Wednesday, May 25, 2011

Voila! 37 Million Ounces of Silver Appear at the Comex Warehouse - Or Not

"Manipulating cash prices for a larger derivative payout is a regular feature in all markets. And $50 million is chump change compared to the billions being made manipulating the markets on almost a daily basis."

Bill King, The King Report

At least according to this update from 24hourgold it is crisis averted for Blythe and her Merry Pranksters, just in time for the May - June deliveries, as 37 million ounces of silver have been added to the dealer inventory at the Comex.

I believe that an addition of this size in one fell swoop, if true, might be called 'unprecedented,' at least since the benefice of Buffett supplied the silver for the newly forming SLV.

Such a huge addition, if true, is certainly worth some examination in what is known to be a tight market for physical supply. This inventory system does seem to move improbably large amounts of 'bullion' around like Tinker to Evers to Chance..."


When the economy reaches stall speed

"If an airplane is moving too slowly, the plane is about to head down. Federal Reserve economist Jeremy Nalewaik has an interesting new paper exploring whether the same is true for the U.S. economy.

Nalewaik notes first that the 4 quarters prior to recessions were usually characterized by slower real GDP growth than is typically observed in an economic expansion..."


Chinese Rating Agency Downgrades UK Sovereign Debt; Downgrade Party Needed

"The Wall Street Journal, the Telegraph, and International Business Times have stories regarding a downgrade of UK sovereign debt by a Chinese rating company. Much of the information overlaps, but some snips vary site-by-site.

Wall Street Journal: China Ratings Agency Downgrades UK Sovereign Credit Ratings
Chinese ratings provider Dagong Global Credit Rating Co. said Tuesday it downgraded the local and foreign currency sovereign credit rating of the U.K. from AA- to A+ with a negative outlook.

"The downgrade reflects the true status of the deteriorating debt repayment capability of the U.K. and the difficulty in improving its sovereign credit level in a moderately long term in the future," Dagong said in a statement.

"Considering that the uncertainty arising from (future) monetary policy adjustments of the Bank of England and the spillover effect of the European countries...are likely to further worsen the government's fiscal status, Dagong gives the negative outlook on the local and foreign currency sovereign credit rating of the U.K. (for the next) one to two years," Dagong said.

Dagong said the data indicate a deterioration in the U.K.'s ability to service its debt, while global inflation triggered by excessive issuance of the U.S. dollar will also affect growth..."

Reggie Middleton’s Real Estate Recap: As I Have Clearly Illustrated, It’s a Real Estate Depression!!!

"First, let’s go through the headlines for the day then proceed to breadcrumb trail that clearly led us to where we are now and where we will ultimately end (oh yeah, In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse Wednesday, February 23rd, 2011)

US Commercial Real Estate Prices Decline to Post-Crash Low ‎ – Bloomberg
U.S. commercial property prices fell to a post-recession low in March as sales of financially distressed assets weighed on the market, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement today..."


Oppenheimer's Fidel Gheit Accuses Goldman Of Manipulating Crude Market

"It is no secret that Zero Hedge follows every utterance by Goldman Sachs (Morgan Stanley, not so much - it is sad just how irrelevant MS has become when it comes to swaying any opinion at all) as pertains to the firm's outlook on various commodities, simply because by the very nature of the firm's trading operations, whereby its prop desk (yes, Goldman's prop desk is alive and well) controls a substantial amount of the actual commodity outstanding (in either paper or physical form) and then advises clients to do the opposite of what the firm itself is doing. In essence: using its economy of scale (or monopoly, however one wishes to define it), Goldman can sway the market this way and that with one simple "client" note. The recent fiasco whereby Goldman downgraded Brent on April 12 only to upgrade it two days ago, using the very same assumptions, is nothing more than just the latest example of what we have claimed over and over is outright market manipulation. Today, we find we are not alone after Oppenheimer's Fidel Gheit accused the firm of precisely the same thing on Bloomberg TV: "Unfortunately, without repeating the names of the brokers, everybody knows who the usual suspects are. These are the people in 2008 that were making a bet on $200 oil. This is another form of market manipulation in my view. Whether or not they are influencing the market and manipulation could be a stronger word, but they are influencing the market. They are doing things that could be beneficial to them but harmful to the rest of us. That is where government comes in and says stop, enough. You have a Ferrari or a Maserati and can go 120 mph, but guess what? Those of us who can only go 60 miles per hour will be pulverized. That is where the government has to come in and say there is a speed limit here, but that is not happening." Of course, if Oppenheimer was large enough and influential enough to do what Goldman does, we are 105% confident Fidel would be singing a totally different tune..."


Tuesday, May 24, 2011

US Financial Institutions Make Accounting Gain of $29 Billion

"Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $29 billion in the first quarter of 2011, an $11.6 billion improvement (66.5 percent) from the $17.4 billion in net income the industry reported in the first quarter of 2010. This is the seventh consecutive quarter that earnings registered a year-over-year increase. For the sixth consecutive quarter, reduced provisions for loan losses drove the improvement in earnings.-FDIC

You should notice that the title of this post is “make accounting gain of” instead of “earned” because it is not clear at all that US banks earned $29 billion. After all, the FDIC has indicated that these accounting gains are driven by lower provisions for loan losses.

What’s happening is that banks are saying the economy is now relatively calm. They can therefore lower the provisions they take to account for future losses on their existing loan books. But, this is an accounting estimate of the future losses for present loans that banks must undertake to comply with accrual accounting standards. Q1 2011 loss provisions came in at $20.7 billion; that’s less than half the $51.6 billion set aside in Q1 2010. If the banks did set aside in Q1 2011 as much as they did last year, the banks would have shown a loss for the quarter. If these estimates prove wrong, the actual earnings will be different..."


