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    Daily Digest – Jan 9

    by Davos

    Thursday, January 8, 2009, 11:59 PM

  • Obama taps spending watchdog, eyes Social Security
  • Obama calls for a whole new approach to end crisis
  • Obama warns of dire consequences without stimulus
  • The end of the financial world as we know it (hat tip Luke)
  • Obama assembles powerful west wing (Where is Chris Martenson?)
  • TARP wiped out by downgrades
  • Huge mortgage rally…
  • Same stores sales… down, but not out
  • MBA says commercial real estate market coming under pressure
  • Commercial property loses shelter
  • Flight to safety in 09, USD, gold, Euro, Yen
  • Paulson speaks (video)
  • Joseph Stiglitz and Martin Feldstein discuss stimulus (Charlie Rose video)

Economy

Obama taps spending watchdog, eyes Social Securit

WASHINGTON (AP) – Pointing with concern to "red ink as far as the eye can see," President-elect Barack Obama pledged Wednesday to tackle out-of-control Social Security and Medicare spending and named a special watchdog to clamp down on other federal programs – even as he campaigned anew to spend the largest pile of taxpayer money in history to revive the sinking economy.

The steepness of the fiscal mountain he’ll face beginning Jan. 20 was underscored by stunning new figures: an estimate that the federal budget deficit will reach $1.2 trillion this year, by far the biggest ever, even without the new stimulus spending.

The incoming president has walked this same tightrope each day this week – advocating fiscal discipline and taxpayer largesse together at nearly every turn, though in every case with little detail to back it up. With less than two weeks to go before taking the helm at the White House, he’ll make the same pitch on Thursday, delivering a speech laying out why he wants Congress to quickly pass his still-evolving economic plan.

 

Obama Calls for a Whole New Approach to End Crisis

President-elect Barack Obama said the ongoing crisis didn’t happen by accident or through a normal turn in the business cycle, but rather it was the outcome from an "era of profound irresponsibility." He said bold action must be taken to prevent a bad situation from becoming dramatically worse.

"It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe," Obama said at George Mason University on Thursday.

"Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit," he said.

Obama’s recovery plan includes a $1,000 tax cut for the middle-class, as promised during the campaign, as well as infrastructure investments in energy, education and health care.

 

Obama warns of dire consequences without stimulus

FAIRFAX, Va. (AP) – President-elect Barack Obama warned of dire and long-lasting consequences if Congress doesn’t pump unprecedented dollars into the national economy, making an urgent pitch Thursday for his mammoth spending proposal in his first speech since the election.
"In short, a bad situation could become dramatically worse" if Washington doesn’t go far enough to address the spreading crisis, the Democrat said as fresh economic reports showed an outlook growing increasingly grim.

Since his November election, Obama has deferred to President George W. Bush on foreign policy matters such as the Middle East. But, with the worsening of the economic situation, Obama has waded deeply into domestic issues as he works to generate support for his plan to create jobs and jolt the economy into recovery.

In the speech at George Mason University outside Washington, Obama asked Congress to work with him "day and night, on weekends if necessary" to pass a revival plan within the next few weeks so that it can be ready for his signature shortly after he takes office on Jan. 20.

As Obama spoke, his economic advisers were on Capitol Hill to brief Democratic lawmakers on details of his economic plan. Senate Finance Committee members met privately to assess his proposals. The Senate Democratic caucus planned a late afternoon meeting, followed by a news conference by Majority Leader Harry Reid and other caucus leaders.

 

The End of the Financial World as We Know It (hat tip Luke)

AMERICANS enter the New Year in a strange new role: financial lunatics. We’ve been viewed by the wider world with mistrust and suspicion on other matters, but on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.

This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?

Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?

To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.

 

Obama Assembles Powerful West Wing (Where is Chris Martenson?)

President-elect Barack Obama is assembling a new and influential cadre of counselors just steps from the Oval Office whose power to direct domestic policy will rival, if not exceed, the authority of his Cabinet.

Presidents have long strived to centralize influence in the White House, often to the frustration of their Cabinet secretaries. But not since Richard M. Nixon tried to abolish the majority of his Cabinet has a president gone so far in attempting to build a West Wing-based clutch of advisers with a mandate to cut through — or leapfrog — the traditional bureaucracy.

Obama’s emerging "super-Cabinet" is intended to ensure that his domestic priorities — health reform, the environment and urban affairs — don’t get mired in agency red tape or brushed aside by the ongoing economic meltdown and international crises. Half a dozen new White House positions have been filled by well-known leaders with experience navigating Washington turf wars.

But some see the potential for chaos within the administration.

"We’re going to have so many czars," said Thomas J. Donohue, president of the U.S. Chamber of Commerce. "It’s going to be a lot of fun, seeing the czars and the regulators and the czars and the Cabinet secretaries debate."

