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Daily Digest - March 16

Monday, March 16, 2009, 10:25 AM
  • Kenneth Rogoff, Harvard economics professor
  • Ben Bernanke's Greatest Challenge
  • IMF Bailout Pool May More Than Double, Officials Say (Update1)
  • Reflections on the latest dead cat bounce or bear market sucker's rally
  • Chance in Manufacturers' and trade inventories (3month change annualized)
  • On Traders Behaving Badly and Cognitive Bias
  • Cheney: Don't blame Bush team for economic woes
  • Great Depression Cooking Ep:1 - Pasta with Peas (Hat Tip Ceci1ia)
  • No one is over the Fed (Hat Tip DrKrbyLuv)
  • Romer Says Stimulus to Help U.S. ‘Battle' Recession
  • Ben Bernanke's Greatest Challenge
  • Kenneth Rogoff, Harvard economics professor
  • FSA urges Global Crackdown on Shadow Banking System
  • The Big Con Continues

Economy

Kenneth Rogoff, Harvard economics professor

Ben Bernanke's Greatest Challenge 

IMF Bailout Pool May More Than Double, Officials Say (Update1)

By Brian Swint and Gonzalo Vina

March 14 (Bloomberg) -- Group of 20 finance ministers pledged to at least double the International Monetary Fund's bailout pool as the economic crisis forces more countries to seek its support.

"My forecast was that we needed to double our resources," IMF Managing Director Dominique Strauss-Kahn told reporters after a G-20 meeting near London today. "A commitment to do so has been made. It may even go further.

Strauss-Kahn has lobbied for the fund's cashpile to rise to $500 billion from $250 billion after being inundated with loan requests from Pakistan to Hungary. A European government official said they agreed to "more than double" the pool, though ministers have yet to say how much they will increase it by.

"It takes months to get the technical details worked out," said Strauss-Kahn and they may not be agreed by the time heads of government meet in London next month. Still, "the resources we have now are enough to wait."

The U.S. Treasury has also sought an expansion of the IMF's supplementary borrowing program by up to $500 billion.

"The G-20 supports our proposal for a substantial increase to emergency IMF resources," Treasury Secretary Tim Geithner said.

The fund is currently able to borrow about $50 billion -- from 26 mostly wealthy member countries -- through these special financing arrangements. If that proposal won international support, the IMF could have the ability to lend $750 billion and possibly more.

Ukraine, Hungary

In the past six months, the IMF has approved $16.4 billion for Ukraine, $15.7 billion for Hungary, $10.4 billion for Latvia, $2.5 billion for Belarus, $2.1 billion for Iceland, $7.6 billion for Pakistan and $516 million for Serbia -- a total of about $55 billion. Turkey is negotiating an IMF loan accord, and Romania has expressed an interest in borrowing.

The G-20 said smaller economies should have more say in how the IMF is run and accelerated the next review of how power is allocated by two years to 2011. The next heads of the IMF and World Bank will also be appointed through "open, merit-based selection processes" instead of being split between a European and American, the group said.

Reflections on the latest dead cat bounce or bear market sucker's rally

The linked post is very long ... long even by Roubini standards! This is actually a short excerpt ...

From Nouriel Roubini: Reflections on the latest dead cat bounce or bear market sucker's rally

It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally - this time around about 8% in a week - and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market.
Next Roubini outlines what he sees as the arguments of the optimists:
[H]ere are the arguments of the optimists:

1. While the first derivative of economic activity is still negative the second derivative is becoming positive around the world: i.e. output, employment, demand etc. are still contracting but they are - or will soon be - contracting at a slower rate than in Q4 of 2008. As long as the second derivative is positive rather than negative economic activity will bottom out some time in H2 of 2009 and the recession will be over sooner rather than later.

2. The policy stimulus, both monetary but especially fiscal, in the US, China and the rest of the world is starting to have traction and will contribution to the slowdown in the rate of economic decline and eventually -sooner rather than later - contribute to the economic recovery

3. Stock markets have already fallen in the US and globally by over 50% and are now way oversold. Earnings have fallen a lot but will recover soon as economic activity will soon stabilize. And since stock markets are forward looking and bottom out 6 to 9 months before the end of the recession we must be now at the bottom if the economy will recover by H2 or, at the latest, by year end.

4. Banks and financial stocks are way oversold; Citi, JP Morgan, Bank of America and other banks are now saying that they will be profitable this year and that they will not need any further injection of capital by the government. The financial system is solvent and the undershooting of banks' equity prices was way too excessive.

Let us explain again - as we discussed most of these points here before - and flesh out in more detail why each of these optimistic arguments is incorrect or, at least, too early and exaggerated.
My main interest is in point #1 - economic activity - and Roubini quotes a post he wrote on March 2nd. (See Roubini's post for his discussion of the other 3 points.
"For those who argue that the second derivative of economic activity is turning positive (i.e. economies are contracting but a slower rate than in Q4 of 2008) the latest data don't confirm this relative optimism. In Q4 of 2008 GDP fell by about 6% in the US, 6% in the Eurozone, by 8% in Germany, by 12% in Japan, by 16% in Singapore and by 20% in South Korea. So things are even more awful in Europe and Asia than the US ...

