Daily Digest

Daily Digest - June 17

Thursday, June 17, 2010, 10:48 AM
  • King World News: Jim Rickards
  • 'Too Big To Succeed' May Be Our Biggest Problem
  • Pimco Bond Guru Bill Gross Moves into Equities
  • Bernanke, Gold, And the Keynesian Endpoint
  • More State Worker Layoff Talk
  • Jobless Aid Bill Hits Deficit Wall In Senate
  • IMF Head Flying To Spain
  • We Must Remove BP from the Crime Scene and Let an International Team of Experts Fix This on BP's Dime
  • Half a World From Gulf, a Spill Five Decades Old
  • Spill Takes Toll on Gulf Workers’ Psyches

Economy

King World News: Jim Rickards (Davos)

In this interview Jim discusses his recent meetings at the US Treasury and the FDIC, the fact that we are headed towards a one world currency and bank, that the G-20 and IMF do not want it to be backed by gold, that he thinks any green shoots will be stomped on immediately and much more.

'Too Big To Succeed' May Be Our Biggest Problem (tomadkins)

The Gulf Coast oil gusher is like a big boxcar in a big runaway freight train of big, big problems: the financial industry, the health care industry, immigration policies — a linked chain of vast worriments hurtling through the contemporary landscape, seemingly out of control.

Pimco Bond Guru Bill Gross Moves into Equities (SolidSwede)

“Corporate equities, in terms of valuation, are selling at very low P/E ratios and in some cases might be perceived to be almost as safe, or almost as secure as the sovereigns themselves,” said Gross.

Bernanke, Gold, And the Keynesian Endpoint (pinecarr)

It seems that, after reaching its “Minsky Moment“, the world is now barreling toward a “Keynesian Endpoint”, two phrases that historians will no doubt find irresistible when they set out to explain what happened back in the early 2000s.

More State Worker Layoff Talk (pinecarr)

State workers could be facing layoffs sooner than expected. Governor Paterson originally called for thousands of workers to be laid off beginning in January 2011. He later then said leaving it to his successor to enforce those layoffs might not be a good idea.

Jobless Aid Bill Hits Deficit Wall In Senate (TheTrojan)

President Barack Obama's renewed call for more stimulus spending as insurance against a double-dip recession hit a roadblock in the Senate on Wednesday, the victim of election-year anxiety over huge federal deficits.

A dozen Democrats joined Republicans on a key 52-45 test vote rejecting an Obama-endorsed, $140 billion package of unemployment benefits, aid to states, business and family tax breaks and Medicare payments for doctors because it would swell the federal debt by $80 billion.

IMF Head Flying To Spain (pinecarr)

IMF head Dominique Strauss-Khan is flying to Spain "to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government's economic policies and reforms" according to Reuters.

Environment

Fire BP, Remove Them from the Crime Scene and Let a Team of Experts Fix This Mess on BP's Dime (hucklejohn)

And BP has tried to cover up its blunders by lowballing the spill estimates, keeping reporters out of areas hardest hit by the oil (and threatening to arrest them if they try to take pictures), hiding dead birds and other sealife and using dispersants to hide the amount of spilled oil (the dispersants are only worsening the damage caused by the spill).

Given the enormous stakes (don't forget that we are starting a potentially "extremely active" hurricane season), why are we letting BP continue to be in charge of containment operations?

Half a World From Gulf, a Spill Five Decades Old (VeganD)

The oil spews from rusted and aging pipes, unchecked by what analysts say is ineffectual or collusive regulation, and abetted by deficient maintenance and sabotage. In the face of this black tide is an infrequent protest — soldiers guarding an Exxon Mobil site beat women who were demonstrating last month, according to witnesses — but mostly resentful resignation.

Spill Takes Toll on Gulf Workers’ Psyches (VeganD)

Mr. Cao said he had met two fishermen in Plaquemines Parish who told him they were contemplating suicide. While those cases are "extreme," Mr. Cao said, they reflect how some people "are approaching a point of despair."

Please send article submissions to: [email protected]

21 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4192
Re: Daily Digest - June 17

"A senior US lawmaker on Wednesday stepped up warnings to China against holding down its exchange rate, threatening to resort to legislation if Beijing did not change currency policy by next week’s meeting of the Group of 20 big economies.

