Daily Digest

Daily Digest - October 3

Saturday, October 3, 2009, 10:30 AM
  • What Americans really want 
  • Retirement? Good luck with that
  • Wall Street Gets Protection From Itself In Proposed New Rules
  • Paul Volcker Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall
  • Unemployment in U.S. Probably Increased, Payrolls Dropped Again
  • Crisis brought attention to the Federal Reserve – Ron Paul (Video) 
  • Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt 
  • US Unemployment May Hit 15% in 2010: Strategist 
  • Time Magazine's Justin Fox: "Some Financial Market Conspiracies Are Real"
  • Investors in Treasuries, Dollars Defy Common Sense: David Pauly 
  • Matt Taibbi: Wall Street and its Naked Short Swindle and Government Fraud (Video Interview)
  • Getting Naked 
  • Getting Naked, Part 2
  • Rare Earths are Vital and China Owns them All
  • Could Food Shortages Bring Down Civilization?
  • Five Highly Productive Low Stress Animals You can Raise at Home 
  • Post-human Earth: How the planet will recover from us

Economy

What Americans really want (Livio Sanchez)

For 15 years, average Americans have exuded optimism and energy, whether they were talking about their political preferences, their employment aspirations or simply what they had for breakfast.

But that was before the economic meltdown one year ago. What a difference a year makes.

Today, Americans are boiling mad, and the elites from Washington to Wall Street to West Hollywood don't get it. It can best be summarized by 12 short words bellowed by Howard Beale, the deranged TV anchor in the movie "Network": "I'm as mad as hell, and I'm not going to take this anymore."

The frightening reality is that where there was hope, now there is cynicism. Where there were dreams, now there is disillusion. Instead of courage and resolve, I hear blame and finger-pointing.

Retirement? Good luck with that

The destructive effects of the financial crisis may be waning, but your retirement account won't soon forget. Savers lost 40% or more in the downturn -- a collective $2.1 trillion disappeared from 401k and IRA assets in 2008 alone -- and while the recent stock market recovery may feel good, it's done little to stem a mounting crisis in the retirement system in the United States.

Wall Street Gets Protection From Itself In Proposed New Rules (Doug S.)

"In his Wall Street speech Obama pledged that if taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay back every cent. Wall Street will lose little sleep over this pledge because its kingpins believe that with the transfer of trillions of dollars of liability from Wall Street to the federal government it will not be Wall Street that fails first when the next crisis hits. It will be the federal government. "It was of enormous importance to rebuild the wealth of Wall Street rapidly on the backside of this crisis so that Wall Street can participate with a global banking consortium in coming to the government’s rescue when the U.S. Treasury loses the ability to roll its debt forward. Of course, the rescue will be on Wall Street’s terms and with the brutal sacrifice of America’s economic autonomy."

Paul Volcker Blasts The Goldman Business Model, Moral Hazard, And Calls For A Return Of Glass-Steagall (David M.)

"As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets."

"Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks. Some trading, it is reasonably argued, is necessary as part of a full service customer relationship. The distinction between “proprietary” and “customer-related” may be cloudy at the border. But surely by the active use of capital requirements and the exercise of supervisory authority, appropriate restraint can be maintained. The point is not only the substantial risks inherent in capital market activities. There are deep-seated, almost unmanageable, conflicts of interest with normal banking relationships – individuals, businesses, investment management clients seeking credit, underwriting and unbiased advisory services.

Unemployment in U.S. Probably Increased, Payrolls Dropped Again (Vinny A.)

Oct. 2 (Bloomberg) -- The U.S. jobless rate probably rose to a 26-year high in September as employers kept cutting staff, signaling consumers will not lead the recovery, economists said before a report today.

Unemployment likely climbed to 9.8 percent, the highest since 1983, from 9.7 percent in August, according to the median estimate of 81 economists surveyed by Bloomberg News. Payrolls probably fell by 175,000 workers, the smallest drop in 13 months, they survey also showed.

Crisis brought attention to the Federal Reserve – Ron Paul (Video) (Vinny A.)

Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt (Vinny A.)

Oct. 2 (Bloomberg) -- The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.

Units of Frontier Financial Corp.,Towne Bancorp Inc. and Steel Partners Holdings LP are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average -- according to Federal Deposit Insurance Corp. data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.

US Unemployment May Hit 15% in 2010: Strategist (Vinny A.)

Unemployment can go as high as 12 to 15 percent in the United States next year, as the economic situation will get worse and more banks will go bankrupt, Nicu Harajchi, CEO at N1 Asset Management, told CNBC Friday.

We expect the (unemployment) numbers to increase… we believe that going into the fourth quarter we are going to see increased unemployment and I also think that in 2010 we are going to see somewhere between 12 to 15 percent in the US," Harajchi told "Worldwide Exchange."

