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    Daily Digest – May 7

    by Davos

    Thursday, May 7, 2009, 4:52 PM

  • The capital well is running dry and some economies will wither (H/T PineCarr)
  • IF YOU BELIEVE – BORROWING LEADS TO PROSPERITY
  • The New "Distressed" Assets (Chart)
  •  40% of US Restaurants may be gone-No Money
  • Insiders selling at a FURIOUS PACE
  • Hugh Hendry on the Latest Rally…(Video)
  • Bank of America Needs $34,000,000,000.00
  • Nouriel Roubini: We Can’t Subsidize the Banks Forever
  • ASEAN, China, Japan, South Korea finalise crisis fund pact (H/T PineCarr)
  • 33% of Homeowners w/Mortgages Are Underwater
  • AARP: Social Security: 10 Facts Matter
  • Bernanke expects recovery later this year
  • Commercial Real Estate Shoe to Drop
  • Flying Pigs, Tamiflu and Factory Farms, Part 2 WHO takes a page from a Michael Crichton Novel
  • A few A(H1N1) Links Dr. Henry Niman’s Map 1329 Cases Today, A(H1N1) Current Timeline, CDC Cases
  • We’ve been voted off the earth (Video) 

Economy 

The capital well is running dry and some economies will wither (H/T PineCarr) 

The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.

By Ambrose Evans-Pritchard .

IF YOU BELIEVE – BORROWING LEADS TO PROSPERITY

The National Debt will be close to 100% of GDP for the 1st time since WWII. In the 1940’s we were engaged in a war of survival and needed to borrow to produce the tanks, planes, ships and guns to win the war. There are a couple small differences between the 1940’s and today. The government borrowed all the funds from its patriotic citizens through the issuance of war bonds. The Personal Savings Rate was 25% during the war. Today, we are attempting to borrow hundreds of billions from China, Japan, and the Middle East. The Personal Savings Rate has risen from below 0% to 4% today. At the end of the war, the United States dictated the economic future of the world, producing the goods the rest of the world needed. Today, we are the biggest debtor nation in the world. We no longer dictate the economic terms to the rest of the world. Our government and citizens have fallen for the same misguided advice. Live for today and don’t worry about tomorrow.

The New "Distressed" Assets (Chart)

40% of US Restaurants may be gone-No Money 

May 5 (Bloomberg) — U.S. restaurants are four times more likely to fail than they were a year ago and as many as 40 percent may face a “severe” cash shortage within the next 12 months, restructuring firm AlixPartners LLP said.

The increased risk may spur liquidations, restructuring, bankruptcies and buyouts, according to a survey of 110 restaurant chains. Debt-to-equity ratios have more than doubled in the past two years, hurt by falling asset and share values.

Casual and fine dining restaurants, which have seen fewer visits from consumers who are trimming spending amid the financial crisis, are more vulnerable than fast-food chains, said Andy Eversbusch, managing director and chief of the restaurant practice at Southfield, Michigan-based AlixPartners.

“Consumers are resetting their habits and reducing their casual dining outings overall,” Eversbusch said in a May 1 interview.

Among the 1,000 consumers surveyed, 48 percent plan to eat out less often this year, and 51 percent expect to spend an average of $10 or less when they do. Eversbusch declined to name specific companies that are among the most vulnerable.

Fast-food chains and eateries that bridge the gap between counter-service fast food and sit-down service are more likely to survive the decline, as eaters seek cheaper foods on par with casual dining locations, he said.

Tighter lending restrictions have made it harder for restaurant owners to refinance debt.

Insiders selling at a FURIOUS PACE

Last week there was a report that corporate insiders were selling at a faster rate that at any time since October, 2007 — right near the top of the market.

Well, the market’s only raged higher since then and insider selling is only getting more intense.

The Pragmatic Capitalist here has aggregated recent insider transactions. As you can see from his data collected (unfortunately the tables won’t fit here, do click over), insider sales dwarf insider buys both in frequency and in volume. Insiders are selling their stocks in multi-million dollar blocks, while the few buys are much smaller.

If nothing else, it means that a lot of executives probably saw the abyss (a violent drop from the ranks of the wealthy to poor) and want to de-risk to ensure that no matter what happens to their stock, they’ve taken some skin out of the game.

Hugh Hendry on the Latest Rally…(Video)

Bank of America Needs $34,000,000,000.00

We got your stress right here: We won’t get the official stress test results until tomorrow, but the dollar amount needed to be raised privately at the House of Lewis is $33.9 billion dollars.

