Daily Digest

Daily Digest - July 31

Friday, July 31, 2009, 9:35 AM
  • A Comedian That Could Replace The Cable Financial Media (Humor)
  • $235,000,000,000.00 Primary Dealers buying. Where is the money coming from? (Repost)
  • The Credit Crunch - Treating the Disease Rather Than the Symptoms
  • Notes on the Dollar...(Repost)
  • Another Piece of the Money Trail (TIC Data - White Paper on Page, (Repost)
  • Weak Treasury Sales Raise Worries About U.S. Debt Burden (Repost)
  • House Sales: Most of the Media and Wall Street economists have had the inherent tendency to get this data wrong . . . the latest batch of releases is no different . . .(Charts)
  • "How Wars, Plagues, and Urban Disease Propelled Europe’s Rise to Riches"
  • Military planning for possible H1N1 outbreak
  • Durable Goods (Chart)
  • Desperate state may sell Capitol buildings, others

Economy

A Comedian That Could Replace The Cable Financial Media (Humor)

$235,000,000,000.00 Primary Dealers buying. Where is the money coming from? (Repost)

Bond and dollar futures are both higher. Higher during a week that they are issuing $235 billion??? Now here’s my question… how do we finance $235 billion of bond auctions in one week – WHERE DOES THE MONEY COME FROM? Well, if we look at the bid results, we find that the Primary Dealers (PDs) are doing more and more buying each week. And when we look at the TIC data, we find that international buyers are doing more selling than buying. So, if the money to buy such massive issuances is coming from the PDs, then they have to be using their own cash or equivalents to buy them – correct?

The Credit Crunch - Treating the Disease Rather Than the Symptoms (White Paper)

Notes on the Dollar...(Repost)

Hey, we’re about to find out what’s truly important to the powers that be. Of course they talk up a strong dollar while simultaneously killing it with their actions – you know, little things like auctioning off $235 billion in new DEBT just this week!

Another Piece of the Money Trail (TIC Data - White Paper on Page, Repost)

As I’ve been mentioning in my reports on the flow of Treasury International Capital (TIC Flows), foreigners have been net sellers of our debt. This last report, released July 16th, shows a net outflow of foreign private capital of $82.2 billion and the outflow of foreign official flows were $15.6 billion.As I’ve been mentioning in my reports on the flow of Treasury International Capital (TIC Flows), foreigners have been net sellers of our debt. This last report, released July 16th, shows a net outflow of foreign private capital of $82.2 billion and the outflow of foreign official flows were $15.6 billion.

Weak Treasury Sales Raise Worries About U.S. Debt Burde (Repost)

The U.S. Treasury sold $39 billion in five-year debt Wednesday in an auction that drew poor demand, raising worries over the cost of financing the government's burgeoning budget deficit.

It was the second lackluster showing in as many days, convincing analysts that the stellar results of debt auctions just a few weeks ago were a fluke and that Thursday's $28 billion seven-year offering could suffer a similar fate.

House Sales: Most of the Media and Wall Street economists have had the inherent tendency to get this data wrong . . . the latest batch of releases is no different . . . (Charts)

"How Wars, Plagues, and Urban Disease Propelled Europe’s Rise to Riches"

We argue that the Great Plague of 1348-50 was the key. Between one third and one half of Europeans died. With land-labour ratios now higher, per capita output and wages surged. Since population losses were massive, they could not be compensated quickly.

Military planning for possible H1N1 outbreak

The U.S. military wants to establish regional teams of military personnel to assist civilian authorities in the event of a significant outbreak of the H1N1 virus this fall, according to Defense Department officials.

The proposal is awaiting final approval from Defense Secretary Robert Gates.

The officials would not be identified because the proposal from U.S. Northern Command's Gen. Victor Renuart has not been approved by the secretary.

The plan calls for military task forces to work in conjunction with the Federal Emergency Management Agency. There is no final decision on how the military effort would be manned, but one source said it would likely include personnel from all branches of the military.

Durable Goods (Chart)

Desperate state may sell Capitol buildings, others

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn't to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

9 Comments

JAG's picture
JAG
Status: Diamond Member (Offline)
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Posts: 2492
A New Bull Market For The USD?

Given the events of this week, its hard to be bullish on the dollar, but then again how often do markets make any sense?

