Tuesday, April 29, 2008
Peak Oil vs. Global Warming
PEAK_RATE_LESS_CURRENT_RATE gallons/day below peak.
Peak-Oil Theory is accidentally playing into the hands of Big Oil and is the most climate-destructive force in energy policy. Peak Oil vs Global Warming
Peak-Oil Theory has two parts: (1) cheap oil production will peak and start to decline very soon, if it hasn't already; (2) the peak in oil production will be followed immediately (within five years) by an "earth shattering economic crisis." Cheap oil may well peak very soon, or may have already peaked, but the economic crisis, which will supposedly kill about 4 billion people, is nonsense.
The original theorists were all petroleum geologists. That's why their oil predictions, though unusual, make some sense. The smartest, Princeton geologist Kenneth Deffeyes, says "I emphatically do not understand economics." He's right; he doesn't. All of the peak oil experts hate economics, don't read economics, and don't look at the recent history of the world economy
$800 billion of mortgages are at risk of default
Barclays: Negative Equity Subprime, Alt-A to Soar
Barclays estimates that half the 2006 and 2007 subprime loans are in or close to negative equity status, which means this roughly $800 billion of mortgages is at greater risk of default. Note that their analysis used OFHEO data; Case-Shiller estimates of the fall in housing prices exceed those of OFHEO, which means this forecast is likely to be conservative...
From Bloomberg:
Subprime loans from the period that are underwater, meaning they exceed the value of the related homes, jumped 5 percentage points to 19.8 percent in the fourth quarter, and may reach 26 percent by midyear if property-price drops continue at the same pace, New York-based analysts Ajay Rajadhyaksha and Derek Chen wrote in a report yesterday. Such Alt-A loans, a grade better than subprime, would grow to 23 percent from 16.3 percent.
Many of the loans that are or will soon be underwater are in areas where prices are falling faster than the U.S. average, so the size of the shift is underappreciated, the Barclays analysts wrote.....
Borrowers on about 26 percent of subprime loans from 2006 and 2007 will have equity of less than 10 percent by midyear, down from 29.4 percent at yearend, according to Barclays, as more borrowers slip underwater. The percentage on Alt-A mortgages should hold steady at about 23.5 percent. The report said 10.8 percent of Alt-A loans were underwater on Sept. 30.
Shape and length of the US recession
The shape of US recession
Published: Sunday, 20 April, 2008, 01:30 AM Doha Time
By Nouriel Roubini
"I expect a longer and deeper U-shaped recession, lasting at least 12 months and possibly as long as 18 months –- one of the most severe US recessions in decades – because today’s macroeconomic and financial conditions are far worse...
First, the US is experiencing its worst housing recession since the Great Depression, and the slump is not over. Construction of new homes has fallen about 50%, while new home sales are down more than 60%, creating a supply glut that is driving prices down sharply – 10% so far and probably another 10% this year and in 2009.
Already, $2.2tn of wealth has been wiped out, and about 8mn households have negative equity: their homes’ are worth less than their mortgages. By 2010, the fall in home prices will be close to 30% with $6.6tn of home equity destroyed and 21mn households – 40% of the 51mn with a mortgage – facing negative equity.
If owners walk away from their homes, credit losses could be $1tn or more, wiping out most of the US financial system’s capital and leading to a systemic banking crisis.
Second, in 2001, weak capital spending in the corporate sector (accounting for 10% of GDP) underpinned the contraction. Today, it is private consumption in the household sector (70% of GDP) that is in trouble.
American consumers are shopped-out, saving-less, debt-burdened (136% of income, on average), and buffeted by many negative shocks..."
Published: Sunday, 20 April, 2008, 01:30 AM Doha Time
By Nouriel Roubini
"I expect a longer and deeper U-shaped recession, lasting at least 12 months and possibly as long as 18 months –- one of the most severe US recessions in decades – because today’s macroeconomic and financial conditions are far worse...
First, the US is experiencing its worst housing recession since the Great Depression, and the slump is not over. Construction of new homes has fallen about 50%, while new home sales are down more than 60%, creating a supply glut that is driving prices down sharply – 10% so far and probably another 10% this year and in 2009.
Already, $2.2tn of wealth has been wiped out, and about 8mn households have negative equity: their homes’ are worth less than their mortgages. By 2010, the fall in home prices will be close to 30% with $6.6tn of home equity destroyed and 21mn households – 40% of the 51mn with a mortgage – facing negative equity.
If owners walk away from their homes, credit losses could be $1tn or more, wiping out most of the US financial system’s capital and leading to a systemic banking crisis.
Second, in 2001, weak capital spending in the corporate sector (accounting for 10% of GDP) underpinned the contraction. Today, it is private consumption in the household sector (70% of GDP) that is in trouble.
American consumers are shopped-out, saving-less, debt-burdened (136% of income, on average), and buffeted by many negative shocks..."
Case-Shiller index for housing prices-recession?
Calculated Risk: "Case-Shiller: Year-over-year Price Changes
This graph shows the year-over-year price changes for the Case-Shiller composite 10 and 20 indices (through February), and the Case-Shiller and OFHEO National price indices (through Q4 2007). The current recession is probable, and hasn't been declared yet by NBER."
This graph shows the year-over-year price changes for the Case-Shiller composite 10 and 20 indices (through February), and the Case-Shiller and OFHEO National price indices (through Q4 2007). The current recession is probable, and hasn't been declared yet by NBER."
US Total Bank Reserves - falling
Free Information on the US Total ReservesUS Banking Reserves Outlook Billion USD
Anticipated Indicator Values
Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07
41.68 42.51 40.71 39.25 39.84 40.25
+/- 0.8 +/- 0.9 +/- 0.8 +/- 0.8 +/- 0.9 +/- 1.0
Updated April 11 2008
Norton's comment: Even after all the trading window activity with the FED, the liquidity and safety funds that back your bank deposits seem to be dropping. this is NOT a good sign for the safety of our Federal banking system!
Anticipated Indicator Values
Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07
41.68 42.51 40.71 39.25 39.84 40.25
+/- 0.8 +/- 0.9 +/- 0.8 +/- 0.8 +/- 0.9 +/- 1.0
Updated April 11 2008
Norton's comment: Even after all the trading window activity with the FED, the liquidity and safety funds that back your bank deposits seem to be dropping. this is NOT a good sign for the safety of our Federal banking system!
Monday, April 28, 2008
Statement for the Treasury Borrowing Advisory Committee
Statement for the Treasury Borrowing Advisory Committee
of the Securities Industry and Financial Markets Association
April 28, 2008
Washington, DC--Economic growth slowed considerably in the first part of 2008, with consumer and business spending affected by the housing downturn, credit market disruption, and the impact of high energy prices. These headwinds are expected to be offset in part by the stimulus payments and investment incentives enacted in February as part of the Economic Stimulus Act of 2008. Even so, the U.S. economy is likely to grow at a rate below trend and the labor market to remain soft throughout the year.
Real GDP grew at an annual rate of just 0.6 percent in the fourth quarter of 2007, and data released so far indicate that growth remained quite sluggish in the first quarter of 2008. The advance estimate of first quarter GDP will be released on April 30.
Household spending has been affected by a weaker job market, declining wealth from housing and equity markets, and rising energy costs. Real personal consumption expenditures were flat in February after having risen only slightly in January. Together with lackluster retail sales in March, it appears likely that consumer spending slowed considerably in the first quarter from the 2.3 percent annual rate posted in the fourth quarter.
Failing to bring gold back, where are we heading?
GOTTERDÄMMERUNG- The Twilight of Irredeemable Debt: The Market Oracle::
Off the Gold Standard: On that fateful day all that was changed by a stroke of the pen. President Nixon embraced the woolly theory of Milton Friedman and declared the irredeemable dollar a Monad, that is, a thing that exists in and of itself. According to this theory the government has the power to create irredeemable debt ― debt that never needs to be repaid yet will not lose its value ― subject only to a “quantity rule”, e.g., it must not be increased by more than 3 percent annually. This idea is so preposterously silly that “only very learned men could have thought of it”. If the thief is thieving modestly...
Failing to bring gold back, where are we heading? The short answer is: we are marching into the death-valley of collectivism. The alternative to re-introducing redeemable currency is that the debt-behemoth will force the imposition of a capital-levy type of taxation ― à la Solon, 594 B.C...
It is still possible to escape the catastrophe which this process would entail. The way out is to open the U.S. Mint to gold and silver, as advocated by presidential candidate Dr. Ron Paul. The logic of this remedy is that it would mobilize potentially unlimited resources, presently tied up in idled gold, and re-introduce the indispensable means of debt-retirement into the economy.."
Off the Gold Standard: On that fateful day all that was changed by a stroke of the pen. President Nixon embraced the woolly theory of Milton Friedman and declared the irredeemable dollar a Monad, that is, a thing that exists in and of itself. According to this theory the government has the power to create irredeemable debt ― debt that never needs to be repaid yet will not lose its value ― subject only to a “quantity rule”, e.g., it must not be increased by more than 3 percent annually. This idea is so preposterously silly that “only very learned men could have thought of it”. If the thief is thieving modestly...
Failing to bring gold back, where are we heading? The short answer is: we are marching into the death-valley of collectivism. The alternative to re-introducing redeemable currency is that the debt-behemoth will force the imposition of a capital-levy type of taxation ― à la Solon, 594 B.C...
It is still possible to escape the catastrophe which this process would entail. The way out is to open the U.S. Mint to gold and silver, as advocated by presidential candidate Dr. Ron Paul. The logic of this remedy is that it would mobilize potentially unlimited resources, presently tied up in idled gold, and re-introduce the indispensable means of debt-retirement into the economy.."
Sunday, April 27, 2008
How much house can you buy?
Your house is your largest life-time investment
Home Affordability Calculator
Enter your income, the monthly minimum payment on your debts and the amount of cash you can put toward a new home. You'll need to choose an interest rate (the table to the right shows national averages) and estimate your credit rating. We'll calculate the maximum house you can afford, the size of the loan and an estimated payment, making some basic assumptions about taxes, insurance and closing costs. We'll also adjust for your credit history. These are guidelines. Lenders may approve a loan for more, but that doesn't mean the loan is a wise choice.
The End of an Era of Hubris in Global Affairs
Jim Hoagland - No Cushion Against Hubris - washingtonpost.com
"...this is changing under our feet. The "golden moment" that enveloped the global economy for most of this decade is fading -- at least psychologically if not materially -- as we reach the end of an era of hubris in global affairs.
It is coming not just for Americans but for the populations of other developed economies. It is coming not just in U.S. military setbacks in the sands of Iraq and the mountains of Afghanistan but in a spreading lack of trust in the counting houses of Wall Street and the chanceries of the world's finance ministries.
