Saturday, June 26, 2010

Mispricing Risk

6/26/10 Mispricing Risk

Doug Noland: "I would argue that underlying fundamentals are masked by ongoing Credit excesses and the attendant mispricing of risk. Market underpinnings would deteriorate rapidly with any significant change in market perceptions and a resulting rise in yields... Perhaps subtle, but a case can be made that market concern for structural debt problems is shifting to the U.S. At the early stage of a changing market risk focus, one would expect the marginal borrowers (muni and junk) to begin to suffer (as Treasuries, for now, retain their bulletproof status)... More recently, the marketplace is coming to grips with the reality that runaway fiscal deficits are destabilizing and problematic. How this appreciation manifests in the markets over the coming weeks and months will be something to watch and analyze. Higher Treasury yields? Do tighter financial conditions throughout the U.S. Credit market stop recovery in its tracks? A weaker dollar? And could renewed dollar weakness – in concert with European stabilization and Asian expansion - help reignite some global reflationary forces? There are at least a few ways Treasurys could disappoint."

U.S. House and Senate negotiators agreed to a final version of the regulatory-overhaul bill that includes the most sweeping changes to rules governing Wall Street since the Great Depression.

Negotiators combined each chamber’s version of the bill after two weeks of talks, sending the bill to the House and Senate for final votes that could come as early as next week.


ZeroHedge: "I lived in Chile during the Pinochet dictatorship—I can spot a fascist police-state when I see one. The United States is a fascist police-state. Harsh words—incendiary, even. And none too clever of me, to use such language: Time was, the crazies and reactionaries wearing tin-foil hats who flung around such a characterization of the United States were disqualified by sensible people as being hysterical nutters—rightfully so. A police-state uses the law as a mechanism to control any challenges to its power by the citizenry, rather than as a mechanism to insure a civil society among the individuals. The state decides the laws, is the sole arbiter of the law, and can selectively (and capriciously) decide to enforce the law to the benefit or detriment of one individual or group or another. In a police-state, the citizens are “free” only so long as their actions remain within the confines of the law as dictated by the state. If the individual’s claims of rights or freedoms conflict with the state, or if the individual acts in ways deemed detrimental to the state, then the state will repress the citizenry, by force if necessary. (And in the end, it’s always necessary.)"


Regulators closed banks in Florida, Georgia and New Mexico, awarding a third financial institution to Bond Street Holdings LLC, an investment firm that first bought banks in January. The FDIC has now closed 86 banks this year and is on pace to exceed last year’s total of 140, which was the most bank closings since 1992 as lenders across the country buckle under the weight of soured real-estate loans. The failures will drain $60 billion over the next three-and-a-half years from the FDIC’s fund, the agency said June 22. The fund dipped into deficit in the third quarter.


Bloomberg (Jeff Kearns and Christopher Palmeri): “The widening gap between the cost of insuring U.S. municipal and federal debt shows investors are betting that state and local governments can’t contain their budget problems, according to Macro Risk Advisors LLC, which predicted the European crisis… ‘People are just starting to wake up to this,’ said Justin Golden, a strategist for the… firm. ‘The market is starting to assign greater levels of fear. The further you go out, things look challenging for a lot of these states.’ With state deficits estimated to total $104 billion in fiscal 2011, ‘it seems likely that the federal government will eventually be faced with the choice of allowing municipal bankruptcies or backstopping the states,’ the report said.”


"It is ... in all our long-term interests that there is some clarity, some finality, to all of this, so that we don't at the same time see the destruction of a company that is important for all our interests," Cameron told Canadian broadcaster CBC.

"This is a vital company for all of our interests. ... BP itself wants to cap the well and clean up the spill and compensate those who have had damages," Cameron said.

"This isn't an issue between Britain and America. This is about BP doing what it should, but also being treated in a way that enables it to go forward," he told reporters.


A partial eclipse set for early Saturday.


FT: Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House.


IBD: "Before you get too excited, you should know the "compromise" in Dodd-Frank isn't between Republicans and Democrats, but between Democrats and Democrats. In short, it's the left's idea of how to regulate Wall Street. And while some things in the bill aren't bad, most of it is.

We won't go into everything the bill would do, since the 2,000-page tome can't be distilled into a few easy-to-digest bullet points. But what we can tell you is what it doesn't do, which is plenty. In fact, the bill fails to address any of the key issues raised by the 2007-08 market meltdown, while imposing onerous new restrictions on both banks and consumers.

For instance: Fannie Mae and Freddie Mac, which were inarguably at the heart of the financial crisis, and which have already cost U.S. taxpayers $146 billion (with hundreds of billions more on the way), aren't addressed in this bill at all.

This is insane, given the role these two government-sponsored enterprises played both in encouraging lending to poor, unqualified homebuyers and repackaging those securitized loans for resale to banks and investors around the world.

Worse, the bill does nothing to amend the "too-big-to-fail" doctrine that has guided U.S. banking policy for decades. Any bank that runs into trouble can still walk up to Uncle Sam's borrowing window and, hand outstretched, ask for money. And if the bank is politically connected or very large, it will get it.

This puts every small bank, investor or lender at a huge disadvantage, since they're most certainly not "too big to fail." This is a big reason why the biggest U.S. banks didn't squawk too much about the legislation. As bad as it is, it gives them a competitive edge.

The bill also gives federal regulators sweeping new powers to seize and break up financial firms. Good idea, you say? Remember: The government also gets to decide what is a "financial" firm. Does GM, which makes loans, fall into that category? How about Wal-Mart, which issues its own credit cards?"


The storm moving through the Gulf of Mexico is becoming more of a concern. It was upgraded to a tropical depression late Friday afternoon, and there is a possibility of a second storm forming out further east.


The Oil Drum: "TD#1 is now Alex, with 35kt winds. The impact on Gulf production, and especially the Deepwater Horizon (DH) Spill response, are still uncertain, but of increasing concern. The official forecast - backed by several key models - is now showing the storm over the Western Gulf reaching near hurricane intensity by Wednesday evening. How close the storm gets to US Production - and the DH response site - depends on how strong a "ridge" in the atmosphere remains early next week. If it stays in place, the storm will stay towards Mexico."


Tim W. Wood: "According to my analysis we have entered a global debt crisis in association with K-wave winter. Besides the purging of debt from the system, a by-product of K-wave winter is that we have also entered global bear markets in stocks and commodities. Based on my analysis, the rallies that began in early 2009 have not been associated with a recovery, but rather a reprieve of the ongoing deflationary forces of K-wave winter...According to my analysis, 2007 marked the top of the 33 year longer-term bull market that ran between 1974 and 2007. Also according to my research the rally that has followed the 2009 low has been the deceitful counter-trend move that will ultimately prove to separate Phase I from Phase II of the much longer-term secular bear market. Historically, Phase II declines are the most devastating and I see no evidence that this time will be any different. I have discovered a very specific "DNA Marker" that has been associated with every major stock market top since the inception of the Dow Jones Industrial Average in 1896. When all of the pieces of this DNA Marker are in place, the market will be at great risk of the resumption of the ongoing secular bear market and the decline into the Phase II low. Virtually no one understands the destruction that will follow in the wake of the Phase II decline. It is the reckoning of the seriousness of the situation associated with Phase II declines that make them so devastating....Thus, with us less than 3 years from the 2007 high, this secular bear market has much further to run. Based on the historical relationships a bottom is not likely due until late in the current decade....The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!"


"The tragedy of so much oil flowing into the Gulf of Mexico is undeniable. But we must not forget the political game that is also afoot, and the strategic implications: from this day forth, America will not drill for oil under the water; meanwhile, others will profit by doing so. Even more important, capitalism will take the blame, the oil companies will be punished, and America's overall position will be weakened. Therefore, the event is not simply an environmental catastrophe. It is simultaneously a political event which is being exploited by existing political factions, countries and interests. The pathology of the West is not that it has allowed a spill to occur. The pathology is found in the self-lacerating tendencies of a civilization that feels so much guilt. One might ask: Who has put this guilt upon us? What is their motive?

The tedious fool who turns every untoward event into an occasion for blaming others is excelled only by those masochistic fools who blame everything on themselves. "Hit me, beat me. Make me pay at the pump." This is where it stands today, and how it will be played."
Jeffrey R. Nyquist

Applications for food stamps are in excess of 50 million or even possibly closer to 60 million according to a recent Reuters story.
Usage is at a record 40 million.


Sleep, Dreaming, and National Suicide by Eric Andrews

"At what point shall we expect the approach of danger? …All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Bonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years. At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." --Abraham Lincoln

The news lately is a blizzard of destruction: wars, recession, the financial crisis, deficits, drugs abuse, and border wars, random violence, declining education, energy crisis and the Deepwater Horizon, national policy, corporate malfeasance, collapsing communities, bankrupt cities, states, and nations, the list goes on and on. How did we get here? What’s causing all this bad news?

To me it’s simple:

All these effects are symptoms of Depression.

Not Economic Depression, like the 1930s stock crash, but National Depression, the psychological state.

