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    Daily Digest – Jan 10

    by Davos

    Saturday, January 10, 2009, 1:05 AM

  • Janet Tavakoli, Author, Video Interview (Wall Street’s Financial Meth Labs & Ponzi Schemes)
  • Cheney Says Nobody Saw Economic Crisis Coming
  • Bush Prepares to Ask for Second Tranche of Bailout Funds
  • Unemployment Way Worse than 7.2% Due to Birth / Death Adjustment (2 Charts)
  • Part-time jobs
  • Unemployment Rate vs. Broader Total Unemployed (Chart)
  • Boeing Cuts 4,500 Commercial Jobs as Economy Weakens 
  • More Layoffs Coming in the Oil Patch
  • Roubini forecasts recession will last 2 years
  • SNL Morgan Stanley Parody Video (Humor)
  • Change in US Consumer Credit and Mortgage Debt Relative to GDP (Chart)
  • Peter Schiff Audio Fox News Talk
  • Financial company default risk
  • Japan Economy Watch
  • British Airways credit card is UK’s most expensive – after hiking interest charge to 46%
  • Office Vacancy Forecast Chart (U.S.)
  • Macy’s Goodwill Writedown May Speed Stock’s Spiral
  • Rubin Out At Citi (C)

 

Economy 

Janet Tavakoli, Author, Video Interview (2:00 point, Wall Streets Financial Meth Labs & Ponzi Schemes)

Cheney Says Nobody Saw Economic Crisis Coming (Hat Tip Yoshhash) 

In an interview with The Associated Press, Cheney also said that Bush has no need to apologize for not foreseeing the economic crisis. 

"I don’t think he needs to apologize. I think what he needed to do is take bold, aggressive action and he has," Cheney said.

"I don’t think anybody saw it coming," he said. 

Bush Prepares to Ask for Second Tranche of Bailout Funds 

In a move being coordinated with the Obama transition team, senior Bush administration officials are preparing to ask lawmakers for the second half of the $700 billion financial rescue package, despite intense opposition in Congress, sources familiar with the matter said. 

The initiative, if it goes ahead, could create an unusual political straddle between the Bush and Obama administrations. If Congress were to vote down the measure, either President Bush or Obama might have to exercise a veto in order to get the money. While Obama officials prefer that current administration issue a veto, the White House is declining to address that question. 

Unemployment Way Worse than 7.2% Due to Birth / Death Adjustment (2 Charts) 

The Birth Death Model once again overstates employment. In other words, things are a lot worse than the 7.2% rate presented to us. Per The Big Picture: 

Since 2003, the B/D adjustment has been part and parcel to BLS’ Current Employment Statistics (CES) program, the official measure of US employment. In brief, the Birth Death adjustment imagines (hypothesizes) how many jobs were created by companies too new and/or too small to participate or be found by CES. The model attempts to create what is perceived as a BLS error at the start of any recovery, when many new jobs are created but missed by BLS. 

Part-time jobs 

Not only has the unemployment rate risen sharply to 7.2%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is now over 8 million.this is why it is critical to look at BLS unemployment reporting which includes the underemployed in the calculation in order to get an accurate picture of household economic stress. the u-6 rate reported by the BLS does so, and as noted in november this is likely the appropriate measure to examine for historical comparisons. 

the december reading for u-6 shot up to 13.5%, from a revised 12.6% in november and 12.0% in october. one in seven american workers are now either unemployed or have been forced into reduced hours/benefits — and for good measure, as one can tell from the chart as well as the figures, the rate of change in umemployment is still accelerating. the forecast for coming months indicates further acceleration is in the pipeline. the silver lining, if any, is that the trend in unemployment has broken rather suddenly at the top — in other words, unemployment will likely accelerate until it stops going up at all.

UPDATE: todd harrison asserts that, if we went back to the method of unemployment calculation which prevailed prior to the clinton administration adjustments, the unemployment reading might be as high as 15-16% already. that’s almost incidental, however, next to a call for a "seismic adjustment" in currency markets against the dollar, which should it come to pass will be the story of 2009. 

Unemployment Rate vs. Broader Total Unemployed (Chart)

Boeing Cuts 4,500 Commercial Jobs as Economy Weakens  

Jan. 9 (Bloomberg) — Boeing Co. plans to cut about 4,500 jobs, or 6.6 percent of its commercial-aircraft workforce, this year to reduce costs as a weakening global economy hurts demand for new planes. 

The job losses will take place mainly in Washington state, Boeing’s manufacturing hub, and happen in the second quarter with 60-day notices beginning in late February, the company said in a statement today. Boeing, which has a record backlog of 3,714 planes to fill, said the job cuts will focus on areas not directly associated with aircraft production.

"We are taking prudent actions to make sure Boeing remains well positioned in today’s difficult economic environment," Scott Carson, the head of Boeing Commercial Airplanes, said in the statement. 

More Layoffs Coming in the Oil Patch (CVX, SLB, XOM, COP, BP) 

Chevron Corporation (NYSE:CVX) already gave its severe earnings warning and we have already seen layoffs coming out of Schlumberger Limited (NYSE: SLB). [] and its dragging down share prices for the other oil majors. Interestingly, Chevron has bounced back a little, as has Exxon Mobil Corporation (NYSE:XOM), but ConocoPhillips Corporation (NYSE:COP) and BP plc (NYSE:BP) continue lower. 

