Daily Digest

Daily Digest - February 12

Friday, February 12, 2010, 9:35 AM
  • Sovereign Alchemy Will Fail
  • How Goldman Sachs Helped Greece to Mask its True Debt
  • A "Stability" Police Force For The United States
  • Hawaii May Delay Payments To Quest Health Plan
  • Madison's highest paid city employee: bus driver earning $159,258
  • Society ignores the oil crunch at its peril
  • U.S. Foreclosure Filings Top 300,000 for 11th Month
  • Fed in Talks With Money Market Funds to Help Drain $1 Trillion

Economy

Sovereign Alchemy Will Fail (nncita)

When we look at the world economy today, wherever we turn we see a wall of risk. And sadly this is an insurmountable wall with risks that are totally unprecedented in history. There has never before been a potentially catastrophic combination of so many virtually bankrupt major sovereign states (US, UK, Spain, Italy Greece, Japan and many more) and a financial system which is bankrupt but is temporarily kept alive with phoney valuations and unlimited money printing. But governments will soon realise that they are not alchemists who can turn printed paper into gold. The consequences of the global financial crisis are potentially catastrophic.

How Goldman Sachs Helped Greece to Mask its True Debt (spacetimefoam)

Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.

A "Stability" Police Force For The United States (Claire H.)

An SPF is a high-end police force that engages in a range of tasks such as crowd and riot control, special weapons and tactics (SWAT), and investigations of organized criminal groups.

Hawaii May Delay Payments To Quest Health Plan (rdenoie)

The state Department of Human Services has warned health insurance companies that the state may not make payments for Quest — the state's health plan for low-income families — for the last quarter of the fiscal year, leaving insurers to absorb about $300 million in medical expenses until at least July.

The potential delay in payments has stunned insurers and alarmed health care providers, who worry a delay could jeopardize the ability of insurers to cover claims, which would cause cash flow problems and influence how some providers care for Quest members.

Madison's highest paid city employee: bus driver earning $159,258

Madison's highest paid city government employee last year wasn't the mayor. It wasn't the police chief. It wasn't even the head of Metro Transit.

It was bus driver John E. Nelson.

Nelson earned $159,258 in 2009, including $109,892 in overtime and other pay.

He and his colleague, driver Greg Tatman, who earned $125,598, were among the city's top 20 earners for 2009, city records show.

They're among the seven bus drivers who made more than $100,000 last year thanks to a union contract that lets the most senior drivers who have the highest base salaries get first crack at overtime.

Society ignores the oil crunch at its peril

In the years approaching the credit crunch, whistleblowers were limited to a few insightful economists and financial journalists. Now whistles are blowing again about another grave threat to the global economy and the security of nations. They warn of an oil crunch: an unexpected crash in global production such that supply can no longer meet demand, even if China and India throttle back.

U.S. Foreclosure Filings Top 300,000 for 11th Month

Feb. 11 (Bloomberg) -- U.S. foreclosure filings rose 15 percent in January from a year earlier and exceeded 300,000 for the 11th consecutive month as modification programs failed to keep delinquent borrowers in their homes, RealtyTrac Inc. said.

A total of 315,716 properties received a notice of default, auction or bank seizure last month, or one in 409 households, the Irvine, California-based seller of default data said today in a statement. Filings fell 10 percent from December.

Fed in Talks With Money Market Funds to Help Drain $1 Trillion

Feb. 11 (Bloomberg) -- The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as $1 trillion from the financial system as policy makers prepare for the first interest-rate increase since June 2006, according to a person familiar with the discussions.

The central bank is looking to the $3.2 trillion money- market mutual-fund industry because the 18 so-called primary dealers that trade directly with the Fed have a capacity limited to about $100 billion, estimates Joseph Abate, a money-market strategist at Barclays Capital in New York.

