Daily Digest

Daily Digest - May 19

Tuesday, May 19, 2009, 10:00 AM
  • Debunking The Notion Of Too Big To Fail (Video)
  • Nixon Video, Ending Bretton Woods (Video From Nathan's Economic Edge)
  • One Journey (Video)
  • How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either
  • YoY CPI Drops Most Since 1955 (Chart)
  • Marc Faber on passing the baton to emerging economies (Video on page 2:20 point)
  • CRIMINAL: Hedge Fund Managers Bankrupt Companies, SEC allows it (Video)
  • Tanta's Bench and Charity Update
  • Chasing The Shadow Of Money
  • Report: Smaller U.S. Banks need $24 Billion in Capital
  • The Worst Is Yet to Come
  •  A few A(H1N1) Links Dr. Henry Niman's Map 6,094 U.S. Cases as of this wrtitng, A(H1N1) Current Timeline, CDC Cases

Economy

Debunking The Notion Of Too Big To Fail (Video)

Nixon Video, Ending Bretton Woods (Video From Nathan's Economic Edge)

One Journey (Video)

How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either

Readers are probably well aware that Chrysler and GM have started the process of closing dealerships. Chrysler is shedding 789 of its 3200 dealers, and GM is excising 2600 of its 6246, with 1100 notified last week. UBS estimates that the total job losses could reach 160,000, although some dealers may be able to operate at a lower level of activity as service operations and/or used car dealers, and may be able sign up with another brand.

GM is trying to make the best of a bad situation for the ditched dealers:
GM Chief Executive Fritz Henderson said Monday that GM would work with the dealerships being cut to ensure an orderly wind down.

"As I look at it, it is work that will take place through '09, and then we would wind down and handle the distribution of cars and make sure the customers are taken care of ... make sure that dealers are reimbursed for warranties and that sort of thing," Henderson said. "This is not a several week process."

While many of the dealerships identified for closure could exit the business this year, [GM Spokeswoman] Garontakos said they can also stay active through September 2010.

By contrast, Chrysler is shutting the dealers abruptly, leaving them stranded with inventory bur no right to perform warranty work on the unsold cars. And while most dealers presumably believe they should have survived the cut, the story forwarded by reader Milton L also raises doubts about the quality of thinking behind the selection process.

Chrysler was heavily over-represented in some areas. Milton reports that he determined that there were 15 dealers in a 25 mile radius of his home. The message from his friend Rob E, a soon-to-be former Chrysler dealer (which we have been authorized to reproduce), suggests an unnecessarily destructive and ill-thought out process:
Thanks for your concern. Things are really tough right now. Chrysler cancelled both our dealerships. Our 2 dealerships were in first and second place in the northeast zone for customer retention, out of a total 350 dealers. We are the largest parts dealer in the tri-state area, and exceed our sales and service targets as well. It is a huge financial blow to us. All my savings is tied up in the business, as well as my mother's. (87 years old) They are not allowing us to even return vehicles or parts. My brother and I are running around trying to find legal representation in bankruptcy court, as well as join a class action suit.

The value of the properties is far below what we owe on the mortgage. At Chrysler's request, we had improved both dealerships by putting up new buildings. At their request, we also leased a separate warehouse for 3 years for parts storage.

To come out of bankruptcy successfully, they will need a strong distribution network. Cancelling dealers will not help them. For those dealers that were very much underperforming, they should cancel them in a humane way by
giving them a year to sell their property, sell down their inventory and allow the employees time to find another job. Instead, they gave us until June 9th!

I will be sending all my customers a letter with some talking points, telling them that we intend to stay in business to service their vehicles, and sell used vehicles. Without being able to perform warranty work, this won't be easy. I will send you a copy of the letter when it is done.

YoY CPI Drops Most Since 1955 (Chart)

All in transportation, but disconcerting regardless. Bloomberg reports:

“Demand simply remains too weak for most businesses to find any success in pushing through price hikes at this point, Russell Price, a senior economist at Ameriprise Advisor Services in Detroit, said before the report. “Widespread price cuts however, are also unlikely especially given the recent evidence that the economy may be stabilizing.”

