Daily Digest

Daily Digest - May 27

Thursday, May 27, 2010, 9:46 AM
  • 2.5% Tuesday – The Coordinated Global Drop?
  • Private Pay Shrinks To Historic Lows As Government Payouts Rise
  • The G20 Moves The World A Step Closer To A Global Currency
  • Double-Dip Fears Over Worldwide Credit Stress
  • The Greek Bailout's Two Secret Exit Clauses: Why Europe Is Now Cheering For Its Own Demise
  • Is China Preparing To Divest Its $630 Billion In Eurozone Bond Holdings?
  • The High Price Of Wall-Street's 'Puffed-Up' Money Machine
  • Band of America, Citigroup Incorrectly Hid Billions in Repo Debt: Report


2.5% Tuesday – The Coordinated Global Drop? (Ilene)

Despite the dips, we don’t panic and liquidate our portfolios on one-day drops. As I mentioned in theWeekend Wrap-Up, we have plays like our SDS spread that pays 7:1 if the market stays below 1,085 and, in yesterday morning’s Alert to Members, we added 4 May and June hedges (DIA, QID, TZA, SDS)which triggered as we lost the Nasdaq in the afternoon. Mega kudos to the great Andrew Wilkinson, who gave us a heads up on today’s action by catching this move in his column...

Private Pay Shrinks To Historic Lows As Government Payouts Rise (Ben Johnson)

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.

At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.

The G20 Moves The World A Step Closer To A Global Currency (tomadkins)

It has been a good summit for the IMF. Its fighting fund for crises is to be tripled overnight to $750bn. This is real money.

Dominique Strauss-Kahn, the managing director, said in February that the world was "already in Depression" and risked a slide into social disorder and military conflict unless political leaders resorted to massive stimulus.

Double-Dip Fears Over Worldwide Credit Stress (pinecarr)

The global credit system is flashing the most serious warning signals in almost a year on triple fears of a Spanish banking crisis, escalating political risk in Asia, and a second leg to the US housing slump.

The Greek Bailout's Two Secret Exit Clauses: Why Europe Is Now Cheering For Its Own Demise (pinecarr)

When all of Europe rushed into its rescue package two weeks ago (first half a trillion, market red, then a full trillion, market green), the one thing that struck us as odd was the conflicting data on the conditionality of the package, with various sources both confirming and denying that the "package" was revocable. It did seem somewhat shortsighted of the Germans, whose political leadership would soon be on the verge of a series of electoral routs, to tie its fate without even one exit hatch, to a country that is a financial toxic spiral. Sure enough, the Telegraph's Evans-Pritchard has uncovered what may be the two loopholes in the European bailout agreement.

Is China Preparing To Divest Its $630 Billion In Eurozone Bond Holdings? (pinecarr)

Is China about to start dumping its $630 billion in eurozone debt holdings? Maybe not yet, although the FT reports that China's State Administration of Foreign Exchange, the central bank's foreign reserves manager, has "expressed concern about its exposure" to the PIIGS…The question then arises of just what assets China would be comfortable holding? Alas, the only readily available answer we can come up with rhymes it old and has 79 protons.

The High Price Of Wall-Street's 'Puffed-Up' Money Machine (Truthsavvy)

The market's recent plunge to new closing lows complicates the recovery picture for many market bulls, including people who believe the regulatory reforms underway will eventually cure whatever ails us. Recent market action -- including the May 6 'Flash-Crash' -- should be unsettling to individuals who think free market mechanisms are all we need.

The market's repeated lurches to the downside suggest a growing suspicion that neither free market mechanisms or regulatory reform will solve our gargantuan financial problems. While we need regulatory reform as well as legitimate financial freedoms, our greatest need is for a new financial architecture that disfranchises the illegitimate growth of money in financial markets -- "puffed up money" that dilutes the value of honest wages earned by workers engaged in productive enterprises.

Band of America, Citigroup Incorrectly Hid Billions in Repo Debt: Report (Ben Johnson)

Both BofA and Citigroup disclosed in filings with the Securities and Exchange Commission that they have over the last three years accidentally classified some repos as sales when they should have been classified as borrowings, the newspaper reported. The amounts involved were small for the banks, though they totaled billions.

Please send article submissions to: [email protected]


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Re: Daily Digest - May 27

"May 27 (Bloomberg) -- The percentage of corporate bonds considered in distress surged this week to the highest since 2009 as investors dumped debt of the neediest borrowers on concern Europe’s fiscal crisis may make it harder for them to refinance.

