Daily Digest

Daily Digest - June 22

Monday, June 22, 2009, 11:13 AM
  • Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery
  • Dad, Mom, Grand: Means of deficit reduction, Medicare and Social Security
  • One Wrong Move (Video)
  • Investors are finally seeing the nonsense in the efficient market theory (H/T Fujisan)
  • States in Deep Trouble Over Plunging Income Tax Revenues (H/T Fujisan)
  • Dirty Rat Gamblers!
  • Terrific pressing TV journalism by Dylan Ratigan (Video)
  • When, not if, equities tank again
  • Steve's Economic Forum AKA Two Beers with Steve
  • Record Unemployment Rates in Eight States

Economy

Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery

Andy Xie, writing for Cajing, questions the durability of China's recovery. He argues that much of hte upsurge in lending, which was one of the developments that cheered commentators, is fueling asset speculation, in this case in commodities, Reports this spring has suggested that as much as a third of the new lending was going into the stock market.

Observers have argued that China is stockpiling commodities as a diversification strategy., Xie adds an important tidbit to this equation, that banks are lending against commodities, using mortgage-like structures, and argues that the current price levels of commodities are a function of easy credit, not fundamentals.

Dad, Mom, Grand: Means of deficit reduction, Medicare and Social Security

[Lots of links on page]

One Wrong Move (Video)

Investors are finally seeing the nonsense in the efficient market theory (H/T Fujisan)

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".

States in Deep Trouble Over Plunging Income Tax Revenues (H/T Fujisan)

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%

Dirty Rat Gamblers!

“Not only have we seen that our rats will gamble, but we’ve also been able to modulate that behaviour,” lead author Catharine Winstanley from the University of British Columbia told BBC News.

You can read a great scientific study on human behaviour by Jonah Lehrer called How We Decide. Probably the best book I’ve read since Market Wizards.

Terrific pressing TV journalism by Dylan Ratigan (Video)

When, not if, equities tank again

Long term bonds did find support by bouncing off that long term TLT uptrend line as I suggested was likely. I keep reading where a lot of people believe that bonds are going to go all the way back to where they were or even lower in terms of interest rates. I DON’T THINK SO. The long bonds experienced a parabolic blow off top and collapsed… bubbles do not reflate once revulsion has occurred. The reason is that blow off tops need outsiders to create the bubble… once the bubble pops the outsiders are the ones who get burned and they do not come back. Thus Bernanke has a problem. When, not if, equities tank again, you will not (I believe) see interest rates get all the way back down to where they were. That’s why I believe that instead of seeing equities go down hard with money flowing into bonds, the next round may see equities go down, bonds stay in a range, and money flee the United States sending the dollar lower or keeping it in a range instead of stengthening as much as the last bout of deleveraging. We’ll see, but that would be my guess, it won’t be pretty regardless.

Steve's Economic Forum AKA Two Beers with Steve

Our podcast (Two Beers with Steve) is made up of members of the Chris Martenson website and the reason we get together every sunday is to further our understanding of the principles brought up in the Crash Course video series.

In this past episode we asked YouTube vlogger Loren Howe to talk with us about the Creation of Money and the Exponential Function of Money (Episode 8a). We also review the flaws of Central Banking and Fractional Reserve Banking. This topic of money creation is covered in the Crash Course video series but on a college freshman level. In this podcast we take it a few steps further. Episode 8b concentrates mostly on investing in todays tough financial climate.

Here is the link for iTunes users

Here is the link for non-iTunes users

 Record Unemployment Rates in Eight States

Note: the BLS started keeping state records in 1976, so obviously this doesn't include the Depression.

From the BLS: Regional and State Employment and Unemployment Summary

Michigan again reported the highest jobless rate, 14.1 percent in May. The states with the next highest rates were Oregon, 12.4 percent; Rhode Island and South Carolina, 12.1 percent each; California, 11.5 percent; Nevada, 11.3 percent; and North Carolina, 11.1 percent. Six additional states and the District of Columbia recorded unemployment rates of at least 10.0 percent. The California, Nevada, North Carolina, Oregon, Rhode Island, and South Carolina rates were the highest on record for those states. Florida, at 10.2 percent, and Georgia, at 9.7 percent, also posted series highs. Nebraska and North Dakota registered the lowest unemployment rates, 4.4 percent each. Overall, 12 states and the District of Columbia had significantly higher jobless rates than the U.S. figure of 9.4 percent, 29 states reported measurably lower rates, and 9 states had rates little different from that of the nation.

