Daily Digest

Daily Digest - October 29

Thursday, October 29, 2009, 9:51 AM
  • Few senior traders or bankers believe that fundamentals explain this pattern
  • Why Asia must eventually ditch the Dollar
  • Urban Wastelands for Sale 
  • GMAC And Treasury In Advanced Talks For $2.8 Billion More From Taxpayers
  • Proposed Legislation Would Put Bank Rescue Cost on Big Companies
  • First Amex And Visa, Now Bartercard- Yes It's For Real
  • Largest Growing Economic Force Is Women
  • Gravity Of Global Power Moving From West To East
  • Roubini: 'We are planting the seeds of the next financial crisis'
  • Chicagoans Could Get Paid For Turning In Tax Cheats
  • Geithner sees dollar's reign lasting 'long time'
  • Tax refugees staging escape from New York 
  • Former Chairman of Citigroup: Restore Glass-Steagall
  • Financial Services Committee and Treasury Department Release Draft Legislation to Address Systemic Risk, “Too Big to Fail” Institutions
  • Goldman Lobbies Senate, Says Full Transparency Sucks
  • The 500-lb Gorilla In The Room: The Bogus Ratings of Moodys, Fitch, et al... 
  • Reasons For Optimism In The Face Of A Future Economic Crisis
  • Living Out The Austrian Economic Forecast: Hyperinflation As A Consequence of Money Printing
  • China: The Next Alternative Energy Powerhouse
  • The Victory of the Commons


Few senior traders or bankers believe that fundamentals explain this pattern (David M.)

Oh, I am sure the banks’ public relations people will talk about the subdued atmosphere in banking, but don’t you believe it,” he continued bitterly, noting that when money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up. “Any sense of control is being chucked out of the window. After the dotcom boom and bust it took a good few years for the market to get its collective mojo back [but] this time it has taken just a few months,” he added. He finished with a despairing question: “Was October 2008 just a dress rehearsal for the crash when this latest bubble bursts?”

Why Asia must eventually ditch the Dollar (David M.)

As America continues to monetize debt at a trillion-dollar annual rate, and the United States continues to withdraw from international leadership, Asia will have no choice but to make its own arrangements. The Obama administration, in my view, will fail to reflate the burst consumer bubble. Attempting to do so by gunning the federal deficit up to 12% of GDP and ballooning the Fed balance sheet is one of the stupidest things the United States ever has done.

Urban Wastelands for Sale (David M.)

Taken together, the properties seized by tax collectors for arrears and put up for sale last week represented an area the size of New York's Central Park. Total vacant land in Detroit now occupies an area almost the size of Boston, according to a Detroit Free Press estimate.

GMAC And Treasury In Advanced Talks For $2.8 Billion More From Taxpayers (M.W.)

GMAC Financial Services Inc.and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money...The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008...Federal officials also are moving to shore up GMAC's ability to fund its daily operations, with the FDIC telling the company Tuesday the agency will guarantee an additional $2.9 billion in debt... The FDIC guarantee will make it easier for the company to sell debt to investors. The FDIC backed $4.5 billion in GMAC-issued debt earlier this year. The FDIC approval came just four days before the expiration of the regulator's program that guarantees debt issued by certain banks.

Proposed Legislation Would Put Bank Rescue Cost on Big Companies (M.W.)

The Obama administration unveiled legislation on Tuesday to give the government broad new powers to shift the cost of rescues of big, troubled financial institutions from taxpayers to other large companies. The legislation, drafted jointly by Treasury officials and Representative Barney Frank, the head of the House Financial Services Committee, would create a special fund, paid by assessments on financial companies with more than $10 billion in assets, to bear the costs of big firms that fail.

First Amex And Visa, Now Bartercard- Yes It's For Real (M.W.)

As businesses battle to get through the recession, more and more are turning to third-party-exchange networks like Bartercard. According to the International Reciprocal Trade Association, the industry trade body, more than 400,000 businesses transacted $10 billion globally in 2008 — and officials expect trade volume to grow by 15% in 2009. Bartercard, the world's largest exchange network, is leading the charge. So far this year trades through its network are worth more than $2 billion, up by 20% over 2008.

Largest Growing Economic Force Is Women (M.W.)

The earning power of women globally is expected to reach $18 trillion by 2014 -- a $5 trillion rise for current income, according to World Bank estimates. That is more than twice the estimated 2014 GDP of China and India combined. Hidden in the bad news of unemployment in the most recent U.S. labor report was a historic statistic that underlines the growing importance of "womenonics" -- for the first time, the number of working women in the world's largest market was virtually equal to the number of men. By the end of the year, working women in the U.S. are expected to outnumber men.

Gravity Of Global Power Moving From West To East (M.W.)

