Daily Digest

Daily Digest - Apr 13

Monday, April 13, 2009, 10:40 AM
  • Lawrence H. Summers is the final expression of what is now wrong
  • Krugman on Economy and Stress Tests
  • Chinese to start settling trade in Yuan
  • Zimbabwe shelves own currency for a year: report (H/T Fujisan)
  • Job cuts needed to stop NY bankruptcy: mayor
  • Thai protesters force Asia summit cancellation 
  • CRE: Easter Bunny Found in a Field of Steel
  • Steve Eisman on GE
  • Fearing the Wrong Thing?
  • The Imminent Disinformation Schism

Economy

Lawrence H. Summers is the final expression of what is now wrong

These are the kinds of questions that Dorgan asks. These are the kinds of questions that would never occur to Summers.

Dorgan should be leading the economic recovery team. Summers is the worst of all possible choices.

Krugman on Economy and Stress Tests

Video on page. Smash defeat from the jaws of victory.....lurching from bubble to bubble....[on Summers and Geithner] These are smart guys, ask them they will tell you...Good stuff in this video.

Zimbabwe shelves own currency for a year: report (H/T Fujisan)

Hyperinflation rocketed to over 230 million percent, leaving the Zimbabwe dollar almost worthless.

The state-controlled Sunday Mail said the unity government of Mugabe and opposition leader Morgan Tsvangirai decided the Zimbabwe dollar should only be reintroduced when industrial output reaches about 60 percent of capacity from the current 20 percent average.

"The Zimbabwe dollar will be out for at least a year. We resolved that there will be no immediate plans to (re)introduce the money because there is nothing to support and hold its value," the newspaper quoted Economic Planning and Development Minister Elton Mangoma as saying.

"Our focus is to first ensure that we have a vibrant industry. If we try to reintroduce the local currency now, it will face the same fate of being wiped out of its value within weeks."

On Thursday, Zimbabwe's Central Statistical Office (CSO) said consumer prices fell for a third straight month in March after the government abandoned its worthless currency.

The CSO said inflation stood at -3.0 percent month-on-month in March compared with -3.1 percent in February, as food prices fell. 

Job cuts needed to stop NY bankruptcy: mayor 

Sweeping layoffs of government employees are needed to prevent New York going bankrupt, Mayor Michael Bloomberg said Thursday. 

Thai protesters force Asia summit cancellation 

PATTAYA, Thailand (Reuters) - A summit of Asian leaders in Thailand was canceled on Saturday after anti-government protesters swarmed into the meeting's venue, renewing doubts about the durability of the government. 

The events will pile more pressure on an economy teetering on the brink of recession, especially if foreign tourists are put off by the scenes of chaos and emboldened protesters intensify the fight to kick out Prime Minister Abhisit Vejjajiva.

Abhisit imposed a state of emergency for a few hours in Pattaya, a resort about 150 kms (90 miles) south of Bangkok best known for its racy nightlife and as a port of call for U.S. sailors, which was to host the East Asia Summit.

He lifted it after the foreign leaders had left the country. About half of them had had to be evacuated by helicopter from the venue to a nearby military airbase. 

CRE: Easter Bunny Found in a Field of Steel 

CRE: Easter Bunny Found in a Field of Steel 

Chinese to start settling trade in Yuan 

The invoicing function is not often considered when many economists and analysts talk about currencies. However, it is an important function and underscores the role of the US dollar. Consider that nearly all US exports and imports are invoiced in dollars. Rounding the actual figures, only about half of the euro-zone's exports and imports are invoiced in euros and only about a quarter of Japan's exports and imports are invoiced in yen. 

Steve Eisman on GE 

If GE weren't able to fund itself with the "heroin injection" of the government's commercial paper program, it would already be bankrupt. 

So is GE toast?

No. Unlike banks, GE is not required to mark its assets to market, so Eisman thinks the company will just hobble along for years as the bad news gradually works its way through its income statement (the very definition of a zombie bank). The losses will hammer GE's earnings, though. Especially as the performance of the industrial business deteriorates. 

Fearing the Wrong Thing? 

