Daily Digest

Daily Digest - July 2

Thursday, July 2, 2009, 9:56 AM
  • Dennis Kneale "Recession...it is now over" 'Real data?' & 'Gut feeling?' 'Digital Dic...., 'Bloggers in mothers basement' (Video)
  • 'Fell zero point nine percent?' (Chart 1)
  • 'Fell zero point nine percent?' (Chart 2)
  • June Economic Summary in Graphs
  • California IOU Update
  • REAL Jobless rate near Depression levels, Hyperinflation Coming: John Williams
  • Hotel RevPAR off 20.5 Percent
  • YoY Change in Jobs by Sector (Chart)
  • More Intentional Misdirection (H/T Fujisan)
  • Lowry’s Paul Desmond on a Substantial Correction (Video)
  • The credit bubble: the gift that keeps on giving
  • Personal Income (Chart, Chained (Adjusted) Dollars)
  • Yuneec Electric Aircraft Makes First Flight (Video)
  • Philly Fed State Conincident Indicators for May (1 state is green)
  • ISM: Is this the mother of all inventory corrections? (Chart on page)

Economy

Dennis Kneale "Recession...it is now over" 'Real data?' & 'Gut feeling?' 'Digital Dic...., 'Bloggers in mothers basement' (Video)

'Fell zero point nine percent?' (Chart 1)

'Fell zero point nine percent?' (Chart 2)

June Economic Summary in Graphs

California IOU Update (The new de facto currency?)

Who will receive registered warrants?
The State in July will issue registered warrants, or IOUs, for all other payments, including those to private businesses, local governments, taxpayers receiving income tax refunds and owners of unclaimed property.

REAL Jobless rate near Depression levels, Hyperinflation Coming: John Williams

If Williams is right, unemployment is over 20%, gross domestic product is shrinking by 8% and consumer prices are jumping by nearly 7%. His forecasts border on apocalyptic. The government is creating so much new money, he says, that the all but inevitable result is hyperinflation, where “your highest denomination, the $100 bill, becomes worth more as toilet paper than money.” Buy physical gold, he advises.

Hotel RevPAR off 20.5 Percent

In year-over-year measurements, the industry’s occupancy fell 11.5 percent to end the week at 63.0 percent. Average daily rate dropped 10.1 percent to finish the week at US$96.78. Revenue per available room [RevPAR] for the week decreased 20.5 percent to finish at US$61.01.

The report also includes some hightlights on the performance for the top 25 markets. As an example, occupancy is off almost 20% in Dallas and Phoenix, and the Average daily rate (ADR) is off 30% and RevPAR off 35% in New York. Ouch.

YoY Change in Jobs by Sector (Chart)

More Intentional Misdirection (H/T Fujisan)

In a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.

Lowry’s Paul Desmond on a Substantial Correction (Video)

The credit bubble: the gift that keeps on giving

Some firms [are negotiating extensions]. Others are issuing junk bonds or stock, using the cash raised to repay some of their loans well ahead of schedule.

The pre-emptive moves demonstrate rising concern about the massive bubble of lending that developed from 2005 to 2007. The looming credit problems are not just Option ARMs and CRE loans; there are about $75 billion in leveraged coming due in 2012, another $150 billion in 2013 and close to $215 billion in 2014.

Personal Income (Chart, Chained (Adjusted) Dollars)

Yuneec Electric Aircraft Makes First Flight (Video)

Philly Fed State Coinincident Indicators for May (1 state is green)

ISM: Is this the mother of all inventory corrections? (Chart on page)

But what bothers me is the uneven picture painted by the areas highlighted in red. They point to an increase in production which is no longer predicated on growth in new orders. In short, we may be seeing a huge inventory restocking – and that’s it. Notice how new orders are now contracting. Yet, inventories are considered too low. That has caused the manufacturing sector to crank up production to the point where production is now growing.

Translation: manufacturing and production are now adding to GDP instead of subtracting from it.

