There is no difference between one hour and 50 hours.
Establishment Survey: If you work multiple jobs you are counted twice. The BLS does not weed out duplicate social security numbers.

Household Survey: If you work one hour or 80 you are employed.
Household Survey: If you work a total of 35 hours you are considered a full time employee. If you work 25 hours at one job and 10 hours at another, you are a fulltime employee.

Recall that the definition of fulltime under Obamacare is 30 hours, but fulltime to the BLS is 35 hours.

Next, consider what happens under Obamacare if someone working 34 hours is cut back to 25 hours, then picks up another parttime job.

Obamacare Effect

Prior to Obamacare
34 hours worked = 1 parttime job household survey
34 hours worked = 1 job establishment survey

Enter obamacare
Person cut back to 25 hours and takes a second job for 10 hours
Here is the new math

25 + 10 = 1 fulltime job on the household survey.
25 + 10 = 2 jobs on the establishment survey.

In my example, the household survey totals up all the hours and says, voilla! (35 hours = full time). So a few extra hours that people pick up working 2 part time jobs now throws someone into full time status – thus no surge in part-time employment, but there is a surge in jobs.

I am quite sure this is what is happening, but I cannot prove it.

Household Survey Normalized

The BLS has a chart (shown below) that normalizes the household survey to the establishment survey, but that just transfers establishment survey double-counting to the household survey!



I contacted the BLS and asked if they could please weed out duplicate social security numbers. They can't because they do not capture social security numbers.

This is not a fault of the BLS. They wish they had more data but they don't.

Does Any Available Data Lend Credence to My Theory?

Yes, and overwhelmingly so. An unusual discrepancy between the household and establishment surveys is the key to the puzzle.

Household survey: http://research.stlouisfed.org/fred2/series/CE16OV
Establishment Survey: http://research.stlouisfed.org/fred2/series/PAYEMS

Numbers are in thousands.

October Employment and Jobs vs. October in Prior Years

Category	Oct-08	Oct-09	Oct-10	Oct-11	Oct-12	Oct-13
Employed Household	144,802	138,421	139,097	140,314	143,328	143,568
Jobs Establishment	135,905	129,614	130,156	132,094	134,225	136,554

Year-Over-Year Gains or Losses vs. Prior Years

Category	Oct-09	Oct-10	Oct-11	Oct-12	Oct-13
Yoy Change Household	(6,381)	676	1,217	3,014	240
Yoy Change establishment	(6,291)	542	1,938	2,131	2,329
Monthly Average Household	-532	56	101	251	20
Monthly Average Establishment	-524	45	162	178	194

Fore the year ending October 2009, 2010, 2011, and 2012, the household survey and the establishment survey were very well aligned.

However, something happened between October 2012 and October 2013. In the last year, the household survey says employment rose by 20,000 a month while jobs rose by 194,000 per month!

Let's drill down by month and take a look.

Month-over-Month Gains or losses vs. Prior Month

Month	Household	Establishment	M/M Change HH	M/M Change Establishment
Sep-12	142974	134065
Oct-12	143328	134225	354	160
Nov-12	143277	134472	-51	247
Dec-12	143305	134691	28	219
Jan-13	143322	134839	17	148
Feb-13	143492	135171	170	332
Mar-13	143286	135313	-206	142
Apr-13	143579	135512	293	199
May-13	143898	135688	319	176
Jun-13	144058	135860	160	172
Jul-13	144285	135949	227	89
Aug-13	144170	136187	-115	238
Sep-13	144303	136350	133	163
Oct-13	143568	136554	-735	204

Because of the government shutdown, some will object (and rightfully so) about October. So let's throw that month away.

12-Month Results Excluding October 2013

Month	Household	Establishment
Oct 2012-September 2013	1329	2489
12 Month Avg Excluding October 2013	111	207

Even after eliminating the government shutdown effect, the difference between the two surveys is still huge.

From October 2012 through September 2013, the household survey suggests employment rose by an average of 111,000 per month. The establishment survey suggests 207,000 jobs per month on average.