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8 Comments

Johnny Oxygen's picture
Johnny Oxygen
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Bond Market Blues

The Much-Awaited Treasury Selloff Is Not A Matter Of "If" Anymore, It's Here

http://www.businessinsider.com/the-much-awaited-treasury-selloff-it-not-a-manner-of-if-anymore-its-here-2010-2

 

Is the Bond Market Screaming Inflation?

http://stockwidget.seekingalpha.com/article/188276-is-the-bond-market-screaming-inflation

Johnny Oxygen's picture
Johnny Oxygen
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Is It Déjà Vu All Over Again for the Dow Indu?

Is It Déjà Vu All Over Again for the Dow Indu?

http://broadcast.ino.com/education/deja_vu_aff/?campaignid=3

In today's short video we examine the crash of 1929 and the similarities to today's Dow. This video is not meant to scare anyone, but to educate investors and traders of the possibilities that may exist in today's market.

We could be, repeat, could be very close to a tipping point similar to that of 1930 when the Dow had ended a 50% correction to the upside. I invite you to watch my latest video and see what makes sense to you.

Johnny Oxygen's picture
Johnny Oxygen
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Of Course There Will Be More Bailouts
Of Course There Will Be More Bailouts
|
Contributed by Adam on

Sunday, February 07, 2010 4:13:58 PM

Public and private debt will be printed up out of thin air and used to replace the bad private and public debt plaguing the financial world. As the insanity progresses, more and more will turn to Gold. Whether we are headed for an implosion that is deflationary, inflationary, or both, confidence in our current financial system will become mortally wounded. This is why the Dow to Gold ratio will reach 2 and may even go below 1 this cycle. It's a confidence cycle as well as an economic cycle.

More bailouts are coming. More private debt will be switched to sovereign/public debt. If sovereigns can't take on more debt, which they obviously and unfortunately can, then super-sovereigns like the IMF and European Union central bank will mint new debt and pile more debt on top of old. This will continue ad nauseam with several blips along the way.

Because currency devaluations are difficult to achieve for governments that are all fighting to debase against each other, Gold will be the relief valve. Currencies will be devalued relative to Gold. In the 1930s, to fight the deflationary economic collapse brought on by a popped debt bubble, countries just left the Gold standard. The U.S. devalued its Gold standard into a watered-down, quasi-Gold standard and thus became the least ugly currency since it didn't entirely abandon Gold.

In the current ridiculous anchorless paper system, devaluations against Gold are a little less obvious because there are no longer any Gold standard promises to break. But without a doubt, further devaluations of paper debt tickets relative to Gold will continue as they have over the past 9 years. Governments will become a friend of Gold. It may seem hard to believe for Gold bulls, but central banks becoming net buyers of Gold over this past year is only the first step.

Ben Bernanke is a student of the last economic depression and has seen with his own eyes the inflationary jolt a currency devaluation against Gold can have. Gold no longer needs to be confiscated to be re-valued, since the sheeple have bought into the paper fiat world hook, line and sinker. Simply swap out paper Gold tickets (i.e. futures contracts, the GLD ETF, Gold certificates from pooled accounts) for debt tickets (i.e. paper currency units) and pay the paper Gold ticket holders a premium so they feel good about the deal because they make a profit. Now that you are done shorting Gold and silver and you hold a large position in actual physical metal, talk the precious metals up every day on CNBC and whip the herd into a frenzy. Never mind those kooky Gold and silver bugs that actually hold physical metal in the U.S., as they are too small a percentage of the population to worry about and they tend to be heavily armed.

Think about fiat masters buying instead of selling Gold. They are sending a not-so-subtle signal that the number of debt tickets (i.e. currency units) required to purchase Gold is going to go higher. This is not a one-time phenomenon. The Chinese, who seem to be able to muster a longer-term view than many other advanced economies, are encouraging their citizens to buy Gold and silver. This is unprecedented in a "modern" paper fiat world where Gold is ridiculed and denigrated on a continuous basis.

