Here We Go Again - Builders Hold Lotteries for Right to Buy a House

Here's that "froth" thing again: Builders hold lotteries for eager new homebuyers.

O'Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area.

Each month, as new sections of the development came under construction, roughly 50 buyers would show up at O'Brien Homes' sales office hoping to be picked for one of the 10 or so sites available. The participants were already pre-qualified for a mortgage and had their down payment in place. After being assigned a number, they crossed their fingers and waited for each bingo ball to be plucked from the tumbler.

"Some people would come back month after month," said Frimel. "It got very frustrating for them."

Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $420,000 and $620,000. The last grouping went for $555,000 to $815,000, a 32% increase.

Even with the price hikes, buyers kept returning. O'Brien started issuing returnees an extra bingo ball. If they lost for four straight months, they would get five chances the next time.

Here's my Greenspan imitation: "Don't worry, it's only some sections of the country. Besides it's well supported by the fundamentals. And as we all know, home prices never drop."

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

Talking Portrait: 17th Street Locos

In 1981 I drew a portrait of two guys on the Santa Monica pier, then asked them to describe themselves into a tape recorder.

(Video link) For the first time, their faces and voices are brought together in a talking portrait.

Thanks to Mark Frauenfelder of BoingBoing for spotlighting this post.

33 Months of Falling Retail Sales in Spain; Austerity the Wrong Way

Guru's blog in Spanish highlights the dramatic retail spending situation in Spain.

Here is a Mish-modified translation.

Last month I discussed the retail drama in Spain.

March data is more of the same. Sales have fallen 33 consecutive months coupled with 56 months of job destruction.

This month overall sales fell by 10.9%. Accounting for seasonal effects, sales are down 8.9%. Single location business sales fell 14.1% (10.9% accounting for seasonal effects). Small business sales are down 12.7% (9.2% seasonally adjusted).

Spain is in a national emergency with no consumer spending, no credit, and no job creation, coupled with strongly rising unemployment.

Austerity the Wrong Way

This is what happens when you implement austerity the wrong way, by raising taxes instead of cutting needless bureaucrats.

Addendum: Couple of typos were corrected by reader Bran.

Here are the revised sentences: "Single location business sales fell 14.1% (10.9% accounting for seasonal effects). Small business sales are down 12.7% (9.2% seasonally adjusted)."

The percentages did not change but I had the word "spending" instead of "sales".

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

Worldbuilding with Maps

Concept artist Lorin Wood has launched a new group blog called "Nuthin' but Worlds," about concept art and worldbuilding, an offshoot of his successful "Nuthin' but Mech" blog and books. I'm a contributor, and here is what I contributed for my first post:

For me, making a map is the best stimulant for building worlds and telling stories.

But there are many kinds of maps. Here are a few types I've developed for Dinotopia.

Physical geography map, with emphasis on landform relief. Painted in oil on board.


Seafloor relief, shown in perspective, with the island lifted up to show the caves. Inspired by the 1960s seafloor renderings by Tibor Toth for National Geographic.


Expedition route map. I developed a rough version of this along with the story outline. The final is in oil, about the size of a postcard. The seafloor texture is drybrushed over white board, a fast way to work.


Another route map showing a close-up section of the eastern coastline. The locator map at upper left places the detail map in context.


Antique maps are more convincing if they're made with antique tools. This one is made with a dip pen and brown ink on smooth watercolor board. The watercolor washes around the coast were laid down first when it was in pencil stage.


Here's a close-up of the map above to show the graded hatching of the mountain reliefs, typical of engraved maps of the 17th, 18th, and early 19th centuries. Traveler's maps were often folded, so I  abraded some fold lines into the surface.


Here's a hand-drawn and hand-lettered city map drawn in ink, with a flourished title block and a "rubber stamp" suggesting its provenance in a museum collection. The lettering is not on an overlay, so I couldn't make mistakes. This is from Dinotopia: Journey to Chandara.


City map of Chandara, showing organic street grid and canals. All sorts of street perspectives can be plotted from a master map like this.


Here's a close-up of the same city in Dinotopia. This is called a building plan, where the buildings are sliced away a little above the ground. Walls are lines and columns are dots. Note the fancy illustrated title block, an exuberant touch that expresses something about the confidence of the city.


I love computer tools, but at the same time I also love the risk and commitment required by dip pens, circle templates, triangles, ruling pens, ships curves, and parallel rules. I used them because I thought they would give the final result a more authentic flavor.

All of these maps have been exhibited in museum shows of Dinotopia artwork. Because they are hand-drawn and hand-painted physical objects, they take on a tangible presence, and they become valuable touchstones in the history and life of an intellectual property.

Is the US Spending Enough on Education?

Given the constant chatter from the Obama administration and from teachers' unions on the need to spend more for public education, let's address the question "Is the US spending enough on education?"

I propose we look at the stats in graphical form starting with charts of population and total spending, culminating with education spending per child.

click on any chart for sharper image

1. Population vs Civilian Employees



Data is from the US Census Bureau Population Clock

2. Budget Per Civilian Employee



Data is from White House OMB Historical Tables

3. US Population and Children Population



Data is from Childstats.Gov and the US Census Bureau Population Clock

4. Education Spending in Constant Dollars



Data is from National Center for Education Statistics

The above charts are from reader Tim Wallace who writes ...

Hello Mish

Last week I saw a comment on one of your blogs regarding there would soon be one non-worker for every worker in the country. Here are some charts I put together that highlight the current trends.

1. Total Population vs. Civilian Workers - Ratio Right Axis -- This is a chart of our country's population by year, with the number of people employed in March of that year, starting in 1950. You can see that there is a significant growth in the ratio of people to workers early on, up until the mid 1960's. This is mostly because of an explosion in the number of children in the USA in that time period, starting at 47.3 million in 1950 and surging to 69.7 million in 1964. The child population then flat lined for several years, decreasing as a percentage of the overall population. The ratio since the 1980's mostly seems to be affected by recessions periods with increases in the early '90's and '00's. There has been a slight drop in the ratio the past two years, but nowhere near the number necessary to return us to the levels of the alleged "balanced budget" time period in the late '90's.

