BOGLE: IT WILL TAKE YEARS TO RECOVER FROM THIS ECONOMIC MESS

"Jack Bogle sat down with Fox Business today to discuss the US economy and the markets in general. The level headed market makes some interesting comments. He says the current market is “rigged” by speculators who are just driving prices all over the place on any given day. As for the general economy, Bogle says we have tough sledding ahead of us….

On if the market is rigged right now:

“The game of prices is rigged. The game of values cannot be rigged. In the long run, the returns on stocks are created by how corporate America does.”

On if anything is still too expensive in the market right now:

“I don’t even try to guess that. You’re pitting one investor against another in the market. It’s a loser’s game. I’d say three years before we can get the American economy doing what it is supposed to do again. It will take time and patience. The market is a great arbitrage mechanism.”

at http://pragcap.com/bogle-it-will-take-years-to-recover-from-this-economic-mess

WHAT ARE THE DRIVING FORCES FOR THE ECONOMY?

"Dr. Austan Goolsbee, formerly the Chairman of the Council of Economic Advisers of President Barack Obama, is now a professor at the University of Chicago at the Booth School of Business. He appeared on “This Week” on ABC this past Sunday and made some interesting observations. Dr. Goolsbee stated that there is only one way to get out of the current economic morass. Most of the country thinks we need to cut expenses or entitlements since it is so clear that we dug ourselves into this mess with excess debt and promises we cannot keep. Dr. Goolsbee believes, as we do, that the only way to extricate ourselves from this situation is by “growing” our way out. He said that we have to shift away from the past economic drivers of the economy (consumer spending and residential construction) to corporate investment and exports. We doubt that corporate investment and exports will be able to substitute for the consumer and housing.

We agree with Dr. Goolsbee that the consumer is so buried under debt that we will not be able to dig our way out of this mess while consumers’ are paying off debt (or defaulting on debt) and trying to save more. The household debt more than doubled from $6.5 trillion in 2000 to about $14 trillion in 2008. The deleveraging process then began and household debt dropped to $13.2 trillion now (we expect it to drop below $10 trillion). With the enormous inventory of unsold homes (total of about 5 million including “shadow inventory”), we will not be able to depend upon the housing market to help our economic growth within the next few years..."



at http://pragcap.com/what-are-the-driving-forces-for-the-economy

TURNING JAPANESE – STOCK MARKET EDITION?

"I’ve often said that the US economy is largely following a Japanese path. The natural conclusion is to also conclude that the US stock market is likely to follow a path similar to that of the Nikkei. You’ve probably seen some version of the chart below. Now, I am not a believer in the idea that anyone can predict where stock prices will be more than a quarter in advance, but if I had to venture a guess I would guess that the USA/Japan equity market theory will not hold. Why? Several reasons:

• This is a household balance sheet recession in the USA and not a corporate balance sheet recession as was experienced in Japan. Because their corporations were so excessively indebted their equity market remained weak for many decades as companies paid down debts rather than focusing on profit maximization.

• US corporations remain incredibly diverse and their broad global footprint has allowed them to remain profitable even during this historic downturn.
• US corporations have cut costs massively and are already experiencing close to no growth in domestic revenues. Without a massive collapse in foreign revenues corporate profits are unlikely to experience a decline that would warren stock prices at the 600 level as the Japan comparison might imply..."

at http://pragcap.com/turning-japanese-stock-market-edition

ECRI: PREPARE FOR THE COMING RECESSION

"We noted this earlier in the week, but Lakshman Achuthan and the ECRI are officially making their recession call public now. In an interview with CNBC this morning, Achuthan, whose group has had a pretty good track record over the years, says the US economy is now headed for negative growth. He detailed his analysis in a report last week:

“Today, we must sound the alarm bells loud and clear. ECRI’s leading indices of U.S. economic activity have turned down in a textbook sequence – first the U.S. Long Leading Index, then the Weekly Leading Index, and finally the U.S. Short Leading Index. Their growth rates are also in cyclical downswings, as are the growth rates of every one of ECRI’s sector-specific leading indexes. Under the circumstances, there is no indication that a reacceleration in economic growth is near at hand. 

In the process of scrutinizing the evidence, we examined every one of these leading indexes to check whether they are in pronounced, pervasive and persistent (three P’s) downturns consistent with a ‘hard landing,’ namely, a recession, rather than a non-recessionary slowdown. After examining the three P’s for all of these leading indexes, we found that the overwhelming majority of their trajectories are currently in recessionary configurations. In practice, such a finding is sufficient to justify a recession call.

A useful way to summarize the evidence we see pointing to recession is to examine the spread of weakness among the components of ECRI’s U.S. leading indexes of economic activity… In that context, the recessionary decline in a summary measure of numerous reliable leading indicators, coupled with an ominous drop in a broad measure of current economic activity representing facts, not forecasts, constitutes a compelling recession signal.”

at  http://pragcap.com/ecri-prepare-for-the-coming-recession

Germany Retail Sales Decline 2.9%, Most Since May 2007; Retail Sales in the Eurozone Fell Fifth Consecutive Month

"Those looking for evidence that Europe is already in recession can find it in this headline: German Retail Sales Decline More Than Forecast

German retail sales declined the most in more than four years in August as concerns about the economic impact of Europe’s sovereign debt crisis sapped consumers’ willingness to spend.

Sales, adjusted for inflation and seasonal swings, slumped 2.9 from July, when they rose 0.3 percent, the Federal Statistics Office in Wiesbaden said today. That’s the biggest drop since May 2007. Economists forecast a 0.5 percent drop, according to the median of 18 estimates in a Bloomberg News survey. Sales rose 2.2 percent in the year.

The debt crisis is threatening to tip Europe back into recession, damping confidence even as falling German unemployment boosts household purchasing power in Europe’s largest economy. While a possible Greek default has clouded the outlook, the Bundesbank still predicts a “robust” third quarter and growth of about 3 percent this year..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/germany-retail-sales-decline-29-most.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Copper signaling recession ….

"FusionIQ’s Kevin Lane notes: Copper as seen on this weekly chart through last tick has broken two supports first near $ 50.00 (red line) and second (green line) near $ 46.00 – this free fall on volume is more indication that the market believes we are in a recession given copper’s ties as an economic metal..."

Copper Trend (2008-11)

Source: FusionIQ

 

at http://www.ritholtz.com/blog/2011/09/copper-signaling-recession/

CHART OF THE DAY: Uh-Oh, Markets Are Right On Schedule For A Lehman Collapse

"You've no doubt heard this one before: 2011 is 2008 all over again.

Well if so, we're due for a big bang collapse right about now. It's not just that we're at that point in the calendar, but even the actual direction of the market, with this latest up-blip, is aligned!

From Citigroup...

