"Kerri Shannon writes: China has started diversifying away from the U.S. dollar, yet another sign that it's time to invest in the yuan.
A report from Standard Chartered Bank last week showed China's foreign exchange reserves expanded by $196 billion in the first four months of this year. About 75% of that investment was in non-U.S. dollar assets.
This is the biggest gap between accumulated reserves and purchased U.S. debt by China in at least five years.
As the dollar's value weakens, China has taken steps to distance itself from the currency, and attempted to strengthen its own by investing more in gold and other assets.
Money Morning Chief Investment Strategist Keith Fitz-Gerald said China's diversification means the yuan is backed by better assets than other countries' currencies.
"That is why the yuan is likely to emerge as a new reserve currency, and yet another argument for owning the yuan as an investment," said Fitz-Gerald. "This is the full circle nobody expects and one of the reasons I frequently refer to China's yuan as the only currency on the planet with adult supervision."..."
at http://www.marketoracle.co.uk/Article28920.html
Tuesday, June 28, 2011
3-D Economic Hurricane of Debt, Deficits and Demographics Heading for All Developed Economies
"Today's Outside the Box is from an old friend, but one who is new to my readers. Jason Hsu is a partner at Research Affiliates and helped create the Fundamental Indexes with Rob Arnott. Starting at Cal Tech, he went on to a PhD in economics,and is now a professor at UCLA and teaches in China and Taiwan. Wins all sorts of awards and has won the Rising Star of HedgeFunds award. In short, he is really smart...
The 3-D Hurricane and the New Normal*
Jason Hsu
Debt, deficit, and demographics -- the 3-D hurricane -- is heading to the shores of all developed economies. It threatens to derail the lukewarm economic recovery and to alter forever the heretofore path of robust growth for the developed world. In a sense, debt, deficit, and demographics will reset the world to a "New Normal" -- an extended period of lower economic and return expectations for the aging and debt-ridden developed world. In contrast, emerging economies with healthy government and household balance sheets, responsible fiscal policies, and young labor forces will be the drivers for global growth and will compete with their developed counterparts for economic and political leadership. More importantly, the emerging economies will demand their fair share in the consumption of resources and goods. That competition for resources and goods will lead to higher prices at a time when developed countries are less able to further finance their consumption..."
at http://www.marketoracle.co.uk/Article28942.html
The 3-D Hurricane and the New Normal*
Jason Hsu
Debt, deficit, and demographics -- the 3-D hurricane -- is heading to the shores of all developed economies. It threatens to derail the lukewarm economic recovery and to alter forever the heretofore path of robust growth for the developed world. In a sense, debt, deficit, and demographics will reset the world to a "New Normal" -- an extended period of lower economic and return expectations for the aging and debt-ridden developed world. In contrast, emerging economies with healthy government and household balance sheets, responsible fiscal policies, and young labor forces will be the drivers for global growth and will compete with their developed counterparts for economic and political leadership. More importantly, the emerging economies will demand their fair share in the consumption of resources and goods. That competition for resources and goods will lead to higher prices at a time when developed countries are less able to further finance their consumption..."
at http://www.marketoracle.co.uk/Article28942.html
Credit Default Swaps Are Once Again At The Center Of Financial Crisis
"Three years ago, I told you that Wall Street's newest invention—credit default swaps—would cause a major financial crash.
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG).
But these financial derivatives were a major exacerbating factor—which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries, not just banks, defaulting on their debt.
Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice..."
at http://moneymorning.com/2011/06/28/credit-default-swaps-why-washington-ignored-our-warning/#ixzz1Qd67nfJx
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG).
But these financial derivatives were a major exacerbating factor—which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries, not just banks, defaulting on their debt.
Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice..."
at http://moneymorning.com/2011/06/28/credit-default-swaps-why-washington-ignored-our-warning/#ixzz1Qd67nfJx
GREECE, IRELAND AND PORTUGAL DEFAULT PROBABILITIES ABOVE 50%
"I see headlines like, “Euro Maintains Gain on Greek Debt Optimism” and I am just not sure what everyone else is looking at. As far as the credit default swap market is concerned, Greece has already defaulted, it is just a matter of when and in what form. Ireland and Portugal are basically at levels that share a similar fate. Next question is whether Italy and Spain fall into the hole..."
"Land of the Predictable": Pimco CEO Warns U.S. Debt Default Might Have "Catastrophic" Effect
"In yet another of the seemingly endless self-serving fear-mongering exercises, Pimco’s El-Erian Says U.S. Debt Default Might Have ‘Catastrophic’ Effect
Pacific Investment Management Co. LLC Chief Executive Officer Mohamed El-Erian said a short-term default by the U.S. on its debt might have “catastrophic” legal consequences.at http://globaleconomicanalysis.blogspot.com/2011/06/land-of-predictable-pimco-ceo-warns-us.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
“We would be in the land of the unpredictable” if lawmakers fail to reach an agreement to raise the $14.3 trillion debt ceiling and the U.S. misses a payment “simply because of the technical linkages,” El-Erian said in an interview on CNN’s “Fareed Zakaria GPS” program, scheduled to air today..."
Monday, June 27, 2011
More on US Money Markets As a Channel of Contagion
"New earlier this month that Moody’s was placing 3 French banks on review for a possible downgrade renewed investors focus on the potential contagion through US money markets. It appears that European banks secured dollar funding through issuance of commercial paper and other short-term instruments that US money market funds purchase.
Fitch estimates that 10 of the top 15 issuers of such short-term paper are European banks and Moody’s estimates that of over half of that is accounted for by French banks. There has been a net withdrawal from US money market funds and it appears that the funds have moved to strictly US Treasury or US high grade money market funds. This, coupled with new regulations/fees, and a reduction of bill offerings from the Treasury as it approaches its debt-ceiling, has weighed on US bill yields. The 4-week bill yield appears negative and the 3-month bill is at about 1 bp annualized yield, for example.
In addition, a large Spanish bank is reportedly experiencing difficulty in recent weeks funding itself in the US CP market. The amounts involved seem relatively modest compared to the bank’s balance sheet, but the tension is evident. Moody’s warning on Italian banks also pushes in the same direction..."
at http://www.creditwritedowns.com/2011/06/more-on-us-money-markets-as-a-channel-of-contagion.html#ixzz1QXxPpm8j
Fitch estimates that 10 of the top 15 issuers of such short-term paper are European banks and Moody’s estimates that of over half of that is accounted for by French banks. There has been a net withdrawal from US money market funds and it appears that the funds have moved to strictly US Treasury or US high grade money market funds. This, coupled with new regulations/fees, and a reduction of bill offerings from the Treasury as it approaches its debt-ceiling, has weighed on US bill yields. The 4-week bill yield appears negative and the 3-month bill is at about 1 bp annualized yield, for example.
In addition, a large Spanish bank is reportedly experiencing difficulty in recent weeks funding itself in the US CP market. The amounts involved seem relatively modest compared to the bank’s balance sheet, but the tension is evident. Moody’s warning on Italian banks also pushes in the same direction..."
at http://www.creditwritedowns.com/2011/06/more-on-us-money-markets-as-a-channel-of-contagion.html#ixzz1QXxPpm8j
EmailSharePrint
"Here’s an item that slipped by us at the end of last week — but not past the worrisomely workaholic indefatigable Stacy Marie-Ishmael of FT Tilt, who spotted it while on vacation and forwarded it to us. (Thanks.)
From the emerging markets research group at BBVA:
BBVA reckon that the move makes a certain amount of sense given the astounding, exponential rise in offshore RMB since the start of last year.
at http://ftalphaville.ft.com/blog/2011/06/27/606631/another-tiny-step-towards-rmb-internationalisation/
From the emerging markets research group at BBVA:
A new policy rule of regulation on cross-border RMB FDI allows foreign enterprises remitting the offshore RMB back to Mainland China in form of FDI. Although still in pilot phase, the new rule will advance the development of the offshore RMB market and internationalization of RMB.
Yesterday People’s Bank of China (PBoC) publicized a new policy rule of regulation on cross-border RMB FDI. The new rule stipulates that, in principle, all the foreign enterprises are allowed to raise RMB fund in offshore RMB markets and repatriate them back tothe mainland as FDI. Previously, the foreign enterprises’ behaviors of remitting RMB back into Mainland are subjected to PBoC’s approval on a case-by-case basis.For a bit of context, see our earlier posts on how China plans to internationalise the RMB and why it could lead to more offshore banking centres (at the moment it’s all Hong Kong).
BBVA reckon that the move makes a certain amount of sense given the astounding, exponential rise in offshore RMB since the start of last year.
This new regulation is still on a pilot basis, and the foreign enterprises have to go through a set of application procedures before remitting the RMB. Nevertheless, it is expected to be expanded in future just like the pilot program of cross-border RMB trade settlement (which was initially unveiled in June 2009 and largelyexpanded in June 2010). This new rule indeed finds new use for increasing offshore RMB deposit. By end-April, the RMB deposit in Hong Kong, the biggest offshore RMB center, amounted to RMB 511 trillion, around 8.5% of the total deposits in Hong Kong.
We anticipate that this new rule will further buoy the offshore RMB (“Dim Sum”) bond market and accelerate the pace of RMB internationalization. Hong Kong’s banking sector will become the main beneficiary of this new rule given Hong Kong’s leading position in developing the offshore RMB center..."
at http://ftalphaville.ft.com/blog/2011/06/27/606631/another-tiny-step-towards-rmb-internationalisation/
Fed Official Warns of Too Much Debt for Consumers, Corporations
"Overly leveraged U.S. consumers and financial firms expose the financial system to shocks, a top Federal Reserve official said Monday, urging changes to the tax code that would lower the incentives of piling on debt.