Some 17 percent of junk bonds yield at least 10 percentage points more than Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. "

"The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history."

"The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression."

"May 27 (Bloomberg) -- Spanish lenders need to refinance 125 billion euros ($153 billion) of bonds by the end of next year, putting the nation’s savings banks in a “very weak and risky position,” according to analysts at Deutsche Bank AG."

"May 27 (Bloomberg) -- From Athens to Olympia, Washington, governments made poorer by the recession are looking to higher taxes on the rich for cash.

Spain’s wealthiest should be tapped to help close the euro region’s third-largest budget deficit, Prime Minister Jose Luis Rodriguez Zapatero said yesterday. The U.K. has boosted taxes on high earners and French and Swedish politicians are calling for the same. The top U.S. tax rate is set to rise in 2011, while at least 14 states have lifted rates or are considering increases.

“There’s a real move to get at whatever revenue you can get at without being so broad as to get the populace all up in arms,” said Scott Pattison, executive director of the National Association of State Budget Officers in Washington. “You go where the money is.”"

.....................4A) NY Assembly Looks at Millionaire's Tax

"One commissioner says bankruptcy might be the Magic City's only hope."

"Senior congressional Democrats and the Obama administration scrambled Wednesday to line up support for $23 billion in federal aid to avert an estimated 100,000 or more school layoffs in a brutal year for education budgets coast to coast. "

....................6A) US House Democrats Push For $23 Billion To Avert Teacher Layoffs

"Education Secretary Arne Duncan said the Obama administration fully supports the additional funds and urged Congress to include it in legislation to pay for the war in Afghanistan through the remaining four months of the current fiscal year.

Somewhat unusually, the administration hasn't formally requested additional public funds to prevent the layoffs, nor did it mention the need in its statement of support for the legislation issued earlier this week.

Duncan conceded the actual number of teacher-jobs that could disappear in the fall is difficult to pin down, saying it could range from 100,000-300,000."

"Sacramento County's budget deficit has climbed to a projected $181 million for the next fiscal year, and county leaders in coming weeks are expected to consider slashing another 1,000 jobs to help close the gap, interim county executive Steve Szalay said Wednesday."

"The state's teacher pension fund is about to reduce its official forecast of investment returns by half a percentage point, a move that could cost state and local taxpayers hundreds of millions of dollars.

CalSTRS' staff, which has been wrestling with the issue for months, said Wednesday that the forecast of annual returns should be cut to 7.5 percent. The board of the California State Teachers' Retirement System will vote on the recommendation next week.

The reduction in CalSTRS' investment forecast will be crucial in determining how much taxpayers will have to spend to support the $139 billion teachers pension fund. It could heighten the political debate about the affordability of public pensions at a time when Gov. Arnold Schwarzenegger is pushing a plan to reduce benefits for new workers.

Already severely underfunded because of the 2008-09 market crash, CalSTRS has been preparing to ask the Legislature to increase the contributions from the state and local school districts.

A reduced forecast would translate into a 20 percent increase in contributions to CalSTRS, which gets more than $6 billion a year from the state, school districts and its members. But details of the request to the Legislature aren't yet known."

"Stockton City Council Wednesday evening adopted a resolution declaring a fiscal emergency for the Central Valley seaport city.

Historic and ongoing financial conditions laid bare by the current economic crisis, including declining revenues, escalating costs and unavailability of fund sources prompted the action, city officials say.

The resolution passed unanimously and will provide the authority to address urgent fiscal issues.

“We’re declaring this emergency in order to protect our city and benefit our citizens,” says Mayor Ann Johnston. “We are taking this action to facilitate the immediate steps necessary to remain solvent.”"

........................9A) Stockton declares fiscal emergency amid $23 million budget shortfall

"WASHINGTON – Debt experts warned a bipartisan White House panel Wednesday that federal borrowing could slow or stall recovery from the recession.

Several members of the Fiscal Responsibility Commission then said they should find ways to cut the debt rather than stabilize it.

University of Maryland economic historian Carmen Reinhart said that, over the last two centuries, countries have seen debt drag down growth once it reaches 90 percent of national income. Federal debt owed to public creditors and government trust funds is close to that mark at nearly $13 trillion, while GDP is about $14.6 trillion.

She also told the panel that private debt owed by consumers and businesses has reached the highest levels since records began in 1914. "

"As Park tells Aaron in the accompanying segment, not only is this debt crisis looming, we're entering phase two of the problem with governments trying to bail out governments: "From the sublime to the ridiculous," she quips. "

"The "Reckoning"

But as public outcry over our state of bailout nation percolates, Park is concerned about growing civil tensions in North America, not Greece. "Now we're into the phase of reckoning, where it's like 'actually we need cash'," she says, fearing there's "not enough zeros" to pay back all the I.O.U.s circulating around the globe."