Let’s take them one at a time: what do people do when they’re Depressed? Shop? Overeat? Make themselves physically ill? Get doctors to medicate? Abuse drugs to self-medicate? Are they unable to care for themselves, others, and even their children? Are their tempers short, and prone to irrationally lashing out, even at the wrong people, both at strangers and with their own people?

And when confronted with a problem, they cannot muster the concentration to investigate, discover, and then enact changes to solve them, like our energy policy, but muddle about in listless thoughts and pointless actions, eventually dropping it?

When faced with imminent, deadly danger, financial, as with the financial crisis; bodily, as with the Mexican Border Wars and ceding a swath of territory from Mexico to Phoenix to the Drug Cartels; or with internal disintegration, as we see every day with law, contradictory taxation, sovereignty, what is the response of the Depressed? They don’t care. The Depressed have no sense of urgency to danger, no remaining sense of self-preservation.

Often, as we’ve read on various challenges, Peak Oil, our trade deficit that comes from the imports, our lack of common sense in law, I’m sure we’ve all asked ourselves:

Are we crazy? Are we trying to commit national suicide?

And I’m here to tell you in no uncertain terms the answer is "YES!", that’s exactly what we’re doing, complete with the panoply of symptoms and not-so quiet cries for help.

In the Hugo-Winning story “The Sandman” by Neil Gaiman, the main character is Morpheus, King of the Dream world. As a primary element, he cannot die, anymore than “Death” “Desire” “Despair” or “Delirium” can, for they’re not people, but ideas. (Warning: spoiler alert)

In the story, however, Morpheus takes years of novel-time to painstakingly and irreversibly arrange his death, his dissolution, his ending. He carefully made sure no one saw it coming. In that way no one could stop him. And he succeeds.

The United States has the same problem. A nation cannot die. For what makes a nation? It’s not a bunch of buildings, a collection of bureaucrats, a geographic territory; it’s not even a standing army: America is first and foremost an IDEA. And an idea can’t BE killed, not even by suicide. As long as anyone can read the Declaration of Independence and recite our history, America lives.

And as Lincoln says above, America is unique in that we can’t die by the normal means that nations fail. We’re not going to be culturally absorbed. We’re not going to be conquered by a larger neighbor. Even China isn’t powerful enough to do so, even if they could somehow get 30 million Chinese here in boats.

Yet the symptoms are all there: Lethargy. Incoherence. Blame. Violent temper. Drug abuse. Fantasy. Escapism. Empty consumerism, empty sex, empty eating, empty action, empty rhetoric.

Depression is not some random disease, a chemical imbalance caused by losing the genetic lottery. Depression has several causes, clearly-defined, clearly-traceable, clearly-provable, clearly-curable. The main cause of depression is simple: it’s cognitive dissonance. That’s a fancy way of saying, you have two ideas that don’t mesh and are at war with each other. It’s a way of saying, you’ve swallowed a lie or a pack of lies, and they’re poisoning you from within.

Consciousness is something we know the least about, but I think we all recognize that ideas are real, and that they have energy and power. If half that power is fighting with the other half, you’ll find yourself in an exhausted condition. Worse, you won’t be able to know, to choose, or to act. For which side, which set of ideas should you act on? Who’s right and who’s wrong? You don’t know, which is why there’s a civil war.

Like any other civil war, the two sides are wrangling for who is going to get control, who is going to have their ideas acted on. An exhausting, tiring, excruciating civil war. It’s no less than a real civil war, same as in distant fields with a gun, or ceaseless fighting at home with one’s family. You may not want to fight, you may avoid it, but every action, every decision only brings up the problem again. You may not want to lash out at people, but you’re in agony: taking drugs, shopping, zoning out in TV, video games, anything to mitigate the pain.

We may not be able to measure an idea, put it on a table and photograph it, but we know that they’re real. The pain is certainly real. And the actions we take to manage the pain are very real, for they're part of our daily life.

This is the state we’re in as a country."

Mispricing Risk

6/26/10 Mispricing Risk

Doug Noland: "I would argue that underlying fundamentals are masked by ongoing Credit excesses and the attendant mispricing of risk. Market underpinnings would deteriorate rapidly with any significant change in market perceptions and a resulting rise in yields... Perhaps subtle, but a case can be made that market concern for structural debt problems is shifting to the U.S. At the early stage of a changing market risk focus, one would expect the marginal borrowers (muni and junk) to begin to suffer (as Treasuries, for now, retain their bulletproof status)... More recently, the marketplace is coming to grips with the reality that runaway fiscal deficits are destabilizing and problematic. How this appreciation manifests in the markets over the coming weeks and months will be something to watch and analyze. Higher Treasury yields? Do tighter financial conditions throughout the U.S. Credit market stop recovery in its tracks? A weaker dollar? And could renewed dollar weakness – in concert with European stabilization and Asian expansion - help reignite some global reflationary forces? There are at least a few ways Treasurys could disappoint."

U.S. House and Senate negotiators agreed to a final version of the regulatory-overhaul bill that includes the most sweeping changes to rules governing Wall Street since the Great Depression.

Negotiators combined each chamber’s version of the bill after two weeks of talks, sending the bill to the House and Senate for final votes that could come as early as next week.


ZeroHedge: "I lived in Chile during the Pinochet dictatorship—I can spot a fascist police-state when I see one. The United States is a fascist police-state. Harsh words—incendiary, even. And none too clever of me, to use such language: Time was, the crazies and reactionaries wearing tin-foil hats who flung around such a characterization of the United States were disqualified by sensible people as being hysterical nutters—rightfully so. A police-state uses the law as a mechanism to control any challenges to its power by the citizenry, rather than as a mechanism to insure a civil society among the individuals. The state decides the laws, is the sole arbiter of the law, and can selectively (and capriciously) decide to enforce the law to the benefit or detriment of one individual or group or another. In a police-state, the citizens are “free” only so long as their actions remain within the confines of the law as dictated by the state. If the individual’s claims of rights or freedoms conflict with the state, or if the individual acts in ways deemed detrimental to the state, then the state will repress the citizenry, by force if necessary. (And in the end, it’s always necessary.)"


Regulators closed banks in Florida, Georgia and New Mexico, awarding a third financial institution to Bond Street Holdings LLC, an investment firm that first bought banks in January. The FDIC has now closed 86 banks this year and is on pace to exceed last year’s total of 140, which was the most bank closings since 1992 as lenders across the country buckle under the weight of soured real-estate loans. The failures will drain $60 billion over the next three-and-a-half years from the FDIC’s fund, the agency said June 22. The fund dipped into deficit in the third quarter.


Bloomberg (Jeff Kearns and Christopher Palmeri): “The widening gap between the cost of insuring U.S. municipal and federal debt shows investors are betting that state and local governments can’t contain their budget problems, according to Macro Risk Advisors LLC, which predicted the European crisis… ‘People are just starting to wake up to this,’ said Justin Golden, a strategist for the… firm. ‘The market is starting to assign greater levels of fear. The further you go out, things look challenging for a lot of these states.’ With state deficits estimated to total $104 billion in fiscal 2011, ‘it seems likely that the federal government will eventually be faced with the choice of allowing municipal bankruptcies or backstopping the states,’ the report said.”


"It is ... in all our long-term interests that there is some clarity, some finality, to all of this, so that we don't at the same time see the destruction of a company that is important for all our interests," Cameron told Canadian broadcaster CBC.

"This is a vital company for all of our interests. ... BP itself wants to cap the well and clean up the spill and compensate those who have had damages," Cameron said.

"This isn't an issue between Britain and America. This is about BP doing what it should, but also being treated in a way that enables it to go forward," he told reporters.


A partial eclipse set for early Saturday.


FT: Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House.


IBD: "Before you get too excited, you should know the "compromise" in Dodd-Frank isn't between Republicans and Democrats, but between Democrats and Democrats. In short, it's the left's idea of how to regulate Wall Street. And while some things in the bill aren't bad, most of it is.

We won't go into everything the bill would do, since the 2,000-page tome can't be distilled into a few easy-to-digest bullet points. But what we can tell you is what it doesn't do, which is plenty. In fact, the bill fails to address any of the key issues raised by the 2007-08 market meltdown, while imposing onerous new restrictions on both banks and consumers.

For instance: Fannie Mae and Freddie Mac, which were inarguably at the heart of the financial crisis, and which have already cost U.S. taxpayers $146 billion (with hundreds of billions more on the way), aren't addressed in this bill at all.

This is insane, given the role these two government-sponsored enterprises played both in encouraging lending to poor, unqualified homebuyers and repackaging those securitized loans for resale to banks and investors around the world.

Worse, the bill does nothing to amend the "too-big-to-fail" doctrine that has guided U.S. banking policy for decades. Any bank that runs into trouble can still walk up to Uncle Sam's borrowing window and, hand outstretched, ask for money. And if the bank is politically connected or very large, it will get it.

This puts every small bank, investor or lender at a huge disadvantage, since they're most certainly not "too big to fail." This is a big reason why the biggest U.S. banks didn't squawk too much about the legislation. As bad as it is, it gives them a competitive edge.