In prepared remarks to a bankers at a summit in Big Sky, Mont., Minneapolis Fed President Narayana Kocherlakota said heavily indebted households and financial institutions were leaving the system vulnerable to risks..."
at http://blogs.wsj.com/economics/2011/06/27/fed-official-warns-of-too-much-debt-for-consumers-corporations/?mod=WSJBlog
In prepared remarks to a bankers at a summit in Big Sky, Mont., Minneapolis Fed President Narayana Kocherlakota said heavily indebted households and financial institutions were leaving the system vulnerable to risks..."
at http://blogs.wsj.com/economics/2011/06/27/fed-official-warns-of-too-much-debt-for-consumers-corporations/?mod=WSJBlog
NOT TECHNICALLY BANKRUPT, BUT ECONOMICALLY BANKRUPT
"...The US government sets a political limit on the amount of government issued debt which is called the “debt ceiling” (see here for a more in-depth discussion). This is entirely political. There is NOTHING operationally that constrains the USA’s debt issuance. The USA issues its own currency and has no foreign denominated debt. There is simply no such thing as the USA “running out of money”. In this regard, they are never revenue constrained and the only thing stopping the US government from spending money is the willingness of politicians to vote on these changes. This is nothing like a household, business, US state or European nation – all of whom are revenue constrained. The real bogey with regards to government spending is inflation and the effects of this spending via mal-investment, spending in excess of productive capacity and the resulting lower standard of living. There is simply no such thing as a traditional US government “default” – as in, not having enough money to meet your obligations.
The USA could suffer a form of insolvency in the name of hyperinflation, but there is almost nothing about the current state of the US economy that is consistent with past cases of hyperinflation. More importantly though, there are no signs that markets are even remotely concerned about a US insolvency (even if you were silly enough to believe it could happen). Both USA credit default swaps and US government bond rates are among the lowest in the entire world. And the myth of a potential surge in interest rates is sheer nonsense as the Federal Reserve controls the yield curve via the monetary policy that serves ZERO funding purpose and only helps to drain reserves while targeting the Fed Funds rate.
In short, these politicians have absolutely zero clue how the US monetary system actually functions. They have failed to properly diagnose our problems (a balance sheet recession) and are now implementing policy that will prove destructive. All in the name of a bankruptcy that can only happen if they decide to let it happen! So buckle up America. In their fight for power the politicians are about to “help” us avoid a technical bankruptcy while bankrupting us economically..."
at http://pragcap.com/not-technically-bankrupt-but-economically-bankrupt
The USA could suffer a form of insolvency in the name of hyperinflation, but there is almost nothing about the current state of the US economy that is consistent with past cases of hyperinflation. More importantly though, there are no signs that markets are even remotely concerned about a US insolvency (even if you were silly enough to believe it could happen). Both USA credit default swaps and US government bond rates are among the lowest in the entire world. And the myth of a potential surge in interest rates is sheer nonsense as the Federal Reserve controls the yield curve via the monetary policy that serves ZERO funding purpose and only helps to drain reserves while targeting the Fed Funds rate.
In short, these politicians have absolutely zero clue how the US monetary system actually functions. They have failed to properly diagnose our problems (a balance sheet recession) and are now implementing policy that will prove destructive. All in the name of a bankruptcy that can only happen if they decide to let it happen! So buckle up America. In their fight for power the politicians are about to “help” us avoid a technical bankruptcy while bankrupting us economically..."
at http://pragcap.com/not-technically-bankrupt-but-economically-bankrupt
David Morgan Gold prices could go up astronomically after QE2 ends
"David Morgan on the Ellis Martin Report discussing the Dollars, Debt and Danger of hyperinflation : "what's coming unfortunately is the great day of reckoning , at some point the dollar collapse happens and at some sense it is happening in other words it is not usually an overnight anomaly where all the banks close that's not probably what's going to take place , what's happens is as we are witnessing more and more nation stats start to say I do not want any more dollars , the FED becomes the buyer of the last resort of the bond market which is true as it is still going on until June 30th when QE2 ends , and right now the FED is buying 80 percent of the bond offer after the 30th of June who is going to step in and buy it , China ? Russia ? Japan ? I do not know I doubt any of them will buy that much they may buy some , so we get to the end game and the end game is I do not want the dollar anymore , and the problem with this is it is still interconnected for the global economy because the dollar is still the reserve currency so if you stop wanting the dollar what do you want ? and it does not take much of the bond market to go to the security of Gold to move the prices in paper terms to an astronomically higher level and that's the situation we are facing , China is increasing its gold holdings Russia is increasing its gold holdings India increased its gold holdings , Central bankers have become net buyers of gold recently as they were net sellers for a very long period of time , so e are getting near the end ...so hopefully it gets to a point where an adjustment can be made in other words we go back to some kind of Gold standard or pseudo gold standard or a commodity basket or something that have faith in it we are not there yet but we are getting there very rapidly ...says David morgan"
at http://goldbasics.blogspot.com/2011/06/david-morgan-gold-prices-could-go-up.html
at http://goldbasics.blogspot.com/2011/06/david-morgan-gold-prices-could-go-up.html
Stress Increases in Eurozone; Portuguese, Spanish, Irish, and Italian 10-Year Yields All Make New Highs
"Eurozone sovereign debt yields pushed higher across the board today. Irish debt has topped 12% for the first time, Italian debt topped 5% and most Euroland debt yields are at all times high spreads compared to Germany.
Significantly, yields are at fresh new highs for Spain, Italy, Ireland and Portugal.
If by any chance you are wondering whether to believe EU officials or the bond markets, I suggest you believe the bond markets.
The charts below are delayed, but the quotes are accurate. Stress increases in Eurozone..."
at http://globaleconomicanalysis.blogspot.com/2011/06/stress-increases-in-eurozone-portuguese.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Significantly, yields are at fresh new highs for Spain, Italy, Ireland and Portugal.
If by any chance you are wondering whether to believe EU officials or the bond markets, I suggest you believe the bond markets.
The charts below are delayed, but the quotes are accurate. Stress increases in Eurozone..."
at http://globaleconomicanalysis.blogspot.com/2011/06/stress-increases-in-eurozone-portuguese.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Sunday, June 26, 2011
Nine Reasons Why Spain Is Not Different
"Spain, as those 1990s tourist brochures used to tell us, is different. And it certainly shouldn’t be confused with Greece. Even a cursory look at the most basic of maps should satisfy any doubts we might be harbouring in that regard. But being different is not the same thing as being economically sound. Which is what Societe Generale’s Klaus Baader has just tried to argue in a recent research note entitled “9 reasons why Spain is different”. “The Spanish bond market was hit hard in the wake of the quantum leap in the Greece crisis. But fundamentally the case for Spain remains strong,” he tells us.
In singling out the nine points that Klaus advances in support of his thesis for detailed examination, I do not do so because I find the arguments particularly bad (or even especially “noteworthy” in the negative sense). He has a point of view, and he is doing is job, and in neither case can I fault him for this.
The reason I have decided to single Klaus out for special treatment here is because he conveniently brings together, in a clear and succinct fashion, a number of arguments which are widely accepted and used by both analysts and policy makers. Unfortunately the fact that arguments are widely held does not make them valid, or in anything other than the most trivial conventialist sense “true”. Indeed it is precisely because I feel that these arguments are not well founded that I have decided to reply to them in this rather detailed way. Basically I don’t buy the idea that Spain is simply suffering from a crisis of confidence, one which, in its turn, puts pressure on the government bond spread. I think Spain has a problem in the fundamentals department, and unless this problem is first accepted and then addressed the wrong (inadequate) remedies will continue to be applied, putting the Eurozone and its citizens at risk of financial catastrophe in the medium term..."
at http://www.creditwritedowns.com/2011/06/is-spain-different.html#ixzz1QRruu85I
In singling out the nine points that Klaus advances in support of his thesis for detailed examination, I do not do so because I find the arguments particularly bad (or even especially “noteworthy” in the negative sense). He has a point of view, and he is doing is job, and in neither case can I fault him for this.
The reason I have decided to single Klaus out for special treatment here is because he conveniently brings together, in a clear and succinct fashion, a number of arguments which are widely accepted and used by both analysts and policy makers. Unfortunately the fact that arguments are widely held does not make them valid, or in anything other than the most trivial conventialist sense “true”. Indeed it is precisely because I feel that these arguments are not well founded that I have decided to reply to them in this rather detailed way. Basically I don’t buy the idea that Spain is simply suffering from a crisis of confidence, one which, in its turn, puts pressure on the government bond spread. I think Spain has a problem in the fundamentals department, and unless this problem is first accepted and then addressed the wrong (inadequate) remedies will continue to be applied, putting the Eurozone and its citizens at risk of financial catastrophe in the medium term..."
at http://www.creditwritedowns.com/2011/06/is-spain-different.html#ixzz1QRruu85I
State and local governments should be listed as a primary risk to the US outlook
"I don't see why the aggregate state funding gap is not numero uno on the 'risks' to the US outlook (I usually hear oil, Europe, China, etc., in my line of work). According to the Center on Budget and Policy Priorities, the State budget gap is not expected to clear at least through 2013. From the CBPP report "States Continue to Feel Recession's Impact":
at http://www.angrybearblog.com/2011/06/state-and-local-government-s-should-be.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29
Three years into states' most severe fiscal crisis since the Great Depression, their finances are showing the clearest signs of recovery to date. States in recent months have seen stronger-than-expected revenue growth.
This is encouraging news, but very large state fiscal problems remain. The recession brought about the largest collapse in state revenues on record, and states are just beginning to recover from that collapse. As of the first quarter of 2011, revenues remained roughly 9 percent below pre-recession levels.
Consequently, even though the revenue outlook is better than it was, states still are addressing very large budget shortfalls..."
at http://www.angrybearblog.com/2011/06/state-and-local-government-s-should-be.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29
The Credit Default Swaps That Underlie the Greek Crisis
"This interview will help you to understand the problems surrounding the Greek crisis, the intended looting of their public resources, and the model that is being repeated by the banks around world.
Rickards on Regulatory Capture, Corrupt Banks, and the Credit Default Swaps on Sovereign Defaults
Around 2000 I came to roughly the same conclusions that he does. I had the opportunity to study the European money system while it was forming in graduate business school, and it just did not make sense.
The euro was probably going to fail unless the union became a unified federal government with one set of laws and taxation policy, with the kind of revenue distribution that exists amongst states in the US, for example.
A single currency cannot span independent fiscal authorities because it removes the ability of the currency to flucuate in value based on their independent economic health, acts of God, and social policy choices of the different social organizations. This is basic monetary theory. I was surprised that it lasted as long as it did, but it was to the advantage of the financial world to tolerate the attendant deceptions because they were growing fat on it.
