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    Daily Digest – Feb 11

    by Davos

    Tuesday, February 10, 2009, 11:45 PM

  • Pink Slips At Wal-Mart HQ
  • UBS to Cut 2,000 Jobs After a Huge Loss
  • SIRIUS Bankruptcy
  • Boomers – your crisis has arrived
  • China Needs U.S. Guarantees for Treasury Bond Holdings, Yu Says (Hat Tip Homosapiens)
  • Russia Companies Asked by Banks to Hold Debt Talks
  • Four Bad Bear Markets, Down 1929-1932; S&P 500 1973-1974; 2000-2002; 2007-2009 (Update)
  • Wholesale Sales (Durable vs. Non-Durable Goods
  • Revolving Credit Free Fall
  • More…

  • Revolving Credit Free Fall (Article)
  • Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says
  • FT’s Wolf: U.S. Too "Politically Frightened" to Admit Truth About Banks, Part I (Hat Tip GThomson)
  • Embrace Your Inner Fear! (Video, Hat Tip GThomson)
  • Why Obama’s new Tarp will fail to rescue the banks
  • 21 days to failure
  • Can We Fix the Banks, Help Homeowners, and Rebuild the Mortgage Markets? Can Do. (Hat Tip GThomson)
  • The Rorschach plan
  • Secretary Geithner Introduces Financial Stability Plan
  • "Fact" Sheet
  • The Financial Crisis Is Driving Hordes of Americans to Suicide (Hat Tip Yoshhash)
  • Cluster*** to the Poor House – The Death of Hope (Humor, little vulgar, skip if nesc.)
  • Solving the Economic Crisis (Humor)
  • Gun dealers experiencing shortages of bullets (Hat Tip Mike Pilat)
  • Recession? No, It’s a D-process, and It Will Be Long (Hat Tip Heather)

Economy 

Pink Slips At Wal-Mart HQ? (WMT) 

Wal-Mart Stores Inc. (NYSE: WMT) was supposed to be a winner in the economic slide as the "trade down" shopping destination. It goes without saying that Wal-Mart has more than a few critics. Now it looks like it will get a few more employee relations problems. The reason: LAYOFFS. 

The Arkansas Democrat Gazette has reported that Wal-Mart has started layoffs to to the tune of 700 to 800 jobs in the Bentonville, Arkansas headquarters. The paper reports that the cuts are coming in merchandising, real estate, marketing, support, and some corporate functions. It also notes that it plans to move more employees to New York for its apparel operations.

700 or 800 may not sound like much for the size of the company. But this is out of 14,000 that work at the HQ. Out of some 2 million workers, any additional pressure on spending may only bring more cuts. That might only bring on more labor problems. That would be our guess any how as the company is under new management and has been cutting its new store openings.

This truly is worse for the economy than a zero-sum game if Wal-Mart has to start laying people off. That new "Save Money. Live Better." slogan may have to change to "Make Less. Spend Less." 

UBS to Cut 2,000 Jobs After a Huge Loss 

ZURICH — Swiss banking giant UBS AG announced more staffing cuts at its investment-banking operation, saying it would cull more than 2,000 jobs as it reported the largest annual loss ever by a Swiss company. 

Only four months after turning to the Swiss government for a financial-aid package, the bank on Tuesday reported a larger-than-expected net loss of 8.1 billion Swiss francs ($6.96 billion) for the fourth quarter of 2008, bringing its loss for the entire year to 19.7 billion francs. UBS also said it would sharply reduce bonus payments as part of an agreement with Swiss regulators, paying out … 

SIRIUS Bankruptcy (SIRI, SATS) 

Sirius XM Radio Inc. (NASDAQ: SIRI) is being quoted on TheStreet.com, New York Times, the WSJ, and elsewhere as either "filing for bankruptcy protection" or that it was "near to filing for bankruptcy protection." 

