Daily Digest

Daily Digest - May 8

Friday, May 8, 2009, 11:35 AM
  • Is Anyone Minding the Store at the Federal Reserve? (Video)
  • China warns that the west’s quantitative easing is inflationary
  • Treasury auction trouble
  • House bypasses governor’s veto to claim Oklahoma’s sovereignty
  • Nation Ready To Be Lied To About Economy Again (H/T SteveS)
  • Market Deceptions (H'T MeMorrison)
  • Prison Awaiting Hostile Bloggers
  • If These Are "The Best And Brightest" Pray That We Never See "The Worst and Dumbest"
  • Fraud Enforcement and Recovery Act of 2009
  • Insider buying
  • Krugman's White House Dinner
  • ADP Employment Report Shows Improvement (Chart)
  • What do you get when you buy a nuke? You get a lot of delays and rate increases…(H/T Fred)
  • Bailoutout Recipient’s Lobbying Activity (Table on page with PDF links)
  • Bond Sale – Bombs Away…(Chart)
  • Obama to Cut 0.5% of Budget... Is This a Joke? (Chart)
  • Bah Bye, NY Fed Chair Friedman resigns (Video)
  •  A few A(H1N1) Links Dr. Henry Niman's Map 2088 Cases Today (As of this writing), A(H1N1) Current Timeline, CDC Cases

Economy 

Is Anyone Minding the Store at the Federal Reserve? (Video)

China warns that the west’s quantitative easing is inflationary 

Global central banks risk inflation, currency devaluation and a “big consolidation” in bond markets by pumping cash into their economies, the People’s Bank of China said in its quarterly monetary policy report.

The Federal Reserve and the Bank of England this year started quantitative easing, or printing money to buy government bonds, a policy that the Bank of Japan pioneered to revive its economy at the start of the decade. The European Central Bank’s 22-member board, which meets tomorrow, is split on whether it should buy financial assets to tackle its recession.

“A policy mistake made by some major central bank may bring inflation risks to the whole world,” China’s central bank said in the report today. “As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies’ devaluation risks may rise.”

Chinese Premier Wen Jiabao expressed concern in March that the dollar will weaken, eroding the value of China’s holdings of Treasuries, as the U.S. borrows unprecedented amounts to spend its way out of recession. China’s Treasury holdings climbed 52 percent in 2008 and stood at about $744 billion as of the end of February, according to U.S. government data.

I don’t think you can take this statement as an idle comment from an anodyne central bank quarterly report. All evidence suggests that China is legitimately concerned about a competitive devaluation in the U.S. and elsewhere as a result of easy money policies. In my view China has long been preparing for this eventuality and is shifting money away from problem areas like the U.S. dollar (see my post “Breaking news: China has been secretly stocking up on gold”). In addition, an Asia-centric dynamic does seem to be in its incipient phases. I mentioned this in a recent post “Asia is de-coupling,” suggesting that the $120 crisis fund set up by the Asian Development Bank was a move in that direction.

To be sure, it will take a very long time for the domestic demand within an Asian bloc to replace the export-oriented mercantilism we now see. But, you can definitely see the outlines of a push in that direction. And when one thinks back to the formalization of the Eurozone/EU, Mercosur or Nafta, I can see this developing over a number of years. Generally, one should see this as a positive development because it will help end the unbalanced dynamic where the U.S. is the consumer of last resort to Asia’s producer of last resort. The darker view of these developments is that the world is splitting into regional trading blocs in a new 21st century version of Smoot-Hawley.

Time will tell which view is accurate.

Treasury auction trouble

Today's treasury bond auction was, per john jansen,

an unmitigated disaster. The tail (tail is the number of basis points between the auction average and the levels which prevailed in cash market trading prior to the auction) was 9 basis points.

The average yield was 4.288 percent.

I am told it is trading at a profit at 4.27 percent.

This is the government bond equivalent of the GECC deal which came at a large concession yesterday.

