POSTS: MONDAY 07-19-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
SOVEREIGN DEBT & CREDIT CRISIS
Global Double-Dip Recession?
|BCAR completely misses the point in the
following chart which they see as a positive for corporate
earnings going forward. How exactly do corporations continue to
increase profits from present levels, with sales flat to
marginally up (inflation), after making the labeled cuts?
Investments for the future are expensive and are the first
thing to go for a CEO and Board of Directors who must show profit
increases and share increases to survive or be taken over by those
predators who took these actions faster. Obviously BCAR has not
ran, nor are familiar with the modern strategic realities of
running a publicly traded company!
Gordon T Long
Austerity vs stimulusJoin debate with Martin Wolf and Larry
Summers on biggest contemporary economic issue
central banker sees lenders passing stress tests
Greece braced for consolidation FT
SPAIN / PORTUGAL
prices 'to crash 20pc by 2012' as Budget bites, says Capital Economics
offered early redundancy
Many Whitehall officials could walk before severance terms are reduced
Cameron Raids Dormant U.K. Accounts as Minister Attacks Banks
Moody’s downgrades Ireland rating
Moody's Downgrades Ireland WSJ
|Moody's cut Ireland's credit rating, citing a rising debt
burden, a weak growth outlook and the high cost of rebuilding a
shattered banking system.
Bangladesh, With Low Pay, Moves In on China
Housing, Leading Index in U.S. Probably Slumped in Sign Recovery
A flashing red light from the ECRI
Stress-testing Europe's banks won't stave off a deflationary
Euroland's authorities are inflicting a triple shock of fiscal,
monetary, and currency tightening on a broken economy.
Europe: Anxiety Rising Over Stress Tests
|All eyes remain transfixed on Europe, where increased bank
funding stress and declining liquidity in parts of the euro area
credit markets have been the main catalyst for the correction in
global risk assets.
Access to term funding has been
constrained for some euro zone banks, with the result that banks
are relying heavily on loans from the ECB. In fact, the only bid
for Southern European sovereign debt is coming from the central
bank. As we have previous noted, bank stress tests in the U.S.
succeeded in restoring some investor faith in the financial
sector, in large part because the tests were backed with taxpayer
funds. However, the situation in Europe is more dire. Investors
are rightfully questioning the ability of some governments to bail
out banks when they are having difficulty funding themselves. In
Spain, Greece and Portugal, there is strong positive relationship
between changes in sovereign CDS and bank CDS, which suggests that
investors now view bank default risk as synonymous with sovereign
default risk. Thus, despite the fact that some investors welcomed
Spain’s announcement that it will publish the results of a bank
stress test, and that the government is prepared to use public
money to recapitalize banks that are found to be wanting, it has
not been sufficient to calm most investors nerves. In sum, the
European bank stress tests are a step in the right direction, but
there is no guarantee that they will be as successful as those in
the U.S. in terms of ending the latest financial crisis. A market
riot may force the reluctant ECB to grow its balance sheet more
aggressively. Hold off putting new cash to work in risk assets.
IMF seeks $250bn boost to lending resources
aims to boost lending resources by $250 billion: report
European private bank profits dive FT
Treasury Two-Year Note Yields Tumble to a Record Low as Economy Weakens
Weakens Most in 14 Months Versus Euro on Signs of Economic Slowdown
Western economies are still in danger of sinking under an ocean of
Does Ben Bernanke suffer nightmares? Does Jean-Claude Trichet have
sleepless nights? Does Mervyn King wake up in a cold sweat, his
pyjamas soaking wet? I wouldn't blame them if they did...
Munis Under Strain- Should Investors Be Concerned Lord Abbett
California's Chiang Can Delay Schwarzenegger Minimum Wage Plan, Judge Says
Illinois's Quinn Doubles Furlough Days for 2,700 State Workers
Recession Continues to Batter State Budgets – CBPP.org
When the states go bankrupt – Daily Reckoning
A San Diego County panel – faced with $2.2 billion in unfunded
pension liabilities and $1.3 billion in unfunded health care
liabilities – recommended, among a number of other possible
actions, filing for bankruptcy. According to Grant’s Interest
Rate Observer, four major American cities (Miami, Detroit,
Los Angeles and Harrisburg) have all hinted at the same this year.
