Daily Digest

Daily Digest - July 16

Friday, July 16, 2010, 10:50 AM
  • Why Are the BIS Gold Swaps Important?
  • Government Policies Pushing Towards Depression
  • Gold Illusory Bubble and the Debt Bubble End Game
  • North Korea's Health System In Dire State
  • European Banks: Don't Flunk This One
  • The Last Bubble: The Problem of Unresolved Debt in the US Financial System
  • BP Says Oil Flow Has Stopped as Cap Is Tested
  • Texas Remains Stoic as Spill Hits Its Shores
  • From a Gulf Oyster, a Domino Effect
  • West Nile Virus Case Confirmed In East Baton Rouge Parish
  • Rift Valley Fever: It Could Be Catastrophic

Economy

Why Are the BIS Gold Swaps Important? (Davos)

Like Enron, the tech bubble, the housing bubble, the Madoff Ponzi scheme, financial deregulation, OTC derivatives, relaxed pension fund rules, and the financial assets bubble, this bullion bank scheme is going to blow up and collapse, and the public is going to be asked to pay the bill, and ignore all the wrongdoing for their own good.

Government Policies Pushing Towards Depression (pinecarr)

The more indebted an economy becomes, the greater the burden that must be borne by the wealth-creating private sector. Indeed, at the present rate of government debt-financing, the private sector will have to contribute some $2 trillion each year in interest costs alone. This money must be raised by taxation or inflation.

Gold Illusory Bubble and the Debt Bubble End Game (pinecarr)

The real bubble is government debt, not gold. Government debt is a bubble that hasn’t yet burst; one that has grown even more rapidly in the last two years as almost all nations went far deeper into debt after the 2007/2008 global collapse.

North Korea's Health System In Dire State (Chenqi)

The destitute state has seen its economic woes deepen since a currency revaluation carried out late last year backfired, leading to public discontent even as it raised security tensions with threats of war against the South.

European Banks: Don't Flunk This One (jdargis)

Stress tests are certainly needed. Banks and transparency are not always a good combination. When a carmaker admits it has a hole in its balance-sheet, its factories are still there a week later; when a bank does so it usually suffers a devastating run. This is why regulators sometimes like to deal with dud banks in secret. But when there is already a widespread loss of confidence, sunlight is the only treatment left. That happened in Japan in 2002-03, when zombie banks were at last prodded to own up to their bad debts, and in America last year.

The Last Bubble: The Problem of Unresolved Debt in the US Financial System (Davos)

What Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that's right: US homeowners lost more, by a factor of 26, than they "gained" through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333.

Environment

BP Says Oil Flow Has Stopped as Cap Is Tested (jdargis)

The announcement came after a series of failed attempts to cap or contain the runaway well that tested the nation’s patience. Mr. Wells emphasized that pressure tests were being conducted to determine the status of the well, which is now sealed like a soda bottle. BP and the government could decide to allow the oil to flow again and try to collect all of it; they could allow the oil to flow and, if tests show the well can withstand the pressure from the cap, close the well during hurricanes; or they could leave the well closed permanently.

Texas Remains Stoic as Spill Hits Its Shores (jdargis)

“O.K., so tar balls have washed up, and I think we’d all agree, it’s not a disaster, it’s a nuisance,” Mr. Jaworski said in an interview, after doing a radio broadcast with a visiting Houston D.J. from the lobby of one of Galveston’s largest resorts.

From a Gulf Oyster, a Domino Effect (jdargis)

The rocklike oyster and the burlap sack. As basic as it gets in the gulf, yet both are integral to a complex system of recycling and ingenuity, a system now threatened, along with most everything else, by the continuing oil-spill catastrophe in the gulf.

West Nile Virus Case Confirmed In East Baton Rouge Parish (Chenqi)

"No matter what time of year it is, and no matter how active the season, it is important for residents to take preventive steps to control the mosquito population," said state epidemiologist Dr. Raoult Ratard.

Rift Valley Fever: It Could Be Catastrophic (Chenqi)

The ministry said at the time it announced the outbreak in Ramotswa that it was putting restrictions on animal movement in the areas likely to be affected. These included Gaborone, Tlokweng, Kgatleng, South East, Lobatse and the greater Goodhope areas. That the disease was now found in Kanye shows that the restrictions put in place either came too late or have not been effective. It shows that the disease may already affect many other areas.

