Tag: finance

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Source: Cagle.com

via Zero Hedge http://ift.tt/1dl30uV Tyler Durden

In the spring of 2012, we predicted that not only would corporate excess cash not go toward such core economic recovery “uses of funds” as CapEx, not only for the simple reason that there was, and is, no actual recovery, but that in order to create the artificial impression of improving conditions, as well as the satisfy activist investors seeking a quick ROI, companies would spend the bulk of their cash on stock buybacks and dividends. Gradually, this cash use is shifting to M&A – a classic ‘top of the cycle’ indicator – although courtesy of the unprecedented bubble in various sectors, tech most notably, corporations are opting to chiefly use overvalued stock as the currency of acquisition (see the recent purchase of Whatsapp by Facebook, funded mostly through FB stock) instead of cash. As we further explained at the same time, the main reason for this capital misallocation was simple: the Federal Reserve, whose ZIRP policy has perverted traditional hurdle rate-based capital allocation decisions, and has unleashed an all out buyback bonanza at the expense of the one cash use that is so critical to sustain not only revenue, but economic growth: capital expenditures.

As happens at the end of every year, sellside analysts and economists, all predicted that this year would be different, and the long overdue capex spending would finally be unleashed. Apparently they had far greater visibility on this matter, than on the topic of snowfall in the winter, and its disastrous impact on a $17 trillion economy, whose Q1 GDP growth forecast has cratered from 3% at the start of the year, to barely half that number currently. One of the firms that preached that the CapEx recovery is imminent is none other than Goldman Sachs, the same firm that also year after year predicts a new golden age for the US, only to see its forecast crash and burn some 4-6 months later, couched in the tried (or is that now trite) and true scapegoatings: snow, unrest in Europe, inflation or deflation in Japan, the usual. However, this time may indeed be different, and the same Goldman has just released a piece wondering “Why no capex recovery?” (despite the firm’s own forecasts to the contrary -just recall David Mericle’s “Capex: The Fundamentals Remain Strong” which now in retrospect is completely wrong).

What follows is a whole new set of “explanations” for why – once again – Goldman will have been wrong in its optimism, and why once again, we were right, after simply, and accurately, putting the blame for all that is currently wrong in the world on the one place that deserves such blame: the Federal Reserve.

Anyway, here is Goldman’s Aaron Ibbotson with Why No Capex Recovery?

Economic recovery should equal a capex recovery; that is indeed one of the key defining characteristics of the recovery phase of a business cycle. Yet we believe that “this time will be different”, certainly for developed market-based companies. Why? A combination of structural, cyclical and technological changes suggest to us that the need for capex will be lower going forward, one of the key reasons why we are cautious on capital goods.

Things are getting smaller, faster, lighter…

Ceteris paribus you need a big machine to make a big and heavy widget and a small machine to make a small and light widget; and a big machine generally demands a bigger investment than a small one. This may seem trivial, but as miniaturisation gathers pace you need less powerful motors, less space, a smaller truck to transport it around, less material to build it and much more – all with negative implications across the capex chain. In conjunction with miniaturisation machines are getting faster. A robot today can make more widgets than it could yesterday.

…until they disappear all together

The lightest and smallest widgets of them all are the ones that are now entirely virtual. As recently as the last up-cycle in 2003-2006, some companies invested capex building plants that made CDs, DVDs, video games, sat navs, maps, time tables and much more, that we now largely use our smartphones/tablets for. While capex will continue to be invested to produce our smart phones/tablets, it is difficult to envisage how it will compensate for the increasing number of goods that are becoming virtual.

Capex will be spent elsewhere…in Asia

While all capex counts, the capex we typically focus on is the that spent by listed companies in general, and listed DM companies in particular. However, the global supply chain looks very different today than it did only 10 year ago. Everything from electric components to steel is being sourced from non-DM companies, often not listed, and many of them based in China and other parts of Asia. This trend is particularly strong within tech, where Asian companies dominate the capex-intensive part of the value chain. However, myriad small Asian companies play an important part in the supply chain of many non-tech DM companies. And often, the part of the value chain that is being outsourced is the most capex-intensive part, such as producing raw materials or semiconductors, reducing both the cyclicality and the need for capex by DM-listed companies.

…and by states and private companies

The Chinese State Grid Corporation spent c.US$60 bn in 2012 and China Railway Corporation spent over US$100 bn. To put this into context, the 2,200 European non-resource companies GS covers spent in aggregate €250 bn. Over the last decade, FAI has increased by a factor of 2.5x in EMs while it has increased by only 10% in DMs. This has increased the proportion of capex spent by SOEs in a number of industries such as resources, transport and power generation and T&D. All capex counts, but this capex will not show up in the cash flow statements of the companies in our coverage, and we expect a declining slice to show up in the P&Ls of our capital goods coverage.