And a similar thing can be said for the global currency trading regime based on the dollar and arbitrary valuations subject to national manipulation. It has allowed multinational corporations and banks to achieve tremendous power and advantage over local governments..."
at http://jessescrossroadscafe.blogspot.com/2011/06/credit-default-swaps-that-underlie.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
Rickards on Regulatory Capture, Corrupt Banks, and the Credit Default Swaps on Sovereign Defaults
Around 2000 I came to roughly the same conclusions that he does. I had the opportunity to study the European money system while it was forming in graduate business school, and it just did not make sense.
The euro was probably going to fail unless the union became a unified federal government with one set of laws and taxation policy, with the kind of revenue distribution that exists amongst states in the US, for example.
A single currency cannot span independent fiscal authorities because it removes the ability of the currency to flucuate in value based on their independent economic health, acts of God, and social policy choices of the different social organizations. This is basic monetary theory. I was surprised that it lasted as long as it did, but it was to the advantage of the financial world to tolerate the attendant deceptions because they were growing fat on it.
And a similar thing can be said for the global currency trading regime based on the dollar and arbitrary valuations subject to national manipulation. It has allowed multinational corporations and banks to achieve tremendous power and advantage over local governments..."
at http://jessescrossroadscafe.blogspot.com/2011/06/credit-default-swaps-that-underlie.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
George Soros Explains How The Crisis In Europe Will End: Weaker Economies Will Probably Exit The Euro
"George Soros said at a panel discussion in Vienna today that “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread."
The billionaire hedge fund manager whose huge bet on the collapse of the British pound earned him one billion dollars warned about the severity of the Euro crisis, saying, “The financial system remains extremely vulnerable.”
He also explained how the crisis will probably end, according to Bloomberg: it’s “probably inevitable” that a mechanism will have to be put in place to allow weaker euro-region economies to exit the Euro..."
at http://www.businessinsider.com/george-soros-explains-how-the-crisis-in-europe-will-end-weaker-economies-will-probably-exit-the-euro-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1QRpguZnt
The billionaire hedge fund manager whose huge bet on the collapse of the British pound earned him one billion dollars warned about the severity of the Euro crisis, saying, “The financial system remains extremely vulnerable.”
He also explained how the crisis will probably end, according to Bloomberg: it’s “probably inevitable” that a mechanism will have to be put in place to allow weaker euro-region economies to exit the Euro..."
at http://www.businessinsider.com/george-soros-explains-how-the-crisis-in-europe-will-end-weaker-economies-will-probably-exit-the-euro-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1QRpguZnt
U.S. Economy: Low Money Velocity Signals Troubles Ahead
"Federal Reserve Chairman Ben Bernanke continues to be the enemy of savers. On June 23, the Boston Red Sox fan reiterated his belief that interest rates should be kept at rock-bottom levels for an extended period of time. He views this as necessary in order to keep the economy growing.
Part of Bernanke’s problem has been his inability to accelerate the pace of money movement, or velocity. Velocity is an economic measure of how many times a dollar is used to purchase goods and services. For instance, if I give you a $100 bill and you put it into your dresser, there is no real velocity. However, if you use it to make a repair on your car and then your mechanic spends the cash on buying a replacement part, velocity accelerates. Thus, there are advantages to sustaining a certain level of velocity.
An example more applicable to the current environment is the housing market. The National Association of Realtors reported a 3.8% decline in existing home sales and a 4.6% drop in home prices on Tuesday. A homeowner who cannot sell his house, either because he is underwater on his mortgage or simply can’t find buyers for a price he wants to sell at, has capital that is stationary.
The same homeowner is therefore unlikely to buy someone else’s house, much less spend additional money on items and services often associated with a home purchase. Thus, the capital tied up in the homeowner’s current house is not circulated back into the economy, thereby slowing velocity.
How slow is velocity currently? The chart below, from the St. Louis Federal Reserve Bank, shows the long-term trend in M2 money stock velocity. (This is the ratio of quarterly nominal GDP to the quarterly average of M2 money stock. M2 is a broad set of financial assets, including cash held outside of depository institutions, savings deposits, and money market accounts. Nominal GDP is economic growth that has not been adjusted for the impact of inflation.) The gray bars show when recessions have occurred.
As you can see, velocity is at historically low levels. Velocity is, however, just one snapshot of the economy and not a sole indicator you should rely on. However, when you factor in other signposts, a picture of money not changing enough hands is formed..."
at http://www.businessinsider.com/us-economy-low-money-velocity-signals-troubles-ahead-2011-6#ixzz1QRoBK5TX
Part of Bernanke’s problem has been his inability to accelerate the pace of money movement, or velocity. Velocity is an economic measure of how many times a dollar is used to purchase goods and services. For instance, if I give you a $100 bill and you put it into your dresser, there is no real velocity. However, if you use it to make a repair on your car and then your mechanic spends the cash on buying a replacement part, velocity accelerates. Thus, there are advantages to sustaining a certain level of velocity.
An example more applicable to the current environment is the housing market. The National Association of Realtors reported a 3.8% decline in existing home sales and a 4.6% drop in home prices on Tuesday. A homeowner who cannot sell his house, either because he is underwater on his mortgage or simply can’t find buyers for a price he wants to sell at, has capital that is stationary.
The same homeowner is therefore unlikely to buy someone else’s house, much less spend additional money on items and services often associated with a home purchase. Thus, the capital tied up in the homeowner’s current house is not circulated back into the economy, thereby slowing velocity.
How slow is velocity currently? The chart below, from the St. Louis Federal Reserve Bank, shows the long-term trend in M2 money stock velocity. (This is the ratio of quarterly nominal GDP to the quarterly average of M2 money stock. M2 is a broad set of financial assets, including cash held outside of depository institutions, savings deposits, and money market accounts. Nominal GDP is economic growth that has not been adjusted for the impact of inflation.) The gray bars show when recessions have occurred.
As you can see, velocity is at historically low levels. Velocity is, however, just one snapshot of the economy and not a sole indicator you should rely on. However, when you factor in other signposts, a picture of money not changing enough hands is formed..."
at http://www.businessinsider.com/us-economy-low-money-velocity-signals-troubles-ahead-2011-6#ixzz1QRoBK5TX
Le Figaro Reports French Banks Propose "Voluntary" 30 Year Debt Rollover, However With DOAing 30%-50% Implied Haircut
"The latest episode in the "we'll make it up as we go along" rescue of the Euro comes from France where as Le Figaro reports, a working group of French banks led by BNP Paribas has proposed, and been agreed to by the French Treasury, that maturing debt would be rolled over into a a 30 year maturity piece, accounting for 50% of the total existing debt, and another 20% would go into a "zero coupon" fund focused on high quality stocks. Also according to Le Figaro, borrowings under the proposed scheme would pay an interest equivalent to what Greek "public" interest is plus a variable interest rate "likely to be linked to an economic Greek indicator such as GDP" (which being negative for years will likely means lower interest than prevailing).
Of course the problem with this proposal for anyone who can do simple math, is that the implied haircut for the Greek Treasury would be between 30% and 50%, depending on how one accounts for the treatment of the sinking stock market ponzi fund. But certainly at least 30% of the rolling over debt would not come back to the issuing authority. And since French banks are unaware of simple rating agency methodology, any debt exchange, whether called "voluntary" or otherwise, which involves a notional haircut of any variety is an immediate event of default. As a reminder, avoiding a rating agency EOD, far more than an ISDA CDS trigger determination, is what this whole charade is all about. Since an EOD would mean Greek debt becomes ineligible in any capacity for ECB collateralization, and since there are likely hundreds of billions in Greek sovereign debt pledged to the ECB either directly, or indirectly, through Greek banks, this funding avenue closure would commence the waterfall that triggers the liquidity cascade that culminate with every single European money market fund breaking the buck as has been discussed previously.
As such, this latest proposal is also Dead On Arrival.
Elsewhere, Germany was making more noise, claiming the "voluntary" bailout would be agreed upon by everyone "or else" and that Greece would be doing the worst thing possible if it were to not accept the generous terms of the second Greek bailout which is now bigger than the first one..."
at http://www.zerohedge.com/article/le-figaro-reports-french-banks-propose-voluntary-30-year-debt-rollover-however-doaing-30-50-?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Of course the problem with this proposal for anyone who can do simple math, is that the implied haircut for the Greek Treasury would be between 30% and 50%, depending on how one accounts for the treatment of the sinking stock market ponzi fund. But certainly at least 30% of the rolling over debt would not come back to the issuing authority. And since French banks are unaware of simple rating agency methodology, any debt exchange, whether called "voluntary" or otherwise, which involves a notional haircut of any variety is an immediate event of default. As a reminder, avoiding a rating agency EOD, far more than an ISDA CDS trigger determination, is what this whole charade is all about. Since an EOD would mean Greek debt becomes ineligible in any capacity for ECB collateralization, and since there are likely hundreds of billions in Greek sovereign debt pledged to the ECB either directly, or indirectly, through Greek banks, this funding avenue closure would commence the waterfall that triggers the liquidity cascade that culminate with every single European money market fund breaking the buck as has been discussed previously.
As such, this latest proposal is also Dead On Arrival.
Elsewhere, Germany was making more noise, claiming the "voluntary" bailout would be agreed upon by everyone "or else" and that Greece would be doing the worst thing possible if it were to not accept the generous terms of the second Greek bailout which is now bigger than the first one..."
at http://www.zerohedge.com/article/le-figaro-reports-french-banks-propose-voluntary-30-year-debt-rollover-however-doaing-30-50-?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
As The IEA-OPEC Nash Equilibrium Collapses, Is A 1973-Style OPEC Embargo Next?
"Last week's dramatic decision by the US administration to strongarm the IEA into releasing strategic petroleum reserves (of which the US would account for 30 million barrels, or half of the total), is nothing but yet another example of the hobbled and incredibly short-sighted thinking that permeates every corner of the Obama administration. Because as the WSJ reports, "the move by the U.S. and its allies to release strategic reserves of oil could provide a much-needed shot in the arm for the U.S. economy, but risks inflicting lasting damage on the already tense relationship between oil producers and consumers." The move comes on the heels of the dramatic collapse in OPEC talks in Vienna two weeks ago when Saudi Arabia was effectively kicked out of the cartel, further confirmed by reports that the IEA consulted with Saudi (and China and India) in advance of its decision (more later). Additionally, "OPEC and the European Union are due to hold an energy summit in Vienna Monday that will be the first official meeting of producers and consumers since the IEA's move, and will provide a platform for OPEC members to express their disquiet over the stocks' release. However, OPEC's biggest player, Saudi Arabia, won't be present." Make that former player, in an organization now headed by the previously #2 producer, Iran (which just happens is not all that pro-US). The biggest threat, however, is that in direct retaliation against the IEA's cartel-like decision, which comes at the expense of the remaining OPEC countries, is that as Zero Hedge suspected, the next step will be a more than proportionate cut in crude production by OPEC: "Some analysts speculated that OPEC could respond to the IEA release by cutting output to offset the increased supply." What happens next is complete Nash equilibrium collapse, with a high possibility of a 1973-type OPEC oil embargo announcement in the immediate future.
