STOCK MARKET WATCH, Tuesday October 13

[ozymandius]

Source: du

STOCK MARKET WATCH, Tuesday October 13, 2009

Bush Administration Officials Under Indictment = 2
Financial Sector Officials In Prison = 6

AT THE CLOSING BELL ON October 12, 2009

Dow... 9,885.80 +20.86 (+0.21%)
Nasdaq... 2,139.14 -0.14 (-0.01%)
S&P 500... 1,076.19 +4.70 (+0.44%)
Gold future... 1,058 +8.90 (+0.85%)
10-Yr Bond... 3.38 +0.13 (+4.10%)
30-Year Bond 4.22 +0.13 (+3.18%)

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U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES..............................................S&P FUTURES

Market Conditions During Trading Hours

GOLD, EURO, YEN, Loonie, Silver and US$

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Handy Links - Market Data and News:
Economic Calendar    Marketwatch Data    Bloomberg Economic News    Yahoo! Finance
    Google Finance    LayoffDaily    Bank Tracker    Credit Union Tracker

Handy Links - Economic Blogs:
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    Brad DeLong    Bonddad    Atrios    goldmansachs666

Handy Links - Government Issues:
LegitGov    Open Government    Earmark Database    USA spending.gov

Handy Links - Videos:
The Coming Collapse of the Middle Class    Charlie Rose talks with Roubini    Charlie Rose talks with Krugman    William Black: This Economic Disaster

---

This thread contains opinions and observations. Individuals may post their experiences, inferences and opinions on this thread. However, it should not be construed as advice. It is unethical (and probably illegal) for financial recommendations to be given here.

Read more: du

[ozymandius]

1. I am having tech issues.

So my time here will be brief. My ISP is sending a technician over today to check the lines. My modem has been falling out-of-sync for four days now. The outside lines, affected by the recent weather, are probably the issue. I'll see how much can get done before I must leave. Conditions indicate that you will not hear much from me this morning.

:hi:

[Hugin]

2. I have to leave soon, too.

:hi:

BTW... T. Rall rocks!

[ozymandius]

3. Market Observation

Tracking This Market
BY RYAN J. PUPLAVA

This week’s economic releases and earnings results should steer our course for the next month. There are a number of key indicators sitting at key support and resistance. It’s time for investors and portfolio managers to plot their course and make your bets. Many already have, liquidating portfolios last week near the September highs. Was this a mistake? We’ll find out soon enough.

First, let’s talk about key technical indicators one should be watching this week. The first is the U.S. dollar. Since March, the dollar has been in a non-stop bearish trend while the stock market has been in a non-stop bullish trend. A falling dollar is also bullish for commodities, yet commodities have mostly been flat until September. Many stock market analysts have been calling for a dollar rally and a stock market correction since August because all markets must respect a reversion to the mean. The dollar is at key support now at the top of its channel which gives it a very good chance of breaking its intermediate trend. If the dollar continues to break to new lows, we can assume the stock market will jump higher during the earnings season. My gut feeling is that the dollar will continue to form new lows and extend its rally into year-end and then begin its bear market rally, but if I’m wrong I’ll be wrong this week.

.....
Now that we’ve identified the first indicator to watch, the dollar, let’s talk about a few more that together may shed more light on the current course of the market and the correct investment course of action. The next market one should be watching is gold. Gold has broken out of a 1.5 year-long consolidation under $1,000. The longer we stay above $1,000, the more the breakout solidifies its new territory. I can remember telling clients in 2007 about the gold coiling and compressing into a spring. That like a coil, the harder you compressed gold under $700, the more explosive the breakout. Just as gold consolidated between 2006 and 2007, a breakout could spell the formation of a powerful new trend here above $1,000.

http://www.financialsense.com/Market/wrapup.htm

[ozymandius]

4. no goobermental reports today n/t

[Festivito]

9. Including debt report, which stands in 10B$ surplus for Obama's FY2010.

Of course fiscal year 2010 is only 13 days old, but it does stand in surplus.

Good morning all.
Good luck with that modem Ozy.
Good luck to my dentist who will see me 3 hours.

Last report:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4099791&mesg_id=4099843

[ozymandius]

10. Thank you for the heads-up.

Despite its frailties, my DSL service is allowing me to get more accomplished than I anticipated.

I wish your dentist steady hands, keen eyesight and gentle technique.

[Festivito]

50. Debt: 10/09/2009 11,895,799,292,208.46 (DOWN 3,153,458,736.07) (Fri, surplus continues.)

(The Obama SURPLUS continues. This surplus is not expected to last because the budget says that it should not last, but it's fun to see it and to say that for the first nine days of Obama's fiscal year 2010 he, that is we, have paid back fourteen billion more than he, thus we, borrowed. I could become giddy if this keeps happening.)

= Held by the Public + Intragovernmental(FICA)
= 7,479,168,824,625.64 + 4,416,630,467,582.82
DOWN 14,303,257.45 + DOWN 3,139,155,478.62

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 308-Million person America.
If every American, man, woman and child puts in $3.25 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.75, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 10 seconds we net gain a another American, so at the end of the workday of the report, there should be 307,665,501 people in America.
http://www.census.gov/population/www/popclockus.html ON 09/27/2009 07:13 -> 307,558,299
Currently, each of these Americans owe $38,664.72.
A family of three owes $115,994.15. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 23 reports in the last 30 days.
The average for the last 23 reports is 4,842,369,919.95.
The average for the last 30 days would be 3,712,483,605.29.

There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 174 reports in 253 days of Obama's part of FY2009 averaging 7.33B$ per report, 5.07B$/day so far.
There were 249 reports in 365 days of FY2009 averaging 7.57B$ per report, 5.16B$/day.
There were 8 reports in 9 days of FY2010 averaging -1.75B$ per report, -1.56B$/day.
Above line should be okay

PROJECTION:
There are 1,199 days remaining in this Obama 1st term.
By that time the debt could be between 10.0 and 18.1T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
10/09/2009 11,895,799,292,208.46 BHO (UP 1,268,922,243,295.38 so far since Obama took office.)

FISCAL YEAR DEBT CHANGE, Sep 30 prior year to Sep 30 named year:
(One "* " for each 40B$ reached)
FY1994 +0,281,261,026,873.94 ------------* * * * * * * WJC
FY1995 +0,281,232,990,696.07 ------------* * * * * * * WJC
FY1996 +0,250,828,038,426.34 ------------* * * * * * WJC
FY1997 +0,188,335,072,261.61 ------------* * * * WJC
FY1998 +0,113,046,997,500.28 ------------* * WJC
FY1999 +0,130,077,892,735.81 ------------* * * WJC
FY2000 +0,017,907,308,253.43 ------------WJC
FY2001 +0,133,285,202,313.20 ------------* * * C&B
01-WJC +0,053,598,528,417.78 ------------* WJC 31% of FY, 40% of FY-Debt
01-GWB +0,079,686,673,895.42 ------------* GWB 69% of FY, 60% of FY-Debt
FY2002 +0,420,772,553,397.10 ------------* * * * * * * * * * GWB
FY2003 +0,554,995,097,146.46 ------------* * * * * * * * * * * * * GWB
FY2004 +0,595,821,633,586.70 ------------* * * * * * * * * * * * * * GWB
FY2005 +0,553,656,965,393.18 ------------* * * * * * * * * * * * * GWB
FY2006 +0,574,264,237,491.73 ------------* * * * * * * * * * * * * * GWB
FY2007 +0,500,679,473,047.25 ------------* * * * * * * * * * * * GWB
FY2008 +1,017,071,524,649.92 ------------* * * * * * * * * * * * * * * * * * * * * * * * * GWB
FY2009 +1,885,104,106,599.30 ------------* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * B&O
09GWB +0,602,152,152,000.60 ------------* * * * * * * * * * * * * * * GWB 31% of FY, 32% of FY-Debt
09-BHO +1,282,951,954,598.70 ------------* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * BHO 69% of FY, 68% of FY-Debt
FY2010 -0,014,029,711,303.30 ----------BHO

LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
09/21/2009 -000,319,092,626.95 --- Mon
09/22/2009 -000,005,688,069.16 -----
09/23/2009 -000,186,100,874.04 ---
09/24/2009 -043,516,809,626.65 -
09/25/2009 -000,256,514,563.16 ---
09/28/2009 -000,773,265,151.59 --- Mon
09/29/2009 +000,473,982,417.68 ------------********
09/30/2009 +091,724,705,747.96 ------------**********
10/01/2009 -045,967,461,558.95 -
10/02/2009 +000,166,120,250.33 ------------********
10/05/2009 -000,035,707,866.46 ---- Mon
10/06/2009 +000,640,950,413.48 ------------********
10/07/2009 +000,015,260,219.44 ------------*******
10/08/2009 -027,497,592,311.52 -
10/09/2009 -000,014,303,257.45 ----

-25,551,516,857.04 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008 while Bush was in power JUST BEFORE fiscal year end.
Bush admin borrowed $962,245,245,654.01 in those last 124 days in office crossing two fiscal years.
$360,093,093,653.42 in last 12 days of FY2008, and $602,152,152,000.59 in subsequent 112 days before leaving office.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4099791&mesg_id=4099843

[ozymandius]

5. Oil rises to near $74 in Asia

SINGAPORE – Oil prices rose to near $74 a barrel Tuesday in Asia as investors eyed a weakening U.S. dollar and looked to commodities for protection against possible inflation.

