POSTS: THURSDAY 07-08-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
EXTEND & PRETEND: Stage I Comes to an End!
Is there a Gallup or some other polling "unpopularity" threshold
that the G-20 is waiting for before letting loose all those
 next to the Persian Gulf, the
Israeli jets in Saudi Arabia
 or the recent
US troop buildup
 on the
 (Italics is my addition: see the charts I have added for [X]
locations. I have also added  for the highly symbolic July 4th
long weekend visit of Hillary Clinton to Georgia, Azerbaijan and
SOVEREIGN DEBT & CREDIT CRISIS
IMF warns on global recovery FT
Risk of a slowdown has risen
sharply, fund says
IMF’s levy on financial institutions ‘outrageous’
Nations disagree over IMF bank taxes FT
Presentation: EMU under pressure
EU-wide rethink on 'unsustainable' pensions
Papandreou Passes Pension Overhaul as Unions Strike in Protest
SPAIN / PORTUGAL
|In the UK, the BBC reports that a quarter of a million workers
at 400 universities, higher education colleges and associated
face cuts in their pensions.
Japan's Machinery Orders Slump 9.1%, Most Since 2008
dump U.S. Treasuries or pile into gold
“In a series of questions and answers posted on its website,
SAFE asked rhetorically whether China would use its $2.45 trillion
stockpile of reserves, the world's largest, as a "nuclear weapon."
China spells out gold reserve policy
China rules out ‘nuclear option’ on T-bills FT
Safe will hold on to US debt but urges dollar responsibility
ECB turns into a bigger, bolder banker
Expanded role under Jean-Claude Trichet in battle against economic crisis
raises questions on the future
& LOCAL GOVERNMENT/b>
Pension Woes Only Worsening …
Allstate CEO Says U.S. State, Local Borrowing `Out of Control' BL
It's Time For A Marshall Plan To Save Disastrous State Budgets
CENTRAL & EASTERN EUROPECENTRAL & EASTERN EUROPE
Hospitals Claim Wall Street Wounds WSJ
|Hospitals that made wrong-way "swaps" and auction-rate bets
are blaming Wall Street. The Street says the hospitals had reaped
millions of dollars in savings before the market turned sour.
Some hospitals are paying millions of dollars in penalties to
get out of derivatives contracts, after betting incorrectly that
interest rates would rise. Other hospitals are paying higher
interest rates. At many, these ill-fated financial bets have
contributed to layoffs and scuttled projects.
More than 500 nonprofit hospitals—at least one in six—bought
interest-rate "swaps" in a bid to lower their borrowing costs,
estimates Municipal Market Advisors, a Concord, Mass., consulting
firm. The swaps allowed hospitals to act much like homeowners
switching from a floating-rate mortgage to fixed-rate one, betting
on rising interest rates.
For a fee, the hospitals received a fixed rate to sell bonds,
lower than the municipal-bond market at the time. These bets
backfired when the Federal Reserve cut interest rates to nearly
zero from more than 5% in 2007.
Hospitals also issued auction-rate securities—which reset bond
prices weekly or monthly through auctions—that represented about a
third of the $330 billion market for these derivatives. Hospitals
paid Wall Street firms more than $120 million in fees for the
securities between 2005 and 2007, said data firm Thomson Reuters.
That market dried in the 2008 financial panic, leaving hospitals
with higher interest rates.
Wall Street firms and many hospital executives say
interest-rate swaps were a plain-vanilla product that they have
sold for years and say no one could have foreseen the crisis that
cratered the auction-rate securities market. "For years and years
it was a smart strategy," said Richard Clarke, president of
Healthcare Financial Management Association, a trade group.
"Hospitals made money on these for a long time."
The hospital deals were part of a larger stampede into
swaps contracts by cities, schools and other taxing districts
seeking to lower their payments on bonds they sold. Some strapped
hospitals only now are beginning to break the contracts and pay a
financial penalty for it.