"Going ahead with an increase would cut into revenue, said Christof Ruehl, chief economist of BP PLC. But cutting production to offset the release, he said, "would be seen as hostile by IEA members" and "could lead to a war of attrition, at least as expensive," in which OPEC cuts production and the IEA keeps releasing stocks to make up for the shortage." The winner of all this, is of course, China, which will gladly benefit from ongoing blue light specials courtesy of the US Strtategic Petroleum Reserve to build up its own reserve holdings, as the rest of the world squabbles over a US-dominated status quo whose time has now officially passed. And just as the rare earth metal price spike in recent weeks demonstrates what happens when China is the marginal anything in any supply chain, one can be certain that the price of Crude will be far, far higher several years from now.
And speaking of Iran, its oil ministry SHANA wasted no time in firing the retaliating round against the IEA's decision, accusing the US of acting unilaterally and purely for the benefit of Obama's reelection campaign, warning that the drop in oil prices won't persist:
at http://www.zerohedge.com/article/iea-opec-nash-equilibrium-collapses-1973-style-opec-embargo-next?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
"Going ahead with an increase would cut into revenue, said Christof Ruehl, chief economist of BP PLC. But cutting production to offset the release, he said, "would be seen as hostile by IEA members" and "could lead to a war of attrition, at least as expensive," in which OPEC cuts production and the IEA keeps releasing stocks to make up for the shortage." The winner of all this, is of course, China, which will gladly benefit from ongoing blue light specials courtesy of the US Strtategic Petroleum Reserve to build up its own reserve holdings, as the rest of the world squabbles over a US-dominated status quo whose time has now officially passed. And just as the rare earth metal price spike in recent weeks demonstrates what happens when China is the marginal anything in any supply chain, one can be certain that the price of Crude will be far, far higher several years from now.
And speaking of Iran, its oil ministry SHANA wasted no time in firing the retaliating round against the IEA's decision, accusing the US of acting unilaterally and purely for the benefit of Obama's reelection campaign, warning that the drop in oil prices won't persist:
Iranian governor for OPEC Mohammad Ali Khtatibi says International Energy Agency (IEA) decision to draw oil from its emergency reserves implies intervention in the ordinary function of the oil market.
Speaking to Shana, Mr. Khatibi said that the trend of falling oil prices would not be sustainable.
‘Following the failure to bring down the prices at 159th ministerial meeting of OPEC in June 8, the United States of America and Europe are using all the means to push oil prices lower, Iranian governor for OPEC said.
Khatibi noted that IEA’s initiative to release oil from strategic petroleum reserves would followed by artificial falling of oil prices but those countries believing in open markets showed they are not genuine in their believes.
According to Khatibi recent days’ developments in oil market is not the result of issues relating to supply and demand or market needs but political pressures by the United States drives the initiative.
‘The United States government plans to influence the results of the upcoming presidential elections of the country by putting pressure on oil prices’ top Iranian oil official said.
Khatibi pointed out that developed countries initiative to draw oil from strategic petroleum reserves is risky because they cannot continue the move in the long term.
He added: these reserves are being held for emergency situations so the consuming countries of the International Energy Agency will have no other choice except to replenish the reserves for further use..."
at http://www.zerohedge.com/article/iea-opec-nash-equilibrium-collapses-1973-style-opec-embargo-next?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Warning to central banks
"From the BIS. Central Banks should raise rates or face price inflation and instability."
at http://blog.mises.org/17431/warning-to-central-banks/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29
at http://blog.mises.org/17431/warning-to-central-banks/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29
Saturday, June 25, 2011
FT: Flight from money market funds exposed to EU banks
"I don’t have much to add to this report as I have already outlined this as an issue creating concern. The fact that this withdrawal of liquidity has already begun, though, does make the situation more acute.
The FT writes:
The FT writes:
Investors are withdrawing cash from money market funds heavily exposed to short-term debt issued by European banks out of fear that a Greek default could spark contagion across the region’s financial sector.You know, scratch that. Let me quote from last May’s post on BBVA’s problems in the US commercial paper market:
At the same time there is increasing reluctance among US banks to lend to their European counterparts in the past two weeks because of growing worries over Greece, according to brokers and bank traders.
The Wall Street Journal is reporting that the Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) is having a difficult time funding itself in the US commercial paper market. Moreover, according to the Journal this has been going on for some time – since the beginning of the month. The amount is small ($1 billion) given BBVA's large balance sheet which is almost $700 billion, the same as when the crisis started in 2007. And BBVA is widely seen, along with Banco Santander, as the healthiest institution in Spanish banking. Their having problems rolling over paper speaks to the panic of CP buyers, in my view. But the commercial paper market has also been a major source of bank runs since the credit crisis began and this has to be seen by authorities in the US and Europe as a signal of liquidity problems…
What do I make of this? For starters, I don't think it is entirely rational because the two entities I identified are the strongest in their respective markets. These stories have all the hallmark of panic. Yet, it speaks to a certain Eurozone debt revulsion that is now widespread..."at http://www.creditwritedowns.com/2011/06/ft-flight-from-money-market-funds-exposed-to-eu-banks.html#ixzz1QM1zJHtU
Expect Chaos
"I remain amused by the complete silliness of statements coming from ECB officials. At best ECB proclamations are laughable, at worst they are completely counterproductive.
With that introduction, please consider ECB's Mersch says Greek default would bring "chaos"
Here is a succinct summation of the current state of Euro-Zone affairs.
With that introduction, please consider ECB's Mersch says Greek default would bring "chaos"
European Central Bank Governing Council member Yves Mersch said on Saturday a Greek sovereign debt default would lead to chaos, adding it was up to the parliament to deliver on its austerity promises.Greece Default Irrelevant
Banks and policymakers moved closer to a deal on Friday to help Athens secure funds ahead of a parliamentary vote on austerity next week that Greek Prime Minister George Papandreou must win to avert default.
If the vote next week is lost, international lenders are unlikely to release a 12 billion euros funding tranche, meaning the government will run out of cash within days.
"Now it's up to the Greek parliament. I observe," he told reporters on the sidelines of the Bank for International Settlements annual meeting in Basel.
"The next step will be to observe whether there will be delivery."
When he asked about what would happen if Greece defaulted, Mersch said: "Chaos."
Here is a succinct summation of the current state of Euro-Zone affairs.
- Greece will default, but at this point it is irrelevant.
- The situation in Spain, Ireland, Portugal, and Italy is now so dire that it is does not matter whether or not Greece defaults.
- Expect chaos."
Marc Faber : US is thousand times worse than Greece
"Marc Faber : It depends on how you define a real crisis. Basically we had a boom into 2007, but the boom did not really help the average person in the United States. The boom was concentrated in asset prices and the financial sector and well-to-do people. The workers did not benefit much. Then we have the crisis in 2008, unemployment goes up and since then, employment has hardly gained, but we have the boom in emerging economies because of the money printing and the transmission mechanism.
So a crisis in the US, we are to some extent still in crisis for the workers, for the lower middle class, and we had a recovery in asset prices, notably equities, but not real estate, which essentially means the Bernanke would have liked to see rising real estate prices. So whether we will have a further crisis, I am not so sure, but the global financial system will eventually blow up because we have not solved the problems, we have postponed them. In 2008, the financial sector went bankrupt and the government stepped in with bailouts and as a result of that, government's debt everywhere have gone through the roof and made governments more vulnerable to themselves failing one day, especially in the United States, in my opinion. Jim Chanos always says China is Dubai times a thousand. In my view, the US is Greece like a thousand times..."
at http://marcfaberchannel.blogspot.com/2011/06/marc-faber-us-is-thousand-times-worse.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29
So a crisis in the US, we are to some extent still in crisis for the workers, for the lower middle class, and we had a recovery in asset prices, notably equities, but not real estate, which essentially means the Bernanke would have liked to see rising real estate prices. So whether we will have a further crisis, I am not so sure, but the global financial system will eventually blow up because we have not solved the problems, we have postponed them. In 2008, the financial sector went bankrupt and the government stepped in with bailouts and as a result of that, government's debt everywhere have gone through the roof and made governments more vulnerable to themselves failing one day, especially in the United States, in my opinion. Jim Chanos always says China is Dubai times a thousand. In my view, the US is Greece like a thousand times..."
at http://marcfaberchannel.blogspot.com/2011/06/marc-faber-us-is-thousand-times-worse.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29
Friday, June 24, 2011
60 Million Barrels of Strategic Reserve Oil Won't Solve the Problem
"The International Energy Agency (IEA) announced 60 million barrels of oil will be made available to the worldwide oil market via releases from "strategic" stockpiles. The U.S. government will do the heavy lifting by releasing 30 million barrels (one half the total) from the U.S. strategic petroleum reserve (SPR). The SPR is currently near full capacity at 726.5 million barrels.
It is no coincidence this announcement comes as QE2 winds down, and after Ben Bernanke's speech Wednesday. Last November I wrote an article explaining why QE2 would not work. Why it would lead to a lower U.S. dollar and higher oil prices. We now know, without a doubt, that QE2 did not work. We have a lower dollar, higher oil prices, interest rates at 0%, a moribund housing market, and high unemployment. Surprise surprise. As I have stated many times:
We cannot solve a commodity problem (oil) with monetary and fiscal policy!..."
at http://seekingalpha.com/article/276551-60-million-barrels-of-strategic-reserve-oil-won-t-solve-the-problem?source=feed
It is no coincidence this announcement comes as QE2 winds down, and after Ben Bernanke's speech Wednesday. Last November I wrote an article explaining why QE2 would not work. Why it would lead to a lower U.S. dollar and higher oil prices. We now know, without a doubt, that QE2 did not work. We have a lower dollar, higher oil prices, interest rates at 0%, a moribund housing market, and high unemployment. Surprise surprise. As I have stated many times:
We cannot solve a commodity problem (oil) with monetary and fiscal policy!..."
at http://seekingalpha.com/article/276551-60-million-barrels-of-strategic-reserve-oil-won-t-solve-the-problem?source=feed
Fitch: US Money Fund Exposure to European Banks Remains Significant
"The following report by Fitch from Tuesday highlights the cross-Atlantic channel through which credit market volatility could spread. US money markets have significant exposure to the European banking system. The worry is that a Greek default or restructuring could produce a panic in which these funds would limit funding of European institutions.
