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Daily Digest - Jan 16

Friday, January 16, 2009, 5:47 AM
  • The Bailout Game
  • The Big Picture (Video)
  • Ron Paul - Bernanke (Video, hat tip Jrf29)
  • World demand collapse, bonds next
  • Reform plan raises fears of Bank secrecy (hat tip David L)
  • Schwarzenegger Urges Action on Budget
  • Buy or Rent? (Calculator)
  • The 24/7 Wall St. Chapter 11 Watch
  • FSN News Hour, 3rd Hour (Hat Tip Doug)
  • Treasury, Federal Reserve, and the FDIC Provide Assistance to Bank of America
  • Foreclosures Climb 81% in 2008, Says RealtyTrac Report
  • Financial Sense Fed Watch (Links)

Economy

 

The Bailout Game


The Big Picture (Video)


Ron Paul - Bernanke (Video, hat tip Jrf29)

World demand collapse, bonds next

Anyone following the economic news in recent months has to be stunned at the declining economic activity. Japan had a 16% drop in machine orders for November. US car sales down 30 to 40%. Even world car leader Toyota has sales down 20 to 30%. Worldwide car sales are way down too, anywhere from 10 to 20% depending on which area.

US retail sales are down 2 plus percent, but depending on what stats you look at, autos -30% plus, that 2% number is far worse than it looks.

The EU region is seeing marked declines in orders and exports. Japan had a stunning 15 to 17 % drop in exports from the previous year. China had over 100,000 factories close by end of 08. The list is endless.

Of course all this collapsing demand is hitting commodities and energy. Gold has fared better overall, but is torn between central bank inflation efforts and deflation in general in every major economy. Even China is said to see possible flat growth in 09, something that they consider akin to Armageddon, as they need 15 million new jobs each year just to stay even with population growth.

World credit is mostly unavailable. Banks won't lend and despite the bailouts of $2 plus trillion (really $8 trillion for the US alone depending on how you add up the numbers) of capital infusions, it's said they need another $2 trillion just to get solvent. Mostly what the Central banks have done is to shore up the banking system but it's far from functional. Since credit is so hard to get (for everyone, people, businesses, even municipalities) there is little reason to expect the US to recover soon. In fact, the continual calls on the popular financial media that we are bottoming is beginning to sound very hollow.


Reform plan raises fears of Bank secrecy (hat tip David L)

The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet - a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 which originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.
However, some have warned that it means: "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."

It comes after the Bank's Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank's foundation in 1694.

Schwarzenegger Urges Action on Budget

SACRAMENTO, Calif. -- With California near fiscal collapse, Gov. Arnold Schwarzenegger urged lawmakers in his State of the State address Thursday to put aside partisan differences and close a ballooning budget gap.

Mr. Schwarzenegger focused his brief address on a fiscal emergency that is overwhelming the nation's most populous state. "The reality is that our state is incapacitated until we solve the budget crisis," he told lawmakers gathered in the Assembly chamber. "California is in a state of emergency."

The Republican governor is facing his biggest challenge since voters chose him to succeed Democrat Gray Davis in a 2003 recall election amid another budgetary crisis. Over the next 18 months, officials say, California faces a $42 billion budget deficit, due in large part to declining tax revenue in a state hit especially hard by the economic downturn.

The state is projected to run out of cash in weeks, which may require it to delay tax refunds and other payments starting Feb. 1. "The $42 billion deficit is a rock upon our chest, and we cannot breathe until we get it off," Mr. Schwarzenegger said.

Californians are already feeling the effects of the budget crisis. Starting next month, most state offices will close two days a month, costing affected workers about 10% of their salary. And a state board has already frozen funding for $3.8 billion in construction projects.

"The disruption has stopped work on levees and housing and schools and roads and everything," Mr. Schwarzenegger said in his speech. "It has thrown thousands and thousands of people out of work at a time when our unemployment rate is rising. How could we let something like that happen?"

Buy or Rent? (Calculator)

The 24/7 Wall St. Chapter 11 Watch

From time to time, the editors at 24/7 Wall St. will look at which companies may file for Chapter 11 bankruptcy protection over the next year. The analysis involves looking at SEC filings with a focus on balance sheet, cash flow, and risk factors. Also taken into account are stock price, earnings forecasts, and the ability of a company to raise cash.