Greece must restructure

"Cross-posted from Credit Writedowns
Yesterday, I had the pleasure of talking on CNBC along with Marc Chandler of Brown Brothers Harriman about the European sovereign debt crisis. I also wrote a piece in the New York Times about the same issue, concentrated on Greece. While Marc and I differ somewhat in tone, we are both clear that eventually a restructuring of principal will happen.
Here’s the background to what we said:
  • Greece needs a strategic plan. At a minimum, a soft restructuring – that is to say, a voluntary reduction of interest rates and an extension of maturities – will happen sooner than later under the EFSF facility. While this is necessary, it will certainly not be enough. Eventually, principal reduction will occur.
  • Bank capital must be protected from immediate losses. Principal reduction has to be done with timing and in a way that considers the stress to Greek and foreign bank balance sheets. The problem with an involuntary default is that it would trigger immediate losses and panic. Europe’s banks are still undercapitalised; so such a default must be avoided at all costs.
  • It is unclear whether the move to principal reduction will be messy. An involuntary default would clearly be messy. I don’t see this scenario as likely, and it certainly won’t happen in 2011. Instead, I anticipate a soft restructuring followed by a certain amount of political dithering, which will create contagion that forces a hard restructuring (aka ‘soft default’) down the line. This will be “somewhat messy”.
  • Neither Marc nor I mentioned a euro zone break-up. My view is still that some combination of monetisation and a voluntary default, hard restructuring package is the most likely scenario for Europe. When I handicapped scenarios after the Irish stress tests in late March, I felt this way. I still do now. This means that when you look at the three options for the euro zone, monetisation, default, or break-up, I see break-up as by far the least likely. Again, a hard restructuring/soft default is much more likely.
  • Credit default swaps triggers can be avoided. My view is that a restructuring that involves maturity extension, interest rate and principal reduction via an exchange of bonds or a roll off of maturing issues does not necessarily have to involve a technical default that triggers credit default swap payments. If a strategic plan is properly conceived via bond exchanges, investors will lose money but actual default can be avoided. Obviously, a reduction of principal is still a loss of money for investors. But, it is key that this loss take place with as little unwanted negative consequences for other euro zone debtors and the banking system..."

The Debt Limit Game of Chicken

"Bruce Bartlett:
How Will the Debt Limit “Game of Chicken” End?, by Bruce Bartlett: It appears that Republicans are determined to hold the nation’s credit rating hostage to their demand that federal spending be slashed before allowing the debt limit to rise. Rep. Paul Ryan, chairman of the House Budget Committee, is already warning Wall Street that a “technical default” is likely; that is, some bondholders may not get their interest payments precisely on schedule. 
The Treasury continues to warn that a financial apocalypse will occur if the debt limit isn’t raised soon, but Republicans pooh-pooh such concerns as political grandstanding. They maintain that as long as the Treasury has sufficient cash flow to pay interest on the debt, then Treasury can simply put off paying its other bills for a while and default will be avoided. They point to a 1985 opinion by the U.S. General Accounting Office (now known as the Government Accountability Office), which says that the Treasury is not obligated to pay its bills in the order in which they are received and can prioritize payments. ...

Undoubtedly, there are bills that can be put off for a few weeks or longer. ... The problem is that we are getting close to the end of the fiscal year, which ends on Sept. 30. Since funds are normally apportioned on a quarterly basis, once we are in the fourth quarter of a fiscal year, OMB’s flexibility is greatly reduced..."


"By David Schawel, CFA

Introduction: Lost in the implosion of the securitized markets sits an overlooked yet just as opaque remnant of the housing crisis – CDD or “Dirt Bonds”. Save for the rare fixed income aficionado, this segment is still to this day unknown. In general, a CDD is a local, special purpose government authorized by the state as an alternative method for managing and financing infrastructure required to support community development. In most cases, the community development is water, sewer, and drainage infrastructure to raw undeveloped lots. The CDD then levies assessments on the property.

These taxes and assessments pay the construction, operation and maintenance costs of the district and are set annually by the governing board of the district. The taxes and assessments are in addition to county and other local governmental taxes and assessments and all other taxes and assessment provided for by law.

Like the developments in the well-known mortgage backed securities markets, the progression of the CDD market combined two common elements: 1. An insatiable institutional demand for yield and 2. the housing boom. According to the Florida CDD report, there are over 600 CDD districts in Florida that have issued more than $6.5 billion in municipal bonds to finance their infrastructure. It’s estimated that over $3billion in bonds are now in default. The lion’s share of these bonds is held in high yield municipal bond funds...


After spending a fair amount of time researching this bond and the probability of future cash flows, I was surprised at the distressed nature of the security. I could be off-base, but it seems highly unlikely that Lennar would continue to make principal, interest, and tax payments on lots with no apparent demand and overhang & headwinds from existing homes in foreclosure.

Furthermore, given the supply glut of existing lots and inventory, the local land experts relayed extreme bearishness at the prospect of selling the lots. A very large mutual fund family is holding the bond at ~43 cents on the dollar. Is this valuation possible? Yes, but based on what I have uncovered it could be argued that the likelihood of principal repayment could be substantially less than that.

While this bond may or may not be representative of the whole mutual fund universe, it raises questions about how accurately funds are valuing the bonds. The conclusion of this analysis leaves far more questions than answers."



"...So, what does the list say today? It looks pretty different from the way it did two years ago and most interestingly, it’s all the too big to fail banks which now pose the greatest system risk. So, all we’ve done is shuffle the risk around and congregate it in our largest institutions. If another financial crisis were to hit in the coming years there’s a very real possibility that it would be far more catastrophic than the last one."


"David Blanchflower, a professor at Dartmouth College and former policy maker at the Bank of England, says the Euro crisis is headed for disaster. Blanchflower’s comments would normally seem extreme, however, he’s among the unique few who have an inside look at European monetary policy. Blanchflower says the EMU is too far behind the curve at this point and that they have simply kicked the can.
The more time that passes without a real Euro resolution, the more it will boil and the more combustible the situation will become. Blanchflower is exactly right. He understands that austerity is not working and that the Euro remains fundamentally flawed. All the while, the periphery countries are slowly realizing that they’re losing while the core benefits. And as the political unrest increases the situation becomes increasingly risky. European leaders need to work together to get out in front of this..."


Greek Asset Fire Sale

"Please consider Greece Will Accelerate State Asset Sales to Stem Debt Crisis as Bonds Drop

The Greek government endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid and stem a market slide that threatens to swamp the most debt-laden euro-area nations.

Greek Prime Minister George Papandreou’s Cabinet agreed yesterday to sell stakes in Hellenic Telecommunications Organization SA (HTO) by the end of next month, as well as Public Power Corp SA (PPC), Hellenic Postbank SA, and the country’s ports.

The state’s direct stakes in those three companies currently have a market value of 2.1 billion euros. The government also said it would create a fund comprising assets to accelerate the sales, intended to raise 50 billion euros by 2015. The bulk of that will come from selling 35 billion euros of real estate.

The government plans to complete the sale of Postbank by the end of the year, and to sell 75 percent stakes in Piraeus Port Authority and Thessaloniki Port Authority SA. It also intends to extend the concession for Athens International Airport this year..."

Monday, May 23, 2011

Europe’s Spreading Infection

"THE fear that Greece’s sovereign-debt crisis might presage similar episodes elsewhere in the euro zone has been borne out. In November, Ireland joined Greece in intensive care, becoming the first euro-zone country to apply for funds from the rescue scheme agreed in May 2010 in concert with the IMF. Sovereign-bond spreads (the extra interest compared with bonds issued by Germany, the safest credit) have risen sharply in other euro-zone countries, notably Portugal, but also in Spain. Promises to tackle budget deficits through public spending cuts and tax increases have offered little reassurance to bondholders, who know that austerity will hold back already-weak GDP growth..."


