Daily Digest

Daily Digest - July 14

Tuesday, July 14, 2009, 10:45 AM
  • When Will The Recovery Begin? Never.
  • Pete Peterson on Charlie Rose (Videos short and long, repost)
  • Roubini and Shiller on U.S. Economy (Video)
  • Detroit Public School System Ponders Bankruptcy
  • Stress Test IQ Test for Banks or the Legal System
  • Water Regulations & Unemployment in Mendota (H/T iDoctor, Video)
  • Banks: Here Come The OptionARM Blowups!
  • Goldman Sachs Likely to Post Huge Profits, Analysts Say
  • Two Beers with Steve: Health Care
  • Shiller: Stocks Fairly Valued But “Could Go Down a Lot”

Economy

When Will The Recovery Begin? Never.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

Pete Peterson on Charlie Rose (Videos short and long, repost)

Roubini and Shiller on U.S. Economy (Video)

00:00 Outlook for the U.S. economy, recession
07:07 Reasons for current economic condition
11:50 Unemployment rate; fiscal consolidation
18:29 Case-Shiller Index; green shoots in housing
30:05 Second stimulus package; consumer spending
34:43 Roubini, Shiller respond to questions.

Detroit Public School System Ponders Bankruptcy 

The Detroit Public Schools may have no choice but to file for Chapter 9 bankruptcy, which would make it the first big-city school district to use bankruptcy court to avoid paying millions to vendors, employees and bondholders, experts said Thursday.

DPS Emergency Financial Manager Robert Bobb is continuing to consider the option and met Thursday with retired U.S. Bankruptcy Judge Ray Reynolds Graves.

Jim McTevia of McTevia & Associates of Bingham Farms, which works with companies with serious financial troubles, said DPS has three choices to solve its projected $259-million budget deficit: raise more money, cut costs or declare bankruptcy.

More revenues are extremely unlikely, given DPS's projected enrollment decline of 12,000 students and anticipated state funding cuts. McTevia estimated DPS would have to cut its costs as much as 50%, an almost impossible feat given that more than 80% of most school district costs are salaries and benefits mandated by contracts.

Stress Test IQ Test for Banks or the Legal System

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

... court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm -- Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. -- to defend itself against its own lawsuit, according to court documents.

Wells Fargo's defense lawyers even filed an answer to their client's own complaint.

"Defendant admits that it is the owner and holder of a mortgage encumbering the subject real property," the answer reads. "All other allegations of the complaint are denied."
Your TARP money hard at work ...

 Water Regulations & Unemployment in Mendota (H/T iDoctor, Video)

Banks: Here Come The OptionARM Blowups!

NEW YORK (Dow Jones)--For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the housing crisis.

A further acceleration of troubles among the loans could mean higher-than-expected losses for Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), as well as the Federal Deposit Insurance Corp.'s own insurance fund.

Yep. Bank-o-rama is not over. And by the way, this is what I said to Dick Bove on this subject well over a year ago:

Also note that we STILL haven't gotten entirely back to sound lending principles, which are 20% down payments, 36% DTI and a 30 year fixed mortgage. Until we do and prices adjust at that level we are not at a housing bottom.

There is much more, of course, if you care to review that article. It's actually pretty good.

 Goldman Sachs Likely to Post Huge Profits, Analysts Say

Analysts predict the bank earned more than $2 billion in the March-June period, thanks to its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so dramatically only months after the nation’s financial industry was shaken to its foundations.

The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.

“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.

Startling, too, is how much of its profits Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 per employee. Top producers stand to earn millions.

Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter of the year, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.

Two Beers with Steve, Health Care

This time around is a true roundtable discussion on the 'public vs. private healthcare' debate. I (Steve) think most people have formed their opinions without chasing this argument all the way through. This turned out to be a fascinating episode.

 Shiller: Stocks Fairly Valued But “Could Go Down a Lot" (Video)

 

26 Comments

Sirial's picture
Sirial
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Re: Daily Digest - July 14

Incredible how GS dares to openly give their employees those bonuses without any hesitation, their pr department must be working 24 hours a day to try and spin that.

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FireJack
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Re: Daily Digest - July 14

Why would GS bother saying anything at all? What are people going to do,complain about it? The very few people who actually read the news and are angry about what GS is doing are helpless. GS owns the authorities that actually could do anything about any illegal activities GS does. The financial system has become completely lawless.

idoctor's picture
idoctor
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Re: Daily Digest - July 14

Peter Schiff & Dennis Kneale 7-13-09

Can It Get Any Worse?

