Daily Digest

Daily Digest - October 14

Wednesday, October 14, 2009, 9:46 AM
  • UPDATE: China, Russia Working On Yuan-Ruble Trade Settlement
  • 4 Ways to Short the U.S. Dollar
  • Steep losses pose crisis for pensions
  • Dollar slumps, tugged by gold, stocks
  • Intervention suspected as dollar suffers
  • CIT debt swap struggles, bankruptcy looms
  • Capmark Financial bankruptcy due soon
  • Ohio has 8 percent spike in Medicaid enrollment
  • The Next Big Bailout? FHA Facing "Cataclysmic" Default Rates (Video)
  • Humboldt Bay's economy and the harbor district's future
  • New York's 'Private' Affair
  • Doing the Wrong Things with Derivatives – Stiglitz has the Right Idea…
  • Big trouble awaiting the next PA governor
  • Civilians Unemployed - 15 Weeks & Over (Graph)


UPDATE: China, Russia Working On Yuan-Ruble Trade Settlement

BEIJING (Dow Jones)--China and Russia are working on ways to eventually settle their trade with the Chinese yuan and Russian ruble, senior government officials from the two countries said Tuesday. China Vice Premier Zhang Dejiang said both sides should expand local currency settlement in their border areas, and that China and Russia plan to set up a bilateral currency deal. As part of such moves, banks in China will be encouraged to set up outlets in Russia, and Russian banks will be encouraged to do the same in China, Zhang said. At the same time, Russian Deputy Prime Minister Aleksandr Zhukov said Russia and China are working on using their own currencies to settle trade instead of using the dollar and euro, but that such a move would take a long time.

4 Ways to Short the U.S. Dollar

In addition, the government stimulus package makes it unlikely that an already weak monetary policy intended to support U.S. exports will be reversed in the near term. The government’s decisions to print more dollars and increase government spending suggest the currency will continue to weaken. In short, many signs point to the dollar’s decline. “I think the dollar is going to go down in the medium term, in three to five years,” says David Wyss, the chief economist at Standard & Poors. “Countries are diversifying away from the dollar reserves. China and the OPEC countries will be moving toward more evenly-weighted market baskets, which means they’ll be buying fewer dollars.”

Steep losses pose crisis for pensions

State and local government officials had predicted before the crisis they would have $3.6 trillion in their accounts by now, according to the Center for Retirement Research at Boston College. Today, they are $1.2 trillion short of that mark.

Dollar slumps, tugged by gold, stocks

The U.S. dollar fell 0.8% versus the Canadian dollar to C$1.0275, despite ideas Canadian authorities may soon intervene for the first time in a decade to stem the Canadian currency's rise.

Intervention suspected as dollar suffers

Renewed weakness in the U.S. dollar on Tuesday pushed the Thai baht and Philippine peso towards last week's multi-month highs, triggering fresh official intervention to curb their strength. The Singapore dollar rose but its gains were also limited by suspected official dollar-buying, a day after the monetary authority kept its zero appreciation policy intact and sounded wary on the economic outlook.

CIT debt swap struggles, bankruptcy looms

One investor that would take a hit in a CIT bankruptcy is the U.S. government. The United States' Troubled Asset Relief Program invested $2.3 billion in CIT in December and much or all of that could be lost if the company files for bankruptcy, analysts said."

Capmark Financial bankruptcy due soon

Capmark, based in Horsham, Pennsylvania, has three main commercial real estate businesses: lending and mortgage banking, investments and funds management and servicing. It had more than $288 billion in commercial real estate loans as of June 30. The company has about $20 billion in liabilities, of which about $10 billion are at Capmark Bank. It has about $8 billion in debt at the holding company level that is associated with the leveraged buyout.

Ohio has 8 percent spike in Medicaid enrollment

Medicaid now insures nearly 2 million Ohioans - nearly 1 in 5 state residents. Most of the new enrollees fell into poverty as the result of a lost job or cut hours.

The Next Big Bailout? FHA Facing "Cataclysmic" Default Rates(Video)

The FHA's portfolio is exploding [and] the taxpayer is now on the hook for 100% of the losses." How big of a hook? The FHA's mortgage portfolio is now approaching $1 trillion. You can't assume all those mortgages will default but you can assume the FHA's exposure will only grow in the months ahead as politicians continue to look for ways to support the housing market (especially in an election year.) In other words, FHA is looking very much like the "new Fannie Mae."

Humboldt Bay's economy and the harbor district's future

The pulp mill closure meant the loss of the monthly ships, and lost tariffs caused the harbor district budget deficit to increase from $500,000 to $750,000. Although we trimmed the budget deficit to somewhere between $300,000 and $500,000 in the current fiscal year (2009-2010), our trajectory would indicate insolvency and the need to reorganize under Chapter 9 of the bankruptcy code in 2013 or 2014. Our prospects for digging out of the hole with ship traffic have diminished to near zero.