19 Comments

idoctor's picture
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Re: Daily Digest - July 2

Jim Rogers

Peter Schiff answering your Reddit questions

Peter Schiff Vlog Report july 1st 2009

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REAL Unemployment numbers - July 2

 Chuck Butler, President of EverBank World Markets had this to say on his blog today 7/2/09:

"And one more thing on the job losses for June that will print this morning... If the "forecast" number of lost jobs prints... it would mean that the number of people working today, in 2009, would be about the same number of people that were working in May of 2000! Talk about a Lost Decade!  I wonder if the major media will pick up this fact? Now wouldn't that be a big surprise to all those folks that were surveyed last week for Consumer Confidence? 

The strangest of today though will be the fact that the Weekly Initial Jobless Claims will print, and probably show that over 600,000 jobs were lost last week, as unemployment claims were filed.

So... How does the BLS come up with "only" 365,000 jobs lost for the month, when just one week was 600,000?  The games people play now... Every night and every day now... Never meaning what they say now... Never saying what they mean."

 

 

 

 

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The Desertec Project

Not sure if this has been posted here already?

I've been watching this project and the HVDC supergrid for a while now, but this is one of the most positive stories I've read for a long time. Anyway what's $560 million these days?

The world’s most ambitious renewable energy project ever conceived, the Desertec Project, may soon be underway in North Africa.

Once a pipe dream of European scientists and engineers, the Desertec Project aims to establish 6,500 square miles of renewable thermal solar power plants in the Sahara Desert of North Africa, along with a super-grid of high voltage transmission lines to supply countries in Europe and Africa with electricity.

The project has finally gained the financial support of a consortium of major companies and organizations such as Deutsche Bank AG, Siemens AG, Trans-Mediterranean Renewable Energy Cooperation, The Club of Rome, and many others. Its goal is to supply continental Europe with up to 15 percent of its total energy needs.

The cost associated with building the Desertec solar power plants and transmission lines through 2050 is estimated at around 400 billion euros ($560 billion).

A project of such gigantic scope and expense has drummed up both excitement and criticism from experts.

The Desertec Project will bring renewable energy to the mainstream by creating clean, CO2-free and stable energy generated from the sun alone. Leaving fossil fuel behind, Desertec is a great leap in technology, creativity, and engineering.

“The time now is perfect to start this initiative, as climate protection has become an urgent issue and our economies need new impulses,” said Alexander Mohanty, a spokesman from Munich Re, a large German insurance company spearheading this project.
Critics Voice Complaints

But critics say that a project this costly—and using current solar technology that may not have reached maximum efficiency—should be approached with caution.

Swedish energy giant Vattenfall AB, which has extensive operations in Germany, is not supporting this undertaking.

“It costs too much money,” said Vattenfall CEO Lars Josefsson, in a Financial Times interview. “Besides that, the transmission costs are too high. I don’t think it’s realistic.”

“Europe should create its electricity in Europe,” he concluded.

As an alternative, Josefsson believes in building more coal-powered generating plants that have newer CCS technology aimed at lowering CO2 emissions.

Some experts also fear that if such a large portion of European electricity production is outsourced to Africa, it would create a political dependency on North African countries, some of which have unstable political environments.

The creation of centralized solar energy plants in Africa also raises its vulnerability for terrorist attacks. If someone attacks the transmission lines, much of Europe could be without electricity.
Concentrating Solar Power

Solar thermal power plants use the method of harvesting solar energy called concentrating solar power (CSP). It works in a way very similar to burning a paper with the sun’s rays through a magnifying glass. A thermal solar power plant works with the same principle by arranging a set of magnifying glasses and mirrors that produce a very powerful sunbeam. This sunbeam heats up water, turning it into steam that rotates turbines to produce electricity. The electricity is then carried via high-voltage transmission lines to users.

At nighttime, the power generated during the day is stored in special salt-like batteries, which enables the turbines to be running through the night, creating a 24-hour generation system.

The CSP method should not be confused with photovoltaic energy, which doesn’t heat up water, but directly produces electricity and stores it in batteries.

