Daily Digest

Daily Digest - May 25

Tuesday, May 25, 2010, 10:45 AM
  • Monday Monetary Meltdown – Sill the EwRo!
  • No Redemption: Ilene Interviews Sam Antar
  • Legendary Investor Is More Worried Than Ever
  • Sit-Down with Eric Sprott

Economy

Monday Monetary Meltdown – Sill the EwRo! (Ilene)

The Dow was just above 12,000 at the time but, to an old fundamentalist like me, it seemed a little pricey and my dire warning at the end of the article sounds more like a recap of the last 3 years now when I said:

If we manage to topple the entire house of cards that is commodity pricing, perhaps we won’t need sub-prime mortgages to buy ourselves affordable housing at realistic interest rates.

No Redemption: Ilene Interviews Sam Antar (Ilene)

Before our interview began, Sam shared the basic tactics that white collar criminals use to exploit and scam their victims:

1. White collar criminals consider your humanity, ethics, and good intentions as a weakness to be exploited in the execution of their crimes.

2. White collar criminals measure their effectiveness by the comfort level of their victims.

3. White collar criminals build a wall of false integrity around them to gain the trust of their victims.

Legendary Investor Is More Worried Than Ever (Ben Johnson)

Some members of the audience gasped audibly when Mr. Klarman said, "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."

Sit-Down with Eric Sprott (Video, joemanc)

He's one of Canada's best-known gold bulls. And with gold charging ahead, Eric Sprott, chairman and CEO, Sprott Asset Management, tells BNN what he thinks about the economy, government debt in Europe, and where investors should put their money.

Please send article submissions to: [email protected]

16 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4145
Re: Daily Digest - May 25

"May 24 (Bloomberg) -- A larger-than-projected increase in April sales of previously owned homes was accompanied by an even bigger jump in inventories, raising the risk U.S. property values will backslide.

Purchases climbed 7.6 percent to a 5.77 million annual rate as buyers rushed to qualify for an expiring government tax credit, the National Association of Realtors said today in Washington. "

"May 24 (Bloomberg) -- The Federal Reserve will probably transfer record earnings exceeding $70 billion to the U.S. Treasury Department this year on income from assets including mortgage-backed securities, according to the Congressional Budget Office. "

"May 24 (Bloomberg) -- Loans guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.

FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.” "

"The FHA and Fannie Mae and Freddie Mac, which regulators seized in 2008, have been financing more than 90 percent of U.S. home lending after a retreat by banks and the collapse of the market for mortgage bonds without government-backed guarantees."

"In all, the US government, through Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the FHA, underpins about 95% of the mortgage market. "This is a market purely on life support, sustained by the federal government," noted FHA's head, David Stevens, at the Mortgage Bankers Association conference yesterday. His agency is tightening lending -- which could take more buyers out of the market."

"May 25 (Bloomberg) -- Japan’s economic expansion may be past its peak as Europe’s sovereign-debt crisis threatens exports to the region, Morgan Stanley MUFG Securities Co. said.

“Economic activity has now passed the sweet spot, and we may well see renewed stagnation,” Morgan Stanley economists Takehiro Sato and Takeshi Yamaguchi wrote in a report today. It’s “dangerous to dismiss the impact of Europe on Japan’s trade.”"

"Investors continue to punish risky corporate debt amid sovereign-debt concerns and market volatility, with speculative-grade U.S. companies finding it harder to sell bonds.

One such company, Allegiant Travel Co., withdrew a planned $250 million bond sale Monday, citing adverse market conditions. It was the seventh high-yield deal to have been withdrawn or delayed since April 29, according to KDP Investment Advisers.

Other deals pulled or postponed in that time include offerings from Essar Steel Holdings, Penske Automotive Group Inc. and Regal Cinemas Inc. After an average of $8.7 billion of new high-yield bonds per week in March and April, last week brought just seven deals totaling $2.2 billion, according to J.P. Morgan. That is the lightest weekly volume since mid-February."

"The European Central Bank has stepped up its efforts to shore up eurozone debt markets by buying another €10bn of government bonds in the past week, but bankers believe the programme will have to be intensified amid market fragility.

The purchases, announ-ced yesterday, bring the ECB's bond-buying to about €26.5bn ($33bn, £23bn) since it began the programme two weeks ago, in support of a €750bn "shock and awe" rescue package adopted by eurozone governments and the International Monetary Fund to try to arrest a gathering sovereign debt crisis."

"May 25 (Bloomberg) -- The euro dropped to the lowest level against the yen since November 2001 and fell against the dollar on concern that weakness in the Spanish banking system will act as a drag on global economic growth."

