Daily Digest

Daily Digest - January 5

Tuesday, January 5, 2010, 10:45 AM
  • Conversation with John Rubino
  • Observations On The Bond Bubble From TrimTabs And TCW
  • Dennis Kucinich To Investigate Fannie/Freddie Bailout
  • Fannie/Freddie Misrepresented Loan Pool Quality To Get AAA Ratings
  • NY Governor To Unveil Sweeping Proposals To Rein In Corruption
  • Testimony Before Senate: 'Tools To Combat Deficits And Waste'
  • $340 Million Road Tour And Promotional Blitz To Launch Census
  • We Must End Practice Of Secret 'Holds' In US Senate
  • Dems Intend To Bypass GOP On Health Care Compromise
  • Yield Curve Shows Higher Inflation Coming
  • Bond Bubble About To Burst
  • Fed Has Created Inflation Time-Bomb
  • Bernanke Edges Closer To Using Rates To Pop Bubbles
  • 'Big Is Bad' Angst At Wall Street Catches On In Congress
  • The Truth On Government Spin
  • Economist: Recovery Will Take Between '18 Years And Forever'
  • IRS Proposes 'Ethical Standards' Regulations For Tax Preparers
  • California Seeks Help--Just Don't Call It A Bailout
  • Next Up On Cable TV: Higher Bills For Consumers
  • Obama's Foreign Policy Can't-Do Style
  • The People's Revolt In Iran
  • Iran's Increasing Turmoil And Growing Desperation
  • Why Lone-Wolf Terrorists Pose Greater Global Threat
  • What Message Is America Sending To Al Qaeda?
  • A Solar-Powered Adventure


Conversation with John Rubino (Ilene)

"This is the end of a long era and the beginning of another that is not going to be nearly as nice."

Observations On The Bond Bubble From TrimTabs And TCW (Davos)

Once rates surge, equity values will be whacked as the cost of capital will no longer be zero. So what do futures do? Up, up, up. The stocks-bonds divergence trade is alive, schizophrenic, utterly insane and well.

Dennis Kucinich To Investigate Fannie/Freddie Bailout (M.W.)

Dennis Kucinich released this statement: "As Chairman of the Domestic Policy Subcommittee of the Committee on Oversight and Government Reform, I’m announcing that the Subcommittee will launch an investigation into the Treasury Department’s recent decision to lift the current $400-billion cap on combined federal assistance to Fannie Mae and Freddie Mac, opening the way for additional, unlimited funds through the end of 2012."

Fannie/Freddie Misrepresented Loan Pool Quality To Get AAA Ratings (M.W.)

American Kleptocracy: From the time Fannie and Freddie began buying risky loans in 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they were clearly subprime or Alt-A. It becomes quite easy to construct a criminal case for literally millions of counts of accounting, securities, wire and mail fraud, and we should be exploring prosecution for violations under e.g., Sarbanes-Oxley.

NY Governor To Unveil Sweeping Proposals To Rein In Corruption (M.W.)

Gov. David A Paterson on Wednesday will unveil a set of sweeping proposals to rein in political corruption in state government, including vastly expanded ethics oversight, term limits for all state officeholders and a system of public campaign financing modeled on New York City’s.

Testimony Before Senate: 'Tools To Combat Deficits And Waste' (M.W.)

The Concord Coalition is a non-partisan, grassroots organization dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America's unsustainable entitlement programs, and how to build a sound foundation for economic growth.

$340 Million Road Tour And Promotional Blitz To Launch Census (M.W.)

The government's unprecedented $340 million promotional blitz of the 2010 Census was launched Monday with the debut of the Census Portrait of America Road Tour in NY City's Times Square. A 46-foot trailer, unveiled on NBC's Today Show, and 12 smaller cargo vans with 14-foot trailers will crisscross more than 150,000 miles nationwide through April to promote the benefits of responding to the 10-question Census.

We Must End Practice Of Secret 'Holds' In US Senate (M.W.)

A hold can permit a single senator to prevent the entire body from acting on a measure. The problem is that senators nearly always exercise holds in secret. A Government Act in 2007 requires members who place holds to identify themselves publicly within 6 days. Out of all cases of secret holds identified since its provisions took effect, the names of only 2 “holders” have ever been made public.

Dems Intend To Bypass GOP On Health Care Compromise (M.W.)

House and Senate Democrats intend to bypass traditional procedures when they negotiate a final compromise on health care legislation, officials said Monday, a move that will exclude Republican lawmakers. The issue is so partisan that only one Republican has cast a vote in favor of the legislation.

