Blog

Daily Digest - Feb 27

Friday, February 27, 2009, 7:15 AM
  • H.R. 835 U.S. dollar equal to the market value of 0.002 of a troy ounce of gold (Hat Tip Bill85)
  • The War Room
  • Citi in the Sewer: Shares Down 30%
  • Ex-Bundesbank Chief Says Euro Nation Default Possible
  • 5,112,000
  • Ex-Bundesbank Chief Says Euro Nation Default Possible
  • FACTBOX-Financial crisis sparks unrest in Europe
  • AIG considers break-up in bid to stay afloat
  • "Stress" Test
  • Banks: Fear and Despair
  • Is the Treasury Planning on a Near Term Recovery in Bank Stocks?
  • Gold - Demand/Supply in 2009
  • New and Existing Home Sales
  • Durable Good New Orders YoY January
  • Demand for durable goods sinks 5.2% (Hat Tip CM)
  • California's Newly Poor Push Social Services Network to Brink (Hat Tip CM)
  • Search Term Stats Show Sad State of the Economy (Hat Tip Zombie210)
  • Boomers: 30% underwater
  • Quebec pension giant posts $39.8B loss (Hat Tip Zombie210)
  • China Taxes Reveal Spending Slowdown, Goldman Says 
  • RBS reports record corporate loss
  • Insuring toxic assets: throwing good tax payers' money after bad private money
  • As GM Goes, So Goes the Nation (Part 1)
  • Fidelity Right and Wrong
  • Naomi Klein: Disaster Capitalism (Hat Tip Zombie210)
  • CONGRESS' PORKY POLS PIG OUT ON FINE $WINE
  • Hear: Get Tougher, Please (Hat Tip Christoher Peters, Suggested Starting at 5:00 Point)
  • Take a Load Off Fannie (Hat Tip MarkP)
  • Las Vegas Running Out of Water Means Dimming Los Angeles Lights (Hat Tip CM)
  • A New Era of "Responsibility" 

Economy 

H.R. 835 U.S. dollar equal to the market value of 0.002 of a troy ounce of gold (Hat Tip Bill85)

The War Room

Citi in the Sewer: Shares Down 30%

Ex-Bundesbank Chief Says Euro Nation Default Possible

Feb. 26 (Bloomberg) -- Former Bundesbank President Karl Otto Poehl said smaller members of the euro region are more likely to default on their debt obligations and would probably be rescued by Germany or the International Monetary Fund.

"The first will certainly be a small country, so that can be managed by the bigger countries or the IMF," he said in an interview with Sky News. "I think there are countries in Europe which are considering the possibility to leave the eurozone. But this is practically not possible. It would be very expensive."

Poehl's comments are the latest to suggest Germany's economic establishment has become more willing to help rescue fellow members of the euro region facing bankruptcy. That marks a reversal from years in which German policy makers argued the Maastricht Treaty forbid bailouts and reflects growing concern that a default in one country would spark a region-wide crisis.

A deepening recession and bank bailouts are straining the budgets of some countries, sending bond spreads to records and prompting speculation among some investors that individual nations could leave.

The spread between Italian and German bond yields today widened to the largest since 1997. The spreads on Irish, Portuguese and Greek bonds are close to the widest since before they adopted the euro, which was created a decade ago.

Finance Minister Peer Steinbrueck heralded the shift in German thinking when he said last week that some euro nations are "getting into difficulties" and that Europe's biggest economy would show its "ability to act."

Surging Rates

Poehl, 79, said the high cost of leaving the euro region may help ensure its survival. He also said that one country's departure doesn't necessarily mean the bloc as a whole would crumble.

"In the case that a country would leave the eurozone, the foreign exchange rate would go down significantly -- 50 or 60 percent," said Poehl, Bundesbank president between 1980 and 1991. "Interest rates would go sky high as the markets would lose confidence in the system" and "in the countries that can't maintain their membership."

European Central Bank President Jean-Claude Trichet last week tried to ease concerns about the euro region's fiscal health, saying Feb. 20 there is no "weak link" in the bloc.

"I consider that speaking of any particular country as a weak link in the euro area is an error of judgment," he said. Trichet said today in Dublin Ireland's economy faces "severe challenges."

‘Catastrophe'

Not all German experts would back a bailout. Former ECB Chief Economist Otmar Issing told Frankfurt Allgemeine Zeitung last week that saving a profligate member would be "catastrophic" and undermine the monetary union framework. Current ECB Executive Board member Juergen Stark calls the no- bailout rule an "important pillar on which the European Union was founded."

Former International Monetary Fund Chief Economist Kenneth Rogoff today predicted the default risk may rise once central banks start to raise borrowing costs from record lows.

"Interest rates will rise in two to three years and countries like Italy may face rates of 11 percent again -- will they be able to pay?" he said in a speech near Reykjavik today. "I can well imagine that if we don't have a large sovereign default, we will see some large sovereigns on the brink of it."

5,112,000

Ex-Bundesbank Chief Says Euro Nation Default Possible 

Feb. 26 (Bloomberg) -- Former Bundesbank President Karl Otto Poehl said smaller members of the euro region are more likely to default on their debt obligations and would probably be rescued by Germany or the International Monetary Fund. 

"The first will certainly be a small country, so that can be managed by the bigger countries or the IMF," he said in an interview with Sky News. "I think there are countries in Europe which are considering the possibility to leave the eurozone. But this is practically not possible. It would be very expensive."

Poehl's comments are the latest to suggest Germany's economic establishment has become more willing to help rescue fellow members of the euro region facing bankruptcy. That marks a reversal from years in which German policy makers argued the Maastricht Treaty forbid bailouts and reflects growing concern that a default in one country would spark a region-wide crisis.

A deepening recession and bank bailouts are straining the budgets of some countries, sending bond spreads to records and prompting speculation among some investors that individual nations could leave.

The spread between Italian and German bond yields today widened to the largest since 1997. The spreads on Irish, Portuguese and Greek bonds are close to the widest since before they adopted the euro, which was created a decade ago.

Finance Minister Peer Steinbrueck heralded the shift in German thinking when he said last week that some euro nations are "getting into difficulties" and that Europe's biggest economy would show its "ability to act."

Surging Rates

Poehl, 79, said the high cost of leaving the euro region may help ensure its survival. He also said that one country's departure doesn't necessarily mean the bloc as a whole would crumble.

"In the case that a country would leave the eurozone, the foreign exchange rate would go down significantly -- 50 or 60 percent," said Poehl, Bundesbank president between 1980 and 1991. "Interest rates would go sky high as the markets would lose confidence in the system" and "in the countries that can't maintain their membership."

European Central Bank President Jean-Claude Trichet last week tried to ease concerns about the euro region's fiscal health, saying Feb. 20 there is no "weak link" in the bloc.

