Social Security Revenue Unexpectedly Jumps Past Pre-Recession Levels
“Social Security (SS) has released estimates for both payroll tax revenues and benefits paid for April. The results are adjusted for the 2% payroll tax reduction. (The Treasury pays SS monthly for the shortfall.) The numbers tell an interesting story.
Revenues from FICA and SECA taxes are up significantly in the first four months of 2012.
A look at the actual income and the percentage change:
I’m surprised by the extent of this improvement. These numbers appear to be too good. The Jan. – Apr. results suggest that total employment has now exceeded the levels that prevailed in 2008. But that is not the case based on other information.
According to the BLS data, the number of people who are employed rose from 139.6m to 142.1m from Feb. 2011 – Feb. 2012. The increase of 2.5m workers translates into $5B of additional revenues at SS for the Jan. – Apr. 2012 period. (This assumes average annual income of $50,000) The $19B YoY improvement at SS suggests that there are many more people now working then the reported BLS data. There are some reasons why this discrepancy is so large:
-Annual adjustments to SS’s reported income.
-Quarterly adjustments to SS’s reported income.
-Many workers received bonus payments in Jan. and Feb. 2012. Therefore they have already maxed out their annual SS contributions. (The max = $110,500 of income.)
-SS data covers all workers; BLS data only covers Non Farm workers. It’s possible that more people are finding employment outside of the areas that the BLS covers.
I think that taken together these factors can only account for half of the increase in payroll tax revenue. The other half is a function of more people working. The data suggests there are 1-2 million more people working than the BLS is reporting.
Is this possible? “Yes”, is the answer. The BLS puts the work force at 142m. Could its numbers be wrong by 1%? Sure they could. The BLS conducts its surveys by land-line phone. It does not attempt to contact households that exclusively use cell phones. In 2010, 27% of all households exclusively used cell phones. The exclusion of a quarter of all households makes the BLS numbers very suspect.
Note: The observation that there may be 1-2 million more people working (including part time) runs counter to other information that I look at, so I’m a bit confused by the result. The data can be found here. I’d be interested in any alternative theories as to why the numbers appear so strong.
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The Bad News
The double whammy of inflation and 10,000 new people a day getting SS checks is causing costs to soar at SS. The payout has been averaging $4B a month higher than a year ago:
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A basic metric for measuring SS is payroll tax income minus benefit payments. This chart looks at the results for the Jan. – Apr. periods: “
Comments »BRICs to Create a Rival for World Bank and IMF; Challenging the Dollar as The World’s Fiat Currency
“From GoldCore
BRICs Bank To Rival World Bank And IMF And Challenge Dollar Dominance
Gold’s London AM fix this morning was USD 1,664.00, EUR 1,246.16, and GBP 1,037.54 per ounce. Friday’s AM fix was USD 1,655.75, EUR 1,245.86 and GBP 1,041.22 per ounce.
Silver is trading at $32.41/oz, €24.29/oz and £20.21/oz. Platinum is trading at $1,634.50/oz, palladium at $651.96/oz and rhodium at $1,350/oz.
Cross Currency Table – (Bloomberg)
Gold rose $8.10 or 0.49% in New York on Friday and closed at $1,668.20/oz. Gold traded volatile in Asia with quick gains seen at the open prior to determined selling which saw a drop to $1,663.77/oz in late Asian trading and European trading saw further weakness.
Gold climbed towards $1,700 last week after the U.S. Federal Reserve Chairman Ben Bernanke alluded to the possibility of more QE.
Gold continues to be guided by the currency markets. The dollar index hit near a 1 month low last Friday and this plus weakness in all major currencies is seeing gold supported close to the 200 day moving averages.
Gold 1 Year – (Bloomberg)
Gold’s short term technicals remain poor after a lower monthly close in March (-6.4%) and the weekly close below the 200 day moving average.