Yield Curve Shows Higher Inflation Coming (M.W.)

The yield premium for 10-year Treasury bonds over 2-year Treasuries has risen to a record high. The 282 basis point gap indicates that investors expect the economy to strengthen, but it also shows investors anticipate higher inflation. And many expect the yield curve to continue steepening.

Bond Bubble About To Burst (M.W.)

The 2009 surge in bond prices represents a bubble that will soon burst. My biggest fear is the bond market. There is going to be a meltdown. It's time to get out of bonds.

Fed Has Created Inflation Time-Bomb (M.W.)

Income during inflation: The Fed has worked overtime to convince the public that it has saved the economy from a meltdown, but it's a hard sell. What most people easily understand is that the Fed has produced a monetary time bomb. They assert that they know how and when to disarm the bomb. Such assertions are a stretch.

Bernanke Edges Closer To Using Rates To Pop Bubbles (M.W.)

Ben Bernanke cracked the door open a bit more to the idea of raising interest rates if a new financial bubble emerges. When Mr.Bernanke was a Fed governor, he and other central bank officials said financial bubbles weren't something the Fed could identify or pre-empt effectively. Its bubble strategy was to mop up after a bubble burst with lower interest rates.

'Big Is Bad' Angst At Wall Street Catches On In Congress (M.W.)

The populist angst aimed at Wall Street banks is already spilling into Senate deliberations on regulatory reform, and a powerful new sentiment — big is bad — is being echoed by liberals and conservatives alike.

The Truth On Government Spin (M.W.)

Bob Schieffer says press conferences and statements aimed at deflecting criticism do nothing to inspire trust. "When government officials insult us with spin, they are doing it on our dime, which is supposed to be used to operate the government, not to hold news conferences to tell us what a fine job people on the public payroll are doing."

Economist: Recovery Will Take Between '18 Years And Forever' (M.W.)

Krugman: "How long should recovery be expected to take? A maximum-likelihood estimate of how long it will take to recover, based on the Japanese example, is forever. OK, strictly speaking it’s 18 years, since that’s how long it has been since the Japanese bubble burst."

IRS Proposes 'Ethical Standards' Regulations For Tax Preparers (M.W.)

The IRS has proposed a broad initiative that would require hundreds of thousands of tax preparers to register with the government, pass a competency exam and adhere to ethical standards. "There's a lot of incompetence in this field— not only incompetence but unethical behavior." The IRS says the proposed rules would take several years to implement.

California Seeks Help--Just Don't Call It A Bailout (M.W.)

Senate President Pro Tem Darrell Steinberg said he plans to head to DC seeking federal assistance. Gov Schwarzenegger already has put the federal government on notice that he wants billions he says the state is owed. And outgoing Assembly Speaker Karen Bass said she would head east as soon as this month. And it's not just cash that California wants.

Next Up On Cable TV: Higher Bills For Consumers (M.W.)

Broadcasters say they deserve a share of the cable and satellite bills that roughly 100 million American households pay each month. At the same time, the cable-only channels that have lured viewers away from broadcast, are lining up for further fee increases.

Obama's Foreign Policy Can't-Do Style (M.W.)

Obama's assertive Middle East initiative has left the Israeli-Palestinian peace process worse off than before, has failed to gain support from Arab states and has lost the support of the Israeli public. The impact of his operational style on policy remains considerable and arguably not well suited to managing two wars and an intransigent Iran, let alone a major foreign policy crisis of the kind that is almost certain to arise at some point during his term.

The People's Revolt In Iran (Audio) (M.W.)

Steve Coll and Lawrence Wright discuss the Iranian regime's response to widespread demonstrations in Iran, President Obama's reaction to the Christmas Day attempted airplane bombing, and the status of Al Qaeda operations in Yemen, London, and the US.

Iran's Increasing Turmoil And Growing Desperation (M.W.)

Increasingly fierce repression in Iran suggests that the regime has begun to fear for its future. Ahmadinejad's security apparatus has beaten and arrested thousands, tried scores of dissidents in kangaroo courts, hounded others into exile, throttled the press and jammed the airwaves. But the massive and violent demonstrations revealed scenes of mayhem unprecedented since the 1979 revolution that toppled the shah.

Why Lone-Wolf Terrorists Pose Greater Global Threat (M.W.)

