Daily Digest

Daily Digest - April 13

Tuesday, April 13, 2010, 10:49 AM
  • Mortgage Defaults May Be Driving Consumer Spending
  • Lehman Channeled Risks Through ‘Alter Ego’ Firm
  • Europe Finds Clean Energy in Trash, but U.S. Lags
  • Another Month, Another Huge Deficit
  • Protests Against Power Outages Spread
  • LIBOR/Treasury Spread, 1987-2010
  • Continued Bullish Sentiment: The CBOE Equity Put-Call ratio
  • PIMCO's Bill Gross Frantically Dumping Treasuries, Thinks U.S. Interest Rates Will Soar
  • Soros Doubled Gold ETF Investment, Buys Citi

Economy

Mortgage Defaults May Be Driving Consumer Spending (joemanc)

First he describes a case study of someone who applied for the government's Home Affordable Modification Program.

The person had an $1,880.00 monthly mortgage payment on which they'd defaulted, but said person's monthly bank statement showed payments to a tanning salon, nail spa, liquor stores, DirecTV bill with premium charges, and $1,700.00 in retail purchases from The Gap, Old Navy, Home Depot, Sears, etc.

Lehman Channeled Risks Through ‘Alter Ego’ Firm (jdargis)

In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.

Another Month, Another Huge Deficit (Christian W.)

With total revenues of $153 billion and spending of nearly $219 billion, the Federal government spent 43% more than it took in during March for its record 18th straight monthly deficit. Believe it or not, this month's $65 billion shortfall was the fourth lowest over the last twelve months.

Protests Against Power Outages Spread (Christian W.)

The prolonged and unscheduled power cuts continued across the country, triggering angry protests in several cities including Lahore and Karachi. The Lahorites continues protests against unending and unscheduled power outages, which has multiplied their miseries, as Sunday witnessed the worst loadshedding with hours long outages reported in the morning and afternoon amid the rising temperature.

LIBOR/Treasury Spread, 1987-2010 (Christian W.)

The prior Global Debt to GDP post made me dig up this excellent chart from Ron Griess of The Chart Store. It shows the 2007-09 crisis was unprecedented in what it did to credit spreads between the US and Europe.

Continued Bullish Sentiment: The CBOE Equity Put-Call ratio (Christian W.)

We are seeing unusual levels of bullish sentiment in the CBOE equity put-call ratio, with the lowest level of put buying relative to call purchases since the market rally began. Indeed, the excellent SentimenTrader site reports that we haven't seen such bullish options sentiment since 2000, which marked a very important stock market peak.

PIMCO's Bill Gross Frantically Dumping Treasuries, Thinks U.S. Interest Rates Will Soar (Christian W.)

Nine months ago, Bill Gross's Total Return Fund was 50% in US Treasuries. Now it's only 30%, the lowest percentage in the 23 year history of the fund, says Nelson Schwartz of the NYT.

Soros Doubled Gold ETF Investment, Buys Citi (Christian W.)

Soros and other noted investors like John Paulson have previously touted gold as a hedge against inflation, further economic turmoil or a decline in the value of the U.S. dollar. Last month at the World Economic Forum in Davos, Soros said "the ultimate asset bubble is gold," but he declined to say whether he was investing in the precious metal.

Energy

Europe Finds Clean Energy in Trash, but U.S. Lags (jdargis)

With all these innovations, Denmark now regards garbage as a clean alternative fuel rather than a smelly, unsightly problem. And the incinerators, known as waste-to-energy plants, have acquired considerable cachet as communities like Horsholm vie to have them built.

Please send article submissions to: [email protected]

13 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - April 13

"April 12 (Bloomberg) -- The Harrisburg Authority, operator of a trash-to-energy incinerator in the capital of Pennsylvania, won’t make a scheduled May 1 payment on $17 million in bonds from 2002, Executive Director Michele Torres said.

The authority is preparing to notify the city, the guarantor of the bonds, that it will skip the $425,282 payment, Torres said in a telephone interview today. There’s no money in the 2002A bonds’ debt service reserve account, Torres said.

