The latest monthly revenue for the State is out and it is not good.  Really not good.  If it weren't for Apple stock sales front running the cap gains increase it would be fiscal emergency sized not good.  
Here's the snapshot:

Things to notice.  
• Corporate taxes running 30% below estimates.  
• Personal income taxes on budget but 11% higher than last year.  
• Retail enough lower that the Prop 30 revenue is unlikely to meet goal.

10% of all sales tax revenue is gasoline.  Falling prices and declining consumption are going to be a permanent drag on that component.  Total employment is generally flat as well.  Corporations are not just fleeing the State with their mobile assets and employees but they are running down what assets they leave behind.  We are increasingly trying to extract more and more from a shrinking base.  

My guess is that we get the draconian cuts that Prop 30 was supposed to forestall.  The Republicans in the legislature should take the principled stand in the budget process and not participate and vote present. Next I will have a post discussing the 800 lb gorilla in the budget.  Local "support" is running way above projections.  

Air Force scraps massive ERP project after racking up $1 billion in costs

IDG News Service (Boston Bureau) — The U.S. Air Force has decided to scrap a major ERP (enterprise resource planning) software project after spending US$1 billion, concluding that finishing it would cost far too much more money for too little gain.

Dubbed the Expeditionary Combat Support System (ECSS), the project has racked up $1.03 billion in costs since 2005, "and has not yielded any significant military capability," an Air Force spokesman said in an emailed statement Wednesday. "We estimate it would require an additional $1.1B for about a quarter of the original scope to continue and fielding would not be until 2020. The Air Force has concluded the ECSS program is no longer a viable option for meeting the FY17 Financial Improvement and Audit Readiness (FIAR) statutory requirement. Therefore, we are cancelling the program and moving forward with other options in order to meet both requirements."

Read more at the link above.  Who ever thought after it went past the $100m level that we should keep trying until we wasted a billion?  

BDI closed today below 1000. The second chart is Henry Hub Feb 2012 Natural Gas. 1000 what doesn't really matter. After all who even knows what $2.46 natural gas measures? Alright you smart readers know but most don't and don't care. As indicators they are both neigh impossible to manipulate. They both say we are headed into a global recession where production can be expected to decline. I expect the US economy to muddle along at these levels and Europe to get battered. More important, US housing will take that final capitulation price drop necessary to clear markets as the high end suffers more from wealth effects and strong dollar.

This is what the NBER says they used to determine the recession ended in June 2009:
Macroeconomic Advisers’ monthly GDP (June)
The Stock-Watson index of monthly GDP (June)
Their index of monthly GDI (July)
An average of their two indexes of monthly GDP and GDI (June)
Real manufacturing and trade sales (June)
Index of Industrial Production (June)
Real personal income less transfers (October)
Aggregate hours of work in the total economy (October)
Payroll survey employment (December)
Household survey employment (December)

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IMO they saw an inventory replenishment and called it a recovery. Regardless, the graph Rockefeller Institute pdf] at the top tells the real story. it is all about the health of the government sector not the whole economy.

Amazon Dumps Colorado Affliates
[From Inc.]

Mr. Cause meet Mr. Effect. Last week, the governor of Colorado signed a new law levying sales taxes on online retailers.

Amazon has officially balked.

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The States are desperate for revenue no matter the cost. That never ends well.

Sunday morning education.

And an Economist video.

By my estimate $2.5T in MEW is unsupported by reasonable asset valuation. In total somewhere between $7T and $9T in phantom equity is exposed in any retracement to the mean. An orderly retreat will allow inflation to eat away much of this. A decline in the dollar may result in a disproportionate amount of pain to be taken by foreign investors. No matter how the pain is spread, there will be consumer pain. Likewise because of govt spending policies that resemble the proverbial cricket in summer we can expect massive deficits and even larger tax inceases. - Aug 6, 2006

And what does the MSM say?:

U.S. Homeowners Lost $5.9 Trillion Since 2006 Peak
By Dan Levy

Dec. 9 (Bloomberg) -- U.S. homeowners have lost about $5.9 trillion in value since the housing market’s peak in March 2006 as mounting foreclosures and the recession weighed on prices, according to Zillow.com.

Almost half a trillion dollars was wiped out this year through November as housing headed for a third straight annual decline. New foreclosures and higher mortgage rates in 2010 may hinder a rebound, the property data service said today in a statement.

Everyone is all smiles over the Philly Fed State Coincident Indicators[pdf] and this map showing "green shoots."


Unfortunately a bit of green in Montana doesn't mean much when there are 36 million people in California and a whopping 950,000 in Big Sky Country. Here's a population adjusted cartogram:


A GDP adjusted chartogram would be even less encouraging.

This is Anadarco Petroleum [red] and the UNG natural gas ETF [blue] from Nov '07 to Nov '08:

This makes sense seeing as APC is very much a natgas company.