We are entering an especially dangerous phase in which individual terrorists are going to crop up more and more. The Al Qaeda threat can be divided into 3 categories: the core organization of Bin Laden that carried out 9/11; the affiliates in Iraq, North Africa, and Yemen that want the prestige of the Al Qaeda connection but have less sophisticated capabilities; and "homegrown" terrorists who are inspired by Al Qaeda's ideology.

What Message Is America Sending To Al Qaeda? (M.W.)

What messages, intended and unintended, is America sending to Al Qaeda? The purpose of Geltzer’s study is to analyze American communication with Al Qaeda since 9/11, and to explore the degree to which American signaling to terrorists has been self-conscious; what the hypotheses behind this communication strategy seem to be; how the strategy has conceptualized the intended terrorist audience; and, of course, whether it has been effective.


A Solar-Powered Adventure (Video) (Davos)

For the dawn of a new decade, adventurer Bertrand Piccard offers us a challenge: Find motivation in what seems impossible. He shares his own plans to do what many say can't be done -- to fly around the world, nonstop, in a solar-powered aircraft.


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Re: Daily Digest - January 5

"The shipbuilding industry looks set for a rash of insolvencies as one of the sharpest-ever collapses in order levels combines with banks' reluctance to finance ship construction to starve many yards of cash.

Only 28.8m deadweight tonnes (dwt) of ships were ordered between January and November in 2009, according to London-based Clarkson shipbrokers, against 272m dwt for the whole of 2007, the peak of the shipping boom. "

"Spot gold prices could hit $1,375 in 2010, predicts John Licata, chief investment strategist at Blue Phoenix.

"I think there're plenty of catalysts that have not been talked about related to gold," Licata said.

The fear of sovereign debt default could continue to drive investors into gold, according to Licata. And California's budget deficit could well join the likes of Greece and Ireland on the watch list for default, he added. "

"The US public pension system faces a higher-than-expected shortfall of more than $2,000bn that will increase pressure on many states' strained finances and crimp economic growth, according to the chairman of New Jersey's pension fund.

The estimate by Orin Kramer, chairman of New Jersey's investment council, will fuel investors' concerns over the deteriorating financial health of US states following the credit crisis and the recession.

"State and local governments are correctly perceived to be in serious difficulty," Mr Kramer told the Financial Times. "If you factor in the reality of these unfunded promises, their deficits will rise exponentially."

Estimates of the aggregate funding requirement of the US pension system have ranged between $400bn and $500bn, but Mr Kramer's analysis concluded that public funds would need to find more than $2,000bn."

"Euro-region governments may offer as much as 912 billion euros ($1.3 trillion) of securities this year to plug budget deficits, with 60 percent of sales in the first half of the year, according to Citigroup Inc.

The estimate was revised higher from the 869 billion euros projected in September, and compares with the 830 billion euros issued in 2009, the bank said. "

"Mercer, a leading pension advice firm, said U.S. pension funds were 85 percent funded at the end of December compared with 75 percent a year earlier.

But it also warned that such funds are becoming increasingly reliant on equity markets, and thus are vulnerable to volatility.

In total, Mercer found that U.S. pension funds run by S&P 1500 companies had a deficit of $229 billion at the end of 2009 compared with their liabilities over 10 years. It was $409 billion at end-2008."

"States across the nation begin the year facing grim budget shortfalls that could mean a repeat of the service cuts, layoffs or furloughs and higher fees imposed in 2009, a USA TODAY survey shows.

States passed fiscal 2010 general-fund budgets totaling $627.9 billion, 5.4% less than a year earlier, says a study released last month by the National Association of State Budget Officers and National Governors Association.

Despite cuts, shortfalls for the 2010 fiscal year, which in most states began July 1, are $14.8 billion, the study says. The gap in 2011: $21.9 billion."

"At the end of 2009, the U.S. Department of Labor reported that the 25 states and one territory had borrowed more than $26.03 billion to fund their respective unemployment benefit programs. California borrowed $5.914 billion in 2009, the most of any other state.

Mike Miller, with the U.S. Department of Labor division of fiscal and actuarial services, recently reported that payments from state unemployment trust funds will exceed revenues and interest income by $41 billion in fiscal year 2009 and $55.8 billion in fiscal year 2010."

"The delinquent unpaid balance for commercial mortgage-backed securities (CMBS) rose “substantially” in November – more than 16% – to $37.93bn from the previous month, and the rate of growth looks likely to continue, according to monthly research by credit-rating agency Realpoint. The news comes as investment firm Grubb & Ellis (GBE: 1.36 0.00%), predicts a slow commercial real estate market in 2010."

