Sunday, May 31, 2015

ISIS Targets Baghdad And Saudi Arabia

ISIS On The Move With US Equipment
I agree with those who see real danger lurking for the two big targets and major prizes that ISIS hopes to claim. One of those is Baghdad and the other Saudi Arabia. Recently we began to hear rumblings that the Saudi's were becoming increasingly concerned as ISIS took over a huge swatch of Iraq and had edged up to the border of their country. This concern appears well founded as we are beginning to see a redirection of ISIS tactics, and attacks, towards Saudi Arabia which has, at least on the surface joined the U.S. at the forefront of the anti-ISIS campaign.

A key weapon deployed by ISIS is fear, with gruesome propaganda video being released by ISIS, it is no wonder the Iraqi soldiers and police often strip off their uniforms and runaway. It's not only bad over there, it's getting worse. For us living in America if you don't look for the news flowing out of the Middle East you are most likely shielded from much of it.  The Middle East is in total flux and many of the developments occurring on a daily basis are very problematic. News from the region tends to slip by under the radar because it is not something the public wants to see and not something Washington wants to put before us.  It is a solid reminder that we must never underestimate mans ability to inflict damage upon the human-race and people just trying to go about living their lives. Time and time again across the world the brutal carnage continues and recent well documented acts of ISIS and so many other groups around the globe give us little hope that it will abate.

We should not be surprised if before long ISIS begins banging on the gates of  Baghdad and creates a situation reminisce of the street to street fighting that took place in Beirut, Lebanon years ago. This would threaten the fortified U.S. Embassy located in the Green Zone. This is America's largest embassy in the world, the embassy compound can hold 35,000 American personnel and is basically a small city/state within Baghdad and is massively defended. The goal of ISIS fighters would most likely be to cause panic and destabilize the area which would result in a major PR victory. This means fire fights breaking out everywhere within the borders of Baghdad as forces backed by Shiite Iran facing off against Sunni rebels with ties and money from Saudi Arabia in a fight for control, but this gets very twisted in that even strong breaks exist between the Sunnis. We are talking about the city becoming ground zero and entering a state of civil war.

While military experts are confident that ISIS does not have enough troops to take Baghdad, a city of  around eight million people. Baghdad has been a city in transition since the Bush invasion created a power vacuum. We have witnessed an endless violence in the capitol that is historically full of neighborhoods with a mix of Sunni and Shia. Today the population division is now almost complete with most Shia concentrated in the north and east of the river and most Sunni in the area stretching from the airport to the American Green Zone. The ISIS advance in Anbar province to just outside the airport is a direct threat to the Green Zone because their forces can move through predominantly Sunni neighborhoods with little resistance. The western Sunni neighborhoods are perfect cover for ISIS to slowly infiltrate the area around the Green Zone and embassy compound by mixing in with the population. It is possible to see where ISIS could shut down the airport or at least make air travel extremely dangerous.

A scenario that must be considered is we will see an attack against the heavily defended the U.S. embassy and the Green Zone. This would require the U.S. to fly in reinforcements to the airport and this will be when ISIS will start mortar fire and attempt to close the Baghdad airport as well as attack convoys through the Sunni neighborhoods heading to the Green Zone. Shutting down the airport would require reinforcements and embassy staff leaving to use helicopters for transportation to airfields further south in Iraq or maybe even to Kuwait. Closing the airport would constitute a major public relations victory for ISIS and make life very difficult for those who oppose them. It could get very ugly fast, if a siege of the Green Zone and American embassy occurs because the U.S. would most likely then attack by air the Sunni neighborhoods surrounding the area from the zone west to the airport at a minimum resulting in heavy Sunni civilian causalities.

Since inheriting the throne earlier this year Saudi King Salman has forcefully challenged the expanding regional influence of Iran his country's biggest foe. This is very apparent from the Saudi's embarking on an air war against Iranian-backed Houthi rebels in Yemen. He is coordinating with Qatar and Turkey and has moved to shore up the deeply divided rebels in Syria. This has brought together an unexpectedly cohesive and effective rebel coalition made up of al-Qaeda affiliate Jabhat al-Nusra, an assortment of mostly Islamist brigades and a small number of more moderate battalions. This has added growing strains on Assad’s manpower and resources and damaged the idea that he is winning and the argument that Assad is the best option against ISIS. Bottom-line is that the whole region is in flux and ISIS is exploiting the situation. While difficult to believe if we do not get a handle on the situation in the end we could see the U.S. forced to close the embassy and withdraw from the Green Zone in a way that reminds the American public of how we left Vietnam long ago.

Footnote; This article is a "notice and warning" and not a suggestion of any strategy or solution that would solve the problem. My thoughts on that subject will be put forth at another time. As always, thanks for reading and your comments are encouraged. More on how America is failing in its fight against ISIS in the article below.

Thursday, May 28, 2015

Real Facts And Numbers About Housing

$79,050 / 3br - 994ft2 - Custom Touches! (Fort Wayne)

I hereby nominate Jim for an honesty award. In a recent article, a fellow by the name of Jim Quinn wrote about how Washington has started to manufacture the next housing bust and how Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. In their frantic effort to generate the appearance of economic recovery Quinn delves into how Washington is gambling with taxpayer’s money to encourage and lure unsuspecting blue collar folks into buying houses they can’t afford.

