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    Daily Digest – July 23

    by Davos

    Thursday, July 23, 2009, 3:00 PM

  • The Dollar is Overvalued… But Against What? (Chart)
  • When $3 Trillion Seems Like Small Potatoes (Chart)
  • Suburban Suvilaist, Economic Preparedness (MSNBC Video)
  • Q&A of Fed Reserve Chair Bernanke by Alan Grayson (Video)
  • Morgan Stanley Pays Damages For Precious Metals Fraud
  • Elizabeth Warren on Consumer Financial Product Agency
  • Feldstein: Risk of Double Dip
  • Minsky: Turning Neoclassical Economics On Its Head
  • 180 Degrees Off Target
  • Whalen On Banking (Video on page)
  • CNBC Attempts Assasination on Barofsky (Video, Repost)

Economy

The Dollar is Overvalued… But Against What? (Chart)

When $3 Trillion Seems Like Small Potatoes (Chart)

Suburban Suvilaist, Economic Preparedness (MSNBC Video)

Q&A of Fed Reserve Chair Bernanke by Alan Grayson (Video)

Morgan Stanley pays damages for Precious Metals Fraud

This is not the first time that Wall Street banks have been caught engaging in bullion-fraud…

Elizabeth Warren on Consumer Financial Product Agency

"At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy."

Feldstein: Risk of Double Dip

…flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.

“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.

Minsky: Turning Neoclassical Economics On Its Head

1. We start where the red circle is.
2. When an economic shock hits which precipitates a massive deleveraging, the entire demand curve shifts to the left to a new lower GDP level, everything else being equal. Thus, deleveraging equals recession. And we now see the private sector curve hitting the public sector curve where the blue circle is. The private sector is now saving and the public sector is in deficit. That is where we are today.
3. However, to bring things back to neutral i.e. where sector surplus/deficit equals zero for both sectors, one could cut government spending dramatically. That shifts the entire government curve to the red line on the left, leaving us where the green circle is: in a deep, deep depression. Krugman calls this the Great Depression outcome.

180 Degrees Off Target

Coke – $8.27B in revenues vs estimates of $8.66B. A $400MM MISS.

Caterpillar – $7.98B in revenues vs estimates of $8.86B. Nearly a $1B MISS.

DuPont – $7B in revenues vs estimates of $7.15B. A $150MM MISS.

United Technologies – $13.2B vs estimates of $13.92B. A $700MM MISS.

Caterpillar is particularly frightening — that is a massive revenue miss for a very cyclical but excellently managed company …

 Whalen On Banking (Video on page)

* q2 09 likely to contain more earnings spin and accounting gimmicks than q1
* Banking sector is not out the woods, total restructuring needed
* For larger firms, we expect to see continued positive operating results
* Despite strong operating results, all major banks will have rising credit losses
* Cash flow from assets is falling
* It’s hard for banks to survive without debt to equity swaps
* Citi can be restructured short of bankruptcy but we need real leadership
* "Pretend and extend" was good policy for the fist half of this year
* CIT bankruptcy will surprise people by how disruptive will be
* CIT should not be bailed out the company needs to be restructured
* JP Morgan’s honeymoon is coming under a lot of stress
* Goldman Sachs is paranoid and nimble a winning combination

 CNBC Attempts Assasination on Barofsky (Video, Repost)

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