..................7A) Spanish Banks to Merge With $167 Billion in Assets

..................7B) Spain's Borrowing Costs Climb in Auction of 3-, 6-Month Bills

...................7C) More Spanish bank bailouts loom

"May 25 (Bloomberg) -- The German Finance Ministry proposes to ban the so-called naked short selling of all shares of German companies listed on German exchanges, as well as naked short sales of euro region bonds admitted for trading on German exchanges.

The proposed law would also ban naked sales of some credit default swaps on euro region bonds. The discussion paper also aims to ban certain euro currency derivatives."

"May 25 (Bloomberg) -- Defaults on European commercial mortgages will increase as banks restrict lending to prime properties, according to Moody's Investors Service analysts.

Of 18 commercial real-estate loans due in the first quarter, seven defaulted and only one was refinanced, the New York-based rating company said in a report on the commercial mortgage-backed securities that it covers.

"We do not expect CRE loan performance to improve" in the coming quarters, analyst Manuel Rollmann wrote. "We still expect that many CMBS loans will default during their term, or at maturity.""

"NEW YORK, May 24 (Reuters) - The default rate for commercial mortgages held by banks in the first quarter hit its highest level since at least 1992 and is expected to surpass that by year-end and peak in 2011, according to a study by Real Capital Analytics.

That could spell prolonged problems for larger banks and even greater trouble for regional and small banks where commercial real estate loans comprise a greater percentage of all loans.

The default rate for bank-held commercial mortgages reached 4.17 percent in the first quarter, up from 3.83 percent in the fourth quarter 2009, according to a report released on Monday by the real estate research firm."

"NEW YORK (AP) -- Home prices fell in March from the previous month, signaling that temporary tax credits for buyers weren't enough to buoy the housing market.The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted a 0.5 percent drop from February.Prices in 13 of the 20 cities tracked by the index fell month over month. Only six metro areas recorded price gains. One, Boston, came in flat.The figures point to a weakening housing market despite historically low mortgage rates and now-expired tax credits. Nationally, prices have climbed nearly 3 percent from their April 2009 bottom. But they remain nearly 31 percent below their July 2006 peak."

"The Obama administration made a strong plea to Congress on Monday to grit its teeth and pass a new set of spending measures – dubbed the “second stimulus” by some economists – in order to help dig the economy “out of a deep valley”.

The call for action, which was made by Lawrence Summers, Barack Obama’s senior economic adviser, who urged Congress to pass up to $200bn (£138.9bn) in spending measures, came at the same time as Mr Obama asked Capitol Hill to grant him powers to cut “unnecessary spending”. "

"WASHINGTON (AP) - Responding to the massive BP oil spill, Congress is getting ready to quadruple—to 32 cents a barrel—a tax on oil used to help finance cleanups. The increase would raise nearly $11 billion over the next decade. "

"May 25 (Bloomberg) -- U.S. Minerals Management Service employees, some of whom were assigned to inspect offshore drilling platforms in the Gulf of Mexico, accepted gifts from oil and gas companies and used government computers to view pornography, the Interior Department said. "

"May 25 (Bloomberg) -- The rate banks say they pay for three-month loans in dollars climbed for an 11th day as concern mounted that Europe’s debt crisis will prompt financial institutions to question one another’s creditworthiness. "

  • Other news stories, headlines and opinions:

S&P 500 Index May Tumble as Much as 15%, Faber Says: Tom Keene

Korean Won, Stocks Slump on Report North Readying for Combat and Korea Won Falls 4.1% as Yonhap Reports Kim Readying for Battle and Bank of Korea Defends Won With $2 Billion Intervention

Gov't borrowings jump 16% to P37-B in April (Philippines)

Pakistan's public debt jumped $12 bn in 2009-10

Global Infrastructure Deficit Pegged at $2Trillion Per Annum

EU faces €2trillion debt time bomb

Pew Report: Permanent Extensions of Tax Cuts Would Sharply Increase National Debt

Obama Renews Push for $30 Billion Small Business Plan

Fitch: $5B Securitized Commercial Property Loan Seen Defaulting

Hungary T-Bill Undersubscribed In "One-Off"-Deputy Debt Chief

Nigeria May Cut Euro Holdings in Reserves as Currency Slumps

Bond Trading Costs Soar as Abbott Sells Debt: Credit Markets

Pink slips coming next week for up to 600 city workers (Baltimore)

European Sovereign CDS Widen

Los Angeles looks at big hike in ambulance fees

Caltrain mulls brake on service

New numbers show Sacramento County Sheriff's Department hit hard by budget cuts

Ahmadinejad Faces Rare Public Protest During Speech In Southern Iran ("We are unemployed!")

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real (Has links to the news stories that he refers to)

 

"Looks Like Magic" - Ron Paul on the Fed's Money Machine (Video...Ron Paul and Ben Bernanke....$1.3 trillion)

lpowell23's picture
lpowell23
Status: Bronze Member (Offline)
Joined: Oct 18 2008
Posts: 27
Re: Daily Digest - May 25

Warning: Crash dead ahead. Sell. Get liquid. Now.