Jim writes; This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up. I solidly agree with Jim and others who have little faith in our so-called housing recovery. People should note that much of the new housing being built because of super low-interest rates is in the multifamily sector. While new units continue to be built it must also be recognized that a huge number of houses and apartments sit empty. What I really appreciated was the story Jim told where he used real numbers that did not sugar coat the truth as to what is happening in large areas of the country.

In Jim's words; I have personal experience with a current FHA mortgage transaction as my 79 year-old widowed mother is in the midst of selling the 900 square foot row home that she has lived in for 58 years in the first ring of suburbs outside of Philadelphia. It was once a vibrant middle-class neighborhood of working folk but has been gradually decaying as the old guard dies off and is replaced by lower class Section 8 tenants. She is selling ten years too late as prices have dropped 30% since 2005. She asked $72,900 and received an offer within two weeks of $66,000, with a $4,000 closing credit. My siblings and I didn’t expect her to get an offer in the 60s, as the dump next door was sold for $30,000 and went Section 8 a couple years ago. Anyone buying this house is destined for another 30% loss over the next ten years. So we told her to take the offer before it was too late.

It is so damn good to see some real numbers in a post it almost brought tears to my eyes. Yes, the numbers Jim has used are real and the kind that exists in many places in America. These are not "Wall Street" numbers. The fact is not every house sells for $600,000. Yes, houses are available at affordable prices. This is something I see every day here in the Midwest where we seem to be far more in touch with reality and the true economy is less distorted. Jim goes on to say he feels the FHA thinks it is necessary for them to lure low income, low IQ, credit challenged dupes into the housing market. To bring this about those at the FHA are busy issuing risky mortgages that are being underwritten by thinly capitalized non-banks and guaranteed by the FHA.

In 2012 the large Wall Street banks represented 65.4% of FHA-backed loans. That number is now 29.6%, as even the risk seeking Wall Street banks have come to their senses and realize loaning money to people that won’t be able to repay them will end badly, we are being prepped for a replay of what occurred in 2008. The politically motivated government is insuring subprime mortgages with down payments of 3.5%, using weak underwriting standards. They are even easing restrictions on borrowers with past foreclosures, in a housing market that may drop some 20% when this Fed/Wall Street housing bubble pops we can expect a rough ride ahead.

Jim says the entire manufactured housing recovery responsible for driving the average home prices up 30% since 2012, has been driven forward on the high end by Wall Street hedge funds, buying  foreclosures in bulk with a scheme to rent them out. In addition to the money from hedge funds it does not hurt that hot money and cash from Chinese and Russian oligarchs is also flowing into this market. It would be wise to remember this market is built on a very weak foundation with the low end being propped up by Fannie, Freddie, and the FHA with their brilliant idea to insure 3.5% down payment mortgages to those who will not be able to withstand the next downturn.

The article I reference was written by Jim Quinn and can be viewed by hitting on this link. I have owned an apartment complex in the Midwest for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in my area are empty or under leased. In 2005 and 2006 prior to the housing collapse, many people were looking at second homes, today not only have people shed the extra home many have doubled up with family or friends reducing the need for housing. I have been busy trying to make sense of the current economy, this is not an easy job. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. An earlier article that I wrote on this subject can be found below.

Monday, May 25, 2015

Television As A Window On Society

I was hoping for something a little bigger!
I was surprised to find that over the holiday weekend I found myself drawn to and watching a show about real estate and home-buyers in search of their "dream house". It was as if I could not look away and similar to how many people slow and linger at the site of a gruesome accident wanting to soak it in. As I pondered my attraction to this massive time waster I realized it was in a way a reflection on the attitudes of society or what we might refer to as the masses.

It should be noted this and other programs create a self feeding loop that skews our expectations. Are we not just as good or better than these people? The answer to this question is, "better I would say," thus it is logical I would deserve even more of life's bounty, yeah, more and then some! This mindset is infectious. All across America people are buying into this logic that they deserve it all. This is evident by the number of new cars being purchased every day with sub-prime loans. I must admit it was rewarding and a relief to view an episode where the house was not over the top and the cost reasonable.

The priorities buyers set and delight in searching for often highlighted the immaturity of youth dosed with a loose connection to reality. To me it reeks of a society hellbent on overindulgence and entitlement. As a footnote I do recognize my way of looking at the world is more than a tad different from the average Joe, and I do not say that with pride. Many of us who walk to a different drummer will admit we often stumble because we are out of step.

Being very involved in real estate and design I found it important as a reminder never to forget what makes perfect sense to one person is pure nonsense to another, and often very expensive nonsense at that. Many times on these shows I heard the phrase, "that has to go, I couldn't live with that." Sadly, these references were about the color of a granite counter-top or the fact the appliances were not stainless steel. It seems to me buying a house for $300,000 then replacing a $8,000 three year old counter-top hinges on the edge of insanity.