Carol M. Browner, who ran the Environmental Protection Agency in the Clinton administration, is taking on a broad new portfolio with responsibility for Obama’s ambitious agenda on the environment, energy and climate change.

Bronx politician Adolfo Carrion Jr. is expected to serve in another new White House post, implementing Obama’s education and housing agenda for cities.

Former senator Thomas A. Daschle will become the first Cabinet secretary in decades to have an office in the West Wing and a separate, newly created White House title: director of the Office of Health Reform.

 

TARP wiped out by downgrades

Meredith Whitney via ft. nothing new, but improved quantification.

Whitney further notes that deleveraging is still in its early stages and has much further to run, meaning that we will be living with bank selling for some time. take jpmorgan’s estimate of what must be done with merrill’s estimate of what’s been done, and there are still years of asset deflation before us.

This underscores the need for banks to be reorganized via nationalization and cleansed of assets — including syndicated receivables of credit cards, auto loans, commerical real estate and more beyond just residential real estate and leveraged loans — that thusfar have not been written down to anything like realistic levels. without such a process, the banks are a capital sink of heroic proportion that could well bankrupt domiciling governments who decide they won’t be allowed to fail but cannot bring themselves to nationalize.

Huge Mortgage Rally… Thanks Government!

The Federal Reserve on Monday kick-started its latest unconventional programme to boost the US economy, this time targeting mortgage-backed securities to help the slumping housing market, reports Reuters. The Fed plans to buy back as much as a ninth of outstanding, mortgage-backed bonds sold by mortgage giants Fannie Mae, Freddie Mac, and Ginnie Mae. The aim is to encourage buyers to return to the housing market or cut payments on existing home loans. The New York Fed began buying MBS guaranteed by Fannie, Freddie and Ginnie on Monday, part of a programme of as much as $500bn.

 

Same Stores Sales… Down, but Not Out

Despite a startling miss by Wal-Mart Stores Inc. (WMT), overall December same-store sales are tracking ahead of analysts’ projections. Virtually all retailers have posted sales drops from a year ago, but for almost two-thirds of them the decline wasn’t as much as expected, according to data tracker Retail Metrics.

 

MBA Says Commercial Real Estate Market Coming Under Pressure

The U.S. economic slowdown and credit crunch are beginning to affect the commercial real estate market in the United States, according to a report from the Mortgage Bankers Association on Thursday.

"Despite relatively modest new construction activity, the slowdown in job growth, retail sales and other aspects of the economy has led to lower demand for commercial space and to declines in net absorption of space," read the MBA’s Commercial Real Estate/Multifamily Finance Quarterly Data Book. "As a result, supply is outpacing demand."

As a consequence, commercial/multifamily mortgage debt outstanding declined 0.1% compared to the previous quarter as government-sponsored enterprises and Ginnie Mae broadened their holdings of multifamily mortgages by $14 billion.

Mortgage debt outstanding declined 0.1% in Q3

 

Commercial Property Loses Shelter

Delinquencies on mortgages for hotels, shopping malls and office buildings were sharply higher in the fourth quarter … New data from Deutsche Bank show that delinquencies on commercial mortgages packaged and sold as bonds, which represent nearly a third of the commercial real-estate debt market, nearly doubled during the past three months, to about 1.2%. …

The delinquency rate will likely hit 3% by the end of 2009, its highest point in more than a decade, says Richard Parkus Deutsche Bank’s head of research on such bonds, known as commercial-mortgage-backed securities, or CMBS.

 

Flight to safety in 09, USD, Gold, Euro, Yen

The USD remains stronger than one might think into the beginning of 2009. Between the latest Mid East tensions and general flight to safety it rallied again to 83 on the USDX when it looked like it might crack into the 70’s again, the low being 70ish last year, before the USD rallied after April of 08, which caught the commodity and metals complex.

It’s hard to say the USD rally last year alone caused the commodity and metals bubble to break, or did the pending world economic slowdown, which caused the speculators to bail out – and/or did the pending economic slowdown then force financial deleveraging on all fronts which flooded money back into the USD as people liquidated?

But, in any case, it’s now obvious that there was flight to cash in the second half of 08, and the USD being the major currency still, it ends up being the main settlement currency when there is market deleveraging. So, the USD rallied strongly in the second half of 08 against practically all currencies, except perhaps the Yen which rallied on its own due in large part to carry trade unwinding during all the deleveraging in the second half of 08 too.

Gold spot holds up pretty well though

But, compared to general commodities which took up to an 80 pct bath, or general stocks which took a 40 plus pct bath before recovering a bit recently, gold spot prices held up comparatively well. (I know gold stocks got hit too, but that is a separate issue related to the gold spot price since gold stocks are much more volatile).

So, a very big question is where is the USD going and gold spot price going in 09?

 

[video:http://www.youtube.com/watch?v=0oAy5_Ez04U&eurl=player_embedded]

Joseph Stiglitz and Martin Feldstein Discuss Stimulus (Charlie Rose Video)

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