Commentary: 'Game's in the refrigerator.' Power's turning off. Dow sinking below 6,470

"This game's in the refrigerator! The door's closed, the lights are out, the eggs are cooling, the butter's getting hard and the Jell-O is jiggling ..."

That was legendary Lakers' radio announcer Chick Hearn's signature way of calling a game early, telling fans the home team won ... you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like "slam dunk," "air ball," "charity stripe," and a "bunny hop in the pea patch" for a traveling violation.

 

Chick's our inspiration today: Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls.

 

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
Joined: Aug 5 2008
Posts: 1234
Re: Daily Digest - May 25

Does anyone understand why the MSM keep talking about "naked short selling of stocks" being banned?

I think they mean naked CDS and all short selling of stocks are being banned, and the MSM retards doing the reporting just don't understand what naked short selling of stocks actually means. But they keep doing it and nobody seems to be crying foul. Am I missing something? Am I correct in assuming the ban applies to all short selling of German stocks?

Thanks,

Erik

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Daily Digest - May 25

The housing market is on a “precipice” and it’s unclear which way it’ll tip, Whitney Tilson of T2 Partners said on Monday’s Fast Money.

Best known for predicting the mortgage meltdown, the widely followed money manager said low mortgage rates are the main thing supporting the housing market right now.

And with mortgage rates at historic lows, we thought it was a good time to get his outlook on the broad housing sector.

So what moves is he making?

Like he told us in May of 2009, Tilson is still playing the homebuilders short; he thinks they are in trouble. Although home sales and affordability are good, he's more concerned that 8 million people aren’t paying their mortgages.

If those homeowners are forced into foreclosure it will created a glut of inventory in the real estate market. "A wave of foreclusure would drop housing prices and that's a bad scenario for homebuilders," he says.

For more on Tilson’s take on the housing market, watch the video here.

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1891
Re: Daily Digest - May 25

Anyone have any idea how long low interest rates, shadow housing inventory, mark assets to model, continued money printing, continued bail-outs, perhaps even that fabled "Plunge Protection Team", etc. can continue? Will we just see continued back-door bailouts of states budgets, big banks and the mortgage housing market?

As "inevitable" as collapse seems, I keep remembering the saying that the Fed and the government are very powerful players, and while the "House" (the inevitable collapse) may eventually win, betting on the "House" over the short term can quickly be a losing proposition.

 

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
Re: Daily Digest - May 25 - North Kore severs ties

This ain't good.

http://www.reuters.com/article/idUSTRE64O3YU20100525

This kind of action always seems to come just ahead of armed conflict. Thsi may be one of this Black Swan events that kicks the market over the edge.

 

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
Re: Daily Digest - May 25 - North Korea severs ties

This ain't good.

http://www.reuters.com/article/idUSTRE64O3YU20100525

This kind of action always seems to come just ahead of armed conflict. This may be one of those Black Swan events that kicks the market over the edge.

(sorry 'bout the multiple post...)

 

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2244
Re: Daily Digest - May 25

Great article, lpowell23. The historic reference is the part I like the best.  Getting that kind of historical perspective was one of the things that originally helped convince me we were in seriously deep  doo-doo.  Here it is for others (bold italics mine):

"...in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"

Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.

Warning: 800 years of history are calling 'game over'

 

 

crash_watcher's picture
crash_watcher
Status: Silver Member (Offline)
Joined: Aug 12 2008
Posts: 146
Re: Daily Digest - May 25

Eric, you asked:

 "Am I missing something? Am I correct in assuming the ban applies to all short selling of German stocks?"

 No, I don't believe that the decrees by the "Bundesanstalt für Finanzdienstleistungsaufsicht" (BaFin) or " Federal Financial  Supervisory Authority" applies to all short selling of German Stock.

 Here are the translations of the three decrees at BaFin's website itself: http://www.bafin.de/cln_161/nn_720788/SharedDocs/Mitteilungen/EN/2010/pm__100518__cds__leerverkauf__allgemeinverfuegungen__en.html

 For instance, the second decree specifically prohibits naked short-selling transactions in debt securities.  Section 1 of this decree states:

 Naked Short Selling in debt securities as defined by section 2 (1) sentence 1 no. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) which are admitted to trading on a regulated market of a Stock Exchange  in Germany and were issued by a Member  State of the European Union whose legal currency is the euro are prohibited.

An naked short sale exists if at the time of the conclusion of the respective transaction the seller of the debt securities

 a) is not the owner of the same,

 b) does not have any absolutely enforceable claim under the law of obligations or under property law to be transferred title in a corresponding number of securities of the same class.

