Reflections on 2013: What's Important, What's Not, and What's Ahead
According to Yahoo!News thetop story of the yearwas the Jodi Arias trial.
I confess. I never heard of her. Had to look it up.
Most of the Yahoo!News top ten would not have made my top 100. My criteria includes events that have a chance to shape history in a major way.
Here are my lists, county by country, theme by theme.
Obamacare has been in the news multiple times a day, for months on end. Republicans attempting to overturn Obamacare made fools of themselves doing so. They lost a major budget battle in the process. Ironically, it was not until Republicans gave up, that Obamacare public opinion changed.
On December 23, aCNN Poll showed Obamacare Support at Record Low 35%. The Fiscal Times notedMillennials Jump Ship over Obamacare Bait and Switch. The Fiscal Times also rated Obama's health care promise the "Lie of the Year".
And the story is not yet over: Three states have legislation pending that wouldGut Obamacare, making enforcement of the law illegal.
Bernanke Out; Yellen In; Fed Tapers
Bernanke is out Janet Yellen is in, following a D.C. battle for Fed chairperson between Yellen and Larry Summers. It's a case of Tweedle Dum vs. Tweedle Dee. Neither is qualified for the job.
Given there shouldn't be a Fed in the first place, it would be more accurate to state " Yellen and Summers are uniquely unqualifiedfor the job".
At long last, the Fed has finally started to taper. Had I suggested in 2007 that the Fed balance sheet expansion of $75 billion a month would have been considered "tightening" people would have thought I was nuts. Here we are. On December 18, theFed Tapered $10 Billion with Cornucopia of Dovish Platitudes.
As with the Greenspan fueled housing bubble, the bulk of this story is yet to come. Before the housing crash, people referred to Greenspan as " The Maestro".
A similar crash in public opinion awaits Bernanke for fueling one of the biggest, if not the biggest stock and bond market bubbles in history.
With a huge gratitude of thanks to Ed Snowden, the world learned what a big hypocrite the US is, and how the NSA is spying on every phone conversation and everything everyone does on the internet.
An international scandal arose when Snowden revealed the US wastapping the phones of 35 world leadersincluding German Chancellor Angela Merkel.
In the name of "security" our4th and 1st Amendments are Under Fire.
On December 16, in a rare victory for constitutional freedoms, U.S. District Court Judge Richard Leon, ruled NSA phone program likely unconstitutional. (SeeDistrict Court Judge Rules NSA Phone Taps Likely Unconstitutional; 68 Page Ruling Cites "Orwellian Technology" and Unreasonable Searches).
Unfortunately, on December 27, another district judge ruledNSA Surveillance is Legal. A showdown in the Supreme Court is nearly guaranteed.
Perhaps we will see some serious changes, but if not, everyone ought to finally realize George Orwell's distinctly unpleasant "Big Brother" visionary outcome has arrived. Orwell's book 1984 was written in 1949.
On December 31, I commentedCelebrate the New Year: 1984.
Bankruptcies in Detroit, Stockton, San Bernardino
Untenable union wages and salaries, sunk three cities in the US. More cities will follow.
On April 13, aJudge Ruled Stockton CA Bankruptcy is Valid, City Acted in Good Faith. Unfortunately,Stockton is Doomed to Another Bankruptcybecause it failed to shed pension obligations, even though it could do so.
In a lesson for union dinosaurs,Detroit Bankruptcy Judge Ruled Public Pensions Haircuts OK. Let's hope Detroit does things right.
Meanwhile, Pension Battle Shifts to San Jose as noted inRights of Dinosaurs vs. "Right Thing".
Resolutions of these bankruptcies will have lasting implications.
Voters Take Negative View of Labor Unions
In a major change in sentiment,California Voters Take Negative View of Labor Unions.
This change in sentiment may determine the outcome of a California proposition started by the Democrat mayor of San Jose to constitutionally reduce pension benefits.
People constantly ask why I devote so many articles to unions and city bankruptcies.
The answer is easy: First pensions underfunding and union wages are the number one problem of cities and states. Second, no other bloggers seem much interested in the story. Third, many mainstream media articles take the position, pensions are sacrosanct even thought they clearly aren't.
Bankruptcy trumps pension promises, even those spelled out in state constitutions. Expect more on this in 2014. It is a critical issue.
Battle over Minimum Wages
The Fed is trying mightily to get prices to go up. The Fed also wants businesses to hire and for wages to rise. However, the Fed can print, but it has no control over where the money goes.
Prices are up, but not wages or hiring. The result is a "living wage" debate culminating in a series ofProtests Outside McDonald's for $15/Hour Wage. Walmart is the target of similar protests.