Gerald Celente 7-9-09

1.

2.

3.

4.

5.

6.

There really maybe too much gloom & doom hear but at least I am listening while keeping my mind open to the possibilities.

 

 

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Nikki.Pender
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Re: Daily Digest - July 14

This piece from James Quinn at the Burning Platform is a must-read.

http://www.marketoracle.co.uk/Article11989.html

It is a variation on one of his earlier blogs, where he considers the current state of affairs in the US in light of the generational cycles identified in the Neil Howe & William Strauss 1997 book, "The Fourth Turning".

Also, did you notice this OpEd in yesterday's WSJ?  Interesting that the MSM is increasingly questioning the "green shoots" theory.

http://online.wsj.com/article/SB124753066246235811.html#mod=rss_opinion_...

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Re: Daily Digest - July 14

What do you mean 'gloom and doom' Nikki? These reports are pretty optimistic I think.

pwoody

 

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cannotaffordit
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Re: Daily Digest - July 14

 Well worth reading again......

Firejack said:   "Why would GS bother saying anything at all? What are people going to do,complain about it? The very few people who actually read the news and are angry about what GS is doing are helpless. GS owns the authorities that actually could do anything about any illegal activities GS does. The financial system has become completely lawless."   (my emphasis)

You nailed it Firejack!

 
DavidC's picture
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Re: Daily Digest - July 14

New Instapoll, allows pundits to pander to viewers in real time..

www.theonion.com/content/video/new_live_poll_allows_pundits_to

DavidC

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Re: Daily Digest - July 14

Goldman Sachs have just robbed the world blind, and the world's media have reported it as a positive sign of economic recovery.

I really feel for all of the victims that are about to suffer waves of suicidal despair.

DON'T GIVE IN!

Davos's picture
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Re: Daily Digest - July 14

 Hello Tim G:

You might enjoy this read about GS. Take care

Goldman executives sold $700m of stock

The surge in selling among Goldman partners, at a time when the US government had thrown a lifeline to Wall Street, is likely to draw criticism from lawmakers on Capitol Hill. Having survived the crisis, the bank is expected to report strong second-quarter earnings on Tuesday on rebounding trading profits.

For the eight-month period for which figures are available, Goldman partners sold more than $691m in company stock, even as the firm expanded its public float from 395m to 503m shares in several capital raises.

For the comparable period between September 2007 and April 2008, when the average share price was substantially higher, Goldman partners sold about $438m in stock.

A spokesman declined to comment on the sales, other than to note that Goldman partners receive a big share of annual bonuses in stock, and that for many, stock sales are an effort to diversify their holdings.

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Re: Daily Digest - July 14

On Capitol Hill, Ron Paul has been making great progress on HR1207. He regularly writes some great articles on Fed transparency, among other financially significant matters. They are short, easy, yet informing reads. Recently he wrote this piece on Fed Transparency vs. Fed Secrecy. I encourage you to add it to your weekly reading: 

http://www.campaignforliberty.com/article.php?view=137

Fed Independence or Fed Secrecy?
By Ron Paul
Published 07/14/09

Bookmark and Share         Printer-friendly version 

Last week I was very pleased that hearings were held on the independence of the Federal Reserve system. My bill HR 1207, known as the Federal Reserve Transparency Act, was discussed at length, as well as the general question of whether or not the Federal Reserve should continue to operate independently. 

The public is demanding transparency in government like never before. A majority of the House has cosponsored HR 1207. Yet, Senator Jim DeMint's heroic efforts to attach it to another piece of legislation elicited intense opposition by the Senate leadership. 

The hearings on Capitol Hill provided us with a great deal of information about the types of arguments that will be levied against meaningful transparency and how the secretive central bankers will defend the status quo that is so beneficial to them. 

Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of "independence". 

They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles. 

They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics -- power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations. They do this partly because of the political appointee process for the Chairmanship. 

The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time. It is Congress's constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. This was the issue that got me involved in politics 35 years ago. It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue. 

idoctor's picture
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Re: Daily Digest - July 14

This piece from James Quinn at the Burning Platform is a must-read.

http://www.marketoracle.co.uk/Article119...

Nikki thanks for this interesting read. I believe Chris shows an energy chart sort of going over a waterfall but this chart in this article shows energy going down at a stair step fashion. This makes more sense to me since I would think every time our economy picks up (which it will) we run up against high cost of fuel then the economy goes south again & so will energy usage.

