Daily Digest

Daily Digest - May 19

Wednesday, May 19, 2010, 10:44 AM
  • The Housing "Recovery" Is Just Another Government Subsidy, Says Whalen
  • America's Underclass: The Growing Gap Between the Rich and Poor
  • National debt nears $13 Trillion
  • U.S. Stocks Retreat Following German Ban on Naked Short Sales
  • Euro Falls to Lowest Level Since 2006 on Austerity Concern
  • Florida, Gulf States May Suffer From BP Oil Spill, Moody’s Says
  • Roubini Says U.S. May Face Bond ‘Vigilantes’ Within Three Years
  • Fitch Keeps Outlook Negative on Greece Rating on Debt Concern
  • Senate Rejects Proposal to Prevent Bailouts of U.S. States
  • Chinese dumping worthless currency for gold
  • Calif. pension fund wants state to give $600M more
  • Euro May Drop to 6-Year Low in Credit Suisse Revision
  • Portugal's unemployment rate rises to 10.6% from 10.1%
  • Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year
  • 'Major Crash' Likely If Stocks Break May 7 Lows, Russell Says
  • Rick Santelli: They're Monetizing The Precious Metals Market
  • Gulf of Mexico oil slick from disastrous BP leak wading closer to East Coast

Economy

The Housing "Recovery" Is Just Another Government Subsidy, Says Whalen (Tech Ticker Video...could cost $1 trillion for Freddie, Fannie, FHA)

In recent months, that recovery has started to wane, but in many parts of the country, prices are still higher than they were a year ago. And that's welcome news for anyone who owns a house, makes their living selling or building houses, or is underwater on their mortgage. But it's all a mirage, says Chris Whalen, managing director at Institutional Risk Analytics. Or, more accurately, it's all a product of government subsidies.

America's Underclass: The Growing Gap Between the Rich and Poor (Tech Ticker Video)

The foreclosure problem. 2.8 million homes were foreclosed in 2009. RealyTrac expects that number to increase to 3-3.5 million in 2010. Damien Hoffman thinks it could be even higher if "strategic foreclosures" become a more accepted practice. - Unemployment. The official rate is 9.9% but the wider measure of under employed and those who have given up on their job search is more like 17%. That's more than 24 million Americans out of work. - Record numbers using food stamps. The Agriculture Department said a record 40 million Americans, or 1 in 8

National debt nears $13 Trillion

$12,974 trillion as of 5/17/2010

U.S. Stocks Retreat Following German Ban on Naked Short Sales (Posted by Ken C and idoctor)

U.S. stocks tumbled, with a retreat in financial companies wiping out an early rally, as Germany moved to ban certain types of bearish investments..... “It makes it look as if the Germans are worried about something behind the scenes that the market’s not aware of,” said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which provides trading services to institutional investors. “It almost looked panicked, which further undermines confidence in the markets. They’ve done as poor a job as one can do in delivering a message.”

Euro Falls to Lowest Level Since 2006 on Austerity Concern

“Things may be a lot worse than they appear,” said Lane Newman, director of foreign exchange at ING Groep NV in New York. “There’s been a broad change in what the market has been doing, catalyzed by fact that the Europeans have been unable to comfort international investors. Until the situation is settled, the market will be a seller of all things that can be classified as risk.”

Florida, Gulf States May Suffer From BP Oil Spill, Moody’s Says

Florida and Gulf Coast cities in Louisiana, Mississippi and Alabama may see credit ratings cut because of the BP Plc oil spill if tourism falls and property values drop, Moody’s Investors Service said. The spill may have “severe” effects if it reaches coastal communities in Florida’s northwestern panhandle, since they rely on tourism and the state depends on sales taxes from the region, Moody’s analyst Edith Behr said today in a report.

Roubini Says U.S. May Face Bond ‘Vigilantes’ Within Three Years

The U.S. may fall victim to bond “vigilantes” targeting indebted nations from the U.K. to Japan in a potential second stage of the financial crisis, New York University professor Nouriel Roubini said. “Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the U.K., in Japan, in the United States, if we keep on running very large fiscal deficits,” Roubini said at an event at the London School of Economics today. “The chances are, they are going to wake up in the United States in the next three years and say, ‘this is unsustainable.’”

Fitch Keeps Outlook Negative on Greece Rating on Debt Concern

Fitch Ratings is maintaining its outlook negative on Greece’s credit rating on concern debt will climb to almost 150 percent of gross domestic product. Fitch has yet to act after reducing Greece by two steps to BBB- on April 9, one level above junk. Standard & Poor’s classes Greece at BB+ while Moody’s has given Europe’s most indebted nation an A3 rating.

Senate Rejects Proposal to Prevent Bailouts of U.S. States

The U.S. Senate rejected an amendment to financial-regulation legislation aimed at preventing taxpayer bailouts of state and local governments that have defaulted or are at risk of defaulting on debt....Dodd opposed the amendment, saying the federal government should have the flexibility to extend aid to struggling states. “In certain circumstances, local governments or state governments have made irresponsible choices,” Dodd said. “But you don’t blame the entire population of that state or locality because some leadership has made a bad choice.”