It is so cheap to the rest of the curve that anyone who bought it is busy selling anything that is not tied down against it. Bid-to-cover was down to 2.14.

my basis of interpretation is this:

the united states government is borrowing massively to finance two programs: $700bn of fiscal stimulus to manage demand, and $700bn in wealth transfers to banks to shore up balance sheets. in order to do this, the treasury must sell a lot of debt.

meanwhile, the international market for treasury debt has shrunk rather considerably as trade flows (and therefore the american trade deficit) have contracted. in fact, per brad setser, china is now the only significant international purchaser of treasuries (see this chart specifically). china reallocated out of agencies and into treasuries during 2008, and this impulse will fade out in 2009, reducing china's treasury purchases in line with the reduction of the trade deficit. many people have worried about what would happen when net foreign demand for treasuries began to away. it is now beginning to happen.

this leaves the united states to sell the new increased pace of its debt issuance domestically. this was easy during the collapse of risk assets in 2008 and early 2009 as capital fled into treasury instruments. but now that risk appetite is increasing, where is private demand for accelerated issuance coming from?

at core, a significant part of of the end demand is coming from banks, who are seeing their customers paying down debt and building savings in response to the massive balance sheet shock of last year. these cash flows are being borrowed out of the banks by treasury in exchange for bonds.

(More)

House bypasses governor’s veto to claim Oklahoma’s sovereignty 

Henry vetoed HJR 1003 because he said it suggested, among other things, that Oklahoma should return federal tax dollars.

Nation Ready To Be Lied To About Economy Again (H/T SteveS)

WASHINGTON—After nearly four months of frank, honest, and open dialogue about the failing economy, a weary U.S. populace announced this week that it is once again ready to be lied to about the current state of the financial system.

Tired of hearing the grim truth about their economic future, Americans demanded that the bald-faced lies resume immediately, particularly whenever politicians feel the need to divulge another terrifying problem with Wall Street, the housing market, or any one of a hundred other ticking time bombs everyone was better off not knowing about.

In addition, citizens are requesting that the phrase, "It will only get worse before it gets better," be permanently replaced with, "Things are going great. Enjoy yourselves."

"I thought I wanted a new era of transparency and accountability, but honestly, I just can't handle it," Ohio resident Nathan Pletcher said. "All I ever hear about now is how my retirement has been pushed back 15 years and how I won't be able to afford my daughter's tuition when she grows up."

"From now on, just tell me the bullshit I want to hear," Pletcher added. "Tell me my savings are okay, everybody has a job, and we're No. 1 again. Please, just lie to my face."

The national call for decreased candor began last month, after the Department of Labor released another soul-crushing report that most Americans agreed "wasn't helping anything" and "didn't need to be so specific, at least."

Market Deceptions (H'T MeMorrison)

05/05/09 London, England Happy days are here again! Enjoy them while they last…

“Optimism builds,” says a headline in the Financial Times.

As predicted, the world markets are enjoying a bounce. People who had no idea there was anything wrong with the world financial system two years ago, now say the problem has been fixed.

Who fixed it? The people who had no idea what was wrong with it, of course.

What did they fix it with? The same thing that caused the problem they didn’t see – debt.

Who makes sure it won’t break again? The people who didn’t notice the wheels coming off the last time.

Prison Awaiting Hostile Bloggers

Proposed congressional legislation would demand up to two years in prison for those whose electronic speech is meant to “coerce, intimidate, harass, or cause substantial emotional distress to a person.”

If These Are "The Best And Brightest" Pray That We Never See "The Worst and Dumbest"

As for our Wall Street geniuses:

For example, in March, Edward Liddy, appointed chairman of A.I.G. by the federal government, objected to government rules limiting the compensation of banks and other companies bailed out by the taxpayers: "We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses—which are now being operated principally on behalf of American taxpayers—if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury." Similarly, when there was a public outcry regarding the $3.6 billion in bonuses being paid to Merrill Lynch employees because the securities firm had lost over $27 billion in 2008, John Thain, the former CEO, said, "If we don't pay our people well, we won't be able to keep the best and the brightest."

Like Lind, what is either most appalling or funniest, depending on your mood, is the use of "best and brightest" without the sneer quotes. Are these people serious? The best and brightest do not think torture is a brilliant idea, either tactically, morally or legally. They do not fabricate evidence so as to invade those who didn't attack us while twiddling their thumbs over those who did. The best and brightest do not run our economy off the rails with knuckle-headed Ponzi schemes that Homer Simpson would think too stupid. By definition: these are not the best and brightest. As for A.I.G. "operated principally on behalf of the American taxpayer"-- Hey, 'best and brightest'? Why is that? Cuz y'all are so civic-minded or 'cuz the American taxpayer had to save you from yourselves like a buncha college kids with their first credit cards?

