Daily Digest - March 4
- Europe on the Ropes
- We need shock and awe policies to halt depression
- ‘Tidal wave' of homeless students hits schools (Video on Page)
- Laid-off professionals turn to "survival jobs"
- The L Curve 1 in 3 Chance, Nouriel Roubini
- Fleckenstein: Protect yourself from Financial Armageddon with gold
- Country Vulnerability Scorecard
- Switzerland threatened with bankruptcy
- Vehicle Sales
- Preview: Pending Home Sales Likely Resume Downward Trend
- Construction Spending Continues to Fall
- ISM Manufacturing (Jan vs. Feb)
- Black Hole, $7,757 per second
- Bernanke: "May" Need More Than Approved $700,000,000,000 to Fix Banks...
- The Two Sides of AIG
- 'Bad Bank' Funding Plan Starts to Get Fleshed Out
- Citi Loses A Big Customer In Asia
- Cramer on Manipulation (Hat Tip KemoSavvy)
- Citi to Allow Jobless to Pay Less on Loans
- S&P 500 Irrational Exuberance
- No Clue
- GM urges EU states to come to its aid
The following is not pretty reading. I have rarely, if ever, felt this apprehensive about the outlook. So, if the crisis has made you depressed already, don't read any further. What is about to come, will make your heart sink.
Here's what jensen means.
On the 11th February the Daily Telegraph's Brussels correspondent Bruno Waterfield wrote an article under the header: "European banks may need £16.3 trillion bail out, EC document warns." In the article, the reporter revealed that he has seen a secret document produced by the EU Commission which briefed the union's finance ministers on the true extent of the banking crisis. Less than 24 hours later, the article's header was changed to "European bank bail-out could push EU into crisis" and two paragraphs had mysteriously disappeared. Here they are:
"European Commission officials have estimated that "impaired assets" may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book' total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.
In addition, so-called ‘available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion."
Do yourself a favour - read those two paragraphs again. Newspaper editors do not change content light-heartedly. Did the Telegraph editor receive a call from Downing Street? Or Brussels? Did he have second thoughts about the avalanche that he could possibly instigate? I don't know and I probably never will. But one thing is certain. If the EU Commission's estimate of £16.3 trillion of impaired assets is correct, then the crisis is far worse than any of us could ever imagine. Not only would we have to get used to the prospects of a systemic meltdown of our banking system, but entire nations may go down as well.
As jensen notes, even if losses realized are just a fraction of this, the crisis will be very severe. this is what is meant when it is suggested that major banks have likely lost whole number multiples of their capital.
Factory output is collapsing at the fastest pace everywhere. The figures for the most recent month available are, year-on-year: Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc), Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc), Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and Britain (-9pc). Norway sails blissfully on (+4pc). What do they drink up there?
This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.
TEMPE, Ariz. - Mark Cooper started his workday recently cleaning the door handles of an office building with a rag, vigorously shaking out a rug at a back entrance and pushing a dust mop down a long hallway.
Nine months ago he lost his job as the security manager for the Western United States for a Fortune 500 company, overseeing a budget of $1.2 million and earning about $70,000 a year. Now he is grateful for the $12 an hour he makes in what is known in unemployment circles as a "survival job" at a friend's janitorial-services company. But that does not make the work any easier.
"You're fighting despair, discouragement, depression every day," he said.
Cooper is not counted in traditional unemployment statistics since he works five days a week, 9 a.m. to 6 p.m. But his tumble down the economic ladder is among the more disquieting and often hidden aspects of the downturn.
It is not clear how many professionals such as Cooper have taken on these types of lower-paying jobs, which are themselves in short supply. Many professionals are doing their best to hold out as long as possible on unemployment benefits and savings while looking for work in their fields.
And things could get worse. We now face a 1 in 3 chance that, if appropriate policies are not put in place, this ugly U-shaped recession may turn into a more virulent L-shaped near-depression or stag-deflation (a deadly combination of economic stagnation and price deflation) like the one Japan experienced in the 1990s after its real estate and equity bubbles burst.
Thus, the recent decline in the price of gold has been precipitated by some combination of short-selling in the gold ETF (where the short interest has been rising quite aggressively) and/or the short-selling and liquidation of gold futures.
Those of us who believe gold belongs in one's portfolio need to remember that the folks who don't like it really don't like it. After all, gold is easy to hate. It's just a price, and it appears to many that today's price is too high.
Swiss banks have given billions of credit to eastern europe - now the customers cannot pay back the money. switzerland is threatened with the fate of iceland, says economist Arthur P. Schmidt.
In countries such as Poland, Hungary and Croatia, the Swiss franc has become an important currency. Thousands of households and small firms took out loans in Swiss francs, and not in the national currency zloty, forint, or kuna because of lower interest rates. In Hungary, 31 percent of all loans are in Swiss currency. Amongst household loans, they are almost 60 percent.
The latest pending home sales report showed continued weakness in the U.S. housing sector, with sales down much more than expected.
The National Association of Realtors revealed Tuesday morning that pending home sales fell 7.7% in January, after unexpectedly rebounding in December.
Economists were expecting a 3.5% decline in the month. December's gain was also revised down to 4.8% from an initially reported 6.3% increase.
Pending home sales are real estate contracts that have been signed but not finalized, and are used to predict existing home sales.
Existing home sales in January fell 5.3%, against expectations for a 1.1% increase.
Other housing data released recently showed new home sales fell to an annualized pace of 309k in January, a 10.2% decline from December. Economists were expecting a 2.1% fall.
Construction spending in the United States continued to decline in January, falling by 2.2% month-over-month, according to the U.S. Department of Commerce.
The consensus had forecast a 1.5% decline. The total construction figure for December was revised downward to -2.2% from -1.4%.
Residential construction fell by 2.8%, a further drop from December's 4.4% decline, while non-residential construction fell 3.5%, down from the 1.5% decline the prior month.
The report also noted a 3.7% decline in private construction and a 2.6% decrease in public construction, which came in at -2.3% and -1.8% in December respectively.
March 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.
"Without a reasonable degree of financial stability, a sustainable recovery will not occur," the Fed chairman said today in testimony prepared for the Senate Budget Committee. "Although progress has been made on the financial front since last fall, more needs to be done."
In this corner, as previously mentioned, Yves Smith goes for the slam dunk:
Let's see, the credit default swaps market, due to some netting, is now somewhere north of $30 trillion (as opposed to its earlier "north of $60 trillion" level). Investment banks were believed to have hedged most of their exposure via offsetting contracts, but AIG wrote naked protection. And as jAIG itself is at risk of getting downgraded again, the collateral posting requirements keep rising.
Some analysts (including Chris Whalen of Institutional Risk Analytics) have offered theories as to how the government could void a lot of CDS (some have argued for getting rid of them altogether, others argue for eliminating them in cases where the protection buyer does not hold the underlying bond/exposure). Before you say, "they can't do that", recall the effective confiscation of gold in the Great Depression. rationing, wage and price controls, the suspension of habeus corpus. There is a good deal that the Feds could do if they chose to, trust me. But it's easier to bill the poor chump taxpayer than take on the financiers, even after they done so much damage.
WASHINGTON -- The Obama administration, filling in some of the blanks in its bank bailout, is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, according to people familiar with the matter.
The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It's central to the administration's efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.
No decision has been made on the final structure of what the administration is calling a private-public financing partnership, but one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss.
There's been a lot of speculation about whether or not Citi will lose business around the world if customers decide to turn to banks less dependent on the US government for survival. So far Citi's retail customers are not withdrawing deposits. But some large international customers are turning away.
We're told by a person familiar with the matter that yesterday Citi lost custody of fund worth hundreds of millions owned by the government pension plan for the Philippines. The plan's managers said it decided to pull the funds from Citi after the US government took a larger stake.
Citi had won the business over competition from JP Morgan and State Street in 2007. Now the funds are being moved to JP Morgan.
There are rumors about other funds, particularly sovereign wealth funds, considering leaving Citi. But so far these are just rumors.
Under the program, Citigroup will temporarily lower mortgage payments to an average of $500 a month for certain borrowers who have recently lost their jobs and are at least 60 days behind on their mortgage payments. Borrowers will be allowed to make the lower payments for three months. Citigroup will waive interest and penalties during this period.
"Buying stocks is a good deal if you have a long term perspective."
"General Motors said on Tuesday that its European arm could run out of money by as early as next month, putting up to 300,000 jobs on the continent at risk.
Fritz Henderson, the struggling Detroit carmaker's chief operating officer, said that GM would face a liquidity crunch "early in the second quarter" if emergency funds from European countries did not materialise."