STOCK MARKET WATCH, Friday May 29

[ozymandius]

Source: du

STOCK MARKET WATCH, Friday May 29, 2009

Bush Administration Officials Under Indictment = 2
Financial Sector Officials Under Indictment = 0
Financial Sector Officials In Prison = 2

AT THE CLOSING BELL ON May 28, 2009

Dow... 8,403.80 +103.78 (+1.23%)
Nasdaq... 1,751.79 +20.71 (+1.20%)
S&P 500... 906.83 +13.77 (+1.54%)
Gold future... 963.20 +8.00 (+0.84%)
10-Yr Bond... 3.60 -0.12 (-3.09%)
30-Year Bond 4.48 -0.15 (-3.22%)

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

Market Conditions During Trading Hours

GOLD, EURO, YEN, Loonie and Silver

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Read more: du

[ozymandius]

1. Market Observation

Hopes for the Second Half
BY DANIELLE PARK

Harsh as this global downturn has been, some have held great hope for an economic rebound in the second half of 2009. As we now enter the second half it has become increasingly clear that while the rate of decline in some areas appears to be slowing, the evidence of a rebound in consumption and spending are so far not apparent.

This week the consumer confidence survey indicated that recently Americans were feeling more hopeful about their future prospects. But, so far at least, hope for the future has not translated into increased spending.

.....

But doesn’t the market always rebound before the economy?

Market participants tend to talk about the stock market as "always" bottoming before the economy. These bullish arguments presently forecast the economic bottom to trough this fall and therefore argue that March 2009 was "the" stock market bottom this cycle, neatly 6 months in advance of the economy. This theory may prove correct in the end. Only the clarity of retrospect will tell us for sure.

But a risk now is that the "rule of thumb" about markets bottoming before the economy may not hold true this time. The most recent exception was the last downturn where the “economic trough” was November 2001 (now clearly defined in retrospect) and yet the stock market did not make a lasting bottom until February 2003 (15 months later). Part of the reason for this lag of the market bottom after the economy last time, was that the jobless, anemic economic recovery disappointed those conditioned to expect a vigorous "V"...

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

[ozymandius]

2. Today's Reports

08:30 GDP - Prelim. Q1
Briefing.com -5.5%
Consensus -5.5%
Prior -6.1%

08:30 GDP Deflator Q1
Briefing.com 2.9%
Consensus 2.9%
Prior 2.9%

09:45 Chicago PMI May
Briefing.com 41.0
Consensus 42.0
Prior 40.1

09:55 Mich Sentiment-Rev May
Briefing.com 68.0
Consensus 68.0
Prior 67.9

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

[UpInArms]

40. 1Q GDP revised to -5.7% annual vs. -6.1%

U.S. 1Q GDP revised to -5.7% annual vs. -6.1%
8:30am Today

U.S. 1Q final sales unrevised at -3.4%
8:30am Today

U.S. 1Q before-tax corporate profits down 18%
8:30am Today

U.S. 1Q consumer spending revised 1.5% vs. 2.2%
8:30am Today

U.S. 1Q business investment falls record 36.9%
8:30am Today

U.S. 1Q residential investment falls 38.7%
8:30am Today

U.S. GDP revision due to inventories, exports
8:30am Today

U.S. 1Q domestic demand falls 7.5%, most since '80
8:30am Today

U.S. GDP revised to 5.7% decline in first quarter
8:30am Today - By Rex Nutting

[UpInArms]

42. U.S. GDP revised to 5.7% decline in first quarter

http://www.marketwatch.com/story/us-gdp-revised-to-57-decline-in-first-quarter-2009529831560

WASHINGTON (MarketWatch) - The U.S. economy contracted violently again in the first quarter, falling at a revised 5.7% annual rate after sinking 6.3% in the fourth quarter, the Commerce Department reported Friday in its second estimate of quarterly gross domestic product. Business investment declined at a record rate during the quarter. Investments in housing fell at the fastest pace in 29 years. Domestic demand fell at the fastest rate in 29 years. Exports fell at the fastest pace in 38 years. The negative 5.7% estimate for real seasonally adjusted gross domestic product was slightly stronger than the first estimate of a 6.1% decline released a month ago.

[rfranklin]

47. wow, those green shoots are blooming!

I think they planted upside down in the Topsy Turvy.

[Dr.Phool]

54. At least my Topsy Turvey is producing some tomatoes and habaneros.

[UpInArms]

UMichigan consumer sentiment rises to 68.7 in May

UMichigan consumer sentiment rises to 68.7 in May
9:57am Today

May UMichigan sentiment above 68 expected
9:57am Today

free crack?

an increase in the chocolate ration to 50%?

[tclambert]

80. When they start rationing chocolate, that's the day the revolution begins.

[UpInArms]

75. U.S. May Chicago PMI 34.9% vs 40.1% in April

U.S. May Chicago PMI 34.9% vs 40.1% in April
9:46am Today

U.S. May Chicago PMI below 42.0% consensus
9:46am Today

[ozymandius]

3. Oil extends gains above $65, hits new 6-month high

SINGAPORE – Oil extended gains above $65 a barrel Friday in Asia to reach a fresh six-month high after the U.S. reported a fall oil inventories and signs of economic improvement.

Benchmark crude for July delivery was up 54 cents to $65.62 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose $1.63 to settle at $65.08, a six-month high.

The Energy Department's Energy Information Administration on Thursday said U.S. oil supplies dropped unexpectedly by 5.4 million barrels last week. Though crude inventories remain near 19-year highs, it was the third week in a row that supplies have fallen.

....

In other Nymex trading, gasoline for June delivery rose 0.79 cent to $1.92 a gallon and heating oil gained 1.02 cent to $1.61 a gallon. Natural gas for June delivery was steady at $3.96 per 1,000 cubic feet.

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

[ozymandius]

7. OPEC Sec Gen says oil price rally may persist

VIENNA, May 29 (Reuters) - OPEC Secretary-General Abdullah al-Badri said on Friday he saw oil prices at $70 to $75 a barrel by the end of the year, making him the latest official from the group to predict the current rally will persist.

Badri, speaking to reporters the day after the Organization of the Petroleum Exporting Countries decided to keep oil output steady, also said inventory levels would be important in any decision of the group to raise output.

OPEC ministers, including Ali al-Naimi of Saudi Arabia, have said this week the world was ready to cope with oil at $75-$80 and that it could reach that level before the end of the year. It hit a 2009 high above $66 on Friday.

....

While lower OPEC supply was one reasons for the price rally, sentiment was also a factor and Badri said that speculators -- often blamed by OPEC for inflating oil prices -- were coming back into oil and commodities.

http://www.guardian.co.uk/business/feedarticle/8531396

[Demeter]

17. Saudis back increase to at least $75

http://www.ft.com/cms/s/0/0327ac08-4a92-11de-87c2-00144feabdc0.html



The world economy has strengthened enough to weather oil prices at $75-$80 a barrel, the Saudi oil minister, Ali Naimi, said on Wednesday, suggesting that Opec no longer sees a need to support the global recovery with low oil prices.

Mr Naimi’s comments, which were echoed by other Opec officials, point to a shift in the policy of the cartel, which supplies about 40 per cent of the world’s oil and that earlier this year gave the impression it would not push prices higher too quickly...

“The price rise is a function of optimism that better things are coming in the future,” Mr Naimi said, adding that customers were already demanding more oil from the kingdom. Saudi Arabia has so far refused to pump more.

The $75-$80 a barrel level – a tacit target for the kingdom – could be reached later this year as oil demand continued to improve, Mr Naimi said.

In spite of Saudi Arabia’s renewed optimism, many traders in the physical oil market are far less sure that demand is improving significantly, with consumption still weak in the US and Europe. The International Energy Agency, the western countries’ oil watchdog, sees oil consumption contracting this year by 2.6m barrels a day, the steepest fall since 1981.

Only a handful of Wall Street’s analysts believe that oil prices will rise to $80 a barrel by the end of the year and Mr Naimi conceded that all the increase in oil prices was “not purely fundamental”, suggesting that speculative money was also a factor driving prices...

With Opec restricting its production, higher consumption will slowly drain today’s record high inventories, pushing prices higher. “Demand is picking up, especially in Asia,” Mr Naimi said.

Nauman Barakat, at Macquarie bank in New York, said Saudi Arabia was confirming that the oil market was on the “mend”, with the kingdom “in no hurry to put a brake on the market at least until” prices hit $75-$80 a barrel.

[UpInArms]

33. 8:12a July crude up $1.11, or 2%, at $66.18 a barrel (n/t)

[ozymandius]

4. Chrysler heads back to bankruptcy court Friday

NEW YORK – It will take one more day for a judge to determine whether it's in the best interests of Chrysler and its stakeholders to sell most of the company to Italy's Fiat Group SpA.

Robert Nardelli, Chrysler LLC's departing chairman and chief executive, testified in court Thursday that he expects the required U.S. regulatory approvals for the sale of the bulk of Chrysler's assets to a Fiat-led group to be in place by Friday, with international approvals to come later.

.....

Even if Gonzalez does approve the sale, it's likely that attorneys representing three Indiana state pension and construction funds, which hold Chrysler debt and are aggressively opposing the sale, will appeal the decision and force the company to postpone the closing. Fiat could back out if the deal doesn't wrap up by June 15.

...

If the sale ultimately goes through, the automaker could emerge from Chapter 11 bankruptcy protection within weeks, defying observers who said that the company could linger under court oversight for years. Chrysler filed for Chapter 11 bankruptcy protection April 30, 2009.

http://news.yahoo.com/s/ap/20090529/ap_on_bi_ge/us_chrysler_bankruptcy

[ozymandius]

5. AP Source: GM to announce 14 plant closures Monday

DETROIT – The news no one wants to hear is coming Monday morning to General Motors Corp. factories across the U.S.

The troubled auto giant will identify 14 factories it will close by the end of 2010 as part of its restructuring plan, according to a person briefed on the plans.

....

Factory-level union leaders have not yet been told which plants will be shuttered, but four vehicle assembly plants will be among those to be closed, along with parts stamping, engine and transmission factories, said the person, who asked not to be identified because the plans have not been made public.

http://news.yahoo.com/s/ap/20090528/ap_on_bi_ge/us_gm_plant_closures

[ozymandius]

6. Crash diet: GM getting in shape for Chapter 11

DETROIT – The speed at which General Motors Corp. exits bankruptcy protection will depend a lot on the shape the company is in when it enters. GM has three more days to tidy up.

Bankruptcy experts say the more operational, labor and financial concessions the automaker gets lined up in advance of its likely Chapter 11 reorganization, the faster the ailing automaker can emerge a leaner, stronger company — one that will be nearly three-quarters-owned by taxpayers.

More pieces started coming together Thursday after a bloc of GM's biggest bondholders agreed to the Treasury Department's sweetened deal to wipe out $27 billion of the automaker's unsecured debt in exchange for company stock.

....

A United Auto Workers trust that will take over retiree health care expenses will get 17.5 percent, and the old GM, effectively owned by the bondholders, would get a 10 percent stake.

GM's existing shareholders will probably lose everything.

http://news.yahoo.com/s/ap/20090529/ap_on_bi_ge/us_the_new_gm

[ozymandius]

8. Bernanke Bid to Lift Housing Scuttled by Rising Rates, Defaults

...
Federal Reserve Chairman Ben S. Bernanke’s efforts to bring down borrowing costs to revive the housing market and help the economy are stalling. Mortgage rates are almost back to where they were in March before the 30-year rate fell to a record and sparked a refinancing boom. Mortgage delinquencies rose to a record 9.12 percent of U.S. home loans and house prices dropped the most on record in the first quarter, industry reports show.