This is the first in a six-part series of articles on the rise and fall of economic and business empires [due to] the global financial crisis..... The world economic order is undergoing major changes... U.S. hegemony has been gradually eclipsed by the rise of new economic powers such as China, Brazil and India. This major transition will affect the global economy through multiple channels... there will be slower financial globalization, major currency adjustments and higher macroeconomic volatility... China is changing the face of the global economy more than any other country since World War II.

Roubini: 'We are planting the seeds of the next financial crisis' (M.W.)

Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini. “We have the mother of all carry trades,” Roubini said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”

Chicagoans Could Get Paid For Turning In Tax Cheats (M.W.)

Mayor Daley's tough-times, 2010 budget includes a first-ever "Tax Whistleblower Program" expected to include cash bounties for informants who deliver the goods on unpaid business taxes.

Geithner sees dollar's reign lasting 'long time' (M.W.)

US Treasury Secretary Timothy Geithner said Tuesday the dollar would keep its status as the world's main reserve currency a "long time." Geithner, speaking to an investors conference in New York a day after the dollar hit a 14-month low against the euro, said: "The dollar will remain the principal reserve currency for a long time." The dollar has nosedived in recent months as investors turn away from the greenback, considered a safe haven amid economic uncertainty, amid a burgeoning recovery from a severe global slump.

Tax refugees staging escape from New York (M.W.)

New Yorkers are fleeing the state and city in alarming numbers -- and costing a fortune in lost tax dollars, a new study shows. More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.

Former Chairman of Citigroup: Restore Glass-Steagall (M.W.)

The former chairman of Citigroup, John S. Reed, wrote a letter to the editor of the New York Times calling for a reinstatement of Glass-Steagall: As another older banker and one who has experienced both the pre- and post-Glass-Steagall world, I would agree with Paul A. Volcker (and also Mervyn King, governor of the Bank of England) that some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense.

Financial Services Committee and Treasury Department Release Draft Legislation to Address Systemic Risk, “Too Big to Fail” Institutions (Vinny A.)

Today, the House Financial Services Committee and the Treasury Department released draft legislation to address the issue of systemic risk and “too big to fail” financial institutions.

Goldman Lobbies Senate, Says Full Transparency Sucks (nncita)

This is from a lobbying document Goldman has been passing around the Senate on financial regulatory reform in general. There is a lot of crazy stuff in this document, but the most notable is probably this passage, in which Goldman pooh-poohs the notion that complete transparency in markets creates accurate prices.

Reasons For Optimism In The Face Of A Future Economic Crisis (Doug S.)

In an October 20, 2009 Marketwatch article, Paul Farrell gives plentiful reasons why the American economic empire is crumbling. Big business and government have not planned adequately for Black Swan events. Wall Street has sacked Washington. The government has institutionalized greed. The Fed has replaced the U.S. Congress as the nation’s core economic policy institution. Ultimately, the nation looks like Rome near her ancient tipping point (i.e., overspending, corruption, decadence, costly wars, gross wealth inequality, etc.).

The 500-lb Gorilla In The Room: The Bogus Ratings of Moodys, Fitch, et al... (Claire H.)

The AAA credit rating, once a point of pride for leading industrial companies, has lost its luster as confidence in ratings agencies has fallen and the number of companies in its ranks has dwindled -- sometimes by choice..

Living Out The Austrian Economic Forecast: Hyperinflation As A Consequence of Money Printing (Claire H.)

Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.


China: The Next Alternative Energy Powerhouse (M.W.)

In China, one doesn't have to look far to see the country's commitment to renewable energy. In cities such as Beijing and Shanghai, rooftops are now covered with solar water heaters. On the grasslands of Inner Mongolia, towering white wind turbines are popping up where only cattle, sheep and herders on horseback once roamed. With the global economy languishing, China offers the promise that its green-energy drive can become a major source of demand for international wind and solar companies.


The Victory of the Commons (Steve S.)

Awarding the world's most prestigious economics prize to a scholar who champions cooperative behavior greatly boosts the legitimacy of the commons as a framework for solving our social and environmental problems.


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Re: Daily Digest - October 29

"The government's first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts."

"China and Brazil have started to trade in yuan, Kazakhstan Today agency reports citing the Russian information resource NEWSru.

According to NEWSru, China and Brazil established international payments in national currency of the Peoples Republic of China. Geli Corporation has already received from San Paolo a few million yuans. According to Vice President of the Brazilian branch of Bank of China, all formalities required by the local bodies of control have been met."

"The governor said he had ordered seven-day unpaid furloughs for 3,258 workers not covered by union contracts. That move will save about $16 million, which Culver said he would use to reduce cuts to agencies dealing with children and vulnerable adults."

  • 5) GDP report...Pick your numbers

A) "The world’s largest economy expanded at a 3.5 percent pace from July through September"

B) "In the past year, the economy has contracted 2.3%. The economy shrank 0.7% annualized in the second quarter and 6.4% in the first quarter."