And it is coming not just because President Bush will leave the White House next year, although that will help. The brash Texan has personified the global zeitgeist of his time: one of audacity curdling into hubris. He was elected to pursue a powerful nation's impulses and ambitions to be stronger and richer than any country in history, and he and his compatriots have pursued those dreams into the ditch. ...
"...this is changing under our feet. The "golden moment" that enveloped the global economy for most of this decade is fading -- at least psychologically if not materially -- as we reach the end of an era of hubris in global affairs.
It is coming not just for Americans but for the populations of other developed economies. It is coming not just in U.S. military setbacks in the sands of Iraq and the mountains of Afghanistan but in a spreading lack of trust in the counting houses of Wall Street and the chanceries of the world's finance ministries.
And it is coming not just because President Bush will leave the White House next year, although that will help. The brash Texan has personified the global zeitgeist of his time: one of audacity curdling into hubris. He was elected to pursue a powerful nation's impulses and ambitions to be stronger and richer than any country in history, and he and his compatriots have pursued those dreams into the ditch. ...
UCSD Economics Roundtable - Peter Hooper speaks
Naked Capitalism:
by Peter Hooper April 26, 2008
by Peter Hooper April 26, 2008
The speaker at our UCSD Economics Roundtable this week was Peter Hooper, chief economist for Deutsche Bank Securities. Here is a brief summary of his thoughts about the U.S. economic outlook.
Hooper thinks the U.S. has likely already entered a recession and is expecting U.S. real GDP growth to come in slightly negative for the first two quarters of 2008. His forecast calls for a sharp but brief kick out in the third quarter, thanks to the tax rebate stimulus. He calculates that $100 billion in rebates might translate into $33 billion more spending on final goods and services in the third quarter, or $132 billion at an annual rate, though Robin Moroney and Joseph Carson seem less confident. After any consumption burst, Hooper's expecting the continuing drag from housing to bring us back to sluggish but positive growth numbers.
Saturday, April 26, 2008
Nine-Ways-to-Cut-Down-on-Car-Expenses
Cars are not investments; they are depreciating assets; however, you can get more value and life out of them by regular care
by Jeffrey StrainWednesday, April 23, 2008 provided by TheStreet.com
Neglect your car and you will pay in the long run...
Everyone wants to save money, but when it comes to your car, most people focus exclusively on how to save money on gas while neglecting other important areas.
This is especially true now that full-service gas stations no longer exist in most areas of the country. Self-service means that basic mechanical checks are a thing of the past.If you haven't been properly maintaining your car, now is a great time to take some time to check all those small things that often get put off or overlooked.
Money isn't routinely spent on your car by only buying gasoline. It's estimated that more than 5% of all vehicle accidents are the direct result of lack of vehicle maintenance resulting in approximately 2,600 deaths, 100,000 disabling injuries and $2 billion in financial losses each year.
By taking the time to make sure that your car is in top working order, you will help your car last longer and improve driving safety in addition to saving money on gas.
Here are nine basic maintenance checks you should make and how they can help save you money:
..."Friday, April 25, 2008
Demystifying the TED Spread
Jesse's Café Américain: Demystifying the TED Spread: "18 April 2008
Demystifying the TED Spread
TED is an acronym for Treasury and EuroDollar.
A Spread is just the difference or 'distance' between one thing and another.
Eurodollars are bank deposits denominated in U.S. dollars but held at locations outside of the U.S. Initially, the term only referred to dollar deposits in London but has been expanded to include dollar deposits at any offshore location. The deposits may be held by the foreign branches of U.S. banks or by non-U.S. banks. Eurodollar deposits may be Eurodollar certificates of deposit or simply Eurodollar time deposits.
T bills are US Treasury debt of short duration are considered to be risk free.
TED Spread = Yield on Eurodollar deposits - Yield on T Bills...."
Moody’s Downgrads AAA-Rated Alt-A RMBS to Junk
Moody’s Begins Downgrading AAA-Rated Alt-A RMBS to Junk : Housing Wire: "Moody’s Begins Downgrading AAA-Rated Alt-A RMBS to Junk
By PAUL JACKSON
Published: April 24, 2008 Moody’s Investors Service issued more Alt-A downgrades on Thursday morning, this time taking a heavy hand to 32 different Aaa-rated tranches from 10 different Alt-A deals. Many of the downgrades even pushed former Aaa’s into non-investment grade categories — a stunning descent for top-rated Alt-A mortgage bonds that underscores two key points.
First, defaults are obviously accelerating. Second, many Alt-A deals were issued with less in the way of overcollateralization — which, in plain English, means that these deals will start to see downgrades sooner, compared to the relative stress that a typical subprime RMBS deal can withstand before the hits start coming at the Aaa level."
By PAUL JACKSON
Published: April 24, 2008 Moody’s Investors Service issued more Alt-A downgrades on Thursday morning, this time taking a heavy hand to 32 different Aaa-rated tranches from 10 different Alt-A deals. Many of the downgrades even pushed former Aaa’s into non-investment grade categories — a stunning descent for top-rated Alt-A mortgage bonds that underscores two key points.
First, defaults are obviously accelerating. Second, many Alt-A deals were issued with less in the way of overcollateralization — which, in plain English, means that these deals will start to see downgrades sooner, compared to the relative stress that a typical subprime RMBS deal can withstand before the hits start coming at the Aaa level."
Qualified support for the U.S. dollar / Greenbacks fall on O'Neill's remarks
Treasury may be working behind the scenes this week - Dollar showing some strength
"The Treasury Department controls whether and when the United States, through the Federal Reserve, buys and sells dollars and other currencies to raise or lower the value of the dollar. O'Neill's immediate predecessors, Lawrence H. Summers and Robert E. Rubin, both adhered almost slavishly to the same language in describing currency policy, saying a strong dollar was 'in the interests of the United States.'
Since taking office 15 months ago, O'Neill has more or less stuck to that formulation, but often with an added emphasis that the dollar's value is the byproduct of a fundamentally strong economy and the perception that the United States offers the world's best opportunities for investment."
the US dollar's gains against the euro broke the 1.56 mark and kept a lid on gold's gains to just above $892.
**************************************************************
All back in Plus territory Friday April 25th:
HUI 410.86, +3.58, +0.9%) edged up 0.1% to 407.68 points.
As for the sector's exchange-traded funds,
the StreetTracks Gold Trust ETF
GLD 88.08, +0.86, +1.0%) gained 0.2% to $87.35,
the iShares Silver Trust ETF
SLV 166.81, +1.33, +0.8%) fell 0.2% to $165.27
the Market Vectors-Gold Miners ETF
GDX 45.08, +0.77, +1.7%) edged up 0.3% to $44.43.
What is the Carry Trade?
Today's commentary is by Jack Crooks, editor of The Money Trader and World Currency Options.
Greetings Currency Traders! The words "carry trade" evoke all kinds of thoughts and emotions in today's supercharged financial markets. And for good reason. The carry trade has been the driver of some explosive trends in almost every asset market you can think of from stocks to real estate.
This year, the reversal of "carry trades," (yes there's more than one carry trade!), will create some incredible long-term trading opportunities in the months to come.
Let's examine this thing they call a "carry trade" and look at why it's been such a powerful driver of asset markets in the past. Also, let's look at how the carry trade will continue to drive assets going forward - but for an entirely different reason...
It's Not Rocket Science - It's Just the Spread
Though commentators can make this sound complicated, it's not. Think of it as a simple three-step process and I think you will have the mechanics of a carry trade nailed.
Three-step process that defines a carry trade:
Borrow the low cost currency i.e. low interest rate currency
Covert the borrowed currency into currency of your choice
Reinvest into:
Deposits of other high yielding currencies
Stocks
Bonds
Commodities
Real Estate
Derivatives
..."
Greetings Currency Traders! The words "carry trade" evoke all kinds of thoughts and emotions in today's supercharged financial markets. And for good reason. The carry trade has been the driver of some explosive trends in almost every asset market you can think of from stocks to real estate.
This year, the reversal of "carry trades," (yes there's more than one carry trade!), will create some incredible long-term trading opportunities in the months to come.
Let's examine this thing they call a "carry trade" and look at why it's been such a powerful driver of asset markets in the past. Also, let's look at how the carry trade will continue to drive assets going forward - but for an entirely different reason...
It's Not Rocket Science - It's Just the Spread
Though commentators can make this sound complicated, it's not. Think of it as a simple three-step process and I think you will have the mechanics of a carry trade nailed.
Three-step process that defines a carry trade:
Borrow the low cost currency i.e. low interest rate currency
Covert the borrowed currency into currency of your choice
Reinvest into:
Deposits of other high yielding currencies
Stocks
Bonds
Commodities
Real Estate
Derivatives
..."
Wednesday, April 23, 2008
Are Money Market Fund Risks Worth It?
Are Money Market Fund Risks Worth It?: "Are Money Market Fund Risks Worth It?
by Glenn Curtis Investopedia April 23, 2008
Money market investing carries a low single-digit return, and when compared to stocks or corporate debt issues, the risk to principal is generally quite low. However, there are a number of positives and negatives that all investors should be aware of when it comes to the money market. In this article, we'll take a look at these ups and downs, and show you how the downs can greatly outweigh the ups. (To learn about money market basics, see Introduction To Money Market Mutual Funds.)"
by Glenn Curtis Investopedia April 23, 2008
Money market investing carries a low single-digit return, and when compared to stocks or corporate debt issues, the risk to principal is generally quite low. However, there are a number of positives and negatives that all investors should be aware of when it comes to the money market. In this article, we'll take a look at these ups and downs, and show you how the downs can greatly outweigh the ups. (To learn about money market basics, see Introduction To Money Market Mutual Funds.)"
Tuesday, April 22, 2008
Warren Buffet: "a long way from turning a corner"
Monday, April 21, 2008
Fortune: What Warren thinks...
From an interview with Warren Buffet in Fortune Magazine: What Warren thinks...
Q: Are we a long way from turning a corner?
Buffett: "I think so. I mean, it seems everybody says it'll be short and shallow, but it looks like it's just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain. And the consequences kind of roll through in different ways. Now, I don't invest a dime based on macro forecasts, so I don't think people should sell stocks because of that. I also don't think they should buy stocks because of that."
Charts tell the story:
Fortune: What Warren thinks...
From an interview with Warren Buffet in Fortune Magazine: What Warren thinks...
Q: Are we a long way from turning a corner?
Buffett: "I think so. I mean, it seems everybody says it'll be short and shallow, but it looks like it's just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain. And the consequences kind of roll through in different ways. Now, I don't invest a dime based on macro forecasts, so I don't think people should sell stocks because of that. I also don't think they should buy stocks because of that."