Too much was spent in the last up-cycle

The last cycle saw many booming end-markets: mining, power generation, shipping, O&G and Chinese construction among many growing 3x+. We do not expect this up-cycle to contain any booms, and see several of the preceding end-markets continuing (or entering) multi-year declines. At the core of our view is the long asset life of many of the capital goods sold into the booming end-markets of the last decade. This lends itself to multi-decade investment cycles. The 20-year decline in transmission and power generation capex in the US (early 1970s to late 1990s) provides a sobering example. We now believe that several end-markets are close to, or past, their peak. Of the five mentioned above, it is only O&G where we still expect growth, albeit at a substantially lower level.

via Zero Hedge http://ift.tt/1dkM1sG Tyler Durden

The divergence between the NAHB index and other housing indicators has continued to suggest that sentiment was “getting ahead of itself" and as Citi's Tom Fitzpatrick warns would suggest that the qualitative nature of the overall housing recovery is less robust than one would like.  Housing should pause/consolidate possibly even for most of this year as the weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast. Simply put, Citi warns, we think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.

Via Citi FX Technicals
Techamentals – Housing Data Doing What Was Expected

The surge higher in yields seen last year along with elevated oil prices, some EM stress, and Fiscal drag seem to finally having their effect.

The weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast (Maybe that 70 degree heat was just too much for them)

The chart below has constantly argued that housing should pause/consolidate, possibly even for most of this year before likely thereafter showing some traction again.

NAHB index; Building permits; New home sales; Housing starts

As we saw after the housing/savings and loan crisis in 1989-1991 housing sentiment (NAHB) rose much quicker that actual activity (Permits, New Home Sales and Housing starts)

We saw this in 2 periods in particular

• Into late November 1993 before the 13 month surge in 10 year yields (287 basis points) as Alan Greenspan “tinkered” by raising interest rates by 25 basis points in Feb. 1994.
• Into December 1998 before the EM crisis, Russian default, LTCM failure also became a drag on sentiment.

Once sentiment corrected and converged to “reality” we saw housing recover again. That took about 12-18 months in the periods in question.

We would therefore not be at all surprised if housing continues to consolidate/correct for most of 2014 before once again resuming its gradual rise higher again.

What would a path like 1993-1995 suggest?

A move lower in the NAHB index into the start of the 4th quarter to a level around 27 before resuming its rise would fit with what we saw in 1993-1995.

Mortgage Bankers association purchase index

This shows mortgage loan applications submitted to lenders and shows that we are almost back to the low levels seen in August 2011

The peak here (not surprisingly) was seen in April 2013 before we saw a surge in mortgage rates between May and July

In early May 2013, 30 year mortgage rates were around 3.40% and then surged by July to 4.64% (36% higher). Today they still remain elevated to last year (Albeit off the highs) at 4.32%

This area between 156.80 and 159.30 above (76.4% pullback of the 1990-2004 rise and horizontal supports from 1996 and 2011) is big support. If that were to give way then a move back towards the lows set in late 1990 at 53.50 would be a danger.

What this really shows is that a lot of housing activity has not been the traditional taking out of mortgages to buy a home but rather cash purchases; buy to rent; distressed purchases etc. This would suggest that the qualitative nature of the overall housing recovery is less robust than one would like.

Housing affordability: Small bounce but still 18% off the levels seen in March 2013

Rising mortgage rates being the prime culprit of course

So to improve affordability and get housing moving again we are going to need to see lower mortgage rates. How does that look?

US 10 year yield weekly chart: Lower yields in the months ahead remains our base case

Last month we saw an outside month in the 10 year yield (not shown) that suggests lower yields can be seen.(Traded to the high of the trend at 3.05% then fell below the December 2012 low of 2.75% and closed in January below that level at 2.64%). We also saw an outside month on the 30 year yield with the close below 3.74%

Going back to the chart above we look to have a clear Double top potential with a neckline at 2.47%. A close below there if seen would suggest the potential to go as low as 1.90-1.95% again. In addition to the neckline we see significant horizontal trend line support as well as the 55 and 200 week moving averages converging in the 2.40-2.44% range. So bottom line we continue to expect a test of this support area at 2.39-2.47% at a minimum. A weekly close below here, if seen, would suggest extended losses that could take us below 2%.

On the 30 year yield chart the picture is similar with significant support in the 3.48-3.56% area. A weekly close below there would suggest extended losses towards 3.15-3.20%

Overlay of US 10 year yield chart and 30 year mortgage rate.

A move towards the initial support area around 2.40-2.47% on 10 year yields would suggest a drop in the mortgage rate to at least 4.05-4.15% from the present 4.31% while a completion of the double top and a move below 2% would suggest mortgage rates back towards 3.65% at least.

It is feasible the move in mortgages could be even more if the spread were also to narrow as we moved lower.

US 30 year mortgage rate minus 10 year yield

Testing rising trend line support coming from 2007 around 152 basis points. A break below here would suggest further narrowing in this spread which if coming in a downward moving yield environment would go some way towards improving housing affordability again

Summary: We think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.

