Daily Digest

Daily Digest - July 23

Thursday, July 23, 2009, 10:00 AM
  • The Dollar is Overvalued... But Against What? (Chart)
  • When $3 Trillion Seems Like Small Potatoes (Chart)
  • Suburban Suvilaist, Economic Preparedness (MSNBC Video)
  • Q&A of Fed Reserve Chair Bernanke by Alan Grayson (Video)
  • Morgan Stanley Pays Damages For Precious Metals Fraud
  • Elizabeth Warren on Consumer Financial Product Agency
  • Feldstein: Risk of Double Dip
  • Minsky: Turning Neoclassical Economics On Its Head
  • 180 Degrees Off Target
  • Whalen On Banking (Video on page)
  • CNBC Attempts Assasination on Barofsky (Video, Repost)

Economy

The Dollar is Overvalued... But Against What? (Chart)

When $3 Trillion Seems Like Small Potatoes (Chart)

Suburban Suvilaist, Economic Preparedness (MSNBC Video)

Q&A of Fed Reserve Chair Bernanke by Alan Grayson (Video)

Morgan Stanley pays damages for Precious Metals Fraud

This is not the first time that Wall Street banks have been caught engaging in bullion-fraud...

Elizabeth Warren on Consumer Financial Product Agency

"At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy."

Feldstein: Risk of Double Dip

...flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.

“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.

Minsky: Turning Neoclassical Economics On Its Head

1. We start where the red circle is.
2. When an economic shock hits which precipitates a massive deleveraging, the entire demand curve shifts to the left to a new lower GDP level, everything else being equal. Thus, deleveraging equals recession. And we now see the private sector curve hitting the public sector curve where the blue circle is. The private sector is now saving and the public sector is in deficit. That is where we are today.
3. However, to bring things back to neutral i.e. where sector surplus/deficit equals zero for both sectors, one could cut government spending dramatically. That shifts the entire government curve to the red line on the left, leaving us where the green circle is: in a deep, deep depression. Krugman calls this the Great Depression outcome.

180 Degrees Off Target

Coke - $8.27B in revenues vs estimates of $8.66B. A $400MM MISS.

Caterpillar - $7.98B in revenues vs estimates of $8.86B. Nearly a $1B MISS.

DuPont - $7B in revenues vs estimates of $7.15B. A $150MM MISS.

United Technologies - $13.2B vs estimates of $13.92B. A $700MM MISS.

Caterpillar is particularly frightening -- that is a massive revenue miss for a very cyclical but excellently managed company ...

 Whalen On Banking (Video on page)

* q2 09 likely to contain more earnings spin and accounting gimmicks than q1
* Banking sector is not out the woods, total restructuring needed
* For larger firms, we expect to see continued positive operating results
* Despite strong operating results, all major banks will have rising credit losses
* Cash flow from assets is falling
* It's hard for banks to survive without debt to equity swaps
* Citi can be restructured short of bankruptcy but we need real leadership
* "Pretend and extend" was good policy for the fist half of this year
* CIT bankruptcy will surprise people by how disruptive will be
* CIT should not be bailed out the company needs to be restructured
* JP Morgan's honeymoon is coming under a lot of stress
* Goldman Sachs is paranoid and nimble a winning combination

 CNBC Attempts Assasination on Barofsky (Video, Repost)

26 Comments

Davos's picture
Davos
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Re: Daily Digest - July 23

The Barofsky video was surprising. I expected that tone to be voiced at Treasury not Barofsky. I have nothing good to say about CNBC doing this, so I won't say anything at all.

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Woodman
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Re: Daily Digest - July 23

"65 years after the Bretton Woods Agreement", which was held at the Mt Washington Hotel in NH to set up a new world economic system, was the program topic on The Exchange this morning on New Hampshire Public Radio.  It will be aired again tonight at 8-9PM.  You can get a live audio stream or download the podcast version, when available, at www.nhpr.org

 

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Re: Daily Digest - July 23

 Pam Martens: Judicial Apartheid

Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud

Judicial Apartheid

By PAM MARTENS

For the past 18 years, a motley mix of corporate law firms, Wall Street powerhouses and private justice providers have been serving up false testimony to the highest court of our land that mandatory arbitration is “inexpensive, fast and fair” and a proper substitute for the public court system. And for 18 years a majority of the U.S. Supreme Court has been cozying up to these brazenly preposterous statements while gutting our Constitution’s Seventh Amendment guarantee to a jury trial. In doing so, wittingly or unwittingly, the Supreme Court had aided and abetted the key linchpin of a wealth transfer system that has brought the nation to its knees.

