Focus on the facts. Greenspan and Bernanke have presided over the largest financial train wreck in the history of the world. They continue to pass the line of "nobody saw this coming" and "we are doing everything we can." This coming from the same camp that told us that the "economy is sound" and "it's never been better" in 2007.
To borrow an Obama line, let's use this as a "lesson" that either A.) these people don't know what they are doing or B.) they do and are not being truthful.
If they didn't see the greatest depression coming, they they sure as hell are not going to know how to get us out of it.
Prepare for the worst, hope for the best.
Bernanke: This may be worse than Great Depression
Fed chief says growth will resume at 1% in the second half of this year
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) -- Federal Reserve Board Chairman Ben Bernanke discussed the economy with average Americans on Sunday, saying the current financial crisis could be even more virulent than the Great Depression.
"A lot of things happened, a lot came together, [and] created probably the worst financial crisis, certainly since the Great Depression and possibly even including the Great Depression," Bernanke said at the start of a town-hall meeting in Kansas City.
Bernanke defended the Fed's extraordinary moves, which have included slashing interest rates to zero, pumping billions of dollars to keep credit markets open, and buying Treasurys and mortgage debt to keep long-term interest rates low.
"I was not going to be the Federal Reserve chairman who presided over the second Great Depression," he said.
The event is being televised over three nights, beginning Monday, by U.S. public television network PBS. Members of the public, screened by PBS, were able to ask questions.
Many questioners expressed unhappiness with the "too big to fail" doctrine. One asked when Bernanke would get around to firing the leadership of banks that had to accept government assistance.
Read More Here: http://www.marketwatch.com/story/bernanke-explains-crisis-to-average-americans-2009-07-26
Thursday, July 30, 2009
Commercial Real Estate Darwin Style
The wolves are hungry but calculating. They will strike and pick off distressed assets causing an avalanche of equity pricing in the commercial real estate market to come crashing down on our heads. Commercial real estate pricing is based on 1.) Returns (rental income weighted with risk) 2.) Comprable Sales and 3.) Replacement Cost.
Returns, based on capitalization rates (income divided by price) were artificially compressed in the 2004-2007 periods where prices went through the roof simply because there were more bidders, willing to take lower rates of return - not necessarily because the income was any greater. This has collapsed.
Replacement costs were heavily inflated in the 2005-2007 period when cement, gypsum, copper and glass prices went through the roof. This has collapsed.
Comprable sales are coming in now and they aren't pretty. The latest example is the Watergate Hotel which went to auction at $25 million - there were no bidders. When owners can no longer make payments on their debt (based on unjustifiable prices from a past era)commercial real estate will collapse.
It is important to remember that the word "collapse" is not equivalent to extinction. There will still be a market, there will still be demand - it will be watered down. Only the strong shall survive.
Equity In U.S. Commercial Property May Evaporate
By Ilaina Jonas
NEW YORK (Reuters) - The equity in $1.3 trillion worth of U.S. commercial real estate acquired or refinanced in 2006 through early 2008 is at risk of being completely wiped out by price collapses, according to a report by Real Estate Capital Analytics.
About $2.2 trillion of properties acquired or refinanced after the 2004 start of the commercial real estate bubble have lost value, according to the report, released on Wednesday by the real estate data company. As most those deals were financed with 70 percent to 80 percent or more of debt, the lower value will directly eat away at the equity.
"By the end of 2010 you'll have begun to see terrible, terrible capital structure disintegration," said Philip Blumberg, chairman and chief executive of Blumberg Capital Partners. "The first thing to go is the equity."
About $165 billion of commercial mortgages this year will mature and need to be refinanced or sold. Some $11.8 billion matured in June, according to mortgage data analysis provider First American CoreLogic.
The number of distressed properties in the top 10 markets topped 5,000 in March, the most recent recording period, for the first time since CoreLogic began keeping record in January 2003.
"The maturities haven't really gotten into full play yet," Blumberg said. "We are seeing the early edge of the hurricane of debt in real estate."
Prices for warehouses, office buildings, shopping centers and apartment buildings are down about 37 percent from the peak in 2007, according to Moody's REAL Index. The cost and availability of new loans has dried up, and lenders that will grant loans will do so only at 50 percent to 60 percent of value. Prices have plunged at an increasing rate, dropping 18 percent in the first five months of 2009, Real Capital Analytics said.
Meanwhile, the value has declined even more as rent and occupancy rates have tumbled.
Properties bought or refinanced in 2006 through 2008 have seen a 25 percent decline in value, Real Capital Analytics said.
The value of distressed properties has more than doubled so far in 2009. Some $93 billion of office, industrial, retail, and apartment properties in the United States have fallen into default, foreclosure or bankruptcy this cycle, Real Capital Analytics said.
Struggling hotels and other commercial property types add at least another $31 billion to the total.
Less than 10 percent of the distressed situations that have emerged have been resolved. Lenders have been slow to foreclose and have chosen to instead extend the loans.
Loans originated at the peak of the market in 2007 are seeing the highest levels of default
All of GVA Advantis’ Offices Have Closed
Read More Here: http://www.virginiabusiness.com/index.php/news/article/all-of-gva-advantis-offices-have-closed/201035/
Opus a Symbol of Commercial Real Estate Industry Travails
Read More Here: http://www.finance-commerce.com/article.cfm/2009/07/30/Opus-now-a-symbol-of-commercial-real-estate-industry-travails
CB Richard Ellis swings to a loss in 2nd quarter
Read More Here: http://www.latimes.com/business/la-fi-cbre30-2009jul30,0,633311.story
PREIT reports $4 million 2Q loss
Read More Here: http://www.philly.com/philly/business/homepage/20090729_PREIT_reports__4_million_2Q_loss.html
The Creature From Jekyll Island
Bernanke has ZERO credibility based on his track record of misrepresentation and total failure in safeguarding the value of the US dollar. Fool me once, shame on you. Fool me twice, shame on me.
Between the "oh" and "ums" uncle Ben stumbles around "why would the American people want congress to control monetary policy?"
Perhaps Ben, because the constitution explicitly states in Article 1, Section 8 that Congress has the sole power:
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
To provide for the punishment of counterfeiting the securities and current coin of the United States
In principle the idea of a central bank with a flexible, fiat currency sounds great - much like a communist utopia sounds ideal to many at first. The problem is that the ups and downs of life cannot be eliminated no matter how hard we try and that human nature forces us to act in our own best interest even at bureaucratic levels in governments or central banks.
The United States has a long, storied history of fighting central banks and their banksters and many of the military conflicts it has endured have been intimately tied into currency control.
Although science has begun to lend itself further to economics whether it be through the Black Schulz option pricing formula based literally on rocket science or in the creation of patterns as seen in the Fibonacci cycle, it does not take upper level mathematics or physics, however, to understand that history has a tendency of repeating itself, or at least "rhyming" as Mark Twain put it.
Let's take a quick look at a few presidential quotations.
"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." - Thomas Jefferson
"If Congress has the right under the Constitution to issue paper money,
it was given to be used by themselves, not to be delegated to individuals
or corporations." - Andrew Jackson
"As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war. God grant that my suspicions may prove groundless. - Abe Lincoln
"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." - Woodrow Wilson
"The real truth of the matter is that a financial element in the large centers has owned the government since tv days of Andrew Jackson." - Franklin Delano Roosevelt
"The high office of the President has been used to foment a plot to destroy America's freedom and before I leave this office, I must inform the citizens of their plight." - John F. Kennedy
Spanning more than two hundred years, it's easy to see that the issues America has faced yesterday look a lot like those of today.
The United States will soon be forced to restore some credibility to the US Dollar by limiting its printing and ideally tying it in to some store of value. The printing press needs to be returned to congress and the practice of deficit spending and interest payments on debt needs to be curtailed. Although this will lead to a rapid collapse of the existing system, it is both inevitable and necessary. The credibility of the dollar is near its end and restoring it will be costly as holders of the new currency will call for collateral - backing by gold and silver.
One of Kennedy's final acts in office was Executive Order 11110 which required the Treasury Department to begin printing and issuing silver certificates for the remaining silver then in the US Treasury. Kennedy also signed a bill that day changing the backing of one and two dollar bills from silver to gold. After his assassination, these certificates were removed from circulation and the program terminated. We need to look at some type of system like this.
Although we all long for a perfect world, life happens and history has shown us that we have to fend for ourselves and protect each other from over zealous governments and banks. Andrew Jackson put it well:
"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society the farmers, mechanics, and laborers who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles."
– Andrew Jackson on the VETO OF THE RENEWAL OF THE SECOND BANK OF THE U.S.
Wednesday, July 29, 2009
Gartman On Gold: Hedge For Dollar Devaluation
The herd seems to be moving towards gold. Stocking up on silver hedges you from the same risk and limits your exposure to gold confiscation/restriction - as unlikely as that may be.
Gartman Says Buys Gold on Technicals, Dollar Fall
Mon Jul 20, 2009
NEW YORK, July 20 (Reuters) - Prominent independent
investor Dennis Gartman said on Monday he is now a buyer
in the gold market because of bullion's technical strength and
its status as a hedge against the U.S. dollar.
"Regarding gold, it has held, and as the U.S. dollar
weakens, gold is breaking out to the upside," Gartman said in
his daily Gartman Letter.
"We found ourselves becoming quietly supportive of gold
from a technical and from a dollar-devaluation perspective. The
fact that gold has traded nicely above $940 in Asian dealing
and that the bond market is weakening and that the energy
market is strengthening is forcing our hand," Gartman said.
Gold XAU= rallied above $950 an ounce on Monday, hitting
a five-month peak as a falling dollar spurred buying of the
metal.
Gartman has until Monday recommended a neutral position on
gold investment. Previously, he said that gold was relatively
expensive compared to a basket of agricultural commodities.
Gartman Says Buys Gold on Technicals, Dollar Fall
Mon Jul 20, 2009
NEW YORK, July 20 (Reuters) - Prominent independent
investor Dennis Gartman said on Monday he is now a buyer
in the gold market because of bullion's technical strength and
its status as a hedge against the U.S. dollar.