Mish's:

Ewave Count on the US Dollar Suggests Move Up is Coming

 
targetbuster's picture
targetbuster
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Posts: 27
Re: Daily Digest - July 31

Never having posted here before mine is just an observation from a rookie that knows nothing but has observed and digested alot of opinions and data over the last 6 months of visiting this site.

My opinion regarding Chris' report on GDP is that this most recent celebration over the "end" of the recession/depression (whatever) is that this confirms it......Our economy is one giant Ponzi scheme, and the most important factor for those who are engineering it is to restore confidence. Nothing matters more, and all the good data collection and thoughtful assessment from people such as CM and Davos only point out the obvious nature of this enormous Ponzi/Fraud and the ONLY thing that will bring it to an end is the total failure of the system itself. Until then, enjoy the ride and just be ready because you KNOW what is coming at some point. We literally can't stop it.

ELIZABETH S.'s picture
ELIZABETH S.
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Posts: 23
Re: Daily Digest - July 31

Amen.

Headless's picture
Headless
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Posts: 363
Re: Daily Digest - July 31

Targetbuster said:

"Nothing matters more, and all the good data collection and thoughtful assessment from people such as CM and Davos only point out the obvious nature of this enormous Ponzi/Fraud and the ONLY thing that will bring it to an end is the total failure of the system itself."

And one  factor that will most likely expedite that coming "total failure" will be the fall of innumerable criminals that are currently at the heart of The Ponzi Organzation. The article below indicates there is finally some hope of outing a few of the over 50,000 of them; this disclosure will probably read like a roster of Goldman Sachs employees:

http://finance.yahoo.com/news/Breakthrough-deal-announced-rb-605434016.html?x=0&sec=topStories&pos=4&asset=&ccode=

Edit: Is it possible that that $5B UBS received from the Paulson-Bernanke Gang was a bribe?  Wouldn't be surprised if their names are on the list as well...

Jeff Borsuk's picture
Jeff Borsuk
Status: Silver Member (Offline)
Joined: Jul 25 2008
Posts: 150
Re: Daily Digest - July 31

I'll 2nd that!

And here's some more evidence of the machine keeping things to themselves:

Fox News Loses FOIA Suit Against Federal Reserve

Here's the link: http://www.rcfp.org/newsitems/index.php?i=10939

Jeff

JAG's picture
JAG
Status: Diamond Member (Offline)
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Posts: 2492
The Government Finance Bubble

From Doug Noland at www.prudentbear.com

Facets Of Bubble Analysis:

A couple years back I received an email from a unimpressed reader with the following message:  “Doug, when you’re a hammer everything looks like a nail.”  He was referring to my thesis back then that Bubbles had sprung loose from the U.S. Credit system and had begun propagating around the world.

Months back I posited that a Government Finance Bubble had emerged from the smoking ashes of the Wall Street/mortgage finance Bubble.  I understand why some might see me as a dreary hammer out searching for nails.  All the same, the backdrop merits further discussion of facets of Bubble analysis. 

Many see Bubbles in terms of an unsustainable overvaluation of asset prices.  And many would view today’s “post-Bubble” landscape and find my ongoing Bubble premise borderline ridiculous.  But I’ve always viewed Bubbles as a Credit phenomenon.  Inflating assets prices are actually only one of many consequences of an overexpansion of Credit.  Rapid asset inflation is almost a sure sign of underlying Credit excess, though analysts should downplay asset prices while focusing keenly on underlying Credit and speculative dynamics.  Huge Credit growth, market price distortions (especially the under-pricing of risk), highly speculative markets, and prolonged asset inflation are inevitably indicative of some underlying monetary/Credit disorder.  

I want policymakers out of the business of targeting or tinkering with the asset markets and market yields.  Instead, the focus should be on creating a backdrop of stable money and Credit.  The problem today is that central bankers for years ignored a historic expansion of Credit (much of it directed to the asset markets) and resulting Monetary Disorder.  Now, to avert systemic implosion central bankers at home and abroad have resorted to unprecedented measures to expand Credit and intervene in the market's pricing of Credit.  Instead of a movement toward constructing a more stable global Credit system and backdrop, policymakers have instead jumped farther into the uncharted waters of unconstrained Credit expansion.  Such a backdrop is ultra-conducive for ongoing speculation, Bubbles, general disorder.  

Again, Bubbles are first and foremost a Credit phenomenon.  Fundamental to the nature of Credit, expansion generally fosters more expansion.  Credit excess begets only greater Credit excess.  And Credit excess notoriously begets speculative excesses.  Importantly, Credit is inherently self-reinforcing – both on the upswing and downswing.  In today’s “system” of unrestrained Credit, rising demand does not dictate an increasing price for this Credit.  Indeed, an unlimited supply of Credit will tend to satisfy rising demand at a lower price.  And this gets right to the heart of a huge Bubble – and policymaking - dilemma. 

The bottom line is that unrestrained Credit is inherently unstable, and few seem to appreciate the unique nature of today’s unfettered global Credit environment.  There is no international gold monetary regime for which to discipline lenders, central banks, governments or economies.  The dollar reserve system self-destructed over decades of undisciplined Credit expansion.  And the breakdown of U.S. discipline – and the resulting massive dollar devaluation – has unleashed domestic Credit systems from China to Brazil.  Never have “developing” Credit systems (and currencies) enjoyed such freedom to inflate financial claims.

It’s with this backdrop in mind that I contemplate the likelihood that we have entered an especially dangerous period of Credit excess and attendant Bubbles.  Fundamentally, the massive intrusion of the Treasury and Federal Reserve into the marketplace has only further distorted the pricing of finance throughout our economy - as well as globally.  Despite record debt issuance, the market will lend the Treasury three-month money at about 11 basis points.  Two-year borrowings come at cost of about 100 bps.  The price of Treasury notes and bonds inflates in spite of enormous deficits as far as the eye can see.  Moreover, the marketplace is happy to lend to Fannie and Freddie at only a slight premium to the U.S. Treasury, with the prices of their obligations inflating in the face of these institutions’ ongoing financial implosions.  Today’s price distortions go right to the heart of system “money.”

Fannie Mae’s Book of Business (mortgage holdings and MBS guaranteed) jumped $43.9bn during June to $3.194 TN.  This was the biggest growth since December 2007.  Freddie’s Book of Business increased $12.2bn last month.  According to Bloomberg’s issuance tally, the GSEs (Fannie, Freddie and Ginnie) issued $168bn of MBS in July, down somewhat from June’s huge $236bn and May’s $212bn.   At $1.102 Trillion, year-to-date agency MBS issuance has already almost matched 2008 and 2007.  The government is quietly accumulating dangerous Credit and interest rate risk in its ongoing mortgage operations.

During the Wall Street/mortgage finance Bubble, seemingly no amount of Credit creation and debt issuance would place upward pressure on the cost of borrowings (or reduced the price of the underlying debt instruments).  Importantly, the bigger this Bubble inflated the more confident the savvy market operators became that an inevitable crisis would force policymakers to explicitly back GSE obligations and aggressively slash interest rates.  Market yields remained artificially low and increasingly detached from escalating risks.  Fundamentally, a market trapped in Bubble dynamics had lost is capacity for adjustment and self-regulation.  

The massive expansion of GSE obligations, coupled with a speculative marketplace’s anticipation of yet another major government-induced reflation, severely distorted the marketplace and provided the bedrock for a historic mortgage finance Bubble. Today, the government’s intrusion into the marketplace is greater than ever.  The markets readily accommodate a couple Trillion of annual issuance – as if the U.S. economy and Credit system were on solid footing.  And I would argue that today’s mispricing of government finance feeds reinforces the market’s perception that U.S. policymakers will successfully reflate the economy.  This Bubble distortion, then, fosters a problematic explosion of government debt issuance – and a most dangerous case Minskian “Ponzi finance.” 

