Daily Digest

Daily Digest - July 29

Wednesday, July 29, 2009, 9:54 AM
  • Two Beers With Steve Podcast: Dr. Chris Martenson, Inflation/Deflation
  • Jeremy Grantham's Newsletter Refers to Chris Martenson's Crash Course (H/T Laviera, PDF)
  • Jim Rogers on TV Investment Advice (Video)
  • Iceland Proves That in a Financial Crisis, Breaking Glass and Trashing a Currency is a Good Remedy
  • 5 Stages to Homelessness (Video)
  • Smelt or 80,000 jobs? Smelt or Food? (H/T Lucky & HuckleJohn, Video)
  • Population and Water Rationing (CKessel)
  • Max Kieser (H/T Patrick Brown, Videos, Second Video 1:02 minute mark, 6-9 month bank crisis)
  • China Talks: Treasurer Geithner Pledges Smaller Deficit
  • 5 Firms Hold 80% of Derivative Risk
  • 10 Members Send Letter to Fed on Goldman Sachs Gambling with Bailout Money
  • Chimerica (Video)
  • Real Estate Quote of the Day

Economy

Two Beers With Steve Podcast: Dr. Chris Martenson, Inflation/Deflation

In Episode 14 we have our first ever interview with Dr. Chris Martenson, the author of the Crash Crash video series and the namesake for the www.PeakProsperity.com website. We spend an hour discussing the most hotly debated topic in the economic blogosphere, Inflation Vs. Deflation.

Jeremy Grantham's Newsletter Refers to Chris Martenson's Crash Course (H/T Laviera, PDF)

Jim Rogers on TV Investment Advice (Video)

Iceland Proves That in a Finicaial Crisis, Breaking Glass and Trashing a Currency is a Good Remedy

Iceland will be back in surplus by next year, from a peak deficit of 25pc of GDP. You could say the same about Latvia, which has stuck to its euro peg under orders from Brussels. But there is a big difference.

5 Stages to Homelessness (Video from www.Inflation.us)

Smelt or 80,000 jobs? Smelt or Food? (H/T Lucky & HuckleJohn, Video)

Population and Water Rationing (CKessel)

What is not reported is that while there are reductions in water to the farmers, you still don't see any rationing in Los Angeles. Hopefully, before this event is over, the city dwellers will convert their lawns to gardens and at least make better use of the water that continues to flow down this aqueduct and provide them with cheap water. The farmers of the west valley have been squeezed out for the moment. But that land has always been comparitively marginal anyway. The real issue here is to find an environmental reason to cut water flows to all except the higher paying city customers and then use the debacle to justify construction of a new dam on the last major river flowing out of the Sierras .....the American River. Then there will be even more water for thirsty LA.

Meanwhile, the majority of the Central Valley agriculture which is not and has never been supplied water by this project is doing fine with a near normal rainfall season. The croplands mentioned around Modesto where I-5 moves back into more populated areas get water from the Tuolumne River system (third largest in the state with a watershed beginning in Yosemite National Park and providing most of the water to the Bay Area). Drive down Hwy 99 and you will see a different picture of our cropland.

What is less known is the effect that diverting huge quantities of water to Southern California had on the San Francisco Bay and Delta Ecosystems. Long gone are the clean waters of the bay and delta, the flushed out rivers (of silt and debris) and the Salmon which used to have runs into the Sierra Nevada river systems from Redding to Fresno. The Stanislaus River had a count of about 125 Salmon last year, down from many thousands when I was a Boy Scout!

The point here is how human population expansion has created pressure on our environmental systems. We have arrived at a point where species extinction is happening. If we do not maintain our environmental support systems then we likely follow the path of the smelt! This fight is all about the water and how to create a justifcation to tap every last drop by getting public opinion to sway back in favor of constructing dams on the remaining rivers IMHO.

Max Kieser (H/T Patrick Brown, Videos, Second Video 1:02 minute mark, 6-9 month bank crisis)

July 27 (Bloomberg) -- Treasury Secretary Timothy Geithner pledged the U.S. will shrink its budget deficit over the next four years and boost national savings, and he called on China to maintain efforts to ease the impact of the global recession.

