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    Daily Digest – May 1

    by Davos

    Friday, May 1, 2009, 2:54 PM

  • Truly, Truly Great Journalists Here, Stewart, Moyers & Marshall (Audio, Good Point on Blogs BTW)
  • Budget Cut (Video Visulization, H/T Coyote-Smiles)
  • Metro Unemployment: Some Cities See Rates Comparable to Great Depression
  • Google’s Unemployment Tool – Pick a City (Chart – Interactive)
  • Another Incredible Ineractive Map (H/T Scbt, Green to Red in 2008)
  • Google’s Flu Tool – Track A(H1N1)
  • Swine Flu will Finish this Economy. Prepare!
  • Are the Markets Too Complacent About Swine Flu?
  • 1918 Spanish Flu and the Market
  • Dr. Ron Paul (Video)
  • Mexico Plans Partial Shutdown to Reduce Spread of Swine Flu
  • Milken Conference: Credit Markets and the Role of Finance (Video)
  • Entering the Financial Twilight Zone
  • Chrysler: bulls make money, bears make money, pigs get slaughtered 
  • Education And The Future of Technology (Video, H/T Todd)

Economy

Truly, Truly Great Journalists Here (Audio, Good Point on Blogs BTW)

Budget Cut (Video Visulization, H/T Coyote-Smiles)

[video:http://www.youtube.com/watch?v=cWt8hTayupE&feature=player_embedded]

Metro Unemployment: Some Cities See Rates Comparable to Great Depression 

The highest was in El Centro, Calif., where unemployment stood at 25.1 percent – as bad as the national average during the depths of the Great Depression in 1933. Also faring poorly were Merced, Calif., with 20.4 percent, Yuba City, Calif., with 19.5 percent, and Goshen, Ind., with 18.8 percent.

Google’s Unemployment Tool – Pick a City (Chart – Interactive)

Another Incredible Ineractive Map (H/T Scbt, Green to Red in 2008)

Google’s Flu Tool – Track A(H1N1)

Swine Flu will Finish this Economy. Prepare! 

Economists remember well the financial damage the SARS outbreak inflicted in 2003. An epidemic of that scale or greater could inflict severe damage on a global economy already badly listing.

Are the Markets Too Complacent About Swine Flu? 

The WHO has designated swine flu an "imminent" pandemic, and raised its alert to a level 5 out of a possible 6. The World Bank guesstimates the cost of a severe pandemic at 4.8% of world GDP (yikes!). Yet the US had a very nice day for equity investors yesterday, and the Japanese stockmarket is up handsomely as of this hour. What gives?

The usually dour Ambrose-Evans-Pritchard argues yes, in reporting that is less apocalyptic than his normal style, argues that investors are underestimating the possible repercussions:
Over the last couple of days I have been deluged by notes from City analysts and economists suggesting that H1N1 avian-swine flu poses no great threat to the global economy because the authorities showed during the 2003 SARS epidemic in Asia that outbreaks can be contained.

This is a misreading of the threat we face.

SARS is a coronavirus. It is extremely hard to catch. Just 8,000 people were infected worldwide during the entire epidemic (10pc died).

Today’s H1N1 outbreak is an influenza virus, which is far more contagious.

Dr. Keiji Fukuda, the WHO’s assistant director-general, said it is already too late to stop the spread of the disease. “At this time, containment is not a feasible option.

It is entirely possible that we may see a very mild pandemic. I think we have to be mindful and respectful of the fact that influenza moves in ways we cannot predict.

The worst pandemic of the 20th century occurred in 1918, and it also started out as a relatively mild pandemic that wasn’t very much noticed in most places. Then in time it became a very severe pandemic, one of the most severe infectious disease episodes ever recorded.

Perhaps because so few market players studied science, or have a current link to science, they seem not to realize that the world’s virologists and flu experts are in a state of nail-biting, ashen-faced, fear.

Rob Carnell, chief economist at ING, is one of the exceptions. “We believe fear of infection will lead to drastically altered behaviour. It may be that swine flu does not tip the human fear scale sufficiently, but if it did, with the economy already in tatters, the results could be catastrophic,” he said in a note today.

We may be lucky. The virus may indeed prove mild – like the Hong Kong flu in 1968 – or burn out altogether as it mutates.

The early cases in the US and Canada give hope. So does the apparent fall-off in the fatality rates in Mexico.

But as Dr Fukuda said, nobody can pre-judge the virulence of this pandemic. Least of all the markets.

Mexico City illustrates what can happen. People are avoiding discretionary outings. As the BBC reports:

Dr. Ron Paul (Video)

[Video:http://www.youtube.com/watch?v=PX3bzqeHmTQ&feature=player_embedded]

1918 Spanish Flu and the Market 

The 1918 Spanish Flu was a global flu pandemic that affected nearly half of the world’s population at the time (or up to one billion people). The 1918 outbreak was the worst of the 20th century, and it fell under the H1N1 virus subtype, which is the same subtype as the current swine flu outbreak. It’s estimated that the 1918 flu killed anywhere from 20 million to 100 million people, which would have equaled a mortality rate of 2.5%-5% of those infected.