Another phrase that roused my ire was "oh, this is really dated."sometimes this statement was directed at a house built only ten years ago.This was often followed by "it will have to be totally gutted." All I can say is God bless our throw away society. With many people across the globe living in poverty and squalor sometimes without plumbing, clean water, and even dirt floors this begins to become surreal. I realize this is a television show edited to maximize the viewer emotions, but my experience in real estate confirms what we see on these shows is not abnormal behavior. Seeing some of these self indulging buyers gorging at the trough of self importance made me pray their day of comeuppance was not far off.

It is not uncommon to have someone interested in leasing a property make outlandish and economically impossible demands oblivious to the fact you have already decided you do not want to lease to them. Usually it is because of a deep seated feeling they they are unlikely to be able to financially fulfill any lease or contract they would sign. I have found the world is full of people who gain massive self importance from wasting our time even when they might not have two nickles to rub together. To those readers familiar with the show "Family Guy" I was reminded of the scene where Peter Griffen goes shopping at Tiffany.

Bottom-line is television sometimes is more of a reflection of society than we might like to admit. In some ways it is somewhat responsible for helping to create the values our society holds, rational or not. In life it is important we understand we are not the center of the universe. One thing I learned from my viewing before I put this diversion behind me and shut off the television was that at times it appeared the less deserving a person was the more demanding and arrogant they became. It was as if a some strange perverse reverse law of physics had locked hold of their personality,  understanding and gaining a little more insight as to what make these people tick has some merit.

Footnote; Soon I will be posting an article about a fellow named Jim who had the guts to honestly reveal how much his mothers house really sold for. He tells a story about a declining neighborhood and how the family advised mom to take the money and run. His story reflects the reality many Americans face in the real world. 

Sunday, May 24, 2015

Passenger Rail Must Be Redesigned

We Must Reinvent Trains As People Movers
The recent accident where Amtrak passengers were killed and mangled brought the subject of passenger rail travel and its future back into the headlines. To those who have given the subject much thought, it is perfectly clear mass transit in America is broken and to make things worse the system is a big money loser. Passenger railroads must be redesigned or "Reinvented". Railroads have much to be desired when it comes to efficiently moving people. While rails are viewed and hailed as an energy efficient way to move freight they could also be a great way to move people, but to do so we need to take a fresh look at what is really required and what is not. Most likely it will mean doing a lot of retrofitting the parts of the current rail system that could still be used.

During the last 250 years, train industry transformed itself from its simple beginnings into one of the most influential transport industries in the world. That period of time was marked with countless train designs of all types and sizes. By the beginning of the Civil War in 1861, there were 30,000 miles (more than 21,000 of them in the North), and lobbyists were clamoring for a transcontinental system across the nation. The number of railroad miles continued to climb until hitting its peak in 1916. That year there was more than 250,000 miles of track—enough to reach the moon from Earth. Over 1 million people worked for the railroads back then and the train was the main way to travel and move freight on land.

Automobiles, trucks, and airplanes coupled with bad government rules took passengers and freight from the rails in the 1950s and 1960s as better roads and the interstate system was built. Many railroads went out of business or merged. In 1971 the federal government created Amtrak to take over from the railways what had become a massive money-losing passenger service. During the 80s the government changed many rules related to trains and the whole railroad business began to grow again. Currently, railroads carry about 40% of all freight, more than any other mode of transportation. 

Railroads must be redesigned if they are going to be economical people movers. While I don't think it will happen the fact is we need to totally rethink what is needed to efficiently transport people, the wide heavy tracks and stout passenger cars we use are overkill. A much lighter and smaller style pod would work, it could even be equipped with an undercarriage that would move the wheels in or out to adapt to a narrow "public transportation" or the wider standard rail tracks now in use. Some of the things I have seen over recent years are cause for concern and proof that regulators are still too involved and poor decisions are being made as to the direction and future development of this important national resource. 

While I do not claim to be a big fan of Elon Musk, I admit when he unveiled his idea for the Hyperloop in August of 2013 it created quite a stir.  The Tesla Motors and SpaceX CEO dropped a 57-page alpha white paper on us. With his predictable flair Musk noted he didn’t really have the time to build or give us such a revolutionary transit system that would shoot pods full of people around the country in above-ground tubes at 800 mph. The reason this is important is that it was one of the few moments in America when people discussed an alternative way to move people about. For futurist and those who enjoy picking apart complicated plans, it was a godsend. 

Years ago trains were limited by many factors that no longer apply today. Improvements in materials and advancements in technology have cast the door wide open to rethinking the whole people moving process. In doing so the 80/20 rule leaps out at me if we can meet 80% of our objectives and achieve the bulk of what we want for 20% of the cost why complicate things. I contend the alternative to our current passenger trains neither be so drastically different or as expensive as the Hyperloop plan. Also, in the background of this debate the KISS principle screams out to be heard, "Keep It Simple Stupid" is the voice of reason in a situation like this.  

We must remember that bigger is not always better, and everything does not need to be ramped up and put into operation by tomorrow afternoon. When it comes to creating or changing something like the existing passenger rail system several big factors come to mind such as trying to utilize current rails and routes. Today even trying to run new rails and procuring new easements or corridors is cost prohibiting in areas of high population. This would mean adapting any system we develope to be able to utilize existing routes and most likely in a way that would coexist and not interfere with other forms of transport.