But Gold won't seem so ridiculous if desperate inflationary policies fail to take root and the next leg of the financial asset price decline gets into gear. For inflation benefits the bankers as long as it doesn't morph into a hyperinflation. Deflation is a scary beast for bankstaz, so they fight it tooth and nail with the only tool they have: more money/debt creation. What benefits the bankers will become policy, as governments and the majority of people who vote for them are more than happy to take on more sovereign debt. Since governments have no intention of ever paying the money back, why can't they just keep borrowing more and more despite the detrimental effect this will have? Of course, there is a mathematical limit in theory to what can be done, but I think we're going to test those limits this cycle.

A rising Gold price has been traditionally seen as a threat to the credibility of the current U.S. Dollar regime. But when inflation is desperately needed by those seeking to maintain nominal asset prices and/or their elected offices, Gold will become a friend. And even if it does not become a friend to those with their dirty little fingers reaching for the magic debt printing presses, Gold will become a safe haven of choice for an increasing percentage of the global herd. It doesn't take a genius to recognize an economic and monetary train gone off the tracks. Several thousand years of accumulated human experience and Gold wisdom won't be cast aside based on a 40 year global fiat experiment. Money has not evolved more over the past 200 years than humans have, trust me.

I am looking for an increasing number of highly publicized large Gold purchases by various central banks. For this is the stage when beggar-thy-neighbor policies will fail, the currency fluctuations will get more violent, and Gold will be seen as an ideal solution to achieve massive currency devaluation and stave off the deflationary debt collapse from completing. Whether it works or not remains to be seen, but Gold will enjoy large gains from current levels because of these pending "solutions" and the loss of confidence that will accompany them. This is not a happy message, but it can be a prosperous one if you are prepared.

As strange as it seems, the world's central bank pushers and their junkie government customers are going to become big Gold bulls before this mess is over. The following 1 year chart of the Greek stock market is a reminder of how fast the tide can turn in the current environment:

If you think the S&P 500 can't do the same thing, you are living in a fantasy world. Gold will not collapse. Gold didn't collapse in the Great Panic of 2008 (correction, yes, collapse no) and was back at $1000/ounce by February '09, at a time when stocks were in free-fall mode. This relative strength is but a taste of what's to come. Until the Dow to Gold ratio hits 2 or less, general stocks will continue to be a lousy investment. Buying Gold now while it is in a bottoming process is a way to play it safe and ride out the storm. Our first lost decade in stocks almost over. Don't get caught in the second lost decade that is dead ahead with a "buy and hold" general stock strategy.

 

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saxplayer00o1
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Re: Daily Digest - February 12

"European governments are expected to turn increasingly to US investors to help them meet their funding requirements as record levels of bond issuance make it harder to attract buyers.

Europe's biggest countries, including Germany, France and Spain, are preparing to launch bond deals denominated in dollars in the US to tap the deep pool of investors there, according to syndicate bankers."

"The increase has been largely attributed to the need to keep up with demand as investors rushed to buy gold in the face of a weakened dollar."

"PARIS (Reuters) - Europe's post-recession recovery hit a roadblock on Friday as German economic growth unexpectedly halted and Italy went into reverse in the final quarter of 2009, knocking total euro zone GDP growth almost flat."

"Feb. 12 (Bloomberg) -- Jack Rodman, who has made a career of selling soured property loans from Los Angeles to Tokyo, sees a crash looming in China. He keeps a slide show on his computer of empty office buildings in Beijing, his home since 2002. The tally: 55, with another dozen candidates.

“I took these pictures to try to impress upon these people the massive amount of oversupply,” said Rodman, 63, president of Global Distressed Solutions LLC, which advises private equity and hedge funds on Chinese property and banking. Rodman figures about half of the city’s commercial space is vacant, more than was leased in Germany’s five biggest office markets in 2009."

"The Belgian economy has suffered from a weak industrial sector and decreasing economic competitiveness, which suggests potential difficulty with funding the fiscal deficit (already approaching 100 per cent of GDP). In addition the Belgian banking sector remains in a fragile state. Fortis, Dexia and KBC Bank all required takeover or state bailouts of one form or another. These banks accounted for a significant share of the country’s corporate loan market, and the sector remains constrained by reduced lending capacity. "

" For the first time in more than 25 years, employees at Sacramento's Regional Transit are bracing for layoffs.