Battle Over IMF Chief: Proxy War Over Power of Banks?

"There’s a fight afoot over who will be the next head of the IMF. Yours truly is not making odds on this one, save that Christine Lagarde is getting far and away the most attention in the media and more generally, a big push is on to have a European take the reins. The logic is that with the eurozone mess far and away the biggest priority, the new IMF chief needs to have credibility with the major actors, and that argues for a European choice.
The contrary camp is the “the countries formerly known as emerging” who point out that it is their turn to have an IMF head from one of their countries. The IMF has been led by a European since its inception. Even though votes have been rejiggered to give younger economies more weight, the mature ones still are in control of the outcome.
But what is intriguing are the arguments that follow, which reveal what the real stakes are. Crudely speaking, the advanced economies are far more bank friendly than their “emerging” counterparts. China is actively hostile to neoclassical economics and unfettered capital markets. Efforts to make China safe for investment bankers have been rebuffed. India sailed though the global financial crisis relatively well by having capital controls and heavily regulated banks. Pretty much any country that has taken IMF medicine (such as the countries caught in the Asian crisis, like Indonesia, South Korea, and Thailand) also sees the IMF as an enforcer for major capital market firms and international banks. Japan, as a military protectorate of the US, has limited degrees of freedom. Even so, during the Asian crisis, it pushed for a bailout within the region (ie, outside the IMF) and that idea was quickly slapped down by the US.
While the US and Europe have the voted to determine who gets the nod at the IMF, consider the open hostility to Western banks in this Guardian article (hat tip RN):
….in a letter to the G20 group of the world’s largest economies Brazil’s finance minister, Guido Mantega, said: “If the Fund wants to maintain its legitimacy, its managing director must be selected after broad consultation with the member countries.”…
There are equally trenchant opinions among IMF insiders. One former senior official said: “The big danger here is if the Europeans just try to put their person in. For example, Christine Lagarde [France's finance minister]. That would be a disaster. The Europeans have their heads in the sand again and if they do it, there will be bad fallout.”
“Christine Lagarde stands for protecting big banks. I know people like what she said to Jamie Dimon [chief executive of JP Morgan Chase] at Davos but she’s the most pro-bank bailout of the lot.
“The Americans are going to try and put in [White House adviser] David Lipton as number two. Lipton is Mr Bank Bailout. He worked for Citigroup. If they put in Lagarde and Lipton, what does that say? We are going with the total bank protection plan. That would be a disaster.”….
Beijing, like Brasilia, appears keen for someone from an emerging economy to run the IMF this time. Jiang Yu, a spokeswoman for the Chinese foreign minister, said on Thursday that the IMF’s top executives should be appointed on the basis of “impartiality” and “merit”. This came after the state-run China Daily newspaper reported Guo Tianyong, a leading Chinese economist, predicting that “Europe’s history of chairing the IMF may be broken”
The open question is at what cost will the advanced economies incur in installing yet another European. The IMF has been tasked to play a bigger role in global surveillance, particularly in prodding countries to rebalance their economies and change other risk-creating practices. If both top and the number two posts at the IMF goes to Westerners, it’s likely to produce simmering resentment and undermine cooperation on crisis prevention initiatives. The efforts to continue to make the world safe for big banks is coming at higher and higher cost, but no one in charge seems terribly concerned about the intermediate term, much the less the long term..."


Japan's Nominal Economy Approaching 20 Year Low

"Bloomberg details:
Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade.

Gross domestic product contracted an annualized 3.7 percent in the three months through March, following a revised 3 percent drop in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 23 economists surveyed by Bloomberg News was for a 1.9 percent drop.

The March disaster hit an economy already weighed down by years of deflation and subdued consumer spending.
While real GDP was down 3.7% in the quarter (annualized basis), nominal GDP was down an even higher 5.2% due to continued deflation. The chart below shows that nominal GDP is now at an almost 20 year low, hitting the lowest point since June 1991..."


Leading Indicators Turn Negative in April

"Bloomberg details:

The index of U.S. leading indicators fell in April after nine months of gains, depressed by a pickup in jobless claims that reflects temporary setbacks including auto-plant shutdowns.

The Conference Board’s gauge of the outlook for the next three to six months decreased 0.3 percent after a revised 0.7 percent gain in March, the New York-based group said today. Economists forecast a 0.1 percent increase, according to the median estimate in a Bloomberg News survey.
The chart below shows the broader concern of what will happen to the US economy when the Fed is no longer as accommodating as they have been with monetary easing (low interest rates + QE + QEII). Excluding those levers they can pull, leading indicators were down 0.65 month to month."

Fitch Downgrades Its Outlook On Belgium's Debt As Crisis Spreads From PIIGS To Core

"Fitch just downgraded its outlook on Belgium debt, from negative to stable, according to Bloomberg.
The outlook downgrade comes as European debt markets are being rattled by negative news on Italy, and continued concerns over Greece.

Belgium has been without a government for nearly year.

The euro isn't really reacting to the news..."


NY Times: The Glut of Foreclosed Homes

"From Eric Dash at the NY Times: Banks Amass Glut of Homes, Chilling Sales
The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.
The lenders definitely hold a large number of REOs (Real Estate Owned), however the RealtyTrac estimate looks a little high..."


Chicago Fed: Economic activity weakened in April

"From the Chicago Fed: Index shows economic activity weakened in April
Led by declines in production-related indicators, the Chicago Fed National Activity Index fell to –0.45 in April from +0.32 in March. April marked the lowest reading of the index since August 2010..."

Sunday, May 22, 2011

Financial Repression: Paying Down Debt With Cheaper Dollars

"Yesterday Jason Zweig wrote in the WSJ about the various worries that government bond holders have. Zweig’s biggest worry isn't default, but what economist Carmen Reinhart of the Peterson institute of International Economics calls “financial repression” or the use by governments of harsh methods to dig out from under burdensome debts. One example would be keeping short-term interest rates below the level of inflation so a government can pay off debt with cheapening money.

Bingo. On April 12 the Treasury sold $14 billion in TIPS at a median yield of -.26% real with the highest rate paid of -.18%. There is no doubt about it, the debt will be paid back with cheaper real dollars. If the debt ceiling gets lifted, looking at the trends below the Treasury maybe able to sneak in some more of these “repressive” bonds..."


Measuring systemic financial risk

"On a recent visit to UCSD, NYU Professor and Nobel Laureate Rob Engle called my attention to the NYU Stern Volatility Laboratory, a great resource that anyone can use to get some very interesting real-time analysis. Here I'd like to describe some of the features available for assessing the systemic risk posed by financial institutions.
The first step that Engle and colleagues propose is to calculate what they call the Marginal Expected Shortfall (MES) associated with a given financial institution. This is an estimate, based on recent dynamic variances and correlations of observed stock prices, of how much the stock valuation of a given institution would be expected to fall today if the overall market were to decline by more than 2%. This is essentially a time-varying tail-event beta, details of whose estimation can be found here.
They next used a dynamic simulation to extrapolate from the MES an estimate of how much the stock would fall in the event of a full financial crisis, defined as a 40% decline in a broad market stock index over a space of 6 months. They estimate this number to be around 18 times the daily MES..."