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Re: Daily Digest - July 14

Yeah well.....  I'm surprised!!

http://www.guardian.co.uk/business/2009/jul/09/nationwide-introduce-125-percent-mortgage

Nationwide brings back 125% mortgage

Thursday 9 July 2009

Mortgages allowing people to borrow up to 125% of a property's value are making a surprise comeback after Nationwide launched a deal aimed at homeowners trapped in negative equity who are keen to move house.

Britain's biggest building society said yesterday that the new mortgage would allow homeowners to "carry over" their negative equity and experts said it could throw a lifeline to people stuck in their homes who needed to move house. Other lenders look set to launch their own versions in the coming months.

Details of the deal emerged as new research from the National Association of Estate Agents revealed that nearly one in four people claimed they were unable to get a mortgage due to the tighter lending criteria being used by banks and building societies.

The return of "125% mortgages" will surprise many who probably thought such deals were history following the credit crunch and the clampdown on mortgage lending that followed.

VeganDB12's picture
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Re: Daily Digest - July 14

What is the incentive for the lender to do this?  There must be some serious financial advantage for the lender and/or broker. 

For the owner, I think this arrangement is called "rent". Except you get to pay all the taxes, interest and repairs on top of everything else. "Rent Plus".

Regards

D

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Re: Daily Digest - July 14

I think most people here in the UK are disgusted with the Nationwide. I am sure they would not be doing it if they did not have the reassurance of a government bailout in the back of their minds. You would think the government would stop them wouldn't you, but I guess they have too much on their plates at the moment.

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Re: Daily Digest - July 14

 Hello Denise: I was wondering the same, the Meridith post I put up on the 15th talks of 75b going to lenders as incentive to re-mod and they have accounting incentive inherent with the re-mod. Don't have details on this yet, but I can assume I won't be surprised if not more of the same. Take care

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Re: Daily Digest - July 14

"Steiner's new book, $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better, is a surprisingly optimistic look at a world no longer ruled by petroleum."

http://www.suntimes.com/news/transportation/1663092,CST-NWS-ride13.article

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Re: Daily Digest - July 14

Hello Greg,

Great find, thank you. Good information, however like all other writers that put pen to paper or keys to a puter miss one fact, our population is not just getting exotic foods from oil but base foods as well.   Change would happen for sure and once we as a people (meaning humanity) re-balances with the $20.00 per gallon, I believe we would be better off. 

The path to get there would be much worse than just no Disney World or reduced vacations.  Think about this more than half the worlds populations live in big cities.  Big cities depend on resources from the country areas to survive.  If there is not enough food being made in the country areas and shipping is reduced due to fuel prices than these cities cannot be supported.  Their would be famine, death, riots, chaos for a period of time at one level or another.  Many city people would leave the city in search for food anyway they can get it.

$4.00 gas may have changed our habits, but at what point do habit changes yield to society failure?

 

idoctor's picture
idoctor
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Re: Daily Digest - July 14

Fed Sees Economy Improving But Joblessness at Over 10%

http://www.cnbc.com/id/31923881

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FOMC Minutes Summary

FOMC Minutes Summary: Economy remained very weak, though declines in activity seemed to be lessening

The information reviewed at the June 23-24 meeting suggested that the economy remained very weak, though declines in activity seemed to be lessening. Employment was still falling, and manufacturers had cut production further in response to excess inventories and soft demand. But the reductions in employment and industrial production had slowed somewhat, consumer spending appeared to be holding reasonably steady after shrinking in the second half of 2008, and sales and construction of single-family homes had apparently flattened out. In addition, the recent declines in capital spending were smaller than those recorded earlier in the year. Consumer price inflation was fairly quiescent in recent months, although the upturn in energy prices appeared likely to boost headline inflation in June.... Consumer spending appeared no longer to be declining but nonetheless remained weak... Indicators of single-family starts and sales suggested that housing activity may be leveling out, but most participants viewed the sector as still vulnerable to further weakness... Labor market conditions were of particular concern to meeting participants. Although some improvements were evident in new and continuing unemployment insurance claims and the May payroll report was less weak than expected, job losses remained substantial over the intermeeting period and the unemployment rate continued to rise rapidly.... In their discussion of monetary policy for the period ahead, Committee members agreed that the stance of monetary policy should not be changed at this meeting. Given the prospects for weak economic activity, substantial resource slack, and subdued inflation, the Committee agreed that it should maintain its target range for the federal funds rate at 0 to 0.25 percent. The future path of the federal funds rate would depend on the Committee's evolving expectations for the economy, but for now, members thought it most likely that the federal funds rate would need to be maintained at an exceptionally low level for an extended period, given their forecasts for only a gradual upturn in activity and the lack of inflation pressures. The Committee also agreed that changes to its program of asset purchases were not warranted at this time. Although an expansion of such purchases might provide additional support to the economy, the effects of further asset purchases, especially purchases of Treasury securities, on the economy and on inflation expectations were uncertain. Moreover, it seemed likely that economic activity was in the process of leveling out, and the considerable improvements in financial markets over recent months were likely to lend further support to aggregate demand. Accordingly, the Committee agreed that the asset purchase programs should proceed for now on the schedule announced at previous meetings.
 

