0 California has 12% of US Population, 33% of Welfare Recipients; Texas is Best State to Do Business; California, Illinois, and New York the Worst; Where Does Your State Rank?

Chief Executive’s eighth annual survey of best states to do business shows Another Triumph for Texas

In Chief Executive’s eighth annual survey of CEO opinion of Best and Worst States in which to do business, Texas easily clinched the No. 1 rank, the eighth successive time it has done so. California earns the dubious honor of being ranked dead last for the eighth consecutive year.

This year, 650 business leaders responded to our annual survey, up from 550 in 2011. CEOs were asked to grade states in which they do business among a variety of areas, including tax and regulation, quality of workforce and living environment. The Lone Star State was given high marks foremost for its business-friendly tax and regulatory environment. But its workforce quality, second only to Utah’s, is also highly regarded.

Florida moved up from number three last year to number two.

It is perhaps no coincidence that Texas and Florida have the highest net migration of people to their states from 2001 to 2009. (By contrast, New York and California lost over 1.6 million and 1.5 million in net migration out of the states, respectively, over the same period.)

It may be no accident that most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location.

California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years. Its unemployment rate, at 10.9 percent, is higher than every other state except Nevada and Rhode Island.

With 12 percent of America’s population, California has one-third of the nation’s welfare recipients. Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows.

Bottom 10



Please consider a Slideshow of the Bottom 10.

Illinois is trying hard for that top spot, but California and New York are tough competition.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 Comments from Brazil on Brazil and China: Nonperforming Loans Soar, Recession in Brazil Arrived, China will Follow

This morning I received an email from Otavio who lives in Brazil. Otavio writes ...

Hi Mish,

Hello from Brazil. Much of what we both expected has begun to occur in Brazil since we exchanged emails last year. The economy has slowed down greatly. We are on the brink of a recession here, if not in recession already.

Nonperforming loans have risen pretty much on banks' balance sheets causing bank stocks to plunge. Check out ITUB US Equity on Bloomberg. The Brazilian middle class is very much sunk in debt.

The BACEN (Brazilian Central Bank) has cut overnight rates from 12 percent to 9 percent, but the market expects at least another 100 bps cut in the next two months. These aggressive rate cuts, plus massive interventions in the FX market to sell Brazilian REAL, have weakened the REAL from 1.70 to 1.93 per USD.

The government has also instructed public banks to lower their lending rates. It's our own Brazilian version of QE here.

However, the economy is showing signs of weakness. Just today, Industrial Production came out at -0.5 percent but economists predicted an increase of 1.2 percent.

Our economy has been strongly correlated with China's in the last decade. If we are this close to a recession in Brazil, the slowdown in China will be far more than most expect.

Regards Otavio

Brazilian Banks Drop on Delinquency Concern

A quick check of ITUB on Bloomberg turned up Bovespa Declines as Brazilian Banks Drop on Delinquency Concern

Apr 25, 2012 3:42 PM CT

The Bovespa stock index declined as Itau Unibanco SA (ITUB) led Brazilian banks lower after it said it expects losses from bad loans to rise in the second quarter.

Itau, Latin America’s biggest bank by market value, was the worst performer on the MSCI Brazil/Financials Index, which fell the most among 10 industry groups. OGX Petroleo (OGXP3) & Gas Participacoes SA gained the most in four months after it said an oil field off the coast of Rio de Janeiro was declared commercially viable.

The Bovespa dropped 0.4 percent to 61,750.38 at the close in Sao Paulo. The real weakened 0.1 percent to 1.8800 per U.S. dollar at 5:32 p.m. local time.

Itau expects to spend as much as 6.4 billion reais in bad - loan provisions in the second quarter, up from 6 billion reais in the first three months of 2012, according to a regulatory filing today. Banco Bradesco SA (BBDC4)’s delinquency rate may rise 10 basis points in the second quarter, executive director Luiz Carlos Angelotti said in a conference call yesterday.

“These alerts from banks regarding expectations of rising delinquency rates really scared investors,” Pedro Paulo Silveira, chief economist at TOV Corretora, said by telephone from Sao Paulo. “Considering interest rates are decreasing and the economy is slowing down, banks may see their revenue fall as well.”

ITUB Chart



Brazil Manufacturing PMI in Contraction

Inquiring minds are investigating the HSBC Brazil Manufacturing PMI™ published May 2.

Both output and new orders fall for first time in 2012 so far



Andre Loes, Chief Economist, Brazil at HSBC said: “The HSBC Manufacturing PMI index fell to a four month low of 49.3 in April, from 51.1 in March. This was the first PMI manufacturing reading below 50 in 2012, signalling a contraction of activity in the industrial sector.

Broken down, numbers show a broad-based decline in industrial activity, with all components falling below 50, except for both input and output prices which accelerated relative to one month ago (and with output prices reaching the highest level of growth since May 2011). Concurrently, inflationary pressures should remain a source of concern, despite the string of benign CPI readings earlier this year.”

If Brazil weakens further as I expect, the country is already in recession. Moreover, the much beloved BRICs (Brazil, Russia, India, China) and emerging markets in general will not be good hiding places.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 When All Else Fails, Hope For More Stimulus

Eurozone Markit Final Manufacturing PMI numbers were released yesterday. The results, as I warned months in advance, were decidedly not pretty.