From a year ago, consumer prices fell 0.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008.

Marc Faber on passing the baton to emerging economies (Video on page Faber starts at the 2:20 point, )

CRIMINAL: Hedge Fund Managers Bankrupt Companies, SEC allows it (Video)

Tanta's Bench and Charity Update

Here is a photo of the Doris "Tanta" Dungey memorial bench on the campus of Illinois State University (another photo below).

This bench was paid for by your donations to The Doris "Tanta" Dungey Endowed Scholarship Fund setup by our very own Bacon Dreamz.

The scholarship received over $26,000 in donations and is fully endowed, although more contributions are welcome (see above link).

Tanta's niece Kate spoke at the dedication of the bench (Kate is a junior journalism student at ISU), and Tanta's parents also attended. Note: "Tanta" was a family nickname for Doris, and means "Aunt" in several languages. Tanta also has a nephew Erik who helped with the Mortgage Pig Wear charity.

For those visiting the campus, here is a map (from Cathy) showing the location of the bench.

This was one of Tanta's favorite spots - just outside Milner Library.

There were many donations to other charities in Tanta's name. OSU has received about $4,000, and the Normal Community High School’s Drama Club about $1,800. Thanks to all!

The Mortgage Pig wear for Charity raised over $3,500 for charity (I'm wearing a Mortgage Pig sweat shirt as I type!). Note: the Mortgage Pig Wear is closed for now.

And here is an excerpt from an email from the University of Maryland Medical System (to Cathy):

My name is Nichole Barbuzanes and I work in the UMMS Foundation office ...[and I wanted to] touch base with you regarding donations that have been made in your sisters memory. I am very sorry to hear about her passing but from the numerous ... contributions it is clear that she was loved by all.

So far we have received 45 contributions in her memory, including ... a $40,000 gift from the Denver Foundation from an anonymous contributor. The total is therefore $44,775. WOW!

(More)

Chasing The Shadow Of Money

For readers who have the time and interest to follow up on the topic Zero Hedge commenced yesterday discussing money liquidity and the shadow banking system, the best place to start is with Friedrich Hayek's seminal Prices and Production, published in the depression days of 1935. Curiously Hayek discerned the critical role of the shadow banking system long before the advent of securitization, derivatives and other products that today have caused the monetary supply problem to reach a screaming crescendo. A very salient sample is presented below:

"There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.

In particular, it is necessary to take account of certain forms of credit not connected with banks which help, as is commonly said, to economize money, or to do the work for which, if they did not exist, money in the narrower sense of the word would be required. The criterion by which we may distinguish these circulating credits from other forms of credit which do not act as substitutes for money is that they give to somebody the means of purchasing goods without at the same time diminishing the money-spending power of somebody else. This is most obviously the case when the creditor receives a bill of exchange which he may pass on in payment for other goods. It applies also to a number of other forms of commercial credit, as, for example, when book credit is simultaneously introduced in a number of successive stages of production in the place of cash payments, and so on. The characteristic peculiarity of these forms of credit is that they spring up without being subject to any central control, but once they have come into existence their convertibility into other forms of money must be possible if a collapse of credit is to be avoided."

Report: Smaller U.S. Banks need $24 Billion in Capital

From the Financial Times: Smaller US banks need additional $24bn

Small and medium-sized US banks must raise some $24bn to meet the capital standards set by the government in its stress tests of large institutions, research for the Financial Times shows.

News of the potential capital shortfall could increase pressure on many of the 7,900 US banks that form the backbone of the US financial system.

As many as 500 more banks could close, according to investment bank Sandler O’Neill ... The government’s stress-case would result in capital shortfalls for 38 per cent of the 200 banks below the 19 largest financial institutions ...
Unlike the large banks, it appears these banks will be forced to merge or allowed to fail (and taken over by the FDIC).