Image: Citi

ar http://www.businessinsider.com/chart-of-the-day-2011-vs-2008-markets-2011-9?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1ZN5dGSvm

Mike Krieger: "Rebellion Has Arrived In America"

"As most of you know, I spend almost as much time studying social changes and geopolitics happening around the world as I do studying markets. While carefully observing those areas are always important to a macro investor such as myself, when you are smack in the middle of a Fourth Turning they take on an increased level of importance. What has shielded the U.S. from a lot of the social strife sweeping the rest of the globe at the moment has been the U.S. dollar’s reserve status since this allows us to print seemingly infinite amounts of paper dollars and shove them down the throats of the rest of the world for their resources. This keeps the populace fat, happy and most importantly asleep and apathetic. Well I am pleased to announce that those days are OVER. The American populace is now in the very beginnings of a state of open peaceful rebellion against the criminal oligarchic mafia that runs the nation through fraud and corruption. The status quo is likely to become increasingly defensive as a result and may lash out aggressively like a cornered rat, but they cannot and will not win. They can only really win when they own your mind and that battle has already been lost. Six months from now the state of rebellion will have moved from just beneath to the surface to the forefront of everyone’s mind. It will be a peaceful and constitutional rebellion and it will end with new ways of doing things, more freedoms and a very long road toward rebuilding a safe, fair, free and localized society once TPTB’s prison planet grid of control has been torn down forever.

Occupy Wall Street

I will be the first to admit that I faded the whole idea of this “Occupy Wall Street” protest. I had already seen several failed attempts at protest in NYC come and go and I just sadly assumed the spirit of that once great city had died forever. I am extraordinarily happy to report that I was wrong. When I watched some video of police brutality at NYC protests this weekend I was stunned. Not because the cops acted like some mercenary storm trooper thugs, but because this protest that has started the week before still had momentum! Check out this link regarding what is going on. It has two must watch videos. http://market-ticker.org/akcs-www?post=194965 The first one already has over 400k watches on youtube. This is the spark I have been waiting for and I am pleased beyond belief that it happened in Manhattan right where it should. How about this appearance of Cornel West at the protest on Tuesday. http://www.rawstory.com/rawreplay/2011/09/cornel-west-at-occupy-wall-str... I am proud of my old home today. This is a big deal. The serfs are coming together. Keep it up..."

at http://www.zerohedge.com/news/mike-kireger-rebellion-has-arrived-america

THE EURO – A “MACHINE OF PERPETUAL DESTRUCTION”

"The latest piece by Ambrose Evants-Pritchard of the Telegraph highlights a disturbing error this deep into the crisis. Angela Merkel is still referring to this crisis as a debt crisis:

Angela Merkel told German industry today that we are not facing ”a euro crisis, but a debt crisis.”

He goes on to describe why this is wrong:

“She is wrong. Total levels of private and sovereign debt in the eurozone are lower than in the UK, the US, and far lower than in Japan.
…Not because of debt, except in the most superficial sense.
The reason this crisis keeps grinding ever deeper is because the euro itself is a machine for perpetual destruction. The currency is fundamentally warped and misaligned.
It spans a 30pc gap in competitiveness between North and South. Intra-EMU current account deficits have become vast, chronic, and corrosive. Monetary Union is inherently poisonous.”

at  http://pragcap.com/the-euro-a-machine-of-perpetual-destruction

A Decade of Debt

"The Peterson Institute hosted a meeting on September 27, 2011, to release A Decade of Debt by Carmen M. Reinhart and Kenneth Rogoff. The book traces the surge of public and private debt to record levels and, on the basis of extensive historical analysis, finds a strong association with slower economic growth and increased likelihood of debt restructurings. Another key result tends to be the role of "financial repression," and its contribution to debt reduction.

Carmen Reinhart has been the Dennis Weatherstone Senior Fellow at the Institute since November 2010 and previously spent 14 years as a professor of economics at the University of Maryland. She was recently named by Bloomberg as one of the 50 most influential people in the financial world and by Foreign Policy magazine as one of the Top Global Thinkers of 2011. She and Dr. Rogoff also received the Arthur Ross Book Award presented by the Council on Foreign Relations for the best book on international affairs in 2011. Their volume This Time is Different: Eight Centuries of Financial Folly has been translated into 13 languages and is by far the most widely cited study of the issue. Their new study for the Institute, A Decade of Debt, extends the growth and default dimensions of this analysis..."

at http://www.piie.com/events/event_detail.cfm?EventID=199&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

How the Collapse Will Play Out and How to Play For It

"As I’ve noted in recent missives to you, the world financial system has begun the Great Collapse: the Crisis I’ve been warning about for over two years. I wanted to take some time to explain what is going to be coming this way

The first wave is going to come from Europe where it is clear that the ECB has reached the End Game of monetary intervention. Germany has said “NEIN” regarding further bailouts for Greece. No German backing… no bailouts… no EU.

So Greece will default. And the bondholders will take a 50% haircut if not more. But Greece is the last of Europe’s worries. Indeed, there is a MUCH bigger problem here and that problem is the same one that created the 2008 disaster: DERIVATIVES.

US commercial banks have over $200 trillion in derivatives outstanding on their balance sheets. However, worldwide, the derivatives market is over $600 TRILLION in size. And the financial system in Europe is as saturated, if not MORE saturated with toxic debt than the US financial system.

According to the Bureau of International Settlements, the total exposure worldwide to PIGS (Portugal, Ireland, Greece, and Spain) debt is over $2.5 TRILLION. Most of this is in the form of derivatives. And 70% of it is from foreign entities (banks and firms located outside of the country).

Let’s take Greece for instance. Courtesy of derivatives, France has $92 billion in exposure to Greece debt. Germany is on the hook for $69 billion. Great Britain has $20 billion. And the US has $43 billion.

These levels, while dangerous, are not catastrophic. As I’ve stated before, Greece is NOT the big problem for the EU. However, worldwide exposure to Greek debt is in the ballpark of $277 billion. So a default there would result in significant market dislocations.

Now consider the exposure to a BIG Problem such as Spanish debt. In this situation, Great Britain is on the hook for $51 billion. The US is on the hook for $187 billion. France is on the hook for $224 billion. And Germany is on the hook for a whopping $244 billion.

As I said before, Greece is ultimately a small player in this mess. Worldwide exposure to Greek debt is $277 billion. Worldwide exposure to Spain, on the other hand, is north of $1 TRILLION.

Now this is where things get REALLY tricky. Because of the intertwined nature of the derivatives market, a Greek default could result in systemic risk for the simple fact that if one of the banks that goes down with Greece has extensive exposure to Spain as well, then things could get ugly very, VERY fast.

We are close DARN close to this happening. And when it does, we’re going to see a Crisis that makes 2008 look like a picnic..."

at http://www.zerohedge.com/contributed/how-collapse-will-play-out-and-how-play-it

Government Monopoly Money vs. Utah’s New Choice in Currency

"On Monday of this week, September 25th, I participated in the Utah Monetary Summit in Salt Lake City, devoted to discussing the significance of the Utah Legal Tender Act of March 2011, which gave citizens of that state legal right to transact and contract in U.S. gold and silver coins instead of Federal Reserve Notes, as a stepping stone to full choice in currency for the American citizenry.

I have posted on Northwood University’s blog, “In Defense of Capitalism & Human Progress,” the talk that I gave as the closing after dinner speaker at the event, on “Government Controlled Money or Choice in Currency?”

I discuss the disastrous history with government monopoly paper money, especially during the last century, and the importance of people having the right to choose the money they wish to accept, hold and use, both to protect themselves from the government’s abuse of the monetary printing press and as a way to take power away from government to plunder society.

Richard Ebeling"

at http://blog.mises.org/18554/government-monopoly-money-vs-utahs-new-choice-in-currency/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29

SHILLER: House Prices Probably Won’t Hit Bottom For Years

"The July numbers for the most widely followed measure of house prices, the S&P/Case-Shiller Index, were released this morning.