...

Rates are rising as President Barack Obama is trying to spur a housing recovery. Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as $8,000 for first-time homebuyers that wouldn’t require repayment.

...

Homeowners aren’t cooperating. Refinance applications this week fell 19 percent to the lowest since early March, before the U.S. announced a loosening of Fannie Mae and Freddie Mac rules to allow more borrowers with little or no home equity to arrange new loans. The Fed also announced increased purchases of mortgage-backed securities and a program of buying Treasuries.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a2IrZFvVBaGk&refer=economy

---

Reinflating the bubble will not make everything all better. How amazing it is that perfectly intelligent people evidence their belief that rabid speculation on a basic commodity is somehow good for everybody. If TPTB were to ask me how to improve confidence and sustainable growth - I'd start with raising the minimum wage.

[Dr.Phool]

27. Homeowners aren't cooperating. Gee, I wonder why.

Ben, with 10% unemployment, people who are out of work know that it would be a waste of time to refinance. If I can't afford a $1,000 per month mortgage with no job, what makes you think I can afford an $800 per month mortgage?

Add in the fact, that insurance companies, especially here in Florida, are gobbling up any savings they might see. Not to mention taxes. And, just a quick glance at the mortgage rate index will tell you that banks are tacking on more fees up front than a credit card company on steroids.

Everybody is just waiting to pay $6-10,000 up front to get another NINJA loan. Just to be underwater again in another 6 months. If you used that $275 billion to actually help people stay in their homes, instead of subsidizing banksters and their bonuses, you might actualy have a winning idea. And stimulate the rest of the economy as well.

As for raising the minimum wage, it's a solution that wouldn't cost the government a dime. In fact, when you figure that a minimum of 14% (employer-employee contribution) of that raise would go directly to shoring up Social Security. And since people in that wage bracket tend to spend almost all of their money on goods and services, local and state coffers are increased also.

But, if that happened, your buddies at Goldman and Chase would have to wait a little longer for the new vacation house in Palm Beach, or that new Ferrari.

[ozymandius]

9. Fed’s Balance Sheet Shrinks 4.6% on Decline in Banks’ Borrowing

May 28 (Bloomberg) -- The size of the Federal Reserve’s balance sheet shrank 4.6 percent over the past week following a decline in borrowing by banks in the U.S. and abroad.

The central bank’s assets fell by $101.5 billion to $2.08 trillion yesterday, the Fed said today in Washington. The Fed’s Term Auction Facility lending to commercial banks dropped $56.3 billion to $372.5 billion, the lowest since January. Currency swaps, in which other central banks lend dollars in their countries, fell by $53.5 billion to $181.6 billion, the lowest since September.

The Fed may step up asset purchases to prevent the balance sheet from contracting until policy makers are convinced a recovery has taken hold, officials and analysts said. Minutes of last month’s meeting of Fed officials indicated that they may be ready to build on plans to buy $300 billion of Treasuries should the economy or financial markets deteriorate further.

.....

The Fed said the M2 money supply rose by $12.2 billion in the week ended May 18. That left M2 growing at an annual rate of 9 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.

http://www.bloomberg.com/apps/news?pid=20601068&sid=apoguLIL61VQ&refer=economy

[ozymandius]

10. Blaming Clinton? (redux of yesterday's post: Clinton and the financial meltdown)

(excerpt)

But the other two critiques are on target:

The first complaint Clinton rejects as “just a totally off-the-wall crazy argument” made by the “right wing,” noting that community banks have not had major problems. The second he gives some credence to, although he blames Bush for, in his view, neutering the Securities and Exchange Commission . . .

Clinton argued that the Gramm-Leach-Bliley Act set up a framework for overseeing the industry.

Um, no. Its not the cause of the crisis, but the repeal of Glass Steagall Act made the damage that much worse. And, it can also be argued these banks became too big to manage, and that added to the problems.

As the the CFMA:

Then there are the derivatives. There, Clinton pleads guilty. Alan Greenspan, the Federal Reserve chairman, opposed regulation of derivatives as they came to the fore in the 1990s, and Clinton agreed. “They argued that nobody’s going to buy these derivatives, we’ll do it without transparency, they’ll get the information they need,” he recalled. “And it turned out to be just wrong; it just wasn’t true.” He said others share blame, including credit-rating agencies that underestimated the risk. But he accepts responsibility as well. “I very much wish now that I had demanded that we put derivatives under the jurisdiction of the Securities and Exchange Commission and that transparency rules had been observed and that we had done that. That I think is a legitimate criticism of what we didn’t do.” He added: “If you ask me to write the indictment, I’d say: ‘I wish Bill Clinton had said more about derivatives. The Republicans probably would have stopped him from doing it, but at least he should have sounded the alarm bell.’ ”

http://www.ritholtz.com/blog/2009/05/blaming-clinton/

[rfranklin]

11. Good morning, everybody else still asleep?

I cast the first vote today. My day is made!

[ozymandius]

13. And I thank you for your vote.

Not that we're in a competition. It's a heartwarming gesture.

School is over for the year. I am looking forward to slowing the pace a bit.

:donut: :donut: :donut:

[Dr.Phool]

15. You certainly deserve a break.

I can't begin to tell you how much I appreciate having this valuable resource at my finger tips as soon as I pour my morning coffee.

Your efforts are greatly appreciated, along with all the other regular posters here. Enjoy your time off.

:hi:

[Norrin Radd]

34. I'll add my thanks to yours.

[JNelson6563]

50. I second this motion

:toast:

[AnneD]

62. I have to confess.....

I was a little slow getting up this AM. The teachers come in today to pack and clean up. I will be getting a major overhaul in the clinic so I have to pack like I'm leaving for good. I'll be working hard enough soon enough.

[saigon68]

16. Nope

Have a good week-end


(The Lurker)

[UpInArms]

23. ...

:hi:

:grouphug:

[Demeter]

25. Well, I WAS

But the Kid isn't sleeping in, now that she isn't facing school...

[Hugin]

57. Congratulations, rfranklin!

:hi:

Keep up the good works! :)

[ozymandius]

12. Proposal for US bank regulation draws flak

Senior lawmakers weighed into the turf war on regulation on Thursday, expressing scepticism over an idea for a single banking watchdog but supporting a careful overhaul of the discredited system.

Chris Dodd, chairman of the Senate banking committee, said he was “a little uneasy” about a proposal to replace the range of banking supervisors with one super-regulator, which has been considered by the Obama administration

....

Barney Frank, chairman of the House financial services committee, also poured cold water on the idea, saying the US should not follow the UK’s model of the Financial Services Authority.

....

The phoney war between regulators is set to break out into the open in two weeks when the House financial services committee starts hearings on two of the most controversial reforms – a prospective consumer financial products commission, which could strip the SEC of some of its powers, and new rules on executive compensation.

http://www.ft.com/cms/s/0/ce0b9ddc-4bb2-11de-b827-00144feabdc0.html

---

I think it's clear that we need some radical and thorough redressing of the financial regulatory system. I do not agree that we need a single all-purpose shop for every imaginable regulation. For example: the OCC has performed well since its inception in 1865 in enforcing bank rules of behavior - when it was allowed to do its job (not under Bush) and the SEC is pretty much in the same category of having been really effective in its enforcement role of securities trading (except, too, under Bush).

Where regulation overhaul needs to be addressed is in the domain of individual state regulations that often run interference with federal regulators. Each state is different in the way that it regulates licensing and market saturation/competition. If restructuring regulatory framework were to address these issues then we would have a more consistent and manageable banking system.

Oh, in addition, reinstating Glass-Steagall would be a pretty good idea too.

[ozymandius]

14. The Big Inflation Scare (Krugman)

Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike.

But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics.

First things first. It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

So if prices aren’t rising, why the inflation worries? Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.

The first story is just wrong. The second could be right, but isn’t.

http://www.nytimes.com/2009/05/29/opinion/29krugman.html?_r=1&ref=opinion

---

Krugman says that banks are not lending as one might think they would with the Fed's aggressive money creation. Makes sense. However, I'll disagree with the good professor about commodity prices either holding steady or dropping. I have noticed a swift increase in the cost of food and gasoline. This increase is accompanied with some price stickiness held over from the last runup in fuel/transportation costs.

[DemReadingDU]

18. especially gasoline, $2.65 in SW Ohio

Wonder if they are going to play the same manipulative game they did last summer and raise prices to $4.00. ugh

[Demeter]

19. They Will Try

Whether anyone will buy, or can, is another question.

[DemReadingDU]

20. Who can buy, if they are laid off?

Sure, they get unemployment, for awhile. But if no job, no income, there is not enough to pay for joy-riding trips.

[Tansy_Gold]

30. Forming new habits -- and maintaining them

when gas spiked last summer and my finances were far less secure (ha ha ha ha ha) than they are now, I cut back even further on my driving, and I've never been one to hop in the unnecessarily anyway. But I was much more conscious of the need to eliminate unnecessary trips, combine as many together as possible, etc.

When gas prices dropped, I continued that policy and have improved on it. I drive less now than a year ago, and because I use my vehicle for business, I keep track of the mileage.

I suspect many millions have done the same, and the longer this "downturn" last, the more ingrained these new habits will become.



TG

[tclambert]

83. Okay, here's my numbers for the last year. (I know you like numbers.)

I pulled them out of my car's log book. (Yes, I keep a log book for my car. It was my father-in-law's idea.) I mentioned before that I drive an old Chevy Tahoe gas guzzler. But I don't drive it much. Here's my proof:

In the past year, I drove the big red truck 3,324.2 miles. I've filled it up 15 times. 307.4 gallons total. That's about 20.5 average per fill-up. (Big gas tank.) That's a whopping 10.8 mpg. Okay, terrible mpg, but did anybody with a little econo-car burn less than 310 gallons in a year?

During that time, the highest price per gallon was $4.11, the lowest, $1.55, a factor of 2.65 difference between high and low. Labor costs to produce a gallon of gas varied by about 0.00, so this massive price change must be about something else. Speculation? Manipulation? Profiteering?

[Tansy_Gold]

89. All of the above?

2000 Chevy S-10 Blazer

June - December 2008
4336.8 miles
$750.11
242.708 gallons
17.86 mpg
Avg $/gal - 3.09

January - May 2009
3672.0 miles
$384.41
210.51 gallons
17.48 mpg
Avg $/gal - 1.83

75-80% of my driving is job related; personal errands are combined with business as much as possible.

And thanks, tc, for reminding me that I really needed to post a bunch of business expenses and file the receipts. Amazing how much neater less messy my desk is all of a sudden! ;-)


TG, whose desk still has a long way to go before it's "neat"

[skoalyman]

68. I hope they don't more then likely they'll try

here's a good link to keep up with gas prices just change it to your zip code

http://www.gasbuddy.com/GB_Map_Gas_Prices.aspx?zip=44703

[DemReadingDU]

82. Hey, that is a good link!

prices are similar in my part of the state
http://www.gasbuddy.com/GB_Map_Gas_Prices.aspx?zip=45401

[tclambert]

81. I think they learned the "boil the frog" trick.

If they sneak the price up a little at a time, we won't jump. A nickel one week, a dime another week. And yet, the labor costs for producing a gallon of gasoline isn't changing. It's pure manipulation.

[Demeter]

21. Can Obama's supporters save him from his economic advisers? Robert Kuttner

http://www.prospect.org/cs/articles?article=tough_love_for_obama


Barack Obama is one of three nominees I voted for with enthusiasm. The first, Lyndon Johnson (then in his 1964 civil-rights and anti-poverty phase), self-destructed over Vietnam. The second, George McGovern, lost 49 states. For the next three decades, Republican presidents pulled the country and the prevailing ideology far right, while Democratic interludes moved it only to the center.