Before we can move forward we must overcome the existing definition or idea of what most people think a passenger train must be. New people transports need not be limited to using only one style or rail width but could adapt and mechanically adjust to narrower or different tracks in much the same ways as cars now go from two to four-wheel drive. Lighter cars would also not need the heavy duty roadbed or rails needed to hold up under hundreds of tons of weight that are placed upon current tracks. In addition to using existing tracks additional light duty and thus less costly tracks could be run where necessary. One place where right of way issues are not a big factor might be within the current confines of the Interstate Highway corridors. 

The cars designed to transport people would not need to be as high as those for moving freight reducing their center of gravity nor for that matter would they need to be as wide. They could also be equipped with a system that wrapped around a lip on the track making it impossible to derail. The lighter weight people mover could sport its own motor or drive system allowing it to move without being pulled by an expensive and heavy conventional locomotive. It does not require a great deal of horsepower to get a much lighter weight car moving and once rolling little to maintain or achieve greater speeds. If each car has its own drive system it allows far more flexibility in scheduling and cars no longer have to be bunched together allowing for more departing times. Features such as GPS would tell us exactly where cars are and adjust their travel while security cameras would assure passenger safety.

A contest to create a prototype that would meet our needs or stir a conversation as to what a new modern passenger system should do might go a long way to move this debate forward. The speed and time of travel from point to point is a big factor in developing a system, but it is important to remember that at some point you are paying a lot of money to save only a small amount of time. Remember currently a great deal of time is already spent in getting to airports miles from our city centers and going through security checks for relativity short flights. When put in the proper context it seems a system to move people at a reasonable cost between city centers at an average speed of  125 miles an hour or more would eliminate the need for most smaller airports and be a superior alternative for most trips.

Saturday, May 23, 2015

Economic Limbo May Be Nearing An End

Are We Approaching The End?
One definition of limbo is an uncertain period of awaiting a decision or resolution; an intermediate state or condition. When it comes to the economy things can only remain in suspension for so long, sooner or later change does occur. For what seems to be forever and a day we have been trapped in a sort of "economic limbo". We seem to be balanced and walking a tightrope with deflation one one side and inflation on the other. In this strange world even as economic numbers continue to come in below expectations the stock market continues to move ever higher and remain at historic highs.

Across the world central banks have cranked up the printing presses and allowed governments to sidestep addressing structural problems within their economies that would make them more competitive, this will massively thwart growth going forward.  A period of great or even good economic growth is not even in the cards. Yet we find concerns over budget deficits have been placed on the back burner as people have been told we can simply grow our way out of our current problems. A solid look at the numbers will show the flaw in this thinking which is based on the most optimistic of forecast and projections.

Each day investors busy themselves with trying to better their fortune or at least hold on to and protecting their wealth and what it will buy. The great promise of future growth that appeared around election time last year when economic growth was hailed as 5% has proven no more than a finely crafted illusion. In hindsight it was brought about by a massive surge in government spending. This did not help the economy reach escape velocity and we fell quickly back to earth. Recent numbers show an abrupt slowing in growth, this has even turned attention and created questions as to just how well the GDP number reflect growth. Now some economist think it should be modified in a way as to boost or even out numbers from the first quarter of the year which tends to be the slowest.

Central banks and those in power are trapped between inflating assets and creating bubbles and the ugly alternative of watching the world's financial system collapse in rubble. Now we find that America's last GDP numbers may when revised show negative growth after they factor in the recently announced surprisingly large trade deficit. Year after year America imports around five hundred billion dollars more from other countries than they export. This means we have a giant trade deficit, when we add this to our enormous government deficit it is easy to see that we are living far beyond our means. The Fed has been both complicit and superbly entrepreneurial when it comes to the Ponzi schemes or pseudo-economics hocus-pocus that has allowed the current situation to develop. 
As I see it we are creating a large number of people who are incapable of holding a job and others who have simply dropped out of the work force. Many of these unemployed people have become in brutal honesty nothing more than wards of the state. This will wear down society through attrition as those who work are forced to provide for their care. Often these people have little in the way of savings, meaning the burden of caring for them has been transferred to society. If too many people shift into this category the fabric that holds us together as a nation and as a people will be shred to ruin. The seeds of a class war have been sown and threatens to divide us is about to grow much larger as the middle class continues to erode. Until now the answer has been for government to lift and cradle those on the bottom, but in the future it will become far more difficult.

Today across America is a landscape of empty and under-leased buildings that once housed thriving businesses that provided Americans with good paying jobs I'm forced to ask, How are things getting better? I'm troubled when looking at new job formation that reveals a slew of low paying part-time jobs and people leaving the job market. A close inspection of auto sales shows the troubling fact that over 30% of those buying cars are taking out sub-prime loans. Student debt continues to grow at an alarming pace and defaults are rising on these loans, this will corral disposable income for years to come. And finally looking out at police forces across the nation I see them gearing up for urban warfare and leaving their mission to "serve and protect" behind.