I had just returned a call to Michael Hartleib of SaveSIRIUS.org, a group he is leading against the company and its current path, as this news was coming across the news tape. Needless to say, Mr. Hartleib did not exactly sound too happy. That was why he was calling.

Sirius is part of our "companies that won’t make it" for 2009, which is a list of 10 stocks that have operating business but may file for bankruptcy protection or worse. Bankruptcies are almost never any good for shareholders of common stock. Not unless they need a big tax write-off against capital gains.

Hartleib has also noted some issues about conflicts of interest over the SIRIUS debt purchases by EchoStar Corp. (NASDAQ: SATS). 

BOOMERS – YOUR CRISIS HAS ARRIVED 

"There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny." Franklin Roosevelt – 1936 

China Needs U.S. Guarantees for Treasury Bond Holdings, Yu Says (Hat Tip Homosapiens) 

Feb. 11 (Bloomberg) — China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by "reckless policies," said Yu Yongding, a former adviser to the central bank. 

The U.S. "should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way," Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves. 

Russia Companies Asked by Banks to Hold Debt Talks 

Russia’s government and most companies and banks have accumulated sufficient foreign currency to cover about $135 billion of foreign corporate debt due this year, Aksakov said.

"The banking association isn’t empowered to hold talks, it can make suggestions, but the creditors themselves would be responsible for restructuring," he said in an interview with Bloomberg Television today.

HSBC fell 2.9 percent and Deutsche Bank added 0.2 percent in European trading.

"People expect that part of these debts were from the European banking system," said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France’s Credit Agricole SA. "You already have a very weak banking system in Europe. If you have these Russian issues, the next step would be questions about whether similar problems will come out of other eastern European countries."

Russia will enter a recession and run a federal budget deficit this year for the first time in a decade, according to the government. The ruble tumbled 35 percent against the dollar since August, as the central bank drained more than a third of the country’s foreign-currency reserves to stem the decline.

Charts:

Four Bad Bear Markets, Down 1929-1932; S&P 500 1973-1974; 2000-2002; 2007-2009 (Update)

Wholesale Sales (Durable vs. Non-Durable Goods

Revolving Credit Free Fall

Revolving Credit Free Fall (Article) 

Inside ARM reports (bold mine): 

With banks freezing credit lines and the economy tanking, consumer credit in the U.S. declined in December 3.1 percent for the third straight month. It’s the longest slide in consumer since 1991.

The Federal Reserve reported late Friday that overall consumer credit outstanding in the U.S. dropped by $6.6 billion in December, or at an annualized rate of 3.1 percent. The Fed’s consumer credit report, called the G.19, does not include debt backed by real estate.

Most of the decline was in revolving credit, most commonly comprised of credit card debt. Revolving credit fell $6.32 billion, or 7.8 percent annualized (5.3% annualized over the quarter), to a total of $963.55 billion outstanding in December. In November, revolving credit declined 8.5 percent. 

Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says 

Feb. 10 (Bloomberg) — Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said. 

The companies’ needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government’s funding commitment through 2009 may fall short of what the companies need to make good on their obligations.

"When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace," Lockhart said. "There’s been some significant events since then that weren’t in our forecast."

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a Feb. 3 report from Zillow.com. Following a record boom, home prices are down 25 percent on average since mid-2006 amid a tightening of lending standards and an economic recession, the S&P/Case-Shiller Composite 20-city price index shows.

FT’s Wolf: U.S. Too "Politically Frightened" to Admit Truth About Banks, Part I (Hat Tip GThomson)

Embrace Your Inner Fear! (Video, Hat Tip GThomson)

Cluster*** to te Poor House – The Death of Hope (Humor, little vulgar, skip if nesc.)

Solving the Economic Crisis (Humor)

Why Obama’s new Tarp will fail to rescue the banks 

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects. 

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a "no brainer".

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it. 