Charts tell the story:
Royal Bank of Scotland seeks $24 billion from investors
Big writedowns hitting Englands 2nd bank
biggest bank fundraising announced to date
april 22, 2008 nakedcapitalism.com
Today, we had the biggest bank fundraising announced to date, RBS's hugely dilutive £12 billion equity sale (and that's in addition to £4 billion of asset sales). Reader Steve pointed us to a key item from the press release: the Scottish bank's writedowns are markedly deeper than those taken by US banks to date, suggesting that the worst is not over on this side of the Atlantic. They have marked their US Alt-As at 50% of face, subprime at 38%, and CMBS at 83%.
Royal Bank of Scotland seeks $24 billion from investors
From Reuters By David Jolly Tuesday, April 22, 2008
PARIS: Royal Bank of Scotland on Tuesday became the latest lender to seek new financing to cover billions of pounds worth of soured investments, a move that could open the way for other British lenders with bad loans on their books to follow suit.
RBS said it would sell £12 billion, or $24 billion, of new shares to its current shareholders as it sought to restore its capital base, which it said had been depleted by the write-down of £5.9 billion of assets.
British banks have trailed some of their peers in the United States and Europe in writing down bad loans. British accounting standards do not require banks to act as early as their U.S. counterparts to recognize bad debts
Also from: Reuters By Daisy Ku and Laurence Fletcher
RBS's credit ratings came under pressure, with Fitch Ratings cutting one notch to AA and Moody's Investors Service warning it could strip the bank of its Aaa rating. Standard & Poor's said it maintained a negative outlook on the bank. (Additional reporting by Richard Barley; Editing by Erica Billingham)
Fannie Mae, Freddie Mac get accounting warning
More continuing oversight is needed
April 22, 2008 10:49 AM ET msn money
With the cleanup of $11 billion in accounting errors barely out of their rear-view mirror, Fannie Mae and Freddie Mac are getting a new warning about how they keep their books.
The regulator for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the Office of Federal Housing Enterprise Oversight, told the government-chartered buyers of mortgage debt Monday that they must be judicious in using fair-value accounting rules or they will be barred from them.
At issue is accounting standard No. 159, known as the Fair Value Option for Financial Assets and Financial Liabilities. The standard allows a firm to shift its accounting of an asset from "book value" to "fair market value." The practice can, in certain situations, produce gains when the value of a security declines
Steepening downturn - MacDonalds sales suffer
So you thought MacDonalds was in a good position to pickup pickup business in the downturn. Think again!
minyanville.com April 22, 2008
Minyanville - NEWS & VIEWS-Article: "McDonald's (MCD) was out with earnings this morning. Apparently, folks trading down are skipping past McDonald's. Look, who can afford to let their car idle in a drive-thru lane these days?
Three reasons we're concerned with MCD: 1) international growth, which was good with global comparable sales driving earnings this quarter 2) commodity pricing pressures (yep, still tough out there) and 3) comments on the macro economy considering the fact that, in our view, the company was well-positioned as a key beneficiary of the 'trade-down' effect in a weakening economy.
Unfortunately, the company's U.S. comps were slightly negative, which suggests the economic downturn may be steepening. That marks the first drop in U.S. comp sales in five years."
Monday, April 21, 2008
Taking the full measure of the US economy
The U.S. Economic Forecast
The Conference Board
Updated: April 14, 2008
From the Chief Economist
Bart van Ark
Taking the Measure of the U.S. EconomyA number of indicators confirm our earlier observations that the U.S. economy is not presently falling into a deep recession, but may instead be stabilizing at a slow but positive rate of growth for the first and second quarter... more
Also:The U.S. Economy: Getting the Diagnosis Right
Listen to Bart van Ark discuss the latest Consumer Confidence numbers.
Credit Cards: Self inflicted wounds and mutual assured destruction!
Credit Cards, getting tougher. getting more blood out of a turnip?
Posted by Yves Smith March 11, 2008 Naked CapitalismWe have other sightings of banks shooting themselves in the foot in misguided attempts to save their hides. Yesterday, we noted that credit card issuers were getting tougher with customers who came to them to restructure their debts via credit counselors. The idea of trying to extract more blood from turnips will backfire. First, if banks get too stringent, customers will quit trying to get themselves out of their debt mess; they'll just default (and if you have a thick enough skin, you might simply outlast your bank, since they are unlikely to go to the expenses of forcing borrowers into bankruptcy. The statute of limitations on bad debts is as little as six years in some states). Second, to the extent customers who don't have enough money to go around will simply rob Peter (their car or house payments) to pay Paul. To the extent that these measures lead to more housing defaults, it's a worse outcome systemically. Third is that these measures are an invitation for Congress to gut the 2005 bankruptcy bill that the industry so eagerly sought.
Oil surges as investors hunt an 'anti-dollar'
Can't get away from the US Dollar fast enough
By Ambrose Evans-Pritchard 1:43am BST 19/04/2008
Oil prices have surged to almost $115 a barrel as China builds up stocks before the Olympics and hedge funds pour money into commodity futures as a way to exploit the collapse of the dollar.
Global crisis: the Total oil refinery in Belarus. Russian output has dropped 1pc
The Opec producers cartel yesterday defied calls from Gordon Brown for a boost in output to help ease the global shortage, sticking to its target of 32m barrels per day (bpd) for the next three months.
There is some evidence that Opec has actually cut output by 350,000 bpd since the start of the year - a hostile move in the current climate. It blames the latest spike on "speculators", claiming that world demand will fall 1.4m bpd to 85.7m this quarter as the US grapples with recession.
Nobody else can step into the breach. Output is falling in the non-Opec trio of Britain, Norway and Mexico. Russia's production slipped 1pc in the first quarter. The cost of developing oil fields worldwide has doubled in three years. The cost of operating an oil rig per day has risen from $200,000 to $600,000 since 2003. ..."
also:
Authorities lose patience with collapsing dollar
By Ambrose Evans-Pritchard 1:44am BST 19/04/2008Jean-Claude Juncker, the EU's 'Mr Euro', has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds.
Jean-Claude Juncker, who is calling for Washington to take steps to halt the slide of the dollar
Momentum traders have blithely ignored last week's accord by the G7 powers, which described "sharp fluctuations in major currencies" as a threat to economic and financial stability. The euro has surged to fresh records this week, touching $1.5982 against the dollar and £0.8098 against sterling yesterday.
"I don't have the impression that financial markets and other actors have correctly and entirely understood the message of the G7 meeting," he said.
Public Companies, Pension Funds, Juice up their Earnings!
Can you believe the earnings reports on your Pension Fund?
Mish's Global Economic Trend Analysis: April 21, 2008"Juiced Earnings And Fanciful Figures
In his latest annual report Warren Buffett talks about How Public Companies Juice Earnings.
For the 363 companies in the S&P that have pension plans, assumptions in 2006 averaged 8%. Let’s look at the chances of that being achieved.
The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.
This means that the remaining 72% of assets – which are mostly in equities...
No Free Lunch
There is no free lunch for pension plans. The problem with pension plans is expected rates of return are simply too high. The risk free yield on 5 year treasuries is under 3%. Even as little as 6 months ago one could have locked in 5%. But that is not enough when assumptions are 8%.Yet we are now told by Paul Morgan, senior consultant and director of capital markets at Evaluation Associates, that the solution is "Liability-driven investing".This is of course complete nonsense, and it should not take a genius to figure it out. By what miracle can LDI return 8% a year if the long term average is 5%?"
Sunday, April 20, 2008
Credit Default Swap Market still growing
Clearing the fog
Apr 17th 2008 NEW YORK AND VIENNA
From The Economist Credit derivatives continue to boom, but the old order is under threat
BANKERS gathering in Vienna this week for the annual bash of the International Swaps and Derivatives Association (ISDA) had some big numbers to celebrate. The overall market for over-the-counter derivatives shot up to $455 trillion at the end of 2007. Some $62 trillion of that were credit-default swaps (CDSs), whose supercharged growth continues in spite of the crunch. But the emphasis this year was as much on playing down dangers as playing up volumes. ISDA was quick to point out that actual credit exposure was a mere 2% of the notional value of all contracts
Norton's comments: Last I heard it went from about 20 trillion to 40 trillion; now it is $62 trillion. And this is the unregulated market that is like many derivatives hard to value the instruments? Where is the renewal of faith here for the public?
Apr 17th 2008 NEW YORK AND VIENNA
From The Economist Credit derivatives continue to boom, but the old order is under threat
BANKERS gathering in Vienna this week for the annual bash of the International Swaps and Derivatives Association (ISDA) had some big numbers to celebrate. The overall market for over-the-counter derivatives shot up to $455 trillion at the end of 2007. Some $62 trillion of that were credit-default swaps (CDSs), whose supercharged growth continues in spite of the crunch. But the emphasis this year was as much on playing down dangers as playing up volumes. ISDA was quick to point out that actual credit exposure was a mere 2% of the notional value of all contracts
Norton's comments: Last I heard it went from about 20 trillion to 40 trillion; now it is $62 trillion. And this is the unregulated market that is like many derivatives hard to value the instruments? Where is the renewal of faith here for the public?
Friday, April 18, 2008
Turbulent Markets Send Investors Running for Cover
FundFlows Insight Reports - Lipper Research Services March 31, 2008
Investors added an estimated $314.9 billion to the conventional funds business in Q1 2008.* Investors couldn’t leave their assets in USDE(US Diversified Equity) Funds alone (-$37.0 billion).
Flows into the World Equity Funds macro-group (-$4.3 billion) turned cautious.
Mixed-Equity Funds drew in the largest net flows in the equity universe in the first quarter, roughly $27.9 billion.
Bond funds (+$42.1 billion) and taxable money market funds (+$265.6 billion) were the beneficiaries of recent market malaise, but muni money market funds managed to attract $20.4 billion during the quarter.
Investors added an estimated $314.9 billion to the conventional funds business in Q1 2008.* Investors couldn’t leave their assets in USDE(US Diversified Equity) Funds alone (-$37.0 billion).
Flows into the World Equity Funds macro-group (-$4.3 billion) turned cautious.
Mixed-Equity Funds drew in the largest net flows in the equity universe in the first quarter, roughly $27.9 billion.
Bond funds (+$42.1 billion) and taxable money market funds (+$265.6 billion) were the beneficiaries of recent market malaise, but muni money market funds managed to attract $20.4 billion during the quarter.
US must build its way out of debt
MSMoney by Jim Kubiak
"US must build its way out of debt
We're behind in the global competition to improve infrastructure. Spending to catch up is the best way for the US to overcome its debt and save Americans' standard of living...
Not investing will cost more Why is investing in infrastructure so important?
First, because not investing in infrastructure raises costs and makes an economy less efficient.