CSP plants are generally cleaner, cheaper, and have lower maintenance costs compared to photovoltaic energy generation. Photovoltaic energy, on the other hand, is not centrally dependent, meaning that panels could be purchased by any individual and placed on a rooftop, allowing greater flexibility.

Smaller CSP projects have already achieved some success. In the Mojave Desert of California, there are a total of 9 solar thermal plants that have been built and used since the 1980s. Spain, India, Mexico, and South Africa are also set to build such plants in the near future.

If the Desertec Project is successful, it would not only benefit Europe, but also North African countries. It would supply them with very cheap energy, create jobs, and provide an opportunity to export goods via trade.
“The project is sending a strong signal that investments in renewable energies don’t just make ecological sense, they make economic sense as well,” said a Financial Times report.

 

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Re: Daily Digest - July 2

How do you get hyperinflartion without growth in wages. All that will happen is demand will collapse as people can  no longer afford the same standard of living. If your $ collapses, yes you may get inflation but I dont see Hyper inflation.

Disclaimer

I ve been wrong before

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Re: Daily Digest - July 2

Hello Andrew:

Your exactly correct the dollar could collapse. Who really knows? But this is my hunch of what will happen. China I think is secretly dumping their dollars with each and every purchase of raw commodities, if I'm not misstaken this is all done with the dollar.

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Re: Daily Digest - July 2

http://www.ipsnews.net/news.asp?idnews=47386

TECHNOLOGY:  Rare Metals Could Trigger Next Trade War By Emilio Godoy*

MEXICO CITY, Jun 26 (IPS/IFEJ) - Used in electric  car motors and wind turbines, neodymium, a "rare earth metal," is at the epicentre of the race between wealthy and emerging nations to create green technologies, while poorer countries appear to be relegated to spectator status.

Neodymium is a lanthanoid, at position 60 on the periodic table of elements for the number of atoms in a single molecule. Its production and wide range of uses reflect the quiet competition over raw materials in the area of green technologies.

José Luis Giordano, associate professor of engineering at the University of Talca in Chile, noted in an interview that there is a battle between the United States, China and Japan over neodymium, samarium and praseodymium, over ceramic superconductors, and for alternatives to these materials, still in the experimental stages.

The history of business development around neodymium shows how China has imposed its conditions. In 1982, the U.S.-based General Motors, Sumitomo Special Metals and the Chinese Academy of Sciences invented a magnet made from neodymium, boron and iron. In 1986 they put it on the market through a new division of GM known as Magnequench.

. . .
IN AUSTRALIA

In May, two Chinese companies invested in two Australian mining companies, Lynas and Arafura (acquiring half plus one of the shares of the former and 25 percent of the latter) that are beginning operations to extract and, in the case of Lynas refine, large volumes of rare metals.

Lifton believes that China will not allow western nations to purchase neodymium for future delivery outside of their territories and not even for sales inside China if intended for export.

This means the Asian nation could harden its strategy to acquire companies abroad and that the industrial powers and developing countries would have to seek other suppliers of green technologies.

Smith predicted that if the United States does not renew its capacities, in the best case it will become a source of raw materials for China's production, and not a manufacturer itself of advanced clean technologies.

So far there are no viable alternatives to the rare metals. . . .

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Re: Daily Digest - July 2

I would haave thought the last thing China wants is to become the worlds reserve currency. This would imply a strong currency, look at the lenghts China goes to to keep its Currency under valued. All the world wants a new reserve currency but they want theirs to remain weak against it, this will stop any short term solution to the problems facing the US dollar.

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Re: Daily Digest - July 2

How do you get hyperinflartion without growth in wages.

Inflation is not caused by rising wages, rising wages are merely a ymptom of inflation.

Should the dollar collapse, then as its worth goes down the tubes, the value of other things goes up, especially if it's imported.. If the $'s worth really plunges, then hyperinflation is a fait accompli.

Mike

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Re: Daily Digest - July 2

Yes, its bad in the states but you are much better off than many. I dont think you should expect a collapse in your dollar.  You are such huge consumers and the rest of the world hangs its hat on that consumption. If your real wages fall then consumption will fall. Most of what you consume is made somewhere else. You are exporting your recession very sucessfully. I think this time we are all going down together.

