Daily Digest

Daily Digest - March 30

Tuesday, March 30, 2010, 10:46 AM
  • It's Official - America Now Enforces Capital Controls
  • Monday Madness - 11,000 Or Bust!
  • Elizabeth Warren: Half of Commercial Mortgages to Be Underwater
  • Karl Denninger - Market Ticker with BJ Lawson
  • $500 Billion Reserve Drain Made Crisis Worse: IMF's Ferhani
  • Greece Pays Bond Investors 5 Times Spain Yield Spread
  • China's Next Bubble
  • The Mother Of All Jobless Recoveries
  • President Sarkozy Of France Says Europe And America Must Come Up With New Answers
  • French Endorse Sarkozy’s Scrapping of Carbon Tax, Poll Shows
  • Shale Gas Shenanigans

It's Official - America Now Enforces Capital Controls (Ben Johnson, kelvinator)

In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS.

Monday Madness - 11,000 Or Bust! (Ilene)

Does the lack of actual gold make the bullion you hold more valuable? That’s an interesting question. Mortgage backed securities didn’t get more valuable as mortgages diminished in value but I suppose this gold scam can keep going as long as no one actually asks for their physical gold.

Elizabeth Warren: Half of Commercial Mortgages to Be Underwater (joemanc)

By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."

Karl Denninger - Market Ticker with BJ Lawson (joemanc)

William ("B.J.") Lawson, Candidate for North Carolina's 4th District, will be joining us today to talk about the Ponzification of government, along with so-called "health care reform." Come join us for a lively discussion with one of those who appear to get it - and who's interested in fixing that which ails our economic health. (starts at the 5-minute mark)

$500 Billion Reserve Drain Made Crisis Worse: IMF's Ferhani (Christian W.)

Ferhani blamed reserve managers' procyclical behaviour on a search for yield, which started in the 1980s but had intensified in the last decade. Central banks had traditionally invest their foreign exchange reserves in high-quality sovereign debt or short-term deposits in banks, but this changed he said. "Central banks around the world began to invest in assets with higher return. To the outside world this was presented as diversification. But diversification is commonly associated with risk reduction. Instead, the change in the composition of reserves reflected above all the search for yield," he said.

Greece Pays Bond Investors 5 Times Spain Yield Spread (Christian W.)

Prime Minister George Papandreou’s government must raise about 53 billion euros this year, 15.5 billion euros of it by the end of May. Failure to do so could spark a new round of the fiscal crisis and trigger the use of the aid plan to help Greece finance its budget deficit by standing behind the nation’s debt crafted by EU leaders in Brussels March 25.

China's Next Bubble (Christian W.)

Provinces and municipalities have built up more than $1 trillion of off-budget liabilities through special entities that are in practice captive investment companies that borrow from local and regional banks and develop real estate. This is a debt bubble that could go pop.

The Mother Of All Jobless Recoveries (Christian W.)

More than 95 percent of the change in the unemployment rate since the beginning of the recession is due, not to job separation, but record-low job finding.

President Sarkozy Of France Says Europe And America Must Come Up With New Answers (mhoop)

Sarkozy emphasized that if Europe and America do not redesign the global financial architecture, then no other alliance will succeed. He highlighted the urgent need for an open discussion on the economic crisis and world economic regulation.

“We can no longer expect a capitalist system where there are no rules, no regulation, no protectionism.”

French Endorse Sarkozy’s Scrapping of Carbon Tax, Poll Shows (mhoop)

Prime Minister Francois Fillon told members of parliament of the Union for a Popular Movement on March 23 that any carbon tax should be imposed throughout the European Union to be effective.

Energy

Shale Gas Shenanigans (Christian W.)

[Shale gas operators] will drill prospects that they believe have no reasonable chance of doing anything other than breaking even. Why will they do this? To boost stated reserves, a number by which Wall Street judges the value of oil and gas companies. They won't, however, make any true profit on these wells. But they will become what Wall Street calls an "asset play." They will be valued on their assets, in this case stated reserves, rather than on their profitability.

