Daily Digest

Daily Digest - July 8

Thursday, July 8, 2010, 10:55 AM
* Morning Gold Fix: July 7, 2010 * Cost of civil servants' 'Ponzi' pension scheme threatens poverty for future generations * The Invisible Hand of Doom * Bernanke Created Half of 234 Years’ Worth of Money Supply * Lula visit deepens shift in Kenya’s global trade * Colorado Springs experimenting with loss of local services * Faith in Government Gone... * Peak oil means expensive food -------- ECONOMY ------------------------------------------------------------- >Morning Gold Fix: July 7, 2010 [1] (Davos) > >How else can you explain the IMF telling Sprott he is “ineligible” to >take delivery of the gold they are selling, while they execute monster swap >trades with central banks. C’mon… I give you money, you give me gold. >[...] it is a cash and carry trade. Write check, get gold. These guys are >holding it back to rescue some schmuck banks that dug a hole for themselves. >I’m sure there are legit reasons why Sprott cannot get access to the >IMF’s Gold Discount Window (GDW) but am starting to think that TBTF >includes banks short gold against swap positions as well. > >Cost of civil servants' 'Ponzi' pension scheme threatens poverty for future >generations [2] (SolidSwede) > >In a comprehensive report it calls for urgent reform of the civil servants' >gold-plated benefits. According to its analysis, public sector employees >must save more than 40pc of their salary each year to fund their benefits >but the amount actually being set aside is just 20pc – of which employees >are providing only 6pc themselves. > >The Invisible Hand of Doom [3] (Davos) > >Economist Adam Smith coined the “Invisible Hand” to describe the >self-regulating nature of the marketplace. Then maybe. Utter nonsense now! >This write/pictorial will make the invisible visible. > >Bernanke Created Half of 234 Years’ Worth of Money Supply [4] > >“The U.S. turned 234 years old yesterday, and yet over half of the >nation’s money supply was created since Helicopter Ben took over the >flight controls four years ago. No wonder gold is in a full fledged bull >market . . .” - David A. Rosenberg Chief Economist & Strategist > >Lula visit deepens shift in Kenya’s global trade [5] > >“President Luiz Da Silva’s Tuesday visit to Nairobi has added fresh >impetus to the ongoing shift in Kenya’s choice of economic partners in >favour of the world’s emerging powerhouses such as Brazil, China and >India, economists said.” >Aaron Meder, LGIMA's head of U.S. pension solutions, said the worst drop was >in the fourth quarter of 2008. The latest drop resulted from equity market >losses — the S&P was down 11% for the quarter — and lower bond yields, >with pension discount rates falling 50 basis points to 5.6%. > >Colorado Springs experimenting with loss of local services [6] > >The buses stop running at 6:15 p.m. now, and most streetlights stay dark >throughout the night. Three city pools have shut down, and turf is withering >in more than 100 parks. What's a city to do when its museums are struggling >to stay open and there aren't enough police officers to investigate crimes? >Colorado Springs residents have met their city's attempts to get by with >less on their own terms. For some, there is anger and lost jobs. For others, >there are weary shrugs and mild complaints. And for some, there is a >realization that if they want things done, they'll just have to do it >themselves. > -------- ENERGY -------------------------------------------------------------- >Faith in Government Gone, Citizens Appalled by the Oil Spill Turn to Each >Other > >Nothing says more about citizens' loss of faith in government than a website >in Santa Rosa, CA called "StoptheGusher", where ordinary citizens have >gathered to share ideas, offer suggestions, and rack their brains about what >to do about the Gulf Oil Spill. > >Almost three months into this crisis, both BP and the White House appear >paralyzed. But on StoptheGusher, people spend hours composing long, >intricate plans and copying their Congresspeople, proposing concrete >underwater containment barriers, and suggesting organic products such as >Kenaf, an oil-soaking plant grown in North Carolina, Georgia and Texas that >is ground down, refined and marketed as SupremeSorb. > >Peak oil means expensive food [7] > >What will be the impacts of oil's decline? We've already felt the first >impacts when oil prices spiked in the spring of 2008. The world sank into >recession. (Most recessions in the past 60 years have been related to >expensive energy.) Whichever comes next, another spike or a permanent, >irreversible yearly decline in production, the result will be a deeper >recession and finally a depression on a par with the Great Depression of >1929. > >The impacts of even a small drop in production can be devastating. For >instance, during the 1970s oil shocks, shortfalls in production as small as >5 per cent caused oil prices to nearly quadruple. The same thing happened in >California a few years ago with natural gas. A production drop of less than >5 per cent caused prices to skyrocket by 400 per cent. What, then, can we >expect when the annual decline rate, beginning soon, falls into the >presently predicted range of 4 to 10 per cent? > >Every sector of the economy will be affected, but the initial lack will be >felt in terms of food. > Please send article submissions to: [email protected] [8] [1] http://www.zerohedge.com/article/morning-gold-fix-july-7-2010?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+zerohedge/feed+%28zero+hedge+-+on+a+long+enough+timeline,+the+survival+rate+for+everyone+drops+to+zero%29&utm_content=Google+Feedfetcher [2] http://www.telegraph.co.uk/finance/personalfinance/pensions/7875621/Cost-of-civil-servants-Ponzi-pension-scheme-threatens-poverty-for-future-generations.html [3] http://financialsense.com/contributors/sherman-okst/the-invisible-hand-of-doom [4] http://%20http://www.ritholtz.com/blog/2010/07/half-of-234-years-worth/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheBigPicture+%28The+Big+Picture%29&utm_content=Google+Feedfetcher [5] http://www.businessdailyafrica.com/Company%20Industry/Lula%20visit%20deepens%20shift%20in%20Kenyas%20global%20trade/-/539550/954088/-/u682aj/-/index.html [6] http://www.denverpost.com/news/ci_15437320 [7] http://www.thespec.com/Opinions/article/803793 [8] mailto:[email protected]?subject=Daily%20Digest%20Submission