Please send article submissions to: [email protected]

13 Comments

saxplayer00o1's picture
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Re: Daily Digest - July 16

"LOS ANGELES (MarketWatch) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said Thursday that the U.S. is at risk over its sovereign-debt levels and that the newly passed bank-reform legislation could pose challenges for some lenders.

In a speech in Norfolk, Va., Lacker reiterated fears that U.S. fiscal policy is unsustainable and that "the well-being of future generations is at stake."

"Granted, the fiscal situation is even worse in some other countries, but I don't think we want to find out how close we can get to a full-blown fiscal crisis before taking corrective actions," he said, according to prepared comments issued by the Richmond Fed."

"Pittsburgh City Council President Darlene Harris announced Thursday four meetings to discuss Mayor Luke Ravenstahl's plan to lease the city's parking assets as a way to preserve the municipal pension system."

"Ravenstahl's plan is to lease the parking assets to a private firm and use the proceeds to plunk a one-time lump sum of $200 million into the pension system and erase roughly $105 million in Parking Authority debt. The pension funds have about one-third of the $1 billion needed to cover obligations and must reach the 50 percent threshold by the end of the year to avoid a state takeover."

"ALBANY — Despite New York’s fiscal woes, the projected state budget increases spending 7.6 percent over the 2009-10 budget year, or $9.6 billion, according to a report released Thursday by state Comptroller Thomas DiNapoli.

DiNapoli panned attempts by lawmakers and Gov. David Paterson to close a $9.2 billion deficit, saying they still may be leaving a $4.8 billion hole because of risky revenue projections.

When adjusted for payments that were delayed from 2009-10, including more than $2 billion in education aid, projected spending will be $5.4 billion higher this year, a 4.2 percent increase and more than twice the rate of inflation, which is running about 2 percent, the report said."

.......................3A) NY budget to spend twice inflation rate

"Each taxpayer across Missouri would need to shell out $5,000, compiling a total of $9.1 billion, to help the state pay all of its obligations, according to research by the Institute for Truth in Accounting.

Even though Missouri cannot seek financial relief in a bankruptcy court, the state meets the definition of bankrupt — a lack of assets to pay its bills when they come due — reports the Chicago-based non-profit that promotes accurate and transparent accounting.

Missouri had obligations of $14.1 billion as of June 30, 2009, but only $5 billion available to pay the bills when they come due, IFTA notes. The organization used the June 2009 data because it is the date of the latest financial report issued by Missouri.

“The state is going further into debt and the public just doesn’t know about that debt,” Sheila Weinberg, founder and CEO of IFTA, told Missouri Watchdog.

While $5,000 for each taxpayer to cover the $9.1 billion might seem steep, it is not as high as other states, Weinberg said, pointing out the total amount for each taxpayer in Maine is $14,600, $15,600 in Oklahoma, $25,000 in Illinois, and $57,000 in New Jersey. The amount is lower in Missouri because the state is not required to contribute to the teachers’ pension or retirees’ health-care plans, she said."

"Moody's Investors Service downgraded another $16.7 billion of securities backed by subprime residential mortgages as the loans' performance continues to worsen.

It has downgraded hundreds of billions of dollars worth of residential mortgage-backed securities in recent months as credit raters have steadily increased loss expectations on them amid low home prices, high unemployment and a slow recovery still not felt by many homeowners.

Moody's said Thursday it downgraded 251 tranches from 52 RMBS transactions issued by Morgan Stanley (MS) from 2005 to 2007. It upgraded five tranches.

RMBS helped feed the housing boom and wound up in the hands of investment funds or in more complicated pools known as collateralized debt obligations, in which underlying mortgage pools were further sliced into tranches according to their perceived risk and sold."

"Vacant towers dot the downtown skyline as economy sputters

The third time was not the charm for the state of Alabama when it tried to sell its former Taxpayer Service Center building in downtown Birmingham.

Vacant since 2007, the state recently put out an invitation for bids to buy the three-story, 7,000-square-foot building on the 2000 block of Third Avenue North, with an asking price of $550,000.

But, this being the third invitation for bids since 2007 and the second price drop from the original $1.84 million, there were no takers – again, said Jay Carothers of the State Lands Division in the Department of Conservation and Natural Resources.