The bill also gives federal regulators sweeping new powers to seize and break up financial firms. Good idea, you say? Remember: The government also gets to decide what is a "financial" firm. Does GM, which makes loans, fall into that category? How about Wal-Mart, which issues its own credit cards?"


The storm moving through the Gulf of Mexico is becoming more of a concern. It was upgraded to a tropical depression late Friday afternoon, and there is a possibility of a second storm forming out further east.


The Oil Drum: "TD#1 is now Alex, with 35kt winds. The impact on Gulf production, and especially the Deepwater Horizon (DH) Spill response, are still uncertain, but of increasing concern. The official forecast - backed by several key models - is now showing the storm over the Western Gulf reaching near hurricane intensity by Wednesday evening. How close the storm gets to US Production - and the DH response site - depends on how strong a "ridge" in the atmosphere remains early next week. If it stays in place, the storm will stay towards Mexico."


Tim W. Wood: "According to my analysis we have entered a global debt crisis in association with K-wave winter. Besides the purging of debt from the system, a by-product of K-wave winter is that we have also entered global bear markets in stocks and commodities. Based on my analysis, the rallies that began in early 2009 have not been associated with a recovery, but rather a reprieve of the ongoing deflationary forces of K-wave winter...According to my analysis, 2007 marked the top of the 33 year longer-term bull market that ran between 1974 and 2007. Also according to my research the rally that has followed the 2009 low has been the deceitful counter-trend move that will ultimately prove to separate Phase I from Phase II of the much longer-term secular bear market. Historically, Phase II declines are the most devastating and I see no evidence that this time will be any different. I have discovered a very specific "DNA Marker" that has been associated with every major stock market top since the inception of the Dow Jones Industrial Average in 1896. When all of the pieces of this DNA Marker are in place, the market will be at great risk of the resumption of the ongoing secular bear market and the decline into the Phase II low. Virtually no one understands the destruction that will follow in the wake of the Phase II decline. It is the reckoning of the seriousness of the situation associated with Phase II declines that make them so devastating....Thus, with us less than 3 years from the 2007 high, this secular bear market has much further to run. Based on the historical relationships a bottom is not likely due until late in the current decade....The bottom line is that the Phase II decline is lurking and there is analysis and there are tools to help understand how the setup is unfolding. Just as I warned about the decline into 2002, the extended 4-year cycle into the 2007 top and even the 2008 top in commodities, few listened but later wished they had. You have been warned!"


"The tragedy of so much oil flowing into the Gulf of Mexico is undeniable. But we must not forget the political game that is also afoot, and the strategic implications: from this day forth, America will not drill for oil under the water; meanwhile, others will profit by doing so. Even more important, capitalism will take the blame, the oil companies will be punished, and America's overall position will be weakened. Therefore, the event is not simply an environmental catastrophe. It is simultaneously a political event which is being exploited by existing political factions, countries and interests. The pathology of the West is not that it has allowed a spill to occur. The pathology is found in the self-lacerating tendencies of a civilization that feels so much guilt. One might ask: Who has put this guilt upon us? What is their motive?

The tedious fool who turns every untoward event into an occasion for blaming others is excelled only by those masochistic fools who blame everything on themselves. "Hit me, beat me. Make me pay at the pump." This is where it stands today, and how it will be played."
Jeffrey R. Nyquist

Applications for food stamps are in excess of 50 million or even possibly closer to 60 million according to a recent Reuters story.
Usage is at a record 40 million.


Sleep, Dreaming, and National Suicide by Eric Andrews

"At what point shall we expect the approach of danger? …All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Bonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years. At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." --Abraham Lincoln

The news lately is a blizzard of destruction: wars, recession, the financial crisis, deficits, drugs abuse, and border wars, random violence, declining education, energy crisis and the Deepwater Horizon, national policy, corporate malfeasance, collapsing communities, bankrupt cities, states, and nations, the list goes on and on. How did we get here? What’s causing all this bad news?

To me it’s simple:

All these effects are symptoms of Depression.

Not Economic Depression, like the 1930s stock crash, but National Depression, the psychological state.

Let’s take them one at a time: what do people do when they’re Depressed? Shop? Overeat? Make themselves physically ill? Get doctors to medicate? Abuse drugs to self-medicate? Are they unable to care for themselves, others, and even their children? Are their tempers short, and prone to irrationally lashing out, even at the wrong people, both at strangers and with their own people?

And when confronted with a problem, they cannot muster the concentration to investigate, discover, and then enact changes to solve them, like our energy policy, but muddle about in listless thoughts and pointless actions, eventually dropping it?

When faced with imminent, deadly danger, financial, as with the financial crisis; bodily, as with the Mexican Border Wars and ceding a swath of territory from Mexico to Phoenix to the Drug Cartels; or with internal disintegration, as we see every day with law, contradictory taxation, sovereignty, what is the response of the Depressed? They don’t care. The Depressed have no sense of urgency to danger, no remaining sense of self-preservation.

Often, as we’ve read on various challenges, Peak Oil, our trade deficit that comes from the imports, our lack of common sense in law, I’m sure we’ve all asked ourselves:

Are we crazy? Are we trying to commit national suicide?

And I’m here to tell you in no uncertain terms the answer is "YES!", that’s exactly what we’re doing, complete with the panoply of symptoms and not-so quiet cries for help.

In the Hugo-Winning story “The Sandman” by Neil Gaiman, the main character is Morpheus, King of the Dream world. As a primary element, he cannot die, anymore than “Death” “Desire” “Despair” or “Delirium” can, for they’re not people, but ideas. (Warning: spoiler alert)

In the story, however, Morpheus takes years of novel-time to painstakingly and irreversibly arrange his death, his dissolution, his ending. He carefully made sure no one saw it coming. In that way no one could stop him. And he succeeds.

The United States has the same problem. A nation cannot die. For what makes a nation? It’s not a bunch of buildings, a collection of bureaucrats, a geographic territory; it’s not even a standing army: America is first and foremost an IDEA. And an idea can’t BE killed, not even by suicide. As long as anyone can read the Declaration of Independence and recite our history, America lives.

And as Lincoln says above, America is unique in that we can’t die by the normal means that nations fail. We’re not going to be culturally absorbed. We’re not going to be conquered by a larger neighbor. Even China isn’t powerful enough to do so, even if they could somehow get 30 million Chinese here in boats.

Yet the symptoms are all there: Lethargy. Incoherence. Blame. Violent temper. Drug abuse. Fantasy. Escapism. Empty consumerism, empty sex, empty eating, empty action, empty rhetoric.

Depression is not some random disease, a chemical imbalance caused by losing the genetic lottery. Depression has several causes, clearly-defined, clearly-traceable, clearly-provable, clearly-curable. The main cause of depression is simple: it’s cognitive dissonance. That’s a fancy way of saying, you have two ideas that don’t mesh and are at war with each other. It’s a way of saying, you’ve swallowed a lie or a pack of lies, and they’re poisoning you from within.

Consciousness is something we know the least about, but I think we all recognize that ideas are real, and that they have energy and power. If half that power is fighting with the other half, you’ll find yourself in an exhausted condition. Worse, you won’t be able to know, to choose, or to act. For which side, which set of ideas should you act on? Who’s right and who’s wrong? You don’t know, which is why there’s a civil war.

Like any other civil war, the two sides are wrangling for who is going to get control, who is going to have their ideas acted on. An exhausting, tiring, excruciating civil war. It’s no less than a real civil war, same as in distant fields with a gun, or ceaseless fighting at home with one’s family. You may not want to fight, you may avoid it, but every action, every decision only brings up the problem again. You may not want to lash out at people, but you’re in agony: taking drugs, shopping, zoning out in TV, video games, anything to mitigate the pain.

We may not be able to measure an idea, put it on a table and photograph it, but we know that they’re real. The pain is certainly real. And the actions we take to manage the pain are very real, for they're part of our daily life.

This is the state we’re in as a country."

Friday, June 25, 2010

ECRI

6/25/10 ECRI

Republicans on Thursday defeated Democrats' showcase election-year jobs bill, including an extension of weekly unemployment benefits for millions of people out of work more than six months.
The 57-41 vote fell three votes short of the 60 required to crack a GOP filibuster, delivering a major blow to President Barack Obama and Democrats facing big losses of House and Senate seats in the fall election.

Japan's core consumer price index dipped 1.2% in May compared to the same month last year, marking the 15th consecutive decline, according to data released Friday by the Ministry of Internal Affairs and Communications. The result for the core CPI, which excludes volatile fresh food, was less than a median market forecast for a 1.3% dip, Reuters reported, though it highlights deflation concerns still prevalent in the world's second-largest economy. Compared to April, core CPI was 0.1% higher.

Figures from Europe’s peripheral central banks revealed a big rise in borrowing from the European Central Bank by Spain and Portugal last month.

Greek 10-year bond yields rose to 10.44 per cent. Greece prepares sell long-term leases on some of its 6,000 sun-kissed islands in an effort to solve its mountainous debt problem. The Private Islands website lists 1,235-acre Nafsika, in the Ionian sea, on the market for €15m. But others are up for grabs for less than €2m – less than a town house in Mayfair or Chelsea. Some of the country's numerous islands are tiny rocky islets which could barely fit a single sunbed.

Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to find funds to develop basic utility infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.


The pound has hit a 19-month high as debt concerns weigh down on the euro.

It touched 1.2222 euros on Thursday, its highest since the immediate aftermath of the financial crisis in November 2008, before dropping back.


The yuan ended trading Friday at 6.79 per dollar, rising 0.1% from Thursday's close.


Large U.S. bank and hedge funds may have to pay around $19 billion to cover the cost of reforming financial regulation, according to media reports citing House Financial Services Committee Chairman Barney Frank. The cost to firms would likely be spread out over several years and the fee would apply to banks with more than $50 billion in assets and hedge funds with more than $10 billion, the reports said. The fee would offset any increase in the deficit caused by the legislation, The Wall Street Journal reported.

Boeing Co.has temporarily grounded a fleet of its 787 Dreamliner test aircraft after finding a problem in the horizontal tails, according a report Thursday in the Seattle Times. Boeing engineers were inspecting all 23 Dreamliner aircraft that have been built to fix the problem, which was discovered over the past week. It may take up to eight days to fix the problem, the report said. Dreamliner program spokeswoman Yvonne Leach said the problem was "regrettable but under control," and that the company decided to conduct the inspections. However, the schedule for completing flight testing and first delivery of the plane won't be delayed any further, she added, according to the report.

BP said it had so far spent $2.35 billion on the response effort to its Gulf of Mexico oil spill.

The London-based company said the sum included $126 million paid out in claims to those affected by the disaster.

Progress on the relief well, intended to kill the leaking well, and measures to improve the capture of oil from the leaking well, were on track, BP said.


Q1 GDP, final: +2.7% vs. +3% expected, +3% second estimate. Corporate profits +9.7% vs. +9.7% prior. Core PCE price index +0.8% vs. +0.6% prior. Consumer spending (real final sales) was revised down to +0.8% vs. a preliminary +1.4% and +1.7% in Q4.


Bloomberg: BP is already the most reviled company in America. Two of its refineries accounted for 97 percent of the violations (a total of 862, of which 760 were “egregious willful”) in the refining industry over the last three years, according to the Center for Public Integrity. It holds the record for the largest fine ($87 million) ever levied by the Occupational Safety and Health Administration. Its public relations couldn’t be worse if it disbanded its PR department.

In the court of public opinion, BP is already about as low as it can go. So why shouldn’t it try, as a matter of business, to limit its liability?

What if BP chose to file for bankruptcy in the U.K., something that’s well within its rights? No doubt London courts would deliver an outcome more favorable to BP. And they’re apt to be less generous when it comes to paying damages to folks three times removed from directly affected claimants.

No wonder Congress wants to shut down that option. House Judiciary Chairman John Conyers, Democrat of Michigan, introduced a bill that would, among other things, prevent BP from seeking bankruptcy protection in the U.K.


The Automatic Earth: "Come Friday, 1.2 million people will lose access to the extended unemployment benefits, a number that will grow by several hundred thousand every week after that. Fifty million Medicare claims from June are currently in process at the reduced rate, which the AARP says has already caused some of its members to have trouble finding a doctor."


Osborne Takes 'Chainsaw' to British Government Spending. George Osborne’s spending cuts to narrow the record U.K. deficit will be the longest and deepest since World War II, the Institute for Fiscal Studies says. The squeeze means departments face an unprecedented six years of spending cuts, with transport, higher education and housing at risk of having their budgets reduced by a third, the independent IFS calculates. Spending has never fallen for more than two consecutive years in any other postwar period. “The chancellor unleashed a vast swathe of tax and spending decisions that belied his six weeks in office,” said David Page, an economist at Investec Securities in London. “His first budget took not so much an ax, but a chainsaw, through a variety of expenditure commitments, including welfare payments.”


Harris: Obama Knew of Blagojevich Plot. A top aide to former Gov. Rod Blagojevich said he believed Barack Obama knew of Blagojevich's plot to win himself a presidential Cabinet post in exchange for appointing Valerie Jarrett to the U.S. Senate. John Harris, Blagojevich's former chief of staff, testified Wednesday in the former governor's corruption trial that three days after the Nov. 4, 2008, presidential election, the ex-governor told Harris he felt confident Obama knew he wanted to swap perks.


The Oil Drum: "One issue we have read about recently is very elevated methane levels in dissolved sea water, near where the oil and gas mixture are currently escaping in the Gulf of Mexico. Approximately 40% of the oil/gas mixture that is escaping is natural gas, and it is some of the natural gas (which is mostly methane) that seems to be dissolving in the water.

The most recent report on this issue is from John Kesseler, Professor of Oceanography at Texas A & M University. He reports that near the surface, levels of methane are normal, but “Below approximately 1,000 meters, the concentration of natural gas and methane in the ocean waters jumps by a factor of one million.” In other areas, methane concentrations are 100,000 times normal levels.

The microorganisms that feed on methane can use up part of the oxygen in an area, and, if this happens to a great enough degree, can create "dead zones". At this point, there seems to be some oxygen depletion, but not enough to cause dead zones."


BP is responsible for paying the wages of an estimated 27,000 people who have signed up to work in the Gulf on the clean-up operation after the explosion on the Deepwater Horizon rig in April. Classed as "volunteers" by BP, they work for myriad government agencies and contractors. BP's bill for the whole operation stands at more than $2bn (£1.3bn), and the vast majority of this covers wages.

Workers are paid daily, depending on what needs to be done. The majority work every day but BP officials said that on some days fewer workers were needed.


One of the first to arrive in Canada was Chinese President Hu Jintao, who met separately on Thursday in Ottawa with Canadian Prime Minister Harper, the summit host.
Harper and Hu signed an agreement that would allow for more Chinese to visit Canada. Hu also agreed to clear the way for Canadian beef to be exported to China. "In the views ranging from developing our own economies, to sustaining the recovery momentum in the global economy ... there is a need and also a possibility for Canada and China to further scale up their co-operation," said Hu.


The UMich index rose to 76.0 in late June, up from 73.6 in May and 75.5 in mid-June. The average level of the index is around 87. Economists were expecting the UMich index to come in at 75.5. Consumers expect a very slow pace of economic growth, the survey said. The current conditions index improved to 85.6 from 81.0, while the expectations index rose to 69.8 from 68.8. Charmin has more substance than this survey.


The Swiss currency just hit a fresh all time high against the EUR at 1.3491.


Tests show BP is on target for mid-August completion of a relief well in the Gulf of Mexico, the best hope of stopping the oil that's been gushing since April, the company said Friday.


ZeroHedge: "The ECRI is now at December 2007 levels, the time when the last recession officially started. The index dropped from an annualized revised -5.8% (previously -5.7%) to -6.9%. As a reminder, from Rosie, "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." We are practically there."

BP raised more than $3 billion in new unsecured credit lines, and $2 billion in cash using its stake in Russian oil firm OAO Rosneft as collateral, according to the Journal, giving BP about $20 billion in cash total.
By mid-afternoon, BP shares were down $1.67, or 5.8%, at $27.07. The value of BP's stock has plunged more than $100 billion since the Macondo well blowout began spewing oil into the Gulf in April.

The Dow Jones industrials finished down 9 points to 10,144. The blue-chip index had been up about 30 points with 20 minutes to go and then fell back. The broader Standard & Poor's 500 and Nasdaq Composite indexes finished up 3 points to 1,077 and 6 points to 2,223, respectively. The small gains came after three straight days of losses. The Dow was down 2.9% on the week, with the S&P 500 and Nasdaq both off about 3.7%. The declines were the worst for the major indexes since the week of May 17, but they've also moved lower in five of the last nine weeks.

Thursday, June 24, 2010

Iran

6/24/10 Iran

debkafile's military and Iranian sources report. Iranian Revolutionary Guards Corps men and equipment units are being massed in the Caspian Sea region against what Tehran claims are US and Israeli forces concentrated on army and air bases in Azerbaijan ready to strike Iran 's nuclear facilities.
The announcement came on Tuesday, June 22 from Brig.-Gen Mehdi Moini of the Revolutionary Guards (IRGC), commander of the forces tasked with "repelling" this American-Israeli offensive. He said: "The mobilization is due to the presence of American and Israeli forces on the western border," adding, "Reinforcements are being dispatched to West Azerbaijan Province because some western countries are fueling ethnic conflicts to destabilize the situation in the region." On Tuesday, June 22, Dr. Uzi Arad, head of Israel 's National Security Council and Prime Minister Benjamin Netanyahu's closest adviser, said "The latest round of UN Security Council sanctions on Iran is inadequate for thwarting its nuclear progress. A preemptive military strike might eventually be necessary."