Sometimes that's easy to see, as in the recent debacle where the need to inspect the wiring bundles on older planes produced massive groundings and delays for travelers on Delta Air Lines (DAL, news, msgs) and AMR Corp.'s (AMR, news, msgs) American Airlines..."
Sometimes the impact is more subtle -- but even larger. For example, in 2005 (the most recent estimate available), traffic congestion in U.S. cities cost the economy $4.2 billion in lost hours and 2.9 billion gallons in wasted fuel. ..."
"US must build its way out of debt
We're behind in the global competition to improve infrastructure. Spending to catch up is the best way for the US to overcome its debt and save Americans' standard of living...
Not investing will cost more Why is investing in infrastructure so important?
First, because not investing in infrastructure raises costs and makes an economy less efficient.
Sometimes that's easy to see, as in the recent debacle where the need to inspect the wiring bundles on older planes produced massive groundings and delays for travelers on Delta Air Lines (DAL, news, msgs) and AMR Corp.'s (AMR, news, msgs) American Airlines..."
Sometimes the impact is more subtle -- but even larger. For example, in 2005 (the most recent estimate available), traffic congestion in U.S. cities cost the economy $4.2 billion in lost hours and 2.9 billion gallons in wasted fuel. ..."
Thursday, April 17, 2008
Fed's Swap-O-Rama Gets Crazier
Mish's Economic Trend Global Analysis April 10, 2008
The Federal Reserve's Term Auction Facility, TAF, has failed to produce the intended results - encourage more bank to bank lending at reduced rates. That should not be too surprising. If the Fed is willing to be a "swapper of last resort," why should banks risk lending to each other?
After all, bank-to-bank loans are unsecured. Who wants that risk, especially when banks have every reason not to trust each other? Please see Failures of the Term Auction Facility for detailed analysis of this situation.
CLOs Pawned Off To The FED
Now things are getting even crazier at the Fed's Swap-O-Rama as Buyout CLOs Are Being Used for Fed Loans...
The poster child for this is an 92.6% AAA rated Washington Mutual(WM) mortgage pool affectionately known as WMALT 2007-0C1. Here is the status of that pool as of March 31, 2008.
March Pool Stats
* 25.3% 60 day delinquent or worse
* 13.35% Foreclosure
* 4.44% REO
Bear in mind, that pool is less than a year old. For more details, please see WaMu Alt-A Pool Deteriorates Further.
Now we see CLOs being created for the express purpose of swapping to the Fed. The reason the CLOs are being created is there is no market for the underlying loans. Yet supposedly Moody's, Fitch, and the S&P are supposed to rate this garbage investment grade so that it can be swapped with the Fed. Amazing..."
The Federal Reserve's Term Auction Facility, TAF, has failed to produce the intended results - encourage more bank to bank lending at reduced rates. That should not be too surprising. If the Fed is willing to be a "swapper of last resort," why should banks risk lending to each other?
After all, bank-to-bank loans are unsecured. Who wants that risk, especially when banks have every reason not to trust each other? Please see Failures of the Term Auction Facility for detailed analysis of this situation.
CLOs Pawned Off To The FED
Now things are getting even crazier at the Fed's Swap-O-Rama as Buyout CLOs Are Being Used for Fed Loans...
The poster child for this is an 92.6% AAA rated Washington Mutual(WM) mortgage pool affectionately known as WMALT 2007-0C1. Here is the status of that pool as of March 31, 2008.
March Pool Stats
* 25.3% 60 day delinquent or worse
* 13.35% Foreclosure
* 4.44% REO
Bear in mind, that pool is less than a year old. For more details, please see WaMu Alt-A Pool Deteriorates Further.
Now we see CLOs being created for the express purpose of swapping to the Fed. The reason the CLOs are being created is there is no market for the underlying loans. Yet supposedly Moody's, Fitch, and the S&P are supposed to rate this garbage investment grade so that it can be swapped with the Fed. Amazing..."
Causes of Global Food Crisis-Time for Honesty!!
Stop the corn oil bio-fuel folly! Here is a better answer:
Apr 17, 2008 - 08:37 PM By Brian BloomHigh lipid algae cultivation for oil extraction and food augmentation.
"...Unlike, corn, for example, Algae can replicate itself very rapidly. It can be cultivated anywhere there is sunlight – even deserts, provided irrigation water is pumped to site. An acre of land will produce around 30 gallons of ethanol from corn a year. An acre of land will yield at least 30,000 gallons of lipid oil from algae a year ..."
Real Cost of owning a car
| Average Annual Household Expenditures, 2004 | |
|---|---|
| Item | Proportion of Total Expenditure |
| shelter (home mortgage or rent) | 32% |
| car ownership & operating expenses | 17% |
| food | 13% |
| pensions & Social Security contributions | 10% |
| utilities | 7% |
| health care | 6% |
| entertainment | 5% |
| clothing | 4% |
| household furnishing | 4% |
| education | 2% |
| source: BLS Current Expenditure Shares Table | |
According to the Dept. of Labor's Bureau of Labor Statistics, car ownership costs are the second largest household expense in the U.S. . In fact, the average household spends almost as much on their cars as they do on food and health care combined for their entire family (see table at right).
Since all households have only a limited amount of income, the amount a household spends on its car(s) is lost money they could have spent on other worthwhile expenditures, like saving for retirement, education, or the purchase of a home. The question is, how much is it really costing them in terms of these foregone opportunities?
Our "Real Costs of Car Ownership" calculator attempts to quantify this. You can use the default values (taken from the 2004 Bureau of Labor Statistics Consumer Expenditure Survey) or enter what your own household spends each year. Using this data, the calculator calculates your family's monthly average car expenses. It also calculates what your family would achieve if it used this amount to make monthly contributions to a retirement savings account, education savings account, or home mortgage, instead of spending it on your car(s).
Grandfather Government Spending Economic Report by MWHodges
Grandfather Government Spending Economic Report by MWHodges
"QUESTION:How much of our economy is controlled by federal, state & local government ?"
"QUESTION:How much of our economy is controlled by federal, state & local government ?"
I am concerned about the economic future of our youth
The degree of Government Dominance of our Economy is Unknown to Many
- and, certainly was not intended by America's founding forefathers.
- here you will find 6 chart-pictures you have never seen
The Dollar Hasn't Bounced
by James TurkFounder of GoldMoney "I first presented the following chart with its downward pointing arrow in my alert on November 11, 2007, and made the following observation. "When taken together, the eerie calm as the dollar collapses and the arrow in the above chart pointing to the building downside momentum suggest that the dollar is nowhere near its final low....
One can only conclude that these are not normal circumstances. In other words, I think we have reached the 'tipping point'.
More people want out of the dollar than those who are willing to hold it. The final collapse of the dollar begins now. It will I expect play out over the next three to six months, culminating in a major dollar crisis.
I have been waiting for two events in particular to signal that the final collapse of the dollar had begun. One was for the Dollar Index to make a new record low by breaking below 78.30, which it did just a few weeks before I drew the arrow in the above chart last November. The other event was for gold to break above $1,000, which I anticipated would happen this year. Gold did briefly break above $1,000 last month before being beaten back down below that much-watched level by the gold cartel. I recommend reading the article in the current issue of Investor's Digest by John Embry of Sprott Asset Management describing this brief encounter with $1,000...."
More people want out of the dollar than those who are willing to hold it. The final collapse of the dollar begins now. It will I expect play out over the next three to six months, culminating in a major dollar crisis.
I have been waiting for two events in particular to signal that the final collapse of the dollar had begun. One was for the Dollar Index to make a new record low by breaking below 78.30, which it did just a few weeks before I drew the arrow in the above chart last November. The other event was for gold to break above $1,000, which I anticipated would happen this year. Gold did briefly break above $1,000 last month before being beaten back down below that much-watched level by the gold cartel. I recommend reading the article in the current issue of Investor's Digest by John Embry of Sprott Asset Management describing this brief encounter with $1,000...."
Wednesday, April 16, 2008
Weak Dollar is often-overlooked key to earnings
Foreign exchange is often-overlooked key to earnings -analyst - MarketWatch: "SAN FRANCISCO (MarketWatch) -- Investors who ignore the potential impact of foreign exchange markets on earnings do so at their peril, as a spate of recent results show, a currencies analyst said Wednesday.
'There is one consideration that rarely pops into the mind of the American investor but can mean the difference between a good quarter and a bad one -- the impact of currency fluctuations on a company's bottom line,' wrote Kathy Lien, chief strategist at Forex Capital Markets....
The weaker dollar increases the value of overseas earnings when repatriated into domestic currency, so it can lift the profits of companies with overseas exposure.
Chipmaking giant Intel Corp. (INTC: Intel Corporation News, chart, profile, more)
(INTC 22.19, +1.28, +6.1%) issued an upbeat forecast Tuesday during its first-quarter earnings report.
"Intel's CEO said this morning that they are not hurt by the U.S. slowdown because 75% of their sales are outside of the U.S.. Once again foreign demand is boosting growth," said Lien. "
'There is one consideration that rarely pops into the mind of the American investor but can mean the difference between a good quarter and a bad one -- the impact of currency fluctuations on a company's bottom line,' wrote Kathy Lien, chief strategist at Forex Capital Markets....
The weaker dollar increases the value of overseas earnings when repatriated into domestic currency, so it can lift the profits of companies with overseas exposure.
Chipmaking giant Intel Corp. (INTC: Intel Corporation News, chart, profile, more)
(INTC 22.19, +1.28, +6.1%) issued an upbeat forecast Tuesday during its first-quarter earnings report.
"Intel's CEO said this morning that they are not hurt by the U.S. slowdown because 75% of their sales are outside of the U.S.. Once again foreign demand is boosting growth," said Lien. "
Goldman Sachs and Wells Fargo warn 'delusional' investors on stocks - Telegraph
the bullish views of some market players as 'bordering on delusional'.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:58am BST 15/04/2008
"Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.
Goldman Sachs said the key for equities will be the full-year guidance offered by companies
David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.
"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'....
Scott Anderson, chief economist at Wells Fargo, is equally pessimistic, describing the bullish views of some market players as 'bordering on delusional'.
'The equity markets have not yet priced in a prolonged downturn in economic growth in my opinion. We are still in the early stages of the credit crunch. Earnings estimates for the second half of the year are likely still far too high,' he said."
Credit Default Swaps Market: Now $ 62 Trillion, not $ 34.5 Trillion
naked capitalism: Credit Default Swaps and Bank Leverage: "Credit Default Swaps and Bank Leverage
The Financial Times reports that that $45 trillion figure that most of us have been using for the size of the credit default swaps market is woefully dated. The International Swaps and Derivatives Association will announce today that outstanding contracts now total $62 trillion, up from $34.5 trillion a year ago."
