Daily Digest

Daily Digest - May 7

Friday, May 7, 2010, 9:52 AM
  • Foolish Thursday – Through the Looking Glass
  • Currencies: Green Back
  • What Would The Founders Think Of Warren Buffett And Goldman Sachs?
  • Freddie Mac Asks U.S. For $10 Billion As Losses Pile Up
  • Black Storm Rising
  • U.S. Food Prices ‘Spiraling Out of Control’
  • Essential Tenets for the Maintenance of our Common Good


Foolish Thursday – Through the Looking Glass (Ilene)

In “Through the Looking Glass” (you can tell I have kids!) Alice said “It’s no use going back to yesterday, because I was a different person then” and the Red Queen observes “It’s a poor sort of memory that only works backward… Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!“ The Red Queen is very much like the MSM – they adjust their “facts” to fit what’s happening, no matter how ridiculous it sounds. Don’t like the economic reports? Just paint the white roses red! Up is down and black is white, which is all well and good until, as Douglas Adams observes, ”you get killed at the next zebra crossing.”

Currencies: Green Back (jdargis)

The case for a further drop in the euro against the dollar has more than just momentum to back it. Business cycles favour it: the euro-area economy is picking up speed again, but America’s recovery is more advanced. The pressure to tighten fiscal policy in some parts of the euro area will make it hard for the European Central Bank to even consider raising interest rates. A weaker euro also addresses the deeper cause of the present crisis: a lack of export competitiveness in the south of the currency zone.

What Would The Founders Think Of Warren Buffett And Goldman Sachs? (Doug S.)

On one side stands financial elites who have manipulated both parties in Congress to create unjust laws that allow elites to exploit the nation’s productive energies and grasp wealth that belongs in the public domain. On the other side stands the sustainable public interest: In Madison’s words, “the real welfare of the great body of the people.” For several decades now the electorate has had insufficient opportunity to protect the real public interest because whatever is gained in electing the out-of-power party as a check upon the first party’s dereliction of duty is offset when the second party serves the same globalist end game on slightly adjusted policy fronts. We’ve not found the wherewithal to “annul” the acts of the usurpers.

Freddie Mac Asks U.S. For $10 Billion As Losses Pile Up (mhoop)

The most recent earnings report follows three straight quarters in which the McLean-based company did not need infusions from the Treasury. Still, the firm is struggling to recover from the mortgage-market meltdown; it reported a net loss of $6.7 billion in the first quarter of 2010, compared with a loss of $9.9 billion a year ago.


Black Storm Rising (jdargis)

On the sea floor beneath the Deepwater Horizon sat a device called a blowout preventer, capable of sealing off the well with a number of hydraulic systems, including one designed to slice right through the whole stack. Had it been activated beforehand it should have been able to contain the pressure in the well, saving the rig. Activated after the blowout, it would have done nothing to save the rig, but should still have been able to isolate the oil in the well from the sea above it. But neither of the two systems that should have activated the preventer after the blowout seems to have done so—or if they did, the preventer did not do its job.


U.S. Food Prices ‘Spiraling Out of Control’ (mhoop)

The National Inflation Association (NIA) issued an alert to its members April 22 warning that the sharp upswing in U.S. food inflation will soon lead to a situation as severe as that currently plaguing India.

Essential Tenets for the Maintenance of our Common Good (Alan P.)

The "common good" is the collection of what no one person owns, but which all people depend upon for life. These tenets are offered as a means for everyone to understand the criteria upon which the current situation could or possibly should be judged.

Please send article submissions to: [email protected]


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Re: Daily Digest - May 7

"May 7 (Bloomberg) -- Australia’s central bank warned that an escalation of Europe’s debt woes may cause a “sharp” global economic slowdown and the Bank of Japan mounted the biggest one- day injection of cash since 2008 as stocks tumbled worldwide.

“The fiscal problems in Europe could intensify, prompting a retreat from risk-taking by investors and a sharp slowing in the world economy,” the Reserve Bank of Australia said in a quarterly economic report released in Sydney today. Japan’s central bank said it will pump 2 trillion yen ($22 billion) of funds into the financial system through repurchase operations. "

"SOME peripheral eurozone economies will find it difficult to avoid large-scale defaults on their private or public external debts, or on both, said Kenneth Rogoff, a professor of economics at Harvard.

