Coming in 2010!

Happy New Year! Hope you had a great evening and first few days of the year!

I am SO excited about some of the bloggy events I have planned for 2010. I wanted to share the plan with you so you know what�s coming up.

The first is the Before and After Party, which I�ve decide to make a monthly event. It will take place on the first Monday of every month. All you need is a before picture and your final picture. It can be anything � a DIY project, organizing progress, crafts, whatever! I adore seeing transformations so this party has really been fun for me!

Get ready cause the first party of the year is this Monday, the  4th (I�ll actually have the linky up late on Sunday evening). Can�t wait to see what you�ve been up to!

I�ve got some great giveaways set up for the year, the first is this coming weekend. You will love it! I�m so excited because it�s different from any of the other giveaways I�ve done.

Which brings me to my next shindig � instead of the organizing party we did last year, I think a cleaning party is in order. It�s that time of year! ;) Join me on Monday, January 18th to share your favorite cleaning tips, products, etc:

I�ve already started decluttering (Toys!! Gah!), and soon I�ll begin the massive cleaning of our house I do every year. I�ll also take you through the process I use to declutter, clean and organize each room in our home.

And I�ll make you get rid of your crap. I will. Get ready. :)

Finally, throughout the year, at least monthly, I�ll school you in every little detail about the tools I use for my home improvement (and even some craft) projects. I hope to use lots of video for these posts, so I can really show you how to use the tools.

  

You�ll get to go to school, learn and not worry about passing a test! Woohoo! And if you skip class I won�t even know. Yesssss.

Well, that�s the big plans for the year! I�ve got some home projects I can�t wait to tackle, but first, I must go weed through more toys. They are multiplying. I�m not even kidding. Help.

Email From Afghanistan on "Waste of War"

On New Years' eve I exchanged emails with "BP", a soldier in Afghanistan regarding Vermont State Employees Union Votes For 3% Pay Cut.

"BP" just pinged me again with ...

You really need to do something on the waste of this war. Foreign contractors are everywhere you look.

KBR must have 4 civilians for every military member. There are a few American contractors but most seem to be Foreign nationals. Philippine nationals are everywhere. I'm sure they get paid peanuts so the KBR shareholders get their return.

56,000 More Contractors Likely

Please consider Up to 56,000 more contractors likely for Afghanistan, congressional agency says.

The surge of 30,000 U.S. troops into Afghanistan could be accompanied by a surge of up to 56,000 contractors, vastly expanding the presence of personnel from the U.S. private sector in a war zone, according to a study by the Congressional Research Service.

CRS, which provides background information to members of Congress on a bipartisan basis, said it expects an additional 26,000 to 56,000 contractors to be sent to Afghanistan. That would bring the number of contractors in the country to anywhere from 130,000 to 160,000.

The CRS study says contractors made up 69 percent of the Pentagon's personnel in Afghanistan last December, a proportion that "apparently represented the highest recorded percentage of contractors used by the Defense Department in any conflict in the history of the United States."

Immense Waste In Unwinnable War

Thanks "BP". Yes the waste of this war is immense. One of the best pieces I have seen lately mentioning the war is from James Howard Kunstler's Forecast 2010.

Geopolitics

The retracement of oil prices in 2009 took place against a background of relative quiet on the geopolitical scene. With economies around the world sinking into even deeper extremis in 2010, friction and instability are more likely. The more likely locales for this are the places where most of the world's remaining oil is: the Middle East and Central Asia. The American army is already there, in Iraq and Afghanistan, with an overt pledge to up-the-ante in Afghanistan.

It's hard to imagine a happy ending in all this. It's increasingly hard to even imagine a strategic justification for it. My current (weakly-held) notion is that America wants to make a baloney sandwich out of Iran, with American armies in Iraq and Afghanistan as the Wonder Bread, to "keep the pressure on" Iran. Well, after quite a few years, it doesn't seem to be moderating or influencing Iran's behavior in any way.

Meanwhile, Pakistan becomes more chaotic every week and our presence in the Islamic world stimulates more Islamic extremist hatred against the USA. Speaking of Pakistan, there is the matter of its neighbor and adversary, India. If there is another terror attack by Pakistan on the order of last year's against various targets in Mumbai, I believe the response by India is liable to be severe next time, leading to God-knows-what, considering both countries have plenty of atom bombs.