 

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ftd germany article

 If it´s interesting to anyone, here´s some news in the mainstream press in Germany. The Financial Times Germany has the following article today about the financial crisis, here an amateurs translation: 

-A Failed Buisiness Model

Despite the fact that the US-Governement pumps trillions into the system, employmentrate and wage-incomes fall like a stone. Instead of fantasiesing about the end of the recession, investors should come to terms with the fact, that the american buisiness model has failed.-

 

The article goes on to ridicule those economic experts who proclaim a soon end of the recession backing up that claim using bogus or distorted data. 

It then concludes that basically the US need an entirely new buisiness model and the idea of- consum like crazy, no matter what- is finished.

 

In found this article rather interesting.

 

kindly mono

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Re: Daily Digest - July 2

 A lot of that consumption was debt driven. In 2008 consumers borrowed 9 billion and blew it on 4 dollar coffes at Starbucks (what Ic all 4bucks).

This is gone.

Consumers are gone - 26 million of them are out of work or underemployed, the rest are fearfull.

TechGuy said it best, the government is now the spending entity accounting for 30% of GDP.

The other 40% of GDP is not what it was and won't be.

I think it is VERY possible to have a collapse of the USD! Remember, wave 2 of the housing market is approaching.

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New era of transparancy

I guess this is what they meant by "transparancy":

Quote:

Friday, July 3, 2009

WaPo cancels paid White House-Congress-lobbyist hook up

 

Listen to this article. Powered by Odiogo.com

Submitted by Edward Harrison of Credit Writedowns.

Just when you thought things couldn’t get any more questionable in Washington, then along comes this (hat tip Tom).

Washington Post publisher Katharine Weymouth said today she was canceling plans for an exclusive "salon" at her home where for as much as $250,000, the Post offered lobbyists and association executives off-the-record access to "those powerful few" — Obama administration officials, members of Congress, and even the paper’s own reporters and editors.

This is not a joke, it was a serious plan whereby the Washington Post was set and ready to use its publisher’s home to bring together lobbyists on the one side and White House and congressional people on the other.  Boy, I wish I had that kind of access.  But, then again, I would have to pay a lot of money.  On second thought, maybe it’s not a good deal.  Bt, hey, if you are a health care lobbyist (the type of lobbyist this event was designed for), then you’ve got the dosh.  Why not?  Apparently, not every lobbyist felt that way.

The astonishing offer was detailed in a flier circulated Wednesday to a health care lobbyist, who provided it to a reporter because the lobbyist said he felt it was a conflict for the paper to charge for access to, as the flier says, its “health care reporting and editorial staff."

To sum up, the Washington Post, which last nearly $20 million in the first quarter, has made bringing people together another proposed revenue source.  In this case, it was to bring together lobbyists and government and was to be paid by the lobbyists for doing so.  When some invited lobbyists felt this was a conflict of interest, Politico was able to get its hands on an invite.  As a result, the Post cancelled the event.

Oh, and by the way, if you think that U.S. health care reform proposals are not heavily influenced by lobbyists, you might want to read the full account below.

Source

Washington Post cancels lobbyist event amid uproar - Politico

http://www.nakedcapitalism.com/2009/07/wapo-cancels-paid-white-house-congress.html

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Re: Daily Digest - July 2

 Hello Patrick:

Thank goodness for blogs and bloggers. Good read!

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Re: Daily Digest - July 2

Hi Davos,

Nate cited an excellent article titled:

Blog Author Issues Economic “Warning…”

that you might want to include in a future Digest

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Re: Daily Digest - July 2

FT.com / Companies / Oil & Gas - ‘Rogue broker’ blamed for oil spike

The startling spike in oil prices to their highest level this year on Tuesday was caused by a rogue broker who placed a massive bet in the Brent oil market, triggering almost $10m (€7m) of losses for his company.

