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    Daily Digest – Jan 30

    by Davos

    Friday, January 30, 2009, 2:23 AM

  • New Record, Fed, Activity Declined in Every State (Dec. 2008, Charts)  
  • Layoff Daily (Website, Hat Tip CM)
  • US-China currency war eclipses Davos, and threatens the world (Hat Tip PineCarr)
  • Russia, China Blame Woes on Capitalism 
  • Russian Ruble Trouble (Chart)
  • New Home Sale, Monthly, NSA (Chart) 
  • Why Your Bank Is Broke  
  • Bank Bailout Could Cost Up to $4 Trillion: Economists 
  • Initial and Continued Unemployment Claims (Chart)
  • 10-Year Treasury yield reaches key juncture (Chart in article) 
  • NYC Budget Axe To Carve Out $1 Billion 
  • Soros at Davos 2009 (Video)
  • Union leaders condemn delegates on crisis response

 

Economy

 

New Record, Fed, Activity Declined in Every State (Dec. 2008, Charts)

New Record, Fed, Activity Declined in Every State (Dec. 2008, Charts) 

Russian Ruble Trouble (Chart)

Layoff Daily (Website, Hat Tip CM)

US-China currency war eclipses Davos, and threatens the world (Hat Tip PineCarr)

Russia, China Blame Woes on Capitalism  

The premiers of Russia and China slammed the U.S. economic system in speeches Wednesday, holding it responsible for the global economic crisis. 

Both focused on the role of the U.S. dollar, with China’s Premier Wen Jiabao calling for better regulation of major reserve currencies and Russia’s Prime Minister Vladimir Putin calling over-reliance on the dollar "dangerous."

Wen Jiabao and Vladimir Putin address the World Economic Forum in Davos.
Speaking on the opening day of the World Economic Forum in Davos, Switzerland, they both urged more international cooperation to escape the downturn. They also talked up the abilities of their own economies to ride out the recession. Mr. Wen said he was "confident" China would hit its 8% growth target for this year even though that was "a tall order." (See the full text.)

The Russian and Chinese leaders also called for cooperation with U.S. President Barack Obama, but it was a chilly reception for the new administration that reflected growing anger in economies that are now getting hit hard by a financial crisis that began with subprime mortgages sold in the U.S.

Mr. Putin was characteristically blunt. He called for the development of multiple, regional reserve currencies in addition to the dollar. "Excessive dependence on a single reserve currency is dangerous for the global economy," Mr. Putin said. (See the full text.)

New Home Sale, Monthly, NSA (Chart) 

Turning a corner in the labyrinthine corridors of the Davos nerve-centre, I ran smack into Chinese premier Wen Jiabao – followed by a regiment of retainers and senior offices in full regalia. 

They have not quite adapted to the "sport" dress code of capitalism in Alpine retreat. Jeroen van der Weer – a Davos stalwart – wears horrendous corduroy trousers (pink sometimes) with a 1950s-era Tyrolean woolly. I dread to think how they react to Swiss prices if they venture into the restaurants.

Mr Jiabao smiled at me benignly, but he is not in a good mood. Indeed, he is fuming over the remarks by US Treasury Secretary Tim Geithner that China was "manipulating" its currency to gain market share. Reports were circulating this afternoon in Davos that Mr Jiabao erupted into a tirade after lunch at the mere mention of Mr Geithner’s name.

Mr Geithner – the first US Treasury chief who can actually speak Chinese, and Japanese, nota bene – is clearly operating under instructions from President Barack Obama. If his resolve fails, Hillary Clinton is there at Foggy Bottom (State Department) to renew the broadside against Beijing – at least judging by her Sinophobe reflexes in the campaign.

This has the makings of an almighty superpower bust-up. It is fast becoming the theme of Davos 2009. It may soon be the burning issue of our times. We will all learn how to pronounce Renminbi.

The Bush Administration — in its day — deflected all attempts by Congress to crack down on China’s currency policy. Perhaps sagely, perhaps not.

There is no question that Beijing has pursued a mercantilist strategy of conquering US and European markets by holding down the yuan/renminbi. It has a monthly trade surplus of $40bn, the highest ever recorded by any country. Or put another way, China is exporting its surplus capacity to the rest of the world. It has become a global deflation machine.

Even so, Mr Geithner is playing with fire. Beijing has amassed reserves of $1.9 trillion. From what we know, most of this money is held in the form of US Treasuries and other bonds. Creditors exercise power. Don’t be fooled by claims that China could not deploy this weapon without damaging its own interests. All kinds of things can and do happen when tempers flare, and they were flaring today. 

Why Your Bank Is Broke  

Even without doing the math, you probably get that the government’s financial-rescue effort is failing. The signs are hard to miss. Your friend in finance got pink-slipped. A house sale down the street fell through because the buyer couldn’t get a mortgage. A local bank is closing a nearby branch or maybe shutting down altogether. 

But do the math, and you can begin to understand how really botched this bailout has been. Since October, the government has deposited $165 billion into the accounts of the nation’s eight largest banks. Yet those same financial firms are now worth $418 billion less than they were four months ago, and the Congressional Budget Office estimates that the government’s preferred shares are worth at least $20 billion less. In Wall Street terms, that’s throwing good money after bad. All told, the government’s annualized rate of return on its investment in the nation’s largest banks is -1,096%. That’s well beyond Bernie Madoff territory; he topped out at a mere -100%. (See pictures of the demise of Bernie Madoff.) 