Writing in the 'Financial Times', he said not only Greece but also Spain, Portugal and Ireland have debt that's "sky high", judged by emerging market standards.

Greece is unlikely to be the last euro nation to need an IMF bailout, with Ireland, Spain and Portugal "conspicuously vulnerable", Mr Rogoff said."

"(Reuters) - Stocks worldwide plunged as concerns about Greece's debt crisis went global, with investors seeing it as an omen of turmoil in other European economies and governments struggling to calm markets."

"The Greek parliament backed an austerity plan on Thursday, but selling accelerated across markets overnight after the European Central Bank said it had not considered buying government bonds to ease Greece's debt crisis. "

"The pound and shares have been hit this morning after the hardest-fought General Election in recent times has delivered a hung parliament.

Sterling fell by four cents overnight to a 12-month low of $1.471 and shares fell 1.7% on the open as the prospect of Britain's first hung parliament since 1974 heightened fears that any incoming government would be too weak to get to grips with a budget deficit running at more than 11% of GDP. "

"Jeremy Cook, chief economist at currency trader World First, said: 'We've warned of this for months now and sterling is now paying dearly. The pound is a patient, dying on the operating table at the moment, with Clegg, Brown and Cameron dithering outside the operating theatre. If this indecision lasts through the weekend, Monday could see some truly biblical losses.' "

..................4A) UK Default Swaps Jump After Electorate 'Votes for Downgrade'

"May 7 (Bloomberg) -- The cost of insuring against losses on U.K. debt jumped on concern the nation will lose its top credit rating because of “masses of uncertainty” created by the British election failing to produce a majority government.

“On the basis of the election outcome as it looks now, a downgrade looks to be the most likely outcome,” Alan Clarke, an economist at BNP Paribas SA in London, wrote in a note to investors titled ‘U.K. Votes for Downgrade.’

Credit-default swaps tied to British sovereign debt jumped 11 basis points to 102, the highest level in three months, according to CMA DataVision prices."

"The EMBI+ Index of debt from Brazil to the Philippines fell 0.7% since March, heading for the first quarterly decline since the period ended December 2008, according to JPMorgan Chase & Co. Russia’s 5-year Eurobonds tumbled 3% from their issue price two weeks ago and governments from the Czech Republic to Albania and Indonesia delayed debt sales.

While investors pour record amounts into emerging-market bond funds, yields are rising as the European Union’s bailout of Greece spurs concern that the global recovery will slow and cut demand for riskier assets. Argentina may pay 11% yields on dollar bonds this year, higher than its 10% target, according to Aberdeen Asset Management. Ukraine may face costs as high as 7.75% on 5-year debt compared with the 7.5% yields on existing bonds, Union Investment said."

"The yield on the two-year Greek note rose 131 basis points to 19.75 percent as of 12:09 a.m. in London. The yield difference, or spread, between 10-year Greek bonds and German bunds rose to 967 basis points. Portuguese 10-year yields climbed 17 basis points to 6.36 percent."

"May 7 (Bloomberg) -- The cost of borrowing dollars in the London interbank market may rise to the highest in nine months on concern that banks are holding too much debt of Europe’s most indebted nations, according to Monument Securities Ltd."

"“There is clearly a fear trade starting to stalk the market,” Ostwald said. “Questions are being asked about certain counterparties. It’s a question of what people have on their books and whether they are vulnerable to big losses.”"

...................7A) Libor Jumps Most Since January 2009 on Greek Debt 'Fear Trade'

"May 7 (Bloomberg) -- The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers soared as much as 40 basis points to 223, according to JPMorgan Chase & Co. The index closed at 212 basis points March 9, 2009. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels."

"May 7 (Bloomberg) -- The cost of protecting Asian corporate bonds from default climbed the most in more than 13 months as concern Europe’s debt crisis may derail the global economy routed markets worldwide.

The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan climbed 29 basis points to 154 basis points as of 2:56 p.m. in Singapore, the most since March 30, 2009, and the highest level since July 20, according to prices from Deutsche Bank AG and CMA DataVision. The Australian risk benchmark rose the most in almost 17 months."

