Daily Digest

Daily Digest - May 20

Thursday, May 20, 2010, 9:30 AM
  • Matterhorn Asset Management Newsletter
  • Treasury Takes $1.6 Billion Loss On Chrysler Loan
  • “Fat Finger” Is Out, NYSE Rule Is In As Explanation For Market Meltdown
  • Debt Saturation Equals Diminishing Growth, Employment, and Capacity Utilization
  • Paul Krugman: No Country In Europe Is Flexible Enough To Make The Euro Work
  • Good News For California: The Senate Votes To Preserve Unlimited Bailout For States
  • Spain’s ‘Green’ Policies an Economic Disaster
  • Rupee As Global Currency: RBI Study Dwells On Pros And Cons
  • India Cbank Study Says Yuan Far From Reserve-Ready
  • Venezuela To Double Gold Production
  • Ex-Bundesbank Chief Says Greece Will Never Repay Debt, Says Bailout All About "Rescuing Banks And Rich Greeks"
  • Market Chaos Warning After German Ban On Shorting
  • Germans Turn Against The EU As Eurozone Meltdown Heaps Misery On Angela Merkel
  • Inflationary Zombieland
  • Nouriel Roubini On The European Debt Crisis
  • U.S. Debt Increased $48,000,000,000.00 Over The Weekend
  • Greek Debt Crisis - The Preview of What is to Come
  • Conspiracy of Banks Rigging States Came With Crash
  • Dow 28,000,000: The Unbelievable Expectations of California's Pension System
  • Housing: Mortgage Applications Plummet
  • Financial Experts Have Let Us Down; It's Time For Ethical Rebirth
  • Scientists Fault Lack of Studies Over Gulf Oil Spill

Economy

Matterhorn Asset Management Newsletter (joemanc, hucklejohn, tomadkins)

Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.

Treasury Takes $1.6 Billion Loss On Chrysler Loan (mhoop)



Treasury said Monday that Chrysler repaid $1.9 billion of a $4 billion loan, which was extended before the company filed for Chapter 11. The government hopes to get another $500 million from the company that emerged from bankruptcy, Chrysler Group LLC.

Treasury officials said that the government had no plans to boost its stake in the new Chrysler to cover those losses. It also acknowledged another $1.9 billion in potential losses from a separate loan that had been made to the company that went through bankruptcy proceedings. It indicated slim hopes of recouping much if anything from that separate $1.9 billion loan.

“Fat Finger” Is Out, NYSE Rule Is In As Explanation For Market Meltdown (mhoop)

One rumored culprit — the human trader with a “fat finger” who supposedly made a large, erroneous trade — seems to be fading from the suspect list. When the history books are written, they may attribute that rumor to a romantic yearning for the days when humans could move markets. Last Thursday’s 16 minutes of panic now appear to have been a computer-created phenomenon.

Debt Saturation Equals Diminishing Growth, Employment, and Capacity Utilization (mhoop)

I have been pointing out the continuous series of lower highs on that chart that gave way to a phase transition into negative territory at the debt saturation point. I’ve presented descriptions of a debt saturated environment and noted that employment and production should fall once saturation is reached and still more debt is added. This is due to the fact that new income must be used to service existing principal and interest payments. I even theorized that the recent “jobless” recoveries are part and parcel of debt saturation.

Paul Krugman: No Country In Europe Is Flexible Enough To Make The Euro Work (sammy)

In part that's psychological adjustment, and in part that represents the long-term nature of peoples' obligations; if you have a mortgage, a couple of car payments, and some student loans, it's hard to suddenly take a 10% pay cut because business is off. That's why recessions tend to be characterized by sharp spikes in unemployment; unable to spread the pain, employers have to fire workers.

Good News For California: The Senate Votes To Preserve Unlimited Bailout For States (sammy)

As part of the ongoing financial reform debate, the Senate has voted to strike down an amendment proposed by Senator Judd Gregg that would have capped bailouts to the states. According to Senatus, the vote failed 47-50, which is not really that close, considering the amendment needed 60 votes to pass.

Spain’s ‘Green’ Policies an Economic Disaster (Simen T.)

Unsurprisingly for a governmental take on a flagship program, the report takes pains to minimize the extent of the economic harm. Yet despite the soft-pedaling, the document reveals exactly why electricity rates “necessarily skyrocketed” in Spain, as did the public debt needed to underwrite the disaster. This internal assessment preceded the Zapatero administration’s recent acknowledgement that the “green economy” stunt must be abandoned, lest the experiment risk Spain becoming Greece.

