Daily Digest

Daily Digest - May 30

Saturday, May 30, 2009, 11:11 AM
  • Goldman Sachs Principal Transactions Update: Collapse In Agency Program Trading Volume
  • Daylight come and me wanna go home
  • Assorted Housing Charts
  • Flat Liner
  • Existing Home Sales (NSA Chart from The Big Picture Blog)
  • No EconomPic Needed to Explain this Greed
  • Bill Clinton: I Should Have Raised More Hell About Derivatives Being Unregulated
  • Kremlin Launches ‘School of Bloggers’
  • A new whittle
  • Is Obama Playing God With the American Electric Car?
  • Kazakhstan Bank Credit Event Number 3: JSC Astana
  • Dylan Ratigan (Video, H/T iDoctor)
  • EXCLUSIVE: Dylan Ratigan Reveals Why He Left CNBC
  • New Investor Worry: Treasury Selloff Spiking Interest Rates

Economy

Goldman Sachs Principal Transactions Update: Collapse In Agency Program Trading Volume

In the week ended May 22, NYSE program trading dropped to a statistically significant low of 2.9 billion shares, down from 3.3 billion the week before, and from a 3.8 billion prior 52 week average. As for specific actors, no surprise, Goldman leading the government's SLP team with a 7:1 ratio of principal to facilitation/agency.

As for today's market close, with a literally parabolic jump in the last minute of trading, if anyone still thinks this market trades based on anything resembling normal behavior (unless someone had a very Jerome Kerviel-esque fat delta hedging finger or one/two moderate/large quants who had a huge index hedge imploded), I have some BBB+ rated CMBS to sell to you at par. One culprit could be hiding in the huge drop of agency trading, which this week dropped to a several month low of 1.875 billion shares.

So as essentially no institutional or retail clients are trading any more, it is just a few desperate computers trying to front run each other. And, of course, for the biggest beneficiary of this PT principal bonanza, look no further than the chart below.

Going back to today's ridiculous close, the chart below shows it all: the complete tape painting volume spike at the very end of the day speaks for itself. And as computers now simply issue forced stock recall orders to each other, painting the tape wet with manipulative intent and volume spikes into the last 20 minutes of trading every day, their human creators are left on the sidelines, trying to outshout each other as to the reason for why the market keeps rising while the economy keeps tumbling.

Is there ever going to be any transparency in this market again?

Daylight come and me wanna go home (Please don't miss chart on page)

The US is on the verge of becoming 'the world's largest exporter of plastic decorative bananas' to clip a phrase from this morning's email update to subscribers.

Well, Larry Summers certainly did his part to get a lot of people fretting that possibility right now after just weeks ago sooth-saying the masses into the toxic dump of broken promises known as long term US Treasuries. Those who bought the deflation impulse with these instruments stand right in the cross hairs of the inflate-or-die mandate coming out of government.

But I suppose Larry had more important people (or sovereign creditors) to look out for than the average schmuck just trying to survive the results of the government's moral hazard disguised as policy, now decades along.

NFTRH's primary holdings are well into launch mode and I am distributing some slowly, but you will not find boasting here and you will not find me trying to capitalize on the excitement by touting (well, maybe just a little). Instead, we will remain focused on the mechanics of what is going on with the idea that Jim Sinclair's 'this is it, it is now' is in play.

I don't think this is it and I don't think it is now as far as hyperinflation goes. But you know, these crooks really do need a deflation-like event, and they need it soon. Otherwise, we may be looking at the final bubble and dat bubble be da precious metals. We are in the target zone on Huey and we will watch the long term downtrend on the 30 year's yield. We will watch the dollar. We will watch da experts and we will have the most fun imaginable playing the swings in these pathetic times of agony and official moral hazard

Assorted Housing Charts

Flat Liner

Worst Investment? The US dollar.

One investment, more than any other, has proven to be a terrible storehouse of value for well over 80 years.

While some disasters unfold rapidly (Enron, subprime mortgages, etc.), this investment’s decline has occurred in slow motion, losing an average of 3.6% a year. Indeed, you can hardly find a period in the last 89 years in which this investment actually MADE money.
That investment is the dollar.