2. Budget Per Civilian Employed In Constant 2009/2010 Dollars -- This chart shows the federal budget divided by the number of people employed, how many dollars it ends up being per person employed. Obviously a lot of tax dollars come from other sources, but it is still illuminating to see the huge increases under the current administration on a per worker basis. From $20,000 per worker in 2007 to around $28,000 now, an increase of $8,000 per, or about 40%. I don't recall getting a raise that large. Yet somehow we cannot afford a measly 2-3% budget cut.

3. US Total Population and Children Population - Pct. Right Axis -- The chart shows children as a percentage of the population plummeting from 1964 - where they peaked at over 36% to today where they are just 24% of the population. The number of children in '64 was about 69.7 million, today up to 76.7 million, a growth of 7 million while the overall population grew 123.7 million! The real problem here is that a growing economy is always dependent on the growth of the upcoming population. We are in deep trouble here.

4. Number of Children and Per Child Spending On Education in Constant 2009-10 Dollars -- I cannot understand how this spending, so absurdly high, is continually pointed out as too little to spend on education! In constant dollars we are spending 7 times the amount on education as the 1950's - the generation of students that put the man on the moon, invented computers, the list goes on and on. At 1/7th the cost!

Hope these are informative.

Tim

Where Did the Money Go?

Where the money went should be intuitively obvious: Teachers' salaries, teachers' pensions, administration salaries, administration pensions, sports programs, sports staff, union maintenance crews, etc.

Please keep these charts in mind the next time someone says we need higher taxes "for the kids".

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

Increasing Likelihood of Unstable German Coalition Following Next Elections

Following my April 23 political prediction Merkel Loses Chancellorship in September as Support for AfD Soars, I received many emails from readers suggesting I was engaged in wishful thinking, that German polls are unreliable, that I was following the wrong polls, etc.

I am sticking with what I said. I simply do not see how any sort of stable coalition can form either with or without Merkel.

The Green party has now ruled out a coalition with Merkel, SPD wants Merkel gone, and the math for a Merkel-led coalition is simply not there.

The Financial Times reports Greens and SPD close ranks in battle against Angela Merkel.

Germany’s main centre-left opposition parties closed ranks over the weekend in their uphill battle against Angela Merkel, with the Greens signalling a decisive shift to the left.

During a three-day party congress in Berlin five months before national elections, the Greens positioned themselves to the left of the Social Democrats (SPD) with calls for higher income tax and a property levy on the rich.

The party pledged to raise the top rate of income tax from 45 to 49 per cent, and to levy a 1.5 per cent tax on property worth more than €1m, aiming to raise €100bn over 10 years.

Making the first appearance by a Social Democrat leader at a Green congress, Sigmar Gabriel, the party’s national chairman, delivered a passionate plea to the Greens to stop flirting with Ms Merkel’s conservatives. He said only an SPD-Green coalition could take on the financial markets, which he blamed for the recent economic turmoil in Europe.

“There are only two parties in Germany that can tame the financial markets, and that’s you and us,” he told delegates, to loud cheers.

Jürgen Trittin, the Green’s parliamentary leader, declared: “The SPD is the only coalition partner that will help us make Germany greener.”

Coalitions Mathematically Going Nowhere

So where is the SPD-Green Coalition Going? Better yet, where is any coalition going?

Please consider the latest Wahl-O-Meter polls.



Last week I noted AfD has risen from 5% of the vote to 6.6%. Now support is a 6.9%. "Sonst" stands for other.

If the Greens will not form a coalition with CDU/CSU, and SPD puts the ouster of Merkel as the price of a coalition, then what is in store for Merkel?

A SPD/Green coalition cannot come close to a majority. A CDU/CSU coalition with AfD could do just that if Afd rises above 10% of the vote.

I am sticking with my prediction AfD gets 12% of the vote as previous non-voters come out of the woodwork, spotting a chance to make something happen.

For a closer look at German political parties and their stated platforms, please see Understanding German Politics written by reader Bernd (not Bernd Lucke, the economist and AfD elected speaker).

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

Quang Ho Portrait Demo

On the last day of the Portrait Society’s annual convention, Vietnamese-born, Colorado-based Quang Ho treated an audience of over 500 attendees to a dazzling two-hour head study. 

(Photo by Susan Voss)
I sat off to the side with my sketchbook on my knee. I wanted to capture Quang Ho’s confident stance and the big curve of his new palette. “I bought it because it looks so cool, really,” he said.


While he painted, he discussed everything from color to cosmology, interspersing profound musings with self-effacing jokes.

Quang Ho’s primary concern was to create interesting abstractions within the context of realism: “I’m not painting a person,” he said. “I’m painting the visual context, the setting in a given light. I’m reading the story of what the light is doing to the form.”


(Photo of Thursday's Face-Off painting)
He regarded the light mass of the picture as a single organism, with its own life and personality. The same is true with the dark mass or shadow. “[The art of] painting is how those two organisms come together,” he said. In any given painting, either the light or the shadow should dominate, but they should not be equal. 

His first strokes were a wild but accurate frenzy of brushwork. The model’s pose and attitude emerged from a tangle of apparent randomness. He alternately advanced toward—and backed away from—the painting, repeatedly relating the part to the whole. “Painting goes at different speeds, like driving,” he said. If you only go fast all the time, you’ll get in a train wreck."


(A sample from his website)


During the breaks he showed a gallery of images on the screen, starting with a microscopic array of diatoms and sand grains, followed by sweeping vistas of the solar system and distant galaxies.


(Above: Detail of "Mizuna.")

He then zoomed into details of his own paintings, which he calls “internal structures.” As with self-similarity in fractals, he was conscious of creating interesting abstract compositions at both the micro and the macro scale. He made an effort to infuse even the negative areas of the pictures with painterly interest.