The numbers weren't terrible--on a seasonally adjusted basis, July was basically the same as June--but one of the creators of the index, Professor Robert Shiller of Yale University, isn't taking much solace in them.

The economy has deteriorated significantly since July, Professor Shiller observes, and he suspects that the housing market has followed suit.

And, from a broader perspective, house prices are still down more than 4% year over year.
In February, Professor Shiller startled those looking for an imminent "bottom" in house prices by suggesting that house prices could still fall 10% to 25%.

He's standing by that assessment.

House prices won't necessarily plunge from here in nominal terms, but in real terms--after adjusting for inflation--they could still drop significantly, Professor Shiller says.

And the bottom might not arrive for years..."

at http://finance.yahoo.com/blogs/daily-ticker/shiller-house-prices-probably-won-t-hit-bottom-162755874.html#ixzz1ZBPggZ3W

Germany Central Bank President Slams Debt Crisis Steps; Europe Goes All In; S&P Says Larger Europe Bailout Fund Could Weigh on Ratings

"The open feud between the German Central Bank and the ECB widened significantly. Making matters even worse Chancellor Angela Merkel is also in an open feud with the Bundesbank.

Please consider, Top German central banker slams debt crisis steps

Germany's top central banker warns that efforts to halt the debt crisis in Europe could give countries incentives to run up deficits in the future.

The statements by Bundesbank president Jens Weidmann underline his differences with German Chancellor Angela Merkel and his fellow board members of the European Central Bank.

Weekend meetings of global financial leaders in Washington raised hopes of a change in strategy, with officials indicating that would focus on further boosting the firepower of the euro440 billion ($595 billion) rescue fund -- perhaps by allowing it to tap loans from the European Central Bank or otherwise leveraging its lending capacity.

Hopes for such a move boosted European stock markets on Monday, with German and French bank shares rising strongly.

However, ahead of a parliamentary vote Thursday on changes to the fund that eurozone leaders already agreed to in July, Berlin was keen to underline its attachment to its often-criticized step-by-step approach..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/germany-central-bank-president-slams.html

Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers

"The major story of the day is the leveraged EFSF is dead without a popular referendum and a new German constitution says Germany's top judge.

Please consider German turmoil over EU bail-outs as top judge calls for referendum

Germany's top judge has issued a blunt warning that no further fiscal powers may be surrendered to Europe without a new constitution and a popular referendum, vastly complicating plans to boost the EU's rescue machinery to €2 trillion (£1.7 trillion).

Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to sign away the birthright of the German people without their explicit consent.

"The sovereignty of the German state is inviolate and anchored in perpetuity by basic law. It may not be abandoned by the legislature (even with its powers to amend the constitution)," he said.

"There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit – which might be politically legitimate and desirable – then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people," he told newspaper Frankfurter Allgemeine.

The extraordinary interview comes just days before the Bundestag votes on a bill to revamp the EU's €440bn bail-out fund (EFSF), enabling it to purchase EMU bonds pre-emptively and recapitalise banks..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/germanys-top-judge-throws-major-monkey.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

A Global Agenda for Seven Billion

"Late next month, a child will be born – the 7th billion citizen of planet Earth. We will never know the circumstances into which he or she was born. We do know that the baby will enter a world of vast and unpredictable change – environmental, economic, geopolitical, technological, and demographic.

The world’s population has tripled since the United Nations was created in 1945. And our numbers keep growing, with corresponding pressures on land, energy, food, and water. The global economy is generating pressures as well: rising joblessness, widening social inequalities, and the emergence of new economic powers.

These trends link the fate and future of today’s seven billion people as never before. No nation alone can solve the great global challenges of the twenty-first century. International cooperation is a universal need..."

at http://www.project-syndicate.org/commentary/kimoon19/English

The Trillion Dollar War of Choice, and the Constraints on Macro Policy

"Or at least $805.6 billion as of the end of September, not including debt service and additional reset costs; around $940 billion including interest payments.

As the US economy faces the prospects of stagnant growth or recession, it is of interest to see why the scope for fiscal policy is so circumscribed -- that is why is the debt level so high given that in the last year of the Clinton Administration, we were paying down debt? Figure 1 depicts part of the answer (other parts, here).

Figure 1: Cumulative direct costs, in current dollars by fiscal year, in the Iraq theater of operations ("Operation Iraqi Freedom"). Does not include resulting debt service. Source: Amy Belasco, "The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11," RL33110, Congressional Research Service, March 29, 2011, Table 3. Data for FY2011 is for continuing resolution, for 2012 is Administration FY2012 request.

To understand the magnitude of the cumulative nominal costs as of September 2011, it is useful to normalize by nominal GDP. As of 2011Q2, GDP was $15 trillion SAAR. Hence, cumulative expenditures (not including the resulting incremental interest rate payments) was equivalent to 5.4% of one year’s economic output. Including the interest burden, the (publicly held) debt to GDP ratio would be 6.3 percentage points lower than what it currently is (65.0%)..."

at http://www.blogger.com/blogger.g?blogID=8908604580043680511#editor/target=post;postID=4095793302370146562

Paul Krugman: Euro Zone Death Trip

"The end of the road for the euro?:

Euro Zone Death Trip, by Paul Krugman, Commentary, NY Times: Is it possible to be both terrified and bored? That’s how I feel about the negotiations now under way over how to respond to Europe’s economic crisis...

On one side, Europe’s situation is really, really scary: with countries that account for a third of the euro area’s economy now under speculative attack, the single currency’s very existence is being threatened — and a euro collapse could inflict vast damage on the world.

On the other side, European policy makers seem set to deliver more of the same. They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail..."

at http://economistsview.typepad.com/economistsview/2011/09/paul-krugman-euro-zone-death-trip.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

WHAT THE LOSS OF CONFIDENCE COULD MEAN FOR U.S. MARKETS

"After digesting various rumors about the potential response to the EZ crisis, I made an off the cuff comment that we’re to the point where investors have more confidence in blogs such as Zero Hedge than central banks and government leaders. What ensued was a lively and interesting bunch of comments regarding this observation. Among them:

One commented, “..20 years of central banks and governments lying to people, regulators becoming facilitators, and NO accountability.” Another: “The real question is whether this is reversible…As it is now, bias and intellectual lethargy just exacerbate the divisiveness and economic myth-making.”

The purpose of this post is NOT to debate who/what is largely to blame, as that topic has been exhausted and will be debatable for decades on end. Rather, what are the implications of this loss in confidence? Is it more than just investors being unhappy with central banks & government? Or are there real economic implications to this loss of confidence?..."

at http://pragcap.com/what-the-loss-of-confidence-could-mean-for-u-s-markets

INDUSTRIAL METALS PRICES POINT TO GLOBAL ECONOMIC CONTRACTION

"We’ve seen some incredible moves in the market over the course of the last two months, but last week really took the move to an extreme. As previously discussed, precious metals have plummeted, but industrial metals are also experiencing sharp declines. In a near repeat of 2008, we are seeing highly deflationary price action that is consistent with continuing economic weakness. And make no mistake, there is nothing consistent in this environment with a hyperinflation or even a stagflationary environment. I believe we’re likely to see a return of the disinflationary trend that we experienced in the first half of 2010.