But Obama portended something different altogether. Here was a rendezvous of a gifted, principled, and politically shrewd leader with a deep crisis caused by the failure of free-market ideology. It was -- and is -- the most stunning political opportunity for American progressives since Franklin Roosevelt. My reaction to Obama's election was joy, relief, gratitude.

So it is awkward to find myself in semi-opposition after barely 100 days. I'm not a chronic malcontent. I credit Obama with real leadership on multiple fronts, from redeeming the Constitution to reclaiming America's constructive role in the world. I think he is handling several tricky issues well -- accepting the need for large short-term deficits; disclosing details of Bush-era torture without personally sponsoring an inquisition; moving universal health coverage; devising a labor-law reform that can perhaps get 60 votes. All this is huge. But there still is a large risk that Obama will blow the opportunity that history has handed him, and that the political right, though currently in disarray, will pick up the pieces.

The reason, of course, is the economy. The past weeks have seen efforts to seize on every shred of good (or not as bad as expected) economic news. The commercial paper market is loosening up! Some new homeowners are getting bargains! The economy only lost 539,000 jobs in April instead of the predicted 620,000!

Even so, the most optimistic of economists predicts a long slog. We will likely avert a second Great Depression. But we still face a prolonged Great Stagnation, one that could be far worse than necessary because of the administration's circuitous, Wall Street–friendly approach to reviving the banks.

Instead of closing or breaking up failed banks, dividing the losses between taxpayers and bondholders, and getting the successor banks quickly back to health, the Treasury is propping up the incumbent zombies. Worse, it is doing so with convoluted schemes that rely on Wall Street's most speculative and unsavory players backed by loans from the Federal Reserve and guarantees against losses from the Treasury. The hope is that that the speculators will bid up the value of toxic securities on banks' books, now cheerfully rebranded as "legacy" securities. On that risky proposition, Obama is gambling his presidency.

This policy is likely to prolong the agony and leave a still-wounded banking system dragging down the real economy. As politics, it reflects an alliance with Wall Street that was bipartisan in the Clinton and Bush years and that has continued into the Obama presidency -- despite Wall Street's practical disgrace. When affronts such as the American International Group and Merrill Lynch bonuses presented opportunities to rally public opinion behind deep structural reforms, the administration's response was to damp down the popular indignation, not rev it up.

The contrast with Roosevelt's first year could not be more dramatic. FDR pledged in his Inaugural Address to "drive the moneychangers from the temple." He encouraged the populist investigations of the Senate Banking Committee under Ferdinand Pecora and used the backlash to build popular support for sweeping reform. Roosevelt engineered a deliberate political rupture with the old order, one that was politically necessary to counter the financial industry's enduring political power. FDR's key advisers did not have the Wall Street sensibilities of Messrs. Summers and Geithner.

It was, to be sure, a different era. The crisis was even more dire, and there were radical movements in the country to Roosevelt's left. Today, the people are anxious but quiescent, and Obama is, by nature, not confrontational. He hired the protégés of Robert Rubin during the campaign when he needed to demonstrate that he was reassuringly mainstream. They stuck around -- and their advice could sink the promise of his presidency.

As we were going to press, Congress, with broad bipartisan support, was on the verge of enacting a new Pecora Commission, with subpoena power and a mandate to investigate the roots of financial collapse and build the case for systemic reform. Done properly, this investigation will embarrass all three recent administrations, including Obama's. In a tacit rebuke, all 10 of the commissioners are to be appointed by Congress, none by the White House.

I still have faith that Obama may eventually get it right. But time is not on his side, and he needs some help from his friends.

THE FAITHFUL ARE DECREASING IN NUMBERS DAILY AS THIS IMPASSE DRAGS ON

[Dr.Phool]

38. Roosevelt didn't have television to contend with.

"Economic Royalists"? Sheeple would think it's a new reality tee-vee show. Probably starring Donald Trump.

And every place you go that has a television on for background noise, seems to be tuned to Faux News. It's called saturation brainwashing.

[Demeter]

41. Roosevelt Was a Leader--He Would Maximize TV to His Advantage for Change

Obama uses TV as an opiate for the masses. Roosevelt used the radio to move popular opinion and built support for change. Roosevelt leaned on Big Business and Banks, not the other way around.

Roosevelt pushed and prodded Congress and the Courts. He was a real Executive. I'm not sure what the hell Obama is doing, but it sure isn't accomplishing anything. PR, it seems, getting our public face around the world, not insulting foreign leaders, is his only business.

[nc4bo]

61. 2nd to last sentence Demeter

"I still have faith that Obama may eventually get it right. But time is not on his side, and he needs some help from his friends."

Friends don't let friends drive drunk. They plead, they rally around, they demand their friend give up the keys and if that doesn't work, they should physically take the keys away.

I contributed more than I could afford to the campaign, I knocked on plenty of doors in some really <shiver> scary neighborhoods and at some homes with some really scary big dogs hiding in the bushes, I talked and talked til I turned blue - even argued with a few and gave them something to think long and hard about and I'll be damned if I should feel less than a loyal Dem if I speak out on issues that I (and many others I notice) feel are not being properly addressed.

The economy is one of them.

I promise to continue to be a friend to the Dems and Barack Obama but so far pleading and rallying doesn't seem to be working...

I can't make myself sit idly by and watch my friends drive drunk.

[UpInArms]

22. dollar watch

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

Last trade 79.487 Change -1.046 (-1.35%)

Market Sentiment and Carry Interest Will Have To Find Its Bearings Soon

http://www.dailyfx.com/story/topheadline/Market_Sentiment_and_Carry_Interest_1243560587093.html

Risk appetite across the markets has maintained the bullish trajectory cultivated since the beginning of March; but momentum has clearly drained over the past few weeks. The hesitation develops as market participants debate the merits of forecasting a genuine market recovery on the basis of what is so far early signs of a moderating recession and the promise such tentative progress holds for bolstering yields. This wavering is a sign that skepticism is on the rise with traders having already spent much of the fuel a speculative rebound could afford the market after a lengthy period of caution and deleveraging. However, looking at the Carry Trade Index, it is clear that this congestion will come to a breaking point soon. Looking beyond the congestion of the past month, there is still a steady bullish bias behind risk appetite since February. The same can be seen in the benchmarks for the various markets: the S&P 500 has advanced eight out of the past 10 weeks; the benchmark 10-year Treasury note is off nearly 9 percent from its record highs set in December; and AUDJPY has climbed 12 of the past 16 weeks to a current perch of 33.5 percent off its recent record lows. Clearly, the momentum of these past few months would support a continued rise in sentiment. However, putting this advance into perspective, the Carry index is still more than 26 percent off its 2006 highs and equities are more than 40 percent from their respective record highs.

When will the struggle between speculation and fundamentals balance out; and what will happen when the market shifts back to this equilibrium? As the market’s appetite for risk rises, we have to consider what can fuel the advance through the coming days, weeks and months on to a genuine recovery – if this is indeed a genuine recovery. Here we see objective fundamentals are still sketchy in their support for a rise in optimism. Taking the basic ‘risk-versus-reward’ analysis approach, there is reason to be concerned over further financial troubles later down the line and certainly grounds to doubt a rise in returns beyond what volatile speculative gains can achieve. Separating capital returns and yield income is essential. Capital gains can be driven by normal market forces like a rebound from oversold conditions and temporary momentum to sustain a rally as investors return to the market. This could essentially be the foundation for the progress we have seen the markets make over the past three to four months. However, to turn a reversal into a recovery, there needs to be the hope of higher yield income to attractive deeper pools of money to the more established carry trade interests. Next week’s RBA, ECB, BoE and BoC rate decisions will help on this front. Should they all hold as expected and note improvements seen in the distance, we will be one step closer to a return to carry. In the meantime, safety is still the greater unknown. While the US and New Zealand debt ratings were recently secured, we still have not seen a clear turn in global recession readings.

...more...

Euro Sets Fresh Yearly High As Equities Continues To Rally, Will U.S. GDP Add To Bullish Sentiment?

http://www.dailyfx.com/story/bio1/Euro_Sets_Fresh_Yearly_High_1243591497661.html

The Euro continued to find support overnight as it set a new yearly high of 1.4091 on the back of an improvement in April German retail sales and rallying equity markets. Consumer consumption in the Euro--zone’s largest economy rose for the first time in four months, increasing by 0.5% following a 0.4% decline the month prior. Warmer weather and Easter holiday shopping helped increase demand but may have skewed the figures. Meanwhile, forex traders ignored a record low Euro-zone CPI-estimate report which showed that inflation is expected to fall to 0.0% in April following 0.6% the month prior.

The central bank may not be too concerned with falling prices and deflation concerns now that we have seen oil reach back above $60 bbl and demand start to pick up. This was evident by comments from ECB member Vitor Constancio who stated that "For two years we won't be close to the official goal for inflation," but” there aren't significant risks of a deflationary spiral." Nevertheless, falling prices will continue to shrink profit margins for companies which are now facing increasing input costs which could lead to more job losses going forward. The Euro should continue to find support as demand for equities is expected to persist through U.S. trading and the EUR/USD has strongly been correlated with DJIA over the past year. The next level of resistance is at 1.4188 the 50.0% of 1.6040-1.2326.

The pound continues to trade higher as a rebound in home prices and increasing risk appetite has pushed the GBP/USD back above 1.6000 to reach above the 5/27 high of 1.6079. Nationwide LLC showed that house prices rose 1.2% in May as thawing credit markets have started to fuel demand. The BoE continues their quantitative easing efforts in hopes of driving down interest rates and providing liquidity to the market. Meanwhile, the Gfk consumer sentiment reading remained unchanged at -27 as Britons continue to look for positive signs that the recession is bottoming. If the housing sector stabilizes then we could see a sharp pick up in optimism which will only add to the current sterling bullish sentiment. The next resistance level is at 1.6148 the November 5th, 2008 high, trades should be cautious as the 38.2% Fibo level of 2.0160-1.3494 at 1.6048 is a formidable resistance level and without a clean break above downside risks will remain.

The dollar remains under pressure as it continues to be hindered by the reversing of the risk trade. Indeed, yesterday’s rally in equities to end the U.S. session has carried over into Asian and Europe. A jump in Japanese industrial production added to the improving global picture which could continue today with the U.S> GDP reading. Forecasts are for the second reading of growth in the U.S. to be revised higher to -5.5% from -6.1%. A 51.8% decline in private investment was cited as the main driver of the contraction, so look for a revision of such a large shortfall. Chicago PMI and University of Michigan consumer confidence are also expected to show improvements which will add to building optimism of a recovery and could continue to weigh on the dollar.

...more...

[UpInArms]

28. Dollar tumbles to 5-month low

http://www.reuters.com/article/businessNews/idUSTRE54O03G20090529?feedType=RSS&feedName=businessNews

LONDON (Reuters) - The dollar fell to a five-month low against a basket of currencies on Friday and the yen also dropped as signs the global recession may have passed its worst prompted investors to seek riskier assets.

With global share prices at year's high, investors were encouraged to dump the dollar, which they had hoarded during the worst of the global financial crisis last autumn.

"We're back to the pro-risk theme, as markets continue to anticipate growth to return in the second half of the year," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "That will cause the dollar to underperform."

Month-end fixings by corporations and pension funds also pushed the dollar lower, traders said.

By 5:54 a.m. EDT, the dollar index, a gauge of the U.S. currency's performance against six major currencies, fell to 79.646 .DXY, its lowest since late December.

It is now down some 5.8 percent for the month, on track for its biggest monthly fall since dropping more than 6 percent in December.