First, note that most indicators suggest that the second derivative of economic activity is still sharply negative in Europe and Japan and close to negative in the US and China: some signals that the second derivative was turning positive for US and China (a stabilizing ISM and PMI, credit growing in January in China, commodity prices stabilizing, retail sales up in the US in January) turned out to be fake starts. For the US, the Empire State and Philly Fed index of manufacturing are still in free fall; initial claims for unemployment benefits are up to scary levels suggesting accelerating job losses; the sales increases in January is a fluke (more of a rebound from a very depressed December after aggressive post-holiday sales than a sustainable recovery).

For China the growth of credit in China is only driven by firms borrowing cheap to invest in higher returning deposits not to invest; and steel prices in China have resumed their sharp fall. The more scary data are those for trade flows in Asia with exports falling by about 40 to 50% in Japan, Taiwan, Korea for example. Even correcting for the effect of the new Chinese Year exports and imports are sharply down in China with imports falling (-40%) more than exports. This is a scary signal as Chinese imports are mostly raw materials and intermediate inputs; so while Chinese exports have fallen so far less than the rest of Asia they may fall much more sharply in the months ahead as signaled by the free fall in imports.

With economic activity contracting in Q1 at the same rate as in Q4 a nasty U-shaped recession could turn into a more severe L-shaped near-depression (or stag-deflation) as I argued for a while (most recently in my Sunday New York Times op-ed). The scale and speed of syncronized global economic contraction is really unprecedented (at least since the Great Depression) with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capex spending around the world. And now many emerging market economies - as argued here for a while- are on the verge of a fully fledged financial crisis starting with Emerging Europe."
As usual Professor Roubini makes some strong arguments. And I agree that economic activity is contracting in Q1 2009 at about the same pace as in Q4 2008. However, I think the composition of the contraction is different in Q1 (and following the normal business cycle). Most of the real GDP decline in Q1 will be from slumping investment and an inventory correction, whereas in Q4, declines in personal consumption (PCE) were an important contributor to the economic slump.

Maybe PCE will start cliff diving again, but so far the recession (no matter how severe) is still following the normal temporal pattern. Note: Even the Great Depression followed the normal pattern - just more so! Although there are still severe economic problems ahead, I think the shift in the composition is a potential positive. (See: Business Cycle: Temporal Order)

It is still way to early to call the bottom - and even after the economy bottoms, I think the recovery will be very sluggish for some time - but I am watching for the signs (see Looking for the Sun). Roubini concludes:
So, in conclusion and caveat emptor for investors: Dear investors, do enjoy this dead cat bounce and bear market sucker's rally ... don't wait too long until you jump ship while the financial Titanic hits the next financial iceberg: you may get squeezed and crashed in the rush to the lifeboats.

Chance in Manufacturers' andtrade inventories (3month change annualized)

On Traders Behaving Badly and Cognitive Bias

The Jim Cramer chatter precipitated by his Daily Show appearance included some links to an infamous interview Cramer gave in 2007, where he discussed how he would, as a hedge fund manager, push the prices of stocks he was short down via the futures market. It was arguably a public admission of market manipulation.

What was most striking about this incident was how quickly it was forgotten.

Now, of course, one can cynically say, that's what traders do. And there have been times when I've had the vast misfortune to be watching the ticks (I hate trading, I put on very few trades, and I sweat them all and second guess myself hugely) and have seen more than once some end of day action that was clearly tape painting (and my pro investor buddies saw it the same way).

But nobody seems offended at the notion that the markets aren't safe for mere mortals, just the sharks, even the whole US investing mythology touts how transparent, open, and well policed US securities markets are.

That's one level of heinousness.

The next, which gets even less attention, is how traders play games with their own firms. I don't mean the rogue trader version (although that is an out of control variant, usually born out of a trader taking on big risk to get himself out of a lossmaking position, making matters MUCH worse, then hiding his losses from management as he continues to spiral downward).

I would very much like knowledgeable readers to elaborate (particularly with any incidents they can vouch for or appeared in the press, even in specialized industry publications) but here are some typical variants (note these are crude typologies, so corrections and elaborations welcome):
Marking phony prices. Can be done in illiquid markets where what you trade doesn't relate (much, at all) to any benchmarks). It has to be reasonably credible (you can't be showing gains when your sector is losing, for instance). Management is supposed to have ways to vet/validate pricing, but the funkier it is, the harder it is for management to keep.

Colluding with your trader buddies to produce market prices that are distorted. This reportedly happened with collateralized loan obligations, where traders would trade them among them selves in small lots at fictive prices that they then used for valuation purposes. That kept them in the upper 80s for a while while the the rest of the credit markets were falling more severely, but the CLOs then started to be priced more realistically (I assume some real trades got done, making the ruse impossible to maintain). I presume this is a favorite activity at year end, particularly since a lot of institutions cut way back on trading as of Dec 15 to square their books, so year end volumes are particularly thin.

Now these are really amateur versions, but are still effective. Think of the games that are possible with derivatives.

Yet this type of chicanery gets perilous little notice. Why? Because management is complicit, either by commission or omission. The poster boy of "commission" was Joe Jett, the Kidder Peabody so called rogue trader who in fact never lost the firm a dime, but reported huge phantom profits due to a flaw in Kidder's reporting system. I won't bore you with details, but there is good reason to believe that Jett thought the profits were real, that he did not think he was perpetrating a fraud.