"I consider that speaking of any particular country as a weak link in the euro area is an error of judgment," he said. Trichet said today in Dublin Ireland's economy faces "severe challenges."

‘Catastrophe'

Not all German experts would back a bailout. Former ECB Chief Economist Otmar Issing told Frankfurt Allgemeine Zeitung last week that saving a profligate member would be "catastrophic" and undermine the monetary union framework. Current ECB Executive Board member Juergen Stark calls the no- bailout rule an "important pillar on which the European Union was founded."

Former International Monetary Fund Chief Economist Kenneth Rogoff today predicted the default risk may rise once central banks start to raise borrowing costs from record lows.

"Interest rates will rise in two to three years and countries like Italy may face rates of 11 percent again -- will they be able to pay?" he said in a speech near Reykjavik today. "I can well imagine that if we don't have a large sovereign default, we will see some large sovereigns on the brink of it." 

FACTBOX-Financial crisis sparks unrest in Europe 

Feb 26 (Reuters) - Thousands of Opel workers from around Germany took part in a mass rally on Thursday demanding parent General Motors (GM.N) scrap plans for plant closures in Europe. 

The global financial and economic crisis has sparked many protests in parts of Europe. Here are some details:

* BOSNIA -- Workers of Bosnia's only alumina producer Birac protested on Feb. 9 in Banja Luka, demanding salary payments and government support to offset falling metal prices.

* BRITAIN -- British workers held a series of protests at power plants, demonstrating against the employment of foreign contractors to work on critical energy sites.

-- The protests follow a week-long dispute at the Total-owned Lindsey oil refinery in Lincolnshire, which resulted in Total agreeing to hire more British workers on the project. Workers voted to end the unofficial strike on Feb. 5.

* BULGARIA -- Police officers, banned by law from striking, have held three "silent" protests since December to demand a 50 percent pay hike and better working conditions. Bulgaria, the poorest EU nation, has been hit by protests demanding the government take measures to shore up the economy.

-- Farmers blocked the only Danube bridge link with Romania and rallied across Bulgaria on Feb. 4 demanding the government set a minimum protective price for milk and stop imports of cheap substitutes.

* FRANCE -- President Nicolas Sarkozy faced criticism from both unions and bosses on Feb. 19 over new measures to tackle the economic crisis. Sarkozy offered an additional 2.65 billion euros ($3.4 billion) of social spending in an effort to quell labour unrest over a previous stimulus package that targeted investment rather than consumers. France's eight union federations called for a day of action on March 19.

-- Up to 2.5 million protesters took to the streets of France on Jan. 29 in a day of strikes and rallies to denounce the economic crisis but the strike failed to paralyse the country and support from private sector workers was limited.

-- A union representative was killed last week and several policemen wounded by protesters on the French Caribbean island in violence over the cost of living. Guadeloupe, a region of France and part of the EU, has been brought to a standstill in February by a general strike over high prices for food.

* GERMANY -- Thousands of Opel workers from around Germany took part in a mass rally at the company's headquarters, demanding on Thursday that parent General Motors scrap plans for plant closures in Europe. Vice Chancellor Frank-Walter Steinmeier at the rally, added, "This is about more than just Opel. It's about the future of the car industry in Germany." * GREECE -- Greek farmers protesting low product prices ended a two week blockade of a border crossing with Bulgaria on Feb. 7 when their demands for compensation were met. Greece had endured days of travel chaos with thousands of angry farmers setting roadblocks across the country, but most have ended after the government pledged 500 million euros ($640 million) in subsidies on products such as olive oil and wheat. -- High youth unemployment was a main driver for rioting in Greece in December, initially sparked by the police shooting of a youth in an Athens neighbourhood. The protests forced a government reshuffle.

* ICELAND -- Prime Minister Geir Haarde resigned on Jan. 26 after protests. The first leader in the world to fall as a direct result of the financial crisis, he was replaced by Johanna Sigurdardottir, who heads a new centre-left coalition.

* IRELAND -- Nearly 100,000 people marched through Dublin on Feb. 21 to protest at government cutbacks in the face of a deepening recession and bailouts for the banks.

* LATVIA -- A new Latvian prime minister was appointed on Thursday after the four-party ruling coalition collapsed on Feb. 20 and the president called for talks to forge a new government to tackle a deepening economic crisis. The government was the second to succumb to the financial crisis.

-- Latvia's agriculture minister had already gone on Feb. 3 amid protests by farmers over falling incomes. A 10,000-strong protest on Jan. 13 descended into a riot. Government steps to cut wages, as part of an austerity plan to win international aid, have angered people.

* LITHUANIA -- Police fired teargas lon Jan. 16 to disperse demonstrators who pelted parliament with stones in protest at cuts in social spending. Police said 80 people were detained and 20 injured. Prime Minister Andrius Kubilius said the violence would not stop an austerity plan.

* MONTENEGRO -- In Podgorica, aluminium workers demanded on Feb. 9 to be paid their salaries and an immediate restart of suspended production at the Kombinat Aluminijuma Podgorica (KAP), a Russian-owned plant.

* RUSSIA -- Hundreds of angry communists rallied in Moscow on Feb. 23 in protest at the Kremlin's handling of the crisis that has rocked the Russian economy, the latest in a series of demonstrations held across Russia as the economic crisis bites.

-- The opposition rallied about 350 people in central Moscow two days earlier to demand early presidential elections.

-- On Jan. 31, thousands of opposition supporters rallied in Moscow and the port of Vladivostok over hardships caused by the financial crisis. The next day hundreds of Moscow demonstrators called for Russia's leaders to resign.

* UKRAINE - Hundreds of Ukrainians protested at separate demonstrations on Feb. 23, with some urging President Viktor Yushchenko to quit while others demanded their money back from banks hit by the financial crisis. 

AIG considers break-up in bid to stay afloat 

AIG and the US authorities are in advanced discussions over a radical restructuring that would split the stricken insurer into at least three government-controlled divisions in an attempt to keep it afloat, according to people close to the situation. 

The restructuring, described by one insider as a "controlled break-up", could lead to the end of AIG's 90-year history as a stand-alone global insurance conglomerate. It also could provide a template for carving up other troubled financial groups - such as Citigroup - should they be brought under government control, the people involved say.

AIG, built into a global insurance powerhouse by decades of deal-making by its former chief executive Hank Greenberg, on Wednesday said it was working "with the Fed to evaluate potential new alternatives for addressing AIG's financial challenges". The Fed declined to comment

Under the plan, the government would swap its current 80 per cent holding in the insurer for large stakes in three units - AIG's Asian operations, its international life insurance business and the US personal lines business. A fourth unit, comprised of AIG's other businesses and troubled assets, could also be formed.

In return, the authorities would relax the terms, or even cancel a large portion, of a $60bn five-year loan to AIG and convert $40bn-worth of preferred stock into shares, in an effort to ease the company's burden.