In addition to a weak profit outlook for the quarter, there are now more than concerns about job losses in the oil patch. Certainly cutting expenses is one way to boost profits, and big oil is a big employer. The following chart shows total employment for the past three years: 

Roubini forecasts recession will last 2 years 

WASHINGTON (MarketWatch) — The U.S. recession will last two full years, with gross domestic product falling a cumulative 5%, said Nouriel Roubini, chairman of RGE Monitor. Roubini was one of the first economists to predict the recession and the credit crunch stemming from the housing bubble. For 2009, Roubini predicts GDP will fall 3.4%, with declines in every quarter of the year. The unemployment rate should peak at about 9% in early 2010, he said. Consumer prices will fall about 2% in 2009. Housing prices will probably overshoot, dropping 44% from the peak through mid-2010. "The U.S. economy cannot avoid a severe contraction that has already started and the policy response will have only a limited and delayed effect that will be felt more in 2010 than 2009," he said. 

SNL Morgan Stanley Parody Video (Humor)

Change in US Consumer Credit and Mortgage Debt Relative to GDP (Chart)

Peter Schiff Audio Fox News Talk

FINANCIAL COMPANY DEFAULT RISK 

While default risk has dropped dramatically for the financial companies listed below, it’s still interesting to see how the firms compare with each other on the CDS front. Below we highlight current credit default swap prices for 24 financial firms across the globe. These prices represent the cost per year to insure $10,000 worth of debt for 5 years. As shown, default risk is the highest for Morgan Stanley, followed by Goldman Sachs, American Express, UBS, and Citigroup. The premium against default for JP Morgan is the lowest among US financial firms, with Wachovia, Wells Fargo, and Bank of America not far behind. BNP Paribas and Credit Agricole have the lowest default risk of the 24 financial firms shown. 

Japan Economy Watch 

Japan Industrial Production Slumps And Outright Deflation Draws Nearer
Japan’s recession evidently deepened even further in November as industrial output fell at the fastest pace in 55 years. Production plunged 8.1 percent month on month from October (Trade Ministry data) and was down an enormous 16.2% year on year. For an economy which lives from the prowess of its industrial exports, this is simply earthquake. 

British Airways credit card is UK’s most expensive – after hiking interest charge to 46% 

American Expess has increased the cost of borrowing on one of its credit cards to 46 per cent – more than 30 times the Bank of England base rate. 

The company now charges 46 per cent APR on the British Airways Premium Plus card, making it Britain’s most expensive credit card.

Consumer groups said the cost of borrowing on some credit cards had now lost all touch with the base rate.

A series of other cards also have APR over 35 per cent – despite interest rates now being at the lowest level since the Bank of England was set up in 1694.

Other cards include Virgin Money American Express at 37 per cent and Citi MasterCard at 41 per cent.

Consumer group Which!’s credit card expert Martyn Saville said the Amex rate was ‘ridiculous’.

He said: ‘This is over 30 times base rate.

‘Credit card interest rates now bear no resemblance to Bank rates – it is just about what companies think they can get away with. 

Office Vacancy Forecast Chart (U.S.)

Macy’s Goodwill Writedown May Speed Stock’s Spiral 

Jan. 9 (Bloomberg) — Macy’s Inc. investors are waiting for the other shoe to drop, and it isn’t a Manolo Blahnik. 

The second-largest U.S. department-store company may write down its goodwill by as much as $3 billion after-tax as early as this month, said Dan Poole, who researches stocks for National City Private Client Group, a Cleveland-based firm that manages $26 billion, including Macy’s shares.

The charge, to reduce the value on its 2005 acquisition of May Department Stores Co., would be the biggest hit to financial results in 18 years and wipe out a third of equity. It may also make shareholders more negative about a stock that lost 60 percent last year, and bondholders more skeptical about debt whose ratings are hovering just above non-investment grade.

"There is still a lot of pain to go" for the company, said Bill Dreher, an analyst with Deutsche Bank AG in New York, who recommends holding the stock. A goodwill charge "is going to make some investors nervous."

Macy’s shares are trading at less than 50 percent of the retailer’s book value, according to data compiled by Bloomberg, signaling that investors already view it as worth less than half what the Cincinnati-based retailer’s books say.

The stock retreated 63 cents, or 5.8 percent, to $10.30 at 4:04 p.m. in New York Stock Exchange composite trading. That’s down from a peak of $46.51 in March 2007.

Overpaid? 

Rubin Out At Citi (C) 

The WSJ first reported that famed ex-Treasury Secretary Bob Rubin will be leaving the board of directors at Citigroup Inc. (NYSE: C). This has now been confirmed in multiple reports elsewhere. This follows about two years worth of criticism, the ouster of Chuck Prince and the questionable performance of Vikram Pandi. Some have argued that Rubin has just not been worth anything to Citigroup. 

We are still of the opinion that the sweeping changes that were needed all along and have yet to come will take CEO Vikram Pandit down as well. Despite the timing being too soon, we included Pandit as one of the 10 CEO’s To Go In 2009. Citigroup’s problems might not be all his fault, but they were not dealt with as swiftly as many would have hoped.

Rubin has made more than $100 million by being on Citi’s board. He is not an operational employee. Unfortunately, the problems at the company would likely be the same if you took 99% that pay away or if you tripled it.

This is probably just a footnote in what will have been many sweeping changes over the last few years and what lies ahead at Citi. 

 

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