However, anyone with an operating brain cell, and particularly his bosses, should have questioned the idea that it was possible to make such monster profits in the Treasury market, Even if Jett had miraculously discovered some anomaly, it should have been arbitraged away, pronto.

So what happened? Jett was barred from the securities industry, and forced to disgorge his bonuses (I am going from memory, but I believe they were about $8 million). And what happened to his boss, Ed Cerullo, who made $20 million thanks to Jett? Nada.

That's why this crap continues. As long as banks are playing with other people's money, and the higher ups have plausible deniability, they have no incentive to rein this stuff in, save maybe a token case here and there so they can pretend they really were on top of things. And I'm being charitable and assuming the higher ups were not actively enabling it.

In a recent post on Andrew Cuomo's investigation of Merrill's 2008 bonus payments, I noted that Cuomo was also looking into how the Merrill traders marked their books, since it appears they held off marking down positions until after bonuses were determined. I commented that I had often heard tell of traders playing year end games, but never with enough detail for it to be substantiated. I got some confirming reader comments. From Expat:
What! Traders manipulate marks at year end to increase their bonuses! I'm shocked, appalled, flabbergasted, etc.

I also have twenty years of trading experience and can assure you that this is what happened. Most traders, trading managers, and senior managers must have known what was going on (sale to BOA but with early bonuses). The early bonuses were no doubt explained by saying it would be much more complicated to make the payments once the buy was completed (different payroll systems, tax implications, board approval, etc.). All good reasons to steal several billion bucks.

Not only should every Merrill employee have to cough up his bonus, but Thain, all senior managers and the boards of both Merrill and BOA should be beaten to death with baseball bats (think cornfield scene in "Casino").

From vlade:
This behaviour was/is common. In some companies, where you had a revenue ceiling (as it was recognised that too much of a revenue meant you were probably taking too much risks, so your bonus was capped at some revenue number), people used to shift PnL between quarters. So, if you made 50M, but your cap was 30M, you tried to shift 20M to the next quarter (so you'd have to make only 10M, and not loose the extra 20 you might have got by a lucky bet).

From one Anonymous:
I was a junk bond trader for a large firm during the 1990's. I was intimately involved in year-end book-marking chicanery to boost profits and hide bad positions.

I can guarantee you that the traders at Merrill violated every securities rule in the books and every possible code of ethics in order to boost profits.

NO QUESTION ABOUT IT. BEEN THERE DONE THAT.

So we have some confirmation of what I have heard merely from being within hailing distance of a trading floor from time to time: traders will cheat to maximize their bottom line, which makes sense, since they are screened and incentivized to be the sort that will seek aggressively to extract as much as they can (yes, there may be some exceptions, but I would bet they wind up going over to the buy side).

So why isn't there more understanding of and outrage about this? After all, this is the heart of the looting that went on. If firms will tolerate (or even encourage) overly aggressive behavior that appears to generate profit, it isn't just the nominal miscreants that are at fault, but the whole chain of command all the way to the top (after all, just as in the Jett case, they profited and therefore had reason not to probe too hard).

The same can be said for selling toxic products to customers. The worst is that that appears to have been a risk that paid off handsomely. How many successful prosecutions and regulatory actions have there been? UBS and Merrill on auction rate securities. I can't think of any actions on fraudulent sales practices on CDOs, even though they would seem to be a prime candidate. Even poor clearly screwed Jefferson County isn't suing or declaring bankruptcy (although that appears to be that the people involved in the deal are still in positions of authority, and a suit or default would likely expose that they were complicit. And a municipal bankruptcy is no biggie, markets are amazingly forgiving, particularly in a case where it was part of a negotiating strategy).

So here is my theory: the details are not specific enough for the public to see it as real. And if they can't formulate a picture, they can't believe it happens all that often (after all, if it did, surely it would be in the Wall Street Journal).

That is an example of a cognitive bias called the availability heuristic. If we can have examples, the more concrete the better, the more likely we are to believe that a phenomenon is valid (that is why anecdotal evidence is more persuasive than it ought to be).

Go back and look at the Cramer tape. It's actually brilliant. He is not very specific! There is no "when I was short X stock in 2004, I did F, T, and H and the price fell by $Z and I made $100,000 in two days." It's all murky, to the point where Henry Blodgett, in parsing the transcript, had to insert words at quite a few junctures to make what Cramer say make sense to him (and note I in reading the transcript would have inserted different words). That's why this incident never really stuck to Cramer. It all came off like knowing innuendo, but he didn't present a smoking gun.

So unless we have a Pecora commission, or a lot of ex-traders and trading managers coming forth with particulars, the great unwashed public is not going to know enough of what happened to know where to direct its diffuse but well warranted anger over having been had.

I encourage readers to provide suggestions, links to any known incidents or articles about market manipulation and internal games playing with position valuations (most important, in fixed income and derivatives markets, since that is where the big damage was done), either links to stories or personal examples (per above, the more specific, the better) or write me at [email protected] (I promise I will not go public with any information unless given explicit permission).

Cheney: Don't blame Bush team for economic woes

Cheney says economic woes are not Bush team's fault, cites global financial problem

WASHINGTON (AP) -- Don't blame the Bush administration for all the country's economic problems.
That's the message from former Vice President Dick Cheney.

President Barack Obama constantly talks about the enormous economic troubles that he inherited when he took office in January. Cheney agrees that Obama did indeed came into power amid very difficult economic circumstances.