Chinese dumping worthless currency for gold

The Chinese population and government are dumping the worthless paper currencies of the world, which their governments just magic from nowhere, and dumping guilts, and are instead investing in gold. No matter what the price of gold is, one thing is certain, you can't print more of it like Western governments have done to their paper currencies.

California pension fund wants state to give $600M more

The board of California's giant pension fund is asking the state to increase its contributions to employee retirement benefits by $600 million in the next fiscal year to help counter massive investment losses. The board made the request during a meeting Tuesday. It comes as California grapples with a $19 billion budget deficit and a threat by Gov. Arnold Schwarzenegger to eliminate its welfare program.

Euro May Drop to 6-Year Low in Credit Suisse Revision

The euro may tumble over the next three months to $1.16 as the sovereign-debt crisis forces the European Central Bank to keep borrowing costs low, according to Credit Suisse Group AG. The last time the euro traded at that level was in November 2003, according to Bloomberg data. Credit Suisse previously forecast that the 16-nation currency would trade at $1.29. The euro will be at $1.25 by the end of the year, according to the median forecast of 42 economists in a Bloomberg survey.

Portugal's unemployment rate rises to 10.6% from 10.1%

Portugal's unemployment rate rose to 10.6% in the first quarter, official data showed on Tuesday, highlighting the economic challenges the nation confronts at a time when it's under pressure to lower its excessive deficit. The unemployment rate increased by 0.5 percentage points from the fourth quarter of 2009, Statistics Portugal reported on Tuesday. Compared to the same period last year, unemployment rose 1.7 percentage points.

Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year (Posted by Poet)

Richard Russell, the famous writer of the Dow Theory Letters, has a chilling line in today's note: Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country.

'Major Crash' Likely If Stocks Break May 7 Lows, Russell Says

Investors should sell U.S. stocks because the market is at risk of a "major crash," Richard Russell, editor of the Dow Theory Letters newsletter, said in a note to subscribers today. The decline would follow should the Dow Jones Industrial Average and Dow Jones Industrial Average fall below their May 7 levels, he said. They have risen 1.3 percent and 2.8 percent versus their closing levels that day. "If I read the stock market correctly, it's telling me that there is a surprise ahead," Russell wrote. "And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead."

Rick Santelli: They're Monetizing The Precious Metals Market (Video)

Listen and notice the other youtube video off to the right with the title: CNBC Rick Santelli - Physical Gold vs ETF paper.

Environment

Gulf of Mexico oil slick from disastrous BP leak wading closer to East Coast

Computer models show the oil, which is gushing up from the sea floor at a stunning rate, is either already in the Gulf Stream, or just three miles away, he said. The powerful, warm current starts in the Gulf as the so-called Loop Current that flows out past the Florida Keys into the Atlantic Ocean, then shoots up the eastern seaboard past New Jersey and New York toward Newfoundland.

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27 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - May 19

"Following Europe’s debt crisis it is “now commonly accepted that the magnitude of the financial problems confronting the world economy are so great that in all likelihood we will be confronted by a hyperinflation allowing sovereign debts to be paid off in worthless flat currency," he said.

China is at the mercy of its own credit bubble, Hendry said and he predicts it will explode as it fuels instability within the Chinese economy and political system."

"May 19 (Bloomberg) -- Kyle Bass, who made $500 million in 2007 on the U.S. subprime collapse, is betting Europe’s debt crisis won’t be solved by the $1 trillion loan package the International Monetary Fund and European Union agreed on last week."

"Bass bought gold last week and took other steps to position the fund for hyperinflation and a “competitive devaluation” by Europe, Japan and the U.S. that he is forecasting, according to the letter. Christopher Kirkpatrick, general counsel for Hayman, declined to elaborate on the comments."

"In an interview with ET Now, Christopher Wood, equity strategist, CLSA, talks about the impact of the eurozone crisis on Asian markets"

"The government sovereign debt issues, the focus in the short term will remain in Europe but on a five-year view, we will end up having a total systemic government debt crisis in the West. So, the crisis hits first in Europe, we are now seeing that unfold, then it will move to Japan and then it will finally hit the US.

But what would trigger a Japan crisis?

The Japanese government debt-to-GDP is today about 200%. The US government debt-to-GDP is about 100% if you include Fannie Mae and Freddie Mac’s direct borrowings which is technically off balance sheet but you should include them. So, Japan already has an enormous government debt-to-GDP which would have blown up other countries already. The reason it has not blown up Japan as yet is because 95% of GDP is owned by Japanese. But just because it has not blown it up yet does not mean Japan can get a 300% of GDP, but the situation will be binary. And, when the psychology flips, Japan will go from deflation to hyperinflation and the yen will collapse. "

"May 19 (Bloomberg) -- The International Monetary Fund said Japan’s government must pursue a credible fiscal program starting next year, including increasing the 5 percent sales tax.