However, the technicals are not uniformly bad as gold had a higher weekly close last week – rising 0.33% for the week.
The higher quarterly close of a 6.7% gain in Q1, 2012 and 11 consecutive years of annual gains mean that the long term technicals remain favourable.
Gold’s still strong long term supply demand fundamentals and the long term trend of rising gold prices remain a gold buyer’s friend.
Jewellers in India, plan to suspend the longest nationwide strike after the government said that it will delay the implementation of an increase in excise duty on non-branded ornaments.
India’s gold imports will drop near 59% to about 125 tonnes in the 3 months through March as the tax increases boost retail prices by more than 6%, Prithviraj Kothari, president of the Bombay Bullion Association, said. That compares with 306 tonnes imported a year earlier, according to data from the World Gold Council.
The lack of Indian demand has almost certainly contributed to recent weakness and the renewal of India demand in the coming days should provide further support to gold.
BRICs Bank To Rival World Bank and IMF and Challenge Dollar Dominance
Outgoing President of the World Bank, Robert Zoellick, after just three days ago dismissing the idea of a BRICs created, new global multi lateral bank, has come around and endorsed a BRICs bank in an interview with the FT.
Zoellick had initially said that a BRICs bank and potential rival to the western and U.S. dominated IMF and World Bank, would be difficult to implement given competing BRIC interests.
He acknowledged that a BRICs bank was being created and said that the World Bank supported such a bank. He said that not having Russia and China as part of “the World Bank system” would be a “mistake of historic proportions”.
Leaders of the BRICS nations meeting in India appear to have made much progress in creating a new global bank as the emerging economies seek to convert their growing economic might into collective diplomatic influence.
The five countries now account for nearly 28% of the global economy, a figure that is expected to continue to grow.
On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi.
BRICS leaders, from left, Brazil’s President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma. Photo: AP
Top of the agenda was the creation of the grouping’s first institution, a so-called “BRICS Bank” that would fund development projects and infrastructure in developing nations.
The initiative would allow the countries to pool resources for infrastructure improvements, and could also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe, officials said….”
Comments »Europe Adds to Their Firewall, But Still Would Like Additional Assistance From the World
“Efforts to resolve the two-year-old European debt crisis swung back to world leaders after euro-area officials boosted a firewall designed to overcome doubts about their crisis response and to lure additional emergency aid.
Finance ministers from the 17-member monetary union unveiled a package over the weekend that included 500 billion euros ($667 billion) in fresh bailout funds on top of 300 billion euros already committed to rescue programs, which together topped the symbolic $1 trillion mark. The total doubles when more than 1 trillion euros lent by the European Central Bank to aid the region’s banks is included.
“The political commitment to the euro zone is increasingly clear, and the ECB has shown that, in the final analysis, they’ll do what they have to do,” Erik Nielsen, chief global economist at UniCredit SpA (UCG), wrote in a note yesterday.
Group of 20 nations that rebuffed German-led pleas for more aid in February will be asked to decide this month whether European leaders have done enough to warrant increased resources from the International Monetary Fund. Euro-area finance ministers insisted at a meeting that ended March 31 in Copenhagen that they’ve fulfilled their side of the bargain.
“Europe has done its part” and that augurs well for talks at the IMF spring meeting on April 20, French Finance MinisterFrancois Baroin said at the meeting in the Danish capital.
‘Strengthen Confidence’…”
Comments »A Little Less Than Half of Greek Bondholders Still Have Not Agreed Upon Restructuring
“Investors in Greek bonds issued under foreign law rejected the nation’s attempts to restructure the debt at talks last week.
In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum, according to a press release today from the Greek Public Debt Management Office.
The meetings involved holders of about $26.8 billion of foreign-law notes denominated in dollars, euros, Swiss francs and yen. Investors owning $15.3 billion of securities agreed to a restructuring, leaving $11.5 billion still to be dealt with.