Otherwise, the idea that we can control indigenous tribal populations in some of Asia's most forbidding terrain seems laughable. I don't have to rehearse the whole "graveyard of empires" routine here. But what possible geo-strategic advantage is in this for us? What would it matter if we pacified all the Taliban or al Qaeda in Afghanistan? Most of the hardest core maniacs are next door in Pakistan.

Even if we turned Afghanistan into Idaho-East, with Kabul as the next Sun Valley, complete with Ralph Lauren shops and Mario Batali bistros, Pakistan would remain every bit as chaotic and dangerous in terms of supplying the world with terrorists. And how long would we expect to remain in Afghanistan pacifying the population? Five years? Ten Years? Forever? It's a ridiculous project.

What's more, our presence there seems likely to stimulate more terror incidents here in the USA. We've been supernaturally lucky since 2001 that there hasn't been another incident of mass murder, even something as easy and straightforward as a shopping mall massacre or a bomb in a subway. Our luck is bound to run out. There are too many "soft" targets and our borders are too squishy. Small arms and explosives are easy to get in the USA. I predict that 2010 may be the year our luck does run out. ...

No Strategic Justification

Kunstler is correct. There is no strategic justification; the war is not winnable; and we do not even know where the major threat is.

How many trillions have we wasted on "Star Wars" initiatives? Yet since the end of the cold war, the big threat never was nor ever will be, countries firing missiles at us. The big threat to the US so far has been improper security procedures on airplanes and schools.

Nut cases are everywhere. Proof enough can be found in the US when Timothy McVeigh blew up a building, and Eric Harris and Dylan Klebold were responsible for the Columbine High School massacre.

It's important to remember "terror" is a method. A war on terror makes no sense because one cannot win a war on a method.

Externally, the most important thing to note is the longer we meddle in the internal affairs of other countries the more enemies we make.

In spite of the fact that Iraq was never a strategic threat to the US, we wasted $694 billion there as noted in Cost of Iraq war will surpass Vietnam. Add in future medical liabilities and money hidden elsewhere and the cost of Iraq easily exceeds $1 trillion. We can thank idiot Bush and Congressional morons for that mess.

Now Obama is about to throw more money down the Afghanistan black hole. Like Iraq, Afghanistan is another Vietnam. It will not cost as many lives but it is just as stupid and economically will cost as much if we stay for a few more years.

Why Do They Hate Us?

War mongers like to tout "they hate us for our freedoms". Well, no they don't. If that was the reason, they would hate New Zealand, Canada, Australia, Germany, Iceland, and dozens of other countries.

They hate the US because ...

• We have troops in 150 countries
• We support corrupt regimes
• We needlessly meddle in the internal affairs of other countries
• We have a one-sided policy on Israel
• We are hypocrites on free trade and human rights
  

The more we keep troops all over the world, the more enemies we make. Eventually it will bankrupt us. The only sane solution is to declare the war won and leave, not just Afghanistan, but 149 other countries as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Architects and Chapter 11

I'm guessing this will the first of many: The Real Deal reports last week that "luxury Manhattan design firm H. Thomas O'Hara Architect [HTO] filed for bankruptcy earlier this month [December 2009], but remains in operation." The article mentions money clients owe the architect ($1.1 million) and over half-a-million dollars the office owes to the IRS. The firm is now 14 people, down from 45 previously. While this is the first news I've heard of an architect filing for bankruptcy protection in this recession, this last statistic of cutting more than half of an office's staff certainly won't be a shock to most architects in the US.


[Mondrian Hotel by H. Thomas O'Hara Architect | image source]

This news would probably garner more interest if HTO designed better buildings. Their best one might be the Mondrian Hotel (with interiors by BNOdesign) now under construction on Lafayette Street in SoHo. It's an extruded box set back from a new plaza on Crosby Street, though interest is gained from the way the mullions are articulated and the addition of a random frit pattern to the glass. Piet Mondrian probably wouldn't be proud to have his name attached to this building.

Iceland's Parliament Coerced Into Offering Bribes, Hoping For Quick Entry Into EU

British and Netherlands savers lost $5 billion when Iceland's banks collapsed during the financial crisis. In a controversial vote, hoping for quick entry into the European Union, Iceland parliament approves Icesave repayment bill, a bailout of those foreign savers.

Icelanders Protest Vote

Please consider Icelanders petition president to veto Icesave bill.