Which is correct?

Actually because of what they measure, both might be. Thus my blog subtitle "And Way Less Job Growth than Anyone Thinks" is not technically accurate.

Practically speaking however, job growth has been nowhere near as good as it looks. People picking up a second parttime job following cutbacks in hours does not do a thing for the economy except perhaps waste gasoline.

However, in spite of strong evidence, this is still a theory. To prove it, we need to weed out duplicate social security numbers. The BLS can't, but ADP can. I contacted them twice but to no avail.

I would like ADP to crunch the data and determine how many duplicate social security numbers show up vs. the same months in prior years. If I am wrong it won't be the first time. But let's have a look at the numbers and see what they say.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Encrypt Everything, Store Nothing, Leave No Trace! (Dissolving Messages, Wickr, Snapchat)

US corporations like Google, Facebook, and Microsoft benefit from "safe harbor" treaties with the US that allow those companies exemption from European privacy rules.

Then the NSA and FBI came along and forced those companies to put in "back doors" so that nothing is private. 

In the latest 100% believable accusation, EU accuses US of improperly trawling citizens’ online data. In response, Europe is threatening to end the safe harbor laws.

Brussels is to warn Washington that US tech companies risk losing their exemption from privacy rules unless the US changes the way it treats EU citizens’ online data.

A European Commission review of the “safe harbour” pact that allows US technology groups such as Google, Facebook and Microsoft to operate in Europe without EU oversight will conclude that Washington has improperly forced US companies to hand over European customers’ data. It also says that breaches of the data deal have given US tech companies a competitive advantage over European rivals. 

Although the review, which will be unveiled on Wednesday, stops short of calling for the safe harbour agreement to be scrapped, its wording signals that the EU will move in that direction unless the US changes the way that it uses data held by companies on EU citizens.

A scrapping of the safe harbour deal is one of the most formidable weapons the EU has in its arsenal to punish the Obama administration after claims of snooping on Europeans by the National Security Agency.

Such a move would wreak havoc for any US tech company doing business in Europe – especially Google, Facebook and Microsoft, which rely on the agreement to transfer customers’ data seamlessly between countries.

Ending safe harbour and subjecting US companies to European privacy laws would put them in a legal bind over NSA requests for information about European citizens. Under US law they would still be forced to hand over the information, provided the request was backed by an order from the secret foreign intelligence surveillance court but doing so would breach their extra responsibilities in Europe.

Internet companies say the conflict would force them to ringfence EU operations and hold data about the bloc’s citizens in new legal entities there, creating separate islands of data that would lessen the efficiency of their operations and risk balkanizing the internet into separate regional networks.

You've Got "Unsecure" Mail

In an attempt to circumvent NSA spying, a fast growing Russian internet company, Mail.Ru seeks US expansion.

Russia’s largest internet company is expanding into the US, trying to lure customers by keeping the data from its services offshore.

Mail.ru, which has more monthly users than any other Russian website, is targeting the US with a suite of mail and messaging apps under the My.com brand as it tries to crack what its chief executive Dmitry Grishin calls “the most competitive and most difficult market that has ever existed”.

Mr Grishin said the data centres for its US services would be based in the Netherlands, which he said was a “good neutral place” outside of the US and Russia that was “very liberal” and “respected globally”.

The Netherlands has robust data protection laws and a broad definition of what constitutes personal data, as well as some large data centres. However, some privacy experts say keeping the data offshore would not be enough to stop the NSA accessing it.

Jeff Chester, executive director of the Center for Digital Democracy in the US, said the data may be more secure in Europe but the problem was it had to be shipped from the US.

“I don’t think it keeps it from the NSA at all because the data are collected here and shipped to the cloud, it doesn’t make a difference where it goes,” he said. “The NSA can access it during the transportation process.”

James Lewis, a security expert at the Center for Strategic and International Studies in Washington, said: “The location of the server makes absolutely no difference, particularly for Russian companies that have very close relations with their security services. Ask Snowden if he feels like his email is safer.”