“With global scrutiny of public finances increasing, the need for early and credible fiscal adjustment has become critical,” the IMF said today in a report released in Tokyo. “Fiscal adjustment should start in fiscal 2011, beginning with a gradual increase in the consumption tax, to take advantage of the cyclical recovery.”"

"Moody’s Investors Service Senior Vice President Thomas Byrne said in Tokyo today Japan’s Aa2 rating would be supported by a “well defined” June fiscal plan and that Kan’s pledge to contain debt sales shows the government realizes “there is a limit to how much the market can absorb at a low interest rate.”"

"* Police say up to 20,000 protest cuts * Cuts crucial for IMF deal * Union leaders call for general strike"

"BUCHAREST, May 19 (Reuters) - One of the largest mass protests since the fall of Communism in 1989 hit Bucharest on Wednesday over deep government spending cuts, casting doubt on Romania's ability to meet its IMF loan commitments."

....................5A) 40000 public workers in recession-mired Romania protest large wage cuts

"May 19 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker, a top outside adviser to President Barack Obama, said time is “growing short” for the U.S. to address problems ranging from its budget deficit to Social Security obligations."

"“In the United States, we don’t seem to me to share the same sense of urgency” as countries such as Ireland, Volcker said in his speech. “The time we have is growing short” and “there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs.”

The Obama administration is forecasting a record annual budget deficit of $1.6 trillion. The shortfall is projected to be $10 trillion over the next 10 years, with interest payments on the debt forecast to quadruple to more than $900 billion annually.

Sovereign debt is becoming an issue “most pointedly in the euro zone” and is “potentially of concern among some of our own states,” Volcker said."

Spike in rates would push U.S. debt costs to unaffordable levels.

"According to the Department of Treasury’s Auction Staff, the U.S. sold $8.8 trillion in Bills, Notes and Bonds in fiscal year 2009. That number is greater than the entire value of publicly traded debt, which is currently $8.4 trillion. The reason for the enormous amount of debt issuance is our surging annual deficits and rollovers of retiring bonds that must occur more frequently because of the government’s decision to issue debt at the short end of the yield curve.

The astronomical size of the debt the Treasury must auction each year begs a question: Who will buy it? "

(Page 2)

"Indeed, if rates rise significantly, the country will face a liquidity and solvency crisis the likes of which the planet has never before witnessed."

"May 18 (Bloomberg) -- Former Bank of England policy maker David G. Blanchflower said another euro-region rescue package “inevitably is going to come” and the euro’s “unstoppable” decline may lead to parity with the U.S. dollar. "

"May 19 (Bloomberg) -- Credit-default swaps rose as German Chancellor Angela Merkel's curb on using the contracts to speculate on European sovereign debt sparked concern among investors about increasing government regulation.

The Markit iTraxx Crossover index of swaps on 50 European companies surged 50 basis points to 582, according to Markit Group Ltd. The jump in the index signals a deterioration in investor perceptions of credit quality."

"BERLIN, May 19 (Reuters) - German Chancellor Angela Markel, spooking investors on Wednesday by saying the euro was in danger, urged speedy action to stop market "extortion" and said the EU needed a process for "orderly" insolvency of members.

Recommending tough moves against "notorious deficit sinners" in the euro zone, such as withdrawing voting rights, the German leader told parliament in Berlin: "Above all, what's necessary is to develop a process for an orderly state insolvency.

"With that we would create an important incentive for euro zone member states to keep their budgets in order.""

"SHANGHAI — US Secretary of Commerce Gary Locke said Wednesday the United States was lagging many developed countries in terms of exports as he urged Chinese consumers to buy more American products.

Locke was in Shanghai leading the first cabinet-level US trade mission since US President Barack Obama announced an ambitious target in March to double US shipments within five years to promote job growth."

""The Chinese need to spend more and not save as much. It's all part of the rebalancing of the world economic order and increasing US exports is part of that, but not the only way," he added.

But he also cautioned against the extremes that triggered the financial crisis, noting: "We're not saying 'Go into debt', but just spend a little bit more.""

.................11A) China should buy US goods to fix imbalance

"Fairfield Union Superintendent Jim Herd also said a cut in staffing would be the likely outcome if the district sees a 22 to 30 percent cut from the state. He said, right now, the district is already spending 25 percent less per pupil than the state average; if the budget is cut by another $2 million, the spending will be reduced another $1,000 per pupil, he said.

"We would have to eliminate approximately 20 percent of our staff and hope that we could still meet our fiscal and educational responsibilities," he said. "If the second scenario of 30.1 percent reduction comes to pass, most school districts that rely on state dollars will have to file for bankruptcy.""

"ANTIOCH — For the first time, city leaders acknowledged the serious possibility that the city could be headed toward bankruptcy if it does not address its budget crisis.

