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Authored by Mike Shedlock via MishTalk,

Chicago Mayor Lori Lightfoot and the Teachers Union reached agreement on a deal sure to send Chicago over the cliff.

The Wall Street Journal Editorial Board blasts Chicago Mayor Lori Lightfoot for her deal with the Chicago Teachers Union (CTU). The deal will further wreak havoc on the already insolvent school system.

Who will be hurt most?

The WSJ answers the question this way: Union Routs Students in Chicago.

Contract Details

1. 16% raise over five years (not including raises based on longevity)

2. Three-year freeze on health insurance premiums

3. Lower insurance copays

4. Caps on class sizes

5. More than 450 new social workers and nurses.

6. New job protections for substitute teachers who going forward may only be removed after conferring with the union about “performance deficiencies.”

7. Chicago Public Schools will become a “sanctuary district,” meaning school officials won’t be allowed to cooperate with the Immigration and Customs Enforcement without a court order.

8. Employees will be allowed 10 unpaid days for personal immigration matters.

9. Under the new contract, a joint union-school board committee will be convened to “mitigate or eliminate any disproportionate impacts of observations or student growth measures” on teacher evaluations.

10. Instead of student performance, teachers will probably be rated on more subjective measures, perhaps congeniality in the lunchroom.

11. The new union contract caps the number of charter-school seats, so no new schools will be able to open without others closing.

Get the Hell Out

The WSJ commented “Michelle Obama the other day complained that white people were leaving the city to escape minorities who are moving in. No, they’re fleeing Chicago’s high taxes and lousy schools—and so are minorities.”

Chicago Public School Bond Ratings

Chart from CPS Credit Ratings.

You can kiss those positive and stable outlooks goodbye. The system is insolvent and this contract will further weaken the outlook.

Bond Rating Comparison

Chart from Wikipedia, yellow highlights mine.

S&P already has CPS bonds in the “highly” speculative area, five steps into its junk ratings.

Pension Spiking

A Chicago Teacher’s Pension is based on your years of service and a pension percentage (up to 75%), multiplied by your final average salary. Their union notes “There are ways to increase these factors to enhance your pension or meet eligibility requirements.”

Let’s Discuss Pensions

Wirepoints asks Chicago Teachers Strike: Why is No One Talking About Pensions?

The average retired CPS teacher already receives a pension of nearly $55,000 a year, according to a 2019 FOIA request to the Chicago Teachers’ Pension Fund.

However, looking at the pension of an average teacher far understates the true size of CPS pensions. The “average” benefit includes teachers who only worked a few years for CPS, which brings down the average.

To get a more accurate picture of what pensions are really worth, look at career teachers. Over half of all currently retired CPS teachers worked 30 years or more. On average, they receive a $72,000 annual pension and began drawing benefits at age 61.

In comparison, the average annual Social Security payment in Chicago is just $16,000 and the maximum benefit for someone retiring at age 62 is $26,500.

C-O-L-A Cola, la la la Payola

The average career CPS pension will grow by 3 percent, compounded annually, due to the COLA benefits teachers get. That will double a teacher’s annual benefit to over $140,000 in 25 years.

Teacher Contributions

Wirepoints Projections

Those projections were based on the proposed contract. The CTU held out for even more benefits and got them.

Pension Funding Level

The Chicago Tribune notes that the end of 2018, City Hall’s pension funds had only 23% of what they should have.

By 2023, Lightfoot must find an additional $989 million a year for pensions, according to the Tribune’s Hal Dardick and Juan Perez Jr. Thank you, former mayors and aldermen, for promising more pension benefits than Chicagoans could afford.

Who Will Pay?

That one is easy.

• The kids will suffer because charter schools are reined in, grading standards lowered, and incompetents were given further projections.

• Taxpayers will face higher property taxes, higher gas taxes, and higher sales taxes with every penny going to pensions.

Get the Hell Out

On October 5, I commented Escape Illinois: Get The Hell Out Now, We Are

Goodbye Illinois. Hello Utah. See my reasons for Utah above.

If you can’t get out of Illinois, do the second best thing, Get the Hell Out of Chicago.

By the way, Chicago is not “headed” for insolvency, it’s already there, but it is just not recognized yet.