The surge in yields since last May was “too far too fast”. Add to that the fiscal drag, elevated oil prices and maybe even the weather (as A factor not THE factor) and you get a pause in housing and a fall in sentiment like we did in 1994 and 1998. With sluggish economic data materializing, yields and ultimately mortgage rates will adjust lower (without the need for additional Fed interference) as the bond market “clears” all on its own. This will be simulative and by as early as end 2014 housing will likely pick up once again.
 

via Zero Hedge http://ift.tt/Or7U4q Tyler Durden

The divergence between the NAHB index and other housing indicators has continued to suggest that sentiment was “getting ahead of itself" and as Citi's Tom Fitzpatrick warns would suggest that the qualitative nature of the overall housing recovery is less robust than one would like.  Housing should pause/consolidate possibly even for most of this year as the weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast. Simply put, Citi warns, we think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.

Via Citi FX Technicals
Techamentals – Housing Data Doing What Was Expected

The surge higher in yields seen last year along with elevated oil prices, some EM stress, and Fiscal drag seem to finally having their effect.

The weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast (Maybe that 70 degree heat was just too much for them)

The chart below has constantly argued that housing should pause/consolidate, possibly even for most of this year before likely thereafter showing some traction again.

NAHB index; Building permits; New home sales; Housing starts

As we saw after the housing/savings and loan crisis in 1989-1991 housing sentiment (NAHB) rose much quicker that actual activity (Permits, New Home Sales and Housing starts)

We saw this in 2 periods in particular

• Into late November 1993 before the 13 month surge in 10 year yields (287 basis points) as Alan Greenspan “tinkered” by raising interest rates by 25 basis points in Feb. 1994.
• Into December 1998 before the EM crisis, Russian default, LTCM failure also became a drag on sentiment.

Once sentiment corrected and converged to “reality” we saw housing recover again. That took about 12-18 months in the periods in question.

We would therefore not be at all surprised if housing continues to consolidate/correct for most of 2014 before once again resuming its gradual rise higher again.

What would a path like 1993-1995 suggest?

A move lower in the NAHB index into the start of the 4th quarter to a level around 27 before resuming its rise would fit with what we saw in 1993-1995.

Mortgage Bankers association purchase index

This shows mortgage loan applications submitted to lenders and shows that we are almost back to the low levels seen in August 2011

The peak here (not surprisingly) was seen in April 2013 before we saw a surge in mortgage rates between May and July

In early May 2013, 30 year mortgage rates were around 3.40% and then surged by July to 4.64% (36% higher). Today they still remain elevated to last year (Albeit off the highs) at 4.32%

This area between 156.80 and 159.30 above (76.4% pullback of the 1990-2004 rise and horizontal supports from 1996 and 2011) is big support. If that were to give way then a move back towards the lows set in late 1990 at 53.50 would be a danger.

What this really shows is that a lot of housing activity has not been the traditional taking out of mortgages to buy a home but rather cash purchases; buy to rent; distressed purchases etc. This would suggest that the qualitative nature of the overall housing recovery is less robust than one would like.

Housing affordability: Small bounce but still 18% off the levels seen in March 2013

Rising mortgage rates being the prime culprit of course

So to improve affordability and get housing moving again we are going to need to see lower mortgage rates. How does that look?

US 10 year yield weekly chart: Lower yields in the months ahead remains our base case

Last month we saw an outside month in the 10 year yield (not shown) that suggests lower yields can be seen.(Traded to the high of the trend at 3.05% then fell below the December 2012 low of 2.75% and closed in January below that level at 2.64%). We also saw an outside month on the 30 year yield with the close below 3.74%

Going back to the chart above we look to have a clear Double top potential with a neckline at 2.47%. A close below there if seen would suggest the potential to go as low as 1.90-1.95% again. In addition to the neckline we see significant horizontal trend line support as well as the 55 and 200 week moving averages converging in the 2.40-2.44% range. So bottom line we continue to expect a test of this support area at 2.39-2.47% at a minimum. A weekly close below here, if seen, would suggest extended losses that could take us below 2%.

On the 30 year yield chart the picture is similar with significant support in the 3.48-3.56% area. A weekly close below there would suggest extended losses towards 3.15-3.20%

Overlay of US 10 year yield chart and 30 year mortgage rate.

A move towards the initial support area around 2.40-2.47% on 10 year yields would suggest a drop in the mortgage rate to at least 4.05-4.15% from the present 4.31% while a completion of the double top and a move below 2% would suggest mortgage rates back towards 3.65% at least.

It is feasible the move in mortgages could be even more if the spread were also to narrow as we moved lower.

US 30 year mortgage rate minus 10 year yield

Testing rising trend line support coming from 2007 around 152 basis points. A break below here would suggest further narrowing in this spread which if coming in a downward moving yield environment would go some way towards improving housing affordability again

Summary: We think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.

The surge in yields since last May was “too far too fast”. Add to that the fiscal drag, elevated oil prices and maybe even the weather (as A factor not THE factor) and you get a pause in housing and a fall in sentiment like we did in 1994 and 1998. With sluggish economic data materializing, yields and ultimately mortgage rates will adjust lower (without the need for additional Fed interference) as the bond market “clears” all on its own. This will be simulative and by as early as end 2014 housing will likely pick up once again.
 

via Zero Hedge http://ift.tt/Or7U4q Tyler Durden

Many have been surprised by the lack of public response by Russia to the ongoings in Ukraine. Aside from some comments by Siluanov, the response has been concerning in its absence from the iron fist. However, quietly and with little new coverage, RiaNovosti reports that the combat capability of Russia’s naval task force in the Mediterranean will increase significantly – for the first time in decades – following the first deliveries of Varshavyanka-class submarines (with advanced stealth technology dubbed “black holes in the ocean“) to the Black Sea Fleet.