Benchmark crude for November delivery was up 52 cents at $73.79 by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract gained $1.50 to settle at $73.27 on Monday amid expectations of stronger demand during the U.S. winter.

.....
In other Nymex trading, heating oil rose 1.82 cents to $1.9126 a gallon. Gasoline for November delivery gained 1.42 cents to $1.8132 a gallon. Natural gas for November delivery jumped 2.8 cents to $4.908 per 1,000 cubic feet.

http://news.yahoo.com/s/ap/oil_prices

---

Goldamn Sachs says that the price of oil is going up to around $85/barrel by the end of the year. I wonder how they know that unless they are the catalyst driving up prices through speculation.

[ozymandius]

6. World stocks slip ahead of earnings

DUBAI (Reuters) – World stocks fell from this week's one-year high on Tuesday as investors grew cautious ahead of major third-quarter U.S. corporate earnings, while risk-hungry investors drove the Australian dollar to a 14-month peak.

Key results due this week include Intel (INTC.L), Goldman Sachs (GS.N) and General Electric (GE.N). Intel is expected to beat forecasts with its results later on Tuesday but some worry that corporate spending might not rebound until mid-2010.

According to Thomson Reuters data, the quarterly earnings contraction rate for the three months ending September -- based on reported and estimated earnings -- stands at 24.7 percent, compared with the contraction rate of 27.3 percent in the second quarter.

.....
The FTSEurofirst 300 index (.FTEU3) fell 0.3 percent, dragged by falls in banks.

Emerging Asian stocks (.MIAPJ0000PUS) hit a fresh 14-month high. Broader emerging stocks (.MSCIEF) were steady on the day.

According to Thomson Reuters data, out of 32 S&P 500 companies which reported results, 78 percent beat expectations, compared with 13 percent which missed forecasts.

http://news.yahoo.com/s/nm/20091013/bs_nm/us_markets_global

---

I read between the lines in this story and get the message that interested parties want people to throw more money into the stock markets. The enticement: triple-digit gains. There is also some concern trolling regarding the health of the US$ and stocks are considered a safe haven against Forex market volatility.

[DemReadingDU]

27. Whitney Downgrades Goldman

10/13/09 Whitney Downgrades Goldman
As earnings season gets under way, noted banking analyst Meredith Whitney cut Goldman Sachs Group to "neutral" from "buy" Tuesday morning in a move that bucks the Street's recent optimism on the shares.

The Goldman downgrade comes ahead of the firm's scheduled quarterly earnings on Thursday, and is consistent with the caution Ms. Whitney has voiced over the airwaves and on Op-Ed pages in recent weeks.

It also follows a six-week surge by the shares that prompted some analysts to say it could go higher still.

Ms. Whitney, who gained renown during the financial crisis for bearish calls on the stocks of large banks that were ultimately proven correct, spoke favorably of Goldman shares as recently as last month.

more...
http://online.wsj.com/article/SB125543654684382229.html?mod=WSJ_hpp_sections_business


If you search the title in Google, you can read the entire WSJ article, without a subscription.

[ozymandius]

7. CIT debt swap struggles, bankruptcy looms

NEW YORK (Reuters) – CIT Group Inc (CIT.N) is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said.

.....
CIT is now more likely to try a prepackaged bankruptcy, two people familiar with the matter said. They declined to be identified because the exchange offer is ongoing and information about its progress is private.

But separately, investors in CIT securities said it is possible the company will not find enough debtholder approval for a prepackaged bankruptcy, which requires sufficient support before the company files for protection from creditors. Instead, CIT might have to aim for a prenegotiated bankruptcy, which typically has less support before the actual filing.

.....
CIT has lost access to unsecured debt markets, but has billions to refinance in coming years. In three of the next four years, it will have more debt to repay than cash to pay it back. CIT has roughly 1 million customers and more than $70 billion of assets, but many of its borrowers are struggling amid the worst recession since the Great Depression.

http://news.yahoo.com/s/nm/20091012/bs_nm/us_cit

[DemReadingDU]

26. CIT Group says CEO Peek plans to resign

10/13/09
CIT Group Inc., a major lender to small and midsize businesses, said Tuesday its chairman and CEO Jeffrey M. Peek plans to resign at the end of the year.

Devastated by the downturn in the credit markets, CIT has been trying to avoid bankruptcy for months as it restructures its operations.

Its shares fell 17 cents, or 16.3 percent, to $0.87 in premarket trading.

Peek said in a statement that CIT's recently launched restructuring plan makes it "the appropriate time to focus on a transition of leadership."

New York-based CIT is in the middle of its second debt restructuring in recent months as it looks to reduce costs to remain in business.

The current debt exchange could reduce the financial firm's near-term debt burden by $5.7 billion. CIT is trying to swap debt set to mature in the near future for bonds or preferred shares.

CIT has already received $2.3 billion in federal bailout money, a $3 billion emergency loan from some of its largest bondholders, and bought back $1 billion in debt as it tries to reorganize and avoid collapse.

The board of directors is creating a search committee to find a new CEO.

http://finance.yahoo.com/news/CIT-Group-says-CEO-Peek-plans-apf-3669801784.html?x=0&sec=topStories&pos=main&asset=&ccode=

[AnneD]

33. Wonder if we will have a winner this weekend....

FDIC FLAME OUT or WHAT DO YOU WANT ON YOUR TOMBSTONE:

As you know, the FDIC is bank closures are up to 96. Our question is ......When Will We Hit Number 100. I'll give you a clue-it will probably be on a Friday and a big pizza delivery will be involved. So get your calendars out boys and girls. Will we be eating turkey, will we get an extra trick this Halloween, or will we get that extra lump of coal we will need to see us through this winter. Post your guess.

The only difference now is you can only have two guesses and no changes.

What will the winner get....A virtual pizza of your choice: the Bernanke Bologna Bargain, the Geithner Gorgonzola Goliath, the Summer's Sausage Special, the Obama Oahu Pipe Line Pork and Pineapple Special, the 911 Health Care Special (empty box only, no substitutions), the Warren Wrap, or enjoy our wonderful Buffet Buffet.

So place those bets and watch your spreads. I will post them as soon as I can and within the next day. If you have a special pizza that you want, be sure to post that too. I am cranking up the fire and will be happy to help you roast your own pizza.......


Oct 9, 2009
Ozy(1)
The Watcher(1)
Demeter (1)a Hawaiian Special sub Ham instead of Canadian Bacon-would you like feta with that?
Dr Pool(1) his own personal Kielbasa and Saurkraut Pizza


Oct13,2009
Tansy Gold (1) going against the trend for a sentimental fav


Oct 16, 2009
AnneD (1) close to my sentimental black Friday-I'll have the pork and pineapple special.
Dr Pool (2)
NC4BO (1) A Hobo Special-rice, beans, and sliced tube steak (hot dogs)



Oct 23, 2009
NC4BO (2) A Hobo Special-rice, beans, and sliced tube steak (hot dog)




Watch for our next Pool the Dow 10000!!!! We will begin the Dow Pool after or Flame out game so put your thinking caps on, warm up that Ouija, and shine that crystal ball.

Those that guessed this last weekend can have a second guess if they haven't already chosen a second date.

Happy Birthday Tansy:party: Hope I remembered it right.

Question ....if Citi goes under and puts a big dent in the FDIC, does it count for one or more?

[DemReadingDU]

42. CIT group isn't Citibank

I suppose Citibank could be taken over by FDIC, one of these days. The CIT Group Inc. is a commercial lender.

CIT funds about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. The company says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier. A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship goods to their customers and make their payroll,” CIT said in internal documents obtained by Bloomberg News in July that make the case for its importance to the U.S. economy.
http://www.bloomberg.com/apps/news?pid=20601103&sid=afQgXcoYl9rE


I had never heard of The CIT Group until this summer when it was trying to avoid bankruptcy.

[Tansy_Gold]

48. Another question ---

Why do businesses rely on loans to make their payrolls?