While yuan is weakening following SCMP headlines talking down the US-China trade deal, it appears the US equity algos only saw one thing ‘deal’ and rallied…

SCMP reports that:

“Chinese government its reportedly taking a cautious approach in choosing a venue for the US-China Phase 1 deal signing and will avoid giving too many concessions according to sources and diplomatic observers…

And MNI adds

China will not fully acquiesce to key U.S. trade demands in areas such as intellectual property rights protection…

…China’s Ministry of Commerce also cast doubt on claims President Trump that China could buy up to $40 billion to $50 billion of American agricultural products a year, noting that the peak for Chinese imports of U.S. farm goods was $29 billion in 2013.”

But “investors” bought US stocks on that?

Let’s see what happens next

 

 

The CIA employee whose whistleblower complaint is at the heart of Democrats’ impeachment proceedings has finally agreed to speak with lawmakers in writing after he reportedly got cold feet last week.

According to the Washington Examiner, the whistleblower’s attorney Mark Zaid said that he had contacted Rep. Devin Nunes (R-CA) “to submit through legal team written questions to WBer.” Zaid says that the questions “cannot seek identifying info.”

END/We stand ready to cooperate and ensure facts – rather than partisanship – dictates any process involving the #whistleblower.

— Mark S. Zaid (@MarkSZaidEsq) November 3, 2019

This comes after RealClearPolitics‘ Paul Sperry outed the whistleblower as 33-year-old Eric Ciaramella – an Obama administration holdover who worked with former CIA Director John Brennan.

Zaid told CBS on Saturday night that his client wants to be as bipartisan as possible throughout this process while remaining anonymous. The attorney noted that accepting written questions will allow the whistleblower to protect his or her identity from Republicans, who have asked that the whistleblower be identified. –Washington Examiner

According to Congressional Republicans, however, the whistleblower’s new offer was nothing more than a ploy to make headlines in a “Sunday narrative ambush” timed for discussion on national morning shows.

“I have never received that offer, and I’m the lead Republican,” said House minority leader Kevin McCarthy (R-CA), noting that Nunes hadn’t notified him of any letter as of Sunday morning.

NEWS: @gopleader tells @margbrennan he was not aware of an offer made to Rep. Devin Nunes for the #whistleblower to talk to House Republicans. “I have never received that offer, and I’m the lead Republican,” McCarthy tells @facethenation. https://t.co/uyTj1LWc3U pic.twitter.com/sr9aqGdlHo

— Face The Nation (@FaceTheNation) November 3, 2019

McCarthy also thinks House Intelligence Committee Chair Adam Schiff (D-CA) should be forced to testify, as Ciaramella met with Schiff’s staff (a contact Schiff lied about).

McCarthy: “I think the very first person we should bring is Adam Schiff & his staff… Because when the whistleblower even went to the inspector general, he never mentioned that he went with Adam Schiff.” #StopTheSchiffShowpic.twitter.com/x0X0DXRUG3

— Catt (@CattHarmony) November 3, 2019

Last week the Examiner reported that Ciaramella’s attorneys had broken off discussions with lawmakers regarding testimony in the case.

On Sunday, President Trump tweeted that the whistleblower “must come forward” to explain their concerns over a July 25 phone conversation between Trump and Ukraine’s President Volodomyr Zelensky, in which Trump asked that Ukraine investigate the Biden family and other matters.

“Reveal the Whistleblower and end the Impeachment Hoax!” Trump tweeted Sunday.

The Whistleblower got it sooo wrong that HE must come forward. The Fake News Media knows who he is but, being an arm of the Democrat Party, don’t want to reveal him because there would be hell to pay.
Reveal the Whistleblower and end the Impeachment Hoax!

— Donald J. Trump (@realDonaldTrump) November 3, 2019

More on Ciaramella and his connections:

After August’s contraction, Factory Orders in September were expected to accelerate their decline, but the 0.6% MoM drop was more than expected. This sent the year-over-year contraction in factory orders down to -3.5% – the worst since July 2016…

Source: Bloomberg

Additionally the final durable goods orders print for September worsened, dropping 1.2% MoM and down 4.0% YoY…

Source: Bloomberg

Of course, everyone assumes that September was the inflection point and that October (and now November) will be awesome because of trade-deal hope?