The index tumbled last week on concerns U.S. government debt may lose its top 'AAA' rating.

Those worries receded somewhat as a series of successful U.S. Treasuries auctions this week indicated healthy demand for U.S. debt. But the market remains jittery.

"The simultaneous bear steepening of the US yield curve and renewed dollar weakness is proof that investors are demanding a greater risk premium for holding U.S. assets," Barclays analysts said in a note.

...more...

[Demeter]

24. Les Leopold: Fear and Looting in America: Are We Really Out of Money?

http://www.huffingtonpost.com/les-leopold/fear-and-looting-in-ameri_b_208153.html

"Well, we are out of money now..." President Obama, May 25, 2009

Depends on the definition of "we".

We got into this crisis because Wall Street invented and pedaled fantasy financial instruments that turned out to be junk. While their party lasted, those complex derivatives were a gold mine for the largest financial institutions. According to the New York Times, the profits from the nine largest commercial banks "from early 2004 until the middle of 2007 were a combined $305 billion. But since 2007, those banks have marked down their valuations on loans and other assets by just over that amount." In other words, the profits weren't real.

When the fantasy finance bubble burst and all the fictional profits disappeared, the banks headed straight for mass bankruptcy. Had the government not intervened, many, if not all of them would have gone under, taking the world economy with them. To prevent a total meltdown, we've forked over several trillion dollars in bail outs, loan guarantees and stimulus funds.

But let's back up a bit. What happened to the $305 billion of 2004 through 2007 bank profits that have since vanished from the banks' balance sheets? About half were paid out in compensation to executives, managers and traders. Yes, amazing as it may seem, when you work for a large financial institution you can be paid massive sums even if your work ends up producing nothing -- not even just nothing, but a negative result. All those autoworkers who are being blamed for the miseries of GM and Chrysler? They actually did make cars that are still transporting people. But the Wall Street players, who took home billions for supposedly making valuable financial instruments, were actually making economic weapons of mass destruction. And you can bet that much of their billions are safely parked in off-shore accounts and other low/no tax investments. In a sane and fair world, we would be thinking about how to get it back to help pay for the costs of cleaning up the toxic financial mess.

In a more general way, the bubble boom produced by those fantasy financial instruments helped create a slew of billionaires. As Obama likes to point out, "This is America. We don't disparage wealth. We don't begrudge anyone for achieving success." But is there some limit beyond which success spills into obscene accumulation? At the very least we should be careful not to lose sight of how much money billionaires possess. In researching The Looting of America we tracked the wealth of the super-rich.

In 1982, the top 400 individuals held an average net worth of $604 million each (in 2008 dollars). By 1995, their average wealth jumped to $1.7 billion. And in 2008, the 400 top winners averaged $3.9 billion each.... The total for the 400 high rollers adds up to a cool $1.56 trillion. That's equal to about 10 percent of the entire gross domestic product of the US...

We certainly could have a heated argument about how much of this wealth derived from the derivative-driven boom that just went bust. A case could be made that much of this money is ill-gotten since it came from artificial financial instruments that were rated improperly, or came from artificially leveraged transactions that now have crashed the system as a whole. An even more contentious fight would break out if we discussed whether there is any justification for allowing that such sums to accumulate in the hands of the few, no matter how worthy any of these individuals may be. And we could have us a row asking whether or not a democracy can really survive with so much wealth in the hands of so few people. But surely we can all agree that those top 400 are sitting on a huge pile of money, while our country is going deeply into debt to fix a financial system that has contributed mightily to their enrichment.

Here's a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to "only" about $100 million each? You wouldn't be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.52 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.

Maybe we're not so out of money after all.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What we can do about it. (Chelsea Green Publishing, June 2009)

[Demeter]

26. Six Ways the Financial Bailout Scams Taxpayers

http://www.motherjones.com/politics/2009/05/six-ways-financial-bailout-scams-taxpayers

The biggest loser of the financial bailout is indisputably the American taxpayer...


This story first appeared on the Tom Dispatch website.

http://www.tomdispatch.com/post/175075

The Greatest Swindle Ever Sold

How the Financial Bailout Scams Taxpayers, Subsidizes Wall Street, and Props Up Our Broken Financial System
By Andy Kroll

On October 3rd, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the U.S. government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of $700 billion to stabilize the nation's failing financial systems and restore the flow of credit in the economy.

The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes, and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people.

That $700 billion bailout has since grown into a more than $12 trillion commitment by the U.S. government and the Federal Reserve. About $1.1 trillion of that is taxpayer money—the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes 12 separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors.

Seven months in, the bailout's impact is unclear. The Treasury Department has used the recent "stress test" results it applied to 19 of the nation's largest banks to suggest that the worst might be over; yet the International Monetary Fund as well as economists like New York University professor and economist Nouriel Roubini and New York Times columnist Paul Krugman predict greater losses in U.S. markets, rising unemployment, and generally tougher economic times ahead.

What cannot be disputed, however, is the financial bailout's biggest loser: the American taxpayer. The U.S. government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. So far, the bailout has favored rescued financial institutions by subsidizing their losses to the tune of $356 billion, shying away from much-needed management changes and—with the exception of the automakers—letting companies take taxpayer money without a coherent plan for how they might return to viability.

The bailout's perks have been no less favorable for private investors who are now picking over the economy's still-smoking rubble at the taxpayers' expense. The newer bailout programs rolled out by Treasury Secretary Timothy Geithner give private equity firms, hedge funds, and other private investors significant leverage to buy "toxic" or distressed assets, while leaving taxpayers stuck with the lion's share of the risk and potential losses.

Given the lack of transparency and accountability, don't expect taxpayers to be able to object too much. After all, remarkably little is known about how TARP recipients have used the government aid received. Nonetheless, recent government reports, Congressional testimony, and commentaries offer those patient enough to pore over hundreds of pages of material glimpses of just how Wall Street friendly the bailout actually is. Here, then, based on the most definitive data and analyses available, are six of the most blatant and alarming ways taxpayers have been scammed by the government's $1.1-trillion, publicly-funded bailout....

[Demeter]

29. Dean Baker Is Really Cooking!

http://www.prospect.org/csnc/blogs/beat_the_press


May 28, 2009

The Surge in Durable Good Orders: Read About it Only in USA Today

That's because it is not true. USA Today headlined an article on reports on the latest weekly jobless claims and April durable goods orders: "Initial jobless claims drop; durable goods orders surge."

While the Commerce Department did report a 1.9 percent increase in April orders, it revised down the March data by 1.3 percentage points (as noted in the article) to show a 2.1 percent decrease for the month. This left the April orders number 0.6 percentage points above the originally reported March level, almost exactly the same as the consensus forecast.

The new orders index excluding the volatile transportation category rose by 0.8 percent in April, considerably less than the 2.1 percentage point downward revision to the March data, leaving the April number 1.3 percentage points below the level previously reported for March, somewhat worse than the consensus forecast.

New orders for non-defense capital goods, a measure of new investment, fell by 2.0 percent in April. Excluding transportation equipment the drop was 1.5 percent. These April numbers are, respectively 35.6 percent and 27.4 percent below their year ago levels.

--Dean Baker
Posted at 11:03 AM | Comments (2)

May 26, 2009

NYT Cooks the Books On Europe's Auto Industry

The NYT is touting the layoffs in the U.S. auto industry as a virtue. (I'm waiting to see the same case about the banking sector.) It notes that auto industry employment in Europe is remaining steady at around 2.3 million, while it is falling to close to 700,000 in the U.S..

The article and accompanying chart imply that Europe is delaying an inevitable adjustment. The case is far from clear, in spite of the NYT's best effort to make the case. The chart shows that Europe produces about 18 million cars a year, while North America produces around 12 million. Those noting the asterisk will see that one-third of the cars in North America are produced in Canada or Mexico, meaning that only about 8 million cars are produced in the U.S.. This adjustment makes the gap in employment look less extreme.

Furthermore, the U.S. imports a large portion of the parts for the cars that are produced here. Much of the employment in the auto sector is in parts production. Without knowing the balance of trade in car parts, there is no easy way to know how Europe's auto employment relative to its output compares to the U.S..

--Dean Baker
Posted at 06:04 PM | Comments (6)


Psssst, Don't Tell Sebastian Mallaby, but the Dollar Already Plummeted in Value

There is a bizarre theory circulating in high Washington circles, expressed today by Sebastian Mallaby in the Post, that China is concerned that the huge dollar reserves it holds will lose value. The reason this is bizarre is that the dollar already plunged in value over the years 2002-2008 and China just kept buying more dollars.

The euro went from being worth just over 80 cents at the dollar peak in 2002 to over $1.60 at its trough early last year. Through this whole slide, China just kept buying up more dollars. Does anyone think that China's leaders did not notice the plunge in the value of the dollar? This is not exactly secret information.

Obviously, China's central bank was fully aware that the dollar was losing value but was willing to buy dollars anyhow in order to preserve its export market in the United States. That is the reason that it continues to buy dollars even though its leaders know that they will lose money on the deal. The economy can easily afford the loss, contrary to the bizarre calculations Mallaby uses in his column.

If it seems strange that elite Washington types can push economic views that are far removed from reality, remember, these people could not see an $8 trillion housing bubble.

--Dean Baker
Posted at 06:24 AM | Comments (5)


Maybe Barney Frank Just Wants to Help Bondholders

The NYT reports on proposals to support the municipal bond market. At one point the article refers to a proposal by Representative Barney Frank, chairman of the House Financial Services Committee, to reinsure $50 billion of municipal bonds. The article then asserts about this other proposals: "All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze."

Actually, Mr. Frank's intention in this proposal is not clear. Guarantees for newly issued bonds will reduce the interest rates that state and local governments must pay. However, once these bonds are issued, state and local governments are not directly affected by the price of these bonds. Reinsuring bonds that have already been issued will increase the value of these bonds, thereby helping bondholders, but will provide no obvious benefit for struggling state and local governments that are facing a cash-flow squeeze.

--Dean Baker
Posted at 06:05 AM | Comments (4)


Second Mortgage Holders Are Supposed to Get Wiped Out

The Post reports on an effort to revitalize the Hope for Homeowners program. It notes that second mortgage holders have often objected to loan modifications because these modifications generally wiped them out. By contrast, it suggests that there is a need to "balance" the interests of holders of first and second mortgages.

It would have been worth noting that holders of second mortgages are supposed to be wiped out. Under our sacred contract law, they are not supposed to get a penny unless the holder of the first mortgage is paid in full. Since first mortgage holders are losing much of the value of their mortgages, second mortgage holders should receive zero. That would be balance.

However, second mortgage holders, which are primarily banks (a.k.a. the folks that the taxpayers bailed out) are using their legal power to block modifications to extort money from the government, even though their mortgages would be worthless in the event of a foreclosure. This point should have been made clear in this article.

--Dean Baker
Posted at 05:58 AM | Comments (1)


The Post Is Worried That the Economy Is Growing Too Rapidly

That's right folks, the Post has its second front page article in less than a week touting the end of the downturn. This one, which encourages readers to worry about the prospect of inflation gets just about everything wrong.

First, it is important to realize that the economy is continuing to contract rapidly, even if the pace of decline may have slowed from the 6 percent annual rate in the first quarter. The economy has lost an average of more than 600,000 jobs a month. The Labor Department will almost certainly report another loss of more 600,000 when the May data is reported a week from next Friday. While the article reports that "unemployment is expected to top 9 percent and stay above 7 percent for the next two years," economists who were not surprised by the recession expect the unemployment rate to top 10 percent and remain above 7 percent for 3 years.

