Daily Digest

Daily Digest - Jun 17

Wednesday, June 17, 2009, 10:14 AM
  • Southern Europe
  • Housing Starts Soar, Surge in Home Construction (Yeah, See Chart)
  • And here's Cramer's Housing Call (H/T JoeManC)
  • Introduction to “Broke: The New American Film" (Video, Repost)
  • Global Oil Reserves Fell in 2008 on Russia, Norway, Says BP (Crash Course Vidoe Featured in Article)
  • Uhhhhh.... Ben? (Blatantly Unlawful Acts?, H/T Patrick)
  • Listen up Greenshoot tokers
  • Numbers racket: Why the economy is worse than we know (From 2008)
  • Limits to inflating away debt and political commitments to future public spending (H/T Suzie)
  • Rural Mich. counties turn failing roads to gravel (H/T DamnTheMatrix)
  • Proof: Silver is MONEY
  • Sunday Funnies (Please don't watch Denny's (Last video) if you don't like strong language)
  • Gold to Go, (H/T Fujisan)

Economy

Southern Europe 

Ladies and Gentlemen, Hugh is describing a return to something like the global crunch conditions of September and October, with the epicenter moving from New York to Barcelona.

If he is right and Latvia becomes the trigger event for a cascade that swamps not just Baltic backwaters but Greece and Spain...Iceland's GDP was $12bn. Latvia's GDP is around $36bn. Greek GDP is $350bn. Spanish GDP is $1.4tn. That is a completely different ballgame, and the global exposure to problems of this scale is likely to be made blindingly obvious from the get-go.

And of course any threat of a run on national-level "massive external financing requirements" leads one's thoughts directly to the United States, which remains as ever extremely reliant on foreign-sourced funding for its banking system.

Housing Starts Soar, Surge in Home Construction (Yeah, See Chart)

And here's Cramer's Housing Call (H/T JoeManC)

Introduction to “Broke: The New American Film" (Video, Repost) 

Global Oil Reserves Fell in 2008 on Russia, Norway, Says BP (Crash Course Video Featured in Article)

Don't forget Peak Oil.

Take the Crash Course.

Uhhhhh.... Ben? (Blatantly Unlawful Acts?, H/T Patrick)

Props to Zerohedge for having the #### to run this unconfirmed:

Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed-type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.

Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situtation to please come forward and share their views ([email protected]). If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.

Uh, there's a bit more than just "writing off this rally" there.

If this is true and especially if The Fed is involved, there is a major problem with the law.

See, The Federal Reserve is explicitly not permitted to buy anything that doesn't have the full faith and credit of The US Federal Government behind it. It is that fact (found in Sections 13 and 14 of The Act) that has led me to repeatedly rant about The Fed's purchase of Fannie and Freddie paper - distinctly outrageous acts, given the plain language of the law. (Note that purchase of Ginnie Mae securities, which are fully guaranteed with full faith and credit, would be fine. Note also that Ginnie Mae didn't get in trouble fiscally either. Hmmmm....)

(More)

Listen up Greenshoot tokers

How’s that for fundamental analysis? Did I mention the mathematically impossible numbers of DEBT? LOL, let’s look at the charts and focus on the volume…

Numbers racket: Why the economy is worse than we know (From 2008)

Almost four decades have passed since the United States scrapped its last currency ties to precious metals. Our copper and nickel coinage still retains some metallic value, but not nearly enough for the purpose of currency tampering—the historic temptation of inflation-plagued or otherwise wayward governments, including, at times, our own. Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy—the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances—inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.

The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3–4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

(More)

Limits to inflating away debt and political commitments to future public spending (H/T Suzie)

In response to my previous blog, “The fiscal black hole in the US”, ‘Peter’ makes the comment that much of the unfunded ‘liabilities’ under social security and Medicare are index-linked and cannot be inflated away. This is an important point. Inflation reduces the real value of nominal liabilities. If these nominal liabilities are interest-bearing, and have fixed market-determined interest rates that mas or menos reflect the rate of inflation expected at the date of issuance of these liabilities over the maturity of the liability, then only actual inflation higher than the inflation expected at the time of issuance actually reduces the real value servicing that liability. If longer-maturity nominal debt instruments are floating rate securities, whose variable interest rate is linked to some short-term nominal rate benchmark, it becomes very difficult to inflate the real burden of that liability away.