"I don't think it does any good to avoid the word or sugar coat it," Mayor Jim Davis said during the third of several budget sessions directing the finance department on the 2010-11 budget.

At Tuesday's study session, Antioch's finance staff said $2.9 million still must be cut from the budget to maintain a 10 percent reserve fund. Officials project $34.1 million in general fund revenue for the 2010-11 fiscal year — about $10.5 million less than the city took in three years ago due to declining property and sales tax. "

"WASHINGTON - The Obama administration Tuesday proposed a trust fund of more than $800 million to pay for the cleanup of closed General Motors sites in 14 states.

President Obama, speaking in Youngstown, Ohio, which is near a GM assembly plant, called the trust a "landmark agreement to help dozens of communities like Youngstown revitalize and redevelop old, shuttered GM facilities, preparing them for new industries, new jobs and new opportunity."

Ed Montgomery, who leads the White House Council on Automotive Communities and Workers, said the fund would clean up nearly 90 properties shuttered in the GM bankruptcy."

"The $23 billion Education Jobs Fund is meant to be a one-time injection of federal dollars to help stem the tide of teacher layoffs across the country."

""The state's high dependence on tourism dollars and jobs is significant and a gradually worsening disaster associated with any part of Florida's 1,197 coastline miles could likely have long-term implications even greater than the recent global recession or Hurricane Ivan in 2004," said Moody's Investor Service analyst and senior credit officer Edith Behr."

"NEW YORK, May 18 (Reuters) - Hedge fund manager David Einhorn said on Tuesday that there is "going to be a lot of inflation" and that he thinks of gold as a currency.

Speaking at an investor conference for Greenlight Capital Re Ltd (GLRE.O), where he is chairman of the board, Einhorn said "large valuation discrepancies" have emerged between cyclical companies benefiting from the economic recovery and non-cyclical companies.

Einhorn said last year that he was buying gold and betting that interest rates will rise. He has warned about the exploding size of the U.S. budget deficit, a reflection of the massive government bailouts of U.S. corporations."

"A judge has ordered two Minneapolis pension funds to recover about $76 million in overpayments to retired police and firefighters or their spouses.

Under the order, the 860 retired police officers or their survivors must repay the city an average of $60,000 each, and 563 beneficiaries of the firefighter fund must repay an average of about $43,000 each.

City officials who have warned that the funds were headed toward insolvency hailed Monday's ruling by Hennepin County District Judge Janet Poston. But it's a further blow for the retirees who rely on the funds, which have been closed to new hires since the mid-1980s."

"WASHINGTON (AP) -- The number of homeowners who missed at least one payment on their mortgage surged to a record in the first quarter of the year, a sign that the foreclosure crisis is far from over.

More than 10 percent of homeowners had missed at least one mortgage payment in the January-March period, the Mortgage Bankers Association said Monday. That number was up from 9.5 percent in the fourth quarter of last year and 9.1 percent a year earlier."

"“Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates. The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks."

"May 19 (Bloomberg) -- Rioting erupted across Bangkok after Thai security forces backed by armored vehicles cleared an anti- government protest camp and forced its leaders to surrender.

“It’s going to be total lawlessness for another 48 hours,” Sanit Nakajitti, a director at PSA Asia, a Bangkok-based security and risk consulting firm, said by phone. “This is their retaliation. And gangsters, youngsters, drug dealers, anyone with a grievance will join them.” "

"HUD Secretary Shaun Donovan is asking Congress to release additional funds to help communities combat the ongoing effects of the housing crisis and home foreclosures. He says the Obama administration is committed to working with lawmakers to secure a third round of funding for HUD’s Neighborhood Stabilization Program (NSP).

The federal agency has disbursed $6 billion through NSP — $4 billion in the first round of funding in late 2008, and another $2 billion in early 2010. The money is awarded to state and local governments and non-profit developers to buy and rehabilitate or demolish vacant and foreclosed homes in their communities."

  • Other news, headlines, blogs...:

French Fin Min: France Not Mulling Ban On Naked Sovereign CDS

Derivative Disaster Spreads to Local Governments

Germany's Merkel: Failure Of Euro Means Failure Of Europe

Colombia Bonds Sink as Country Delays $1.5 Billion Isagen Sale

20% of metro area's houses 'underwater'  (Providence)

Mexico's Calderón Seeks U.S. Help

Campaign 2010: Candidates won't rule out bankruptcy for sewer debt (Jefferson County)

New Wave Of Distressed Swaps Expected

Bankruptcy filings at 11-year high in RI

Venezuela temporarily halts bond trading

Burbank Unified, teachers union reach agreement  ("projected bankruptcy by July 2012")

FDIC Grapples With Mounting CDO Losses From Banks

Moody's Predicts More Bad News For Non-Profit Hospitals

Texas' $1.2 billion in budget cuts is only the beginning of the pain

Why Public Pensions Will Not Be Able To Meet Future Obligations

Polk City (Municipal bankruptcy?)

