Daily Digest

Daily Digest - September 22

Tuesday, September 22, 2009, 10:48 AM
  • Federal Reserve Accounts For 50% Of Q2 Treasury Purchases
  • Report: Strategic Defaults a "Growing Problem"
  • The U.S. Balance Sheet: Households See Net Worth Down by $12 Trillion Since Peak and Total Debt Floating in the Market of $33 Trillion
  • Foreign Investors Flee from U.S. Debt (Possible Re-Post)
  • Obsolescence: Obama Open To Newspaper Bailout Bill
  • Silver Wheaton: the SAFE alternative to SLV
  • Fidelity Investments Thinks You Are A Dumb A$$ (Title from Michael Covel)
  • IMF to sell 403 Tonnes Of Gold To Boost Lending To Poor (H/T SaxPlayer00o1)

Economy

Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs: with Households lapping up risky assets it is unlikely they will look at Treasuries absent some dramatic downward move in equities, while Foreign purchasers, which many speculate are in a game of Mutual Assured Destruction regarding UST purchases, have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!). Will the US make these purchases much more attractive come October when QE for USTs ends? And if so, what kind of rates are we talking about? One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010. After all there is near $9 trillion in budget deficits that need financing over the next 10 years.

Report: Strategic Defaults a "Growing Problem"

From Kenneth Harney at the LA Times: Homeowners who 'strategically default' on loans a growing problem

National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.

The U.S. Balance Sheet: Households See Net Worth Down by $12 Trillion Since Peak and Total Debt Floating in the Market of $33 Trillion

Current U.S. household net worth: $53 trillion

U.S. household real estate: $20 trillion

So real estate makes up nearly 40 percent of household net worth. Keep in mind that $20 trillion in real estate is secured by $10.4 trillion in mortgages many that are now going bad. Interestingly enough, if you look at the mortgage data it peaks around $10.54 trillion and has fallen to $10.4 trillion. Do we really think that only a few hundred billion in mortgages have gone bad? This is simply a reflection of banks not writing down option ARMs and other questionable assets.

Foreign Investors FLEE from U.S. debt (Possible Re-Post)

Ben's magic printing-press – which supposedly can print up infinite amounts of new “money” without diluting all the trillions of existing U.S. dollars (i.e. without inflation).

The fact is that there will never be any more foreign demand for U.S. debt, unless/until U.S. interest rates rise high enough to compensate foreign investors for the high risk of default and the enormous inflationary pressures building up in the U.S. economy, as a result of the current reckless creation of new money and debt.

Obsolescence:  Obama Open To Newspaper Bailout Bill

Sen. Ben Cardin (D-Md.) has introduced S. 673, the so-called "Newspaper Revitalization Act," that would give outlets tax deals if they were to restructure as 501(c)(3) corporations. That bill has so far attracted one cosponsor, Cardin's Maryland colleague Sen. Barbara Mikulski (D).

Silver Wheaton: the SAFE alternative to SLV

To begin with, what most people don't know is that the vast majority of global silver production is in the form of byproducts of other mining operations – sometimes this silver occurs in primarily gold-based ores, but most of it is produced as a byproduct of base metals deposits. Thus, most silver production is of secondary importance to mining companies – making them very receptive to proposals from Silver Wheaton to pay them up front for the silver they will mine, but at a substantially discounted price.

Fidelity Investments Thinks You Are A Dumb A$$ (Title from Michael Covel)

IMF to sell 403 tonnes of gold to boost lending to poor (H/T SaxPlayer00o1)

A prime candidate could be China, which is sitting on the world's largest foreign exchange reserves, topping two trillion dollars, and has been seeking to diversify away from the dollar.

China in early September agreed to buy the first IMF bonds for about 50 billion dollars and has been on a gold-buying streak, increasing its gold reserves by 75 per cent from 2003 to 2008, according to official media.

25 Comments

Johnny Oxygen's picture
Johnny Oxygen
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Re: Daily Digest - September 22

Oh my God!

So much to say about this and yet so little needs to be said:

FDIC May Ask Banks for a Bailout.
 
 
 
tabletop's picture
tabletop
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Re: Daily Digest - September 22

Ha yeah I saw this this morning. I kind of equate this to the banks giving the government the reach around.  It's only polite. :-P

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Re: Daily Digest - September 22

1) Moody’s Property Index Resumes ‘Steep’ Fall in July (Commercial Real Estate)

"the portion of sales classified as “troubled” -- those properties in or close to default -- almost doubled to 23 percent in July from March.