(Quang Ho, "Mizuna," 12x12 inches, from which the previous detail was extracted.)

In color mixing, he spoke most often about value. “If you’re not sure of the color, think only of the value,” he said. “Value is what is important. You can give me motor oil and I can paint with it.”
--------
Many thanks to Mr. Edward Jonas for inviting me to be a part of the convention, and to all the attendees for your kind words and welcome.

(Above: James Gurney and Quang Ho. Photo by Sivananda Nyayapathi)
Read more:
Quang Ho's website

Quang Ho’s interesting life story
Portrait Society of America

Source of sand grain photo,  galaxy,

Mish Interview With "Bitcoin Jesus"

Of all the topics that readers have pleaded me to write about for months but I never did until now, "bitcoins" are at the top of the list.

In private emails, I stated on many occasions "bitcoins are a scam". I now take that back, "scam" is not the correct word. Others whose opinions I highly respect, state the same thing.

For example, Geoff Turk at GoldMoney stated in an email response:

"I have spent quite a bit of time researching Bitcoins and have not found anything scam-like about them. Price volatility is another matter, and that is a result of an increasing demand for a relatively scarce resource. There may be individuals attempting to manipulate the price in some way, which we know is possible in any small (or even not-so-small) market. However, in my opinion the Bitcoin protocol itself is quite sound, and it creates an interesting hybrid of a commodity without corporeal existence that is nonetheless limited in supply."

That was not an endorsement of bitcoin, rather it was a statement that my labeling of bitcoin as a scam was incorrect. I agree, with apologies offered to bitcoin.

OK But What Is Bitcoin

If bitcoin isn't a scam, then what is it? I have struggled with that question, which explains why I never have written about it.

Wikipedia offers a history and description of bitcoin that is rather fascinating.

Who Accepts Bitcoins?

For months I would search for companies accepting bitcoins as payment and found scant offerings. The same could be said for gold.

Yet, the total value of gold at a price of $1,600/oz would be something like $7.9 trillion. The total value of bitcoins is extremely volatile, fluctuating around $1 billion. Simply put, there is no comparison in terms of total price or volatility.

The record 9 percent drop in the price of gold was matched by a 70% plunge in the price of bitcoins in a similar timeframe.

Bitcoin Store

A few weeks ago I decided to do another search for businesses that accepted bitcoins. I was surprised to discover that a new entity, the Bitcoin Store, offers 500,000 electronic products for sale, accepting only bitcoins as payment. The products include high-end digital cameras.

I decided to call the store up and ask a few questions. My timing was fortuitous. The owner of the Bitcoin Store, Roger Ver, answered the phone.

This was unusual since Ver lives in Japan and he just happened to be back in California, and he is the one who answered the phone.

After some small talk and he told me that he was known as "Bitcoin Jesus". I told him who I was and that I had some questions about bitcoins. He recognized my name from Coast-to-Coast AM radio where he tunes in as a subscriber from Japan.

The interview that follows is via a subsequent chain of emails.

"Bitcoin Jesus" Interview

Mish: How did you get started in Bitcoin?
BJ: I heard about them on freetalklive in late 2010.

Mish: When did you start your business?
BJ: I founded MemoryDealers in 1999 and started building BitcoinStore in 2012. BitcoinStore launched March 1st 2013.

Mish: What is your volume in business, assuming a value on bitcoins of $100.
BJ: So far this month we have averaged 115 BTC per day.  $11,500 per day, $350,000 per month.
We disabled international orders on the site because we were getting so many orders that we couldn't process them all each day.

Mish: How many products do you sell? 
BJ: More than 500,000 line items currently.  In the near future we will add additional distributors, bringing our line card to over 1,000,000 items.

Mish: How many employees did you have when you started? How many do you have now?
BJ: Bitcoin store started with one, now there are seven. I need to hire at least two more ASAP. 

Mish: Are your employees paid in bitcoins or US$?
BJ: US employees are paid in USD because the tax laws are not clear. Most of them would prefer to be paid in BTC. The international contractors are paid %100 in BTC. I don't know for sure what they do with them, but I suspect they keep them in BTC.

Mish: Who is your merchandise supplier?
BJ: Ingram Micro. They are the world's largest.

Mish: Do you pay them in bitcoins or $US?
BJ: I pay them in USD, but I hope to get them to accept at least partial payment in Bitcoin in the future.

Mish: Are all of your profits kept in bitcoins? What about expenses before profits? Describe your bitcoin currency risk.
BJ: All of BitcoinStore's sales are kept in Bitcoin. Expenses are paid via Bitcoin or USD depending on the vendor. I want to be exposed to as much Bitcoin currency risk as possible. I hold on to as many Bitcoins as I can.

Mish: What happens to you and your business if the value of bitcoins plunges to $10?
BJ: Personally I would lose a lot of money on the value of my Bitcoins,  but it wouldn't affect the business model of BitcoinStore at any time. If needed, the bitcoin payment processor, Bitpay, can instantly convert the Bitcoins to USD at the time of each sale, so a guaranteed USD profit can be achieved on each sale.

Mish: Why did you move to Japan?
BJ: I moved to Japan following an unwarranted conviction for selling firecrackers. I wrote up some of the details in a Daily Anarchist article Bitcoin Venture Capitalist Roger Ver's Journey to Anarchism.

Mish note: Please read the article. It's fascinating. Ver is a libertarian student of Ludwig von Mises, Adam Smith, Fredric Bastiat, Leonard Reed, Henry Hazlitt, Friedrich Hayek, and especially Murray Rothbard.

Mish: Please explain how you got the name "Bitcoin Jesus".
BJ: Not only am I a true believer in the model, I have converted numerous skeptics who are now true believers as well. Everywhere I go, I tell everyone about bitcoin, from taxi drivers, to restaurant workers, to girls at night clubs. It doesn't matter when or where, I'm so excited about Bitcoin that I feel the need to tell everyone about it. Someone along the way said you are like a "Bitcoin Jesus" and the nickname kind of stuck.