The Worst Is Yet to Come

There are few things from my childhood that I remember more vividly than grandmother's comments regarding this false recovery. "If we knew what was coming, we would have killed ourselves." This from as strong a person as I have ever encountered, with a faith that would break rocks. The Great Depression left an indelible mark, or more accurately scar, on her entire family, and my father's as well.

And I never heard the name "Franklin Roosevelt" from her lips without it being preceded by "God bless" followed by "he saved my family." Not all of her children unfortunately. She said she cried so much and so often that she was never able to cry again. And she did not, even at the end.

A few A(H1N1) Links Dr. Henry Niman's Map 6,094 U.S. Cases as of this wrtitng, A(H1N1) Current TimelineCDC Cases

17 Comments

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - May 19

Don't know if anyone's seen this: http://www.theoildrum.com/node/5395

It was just released and gives a lot of updates to the global oil supply situation, including new projects and their outlook combine with recent history of production data. Inside: the present situation, creaming curves, Cantarell information (man, it's B-A-D), Brazil's Tupi field info, and production potential of Iraq.

I do have one question if anyone has insights: I greatly respect the work of all the folks on the Oil Drum, and it has been a wonderful way to research and understand our energy supply problems. There is (perhaps) one limitation to the data: it all comes from the EIA and the IEA. This seems to be the "best" out there now, but given the tendancy for governments to, uh, spin their statistics, I wonder if anyone questions the veracity of the raw data itself. Not sure how hedonics could enter into the picture, but leave it to government economists to find a way. Any thoughts on the potential for the raw data to be corrupted and any insights on potential other sources of raw production / consumption data?

Cheers,

Mike

Aurum Vir's picture
Aurum Vir
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Re: Daily Digest - May 19

Hi,

I don't get the point of the Tanta Bench/Charity Update story.  Am i missing some prior info that would put context to today's story?

Also, the Richard Nixon footage is a gem.  It is very interesting to match up his publicly stated reasons for taking us off the gold standard, vs. the historically-proven facts (persistent US balance-of-payments deficits that were reducing gold reserves).

Watching that video, it is also interesting to match up his presenation skills to those of today's politician. Today's city councilman has infinitely more polish than Tricky Dick.

maveri's picture
maveri
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Re: Daily Digest - May 19

On the recap front...

In searching for a statement by economist and historian, Michael Hudson where he mentions the creation of a new type of gold for the ruling elite, leaving common gold for the rest of us ( if anyone has a link, I'd be greatful)  - I re-discovered the following and had a quick listen.

http://www.kpfa.org/archive/id/48892

It's interesting to sometimes recap stuff - I found it interesting to listen to where he says societies are headed under such schemes that we have today - you can see the pieces clip together one after another with frightening regularity.

maveri's picture
maveri
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Re: Daily Digest - May 19
Mike Pilat wrote:

Don't know if anyone's seen this: http://www.theoildrum.com/node/5395

It was just released and gives a lot of updates to the global oil supply situation, including new projects and their outlook combine with recent history of production data. Inside: the present situation, creaming curves, Cantarell information (man, it's B-A-D), Brazil's Tupi field info, and production potential of Iraq.

I hadn't but now I have - thanks :-)

Mike Pilat wrote:

I do have one question if anyone has insights: I greatly respect the work of all the folks on the Oil Drum, and it has been a wonderful way to research and understand our energy supply problems. There is (perhaps) one limitation to the data: it all comes from the EIA and the IEA. This seems to be the "best" out there now, but given the tendancy for governments to, uh, spin their statistics, I wonder if anyone questions the veracity of the raw data itself. Not sure how hedonics could enter into the picture, but leave it to government economists to find a way. Any thoughts on the potential for the raw data to be corrupted and any insights on potential other sources of raw production / consumption data?

Cheers,

Mike

Wish I could help but in the area of energy, I'm only just getting my feet wet now.

I guess if they didn't base their data upon recognised sources, they would be called conspirators etc

I don't know what other sources you could use - apart from feedback personally from people involved in production itself - I wonder what sources Matt Simmons has beyond the two you listed?