As Greece Has Less Than Two Month Of Cash Left, An Insolvent ECB Sees A Widening Rift With Germany

"Today's EUR trading session which begins in about 4 hours, may be rather violent. While on one hand we have bond-negative news out of Spain, the biggest news once again comes out of the Swiss journal NZZ, which citing greek newspaper Kahtimerini, discloses that insolvent Greece has less than two months of cash left, or enough to last it until July 18, unless a new installment in the bailout tranche is approved for the country by the now headless IMF, and the suddenly insolvent ECB. Insolvent, because as Spiegel will report in its headline article tomorrow, and as we have noted many times before, the bank is "suddenly" finding itself lending out money collateralized by now virtually D-rated bonds: something not even Trichet will be able to spin off to the increasingly malevolent media. Per Dow Jones: "Skeleton risks amounting to several hundreds of billions of euros are on the balance sheet of the European Central Bank, magazine Der Spiegel writes in a preview of its edition to be published Monday. Those risks arise because banks, above all from Greece, Ireland, Portugal and Spain, have provided as collateral asset-backed securities that are unfit for central bank loans as their debt rating is low or non-existent, the magazine says." Alas, the European central bank's dirty laundry is being exposed just as a rift between the bank and Germany: its most solvent backer, is starting to develop. Also from Dow Jones: "German Finance Minister Wolfgang Schaeuble cautioned in an interview published Sunday that there shouldn't be a conflict with the European Central Bank over a possible restructuring of Greek debt. "If in the end it should come to an extension of bonds, of course, we need the approval of the IMF and above all of the ECB. Under no circumstances should it come to a conflict with the ECB," Schaeuble told Bild am Sonntag. "I advise all of us to use restraint in public debates about this question." Several ECB officials have rejected a restructuring of Greek debt and have warned of possible catastrophic consequences, while European finance ministers are slowly warming up to the possibility of some kind of restructuring as a last resort." Thus the crunch time for Europe's latest kick the can down the road round, once again centered on a bankrupt Greece, may be coming fast, and this time with a rather furious Germany.
From NZZ:..."


Joseph Stiglitz, The End Of The Eurozone? — European Zeitgeist 2011

"The European Nations need their Sovereignty back and to get away from the bankers .Excellent discussion. Pretty humorous responses,by Joseph Stiglitz, with anecdotes from Iceland’s response to the crisis. “We are out of money, but we can pay you in fish.”
“The only people I saw in Iceland who were concerned about the banking crisis were foreign bankers holed up in the local Hilton.”
hey want to be able to economically enslave the population. Its happening before our eyes..."


Wednesday, May 18, 2011

Mohamed El-Erian : The Government will attempt the Financial Repression

"PIMCO CEO Mohamed El-Erian on Bloomberg TV : the key issue is that there is still too much debt in the system we have not yet sorted out the debt issue the debt over hang , now like individuals governments can do three things , they can either grow their way out the debt that's unlikely in the US without what we call the spot nick moment which means structural reforms , they can impose austerity they can tighten their belt or they can default , but governments have two other possibilities that individuals do not have they can flee their way out of debt and they can impose what's called FINANCIAL REPRESSION which is very simple it means that the government ends up paying savers less than the way of inflation and slowly overcomes its debt issues by recapitalizing because its paying in negative real return we have seen this happen in the past and I suspect it will be attempted in the next 3 to 5 years ..."


Hong Kong Mercantile Exchange begins offering of yuan-denominated gold future today

"First physical gold delivery right beneath the Hong Kong airport the new Hong Kong Mercantile Exchange starts offering today yuan-denominated and dollar - denominated gold futures this is the first time that future contracts with gold are offered with physical delivery unlike of what is happening in the COMEX , this is a new different market that should appeal to the asian investors in particular. The Industrial & Commercial Bank of China-backed bourse plans to introduce dollar silver futures by June after trading of dollar-denominated gold futures begins today, Albert Helmig, president of the exchange, said. China is promoting the use of the yuan in global trade and investment to reduce its reliance on the dollar..."


QE3, QE4, QE5…

"QE3 is in the offing…

Consensus expectations just seems to demand it as a generation of gambling speculators, swindlers, government policy junkies and others with short attention spans and a psychopathic indifference for the soundness of the financial system panic at the least sign of slowdown and line up for another dose of the Feds easy money.

Looking at some of the latest trends, a slowdown of sorts would not be so surprising.

The economy is still being seriously impacted by the evolving housing decline, unemployment remains at 9%, oil prices are near $100 a barrel with gasoline prices reflecting that fact, the Federal Government is toying with the debt ceiling, China is likely overheating as it inches ever closer to parabolic residential real estate prices and likely an ugly crash, other notable leading emerging markets like India and the Russian Federation are continuing to slow, Greece and other European countries are moving closer to debt restructuring… the list of negative externalities runs long yet they all carry the telltale ring of the Great Recession about them.

This is the point at which one, having been schooled by the Fed over many years, must begin to ask the question “What will the Feds response be?”… as if a response by the Federal Reserve is nearly a reflexive action to a consensus expectation of looming slowdown.

The answer to that question should not require such a stretch of imagination… the simple short answer is QE3… no more, no less..."


Lawler: The “Excess Supply of Housing” War

"CR Note: A key piece of data for the housing market - and the U.S. economy - is the current number of excess vacant housing units.

Unfortunately it is very difficult to get a good handle on this excess supply (it is large, but how large?). Both Tom Lawler and I are hopeful that we can arrive at a more accurate estimate using the Census 2010 data to be released this month (the estimate will be as of April 1, 2010).

Please excuse Tom's punctuation - but he has been arguing for better housing data for years - and he is clearly frustrated!

By Tom Lawler: The “Excess Supply of Housing” War: Is the 3.5 Million Estimate “Gold” (Man, No!); or Can You Take the 1.2 Million Estimate to the (Deutsche) Bank?...

What is disturbing, of course, is not necessarily that different sets of analysts can come to different sets of conclusions when analyzing US housing data. Rather, it is that there are multiple and conflicting “official” sets of government-produced data on the US housing stock, with little or no discussion from government officials/analysts are which – if any – dataset should be used by analysts to estimate the “excess” supply of housing in the United States."


LPS: Delinquencies edge up in April, FNC: Non-Distressed House Prices stable in March

"From LPS "first look" report: April Month-End Data Shows an Increase in Delinquency Rate and Drop in Foreclosure Inventories. After the sharp drop in delinquencies in March, the delinquency rate edged up in April.