If anything, both DC and Wall Street need a fierce reminder that malfeasance will actually be punished (now that the GOP is out) leaving room for the truly best (i.e. good character) and actually brightest (i.e. smart enough to know that torture and bottomless greed don't work out so well long term). A fierce reminder like appropriate punishment. As Lind puts it:

Since Watergate, it's been generally known that if the president orders you to burgle the rival party's campaign headquarters you can go to jail if you obey him, and yet there is no shortage of talented people eager to serve in the executive branch, often at great sacrifice in time and income.

As for the Wall Street:

Where will the best and the brightest of the financial sector flee, to get away from regulation and earn obscenely high salaries? Not Canada, where tight regulation of banks prevented the kind of meltdown that has occurred in the U.S. Nor Australia, where similar strict banking regulations also spared that country's financial sector. London, Singapore or Dubai are sometimes mentioned as possible rival financial centers that would be eager to welcome the kind of overpaid financiers who wrecked the U.S. and global economy. Most Americans, I think, would agree that it is worth the risk. The voluntary expatriation of leading Wall Street geniuses might help to restore the U.S. economy and wreck potential rival financial capitals at the same time. The thought brings to mind the observation by a wag on the defection in the 1970s by John Connally from the Democrats to the Republicans: "He raised the IQ of both parties."

Since Nixon, and once we're post-financial apocalypse, those entering these professions are much more like to accept their moral and legal limitations if only for fear of repercussions. My eight year old knows that: he doesn't refrain from whomping his little sister out of brotherly love but out of fear of my reaction. The Bushies and the Wall Streeters were looters, plain and simple, running amok in the lawless chaos that were the Bush years. Best and brightest? Ha. They're not even smarter than my second grader.

Fraud Enforcement and Recovery Act of 2009

A bill to improve enforcement of mortgage fraud, securities fraud, financial institution fraud, and other frauds related to federal assistance and relief programs, for the recovery of funds lost to these frauds, and for other purposes.

Insider buying

via ft alphaville, this from the pragmatic capitalist -- it's dropped off to zero -- follows on his earlier comments about insider selling -- it's rampant.

the only reasonably convincing study about insider trading i recall seeing was one that correlated the market to insider activity at several months of lead time -- that is, execs foresee and plan for purchases/sales at some distance to actual business trend changes.

but activity also tends to lag big moves as well -- as alphaville articulates a bit by citing forbes, corporate officers are not perfect seers but also just like everyone else and respond with herd behavior. i think that reality explains a lot of what watchers of insider trading observe -- take february 2008, for example.

I submit that the proper way of interpreting the insiders' bullishness in recent weeks and months is that there is a good probability that the stock market will be significantly higher in one year's time.

oops.

many corporate officers are experiencing negative equity for the first time in a long time, need to raise cash, are deleveraging. they're probably as terrified and wounded as anyone else. so it's quite difficult for me to make much sense of insider trends.

Krugman's White House Dinner

From Newsweek: Prisoners of the White House (ht Jonathan)

On the night of April 27, for instance, the president invited to the White House some of his administration's sharpest critics on the economy, including New York Times columnist Paul Krugman and Columbia University economist Joseph Stiglitz. Over a roast-beef dinner, Obama listened and questioned while Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive government intervention in the banking system.
I haven't seen any comments from Stiglitz or on Krugman's blog - maybe the food wasn't very good.

Update: Krugman: Nothing to say "... the conversation was off the record."

ADP Employment Report Shows Improvement (Chart)

What do you get when you buy a nuke? You get a lot of delays and rate increases…(H/T Fred)

Progress Energy said Friday it has pushed back by 20 months its schedule for bringing on-line two planned new nuclear reactors in Florida, after the Nuclear Regulatory Commission said its review of the plant site will take longer than expected.

Progress also said it will spread out over five years certain early–stage costs for the new reactors that it could legally bill to ratepayers entirely in 2010, an apparent bid to tamp down customer anger over rate increases linked to the project that took effect earlier this year.

New nuclear plants are so expensive they are likely to provide electricity at some 15 cents per kilowatt hour (see “Nuclear power, Part 2: The price is not right“) — or possibly more than 20 cents/kWh (see “Exclusive analysis, Part 1: The staggering cost of new nuclear power“). The precise answer — 50% higher than average U.S. electricity prices or more than 100% higher — is hard to know since it is all but impossible to find a utility willing to stand behind a firm price in a rate hearing.

When we last left Progress Energy in 2008, it had said the twin 1,100-megawatt plants it intends to build would cost $14 billion, which “triples estimates the utility offered little more than a year ago.” And that didn’t even count the 200-mile $3 billion transmission system utility needs, which brings the price up to a staggering $7,700 a kilowatt. Under Florida law, to pay for these nuclear power plants, Progress Energy can raise the rates of its customers a $100 a year for years and years and years before they even get one kilowatt-hour from these plants. Sweet deal, no?