China Local Debt
On December 30, Bloomberg reportedChina’s Local Debt Swells to 17.9 Trillion Yuan in Audit
TheWashington Postnotes "Local debt now equals about 33 percent of China’s gross domestic product, up from about 10 percent in 2008 and almost nothing in 1997."
Michael Pettis commented thatDebt, Malinvestments, and Hidden Lossesmeans a huge slowdown in GDP is coming.
In December,China had its second Cash Crunchfor the year in which the 7-day interest rates doubled to 10%. George Magnus writing for theFinancial Timesabout the cash crunch noted "China’s credit boom is still in full swing. Total credit in the economy (total social financing) showed a 40 per cent rise in November over the prior month and is on course for growth this year of almost 20 per cent. It is continuing to expand at twice the rate of nominal, or money, gross domestic product, and according to official data has pushed the credit to GDP ratio up to 215 per cent in 2013, and most likely more."
China's Bill for Pollution Mounts
China enters 2014 reeling from one of the worst polluted winters in recent years but experts from two major research institutes openly disagree over what is the main culprit behind the capital city's dismal air pollution. The Chinese Academy of Sciences (CAS) blames motor vehicle emissions, but the president of the Beijing Municipal Research Institute of Environmental Protection blames coal.
The cleanup bill is estimated at $290 billion. Expect a vastly higher number. Water pollution, toxic dumps, etc, are not included in the estimate.
The cash crunch, soaring local debt, malinvestments, and massive pollution are all interrelated.
I expected there would not be a "Grand Coalition" in Germany. I got that political forecast wrong. The Eurosceptic AfD (Alternative for Deutschland) party fell 0.2% short of making parliament. That 0.2% was enough to change coalition math.
FDP, Merkel's previous coalition partner also fell by the wayside (as I expected). Following the election, the only coalition choices for Merkel's CDU party were the Greens and SPD. The "Grand Coalition" between SPD and CDU was the forced result.
Merkel's Blatant Hypocrisy
In her first parliamentary speech of her third term, Merkel complained about the need for closer policy coordination, stating " European unity remains one of the most important tasks of the grand coalition. "
Ironically, Merkel immediately followed up with " The German government would not tolerate a weakening of German industry or job losses". For details, seeEuropean Monetary Union Misnamed; I Propose GEU (German Economic Union) or USG (United States of Germany)
Merkel's place in history is not set in stone. There is no banking union in spite of ridiculous articles suggesting otherwise. And Merkel still has Germans under the illusion there will not be a price to pay for all the bailout loans to Greece, Spain, Portugal.
When the dam breaks and German citizens have to pony up, opinions are likely to change dramatically. 2013 is likely to be the tip of the bubble belief in Merkel.
Rise of Beppe Grillo
In Italy, a massive turnout for Beppe Grillo and his Eurosceptic 5-Star Movement party (M5S), caught nearly everyone by surprise. This one I got right in a major way, long before mainstream media heard of the guy. In the election, theYouth Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy.
However, Grillo (the movement founder, but not himself a politician) was unwilling to form a coalition government of any kind. A coalition government with Enrico Letta is the result.
Beppe Grillo now vows toShake Up Europe in May Elections. Grillo accused the Italian government of abandoning sovereignty and calls for a referendum on euro membership.
Ouster of Silvio Berlusconi
Following the ouster of former prime minister Silvio Berlusconi from Italian parliament, major political power struggles are now underway. Grillo is in an open feud with Giorgio Napolitano, Italy’s 88-year old president (largely a figurehead position), yet one that handpicked Enrico Letta as prime minister when all the coalition talks broke down.
Things quieted down in late December, but earlier in the month"Pitchfork Protests" Spread to Rome; Interior Minister Warns of "Drift Into Rebellion".
The "pitchfork protest" consists of heterogeneous groups with heterogeneous goals: some are asking for lower taxes and less bureaucracy, some others are asking for more government spending and intervention. And for still others, it is not clear at all what they are asking for.
There is no common goal, no common target, no common platform, not even a common method of protest. There is no clear leadership in the movement. The only common glue seems to be the protest against privileges of the political class.
Support for Hollande Plunges
Support of President Francois Hollande plunged to a record low. His socialist policies have left France and Greece as the only major eurozone economies where manufacturing is still in contraction.
As in Italy, France has been plagued by a number of strikes, and protests of all kinds.
Perfect Economic Ineptitude
In my December 31 post,France in Review: Perfect Track Record of Economic Ineptitude, I listed 24 examples of French economic foolishness, all happening in 2013.
The result is high unemployment and shrinking exports as noted today inEurozone Manufacturing Expands Except in France and Greece; Hollande Concedes Taxes 'Too Heavy' Offending Everyone
Political scandals rocked prime minister Mariano Rajoy following revelations by Spain's former treasurer thatRajoy personally received undeclared cash payments.
