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"Extend & Pretend" Read the Series...



Stage 1 Comes to an End!
A Matter of National Security
A Guide to the Road Ahead 
Confirming the Flash Crash Omen
It's Either RICO Act or Control Fraud
Shifting Risk to the Innocent
Uncle Sam, You Sly Devil!
Is the US Facing a Cash Crunch?
Gaming the US Tax Payer
Manufacturing a Minsky Melt-Up
Hitting the Maturity Wall
An Accounting Driven
Market Recovery

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"SULTANS OF SWAP"
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"EURO EXPERIMENT"
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"UR all PIGS from HELL

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Published November 2009


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"INNOVATION"
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"PRESERVE & PROTECT"
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POSTS:   Friday, 12-24-2010
Last update:  12/26/2010 5:42 AM Postings begin at 5:30am EST
and updated throughout the day
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Source Tipping
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EU SOVERIGN DEBT CRISIS     1
       
GREECE     1
  FT 1
PORTUGAL     1
AP 1
  FT 1
GERMANY     1
BI - Reuters / WSJ 1
IRELAND     1
  FT 1
JAPAN     1
WSJ 1
     
USA     1
  Bloomberg 1
  MW 1
  WSJ 3
  EW 3
STATE & LOCAL GOVERNMENT     4
NY Times 4
EW 4
  Barrons 5
Reuters 5
Calculated Risk 6
  BI 6
Charles Hugh Smith 6
  Housing Wire 6
  Scotia 6
  AP 6
  FT 8
  Reuters 9
Pritchard 10
     
     
  FT 12
  BI 12
     
     
  Dorsch 22
FT 23
  FT 27
       
Other Tipping Point Categories not listed above
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES      
Is the Fed Printing Money?   WSJ  
Economist Sees Fed Nomination Fizzle   Reuters  
GENERAL INTEREST      
Hungary moves to tighten media   FT  
CURRENCY WARS      
The $4 trillion question: What explains FX growth?   VOX  
2011 OUTLOOKS      
The Waves of 2011   Browne  
Bubble alert: Where risk lurks in 2011   G&M  
Economy could contract in 2011, warns BoE's Fisher   Telegraph  
71% Bullish on 2011 BeSpoke  
MARKET WARNINGS      
Private investors flock back to equities   FT  
Bullish Cyclicals to Staples Indicator Final Slips BI  
     
Briefs
     
     
READER ROADMAP & GUIDE:   2010 Tipping Points and commentary


 
Tipping Points Life Cycle - Explained

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Quote Of The Week

"Gold as money is incompatible with unlimited majority rule and scoffs at the idea that money is just 'credit'. It negates any rationale, however farfetched, for the existence of central banks. It precludes 'fractional reserve banking' or any other method of debasing its utility as a medium of exchange. Last and most important, it SEVERELY curbs the power of government to interfere in the lives of its citizens. No assembly of national “leaders” brought together to “modernize” a financial system will ever agree to its use as money. But let one nation anywhere implement it, and the lid blows off."

William A. Buckler, Publisher:  The Privateer

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TIPPING POINTS
1 - Soverign Debt & Credit Crisis
2 - EU Banking Crisis
3 - Bond Bubble
4 - State & Local Government
5 - Risk Reversal
 
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22 - China Bubble
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27 - Shrinking Revenue Growth Rate
28 - US Dollar Weakness
29 -Global Output Gap
30 - Oil Price Pressures
31 -Natural Disaster
32 - Pandemic
33 - Iran Nuclear Threat
34 - Crisis Programs Expiration
35 - Terrorist Event

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These days, the U.S. is learning how hard it is to climb out of a post-bubble funk.

The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.

The declining, little-known city of Prichard is now attracting the attention of bankruptcy lawyers, labor leaders, municipal credit analysts and local officials from across the country. They want to see if the situation in Prichard, like the continuing bankruptcy of Vallejo, Calif., ultimately creates a legal precedent on whether distressed cities can legally cut or reduce their pensions, and if so, how.

“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”

Many cities and states are struggling to keep their pension plans adequately funded, with varying success. New York City plans to put $8.3 billion into its pension fund next year, twice what it paid five years ago. Maryland is considering a proposal to raise the retirement age to 62 for all public workers with fewer than five years of service.

Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.

Colorado, Minnesota and South Dakota have all taken the unusual step of reducing the benefits they pay their current retirees by cutting cost-of-living increases; retirees in all three states are suing.

No state or city wants to wind up like Prichard.

Is it finally showing some signs of fatigue?

The ratio of cyclicals to staples -- a nice indicator of bullishness -- finally slipped yesterday despite the higher move in the indices, which is perhaps a sign that this ridiculous run needs to take a breather.

 

Some mixed reports this morning are suggesting that Germany may be willing to back a huge European bailout fund.

The news was first reported by newspaper Suddeutsche Zeitung. According to Reuters, the article makes it sound like Germany would back such a fund. However, WSJ suggests this is just a "working paper" that's being discussed and not actual any real policy.

