GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
SOVEREIGN DEBT & CREDIT CRISIS
Peripheral nerves: Portugal still under siege by bond
Germany Criticizes Fed Move WSJ
German officials, concerned that Washington could be
pushing the global economy into a downward spiral, have
launched an unusually open critique of U.S. economic
policy and vowed to make their frustration known at this
week's Group of 20 summit.
"Germany's exporting success is
based on the increased competitiveness of our companies,
not on some sort of currency sleight-of-hand. The American
growth model, by comparison, is stuck in a deep crisis.
The USA lived off credit for too long, inflated its
financial sector massively and neglected its industrial
base. There are many reasons for America's problems"
German Finance Minister Wolfgang
"I doubted the U.S. would live up
to a commitment world leaders made this summer at a G-20
summit in Toronto to halve government deficits by 2013."
Treasury Yields Tumble to Records on Fed's Plan to Purchase $600
& LOCAL GOVERNMENT
CENTRAL & EASTERN EUROPE
BANK OF AMERICA - The
Case for Fraud
William K. Black: Foreclose on the Foreclosure Fraudsters, Part 1:
Put Bank of America in Receivership HP (10-22-10)
William K. Black: Foreclose on the Foreclosure Fraudsters, Part 2:
Spurious Arguments Against Holding the Fraudsters Accountable
William K. Black: Let's Set the Record Straight on Bank of
America: Open the Books! HP (11-04-10)
William K. Black: Let's Set the Record Straight on Bank of
America, Part 2: Eliminating Foreclosure Fraud HP
Bank of America Edges Closer to Tipping Point
|Judging by its shrinking stock price, though, investors are acting as if Bank of
America is near a tipping point. Its market capitalization stands at $115.6
billion, or 54 percent of book value. That’s the second-lowest price-to-book
ratio among the 24 companies in the
KBW Bank Index, and well below the 76 percent ratio the company was at in
October 2008 when it landed its first round of TARP dough. Put another way, the
market is saying there’s a $96.8 billion hole in Bank of America’s balance
The problem for anyone trying to analyze Bank of
America’s $2.3 trillion balance sheet is that it’s largely
impenetrable. Some portions, though, are so delusional
that they invite laughter. Consider, for instance, the way
the company continues to account for its acquisition of
Countrywide Financial, the disastrous subprime lender at
the center of the housing bust, which it bought for $4.2
billion in July 2008.
Here’s how Bank of America
allocated the purchase price for that deal. First, it
determined that the fair value of the liabilities at
Countrywide exceeded the mortgage lender’s assets by $200
million. Then it recorded $4.4 billion of goodwill, a
ledger entry representing the difference between
Countrywide’s net asset value and the purchase price.
That’s right. Countrywide’s goodwill supposedly
was worth more than Countrywide itself. In other words,
Bank of America paid $4.2 billion for the company, even
though it thought the value there was less than zero.
Since completing that acquisition, Bank of
America has dropped the Countrywide brand. The company’s
home-loan division has reported $13.5 billion of
pretax losses. Yet Bank of America still hasn’t written
off any of its Countrywide goodwill.
Dubrowski, the company spokesman, declined to
comment when I asked him why not. In its latest
quarterly report with the SEC, Bank of America said it
had determined the asset wasn’t impaired. It might as well
be telling the public not to believe any of the numbers on
its financial statements.
Bank Of America- We Face Repurchase Lawsuits On $375
Billion Worth Of Mortgage Securities
From Bank of America's just-released
Keith McCullough), here's what the company says
about repurchase lawsuits:
The Corporation and affiliates, legacy Countrywide
entities and affiliates, and legacy Merrill Lynch
entities and affiliates have been named as defendants
in a number of cases relating to various roles they
played in MBS offerings. These cases are generally
purported class action suits or actions by individual
purchasers of securities. Although the
allegations vary by lawsuit, these cases generally
allege that the offering documents for more than $375
billion of securities issued by hundreds of
securitization trusts contained material
misrepresentations and omissions, including statements
regarding the underwriting standards pursuant to which
the underlying mortgage loans were issued, the ratings
given to the tranches by rating agencies, and the
appraisal standards that were used in violation of
Section 11 and 12 of the Securities Act of 1933 and/or
state securities laws. The cases generally
allege unspecified compensatory damages and in some
instances, seek rescission. The Corporation has
previously disclosed some of these matters under other
headings, in its 2009 Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2010 and June 30, 2010, including
Countrywide Mortgage-Backed Securities Litigation;
IndyMac Litigation; Merrill Lynch Subprime-related
Matters; and Federal Home Loan Bank of Seattle
COMMERCIAL REAL ESTATE
9-RESIDENTIAL REAL ESTATE - PHASE II
10- EXPIRATION FINANCIAL CRISIS PROGRAM
11- PENSION & ENTITLEMENTS CRISIS
A look at US employment – and how’s that recovery doing?