But Cheney says he doesn't think the Bush administration can be blamed for creating the economic woes. Cheney says it's a global financial problem. He says the idea that fault can assigned to the previous administration is "interesting rhetoric" but he doesn't think people care about that.

Cheney spoke on CNN's "State of the Union."

Great Depression Cooking Ep:1 - Pasta with Peas (Hat Tip Ceci1ia)

No one is over the Fed (Hat Tip DrKrbyLuv)

Romer Says Stimulus to Help U.S. ‘Battle' Recession

March 15 (Bloomberg) -- White House chief economist Christina Romer said the Obama administration is staging a "wonderful battle" against the U.S. recession and predicted the stimulus plan will help revive growth.

"It is an economic war," Romer, chairwoman of the White House's Council of Economic Advisers, said today on NBC's "Meet the Press" program. "We haven't won yet. We have staged a wonderful battle."

U.S. gross domestic product is forecast to contract this quarter after shrinking at a 6.2 percent annual pace from October to December, the most since 1982. The jobless rate climbed to 8.1 percent last month as U.S. employers cut 651,000 workers from payrolls.

The economy's "fundamentals are sound," though ‘we know that temporarily we're in a bad situation," Romer said. She said she stands by an administration forecast that the $787 billion spending and tax cut plan will save or create 3.5 million to 4 million jobs.

Romer said the administration tomorrow will announce plans to help small businesses get access to credit.

"We know we're doing a lot of help for banks, we're doing a lot of help for homeowners. Small business people need it, too," she said. "That's all going to be announced tomorrow," Romer said, adding that the money allocated will be "a significant amount."

Consumers

Romer also discussed the need to jumpstart consumer spending, which comprises about 70 percent of the U.S. economy, saying Americans "have not done a lot of spending" in the last 14 months.

Purchases contracted at a 4.3 percent annual pace in the fourth quarter, the most since 1980, after shrinking at a 3.8 percent pace in the previous three months, according to figures from the Commerce Department.

"We know consumers have lost a lot of wealth," Romer said.

U.S. household wealth fell by a record $5.1 trillion from October to December, almost twice the decrease in the previous quarter, as home values and stock prices plunged, Federal Reserve figures showed last week.

The Bush administration is not to blame for the economic decline, former Vice President Dick Cheney said in a separate interview.

"I don't think you can blame the Bush administration for the creation of the economic circumstances," Cheney said in an interview on CNN today. "It's a global problem."

"The notion that you can throw it off on the prior administration is interesting rhetoric but I don't think anybody cares about that," Cheney said. "What people care about is what is going to work."

To contact the reporter on this story: Timothy R. Homan in Washington at [email protected]

Ben Bernanke's Greatest Challenge

Kenneth Rogoff, Harvard economics professor

FSA urges Global Crackdown on Shadow Banking System

From The Times: Lord Turner demands global crackdown on bank excess

A BLUEPRINT for international financial regulation will be unveiled this week, leading the way for a global crackdown on the shadow banking system and high-risk trading strategies.

Lord Turner, chairman of the Financial Services Authority (FSA), will publish a paper on Wednesday outlining the regulator's responses to the global financial crisis.

The proposals are expected to form the cornerstone of international efforts to overhaul the global regulatory system ... [Turner] wants more co-ordination between regulators and central banks to spot signs that economies are overheating.

He will launch a clampdown on the shadow-banking system - including the off-balance-sheet funding vehicles set up by banks in tax havens.

Further regulation of hedge funds is expected...

Banks that offer big bonuses to traders who deal in risky assets could be obliged to hold more capital. Retail banks, which hold savers' money, could also face restrictions on the investments they make through their treasury operations.

...

"You are going to see a massive change in the supervisory system. It's going to include tax havens and institutions where it didn't before," [Prime Minister Gordon Brown] said.

The Big Con Continues

From the wires:

WASHINGTON (AP) - American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars. AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments. The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

That is gross. Take a penny of my tax dollars...no more bonuses should be the common sense rule.

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25 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - March 16

Bernanke End is Near

After I sent the blog off to Chris Marsh and I grabbed the Mac and watched Bernanke on 60 Minutes & Rogoff before we fell asleep. Bad idea.

Oh boy, what a cluster.

Bernanke's voice does anything but assure me, his comments on AIG, resolve, the end is near were one thing, to hear him answer "It isn't tax payers money," well lets just say I didn't sleep well after that.

Maddening, the reporter, Scott Pelly I like for mainstream anyway, BUT, I was really disappointed he had the perfect oppertunity to ask Ben about wave 2 of the real estate mess, (alt-a's and option arms) which is just offshore - and he didn't. 

The end is near. Which end Ben? Reminds me of the Greenspan "To that end" quote about stability and a democracy requiring a sound economy quote.

His comment on resolve really caught my attention. 

Be careful, on that link I posted there are 2 videos, I missed the second and would have if it wasn't for Marsh. 

Then we watched Rogoff. G-20 is way behind the power curve, that is good news to me as I was afraid they were scheming up some global currency. He mocked the administration for wishing this thing away, To digress a second: Romer's article about winning the (economic) war was beyond disappointing, like FSN said yesterday if they can't identify the problem they don't stand a chance fixing it.

Rogoff confirmed what I suspected would happen but made it (hyperinflation) sound very subdued. Towards the end he mentioned they will have to inflate this away, but not Wiemar Republic inflation. Yah. 70 trillion in debt and a budget deficit in the trillions - hello Zimbabwe. 