House prices continued their decline, new lending declined retail sales declined. Budget deficits were revised higher, and growth revised lower. Spain's unemployment is a massive 26%.
Separatist Movement Take Hold
Political anxiety is heating up in Spain. In a direct challenge to Spain's central governmentCatalonia Political Parties Agree to Hold Independence Referendum.
Economic Depression Continues
AToxic Smoke Cloud Engulfs Greeceamid six years of relentless recession. Unemployment is over 27% with youth unemployment over 50%.
The Eurosceptic SYRIZA party now leads the polls. Should "New Democracy" prime minister Andonis Samaras lose a vote of confidence for any reason, the Greek house of debt that cannot and will not be paid back all comes crashing down.
In the end, what can't be paid back won't, the question is when.
Greek Current Account Surplus
In 2013, Greece went into a current account surplus, ignoring interest on bailout funds. This means Greece does not need to borrow money to pay for imports or services. Greece gets all of its needs via tax collection. It has no way of paying back debt, but it is no longer dependent on so-called kindness of foreigners to pay new bills.
I wrote about this on December 9, inPrisoner's Dilemma Game in Greece; Contagion-Spread Eurozone Breakup More Likely Now; How will Greece NOT pay back €320 billion?
Simply put, the current account surplus, coupled with the rise of SYRIZA (which promises to default on debt), makes a Eurozone breakup more likely than ever. Yet the story has largely been ignored in mainstream media.
Debate Over EU Exit
By a 46-30 margin,UK voters want to exit the European Union. The poll was This is fresh on the heels of an announcement thatformer cabinet minister Michael Portillo and Lord Lawson call for Britain to leave the EU. Lawson was Thatcher's longest-serving chancellor
Labor Party Worst Defeat in 110 Years
In September, Australia received welcome news: TheAustralian Labor Party was thrown out of officein the national election, having suffered its lowest vote in 110 years.
Manufacturing in Contraction
Australia manufacturing was in contraction most of the year and mining peaked as the commodity supercycle fueled by unsustainable infrastructure growth in China stalled. In response, the Reserve Bank of Australia entered the global game of currency debasement and the value of the Australia dollar plunged.
Property Bubble Continues
Canada's amazing property bubble continues. Here are a few facts from theFinancial Post: "The IMF says Canada is the most expensive place to buy in the world using its housing to rent comparison, 85% above the average. Royal Bank of Canada says affordability further weakened in the third quarter, as prices began to rise along with mortgage rates. The bank said a typical Canadian bungalow requires 43.3% of household monthly pre-tax income based on mortgage payments, utilities and property taxes."
Abenomics to the Forefront
Prime minister Shinzo Abe is a dream come true for Keynesian and Monetarist theorists. Abe is hell-bent on destroying the value of the Yen with QE and fiscal stimulus.Abe Calls for Wage-Price Spiral to Create "Virtuous Circle".
How's Abenomics going? The answer is not well. Prices are only up a bit in spite of a huge plunge in the Yen.
On December 12, (in typical if it doesn't work do more of it Keynesian theory)Japan Announced $53B Stimulus as Recovery Falters.
Territorial Dispute With China
Japan is in a major territorial dispute with China over ownership of a group of islands in the East China Sea known as Senkaku in Japanese and Diaoyu in Chinese. The islands, about 120 miles (190 kilometers) east of Taiwan, are controlled by Japan but are also claimed by China and Taiwan.
The islands are not much more than a group of rocks barely breaking the ocean's surface. The dispute is really over oil rights beneath the ocean floor near the islands.
Tensions are very high. And Abe wants to change the constitution to militarize Japan. Then on December 6, came the announcementJapan's Prime Minister Wants New Secrecy Laws; What's a Secret? Anything He Wants To Be Secret.
It is conceivable war breaks out over this dispute.
Competitive Currency Debasement
Central bankers in the US, Japan, China, Australia, Canada, the UK, Switzerland, and the EU all a weaker currency. Mathematically it's impossible. But that has not stopped the game of beggar-thy-neighbor global currency debasement.
A major currency crisis is coming, perhaps in multiple places at once. My top pick is Japan, but a crisis is possible in many eurozone countries as well.
No Structural Eurozone Problems Fixed
While on the theme of a major currency crisis, note theLaughable Eurozone Banking "Non-Union"
Rise of the Robots
The rise of the robots continues at an accelerating pace. I havewritten about robots numerous times.
There are cow-milking robots, wine-making robots, shipping robots, robotic surgery, robot anesthesiologists, security robots, and strawberry picking robots. Name the field and someone is likely working on a robot.