The big states are even worse. The Economist reports
on Illinois: “By 2018, Illinois will be paying $14 billion a year
in benefits, equal to more than a third of the state’s revenue,
compared with $6.5 billion now.”
Plugging those kinds of gaps means getting creative with new
forms of skullduggery. For instance, the State of New York, with
its $9 billion budget deficit, is looking at a proposal to borrow
$6 billion from its state pension fund in order to make a $6
billion payment due to that same pension fund. Yeah, you read that
The trials of Illinois and New York are not isolated
incidences, either. Grant’s quotes from the Center on
Budget and Policy Priorities: “At least 46 states face or have
faced shortfalls for the upcoming fiscal year (FY 2011, which will
begin on July 1 in most states). These come on top of the large
shortfalls that 48 states faced in their current budgets (FY
State schools face credit crunch of their own – Times Union
The First Eurozone Country To Admit That Its Deficit Targets Are A Joke
Markets braced for turmoil over IMF's Hungary move
The move, which was described by economists as “very rare”, means
that Hungary will not have access to standby funds that were
secured as part of a 2008 loan deal.
IMF and EU defer talks with Hungary FT
Hungarian Crisis Back On The Map As IMF Talks Breakdown BI
The Next Leg Of Eurocrisis 2010- The Hungary Wolfpack Cometh As IMF, EU
Cancel $25 Billion Rescue Loan Access ZH
In the most surprising news of the weekend (so far), the IMF
and the EU effectively suspended Hungary's access to the remaining
funds in a $25 billion rescue loan package created in 2008 to
prevent a financial meltdown of the country. The timing of this
development is most extraordinary, as
only a month ago Hungary served as ground zero for yet another
scare that pushed European sovereign bond spreads to new records.
The reason given for this dramatic, and very destabilizing action
is that the nation must "take tough action to meet targets for
cutting its budget deficit." Ostensibly Greece continuing to
lie about its own economic deterioration is a necessary and
sufficient condition for escalating IMF lauding. Yet, with Europe
set to announce results of its Stress Test kabuki next week, the
last thing the continent needs is a real liquidity crisis (or the
threat thereof) to counteract the smooth talking bureaucrats dead
hypnotizing the union into "all is well" submission ("and when
I snap my fingers, the debt-to-GDP ratio will be back to 10%"). To
quote Portfolio.hu: "Brace yourself for Monday, folks!"
Reuters is on the case:
Negotiations with the lenders had been
expected to finish early next week. Analysts said the
forint currency could fall sharply when financial markets reopen
Monday due to uncertainty over the international safety net for
Hungary, which has financed itself from the markets since last
"In an environment of heightened market
scrutiny of government deficits and debt levels, the fiscal
deficit targets previously announced -- 3.8 percent of GDP in 2010
and below 3 percent of GDP in 2011 -- remain an appropriate anchor
for the necessary consolidation process and debt sustainability,
and should be adhered to, but additional measures will need to be
taken to achieve these objectives," the IMF said.
Hungary's politicians proves once again they are complete
dilletantes when it comes to dealing with entrenched status quoers
as the IMF - instead of taking Greece's lead and promising they
would not only cut pension to zero, but demand the citizens pay
for the privilege for working for the government (a stance, which
of course will be repealed in 364 days, but by then, the myth
goes, the Keynesian ponzi will be back in full swing), Hungary's
new political party apparently had the temerity of telling the IMF
it can shove its demands.
Hungary's new center-right
government, which swept to power in April elections, has said it
wanted to extend its current financing deal with lenders until the
end of 2010 and seek a precautionary deal for 2011 and 2012.
Economy Minister Gyorgy Matolcsy made clear the government was
keen to resume negotiations. "The government will of course
continue talks with international organizations including the IMF
and the EU," he said in a statement published by the national news
agency MTI Saturday.