New York's 'Private' Affair

State close to leasing out major public-works deals to investors Faced with a $3 billion deficit, the state is about to roll out a plan to lease to private investors everything from schools to bridges -- and it could result in new costs for New Yorkers, sources told The Post."

Doing the Wrong Things with Derivatives – Stiglitz has the Right Idea…

"Estimates run as high as $1.4 Quadrillion (!) for the notional value of the world’s derivatives. Prior to 1990 there was basically no market whatsoever. The only agency to track a portion of the U.S.’s derivatives is the OCC (Office of the Comptroller of Currencies). They only track a PORTION of the derivatives and only those held by commercial banks. Here’s their quarter 2 report:"

Big trouble awaiting the next PA governor

Consider the combined unfunded pension liabilities of the state's two largest pension systems, for public school and state employees, which by some measures in 2012 could be in the $20 billion to $40 billion range. A good portion of these costs will be reflected in higher statewide and local property taxes. Separately, the state's unfunded retiree medical liability stands at about $10 billion, against which the state is contributing only about $746 million. Since the annual assumed interest rate is 8.5 percent, the state is not even covering the annual interest cost of $850 million on this growing debt. All this is in addition to significant unfunded pension and health-care liabilities that also exist at the local levels of government.

Civilians Unemployed - 15 Weeks & Over (Graph)


saxplayer00o1's picture
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Re: Daily Digest - October 14

"Under pressure and after witnessing California botch their latest auction, Washington State proactively reduces their bond offering knowing that higher rates are here."

"More than 2,000 Santa Clara County homeowners received foreclosure notices from their lenders in September, but a relative few actually had their homes sold at auction.

Foreclosure figures released Tuesday by ForeclosureRadar, a Discovery Bay company that tracks California foreclosure activity, continue a trend of the past several months: More and more homeowners are failing to make their mortgage payments but banks aren't forcing the sale of their homes while they try to work out loan modifications."

"On Tuesday, Oct. 13, Mayor Sheila Dixon was presented with a bill for about $101 million.

The bill, payable on July 1, 2010, comes as a result of last year's stock-market crash--as well as the freeze-up in the credit markets and the huge drop in the value of commercial real estate. These financial disasters cost the joint Baltimore Fire Department and Baltimore Police Department pension fund more than half a billion dollars. The staggering loss--22 percent of the fund's value--triggered provisions in the city's contract with city fire and police unions requiring larger payments from taxpayers to keep the retirement plan funded.

And next year's giant bill is only a small part of the problem.

For more than a decade, under-funding by the city and enhanced benefits paid to retiring firefighters and police officers have sapped the fund's viability. It has gone from being 100 percent funded in the late 1990s to being less than 60 percent funded by July 2009."


"Officials said the county’s unfunded pension liability is $299 million, primarily driven by investment losses in the pension trust because of the drop in the stock market."

  • 5) "Oct. 14 (Bloomberg) -- New Jersey

Republican Christopher Christie, who seeks to unseat first-term Democratic Governor Jon Corzine on Nov. 3, said he’d reduce a budget deficit of as much as $8 billion by deferring pension payments and reducing employee costs."

"The pension system, which provides benefits to 700,000 current and future retirees, had an unfunded liability of $34.4 billion"

"He painted a bleak picture of the next five years in Tennessee as state leaders will try to crawl out of a billion dollar budget shortfall.

"We will have not given any raises to state employees for five years. We will have a pension system that is battered," said Bredesen. "Our reserves are going to be substantially depleted, and we will not have undertaken any new initiatives.""

"In 2002, about 31,000 people were using city shelters -- and those numbers have steadily increased each year, the group said.

This year has turned out to be "the worst on record for New York City homelessness since the Great Depression," they said."

"Delinquencies among U.S. commercial mortgage-backed securities surged to by a record amount in September, according to Moody's Investors Service, highlighing the ongoing woes on the commercial real-estate market.

Occupancy rates and rents are falling, which, coupled with an inability to refinance debt, is resulting in an acceleration of woes for property owners. "After tapering off for two months, the delinquency tracker appears to have resumed an upward trend as expected," said managing director Nick Levidy. "The delinquency rate is likely to continue moving higher over the next several months as troubles compound in the commercial real estate sector."

September's delinquency rate of 3.64% compares with 0.54% a year earlier."

"The 56-building, 11,000 unit complex was acquired at the peak of the bubble for $5.4 billion by Tishman Speyer and BlackRock, with investors ranging from CALPERS (naturally) to the Church of England (not as obvious).

Here's the deal:

The property is now thought to be worth just $2.1 billion.

The buyers originally projected income would triple to $336 million in 2011, but right now it's only at $139 million.

They've got just $33 million cash on hand from its interest reserves to cover its debt, and a burn rate of $16 million.

So basically: they're screwed"

"The mortgage lending business is expected to take a turn for the worse in 2010 according to the industry's leading trade group.