14.01% of mortgages delinquent or in foreclosure

Templeton's Hasenstab Avoids Europe Debt Trap in Top Bond Fund

College Grads Flood U.S. Labor Market With Diminished Prospects

nickbert's picture
nickbert
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What's going on with the big gold price drop?

As of this moment gold is down to 1189.  Just wondering... considering the concurrent and continued sell-off in stocks, could this large of a drop signal the beginnings of a stampede towards liquid assets like in Fall 2008?

- Nick

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LogansRun
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Re: What's going on with the big gold price drop?
nickbert wrote:

As of this moment gold is down to 1189.  Just wondering... considering the concurrent and continued sell-off in stocks, could this large of a drop signal the beginnings of a stampede towards liquid assets like in Fall 2008?

- Nick

That's what it's beginning to look like to me as well.  Oil down, Gold down, Dow/SP Down, etc......

I'm holding $50k aside right now for just this type of move.  If it goes down like 08', we could be looking at a downward move of 20% in the price of gold!  That means instead of 45oz of Au, I could buy 52oz!  Yipee!  Thank God I'm not in the "Casino/Market" any longer.

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saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - May 19

"Kellogg School of Management professor predicts financial disaster, more bailouts if state pension programs not addressed; proposes solution

EVANSTON, Ill., May 19 /PRNewswire/ -- According to new research from the Kellogg School of Management, taxpayers, public workers and state and federal officials alike have cause for serious concern about an issue that often falls under the radar but poses serious risk to the future health of the national economy: state pension liabilities.

Data presented today in Washington, DC, at a conference called "New Retirement Realities: Pensions at a Crossroads" demonstrates that several state pension funds will not last the decade, a situation that will place tremendous pressure on the federal government to bail out financially insolvent states at a pricetag likely to match or exceed the recent bailout of the U.S. financial system."

"WELLINGTON: Government debt will persist as a major problem in Japan until 2084, and in Italy until 2060, the International Institute for Business

Development said in a new debt-stress index released on Wednesday.

The Swiss business school, best known by its initials IMD, said the United States was set to bring its debt burden to 60 percent of gross domestic product by 2033, so long as budget deficits are eliminated by 2015.

"What matters is not only the absolute size of public debt but also the length of time required to absorb it," said IMD Professor Stephane Garelli. "In the end, debt-stricken nations may suffer losses of competitiveness and standards of living." "

"May 18 (Bloomberg) -- British hedge fund manager Hugh Hendry is betting China’s “credit bubble” will burst, causing its economy to contract and triggering a global crisis.

Hendry’s Eclectica Asset Management has bought options on 20 companies in international markets that will profit from “a dramatic collapse” of China’s growth that’s been fueled by an unprecedented lending boom, Hendry said in a May 17 telephone interview from London.

Hendry joins hedge fund manager James Chanos and Harvard University professor Kenneth Rogoff in warning of a potential crash in China."

  • Other news, videos and opinions:

Greek tourism down with euro (Video)

Police break up Paris nurse demo (Video)

Luxury downtown hotel faces economic music; $73 million owed to German lender (San Diego)

Europe's Mounting Crisis: "We're on Life Support," Chris Whalen Says (Tech Ticker video)

Danger! Watch Your Step: An Interview With Gregory Weldon (mcalvanyweekly...audio)... Covers a lot of topics and is very much worth listening to. Don't miss this one.

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idoctor
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Re: Daily Digest - May 19

Specter loses in PA, while Paul gets boost from Tea Party in KY

http://content.usatoday.com/communities/onpolitics/post/2010/05/sens-specter-lincoln-face-angry-voters-in-key-primaries-/1

‘Really Angry’ Voters Drive Specter Senate Defeat, Paul Victory

http://www.bloomberg.com/apps/news?pid=20601110&sid=aQaZJ2NltOFA

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Re: Daily Digest - May 19

gold down..remember..

June Options expiration is comming next Tuesday 5-25-10....I think

Bill Murphy....GATA

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Poof, no Social Security issue

Great links describing how easy it really is to fix some of the US debt issues coming down the pipeline.  Sorry to burst any of the Dollar haters' bubbles....but it just isnt as bad as Max Keisler or Tyler would have you think.

http://www.usnews.com/money/blogs/planning-to-retire/2010/05/18/12-ways-...

http://www.google.com/hostednews/ap/article/ALeqM5gwqg7h986tbe6LR36bbHIX...

Our unfunded liabilities have lots of zeros behind them, but when you really crunch the numbers you can see that simply raising the benefit age by a year and increasing the tax by a fraction of a percent you eliminate the problem.

Medicare is very similar. 

As always, I think we are in for some severe economic issues in almost all asset classes for quite some time.  But, as we analyze the risks of the US dollar lets remain grounded in reality.  Our debt is currently still quite managable.