“Seven years of patience from the United States and the international community have run out,” said Sander Levin, chairman of the House of Representatives ways and means committee.

"The administration constructively set the G20 meeting as an important juncture for China to change its inflexible currency practices. If China does not act and the administration does not respond promptly thereafter, the Congress will act.” G20 heads of government meet in Toronto at the end of next week."

"The spreads on 10-year Spanish bonds jumped to a post-EMU high of 224 basis points above German Bunds as traders brace for a crucial auction by Madrid on Thursday. The relentless rise in bond yields replicates the pattern seen in Greece at the onset of crisis. Spain must raise €25bn of debt in a cluster of auctions in July.

"We're in a dangerous and stressful situation," said Gary Jenkins, a credit expert at Evolution Securities. "Spain is a big enough borrower to wipe out the EU's rescue fund." "

............................2A) Strong demand for Spanish bonds, but yields jump

"MADRID, June 17 (Reuters) - Spain's Treasury drew strong demand for its 10- and 30-year bond issues on Thursday, selling 3.5 billion euros ($4.3 billion), at the top of its target range, but paid a hefty premium compared with previous issues of the same paper.

The Spain/Germany 10-year bond yield spread narrowed to 222 basis points following the auction result, from about 236 basis points beforehand.

The 10-year average yield was 4.864 percent compared with 4.045 percent at the previous auction on May 20, while the 30-year yield jumped to 5.908 percent from 4.758 percent on March 18."

..................2B) Spain's banks seek aid

"MADRID - SPAIN'S regional savings banks known as 'cajas' have requested around 11 billion euros (S$18.8 billion) from a state restructuring fund to carry out their merger plans, a Bank of Spain spokesman said on Wednesday."

"June 17 (Bloomberg) -- Hungary raised 50 billion forint ($222 million) in debt today, the planned amount, as borrowing costs jumped from the previous auction two weeks ago.

The government sold 25 billion forint of 2013 bonds at an average yield of 7.01 percent, up from 6.33 percent on June 3, according to auction results on the debt management agency’s Bloomberg page. It also sold 15 billion forint of 2016 notes at 7.32 percent versus 6.87 percent and 10 billion forint of the 2020 maturity at 7.68 percent compared with 7.38 percent, the results showed."

"June 16 (Bloomberg) -- Illinois, whose projected deficit equals half its proposed $25.9 billion budget, sold $455.1 million in sales tax-backed bonds yesterday, as investors demanded higher yields from the state."

"Proposed cuts in the state budget, already two months late, are pushing the state's fourth-largest city to the brink of bankruptcy, says Yonkers Mayor Phil Amicone.

The mayor trekked to Albany Wednesday to ask lawmakers to reclaim the latest municipal cuts proposed by Gov. Paterson.

Amicone said Yonkers is in dire need of $96 million to pay back a loan that hinged on expected revenues from the state.

"If we don't get that money and don't pay back the $96 million, we default on the loan and, in effect, the city is bankrupt."

Yonkers faces a projected budget deficit of $60 million for 2011."

"Temporarily short on money, Colorado has declared a fiscal emergency and delayed payments to doctors and clinics taking care of the state's neediest patients.

Under state law, the Medicaid department can delay reimbursements to doctors, hospitals and clinics during a fiscal emergency. Physicians treating patients with the health-insurance plan for the poor will not receive normally scheduled payments on June 25 or July 2, a hardship for safety-net clinics in particular that rely on public funds.

State officials said they would begin catching up on payments July 9 after a new fiscal year begins."

"When the majority of the country's 225 state-sponsored pension plans release their annual reports this month, the numbers will paint a bleak picture. Unfortunately, the reality may be even worse.

According to the Manhattan Institute for Policy Research, pension plans for public school teachers, which comprise about half of states' total pension liabilities, were underfunded by $933 billion dollars in fiscal year 2008, almost three times the amount that the plans had reported.

Behind the discrepancy are accounting methods, sanctioned by the government and perpetuated by most fund administrators, that allow public plans to report future liabilities in today's dollars using an overly optimistic conversion rate, a process called "discounting." It also lets them spread out, or "smooth," losses over a four- to five-year period, effectively muting the havoc that 2007-2008 wreaked on pension fund portfolios."