Please send article submissions to: [email protected]

13 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4149
Re: Daily Digest - March 30

""It does not help if one side, driven by its political agenda at home, puts pressure on the other with unwarranted threats of trade sanctions," Chen said.

He reiterated the official view that the U.S. trade deficit has been over-estimated. He said the trade gap was a reflection of globalization, with U.S. firms moving to China to lower their costs while U.S. consumers benefit from cheap Chinese goods.

"China gets the surplus yet the United States gets the real gains," he said."

"The fiscal 2011 budget "will not sufficiently" address the estimated general fund gap, expected to total $9.3 billion, or 33 percent of revenue, Fitch said in a report today. Fitch kept the state on a ratings watch list for a possible further downgrade from the fourth-lowest investment grade.

The lower ranking may raise the state's borrowing cost as it comes to market with more than $1 billion of new debt and investors demand a higher yield. Standard & Poor's cut the state's rating March 26 by one level to A+, its fifth-highest, and Moody's Investors Service today assigned an A2 rating with a negative outlook, meaning the bonds may be downgraded."

................2A) Fitch downgrades Illinois ratings, may cut again

"California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.

And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis."

"Some economists fear the states have a potentially bigger problem than their recession-induced budget woes. If investors become reluctant to buy the states’ debt, the result could be a credit squeeze, not entirely different from the financial strains in Europe, where markets were reluctant to refinance billions in Greek debt.

“If we ran into a situation where one state got into trouble, they’d be bailed out six ways from Tuesday,” said Kenneth S. Rogoff, an economics professor at Harvard and a former research director of the International Monetary Fund. “But if we have a situation where there’s slow growth, and a bunch of cities and states are on the edge, like in Europe, we will have trouble.”

California’s stated debt — the value of all its bonds outstanding — looks manageable, at just 8 percent of its total economy. But California has big unstated debts, too. If the fair value of the shortfall in California’s big pension fund is counted, for instance, the state’s debt burden more than quadruples, to 37 percent of its economic output, according to one calculation."

(If the link above doesn't work try this one)

"In summary, our confidence in central bankers and governments has faltered and we are now aware that many developed economies like the U.S. are on an irreconcilable path to financial weakness. We believe there is a chance for many governments to change and develop financial discipline and are hopeful that changes can be made and new disciplines will be instituted. However, if history is any guide to human behavior, our financial future in the U.S. may be a difficult one. Investors today need to take a very real and hard look at the issues raised in this article, and they need to protect against further erosion of our currency's purchasing power. "

"New Jersey’s bonds should be ranked a step below those assigned by the three major credit-rating firms, as the state faces a $46 billion pension deficit and record high debt-load, Merrill Lynch analyst John Hallacy said.

The state’s general obligations are rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s, and AA- by Fitch Ratings, the fourth- , third- and fourth-highest investment grades, respectively. New Jersey is the third-most indebted U.S. state according to Moody’s, and expanded its borrowings to a record $33.9 billion as of June 30, from $31.8 billion a year earlier.

“We are revising our view on New Jersey’s credit in light of the state’s sizable debt load, severely unfunded pension and health-care retirement benefits liabilities, and aggressive budget assumptions for its fiscal year ending 30 June 2011 which we believe will be difficult to achieve,” said Hallacy, a municipal strategist in New York at the Bank of America Corp. unit, in the report. "

................5A) Bond Rates Questioned in California, New Jersey and Illinois

"California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay."

"WASHINGTON—The Treasury will sell $73 billion in cash-management bills and other short-term securities.

Details of the offerings (all with minimum denominations of $100):

• In its usual weekly sale Tuesday, the Treasury will sell $31 billion in four-week bills."

"March 30 (Bloomberg) -- Greece’s new seven-year notes fell on their first day of trading on concern Europe’s most indebted nation will continue to struggle to fund itself at a price it can afford.