ZeroHedge: "A topic we have been following for some time now and which continues to get no mention in the broader media, is the accelerating liquidity crunch in China, as demonstrated by surging repo rates between banks, both ultra short-term (7 days) and slightly longer dated (30 days). As the chart below demonstrates, just overnight the 30 Day repo surged by 19 bps to a fresh record of 4.25%. Seeing how this was in the 1.75% range as recently as 45 days ago, China's banks are currently scrambling to fill the 1 month secured borrowing void. Some have said this liquidity deficiency is purely a function of the Agri Bank's upcoming IPO sucking out all available liquidity, yet with subscriptions to that becoming open starting July 1, the real explanation lies elsewhere. Are China bad loans finally catching up with the banks? We should find out soon enough - the PBoC will flood the market with CNY201 billion this week, the biggest reliquification event in over 4 months, to "smooth out volatility in money markets", as interactive investor points out. If that is unsuccessful in bringing repo rates lower, it will be time to panic as China does not have the same misrepresentation apparatus that the ECB/IMF does."


A private equity group is in talks to acquire toymaker Hasbro Inc. (HAS) via a leveraged buyout, according to report late Wednesday in The Wall Street Journal, citing people familiar with the matter. Providence Equity Partners is in preliminary discussions with Hasbro, and there is no certainty that a deal will materialize, the report said. Hasbro, which owns G.I. Joe, Transformers and Nerf brands, has a market capitalization of about $6 billion, and a buyout, if successful, would rank as the largest deal of its kind this year, the report said.

BP said Thursday that that lower marine riser package cap containment system was successfully reinstalled on the Deepwater Horizon's failed blow-out preventer on June 23. The LMRP cap containment system was moved off the blow-out preventer earlier in the day "as a precaution following observation of an unexpected discharge of seawater from a diverter valve on the Discoverer Enterprise," BP said. The firm said that capture of oil and gas through the BOP's choke line via a manifold to the Q4000 vessel on the surface continued uninterrupted throughout the day.

Orders for U.S.-made durable goods sank in May, falling 1.1% on weaker demand for airplanes, steel and communications equipment, the Commerce Department reported Thursday. The decrease was not as severe as the expected 1.4% drop forecast by economists surveyed by MarketWatch. It is the first decline in total orders in the last six months and the largest since August 2009. The underlying report was not as weak as the headline suggests. Excluding aircraft, orders rose 0.9%. Shipments fell 0.4% in May, and were up 0.4% excluding transportation goods. Inventories rose 0.8%. Commercial aircraft orders, which are volatile, plunged 30 percent after surging 216 percent in April. Boeing Co., the world’s second-biggest commercial-plane maker, said this month it received 5 aircraft orders in May, compared with 34 in April and 43 in March. Industry data don’t always correlate with the government’s statistics on a month-to-month basis. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, increased 2.1 percent in May after falling 2.7 percent the prior month. Over the past three months, these orders climbed at a 29 percent annual pace, up from 21 percent in April, signaling companies are ramping up investment.

First-time applications for state unemployment benefits fell by 19,000 last week to a seasonally adjusted 457,000, the lowest in six weeks, the Labor Department reported Thursday, confirming that U.S. labor markets remain very weak. The four-week average of new claims was roughly unchanged at 462,750. The number of people who were collecting state benefits fell by 45,000 to 4.55 million in the week ending June 12. Meanwhile, the total number of people collecting unemployment benefits of any kind rose by 155,000 to 9.66 million in the week ending June 5.


Deutsche Bank has a new and improved index of U.S. financial conditions, and this index just slumped back towards the lows of our recent crisis.Deutsche Bank's Peter Hooper: Financial conditions appear to have worsened substantially in recent quarters based on our update of the broad index of US financial variables presented earlier this year at the US Monetary Policy Forum. In the wake of recent developments in Europe, increased stress in financial markets has pushed that index halfway back to its immediate post- Lehman crisis lows.


Business Week: BP is the largest oil and gas producer in the U.S., with about 1 million barrels per day of production. Some 7,000 of BP's 23,000 U.S. employees work in the Houston area, many in a suburban office park just off the Katy Freeway. From there the company runs its Gulf of Mexico offshore operations with a phalanx of engineers, geologists, and computer scientists. "These are highly compensated people," says J. Robinson West, chairman of Washington-based consultants PFC Energy. The bottom line BP controls strategically sensitive energy assets. Selling them may jeopardize U.S. energy security interests in the Middle East and Asia.




Confidence Waning in Obama, U.S. Outlook. Americans are more pessimistic about the state of the country and less confident in President Barack Obama's leadership than at any point since Mr. Obama entered the White House, according to a new Wall Street Journal/NBC News poll. The survey also shows grave and growing concerns about the Gulf oil spill, with overwhelming majorities of adults favoring stronger regulation of the oil industry and believing that the spill will affect the nation's economy and environment. Sixty-two percent of adults in the survey feel the country is on the wrong track, the highest level since before the 2008 election. Just one-third think the economy will get better over the next year, a 7-point drop from a month ago and the low point of Mr. Obama's tenure. Amid anxiety over the nation's course, support for Mr. Obama and other incumbents is eroding. For the first time, more people disapprove of Mr. Obama's job performance than approve. And 57% of voters would prefer to elect a new person to Congress than re-elect their local representatives, the highest share in 18 years. The results show "a really ugly mood and an unhappy electorate," said Democratic pollster Peter Hart, who conducts the Journal/NBC poll with GOP pollster Bill McInturff. "The voters, I think, are just looking for change, and that means bad news for incumbents and in particular for the Democrats. "Mr. McInturff said voters' feelings, typically set by June in any election year, are being hardened by frustration over the economy and the oil spill. Support for Mr. Obama and his party is declining among centrist, independent voters. But, more ominous for the president, some in his base also are souring, with 17% of Democrats disapproving of Mr. Obama's job performance, the highest level of his presidency. Fewer than half give him positive marks when asked if he is "honest and straightforward.'' And 49% rate him positively when asked if he has "strong leadership qualities,'' down from 70% when Mr. Obama took office and a drop of 8 points since January. Just 40% rate him positively on his "ability to handle a crisis," an 11-point drop since January. Half disapprove of Mr. Obama's handling of the oil spill, including one in four Democrats. "As a Democrat and as a woman, I am disappointed in him," said poll respondent Melissa Riner, a 42-year-old law clerk from Mesa, Ariz. Referring to the oil spill, Ms. Riner added, "I don't think he's handling it. He doesn't seem to be doing anything. He just talks." In the survey, 45% said they wanted to see a Republican-controlled Congress after November, compared to 43% who wanted Democratic control. But even more telling is the excitement gap between the core voters of each party. Just 44% of Obama voters—those who voted for Mr. Obama in 2008 or told pollsters they intended to—now express high interest in the midterm elections. That's a 38-point drop from this stage in the 2008 campaign. By contrast, 71% of voters who supported Republican John McCain in 2008 expressed high interest in this year's elections, slightly higher than their interest level at this stage in that campaign. The gap helps explain why the Democratic National Committee is spending $50 million on a campaign to try to lure Obama voters back to the polls this year.




The U.S. Energy Information Administration is expected to report smaller-than-average storage build of 80 billion cubic feet of natural gas for the week ended June 18, according to the average prediction of 23 analysts and traders in a Dow Jones Newswires survey.

"From the market view, this could prove bullish as it would likely end the storage surplus over last year that we've maintained through the spring," Ben Caplan, an analyst with Houston-based Gelber & Associates wrote in a note to clients.





Hasbro says "no interest" in sale of company.





The U.S. National Hurricane Center said a tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the Gulf of Mexico.

Private forecaster Weather Services International said the 2010 Atlantic hurricane season will be even more active than it feared in May, adding two storms and one hurricane to its prediction of a month ago.




Venezuela will nationalize a fleet of oil rigs belonging to U.S. company Helmerich and Payne, the latest takeover in a push to socialism as President Hugo Chavez struggles with lower oil output and a recession.




EIA: Natural Gas weekly storage +81. Working gas in storage was 2,624 Bcf as of Friday, June 18, 2010, according to EIA estimates. This represents a net increase of 81 Bcf from the previous week. Stocks were 14 Bcf less than last year at this time and 309 Bcf above the 5-year average of 2,315 Bcf. In the East Region, stocks were 87 Bcf above the 5-year average following net injections of 51 Bcf. Stocks in the Producing Region were 130 Bcf above the 5-year average of 805 Bcf after a net injection of 16 Bcf. Stocks in the West Region were 92 Bcf above the 5-year average after a net addition of 14 Bcf. At 2,624 Bcf, total working gas is within the 5-year historical range.




10-year U.S. Treasury bonds at 3.06%, a 14-month low yield. Most mortgage rates at record lows.




Greece's cost to insure debt rose to a new record on Thursday, while Spain's credit default swaps have been hovering near a record high.





The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.



Louisiana state treasurer John Neely Kennedy called Thursday for Anadarko Petroleum Corp.and Mitsui Oil Exploration to contribute the Gulf spill escrow fund, a $20 billion account BP agreed to set up last week. The fund will cover costs and damages stemming from the worst oil spill to ever hit U.S. waters. Anadarko owns a 25% stake in the well, where the Houston-based energy subsidiary of Japan's Mitsui Co. holds 10% interest in the Macondo field. BP is the well operator and has a 65% stake. Kennedy said Anadarko and Mitsui share in the reward and risk associated with the well and should contribute to the escrow fund. "This will also help safeguard Lousiana's interests and hedge our bets against a possible BP bankruptcy," Kennedy said.