The delinquency rate increased to 7.97% from 7.78% in March. There were an additional 4.14% of mortgage in the foreclosure process, down from 4.21% in March.

A total of 6.39 million loans were delinquent, up slightly from 6.33 million. The full report will be released on May 26th. Note: The Q1 delinquency report from the MBA will be released this Thursday and will probably show a sharp decline in delinquencies..."


Protests Mount in Spain; Sovereign Debt Crisis to Follow

"...Street protests are starting in Spain. Protesters call for real democracy and an end to corruption and big corporation rule, amongst other things. Organizers estimate the protest yesterday in Madrid was around 25,000.

Now there are protests planned in twenty main cities with camp-ins. It seems this is a non-union, non-partisan protest movement, particularly youth.

All the best, Bran.Protests Mount

Via Google Translate please consider a page of Spanish Protest Articles.

Here is a clip from one of them.

The protesters who have come on Tuesday to the Puerta del Sol called for 'Real Democracy Ya' have started at 21 hours a meeting to decide if, like yesterday, just camping tonight with tents and bags for their refusal to denounce the political class in general.

As "outraged" the demonstrators, mostly young, want to show they are not resigned to the current political parties do nothing against the crisis, and although it is forbidden to camp in the Square Kilometer Zero to be considered illegal occupation of public roads, do not hesitate to repeat the attempt to stay tonight.

In the early hours of the night, all that is heard among the audience is screaming "We're not going" as servants of the Security Forces and closely monitor the concentration is carried normally..."

Tuesday, May 17, 2011

*The Great Stagnation* (Retrogression)

"June 9 it is coming out in a physical edition, hard cover. Amazon pre-order is here. Barnes&Noble pre-order is here. The text is exactly the same as the eBook edition, although I made a minor addition to one footnote..."


The big, and little, mortgage-fraud news

"Shahien Nasiripour had a very important scoop yesterday — a set of confidential federal audits has found a pattern of mortgage fraud at the nation’s five largest mortgage companies. The victim? Uncle Sam. The findings have been passed to the Justice department, which could prosecute the banks under the False Claims Act, which Shahien describes as “a Civil War-era law crafted as a weapon against firms that swindle the government”.

Shahien also brings us up to speed on where negotiations are with between the banks and the federal government:..."


Monday, May 16, 2011


"The largest tailwind for the commodity bull market is set to continue according to FX analyst Kit Juckes at Societe Generale. Juckes believes the Euro is headed back to 1.55 EUR/USD:
“When the dam breaks you get washed out. Taking out position concentrations is a favourite sport in a range trading environment and the world is certainly heavily USD short. As the Fed stays on hold more than is currently expected, EURUSD is likely to once again overshoot and head for 1.55, the top of our now higher EURUSD forecasts.
Juckes sees the current dip in EUR/USD as a buying opportunity as the Fed is likely to remain tight, the German economy strengthens and the European sovereign debt crisis doesn’t cause any significant economic disruption:..."


German Newspaper Tells Greek Prime Minister the "Tortured Body Will Surrender" because Greece is Insolvent

"The editor-in-chief of Handelsblatt, a leading German business newspaper, published a Letter to Georgios Papandreou, Prime Minister of Greece, called "There is a life after death"

Here are a few excerpts...

...Once needed structural reforms are in place, the sooner Greece defaults, the better off it will be. The sooner the IMF, ECB, and EU accept the fact that Greece is insolvent and cannot possibly return to growth via forced austerity, the better off the Euro-Zone will be.

Greece needs structural reforms but is not savable. Nor is Ireland, Portugal, or Spain. What can't be paid back, won't be paid back. Bond-holders are going to learn a much needed lesson..."

Huge Cracks in Global Recovery Thesis; Industrial Production Unexpectedly Drops in Germany, France; UK Weaker than Expected

"For some clues about Europe, please consider German Bonds Rise as European Production Slips, Limiting Rate Speculation

May 12, 2011 10:27 AM CT

German bunds rose, pushing the 10- year yield toward a two-month low, as a report showed European industrial production unexpectedly fell in March, strengthening the case for interest rates to be kept on hold.

Production in the euro area slipped 0.2 percent in March from February, when it grew 0.6 percent, the European Union’s statistics office in Luxembourg said today. The median prediction of 25 economists surveyed by Bloomberg was for a 0.3 percent gain..."

Treasury Confirms Debt Ceiling To Be Breached Today; Will Tap Pension Funds

"It's official: the US credit card has officially been maxed out, just as we predicted on Wednesday, and througout Q1 and Q2. The United States is expected to reach the legal limit on its debt later on Monday and will start dipping into federal retirement funds to give the country more room to borrow, a Treasury official said. As Reuters reports further, The U.S. Treasury will settle $72 billion in maturing bonds on Monday, which will push the country right up against its $14.294 trillion borrowing cap, the official said. To all those who thought only the insolvent government of Ireland will plunder pension funds, our condolences.

Full release (no pun intended):

As US Reaches Debt Limit, Geithner Implements Additional Extraordinary Measures to Allow Continued Funding of Government Obligations

Today, the United States has reached the statutory debt limit. Secretary Geithner sent the following letter to Congress this morning alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present. The Secretary declared a "debt issuance suspension period" for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments. He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. For more information on these measures, please read this FAQ.
Last Friday, Secretary Geithner also responded to an inquiry from Senator Bennet regarding the fiscal and economic consequences of failing to increase the debt limit. That letter can be found here.
Secretary Geithner continues to urge Congress to raise the debt limit in a timely manner in order to uphold the full faith and credit of the United States..."


Sunday, May 15, 2011

US trade deficit jumps to $48bn

"The Commerce Department says the trade deficit rose 6pc to $48.2bn (£29.4bn). That's up from $45.4bn in February. Exports increased to $172.7bn, the largest on records dating back to 1996. The dollar's decline in recent months has made US goods cheaper overseas, and exports have also risen due to rapid growth in developing countries.
However, oil imports soared to $39.3bn, an 18pc rise from the previous month. That's the highest level since August 2008, and reflects steep price increases and more demand.
The trade deficit with China decreased to $18.1bn. That's down slightly from $18.8bn in February..."


New Disclosures on Currency Swaps with Goldman to Hide Greek Debt; Tip of the Iceberg says Former Bond Trader "Dr. Evil"

"By now, most realize that Greece used currency swaps with Goldman to hide debt. However, Bloomberg has some new details about those transaction in its report Greece Had 13 Currency Swaps With Goldman, Eurostat Says
Greece had 13 off-market derivative contracts with Goldman Sachs Group Inc. (GS), most of which swapped Japanese yen into euros in a 2001 transaction aimed at concealing the true size of the nation’s debt, according to the European Union’s statistics office.