That’s “something we’ve never seen,” Elkin said. "

 

2) Tishman CEO worries about $3.7 trillion in mortgages coming due

 

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Re: Daily Digest - September 22

Thanks Davos for this blog; I've been reading it almost every day now since you started.

I came across this earlier today, thought you guys might find it interesting:

CBO predicts Social Security cash deficits in 2010-2011:

http://hotair.com/archives/2009/09/22/exclusive-cbo-predicts-social-security-cash-deficits-in-2010-11/

idoctor's picture
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Re: Daily Digest - September 22

Bullish Today, Marc Faber Is "Highly Confident" the Future Will Be Very Bleak

http://finance.yahoo.com/tech-ticker/article/337749/Bullish-Today%2C-Marc-Faber-Is-%22Highly-Confident%22-the-Future-Will-Be-Very-Bleak

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Re: Daily Digest - September 22

Doesn't the IMF every so often throw the 'We will sell Gold' statement around?

I think they do this when-ever they think gold is going to break out.

Here's another question on gold.

Just as countries have thrown huge amounts of money at the financial crisis, do people really think that the major powers will just stand by and allow gold to keep going up in value - effectively creating super wealthy nations out of nations that have the stuff in the ground?

I can't reconcile this aspect of gold actually.

At some point in time, the power nations will either diminish golds part in any world currency or take by force from those that cannot defend themselves.

I'd love to get peoples perspective on these matters...

Davos's picture
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Re: Daily Digest - September 22

Hello JohnyOxygen:

Yeah, my read between the lines is that our owners (China et al) told us we won't be raising the debt ceiling. I could be very wrong.

CORRUPTION: Reverse-Insurance?! (FDIC)

Let me pose a question to you.

Let's say you own a $200,000 house free and clear.

Let's further say that you would like fire insurance. Just in case you are a klutz in the kitchen, for example.

So you sit down and write yourself a fire insurance policy. You promise to pay yourself $200,000 to rebuild your house if it burns to the ground.

You then put your "insurance policy" in the safe and pat yourself on the back - you're insured!

Now, you want to re-do your kitchen and add a pool, so you go to the bank to get a mortgage to finance those improvements.

The mortgage company would accept your self-written policy as proof of insurance, right?

Oh wait - they'd call that fraud?

Well gee, what's this then?

Johnny Oxygen's picture
Johnny Oxygen
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Re: Daily Digest - September 22

Arrgghh....I think the take-away from this is: GET YOUR MONEY OUT OF THE BANK!

When the tail starts to wag the dog like this you are either hallucinating or something is very very wrong. Its kinda like a doctor operating on himself while he is under anesthesia then charging himself a fee he can't pay. Its both bizzare and impossible.

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Re: Daily Digest - September 22

Good Afternoon Davos,

I tried to send you a private message but apparently you didn't get it  So, I just want you to see the following link concerning the MERS foreclosure situation in Kansas.  

http://www.webofdebt.com/articles/mers.php

According to the Attorney, if this thing gains traction throughout the U.S., this alone could spell the end of the banking system in this country to the tune of 60 million mortgages, and it deserves a look see.

Thanx for the informative website.

Portals

 

JAG's picture
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Hendry Has Cojones!

Kudos to Hugh Hendry of Eclectica Fund fame, for holding to the mega-contrarian 30 yr bond allocation, despite the recent market hysteria and dollar doom sentiment.

The long hot summer on the European continent seems to have caused a melt up in the region’s stock prices. In euro terms, prices rose 7pc having posted gains of 10pc in July as the inventory cycle, allied to China’s state imposed growth dictum, suddenly improved sentiment towards beleaguered exporters. However, globally, the World MSCI rose just 1.6pc in August, held back by a 20pc slump in China’s stock market. The still cautiously positioned Fund, seemingly preferring a wet campsite in Wales to the sizzling hot beaches of the Mediterranean, managed to post a gain of 0.9pc in August and so broke a five month losing streak.

As outlined in our recent commentary, we continue to eschew the scintillating returns on offer from the weakest or most cyclical businesses and are disinclined to chase a market which has risen more than 60pc over the last five months on a change in collective social mood. Instead we prefer the rock-steady assuredness of Treasuries and Bunds allied to a belief that short term interest rates will remain unchanged for the foreseeable future.