17 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - July 8

"WASHINGTON (Reuters) - The U.S. offshore oil drilling ban will reduce crude output by an average of 82,000 barrels per day next year, more than previously estimated, the government's top energy forecaster said on Wednesday.

The Energy Information Administration had said last month that the moratorium, which the government put on exploration rigs in response to the BP Plc oil spill, would reduce next year's U.S. crude output by an average of 70,000 bpd.

In May, Interior Secretary Ken Salazar put a six month moratorium on deep water exploration rigs.

The moratorium will delay deep water projects, the effect of which will speed up late in 2011, the EIA said."

"Federal Reserve officials, increasingly concerned over signs the economic recovery is faltering, are considering new steps to bolster growth.

With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns -- massive infusions of cash, such as those undertaken during the depths of the financial crisis -- but would reconsider if conditions worsen.

Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. But weak economic reports, the debt crisis in Europe and faltering financial markets have led them to conclude that the risks of the recovery losing steam have increased. After months of focusing on how to exit from extreme efforts to support the economy, they are looking at tools that might strengthen growth. "

"July 8 (Bloomberg) -- Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by European banking regulators.

Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or debt restructuring. So-called stress tests designed to gauge banks’ strength will assume a loss, or haircut, of just 17 percent on the bonds, according to two people briefed on the regulators’ talks before an official announcement."

"July 8 (Bloomberg) -- The International Monetary Fund urged European Union policy makers to take further “decisive” steps to combat a sovereign-debt crisis that it said poses a threat to the world financial system.

“Recent global stability gains are threatened by a confluence of sovereign and banking risks in the euro area that, without continued and concert attention, could spill over to other regions,” the IMF said in an update released yesterday of its Global Financial Stability Report.

The fund urged policy makers to reduce budget deficits, formulate plans to wind down or recapitalize weak banks, and make “fully operational” a rescue fund to backstop the euro. It also said the European Central Bank should step up purchases of government debt on the secondary market."

"July 7 (Bloomberg) -- U.S. commercial real estate sales in the first half totaled about a quarter of the average of the previous six years as owners kept properties off the market, impeding investors with record funds for purchases.

Buyers and sellers completed $34.2 billion of deals through June, or 26 percent of the average first-half dollar volume since 2004, according to preliminary figures from Real Capital Analytics. The total was about 12 percent of the 2007 peak, when $277.7 billion of properties changed hands in the same period, data from the New York-based real estate research firm show."

"July 8 (Bloomberg) -- Scheduled weekly Build America Bond sales fell to the lowest this year as the yield premium demanded by investors in the taxable debt reached a record high.

Investors sought 2 percentage points in extra yield for the federally subsidized securities June 30 and July 6, the highest since the Wells Fargo Build America Bond Index started in August. The so-called spread over 30-year U.S. Treasuries has widened 37 percent since touching a 2010 low of 1.42 percentage points on May 6, according to data compiled by Bloomberg.

“Investors have had general concerns about muni bonds” that contributed to wider yield spreads, said Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC in Philadelphia. At the same time, “investors are saying, ‘If I buy BABs, I want a little more yield,’” he said."

"A full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history, devastate every country in Europe including Germany, and inflict a deflationary shock on the US. There would be no winners, warns the Dutch bank ING in a new report "Quantifying the Unthinkable"."

Other news and headlines:

EU says member states may have to raise pension age

Japan Vulnerable to Debt Crisis in 5-10 Years: Rogoff (CNBC)

Trichet Faces Market Rate Threat as Debt Crisis Hurts Growth

Tax revenues at local governments see sharpest fall in FY 2009 (Japan)

Poland's debt could exceed zł.3 trillion (Health and pension costs)

RPT-Fannie Mae sells $4 bln bills at higher rates

SCENARIOS-BP's choices for funding oil spill costs (Up to $36 billion?)

Wells Fargo cuts 3,800 consumer finance jobs

Europe Stress Tests May Underestimate Probable Losses

Miami-Dade County government to cut jobs and budget ("1,200 fewer funded positions")

Denver council briefed on expected $100 million deficit

China may take action on stocks if slide worsens

NJ Pensions Underfunded $175 billion

Poet's picture
Poet
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So far, banks can borrow at

So far, banks can borrow at near 0% interest but consumers are still borrowing at higher rates.

I'm thinking the Fed is going to keep push rates down further for consumers. Right now, 30-year fixed mortgage rates down to an average of 4.57%, apparently the lowest point in 50 years.

Mortgage rates drop to new low of 4.57 pct.
http://finance.yahoo.com/news/Mortgage-rates-drop-to-new-apf-1792715558....

If the Fed and Federal government keeps this up, we may soon see mortgage rates in the 3% range. That would allow a lot of refinancing to bring monthly payments down.

Monthly payment on 30-year fixed for $200,000 at 5% is 1,073.64.
At 4% is $954.83 (that's $118.81 less)
At 3% is $843.21 (that's another $111.62 less for a total of $230.43 less).

It's an interesting way to prop up home prices, making homes more affordable for buyers, allowing distressed ARM borrowers to refinance, and have sellers see less of a loss on sales. I don't think anyone ever thought rates would get this low. I suspect this is what they were planning all along and we likely will see more of this.

Poet

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cmartenson
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Re: Daily Digest - July 8

Sure refi activity can be expected to pick up with low rates, I just hope that people understand the costs involved and take the time to calculate if the savings are worth it.

Here are some typical charges that might be involved for an average sized loan:

Application            $350
Appraisal              $400
Bank Underwriting      $650
Processing              $200
Lien Search            $250
Ucc1 filing            $100
Ucc3 filing            $75
Bank Attorney  $850
Payoff Attorney $400

So if you are saving $100/month, you need to be in there for 33 months just to break even (not including interest or opportunity costs).  If you have any plans to move or sell within 3 years, it may not be worth the trouble.

Poet's picture
Poet
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Re: Daily Digest - July 8
cmartenson wrote:

...
So if you are saving $100/month, you need to be in there for 33 months just to break even (not including interest or opportunity costs).  If you have any plans to move or sell within 3 years, it may not be worth the trouble.
...

Thank you, Dr. Martenson. You're right. It certainly complicates the picture for borrowers.

Just as a side note: I have an acquaintance who with his wife paid over $400,000 a few years ago for a one-bedroom condo (I am NOT joking!) in Long Beach, California. They've been struggling (he lost his construction job and started going back to school while working two low-wage jobs) in making all the monthly payments so far (as well as $500 per month in association fees!). He's considering walking away while his wife wants to stay because she still thinks prices will come back. I feel very sad for them.

For them, refinancing is not even an option because they are so underwater. but for those not underwater and still with perhaps $400,000 owed, I think refinancing would make sense. Freeing up income would allow such borrowers to pay off debt, spend money into the economy, and save.

I just checked into 30-year adjustable 7/1 or 5/1 loans and noticed they are in the low 3% range.

If this is also part of Fed's and government's way of trying to lessen the impact of this "second wave" of adjustable mortgage rate resets coming through... I'm reminded of that saying that betting against the power of casino house (Fed/government) in the short-term can be very bad.

Poet

V's picture
V
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Invisible Hand of Doom

Nice piece Davos

If you want to take a vacation and get some therapy at the same time come for a visit. I sit in my garden and pick cabbage worms and potato beetles and squish them. It is quite satisfying in a primal me against them kinda way. I give them names like Bernanke, Rubin, Obama, Blankfein, Dimon, Paulson etc.

Also being a writer I keep a Thesaurus handy. If you are serious about making the leap from the forums to the more well known blogs and perhaps real articles in real publications like the NYT LOL. I suggest you start using some synonyms for moron. Regular readers might find the use of moron overdone and tiresome. So here is a short list  just to get you started.