Alternatively, BofA could convert Uncle Sam’s non-voting preferred shares. That would give the taxpayer a significant, potentially majority stake in the company.

The info was leaked by an executive at the bank. My best guess is the bank is lobbying to get a lower stress test number.

19 banks are going through the stress test, and 10 are believed to need more capital.

Another report suggests that Wells Fargo needs to raise capital — despite recent statements from Warren Buffett: “Federal regulators are asking Wells Fargo & Co. to raise more capital after government “stress tests” showed the bank would have trouble surviving if the recession worsens.”

Nouriel Roubini: We Can’t Subsidize the Banks Forever 

Third, stress tests aside, it is highly likely that some of these large banks will be insolvent, given the various estimates of aggregate losses. 

ASEAN, China, Japan, South Korea finalise crisis fund pact (H/T PineCarr) 

NUSA DUA, Indonesia: Ten Asian countries plus China, Japan and South Korea agreed on Sunday to set up a 120-billion-dollar emergency currency pool to boost liquidity and help the region overcome the global crisis.

Finance ministers of the 10-member Association of Southeast Asian Nations (ASEAN) plus China, Japan and South Korea announced the deal after talks alongside the Asian Development Bank (ADB) annual meeting in Indonesia.

"We are pleased to announce that we have reached agreement on all the main components of the CMIM (Chiang Mai Initiative) and decided to implement the scheme before the end of the year," the ministers said in a joint statement.

Japan and China will contribute 38.4 billion dollars each, with China’s share including 4.2 billion dollars from Hong Kong. South Korea was the next largest with 19.2 billion dollars.

Among the ASEAN countries the biggest contributors were Indonesia, Singapore, Thailand and Malaysia, which agreed to provide 4.77 billion dollars each.

The ministers were careful to explain the scheme was intended to "supplement" existing international financial institutions amid concerns from some quarters that it is a bid to circumvent the International Monetary Fund (IMF).

ASEAN member states were forced to implement unpopular economic reforms in exchange for massive IMF bailouts after the 1997-1998 Asian crash, leading to calls for the creation of a regional crisis fund.

But the finance ministers played down any suggestion they were snubbing the IMF and its sister lender, the World Bank, saying the move was only a "natural" step on the path of closer regional economic cooperation.

ADB managing director general Rajat Nag said the scheme was "very much complimentary" to the IMF. He said the Bretton Woods institution was in no danger of losing its place as the global economic watchdog.

"We certainly see this as a very welcome step to help in the current financial crisis," he told reporters at the ADB meeting at the luxury beach resort of Nusa Dua, Bali.

33% of Homeowners w/Mortgages Are Underwater

Almost 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.”

The recession cut home values by $2.4 trillion last year. In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery.

This implies that any housing “recovery” will be about stabilization and stopping sales/price erosion — not about regaining higher prices anytime soon . . .

AARP: Social Security: 10 Facts Matter

In 2007, Social Security kept nearly 35 percent of older Americans out of poverty." This poverty argument assumes that these retirees were forced to pay into Social Security while working but denied any benefits when they retired. In that case, yes, Social Security has a large impact on poverty. But if we were truly "without Social Security" that should also include the tax part. In that case, workers would presumably save a good portion of what they’d otherwise have put into Social Security and could use those funds in retirement. Social Security reduces poverty somewhat by forcing some people to save who otherwise wouldn’t and by redistribution to folks who are so poor that they’d retire in poverty even if they had saved. But these reductions are nowhere near 35 percent.

Bernanke expects recovery later this year

Another member remarked that Congress was beholden to Bernanke’s judgment because they did not have the expertise to make these decisions without his guidance.[enphasis added – mine]

Commercial Real Estate Shoe to Drop

Who is going to fill all of the empty commercial real estate and how will it all be financed? The ‘resets’ that are coming sound brutal (link to article on Covel’s blog).

Flying Pigs, Tamiflu and Factory Farms, Part 2 WHO takes a page from a Michael Crichton Novel

As the late great American poet Yogi Berra might have put it, ‘this just gets absurder and absurder.’

 A few A(H1N1) Links Dr. Henry Niman’s Map 1329 Cases Today, A(H1N1) Current TimelineCDC Cases

We’ve been voted off the earth (Video)

[video:http://www.youtube.com/watch?v=XI5frPV58tY&feature=player_embedded]
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