Harrisburg, a city of 47,000 and the seat of government for the sixth most-populous U.S. state, has considered bankruptcy as it faces $68 million in debt payments for the incinerator this year -- four times what the city raises in property taxes, according to its budget.

“They know, obviously, that I can’t make that payment,” Torres said of the city. "

"April 12 (Bloomberg) -- The International Monetary Fund’s board of directors approved a 10-fold increase in the size of a credit line designed to stem financial crises, adding contributors such as China to the $550 billion pool.

“This will help ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises,” IMF Managing Director Dominique Strauss-Kahn said today in an e-mailed statement. The IMF in November announced an expansion of the credit line to as much as $600 billion pending approval by the board."

....................2A) IMF widens pool for crisis funds to include emerging economies

"COLONIAL HEIGHTS - Police are alarmed by an increasing circulation of counterfeit money. While a total of 19 instances involving counterfeit bills in the city were recorded in 2008, that number went up to 26 in 2009.

From January until April this year, police have already noted 15 cases.

"We're dealing with so many cases that we will likely see a new high this year," said Lt. Dan Ferguson of the Colonial Heights Police Department.

Counterfeit currency is not unusual in the city, but the latest appearances of fake bills led police to ask local businesses to take a closer look. In the past four weeks, local retailers and government offices have received 10 rather unusual counterfeit bills of the same kind.

The notes appear to be $100 bills, but are actually $5 bills that have been washed to remove ink and have been reprinted.

"We believe that these bills come from someone with a high-quality laser printer," Ferguson said. "It's easy to print money on a home computer if you got the right printer."

Ferguson added that advanced printing technology, which is accessible to anyone, is a major reason for the increase in counterfeit currency."

"BEIJING (Reuters) - China's four largest banks could face a capital shortfall of 480 billion yuan ($70.3 billion) over the next five years, Industrial and Commercial Bank of China President Yang Kaisheng said in remarks published on Tuesday.

It will be difficult for banks to rely exclusively on raising money in markets for replenishing their capital, Yang said, though he did not mention any alternatives.

Some analysts think the government, which bolstered the country's biggest commercial lenders through aggressive recapitalisation over the past decade, will need to inject more cash in them.

Chinese banks are under pressure to raise money to repair their stretched balance sheets after lending a record 9.6 trillion yuan last year, when the government called on them to fuel the economy with easy credit."

"Frank Vala left a state government job 30 years ago and built up a business that aims to keep seniors across Illinois out of hospitals and nursing homes by assisting them with everyday tasks such as cooking, cleaning or picking up medicine.

The state is supposed to cover the cost of that helping hand to the elderly, but it is falling further and further behind in paying its bills, and Vala has had to remortgage his house and cash in his retirement savings to keep Community Care Systems afloat.

"I've never seen nor imagined anything like this could happen," he said. "It used to be a state contract is gold. Now banks don't even want to lend you money if you have a state contract."

The state owes billions of dollars to thousands of companies that do everything from supply pens to run drug treatment programs. Vala's company is among those owed the most — about $10.9 million, according to the Illinois comptroller's office."

"While Quinn has proposed a 33 percent increase in the state income tax rate to fill some budget holes, his office has no plans to immediately address the growing backlog of bills. Quinn's spending proposal calls for $6 billion in unpaid bills to be rolled over into the next budget year as he struggles to keep government running."

..........5A) Ill. lawmakers may let schools adopt 4-day week

 "DOW JONES NEWSWIRES

Standard & Poor's Ratings Services downgraded U.S. collateralized debt obligations which initially included $34.43 billion of debt amid credit deterioration and defaults.

Of the 93 tranches from 40 CDOs cut, 49 of the classes were lowered to default "because these non-payment-in-kind tranches did not receive interest payments when due." Nearly three dozen of the tranches downgraded Monday remain on watch for further cuts.

Of the 40 affected CDOs, 37 are backed predominantly by residential mortgage-backed securities. Mortgages continue to see higher delinquencies.