Liquidity will start being withdrawn from financial markets, making things more difficult, he added.

"We are very pessimistic on 2010 because this is when we think that all that liquidity that has been pushed into the markets by the central banks and by the Fed, at some point they're going to come and they're going to need some of that money back," Harajchi said.

Three banks went bankrupt in 2007, 25 in 2008 and this year the number of US banks that went bankrupt is nearly 100.

"We think that 2010 is going to be a much worse year," he said.

Time Magazine's Justin Fox: "Some Financial Market Conspiracies Are Real" (Vinny A.)

Nobel prize winning economist Joseph Stiglitz says that Goldman Sachs may have engaged in frontrunning. Ask a Goldman spokesman, and he or she will undoubtedly say that is a conspiracy theory.

Investors in Treasuries, Dollars Defy Common Sense: David Pauly (Vinny A.)

Oct. 2 (Bloomberg) -- The U.S. should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion.

Massive government spending and money creation to rescue the nation from the Great Recession have deluged the U.S. Treasury market with new securities -- exacerbating the country’s already massive debt load.

Chronic U.S. trade deficits have led to the accumulation of vast stores of dollars in foreign bank accounts.

Classic economics theory says supply should overwhelm demand in both markets. Treasuries should no longer be considered free of risk. The dollar should no longer be the key global currency.

The U.S. has balanced its budget only five times in the past 50 years. The four straight years of surpluses starting with 1998 now look like a statistical error.

Total government debt at the end of 2008 was $10.7 trillion, compared with $5.53 trillion 10 years earlier. A bit of nostalgia: In 1978, the debt was $789 billion, with a “b.”

Matt Taibbi: Wall Street and its Naked Short Swindle and Government Fraud (Video Interview) (C. Watcher)

More from Matt Taibbi on the history of the Bear Stearns and Lehman Brothers collapses and the possible roll of naked short selling.

(his article is in the current issue of RS: http://www.rollingstone.com/issue1089)

Getting Naked (C. Watcher)

.. there’s a difference between legitimate short-selling and naked short-selling, which involves investors selling shares they don’t have. It’s illegal to drive down the price of stocks with naked shorting, but many people say it happens regularly. Clusterstock doesn’t believe it exists. It’s dreamed up by companies that get clobbered in the market: 

Naked short-selling is a popular mythical beast promoted by the execs at those failed companies, as well as guys like Patrick Byrne at Overstock.com, but it’s rubbish. It’s really no different than regular old short-selling, which also happens to be villified by the media, and by executives at struggling companies.

Getting Naked, Part 2 (C. Watcher)

This is a follow up on yesterday’s post about naked short selling. There may be some misunderstandings about what it actually is.

Clusterstock’s John Carney has a thoughtful slide show explaining why people are confused over naked short-selling and the idea of trading shares you don’t own. I highly recommend going through it. He says what people call naked shorting is really just shorting — essentially a bet against a public company. And true “naked” shorting is illegal and rare.

Energy

Rare Earths are Vital and China Owns them All (David M.)

We are addicted to rare earths as much as we are addicted to oil," said Byron King, editor of Energy & Scarcity Investors, published by Agora Financial LLC. Yet "none of these elements are famous like gold or silver. None gets shipped in giant ore freighters like iron, aluminum or copper." "Without these elements, much of the modern economy will just plain shut down,"

Environment

Could Food Shortages Bring Down Civilization? (C. Watcher)

In early 2008, Saudi Arabia announced that, after being self-sufficient in wheat for over 20 years, the non-replenishable aquifer it had been pumping for irrigation was largely depleted. In response, officials said they would reduce their wheat harvest by one eighth each year until production would cease entirely in 2016. The Saudis then plan to use their oil wealth to import virtually all the grain consumed by their Canada-sized population of nearly 30 million people. The Saudis are unique in being so wholly dependent on irrigation. But other, far larger, grain producers such as India and China are facing irrigation water losses and could face grain production declines......

India's water balance notes that 15 percent of its grain harvest is produced by overpumping. In human terms, 175 million Indians are being fed with grain produced from wells that will be going dry. The comparable number for China is 130 million. Among the many other countries facing harvest reductions from groundwater depletion are Pakistan, Iran, and Yemen.

Five Highly Productive Low Stress Animals You can Raise at Home (David M.)

There's no better complement to an off-grid power system and a fruitful produce plot than a low-maintenance, high-yield backyard animal. Whether it's providing meat, milk, eggs or honey, the backyard beast not only feeds the family, its excess production can be a valuable commodity.

Post-human Earth: How the planet will recover from us (Michael S.)

When Nobel prize-winning atmospheric chemist Paul Crutzen coined the word Anthropocene around 10 years ago, he gave birth to a powerful idea: that human activity is now affecting the Earth so profoundly that we are entering a new geological epoch.