In a recent commentary Moody’s elaborated on the alarming action in industrial metals (via Moody’s):..."

at http://pragcap.com/industrial-metals-prices-point-to-global-economic-contraction

Paul Tudor Jones: There's A Decent Probability The U.S. Will Experience A Sovereign Credit Crisis Similar To Europe's

"Paul Tudor Jones sees the possibility of the U.S. experiencing a sovereign credit crisis similar to what Europe is experiencing.

The founder of Tudor Investment Corp and the Robin Hood Foundation recently gave an interview to the Memphis Daily News about spending his college days working as a newspaper editor, but he also spoke about his view on the state of the economy.

He said:

The economic future is “going to be bleak for some period of time, unfortunately.”

“We are at the beginning of a major deleveraging process when it comes to all types of credit – private, corporate, financial and most importantly governmental."

“We saw the same thing happen in the ‘30s and ‘40s, and it took the country a long time before the economy really began to recover from the credit boom of the 1920s. … Personally, I think there is a decent probability that at some point we will experience a sovereign credit crisis similar to what Europe is experiencing.”

The “macro situation” won’t be fixed for several more years..."

at http://www.businessinsider.com/paul-tudor-jones-us-sovereign-crisis-2011?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29#ixzz1Z5Hoc0wx

BBC Speechless As Trader Tells Truth: "The Collapse Is Coming...And Goldman Rules The World"

"In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further an further.

While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC..."

at http://www.zerohedge.com/news/bbc-speechless-trader-tells-truth-collapse-comingand-goldman-rules-world

The Federal Reserve Plans To Identify “Key Bloggers” And Monitor Billions Of Conversations About The Fed On Facebook, Twitter, Forums And Blogs

"The Federal Reserve wants to know what you are saying about it. In fact, the Federal Reserve has announced plans to identify "key bloggers" and to monitor "billions of conversations" about the Fed on Facebook, Twitter, forums and blogs. This is yet another sign that the alternative media is having a dramatic impact. As first reported on Zero Hedge, the Federal Reserve Bank of New York has issued a "Request for Proposal" to suppliers who may be interested in participating in the development of a "Sentiment Analysis And Social Media Monitoring Solution". In other words, the Federal Reserve wants to develop a highly sophisticated system that will gather everything that you and I say about the Federal Reserve on the Internet and that will analyze what our feelings about the Fed are. Obviously, any "positive" feelings about the Fed would not be a problem. What they really want to do is to gather information on everyone that views the Federal Reserve negatively. It is unclear how they plan to use this information once they have it, but considering how many alternative media sources have been shut down lately, this is obviously a very troubling sign.
You can read this "Request for Proposal" right here. Posted below are some of the key quotes from the document (in bold) with some of my own commentary in between the quotes....

"The intent is to establish a fair and equitable partnership with a market leader who will who gather data from various social media outlets and news sources and provide applicable reporting to FRBNY. This Request for Proposal ("RFP") was created in an effort to support FRBNY's Social Media Listening Platforms initiative."

A system like this is not cheap. Apparently the Federal Reserve Bank of New York believes that gathering all of this information is very important. In recent years, criticism of the Federal Reserve has become very intense, and most of this criticism has been coming from the Internet. It has gotten to the point where the Federal Reserve Bank of New York has decided that it had better listen to what is being said and find out who is saying it..."

at http://theeconomiccollapseblog.com/archives/the-federal-reserve-plans-to-identify-key-bloggers-and-monitor-billions-of-conversations-about-the-fed-on-facebook-twitter-forums-and-blogs

What Predicts A Financial Crisis?

"From Chapter 1 of the IMF’s recent World Economic Outlook (Box 1.2), a set of findings by Jörg Decressin and Marco Terrones:

The econometric results confirm that net capital inflows, financial sector reform, and total factor productivity are good predictors of a credit boom. Net capital inflows appear to have an important predictive edge over the other two factors.

The Econometric Results

These results are reported in a table of estimates obtained from logit regressions over a sample up to 2010:..."

at http://www.econbrowser.com/archives/2011/09/what_predicts_a.html#ixzz1YzjyTxWY

Multi-Trillion Euro Bailout Plan Allegedly in the Works; Plan Has Failed Already

"The rumor mills are flying this Saturday regarding a Multi-trillion plan to save the eurozone.

Telegraph: European officials are working on a grand plan to restore confidence in the single currency area that would involve a massive bank recapitalisation, giving the bail-out fund several trillion euros of firepower, and a possible Greek default.

German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control.

Their aim is to build a “firebreak” around Greece, Portugal and Ireland to prevent the crisis spreading to Italy and Spain, countries considered “too big to bail”.

Mish: If that's the plan it, it has failed already. The crisis has already spread to Spain and Italy. In fact, one look at European bank stocks says it has spread to France and Germany as well.

Telegraph: Sources said the plan would have to be released as a whole, as the elements would not work in isolation.

Mish: Lovely. In a typical bicycle wheel if one spoke gets broken the wheel still works fine. In the proposed wheel, if a spoke breaks, the bicycle crashes..."

at http://globaleconomicanalysis.blogspot.com/2011/09/multi-trillion-dollar-bailout-plan.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Fixing the foreclosure process more than a year out

"Examining the extent of mishandled foreclosures at the largest mortgage servicers and fixing a broken system will take more than a year, according to Acting Comptroller of the Currency John Walsh.

Last fall, servicers were found to be signing foreclosure affidavits en masse and without a legal review of the loan files in a scandal that became known as robo-signing. Federal regulators and state attorneys general found oversight and procedural problems across the entire industry and forced 14 of the largest banks — firms that serviced 68% of the mortgages in the U.S. — to sign consent orders. The actions also included two firms that handled documents in foreclosure cases: Lender Processing Services (LPS: 14.18 +2.31%) and Mortgage Electronic Registration Systems..."

at http://www.housingwire.com/2011/09/23/fixing-the-foreclosure-process-more-than-a-year-out?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29

How the Banks Take Down Politicians (Elizabeth Warren Edition)

"Big banks are very powerful, and they destroy politicians they don’t like. Obviously, they don’t do it directly, but operate through front groups. Some of these organizations are known as “media outlets”, such as the New York Post, which outed one of Eric Schneiderman’s lawyers as a dominatrix to embarrass and intimidate his office.

On a Federal level, the most prominent front group through which bank-friendly and corporate-friendly smears happen is the Politico, a powerful establishment trade publication that caters primarily to media insiders and politicians, but gets nearly all of its substantial advertising revenue from lobbyists seeking legislative favors. As an example, almost every single print issue from 2009-2010 had a full-page back page ad from Goldman Sachs.

Today’s online advertisers in Politico include AT&T, Altria (ie. Phillip Morris), Boeing, Lockheed,
Time Warner, and Verizon, all of whom are putting in money through yet another front group, RATE (Reduce America’s Taxes Equitably).

I’ve been hard on Elizabeth Warren for a lot of reasons, and I still don’t think she should be running for Senate. But if you want to understand how Wall Street exercises its political power, the Massachusetts race will be a great object lesson.

And lo and behold, the six most recent headlines in Politico about Elizabeth Warren are:

Elizabeth Warren’s campaign revises pay from TARP panel
Read more: http://www.politico.com/news/stories/0911/64306.html#ixzz1YqTixyKC
Warren faces surprising headwinds
Warren’s TARP panel under scrutiny
Will Warren have much Mass. appeal?
Passed over, Warren still ‘celebrating’
Warren unable to soothe Hill critics

Let’s look at a couple of the recent articles. You’d never know if you read the piece on the 23rd, “Warren faces surprising headwinds” that Warren had gone from being 20 points behind Scott Brown in Massachusetts polls to 2 points ahead. And what is the substance of article? Get this:

The great irony of this is that female candidates actually have fared much better in the South, the most conservative region in the country, than they have in the Bay State.