“It’s been vacant since August of 2007, but continually maintained,” she said. “We just keep dropping the price and hope there’s someone out there who may want it.”

The state’s building is joined by a growing number of vacant older structures in downtown Birmingham that are for sale and looking for new owners in a market seeing little activity.

Buildings like the Brown Marx Building, Empire Building and Chamber of Commerce Building – all vacant towers along First Avenue North that were once proposed for residential use – aren’t ideal candidates for office or retail, said John Lauriello, president of Southpace Properties.

“They are ideal for residential or mixed use, but the problem is that market has gone away for awhile,” he said. “The market is depressed as far as residential. The class B office market is soft and it will cost a lot to renovate everything in those buildings. Who’s willing to take those chances?”"

"With vacancies still on the rise in commercial properties in most parts of the U.S., construction of new buildings is expected to be rare this year and next, the American Institute of Architects said Wednesday.

Even with modest improvements in the economy, construction spending on hotels, office buildings, warehouses and malls is expected to decrease by more than 20% in 2010, followed by a marginal increase of about 3% in 2011, the architecture trade group said."

"July 16 (Bloomberg) -- The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.5 in July from 76 a month earlier, below forecasts. Economists surveyed by Bloomberg News had a median projection of 74. Bloomberg's Mike McKee reports. (Source: Bloomberg)"

  • Other news and headlines:

 

Greenspan Calls for Congress to Let All Bush Tax Cuts Expire

Reid says Senate will vote Tuesday, July 20, on unemployment extension

Analysts: Pennsylvania Turnpike tolls will likely rise sharply

US corporate defaults hit record in 2009: S&P

Many campuses shortening calendar because of state budget crisis. (California)

Government cuts to cost 13000 jobs in Birmingham, consultants warn (UK)

Police and fire pensions get padded despite Illinois' pension deficit crisis

More Police, Fire Cuts For Cash-Strapped Vallejo

Food Share Program Declares Bankruptcy (Colorado)

State Medicaid Programs Could Be $850M in Red (Wisconsin)

With public housing rent owed, evictions feared (SF)

More than 200 Newark police officers may face layoffs due to $16.7M budget shortfall

Medicaid fee cuts could set off a stampede of doctors (Texas)

Balloning European Budget Deficits Mean Longer Waits for the Gold Watch

Nevada still No. 1 in foreclosures as more price declines expected (75% of Las Vegas homeowners "underwater")

23.5 percent of office space in Las Vegas is now vacant

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Re: Daily Digest - July 16

Economists. (comic strip)

Laughing

http://www.smbc-comics.com/index.php?db=comics&id=1940#comic

 

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Re: Daily Digest - July 16

http://market-ticker.denninger.net/archives/2511-Oil-Spew-Update-Wheres-...

an article showing all the bs that floats around the blogs - even some good ones.  Unfortunately, this misinformation is rampant not only with the oil spill but with financial numbers.

Fear sells. 

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Re: Daily Digest - July 16

Casey says it well & uses the m word, which I have noticed is becoming a quite popular on a LOT of blogs, and quite obviously for a good reason.

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Re: Daily Digest - July 16

Over at http://collapsenet.com/ Mike Ruppert posted a vid of an interview by Dylan Ratigan talking to Matt Simmons about the second hole theory.  I'm beginning to think both Ruppert and Simmons have gone 'round the bend.

Doug

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Validation test negative

Miami Beach man didn't have dengue

Miami-Dade County health officials said Friday that they were apparently wrong about a Miami Beach man whom they announced had suspected dengue fever.

A validation test from a state lab in Tampa that arrived Friday was negative, said Miami Dade Health Director Dr. Lillian Rivera.

Based solely on symptoms, Rivera announced Thursday that her health agency suspected a Miami Beach man had locally acquired dengue, a mosquito-borne illness that hasn't been endemic to Florida since the 1930s.
She had made the decision to warn the public right away, rather than wait the two days for the state's confirmatory test, because the symptoms seemed so classic, she said.

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Why I Invest With Mish

The following post from Mish explains perfectly why I decided to invest my capital with Mish and Sitka Pacific Capital Management. If your a fan of Peter Schiff, you might want to skip this one however.