Rupee As Global Currency: RBI Study Dwells On Pros And Cons (Deepak)

The study said among emerging market currencies yuan and rupee are natural contenders for an international currency status.

However, while China is "far from ready" to achieve the reserve currency status at the moment, India needs to meet "all the necessary preconditions...before (it) could proceed further".

India Cbank Study Says Yuan Far From Reserve-Ready (Deepak)

A more international role for the Indian rupee could expose it to significant volatility, while the Chinese yuan is "far from ready" to gain reserve currency status, a Reserve Bank of India study said on Tuesday. Rather, it said China's yuan was likely first to become a regional currency as trade links with its neighbours expand.

"However, India needs to take steps to increase the role of the Indian rupee in the region to catch up with the growing influence of the Chinese Renminbi," the study said.

Venezuela To Double Gold Production (Claire H.)

A Chinese delegation is in southern Venezuela with an eye towards forming joint ventures to exploit the region's vast deposits of iron, bauxite and gold.

Ex-Bundesbank Chief Says Greece Will Never Repay Debt, Says Bailout All About "Rescuing Banks And Rich Greeks" (pinecarr)

Finally someone speaks the truth. In an interview with Spiegel Magazine, former Bundesbank chief Karl Otto Pohl, says it how it is: "Without a "haircut," a partial debt waiver, [Greece] cannot and will not ever [repay its debt]. …As for the reason for the bailout, Pohl's observation will not be a surprise to our readers "It was about protecting German banks, but especially the French banks, from debt write offs.

Market Chaos Warning After German Ban On Shorting (pinecarr)

Traders are predicting chaos on the world's second-largest government bond market after the German authorities on Tuesday announced a ban on all naked short-selling in European public debt, as well as shares in the country's 10 largest financial institutions.

Germans Turn Against The EU As Eurozone Meltdown Heaps Misery On Angela Merkel (pinecarr)

German fury at paying for Greek extravagence is turning into anger against the European Union, the euro, and Angela Merkel.

Inflationary Zombieland (Humor, pinecarr)

A recent e-mail blared, "The National Inflation Association says there is reason for grave concern", to which I thought to myself, "Well, welcome to my world, chumps, because all I do is bewail the horrors of the coming inflation in prices that will follow such huge inflations in the money supply!"

Nouriel Roubini On The European Debt Crisis (Video, pinecarr)

The sovereign debt crisis “is just the tip of the iceberg.”

U.S. Debt Increased $48,000,000,000.00 Over The Weekend (TtotheA)

Must have been some party!

Greek Debt Crisis - The Preview of What is to Come (Hugh Betcha)

Martin A. Armstrong - Former chairman of Princeton Economic International Inc. and the Foundation For The Study Of Cycles.

Conspiracy of Banks Rigging States Came With Crash (Ben Johnson)

A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market.

Dow 28,000,000: The Unbelievable Expectations of California's Pension System (Hugh Betcha)

While state employees have been big winners from the bet, the state budget has been, and will continue to be, a huge loser. Far from being "fully funded" as promised, Calpers has already required $15 billion more from the state budget than projected in 1999 and $3.5 billion is budgeted for this year, a figure that is more than five times the expense projected by the state legislature in its SB 400 analysis. Pensions are crowding out important programs like higher education, parks and health care, and the state will continue to whack away at those programs because the legislature refuses Governor Schwarzenegger's request to repeal SB 400 for new employees.

Housing: Mortgage Applications Plummet (Ben Johnson)

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.

Financial Experts Have Let Us Down; It's Time For Ethical Rebirth (Truthsavvy)

Try staying fit without exercise, decent rest and nutrition. It's hardly more plausible to develop complex political systems without principled ethics, scruples and wisdom. Some things cannot be done successfully and reliably without certain components. Lacking moral vitality we can no more regulate our way to governmental success than we can "free market" ourselves to a better future. Efficient regulation requires an underlying societal fidelity to civic and business virtues. Free market capitalism will not produce optimal societal benefits unless market participants are morally sound, thoroughly informed and far-sighted. Expertise by itself cannot produce society's greatest good. Expertise is a one-legged man without widespread civic competence and admirable character qualities. Even the guardrails of constitutional checks and balances are insufficient without an ethos of justice and truth seeking.

Environment

Scientists Fault Lack of Studies Over Gulf Oil Spill (jdargis)

“It seems baffling that we don’t know how much oil is being spilled,” Sylvia Earle, a famed oceanographer, said Wednesday on Capitol Hill. “It seems baffling that we don’t know where the oil is in the water column.”