Mike Pilat wrote:

This seems to be the "best" out there now, but given the tendancy for governments to, uh, spin their statistics, I wonder if anyone questions the veracity of the raw data itself. Not sure how hedonics could enter into the picture, but leave it to government economists to find a way.

Too funny :-)

jpitre's picture
jpitre
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Re: Daily Digest - May 19

Hello everyone

How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either

Chrysler cancelled both our dealerships. Our 2 dealerships were in first and second place in the northeast zone for customer retention, out of a total 350 dealers. We are the largest parts dealer in the tri-state area, and exceed our sales and service targets as well. It is a huge financial blow to us. All my savings is tied up in the business, as well as my mother's. (87 years old) They are not allowing us to even return vehicles or parts

"they should cancel them in a humane way by giving them a year to sell their property, sell down their inventory and allow the employees time to find another job. Instead, they gave us until June 9th!"

I have yet to buy anything other than American made vehicles. The way these idiots at GM & Chrysler haveacted, are acting, it is unlikely that I'll ever buy anything from either them. They deserve to go out of business as well as the people who have money invested in them. A lot of good employees, suppliers and dealers will suffer because of the rot at the top. It seems that a large proportion of the management of corporate America have turned away from honest, moral business and have opted to live a life of selfish, unbridled greed. Looks like the Wall Street  and banker types have been meeting in backrooms with the auto folks to figue out how to screw us all.

Jim Pitre

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - May 19

That video of Nixon is priceless.

Lessons we can learn from the past:

1) There will probably be political scapegoats eventually (Nixon called them 'international speculators')

2) There is no such thing as a truly 'temporary' government action. As a matter of fact our simple little TARP plan just rented offices in D.C. Guess what the lease terms were? 10 years. So TARP is going to be around for a while...whoopee!

3) I would venture to guess that a key difference from the past is that Nixon probably did not have all the media propaganda to support him that a modern politician likely would. I could be wrong here. Does anyone remember this statement from when it was made? What was the public's reaction?

Mike

 

 

vvolf's picture
vvolf
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Re: Daily Digest - May 19

I find it funny that dealerships are stunned to be treated so unfairly, when really, it's a similar situation when these big companies lay off employees.  Every employee has bills to pay, mouths to feed, etc. but it's not the employers concern.  Now it's happening on a large scale up the ladder so to speak.  Sucks, don't it.  You make the millions with 2 dealerships, you have bigger risks.

Davos's picture
Davos
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Re: Daily Digest - May 19

Hello Aurum Vur:

Tanta died of cancer, that was her blogging name, she worked for a lender and helped reveal early on what was going on in the business as it changed from what it was to this mess. People have been contributing the scholarship fund established on her behalf.

Take care

Eye's picture
Eye
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Re: Daily Digest - May 19

Broken industries do not collapse "fairly." Neither do broken economies.  Dealers must have known they were at risk, even the good ones.  I'm sure favoritism is being played out and people are loosing fortunes for no "good" reason.

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Re: Daily Digest - May 19

Economic forecasting 'makes astrologers look respectable'

By economics correspondent Stephen Long - analysis

The huffing and puffing over whether Treasury's economic forecasts are right or not may make for great political theatre but it is, ultimately, a puerile debate.

The only honest answer to the question is: who knows? By definition, forecasting is an estimation of an unknown future. By definition, it involves risk and uncertainty. In practice, many, if not most, economic forecasts are wrong. The longer the time horizon, the harder it gets.

The late JK Galbraith, one of the twentieth century's most prominent economists, observed wryly that the purpose of economic forecasting is to make astrology look respectable. The American baseball star Yogi Berra, famous for his malapropisms, said: "It's tough to make predictions, especially about the future."

Recent history bears that out. Just about every official forecaster around the world underestimated the impacts of the global financial crisis. Over the past year the International Monetary Fund has revised down its forecasts for the global economy month after month. Just ten months ago, it was predicting that the global economy would expand by more than 4 per cent over the year to the end of 2009. Now it sees global growth going backwards by 1.3 per cent.

