From the Baltimore Sun: “If the IRS wants to spot large numbers of people who are stiffing the tax collectors, it might want to consider auditing a fast-growing segment of the home-mortgage market…. 63 percent of brokers said they knew their self-employed clients had “unreported income” that they wanted to keep off the record…. Forty-five percent of the brokers in the study said a ’significant’ reason for their clients to avoid full documentation is that they are ’self-employed’ but have not filed tax returns.”

Apropos of previous comments, I have a second hand report on a CNBC spot this morning with Lakshman Achuthan, Economic Cycle Research Institute: “People don’t realize that there is a ’stealth slowdown’ in retail sales right now.”

The person who saw the spot said: “He’s leaning bearish but at the risk of not being viewed negatively on tv, he hedged his bets and said, “A ’soft landing’ is in the cards.

Another interesting observation on my part was how uncomfortable he felt in relaying the information, beads of sweat on his forehead, it was easy to tell that he didn’t want to be a wet blanket, and he had to spin things a little positive by mentioning a soft landing, but it was easy to see an uneasiness in him and that he sees some difficulties ahead.”

FWIW. Heck, this is worse than watching the Fed.

In any event the big news today was the weakness of the dollar against both the euro and the yen. While the dollar decline stopped at technical support and held there, this may mean that the day of reckoning just came a whole lot closer. At some point folks are going to figure out that exchanging real stuff for pieces of electronic paper is not a good deal without some scarcity value to the paper.

A reader (I have readers? amazing) wrote: “ECRI, whose track record is impeccable, is now leaning towards a soft landing. http://www.businesscycle.com/news/1071/”

I subscribe to ECRI’s service. Their leading economic activity index has been essentially flat since mid-2004. This current rise has it back to its highs seen earlier this year. Their leading inflation index has been calling for more inflation than has (so far) been seen.

However, it is well-documented that the ECRI index has had, over the long haul, little or no predictive value as far as the stock market is concerned. It has been a coincident indicator. I understand that stock prices are a significant component of its calculation, which may have something to do with it. Interestingly, there is still a significant divergence between them. The chart is out of date - ECRI is now 138.5 and the S&P of course is about 1400, but ECRI is still lagging the stock market.

So the interesting question is, which way will the divergence be resolved? I have a sneaking suspicion that the liquidity conditions and general overpricing of financial assets - way out of historical ranges - have been biasing ECRI’s model to be more positive than may turn out to be warranted. My guess is that the market will turn south and the ECRI index will follow.

But then I’m an Eeyore.

This is not strictly financial, but it is a good indication of government’s wishful thinking.

This is the football version of what is going on in education right now. If you’re not an educator, this may not make a lot of sense to you, but then again, neither do many of the things our federal government does.

New Federal Rules for High Schools:

1. All teams must make the state playoffs and all MUST win the championship. If a team does not win the championship, they will be on probation until they are the champions, and coaches will be held accountable. If after two years they have not won the championship, their footballs and equipment will be taken away UNTIL they do win the championship.

2. All kids will be expected to have the same football skills at the same time even if they do not have the same conditions or opportunities to practice on their own. NO exceptions will be made for lack of interest in football, a desire to perform athletically, or genetic abilities or disabilities of themselves or their parents.

ALL KIDS WILL PLAY FOOTBALL AT A PROFICIENT LEVEL!

3. Talented players will be asked to workout on their own, without instruction. This is because the coaches will be using all their instructional time with the athletes who aren’t interested in football, have limited athletic ability or whose parents don’t like football.

4. Games will be played year round, but statistics will only be kept in the 4th, 8th and 11th games. It will create a New Age of Sports where every school is expected to have the same level of talent and all teams will reach the same minimum goals. If no child gets ahead, then no child gets left behind.

Steve Roach writes: “The US and Chinese economies are slowing sharply as 2006 comes to an end. Inasmuch as these two engines have accounted for about two-thirds of the cumulative increase in world GDP over the past five years, this two-engine slowdown can hardly be taken lightly. In my view, it poses major downside risks to the global soft-landing call embedded in liquidity-driven financial markets…..

What I find truly fascinating is that most still cling to the now-discredited notion that US consumers will just keep on spending; this argument further claims that since they haven’t flinched yet, they are unlikely to do so in the months ahead. As I spun around the world last week, I found this view to be the most deeply entrenched pillar of consensus thinking. Yet this premise is not only completely at odds with the weak retail sales of the past two months, but it also ducks a similar impression conveyed by the broader data on personal consumption expenditures. According to our latest estimates, growth in real consumer spending slowed to a 2.5% average annual rate in the final three quarters of 2006 — a significant shortfall from the 3.7% ten-year growth trend. If that’s not a flinch, I don’t know what one is.”