There have been no substantive changes made to the portfolio. In August, our 30 year government bonds made up the majority of the Fund’s gain, with our Treasuries contributing 43 basis points (bps) and our Bunds 11bps. Further gains, amounting to 20bps, were had from our Altria corporate debt and 10bps were gained from our Short Sterling option packages. However, interest rate expectations in Australia hardened in August and our positions cost the fund 24bps.

Most other investors, of course, remain enthralled at the prospect of a vigorous and sustained economic recovery. But with the follies of the financial sector now transformed into public sector debts, to be paid off by higher taxes and cuts to public expenditure, we fear that animal spirits outside the City are unlikely to prove so exuberant. History still suggests that such counter-trend price movements ultimately fail under the extravagance of their audaciousness. Time will tell.

Link

That Scotsman has got cojones!

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Buy Stocks Because U.S. Dollars Will Be "Worthless," Says Faber

On the other end of the spectrum is Faber

"in this environment cash will become worthless."  As a result, he says investors are, "better off being in equities," for the next two to three years.

Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now,

This market has truly become a koan!

Koan: a paradoxical anecdote or a riddle that has no solution; used in Zen Buddhism to show the inadequacy of logical reasoning.

 

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Re: Report: Strategic Defaults a "Growing Problem"
Awwww.  Poor wittle banks.  Given such a hard time by those big, bad, "ruthless" homeowners...
 
MORAL CONSTRAINT TO STRATEGIC DEFAULT?!?!  ARE YOU FKM?
 
They'd sure as hell better not be counting on moral constraint to keep people from defaulting.  I have an idea - let's all agree to use moral constraint in our mortgage payment decisions, to the exact same extent that the banks used moral constraint in say....hum, let's see....selling job-less and asset-less people $500,000 mortgages, then packaging and selling these wonderful loans to pension funds across the USA (after bribing the rating agencies for AAA ratings), thus pumping up prices in the real estate market (creating the home ATM and thus pumping up all other asset classes) but then ultimately sending the economy into a debt deflation death-spiral when, shockingly, the job-less and asset-less people stopped paying their mortgages.
WOW, that is rich.  Great material there.
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Re: Daily Digest - September 22

Re. IMF gold sale. 

Helping the Poor???  Poor bankers maybe, but not the real poor!

The very heading of the article is a lie. The money will indeed, ...."make it less dependent on its lending revenue to cover expenses, such as surveillance of members' economic and financial policies".  i.e. enforce western domination of indebted countries.  This has NOTHING to do with helping the poor [Indeed it is Mexico and Brazils GOLD in the first place!]. 

The great Davos link to Dr.  Hudson the week before last showed this with utmost clarity, look at what the IMF is doing in Iceland and Latvia TODAY!  it is all about dividing off the spoils and selling them to western corportations.

The IMF and BIS want nothing of people, only money and power.  These institutions are the tools that the uber rich use to keep the uber poor in their easily exploitable place and to placate you and i, the so called 'middle class', as a buffer between the two extremes!

Are you happy in your 'buffer' role?  Me neither.

REVOLT. These F***ers wont go away of their own accord, so it is collapse or revolution.

Straight, Brisbane.

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Re: Daily Digest - September 22

Hello Straight:

Sounds like you read the book I did, "Economic Hit Man". LOL Take care

SkylightMT's picture
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Re: Daily Digest - September 22
portals wrote:

Good Afternoon Davos,

I tried to send you a private message but apparently you didn't get it  So, I just want you to see the following link concerning the MERS foreclosure situation in Kansas.  

http://www.webofdebt.com/articles/mers.php

According to the Attorney, if this thing gains traction throughout the U.S., this alone could spell the end of the banking system in this country to the tune of 60 million mortgages, and it deserves a look see.

Thanx for the informative website.

Portals

 

 

I saw that, too. Denniger is pretty up in arms about it: http://market-ticker.denninger.net/archives/1454-Has-A-MERShole-Opened-Up.html

But I don't think it will EVER be allowed to stand. No way the entire banking system will be allowed to collapse as a result of a state's court ruling. It will be appealed, and some reason found for allowing those mortgages to remain foreclosable... I think the banking system, and our ecconomy, will probably collapse, but it won't be because of anything like this. They'll just change the rules.

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Re: Daily Digest - September 22

Hello Portals:

I did get the message, appreciate you sending it, I've just been too busy to read it closely. More than that I wanted to search my spread sheet. There was a recent case, if memory is correct, in Ohio, where they decided to allow foreclosures without knowing who owns the other end of the loan.