Swaps were "the Edsel of the time," said John Hackbarth Jr.,
chief financial officer of Owensboro Medical Health System of
Kentucky, which recently paid about $14 million to end an
interest-rate swap with Merrill Lynch, now part of
Bank of America Corp.
The Banking Credit Freeze Is Finally Beginning To Thaw
Right now, the freeze on bank lending is beginning to thaw,
as consumers continue to pay down their debt.
From Deutsche Bank:
Consumer credit is projected to be down slightly in
May, but we should not be concerned because the credit crunch
is actually abating. According to the Fed’s latest Senior Loan
Officer Survey, commercial banks’ willingness to make consumer
loans continues to expand.
Deutsche Bank attempt to prove this:
While Deutsche Bank limit their positivity with continued
concerns over unemployment, we fear that consumers and
companies alike are still far more concerned about
paying down debt to take on new loans or other credit
If there is to be any thaw, we feel it will be slow and
severely mitigated by the unemployment crisis.
DODD FRANK ACT
RATING AGENCIESRATING AGENCIES
loans facing refinancing risks: CMBS only part of a growing problem
Shopping Center Vacancy Rates Rose in Second Quarter
Apartment Vacancies in U.S. Drop From 30-Year High, Reis Says BL
Banks Often Extend Sour Property Loans WSJ
|Banks are restructuring many unpaid loans on commercial real
estate rather than foreclose, a practice creating uncertainties
about the health of both the commercial-property market and some
big push by banks in recent months to modify such loans—by
stretching out maturities or allowing below-market interest
rates—has slowed a spike in defaults. It also has helped preserve
banks' capital, by keeping some dicey loans classified as
"performing" and thus minimizing the amount of cash banks must set
aside in reserves for future losses.
Restructurings of nonresidential loans stood at $23.9 billion
at the end of the first quarter, more than three times the level a
year earlier and seven times the level two years earlier. While
not all were for commercial real estate, the total makes clear
that large numbers of commercial-property borrowers got some
But the practice is creating uncertainties about the health of
both the commercial-property market and some banks. The concern is
that rampant modification of souring loans masks the true scope of
the commercial property market weakness, as well as the damage
ultimately in store for bank balance sheets.
Regulators helped spur banks' recent approach to commercial
real estate by crafting new guidelines last October. They gave
banks a variety of ways to restructure loans. And they allowed
banks to record loans still operating under the original terms as
"performing" even if the value of the underlying property had
fallen below the loan amount—which is an ominous sign for ultimate
repayment. Although regulators say banks shouldn't take the
guidelines as a signal to cut borrowers more slack, it appears
Banks hold some $176 billion of souring commercial-real-estate
loans, according to an estimate by research firm Foresight
Analytics. About two-thirds of bank commercial real-estate loans
maturing between now and 2014 are underwater, meaning the property
is worth less than the loan on it, Foresight data show. U.S.
commercial-real-estate values remain 42% below their October 2007
peak and only slightly above the low they hit in October 2009,
according to Moody's Investors Service.
In the first quarter, 9.1% of commercial-property loans held by
banks were delinquent, compared with 7% a year earlier and just
1.5% in the first quarter of 2007, according to Foresight.
Banks don't have to disclose how terms on their loans have
changed, making it hard to know whether they are setting aside
enough cash for possible losses.
Bulk Condo Sales Reveal A Gut-Wrenching Property Price Collapse
RRESIDENTIAL REAL ESTATE - PHASE IIRRESIDENTIAL REAL ESTATE - PHASE II
EXPIRATION FINANCIAL CRISIS PROGRAM/b>
PENSION & ENTITLEMENTS CRISIS
will Baby Boomers' retirement affect stocks?
year, the first of the 79 million Baby Boomers will hit 65 — retirement
A 13-year reprieve to pay off its pension plan shortfall
Highest pension costs in the United States myfoxny
Taxpayers pay $10 billion a year for state pensions -- nearly
double in the last decade. One reason costing millions: In
their last year of work, many state employees compile hundreds of
hours of overtime in order to increase their salary. Lifelong
state pensions are based on the last few years of salary.