 

Via RiaNovosti,

Russia formed a permanent naval task force in the Mediterranean last year to defend its interests in the region. The move was widely seen, however, as a response to calls for international intervention in the worsening civil war in Syria, Russia’s longtime ally.

The task force currently consists of 12 warships and auxiliary vessels, including the nuclear-powered missile cruiser Pyotr Veliky and aircraft carrier Admiral Kuznetsov.

According to Chirkov, the Russian warships are taking part in an international operation to remove chemical weapons stockpiles from Syria.

“In general, the tasks assigned to the Mediterranean group are absolutely clear: to thwart any threat to Russia’s borders and security,” the admiral said, adding that it is normal practice for any country to keep naval assets in vital regions around the globe.

Chirkov said that the first Varshavyanka-class diesel-electric submarine, the Novorossiisk, will join the Black Sea Fleet in 2015.

The Defense Ministry has ordered a total of six Varshavyanka-class subs, dubbed “black holes in the ocean” by the US Navy because they are nearly undetectable when submerged.

…

The Varshavyanka-class (Project 636) is an improved version of the Kilo-class submarines and features advanced stealth technology, extended combat range and the ability to strike land, surface and underwater targets.

The submarines are mainly intended for anti-shipping and anti-submarine missions in relatively shallow waters.

…

The Black Sea Fleet has not received new submarines for decades and currently operates only one boat: the Kilo-class Alrosa, which joined the navy in 1990.

via Zero Hedge http://ift.tt/1fupoWV Tyler Durden

Many have been surprised by the lack of public response by Russia to the ongoings in Ukraine. Aside from some comments by Siluanov, the response has been concerning in its absence from the iron fist. However, quietly and with little new coverage, RiaNovosti reports that the combat capability of Russia’s naval task force in the Mediterranean will increase significantly – for the first time in decades – following the first deliveries of Varshavyanka-class submarines (with advanced stealth technology dubbed “black holes in the ocean“) to the Black Sea Fleet.

 

Via RiaNovosti,

Russia formed a permanent naval task force in the Mediterranean last year to defend its interests in the region. The move was widely seen, however, as a response to calls for international intervention in the worsening civil war in Syria, Russia’s longtime ally.

The task force currently consists of 12 warships and auxiliary vessels, including the nuclear-powered missile cruiser Pyotr Veliky and aircraft carrier Admiral Kuznetsov.

According to Chirkov, the Russian warships are taking part in an international operation to remove chemical weapons stockpiles from Syria.

“In general, the tasks assigned to the Mediterranean group are absolutely clear: to thwart any threat to Russia’s borders and security,” the admiral said, adding that it is normal practice for any country to keep naval assets in vital regions around the globe.

Chirkov said that the first Varshavyanka-class diesel-electric submarine, the Novorossiisk, will join the Black Sea Fleet in 2015.

The Defense Ministry has ordered a total of six Varshavyanka-class subs, dubbed “black holes in the ocean” by the US Navy because they are nearly undetectable when submerged.

…

The Varshavyanka-class (Project 636) is an improved version of the Kilo-class submarines and features advanced stealth technology, extended combat range and the ability to strike land, surface and underwater targets.

The submarines are mainly intended for anti-shipping and anti-submarine missions in relatively shallow waters.

…

The Black Sea Fleet has not received new submarines for decades and currently operates only one boat: the Kilo-class Alrosa, which joined the navy in 1990.

via Zero Hedge http://ift.tt/1fupoWV Tyler Durden

You Can’t Make Me!

Self Victimization through Personal Speech Patterns

The Sovereignty Series

By

Cognitive Dissonance

 

 

Introducing a new portal into the mind of Cognitive Dissonance www.TwoIceFloes.com

 

 

We’ve all heard of word association tests administered by the psychiatric profession which are used to determine our unconscious psychological makeup. The same goes for various other tests, such as the Rorschach test, that are (supposedly) designed to detect underlying thought disorder and overall personality characteristics.

I have often spoken about the hijacking of language to control and manipulate people, both as individuals and as the collective herd. George Orwell’s classic “Nineteen Eighty-Four” is a wonderful examination of the concept of language hijacking. I suggest that regardless of whether you have read “1984” or not, that you do so again in light of what we all see coming round the bend.

I tend to cringe whenever I use the word ‘hijack’ because it implies that our language has been forcibly taken from us, transformed into a weapon to be used against us, and then placed back in our hands disguised as an everyday tool of essential living. Even if the process I just described is actually what happened (in practice it’s more evolution than blunt force trauma) in order for the hijacking to be effective it still requires our consent and willingness to utilize and embrace the weaponized language.