I also give out $1 worth of Bitcoins to everyone I meet who doesn't already have any.
I just did an interview on Fox News on April 12 and I gave the sound guy at the studio his first $1 worth of Bitcoin after he installed the Blockchain App on his iPhone.

Mish: Anything else you wish to add?
BJ: Yes thanks. It is important to realize that Bitcoin has two independent functions:

1. As a currency
2. As a payment system

To use Bitcoin as a payment system, it doesn't matter if they are worth $1 or $100,000 each. You simply buy the correct USD amount, and send it to the recipient who immediately exchanges them back into whatever other currency they want.

I don't think Bitcoin's usefulness as an unblockable, uncontrollable, potentially anonymous payment system can be disputed. Time will tell how useful the bitcoins within the Bitcoin payment system become as an actual currency.

I'm sure all your readers will enjoy the article. Thank you for letting me contribute.

Mish: Thanks Roger. Good luck to you and Bitcoin Store.

Not A Convert

I am neither a convert nor a true believer. I will stick to gold thank-you. I see things similarly to Ron Paul who said in a Bloomberg Interview "If I can't put it in my pocket, I have some reservations about that."



Link if video does not play: Ron Paul on Gold: No One Knows Value; I'm Buying.

Bitcoin is a Game

My friend Hugo Salinas Price had some pertinent thoughts regarding bitcoins on April 10 in his piece Of bubbles and Bitcoins

The newest invention in monetary affairs are the so-called Bitcoins. Their creators and promoters explain them as follows: 'Bitcoins are digital money. They are transferred person to person through Internet without going a bank or a clearing house, so they are independent of the current monetary system. Several currency exchanges exists where you can trade your Bitcoins for dollars or euros, and some small business and freelancers are starting to accept them in payment'.

The Bitcoin is a game. We live in a highly confused and perplexed world regarding what real money has to be. Let's get this straight: real money has to be the commodity that is generally accepted by society as payment in full for goods or services received.

Throughout history, the commodity most generally accepted in payment has been gold. Silver has taken the second place after gold. Gold and silver were chosen by humanity thousands of years ago, as the commodities with which to make payments.

The Bitcoin is an example of the tremendous hold that the idea of the omnipotence of technology to solve human problems has upon humanity. However, technology cannot create matter; it cannot create commodity-money, as it cannot create petroleum. Technology may give various forms to matter, but it cannot create matter or substance, and money must be the substance that is most accepted in commerce. All the Ph.D.s and Nobels in Economics are playing games to keep the world entertained. The less their pronouncements make sense, the wiser they think we will consider them.

You tell me: What is the future that awaits a humanity so confused that it can no longer distinguish between an abstract concept and what is real and material? Very confused people are participating in speculations in imitation currencies – dollars, pounds, euros, yen, yuans, Bitcoins - in the hopes of obtaining some profit or benefit, because unable to think for themselves, they can do nothing but speculate – and ruin themselves.

Understanding the Game

Even though I am not a bitcoin convert, it's easy to understand why people gravitate towards them.

Yes, people like games and speculation, but they are also fed up with unlimited monetary expansion of Central Banks, especially the Fed and the Bank of Japan.

Bitcoins may also play a role in capital flight. How so? Consider Cyprus or China (See Wall Street Journal February 28, 2013 China Forex Regulator: More Easing of Capital Controls Needed).

Purchase bitcoins, leave the country, convert the bitcoins to a currency of your liking, and voilà!

Yet, should that happen or even be suspected, how long will it take before there is a government crackdown on bitcoin? Should such a thing happen, the value of bitcoin can plunge to next to nothing if confidence is lost.

Bitcoin Hyperinflation?



In its initial days bitcoin hovered near six cents (click on link to see).

It's quite amazing to me that it soared to over $260 at one point. Is it so inconceivable that the value of bitcoin would plunge back to 6 cents?

Perhaps, but what about $1 or $5. A drop from $260 to $5 would wipe out 98% of the value. Should that happen, in a short time frame, what else would you call it but hyperinflation? Curiously such a plunge would not be associated with printing.

Bitcoin Jesus would say that is unlikely, but is it?

I do not know, but I do know history. And when given a choice, the free market has always decided on gold and silver as money, when available.

In my Presentation at the Wine Country Conference, I stated  "I cast my vote with history". I still do. Yet, I offer encouragement to those like Roger Ver willing to "fight the Fed" in a literal sense.

To see my video presentation, scroll down and look for Mike “Mish” Shedlock: A Brief Lesson in History

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

Documentary on Wooden Boats

Shaped on all Six Sides from New Canada on Vimeo.
Kat Gardner directed this short documentary about building and maintaining wooden boats.

Who Won? the 93% or the 7%? Why?

Economic trends since 2009 show A Rise in Wealth for the Wealthy; Declines for the Lower 93%.

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

Uneven Household Recovery



What Happened?

Some seriously misguided souls blame free market capitalism for this event.

For details, please see Is Capitalism Killing Our Morals and Economy?

I blame the Fed, fractional reserve lending, political corruption, unions, and the Military Industrial Complex that president Eisenhower warned us about in a Speech in 1961.

In short, the problems we face are not the result of free market capitalism, but rather the results of Fed sponsored corporate and military fascism.

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

Demos, Demos

Quick post to show you a couple of demos at the Portrait Society convention here in Atlanta earlier today. 

Here is a watercolor sketch I did of Face-Off champion Jeffrey Hein painting Kate Stone on the main stage. Jeffrey said, "Painting is a long hike to paradise," meaning that it often takes a lot of steady, difficult, and unpleasant toil to arrive at a joyful result. 

Four steps in the process of my sketch, which was about 5x8 inches.

Later I had the honor of sitting as the model for Judith Carducci as she did a two-and-a-half hour portrait in pastels. She charmed the audience with limericks and solid painting advice as she worked. It was fun to be on the other side of the easel. Thanks, Judy!