If the plan goes ahead, AIG would remain as a holding company for now. But people involved in the talks say that company could disappear if the government decides to recoup taxpayers' investments in the insurer by selling or listing the three divisions separately.

The final shape of the new rescue attempt - the third government bail-out of AIG in five months - could still change as talks between company executives, US Treasury, the Federal Reserve and credit rating agencies continue.

However, people close to the situation said AIG was on track to announce the overhaul on Monday, when it is expected to report a $60bn loss with its fourth-quarter results. The board is due to meet on Sunday.

Insiders said the new rescue plan was precipitated by AIG's deepening financial woes - which were caused by a sharp rise in unrealised losses in its investment portfolio - and its difficulties in selling large assets to repay the current loan.

One of AIG's most prized assets, American International Assurance, its Asian business that was once valued at $20bn, attracted lukewarm interest. Potential bidders have been deterred by turbulent conditions in insurance and credit markets.

The sale of AIG's US personal lines business, which had been close to being acquired by Zurich Financial, has also run into trouble as funding markets remain under pressure, according to people familiar with the process.

The two divisions are likely to split off. The third unit to be carved out, American Life Insurance Company, is a global life insurance company with operations in more than 50 countries and a large presence in Japan.

It remains unclear whether the US life insurance business and Foreign General, AIG's international property and casualty insurer, will be included in one of the three divisions or sold separately. International Lease Finance Corporation, AIG's large aircraft leasing business, is likely to be given a government credit line and put up for sale. 

"Stress" Test

Banks: Fear and Despair 

I'm not talking about Cape Fear Bank, although they just entered into a written agreement with the Fed. Another bank to watch for on Friday afternoons ... 

I'm more concerned with the stress tests, and I fear they will be inadequate.

Bloomberg reported today: Moody's May Downgrade More Subprime-Mortgage Debt

Moody's Investors Service said it's reviewing all 2005, 2006 and 2007 subprime-mortgage bonds for credit-rating downgrades, covering debt with $680 billion in original balances.

The review reflects an increase in Moody's expected losses on the underlying loan pools, the New York-based company said in a statement today. Losses for such mortgages backing 2006 securities will probably reach 28 percent to 32 percent, up from a previous projection of 22 percent, Moody's said.

The ratings firm said that it boosted expected losses based on "the continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates, and progressively diminishing prepayment rates."
This is extremely timely.

Yesterday, as part of the stress test program, I've heard that the Fed issued two highly classified, double top secret documents for examiners and banks titled: "Template for Supervisory Capital Assessment" and "Supervisory Capital Assessment Program, Frequently Asked Questions: Participating Financial Institutions". These guidelines apparently specify how stress tests should be conducted and how to estimate loss rates under both scenarios (baseline and more severe).

What if I told you - not that I would know what is in these documents because my Q and TS clearances have expired - that these document suggests that under the more adverse scenario examiners should use a cumulative loss rate over the next two years below 30% for subprime first lien mortgages? Compare that to the Moody's updated estimate of 28% to 32% for their current baseline case.

I can understand Krugman's Feelings of despair
... Obama and Geithner say things like,
If you underestimate the problem; if you do too little, too late; if you don't move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis.
But what they're actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost.
For the sake of transparency, openness and honesty, shouldn't the Fed disclose how they are estimating loss rates under the two economic scenarios? And shouldn't these documents be released too?

Note: I haven't seen these documents, and I can't verify the above numbers or that these documents even exist.

Is the Treasury Planning on a Near Term Recovery in Bank Stocks?

But the scary view comes from Ed Harrison:
Obviously, Geithner, Bernanke, et al. believe ‘irrational despondence' is the source of what ails us and that propping up asset prices will be the cure. 

Witness remarks made by Ben Bernanke just recently before Congress:
Federal Reserve Chairman Ben Bernanke said Wednesday recent sharp declines in stock prices mostly reflected investor attitudes about risk and had become detached from real U.S. economic fundamentals.

The risk appetite of investors changes over time and right now the standard measures of the risk premium that investors are charging to hold stocks are at very high levels relative to anything we have seen in recent decades," Mr. Bernanke said in semi-annual testimony to Congress.

The stock values reflect not so much the fundamentals, the long-term profitability of the economy, but they also reflect investor attitudes about risk and uncertainty which right now are at very high levels," he told lawmakers during questions.

U.S. stocks have fallen to 12-year lows this month, with the benchmark S&P 500 down about 15% and the Dow Jones industrial average off about 16% since the start of 2009.

This goes to the mindset here. What Ben Bernanke does not say but clearly suggests is that asset prices are being depressed artificially by ‘irrational despondence.' Stepping in to offer a bid to these assets will lift them - at which point the despondence will go away and all will be fine with the world.

This view is misguided because many asset prices are still above their long-term trend. This is certainly the case with house prices, where renting is still significantly cheaper than purchasing in many locales. 

Durable Good New Orders YoY January

Gold - Demmand/Supply in 2009 

Gold - Demand Supply 2008
Demand: - Tonnes
Jewelry consumption in 2008 until the last quarter of the year....................... 2,146.0
Industrial demand........................................................................................ 437.0
Investment demand - Bullion [coins, bar]........................................................ 766.0
Gold Exchange Traded Funds and the like..................................................... 307.0
"Inferred Investment"...................................................................................... 37.0
Total tonnage. 3,695.0
Supply:
New Mine Supply....................................................................................... 2,032.00
Central Bank Gold Sales................................................................................286.00
Gold Scrap................................................................................................ 1,377.00
Total supply................................................................................................ 3695.00 

Gold - Demand Supply 2009
Demand
In 2009 we project an average price above $1,000
leaving jewelry demand around 47% lower than in 2008 at .....................1,199.38 tonnes
We see industrial demand falling 20% in line with the current recession at.349.60 tonnes
Investment demand Bullion [coins, bars] we see rising by at least 40% t...702.8 tonnes
[Big change] Gold E.T.F. and the like will rise from - up to.......... 677.62 to 1,355.22 tonnes
Net Producer Hedging we see no higher than................................................ 150.0 tonnes
[NEW] Central Bank Purchases [Russia] ..................................................... 414.0 tonnes
Total projected demand...... ................................................... 3,493.40 to 4,171.02 tonnes

Supply
New Mine supply.................................................................................... 1,930.4 tonnes
Central Bank sales.................................................................................... 150.0 tonnes
Gold scrap ............................................................................................ 1,413.0 tonnes
Total projected supply...............................................................................3,493.4 tonnes 

New and Existing Home Sales

Demand for durable goods sinks 5.2% (Hat Tip CM)  

Orders for durable goods -- such as airplanes, computers and washing machines --fell 5.2% in January, the Commerce Department reported Thursday. Orders had never fallen six months in a row since the data collection began in 1992. Read the full report.
"No sign of any relief at all," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. 