 

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Re: Daily Digest - May 19

My shorts are in a knot......

Germany bans naked shorting which to me should be a good thing.....isn't it supposed to be illegal in the USA and enforced by that Barney Fife of law enforcement the SEC?   Much of the press reports it as them banning ALL shorting but I will give them a break because they are not very intelligent.  If I tried to sell a car or house that I didn't own, wouldn't I go to jail?   Don't we want a fairer stock market without the manipulation?   The big banks are trying to spin this as further restrictions that will be bad for the markets and the press doesn't get it.  Germany is doing the right thing but I think they blew it with their press release.  The financial press is a child and needs to be taken by the hand.

opusnz

 

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Re: Poof, no Social Security issue
rickets wrote:

Great links describing how easy it really is to fix some of the US debt issues coming down the pipeline.  Sorry to burst any of the Dollar haters' bubbles....but it just isnt as bad as Max Keisler or Tyler would have you think.

http://www.usnews.com/money/blogs/planning-to-retire/2010/05/18/12-ways-...

http://www.google.com/hostednews/ap/article/ALeqM5gwqg7h986tbe6LR36bbHIX...

Our unfunded liabilities have lots of zeros behind them, but when you really crunch the numbers you can see that simply raising the benefit age by a year and increasing the tax by a fraction of a percent you eliminate the problem.

Medicare is very similar. 

As always, I think we are in for some severe economic issues in almost all asset classes for quite some time.  But, as we analyze the risks of the US dollar lets remain grounded in reality.  Our debt is currently still quite managable.

 

The first article really lost me with the first sentence. 

 "The Social Security program faces a long term financing shortfall. The trust fund’s reserves are currently projected to cover payments until the end of 2037."

What reserves?  There are no reserves.  As I understand it, Social Security is now paying out more than it receives.  Which means one thing, borrow more money.

 

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Re: Daily Digest - May 19

rickets

I agree that our future obligations are made too much of, it's our current and annually increasing debt that is the real boogeyman.  If interest rates go up, which they inevitably will, paying the service on federal debt could take off to unsustainable levels.  The are already predicting adding $1T/yr to the debt over the next 10 years.  My bet is that the annual deficits will be higher, perhaps much higher, than projected.  And, that doesn't count the severe straits our state budgets are in.  Nor does in count Freddie and Fannie.  Nor does it count the insane levels of military spending we are condemned to continue, and probably increase, for the foreseeable future.

And all of this will require more money from the ever shrinking taxpayer base.  I simply don't see how its sustainable, particularly when peak oil is added to the mix.

Color me troubled.

Doug

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Re: Daily Digest - May 19

Doug, all good points.  And, I agree that the current path is utterly unsustainable without some serious changes.  My point was that these articles (and many like it) came out in the last 24 hours after the research report was released - - and argue as I have that the amounts of change needed to right the ship in this case are quite small.  Further, as with medicare and many other spending concerns, many solutions are quite available and we are not out of time.  So, the currency is safe for a while.  Longer term, uncertain.

Regarding the fund lasting for years to come - I too was confused by this comment...but the second article adds a touch of clarity:  "The Social Security trust funds have built up a $2.5 trillion surplus over the past 25 years. But the federal government has borrowed that money over the years to spend on other programs. The government must now start borrowing money from public debt markets — adding to annual budget deficits — to repay Social Security."

So, to use crappola accounting here - the government spent the SS fund money elsewhere, and if it were to repay the fund what it took from it the fund would last until 2037 or whatever that dumb number was.  I dont care really about that point - as its more bad accounting and left pocket right pocket crap - - - what is interesting to me is that by moving the benefit age out a year or two and increasing the tax by a fraction of a percent the underfunded issue would go poof.

Now, this is likely this report is based on some very optimistic gdp growth.....but, even if off by a decent amount the point remains that with subtle changes over the next few years many of our debt issues are containable.

 

 

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Re: Daily Digest - May 19
rickets wrote:

Now, this is likely this report is based on some very optimistic gdp growth.....but, even if off by a decent amount the point remains that with subtle changes over the next few years many of our debt issues are containable.

 

 

rickets, if this is indeed the case, I say let's do it now and move on.  However, I question whether or not our leaders have the political will to do something that would, potentially, alienate a huge voting block. I am hoping for the best while preparing for the worst.

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Re: Daily Digest - May 19

I just had a Boomer argue just that point with me Mark.  Perhaps this Greece failure...and likely several other European country failings will come at the perfect time to "scare" Americans into acting like adults.  I know...I know...dont hold my breath

 

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Re: Daily Digest - May 19

Re Richard Russell's Commentary: WOW!

He is not really the type to make such dramatic statements.

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Re: Daily Digest - May 19

Cramer: Europe to Collapse in 48 Hours – or Never

If we don’t see total capitulation in Europe over the next two days, Cramer said during Wednesday's Stop Trading!, investors may have to admit that the Continent is “merely” suffering a downturn. Because the repercussions from the expectations of a collapse, which have fed the negativity in the American markets and driven down stocks, can’t continue for much longer without it actually happening.