The amount borrowed through the swaps was due to be repaid with an interest-rate swap that would have spread payments through 2019, Eurostat said in a report on its website today. In 2005, the maturity was extended to 2037, the report said. Restructuring the swaps spread the cost over a longer period, leading to an increase in liabilities and debt, Eurostat said.

Repeated revisions of Greece’s figures, beginning in 2009, spurred a surge in borrowing costs that pushed the country to the brink of default and triggered a region-wide debt crisis. The use of off-market swaps, which Greece hadn’t previously disclosed as debt, let the country increase borrowings by 5.3 billion euros ($7.5 billion), Eurostat said in November.

Today’s report provides details of Eurostat’s analysis of data obtained by its inspectors in Greece last year. Eurostat said most issues surrounding the swaps were resolved in September, when Greece agreed to correct its debt figures.
Tip of the Iceberg

Dr. Evil, a former government bond trader for a very prominent bank pinged me with a brief comment on the above article "13 with just 1 bank, in just 1 small country. This is but a tip of a huge iceberg".

For more on Dr. Evil, secret trades, and Citigroup's involvement, please see Italy The Invisible Elephant..."


Saturday, May 14, 2011

The Euro area is 'miserable'

"For all of our economic problems here in the US, a simple measure of 'misery' illustrates that US households are less miserable in March 2011 than those in the Euro area.

The chart below illustrates the simple 'misery index', which is the unemployment rate plus inflation. The blue line is a 45-degree line; those countries below it have seen their misery index fall on a y/y basis. Not one Euro area economy misery index fell since this time last year - French and German misery indices are unchanged despite improving employment. In contrast, the US misery index improved over the year with labor market conditions.

The problem is, that European fiscal austerity is clinching aggregate demand, raising inflation (via higher taxes) and producing unemployment. Consumers and firms alike are feeling this in Europe.

In the US, fiscal policy has been accommodative enough to allow for private sector deleveraging while keeping the economy on an upward trajectory. However, food and energy price inflation drove the US misery index up in April. Unless the labor market shows marked improvement in coming months, US misery will turn "Euro" as inflation batters consumers amid elevated unemployment. Please see Marshall Auerback's piece at the New Deal 2.0 regarding QE2 - QE2: The Slogan Masquerading as a Serious Policy..."


50 Things Every American Should Know About The Collapse Of The Economy

"The following are 50 things that every American should know about the collapse of the economy....

#1 Do you remember how much was made of the "Misery Index" during the presidency of Jimmy Carter? At that time, the "Misery Index" was constantly making headlines in newspapers all across the country. Well, according to John Williams of Shadow Government Statistics, if we calculated unemployment and inflation the same way that we did back during the Carter administration, then the Misery Index today would actually be higher than at any point during the presidency of Jimmy Carter.

#2 According to the U.S. Bureau of Labor Statistics, an average of about 5 million Americans were being hired every single month during 2006. Today, an average of about 3.5 million Americans are being hired every single month.

#3 According to the Wall Street Journal, there are 5.5 million Americans that are currently unemployed and yet are not receiving unemployment benefits.

#4 All over America, state and local governments are selling off buildings just to pay the bills. Investors can now buy up government-owned power plants, prisons and municipal buildings from coast to coast. For example, the mayor of Newark, New Jersey recently sold off 16 government buildings (including the police and fire headquarters) just to pay some bills.

#5 When Americans think of "government debt", most of them only think of the federal government, but it is not just the federal government that has a massive debt problem. State and local government debt has reached an all-time high of 22 percent of U.S. GDP.

#6 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#7 Credit card usage in the United States is on the increase once again. During the month of March, revolving consumer credit jumped 2.9%. Sadly, it looks like Americans have not learned their lessons about the dangers of credit card debt.

#8 Last year, Social Security ran a deficit for the first time since 1983, and the "Social Security deficits" in future years are projected to be absolutely horrific..."


Mark Mobius, Commodities Will Fluctuate But Rise

"Mark Mobius, Commodities Will Fluctuate But Rise , Mark Mobius, is Executive Chairman of Templeton Emerging Markets Group joined CNBC to discuss the euro zone debt crisis and the commodities..."


Marc Faber on The government deficit reduction plans

"Marc Faber : there have always been deficit reduction plans and none of them was kept because of politics and because of the economic situation I think may be may be you can cut the deficit from say one and half trillion dollars down to one point four trillion by a hundred billion dollars or so ,but they argued now for almost six months to cut the deficit or reduce the deficit by something like forty billion dollars ...what does it matter 40 billion dollars on one and half trillion dollars ..."


Friday, May 13, 2011

Losses on commercial CDOs more than double in April

"Realized losses for asset managers of U.S. commercial real estate loan collateralized debt obligations more than doubled in April, according to Fitch Ratings.

Analysts said CREL CDO asset managers saw $164 million in realized losses from the disposal of defaulted and credit impaired assets in April, up from losses of $73 million a month earlier.

"Many of the realized losses stemmed from foreclosure or deed-in-lieu of foreclosure actions that wiped out subordinate positions held by some CREL CDOs," said Fitch director Stacey McGovern..."


FDIC’s Bair Says Millions of Mortgages May Be “Infected,” Criticizes Consent Orders

"We’ve said repeatedly that findings of the multi-agency Foreclosure Task Force review late last fall, which looked at 2,800 mortgages from 14 servicers, was a worse than stress test type review, with a deliberately narrow focus designed to find very little wrong.
One of its remarkable findings was that that banks were on solid grounds in foreclosing, both in the borrower owing the money (which would inevitably be the finding given the failure to investigate servicer-driven foreclosures) and that banks were able to find the borrowers’ notes, which was taken to be tantamount to them having the legal authority to foreclose. Anyone who has been following this issue here or on specialist legal blogs knows that mere possession of the note is often a not sufficient threshold for successful action if the foreclosure is challenged.
In a gratifying show of candor and independence (or perhaps because she recognizes that the facts on the grounds make the Administration/banking industry party line untenable) Bair took exception to the “nothing to see here” stance of the officialdom and took exception to the findings of the Foreclosure Task Force in Congressional testimony earlier today.
From the Wall Street Journal:
The head of the Federal Deposit Insurance Corp. is warning that flaws may have “infected millions of foreclosures” and questioned whether other regulators’ inquiries into problems at the nation’s mortgage-servicing companies have been thorough enough.
“We do not yet really know the full extent of the problem,” FDIC Chairman Sheila Bair said Thursday in written remarks submitted to a hearing of the Senate Banking Committee. “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize.”..."