Underpaintings blog has good photos of all the Face-Off paintings.

Is Capitalism Killing Our Morals and Economy?

In one of the most hopelessly incorrect collections of drivel that I have ever seen, Paul Farrell of MarketWatch writes Capitalism is killing our morals, our future.

Yes, capitalism is working ... for the Forbes 1,000 Global Billionaires whose ranks swelled from 322 in 2000 to 1,426 recently. Billionaires control the vast majority of the world’s wealth, while the income of American workers stagnated.

Over the years we’ve explored the reasons capitalism blindly continues on its self-destructive path. Recently we found someone who brilliantly explains why free-market capitalism is destined to destroy the world, absent a historic paradigm shift: That is Harvard philosopher Michael Sandel, author of the new best-seller, “What Money Can’t Buy: The Moral Limits of Markets,” and his earlier classic, “Justice: What’s the Right Thing to Do?”

New free-market capitalism trapped in American brains. Yes, it’s everywhere: “Markets to allocate health, education, public safety, national security, criminal justice, environmental protection, recreation, procreation, and other social goods unheard-of 30 years ago. Today, we take them largely for granted.”

Examples ... for-profit schools, hospitals, prisons ... outsourcing war to private contractors ... police forces by private guards “almost twice the number of public police officers” ... drug “companies aggressive marketing of prescription drugs directly to consumers, a practice ... prohibited in most other countries.”

Something Trapped in Our Brains

Yes, something is trapped in our brains, or rather the brains of Farrell, Harvard philosopher Michael Sandel, and those who think like them.

The first problem is Farrell and Sandel do not know what free market capitalism is. We certainly do not have it.

The free market would not have fractional reserve lending. The free market would have gold and silver as money.

The primary reason for the major disparity in wealth is bank leverage of fiat money created at will via fractional reserve lending. The most redeeming feature of capitalism is failure, but the Fed has a moral hazard policy of "too big to fail" that promotes massive risk-taking.

There would be no Fed in a free market and there would be bank failures, not bailouts on the backs of taxpayers.

In a free market, money would not be inflated at will, nor would credit be handed out to anyone who could breathe as happened in the housing bubble.

Anyone who equates what is happening now with "free market economics" has something much smellier than mush for brains. So does anyone who thinks the socialist model would serve us better. If the socialist model was better, and more regulation and rules were the solution for everything, France would be the booming leader of the world economy.

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

Portrait Society Convention

I'm in Atlanta, Georgia as a guest of the 15th annual convention of the Portrait Society of America. 

The gathering started off Thursday with the dramatic "Face-off" event, where 15 leading alla-prima portrait painters broke into five groupings of three artists. Each set of three painted from a costumed model for two and a half hour session. 

I sat behind Jeffrey Hein and David Kassan and sketched them as they worked.

.

Here are the paintings they produced. Out of the fifteen contestants, Jeffrey was chosen as the winner by popular vote. His painting, above left, was both technically excellent, and full of feeling. 

He will do a demo on stage this morning, and I will be sketching him as he works. 

I also watched Mary Whyte and Michael Shane Neal demoing side by side from the same model, Mary in watercolor and Shane in oil. They had a relaxed banter going as they worked. 

A split-screen video projected the work in progress onto large screens throughout the ballroom, which was attended by about 500 people.

I gave a new talk called "Portable Portraits: Sketching People in the Wild," about my encounters as I sketch random people in public. 

I'm having a great time here, meeting wonderful people, and learning a lot. There are attendees and faculty here from all over the USA and Canada, and from many other countries.

-----

Portrait Society of America. 

Portrait Society on Facebook

Photos of the Face-Off on Underpaintings

Jim Chanos: China: The Edifice Complex - Wine Country Conference Presentation

Jim Chanos' speech, "China: The Edifice Complex", is available at Wine Country Conference Speaker Presentations.

Click on the link and scroll down to find the correct video. Allow 45 minutes or so for viewing.

The videos are the actual presentations, and we are making a couple of them available each week for three weeks.

John Hussman’s presentation "An Unstable Equilibrium" was posted last week.
My Presentation "A Brief Lesson in History" is also available as are my "Opening Remarks".

Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.

If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.

All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.

Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.

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

Moving Ahead with "Pension Progress"

Buried in a transportation bill that President Obama signed on July 6, 2012, was a change to make it appear pension plans are better funded than they really are.

The bill was called Map-21 "Moving Ahead for Progress in the 21st Century Act".

Here is a catchy logo and stated goals.



Supposedly the three core principles of the bill are:

1. Raise the bar to enter the industry and operate on our roads;
2. Hold motor carrier and drivers to the highest safety standards to continue operations; and
3. Remove the highest risk drivers, vehicles, and carriers from our roads and prevent them from operating.

MAP-21 took effect October 1, 2012. Budget is $561 million in fiscal year (FY) 2013 and $572 million in FY 2014 for the Agency's administrative expenses and grant programs.

Pension Progress?

So what does this have to do with pensions? Nothing of course (except for the fact that this is another one of those bills that you have to pass to see what's in it, and more importantly how the bill works in real life.)

Buried in the Text of Map-21 is SEC. 40312. PENSION FUNDING STABILIZATION.

"(I) IN GENERAL- If a segment rate described in clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this clause) is less than the applicable minimum percentage, or more than the applicable maximum percentage, of the average of the segment rates described in such clause for years in the 25-year period ending with September 30 of the calendar year preceding the calendar year in which the plan year begins, then the segment rate described in such clause with respect to the applicable month shall be equal to the applicable minimum percentage or the applicable maximum percentage of such average, whichever is closest. The Secretary shall determine such average on an annual basis and may prescribe equivalent rates for years in any such 25-year period for which the rates described in any such clause are not available."

No one reading that would likely figure out the implication (at least without a great deal of effort). However I can give you a real life example.

Implications of the Bill

Reader Mark writes.