So let’s try something a little different here. Instead of a word association test I would like to try a phrase association test with you. And I’ll bet that even if you tried you could not stop yourself from inserting a word into the blank at the end of the following phrase.

“You make me so <……….>.”

 

 

The lists of words you may have inserted into the <blank> are wide and varied. As well if I were to structure the sentence differently, such as “Sometimes you make me…..” or “Every time you do that you make me…..” the list may grow even longer. Sometimes we even declare that “It makes me so……” thereby giving inanimate objects or situations control over us. If you give it some thought you can come up with all kinds of variations.

The one commonality among most, if not all, of the words we place after ‘make me’ are words or possibly phrases that describe emotions, usually strong (triggering) emotions. In keeping with the theme of hijacking a language in order to control or manipulate, one of the techniques used is to distort the meaning of words or phrases in such a way as to promote a ‘victim’ mentality.

Other examples of victim phrases are “You can’t fight city hall” or “There’s nothing we can do to change the situation”, both classics because what we really mean when we say those things is that since we can’t change everything immediately why even try. This is what non sovereign entities say to each other and to their masters. We beg for permission from the ‘authorities’ to do what we as true sovereigns would never consider asking permission to do. This ‘conditioning’ begins with the language we use to speak and thus to think.

So my question here is simple. Since when is someone else responsible, as in “You make me…,” for our emotional ‘State of Mind’? Think about that for a few seconds before you respond because I would be willing to bet that your initial response, the one that quickly rolls off your mental or physical tongue, would itself be a triggered response rather than a logical and rational answer.

Now before you say, “Well, that’s just something we say. It doesn’t mean anything.” I beg to differ. Just watch two people verbally fight, or even just argue, and count the number of times one assigns the other blame for their own emotional state. If there is any emotional attachment between the parties, or the confrontation is emotionally triggering, blame will likely be assigned to the other. That’s the beauty of left/right politics as a control mechanism, to promote triggering emotions in order to divide and pacify a population.

 

 

We are all guilty of this, including myself. Just ask Mrs. Cog. To counter this tendency I try to remain mindful of what I am saying at all times, especially when I’m feeling emotional or I’m triggered by something someone else said. For me one of the signs that I‘ve been triggered is when I won’t let the other person finish speaking or I’m just waiting for my turn to speak rather than actually listening to what they are saying.

I attempt to counter this in the same why I try to avoid using the words ‘I believe’. Often when I use that term I am simply regurgitating some doctrine or thought bubble that is commonly used among those I associate with. Or it is a label I can quickly assume or wear that enables the view I wish to express to be quickly or easily understood. What I should be saying is that ‘I think’ or ‘My opinion is’. Doing so changes the dynamic of my thoughts and speech because now I am expressing my own ‘State of Mind’ rather than repeating someone else’s.

One of the things that drives Mrs. Cog crazy, especially when we are having ‘words’, is that I sometimes reject her assignment of blame. She’s even turned the tables on me a few times to her everlasting amusement. More often though, whether or not we are having words, I try to slow down and think about what I am saying. If I force myself to take full and exclusive ownership of my emotional state by avoiding the “You make me…” statements, not only must I phrase my words differently, but I must think differently about not just whom I’m talking to or what I’m talking about, but I must also think differently about myself.

By accusing someone else of being responsible for my emotional outbursts I am in essence avoiding responsibility for my own actions. By blaming others for my ‘State of Mind’ I’m assigning myself to the ‘role’ of victim status. If it weren’t for you I wouldn’t be in this ‘State of Mind’. So you fix yourself and I’ll be all better. That is one of the definitions of a victim, someone who has no control over their ‘self’, who has had the control of their body and/or mind taken from them, often by force or deceit. Only in this case, because I self assign myself as victim, it is entirely by my consent that I am a victim.

While that assessment might sound simplistic and even childish, I contend that there are few conversations/arguments more childish than two or more adults blaming each other for their own (dysfunctional) emotional state. If you don’t believe me, just spend an hour or so in a public park or gathering place where young children are playing. You will hear little fights erupt now and then and if you are honest with yourself you will see the parallels between what is said on the playground and what is said in the heat of an argument with a friend, spouse or other loved one.

 

 

So……..are you ready to take the Cognitive Dissonance challenge? For one entire week starting from this moment let ‘us’ attempt to be mindful at all times, not just when we are emotionally triggered or in the middle of conflict or confrontation, but at all times, of the language we use that sheds us of personal responsibility for our own emotional ‘State of Mind’.

I suspect that at some point during our little experiment we will begin to recognize other words, phrases or mannerisms we regularly use that also directly or indirectly absolve ourselves of personal ‘blame’ or ‘responsibility’ for all manner of things. No one can ‘make you’ do, feel or say anything without your consent and the first consent we quickly (and often without conscious thought) give up/away is when someone else triggers our own inner emotional dysfunction.

The ultimate goal of this thought experiment is to elevate our awareness, our mindfulness, and our inner presence in order to begin to reclaim our own personal sovereignty. In my opinion (see, I didn’t say ‘I believe’) we cannot even begin to assert our own personal sovereignty if we can’t even accept responsibility for our own (emotional) State of Mind. 