"May 27 (Bloomberg) -- Dan Fuss, whose Loomis Sayles Bond Fund beat 95 percent of competitors the past year, said he sold all of his Treasury holdings because of prospects interest rates will rise as the U.S. borrows unprecedented amounts.

“The fundamentals are awful,” Fuss said in a telephone interview yesterday from Boston. “The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury. Do you really want to buy the debt of the biggest issuer?”

Fuss said he doesn’t own Treasuries in any of the investments he is directly involved with after selling the last of them this week. "

"In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. "

"SAN RAFAEL is planning to borrow money to cope with the growing cost of employee pensions.

Public employee pension costs are spiking, causing budget headaches for most public agencies at the worst possible time. Pension fund investment losses, increased salaries, improved benefits, more workers approaching retirement age and retirees living longer are driving costs steadily higher.

In San Rafael, the cost is nearing 20 percent of the city's general fund budget.

Issuing a $4.4 million bond will allow the city to spread the sharp increase in its 2010-11 pension costs over a 15-year period.

The county and Novato have used the same strategy to help them get over spikes in their pension costs.

The San Rafael City Council approved issuing the bonds at its May 17 meeting. The bonds could be sold by the end of June. "We are just restructuring how we pay the normal cost," City Manager Ken Nordhoff said. "It gives us a little relief over the next couple of years."

By spreading the cost, the city can avoid budget cuts that it would have to make to pay its pension tab - a contractual obligation that comes right off the top of the budget."

"The state won't be able to meet its June 1 commitments to school districts.

Guess how long it is before the state of New York runs out of cash? Less than a week, according to the state's comptroller.

On June 1, New York is due to send $3.8 billion in aid to local school districts, including $2.1 billion that was supposed to be paid in March but not sent for lack of funds. Yet New York is still $1 billion short. This could affect school operations, the solvency of any business that sells goods or services to the state, the paychecks of state workers, and ultimately home values."

"May 27 (Bloomberg) -- Mortgage lenders are seeking relief from Fannie Mae and Freddie Mac as the government-supported companies force them to buy back more soured debt, said John Courson, president of the industry’s largest trade group.

While his members “certainly understand” their contracts require repurchases of defaulted loans when items such as faulty appraisals, inflated borrower incomes or missing documentation are discovered, the Mortgage Bankers Association has started to “aggressively” push the two companies and their regulator to ease up, he said.

Fannie Mae and Freddie Mac, propped up by unlimited taxpayer capital, should acknowledge lenders are unfairly absorbing too many losses, with unemployment that reached a 27- year high among the causes of defaults unrelated to loan quality, Courson said yesterday in an interview at Bloomberg News headquarters in New York. "


  • Other news and  headlines:

China denies report it is reviewing eurozone debt  and China Says Reports on Euro Holdings Review Groundless

Eric Sprott Says S&P 500 Index Slump Just Starting

U.S. Dollar Drop Is Bigger Risk Than Default, HSBC's King Says

Spanish banks strain to borrow abroad: report

Debt worries prompt House to trim jobless-benefits bill

Citing Gulf spill, administration to suspend exploratory Arctic drilling

Trenton's debt gets downgraded by Moody's on revenue loss

Property Trax: Commercial real estate sees rising vacancy rates

40000 Romanians Expected to Strike on Monday

French unions protest retirement age reform ("many tens of thousands" protest)

Ban on chicken suits at polling places still stands (Nevada)

Bank Tries To Foreclose On Owned Home ("Tuolumne Woman Owns Home Outright")

Fitch: $5 Billion Securitized Commercial Property Loan Seen Defaulting


Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks (Federal Reserve Chart)

pinecarr's picture
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Re: Daily Digest - May 27

Hat-tip to Zerohedge.com for bringing the most recent Matt Taibbi article to our attention, at: http://www.zerohedge.com/article/matt-taibbis-latest-wall-streets-war-and-some-new-perspectives-feds-goblin-chief .  The title is "Matt Taibbi's Latest: Wall Street's War, And Some New Perspectives on the Fed's Goblin-In-Chief".  Here's a clip (The "*"s are mine, to replace expletives:):