More importantly, the article completely misrepresents the problem of inflation and wrongly attributes its inaccurate view to Federal Reserve Board chairman Ben Bernanke. The article describes Bernanke's view on inflation:

"By problem , he means rising prices that destroy the value of money -- an experience fresh in the public memory. During last summer's run-up in gas prices, real disposable income fell at an annualized rate of 8.5 percent from July to September, Commerce Department data show. "

Actually, the run-up in gas prices and the resulting loss in purchasing power had nothing to do with low interest rates and the Fed printing it too much money. It was attributable to excess world demand for oil driving up oil prices relative to other prices. Purchasing power of people in the United States would have fallen even if there had been zero inflation given the excess demand for oil, it just would have been brought about by falling wage income rather than rising oil prices.

Inflation does not reduce purchasing power. Pure inflation simply means that prices and wages are rising together. By itself, it does not reduce purchasing power in aggregate. (Where would the money go?) There is redistribution associated with inflation. For example, homeowners benefit as the value of their homes rise relative to their mortgage debt.

As a general rule, debtors benefit from inflation. Bondholders (the folks that got the bailouts supported so strongly by the Post) and other creditors are hurt by inflation.

It is also worth noting that a decline in the value of the dollar, which is necessary for bringing the trade deficit closer to balance, will lead to an increase in the rate of inflation as imports become more expensive. The Post, which routinely runs articles, editorials, and op-eds warning about the budget deficit almost never runs pieces discussing the trade deficit, which until recently had been much larger.

--Dean Baker
Posted at 05:19 AM | Comments (2)

[DemReadingDU]

45. Dean Baker points out the propaganda

He should be economic adviser instead of Summers.

[UpInArms]

31. Banks lobby regulators on derivatives rules: report

http://www.reuters.com/article/ousiv/idUSTRE54S11K20090529

(Reuters) - A group of banks and money managers plan to release a letter to the Federal Reserve Bank of New York and other U.S. and overseas regulators to help fend off some rules proposed by the Obama administration that seek to control trading in the derivatives market, the Wall Street Journal reported.

The letter, which is expected to be released next week, will reiterate a commitment by the banks to meet the government's goal of transparency, the paper said, citing people familiar with the matter.

The Journal said that while the banks are taking care not to oppose any rules publicly, they are also trying to stymie legislation that could seriously hurt their ability to generate fees.

The industry will detail plans to expand central clearing of credit-default swaps to investment funds and other market participants, the paper said.

It will also propose that customized credit derivatives like the ones that nearly brought down American International Group Inc be reported to a trade-information warehouse run by Depository Trust & Clearing Corp, the paper added.

[Hugin]

64. Just think... Soon they'll only have only ONE regulator to lobby!

:bounce:

I bet they've had to hire someone to dab the drool from their chins... Maybe even a couple of people. One for each chin... See! This is good for the Economy! :eyes:

[UpInArms]

32. Roubini says U.S. economy may dip again next year

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE54R1U120090528

SEOUL (Reuters) - Nouriel Roubini, the famously glum economist who predicted the financial crisis, said that while the recession in the United States may well be over at the end of the year, another dip was still possible next year.

"I still expect that economic growth in the U.S. is going to be negative through Q4, and that we'll see positive growth in Q1," Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

"The U.S. recession is going to be U-shaped, lasting roughly 24 months," he added. "Compared to the current consensus that says we are practically at the end of the recession ... my view is: no, it's going to last another six to nine months before it's over."

Roubini, who teaches at New York University and heads research firm RGE Monitor, had said on Wednesday that the end of the global recession was likely to occur at the end of the year. This spurred speculation that his outlook had grown more optimistic, a suggestion denied by him in the interview.

"Because I said the recession is going to be over by year-end, people say I am an optimist, but I've been saying the same thing for a while."

"I would say compared to current consensus, I am much more bearish," he said. "Compared to other people that say it's going to be a doomsday, I could be considered an optimist."

Roubini stood by a recent article in which he mentioned the possibility of a "perfect storm" in 2010.

...more...

[UpInArms]

35. Pimco's Gross takes bleak view: Boom times are over, bond manager says

http://www.marketwatch.com/story/pimcos-gross-boom-times-are-over

CHICAGO (MarketWatch) -- Bill Gross, co-chief investment officer of bond mutual-fund giant Pimco, on Thursday offered investors a sobering market outlook in which he sees lower returns, decreased U.S. growth and the loss of the dollar's status as the world's reserve currency.

In a speech delivered to advisers and investment managers at the Morningstar Investment Conference, Gross outlined what Pimco colleague Mohamed El-Erian has termed the "New Normal."

In a world of more regulation, private-sector deleveraging and less consumption, "it's hard for to imagine" the Dow Jones Industrial Average (INDU 8,404, +103.78, +1.25%) climbing back to 14,000 or home prices returning to 2006
levels, Gross said.

"Growth will be stunted," he said. "It will be a different type of world and we have to get used to that."

The U.S. economy will grow at between 1% and 2% a year rather than 2% to 3% a year for the next three to five years at least, Gross said. "That will make a significant difference for corporate profit growth," he said.

Moreover, unemployment will hover around 7% to 8% rather than the recently typical 4% to 5%, he added, and the higher rate would be around "for a long time to come."

Gross added that inflation would also start to accelerate in about three to five years' time.
New questions

This new economic climate should prompt investors to question many previously held assumptions -- especially about whether stocks will outperform bonds, and what this means for their portfolios. Figures show that over certain time cycles, bonds have outperformed stocks. See related story.

Gross also said that corporate America will have to adapt to no longer being the focus of government policy. Wage earners will claim policy-makers' attentions, he said, and gave the looming resolution of General Motors Corp. in favor of its union as an example of the new environment.

...more...

[Demeter]

36. Citigroup to hold fast in China and India

http://www.ft.com/cms/s/0/77143500-4a1a-11de-8e7e-00144feabdc0.html

The head of Citigroup’s Asian operations ruled out selling the US group’s stakes in Chinese and Indian banks.

Ajay Banga, chief executive of Citi in Asia-Pacific, told the FT that the bank, which the US government rescued last year, also planned to expand lending across the region in spite of the “challenging” economic environment.

The Asia-Pacific region, which for Citi includes Japan and Australia, accounted for 30 per cent of the bank’s revenues last year, spanning corporate and consumer lending, credit cards, trading and private banking.

“It is in US taxpayers’ best interests that we continue to grow in a region which is delivering strong profits across all its business lines,” Mr Banga said in an interview.

His comments will serve as a riposte to sceptics who believe that Citi will be forced to cut back its Asian operations amid domestic political pressure to focus on lending to US clients.

Citi this month sold its Japanese domestic securities business to Sumitomo Mitsui Financial Group in a $7.8bn deal that helped bolster its battered balance sheet.

A US government stress test of the country’s banks later found that Citi still required a further $5.5bn in capital to guard against losses if the recession worsened.

This has prompted speculation that Citi could be forced to follow some of its western rivals and raise cash by selling lucrative stakes in Chinese banks.

Citi owns a 20 per cent stake and has management control of Guangdong Development Bank, a lender focused on the industrial heartland of southern China, and owns a 3.75 per cent stake in Shanghai Pudong Development Bank.

Citi is also the leading shareholder in India’s HDFC Bank, holding an 11.7 per cent stake.

Mr Banga pledged that Citi would keep its stake in HDFC, which he described as among India’s “best run financial institutions”.

He added: “Selling our stakes in Chinese banks does not make sense either. How else would we gain access to the opportunities in an area such as the Pearl river delta?”

Several distressed western lenders, including UBS and Royal Bank of Scotland, this year cashed in their Chinese banking investments, while Bank of America has pocketed more than $10bn by offloading half of its 20 per cent stake in China Construction Bank.

Mr Banga cautioned that Citi’s revenues in the region would be under strain this year, given the “challenging” economic backdrop and uncertainty over the sustainability of the stock market recovery.

“It could be another nine to 12 months until the US economy shows signs of real improvement, which is key to the export-orientated economies of Asia-Pacific,” he said.

[Demeter]

37. Credit Suisse begins London property sale

http://www.ft.com/cms/s/0/c54b7bd2-4bb6-11de-b827-00144feabdc0.html

Credit Suisse has begun a sale of its London property estate that could raise as much as £500m (€572m) as part of a strategy to focus on core banking operations.

The investment bank this week instructed CB Richard Ellis to begin marketing the smaller of its two buildings in Canary Wharf, with indications that its landmark tower at Cabot Square is also likely to be brought to the market before the end of the year.

In total, the sales of the two buildings – 20 Columbus Courtyard and 1 Cabot Square – could raise more than £500m, depending on the terms set by the bank on the length of its occupancy and rent.

The move comes as other banks and companies look to sell off non-core assets, with property advisers forecasting that several billion pounds of sale and leaseback deals will be completed in the next few months.

HSBC, which occupies a neighbouring building on Canary Wharf, is conducting the largest transaction, with just weeks to go before the bank is expected to pick a buyer for its $2bn global headquarters portfolio.

The sales by the banks come in spite of the slump in the property sector, which has left some advisers questioning the timing of the offerings given a drop of almost half since the peak in 2007.

The move by Credit Suisse to sell the real estate was part of a longstanding strategy to focus on core banking operations, people close to the bank said. They said the bank was under no pressure to sell if it did not find sufficient value.

Credit Suisse has a tier one capital ratio – a measure of a bank’s financial strength – of more than 14 per cent, towards the higher end of the banking sector.

Credit Suisse would not comment directly on the sale process, but added: “Credit Suisse regularly reviews its global property portfolio in order to ensure we are maximising the efficient use of capital and resources. A sale and leaseback of our Canary Wharf buildings in London is one option that we review on a regular basis.”

HSBC, meanwhile, is in talks to sell three of its office buildings in London, New York and Paris in a deal that is expected to raise about $2bn. Potential buyers are said to include a number of wealthy families, who are interested in the fixed income from the rents on offer, as well as sovereign wealth funds and other institutional buyers.

WHAT A DIFFERENCE A BAILOUT MAKES! CITI CAN SPECULATE WITH TAXPAYER FUNDS, WHILE OTHER NATIONS MAKE SURE BANKS GET A HAIRCUT AND PULL IN THEIR HORNS.

[Robbien]

39. Yellow pages publisher R.H. Donnelley files for bankruptcy

Cary, N.C. — R.H. Donnelley, one of the nation’s largest yellow pages publishers, filed for bankruptcy Thursday.

The voluntary Chapter 11 filing in a federal bankruptcy court in Delaware is the latest in a streak of bad news for the company.

Mounting losses and mountains of debt turned its stock (OVTC: RHDC) into one worth pennies. In its court filing, Donnelley listed assets of $11.9 billion and debts of $12.4 billion. Its stock closed at 14 cents Thursday. Its 52-week high is $5.67.

In a statement issued Friday morning, Donnelley said the bankruptcy would enable it to “consummate a balance sheet restructuring.”

The company said has more than $300 million “in cash” and projects' “positive” cash flow so it does not plan to seek additional financing.

"Our growth-through-acquisition strategy never anticipated the cataclysmic collapse of the U.S. economy and the local advertising market,” David Swanson, Donnelley’s chairman and chief executive officer, said in a statement. “As a result of these developments, earlier this year we began negotiating with our lenders to restructure our debt and provide the company with a more sustainable capital structure that reflects the current economic realities.”

http://www.wral.com/business/story/5237736/

A yellow pages company has assets and debts of about $12B each? Billions for yellow pages? Appears Donnelley was doing a lot more than just selling phone book ads.

[Demeter]

43. Tremendous Competition in "Yellow Pages"

Everybody and his brother wanted to sell me advertising space in their Yellow Pages--there were three or four floating around at the same time. And they were all incomplete or crap.