Of particular note, Singularity Hub reportsRobot Serves Up 360 Hamburgers Per Hour. The Burger Robot byMomentum Machinesdoes everything employees can do except better: "It slices toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible. next revision will offer custom meat grinds for every single customer. Want a patty with 1/3 pork and 2/3 bison ground to order? No problem."
I bring up the "burger robot" as the battle for minimum wages rages on.
Increases in minimum wages and hikes in associated costs such as Obamacare make businesses more determined to get rid of as many workers as they can. With the Fed (central banks in general), holding interest rates low, businesses can easily invest in hardware and software robots that replace human workers.
US stock markets are at all-time high. Most major indices are up for the year although China and some emerging markets took a hit.
I pretty much got the global economy correct, calling many events before they happened, and the results of others after they happened. However, I certainly did not get my 2013 investment thesis correct.
Gold and Silver Plunge
On December 31, Bloomberg reportedGold Caps Biggest Annual Rout Since ’81 as Investors Lose Faith. "Gold futures, which reached a six-month low today, posted the biggest annual slump in three decades as an improving economy cut demand for wealth protection. Silver touched the lowest since July. Silver dropped 36 percent in 2013 to $19.37 an ounce, the biggest annual drop since 1981. Assets in exchange-traded products backed by gold fell 33 percent to the lowest since 2009 amid sales by billionaires George Soros and John Paulson."
S&P UP 29.6%
On December 31, USA Today reportedInvestors cheer record-setting year on Wall St."The broad U.S. stock market put an exclamation point on its record-breaking year on the final trading day of 2013, powering to yet another all-time high and posting its biggest percentage gain since 1997, or 16 years ago. The closely tracked benchmark index rose 29.6%, a mega-move that will be reflected in much fatter retirement account balances when investors rip open their statements in coming weeks."
The US did not enter recession as I expected, but it did not do much more than stumble along at an anemic 2% rate on average for most of the recovery.
I did get the Japan thesis correct (Short the Yen, Long Japanese Equities), but that was not enough to cover losses in gold.
- The Yen fell steeply as I expected
- The Australian dollar fell steeply as I expected
- The Canadian dollar fell as I expected
- The US dollar index itself was nearly flat and I was mostly ambivalent.
The true believers as well as those who held there nose threw caution to the wind came out ahead.
What's Important, What's Not?
The most important event for me in 2012, was the death of my wife Joanne, following 27 years of marriage. I wrote a postMy Wife Joanne Has Passed Away; Stop and Smell the Lilacs.
In 2012, I was also diagnosed with prostate cancer. Those kinds of events put things in perspective. Things then turned dramatically better. I met Liz, my new partner in life, on November 3, 2012.
2013 My Best Year Ever
In April, I sponsored " Wine Country Conference " for ALS research, the disease that took Joanne's life.
Counting a generous $100,000 matching contribution from the Hussman Foundation coupled with a raffle and an economic fundraiser summit, we raised nearly $500,000 for the benefit of the Les Turner ALS Foundation.
On June 17, 2013, I postedCelebrating Life: I Got Married on Friday.
On December 18, I postedCancer Free: I Beat Prostate Cancer; Mish the Guinea Pig
Those things were extremely important to me. But I don't pass them off as the top stories of the year.
Peruse through the Yahoo!News Top 10 List if you haven't done so. It missed Abenomics, China, the bankruptcy of three major US cities, and many other extremely important stories in favor of the George Zimmerman trial, the Paula Deen lawsuit, and the royal baby birth.
Many of those stories are not much more than tabloid trash .
Priorities misplaced? You bet!
Economically speaking, no structural problems were fixed in the eurozone or anywhere else.
The Southern eurozone is in an economic depression and will remain so until countries shed the euro or Germany steps up to the plate with more cash. The pitchfork protests in Italy, and protests in Spain and France are bound to recur unless things improve dramatically.
Debt still mounts in the US. Politics have never been so decisive. Obamacare made the US healthcare system worse for most, not better.
Pensions are a mounting issue. Retirement demographics means fewer and fewer workers pay into a system that in many cases lets police, firefighters, and others collect pensions at age 55 or even 50, although people live increasingly longer lives. Pension madness has to stop - so it will. But how? Odds are, it's city by city in disruptive bankruptcy rulings.
China is going to slow dramatically. The world is not prepared for what that means. Canada and Australia are especially unprepared for a China slowdown.
Abenomics is going to ruin Japan. A major currency crisis is inevitable. Will it happen in 2014? I don't know, nor does anyone else.
I do know that when it happens, the Keynesians won't accept blame for it. Nor will central bankers. But it is precisely the central bankers and Keynesian-minded politicians that created the massive imbalances we see today.
Originally posted atMish's Global Economic Trend Analysis
© Mike "Mish" Shedlock