S&P has cut hundreds of billions of dollars of CDOs in the past year. The instruments, which use such sliced-and-diced assets as subprime mortgages to create customized products offering various levels of risk, were at the heart of steep write-downs at big banks and brokerage firms the past several years. "

"Standing in the shouting tumult of a Chinese real estate fair, Chen Shiyong said, feels like watching a suicidal man on top of a building ignoring the pleas of bystanders to pull back from the edge.

Not that many of the some 142,000 potential buyers and curious visitors who crowded into Beijing's latest big housing property sales fair over the weekend were buying Chen's warning of the impending collapse of a price bubble.

Many said commercial housing prices in the Chinese capital and other cities were sure to keep rising, perhaps after a brief dip, shrugging off government efforts to cool the market. The disheartened said prices already well beyond their grasp were unlikely to come down.

"Nobody is listening to the government leaders. There's this mentality that has set in that this is a no-loss market," Chen said, nodding at the crowds around miniature building displays in Beijing's China World Trade Center.

"It's like watching a suicidal man who won't listen to anyone. Whatever you tell him, it simply strengthens his notion that he's right and the rest are wrong," said Chen, a twenty-something investment analyst for Changjiang Securities, wearing thick glasses and a leather jacket." 

"Murder detectives in cash-strapped Los Angeles are being forced to drop cases because of an overtime ban.

The city's budget crisis is forcing them to stop work for days by taking time off in lieu of payment and some detectives said they had to delay interviewing witnesses.

"Could this cause us to not solve a case? Sure," said Detective Chris Barling, who oversees the South Bureau homicide unit.

The 11 detectives in the Southeast Division's homicide squad had to take off 700 hours in February despite opening five new investigations.

Nine of 14 killings reported in the area this year are unsolved.

"That is horrible compared to our typical rates," said Detective Sal LaBarbera, division supervisor. "A few of them would likely already be solved, if I could just let my guys work."

The worst economic decline since the Depression, a steep drop in tax revenue and burgeoning expenses have led to the city's dire financial situation. The city has a 212 million dollar budget deficit that some have estimated could grow to a billion dollars in four years without drastic cuts."

................8A) Los Angeles Budget Crisis Puts Homicide Investigations on Hold

"AP) — BEIJING - China announced antidumping duties of up to 64.8 percent on U.S. and Russian steel used by the power industry Tuesday amid a series of disputes with the United States and other trading partners.

Investigators also found U.S. producers of flat-rolled electrical steel received subsidies, the Commerce Ministry said.

"That has hurt the Chinese industry substantially," the ministry said on its Web site."

"ST. PAUL – Minnesota state government is delaying school, university and some refund payments in order to pay bills.

And the situation will get worse later this year, state budget officials told a legislative committee Monday.

“Our overall balances are getting drawn down,” said State Budget Director Jim Showalter, adding the future depends on how quickly the economy recovers and what legislators do to balance the state budget before adjourning for the year May 17.

The slow economy has reduced state revenues, forcing Minnesota Management and Budget to borrow from other state and educational funds. The state’s bank account would have dipped below the $500 million state law requires to be available to pay bills if not for the borrowing from state and local agencies.

Also on Monday, Minnesota Management and Budget issued an update showing that state February and March revenues fell $41 million below expectations, mostly due to shrinking sales taxes.

Earlier estimates showed that the state would bring in $2.186 billion in revenues those two months, but revenues actually totaled $2.145 billion."

"A new report from the Berkeley Faculty Association calls attention to the enormous unfunded liabilities facing the University of California Retirement Plan (UCRP) - estimated to reach $18 billion by 2013 if no action is taken. The long term financial viability of UCRP is now in question and the future pensions of current employees are at risk.

The pension deficit is the result of years of neglect, after the state and the university stopped making regular employer contributions in the early 1990s. It was made worse by the financial crisis of 2008-09. In addition, two-thirds of UC salaries are paid by Federal and other non-state funds, and these contributions have been missing as well."

"Despite a slight seasonal improvement over last month, mortgage delinquencies still hover near record highs, 21 percent above a year ago. One of ten mortgages are delinquent as of the end of February and new delinquencies continue to run at record rates.