IMHO the law means nothing to these people, they will swat it like a gnat. Take care

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Re: Daily Digest - September 22

Peter Schiff Vlog-G20 Hypocrisy-9/22/09

Davos's picture
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Re: Daily Digest - September 22
idoctor wrote:

Peter Schiff Vlog-G20 Hypocrisy-9/22/09

Hello iDoctor:

Great watch, thanks!

I was at a client's today and he read to me that the dollar was going to rise today - he knows my 4 G's. Anyway, I think his FX email was a bit off. I've been watching the index today wondering if it is going to fall through the floor. The best part to me about Schiff's video was that hidden G-20 hand. I feel less alone with my thoughts about why Uncle Buck is tanking.

Take care

idoctor's picture
idoctor
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Re: Daily Digest - September 22

Davos this is Really good Marc Faber IMHO.

Inside Look - Gloom, Boom & Doom (Part 1)

1.

2.

3.

Buy Stocks Because U.S. Dollars Will Be Worthless Marc Faber 22 Sept 2009
 


 

PS I sent you a PM on a conference call.....I hope you listened to that one as it was from a really smart guy that I have never seen talked about here. He had some great points IMHO.

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JAG
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Mother-in-Law Sentiment Index

Ok this is very weird.

My mother-in-law, Mrs. MSM herself, informed me out-of-the-blue tonight that the "dollar was trash and that gold should go to the moon"!!!!!!!! I asked her why she thought that and she said she saw it on the news. I couldn't believe my ears.

Keep in mind that I have never spoken about financial/economic matters to my mother-in-law EVER. 

Its official, CM.com has become the Main Stream Mother-in-Law Media.

I will be selling my gold tomorrow!

 

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Re: Buy Stocks Because U.S. Dollars Will Be "Worthless," ...
JAG wrote:

Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now,

This market has truly become a koan!

Koan: a paradoxical anecdote or a riddle that has no solution; used in Zen Buddhism to show the inadequacy of logical reasoning.

Now, Jeff;  surely you know that:

"Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now, Serenity Now" . . . . would be a mantra . . . .

"What is the sound of the Fed dissolving?" would be a koan . . . .

"Lord, save us from Bernanke's follies" would be a prayer . . . . .

and "What's the Fed?" would be an Amish question.

 

dcm's picture
dcm
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Re: Daily Digest - September 22

and "what the Fed"

is an American Curse 

Davos's picture
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Re: Daily Digest - September 22
idoctor wrote:

Davos this is Really good Marc Faber IMHO.

Inside Look - Gloom, Boom & Doom (Part 1)

Buy Stocks Because U.S. Dollars Will Be Worthless Marc Faber 22 Sept 2009

PS I sent you a PM on a conference call.....I hope you listened to that one as it was from a really smart guy that I have never seen talked about here. He had some great points IMHO.

Hello iDoctor:

I'm looking forward to the listen, I was a bit late in registering and now I get an email not found message. Hopefully it will process and I'll be able to listen.

I posted about everyone of the videos you had up the other day on the blog of the 23rd. I didn't know about Rand Paul. Between him, Schiff and Ron and Grayson I feel there is a bit of hope for real change brewing!

Hope all is well, take care 

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Cloudfire
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Re: Daily Digest - September 22
dcm wrote:

and "what the Fed"

is an American Curse 

Touche!

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Re: Daily Digest - September 22
Card Defaults Surge in August to 11.49%, Moody’s Says
By Peter Eichenbaum
 

Sept. 23 (Bloomberg) -- U.S. credit-card defaults rose to a record in August and more losses may lie ahead as delinquencies climbed for the first time since March, according to Moody’s Investors Service.

Write-offs rose to 11.49 percent from 10.52 percent in July, Moody’s said today in a report. Loans at least 30 days delinquent rose to 5.8 percent from 5.73 percent. “Early- stage” delinquencies, or loans overdue 30 to 59 days, surged to 1.65 percent, from 1.41 percent, signaling higher losses in coming months. Banks typically write off loans after 180 days.

Card issuers have struggled with rising defaults as the recession drove up unemployment to 9.7 percent and the impact of income tax refunds waned. Credit-card defaults typically track the U.S. jobless rate since consumers tend to fall behind on payments when their income dries up.

“We continue to call for a recovery of the credit-card sector to begin once industry average charge-offs peak in mid- 2010 between 12 percent and 13 percent,” said the Moody’s report, which predicted unemployment may reach 10.5 percent.

JPMorgan Chase & Co.,Bank of America Corp. and Citigroup Inc., the biggest U.S. credit-card lenders, said in federal filings on Sept. 15 that defaults climbed in August.

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