We have seen this even outside of the immediate panic, with Spanish banks like Santander and BBVA being shut out of US-based credit markets last Spring despite apparent capital strength and strong European capital market access. In my view, the right way to deal with this is transparency, strong capital structures, and more differential treatment of solvent and insolvent institutions, not bailouts.
But the concerns about a panic are still clearly warranted.
at http://www.creditwritedowns.com/2011/06/us-money-market-contagion-channel.html#ixzz1QGHnMBXJ
We have seen this even outside of the immediate panic, with Spanish banks like Santander and BBVA being shut out of US-based credit markets last Spring despite apparent capital strength and strong European capital market access. In my view, the right way to deal with this is transparency, strong capital structures, and more differential treatment of solvent and insolvent institutions, not bailouts.
But the concerns about a panic are still clearly warranted.
U.S. prime money market funds (MMFs) continue to have sizable exposures to European financial institutions, a relationship which could affect both sectors. MMFs are a potential channel for eurozone credit market volatility. For European banks, a loss or reduction in MMF funding could create negative perceptions about an institution’s financial strength..."
at http://www.creditwritedowns.com/2011/06/us-money-market-contagion-channel.html#ixzz1QGHnMBXJ
Reich: The Problem With the US Economy In Under Three Minutes
"As with most summations it compresses much of the complexity and therefore loses information in the process. I know he is a smart man, and is doing this out of necessity to achieve brevity and conciseness.
He never mentions the various unfunded wars, over 700 global military bases, and out of control health care costs, only glosses over the profound corruption in the bloated financial sector, a culture of greed and selfishness, and the government intrusions into private rights of citizens as a reflexive response to their problem with a credibility trap. How can one allow free discussion, disclosure, and transparency during an ongoing widespread financial fraud that has compromised the political process?..."
at http://jessescrossroadscafe.blogspot.com/2011/06/reich-problem-with-us-economy-in-under.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
He never mentions the various unfunded wars, over 700 global military bases, and out of control health care costs, only glosses over the profound corruption in the bloated financial sector, a culture of greed and selfishness, and the government intrusions into private rights of citizens as a reflexive response to their problem with a credibility trap. How can one allow free discussion, disclosure, and transparency during an ongoing widespread financial fraud that has compromised the political process?..."
at http://jessescrossroadscafe.blogspot.com/2011/06/reich-problem-with-us-economy-in-under.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29
Debt talk implode US Congress
"On Capitol Hill, Congressman Eric Cantor and Senator Jon Kyl - both Republicans - walked out of meeting about raising the debt ceiling. Republicans have said since day one that tax hikes are off the table and talks of an increase this week led to the lawmakers leaving through the door. Vice President Biden has been meeting with lawmakers hoping to reach a deal by next week to raise the 14.3 trillion dollar debt ceiling before the Treasury department runs out of money. If Congress doesn't act by August 2 default could occur, which in turn would have crushing effects on the US economy and markets around the globe. Courtney Comstock, the editor of the Business Insider, joins RT's Kristine Frazao to talk about what that means for the US debt..."
at http://economycollapse.blogspot.com/2011/06/debt-talk-implode-us-congress.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FCRkw+%28The+Economy++Collapse%29
at http://economycollapse.blogspot.com/2011/06/debt-talk-implode-us-congress.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FCRkw+%28The+Economy++Collapse%29
Italian Bank Stocks Plunge, Trading Suspended; Juncker Principle in Action
"Italy, the big elephant in the room that the EU does not even see yet, may be waking up. Please consider, Italian Banks Plunge on Debt Concern
Italian banks slumped in Milan trading amid concern the European debt crisis may spread just as lenders face scrutiny from regulators over capital levels..."at http://globaleconomicanalysis.blogspot.com/2011/06/italian-bank-stocks-plunge-trading.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
While Equity Drinks Kool Aid, CDS Cautions Uncurable STD Problems May Be Coming To Spain
"A comparison between equity and Subordinated CDS (inverted scale) levels on STD (that would be Spanish mega bank Santander) indicates that while stocks are still balls to the wall in hopium, credit is getting far more concerned about both recovery and viability prospects of the bank which is considered by many as the gateway to a full blown Spanish sovereign funding crisis. Where STD goes, so goes Spain. And the last time we checked, equities were right at the expense of credit... never. Is it time to just say not to STD? The CDS certainly says so..."
at http://www.zerohedge.com/article/while-equity-drinks-kool-aid-cds-cautions-big-std-problems-coming-spain?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/while-equity-drinks-kool-aid-cds-cautions-big-std-problems-coming-spain?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
QE3 Or No QE3: The CIA's Take
"Well not quite the CIA, but close enough. The good ex-spies of BIA Behavioral Intelligence Analysis have conducted another behavioral assay, this time targeting global overlord Ben Bernanke and specifically his Wednesday press conference, focusing not on the script but what was left unsaid between the lines. For those unfamiliar, "The BIA team represents a diverse mix of highly accomplished professionals from the national intelligence and business communities, who came together to create and deliver BIA’s ground-breaking solutions for our clients. Our intelligence experts average more than 20 years experience in interviewing, evaluating and collecting information across the globe and have been working with premier firms since 2001 to improve investing and business outcomes through application of our unique methodologies." In lieu of a lie detector being hooked up to the Chairman (Simpsons scene comes to mind), this may be one of the better analyses in interpreting what was said... and unsaid.
From BIA Behavior Intelligence:
BIA Behavioral Intelligence: Ben Bernanke at Federal Open Market Committee
Press Briefing
June 22, 2011
Assessment Summary
BIA’s behavioral analysis of Mr. Bernanke’s comments during the June 22, 2011 Federal Open Market Committee press briefing produces a higher level of concern than the briefing in April. Questions covered a broad range of topics, many of which elicited responses that signal behavioral concern. Most of Mr. Bernanke’s concerns likely seem obvious, even to the untrained eye. He acknowledges a great deal of uncertainty about why the rate of growth in the economy has slowed, he qualifies that the recovery “appears” to be proceeding at a moderate pace and consistently resorts to statements to minimize public concerns about the severity and duration of the situation -- belying his own level of confidence in the Committee’s ability to manage through the near-term. Further, his clear effort to limit expectations for improvements in unemployment, along with his persistent efforts to focus attention on the longer term, are consistent with his tacit acknowledgement that the FOMC isn’t quite sure what to do at the moment (“a little bit of time to see what is going to happen would be useful to make policy decisions”).
Even so, TBA Indicators observed in Mr. Bernanke’s comments about inflation reveal more significant concerns than he is admitting. Mr. Bernanke uses highly qualified language and avoids offering specifics, suggesting that he may believe the Committee’s estimates for future inflation rates are overly optimistic. Below are our observations..."
at http://www.zerohedge.com/article/qe3-or-no-qe3-cias-take?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
From BIA Behavior Intelligence:
BIA Behavioral Intelligence: Ben Bernanke at Federal Open Market Committee
Press Briefing
June 22, 2011
Assessment Summary
BIA’s behavioral analysis of Mr. Bernanke’s comments during the June 22, 2011 Federal Open Market Committee press briefing produces a higher level of concern than the briefing in April. Questions covered a broad range of topics, many of which elicited responses that signal behavioral concern. Most of Mr. Bernanke’s concerns likely seem obvious, even to the untrained eye. He acknowledges a great deal of uncertainty about why the rate of growth in the economy has slowed, he qualifies that the recovery “appears” to be proceeding at a moderate pace and consistently resorts to statements to minimize public concerns about the severity and duration of the situation -- belying his own level of confidence in the Committee’s ability to manage through the near-term. Further, his clear effort to limit expectations for improvements in unemployment, along with his persistent efforts to focus attention on the longer term, are consistent with his tacit acknowledgement that the FOMC isn’t quite sure what to do at the moment (“a little bit of time to see what is going to happen would be useful to make policy decisions”).
Even so, TBA Indicators observed in Mr. Bernanke’s comments about inflation reveal more significant concerns than he is admitting. Mr. Bernanke uses highly qualified language and avoids offering specifics, suggesting that he may believe the Committee’s estimates for future inflation rates are overly optimistic. Below are our observations..."
at http://www.zerohedge.com/article/qe3-or-no-qe3-cias-take?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Thursday, June 23, 2011
More Eurozone Burning While the ECB Fiddles
"It is bad enough to passively allow monetary policy to tighten in an economic crisis, but to actively do so is unconscionable. Yet, as Michael T. Darda reports, that is exactly what the ECB's seems to be doing at this time (my bold):
at http://macromarketmusings.blogspot.com/2011/06/more-eurozone-burning-while-ecb-fiddles.htmlOur main concern is that it’s not just Greece. Ireland and Portugal are in very similar predicaments, while Spain’s economy, with twice the debt load of Greece, remains in deep trouble with 20% unemployment and tightening debt markets. Italy, with three times the debt load of Spain, also remains on shaky ground. If the periphery is going to survive, there has to be some path to growth/recovery. As yet, there is none. Austerity programs have dented growth and shrunk the tax base. Data for the last week show that the ECB, inexplicably, is contracting high-powered liquidity at more than a 10% year-to-year rate. Broad money across the zone is weak. Peripheral debt spreads are in the stratosphere. And funding costs are inching ever higher. To us, this is a setup for the weakness of the periphery to spread into the core, rather than for the strength of the core to lift the troubled periphery. Therefore, we would be inclined to “fade” any rally related to “kicking the can” farther down the road in Europe..."