16 Comments

Ed Archer's picture
Ed Archer
Status: Martenson Brigade Member (Offline)
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Posts: 225
Re: Daily Digest - June 22

Regarding the last link, if thats the official rate I wonder what the actual rate is. :(

dcm's picture
dcm
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Posts: 214
Re: Daily Digest - June 22

GoldFinger Sachs to pay out record bonuses

and thoughts on Obama's financial "reforms"

http://www.democracynow.org/2009/6/22/report_goldman_sachs_on_pace_to

idoctor's picture
idoctor
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Posts: 1731
Re: Daily Digest - June 22

Oil at $100, Interest Rates May Stifle Recovery: Roubini

http://www.cnbc.com/id/31482098

Bauer's picture
Bauer
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Bank holiday

Read this and prepare. This is what Celente, among others, has talked about.

http://thecomingdepression.blogspot.com/2009/06/bank-holiday-coming-prepare.html

paranoid's picture
paranoid
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Re: Daily Digest - June 22

Davos did you see this?

the World is swimming in Oil:

http://www.hellenicshippingnews.com/index.php?option=com_content&task=view&id=52643&Itemid=79

yoshhash's picture
yoshhash
Status: Martenson Brigade Member (Offline)
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Posts: 271
imminent run on the banks in Iran?

woah, this is getting interesting.....from the bottom of the same link posted by Bauer-

an imminent coordinated run on the banks in Iran, as a strategy to weaken the old guard:

http://www.tickerforum.org/cgi-ticker/akcs-www?post=99558

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
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Posts: 2237
Re: Daily Digest - June 22

 Nice get, Yoshhash --

Even more interesting IMO, just below the bank run tweet, is this tweet:

"Soon Mousavi will announce full national strikes, probably starting with Petrochemical - prepare for this #Iranelection RT RT RT"

If true....Eep!

Viva -- Sager

Davos's picture
Davos
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Re: Daily Digest - June 22

 True green shoots. Even after 2 late May frosts.

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - June 22

Brace for long, deep recession: World Bank

By Emily Bourke for AM

http://www.abc.net.au/news/stories/2009/06/23/2605753.htm?section=justin

The World Bank is predicting the global recession will be deeper than it previously thought, with the world economy forecast to shrink 2.9 per cent.

That is far steeper than the 1.7 per cent contraction the World Bank forecast just three months ago.

The large industrial economies of Europe, Japan and the United States are expected to shrink by more than 4 per cent this year, and the bank says the story will be even worse for the world's poor.

The World Bank's gloomy set of figures puts further doubt on the 'green shoots' that so many economic commentators keep referring to - in fact the 2009 forecasts for most economies have been slashed again.

Mick Riordan, a senior economist with World Bank, says there are many impediments to a speedy recovery.

"We're still left with a lot of problems: with high unemployment rates persisting; with capacity utilisation, how much is plant and how much equipment is being used at very low levels; and with fiscal deficits left over from stimulus plans put in place by governments," he said.

"So this all means we're going to have these problems with us for several years to come."

There are also fresh worries about the diminishing flow of private capital into developing countries, which has already fallen by almost 50 per cent this year.

The World Bank says East Asia and the Pacific will be particularly hard hit, and for longer, because of trade links with developed countries.

So too sub-Saharan Africa, which has been hit by falling export prices, a drop in international aid, and a decline in remittances from economic migrants who now have fewer job options overseas.

Mansoor Dailami, the author of the World Bank report, says recovery could take many years.

"The scenario moving forward for the next couple of years is that growth is going to be at subdued levels, investments in many productive sectors, and possibly even in social sectors, as government contracts those expenditures which were very critical for social needs," he said.

"You're going to see an increase in the overall poverty in many of these countries."

However, there will be some growth in the poorer economies, as the World Bank's Andrew Burns explains.

"We are seeing that some of the strength that we are currently seeing in the global economy is coming from developing countries, particularly Chinese demand for imports is rising relatively rapidly. That is sparking some of the recovery or some of the stabilisation that we observe in Japan," he said.

But he also says the sluggish growth is good reason to be cautious.

"Currently almost every high income country in the world, every OECD country, has got growth at least 4 percentage points below its trend level.

"For developing countries, that same figure, that same calculation comes in about 50 per cent. We have never seen anything like that in the last 40 or 50 years.