Today, everything from Wall Street brokerage accounts, employment contracts, credit cards, mortgages, even cell phone contracts have routinely removed the individual’s constitutional right to file a claim in court to seek redress of a grievance or fraudulent action. Instead, the individual’s claim is forced into one of the privately run arbitration organizations where conflicts are rampant, discovery is limited, and the right to appeal is typically impossible because the arbitrators are not required to explain the rationale for their decisions in writing.
...

Farmer Brown's picture
Farmer Brown
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Re: Daily Digest - July 23

How do I look up a past Daily Digest?  I looked in the forums but could not find them, and did a search but got nothing relevant.  Thanks.

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Davos
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Re: Daily Digest - July 23

Hello Patrick:

I'm up in Block Island and without my master spread sheet but I do have a cloud based model of it, or most of it, what are you looking for?

Take care

Farmer Brown's picture
Farmer Brown
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Re: Daily Digest - July 23

Thanks Davos:  I'm looking for the Sprott article you posted yesterday.  I didn't get a chance to read it.

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Ruhh
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Re: Daily Digest - July 23
Patrick Brown wrote:

How do I look up a past Daily Digest?  I looked in the forums but could not find them, and did a search but got nothing relevant.  Thanks.

Patrick; If you're logged on and looking at this page have a look at the left hand column under "Upcoming Events" and under the advert. There you'll see another block that lists latest Blog entries or you can choose the tab for Daily Digest. You can always look for any DD via this link http://www.peakprosperity.com/category/blog/daily-digest

r.

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Ruhh
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Re: Daily Digest - July 23

Sorry for the double post.

My main reason was to ask for the link to the first link "The Dollar is Overvalued... Against What?" Chart. It currently links to the $3 Trillion article.

Thanks again Davos for everything.

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joemanc
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Re: Daily Digest - July 23

fyi..The link to Morgan Stanley/Metals Fund doesn't work

Edit: Also - the 1st link is incorrect, pointing to the 2nd link...Davos - you must be having a good time out on Block Island!

Davos's picture
Davos
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Re: Daily Digest - July 23

Hello Patrick:

I think this is the one.

Hey JoeManC: Sorry, the Macs are super but nothing like my double monitors and a mouse, it has been a little challenging to do the posts, and I'm sure a few Molsons didn't help! I'll try to correct the links, thanks for the heads up, take care

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Davos
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Re: Daily Digest - July 23

PS 235 billion/.25 Trillion over the next week....

PPS The links should all be working now, thank you again for the heads up

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JAG
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Goldman Sachs Conspiracy: To Make Money

 Given the current skew in the perception of GS, I thought I would offer up Martin Armstrong's unique perspective on GS

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Re: Daily Digest - July 23

Morgan Stanley article still not working.  :(

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Jeff Borsuk
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Re: Daily Digest - July 23

Hey Patrick,

In case you didn't get it, here's the Sprott article:

http://www.spiegel.de/international/business/0,1518,635051,00.html

Jeff

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affert
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Re: Daily Digest - July 23

I would guess that

http://seekingalpha.com/instablog/407380-jeff-nielson/14388-morgan-stanl...

is the link for the Morgan Stanley article.

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JAG
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Frugal McDougall

 H/T Mish

Frugal McDougall worked very hard,
Bought things with cash and not credit cards,
And when it came to the things that he bought,
Things that he needed were all that he sought.

Once he was sure that his bills were all paid,
The money left over was carefully saved.
You see in the future he hoped to retire
And knew very well what that would require.

His neighbors were foolish and laden with greed.
They focused on wants instead of on needs.
They went out to dinner about every night.
When you’re middle class that’s one of your rights.

When they got their paychecks they spent every dime.
Having money left over would have been a crime.
Their credit was pushed to its uppermost limit,
When it came to debt they were very deep in it.

When Frugal McDougall would try to explain
The value of saving they all called him names,
So he wouldn’t bother most of the time.
He said it was something like ‘pearls before swine’

Meanwhile the neighbors got credit card offers,
Promising money to fill up their coffers.
Consumed by their greed they filled out every one,
With barely a thought as to what they had done.

And when the cards came they all ran about
Foolishly spending till they were maxed out.
A pool for the yard, perhaps some new skis.
They spent money like it was growing on trees.