• Final Markit Eurozone Manufacturing PMI at 34-month low of 45.9 
• Production declines across big-four economies for first time in the year-to-date 
• Weak demand and falling intra-Eurozone trade volumes hurting both output and employment

The weak PMI number reflected a drop in Eurozone manufacturing production for the second consecutive month, as new order inflows declined at the fastest pace since December. Austria was the only nation to see production rise in April.

Manufacturers reported weak demand from both domestic and export clients – with intra-Eurozone trade volumes also heavily impacted. This hurt even German manufacturers, who saw production fall for the first time in 2012-to-date as an accelerated rate of decline in new export volumes reverberated through the sector.

Further causes for concern were sharper rates of decline in output at Italian and Spanish manufacturers, plus an ongoing steep downturn in Greece. Meanwhile, French manufacturing output contracted at a weaker pace than that seen in March.

Finally Seeing the Light (Sort Of)

Once again the comments from Markit Economists are amusing. 

Even German manufacturing output showed a renewed decline, attributed by many firms to weak demand from southern Europe. As such, it is hard to see where growth will come from in coming months, unless export demand picks up strongly from countries outside of the Eurozone.

“The ECB’s latest forecast of merely a slight contraction of GDP this year is therefore already looking optimistic. However, with the survey also showing inflationary pressures to have waned, the door may be opening for further stimulus.”

Note the word "latest". Months ago, Markit said no recession, then no recession in Germany, then short recession. For some reason Markit only mentioned the ECB's latest forecasts and none of their own.

With that highlight in red (emphasis mine), Markit chief economist Chris Williamson finally got it right (had he only stopped right there). Instead, he is now hoping for more stimulus as if it would matter.

Here's a hint: it won't.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 Dallas Fed Proposes Ending "Too Big To Fail", Urges Removal of Failed CEOs, Breakup of Banks

Richard Fisher, governor of Dallas Fed wants to end "Too Big To Fail" and Urges Removal of CEOs of Bailed-Out Banks

The Federal Reserve Bank of Dallas said taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts and the removal of chief executive officers and boards of directors.

“A set of harsh, non-negotiable consequences” for requesting U.S. Treasury assistance might also include “clawbacks” to gain cash and stock bonuses paid the top management team during the prior two years, the Dallas Fed said today in a slide presentation on its website.

The proposal reflects Dallas Fed President Richard Fisher’s view that large U.S. banks need to be split apart because they operate with an implied government safety net that puts their risks of failure on taxpayers.

End Too Big to Fail Now

Please consider the Dallas Fed Slideshow Why We Must End Too Big to Fail – Now

Concentration Intensifies the Impact of Mistakes

“Human weakness will cause occasional market disruptions. Big banks backed by government turn these manageable episodes into catastrophes.”

Close But Not Quite Correct

I have one major  disagreement with the proposal. Fisher said "taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts ..."

I say taxpayer aid to banks should never happen. Banks and bondholders should take the hit.

However, it is refreshing to see this kind of talk. It would be a major step in the right direction. Unfortunately, Bernanke is against it.

Mike "Mish" Shedlock
http://mishblogdotcom.blogspot.com
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0 Steen Jakobsen on CNBC Squawk Box on the lack of European reforms, the French economy, elections, intervention in the bond markets, and gold

Saxo Bank chief economist Steen Jakobsen was on CNBC Squawk Box on the lack of European reforms, the French economy, elections, and intervention in the bond markets, commodities in general, and gold and copper specifically.



Select Quotes From Above Video

• Both French candidates [Hollande and Sarkozy] are pretty poor for Europe and more importantly for France.
• The fact remains we have only seen 15% of the reforms promised in the UK, Spain has just started on the road to reform, and Greece is still struggling to get reforms. We are not getting any reforms in Europe in my opinion.
• What the bond market has become today is an interventionist market controlled by the ECB and their ability to go into program and buy.
• The problem remains at all times that access to credit is not there. Governments continue to take a bigger and bigger slice of the credit cake.
• I am very optimistic that when we come out of this very, very harsh recession in the next two to four quarters we will have seen the low politically and economically, hence we will have 10 years of excellent returns in equities.
• Right now I am starting to go increasingly short. May 2 was the peak last year and I think we have exactly a repeat of 2011 and 2010.
• I like gold a hedge against the naive printing of money [by central bankers] that continues to be the case. I am surprised that agriculture has done so poorly in the first quarter.
• Commodities are a short-term trade as long as we have extend-and-pretend as a policy. Think about it. What would you rather own long-term? Some liability on the government of Greece, Spain, even Germany, or buy a mining industry that is producing every single day?

Unwarranted Optimism?

I am in general agreement with most of Steen's views. However, unlike Steen, I am not bullish on copper or base metals in general.

My reasons are as described in 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?

Whether or not Europe comes out of this recession with a bang or a whimper is entirely dependent on whether or not there are any structural reforms in the next two years or not, and whether or not the eurozone even survives.

The good scenario in my opinion is a breakup of the Eurozone. The quicker that happens the quicker Europe bottoms and the sharper the rebound (but only if accompanied by sufficient reforms). If the   public sector remains above 50% of the French GDP (currently about 56%), don't look for a recovery in France.

Color me skeptical about a huge recovery in Europe with socialists in control, no real reforms implemented, and most importantly, aging demographics that will place still more burdens on European taxpayers unless there is dramatic pension reform.

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