"‘Dissolution of the Euro’

“If Merkel and Trichet don’t solve this, if they don’t work together, this could potentially mean the dissolution of the euro,” Ron Sloan, chief investment officer at Atlanta-based Invesco Ltd.’s US core equity team, said in a telephone interview, referring to German Chancellor Angela Merkel.

Sloan added that there is a danger the debt crisis could spread to municipal debt issued by US states that are struggling to balance their budgets.

“It’s the whole issue of risk appetite again,” he said. “If the euro sinks individual US states will be the next step.”"

"WASHINGTON — The post office continues to founder in a sea of red ink.

The Postal Service said Thursday that it had a net loss of $1.9 billion as of March 31, halfway through its fiscal year.

The declines in mail caused by the recession and the movement of letters and bills to the Internet has had a staggering impact on the agency, which posted a $3.8 billion loss last year.

Postal officials have sought congressional approval to drop mail deliveries on Saturdays and for relief from an annual payment of more than $5 billion to pay in advance for retiree health benefits.

At the same time, it has sought other savings and cut its staff by 47,000 to a total of 594,000. That full-time staff number is down by 120,000 since 2008.

"We are still experiencing unsustainable losses," said chief financial officer Joseph Corbett. "Quite simply, the business model is broken and laws, regulations and contracts must be changed to provide commercial operating flexibility needed for financial stability.""

"Norway's state pension fund, the biggest investor on European stock markets, said Friday it was monitoring vulnerable eurozone economies in which it holds billions of euros worth of bonds.

At the end of 2009, the fund said it held 55 billion kroner (6.9 billion euros, 8.8 billion dollars) worth of bonds from Portugal, Italy, Greece and Spain, all of which have been hit on financial markets in recent days.

It also held 12.6 percent of its European stock investments in these countries at the start of the quarter, it said Friday. The figure amounts to 104 billion kroner worth of shares, notably in banks such as Spain's Santander.

"The situation in which we currently find ourselves is a situation that markets deem serious," Yngve Slyngstad, the head of investment at Norway's central bank, told a press conference."

"SPRINGFIELD -- A major tax increase is off the table, and the votes aren't there for drastic spending cuts. That leaves Illinois officials trying to paper over a $13 billion deficit by borrowing money, ignoring bills and trying an array of financial gimmicks."

.........................13A) Illinois Budget Woes Come to a Boil

"Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue.

The state faces one of the nation's worst budget crises, spilled over in part from the broader national economic crunch, and its current bond ratings lag only California's. But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections—if then."

"Any hopes that the national economic recovery would help the budget discussions were dashed this week when Illinois disclosed that revenue for April —when most citizens pay taxes—fell more than 15% from the same month a year ago, or $501 million, in part because of a $345 million drop in federal aid. Gross personal income-tax receipts, a major revenue source, dropped $103 million, or 8.1%."

.......................13B) Illinois Legislature gives state universities an IOU to take to bank (Blog)

"UPDATE, 6:50 p.m.: The Senate just passed the bill 33-11, sending it to Gov. Pat Quinn.

SPRINGFIELD, Ill. — For anyone who needed another indication of how bad Illinois’ fiscal situation is: The Illinois House this morning passed a bill that will allow state universities to borrow money for operational expenses, using as their collateral the money that the state owes them but hasn’t paid them.

It’s a little like your boss telling you he doesn’t have your pay check this week — but it’s okay, because he’ll give you a note proving that you have the money coming to you, so you can take that note to the bank and borrow the money you need."

"International rating agency Fitch proceeded on Friday to the further lowering of the credit ratings of three major Greek banks, with a negative outlook."

"The just-wrapped legislative session will leave a bad taste in the mouths of most business owners and investors as lawmakers scrambled to balance the state’s $1.2 billion budget deficit primarily by raising taxes and adding fees in a variety of areas."

"“The across-the-board tax increases, even with no general excise or personal income rate tax increase, just killed sectors of the business community,” Lowell Kalapa, executive director of the Tax Foundation of Hawaii, told PBN. “The high-tech [sector] didn’t like their credits being suspended, or seeing Act 221 terminated earlier, and other sectors contributed to close that gap in the state budget. Everybody was asked to give up something.”