Energy Daily (subs. req’d, quoted above) updates the Florida story. Let’s start with the cost to consumers:

As for project costs, Progress said it has filed with the Florida Public Service Commission (PSC) for permission to add to customer bills next year an additional $6.69 per thousand kilowatt-hours (KWH) charge to cover the Levy County reactor costs as well as work to boost output at its existing Crystal River nuclear plant from 900 to 1,080 megawatts.

The costs of the Levy County project have already irked some Florida ratepayers who saw their bills jump 25 percent in January to cover early costs for the new reactors as well as increases in the cost of fuel Progress purchases to generate power.

From too cheap to meter to too expensive to matter.

For the record, “In 2007, the average monthly residential electricity consumption was 936 kilowatthours (kWh).” So we’re talking more than $70 a year added to the average customers bills for a long, long time before they even see a single kilowatt hour.

In reaction to customer anger, Progress in April began deferring some of the costs of the Levy County project.

Under the company’s new cost-recovery proposal announced Friday, Progress will bill ratepayers next year 30 cents per 1,000 KWH to pay for the power up-rate at Crystal River, $1.69 per 1,000 KWH to recoup deferred costs from 2009 for the Levy County project and $4.70 per KWH to cover costs for the new reactors incurred in 2010.

Actually, Progress said that to fully recover those costs in 2010 as allowed it would have to bill customers about twice that–$12.63 per 1,000 KWH. But Progress said it has instead proposed to spread the balance over five years of future billings to “[lessen] the impact yearly impact on the customer and [provide] some short-term customer price relief.

(More)

 Bailoutout Recipient’s Lobbying Activity (Table on page with PDF links)

Bond Sale – Bombs Away…(Chart)

Obama to Cut 0.5% of Budget... Is This a Joke? (Chart)

Bah Bye, NY Fed Chair Friedman resigns (Video)

 A few A(H1N1) Links Dr. Henry Niman's Map 2088 Cases as of this writing, A(H1N1) Current TimelineCDC Cases

18 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
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Posts: 3620
Re: Daily Digest - May 8

Quite a day in the news. If you are pressed for time I'd recommend catching the bond/Treasury saga. I'm sure this is going to have an interesting ending... 

Please don't miss Congressman Alan Grayson's video hearing. (I went to show it to Marsh last night and the audo was poorer than when I had listened to it, seems good now.)

Oh, looks like the flu is spreading exponentially. W H O ooocodanode...

Take care

FireJack's picture
FireJack
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Re: Daily Digest - May 8

Given where we are now does anyone else have a prediction about when the banks (and governments) start to collapse? With the commercial and housing collapse coming (well starting now really) it doesn't look like we have long. I'm still sticking to my august/sept time line but it starting to look like it may be sooner than that.

 

 

mpelchat's picture
mpelchat
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Re: Daily Digest - May 8

FireJack,

Go into "Bond Sale - Bombs away" and you can find a link to an older article from Nathen that explains the economic pattern that we are in right now.

It is interesting and gives some clues to a bond bust that can cripple the USA.

mpelchat's picture
mpelchat
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Re: Daily Digest - May 8

FireJack,

Go into "Bond Sale - Bombs away" and you can find a link to an older article from Nathen that explains the economic pattern that we are in right now.

It is interesting and gives some clues to a bond bust that can cripple the USA.

SagerXX's picture
SagerXX
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Posts: 2219
Re: Daily Digest - May 8

 Well, you could posit that a crash wouldn't start in August (since you don't "roll out new products in August" [grin]) but it could well be that it all comes unraveled then for precisely that reason.  My feel is that if it's not underway by July then we're looking at October.  But that's purely an intuitive hunch and I'm hardly an expert.  (Which is why I'm here.  If I even have a chance to be 24 hours ahead of the game when the S starts HTF...)