See also:Mish's Global Economic Trend Analysis: Credit Default Swap Tsunami Approaches: "Default Swaps Intensify Credit Crunch Is the loss at AIG really $5 billion or is it $10 billion, or is it more? Don't ask AIG, they don't have any idea. AIG cannot “reliably quantify” the figure. That sure must be a huge confidence booster to investors."
Norton's comment: So what does this mean? It means the the degree of leverage of the commercial banking and investment banking system is still unfolding as higher than even the FED chairman Bernake believes or admits. As the system continues to de-leverage, we will have more surprises that the safety reserves that backup deposit funds and loans are inadequate by any measure. this "discovery" will demand increases in reserve funds that will continue to reduce and complicate efforts to provide loan funds for qualified loan clients; thus a continuing credit crunch.
The Financial Times reports that that $45 trillion figure that most of us have been using for the size of the credit default swaps market is woefully dated. The International Swaps and Derivatives Association will announce today that outstanding contracts now total $62 trillion, up from $34.5 trillion a year ago."
See also:Mish's Global Economic Trend Analysis: Credit Default Swap Tsunami Approaches: "Default Swaps Intensify Credit Crunch Is the loss at AIG really $5 billion or is it $10 billion, or is it more? Don't ask AIG, they don't have any idea. AIG cannot “reliably quantify” the figure. That sure must be a huge confidence booster to investors."
Norton's comment: So what does this mean? It means the the degree of leverage of the commercial banking and investment banking system is still unfolding as higher than even the FED chairman Bernake believes or admits. As the system continues to de-leverage, we will have more surprises that the safety reserves that backup deposit funds and loans are inadequate by any measure. this "discovery" will demand increases in reserve funds that will continue to reduce and complicate efforts to provide loan funds for qualified loan clients; thus a continuing credit crunch.
Tuesday, April 15, 2008
U.S. Foreclosures Jump 57%
Calculated Risk: U.S. Foreclosures Jump 57%: Tuesday, April 15, 2008
From Bloomberg:
"U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders."
From Bloomberg:
"U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders."
8 Steps to a Trillion-Dollar Meltdown
"The Americans will always do the right thing," British Prime Minister Winston Churchill once said, "after they've exhausted all the alternatives." Must we continue to follow this history of folly and blindness? (Norton)
8 Steps to a Trillion-Dollar Meltdown
By Charles R. Morris April 2008
How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes.
No, it’s not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it. Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets—houses, stocks and bonds, office buildings—rather than by the prices of things you buy at the store. Here’s how it happened."
8 Steps to a Trillion-Dollar Meltdown
By Charles R. Morris April 2008
How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes.
No, it’s not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it. Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets—houses, stocks and bonds, office buildings—rather than by the prices of things you buy at the store. Here’s how it happened."
Relevant 2006 Prophesy: 39 Step housing decent
Weblog and wEssays by Charles Hugh Smith
Sounds like an excellent description of the real estate market. The market might well end up tracing far fewer than 39 such stairsteps down to its ultimate low in 2011 or 2012, but in the spirit of innocents plunged into financially deadly troubles and smooth sharpies playing hidden hands to the detriment of said innocents, here is an informal chart of the steps the housing market has already begun descending:
BELOW: Notice how prior housing cycles are super-imposed on this ten year timeline
This article includes excerpts from Barron's October 10, 2006.
..Charles Hugh Smith:
" Fortress of Denial Consider, if you will, the general optimism (dare we say euphoria?) of homeowners in these poll numbers from the current issue of Barron's. The operant phrase here is "state of denial," but this doesn't quite capture the robust, indeed, fortified nature of homeowner denial. I humbly suggest the more accurate term would be a Fortress of Denial--impervious to attack by reason, statistics or indeed any fact-based battering ram....
And unsurprisingly, we already hear voices calling "the bottom" in housing stocks: Whistling Past Housing's Graveyard? (Wall Street Journal) This will go down, I believe, as the analog of the market analysts' serene calls that Nasdaq "had bottomed" at 4,000 in fall of 2000--two years and 2,900 points too early. Let's look at some charts which suggest the bottom is nowhere in sight in the housing market..."
U.S. corporate bankruptcies are accelerating
``Now in the corporate market, the shoe is just beginning to fall, and we're poised for a major correction that has been coming for at least a decade.''
U.S. corporate bankruptcies are accelerating as the economic slowdown compounds the end of easy credit.....Increased levels of distressed corporate debt signal that failures will accelerate, says Lynn LoPucki, a professor at the University of California, Los Angeles law school who studies bankruptcies.The amount of distressed corporate bonds jumped to $206 billion April 11 from $4.4 billion in March 2007, according to a Merrill Lynch & Co. index of bonds yielding at least 10 percentage points more than Treasuries. The share of leveraged loans considered distressed was 16 percent at the end of March, the highest since 1997, says Standard & Poor's, based on loans trading below 80 percent of their face value.
``Money was so easy, companies that should have failed were kept alive,'' said Rick Cieri, a bankruptcy lawyer at Kirkland & Ellis in New York. He said bankruptcies will include businesses ``with severe operational problems'' and too much debt. ``Companies may well be sicker when they enter Chapter 11.''.....``Subprime was just a paradigm for the credit markets overall,'' Maxwell said. ``Now in the corporate market, the shoe is just beginning to fall, and we're poised for a major correction that has been coming for at least a decade.''
US Dollar as fiat currency in jeopardy
Report Highlights Fannie, Freddie Risks - Forbes.com: "WASHINGTON - A deep recession could force mortgage-finance titans Fannie Mae and Freddie Mac to require a federal bailout large enough to hurt the U.S. government's top-grade credit rating, Standard & Poor's warned Monday.
A lower credit rating would mean higher borrowing costs for the U.S. government and could lead to a flight from Treasury securities, which investors - including foreign governments - consider to be virtually risk-free"
What is a "fiat currency"? Wiki: "Fiat money is a subset of general credit money, but a special one in which a government, often through a central bank or reserve bank, has taken the responsibility (monetary authority) of being the major creditor backing the currency." the US dollar has acted as the World's fiat currency since we went off the gold standard.
A lower credit rating would mean higher borrowing costs for the U.S. government and could lead to a flight from Treasury securities, which investors - including foreign governments - consider to be virtually risk-free"
What is a "fiat currency"? Wiki: "Fiat money is a subset of general credit money, but a special one in which a government, often through a central bank or reserve bank, has taken the responsibility (monetary authority) of being the major creditor backing the currency." the US dollar has acted as the World's fiat currency since we went off the gold standard.
Main Street Rebels: Riots over food prices
Calculated Risk: "From CNN: Riots, instability spread as food prices skyrocket
Riots from Haiti to Bangladesh to Egypt over the soaring costs of basic foods have brought the issue to a boiling point and catapulted it to the forefront of the world's attention, the head of an agency focused on global development said Monday."
Riots from Haiti to Bangladesh to Egypt over the soaring costs of basic foods have brought the issue to a boiling point and catapulted it to the forefront of the world's attention, the head of an agency focused on global development said Monday."
Inflation is here; count on it
M3 Long-term growth (green)M3 is broad indicator of money in circulation
FED's Monetary Policy at work: flood the market with money.
President Bush: Fiscal Policy: He supports a strong US Dollar? Bunk!Inflation is the consequence for the consumer (below).
Results on Main Street USA!Blue line is truest measure; not the govt version in RED
Norton's comments: And Pres. Bush says he supports a strong dollar? If this is his vision of support, then I don't want to see how he supports any public promises! Consumers pay for the excesses and greed of the leaders we depend on the run OUR economy!
US Dollar =fiat currency, how long?
Safe Haven | Facts Are Stubborn Things Part II: by Joseph Russo April 14, 2008 Safe Haven
"THE ALADDIN'S LAMP OF CENTRAL BANKING COMING FULL CIRCLE
If one is inclined toward general agreement with the notion that the pinnacle of power in the world is the power to create money, - then one must hastily conclude that; the government-aligned private organizations of central banking cartels, whom fund all of the worlds imperial centers of power, - must then be held as the absolute mightiest of powers, whom preside at the highest seat of omnipotent influence over a vast array of interconnected relationships across the entire global landscape.Shockingly, ALL modern-day legal tender manufactured by central banks around the world, have no such stability or metric beyond the decree to which those governments whom endorse its issuance approve, and upon the day-to-day faith and confidence that such currencies will be accepted as legal tender in exchange for goods and services whom its citizenry relies upon for planning their futures, and in providing for the sustenance of their day-to-day survival...
Who's the Boss
Central banks have been carefully positioned to exist as private legal entities, somewhat separate and independent from the governments they serve, and sometimes defined as quasi-government entities so as to in part, avoid plausibility of any partiality relative to specific political influence in setting their autonomous monetary policies."
the survival of the richest; poorest be damned
Capitalism Stumbles: by Robert Kiyosaki, Yahoo April 14, 2008, 12:00AM
"Most of us are aware of the sacrificial slaughter of Bear Sterns. Some people call it a bailout, but I call it a handout -- a government handout to some of the richest people on Earth, paid for by American taxpayers.
It's the survival of the richest, and the poorest be damned. There's something dismal about a society that operates by those values....
When Capitalism Stumbles
Bailing out the rich means over $800 billion from the Fed's magic checkbook entered the market. Immediately, the stock market rebounded and the price of gold and silver declined. The U.S. dollar strengthened against the euro. While this looks like a good sign, I'm afraid the problem isn't solved. The inevitable may only have been delayed.
Our problem is a toxic U.S. dollar. Printing funny money steals from the poor and middle class, savers, and the elderly. It may be legal, but it isn't moral or ethical. As long as the Fed is allowed to wield its power at will, the prices for food and fuel will only go up.
So will the price of gold and silver. Some are calling for gold and silver to go over $2,500 and $200 an ounce, respectively. Some even believe gold will go as high as $5,000 an ounce. I hope not. While I get excited about seeing the gold I purchased for less than $300 an ounce flirt with $1,000 an ounce, I also begin to worry.
The rise in the price of gold is a sign that capitalism has stumbled. And when capitalism stumbles, workers' wages buy less and savings are wiped out. Even gains from the stock market are diminished because our dollar gains are worth less..."
Norton's comments: dollar devalution is a not so hidden tax increase; so is the Bear Stearns bailout, the FED cure by swapping junk derivatives for US treasury collatoralized loans / buyouts
"Most of us are aware of the sacrificial slaughter of Bear Sterns. Some people call it a bailout, but I call it a handout -- a government handout to some of the richest people on Earth, paid for by American taxpayers.
It's the survival of the richest, and the poorest be damned. There's something dismal about a society that operates by those values....
When Capitalism Stumbles
Bailing out the rich means over $800 billion from the Fed's magic checkbook entered the market. Immediately, the stock market rebounded and the price of gold and silver declined. The U.S. dollar strengthened against the euro. While this looks like a good sign, I'm afraid the problem isn't solved. The inevitable may only have been delayed.