Nearly a quarter of Icelandic voters have signed a petition asking their president to veto a bill on repaying $5 billion lost by British and Dutch savers when the island's banks collapsed, organizers said on Saturday.

The petition also called on President Olaf Ragnar Grimsson to call a referendum on an issue which has aroused resentment that taxpayers are being left to pay for banks' mistakes.

Earlier this week parliament approved the amended bill to reimburse Britain and the Netherlands for the amount, which was lost by savers in both countries in 2008 who deposited funds in high-interest "Icesave" online savings accounts.

But the president has yet to sign the bill into law and 56,089 people, who represent 23 percent of the island nation's electorate, have signed the petition, the organizers said.

The longstanding dispute has held up payment of some aid funds from international lenders, made it difficult to relax capital controls imposed at the height of the financial crisis, and clouded Reykjavik's chances of joining the EU.

The UK and Netherlands are guilty of coercion and the IMF is a willing participant as well. Iceland's parliament is too willing to pay this bribe.

The citizens of Iceland have it correct. British and Netherlands savers were seeking higher interest rates and speculating in currency plays by depositing funds into Iceland banks.

This is really an extremely simple matter. When you chase yield making risky bets on interest rates in a foreign currency, and that risk blows sky high as it eventually always does, someone has to pay. That someone ought not be the citizens of Iceland.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Colorado's PERA "2/2/2" Funding Plan Hopelessly Unsound

Colorado's Public Employees Retirement Association (PERA) is currently only 70% funded. Projections show it will be less than 50% funded by 2012. To get the fund back in shape PERA officials offer plan for sustainability.

PERA officials last week presented their proposal to rescue the ailing retirement fund to the Legislative Audit Committee.

The draft legislation, called 2/2/2 Plus, includes a 2 percent increase in employee contributions, a 2 percent increase in employer contributions, and a 2 percent cap on cost of living increases for retirees.

More than 438,000 people belong to the Public Employees Retirement Association, which faces a multi-billion-dollar deficit over the long-term because of high payouts and stock market instability. PERA includes four independent trusts covering different segments of the labor market: judicial, state, schools and local government workers. In January, Denver Public Schools will be added as a fifth division.

"Change has to occur to ensure the system is sustainable to all of our members," Meredith Williams, PERA's executive director, has said.

According to the plan, solvency would be reached in 30 years. Previously, the association operated on a 60-year amortization plan.

To reach that goal, return on investments would be reduced to 8 percent, from the current 8.5 percent.

The increase in employer contributions would begin in 2013 and continue through 2017, while the employee increase would begin in 2014 and run through 2017. Cost of living increases (COLA) would be capped at 2 percent and would be dependent on the Consumer Price Index. (The index, CPI-W, is generally used to determine cost of living raises for labor contracts.) Currently, the COLA raise for members is 3.5 percent annually.

Cadillac Of Retirement Funds

The Greeley Tribune discusses the "2/2/2" proposal in PERA plan aims to keep fund solvent.

Rightly so, many consider the Colorado Public Employee Retirement program the Cadillac of retirement funds.

Much like Social Security, PERA can't operate business as usual and continue to be solvent. The four funds PERA manages � for state, public schools, local government and judicial employees � all will eventually run out of money in the next 30 years if something doesn't change.

After months of meetings and work sessions, staff members and the board of directors for PERA has announced a plan to make the fund solvent for the foreseeable future.

We recognize this plan isn't perfect. For one, it puts a financial burden on public entities already struggling to balance budgets. Having to find the additional contributions to PERA will make this even more difficult, and certainly could mean other programs and services will suffer. That is a big concern.

Some employees have also balked at having their contributions increase, and for some in the lower income brackets, this may create a bit of a hardship.

Still, overall we believe the PERA plan is prudent. First, it spreads the additional costs around between employees and beneficiaries, including future retirees who will not see the automatic cost of living increases in their benefits that they enjoyed in the past.

Most important, though, the proposal will, under the best financial predictions, keep the fund solvent and insure that future retirees now paying into the system will see their benefits when they decide to stop working. With the current system, that might not happen.

We hope our state legislators will seriously consider these changes to PERA. We believe it will protect public employees in the long run, and still give retirees the Cadillac of retirement programs. Maybe not an Escalade, but still pretty close to a Seville.

The first question to ask is "Why the hell do public employees remotely deserve a Cadillac plan when no one in private industry gets one?"