The Reserve Bank and the Treasury, too, have been consistently wrong during the course of the crisis - or, to put it more kindly, their forecasts have been overtaken by events. Within weeks of being issued in February, the updated economic and financial outlook from Treasury predicting that Australia would avoid recession looked heroic, bordering on ludicrous. Of course, it's almost certain that these forecasts were based on assumptions chosen to accentuate the positive. The last thing the central bankers or the econocrats want to do is undermine public confidence by predicting a recession until it would be utterly implausible not to.

Treasury's forecasting record over the past decade isn't too flash, either. Year after year, it underestimated the growth in government revenues by a large margin, though it did so for commendable reasons. It took the fiscally prudent position of assuming a fall in the terms of trade (and a decline in national income) in the final year of the forward estimates, so that governments weren't tempted to spend money that may not be there.

Fast-forward to the speech yesterday by the Treasury secretary, Ken Henry. He gave a robust defence of the forward estimates in the Budget backed by a plethora of data. It was pretty convincing, at least in disabusing people of the idea that the estimates were plucked out of thin air. They are, clearly, intellectually rigorous and defensible. But economic forecasts are only as good as their assumptions.

Treasury is essentially looking to the pattern of past recessions as a rough guide to the future. The recessions of the 1980s and 1990s were followed by a period of above-trend economic growth. This time around, Treasury discounts the rate of economic growth in 2010 - the first year of its projected recovery - because of the depth of the global crisis and the presumed reluctance of debt-laden, fearful consumers to open their wallets. From 2011, it assumes the economy will expand at a pace well above the 30-year average - four and a half per cent a year. This is, in fact, a stronger growth rate than after the 1990s recession.

There are two core assumptions here. One is that the past is a reasonable guide to the future. The other is that there will be a return to economic growth in the coming year. The underlying assumption here is that fiscal and monetary policy work - so the huge fiscal stimulus thrown at the problem around the world and the unprecedented, co-ordinated effort by central banks to ease monetary policy and restore lending is bound to turn things around.

There is, of course, another school of thought: that this is a crisis brought about by the bursting of the biggest asset price and credit bubble in the history of capitalism, and it can't be solved that easily. On this view, a further round of big losses and write downs by major global banks is likely, perhaps inevitable. The result will be an insidious feedback loop between the financial crisis and the real economy, as joblessness and corporate collapses cause a rising tide of bad debts and a renewed credit crunch. Even the most optimistic forecasts acknowledge that this is a risk.

The data from around the world at the moment is all over the shop and gives no clear guide to who's right, other than Yogi Berra.

And if it's tough to make predictions, especially about the future, the whole game gets even tougher when it's twisted by the force of political spin.

One reason Treasury's economic growth estimates received such a sceptical, even scornful, response was that the Treasurer had been warning Australians for months that the world is in the midst of "the worst recession since the 1930s". (Read, "we're not responsible" and "prepare for a little pain in the Budget'). Did you notice how Wayne Swan tweaked the rhetoric on Budget night, talking of "the sharpest" downturn since the 1930s? No wonder it was hard for the public and many commentators to accept the idea that we're back on track within a few months and recording stellar growth in a couple of years.

Then yesterday, Malcolm Turnbull claimed the Reserve Bank governor was "damning the Budget with faint praise" when he said Treasury's forecasts were not "crazily optimistic". The Opposition leader took the words out of context. I doubt any impartial observer who was at the presentation by Glenn Stevens, or listened to his speech and the subsequent question-time in full, would have come away thinking he was criticising the Treasury or the Government. The Reserve Bank boss stated, in fact, that there was no material difference between the Treasury's forecasts and the Reserve Bank forecasts for economic growth in the next two years. He said he didn't want to comment about forecasts three, four or five years ahead - a wise course for anyone who understands how fraught the business of forecasting is.

Treasury doesn't have that luxury. It's had to come up with an estimate of when the Budget will be back in surplus. Six years on, in the dim distant future as far as forecasting goes. Suffice it to say, projections over that long can be pretty woolly. Read the Budget papers, by all means, but bear in mind JK Galbraith's maxim. You might be as well off consulting a fortune-teller.