 

As we noted yesterday, valuations for Saudi Aramco are a significant concern, and there isn’t a concrete price, that is because it depends on which bank research you read.

Sources told Bloomberg a lot of skepticism surrounds the upcoming Aramco IPO on the Tadawul exchange in Riyadh. The IPO could be listed as soon as December. 

LIVE: Saudi Aramco is planning to list on the Riyadh stock exchange – in what could be the world’s biggest initial public offering (IPO).

Latest here: https://t.co/l8ix47Slhq https://t.co/nsEeBwRGFe

— Al Jazeera News (@AJENews) November 3, 2019

Sources indicate multiple banks involved in the IPO are struggling to provide potential investors with an accurate valuation. This overhang of uncertainly is quite wide; for instance, Bank of America has a $1 trillion range between low and high estimates.

The research, which has been distributed by numerous banks to potential investors since Sunday, struggles to value Aramco at $2 trillion, a level where Saudi Crown Prince Mohammed bin Salman (MbS) has publicly stated the company should be worth since 2016. 

While MbS could’ve achieved a $2 trillion valuation last year or several years ago, the IPO market across the world is closing up as a global trade recession appears to be imminent. It’s one of the reasons why MbS, Aramco, and Wall Street banks are rushing to get the IPO completed before global equity markets sell again. 

Saudi Aramco kick-starts what could be world’s biggest IPO. Bankers have told Saudi govt that investors will likely value comp at around $1.5tn, below $2tn valuation touted by Crown Prince Mohammed bin Salman when he first floated idea of an IPO 4yrs ago. https://t.co/UOOkptL60l pic.twitter.com/dZCt9QzDoa

— Holger Zschaepitz (@Schuldensuehner) November 3, 2019

The source said BofA’s low valuation of the company is at $1.22 trillion with a high estimate of $2.27 trillion, the gap is enormous and has spooked some investors. 

Goldman Sachs values Aramco between $1.6 trillion and $2.3 trillion. 

“Note that our suggested valuation framework is based on a long-term analysis, and it is not linked to a near-term assessment of the likely performance of the company’s shares,” Goldman’s pre-IPO report said. 

Much of Goldman Sach’s valuation of the oil company is derived from an average oil price of $64.50 for 2019, and $60 per barrel from 2020 through 2023.

EFG Hermes has a valuation of $1.55 trillion to $2.1 trillion, several fund managers told Reuters.

Bernstein’s research deck valued Aramco around $1.2 trillion to $1.5 trillion.

HSBC, one of the lead underwriters of the IPO, values the oil company between $1.59 trillion to $2.1 trillion.

BNP Paribas, another bank playing a critical role in the IPO, values Aramco around $1.42 trillion. 

“These ranges are always wide as research analysts want to cover both low end and high end, so you want to show the sensitivity of assumptions,” one banker told Reuters.

Aramco’s hope of pricing the IPO at high estimates, above $2 trillion, is dim, considering global macroeconomic headwinds continue to mount and geopolitical risks in the region are soaring. 

Submitted by Michael Every of Rabobank

Let’s start today with the traditional wrap up of what was worth noting from Friday’s US labor market report. Firstly, it definitely suggested that on a headline basis, we are in a phase of jobs growth that is still set to stun market bears. The magic payrolls number was 128K vs. just 85K expected, and with upwards revision to the previous two months, including September from 136K to 180K and August from 168K to 219K. Moreover, that was despite a strike at GM in the survey period that would have dampened results by 41.6K that is going to be reversed in the next set of data. The unemployment rate actually edged up to 3.6% as the labour force grew, and there was no change in hours worked, while average earnings growth was a moderate 3.0% y/y, as expected.

So far, so good, even for a lagging series. In terms of the impact on rates markets, there was an obvious move in US Treasury yields, which jumped from 1.67% to 1.74% before closing at 1.71%. Likewise, it was good news for stocks, with yet another record S&P high now hanging on the utility belt. Obviously, the Fed liked the data a lot, especially since the three unforeseen-and-on-paper-now-unnecessary(?) rate cuts this year can be put forward as having allowed this all to unfold in classic post hoc ergo propter hoc central-bank thinking.