(Here's a blogger on those numbers and here's Nathan's Economic Edge on the GDP numbers)

C) Jobless Claims

"A report from the Labor Department showed 530,000 workers filed claims for jobless benefits last week, more than anticipated and signaling the job market is slow to heal even as growth picks up."

"The value of hotel construction starts fell 57% year to date through September versus the same three months last year. Hotel construction spending fell 38% in the fourteen months to September 2009. With September starts more than 75% below the average month during the fall 2005 – summer 2008 hotel building boom, spending will decline a further 7% into next summer. This will make the 2008-10 decline about 25% deeper than the last recession. Hotel occupancy has dropped below 60% and is headed to near 55% a year ahead."

"Delinquencies in commercial mortgages also ballooned for the quarter. The rate hiked to 4.7% in Q309 from 4.1% in the previous quarter and more than doubled the 2.1% rate a year ago, according to the report.

“The delinquency rate has been increasing at an accelerated rate since Lehman Brothers’ collapse in September 2008 and the ensuing severe credit crunch and economic downturn,” according to the report."

"Just when parents thought things in Hawaii's public schools couldn't get much worse, Department of Education officials warned yesterday that "thousands" of DOE employees will be laid off if a federal judge blocks teacher furloughs."

"The governor is expected to ask the Legislature for expanded power to make budget reductions. He also warned of up to 2,000 layoffs, unless state employee unions agree to furloughs or other cost-cutting measures."

"Still, Chen confirmed that China is investigating whether U.S. carmakers including General Motors Co. and Ford Motor Co. benefited unfairly from government assistance.

China “has the right to investigate” U.S. auto imports, Chen said. China “will conduct the investigations in a just and transparent review,” he said."

"Drivers heading east on Interstate 40 need to drive several miles farther than Haviland for a rest.

If the Arizona Department of Transportation sees additional cuts, drivers may not have anywhere to rest until they get out of the state."

"Oct. 28 (Bloomberg) -- New York Lieutenant Governor Richard Ravitch predicted states across the U.S. would face deficits totaling as much as $500 billion in 2011 after the federal government stops paying them economic stimulus grants.

Ravitch, 76, a real estate developer and former chairman of New York’s Metropolitan Transportation Authority, said the looming nationwide fiscal crisis would first become apparent as states’ credit ratings falter, making it more expensive to borrow money."

""They took this action knowing that they would have to assume billions of dollars in unfunded pension liabilities and drastically reduce the pensions of Delphi retirees," Gump is expected to testify. "These illegal actions cost the Delphi retirees, both hourly and salaried, billions of dollars in lost pension annuities."

The PBGC liens, valued at nearly $3.4 billion, were meant to protect Delphi pension plans but instead led to Delphi being unable to sell its U.S.-based manufacturing assets to GM. Delphi was also unable to sell its remaining offshore business."

"The pension issue is, to put it bluntly, holding our community back. The sheer magnitude of its $238 million unfunded liability overshadows all other critical issues facing the City of Springfield, making it difficult, if not impossible, to plan for other community needs."

" In July, the civil grand jury determined that San Francisco’s pension costs will increase by nearly 300 percent — from $178 million a year to $520 million — during the next three years. The increase is compounded, according to the report, by the fact that 40 percent of city employees are now eligible for retirement and another 15 percent will become eligible in the next five years."

(The PDF file  he refers to is no longer available, but it still survives this way)

"The falling pension assets add to the challenges of states facing combined budget gaps of $350 billion for the current and coming fiscal years, according to the Washington, D.C.-based Center on Budget and Policy Priorities."

"The company will boost its loss projections for prime- jumbo, Alt-A, option adjustable-rate and subprime mortgages backing bonds issued between 2005 and 2008 after seeing higher losses per foreclosure than expected, Moody’s said today in a statement."


........Those GDP numbers really show that the economy is getting better this time.

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Re: Daily Digest - October 29

Geithner sees dollar's reign lasting 'long time 

Alice falls down the rabbit hole and her dress poofs up like a parachute

Alice: Well, after this I should think nothing of falling down stairs.

White Rabbit: [singing] I'm late / I'm late / For a very important date. / No time to say "Hello." / Goodbye. / I'm late, I'm late, I'm late.

Alice: If I had a world of my own, everything would be nonsense. Nothing would be what it is because everything would be what it isn't. And contrary-wise; what it is it wouldn't be, and what it wouldn't be, it would. You see? 

Cheshire Cat: Of course, he's mad, too.

Alice: But I don't want to go among mad people.

Cheshire Cat: Oh, you can't help that. Most everyone's mad here. [laughs maniacally; starts to disappear]

Cheshire Cat: You may have noticed that I'm not all there myself.