Christoph Rosenberg, who led the IMF
delegation to Hungary, signaled that the Fund wanted more on next
year's budget. "By definition when we come next time -- unless we
come next week -- the government will have made more progress on
the 2011 budget and that will be a very important budget," he told
In an interview, he also said the IMF had not
discussed the possibility of a new financing deal for 2011 and
"We are aware of what has been said in public but in
our meetings we didn't really get to that point, because we
obviously needed to first resolve the policy issues and those have
not been resolved," he said.
One thing is certain: the next Hungarian bond auction
will fail, as will the HUF on Monday. Look for a plunge in the
currency (and a surge in Hungarian, and by implication Romanian
and Bulgarian, CDS) when the market opens Monday.
"If we do not have the safety net of
international lenders, that hits us where it hurts most," said MKB
Bank analyst Zsolt Kondrat.
"One would definitely
expect a weakening forint Monday. A 10-forint weakening (versus
the euro) is quite plausible, and nobody knows how nervous the
market's reaction might be."
And for the version straight from the horse's mouth, here
is the non-hyperbolized perspective straight from
Although Hungary, seeking to
secure a precautionary loan deal with the International Monetary
Fund, was to continue discussions with officials of the IMF and
the European Union on Monday, the mission from the
Washington-based lender decided to return home. The EU also
postponed the conclusion of the review of the country’s EUR 20
billion credit facility granted in the autumn of 2008. The reason
is that "a range of issues remain open" and the cabinet that will
need to provide clarification for these. Brace yourself for
That’s it, we’re leaving!
An IMF mission, led by Christoph Rosenberg, held discussions with
the Hungarian authorities during July 6-17, as part of the sixth
and seventh reviews of the country’s Stand-By Arrangement (SBA)
approved on 6 November, 2008.
While there was "much common
ground" between the negotiating parties, the IMF has announced
that its mission decided to return to Washington D.C., as "a range
of issues remain open". It said it would seek to bridge these
European Commission officials, in close
cooperation with IMF staff, conducted their fifth review mission
under the EU balance of payments assistance to Hungary in the
aforementioned period. They, however, said there were "a number of
open questions on which the government would need more time to
provide clarification." The EU executive decided to postpone the
conclusion of the review and that "it would be appropriate to
return for further discussions at a later stage."
parties were to hold a joint press conference on Monday, provided
they come to terms about a few issues. They have not, so the IMF
stood up and left and the EU did not conclude its review.
Rate meeting ahead
The early departure of the missions mean
Hungary cannot draw the next tranche of the credit facility,
although the country had no intention to do so therefore it will
have no impact on the budget. But the break in the talks is likely
to lead to forint weakening and a rise in government securities
yields on Monday, i.e. the financing of the state will become more
The morning market reactions will be especially
crucial as the central bank’s (NBH) Monetary Council will hold a
rate setting meeting that day. According to the consensus forecast
of analysts in a Portfolio.hu poll, the MPC will keep the base
rate on hold at 5.25%. But a sharp HUF depreciation and a rise in
Hungarian CDS (Credit Default Swap) spreads might convince the MPC
to hike rates. This, of course, will not help boost lending and
The US banking recovery is a sham – MoneyWeek
Regulators shut 6 more banks, making 96 failures for the year
Boiling Point: Is Fed’s Muscle Weakening?
Accounting Changes: When Will They Hit?
Real Reason Geithner Is Afraid of Elizabeth Warren
I believe Geithner sees the appointment of Elizabeth Warren as a
threat to the very scheme he has utilized to date to hide bank
DODD FRANK ACT
Traders rein in risk as European fiscal fears return
RRESIDENTIAL REAL ESTATE - PHASE II
Federal Housing Beat Now Has a Tough Cop
Housing Bubble Leaves $4 Trillion Hangover
Homeowners Use Airbnb Room-Renting Site to Pay Mortgage, Dodge Foreclosure
Housing Basics: Massive Supply, Faltering Demand – Charles Hugh Smith,
Mae cracks down on 'strategic' mortgage defaults
EXPIRATION FINANCIAL CRISIS PROGRAM/font>
PENSION & ENTITLEMENTS CRISIS
Being Out of Work Becomes a Chronic Condition
Below is how current unemployment is being sold
to gullible analysts with a 'sell' book to justify:
Gordon T Long
U.S. Payrolls: Sub-Par, But Sustainable
Private sector payrolls in the U.S. increased by an estimated 83,000 in June.