California's Newly Poor Push Social Services Network to Brink (Hat Tip CM) 

Feb.
26 (Bloomberg) -- In California's Contra Costa County, 40,000 families
are applying for just 350 affordable-housing vouchers. Church-operated
pantries are running out of food. Crisis calls have more than doubled
in the city of Antioch, where the Family Stress Center occupies the
site of a former bank. 

The worst financial crisis in seven
decades is forcing thousands of previously middle-income workers to
seek social services, overwhelming local agencies, clinics and
nonprofits. Each month 16,000 people, including many who were making
$60,000 to $100,000 annually just a few years ago, fill four county
offices requesting financial, medical or food assistance.

"Unless
we do things differently, not only will we continue to be on life
support, but the power to the machine is going to die," said county
Supervisor Federal Glover, who represents Antioch and the cities of
Pittsburg and Oakley about 50 miles (80.5 kilometers) east of San
Francisco. 

Search Term Stats Show Sad State of the Economy (Hat Tip Zombie210) 

You don't have to search hard to find signs of the economic downturn. Just look at the newspaper, or your favorite website. But a new report on Americans' search behavior by market research firm comScore emphasizes the FUD of Americans during this recession.

Boomers: 30% underwater

What a turnaround for the American Dream! 

According to a report released Wednesday, the real estate market bust and stock market declines have carved a huge chunk out of the assets of baby boomers.

So much home equity has been lost that 30% of boomers, aged 45 to 54, are underwater in their homes, according to "The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble. " The report, released by D.C.-based think tank the Center for Economic and Policy Research, also found that 18% of boomers aged 55 to 64 would owe money at close if they sold their homes.

The CEPR also found that people who were renting homes in 2004 will have more wealth in 2009 than those who were owners. That's true for all five wealth groups the study analyzed, from the poorest to the wealthiest. 

Quebec pension giant posts $39.8B loss (Hat Tip Zombie210) 

The Quebec government will call top officials from the Caisse de dépôt et placement du Québec before a special legislative committee to explain how the pension fund lost $39.8 billion last year, the biggest loss in its history. 

China Taxes Reveal Spending Slowdown, Goldman Says

"Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures," Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today. 

RBS reports record corporate loss 

Royal Bank of Scotland (RBS) has announced the largest annual loss in UK corporate history.
RBS, which had to be bailed out by the government last year, said that its 2008 loss totalled £24.1bn ($34.2bn).
It also said it would put £325bn of toxic assets into a scheme that offers insurance for any further losses. 

Insuring toxic assets: throwing good tax payers' money after bad private money 

The UK government has offered, under its asset protection scheme (APS), to guarantee (or insure) up to £600 bn worth of toxic assets held by British banks- up to £300 bn for RBS and up to £250 -£300 bn for the Lloyds Banking Group. Barclays may be waiting in the wings. The APS insures the banks (that is, their CEOs, shareholders, junior and senior unsecured creditors other than retail depositors - already covered by deposit guarantees up to £50.000 - and staff) against losses on these toxic assets over and above a certain deductible or ‘first loss' for the bank. 

There is ample precedent for this kind of guarantee scheme. In the US, the Fed, the FDIC and the US Treasury have guaranteed a large chunk ($300 bn) of toxic assets of CItigroup. In the Netherlands, the Dutch state insured a portfolio of $39 bn (face value) worth of securitised US Alt-A mortgages held by ING.

Like its American and Dutch counterparts, this toxic asset insurance scheme is without redeeming social value: it is inefficient, unfair and expensive to the tax payer. Apart from that it is great. There also are superior alternatives available: full nationalisation and, best of breed, the ‘good bank' solution. 

As GM Goes, So Goes the Nation (Part 1) 

General Motors (GM) was founded in 1908 in Flint, Michigan, and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week, its market capitalization dropped below $1 billion to levels last seen during the 1920s. The story of General Motors is the story of America. In 1953, at the peak of its dominance, its President, Charles Wilson, declared before Congress that what was good for the country was good for GM and vice versa. Its rise to power and decline towards insolvency parallel the rise and fall of the Great American Republic. Overconfidence, hubris, lack of courage, foolish decisions made, and crucial decisions deferred have been the hallmarks of GM and U.S. GM's stock price reached $1.77 last week, a 71 year low. It peaked at $100 during the Dot Com boom in 2000 and was still at $50 in 2007. The market has voted and it says GM is bankrupt. 

Fidelity Right and Wrong 

Fidelity's Edward Ned Johnson jumped into the controversial debate over President Obamas New Deal II and what Johnson called government make-work projects. 

Without naming names, Johnson praised the administrations effort to make economic recovery its top priority, saying it was admirable.

But Johnson, sounding like hes never been a big fan of the original New Dealers from the 1930s, warned of too much government involvement in the economy and indicated Fidelity is beefing up its government-affairs unit to fend off possibly burdensome new regulations.

We can only hope that the governments cure doesn't further sicken the patient, Johnson wrote in his annual update on Fidelity's performance over the past year.

During the 30s, Congress - with guidance from the president and the same kind of good intentions - shifted the country's cash flow away from productive businesses to government make-work projects, which most likely prolonged the Great Depression, wrote Johnson, arguably Boston's most powerful business executive.

As for the financial-system crisis, Johnson also took a somewhat anti-government conservative view toward its causes, saying this climate was caused by many well-intentioned policies - stimulated by individuals at high levels in government and sanctioned by regulatory structures.

Those policies helped make money ridiculously easy to obtain and business people eager to comply with the policies, Johnson wrote.

Not surprisingly, others views on Johnson's views depended on their interpretation of economic history.

Daniel Mitchell, a senior fellow at the libertarian Cato Institute, said Johnson's remarks were on the right path, though he said they might be kind of risky if they anger government policymakers.

Mitchell compared former President George Bush to Herbert Hoover and Obama to Franklin D. Roosevelt, the two presidents in office at the beginning and end of the Great Depression. Both failed to get the nation's economy working, he said.

But William Cheney, chief economist at Bostons John Hancock Financial, said he very much disagreed with Johnson's version of FDRs New Deal policies.

Roosevelt's initial policies did boost the economy, which faltered after FDR tried to rein in government spending, Cheney said. 

Naomi Klein: Disaster Capitalism (Hat Tip Zombie210)

CONGRESS' PORKY POLS PIG OUT ON FINE $WINE 

WASHINGTON - Congress went on a pork-a-palooza yesterday, approving a massive spending bill with big bucks for Hawaiian canoe trips, research into pig smells, and tattoo removal - all while the nation faces an economic crisis. 

Among the recipients of federal largesse is the Polynesian Voyaging Society of Honolulu, which got a $238,000 "earmark" in the bill.