EL-ERIAN ON GREECE: Europe Risks Mass Contamination Of The Entire System
"El-Erian on Greece:
"Greece, unfortunately, has two fundamental issues. It has too much debt and it cannot grow enough. What the response so far has been let's treat this as a liquidity problem, not a solvency and growth issue. One year into a massive bailout every indicator in Greece was soft. And other parts of Europe have gotten contaminated, including the ECB. If you continue with this approach, which is treating Greece as a liquidity problem, not a solvency problem, not only do you not solve it, but you risk contaminating other parts of Greece."..."
at http://www.businessinsider.com/mohamed-el-erian-on-bernanke-greece-and-oil-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1Q9vgWOMb
"Greece, unfortunately, has two fundamental issues. It has too much debt and it cannot grow enough. What the response so far has been let's treat this as a liquidity problem, not a solvency and growth issue. One year into a massive bailout every indicator in Greece was soft. And other parts of Europe have gotten contaminated, including the ECB. If you continue with this approach, which is treating Greece as a liquidity problem, not a solvency problem, not only do you not solve it, but you risk contaminating other parts of Greece."..."
at http://www.businessinsider.com/mohamed-el-erian-on-bernanke-greece-and-oil-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1Q9vgWOMb
Moody's: Commercial Real Estate Prices declined 3.7% in April, Prices at new Post-Bubble Low
"Moody's reported that the Moody’s/REAL All Property Type Aggregate Index declined 3.7% in April. Note: Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales and there are a large percentage of distressed sales - and that can impact prices and make the index very volatile.
The Moody’s/REAL Commercial Property Price Index dropped 3.7 percent from March and 13 percent from a year earlier. It’s now 49 percent below the peak of October 2007 and at its lowest point in data going back to December 2000 ..."at http://www.calculatedriskblog.com/2011/06/moodys-commercial-real-estate-prices.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
Trichet Admits the Obvious "Risk Signals Are Flashing Red"; Ireland Snubs ECB With Renewed Threat to Bank Bondholders
"On rare occasions ECB president Jean-Claude Trichet will admit the obvious. In contrast, you will seldom hear something like this from the Fed: Trichet Says Risk Signals Are Flashing Red as Debt Crisis Threatens Banks
at http://globaleconomicanalysis.blogspot.com/2011/06/trichet-admits-obvious-risk-signals-are.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.
“On a personal basis I would say ‘yes, it is red’,” Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned “dashboard” to monitor risks. “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”..."
at http://globaleconomicanalysis.blogspot.com/2011/06/trichet-admits-obvious-risk-signals-are.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Is The Economy Improving?
"Let's take a look at just a few areas of the economy....
Federal Government Finances
As I wrote about yesterday, the national debt is completely and totally out of control. Since Barack Obama took office, the U.S. national debt has increased by nearly 4 trillion dollars...
State And Local Government Finances
All over the United States, there are large numbers of state and local governments that are on the verge of bankruptcy...
Commercial Real Estate
Commercial real estate continues to decline all across America.
Moody’s/REAL All Property Type Aggregate Index fell 3.7% in April and is now the lowest it has been in over 10 years.
Overall, commercial real estate is down by over 40 percent since the peak back in 2007.
Residential Real Estate
The United States is dealing with a housing crash that never seems to end.
According to the National Association of Realtors, existing home sales in the United States fell another 3.8% in May.
During this housing crash home values have declined more than they did during the Great Depression and there does not appear to be any hope in sight.
New home sales are in even worse shape. During the first three months of this year, less new homes were sold in the U.S. than in any three month period ever recorded.
Unemployment
As 2009 began, the official U.S. unemployment rate was 7.6 percent. Today it is 9.1 percent.
The American people keep waiting for a "jobs recovery", but it has not shown up.
Sadly, all of this is part of a long-term trend...
Economic Anxiety
The economy is the number one issue on the minds of the American people. There is an extraordinary about of economic pain out there today, and Americans are becoming impatient.
According to CNBC, the Money Anxiety Index is at its highest level in 30 years...
Inflation
Ben Bernanke may not admit it, but the truth is that the price of just about everything is soaring.
For example, when Barack Obama took office, the average price of a gallon of gasoline in the United States was $1.83. Today it is about $3.74...
Economic Suffering
As American families find it increasingly difficult to pay the mortgage and put food on the table, many of them find themselves forced to put off other expenses. According to one recent survey, 26 percent of Americans have put off doctor visits because of the economy.
Other Americans can't make it at all without government assistance. As 2007 began, there were only 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record..."
at http://theeconomiccollapseblog.com/archives/is-the-economy-improving
Federal Government Finances
As I wrote about yesterday, the national debt is completely and totally out of control. Since Barack Obama took office, the U.S. national debt has increased by nearly 4 trillion dollars...
State And Local Government Finances
All over the United States, there are large numbers of state and local governments that are on the verge of bankruptcy...
Commercial Real Estate
Commercial real estate continues to decline all across America.
Moody’s/REAL All Property Type Aggregate Index fell 3.7% in April and is now the lowest it has been in over 10 years.
Overall, commercial real estate is down by over 40 percent since the peak back in 2007.
Residential Real Estate
The United States is dealing with a housing crash that never seems to end.
According to the National Association of Realtors, existing home sales in the United States fell another 3.8% in May.
During this housing crash home values have declined more than they did during the Great Depression and there does not appear to be any hope in sight.
New home sales are in even worse shape. During the first three months of this year, less new homes were sold in the U.S. than in any three month period ever recorded.
Unemployment
As 2009 began, the official U.S. unemployment rate was 7.6 percent. Today it is 9.1 percent.
The American people keep waiting for a "jobs recovery", but it has not shown up.
Sadly, all of this is part of a long-term trend...
Economic Anxiety
The economy is the number one issue on the minds of the American people. There is an extraordinary about of economic pain out there today, and Americans are becoming impatient.
According to CNBC, the Money Anxiety Index is at its highest level in 30 years...
Inflation
Ben Bernanke may not admit it, but the truth is that the price of just about everything is soaring.
For example, when Barack Obama took office, the average price of a gallon of gasoline in the United States was $1.83. Today it is about $3.74...
Economic Suffering
As American families find it increasingly difficult to pay the mortgage and put food on the table, many of them find themselves forced to put off other expenses. According to one recent survey, 26 percent of Americans have put off doctor visits because of the economy.
Other Americans can't make it at all without government assistance. As 2007 began, there were only 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record..."
at http://theeconomiccollapseblog.com/archives/is-the-economy-improving
Wednesday, June 22, 2011
Roubini : The Euro zone split is imminent
"Economist Nouriel Roubini wrote in the Financial Times last week that a euro zone split was "imminent" because the EU had failed to address the issues of competitiveness and economic convergence..."
at http://nourielroubini.blogspot.com/2011/06/roubini-euro-zone-split-is-imminent.html
at http://nourielroubini.blogspot.com/2011/06/roubini-euro-zone-split-is-imminent.html
Geithner: Big Banks Spend ‘Huge Amount to Erode’ Dodd-Frank Law
"Treasury Secretary Timothy Geithner said Wednesday that Wall Street and large banks are spending “a huge amount of money to erode, weaken, walk back” the Dodd-Frank financial overhaul law that was enacted last year. He called on Congress not to weaken or delay the new rules.
His comments came in response to questions at a House Small Business Committee hearing. Bank and business groups have opposed many new parts of the law, including the appointment of a new consumer-protection regulator and regulations tied to the exotic financial instruments called derivatives..."
at http://blogs.wsj.com/washwire/2011/06/22/geithner-big-banks-spend-huge-amount-to-erode-dodd-frank-law/?mod=WSJBlog
His comments came in response to questions at a House Small Business Committee hearing. Bank and business groups have opposed many new parts of the law, including the appointment of a new consumer-protection regulator and regulations tied to the exotic financial instruments called derivatives..."
at http://blogs.wsj.com/washwire/2011/06/22/geithner-big-banks-spend-huge-amount-to-erode-dodd-frank-law/?mod=WSJBlog
The Costs of War
"One of the costs of war is higher unemployment:
Gender Values: The Costs of War, by Susan Feiner: At ten years and counting, the wars in Iraq and Afghanistan are the longest in U.S. history. Not surprisingly, they are the most expensive, with total war spending poised to top two trillion dollars early this summer. ... The U.S. government's spent over $2,000 per capita on all aspects and accouterments of war. ...
Spending on the military counts for a huge share -- 58 percent -- of U.S. discretionary federal spending. If military funding were redirected to meet critically important social needs, the nation as a whole would reap enormous benefits. ...[gives examples]
This military spending has yet another negative economic impact, and that's on the labor market. The largest share of military spending goes to weapons procurement, not to pay soldiers or other military personnel. The consequence of this is that it closes off employment opportunities in fields where women are most likely to earn decent salaries.
Dollars spent on the military and dollars spent on domestic programs like health care and education call very different jobs into existence. According to an important study by the Political Economy Research Institute (PERI),... one billion dollars spent on education or health care would create many more jobs than does spending the same amount on military projects. When the nation spends one billion dollars on the military, 11,600 jobs are created. If that billion dollars was spent instead on education 29,100 jobs would be created. And if it were spent on health care almost 20,000 jobs would be created. The military currently rips through more than $600 billion per year. If ... $300 billion were spent instead on education and health care, the employment picture would shift dramatically. The sum of $150 billion spent on education would create over four million jobs. Spending another $150 billion on health care would create about three million jobs. Adding the two sets of new jobs together, and subtracting out the military jobs that are lost, yields 3.8 million new jobs,... driving the unemployment rate to down from the current level of nine percent to under seven percent.
The positive benefits of such a change for women can't be understated..."at http://economistsview.typepad.com/economistsview/2011/06/the-costs-of-war.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29
Growing Your Way Out Of Debt Is A Fantasy
"Add rising interest payments and higher taxes to declining assets and incomes and you don't get "growth," you get insolvency.
The Status Quo consensus is that "kicking the can down the road" a.k.a. "extend and pretend" will work because "Greece, Spain, Ireland et al. are going to "grow their way out of debt." That is a fantasy.
Here's why.
1. There's a funny little feature of debt called interest. The Status Quo solution for Ireland, Greece, Portugal, Spain et al. is A) increase their debt load with more loans and B) roll over their old debt into new loans, without the old lenders taking any "haircut" on the principal..."
at http://www.businessinsider.com/growing-your-way-out-of-debt-is-a-fantasy-2011-6#ixzz1Q4RVLlgg
The Status Quo consensus is that "kicking the can down the road" a.k.a. "extend and pretend" will work because "Greece, Spain, Ireland et al. are going to "grow their way out of debt." That is a fantasy.