Bank Bailout Could Cost Up to $4 Trillion: Economists 

The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets. 

The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.

Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.

"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset," they wrote in a note to clients.

Obama and his economic advisers are expected to lay out their policy plan as early as next week. One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them.

The hope is that once banks get rid of those bad loans, they can attract private investors, get back to the business of lending, and help revive the economy. 

Initial and Continued Unemployment Claims (Chart)

Americans receiving jobless benefits hits record  

SHINGTON (AP) — The number of people receiving unemployment benefits has reached an all-time record, the government said Thursday, as layoffs spread throughout the economy.
The Labor Department reported that the number of Americans continuing to claim unemployment insurance for the week ending Jan. 17 was a seasonally adjusted 4.78 million, the highest on records dating back to 1967.

A department analyst said that as a proportion of the work force, the tally of unemployment recipients is the highest since August 1983. 

The total released by the department doesn’t include about 1.7 million people receiving benefits under an extended unemployment compensation program authorized by Congress last summer. That means the total number of recipients is actually closer to 6.5 million people.

Meanwhile, the tally of Americans filing new jobless benefit claims rose slightly to a seasonally adjusted 588,000 last week, from a downwardly revised figure of 585,000 the previous week.

That’s close to the 26-year high of 589,000 reached in late December, though the labor force has grown by about half since then.

Companies have announced more than 125,000 layoffs in January, according to an Associated Press tally. 

Cargo Plummets 22.6% in December 

Geneva – The International Air Transport Association (IATA) released international scheduled traffic results for both December 2008 and the full-year. 

In the month of December global international cargo traffic plummeted by 22.6% compared to December 2007. The same comparison for international passenger traffic showed a 4.6% drop. The international load factor stood at 73.8%.

For the full-year 2008, international cargo traffic was down 4.0%, passenger traffic showed a modest increase of 1.6%, and the international load factor stood at 75.9%.

"The 22.6% free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded, the decline was only 13.9%," said Giovanni Bisignani, IATA’s Director General and CEO." Air cargo carries 35% of the value of goods traded internationally. 

International Cargo Traffic (Chart)

10-YEAR TREASURY YIELD REACHES KEY JUNCTURE (Chart in article) 

Even with the Fed’s reiteration that they were considering outright purchases of US Treasuries, the yield on the 10-Year has been climbing steadily higher from its lows in December. At 2.77%, the 10-Year is approaching yields that it traded at before the bottom dropped out in early December. How we trade in the next few days will go a long way in determining whether the current sell-off is simply profit taking after a massive rally, or the beginning of the end of the latest bubble in asset classes (stocks, real estate, commodities, etc…).

 

NYC Budget Axe To Carve Out $1 Billion 

After sharpening his red pencils and spending long nights squeezing the treasury for every penny, Mayor Michael Bloomberg is set to tell New Yorkers on Friday that the budget for the next year will be excruciatingly painful. 

Jobs will be axed, programs slashed and lots of things will cost more.

Wall Street and the spiraling out of control economy have dealt New York City a bad hand. The mayor has no trumps to play as he lays out a spending plan whose gap has grown nearly 400 percent in three months.

Shrinking tax revenues have turned the $1.3 billion November budget hole into a now-$4 billion chasm.

The only way to fix it, sources tell CBS 2 HD, is with:

* $1 billion in program cuts, affecting virtually every city agency.

* New taxes and fees, including more taxes on clothing, a fee for plastic shopping bags in grocery stores and higher fees for lots of other city services.

* The capital budget will be slashed.

* City employees will be asked to pay part of their healthcare costs.

* There will be a reduction of 23,000 jobs through layoffs and attrition. That’s more than 7 percent of the city’s employees. 

Soros at Davos 2009 (Video)

Union leaders condemn delegates on crisis response

 

The gloom surrounding this year’s World Economic Forum descended into confrontation yesterday as international labour leaders launched a withering attack on the 1,400 business executives and 41 heads of government at Davos over what the labour leaders alleged was their failure to respond effectively to a deepening crisis of their own creation.

 

Guy Ryder, the general secretary of the International Trade Union Confederation (ITUC), said that the current financial turmoil had triggered a social timebomb that would lead to deepening civil unrest and soaring crime.

The comments from the confederation, which represents 168 million workers in 157 countries, are the most ferocious example yet of a backlash that has persuaded many who attend frequently to stay away from Davos this year. Yesterday Alistair Darling, the Chancellor, became the latest political figure to stay away from the meeting, after a similar move by David Miliband, the Foreign Secretary.

Mr Ryder, speaking as strikes involving hundreds of thousands of workers erupted across France and Germany, told The Times: "We are on the road to serious social instability, which could be extremely dangerous in some countries to democracy itself."

He said: "Davos does not make me at all confident. I don’t see any of the leadership here that is needed to get us out of this crisis . . . There is very little contrition here."

The ITUC warned that around the world more than 50 million jobs could be lost this year and that more than 200 million people would be driven into absolute poverty. The confederation said that the financial crisis had arisen because of "rampant speculation and financial profiteering" and that new global financial architecture needed to be established to "support regulation and ensure coherence".

Sharan Burrow, the president of the Australian Council of Trade Unions, said that the world was now witnessing the human cost of "casino capitalism" as the impacts of rising unemployment and home repossessions and of plunges in savings and pension funds hit millions of families.

Ms Burrow said: "Why shouldn’t working people be angry? Their money is being used to stabilise the financial system, but it is their wealth, their jobs and the welfare of their children that is being stripped away."

 

 

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