The "2/2/2" plan forces employers (read taxpayers) to pony up still more so that public workers get Cadillacs while private plans get Pintos if they get anything at all.

Without a doubt, defined benefit pension plans need to be killed before they kill the taxpayers.

Plan Unfair And Financially Unsound

It is galling for anyone, especially the Tribune to think this plan is fair. Moreover, the plan is still financially unsound.

Here are some slides from the November 2009 PERA Legislative Audit Presentation.



click on any chart for sharper image

There are four independent trusts covering different segments of the labor market: judicial, state, schools and local government workers. In January, Denver Public Schools will be added as a fifth division.

Here are what two of the funds look like right now.


At a 7% rate of return the State Division will be completely out of money by 2026. At an 8.5% rate of return the money would run out by 2029.



At a 7% rate of return the School Division will be completely out of money by 2029. At an 8.5% rate of return the money would run out by 2033.

The above charts reflect the current situation.

Based on the proposals and an 8% return here are the new projections.





Even with those proposals, the plans are woefully underfunded all the way until 2036 on the School Division and as far as the eye can see on the State Division.

Unfortunately the new projections do not show what happens at 7% or 6% but it for sure will not look pretty.

Taxpayers of course are on the hook for any decencies.

Unfortunately, an expected rate of return of 8% is not realistic at all, especially for the next decade. Unemployment is going to remain high, the odds of another stock market crash area high, the odds of a double dip recession are high, and boomer demographics ensure that spending and thus tax revenue as well as stock market earnings are not going to return to 2006 levels of growth.

The stock market right now is one of the most overvalued in history. It only looks good in comparison to the 2007 S&P valuation or the 2000 Nasdaq valuation. The S&P has been flat for a decade and it is quite possible if not likely it will be flat at best for another 5-10 years.

Here is another way of looking at it. Ten year treasuries are yielding under 4%. It will take a lot of excess risk to remotely come close to 8% returns.

My Proposal

1) Kill defined benefit plans for all new employees
2) If plan assumptions are not met, the plan participants, not taxpayers take the hit
3) Taxpayers add 0% additional funding. Enough is enough.

Point number two will allow whatever ridiculous assumptions PERA wants to make. However, I would recommend PERA assume something along the lines of 5-6% expected rates of return than 8%.

The "2/2/2" proposal is not remotely a down payment on what needs to happen. This plan should not be approved. It is a joke that addresses no long-term issues.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Vietnam Halts Gold Trading; Global Imbalances Mount

Citing speculation and excessive leverage Vietnam to put an end to gold trading.

January 1 2010

Vietnam has ordered all gold trading floors to close by the end of March, putting an end to a business which turns over $1bn a day but which the government feared was spinning out of control.

�Both the owners of the gold-trading floors and traders are doing their transactions on a fragile foundation that lacks legal, economic and technical frameworks and knowledge,� the government said in a statement.

The order also bans using overseas accounts, but does not affect jewelery or retail gold sales.

The government said it was particularly concerned that some investors had been drawn into overleveraging their positions by low interest rates and the ever-increasing price of gold , which has risen from $660/oz when the first trading floor was started in 2007 to almost $1,100/oz today.

The government said that in some cases, investors had only been required to put up 7 per cent of the value of their portfolio.

The regulation will affect around 20 gold trading floors, but it is unclear if the government is intending to re-write the regulations and allow the floors to re-open or if the move is long-term.

The trade has become a lucrative source of income for many of the banks and trading houses which have opened the exchanges, and the ban could hit profits. But analysts say it could free up liquidity that might flow back into the stock markets, lifting the index.

Dong Devalued

In November, Vietnam devalues the dong and raises rates

November 26 2009
Vietnam devalued its currency by 5.4 per cent against the dollar yesterday and raised interest rates by a full percentage point in an effort to cut inflation and underpin the beleaguered dong.

The dong has come under pressure recently as inflation started climbing and domestic demand, driven by the country's $8bn stimulus programme, drove the current account deficit to close to $2bn a month.

"The decision poses further challenges to the central bank's credibility," said Tai Hui, Standard Chartered Bank economist. "The risk is that local investors will pay little attention to official comments going forward, which may exacerbate devaluation pressure on the currency."

For weeks, the government had insisted that it would not give in to pressure on the dong. "Vietnam will not devalue our currency," Nguyen Minh Triet, president, said in Singapore last week. "We will take cautious steps on our monetary policy."

Downward Pressure On The Dong

Please consider Dong weighed down by deficit

December 1 2009

An initial strengthening of the dong on the black market from 19,800 to the dollar to 19,100 has been followed by renewed weakness, with the dong trading at 19,500 on Tuesday, substantially outside the permitted trading band, suggesting that at best the jury is still out on the government�s efforts to put a floor under the currency.

The State Bank of Vietnam made its move after a significant increase in the downward pressure on the dong. The immediate cause was a spike in the gold price: Vietnam is the world�s eighth-largest buyer of gold and when the price started to rise, Vietnamese consumers sold dong to buy in. At one point the precious metal hit $1,362 an ounce, a premium of more than $260 per ounce on the London market price of the time, before falling back in line when the government lifted import restrictions .

Vietnam Strives To Limit Inflation To 7%

Inquiring minds are reading Vietnam Bank to Keep Benchmark Rate at 8%

Vietnam�s central bank will keep the benchmark interest rate at a one-year high of 8 percent in January to help strengthen the economy.

The central bank unexpectedly increased the base rate to 8 percent last month amid signs of quickening inflation, after holding it at 7 percent for 10 months to revive the economy. The government also subsidized corporate borrowing and reduced tax payments to boost gross domestic product.

Average inflation has been below the government�s target of 7 percent this year, according to an announcement on its Web site yesterday. The consumer price index rose 6.5 percent in December, the fastest pace since April, the General Statistics Office said yesterday.

�Acceptable Pace�

�Inflation is quickening, but still at an acceptable pace, so we don�t need to raise the base rate right now,� Le Xuan Nghia, Hanoi-based vice chairman of the National Financial Supervision Commission, and former head of the central bank�s department for banking strategy, said by telephone today. �It�s also better for businesses.�

Wrong To Be Long The Dong

Inflation of 7% is certainly not better for business.

Moreover, halting gold trading will not solve anything. All it will do is increase the black market price of gold in the Dong, already at a premium.

Global Imbalances Mount

• Global imbalances are cropping up like weeds in places like Greece, Spain, Vietnam, Iceland, Vietnam, Latvia, and Lithuania.
• There are massive property bubbles in China, Canada, the UK, and Australia.
• Japan is in a foolish fight against deflation and sinking further in debt
  
• Commercial real estate in the US is on the verge of bringing down hundreds of regional banks.
• Cities in the US are under massive pressure because of unsustainable pension plan promises.
• Global terrorism is on the rise
  

How long this mess hangs together without a huge crisis in a major currency is the question everyone should be asking. Sadly, most are oblivious to the widening structural cracks.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Vermont State Employees Union Votes For 3% Pay Cut

In a move that I would call too little too late, but nonetheless a small step in the right direction Vermont state employees OK pay cut.

MONTPELIER -- Unionized state employees overwhelmingly agreed to a 3 percent pay cut, voting to ratify a two-year contract that takes effect in July. The cut is expected to save the state $2 million in the budget for fiscal year 2011, which has a projected $150 million shortfall because of declining state revenues.

About 83 percent of the 2,300 voting union members supported the contract, Kraus said. Voting turnout was about twice what it normally is, he said. The contract covers some 7,000 state workers.

Employees had been warned that if they didn't go along with the 3 percent pay cut, they might fare worse. The union and the Douglas administration had reached that figure on the suggestion of a fact-finder after coming to an impasse. The administration had sought a 7 percent cut.

Gov. Jim Douglas said previously he hoped the contract would serve as a model for Vermont municipalities.

Model? Model For What?

Until we see cutbacks in pension benefits we have no model. Moreover, this cutback only saves $2 million out of a needed $150 million. If that is a model, it is a model of ineptitude in two ways.

1) It does not remotely begin to cure the current budget problem
2) It does not address the long term problem of pensions and pension benefits

It is a step in the right direction, but a only baby step when giant steps are required. Gov. Jim Douglas has nothing to be bragging about.

By the way, I received the link for the article above moments ago thanks to a soldier in Afghanistan.

I will not use his name for obvious reasons but "BP" writes:

I saw this story in the Burlington (Vermont) Free Press . I�m sitting here in Afghanistan reading your blog�as always, it is great!!!

Such is the power of the internet, instant communication and sharing to the remotest of places.

To all the military, most of who are in places they do not want to be, many of who are in places they do not even believe they should be ......

Happy New Year

Mish