A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship goods to their customers and make their payroll,”

[Demeter]

49. Having A Hard Time Collecting Receivables, Is My guess

[AnneD]

51. Dang...

your right. Dunkin group...Dunkin Donuts perhaps. If it is wasn't that the group that Senior Bush and all those Big wigs belong to (the Carlyl Group or tied in some way).

http://www.citibank.com/citi/press/2009/090709a.htm

And I am not the only one here at DU to ponder this...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=104&topic_id=2123068&mesg_id=2140428

[ozymandius]

8. “Things are getting better, but compared to what?”

Getting Better ?

“Things are getting better, but compared to what?”

-Tom Linebarger President and COO, Cummins Inc.

As we have noted over the past few months, “less bad” is not the same as “good”:

“In an ominous sign for the economy, much of the profit is being eked out through cost cuts. Executives say they are hesitant to reinvest such profits into their businesses. With large portions of their factories, fleets and warehouses sitting idle, some say they probably won’t see reason to do so for a year or more.

That means job growth and any significant rise in business spending could be a long time coming. That creates a chicken-and-egg problem at a time when the unemployment rate is already nearly 10%: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

Already, the economy is being starved of investment it needs to spark growth. Net private investment, which includes spending on everything from machine tools to new houses, minus depreciation, fell to 0.1% of gross domestic product in the second quarter of 2009, according to the latest government data. That’s the lowest level since at least 1947.”

more information at the link above....

[Tansy_Gold]

23. Okay. Here's another question

Fact: Manufacturing capacity is under utilized and we have massive unemployment.

Question: We should have a shortage of manufactured goods and slowly but steadily declining inventories. But we don't. The store shelves remain full with all the goods we could ever want. In fact, they probably remain over-full, with inventories of more goods rising.

Conclusion: SOMEONE IS PRODUCING THE STUFF WE BUY AND IT AIN'T US.

Suggestion: Until this situation is altered, by whatever means necessary, there CANNOT be a full recovery for the U.S. economy.


And that's a fact.



Tansy "Edith Ann" Gold

[DemReadingDU]

29. The stores may look full, but

I think an aisle of merchandise was removed in the store I was in. The shelves looked full, but it appeared to me that the space between the aisles was wider, as if an aisle was removed.
:shrug:

[Tansy_Gold]

30. If an aisle is removed, if the shelves are pushed further apart, you

would be able to tell. There would be indications on the floor tiles.

I have no idea which store you're talking about. Could be a grocery store, could be a big box retailer. But my gut tells me the aisles aren't wider but rather there is less merchandise actually being displayed IN the aisles.

The point is, however, we aren't seeing empty stores and empty shelves. There's no shortage of merchandise, like in the final days of the USSR.


TG

[DemReadingDU]

44. Where have I been shopping...

Definitely not Wal-mart, never shop there. I occasionally, very rarely, go to Target. Mostly I shop K-Mart, because it is closest to my house. Must run some errands, so will check K-Mart and verify my suspicions. It wasn't a grocery store. Oh, the Dollar Store has done remodeling too, and it's not nearly as cluttered as it used to be.

[Demeter]

46. I've noticed a lot more maneuvering room at stores

in the parking lots as well as the aisles.

[Tansy_Gold]

47. At any given time of the day.. . . .

The parking lot at the local Wal-Mart is half as full as it was at the same time say 3 years ago when I moved here.

Most other parking lots show a roughly 25 - 50% decrease in occupancy.

[ozymandius]

11. Quelle Surprise! Larry Summers Gives His Economic Policies an “A”!

Yves Smith, of course.

Oooh, I can take only so much double-speak in a single sitting. The object lesson today is a Reuters article reporting on a Larry Summers speech, “Obama policies averted economic “abyss”: Summers.”

Let us not forget that “Obama policies” in this case are “Larry Summers policies.” Obama has never displayed much interest in economics; he has clearly delegated this area to his team, which really means to Summers and Geithner, and it is a given that Geithner largely defers to Summers (based on their history, Summers’ aggressive style, and Summers’ nominal expertise). The only parties on the economics team who might have differed with the the Hamilton Project party line were Paul Volcker and Austan Goolsbee. As we noted, Volcker has been marginalized, and Goolsbee had been largely missing from action (perhaps unfairly, we never saw Christina Romer as likely to have much influence). So Summers is evaluating his own work. It isn’t surprising that he’d view it favorably.

.....
The one bit of policy, if you care to call it that, that has worked well is the Administration’s concerted campaign to talk up the stock market. Its success in using the bogus stress tests to goose bank stocks was remarkably effective, particularly since anyone who knew anything about banking and was not in on the con was highly critical of the tests. But the media played them to the max, some saw evidence of short squeezing, everyone celebrated earnings that Meredith Whitney described as manufactured. And the Administration kept pointing to the improved tone of the markets as proof that the economy was on the mend. And some readers have noticed a cheerleading stance in news outlets that were once more evenhanded, particularly Bloomberg.

Can a con job lead to recovery? The continuing lousy news on the employment front suggests not, but as long as the stock market remains relatively buoyant, few want to challenge this thesis. I had drinks with a hedge fund manager who was recently pilloried at a buy side/sell side get together when he dared suggest that the fourth quarter might not look as robust as everyone assumed. He said the argument against him boiled down to, “We are all feeling better and spending more, so everyone else surely is too.” The fact that they are all in the top 1% of the population and beneficiaries of TARP and other government bennies means it is a huge leap to generalize from them to the other 99%, but they didn’t see it that way.

Go read the whole thing. This is not about character assassination. Ms. Smith backs up her critique with historical and current data.

[AnneD]

38. Isn't Summers giving his Economic policies an A akin...

to a failing student grading his own final and giving himself a passing grade.

[Demeter]

45. All This Puff Press Releasing Makes Me Hope

that Larry Summers is heading out of town on a rail, covered in tar and feathers. For the SECOND time!

Schadenfreude! It makes Mondays bearable, Tuesdays tolerable, Wednesdays wild, Thursdays mild, and Fridays worth celebrating!

[ozymandius]

12. Bank Of America Waives Attorney-Client Privilege (Economic celebrity gossip)

A month ago Zero Hedge speculated that the SEC was preparing to throw Wachtell Lipton and Ed Herlihy at the wolves, in case its planned settlement to indemnify Ken Lewis of all sins failed. Well, it failed, now that a jury trial is in the works to determine just how guilty Ken Lewis et al have been of shareholder fraud. And, as expected, Wachtell Lipton is about to be run over by a 200 ton freight train.

The WSJ is reporting that not only is BofA completely changing its stance on attorney-client privilege (such a huge "ethical" sticking point previously), but that it will promptly hand over "troves of documents to the federal, state and Congressional officials who are investigating the Merrill purchase." One hopes, but doubts, that a case of obstruction of justice can one be made out of BofA's pathetic attempt at stalling and delaying the judicial case.

At the end of the day it is so nice of Ken Lewis to start the process of ratting out his closest accomplices and confidants. But with a prison sentence no longer out of the question, the man's true nature, full of integrity and milk of human kindness, finally shines through. Ken better avoid jail altogether or he will have quite an unpleasant time: at least Bernie Madoff did not rat anybody out.

from the WSJ:

Bank of America Corp. agreed to hand over documents that detail the legal advice it received during its purchase of Merrill Lynch & Co., according to people familiar with the situation, a sharp reversal after months of resisting such a move.

.....
The shift will likely result in the bank handing over troves of documents -- including emails and memos between Bank of America and its outside law firms -- to the federal, state and Congressional officials who are investigating the Merrill purchase.

BofA's move will likely reveal exactly what advice was provided by outside firms Wachtell, Lipton Rosen & Katz, which represented Bank of America during the Merrill transaction and a long and trusted advisor to the bank, as well as Merrill's counsel, Shearman & Sterling LLP.

more at Zero Hedge

[Demeter]

35. BofA waives privilege on Merrill purchase (THE NITTY-GRITTY DETAILS)

http://www.ft.com/cms/s/0/0882506c-b78f-11de-9812-00144feab49a.html?nclick_check=1

Bank of America has agreed to a request from the office of Andrew Cuomo, attorney-general of New York, to waive the attorney-client privilege that Mr Cuomo claims is preventing him from determining whether charges should be brought against BofA’s top executives.

A source familiar with the matter said BofA sent Mr Cuomo’s office a letter late on Monday saying the bank would turn over documents regarding the legal advice that was given to the bank’s senior management in the weeks leading up to BofA’s acquisition of Merrill Lynch, which closed on January 1.

The question of whether Ken Lewis, BofA’s chief executive, or his top lieutenants should have disclosed Merrill’s mounting fourth-quarter losses to the bank’s shareholders last year is at the centre of Mr Cuomo’s investigation.