Viva -- Sager

mpelchat's picture
mpelchat
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Re: Daily Digest - May 8

Sorry guys I have no clue what happened there with the muti responses

Subprime JD's picture
Subprime JD
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Re: Daily Digest - May 8

I dont see how you guys think were going to have a banking collapse within the next 6 months. All the government has been doing in the last 6 months is printing printing printing. Ive said this before and i will say it again: this will NOT look like 1929-1932. They are printing money buying junk paper left and right. Also, foreign central banks are buying gov debt to the tune of 33% per auction. In addition, magic accounting rules allow the banks to hide their losses for a indefinite amount of time. Once the inflationary pressures start getting out of hand the fed will pull the plug and will reintroduce DEFLATIONARY fears, which will tank the markets, then print print print again. Its a tight game they are playing and they are running out of room on both ends of the game. Nevertheless, the fact that the banks can hide their losses for such a large amount of time gives them breathing room, just like the japanese banks did in the 90s. Also, the banks could "securitize" the home loans on their balance sheets, sell them to fannie and freddie, and get cash from the government. The mantra of the ruling powers is this: save the banks, trash the dollar.

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - May 8

Fannie Mae wants $25b bailout


US mortgage finance firm Fannie Mae has asked the Treasury for another $25 billion, as it announced a loss for the first three months of 2009.

It is the second time that Fannie Mae has requested US government aid in recent months - it received $20 billion in March.

The Treasury has made available funds of $260 billion to Fannie Mae and fellow mortgage giant Freddie Mac.

Fannie Mae reported a loss of $30 billion, but it was smaller than the $32 billion loss it made in the previous quarter.

It said the weak first quarter results stemmed from "credit-related expenses, securities impairments and fair value losses" as "persistent deterioration in housing, mortgage, financial and credit markets continued to adversely affect our financial results."

The company and its troubled twin Freddie Mac finance more than 40 percent of US home mortgage and were taken over by the government in September last year in a bid to avert their collapse and a further meltdown of the mortgage market.

"Fannie Mae is continuing its efforts to support the housing market both by working with lenders, loan servicers and the government to help homeowners avoid foreclosure and by providing liquidity to the mortgage market," a statement said.

- ABC/AFP

that1guy's picture
that1guy
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Re: Daily Digest - May 8

you guys all watching the dollar tanking? (has to do with the last few posts...)

pinecarr's picture
pinecarr
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mcafeejs's picture
mcafeejs
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Posts: 34
Re: Daily Digest - May 8

I received an email from folks in Portugal on a cruise.  Here is what they wrote.  Emphasis mine.

"Ja-neet-toe and I toured Lizboe today.  fun  We hired an English speaking taxi and out we went exploring..  Many hours later I learned that Portugal has a liberal gov't and our taxi driver was upset because so many dollars were "every where". "

Good luck stopping that Ben & Tim

logBurner's picture
logBurner
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Re: Daily Digest - May 8

At 1:51 into the video at

http://economicedge.blogspot.com/2009/05/is-anyone-minding-store-at-fede...

What does that lady advise? Any lip readers?

Davos's picture
Davos
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Re: Daily Digest - May 8

Ha, ha, I thought the same exact thing. I can't read lips but I think her smile after the puppet spoke revealed what the puppet master whispered.

SagerXX's picture
SagerXX
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Re: Daily Digest - May 8
pinecarr wrote:

One of Chris's articles just hit #1 on The Market Oracle, http://www.marketoracle.co.uk/


Congratulations, Chris!

Whoopwhoop!

SPM's picture
SPM
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Posts: 241
Re: Daily Digest - May 8

I'm sorry, but in the nation ready to be lied about article. I don't feel they have ever been forthcoming with accurate information. It is sad to see an article like that. I hope that isn't what people really want. Just an opinion.

xx747xx's picture
xx747xx
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Re: Daily Digest - May 8

That is a satire reposted from "The Onion". 

that1guy's picture
that1guy
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Posts: 333
Re: Daily Digest - May 8

The only big groups to oppose the 'bankruptcy' the government is creating for Chrysler just backed down....here is a direct quote as to why

 

'Thomas Lauria, the group's lead attorney, said in a statement that the lenders he represented, and others, felt undue pressure from President Barrack Obama's administration to accept the deal.

The group eventually came to the conclusion that there wasn't enough of them to "withstand the enormous pressure and machinery of the U.S. government," he said.'

Horrible.....I was really hoping they followed through, I guess it was wish full thinking

http://finance.yahoo.com/news/Group-drops-fight-against-apf-15190149.html  

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
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Posts: 2237
Re: Daily Digest - May 8

I almost split a gut reading that Onion article, "Nation Ready to be Lied to about Economy Again"!   Thanks for the post SteveS, it's good to laugh!  

It also pointed to a great "related story", "Struggling Americans Forced to work Extra-Dimensional 4th Shift", http://www.theonion.com/content/news/struggling_americans_forced_to . Too funny!

 

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