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Re: Daily Digest - May 19

 FT.com / Columnists / John Kay - Beware bail-out kings and backbench barons

Quote:

Beware bail-out kings and backbench barons

Simon Johnson’s comparison of corporate financiers with Russian oligarchs has justifiably attracted attention. Mr Johnson, a former chief economist at the International Monetary Fund, has written an article for the May issue of The Atlantic entitled “The Quiet Coup”. He exaggerates for effect. But his underlying point is important.

When a group becomes too rich and powerful, it can wield influence over politics and over commercial activities in which its members are not directly involved. The effect is to enhance that wealth and power. This process is likely to end in political and economic crisis. That was the history of royal courts across Europe, from Versailles to St Petersburg. More recently, it has been the experience of many developing countries and transitional economies. In the three decades since Margaret Thatcher and Ronald Reagan inaugurated the market revolution, it appears that Britain and the US have joined their ranks.

There is no direct connection between the financial turmoil and political sleaze. Britain’s row over MPs’ expenses and America’s scandals over congressional lobbying have their own specific origins. Yet there is an indirect connection. Parliamentarians believe the taxpayer should pay for their widescreen televisions and gardeners. Senior executives award each other ever more generous remuneration packages. Bankers genuinely believe that the state should carry off their toxic assets while they continue with business and bonuses as before. All demonstrate an exaggerated sense of entitlement.

Dukes and cardinals, oligarchs and financiers, fixers and traders become very wealthy not by virtue of their talents but as a result of the position they occupy. Legislators and the heads of large corporations readily come to feel that their functions deserve similar recognition. We may be relaxed that some people do become filthy rich, but we should not be relaxed about how they become so or how they behave once they are.

Few people quibble about Bill Gates’ fortune, although they may occasionally think that $50bn is rather a lot. They see the evident benefits of the personal computer revolution that he helped to bring about. They can admire the essential decency that has led him to devote much of his time to finding charitable ways to spend his money. It is difficult to think about bond salesmen in the same way, as it was difficult to feel positive about the hangers-on at the court of Louis XVI.

We need to reassert the notion that roles of authority are positions of responsibility rather than declarations of personal merit and routes to personal enrichment. That notion goes with old-fashioned concepts of social obligation and public service. An insistence that power is a duty, not a prize, is probably the most important reason why some countries in the world are rich and others poor. The point needs to be brought home in equal measure to legislators, chief executives and bankers.

Historians would find much that is familiar in today’s developments. In Washington, the young, fresh King Obama finds his economic councils filled by representatives of the same interests who advised his predecessor so unwisely. At the Palace of Westminster, the failing, flailing King Gordon surrounds himself more tightly with his trusted advisers, venturing forth occasionally only to address his subjects from a safe distance by YouTube.

When crisis strikes, the powerful barons react initially by using their power to protect themselves from the worst of the storm. So the banks receive trillions in state aid. Only if the anger of the populace grows large enough, or the resources of the state are exhausted, does a counter-coup provoke change. Breaking the political power of the financial services industry will not happen easily. That power may survive this crisis – as it survived the last. When the New Economy bubble burst in 2000, enough money was pumped into the system to sustain the establishment and pacify the population. Minor courtiers were executed but the essential power structure remained. But, as Louis XVI learnt as the guillotine fell, the longer reform is delayed, the bloodier the revolution. And the more unsettled and chaotic would be the eventual outcome for us all.

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - May 19

Has anyone seen this article: http://globaleconomicanalysis.blogspot.com/

California has long had a reputation of being something of a bellweather for the rest of the nation. I can only hope that when the issues raised here really emerge at the national level the politicians will actually consider the citizens that elected them. After seeing the forcefully passed bank plunder package last fall and seeing the desperate situation of our Federal government, I've got some doubts. After seeing this erupt in California, I wonder which state is next?