Our problem is a toxic U.S. dollar. Printing funny money steals from the poor and middle class, savers, and the elderly. It may be legal, but it isn't moral or ethical. As long as the Fed is allowed to wield its power at will, the prices for food and fuel will only go up.
So will the price of gold and silver. Some are calling for gold and silver to go over $2,500 and $200 an ounce, respectively. Some even believe gold will go as high as $5,000 an ounce. I hope not. While I get excited about seeing the gold I purchased for less than $300 an ounce flirt with $1,000 an ounce, I also begin to worry.
The rise in the price of gold is a sign that capitalism has stumbled. And when capitalism stumbles, workers' wages buy less and savings are wiped out. Even gains from the stock market are diminished because our dollar gains are worth less..."
Norton's comments: dollar devalution is a not so hidden tax increase; so is the Bear Stearns bailout, the FED cure by swapping junk derivatives for US treasury collatoralized loans / buyouts
Monday, April 14, 2008
Invest in your future through Co-op America
Co-op America - About Us: "About Co-op America
Grow the Green Economy
Help us grow a green economy that works for people and the planet.
Join Co-op America Today!
Co-op America is a not-for-profit membership organization founded in 1982. Our mission is to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society.
Our Vision
We work for a world where all people have enough, where all communities are healthy and safe, and where the bounty of the Earth is preserved for all the generations to come."
Grow the Green Economy
Help us grow a green economy that works for people and the planet.
Join Co-op America Today!
Co-op America is a not-for-profit membership organization founded in 1982. Our mission is to harness economic power—the strength of consumers, investors, businesses, and the marketplace—to create a socially just and environmentally sustainable society.
Our Vision
We work for a world where all people have enough, where all communities are healthy and safe, and where the bounty of the Earth is preserved for all the generations to come."
Sunday, April 13, 2008
Global Economics-End of FED?
End of the Federal Reserve?
Fitz-Gerald: My take is that former Fed Chair Alan Greenspan and current Fed Chairman Ben S. Bernanke may go down as the worst central bank chairmen in history. Do you see it differently?
Rogers: [Bernanke] and Greenspan together will probably bring [about] the end of the Federal Reserve. We've had two central banks in America that failed. This third central bank will probably fail, too, because of Bernanke and Greenspan.
The Federal Reserve last week put $200 billion more onto its balance sheet of mortgages. Now I don't know how big they can expand their balance sheet, but if they keep doing it, there's only so much - [and] they just bought Bear Stearns
******************************************************
Jim Rogers Discusses The Global Economy – Part I
Written by Keith Fitz-Gerald April 09, 2008 10:57 AM EST
This is the first installment of a two-part story based on Investing Director Keith Fitz-Gerald's interview with investing guru Jim Rogers. In the second installment, Fitz-Gerald will explore China's potential, the energy sector and the Middle East, and the global commodities boom.
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Our Ass-Backwards Banking System
Cutting equity lines on credit worthy borrowers
Sunday, April 13, 2008 | 08:19 AM
As the credit crunch metastasizes its way through the financial system, its worth recalling its simple origins: The lending of money to people who could not afford to pay it back. That error was then compounded, by failing to maintain security for loans by traditional metrics, i.e., insufficient loan-to-value (LTV) measures.
The banking sector's solution to this problem? Cancel loans to the most credit worthy borrowers, including those whose loan-to-value exceeds traditional historical requirements.
Such was today's shocker, as examined in Gretchen Morgenson's column in the Sunday Times:more.
TRILLION $ Derivatives Mkt: RMBS, CDO, CDC Untradable?
For a while, Pez candy dispensers were an UnTradeable -- until eBay created a market where these can be effectively bought and sold. However, the total value of all the Pez dispensers in the world wasn't measured in the trillions, or even 100s of billions. Even tho they are relatively illiquid, their small capitalization makes it viable. And don't forget, there is no leverage involved in any of the eBay items. Hence, no margin calls.
Now consider the size of the derivative marketplace based upon mortgages: Everything from RMBS to CDOs to CDC. It runs into the trillions.
If they cannot be effectively priced, are these products essentially untradeable?
Norton's comment: I believe AA and better are being taken by the FED as collateral on so called short-term commercial loans to investment banks and brokerages. The FED may also be buying some of these for their balance sheets. HOw will they be valued? How are they valued for the loans? At face model value? Now its taxpayer money hanging in the balance. Did you authorize this?
Now consider the size of the derivative marketplace based upon mortgages: Everything from RMBS to CDOs to CDC. It runs into the trillions.
If they cannot be effectively priced, are these products essentially untradeable?
Norton's comment: I believe AA and better are being taken by the FED as collateral on so called short-term commercial loans to investment banks and brokerages. The FED may also be buying some of these for their balance sheets. HOw will they be valued? How are they valued for the loans? At face model value? Now its taxpayer money hanging in the balance. Did you authorize this?
Sorry record for HUD's chairmen Alphonso Jackson
Calculated Risk: "Sunday, April 13, 2008
The Sorry Mess That Is Alphonso Jackson's HUD
A long piece from the Washington Post, which I recommend reading in its entirety.
In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term 'correction.'
He pushed for legislation that would make it easier for federally backed lenders to make mortgage loans to risky borrowers who put less money down. He issued a rule that was criticized by law enforcement authorities because it could increase the difficulty of detecting and proving mortgage fraud."
The Sorry Mess That Is Alphonso Jackson's HUD
A long piece from the Washington Post, which I recommend reading in its entirety.
In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term 'correction.'
He pushed for legislation that would make it easier for federally backed lenders to make mortgage loans to risky borrowers who put less money down. He issued a rule that was criticized by law enforcement authorities because it could increase the difficulty of detecting and proving mortgage fraud."
Greed and punishment for banks and firms
Not too many people paid attention to such warnings till Gibson announced its derivatives loss
Live Mint | by Tamal Bandyopadhyay April 9, 2008
Ohio-based Gibson Greetings Inc. was caught off guard:
Banker’s Trust: We are recognizing our obligation for accounting purposes; however, it is clear that the company should never have been put in a position like this as we relied on Bankers Trust to advise us on these transactions. We have taken measures to ensure this will not happen again.”
These are the words of Benjamin J. Sottile, chairman, president and CEO of Cincinnati, Ohio-based Gibson Greetings Inc. the third largest greetings card manufacturer in the US, after the firm discovered that it had made $20 million (Rs81 crore) losses for the quarter ended March 1994 on interest rate derivatives transactions with Bankers Trust.
Friday, April 11, 2008
Where is the market/economics really going?
One man's view of 2008 to 2010
by John Rubino 2/24/2008 www.dollarcollapse.com
Back in June of 2006 I posted some long excerpts from an internal report produced by Colorado & Santa Fe Real Estate, a Denver firm owned by an entrepreneur named Marcel Arsenault. After riding the long bull market in U.S. real estate to a considerable personal fortune, Marcel was doing something unusual for a real estate guy: He was selling out at what now appears to be the top. But not just selling out. He was so convinced that real estate was headed for a crash that he'd converted his company to a hedge fund that was shorting REITs and industrial commodities. ...
Commercial Real Estate (Retail, Office, Industrial)
The thing that’s keeping commercial real estate afloat is that owners enjoyed a good economy for the last five years. Tenants are still paying rent, and until recently, expanding. But once the economy turns negative—I think we’re probably in the beginning stages of a recession—then that fig leaf of “I’ve got income fundamentals working for me” goes away. By year end, it’s a different world for commercial owners. After six years of writing mortgages at super peak values, in which commercial mortgage debt doubled nationwide, commercial mortgage lenders are suddenly realizing that they’re highly exposed and are starting to tighten up. Once mortgage volumes start falling, lenders will tighten mortgage underwriting, triggering a feedback loop that produces a crescendo of falling values. Our proprietary liquidity index predicts a downtrend that reflects the past few years’ logarithmic upturn, but in reverse...
Most commercial lenders and property owners don’t agree, but commercial real estate is likely headed for a worse downturn than housing. After all, a subprime borrower living a house will typically do whatever she can to keep the house. The scoundrels I know in commercial real estate will send the keys back in a heartbeat....
What other advice?
Avoid the financials, particularly banks. They’re just working through the first of three or four perfect storms that are coming. They’re dealing with their subprime problems but they haven’t set much aside for the coming consumer credit card and auto loan recession; they haven’t set much aside for the coming wave of corporate loan defaults, nor have they prepared for a commercial real estate downturn....
This is a liquidity crisis. In a systemic deleveraging, assets plummet in value as lenders call in their loans and tighten lending standards. They’ll suck up cash like a fire sucks up oxygen. Cash will move from being king to emperor....We’d go in and start accumulating distressed banks. But that can’t be done until the financial deleveraging has worked through the system. That's probably two years away, and you want to be waiting like a vulture.
Blue Chip Stocks - think again!
Blue chip stocks - part of every good portfolio. Right?
From Wikipedia, the free encyclopedia
A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities. The term derives from casinos, where blue chips stand for counters of the highest value. Most blue chip stocks pay regular dividends, even when business is faring worse than usual.
GM Daily Chart
On the other hand, GE bagholders are looking at this plunge
GE Daily chart
Norton's comment: there was a time when these would have been considered the foundation of a conservative investment portfolio. Now, they are not fitting the definition we had expected. Now it would seem that risky commodities in agriculture and precious metals and taking a bearish bet on the good old US dollar are sounder investments.
Thursday, April 10, 2008
Ten reasons your taxes are going up no matter what
Ten reasons your taxes are going up no matter what - MarketWatch: "Well, folks, the party's over. Campaign rhetoric won't hide America's excesses, denial, incompetence and arrogance much longer. No matter who's elected, taxes will increase to cover massive debts. Greed has driven America's great economic engine into a 'debt contagion' ditch with a recession, bear market, price inflation, and weak job and housing markets ... you bet your taxes will increase...
Washington's hiding all that from us. We were sold a war-on-the-cheap, to cost a mere $50 billion to $60 billion, to be self-financed out of oil revenues. Today we're spending $50 billion every month! This war is already an economic disaster for America and the bill's still coming due..."
Washington's hiding all that from us. We were sold a war-on-the-cheap, to cost a mere $50 billion to $60 billion, to be self-financed out of oil revenues. Today we're spending $50 billion every month! This war is already an economic disaster for America and the bill's still coming due..."
TED SPREAD - up again
Bloomberg.com:Paul Krugman NY Times April 10, 2008, 9:54 am
Gurk. The TED spread is up again. So is the LIBOR-OIS spread. (One is the spread between Libor and Treasuries, the other the spread between Libor and the futures price of the Fed funds rate; I tend to prefer TED spread, because fears of bank defaults should affect Fed funds as well as Libor; but I know that Fed officials prefer OIS. Anyway, both pointing in the same direction.) And the flight to safety is back, with the interest rate on one-month Treasuries — which should be about the same as Fed funds — back down to 1%.