I must say that I'm far from convinced that all is well ahead. It is only logical to understand the Fed  must at some point begin to ponder a real exit strategy and end the massive and corrosive stimulus that the economy has come to expect. We seem to have been lulled into believing the central banks will never allow the economy to fail, but the reality is that despite the trillions and trillions of dollars,euros, yens, pounds, and others currencies that have been printed things are not getting better. All this money has merely distorted the ability of the markets to define true and real "market values." You might say we are held in limbo until the reality sinks in that in many ways things are getting worse.

In the past central banks acted as a backstop for the financial market, today it appears they are the economy. Oddly, this is occurring at the same time many people have become disenchanted with Washington which has become viewed as dysfunctional and even worse corrupt. It has been pointed out the bull market in stocks is getting long in the tooth when measured by historic standards. Over the years the markets have exceeded the expectations of many investors while the economy has languished. This may be a sign the state of limbo our economy has been in is about to end.

Tuesday, May 19, 2015

Fair Trade Trumps Free Trade

Barack Obama’s ambitions to pass sweeping new free trade agreements with Asia and Europe are getting bogged down. It seems Democrats are on a collision course with the White House as the party’s newly emboldened liberal wing digs in its heels over global free trade deals it claims will drag down US wages and working conditions. What we are looking at are two separate agreements, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). As we view the global economy we must ponder how much of this is about individual governments giving up control and becoming subservient to corporate “efficiency” and the desire of companies to both develop and control future rules. Many people see the global economy as currently being run as an ill-regulated business model tilted to favor big business. The benefit to the public is again the promise it will create new jobs, we should expect that will turn out to be largely a myth.

The more controversial of the two agreements is the TPP which excludes China and sets up a robust trade agreement between North America and some of China's nearest neighbors. A big issue is the exact language and details of the agreement are being kept secret by the Obama administration. Summaries indicate the agreement will affect tariffs, workers' wages, intellectual property, and environmental regulations in the US and 11 Asia-Pacific countries. Some people view the Trans-Pacific Partnership (TPP), currently being pushed by the Obama administration and its corporate allies as a blatant attack on labor, farmers, food safety, public health and even national sovereignty. Part of the problem is the details of the deal have been kept largely secret and other than what’s been leaked we have no access to its contents. Even members of Congress don’t know much with only, “cleared advisers,” mostly corporate lawyers, having full access because the TPP is way too important to its sponsors to allow little details like congressional or public input to get in its way.

Making all this more controversial is the beliefs held by many Americans that bad trade deals with low wage countries have contributed to our current economic woes. When Massachusetts Senator Elizabeth Warren, came out strongly against these agreements Obama said the Massachusetts senator was “absolutely wrong” and accused her of speculating about the contents of the emerging 12-nation trade deal for personal gain. Many people see Obama's criticism of Elizabeth Warren as not only disrespectful but as disingenuous. His statement did little to quell the controversy, instead it seemed to throw fuel on the fire. It should be pointed out that just because the President says someone is wrong on an issue does not make it true. Former Labor Secretary Robert Reich called the TPP “Nafta on steroids”  Senator Warren and those concerned that a trade agreement with low wage nations will not be a great job creator for America have history on their side.

Economist Dean Baker said, “This really is a deal that’s being negotiated by corporations for corporations, and any benefit it provides to the bulk of the population of this country will be purely incidental.” It is difficult to say why Obama sees this as a big plus, but it’s worth noting that in 2008, as a presidential candidate, he said, “I voted against Cafta, never supported Nafta, and will not support Nafta-style trade agreements in the future.” Historically, trade laws are geared to enrich the “mother” country and was often used to build a nation. Following World War II free trade arguably benefited the economies of the countries involved. But the new laws, starting with 1994’s North American Free Trade Agreement (Nafta), recognized that capital is now mobile, it moves about the world and owes allegiance to shareholders rather than loyalty to any one country.

Those supporting the TPP, claim it will be a boon for America when it reduces tariff barriers to vast Asian markets and strengthens protection for intellectual property a strong plus for America.  Moreover, the overall gain is more than just economics. In our competition with China for influence in the region, they reason it would anchor our relations with Pacific Rim nations keeping them out of China's orbit. Even if a Republican controlled Senate gives the administration the authority that it wants to negotiate trade agreements other countries may not fall in line. Some players may not feel they gain by changing the status quo.  Both Japanese and EU trade negotiators have their own issues and are facing their own domestic constraints. Japan has yet to fully embraced TPP and Abe is unlikely to make the politically unpopular decision do so any time soon. European Commission President Jean-Claude Juncker has split negotiating authority between his Trade Commissioner and Commission Vice President in an effort to placate Europeans worried about the proposed investor-state dispute settlement in TTIP.

With the old saying that "all politics are local" in mind politicians remain mixed on these plans. The 12-nation Trans-Pacific Partnership, would have a big effect on Montana which exports most of its grain to Asian Pacific markets. In Montana agriculture is the No. 1 industry. It’s a $5 billion a year industry in Montana and 80 percent of their wheat crop is exported, Montana farmers and ranchers know that 96 percent of the consumers in the world are located outside the United States. The TTIP between the European Union and the United States includes markets to which Montana products are rarely exported, but the TPP is very important. Steve Daines Republican Senator from Montana last month told The Billings Gazette he would have to consult with Montana “stakeholders” before deciding on how to vote on trade promotion authority. Now Daines says “Montana farmers, Montana ranchers, Montana manufacturers want us to get this done to create jobs and opportunities for our future in Montana.”