The Anthropocene has yet to be accepted as a geological time period, but if it is, it may turn out to be the shortest - and the last. It is not hard to imagine the epoch ending just a few hundred years after it started, in an orgy of global warming and overconsumption.

Let's suppose that happens. Humanity's ever-expanding footprint on the natural world leads, in two or three hundred years, to ecological collapse and a mass extinction. Without fossil fuels to support agriculture, humanity would be in trouble. "A lot of things have to die, and a lot of those things are going to be people," says Tony Barnosky, a palaeontologist at the University of California, Berkeley. In this most pessimistic of scenarios, society would collapse, leaving just a few hundred thousand eking out a meagre existence in a new Stone Age.

18 Comments

crash_watcher's picture
crash_watcher
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Re: Daily Digest - October 3

Concerning Getting Naked, Part 2, John Carney of Clusterstock asserts that naked short sell (NSS) substantially doesn't exist:

Naked short-selling is a popular mythical beast promoted by the execs at those failed companies, as well as guys like Patrick Byrne at Overstock.com, but it’s rubbish. It’s really no different than regular old short-selling, which also happens to be villified by the media, and by executives at struggling companies.

While Overstock.com's CEO Patrick Byrne believes:

… some short-sellers do not play by the rules. A small group of powerful hedge fund managers stop at nothing to annihilate the companies they sell short.

It would be interesting to put John Carney and Patrick Byrne in the same room (or cage), and have them debate this.
 
Lots of coverage of NSS by the media recently; by way of background, here’s a pretty good 25 min video discussing naked short selling, aka "phantom shares": http://video.google.com/videoplay?docid=4490541725797746038#

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rjs
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Re: Daily Digest - October 3

re the post Anthropocene: The Moral Imperative of our Future Evolution

Vanityfox451's picture
Vanityfox451
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Employment: You're SMOKING Green "Shoots"

Posted by Karl Denninger at http://market-ticker.denninger.net/

Grrrr.... after hearing packs of lies all day on "Tout TV" regarding the radically worse-than-expected employment report, and on the back of my own report on the data, I am compelled to post some CHARTS ...

Link To Main Article :-

Employment: You're SMOKING Green "Shoots"

 

Vanityfox451's picture
Vanityfox451
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ALT Tallahassee: Karl Denninger on the Economic Crisis

Karl Denninger, author of market-ticker.org, speaks on the economic crisis October 01, 2009 ...

Davos,

 as others have already stated, you are truly missed. Thankyou so much for both your time and your personal sacrifice. My very best wishes to you and your family in these most troubling times ...

In Appreciation,

Paul

 

 

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Stan Robertson
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Re: Daily Digest - October 3

It is ridiculous to claim that there is no difference between ordinary and naked short selling when the failures to deliver represent as many or more nonexistent shares than legitimate ones. Make it look like a zillion shares have been sold and the price is going to drop.

 

idoctor's picture
idoctor
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Re: Daily Digest - October 3

It's Jobless because it isn't a recovery!

Jim Sinclair on King World News

1.http://www.youtube.com/watch?v=TmA9fEY0B_I

2.

3.

crash_watcher's picture
crash_watcher
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Re: Daily Digest - October 3

Stan, I tend to agree-it seems to me the naked short seller has little to no risk compared to the counterparty; this article by F Cianfrocca says it better than me:

http://newledger.com/2009/10/matt-taibbi-and-john-carney-on-naked-short-selling/

Today we’re reading dueling posts by Matt Taibbi and John Carney. Taibbi sees naked short selling as one of the root causes of the financial crisis. And Carney thinks naked shorting is fine and dandy because it promotes market efficiency and liquidity. Taibbi has the better of the argument in economic terms. Too bad he’s making a political rather than an economic argument.

...

Economically, a naked short is something like an American-style call option but with the exercise right vested in the counterparty. In essence, the seller says to the buyer “I will deliver shares to you on a date of my choosing, in return for payment at today’s market price.” On this analysis, you could simply say that the naked short-seller must deposit margin with his broker to cover the risk that the market will move against him, just as with any other forward transaction. And beyond that, it’s all good.

....

But what’s the buyer’s economic incentive to engage in this transaction? None whatsoever. Indeed, he expects settlement of his buy overnight or the next day. Instead he takes open-ended risk that the seller won’t execute the transaction, and he gets no compensation for the risk. That’s why naked short-selling is fraudulent. The naked short is essentially hoping that the buyer won’t recognize the risk he’s inadvertently assuming.

....

Short selling is technically complicated and difficult to do in size, compared with normal selling. There are good reasons why that should be so. Carney appears to argue that naked short selling is good *because* it reduces the friction associated with short selling. To me, that’s a bad thing, and entirely representative of the kinds of risk-shifting that precipitated the financial crisis in the first place. It’s a good idea to impose tougher constraints on naked short-selling.