21 days to failure

Per Paul Kedrosky, Obama is out in the media trying hard to make nationalization of the money-center banks look impossible. so far from being impossible, it is necessary — but it is becoming clearer now that the democrats will have to be dragged to a meaningful solution of this nation’s financial and economic problems kicking and screaming like little children, while the financial system remains paralyzed and the economy falls into a deep depression for a lack of real leadership.

 

Can We Fix the Banks, Help Homeowners, and Rebuild the Mortgage Markets? Can Do. (Hat Tip GThomson) 

"The economic spiral starts and ends with housing. If we do not slow and stop the erosion of the ad valorem tax base in this country, we are going to have really serious problems. If you put the mortgage credit relationship and the servicing back into the hands of the local bankers who know the market and the people, we can save millions of home owners from foreclosure and dozens of banks from failure. We may never be able to resurrect the asset securitization market as it was, but we can stabilize the housing market and the local tax base by getting these assets back into the hands of bankers who understand how to manage credit. I’ve had transient customers along the Mexican border who would disappear for months at a time and then reappear at my office with six months of mortgage payments in cash. Only local bankers have these kind of relationships. You cannot manage a credit or really service a loan over the telephone. Give America’s community bankers these toxic assets and we’ll make the most of these credits."

The Rorschach plan 

An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can’t understand. 

I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation. 

Secretary Geithner "Introduces" Financial Stability Plan

"Fact" Sheet

The Financial Crisis Is Driving Hordes of Americans to Suicide (Hat Tip Yoshhash) 

The body count is still rising. For months on end, marked by bankruptcies, foreclosures, evictions, and layoffs, the economic meltdown has taken a heavy toll on Americans. In response, a range of extreme acts including suicide, self-inflicted injury, murder, and arson have hit the local news. By October 2008, an analysis of press reports nationwide indicated that an epidemic of tragedies spurred by the financial crisis had already spread from Pasadena, California, to Taunton, Massachusetts, from Roseville, Minnesota, to Ocala, Florida. 

Gun dealers experiencing shortages of bullets (Hat Tip Mike Pilat)

Selling bullets may be the most secure job in Florida as long as supplies last.

After months of heavy buying, gun dealers across the state are experiencing shortages.

Some say it began with the election of President Barack Obama. Others say it’s about the economic downturn or fear of crime. Whatever the reasons, ammunition has been selling like plywood and bottled water in the days before a hurricane.

"The survivalist in all of us comes out," said John Ritz, manager of East Orange Shooting Sports in Winter Park. "It’s more about protecting what you have."

Demand for bullets is so strong that suppliers are restricting deliveries.

"Where we used to get 20 to 30 cases [in a shipment], we may get two to three cases now," said Vic Grechniw of Florida Ammo Traders in Tampa. "The supply just isn’t there. . . . Everybody is pretty much rushing out to get their hands on whatever they can."

Most in demand is handgun ammunition, including 9 mm and .45-caliber for semiautomatic pistols and .38-caliber for revolvers. Clerks at local Walmart stores, including Apopka and Kissimmee, say those sizes, along with .22-caliber, are on back order at the chain’s warehouses.

American gun owners buy about 7 billion rounds of ammunition yearly, according to the National Rifle Association. It has been warning its several million members that Obama favors raising taxes on bullets to make them prohibitively expensive.

"Anecdotal evidence certainly suggests that the demand for ammunition is continuing to increase, and that is certainly attributable to gun owners’ concerns with the current administration," said Ted Novin, a spokesman for the National Shooting Sports Foundation, a trade association representing 4,700 members.

Recession? No, It’s a D-process, and It Will Be Long (Hat Tip Heather) 

Where is the U.S. and the rest of the world going to keep getting money to pay for these stimulus packages? 

The Federal Reserve is going to have to print money. The deficits will be greater than the savings. So you will see the Federal Reserve buy long-term Treasury bonds, as it did in the Great Depression. We are in a position where that will eventually create a problem for currencies and drive assets to gold.

Are you a fan of gold?

Yes.

Have you always been?

No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio. 

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