Hello Mish

I wasn't aware that the federal laws had been altered to make the pensions seem more solvent.

Apparently there is a new federal law, MAP-21 (Moving Ahead for Progress in the 21st century Act), that changes how pension plans are allowed to project future earnings/liabilities based on the interest rate calculation period.

Attached is a recent notice we received as plan participants, and how our pension plan magically improved due to the law.

Mark

Map-21 Real Life Progress Report



click on image for better view

Details

• This company went from being 77.80% funded to 90.93% funded.
• This company had a shortfall of $713 million but it's now $249 million.
• The company's minimum contribution dropped from $197 million to $123 million.

How did this magic happen?

Easy: Prior to Map-21 pension plans had to determine liabilities based on a 2-year average of interest rates. After Map-21 companies could use a 25-year average of interest rates. As a result, companies get to contribute less when interest rates are low.

I would like to point out this is precisely when companies ought to be contributing more! It is extremely difficult to meet plan assumptions when corporate bond yields are in the gutter.

Ain't "Transportation" Grand?

Here's two more questions: What was the "real" purpose of this bill? Did it have anything to do with transportation?

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

Consumer Prices Dip Another .9% in Japan; Will It Take Until 2015 for Japan to Experience Price Inflation?

In spite of fact the Yen is down about 12% on the year, consumer prices in Japan are still falling and some are already clamoring for still more monetary stimulus.

Please consider Bank of Japan Sees Inflation Nearing Target in 2015.

Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent. The BOJ this month said that it expects prices to keep declining for “the time being.”

Eisuke Sakakibara, an ex-Finance Ministry colleague, has predicted Kuroda will fail to achieve the 2 percent price goal, and former BOJ board member Atsushi Mizuno sees the central bank hitting a “wall of reality” as bond purchases escalate risks of a market bubble.

Policy makers may come under pressure to expand stimulus should prices continue to drop.

“It’s unrealistic -- they won’t be able to reach their target in two years, or even in five,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. Extra easing may be needed as early as October, when the BOJ releases new price forecasts, he said.

Policy board members themselves are divided over the outlook for inflation, with some anticipating that consumer prices won’t even rise at half the rate they set as a target this month. While the highest of their projections for fiscal 2015 is for a 2.3 percent consumer-price gain excluding the tax increase, the lowest is 0.8 percent.

Belief Bubble?

This is really quite stunning. It seems no one believes the Bank of Japan can do anything to stop prices from falling. JPMorgan chief Japan economist thinks Japan will fail to hit price targets for another 5 years!

Wow. This is precisely the kind of sentiment one sees at the end of trends. Nearly everyone thinks the trend will last forever, and nothing can stop it.

Instead, I suggest Japan will eventually succeed in spades and will be extremely unhappy with the result once it happens.

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

Casein Experiment

I did this little painting a couple days ago on location in Rhinecliff, New York. The setting sun turned the Hudson River into a path of golden light. 

The painting is 4 x 7 inches on watercolor paper, painted almost entirely with a half inch flat brush. 

The medium is casein. This is my first outing with casein, and I'm already madly in love with it. It is a water-based paint medium with working properties that resemble gouache, cel vinyl, and, in some respects, oil. I've used all of those latter paints quite a bit, but casein has qualities all its own. It can be used transparently, but it has great opacity when you need it, something often lacking in acrylic.

The paint has a delicious, unforgettable aroma that resembles the smell of cosmetics. The milk- based binder seals each layer enough so that they won't pick up with later application.

It lends itself to bold handling and 'finding the image in the paint.' At left is the first stage of the painting above, where I stated the simplest dark/light relationship before going in with the brush to find the details.

Casein is one of the oldest paints, older than oil, but it had its heyday starting in the 1930s, when they figured out how to tube the stuff. It was a favorite through the '40s and 50's, before acrylic came in. Two masters of casein were the illustrators John Berkey and Harry Anderson.

To my knowledge, these days, the only major manufacturer of casein is Jack Richeson, who bought the Shiva name, and keeps it going as a niche business. Here are the colors I have in my paintbox:



Titanium white
Ivory black
Venetian red
Rose red
Cad red scarlet
Cad yellow light
Cad yellow med
Cobalt blue
Ultramarine blue
Raw sienna
Raw umber
Golden ochre

For the painting of the house by the river, I used only white, cobalt blue, golden ochre, venetian red, and a little raw umber. If you want to try casein, I'd recommend getting just a few colors at first and taking them for a spin.

------

Read more:

Richeson's informative FAQ about casein.

You can get a good starter set on Amazon: Jack Richeson 37-Ml Artist Casein Colors, Set of 6

and Dick Blick carries them

Check out Jim Pinkoski's online portfolio of John Berkey and Harry Anderson

Note: in my book 

Color and Light: A Guide for the Realist Painter

, I think I misidentified the painting by Harry Anderson as gouache. I believe it's really casein.

El Pais Article Discusses "Liberating Spain from Shackles of the Euro"

The El Pais Screwdriver Blog openly asks "Are we to Liberate the Euro?"

Here is a Mish-modified translation:

Today Spain has reached a record number of unemployed. Although we do not like the current state of things, no one seems to know against whom to direct their anger.

Actually, we are under a dictatorship perhaps worse than the Portuguese or Spanish forty years ago because it is more subtle and works almost invisibly. And we can embody it too, not in an institution or a person, but with a symbol: the euro.

There are many reasons to believe that Spain would not be as bad off out of the single currency. To explore this question we must look at least three things: First, what is the profile of the countries that have left monetary unions? Second, what does empirical evidence tells us regarding effectiveness of countries have left currency unions? Third, what are the economic and social conditions that need to be taken into account in making such a decision?

Spain fits he profile of the countries that have tended to get out of currency unions: large countries economically developed with well-established democracies.

Second, what empirical evidence tell us? According to the IMF, no countries have been able to make needed fiscal consolidation without a mixture of structural reforms and monetary policy changes. Spain compares favorably in this respect to Argentina and Korean cases. Argentina went off the dollar peg in 2002. Although initially the Argentina economy suffered a severe recession, the year of the return to the country was growing weight (and in fact has grown at an average rate of over 7% from that year until 2011).