Rural Mich. counties turn failing roads to gravel (H/T DamnTheMatrix)

LANSING, Mich. (AP) - Some Michigan counties have turned a few once-paved rural roads back to gravel to save money.

More than 20 of the state's 83 counties have reverted deteriorating paved roads to gravel in the last few years, according to the County Road Association of Michigan. The counties are struggling with their budgets because tax revenues have declined in the lingering recession.

Montcalm County converted nearly 10 miles of primary road to gravel this spring.

The county estimates it takes about $10,000 to grind up a mile of pavement and put down gravel. It takes more than $100,000 to repave a mile of road.

Reverting to gravel has happened in a few other states but it is most typical in Michigan. At least 50 miles have been reverted in the state in the past three years.

Proof: Silver is MONEY (Video)

Sunday Funnies (Please don't watch Denny's (Last video) if you don't like strong language)

Gold to Go, (H/T Fujisan)

GOLD To Go! Unser Automat ist in der Standardversion mit Goldbarren von 1 Gramm befüllt. Alternativ können auch Größen von 5 und 10 Gramm, sowie Goldmünzen bezogen werden.

Zum aktuellen Tagespreis, auch realtime möglich, bekommt der Kunde bereits ab 31 Euro (Tagespreis 28.05.2009) ein Goldstück von 1 Gramm, incl. einer Geschenkbox.

Ca. 20 % billiger als ein vergleichbarer Einkauf bei einer deutschen Bank am Schalter. Und die Geschenkbox ist gratis.

17 Comments

gregroberts's picture
gregroberts
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Re: Daily Digest - Jun 17

idoctor's picture
idoctor
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Re: Daily Digest - Jun 17

Peter Schiff BRIC do not depend on the dollar , The dollar depends on them

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Re: Daily Digest - Jun 17

As usual, good links Davos. The Denny's video was especially good. And Greg, excellent historical Bernanke. How can we trust anything the government tells us after watching that?

And now:

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/17/AR200906...

President Obama this afternoon will announce a series of proposals that would involve the government much more deeply in the private markets, from helping to steer consumers into affordable mortgage loans to imposing new limits on the largest financial companies, in a sweeping effort to prevent the kinds of risk-taking that sparked the economic crisis.

....

The administration's plan would vastly increase the powers of the Federal Reserve in an effort to create stronger and more consistent oversight of the largest companies and most important markets.

I don't like where this is heading. Give that secretive, quasi-government, quisi -private group vast new powers? Unbelievable. I think I just lost my hope.

 

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Re: Daily Digest - Jun 17

steve,

Bernanke is not part of the gov't.  Remember, the Fed is private.  He shouldn't be in control of ANYTHING!

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Re: Daily Digest - Jun 17

Thanks for the link to my blog at AmericanSolarEconomy.

I'm an old-school crash course fan.  I think I got started watching when Chris was on his 4th installment, or so. His Peak Oil series is a masterpiece!

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Re: Daily Digest - Jun 17

Uhhhhh.... Ben? (Blatantly Unlawful Acts?, H/T Patrick)

Davos - I think you listed the wrong link for Pat's great dig.  Listed above is the correct one.

This is an important article if it is found to be correct.  You have to wonder how many shenanigans are going on as things seem to be spinning out of control.

Larry

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Re: Daily Digest - Jun 17

 Russia, China to Promote Ruble, Yuan Use in Trade

 

June 17 (Bloomberg) -- The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries.

 

“We agreed to take further steps in this direction, including, perhaps, by adjusting contracts and laws that already exist,” Russian President Dmitry Medvedev told reporters in the Kremlin today after talks with his Chinese counterpart Hu Jintao.

 

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Re: Daily Digest - Jun 17

Great link on BRIC countries Davos, I'd like to highlight another section of the article

"China and Russia have called for a more diversified financial system to give emerging economies a bigger say in economic affairs, including the creation of alternatives to the U.S. dollar as a reserve currency."

The article also mentioned that Russia plans to begin selling energy (oil, natural gas) to China in roubles, not dollars. These actions by the BRIC countries are direct assaults on the US dollar!  The BRIC is making moves to dethrone the superpower and crown themselves. I can only wonder what spin our government will put on it?