(1) The Recovery!
Wall Street and the media obsess over the tiny changes in the
monthly employment reports. These surveys are not that
accurate, and changes of a few thousand mean nothing among 300
million Americans. Instead we should watch the levels and
trends. What improvement in jobs has this recovery brought us
since it started in June 2009? Here are the results for the
past 12 months (October 2009 – October 2010, seasonally adjusted,
- Civilian non-institutional population 16 or older: +0.8%
- Employed: +0.0007%
- Unemployed: down 4.9% (mostly though people dropping out
of the labor force)
- Not in the labor force (neither working nor
As your teachers said, always check our conclusions with
different methods. First, look at the
Social Security employment taxes in September:
down 2.8% year-over-year. This is a reliable
measure of American wage income. Payments by social
security rose 3.0%, so its cash flow dropped from -4.4 billion to
-7.5 billion. Cash flow was +7.2 billion in
September 2006; this deterioration is a growing and serious drag
on the Federal government’s finances.
Second, look at new claims for unemployment: stable since late
December 2009 at roughly 463 thousand/week. That’s job
losses at an annual rate of 24 million per year. Only
about 80% of workers are covered by UI (no independent contractors
and self-employed), and the unemployment rate is higher for
uncovered workers. So the job loss rate is probably running
at about 30 million/year. This shows considerable stress on
the US economy — and on US households. Most of the newly
unemployed find a job, but often with some combination of lower
wages, less benefits, and fewer hours.
Do we have a recovery? Not in jobs. Not in
wages. A wide range of economic data suggests that the
recovery stalled in May and June 2010.
(3) The Current Numbers: October 2010
Some aspects of employment are leading indicators, some
are lagging indicators. Broadly speaking, employment is one
of the major metric’s of the nation’s health, both economic and
These are the numbers from the Census’
Household Population survey (tables A and A-1) for October,
released 5 November 2010. IMO the household survey gives a
more reliable real-time picture than the establishment survey
(CES). After the benchmark revisions, 18-plus months later,
the CES provides the definitive historical record.
Unfortunately, the initial results bear only a slight
resemblence to the final results. They’re largely modeled
from a few early responders. And the early responses do not
include small businesses, the center of the current downturn.
Here’s the story for October. All rounded to the nearest
- 239 million – the civilian non-institutional population,
adults 16+ years old (17 million are 16-19 years old).
- 154 million of these are in the labor force (6 million are
- 139 million have jobs (4 million are ages 16-19)
- 27 million of those jobs are part-time jobs; 9 million of
those with part-time jobs would prefer full-time jobs.
- 15 million of the labor force are unemployed: 1
million quit, 9 million were fired, 5 million entered or
re-entered the labor force (2 million are ages 16-19).
- 1 million have become discouraged and stopped looking.
The Census provides six measures of unemployment, depending on
definitions of the labor force and unemployed. The four most
widely used (U-3 to U-6) range from 9.6% to 17.0% (table
A-15). All have been stable since June. None of
these measures are more “right” than the others. None
are easily comparable to those of the great depression (the
government began measuring unemployment in the 1940′s; earlier
numbers are rough estimates).
The median duration of unemployment is 21 weeks; the mean is 34
A-12). The mean is large due to the six million workers
who have been unemployed for 27 weeks or more. The level of
long-term unemployment during this downturn is a post Depression
Much has been made of the declining ratio of workers to
population. For example, the fraction of men over 16 who
have jobs is a post-Depression low. Get used to it.