He was very candid about doubling the IMF bail out funds.

Funny, what he said and what Cheney said in the news today were opposite. That's my take, be interested in hearing your opinion, take care

 

suesullivan's picture
suesullivan
Status: Gold Member (Offline)
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Posts: 305
Re: Daily Digest - March 16

just saw this item on Port of LA incoming traffic dropping a shocking 35 percent in February.

http://www.laobserved.com/biz/2009/03/port_traffic_plunges.php

 

"Inbound traffic tumbled 35.3 percent from a year earlier, which is the worst monthly drop since the early 80s, while outbound traffic (representing a much smaller share of the pie) fell 27.6 percent. All told, traffic last month was down 32.7 percent. (Port of Long Beach numbers aren't in yet.) L.A. and Long Beach account for 40 percent of all container traffic coming into the U.S., so it’s a pretty good indication of how many wide-screen TVs and automobiles are expected to be sold in the coming months. Port officials had warned of serious declines in traffic for the first few months of 2009, but I’m not sure anyone was anticipating a 35.3 percent plummet. Keep in mind that the busiest time of the year is during the summer months when holiday merchandise starts coming in. "

FireJack's picture
FireJack
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Posts: 156
Re: Daily Digest - March 16

What will this second wave of the mortgage disaster likely do? Will it be a reflection of what has already happened with the subprimes or will it likely bring a complete collapse of the system?

 

I know this june will be the beggining of the second wave and wondering if by the time its hits its peak in 2011 where we will be?

 

Okay found this at Singapore Watch  in the comments section:

 

Scott Pelley’s piece on the 2nd Wave of Foreclosures overlooked a
critical fact. The next wave of Foreclosures in 2009 Will Take
Self-Employed and Smaller Businesses who have these TOXIC mortgages. In
fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are
considered the “Troubled” assets in TARP were marketed to the
self-employed who fell prey to them.

An NASE survey,www.nase.org, was the first to provide compelling
evidence of small business involvement in the upcoming toxic mortgage
crisis. The survey was created by Prof. Samuel D. Bornstein( That’s me)
and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst,NJ,and
was conducted by the National Association for the Self-Employed (NASE)
which issued a Press Release on November 21, 2008.

According to this survey, it is estimated that 3,709,800 small
business owners hold Alt-A and other toxic mortgages, and 1,279,800 are
already delinquent as they have missed one to three or more monthly
mortgage payments at mid-November, before the expected Resets that are
scheduled to begin in 4th Quarter 2008 through 2012.

These small business owners will be at-risk of payment shock and
default as their monthly mortgage payments skyrocket. Small business
owners were especially targeted for these Alt-A loans which required
little or no documentation of income which appealed to many small
business owners who previously were unable to qualify.

The resulting defaults will be the cause of the upcoming second
tsunami wave of foreclosures that will dwarf the subprime crisis and
will take many homeowners and small business owners.

 

 

 

suesullivan's picture
suesullivan
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Posts: 305
Re: Daily Digest - March 16

This caught my eye in the very dense comment of an economic fractalist (?) below the Rogoff video, and it made me think of Sam Linder's query about where gold is headed in the short term.

Gold, after a final 1-2 week growth period ahead, will devaluate sharply over the subsequent 7 to 8 weeks. Gold and gold equities are also following a 4+/11/7 of 8-9/ 7-8 weekly fractal progression series.

Since I couldn't understand a thing he was writing, and he used polysyllabic words, he must be smarter than I and I ascribe some weight to his projection. ;)

 Actually, if gold did start to fall back soon, this would incline me to wait and see how far it falls...

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - March 16

FireJack raises a good question.

From the chart here: http://activerain.com/blogsview/202178/Adjustable-Rate-Mortgage-Reset-Sc...

It looks like we would be entering the 2nd wave (tsunami??) towards the end of next month. I personally feel that the elite leaders of the government and the banks are not simply "dumb." My questions are these:

1) This wave appears to be nearly as large as the first and might even last a little longer. Does the fact that these are not subprime mortgages mean that the severity of this wave will be diminished and there will be fewer defaults?

2) Does the fact that we're already in a big recession greatly amplify the severity of this wave to in reality make it far more damaging than the initial subprime one?

3) I firmly believe that the elite goverbanksters and politicians are not simply dumb. So then my question is what wonderful plans do they have waiting in the wings ready to throw at us when Wave #2 becomes a reality?

fujisan's picture
fujisan
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Posts: 296
Re: Daily Digest - March 16

US TIC Data for January is released. 3rd decline in the last 4 months | Forex News and Commentary by FXDD

Quote:


The US TIC data for January was just released.  It showed that foreigners holdings of US assets fell by 43 billion.  This is the 3rd decline in the last 4 months. 

The expectation was for a gain of 45.0 billion.  This suggests that foreigners have shunned investment into the US. With a large trade deficit and a large government deficit which requires foreign investor support, this is not a great sign for US assets (in particular bond yields).    This may have caused the back up in treasury yields in January.  As the chart indicates below the 30 year bond yield rose dramatically in January. 

...

 

RussB's picture
RussB
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Posts: 101
Re: Daily Digest - March 16
suesullivan wrote:

This caught my eye in the very dense comment of an economic fractalist (?) below the Rogoff video, and it made me think of Sam Linder's query about where gold is headed in the short term.