The drop pushed yields on the 5 billion euros ($6.7 billion) of notes to 6.14 percent at 11 a.m. in London, up from 6.001 percent when they were issued. The yield premium over comparable-maturity German debt widened about 12 basis points to 346 basis points, ING Groep NV prices show. Ten-year securities also fell, while the cost to insure Greek bonds using credit- default swaps rose."

"Across the country, many local governments are struggling to pay for expenses in the bad economy and some debt managers are concerned about their bond ratings, said Mark Robbins, an associate professor of public policy at the University of Connecticut.

Despite the worries, Robbins said there hasn't yet been a rash of downgrades.

Robbins, who advises government finance officers, said rating agencies expect governments to have some difficult times, but said the key will be how officials react. "The question is how do they respond to this time, use a bunch of one-time fixes or... follow plans they had set in motion some time ago.""

"Lisbon, Portugal, 30 March – Portugal’s budget deficit in 2009 has been revised upwards from 9.3 percent to 9.4 percent in the first notification of the year as part of the procedure for excessive deficits for Eurostat, the National Statistics Institute (INE) said Monday in Lisbon.

The projections included in the INE report also pointed to gross public debt rising from US$110.376 billion euros (66.3 percent of GDP) in 2008 to 125.909 billion euros in 2009 (76.8 percent), with figures for 2009 still provisional."

"State Controller John Chiang said Monday the worst of California's budget crisis is still to come.

Although lawmakers are challenged by a nearly $20billion deficit, "the bad year's 2012," Chiang said.

That year, state finances will be hit with a trifecta of pain: The temporary tax hikes approved last year will be over; federal stimulus funds will be gone; and funds that the state "raided" from local governments will come due.

The deficit at that point will be some $25billion, according to Schwarzenegger administration estimates.

And finances in later years aren't great either: Last year, the Legislative Analyst Office released a report projecting a $20billion deficit every year for the next five years.

But not even those highly publicized numbers tell the full story, said Chiang, the chief fiscal officer for the state.

Chiang said California also owes its own "special" state funds some $20billion that it has borrowed in recent years to close deficits, referring to pots of money outside the state's general fund.

And state employee health and pension benefits are not being adequately budgeted, he said. "

"SAN JOSE, CA (KGO) -- The city of San Jose has been warning of big job cuts to close its budget deficit. Monday, the city manager came out with the numbers.

San Jose faces a $116 million deficit unless it gets major pay and benefit concessions from its 11 employee bargaining units. Otherwise, City Manager Debra Figone says 878 positions will be eliminated.

Among the biggest cuts are 160 officers in the police department, 86 firefighters, 110 positions at the city's libraries, 117 jobs in the Parks, Recreation and Neighborhood Services Department and 40 employees in the Department of Transportation. "

"March 29 (Bloomberg) -- California’s treasurer asked six investment banks that underwrite the state’s bonds to explain why they also market credit-default swaps on them, saying such contracts may cost taxpayers by exaggerating credit risk.

Treasurer Bill Lockyer asked JPMorgan Chase & Co., Bank of America Merrill Lynch, Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley to detail the extent to which they market the insurance contracts and to explain how trading in them affects the interest cost on the state’s general-obligation bonds, according to letters he released today."

"While California has never defaulted on its debts, the contracts have increased in value as the state wrestled with fiscal stress. Banks paid to underwrite California’s bonds may face a conflict of interest if a jump in swap prices prompts investors to demand higher yields."

"Viewer Jeff Espeland, a 42-year-old building engineer from Barnesville, Minn., sent in the following question:

"Mr. Obama the CBO just issued a statement this past week that Social Security has reached the tipping point a full 6 years earlier than they originally had estimated, with that said how can we believe their figures on your healthcare plan that says we will save 138 billion in ten years?"

In his interview with Matt Lauer, President Obama responded to Espeland:"

"March 29 (Bloomberg) -- Holders of bonds sold by the Las Vegas Monorail Co. likely won’t get their next payment due July 1 because the insurer, Ambac Financial Group Inc., won’t cover them.