The Fed’s Kashkari then turned a phaser on traditional economic thinking with his comment that “Maximum employment is a labor market consistent with 2% inflation. Until wage growth, net of productivity, is at least at 2%, we can’t be there yet (and we’re not now). And that ignores the potential for labour share to increase, which it might.” Obviously the message is that US rates will stay low, or can go lower, despite the strong labour market. Yet it is entirely possible to have zero unemployment and zero wage growth net of productivity in perpetuity. It’s called slavery – and, tragically, it still goes on in some parts of the world. Kashkari alludes to this with talk about the labour share, which–shock horror!!–is Marxist terminology. Yet it’s not clear if this is full recognition that the political structure within which the labour market operates actually matters or not for the Fed’s models, or if it is just looking for an excuse to do all it can to juice the asset markets. (And Marx had a lot to say about what a mess financial capitalism ends up in when it relies on speculation and not productive investment…as do an increasing number of serious contenders for the Democratic Party presidential nomination.)

Short term, of course, the market will be happy with the buzz it gets from a phaser set to a weak ‘stun’, as jobs grow and rates shrink, in a Star-Trek equivalent of glue sniffing; yet the market simply doesn’t want to grapple with the political implications that are looming when those same phasers are set to ‘kill’ by newly-elected bridge crew. I can wholeheartedly assure you when the penny drops it will be akin to James T Kirk’s classic “KHAAAAAAAN!” moment.

Meanwhile, on the other source of market optimism, the US-China trade deal, phasers seem to be set for ‘stun’ but have actually been set for ‘bum’. That is because while President Trump is tweeting about whether to sign his “phase one” deal in Iowa or Hawaii (Think: where are the swing voters? Not Honolulu), all signs point to what we concluded a long time ago (when young people still knew what phasers were in popular culture): this is a bum deal. Why do we say that? Without referencing our own work again, consider:

1. US House Speaker Nancy Pelosi has just said Democrats are ready to get tougher on China than Trump by aligning with the EU against it. Of course, the Democrats are bending over backwards not to mention China pre-election in exactly the same way as Greta Thunberg, and the EU has generally been in ‘surrender-monkey’ mode – but this does suggest Trump might actually be the trade dove at this point in time.
2. The head of the US Chamber of Commerce in China is quoted as saying of the phase one deal: “Of course, it’s helpful for the farmers and I’m glad to see farmers benefit, but that’s not really what we’re looking for….it’s not addressing the systemic trade issues that the business community would be concerned about on a long-term basis…For every government policy in China, there’s a contradictory policy. The government says, ‘OK, we’d better do a bit more to help the foreigners’, but does that change industrial policies? Does it change that the state sector is dominant? No. As long as they have plans that Chinese enterprises should have more and more market share in China, in their sector and globally, we know that they will welcome us, but only with conditions.” Indeed, phase one on US-China trade seems an empty box in most respects, and we don’t expect there is a phase two to follow.
3. China’s Shanghai Import Expo is about to get rolling to almost as much fanfare as last year’s inaugural event…where actors were allegedly hired to pretend to be buyers. Question: What was Chinese import growth y/y in USD in September 2019? Answer: minus 8.5%. Australia is sending a government representative to accentuate the positive (and in local terms it is a rare positive), but the idea that China is about to be a major new source of global import demand seems science fiction.
4. US Commerce Secretary Ross is suggesting sales to Huawei will begin again soon. Yet that overlooks: (1) China is plowing tens of USD billions into its pre-fab industry to make sure US chips aren’t needed in the near future, and there will be no going back on that; and (2) the US is leaning on Taiwan’s top chip maker TSMC to stop selling to mainland China, including Huawei. Is that because the US wants to sell the chips instead, or because it doesn’t want anyone selling that tech to Beijing?

So do please look past market technobabble as dire and internally inconsistent as the dialogue in Star Trek Discovery, and political snake-oil, and recall that phasers are being deliberately set to ‘stun’ and/or ‘bum’. Honestly, it’s only Monday and already one wants to say ‘Beam me up, Scotty’ (despite Kirk never actually saying it) or just “KHAAAAAAAAAN!”