 

02-23-2014

Cognitive Dissonance

www.TwoIceFloes.com

via Zero Hedge http://ift.tt/1fujWDm Cognitive Dissonance

Submitted by F.F.Wiley of Cyniconomics blog,

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking.

– Former St. Louis Federal Reserve Bank President William Poole, writing in the Wall Street Journal last April

In the op-ed excerpted above, William Poole harshly criticizes government budget projections, including those published by the Congressional Budget Office.

We’re guessing he was especially miffed with the annual budget outlook released by the CBO on February 5^th.

Consider that Poole favored the “alternative scenario” that can sometimes be found deep within CBO reports and spreadsheets. This scenario corrects for at least a few of the absurd assumptions in the primary budget projections (the “baseline scenario”) that receive 99% of the media’s attention. Poole called the alternative scenario “the only truly honest and useful effort in town.”

Alas, the alternative scenario is no more – the CBO removed it from their annual outlook. Taxpayers can no longer find meaningful budget projections anywhere in the CBO’s work.

Let’s see if we can fill in the gap.

We’ll start with the baseline from this month’s report:

The chart shows a shrinking deficit over the next couple of years, but don’t get too excited. Apart from other issues we’ll discuss, this is explained by a long-standing prediction for a robust economic recovery, which hasn’t yet come to pass. It’s not so much a budget outlook as a hopeful forecast.

After the supposed economic boom levels off in 2018/19 (according to the assumptions), the figures no longer hide our deteriorating finances. But the deterioration is likely to be much worse than the chart suggests, as we’ll explain below.  To create a more realistic outlook, we’ll adjust the baseline scenario for four different types of deficiencies in the CBO’s approach:

Step #1: We deal with dishonest lawmakers

One of the challenges in budget forecasting is that tax and spending laws are full of provisions that are all but guaranteed to be reversed before they take effect. These dead-on-arrival provisions only exist to create the appearance of fiscal rectitude. And the deception works because the CBO is required by governing statutes to build the phony provisions into its baseline, which the media then endorses as an authoritative view of public finances.

Fortunately, though, the CBO’s new report provides data we can use to neutralize some of the lawmakers’ tricks, as explained in Table 1 below:

Step #2: We get real with the economy

The good news in the CBO’s latest report is that they made a few needed changes to the underlying economic assumptions. The bad news is that they have much more to do – the economic outlook remains unrealistic.

Once again, though, we can use data in the report (Appendix E, in this case) to improve the projections. We explained our adjustments in detail in “Why Mr. Smith Has More Work To Do,” and they’re summarized in Table 2 below.

Note that we’ve accepted the CBO’s strongly optimistic outlook for the next four years, not because we like it but because it’s easier to show inconsistencies and come up with a more realistic scenario in later years (after the assumed recovery reaches historic extremes).

Step #3: We put on our actuarial hats

It doesn’t take much business experience to know that budget plans are regularly thrown off track by unexpected events, and the federal budget is no different. In fact, the CBO always acknowledges the risks of such setbacks. Yet, its governing statutes don’t permit accounting for most types of unexpected events in the baseline scenario.

In any case, the CBO doesn’t provide sensitivity analysis estimating their possible effects. Here’s what we had to say about this in an earlier post:

[M]any events are deemed too unpredictable to be estimated – an excuse that defies both collective knowledge and common practice. Actuaries, accountants and financial risk managers are all trained to place numeric estimates on unforeseen risks. Insurance premiums, credit loss provisions and investment decisions are all based on these numeric estimates.

The key is that any positive number is better than nothing. We can see the problem with nothing just by noticing that the debt debate almost never gets around to the risks of recessions, financial crises, wars, natural disasters, and so on. Political leaders and pundits habitually ignore the CBO’s warnings that these events will occur from time to time, relying instead on its incomplete projections.

In the same post, we explained our approach to adjusting budget projections for unforeseen events. One of our recommendations, which accounts for the effects of automatic stabilizers and doesn’t violate the CBO’s statutes, was implemented by the CBO for the first time in this month’s report. The other adjustments are summarized in Table 3 below:

Step #4: We recognize that debt owed to trust funds is, indeed, debt

The question of whether to look at gross debt (including obligations to trust funds such as the Social Security and Medicare hospital insurance funds) or net debt (excluding those obligations and other intra-governmental holdings) is a tired subject. It’s probably fair to say that net debt advocates don’t care much about debt to begin with, while those who point to gross debt do care. We offered our two cents here. Among other points, we described the paradox that fiscally profligate governments can lower net debt (but not gross debt) by merely expanding certain types of entitlement programs, even if the expansions are fiscally unsustainable. In fact, America’s current financial position shows that this is exactly what we’ve done. For this reason and others, trust fund debt should be added back to the net figures highlighted by the CBO.

Putting it all together

Note that the figures in the tables above exclude debt service costs. After breaking the baseline into components and making our adjustments, we then create new projections that include recalculation of debt service.