The monorail, linking the city’s casinos, seeks to reorganize under Chapter 11 bankruptcy and has minimal funds to cover its next scheduled debt disbursement of $9.6 million in July, Wells Fargo, the trustee for the bonds, said in a March 26 announcement. While Ambac guarantees payments of $1.2 billion for the monorail, its obligation has been transferred by Wisconsin insurance regulators to a segregated account that temporarily can’t honor claims, according to the filing.

The decision to halt payments on all troubled debt is “a remarkable development,” said Matt Fabian, a senior analyst with Municipal Market Advisors in Westport, Connecticut. “How can you trust any bond insurance policy if regulators take away any security backing that policy?”"

"The financial failure of one of the two projects to emerge from California’s early 1990s experiments in privatized highways comes as the administration of Gov. Arnold Schwarzenegger continues to promote public-private partnerships. The administration claims nine projects in various stages of the state’s P3 transportation pipeline, with a capital cost of $26 billion.

South Bay Expressway’s bankruptcy filing comes as other greenfield P3 toll roads get underway around the country."

"“The South Bay Expressway project is the first bankruptcy in the history of the 12-year TIFIA program,” Federal Highway Administration spokeswoman Cathy St. Denis said in a statement. “While we will carefully review and learn from this particular case, we remain confident that TIFIA will continue to serve an important role in advancing critical infrastructure projects.”

The expressway borrowed $140 million through TIFIA in 2003 that has grown to $170 million because of capitalized interest, according to Evans’ declaration."

  • Other headlines and stories:  

Upgrades to muni ratings 'optimistic', investors warn (If the link doesn't work try this one)

Worldcolor closing Dyersburg, Tenn., plant; 789 jobs lost

Japan Banks May Sell Record Subordinated Bonds, Citigroup Says

External debt rises to $55.8bn (Pakistan)

Seneca Nation asks Obama to veto anti-sovereignty PACT Act

Quebec May Bring Forward Tax Increases to Tackle Budget Deficit

Louisiana legislature convenes to face worst budget in 20 years

Lehman Says Unsecured Claims May Fall to $260 Billion (Update3)

Councils free to sue Lehman Bros (Australia)

Fed's Evans: Commercial Real-Estate Loans 'A Key Problem' and Geithner: Commercial real estate loans problematic

Argentina to Pay More Than 10% on Bonds, Marengo Says

Apartment market said to need decade to recover (Nevada)

City of Toledo will shut down Friday if budget is not balanced

'Doomsday' Cuts Proposed In 2011 Budget (Baltimore)

Santa Barbara To Consider Single-Use Bag Tax

Corrections chief: Cuts might free 2500 inmates (Florida)

Fed’s Evans Says Jobless May Exceed 9% at Year-End

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - March 30

Personal income in Arizona slips 4 percent

http://www.eastvalleytribune.com/story/152194

Quote:

The personal income of Arizonans slid more last year in this state than almost everywhere else in the nation. New figures from the Bureau of Economic Analysis show the average per capita income of Arizonans last year dropped, to $32,935. The fact of the slide is not surprising. The recession resulted in a decline nationwide of 2.8 percent. But the drop in Arizona was 4.1 percent. That had the added effect of putting Arizonans further behind the curve in comparing their income to that in the rest of the country. In 2008, the Arizona figure was 85.5 percent. It dropped last year to 84.2 percent. It also means that Arizona is now 43rd of all the states in per capita personal income, down two slots from last year — and six from the beginning of the decade.

.........

One other factor relates to how the recession has hit Arizona versus the rest of the country. That has to do with the state’s dependence on growth itself as an economic force — and the construction jobs that go with it.

In 2006, more than 9 percent of all jobs in the state were in the relatively well-paying construction industry. When the bottom fell out of the economy, more than half of the jobs went away.