U.S. authorities probably won't pursue expansionary monetary policies with quite the dogged Germanic persistence that caused the mark to fall to one trillionth of its former value. However, the turnaround needed to stop a Weimar repetition will be very unpleasant, so there will undoubtedly be considerable denial and fudging of the figures as inflation begins to take off (especially if Ben S. "Drop Money From Helicopters" Bernanke is still serving as the head of the U.S. central bank). 

As investors, we need to ensure that our money is safe from the inflationist onslaught. Our portfolio should thus currently contain no bonds - even Treasury Inflation Protected Securities (TIPS) are linked to the U.S. consumer price index (CPI), which has been fiddled before and will be again, so will not provide true inflation protection.

Only gold will play its traditional role as a protector of savings against inflationary onslaught. Once policymakers get serious, gold prices will drop, as inflation risks recede. But before that gold prices are likely to shoot much higher, perhaps beyond their 1980 peak of $2,300 in today's dollars. You have to remember that gold is a thin market, with only $100 billion mined annually, so a surge of hedge funds into the gold market could move the price very quickly indeed.

Two avenues into gold should be attractive, the SPDR Gold Shares ETF (GLD) which invests in gold directly and the more financially solid gold mining companies, such as Barrick Gold Corp. (ABX) and Yamana Gold Inc. (AUY). Since gold has fallen back recently to below $900 an ounce, it may be a good time to buy. 

The Imminent Disinformation Schism

The truth is that the more taxpayer money is dumped to try to fill the abyss, it may become marginally shallower, but only at the expense of it getting wider. At some point soon (if not already), the U.S. economy will be unweenable from the trillions and trillions of taxpayer subsidies all the while it becomes more indebted to both its investors and taxpayers, further exacerbating the abovementioned paradox (presumably not without a motive). As the multi-trillion CRE crash continues to deplete the left side of the financials' balance sheet with an exponentially growing pace (and I have not even touched on the credit card topic), the banks will be left scratching their heads what accounting rules to bend, which insurance companies to implode and get another AIG-like piggybank, how to break REG-FD more and more creatively with select memo leaks, how to manipulate the market, and how to make the Tsy curve becomes even more upward sloping with the compliments of the Fed and the Treasury. In the meantime the disinformation rift between the American taxpayers and investors will keep growing until inevitably, one day, it will escalate to the point where empty promises on prime time TV by the administration's photogenic representatives will not suffice, and real actions that benefit future American generations will be demanded... What happens after I have no idea.

8 Comments

Goal Digger's picture
Goal Digger
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DavidC's picture
DavidC
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Re: Daily Digest - Apr 13

Hi Goal Digger,

Here in the UK tax freedom day already falls on the 2nd June;

http://www.adamsmith.org/tax-freedom-day/

Terry Jones, of Monty Python fame, presented a TV series on Mediaeval Life and wrote a book a few years ago ("Terry Jones' Medieval Lives" - both spellings are valid) in which he said that feudal serfs had 80
days holiday a year (thanks to all the Church feast days) and although they
had to work 50 or so days in a year for their feudal lord, that's a lot fewer than most of us work today to pay our income tax!

DavidC

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Aurum Vir
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Re: Daily Digest - Apr 13

The Tax Capital of the World

Like the old competition to have the world's tallest building, New York can't resist having the nation's highest taxes. So after California raised its top income tax rate to 10.55% last month, Albany's politicians leapt into action to reclaim high-tax honors. Maybe C-Span can make this tax competition a new reality TV series; Carla Bruni, the first lady of France, could host.

 Oh, and it isn't just high earners who get smacked. The new budget raises another $2 billion or so on top of the $4 billion in income taxes with some 100 new taxes, fees, fines, surcharges and penalties to be paid by all New York residents. There are new charges for cell phone usage, fishing permits, health insurance (the "sick tax"), electric bills, and on bottled water, cigars, beer and wine. A New York Post analysis found that a typical family of four with an income below $100,000 would pay more than $800 a year in higher taxes and fees.