There are a number of reasons why the government finance Bubble is even more dangerous than the Wall Street/mortgage finance Bubble.  First of all, the $2 TN or so of “government” issuance over the past year is greater than the $1.4 TN of peak total mortgage Credit growth during 2005 and 2006.  I would expect another $2 TN next year and the year after.  Government debt enjoys the attribute of “moneyness” in the marketplace to a much greater capacity than mortgage securities did during the boom.  The risks associated with debasing this “moneyness” are momentous.  And there is, as well, the dynamic where the greater the government finance Bubble inflates the more convinced the marketplace becomes that the Federal Reserve will do everything within its power to accommodate the debt markets (ultra-loose monetary conditions for the duration).  And destabilizing speculation can return to all markets…

The government finance Bubble is a global dynamic.  There were pertinent Bubble-related comments out of China this week:

July 30 – Dow Jones (J.R. Wu):  “China’s central bank will emphasize market-based systems, rather than administrative controls, in guiding the appropriate growth of credit, People’s Bank of China Vice Governor Su Ning said.   The statement… came just hours after Chinese shares posted their biggest one-day percentage fall in over eight months on fears that loan growth may start to pull back… ‘We should pay attention to the use of market-oriented means - rather than controlling the size - and flexibly use various monetary policy tools to guide the appropriate growth of credit,’ Su said… He said ‘the mind and action’ of all financial institutions should ‘be as one’ with the government’s goal, and financial institutions should properly handle the relationship between supporting the economy’s development and preventing financial risks.  Su’s comments appeared to signal the PBOC wasn’t about to set loan curbs in the second half of this year to cool explosive lending growth, as it did in 2008 when it used the blunt tool of loan quotas for banks to hold down inflationary pressures that were building at the time…    But Su said the central bank will resolutely maintain its moderately loose monetary policy. He said the foundation for China’s economic recovery isn’t firm yet and many uncertain factors still exist in both the external and domestic environment.”

Similar to the Federal Reserve, I see Chinese authorities increasingly held hostage to Bubble Dynamics.  I found it fascinating that a top People’s Bank of China official would mention emphasizing “market-based systems” for guiding Credit growth.  I suspect this may be a most inopportune time to begin relying on market mechanisms.  As we have witnessed, market-based processes can be particularly unreliable Credit regulators after Bubbles reach an overheated state.  It is my view that only decisive action by Chinese policymakers will at this point have much impact at restraining excess.  Central to the analysis of unfolding precarious Bubble Dynamics is my view that few, if any, policymakers anywhere around world will be willing to act decisively to tighten Credit conditions and address increasingly speculative financial markets.

Gee how wonderful, another bubble. I don't think I want to be around when this one pops.

fujisan's picture
fujisan
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Posts: 296
Re: Daily Digest - July 31

Mark Miller: Boomers and Housing: A Symbiotic Relationship Unravels

When the housing market was soaring, many baby boomers thought of their homes as piggy-banks that could be cracked open in retirement to finance retirement.

High housing prices would allow us to leverage equity to finance our lifestyles, buy second homes or pay entry fees into retirement communities. That thinking was encouraged by the financial services industry, which aggressively marketed low-interest mortgage debt and equity-to-cash products like home equity loans and reverse mortgages.

But the piggy bank was smashed when the housing market crashed. And today's high unemployment rates, sagging incomes and rising foreclosure rates make it unlikely that we'll see a strong rebound anytime soon in housing. True, the widely-watched Standard & Poor's/Case-Shiller home price index released this week showed U.S. home prices rose in May on a month-to-month basis for the first time since July 2006. But that shouldn't be taken as a sign that the market is going to rebound to pre-crash levels anytime soon. At best, the Case-Shiller index hints that we may have found a bottom in housing. Maybe.

To be sure, the housing crash has caused pain for every American demographic group. But older Americans have the greatest exposure to real estate. Consider:

--Seventy-nine percent of Americans over age 55 own their own homes, compared with a national median ownership rate of 69 percent. As prices soared during the bubble era, boomers took on larger mortgages, and a greater percentage are now carrying mortgage debt well into their 60s than ever before.

--Home equity accounts for one-third to half of all net worth for older Americans; the only larger source of household wealth is Social Security. (Despite all the buzz about the stock market's crash, housing actually impacts a much larger group of Americans, simply because home ownership is spread much more evenly across income groups than equity investments.)

-- 30 percent of Americans age 45 to 54 are underwater on their mortgages, according to one study--that is, they owe more than their homes are worth, and would need to bring cash to a closing.
...

Nime's picture
Nime
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Posts: 88
Re: Daily Digest - July 31

"Military planning for possible H1N1 outbreak" - scary... Somehow way too many predictions by Alex Jones & co seem like becoming suddenly all too real... 

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - July 31

Hope my mountain and the towns I frequent are in the "Green Zone," not the "Red Zone."

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