Cramer said Europe’s debt woes have sunk price-to-earnings multiples here in the States, but to such levels that could only be justified by a Lehman Brothers-type event. If we don’t get that event, then American investors are going to have to readjust to a Europe that’s merely bad, one where austerity reigns, business slows and the euro continues to decline. As of yet, though, nothing he has seen justifies that “dramatic” drop in PE ratios, which means that stocks just might snap back.

"Something bad has to happen soon," Cramer said. "Or else [the US] market’s going to go higher."

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Re: Poof, no Social Security issue
MarkM wrote:

What reserves?  There are no reserves.  As I understand it, Social Security is now paying out more than it receives.  Which means one thing, borrow more money.

Agreed. What reserves?!? These aren't bars of gold or sacks of grain sitting in a warehouse waiting to be claimed. It's a bunch of special Treasury bills owed by our Federal government to the Social Security-dependent of the future, since the government took the surplus received, ate it all, and left the dining table with greasy napkins and IOUs.

The only way we're gonna get that reserve money issued out is with more taxes or more borrowing.

And by the way, are you guys tired of going to other web sites (not this one!) to read news articles and immediately seeing those knee-jerk comments blaming liberals or Democrats or Obama or conservatives or Republicans or Bush for this or that problem?

Poet

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Re: Daily Digest - May 19

Federal Reserve sees slightly better 2010 economy

http://news.yahoo.com/s/ap/20100519/ap_on_bi_ge/us_fed_forecast

Bwaahahaha!

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Re: Daily Digest - May 19

So, to use crappola accounting here - the government spent the SS fund money elsewhere, and if it were to repay the fund what it took from it the fund would last until 2037 or whatever that dumb number was.  I dont care really about that point - as its more bad accounting and left pocket right pocket crap - - - what is interesting to me is that by moving the benefit age out a year or two and increasing the tax by a fraction of a percent the underfunded issue would go poof.

I doubt that very much. SS is in the red and Medicare is deep in the Red. Even if the retirement age was to be raised we are still in the red. Also consider that the gov't just passed even more heathcare entitlements which  kick in  2013.

The gov't has also been using the SS surplus to fund general spending. That cash cow is dead which is adding between $200 and $400 Billion to the budget deficit. Lets assume that the gov' was able to permanently balance all Entitlement programs this year. The gov't will still need to cut another $1 Trillion from its budget deficit.

Payroll taxes would also need to be increased by 5% to 9% every year just to keep up with rising healthcare costs. It won't take very long before the payroll taxes reaches 100% of income as they need to keep on rising as healthcare costs soar. The reason why healthcare costs are soaring is because of the gov't entitlements. People don't take any responsiblity in their healthcare cost,  because the gov't is paying for it. No healthcare entitlement recipient cares what tests and procedures are required as long as Uncle Sam pays the bills.

The bottom line is that there are no easy fixes. The gov't has been doing the easy fixes for the past 40 years that has gotten us in to this crisis.

 

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Re: Daily Digest - May 19

I hope the US never comes to this.....

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Re: Daily Digest - May 19

Looks like the old dashboard is starting to "light or lite" up in many difeerent ways. Just can't imagine this one being very good.

Obama Backs Seoul's Charge that North Korea Sank Ship http://www.cnbc.com/id/37244978

 U.S. President Barack Obama vowed to help South Korea defend itself against any further "acts of aggression," the White House said on Wednesday as it backed Seoul in its accusation that North Korea sank one of its navy ships.

North Korea
Stockbyte | Getty Images

"Such unacceptable behavior only deepens North Korea's isolation," the White House said in a statement. "It reinforces the resolve of its neighbors to intensify their cooperation to safeguard peace and stability in the region against all provocations."

The U.S. government echoed Seoul's assertion that an international investigation had yielded proof that a North Korean submarine fired the torpedo that hit the South Korean ship in March, killing 46 sailors.

"It points overwhelmingly to the conclusion that North Korea was responsible for this attack," the White House said.

"This act of aggression is one more instance of North Korea's unacceptable behavior and defiance of international law," it said. "This attack constitutes a challenge to international peace and security and is a violation of the
Armistice Agreement."

Obama spoke by phone to South Korean President Lee Myung-bak two days ago, the statement said, and "made clear that the United States fully supports the Republic of Korea, both in the effort to secure justice for the 46 service members killed in this attack and in its defense against further acts of aggression."

Obama's efforts to engage diplomatically with nuclear-armed North Korea in the early days of his administration last year were met with defiance, and the U.S. leader has since toughened his rhetoric against Pyongyang over its nuclear program.

Lee pledged a firm response against North Korea.

Pyongyang called the accusation a fabrication and threatened strong measures, including war, if South Korea imposed sanctions.