The Wall Street Journal's Misleading Income Chart

"The Wall Street Journal wrote an editorial last month making the point that there's no way to close our budget deficit by taxing only the rich. It's a point the Tax Foundation agrees strongly with, and the editorial's reasoning—that even if we confiscated 100% of the income of everyone in the top 1%, it still wouldn't be enough to close the deficit—makes sense. However, the editorial also includes a chart, which has been making the rounds on various blogs recently:

WSJ chart

Regardless of the broader merits of the editorial, this chart is a textbook example of how to lie with statistics. It's unfortunate that the Wall Street Journal chose to undermine the rest of its editorial by including such a breathtakingly misleading image.

It purports to show visually that the majority of taxable income in this country is made by those in the middle class—after all, the highest bar is for people making $100-$200K, which is in the middle of the graph! However, the heights of the bars depend as much on the width of your "bins" as on the actual statistic the bars measure. Look more closely: the bar immediately previous to this one is for the income range of $75K to $100K—an income range only one-quarter the size. Of course you're going to get a higher bar when you quadruple the income range it measures. The point here is that you can finagle the ranges for the bars any way you want, and get vastly different charts.

To demonstrate this, I've created two very similar charts using the 2006 IRS Public Use File (the most recent data available.) It's easy to reproduce a very similar chart using the same binning as the Wall Street Journal's:...

...Now, I can produce a chart similar to the Wall Street Journal's, but one that uses the income levels corresponding to the percentiles above:
percentile chart

Looks a little bit different, doesn't it?

My point here is not to criticize the editorial itself, because it's true that taxing only the rich isn't a viable path towards deficit reduction. At the same time, we shouldn't resort to misleading charts that pretend to show that those with high incomes don't make the majority of the money in this country—they do..."


The ECB’s Three Mistakes in the Greek Debt Crisis

"By now just about everybody agrees that the European bailout of Greece has failed: The debt will have to be restructured. As has been evident for well over a year, it is not possible to think of a plausible combination of Greek budget balance, sovereign risk premium, and economic growth rates that imply anything other than an explosive path for the future ratio of debt to GDP.

There is plenty of blame to go around. But three big mistakes can be attributed to the European leadership. This includes the European Central Bank - surprisingly, in that the ECB has otherwise been the most competent and successful of Europe-wide institutions.
Mistake number 1 was the decision in 2000 to admit Greece in the first place. The country was an outlier, geographically and economically. It did not come close to meeting the Maastricht Criteria, particularly the 3 % ceiling on the budget deficit as a share of GDP. No doubt most Greeks would agree with the judgment that they would be much better off today if they were outside the euro, free to devalue and restore their lost competitiveness.

The second mistake was to allow the interest rate spreads on sovereign bonds issued by Greece (and other periphery countries) to fall almost to zero during the period 2002-2007. Despite budget deficits and debt levels that far exceeded the limits of the Stability and Growth Pact, Greece was able to borrow almost as easily as Germany. Part of the blame belongs to international investors who grossly underestimated risk on all sorts of assets during this period. And part of the blame belongs to the rating agencies who, as usual, have been lagging indicators of European debt troubles, rather than leading indicators. But in this case, both groups might justify their attitudes by pointing out that the ECB accepted Greek debt as collateral, on a par with German debt.

The third mistake was the failure to send Greece to the IMF early in the crisis, before Greek interest rates went to 600 basis points (see graph). By January 2010 the need to go to the Fund should have been clear. Rather than going into shock, leaders in Frankfurt and Brussels could have welcomed the Greek crisis as a useful opportunity to establish a precedent for the long-term life of the euro. The idea that a debt problem of this sort would eventually arise somewhere in euroland cannot have come as a surprise. After all, why had the architects of the Maastricht fiscal criteria and the No Bailout Clause (1991) and the Stability & Growth Pact (1997) written them in the first place? Skeptical German taxpayers believed that, before the project was done, they would be asked to bail out some spendthrift Mediterranean country. European elites adopted the fiscal rules precisely to combat these fears..."


Thursday, May 12, 2011

Jim Rogers : I dont believe any governments stats

"....I do not believe any governments stats I do not believe ours I do not believe theirs I do not believe Germany , anybody ...I do not believe the politicians I do not believe the bureaucrats but I would say that China is growing dramatically , now they are trying to slow down they got an inflation problem a serious inflation and they got a property bubble in urban coastal cities and they're trying to do something about it ...."


Economic Bust in Australia:Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans;Record Low Property Transactions

"Those looking for bad news can find plenty of it in Australia, which in my opinion is soon headed for recession and rate cuts.

Near-Record Corporate Bankruptcies

Please consider Rising rents, cautious consumers behind rise in insolvencies

The number of companies entering insolvency in March reached a near-record high of just under 1,500, according to the corporate regulator, with cautious consumers and rising rents believed to be behind the worrying result..."

Central Banks Purchase 127 Tons Of Gold In Q1

"Most have heard by now that Mexico disclosed that back in Q1 it bought 93.1 tonnes of gold, increasing its total gold holdings from 7.1 tons to a whopping 100.2 total tons, a stunning move which was disclosed to have been done "in line with prudent diversification principles of reserves management." However, what is less known is that many other central banks, chief among them Russia and Thailand were also waving the shiny yellow metal in between January and March. And just as importantly, from the World Gold Council, from where this update comes: "The latest statistics show no significant selling by the signatory central banks in Year 2 of the third Central Bank Gold Agreement (CBGA3)." So no central banks sell, yet the daytrading retail public knows better. As for the key question of whether China is adding to its meager holdings of 1,054 tons, which put it behind the GLD, not to mention France and Italy, there is no update. Recall, however, that when China announced an addition of +454 tonnes of gold in April of 2009, this indicated stealthy purchases of the metal in the 2003-2009 period. In other words, China is very likely accumulating gold and the next update will likely come some time in 2015.
From the World Gold Council:
As of the IMF’s May release of its International Financial Statistics, several countries have reported additional purchases of gold. Notably, Mexico reported to the IMF that it acquired 14.8 and 78.5 tonnes of gold in February and March, respectively. This was a significant increase in its gold holdings, raising Mexico’s position in the table to the 34th largest holder of gold with 100.2 tonnes. In its press release, the Banco de Mexico indicated that its acquisition of gold was in line with prudent diversification principles of reserves management. Indeed, Banco de Mexico’s acquisition of gold was likely motivated by a need to diversify its rapidly expanding foreign reserves, which increased from approximately $75 billion to $120 billion between Q1 2007 and Q1 2011.

Additionally, Thailand also reported an increase in its gold reserves of 9.3 tonnes in March, raising its total gold holdings to 108.9 tonnes. This follows an acquisition of 15 tonnes in July of last year. Finally, Russia continues to regularly add gold to its reserves, adding 22.5 tonnes between January and March. Russia is the 8thlargest holder of gold..."