“The key thing with the international bonds is that holders have to vote bond-by-bond rather than in aggregate,” said Thomas Costerg, European economist at Standard Chartered Bank. “That makes it easier for investors to block the restructuring and raises the question of what Greece can do now.”
Greece is trying to re-organize the rest of its debt after carrying out the biggest sovereign restructuring in history last month. The government is insisting there’s no money to fully pay holders of bonds issued under international law, after it forced investors in 197 billion euros ($263 billion) of domestic-law securities to accept losses of about 70 percent….”
Comments »911 What is Your Emergency? – Cash Strapped States Find New Ways to Get Money
Will $1 Trillion Be Enough for Europe’s Woes ?
“A core piece of last week’s European newsflow was that following much pushback, Angela Merkel, who understands the underlying math all too well, finally dropped her opposition to expanding the European “firewall” in the form of a combined EFSF and ESM rescue mechanisms, to bring the total “firepower” to €800 billion (ignoring for a moment that when the true dry powder of the combined vehicle is just about €500 billion net as explained here, hardly enough to rescue Spain, let alone Italy). Yet as has been explained here repeatedly, and as Merkel has figured out, this is easily the most symbolic expansion of a rescue facility ever. Because while the ECB’s agreement to allow Eurobanks to abuse its €1 trillion discount window for three years (which is what the LTRO is), following the replacement of JC Trichet with a Goldman apparatchik, at least infused the system with $1.3 trillion in new fungible liquidity (and resulted in a stock market performance boost for the ages, one which is now unwinding), the ‘firewall” does not represent new money, nor is a “firewall” to begin with – it is merely one massive contingent liability which will remain unfunded in perpetuity. Slowly the German media is waking up, and in an article in Der Spiegel, the authors observe that “Even a 1-Trillion Euro Firewall wouldn’t be enough.” And they are correct, because the size of the firewall is completely irrelevant….”
Comments »Surprise: See Where the Wealth and Income Go During Recoveries
The Clinton recovery saw 45% of the income go to the top 1%.
Bush had 65% go to the top.
Obama’s recovery funneled 93% to the top 1%…
The Evolution of Top Incomes in the United States
Comments »Ireland Works Out a Plan to Repay Debt at a Slower Pace
Europe Increases Bailout Funds to Further Enhance the Firewall Around Spain and Italy
“European governments moved to bolster their rescue funds, seeking to shield Spain and Italyfrom the fallout of the debt crisis without alienating bailout- weary voters in wealthy countries.
Finance ministers neared an agreement to run the temporary and permanent funds in parallel until mid-2013, potentially raising the upper limit on emergency lending to 940 billion euros ($1.3 trillion). Amounts immediately available would range between 340 billion euros and 640 billion euros.
“I can imagine that both instruments run in parallel so that automatically we have a higher sum overall,” Austrian Finance Minister Maria Fekter told reporters before a meeting of European finance ministers in Copenhagen today.
European policy makers are trying to strike a balance between meeting international demands for a more powerful war chest and opposition in donor countries led by Germany to providing additional aid for underperforming economies on the region’s fringes.
Today’s step will lift the maximum aid sum from 500 billion euros. It involves running the 500 billion-euro permanent European Stability Mechanism alongside the 200 billion euros committed by the temporary fund to Greece, Ireland andPortugal, according to a draft statement prepared for the meeting….”
Comments »College Loans are Now the Last Leg in the Debt Pyramid
Some parents are so averse to public schools that they’re taking out hefty “pre-college” loans to cover the costs of their child’s full tuition from kindergarten through 12th grade.
SmartMoney’s Annamaria Andriotis describes the risks of this trend:
“Parents could be on the hook to repay K-12 and college loans simultaneously. Already, about one in six parents of college graduates have loans, and they’re projected to owe nearly $34,000 on average this year, according to FinAid.org. Taking on loans before college leaves parents at risk of owing larger sums of debt, experts say.”