Gov. Linda Lingle last week vetoed the barrel tax bill, saying it would cost Hawaii residents and businesses $22 million in new taxes every year and make virtually everything more expensive. But state lawmakers quickly overrode her veto, paving the way for the state to collect $1.05 per barrel on imported petroleum products, up from the current 5 cents, to help balance its budget."

"The South Carolina budget is facing a $213 million shortfall due to the federal government’s failure to extend a provision of last year’s so-called “stimulus” – a sizable funding imbalance that has caught lawmakers completely flat-footed.

What’s creating the shortfall?

Well, federal lawmakers in Washington, D.C. are balking on approving a six-month extension of the Federal Medicaid Assistance Percentage (or FMAP), a key provision of last year’s bureaucratic bailout that permitted states to draw down additional federal dollars to spend on various health care expenses. Needless to say, South Carolina lawmakers were counting on this money to fund a variety of government programs – including several of the non-essential variety."

"May 6 (Bloomberg) -- Portuguese banks are building up reserves of asset-backed securities eligible as collateral for loans from the European Central Bank as borrowing in bond markets becomes more expensive, according to Fitch Ratings."

"SAN JOSE, Calif. (KCBS) -- A brand new police substation in San Jose that is near completion will have to delay its opening as the cash-strapped city doesn’t have the funds to staff the facility.

San Jose has already spent millions of dollars on the substation on Great Oaks Boulevard, which was approved by voters in 2002.

San Jose City Councilman Pete Constant told CBS5 that the city’s budget problems are delaying things.

”The reality is, it won’t open. It will be a brand new building, ready and waiting for activity and it will be shuttered,” said Constant.

He said the station was designed to save patrol units time in reaching their destinations in south San Jose.

But now, the city’s $116 million deficit is preventing that from happening.

”It’s terribly ironic that we’re building a police substation because we know that it will save money and increase efficiencies for our police department,” Constant said. “That we’re going to be unable to open it because of the failure of the city to really bring its budget to balance.”

The bond measure that paid for the $59 million structure did not cover personnel costs. There are also two new San Jose libraries that will not open for the same reason."

"Caltrain’s deficit is projected to grow to $40 million in two years, a result of its three member agencies lowering its annual contribution, declining sales tax revenue and the state’s budget crisis.

A public hearing has been called for June when Caltrain is expected to declare a fiscal emergency, allowing it to bypass state law to raise fares or reduce service, for instance."

"Romanian unions on Friday threatened a wave of strikes which could cripple hospitals, schools and public transport in protest against draconian wage and pension cuts.

President Traian Basescu announced the cuts on Thursday, saying they were needed to ensure continuation of a 20 billion euro aid package led by the International Monetary Fund and would prevent higher taxes and a run on the currency."

"In an interview with Fox News Thursday, Rep. Ron Paul predicted that the violent riots in Greece over that nation’s debt crisis will soon spread to the United States as a worldwide currency collapse triggers mayhem.

“There’s going to be anger and there’s going to be riots in the streets as well,” Paul said. “This is all a consequence of how governments spend like this. It’s because they don’t have sound money. We run up deficits. We tax, but never enough. We can’t tax enough. It would ruin the economy.

“I think this is just the opening of a much more serious crisis than the financial crisis. I think what we’re seeing is a shift from the financial crisis, the financial institutions, to a currency crisis. Even though the dollar is up sharply... I see this as an attack on the dollar.

Paul said what’s being seen in Greece now, and will soon spread to the United States, is a growing lack of trust in paper currency as governments like the United States run up huge deficits."