The Dow Jones Industrial Average closed down 146 points, or 1.4%, at 10,153, near its intraday low of 10133. The Nasdaq Composite Index shed 37 points, or 1.6%, to close at 2,217; and the S&P 500 Index fell 18 points, or 1.7%, to close at 1,074.

Wednesday, June 23, 2010

The Gulf

6/23/10 The Gulf

Forty miles (65 km) off the Louisiana coast, on the north end of the Chandeleur Islands, a sand dredge sat idled late on Tuesday after the U.S. Fish and Wildlife Service ordered operators to stop building new sand barrier islands.

The agency wants local officials to put the dredge farther out but faces complaints that this will waste time -- a common criticism about the federal response to the effort.

"Adaptive management and common sense are critical to the success of this project if we are going to prevail in protecting our precious marsh," Billy Nungesser, president of Plaquemines Parish, said in a letter to Obama complaining about the delay.

BP continues to siphon more oil from the blown-out deep-sea well. It said it collected or burned off 23,290 barrels (978,180 gallons/3.7 million litres) of crude on Sunday, still well below the 35,000 to 60,000 barrels a day that government scientists estimate are gushing from the well. [ID:nN

BP should have a larger containment cap in place in the coming days that will capture more crude, but the hurricane season is approaching, which could disrupt activity.

The company is weighing with the U.S. government new ways of collecting oil in the event of hurricane disruption.


The uncertainty surrounding deepwater drilling in the Gulf of Mexico continues despite a ruling by a federal judge to lift the moratorium, analysts at Houston research firm Tudor Pickering Holt said Wednesday. Analysts said they expect no change in situation and no deepwater drilling resumption any time soon, as the Obama administration makes moves to keep the ban in place. "While legal victory is nice, oil/gas companies likely won't resume activity and (the government) won't issue permits until more legal certainty," analysts noted.

BP is capturing about a million gallons of oil a day from the blown-out Macondo well, but a researcher says enough natural gas is escaping to elevate methane levels in the Gulf significantly.

China said it will remove export-tax rebates on some products, stoking concern that a domestic supply glut will form.

Energy companies won’t resume operations until they have “more certainty” on drilling and what the federal government plans to do, Louisiana Governor Bobby Jindal said today during a press conference. “You can’t just turn this switch on and off,” Jindal said. “Once these rigs leave the Gulf, they may be gone for years.” “It’s a small victory for the industry, but clearly the administration has dug in its heels and is going to try to keep this moratorium, come hell or high water,” said Jud Bailey, an analyst at Jefferies & Co. in Houston. “Investors, as it relates to the drillers, are for the most part staying away. There’s too much uncertainty, too much headline risk.” Even if operators don’t have to get re-permitted for previously approved drilling projects, Bailey said he doesn’t think many operators would immediately try to resume operations. Companies don’t want to incur the cost or potential wrath of the government, he said. “You run the risk of this getting overturned by the appellate court,” Bailey said.

BP’s American assets could be seized by the courts if it tries to use loopholes in British or international law to escape liability for the Gulf of Mexico spill, under legislation being drafted by members of Congress. American politicians were moving to close off BP’s legal options as continuing uncertainty over the oil giant’s liabilities triggered a fresh slide in its shares to their lowest level in 13 years. The Bill, numbered HR5503, aimed at BP has been put forward by a group of congressmen led by the Detroit Democrat John Conyers. He said: “The Bill says in essence that if BP files for bankruptcy in the UK then the US courts will not co-operate. What they are doing is amending Chapter 15 of the US bankruptcy code. It would enable US creditors and US courts to take control of BP’s assets.”

The value of goods produced by China's factories reached about $1.6 trillion last year, compared to $1.7 trillion by U.S. manufacturers.

The Baltic Dry Index (which I don't consider as important as copper) is down 17 sessions in a row.

Nato warns against McChrystal dismissal.

Sales of new homes plunged a record 33% in May to a record-low level after a federal subsidy for home buyers expired, according to data released Wednesday by the Commerce Department. Sales dropped to a seasonally adjusted annual rate of 300,000, the lowest since records begin in 1963. The results were much worse than the the 20% decline expected. Sales fell sharply in all four regions, with sales down more than 50% in the West. Home builders reduced their inventories of unsold homes by 0.5% to 213,000, the lowest level in 39 years. The median sales price in May was $200,900, down 9.6% from a year earlier and the lowest since December 2003.
Last month's weak sales pace saw the supply of homes available for sale jumping a record 46.6 percent to 8.5 months' worth, the highest in nearly a year, from 5.8 months ' worth in April. However, the number of new homes on the market dipped 0.5 percent to 213,000 units, the lowest since November 1970.

The Federal Reserve on Wednesday left its target for the federal funds rate at a range of zero to 0.25% and maintained its pledge to keep rates at this historic low level for an "extended period" to support the recovery. In a statement after their two-day meeting, the Fed downgraded the outlook. They said financial conditions "have become less supportive of economic growth" largely as a result of the European debt crisis. There was one dissent from the policy statement by Thomas Hoenig, the president of the Kansas City Federal Reserve Bank. Hoenig has dissented from every statement this year.

President Barack Obama on Wednesday relieved General Stanley McChrystal as the top commander in Afghanistan, according to media reports. Obama has named General David Petraeus to replace McChrystal as top Afghan commander, the reports said. McChrystal was removed after making disparaging remarks about the administration in a magazine interview.

The Dow was up 4 points and the Nasdaq was down 7 and the S&P down 3.

Tuesday, June 22, 2010

Housing

6/22/10 Housing

China lowered its U.S. dollar central parity rate to 6.7980 yuan on Tuesday from 6.8275 yuan the previous day after allowing the local currency to sharply appreciate in the spot market on Monday.

Chinese state-owned banks are aggressively buying dollars for the yuan on Tuesday, traders said, but it was not clear if the buying was due to Chinese central bank intervention to keep the yuan stable.

Several traders said Chinese state-owned banks were buying dollars at various levels, suggesting they were not trying to defend the yuan at a certain level.

However, Tuesday's aggressive buying of dollars could cut the supply of the U.S. currency in the spot market in coming days, which may in turn influence the yuan's value.


The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan.

“They’ll gain an increasing place in reserves because of diversification,” European Central Bank governing council member Christian Noyer said in a June 16 interview with Bloomberg News in Paris.


Rob Hanna: "Looks like there is going to be a sizable gap up this morning. I've shown before how large gaps up from 10 and 20-day highs in the SPY often lead to an intraday selloff. While the SPX closed at a 20-day high on Friday, the SPY and the futures were down slightly.
SPY closed down a little rather than up a little because it went ex-div. Rather than looking at 10-day highs I looked at closes in the top 10% of the 10-day range. A slightly different twist. (Note that the SPY missed qualifying for this by a few pennies as well thanks to the dividend. Still, I felt the current situation represented the spirit of the setup.)In only 1 case did the max intraday runup from the opening price exceed 1% (3/16/09). In contrast, 9 of 11 exceeded a 1% pullback, and all 11 exceeded a 0.8% pullback. This all suggests to me that intraday risk/reward is skewed to the downside today."


Japan raises its growth forecast, to 2.6% GDP growth in the year to March 2011 from +1.4%. "Brisk growth in exports," especially to Asia, prompted the upward revision.


Thomas Sowell: "Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere."

British finance minister George Osborne said austerity measures contained in Tuesday's budget would bring government borrowing down to 1.1 percent of GDP by 2015/16. He said public borrowing this year would total 149 billion pounds — below the 155 billion forecast by the Office for Budget Responsibility — and would fall to 116 billion pounds in 2011/12, 89 billion pounds in 2012/13, 60 billion pounds in 2013/14, 37 billion pounds in 2015/15 and just 20 billion in 2015/16.

"As a share of the economy, borrowing will fall from 10.1 percent of GDP this year to just 1.1 percent in 2015-16," Osborne told parliament.


The Automatic Earth: " No, the biggest, the main, the major threat to the US economy hasn't gone away. In fact, it hasn't gone anywhere. It’s merely been veiled and papered over. And that means it will come back onto the scene with a vengeance. When exactly it will do so basically depends on one issue only: how much longer the US government decides (or should we say "believes") that it can and should throw its citizens' grandchildrens' future tax revenues at obligations incurred yesterday, an idea, accidentally, that's hard to beat for braindead perversity.
Who are we to hand our problems to our offspring to solve? Then again, that's also what we're doing in the case of the Gulf of Mexico, so there's nothing new under the sun, it's fast establishing itself as a theme familiar to our generation(s). There are native tribes in North America who to this day maintain an ancient pledge to preserve the world they were born in for the next seven generations. If we were to have such a pledge, it would be about the opposite: we ruin the world for the next seven generations. That main threat to the US economy, of course, is housing. Grossly overpriced housing, to be precise, "paid for" with mortgages that an increasing number of "homeowners" can't possibly afford anymore. This morning on CNBC, Meredith Whitney stated that while the risk of a double-dip in the overall economy is "greater than 1%", a housing double-dip is assured. But that's all just semantics, and of course she knows it; it's just not a popular way to look at things. In reality, neither housing nor the economy as a whole ever got out of the first dip. A trillion dollars a month worth of future obligations just made it look like they did. "


China to overtake US as world's largest manufacturer


Roubini: The US today is having a budget deficit of $0.5 trillion this year, that’s 11 percent of US GDP, that’s not very far from the 13 percent of Greece. And the US is much bigger than Greece.