In a letter last month, Mr Cuomo demanded that the bank allow investigators access to records of the legal advice given to Mr Lewis, chief financial officer Joe Price and others on a range of topics, including whether BofA considered invoking a “material adverse change” clause prior to the BofA shareholder vote on whether to proceed with the Merrill acquisition.

Mr Cuomo’s prosecutors also want to ask BofA executives about the circumstances surrounding the board’s decision to go ahead with the Merrill deal only after former US Treasury secretary Hank Paulson threatened to remove management and the directors; disclosures concerning Merrill’s payment of $3.6bn in bonuses on an accelerated basis; and a goodwill writedown of $2bn at Merrill.

The legal controversies surrounding BofA’s disclosures to shareholders last year, and the focus on Mr Lewis’s role in those matters, led shareholders to strip Mr Lewis of his title as chairman at April’s shareholder meeting this year.

On September 30, Mr Lewis announced that he would step down as chief executive at the end of the year following criticism from a Congressional committee, and after a federal judge forced the Securities and Exchange Commission to go to trial to determine whether any BofA executives made misleading statements to shareholders last year.

BofA’s decision also extends to its battle with the SEC over allegations that it made ”misleading” statements to shareholders concerning the payment of $3.6bn in bonuses to Merrill Lynch employees. In a statement early on Tuesday, the SEC said it had reached agreement with the bank over a waiver of the attorney-client privilege, pending approval from the Jed Rakoff, the federal judge overseeing the matter.

The bank’s decision to go along with Mr Cuomo’s request, which includes increased co-operation with the Congressional committee investigating the matter, could affect several of the internal candidates vying for Mr Lewis’s job.

One candidate in particular, Brian Moynihan, the newly installed chief of BofA’s retail operations, could come under scrutiny, not only for his role in the BofA-Merrill transition team, where he was in a position to review Merrill’s mounting losses last year, but from his role as general counsel at BofA, a position he was appointed to on December 10.

BofA’s board voted last Friday to approve management’s recommendation to waive the attorney-client privilege. Once they receive the legal documents requested of BofA, Mr Cuomo’s prosecutors are expected to bring in BofA’s top executives for another round of depositions.

I HOPE THEY GET PAULSON IN THIS, TOO!

[AnneD]

40. It isn't front page until....

a body is floating in the hot tub or pool.:eyes:
And yes I am a bit macabre today.

[Demeter]

43. You've Got That Halloween Spirit!

Or perhaps a touch of that homicidal flu that I had a couple of weeks ago--makes you want to kill somebody so bad your teeth hurt from resisting (also a day of fever and chills).

[ozymandius]

13. Have a nice day, folks.

:donut: :donut: :donut:

I'll be back later today, hopeful that my modem's spotty connection will be repaired.

:hi:

[ozymandius]

14. Back to add this piece. Now I really gotta go.

Sacrificing to the Volcano God

Hundreds of years ago the Incas would sacrifice virgins to appease their Volcano God. The Gods and methods of sacrifice may have changed, but the tradition remains.

Like the Incas of old, we find ourselves helpless against forces we do not understand. The foundations of our economy shake and falter in terrifying ways.
In our desperation for answers we turn to High Priests of Economics who tell us these evils have befallen us because of our sins. We must sacrifice the innocent to the Volcano God or it will destroy us all.

The High Priests of Economics never explain exactly how these sacrifices will fix the economy, nor do they mention that the sins in question might be their own. Yet we still rush to offer up our children's futures through unpayable debts while never considering that there might be better alternatives.

.....
Sacrifices for the High Priests

"Capitalism will never fail because Socialism will always bail it out."
- Nathra Nader

In late September 2008, capitalism was on the verge of failing.
The reason for this calamity wasn't because the government taxed too much or spent too much. It wasn't because the Federal Reserve raised interest rates or contracted the money supply. It wasn't because the American consumer stopped spending.

It was because the financial system knowingly overpriced a major financial asset class, and then leveraged itself against that asset class in the vain hope that the Day of Reckoning never came.

That, and the fact that we had angered the Volcano God.

[Po_d Mainiac]

15. shameless self promotion..link below

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x6761711

[DemReadingDU]

17. lots of interesting prospects

:)

[Po_d Mainiac]

19. Too much time for the brain to wander yesterday. n/t

[Ghost Dog]

16. Dollar dilemma

... Restraint is not going to happen.
(Doug Noland)
...

Non-productive credit expansion/inflation is the bane of currency stability. The dollar's fundamental problem these days lies with the underlying structure of the US economy. As much as near zero interest-rates and trillion dollar deficits don't improve the situation, they are symptomatic of much broader systemic issues. Indeed, ultra-loose monetary policy, scary deficits, and ongoing dollar devaluation are all consequences of deep structural maladjustments to the services and consumption-oriented US "bubble" economy.

This maligned economic structure has been the driver for both policy and dollar weakness. With the collapse of the Wall Street/mortgage finance bubble, acute structural fragilities required unprecedented stimulus in order to stem implosion. Once stabilized, policy focus turned immediately to short-term performance - positive gross domestic product (GDP) growth, spending recovery and job creation. Not surprisingly, the focus remains on finding a quick fix, with scant attention to structural issues.

As it relates to the dollar stability, I would argue that the central policy issue should be to create a backdrop conducive to far-reaching adjustment and repair to the economic structure. Aggressive stimulus would be expected to spur short-term performance gains. However, this would be at the cost of delaying necessary structural corrections. This dynamic may help explain why the bulls have been right on stocks this year but wrong that US recovery would boost the dollar. Washington may believe that big GDP growth numbers will support a strong dollar, but global markets (and policymakers) seem to recognize clearly that the course of US policy undermines the long-term value of our currency (and their dollar holdings).

Decades of credit excess cultivated an economic structure that produces too little and survives on too much credit. The credit inflation/dollar debasement dilemma was masked for years. The dollar indulged both in its global reserve status and the world's keen desire to participate in our financial asset bubble. For years, the US "private"-sector credit apparatus (Wall Street securitizations, government-sponsored enterprie - or GSE - obligations, derivatives, and so on) was the global "asset class" demonstrating the strongest (most alluring) inflationary bias. As fast as our credit system inundated the world with dollar liquidity, these financial flows would as quickly be recycled right back into US securities. The dollar was king on the back of reflexive speculative flows.

The dollar was not ok - it was fundamentally weak - but it looked OK relatively, in a world of weak currencies and expansive global speculation. As long as this recycling mechanism functioned smoothly, the US credit system could easily expand credit on an annual basis sufficient to boost various types of "output" that tallied in GDP. With Wall Street and mortgage credit at the heart of the US credit bubble, financial excess fed a self-reinforcing boom in lending, asset inflation, consumption, business investment and government expenditures. Moreover, any bout of financial turmoil would see US yields collapse and a virtual buying panic for agency and mortgage-related securities - rapidly reflating our bubbles.

Many things changed with the bursting of the Wall Street/mortgage finance bubble. For one, our "private"-sector credit mechanism was no longer capable of creating sufficient credit to sustain inflated real estate bubbles or the inflation-distorted bubble economy structure. For two, the US credit system decisively relinquished its status as the most alluring global "asset class". Years of dollar debasement had already worked to sway the inflationary biases away from the US toward energy, gold, commodities and the "emerging" markets and economies. The unfolding post-Wall Street bubble reflation has found - for the first time - the "developing" and commodities worlds supplanting the US as the favored destination for speculative finance. This is big.

Granted, deleveraging and unwinding of dollar-bearish bets initially propelled the dollar higher. Yet I would argue that the global crisis will be looked back on as a seminal event for our currency. Our policymakers have much less flexibility in the new financial and economic landscape. Both fiscal and monetary measures have lost potency. Trillions of dollars of deficits, zero interest rates and a US$2 trillion Fed balance sheet today get less system response than hundreds of billions and a few percent would have achieved previously. This hurts the dollar. Acute financial and economic fragilities ensure extreme policy measures will remain in place for much longer than would have previously been necessary. This also hurts dollar confidence.

Meanwhile, the "developing" world currencies, markets and economies dramatically outperform the United States. Global reflationary dynamics have put a premium on asset markets in China, Asia and the developing world. This robust inflationary bias, then, places a premium on things consumed in - and demand from - these economies.

So much of our economic structure evolved during - and for - a different era. Our bubbles were inflating; market dynamics had created great power and flexibility for policymaking; the US consumer was the king; and our securities and economic booms were the focus globally. While some of our multinational companies will benefit, too much of our economic structure is poorly positioned for today's new global landscape. Not only does our maladjusted economic structure today require too much non-productive credit creation, it lacks the type of real economic returns necessary to attract global financial flows. This is a big predicament not easily remedied.