That’s an interesting factoid, but notice how the headline “surprising headwinds” suggests she is BEHIND, as in she needs to surmount the headwinds to get ahead. Now I’ll confess to having written sensationsationalistic headlines more than occasionally, but this looks an awful lot like a use of the headlines to undermine Warren (remember many readers will merely look at the headline and not read the story proper.

Or let’s look at the one on “TARP panel under scrutiny.” Notice the Congressional Oversight Panel, which Warren led, ended its work in early 2011. The media never paid much attention to the beefs by the Congresscritter from Bank of America, Patrick McHenry (the one who accused Warren of lying about scheduling in the Consumer Financial Protection Bureau hearings) about the level of disclosure by the COP over how it spent its funds (the COP did provide a high level recap, but McHenry wanted granular detail). Even a casual reader of the story can see McHenry’s fingerprints all over it.
This is of course a classic effort Rovian strategy, to undermine Warren on one of her strong points, her reputation for directness and honesty. Unstated is the idea that she insisted on disclosure from Treasury on the TARP while not cooperating with McHenry’s demands..."

at http://www.nakedcapitalism.com/2011/09/how-the-banks-take-down-politicians-elizabeth-warren-edition.html

Treasuries are going to be one of the great shorts of our time

"Jim Rogers : treasuries , I am waiting to short I have shorted them a couple of times too soon , that's one of the bubbles that exists in the world and of course I wish I owned this bubble all this time but treasuries are going to be one of the great shorts of our time if and when the timing is right , I am not very good at market timing , I am a hopeless trader as I have proven to myself many times ..."

at http://jimrogers1.blogspot.com/2011/09/short-treasuries.html#.Tn4cOtKK71Y.pingfm

Eclipse: Living in the Shadow of China's Economic Dominance

"Arvind Subramanian presented the findings of his latest book published by the Peterson Institute, Eclipse: Living in the Shadow of China's Economic Dominance, on September 23, 2011. Mohamed El-Erian of PIMCO and Martin Wolf of the Financial Times led a discussion with Subramanian and the audience.

In his book, Subramanian adopts a historical perspective in comparing China's future rise with the past hegemonies of Great Britain and the United States. He attempts to quantify and project both economic dominance and currency dominance, arguing that China's future dominance could be more imminent, broader in scope, and much larger in magnitude than is currently imagined.

Subramanian argues that China will achieve dominance in the world economy over the next decade or two to a degree that will rival the position of the United Kingdom in the 19th century and the United States for most of the 20th century. He further predicts that the renminbi could eclipse the dollar as the premier reserve currency by the end of this decade or soon thereafter. The profound effect that all this might have on the United States and the world financial and trading systems is explored at some length. The book concludes with a series of proposals for maintaining an open global system in the face of this historical shift in economic relationships, emphasizing the need to tether China further and more sustainably in the multilateral system.

Arvind Subramanian has been a senior fellow at the Institute since 2007. He is also a senior fellow at the Center for Global Development. He was previously at the International Monetary Fund, most recently as assistant director in the research department, and at the GATT in Geneva. He taught at Harvard University's Kennedy School of Government (1999–2000) and the School for Advanced International Studies at Johns Hopkins University (2008–10). Subramanian has published extensively on a wide range of economic issues and is a steady contributor to the op-ed pages of the Financial Times, Business Standard of India, and other leading newspapers..."

at http://www.piie.com/events/event_detail.cfm?EventID=198&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

The Great American Debt Flow

"The public debt of the United States has increased by over $500 billion each year since fiscal year (FY) 2003, and as of September, 2011, the gross debt was about $14.7 trillion, of which closed to $10 trillion was held by the public and about $4.6 trillion was intragovernmental holdings (e.g. Social Security, Medicare, etc. which some believe should not be included part of the national debt). The gross debt is about 98% of the U.S. GDP in 2011, and debt held by the public at 67% of GDP.

Is The U.S. Government Stockpiling Food In Anticipation Of A Major Economic Crisis?

"Is the U.S. government stockpiling huge amounts of food and supplies in anticipation that something bad is about to happen? Is something about to cause a major economic crisis that will require large quantities of emergency food? For a while, I have been hearing things about the government storing food through the grapevine and I have not been sure what to think about those rumors. Well, today I received a phone call that blew me away. I debated for quite a while before I decided whether or not to share this information with you all. Normally I do not like to talk about anything unless I am able to prove it by pointing to an article in the mainstream media. But the source of the information that I am about to share with you is rock solid. I cannot reveal his name, so you will just have to trust me on that. Hopefully the following information will be one more "dot" as we all try to connect the dots about what is really going on out there.

This morning I received a call from a very prominent person in the storable food industry. He has asked me not to reveal his name. I have been dealing with him for an extended period of time and I consider him to be a rock-solid source. When I talked to him today, he had just received a huge order for storable food from a U.S. government source. He told me that the dollar amount of the order was in the "five figures".

When he asked about why so much food was being ordered, the government source told him essentially that "you know what is coming". When pushed further, the government official did not elaborate..."

at http://theeconomiccollapseblog.com/archives/is-the-u-s-government-stockpiling-food-in-anticipation-of-a-major-economic-crisis

Shiller: The Great Debt Scare

"Robert Shiller:

The Great Debt Scare, by Robert J. Shiller, Commentary, Project Syndicate: It might not seem that Europe’s sovereign-debt crisis and growing concern about the United States’ debt position should shake basic economic confidence. But they apparently have. And loss of confidence, by discouraging consumption and investment, can be a self-fulfilling prophecy, causing the economic weakness that is feared. ...

The ... Thomson-Reuters University of Michigan Surveys of Consumers ... has included a remarkable question about the reasonably long-term future, five years hence...:

“Looking ahead, which would you say is more likely – that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?” ...

Those answers plunged into depression territory between July and August, [the period when US political leaders worried everyone that they would be unable to raise the federal government’s debt ceiling and prevent the US from defaulting,] and the index of optimism based on answers to this question is at its lowest level since the oil-crisis-induced “great recession” of the early 1980’s. It stood at 135, its highest-ever level, in 2000, at the very peak of the millennium stock market bubble. By May 2011, it had fallen to 88. By September, just four months later, it was down to 48..."

at  http://economistsview.typepad.com/economistsview/2011/09/shiller-the-great-debt-scare.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

Two Terrible New Headlines For European Banks

"Two headlines this morning signal more trouble ahead for Euro banks.

FIRST: Olivier Bailly, a spokesman for the European Commission, said this morning that there are no plans to speed up re-capitalization for EU banks.

He said, "It has been going on since 2008, it is worthwhile recalling that. The amount for recapitalization of European banks is 420 billion (euros)."

But there won't be a coordinated aid effort, he says, "there is no big European plan to recapitalize the banks." Many, including the IMF's Christine Lagarde, have said that banks need to recapitalize urgently because they have so much exposure to the Greece and the Eurozone debt crisis that if a negative capital event happens (which might in Greece), many banks would almost certainly be in default (like Deutsche CEO Josef Ackermann said).