Mortgage origination volume is expected to plunge by almost 21 percent to $1.56 trillion next year compared to an estimated $1.96 trillion in originations in 2009 according to a new forecast released yesterday by the Mortgage Bankers Association.

According to the release, mortgage lenders can expect to experience a dramatic decline in refinancing business due to mortgage rates inching upwards throughout next year."

  • 13)

Number of homeless students soaring

"Public schools are used to dealing with children in poverty, but this school year, San Antonio school districts are seeing more children than ever from families that have gone from struggling to put food on the table to keeping a roof over their heads.

School social workers say the increases are extreme.

“Never have I seen so many. Never, never. ... It's never been this bad,” said Diana Calderon, homeless liaison for Edgewood Independent School District."

.......Somewhere in the distance the dollar can be heard calling out

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Financial Coup D'Etat and the Reaction of Gold

From Mish: Financial Coup D'Etat and the Reaction of Gold

What Did We Get For The Trillions Of Dollars Spent?

Sadly, for all the 14 Trillion expansion in the Fed's balance sheet, the $1+ trillion in various stimulus programs, and monetary printing to the tune of $1 trillion as well, the economy has nothing to show for it other than a stock market rally.

The wealthy have been bailed out, while the middle class and poor are stuck without a job in underwater mortgages, hoping for scraps of mortgage payment reductions when many would be better off walking away. Meanwhile boomers are headed into retirement, underfunded and scared half to death.

I have been exchanging emails with John Mauldin on the growing list of problems as well as possible solutions (Please see Thoughts on the Economy: Problems and Solutions).

This week, John will have another Thoughts From The Frontline on the unsustainable path we are on. Be sure to look for it. The title will surprise long-time Mauldin readers.

As a long time reader of Mauldin, I can't wait for his next letter, if my stomach can take it that is.

Doug's picture
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Re: Daily Digest - October 14


Did you read the Hoisington article Mauldin linked to in his 10/12 Outside the Box letter?


I don't know if this link will work, but let me know.


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Re: Daily Digest - October 14

Dow crossed 10,000 today! If the market continues to fly higher then December is a potentially good time to go short. My trading account is 100% cash, still waiting to enter short positions.

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Re: Daily Digest - October 14

Regarding the derivatives article quoting Stiglitz - In the past, there had been lists posted in the Daily Digest showing the derivative exposure of the top financial institutions in the US.  As ongoing issues in the banking sector remain and have NOT been corrected, my concern is that the derivative positions of the largest financial institutions has actually gotten worse! 

Has anyone seen the lists recently?  Would love to see the latest data - especially for JPMorganChase, BofA, Goldman, Wells, as well as a comparison with where things were in January/February....

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Re: Daily Digest - October 14

Hey bearmarket,


You might want to consider putting that trading account money into a gold ETF rather than $.  The chart of the DXY is illistrative of my point here...


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Re: Daily Digest - October 14

Wow, Saxplayer, if the picture you're painting in the links above are representative of what's going on in the country, then things sure aren't as rosy as others in the MSM would like us to believe.

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Re: Daily Digest - October 14


Thanks for the pension articles.  Personally, I think this alone will develop into a problem of epic proportions.  When enough find out about the disparity between public and private pay and benefits, there will be fireworks. 

The unions will refuse to be given less than they "deserve" and the municipal governments will refuse to adequately address he problem until it unsurmountable. 

I wonder how teacher pension plans are doing?

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Re: Daily Digest - October 14

Here's a jolly view:

Richard Bove was on CNBC tonight during their special on "Dow 10,000" claming that deliquent mortgages were NO LONGER AN ISSUE (direct quote) and the outlook was pretty good.



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Re: Daily Digest - October 14

Hi saxplayer, excelent work

Please post the following link to the new DD


"So far, the shameful management skills of the banks' executives have cost US taxpayers more than $1 trillion in cash in the form of TARP bailout money and FDIC payments for failed banks, of which more than 120 have gone bankrupt since the beginning of the meltdown. This figure is even bigger if you consider guarantees extended by the government for institutions such as Fannie Mae and Freddy Mac, not to mention the massive capital injected directly to banks by the US Federal Reserve."

"The holes in the banks' balance sheets are probably much bigger than most of the estimates made by official institutions. This is why the belief that the massive capital injections to US banks would be translated to more credit for the real market turned out to be false. The banks needed all this money just to fill up the holes in their balances, and nobody can really tell if this was enough."

"Inflation is always a tool that provides governments a way to rob their own citizens without them noticing it in time. <b>In the US case, it gives the administration a way to rob other countries as well</b>, by eroding the value of the American government's debt to foreign creditors. This is why the voices from outside the US for establishing a new global currency sound more serious than ever. Right now the test case is the new idea to abandon the US dollar as the sole currency of oil trade."

saxplayer00o1's picture
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Re: Daily Digest - October 14

Hi saxplayer, excelent work

Please post the following link to the new DD

Thanks. I'm just doing the Wednesdays, but can send it in anyway for you. It's too late for Thursday' though.

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