JPMorgan: The odds of a recession starting in 12 months has hit a high On the heels of the disappointing jobs report, the risk of a recession within the next 12 months hits a new high

The probability of a recession occuring within the next 12 months has never been higher during the current economic recovery. This is according to the economists at JPMorgan.

“Our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved up from 30% on May 5 to 34% last week to 36% today,” JPMorgan’s Jesse Edgerton wrote. “This marks the second consecutive week that the tracker has reached a new high for the expansion.”

JPMorgan’s proprietary model considers the levels of several economic indicators, including consumer sentiment, manufacturing sentiment, building permits, auto sales, and unemployment.

This comes on the heels of Friday’s disappointing May jobs report. According to the Bureau of Labor Statistics, US companies added just 38,000 nonfarm payrolls during the month. Economists were expecting 160,000. Meanwhile, the unemployment rate fell to 4.7% in May from 5.0% in April, but this was largely a function of 458,000 workers dropping out of the labor force.

JPMorgan notes that nonfarm payrolls is actually not part of the model. But the unemployment rate is. Interestingly, a low unemployment rate can be considered an ominous sign.

“The unemployment rate enters the model in two ways,” Edgerton explained. “As a near-term indicator, we watch for increases in the unemployment rate that occur near the beginning of recessions. So this morning’s move down in the unemployment rate lowered the recession probability in our near-term model. But we also find the level of the unemployment rate to be one of the most useful indicators of medium-term recession risk. So the move down in unemployment raises the model’s view of the risk of economic overheating in the medium run and raises the ‘background risk’ of recession.”

Indeed, recessions begin when things are very good. It’s only when reports come in that the data has turned that we realize we’ve been in a recession.

Even Warren Buffett will tell you that a recession will inevitably come. For him, that won’t be for a while.

But if it turns out that the recent slew of disapppointing data becomes a trend, the bulls may be forced to change their tune.

The pledge by Team Newport to audit the $140 million Taj Mahal – $228 million with debt service – Newport Beach allocates $300,000 for Civic Center audit

Newport Beach, California –

An audit of the Newport Beach Civic Center construction process is moving ahead with a new – and higher – price tag.

The City Council voted 4-3 Tuesday in favor of the audit and to allocate $300,000 for its completion, including periodic reporting to the council.

Mayor Ed Selich and council members Keith Curry and Tony Petros voted against the measure.

Councilwoman Diane Dixon said the council owed constituents an audit of the $140 million project. She said it would also give the city a better idea of how to manage future projects the same size or scope of the Civic Center.

“My wish is this gets a clean bill of health and we can move on,” Dixon said. “I’d like to take the acrimony out of this and see this as a positive.”

Curry called the audit a political manipulation to use in the upcoming election cycle. The city manager already provided “two feet” of documents and a review of the building process, he said. Taxpayer money could be better used for projects in the community, he said.

“We’re asking consultants to tell us who won WWII,” Curry said. “It’s a complete waste of money.”

Planning for the facility started more than 15 years ago and its scope morphed significantly over the years, according to Register archives. The complex near Fashion Island opened in 2013 and included the government building, council chambers, a 450-space parking structure sunk to protect views, a 17,000-square-foot library expansion and a 14-acre park connected by an over-road bridge.

The council in June asked the city attorney’s office to hire an independent audit project manager, who could then hire a firm to do a financial and management performance audit of the Civic Center project. When the audit was originally brought up in January by council members, a price tag of $100,000 was highlighted.

Allyson Gipson, the independent audit manager hired by the city, said the industry standard for the cost of audits this size are usually one percent of the total cost of the project, though she thought the city could get an audit at about half that price.

A staff report suggested a two-phase audit, which could cost as much as $560,000 – about $110,000 for the first phase and $450,000 for the second. The council voted to limit the audit to one phase and set the limit at $300,000.
Contact the writer: 714-796-7990 or
Keeping a Campaign Promise – Auditing the Taj

Dear Friend,

Our steering committee met a couple of weeks ago to review the past year since Team Newport was elected, and plan for the 2016 city elections.

One of the key issues in last year’s election was the pledge by Team Newport to audit the $140 million Taj Mahal. ($228 million with debt service)

On a 4-3 vote, Team Newport (Diane Dixon, Kevin Muldoon, Duffy, and Scott Peotter) approved a $300,000 contract to conduct an audit with the goal of finding out if taxpayers were fleeced, or if the costs were supportable and reasonable.

Of course, leading the opposition to the audit was Keith Curry – the councilman that spent over $1 million trying to ban wood burning fire rings.

You can read the Register’s recap of the city council’s action here, including Keith Curry’s claim that the audit is a politically motivated “complete waste of money.”

I am proud that Team Newport kept their word – a novelty in these times.

Bob McCaffrey

Volunteer Chairman, Residents for Reform

Newport Beach

“If we use dollars to make debt payments, we may not have the cash to pay for government services,” – Puerto Rico on the Brink Owes Investors $5 Billion in Next Year

Puerto Rico on the Brink Owes Investors $5 Billion in Next Year

Puerto Rico faces $5.4 billion of bond payments over the next 12 months, showing the pressure on the Caribbean island as it moves closer toward defaulting on its debt.

Puerto Rico and its agencies are on the hook for $635 million in August, the largest monthly bill for the rest of 2015, JPMorgan Chase & Co. said in a July 17 report, citing data from Bloomberg and Standard & Poor’s. That includes a $36.3 million payment due Aug. 1 from the Public Finance Corp., which may not be made because the legislature failed to appropriate the funds.

The schedule illustrates the costs ahead for the cash-strapped commonwealth, where Governor Alejandro Garcia Padilla is pushing to restructure a $72 billion debt load he says the island can’t afford. The payments approach $1 billion in January and about $2 billion in July 2016, JPMorgan said. Puerto Rico has a $9.8 billion budget for the year through next June.

“If we use dollars to make debt payments, we may not have the cash to pay for government services,” Luis Cruz, the commonwealth’s budget director, told reporters Monday in San Juan. He said officials are looking at “all options” for honoring its obligations.

Puerto Rico is veering toward the largest restructuring ever in the $3.6 trillion municipal-debt market after years of borrowing to paper over budget shortfalls. The prospect has pushed down the price of commonwealth bonds amid speculation about how investors will fare. Officials are seeking to draw up a plan by the end of August.
Many Securities

The island has more than a dozen types of bonds with different security pledges, which complications negotiations. General-obligation bonds are protected by the commonwealth’s constitution, while others are backed by revenue such as sales taxes.

The scheduled August payments will cover $333 million of interest and $263 million of principal, according to JPMorgan. Most of that is for sales-tax debt, known as Cofina, and securities sold by the Government Development Bank.

Garcia Padilla said last month that Puerto Rico would look to delay debt payments for “a number of years.”

Melba Acosta, the development bank’s president, has said a restructuring wouldn’t necessarily involve paying less than the full value of securities when they mature. Even so, analysts at money-management firms including BlackRock Inc. and Pacific Investment Management Co. have speculated that bondholders may have to accept less than they are owed.

Puerto Rico bonds have slumped 8.9 percent this year, according to S&P Dow Jones Indices data. By contrast, the $3.6 trillion municipal market has rallied 0.3 percent.