  •  Other news and headlines:

S.Korea won sees worst week in 14 months

Transocean's spill price tag hits $1.3 billion

State debt reaches record high (Ukraine)

Greek violence threatens tourism

House approves $6 billion 'cash for caulkers'

UK deficit 'could increase mortgage costs'

Personal insolvencies highest since records began (UK)

Weeds take up residency on vacant lots in Chico where subdivisions were planned (California)

Roubini Urges Goldman Sachs Breakup, Possible CDO Ban: Books

Prices of Dallas high-rises hit the basement

Ohio income-tax take $229M shy of forecast

Sen. Pappas: 'We will be looking under every stone for dollars' (Minnesota)......also State faces unprecedented cash-flow crisis (Minnesota)

Fake +290K Payrolls "Added", Real Number Is 36K After Census And Birth-Death (Zerohedge)

MUST HEAR: Panic And Loathing From The S&P 500 Pits (Zerohedge)

US Senate closer to embracing broader Fed audit

MTA to lay off another 1000 (NY)

wildjo's picture
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Re: Daily Digest - May 7

The article about food price inflation is odd.  I really haven't noticed the price increase.  And you think we would, given that we mostly eat veggies (the highest reported increase), and very little meat.

Our dairy prices have stayed the same.  And the one type of meat (fish) we do buy, hasn't had a price change in a year.

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Re: Daily Digest - May 7

Wildjo..I agree.  However, like many other consumer areas, I believe inflation has been arbitrarily held in check in some parts of the country.  I suspect we will all see increased food prices at the grocery stores this summer.

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YouTube is Down

Youtube traffic must be through the roof, because the server keeps dropping me. Can anyone else confirm this?

Thanks in advanced...Jeff

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Re: Daily Digest - May 7

For those of you not subscribers, Chris opened up a play by play section in the Subscriber area of what's going on in the markets.

If you've ever thought about subscribing, now is a great time to try it!

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Re: Daily Digest - May 7

ShadowStats' John Williams has done his math and believes his numbers tell the truth. He explains why the U.S. is in a depression and why a "Hyper-Inflationary Great Depression" is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report.


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Subprime JD
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Re: Daily Digest - May 7

Wow, volatility is back. This market is moving.

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This is unreal


How long before this gimmick goes belly up...
SPRINGFIELD, Ill. — For anyone who needed another indication of how bad Illinois’ fiscal situation is: The Illinois House this morning passed a bill that will allow state universities to borrow money for operational expenses, using as their collateral the money that the state owes them but hasn’t paid them.
It’s a little like your boss telling you he doesn’t have your pay check this week — but it’s okay, because he’ll give you a note proving that you have the money coming to you, so you can take that note to the bank and borrow the money you need."

How long before this gimmick goes belly up...


SPRINGFIELD, Ill. — For anyone who needed another indication of how bad Illinois’ fiscal situation is: The Illinois House this morning passed a bill that will allow state universities to borrow money for operational expenses, using as their collateral the money that the state owes them but hasn’t paid them.

It’s a little like your boss telling you he doesn’t have your pay check this week — but it’s okay, because he’ll give you a note proving that you have the money coming to you, so you can take that note to the bank and borrow the money you need."


idoctor's picture
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Posts: 1731
Re: Daily Digest - May 7

Debt Crisis May Spread to US, Japan: Roubini

Despite Thursday's unexplained surge in selling that drove the Dow down 900 points, the stock markets are being driven lower by fears over the global economy and the debt crisis spreading, economist Nouriel Roubini, of RGE Monitor, told CNBC Friday.

Nouriel Roubini
Photo: Oliver Quillia for CNBC
Nouriel Roubini

Greece is just the "tip of the iceberg" for the problem of accumulating debt, and it must be solved by raising taxes and cutting spending, if not default will follow, Roubini said.

"My concern is eventually, not this year, it may spread to Japan and in the US," he said.

"In my view there's going to be a restructuring of the debt in Greece," Roubini added.

Euro zone members who borrow in their own currency actually act more like emerging-market countries who borrow in other currencies, because they don't have control over monetary policy, he said.

The European Central Bank should have restarted the longer-term liquidity injections that they had stopped, and the fact that ECB President Jean-Claude Trichet said nothing about this in Thursday's news conference led to the market nervousness, according to Roubini.

"I think the ECB made a mistake," he said. "This pressure in the inter-bank market is becoming larger by the day. What the ECB is doing is not helping to solve liquidity problems."

There are concerns about public debt problems in Europe expanding, there are signs of weakening in China, and the weak retail sales figures in the US were weak, he said.

"The fundamentals are those that are driving these markets," said Roubini.

But the debt problems are not confined to Europe, because printing money to finance debt is likely to lead to inflation and "at some point in the future even the bond market in the US risks to snap," he added.

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