"CHICAGO, June 16 /PRNewswire/ -- The Illinois Is Broke campaign begins a statewide tour tomorrow to call attention to the desperate nature of the State’s finances and to urge legislators and candidates to balance our State budget. The biggest issue facing our State is the $130 Billion of retiree-related liabilities, which equates to about $25,000 per Illinois household. The campaign calls for a multi-year plan to reform retiree programs.

The first stop on the tour will be Bloomington, where campaign members will meet with executives from the region’s largest employers and seek their support for the non-partisan campaign. The intent of the campaign is to unite people throughout the State who share a concern for the future of Illinois – its economy, the public services it provides, its business climate and its quality of life."

"Despite the extensive and lengthy process required to modify mortgages in default so that borrowers could afford their payments, most will default again in a year or less, according to Fitch Ratings.

Fitch projects that 65 percent to 75 percent of subprime and Alt-A loans that have been modified will default again within a year. Fifty-five to 65 percent of all prime loans will default. Approximately 15 percent of all modified residential mortgages have received at least one additional modification when the first failed.

Since HAMP (Home Affordable Modification Program) was launched early last year, approximately 15 percent of all mortgages have received either a HAMP or non-HAMP loan modification through May 2010. Almost 35 percent of subprime loans have received at least one modification."

  • Other news and headlines:

 

New claims for jobless benefits rise sharply

Russia to Buy Canadian, Aussie Dollars for First Time

Argentine Pay Rises 43% as CPI Triples Official Rate

Roach Says Europe Crisis May Cut Growth by 1.5 Percentage Points

India concerns on inflation push up bond yields

Massachusetts Sells $250 Million Debt With Yield at 8-Week High

Philippines To Borrow At Least PHP5 Billion More For Larger Deficit - Official

Worst is ahead in closing New York's $8 billion gap

Moody's hits Montclair with a credit rating downgrade

All EU Nations on Debt Crisis 'Watch List' Except One

New Jersey Capital Voters Reject Sale of Water Lines

New York State Public Worker Pensions Revealed on New Website; Topping the List is a Teacher at $261K Annually

Modesto City Schools dip into reserve (California)

Medical Costs Threaten to Cripple State Budget (Oregon)

NY's Metropolitan Opera reports 2009 fiscal woes

More Than 90 Banks Miss TARP Payments

More buildings fall into default (California)

Dwindling water supply spells grim future for Nairobi

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - June 17

HucleJohn---that was a super BP read.

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1444
Second Housing Crisis is Here!

http://www.realclearmarkets.com/articles/2010/06/16/the_second_housing_crisis_is_here_98520.html

 

As the collapse of the U.S. housing sector accelerated in 2008 and the precise nature of this supply-driven bubble became apparent, I laid out a very specific "blueprint" for putting a genuine "bottom" in this market.

The U.S. government needed to commit $1 trillion to $2 trillion to paying down the mortgage balances of U.S. homeowners in order to restore some badly needed equity for these homeowners, which in turn, would provide some stability to the U.S. housing market by eliminating most/all "underwater" mortgages, thus ending the incentive to "walk away" from these mortgages.

By 2009, with the U.S. government having done nothing to mitigate this collapse and U.S. homeowners having lost much more equity, I raised the necessary government ante to $3 trillion: enough to pay down mortgage balances by roughly 20% (only a small fraction of the $10 trillion used to bail out Wall Street). But there was a second structural problem in the U.S. housing market that I identified: a supply glut that could only be "fixed" by bulldozing vast numbers of homes.

rjs's picture
rjs
Status: Gold Member (Offline)
Joined: Aug 8 2009
Posts: 445
rjs's picture
rjs
Status: Gold Member (Offline)
Joined: Aug 8 2009
Posts: 445
SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2242
Gold near its recent high...

...seems to be a combo of buying demand and dollar weakening (according to kitco's homepage).  Anybody else see other reasons out there?

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2242
FannieMae/FreddyMac delisted from NYSE...

....with some commentary by Stoneleigh over at The Automatic Earth blog:

http://www.theautomaticearth.blogspot.com/2010/06/june-16-2010-fannie-an...

pwanex's picture
pwanex
Status: Member (Offline)
Joined: Sep 14 2008
Posts: 8
Re: Daily Digest - June 17

Did the BP Oil Well Really Blow Out in February, Instead of April?

The Deepwater Horizon blew up on April 20th, and sank a couple of days later. BP has been criticized for failing to report on the seriousness of the blow out for several weeks.