The group organizes sea voyages in ancient-style sailing canoes like the ones that first brought settlers to Hawaii.

The sailing club has a powerful wind at its back in the person of Sen. Daniel Inouye (D-Hawaii), the chairman of the Senate Appropriations Committee.

The bill also has a whopping 8 percent increase over last year for the numerous federal agencies it funds.

New York got its share of earmarks, among them $475,000 to "improve and expand" the Italian American Museum in Little Italy.

The project was pushed by New York Reps. Gary Ackerman and Jerrold Nadler. The latter touted it, among other earmarks, on his Web site.

Nadler also announced $4.5 million for new park development in Manhattan.

Uncle Sam's generosity extends upstate, where there's $950,000 to convert a railroad bridge over the Hudson River into a walkway in Poughkeepsie.

Earmarks totaled at least $3.8 billion - a figure used by the House Appropriations Committee.

But the watchdog group Taxpayers for Common Sense calculates that there are an astonishing 8,570 earmarks at a cost of $7.7 billion.

The bill, which critics slammed as larded with pork, has big bucks to combat putrid stenches in the heartland, with $1.7 million for "Swine Odor and Manure Management Research."

That's on top of $1.9 million in each of the last two years, or nearly $6 million over the last three years. 

Hear: Get Tougher, Please (Hat Tip Christoher Peters, Suggested Starting at 5:00 Point)

Take a Load Off Fannie (Hat Tip MarkP)

http://www.youtube.com/watch?v=712kRqri2No 

Environment 

Las Vegas Running Out of Water Means Dimming Los Angeles Lights (Hat Tip CM)

Feb. 26 (Bloomberg) -- On a cloudless December day in the Nevada desert, workers in white hard hats descend into a 30- foot-wide shaft next to Lake Mead.

As they've been doing since June, they'll blast and dig straight down into the limestone surrounding the reservoir that supplies 90 percent of Las Vegas's water. In September, when they hit 600 feet, they'll turn and burrow for 3 miles, laying a new pipe as they go.

The crew is in a hurry. They're battling the worst 10-year drought in recorded history along the Colorado River, which feeds the 110-mile-long reservoir. Since 1999, Lake Mead has dropped about 1 percent a year. By 2012, the lake's surface could fall below the existing pipe that delivers 40 percent of the city's water.

As Las Vegas's economy worsens, the workers are also racing against a recession that threatens the ability to sell $500 million in bonds so they can complete the job.

Patricia Mulroy, manager of the Southern Nevada Water Authority, is the general in this region's war to stem a water emergency that's playing out worldwide. It's the biggest battle of her 31-year career.

‘We've Tried Everything'

"We've tried everything," says Mulroy, 56, who made no secret of her desire to become secretary of the U.S. Interior Department before President Barack Obama picked U.S. Senator Ken Salazar of Colorado in December.

"The way you look at water has to fundamentally change," adds Mulroy, who, after 20 years of running the authority, said in January she's ready to start thinking about looking for a new job, declining to say where.

Across the planet, people like Mulroy are struggling to solve the next global crisis.

A New Era of "Responsibility"

 

 

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37 Comments

Davos's picture
Davos
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Re: Daily Digest - Feb 26

Bread lineGreatDepressionBreadLine.jpg

propamanda's picture
propamanda
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Re: Daily Digest - Feb 27

Question -

In this piece - H.R. 835 U.S. dollar equal to the market value of 0.002 of a troy ounce of gold (Hat Tip Bill85)

If the dollar is made equal to the market value of 0.002 of a troy ounce of gold, wouldn't that set the price of gold at $500/ounce?

Gold is at $939/ounce today.  That means that in today's terms, each dollar is worth 1 ounce divided by 939 dollars = .001.

Setting the value of the dollar to .002 ounces of gold would cut the gold price in half and fix it there, right?  Wouldn't that mean chaos for people who invested in gold and banks that were holding gold reserves?

Also, wouldn't that mean deflation of the dollar?

Or am I missing something?

Thanks

Amanda

WinWin's picture
WinWin
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Re: Daily Digest - Feb 27

Wow.  Okay - I may be freaking out about something I just don't understand, because I am very new at this... but if I could just ask your opinion of something I am thinking, please?

I did the math as well, and I believe that Amanda is right. "They" are trying to (already did?) set the value of gold at $500/oz.  The last time it was made illegal to own gold I believe that the gold price was "set" at $35 and after the govt called all of it in that they could, they reset the price to $45. Could this be a repeat of history?  I'm squirming in my seat here, because if this is so - how corrupt can we get?

I have to repeat Amanda - am I missing something?

Thank you!

Win 

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gregroberts
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Re: Daily Digest - Feb 27

 Glenn Beck's heart-stopping housing chart

Greg

propamanda's picture
propamanda
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Re: Daily Digest - Feb 27

I don't necessarily think that this is step 1 to recalling all of the gold (although maybe it is - who knows).  I don't want to jump to conclusions yet or be an alarmist.  I don't have enough facts.

I just want to know if all of our current gold reserves and private holdings will soon be worth half of what they are today in terms of the dollar.  Is the government trying to deflate the dollar?  Or is the government trying to drive down the price of gold and make it less attractive as a "safe haven investment"?

Also, how can the government pick a value like .002 per ounce, which is so far off from today's price?  How can they implement this new pricing?

 Anyone out there know how this stuff works?

 

Thanks

Amanda

cannotaffordit's picture
cannotaffordit
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Re: Daily Digest - Feb 27

Davos,

Your Daily Digest - Feb 27  didn't show up for me, out here on the West coast, until after 3 pm PST and I just realized how much I depend on it everyday, AND that I have never told you thanks for doing it for us everyday.  I felt real "naked" without it all day, and was relieved when it came.

Please know that your "summary" contribution is very valuable, and very much appreciated.  So THANK YOU.  (and I intended that to be a shout)

 

WinWin's picture
WinWin
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Re: Daily Digest - Feb 27

Yes - this is the only feed I read every day.  I don't know what I would do without it.

You do us such a huge service by providing this site!  Thank you, Thank you, Thank you!

 

Win 

SagerXX's picture
SagerXX
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Re: Daily Digest - Feb 27

Propamanda:  Maybe what the resolution is trying to do is to peg the value of our American monetary unit at US$2?  Did we all just get richer?  Cool!  I'm gonna go buy something!

Whatever it means, I hear weasels squeaking...

-- Sager 

propamanda's picture
propamanda
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Re: Daily Digest - Feb 27

As for my HR 835 gold price question, I did find that an EXTREMELY similar bill (same wording) was introduced in July 31, 2008 that would have fixed the dollar at .05 per ounce (which is, I believe a $20 ounce of gold).

 http://www.govtrack.us/congress/billtext.xpd?bill=h110-6690

 Here's the webpage's explanation of why it didn't pass (and presumably why we are seeing the same bill reintroduced but with a different value today)

"This bill never became law.
This bill was proposed in a previous session of Congress. Sessions
of Congress last two years, and at the end of each session all
proposed bills and resolutions that haven't passed are cleared from the books.
Members often reintroduce bills that did not come up for debate
under a new number in the next session."