Anyway, this is going to have to be solved in 2011 because the status quo of local governments being totally on the hook for their own debt isn't working.

Some kind of Euro-wide funds, with euro-wide bonds has got to be on the table.

 

Even though home values have plummeted by a third, property taxes are increasing: welcome to the Great Middle Class Squeeze.

You might think that with home prices off by 30% or more since the housing/credit bubble popped in 2006, property taxes would have declined by a similar percentage. But you'd be wrong: they've gone up. As if the massive reduction in home equity wasn't enough of a blow to the Middle Class, they're also paying higher property taxes.

Though house prices have declined roughly 30% nationally since the 2006 peak of the housing bubble, property taxes have continued their decade-long rise, jumping $45 billion (over 10%) since 2008.

Local governments are responding to declining revenues by jacking up all taxes and fees.

To counteract sharp declines in property values, municipalities are raising their property tax rates, squeezing more out of properties even as they drop in value. Though there are local variations, the result is the same: property taxes are rising.

Here's a simple suggestion for local government: go back to the pre-bubble budget of 1996, and add in the inflation since then--39%. That would be fair and transparent.

32% of respondents said the S&P 500 would be up between 0 and 10% for the year. This was the projection that was selected most. The second highest response (29%) was for the S&P to gain between 10 and 20%, and another 10% said the index would gain more than 20%. Overall, 71% of respondents selected one of the three projections for gains on 2011.

On the bearish side, 11% are projecting the S&P to decline between 0 and 10% next year, 8% are looking for a decline of 10 to 20%, and 10% see a decline of more than 20%.

Up until recently, the contrarian call on equities was that they were headed higher. Based on all of the sentiment polls we've seen recently, however, the contrarian call has shifted to the bearish camp. The majority now appear to be bullish.

 

China’s growth model is unsustainable and the country faces a sudden slowdown unless it undergoes urgent economic and political reforms, according to a renowned Chinese academic and former member of the People’s Bank of China’s monetary policy committee. In a scathing indictment of the country’s extraordinary growth story, Yu Yongding listed

- rising social tensions,

- choking pollution,

- a lack of public services and

- an over-reliance on exports and investment, particularly in real estate, as threats to the country’s economic future

“China’s rapid growth has been achieved at an extremely high cost. Only future generations will know the true price,” Mr Yu wrote in an opinion piece published in the state-controlled China Daily. “[China’s] growth pattern has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustments the momentum of its economic growth could suddenly be lost.”

Capital will flow to where there's money to be made. It's just that simple. America's "accomodative" monetary policy has spurred a new wave of corporate borrowing. And where are these multinational entities deploying these new investments? Not in the United States. That money is flowing into emerging economies.

1- In the first half of 2006, the last year before the financial crisis, the net flow favored the U.S. at an annual rate of about $30 billion.

2- U.S. corporations’ overseas investment in the first half of 2010 exceeded the amount that foreign firms spent in the U.S. on factories and acquisitions at an annual rate of almost $220 billion, according to the Commerce Department.

3- You’re seeing leakage from quantitative easing. That leakage is going into:

a) Emerging markets,

b) Commodity-based economies,

c) Commodities themselves and

d) Non-U.S. opportunities.

4- U.S. corporations have issued more than $1.07 trillion in debt so far this year.

5- Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent

6- American corporations, according to the Federal Reserve, are sitting on roughly $1.9 trillion in cash. Big businesses are rolling in dough and registering record profits. One reason for their success is they're selling abroad - the most recent survey of the Standard & Poor's index of our largest 500 publicly traded corporations shows that roughly 47 percent of their revenue comes from outside the country.

7- Large corporations surved say the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks is:

a) buying in stock or

b) expanding dividends,or

c) invest it abroad where taxes are lower and governments are more eager to please.

Invest in the United States? Why bother? You can't get blood from a stone.

The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 290 thousand. This is up from a revised 275 thousand in October.

Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted or annualized).

Note the Red columns for 2010. In November 2010, 21 thousand new homes were sold (NSA). This is a new record low for November.

The previous record low for the month of November was 26 thousand in 1966 and 2009; the record high was 86 thousand in November 2005.

The second graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in November 2010 were at a seasonally adjusted annual rate of 290,000 ... This is 5.5 percent (±16.2%)* above the revised October rate of 275,000, but is 21.2 percent (±13.3%) below the November 2009 estimate of 368,000

And another long term graph - this one for New Home Months of Supply.

Months of supply decreased to 8.2 in November from 8.8 in October. The all time record was 12.4 months of supply in January 2009. This is still high (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of November was 197,000. This represents a supply of 8.2 months at the current sales rate.

The final graph shows new home inventory.

The 290 thousand annual sales rate for November is just above the all time record low in August (274 thousand). This was the weakest November on record and below the consensus forecast of 300 thousand.

This was another very weak report.