 

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Israel Goverment is buying US dollar treasury bonds

Mighty Shekel Hits Four-Month High against Dollar

Bank of Israel Governor Stanley Fischer, worried that the strong shekel would decimate exports, stepped in with massive multi-billion shekel purchases of the dollar

www.israelnationalnews.com/News/News.aspx/131520

www.exchange-rates.org/history/ILS/USD/T

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Re: Israel Goverment is buying US dollar treasury bonds

An article recently showed that India and Russia were buying tons of dollars - though not by buying bonds, just by buying dollars with their own currencies (probably by printing their money out of thin air).  The reason given (by the person who wrote the article, not by India or Russia) was to keep their own currencies from rising so much against the dollar that their exports suffer even more than they already have.

Now this article shows the Israelis doing something similar, with the only difference being that they're buying bonds. Well guess what, in order to buy US bonds, they have to convert those shekels to dollars, so it's essentially the same thing as what India and Russia were doing.

If these events turn out to be a consistent trend, then that is supportive of the deflationist argument, as continual purchases of dollars or dollar-denominated assets would lead to a stronger dollar.  

This leads me to another thought:  Is China's push for other countries to adopt its currency in some international trade transactions just about trying to replace the dollar as a reserve currency?  Or is there another angle to this:  are they trying to get their own money flowing overseas (and get it out of China) so that the ratio of their currency to their dollar at home decreases, thereby accomplishing what Israel, India and Russia accomplished by other means?  That would be a great strategy, as it would a) allow them to keep their currency weak and protect exporters, b) hoard dollars (which if they believe deflation is coming would be the right thing to do from that perspective) and c) mask a & b with the facade of "wanting to replace the dollar with the Yuan as a reserve currency".

Thoughts anyone?

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Re: Daily Digest - Jun 17

http://www.reuters.com/article/wtUSInvestingNews/idINLH66637820090617

S&P cuts credit ratings on 18 US banks

Wed Jun 17, 2009 4:30pm EDT
 
LONDON, June 17 (Reuters) - Standard & Poor's on Wednesday cut its ratings on 18 banks citing expectations of more difficult operating conditions due to volatile financial markets and tighter regulation.

Among the rating changes, S&P cut the counterparty credit ratings of Wells Fargo & Co (WFC.N) by one notch to AA-minus, U.S. Bancorp by two notches to A-plus and Fifth Third Bancorp (FITB.O) by two notches to BBB.

S&P also downgraded the counterparty credit ratings of Huntington Bancshares (HBAN.O) and Carolina First Bank by two notches to junk-status BB-plus with a negative outlook. It also cut Citizens Republic Bancorp (CRBC.O) counterparty credit rating by three notches to BB-minus with a negative outlook [ID:nWLA6796].

"We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions," said Standard & Poor's credit analyst Rodrigo Quintanilla.

"Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings as industry players implement changes." (Reporting by Natalie Harrison; Editing by Hans Peters)

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Re: Daily Digest - Jun 17

Watched the trailer for Broke. Call me cynical, but I smell a Wall-Street production by a Wall Street shill. Period.  

If Covel is serious about expecting "all of us" to take responsibility for the sacking of America, he is either an genuine idiot (doesn't know the basics about the psychological imperative to "keep up with the Jones") or he is the matured waste product of a silver-spoon over-feeding of a little turd that came out of the wrong orifice; one who has not the slightest familiarity with financial hardship and the dreams of the have nots.

However, I don't believe he is serious; he is one of them, and he knows the psychological imperatives of the statistically average American as well as anyone who exploits that type of American could ever hope to know him or her. This type of methodical, theatrical, calculated assault on the minds of sensible, hard-working Americans, like the others, won't stop until some sensible hard-working Americans have the guts to "Go Iranian" on a few of the Wall Street theives and their support network co-conspirators (think CNBC, James Cramer, Larry Kudlow, and a whole cheer-leading squad of moronesses such as Erin Burnett and Suzy Orman).  What a pile of financial newspeak we have been sold!

I watch (with a lump in my throat and tears dripping from the corners of my eyes) what those brave souls in Iran are willing to do to determine "Where is my vote?", and I am ashamed of myself and the fact that I was born American. What Wall Street has done to the average American deserves an Iranian-election response enraged by a factor of 100!

Of course, the premise of this rant is that the average American needs the guidance of the dedicated and well educated public servant, and I truly believe that. You can't expect the average American to ever admit such a thing, but those who understand that, yes, a spectrum of intelligence exists and, yes, the average intellect is not very well developed in America, need to step up and acknowledge that a superior intellect does not entitle one to sack one's fellow humans, but that it, that intellect, imposes a contemporary and relative ad valorem tax upon the possessor; one which should be paid in the form of public service performed by a sincere public servant who accepts his or her burden, just as, say, a Jesus, might have done.