Imbecile, blockhead, half-wit, cretin (a fav of mine) , fool , idiot, dolt, dunce, clod, boob ( another fav but for a different reason) , dingdong, dingbat, ignoramus, nincompoop, numbskull, lamebrain, dumbbell, pinhead, cabbage head, and dimwit. Again this is a short list but it should get you through the second dip of the recession or the end of the world whichever comes first.

As always I enjoy your articles immensely

V

 

Davos's picture
Davos
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Re: Invisible Hand of Doom

Thanks V: I'll leave the masterful keyboards that turn words to sculptors clay to folks like you and MachineHead and CM and alike. I'm a simpleton, I have little desire left to write anymore. Take care.

Sam's picture
Sam
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Re: Daily Digest - July 8

Wow, V, you sounded just like one of my x wives there. She used to call me all of those things.

idoctor's picture
idoctor
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Re: Daily Digest - July 8

Davos keep up the great articles.....pissst I still like Moron LOL

Poet's picture
Poet
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Re: Invisible Hand of Doom

 

Davos:

Great article/pictorial!

I'd add the pension crisis. Not just government employees at the local, state, and federal levels, but union pensions including the multi-employer system and but Social Security in the U.S. and public retirement and government retirement systems across the post-industrial world. TRILLIONS in liabilities.

Poet

SagerXX's picture
SagerXX
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Re: Daily Digest - July 8
Poet wrote:
cmartenson wrote:

...
So if you are saving $100/month, you need to be in there for 33 months just to break even (not including interest or opportunity costs).  If you have any plans to move or sell within 3 years, it may not be worth the trouble.
...

Thank you, Dr. Martenson. You're right. It certainly complicates the picture for borrowers.

...

For them, refinancing is not even an option because they are so underwater. but for those not underwater and still with perhaps $400,000 owed, I think refinancing would make sense. Freeing up income would allow such borrowers to pay off debt, spend money into the economy, and save.

Something to bear in mind is that in many/most cases, if you re-fi the mortgage becomes a recourse loan.  Which means in the event that you have to walk away from the house (lost jobs, medical expenses, et al.) the bank can still come after you.  You can't just give back the keys and call it a done deal.  

 

Montana Native's picture
Montana Native
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Re: Daily Digest - July 8

Davos,

My favorite are the big ass red bombs being dropped from the Stealth...... you should paint up the bomber nose WWII style.

Davos's picture
Davos
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Re: Daily Digest - July 8

lol

LogansRun's picture
LogansRun
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Posts: 1443
Re: Daily Digest - July 8

Yup!  Very appropriate post!  Refi business is up big time but that doesn't mean it's the right thing for everyone!  Also, there are TONS of people that want to refi but their loans are so underwater that they can't afford the 20% cash needed JUST to bring their LTV (Loan to Value) into compliance.  It really is a sad state of affairs out there!

cmartenson wrote:

Sure refi activity can be expected to pick up with low rates, I just hope that people understand the costs involved and take the time to calculate if the savings are worth it.

Here are some typical charges that might be involved for an average sized loan:

Application            $350
Appraisal              $400
Bank Underwriting      $650
Processing              $200
Lien Search            $250
Ucc1 filing            $100
Ucc3 filing            $75
Bank Attorney  $850
Payoff Attorney $400

So if you are saving $100/month, you need to be in there for 33 months just to break even (not including interest or opportunity costs).  If you have any plans to move or sell within 3 years, it may not be worth the trouble.

TechGuy's picture
TechGuy
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Posts: 366
Re: Daily Digest - July 8

How else can you explain the IMF telling Sprott he is “ineligible” to take delivery of the gold they are selling

Perhaps if Sprott told the IMF that he's deeply short in Gold and long in Dollars they will consider him "eligible".

Farmer Brown's picture
Farmer Brown
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Posts: 1503
The Invisible Hand

Awesome, Davos! 

My favorite part:  

Dennis Kneale calls himself an optimist. Personally, I think there is a huge difference between an optimist and a "delusionalist"

 

LOL!!!

jhart5's picture
jhart5
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Re: Daily Digest - July 8

Davos – An excellent mind-blowing  article – How about including a lead in to Damon Vrabel ‘s Renaissance 2.0

dickey45's picture
dickey45
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Posts: 77
Re: Daily Digest - July 8
SagerXX wrote:

Something to bear in mind is that in many/most cases, if you re-fi the mortgage becomes a recourse loan.  Which means in the event that you have to walk away from the house (lost jobs, medical expenses, et al.) the bank can still come after you.  You can't just give back the keys and call it a done deal.  

Then what is mortgage insurance for?

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