Third, we must take into account, the real exchange rate, the financing capacity of a country, and the behavior of its exports. In relation to the three aspects, Spain has bad fundamentals including a competitiveness problem that comes largely from an overvalued euro and a long-term funding problem with interest rates far higher than other countries in the eurozone.

To all this we must add the "social" setting: in addition to more than six million unemployed, Spain has become the second most unequal country in the eurozone and in the fourth of the entire European Union in terms of income distribution.

It is difficult to plan in advance what would be the results of a euro exit for the Spanish economy. Initially this would mean an impoverishment of the population, but classical theory tells us is that the recovery of monetary sovereignty coupled with the devaluation of our new currency push exports and thus growth so that the country would create jobs. Job creation would without doubt have a positive impact on the reduction of our current levels of inequality.

The shackles of yesterday's dictatorships are different than today. Or are they? It depends on how you look at things. Will we also be free of these shackles?

The author of the above article is Antonio Estella, Professor of European Union Law and Professor of Administrative Law at the University Carlos III of Madrid. He holds a PhD in law from the European University Institute and holds a Master in European Law from the Free University of Brussels.

The important point is not agreement or disagreement with the author, but rather that a eurozone exit is now openly presented as a viable option in a mainstream Spanish newspaper.

Expect such sentiment to grow along with rising unemployment and a sinking Spanish economy.

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

Chicago Natural Resources Expo April 26 Reminder

Reminder: Those in the greater Chicago area should plan on attending the Chicago Natural Resources Expo on April 26 for a discussion about gold, silver, hard assets, inflation, currencies (or whatever else is on your mind). You also have the opportunity to meet with various natural resource company executives.

Venue change: Previously this was a Friday evening-Saturday Afternoon event. This year, the event is Noon-11:00 PM Friday only. 

Once again, I am pleased to announce the magic words: "It's free".

Originally known as the Chicago Natural Resource Conference and Exhibition, this is one of the oldest natural resource conferences in the United States. The conference is a semi-annual event and offers opportunities to learn about new and undervalued companies in the natural resource industry.

The event is directed by Rich Radez, who started the conference back in 1977. Rich, and his son Eric, created the unique format which focuses on resource companies and provides maximum exposure to both investors and sponsors.

There is no cost for those who pre-register to attend the conference. The Expo is held at the Rolling Meadows Holiday Inn and Convention Center in Rolling Meadows, IL. The Holiday Inn is located at 3405 Algonquin Road, Rolling Meadows, IL 60008. The hotel can be contacted at 847-259-5000.

I will be on a panel Friday evening taking questions taken from the audience on gold, silver, Europe, inflation, or any aspect of the global economy that is on your mind.

The panel runs from 7:00-9:00 PM. If you enjoy the panel, you can buy me a drink afterwards (If you don't, I will graciously accept a free drink anyway).

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

Spain's Unemployment Rate Rises Full Percentage Point to Record 27.2%; Unemployment Tops 6.2 Million

Spain's budget deficits are out of control, home prices are still falling, GDP is down 2% annualized in the first quarter, production is down, the unemployment rate soared a full percentage point to 27.16%, and a record 6.2 million are out of work.

Here are some stats from Spain's National Statistics Office as noted in the Financial Times.

• Almost 240,000 people lost their jobs in the first three months of the year.
• The overall number of jobless is 6.2 million.
• The unemployment rate rose by more than 1 point to 27.16%
• 2 million out of 17.4 million Spanish households are without a single person holding a job.
• Job losses were particularly heavy in the services sector, but also in industry and farming.
• Construction has shed more than 1.6 million jobs since 2008 as a result of the bursting of Spain’s housing bubble.

These numbers are an indication of a freefall, not a bottom. Yet, Rajoy says the Spanish economy has bottomed and Spain will return to growth this year. Such talk is ridiculous.

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

Tactile Drawing

(Video link) There are ten days left in a crowdfunded campaign to provide Lensen drawing kits to sight impaired kids. The Lensen is simple wooden drawing tool that makes drawing lines a tactile experience.

The pen unspools wool yarn onto a Velcro surface, which grips the yarn. The pens are designed for children with visual impairment, but they would be a great experience for any artist to use blindfolded and actually feel the lines coming out of the pen.
Link to "Start Some Good" crowdfunding page
Thanks, Rob Nonstop

Robotic Outsourcing; Food Preparation Robots Invade China, Japan, US; Who is to Blame, and What Can be Done About It?

From hamburgers to sushi to noodles, food robots replace workers in the US, Japan, and China.

Today's spotlight is on China where Restaurant Owners Praise Robot Noodle Makers for Doing “A Good Job!”

Noodle peelers should probably start looking for other things to do around the kitchen – there’s just no competing with these robots.

Runguan’s robots peel noodle strips from a firm piece of dough and tosses them directly into boiling water “before diners’ eyes can follow the whole process.” While a cook doing the same job would make about 40,000 yuan ($6,400) per year, the robot cost just 10,000 yuan ($1,600). And no human chef can work so tirelessly.

Price is already down from $2,000 this past August, which is no doubt a big reason why more than 3,000 restaurants that have already relegated their noodle-making to the robot.

That humans can be replaced by robots that do the job faster and cheaper is an idea that now pervades Chinese employers. “Chinese companies usually start considering robots when the payment for a skilled worker exceeds 50,000 yuan ($8,060) a year.”

In Japan robots are already being used to make sushi, and a robot in San Francisco can serve up 340 hamburgers an hour. But while robotic cooks provide restaurants a novelty for customers and savings for owners, other robots are invading China’s workplace on a much grander scale. Most notably is Foxconn who, last November, began replacing 1 million jobs performed by humans with robotic automation. The metamorphosis is advancing quickly. In late February the company announced it put a freeze on hiring new entry-level workers. This was due in part to a high worker retention rate following pay increases, but it’s also a conscious decision to accelerate the automation of their factories.