Here's why.
1. There's a funny little feature of debt called interest. The Status Quo solution for Ireland, Greece, Portugal, Spain et al. is A) increase their debt load with more loans and B) roll over their old debt into new loans, without the old lenders taking any "haircut" on the principal..."
at http://www.businessinsider.com/growing-your-way-out-of-debt-is-a-fantasy-2011-6#ixzz1Q4RVLlgg
Time for Plan B; Unfortunately there is No Plan B
"How long can the ECB kick the can down the road? How big a hole will Greece dig before the ECB, the EU, and IMF realize that "Plan A" (austerity will fix problems by 2013), cannot possibly work? Is the amount of money the EU, IMF, and ECB willing to throw at Greece unlimited?
Those are the questions on my mind as I read How the Euro Became Europe's Greatest Threat on Der Spiegel..."
at http://globaleconomicanalysis.blogspot.com/2011/06/time-for-plan-b-unfortunately-there-is.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Those are the questions on my mind as I read How the Euro Became Europe's Greatest Threat on Der Spiegel..."
at http://globaleconomicanalysis.blogspot.com/2011/06/time-for-plan-b-unfortunately-there-is.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
LGD - To Infinity and Beyond! What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?
"We are in the process of updating the very revealing work we performed last year, identifying which banks were most likely to do the "Lehman Brothers" thing. I believe we were the only media source to predict the collapse of Lehman Brothers, CountryWide, WaMu, Bear Stearns, etc. months in advance - with each of these calls being precedent setting calls from both a profit and strategic preparation perspective. The thought process that went into the research and taking speculative positions behind said research against the crowd, resulted in an interesting experience -to say the least. Reference the introductory paragraph from Is this the Breaking of the Bear? from January 27, 2008, two months before this banks collapse (I gave a similar diatribe for Lehman, several months before their collapse or even mere negative presence in the media as well):..."
at http://www.zerohedge.com/article/lgd-infinity-and-beyond-whats-possibility-certain-european-banks-having-loss-given-default-a?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/lgd-infinity-and-beyond-whats-possibility-certain-european-banks-having-loss-given-default-a?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
National Debt
"The following are 41 statistics about the national debt that are almost too crazy to believe....
1 - As of June 20th, the U.S. national debt was $14,344,524,186,068.19.
2 - 30 years ago, the U.S. national debt was approximately 14 times smaller.
3 - It took from the presidency of George Washington to the presidency of Ronald Reagan for the U.S. government to accumulate one trillion dollars of debt.
4 - Since then, we have added more than 13 trillion dollars of additional debt.
5 - The United States government is responsible for more than a third of all the government debt in the entire world.
6 - If you divide up the national debt equally among all U.S. households, each one owes over $125,000.
7 - Mandatory federal spending is going to surpass total federal revenue for the first time ever in this fiscal year. That was not supposed to happen until 50 years from now.
8 - Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period..."
at http://theeconomiccollapseblog.com/archives/national-debt
1 - As of June 20th, the U.S. national debt was $14,344,524,186,068.19.
2 - 30 years ago, the U.S. national debt was approximately 14 times smaller.
3 - It took from the presidency of George Washington to the presidency of Ronald Reagan for the U.S. government to accumulate one trillion dollars of debt.
4 - Since then, we have added more than 13 trillion dollars of additional debt.
5 - The United States government is responsible for more than a third of all the government debt in the entire world.
6 - If you divide up the national debt equally among all U.S. households, each one owes over $125,000.
7 - Mandatory federal spending is going to surpass total federal revenue for the first time ever in this fiscal year. That was not supposed to happen until 50 years from now.
8 - Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period..."
at http://theeconomiccollapseblog.com/archives/national-debt
Tuesday, June 21, 2011
How Hedge Funds Generate Enormous Returns Without Taking Any Significant Risks
"...Here’s why:
Dan Loeb and other holders of preferred shares were planning to force Jeffrey H. Smulyan to sweeten the deal significantly for them while keeping the deal unchanged for common stockholders. If they prevailed, then their shorts in Emmis common stock would appreciate only a few percentage points but their preferred shares (ticker:EMMSP) would gain at least 30% or so. So, they would come out ahead. If their offer is turned down by Smulyan, then they would proceed to block the buyout. In this case, Emmis’ common stock would probably fall at least 50%, going back to pre-announcement levels. Preferred shares would also go back to their pre-announcement levels, declining by about 30%. This means Dan Loeb would again come out ahead. Whatever the outcome, Daniel Loeb would stand to make at least 20% from this deal.
So what happened? The negotiations with Smulyan went on for a few months but they couldn’t reach a deal, so the buyout was cancelled. Emmis’ common stock declined to $0.78 by the end of September, a loss of around 65%. The preferred shares declined to $16 by the end of September, a loss of 27%. Daniel Loeb probably made about 40 percent from this riskless undertaking. A small investor couldn’t do this. Dan Loeb’s size enabled him to exploit the weakness in Smulyan’s buyout proposal.
Even though a small investor couldn’t do what Loeb did, they could still have imitated Loeb’s transactions. These opportunities don’t come every day, but when they do investors should take advantage of them. We will be covering hedge funds’ 13D and 13G filings more frequently, so that small investors can educate themselves about investing like a hedge fund pro. We also started sharing hedge funds’ 13F portfolios for free on our website. This is still a work-in-progress, so we will be adding more functionality in the next few weeks to make the filings more useful for you..."
That Stalling Feeling
"Despite the series of low-probability, high-impact events that have hit the global economy in 2011, financial markets continued to rise happily until a month or so ago. The year began with rising food, oil, and commodity prices, giving rise to the specter of high inflation. Then massive turmoil erupted in the Middle East, further ratcheting up oil prices. Then came Japan’s terrible earthquake, which severely damaged both its economy and global supply chains. And then Greece, Ireland, and Portugal lost access to credit markets, requiring bailout packages from the International Monetary Fund and the European Union.
But that was not the end of it. Although Greece was bailed out a year ago, Plan A has now clearly failed. Greece will require another official bailout – or a bail-in of private creditors, an option that is fueling heated disagreement among European policymakers.
Lately, concerns about America’s unsustainable fiscal deficits have, likewise, resulted in ugly political infighting, almost leading to a government shutdown. A similar battle is now brewing about America’s “debt ceiling,” which, if unresolved, introduces the risk of a “technical” default on US public debt.
Until recently, markets seemed to discount these shocks; apart from a few days when panic about Japan or the Middle East caused a correction, they continued their upward march. But, since the end of April, a more persistent correction in global equity markets has set in, driven by worries that economic growth in the United States and worldwide may be slowing sharply..."
at http://www.project-syndicate.org/commentary/roubini39/English
But that was not the end of it. Although Greece was bailed out a year ago, Plan A has now clearly failed. Greece will require another official bailout – or a bail-in of private creditors, an option that is fueling heated disagreement among European policymakers.
Lately, concerns about America’s unsustainable fiscal deficits have, likewise, resulted in ugly political infighting, almost leading to a government shutdown. A similar battle is now brewing about America’s “debt ceiling,” which, if unresolved, introduces the risk of a “technical” default on US public debt.
Until recently, markets seemed to discount these shocks; apart from a few days when panic about Japan or the Middle East caused a correction, they continued their upward march. But, since the end of April, a more persistent correction in global equity markets has set in, driven by worries that economic growth in the United States and worldwide may be slowing sharply..."
at http://www.project-syndicate.org/commentary/roubini39/English
This Is What Will Happen If Greece Defaults
"If Greece defaults on its sovereign debt, the effects will be global.
Everyone from Japanese savers to U.S. retirees is likely to feel the effects. Let's run through the dominos that could fall after a Greek default..."
at http://www.businessinsider.com/this-is-what-will-happen-if-greece-defaults-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#
Everyone from Japanese savers to U.S. retirees is likely to feel the effects. Let's run through the dominos that could fall after a Greek default..."
at http://www.businessinsider.com/this-is-what-will-happen-if-greece-defaults-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#
May Existing Home Sales: 4.81 million SAAR, 9.3 months of supply
"The NAR reports: Existing-Home Sales Decline in May
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8 percent to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3 percent below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.at http://www.calculatedriskblog.com/2011/06/may-existing-home-sales-481-million.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
...
Total housing inventory at the end of May fell 1.0 percent to 3.72 million existing homes available for sale, which represents a 9.3-month supply at the current sales pace, up from a 9.0-month supply in April..."
Case Shiller 100 Year Chart (2011 Update)
"In 2006, just as the Housing market was peaking, the NYT ran this graphic of the 100-year Case Shiller chart. It showed how radically overvalued Housing had become.
Two years later, TBP reader Steve Barry updated that graphic, including the projected Home Price mean reversion. (See versions for 2008, 2009 and 2010).
Its time to update this for 2011. Note the 2009 tax credit wiggle:..."
>
>
at http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
Two years later, TBP reader Steve Barry updated that graphic, including the projected Home Price mean reversion. (See versions for 2008, 2009 and 2010).
Its time to update this for 2011. Note the 2009 tax credit wiggle:..."
>
>
at http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
S&P Reconfirms Greek Debt Restructuring Likely a Default; Forget About "Voluntary Restructuring"
"Unless this is a planned setup of some sort, forget about this mad dash by EU officials and the ECB to come up with a "Voluntary Restructuring" plan that will not constitute a default.
For the nth time, the S&P has reconfirmed Greek debt restructuring likely a default
For the nth time, the S&P has reconfirmed Greek debt restructuring likely a default
"Past experiences show that restructuring the debt of a country, whose creditworthiness is rated at CCC like Greece is currently, tend not to be voluntary and investors must sustain losses," Moritz Kraemer told Die Welt in an article due to be published on Tuesday..."at http://globaleconomicanalysis.blogspot.com/2011/06/s-reconfirms-greek-debt-restructuring.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
The Financial Collapse Of Greece: The Canary In The Coal Mine For The Global Economy?