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Re: Daily Digest - May 19

 I think an understanding of where we've been and where we're going is not complete without reading some of the Deep Capture blog.  This 3 part series here is a good place to start because it shows the ties between naked short selling, Genovese crime family (with perhaps Al Kaeda and/or Russian Mafia) and Wall Street.  http://www.deepcapture.com/strange-occurrences-and-a-story-about-naked-short-selling/

Before this is all over, these people will have raided the Treasury, our pensions, and whatever else there is to raid.  I think of them as a swarm of locusts that move through, leaving desolation in their path.  I would not want to have my retirement money in a pension plan, that's for sure.  Look at this headline:

Senator: More oversight needed of pension agency

http://news.yahoo.com/s/ap/20090520/ap_on_go_co/us_pension_woes_6

 

 

Excerpt:

In February 2008, during Millard's tenure, the board approved a new investment strategy that would invest the PBGC's assets more heavily in private equities and real estate. Millard remains convinced that more aggressive investments will help reduce the agency's deficit and perhaps prevent the need for a future taxpayer bailout. To help implement the new strategy, the agency solicited the services of investment firms on Wall Street.

Goldman Sachs, BlackRock and JPMorgan won awards to invest up to $2.5 billion of PBGC assets in real estate and private equity in return for fees that could exceed $100 million over 10 years. So far, no agency assets have been transferred to the three firms. PBGC's acting director, Vince Snowbarger, said Tuesday that the staff was working with the new board members in the Obama administration to decide whether the contracts should be terminated.

 

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DavidC
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Re: Daily Digest - May 19

fujisan,

A great link, thanks for that. The link from the FT, Simon Johnson's 'A Quiet Coup', is a great piece as well, recommended to everyone. I like Johnson, he talks a lot of sense when I've seen him on TV and read pieces by him.

http://www.theatlantic.com/doc/200905/imf-advice

DavidC

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jpitre
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Re: Daily Digest - May 19

 Hi All

I find it funny that dealerships are stunned to be treated so unfairly, when really, it's a similar situation when these big companies lay off employees.  Every employee has bills to pay, mouths to feed, etc. but it's not the employers concern.  Now it's happening on a large scale up the ladder so to speak.  Sucks, don't it.  You make the millions with 2 dealerships, you have bigger risks.

 

In response. it was not my intention to suggest that the dealerships should not be closed, rather the way it is being done. Somewhere back along the way we seem to have lost the concept of "simply doing the right thing". There is an implied agreement between the manufacturer and the dealer that they are "in this together " to some extent. Manufacturers exercise a great deal of influence on the dealer as to how they do business and the things they must provide etc. For example, to cut off a dealer and leave him standing with unsold inventory and no ability to do warranty work is simply not doing the right thing by the dealer. It is immoral and bad business practice to  cut a relationship of long standing without working out the issues affecting the parties   a point of reasonable resolution. Surely there is room for a winding down of the relationship rather than unilateral cut-off. How can a dealer possible sell without the ability to special order a vehicle if he doesn't have it in stock - or special add-ons etc - It is simply adding to the problems of the dealer without reason or justification. Doing the wrong thing just because you can doesn't make it right. Hedge funds using predatory practices such as naked shorting may be technically legal, but that doesn't make it right, and I put the actions of GM & Chrysler in the same category. These ivory tower management types continue to use the the same lack of judgement they used when flying on to Washington in their corporate jets to plead for bailout money -- they just don't get it. 

I wonder how many potential customers they are alienating by their actions towards dealers and the recent announcements of importing Chinese cars. 

Jim Pitre

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Farmer Brown
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Japan economy shrinks at record 15.2% pace

 Obviously, Japan does not employ the same data-massage artists we have here in the US.  Maybe we could export this service and improve our overall trade issues. ;)    15.2%!!!  Ouch!!

http://www.chinadaily.com.cn/world/2009-05/20/content_7907710.htm

Japan economy shrinks at record 15.2% pace
(Agencies)
Updated: 2009-05-20 22:15

TOKYO -- Japan's economy shrank at a record 15.2 percent annual pace in the first quarter, dragged down by plunging exports, thinner factory output and wary shoppers.