“We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013,” Geithner said in opening remarks for Strategic and Economic Dialogue meetings with Chinese officials in Washington.

Geithner’s comments reinforced his efforts to reassure China, the largest foreign holder of American government debt, that this year’s record U.S. budget gap won’t pose a long-term danger. The shortfall is on course to reach $1.8 trillion in the year through September.

Geithner and Secretary of State Hillary Clinton are hosting Vice Premier Wang Qishan and Dai Bingguo, a state councilor, at the meetings today and tomorrow, the first such gathering since President Barack Obama took office.

I suppose having to finance $235 billion in one week is pointing to lower deficits ahead? Heck, it won’t be long before just the interest on all the borrowed money becomes one of the largest expenses within the budget. Better get busy printing, devaluing our dollar, and robbing the people of America blind while you artificially hold interest rates low and further rob those who attempt to save, Timothy.

5 Firms Hold 80% of Derivative Risk

Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies’ exposure to credit derivatives.

Its a short article worth reading in full . . .

10 Members Send Letter to Fed on Goldman Sachs Gambling with Bailout Money

Here’s the PDF of the letter, with text below. Signers are Alan Grayson, Ron Paul, Walter Jones, Brad Miller, Dan Lipinski, Elijah Cummings, Tom Perriello, Maxine Waters, Jackie Speier, and Maurice Hinchey.

Chimerica (Video)

Real Estate Quote of the Day

“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”

-Mark M Hanson

25 Comments

propamanda's picture
propamanda
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Re: Daily Digest - July 29

I found an interesting article in the NY Times today. If one does a little analysis, it's got some pretty revealing info about the housing market

http://www.nytimes.com/2009/07/29/business/economy/29housing.html?_r=1&hp 

What I can gather from this is:

 1. Housing prices are "up" mostly because investors and speculators are jumping in again for profit.  It's not like normal people are finally buying up all this extra housing inventory.  (Can we say hello bubble?)

 "...chief economist for Metrostudy ...said the new home numbers appeared to illustrate less a return of (individual home buyers) and more a resurgence of investors and speculators. Metrostudy’s own data showed that the number of buyers during the second quarter who actually moved into their new house declined 2.6 percent.  Investors are turning right around and putting the houses on the market for sale or for rent,” Mr. Hunter said. “What appears to have been an absorption of excess inventory can be just a changing of ownership of that inventory.”

  

2. If you adjust all of this housing data seasonally, it's not even that great.

 "When the numbers were adjusted for seasonal factors, however — the usual way housing figures are presented — the slight gain disappeared and the index was essentially flat. Half of the cities showed continued declines." 

 
Davos's picture
Davos
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Re: Daily Digest - July 29

Hello PropAmanda:

More on this, all charts

Take care

FireJack's picture
FireJack
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Re: Daily Digest - July 29

I can't help but notice all those lies and misleading statements the media has been releasing lately is starting to catch up. As things keep grinding down I expect misleading information to become more and more desparate.

 

Anyone know just how much more housing prices in the states still have to drop?

 

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Davos
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Re: Daily Digest - July 29

Hello FireJack:

TBP blog had, not too long ago a Case Shiller chart adjusted for inflation. It showed pre-bubble prices of 90k to 100k as trough 1 and for peak it was somewhere around 220k, if I recall it was around 140k.

IMHO CM has it nailed when he says bubbles will over correct. So my guess, and that's all it is is we still have another 50% to go.

That is if you use charts.

If you read the ZeroHedge white paper and look at these things:

  1. Vacant inventory - somewhere around 19 million
  2. Homes on the market - somewhere around 4-5 million
  3. Homes coming in foreclosure do to Alt-A's and Option Arms (Forget the number but would suspect it will be another couple of million
  4. Unless the Government comes up with some rent to own plan I don't understand how bankers could possibly come up with loans that people could get, i.e. traditional mortgages (nothing exotic).
  5. #4 will likely lead to less buyers than what they built for

Okay, take all that into account and IMHO the chart is really going to over correct.

Just my 2 cents

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Re: Daily Digest - July 29

Well, that's refreshing! - I'd never heard of Max Keiser before, but he just got himself another life long fan!

Excellent video segments!