The Steps 1 and 3 adjustments are combined into a projection that we call “Congress does what it usually does,” while the Step 2 adjustment is blended into our “and the economy does what it usually does” projection. The Step 4 adjustment is shown in the “and trust fund debt counts” projection in the final chart.

Here are our results, for deficits first and then debt:

While the charts speak for themselves, we’ll turn again to Poole’s op-ed to sum up America’s finances:

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.

Indeed.

(Click here for an appendix to this post containing the year-by-year added deficits for each of our adjustments, in dollars.)

via Zero Hedge http://ift.tt/1dkmj7G Tyler Durden

Submitted by F.F.Wiley of Cyniconomics blog,

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking.

– Former St. Louis Federal Reserve Bank President William Poole, writing in the Wall Street Journal last April

In the op-ed excerpted above, William Poole harshly criticizes government budget projections, including those published by the Congressional Budget Office.

We’re guessing he was especially miffed with the annual budget outlook released by the CBO on February 5^th.

Consider that Poole favored the “alternative scenario” that can sometimes be found deep within CBO reports and spreadsheets. This scenario corrects for at least a few of the absurd assumptions in the primary budget projections (the “baseline scenario”) that receive 99% of the media’s attention. Poole called the alternative scenario “the only truly honest and useful effort in town.”

Alas, the alternative scenario is no more – the CBO removed it from their annual outlook. Taxpayers can no longer find meaningful budget projections anywhere in the CBO’s work.

Let’s see if we can fill in the gap.

We’ll start with the baseline from this month’s report:

The chart shows a shrinking deficit over the next couple of years, but don’t get too excited. Apart from other issues we’ll discuss, this is explained by a long-standing prediction for a robust economic recovery, which hasn’t yet come to pass. It’s not so much a budget outlook as a hopeful forecast.

After the supposed economic boom levels off in 2018/19 (according to the assumptions), the figures no longer hide our deteriorating finances. But the deterioration is likely to be much worse than the chart suggests, as we’ll explain below.  To create a more realistic outlook, we’ll adjust the baseline scenario for four different types of deficiencies in the CBO’s approach:

Step #1: We deal with dishonest lawmakers

One of the challenges in budget forecasting is that tax and spending laws are full of provisions that are all but guaranteed to be reversed before they take effect. These dead-on-arrival provisions only exist to create the appearance of fiscal rectitude. And the deception works because the CBO is required by governing statutes to build the phony provisions into its baseline, which the media then endorses as an authoritative view of public finances.

Fortunately, though, the CBO’s new report provides data we can use to neutralize some of the lawmakers’ tricks, as explained in Table 1 below:

Step #2: We get real with the economy

The good news in the CBO’s latest report is that they made a few needed changes to the underlying economic assumptions. The bad news is that they have much more to do – the economic outlook remains unrealistic.

Once again, though, we can use data in the report (Appendix E, in this case) to improve the projections. We explained our adjustments in detail in “Why Mr. Smith Has More Work To Do,” and they’re summarized in Table 2 below.

Note that we’ve accepted the CBO’s strongly optimistic outlook for the next four years, not because we like it but because it’s easier to show inconsistencies and come up with a more realistic scenario in later years (after the assumed recovery reaches historic extremes).

Step #3: We put on our actuarial hats

It doesn’t take much business experience to know that budget plans are regularly thrown off track by unexpected events, and the federal budget is no different. In fact, the CBO always acknowledges the risks of such setbacks. Yet, its governing statutes don’t permit accounting for most types of unexpected events in the baseline scenario.

In any case, the CBO doesn’t provide sensitivity analysis estimating their possible effects. Here’s what we had to say about this in an earlier post:

[M]any events are deemed too unpredictable to be estimated – an excuse that defies both collective knowledge and common practice. Actuaries, accountants and financial risk managers are all trained to place numeric estimates on unforeseen risks. Insurance premiums, credit loss provisions and investment decisions are all based on these numeric estimates.

The key is that any positive number is better than nothing. We can see the problem with nothing just by noticing that the debt debate almost never gets around to the risks of recessions, financial crises, wars, natural disasters, and so on. Political leaders and pundits habitually ignore the CBO’s warnings that these events will occur from time to time, relying instead on its incomplete projections.

In the same post, we explained our approach to adjusting budget projections for unforeseen events. One of our recommendations, which accounts for the effects of automatic stabilizers and doesn’t violate the CBO’s statutes, was implemented by the CBO for the first time in this month’s report. The other adjustments are summarized in Table 3 below:

Step #4: We recognize that debt owed to trust funds is, indeed, debt

The question of whether to look at gross debt (including obligations to trust funds such as the Social Security and Medicare hospital insurance funds) or net debt (excluding those obligations and other intra-governmental holdings) is a tired subject. It’s probably fair to say that net debt advocates don’t care much about debt to begin with, while those who point to gross debt do care. We offered our two cents here. Among other points, we described the paradox that fiscally profligate governments can lower net debt (but not gross debt) by merely expanding certain types of entitlement programs, even if the expansions are fiscally unsustainable. In fact, America’s current financial position shows that this is exactly what we’ve done. For this reason and others, trust fund debt should be added back to the net figures highlighted by the CBO.