However, as a whistleblower previously told 60 Minutes, there was an accident at the rig a month or more prior to the April 20th explosion:  

http://georgewashington2.blogspot.com/2010_06_01_archive.html

 

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4192
Re: Daily Digest - June 17

"June 17 (Bloomberg) -- The cost of insuring bonds issued by Illinois against default rose to a record high as lawmakers sought to close a $13 billion budget deficit for the year starting July 1.

The cost of a five-year credit-default swap to insure Illinois obligations rose 6 basis points to 308.61 basis points today, or $308,610 to insure $10 million of debt, at 1:10 p.m. in New York, according to CMA DataVision. The gain makes insuring bonds from the fifth-most populous state the most costly among municipal issuers and puts it 66 basis points above Spain."

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
the world is mismanaging contraction

Pretty soon, the oil missing from the Gulf will leave a message at the 7-Eleven stops in Dallas and Chattanooga, and before the year is out the cardboard signs that say "Out Of Gas" may hang on the pumps. A great hue and cry will rise out of the Nascar ovals and righteous lady politicians with decoupaged hair-doos will invoke the New World Order and the Book of Revelation in their rise to power. Reasonable men with moderate views will dither on the sidelines, afraid to offend one faction or another.
     Sometime this summer that ebb tide of events is going to reverse and we'll have more to contend with than just the shrieking wildlife suffocating in orange gunk, and the ruined spawning grounds of the shrimp, and the lost livelihoods of the sportfishing charter guides, and the tarball covered beaches and devalued real estate. We decided to de-complexify the hard way, the way that brings about as much pain and disorder as possible until we discover that the long emergency beats a path straight into a world made by hand. 

http://kunstler.com/blog/2010/06/fierce-urgency.html

Eye's picture
Eye
Status: Bronze Member (Offline)
Joined: Mar 7 2009
Posts: 88
Re: Gold near its recent high...
SagerXX wrote:

...seems to be a combo of buying demand and dollar weakening (according to kitco's homepage).  Anybody else see other reasons out there?

More QE around the corner.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Gold near its recent high...
Eye wrote:
SagerXX wrote:

...seems to be a combo of buying demand and dollar weakening (according to kitco's homepage).  Anybody else see other reasons out there?

More QE around the corner.

The list is a mile long:

  1. IMF talking about the new world currency - released a gold backed plug for it on a Friday night a while back
  2. IMF flying to Spain
  3. The Euro mess
  4. QE in the Euro zone
  5. More QE here
  6. Deficits
  7. Hedge funds buying more
  8. ETF's buying more
  9. the list goes on and on and on

Short list as to negatives:

  1. Zip

 

joemanc's picture
joemanc
Status: Martenson Brigade Member (Offline)
Joined: Aug 16 2008
Posts: 834
Re: Gold near its recent high...
Davos wrote:
Eye wrote:
SagerXX wrote:

...seems to be a combo of buying demand and dollar weakening (according to kitco's homepage).  Anybody else see other reasons out there?

More QE around the corner.

The list is a mile long:

  1. IMF talking about the new world currency - released a gold backed plug for it on a Friday night a while back
  2. IMF flying to Spain
  3. The Euro mess
  4. QE in the Euro zone
  5. More QE here
  6. Deficits
  7. Hedge funds buying more
  8. ETF's buying more
  9. the list goes on and on and on

Short list as to negatives:

  1. Zip

lol Money mouth

Eye's picture
Eye
Status: Bronze Member (Offline)
Joined: Mar 7 2009
Posts: 88
Re: Daily Digest - June 17

"The People" will demand it.  They are going to print money into the school systems, into the healthcare systems, and into any of the safety net programs they can, including Soc. Sec.  They are going to monetize the entitlements.  Fannie Mae and Freddie Mac are going to look like chump change before this thing collapses.

Until the people who have earned and saved their money achieve effective representation in our country they will continue to be bled to feed the machine.

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - June 17

Well, I suppose on the short list to negatives I could have added that they think they may have 250 billion discovery in a war torn nation that is super unstable - of course, it, if it exists, is still in the ground.

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Re: Daily Digest - June 17
Davos wrote:

Well, I suppose on the short list to negatives I could have added that they think they may have 250 billion discovery in a war torn nation that is super unstable - of course, it, if it exists, is still in the ground.