Let’s not forget that college students’ loan debt passed the trillion dollar mark months ago, creating some real-live horror stories for millennials. One student, Nick Keith, took on the college debt burden when his father refused to pay, and he has yet to pursue a career.
Also troubling is that the surge in pre-college loan’s popularity coincides with a rise in the cost of private school’s tuition, Andriotis says. The average cost is up nearly $20,000 per year. “
Comments »Greek Central Bank Continues to See a Deposit Run
The Greek central bank – whatever that is: some local subsidiary of the ECB? – released February corporate and household deposit data. The chart below explains it all: back to May 2006 levels and the run shows no sign of abating And remember Venizelos’ sage February words of advice?“VENIZELOS SAYS NOW IS THE TIME FOR DEPOSITS TO RETURN TO BANKS“… that didn’t work too well.
BRICS Seek More Decision Making While Scorning the West for Monetary Policy
“(Reuters) – Leaders of the BRICS group of emerging market nations pressed Western powers to cede more voting rights at the IMF this year and flayed the rich world’s reflationary monetary policies for putting global economic stability in jeopardy.
“This dynamic process of reform is necessary to ensure the legitimacy and effectiveness of the Fund,” Brazil, Russia, India, China and South Africa said in a joint declaration after their one-day summit in New Delhi.
“We stress that the ongoing effort to increase the lending capacity of the IMF will only be successful if there is confidence that the entire membership of the institution is truly committed to implement the 2010 Reform faithfully.”
Promised changes to voting rights at the IMF have yet to be ratified by the United States, adding to frustration over reform of the G7 and the U.N. Security Council, where India and Brazil have been angling for years for permanent seats.
The BRICS leaders also accused rich countries of destabilizing the world economy five years into the global financial crisis.
“It is critical for advanced economies to adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth that create jobs,” they said in a joint declaration.
The rich world’s monetary policy “brings enormous trade advantages to developed countries, and results in unfair obstacles for other countries,” Brazil’s President Dilma Rousseff said at the summit.”
Comments »Household Income Trends Higher in Q4 of 2011
FLASH: The SEC Set to Investigate $TVIX
Italy Sells Bonds With Ease as the 10 Year Note Hits the Lowest Yield Since Last August
Why Wall Street Hates the Lazy Portfolios Strategy
By PAUL B. FARRELL
“America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask,” former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic “Take On The Street,” Levitt lambasted the fund industry as “a culture that thrives on hype … withholds important information,” a “cutthroat business” that “misleads investors.” Today, it’s worse.
Lazy Portfolios were born as a defensive move against this relentless war by guys with “masks and guns … ripping off” America’s 95 million Main Street investors. And the strategies of men like Levitt, Vanguard’s Jack Bogle, Nobel Economist Daniel Kahneman, Warren Buffett, Yale’s Robert Shiller and other industry giants were the inspiration.
Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall’s Street’s casino. Simple solutions: Just three to 11 no-load low-cost index funds, and zero trading. And in the past decade we’ve discovered eight great Lazy Portfolios that investors are using as guides to building their own portfolios, without brokers or advisers.
Today, Wall Street, the fund industry and brokers hate these eight Lazy Portfolios even more. Not just because they consistently beat the S&P 500 on a long-term basis. Not because they’re based on the exact same Nobel Prize-winning model Wall Street’s top wealth managers use. Not because you don’t need any fancy algorithms to rebalance your portfolio. And not because Bogle calls industry insiders casino “croupiers” because they skim a third of your market returns off the top, leaving you leftover crumbs.
The more you trade at Wall Street’s casino, the richer your broker gets.
Read the rest here.
Comments »Interesting Times: WSJ: Fed Buying 61 Percent of US Debt
“The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.
“Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis,” Goodman writes.
Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”
“This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.”
The U.S. government is growing increasingly more dependent on borrowing to finance itself, with net issuance of Treasury securities hitting 8.6 percent of gross domestic product (GDP) on average per annum, more than double levels before the crisis.
