• Blog

    Daily Digest – July 3

    by Davos

    Friday, July 3, 2009, 8:21 PM

  • Independence Weekend Massacre: 7 banks seized, week #22, bank failure #52
  • 467,000 jobs lost in the U.S. in June 2009
  • No Kidding! Nassim Taleb – "We’re in the middle of a crash…" (Video)
  • Harvard cuts 275 jobs, cites drop in endowment
  • Telling a Similar Story
  • Setting the Stage for a Major Turnaround…in Crime
  • 12 Trillion dollar ocean of debt (H/T Nathan’s Economic Edge, Video)
  • The S.E.C. Gets Their Man (Video)
  • “Sell all California paper now!” says Martin Weiss. Sounds like good advice
  • JPMorgan on US Net International Investment Position
  • The New Rising Sun?
  • Freddie, Fannie to Provide 125% LTV Mortgages, Worse Than Extremes of Subprime Frenzy
  • July 10th, Is it a special day?


Independence Weekend Massacre: 7 banks seized, week #22, bank failure #52

Here are all the FDIC seizures for today. Six were in Illinois and one in Texas.

First State Bank of Winchester
Winchester, IL

Elizabeth State Bank
Elizabeth, IL

Millennium State Bank of Texas
Dallas, TX

John Warner Bank
Clinton, IL

First National Bank of Danville
Danville, IL

Founders Bank
Worth, IL

Rock River Bank
Oregon, IL

Related Reading:

467,000 jobs lost in the U.S. in June 2009

[I haven’t seen the Birth Death Adjustment figures yet]

No Kidding! Nassim Taleb – "We’re in the middle of a crash…" (Video)

Harvard cuts 275 jobs, cites drop in endowment

BOSTON (Reuters) – Harvard University announced 275 job cuts on Tuesday, the latest cost-cutting measure at the world’s richest university after the financial crisis triggered big losses in its multibillion-dollar endowment.

The Ivy League school took the action to meet budget constraints caused by an estimated 30 percent fall in its endowment for its 2009 fiscal year, ending June 30.

The cuts mostly affect administrative, clerical and technical jobs and will take place this week and next, Marilyn Hausammann, vice president for human resources, said in an e-mail to staff and faculty.

Another 40 staff were offered reduced work hours.

While the layoffs affect a fraction of Harvard’s 16,000 staff and faculty, they illustrate the recession’s toll on America’s oldest institute of higher learning and other universities which depend on endowments and donations.

Harvard’s endowment, which stood at $37 billion on June, 30 last year, tumbled to $29 billion by December and is projected to end this month at about $25 billion, hit by volatility in financial markets and a drop in donations. The endowment funded about a third of Harvard’s operating budget in 2008.

Telling a Similar Story

Below are two seemingly unrelated articles that tell a similar story: talk that the global economy is on the upswing seems to be premature, to say the least.

In the first report (hat tip to Calculated Risk), the Vice Chairman of General Electric, a company with 14 major lines of business — appliances, aviation, consumer electronics, electrical distribution, energy, business finance, consumer finance, healthcare, lighting, commercial and industrial markets, media & entertainment, oil & gas, rail, and security — and a presence in more than 100 countries, states point-blank that they are not seeing evidence of the turnaround that policymakers (e.g., Fed Chairman Ben Bernanke), clueless Wall Street types (see: "The Wall Street Clown Show"), and TV pundits keep referring to.

The second article by well regarded analyst Andy Xie (hat tip to Naked Capitalism) is even more interesting, because it doesn’t just undermine the notion that China is on the mend — bolstering arguments I made previously in "Holes in the China Recovery Story" — and poised to kick-start a global economic recovery. It also raises questions about the recent sharp run-up in commodity prices, which many analysts say is a reflection of improving economic conditions but which seems to stem from a combination of technical buying and debt-financed speculation.