Source:  Briefing.com

FireJack's picture
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Re: Daily Digest - July 14

From calculated risk:

Show me the Engines of Growth

I still think the keys are Residential Investment (RI) and PCE, and therefore I think the recovery will be sluggish. The increasingly severe slump in CRE and non-residential investment in structures will be interesting, but that is a lagging indicator for the economy.

 

 

Does anyone know why calculated risk thinks we've bottomed out and will see a slow recovery? I mean there the ones that have been making all those posts about the alt a option arm and comercial real estate collapse yet they still see a slow recovery starting now?  The CRE and the alt-a option arm fiasco will be interesting? I just don't understand.

Davos's picture
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Re: Daily Digest - July 14

  I just don't understand.

++1 Neither do I FireJack, seems to me we took a right hook to the chin with the 1.5 trillion +/- sub prime mess and now we have a left hook of 1.5 trillion in alt a's and ninja' and option arms coming followed by a blow to the gut with 3.5 trillion in cre and if that isn't bad enough primes are in default hit by systemic risk.

26 million unemployed that aren't going to be helping the economy.

And the markets are up, lead by the financials?

Got me, like a bizarre dream. Take care

cannotaffordit's picture
cannotaffordit
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Re: Daily Digest - July 14

 Help!  I'm worried.  I have not been able to get the Daily Digest for today, July 15.  Does anyone know if Davos is ok, or just didn't post today, or what?  He certainly deserves a day off!!!  

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Re: Daily Digest - July 14

Davos,

I'm with Ben! It's an indication of your contribution to Chris's site, Davos, that the daily posting is missed if it's not there!

The jobless figures in the UK are now worse than they were before Labour came into power and yet the market in the UK today rose more than the US (percentage wise) and has risen over 6% in the last 3 days;

news.uk.msn.com/uk/article.aspx

I also read a piece today saying that the Chinese market could be ready for a fall (my apologies, I can't re-find the link) - I wonder if the last three days' rise is a precursor to a (big) fall? Everything just seems to be defying the facts - Meredith Whitney's 'recommendation' of Goldman was only part of a pretty bearish

DavidC

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Damnthematrix
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Re: Daily Digest - July 14

http://www.dailymail.co.uk/news/article-1199311/Cut-population-say-crowded-Britons.html#ixzz0LJ9dqiDW&D

Cut population by a third, say crowded Britons
By Steve Doughty
14th July 2009

One in four Britons would like to see the population reduced by up to a third to ease overcrowding.

A survey has revealed deep anxiety about pressure on the environment and the impact
of migrants on public services and social cohesion.

Nearly seven out of ten adults believe the best way to curb population growth is to cut immigration, the poll showed.

The findings, gathered in a YouGov survey for the environmental pressure group Optimum Population Trust, suggest there is widespread unhappiness over official projections that the population will rise to 70million in the next 20 years.

The number of British citizens has grown by around two million in the past decade.

The exact figure is unknown because of the difficulties in precisely measuring immigration. This has brought the population to around 61million.

Immigration minister Phil Woolas has promised that the Government will not allow numbers to reach 70million, a pledge that has provoked mockery from political opponents.

Davos's picture
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Re: Daily Digest - July 14

I'm here and current to the 16 or 18th, I'll email Chris, maybe the url of each digest got lost in the mail. SORRY! THanks for the heads up, take care

idoctor's picture
idoctor
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Re: Daily Digest - July 14

One guy has warned me repeatedly that if this is a depression markets do the opposite of what you expect. They will take the shorts to the cleaners & then rip the longs also.

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