As it neared the finish line, the Restoring American Financial Stability Act was almost unprecedentedly broad in scope, in some ways surpassing even the health care bill in size and societal impact. It would rein in $600 trillion in derivatives, create a giant new federal agency to protect financial consumers, open up the books of the Federal Reserve for the first time in history and perhaps even break up the so-called "Too Big to Fail" giants on Wall Street. The recent history of the U.S. Congress suggests that it was almost a given that they would **** up this one real shot at slaying the dragon of corruption that has been slowly devouring not just our economy but our whole way of life over the past 20 years. Yet with just weeks left in the nearly year-long process at hammering out this huge new law, the bad guys were still on the run. Even the senators themselves seemed surprised at what ***holes they weren't being. This new baby of theirs, finance reform, was going to be that one rare kid who made it out of the filth and the crime of the hood for everybody to be proud of.

Then reality set in.


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Re: Daily Digest - May 27

For all of us interested in a wider perspective of what is happening....


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Re: Daily Digest - May 27

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Re: Daily Digest - May 27


US money supply plunges at 1930s pace as Obama eyes fresh stimulus

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

By Ambrose Evans-Pritchard
26 May 2010
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. 
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.

The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.


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Re: Daily Digest - May 27

Reality is what it is.....

BP Resumes Work to Plug Oil Leak After Facing Setback http://www.cnbc.com/id/37390832


[BP  45.38    2.97  (+7%)    ]

on Thursday night restarted its most ambitious effort yet to plug the oil leak in the Gulf of Mexico, trying to revive hopes that it might cap the well with a “top kill” technique that involved pumping heavy drilling liquids to counteract the pressure of the gushing oil.

Source: globalwarming.house.gov/spillcam
Video still of oil spill in the Gulf of Mexico.

BP officials, who along with government officials created the impression early in the day that the strategy was working, disclosed later that they had stopped pumping the night before when engineers saw that too much of the drilling fluid was escaping along with the oil.

It was the latest setback in the effort to shut off the leaking oil, which federal officials said was pouring into the gulf at a far higher rate than original estimates suggested.

If the new estimates are accurate, the spill would be far bigger than the Exxon Valdez disaster in 1989 and the worst in United States history.

Doug Suttles, BP’s chief operating officer for exploration and production, struggled to offer guidance on whether the latest effort was likely to succeed.

“It’s quite a roller-coaster,” Mr. Suttles said. “It’s difficult to be optimistic or pessimistic. We have not stopped the flow.”

President Obama, who planned to visit the gulf on Friday, ordered a suspension of virtually all current and new offshore oil drilling activity pending a comprehensive safety review, acknowledging that oversight until now had been seriously deficient.

His action halted planned exploratory wells in the Arctic due to be drilled this summer and planned lease sales off the coast of Virginia and in the Gulf of Mexico. It also halts work on 33 exploratory wells now being drilled in the gulf.

Mr. Obama said at a news conference in Washington that he was angry and frustrated about the catastrophe, and he shouldered much of the responsibility for the continuing crisis.

“Those who think we were either slow on the response or lacked urgency, don’t know the facts,” Mr. Obama said. “This has been our highest priority.”

But he also blamed BP, which owns the stricken well, and the Bush administration, which he said had fostered a “cozy and sometimes corrupt” relationship between oil companies and regulators at the Minerals Management Service.

The chief of that agency for the past 11 months, S. Elizabeth Birnbaum, resigned on Thursday, less than a week after her boss, Interior Secretary Ken Salazar, announced a broad restructuring of the office.

“I’m hopeful that the reforms that the secretary and the administration are undertaking will resolve the flaws in the current system that I inherited,” she said in a statement.

Mr. Obama plans on Friday to inspect the efforts in Louisiana to stop the leak and clean up after it, his second trip to the region since the explosion of the Deepwater Horizon rig on April 20. He will also visit with people affected by the spreading slick that has washed ashore over scores of miles of beaches and wetlands.

Even as Mr. Obama acknowledged that his efforts to improve regulation of offshore drilling had fallen short, he said that oil and gas from beneath the gulf, now about 30 percent of total domestic production, would be a part of the nation’s energy supply for years to come.

“It has to be part of an overall energy strategy,” Mr. Obama said. “I mean, we’re still years off and some technological breakthroughs away from being able to operate on purely a clean-energy grid. During that time, we’re going to be using oil. And to the extent that we’re using oil, it makes sense for us to develop our oil and natural gas resources here in the United States and not simply rely on imports.”

In the top kill maneuver, a 30,000-horsepower engine aboard a ship injected heavy drill liquids through two narrow flow lines into the stack of pipes and other equipment above the well to push the escaping oil and gas back down below the sea floor.

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