"Regarding gold, it has held, and as the U.S. dollar
weakens, gold is breaking out to the upside," Gartman said in
his daily Gartman Letter.
"We found ourselves becoming quietly supportive of gold
from a technical and from a dollar-devaluation perspective. The
fact that gold has traded nicely above $940 in Asian dealing
and that the bond market is weakening and that the energy
market is strengthening is forcing our hand," Gartman said.
Gold XAU= rallied above $950 an ounce on Monday, hitting
a five-month peak as a falling dollar spurred buying of the
metal.
Gartman has until Monday recommended a neutral position on
gold investment. Previously, he said that gold was relatively
expensive compared to a basket of agricultural commodities.
Tuesday, July 28, 2009
Fears of Currency Devaluation in Azerbaijan
Panic and fear of devaluation start in Baku over lack of cash dollars in exchange offices
Azerbaijan’s commercial sector plunges into panic because of work failure of domestic banks’ exchange offices.
One of the businessmen says that US dollars have disappeared from sale in exchange offices.
“These offices’ workers link that with the fact that the State Oil Fund of Azerbaijan has ceased currency exchange since yesterday and foreign currency flowed to the market precisely at the expense of its finances,” the businessman said.
As a result, commercial sector cannot exchange even $10,000 and dipped into expectations of national currency devaluation and panic.
Read More Here: http://abc.az/eng/news_28_07_2009_37077.html
Azerbaijan’s commercial sector plunges into panic because of work failure of domestic banks’ exchange offices.
One of the businessmen says that US dollars have disappeared from sale in exchange offices.
“These offices’ workers link that with the fact that the State Oil Fund of Azerbaijan has ceased currency exchange since yesterday and foreign currency flowed to the market precisely at the expense of its finances,” the businessman said.
As a result, commercial sector cannot exchange even $10,000 and dipped into expectations of national currency devaluation and panic.
Read More Here: http://abc.az/eng/news_28_07_2009_37077.html
Deflation or Hyperinflation? Don't bet on it...
Popular opinion continues to seesaw back and forth between economic armageddon by way of deflation or hyperinflation. While both pose serious threats at this point in time, there is little chatter regarding a phantom menace which has receieved far less coverage: sudden and imposed currency devaluation. Devaluation seems to match with the muted warnings of impending bank holidays. With the absence of a gold standard, a devaluation would likely involve other currencies in a surprise, coordinated effort.
Dollar Devaluation is Inevitable... Just like in 1934
by I. M. Vronsky
Editor-in-Chief, Gold-Eagle.com
April 3, 2009
It is evident to all the US economic environment is an unmitigated disaster. In fact we seem to be hell bent for leather falling into another Great Depression (the recent Bear Market Rally in Wall Street notwithstanding). This begs the question: What can President Obama do to avert the excruciatingly sad events of the 1930s?
Here are the economic problems causing havoc today in the USA:
- The banking system is collapsing
- Tidal waves of foreclosures sweep the country
- Tumbling housing prices
- A bear market ravages Wall Street stocks
- Massive unemployment throughout the nation
- Overall we are in a deflationary spiral
- Interest rates are abysmally low
- Consumer confidence is bottomless
And what were the economic maladies causing economic havoc in 1933?
- The banking system was collapsing
- Tidal waves of foreclosures swept the country
- Tumbling housing prices
- A bear market ravaged Wall Street stocks
- Massive unemployment throughout the nation
- Overall we were in a deflationary spiral
- Interest rates were abysmally low
- Consumer confidence was bottomless
As Yogi Berra might have expressed it:
"It's déjà vu all over again!"
Any differences some ill-informed might mention are irrelevant and immaterial to the overall burdens weighing upon the USA today.
Read More Here: http://www.financialsense.com/editorials/vronsky/2009/0403.html
Dollar Devaluation is Inevitable... Just like in 1934
by I. M. Vronsky
Editor-in-Chief, Gold-Eagle.com
April 3, 2009
It is evident to all the US economic environment is an unmitigated disaster. In fact we seem to be hell bent for leather falling into another Great Depression (the recent Bear Market Rally in Wall Street notwithstanding). This begs the question: What can President Obama do to avert the excruciatingly sad events of the 1930s?
Here are the economic problems causing havoc today in the USA:
- The banking system is collapsing
- Tidal waves of foreclosures sweep the country
- Tumbling housing prices
- A bear market ravages Wall Street stocks
- Massive unemployment throughout the nation
- Overall we are in a deflationary spiral
- Interest rates are abysmally low
- Consumer confidence is bottomless
And what were the economic maladies causing economic havoc in 1933?
- The banking system was collapsing
- Tidal waves of foreclosures swept the country
- Tumbling housing prices
- A bear market ravaged Wall Street stocks
- Massive unemployment throughout the nation
- Overall we were in a deflationary spiral
- Interest rates were abysmally low
- Consumer confidence was bottomless
As Yogi Berra might have expressed it:
"It's déjà vu all over again!"
Any differences some ill-informed might mention are irrelevant and immaterial to the overall burdens weighing upon the USA today.
Read More Here: http://www.financialsense.com/editorials/vronsky/2009/0403.html
Monday, July 27, 2009
Virginia Laying Off 600
The government layoffs have begun on the local and state level. We should start to see federal cuts in 2010.
Report: VDOT layoff begin
Monday, July 27, 2009, 1:59pm EDT
Washington Business Journal - by Jeff Clabugh Staff Reporter
The Virginia Department of Transportation is notifying 600 employees this week they are losing their jobs, according to the Associated Press.
The cuts are being made in Richmond and at VDOT’s nine districts. About 50 VDOT employees in Northern Virginia are being let go, the Associated Press reports.
The cuts are part of a plan to trim the agency’s payroll by nearly 1,500 full and part-time jobs.
VDOT currently has more than 8,000 employees statewide.
Report: VDOT layoff begin
Monday, July 27, 2009, 1:59pm EDT
Washington Business Journal - by Jeff Clabugh Staff Reporter
The Virginia Department of Transportation is notifying 600 employees this week they are losing their jobs, according to the Associated Press.
The cuts are being made in Richmond and at VDOT’s nine districts. About 50 VDOT employees in Northern Virginia are being let go, the Associated Press reports.
The cuts are part of a plan to trim the agency’s payroll by nearly 1,500 full and part-time jobs.
VDOT currently has more than 8,000 employees statewide.
Indiana Town Considers Bankruptcy
Tip - of - the - iceberg.
S. Ind. town considers bankruptcy over $1.4M debt
Associated Press
9:39 AM CDT, July 27, 2009
GEORGETOWN, Ind. - A southern Indiana town board is considering filing for bankruptcy protection over a potential $1.45 million debt even though officials say state law doesn't allow that action.
The 3,000-person community of Georgetown faces the debt to a contractor and the nearby city of New Albany over stalled plans to build its own sewage treatment plant.
Georgetown council President Billy Stewart says it doesn't have the money to pay the debt.
The Department of Local Government Finance, however, says federal law requires that a municipality be specifically authorized by state law to file for bankruptcy. Agency spokeswoman Amanda Stanley says the town could raise taxes beyond state limits to pay a court judgment.
Town attorney David Andrews says he believes it could win a court challenge to the bankruptcy prohibition.
S. Ind. town considers bankruptcy over $1.4M debt
Associated Press
9:39 AM CDT, July 27, 2009
GEORGETOWN, Ind. - A southern Indiana town board is considering filing for bankruptcy protection over a potential $1.45 million debt even though officials say state law doesn't allow that action.
The 3,000-person community of Georgetown faces the debt to a contractor and the nearby city of New Albany over stalled plans to build its own sewage treatment plant.
Georgetown council President Billy Stewart says it doesn't have the money to pay the debt.
The Department of Local Government Finance, however, says federal law requires that a municipality be specifically authorized by state law to file for bankruptcy. Agency spokeswoman Amanda Stanley says the town could raise taxes beyond state limits to pay a court judgment.
Town attorney David Andrews says he believes it could win a court challenge to the bankruptcy prohibition.
Saturday, July 25, 2009
California Not Alone
California, Illinois, New York, New Jersey, Florida, Pennsylvania - the tax base is collapsing on both the federal and state levels. Like the workhorses of animal farm, the middle class is collapsing under the burden of taxation and will be sent to the glue factory to extract any remaining value. Feeling like the buffalo in the picture above with Taft on its back?
Why New Jersey is in worse shape than Gov. Arnold Schwarzenegger's California
Paul Mulshine - The Star Ledger
The news is filled with accounts of California's budget crisis. It seems that Gov. Arnold Schwarzenegger is reduced to handing out IOUs.
That may sound shocking, but I've spent the past couple of days perusing financial statistics and I've got some bad news. California may have a problem with IOUs, but Jersey's got an even worse problem: We-owe-youse. The "we" in question is all of us taxpayers here in the Garden State and the "youse" is all youse current and future public retirees as well as the Wall Street investors who hold our bonds.
When you compare our situation to California's, it's pretty depressing. California's economic situation is very similar to ours. As in Jersey, the Californians made the mistake of implementing a very progressive income tax system, one that gets almost half its revenue from a handful of rich people at the top of the earnings scale.
And like Jersey, California gets lots of revenue in the boom years followed by big declines in the bust years. This wouldn't be a problem were it not for the fact that the boneheads in both Sacramento and Trenton have a habit of making future commitments during the boom years that must be met in the bust years.
Those commitments consist of long-term bonding, often for various pork projects, as well as lavish pensions for public employees. Both states let many public workers retire at age 55 and even earlier, drawing not just a pension but health benefits for decades to come.
And in both cases, our situation is worse than theirs. When it comes to long-term bonding, California's on the hook for about twice as much debt as we are. But it has more than four times as many people to pay off that debt.
Similarly, their public-employee pensions and benefits system has about twice as big a hole in it as ours, but again with four times as many taxpayers to fill that hole.
So why is Sacramento in a budget crisis while New Jersey recently adopted a budget that got us into the current fiscal year intact?