"NEW YORK, Jan 4 (Reuters) - New York state "is broke" and should cut $30 billion of spending over three years in actions ranging from freezing state workers' pay and benefits to axing aid for special education, a new study said Monday."

"Taxes can’t be raised high enough or state spending cut enough to take the state out of its looming deficit, says Sen. Tom Bakk.

The state faces a $1.2 billion budget deficit in the current biennium and $5.4 billion in the next two-year budget cycle, a problem that demands immediate attention, says Bakk, DFL-Cook, who is also a Democratic candidate for governor.

But the problem isn’t too much spending nor is it totally solved by raising income taxes, he told the Pioneer on Monday.

“We can’t raise taxes enough to solve this, and we aren’t going to cut spending to solve this,” Bakk said. It will take a mix of options."

"Connecticut enters the New Year as the most heavily indebted state per capita in the nation, and that debt is growing to alarming levels.

Our state government already carries the highest tax-supported debt in the nation at $4,490 per person. Massachusetts takes second place at $4,323, according to Moody's Investors Service in July. But that tells only a fraction of the story.

Connecticut was ranked as one of the worst-prepared states in saving the necessary funds for employee pensions by The Pew Charitable Trusts in 2007.

Altogether, state taxpayers are on the hook for an estimated $58.9 billion in unfunded obligations including outstanding debt, state employee pensions, teacher pensions, and retired state employee health and life insurance benefits, according to the state Office of Fiscal Analysis. For every man, woman and child in Connecticut, that means we each owe about $16,800, with no repayment plan in sight.

If that is not enough, state debt is likely to grow as Connecticut faces a five-year budget deficit estimated at $10.1 billion through the 2013-14 budget year, according to the state Office of Fiscal Analysis. Even as the economy recovers, budget gaps in the 2011-12, 2012-13 and 2013-14 budget years forecast at more than $3 billion a year."

..........11A) More Residents Turning To State For Food And Medical Care

"An increasing number of cash-strapped citizens turned to the state for food and medical care last year, boosting enrollment in state safety-net programs by 18 percent and providing yet another sign of the struggling Connecticut economy.

The number of residents receiving food stamps was up 32 percent from the previous year and 58 percent from five years ago.

In November, nearly 300,000 Connecticut residents were receiving food stamps from the state program, which is fully funded by the federal government. That represents an all-time high and shows a sharp jump from 187,000 in November 2004, said David Dearborn, a spokesman for the state Department of Social Services."

"Iowa’s 2010 legislative session will be cut short, from the usual 100 days to 80, to save money for the cash-strapped state.

During those days, the governor and legislators will be sculpting a cost-cutting budget. A free fall in state tax collections means a spending gap of $400 million to $1 billion.

“It will be a tough, tough budget year. I think this is probably the toughest one that I’ve dealt with,” said Sen. Robert Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee. Dvorsky has been a legislator since 1987."

"The housing crisis and challenging economy forced more than 30,000 Marylanders into bankruptcy in 2009.

Nationwide, 1.43 million filed for bankruptcy, up 32 percent from the year before.

"A lot of people are having a tough time. I hope there is light at the end of the tunnel," said Lawrence Heffner Jr., a partner in the Frederick firm of Russell & Heffner."

"NASHVILLE, Tenn. – More and more Tennesseans are turning to food stamps to make ends meet.

Nearly 1,186,000 Tennesseans, or more than one in six residents, currently receive some kind of food stamp assistance and the number continues to climb."

"The number of contracts to buy previously owned U.S. homes fell more than forecast in November as Americans waited for a first-time buyer tax credit to be extended."

"The figure shows housing may be at risk of weakening when homebuyer incentives, which were extended in November, expire later this year. Unemployment close to a 26-year high and weaker consumer finances remain hurdles to a sustained acceleration in home sales that would help fuel the economy. "

"Jan. 5 (Bloomberg) -- The U.S. government will be plagued by record budget deficits for the foreseeable future, said Dino Kos, managing director at Portales Partners LLC in New York.

“It’s hard to see anything happening in Washington,” Kos said today in an interview on Bloomberg Radio. “It seems without a crisis there’s not enough will” to trim the gap.

In fiscal 2009, the budget deficit exceeded $1 trillion for the first time and “the risks are it will remain above $1 trillion for a very long time,” Kos said."

  • 17) Lots of interesting articles and blogs posted today at pension Tsunami.

Scroll through both the January 5 and January 4 headlines.