Source: Zero Hedge

The above chart shows the history of the dollar’s purchasing power going back to the 1920s. All told the dollar has lost 94% of its purchasing power since we abandoned the gold standard. The most dramatic loss in purchasing power occurred directly after Roosevelt made it illegal to own gold. However, with few exceptions, the dollar has been spiraling downward ever since 1920.

After Nixon ended Bretton Woods (legislation that pegged the dollar to gold indirectly), the pace of purchasing power destruction accelerated with the dollar losing an average of 4.4% in purchasing power annually.

Gold and the Dollar have maintained an inverse relationship ever since this time. One zigs, the other zags. One rallies, the other falls. And starting in 2000, both entered long-term trends: the dollar falling while gold rallied (see the below chart).

Now, nothing ever goes straight up OR straight down. And starting in June 2008, the dollar erupted in its strongest rally in decades, jumping 22% in eight months. The story here was easy to understand, although most of the media ignored it.

With the dollar continually in decline and interest rates well below the rate of inflation in the post-Tech Crash, foreign corporations and institutional investors borrowed heavily in dollars.

Doing this meant their debts were continually shrinking relative to their profits (sales were denominated in a currency that was rising relative to the currency in which their debts were denominated). This meant their debts were easier to pay off.

However, when the dollar started a rally in July ’08, this positioning began going horribly wrong. Anyone short the dollar got killed and had to cover their shorts (buy dollars) which in turn pushed the dollar higher. At one point there were an estimated $9 trillion in dollar shorts in the world. So the dollar rally was the mother of all short squeezes. And as you can see, it kicked gold in the teeth.

Existing Home Sales (NSA Chart from The Big Picture Blog)

No EconomPic Needed to Explain this Greed

Off balance sheet only frees up capital because it hides risks. This is absolutely mind boggling. Not the fact that they are asking, but how is this even a remote possibility?

Bill Clinton: I Should Have Raised More Hell About Derivatives Being Unregulated

Bill Clinton gives, to use David Leonhardt's term, an "impressively honest" analysis of his role in bringing about the financial crisis, particularly the failure to adequately regulate derivative markets:

Kremlin Launches ‘School of Bloggers’

Russian President Dmitry Medvedev recently made a foray into Web 2.0 with the launch of his own blog. Now it looks as if the Kremlin’s embrace of social media is tightening.

A new whittle

More reason to worry about the USA's AAA bond rating.

The Navy, Air Force, Marine Corps, United Kingdom Joint Strike Fighter, F-35 Lightning II (see P-47 from WW II Army Air Force fame) is the latest capability dream whittling away US resources, and stopping any war machine corporate welfare worries about Obama making any change in Washington. As the F-22 might go out of production at 183 useless money pits, Defense Secretary Robert Gates has given Lockheed a tit for tat. He is pushing the mostly untested F-35’s be paid for early.

May 20, 2009 the annual GAO report on the sham of the F 35 program, GAO 09-711T was issued titled: JOINT STRIKE FIGHTER; Strong Risk Management Essential as Program Enters Most Challenging Phase.

GAO found: development is slipping by 1 to 3 years and development costs are increasing by $2.4 to 7.4B, according to whether you compare early program office baselines to rosy revisions or less optimistic independent assessments. The department is not funding an alternate engine to the Pratt & Whitney F135 (they ignore the’ great engine war’ over the P&W F100 which made the F-16 a lawn dart). Manufacturing processes are not proven and there is doubt that 9 more test aircraft will be delivered by 2010. Test flying remains in its infancy and is far behind the F-22 at the same point in its development process.

Worse, the taxpayer is doing all this early buying using cost reimbursement contracts. These contracts mean that Lockheed gets paid whether anything happens or not. You and I are holding the bill for all the scrap and rework, and no one will terminate it because there are too many jobs at stake.

Back to Secretary Gates: With all the contrary indications the Defense is supporting raising production to 130 aircraft per year by 2015, that is almost tomorrow given the slow and faulty progress of the F-35 development to date.

To order these quantities under statute existing for years, the F-35 would have to go through operational test and evaluation and tell congress it is effective and suitable. That will not happen unless the definitions of effective and suitable are highly compromised (as the MV 22 and other systems).

It will be another build them all and try to make the thing fly. Good thing there is no need for the capability 'promised' to get the taxpayer to waste this money.