Fed intervention in the government debt market makes demand for Treasury bonds appear higher than it really is, as foreign creditors and other investors have fled U.S. government debt instruments and are looking elsewhere until the government makes serious attempts to curb spending and narrow its gaping deficits.
Goodman notes that foreign investors like Japan and China that once scooped up U.S. debt are shunning it. In 2009, such foreign purchases of U.S. debt amounted to 6 percent of GDP and has since falled by over eighty percent to a paltry 0.9 percent.
Without foreign buyers and a shrinking base of U.S. corporate and bank buyers, the Treasury has had to resort to the Federal Reserve itself to make the purchases. The Fed purchasing not only makes up the shortfall, but can keep long term interest rates artificially low.
“The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit,” Goodman writes.
“Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury’s need to borrow and a more limited willingness among market participants to supply Treasury with credit.”
Political bickering on both sides of the aisle has prevented politicians from cutting spending and undertaking fiscal reform….”
Comments »EU Rescue Funds Expected to Jump to $1.3 Trillion
A List of Recent Company Buyback Announcements
Company/Ticker Buyback Amount Other Details Tuesday 3/27 none reported Monday 3/26 American Express (AXP) 150 mln shares replaces prior plan Autonation (AN) $250 mln prior plan complete Last Week's Announcements Friday 3/23 Nike (NKE) 2.5 mln shares in Fiscal Q3 Thursday 3/22 none reported Wednesday 3/21 none reported Tuesday 3/13 Discover Financial (DFS) $2 bln over 2 years Health Net (HNT) $400 mln expands prior plan JPMorgan Chase (JPM) $15 bln PMC-Sierra (PMCS) $275 mln replaces prior plan US Bancorp (USB) 30 mln shares Monday 3/12 None reported Last Week's Announcements Friday 3/9 None reported Thursday 3/8 Plantronics (PLT) 1 mln shares prior plan complete Transact Tech. (TACT) 1 mln shares Wednesday 3/7 Autozone (AZO) $750 mln adds to prior plan Priceline.com (PCLN) $200 mln Tuesday 3/6 Qualcomm (QCOM) $4 bln replaces prior plan Monday 3/5 Applied Materials (AMAT) $3 bln over 3 years Covanta (CVA) $100 mln adds to prior plan Last Week's Announcements Friday 3/2 none reported Thursday, 3/1 CNO Financial (CNO) $100 mln adds to prior plan Nordson (NDSN) $100 mln adds to prior plan Wednesday 2/29 Dillard's (DDS) $250 mln adds to prior plan Lattice Semi (LSCC) $20 mln Principal Fin'l Group (PFG) $100 mln Teletech (TTEC) $25 mln adds to prior plan VMware (VMW) $600 mln adds to prior plan Tuesday 2/28 AutoNavi (AMAP) $50 mln over 1 year Mentor Graphics (MENT) $200 mln expands prior plan Monday 2/27 ANSYS (ANSS) 3 mln shares adds to prior plan XL Group (XL) $750 mln replaces prior plan Last Week's Announcements Friday 2/24 Aetna (AET) $750 mln adds to prior plan Interpublic (IPG) $300 mln adds to prior plan United Stationers (USTR) $100 mln adds to prior plan Thursday 2/23 Fiserv (FISV) 10 mln shares adds to prior plan Gap (GPS) $1 bln adds to prior plan Omnicare (OCR) $200 mln adds to prior plan Tim Horton's (THI) $200 mln over 1 year WebMD (WBMD) $150 mln dutch auction Wednesday 2/22 Rogers Comm. (RCI) $1 bln over 1 year Texas Roadhouse (TXRH) $100 mln replaces prior plan TJX Cos. (TJX) $2 bln adds to prior plan Towers Watson (TW) $150 mln Tuesday, 2/21 None reportedComments »