We issued a bearish recommendation yesterday given the daily reversals observed. The S&P future here is sitting very close to the neckline of a short-term H&S pattern (1,103.5). This is relevant because few people spot those on a 10-minute chart so chances of a headfake are actually far lesser. Also the neckline is situated right around the 200-dma which has been a relatively important pivot and the top of yesterday's candle rejected the 100-dma which is about to post a bearish cross with the 50-dma. Overall there is therefore a decent lid on the market. We would use 1,118 as a stop for shorts, and add on to shorts if 1,103/1,100 is broken. - Nic Lenoir


Alex, the first storm of the Atlantic hurricane season, may enter the Gulf of Mexico as soon as next week, possibly disrupting BP Plc's efforts to clean up the worst oil spill in US history.


Resales of U.S. homes and condos fell 2.2% to a seasonally adjusted annual rate of 5.66 million in May despite the boost from a federal tax credit for home buyers, according to data released Tuesday by the National Association of Realtors. Economists surveyed by MarketWatch were expecting sales to rise about 6% to a 6.11 annual rate, theorizing that the expiration of the tax credit at the end of June would force some buyers to rush ahead. Inventories of unsold homes fell 3.4% to 3.89 million, an 8.3-month supply at the May sales pace. The median sales price in May was $179,600, up 2.7% from a year ago.

The Oil Drum: "

For the first 12 hours on June 21 (midnight to noon), approximately 8,410 barrels of oil were collected and approximately 5,015 barrels of oil and 25.3 million cubic feet of natural gas were flared.

On June 20, total oil recovered was approx. 23,290 barrels:
• approx. 14,570 barrels of oil were collected,
• approx. 8,720 barrels of oil were flared,
and approx. 48.3 million cubic feet of natural gas were flared.

Total recovery was slightly down on June 20 due to shut-ins from a lightning storm in the area of the Enterprise and Q4000 heading changes to accommodate wind shifts."


Rockman: "Right now it appears the blow out was caused by cement failure at 18,000' as a result of removing the heavy drill mud from the system. While these fatal decisions were made on the rig the physical aspects were rather removed."


The U.K. cut its gilt-sale target by 28 percent in the fiscal year ending March 31, the first decline since 2007, as the new government reduces spending to save the country’s top credit rating.


Google and Twitter have asked a U.S. appeals court to overturn a lower court's decision to bar Theflyonthewall.com from issuing immediate news on analyst research from several Wall Street banks, court documents showed.

Theflyonthewall.com posted headlines from research reports and press releases on its website, often before banks could share their recommendations with their clients.


U.S. home values increased 0.8% in April compared with March, but were down 1.5% compared with a year earlier, the Federal Housing Finance Agency reported Tuesday. Prices rose 0.1% in March. The FHFA purchase-only home-price index is down 12.8% from the peak in 2007. The federal tax credit for home buyers contributed to the higher prices, the FHFA said. The biggest gains in April came in the East North Central states (Great Lakes) with a 2.4% gain. The largest losses in April came in the Middle Atlantic states (New York, New Jersey and Pennsylvania) with a 1.3% drop. "We believe national home prices are moving broadly sideways," wrote economists for Barclays Capital.

In an exploration plan and environmental impact analysis filed with the federal government in February 2009, BP said it had the capability to handle a “worst-case scenario” at the Deepwater Horizon site, which the document described as a leak of 162,000 barrels per day from an uncontrolled blowout — 6.8 million gallons each day.

WSJ: "The company’s average production of 2.5 million barrels a day in liquids, would make it third in the Organization of Petroleum Exporting Countries if it were a government. Its sales and other operating revenues stood at $239.3 billion in 2009 — larger that the gross domestic product of Nigeria. And BP only has 80,000 mouths to feed."

The American Petroleum Institute on Tuesday reported an increase of 3.68 million barrels in the nation's oil stockpiles in the week ended June 11. The Washington-based trade group also reported an increase of 810,000 barrels of gasoline in stock, and a refinery run rate of 87.2%. The API also reported an increase of 1.07 million barrels of oil distillates. Analysts polled by Platts expected a decline of 1.5 million barrels in crude stocks and a drop of 500,000 barrels in gasoline supplies. They also projected an increase of 1.4 million barrels in distillate supplies. Refinery utilization, or the so-called run rate, was expected to rise 0.5 percentage point to 88.4%.

The Dow Jones Industrial Average fell 148 points, or 1.4%, to end at 10,293.52. The S&P 500 index fell 17.89 points, or 1.6%, to 1,095.31, while the Nasdaq Composite lost 27.29 points, or 1.2%, to 2,261.80.

General Stanley McChrystal offered his resignation after he and aides made comments in a magazine article disparaging administration officials over their handling of the war in Afghanistan, according to a government official.

McChrystal, who was summoned to a White House meeting tomorrow to discuss his comments with President Barack Obama, verbally offered to resign to Defense Secretary Robert Gates, said the official, who asked not to be identified.


ZeroHedge: "President Obama and Secretary of Interior Ken Salazar, Secretary of Energy Steven Chu, and Defense Secretary Robert Gates were informed that BP would drill an unprecedented 35,000 feet well bore at the Macondo site off the coast of Louisiana. In September 2009, the Deepwater Horizon successfully sunk a well bore at a depth of 35,055 below sea level at the Tiber Prospect in the Keathley Canyon block 102 in the Gulf of Mexico, southeast of Houston... According to the Wayne Madsen Report (WMR) sources within the U.S. Army Corps of Engineers and the Federal Emergency Management Agency (FEMA), the Pentagon and Interior and Energy Departments told the Obama Administration that the newly-discovered estimated 3-4 billion barrels of oil in the Gulf of Mexico would cover America's oil needs for up to eight months if there was a military attack on Iran that resulted in the bottling up of the Strait of Hormuz to oil tanker traffic, resulting in a cut-off of oil to the United States from the Persian Gulf. Obama, Salazar, Chu, and Gates green-lighted the risky Macondo drilling operation from the outset, according to WMR's government sources."

Monday, June 21, 2010

Reversal

6/21/10 Reversal

John Hussman: "If something induces one trader to sell, the market must move in a way that either removes that impulse, or induces another trader to buy. In equilibrium, there is no other possibility. When an overvalued market loses support from market internals, it frequently produces discontinuous outcomes ranging from brief "air pockets" to "panics" to "crashes." Emphatically, I am not forecasting or predicting a discontinuity as the only possible outcome, but it is important to recognize that the risk is elevated....If one thinks of the data as telling a story, the picture here would most decidedly be a cliffhanger - where our hero dangles from a steep precipice, clutching a rock of uncertain strength, and where the evidence is not clear about what outcome will prevail. One outcome is a continuity, and the other is an abrupt discontinuity. It's possible that things will resolve sufficiently well, but we have to consider the possibility that they will not. I am not suggesting that readers and shareholders deviate from careful discipline or well-diversified investment plans. Instead, I am urging them to make sure that a significant market decline would not derail their financial security or future plans, or cause them to abandon their discipline after the fact - something that I've seen investors do far too frequently over the past decade. These considerations are particularly important for investors who will need to satisfy specific expenses (tuition, medical bills, home downpayments) within a short number of years."

Ralcorp Holdings Inc. on Monday said it would pay $53 a share in cash for American Italian Pasta Co. in a deal valued at $1.2 billion. The transaction values American Italian Pasta at a premium of $11.27, or 27% over its closing price of $41.73 a share on Friday. Ralcorp Holdings Inc. also agreed to buy two private food firms, North American Baking Ltd. and J.T. Bakeries Inc. Ralcorp said it expects third-quarter earnings of $1 a share, compared to the target of $1.29 a share in a survey of analysts by FactSet Research.

Tony Hayward, BP's chief executive, plans to travel to Russia to reassure Dmitry Medvedev, its president, that the U.K. oil group will not collapse amid its Gulf of Mexico oil-spill disaster, according to a report in the Financial Times. BP's 50% owned TNK-BP Russian venture accounts for roughly a quarter of the company's production.

The U.S. dollar fell to 6.79 yuan in European trading Monday after China's weekend decision to loosen the defacto peg against the U.S. dollar, or about 0.5% lower than on late Friday. The peg effectively has tied the yuan, also known as the renminbi, at 6.83 to the U.S. dollar for 23 months. The decision "paves the way for an end to the de facto USD-peg and a move lower in USD/CNY in the weeks and months ahead," said analysts at RBC Capital Markets in a note. They forecast the U.S. dollar could fall to 6.50 yuan by the end of the year.

An internal BP document released by a U.S. lawmaker estimated that a worst-case scenario rate for the Gulf of Mexico oil spill could be about 100,000 barrels per day, far higher than the current U.S. figure.