Gold, after a final 1-2 week growth period ahead, will devaluate sharply over the subsequent 7 to 8 weeks. Gold and gold equities are also following a 4+/11/7 of 8-9/ 7-8 weekly fractal progression series.

Since I couldn't understand a thing he was writing, and he used polysyllabic words, he must be smarter than I and I ascribe some weight to his projection. ;)

 Actually, if gold did start to fall back soon, this would incline me to wait and see how far it falls...

Chaos guys have been trying to apply it to stocks etc. for fifty years now, but I've never heard of anyone succeeding. Otherwise we'd have some revolutionary "Fractal Quant Model" or some such thing. So I wouldn't count on this fellow having figured it out either.

billy-bob's picture
billy-bob
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Posts: 8
Re: Daily Digest - March 16

Dick Cheney is using revisionist history to deny culpability and to save HIS administration from going down as the worst in history.  Let's revisit the facts, shall we:

1) Lying to the American people about the rationale to war (in Iraq)

2) Blowing trillions of dollars blowing things up in Iraq

3) Causing a near-global economic collapse from an utter lack of oversight, regulation, and law & order in the financial markets

Bottom line: this guy is a fascist who believes in torture, subverting the constitution, and giving away money to the upper 1%  of the population. What else needs to be said?

The news media should NOT be giving this guy a soapbox.  He and his policies are a major cause of our problems.

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Re: Daily Digest - March 16
suesullivan wrote:

"Inbound traffic tumbled 35.3 percent from a year earlier, which is the worst monthly drop since the early 80s, while outbound traffic (representing a much smaller share of the pie) fell 27.6 percent.

Very interesting stats - I really like to focus on real economy stats, like this one, instead of stock market fluctuations.

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Re: Daily Digest - March 16

The economy's "fundamentals are sound," though ‘we know that temporarily we're in a bad situation," Romer said.

They were saying the exact same stuff in 1929 as the sky was falling all around them.....

Mike 

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Re: Daily Digest - March 16

Billy-bob....while I am no fan of Cheney, or the previous administration, I think your points are largely partisian and short-sighted.  This current debacle has plenty of "blame" to be passed around through Republican AND Democratic administrations.  Don't let your biased ideas blind you to the REAL truth.  The political system, and all politicians, has led us down this primrose path for the last 60-70 years.  This is NOT all about the past 8 years.  

If you have watched the CC, listen to what CM says......this is not about liberal vs. conservative, Democrat vs. Republican..this is about right vs. wrong..policy over politics.

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now that's what I call a dead cat bounce! Three days?

Late sell-off ends Wall Street rally

The Dow Jones Industrial Average closed down 7 points, about 1 per cent, to 7,216. (Reuters)

Stocks on Wall Street have made a last-minute retreat,
after American Express said the number of people struggling to make
credit card payments rose in February.

Ahead of that news, shares had rallied for most of the session,
after the British banking group Barclays joined other major banks in
saying it had a strong start to the year.

Analysts said investors took that as a sign the troubled sector could be stabilising.

Shares in Citigroup jumped a massive 42 per cent on the news.

Comments from the US Federal Reserve chairman Ben Bernanke also helped add to the positive sentiment early on.

In a television interview he said the US recession may come to an end this year.

But technology shares were hit overnight, as some investors diverted money out of that sector and back into financials.

The Dow Jones Industrial Average closed down 7 points, about 1 per cent, to 7,216.

The Nasdaq Composite Index finished 27 points (1.9 per cent) lower to 1,404.

Shares in Britain enjoyed a sixth straight day of gains, finishing almost 3 per cent higher.

The strong performance was driven by strength in banking shares and oil producers.

As expected, Barclays was the top performer, adding 22 per cent after good news about its solid start to 2009.

The bank also confirmed it was looking to sell its i-Shares business and had spoken with several interested parties.

HSBC put on almost 7 per cent after confirming it had reassured
investors in Hong Kong that it did not need to raise more capital.

A rally in the pharmaceutical sector helped consolidated gains for GlaxoSmithKline and Shire.

BP, BG Group and Royal Dutch Shell were also higher, after crude oil
prices recovered from earlier falls, pushing back above $US47 a barrel.

At the close, London's FT 100 Index was up 110 points to 3,863.

The index rose 6.3 per cent last week after hitting six-year lows,
but is still down around 13 per cent this year thanks to the recession
and the banking crisis.

In local futures trade, the Share Price Index 200 closed up 8 points to 3,378.

About 7:05am AEDT the Australian dollar was up almost a-third of a cent from yesterday's close and was buying 65.92 US cents.

On the cross-rates, it was at 0.5085 euros; 64,72 Japanese yen;
46.86 pence Sterling; and against the New Zealand dollar it was 1.243.

Spot gold was slightly lower at $US923.85 US an ounce, while West Texas Crude was up to $US47.33 US a barrel.

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Re: Daily Digest - March 16

I expect the market to go up and down at this level for a bit while the subprime mess ends. Once june hits we'll be at the bottom of the subprime and the beggining of the great second wave of option arm and alt-a and what then who knows. This is assuming the derivative bubble causes no problems of course.

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Re: Daily Digest - March 16

While commercial real estate crashes starting about now which is even more highly leveraged than residential.No worries, Ben says all is fine, the banks should really have huge earnings soon.