"Our ongoing investigation into pension padding has so far
identified problems that transcend occupation, region, or job
title," Cuomo said. "More critically, we have developed solutions
and tactics that, if implemented, can reduce the abuses of the
pension system. While we expand the scope of our probe, I urge all
public employers to closely examine how they can improve the way
they do business for the sake of the state and taxpayers."
Cuomo said that widespread abuse of labor agreements is
occurring. His reported cited an example a firefighter who worked
2,004 hours of overtime, a police officer with 823 hours, and a
highway maintenance worker who compiled 539 hours near the end of
their respective careers.
Cuomo, who is running for governor, said that most counties
allow this padding practice. The pension-padding
investigation did not include New York City employees, but may in
the future. Cuomo said that criminal charges may be filed in the
most egregious cases.
Unemployment Is No Longer A Lagging Indicator: El-Erian
Workers' salaries lost ground in past decade MW
GOVERNMENT BACKSTOP INSURANCEGOVERNMENT BACKSTOP INSURANCE
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE/b>
this rate, the BIS holdings represent the "biggest gold swap in history”
FLASH CRASH - HFT - DARK POOLS
ICI Reports Ninth Sequential Equity Fund Outflow In A Row
reports that topping off the underperforming H1 market action
was yet another equity market outflow, this one to the tune of
($227) million. This represented the ninth sequential domestic
equity mutual fund outflow in a row, and accounts for fund flows
of over ($30) billion YTD. This follows on the heels of last
week's once again deteriorating AMG/Lipper HY fund outflow report.
Retail investors are not only not participating in the market, but
are actively continuing to redeem capital out of any form of
equity, transferring it into taxable bond funds. Mutual funds
continue to not only be low on cash, but facing ongoing
redemptions. Luckily, HFTs have none of these problems: all they
need is to sniff out a major block bid from a dealer with discount
window access, front run it while blowing up the NBBO via
subpennying, accelerate the momentum, without needing any actual
material capital, and end flat on the day. Mutual Funds will of
course take the pick up in price levels and thank HFTs kindly,
knowing full well they are unable to be marginal price setters any
longer. So aside from the logistics of ramping the market on
capital liquidations and margin calls, 4% market surges such as
those seen in the past two days make perfect sense.
Central Banks Swap Tons of Gold to Raise Cash, Surprising Market
WSJ (via Google)
VIDEO TO WATCH
INTERESTING ARTICLES - GENERAL
QUOTE OF THE WEEKQUOTE OF THE WEEK
Rick Santelli Uncut (And GE Turbofan Commercial Free)
Having rapidly become the only person worth listening to on
CNBC, Rick Santelli's insights on the economy are now far more
valuable than any other guest's on the Jeff Immelt propaganda
station. Which is why we were very happy to find that
Eric King's latest interview was with none other than Mr.
Santelli. The topics discussed are numerous, varied and and very
critical to our economy, covering such concepts as deflation,
deficit spending, bailouts, government spending multipliers, Fed
transparency, spending cuts, austerity, the folly of Keynesianism,
strategic defaults, direct bidders and treasury auctions, and
lastly, tea party dynamics, making this a must hear interview for
anyone still on either side of the economic fence, and who enjoys
listening to Rick for longer than the 45 second segments the CNBC
producers will allow.
- Deflation: "deflation is the most
disingenuous argument especially in the current conditions.
[When the bubble process ends prices have to come down to
reality] the process really is deleveraging, but what happens
when prices go down you get the economists call it deflation.