This is the dirty little secret of Trenton politics, one that neither Gov. Jon Corzine nor his Republican opponent in the governor's race wishes to discuss. But I will.
The difference between California and New Jersey is simple: The Trenton crowd can always balance their budget by passing the tax burden down to the local level. The Sacramento crowd can't. That's why the Golden State is running out of gold while the Garden State remains fertile ground for the big spenders.
If you want to see this in action, consider those unfortunate residents of the tiny Shore town of Loch Arbour that I wrote about last week. Thanks to one line in last year's School Funding Reform Act, their property taxes more than doubled overnight. Someone who went to bed paying $11,000 a year on June 30 woke up on Fiscal New Year's Day with a property-tax bill of more than $22,000 a year.
State officials defended this on the grounds that the tax hike was needed to defray the expenses of the local school district. That couldn't happen in California.
Let's move that same house 3,000 miles west and put it along the Pacific. Thanks to a referendum passed by California voters in 1978 called Proposition 13, the taxes on that house could not be raised by more than 2 percent a year. Ever. For any reason. So where would the local schools get the money to operate? Glad you asked. Another referendum passed 20 years later compels the state to spend 40 percent of its budget on education.
This, of course, means the California state government, unlike our state government, has to live within its means. Those means are quite considerable. California collects more than five times the tax revenue of New Jersey. But their pols, like ours, made lots of promises they can't keep.
The difference is, our pols can always balance their budget by cutting aid to towns and school boards. State aid to Ocean Township, the school district into which Loch Arbour was merged against the residents' will, has been decreasing for the past three years. How to make up the difference? This is Jersey. Just tax some people out of their homes.
Instead of Proposition 13, we have the dubious proposition that homeowners can absorb infinite tax hikes. That's why we rank No. 1 in property taxes while California ranks No. 28. It can only get worse. Our pension and debt shortfalls will require an ever-larger share of the state budget for what amounts to eternity.
So don't pity Californians. Envy them. Their governor may be sending out IOUs. But your governor is sending out checks to be paid by taxes that you'll be coughing up until that lucky day when you move either out of the state or under the ground.
Where Is the U.S. Gold?
Three United States Gold Scenarios, Fort Knox, Fort Hocks or Fort Shocks
For 72 years, the building at the intersection of Bullion Boulevard and Gold Vault Road in Fort Knox, Kentucky has symbolized the financial strength of the United States of America. The United States Bullion Depository, better known as Fort Knox, is said to contain 147.3 million troy ounces of gold, over half the nation’s total reported gold bullion holdings of 261.5 million troy ounces. The remaining 114 million ounces are said to be stored at the Denver and Philadelphia Mints, the West Point Bullion Depository, and the San Francisco Assay Office. Assuming a price of $1,000 / ounce, the nation’s gold is worth $261.5 billion. If the metal is actually there, it represents the largest sovereign stockpile of gold bullion in the world.
However, the gold holdings of the U.S. have not been audited in more than 50 years. One reason given for the lack of an audit is that it would be “too expensive” to conduct one. An audit would cost a few million dollars, at most, so using cost as a reason for not performing it strains belief when placed in the context of the country’s Fiscal Year 2009 deficit of $2,000,000,000,000.00+, and federal debt of $11,600,000,000,000.00+. It is curious that one of the few places within the government where costs appear to be of concern relates to an audit of the one, true monetary asset possessed by the American people.
Even the Treasury Department’s clandestine $50 billion Exchange Stabilization Fund (ESF), which is only one-fifth the value of America’s reported gold holdings, undergoes an annual audit. For fiscal year 2008, this audit was conducted by KPMG, a well-known, independent CPA firm. KPMG’s 2008 ESF audit uncovered “significant deficiencies,” “material weaknesses,” a “weak control environment,” and “several control deficiencies.” If a Treasury organization subject to annual audits could fail its recent exam as broadly as that, what are we to assume about the safety and security of the people’s gold supply, which, like the national money geyser, the Federal Reserve Bank is never audited? And if the ESF is audited each year, what legitimate rationale can there be for not auditing the nation’s gold supply? Something isn’t adding up. In such a situation, inferential analysis can provide value, which you will see as this article progresses.
Read More Here: http://www.marketoracle.co.uk/Article12252.html
Saturday, July 18, 2009
Media Propaganda Machine In High Gear
When the legend becomes fact, print the legend...or in this case yell, threaten, point and make things up off the top of your head like Larry Kudlow.
Friday, July 17, 2009
The Collapse of Federalist America
Catching a falling knife is impossible.
Washington's Dilemma: This Isn't a Recession, It's a Collapse
By: Gregor Macdonald
Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don’t force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot. Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.
In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance. Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.
Read More Here: http://seekingalpha.com/article/148526-washington-s-dilemma-this-isn-t-a-recession-it-s-a-collapse?source=hp_mostpopular
Washington's Dilemma: This Isn't a Recession, It's a Collapse
By: Gregor Macdonald
Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don’t force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot. Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse.
In Recession vs. Collapse published in March, this blog explained that in a normal recession existing savings are used to support government debt issuance and that those who remain employed increase their savings to also support government debt issuance. Neither phenomenon is at work today. Yes, the savings rate has soared in the US. But this has not resulted in any actual accrued savings. Because private sector debt came to define the internal structure of the US system, savings currently is little more than debt service. Also, bank purchases of US Treasuries are really just a result of the circularity of monetization. It’s just money from the FED being recycled into Treasuries. There is no privately driven growth of bank deposits, in the aggregate. Americans as a class are broke. What the savings rate more accurately measures is a collapse of consumer spending.
Read More Here: http://seekingalpha.com/article/148526-washington-s-dilemma-this-isn-t-a-recession-it-s-a-collapse?source=hp_mostpopular
Sunday, July 12, 2009
Sunday Night Chart Scan
Looking at some charts... Thesis for this week- I don't know whats going to happen.
Markets on the verge of a breakdown- but can't seem to actually breakdown in a significant way- I'm looking at exhaustion on both sides. Bears can't seem to break below the 875 level and have tried twice- each time with market turning higher and closing above 875, they don't seem to have any momentum either so absent some catalyst I think the market will move higher in the short term. As for the bulls they are hanging on via a thread and have saved the market twice in the last week- if there is another attempt at 875 very soon they may be exhausted and the 875 level could fall to the bears. Since I'm leaning long my target would be the 10-dma at 900 and then the 50 day at 910.
My candidates for trades this week are RIG & GS, I'm liking RIG long and GS short;
RIGHY RIG August 70 Call
GSTD GS August 120 Put
Been looking at the charts for some good long candidates and only finding shorts...
Western Digital short; unusual put volume in the August 22.50 puts 3,370 WDCTX .75-.85
I prefer the WDCTE August 25 put 1.60-1.65 1.55-1.65
Chipotle Mexican Grill short; CMGTO August 75 put 3.40-3.80 3.60-3.80
Some other thoughts for this July option expiration week:
Market has been down last 4 weeks heading in to OPEX, OPEX is a counter-trend week so look long- at least early in the week.
Market has been range bound for some time now, since May; play the range until it breaks.
S&P close below 875 on volume means look out below.
Saturday, July 11, 2009
Oh CIT!
CIT Hires Bankruptcy Advisers After Rejection by FDIC, WSJ Says
By Jonathan Burgos and Jim McDonald
July 11 (Bloomberg) -- CIT Group Inc. hired the law firm of Skadden, Arps, Slate, Meagher & Flom LLP as an adviser as it prepares for a possible bankruptcy filing after failing to win access to government guarantees for its borrowing, the Wall Street Journal reported, citing people familiar with the matter.
The hiring of the prominent bankruptcy law firm doesn’t mean a company will actually make a bankruptcy filing, the report said. “The government has not said absolutely no to anything,” the newspaper cited a person familiar with the matter as saying.
The Federal Deposit Insurance Corp., run by Chairman Sheila Bair, is in discussions with CIT about how the lender can strengthen its financial position to get approval, including by raising capital, a person familiar with the matter told Bloomberg News yesterday. CIT’s measures to improve its credit quality, such as transferring assets to its bank, have been insufficient, the person said.
“CIT continues to be in active dialogue with the government,” the company said yesterday in a statement distributed by Business Wire. “There can be no assurance that CIT’s application will be approved by the FDIC, nor as to the timing or terms of any such determination.”
The century-old New York-based lender to 950,000 businesses became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. CIT, which has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.
CIT’s $500 million of floating-rate notes due in November 2010 fell 3.5 cents on the dollar to 70 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The stock fell 33 cents, or 17.7 percent, to $1.53 in New York Stock Exchange composite trading, after earlier falling as low as $1.13, the lowest in seven years.
By Jonathan Burgos and Jim McDonald
July 11 (Bloomberg) -- CIT Group Inc. hired the law firm of Skadden, Arps, Slate, Meagher & Flom LLP as an adviser as it prepares for a possible bankruptcy filing after failing to win access to government guarantees for its borrowing, the Wall Street Journal reported, citing people familiar with the matter.
The hiring of the prominent bankruptcy law firm doesn’t mean a company will actually make a bankruptcy filing, the report said. “The government has not said absolutely no to anything,” the newspaper cited a person familiar with the matter as saying.
The Federal Deposit Insurance Corp., run by Chairman Sheila Bair, is in discussions with CIT about how the lender can strengthen its financial position to get approval, including by raising capital, a person familiar with the matter told Bloomberg News yesterday. CIT’s measures to improve its credit quality, such as transferring assets to its bank, have been insufficient, the person said.
“CIT continues to be in active dialogue with the government,” the company said yesterday in a statement distributed by Business Wire. “There can be no assurance that CIT’s application will be approved by the FDIC, nor as to the timing or terms of any such determination.”
The century-old New York-based lender to 950,000 businesses became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. CIT, which has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.
CIT’s $500 million of floating-rate notes due in November 2010 fell 3.5 cents on the dollar to 70 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The stock fell 33 cents, or 17.7 percent, to $1.53 in New York Stock Exchange composite trading, after earlier falling as low as $1.13, the lowest in seven years.