Some even went on a cruise to the Med,
Where they all laid around looking tanned and well fed.
No thought was given to how they would pay,
For surely a bill would be coming their way.

In complete disbelief McDougall looked on.
He knew very well that they had it all wrong.
And the foolish idea that was shared by them all
Was that happiness was now on sale at the mall.

He’d been chastened so often he now bit his lip,
For fear if he didn’t he’d let something slip.
His neighbors would learn of his total disdain
For the way that their money was thrown down the drain.

Instead he would focus on his quiet life,
With his quiet children and his quiet wife.
In their simple way their needs were all met,
And their simple life was quite free of debt.

Then one day his neighbor came home joyously
In a gigantic brand new s. u. v.
Frugal McDougall just stood there and gawked,
Confused and bewildered and totally shocked.

He knew that his neighbor made twelve bucks and hour
And shouldn’t have this kind of purchasing power.
And when asked how he paid for this monstrosity
The neighbor replied, “with my home equity.”

The debt didn’t matter, the man was a dunce,
Whose only concern had been "how much a month."
The neighborhood pondered what he had just said
And one by one light bulbs came on in their heads.

Then sure enough the very next day,
New cars appeared in every driveway.
McDougall now cautioned that they should take heed,
All this debt served no legitimate need,

Instead they were putting their futures at risk.
The response they delivered was angry and brisk.
Frugal McDougall was called a big fool,
And other mean names that were equally cruel.

"We are all rich," they boldly declared
As Frugal McDougall stood there and stared.
"Our homes are all worth more than twice what we paid!
The good life is ours and should not be delayed!"

But Frugal McDougall refused to be goaded
And as he expected the debt bomb exploded.
The neighborhood values were starting to fall,
Faster and faster effecting them all.

Then as his neighbor stood looking distressed,
The new s. u. v. was being repossessed.
Soon all around, the neighborhood toys,
The ones that had recently brought so much joy,

Were all repossessed or put up for sale.
The pleasures they brought had grown a bit stale.
Purse strings were tightened as jobs were now lost.
It seems the free money came at a steep cost.

Banks were collapsing as everyone bailed
From upside down houses and lifestyles that failed.
All of the debt that could not be repaid,
Was now wreaking havoc that would not be stayed.

Government bailouts now came on the scene
As political leaders were all very keen
To keep credit flowing and money being spent,
So trillions of dollars were foolishly lent,

In a desperate attempt to keep prices high,
A fact that they won’t even try to deny.
These actions were more than a little perverse,
For adding more debt only made the mess worse.

This of course left them with one thing to do.
They needed more sources of tax revenue,
So small businesses that were already hurting
Were saddled with costly additional burdens.

Many scaled back hoping they could prevail
But quite a few more of them now simply failed.
So many neighbors were now out of work,
They turned on McDougall and called him a jerk!

The papers had all said that he was to blame,
Though none had specifically called him by name.
In a foolish attempt to curry some favor
It seems that they now blamed the problem on savers.

They said "greedy savers are hording their cash
And collectively made the economy crash."
His penchant for saving was very well known.
Poor McDougall’s cover was thoroughly blown.

“Tax him,” folks cried as they all shook their fists
“And tax him some more if he tries to resist!
He has more money than he’ll ever need,”
They cried in a horrid expression of greed.

Poor Frugal McDougall was truly confused,
Saddened, frustrated and now feeling used.
He’d tried to warn people of what lay ahead,
But they didn’t listen and blamed him instead.

The country can never be restored to health,
As long as we’re exporting all of our wealth.
Closing our factories, exporting our jobs
Turning the people into angry mobs

And all of this spending with no end in sight
Is the most direct cause of our national plight!
How did this happen, where did it begin?
This foolish game’s left us no way to win.

Now the brave politicians all deny fault
As the nations economy grinds to a halt
Is this the end of the U.S. of A?
Will McDougall’s country now fade away?

He doesn’t know and he really can’t tell,
But from where he’s standing it doesn’t look well.

Farmer Brown's picture
Farmer Brown
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Re: Daily Digest - July 23

Thanks Jeff and thanks Davos - got my Sprott shot!

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DavidC
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Re: Daily Digest - July 23

Hi all,

A great link on YouTube via Goldmansachs666 today - Marcy Kaptur of Ohio asking Hanky boy some really good questions - just a shame she didn't pounce when he was talking about the crisis, my immediate reaction was 'Well, the banks CAUSED the crisis!'.  What a shame they're limited on time.