This ratio can only fall further as the boomers age.
Other posts about employment
America passes a milestone!, 20 January 2010 — More jobs
in government than manufacturing
Yes, it is a “mancession”, with men losing more jobs than
women. Just like all recessions., 5 October 2009
Update on the “mancession”, 2 December 2009
A look at the engines of American job creation, 12 January
An ominous trend: number of Americans working for the
government vs. those making things, 5 March 2010 — Update
to the Oct 2009 post.
The coming big increase in structural unemployment, 7
The coming Robotic Nation, 28 August 2010
The coming of the robots, reshaping our society in ways
difficult to foresee, 22 September 2010
Economists grapple with the first stage of
the robot revolution, 23 September 2010
Lapse of U.S. Unemployment Benefits May Cool Spending
The October employment situation was dramatically weaker
than the headline 151k increase in the payroll employment
measure. The broader household employment fell 330k. The only
reason that the unemployment rate held steady is that 254k dropped
out of the labor force. The civilian labor force participation
rate fell to a new low of 64.5%, indicating that people do not
believe that jobs are available, but this serves to hold the
unemployment rate down. In addition, the employment-to-population
ratio fell to 58.3%, the lowest level in nearly 30 years.
While not actually knowing what happened to the net job change
in the non-surveyed small business sector, the Labor Department
assumed that 61k jobs were created in that sector. This assumption
is not supported by such important private surveys as those from
the National Federation of Independent Business or by ADP. Just a
month ago the Labor Department had to revise downward the job
totals due to a serious overcount of their statistical artifact
known as the Birth/Death Model.
The most distressing aspect of this report is that the US
economy lost another 124K full-time jobs, thus bringing the
five-month loss to 1.1 million in this most critical of all
employment categories. In an even more significant sign, the level
of full-time employment in October was at the same level that was
reached originally in December 1999, almost 11 years ago (see
attached chart). An economy cannot generate income growth by
continuing to substitute part-time work for full-time employment.
This loss of full-time jobs goes a long way to explain why real
personal income less transfer payments has been unchanged since
The weakness in real income is probably lost in an environment
in which the Fed is touting the gain in stock prices and consumer
wealth resulting from the latest quantitative easing (QE), but QE
has unintended negative consequences for real household income.
Due to higher prices of energy and food commodities, QE may result
in less funds for discretionary spending for consumers whose
incomes are stagnant. Also, with five-year yields falling below
1%, rates on CDs and other types
of short-term bank deposits will decline, also cutting into
household income. At the end of the day these effects will be more
powerful than any stock-price boost in consumer spending, which,
as always, will be very small and slow to materialize.
To have a broad-based recovery, the manufacturing sector must
participate. Contrary to the ISM survey, manufacturing jobs fell
7k, the third consecutive drop, resulting in a net loss over the
past three months of 35k.
In summary, the latest economic developments indicate a slight
worsening of underlying fundamental conditions.
Lapse of U.S. Unemployment Benefits May Cool Spending BL
13- GOVERNMENT BACKSTOP INSURANCE
Fannie Mae asks for $2.5 billion in new US aid
14- CORPORATE BANKRUPTCIES
Banks set for small company failures FT
China '10 industrial output to rise 13.5%: Minister ET
19- PUBLIC POLICY MISCUES
Exporting Our Way to Stability
President Barack Obama
New York Times Op-Ed
AS the United States recovers from this recession, the biggest
mistake we could make would be to rebuild our economy on the same
pile of debt or the paper profits of financial speculation. We
need to rebuild on a new, stronger foundation for economic growth.
And part of that foundation involves doing what Americans have
always done best: discovering, creating and building products that
are sold all over the world.
We want to be known not just for what we consume, but for what
we produce. And the more we export abroad, the more jobs we create
in America. In fact, every $1 billion we export supports more than
5,000 jobs at home.
"It is for this reason that I set a
goal of doubling America’s exports in the next five years."
||Seoul South Korea
|Asia-Pacific Economic Conference
Last year, the
nations of the G-20 worked together to halt the spread of the
worst economic crisis since the 1930s. This year, our top priority
is achieving strong, sustainable and balanced growth. This will
require cooperation and responsibility from all nations — those
with emerging economies and those with advanced economies; those
running a deficit and those running a surplus.