It is worth noting that Australia's central bank was last week the first major central bank to begin the process of removing monetary stimulus. Global markets reacted by pushing the dollar even lower. The "commodity" currencies, gold, energy, commodities and global equities surged higher.

I'll take the markets' reaction to uncommon central banking rationality as early confirmation that attempts to tighten ultra-loose monetary conditions globally will be impeded by speculative inflows already bent against the dollar. This dynamic reinforces already strong reflationary forces in non-dollar markets, while intensifying speculative selling pressure against the greenback. Expect foreign central banks to be pressured to buy a lot more dollars, and global markets to experience even more destabilizing monetary disorder.

/... http://www.atimes.com/atimes/Global_Economy/KJ14Dj01.html

[Po_d Mainiac]

18. Yup..The buck is under "pressure" this morning.

The EUR/USD broke through that glass ceiling support level of 1.48. If it holds above that mark, we could easily revisit the historic lows of the spring/summer 08. Wasn't that a fun time with signs at the pump at or above $4/gal?

[DemReadingDU]

20. The dollar is weak now, but

Doesn't anyone else think when the market takes its next dive, that the dollar will start rising? It seems to me that Bernanke and Geithner, if they let the dollar fall much lower, it would indicate a lack of confidence in our own currency. I just don't think they are willing to do that, yet.

Edit. Remember last year, the dollar declined to 72-ish. Then the market tanked, and the dollar rose in value. I think something similar will happen again.
http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax

[Po_d Mainiac]

21. Their options are limited

Raising rates or tightening the supply could expose the growing weed patch for what it is. IMHO it's in the hands of those holding our debt as to when the slide stops.

My question is: Are they sending warning shots over the bow, or getting ready to hose down the deck with hot lead? :scared:

I'm guessing they want to see the banksters indicted, as bad (or worse) than we do!

[natrat]

28. everyone expects the market's next dive, so it goes higher-just saying

[UpInArms]

22. dollar watch

http://quotes.ino.com/chart/?acs=NYBOT_DX&v=i

Last trade 75.798 Change -0.328 (-0.42%)

US Dollar Weakness Sends Oil, Metals Higher as Traders Seek Inflation Hedge

http://www.dailyfx.com/story/market_alerts/fundamental_alert/US_Dollar_Weakness_Sends_Oil__1255433084403.html

Crude Oil (WTI) - $73.96 // $0.69 // 0.94%

Crude prices showed resilience in European trading despite a selloff in European shares as the US Dollar took a beating, boosting demand for oil as an inflation hedge. Commodity-specific event risk does not enter the picture until the US Department of Energy releases its inventory figures tomorrow, so Dollar-driven trading is likely to be the order of the day. Pharmaceutical giant Johnson & Johnson reports third-quarter earnings late into the session, which could prove to be enough of a catalyst to move equities and with them the safety-correlated greenback. An upside surprise could see the WTI contract move to test the recent swing high at $75.00, but technical positioning seems to favor the bearish scenario with momentum indicators showing negative divergence as prices approach resistance at the top of a rising channel. Finally, Fed governor Kohn is scheduled to speak in St. Louis, and could move prices lower should he project the same sort of cryptic hawkishness channeled by chairman Ben Bernanke last week.



Gold and Silver Follow Oil Higher But Technical Positioning Lacks Conviction

Gold - $1067.40 // $10.41 // 0.98%
As with oil, gold prices pushed past session highs on the back of US Dollar weakness and the consequent demand for an inflation hedge. However, the underlying demand story for the precious metal is less obvious than that of crude’s seemingly inevitable upward drift in the years ahead as emerging markets continue to come into their own and a rising global population demands greater energy supplies. This suggests gold to be far more subservient to risk trends than energy and industrial commodities, and thereby far more vulnerable as the third-quarter earnings season gets underway in earnest. Technical positioning does not look promising for the bulls at present, with clear negative divergence on momentum indicators.

Silver - $17.98 // $0.29 // 1.64%
Silver pushed to a new 14-month high, following gold as both metals traded on US Dollar weakness. In fact, there is not much to be added to the outlook for the lesser precious metal that does not apply to its more expensive counterpart. Inflation expectations and the greenback remain key to watch.



...more...

US Dollar: At the Mercy of Risk Appetite...or is It?

http://www.dailyfx.com/story/currency/eur_fundamentals/US_Dollar__At_the_Mercy_1255141466629.html

Few would argue at this point that the dollar’s bearings are being dictated by investor sentiment. The conspicuous test of a 14-month low in the Dollar Index last week and the simultaneous push to a one-year high from the benchmark Dow Jones Industrial Average is certainly not a coincidence. Yet, with this relationship in mind, how do we reconcile the side-by-side rallies from both equities and the greenback on Friday? Risk appetite was certainly on the rise - as can be confirmed through the pace of equities, Treasury yields and the yen crosses. The seemingly inconsistent piece to this puzzle is the US dollar. Is the currency decoupling from the financial market’s most influential fundamental driver or is this a fluke that will be quickly resolved? Perhaps just as important of a question: will bulls be able capitalize on the proximity of new highs in optimism and jump start the next leg of a very fruitful trend?

It is a rather straightforward deliberation in speculating the direction of risk appetite. Either it will rise or fall. However, when you throw the dollar into the mix, the outlook is more complicated. We need to first establish the relationship between the underlying trend and the beaten currency. There are essentially two chief concerns that bind the dollar to the market’s will: an exceptionally low market rate and the threat of losing its reserve status. Under normal circumstances, the former is the more pressing issue; but it may have been the dollar’s prominence on the world stage that was likely responsible for Friday’s divergence. Earlier in the week, rumors circulated that oil-producing nations in the Middle East were in active discussions with Japan, Russia and others aimed at phasing the US dollar out as the primary payment for oil deals. This story was subsequently squashed by all groups that were supposedly involved. The merits of this report are questionable; but it is nonetheless a good probability that such a deliberation would come up later if it isn’t already being made. The real interest is in the time frame that was drawn up from this report – 2018 for the change in pricing. This is a considerable ways off and concern over diversification (for oil deals or reserves) is a matter for long-term fundamentals and not short-term risk appetite. The underlying trend in sentiment itself is born largely from capital appreciation which won’t likely sustain itself for much longer. When the market comes to this conclusion, the greenback will likely respond to very different catalysts.

In the meantime, there is always the backup tether between sentiment and the dollar in the form of yield. When the topic of the carry trade comes up, the benchmark interest rates are usually used for comparison; but investors don’t really deal at the Fed Funds rate. In reality, the foundation for a country’s yield is its three-month Libor. This US market rate hit a record low (0.2825 percent) just two weeks ago and has since stabilized. At its current level, the US Libor is at a discount to all of its liquid counterparts; meaning, those looking to establish carry positions are borrowing from the world’s largest economy (which is flush with cash) and investing in other nations at a higher rate. However, whereas the current yield may make the dollar a good funding currency; the medium-term outlook does not. The US is recovering and the Fed is already laying plans to rein in its stimulus. Reductions in some lending programs and testing the waters with reverse repos in the money market fund. So, while a rate hike may be a ways off, a boost in market yields is not.

As for data, the economic docket holds little for event risk traders or long-term fundamental traders to really grab on to. The retail sales and University of Michigan sentiment reports are notable readings for measuring the health of the large consumer sector. Aside from these numbers, the CPI statistics and FOMC minutes will tune more directly into interest rate speculation.



...more...

[Demeter]

37. A Bull in a Silver Shop By The Mogambo Guru

http://dailyreckoning.com/a-bull-in-a-silver-shop/

One of the most interesting news items I’ve found was on the cover of The Financial Times, where I learned that a guy named Lahde “made tens of millions of dollars from betting against the financial and property sectors during past two years”, and he now wanted to thank “the low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA” who made it all possible for him to find enough suckers.

He noted that “These people who were often truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the aristocracy,” he says, “only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

This goes along with an article in the St. Petersburg Times about Tom James, chairman and chief executive of Raymond, James Financial, who had “some tough words for the wizards of Washington, DC who oversaw the $700-billion bailout package”.

He reports, “The Brave And Wonderful Mogambo (BAWM) was right all along! Those government weenies are the biggest freaking morons you ever saw, and we as a country should be ashamed of ourselves for having elected such corrupt, half-witted, utter failures and congenital idiots!”

As you have probably guessed by now, he did not say those exact words, but he implied every syllable when he said, “Legislators were almost embarrassingly ignorant of how the financial system works”, which I figure explains how they don’t understand the linkage between their own Bad, Bad Performance (BBP) as legislators and the subsequent Bad, Bad Performance (BBP) of the economy, and he says that only 3 of 16 legislators that he talked to actually understood what was going on in the “credit crisis.” Less than 20%! Hahaha! We’re doomed!