PVM Oil Associates, the world’s largest over-the-counter oil brokerage, said on Thursday it had been the “victim of unauthorised trading”. The privately owned company said that as a result of the unauthorised trades it had been forced to close substantial volumes of futures contracts at a loss.
...

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Re: Daily Digest - July 2

Steinbrueck’s Toxic-Asset Bill Passed Months After Crisis Hit - Bloomberg.com

July 3 (Bloomberg) -- German lawmakers backed Finance Minister Peer Steinbrueck’s plan to purge state and private banks of toxic assets, more than nine months after the global financial crisis brought the banking system to its knees.

...

Under the bill before parliament, private banks will be able to swap toxic assets for guaranteed bonds at 90 percent of their value. State banks such as WestLB AG can create their own bad banks to offload assets in exchange for pledges to focus on development in their region.

A last-minute change agreed on this week by the coalition parties brings forward the cut-off date for the valuation of structured products to June 30, 2008, in a “smart compromise between keeping the responsibility with the owners and economic reason,” Steffen Kampeter, the Christian Democratic budget spokesman, said in a July 1 interview.

Near the Bottom

The coalition parties are vying for votes on the back of their handling of the worst recession since at least 1945. Merkel’s government has set up a 500 billion-euro bank rescue plan, enacted stimulus measures worth about 85 billion euros and established a 115 billion-euro “Germany Fund” to bail out companies hit by the crisis. Merkel said June 29 that Germany is “perhaps” nearing the bottom of the crisis.

...

Emphasis mine.

My comments:
Much too much costly. The garbage is valued at 90% of their market value as of June 30, 2008 (yes june 2008!)
And inefficient: this surely is the first wave, other toxic waste yet to come.
The value date of June 30, 2008, might suggest that most assets are priced at that date on their books. Not sure, though. Just my feeling.

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Re: Daily Digest - July 2

The funny thing about oil is that people still treat it and talk about it as if it’s some dispensable widget that should basically be dirt cheap.

If one puts any stock in the work of Matt Simmons and Chris Martenson, then they probably know how underpriced oil is, how much exploration and development actually cost, and the mind-bending amount of labor one little barrel of oil is capable of producing when expressed in human hours.

So I always get a kick out of the cornucopians (or the there’s-nothing-wrong-with-the-economy crowd) amongst us who always try and attribute any rise in the price of oil to some speculative conspiracy – as if it actually has no inherent reason to be greatly valued (say, like a Beanie Baby). Sure, this is true some of the time, because oil is a commodity traded by folks who occasionally engage in such shenanigans, but the fundamentals of oil are only gaining strength. And those fundamentals say, essentially, scarcity.

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Re: Daily Digest - July 2

'We're in the Middle of a Crash': Black Swan - Financials * Europe * News * Story - CNBC.com (video on page)

The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday.

"You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that's breaking," Taleb said on "Squawk Box."

Anything that's fragile like the financial system will eventually crash, he said.

"We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better."

The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

"What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion," Taleb said.

"The monkey on our back is debt," he added.

As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.

"People would be able to start from scratch on a healthy basis. You don't want to wait for foreclosure," he said.

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Re: Daily Digest - July 2

Wanted to comment on Nate's intro to the "Warning" article referenced above.

In his preface to the article, Nate writes this: "I would like to note that while he presents both a hyperinflationary outcome and deflationary spiral as possibilities, here I am going to emphasize that I’m sticking with my deflation now (possible spiral) inflation later (if our currency makes it that far) call."

What confuses me is the equating of (hyper)inflation with what I can only describe as "currency health." He seems to be saying that inflation or hyperinflation will only occur if the currency "makes it that far" or doesn't collapse. But from my view, the collapse of the currency and hyperinflation, in many different scenarios, are synonymous. In addition, a truly healthy currency (one back by gold or some other commodity) would either experience very little inflation or no inflation at all.

This is interesting because I talked to someone the other day who seemed to have a similar idea (though to be fair to Nate, maybe I'm just misinterpreting him, but this other fellow was explicit).

Others' thoughts?

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