"That means that we are not going to have the capacity to export our way into healthier economies, so all of those factors are part and parcel of why we see the rebound that is coming and is going to be there, it is going to be more muted than normal."

rht1786's picture
rht1786
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Re: Daily Digest - June 22

 On inefficient market theory:

Markets are naturally efficient. This is fact. Adam Smith knew it. Most economists realize it. The Austrians know it. Keynes knew it. I find it very entertaining that people continue to assault this bastion of reason. What separates today;s market from an efficient market, and causes them to be inefficient is government intervention. Widespread, massive government intervention on scales never before seen in our current historical understanding. We have cronyism at its best, deep-seeded corruption, and a refusal by the public to come to terms with any of this. 

Of course markets will be inefficient when prices aren't allowed to normalize. Some investors aren't allowed to offload securities in their portfolios. The IMF is not allowed to sell it's gold. There are an increasing amount of blockages in the American market and in the global market that prevent efficiency. It's as if the global markets are a river. Government interventions are dams and other barricades, other junk, that is thrown in the river and diverts the course of the flow of water. Prices become disrupted and information becomes opaque. From some points in the river, it may look as if the flow of water is going in the opposite direction of the river's natural flow. 

Prices inevitably normalize. Until that point, media spin, investor sentiment (which we have cleverly come up with plenty of named for: herding, contagion, anchoring, blah blah blah), and further government intervention will all prevent efficient markets. Assessing where we are in this mess is incredibly difficult and requires access to information that for many people is unattainable, as well as access to the minds of decision makers like Bernanke and Geithner. We can gauge what we think they think like, but unless we have followed them like a journalist on a top story for their entire lives, we won't be able to take a good guess at what they will decide tomorrow or the next day. Even then, it would be hard to make a decisive prediction.

My argument remains that markets are naturally efficient, but when governments stick their hands in the flow of trade and exchange, everything is offset, unbalanced, redirected, and essentially f'ed up. 

fujisan's picture
fujisan
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Re: Daily Digest - June 22

Next on Obama's to-do list: A bubble-free economy | Reuters

WASHINGTON (Reuters) - President Barack Obama thinks the last two U.S. economic expansions were bubble-driven and wants to make sure the next one isn't.
...

LOL (emphasis mine)

mark_visconty's picture
mark_visconty
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Re: Daily Digest - June 22

 rht1786,

All that you say about efficient markets is true.  But it is also true that they require transparency - information must flow freely, exactly what did/is not happening regarding purposefully obscured "investments".  Any organization, not just governments, can manipulate the market and kill its efficiency.

fujisan's picture
fujisan
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Posts: 296
Re: Daily Digest - June 22

 Economist puts dent in optimism: bigger crash is coming - ABC News (Australian Broadcasting Corporation)

An international economic forecaster says another big crash lies ahead for global share and property markets within the next two years.

Harry Dent predicted the Japanese recession in the 1990s and also forecast the current global financial crisis.

He has told ABC News Breakfast that the Australian share market will continue to make gains during the next few months, before bottoming in about 2011.

"I'd say maybe the Australian All Ordinaries will get back up near 4,500, the Dow maybe close to 10,000," he said.

"And then you'll see another crash late this year and into next year, as banking systems melt down again. I think the next one's going to start in Europe and Eastern Europe, housing prices would lag.

"I think stocks are going to end up down 60 or 70 per cent before it's all over, and I think housing prices in Australia will probably be down 40, maybe 50, per cent, maybe more than that in the United States and Europe."

Ageing population

Mr Dent says the driving force behind the renewed slowdown will be the reduced spending of an ageing population: a similar malaise to the one that has affected Japan since the early 1990s.

...

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - June 22

What is a "Jobless Recovery"? 

I guess I don't understand the greenshoot lingo.

 exhaustion-rate-bls

mpelchat's picture
mpelchat
Status: Silver Member (Offline)
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Posts: 214
Re: Daily Digest - June 22

Davos,

It is propaganda to keep things flowing untill bank holiday.

Than one day in the not so distant future this happens:

http://www.fourwinds10.com/siterun_data/government/fraud/us_government/news.php?q=1222996931

God, I hope I am wrong.

 

dcm's picture
dcm
Status: Silver Member (Offline)
Joined: Apr 14 2009
Posts: 214
Re: Daily Digest - June 22

A jobless recovery is one of the many financial oxymorons

(emphasis on the second half)

that our government employs including:

free market

government oversight

social security

and my favorite: federal reserve   

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