This is advertised as a plan of "shared sacrifice," but the group that is most responsible for New York's budget woes, the all-powerful public employee unions, somehow walk out of this with a 3% pay increase. The state is receiving an estimated $10 billion in federal stimulus money, and Democrats are spending every cent while raising the state budget by 9%. Then they insist with a straight face that taxes are the only way to close the budget deficit.

http://online.wsj.com/article/SB123940286075109617.html

 

bobb dobbs's picture
bobb dobbs
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Re: Daily Digest - Apr 13 (Disinformation Schism)

In regard to the The Imminent Disinformation Schism linked above here is some more parallel food for thought:

http://www.oftwominds.com/blogapr09/survival10-04-09.html

Survival+ 10: When Belief in the System Fades (April 9, 2009)

castlewp's picture
castlewp
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Is Goldman Sachs Manipulating the Stock Market? - It Sure Looks

http://www.goldmansachs666.com/2009/04/is-goldman-sachs-manipulating-stock.html

I understand this is the website Goldman Sachs has hired a law firm to have shut down.

dave s's picture
dave s
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Re: Daily Digest - Apr 13
Long time lurker and recent member, here.  Love all your work, Davos.  This article today was one of the best I've seen... 
 
 

Rescue the economy? Try the SEALs

Commentary: If banks act like pirates, they should be treated like them

 
 
By MarketWatch

Last update: 11:31 a.m. EDT April 13, 2009

WASHINGTON (MarketWatch) -- President Barack Obama has put the wrong federal agency in charge of the rescue of the financial system. Instead of hiring Tim Geithner and the TARP, he should have hired the U.S. Navy and the SEALs.

When lawless pirates captured an American sea captain, the Navy put the hostage first. Now he's safe, and the hostage-takers are dead or jailed.
 
When lawless bankers captured the global economy, Geithner put the hostage-takers first. And the hostage-takers are stepping up their demands: Change the accounting rules, guarantee us against any losses from the toxic assets, and rig the stress test so we all come out smelling like roses.
 
Old-timers may remember with nostalgia the days when it was easy to tell the difference between a major financial institution and a criminal enterprise. Those days are long gone.
 
Consider, for instance, the indictment unveiled last week against a San Diego street gang on multiple counts of mortgage fraud. According to federal prosecutors, the gang arranged to buy 220 properties for more than $100 million from 2005 to 2008. They overpaid for the properties by taking out liar loans using phony appraisals. They then funneled a kickback to a company controlled by the defendants, the indictment says.
 
Liar loans? Phony appraisals? Kickbacks? That sounds pretty much like the business model for the mortgage brokerage industry in California during the bubble. Maybe the real complaint is that the mob was muscling in on their territory.
 
Or consider the report in Monday's Wall Street Journal that the Troubled Asset Relief Program oversight panel is investigating complaints that the banks that received money from the TARP are raising interest rates and imposing new fees on customers.
 
It is indeed shocking to learn that banks are behaving like banks. Isn't the whole point of the TARP to help the banks get back on their feet? And if they can't sell trillions of dollars in credit default swaps to each other, the most profitable line of business they have left is the customer-gouging unit, also known as their credit-card businesses.
 
Citigroup defended a recent loan promotion that didn't disclose that the annual interest rate was 30%. The interest rates "compare competitively to similar offers in the market," a Citigroup spokesman told the Journal. So this is like an offer you can't refuse?
 
With interest rates like those, it sounds like Citigroup is muscling in on the mob's territory. Fair is fair.
 
-- Rex Nutting, Washington bureau chief End of Story
skohiu's picture
skohiu
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Obama to tap Fannie Mae CEO to head TARP

Wow!  WOW!   

Obama to tap Fannie Mae CEO to head TARP

LOS ANGELES (MarketWatch) -- President Barack Obama is expected to tap Fannie Mae (FNM) Chief Executive Herb Allison to head the government's $700 billion Troubled Asset Relief Program, The Wall Street Journal reported late Monday, citing people familiar with the matter. Obama could announce his intention to nominate Allison as assistant secretary for the Office of Financial Stability as early as this week, the report said. He would replace Bush-appointee Neel Kashkari, who was asked by Treasury Secretary Timothy Geithner to stay on until a replacement was found.

http://www.marketwatch.com/news/story/fannie-mae-chief-executive-herb/story.aspx?guid=%7B861F527B-F191-4B0F-9381-9380AB2B4C03%7D&dist=msr_3

 

flavian's picture
flavian
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Re: Daily Digest - Apr 13

Fed's Fisher: China cannot abandon U.S.

China: "Yes, we can !"

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