And, the third decree specifically prohibits naked short selling of several namedcompanies from the financial sector.

Also, a recent article by Mitzlaff and Schwarze of Morgan Lewis, based in Frankfurt, said (http://www.morganlewis.com/pubs/IMLF_BaFinBansShortSelling_19may10.pdf):

 The BaFin defines naked short selling as the sale of securities whereby the seller of the securities is not the owner of the same and does not have any absolutely enforceable claim to be transferred title in a corresponding number of securities of the same class. The BaFin decrees ban naked short selling in debt securities issued by Member States of the EU that are denominated in Euro and that are admitted to trading on the regulated market of a German exchange. The decrees also ban naked short selling of shares of 10 German companies (Areal Bank AG, Allianz SE, Generali Deutschland Holding AG,

Commerzbank AG, Deutsche Bank AG, Deutsche Börse, Deutsche Postbank AG, MLP AG and Münchner Rückversicherungs-Gesellschaft AG). Transactions at a fixed or definable price in these securities, as well as short sales used to hedge already existing positions, are exempted  from the naked short selling prohibitions. The BaFin may permit further exemptions on a case-by-case basis upon receipt of a written application.

This is not the first BaFin ban on naked short selling. In September 2008, the BaFin banned naked short selling of shares of 11 German financial institutions and insurance companies. The ban was extended twice and ended in March 2009.

 

I do find it odd that the German Securities Trading Act would not just have an outright ban on any type of naked short selling, but, based on the above, this appears not to be the case.  

jamesdvetter's picture
jamesdvetter
Status: Bronze Member (Offline)
Joined: Feb 23 2009
Posts: 51
Re: Daily Digest - May 25

http://www.newsweek.com/id/238366

It is truly incredulous how the MSM continues to pander this non-sense.  I wonder if they truly believe this stuff or they're just complicit with the powers that be? Does anyone really believe a bailout of Greece will work?

Taint Boil's picture
Taint Boil
Status: Member (Offline)
Joined: May 24 2008
Posts: 8
Re: Daily Digest - May 25
Thanks  saxplayer00o1
Always good work ................

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
Joined: Aug 5 2008
Posts: 1234
Re: Daily Digest - May 25

Sounds like my assumption was correct.

crash_watcher wrote:

 The BaFin defines naked short selling as the sale of securities whereby the seller of the securities is not the owner of the same and does not have any absolutely enforceable claim to be transferred title in a corresponding number of securities of the same class.

What they are describing is short selling. Naked short selling of stocks has a completely different meaning which the regulators are apparently too ignorant to comprehend. I want to say "It absolutely amazes me that the MSM have blindly reported this ban on naked short selling without picking up on the obvious terminology discrepancy", but sadly it doesn't amaze me at all. Typical...

Erik

 

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Daily Digest - May 25

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: Daily Digest - May 25

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2244
Re: Daily Digest - May 25

Great Celente clip, idoctor; thanks for bringing it to our attention!

-pinecarr

crash_watcher's picture
crash_watcher
Status: Silver Member (Offline)
Joined: Aug 12 2008
Posts: 146
Re: Daily Digest - May 25

Actually, the wording in the BaFin decrees don’t look much different to me as compared to what the SEC ordered after the Bear Sterns collapse in July 2008, except for the duration of the order:

 False rumors can lead to a loss of confidence in our markets. Such loss of confidence can lead to panic selling, which may be further exacerbated by “naked” short selling. As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process. If significant financial institutions are involved, this chain of events can threaten disruption of our markets.

....

 In these unusual and extraordinary circumstances, we have concluded that requiring all persons to borrow or arrange to borrow the securities identified in Appendix A prior to effecting an order for a short sale of those securities is in the public interest and for the protection of investors to maintain fair and orderly securities markets, and to prevent substantial disruption in the securities markets. This emergency requirement will eliminate any possibility that naked short selling may contribute to the disruption of markets in these securities. We described in the releases in which we proposed and adopted Regulation SHO the bases for the current requirements Regulation SHO imposes. We believe, however, that the unusual circumstances we now confront require the temporarily enhanced requirements we are imposing today.

 IT IS ORDERED that, pursuant to our Section 12(k)(2) powers, in connection with transactions in the publicly traded securities of substantial financial firms, which entities are identified in Appendix A, no person may effect a short sale2 in these securities using the means or instrumentalities of interstate commerce unless such person or its agent has borrowed or arranged to borrow the security or otherwise has the security available to borrow in its inventory prior to effecting such short sale and delivers the security on settlement date.3

 ...this Order shall take effect at 12:01 a.m. EDT on Monday, July 21, 2008. This Order shall terminate at 11:59 p.m. EDT on Tuesday, July 29, 2008 unless further extended by the Commission.

  See  http://www.sec.gov/rules/other/2008/34-58166.pdf

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments