California Hit Parade Rolls On: Atwater Scrambles to Avoid bankruptcy

The California hit parade keeps on rolling as yet Another California city scrambles to avoid bankruptcy.

Atwater, a city of roughly 28,000 in California's Central Valley, may declare a fiscal emergency as soon as next week, but it is trying to avoid becoming the fourth California city to file for municipal bankruptcy this year, its mayor said.

Under California law, a local government must either declare a "fiscal emergency" or go through a 60-to-90 day confidential negotiation process with its creditors before it files for municipal bankruptcy. Since late June, three Golden State cities-Stockton, San Bernardino and Mammoth Lakes-have filed for bankruptcy protection.

"We are planning to stay current on our ... bonds," said Mayor Carol Joan Faul in a telephnne interview with Dow Jones Newswires. "We are hoping to avoid" bankruptcy, she said, "but as far as I'm concerned, we may have to declare a fiscal emergency" on Oct. 3.

According to its fiscal 2011 financial statement, Atwater had roughly $95 million in outstanding debt, a mixture of bonds related to its sewer as well its now-defunct redevelopment agency. Ms. Faul said Atwater intends to make an upcoming bond payment of $2 million on its sewer bonds.

Atwater is Burnt Toast

Once things reach this stage, one does not even need to look at the details because it's a done deal.

Yet, I did look further and as expected, public unions appear to be smack in the middle of things as noted in a Reuters article on Potential Atwater Bankruptcy.

Atwater's economy is "pretty bleak" and starving the city of so much revenue its leaders must consider a drastic overhaul of the services, said Jim Price, vice president of operations at Gemini Flight Support at Atwater's Castle Airport.

"Police and fire, you keep them - and everything else is going to have to be privatized," Price said. "I just don't know how they can do it any other way."

RAISING REVENUE, CUTTING COSTS

Atwater's officials are just beginning to consider their options, Faul said, noting the city must consider raising 20-year-old rates for water services and 10-year-old rates for garbage services while clamping down on costs.

Union representative Nancy Vinson said she expects the city will seek concessions from its roughly 30 non-safety employees, who gave up 10 percent of pay last year through furloughs.

"They could ask for a wage reduction, they could ask for a different contribution to the retirement system, they could ask for a higher health benefit contribution," Vinson said. "We have not been unwilling to talk to them."

Atwater must also seek concessions from its roughly 50 safety and management-level employees, Vinson said, adding she is concerned city officials are moving too fast on a plan for declaring a fiscal emergency.

Atwater's Choice: Bankruptcy Today or Bankruptcy Later

Atwater can enter bankruptcy today, saving taxpayers a lot of money, or it can waste taxpayer money for years, scrambling to make bond payments and then default.

Either way, Atwater is burnt toast. Attempts to make bond payments is a fool's mission.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Real Per Capita "Core" Durable Goods Orders

Courtesy of Doug Short, here is an excellent pair of charts on Real Per Capita "Core" Durable Goods Orders

Core Durable Goods



click on either chart for sharper image

Core Durable Goods Percent Decline From Peak



Doug Short does excellent work. Click on the top link to see additional charts.

I have little to add other than this is how recessions start, an opinion expressed earlier in Durable Goods Orders Ex-Transportation "Unexpectedly" Drop, Down Third Month, July Revised Lower; GDP +1.3% Second Quarter; June Recession Call Looking More Likely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Durable Goods Orders Ex-Transportation "Unexpectedly" Drop, Down Third Month, July Revised Lower; GDP +1.3% Second Quarter; June Recession Call Looking More Likely

"Unexpected" weakness and downward revisions are hallmarks of the beginnings of recessions. And so it it with durable goods. Economists had forecast a gain, instead there was a 1.6% drop. Moreover July was revised lower as well.

Bloomberg reports Orders for U.S. Goods Excluding Transportation Unexpectedly Drop

Orders for goods meant to last at least three years, excluding volatile demand for such things as airplanes and automobiles, fell 1.6 percent last month after a greater-than- previously estimated 1.3 percent decrease in July, the Commerce Department reported today in Washington. Total bookings plunged 13 percent, the most since January 2009, paced by a decline in demand for civilian aircraft.

“There was broad-based weakness,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. “What this now means is that capital expenditures are now going to probably fall for the first time since the recovery started. It remains a terribly challenging backdrop in the U.S.”

The median forecast of 53 economists surveyed by Bloomberg projected a 0.2 percent gain in ex-transportation orders. The Commerce Department revised July data down from a previously reported 0.6 percent decrease.
Survey Results

The decline in total orders was more than twice as large as the 5 percent drop median estimate in the Bloomberg survey.

Other reports today showed the economy grew less than previously forecast in the second quarter and claims for jobless benefits dropped last week to a two-month low.

The world’s largest economy expanded at a 1.3 percent pace in the second quarter after growing at a 2 percent rate from January through March. The revision, the third estimate for the quarter, compared with a prior estimate of 1.7 percent and the Bloomberg survey’s 1.7 percent median forecast.

The reduction in growth reflected slower gains in consumer spending and farm inventories, the latter caused by the drought.

Civilian aircraft bookings, which are often volatile, slumped 102 percent in August after surging 51 percent the prior month, today’s Commerce Department report showed. The size of the decrease may reflect some cancellations in prior months. Boeing Co. (BA), the largest U.S. aircraft maker, received an order for a single plane, down from 260 the month before.

Orders for non-defense capital equipment excluding airplanes, a proxy for future business investment in items such as computers, engines and communications equipment, rose 1.1 percent after decreases of 5.2 percent in July and 2.7 percent in June, the Commerce Department data showed.

Shipments of those goods, used in calculating gross domestic product, fell 0.9 percent after decreasing 1.1 percent in July.
Caterpillar Forecast

Exports dropped 1 percent in July as American companies shipped fewer automobiles, metals and consumer goods abroad, according to Commerce Department figures issued earlier this month.

Recession Call

• Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness
 
• ECRI's Lakshman Achuthan Says US in Recession Now; That Makes Three of Us

I am very comfortable with pegging of the start of the recession in June and I expect more downward revisions in GDP and employment are on the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Reader from Netherlands Says Last Election Not as Pro-Euro as Media Portrays; 81 in 150 Against More Bailouts

European nannycrats breathed a sigh of relief following the re-election of Dutch Liberal Prime Minister Mark Rutte on September 12.

The results “will likely inject a little more confidence into parts of the European political elite” as they step up efforts to contain the debt crisis, David Mackie, chief European economist at JPMorgan Chase & Co. in London, wrote today. “The risks of the Netherlands changing policy direction in a fundamental way appear to have receded, doubtless to private sighs of relief in Berlin and elsewhere.”

Really?

Reader Bert who lives in the Netherlands analyzed the actual stated positions of every member of the Dutch parliament and came up with this analysis. Bert writes ...

Hello Mish

As you can see in the table below, according to statements made by political party leaders in the past few weeks, 81 of the 150 seats in the Dutch parliament will vote against any future bailout of Greece. The same thing is likely should the ESM need additional funds for other countries.



Here is my interpretation.

VVD ( classical liberal / conservative)
Party leader and current prime minister made several time's a clear statement: "note a dime to Greece anymore" and got support from Wolfgang Schäubele (German finance minister) for that statement.

PVV (freedom party)
Is totally against the Euro and even the EU in its current form

SP (socialistic / maoistic party)
Totally against Euro bail-outs and the Brussels dictates)

CrU (centre/left with a Christian inspiration)
Tried in the parliament to keep the Netherlands out of the ESM

SGP (a strong biblical inspired party)
Totally against "shared responsibilities" in the socialistic way

PvdD (party for the well-being of animals especially critical to the mass bio-industry) Very Europe critical, a statement from them: "Europe is in its present form not democratic"

There was a huge move from voters from the very EU skeptical PVV to the VVD (a pro Europe party), but this was simply because the PVV blew up the last centre/right government. Voters did not liked that, and it had nothing to do with being pro-Europe.

Close analysis of the true positions of the elected parliament tells the real story: the Netherlands are becoming more and more euro-skeptical and EU critical, not the opposite. Thus, media interpretation that the Netherlands voted for pro-euro is totally wrong.

All the best

Bert

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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French Unemployment Tops 3 Million, First Time Since 1999

Given the disastrous mess in Southern Europe, compounded by the election of socialist Francois Hollande (together with his extremely foolish tax hike policies), France Set to Implode was a very easy call to make.

The evidence is strongly pointing in that direction. Please consider French unemployment tops 3 million as economy struggles

The number of unemployed people in France has topped 3 million for the first time since 1999, according to latest labour ministry figures.

Speaking before the data was officially announced, Labour Minister Michel Sapin said: "It's bad. It's clearly bad."

However, the government blamed the previous regime of Nicolas Sarkozy.

[Hollande] pledged to revive the eurozone's second largest economy, tackle rising unemployment, and reverse industrial decline. However his approval rating is now at its lowest since he assumed power, pollsters say.

Since May, major companies have announced thousands of layoffs, including carmaker Peugeot, drugmaker Sanofi, airline Air France-KLM, and retailer Carrefour.

Mathieu Plane, economist at the French Economic Observatory, told the Reuters news agency: "There are almost one million more unemployed people compared with early 2008 and we can't yet say that we have reached the peak."