The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. Furthermore, the percentage of new problem loans is also at its highest level in five years. More than 1.1 million loans that were current at the beginning of January 2010 were already at least 30 days delinquent or in foreclosure by February 2010 month-end.

That’s the frightening news from Lender Processing Services latest Mortgage Monitor Report, which also reported that the nation’s foreclosure inventories also reached record highs. February’s foreclosure rate of 3.31 percent represented a 51.1 percent year-over-year increase."

......................12A) Foreclosure Prevention Efforts Aren't Keeping Pace with Defaults: LPS

"Despite servicers’ efforts to modify unprecedented volumes of troubled mortgages and a large-scale government-led program put in place to stem the nation’s viral foreclosure epidemic, they haven’t been enough to keep up with the rapid pace of loan deterioration, according to new data from Lender Processing Services (LPS).

A market report released by the company Monday shows that the total number of delinquent loans as of the end of February was 21.3 percent higher than it was a year earlier. Although the data showed a small 1.45 percent seasonal decline in delinquencies from January 2010 to February 2010, LPS reported that the national delinquency rate still stood at 10.2 percent."

"Foreclosure sales increased 92.3 percent in March from the prior year when most major lenders had voluntary moratoriums in place while awaiting the implementation of the federal “Home Affordable Modification Program,” according to a new report Tuesday from ForeclosureRadar Inc., a Discovery Bay-based foreclosure information company.

March foreclosure sales increased 24.2 percent from February, with 79.2 percent of those going back to the lender and the remainder sold to third parties"

 

  • Other headlines and news stories:

Food stamps for the middle class (Reuters video)

I own my physical gold and I will never sell it, says Marc Faber

Chairman Bernanke VS Gideon Gono

FOREX-Euro slips as yields rise at Greek bill auction

Russia May Face New Budget Crisis, Renaissance Capital Says

Conn. emergency fuel program running out of money

Christie cutting $65 million for global warming prevention (NJ...The money will be used for the deficit)

Empty offices dot landscape in Las Vegas

Financial changes force deeper look at SDRS pensions (South Dakota)

World oil demand to hit record high this year: IEA

South Florida Property Repos Jump 25%, Year-over-year

idoctor's picture
idoctor
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Re: Daily Digest - April 13

Cutting the Deficit: Easy Math, Dicey Politics

http://www.cnbc.com/id/36432254 The government’s surging deficit can be cut, easily. Getting it done? Almost impossible. 

Economic recovery and the end of stimulus spending will do the heavy lifting in this not-so-secret plan to slash the deficit that the Treasury department has put forth. Specifically, the goal to pull 60 percent from taxes and 40 percent from spending cuts.

Here’s how it works: The plan is to bring the deficit down to 3 percent of the GDP from 10.6 percent. Treasury has set it at 3 percent because that amount is a sustainable level—if the economy is at 3 percent, debt is at 3 percent, which means that the debt held by the public does not grow.

Without a plan to arrest the growing deficit, it will continue to skyrocket and, as a result, a huge portion of what the public will be paying is interest on the debt.

So where do you find that 7.6 percent to level off the deficit?

Within that figure, the Administration is relying on 5.5 percent from an economic recovery and the end of stimulus spending and 1.2 percent from spending cuts and tax increases. Here's the math: $105 billion from a spending freeze talked about by President Barack Obama, $252 billion from the expiration of tax cuts for couples earning more than $250,000 annually, $331 billion from bank fees, and $250 billion from reduced spending on the Afghanistan and Iraq wars.

And now for the hard part: how it gets done. First, you appoint a bipartisan committee to make recommendations, while also figuring out the wild card of whether the health care law is a positive or negative for the deficit and whether imposing a value-added tax will yield a trillion dollars. Finally, you factor in how entitlement cuts will improve the picture.

Easy math? Yes. Getting the politics right? Not so fast.

Please watch the video on this page. Does anyone here on the CM website think this has any chance? Looks like a joke to me but what do I know LOL.

 

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osb272646
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Re: Daily Digest - April 13

That Soros article is from Feb. 13th.  I remember reading it on Yahoo news a month ago. 

 

What's the purpose of running old news in a "Daily Digest"?