Turns out yesterday's rumor about imminent recapitalization were false. Recapitalization is up to the individual member states and/or banks.

Also, various analysts estimate that EU banks' capital hole would be north of $300 billion (Lagarde says it's $410 billion) if Greece defaults, but no one can quantify the size of the hole precisely enough for investors to "step up and subscribe to rights issues, etc," according to an investment banker whose job it is to sell bank shares. Bailly's statement provides a little bit of clarity here.
SECOND: The NYTimes reports that Euro banks have stopped lending, perhaps a result of investors' unwillingness to invest when they're uncertain that others will also inject capital

Debt issuance by banks has slowed to a trickle at the same time that short-term interbank lending is drying up. The financing drought raises questions about whether banks will have enough money to refinance their own long-term debt and still meet demand for loans.

The vicious cycle is gaining speed.

The bazooka needed would have to be $1.3 - $2 trillion in size, officials estimate."

at http://www.businessinsider.com/eu-banks-wont-get-capitalized-2011-9?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29#ixzz1YnzgHoNH

China Pushes For More Stable Reserve Currency - Bye Bye USD?

"Helpful non-confrontational, non-trade-war, conciliatory comments from China's finance minister Xie speaking at the IMF meetings.

*CHINA SAYS IMF SHOULD STUDY DEFECTS OF WORLD MONETARY SYSTEM
*CHINA SAYS IMF SHOULD DIVERSIFY GLOBAL RESERVE CURRENCIES
*CHINA SEEKS `STABLE VALUE' IN RESERVE CURRENCY SYSTEM

And in case anyone is still unsure of their commitment to slow growth:

*CHINA WILL SEEK TO MANAGE INFLATION EXPECTATIONS, XIE SAYS..."

at  http://www.zerohedge.com/news/china-pushes-more-stable-reserve-currency-bye-bye-usd

Is Financial Instability The New Normal?

"The financial world is officially going crazy. Can you believe what is going on out there right now? Financial markets have been jumping up and down like crazy for months and this is creating a lot of fear. Other than during the financial crisis of 2008, in the post-World War II era have we ever experienced as much financial instability as we are seeing right now? Should we just accept that massive financial instability is going to be part of "the new normal" in the financial world? The wild swings that we are witnessing in the global financial marketplace are making a whole lot of people very nervous right at the moment. When markets go up, they tend to do it slowly and steadily. When markets go down, a lot of times it can happen very rapidly. Also, as I have mentioned before, more major stock market crashes happen during the fall than during any other time of the year. The last major financial crisis happened during the fall of 2008, and things are starting to look a little bit more like 2008 with each passing day. The last thing the global economy needs right now is another major financial meltdown, but that may be exactly what we are about to get..."

at http://theeconomiccollapseblog.com/archives/is-financial-instability-the-new-normal

Economists React: ‘Strongest Sign’ of Europe Double Dip

"Financial data company Markit said its preliminary survey of purchasing managers in the 17-nation euro zone fell into contraction territory – a reading below 50 – this month, marking the first reading in contraction territory since the euro zone climbed out of recession in the third quarter of 2009, and raising new fears of a double-dip. Below, economists react.

The fall in the euro-zone composite PMI below the theoretical 50 “no-change” barrier provides the strongest sign yet that the region is on the cusp of recession. … [T]he latest figures support our view that the consensus outlook for growth is far too optimistic – we continue to expect a fall in euro-zone GDP of about 0.5% next year. – Ben May, Capital Economics

The employment sub-indices for manufacturing and services both weakened in September but remained above the 50 level, at 51.3 on both. However, this appears to reflect surprising strength in the German employment sub-indices this month, which we suspect may not last given the deterioration in economic conditions. – Ken Wattret, BNP Paribas

The data imply that the manufacturing sector is set to experience recession, given that the quarterly average of the euro area PMI for Q3 was at 49.2 (vs. 54.9 in Q2) and given the sharp further deterioration in the gap between new orders and finished goods inventories, which we consider to be a leading indicator. – Barclays Capital Economic Research

The marked weakening in euro-zone economic activity since the early months of the year shows no sign of easing, and it is evident that the previously buoyant manufacturing sector is suffering markedly. – Howard Archer, IHS Global Insight

Today’s PMIs will probably increase pressure on the ECB to cut rates soon. However, barring a further significant escalation of market tensions, we still believe that they are unlikely to deliver on the rate front, as their response at this stage will probably consist in stepping-up unconventional measures. – Marco Valli, Unicredit Research"

at http://blogs.wsj.com/economics/2011/09/22/14770/?mod=WSJBlog

SOROS: WE ARE IN A DOUBLE DIP RECESSION

"Few people have nailed the recurring credit crisis better than Soros. Most importantly, his global perspective provides him with a unique outlook for the entire global economy. In an interview with CNBC yesterday Soros made some blunt comments:

• The USA is already in a double dip recession.
• The USA needs more fiscal stimulus.
• Europe could experience TWO or THREE periphery defaults. They would most likely remain in the EMU and default would be controlled. Uncontrolled default could result in defection.
• The Euro currency should remain fairly strong even in the case of defaults.
• The European leaders are way behind the curve here.
• A form of a central Treasury is required in Europe
• This is a “more dangerous” situation than Lehman Bros.
• The EMU will do what it takes to hold it all together..."

at http://pragcap.com/soros-we-are-in-a-double-dip-recession

FEDEX: MORE SIGNS OF SLOWING ECONOMIC GROWTH

"FedEx, an economic bellwether reported earnings this morning. In general, the report was fairly good, but their commentary has taken a much more negative tone than we’ve seen in recent quarters. As one of the world’s largest transportation firms, FedEx is a superb indicator of global economic health. The story, according to them, is deteriorating, but not collapsing:

“Revenue and earnings increased significantly in the quarter due to strong FedEx Ground performance, improved FedEx Freight results and the continued success of the company’s yield management actions,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “While the economic environment is challenging, we remain confident FedEx will improve earnings, margins and cash flows this fiscal year.”

…”The U.S. and global economy grew at a slower rate than we anticipated during the quarter,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “While FedEx Ground and FedEx Freight achieved improved operating results despite lower than expected growth, the more rapid decline in demand for FedEx Express services, particularly from Asia, outpaced our ability to reduce operating costs. We have slightly reduced our earnings forecast to reflect current business conditions and are aggressively working to adjust our cost structure to match demand levels.”