[DemReadingDU]

48. Yellow pages?

What are those?

:sarcasm:



Haven't looked thru yellow pages (or white pages) in a long time.

[Demeter]

44. Santander to pay Madoff trustee $235m

http://www.ft.com/cms/s/0/de9b1636-4a0a-11de-8e7e-00144feabdc0.html


Spain’s Santander, one of Europe’s biggest banks, has reached a settlement with the trustee seeking to recover money for Bernard Madoff’s victims, agreeing to pay $235m to resolve claims against two of the bank’s hedge funds managed by its Optimal investment arm.

The deal is the first big settlement for Irving Picard, the trustee, in his quest to get Mr Madoff’s investment partners to return money they withdrew from his business before he admitted running a Ponzi scheme. In recent weeks, he has filed suits against hedge funds and investors who profited from Mr Madoff’s operation, seeking the return of $12bn.

TWELVE BILLION!!!!

Mr Picard said on Tuesday the $235m settlement represented 85 per cent of what he was seeking from Santander’s Optimal unit. Once the payment is made, he will have collected $1.225bn to be paid out to victims of the fraud.

“I am very pleased that we reached such a favourable settlement with Optimal . . .  We hope that other entities against which we have claims will likewise come forward to settle,” he said.

Under US federal and New York law, investors who withdrew principal or profits in the 90 days before Mr Madoff’s December 11 arrest are especially vulnerable to “clawbacks”.

Santander confirmed its funds had withdrawn money in the 90-day period before Mr Madoff’s arrest and said it was pleased to have cleared that set of legal issues with the trustee.

Santander’s Optimal funds are pursuing $1.55bn of claims against Mr Madoff’s businesses. The bank has admitted client losses of up to €2.33bn ($3.26bn) through Optimal funds as a result of the Madoff case.

The suit claimed that Fairfield Greenwich, a feeder fund for Mr Madoff’s operation, did little, if any, due diligence on Mr Madoff’s fund, even while encouraging clients to invest with him, and reaped hundreds of millions of dollars in “finders fees” by channelling investments to Mr Madoff. In response, a Fairfield Greenwich spokesman said: “There is no merit in this lawsuit, and it will be defended vigorously.”

Mr Picard has also filed suit against Jeffry and Barbara Picower, demanding the return of more than $5bn that the couple received from Mr Madoff’s scheme over a period dating back to 1995. William Zabel, an attorney for the Picowers, told the Financial Times his clients plan to respond to Mr Picard’s suit.

So far, Mr Picard has sent letters of commitment promising to pay out $116m to 237 victims of Mr Madoff’s fraud.

Stephen Harbeck, president of the Securities Investor Protection Corp, which maintains a special fund to pay restitution to help investors at failed brokerage firms, said his group supported the Optimal settlement “wholeheartedly”.

[Demeter]

46. Third ex-Morgan Stanley trader punished

http://www.ft.com/cms/s/0/a56bf336-49eb-11de-8e7e-00144feabdc0.html

A former Morgan Stanley trader has been fined £140,000 ($223,000) and banned by the UK financial watchdog after he traded ahead of clients to profit from their orders.

It was the third trading-related punishment linked to the bank by the Financial Services Authority in the past month. The FSA said Nilesh Shroff engaged in what it called “pre-hedging”.

This is where a dealer, knowing a client’s plans, trades in the same direction before conducting the client’s order. In the market, traders describe such practices as “front running”.

The FSA said on Tuesday that Mr Shroff, a senior trader at the bank, “disadvantaged” clients on seven occasions between June and October 2007.

This month, the bank paid a £1.4m fine – the 10th largest meted out by the regulator – for weak systems and controls that allowed a credit derivatives trader, Matthew Piper, to cover up his losses for six months. Mr Piper was fined £105,000 and also banned.

Last week, the FSA fined and banned another former Morgan Stanley trader, David Redmond, for deliberately hiding a risky trading position from his bosses.

In the cases of Mr Redmond and Mr Shroff, the regulator said no blame was attached to the bank. Both had disobeyed rules forbidding their actions.

In all three cases, Morgan Stanley identified and investigated the problems and alerted the regulator. The traders have been sacked by the bank.

Morgan Stanley said on Tuesday: “Mr Shroff deliberately and knowingly violated our policy. We took immediate action to address his misconduct, ultimately dismissing .”

Margaret Cole, director of enforcement at the FSA, said the punishment should serve as a warning to others who “act without honesty and integrity and who do not follow our rules”.

Mr Shroff’s job included “programme trades”, where a bank helps a client sell an entire portfolio or a substantial chunk of one. Typically, the bank will ask brokers to tender for the whole bundle of stocks.

In the example cited in the FSA’s final notice on the case, Mr Shroff knew the contents of a client’s portfolio and sent trades into the market in the same stocks ahead of the execution time for that client’s holdings. The deals caused 80 per cent of the stocks in the portfolio to move against the client before its deal was done.

After a complaint from the client, Morgan Stanley moved the time of the client’s trade back so it was not affected by Mr Shroff’s trades and instructed a law firm to investigate. He was sacked for gross misconduct in December 2007.

[Hugin]

58. Morgan Stanley: "Bad traders! Bad traders! Bad!"

(for getting caught)

Scape goats in place!

Back to the status-quo.

What? This guy was sacked in 2007? This is pure 'Lookie! Lookie! We're Self-regulating' theater.

[Demeter]

49. Happy Friday, Everyone!

This has been a hectic week, but a lot of the deck has been cleared for me.

Look for our Battlestar Gallactica edition of Weekend Economists this evening and put your pithy quotes and such to good use leavening the heavy, cold dough of the world economic news. Otherwise, some of us may be driven to despair!

[Hugin]

63. If you're taking suggestions for future WEE themes...

I've got a couple up my sleeve. Should I keep them in case the need arises for me to sub again?

Aside, from the mandatory 'Gilligan's Island' weekend lambert is calling for... Will that be in early July?

[CatholicEdHead]

73. So Say We All!

[tclambert]

84. Morning, Demeter, whattaya hear?

Grab your gun and bring the cat in.

Battlestar Galactica Weekend. Frackin' awesome.

[Demeter]

51. The Next Leg Down By Mike Whitney

http://informationclearinghouse.info/article22714.htm


May 26, 2009 "Information Clearing House" -- Collapsing home prices and credit markets continue to put downward pressure on consumer spending, forcing the Federal Reserve to take even more radical action to revive the economy. Last week, Fed chief Ben Bernanke raised the prospect of further monetizing the debt by purchasing more than the $1.75 trillion of Treasuries and mortgage-backed securities (MBS) already committed. The announcement sent shock-waves through the currency markets where skittish traders have joined doomsayers in predicting tough times ahead for the dollar. Foreign central banks have been gobbling up US debt at an impressive pace, adding another $60 billion in the last three weeks alone. That's more than enough to cover the current account deficit and put the greenback on solid ground for the time-being. But with fiscal deficits ballooning to $3 trillion in the next year alone, dwindling foreign investment won't be enough to keep the dollar afloat. Bernanke will be forced to either raise interest rates or let the dollar fall hard.

Export-led nations are looking for an edge to revive flagging sales by keeping their currencies undervalued. But the strong dollar is making it harder for Bernanke to engineer a recovery. He'd like nothing more than to see the dollar tumble and reset at a lower rate. That would reduce the debt-load for homeowners and businesses and send consumers racing back to the shopping malls and auto showrooms. Perception management is a big part of stimulating the economy. That's why the financial media has been air-brushing articles that focus on deflation and shifting the attention to inflation. It's an effort to kick-start consumer spending by convincing people that their money will be worth less in the future. But deflation is still enemy number one. Rising unemployment, crashing home prices, vanishing equity and tighter credit; these are all signs of entrenched deflation.

Bernanke faces three main challenges to put the economy back on track. He must remove the hundreds of billions in toxic assets from the banks balance sheets, reignite consumer spending to offset the sharp decline in aggregate demand, and fix the wholesale credit-mechanism that provides 40 percent of the credit to the broader economy. Treasury Secretary Timothy Geithner has taken over the distribution of the remaining TARP funds, and created a new program, the Public-Private Investment Partnership (PPIP), for purchasing toxic mortgage-backed assets. The PPIP will provide up to 94 percent "non-recourse" government loans for up to $1 trillion of assets which are worth less than half of their original value at today's prices. The Treasury's plan is an attempt to keep asset prices artificially high so that the losses will not be realized until they've been shifted onto the taxpayer.

Here's how John Hussman of Hussman Funds summed up Geithner's PPIP:

"From early reports regarding the toxic assets plan, it appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 7% of the purchase price, with the TARP matching that amount - the remainder being "non-recourse" financing from the Fed and FDIC. This essentially implies that the government would grant bidders a put option against 86% of whatever price is bid. This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficiently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.

Make no mistake - we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own. All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. Even Bear Stearns bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke, Geithner and other bureaucrats eager to hand out the money of ordinary Americans." (John Hussman, "The Fed and Treasury - Putting off Hard Choices with Easy Money, and Probable Chaos, hussmanfunds.com)

The second part of the Fed's plan is to fix the wholesale credit-mechanism, which means restoring the securitization markets where pools of loans are transformed into securities and sold to investors. Until Bernanke is able to lure investors back into purchasing high-risk debt-instruments comprised of student loans, mortgage securities, auto loans and credit card debt, the credit markets will continue sputter and growth will be flat. Structured-debt creates the asset base which is leveraged though traditional loans or complex derivatives. Credit expansion maximizes profit, inflates asset prices and establishes the structural framework for shifting wealth to financial institutions via speculative asset bubbles. This is the basic financial model that US banks and financial institutions hope to export to the rest of the industrial world to ensure a greater portion of global wealth for themselves and a stronger grip on the political process.

Bernanke's Term Asset-backed Securities Loan Facility (TALF) provides up to $1 trillion in non recourse loans to financial institutions willing to buy AAA-rated debt-instruments backed by consumer and small business loans. So far, the response has been tepid at best. For all practical purposes, the market is still frozen. Bernanke knows that there will be no recovery unless the credit markets are functioning properly. He also knows that the TALF won't succeed unless he provides guarantees for the underlying collateral, which is loans that were made to applicants who have no means for paying them back. Bernanke's guarantees will cost the taxpayer billions of dollars without any assurance that his plan will even work. It's a complete fiasco.

From the Federal Reserve Bank of San Francisco Economic Letter, "US Household Deleveraging and Future consumption Growth" by Reuven Glick and Kevin J. Lansing:

"More than 20 years ago, economist Hyman Minsky (1986) proposed a "financial instability hypothesis." He argued that prosperous times can often induce borrowers to accumulate debt beyond their ability to repay out of current income, thus leading to financial crises and severe economic contractions.

Until recently, U.S. households were accumulating debt at a rapid pace, allowing consumption to grow faster than income. An environment of easy credit facilitated this process, fueled further by rising prices of stocks and housing, which provided collateral for even more borrowing. The value of that collateral has since dropped dramatically, leaving many households in a precarious financial position, particularly in light of economic uncertainty that threatens their jobs.

Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless. (The Federal Reserve Bank of San Francisco Economic Letter, "US Household Deleveraging and Future consumption Growth" by Reuven Glick and Kevin J. Lansing) http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html)

The economy is in the grip of deflation. Commercial banks are stockpiling excess reserves (more than $850 billion in less than a year) to prepare for future downgrades, write-offs, defaults and foreclosures. That's deflation. Consumers are cutting back on discretionary spending; driving, eating out, shopping, vacations, hotels, air travel. More deflation. Businesses are laying off employees, slashing inventory, abandoning plans for expansion or reinvestment. More deflation. Banks are trimming credit lines, calling in loans and raising standards for mortgages, credit cards and commercial real estate. Still more deflation. Bernanke has opened the liquidity valves to full-blast, but consumers are backing off; they're too mired in debt to borrow, so the money sits idle in bank vaults while the economy continues to slump.