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Johnny Oxygen
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Johnny Oxygen
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Re: Daily Digest - January 5

For those of you who follow Darryl R Schoon you will really like this article.

Demise of The United States of America, An American Tragedy


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Re: Daily Digest - January 5

Iceland faces crisis amid $5b compo row


Iceland's president has refused to sign into law a bill to repay more than $US5 billion ($5.45 billion) lost by savers in Britain and the Netherlands, forcing the issue to a referendum and stirring fresh turmoil in the crisis-hit country.

President Olafur Grimsson's rejection of the unpopular bill put aid from international lenders and his country's aspirations to join the European Union in serious jeopardy, analysts said.

A Finnish official said the decision was likely to delay a loan of 1.8 billion euros ($2.84 billion) from Nordic countries. Continued financial assistance is vital in the wake of the north Atlantic island's economic meltdown.

Only once in the republic's 65-year history has a president, whose post is largely symbolic, refused to sign a bill into law. The constitution requires the issue to be put to a public vote if the president refuses to sign.

"It has steadily become more apparent that the people must be convinced that they themselves determine the future course," Mr Grimsson said.

The Dutch Finance Ministry said it was "very disappointed" and would demand an immediate explanation. The British Treasury said it would consult with Iceland and take up the matter in the European Union, where Britain and the Netherlands have a veto over Reykjavik's membership bid.

The cost of insuring Icelandic debt against default was little changed, with five-year credit default swaps at 428 bps after the news, compared with 427 on Monday.

Big surprise

After weeks of heated debate, Iceland's parliament late last month narrowly passed the bill in a move seen as a boost to the country's hopes of swift EU entry and of getting its shattered economy back on track.

But nearly a quarter of the nation's 240,000 voters signed a petition asking the president to refuse to sign the bill and force a referendum on the fiercely debated issue.

"This is a big surprise... it's very market negative," said Petter Sandgren, head of money markets at SEB.

"I assume it would affect the IMF package."

The Icesave deal is deeply unpopular with the Icelandic population and there is widespread feeling that taxpayers are being left to foot the bill for mistakes made by financial firms operating under the watch of other national regulators.

Critics say the bill would lumber Icelanders with an extra debt burden equivalent to 40 percent of gross domestic product or $18,000 per citizen, including interest payments.

Iceland's main banks - Kaupthing, Glitnir and Landsbanki, operator of the high-yield Icesave accounts - all imploded as the global financial crisis left them unable to service the huge debts run up in the course of a rapid expansion overseas.

The financial meltdown caused trade in the Icelandic currency to collapse and spawned a withering recession that has left the volcanic island nation dependent on billions of dollars worth of aid from the International Monetary Fund and others.

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Re: Daily Digest - January 5

NZ feels the heat after hottest decade

By New Zealand correspondent Kerri Ritchie


New Zealand, like Australia, has just experienced its hottest decade on record.

Last year in New Zealand conditions were cooler than normal, but overall, the past decade was the warmest since records began there 150 years ago.

James Renwick, a climate scientist with the National Institute of Water and Atmospheric Research, says there are plenty of causes.

"Natural variations, such as El Nino and volcanic eruptions, play quite a role," he said.

"That's what made the 1990s cool in a lot of places, especially New Zealand."

Most parts of New Zealand received above normal levels of sunshine in December.

Tauranga, south of Auckland, was the country's warmest city last month, while Christchurch was the driest and Dunedin the coolest.

Yesterday the Australian Bureau of Meteorology's annual report revealed that the past decade was the warmest in Australia since records began.

Last year was Australia's second-warmest year on record, with the annual mean temperature 0.90C above average.

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Amory Lovins - Freeing America from its addiction to oil


"Oil is on its way out. That journey will take several decades, but it's begun. Mindful markets and civil society will complete it as inexorably as innovators and capitalists got America off whale-oil lamps in the 1850s."


Nothing to worry about folks, The future is absolutlely all under control with all the solutions already baked in...Wink




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Re: Daily Digest - January 5



Thanks for the link to the Schoon article.  I had never read him before.

What a succint explanation of our current state.  IMO, he hits the nail right on the head.  A tragedy, indeed.  So much promise has been wasted for the benefit of so few, and we have so horribly duped in the process. 

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Re: Daily Digest - January 5

Hi Johnny Oxygen-

   Yes, I always look forward to checking out Darryl Schoon's articles when they come out on FInancialSense.com.  He seems to "get it".  I look forward to reading this one as well!  Thanks for sharing.


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