Seoul's bid to further isolate Pyongyang could also lead to a U.S.-backed push for harsher U.N. sanctions against North Korea that could tighten the vise on its already impoverished economy.

Beijing, a pivotal player in long-stalled six-nation talks to rein in North Korea's nuclear weapons program, is the reclusive state's only major ally and is reluctant to penalize its government for fear of causing instability on its border.

North Korea has denied it was responsible for the ship sinking, accusing the South's conservative government of using the incident for political gain and to worsen already chilly ties between the two Koreas.

U.S. Secretary of State Hillary Clinton will visit Seoul on May 26 in what analysts see as a show of solidarity with the long-time U.S. ally.

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Re: Daily Digest - May 19
rickets wrote:

Doug, all good points.  And, I agree that the current path is utterly unsustainable without some serious changes.  My point was that these articles (and many like it) came out in the last 24 hours after the research report was released - - and argue as I have that the amounts of change needed to right the ship in this case are quite small.  Further, as with medicare and many other spending concerns, many solutions are quite available and we are not out of time.  So, the currency is safe for a while.  Longer term, uncertain.

Regarding the fund lasting for years to come - I too was confused by this comment...but the second article adds a touch of clarity:  "The Social Security trust funds have built up a $2.5 trillion surplus over the past 25 years. But the federal government has borrowed that money over the years to spend on other programs. The government must now start borrowing money from public debt markets — adding to annual budget deficits — to repay Social Security."

So, to use crappola accounting here - the government spent the SS fund money elsewhere, and if it were to repay the fund what it took from it the fund would last until 2037 or whatever that dumb number was.  I dont care really about that point - as its more bad accounting and left pocket right pocket crap - - - what is interesting to me is that by moving the benefit age out a year or two and increasing the tax by a fraction of a percent the underfunded issue would go poof.

Now, this is likely this report is based on some very optimistic gdp growth.....but, even if off by a decent amount the point remains that with subtle changes over the next few years many of our debt issues are containable.

 

The 'fixes" in the first article I scanned about SS seem generally about raising revenues (taxes) or decreasing benifits.    The government has already been doing this for years; for example, imposing income tax on SS benifits.   There will never be the political will to admit we are living beyond our means and make the structural changes needed; there will just continue to be just enough political will to make band aid adjustments to keep things going a few more months or years.  I think money printing/inflation won't be the only response to the unfunded mandates; continued "defaults" by cutting benifits will happen just as much.

Tom   

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Re: What's going on with the big gold price drop?
LogansRun wrote:
nickbert wrote:

As of this moment gold is down to 1189.  Just wondering... considering the concurrent and continued sell-off in stocks, could this large of a drop signal the beginnings of a stampede towards liquid assets like in Fall 2008?

- Nick

That's what it's beginning to look like to me as well.  Oil down, Gold down, Dow/SP Down, etc......

I'm holding $50k aside right now for just this type of move.  If it goes down like 08', we could be looking at a downward move of 20% in the price of gold!  That means instead of 45oz of Au, I could buy 52oz!  Yipee!  Thank God I'm not in the "Casino/Market" any longer.

People could also go stocks -> dollar -> gold, making both gold and dollar go up... That would be very interesting if it happened. What an event that would be! A new world currency is (re)born

Samuel

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Re: Daily Digest - May 19

On the general topic of finding you don't have access to your money or some of it.

 

Recently I received a refund in rs equal to approx. 1,060 usd that was to be turned around for a different brand of

battery..So while it was in my bag it was dedicated money. It was there when the ATM machine showed my card was

blocked denying my access to American funds. That morning I'd received an e-mail from the daughter who handles

my mail while I'm in India forwarding a BoA notice all debit cards were being replaced due to third party access and

current ones would be blocked. I didn't realize the situation was immediate. I saw the irony in my having cash in my

bag. It took me several days of reviewing how I would manage large house payments still needed -- gutters, etc. when

I didn't have monthly living expenses. I remembered being told by the bank manager once I could borrow against my

time deposits. I reviewed that with him. I considered a wire transfer -- costly at 40 usd. I considered transfering funds

to a friend's account and having her withdraw for me from her account. I considered this is what Chris wants me to

pay attention to. What would I do if there were a bank holiday. After a week I decided to have the debit card and a new

credit card for one expired after I'd returned to India and so useless sent by courier. Costly but necessary. The

experience has better focused me on options when the unexpected happens with money

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Re: Daily Digest - May 19

I also wanted to comment that while I have Medicare benefits and used them for tests my last visit to America, my decision is to have all tests done in India where I go the hospitals in Pune that have walk-in clinics. Others need Medicare benefits more than I do although my SS benefit would be called the poverty level. Simplicity in living here makes my budgeting easier. House construction was the grace of my parents' inheritance for me just enough for a cost-effective home. Monthly expenses come from SS. I'm a grass-roots woman who believes all would ease up if everyone found a way/s to limit and share.

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Re: Daily Digest - May 19

 

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