Vest said if there’s a bright spot in the report, it relates to the figures for the last quarter of 2009. He said income growth in Arizona is not only above average but is the 12th highest of all the states.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - March 30

Warren's video is a no brainier with respect to banks' destiny. 

brjohnson789's picture
brjohnson789
Status: Bronze Member (Offline)
Joined: Aug 27 2008
Posts: 52
Re: Daily Digest - March 30

[Shale gas operators] will drill prospects that they believe have no reasonable chance of doing anything other than breaking even. Why will they do this? To boost stated reserves, a number by which Wall Street judges the value of oil and gas companies.

 

That sounds a bit like how internet companies were getting valued in the late 90s; it wasn't possible to measure P/E ratios becaus they still didn't have a profit, but they had a volume of users which would probably turn in to profits at some point.  That didn't turn out so well.

truenorth's picture
truenorth
Status: Member (Offline)
Joined: Feb 1 2009
Posts: 21
Re: Daily Digest - March 30

Some states face Greek-style debt woes

California, New York and other U.S. states are showing many of the same signs of debt overload that recently took Greece to the brink -- budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.

And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis.

nyfarmer's picture
nyfarmer
Status: Member (Offline)
Joined: Oct 20 2009
Posts: 8
Re: Daily Digest - March 30

'Don’t tell the political people. Not that they’d listen.'

Our local and state pols are salivating expecting tax windfalls to payout big--environmental 'concerns' expect their cut as well.

 

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2237
Over at The Automatic Earth...

...which is a blog I find thought-provoking (www.theautomaticearth.blogspot.com), there was this piquant quote today:

Quote:

...I venture to conclude that the all the budget crises in the various US states and towns, just like the ones in many nation states, have only just begun to unfold their leaves and secrets, and the phenomenon the outcome of all this will most resemble is the tried and proven scorched earth strategy. The need to cling to the religion of economic growth till it's clawed from your cold dead hands has never been greater, at the same time that the chances such growth will materialize are rapidly shrinking.

Here, here!

Viva -- Sager

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Daily Digest - March 30

Housing Prices May Be Heading for a Double Dip http://www.cnbc.com/id/36098637

Anyone thinking housing prices have reached a bottom had better do some recalculating. Despite Tuesday's Case Schiller report showing smaller declines in January, housing prices may already be in another free fall.

Reduced Price
Photo by:Seven_Null7
Reduced Price

Newly revised numbers are pointing to the decline.

The Federal Housing Finance Agency's (FHFA) adjusted figures show a housing price decline of 2 percent in December and 0.6 percent decline in January—reversing some regional price increases in 2009.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - March 30

error


JRB's picture
JRB
Status: Silver Member (Offline)
Joined: May 17 2009
Posts: 149
Re: Daily Digest - March 30

My God , Saxplayer,  how do you do it?  I should only be so productive!

- Jim

Jasenica's picture
Jasenica
Status: Bronze Member (Offline)
Joined: May 6 2009
Posts: 35
Re: Daily Digest - March 30
JRB wrote:

My God , Saxplayer,  how do you do it?  I should only be so productive!

- Jim

I hope he doesn't burn himself out like Davos did.

calledoutin08's picture
calledoutin08
Status: Member (Offline)
Joined: Apr 27 2009
Posts: 15
Re: Daily Digest - March 30

Sax player I even brag about your hard work and dedication to my family members, I appreciate all your work and if you start to get burned out please take a break!!!!

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4149
Re: Daily Digest - March 30

Thanks JRB, Jasenica and calledoutin08.

I expect to be here at least through the rest of the year and probably much longer (unless the economy completely implodes before then).

There are a few days I will not be able to post because of a busy schedule. Also on  Sundays I usually don't even look at the news to see what's happening. Besides that I think you guys might be stuck with a very long comment #1 or comment #2  post for a long time.

The current headlines are a perfect reflection of what CM talks about in the Crash Course videos, so this is a great forum to post these kinds of news stories. This site also takes the extra steps in both the videos and on the forums of showing what each of us can do to protect ourselves from a very possible economic and currency collapse. If enough people see the headlines, watch the videos and then take action this will be more than worth the effort.

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