Well, maybe these Congressional losers will understand the unfolding economic slowdown, as evidenced by the Baltic Dry Index, which is an index of the cost to transport stuff by cargo ship, and which has fallen precipitously, which seems very important to me, and to Junior Mogambo Ranger (JMR) Riccardo, too, who is also alarmed by this like – as I previously said – me.

It’s actually beyond scary, in a terrifying kind of “ain’t nobody buying nothing in a consumer economy” kind of way, which means that without the consumer buying stuff as his or her contribution to the famous statistic of “the consumer is 70% of the economy”, we are, in case you ain’t heard, freaking doomed!

Well, maybe not all buying is drying up, as silver market analyst, Ted Butler, reports that in the last 10 months, “some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces.”

In fact, when you add it all up, “Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout.”

Thus, it is easy to see why Mr. Butler is “bullish beyond belief for silver”, since this kind of demand means that “In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!” Wow!

More than one-seventh of all the silver bullion “thought to exist” in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce? No wonder I am so bullish on silver!

He also notes that the gold/silver ratio is at more than 80, which is “one of the biggest differences in history.”

And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that “the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)”.

Talk about undervalued! Hey! This investing stuff is easy! Whee!

[Ghost Dog]

24. Nobel Economics: Ostrom's Commons

One plausible characterization of Elinor Ostrom's life’s work is that it is about demonstrating the empirical weaknesses of a ‘cute’ economic model (the Tragedy of the Commons) that assumed a role in policy discussions far out of proportion to its actual explanatory power, and replacing it with a set of explanations that are nowhere near as neat, but are far more true to the real world. ...

It is also a vote in favor of supplementing quantitative work with qualitative understanding – Lin spends a lot of time (albeit less than she used to) in the field, soaking up practical knowledge which informs her work in striking ways. She is hands-on in a way that very few economists, political scientists or sociologists are. It is also interesting to note that the Nobel committee pays specific attention to the political implications of her work.

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories.

This reflects what she and her husband Vincent refer to as “polyarchy,” a normative approach to governance which stresses the degree to which higher levels of government should not crowd out self-organization at lower levels. Her work implies that both pure marketization and top-down government control can have badly adverse consequences for resource management, because they rob individuals of the capacity to govern themselves, and because they both lead to the depletion of important forms of local collective knowledge. Alex Tabarrok is right to see something Hayekian in Ostrom’s arguments – but it is Hayek against Hayek. Ostrom stresses repeatedly that even the best functioning markets are undergirded by an array of collective institutions which order people’s market interactions, and that in the absence of such rules, self interested behaviour will have highly adverse consequences.

/... http://economistsview.typepad.com/economistsview/2009/10/oliver-williamson-and-elinor-ostrom-awarded-nobel-in-economics.html

...

Most economists think that they are building cranes that suspend important theoretical structures from a base that is firmly grounded in first principles. In fact, they almost always invoke a skyhook, some unexplained result without which the entire structure collapses. Elinor Ostrom won the Nobel Prize in Economics because she works from the ground up, building a crane that can support the full range of economic behavior.

When I started studying economics in graduate school, the standard operating procedure was to introduce both technology and rules as skyhooks. If we assumed a particular set of rules and technologies,... then we economists could describe what people would do. Sometimes we compared different sets of rules that a “social planner” might impose... Crucially, we never even bothered to check that people would actually follow the rules we imposed.

A typical conclusion was that rules that assign property rights and rules that let people trade lead to good outcomes. What’s the skyhook? That people will follow the rules. Why would they respect the property rights of someone else? ... We might have had in mind something like this: police officers will arrest people who don’t follow the rules. But this is just another skyhook. Who are these police officers? Why do they follow rules? ... Elinor showed that there are lots of important cases where people follow rules about ownership without police officers. One of the central challenges in understanding failures of economic development is that in many places, police officers don’t follow the rules they are meant to enforce.

Elinor’s fieldwork, followed up by her experimental work, pointed us in exactly the right direction. To understand BOTH why we don’t need police officers in some cases AND why police officers don’t follow the rules in other cases, we have to expand models of human preferences to include a contingent taste for punishing others. In reaching this conclusion, she ... spelled out the program that economists should follow. To make the rules ... emerge as an equilibrium outcome instead of a skyhook, economists must extend our models of preferences and gather field and experimental evidence on the nature of these preferences.

Economists who have become addicted to skyhooks ... think that they are doing deep theory but are really just assuming their conclusions... If we fail to explore rules in greater depth, economists will have little to say about the most pressing issues facing humans today – how to improve the quality of bad rules that cause needless waste, harm, and suffering.

/... http://economistsview.typepad.com/economistsview/2009/10/skyhooks-versus-cranes-the-nobel-prize-for-elinor-ostrom.html

[DemReadingDU]

25. Latvia may be near financial collapse, as GDP falls 18% this year

anybody else watching Latvia?


10/12/09 October 23 will be a crucial day for Latvia and for Europe.

Like many countries (including the United States), Latvia went on a multi-year spending spree, borrowing money, and taking advantage of a huge real estate bubble. Now the credit crisis is hitting hard, and Latvia has to pay the price.

Latvia is no longer able to finance its debts by issuing bonds, which only creates more debt. They could devalue their currency, but that would violate the EU rules for joining the euro currency in 2013.

Instead, they've had to beg for help. No one would care very much about the Latvians, except for the fear that a Latvian default or currency devaluation would cause a chain reaction of defaults and devaluations throughout Eastern Europe, especially in Lithuania, Estonia, Poland, Hungary, Bulgaria and Romania.

So last spring, Sweden, the EU and the IMF agreed to bail out Latvia. They offered to provide a $12 billion loan to help Latvia get through the crisis. There were conditions, though. In order to get the loan Latvia would have to cut public spending by 500 million lats ($1 billion) per year.

On October 23, the Latvian government must submit its budget proposal for 2010. The choices are appalling:

* It can adopt further massive budget cuts, to meet the demands of Sweden, the EU and the IMF, risking social unrest as unemployed people lose their homes and can't pay heating bills in the extremely bitter winter; or, it can refuse to make more budget cuts, risking any chance of a bailout.

* It can devalue the currency, giving up any hope of joining the euro currency in 2013, and possibly setting off a chain reaction of devaluations in eastern Europe; or, it can keep the currency as its fixed peg to the euro, causing even greater financial hardship to the Latvian people, risking further unrest.

* It can implement its radical mortgage forgiveness law, infuriating its neighbors, causing numerous bank crises, and probably triggering copycat laws in other eastern European countries; or, it can drop the idea, and allow more people to lose their homes and their life savings.

All of these decisions have to be made by October 23. At that point we'll see if the Latvian situation fizzles, or if it triggers a major new financial crisis.

more...
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e091011#e091011

[Demeter]

31. JPMorgan tries to calm fears over UK

http://www.ft.com/cms/s/0/e8457940-b762-11de-9812-00144feab49a.html?nclick_check=1

JPMorgan’s top executives have embarked on a charm offensive to allay fears by staff and regulators that the ousting of Bill Winters as co-head of the investment bank will mean a diminished role for its London operations.

Jamie Dimon, JPMorgan’s chief executive, made a surprise visit to London last week, meeting about 70 senior managers, to reassure them that the City and Europe remain crucial to the bank’s future, the group said.

Steve Black, the former investment banking co-head who is now its executive chairman, and Jes Staley, the new head, have also spent several days in London in recent weeks.

JPMorgan’s investment bank derives about 40 per cent of its revenues from its European operations, based in London.

The departure of Mr Winters, sole London representative on the influential operating committee, came at a delicate time for the European division.

JPMorgan is in the midst of delicate discussions over whe­ther to exercise its option to take full control of JPMorgan Cazenove – the UK-based investment bank currently operated as a joint venture – and is also converting itself from a securities firm into a bank. That move was partly driven by a desire to reassure regulators in Eur­ope, who were also pressing the group to appoint external non-executive directors in London.

After Mr Winters’ departure, regulators are likely to want a commitment from JPMorgan that it has a strategic plan for the European operations and will continue to have a senior leader in London.

JPMorgan executives have striven to dispel the impression London had lost out in the reshuffle and have focused on staving off departures of star bankers and traders, saying they would fill the gap left by Mr Winters quickly.

People close to the situation said JPMorgan would appoint a new head of its London-based operations - a crucial figure that acts as the main conduit between the bank and the Financial Services Authority - in weeks.

Mr Dimon will also have to decide whether Mr Staley or Mr Black should move to London for the first few months of their tenures - a gesture that would be largely symbolic for bankers who travel throughout the year. Alternatively, Mr Staley could pledge to spend half of his time in London.

Nevertheless, Mr Winters is unlikely to be replaced by another London-based executive on JPMorgan’s operating committee, leaving Mr Staley and Mr Black as the advocates for the European parts of the business.