If trade promotion authority is granted it would be months before Congress actually votes on these agreements, before that happens the document must be made available to the public and Daines said he will vote against the final TPP if it is bad for Montana. Daines said he knows from personal experience the challenges of doing business in the Asian Pacific and believes the Trans-Pacific Partnership will help. Daines oversaw business in Australia and Japan for Bozeman software company Right Now Technologies. Both of those countries are members of the Trans-Pacific Partnership. Having a trade agreement that protects intellectual property is crucial to the tech economy. “Intellectual property is something we are always having to fight for because it’s where we lead the world, especially when we go forward in the high-tech age," he said. "Really, we’re shipping electrons, and that’s why it becomes so important. We must protect intellectual property.” Several manufacturers endorse Daines’ decision to back TPP.

This is a bipartisan effort if ever there was one and last week, a bill was introduced that would give the president “fast-track authority” to negotiate trade agreements. If that passes, Congress will be able to vote only up or down on the final negotiated agreement, they would not be able to amend it. As it is, failure to secure so-called “fast track” negotiating authority from Congress could stop the current trade negotiations dead in its tracks at the same time marking the high-water mark in the decades of steady trade liberalization that has fueled globalization. Many critics exist because these trade deals over the years have been blamed for environmental problems and exacerbating economic inequality within many developed economies as manufacturing jobs have been outsourced to low wage countries. Internet activists also claim the deal would curb freedom of speech, other detractors even charge it would enshrine currency manipulation.

It is only prudent that we question the merit of these agreements. At least NAFTA intended to bring up our neighborhood, it was thought that when Mexico and Canada benefited America would gain some degree of safer borders and a mutual interest would be served. Nafta is the paradigm of what are most accurately called deregulation deals. It promised better jobs in both the United States and Mexico. Instead, as well-paid workers in the United States were losing jobs to low paid workers in Mexico, badly paid Mexican workers were losing jobs to those in China who would work for even less. This in turn put more pressure on workers in the United States. Yes, free trade is often credited for creating more jobs than it does and the TPP in some ways is more objectionable than NAFTA. Obama told the Wall Street Journal "If we don't write the rules, China will write the rules" implying America will be left dangling in the wind with American businesses and American agriculture suffering and a loss of US jobs.

While free trade is important, fair trade is far more so and should trump it as an issue. Developing a long-term sustainable economic system that is balanced would contribute to both global cohesion and the world economy. It is logical that no country can endure a trade deficit year after year. Nationalistic exploitation of trade agreements has occurred throughout history and it is naive to think such schemes will suddenly end. The changes brought about by the development of the global economy have been hard for many. Promises of wide spread prosperity has fallen short and we have seen the benefits flow to only a few. Considering this, it is little wonder trade has become such a heated issue. I see no quick fix nor can I be optimistic the proposed agreements will bring about anything other than a system for long drawn out arbitration that will most likely dish out solutions that will neither thrill or satisfy.

Friday, May 15, 2015

Public Transportation And Empty Buses

The Tax Payer Is Being Taken For A Ride
 In the city where I live the bus system that carries us about goes by the name of Citilink. The Fort Wayne Public Transportation Corporation that controls this system has a rather slick detailed website that gives a fair amount of information and some I hope you will find very interesting. If you do not think a taxpayer-subsidized entity would be incredibly efficient in accomplishing its mission then you will not be disappointed. The whole point of the following article is to highlight how a quasi-government entity needs little accountability to be accepted into a community as a positive force. The article below is comprised of real numbers directly from the PTC annual report and these are numbers that are easy to get your head around.

Darkened Windows Mask Lack Of Riders
On the average day buses with darkened windows dart to and fro with the intent to provide safe, courteous, dependable public transportation, and at the most reasonable cost to our community. It is not uncommon to sometimes see as many as three or four buses in a small area. Citilink considers itself much more than a ride. In their words "more or less" it's about getting us where we want to be on many levels. They see as their claim and goal to contribute to the community in many ways including but not limited to revitalizing our neighborhoods, helping with developing the downtown area and contributing to economic development.

PTC brags and carries on about how local dollars are leveraged to match federal and state resources that are invested in mobility for Fort Wayne residents.  Annually, over $3.5 million dollars from outside our community support Citilink services. In addition, millions of dollars in discretionary federal funds help pay for new buses and transit facilities. They say on their website under the "about us" section listed as, board of directors and mission, that whether you ride it or not, public transportation benefits all of us. This point is driven home by a YouTube video. It is only when you look a little deeper into the annual report that shows the numbers behind this operation that reality begins to filter through.