The Real Reason For Obama's Trip To India- The Sixth Biggest Arms
Deal In U.S. History BI
|President Obama is traveling to India this weekend to make a
$5 billion sale for 10 of
Boeing's C-17 cargo planes. If India signs the contract, this
would be the sixth biggest arms deal in U.S. history.
This and the pending $60 billion deal with Saudi Arabia will
certainly help to jump-start the economy, as they have for the
past fifty years.
Obama’s quest for an Indian pay-off FT
US companies welcome power shift FT
Obama to hit reset button with business
Battles Loom Over Taxes, Spending WSJ
Newly empowered Republicans pushed to extend Bush-era tax
levels for as long as possible and pledged significant cuts in
spending Sunday, as President Barack Obama sought to maintain his
footing in an escalating budget battle.
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
Association - Food Price Projections NIA
NIA's special U.S. food price projection report is now available to
download for free by
A loaf of
wheat bread may soon cost $23 due to skyrocketing food price inflation
|Within a decade, a loaf of wheat bread may cost $23 in a
grocery store in the United States, and a 32-oz package of sugar
might run $62. A 64-oz container of Minute Maid Orange Juice,
meanwhile, could set you back $45.71. This is all according to a
new report released Friday by the National Inflation
Association which warns consumers about the coming wave of
food price inflation that's about to strike the western world.
Authored by Gerard Adams this report makes the connection
between the Fed's runaway
policy ("quantitative easing") and food price
"For every economic problem the U.S. government tries to
solve, it always creates two or three much larger catastrophes in
the process," said Adams. "Just like we predicted this past
December, the U.S. dollar index bounced in early 2010 and has been
in free-fall ever since. Bernanke's QE2 will likely accelerate
this free-fall into a complete U.S. dollar rout."
The "Real" Mega-Bears dshort
It's time again for the weekend update of our
"Real" Mega-Bears, an inflation-adjusted overlay of three
secular bear markets. It aligns the current
500 from the top of the Tech
Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from
its 1989 bubble high.
This chart is consistent with my preference for
real (inflation-adjusted) analysis of long-term
market behavior. The nominal
all-time high in the index occurred in October 2007, but when we
adjust for inflation, the "real" all-time high for the S&P 500
occurred in March 2000.
Here is a
nominal version to help clarify the impact of inflation and
deflation, which varied significantly across these three markets.
Note: These charts are not intended as a
forecast but rather as a way to study the today's market in
relation to historic market cycles.
He Saw Trouble Coming. Now He Sees It Going
'70s stagflation WT
Oil price forecast to hit $100 a barrel in 2011 Telegraph
FLASH CRASH - HFT - DARK POOLS
Mid-Term-Election Rallies ZEAL
Kyle Bass remains apocalyptic, likes Switzerland Absolute Return
In a keynote address at the
AR Symposium in New York, hedge funder Kyle Bass reiterated
some of his big themes regarding the global economy.
- Japan is doomed, thanks to its excessive debt. (Any day
yen-denominated mortgage will become uber cheap!)
- Greek has no chance.
- Ireland has no chance.
- The US is in a situation like the PIIGS and Japan, but not
really as bad.
- And "all roads lead to gold."
So who does he like?
Among his dire predictions, Bass had some rare optimistic words
about Switzerland. “When you think about Switzerland you have to
extricate Credit Suisse and UBS because they became multiples of
GDP … when you look at the rest of the banking system they don’t
have banks go down,” said Bass. “Do you know why? Because the
officers and directors of the bank become personally liable for
the assets of the bank. So the give-a-shit factor is pretty
high.”He added, “The Swiss banking system, in my opinion, is very
robust, very solid. They make good loans.”