Putting it all together

Note tha
t the figures in the tables above exclude debt service costs. After breaking the baseline into components and making our adjustments, we then create new projections that include recalculation of debt service.

The Steps 1 and 3 adjustments are combined into a projection that we call “Congress does what it usually does,” while the Step 2 adjustment is blended into our “and the economy does what it usually does” projection. The Step 4 adjustment is shown in the “and trust fund debt counts” projection in the final chart.

Here are our results, for deficits first and then debt:

While the charts speak for themselves, we’ll turn again to Poole’s op-ed to sum up America’s finances:

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.

Indeed.

(Click here for an appendix to this post containing the year-by-year added deficits for each of our adjustments, in dollars.)

via Zero Hedge http://ift.tt/1dkmj7G Tyler Durden

“There is no money in Ukraine’s Treasury account,” exclaimed ‘Interim President’ Oleksandr Turchynov to the Ukrainian parliament; adding that the Ukraine economy is in a “catastrophic state.”

• *THERE ARE PROBLEMS WITH BANKING SYSTEM AND HRYVNIA: TURCHYNOV
• *PROBLEMS WITH PENSION FUND ARE “COLOSSAL”: TURCHYNOV
• *UKRAINE’S ECONOMY IS IN A `PRE-DEFAULT’ SITUATION: TURCHYNOV

Hardly surprising given the months of protest; but with Russia ‘conditionally’ postponing its EUR2bn ‘loan’, the Europeans are riding to the nation’s aid with promises of EUR20bn (if Ukrainian authorities meet certain conditions). But, as the map below shows, a great deal of the nation’s wealth lies in the eastern (pro-Russia) region.

 

• *NEW UKRAINE GOVT’S PRIORITY IS TO RETURN TO EU PATH: TURCHYNOV
• *RUSSIA SHOULD RECOGNIZE UKRAINE’S EUROPEAN CHOICE: TURCHYNOV

 

Russia is on hold but the Europeans are willing… conditionally…

The European Commission has said it is ready to conclude a trade deal with and offer aid to Ukraine once a new government is in place in Kiev, Reuters reported Feb. 23. An EU official added that the European bloc could give the country more than 20 billion euros (some $27 billion) if Ukrainian authorities meet certain conditions, The Wall Street Journal reported. According to the official, this figure is a conservative estimate of the potential assistance Ukraine could receive from EU members. Russia is currently holding out on economic aid to Ukraine as it waits to see how the country’s political crisis plays out.

But as a reminder, a great deal of the nation’s wealth resides in non-pro-Europe eastern Ukraine…

The Economic Consequences of Ukrainian Federalism (via Stratfor)

For a country like Ukraine, the appeal of federalism, which divides authority between the central government and its constituent regions, is undeniable. Located in Europe’s borderlands, Ukraine has been contested by its neighbors for centuries, a competition that has left it internally divided along linguistic, cultural and religious lines. Broadly speaking, Ukraine is divided between the east and the west, with eastern Ukraine favoring Russia and western Ukraine favoring Europe. Ukraine’s regions are also distinct economically. The country’s industrial base is located in the east. The east’s close proximity to Russia creates strong cross-border trade that enriches regional economies. According to Ukraine’s government statistics service, manufacturing contributes at least three times more than agriculture to the country’s gross domestic product. Thus, eastern regions generally have higher per capita GDP rates. In 2011, the per capita GDP in the eastern region of Dnipropetrovsk, the country’s most important industrial center, was 42,068 Ukrainian hryvnia ($4,748), while it was only 20,490 hryvnia ($2,312) in Lviv region, which is one of western Ukraine’s industrial centers.

Seven of Ukraine’s 10 largest private companies by revenue are either headquartered or maintain the majority of their operations in eastern Ukraine. These firms are owned by some of Ukraine’s wealthiest and most influential individuals. Three of these 10 corporations — mining and steel company Metinvest, energy firm DTEK and its subsidiary Donetskstal — are based in the eastern industrial city of Donetsk and are owned by Ukraine’s wealthiest man, Rinat Akhmetov. Interpipe, the company that controls 10 percent of the world market share of railway wheels and more than 11 percent of the world market share of manganese ferroalloys, is based in Dnipropetrovsk and belongs to businessman and politician Victor Pinchuk.

The country’s most important businessmen are embedded in the east, where their businesses make disproportionately high contributions to the Ukrainian economy and national budget. Westerners staunchly oppose federalism because they believe it would threaten their economic and security interests. Others believe it could dissolve Ukraine as a country, leaving the west weak and defenseless against the Russia-backed east. Whether or not these concerns are misplaced, federalism would in fact benefit eastern regions disproportionately by giving them more control over state revenue, aggravating the socioeconomic tensions between the regions.

 

However, the Ukrainians are keeping their options open…

• *`WE ARE READY TO HAVE A DIALOG WITH RUSSIA:’ TURCHYNOV
• *UKRAINE TIES WITH RUSSIA SHOULD BE ON EQUAL FOOTING: TURCHYNOV

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