Over the last few years, we’ve been quick to point out the disparity between domestic and international economic performance. FedEx again nicely summarizes this disparity. Total US package volume/pounds declined at a rate of 3% compared to last year while international volume/pound grew at 11%..."

at http://pragcap.com/fedex-more-signs-of-slowing-economic-growth

WELCOME TO THE CASINO…

"I don’t have much value to add in this story, but I just wanted to point out something that is probably rather obvious, but perhaps not fully appreciated. The last two months have been truly incredible in terms of market action. If you look at just the last 8 weeks we’ve seen a near waterfall 19% decline, followed by a 10% rally, followed by a 7% decline, followed by a 10% rally, followed by an 8% decline, followed by a 7% rally and then the 8% decline of the last two days. Whew.
I still stand by my September 10th comment:

“I would go so far as to say that the risks are so enormous here that the water is simply not worth even dipping a toe into. As investors we have to recognize that we’re in the business of taking calculated risks and not risking capital based on a roll of the dice…”

No one is taking calculated risks at this juncture. The macro picture is in such disarray that anyone betting long/short here is just standing around a spinning wheel hoping they bet on the right color. The speed at which this wheel is spinning though, it might just fly off the table! At least in Vegas they give you free drinks! As Victor Ortiz learned last Saturday night, “protect yourself at all times” – appropriate approach given the incredible market and economic environment we are experiencing…."



at http://pragcap.com/welcome-to-the-casino

This Time is Different, An Update

"The following provides an update on the great research that Carmen Reinhart and Kenneth Rogoff conducted regarding the build-up and subsequent bust of historical financial crises. While their work on crises was largely conducted in the time period leading up to and directly after the financial meltdown in late 2008, there does not appear to be any updates now that the U.S. economy has been in technical recovery for over two years at this point. Some of the facts and figures cited in This Time is Different and the authors’ academic papers were still a work in progress at publication date given that events were ongoing. With the benefit of hindsight, a longer time span and revised economic data (always a luxury), I have recreated and updated some of Ms Reinhart and Mr Rogoff’s work. Specifically, what follows (PDF – full version) is based on their draft paper for an American Economic Association presentation in January 2009 “The Aftermath of Financial Crises.“

In order to not bury the lede, first up is a quick summary of the U.S.’ current experience relative to historical financial crises, followed later by graphs for each individual measure.
All told, the recent U.S. financial crisis looks very similar to the historical crises as detailed by Reinhart and Rogoff – just your “garden variety, severe financial crisis” if you will. Across each of the five measures discussed in the Aftermath paper, the current U.S. experience is of the same magnitude..."

at http://oregoneconomicanalysis.wordpress.com/2011/09/19/this-time-is-different-an-update/

Hello Global Recession

"If you did not know it before, you should know it now: The global economy is in recession..."

US Treasury Yield Curve



Germany Government Bond Yield Curve



at http://globaleconomicanalysis.blogspot.com/2011/09/hello-global-recession.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Is the US Monetary System on the Verge of Collapse?

"David Galland, Casey Research writes: Tune into CNBC or click onto any of the dozens of mainstream financial news sites, and you’ll find an endless array of opinions on the latest wiggle in equity, bond and commodities markets. As often as not, you'll find those opinions nestled side by side with authoritative analysis on the outlook for the economy, complete with the author’s carefully studied judgment on the best way forward.

Lost in all the noise, however, is any recognition that the US monetary system – and by extension, that of much of the developed world – may very well be on the verge of collapse. Falling back on metaphor, while the world’s many financial experts and economists sit around arguing about the direction of the ship of state, most are missing the point that the ship has already hit an iceberg and is taking on water fast.

Yet if you were to raise your hand to ask 99% of the financial intelligentsia whether we might be on the verge of a failure of the dollar-based world monetary system, the response would be thinly veiled derision. Because, as we all know, such a thing is unimaginable!

Think again..."

at  http://www.marketoracle.co.uk/Article30530.html

Italy – bite-sized CDS, taste the volatility

"The Markit iTraxx SovX CEEMEA contains a basket of 15 sovereigns from Central and Eastern Europe as well as the Middle East. Italy’s CDS spread is now wider than all but one of them – Ukraine.
Looking at the Markit CDX.EM, only Argentina, and once again the Ukraine, can offer chunkier spreads. Outer limits, indeed.

It is, of course, not just Italy that has moved significantly wider. As the chart below shows, Spain had been wider than its benchmark index for some time. Italy, meanwhile, punched through the index and then punched through Spain. And of course no such chart would be complete these days without the core EFSF guarantors, France and Germany..."

at http://ftalphaville.ft.com/blog/2011/09/21/682301/italy-bite-sized-cds-taste-the-volatility/

Euro Flight Continues: Lloyd’s of London Pulls Euro Bank Deposits; Dollar Swap Premium Highest in 3 Years

"Major mistrust of European banks continues. Since the ECB will not publish banks needing emergency cash, all banks might be considered suspect. Then again, it's hard to keep stories quiet, and most know which banks have received emergency funding.

Regardless, the run continues as Lloyd’s of London Pulls Euro Bank Deposits

Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution.

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/euro-flight-continues-lloyds-of-london.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Why we’re in the dark about the mortgage market

"We have a severe shortage of information about a $10.5 trillion market.

Jesse Eisinger has a great column at ProPublica about just how inscrutable bank data is — if you haven’t read it, you should. A short summary: even the simplest of big bank statements amount to “guesswork,” Eisinger writes.

Eisinger’s one of a precious few writers who’ve been frank about the banking industry’s black box of data. Read enough of Eisinger or Bloomberg’s Jonathan Weil, you begin to suspect that if analysts, reporters and executives were to be honest, they’d admit there is no reasonable way for even trained investors to make an accurate judgement on the health of a large bank. Here’s Eisinger (and you can almost feel the strain from reading SEC documents):

Day after day, [banks] push out news releases that run to dozens of pages. They prepare reams of special presentations for investors, the most recent of which from Wells ran to 51 pages, on top of a 41-page news release. The SEC filing from the quarter was 162 pages.
The numbers and presentation differ slightly in all of them and often differ from other banks’ presentations, stirring a struggle among outsiders to compare apples and bananas. No professional admits this publicly, but many investors and analysts privately acknowledge that they can’t fully track the data gushing each quarter from the nation’s banks.

And while bank disclosures are intelligible only for those versed in financial arcana, there’s one indicator of banking system’s health that may be even more inscrutable: mortgage servicing.

Bad mortgages and shoddy foreclosures have cost America’s five biggest banks as much as $66 billion, according to a recent estimate by Bloomberg. Assuming we’d be able to put aside concerns about the legality of foreclosures — and that’s a big if — you’d be hard pressed to find recent and reliable specifics about how our banks are actually dealing with bad loans..."

at http://blogs.reuters.com/felix-salmon/2011/09/19/why-were-in-the-dark-about-the-mortgage-market/

10 million more mortgages set to default

"Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group.

At the end of the second quarter, more than 2.7 million long-delinquent loans, others in foreclosure and REO properties sat in the shadow inventory, more than double what it was in the first quarter of 2010 (Click to expand the chart below). With the market averaging roughly 90,000 loan liquidations per month, it would take 32 months, nearly three years, to move through the overhang..."

at http://www.housingwire.com/2011/09/20/amherst-to-senate-10-million-more-mortgages-set-to-default?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29

Ranieri: Housing could sink economy

"The housing market’s problems aren’t going away, but policy makers and industry officials appear to be running away from them, mortgage-bond pioneer Lewis Ranieri told an audience of financial industry executives on Monday.

Mr. Ranieri, considered by many to be the godfather of the U.S. housing-finance market for his role developing the mortgage-backed security, didn’t pull any punches in an address to the North Carolina Bankers Association in Raleigh. The industry and policy makers are engaged in “self-interested bickering” over who will bear the cost of needed overhauls while the housing market is rotting, he said..."

at http://www.housingwire.com/2011/09/20/ranieri-housing-could-sink-economy?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29

DOLLAR FUNDING COSTS RISE AS CENTRAL BANKS’ PLAN SEEN AS INADEQUATE

"European banks are finding dollars an expensive commodity once again, as the afterglow fades from a coordinated central bank plan to improve liquidity.