The current fiscal course of the country is unsustainable. We can choose to let the country drift toward a corporate fascist run government which will collapse under the weight of debt, corruption and mismanagement or we can make a stand today with our own money. If enough Americans choose to put the horribly run mega-banks out of business it can be done. There would be absolutely nothing that Obama or Bernanke could do to stop it from happening. It is time to do the right thing. Do you know what’s worth fighting for?

“All endeavor calls for the ability to tramp the last mile, shape the last plan, endure the last hours toil. The fight to the finish spirit is the one… characteristic we must posses if we are to face the future as finishers.”

Henry David Thoreau

Setting the Stage for a Major Turnaround…in Crime

Although I’ve dismissed claims that "green shoots" are emerging all around us, that is not quite accurate. Amid the economic rubble, I do see growth in one area. Sadly, I’m referring to the nation’s crime rate. After falling throughout most of the past decade-and-a-half, there are signs that today’s economic realities are setting the stage for a major turnaround. You see, not only is the bad economy encouraging desperate Americans to consider desperate — and illegal — acts, budget pressures are forcing myriad state and local governments to reduce the numbers of those who are supposed to uphold the law, as the Associated Press reports in "Even Cops Losing Their Jobs in Recession":

As hundreds of jobs in Chicago’s police department go unfilled, officers who once patrolled the streets with partners are riding alone in what some cops bitterly call "rolling coffins."

12 Trillion dollar ocean of debt (H/T Nathan’s Economic Edge, Video)


The S.E.C. Gets Their Man (Video)

“Sell all California paper now!” says Martin Weiss. Sounds like good advice

With $59 BILLION in outstanding debt, despite a state Constitution which requires “balanced budgets”, Weiss (president of his own company, Weiss Research) says that California’s default is “unavoidable” – according to a quote from an interview by Forbes Magazine.

As the same CNN article observes, a default by California on its $46 BILLION of municipal bonds is not just a disaster for the state, but for the entire country – as it would permanently dispel the myth that U.S. municipal bonds are “safe debt”. Of course, that myth is already unraveling, thanks to over-spending, over-borrowing, and the “innovative” forms of debt-financing from Wall Street predators – which is now creating billions in additional losses across the U.S.

This sets the stage for a bail-out of California by the federal government, something strongly resisted by the Obama regime for an obvious reason: as soon as they bail out one state, they will have forty-nine more lining up outside the White House the next day – waiting for their turn for a hand-out.

Ultimately, Obama has absolutely no choice, as I have been writing for many months. The campaign of lies from first the Bush regime and now the Obama regime that “economic recovery was imminent” had the unintended effect of lulling all the U.S.’s gullible governors into a false sense of security.

Two years ago, when U.S. states should have been engaged in severe “belt-tightening”, “Helicopter” Ben Bernanke was already in the midst of his five predictions for an “economic recovery” (see “U.S. states crippled by Bernanke’s lies”). Thanks to this compulsive liar, all those governors are trying to play catch-up, while the U.S. economy plummets downward in a worse collapse than the “Great Depression”.

State budget “projections” have become a bad joke, as each forecast must be thrown out in a matter of weeks – as revenues plunge downward, while costs for social programs skyrocket, thanks to a combination of falling wages, soaring unemployment, and wave after wave of foreclosures.

With the gaps between revenues and spending demands widening each week, California is merely the first state which will inevitably be bailed out by the federal government (leading to trillions of dollars of additional debt over the next few years).

All that remains in doubt as of today is whether the Obama regime will “blink” before formal default occurs, and bail-out the Schwarzenegger government – or call its “bluff” and wait until after default before it jumps in to rescue the state (temporarily).

JPMorgan on US Net International Investment Position

The US net international investment position — US-owned foreign assets less foreign-owned US assets — for year-end 2008 was reported this morning at -$3.47 trillion, a widening of $1.33 trillion from the 2007 value of -$2.14 trillion. As a percent of GDP, this represents a widening in the net international investment position from -15% to a record -24%. At year-end, US residents owned $19.9 trillion in foreign assets and foreigners owned $23.4 trillion of US assets.

The New Rising Sun?