In an environment where businesses and consumers are rebuilding their balance sheets and paying off debt, there's only one option; inflation. Bernanke will keep interest rates will stay low while increasing monetary and fiscal stimulus. The ocean of red ink will continue to rise. Still, the systemwide contraction will persist despite the Fed's multi-trillion dollar lending programs, quantitative easing (QE) and Treasury buybacks. The "Great Unwind" is irreversible; the era of limitless credit expansion is over.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, believes that the equities markets have undergone a "gargantuan short-cover rally" and that stocks will retest the March 9th low, which was a 12 year low for the S&P 500 Index. Rosenberg said he doesn't expect the economy to recover in the second half of the year.

"I'm seeing no revival of consumer spending in the second quarter," Rosenberg said. (Bloomberg)

The conditions that supported the explosive growth of the last decade no longer exist. The credit markets are in a shambles, the banking system is hanging by a thread, and the consumer is out of gas. Traders are clinging to the slim hope that the worst is over, but they could be mistaken. There's probably another leg down and it will be more vicious than the last.

[Demeter]

52. Americans' credit scores fall as they struggle to pay bills

http://www.usatoday.com/money/perfi/credit/2009-05-26-credit-scores-recession_N.htm

As more consumers struggle with bills, their credit scores are paying a price.

From the third quarter of 2008 to the first quarter of 2009 — the latest data available — the average TransUnion credit score dropped 6 points to 651, the credit bureau says. Scores fell more dramatically in states hardest hit by the housing bust: California saw a 10-point drop, for example, and Arizona, 11.

"Consumers are feeling the bite of the current recession," says Ezra Becker, a director in TransUnion's financial services group. "With delinquencies showing up in credit files, it's not surprising that the average score is decreasing somewhat."

Becker believes credit scores aren't likely to improve — and could even drop further — through the second quarter of 2010.

More than 200 million U.S. consumers have credit scores, so a change of even a few points in the national average can be significant, experts say.

The latest drop is based on TransUnion's TransRisk credit score, rather than the widely used FICO credit score. Yet it's still a "meaningful" gauge of a possible trend because many of the same ingredients — including payment history and debt levels — go into calculating scores, says John Ulzheimer, a credit expert who used to work at Equifax credit bureau and Fair Isaac, the creator of the FICO score....

In the first quarter of 2009, credit card delinquencies hit a record high of 6.5%, while charge-offs reached 7.5%, a near-record high, according to the Federal Reserve.

Banks are closing a record number of credit card accounts and reducing millions of dollars in credit lines. That could boost the percentage of credit consumers are using, hurting their scores.

Foreclosures also are ruining credit. But in general, credit card problems take a greater toll on overall scores than mortgage woes. That's because only 50.6 million households have first mortgages, while nearly all of the nation's 114 million households have at least one credit card, says Mark Zandi, chief economist at Moody's Economy.com.

[Hugin]

60. Meanwhile, somewhere in the distance the CDS players' ...

...champaign corks are heard popping.





(But, alas... What the CDS crowd doesn't know is there is no money to pay those swaps. Boy, imagine the whining we'll hear when that news takes hold.)

[Robbien]

53. American Bankers Association kicks off National Homeownership Month

WASHINGTON, DC - May 28, 2009 - (RealEstateRama) — The American Bankers Association is celebrating National Homeownership Month throughout June.

These are troubled times in the housing market and in the economy in general. ABA’s goal during the coming month is to provide consumers with information on how to gauge whether the time is right to buy a home, what they need to know to select a reputable lender, how to obtain the best loan to meet their needs, and how to keep their home in these uneven times.

http://www.realestaterama.com/2009/05/28/aba-kicks-off-national-homeownership-month-ID05439.html


Since they have not been punished but in fact have been rewarded for their bad actions, banksters are up to their same old tricks of heavily pushing their bad loans.

[Dr.Phool]

55. Let us know when it's NINJA Night.

I'll buy a dozen. I figure about November I can celebrate Foreclosure Month.

[Hugin]

59. Ugh... I'm not feeling so good after reading this bilge.

Anyone else having that reaction?

:gad: is it possible I'm becoming allergic to this pap? :o

Oh, NO! No more SMW reading and posting? Good Lawd! How will I survive? :cry:

[AnneD]

65. Might I suggest a listen to

Brainwashed by George Harrison
More....

Brainwashed by the Nikkei
Brainwashed by Dow Jones
Brainwashed by the FTSE
Nasdaq and secure loans
Brainwashed us from Brussels
Brainwashing us in Bonn
Brainwashing us in Washington
Westminster in London
more...
Brainwash you while you're sleeping
While you're in a traffic jam
Brainwash you while you're weeping
While still a baby in your pram
Brainwashed by the Military
Brainwashed under duress
Brainwashed by the media
You're brainwashed by the press
Brainwashed by computer
Brainwashed by mobile phones
Brainwashed by the satellite
Brainwashed to the bone

God God God
Won't you lead us through this mess
God God God
From the places of concrete
God God God
Nothing's worse than ignorance
God God God
I just won't accept defeat

God God God
Must be something I forgot
God God God
Down on Bullshit Avenue
God God God
If we can only stop the rot
God God God
Wish that you'd brainwash us too
more.....



And follow your listening with some deep breathing and some nice chants to rinse out all the stupid propaganda and negative vibes..

Namah Parvati Pataye Hare Hare Mahadev
Namah Parvati Pataye Hare Hare
Namah Parvati Pataye Hare Hare

Shiva Shiva Shankara Mahadeva
Hare Hare Hare Hare Mahadeva
Shiva Shiva Shankara Mahadeva
Shiva Shiva Shankara Mahadeva

Namah Parvati Pataye Hare Hare
Namah Parvati Pataye Hare Hare
Shiva Shiva Shankara Mahadeva
Shiva Shiva Shankara Mahadeva

After you have cleansed your mind and soul....go out there and do positive-whether for yourself or especially others. I can guarantee you will feel much better and can even face the dismal truth posted in the SWT with a little better sense of hope.

[Hugin]

67. Thanks for the suggestion, AnneD.

As the SMW's resident health care professional... I knew you'd have something. :)

:hugs:

[AnneD]

69. And if that fails, switch to plan M....

Martinis, Margaritas, and Mojitoes.

Cheap & Dirty Martini

45ml Gordon’s London Dry Gin
15ml Dry Vermouth (Cinzano is really cheap and not altogether bad)
Bitters
1 or 3 olives
The bitters depends on your taste, orange bitters is quite mild in flavour and I recommend a few dashes of orange bitters in the glass before you add the drink as well as a dash of Peychauds. Peychauds is great by itself, the tart works well with the botanicals of the gin. Angostura is a curious flavour and more than 2 dashes is too much.

Finally, the olive flavour of a dirty martini is sufficient to mask the burn and asperity of the low quality ingredients. To some extent olive brine is similar to bitters in that it is a concentrated flavour, but they don’t quite hold the same intensity of bitters. an extremely dirty martini consists of a further 15ml of olive brine



Traditional Margarita
Salt, for rimming the glass (optional)
Ice
1 1/2 ounces tequila (blanco, 100 percent agave)
1 ounce freshly squeezed lime juice
1/2 ounce Cointreau (not Triple Sec)
INSTRUCTIONS
If using salt, place in a shallow dish. Moisten the rim of a rocks glass with a dampened paper towel, then dip in salt.
Fill the glass with ice; add tequila, lime juice, and Cointreau; and stir a few times until chilled. Serve immediately.


Cuban Mojito recipe

the original authentic recipe from Havana Cuba


1 teaspoon powdered sugar
Juice from 1 lime (2 ounces)
4 mint leaves

1 sprig of mint
Havana Club white Rum (2 ounces)
2 ounces club soda


Place the mint leaves into a long mojito glass (often called a "collins" glass) and squeeze the juice from a cut lime over it. You'll want about two ounces of lime juice, so it may not require all of the juice from a single lime. Add the powdered sugar, then gently smash the mint into the lime juice and sugar with a muddler (you can also use the back of a fork or spoon if one isn't available). Add ice (preferably crushed) then add the rum and stir, and top off with the club soda (you can also stir the club soda in as per your taste). Garnish with a mint sprig.

Hugin, after you have mixed up a batch, don't forget to and a few friend and if you can get a karaoke play to add to your impromptu party so much the better. I have enough Gaelic in me that I don't need encouragement to sing while drinking.

[Dr.Phool]

74. Margarita tip.

If you're using salt on the rim, pour about an ounce of Rose's Lime Juice in a very shallow bowl or saucer. Roll the rim of the glass through the Roses, then rotate and dab the salt onto the rim.

The salt will stay on the rim through several drinks, if you're pouring from a pitcher.

[AnneD]

76. I knew you would chime in...

Oh Mix Master, we are not worthy:grovel:

:toast: I gave the traditional Martguerita as opposed to MY traditional Margarita-the George Memorial. I like my drinks like I like my men-rich, easy, and mindless, ;) So why did I wind up with a poor, difficult, smart one-I'll never know. But one thing was sure, I must have been drunk when I said yes:rofl:

Ah yes things change for marriage number two...you get realistic.
To him I am his Princess Nagsless and to me he will always be Prince Adequate. And even though we are living happily ever after, somehow that just does not sound like fairy tale material.

[Danascot]

90. I do something similar

I take one of the lime halves I've squeezed for juice, fold it flat and run the damp pulpy edge around the rim of the glass. Then apply the salt. No extra ingredients or dish to wash, the lime is sticky and holds the salt well, plus it adds more limey taste.

[Festivito]

56. Debt: 05/27/2009 11,301,114,877,848.38 (DOWN 4,479,612,351.27) (Small moves, mostly FICA.)

(Small moves. Slight public debt rise. FICA side usually fluxates near month end.)

= Held by the Public + Intragovernmental(FICA)
= 6,999,887,200,564.75 + 4,301,227,677,283.63
UP 332,821,919.42 + DOWN 4,812,434,270.69

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 307-Million person America.
If every American, man, woman and child puts in $3.26 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.79, ABOUT TEN BUCKS for a 1B$ 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 12 seconds we net gain a another American, so at the end of the workday of this report, there should be 306,523,142 people in America.
http://www.census.gov/population/www/popclockus.html ON 05/25/2009 01:14 -> 306,504,012
Currently, each of these Americans owe $36,868.72.
A family of three owes $110,606.15. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 21 reports in the last 30 days.
The average for the last 21 reports is 5,317,059,100.58.
The average for the last 30 days would be 3,721,941,370.40.

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$/day.
There were 87 reports in 127 days of Obama's part of FY2009 averaging -0.15B$ per report, -0.04B$/day so far.
There were 162 reports in 239 days of FY2009 averaging 7.88B$ per report, 5.34B$/day.

PROJECTION:
There are 1,334 days remaining in this Obama 1st term.
By that time the debt could be between 13.1 and 18.4T$.
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)
05/27/2009 11,301,114,877,848.38 BHO (UP 674,237,828,935.30 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,276,389,980,935.90 so far this fiscal year.

LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
05/05/2009 +000,122,936,524.80 ------------********
05/06/2009 -000,058,764,073.21 ----
05/07/2009 +027,679,213,817.18 ------------**********
05/08/2009 -000,216,334,016.92 ---
05/11/2009 -000,029,759,155.68 ---- Mon
05/13/2009 -000,207,515,478.68 ---
05/14/2009 +013,927,016,419.76 ------------**********
05/15/2009 +013,064,365,189.63 ------------**********
05/18/2009 -000,012,816,531.74 ---- Mon
05/19/2009 +000,244,659,127.63 ------------********
05/20/2009 +000,422,183,214.17 ------------********
05/21/2009 +016,742,591,292.36 ------------**********
05/22/2009 +000,007,301,981.46 ------------******
05/26/2009 +000,178,213,075.69 ------------******** Tue
05/27/2009 +000,332,821,919.42 ------------********

72,196,113,305.87 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008.
US borrowed $1,636,483,074,589.31 in last 251 days.
That's 1,636B$ in 251 days.
More than any year ever, including last year, and it's 161% of that highest year ever only in 251 days.
And it is over 100% of ANY dismal Bush, for any dismal Bush-year, ONLY IN 251 DAYS NOT 365.

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=3895865&mesg_id=3896061

[DemReadingDU]

66. Mike Larson: Is anyone in Washington listening?

Friday, May 29, 2009
Is anyone in Washington listening?

Folks, the market is shouting - SCREAMING -- that we are on a troublesome economic path. The tinkerers in Washington and Treasury are driving the dollar into the crapper. They're putting Treasuries into the shredder. The mortgage markets just dislocated in a huge way. And gold is flying toward $1,000 an ounce.

Oh and don't forget $66 oil, surging gas prices, rising soybeans, rising wheat, rising corn. Meanwhile, TIPS spreads are blowing out to the upside. At the 10-year maturity, they have gone from 4.3 basis points in November to 183 -- that's a 4,250% move if my math is right. I'm certainly not going as far as Marc Faber and predicting Zimbabwe-like inflation. But if Bernanke and Geithner don't show some sign of "getting" what the market is saying, we could end up with a real crisis.

To paraphrase Rick Santelli's CNBC rant from a while back, is anyone in Washington listening?


http://interestrateroundup.blogspot.com/2009/05/is-anyone-in-washington-listening.html

[Demeter]

86. Of Course Not!

Silly rabbit!

[DemReadingDU]

70. FDIC restricts interest rates at weak banks

5/29/09 FDIC restricts interest rates at weak banks

U.S. banks that are struggling to stay afloat will not be allowed to aggressively ratchet up interest rates to attract customer money, a top bank regulator said on Friday.

The Federal Deposit Insurance Corp voted to bar a bank with insured deposits from paying interest rates that "significantly exceed" prevailing market rates if the bank is deemed not well capitalized. The new rule better defines what constitutes normal market rates, the FDIC said.

The agency also finalized a rule that expands the FDIC's debt-guarantee program to include mandatory convertible debt. The FDIC passed an interim rule in February to expand the program, which is designed to boost confidence in banks.

The interest-rate rule comes as many smaller regional banks are weighed down by bad loans and credit losses. The FDIC said on Wednesday that the number of banks on its "problem list" grew 21 percent in the first quarter to 305 institutions -- the highest number since 1994.

Some of those institutions will likely be nursed back to health, but others will join the ranks of the 36 U.S. banks that have failed so far this year.

The number of seized banks has been consistently creeping upward, with 25 failed banks in 2008, and only 3 in 2007.

FDIC Chairman Sheila Bair said this week that the number of failed banks will continue to grow.

http://uk.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2941127620090529

[Demeter]

87. HOw On Earth Can They Do THAT??!!

[CatholicEdHead]

71. Otsego bank ordered to clean up its practices

http://www.startribune.com/business/46467847.html

The Federal Deposit Insurance Corp. disclosed early Friday that it issued a cease and desist order to Riverview Community Bank of Otsego, for "unsound banking practices" and violation of federal bank laws.

Riverview, which has branches in Otsego and Anoka and $127 million in assets, was cited by the FDIC for engaging in "hazardous lending and lax collection practices," as well as operating with excessive loan losses and inadequate capital and reserves. The FDIC also claims Riverview violated federal rules on real estate appraisals, among other allegations.

Rick Anderson, president of Riverview, was not immediately available for comment.

Some 11.9 percent of the bank's loan portfolio was classified as "noncurrent," or at least 90 days or more past due and not accruing interest, as of March 31, according to FDIC data. That's nearly four times the average among 429 banks statewide. Riverview's Tier 1 capital, a key measure of its ability to absorb future loan losses, was a mere 4.5 percent of assets -- just above the federal regulatory minimum of 4 percent.

[Demeter]

88. We Had Similar News Here 2 Months Ago

It was a bank from whom the co-op had borrowed money. We weren't surprised. The CEO is scum.

[CatholicEdHead]

72. Expecting a slow year, Arctic Cat to cut 60 jobs

http://www.startribune.com/business/46420172.htm

With sales in its most recent quarter falling by nearly half, Arctic Cat said Thursday it would cut another 60 jobs in Minnesota, its second round of layoffs this year.

"We do not expect any meaningful recovery in the recreational products market in the year ahead," Arctic Cat CEO Chris Twomey said in a written statement. "We are focused on re-scaling the business."

The maker of all-terrain vehicles and snowmobiles lost $16.7 million in the fiscal 2009 fourth quarter that ended in March, down from a $424,000 profit in the year-ago period. Sales fell 46 percent to $90.7 million.

Most of the Minnesota job cuts, which will take effect immediately, will be at the company's Thief River Falls manufacturing plant, said company spokeswoman Shawn Brumbaugh...

[tclambert]

77. GM Dips Below $1 to 76-Year Low as Bankruptcy Nears--Bloomberg

By Nick Baker and Jeff Kearns

May 29 (Bloomberg) -- General Motors Corp. fell below $1, the minimum price normally needed to trade on the New York Stock Exchange, and touched the lowest level in 76 years as the automaker headed for bankruptcy.

GM, the world’s largest automaker until its 77-year reign ended in 2008, plans to file for Chapter 11 protection on June 1 and sell most of its assets to a new company, according to people familiar with the matter yesterday.

“For current GM shareholders, it’s gone,” said Neil Donahoe, chief investment officer of SYM Financial Advisors, which manages $600 million in Warsaw, Indiana. “It’s a once- proud company that unfortunately met its demise so we’ll have to see how it gets cut up and reorganized.”

Shares of the Detroit-based company have tumbled from $94.63 in April 2000, including an 87 percent retreat last year as the global recession prompted industry auto sales to sink to the lowest levels since the early 1980s. GM now has a stock-market value of about $570 million, the same as Universal Forest Products Inc., a Grand Rapids, Michigan-based seller of materials to build decks. . . .

GM fell 23 cents, or 21 percent, to 89 cents at 11:47 a.m. in NYSE composite trading today and earlier dipped as low as 87 cents. That’s the lowest price, on a split-adjusted basis, since April 17, 1933, according to Global Financial Data, a Los Angeles-based provider of financial and economic data.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abLRLoXP41t4
________________________________________

GM is now at about 80¢ per share. It went as low as 75¢ at 2:28 PM.

I predict it will go even lower when the bankruptcy filing actually takes place.

[tclambert]

78. GM Bankruptcy Seen as Tale of Best, Worst of Assets--Bloomberg

By Linda Sandler, Jeff Green and Mike Ramsey

May 29 (Bloomberg) -- When General Motors Corp. files for bankruptcy protection next week, a Dickensian tale of two legal processes will unfold.

In one, a judge will be told that a new entity will emerge within three months with prized assets and a plan to revisit the best of times when GM was the world’s largest carmaker. In the other, Bleak House comes to bankruptcy court as creditors shut out of the new entity will be told to argue for perhaps years about who gets company properties the new GM doesn’t want.

In the rosy scenario, the new company, armed with vehicles from GM’s Cadillac, Chevrolet, Buick and GMC divisions, plans to begin making money again within 60 to 90 days, while a bankruptcy court sells or liquidates unprofitable brands such as Saturn and Hummer. Saab already is in bankruptcy.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTPxjVML68Zc
_________________________________________

So there's gonna a new, snappy, hip GM and an old, cranky, get-the-hell-off-my-lawn GM.

General Motors has scheduled a news conference for Monday. I predict they will discuss how wonderful the future looks.

[TheWatcher]

79. In The Face Of Yet Another Ridiculous 3 PM Miracle Rally Based On Nothing, A Bit Of Reality

This was posted earlier today in the WallStreetBear Forum. It's a good read. I have always had a lot of problems with this guy's Politics, but he has been DEAD ON about this corrupt, bankrupt, fantasy economy.


I might start preaching inflation soon
mannfm11 - Fri, May 29, 2009 - 12:00 PM

The initial progress Bernanke made toward reducing the relative cost of credit is in jeopardy of being unwound by the work of the bond vigilantes.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSb1bOtEDmig

This is written in Bloomberg. When stupid stuff like this is written in the top business news publication, you have to question the news. Bernanke hasn't done crap, but repeat the mess that got us in this mess. This is nothing more than the latest heroin dose that has been administered in ever increasing doses since the Asian crisis. The article says Geithner is going to China to induce them to spur their domestic demand. The problem is the Chinese central bank makes the US bank look like scrooge, only the lack of convertability of Chinese money and the lack of consumer credit stopping its collapse. The reason I have held to deflation is that demand cannot be sustained, save for an idiot running the Fed. Somehow he is convinced he can reverse this, which is exactly what his education criticises the Fed in the 1920's doing. The problem is that the system becomes dependent on what has been put out there and if it is not sustained, we get another dose of what we just went through. Interest rates fell on their own when this all transpired and the Fed was 3 month behind the curve.

Here is another statement: "When the current credit crisis was at its worst, even financially solid companies could not get short-term financing. Banks did not trust one another, and trade financing dried up. One result was a collapse in inventories, as imports sagged even more than final demand"

http://www.nytimes.com/2009/05/29/business/economy/29norris.html?_r=1&ref=global

This whole occasion is being shrouded in lies. Yesterday I heard the event was Lehman going bust. The event was the last 20 year, but these idiots want to narrow it down to something. Fannine and Freddie also went bust. AIG went bust. Bear went bust. Citi was bust and that is the biggest secret they want to keep. Instead lets put the cloud on Lehman. This whole mess has revolved around Citi, Fannie, Freddie and BAC.

It was Citi the banks wouldn't lend to. Citi wrote $500 trillion in hot checks and needed a loan at preferrable rates. They were a pawn shop risk and the market knew it. Problem is that Citi's assets were probably worth less than a pawn shop would give you for a used watch relative to its cost new. The whole event has been run to hide the fact that Citi was irreversibly broke. It took Merideth Whitney to spill the beans. The whole damn banking industry knew it, but they couldn't talk about it. The Paulson TARP meeting where he forced all the banks to take the money was the last event hosted to hide the fact that Citi was so insolvent that they didn't know the bottom of the pit. The bank should have been closed and even to this day it should be forced to liquidate its international branches so that the US cannot be held hostage again. Also, there is no good credit in these times. We are being fooled.


So for all the "Thank God It Passed!!!!!!!!11111 Zombies, and those who believe in leaked Memos by Criminal CEO's, THERE YOU GO. Wake Up And Smell The Bullshit. WE. ARE. BEING. LIED. TO. "Record Profits" my ASS.

[cottonseed]

85. Yup. What was that about?

Going back to today's ridiculous close, the chart below shows it all: the complete tape painting volume spike at the very end of the day speaks for itself. And as computers now simply issue forced stock recall orders to each other, painting the tape wet with manipulative intent and volume spikes into the last 20 minutes of trading every day, their human creators are left on the sidelines, trying to outshout each other as to the reason for why the market keeps rising while the economy keeps tumbling.</div>

http://zerohedge.blogspot.com/