Fears that the recovery has been derailed are overdone. Despite market fears of
a "jobless recovery" the current cycle is not far behind previous cycles in
terms of year-over-year job growth, and is in fact stronger than the 2001 cycle
(of course, the level of employment is still lagging previous recoveries because
of the severe depth of the recession). Growth in temporary employment is running
ahead of past recoveries, which implies that employers have been slightly more
reluctant to make permanent additions to their workforce. However, the reliance
on temporary workers does not appear to be out of line with past recoveries.
source of angst that we do share with market participants is the lack of hiring
in the small business sector. Small businesses historically have been a major
driver of job creation, and have lagged this cycle because credit conditions
have tightened significantly. However, there are some signs that the recovery in
the small business sector is gaining traction. The National Federation of
Independent Business (NFIB) survey reported that hiring plans among small
businesses finally turned positive in June.
The bottom line is that job growth
is broadly in line with our expectations at this point of the cycle, and it is
hard to make the case that firms are behaving any differently than in the
past. Our employment model has historically been an accurate indicator of job
growth with a six month lead. The current message is that payrolls will expand
at an annual pace of at least 1% annual pace over the next few months, which
corresponds to an average of 200,000 new jobs per month - not stellar but enough
to keep the lackluster recovery on track.
Here is the Reality
Some financial analysts failed or never understood Calculus!
GOVERNMENT BACKSTOP INSURANCE
Now Looms Over Fannie, Freddie
BBP - British
Potential Second Spill Found Near BP Blown Out Oil Well, As BP
Evaluates Potential Break Up Opportunities ZH
In case you missed George Wahsington's
update, here it is straight from the
AP horse's mouth. And, if this story is true, we can only hope
one is not long BP stock or short the CDS.
NEW ORLEANS — A federal official says
scientists are concerned about a seep and possible methane near
BP's busted oil well in the Gulf of Mexico
Both could be
signs there are leaks in the well that's been capped off for three
The official spoke to The Associated Press on
condition of anonymity Sunday because an announcement about the
next steps had not been made yet.
The official is familiar
with the spill oversight but would not clarify what is seeping
near the well. The official says BP is not complying with the
government's demand for more monitoring.
And if that wasn't enough, some more bad
news from Sunday Times,
Under-fire oil company BP Plc (BP.L) has
started canvassing shareholders about a restructuring in the wake
of its Gulf of Mexico oil spill which could include a break up of
the business, the Sunday Times reported.
citing unnamed BP insiders, said options included selling the
group's refineries and petrol stations, scaling back its U.S.
operations and ramping-up in-house engineering instead of
These are on top of the sale of about 10
percent of its assets, including its stake in the giant Prudhoe
Bay field in Alaska, the Sunday Times added.
A BP spokesman
said it did not comment on rumour and speculation.
Oh-No- Tests Confirm Oil Seep Distance Away From Deepwater Well
U.S. Demands More Test Data From BP as Seep Found in Seabed BL
U.S. Raises Concern About Seeping Crude WSJ
BP Well Boss Could Shed Light on Cause of Gulf Oil Disaster
Oil Rig's Final Hours Under Investigation WSJ
authorities investigating BP's oil spill in the Gulf of Mexico are
focusing on bad decisions, missed warnings and worker
disagreements in the hours before the April 20 inferno aboard the
BP looms large in Cameron’s US trip FT
Containment cap working well, say BP FT
BP Talks With Apache Said to Stall on Selling Prudhoe Bay Stake
BP Plc’s talks to sell half its stake in Alaska’s Prudhoe Bay oil
field to Apache Corp. stalled twice over the weekend, raising
doubts about whether the deal will be completed, said a person
with knowledge of the matter.
BP, Obama May Keep Macondo Oil Well Shut Until Final Kill
UPDATE- Admiral Allen Orders Well Opened, BP Says It Will Keep
Well Closed BI
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
Republicans May Gain 40 Seats, Win House Control, Campaign Chairman Says
GOP Sees Path to Win Senate WSJ
|Democrats for the first time are acknowledging that
Republicans could retake the Senate this November, less than two
years after Democrats captured a daunting 60-seat majority.