Yes indeed, the picture painted by the numbers of the annual report is not pretty or impressive. With total expenses of $11,562,713 the revenue summary shows only $1,378,905  or about 12% comes from fare revenue. This means as shown the bulk of its operating money comes from the taxpayer and is listed as Local Assistance $5,515,212, State Assistance $1,971,789, Federal Assistance $2,141,288. When considering the city has a population of 256,496 people, this means assistance from each man, woman, and child represents $37.54. Again, it must be highlighted that when someone cannot or will not pay their portion the burden is transferred to those who will. Again, if you paid attention to the numbers most the money comes from close to home.

A glaring problem becomes apparent and clear in the report and that is these buses are not darting about full of paying riders or non-paying riders receiving a free service, it is far worse than that. The numbers prove the buses are empty even after all the massive efforts to encourage ridership few people in the city have ridden a bus in decades. With a total vehicle operating expense of  $6.21 per mile operating expense per passenger trip comes in at $5.68. This becomes clear when they state the number of passengers per vehicle mile traveled as a mere 1.09 or in layman terms this means a Citilink bus on average carries only one passenger and its driver, this means if one bus has three passengers most likely two others have none.

It should be noted that many of the buses act as traveling billboards and are covered in advertising as a way to garner a few pennies of additional revenue, The most common theme sports the strength of a certain bankruptcy law firm, the city recycling program, a positive message related to local government or another entity subsidized in some way by taxpayer money. Colleges receiving state funding, local subsidized sports teams or their arenas, hospitals, and even the groups like Airport Authority tend to pony up money in this incestuous demonstration that they too care about the city.

Also, revealed on the website is the ugly reality as to just how badly the PTC spends our money. For example, I followed through to view one of the several recommended videos Citilink had produced and put on YouTube over three months ago. The 19-minute video prepared in Spanish told someone how to ride the bus, since being placed on YouTube it had been viewed only four times. This means I boosted its audience by 20% when I kicked it on. Sadly, the bulk of the other viewers were most likely the producer or some in-house close associates of Citilink checking out their little gem before showering themselves with praise. It is clear this highly orchestrated production had to have cost thousands of dollars to produce. 

PTC through Citilink goes to great lengths to spread the myth they are helping to make the city "green" and is ecologically friendly, but this claim quickly goes out the highly tinted windows of the buses, I contend the windows have been darkened more to mask the lack of riders than for their comfort. The fleet of buses consumed 332,570 gallons of fuel and traveled 1,682,072 miles. This is a whopping 5 miles per gallon or 5.07 to be exact. If this is any indication of the state of mass public transportation across much of the nation it would seem the word mass should be dropped as a misnomer. When looking at all the numbers it seems some scheme to subsidize payments for private taxi service for those needing transportation might cost us far less. As far as claims that jobs would be lost a case can easily be made that more taxi drivers would be needed if we had fewer buses.

Sunday, May 3, 2015

GDP Number Is A Master Illusion

Its Magic Illusion 101
Years ago a Seinfeld episode was centered around the idea of producing a television show about nothing! Sadly, in many ways, this is the direction America has moved towards when it comes to measuring our economic growth. We have allowed numbers that mean "nothing" to seep into how the gross domestic product (GDP) is calculated all in an effort to create the illusion of growth. In years past America far outproduced the rest of the world and manufactured goods that it exported across the seas. Today much of our economy is dominated by the service sector, this means if you wash my windows, then I will mow your yard. The recent first-quarter GDP number of 0.2% could be no more than a rounding error and makes the hyped pre-election 2014 third quarter 5% growth a distant memory.

As time goes by small events often seem to drift into the distance or be forgotten, it could be I'm getting a little soft in the head or this is how I explain having to do research when I write. The Bureau of Economic Analysis (BEA) has made a significant change on how they calculate the GDP.  It slid by unnoticed by many people but they changed how they classified and recorded expenditures for R&D and for entertainment, literary, and artistic originals. An announcement of this change was made by the BEA during February of 2013, this resulted in an increase in the GDP. This kind of "bump" means that a gain of 2% today is, in reality, less than a gain of 2% years ago. This means we are comparing apples to oranges.

Gross Domestic Product is defined as the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment, and government spending, plus the value of exports, minus the value of imports.Within that definition, it appears those in power have discovered some wiggle room and even before that a debate exists as to what it really tells us. When we delve into all of this it is easy to see this is not simple at all and that the GDP can be a master illusion when we look at how it filters down to both society and the Main Street economy. The first comprehensive set of measures of national income was developed by economist Simon Kuznets who in 1934 told the US Congress the formula was problematic, he said. 

"The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is contingent upon oversimplification."

In 1962 Kuznets again emphasized that we must keep in mind the difference between quantity and the quality of growth. He made clear a distinction exist between cost and returns, and between the long and the short run. Kuznets went further to specify we needed goals concerning both growth "of what, and for what." Other economists have agreed that GDP is an empty abstraction with a very weak link to the real economy. The framework fails to reflect the difference between real wealth expansion or capital consumption. Kuznets used the example of the government building a pyramid that added nothing to the well-being of individuals, it would be viewed as economic growth, but in reality, divert funding away from real wealth generating activities harms the generation of real wealth.