Robot Chefs Take Over



Who to Blame for "Robotic Outsourcing"

It's easy to see what is happening. But who is to blame, and what can be done about it?

The simple fact of the matter is technology marches on and we all eventually benefit from it. To the extent it appears we do not, let me point out a six facts.

1. The Fed (central banks in general) have made the cost of capital so cheap that it encourages employers to replace workers with cheaper alternatives.
2. The Fed (central banks in general) can enhance trends, but cannot change them. Thus, I am not stating the Fed is the cause of "Robotic Outsourcing". Rather, I am stating that cheap money has accelerated that trend.
3. Minimum wage laws, protectionism, unions in general, and inane government policies also encourage "Robotic Outsourcing".
4. Long-term, everyone benefits from productivity improvements and associated cheaper prices. 
5. Unfortunately, Keynesian clowns as well as the clowns at the Fed (central banks in general) see cheaper prices as the enemy. 
6. In their effort to prevent falling prices, the Fed has lowered the cost of money so much that it is a no-brainer to replace human workers with technology at an increasing pace.  

Outsourcing Progression

Increasing the minimum wage encourages more outsourcing. Obamacare and other mandated benefits also encourages outsourcing.

Outsourcing went first to Mexico, then to China, and now to robots. Manufacturing is returning to the US, but human jobs have not.

Central Thesis

The Fed (central banks in general) can enhance trends, but cannot change them. The Fed is not the cause of "Robotic Outsourcing" but cheap money has certainly accelerated that trend.

With the Fed hell-bent on causing price inflation, Obama on causing wage inflation, and unions on keeping an unsustainable trend in wages and benefits, look for an accelerated trend towards elimination of human jobs.

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

Utopian Union Fantasy: What If Every California Worker Made What City of Irvine Workers Make?

This is a guest post written by Ed Ring, editor of UnionWatch, a project of the California Public Policy Center. Ed Ring asks What If Every Worker Made What City of Irvine Workers Make?

Everything that follows is from Ed Ring.

“Jennifer Muir, a spokeswoman for the Orange County Employees’ Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center’s study was a politically motivated attack on public employees and unions. Aside from promoting the center’s anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage.”
 
Orange County Register, April 19, 2013

The study Muir refers to, entitled “Irvine, California – City Employee Compensation Analysis,” was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study “a politically motivated attack on public employees and unions,” as Muir alleges, is itself a distraction. It’s easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing.

As noted, Muir went on to accuse the study of “shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated.”

Let’s recap some of the facts regarding Irvine’s city employee compensation, drawing both from the CPPC study (which itself used payroll data provided by the City of Irvine), as well as from the Orange County Employee Retirement Systems 2011 Annual Report:

• The average City of Irvine employee receives direct pay of $95,751 per year, and when the cost of employer paid benefits is included, this average goes up to $143,691 per year (Source: CPPC Study, Table 1.
 
• The average participant in the Orange County Employee Retirement system who worked 25-30 years and retired last year collects a pension of $70,920 per year. If they worked 30 years or more, like virtually every private sector worker, that average goes up to $81,192 per year (Source: OCERS Annual Report, page 109.

Now let’s suppose that private industry employees are indeed being undercompensated. What are the economic implications of paying them a proper living wage à la Irvine – and every other unionized public sector job in California? Here are some facts:

• In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a public employee may reasonably be assumed to have logged 30 years – assuming they completed their education by age 25 and entered the workforce for a full career in public service (source: U.S. Census Bureau.
 
• Also In 2010, the GDP of California – its entire economic output – was $1.9 trillion (source: LA Times).This means that if everyone over the age of 55 in California got a pension of $70,000 per year, it would cost $581 billion per year, 31% of California’s entire economic output. Ms. Muir is invited to explain exactly how we’re going to accomplish this.
 
• Using the same census data, in 2010 there were 15.8 million people between the ages of 25 and 55. Assume that two-thirds of these people work full-time, and the other one-third are unemployed spouses, stay-at-home parents, or are otherwise supported by a working partner. If every one of these 10.5 million people collected total compensation of $140,000 per year, this would cost $1.47 trillion per year, or 77% of California’s entire economic output.

So according to this utopian vision, if everyone could just receive the same compensation packages as the average full-time worker for the City of Irvine, it would consume 108% of California’s entire economic output.

There’s a bit more to this, however. In the real world, wages and salaries fluctuate between around 44% and 54% of GDP (source: TelltaleChart.org).

We may argue over what share of GDP legitimately belongs to workers vs. corporations – bearing in mind that corporate profits are an absolute necessity for a public sector pension plan to have any hope of remaining solvent, and these profits are also necessary to invest in equipment and conduct R&D if we are to have any hope of remaining an economically viable nation – but let’s use an unprecedentedly generous proportion.

Let’s assume that 60% of California’s GDP is comprised of wages, benefits, and pension payments.
To complete this thought, we’re now going to have to indulge in some basic algebra (T=trillion), one of those nasty tools of analysis that never plays well in a 30 second TV commercial, but nonetheless is an ideal tool to express cold quantitative reality, rather than utopian union fantasies:

[ .58T (pensions) + 1.47T (wages) ] / .6 (40% for corp. profits) = GDP of 3.48T

Isn’t that terrific? All we have to do is wave a wand and instantly, we’ll nearly double California’s GDP from $1.9 trillion per year to 3.5 trillion per year. Nobody will be “undercompensated” any more! Then we can afford to implement this compelling vision of social justice – total compensation of $140,000 per year for every full-time worker, then after 30 years, a pension of $70,000 per year. It should be easy. Perhaps new legislation is called for.

End Guest Post

Ed and I frequently trade guest posts on subjects related to unions wages, pensions, and the precarious state of California's economy.

If you are interested in such matters, you may wish to Subscribe to UnionWatch.

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