$20 Gas
Whether it be $5, $10, $15 or $20 gasoline, heavily inflated prices are a certainty in a fiat economy. Although alarming, these prices are sustainable so long as incomes are inflated relatively higher as well. The most likely scenario for a rapid increase, however, would be escalated violence in Iran impacting not only their oil production but the shipping done through the straight of Hormuz where more than 1/3 of the world's oil supply passes through each day.The recent history of sabre rattling is summed up briefly below on Wikipedia:
In 2008 the commander of Iran's Revolutionary Guard, Ali Mohammed Jafari, stated that if Iran were attacked by Israel or the United States, it would seal off the Strait of Hormuz, thereby wreaking havoc in oil markets. This statement followed other more ambiguous threats from Iran's oil minister and other government officials that a Western attack on Iran would result in oil supply turmoil.
In response, Vice Admiral Kevin Cosgriff, commander of the U.S. 5th Fleet stationed in Bahrain across the Persian Gulf from Iran, warned that such an action by Iran would be considered an act of war, and that the U.S. would not allow Iran to effectively hold hostage nearly a third of the world's oil supply.
On July 8, 2008, Ali Shirazi, a mid-level clerical aide to Iran's Supreme Leader Ayatollah Ali Khamenei, was quoted by the student news agency ISNA as saying to Revolutionary Guards, "The Zionist regime is pressuring White House officials to attack Iran. If they commit such a stupidity, Tel Aviv and U.S. shipping in the Persian Gulf will be Iran's first targets and they will be burned."
In mid 2008 an International Security article contended that Iran could seal off or impede traffic in the Strait for a month, and a U.S. attempt to reopen it would likely escalate the conflict.
$5-$10 oil will cripple the US Economy and its consumers. $15-$20 oil will force desperation to avoid total collapse at all costs.
Vulnerable industries like airlines, autos, shipping and retail would never recover.
This is all particularly alarming as the tension continues to mount between Israel and Iran.
Other routes to $20 described below.
Priming the Pump for $20/Gal. Gas: Interview with Chris Steiner
By Lara Crigger - Seeking Alpha
As you're filling up your tank this weekend, it'll be hard not to think about the cost. Back when gas was $4/gallon, many of us made seemingly radical changes to our lifestyle, cutting back how much we went out to eat, riding the subway more, even moving closer to work.
But $4 gas was only the tip of the iceberg, says Chris Steiner, author of the new book "$20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better" (Hachette Book Group, June 2009). According to Steiner, a staff writer at Forbes magazine, gas prices could top $20 per gallon soon - dramatically changing every aspect of life as we know it.
Recently, HAI's associate editor Lara Crigger sat down with Steiner to discuss why the Chinese will drive up gas prices, what's behind the death (and rebirth) of globalization, and why Wal-Mart is doomed to extinction.
Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): So tell us a little about "$20 Per Gallon."
Chris Steiner, author, "$20 Per Gallon" (Steiner): Simply put, the book is a thought experiment on what life would be like at higher gas prices. The chapters of the book are arranged by increasingly higher prices - Chapter $4, Chapter $6 and so on, up to Chapter $20 - and they address changes that happen at each level. Some changes happen gradually; it's not like you hit $12/gallon and boom, the suburbs disappear. But I pick critical inflection points for each event and describe what the future would be like as the price of oil marches up.
Read More Here: http://seekingalpha.com/article/148167-priming-the-pump-for-20-gal-gas-interview-with-chris-steiner
Potato Famine Hits Home In Northeast
Food is already projected to be in short supply alongside clean water across the globe over the next few years. Supply shocks in either would make events like this problematic.
Potato Famine Disease Striking Home Gardens In U.S.
By Julie Steenhuysen Julie Steenhuysen – Fri Jul 10, 5:22 pm ET
CHICAGO (Reuters) – Late blight, which caused the Irish Potato Famine of the 1840s and 1850s, is killing potato and tomato plants in home gardens from Maine to Ohio and threatening commercial and organic farms, U.S. plant scientists said on Friday.
"Late blight has never occurred this early and this widespread in the United States," said Meg McGrath, a plant pathologist at Cornell University's extension center in Riverhead, New York.
She said the fungal disease, spread by spores carried in the air, has made its way into the garden centers of large retail chains in the Northeastern United States.
"Wal-mart, Home Depot, Sears, Kmart and Lowe's are some of the stores the plants have been seen in," McGrath said in a telephone interview.
The disease, known officially as Phytophthora infestans, causes large mold-ringed olive-green or brown spots on plant leaves, blackened stems, and can quickly wipe out weeks of tender care in a home garden.
McGrath said in her 21 years of research, she has only seen five outbreaks in the United States. The destructive disease can spread rapidly in cooler, moist weather, infecting an entire field within days.
"What's unique about it this year is we have never seen plants affected in garden centers being sold to home gardeners," she said.
This year's cool, wet weather created perfect conditions for the disease. "Hopefully, it will turn sunny," McGrath said. "If we get into our real summer hot dry weather, this disease is going to slow way down."
Potato Famine Disease Striking Home Gardens In U.S.
By Julie Steenhuysen Julie Steenhuysen – Fri Jul 10, 5:22 pm ET
CHICAGO (Reuters) – Late blight, which caused the Irish Potato Famine of the 1840s and 1850s, is killing potato and tomato plants in home gardens from Maine to Ohio and threatening commercial and organic farms, U.S. plant scientists said on Friday.
"Late blight has never occurred this early and this widespread in the United States," said Meg McGrath, a plant pathologist at Cornell University's extension center in Riverhead, New York.
She said the fungal disease, spread by spores carried in the air, has made its way into the garden centers of large retail chains in the Northeastern United States.
"Wal-mart, Home Depot, Sears, Kmart and Lowe's are some of the stores the plants have been seen in," McGrath said in a telephone interview.
The disease, known officially as Phytophthora infestans, causes large mold-ringed olive-green or brown spots on plant leaves, blackened stems, and can quickly wipe out weeks of tender care in a home garden.
McGrath said in her 21 years of research, she has only seen five outbreaks in the United States. The destructive disease can spread rapidly in cooler, moist weather, infecting an entire field within days.
"What's unique about it this year is we have never seen plants affected in garden centers being sold to home gardeners," she said.
This year's cool, wet weather created perfect conditions for the disease. "Hopefully, it will turn sunny," McGrath said. "If we get into our real summer hot dry weather, this disease is going to slow way down."
Thursday, July 9, 2009
FDIC Fund Non Existant
You can count on the FDIC like you counted on the "economy never being better," "no new taxes," and "I'll bring the troops home."
FDIC Insurance Fund - It Doesn't Actually Exist
By: Vernon Hill - Seeking Alpha
When FDIC head Shelia Bair says her agency might have to bolster the FDIC's insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there's an actual FDIC fund in need of bolstering.
We were wrong. As a former FDIC chairman, Bill Isaac, points out here, the FDIC Insurance Fund is an accounting fiction. It takes in premiums from banks, then turns those premiums over to the Treasury, which adds the money to the government's general coffers for "spending . . . on missiles, school lunches, water projects, and the like."
The insurance premiums aren't really premiums at all, therefore. They're a tax by another name.
Actually, it's worse than that. The FDIC, persisting in the myth that its fund really is an insurance pool, now proposes to raise the "premiums" it charges banks to make up for the "fund's" coming shortfall. The financially weakest banks will be hit with the biggest tax hikes.
Which makes absolutely no sense. You don't need me to tell you the banking industry is on the ropes. The last thing it needs (or the economy needs, for that matter) is an expense hike that will inhibit banks' ability to rebuild capital, extend new loans, or both. If the FDIC wants to raise its bank tax once the industry has recovered, I suppose that's fine. But to raise taxes on the industry now is perhaps the dumbest thing the agency can possibly do. At the margin, the FDIC will be helping bring about more of the failures it says it wants to prevent.
But this is the government we're talking about, so logic goes out the window. First, the FDIC insists its mythical bank insurance fund exists, when it really doesn't. Then the agency does what it can to run the imaginary fund's finances straight into the ground. Your tax dollars (sorry, "premiums") at work.
FDIC Insurance Fund - It Doesn't Actually Exist
By: Vernon Hill - Seeking Alpha
When FDIC head Shelia Bair says her agency might have to bolster the FDIC's insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there's an actual FDIC fund in need of bolstering.
We were wrong. As a former FDIC chairman, Bill Isaac, points out here, the FDIC Insurance Fund is an accounting fiction. It takes in premiums from banks, then turns those premiums over to the Treasury, which adds the money to the government's general coffers for "spending . . . on missiles, school lunches, water projects, and the like."
The insurance premiums aren't really premiums at all, therefore. They're a tax by another name.
Actually, it's worse than that. The FDIC, persisting in the myth that its fund really is an insurance pool, now proposes to raise the "premiums" it charges banks to make up for the "fund's" coming shortfall. The financially weakest banks will be hit with the biggest tax hikes.
Which makes absolutely no sense. You don't need me to tell you the banking industry is on the ropes. The last thing it needs (or the economy needs, for that matter) is an expense hike that will inhibit banks' ability to rebuild capital, extend new loans, or both. If the FDIC wants to raise its bank tax once the industry has recovered, I suppose that's fine. But to raise taxes on the industry now is perhaps the dumbest thing the agency can possibly do. At the margin, the FDIC will be helping bring about more of the failures it says it wants to prevent.
But this is the government we're talking about, so logic goes out the window. First, the FDIC insists its mythical bank insurance fund exists, when it really doesn't. Then the agency does what it can to run the imaginary fund's finances straight into the ground. Your tax dollars (sorry, "premiums") at work.
Bank Holiday Buzz
Schultz was recently awarded newsletter of the year by CNBC and is no hack economic forecaster.
IMF: If US does not increase its exports then a dollar devaluation needs to be looked at.
The real potential for bank holidays and runs can not be ignored.
Latest Schultz Shock: A 'BANK HOLIDAY'
Commentary: A leading newsletter paints a grim picture of the future
By Peter Brimelow, MarketWatch
In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen ... within 180 days, but could be 120-150 days."