Now look at what's happened Nov '08 to Nov '09:

This is where you are left scratching your head. Why is a nat gas company up 60% when its product is getting 60% less when sold?

Unless you think natgas prices are going to return to and blow through last summer's highs I see a fundamental disconnect.

The first image is from a comic book ad c. 1963. The second this week comes the Atlanta Fed report. When people try to say this is just a recession you can show them this graph.

It was pointed out that rising interest rates reflect on home purchase prices. How much? Check these out. 5% is $5.36/$1,000 borrowed. At ~13% that's doubled. In other words what once cost $1,000 now needs to cost $500 to keep payments the same. Be sure to look at the total life payments figures as well.

And in case you thought 13% was too high:

3,500 Vale Workers In Canada Walk Off The Job
Manufacturing.Net - July 13, 2009

SUDBURY, Ontario (AP) -- Thousands of union workers at Vale Inco's nickel mine operations in Ontario are on strike after 85 percent of union members rejected the company's contract offer.

The United Steelworkers union said Monday that all of Vale's Canadian operations have been shut down and the company's nickel inventory will quickly be depleted.

At issue were proposals by Vale to exempt new employees from its benefit pension plan and to reduce a bonus tied to the price of nickel.

Steelworkers Ontario director Wayne Fraser says about 3,500 workers are now on strike.

Vale Inco is the nickel mining and processing division of Brazil's Companhia Vale do Rio Doce.
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Supply disruptions, production slowdowns. Nobody understands why depressions start but they do.

"Pending Sales" == "The check is in the mail." When Realtors® start paying income taxes on their pendings rather than their closings I'll start paying attention to pendings. - Posted by: Rob Dawg | Jun 9, 2008 11:28:22 AM (on The Big Picture)

Good to see the WSJ is on the job:

The National Association of Realtors is trumpeting a fourth consecutive monthly gain in their report of pending home sales. The index tracks the number of contracts signed on homes, which increased in May by just 0.1% from the previous month. Pending sales are up 6.7% from a year ago.

In the past those contracts would give a pretty good indication of what existing home sales would look like when the NAR reports its May numbers a few weeks later. These days the report’s reliability as an indicator is shakier. More pending sales appear to be falling through, as financing becomes harder to reach or as buyers and sellers renege on pricing.

In April, for example, contracts signed on homes rose 6.7% from the previous month, but existing home sales in May—when a lot of those contracts should have closed and been reported—increased by just 2.4%. Indeed, for nearly a year, the pending home-sales index appears to be over-predicting closed sales relative to historical levels, notes independent housing economist Thomas Lawler.

[emphasis added]

US lurching towards 'debt explosion' with long-term interest rates on course to double
The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank.
UK Telegraph article here.

In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5%.

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Everyone with an ARM is in trouble.

Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show
By Michael Shanahan

June 17 (Bloomberg) -- The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings increased 8 basis points to 738, according to JPMorgan Chase & Co. prices at 7:19 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a rise indicates deterioration in the perception of credit quality; a decline signals the opposite.

The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 2 basis points to 118.5, JPMorgan show.

A basis point on a credit-default swap contract protecting 10 million euros ($13.9 million) of debt from default for five years is equivalent to 1,000 euros a year.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

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Slightly modified by a CR suggestion:

When I first saw this I thought there was a missing decimal point. $15t is like $140,000 per family and as we all know that isn't distributed evenly. Despite this being from The Center For American Progress (progressive idea for a strong, just and free America) and leans... ummm.. progressive there is still food for thought here.

In the following pages, we will examine in detail the free fall in household wealth since the beginning of this current crisis to understand how that $15 trillion in lost wealth since June 2007 came about. In the end, we believe you’ll agree that increased savings, more asset diversification, and more prudent borrowing will enable American families to create more private wealth. We also believe you’ll agree government policymakers have a role to play making these things happen.

Download this report (pdf)

Aside from their hardwired response of "more government" it makes for interesting reading.

I've added some dates to the Chart of the Day.
1973 recession = April 2009.
1920 recession = July 2009.
1910 recession = Feb 2010.
1929 recession = 2012.

Any bets? Right now I'm thinking Q2 2011.

Bloomberg: U.S. Economy Contracts 6.3%

March 26 (Bloomberg) -- The U.S. economy shrank in the fourth quarter more than previously estimated, leading to the biggest plunge in corporate earnings in a half century and underscoring why companies are slashing payrolls this year.

Gross domestic product contracted at a 6.3 percent annual rate from October to December, the weakest since 1982, the Commerce Department said today in Washington. Profits dropped 16.5 percent from the prior quarter, the most since 1953.

Amazing. Yet another "revision" to the downside. When we start seeing upward revisions it might be time to start looking for a bottom.