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    Daily Digest – Feb 25

    by Davos

    Wednesday, February 25, 2009, 12:23 PM

  • The "Trashout" Squad
  • Japan Exports Fall By 46% in January, Producing Record Trade Deficit
  • When Giants Fail, Bloomberg Video
  • Credit contracts as government dissembles
  • White backs off ‘credit enhancement’ with tax dollars
  • Stimulus Watch (Hat Tip DJHester1940)
  • Do Not Resuscitate (Hat Tip Ernie)
  • U.S. to Get Bank Ownership Stakes Only as Losses Rise
  • Consumer Confidence
  • S&P/Case-Shiller Home Price Indices
  • Shiller: Stocks not yet cheap enough for me 
  • Commercial Real Estate Down Even More Than Residential
  • Brown: World needs ‘global New Deal’ (Hat Tip PineCarr)
  • Russian economic collapse
  • Tumbling in the East
  • Gold, George Gero, Bloomberg Video
  • The Gold Rush: Don’t Get Burned (Hat Tip Suzie G.)
  • Global Downturn in Graphics (Hat Tip Maveri)
  • Powerful Agent’s Blunt Warning About Future of the N.B.A. (Hat Tip Zombie210)
  • Law Would Allow Chicken Raising In Back Yards (Hat Tip James 705ca)
  • Backyard Chickens
  • Analysis and Discussion with Majority Leader Sen. Henry Reid (D) (Starting Bell) 

Economy 

The "Trashout" Squad

Japan Exports Fall By 46% in January, Producing Record Trade Deficit

Japan has been hit by a double-whammy: the global fall in trade, made worse by its (formerly) rising yen.

While deteriorating conditions in China generally get more media attention, the falloff in Japan is stunning and serious. Japan has spent more than a decade stagnant, but the overall growth figures mask the fact that the domestic economy contracted, while the export sector exhibited good growth.

The export plunge (December’s results horrid too, a 35% fall in exports), means that Japan’s only engine of growth has gone into stall. China, by contrast, is not as dependent of trade for its overall performance as is popularly believed (commercial real estate and infrastructure spending have also been important sources, although CRE has taken a dive too).

The fact that Japan is now running trade deficits also means they will not be accumulating foreign exchange reserves, specifically buying Treasuries (Japan could still buy Treasuries to lower the value of its currency, but the terrible economic news has already put the yen on a downward path).

From Bloomberg:

Japan’s exports plunged 45.7 percent in January, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics…

Gross domestic product shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, and economists predict the slump will drag into this quarter. Toyota Motor Corp., Sony Corp. and Hitachi Ltd. — all of which forecast losses — are firing thousands of workers, heightening the risk the recession will deepen.

"The drop in exports is unbelievably bad," said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. "The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted."…

Japan’s economy, the world’s second largest, may shrink a record 4 percent in the year starting April 1, faster than this year’s projected decline of 2.9 percent, according to the median estimate of 15 economists surveyed by Bloomberg News. The worst contraction to date was fiscal 1998’s 1.5 percent drop.

When Giants Fail, Bloomberg Video  

Credit contracts as government dissembles 

Credit contracts as government dissembles 

tim duy notes the continuing collapse of consumer credit in the face of all efforts to halt it.

American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders $300 each to close accounts so the lender can reduce the risk of defaults as the recession deepens. …

"What AmEx is trying to do is move to the front of the line in terms of getting paid back" by customers who owe debts to multiple lenders, said Michael Taiano, an analyst at Sandler O’Neill & Partners with a "hold" rating on the company. "They clearly grew loans faster than their competitors in the years leading up to this financial crisis."

American Express was a recipient of TARP funding, albeit a "nominal" $3.39 billion. What makes this interesting is that not only is American Express not expanding lending – the selling point of the original TARP proposal – they are using the funds (money is fungible) to explicitly contract lending. Such a vivid illustration of the industry’s challenges.

but the really critical commentary illustrates the massive change in conditions that is now evident in the economy.

And those challenges are only building. As the US government is goading investors with a line in the sand, consumer defaults are swelling:

Consumers are falling behind on credit-card payments as U.S. unemployment reached 7.6 percent last month, the highest rate since 1992.

This is just consumer debt; commerical debt pressures, including real estate, are building as well. With the situation rapidly deteriorating, the anticipated stress tests look like a smoke screen to buy time in yet another emphemeral effort to restore the elusive confidence that policymakers hope will magically restore the system.

Whatever news comes out of Washington regarding the plan of the day for the banking system, I hope one thing is soon made clear to the public – fixing the financial system is not the same thing as expanding lending. We are way past that point; you can’t fix the system with more bad loans. If Treasury Secretary Geithner tries to sell his plans as the solution that will revive credit growth, I suspect he will further test the already strained credibility of the government. A more honest approach: We are simply trying to prevent the financial system from outright collapse.

indeed the government looks increasingly ineffectual before the scale of the disaster underway. bank stress tests are, as yves smith says again, more information dissemination than information gathering — the government along with everyone else well knows these banks are as f*&^%$d as the day is long. the only point of conducting conspicuous but obviously sham tests would seem to be to set the stage for some remotely credible propaganda. the ever-less credible variety is flooding out of treasury on a daily basis now — here’s today’s dose — as it becomes ever more apparent that the government is just exactly the deer in the headlights that michael pettis describes.