BP spokesman Toby Odone said the document appeared to be genuine but the estimate applied only to a situation in which a key piece of equipment called a blowout preventer is removed.

"Since there are no plans to remove the blowout preventer, the number is irrelevant," Odone said.


Barry Ritholtz: "Global equity futures are up strongly on the weekend announcement by the People’s Bank of China regarding the depeg of the Yuan to the dollar (US Futures below).

To be blunt, the Chinese announcement is only that — an announcement which may or may not be followed through. As such, we should treat it as a precursor, and not the significant shift the market seems to be making of the announcement.

I am neither a currency nor a China expert; however, a few items have emerged:

• Protectionist legislation is being discussed in the US due to the ├╝ber cheap Chinese exports; this announcement may preempt Congress from passing it.

• In theory, a rising Yuan can help reduce Sino-inflation, which has been running way above global trend;

• China might be concerned that global economies, especially in Europe and America, remain soft, and this could be of aid to the exporters in those countries.

Whenever the PBOC makes a grand announcement, I am reminded of the Ralph Waldo Emerson comment: “What you do speaks so loudly that I cannot hear what you say.”
Rather than make grand changes to your asset allocation mix, we would suggest waiting until their is evidence of action, rather than react to mere announcements."

Mish: "The currency advanced 0.37 percent to 6.8010 per dollar as of 3:54 p.m. in Hong Kong, the biggest gain since Oct. 7, 2008, according to the China Foreign Exchange Trading System. The 12- month non-deliverable yuan forward rose 1.3 percent to 6.6276, implying traders are betting on a 2.6 percent appreciation."

ZeroHedge: "

Highlights from an interview by Meredith Whitney currently on CNBC (full interview to be posted later):

* A double dip in housing is a certainty
* State economies are plunging, and are $200 billion underwater, will lead to 2 million in state-level layoffs leading to a low-end impact; raising taxes at state level will impact the top-end
* Retail sales have been stronger only due to consumers not paying mortgages, retail sales have already topped as is
* Q2 bank results will finally catch up with accelerated mortgage foreclosures; charge-offs and delinquencies in credit cards are better due to mortgage non-payment cash flow going to other obligations, and this will soon top as well
* Structural employment issues in the US won't get better any time soon"

12 American Warships, Including One Aircraft Carrier, And One Israelia Corvette, Cross Suez Canal On Way to Red Sea and Beyond.

Leadville Mayor Bud Elliot. "We weren't eligible because we are considered too poor of a community." Elliott, a Democrat, says the American Recovery and Reinvestment Act was "designed to help large cities, not small-town America."

On Friday, Sen., Kay Bailey Hutchinson (R) of Texas filed legislation to waive the Jones Act to welcome more high-tech foreign clean-up boats, saying the Jones Act is standing in the way. White House spokesman Robert Gibbs said last week "that we have not had [a] problem" with the Jones Act. At the same time, US marine interests complain that up to 1,500 US-flagged skimmers sit idle, and should be used first.

Over the last seven years, the week following the June Expiration has seen stocks move lower.

Silver at 19+. Crude approaching 79.

Share of California Pizza Kitchen traded down 8.7% on Monday. The company revised its earnings guidance, forecasting lower sales in the pizza chain's comparable full service restaurants. Based on interim results, management now sees a 7% decline in same-store sales in the second quarter, versus the previously estimated 6.0% decline. Actual April and May comparable restaurant sales were down 2.7% and 7.9%, respectively. The company announced in April that it was considering "a wide range of financial and strategic alternatives, which include changes in the company's capital structure, or a possible sale, merger or other business combination."

After jumping more than 144 points in morning trade, the Dow Jones Industrial Average finished 8.23 points, or 0.1%, lower at 10,442.41.The S&P 500 index fell 4.31 points, or 0.4%, to end at 1,113.20, weighed by a 0.9% drop in its consumer discretionary sector. The Nasdaq Composite fell 20.71 points, or 0.9%, to end at 2,289.09.

Sunday, June 20, 2010

China

6/20/10 China

Ayn Rand: "And what, incidentally, do you think integrity is? The ability not to pick a watch out of your neighbor's pocket? No, it's not as easy as that. If that were all, I'd say that ninety-five percent of humanity were honest, upright men. Only, as you can see, they aren't. Integrity is the ability to stand by an idea."

China's Central Bank: "In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.

Starting from July 21, 2005, China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since then, the reform of the RMB exchange rate regime has been making steady progress, producing the anticipated results and playing a positive role.

When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins. The stability of the RMB exchange rate has played an important role in mitigating the crisis’ impact, contributing significantly to Asian and global recovery, and demonstrating China’s efforts in promoting global rebalancing.

The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.

In further proceeding with reform of the RMB exchange rate regime, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market....The People’s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China."


China's decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street's most closely followed economists, said Saturday. If the euro were to continue to depreciate, "the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome," Roubini said. Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.


Russia and China disclose they've held talks on turning the yuan into a convertible reserve currency. The Indian rupee and Russia's ruble are other possibilities for new Russian reserve currencies.


M3 declined 5.9% this year versus last year for the month of May - the worst contraction since 1934 during the Great Depression.


The yuan’s appreciation may be limited to 1.9 percent against the dollar this year as the euro’s slump hurts exporters, a survey of economists showed after China signaled an end to a two-year peg.

The currency will probably climb to 6.7 per dollar by Dec. 31, according to the median estimate of 14 analysts interviewed after the People’s Bank of China said yesterday it will allow greater “flexibility.” The central bank ruled out “large- scale appreciation” and said it will prevent “excessive” moves.


Fannie Mae and Freddie Mac took over a foreclosed home roughly every 90 seconds during the first three months of the year. They owned 163,828 houses at the end of March, a virtual city with more houses than Seattle. The mortgage finance companies, created by Congress to help Americans buy homes, have become two of the nation’s largest landlords.


Twice as much oil as originally estimated could have been spewing from the leaking well, new figures given by scientists show.

Anywhere from 42 million gallons to more than 100 million gallons have already flowed into the Gulf of Mexico, the Associated Press reports. It is the third time the U.S. government has increased its numbers.

The estimate was for the oil flow before June 3 when a riser pipe was cut and then a cap placed on it, the story says. No numbers were given for the amount of oil leaking from the well after the cut or since a cap was put on the pipe.

The government panel's new calculation shows an amount of oil equivalent to the 1989 Exxon Valdez spill could be flowing every 8 to 10 days, the New York Times reports. The new figures were based on a more detailed analysis of information including video of the gushing oil. It was also based on the first direct measurement of the flow, using sonar equipment, Marcia McNutt, director of the United States Geological Survey, told the Times.


According to UK's The Telegraph, Bp intends to sue Anadarko (APC), the 25%-owner of the Deepwater Horizon, which has so far refused to shoulder any of the burden for cleanup costs. Meanwhile, according to reports, BP's aim is to raise $50 billion, according to Sunday Times (via AFP). According to reports from earlier in the week, the firm has been aggressively hitting up various banks, dangling big fees for a guarantee off successfully raising it cash.


According to Platt’s, which tracks the coal industry, “power plants began to switch from coal to gas in 2009 when gas fell to less than $5.50 per MMBTU (million British thermal units). The government places tons of restrictions on burning coal (and more are on the way). Coal soot is full of harmful stuff – sulfur, nitrogen compounds, and metals (like mercury and lead). The EPA strictly limits these compounds. So power plants face three choices to limit that pollution – install an expensive filter to capture the pollutants before they leave the smoke stack, burn cleaner (but less efficient) coal, or use natural gas”.


David Kotok: "We estimate that an extended moratorium, which we now expect to continue because of Obama political calculus, will cost up to 200,000 higher-paying jobs in the oil drilling and oil service business and that the employment multiplier of 4.7 will put the total job loss at nearly 1 million permanent employment shrinkage occurring over the next few years. Five states have a regional recession/depression development underway. Alaska could become the sixth state on the damaged list."


ZeroHedge: "It appears the Aircraft Carrier crossing the Suez is the USS Harry Truman, under the control of Herman "Herm" Shelanski, who is quoted by aish.com as saying "I understood that the strength of the United States is directly proportional to the safety of Israel."

Arabic newspaper Al-Quds al-Arabi reports that 12 American warships, among which one aircraft carrier, as well as one Israeli corvette, and possibly a submarine, have crossed the Suez Canal on their way to the Red Sea. Concurrently, thousands of Egyptian soldiers were deployed along the canal to protect the ships. The passage disrupted traffic into the manmade canal for the "longest time in years." The immediate destination of the fleet is unknown. According to Global Security, two other carriers are already deployed in the region, with the CVN-73 Washington in the western Pacific as of May 26, and the CVN-69 Eisenhower supporting operation Enduring Freedom as of May 22. It is unclear at first read what the third carrier group may be, but if this news, which was also confirmed by the Jerusalem Post and Haaretz, is correct, then the Debka report about a surge in aircraft activity in the Persian Gulf is well on its way to being confirmed. There has been no update on the three Israeli nuclear-armed subs that are believed to be operating off the coast of Iran currently."