In the current credit environment, many firms which would not have been on the list at the middle of last year would have to be considered now. We are covering what we feel are the odds that the companies may need protection from creditors.

Sirius XM (SIRI) has nearly a 1-in-1 chance. It has negative operating income and huge debt due this year. The stock is at $0.08.

FSN News Hour, 3rd Hour (Hat Tip Doug)

Treasury, Federal Reserve, and the FDIC Provide Assistance to Bank of America

The U.S. government entered into an agreement today with Bank of America to provide a package of guarantees, liquidity access, and capital as part of its commitment to support financial market stability.

Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Bank of America from the Troubled Asset Relief Program in exchange for preferred stock with an 8 percent dividend to the Treasury. Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program. 

Foreclosures Climb 81% in 2008, Says RealtyTrac Report  

Home foreclosure activity increased dramatically in 2008 compared to the previous year, according to RealtyTrac's 2008 U.S. Foreclosure Market Report. 

There were 3,157,806 foreclosure filings - default notices, auction sale notices and bank repossessions in 2008, marking an 81% increase from 2007. According to RealtyTrac, 1.84% of all U.S. housing units received at least one foreclosure filing during the year, an increase from 1.03% in 2007.

Recent laws enacted by the State of California, which require lenders to provide a written 30-day notice of the intent to initiate a foreclosure, has done little to stem foreclosures as California posted the highest state total foreclosures in the U.S. with 523,624 filings in 2008. According to the report, foreclosures activity increased 110% from the prior year.

"Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami," said James J. Saccacio, chief executive officer of RealtyTrac.

Financial Sense Fed Watch (Links)

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5 Comments

pir8don's picture
pir8don
Status: Gold Member (Offline)
Joined: Sep 30 2008
Posts: 456
Re: Daily Digest - Jan 16

Silly me, I thought the big picture was the end of civilisation as we knew it but now it seems its what one important person won't tell another.

Don

______________________________________________________

Uh oh! the world is ending what shall we do? Wait for the big fix.

joemanc's picture
joemanc
Status: Martenson Brigade Member (Offline)
Joined: Aug 16 2008
Posts: 834
Re: Daily Digest - Jan 16

Slideshow of unsold cars around the world - 1 word: amazing.

http://www.guardian.co.uk/business/gallery/2009/jan/16/unsold-cars?picture=341883529

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Credit Crunch vs Energy
Credit Crunch vs Energy
Woodside runs out of gas off Californian coast
Jamie Freed
January 17, 2009

http://business.smh.com.au/20090116-7j4l.html

THE dream of exporting Australian liquefied natural gas to a dedicated
import station in California appears to have died after more than five
years of effort.

Woodside Petroleum yesterday abandoned its OceanWay project, citing an
increase in domestic US gas production, which limited demand for
imported gas, and poor economic conditions.

It marks the second time Woodside has given up on a California LNG
import project, following the collapse of an earlier joint venture
called Clearwater Port.

In 2007, BHP Billiton cancelled its $1.2 billion Cabrillo Port proposal
after significant opposition from celebrities and environmental
activists in Malibu. It had started work on the project in August 2003.

The idea of exporting Australian LNG to California gained notoriety in
2004, when the then prime minister, John Howard, and BHP's chairman, Don
Argus, flew to California to meet the state's Governor, Arnold
Schwarzenegger, in support of the Cabrillo Port plan.

<MORE> 
Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
Re: Daily Digest - Jan 16

Scientists worldwide to speak out on
population problem

Posted
January 9th, 2009 

Boulder, Colorado - Scientists from
around the world have pledged to speak out publicly in February, 2009 on the
problem of the size and growth of the human population. Speaking out as well
will be environmental and science writers, social activists, and
representatives of environmental groups. The event, called the Global
Population Speak Out (GPSO), aims to weaken a decades-long taboo against open
discussion of population issues.

jkibbe's picture
jkibbe
Status: Martenson Brigade - YouTube Channel Admin (Offline)
Joined: Aug 5 2008
Posts: 71
Re: Daily Digest - Jan 16

I wonder how long until our currency ends up like Zimbabwe's!  :)

Buy 'em at eBay if you want a part of history (not from me!):
http://cgi.ebay.com/Zimbabwe-100-Billion-Dollar-Bank-Note-AB-Circulated_...

http://cgi.ebay.com/ZIMBABWE-CURRENCY-THE-FULL-32-DOLLAR-NOTE-SET_W0QQit...

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