Yes, yes, it's paranoid. But paranoids have enemies -- and the Crash of 2008 really did happen.
HSL's suspicion: "Another FDR-style 'bank holiday' of indefinite length, perhaps soon, to let the insiders sort out the bank mess, which (despite their rosy propaganda campaign) is getting more out of their control every day. Insiders want to impose new bank rules. Widespread nationalization could result, already underway. It could also lead to a formal U.S. dollar devaluation, as FDR did by revaluing gold (and then confiscating it)."
Read More Here: http://www.marketwatch.com/story/schultz-paints-bleak-picture-of-future
Citi Throwing Stones From Glass House
The hypocrisy here is palpable.
AIG May Have Zero Equity Value: Citigroup
Thu Jul 9, 2009 10:32am EDT
By Supantha Mukherjee
BANGALORE (Reuters) - American International Group Inc (AIG.N), the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.
Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.
Potential markdowns in AIG Financial Product unit's regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG's liquidity, Citigroup analyst Joshua Shanker said.
"Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter," Shanker wrote in a research note.
Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.
At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.
Shanker said despite AIG's efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.
The analyst cut the price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a "hold" rating.
Once the world's largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.
WOULD ASSET SALES HELP?
The analyst said while AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden.
In June, the federal government agreed to accept $25 billion of preferred stock in two AIG businesses as partial repayment of debt.
AIG had said the agreement positions its two businesses -- American International Assurance Co Ltd (AIA) and American Life Insurance Co (Alico) -- for initial public offerings, depending on market conditions.
Shanker said it expects AIG to carve out its commercial property and casualty business in the form of an initial public offering in 2010.
The analyst, however, said there is high probability that selling off all operations just to cover debt will leave the holding company with little or no equity.
AIG had already agreed to sell a 98 percent stake in its Russian consumer finance business to Banque PSA Finance SA, a unit of France's Peugeot SA (PEUP.PA), and is selling its credit card business in Taiwan to Far Eastern International Bank.
AIG's bid to sell its Taiwan insurance unit, Nan Shan LIfe, attracted bids from global investors Carlyle and Primus, among others and could fetch more than $2 billion.
AIG May Have Zero Equity Value: Citigroup
Thu Jul 9, 2009 10:32am EDT
By Supantha Mukherjee
BANGALORE (Reuters) - American International Group Inc (AIG.N), the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.
Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.
Potential markdowns in AIG Financial Product unit's regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG's liquidity, Citigroup analyst Joshua Shanker said.
"Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter," Shanker wrote in a research note.
Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.
At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.
Shanker said despite AIG's efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.
The analyst cut the price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a "hold" rating.
Once the world's largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.
WOULD ASSET SALES HELP?
The analyst said while AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden.
In June, the federal government agreed to accept $25 billion of preferred stock in two AIG businesses as partial repayment of debt.
AIG had said the agreement positions its two businesses -- American International Assurance Co Ltd (AIA) and American Life Insurance Co (Alico) -- for initial public offerings, depending on market conditions.
Shanker said it expects AIG to carve out its commercial property and casualty business in the form of an initial public offering in 2010.
The analyst, however, said there is high probability that selling off all operations just to cover debt will leave the holding company with little or no equity.
AIG had already agreed to sell a 98 percent stake in its Russian consumer finance business to Banque PSA Finance SA, a unit of France's Peugeot SA (PEUP.PA), and is selling its credit card business in Taiwan to Far Eastern International Bank.
AIG's bid to sell its Taiwan insurance unit, Nan Shan LIfe, attracted bids from global investors Carlyle and Primus, among others and could fetch more than $2 billion.
Smith & Hawken and Oceanaire Ghosted
Many other retailers remain insanely leveraged. It's only a matter of time before cotenancy clauses catch up.
Smith & Hawken Shutting its Doors; Sales Begin July 9
The Scotts Miracle-Gro Company announced today it will cease operating its Smith & Hawken business by the end of the calendar year and has hired a third-party firm to manage the closure process.
The closure process begins with storewide sales on July 9. Store closures are expected to be completed by the end of the year. Orders via Smith & Hawken's Web site, catalog and call center will be discontinued effective July 9, and customers will be directed to purchase products at the stores. Smith & Hawken gift cards will be honored at the stores during the closure process.
Smith & Hawken has 56 stores in 22 states and Washington, D.C. In the citybiz real estate coverage area, those stores included:
Smith & Hawken - Chevy Chase
8551 Connecticut Avenue
Chevy Chase, MD 20815
Smith & Hawken - GeorgeTown
1209 31st Street, NW
Washington, DC 20007
Smith & Hawken - McLean
6705 Whittier Avenue
McLean, VA 22101
Smith & Hawken - Bryn Mawr
1225 Montrose Avenue
Bryn Mawr, PA 19010
Smith & Hawken - King of Prussia
The Court at King of Prussia
449 Mall Boulevard
King of Prussia, PA 19406
Smith & Hawken - Hingham
Derby Street Shoppes
94 Derby Street
Hingham, MA 02043
Smith & Hawken - Atlanta
2395 Peachtree Road NE
Atlanta, GA 30305
The Avenue at East Cobb
4475 Roswell Road
Marietta, GA 30062
"We would have preferred to sell the Smith & Hawken business in order to protect jobs and keep the retail franchise intact. However, after discussions with several potential investors over the past 12 months, it became obvious that shutting down the business was the best option available," said Jim Hagedorn, chairman and chief executive officer of ScottsMiracle-Gro. "It is with regret for the associates of Smith & Hawken and our many loyal customers that we have reached this conclusion. I want to acknowledge our associates who have been intensely loyal and worked tirelessly to make Smith & Hawken a viable enterprise. Unfortunately, the combination of a weak economy and the lack of scale proved too great to overcome.
"While this is a sad outcome for Smith & Hawken, it is in the best long-term interest of ScottsMiracle-Gro and our other stakeholders. Our core consumer lawn and garden business continues to enjoy outstanding results, and we continue to expand our operations and add jobs to our payroll. By eliminating the losses from Smith & Hawken, we can invest even further in driving profitable growth and enhancing shareholder value."
After-tax charges associated with the closure are expected to be approximately $25 million and are primarily related to the termination of lease obligations and severance costs. Most of the charges will be incurred during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010. The Company will treat these charges as a one-time adjustment to earnings and will place Smith & Hawken into discontinued operations near the conclusion of the store closing process. The Company currently expects the cash impact of the transaction to be relatively neutral as a result of proceeds from inventory liquidation and anticipated tax benefits. The impact of shutting down the Smith & Hawken business is expected to result in a benefit of about $0.15 in adjusted earnings per share beginning in fiscal 2010.
Oceanaire Restaurant Chain Files for Bankruptcy
MINNEAPOLIS - The high-end seafood restaurant chain Oceanaire Inc. has filed for Chapter 11 bankruptcy and closed four of its 16 restaurants, but not the one in downtown Baltimore. Chief financial officer Glenn Massey says its flagship Minneapolis restaurant will remain open and remains profitable. Oceanaire closed restaurants in Cincinnati, Philadelphia, Seattle and Charlotte, N.C. The company said in its bankruptcy filing that it owes between $10 million and $50 million to at least 50 creditors. It estimates its assets at $1 million to $10 million.
- Associated Press
Smith & Hawken Shutting its Doors; Sales Begin July 9
The Scotts Miracle-Gro Company announced today it will cease operating its Smith & Hawken business by the end of the calendar year and has hired a third-party firm to manage the closure process.
The closure process begins with storewide sales on July 9. Store closures are expected to be completed by the end of the year. Orders via Smith & Hawken's Web site, catalog and call center will be discontinued effective July 9, and customers will be directed to purchase products at the stores. Smith & Hawken gift cards will be honored at the stores during the closure process.
Smith & Hawken has 56 stores in 22 states and Washington, D.C. In the citybiz real estate coverage area, those stores included:
Smith & Hawken - Chevy Chase
8551 Connecticut Avenue
Chevy Chase, MD 20815
Smith & Hawken - GeorgeTown
1209 31st Street, NW
Washington, DC 20007
Smith & Hawken - McLean
6705 Whittier Avenue
McLean, VA 22101
Smith & Hawken - Bryn Mawr
1225 Montrose Avenue
Bryn Mawr, PA 19010
Smith & Hawken - King of Prussia
The Court at King of Prussia
449 Mall Boulevard
King of Prussia, PA 19406
Smith & Hawken - Hingham
Derby Street Shoppes
94 Derby Street
Hingham, MA 02043
Smith & Hawken - Atlanta
2395 Peachtree Road NE
Atlanta, GA 30305
The Avenue at East Cobb
4475 Roswell Road
Marietta, GA 30062
"We would have preferred to sell the Smith & Hawken business in order to protect jobs and keep the retail franchise intact. However, after discussions with several potential investors over the past 12 months, it became obvious that shutting down the business was the best option available," said Jim Hagedorn, chairman and chief executive officer of ScottsMiracle-Gro. "It is with regret for the associates of Smith & Hawken and our many loyal customers that we have reached this conclusion. I want to acknowledge our associates who have been intensely loyal and worked tirelessly to make Smith & Hawken a viable enterprise. Unfortunately, the combination of a weak economy and the lack of scale proved too great to overcome.
"While this is a sad outcome for Smith & Hawken, it is in the best long-term interest of ScottsMiracle-Gro and our other stakeholders. Our core consumer lawn and garden business continues to enjoy outstanding results, and we continue to expand our operations and add jobs to our payroll. By eliminating the losses from Smith & Hawken, we can invest even further in driving profitable growth and enhancing shareholder value."
After-tax charges associated with the closure are expected to be approximately $25 million and are primarily related to the termination of lease obligations and severance costs. Most of the charges will be incurred during the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010. The Company will treat these charges as a one-time adjustment to earnings and will place Smith & Hawken into discontinued operations near the conclusion of the store closing process. The Company currently expects the cash impact of the transaction to be relatively neutral as a result of proceeds from inventory liquidation and anticipated tax benefits. The impact of shutting down the Smith & Hawken business is expected to result in a benefit of about $0.15 in adjusted earnings per share beginning in fiscal 2010.