Not only am I pessimistic, then, about Chinese policymakers’ willingness to confront reality, but my trip to Washington also left me very worried about US policymakers. … my great hope has been that the new US administration surges forward and begins to design not just a short term solution that addresses the current collapse … but also a longer term plan about what the new institutional framework will look like. But I don’t think this is happening.

Many people I spoke to last week were really bewildered by China’s role, and although many of them were extremely sophisticated in their understanding, they gave me the impression that policymakers are going through an almost existential crisis and have lost all confidence. The world needs US leadership more than ever, and the US is in a very strong position to provide it … [but] This seems to be something that not many people in Washington believe. The lack of confidence is so deep that several times I heard people refer knowingly to the Chinese fiscal stimulus (yes, that vague, risky, and hard-to-understand stimulus package) as the "gold standard" of economic stimulus packages. Gold standard? Really? The only way this can be true is if every other stimulus package in the world is total garbage. Perhaps it is.

White backs off ‘credit enhancement’ with tax dollars 

Mayor Bill White this afternoon announced that a plan for the city to pay off some debts for first-time home buyers has been pulled from tomorrow’s City Council agenda. 

Stimulus Watch (Hat Tip DJHester1940)

Do Not Resuscitate (Hat Tip Ernie) 

Note to economics writers: your beloved free market is dead. Now tell us the real story about the global financial crisis, writes Alex Mitchell 

U.S. to Get Bank Ownership Stakes Only as Losses Rise 

Feb. 24 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders. 

The Treasury will buy convertible preferred stock in the 19 largest U.S. banks if stress tests determine they need more capital to weather a deeper-than-forecast recession, Bernanke told lawmakers in Washington today. The shares would be converted to common equity stakes only as extraordinary losses materialize, he said.

Consumer Confidence 

S&P/Case-Shiller Home Price Indices

Shiller: Stocks not yet cheap enough for me 

CommercialReal Estate Down Even More Than Residential

Brown: World needs ‘global New Deal’ (Hat Tip PineCarr) 

The world needs a "global New Deal" to haul it out of the economic crisis it faces, Prime Minister Gordon Brown of the United Kingdom said Sunday. 

Gordon Brown addresses a press conference following a G20 preparatory meeting in Berlin, Sunday.

"We need a global New Deal — a grand bargain between the countries and continents of this world — so that the world economy can not only recover but… so the banking system can be based on… best principles," he said, referring to the 1930s American plan to fight the Great Depression.

Brown was speaking as the leaders of Europe’s biggest economies met to try to forge a common position on the global financial crisis ahead of a major summit in London in April.

French President Nicolas Sarkozy said the world’s response to the global financial meltdown had to be profound and long-lasting, not just tinkering around the edges.

Russian economic collapse

Tumbling in the East 

The broad swath of land from the Baltic to the Black Sea and into the Russian heartland constitutes what is often called Emerging Europe. Over the last few weeks, this area caught the attention of the financial press due to rising concerns that the earlier build-up of external debt is beyond the region’s means of repayment — a factor that could have a wider ripple effect into Western European banks and through them into those economies and the world at large. 

Gold, George Gero, Bloomberg News 

[video:http://www.youtube.com/watch?v=YBtsrKtOVwo&eurl=player_embedded]

The Gold Rush: Don’t Get Burned (Hat Tip Suzie G.)

Global Downturn in Graphics (Hat Tip Maveri)

Powerful Agent’s Blunt Warning About Future of the N.B.A. (Hat Tip Zombie210) 

David Falk speaks in adages and anecdotes, every catchphrase and tale conveying a lesson from nearly four decades as an elite N.B.A. agent. The stories come in rapid-fire fashion, their themes accentuated by an All-Star cast of characters, including Michael Jordan, Patrick Ewing and David Stern. 

Law Would Allow Chicken Raising In Back Yards (HatTip James705ca) 

The Portland City Council on Wednesday will take up a proposal that would allow people to keep as many as six hens on their property.
South Portland removed legal barriers to backyard chickens in 2007 and Falmouth did the same last fall. Biddeford and Westbrook also allow the raising of chickens for personal use. 

The economic slump and the desire for locally grown food has led to a revival in raising chickens, said Clint Farnham, manager of Paris Farmers Union in Portland. He said the store sells a ton of chicken feed every week.

Backyard Chickens 

Energy 

Analysis and Discussion with Majority Leader Sen. Henry Reid (D) (Starting Bell)

[video:http://www.youtube.com/watch?v=3huZu_EbBRM&eurl=player_embedded]
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