Up to 300-workers could bein receiving pink slips as early as today in an effort to cut RT's $36 million deficit.

Officials say this is a last resort after already cutting routes and raising rates."

"Tough-talking Los Angeles Mayor Antonio Villaraigosa told business leaders Thursday that 1,200 to 2,000 more layoffs might be needed next fiscal year unless there is major progress on privatization proposals and concessions from city unions.

"I am not looking to pick a battle," Villaraigosa said at a town hall-style meeting at the Los Angeles Area Chamber of Commerce. "But I am prepared to fight and make the tough decisions that are necessary.

"And let me be clear: There is no scenario, none, while I am mayor, that this city will ever declare bankruptcy. I can guarantee that.""

"The Jordan School District will cut staff by 500 employees, half of them teachers, and increase class sizes to compensate for an estimated $30 million budget shortfall next school year. "

"The European Union's indecisive summit response to the Greek debt crisis pressured the euro on Friday as markets were underwhelmed and analysts speculated over a possible "currency crisis"."

............9A) Greek woes hit markets around the world

"David Starkey, a trader at Custom House, a Canadian foreign exchange firm, said even unfounded speculation in the markets can have a powerful effect and force major economic events. For example, rampant speculation against the European currency, the euro, earlier this week raised the specter of a currency crisis and likely helped to prompt action by European authorities to rescue Greece. "

"Commissioners got a sober assessment of the city's finances Thursday from Management and Budget Director Michael Boudreaux who said Miami is in a "financial crisis." Boudreaux said if Miami continues to dip into its shrinking reserves to make ends meet, it's going to move the city "further toward bankruptcy and, maybe, receivership by the state." "

"TRENTON (CBS) – The snow isn’t the only thing that’s causing a chill in the Garden State.

Calling New Jersey’s budget a “shambles,” Gov. Chris Christie announced Thursday he is immediately freezing all state spending.

Saying New Jersey is on the verge of bankruptcy, Christie declared a fiscal emergency, announcing drastic cuts. Among them, aid to school districts that have excess surpluses."

  • 12) Just the headlines

School System To Cut Jobs, Trim Budget By $4.5 Million  (Indianapolis)

New factors bump Toledo's deficit figures by $4.34M

Calexico schools could be hit by projected $4 million shortfall, according to interim report

City risks shutdown of all park programs (Youngstown )

New Albany Sewer Board passes 70 percent rate hike

Novato's two police dogs slated to be cut from city budget

Police, fire may be trimmed to close Victorville deficit

Fresno's Budget Problems Get Worse

SJ Must Again Face Deep Budget Cuts

Daley Calls For More Budget Cuts (Chicago)

Lebanon court ruling allows city to raise taxes beyond home rule charter limit

Sacramento faces more budget cuts

Cal State Bakersfield budget ax falls hard

Survey shows that Minnesota cities are in financial trouble

Colorado may scrap tuition limit

"Feb. 12 (Bloomberg) -- Russia’s budget deficit may be wider than previously estimated as spending is set to increase and a stronger ruble diminishes foreign-currency export revenues.

The fiscal shortfall may reach 7.2 percent of gross domestic product this year, compared with an earlier government forecast for a 6.8 percent shortfall, Deputy Finance Minister Tatiana Nesterenko told reporters in Moscow today."

"Pension costs have soared from $7 million in 2000 to $61 million this year, and they're scheduled to hit $72 million next year.

Jeff Rainford, the mayor's chief of staff, said this week that if something isn't done soon, the rising pension costs will force the city to cut services and lay off employees.

"The situation has been bad for awhile but manageable," Rainford said. "Now it's bad and barely manageable. It could soon become unmanageable.""

"Another high-profile CalPERS real estate investment is on the verge of going bust.