Deflation is always the biggest bogeyman in a central banker's
closet. It also allows them to use the only tool in their
toolbox, which is to spend money, and usually money they
haven't collected yet, so it's usually a deficit form of
spending. Think about what economists are trying to do: we go
up too high in leverage, prices are too high, we try to
correct that process, it's called deflation, and they try to
put money in to prop it up at an artificial price-deleveraging
is the word we should stick to"
- Deficit spending: "the only thing that
works is across the board tax cuts because it fuels the type
of small business that does the bulk of the hiring"
- Bailouts: "the only regulation that will
ever work is failure. If you don't allow failure what you end
up with is regulators trying to serve when it's time to take
punch bowls away. Regulators never go against the grain. Back
in 03-04 many in the fixed income markets saw it coming but
nobody wants to pull that punch bowl away. Businesses should
fail, that's the way the system was designed"
- The Multiplier of Government spending:
"Larry Summers on many occasions has said that the multiplier
of government spending is greater than 1. If that was true,
we'd never have another recession ever again, and I would be
advocating to spend a trillion dollars every hour. It would be
like a perpetual motion machine and all physicists know those
are impossible. Every dollar the government spends comes from
- Fed Transparency: "It seems to me we are
making some progress on the financial audit. I absolutely
agree that on all of the issues that take taxpayers' money and
end up being distributed or put on the balance sheet and in
any way used by the Fed, there should be an audit that should
be fully transparent. I am worried about the financial
- On Spending Cuts: "Listeners, this is
going to be the most important thing I am going to say: we
need to maintain the focus on spending, the politicians in my
lifetime always spend. If we end up spending way more than we
can take in, in essence the deficit panel becomes a tax panel.
We must stop spending before we talk about VAT taxes or taxing
Americans more, we need to get spending under control. The
retings of congress are the lowest they have been in
- On Austerity: "Nobody wants that. But
there is a silver lining - the UK have conditions in their
economy worse than the US, but they came up with an austerity
plan, and we see that their currency has been rewarded. The
GBP has risen about 10% in a very short period of time."
- On Keynesianism: "The Keynesians are both
right and wrong. I don't think Keynes advocated the kind of
helicopter-Ben spending that many say he promoted. He
promoted the kind of stimulus that created jobs, that's more
the medicine for a cyclical downturn, we have a structural
issue because of the bubble credit scenario."
- On the ECB's Debt Monetization: "I think
that the ECB has a huge issue and they are behind the ball.
They don't have a constitution in the eurozone, they have
cultural and monetary cultural issues to deal with. I think
that buying securities or monetizing or QE is always a bad
idea. Once there is a subsidy in the marketplace, it becomes
the normal pricing mechanism. For the Fed or the ECB to unload
these securities, becomes a destabilizing force and in the
long run does more harm than good."
- On Strategic Defaults: "I have feelings
on this that go both ways. I think morally I would have an
issue doing that, but people who did the mortgage, or the
second mortgage, or took a HELOC to pay for cars, pay for the
vacations, I think it is reprehensible that we end up
reshuffling wealth to pay some of that off. But I think the
dynamic is from the government side - I think contracts
between banks and homeowners - if it's unsecured, it's
unsecured, I don't have an issue with that."
- On Direct Bidders being a proxy for the Fed (a
much debated topic on Zero Hedge) and
Treasury Auctions in general: "That's the best
question anyone has asked me in a long time. I think there is
a recycling quid pro quo going on: the Fed is making banking
obsolete because a lot of the programs that they have is to
take the cheap end of the curve and invest it in Treasuries.
Well the Treasury needs as many buyers as it can get. I think
the financial institutions are recycling easy money that
should be going into John Q Public's pocket, to those that
deserve credit, all this money is ending up in the forms of
purchases of 10, 7, and 5-Year Notes, and I don't like that
way that's working. That's why I think that raising rates
would be a good thing. Why? Because it would take some of the
easy ways the banks recycle the Fed's cheap money and put it
back in the hands of the public and actually make banking a
relationship between banks and Americans that need it whether
it is for funding a mortgage or funding a small business."
- And on Tea Party dynamics: "I think
November 2 is going to be a watershed of Americans letting
Washington know they're the boss."
ZHHstrong> - Zero Hedge, BI - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times