No risk management here, might as well whittle $240B worth of beaks.

Is Obama Playing God With the American Electric Car?

It was pretty good news for clean energy enthusiasts when Obama announced $2.4 billion in funding for electric vehicles. Sure, like the high speed rail plans, it didn't seem like enough money, but a couple billion can go a long way. So what's the problem? Decisions as to who gets the funding will be decided by Obama, his team, and state governments--meaning the gov will have a huge hand in decided which electric cars succeed or fail. Will Obama decide the fate of the American electric car?

The funding will largely go to developing the electric car batteries--meaning the government will find itself charged with decided which battery will be most cost-effective, most marketable, and most economically viable. But are they best equipped to make the decision that could determine the future of the electric car in the US?

Over at Green Biz, Marc Gunther dives into the problem:

Much as I admire Steven Chu, the energy secretary, do we really want to entrust him and his staff to decide which battery technologies are likely to succeed and which companies can most wisely spend that $2.4 billion?

One thing to consider is whether or not the electric car will be deemed mass marketable by the administration:

Some of these batteries, by the way, could well find their way into cars like the Tesla (sticker price: $109,000) and those made by Fisker Automotive, a California firm that plans to sell $88,000 luxury-hybrids next year. So tax dollars collected from working people and the middle class go to subsidize rich boys and their toys.

So if not Obama, and co, who'd be better fit to make the call?

Please don’t get me wrong. I think electric cars are a great idea. The faster they arrive, the better. But judgments about which battery-makers to finance should best be left to venture capitalists, investors like Buffett (who bought 10 percent of BYD), big investment banks and the like. They may be no smarter than the people at the DOE but at least they are putting their own (or their investors’) money on the line. If they’re wrong, they’ll be held accountable, or at least they should be. You can be sure that some of them will be wrong, and that’s fine.

It's an interesting perspective to be sure, and free market capitalists (even pro-green ones) are probably cringing a little at what could happen to the electric car industry. Then again, some pretty strong arguments could also be made for better regulatory guidance on industry at the moment . . .

Kazakhstan Bank Credit Event Number 3: JSC Astana

Surprising that this is not getting more play.

JSC Astana Finance published a press release and announced, inter alia, that: “Astana Finance and Astana Finance B.V. today announce their decision to suspend payments of interest and principal on their international obligations and, in the case of Astana Finance, to suspend principal payments on certain of its domestic obligations, as of 15 May 2009 in each case.”

ISDA DC to vote on the event.

Dylan Ratigan (Video, H/T iDoctor)

EXCLUSIVE: Dylan Ratigan Reveals Why He Left CNBC

There have been lots of rumors echoing around that star-CNBC anchor Dylan Ratigan stormed out of CNBC after feuding with bosses Mark Hoffman and Susan Krakower, that he's headed straight to ABC for a big-time broadcast slot, and that he can't go on-air for the next 6 months because of some ridiculous, spiteful clause in his CNBC contract.

Is it all TRUE??? Inquiring minds want to know!

So we asked Dylan himself, who was kind enough to share 20 minutes with us.

The short answer? "No." This is a pro-Dylan Ratigan move, not an anti-CNBC move. And the bull market of the past month is just a suckers' rally.

Here's an excerpt of our conversation:

ON THE DECISION TO LEAVE CNBC:

Blodget: So, you're one of CNBC's biggest stars. You're running one of the most successful shows they've got. And you bolt. Why?

Ratigan: A lot of things came together. One, it became apparent to me that there had been some major policy failures in America. While clearly pursuable at a place like CNBC, in my opinion, they are more broadly pursuable from a wide variety of other news platforms.

Blodget: Such as?

Ratigan: Pick them. ABC, CBS, HBO, MSNBC, CNN, FOX. When you're dealing with economic problems, you want to be speaking from an economic platform. When you're dealing with systemic policy failures that have rendered a catastrophe the likes of which we've really never seen, the role of journalism is to ask questions of money and power from the broadest possible platform.

And I happened to have a contract that was expiring. If I had been in the second year of a five-year deal, none of this would have happened.

(More)

New Investor Worry: Treasury Selloff Spiking Interest Rates

Stocks tumbled Wednesday, but the real drama was in Treasurys and mortgages.