So far there have been no significant defections among Winters loyalists – partly because bankers and traders are waiting to hear about bonuses before deciding what to do.

[Demeter]

32. Companies choose bonds for cheap funds

http://www.ft.com/cms/s/0/475f108a-b754-11de-9812-00144feab49a.html?nclick_check=1

Companies have borrowed more from bond investors than from banks and other loan providers for the first time this year in a bid to lock in cheap, long-term funding.

Low interest rates and rising inflows into fixed-income funds have triggered record bond issuance as banks cut back lending.

Global bond issuance from non-financial companies has reached $1,310bn in the year to date, surpassing corporate loan volume of $1,080bn, according to Dealogic. The data provider said this was the first time this had happened since it began collating records on the bond and loan markets in 1995.

Before the credit crunch, corporate loan volume was $4,160bn in 2007, a record four and-a-half times the volume of corporate bonds of $889.4bn. This year, US non-financial companies have raised $449.3bn in the bond market and $360bn in the loan market, and European non-financial companies $504.4bn from bond investors and $315.4bn in loans.

“The credit crisis has triggered a permanent shift for companies to fund in bond markets as opposed to relying on bank loans,” said Eirik Winter, head of debt capital markets at Citigroup. “Companies have learnt that in some cases it’s riskier to borrow from a bank than the bond markets.”

Many companies tend to rely on short-term commercial paper, backed up by undrawn loans, to fund working capital but were left stranded when these markets froze up. Some are now financing themselves with longer-term bonds instead.

“Banks have been less willing to offer up CP backstops and companies want to build liquidity,” said Ashish Shah, the co-head of credit strategy at Barclays Capital.

General Electric’s financing arm is one company that has become less dependent on the commercial paper market in part by issuing long-term debt. While the cost of capital for banks has been rising, the cost of bond market funding is at record lows for some companies.

The financing arm of energy company Shell recently sold two-year bonds with a coupon of 1.3 per cent, the lowest ever for a highly rated company (excluding government guaranteed debt).

Many companies such as Roche and Vattenfall have used bond financing since the credit crisis to fund acquisitions, as opposed to bank loans.

For low-rated companies, bonds are proving more attractive than loans, which typically require them to maintain a certain level of financial performance or risk default. “CFOs, CEOs and treasurers have had a difficult time predicting their own financial performance and derive a great deal of comfort from not having to meet those covenants,” said Tom Newberry, head of global leveraged finance origination at Credit Suisse.

In Europe, where companies have relied more heavily on loans, this strategic shift is expected to persist in favour of bond market funding. However “banks will be back - even with the new, more stringent capital adequacy rules,” said Suki Mann, credit strategist at Société Générale.

“Inflows into will be lower next year, so the propensity to fund the corporate sector so aggressively through the capital markets will be much diminished.”

[Demeter]

34. Citi to open retail branch in Vietnam

http://www.ft.com/cms/s/0/5655dc40-b754-11de-9812-00144feab49a.html?nclick_check=1

Citigroup will on Tuesday become the first US financial institution to open a retail operation in Vietnam in the latest sign of how western companies are targeting consumers in the fast-growing Asian economy.

The US bank will open a branch in Ho Chi Minh City to provide deposit services to individual customers and remittance services for the broader Vietnamese diaspora.

The move will augment the commercial banking services it offers. After a torrid 12 months that ended in being rescued by the US government, Citi has continued to expand consumer banking operations in Asia.

In recent months, the bank has launched debit cards in China and SMS banking in the Philippines. Its retail operation now serves 32m customers across 14 markets in the region....

...Vietnam has seen an explosion in the number of banks, and is one of Asia’s last great untapped markets with only about 10 per cent of 85m Vietnamese holding a bank account. Incomes are rising fast.

Foreign banks have been expanding operations in the country, attracted by resilient growth – Vietnam’s economy is expected to expand some 5 per cent this year. “Foreign banks see a lot of opportunity as the population begins to gather some wealth,” said Tim Aman, head of financial services for KPMG in Vietnam.

“In terms of products, most of the banks here have products that aren’t very advanced. It is a place where foreign banks have an opportunity to leverage what they’ve learnt in other developing markets.”

The new Citi branch will also offer Citigold accounts, the bank’s wealth management product, which requires a minimum balance of $50,000....


LOOKS LIKE VULTURES CIRCLING

[Demeter]

36. AIG to raise $2.2bn from Taiwan unit sale

http://www.ft.com/cms/s/0/68eb838a-b7a6-11de-9812-00144feab49a.html?nclick_check=1

American International Group agreed to sell its Taiwan insurance unit to a consortium led by Hong Kong’s Primus Financial for $2.15bn, the companies announced on Tuesday.

The sale of Nan Shan, Taiwan’s third-biggest insurer by market share, represents the US group’s biggest divestment since it began selling assets to repay more than $100bn in debt and equity to the US government, which rescued AIG from bankruptcy last year.

Primus and China Strategic, a Hong Kong-listed battery maker, will acquire a 97.57 per cent stake in Nan Shan pending regulatory approval. “(Payment for the) vast majority of the purchase price is in equity”, said Robert Morse, chief executive of Primus.

“We feel we have been given the privilege of buying the crown jewel of the insurance industry in the world,” he said, adding that Primus planned to turn Nan Shan into an international insurance company.

The sale process had started with seven bidders and ended with the Primus consortium bidding against Chinatrust, one of Taiwan’s biggest financial groups. The Nan Shan victory is an important first step for Primus, a financial services investment company set up in May by three former Citigroup Asia executives, including Mr Morse, the bank’s former regional boss.

Mr Morse said that investors in the consortium included some of the most respected and wealthiest families in Asia, as well as global institutional investors.

Nan Shan has an 11 per cent market share in Taiwan’s life assurance market, with total assets of more than $46bn. Taiwan, however, is one of the world’s least-profitable insurance markets. Many life assurers, including Nan Shan, are now losing money on investment-linked policies with high guaranteed rates of return.

A number of European insurers, such as Dutch groups ING and Aegon and the UK’s Prudential, have pulled out of the market in the past year following new accounting rules that would have required them to set aside extra capital as loss provisions for such policies.

Taiwan’s life assurers earned an average return on assets of less than 1 per cent between 2003 and 2007, and that figure fell to negative 1.5 per cent last year because of the financial crisis, according to Fitch, the ratings agency.

Mr Morse said he was confident of Nan Shan’s future because the insurer had consistently outperformed its local peers and “has the strongest balance sheet in Taiwan”.

“If Nan Shan can excel in an environment like Taiwan, think of how it can succeed in other countries with less developed markets and weaker competition,” he said.

One senior rival industry executive in Taipei said the sale would have very little impact on the industry. “ replaces the major shareholder . There is no change in the number of competitors,” the person said.

“Given the valuations that previous sales achieved, the price seems a little bit expensive.”

Nan Shan is not part of American International Assurance, AIG’s pan-Asian life assurance unit, which has appointed banking advisers to assist with a $5bn-plus Hong Kong listing expected next year.

Deutsche Bank advised Primus and Morgan Stanley advised AIG.

[Demeter]

39. Risk-Free is Not Without Risk

http://dailyreckoning.com/risk-free-is-not-without-risk/

All things must pass,” George Harrison mournfully crooned on his 1971 album of the same name. “All things must pass away… Sunrise doesn’t last all morning… A cloudburst doesn’t last all day”…and neither does a superpower’s global economic hegemony.

America’s dominance of the global economy is falling victim to self- inflicted wounds – namely, extreme and rising indebtedness. America’s recent flood of red ink would make a banana republic blush.

As a result, risk-free Treasury bond may not be as “risk free” as they used to be. A few days ago, the highly regarded hedge fund manager, Julian Robertson, revealed that he is purchasing long-term put options on long-term Treasury bonds. His reasoning is persuasive.

“If the Chinese and the Japanese stop buying our bonds,” Robertson explained during a CNBC interview, we could easily see of 15% to 20%…It’s a question of who will lend us the money if they don’t. Imagine us getting ourselves into a situation where we’re totally dependant on those two countries. It’s crazy.”

Crazy, yes, but true.

The US financial markets, especially the credit markets, benefit greatly from both familiarity and reputation, more than merit; past reputation, more than future reliability. But “reputation” doesn’t pay the bills.

The growth of emerging economies is “symbolic of the relative, less dominant position the United States has, not just in the economy but in leadership, intellectual and otherwise,” Former Federal Reserve Chairman Paul Volcker said in an interview with Charlie Rose recently.

“I don’t know how we accommodate ourselves to it,” Volcker continued. “You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.”

The US government, like one giant General Motors, is technically insolvent. And yet, it borrows at AAA rates because of its long-term legacy of world-beating economic success. NOT because of its recent history of extreme indebtedness.