 

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Time For A Dollar Bounce

The time for a dollar bounce is at hand. One reason I make that statement is the single best contrarian indicator on the US dollar has spoken.

Please consider Dollar Rout by Peter Schiff, July 15, 2010.

Peter Schiff has proven to be a huge contrarian indicator on commodities, on China, on foreign investments, and on the US dollar. I suspect this video will be no different.

In the video, Schiff makes a case that it was impossible to see these bounces coming. I disagree and have called for several of them.

Political Alignment vs. Investment Decisions

Politically I align with Peter Schiff. The financial sector bailouts were obscene, as are all of the stimulus efforts. There will be hell to pay for both.

However, investment-wise I cannot and do not agree with Schiff. His hyperinflationary rants are simply unfounded. The reason he cannot see the forest for the trees is he fails to consider the role of credit in a fiat-based credit world.

Credit dwarfs money supply. Much of that credit cannot and will not be paid back. Schiff got that part correct, in spades, predicting as many others did a collapse in housing. His mistake was in assuming the dollar would crash with it.

Think about that for a second. If the dollar crashed to zero, the number of dollars it would take to buy a house would be infinite. There has never been a hyperinflation in history where home prices crashed and barring some war-zone anomaly, I doubt it ever happens.

If hyperinflation was in the cards, the correct response would be to buy as much real estate as possible given real estate only requires 5% down, margin hard to come by in any other play except derivatives.

-----------------------------------------------------------------------------------------------------------------------------------------------------------

 

I should note that despite my belief that gold is going to get creamed in the upcoming deflationary black hole event, Mish's Absolute Return portfolio has a significant gold allocation. I guess I can live with that. Also, I should point out that Mish is only an advisor to Sitka Pacific. Its actually Brian McAuley that does most of the heavy lifting.

Overall, I have been overjoyed to find a money management team that is in accord with my own thinking and highly recommend their services to all. And in full disclosure.....no,  I'm not getting a free toaster for any referrals. 

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Drought or Disease

 

Say you're just an ordinary farmer.

You don't know whether your crops will be afflicted by drought or disease, but you've seen increasingly strange conditions over the past few years and it's definitely gotten more and more unpredictable. One or the other (or both) will VERY likely occur in the near future.

There are other growers arguing over drought OR disease. Some have bet their whole farm based on one or the other. It's understandable. They wouldn't have such strong convictions if they didn't have strong arguments in their favor.

But the very fact that there is such controversy with good points on each side tells the small farmer that you can't know for sure which will occur. With only a small stash of seeds to eat from or to plant with and so much uncertainty in the air, a small farmer has to be conservative.

So what can you do if you aren't sure?

1. First of all, you're going to avoid sowing or tending crops that can easily fail due to either drought or disease or both. This means being careful in what you invest in. The more meager your resources are, the more important preservation and research becomes.

2. Second of all, you're not going to want to enter into any contracts where you'll have to deliver crops in the future. Because you may not have enough crops to deliver in the future AND to feed your family with - you want devote any and all production to go to yourself and to your family. This means getting out of debt.

3. Because certain crops tend to do well under drought conditions and others are resistant to disease - but very few excel under both conditions, you'll need to hedge your bets. The old Incans knew over 200 varieties of potatoes - certainly you won't find an Irish Potato Famine there. You can't afford to bet fully one way or the other - even if there is only a small chance you will be wrong.

So, that is what I think. I think this is also how Dr. Martenson is thinking.

Poet

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Re: Drought or Disease

Poet,

You're right on as you describe farming/ers.

robie,husband father farmer optomtrist

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Another big jump in national debt today

The Daily History of the Debt Results

Historical returns from 07/13/2010 through 07/15/2010

The data for the total public debt outstanding is published each business day. If there is no debt value for the date(s) you requested, the value for the preceding business day will be displayed.

( Debt Held by the Public vs. Intragovernmental Holdings )

 

Date Debt Held by the Public Intragovernmental Holdings Total Public Debt Outstanding
07/13/2010 8,639,463,545,519.75 4,559,827,310,684.56 13,199,290,856,204.31
07/14/2010 8,639,660,769,988.28 4,549,844,796,227.55 13,189,505,566,215.83
07/15/2010 8,687,401,404,190.30 4,552,827,117,304.58 13,240,228,521,494.88

 

 

Enjoy the weekend!

 

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Re: Daily Digest - July 16

CHART OF THE DAY

0 comments

 

Posted on 16th July 2010 by JimQ in Economy

bad debt, bank of america, FHA

 

This is a chart that tells it all. It is from Bank of America’s presentation today. Over the last two quarters, their credit card delinquencies have declined by $3.3 billion. At the same time, their mortgage delinquencies have increased by $3.2 billion. Does anyone see a correlation? Bank of America couldn’t possibly be reporting much better credit card losses because they are allowing these same people to not make their mortgage payments? They wouldn’t do that, would they? Well they aren’t doing it on the non-FHA guaranteed mortgages. Those delinquencies are falling. The FHA backed mortgages are going bad by the billions. These FHA loan delinquencies have soared by 39% in the last two quarters.

Guess who is on the hook for the FHA mortgage loans? Right again. YOU THE TAXPAYER. Bank of America and your government have #$%$#@&*%@#! you again.

BofA FHA Delinquencies Q2 2010

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Re: Daily Digest - July 16

"What Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion."

Bah - bogus statistics.

Any time you compare the absolute peak of a bubble to depressed prices, you're going to get eye-popping numbers. Why not compare from some other time, like 2000? Well gosh, looky here - nominal housing prices went from an average of $125,000 to $170,000! Well, now we can say that homeowners' equity increased almost 50%. Even if you look at the inflation adjusted numbers, housing prices increased in that period.

Let's not throw fuel on the fire by abusing the numbers. We've got enough to worry about as it is.

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Re: Daily Digest - July 16
tedsan wrote:

"What Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion."

Bah - bogus statistics.

Any time you compare the absolute peak of a bubble to depressed prices, you're going to get eye-popping numbers. Why not compare from some other time, like 2000? Well gosh, looky here - nominal housing prices went from an average of $125,000 to $170,000! Well, now we can say that homeowners' equity increased almost 50%. Even if you look at the inflation adjusted numbers, housing prices increased in that period.

Let's not throw fuel on the fire by abusing the numbers. We've got enough to worry about as it is.

That's a valid point, for those purchases pre-bubble. For purchases and seconds taken during the bubble, (which spanned  1999-2006/7) this statement doesn't take into account the ramifications of the drop from peak. There are a myriad of ramifications: Yanked and or stunted seconds, people upside down not paying mortgages, banks now using mark to fantasy accounting to appear solvent when there not.

THE BUBBLE

Perhaps the best article I read about this was Jim Quinn's write in Oct. of 2008. 

I say one of the best reads because it specifically addresses where a lot of the fuel for the economy came from.

In the last five years, our live-for-today Boomers sucked over $3 trillion of equity out of their homes to fund their selfish lifestyles....

What “essentials” do the Boomers invest all this borrowed money in every year? The U.S. Census bureau provides the answers:

 

$200 billion on furniture, appliances ($1,900 per household annually)

$400 billion on vehicle purchases ($3,800 per household annually)

$425 billion at restaurants ($4,000 per household annually)

$9 billion at Starbucks (SBUX) ($85 per household annually)

$250 billion on clothing ($2,400 per household annually)

$100 billion on electronics ($950 per household annually)

$60 billion on lottery tickets ($600 per household annually)

$100 billion at gambling casinos ($950 per household annually)

$60 billion on alcohol ($600 per household annually)

$40 billion on smoking ($400 per household annually)

$32 billion on spectator sports ($300 per household annually)

$150 billion on entertainment ($1,400 per household annually)

$100 billion on education ($950 per household annually)

$300 billion to charity ($2,900 per household annually)

So this equity, which is now gone, was in fact fuel for the economy. I myself am hesitant to write it off as a bogus statistic. That 9 billion borrowed dollars spent at Starbucks that was taken from home equities during the bubble equated to 900 Starbuck stores closing post pop.

stupidityBubbles

That money is gone. If you take a peek at the twin peaks above you'll see that since 1995 we've been a bubble market. There is no money, and without money I don't see how we are going to get another bubble.

Just my 2 cents. Again, I agree that if someone had a house way back when and it went up and came down and no seconds or refis were done on it - WHO CARES?!?!

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