Please send article submissions to: [email protected]

11 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - May 20

"BEIJING, May 20 (Reuters) - Europe's debt crisis has laid bare the fragility of global finances and the United States, too, must tame its fiscal deficit, a senior Chinese official said on Thursday, spelling out Beijing's concerns before talks with Washington.

With China facing U.S. criticism for yoking its currency to a de facto dollar peg, Assistant Finance Minister Zhu Guangyao shifted attention to Beijing's own worries about the euro zone's woes and Washington's rising indebtedness, ahead of the two countries' Strategic and Economic Dialogue next week. "

"Bill Fleckenstein was on Bloomberg today talking about the big issues of the moment: deflation, inflation, gold, Greece, and the US dollar.

It's a great interview that shines light on some important ideas, most notably the false dichotomy between deflation and inflation."

"In an interview with CNBC-TV18, Martin Hennecke, Senior Manager, Tyche Group, said the Eurozone crisis is actually a lot worse than the Lehman crisis. He feels eventually the crisis would spread to bigger markets like the US, UK, Germany and France. "In the second phase of the crisis you have seen the governments going bankrupt that started with Southern Europe," Hennecke said."

"So the crisis hasn’t gone away yet. We think it's going to be a sovereign debt crisis of huge proportions and also followed by a currency crisis because if there is sovereign debt of government bond going to crisis the trust in the currency will also fail."

"NEW YORK -(Dow Jones)- The Sacramento City Unified School District in California could go broke if its teachers union refuses to accept contract concessions, a Sacramento County grand jury report said Wednesday.

"A continued unwillingness to modify some contractual agreements will result in district bankruptcy," according to the five-page report.

The report blames the district's problems on two key issues - a reduction in state funding for education and the district school board not recognizing the cost of health plans for retirees.

The district faces a $30.6 million budget deficit for the coming fiscal year and is attempting to negotiate a solution with the Sacramento City Teachers Association. According to a grand jury report released last week, the district has run up $560 million in unfunded health benefits liabilities for retirees. "

"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."

"May 19 (Bloomberg) -- Portugal's borrowing costs more than doubled at a sale of 500 million euros ($612 million) of bills amid concern the euro-region's financial crisis isn't abating.

The securities due February 2011 were issued at an average yield of 2.443 percent, the country's debt management agency said today on its Web site. That compares with a yield of 1.097 percent at the previous sale of the same-maturity debt in March. The auction attracted bids for 2.3 times the amount offered, compared with a bid-to-cover ratio of 3.1 in March."

"Greece’s public debt surpassed the 300-bln-euro mark in the first quarter of 2010, totaling 310.384 billion euros on March 31, 2010, up from 298.524 billion euros at the end of 2009, the General Accounting Office announced on Wednesday.

In a statement, the Accounting Office said the Greek state’s cash reserves totaled 7.519 billion euros at the end of the first quarter of 2010, sharply up from 1.1 billion euros at the end of 2009. (ANA-MPA)"

"But he said CalPERS probably can't put off the higher rates forever. "To some degree this is a pay-me-now, pay-me-later situation," he said.

As it was, the $600 million proposed rate hike was less than originally expected. Cal-PERS in December agreed to a plan to "smooth" the effects of the stock market crash, spreading them out over several years and effectively deferring much of the pain until later. "

"CENTRAL FALLS, R.I. — Declaring fiscal insolvency, city officials Wednesday persuaded a Superior Court judge to appoint a receiver to take over municipal finances, a process that could end up with new contracts imposed on the city’s unions and vendors. "

"In its petition to the court for appointment of the receiver, the city administration said it has an anticipated deficit this fiscal year of $3 million on a city budget of about $18 million and an anticipated deficit $5 million in the budget year beginning July 1. The officials said the shortfall could not be covered by austerity measures. "

"Council has acknowledged that service cuts are almost certain - and that the idea of becoming a distressed or bankrupt municipality is becoming more of a reality.

"Distress, I think, is unavoidable," council President Timothy Burke said Tuesday. Lawmakers will publicly address the borough's financial situation at Monday's council meeting, he added."

"The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 9.54 percent, decreased slightly from last quarter, but rose 230 basis points from the first quarter of last year.

The large number of homes in serious delinquency, or in the foreclosure process, suggest that the so-called “shadow inventory” of properties owned by lenders but not yet on the market has reached 4.2 to 4.3 million homes, said Jay Brinkmann, MBA’s chief economist."