All of this involves fear of defaults by banks — despite what look from here (central New Jersey) like utterly clear signals from the Fed that bank debts will be socialized if necessary. I’m puzzled, and worried.
Gurk. The TED spread is up again. So is the LIBOR-OIS spread. (One is the spread between Libor and Treasuries, the other the spread between Libor and the futures price of the Fed funds rate; I tend to prefer TED spread, because fears of bank defaults should affect Fed funds as well as Libor; but I know that Fed officials prefer OIS. Anyway, both pointing in the same direction.) And the flight to safety is back, with the interest rate on one-month Treasuries — which should be about the same as Fed funds — back down to 1%.
All of this involves fear of defaults by banks — despite what look from here (central New Jersey) like utterly clear signals from the Fed that bank debts will be socialized if necessary. I’m puzzled, and worried.
Four Major Mortgage Insurers ratings downgraded
Associated Press 04.09.08, 3:54 PM ET
Sector Snap: Mortgage Insurers - Forbes.com: "NEW YORK - Shares of mortgage insurers tumbled Wednesday after Standard & Poor's downgraded four major insurers, threatening their ability to insure home loans purchased by Fannie Mae and Freddie Mac.
S&P late Tuesday cut its rating on MGIC Investment Corp., Old Republic International Corp., PMI Group Inc. and Radian Group Inc.
S&P is concerned that a struggling economy may push more people into default on their mortgages, forcing the insurers to pay more claims.
The downgrades are especially important because many of these companies' policies are on home loans purchased by Fannie Mae and Freddie Mac"
Sector Snap: Mortgage Insurers - Forbes.com: "NEW YORK - Shares of mortgage insurers tumbled Wednesday after Standard & Poor's downgraded four major insurers, threatening their ability to insure home loans purchased by Fannie Mae and Freddie Mac.
S&P late Tuesday cut its rating on MGIC Investment Corp., Old Republic International Corp., PMI Group Inc. and Radian Group Inc.
S&P is concerned that a struggling economy may push more people into default on their mortgages, forcing the insurers to pay more claims.
The downgrades are especially important because many of these companies' policies are on home loans purchased by Fannie Mae and Freddie Mac"
Wednesday, April 9, 2008
Biggest banks thinly capitalized, may lend less
Citigroup, Wells Fargo May Loan Less After Downgrades (Update3)
By Mark Pittman, Alan Katz and David Mildenberg
April 8 (Bloomberg) -- Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years.
The margin may erode further in coming weeks. Credit ratings on $704 billion of bonds have been cut this year following the collapse of the U.S. housing market. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that downgrades may compromise bank capital ratios ( Banks May Fuel Downturn as Downgrades Slow) enough that some of the largest institutions will no longer be considered well capitalized.
Falling below a regulatory benchmark that is intended to maintain a minimum level of capital to protect depositors against losses would subject banks to more scrutiny from regulators than they have ever experienced.
``This is a nightmare for the country,'' said William Isaac, who was chairman of the FDIC from 1981 to 1985.
Will Citibank Survive?
Mar 22, 2008 - 05:03 AM
By: James_Turk
The center of focus this past week on Wall Street – and indeed, much of the financial world – was whether or not Bear Stearns will go belly-up. As questions arose about the quality of its $395 billion of assets that were carried on only $12 billion of equity, its customers and other brokers became unwilling to accept the counterparty risk that arises from transacting with Bear, while its lenders began worrying about repayment. Being leveraged to that extent, even a small decline in the value of its assets can significantly erode the firm's equity base. But given that Bear is no more than the fifth largest broker in the US , it is a relatively small fish in the financial world....
The question therefore becomes, what are Citi's assets worth? As explained above, we can't accurately answer that question, but here is some information to ponder.
(1) Citi has $133.4 billion of Level 3 assets. Here's how MarketWatch recently described this category when reporting Citi's Level 3 assets: “Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess.” In an analysis of Bear Stearns, Barron's prudently observes: “Of particular concern are Bear's so-called Level Three assets, which stood at $28 billion as of November and by definition are illiquid and valued on the basis only of the firm's own estimates.
Any buyer might be worried about the need to mark down the value of these assets, and the value of Bear's large book of financial derivatives.” What's more, Bear's so-called “large book” of derivatives pales in comparison to the size of Citi's book. According to the Comptroller of the Currency, Citi is counterparty to financial derivatives with a notional value of $34.0 trillion (sic). We should keep in mind Warren Buffett's warning from 2002: “Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
(2) Last week JP Morgan warned that the Street is facing a “ systemic margin call ” on subprime mortgages that alone might deplete $325 billion of capital. Citibank alone has about 10% of total bank capital in the US , so if it were to incur 10% of that loss projected by JP Morgan or $32.5 billion, only $17.2 billion of tangible equity would remain. Note that Morgan's analysis ignored all of the other paper now being called into question, which could mean even bigger losses for the banks. For example, on February 29 th Bloomberg reported: “Citigroup Inc. helped create at least $6.9 billion of securities insured by Ambac Financial Group Inc. that have tumbled in value and may require the insurer to pay claims...
The problem is leverage. Too much debt has been extended on too little capital, so even a small decline in the value of a bank's assets can significantly erode its capital and make it insolvent.
In any case, it looks like the financial crisis already upon us will get worse before it gets better, and I am not alone in that thinking. David Rubenstein, co-founder of the Carlyle Group told The Wall Street Journal last week: “This is the tip of the iceberg. People are looking at our situation and saying, ‘There but for the grace of God go I. ' There are others out there hanging on by their fingernails...
He should know. His group managed Carlyle Capital, which recently defaulted on its loans to Citi and other banks, and whose stock price is shown in the above chart.”
By: James_Turk
The center of focus this past week on Wall Street – and indeed, much of the financial world – was whether or not Bear Stearns will go belly-up. As questions arose about the quality of its $395 billion of assets that were carried on only $12 billion of equity, its customers and other brokers became unwilling to accept the counterparty risk that arises from transacting with Bear, while its lenders began worrying about repayment. Being leveraged to that extent, even a small decline in the value of its assets can significantly erode the firm's equity base. But given that Bear is no more than the fifth largest broker in the US , it is a relatively small fish in the financial world....
The question therefore becomes, what are Citi's assets worth? As explained above, we can't accurately answer that question, but here is some information to ponder.
(1) Citi has $133.4 billion of Level 3 assets. Here's how MarketWatch recently described this category when reporting Citi's Level 3 assets: “Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess.” In an analysis of Bear Stearns, Barron's prudently observes: “Of particular concern are Bear's so-called Level Three assets, which stood at $28 billion as of November and by definition are illiquid and valued on the basis only of the firm's own estimates.
Any buyer might be worried about the need to mark down the value of these assets, and the value of Bear's large book of financial derivatives.” What's more, Bear's so-called “large book” of derivatives pales in comparison to the size of Citi's book. According to the Comptroller of the Currency, Citi is counterparty to financial derivatives with a notional value of $34.0 trillion (sic). We should keep in mind Warren Buffett's warning from 2002: “Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
(2) Last week JP Morgan warned that the Street is facing a “ systemic margin call ” on subprime mortgages that alone might deplete $325 billion of capital. Citibank alone has about 10% of total bank capital in the US , so if it were to incur 10% of that loss projected by JP Morgan or $32.5 billion, only $17.2 billion of tangible equity would remain. Note that Morgan's analysis ignored all of the other paper now being called into question, which could mean even bigger losses for the banks. For example, on February 29 th Bloomberg reported: “Citigroup Inc. helped create at least $6.9 billion of securities insured by Ambac Financial Group Inc. that have tumbled in value and may require the insurer to pay claims...
The problem is leverage. Too much debt has been extended on too little capital, so even a small decline in the value of a bank's assets can significantly erode its capital and make it insolvent.
In any case, it looks like the financial crisis already upon us will get worse before it gets better, and I am not alone in that thinking. David Rubenstein, co-founder of the Carlyle Group told The Wall Street Journal last week: “This is the tip of the iceberg. People are looking at our situation and saying, ‘There but for the grace of God go I. ' There are others out there hanging on by their fingernails...
He should know. His group managed Carlyle Capital, which recently defaulted on its loans to Citi and other banks, and whose stock price is shown in the above chart.”
Coming inflation leading to LT commodities BOOM
Commodities Futures - Bloomberg - charts and statisticsApr 09, 2008 - 02:09 PM
Sean Brodrick (http://www.moneyandmarkets.com) writes: The last few weeks have been the roller coaster ride from hell for commodities, an up-and-down whirlwind that has left many traders feeling turned inside-out.
But I think there are strong signs that a commodity correction may be coming to a close. If you're not long yet, you might want to consider putting some money to work.
After all, the inflationary forces and fundamentals that are driving commodity prices higher are still in place. Has the Fed stopped pumping money into the system? Have we stopped importing inflation from China? For that matter, have the Chinese given up on buying new air conditioners, cars, and eating more and better food? No, no and NO!
Today, I want to give you an update on natural resources. First, let's talk about the continued strength we're seeing across the board in the futures markets ...
"There is an economic infrastructure revolution taking place," Frank says. "In January, China and India announced their next 5-year plans, with trillions of dollars in infrastructure spending."
Clearly, these spending plans are lighting a fire under commodity prices.
Before this super-cycle is over, Frank says he expects to see copper — currently around $4 per pound — at $6 or even $8 a pound. Meanwhile, he points to a lack of planting in soft commodities and a lack of exploration in hard commodities as forces that will drive the cost of both much, much higher over the long term.
And as for oil, he's looking for a pullback, but he also doesn't think we've seen the high prices for the year, either. The long-term picture hasn't changed.
The Fed Is Terrified
Mish's Global Economic Trend Analysis Wednesday, April 09, 2008
The Wall Street Journal is reporting Fed Weighs Its Options in Easing Crunch.
The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.
Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed's name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011."
Commodities Cushion
leverage potential continued commodity price gains.
Direct exposure to a diversified basket of commodities, such as the S&P GSCI Commodity Index ETF (GSG) or the Dow Jones-AIG Commodity Index ETN (DJP), is not the only way for investors to participate. From an equity investment perspective, we think Canadian, iShares MSCI Canada ETF (EWC), and Latin American, iShares S&P Latin America 40 Index ETF (ILF), equity exposure represents another way to leverage potential continued commodity price gains.
In light of their close geographic and trade ties to the United States, it may seem surprising that Latin America and Canada have fallen significantly less than other major equity indexes through March 7.