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Re: Daily Digest - April 13

http://www.bloomberg.com/apps/news?pid=20601110&sid=asinFcOkcfpc

So basically we all contribute billions more to the IMF so that they can bailout over-leveraged, risky banks when they eventually blow up again while also forcing the working class of these highly indebted countries to undergo harsh austerity measures and auction off their national assets... this is sick.

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - April 13

Tim Geithner Sealed

Tycer's picture
Tycer
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Re: Daily Digest - April 13
saxplayer00o1 wrote:

Tim Geithner Sealed

I thought I could reply to this but I can't.

freeeeeman's picture
freeeeeman
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is recovery on the way?

http://www.signonsandiego.com/news/2010/apr/13/san-diego-county-homes-sa...

i get the feeling this is just a hiccup, but home prices are in fact going up for us san diegans...

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Subprime JD
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Re: Daily Digest - April 13

When the government and central bank pumps trillions of dollars into the banking system and the economy, some form of recovery is inevitable. The question now is how long does this credit money printing jolt last??

At the moment it is impossible to make a forecast because the rules have been changed. Extend and pretend has messed everything up.

raptor's picture
raptor
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Re: Daily Digest - April 13

How these things balance ??!

FDHBATN, Federal Debt Held by Agencies & Trusts = 4.5T
FDHBFRBN, Federal Debt Held by Federal Reserve Banks = 800B
FDHBFIN, Federal Debt Held by Foreign & International Investors = 3.6T
FDHBPIN, Federal Debt Held by Private Investors = 7T
FYGFDPUN, Federal Debt Held by the Public = 8T

vs.

GFDEBTN, Federal Government Debt: Total Public Debt = 12.3T
OR
FYGFD, Gross Federal Debt = 12T

joemanc's picture
joemanc
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Posts: 834
Geithner now runs the Chinese economy
Quote:

The Obama administration “will be very forceful and aggressive in making sure we are promoting changes” in China, Geithner said today.

Unbelievable. Geithner doesn't know his left hand from his right foot, and he's going to be promoting changes in China? Does TurboTax Timmy remember when he got laughed at by the Chinese students when he said China's investments in U.S. Dollars were safe?

http://www.bloomberg.com/apps/news?pid=20601087&sid=afMprKQrFQSo&pos=5

Erik T.'s picture
Erik T.
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Vague, meaningless text does NOT belong here!!!
osb272646 wrote:

That Soros article is from Feb. 13th.  I remember reading it on Yahoo news a month ago. 

 

What's the purpose of running old news in a "Daily Digest"?

+1000!

This isn't the only example. I've recently noticed other stale articles on the digest. In some cases, when the headline reads something like "Another $xxx committed to <program>", it could be very easy to misintepret the re-read to mean that yet more has been spent when in reality it's just an old article.

On a related note, I've noticed quite a few reposts - both in the digest and in the forums. The Scotia Mocatta story was "broken" in a forum thread (wouldn't the digest have been more appropriate?), then only two threads later another thread was opened to post the exact same story!

Meanwhile, our standards for giving threads meaningful descriptive titles seems to be disappearing. The recent forum thread Must Read was certainly a worthwhile post, but surely the poster could have chosen a title that would make it clearer what content the thread contained. Titles like that are completely useless when it comes to later searching for a specific subject matter, and a lot of what gets posted on this site falls in the "must read" category. And don't even get me going on gold threads. We used to have a definitive gold price thread. These days it seems like someone has to create a new thread for this same purpose every other day. This is not just a matter of style or personal preference! Creating new threads for existing topics completely screws up users who avail themselves of the subscribe-to-thread features.

If we want to continue to have one of the best forums on the net, we need to renew our commitment to using the SEARCH function BEFORE posting new topics, using existing threads where they already exist, and putting conscious forethought into choosing forum topic titles so that they confer as much information as possible about the thread's content and purpose in the available space.

Erik

 

idoctor's picture
idoctor
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Re: Daily Digest - April 13

raptor's picture
raptor
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Re: Daily Digest - April 13

William White, from the BIS, on failures in economic theory, politics and policy.

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