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Re: Daily Digest - March 16

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Re: Daily Digest - March 16

 Davos said:

Then we watched Rogoff. G-20 is way behind the power curve, that is
good news to me as I was afraid they were scheming up some global
currency.

Your read is more interesting and credible after one reviews today's report from Russia -

Russian ITAR-TASS reports - (excerpts)

Russia proposes creation of global super-reserve currency,  16.03.2009, 15.15

MOSCOW, March 16 (Itar-Tass) -- Russia suggests
the G20 summit in London in April should start establishing a system of
managing the process of globalization and consider the possibility of
creating a supra-national reserve currency or a “super-reserve
currency.” The Russian Federation’s proposals for ways out of the
ongoing financial and economic crisis and for a post-crisis order of
the world financial system have been published on the Kremlin’s
website. The proposals have been dispatched to the leadership of the
G20 countries, the CIS and international organizations.

“The current global economic crisis points to the
need for discarding standard approaches and requires the adoption of
collective decisions, agreed at the international level and geared to
creating a system of globalization process management,” the document
says. Russia suggests “acting with the maximum resolution in order to
restore sustainable economic development and also confidence and
stability in the financial markets.”

“The decisions we shall make at the London summit must be not only
adequate to the current situation, but also meet the requirements of a
new, post-crisis world,” the document says.

Larry

 

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Re: Daily Digest - March 16
Quote:

Business

Alcoa unveils plan to cut dividend, slash costs

Mar 16th, 2009 | PITTSBURGH -- For the first time in more than a quarter century, Alcoa Inc. is slashing its quarterly dividend as part of a plan to lower costs and bulk up its cash cushion amid the recession.

In addition to the 82 percent dividend cut, the Pittsburgh-based aluminum maker said it expects to sell $1.1 billion worth of stock and debt and reduce annual costs by more than $2.4 billion by 2010.

The announcement, made after the market closed Monday, follows news in January that Alcoa plans to lay off about 13 percent of its global work force by the end of 2009, further cut production and spending, and sell four of its subsidiaries.

Alcoa has been hard-hit by the weakening world economy, and orders have plummeted for the lightweight metal used in everything from cars and aircraft to window frames and beer cans. Prices have tumbled as demand has dropped in key markets such as autos and construction.

In January, Alcoa reported a fourth-quarter loss of $1.19 billion, pointing to the sinking demand and prices that had fallen 56 percent since July.

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Re: Daily Digest - March 16

Hello DrKrbyLuv:

Well, that was just my take. Rogoff has been pretty outspoken lately IMHO - but he is ex IMF and after reading a book or two..... who knows. I think a loan with the IMF is a scary thing for a country, "if" (when) they default they lose a lot of resources and all the jobs that come in seem to be multi-national (as in most every nation but theirs). Take care 

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Re: Daily Digest - March 16
Mike Pilat wrote:

FireJack raises a good question.

From the chart here: http://activerain.com/blogsview/202178/Adjustable-Rate-Mortgage-Reset-Sc...

It looks like we would be entering the 2nd wave (tsunami??) towards the end of next month. I personally feel that the elite leaders of the government and the banks are not simply "dumb." My questions are these:

1) This wave appears to be nearly as large as the first and might even last a little longer. Does the fact that these are not subprime mortgages mean that the severity of this wave will be diminished and there will be fewer defaults?

2) Does the fact that we're already in a big recession greatly amplify the severity of this wave to in reality make it far more damaging than the initial subprime one?

3) I firmly believe that the elite goverbanksters and politicians are not simply dumb. So then my question is what wonderful plans do they have waiting in the wings ready to throw at us when Wave #2 becomes a reality?

My client who ran a hedge fund saw this coming a long time ago and is loaded up to the gills with prep gear etc. He says those on top know and are in on the whole thing - from the top bankers who are doing this as they did in the past to create monopolies to the gov't who has extensive plans for martial law and such things....so yes they are not simply dumb!

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Re: Daily Digest - March 16

paranoid: Yes, it's a depressing thought, but the realist in me is not so sure that even the semblance of our republic will weather this storm.

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Re: Daily Digest - March 16

Not to worry - I'm sure people will be back in the malls by summer...

 

Quote:

Business

General Growth extends forbearance request

Mar 16th, 2009 | LOS ANGELES -- Troubled shopping mall owner General Growth Properties Inc. said lenders have waived default on a $2.58 billion credit agreement until the end of the year, allowing the troubled shopping mall owner some time to regain its financial footing.

But its Rouse Company unit extended the expiration date on a request for forbearance on another more than $2 billion worth of debt, after it failed to convince enough of its bondholders to give it more breathing room.

General Growth said it has received enough consents from lenders under its 2006 corporate credit agreement, which includes a $1.99 billion term loan and $590 million revolving credit facility, to extend a forbearance agreement currently in place through the end of 2009.

But the Chicago-based real estate investment trust, struggling to stave off a Chapter 11 bankruptcy filing, also had asked holders of $2.25 billion worth of bonds last week to put off calling in payments until the end of this year while it tries to refinance its debt load.

That consent solicitation, launched by Rouse, was set to expire at 5 p.m. EDT on Monday, but the company said it has extended the offer until 5 p.m. Friday because it only received enough consents from holders of its 7.20 percent notes due 2012 and 6.75 percent notes due 2013.