Tuesday, April 8, 2008
Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve
Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve:The Market Oracle:
Jim Rogers: "...no country in history has ever emerged from a serious financial crisis by “debasing its currency."
no country in history has ever emerged from a serious financial crisis by “debasing its currency.”
The strategies that the central bank is currently employing are nothing short of “outrageous,” Rogers said.
“You know, I've read the Federal Reserve Act,” he said. “Nowhere does it say [the central bank is] supposed to bail out investment banks! Nowhere does it say you should bail out Wall Street. Their mandate was to have a sound currency, and then it was later expanded to have employment – to help employment. But nowhere does it say: ‘Bail out investment banks.'”
Q: Are we looking at a Japanese-style lost economic decade?
Rogers : The Federal Reserve is making the same mistakes that the Japanese made. They're trying to say: “We won't let anybody fail. We'll print a lot of money. We'll drive interest rates to zero. And we don't want anybody to fail. We'll put on as many Band-Aids as we have to.”
Well, putting Band-Aids on a cancer patient is not a good solution.
So whether it's like the '90s in Japan , or the '70s in America , remains to be seen.
So there will be big changes, of course. If you're in the field that deals with – and works out – bankruptcies, you've got a great future – on Wall Street, or in the legal profession. If you're in commodities, you have a great future. Some sectors of the financial community are going to do well. Many others are going to disappear and/or do badly.
So. California Installs 250 Megawatts of Solar Panels
California Utility to Install 250 Megawatts of Solar Panels
April 02, 2008
Southern California Edison (SCE) launched a project on March 27 to install 250 megawatts of solar photovoltaic panels on commercial buildings over the next five years. The project is the nation's largest solar photovoltaic project, covering 2.33 square miles of rooftop at an estimated cost of $875 million. Although the utility has submitted the project to the California Public Utilities Commission for approval, it is already pressing ahead with projects in three quickly growing counties: Inland Empire, Riverside, and San Bernardino. SCE hopes to have the first solar projects in service by August and will set a marathon pace by installing solar projects at a rate of 1 megawatt per week. When complete, the project will produce enough power over the course of a year to meet the power needs of 162,000 average homes in Southern California. More importantly, it will help to relieve stresses on the power grid in some of the fastest-growing urban areas in the country
Monday, April 7, 2008
Grocers-Tout-Sales-Even-as-Prices-Climb
Grocers-Tout-Sales-Even-as-Prices-Climb: Personal Finance News from Yahoo! Finance: "Grocers Tout 'Sales' Even as Prices Climb
by Julie Jargon, Ann Zimmerman, and David Kesmodel
Tuesday, April 1, 2008provided byWSJ
Demand and Bad Weather Raise Costs for Must-Haves; More Wal-Mart Rollbacks
With food costs soaring and the economy slowing, the nation's supermarkets are touting their discounts even as they jack up the price of most items.
Consumers are being whipsawed by the powerful marketing pitch of buy-one-get-one-free offers for nonessential items at a time when they're paying more for must-haves. The average price of a dozen large eggs in February was $2.17, up 24% from the year before, while a gallon of whole milk rose 26% to $3.87 compared with February 2007."
by Julie Jargon, Ann Zimmerman, and David Kesmodel
Tuesday, April 1, 2008provided byWSJ
Demand and Bad Weather Raise Costs for Must-Haves; More Wal-Mart Rollbacks
With food costs soaring and the economy slowing, the nation's supermarkets are touting their discounts even as they jack up the price of most items.
Consumers are being whipsawed by the powerful marketing pitch of buy-one-get-one-free offers for nonessential items at a time when they're paying more for must-haves. The average price of a dozen large eggs in February was $2.17, up 24% from the year before, while a gallon of whole milk rose 26% to $3.87 compared with February 2007."
Mutual fund categories lost value in the first quarter
Top Mutual Fund by Categories
April 7, 2008
Enlarge List
Data as of March 31.
Source: Morningstar Nearly every equity mutual fund category lost value in the first quarter. No surprise, given that bouth the S&P 500 and the Morgan Stanley EAGE indexes have declined by almost 10% so far this year. Only precious metals funds and bear market funds—which are designed to do the opposite of what the market does—saw gains. Fixed-income funds fared a bit better; as the Lehman aggregrate bond index increased by about 2% in the first quarter.> To view a PDF of the Top Mutual Fund Categories CLICK HERE> To download an Excel file of the Top Mutual Fund Categories CLICK HERE
Inflating US out of a credit crisis. consumers lose, banks gain!
Federal Reserve, the price-adjusted dollar index is now lower than at any time since the index was first compiled in 1973
TUESDAY, APRIL 08, 2008 7:20 AM IST
http://www.livemint.com/ Wall Street Journal
One of the ways in which the US Federal Reserve has chosen to deal with the credit crisis is to increase inflation in the US. The series of interest rate cuts in the US are designed to lower the short-term cost of money for US banks. At the same time, the interest rate cuts weaken the dollar, make imports into the US more expensive and fan inflationary expectations.
All these factors together prevent long-term interest rates from coming down drastically, so the net result of the cuts in the Fed Funds rate has been a steeper yield curve — short-term rates have fallen more than long-term ones. That’s good for the banks, who borrow short and lend long. Over time, that will enable banks to make profits and recapitalize their balance sheets.
In short, the US Fed is trying to inflate its way out of the crisis. That, in a nutshell, is the view held by many experts in the field, including Satyajit Das, the authority on credit derivatives.
Unfortunately, while lower interest rates may be a solution to the problems of US banks, it seems to have become a scourge to the rest of the world, in particular to developing countries...."
Norton's comment: This article from India really connects the dots on what is proceeding as a conscious plan by US administration and FED. Sorry but the consumer, middle class lose AGAIN and the banks win by recapitalizing their balance sheets. Consider how you can counter these affects. Carefully consider buying commodities including precious metals including gold investments. the market is very volatile now so it must be done with precautions looking to the long term view. If you do not want a stock for 5 years or more then don't buy it. I have a portion of my portfolio in counter cyclical investments or international stock / EFTs in economies that are strong and whose currency is appreciating relative to the US dollar.
For the United States the challenge is to save more and spend less
New York Times By DAVID BARBOZA
Published: April 3, 2008
BEIJING — Treasury Secretary Henry M. Paulson Jr. ended a two-day visit Thursday by calling for China to move ahead with financial market changes, despite growing concerns about the economic downturn in the United States.
During his visit, Mr. Paulson said he pressed for greater cooperation on energy and environmental issues. China and the United States are the world’s biggest consumers of energy and the largest sources of greenhouse gas emissions.
During the trip, Mr. Paulson met with some of Beijing’s highest ranking officials, including President Hu Jintao, Prime Minister Wen Jiabao and Wang Qishan, who was recently elevated to the Politburo and is Mr. Paulson’s new counterpart in the dialogue.
Mr. Paulson and Mr. Wang have a longstanding relationship. The two worked closely years ago, when Mr. Paulson was chairman of Goldman Sachs and pushing the Wall Street bank to expand aggressively in China. At the time, Mr. Wang held a variety of high-level government posts with oversight over banks and finance.
He also said that for the sake of the global economy, structural problems in the economies of the two countries need to be fixed soon.
“For the United States the challenge is to save more and spend less,” he said in a speech before a government research organization Thursday morning. “For China, the challenge is to save less and spend more.”
Published: April 3, 2008
BEIJING — Treasury Secretary Henry M. Paulson Jr. ended a two-day visit Thursday by calling for China to move ahead with financial market changes, despite growing concerns about the economic downturn in the United States.
During his visit, Mr. Paulson said he pressed for greater cooperation on energy and environmental issues. China and the United States are the world’s biggest consumers of energy and the largest sources of greenhouse gas emissions.
During the trip, Mr. Paulson met with some of Beijing’s highest ranking officials, including President Hu Jintao, Prime Minister Wen Jiabao and Wang Qishan, who was recently elevated to the Politburo and is Mr. Paulson’s new counterpart in the dialogue.
Mr. Paulson and Mr. Wang have a longstanding relationship. The two worked closely years ago, when Mr. Paulson was chairman of Goldman Sachs and pushing the Wall Street bank to expand aggressively in China. At the time, Mr. Wang held a variety of high-level government posts with oversight over banks and finance.
He also said that for the sake of the global economy, structural problems in the economies of the two countries need to be fixed soon.
“For the United States the challenge is to save more and spend less,” he said in a speech before a government research organization Thursday morning. “For China, the challenge is to save less and spend more.”
Spain's gain from wind power is plain to see
Spain's gain from wind power is plain to see - Telegraph: "Spain's gain from wind power is plain to see
By Ambrose Evans-Pritchard in Oviedo, northern Spain
Last Updated: 2:49pm BST 07/04/2008
Windmills pay. On a breezy Saturday at the end of March, Aeolian Parks scattered across the hill-top ridges and off-shore sandbanks of Spain produced 40.8pc of the country's electricity needs - 9,862 megawatts to be precise."
By Ambrose Evans-Pritchard in Oviedo, northern Spain
Last Updated: 2:49pm BST 07/04/2008
Windmills pay. On a breezy Saturday at the end of March, Aeolian Parks scattered across the hill-top ridges and off-shore sandbanks of Spain produced 40.8pc of the country's electricity needs - 9,862 megawatts to be precise."
Sunday, April 6, 2008
Bankruptcies: The No. 1 Growth Area For 2008
Mish's Global Economic Trend Analysis: Bankruptcies: The No. 1 Growth Area For 2008: "Bankruptcies: The No. 1 Growth Area For 2008
The St. Louis Post Dispatch is writing Bankruptcy filings expected to soar as economy slides
The law that drastically changed the Bankruptcy Code in October 2005 was supposed make it tougher to escape debts and reduce the number of filings. It worked, for a time.
Although the law made filing for bankruptcy more complex and expensive, the number of cases locally and nationally is rising again. Experts predict a big hike later this year, triggered by the nation's wobbling economy and heavy levels of consumer debt."
The St. Louis Post Dispatch is writing Bankruptcy filings expected to soar as economy slides
The law that drastically changed the Bankruptcy Code in October 2005 was supposed make it tougher to escape debts and reduce the number of filings. It worked, for a time.
Although the law made filing for bankruptcy more complex and expensive, the number of cases locally and nationally is rising again. Experts predict a big hike later this year, triggered by the nation's wobbling economy and heavy levels of consumer debt."
The poor are financing the profligate
RGE - The poor are financing the profligate: "PIMCO’s Bill Gross has argued that low short-term rates mean that a lot of savers are subsidizing various borrowers (and in particular financial intermediaries). He writes:
“Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund (which in aggregate approaches 3 trillion dollars) experience any capital gains in the process? Absolutely not. So it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own.”"
“Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund (which in aggregate approaches 3 trillion dollars) experience any capital gains in the process? Absolutely not. So it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own.”"
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