The French economy has posted three consecutive quarters of zero growth, and forward-looking data suggests it may continue to flatline.

The 2013 budget, due to go before the cabinet on Friday, is expected to contain more than 30bn euros in budget savings, and fresh tax rises.

The government has forecast 0.3% growth for the year, and has so far kept its 2013 target at 1.2%, which many economists now consider unrealistic.

France's central bank this month predicted that the economy would contract by 0.1% in the third quarter after flatlining for the first half of the year.

Flatline? Please Be Serious

The idea that France is going to flatline is ridiculous. Growth estimates for next year are even more ridiculous.

Eurozone Unemployment Rates



With the rest of Europe slowing dramatically, do not expect German unemployment to buck the trend forever. Italy is in a steep downturn now, and France is going to follow suit.

Meanwhile, France, Spain, Greece, and Italy are busy hiking taxes which is economic insanity in a recession. They ought to be reforming work rules, but on that score there is little progress, with negative progress in France.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Is China Burning? Shanghai Stock Index Breaks 2000 For First Time Since 2009; Reflections on Sentiment

Today the Shanghai stock index, $SSEC, dipped below the 2000 level for the first time since 2009.

Stockcharts does not have intraday charts of ADRs so here are a couple of charts from yesterday to consider.

$SSEC Daily Chart



The following monthly chart puts things in better perspective.

$SSEC Monthly Chart



Shanghai Rout is On

Misguided China bulls shorting the dollar and buying Chinese stocks have gotten their heads handed to them on a platter.

Those aware of the fraud, corruption, and simple sustainability of economic growth in China either stayed away completely or were short China like Jim Chanos.

Bloomberg reports Shanghai Rout Sinks ADRs

Chinese stocks in New York slid to a two-week low as the Shanghai Composite Index’s slump below a key level for the first time in three years stoked concern government efforts to avert a slowdown won’t be sufficient.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. dropped for a third day, losing 0.7 percent to 90.18 by 12:44 p.m. in New York. The decline followed the Shanghai Composite Index’s descent below 2,000 for the first time since 2009. Mobile-chip designer Spreadtrum Communications Inc. (SPRD) sank after its stock rating was cut.

Is China Burning?

Forbes columnist Gordon Chang asks the question, Is China Burning?

Chinese streets were quiet today after anti-Japan protests, many of them violent, rocked more than a 100 cities last week.  Large demonstrations continued through Tuesday, the 81st anniversary of Japan’s invasion of Manchuria.

The disturbances, triggered by a territorial dispute over the Senkaku Islands in the East China Sea, are commonly described as the worst anti-Japan riots to hit the country since at least 2005, and they may have even been more destructive than that.

In any event, the damage to Japan’s business interests in China was substantial.  More than a dozen Japanese companies halted operations in the country as fire bombings, sabotage, and looting took their toll.  Manufacturers Honda, Nissan, Toyota, Mazda, Mitsubishi, Yamaha, Komatsu, Hitachi, and Canon shuttered plants.  Panasonic locked the doors of a factory after employees broke windows, ruined equipment, and set fires.  Retailers Aeon, Fast Retailing, Ryohin Keikaku, and Seven & I closed stores.

Japanese tourists are canceling trips to China, and hard-hit Panasonic is, not surprisingly, reducing business trips from Japan to the country.  As a result, Japan Airlines reduced flights to and from Chinese destinations.  It halved Tokyo-Beijing and Osaka-Shanghai flights, for example.  All Nippon Airways reported an increase in cancellations on its flights from China to Japan.  And it is not only Japanese carriers that have been hurt.  China Eastern, China’s second-biggest airline, is delaying the October 18 start of its Shanghai-Sendai route due to insufficient bookings.

the Chinese economy is in obvious distress, with fewer analysts buying Beijing’s claims that the country is growing in the high single digits.  Charles Dumas of Lombard Street Research, for example, thinks China’s growth rate is only 1.6%, and it could even be lower than that.  In this environment, even minor disruptions could have a “tipping point” effect.

Moreover, the prospects for Japanese companies will be even worse than it is for others.  Who in China is going to buy a Toyota when last Saturday, in an incident now well-known throughout the country, a 51-year-old Chinese man in Xian was savagely beaten—he is now paralyzed and mostly unable to speak—because he was driving a white Corolla?  And don’t think this affects only Japanese companies.  China’s new ultra-nationalism, on display this past week, can also affect brands from other countries.

And we should not think the Chinese are limiting their anger to the Japanese.  Last week’s events have been compared, in their intensity and their aims, to the anti-foreigner Boxer Rebellion, which began just at the end of the 19th century.

That, unfortunately, is a historical parallel we should remember.  Rioters on Tuesday attacked and damaged the car of American ambassador Gary Locke while he was in it.

China at the moment is unstable, and that puts foreign businesses there—not to mention the Chinese economy—at risk.

Reflections on Sentiment

A few years ago nearly everyone was a China bull.

China, China, China was all I heard at gold and natural resources conferences. My calls pointing out the unsustainability of Chinese growth fell mostly on deaf ears.

Remember how in the 1980s everyone thought Japan would soon rule the world. That's what many thought about China, and still do. I did not buy into it, nor did Michael Pettis at China Financial Markets.

Here are a few posts to consider.

• The Dating Game: Michael Pettis Challenges The Economist to a Bet on China
 
• 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?
 
• By 2015 Hard Commodity Prices Will Collapse; Australia's Mining Boom Dies (and the Official Denials Start)

The idea that China was going to rule the world by the end of the decade was complete silliness. Exponential math, as well as energy constraints said it would not happen. Malinvestments and fraud were simply icing on the absurdly-bullish cake.

That said, as compared to a few years ago, or even earlier this year, sentiment on China has soured remarkably.

The fundamentals did not change, just the sentiment. Indeed, sentiment is now so sour on China that a nice rally may happen at any time.

This is not a recommendation that people buy into China, rather it's a suggestion that sentiment is now moving towards extreme pessimism. Reversals from such extremes can lead to powerful rallies. However, timing the reversal is problematic as the four percent rally quickly taken back shows.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Firebombs, Teargas, Riots Near Greek Parliament; 57% Say Greece Should Abandon Pledges Made to Troika

Once again things are out of control in Greece. A general strike is underway, and schools, hospitals, and transit are affected. Firebombs and teargas have hit Athens as Greek citizens protest the latest round of austerity measures.

Please consider Greek Strike Sees Violence as Police Use Tear Gas by Parliament

Police fired tear gas near the Greek Parliament after protesters threw fire-bombs as thousands of people joined a strike opposing wage cuts and austerity that Prime Minister Antonis Samaras said are vital to keep the euro.

Demonstrators streamed into the central Syntagma Square in Athens, opposite the Parliament House, shouting slogans such as “struggle, clash, overturn: history gets written by those who disobey.” Police spokesman Takis Papapetropoulos estimated the crowd at 35,000 people.

Schools, hospitals, ferries and government services shut down in the first walkout since February. Shops will close from 3 p.m. today to let staff take part in demonstrations. Public transport is operating from 9 a.m. to 9 p.m. to allow protesters to attend rallies in Athens city center. A three-hour walkout by air traffic controllers will disrupt flights around the country.

Athens, the capital, has been wracked with demonstrations by groups ranging from police officers to parents of three or more children in the past week as Finance Minister Yannis Stournaras remained locked in talks with officials from the European Union, the IMF and the European Central Bank.

Hooded youths throwing fire-bombs at police were met with tear gas today, forcing some of the marchers to scatter. Teams of riot police guarded the Finance Ministry and surrounding streets.

The IMF has indicated that any additional financing for Greece will have to come from Europe, where officials have told Samaras no discussion can be held on debt relief or on extending the time to implement measures until he honors pledges made for the country’s second rescue package.

Polls show continued dissatisfaction with economic policies. More than 57 percent said the country shouldn’t keep to pledges made in exchange for the bailout as the policies have failed, compared with 40 percent who said it should stick to its commitments, according to a Metron Analysis poll for Ependytis newspaper.

Sentiment Has Turned

Sentiment in Greece has turned, and likely turned for good. 57% of Greeks have had enough of austerity to the point they would rather default.

Turn back the hands of time a bit and think how this might have played out if Greece simply left the euro and defaulted three years ago as it should have. Tourism would likely have increased and if  Greece had implemented true structural reforms rather than tax hikes, its economy would be stable or recovering now.

Instead, the country is in ruins, tourism is down, and in an on-again-off-again fashion, absolute chaos breaks out.

Another round of austerity and tax hikes can only make things worse at this point, and the people know it. This will pressure political parties to not go along with Samaras.

If another round of elections were held today, there is no way Samaras would win. Instead, the radical left, and radical right (both of which want to exit the euro), would be fighting over the pieces.

The nannycrats in Brussels and Chancellor Merkel are to blame for this sad state of affairs.

Finally, please note that the big fear of the nannycrats and Merkel is not that Greece leaves the euro per se, but rather Greece leaves the euro and the Greek economy starts to recover.

Well, here's the deal and it is something I said years ago: the sooner Greece abandons the euro, tells the Troika to go to hell, and defaults, the better off it will be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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