"For Every $1 Of Proceeds From Taxpayers, The Federal Government Issues
More Than $1 In New Debt" ZH
but a few points to put some context around the problem.
- We already know several important numbers –
“people” tax receipts YTD of $845 billion and “corporate” tax
receipts of $148 billion. Tax refunds for the
calendar year thus far have been $371 billion, mostly to
individuals. So the country’s tax receipts, round numbers, are
$622 billion year to date. There are some miscellaneous other
income lines – excise taxes primarily, that add about $35
billion. Total, total: $657 billion in taxes/withholding.
- In the same period of time – the first 180 days of
2010 – the U.S. Treasury has issued some $892 billion in
incremental debt. Almost all of it was issued to the
public, rather than the customary practice of selling a piece
to the Social Security system. That was not by choice – the
reduced amount of withholding we outlined above means that
Social Security has not had any material inflows of new money
to invest in 2010. So all that newly issued debt – much of
which went out as short term Treasury Bills – will need to be
“rolled” as it matures. That means it has to find new buyers
every 3, 6, 9 or 12 months.
We think this comparison neatly sums up the bind the
U.S. still finds itself trying to disentangle. Through
the first half of 2010 new debt is over 33% larger than tax and
withholding income. Yes, there are some other ancillary sources of
reported income in our Daily Treasury statement – State
reimbursements for unemployment insurance, Federal Reserve Bank
earnings and the like. But even when you lump every piece in, the
ratio of taxes/withholding to new debt is still not one-to-one.
For every dollar of withholding, the government issues more than
one new dollar of debt to fund its total expenditures.
Economics is the study of how societies allocate
inherently scarce resources. Even this brief outline of
taxation and government spending makes me think that the scarcest
resource of all might just be common sense.
EARNINGS - Q2 2010
Earnings Light the Way?
the Bait Hussman
I can't emphasize enough that when you hear an analyst say "stocks
are cheap based on forward operating earnings" it would be best to
replace that phrase in your head with "stocks are cheap based on
Wall Street's extrapolative estimates of a misleading number."
FLASH CRASH - HFT - DARK POOLS
Cashin: If S&P 'Stalls' Now, Bears May Seize Market
You Won't Understand How Badly Our Stock Market Is Doing Until You Look At
These Charts BI
On an inflation-adjusted TOTAL RETURN basis (including
dividends), our current bear market is WORSE than the one that
followed 1929. Specifically, on an inflation adjusted
total return basis, our market is down 34% from the peak in
2000. The market in the Great Depression, meanwhile, was
only down 16%.
Despite the HORRIBLE performance of our stock market
over the past dozen years, stocks are still at least 20%
overvalued. This means they're likely to continue to
have relatively lousy performance going forward.
How do we know stocks are still overvalued? We
know by looking at Professor Robert Shiller's cyclically
adjusted PE chart for the past 130 years.
cyclically adjusted PE is one of the only measures of
valuation that has some long-term predictive validity, and
this chart suggests that stock returns are going to
continue to be crappier than average for a long while to
come. The PE is in blue, interest rates in red.
How is it possible that even after a GODAWFUL
decade--a decade in which the inflation-adjusted total
return of the stock market was WORSE than in the
decade after 1929--we can still be set up for lousy
returns going forward?
It is possible because, as Robert Shiller's chart
also shows, the valuation peak we reached in 2000 was
absolutely unprecedented and dwarfed the one we hit in
1929. And what we've seen for the past decade--and
likely will continue to see for another decade--is
brutal reversion to the mean.
(And it's also possible because our dividend yield
is so low. As the charts clearly illustrate, dividends
contribute a big portion of the total stock market
return--and our dividend yield is still a paltry 2%.
Back in the bad old days of the Great Depression, the
dividend yield was often well over 4%.)
Pass the Prozac, please.
Preventing Your Government From Stealing Your Gold Bulion Bulls Canada
VIDE TO WATCH
QUOTE OF THE WEEK
ZH - Zero Hedge - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times