General Growth needed 90 percent of holders of its 3.625 percent and 8 percent notes due this year to agree to not demand payment of principal and interest on the debt for the rest of 2009. Interest on the bonds would still accrue. It also required 75 percent of holders of its 7.20 percent notes due in 2012 and 5.375 percent and 6.75 percent notes due in 2013 to agree, in order for the forbearance agreement to take effect.

But by Monday's deadline, only about 42 percent of the holders of its 3.625 percent notes and just 59 percent of its 8 percent noteholders had agreed to the terms. It nearly cleared the hurdle with holders of its 5.375 percent notes, coming up just 6 percent short.

Meanwhile, a total of $395 million in unsecured bonds issued by the unit came due Sunday. It's unclear whether or not those lenders will call in the debt, which could force General Growth into bankruptcy, given its lean cash reserves. Another $200 million is set to come due on April 30.

Calls to spokesman Tim Goebel were not immediately returned Monday.

General Growth, which has a stake in more than 200 malls across 44 states, has seen its fortunes sour as the U.S. economy worsened.

The company has suspended its dividend, halted or slowed nearly all development projects and cut its work force by more than 20 percent. Its stock has been pummeled, dropping from above $44 a share to well under $1 in the past 12 months.

But the main problem has been a scarcity of credit for refinancing the billions in debt it took on during an aggressive expansion effort that included the $7 billion purchase of a competitor in 2004.

In recent months, the company has sought to get lenders to rework its debt terms but warned last fall it might have to seek bankruptcy protection.

General Growth has said it has $1.18 billion of past due debt and about $4.09 billion worth of debt that could be called in. It also has an additional $1.44 billion worth of consolidated mortgage debt and about $595 million of unsecured bonds scheduled to mature during 2009 that remains to be refinanced, repaid or extended.

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Re: Daily Digest - March 16

Someone in the US has come to the rescue of the homeless by making and handing
out portable sleeping units called EDAR (Everyone Deserves A Roof). Basically a
fold-away cot with a canvas roof and on four wheels which the homeless can move
easily from place to place and small enough to navigate city streets and
shopping malls. Check them out at.............

http://www.edar.org/

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Re: Daily Digest - March 16

http://www.telegraph.co.uk/finance/financetopics/recession/4986287/IMF-poised-to-print-billions-of-dollars-in-global-quantitative-easing.html

IMF poised to print billions of dollars in 'global quantitative easing'

The International
Monetary Fund is poised to embark on what analysts have described as
"global quantitative easing" by printing billions of dollars worth of a
global "super-currency" in an unprecedented new effort to address the economic crisis.

By Edmund Conway
16 Mar 2009
 
Alistair
Darling and senior figures in the US Treasury have been encouraging the
Fund to issue hundreds of billions of dollars worth of so-called
Special Drawing Rights in the coming months as part of its campaign to
prevent the recession from turning into a global depression.

Should the move, which is up for
discussion by the summit of G20 finance ministers this weekend, be
adopted, it will represent a global equivalent of the Bank of England's
plan to pump extra cash into the UK economy.

Simon Johnson, former chief economist at
the IMF, said: "The principle behind it is that everyone would get
bonus dollars and instead of the Federal Reserve having to print them,
everyone gets them.

"The objective is to create a windfall
of cash. However if everybody goes out and spends the money it could be
very inflationary."

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Re: Daily Digest - March 16

Crop 'til you drop: a growth spurt at last in patchy times
Gillian Flaccu in Long Beach, California
March 17, 2009

http://www.smh.com.au/world/20090316-8zz3.html

WITH the recession in full swing, many Americans are returning to their
roots - literally - cultivating vegetables in their backyards to squeeze
every penny out of their food budget.

Industry surveys show double-digit growth in the number of home
gardeners, and mail order companies report such huge demand that some
have run out of seeds for onions, tomatoes and capsicum.

"People's home grocery budgets got absolutely shredded and now we've
seen just this dramatic increase in the demand for our vegetable seeds.
We're selling out," said George Ball, chief executive of Burpee Seeds,
the largest mail order seed company in the US. "I've never seen anything
like it."

Gardening advocates have called the newly planted tracts "recession
gardens" and hope to shape the interest into a movement similar to the
victory gardens of World War II.

Those gardens, modelled after a White House patch planted by Eleanor
Roosevelt, were intended to inspire self-sufficienc

y, and at their peak
supplied 40 per cent of the nation's fresh produce.

Roger Doiron, director of Kitchen Gardeners International, is
petitioning Barack Obama to plant a similar garden at the White House -
75,000 signatures have been collected on an online petition.

For many Americans, the appeal of backyard gardening isn't in its
history - it's in the savings. The National Gardening Association
estimates a well-maintained vegetable garden yields a $US500 ($760)
average return a year.

Adriana Martinez, an accountant who reduced her weekly grocery bill to
$US40 by gardening, said she has peace of mind knowing where her food
came from. And it had fostered a sense of community through a
neighbourhood vegie co-op. "We're helping to feed each other and what
better time than now?"

Community gardens around the country have also come into their own. The
waiting list at the 312-plot Long Beach Community Garden has nearly
quadrupled, but no one is leaving, said Lonnie Brundage, who runs the
garden's membership list.

Associated Press

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Re: Daily Digest - March 16

CNBC House of Cards

http://www.infowars.com/house-of-cards/

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