Massachusetts officials this week issued a default notice against a Cal-PERS partnership that's been struggling for years to build an $800 million residential-commercial complex in Boston. A default would likely mean the end of the project as far as CalPERS is concerned.

The size of the potential loss isn't known."

(Use the link above to see other CalPers real estate losses)

 

........................Note to the editor: When Vietnam devalues their currency please be careful of the headlines you use.

Farmer Brown's picture
Farmer Brown
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Re: Bond Market Blues
Johnny Oxygen wrote:

The Much-Awaited Treasury Selloff Is Not A Matter Of "If" Anymore, It's Here

http://www.businessinsider.com/the-much-awaited-treasury-selloff-it-not-a-manner-of-if-anymore-its-here-2010-2

 

Is the Bond Market Screaming Inflation?

http://stockwidget.seekingalpha.com/article/188276-is-the-bond-market-screaming-inflation

JO:

I agree long-term US Treasury Bond yields are the indicator to watch re: inflation.  However, one auction does not a trend make.  This is just a fart in the wind in the overall scheme of things, excuse my prose.  BTW, Prechter has been calling for the 30-yr to come very close to 5% in what he considers a current leg-up in yields (down in price) in Elliot Wave Theory.  After that, he's calling for it to go back down.  Whether you believe EWT or not, the guy has been spot on since I've been following him, so I take his calls seriously.  To view the current leg-up as a full-blown indication that TSHT is here, I believe would be premature, and I would watch for Uncle Buck to to tell you that, "rumors of my death have been exagerated" in the near future. 

 

 

 

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rjs
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Re: Daily Digest - February 12

Enter Cede & Co II; The Fed Is Now Backstopping $25 Trillion In DTCC Cleared Credit Default Swaps - And you thought the $23 trillion in backstops for the financial system was bad, you ain't seen nothing yet. Earlier today, the Depository Trust & Clearing Corporation, best known for its Cede & Co. partnership nominee which is the holder of virtually every single physical stock certificate in the known universe, and accounts for over $2 quadrillion in stock transactions per year, announced that "the Federal Reserve Board had approved its application to establish a DTCC subsidiary that is a member of the Federal Reserve System to operate the Trade Information Warehouse (Warehouse) for over the-counter (OTC) credit derivatives." With this approval the DTCC is now the de facto legally accepted global repository for over-the-counter credit derivative transactions. Simply said, the Federal Reserve is now the guarantor behind all CDS transactions that clear via DTCC, which would be pretty much all of them (sorry CME, you lose). The total bottom line in terms of gross notional? 2.3 million contracts with a gross notional value of $25.5 trillion. When the next AIG implodes, and the CDS market is once again facing annihilation in the face, who will be on the hook? You dear taxpayer, that's who.

jrf29's picture
jrf29
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Posts: 453
Re: Daily Digest - February 12

A "Stability" Police Force For The United States (Claire H.)

An SPF is a high-end police force that engages in a range of tasks such as crowd and riot control, special weapons and tactics (SWAT), and investigations of organized criminal groups.

Of course, this blurb is slightly misleading.  RAND is talking about organizing a group of employees from existing federal law enforcement agencies which could be periodically deployed in foreign countries which the U.S. is occupying.  Similar to the ad hoc effort that was organized for Iraq, and which solicited volunteers from existing local, state, and federal L.E. agencies to work in Iraq.  Except that under RAND's plan, the volunteers would have been selected in advance, and there would be a pre-existing administrative staff to coordinate their deployment.

It is pretty clear that it's a great idea if you are in favor of spending a lot of time occupying foreign nations.  We certainly have learned that if we're going to do so we need some kind of police force to function as a bridge between the army and the populations of occupied countries. 

Of course, whether or not its a great idea occupy foreign nations for indefinate periods of time is another question.

 

dickB's picture
dickB
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Posts: 9
Re: Daily Digest - February 12

1st Post: Sovereign Alchemy Will Fail

A rather scary read. It'd be interesting to have CM's comment on this.

Dick

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