 

Does this mean that they're just trying to assign the dollar a gold value for the sake of having a gold standard?  Is this number just symbolic?  I thought $500 per ounce seemed a bit low... But $20?  That's just nuts.

 

Amanda

 

 

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Re: Daily Digest - Feb 27

As I understand this in order to get this balance gold would have to
deflate to $500 or the dollar strength 100%. I using the reasoning as the dollar
stregthen over the end of the 4th quarter of 09 we saw gold falling. This was
also noticible when over the summer of 09 the dollar was weakening
and oil was rising to some effect do to this. 

But what it boils down to is price fixing and government involvement in the free markets. Also what then happens to when the FED increase the money supply... Hmm there are no ramifications. That could not be the case. Supply and demand effects pricing too. If not then how are they going to teach economics in the future.

I look forward to hearing any other comments on this.

Davos I too want to convey my THANKS and also to all the other who contribute. I can now go to one site to get the latest on the status of the markets.

No need for TV except when Chris is on PBS.

 

propamanda's picture
propamanda
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Re: Daily Digest - Feb 27
SagerXX wrote:

Propamanda:  Maybe what the resolution is trying to do is to peg the value of our American monetary unit at US$2?  Did we all just get richer?  Cool!  I'm gonna go buy something!

Whatever it means, I hear weasels squeaking...

-- Sager 

 

If this is true, you just got richer if you have ALL of your wealth in dollars.  If you have your wealth stored in gold, you may be getting screwed.

You may also be getting screwed if you have ANY outstanding debt and the value of the dollar doubles.  If you took out a $350,000 mortgage two years ago, and the dollar deflates to the point where it can buy double what it used to, that mortgage will feel just like a $700,000 burden.

That's why none of this makes sense.  Doing that would be political suicide right now.

 

Really, though, my evaluation of this thing could be completely wrong.  If anyone has a little knowledge of how pegging our currency like this would affect our dollar AND the price of gold, please speak up.

 Thanks

Amanda

 

 

propamanda's picture
propamanda
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Re: Daily Digest - Feb 27
Peter D G wrote:

But what it boils down to is price fixing and government involvement in the free markets. Also what then happens to when the FED increase the money supply... Hmm there are no ramifications. That could not be the case. Supply and demand effects pricing too. If not then how are they going to teach economics in the future.

 

 Well, in theory, I believe this bill would put us back on a gold standard, which is kind of at the heart of returning to a free market economy.  Each dollar would equal .002 ounce of gold.  If we are on a gold standard, the Fed cannot just print more money without having the gold to back it.  This is how things used to work in the 'ol days.  It's also why our government dumped the gold standard and why we've been seeing inflation ever since.

I think that going back to a gold standard to limit inflation sounds like a great idea, except that our economy is so screwed up right now that it wouldn't be able to cope with the transition.  We would need to do a lot of reforming first.  For now, I'm mostly just concerned with what the immediate ramifications in dollar value and gold price would be.

 

Amanda

Davos's picture
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Re: Daily Digest - Feb 27

Hello:

I send the DG up the night before. There are a few days I'm late and I get it into Chris the same day that it is due. I think the issue here was there just was a ton of news out there and it took a while to go through it before it got posted.

Sorry, in any event for the delay. Sometimes less is better.

On the gold, here is my take on it. The intent of HR 835 sounded to me like one Congressman, other than Ron Paul realized that our dollar isn't sound and should be. That the "Federal" Reserve isn't quite in sync with our Constitution and maybe it was time to keep the dollar from cliff diving.

I did the same math. 1/500=.002 So if I sold a piece of gold now and I cut that 1 ounce bar into 500 pieces (with no waste) I'd get 2 bucks a sliver. They want the dollar to be worth one sliver. Or put another way, one new dollar would buy what 2 bucks today does. Right now gas in Virginia is about 2 bucks so with one new gold "valued" dollar you'd get a gallon of gas for a buck.

I say gold valued because it didn't say backed by gold, and frankly section 3 was interesting, to me it implyed that the Fed was NOT to monkey with gold prices as the GATA has been asserting. More interesting the Fed was to be charged with conducting open market operations (I'd assume that meant buying and selling gold to keep our dollar paired at 1/500th an ounce.

  •  
    • (1) conduct open market operations against an explicit target for the price of gold on the exchange operated by the Commodities Exchange, Inc. (COMEX) of the New York Mercantile Exchange, Inc.; and 
    • (2) shall not conduct open market operations indirectly, as in the current practice of targeting the Federal Funds rate.
     

That is my take on it. In history it went the other-way in 1933 when FDR purchased (at gunpoint) everyone's gold for 20.67 an ounce. He then set the price of gold at 35 bucks an ounce, he devalued the dollar (and shed a lot of debt by doing so.)

The bill, is like the gun licence bill, dead in Congress. I posted it for a heads up, and I posted it because it is nice to see at least 2 Congressmen who feel the Constitution is important and should be followed and it might be useful not to let the dollar free fall. 

Hope that helps, I'm really interested in seeing what everyone else thinks on this moth-balled bill. Take care 

propamanda's picture
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Re: Daily Digest - Feb 27

Thanks Davos!

 It seems that my math is correct, but maybe this bill is just being submitted to prove a point (a good one). 

Interesting that it doesn't actually say the dollar would be backed by gold - just based on it.  I jumped the gun and assumed the writers were going for a gold-backed dollar.  

Either way, it really made me consider the implications of pegging the modern dollar to gold.

Thanks again.

Amanda

 

 

Davos's picture
Davos
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Re: Daily Digest - Feb 27

Hello Amanda:

I think it would be super to go to what the Constitution says. I've read articles pegging gold at 8k-20k and above if that were to happen. Persoanlly I don't see it happening considering the military implications that would be tied to it.

Yeah, the things that made me check to see if I was really on a government website were: 

(1) Article I, section 8 of the Constitution of the United States provides that the Congress shall have Power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.  

(2) Congress effectively delegated the power to regulate the value of United States money and foreign money to the Federal Reserve System via the Federal Reserve Act of 1913.

(4) The value of the United States dollar has become unstable and uncertain.
(5) The Board of Governors of the Federal Reserve System has not produced a stable and reliable value for the United States dollar. (8) An unstable dollar reduces the real earnings of American workers.

(9) An unstable dollar reduces the real value of financial assets held by the public. (11) An unstable dollar damages the economic and political standing of the United States in the world community. and this 

(2) shall not conduct open market operations indirectly, as in the current practice of targeting the Federal Funds rate.

Made me really wonder if Congressman Franks had read this http://www.scribd.com/doc/192230/GOLD-AND-ECONOMIC-FREEDOM-Alan-Greenspan

 

Take care

Farmer Brown's picture
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Re: Daily Digest - Feb 27

Hi Davos,

I too am glad there are now officially two brains in congress. However, setting the price at about half the current value is wishful thinking.   It would mark the first time in recorded history that government gave itself a pay deduction, among other things.   Also, they would need some way of taking dollars out of circulation so that the price of gold goes down.  Does the government have enough gold to sell to absorb 1/2 of all outstanding dollars?  I seriously doubt it.  

Anyway, at least the notion that just maybe there is something seriously wrong with our system is beginning to dawn on someone other than Ron Paul.

Thanks for the post by the way, and all the daily digests!

Cheers,

Patrick

Davos's picture
Davos
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Re: Daily Digest - Feb 27

Hello Patrick:

Patrick Wrote:

 

"I too am glad there are now officially two brains in congress. However, setting the price at about half the current value is wishful thinking.   It would mark the first time in recorded history that government gave itself a pay deduction, among other things.   Also, they would need some way of taking dollars out of circulation so that the price of gold goes down.  Does the government have enough gold to sell to absorb 1/2 of all outstanding dollars?  I seriously doubt it.

Anyway, at least the notion that just maybe there is something seriously wrong with our system is beginning to dawn on someone other than Ron Paul."  

 Yes, I totally agree. I personally feel the only way out of this 65++ trillion dollar debt addiction is to totally debase the currency and then re-denominate it. While making the dollar stronger is admirable it is disastrous for fixed debt, personal and governmental.

While I'm totally elated to see another Congressman who can find the Constitution like he can find his backside with both hands and the light on, I am saddened to see they don't get economics. Maybe too many years of listening to double speak Al. 

PS Dbajba(Ben), WinWin, Peter DG, Amanda & Patrick, most welcome, it is really an honor to contribute to this fine community that Chris created. Between the insight in the comment section and the hat tips my life is made richer each day. Take care

PPS GregRoberts, thanks for the hat tip/Glenn Beck video, I just added it to the DG of the 28th. Funny, I used the same chart when I had a come to Jesus with the county tax people, who, for whatever reason thought appraiisng a house in a bubble using last years prices is a good idea. Wish I had the Beck video last month.

cannotaffordit's picture
cannotaffordit
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Re: Daily Digest - Feb 27

Davos,

I hope you didn't read my earlier post, #6, as some kind of complaint.  I only mentioned the time I received it in order to make the point of how much I depend on it, how valuable it is to me, and how much I appreciate you doing it for us, day in and day out.

If you multiply the amount of time you put in, doing this, by the number of subscribers on this site who read you every day, you can get some idea of how much time you save the rest of us.

A BIG HAT TIP to Davos today ! 

 

Davos's picture
Davos
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Re: Daily Digest - Feb 27

Hello Ben/Dbajba:

No, not at all did I take it that way. In fact I was flattered. You have to understand my perspective - I'm still startled. Seeing 4,000 reads a day/1.5 million reads a year is for me mind boggling. Getting my wife or some of my friends to read the very best ONE article I select each day is pushing it.

When Chris/Erik asked me to cut and paste the best of what I read each day (I spend at least 3 hours a day reading, always have and always hope to) I thought the DG would be a total waste of the 2 - 5 extra cut and paste minutes. Wish I had been that wrong about many of my economic predictions!

I sent it last night and just figured Chris was busy or out of the office or likely skimming/proofing the million plus extra articles I put in today's Daily Digest.

Take care. 

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FireJack
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Re: Daily Digest - Feb 27

Glenn Beck basically repeats what is in the crash course. Then I rewatched chapter 15 on bubbles and he mentions that if this bubble follows other ones it will drop until 2015. 2015!!!! It didn't strike me when I first watched it but with what has happened so far then realizing that its just started and will go on for another 6 years makes me realize what a horrible situation we are facing. On top of that governments are making it worse and it won't just end in 6 years.

 

Time to take my survivale preperations more seriously.

 

 

 

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Damnthematrix
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Re: Daily Digest - Feb 27

Weak oil and imports turn EU biofuel boom to gloom

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Denny Johnson
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Re: Daily Digest - Feb 27

I'd sure like to think that US producers are not allowed to export taxpayer subsidised biofuels.

But that's probably wishful thinking.

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Damnthematrix
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Re: Daily Digest - Feb 27

They have a water system for 18 m people and they have 38 million and
it's stopped raining and they think that they should start with the
water system.
These people think like priests. They really cannot work stuff out
logically.

http://news.bbc.co.uk/2/hi/americas/7916218.stm

California in drought emergency

California's Governor Arnold Schwarzenegger has declared a state of
emergency because
of a severe drought.

The governor said the drought was having "a devastating impact" on
people, the economy
and environment.

He urged the state's cities and towns to cut water consumption by 20%,
or face the
prospect of compulsory cuts.

The state water director said three years of below-average rainfall
could cost California an
estimated $3bn (£2.1bn) and 95,000 jobs.

"This drought is having a devastating impact... making today's action
absolutely
necessary," Mr Schwarzenegger said.

"We have a water system that is for 18 million people - now we are 38
million. We've got
to go and redo our water system - bring it up to date."

Three dry winters have left California's reservoirs at their lowest
levels since 1992, reports
the BBC's Peter Bowes in Los Angeles.

Farmers have been particularly badly hit in a state which is the
largest producer of food
and agricultural products in the US.

The drought has resulted in many fields being left fallow and thousands
of farm worker
have been laid off, our correspondent says.

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djhester1940
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Re: Daily Digest - Feb 27

Hi Davos,

Again thanks for your Daily Digests - I am addicted and get the DT's when you are a little late with the postings.

About the California situation: The San Antonio, Texas and Central Texas area has not seen significant rainfall since August 2007. It is the driest that has ever been recorded. We depend on the Edward's Aquifer for our water and it is extremely low now. We will be getting into mandatory rationing very soon here.

I don't hear much discussion about the dust bowl of the 1930's which created more hardship than the financial meltdown in many areas of the country. Are we headed for another dust bowl situation now? I can only see this drought situation here in the west as exacerbating an already nasty situation. And no one seems to be discussing the ramifications of this  development on our economy. It really has me concerned.

Don

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Davos
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Re: Daily Digest - Feb 27

Hello Don:

Sorry for the late post.

I have to be honest, I don't know where my head was, I read about Arnie and the rationing and didn't even think to relate it to the economy until I read your post. This could well relate to higher food prices and even a stress on supplies.

I think I read that California produces about halfo of the nation's fruits, nuts and then we have diary, and a bunch of other stuff. I'll be sure to include some info on this.

Take care 

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Re: Daily Digest - Feb 27

The water issue is concerning.  I'm in the Willamette Valley in Oregon.  You'd think we, of all people, would have enough water.  But I already see water rights and purchase of water from other towns an issue.  This year we had very low snow fall in the mountains and we are at 85% of annual.  I worry that our water will be purchased by California thus making it extremely expensive (it already is) for us here - where we grow stuff.

The flip side is that I live in the grass seed capital of the world.  Growers burn the straw and that is nasty.  Plus they use pesticides and tons of water and what litte is left of top soil.  Maybe that industry will go the way of the do-do bird.

Oh, and I hope Davos doesn't decide he wants to take weekend off.  I look forward to the postings.  I had never read those types of snips and articles before.  Maybe I do so now because it is framed in a context I can understand.  Sadly, I wonder if reading this stuff is like watching a train wreck in slow motion.  You just can't help yourself.

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hucklejohn
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Re: Daily Digest - Feb 27

Many thanks, Davos, for your great work every day!  I feel like I'm on the cutting edge of the real news along with going to http://www.financialsense.com/ as well as http://www.jsmineset.com/ and the Glenn Beck show.  Every day our media & our politicians bombard us with lies and/or incompetence. 

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Davos
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Re: Daily Digest - Feb 27

Hello HuckleJohn:

It is a pleasure to contribute to this site. Yes, it is hard to find out what is going on out there. Financial Sense is really excellent. Lately they are one of the other sites out there putting the crisis in black and white terms of solvency and explaining clearly that the credit crisis is just a symptom of insolvency and going into debt, deep into debt, to toss more money after bad money is stupid and just won't work.

I like that. If people learn what the problem is then maybe we can show Congress the problem. Right now, like Jim Rogers Doesn't Mince Words About the Crisis says in this article the job they are doing is terrible.

Take care 

 

 

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skyriver
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Re: Daily Digest - Feb 27

 You can't argue with the data, but you can make some arguments about Glenn Beck's assumptions and / or conclusions about the data.

First, he points out that we had a second depression right after the unions gained control.  He assumed a cause and effect between union control and a second depression.  This assumption needs a lot of factual support.   I didn't hear any at all, so without some factual support, his statements are purely inflammatory fodder for TV.  Maybe true, maybe false is all I can conclude.

Second, he draws the conclusion that home prices need to fall back to the ~$100,000 level.  You know, where they were back in the early 1900's and in the 1950-1970's.  I hear this a lot lately.  As I look around me, I realize there is a huge difference between the home people used to live in during the 50's-70's and the newer homes of the last decade.  The size has increased dramatically for one thing.  Most have nice carpeting, tile, beautiful fixtures, etc.  Although homes were mostly built well during the 50-70's, they almost never had this same quality of materials.  And don't forget the cost of labor.  We lived in a very nice home on a very nice street in our town but my Dad made only $400/month in the 1950's. I'm assuming the prices in the chart are adjusted for inflation though.  But what numbers are being used for that inflation adjustment and are they really comparing apples with apples?  Was the price of oil figured into this?

So, assuming that a home from the 50-70's or early 1900's can be compared to a home from the 1990-2008 era is a hard assumtion to take at face value.  And to assume that we can build this type of home for $100,000 price target is comparing apples with oranges.  If we need to bring the price down, then we need to reduce the size, material costs, and labor costs first (material costs are impacted by oil costs, don't forget).  Go out and see what kind of home you can get built for $100K.  I can guarantee you, you will need to reduce your expectations about what sort of home you'll live in.  So, while Glenn Beck's chart magic makes for great TV fodder, it lacks in practical applicability.

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Davos
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Re: Daily Digest - Feb 27

Hello SkyRiver:

You have some excellent point about the houses we used to build, in size and in material. Having said that the bottom line is there is a 24 million home inventory, of which 4.5 are on the market. Take that into account and then consider that people who were in the market will not be getting loans where they can no doc it or no job it.

My take, and this is just predicated on the following links, there is going to be a lot more pain and correcting. Add to this the commercial real estate sector, which I have not factored in. I don't personally agree with the dotted line on the first chart, I see no reason whatsoever for it to round out.

Supply totally outweighs demand and will for a long, long time. Take care 

http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case-shiller-chart-updated.png

http://www.cbsnews.com/video/watch/?id=4668112n

Note the inventory of 4.5 million up from 2.5 million in the above link, then check this out below

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKufqJK9j1cY&refer=home

Thats 24 million homes out there, and now they aren't giving NINJA loans out 

http://www.peakprosperity.com/crashcourse/chapter-15-bubbles 

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dickey45
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Re: Daily Digest - Feb 27

Unfortunately the homes built today are not made with energy efficiency in mind.  Nor health.  Many have vaulted ceilings, large rooms, poor air circulation (not enough return air vents), poor layout, too many rooms, extravagent kitchens, poor quailty cabinetry, materials not made to last, and horrid construction workmanship (oops, forgot to caulk that so that in 10 years the entire door will need to be replaced). 

That is why we are looking to build our own with a basement to store dry goods.  You don't get that in Oregon anymore unless you live on a hillside with rocks and bolders (AKA daylight basement).  Of course, those homes start at about 350K in my area.

We plan to build our own home for about 100K (land not included, and probably development fees either). I think it will be a functional, easy to heat and clean home.  Rectangular homes - not for breakfast anymore!

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Davos
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Re: Daily Digest - Feb 27

Hello Dickey45:

We did our own. My regret is until after I had never heard of earth rammed homes. You might take a peek at them, I purchased a good book on them, looks easier than the conventional way and they require little in the form of energy. Take care.

http://www.terrafirmabuilders.ca/

 PS they are fireproof, tornado proof and about anything else you could think of 

dickey45's picture
dickey45
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Re: Daily Digest - Feb 27

I've looked into straw homes but the rammed home is interesting.  I'm looking at some distressed property right now that would suit a rammed or straw home well.

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Davos
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Re: Daily Digest - Feb 27

Hello Dickey45:

I liked the straw, what concerned me was moisture and fire. Take care and "happy" building (kind of like saying "Federal" Reserve) 

BN37's picture
BN37
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 39
Re: Daily Digest - Feb 27

How do the costs per square foot between earth rammed and stick built compare?

Thanks

BN37's picture
BN37
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 39
Re: Daily Digest - Feb 27

Never mind I didn't look hard enough. I found it on their site here. http://www.terrafirmabuilders.ca/how-much.html

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Feb 27

Hello BN37:

I'm not certain of those figures. I think when I did a study it came out considerabley less as:

 

  1.  No sheetrock
  2. HVAC minimal or wood stove sufficient
  3. No painting
  4. No insulation
  5. No Siding
  6. No studs other than forms
  7. Labor could be done ourselves
  8. Footers only, no foundation
If she ever lets me build again...

 

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