30 Year Prices At 4.38% In Very Weak Auction; Indirects Flee

"And so we close this week's bond issuance with a very disappointing 30 Year, which priced $16 billion at 4.38, nearly 4 basis point wide of the When Issued, and at a very weak 2.43 Bid To Cover: the lowest since November's 2.31. And with the high yield closing at the lowest level for primary issuance in 2011, it is not surprising that foreigner expressed very little interest in this auction: only 33% of the auction went to foreign buyers, whose hit rate was a very high 81.2% (total Indirect tender was just $6.5 billion or 41% of the total), indicating that even had the entire Indirect order book been filled, it would not have covered even half of the auction. 8.7% of the bond went to Direct Bidders, leaving Dealers having to bail out the auction once again, with a massive take down of 58.2%. Altogether a very weak auction, and likely the last one for a long time now that the Treasury is in deep debt ceiling trouble..."


Wednesday, May 11, 2011

Housing Prices Will Lead to Double Dip Recession: 3 Short Plays

"Alas, the double dip recession has arrived. It seems that everyone and their mother in financial media predicted this moment. It goes without saying that this was a long time coming. However, I am certain that I will be among the first to give a glimpse to what exactly the bottom may look like (whenever it arrives) and the new reality that maybe the U.S. home market. Economist Robert Shiller thinks home prices will drop between 5- 10% this year alone. Rather than get caught watching here are some short plays that maybe profitable during this decline. The SPDR KBW Bank Index ETF (KBR), Western Alliance Bancorp (WAL) and Cathay General Bancorp (CATY) all have significant downside correlation to the Case Shiller housing prices index:..."


Greek Debt Crisis “An Absolute Nightmare,” FT’s Wolf Says

"Days after S&P's downgrade sent yields of Greek debt soaring, European officials are reportedly working on another bailout package for the debt-laden nation.
The latest chapter in Europe's never-ending sovereign debt crisis comes about a year after Greece received a 110 billion euro ($158 billion) bailout package from the EU and IMF. That bailout was supposed to buy time for Greece to adopt austerity measures without having to tap the public debt markets. (See: Greece Is the Word: "I Think They'll Be Able to Control This," Dow Says)

But Greece has consistently fallen short of its budget targets in the past year and austerity measures have resulted in lower tax receipts and ever-higher deficits. As a result, financial markets are pricing in a default or major restructuring of Greek sovereign debt, putting renewed pressure on EU officials to prevent contagion into Europe's other 'PIIGS', most notably Spain.

The situation in Greece is an "absolute nightmare" for European officials, says Martin Wolf, The FT's chief economics correspondent.

Because it's "completely inconceivable" Greece will be able to raise enough money to fund its debts via the private market, Wolf says the country is faced with a stark choice: restructuring its debt now — and force private debt holders to take a haircut -- or become a ward of the EU, which will absorb the debt and then be desperate to avoid haircuts that would hit taxpayers (again)..."


Gold May Rise to $2,000 as Alternative to Currency, Eric Sprott says

"As investors continue to buy gold preferring it to paper money the price may go as high as $2000 before the end of this year says Eric Sprott Chairman, Chief Executive Officer & Portfolio Manager of Sprott Inc . Gold will rise by at least 17% this year, Sprott said today in an interview during the New York Hard Assets Investment Conference. The metal averaged $1,228.45 an ounce last year on the Comex in New York and ended 2010 at $1421.40. via Bloomberg

“It’s gone up 17% a year for the past 11 years; I’m sure it will do that as a minimum,” Sprott said. “It could easily hit $2,000 this year. That wouldn’t be out of the question.”


Spanish Revenues Collapse by 16.8%, GDP Misses Target; Is a Bailout of Spain in the Cards?

"...The big news here today is with government accounts. GDP is lower than expected, and revenue are down way more than expected (down 16.2% compared with a predicted drop of 12.8%).

Therefore, the government is looking at another few billion in borrowing this year and its schedule of deficit targets is thrown out of line.

Spain's budget is already tight after spending cuts and salary reductions, so the article suggests higher taxes might be need to get back on target..."


Tuesday, May 10, 2011

Next On The Downgrade Docket: Belgium

"With so much of the attention once again focused on Europe's periphery (which somehow the efficient market could not be bothered with for about 4 months, even though it was all there, staring people in the face all along), it may be time to recall the Europe's core is just as troubled as everything else. Some may recall that back on December 14, S&P came out with a bit of a stunner (which in retrospect looks rather tame following the now forgotten warning on the US Debt): "And so European contagion is back as S&P, now clearly with a mandate to remind that Europe is in a heap of trouble every month or so, puts Belgium on Outlook negative, saying that it is basically just a matter of time before the country loses its AA+ rating. The bogey: 6 months, which likely means that around May of next year, just like a year prior, we will see the same fireworks out of Europe, only this time not from Greece, but from the very heart of what is left of a solvent continent. "If Belgium fails to form a government soon, a downgrade could occur, potentially within six months. Should a government be formed but is, in our opinion, ineffective in its fiscal stance or devolution, we are likely to consider rating action within two years." Well, it is now 6 months later, and Belgium still has no government. Time to pull the switch?
Bloomberg chimes in on the imminent downgrade of the world's longest anarchy:
“There’s a downgrade looming,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf. “The market appears to have become really complacent regarding the issue. This may become an issue again if a downgrade is to come.”..."

Are Michigan and Illinois like Greece and Ireland?

"US states are a lot like Eurozone nations.
  • Investors are concerned about the possibility of state default, especially for states like California, Michigan, and Illinois, just as they are concerned about possible defaults for European periphery countries like Greece, Ireland, and Portugal.
  • The largest states pull roughly the same economic punch as the largest European countries.
California’s economy is larger than Spain and approximately 90% the size of Italy. Michigan, despite its recent industrial decline, still has an economy larger than Greece, Portugal, or Ireland taken separately.
  • US states are in a dollar currency union, just like Eurozone members are in a euro one.
In addition, there are many economic, legal, and political linkages between states just as there are similar, but weaker, linkages among European countries.
  • Reinhart and Rogoff’s (2008, 2009) comprehensive work gives us timely reminders that Eurozone countries like Greece, Spain, Austria, and Greece have defaulted before in the 1930s and 1940s, just as some US states have.
Eight states went bankrupt in the 1830s and 1840s, ten states went bankrupt in the late 1800s, and the last state default was Arkansas in 1933..."


Don’t Buy A House In 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis

"The following are 20 really wacky statistics about the U.S. real estate crisis....

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 According to Zillow, more than 55 percent of all single-family homes with a mortgage in Atlanta have negative equity and more than 68 percent of all single-family homes with a mortgage in Phoenix have negative equity.

#6 U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

#7 In February, U.S. housing starts experienced their largest decline in 27 years.

#8 New home sales in the United States are now down 80% from the peak in July 2005.

#9 Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent..."