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SteveS
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Re: Daily Digest - October 3

First off- I am so glad to see the Daily Digest continue on and so far the contributions are first rate!

To highlight just one entry - C Watcher's piece on the Saudi Arabia wheat growing had me off and roaming the internet. Fascinating story that I had never seen! Here's some more detail if anyone is interested:

http://www1.american.edu/TED/ice/aquifer.htm

This, of course, is a "canary in the coal mine". Growing a water intensive plant, in the desert, with inefficient spray irrigation, and huge price supports is certainly on the leading edge of bad water use ideas, but the rest of the world, in general, is only marginally better at this. And what agricultural community has read of this and thought "that could be us, we should prepare"?

 

 

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joemanc
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Re: Daily Digest - October 3

Can I just make a suggestion to add a quick note at the bottom of the Daily Digest on how to contribute to the Daily Digest? Some users may have missed the Davos news, as well as new users who may want to contribute in the future.

idoctor's picture
idoctor
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Re: Daily Digest - October 3

Bill Murphy & Chris Powell on King World News Friday, September 25, 2009

idoctor's picture
idoctor
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Re: Daily Digest - October 3

This is a few months old but a good listen.

Congressman Alan Grayson on King World News | Part 1/2

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Jasenica
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Re: Daily Digest - October 3

I just saw stark evidence of how bad things are in Japan. The Japanese F1 Grand Prix was just run - I have NEVER seen so many empty grandstand seats for the main race. I have been watching this sport since 1986 and previous races held at the Suzuka circuit has always been well attended.

girlflower's picture
girlflower
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Re: Daily Digest - October 3

Davos,

I notice you have not written anything since 1st Oct and in a way, this is missed. You are the forerunner of this community input thing and your kind contribution to us will always be remembered!

Thanks for giving us your tireless labor of love all these times!

We miss you... and sincerely hope to see you and hear from you here more often!

Best wishes!

Girlflower

crash_watcher's picture
crash_watcher
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Re: Daily Digest - October 3

SteveS that's an excellent article that you found, thank you for sharing it. It a great example of "peak water" in a local setting:

The al-Disi aquifer is located in the Arabian peninsula and, although most of its mass lies underneath Saudi Arabia, a section also lies underneath Jordan. It is a deep sandstone aquifer that 320 km long and is the largest in its region. By being locked within non-porous sandstone rock the aquifer is not subject to recharging by rainfall. It is largely unknown how much water the aquifer contains or its archeological history. What is known is that the water in the al-Disi is not rechargeable and is quite old (ie. 20,000-30,000 years old). The al-Disi is currently drained to support the production of agricultural products (ie wheat, discussed later in the case study), but this is a relatively new occurence, as desert production of agricultural goods by both Jordan and Saudi Arabia started in the 1980's. Furthermore, there is no agreement between the countries concerning the al-Disi and its usage.

.....

Wheat farmers are subsidized at nearly five times the world market for their product, which allows them to establish expensive irrigation systems. Subsidies also allow Saudi wheat to compete on the world market and produces some income for the state. Since 1997, however, the Saudi government began to curtail their wheat output to subsistence levels within Saudi Arabia [ref: Saudi wheat TED case]. Regardless, seventy percent of the water used for the wheat program has been non-rechargable fossil water.

...

The growing populations in Jordan and Saudi Arabia are causing water shortages. The more scarce water in the region becomes the more valuable the al-Disi aquifer becomes to each country. Hence, the possibility of violent conflict is rising.

For at least some period into the future, Saudi Arabia will be able to trade oil for food, but what about Jordan?

Davos's picture
Davos
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Re: Daily Digest - October 3
girlflower wrote:

Davos,

I notice you have not written anything since 1st Oct and in a way, this is missed. You are the forerunner of this community input thing and your kind contribution to us will always be remembered!

Thanks for giving us your tireless labor of love all these times!

We miss you... and sincerely hope to see you and hear from you here more often!

Best wishes!

Girlflower

Hello GirlFlower:

I've been reading the DD. I've made an anonymous contribution or 2. I'm impressed with what I'm seeing. In fact, I think the DD during my day got a little bit myopic and narrow with respect to the scope of articles and the sources I frequented. Therefore I think this team effort is a wonderful idea. Just watching things flourish.

Take care

gregroberts's picture
gregroberts
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Re: Daily Digest - October 3

okubow's picture
okubow
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Posts: 67
Re: Daily Digest - October 3

Thanks again for including the energy and environment sections. I enjoyed the article about "highly productive low stress animals." I learned a lot from that article. Smile

Jeff Borsuk's picture
Jeff Borsuk
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Posts: 150
Re: ALT Tallahassee: Karl Denninger on the Economic Crisis

Hey Vanityfox451, how did you get so much italicized print at the end of your post?

Jeff

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