He also had
praise for the country’s central banker, Philipp Hildebrand,
president of the Swiss National Bank. “Hildebrand is the best
central banker of any in the world,” he said. “He gets it.” Bass
said once Switzerland deals with Credit Suisse and UBS, the
country will be in good shape. “Once they fix those two, the rest
of their system is OK.”
anger mounts at 'clueless' Fed actions
Fed's magic money machine annoys the world
Geithner: U.S. Won't Use Dollar to Gain Competitive Advantage BL
|“I’m happy to reaffirm again that a
strong dollar’s in our interest as a country”
China gets major stake in IMF in vote overhaul Reuters
China rejects trade surplus proposals China Daily
Zoellick seeks gold standard debate FT
World Bank chief airs disquiet with system
The G20 must look beyond Bretton Woods Zoellick
As Economy Shifts, Companies Retool WSJ
G20 RE-BALANCING -
- Each percentage-point reduction in the annual savings rate in
Germany and China—two countries with particularly big surpluses
that have pledged to boost spending—would increase consumer
spending by a total of just $42 billion.
- Each percentage-point increase in the U.S. household savings
rate reduces spending by $100 billion, estimates McKinsey Global
- U.S. consumers now save 6% of their after-tax income,
compared to just 1% in 2005.
- Chinese households save more than 25% of their disposable
- Chinese who earn more than $100,000 are four times more
likely than Americans with the same income to buy luxury cars,
according to Bernstein Research.
- Consumer spending makes up just 40% of China's gross domestic
product, compared to 70% in the U.S. and 56% in Germany.
"I don't think the U.S. savings rate is
sustainable at a level of 6% or 7%. Once Americans feel confident
again, they'll spend. It's how Americans are coined."
Mr. Eichiner CFO, BMW .
Germany Criticizes Fed Move WSJ
German officials, concerned that Washington could be pushing
the global economy into a downward spiral, have launched an
unusually open critique of U.S. economic policy and vowed to make
their frustration known at this week's Group of 20 summit.
Stop Blaming The Chinese, America Gothamist
“If you look at the U.S., you look at who we’re
electing to Congress, to the Senate—they can’t read.
I’ll bet you a bunch of these people don’t have passports. We’re
about to start a trade war with China if we’re not careful here,
only because nobody knows where China is. Nobody knows what China
“I think in America, we’ve got
to stop blaming the Chinese and blaming everybody else and take a
look at ourselves...There’s a country on the other side of the
world that is taking their taxpayers’ dollars, and trying to sell
subsidized things so we can buy them cheaper, and have better
products, and we’re going to criticize that?"
Michael Bloomberg, Mayor of New York City
C40 conference in Hong Kong
Fed Really to Blame for Emerging Market Headaches?
Currencies: Seven Charts You Should See Money and Markets
With the Fed’s QE2 policy officially on the table, the emerging
market and Asian countries that have been waging a fight to keep
their currencies from a runaway surge have already stepped up with
more currency market intervention and talks of capital controls.
And they are doing so because the dollar is weakening. But more
importantly they’re reacting because the Chinese yuan is getting
weaker relative to their currencies in the process — a competitive
disadvantage for their export trade.
The key take-away: A grossly weaker dollar is not an
economically or politically acceptable proposition for the world.
And trouble for the world economy represents trouble for the U.S.
So, despite all of the bold projections of a continued rout in
the dollar, these seven charts suggest the exact opposite outcome
could be around the corner.
US stimulus 2-edged sword for Korea Korea Times
Gold's next hurdle is 1980's peak MW
AUDIO / VIDEO
QUOTE OF THE WEEK
"It could unfold very, very quickly. Because deflation is a
swing of poverty feedback, it can take awhile to build up. If you
try to explain to people what's coming, because it doesn't happen
instantly, they tend to go back to sleep. The thing they need to
understand, however, is that when it does hit a tipping point, a
kind of critical mass, then it can unfold exceptionally quickly.
Then it's very much like having the rug pulled out from under your
feet. So I tell people all the time, prepare now because it's
better to be two years too early than five minutes too late. You
can't play with this sort of thing. In September, 2008, we came
within a few hours of the banking system seizing up, and that
could easily happen again. People wouldn't get a lot of notice.
For anyone who's not in the meeting room-it will be too late by
the time they find out. My worry is that if there are an enormous
number of people who just had the rug pulled out from under their
feet, they're going to run around like headless chickens, and the
human over-reaction to events will be really responsible for a
large percentage of the impact. “