Encrypt Everything, Store Nothing!

Mail.Ru is not the answer. At some point the data is unencrypted, and accessible to NSA snoops. Enter Wickr, a secure messaging app, that stores nothing and at no point in routing is there an unencrypted message.

Wickr, has already received a request from the FBI for a back door. Thankfully, the company cannot provide one because it stores no data.

The Financial Times reports US spying fuels popularity of secure messaging app Wickr.

Wickr, the secure messaging app that positions itself “halfway between Snapchat and Snowden”, is set to raise more funds and launch a major update on Monday after its popularity soared following revelations of a US mass surveillance programme.

The Silicon Valley start-up enables encrypted peer-to-peer communications from email to instant messaging while keeping no data whatsoever. It plans to rival Skype by rolling out secure and private international video calling next year.

Nico Sell, co-founder and chief executive of Wickr, said the year-and-a-half-old company had seen an extreme spike in interest after revelations about the National Security Agency’s surveillance programme were published earlier this year.

Wickr works by providing connections between message senders, which are not stored on any central server. Ms Sell said the FBI had already asked for a back door to get information for law enforcement but because the company holds no data, there was not even a way of co-operating.

“I didn’t want to be responsible for securing everyone’s gold – because that’s impossible,” she said. As a hacker who helps organise one of the most important hacker conventions of the year, she knew nothing was foolproof. The sender can set how long he or she wants the message to stay on the recipient’s computer before deleting itself.

Wickr, which has been downloaded 1m times, is free but will begin to offer advanced subscriptions and in-app purchases next year.

Wickr vs. Snapchat

Snapchat is a messaging service that provides text and photo messages that dissolve in a few seconds. The Wall Street Journal reports Snapchat Spurned $3 Billion Acquisition Offer from Facebook.

Snapchat, a rapidly growing messaging service, recently spurned an all-cash acquisition offer from Facebook for close to $3 billion or more, according to people briefed on the matter. Evan Spiegel, Snapchat’s 23-year-old co-founder and CEO, will not likely consider an acquisition or an investment at least until early next year, the people briefed on the matter said. They said Spiegel is hoping Snapchat’s numbers – of users and messages – will grow enough by then to justify an even larger valuation, the people said.

Snapchat specializes in ephemeral mobile messages, including text or photographs, that disappear after a few seconds. The service has not generated any revenue, but is especially popular among teenagers and young adults, who use the app to send messages to friends.

Facebook is interested in Snapchat because more of its users are tapping the service via smartphones, where messaging is a core function. Facebook has rapidly increased the share of its revenue coming from mobile advertising, but said last month that fewer young teens were using the service on a daily basis.

Tencent, a diverse Internet company, owns WeChat, a major messaging service in China, and has a stake in KaKao, a popular South Korean app. It was vying to lead a group of investors that had offered to invest $200 million in Snapchat at a valuation of roughly $4 billion.

Meaning of $3 Billion

Snapchat has no profit and no revenues. Last year it was reportedly worth $100 million. Now it is worth $3 billion.

I cannot fathom turning down an all cash offer of that amount. Isn't $3 billion enough to do whatever you want for the rest of your life? Would $10 billion make one happier? Is the race on to see what deal gets valued at $100 billion? $1 trillion?

Wickr Business Model

Leaving philosophical questions aside, Let's take a closer look at the model of Wickr straight from its website.

The Internet is forever.
Your private communications don´t need to be.

Wickr is a free app that provides:

• Military-grade encryption of text, picture, audio and video messages
• Sender-based control over who can read messages, where and for how long
• Best available privacy, anonymity and secure file shredding features
• Security that is simple to use

"Wickr - an iPhone encryption app a 3-year-old can use."

New York Times: "There is no reason your pictures, videos and communications should be available on some server, where it can easily be accessed by who-knows-who, or what service, without any control over what people do with it."

Wickr vs. Silk Road

The government shut down "Silk Road", but that model had a fatal problem. It stored data.


From the Wickr privacy policy...