But within the details emerged new hope. Economists said the worst is over for the world's second-largest economy. Many predicted it would grow in the April-June period amid aggressive stimulus steps by the government and signs that companies are boosting production.

"I think the economy has passed the bottom, and the recovery has begun in the current quarter," said Richard Jerram, chief economist at Macquarie Capital Securities in Tokyo.

 

 

Japan economy shrinks at record 15.2% pace
A cyclist rides past a deserted shopping arcade where papas and mamas stores are shut down in Tokyo's Minowa neighborhood Wednesday, May 20, 2009. [Agencies]

 

 

Government data released Wednesday confirmed what many had been dreading yet expecting. The drop in gross domestic product was the steepest since Japan began compiling such statistics in 1955. Compared to the previous three months, GDP fell 4 percent, in the fourth straight quarter that the economy withered.

 

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The results were markedly worse than other major economies. The euro zone logged a 2.5 percent quarterly decline, and the US retreated 1.6 percent.

 

Like its Asian neighbors, Japan has been pummeled by the unprecedented collapse in global demand triggered last year by the US financial crisis. Manufacturers such as Toyota Motor Corp. and Sony Corp. have had to suspend production and shut down plants. They have laid off thousands of workers, contributing to a rising jobless rate that could drag on any nascent recovery.

"Weakness in the corporate sector is gradually spreading to households," Prime Minister Taro Aso told lawmakers in a parliamentary budget hearing Wednesday. "This is a very serious situation, so we need to respond appropriately."

Aso is banking on massive public spending to spark a turnaround. His newest $150 billion stimulus package includes various programs to bolster consumer spending: incentives to buy energy-efficient appliances and cars, as well as help for the unemployed and small businesses.

The government's efforts are helping ensure that after likely hitting a low point last quarter, Japan's economy is cautiously stirring back to life.

Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs, predicts the GDP will turn positive this quarter and then accelerate to 3 percent growth in the July-September period, lifted by Japan's stimulus measures and by higher demand from China.

In other signs of progress, export declines are easing and industrial production rebounded 1.6 percent in March, with further gains projected for April and May.

On Wednesday, Mazda Motor Corp. said it was resuming full production at its Japanese plants next month as demand in Europe recovers on government stimulus measures.

Optimistic investors shrugged off the bad news and instead focused on the good. The benchmark Nikkei 225 stock average extended gains Wednesday, climbing 0.6 percent to 9,344.64.

Some economists, however, question whether the expected recovery can last beyond the end of the year. Yamakawa warned that the "risk remains high for a slowdown" in the first half of 2010 as the impact of policy measures tapers off.

Officials will need to hammer out another extra budget later this year to sustain momentum, said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. But with Aso's ruling Liberal Democratic Party facing a critical election season, lawmakers aren't thinking that far ahead, he added.

A breakdown of the latest GDP figures showed that exports plummeted a record 26 percent in the first quarter from the fourth quarter. Capital expenditure -- business investment in factories and equipment -- fell 10.4 percent from the previous quarter, while consumer spending slipped 1.1 percent.

Unlike previous downturns, consumption has weakened much more than income, said Jerram of Macquarie Capital Securities.

"It seems that the public has basically panicked about job security to an extent that hasn't happened in previous cycles," he said.

For the last fiscal year through March 31, Japan's GDP contracted by a record 3.5 percent, the Cabinet Office said. It expects the economy to shrink 3.3 percent this fiscal year.

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Re: Daily Digest - May 19







Apparently the status of the economy gets even worsened. There is a continued increase in the unemployment rate, and bankruptcy seemed to be the ordinary scenario. We are still fortunate for there are some government agencies that addressed to our financial worries. The Chrysler dealerships closing list was also a long one and the company has filed for bankruptcy protection.  Both companies received large low interest loans from the government, and began restructuring in order to return the companies to financial health and competitive status in the market.  Dealers are lamenting the move, and experts say that nothing, including the GM dealer closing list, will solve GM's problems with needing debt relief.

 

 

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