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Re: Daily Digest - October 29

Having been scouring the intertubes for years (and elsewhere) and campaigning heavily, (even on the CM discussion forums)  for barter systems, I am astounded that I've never heard of bartercard, and that it got front line billing so fast (LETS has been around for decades, but I doubt that it has ever gotten a mention in a mainstream news magazine like TIME).  If I was more cynical, I would even be suspicious that this is just a big player trying out a new strategy.

However, I'm happy to see bartering get some serious airtime.  It really makes sense.

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Re: China and Alternative Energy

Good read. It makes me think about how China actually plans it's future - and how we don't.

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Re: Daily Digest - October 29

"Bartercard", huh.  I remember recently reading an article about how the 'Mad Max' movies may have been predicting the future pretty well here...no doubt the Bartercard would be useful in Bartertown.


Let's see how long those Treasury auctions go without the Fed buying up the remaing bonds for sale.  I seriously doubt they would let any Treasury auction go without all the new debt being sold, which is what would really happen quickly if the Fed were not in there buying up huge chunks of the offerings.

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Re: China and Alternative Energy

Wha...?  China planning its future? With a new coal fired power station a week?

Make no mistake, even at 24% pa growth (at least pre-GFC) renewables could not even keep up with the growth in electricity demand....


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Re: Daily Digest - October 29

Brazilian Central Bank president Henrique Meirelles said the country is considering the gradual elimination of the US dollar in trade with China, Russia and India, which together with Brazil make up the BRIC group."


"Meirelles said he had been instructed by President Lula da Silva to begin talks with Chinese authorities on the issue of using the Real and the Yuan in bilateral trade transactions.

China has become Brazil’s main trade partner, displacing the US, with bilateral exchange reaching over 36 billion US dollars in 2009. China has become the leading purchaser of commodities from Latinamerica.

President Lula da Silva and his Chinese peer Hu Jintao have talked about abandoning the US dollar, gradually, as the international commerce currency on several occasions this year."

"Since 2001, when Air France agreed to buy ten of the world's biggest passenger jets, the euro has strengthened by more than 60% against the dollar. That means Airbus, which translates all its finances into euros, is pocketing significantly less revenue per plane than it initially expected. And since Airbus books most of its costs in euros, the currency swings go straight to its bottom line.

"This situation is critical for a company like EADS, which has costs in euros and sales in dollars," EADS Chief Executive Louis Gallois recently told a French parliamentary committee. EADS estimates that a 10-cent drop in the dollar against the euro wipes €1 billion off earnings."


Brazil's message to the dollar

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Re: China and Alternative Energy
Damnthematrix wrote:

Wha...?  China planning its future? With a new coal fired power station a week?

Make no mistake, even at 24% pa growth (at least pre-GFC) renewables could not even keep up with the growth in electricity demand....


Oh, I realize they aren't going to become carbon neutral anytime soon! But youhave to admit they do a lot more long range planning than we do.  Of course they don't have to win any elections, so it's easier to do much better (or worse) than us. If you look at the one-child policy, the buying of copper and other commodities, etc., it's obvious they are thinking ahead. Now we have a lot more freedom, and I'm happy to be living in the US, but you have to admit, for a such a large, growing country they are probably making some pretty good decisions. Take the solar angle. Of course it won't negate the need for coal plants, but it creates an industry with huge growth (and export) potential and it gives them some good world publicity. Yes, China is planning it's future and we are not.


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Re: Daily Digest - October 29


Saudis Drop WTI Oil Contract

By Javier Blas
Financial Times, London
Wednesday, October 28, 2009

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange.

The decision by the world's biggest oil exporter could encourage other producers to abandon the benchmark and threatens the dominance of the world's most heavily traded oil futures contract. It is the main contract traded on Nymex.

The move reveals the growing discontent of Riyadh and its US refinery customers with WTI after the price of the price of the benchmark became separated from the global oil market this year.

The surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America's pipeline system, depressed the value of the WTI against other global benchmarks, throwing the global oil market into disarray.

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 -- a record gap. This dislocation in the market continued well into the summer.

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil-pricing company.

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Re: Daily Digest - October 29

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Re: Daily Digest - October 29

The increase in the GDP is good news, but lets keep this in perspective.  Most, if not all of the growth in GDP is due to government spending an dprograms.  In Q1 2008, GDP was $14,373.9B.  It dropped from there to a low of $14,151.2B last quarter.  Now it rose to $14,301.5B, a rise of 4.3 percent, or $150.3 billion.  During the period from March 2008 until now, the US Treasury has paid or loaned $397B through TARP alone.  This does not include actions from the FED, which are not subject to the public. Add in tax credits for first time homebuyers ($10 Billion), or cash-for-clunkers ($3 Billion).  So for every $1 increase in GDP in the past year an a half, the government has spent more than $2.77 that we know about.


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