• We use military-grade encryption. Our encryption is based on 256-bit symmetric AES encryption, RSA 4096 encryption, ECDH521 encryption, transport layer security, and our proprietary algorithm.
• We canʼt see information you give us. Your information is always disguised with multiple rounds of salted, cryptographic hashing before (if) it is transmitted to our servers. Because of this we donʼt know — and canʼt reveal — anything about you or how you use the Wickr App.
• Deletion is forever. When you delete a message, or when a message expires, our “secure file shredder” technology uses forensic deletion techniques to ensure that your data can never be recovered by us or anyone else.
• You own your data. We do not share or sell any data about our users. Period.

What Information Does Wickr Collect, and How Is It Used?

We are committed to limiting our collection of your information to what is necessary to provide you with our Services.

We only collect information from users who create Wickr Accounts. You must create a Wickr Account to use the Wickr App.

What We Donʼt Collect:

Equally important to us is the information we donʼt collect. We will NEVER collect any location information or have access to the contents of the communications you send using the Wickr App. After messages are deleted (or after they expire), they are forensically deleted and are not retrievable by us or anyone else. (Remember, however, that if you send a Wickr message to another Wickr user, that message might remain on their device even after you delete it from yours, depending on the value you set for the self-destruct time of that message.)

Leave No Trace!

I commend any app or any service that stops NSA spying in its tracks. But don't blame me or Snowden if such services become used by crooks, or worse.

Were it not for the massive, unwarranted spying, people would not be so paranoid as to demand these services in the first place.

The end result is as expected: Governmental spying, back doors, denials, and loss of the constitutional right to privacy has made us less secure than before.

That is precisely what the loss of freedom always does!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Majority in U.S. Say Healthcare Not Government's Responsibility

By a 56 to 42 margin, Gallup reports Majority in U.S. Say Healthcare Not Government Responsibility.

Question: Do you think it is the responsibility of the federal government to make sure all Americans have healthcare coverage, or is that not the responsibility of the federal government?



No Responsibility by Political Party




Percentage Point Change Since 2000

• Since 2000, the share of republicans who say healthcare is not the responsibility has increased from 53% to 86%, a rise of 33 percentage points.
• Since 2000, the share of independents who say healthcare is not the responsibility has increased from 27% to 55%, a rise of 28 percentage points.
• Since 2000, the share of democrats who say healthcare is not the responsibility has increased from 19% to 30%, a rise of 11 percentage points.

Percentage Point Change Since 2006

• Since 2006, the share of republicans who say healthcare is not the responsibility has increased from 57% to 86%, a rise of 29 percentage points.
• Since 2006, the share of independents who say healthcare is not the responsibility has increased from 25% to 55%, a rise of 30 percentage points.
• Since 2006, the share of democrats who say healthcare is not the responsibility has increased from 10% to 30%, a rise of 20 percentage points.

In 2006, the overall share was 69% to 28% in favor of the view that healthcare was the responsibility! Now it is 56% to 46% against.

This is a startling change in sentiment in 7 years, especially among independents.

Gallp comments "It is possible that this sharp change has been caused by a politicization of the issue as it became a major part of Obama's campaign platform, and as he and other Democratic leaders pressed for and passed the ACA, sometimes called Obamacare, in 2010."

However, a close look at the timeline suggests Obamacare cannot be the blame for the bulk of the move. Between 2006 and 2009 the percentage changed from  69% to 28% in favor to 50% to 47% against. Since 2009, the sentiment change has been in the same direction (against the healthcare mandate), but the percentage point move was much smaller.

Something happened between 2006 and 2009. What was it? Housing collapse? Demographics? Boomer retirement? Medicare seen as "I got mine. I waited. You can wait too?"

The latter would require an illogical disassociation between Medicare and government sponsored healthcare.

Regardless of what happened, politically speaking, Obamacare came at a last-chance now-or-never point with public opinion split nearly 50-50.

For now, it's waiting time. The next presidential election will determine what major changes in healthcare are coming.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com