The 2009 swine flu is still new to the public, but it is beginning to stoke fear since 152 people have died from it in Mexico as of now. The current swine flu is nowhere near as bad as the 1918 flu pandemic, but we thought we’d look at what the US stock market did during that outbreak period. Below we have grabbed a chart from a CDC article on the 1918 Influenza that highlights deaths per 1,000 people infected with influenza and/or pneumonia, and overlayed a chart of the Dow Jones Industrial Average.

Mexico Plans Partial Shutdown to Reduce Spread of Swine Flu

April 30 (Bloomberg) — Mexican officials said the federal government will suspend all non-essential services and urged businesses to close to reduce the risk of spreading swine flu.

“For many families, the measures taken have involved a sacrifice,” President Felipe Calderon said in a nationally televised address. “It is worth it if we can protect the health of our own.”

Lab tests have shown eight deaths caused by the virus out of 99 confirmed cases of infection, up from seven and 49 respectively at the previous count, Health Minister Jose Cordova told reporters late yesterday in Mexico City. Cordova said there were 17 new deaths from suspected swine flu, raising the total to 176.

The World Health Organization warned yesterday that the first influenza pandemic since 1968 is “imminent” and urged stepped-up preparations after swine flu was confirmed by lab tests in at least nine countries and 11 U.S. states. The WHO raised the level of its six-tier alert system to 5, indicating little time remains for countries to complete emergency plans.

The outbreak in Mexico may cut gross domestic product by 0.3 percent to 0.5 percent, though the impact should be short- lived, Finance Minister Agustin Carstens said at the same news conference. While the situation is serious, Mexico’s health system has the capacity to handle the situation, Cordova said.

Non-essential government activities will be suspended from May 1 to May 5 in an effort to reduce the chance of workers and the public spreading disease. The central bank and other financial-related services, as well as state-owned oil company Petroleos Mexicanos, will continue to operate as usual.

Oil Meeting

Officials from the oil company will meet today to discuss what non-essential operations can be suspended, spokesman Carlos Ramirez said in a phone interview.

All “substantial operations” will continue as usual including refining, production and gasoline stations, he said.

Milken Conference: Credit Markets and the Role of Finance (Video)

Entering the Financial Twilight Zone

Following today’s news that the Federal Reserve opted against expanding its program of buying Treasurys, government bond yields jumped, pushing the "big figure" on the five, 10, and 30-year benchmarks above the psychologically important two, three, and four percent levels.

Some might find it ironic — or surreal, perhaps — that the ostensible reason for today’s rise in yields was the fact that one arm of our government was not going to boost purchases of the rapidly expanding supply of paper being produced by another arm of our government.

Yet that is likely to be only one of the many distortions we can expect to see in the months and years ahead as Washington moves whole hog into the realm of the financial twilight zone. In "How Government Guaranteed Bank Debt May CRUSH Public Borrowing," Clusterstock details another perverse outcome in the making.

Chrysler: bulls make money, bears make money, pigs get slaughtered

Here’s how I see things playing out for some major constituencies.

Auto Workers. There will likely be massive job losses here. Let’s see what Obama does regarding funding the newly-insolvent company to prevent more job losses. The dealer network will be cut back significantly, so the job losses will not necessarily be concentrated in Detroit.
Shareholders. They will get nothing. They will be replaced by the unions (new majority owners in deal with Administration), the government, and Fiat (if the deal goes through) Bond holders. They are going to get stuffed..big time. It is a case where they should say, “I fought the law and the law won.” End of story.

CDS insurance writers. Get ready for major pain. If bond holders are getting screwed, you know the companies who guaranteed credit default swaps (CDS) are not going to be very happy here. Question: are bond holders playing chicken because they have insurance? If so, you can consider the CDS writers another negotiating party that did not get a seat at the table and are going to be left holding the bag – a reason to want some major changes in how the CDS market is run.

General Motors. This is a dry run for them. Now, they have a chance to see how things play out for Chrysler and use this as leverage to say, “see, you don’t want to hold out on us. Look at Chrysler.” But, again, the CDS insurance problem may be at play in bondholder negotiations.
Fiat. This is good for Fiat. Chrysler will be cheaper now and this also gives them more leverage over Opel and Vauxhall in those negotiations. On that score, it is a net loss for GM, which owns those two European subsidiaries.

Chrysler retirees. They are going to take it on the chin. I guarantee you there will be pain felt in Chapter 11 for the pension fund. Chrysler can pull an airline maneuver and slough off some of the pension income and health care liabilities too. The unions have already made large concessions here, so perhaps this will be less of a factor.

A good article to read in all this is “Exploring the New Corporate Bankruptcy Strategy” on the PBS Frontline website.

Education And The Future of Technology (Video, H/T Todd)

[Video:http://www.youtube.com/watch?v=cL9Wu2kWwSY&feature=player_embedded]
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