What is not stated can often be far more important than what is. The number we are spoon fed and await with such glee has little to do with real growth but most likely mirrors or is merely a reflection of monetary pumping. The GDP number fails to highlight a slew of important factors that feed directly into our standard of living and the health of our economy, such as;

    * How wealth is distributed and inequality
    * Taxation and how it affects both the economy and society
    * Non- market transactions like volunteer and off book work
    *  Underground economy, illegal trade, and many cash transactions.
    * Asset value, meaning GDP ignores changes in what things are worth
    * The non-monetary part of the economy, bartering of goods and services
    * Distinguishing between production that is subsidized and that which is not
    * Quality improvements and new products
    * What is being produced, bombs or butter and a better-educated populace
    * The sustainability of growth or misallocation of either capital or resources
    * Cross-border parity and changes in currency value
    * External factors such as negative environmental effects or the health of the people

Some countries have even gone as far as to include things like prostitution and other illegal activities in a way to boost GDP and in effect lower their ratio of GDP to government debt. In 2013 in advice to their government the UK's Natural Capital Committee highlighted some of the failures of GDP when they pointed out its focus on flows can allow an economy to run down its assets while recording high levels of GDP growth until a point is reached where this begins to impact future growth. They went on to make it clear the recorded GDP growth rate is prone to overstate the sustainable growth rate. This number as with most numbers once put out there is subject to full blown manipulation and spin. Bottom-line in the words of its creator, "The GDP framework is more or less an empty abstraction devoid of any link to the real world."

Saturday, May 2, 2015

The Great "Time-lag" Effect!

Events Play Out At Different Speeds
Time-lag is defined as the period of time between to closely related events. Not everything happens at the speed of light, often a time-lag exist such as the gap between seeing and hearing the lightning bolt. Some of what we see occurring in the financial markets and the economy should be viewed with this in mind. Only during a panic does it become obvious just how precarious a position we have allowed to develop. Recently, I stumbled across a line describing how the markets have lost their ability to discover fair market value and no longer reflect honest or real value. The lack of true pricing should raise red flags and be of great concern for all of us.

The great "time-lag" effect may soon exert itself in a most wicked way over our economy. Recent data has been underwhelming and once again attempts to spin these numbers in a way that emboldens those trying to paint a picture of a growing economy are beginning to fail. Momentum appears to have turned downward and the time looms ever closer when being able to rally the market on bad news could become a distant memory. At some point bad news will simply become bad news and seen as a sign that the economy has problems that more quantitative easing can not address. At some point it will become apparent that we have only delayed addressing the root cause of what ails both our economy and many of those across the world, that is to much debt that will or can never be repaid.

We should remember two issues are in play that have yet to fully impact both our day to day economy and markets these are the strong dollar and falling oil prices. While these hit months ago it takes time for the effects of such powerful forces to totally work their way through the economy.  The recent drop in drilling is only now beginning to take hold and leave its mark. If oil prices remain in a slump as expected it will become obvious over the next few months that many people overlooked just how important a driver the energy sector has been to the U.S. economy during the last three years. This sector has been responsible for much of our job and growth and investment spending since the onset of the great recession.

As for the strong dollar, as I have written earlier, unstable currency markets can be a precursor to massive shifts in value and a sudden drop in confidence. It is logical to think that in such a situation insiders would be the big winners. The main reason the world has chosen a "reserve currency" is to have some benchmark to peg currency values to and lessen the impulse of countries that have accumulated massive debts to attempt to address their problems by just printing more money, this results in devaluing their currencies but often fails to face the root cause of their problem. This is especially true in our modern world where the carry trade is a major force and money flows across borders at the blink of an eye.

History shows wealth will  flee both from a country when its currency drops in value and temporary flow to a safe haven, that is happening today. The bottom-line is that while many people go about their daily lives giving little thought to currency valuations they leave themselves open to the whims of those that control, manipulate and play in this important area of the global economy. When your currency moves ten percentage points higher or lower against a foreign currency it can have a great deal of impact on how your net worth stacks up against someone across the world and the ability of your country to be competitive in producing and selling products.

The fact is with little in the way of real demand there is not much reason to invest in plants or equipment unless it is to lower cost or with the goal of reducing labor. Over the years artificially low interest rates and easy money have caused a massive rise in the misallocation of capital. Market seem hell bent on imitating a crazy dog chasing its own tail. The huge number of stock buybacks is a direct result in a lack of compelling investment opportunities. An example of such an over-saturated market is the recent announcement that McDonalds will be closing or reducing the number of stores it has in America. Central banks have been pushing on a string with their flawed policies and allowed a false economy to develop by propping up those who should have been allowed to fail.

What is being hailed as our economic future holds a troubling aspect, as more large companies crowd into existing markets they will only dilute profits and fracture those markets further. A recent example is Google's unveiling of its long-awaited phone service which will put the search giant in competition with Verizon, AT&T and other wireless service providers. This should be viewed as bringing lower cost to the consumer but will cripple earnings of those already in the business. It is difficult to argue the current giant distributors of wireless phone will not be affected or feel the pain. Small business has been under such assault for years and as the trend continues to play out it will become even more apparent the gross domestic product is moving sideways rather than upward even as government and private debt explodes.