A selling spree in Treasurys pushed rates higher, taking the yield curve to its steepest on record as spreads between the 2-year and 10-year widened by over a dozen basis points on Wednesday alone.

The 10-year saw its yield move above 3.70 percent, after trading at 3.55 percent the previous day. The selling wave hit bonds shortly after 1 p.m., even after the auction of $35 billion in 5-year notes was well received.

"It was a great auction. It was just the follow through that was a problem," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald.

Traders are bracing for more of the same Thursday. The Treasury is auctioning another $26 billion in notes, this time 7-years.

10 Comments

idoctor's picture
idoctor
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Re: Daily Digest - May 30

Michael Hudson economist.

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Damnthematrix
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The latest peak oil projection: a stunning difference

The latest peak oil projection: a stunning difference

A session with a leading Peak Oil supporter can always be a sobering experience. That was certainly the case May 28 at the "New Challenges for Crude Oil" conference in Geneva, where the president of main international Peak Oil group spoke.

Swedish professor Kjell Aleklett is actually a physics professor at Uppsale Universit, not a geology professor. But he is also the president of the Association for the Study of Peak Oil, and he was chair of the Platts' conference.

He is about to present a paper for peer review and inclusion in the academic magazine Energy Policy. That paper will take issue with the International Energy Agency projections on oil supply out to 2030, by an enormous factor.

The difference between the IEA and Aleklett's work is fairly straightforward. Aleklett adopts what he calls a "parameter" in determing the rate of depletion in fields that have yet to be developed or fields yet to be discovered, two key elements in the IEA's projections.

The gap between his work and that of the IEA is huge. IEA projections of liquids supply see total output of 101.5 million b/d by 2030. Aleklett's research sees it at a little more than 75 million b/d.

There are numerous areas where Aleklett said his research agreed with the IEA, including the projected rate of decline of existing fields. But beyond that, what Aleklett says are the different approaches toward depletion rates creates enormous differences in projections out to 2030. Output in fields to be developed would be 22.5 million b/d in the IEA forecast; it's 13.6 in Aleklett's. The difference in fields yet to be discovered is 19.2 million b/d vs. 8.7 million b/d.

Aleklett, like other Peak Oil proponents, also criticized the IEA practice of counting all barrels of NGLs equally with a barrel of crude, even though the BTU content is not equal.

Aleklett's conclusions also hinted at a politically-driven agenda at IEA. He said the agency often takes the approach of "you should rely on us because we are telling you the truth, and governments around the world trust the IEA." The IEA's forecast on the rate of depletion is "outside reality."

IEA forecasts are "demand-driven," he said, assuming that if global economic growth averages 3%, "that is driving production." "They're giving oil supply estimates to support GDP esimtates," he said. "They are not allowed to give oil that does not show an increase in GDP in the future."

maveri's picture
maveri
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Re: Daily Digest - May 30
idoctor wrote:

Michael Hudson economist.

I always enjoying listening to Michael Hudson  - thanks for the link

I heard Max call Obama's rule as a Kleptocracy in the interview which is exactly what Michael Hudson referred to it as, back in February.

One of my favourite Michael Hudson clips is:

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - May 30

This is the second biggest bank failure, after IndyMac,

and the 34th this year.

http://news.bbc.co.uk/2/hi/business/8062933.stm

BankUnited sold to private equity

22 May 2009

Private equity firms have bought BankUnited, the 34th American bank to fail this year.

Private equity firms paid $900m (£568m) to rescue the bank, whose closure will cost the Federal Deposit Insurance Corp $4.9bn.

BankUnited, the largest bank in Florida, had about $13bn of assets and $8.6 billion of deposits.

The bank has been hit hard by the sale of risky home loans. It will open on Friday under its new management.

The buying consortium includes WL Ross & Co, Carlyle Group, Blackstone Group and Centerbridge Partners. The FDIC and the new bank will share losses on about $10.7bn in assets.

John Kanas, a banking industry veteran and former head of North Fork Bank, will manage the bank now.

Despite the recession, there is still plenty of opportunity in the state of Florida, he said.

"Florida has a very good long-term outlook, not just because of its weather, but also because of its tax policies," he told Reuters.