Oceanaire Restaurant Chain Files for Bankruptcy
MINNEAPOLIS - The high-end seafood restaurant chain Oceanaire Inc. has filed for Chapter 11 bankruptcy and closed four of its 16 restaurants, but not the one in downtown Baltimore. Chief financial officer Glenn Massey says its flagship Minneapolis restaurant will remain open and remains profitable. Oceanaire closed restaurants in Cincinnati, Philadelphia, Seattle and Charlotte, N.C. The company said in its bankruptcy filing that it owes between $10 million and $50 million to at least 50 creditors. It estimates its assets at $1 million to $10 million.
- Associated Press
Wednesday, July 8, 2009
Global 500 Biggest Losers
It takes a true, natural ineptitude to be part of the group below. Shockingly, much of the upper management in these companies remains intact.
Global 500: 20 Money Losers
Fannie Mae, Global 500 rank: 405, 2008 loss ($ millions): 58,707*
Royal Bank of Scottland, Global 500 rank: 38, 2008 loss ($ millions): $43,166.9
General Motors, Global 500 rank: 18, 2008 loss ($ millions): $30,860*
Citigroup, Global 500 rank: 39, 2008 loss ($ millions): $27,684
UBS, Global 500 rank: 119, 2008 loss ($ millions): 19,301*
Conoco Phillips, Global 500 rank: 7, 2008 loss ($ millions): $16,998
Ford Motor, Global 500 rank: 19, 2008 loss ($ millions): $14,672*
HBOS, Global 500 rank: 107, 2008 loss ($ millions): 13,751
Time Warner, Global 500 rank: 159, 2008 loss ($ millions): 13,402
Pemex, Global 500 rank: 31, 2008 loss ($ millions): $10,055.6*
Delta Air Lines, Global 500 rank: 403, 2008 loss ($ millions): 8,922
Hypo Real Estate Holdings, Global 500 rank: 403, 2008 loss ($ millions): 8,922
Hitachi, Global 500 rank: 52, 2008 loss ($ millions): $7,837*
Alcatel-Lucent, Global 500 rank: 360, 2008 loss ($ millions): 7,633*
Credit Suisse, Global 500 rank: 164, 2008 loss ($ millions): 7,594
BayernLB, Global 500 rank: 315, 2008 loss ($ millions): 7,441
LyondellBasel Industries, Global 500 rank: 147, 2008 loss ($ millions): 7,321
Flextronics, Global 500 rank: 275, 2008 loss ($ millions): 6,086*
Mizuho, Global 500 rank: 228, 2008 loss ($ millions): 5,861
Deutsche Bank, Global 500 rank: 70, 2008 loss ($ millions): $5,613.2
Read More Here: http://money.cnn.com/galleries/2009/fortune/0907/gallery.G500_money_losers_fortune.fortune/index.html
Global 500: 20 Money Losers
Fannie Mae, Global 500 rank: 405, 2008 loss ($ millions): 58,707*
Royal Bank of Scottland, Global 500 rank: 38, 2008 loss ($ millions): $43,166.9
General Motors, Global 500 rank: 18, 2008 loss ($ millions): $30,860*
Citigroup, Global 500 rank: 39, 2008 loss ($ millions): $27,684
UBS, Global 500 rank: 119, 2008 loss ($ millions): 19,301*
Conoco Phillips, Global 500 rank: 7, 2008 loss ($ millions): $16,998
Ford Motor, Global 500 rank: 19, 2008 loss ($ millions): $14,672*
HBOS, Global 500 rank: 107, 2008 loss ($ millions): 13,751
Time Warner, Global 500 rank: 159, 2008 loss ($ millions): 13,402
Pemex, Global 500 rank: 31, 2008 loss ($ millions): $10,055.6*
Delta Air Lines, Global 500 rank: 403, 2008 loss ($ millions): 8,922
Hypo Real Estate Holdings, Global 500 rank: 403, 2008 loss ($ millions): 8,922
Hitachi, Global 500 rank: 52, 2008 loss ($ millions): $7,837*
Alcatel-Lucent, Global 500 rank: 360, 2008 loss ($ millions): 7,633*
Credit Suisse, Global 500 rank: 164, 2008 loss ($ millions): 7,594
BayernLB, Global 500 rank: 315, 2008 loss ($ millions): 7,441
LyondellBasel Industries, Global 500 rank: 147, 2008 loss ($ millions): 7,321
Flextronics, Global 500 rank: 275, 2008 loss ($ millions): 6,086*
Mizuho, Global 500 rank: 228, 2008 loss ($ millions): 5,861
Deutsche Bank, Global 500 rank: 70, 2008 loss ($ millions): $5,613.2
Read More Here: http://money.cnn.com/galleries/2009/fortune/0907/gallery.G500_money_losers_fortune.fortune/index.html
Google Rising
This can't come soon enough - sign me up. It will be interesting to see whether Google gets attacked by the anti trust crowd in the near future.
Google Drops a Nuclear Bomb on Microsoft. And It's Made of Chrome
By MG Siegler
Wow. So remember all those whispers about a Google desktop operating system that never seem to go away? You thought they might with the launch of Android, its mobile OS, but they persisted. And for good reason, because it’s real.
In the second half of 2010, Google plans to launch the Google Chrome OS, an operating system designed from the ground up to run the Chrome web browser on netbooks. “It’s our attempt to re-think what operating systems should be,” Google writes tonight on its blog.
But let’s be clear on what this really is. This is Google dropping the mother of bombs on its chief rival, Microsoft. It even says as much in the first paragraph of its post, “However, the operating systems that browsers run on were designed in an era where there was no web.” Yeah, who do you think they mean by that?
And it’s a genius play. So many people are buying netbooks right now, but are running WIndows XP on them. Windows XP is 8 years old. It was built to run on Pentium IIIs and Pentium 4s. Google Chrome OS is built to run on both x86 architecture chips and ARM chips, like the ones increasingly found in netbooks. It is also working with multiple OEMs to get the new OS up and running next year.
Obviously, this Chrome OS will be lightweight and fast just like the browser itself. But also just like the browser, it will be open-sourced. Think Microsoft will be open-sourcing Windows anytime soon?
As Google writes, “We have a lot of work to do, and we’re definitely going to need a lot of help from the open source community to accomplish this vision.” They might as well set up enlistment booths on college campuses for their war against Microsoft.
Google says the software architecture will basically be the current Chrome browser running inside “a new windowing system on top of a Linux kernel.” So in other words, it basically is the web as an OS. And applications developers will develop for it just as they would on the web. This is similar to the approach Palm has taken with its new webOS for the Palm Pre, but Google notes that any app developed for Google Chrome OS will work in any standards-compliant browser on any OS.
What Google is doing is not recreating a new kind of OS, they’re creating the best way to not need one at all.
So why release this new OS instead of using Android? After all, it has already been successfully ported to netbooks. Google admits that there is some overlap there. But a key difference they don’t mention is the ability to run on the x86 architecture. Android cannot do that, Chrome OS can and will. But more, Google wants to emphasize that Chrome OS is all about the web, whereas Android is about a lot of different things. Including apps that are not standard browser web apps.
But there is a wild card in all of this still for Microsoft: Windows 7. While Windows XP is 8 years old, and Windows Vista is just generally considered to be a bad OS for netbooks, Windows 7 could offer a good netbook experience. And Microsoft had better hope so, or its claim that 96% of netbooks run Windows is going to be very different in a year.
Google plans to release the open source code for Chrome OS later this year ahead of the launch next year. Don’t be surprised if this code drops around the same time as Windows 7. Can’t wait to hear what Microsoft will have to say about all of this.
Google Drops a Nuclear Bomb on Microsoft. And It's Made of Chrome
By MG Siegler
Wow. So remember all those whispers about a Google desktop operating system that never seem to go away? You thought they might with the launch of Android, its mobile OS, but they persisted. And for good reason, because it’s real.
In the second half of 2010, Google plans to launch the Google Chrome OS, an operating system designed from the ground up to run the Chrome web browser on netbooks. “It’s our attempt to re-think what operating systems should be,” Google writes tonight on its blog.
But let’s be clear on what this really is. This is Google dropping the mother of bombs on its chief rival, Microsoft. It even says as much in the first paragraph of its post, “However, the operating systems that browsers run on were designed in an era where there was no web.” Yeah, who do you think they mean by that?
And it’s a genius play. So many people are buying netbooks right now, but are running WIndows XP on them. Windows XP is 8 years old. It was built to run on Pentium IIIs and Pentium 4s. Google Chrome OS is built to run on both x86 architecture chips and ARM chips, like the ones increasingly found in netbooks. It is also working with multiple OEMs to get the new OS up and running next year.
Obviously, this Chrome OS will be lightweight and fast just like the browser itself. But also just like the browser, it will be open-sourced. Think Microsoft will be open-sourcing Windows anytime soon?
As Google writes, “We have a lot of work to do, and we’re definitely going to need a lot of help from the open source community to accomplish this vision.” They might as well set up enlistment booths on college campuses for their war against Microsoft.
Google says the software architecture will basically be the current Chrome browser running inside “a new windowing system on top of a Linux kernel.” So in other words, it basically is the web as an OS. And applications developers will develop for it just as they would on the web. This is similar to the approach Palm has taken with its new webOS for the Palm Pre, but Google notes that any app developed for Google Chrome OS will work in any standards-compliant browser on any OS.
What Google is doing is not recreating a new kind of OS, they’re creating the best way to not need one at all.
So why release this new OS instead of using Android? After all, it has already been successfully ported to netbooks. Google admits that there is some overlap there. But a key difference they don’t mention is the ability to run on the x86 architecture. Android cannot do that, Chrome OS can and will. But more, Google wants to emphasize that Chrome OS is all about the web, whereas Android is about a lot of different things. Including apps that are not standard browser web apps.
But there is a wild card in all of this still for Microsoft: Windows 7. While Windows XP is 8 years old, and Windows Vista is just generally considered to be a bad OS for netbooks, Windows 7 could offer a good netbook experience. And Microsoft had better hope so, or its claim that 96% of netbooks run Windows is going to be very different in a year.
Google plans to release the open source code for Chrome OS later this year ahead of the launch next year. Don’t be surprised if this code drops around the same time as Windows 7. Can’t wait to hear what Microsoft will have to say about all of this.
Tuesday, July 7, 2009
Health Care Tsunami
Stay healthy...
NIA Says Health Care Will Cause U.S. Dollar Collapse
FORT LEE, N.J., July 7 /PRNewswire-USNewswire/ -- The National Inflation Association today released the following statement to its http://inflation.us members:
"It is becoming increasingly likely that health care will be the straw that causes the U.S. Dollar to collapse. There is no doubt about it that health care costs are out-of-control in America. Unfortunately, most Americans are calling for the government to do something about astronomical health care costs, when the government is actually the cause of the crisis and will only make it much worse.
Medicare costs have increased from $3 billion in 1966 to an estimated $408 billion in 2009. This equals a compound annual growth rate of 12% and proves that inflation gravitates towards parts of the economy where government is involved in the most. Health care now accounts for 17% of the U.S. GDP, and by 2017 it is estimated that one out of every $5 spent in this country will be on health care.
Isn't it amazing that the one area of medical care that is going down in price is plastic surgery and other cosmetic procedures, because it is the area where the government is involved in the least? Free market forces dictate plastic surgery prices, because health insurance typically does not cover it.
Today we have a system where tax free health benefits from employers force Americans into expensive health insurance plans that encourage individuals to claim every small doctor's visit. This creates abuse of the system with Americans going to the emergency room for unnecessary reasons, knowing they will only have to pay a $10 co-pay.
If Americans were able to take home the cost of their health insurance plans, in the form of higher wages, they would then be able to purchase cheaper health insurance plans on their own that cover only bad accidents and major emergencies. If they wanted to see the doctor for something minor, they could pay for it out of pocket. With less people abusing the system, waits would be shorter and doctors would be encouraged to charge the least. Today, with doctors getting paid by a handful of third-party corporations, they are encouraged to charge the most.
Government intervention into health care has ruined the industry for doctors too. The government has made the industry less efficient by creating too many licenses and regulations. Doctors now spend half of their time filling out excessive paperwork while worrying about malpractice lawsuits. If somebody has a small bruise on their arm, instead of telling the patient to use ice, doctors now run multiple tests and fill out dozens of forms to comply with regulations and prevent themselves from being sued.
Obama's plan of socialized health care will wipe out the private sector and create less competition. No private health insurance companies will be able to compete with the government, which will be able to operate at a loss continuously. With any remaining efficiencies of the free market eliminated, costs will go up for all Americans in the form of much higher inflation, and the quality of health care will go down.
If we want the U.S. to remain the country where millions of people travel to for top quality medical care, we need to allow the free market to work for itself. Free market principles are the only way to drive costs down while improving the quality of health care."
NIA Says Health Care Will Cause U.S. Dollar Collapse
FORT LEE, N.J., July 7 /PRNewswire-USNewswire/ -- The National Inflation Association today released the following statement to its http://inflation.us members:
"It is becoming increasingly likely that health care will be the straw that causes the U.S. Dollar to collapse. There is no doubt about it that health care costs are out-of-control in America. Unfortunately, most Americans are calling for the government to do something about astronomical health care costs, when the government is actually the cause of the crisis and will only make it much worse.
Medicare costs have increased from $3 billion in 1966 to an estimated $408 billion in 2009. This equals a compound annual growth rate of 12% and proves that inflation gravitates towards parts of the economy where government is involved in the most. Health care now accounts for 17% of the U.S. GDP, and by 2017 it is estimated that one out of every $5 spent in this country will be on health care.
Isn't it amazing that the one area of medical care that is going down in price is plastic surgery and other cosmetic procedures, because it is the area where the government is involved in the least? Free market forces dictate plastic surgery prices, because health insurance typically does not cover it.
Today we have a system where tax free health benefits from employers force Americans into expensive health insurance plans that encourage individuals to claim every small doctor's visit. This creates abuse of the system with Americans going to the emergency room for unnecessary reasons, knowing they will only have to pay a $10 co-pay.
If Americans were able to take home the cost of their health insurance plans, in the form of higher wages, they would then be able to purchase cheaper health insurance plans on their own that cover only bad accidents and major emergencies. If they wanted to see the doctor for something minor, they could pay for it out of pocket. With less people abusing the system, waits would be shorter and doctors would be encouraged to charge the least. Today, with doctors getting paid by a handful of third-party corporations, they are encouraged to charge the most.
Government intervention into health care has ruined the industry for doctors too. The government has made the industry less efficient by creating too many licenses and regulations. Doctors now spend half of their time filling out excessive paperwork while worrying about malpractice lawsuits. If somebody has a small bruise on their arm, instead of telling the patient to use ice, doctors now run multiple tests and fill out dozens of forms to comply with regulations and prevent themselves from being sued.
Obama's plan of socialized health care will wipe out the private sector and create less competition. No private health insurance companies will be able to compete with the government, which will be able to operate at a loss continuously. With any remaining efficiencies of the free market eliminated, costs will go up for all Americans in the form of much higher inflation, and the quality of health care will go down.
If we want the U.S. to remain the country where millions of people travel to for top quality medical care, we need to allow the free market to work for itself. Free market principles are the only way to drive costs down while improving the quality of health care."
Retailers Dropping Like Flies
The real fireworks will fly later this year and in 2010 when bellwethers like JC Penney and Blockbuster take it on the chin followed by luxury main stays like Saks Fifth Avenue and Neiman Marcus.
UPDATE 2-Crabtree & Evelyn unit in US files for bankruptcy
Wed Jul 1, 2009 3:58pm ED
SAN FRANCISCO, July 1 (Reuters) - Crabtree & Evelyn Ltd filed for Chapter 11 bankruptcy protection in the United States on Wednesday as the purveyor of specialty soaps, fragrances and lotions became the latest retailer to fall victim to the economic downtown.
The Woodstock, Connecticut-based company, which is owned by Kuala Lumpur Kepong Berhad (KLKK.KL)and is a unit of Britain's Crabtree & Evelyn Holdings Ltd, said it would continue to operate its stores and, honor gift cards and returns as reorganizes its business under bankruptcy protection.
But with sales in its retail channel forecast to fall 24.4 percent this year, the company said it will close some stores and try to renegotiate leases for others. It currently operates 126 stores in 34 U.S. states and employs about 950 people.
Read More Here: http://www.reuters.com/article/FODMFG/idUSN0149076620090701
Adjust Your Expectations
Now that the 4th of July is over wash the red, white and blue out of your eyes and prepare for pragmatism. Maybe it gets harder for the United States but that doesn't mean it has to become unmanageable for its citizens who return to their Yankee thrift roots: "Use it up. Wear it out. Make it do, or do without."
Some of the greatest fortunes of the 20th Century were made during and after the great depression. Think for yourself.
California - And by Extension the U.S. - Headed for Permanently Smaller Economy
By: Gregor Macdonald
The June issue of Gregor.us Monthly, The Scholarship of Collapse, addresses several views of economic and systemic collapse from the works of Jared Diamond to Joseph Tainter, and then goes on to apply these views to the United States–and to its biggest state, California. Frankly, it’s not much fun to suggest that another leg down in housing is on the way. Or, that California is unlikely to see its GDP exceed its previous peak for quite some time. But without the two industries that characterized post-war growth in the US, housing and automobiles (and the financial industry that squatted on top of these) it’s hard to see how California–and the US by extension–does not become a permanently smaller economy.
Ouch. Permanently smaller economy!? Are you kidding me? The United States? Yeah, I know. The growth paradigm since WW2 is so firmly entrenched in the record (and in the psyche) that mere mention of US economic stasis seems outlandish. To suggest, as I am, that this condition will carry on for years sounds impossible. However, that is my call. I now foresee zero, net physical infrastructure or housing growth in California for at least another 5 years. If housing units go up somewhere in California, they’ll be bulldozed someplace else. If new roads or highways are erected, they’ll be discontinued or dismantled somewhere else. Without California, there will be no sustainable US GDP growth.
Peak autos is another favored theme of mine. Via the crushing blow of high energy prices, the price mechanism has tried for a second time in 30 years to send the signal that an economy run on cheap gasoline doesn’t, actually, work. Given the loathsome state of America’s presently collapsed economy, I would venture the country needs gasoline at 50 cents–right now–to return to its busy post-war arbitration of cheap transport and energy inputs, in service of earnings and output. That’s not going to happen. The reason: the United States no longer controls the price of oil via the mechanism of its own demand.
An interesting exercise when looking at previously collapsed economies and societies is to ask when a certain, initial terminus was reached, before the overshoot phase began. This could be the point, for example, when the Anasazi have denuded their local forests of wood, and have to start traveling farther afield for supply. The population will hardly be declining at this stage. In addition, the economy will be merrily carrying onward to a higher level of complexity. I call this the hidden terminus. The crossover point where resources were harder to attain, but, the techniques of the economy kept advancing (to some extent masking the underlying countertrend in resources). It now seems likely the United States reached this point in the year 2000. That’s when the ability to grow the economy, without a large acceleration in debt, appears to have crossed a threshold. From my June newsletter:
In my opinion the United States economy passed its hidden terminus with the bursting of the technology bubble in 2000. All of the power and thrust in the economy since 2000 was provided by nothing more than an expansion of credit via two, typical vehicles: War and Domestic government spending (Guns and Butter), and, artificially low interest rates provided by the central bank. This concept can be extremely difficult to accept among people working in highly innovative, highly productive areas like technology, venture capital, engineering, and other globalized product and service industries. What’s important to understand, however, is that the economy we made in the United States needs to serve 300 million people. If a good portion of that population is living off the housing and automobile economy, unsustainable at high levels, it matters little to the problem of a fundamentally unsound economy that Google, SunPower, and Honeywell are indeed doing wonderful things in technology, solar energy, and engineering. Moreover, it seems quite likely now that the expansion of credit post 2000 was in many ways a collective attempt to replace the trailing loss of our manufacturing economy. Yes, the US remains a hotbed of the best innovation but the acceleration of the financial and financial product economy was very likely an overshoot, past the hidden terminus in the structure of our system. To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.