Davos, you made me smile with your comments about the Molsens! With regard to Post 1 on CNBC, my response is 'Awww, go on!'

DavidC

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Re: Daily Digest - July 23

The stock market is going up and up and up!! 

Reports from all over the world states that things are getting better.  ;)

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Re: Daily Digest - July 23

I am a constituent of Marcy Kaptur.  I cannot tell you how frustrated I am to consistently hear Marcy say the things her constituents want to hear her say, but yet she consistently votes in favor of taxing and spending more and more of my money.  Her apparent independent streak means nothing when she simply votes to tax and spend, tax and spend.  And, please note, that the significant amendment to the cap and trade bill that was added in the wee hours of the day in which the bill was voted upon in the House was Marcy's.  And, of course, she voted for cap and trade.  I'm ranting yes, but only because she doesn't cast her vote consistently with the words from her mouth.

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DavidC
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Re: Daily Digest - July 23

Hi Goal Digger,

I'm in the UK so I don't know anything about Marcy Kaptur other than the video. I can understand your disillusionment given what I thought was a good display in her questioning of Hanky boy.

DavidC

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Re: Daily Digest - July 23

 

 
 
DavidC's picture
DavidC
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Re: Daily Digest - July 23

Hi DamntheMatrix,

That'll explain why the S&P and FTSE have risen over 11% since the 13th July when earnings reporting kicked off, and why the FTSE today has hardly moved after worse than expected GDP figures The economy has slumped 5.6% since the second quarter of 2008, the Office for National Statistics (ONS) said, the biggest fall since its records began in 1955.

Still, all's OK because earnings have been better than the analysts' low(ered?) estimates, even if they are based on cost cutting and layoffs rather than genuine organic growth and revenue generation.

I despair!

DavidC

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Davos
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Re: Daily Digest - July 23

Sprott's David Franklin On The Depression (Link to video on page, little hard to see)

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Re: Daily Digest - July 23

Davos

Good follow up on Sprott article. 

I'm a bit confused about the near term future of our markets.  Technical analyses seem to be turning positive, suggesting this is a real bull market developing, but the fundamentals remain disastrously bad.  That being the case, shouldn't we (who like to think of ourselves as realists) come down on the side of still considering the current run up in prices as a bear market rally and continue collecting PMs and real assets to protect ourselves?  I guess part of my question is when do we stop looking at technicals and start trusting fundamentals, or the other way around?

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Davos
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Re: Daily Digest - July 23

Hello Doug:

Thanks, it was an enjoyable watch. Funny how Sprott made the blogoshpere after a kind hat tip from Chris's reader TrueNorth. Now Sprott is on all the good blogs. Just shows me how great the blogs are for sniffing out 'good' (as in factual not necessarily pleasant) news and how wide the web gets spun with readers spinning silk.

I don't know. Here are my thoughts:

  • I think it was Keynes or Minsky who said, 'The markets can remain irrational longer than we can remain solvent'.
  • I'm in the preservation mode, I get Jack McHugh's client email newsletter, but don't have permission to post it or link to it on Barry's site, but today's letter of his on the Big Picture blog says my thoughts. Echoed also on www.biiwii.com and on Cashin/CNBC I'll forgo making a few bucks in order to hold onto my security blanket

Slightly longer term I see 4 severe storms on our horizon:

  1. Wave 2 of the real estate mess, 1.5 trillion in alt a's and option arms
  2. The CRE mess with revised upward estimates of 6.5 trillion is now rolling to shore
  3. Total that is 8 trillion, if 1.5 trillion in subprimes caused the 08' crash I don't even want to fathom what 8 trillion will do, but I know it won't be something they can band aid, especially with a 2 trillion dollar deficit that they can't even sell IOU's/bonds to cover
  4. H1N1 could go either way, at best it will be a boom to pharma's at worst - I don't even want to think about it
  5. Congress may or may-not rubber stamp cap and tax or health care, either alone is probably enough to tank what is left of the economy, with or without the real estate waves that will come to shore if either is passed the economy IMHO is burnt toast

Personally I'm short the market, and the dollar but have done so with just a couple of options. To me they are a long-shot, the horse with the handicap who betters think will place 9th. If they time out worthless oh well, if my horse comes in I'll treat myself to some materials to build some solar panels.

That is my simplistic take.

Take care

 

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