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Re: Daily Digest - July 29

I would like to say there have been some great videos and interviews lately. Good work. I am quite new to understanding the economy and how all the parts work together. But there is one thing I can't understand is why the U.S. dollar stays even for the most part and is not declining inspite of the countrys lack of jobs and our insolvency. I thought the dollar would have declined by now and my few gold coins would be worth a little more than they currently are worth. Any body have an article they can point to or an explanation ?

Just curious,

Tommy

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Addison Wiggin "Sucker's Rally"

 http://www.youtube.com/watch?v=O5FkwL0tkVs

An interview with the perma-bear himself

 

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Bill Bonner- Son of Stimulus

 http://www.youtube.com/watch?v=fzTTky1U1Mc

"We are in the early stages of the depression" 

Bill Bonner of The Daily Reckoning

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Re: Daily Digest - July 29

Swammi,

Good to see some new faces.

The short answer is that the USD is valued based on a basket of other currencies which are also variable. So, to put it simply, if the Yen, Euro, etc. all loose value at about the same rate, the result is the USD appears to be stable.

It is obviously more complex than that as you consider international trade. For example, as the value of the USD goes up against, say the Yuan, China tends to have a favorable export scenario, so it is in each country's best interests to keep the currencies within a specific band. Too low or too high spells trouble. Governments have many ways to pull the strings to make currency values change since we are no longer restrained by being backed by gold. Perhaps do a search on Bretton Woods to begin your research.

I don't have a link handy that talks about this from A to Z, but I'm sure one of the other smarties here will.

Welcome aboard,

Rog

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Re: Daily Digest - July 29

By the way, I thought the entire Two Beers with Steve podcast was super! Both the questions and the answers were of great value. Thanks for the listen!

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Re: Daily Digest - July 29

I guess what's going to happen is obvious. The US governemnt is simply going to print money to pay for everything. When all these lies about recovery are exposed for what they are places like california are really in trouble. No problem, just print all the money they need and pay for everything. When the economy recovers as a result of all this money printing it will make it okay. Recovery is right around the corner, just like Bernanke keeps saying, again and again and again.

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Re: Daily Digest - July 29

Hello FireJack,

Jeff here. I'm a 21-year veteran real estate appraiser in southern CA. In general, all sorts of people are saying that the 40% to 70% drop in values is over here and it's going to sludge along for awhile and then rise again. What they don't get is that this a short breather the down market is taking due to buyers purchasing homes at deep discounts. The information that Davos cited is lurking in the background, soon to rise up and put a serious dampner on values again. The higher priced homes in Newport Beach have taken a 10% - 20% hit and they think that's the end. It's going to get much worse. I see the Inland Empire continuing to go down maybe another 15% - 20% and the upper end is going to decline 25% to 40% more. The decline will continue into 2010 and 2011 with 2012 possiblely seeing some stabilization. If any of you consider southern CA as some sort of indicator then please note that the decline is not over!

...however, it is a beautiful day outside!

Take care!

Jeff

 

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Jeff Borsuk
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Re: Daily Digest - July 29

Yes, I love it that Max gets all fired up! it's great!

Jeff

 

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Re: Daily Digest - July 29

Thanks for the kudos Davos..

Chansen1106,

Max Keiser has an excellent podcast titled The Truth About Markets and it's available for free on ITunes. I like Max Keiser because he mixes humor with financial realities, it's an entertainng one hour program, well worth the time.

Steve

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Re: Daily Digest - July 29

China's lending caps spark US market fears

http://groups.yahoo.com/group/roeoz/message/54899

Fears that China's banks may be about to stop lending to try to stem market excesses dragged US stocks down overnight.

Media reports say China's two largest state-owned commercial banks have put a lid on their 2009 lending targets.

Analysts say that could significantly slow Chinese credit growth until the end of the year, and could seriously curtail the global economic recovery.

The concerns about China hit commodity prices and energy shares particularly hard.

A steep drop in US durable goods orders in June also weighed on investors' minds.

Oil futures extended losses, falling about 6 per cent after US Government data showed a surprisingly large increase in crude inventories last week.