"The rest of the world needs to sit up and take notice of what is going on in Greece right now. This is what can happen when you allow government debt to spiral out of control. Once it becomes clear that you can't pay your debts, a financial collapse can happen very suddenly and you start losing your sovereignty to those that you must turn to for financial help. So is the financial collapse of Greece the "canary in the coal mine" for the global economy? EU finance ministers have given the Greek government two weeks from Monday to approve another round of brutal austerity measures. If the austerity measures are not approved, Greece will not receive the next bailout installment of 12 billion euros. If that happens, the whole globe better buckle up because it is going to get crazy..."
at http://theeconomiccollapseblog.com/archives/the-financial-collapse-of-greece-the-canary-in-the-coal-mine-for-the-global-economy
at http://theeconomiccollapseblog.com/archives/the-financial-collapse-of-greece-the-canary-in-the-coal-mine-for-the-global-economy
Default Nation
"David Streitfeld reports for The New York Times,
“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” Herb Blecher, an LPS senior vice president told the NYT. “Now you’re probably not losing any sleep.”
The robo-signing scandal has put a crimp in the major banks’ ability to take title around the country and now new foreclosure cases and repossessions are down by nearly a third nationally since last fall, while in New York, foreclosure filings are down 85 percent since September.
The sheer number of defaults has overwhelmed the banking system and, Streitfeld writes,
In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.Across the Hudson it would take 49 years to clear New Jersey’s foreclosure backlog. In nonjudicial foreclosure states like Nevada and California the backlog is not as great–3 years in California, 2 in Nevada. Everyone has heard stories about people who have not made a mortgage payment in months and haven’t heard a peep from their lender.
“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” Herb Blecher, an LPS senior vice president told the NYT. “Now you’re probably not losing any sleep.”
The robo-signing scandal has put a crimp in the major banks’ ability to take title around the country and now new foreclosure cases and repossessions are down by nearly a third nationally since last fall, while in New York, foreclosure filings are down 85 percent since September.
The sheer number of defaults has overwhelmed the banking system and, Streitfeld writes,
Judges these days are also more inclined to scrutinize requests for eviction rather than automatically approve them. The so-called foreclosure mills — law firms that handled many of the suits for the banks — are in retreat under law enforcement pressure. And some analysts suggest that banks are reluctant to take too many houses onto their books at any one moment for fear of flooding a shaky market..."at http://blog.mises.org/17367/default-nation/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29
Monday, June 20, 2011
What are the differences between QE1, QE2 and QE3?
"Because the Federal Reserve has become a political target, it is in no hurry to have monetary policy displace fiscal policy in underpinning the economy, but it may be forced to do so given its dual mandate and the likelihood of fiscal contraction. Last week, when discussing what QE3 could look like I indicated that were the Federal Reserve to start expanding its balance sheet, QE3 will see interest rate caps after a pause and period of reflection. Let me address the differences between the various QEs here to illustrate why interest rate caps are being contemplated..."
at http://www.creditwritedowns.com/2011/06/qe1-versus-qe2-versus-q3.html
at http://www.creditwritedowns.com/2011/06/qe1-versus-qe2-versus-q3.html
Another Layer of the Mortgage Mess: “Zombie Notes”
"One of the claims we’ve heard throughout the mortgage crisis is that all the systems and records are fine, that the banks have just made a few “mistakes” and when they find out about them, they correct them promptly and cheerfully.
If you believe that, I have a bridge I’d like to sell you. Not only is evidence of widespread, and very likely systematic abuses piling up in courtrooms all over the US, but even at this late date, new types of misconduct are coming to light.
Lisa Epstein and April Charney pointed out the latest version, that of “zombie notes”. It’s another version of the “who has the note” (the borrower IOU) problem. In this case, thousands of borrowers in Florida (and potentially other states) who were being foreclosed upon were contacted by Fannie Mae and offered the opportunity to have the debt cancelled if they gave a deed in lieu of foreclosure. That’s a fancy way of saying if they gave up their rights to the house and vacated, Fannie would drop the foreclosure action. The advantage to the borrower is that he puts the matter behind him (if the house is sold for less than the mortgage balance, for instance, he can’t be sued for a deficiency judgment) and suffers less damage to his credit record.
But it appears Fannie did not live up to its side of the bargain, and even a representative of the American Bankers Association distanced itself from the agency’s action, saying it is “not a practice we’ve ever heard of.”..."
at http://www.nakedcapitalism.com/2011/06/another-layer-of-the-mortgage-mess-zombie-notes.html
If you believe that, I have a bridge I’d like to sell you. Not only is evidence of widespread, and very likely systematic abuses piling up in courtrooms all over the US, but even at this late date, new types of misconduct are coming to light.
Lisa Epstein and April Charney pointed out the latest version, that of “zombie notes”. It’s another version of the “who has the note” (the borrower IOU) problem. In this case, thousands of borrowers in Florida (and potentially other states) who were being foreclosed upon were contacted by Fannie Mae and offered the opportunity to have the debt cancelled if they gave a deed in lieu of foreclosure. That’s a fancy way of saying if they gave up their rights to the house and vacated, Fannie would drop the foreclosure action. The advantage to the borrower is that he puts the matter behind him (if the house is sold for less than the mortgage balance, for instance, he can’t be sued for a deficiency judgment) and suffers less damage to his credit record.
But it appears Fannie did not live up to its side of the bargain, and even a representative of the American Bankers Association distanced itself from the agency’s action, saying it is “not a practice we’ve ever heard of.”..."
at http://www.nakedcapitalism.com/2011/06/another-layer-of-the-mortgage-mess-zombie-notes.html
The 20 Institutions Most Exposed To A Greek Default
"We've told you what could go wrong, and who could get slammed, if and when Greece defaults. But there are specific companies, governments, and institutions exposed to a default that will have to handle the losses if it comes to pass, according to Barclays research.
It is interesting to note that the world's participation in the Greek bailout series has left countries and international institutions the most exposed. Banks, while having significant exposures, are not holding all the cards this time..."
at http://www.businessinsider.com/the-20-parties-most-exposed-to-a-greek-default-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29##ixzz1PsGhNeG5
It is interesting to note that the world's participation in the Greek bailout series has left countries and international institutions the most exposed. Banks, while having significant exposures, are not holding all the cards this time..."
at http://www.businessinsider.com/the-20-parties-most-exposed-to-a-greek-default-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29##ixzz1PsGhNeG5
China and the Saving of Europe
"The Greek government owes more than it can afford to pay, now or in the near future, at market interest rates. There are two options: reduce the payments through some form of restructuring, or move the debt into the hands of people who are willing to charge below market rates for the foreseeable future.
In this decision, the International Monetary Fund has relatively little say – this is really a political decision to be made by the European Union, with discrete backing from the US and China.
While the EU leadership is surely tired of Greek politicians at this point, they also fear greatly the implications for other eurozone countries if Greece says it can’t pay or won’t pay. The realization that spreads on Spanish government debt will rise sharply concentrates the mind wonderfully.
And the damage would not be limited to Spain – do not underestimate the smugness with which the eurozone has completely and utterly failed to prepare for any kind of sovereign default. The lack of loss-absorbing capital in major European banks is a first-order scandal that could bring down governments.
Fortunately for the undeserving European policy elite, the IMF has plenty of money it can lend at low rates and the Europeans have plenty of votes at the IMF. The IMF can also access considerably more funding as needed, with the agreement of the United States – which really does not want another short-term shock to the world economy. And funding is available from China and other emerging market countries with large stockpiles of foreign exchange reserves.
China has every interest in making sure that the euro survives and prospers as a major reserve currency – to make sure that, over a longer period of time, the US dollar will decline as the primary place in which to hold public and primary rainy day funds.
The IMF will do as it is told by its major shareholders: help to refinance Greece, effectively protecting creditors and eurozone politicians to the fullest extent possible..."
at http://baselinescenario.com/2011/06/20/china-and-the-saving-of-europe/
In this decision, the International Monetary Fund has relatively little say – this is really a political decision to be made by the European Union, with discrete backing from the US and China.
While the EU leadership is surely tired of Greek politicians at this point, they also fear greatly the implications for other eurozone countries if Greece says it can’t pay or won’t pay. The realization that spreads on Spanish government debt will rise sharply concentrates the mind wonderfully.
And the damage would not be limited to Spain – do not underestimate the smugness with which the eurozone has completely and utterly failed to prepare for any kind of sovereign default. The lack of loss-absorbing capital in major European banks is a first-order scandal that could bring down governments.
Fortunately for the undeserving European policy elite, the IMF has plenty of money it can lend at low rates and the Europeans have plenty of votes at the IMF. The IMF can also access considerably more funding as needed, with the agreement of the United States – which really does not want another short-term shock to the world economy. And funding is available from China and other emerging market countries with large stockpiles of foreign exchange reserves.
China has every interest in making sure that the euro survives and prospers as a major reserve currency – to make sure that, over a longer period of time, the US dollar will decline as the primary place in which to hold public and primary rainy day funds.
The IMF will do as it is told by its major shareholders: help to refinance Greece, effectively protecting creditors and eurozone politicians to the fullest extent possible..."
at http://baselinescenario.com/2011/06/20/china-and-the-saving-of-europe/
Sunday, June 19, 2011
Why Spain Should Still Be Your Number One Eurozone Worry
"While Greece continues to have everyone sitting on the edge of their seats, eyes of strayed from Spain.
There are plenty of reasons to be bullish about the country's economy: it's becoming more competitive, its public sector debt is low, and its banking sector is getting better.
But there's one glaring reason why you shouldn't be.
From BNP Paribas:
It's just a whole different world in Spain in terms of employment with protesters back on the street today across the country..."
at http://www.businessinsider.com/why-spain-should-still-be-your-number-one-eurozone-worry-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1PnDoc65S
There are plenty of reasons to be bullish about the country's economy: it's becoming more competitive, its public sector debt is low, and its banking sector is getting better.
But there's one glaring reason why you shouldn't be.
From BNP Paribas:
Job creations were rather strong in Germany (+0.4% q/q) and France (+0.3% q/q), but were rather disappointing in the eurozone’s other large economies. The labour market contracted 0.6% q/q in Italy and 0.4% q/q in Spain. With the exception of just two quarters, employment has fallen constantly since Q1 2008 in Italy and since Q2 2008 in Spain. Conditions in the so-called peripheral countries were also tough, and employment continued to contract sharply in Greece (-2.2% q/q) and at a slower pace in Portugal (-0.1% q/q).
It's just a whole different world in Spain in terms of employment with protesters back on the street today across the country..."
at http://www.businessinsider.com/why-spain-should-still-be-your-number-one-eurozone-worry-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1PnDoc65S
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