Daily Digest - Feb 5
- In the future, economists will return to Earth (Hat Tip Fred)
- Goldman Says Fund Managers Expect Deflation
- "Even Worse Than You Imagined"
- Gordon Brown suggests world heading for a 'depression' (Video in Article)
- Moscow abandons bail-outs for bank aid
- Treasury in plans for record debt sale
- Bank of America tumbles on nationalization worries
- Obama's Salary Cap Could Seriously Hurt New York
- (Repost)"Top Talent: What Does That mean?
- Video: McConnell: We're 'throwing figures around like it's paper money' (Hat Tip SteveS)
- Gold vs. all sorts of things...(Charts in Article)
- Economic Master Plan - National Disaster
- Insurers' Corporate-Bond Losses May Exceed Subprime
- Vacant Homes "Cliff Climbing" (Chart in Article)
- Lawrence Lindsey (Humor, Video)
- Stephen Roach Says Global Economy "Anemic at Best" (Video from Davos (Switzerland)
- Whitney: No Bad Bank Please
In the future, economists will return to Earth
The year 2009 will witness a tsunami of economic appeals to fix, as disgraced Federal Reserve Chairman Alan Greenspan put it, the 'flaw' in their thinking. Most will get it wrong.
The proposals for bailouts, regulations, and government spending sprees all share one tragic flaw: They assume no physical or biological limits to human growth. Most economists cling to an 18th century mechanical universe that conjured an 'invisible hand' of God, which would allegedly convert private greed into public utopia.
Indeed, a few got rich but the meek inherit an Earth featuring child slavery, sweatshops, a billion starving people, toxic garbage heaps, dead rivers, exhausted aquifers, disappearing forests, depleted energy stores, lopped-off mountain tops, acid seas, melting glaciers, and an atmosphere heating up like a flambé.
Meanwhile, a rigorous sub-culture of scientists and economists have been working to free economics from its eighteenth century quagmire by reconciling human enterprise with the laws of physics, biology, and ecology.
Their time has come. This year, 2009, will signal the birth of a genuinely innovative economics that will eventually displace the patchwork rationalisations for greed. The new ecological accounting is variously called 'dynamic equilibrium', 'steady-state' or 'biophysical' economics.
What about technology?
Ignoring nature remains the tragic conceit of conventional economists, who presume we can grow our economies forever without regard to quantities of materials, energy, and pollution. Biophysical economics, on the other hand, acknowledges that there exist no cases in nature of unlimited growth.
Dr. Albert Bartlett, Emeritus Professor of Physics at Colorado University, urges economists to learn the laws of nature. Non-material values - creativity, dreams, love - may expand without limit, but materials and energy in the real world remain subject to the requirements of thermodynamics and biology. "Growth in population or rates of consumption cannot be sustained. Smart growth is better than dumb growth," says Bartlett, "but both destroy the environment." [emphasis added - Fred's]
Goldman Sachs London conducted a poll of FX/Macro fund managers today that had interesting results. The poll demonstrated that fund managers are expecting deflation more than inflation and that they expect the U.S. or Asia to escape the downturn first (and certainly not Europe or the UK). I imagine that funds are positioned accordingly in currencies, stocks, and bonds.
Here are the poll results:
- 83% of participants believe that the biggest global threat at present is ‘deflation' vs 17% believing this will be ‘inflation.'
- 82% believe we will se a US style 1930s Depression vs a German style 1920s period of hyperinflation.
- 47% believe the US will recover first from the current crisis, 42% believe it will be China/Brazil... Only 7% believe this will be the UK and only 4% believe it will be Europe!
- 73% believe the US will recover before the Eurozone (only 6% believe that Europe will recover before the US while the rest believe they will both recover at the same time).
- 55% believe a country will leave the Eurozone 10 years from now or later - only 10% believe that this will happen within the next year.
- 44% indicate that they are avoiding all EM investments for now - 20% would invest in Latam, 27% in non-Japan Asia and the rest in EMEA.
The Bad Bank Assets Proposal: Even Worse Than You Imagined, by Yves Smith: Dear God, let's just kiss the US economy goodbye. It may take a few years before the loyalists and permabulls throw in the towel, but the handwriting is on the wall.
Gordon Brown appeared to acknowledge for the first time today that the world economy was heading for a 1930s-style "depression".
Mr Brown stumbled slightly over his words at Commons question time, just a week after admitting that Britain was facing a "deep" recession.
Russia signalled a change in its policies to fight the financial crisis on Wednesday, indicating that it would switch from bailing out individual companies to supporting the economy through the banking sector.
Moscow also plans huge budget cuts in an attempt to limit its fiscal deficit - rejecting pressure to follow the US and other western countries to try to stimulate the economy with a big boost in public borrowing.
The proposals suggest that Moscow is losing hope it can stave off the crisis with public spending and is instead battening down the hatches for what might be a prolonged recession.
The plans also indicate that the authorities are not giving in to public demands for a quick-fix response and are ready to resist pressure for money from cash-strapped oligarchs.
The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.
The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note rising to 2.95 per cent, up from just over 2 per cent at the end of December.
The rise in Treasury yields has been pushing mortgage rates higher, complicating efforts to revive the economy. The US Federal Reserve said last week it was "prepared to" buy Treasuries if that would be a "particularly effective" way of reducing private borrowing costs.
"The Fed has to be troubled by the fact that mortgage rates have been rising and the buying of Treasuries by the Fed may come sooner than the market expects," said William O'Donnell, UBS strategist.
The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.
At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.
For Barack Obama's administration, the step-up in borrowing costs comes as it is fighting to secure an $800bn-plus fiscal stimulus, and is likely to need many hundreds of billions more to fund a banking sector clean-up.
The Treasury Borrowing Advisory Committee expressed concern on Wednesday over the sharp jump in net borrowing needs - which market analysts estimate could reach $1,500bn to $2,500bn for the 2009 financial year.
NEW YORK (Reuters) - Bank of America Corp (NYSE:BAC - News) shares fell below $5 for the first time since 1990 on speculation that spiraling losses at newly acquired Merrill Lynch & Co might lead to government control of the largest U.S. bank, wiping out shareholders.
Shares fell more than 11 percent, marking the fifth straight decline, as rumors persisted that mounting losses on mortgages and corporate loans might lead to the nationalization of the Charlotte, North Carolina, lender, or even the ouster of Chief Executive Kenneth Lewis. Bank of America and Merrill Lynch ended 2008 with $2.49 trillion of assets.
"Until we get some clarity that even the largest banks will remain in shareholder hands, this downward spiral is just going to continue," said Nancy Bush, an analyst with NAB Research.
President Obama's Wall Street salary cap may be well intentioned and it certainly taps into public sentiment, but it's a killer for New York.
"Without the talent of Wall Street to bring us back into a position of leadership in the global economy, we're going to be in bad shape as a world economic power," said Kathryn Wilde of the Partnership for New York.
Wylde says the Obama salary cap will lead to a critical brain drain - China and the United Arab Emirates have already come to poach Wall Street talent. She also says lower salaries in the financial industry will mean dramatically lower tax revenues for the city and state.
"We also depend heavily on the financial services industry to fund our economy and our tax rolls," said Wylde. "Last year 20 percent of our income taxes in the states - 12 percent in New York City came from Wall Street."
The words will be kept to a minimum. Monthly charts can be tough to look at because they are so cumbersome and inefficient in the short term. But the big picture of gold vs. everything shows hysterically over bought; generationally over bought, and as a TA guy (and a bottom feeder) that disturbs me. As a macro fundamental guy and a human being, I see the reasons staring us in the face. Gold is monetary value in a world gone mad and in the early stages of trying to come to its senses. Anyway, here are some charts for your review. Form your own conclusions.
Economic Master Plan - National Disaster
Feb. 3 (Bloomberg) -- Corporate debt defaults may cost U.S. life insurers "substantially" more than losses on securities linked to subprime, Alt-A and commercial mortgages, said Eric Berg, an analyst at Barclays Plc.
Corporate defaults are poised for a "significant" increase this year as the recession deepens, Berg, based in New York, said in a research note yesterday. The American Council of Life Insurers estimated the industry, led by MetLife Inc. and Prudential Financial Inc., holds $1 trillion in corporate debt.
"None of the life insurers we studied appear to be doing a particularly good job" of picking bonds backed by companies, Berg said. "Understandably, investors are concerned."
Life insurers have plummeted in the past year in New York trading as investment losses and guarantees on slumping retirement products sap capital. Hartford Financial Services Group Inc. leads the industry with $7.9 billion in writedowns and unrealized losses tied to the real-estate market since 2007, while New York-based MetLife has accumulated $7.2 billion, according to Bloomberg data.
Hartford and Prudential have cut jobs, asked regulators to ease reserve standards and applied for aid from the government's $700 billion rescue program to replenish funds after reporting net losses in the third quarter. MetLife sold $2.3 billion of stock in October to bolster finances. The Standard & Poor's Supercomposite Life & Health Insurance Index has declined about 61 percent in the last 12 months.
The vacancy rate for homes typically occupied by the owner rose to 2.9% in the fourth quarter of 2008 from 2.8%, matching the all-time high set a year ago, the commerce Department reported Tuesday. Prior to the housing bubble bursting in 2005, the vacancy rate had never been above 2%. For rental properties, the vacancy rate rose to 10.1% from 9.9%. The homeownership rate fell to 67.5%, the lowest since 2001. In the fourth quarter, 2.2 million homes were vacant and for sale, virtually unchanged from a year earlier. The nation's housing stock increased by 2.2 million in 2008 to 130.8 million.
Whitney: No Bad Bank Please