Davos's picture
Davos
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Re: Daily Digest - May 30

FDIC Banking Report: 305 Troubled Institutions up from 90 in 2008. $13.5 trillion Assets held with 2.1 Million Employees at 8,200 Institutions. (Please use link to view many, many charts)

What is drawing down the funds? It is the amount of banks going under and being taken over by the FDIC. The number is growing. Last year, the FDIC had 90 banks on its troubled list. Today, there are now 305. Keep in mind that last year gigantic failure IndyMac Bank which ate up nearly $10 billion of the fund wasn’t even on the troubled bank list. So take the 305 bank list for what it is worth from the FDIC. It is also the case that the FDIC will play a crucial role in the private-public investment program being dolled out by the U.S. Treasury. Recent reports estimate that the program will start in July and should be a taxpayer rip off to the ultimate extreme.
The PPIP will game the system and foot taxpayers with the bill of the most toxic assets in the world. Private investors will only need to come up with 5 percent while the U.S. Treasury will kick down 5 percent and the rest will largely be financed by non-recourse loans by the FDIC. It is incredible that we are going to give this institution which is already dealing with tremendous amounts of bank failures the duty of handling some of the most toxic mortgages known to the world.
That is why that in the last year the actual amount of assets at these 8,200+ institutions actually decreased for the first time in 2 decades:
Scott Larsen's picture
Scott Larsen
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Re: Daily Digest - May 30

The P-47 was a single engine airplane called the Thunderbolt, the twin engine P-38 was called the lightning.

http://en.wikipedia.org/wiki/P-38

http://en.wikipedia.org/wiki/P-47

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cwixom
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Re: Daily Digest - May 30

Okay, I've said this before and I'm going to say it again.  Until we get electrical energy from sources other than coal in a big way, every "clean" electric car is in fact mostly a dirty COAL POWERED CAR. 

Go ahead and argue the percentages but coal is our biggest source of electrical power and I'm pretty darn sure that the little electrons moving about in your homes electrical circuitry have no clue as to whether they were generated by a coal plant or a wind farm and neither do you despite the fact that you think you are buying green power from your utility. 

If we are going to solve this problem it is imperative that we look at the whole picture, from start to finish, every step along the way, all sources of materials and energy used to obtain, form and utilize the technology before we can declare it "a better way". 

Hydrogen burning vehicles are NOT zero emissions vehicles when you look at the entire picture.  They may very well be much dirtier than a VW TDI or other diesel powered, high mileage vehicle.

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fujisan
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Re: Daily Digest - May 30

 French President Nicolas Sarkozy and German Chancellor Angela Merkel made joint commentary on May 30th. The English versions do not tell the whole story, so I'll translate the French version.

"We will not accept that, during this financial crisis, capital requirements and accounting standards unreasonably reduce the ability of banks to lend money", also stressed Mrs. Merkel and Mr. Sarkozy, calling for a "change in accounting rules", with decisions again in June.

IOW, just like US, they gonna tweak accounting rules such as so get insolvent banks "better than expected".

Source French edition for ref:

AFP: Européennes: initiative commune de Sarkozy et Merkel, à une semaine du scrutin

"Nous n'accepterons pas que, durant cette crise financière, les exigences en capitaux et les normes comptables réduisent de manière injustifiée la capacité des banques européennes à prêter de l'argent", soulignent par ailleurs Mme Merkel et M. Sarkozy, appelant à une "modification des règles comptables", avec là aussi des décisions en juin.

 

 

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ejanea
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Re: Daily Digest - May 30

 

Cwixom

You're right,  and the only way to make a real difference is to use LESS energy except that which grows your garden/vegetables/etc... i have solar hot water,  but I am aware of the oil energy that it took to make the paraphernalia on my roof.   This is hard to understand for some reason.

Jane

Davos's picture
Davos
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Re: Daily Digest - May 30

 Cwixom:

I wouldn't argue what you said, I forgot the percentages of the white paper magazine article of coal, oil as the percentage of electrical generation.

I did read several EV books, I don't know if you are aware, the electric motor puts 90% of power to the wheels, the ICE puts 10% of the power to the wheels. Based on that alone I'd have to ask you if that might save energy? Take care

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