Though I am without religion, I can appreciate the fable, regardless of its perversion by the Roman Catholicocracy, and I wonder where our Jesuses have gone...

Michael Covel does not appear to be one of them, judging, as I have, by the trailer to this Wall Streeter's film; a Wall Streeter that needs you to buy his "Bull" and keep on trading!

Nonzeroone

 

 

 

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Re: Daily Digest - Jun 17

The BRICs are also recycling their "excess" dollar into Special Drawing Rights at the IMF. So the exchange risk is mostly for the IMF. They're willing to include their own currencies into the SDR basket, at least for yuan/renminbi & ruble. Since they're lending to the IMF, this would reninforce their position.

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Re: Daily Digest - Jun 17

Mervyn King presses his case to limit size of banks - Times Online

The Governor of the Bank of England put himself on a collision course with the Government and the City again last night by laying out radical plans for clamping down on banks.

Mervyn King said that he wanted a restriction on the size of banks and that investment banks might have to be split from retail banks. In his annual speech at Mansion House before an audience of bankers and other City grandees, he said that banks should not be allowed to grow so large that they were deemed too big to fail.

...
 

(emphasis mine)

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Re: Daily Digest - Jun 17

 Investors are finally seeing the nonsense in the efficient market theory - Telegraph

The best response I've heard to the efficient markets theory that has dominated thinking about investment for 30 years or more is a joke. Two men walking down a street spot a £20 note on the pavement. One, an economics professor, says to the other: "don't bother to pick it up – if it were really a £20 note it wouldn't be there".

He means that because market prices always capture everything anyone knows about a share or index there can never be any hidden value for a shrewd investor to "pick up". It is nonsense, of course - like telling Warren Buffett that all the investment opportunities he's been exploiting over the years can't logically exist. But when has being nonsense ever stopped people believing something?

In this context, it was interesting to see a report this week that the Chartered Financial Analyst Institute, which has been teaching efficient markets theory for decades, has admitted that most of its members have lost the faith. Two thirds say they no longer believe market prices reflect all available information and three quarters disagree that investors as a whole behave "rationally".

What's amazing is that it has taken so long for the penny to drop. It has seemingly required investors to lose their collective senses twice in a decade (dotcom bubble, housing boom) for people to realise that the crowd is mad as often as it is wise.

Markets have always been prone to bouts of "irrational exuberance". The price of tulips in 17th century Amsterdam, that of South Sea Company stock in 18th century London and of Florida real estate in the 1920s are just highlights of the procession of booms and busts down the ages that has taught every subsequent generation that markets often get it wrong.

They do so for two reasons. They get it wrong because they reflect human behaviour in all its fearful, greedy irrationality. And they get it wrong because they reflect a world that is inherently unpredictable.
...

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Re: Daily Digest - Jun 17

Mish's Global Economic Trend Analysis: States in Deep Trouble Over Plunging Income Tax Revenues

The Nelson A. Rockefeller Institute of Government has issued a State Revenue Flash Report discussing an across the board enormous drop in personal income tax revenues.

Total personal income tax collections in January-April 2009 were 26 percent, or about $28.8 billion below the level of a year ago in states for which we have data. In April 2009 alone (April being the month when many states receive the bulk of their balance due or final payments), personal income tax receipts fell by 36.5 percent, or $18.2 billion.

...

There are numerous tables in the report worth a look. In fact, the entire 9 page PDF is worth reading in entirety.

States most dependent on Personal Income Taxes

68.5% of Oregon's Tax Revenue from PIT. Collections off 27.0%
57.2% of Massachusetts' Tax Revenue from PIT. Collections off 28.5%
55.9% of New York's Tax Revenue from PIT. Collections off 31.8%
47.5% of California's' Tax Revenue from PIT. Collections off 33.8%
52.4% of Connecticut's Tax Revenue from PIT. Collections off 25.9%
52.7% of Colorado's Tax Revenue from PIT. Collections off 25.4%

Arizona's collections were down a whopping 54.9% depending 25.3% on Personal Income Taxes. South Carolina, Michigan, Vermont, Rhode Island, New Jersey, Idaho, and Ohio are also in deep trouble.

20 states depending on personal incomes taxes for > 25% of total taxes were down 20% or more on collections.

This is a very grim report on state finances.

 

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Re: Daily Digest - Jun 17

Freedom Watch 6/17/09

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