Check out one of the comments on zero hedge earlier this week about the issue of the so-called recent discovery of mineral wealth in Afghanistan.  I don't think we have anything to worry about. 

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
ore on terror

Brilliantly funny

Jon Stewart : Afghanistan is as Rich as Fox News is Stupid

http://www.thedailyshow.com/watch/tue-june-15-2010/ore-on-terror

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4192
Re: Daily Digest - June 17

"June 18 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said."

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

cwixom's picture
cwixom
Status: Bronze Member (Offline)
Joined: Aug 18 2008
Posts: 44
Re: Daily Digest - June 17
Quote:

The U.S. government needed to commit $1 trillion to $2 trillion to paying down the mortgage balances of U.S. homeowners in order to restore some badly needed equity for these homeowners, which in turn, would provide some stability to the U.S. housing market by eliminating most/all "underwater" mortgages, thus ending the incentive to "walk away" from these mortgages.

Just where, pray tell, does the government come up with $1 to 2 Trillion to pay down those mortgages?  Print it? Inflation that follows kills the responsible savers and rewards the irresponsible borrower. How to create a world of fools.  Borrow it?  You haven't been paying attention while watching the Crash Course. Steal it? Oh, wait they already did that with TARP, didn't help.  Watch "National Treasure" again and really find the treasure using the decoder ring found in every box of Cracker Jacks?  I see that as a long shot. 

There is no short cut to solving the problem.  It will cause pain, but just like the drug addict that has to go through withdrawl to cure the problem, we need to default the unservicable debt and kick the non-self-liqidating use of debt habbit .  Yes, it will hurt but the alternative is the same slow death that Japan is experiencing or the quick Argentina style collapse.  Either of those will leave the majority worse off in the long run that just going under the knife and getting it over with.

LogansRun's picture
LogansRun
Status: Diamond Member (Offline)
Joined: Mar 18 2009
Posts: 1444
Re: Daily Digest - June 17

The point was that they spent that money anyway.  So instead of spending it on the banks, spending it on paying down the mortgages would have helped with that particular problem.  

I personally don't advocate bailing anyone out, but if they're going to spend the money anyway, I would have liked to have seen them spend it on updating our nations infrastructure

cwixom wrote:

 

Quote:

The U.S. government needed to commit $1 trillion to $2 trillion to paying down the mortgage balances of U.S. homeowners in order to restore some badly needed equity for these homeowners, which in turn, would provide some stability to the U.S. housing market by eliminating most/all "underwater" mortgages, thus ending the incentive to "walk away" from these mortgages.

Just where, pray tell, does the government come up with $1 to 2 Trillion to pay down those mortgages?  Print it? Inflation that follows kills the responsible savers and rewards the irresponsible borrower. How to create a world of fools.  Borrow it?  You haven't been paying attention while watching the Crash Course. Steal it? Oh, wait they already did that with TARP, didn't help.  Watch "National Treasure" again and really find the treasure using the decoder ring found in every box of Cracker Jacks?  I see that as a long shot. 

There is no short cut to solving the problem.  It will cause pain, but just like the drug addict that has to go through withdrawl to cure the problem, we need to default the unservicable debt and kick the non-self-liqidating use of debt habbit .  Yes, it will hurt but the alternative is the same slow death that Japan is experiencing or the quick Argentina style collapse.  Either of those will leave the majority worse off in the long run that just going under the knife and getting it over with.

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2242
Re: Gold near its recent high...
joemanc wrote:
Davos wrote:
Eye wrote:
SagerXX wrote:

...seems to be a combo of buying demand and dollar weakening (according to kitco's homepage).  Anybody else see other reasons out there?

More QE around the corner.

The list is a mile long:

  1. IMF talking about the new world currency - released a gold backed plug for it on a Friday night a while back
  2. IMF flying to Spain
  3. The Euro mess
  4. QE in the Euro zone
  5. More QE here
  6. Deficits
  7. Hedge funds buying more
  8. ETF's buying more
  9. the list goes on and on and on

Short list as to negatives:

  1. Zip

lol Money mouth

And something I try to keep in mind:  CNBS (hat tip to Davos) et alia keep talking about "gold near it's all-time highs"...  Which of course is a crock.  In inflation-adjusted US$, the all-time high was hit back in the early 80s (late 70s?) and is a little north of US$2100.  

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments