10/2/08 Prolonging The Misery
Rep. Ron Paul: "Now nearly $1 trillion more is somehow supposed to magically appear and solve all our problems! No - creating more money might delay the inevitable for some well-connected banks on Wall Street, but in a few weeks we will find ourselves right back in this same position, but much poorer.
The unfortunate thing is that we've already spent at least $700 billion on other bailouts that did not solve the problem. And while all this negotiation was taking place, the auto industry was quietly bailed out, with no controversy, no discussion, to the tune of $25 billion.
Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into. People are right to be concerned about our financial future. I've been talking for 30 some years about reasons we need to be concerned and change our ways. We find ourselves now in a position of no good options, and no silver bullets. But the worst thing we can do is to compound our problems by intensifying the mistakes of the past. We do have tough economic times ahead, no doubt, no matter what we do, even if we do nothing. The question, is will we have the courage to take our medicine now and get it over with, or will we prolong the misery for many years to come? I'm less and less optimistic about the answer to that question."
Rep. Brad Sherman: "The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected. The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday."
Woody Allen: "The government is unresponsive to the needs of the little man. Under 5'7", it is impossible to get your congressman on the phone."
According to Bloomberg, the paralysis in credit markets is changing how U.S. companies do business as banks pull back on loans or make them prohibitively expensive. Some companies are closing plants and stores, postponing takeovers and grabbing any available credit in a fight for survival.
``If businesses don't have access to capital, smaller companies in particular, they might get wiped out,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``It's impossible to quantify how expensive this crisis is going to be for Corporate America; there's unlimited downside.''
Winston Churchill: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries."
Newly registered voters back Obama over McCain by a margin of 61% to 30%, according to a WSJ/NBC poll conducted with MySpace. More than half of the respondents don't plan to vote.
The Pentagon formally notified Congress it wants to sell Israel up to 75 fighter jets being developed under a contract led by Lockheed.
According to the FT, investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen.
Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.
Mary Williams Walsh: "Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening...In New York, a real estate boom has suddenly gone bust. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports.
Billings, Mont., is struggling to come up with $70 million more for a new emergency room. And Maine has been unable to raise $50 million for highway repairs.
“We really are in terra incognita here,” said Robert O. Lenna, executive director of the Maine Municipal Bond Bank, which helps that state’s towns and school districts raise money. He said he had worked in public finance for 34 years and had never seen credit evaporate so completely."
Mortgage applications in the U.S. fell last week with fewer Americans refinancing their mortgages even as interest rates declined.
The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan decreased 23 percent to 455.4 from 591.4 the prior week. The group's purchase index fell 11 percent and its refinancing gauge slumped 35 percent, the most in six months.
The random telephone survey of 1,515 workers indicated that 48 percent of workers believe they will still be working either full- or part-time at age 67. The most cited reason among them — declared by 83 percent — was to stay mentally engaged.
The second most common reason cited was to earn enough money to live well, cited by 77 percent of workers.
Other top reasons for continuing to work into retirement were love of career and staying close to people.
Keeping health care benefits was another commonly stated reason.
Employment dropped by 8,000 in the private sector of the U.S. economy in September, according to the ADP employment index released Wednesday. Economists were expecting the ADP index to fall 65,000 after it lost a revised 37,000 in August. The ADP index has shown a much stronger job market this year than the government's nonfarm payroll report has. Economists expect a loss of 103,000 in nonfarm payrolls when it is reported Friday.
Investment-grade corporate bonds are headed for their worst month in almost three decades, losing 6 percent in September, after the failures of Lehman Brothers Holdings Inc. and Washington Mutual Inc. spurred losses.
This month's decline, the biggest since a 7.4 percent drop in February 1980, will also cap the worst quarter since a loss of 6.8 percent in the three-month period ended in September 1981, according to Merrill Lynch & Co.'s U.S. Corporate Master index. Daimler AG, the maker of Mercedes-Benz cars, was the only company among the 50 biggest issuers in the index to rise this month.
Recently trailing or tied, Democrat Barack Obama now leads Republican John McCain in a trio of the most critical, vote-rich states five weeks before the election, according to presidential poll results released Wednesday.
The Democrat's support jumped to 50 percent or above in Ohio, Florida and Pennsylvania in Quinnipiac University surveys taken during the weekend — after the opening presidential debate and during Monday's dramatic stock market plunge as the House rejected a $700 billion financial bailout plan.
Combined, these states offer 68 of the 270 electoral votes needed for victory on Election Day, Nov. 4.
The new surveys show Obama leading McCain in Florida 51 percent to 43 percent, in Ohio 50 percent to 42 percent and in Pennsylvania 54 percent to 39 percent.
Since 1960, no president has been elected without winning two of those three states.
“It is difficult to find a modern competitive presidential race that has swing so dramatically, so quickly and so sharply this late in the campaign,” said Peter Brown, assistant director of the Quinnipiac University Polling Institute. “In the last 20 days, Sen. Barack Obama has gone from seven points down to eight points up in Florida, while widening his leads to eight points in Ohio and 15 points in Pennsylvania.”
A Friedman, Billings, Ramsey analyst said Wednesday that the recent announcement of an oil discovery off Brazil in the Campos Basin provides another reason to own shares of oil and gas company and Devon Energy Corp.
Devon and Houston-based Anadarko Petroleum Corp. announced the find on Tuesday. Devon, headquartered in Oklahoma City, has a 25 percent working interest in the field. Anadarko, through a subsidiary, holds a 30 percent interest.
Fortune Magazine: "A CDS is just a contract: The "buyer" plunks down something that resembles a premium, and the "seller" agrees to make a specific payment if a particular event, such as a bond default, occurs. Used soberly, CDS offer concrete benefits: If you're holding bonds and you're worried that the issuer won't be able to pay, buying CDS should cover your loss. "CDS serve a very useful function of allowing financial markets to efficiently transfer credit risk," argues Sunil Hirani, the CEO of Creditex, one of a handful of marketplaces that trade the contracts.
Because they're contracts rather than securities or insurance, CDS are easy to create: Often deals are done in a one-minute phone conversation or an instant message. Many technical aspects of CDS, such as the typical five-year term, have been standardized by the International Swaps and Derivatives Association (ISDA). That only accelerates the process. You strike your deal, fill out some forms, and you've got yourself a $5 million - or a $100 million - contract.
And as long as someone is willing to take the other side of the proposition, a CDS can cover just about anything, making it the Wall Street equivalent of those notorious Lloyds of London policies covering Liberace's hands and other esoterica. It has even become possible to purchase a CDS that would pay out if the U.S. government defaults. (Trust us when we say that if the government goes under, trying to collect will be the least of your worries.)
In just over a decade these privately traded derivatives contracts have ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they've played a critical role in the unfolding financial crisis. First, by ostensibly providing "insurance" on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.
"If CDS had been taken out of play, companies would've said, 'I can't get this [risk] off my books,'" says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. "If they couldn't keep passing the risk down the line, those guys would've been stopped in their tracks. The ultimate assurance for issuing all this stuff was, 'It's insured.'"
This is the market which is essentially devoid of federal regulation and is entirely unaddressed in the Banker Bailout bill.
Nouriel Roubini: " In Q2 of 2008 the FDIC reports $4462bn insured domestic deposits out of $7036bn total domestic deposits; thus, only 63% of domestic deposits are insured. Thus $ 2574bn of deposits are not insured.
Given the risk that many banks – small, regional and national – may go bust (as even large ones such as WaMu and Wachovia went recently bust) there is now a silent run on parts of the banking system. Deposit insurance formally covers only deposits up to $100000. Thus any individual, small or large business and/or foreign investor or financial institution with more than $100000 in a FDIC insured bank is now legitimately concerned about the safety of its deposits.
Particularly at risk are the cross border short term interbank lines of US banks with their foreign counterparties that are estimated to be close to $1 trillion."
Paul Kedrosky: "The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks. The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”. AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had sent shock waves through the share prices of European banks. For the time being the US Treasury has saved, inter alia, the European banking system, but given that AIG is to be liquidated European banks now have to scramble to find other ways of obtaining the ‘regulatory capital relief’ they appear to need urgently."
Bloomberg reported the Baltic Dry Index, a measure of commodity-shipping rates, dropped 8.2 percent yesterday, bringing its slide in September to 53 percent, as raw-material demand from China's steelmakers weakened. The Topix Marine Transportation Index was the biggest decliner out of 33 groups in the Topix index.
``The selling signal for shipping stocks is clear,'' said Yoshihisa Miyamoto, an analyst in Tokyo at Okasan Securities Co. ``There isn't going to be a big rebound in the Baltic index.''
Moody's Economy.com projects that New York City and its suburbs will lose 65,000 finance jobs by the middle of 2010, or 11% of the total.
Economists are projecting that Manhattan real estate prices will finally sink under the pressure of financial-sector layoffs and shrinking Wall Street bonuses. Wall Street accounts for about 12% of jobs in the city of New York, and a quarter of salaries.
"New York is the stone in the puddle that ripples across the country," said Scott Simmons, vice-president and founding partner of Crist/Kolder Associates, an executive recruiting firm in Chicago.
Thomas P. Au: "If the 1930s is any guide, the country will spend the better part of a decade in a “workout” mode before being able to re-start with more or less a clean slate. What would be required for the next secular bull market? Probably at least two back-to-back up Presidential election years, that would signal the progression, and finally the end of the “workout.” These couldn’t occur until 2012 and 2016 at the earliest, which is why we won’t see the next bull market until at least 2017. Putting aside the 1930s, which few remember, the experience from 2000 to that time will resemble the decade-and-half bear market from the late 1960s to the early 1980s, which many people living today have gone through. We’re actually about half way through the secular bear market of 2000-2016. This realization may make the second half easier to bear, although the remainder may be even less pleasant."
The U.S. Senate moved to vote on the $700 billion bailout package, which includes tax breaks for alternative energy. The measure includes tax credits for the production and use of solar energy and wind power.
Basically, GE shares are trading at their lowest level in 10 years. This is an event that cannot be ignored. GE is not just another company caught in this downdraft. Deutsche Bank AG reduced its 2008 and 2009 earnings estimates. "Our adjustments largely reflect deterioration at GE Capital-driven by tighter credit markets, asset shrinkage and debt pay-down," wrote analyst Nigel Coe. "GE Capital's swap spreads had hit a record wide of 740 basis points earlier on Wednesday and are up from about 398 basis points a week ago." General Electric will sell $12 billion in common stock in a secondary offering and sell $3 billion in preferred shares to Warren Buffett's Berkshire Hathaway Inc.
U.S. Sept. ISM manufacturing index 43.5% vs 49.9% in Aug. This is a disastrous number and points out the severe weakness in our country's manufacturing sector. This is the sharpest one-month drop in the index since 1984. The index is at its lowest level since October 2001.
Investors are demanding the highest yields to own the bonds of banks, brokers and insurers in Europe relative to non-financial borrowers.
The spread on bonds included in a Merrill Lynch & Co. index of financial company debt soared to a record 371 basis points over government notes after the U.S. House of Representatives voted down a $700 billion rescue package. That's 159 basis points more than the spread for non-bank issuers, the widest gap since Merrill started compiling the data.
Jefferson County, Alabama, won't make an $83.5 million payment on some of its $3.2 billion of sewer bonds, as it continues to seek more time to negotiate an end to the debt crisis that has pushed it close to bankruptcy.
``Loan rates have climbed to ridiculous heights and the terms are very short,'' said Dmitry Lutsenko, a board member at Mirax Group, the Moscow-based company that's building the Federation Tower, which will be Europe's tallest skyscraper when completed.
Mirax canceled plans to develop 10 million square meters (108 million square feet) of commercial and residential space after interest rates on some loans rose to as high as 25 percent, Sergei Polonsky, Mirax's billionaire owner, said in a Sept. 29 e-mail. The company's Web site shows it has projects in countries including Russia, Ukraine, France, Turkey, Cambodia, Vietnam, Montenegro.
Higher borrowing costs already are crimping demand for apartments, said Oleg Repchenko, head of Real Estate Market Indicators. Prices may fall in the fourth quarter and in 2009 post the first decline in 11 years, according to the Moscow-based research group. The drop may reach as much as 30 percent for some types of apartments by the end of 2009, Repchenko said.
Prices for homes in Moscow have risen more than sixfold since 2003. In the first six months of this year, they increased 25 percent to an average of 136,404 rubles ($5,318) per square meter, according to Metrinfo.ru, a market research company
The American Petroleum Institute reported Wednesday a rise of 3.3 million barrels in crude supplies for the week ended Sept. 26. The Energy Department had reported a climb of 4.3 million barrels for the latest week. Motor gasoline supplies were down 557,000 barrels, the API said. The government had reported that supplies rose by 900,000 barrels. Distillate supplies were down 3 million barrels, the API said. They were down 2.3 million barrels for the week, according to the Energy Department. Refinery utilization was at 72.3% compared with 66.7% of capacity a week earlier. Following the news, November crude was down 3.3% at $97.36 a barrel on Globex.
Ford Motor Co. on Wednesday reported a 34.6% drop in September U.S. sales to 120,788 vehicles from 184,612 in September 2007. September marked the lowest sales month so far this year for Ford and the industry, the automaker said.
Americans bought 964,873 vehicles in September, the lowest sales figure since February 1993, according to Autodata Corp. and the Edmunds.com automotive Web site. Sales fell 27 percent compared with September 2007, with every major brand but General Motors Corp. reporting drops of at least 24 percent.
"It was tantamount, really, to a natural disaster," said George Pipas, top sales analyst for Ford Motor Co.
Mexicans living in the U.S. sent home 12 percent less money in August, the largest drop on record since the Bank of Mexico began tracking remittances 12 years ago, the central bank reported on Wednesday.
Con-way Inc. lowered its earnings outlook for the year on declining trucking volume and demand. Late-traded shares of Con-way were halted at $42.94. The company lowered its 2008 earnings outlook from continuing operations to a range of $2.60 to $2.80 a share, from a previous range of $3 to $3.40 a share. Analysts surveyed by FactSet Research estimate $3.22 a share. "Over the past several weeks we have seen volumes decline further, exacerbated by September's weather events, all of which continue to pressure yields," said Douglas Stotlar, Con-way president and chief executive, in a statement. "To date, the traditional peak seasonal uptick in demand has been muted so we expect the challenging business environment to continue through the 2008 fourth quarter."
Eli Lilly & Co. is in advanced talks to acquire ImClone Systems Inc. for $70 a share, The Wall Street Journal reported on its Web site Wednesday, citing sources close to the matter.
November crude closed at $98.53 per barrel Wednesday on the New York Mercantile Exchange, down $2.11, or 2.1%, for the session. November natural gas climbed 3.9% to close at $7.728 per million British thermal units as a a fresh forecast renewed concerns over the Atlantic hurricane season, feeding the potential for further energy output disruptions. Gold for December delivery gained $6.50, or 0.7%, to end at $887.30 an ounce on the Comex division of the New York Mercantile Exchange.
Toyota Motor Corp.'s September U.S. sales fell 32.3% to 144,260 vehicles from 213,042 a year ago. U.S. Lexus sales in September fell 37.7% to 9,430 vehicles from a year ago. U.S. light truck sales dropped 38% to 55,918 vehicles in September.
France will propose a 300 billion euro ($424 billion)rescue package for the European financial sector, Reuters reported, citing a European government source.
Wednesday, October 01, 2008
Broke! Fix It!
10/1/08 Broke! Fix It!
Bill Bonner: "For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke."
Rep Ron Paul: “Removing governmental power to manipulate money removes the temptation for government to spend, print and cheat. Sound money ensures that our government’s spending priorities would be brought into sharp focus and reduced to only what we can afford."
Democratic presidential candidate Barack Obama on Tuesday proposed to raise the limit on federal deposit insurance to $250,000 from $100,000, according to media reports. ABC News' Political Radar blog printed part of Obama's email statement, which said that although the current limit is "more than adequate for most families, it is insufficient for many small businesses that maintain bank accounts to meet their payroll, buy their supplies, and invest in expanding and creating jobs."
Banks remained afraid to lend to each other Tuesday, leaving money markets in a deep freeze that economists warned could lead to a wider economic collapse.
"Money markets are in a state of extreme distress," said Neil Mackinnon, chief economist at ECU Group, a research firm.
The overnight London interbank offered rate, or Libor, posted a record one-day increase, climbing to 6.875% from 2.56875% on Monday, according to news reports. Libor rates for sterling and euro loans also rose.
And three-month dollar Libor, a closely followed short-term rate, rose to 4.0525% from 3.8825%.
Constellation Energy Partners said Tuesday that it retained Tudor, Pickering, Holt & Co. Securities Inc. to help it review strategic alternatives. The company cited current market conditions and the recent merger deal of its sponsor, Constellation Energy Group, which received a $4.7 billion bid from MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett's Berkshire Hathaway Inc.
Shortly after 4 a.m. Eastern, S&P 500 futures rose 32.5 points to 1,151.30, Nasdaq 100 futures added 32.5 points to 1,544.50 and Dow industrial futures rose 230 points.
U.S. high-yield bond defaults may climb to 10 percent or more as highly leveraged companies fail, Martin Fridson, chief investment officer at Fridson Investment Advisors, told the Reuters 2008 Restructuring Summit on Tuesday.Fridson also said if the United States falls into a severe recession similar to 1990-1991 period, default rates may climb to 15 percent or higher, a level not reached since 1933.
Rob Hanna: "The S&P 500 today lost 8.7%. That wasn’t the worst of it. The Nasdaq 100 lost about 10.5% and the banking index (BKX) lost 20%. For the S&P 500 there has only been 1 day that has been worse – 10/19/87 - the crash of ’87. On October 26, 1987 the S&P dropped 8.3%, which was close. Some other memorable drops since then would include 10/27/97 (-6.9%), 8/31/98 (-6.8%), and 9/17/01 (-4.9%). This was about 2% worse than any of those...1932 and 1987 were the only instances that were near a low.
In no case was a V-bottom like ’97, ’98, or ’01 formed. A sharp bounce was followed by either sideways or downward movement.
A sharp bounce occurred within 3 days in all cases.
1932 was the only time the day of the big drop came after an extended decline. In contrast, the crashes of 1929 and 1987 happened as a breakdown from a topping pattern."
Kathy Lien: "Now more than ever, the US needs to rely on foreign funding. If Central Banks and Sovereign Wealth Funds around the world start to lose confidence in the US financial markets or the US government, we could be looking at a complete freeze in lending that expands beyond the banking sector.
According to an article in the Wall Street Journal, central banks are already loading up on gold as European central banks cut their sales to the lowest level in almost 10 years. Gold prices are up more than $35 an ounce today as a hedge for inflation and a hedge for the US economy. Everyone is starting to realize that commodities are the only assets that have no counterparty or credit risk. Gold prices first jumped on inflation fears after the Federal Reserve’s liquidity injections this morning. Having more than doubled swap limits from $290B to $620B, the Fed is trying to tell the market that it is serious about providing liquidity."
The FT reports Afghan President Hamid Karzai has made a call for peace to Taliban leader Mullah Omar and has asked the king of Saudi Arabia to help in talks with the militant group responsible for a surge in violence.
Bain Capital and Hellman & Friedman agreed to acquire Neuberger Berman, the crown jewel of Lehman Brothers Holdings, for $2.15bn. The deal comes weeks after a sale could have helped Lehman avoid collapse.The wealth management firm will become the centrepiece of a new company called Neuberger Investment Management, with more than $230bn in assets.
Rep. Dean Heller, R-Nev.: "I cannot with good conscience put Nevada's taxpayers on the hook for the foolish excesses of Wall Street," he said. "Congress should pass legislation that protects the taxpayer, assists with bad assets and allows the market to correct itself."
Nouriel Roubini: "This is not just a US financial crisis; it is a global financial crisis hitting institutions in the US, UK, Eurozone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.).
And the strains in financial markets – especially short term interbank markets - are becoming more severe in spite of the Fed and other central banks having literally injected about $300 billion of liquidity in the financial system last week alone including massive liquidity lending to Morgan and Goldman. In a solvency crisis and credit crisis that goes well beyond illiquidity no one is lending to counterparties as no one trusts any counterparty (even the safest ones) and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker dealers the rest of the shadow banking system has not access to this liquidity as the credit transmission mechanisms is blocked."
On Monday, the Reuters/Jefferies CRB Index of 19 commodities plunged 5.9 percent, the biggest drop since record-keeping began in 1956, on concern that a spreading financial crisis may slash demand for raw materials. The CRB has slumped 28 percent from a record on July 3 as tightening credit markets, failing financial institutions and slowing economic growth heightened demand concerns.
Platinum will swing from a deficit to the largest surplus in 10 years as demand declines amid an economic slowdown, said Paul Walker, CEO of London-based research company GFMS Ltd. “Supply has not fallen by as much as people expected,” he said. “Demand in auto catalysts and jewelry, especially in China , is really falling.”
According to the FT, Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers.
With coal reportedly piling up in China's eastern ports, the news of steel defaults will fuel concerns about the likely impact on global commodity prices of a slowing Chinese economy.
Analysts say smaller Chinese steel mills are losing money on their output because of weak steel demand and the hefty prices they paid for ore and coal ahead of the Beijing Olympics in August.
Microsoft Chief Executive Steve Ballmer said on Tuesday no company was immune to the global financial crisis, which he expects to sap both consumer and business spending.
London was in shock Monday night after the apparent suicide of a millionaire financier haunted by the pressures of dealing with the credit crunch.
Kirk Stephenson, who was married with an eight-year-old son, died in the path of a 100mph express train at Taplow railway station, Berkshire.
Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world’s financial markets went into meltdown.
The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday fell a record 16.3 percent in July from the year-ago period, the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history.Home values in all 20 cities fell year-over-year, with Las Vegas prices plunging the most at nearly 30 percent.
The September consumer confidence index rose to 59.8 from an August reading of 58.5. The percentage of consumers who said current business conditions were bad rose to 34.2% from 32.7%, while those who saw conditions as good fell to 12.5% from 13.7%. The percentage of consumers who said jobs are "hard to get" rose to 32.8% in September from 31.7% in August. Meanwhile, the percentage of consumers expecting business conditions to worsen over the next six months fell to 21.3% from 25.2%.
The Chicago purchasing managers index inched lower to 56.7 in September from 57.9 in August but stayed well above the 53.0% expected by analysts.
Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears the economy shrank in the third quarter as credit- crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82.
``This has been a body blow to consumer and business confidence,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. ``The next six months are going to be very difficult.''
Mexico's Treasury Secretary says the current financial crisis will "undoubtedly" affect Latin America, reducing demand for the commodity exports that have fueled the region's recent boom.
Secretary Agustin Carstens says continued volatility will deflate oil and other commodity prices, boosting investment risk.
"The time has come to save capitalism from the capitalists," writes Luigi Zingales of the University of Chicago.
Ireland guaranteed all bank deposits on Tuesday in a bid to improve the industry's access to international funds frozen by the global credit crunch.
Inflation is no longer as worrisome as the weak growth outlook from the financial market turmoil, Atlanta Federal Reserve Bank President Dennis Lockhart said Tuesday. "Overall, the outlook for inflation may have improved, but prospects for growth have weakened," Lockhart said in a luncheon speech in New Orleans.
Alcoa Inc. will curtail remaining production at its Rockdale, Texas aluminum smelter because of market conditions and onsite power supply issues that have exposed the plant to high power prices. Alcoa said it will lay off the smelter's remaining 660 workers.
November crude closed at $100.64 per barrel Tuesday on the New York Mercantile Exchange, up $4.27, or 4.4%, for the session. Prices are nearly 5% higher year to date. Gold for December delivery ended down $13.60, or 1.5%, at $880.80 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal ended the month up 5.5% and the quarter down 6.1%. Gold has gained 1.7% this year.
TrimTabs Investment Research on Tuesday reported that for the month of September through last Friday, stock mutual funds have seen outflows of $41 billion, while $22 billion have been redeemed from bond funds. The data don't include Monday's market sell-off. TrimTabs said the September fund flows through Sept. 26 compare with outflows from equity funds of $75 billion and inflows of $95 billion into bond funds for the eight months of 2008 through August 31.
Allied Capital shares slumped 55% on Tuesday after the lender said Ciena Capital, one of its portfolio companies, filed for bankruptcy. Ciena, which used to be called Business Loan Express, has seen the value of its assets fall amid the deepening credit crunch. Those assets are now not worth enough for Ciena to repay its debts and meet other liabilites, Allied Capital explained. Allied guarantees Ciena's obligations under the unit's revolving credit facility. That means Allied will pay $320 million to the lenders behind that facility. To pay those lenders, Allied said it will dip into roughly $150 million of its cash resources and borrow $170 million from its own revolving line of credit. After that, Allied will have about $200 million in cash and roughly $170 million left on its line of credit. Allied Capital shares fell 50% to $6.25 during afternoon trading.
Brett Steenbarger: "Given the limits of what we know and what is ultimately unknowable, not all movement is opportunity. The key to trading success is finding the patience to capitalize on those things you do know and the wisdom to accept what is uncertain."
Rockwell Automation Inc. will cut about 3% of its global workforce in a restructuring move. The company employs about 20,000 worldwide.
The Dow Jones Industrial Average gained 485.21 points, or 4.7%, to end at 10,850.66, giving it a 6% loss for the month. The S&P 500 gained 58.34 points, or 5.3%, to 1,164.73, leaving it with a 9.2% drop for September. The Nasdaq Composite gained 98.6 points, or 5%, to finish at 2,082.33, leaving the tech-laden index with a monthly loss of 12%.
The jobless rate in the 15-nation euro zone rose to 7.5% in August from 7.4% in July, the statistical agency Eurostat reported Wednesday.
-BHP Billiton's $119 billion bid for rival Rio Tinto has been cleared by Australia's competition regulator. The Australian Competition and Consumer Commission said Wednesday it will not oppose the takeover on competition grounds.
Swiss bank UBS may announce another 1,900 job cuts in its investment banking, fixed income and equities business, according to a Bloomberg report citing people with knowledge of the matter. The cuts would represent around 10% of the total investment banking staff and could be announced at the bank's shareholder meeting Thursday, the report said. UBS has already announced around 7,000 job losses after becoming one of the worst hit European banks in the credit crisis.
The mood among Japanese firms turned negative for the first time in five years, the Bank of Japan's quarterly tankan survey of business sentiment showed Wednesday.
Large U.S. companies announced plans to eliminate 95,094 jobs in September, 33% more than a year earlier, according to a nonscientific tally released Wednesday by outplacement firm Challenger Gray & Christmas. For the third quarter, layoff announcements rose 48% from a year earlier to 287,142, the highest three-month total in nearly three years.
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Bill Bonner: "For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke."
Rep Ron Paul: “Removing governmental power to manipulate money removes the temptation for government to spend, print and cheat. Sound money ensures that our government’s spending priorities would be brought into sharp focus and reduced to only what we can afford."
Democratic presidential candidate Barack Obama on Tuesday proposed to raise the limit on federal deposit insurance to $250,000 from $100,000, according to media reports. ABC News' Political Radar blog printed part of Obama's email statement, which said that although the current limit is "more than adequate for most families, it is insufficient for many small businesses that maintain bank accounts to meet their payroll, buy their supplies, and invest in expanding and creating jobs."
Banks remained afraid to lend to each other Tuesday, leaving money markets in a deep freeze that economists warned could lead to a wider economic collapse.
"Money markets are in a state of extreme distress," said Neil Mackinnon, chief economist at ECU Group, a research firm.
The overnight London interbank offered rate, or Libor, posted a record one-day increase, climbing to 6.875% from 2.56875% on Monday, according to news reports. Libor rates for sterling and euro loans also rose.
And three-month dollar Libor, a closely followed short-term rate, rose to 4.0525% from 3.8825%.
Constellation Energy Partners said Tuesday that it retained Tudor, Pickering, Holt & Co. Securities Inc. to help it review strategic alternatives. The company cited current market conditions and the recent merger deal of its sponsor, Constellation Energy Group, which received a $4.7 billion bid from MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett's Berkshire Hathaway Inc.
Shortly after 4 a.m. Eastern, S&P 500 futures rose 32.5 points to 1,151.30, Nasdaq 100 futures added 32.5 points to 1,544.50 and Dow industrial futures rose 230 points.
U.S. high-yield bond defaults may climb to 10 percent or more as highly leveraged companies fail, Martin Fridson, chief investment officer at Fridson Investment Advisors, told the Reuters 2008 Restructuring Summit on Tuesday.Fridson also said if the United States falls into a severe recession similar to 1990-1991 period, default rates may climb to 15 percent or higher, a level not reached since 1933.
Rob Hanna: "The S&P 500 today lost 8.7%. That wasn’t the worst of it. The Nasdaq 100 lost about 10.5% and the banking index (BKX) lost 20%. For the S&P 500 there has only been 1 day that has been worse – 10/19/87 - the crash of ’87. On October 26, 1987 the S&P dropped 8.3%, which was close. Some other memorable drops since then would include 10/27/97 (-6.9%), 8/31/98 (-6.8%), and 9/17/01 (-4.9%). This was about 2% worse than any of those...1932 and 1987 were the only instances that were near a low.
In no case was a V-bottom like ’97, ’98, or ’01 formed. A sharp bounce was followed by either sideways or downward movement.
A sharp bounce occurred within 3 days in all cases.
1932 was the only time the day of the big drop came after an extended decline. In contrast, the crashes of 1929 and 1987 happened as a breakdown from a topping pattern."
Kathy Lien: "Now more than ever, the US needs to rely on foreign funding. If Central Banks and Sovereign Wealth Funds around the world start to lose confidence in the US financial markets or the US government, we could be looking at a complete freeze in lending that expands beyond the banking sector.
According to an article in the Wall Street Journal, central banks are already loading up on gold as European central banks cut their sales to the lowest level in almost 10 years. Gold prices are up more than $35 an ounce today as a hedge for inflation and a hedge for the US economy. Everyone is starting to realize that commodities are the only assets that have no counterparty or credit risk. Gold prices first jumped on inflation fears after the Federal Reserve’s liquidity injections this morning. Having more than doubled swap limits from $290B to $620B, the Fed is trying to tell the market that it is serious about providing liquidity."
The FT reports Afghan President Hamid Karzai has made a call for peace to Taliban leader Mullah Omar and has asked the king of Saudi Arabia to help in talks with the militant group responsible for a surge in violence.
Bain Capital and Hellman & Friedman agreed to acquire Neuberger Berman, the crown jewel of Lehman Brothers Holdings, for $2.15bn. The deal comes weeks after a sale could have helped Lehman avoid collapse.The wealth management firm will become the centrepiece of a new company called Neuberger Investment Management, with more than $230bn in assets.
Rep. Dean Heller, R-Nev.: "I cannot with good conscience put Nevada's taxpayers on the hook for the foolish excesses of Wall Street," he said. "Congress should pass legislation that protects the taxpayer, assists with bad assets and allows the market to correct itself."
Nouriel Roubini: "This is not just a US financial crisis; it is a global financial crisis hitting institutions in the US, UK, Eurozone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.).
And the strains in financial markets – especially short term interbank markets - are becoming more severe in spite of the Fed and other central banks having literally injected about $300 billion of liquidity in the financial system last week alone including massive liquidity lending to Morgan and Goldman. In a solvency crisis and credit crisis that goes well beyond illiquidity no one is lending to counterparties as no one trusts any counterparty (even the safest ones) and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker dealers the rest of the shadow banking system has not access to this liquidity as the credit transmission mechanisms is blocked."
On Monday, the Reuters/Jefferies CRB Index of 19 commodities plunged 5.9 percent, the biggest drop since record-keeping began in 1956, on concern that a spreading financial crisis may slash demand for raw materials. The CRB has slumped 28 percent from a record on July 3 as tightening credit markets, failing financial institutions and slowing economic growth heightened demand concerns.
Platinum will swing from a deficit to the largest surplus in 10 years as demand declines amid an economic slowdown, said Paul Walker, CEO of London-based research company GFMS Ltd. “Supply has not fallen by as much as people expected,” he said. “Demand in auto catalysts and jewelry, especially in China , is really falling.”
According to the FT, Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers.
With coal reportedly piling up in China's eastern ports, the news of steel defaults will fuel concerns about the likely impact on global commodity prices of a slowing Chinese economy.
Analysts say smaller Chinese steel mills are losing money on their output because of weak steel demand and the hefty prices they paid for ore and coal ahead of the Beijing Olympics in August.
Microsoft Chief Executive Steve Ballmer said on Tuesday no company was immune to the global financial crisis, which he expects to sap both consumer and business spending.
London was in shock Monday night after the apparent suicide of a millionaire financier haunted by the pressures of dealing with the credit crunch.
Kirk Stephenson, who was married with an eight-year-old son, died in the path of a 100mph express train at Taplow railway station, Berkshire.
Mr Stephenson is believed to have taken his own life after succumbing to mounting personal pressures as the world’s financial markets went into meltdown.
The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday fell a record 16.3 percent in July from the year-ago period, the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history.Home values in all 20 cities fell year-over-year, with Las Vegas prices plunging the most at nearly 30 percent.
The September consumer confidence index rose to 59.8 from an August reading of 58.5. The percentage of consumers who said current business conditions were bad rose to 34.2% from 32.7%, while those who saw conditions as good fell to 12.5% from 13.7%. The percentage of consumers who said jobs are "hard to get" rose to 32.8% in September from 31.7% in August. Meanwhile, the percentage of consumers expecting business conditions to worsen over the next six months fell to 21.3% from 25.2%.
The Chicago purchasing managers index inched lower to 56.7 in September from 57.9 in August but stayed well above the 53.0% expected by analysts.
Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears the economy shrank in the third quarter as credit- crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82.
``This has been a body blow to consumer and business confidence,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. ``The next six months are going to be very difficult.''
Mexico's Treasury Secretary says the current financial crisis will "undoubtedly" affect Latin America, reducing demand for the commodity exports that have fueled the region's recent boom.
Secretary Agustin Carstens says continued volatility will deflate oil and other commodity prices, boosting investment risk.
"The time has come to save capitalism from the capitalists," writes Luigi Zingales of the University of Chicago.
Ireland guaranteed all bank deposits on Tuesday in a bid to improve the industry's access to international funds frozen by the global credit crunch.
Inflation is no longer as worrisome as the weak growth outlook from the financial market turmoil, Atlanta Federal Reserve Bank President Dennis Lockhart said Tuesday. "Overall, the outlook for inflation may have improved, but prospects for growth have weakened," Lockhart said in a luncheon speech in New Orleans.
Alcoa Inc. will curtail remaining production at its Rockdale, Texas aluminum smelter because of market conditions and onsite power supply issues that have exposed the plant to high power prices. Alcoa said it will lay off the smelter's remaining 660 workers.
November crude closed at $100.64 per barrel Tuesday on the New York Mercantile Exchange, up $4.27, or 4.4%, for the session. Prices are nearly 5% higher year to date. Gold for December delivery ended down $13.60, or 1.5%, at $880.80 an ounce on the Comex division of the New York Mercantile Exchange. The precious metal ended the month up 5.5% and the quarter down 6.1%. Gold has gained 1.7% this year.
TrimTabs Investment Research on Tuesday reported that for the month of September through last Friday, stock mutual funds have seen outflows of $41 billion, while $22 billion have been redeemed from bond funds. The data don't include Monday's market sell-off. TrimTabs said the September fund flows through Sept. 26 compare with outflows from equity funds of $75 billion and inflows of $95 billion into bond funds for the eight months of 2008 through August 31.
Allied Capital shares slumped 55% on Tuesday after the lender said Ciena Capital, one of its portfolio companies, filed for bankruptcy. Ciena, which used to be called Business Loan Express, has seen the value of its assets fall amid the deepening credit crunch. Those assets are now not worth enough for Ciena to repay its debts and meet other liabilites, Allied Capital explained. Allied guarantees Ciena's obligations under the unit's revolving credit facility. That means Allied will pay $320 million to the lenders behind that facility. To pay those lenders, Allied said it will dip into roughly $150 million of its cash resources and borrow $170 million from its own revolving line of credit. After that, Allied will have about $200 million in cash and roughly $170 million left on its line of credit. Allied Capital shares fell 50% to $6.25 during afternoon trading.
Brett Steenbarger: "Given the limits of what we know and what is ultimately unknowable, not all movement is opportunity. The key to trading success is finding the patience to capitalize on those things you do know and the wisdom to accept what is uncertain."
Rockwell Automation Inc. will cut about 3% of its global workforce in a restructuring move. The company employs about 20,000 worldwide.
The Dow Jones Industrial Average gained 485.21 points, or 4.7%, to end at 10,850.66, giving it a 6% loss for the month. The S&P 500 gained 58.34 points, or 5.3%, to 1,164.73, leaving it with a 9.2% drop for September. The Nasdaq Composite gained 98.6 points, or 5%, to finish at 2,082.33, leaving the tech-laden index with a monthly loss of 12%.
The jobless rate in the 15-nation euro zone rose to 7.5% in August from 7.4% in July, the statistical agency Eurostat reported Wednesday.
-BHP Billiton's $119 billion bid for rival Rio Tinto has been cleared by Australia's competition regulator. The Australian Competition and Consumer Commission said Wednesday it will not oppose the takeover on competition grounds.
Swiss bank UBS may announce another 1,900 job cuts in its investment banking, fixed income and equities business, according to a Bloomberg report citing people with knowledge of the matter. The cuts would represent around 10% of the total investment banking staff and could be announced at the bank's shareholder meeting Thursday, the report said. UBS has already announced around 7,000 job losses after becoming one of the worst hit European banks in the credit crisis.
The mood among Japanese firms turned negative for the first time in five years, the Bank of Japan's quarterly tankan survey of business sentiment showed Wednesday.
Large U.S. companies announced plans to eliminate 95,094 jobs in September, 33% more than a year earlier, according to a nonscientific tally released Wednesday by outplacement firm Challenger Gray & Christmas. For the third quarter, layoff announcements rose 48% from a year earlier to 287,142, the highest three-month total in nearly three years.
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Monday, September 29, 2008
The Ugly Financial Crisis
9/30/08 The Ugly Financial Crisis
John Hussman: "The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them....A better approach would be for the government to provide capital directly, in the form of a “super-bond,” in an amount no greater than the debt to bondholders. The “super-bond” would be subordinate to customer liabilities, so it could be counted as capital for the purpose of capital requirements, and would be seen by customers as a legitimate cushion of protection. However, in the event of bankruptcy, it would have a senior claim in front of both stockholders and even senior bondholders. Do that, and you've actually got a mechanism to protect the financial system while at the same time protecting customers and taxpayers. Ideally, the super-bond accrues a relatively high rate of interest so that financials have an incentive to shift to private financing as soon as possible, but you would also defer the interest until the bank meets a minimal level of profitability to make sure that the financing doesn't strain the institution's liquidity... Instead, the government is taking on financially non-viable securities and warrants on common equity, while failing to improve the capital position of these financial companies at all (unless it overpays). Taxpayers will not make money here...This is not a good deal, because it will waste taxpayer money without addressing the fundamental solvency problems."
The governments of Belgium, the Netherlands and Luxembourg launched an 11.2 billion euro ($16.4 billion) rescue for Fortis late Sunday, acting after confidence in the banking and insurance group evaporated and potential bidders reportedly walked away from a deal.
The three governments agreed to inject capital to buy 49% interests in Fortis-owned banking subsidiaries operating in each of their jurisdictions, they announced in a joint press release
Pilgrim's Pride Corp.has obtained agreement with its creditors for temporarily relief through Oct. 28, via a waiver of the lenders' fixed-charge coverage ratio covenant. The poultry producer said its lenders also agreed to continue to provide liquidity under these credit facilities during this same 30-day period. Pilgrim's Pride said the waiver was granted after it told the lenders it expects to report "a significant loss" in the fourth quarter, ended Saturday, due to "high feed-ingredient costs, continued weak pricing and demand for breast meat, and the significant negative impact of hedged grain positions." The company also said it had hired Lazard to advise it on refinancing and recapitalization opportunities.
In pre-dawn Monday trading U.S. stock index futures fell, with financial turmoil in Europe overshadowing congressional agreement on a U.S. bailout plan designed to take toxic assets off of bank balance sheets. December S&P 500 futures were down 19.40 points, or 1.6%, to 1,195.10. Dow Jones futures fell 184.00 points, or 1.7%, to 10,963.0, and Nasdaq futures were off 27.00 points, or 1.6%, to 1,647.75.
Citigroup to acquire banking operations of Wachovia: FDIC. Citigroup to absorb up to $42B losses on a $312B loan pool. Citigroup to Buy Wachovia Banking Operations for $1 a Share. Citigroup has granted FDIC $12B in preferred stock, warrants. Citigroup also said it expects to raise $10 billion in common equity and cut its quarterly dividend to 16 cents a share, effective immediately.
The sale to Citigroup further concentrates Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup would control more than 30 percent of the industry’s deposits.
Charlotte, N.C.-based Wachovia said it will remain a public company with two main subsidiaries: Wachovia Securities and Evergreen Asset Management.
Hong Kong stocks stumbled Monday on deep losses in property sector shares after HSBC raised mortgage rates on new loans by a half-point because of rising funding costs. The Hang Seng Index fell 4.3% to 17,880.68 and the Hang Seng China Enterprises Index, or H share index, skidded 6.6% to 8,955.26.
Congressional leaders released the text of a proposed bill to provide up to $700 billion to shore up the U.S. financial system. The bill, entitled the Emergency Economic Stabilization Act of 2008, allows the Treasury to buy "mortgages and other assets that are clogging the balance sheets of financial institutions," according to an official summary. It also has provisions to help families avoid foreclosure and to attempt to recover taxpayer money as possible. The summary also says that to participate in the rescue program, "companies will lose certain tax benefits and, in some cases, must limit executive pay." Senate Majority Leader Harry Reid said the bill was likely to go to a vote in the House on Monday and would then move to the Senate for approval.
George Ure: "I think of it as going to a place where people are dying - a hospice - and selling insurance to people who are going to die. It might play well to a few, but there's the ugly matter of the premiums haven't been paid."
24/7WallSt: "The package of salvation has been named the "Emergency Economic Stabilization Act of 2008." It may stabilize some big banks and a portion of the credit markets and may or may not cost taxpayers money over time. It almost certainly gives the troubled homeowner nothing."
Barry Ritholtz: "What the Fed, Treasury and SEC seems to fail to understand is that you CANNOT get a return to normalcy after a bubble -- not until prices are allowed to fall to levels that bring in aggressive buyers. That is true for stocks, houses, and even financial institutions.
The plan as it is currently constructed fails to recognize that Housing prices still remain elevated, more foreclosures are likely, and that another 10-20% downside in real estate is quite likely.
Instead of focusing on asset prices, we should be looking at recapitalizing the banking institutions, providing liquidity to those that need it, and managing insolvency via FDIC.
Its time to fix what's broken, and leave the assets pricing to the markets."
The Fed started the year with $800 billion in cash. That's now down to less than $200 billion. What happens, MSN Money's Jim Jubak asks, when the money runs out?
Taxpayers will lose money in the $700 billion government rescue plan for the nation's banking system, Oppenheimer analyst Meredith Whitney said.
Contrary to predictions from some supporters of the bailout plan, Whitney said on CNBC that the continued slump in housing prices will make a profit from the bailout unlikely. "I think you definitely lose money on this $700 billion structure," Whitney said. "There's no idea where house prices bottom, and as a result how can you make money on this transaction?"
The Oil Drum: "One of the major reasons for gas shortages is that fact that inventories were not very high going into the hurricanes. Then when not one, but two, hurricanes hit, inventories dropped to the level where there wasn't enough to go around. (In fact, the shortages started even before the second hurricane hit.) How could this happen? Isn't there anyone who cares about gasoline inventories?"
Over the past two weeks he's seen a small but steady rise in the polls. Immediately after the Republican Convention, the Illinois senator trailed his rival John McCain by three points in the various daily tracking polls. Senator Obama is now up by as many as six or seven points.
Pollsters say that's in part because the vital independent voters are now shifting his way.
"There are still a substantial number of independents that are undecided, principally independent women," says pollster John Zogby. "But as a group, they've begun to swing over to Obama, but not in large enough numbers yet to close the deal."
By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell Friday $1.13 to settle at $106.89. . Gold for December delivery gained $2, or 0.2%, to $890.50 an ounce in early electronic trading.
A USA Today/Gallup poll released Sunday also found that by a 52 percent to 35 percent margin, viewers thought Obama offered better proposals to solve the country’s problems.
“The economy is the issue that looks like it’s going to dictate this election,” says Darrell West, the director of governance studies at the Brookings Institution in Washington. “And Obama won those parts of the debate that he needed to win.”
McCain’s demeanor, particularly during the second part of the debate, may also have hurt him with some independent voters.
“There were times McCain came across as too angry,” says Mr. West. “That’s a style of delivery that’s going to scare some undecided voters, and it’s also a style that women don’t like, and there are more undecided women than men.”
Bank of China, the country's biggest forex lender, says it's open to taking stakes in distressed U.S. banks. Executives at other Chinese banks have been more cautious in exploring a move into America.
Circuit City said Monday that its quarterly loss widened to $239.2 million, or $1.45 a share, from $62.8 million, or 38 cents, a year earlier. Sales in the quarter ended Aug. 31 fell to $2.39 billion from $2.64 billion. The company also said it's undertaking a comprehensive review of its business and has identified key areas to bolster its holiday season performance.
NY Times: "A growing number of hedge funds are closing down. About 350 were liquidated in the first half of the year. While hedge funds come and go all the time, if the trend continues, the number of closures would be up 24 percent this year from 2007.
Many funds are bracing for trouble. The industry has set aside $600 billion in cash, according to Citigroup analysts, partly because of the uncertainty hanging over the markets but also because of possible redemptions. If redemptions do pour in, hedge funds can freeze the process by not paying investors for a certain period of time, slowing the pace of withdrawals.
One little-known hedge fund barometer is pointing to trouble, however. The alphabet soup of complex investments that Wall Street created in recent years — R.M.B.S.’s, C.D.O.’s and the like — includes C.F.O.’s, short for collateralized fund obligations. Virtually unknown outside the industry, these investments are the hedge fund equivalent of mortgage-backed securities: securities backed by hedge funds...Returns are not in yet for September, but hedge fund managers say this month is even worse than the summer. Some funds were hurt by new rules from the Securities and Exchange Commission on short-selling, a tactic for betting against stock prices. The commission made it more difficult to short all stocks and temporarily banned the strategy in more than 800 financial stocks. In particular, this hurt convertible-bond managers, who often buy bonds that can be converted into shares and short the underlying stocks."
The short-selling ban lasts until Thursday evening, but it is widely expected to be extended.
The concern is over the redemptions that are happening,” said Jenny Story, an analyst with Fitch Ratings. “The gates are being closed.”
Sept. 30 is the date investors notify hedge funds they wish to withdraw their capital by year's end. Brace for the waterfall.
Vishay Intertechnology Inc.said Monday that it commenced a tender offer to buy shares of International Rectifier Corp.for $23 in cash apiece. The tender offer is set to expire at midnight, Eastern time, on Oct. 27. International Rectifier's board of directors had rejected Vishay's earlier $21.22-a-share merger offer, calling it "inadequate" and "opportunistic."
President Hugo Chavez said Sunday that Russia will help Venezuela develop nuclear energy — a move likely to raise U.S. concerns over increasingly close cooperation between Caracas and Moscow.
Chavez said he accepted an offer from Russian Prime Minister Vladimir Putin for assistance in building a nuclear reactor.
Science Applications International Corp. said Monday that its subsidiary SAIC-Frederick Inc. has won a contract potentially valued at $5.2 billion to help operate and provide technical support to the National Cancer Institute's research and development center in Frederick, Md.
The award contract, which SAIC said is the largest single research contract awarded by the Department of Health and Human Services, has a three-year base period of performance, five one-year award-term options and one two-year option. The contract has an estimated value of $5.2 billion if all options are exercised.
The cost of borrowing in euros for three months rose to a record after government-led bank bailouts heightened concern that more will fail, prompting financial institutions to hoard cash.
The euro interbank offered rate, or Euribor, climbed 10 basis points to 5.24 percent, the European Banking Federation said today. That's the biggest jump since June. The London interbank offered rate, or Libor, for three-month dollar loans rose to 3.88 percent, the highest level since Jan. 18 and up from 2.81 percent a month ago. Singapore's benchmark rate for such loans increased to the highest level in eight months.
Consumer spending in August turned in the weakest performance in six months. The Commerce Department said consumer spending was flat in August after barely edging up by a revised 0.1 percent in July. Incomes from wages and salaries and all other sources rose by 0.5 percent in August, largely reversing July's revised 0.6 percent drop and well ahead of forecasts for a smaller 0.2 percent gain.
Incomes had been boosted early in the year by payments made under an economic stimulus program but that has largely worn off. "These payments are now winding down," the department said. Personal income increased $61.5 billion, or 0.5 percent, and disposable personal income (DPI)decreased $93.3 billion, or 0.9 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $3.9 billion, or less than 0.1 percent. In July, personal income decreased $69.0 billion, or 0.6 percent, DPI decreased $91.0 billion, or 0.8 percent, and PCE increased $14.2 billion, or 0.1 percent, based on revised estimates. The pattern of changes in income primarily reflects the pattern of payments associated with the Economic Stimulus Act of 2008
“How did things go so badly? The simple answer: greedy, fat cat investment bankers who used these complicated derivatives no one could understand to leverage themselves, make tons of money at the expense of the typical mortgage holder, and who will never experience any down side from their profligacy.” economist.com, 9-23-2008
Mitsubishi UFJ will acquire 9.9% of Morgan Stanley's common stock on a primary basis at a price of $25.25 a share, for a total of $3 billion, and $6 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $31.25 a share.
Shares of National City Corp dropped more than half on Monday as investors wondered which regional bank might need a merger partner as the sector suffered what analysts called a deepening crisis of confidence.
The big Ohio bank slid $2, or 52 percent, at $1.70 on the New York Stock Exchange. The stock fell more than 25 percent on Friday.
Russian equities fell sharply Monday, joining a broad sell-off in emerging-market equities, as investors dumped risky assets on concerns that the U.S. government's bailout plan will not be enough to stem the financial crisis. In Moscow, the Micex stock index fell 5.5% in intraday trading and the RTS stock index dropped 7.1%.
In mid-morning crude dropped below the $100 level. Meanwhile, gold for December delivery rose $14.50, or 1.6%, to $903 an ounce on the Comex division of the New York Mercantile Exchange.
The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
In addition, the Fed announced a new forward auction to provide lending to banks over the year-end. The Fed, in my view, is pushing the panic button much too late in the solvency game.
Apple shares fell $ 17 to $110 after Morgan Stanley cut its rating on the company to equal weight from overweight.
House Democrats are refusing to back down in their fight with the Senate on tax policy, increasing the odds that Congress will adjourn without acting to shield millions of people from the alternative minimum tax.
The House plans to adjourn for the year on Monday. Without a compromise, tax legislation to fix the AMT, provide tax credits to disaster victims and extend tax credits to businesses, individuals and developers of renewable energy resources would die.
India said Monday it will purchase 347 T-90 battle tanks from Russia and will consider a demand from Moscow that it pay an additional $1.2 billion because of delays in a deal for a Soviet-built aircraft carrier and 16 fighter jets.
In mid-morning, the VIX jumped 7.57 percent to 37.37, its highest level since Sept. 18.
Hypo Real Estate, Germany's second-biggest commercial-real estate lender, received a 35 billion euro loan guarantee to prevent its insolvency.
Iceland bought 75% of Glitnir Bank, the nation's third-largest bank.
The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry. Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.
November crude traded at $95.39 per barrel on Globex Monday evening, down 98 cents from the New York Mercantile Exchange's closing level of $96.37. On Nymex, the contract's price had already dropped $10.52, or 9.8%, for the session. December gold traded at $916.20 an ounce in electronic trading on Globex Monday evening. The contract had gained $5.90 on the New York Mercantile Exchange to end that trading session at $894.40 so Globex prices are up more than $20 from that level. Prices climbed after the U.S. House of Representatives voted against the financial bailout plan. "The crucial thing is that gold was making gains as the U.S. dollar was rising too," said Sam Kirtley, editor of Gold-Prices.biz. "Since they usually move in opposite directions, this is a sign of the tremendous strength building behind the yellow metal."
In the biggest tech-sector selloff in more than three years, the tech-heavy Nasdaq Composite Index plunged 199 points, or more than 9% to close at 1,983, the first time it closed below 2,000 since May 2005. The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks. The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.
The Standard & Poor's 500 index declined 106.85, or nearly 9 percent, to 1,106.42. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.
John Hussman: "The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them....A better approach would be for the government to provide capital directly, in the form of a “super-bond,” in an amount no greater than the debt to bondholders. The “super-bond” would be subordinate to customer liabilities, so it could be counted as capital for the purpose of capital requirements, and would be seen by customers as a legitimate cushion of protection. However, in the event of bankruptcy, it would have a senior claim in front of both stockholders and even senior bondholders. Do that, and you've actually got a mechanism to protect the financial system while at the same time protecting customers and taxpayers. Ideally, the super-bond accrues a relatively high rate of interest so that financials have an incentive to shift to private financing as soon as possible, but you would also defer the interest until the bank meets a minimal level of profitability to make sure that the financing doesn't strain the institution's liquidity... Instead, the government is taking on financially non-viable securities and warrants on common equity, while failing to improve the capital position of these financial companies at all (unless it overpays). Taxpayers will not make money here...This is not a good deal, because it will waste taxpayer money without addressing the fundamental solvency problems."
The governments of Belgium, the Netherlands and Luxembourg launched an 11.2 billion euro ($16.4 billion) rescue for Fortis late Sunday, acting after confidence in the banking and insurance group evaporated and potential bidders reportedly walked away from a deal.
The three governments agreed to inject capital to buy 49% interests in Fortis-owned banking subsidiaries operating in each of their jurisdictions, they announced in a joint press release
Pilgrim's Pride Corp.has obtained agreement with its creditors for temporarily relief through Oct. 28, via a waiver of the lenders' fixed-charge coverage ratio covenant. The poultry producer said its lenders also agreed to continue to provide liquidity under these credit facilities during this same 30-day period. Pilgrim's Pride said the waiver was granted after it told the lenders it expects to report "a significant loss" in the fourth quarter, ended Saturday, due to "high feed-ingredient costs, continued weak pricing and demand for breast meat, and the significant negative impact of hedged grain positions." The company also said it had hired Lazard to advise it on refinancing and recapitalization opportunities.
In pre-dawn Monday trading U.S. stock index futures fell, with financial turmoil in Europe overshadowing congressional agreement on a U.S. bailout plan designed to take toxic assets off of bank balance sheets. December S&P 500 futures were down 19.40 points, or 1.6%, to 1,195.10. Dow Jones futures fell 184.00 points, or 1.7%, to 10,963.0, and Nasdaq futures were off 27.00 points, or 1.6%, to 1,647.75.
Citigroup to acquire banking operations of Wachovia: FDIC. Citigroup to absorb up to $42B losses on a $312B loan pool. Citigroup to Buy Wachovia Banking Operations for $1 a Share. Citigroup has granted FDIC $12B in preferred stock, warrants. Citigroup also said it expects to raise $10 billion in common equity and cut its quarterly dividend to 16 cents a share, effective immediately.
The sale to Citigroup further concentrates Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup would control more than 30 percent of the industry’s deposits.
Charlotte, N.C.-based Wachovia said it will remain a public company with two main subsidiaries: Wachovia Securities and Evergreen Asset Management.
Hong Kong stocks stumbled Monday on deep losses in property sector shares after HSBC raised mortgage rates on new loans by a half-point because of rising funding costs. The Hang Seng Index fell 4.3% to 17,880.68 and the Hang Seng China Enterprises Index, or H share index, skidded 6.6% to 8,955.26.
Congressional leaders released the text of a proposed bill to provide up to $700 billion to shore up the U.S. financial system. The bill, entitled the Emergency Economic Stabilization Act of 2008, allows the Treasury to buy "mortgages and other assets that are clogging the balance sheets of financial institutions," according to an official summary. It also has provisions to help families avoid foreclosure and to attempt to recover taxpayer money as possible. The summary also says that to participate in the rescue program, "companies will lose certain tax benefits and, in some cases, must limit executive pay." Senate Majority Leader Harry Reid said the bill was likely to go to a vote in the House on Monday and would then move to the Senate for approval.
George Ure: "I think of it as going to a place where people are dying - a hospice - and selling insurance to people who are going to die. It might play well to a few, but there's the ugly matter of the premiums haven't been paid."
24/7WallSt: "The package of salvation has been named the "Emergency Economic Stabilization Act of 2008." It may stabilize some big banks and a portion of the credit markets and may or may not cost taxpayers money over time. It almost certainly gives the troubled homeowner nothing."
Barry Ritholtz: "What the Fed, Treasury and SEC seems to fail to understand is that you CANNOT get a return to normalcy after a bubble -- not until prices are allowed to fall to levels that bring in aggressive buyers. That is true for stocks, houses, and even financial institutions.
The plan as it is currently constructed fails to recognize that Housing prices still remain elevated, more foreclosures are likely, and that another 10-20% downside in real estate is quite likely.
Instead of focusing on asset prices, we should be looking at recapitalizing the banking institutions, providing liquidity to those that need it, and managing insolvency via FDIC.
Its time to fix what's broken, and leave the assets pricing to the markets."
The Fed started the year with $800 billion in cash. That's now down to less than $200 billion. What happens, MSN Money's Jim Jubak asks, when the money runs out?
Taxpayers will lose money in the $700 billion government rescue plan for the nation's banking system, Oppenheimer analyst Meredith Whitney said.
Contrary to predictions from some supporters of the bailout plan, Whitney said on CNBC that the continued slump in housing prices will make a profit from the bailout unlikely. "I think you definitely lose money on this $700 billion structure," Whitney said. "There's no idea where house prices bottom, and as a result how can you make money on this transaction?"
The Oil Drum: "One of the major reasons for gas shortages is that fact that inventories were not very high going into the hurricanes. Then when not one, but two, hurricanes hit, inventories dropped to the level where there wasn't enough to go around. (In fact, the shortages started even before the second hurricane hit.) How could this happen? Isn't there anyone who cares about gasoline inventories?"
Over the past two weeks he's seen a small but steady rise in the polls. Immediately after the Republican Convention, the Illinois senator trailed his rival John McCain by three points in the various daily tracking polls. Senator Obama is now up by as many as six or seven points.
Pollsters say that's in part because the vital independent voters are now shifting his way.
"There are still a substantial number of independents that are undecided, principally independent women," says pollster John Zogby. "But as a group, they've begun to swing over to Obama, but not in large enough numbers yet to close the deal."
By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell Friday $1.13 to settle at $106.89. . Gold for December delivery gained $2, or 0.2%, to $890.50 an ounce in early electronic trading.
A USA Today/Gallup poll released Sunday also found that by a 52 percent to 35 percent margin, viewers thought Obama offered better proposals to solve the country’s problems.
“The economy is the issue that looks like it’s going to dictate this election,” says Darrell West, the director of governance studies at the Brookings Institution in Washington. “And Obama won those parts of the debate that he needed to win.”
McCain’s demeanor, particularly during the second part of the debate, may also have hurt him with some independent voters.
“There were times McCain came across as too angry,” says Mr. West. “That’s a style of delivery that’s going to scare some undecided voters, and it’s also a style that women don’t like, and there are more undecided women than men.”
Bank of China, the country's biggest forex lender, says it's open to taking stakes in distressed U.S. banks. Executives at other Chinese banks have been more cautious in exploring a move into America.
Circuit City said Monday that its quarterly loss widened to $239.2 million, or $1.45 a share, from $62.8 million, or 38 cents, a year earlier. Sales in the quarter ended Aug. 31 fell to $2.39 billion from $2.64 billion. The company also said it's undertaking a comprehensive review of its business and has identified key areas to bolster its holiday season performance.
NY Times: "A growing number of hedge funds are closing down. About 350 were liquidated in the first half of the year. While hedge funds come and go all the time, if the trend continues, the number of closures would be up 24 percent this year from 2007.
Many funds are bracing for trouble. The industry has set aside $600 billion in cash, according to Citigroup analysts, partly because of the uncertainty hanging over the markets but also because of possible redemptions. If redemptions do pour in, hedge funds can freeze the process by not paying investors for a certain period of time, slowing the pace of withdrawals.
One little-known hedge fund barometer is pointing to trouble, however. The alphabet soup of complex investments that Wall Street created in recent years — R.M.B.S.’s, C.D.O.’s and the like — includes C.F.O.’s, short for collateralized fund obligations. Virtually unknown outside the industry, these investments are the hedge fund equivalent of mortgage-backed securities: securities backed by hedge funds...Returns are not in yet for September, but hedge fund managers say this month is even worse than the summer. Some funds were hurt by new rules from the Securities and Exchange Commission on short-selling, a tactic for betting against stock prices. The commission made it more difficult to short all stocks and temporarily banned the strategy in more than 800 financial stocks. In particular, this hurt convertible-bond managers, who often buy bonds that can be converted into shares and short the underlying stocks."
The short-selling ban lasts until Thursday evening, but it is widely expected to be extended.
The concern is over the redemptions that are happening,” said Jenny Story, an analyst with Fitch Ratings. “The gates are being closed.”
Sept. 30 is the date investors notify hedge funds they wish to withdraw their capital by year's end. Brace for the waterfall.
Vishay Intertechnology Inc.said Monday that it commenced a tender offer to buy shares of International Rectifier Corp.for $23 in cash apiece. The tender offer is set to expire at midnight, Eastern time, on Oct. 27. International Rectifier's board of directors had rejected Vishay's earlier $21.22-a-share merger offer, calling it "inadequate" and "opportunistic."
President Hugo Chavez said Sunday that Russia will help Venezuela develop nuclear energy — a move likely to raise U.S. concerns over increasingly close cooperation between Caracas and Moscow.
Chavez said he accepted an offer from Russian Prime Minister Vladimir Putin for assistance in building a nuclear reactor.
Science Applications International Corp. said Monday that its subsidiary SAIC-Frederick Inc. has won a contract potentially valued at $5.2 billion to help operate and provide technical support to the National Cancer Institute's research and development center in Frederick, Md.
The award contract, which SAIC said is the largest single research contract awarded by the Department of Health and Human Services, has a three-year base period of performance, five one-year award-term options and one two-year option. The contract has an estimated value of $5.2 billion if all options are exercised.
The cost of borrowing in euros for three months rose to a record after government-led bank bailouts heightened concern that more will fail, prompting financial institutions to hoard cash.
The euro interbank offered rate, or Euribor, climbed 10 basis points to 5.24 percent, the European Banking Federation said today. That's the biggest jump since June. The London interbank offered rate, or Libor, for three-month dollar loans rose to 3.88 percent, the highest level since Jan. 18 and up from 2.81 percent a month ago. Singapore's benchmark rate for such loans increased to the highest level in eight months.
Consumer spending in August turned in the weakest performance in six months. The Commerce Department said consumer spending was flat in August after barely edging up by a revised 0.1 percent in July. Incomes from wages and salaries and all other sources rose by 0.5 percent in August, largely reversing July's revised 0.6 percent drop and well ahead of forecasts for a smaller 0.2 percent gain.
Incomes had been boosted early in the year by payments made under an economic stimulus program but that has largely worn off. "These payments are now winding down," the department said. Personal income increased $61.5 billion, or 0.5 percent, and disposable personal income (DPI)decreased $93.3 billion, or 0.9 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $3.9 billion, or less than 0.1 percent. In July, personal income decreased $69.0 billion, or 0.6 percent, DPI decreased $91.0 billion, or 0.8 percent, and PCE increased $14.2 billion, or 0.1 percent, based on revised estimates. The pattern of changes in income primarily reflects the pattern of payments associated with the Economic Stimulus Act of 2008
“How did things go so badly? The simple answer: greedy, fat cat investment bankers who used these complicated derivatives no one could understand to leverage themselves, make tons of money at the expense of the typical mortgage holder, and who will never experience any down side from their profligacy.” economist.com, 9-23-2008
Mitsubishi UFJ will acquire 9.9% of Morgan Stanley's common stock on a primary basis at a price of $25.25 a share, for a total of $3 billion, and $6 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $31.25 a share.
Shares of National City Corp dropped more than half on Monday as investors wondered which regional bank might need a merger partner as the sector suffered what analysts called a deepening crisis of confidence.
The big Ohio bank slid $2, or 52 percent, at $1.70 on the New York Stock Exchange. The stock fell more than 25 percent on Friday.
Russian equities fell sharply Monday, joining a broad sell-off in emerging-market equities, as investors dumped risky assets on concerns that the U.S. government's bailout plan will not be enough to stem the financial crisis. In Moscow, the Micex stock index fell 5.5% in intraday trading and the RTS stock index dropped 7.1%.
In mid-morning crude dropped below the $100 level. Meanwhile, gold for December delivery rose $14.50, or 1.6%, to $903 an ounce on the Comex division of the New York Mercantile Exchange.
The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
In addition, the Fed announced a new forward auction to provide lending to banks over the year-end. The Fed, in my view, is pushing the panic button much too late in the solvency game.
Apple shares fell $ 17 to $110 after Morgan Stanley cut its rating on the company to equal weight from overweight.
House Democrats are refusing to back down in their fight with the Senate on tax policy, increasing the odds that Congress will adjourn without acting to shield millions of people from the alternative minimum tax.
The House plans to adjourn for the year on Monday. Without a compromise, tax legislation to fix the AMT, provide tax credits to disaster victims and extend tax credits to businesses, individuals and developers of renewable energy resources would die.
India said Monday it will purchase 347 T-90 battle tanks from Russia and will consider a demand from Moscow that it pay an additional $1.2 billion because of delays in a deal for a Soviet-built aircraft carrier and 16 fighter jets.
In mid-morning, the VIX jumped 7.57 percent to 37.37, its highest level since Sept. 18.
Hypo Real Estate, Germany's second-biggest commercial-real estate lender, received a 35 billion euro loan guarantee to prevent its insolvency.
Iceland bought 75% of Glitnir Bank, the nation's third-largest bank.
The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry. Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.
November crude traded at $95.39 per barrel on Globex Monday evening, down 98 cents from the New York Mercantile Exchange's closing level of $96.37. On Nymex, the contract's price had already dropped $10.52, or 9.8%, for the session. December gold traded at $916.20 an ounce in electronic trading on Globex Monday evening. The contract had gained $5.90 on the New York Mercantile Exchange to end that trading session at $894.40 so Globex prices are up more than $20 from that level. Prices climbed after the U.S. House of Representatives voted against the financial bailout plan. "The crucial thing is that gold was making gains as the U.S. dollar was rising too," said Sam Kirtley, editor of Gold-Prices.biz. "Since they usually move in opposite directions, this is a sign of the tremendous strength building behind the yellow metal."
In the biggest tech-sector selloff in more than three years, the tech-heavy Nasdaq Composite Index plunged 199 points, or more than 9% to close at 1,983, the first time it closed below 2,000 since May 2005. The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks. The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.
The Standard & Poor's 500 index declined 106.85, or nearly 9 percent, to 1,106.42. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash.
Sunday, September 28, 2008
More Troubled Banks
9/29/08 More Troubled Banks
The bailout "will expand the range of firms that can sell troubled assets to the government to include pension plans, local governments and community banks serving "low- and middle-income families."
Fortis on Friday denied it was facing a liquidity crisis and pledged to speed up asset sales as the Belgo-Dutch bank became the latest focus of investor concerns about the fragility of Europe’s financial sector.
Democratic presidential nominee Obama reunited with running-mate Joe Biden in Greensboro, North Carolina, where they highlighted the fact that the Republican candidate didn't once use the term ``middle class'' during last night's debate, which focused on the economy and foreign policy.
``We talked about the economy for 40 minutes, and not once did Senator McCain talk about the struggles of middle-class families,'' Obama told the 20,000 person crowd at an outdoor rally. ``Senator McCain just doesn't get it.''
The total government commitment so far in its current and proposed bailouts: $1 trillion.
U.S. lending standards before the global credit crisis were "ridiculous," and the world can learn from China's more cautious system as it considers financial reforms, the top Chinese bank regulator said Saturday. "When U.S. regulators were reducing the down payment to zero, or they created so-called `reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.
"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.
A Berkshire Hathaway Inc. subsidiary agreed to buy 10% of BYD Co., a Chinese producer of rechargeable batteries, electric cars, and car parts, for US$230 million, the companies said late on Friday.
Israeli officials say the U.S. has provided Israel with an advanced radar system that will give early warning in case of an Iranian missile attack.
In 1994, swelling debt and a growing trade deficit led to a surprise currency devaluation in Mexico. The peso lost almost half its value, inflation soared and interest rates topped 100 percent — leading companies and families to default or withdraw savings. Banks suddenly stopped lending.
Previous financial crises had inspired Mexico to set up an emergency fund, known as Fobaproa, to keep banks afloat. The fund went to work in early 1995, buying up bad loans on the condition that banks would grant new credit to boost growth.
Over the next nine years, the government spent nearly 1.25 trillion pesos, about US$137 billion, to cleanse its financial system — an amount equal to 17 percent of GDP in 2004, according to a Mexican congressional audit of spending through that year. Some debts were restructured with inflation-adjusted units known as UDIS, to prevent more of the steep interest rate hikes that had caused so many Mexicans to default.
But bailout programs were piecemeal and repeatedly extended, dragging on years longer than originally planned.
Registered voters who watched the first presidential debate preferred Obama over McCain, 49% to 44%, a Los Angeles Times/Bloomberg survey shows.
The New York Times said Citigroup and Wells Fargo were locked in a bidding war for a possible takeover of Wachovia, citing people involved in the talks. The U.S. government, led by the Federal Reserve and the Treasury Department, is also involved in the talks, the newspaper said.
The troubled British mortgage lender Bradford & Bingley will be nationalized and sold off in parts, with Spanish banking giant Santander SA taking over its retail deposits and branch network, British media reported Monday.
The bailout "will expand the range of firms that can sell troubled assets to the government to include pension plans, local governments and community banks serving "low- and middle-income families."
Fortis on Friday denied it was facing a liquidity crisis and pledged to speed up asset sales as the Belgo-Dutch bank became the latest focus of investor concerns about the fragility of Europe’s financial sector.
Democratic presidential nominee Obama reunited with running-mate Joe Biden in Greensboro, North Carolina, where they highlighted the fact that the Republican candidate didn't once use the term ``middle class'' during last night's debate, which focused on the economy and foreign policy.
``We talked about the economy for 40 minutes, and not once did Senator McCain talk about the struggles of middle-class families,'' Obama told the 20,000 person crowd at an outdoor rally. ``Senator McCain just doesn't get it.''
The total government commitment so far in its current and proposed bailouts: $1 trillion.
U.S. lending standards before the global credit crisis were "ridiculous," and the world can learn from China's more cautious system as it considers financial reforms, the top Chinese bank regulator said Saturday. "When U.S. regulators were reducing the down payment to zero, or they created so-called `reverse mortgages,' we thought that was ridiculous," Liu said at the World Economic Forum in this eastern Chinese city. He said debt in the United States and elsewhere rose to "dangerous and indefensible" levels.
"Fast food is convenient. This $700 billion package must ease the concerns and build up confidence. But if you only take this, it doesn't agree with your stomach. You should think about Chinese slow cooking and slow food," he said, prompting laughter from his audience.
A Berkshire Hathaway Inc. subsidiary agreed to buy 10% of BYD Co., a Chinese producer of rechargeable batteries, electric cars, and car parts, for US$230 million, the companies said late on Friday.
Israeli officials say the U.S. has provided Israel with an advanced radar system that will give early warning in case of an Iranian missile attack.
In 1994, swelling debt and a growing trade deficit led to a surprise currency devaluation in Mexico. The peso lost almost half its value, inflation soared and interest rates topped 100 percent — leading companies and families to default or withdraw savings. Banks suddenly stopped lending.
Previous financial crises had inspired Mexico to set up an emergency fund, known as Fobaproa, to keep banks afloat. The fund went to work in early 1995, buying up bad loans on the condition that banks would grant new credit to boost growth.
Over the next nine years, the government spent nearly 1.25 trillion pesos, about US$137 billion, to cleanse its financial system — an amount equal to 17 percent of GDP in 2004, according to a Mexican congressional audit of spending through that year. Some debts were restructured with inflation-adjusted units known as UDIS, to prevent more of the steep interest rate hikes that had caused so many Mexicans to default.
But bailout programs were piecemeal and repeatedly extended, dragging on years longer than originally planned.
Registered voters who watched the first presidential debate preferred Obama over McCain, 49% to 44%, a Los Angeles Times/Bloomberg survey shows.
The New York Times said Citigroup and Wells Fargo were locked in a bidding war for a possible takeover of Wachovia, citing people involved in the talks. The U.S. government, led by the Federal Reserve and the Treasury Department, is also involved in the talks, the newspaper said.
The troubled British mortgage lender Bradford & Bingley will be nationalized and sold off in parts, with Spanish banking giant Santander SA taking over its retail deposits and branch network, British media reported Monday.
Government Debt
9/28/08 Government Debt
Doug Noland: "The Financial Structure that fueled myriad Credit Bubbles, asset Bubbles, economic Bubbles and overliquefied the entire world is today no longer viable. Wall Street finance is at this point an unmitigated bust, with a few of the “holdout” sectors (i.e. the Credit default market and the hedge fund community) now succumbing. The great Financial Alchemy of transforming endless risky loans into perceived safe and liquid “money”-like instruments has run its historic course. And with risky loans – household, financial sector, business, municipal and speculator – having come to play such a prominent role in the nature of spending and “output”, the near elimination of risky lending will prove a momentous financial and economic development. The U.S. Bubble economy is today in dire straits...Unless some dramatic development reverses the current course, it will not be long before a self-reinforcing cycle of company payroll and spending cutbacks takes hold. At the same time, the municipal bond market is in disarray. The economic impact from major cutbacks in state and local government spending will be significant. Today’s finance-related economic headwinds are Cat-4 (and gaining) Hurricane Systemic Credit Seizure, compared to last year’s Tropical Storm Subprime. Federal Reserve-dictated interest rates are extremely low – and the Fed and global central bankers have injected unfathomable amounts of liquidity – yet Credit Conditions have turned the tightest they’ve been in decades...Basically, the Lehman collapse marked the end of “Wall Street” risk intermediation as a significant component of system financial intermediation. Going forward, Credit growth will be chiefly generated by the banking system, supported by various forms of government backing (Fed, FDIC, Washington bailouts/recapitalizations, etc.), the government-operated GSEs, and various forms of federal government debt issuance. Importantly, this new financial structure will ensure minimal risky lending as well as significantly reduced risk-taking. And from a global perspective, I believe newfound fears of lending to the American financial sector marks the beginning of the end of our economy’s capacity for trading new financial claims for imports of energy and goods...I’d bet this new financial structure will allocate much less finance to entrepreneurial activities, productive endeavors and the asset markets – while at the same time providing ample (government-directed) purchasing power to ensure stubborn consumer price inflation."
Nouriel Roubini: "The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
"The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,’ said Kwag Dae Hwan, head of global investment… with South Korea’s $220 billion National Pension Fund… ‘A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me."
Bloomberg: “The cost to protect against a default by Wachovia Corp., the fourth-largest U.S. bank, soared to distressed levels after Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure. Credit-default swap sellers demanded 24.5 percentage points upfront and 5 percentage points a year to protect Wachovia bonds from default for five years… Wachovia’s $2.5 billion of 5.75% bonds due in 2018 plunged 22 cents today to 48 cents on the dollar…”
Floyd Norris: "The International Swaps and Derivatives Association, a trade group, reported that the amount of outstanding credit-default swaps declined in the first half of 2008, something that had never happened before.
The 12 percent decline, to $54.6 trillion, still left the market vastly larger than the total amount of debt that can be insured. The huge total reflects the way the market is structured, as well as the fact that someone does not need to actually be owed money by a company to be able to buy a credit-default swap. In that case, the buyer is betting that the company will go broke.
Within that huge market, many contracts offset one another — assuming that all parties honor their commitments. But if one major firm goes broke, the effect could snowball as others are unable to meet their commitments...The accompanying charts show the growth of the amount of credit-default swaps outstanding, and show how those totals compare with the total amount of outstanding loans from banks and others to corporations and foreign governments. Even with the decline, the swaps volume is more than three times the debt total."
About 2.4% of payments on credit cards are more than 90 days overdue, according to the Federal Deposit Insurance Corp., the highest level since 1991.
WaMu has over 2,200 branches. How many do you think will be closed?
NY Times: "Weighed down by a huge portfolio of troubled mortgage loans, the nation’s fourth-largest bank by assets entered into preliminary deal talks with Citigroup, and extended feelers to Wells Fargo and Banco Santander of Spain, people briefed on the matter said. The talks are early, and no deal may emerge from them. But it appeared Wachovia was seeking potential alternatives should the bailout plan being debated in Washington not pass quickly, or fail to provide enough help.
Wachovia has a $120 billion portfolio of mortgages loaded with adjustable interest-rate loans that allow borrowers to skip part of their monthly payments, much of which it inherited from its ill-timed acquisition of Golden West, the big California lender, at the end of the housing boom in 2006."
Peter Schiff: "The urgency for passing this bailout bill is based on the claim that the American economy will collapse if nothing is done. If the government were to stay out, and allow the market to function, there will certainly be a great deal of economic pain. Companies will go bankrupt, banks will fail, real estate and stock prices will keep falling, and many people will lose their jobs. However, government action will not prevent any of this. At best, it will merely delay the inevitable, but only at the cost of increasing the severity of the underlying problems, thus making their ultimate resolution that much more painful to endure.
The bottom line is that there is no way to resolve our economic problems without a severe recession, and our politicians need to level with the public. As a nation, we gambled on the alluring riches of real estate and we lost. The price must be paid. Contrary to the Bush Administration rhetoric, the fundamentals of our economy are not sound. If they were, we would not be in this mess. Recessions are meant to restore balance, purge excess, and liquidate mal-investments. On that score we have a lot of work to do."
Kathleen Parker, a writer for TownHall.com, reversed her initial support for the Republican vice-presidential nominee and said Ms. Palin should drop out. Put the country first, she basically advised, by saying you need to go take care of your family first.
Financial Times: "Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves."
The U.S. financial crisis will crimp consumption and spill over to the rest of the world including China, according to bankers and government officials meeting at the World Economic Forum in eastern China's Tianjin.
``We are in the worst crisis since the Great Depression,'' said Citigroup Inc.'s Senior Vice Chairman William Rhodes. ``We are in a period of a tremendous lack of confidence'' where financial institutions require fresh funds to restore consumer trust, he said.
Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation's slowing economy is more of a concern than accelerating inflation.
Felix Zulauf: "Government debt is going to rise dramatically over the next five to 10 years. Government debt is at 300% of [gross domestic product] in most industrialized countries, if you calculate correctly. That can increase to 400% and 500%, but at some point the government-bond market will not take this without any consequences. That will lead to rising long-term interest rates. But because the economy is not on solid footing yet, short-term rates will stay low for a long time. So you will have a very steep yield curve for many, many years, and this is bearish for bonds since their prices keep falling."
Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.
Doug Noland: "The Financial Structure that fueled myriad Credit Bubbles, asset Bubbles, economic Bubbles and overliquefied the entire world is today no longer viable. Wall Street finance is at this point an unmitigated bust, with a few of the “holdout” sectors (i.e. the Credit default market and the hedge fund community) now succumbing. The great Financial Alchemy of transforming endless risky loans into perceived safe and liquid “money”-like instruments has run its historic course. And with risky loans – household, financial sector, business, municipal and speculator – having come to play such a prominent role in the nature of spending and “output”, the near elimination of risky lending will prove a momentous financial and economic development. The U.S. Bubble economy is today in dire straits...Unless some dramatic development reverses the current course, it will not be long before a self-reinforcing cycle of company payroll and spending cutbacks takes hold. At the same time, the municipal bond market is in disarray. The economic impact from major cutbacks in state and local government spending will be significant. Today’s finance-related economic headwinds are Cat-4 (and gaining) Hurricane Systemic Credit Seizure, compared to last year’s Tropical Storm Subprime. Federal Reserve-dictated interest rates are extremely low – and the Fed and global central bankers have injected unfathomable amounts of liquidity – yet Credit Conditions have turned the tightest they’ve been in decades...Basically, the Lehman collapse marked the end of “Wall Street” risk intermediation as a significant component of system financial intermediation. Going forward, Credit growth will be chiefly generated by the banking system, supported by various forms of government backing (Fed, FDIC, Washington bailouts/recapitalizations, etc.), the government-operated GSEs, and various forms of federal government debt issuance. Importantly, this new financial structure will ensure minimal risky lending as well as significantly reduced risk-taking. And from a global perspective, I believe newfound fears of lending to the American financial sector marks the beginning of the end of our economy’s capacity for trading new financial claims for imports of energy and goods...I’d bet this new financial structure will allocate much less finance to entrepreneurial activities, productive endeavors and the asset markets – while at the same time providing ample (government-directed) purchasing power to ensure stubborn consumer price inflation."
Nouriel Roubini: "The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
"The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,’ said Kwag Dae Hwan, head of global investment… with South Korea’s $220 billion National Pension Fund… ‘A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me."
Bloomberg: “The cost to protect against a default by Wachovia Corp., the fourth-largest U.S. bank, soared to distressed levels after Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure. Credit-default swap sellers demanded 24.5 percentage points upfront and 5 percentage points a year to protect Wachovia bonds from default for five years… Wachovia’s $2.5 billion of 5.75% bonds due in 2018 plunged 22 cents today to 48 cents on the dollar…”
Floyd Norris: "The International Swaps and Derivatives Association, a trade group, reported that the amount of outstanding credit-default swaps declined in the first half of 2008, something that had never happened before.
The 12 percent decline, to $54.6 trillion, still left the market vastly larger than the total amount of debt that can be insured. The huge total reflects the way the market is structured, as well as the fact that someone does not need to actually be owed money by a company to be able to buy a credit-default swap. In that case, the buyer is betting that the company will go broke.
Within that huge market, many contracts offset one another — assuming that all parties honor their commitments. But if one major firm goes broke, the effect could snowball as others are unable to meet their commitments...The accompanying charts show the growth of the amount of credit-default swaps outstanding, and show how those totals compare with the total amount of outstanding loans from banks and others to corporations and foreign governments. Even with the decline, the swaps volume is more than three times the debt total."
About 2.4% of payments on credit cards are more than 90 days overdue, according to the Federal Deposit Insurance Corp., the highest level since 1991.
WaMu has over 2,200 branches. How many do you think will be closed?
NY Times: "Weighed down by a huge portfolio of troubled mortgage loans, the nation’s fourth-largest bank by assets entered into preliminary deal talks with Citigroup, and extended feelers to Wells Fargo and Banco Santander of Spain, people briefed on the matter said. The talks are early, and no deal may emerge from them. But it appeared Wachovia was seeking potential alternatives should the bailout plan being debated in Washington not pass quickly, or fail to provide enough help.
Wachovia has a $120 billion portfolio of mortgages loaded with adjustable interest-rate loans that allow borrowers to skip part of their monthly payments, much of which it inherited from its ill-timed acquisition of Golden West, the big California lender, at the end of the housing boom in 2006."
Peter Schiff: "The urgency for passing this bailout bill is based on the claim that the American economy will collapse if nothing is done. If the government were to stay out, and allow the market to function, there will certainly be a great deal of economic pain. Companies will go bankrupt, banks will fail, real estate and stock prices will keep falling, and many people will lose their jobs. However, government action will not prevent any of this. At best, it will merely delay the inevitable, but only at the cost of increasing the severity of the underlying problems, thus making their ultimate resolution that much more painful to endure.
The bottom line is that there is no way to resolve our economic problems without a severe recession, and our politicians need to level with the public. As a nation, we gambled on the alluring riches of real estate and we lost. The price must be paid. Contrary to the Bush Administration rhetoric, the fundamentals of our economy are not sound. If they were, we would not be in this mess. Recessions are meant to restore balance, purge excess, and liquidate mal-investments. On that score we have a lot of work to do."
Kathleen Parker, a writer for TownHall.com, reversed her initial support for the Republican vice-presidential nominee and said Ms. Palin should drop out. Put the country first, she basically advised, by saying you need to go take care of your family first.
Financial Times: "Banks are not to be trusted. This is not just the view of the public and policymakers, but that of the banks themselves."
The U.S. financial crisis will crimp consumption and spill over to the rest of the world including China, according to bankers and government officials meeting at the World Economic Forum in eastern China's Tianjin.
``We are in the worst crisis since the Great Depression,'' said Citigroup Inc.'s Senior Vice Chairman William Rhodes. ``We are in a period of a tremendous lack of confidence'' where financial institutions require fresh funds to restore consumer trust, he said.
Fewer orders for made-in-Asia goods are cooling industrial production in China, Singapore and Taiwan among others. Bank of Korea official Kang Myung Hun, who opposed a rate increase last month, said the nation's slowing economy is more of a concern than accelerating inflation.
Felix Zulauf: "Government debt is going to rise dramatically over the next five to 10 years. Government debt is at 300% of [gross domestic product] in most industrialized countries, if you calculate correctly. That can increase to 400% and 500%, but at some point the government-bond market will not take this without any consequences. That will lead to rising long-term interest rates. But because the economy is not on solid footing yet, short-term rates will stay low for a long time. So you will have a very steep yield curve for many, many years, and this is bearish for bonds since their prices keep falling."
Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.
Saturday, September 27, 2008
Danger
9/27/08 Danger
Thomas Jefferson: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Now read the following and compare. "The private market has screwed itself up," explained Representative Barney Frank "and they need the government to come help them unscrew it." Bill Bonner observes "He left out the extenuating circumstance that the U.S. money supply, the shortest term lending rates, Fannie Mae, Freddie Mac, the Fed, the Federal Housing Administration, the SEC…and a whole plethora of agencies, commissions and meddlers…as well as one out of every 4 dollars spent…were all under government control all along!"
Marc Faber: "Looking at the size of the credit market in the United States, the equities market, the housing market and then looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all. In fact, I think it's a bad proposal in the sense that it will distort market pricing."
Nouriel Roubini: "Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.
Moreover, the plan does not address the need to recapitalize badly undercapitalized financial institutions: this could have been achieved via public injections of preferred shares into these firms; needed matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; suspension of dividends payments; conversion of some of the unsecured debt into equity (a debt for equity swap).
The plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.
Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
J.P. Morgan Chase, which late Thursday bought Washington Mutual, said the peak-to-trough average home price in California could fall as much as 58% if the country enters a severe recession. Faced by severe liquidity issues and banks unwilling to lend to them, Bair said the FDIC stepped in and revoked Washington Mutual's charter. The transaction will allow Washington Mutual to be open for business on Friday. Washington Mutual's collapse is the biggest bank failure ever. JPMorgan Chase will pay $1.9 billion for deposits and branches.
Treasurys stayed higher after the government said the economy grew 2.8% in the second quarter, revised from a previous reading of 3.3%.
KB Home reported a third-quarter loss of $144.7 million, or $1.87 a share, compared with a loss of $35.6 million, or 46 cents a share, in the year-ago period. The latest quarter's results included pretax charges of $82.2 million for inventory and joint venture impairments and $58.1 million to record a valuation allowance. The Los Angeles-based residential builder said total revenue fell to $681.6 million from $1.54 billion. "Continued deterioration in new home demand, new and existing home prices, excessive inventories and mortgage credit availability prevailed across most U.S. housing markets in the third quarter," said Jeffrey Mezger, president and chief executive officer. "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets, and it is too early to assess whether the federal government's proposed interventions will be effective."
Alpharma Inc. said Friday it's rejecting a bid from King Pharmaceuticals Inc.because it's inadequate.
With nervous banks reluctant to lend to each other beyond overnight, the U.S. Federal Reserve and other central banks announced joint actions Friday to ease tensions in money markets. The Fed said it had added $13 billion to its existing $277 billion in swap lines with other central banks to provide funds for short-term loans to money markets. The Fed, the Bank of England, the European Central Bank and the Swiss National Bank will use the swap lines to provide dollar-liquidity through one-week loans in an effort to ease funding pressures through the end of the quarter. In addition, the Bank of England said it would auction 40 billion pounds in loans that will mature Jan. 15, 2009.
Shares of American International Group Inc. sank in premarket trading Friday, as investors reacted to the news that the insurer's former chief executive will unload his stock.
A regulatory filing Thursday revealed that Maurice "Hank" Greenberg, who ran AIG for almost 40 years, plans to sell an undisclosed amount of shares for "liquidity and other purposes." The sales may "materially" decrease the holdings that he controls, according to a filing with the Securities and Exchange Commission.
Political wrangling threw the $700 billion bailout plan into disarray, despite a day of negotiations that seemed to promise a deal. Talks broke off with no agreement and with plans to reconvene in the morning, without House Republicans. Barney Frank, the chairman of the House Financial Services Committee declared Friday that an agreement on legislation to relieve a spreading financial crisis depends on House Republicans "dropping this revolt" against President Bush. He called the rival proposal being pushed by House conservative Republicans "an ambush plan."
According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $13.897 billion in the week ended 9/24/08 with Domestic funds reporting net inflows of $14.763 billion and Non-domestic funds reporting net outflows of -$867 million;
Excluding ETF activity, Equity funds report net cash outflows totaling -$9.318 billion, the largest net outflow since 1/23/08; with Domestic funds reporting net outflows of -$5.277 billion and Non-domestic funds reporting net outflows totaling -$4.040 billion.
Research In Motion says its margins will contract in the current quarter as it spends more to produce snazzy new BlackBerrys.
According to the FT, Morgan Stanley lost close to a third of assets in its prime brokerage last week, amounting to hundreds of billions of dollars, as hedge funds fled after the collapse of Lehman Brothers and moved to rival banks.
The losses, confirmed by several people familiar with the business, will deal a big blow to Morgan Stanley as its prime brokerage is one of its most profitable and successful businesses.
Venezuela, the world's fifth-largest oil exporter, will boost crude shipments to China by 25 percent in 2009 to benefit from rising energy demand in the fastest- growing major economy, President Hugo Chavez said.
Crude sales will rise to 500,000 barrels a day from an estimated 400,000 barrels by the end of this year, Chavez, who is visiting China, told reporters in Beijing today. The Latin American country currently exports more than 300,000 barrels a day to China, he said.
OAO Gazprom and other Russian energy producers will join with Petroleos de Venezuela SA to work on projects around the world, Venezuelan President Hugo Chavez said.
``It's a colossus being born,'' Chavez said live on Venezuelan state television from Russia, which he was visiting for the second time in two months. The companies will combine ``investment, exploration, exploitation, processing and commerce in energy, oil, gas and many other areas,'' he said.
China's banks are limiting foreign- exchange transactions with U.S. and European financial companies on concern tighter global credit markets will cause more failures.
Gasoline shortages hit towns across the southeastern United States this week, sparking panic buying, long lines and high prices at stations from the small towns of northeast Alabama to Charlotte in the wake of Hurricanes Gustav and Ike.
PICC Property & Casualty Co. said Chinese housing prices may drop as much as 50% over the next few years, citing the insurer’s asset management arm. Property prices have “gone far beyond what people can afford” and the nation’s housing bubble is “on the verge of ending,” citing Ling Xiuli, a senior researcher at the company. Shimao Property Holdings Ltd., a Chinese developer, yesterday cut its sales target for this year by 20% to $2.05 billion on falling demand. Shimao also lowered its sales targets for next year and 2010 by about 30%.
MMS has recalculated the number of manned platforms in the Gulf since 23 manned platforms were destroyed by the recent hurricane. Personnel are still evacuated from 179 offshore platforms, and 59.3% of oil production is currently shut-in.
In the Sept. 19-22 poll, the undecided voters said Obama would do a better job than McCain of addressing the market meltdown by a margin of 57 percent to 18 percent. That's significantly wider than among all likely voters, where there is just a 12-point gap between Illinois Senator Obama and McCain, an Arizona senator.
Wachovia Corp. and National City Corp. slumped after negotiations on the government's financial bailout stalled and failed lender Washington Mutual Inc. was sold by regulators to JPMorgan Chase & Co.
Wachovia dropped $3.40, or 25 percent, to $10.30 at 8:46 a.m. in early New York trading, leading bank stocks lower. Cleveland-based National City fell 15 percent to $4.25. Charlotte, North Carolina-based Wachovia has lost more than 70 percent of its market value in the last 12 months and National City plunged 80 percent through yesterday.
Those looking for opportunities to short stocks and want to avoid the ban can bet on a downturn in the industrial sector, Simon Goodfellow, Head of European Equity Strategy Research, ING Wholesale Banking told CNBC on Friday.
Return on equity (ROE) in the sector is at a historic high 21 percent, compared with a median of 9 percent, which means the sector is prone to fall, Goodfellow said.
"It is quite literally incredible. The ROE in the industrial sector is the highest it has ever been, and absolutely no-one is forecasting any serious downturn," he told "Squawk Box Europe."
"And when the downturn comes it won't just be a small six or 12 months affair, it will be a proper two-year, maybe even three-year affair. This is where the shorting activity should go," he added.
Money Markets Grind To A Virtual Halt: Interbank and Repo Rates At Record Highs.
At $55+ Deere is trading at a new 52-week low and is down 40 points from the high. There will be more bad news to absorb on Deere; however, if the shares drop another 10%, I believe the risk/reward becomes favorable for a long-term investor an could present a buy/write opportunity.
J.P. Morgan Chase & Co. priced a $10 billion offering of approximately 246.9 million shares of its common stock at $40.50 per share.
James Bullard, the new president of the St. Louis Federal Reserve Bank, said the outlook is uncertain and there could be a severe downturn from the credit crunch. But Bullard also said he was still uncomfortable with the inflation outlook. The challenge for the Fed would be to navigate this crisis without "creating a new and difficult-to-solve inflation problem in its wake," Bullard said in a speech at Middle Tennessee State University. Until the overall inflation rate "clearly slows," the Fed must remain on alert, he said. At the moment, the 2% Fed funds rate is well below inflation, he added.
David Letterman described Paris Hilton -- Thursday's guest whose celebrity was once used in a McCain campaign ad to mock Democrat Barack Obama -- as McCain's first choice for a running mate.
"Here's how it works: You don't come to see me? You don't come to see me? Well, we might not see you on Inauguration Day," Letterman said.
Gold for December delivery ended up $6.50, or 0.7%, at $888.50 an ounce on the Comex division of the New York Mercantile Exchange. November crude closed at $106.89 per barrel Friday on the New York Mercantile Exchange, down $1.13, or 1.1% for the session. But prices ended the week with a gain of 4%.
George Harris: "Who won the debate?
CBS Insta Poll shows Barack Obama won 39% to John McCain's 25% with 36% saying the debate was a draw.
Insider Advantage reports those polled Obama won 42% to McCain's 41% with Undecided 17%
CNN reports voter opinions that Obama "did better" 51%, McCain "did better" 38%
The CNN poll showed men were evenly split, but women gave Obama higher marks 59% to 41% for McCain.
The CNN pollster noted a slight Democratic bias in the survey. Well, there just are more Democrats in the country. So more Democrats watched. However, this may also suggest Democratic enthusiasm which will help turn out the vote.
The MSNBC on-line (non-scientific) poll showed Obama winning the debate 52% to 33%. (But this is what one would expect from such a poll at MSNBC because of the nature of its viewers.)"
Thomas Jefferson: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Now read the following and compare. "The private market has screwed itself up," explained Representative Barney Frank "and they need the government to come help them unscrew it." Bill Bonner observes "He left out the extenuating circumstance that the U.S. money supply, the shortest term lending rates, Fannie Mae, Freddie Mac, the Fed, the Federal Housing Administration, the SEC…and a whole plethora of agencies, commissions and meddlers…as well as one out of every 4 dollars spent…were all under government control all along!"
Marc Faber: "Looking at the size of the credit market in the United States, the equities market, the housing market and then looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all. In fact, I think it's a bad proposal in the sense that it will distort market pricing."
Nouriel Roubini: "Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.
Moreover, the plan does not address the need to recapitalize badly undercapitalized financial institutions: this could have been achieved via public injections of preferred shares into these firms; needed matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; suspension of dividends payments; conversion of some of the unsecured debt into equity (a debt for equity swap).
The plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.
Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."
J.P. Morgan Chase, which late Thursday bought Washington Mutual, said the peak-to-trough average home price in California could fall as much as 58% if the country enters a severe recession. Faced by severe liquidity issues and banks unwilling to lend to them, Bair said the FDIC stepped in and revoked Washington Mutual's charter. The transaction will allow Washington Mutual to be open for business on Friday. Washington Mutual's collapse is the biggest bank failure ever. JPMorgan Chase will pay $1.9 billion for deposits and branches.
Treasurys stayed higher after the government said the economy grew 2.8% in the second quarter, revised from a previous reading of 3.3%.
KB Home reported a third-quarter loss of $144.7 million, or $1.87 a share, compared with a loss of $35.6 million, or 46 cents a share, in the year-ago period. The latest quarter's results included pretax charges of $82.2 million for inventory and joint venture impairments and $58.1 million to record a valuation allowance. The Los Angeles-based residential builder said total revenue fell to $681.6 million from $1.54 billion. "Continued deterioration in new home demand, new and existing home prices, excessive inventories and mortgage credit availability prevailed across most U.S. housing markets in the third quarter," said Jeffrey Mezger, president and chief executive officer. "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets, and it is too early to assess whether the federal government's proposed interventions will be effective."
Alpharma Inc. said Friday it's rejecting a bid from King Pharmaceuticals Inc.because it's inadequate.
With nervous banks reluctant to lend to each other beyond overnight, the U.S. Federal Reserve and other central banks announced joint actions Friday to ease tensions in money markets. The Fed said it had added $13 billion to its existing $277 billion in swap lines with other central banks to provide funds for short-term loans to money markets. The Fed, the Bank of England, the European Central Bank and the Swiss National Bank will use the swap lines to provide dollar-liquidity through one-week loans in an effort to ease funding pressures through the end of the quarter. In addition, the Bank of England said it would auction 40 billion pounds in loans that will mature Jan. 15, 2009.
Shares of American International Group Inc. sank in premarket trading Friday, as investors reacted to the news that the insurer's former chief executive will unload his stock.
A regulatory filing Thursday revealed that Maurice "Hank" Greenberg, who ran AIG for almost 40 years, plans to sell an undisclosed amount of shares for "liquidity and other purposes." The sales may "materially" decrease the holdings that he controls, according to a filing with the Securities and Exchange Commission.
Political wrangling threw the $700 billion bailout plan into disarray, despite a day of negotiations that seemed to promise a deal. Talks broke off with no agreement and with plans to reconvene in the morning, without House Republicans. Barney Frank, the chairman of the House Financial Services Committee declared Friday that an agreement on legislation to relieve a spreading financial crisis depends on House Republicans "dropping this revolt" against President Bush. He called the rival proposal being pushed by House conservative Republicans "an ambush plan."
According to AMG Data Services, including ETF activity, Equity funds report net cash inflows totaling $13.897 billion in the week ended 9/24/08 with Domestic funds reporting net inflows of $14.763 billion and Non-domestic funds reporting net outflows of -$867 million;
Excluding ETF activity, Equity funds report net cash outflows totaling -$9.318 billion, the largest net outflow since 1/23/08; with Domestic funds reporting net outflows of -$5.277 billion and Non-domestic funds reporting net outflows totaling -$4.040 billion.
Research In Motion says its margins will contract in the current quarter as it spends more to produce snazzy new BlackBerrys.
According to the FT, Morgan Stanley lost close to a third of assets in its prime brokerage last week, amounting to hundreds of billions of dollars, as hedge funds fled after the collapse of Lehman Brothers and moved to rival banks.
The losses, confirmed by several people familiar with the business, will deal a big blow to Morgan Stanley as its prime brokerage is one of its most profitable and successful businesses.
Venezuela, the world's fifth-largest oil exporter, will boost crude shipments to China by 25 percent in 2009 to benefit from rising energy demand in the fastest- growing major economy, President Hugo Chavez said.
Crude sales will rise to 500,000 barrels a day from an estimated 400,000 barrels by the end of this year, Chavez, who is visiting China, told reporters in Beijing today. The Latin American country currently exports more than 300,000 barrels a day to China, he said.
OAO Gazprom and other Russian energy producers will join with Petroleos de Venezuela SA to work on projects around the world, Venezuelan President Hugo Chavez said.
``It's a colossus being born,'' Chavez said live on Venezuelan state television from Russia, which he was visiting for the second time in two months. The companies will combine ``investment, exploration, exploitation, processing and commerce in energy, oil, gas and many other areas,'' he said.
China's banks are limiting foreign- exchange transactions with U.S. and European financial companies on concern tighter global credit markets will cause more failures.
Gasoline shortages hit towns across the southeastern United States this week, sparking panic buying, long lines and high prices at stations from the small towns of northeast Alabama to Charlotte in the wake of Hurricanes Gustav and Ike.
PICC Property & Casualty Co. said Chinese housing prices may drop as much as 50% over the next few years, citing the insurer’s asset management arm. Property prices have “gone far beyond what people can afford” and the nation’s housing bubble is “on the verge of ending,” citing Ling Xiuli, a senior researcher at the company. Shimao Property Holdings Ltd., a Chinese developer, yesterday cut its sales target for this year by 20% to $2.05 billion on falling demand. Shimao also lowered its sales targets for next year and 2010 by about 30%.
MMS has recalculated the number of manned platforms in the Gulf since 23 manned platforms were destroyed by the recent hurricane. Personnel are still evacuated from 179 offshore platforms, and 59.3% of oil production is currently shut-in.
In the Sept. 19-22 poll, the undecided voters said Obama would do a better job than McCain of addressing the market meltdown by a margin of 57 percent to 18 percent. That's significantly wider than among all likely voters, where there is just a 12-point gap between Illinois Senator Obama and McCain, an Arizona senator.
Wachovia Corp. and National City Corp. slumped after negotiations on the government's financial bailout stalled and failed lender Washington Mutual Inc. was sold by regulators to JPMorgan Chase & Co.
Wachovia dropped $3.40, or 25 percent, to $10.30 at 8:46 a.m. in early New York trading, leading bank stocks lower. Cleveland-based National City fell 15 percent to $4.25. Charlotte, North Carolina-based Wachovia has lost more than 70 percent of its market value in the last 12 months and National City plunged 80 percent through yesterday.
Those looking for opportunities to short stocks and want to avoid the ban can bet on a downturn in the industrial sector, Simon Goodfellow, Head of European Equity Strategy Research, ING Wholesale Banking told CNBC on Friday.
Return on equity (ROE) in the sector is at a historic high 21 percent, compared with a median of 9 percent, which means the sector is prone to fall, Goodfellow said.
"It is quite literally incredible. The ROE in the industrial sector is the highest it has ever been, and absolutely no-one is forecasting any serious downturn," he told "Squawk Box Europe."
"And when the downturn comes it won't just be a small six or 12 months affair, it will be a proper two-year, maybe even three-year affair. This is where the shorting activity should go," he added.
Money Markets Grind To A Virtual Halt: Interbank and Repo Rates At Record Highs.
At $55+ Deere is trading at a new 52-week low and is down 40 points from the high. There will be more bad news to absorb on Deere; however, if the shares drop another 10%, I believe the risk/reward becomes favorable for a long-term investor an could present a buy/write opportunity.
J.P. Morgan Chase & Co. priced a $10 billion offering of approximately 246.9 million shares of its common stock at $40.50 per share.
James Bullard, the new president of the St. Louis Federal Reserve Bank, said the outlook is uncertain and there could be a severe downturn from the credit crunch. But Bullard also said he was still uncomfortable with the inflation outlook. The challenge for the Fed would be to navigate this crisis without "creating a new and difficult-to-solve inflation problem in its wake," Bullard said in a speech at Middle Tennessee State University. Until the overall inflation rate "clearly slows," the Fed must remain on alert, he said. At the moment, the 2% Fed funds rate is well below inflation, he added.
David Letterman described Paris Hilton -- Thursday's guest whose celebrity was once used in a McCain campaign ad to mock Democrat Barack Obama -- as McCain's first choice for a running mate.
"Here's how it works: You don't come to see me? You don't come to see me? Well, we might not see you on Inauguration Day," Letterman said.
Gold for December delivery ended up $6.50, or 0.7%, at $888.50 an ounce on the Comex division of the New York Mercantile Exchange. November crude closed at $106.89 per barrel Friday on the New York Mercantile Exchange, down $1.13, or 1.1% for the session. But prices ended the week with a gain of 4%.
George Harris: "Who won the debate?
CBS Insta Poll shows Barack Obama won 39% to John McCain's 25% with 36% saying the debate was a draw.
Insider Advantage reports those polled Obama won 42% to McCain's 41% with Undecided 17%
CNN reports voter opinions that Obama "did better" 51%, McCain "did better" 38%
The CNN poll showed men were evenly split, but women gave Obama higher marks 59% to 41% for McCain.
The CNN pollster noted a slight Democratic bias in the survey. Well, there just are more Democrats in the country. So more Democrats watched. However, this may also suggest Democratic enthusiasm which will help turn out the vote.
The MSNBC on-line (non-scientific) poll showed Obama winning the debate 52% to 33%. (But this is what one would expect from such a poll at MSNBC because of the nature of its viewers.)"
Thursday, September 25, 2008
Tightening Credit Markets
9/26/08 Tightening Credit Markets
Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added, citing a source.
Anzia Yezierska: "Give a beggar a dime and he'll bless you. Give him a dollar and he'll curse you for withholding the rest of your fortune. Poverty is a bag with a hole at the
bottom."
Robert McHugh: "There is an ominous Head & Shoulders top in the Dow Industrials that is confirmed, and has a downside target of 7,500. That crash could start soon, maybe after one more rally leg, but we cannot rule out that it could happen without any further bounce. Same for the NDX: Ominous Head & Shoulders top pattern is confirmed with a downside target of 1,200, about a 30 percent crash, which should start soon.
If you are a conservative investor, the next two months are dangerous. We could witness the worst crash in over two decades. Raising cash would be a solid conservative strategy sooner rather than later."
General Electric Co. reduced its annual profit forecast for the second time this year and suspended its stock buyback because of ``unprecedented weakness and volatility'' in the financial services market.
Profit this quarter will be 43 cents to 48 cents a share, less than its previous forecast of 50 cents to 54 cents, GE said today in a Business Wire release. GE, the world's fourth-largest company by market value, fell in early New York trading.
``Difficult conditions in the financial services markets are not likely to improve in the near future,'' Fairfield, Connecticut-based GE said in the statement.
Full-year earnings will be $1.95 to $2.10 a share, down from an earlier projection of $2.20 to $2.30, the company said. GE said it is increasing capital in GE Capital to reduce leverage ratios, by reducing the unit's dividend to the parent company and by suspending the current stock buyback. The board voted to maintain GE's 31-cent quarterly dividend for investors through the end of 2009.
The company also will reduce GE Capital's commercial paper to 10 percent to 15 percent of GE Capital's total debt going forward. The company said it is working to ensure that industrial businesses deliver 60 percent of earnings by the end of 2009. Last year financial services accounted for about half.
The ``intensification'' of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending ``sluggish at best,'' Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on ``grave threats'' to the banking system.
U.S. weekly jobless claims shot to their highest level in seven years, the Labor Department said Thursday, as people in the hurricane-hit states of Louisiana and Texas filed for benefits. First-time claims for unemployment benefits jumped by 32,000, to 493,000 for the week ending Sept. 20. The four-week average of claims also jumped, by 16,000, to 462,500, the highest since November 2001. Continuing claims were at 3.54 million for the week ending Sept. 13, a five-year high. The four-week average of continuing claims also remained at a five-year high, of 3.48 million.
Orders for U.S.-made durable goods sank in August, falling 4.5% on weaker demand for a broad range of goods, the Commerce Department reported Thursday. Excluding the 8.9% decrease in transportation goods, orders fell 3.0%, the sharpest drop in nineteen months. It was the largest drop in total orders since January. The report was weak across the board. Shipments fell 3.5% in August, the largest decline since April 2001. Inventories rose 0.7%.
U.S. home sales fell 11.5% to a 17-year low in August, the Commerce Department estimated Thursday. The decline in new-home sales to a seasonally adjusted annual rate of 460,000 was much weaker than the 505,000 pace expected by economists surveyed by MarketWatch. Economists are wondering how far the housing market can fall. There are few signs of a bottom in the data. New-home sales are down 34.5% compared with a year ago. The months' supply of homes on the market rose to 10.9 months from 10.3 months in July. Median sales prices have fallen 6.2% in the past year to $221,900.
Medtronic Inc. will bid to acquire CryoCath Technologies Inc. for C$8.75 a share in cash.
Overnight dollar LIBOR edged lower to 2.5626% from 2.6875%, while overnight euro LIBOR rose to 4.38% from 4.375% and sterling libor rose to 5.08125% from 5%, according to data compiled by Dow Jones Newswires.
Washington Mutual has approached several private-equity firms about a potential takeover, according to a published report Thursday. Carlyle Group LLC, and Blackstone Group LP are among the firms considering a deal, the Wall Street Journal reported, citing unnamed sources. Interest among banks considering a deal for Washington Mutual, including J.P. Morgan Chase and Wells Fargo, has diminished in recent days over reluctance to absorb problem loans on Washington Mutual's books, according to the report.
The United States won't be the world's financial superpower in the wake of the banking crisis, German Finance Minister Peer Steinbrueck said Thursday, according to news reports. Steinbrueck told the lower house of Germany's parliament he would push for a global ban on speculative short selling and limits that would prevent banks from fully securitizing loans and selling them on to third parties, Dow Jones Newswires reported. Steinbrueck criticized the U.S. government for a late response to the crisis and laissez-faire market policies. "The U.S. will lose its status as the superpower of the global financial system," he said. "The global financial system will become more multi-polar."
M3 money supply growth slowed to an annual rate of 8.8% in the 15-nation euro zone in August, the European Central Bank reported Thursday, down from 9.1% in July and slightly below expectations for growth of 8.9%.
Pilgrim's Pride Corp., the No. 1 U.S. chicken producer, said on Thursday that it expects to report a "significant" fiscal fourth-quarter loss because of high feed-ingredient costs, continued weak prices and demand for breast meat, and the "significant negative impact" of hedged grain positions. The loss for the quarter ending Sept. 27 will probably put the company out of compliance with its fixed-charge coverage ratio covenant under its main credit lines at the end of the fiscal year, Pilgrim's Pride said. It expects to comply with all other covenants at the end of fiscal 2008.
The Hong Kong Monetary Authority injected HK$3.88 billion ($497 million) into the money markets Thursday to ensure there is enough liquidity in the system, according to reports. The move came a day after thousands of customers lined up to withdraw their money from Bank of East Asia, following rumors raising doubts about the lender's financial stability.
According to the FT, The House of Representatives on Wednesday approved a $25bn package of low-cost loans to help hard-pressed carmakers and their suppliers finance plant modernisation at a time of restricted access to public capital markets.
The automotive loans are separate from the proposed $700bn bail-out for the banking sector, which is still being debated in Congress. The House approved the measure 370-58, setting the stage for Senate approval within days.
Occidental Petroleum agreed to acquire the 50% interest it didn't already own in two Midwest oil-and-gas fields from Plains Exploration & Production for $1.25 billion.
Gary Dorsch: "When all the numbers are tallied up, in the worst-case scenario, the US government's borrowing demands could reach $1.8 trillion in fiscal 2009, or about 13% of US gross domestic product.
President George Bush's secretive Working Group on Financial Markets, (aka: the infamous "Plunge Protection Team" - PPT) will be working overtime, pulling all the strings at their disposal, in order to find a way to prevent a tsunami of new government debt from swamping the bond markets, and sending interest rates sharply higher. But the US government's choices are clear - either increase taxes to cover the debt, instruct the Federal Reserve to print more money to inflate the debt away, or allow interest rates to rise sharply to attract overseas lenders.
The Fed opted for monetization on Sept 19th, when it printed $69 billion out of thin-air, in orderto buy debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks through primary dealers.
The amount of US Treasuries outstanding has been rising at a rapid clip, and stands at $9.6 trillion, up from $4.5-trillion when President Bush took office in 2000. The cost of servicing the interest on the debt has risen to $400 billion annually."
European Socialist leader Martin Schulz: "Profits are being privatized, losses are being nationalized and that has got to stop. More than ever, the future requires supervisory powers over casino capitalism that never respected anything."
Rep. Ron Paul: "With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity."
Venezuelan President Hugo Chavez held talks with Chinese President Hu Jintao on Wednesday before the two sides signed an oil cooperation deal and several economic agreements.
The Chinese government gave no immediate details of the oil agreement but it said other documents covered economic cooperation, education and justice.
The Venezuelan government said more than 20 agreements would be signed during Chavez's three-day visit to China, which began on Tuesday.
"There is a structural risk we could exhaust our credit line," says Brad W. Setser, a former Treasury official now with the Council on Foreign Relations. "We're asking foreigners to keep lending to us when U.S. assets aren't looking good."
Bill Bonner: "The Bush administration used the 9/11 attacks as an excuse for the biggest increase in military spending and police power since WWII.
Now it is using the market correction (caused largely by its own interventions in the credit industry) to expand state power in the financial area. Half of all Americans pay their mortgages, directly or indirectly, to the federal government. Most older Americans depend, in whole or in part, on money from the government to live. Now, Americans depend on the government to keep house prices up - by subsidizing demand for mortgage backed securities - and to keep up stock and bond prices too - by buying up Wall Street's mistakes. Homeowners want protection from their own bad judgment. Investors want protection from Mr. Market. The old want free medicine. The young want free schooling. The unemployed want jobs and money. The rich want politicians in their pockets. The poor want the rich's money. Investors, homeowners, pensioners - is there anyone left in America who isn't trying to pick someone else's pocket?"
Natural-gas inventories rose by 51 billion cubic feet for the week ended Sept. 19, the U.S. Energy Department said Thursday. Analysts at Global Insight expected a climb of 74 billion. Total stocks now stand at 3.023 trillion cubic feet, down 162 billion cubic feet from the year-ago level but 35 billion cubic feet above the five-year average, the government data said. October natural gas was up 2.3 cents at $7.702 per million British thermal units on Globex.
D K Preston: "A handful of entrepreneurs nurtured a graduate school business plan into an actual company called PFNC Global Communities. The acronym stands for "por fin, nuestra casa," which is translated as "finally, a home of our own." PFNC's purpose is to convert shipping containers into affordable housing for those who most desperately need it around the globe.
With operations in New Mexico, PFNC has built a prototype, 320-square-foot home. The home, although small, has room for a kitchen, bath, toilet, and sleeping areas. It also has windows for natural ventilation, electrical and water systems, and hookups for air conditioning.
PFNC plans to outfit the homes for under $10,000 USD, but subject to site conditions, land costs, and transportation costs. To keep prices low, the company will try to sell homes in large quantities, with production planned for early 2009 at an initial capacity of 3000 homes per year. PFNC has both single family and multifamily options in the works."
Rep. Ron Paul: "A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank...When one gets in bed with government, one must expect the diseases it spreads."
Sen. Chris Dodd, the top Democrat on the Senate Banking Committee, said Thursday that bipartisan meeting with President Bush at the White House on the mortgage rescue plan was nothing short of a disaster. In an interview on the CNN cable news network, Dodd described a meeting in which Democrats were blindsided by a new core mortgage proposal from House Republicans, with the tacit backing of Republican presidential candidate John McCain. "I am not going to sign on to something I just saw this afternoon," he said. Dodd said Republicans and Treasury Secretary Henry Paulson had to decide what they wanted to support. The whole meeting "looked like a rescue plan for John McCain," Dodd said. He said he was simply going to pretend that the meeting had never happened.
Sen. John McCain met with House Republicans prior to the White House meeting and brought some new language to the White House meeting, upsetting Democrats.
For the current quarter ending November 29, Research in Motion forecasted earnings per share of 89-97 cents a share on revenue of $2.95 billion to $3.1 billion. Analysts had been expecting earnings of 97 cents a share on revenue of $2.9 billion, according to FactSet estimates.
November crude closed at $108.02 per barrel Thursday on the New York Mercantile Exchange, up $2.29, or 2.2%. Gold for December delivery fell $13, or 1.5%, to end at $882 an ounce on the Comex division of the New York Mercantile Exchange.
Senate Democrats proposed a $56 billion economic stimulus package that would increase government spending on unemployment benefits, food stamps, infrastructure projects, aid to state governments and heating aid to the poor.
Senate Majority leader Harry Reid, a Nevada Democrat, said today that the legislation is needed to help millions of Americans struggling with the slow economy.
New Zealand's economy contracted last quarter, driving the nation into its first recession in 10 years and adding to the prospect the central bank will cut interest rates to a three-year low next month.
The banking system needs another $500 billion to survive beyond the $700 billion rescue plan being contemplated by Congress, said Pimco founder Bill Gross.
Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added, citing a source.
Anzia Yezierska: "Give a beggar a dime and he'll bless you. Give him a dollar and he'll curse you for withholding the rest of your fortune. Poverty is a bag with a hole at the
bottom."
Robert McHugh: "There is an ominous Head & Shoulders top in the Dow Industrials that is confirmed, and has a downside target of 7,500. That crash could start soon, maybe after one more rally leg, but we cannot rule out that it could happen without any further bounce. Same for the NDX: Ominous Head & Shoulders top pattern is confirmed with a downside target of 1,200, about a 30 percent crash, which should start soon.
If you are a conservative investor, the next two months are dangerous. We could witness the worst crash in over two decades. Raising cash would be a solid conservative strategy sooner rather than later."
General Electric Co. reduced its annual profit forecast for the second time this year and suspended its stock buyback because of ``unprecedented weakness and volatility'' in the financial services market.
Profit this quarter will be 43 cents to 48 cents a share, less than its previous forecast of 50 cents to 54 cents, GE said today in a Business Wire release. GE, the world's fourth-largest company by market value, fell in early New York trading.
``Difficult conditions in the financial services markets are not likely to improve in the near future,'' Fairfield, Connecticut-based GE said in the statement.
Full-year earnings will be $1.95 to $2.10 a share, down from an earlier projection of $2.20 to $2.30, the company said. GE said it is increasing capital in GE Capital to reduce leverage ratios, by reducing the unit's dividend to the parent company and by suspending the current stock buyback. The board voted to maintain GE's 31-cent quarterly dividend for investors through the end of 2009.
The company also will reduce GE Capital's commercial paper to 10 percent to 15 percent of GE Capital's total debt going forward. The company said it is working to ensure that industrial businesses deliver 60 percent of earnings by the end of 2009. Last year financial services accounted for about half.
The ``intensification'' of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending ``sluggish at best,'' Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on ``grave threats'' to the banking system.
U.S. weekly jobless claims shot to their highest level in seven years, the Labor Department said Thursday, as people in the hurricane-hit states of Louisiana and Texas filed for benefits. First-time claims for unemployment benefits jumped by 32,000, to 493,000 for the week ending Sept. 20. The four-week average of claims also jumped, by 16,000, to 462,500, the highest since November 2001. Continuing claims were at 3.54 million for the week ending Sept. 13, a five-year high. The four-week average of continuing claims also remained at a five-year high, of 3.48 million.
Orders for U.S.-made durable goods sank in August, falling 4.5% on weaker demand for a broad range of goods, the Commerce Department reported Thursday. Excluding the 8.9% decrease in transportation goods, orders fell 3.0%, the sharpest drop in nineteen months. It was the largest drop in total orders since January. The report was weak across the board. Shipments fell 3.5% in August, the largest decline since April 2001. Inventories rose 0.7%.
U.S. home sales fell 11.5% to a 17-year low in August, the Commerce Department estimated Thursday. The decline in new-home sales to a seasonally adjusted annual rate of 460,000 was much weaker than the 505,000 pace expected by economists surveyed by MarketWatch. Economists are wondering how far the housing market can fall. There are few signs of a bottom in the data. New-home sales are down 34.5% compared with a year ago. The months' supply of homes on the market rose to 10.9 months from 10.3 months in July. Median sales prices have fallen 6.2% in the past year to $221,900.
Medtronic Inc. will bid to acquire CryoCath Technologies Inc. for C$8.75 a share in cash.
Overnight dollar LIBOR edged lower to 2.5626% from 2.6875%, while overnight euro LIBOR rose to 4.38% from 4.375% and sterling libor rose to 5.08125% from 5%, according to data compiled by Dow Jones Newswires.
Washington Mutual has approached several private-equity firms about a potential takeover, according to a published report Thursday. Carlyle Group LLC, and Blackstone Group LP are among the firms considering a deal, the Wall Street Journal reported, citing unnamed sources. Interest among banks considering a deal for Washington Mutual, including J.P. Morgan Chase and Wells Fargo, has diminished in recent days over reluctance to absorb problem loans on Washington Mutual's books, according to the report.
The United States won't be the world's financial superpower in the wake of the banking crisis, German Finance Minister Peer Steinbrueck said Thursday, according to news reports. Steinbrueck told the lower house of Germany's parliament he would push for a global ban on speculative short selling and limits that would prevent banks from fully securitizing loans and selling them on to third parties, Dow Jones Newswires reported. Steinbrueck criticized the U.S. government for a late response to the crisis and laissez-faire market policies. "The U.S. will lose its status as the superpower of the global financial system," he said. "The global financial system will become more multi-polar."
M3 money supply growth slowed to an annual rate of 8.8% in the 15-nation euro zone in August, the European Central Bank reported Thursday, down from 9.1% in July and slightly below expectations for growth of 8.9%.
Pilgrim's Pride Corp., the No. 1 U.S. chicken producer, said on Thursday that it expects to report a "significant" fiscal fourth-quarter loss because of high feed-ingredient costs, continued weak prices and demand for breast meat, and the "significant negative impact" of hedged grain positions. The loss for the quarter ending Sept. 27 will probably put the company out of compliance with its fixed-charge coverage ratio covenant under its main credit lines at the end of the fiscal year, Pilgrim's Pride said. It expects to comply with all other covenants at the end of fiscal 2008.
The Hong Kong Monetary Authority injected HK$3.88 billion ($497 million) into the money markets Thursday to ensure there is enough liquidity in the system, according to reports. The move came a day after thousands of customers lined up to withdraw their money from Bank of East Asia, following rumors raising doubts about the lender's financial stability.
According to the FT, The House of Representatives on Wednesday approved a $25bn package of low-cost loans to help hard-pressed carmakers and their suppliers finance plant modernisation at a time of restricted access to public capital markets.
The automotive loans are separate from the proposed $700bn bail-out for the banking sector, which is still being debated in Congress. The House approved the measure 370-58, setting the stage for Senate approval within days.
Occidental Petroleum agreed to acquire the 50% interest it didn't already own in two Midwest oil-and-gas fields from Plains Exploration & Production for $1.25 billion.
Gary Dorsch: "When all the numbers are tallied up, in the worst-case scenario, the US government's borrowing demands could reach $1.8 trillion in fiscal 2009, or about 13% of US gross domestic product.
President George Bush's secretive Working Group on Financial Markets, (aka: the infamous "Plunge Protection Team" - PPT) will be working overtime, pulling all the strings at their disposal, in order to find a way to prevent a tsunami of new government debt from swamping the bond markets, and sending interest rates sharply higher. But the US government's choices are clear - either increase taxes to cover the debt, instruct the Federal Reserve to print more money to inflate the debt away, or allow interest rates to rise sharply to attract overseas lenders.
The Fed opted for monetization on Sept 19th, when it printed $69 billion out of thin-air, in orderto buy debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks through primary dealers.
The amount of US Treasuries outstanding has been rising at a rapid clip, and stands at $9.6 trillion, up from $4.5-trillion when President Bush took office in 2000. The cost of servicing the interest on the debt has risen to $400 billion annually."
European Socialist leader Martin Schulz: "Profits are being privatized, losses are being nationalized and that has got to stop. More than ever, the future requires supervisory powers over casino capitalism that never respected anything."
Rep. Ron Paul: "With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity."
Venezuelan President Hugo Chavez held talks with Chinese President Hu Jintao on Wednesday before the two sides signed an oil cooperation deal and several economic agreements.
The Chinese government gave no immediate details of the oil agreement but it said other documents covered economic cooperation, education and justice.
The Venezuelan government said more than 20 agreements would be signed during Chavez's three-day visit to China, which began on Tuesday.
"There is a structural risk we could exhaust our credit line," says Brad W. Setser, a former Treasury official now with the Council on Foreign Relations. "We're asking foreigners to keep lending to us when U.S. assets aren't looking good."
Bill Bonner: "The Bush administration used the 9/11 attacks as an excuse for the biggest increase in military spending and police power since WWII.
Now it is using the market correction (caused largely by its own interventions in the credit industry) to expand state power in the financial area. Half of all Americans pay their mortgages, directly or indirectly, to the federal government. Most older Americans depend, in whole or in part, on money from the government to live. Now, Americans depend on the government to keep house prices up - by subsidizing demand for mortgage backed securities - and to keep up stock and bond prices too - by buying up Wall Street's mistakes. Homeowners want protection from their own bad judgment. Investors want protection from Mr. Market. The old want free medicine. The young want free schooling. The unemployed want jobs and money. The rich want politicians in their pockets. The poor want the rich's money. Investors, homeowners, pensioners - is there anyone left in America who isn't trying to pick someone else's pocket?"
Natural-gas inventories rose by 51 billion cubic feet for the week ended Sept. 19, the U.S. Energy Department said Thursday. Analysts at Global Insight expected a climb of 74 billion. Total stocks now stand at 3.023 trillion cubic feet, down 162 billion cubic feet from the year-ago level but 35 billion cubic feet above the five-year average, the government data said. October natural gas was up 2.3 cents at $7.702 per million British thermal units on Globex.
D K Preston: "A handful of entrepreneurs nurtured a graduate school business plan into an actual company called PFNC Global Communities. The acronym stands for "por fin, nuestra casa," which is translated as "finally, a home of our own." PFNC's purpose is to convert shipping containers into affordable housing for those who most desperately need it around the globe.
With operations in New Mexico, PFNC has built a prototype, 320-square-foot home. The home, although small, has room for a kitchen, bath, toilet, and sleeping areas. It also has windows for natural ventilation, electrical and water systems, and hookups for air conditioning.
PFNC plans to outfit the homes for under $10,000 USD, but subject to site conditions, land costs, and transportation costs. To keep prices low, the company will try to sell homes in large quantities, with production planned for early 2009 at an initial capacity of 3000 homes per year. PFNC has both single family and multifamily options in the works."
Rep. Ron Paul: "A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank...When one gets in bed with government, one must expect the diseases it spreads."
Sen. Chris Dodd, the top Democrat on the Senate Banking Committee, said Thursday that bipartisan meeting with President Bush at the White House on the mortgage rescue plan was nothing short of a disaster. In an interview on the CNN cable news network, Dodd described a meeting in which Democrats were blindsided by a new core mortgage proposal from House Republicans, with the tacit backing of Republican presidential candidate John McCain. "I am not going to sign on to something I just saw this afternoon," he said. Dodd said Republicans and Treasury Secretary Henry Paulson had to decide what they wanted to support. The whole meeting "looked like a rescue plan for John McCain," Dodd said. He said he was simply going to pretend that the meeting had never happened.
Sen. John McCain met with House Republicans prior to the White House meeting and brought some new language to the White House meeting, upsetting Democrats.
For the current quarter ending November 29, Research in Motion forecasted earnings per share of 89-97 cents a share on revenue of $2.95 billion to $3.1 billion. Analysts had been expecting earnings of 97 cents a share on revenue of $2.9 billion, according to FactSet estimates.
November crude closed at $108.02 per barrel Thursday on the New York Mercantile Exchange, up $2.29, or 2.2%. Gold for December delivery fell $13, or 1.5%, to end at $882 an ounce on the Comex division of the New York Mercantile Exchange.
Senate Democrats proposed a $56 billion economic stimulus package that would increase government spending on unemployment benefits, food stamps, infrastructure projects, aid to state governments and heating aid to the poor.
Senate Majority leader Harry Reid, a Nevada Democrat, said today that the legislation is needed to help millions of Americans struggling with the slow economy.
New Zealand's economy contracted last quarter, driving the nation into its first recession in 10 years and adding to the prospect the central bank will cut interest rates to a three-year low next month.
The banking system needs another $500 billion to survive beyond the $700 billion rescue plan being contemplated by Congress, said Pimco founder Bill Gross.
Wednesday, September 24, 2008
The Bailout Scam
9/25/08 The Bailout Scam
Bloomberg: "Investors outside the U.S., who own more than half of all Treasuries outstanding, say the government's $700 billion plan to revive the banking system will diminish the appeal of the nation's bonds.
Treasury Secretary Henry Paulson's proposal, which seeks funds to rescue banks by purchasing devalued securities, would drive the country's debt to more than 70 percent of gross domestic product. The last time taxpayers owed as much was in 1954, when the U.S. was paying down costs from World War II.
``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''
Publilius Syrus: "It is fraud to borrow what we are unable to pay."
Lowe's Companies Inc. still expects to earn $1.48 to $1.56 a share in fiscal 2008, and sees sales growth of 1% for the period. For fiscal 2009, the home-improvement retailer forecasts a profit of $1.40 to $1.65 on a 2.5% to 6.5% increase in total sales.
Yahoo's new board gave a green light to a fresh round of discussions with the AOL unit of Time Warner, the Financial Times reported.
Japan's Sumitomo Mitsui Financial Group is ready to invest in Goldman Sachs, if requested by the U.S. investment bank, the Nikkei business daily reported Wednesday, citing a source familiar with the matter. Sumitomo Mitsui could invest as much as 100 billion yen ($948 million), the report added.
Barry Ritholtz on Berkshire Hathaway and Goldman Sachs: "If Buffett were to go to the Street earlier today to buy 44 million calls with a $115 strike price (circa 2010), they would have cost him about $1.5 billion dollars. With GS now trading at $135, Buffett’s $5 billion investment is more like $3.5B, in terms of net cost to him. Hence, the 10% interest is more like 14%.
Doug Kass thinks its an even better deal for Berkshire -- goes further than I do, putting an intrinsic value on the warrants of about $2 billion. That makes Buffet's net cost $3B -- so the effective yield is closer to 17%. (Ouch)"
Oppenheimer's Meredith Whitney slashed estimates on Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Wachovia Corp. and Wells Fargo & Co. because their loss provisions will be much higher than what has been written off to date.
Rob Hanna: "The lack of short-coverers may partially explain the recent pullback. Volume has contracted greatly and the pullback has given back gains faster then any other. Under normal circumstances there likely would have been more volume and more support as the shorts that didn’t chase start covering when then market begins to pull back. With reduced explosiveness and less support, the elimination of shorts could actually make the bottoming process more difficult. At the very least it may change the shape of the bottom. It will certainly be interesting to watch and trade."
The best news for Sen. Obama in the new surveys may come in Colorado, where he has moved to a lead of four percentage points, 49%-45%, after being down by a percentage point in August. That means he has a chance there to turn a traditionally Republican state in his direction.
NY Times: "One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.
The disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.
Mr. Davis’s firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the two people said."
More voters trust Obama to deal with the economy, and he currently has a big edge as the candidate who is more in tune with the economic problems Americans now face. He also has a double-digit advantage on handling the current problems on Wall Street, and as a result, there has been a rise in his overall support. The poll found that, among likely voters, Obama now leads McCain by 52 percent to 43 percent. Two weeks ago, in the days immediately following the Republican National Convention, the race was essentially even, with McCain at 49 percent and Obama at 47 percent.
According to Bloomberg, the cost of borrowing in dollars increased after banks paid a record premium for cash at yesterday's Federal Reserve auction, underscoring the shortage of funds available on money markets.
The one-month London interbank offered rate, or Libor, for dollars rose 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said today. Financial institutions paid 3.75 percent at the 28-day Fed term auction facility, or TAF. That's 57 basis points more than yesterday's one-month rate, the widest spread since the TAF program began in December.
Electricite de France SA, the world's biggest nuclear utility, agreed to buy British Energy Group Plc for a sweetened 12.5 billion pounds ($23 billion) as the U.K. turns back to atomic power after decades of neglect.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity dropped 10.6 percent to 591.4 in the week ended Sept 19.
The MBA's seasonally adjusted index of refinancing applications declined 11.2 percent to 2,043.4 last week as the average 30-year mortgage rate surged 0.26 percentage point to 6.06 percent, the MBA said.
The Oil Drum: "Gasoline shortages are starting to become a problem in areas such as Nashville and Atlanta. This week's "This Week in Petroleum" (TWIP) is expected to show a big drop in gasoline inventory. In this post, I have prepared a few graphs to supplement this week's TWIP. We know that Hurricane Gustav and Hurricane Ike had a huge impact on refineries, and that these production shortfalls are now slowly making their way through pipelines. It is my view that because Texas refineries have been fairly slow to get back online, and because of the built-in lag due to the slow travel of refined products through pipelines, the present gasoline shortages are likely to get worse in the next two to three weeks."
Rigzone: "The MMS reported that 23 platforms have been confirmed as destroyed by Hurricane Ike. Personnel are evacuated from 203 platforms and 4 rigs, and 66.8% of oil production and 61.6% of natural gas production is still shut-in."
Richard Benson: "The $4.2 Trillion of Intragovernmental Holdings is the "fictional borrowing" from Social Security and Medicare accounts. This fictional borrowing consists of social security taxes collected in excess of benefits paid out since the program began. In the past, the federal government profited nicely from excess social security taxes, but now the excess taxes have been spent on government projects like the war in Iraq, earmarks, etc. In a few short years when the Baby Boomers start to retire, the Social Security benefits paid out will exceed the taxes collected. When that happens, this fictional borrowing will flip back into real borrowing from the public. This means the government borrowing will be real, not fictional.... It took our fine republic a few hundred years to run up $5.2 trillion in debt, but over the next three years Treasury borrowing could exceed $8 trillion, a staggering 60 percent increase in the real national debt. Is it rational to believe that foreigners will double their holdings of US Treasury debt from $3 Trillion to $6 Trillion in the next three years? Yes, indeed!"
Mike Shedlock: "Bernanke wants government to pay significant premium over current "firesale" price for troubled assets. Specifically, he wants to pay close to the "hold-to-maturity" price, which he argues is much higher than the mark-to-market firesale price. Bernanke and Paulson believes this is necessary to get banks to participate.This is a huge boon to banks and will likely hose taxpayers. Why? Because the government will not have time to figure out what the true "hold to maturity" value of these assets is. Instead, it will have to take the word of banks who have every incentive to dump their crap on taxpayers.The justification for this is that banks won't participate in the bailout unless you give them big incentive to do so. To which we say: Tough beans. Make the program expensive, as it should be. Give the banks a specified period of time to accept the help or forever forego it. Then work with the banks that jump at the offer."
Richard Daughty: "And betting with gold against a fiat currency in the hands of politicians is the biggest no-brainer on the planet! Whee! This investing stuff is easy!"
Housing prices will hit bottom some time next year, but the California economy will be in distress for months to come, according to a closely followed UCLA economic report scheduled to be released today.
In a series of dire predictions echoed by experts throughout the state, the UCLA Anderson Forecast says that unemployment will continue to increase, consumer spending will decline and tax revenues will plummet.
"We can expect 'doldrums' to be the operative word describing the California economy over the next 18 to 24 months," said Jerry Nickelsburg, an author of the quarterly report on the national and state economies.
Government layoffs and job losses in sectors such as retail, he said, will offset any benefit from the settling of real estate prices.
Goldman Sachs prices $5 billion offering at $123 a share.
Eric Hovde:"The Wall Street investment banking firms, their executives, their families and their political action committees contribute more to U.S. Senate and House campaigns than any other industry in America. By sprinkling some of its massive gains into the pockets of our elected officials, Wall Street bought itself protection from any tough government enforcement.
"This is no doubt the same reason why so many members of Congress were consistently blocking attempts to reform and downsize Fannie Mae and Freddie Mac, which are essentially giant, undercapitalized hedge funds. These two entities have been huge money machines for Democrats in both the House and the Senate, many of whom recently had the gall to ask why these companies hadn't been reformed in the past. Nor should several Republican congressmen and Senators who likewise contributed to watering down legislation aimed at reforming these institutions be let off the hook."
U.S. advertising spending fell 3.7 percent in the second quarter from a year earlier, the biggest decline since 2001, as automakers and phone companies cut marketing budgets as the economy struggled.
David Paul Kuhn: "Democrats have not won a majority of whites since 1964. Since 1980 though, Democrats have struggled to even remain competitive among whites, particularly men, and that has allowed Republicans to dominate the last quarter century of presidential politics.
The DLC set out in its analysis, an early draft of which was provided to Politico, to investigate the most influential swing blocs for Democrats. It concluded that slight but significant gains with working class whites— who constitute four in ten voters and were defined by the DLC as white high school graduates without a four-year college degree—is the best means to enlarge the Democratic coalition."
The Federal Reserve, in coordinated action with foreign central banks, plowed $30 billion into money markets overseas Wednesday, part of an ongoing effort to fight a global credit crisis.
U.S. Aug. existing home sales down 2.2% to 4.91 mln pace. The inventory of unsold homes on the market fell 7% to 4.26 million, an 10.4 month supply at the current sales pace. This is the lowest level since March. The median sales prices fell 9.5% in the past year to $203,100. As many as 2 in 5 home sales are by borrowers who have seen their property lose value or are facing foreclosure.
The Bush administration's $700 billion plan to bail out the financial industry is "extremely faulty," Former President Jimmy Carter said at a Tuesday night town hall-style meeting.
Carter said he believes action is necessary but is skeptical of Treasury Secretary Henry Paulson's current plan."It's only three pages of outline. It gives him dictatorial power with no supervision," Carter said.
George Will wonders if John McCain is fit for office, because of his “temperament.”
The $62 trillion market for credit- default swaps, created to protect banks from loan losses, helped fuel a near-meltdown in the financial system and now may be regulated for the first time. Banks ``are suffering the consequences of their own actions,'' said Thomas Priore, chief executive officer of Institutional Credit Partners, LLC, a New York-based hedge fund with $13 billion in assets. ``They created a mechanism through default swaps to reflect a view on credit that has taken on a life of its own.'' Credit spreads were exaggerated as banks and investors hedging the risk of their trading partners defaulting rushed to buy swaps. That sent the price of protection soaring.
OPEC's 13 members are expected to pump 32.6 million barrels per day in September, down from a revised 33.4 million bpd in August when output was unusually high, Conrad Gerber, head of Petrologistics, told Reuters.
Chesapeake Energy said it would cut its capital expenditure for drilling by 17 percent through 2010 due to a plunge in natural gas prices and concerns about a U.S. market surplus.
The American Petroleum Institute reported Wednesday a drop of 2.1 million barrels in motor gasoline supplies for the week ended Sept. 19. The Energy Department had reported a decline of 5.9 million barrels for the latest week. Crude supplies were down 91,000 barrels, the API said. The government had reported that supplies fell by 1.5 million barrels. Distillate supplies were down 1.7 million barrels, the API said. They were down 4.2 million barrels for the week, according to the Energy Department. Refinery utilization dropped to 66.7% compared with 77.4% of capacity a week earlier.
Gold for December delivery closed up $3.80, or 0.4%, at $895 an ounce on the Comex division of the New York Mercantile Exchange. November crude closed at $105.73 per barrel Wednesday on the New York Mercantile Exchange, losing 88 cents for the session. October heating oil gained 1.7 cents to close at $3.0133 a gallon.
Sen. Barack Obama said Wednesday that he plans to issue a joint statement with his rival for the presidency, Sen. John McCain, on a $700 billion bailout plan for the nation's financial system. Obama said he called McCain this morning to ask if he would join him in issuing a joint statement, and McCain called him back at mid-afternoon to agree to it. "The two campaigns are currently working together on the details," Bill Burton, Obama's press secretary, said in a prepared statement. McCain has released prepared remarks saying he plans to suspend his campaign to deal with the crisis and wants to postpone a debate scheduled for Friday with Obama in Mississippi.
Citigroup Inc.may sell its Primerica insurance unit to private-equity firm J.C. Flowers & Co. and Alabama insurer Protective Life Corp., Bloomberg News reported Wednesday on its Web site, citing sources with knowledge of the talks.
"Houses may be more affordable, but they will probably be even more affordable next year," says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. "So why buy now?"
Bed Bath & Beyond Inc.'s second-quarter profit fell to $119.3 million, or 46 cents a share, from $147 million, or 55 cents a share, in the year-ago period. Revenue rose to $1.85 billion from $1.77 billion last year. Same-store sales for the second-quarter declined 0.1%, the company said.
Nike Inc.'s net income for its fiscal first-quarter 2009 fell to $510.5 million, or $1.03 a share, from $569.7 million, or $1.12, a year ago. The year-ago results included a one-time tax gain that added 20 cents a share to the bottom line.
After one of the biggest money-market mutual funds broke the $1 per share benchmark and the Treasury pledged to insure money-fund assets, investors pulled a record $120.5 billion from 1,860 taxable and tax-exempt funds during the week ended Sept. 23, according to Money Fund Report, a service of iMoneyNet of Westborough, Mass.
Bloomberg: "Investors outside the U.S., who own more than half of all Treasuries outstanding, say the government's $700 billion plan to revive the banking system will diminish the appeal of the nation's bonds.
Treasury Secretary Henry Paulson's proposal, which seeks funds to rescue banks by purchasing devalued securities, would drive the country's debt to more than 70 percent of gross domestic product. The last time taxpayers owed as much was in 1954, when the U.S. was paying down costs from World War II.
``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''
Publilius Syrus: "It is fraud to borrow what we are unable to pay."
Lowe's Companies Inc. still expects to earn $1.48 to $1.56 a share in fiscal 2008, and sees sales growth of 1% for the period. For fiscal 2009, the home-improvement retailer forecasts a profit of $1.40 to $1.65 on a 2.5% to 6.5% increase in total sales.
Yahoo's new board gave a green light to a fresh round of discussions with the AOL unit of Time Warner, the Financial Times reported.
Japan's Sumitomo Mitsui Financial Group is ready to invest in Goldman Sachs, if requested by the U.S. investment bank, the Nikkei business daily reported Wednesday, citing a source familiar with the matter. Sumitomo Mitsui could invest as much as 100 billion yen ($948 million), the report added.
Barry Ritholtz on Berkshire Hathaway and Goldman Sachs: "If Buffett were to go to the Street earlier today to buy 44 million calls with a $115 strike price (circa 2010), they would have cost him about $1.5 billion dollars. With GS now trading at $135, Buffett’s $5 billion investment is more like $3.5B, in terms of net cost to him. Hence, the 10% interest is more like 14%.
Doug Kass thinks its an even better deal for Berkshire -- goes further than I do, putting an intrinsic value on the warrants of about $2 billion. That makes Buffet's net cost $3B -- so the effective yield is closer to 17%. (Ouch)"
Oppenheimer's Meredith Whitney slashed estimates on Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Wachovia Corp. and Wells Fargo & Co. because their loss provisions will be much higher than what has been written off to date.
Rob Hanna: "The lack of short-coverers may partially explain the recent pullback. Volume has contracted greatly and the pullback has given back gains faster then any other. Under normal circumstances there likely would have been more volume and more support as the shorts that didn’t chase start covering when then market begins to pull back. With reduced explosiveness and less support, the elimination of shorts could actually make the bottoming process more difficult. At the very least it may change the shape of the bottom. It will certainly be interesting to watch and trade."
The best news for Sen. Obama in the new surveys may come in Colorado, where he has moved to a lead of four percentage points, 49%-45%, after being down by a percentage point in August. That means he has a chance there to turn a traditionally Republican state in his direction.
NY Times: "One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.
The disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.
Mr. Davis’s firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the two people said."
More voters trust Obama to deal with the economy, and he currently has a big edge as the candidate who is more in tune with the economic problems Americans now face. He also has a double-digit advantage on handling the current problems on Wall Street, and as a result, there has been a rise in his overall support. The poll found that, among likely voters, Obama now leads McCain by 52 percent to 43 percent. Two weeks ago, in the days immediately following the Republican National Convention, the race was essentially even, with McCain at 49 percent and Obama at 47 percent.
According to Bloomberg, the cost of borrowing in dollars increased after banks paid a record premium for cash at yesterday's Federal Reserve auction, underscoring the shortage of funds available on money markets.
The one-month London interbank offered rate, or Libor, for dollars rose 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said today. Financial institutions paid 3.75 percent at the 28-day Fed term auction facility, or TAF. That's 57 basis points more than yesterday's one-month rate, the widest spread since the TAF program began in December.
Electricite de France SA, the world's biggest nuclear utility, agreed to buy British Energy Group Plc for a sweetened 12.5 billion pounds ($23 billion) as the U.K. turns back to atomic power after decades of neglect.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity dropped 10.6 percent to 591.4 in the week ended Sept 19.
The MBA's seasonally adjusted index of refinancing applications declined 11.2 percent to 2,043.4 last week as the average 30-year mortgage rate surged 0.26 percentage point to 6.06 percent, the MBA said.
The Oil Drum: "Gasoline shortages are starting to become a problem in areas such as Nashville and Atlanta. This week's "This Week in Petroleum" (TWIP) is expected to show a big drop in gasoline inventory. In this post, I have prepared a few graphs to supplement this week's TWIP. We know that Hurricane Gustav and Hurricane Ike had a huge impact on refineries, and that these production shortfalls are now slowly making their way through pipelines. It is my view that because Texas refineries have been fairly slow to get back online, and because of the built-in lag due to the slow travel of refined products through pipelines, the present gasoline shortages are likely to get worse in the next two to three weeks."
Rigzone: "The MMS reported that 23 platforms have been confirmed as destroyed by Hurricane Ike. Personnel are evacuated from 203 platforms and 4 rigs, and 66.8% of oil production and 61.6% of natural gas production is still shut-in."
Richard Benson: "The $4.2 Trillion of Intragovernmental Holdings is the "fictional borrowing" from Social Security and Medicare accounts. This fictional borrowing consists of social security taxes collected in excess of benefits paid out since the program began. In the past, the federal government profited nicely from excess social security taxes, but now the excess taxes have been spent on government projects like the war in Iraq, earmarks, etc. In a few short years when the Baby Boomers start to retire, the Social Security benefits paid out will exceed the taxes collected. When that happens, this fictional borrowing will flip back into real borrowing from the public. This means the government borrowing will be real, not fictional.... It took our fine republic a few hundred years to run up $5.2 trillion in debt, but over the next three years Treasury borrowing could exceed $8 trillion, a staggering 60 percent increase in the real national debt. Is it rational to believe that foreigners will double their holdings of US Treasury debt from $3 Trillion to $6 Trillion in the next three years? Yes, indeed!"
Mike Shedlock: "Bernanke wants government to pay significant premium over current "firesale" price for troubled assets. Specifically, he wants to pay close to the "hold-to-maturity" price, which he argues is much higher than the mark-to-market firesale price. Bernanke and Paulson believes this is necessary to get banks to participate.This is a huge boon to banks and will likely hose taxpayers. Why? Because the government will not have time to figure out what the true "hold to maturity" value of these assets is. Instead, it will have to take the word of banks who have every incentive to dump their crap on taxpayers.The justification for this is that banks won't participate in the bailout unless you give them big incentive to do so. To which we say: Tough beans. Make the program expensive, as it should be. Give the banks a specified period of time to accept the help or forever forego it. Then work with the banks that jump at the offer."
Richard Daughty: "And betting with gold against a fiat currency in the hands of politicians is the biggest no-brainer on the planet! Whee! This investing stuff is easy!"
Housing prices will hit bottom some time next year, but the California economy will be in distress for months to come, according to a closely followed UCLA economic report scheduled to be released today.
In a series of dire predictions echoed by experts throughout the state, the UCLA Anderson Forecast says that unemployment will continue to increase, consumer spending will decline and tax revenues will plummet.
"We can expect 'doldrums' to be the operative word describing the California economy over the next 18 to 24 months," said Jerry Nickelsburg, an author of the quarterly report on the national and state economies.
Government layoffs and job losses in sectors such as retail, he said, will offset any benefit from the settling of real estate prices.
Goldman Sachs prices $5 billion offering at $123 a share.
Eric Hovde:"The Wall Street investment banking firms, their executives, their families and their political action committees contribute more to U.S. Senate and House campaigns than any other industry in America. By sprinkling some of its massive gains into the pockets of our elected officials, Wall Street bought itself protection from any tough government enforcement.
"This is no doubt the same reason why so many members of Congress were consistently blocking attempts to reform and downsize Fannie Mae and Freddie Mac, which are essentially giant, undercapitalized hedge funds. These two entities have been huge money machines for Democrats in both the House and the Senate, many of whom recently had the gall to ask why these companies hadn't been reformed in the past. Nor should several Republican congressmen and Senators who likewise contributed to watering down legislation aimed at reforming these institutions be let off the hook."
U.S. advertising spending fell 3.7 percent in the second quarter from a year earlier, the biggest decline since 2001, as automakers and phone companies cut marketing budgets as the economy struggled.
David Paul Kuhn: "Democrats have not won a majority of whites since 1964. Since 1980 though, Democrats have struggled to even remain competitive among whites, particularly men, and that has allowed Republicans to dominate the last quarter century of presidential politics.
The DLC set out in its analysis, an early draft of which was provided to Politico, to investigate the most influential swing blocs for Democrats. It concluded that slight but significant gains with working class whites— who constitute four in ten voters and were defined by the DLC as white high school graduates without a four-year college degree—is the best means to enlarge the Democratic coalition."
The Federal Reserve, in coordinated action with foreign central banks, plowed $30 billion into money markets overseas Wednesday, part of an ongoing effort to fight a global credit crisis.
U.S. Aug. existing home sales down 2.2% to 4.91 mln pace. The inventory of unsold homes on the market fell 7% to 4.26 million, an 10.4 month supply at the current sales pace. This is the lowest level since March. The median sales prices fell 9.5% in the past year to $203,100. As many as 2 in 5 home sales are by borrowers who have seen their property lose value or are facing foreclosure.
The Bush administration's $700 billion plan to bail out the financial industry is "extremely faulty," Former President Jimmy Carter said at a Tuesday night town hall-style meeting.
Carter said he believes action is necessary but is skeptical of Treasury Secretary Henry Paulson's current plan."It's only three pages of outline. It gives him dictatorial power with no supervision," Carter said.
George Will wonders if John McCain is fit for office, because of his “temperament.”
The $62 trillion market for credit- default swaps, created to protect banks from loan losses, helped fuel a near-meltdown in the financial system and now may be regulated for the first time. Banks ``are suffering the consequences of their own actions,'' said Thomas Priore, chief executive officer of Institutional Credit Partners, LLC, a New York-based hedge fund with $13 billion in assets. ``They created a mechanism through default swaps to reflect a view on credit that has taken on a life of its own.'' Credit spreads were exaggerated as banks and investors hedging the risk of their trading partners defaulting rushed to buy swaps. That sent the price of protection soaring.
OPEC's 13 members are expected to pump 32.6 million barrels per day in September, down from a revised 33.4 million bpd in August when output was unusually high, Conrad Gerber, head of Petrologistics, told Reuters.
Chesapeake Energy said it would cut its capital expenditure for drilling by 17 percent through 2010 due to a plunge in natural gas prices and concerns about a U.S. market surplus.
The American Petroleum Institute reported Wednesday a drop of 2.1 million barrels in motor gasoline supplies for the week ended Sept. 19. The Energy Department had reported a decline of 5.9 million barrels for the latest week. Crude supplies were down 91,000 barrels, the API said. The government had reported that supplies fell by 1.5 million barrels. Distillate supplies were down 1.7 million barrels, the API said. They were down 4.2 million barrels for the week, according to the Energy Department. Refinery utilization dropped to 66.7% compared with 77.4% of capacity a week earlier.
Gold for December delivery closed up $3.80, or 0.4%, at $895 an ounce on the Comex division of the New York Mercantile Exchange. November crude closed at $105.73 per barrel Wednesday on the New York Mercantile Exchange, losing 88 cents for the session. October heating oil gained 1.7 cents to close at $3.0133 a gallon.
Sen. Barack Obama said Wednesday that he plans to issue a joint statement with his rival for the presidency, Sen. John McCain, on a $700 billion bailout plan for the nation's financial system. Obama said he called McCain this morning to ask if he would join him in issuing a joint statement, and McCain called him back at mid-afternoon to agree to it. "The two campaigns are currently working together on the details," Bill Burton, Obama's press secretary, said in a prepared statement. McCain has released prepared remarks saying he plans to suspend his campaign to deal with the crisis and wants to postpone a debate scheduled for Friday with Obama in Mississippi.
Citigroup Inc.may sell its Primerica insurance unit to private-equity firm J.C. Flowers & Co. and Alabama insurer Protective Life Corp., Bloomberg News reported Wednesday on its Web site, citing sources with knowledge of the talks.
"Houses may be more affordable, but they will probably be even more affordable next year," says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. "So why buy now?"
Bed Bath & Beyond Inc.'s second-quarter profit fell to $119.3 million, or 46 cents a share, from $147 million, or 55 cents a share, in the year-ago period. Revenue rose to $1.85 billion from $1.77 billion last year. Same-store sales for the second-quarter declined 0.1%, the company said.
Nike Inc.'s net income for its fiscal first-quarter 2009 fell to $510.5 million, or $1.03 a share, from $569.7 million, or $1.12, a year ago. The year-ago results included a one-time tax gain that added 20 cents a share to the bottom line.
After one of the biggest money-market mutual funds broke the $1 per share benchmark and the Treasury pledged to insure money-fund assets, investors pulled a record $120.5 billion from 1,860 taxable and tax-exempt funds during the week ended Sept. 23, according to Money Fund Report, a service of iMoneyNet of Westborough, Mass.
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