Swapping euros for dollars now costs about as much as it did before the European Central Bank said Thursday it would work with counterparts in the U.S., Europe and Japan to provide dollars for banks struggling to access U.S. currency. The three-month euro-dollar swap is quoted at minus 90.5 basis points, from minus 76.5 points on Thursday. The swap was at minus 92 points before the ECB announcement.

When European banks lose access to dollars, they have to issue debt in euros and swap it into US dollars, paying extra for this exchange. This extra amount is measured by the basis swap.
A growing belief that Greece will default on its debt–and uncertainty about the impact on other troubled euro-zone economies and banks–is once again driving up dollar funding costs. A teleconference between Greek officials and the troika of creditors–the European Central Bank, the International Monetary Fund and the European Union–is scheduled for later Monday to ascertain whether the country has done enough to get its finances back on track. At stake is the release of the next instalment of aid–EUR8 billion–without which Greece has said it will run out of cash by the middle of October.

“With more than 90% chance of default by Greece, this is just the yo-yo effect,” said Kedric Dines, head of interest rate derivative sales at Mizuho Corporate Bank in New York. “We’ll see a fickle market reacting to all the news.”

at  http://pragcap.com/dollar-funding-costs-rise-as-central-banks-plan-seen-as-inadequate

CREDIT UPDATE – CONTROLLED DEMOLITION

"Demolition is the tearing-down of buildings and other structures, the opposite of construction. Demolition contrasts with deconstruction, which involves taking a building apart while carefully preserving valuable elements for re-use.”

The respite was short lived in the credit space and the tone, was once again about widening spreads.
Itraxx 5 year crossover index (High Yield, wider by 41 bps to 756 bps:..."

 

at http://pragcap.com/credit-update-controlled-demolition

KILLER WAVES AND DANGEROUS MACD’S

"Albert Edwards has been hard at work in recent weeks studying the technical landscape and the uber bear has found what he claims is more evidence of the peak in the bull market within a secular bear market. In two separate research notes this week he described two popular long-term indicators which appear to be giving an early warning signal. The first signal is the monthly MACD which is giving just its third sell signal in the last 15 years (via Business Insider):

“The chart below shows the monthly S&P together with the MACD.
For those normal people who don’t know what the MACD is or even what it stands for, it is the Moving Average Convergence-Divergence. It is a momentum oscillator closely followed by many market participants. When the faster moving mav breaks the slower moving mav (up or down) we get a key buy or sell signal.
We may be about to break downwards on the monthly S&P chart which would give us a HUGE sell signal as was the case in Nov 2007 and the end of 1999 (also see attached note on The Killer Wave signal). If the S&P cracks we will be at 1.5% 10y US yields within a few days and probably heading to 1%. Watch this space.”

at  http://pragcap.com/killer-waves-and-dangerous-macds

Late Payments at Spanish Banks, Cooperatives, Credit Institutions Hits 7%, Highest Since 1995

"Courtesy of Google Translate and also my friend Bran who lives in Spain, please consider Financial System Late Payments Verge on 7%.

The delinquency rate of the Spanish financial system credit (banks, cooperatives and credit institutions) rose in July to 6.936% against 6.690% in June, according to data released today by the Bank of Spain.

The delinquency rate remains at its highest level in 16 years, since February 1995. When compared with July 2010, the data show a significant increase in bad debts, because in that month was in the 5.483%.

Of the total of 1.79 billion in loans, doubtful loans are 124.618 million, compared with 100.527 million from the same month last year..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/late-payments-at-spanish-banks.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Real Estate Delinquency Rate Hits 17.7% in Spain, Total Delinquencies Approach 7%

"Via Google Translate, Late payment of Real Estate Loans Hits Record 17.7%

More than three years after the bursting of the housing bubble, banking has yet to digest the glut of brick that was in the boom years. In fact, instead of improving, deteriorating assets linked to this sector is growing by leaps and bounds.

As reported today by the Bank of Spain , delinquencies in the housing sector has risen in the second quarter in more than two percentage points to 17.8% of total loans to these activities. Furthermore, as has been happening since the beginning of the crisis , the percentage with which they closed in June represents the highest level of arrears that collect statistics supervisor, which collects data disaggregated by sector since 2000 and, therefore, not reflect the evolution of the crisis of the early 90's..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/real-estate-delinquency-rate-hits-177.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

Point of No Return: Will it be Japanization, Monetization, or Crisis 2.0?

"I believe the Eurozone will break apart. Eurobonds are dead, so are fiscal unions. The question is really what path the crisis takes.

Via email, Saxo Bank chief economist Steen Jakobsen outlines several scenarios in a series of three emails that I spliced together.

There are three major ways of dealing with this crisis:

1. Japanization – A Slow Death - Like Japan. Accept deflation, along with slow gradual restructuring, massive fiscal deficits, negative real-rates, housing prices lower than 30 years ago and a stock market valuation at less than 50 per cent of its peak
2. Crisis 2.0 – A Forest Fire of deleveraging, political and economic changes created by necessity and need for moving forward. This scenario features a deep one-to-three year recession followed by better debt to equity, more realistic future expectations, and a public sector under control.
3. Monetization – The extend-and-pretend forever solution, buying time – more of the same, patch work solutions, slowly forcing Europe towards fiscal consolidation not changing the Maastricht but the ECB charter to allow it to be lender-of-last-resort. This is the final phase of ‘Maximum Intervention’ – bigger and bigger direct support on liquidity(as seen today) and no impact on the solvency..."

at  http://globaleconomicanalysis.blogspot.com/2011/09/point-of-no-return-will-it-be.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

The Unusual Case of Euroland

"The Non-Sovereign Nature of the Euro and the Problems Raised by the Global Financial Crisis

By L. Randall Wray

In the next series of blog posts, we will look in more detail at fiscal and monetary operations of a nation with a sovereign currency. Before we do that, let us briefly examine the case of the Euro. Let me say that we will not address the unfolding crisis across Euroland in detail. The reason is that events are moving too quickly and we do not know where they will lead. This primer in some sense needs to be “timeless”—anything specific that we discuss will quickly become outdated. The fundamental point to be made here is that the Euro arrangement was flawed from the beginning. Crisis was inevitable—as I have been writing since the mid 1990s. There is no way the system as designed could possibly survive a significant financial crisis. And a crisis began in 2007. Due to flaws in the set-up, it was obvious (at least to those who adopted MMT) that the original arrangement was not sustainable. We could not say for sure how the resolution would turn-out, but a fundamental change would be required.

At one end of the spectrum of outcomes, the European Monetary Union would simply be dissolved and each nation would return to a sovereign currency. At the other end, a “more perfect union” would be created. We always argued that separating fiscal and monetary policy was the basic problem. Almost no one would listen to us. A notable exception was the economist Charles Goodhart. Now, in fall 2011, it has become common to blame the separation of monetary and fiscal policy for the crisis of the EMU. It is finally recognized that an arrangement in which monetary policy is unified under the international ECB, but fiscal policy is left to individual nations, was the primary flaw. Most economists still do not recognize, however, that it comes down to currency sovereignty. It is not just that you need unification of fiscal policy; you need a sovereign currency issuer that will take responsibility for fiscal policy. Extremely slow recognition of that problem has now dragged out the crisis for four years; and as of Fall 2011 it still is not clear that resolution is politically possible..."

at http://www.creditwritedowns.com/2011/09/unusual-case-of-euroland.html