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Re: Daily Digest - July 29

Thanks Rog,

I did not stop to figure that our dollar is relative to the other basket of currencies. Thanks for the reference on Bretton-Woods. I know of it and will read a bit ore about it.. Perhaps because our dollar is so spread all over the world it gives it a bit more buoyancy than other currencies in turbulent times. But I do think the days are numbered for the dollar with all the quantitative easing.

thanks,

Tommy

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Re: Daily Digest - July 29

But I do think the days are numbered for the dollar with all the quantitative easing.

+1, I think it is one thing to use QE to keep the yeild curve low, to surpress interest rates - but IM never so HO when there is the big if as in 'If they don't use this tool it will equate to outright default because they can't sell enough bonds to cover the deficit', well then I think that starts taking the days of life away.

Should get real interesting real fast as the Alt - A's and the Option arms and the CRE waves roll in. I'm thinking then the real stress tests and the real QE will begin.

Take care

Woodman's picture
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Re: Daily Digest - July 29

Thanks to Chris and Steve and the other Two Beers cohosts for an excellent podcast on inflation/deflation!

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Re: Daily Digest - July 29

I'll add my thanks to Two Beers with Steve for the CM interview.  It was excellent.

Swami

The dollar is resilient partially because it is still the reserve currency for the world, and is the currency of the largest economy, by a factor of 3, on earth.  The status of reserve currency will, imho, be chipped away for a while before it loses that status.  I doubt there will be a sudden crash.  That wouldn't serve anyone's interests.  It could get ugly.

Doug

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Re: Daily Digest - July 29

Serious subject, hilarious visuals (some of them anyway), and a CM classic message at the end: trust yourself.

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Re: Daily Digest - July 29

 FireJack,

Do you really think so? Every story I'm hearing/seeing in the main-stream media is screaming that the recession is grinding to a halt and that housing has bottomed and now is the time to buy because RE is a bargain, back in line with historical norms.

In fact, I'm hearing these stories from so many directions, it's wearing me down, and even with a skeptical eye, making me think that there's some truth in it.

To support this, I've talked to several friends in RE and related fields and they're telling me that they've seen a pop in sales that surprised them. Houses are suddenly moving, open houses are getting more interest and activity is churning. 

I attribute this to several factors.

  1. Psychological adaptation - After the initial shock this winter, everybody went into hiding, holding their money, waiting for the other shoe to fall. Months went by and things didn't appear to get worse. People adapted to the new normalcy and are now returning to business as usual.
  2. First time homeowner incentive - This is, in fact, actually kicking in. Combine this parents who are holding on to too much cash, there's a glut of money waiting to spring onto the market.
  3. Current prices seem  "low" compared to recent norms so the bargain hunters are coming out.
  4. Seasonality

We have to keep real. There's huge sums of money sitting on the sidelines now, and (affluent) people are getting antsy, worried about missing the train. While a lot of debtors lost their houses, they never had that money in the first place. The Boomers do have real assets and their children are coming of age and want houses. People see houses as "hard" assets, and so we're seeing money starting to re-enter the RE market as a safe haven for cash. Whether this is real or illusory, time will tell.

SteveS's picture
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Housing rebound?
Davos wrote:

Hello PropAmanda:

More on this, all charts

Take care

Thanks PropAmanada and Davos for the peek behind the curtain. The only thing I can add is there is one person that doesn't think we have a house selling problem:

http://www.thedailyshow.com/watch/wed-july-29-2009/home-crisis-investiga...

 

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Smelt or 80000 Jobs? on Fox "News"

Past experience has told me to question any Fox 'News' Report. This one smelled as a bad as dead smelt. Now I know next to nothing about the smelt issue in CA but it certainly appears to be controversial, and even a cursory overview of a few different sources shows there is a lot more depth to this story than presented by this video. It really irks me when opinion is passed off as facts and showmanshiop as news. The facts/opions/beliefs radar was on overload while watching this coverage. In short, enjoy the show, but when you come out of Fox theater, read the papers for the real story.

 

 

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Re: Daily Digest - July 29

Wall Street Analysts Keep Telling Big Earnings Lie

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a3Ta.LVhokdY

DavidC

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Re: Daily Digest - July 29

 Thanks. Just found it online and am downloading it as I write. - I appreciate the tip.

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