While some are skeptical of government intervention, there is no doubt that the solar industry will need strong government incentive programs to continue expanding. In California, for example, the legislature must act to keep solar glowing.

If the U.S. does not get its act together, it risks losing ground from other countries which are actively promoting the solar industry. Europe’s solar power seen competitive in 2010. Japan is relighting its solar PV industry.Beijing’s bid to boost the solar energy sector could draw more than $10 billion in private funding for projects and put China on track to become a leading market for solar equipment in the next three years.

Not everyone is convinced solar is the way to go for clean tech. Some feel a more realistic energy option to be invested in for the next 5-20 years is nuclear energy.

But all these naysayers forget that advances in photovoltaics could make solar cost competitive:
Building-integrated photovoltaics (BIPV) is poised to change the face of construction, energy and urban planning in the coming decade.

The Department of Energy has estimated that BIPV technology could potentially generate 50% of the electrical needs of the U.S. and other developed countries, and the DOE’s Solar America Initiative has set the goal of making solar cost-competitive with grid electricity by 2015.
In this continuing effort the Department of Energy just announced the selection of 24 new solar projects to advance photovoltaic technology research, development, and design, ultimately lowering the cost of photovoltaic generation. The competitively-selected projects will be eligible for up to $22 million from the President’s American Recovery and Reinvestment Act and will be matched by more than $50 million in cost shared funding from private partners.
Many of the projects selected focus on improving the effectiveness of the materials used to capture the sun’s rays.
So which stock do I like in the solar industry? My top pick is LDK Solar (LDK), a popular solar stock with pro investors. There are other excellent picks in this sector, like Yingli Green (YGE) who is seeing a pick-up in demand and Trina Solar (TSL) who got $57 million in new credit:
Trina has been helped in recent months by a decline in the cost of polysilicon, the material it uses to turn sunlight into elecricity in its solar cells, but like others in the industry, has suffered from a steep drop in prices for solar panels.

Chinese solar companies have also seen volatile earnings swings because of the sharp moves in the value of the euro versus the U.S. dollar. Europe is the biggest market for solar products.

The new facilities from Standard Chartered Bank (China) Ltd brings its total credit facilities to $520 million.

Credit is important for these companies to continue expanding. Their debt levels are high, but this reflects strong expansion and difficulties keeping up with demand.

I will end by warning all of you, solar stocks are not for the feint of heart. If you cannot stomach crazy volatility, do not bother investing in these stocks. The big hedge funds love manipulating them through naked short selling, an abusive practice that has finally caught the attention of global watchdogs.

I see huge potential in the solar industry and I am a long-term investor in the sector. I also trade them in my short term account because I see the way they move when volume picks up in the sector.

On that note, I am off to enjoy this sunny Sunday afternoon in Montreal.

[Note: Here are the symbols of solar stocks I track: CSIQ, ESLR, FSLR, JASO, LDK, SOL, SOLF, SOLR, SPWRA, STP, TSL, WFR, TIM.TO, TSL and YGE. The symbol for the solar ETF is TAN.]

Freddie, Fannie to Provide 125% LTV Mortgages, Worse Than Extremes of Subprime Frenzy

From CNBC (hat tip reader Marshall):
Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

Yves here. Huh? This is beyond Orwell, it’s patently silly. "Housing affordability" has traditionally meant "let’s do things so people can afford to BUY houses." It even once included stuff like Section 8 housing, giving tax breaks for rental housing targeted to lower income people. The intent is to prop up prices by keeping stressed borrowers from selling their houses and possibly also sending an information signal through the 125% figure, that housing really ought to be priced higher. That is anti affordability. And the concept of "affordability" to my knowledge has never before been extended to keeping homeowners in place. Back to the article:

 July 10th, Is it a special day?

Bank of America recognizes the State of California budget crisis will impact our clients and customers. To support our customers, while giving the state legislature additional time to pass a budget, we will accept California state-registered warrants – or IOUs – from existing customers and clients. Based on state disbursement estimates, we will accept the registered warrants through July 10.

Related content
» More

No Comments