The fiscal condition of the United Sates has deteriorated dramatically during the last several years. On the basis of current obligations, US indebtedness totals “only” about $12 trillion. But when utilizing traditional GAAP accounting – the kind of accounting that every public company in the United States MUST use – US indebtedness soars to $74 trillion. This astounding sum is more than six times US GDP. (GAAP accounting includes things like the present value of the Social Security liability and the Medicare liability – i.e. real liabilities.)



US GAAP

Perhaps this mind-blowingly large debt load would seem less mind- blowing if it were DE-creasing. But it is not. Instead, the current US administration is amplifying the long-standing American habit of spending money it does not have.

The chart below tracks the federal budgets for both America and Brazil as a percentage of each country’s GDP. Back in 1998, the US ran a budget surplus, while Brazil was running a deficit equal to 9% of GDP. But the two nations have traded places. At last count, the US budget deficit totaled an astounding 9% of GDP, while Brazil’s deficit totaled only 3.3%.



US vs. Brazil Budget Deficit

And yet, The US government pays only 3.28% in interest per year to borrow money for 10 years; while the Brazilian government must pay 5.05% to attract investors to its 10-year bonds. Thus, the yield spread between these two borrowers is 1.77 percentage points – or 177 “basis points.”

A brief tutorial may be in order at this point…

Like a polite dinner guest, the bond market does not express its opinions in absolute terms. Rather, it renders a relative judgment. Its prices specific bonds relative to other bonds, or specific credit instruments relative to others. This relative pricing is known as the “yield spread.” (A very common yield spread comparison is made relative to Treasury bonds). So for example, if a certain 10-year bond issued by a corporation or a foreign nation’s yielding 6.50% at the same time that the US 10-year note is yielding 4.50%, that bond is said to be trading 200 basis points (i.e. 2.00%) over Treasurys. The higher the spread over Treasurys, the riskier the debt is perceived to be.

But this is where our story takes an interesting turn. The yields on foreign sovereign bonds (i.e., government bonds) have been falling closer to US yields for several years. This process has been unfolding gradually, and in fits and starts. But over time, the trend is clear. What’s not clear is who is moving closer to whom. Are foreign sovereign issuers becoming MORE credit-worthy or is the US government becoming LESS credit-worthy? Or is it a little bit of both?

Whatever the case, the nearby chart illustrates the result. Using a four-year rolling average of yields (to smooth out the trend), it is easy to see that Developed World interests rates are converging toward US rates. Canadian and French sovereign 10-year interest rates, for example, have been moving closer to US rates for several years. (And in fact, French rates have dipped below US rates several times during the last several years).



Death of AAA Credit

This narrowing of yield spreads is not only evident among issuers like Canada and France, but also among emerging market issuers, especially the rapidly emerging market issuers like Brazil. Some investors might infer, therefore, that emerging market bonds are too expensive, relative to Treasurys. We would take the other side of that trade.

Risk-free Treasury bonds are not as risk-free as they used to be.

Regards,

Eric J. Fry
for The Daily Reckoning

[Demeter]

41. Consumer Credit Has Fallen Off a Cliff

http://dailyreckoning.com/consumer-credit-has-fallen-off-a-cliff/

What does that mean exactly? It means Americans aren’t borrowing…and they aren’t buying either.

This weekend, The New York Times noticed:

“Americans stop buying; trade deficit declines” begins the headline.

This is the story we’ve been telling here at The Daily Reckoning for two years. Americans have to cut back. They are out of time and out of money. Ten years closer to retirement than they were in before the tech stock crash, Baby Boomers are not a penny richer. Now, they’re facing a funky economy where housing prices are in decline, jobs are hard to find and lenders are reticent to lend them more money. Daddy has finally taken the T-bird away.

But wait…if the Baby Boomers stop spending won’t it have, like, repercussions?

The NYT continues:

“For the first eight months of the year, the United States trade deficit with China is down by about 14 percent or $20 billion, compared with one year ago. The nation’s trade deficit with Japan has shrunk by almost 20 percent, and its deficits with Mexico, Canada and the European Union are down more than 40 percent.

“The huge shift stems mainly from the staggering collapse in trade. With credit markets frozen and Americans facing the highest unemployment in more than 30 years, the United States suddenly stopped shopping overseas at anywhere near the volumes that had become normal.”

Americans were the world’s champion consumers. Just lend them money; they’d spend it. But when they stop spending it brings a hush to the entire planet. The malls go quiet…trucks slow down…ships are idled…and finally factories are shut down. Clerks, drivers, stevedores and assembly line workers all go home. That is what a depression is all about.

The feds are trying to get consumers to spend again. They’ve given them tax rebates, incentives, loans, and bribes. They’ve run a federal deficit three times higher than the previous record. They promise $1 trillion deficits “as far as the eye can see.” And they put at risk a sum of money equal almost to the entire US GDP.

Still those hardheaded consumers won’t consume like they’re supposed to.

Suddenly, it’s the ‘Age of Thrift.’

But if it’s really the age of thrift, the stock market doesn’t seem to have gotten the message. The Dow rose 78 points on Friday, to a new post-crash high. Oil held at over $72. And gold lost $7 to close at $1,049.

What are stock market investors thinking? Are they thinking at all?

If the consumer credit party is over…and the Baby Boomers are on the wagon…is it really possible for US businesses to grow…and prosper?

Yes, it is. America has great businesses with great brands. As the dollar falls it should be able for them to gain global market share in some sectors. But 70% of the economy is consumer spending. Until that changes, the US economy is hostage to US consumer spending. When consumers stop consuming, the US economy’s wheels stop turning.

Okay, so you’re thinking: “Well…maybe Americans have to cut back, but there are plenty of other people in the world. Let them do the buying for a while!”

And you are right. America has less than 5% of the world’s population. But it consumes more than 20% of the total world’s output – as measured by GDP. Clearly, Americans have been doing more than their fair share. It’s time to let the foreigners belly up to the bar. Heck, they’re skinny. They could use a good drink.

In time, foreigners will spend more. We don’t doubt it. But rebalancing the world’s economies won’t happen overnight. Nor even in a couple years. It will take a long, long time. And a lot of investment in new tools, new training, and new techniques. Until that happens, when US consumers stop buying it slows wheels all over the world.

Every time finance ministers and heads of state get together they talk about “rebalancing” the world economy. They promise to take steps to make it happen. But so far, the market is doing all the rebalancing work on its own.

And instead of letting nature take her course…allowing the invisible hand of capitalism to direct capital to where it is actually needed…the heavy hand of government blocks the process of correction.

Credit is still contracting. And Reuters reports that “small US firms face credit squeeze.”

In theory, a genuine recovery in the United States could be led by exports. A cheaper dollar…and a cheaper workforce (in global terms)…would make the United States a better competitor.

But even a cheaper dollar is not guaranteed. Consumers may have stopped borrowing, but the US government borrows more than ever. This borrowing – in dollars – increases demand for greenbacks and may actually sustain the dollar at a higher level than it should be. The feds’ appetite for borrowing could also force up interest rates – further restricting small businesses’ access to easy credit.

There is a big difference between selling a few more Harley Davidsons overseas and real export-led economic growth for the US economy. The latter would require hundreds…thousands…of Harley Davidson enterprises, selling billions worth of goods and services to foreigners. And right now, those enterprises don’t exist. They have no lobbyists trying to get TARP funds. They have no pet Congressmen slipping tax breaks for them into defense bills. They have no unions backing them. How could they; they haven’t even gotten off the ground yet. And they may never get off the ground if they can’t get financing.

The boomers are saving. They put their money into the safest possible place – US bonds! That is, they lend it to the government. They’re the feds’ biggest single source of financing – even bigger than the Chinese.

Meanwhile, the feds pump billions into the banking system. They supply the banks with capital for expansion and consumption. But instead of making loans to the private sector, the banks take the feds’ money and lend it right back to them. They can borrow at a negligible rate…and then use the money to buy long-dated T-bonds yielding over 4%. Result: banks make money; the private sector has no money to create new businesses.

This weekend, we had a conversation with an English carpenter.

“It’s rough. I remember just a couple of years ago, I could get work anywhere. Now it’s off and on. I still find work, but I have a lot of free time too.

“It’s not easy. Not with four children. We don’t have any choice. We don’t get any public benefits, you know…because I’m working. But I’m not working as much as I used to. And I’m not getting paid as much. So what can we do? We have to tighten our belts. We get by. But we’re definitely not spending money they way we used to. In fact, I wish we hadn’t spent so much back then. I’d like to have some of that money now.”

A report in the Telegraph predicts British property prices – which have been in an upward trend for several months – are headed down again…with a 17% decline expected.