  • Other news headlines:

Food price index up 16.49% y/y: Govt (India)

IRS Demand for Tax Shelter Lists Has Companies Fearing Audits

Spain's Borrowing Costs Climb Amid Euro-Region Debt Speculation

Petrobras May Delay Share Sale Should Crisis Deepen (Update1) (Brazil)

Argentina Debt Swap Draws 45% Participation on Crisis

Borrowing Costs Rise as German Ban Saps Confidence

Greece hit by new general strike

Thousands gather across state to protest education cuts (California)

Ecuador:2009 Fiscal Deficit $2.6 Billion Vs Deficit $780 Million Year Earlier

US mortgage delinquency rate disturbing as 1 in 10 defaults: Report

Jobless claims rise by largest amount in 3 months

SMART sales tax revenue falls 13 percent short after year one (California)

Greek Crisis Hurts Bulgaria the Most, Scarlatov Says

Poet's picture
Poet
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Re: Daily Digest - May 20

After disgesting so many weeks (and months) of bad news and looming problems... I don't think the government or the Fed has anything else left that would work. All the big guns have been fired - for what may be correct reasons - but with poor timing at woefully incorrect targets. More spending based on debt or quantitative easing - without a significant rise in interest rates - will lead to a flight away from the dollar and raise the cost of government borrowing anyway. Less debt-based spending and an end to quantitative easing and "Maiden Lanes" may be the right thing to do, but the will is not there.

Flooding money to banks hasn't increased lending to business - just given them money to buy Treasury bills with. Besides, businesses desperate for money aren't good credit risks because they're just trying to use the money to stay afloat, while most businesses that would be good credit risks just aren't interested in borrowing for expansion because they don't see a real recovery other than the temporary false blooms that government and Fed subsidies (mortgages, home prices, stimulus cash, easy money for big banks, continuing unemployment checks, welfare, food stamps) have provided as food for the cut flowers of the economy for which there are no roots, there is no soil.

I think government and Fed actions are either going to remain weak, or else escalate beyond the ridiculous to ludicrous (more likely the latter for the Fed, as there is no oversight).

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - May 20

chart_problem_banks.top.gif

"NEW YORK (CNNMoney.com) -- The government's list of troubled banks climbed to its highest level since 1992 in the first quarter, although the pace of growth moderated, according to a government report published Thursday.

The numbers, published as part of a broader survey on the nation's banking system by the Federal Deposit Insurance Corporation, revealed that the number of banks at risk of failing climbed to 775 during the first quarter."

 

"Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. By 2030, as many as 31 states may not have the money to pay pensions. And, if these funds exhaust their assets, the size of payments for the benefits they have promised will be too large to cover through taxes, putting pressure on the federal government for a bail-out that could potentially cost more than $1,000bn, he says.

"It is more than a local problem," Mr Rauh said. "The federal government could be on the hook."

Estimates put the unfunded liabilities at between $1,000bn and $3,000bn after years of states promising benefits but not contributing enough in both good times and bad to cover them."

 

Soaring inflation hits final salary pensions (UK)

Willie Brown interview (California),,,,takes a lot of the blame for California's pension problems

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brjohnson789
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Re: Daily Digest - May 20

mhoop thanks for the article link on debt saturation.  I think some of those charts spell out pretty clearly what is in store for us in the future, assuming the powers the be will try to prevent deflation from happening.

idoctor's picture
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Re: Daily Digest - May 20

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idoctor
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Re: Daily Digest - May 20

pinecarr's picture
pinecarr
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Re: Daily Digest - May 20

Interesting clip of Rick Santelli on CNBC, idoctor!  He "gets" that things aren't right!

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LogansRun
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Re: Daily Digest - May 20

The last 2 minutes of Schiff's video is absolutely horrifying!  People need to wake up and see what this gov't is doing to it's citizens!  If anyone here believes that we're not heading toward a fascist environment, you have another thing coming!  Gosh, I wish people would wake up!  

LogansRun's picture
LogansRun
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Re: Daily Digest - May 20

Sorry, I just noticed that last post was #666 on my counter.....had to get rid of that quickly.

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Re: Daily Digest - May 20
LogansRun wrote:

Sorry, I just noticed that last post was #666 on my counter.....had to get rid of that quickly.

Now we know where the S&P will finish today. Sealed

alcatwize's picture
alcatwize
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Re: Daily Digest - May 20

That's pretty much everything in a nutshell.  Good summary :)

 

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