The United States, just like California, now sits astride massive, gargantuan post-war infrastructure that was built with cheap energy and leveraged with cheap energy, for over 50 years. Many parts of the US right now are actually experiencing something closer to a depression, and yet oil is above 60 dollars a barrel. That's a price that was considered ridiculous just 5 years ago, when even 40 dollars a barrel was viewed as unsustainable.
The United States has been in an inflationary recession since the start of the decade, which now threatens to become an inflationary depression. To make matters worse, the federal government is in the midst of one of the largest policy mistakes in US history as it has chosen to make enormous new investments in car companies, cars, biofuels, roads, and highways to the exclusion of public transport.
This is a classic, textbook example of the sunk cost effect in decision making and is a hallmark of the collapsed societies of antiquity. The choices the US makes from this point forward will likely have more of an effect on how the decline is mitigated. As I wrote in my newsletter, we do not view the post-war decline of Britain as a human tragedy, and there’s no reason to see the US decline as either shocking, or unexpected. However, it is indeed regrettable that we did not face up appropriately to the changes that unfolded, at the start of this millennium.
Some of the greatest fortunes of the 20th Century were made during and after the great depression. Think for yourself.
California - And by Extension the U.S. - Headed for Permanently Smaller Economy
By: Gregor Macdonald
The June issue of Gregor.us Monthly, The Scholarship of Collapse, addresses several views of economic and systemic collapse from the works of Jared Diamond to Joseph Tainter, and then goes on to apply these views to the United States–and to its biggest state, California. Frankly, it’s not much fun to suggest that another leg down in housing is on the way. Or, that California is unlikely to see its GDP exceed its previous peak for quite some time. But without the two industries that characterized post-war growth in the US, housing and automobiles (and the financial industry that squatted on top of these) it’s hard to see how California–and the US by extension–does not become a permanently smaller economy.
Ouch. Permanently smaller economy!? Are you kidding me? The United States? Yeah, I know. The growth paradigm since WW2 is so firmly entrenched in the record (and in the psyche) that mere mention of US economic stasis seems outlandish. To suggest, as I am, that this condition will carry on for years sounds impossible. However, that is my call. I now foresee zero, net physical infrastructure or housing growth in California for at least another 5 years. If housing units go up somewhere in California, they’ll be bulldozed someplace else. If new roads or highways are erected, they’ll be discontinued or dismantled somewhere else. Without California, there will be no sustainable US GDP growth.
Peak autos is another favored theme of mine. Via the crushing blow of high energy prices, the price mechanism has tried for a second time in 30 years to send the signal that an economy run on cheap gasoline doesn’t, actually, work. Given the loathsome state of America’s presently collapsed economy, I would venture the country needs gasoline at 50 cents–right now–to return to its busy post-war arbitration of cheap transport and energy inputs, in service of earnings and output. That’s not going to happen. The reason: the United States no longer controls the price of oil via the mechanism of its own demand.
An interesting exercise when looking at previously collapsed economies and societies is to ask when a certain, initial terminus was reached, before the overshoot phase began. This could be the point, for example, when the Anasazi have denuded their local forests of wood, and have to start traveling farther afield for supply. The population will hardly be declining at this stage. In addition, the economy will be merrily carrying onward to a higher level of complexity. I call this the hidden terminus. The crossover point where resources were harder to attain, but, the techniques of the economy kept advancing (to some extent masking the underlying countertrend in resources). It now seems likely the United States reached this point in the year 2000. That’s when the ability to grow the economy, without a large acceleration in debt, appears to have crossed a threshold. From my June newsletter:
In my opinion the United States economy passed its hidden terminus with the bursting of the technology bubble in 2000. All of the power and thrust in the economy since 2000 was provided by nothing more than an expansion of credit via two, typical vehicles: War and Domestic government spending (Guns and Butter), and, artificially low interest rates provided by the central bank. This concept can be extremely difficult to accept among people working in highly innovative, highly productive areas like technology, venture capital, engineering, and other globalized product and service industries. What’s important to understand, however, is that the economy we made in the United States needs to serve 300 million people. If a good portion of that population is living off the housing and automobile economy, unsustainable at high levels, it matters little to the problem of a fundamentally unsound economy that Google, SunPower, and Honeywell are indeed doing wonderful things in technology, solar energy, and engineering. Moreover, it seems quite likely now that the expansion of credit post 2000 was in many ways a collective attempt to replace the trailing loss of our manufacturing economy. Yes, the US remains a hotbed of the best innovation but the acceleration of the financial and financial product economy was very likely an overshoot, past the hidden terminus in the structure of our system. To use a phrase that was once somewhat unfairly said about California by Gertrude Stein, we have discovered that there was no there, there in the US economy.
The United States, just like California, now sits astride massive, gargantuan post-war infrastructure that was built with cheap energy and leveraged with cheap energy, for over 50 years. Many parts of the US right now are actually experiencing something closer to a depression, and yet oil is above 60 dollars a barrel. That's a price that was considered ridiculous just 5 years ago, when even 40 dollars a barrel was viewed as unsustainable.
The United States has been in an inflationary recession since the start of the decade, which now threatens to become an inflationary depression. To make matters worse, the federal government is in the midst of one of the largest policy mistakes in US history as it has chosen to make enormous new investments in car companies, cars, biofuels, roads, and highways to the exclusion of public transport.
This is a classic, textbook example of the sunk cost effect in decision making and is a hallmark of the collapsed societies of antiquity. The choices the US makes from this point forward will likely have more of an effect on how the decline is mitigated. As I wrote in my newsletter, we do not view the post-war decline of Britain as a human tragedy, and there’s no reason to see the US decline as either shocking, or unexpected. However, it is indeed regrettable that we did not face up appropriately to the changes that unfolded, at the start of this millennium.
Monday, July 6, 2009
CIC Invests In Canada
Teck is the largest diversified mining, mineral processing and metallurgical company in Canada. The company is a major player in the production of copper, metallurgical coal and zinc. It has interests in 15 mines in Canada, the US, Chile and Peru, as well as exploration activities in four continents.
China's Sovereign Wealth Fund Makes Big Bet in Canada
Canadian mining and processing company Teck Resources is selling a 17% stake to China Investment Corp.
By Daniel Inman
Canadian mining and processing company Teck Resources on Friday announced that it will sell a 17.2% stake to China Investment Corporation (CIC) via a private placement. By taking an interest in Teck, CIC is contributing the trend of Chinese investment in foreign resource companies.
The sovereign wealth fund will buy 101.3 million class-B subordinated voting shares at a price of C$17.21 each, amounting to a total outlay of C$1.74 billion ($1.5 billion). The holding represents 17.5% of Teck's outstanding class-B shares (representing approximately 17.2% equity), which will provide CIC with a 6.7% voting interest in the company. The stake comes with no board representation.
After the deal is completed, which is expected to happen on or around July 14, Teck's class-A shareholders will have a 61.8% voting interest in Teck with Temegami Mining Company holding a 28.5% voting interest.
CIC has told Teck that it is acquiring the shares to become "a long-term passive investor", according to a written statement. It will hold the shares for at least a year and it has the right to maintain its percentage ownership through market purchases or participation in future class-B share issuances. CIC is bound by a standstill agreement that forbids it from increasing its holding for any purpose other than avoiding the dilution of its stake. If it decides to sell, CIC has agreed not to transfer its shares to any company in the international mining industry or to any of Teck's significant customers.
The main rationale behind the sale is that it allows Teck to pay off some of the debt that it took on when it acquired the assets of Fording Canadian Coal Trust last year. Teck's aim is to bring its credit metrics within the criteria to restore an investment grade rating. It has a target debt-to-Ebitda ratio of 2.5 times, which would put it into rating agency guidelines for an investment grade rating of between 2.5 times and 3.5 times. Its target debt-to-capitalisation ratio is between 25% and 30%, compared to the rating agency requirement of 30% to 40%.
A private placement was chosen because it would provide better value than a public equity issue. And it is no coincidence that the investor was Chinese. "This transaction... represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products," said Teck president and CEO Don Lindsey.
Teck is the largest diversified mining, mineral processing and metallurgical company in Canada. The company is a major player in the production of copper, metallurgical coal and zinc. It has interests in 15 mines in Canada, the US, Chile and Peru, as well as exploration activities in four continents.
Friday's deal is the latest in a series of moves by Chinese resource companies to acquire assets abroad. Two weeks ago, Sinopec put $7.2 billion on the table to buy oil exploration company Addax Petroleum; and, also in June, Wuhan Iron and Steel Corp made a $400 million investment into Brazilian mining company MMX.
Aluminum Corporation of China (Chinalco) announced last Thursday that it had taken its full entitlement in Rio Tinto's $15 billion rights offering, just one month after Rio rebuffed the Chinese company's attempt to double its 9% interest in the company.
China's Sovereign Wealth Fund Makes Big Bet in Canada
Canadian mining and processing company Teck Resources is selling a 17% stake to China Investment Corp.
By Daniel Inman
Canadian mining and processing company Teck Resources on Friday announced that it will sell a 17.2% stake to China Investment Corporation (CIC) via a private placement. By taking an interest in Teck, CIC is contributing the trend of Chinese investment in foreign resource companies.
The sovereign wealth fund will buy 101.3 million class-B subordinated voting shares at a price of C$17.21 each, amounting to a total outlay of C$1.74 billion ($1.5 billion). The holding represents 17.5% of Teck's outstanding class-B shares (representing approximately 17.2% equity), which will provide CIC with a 6.7% voting interest in the company. The stake comes with no board representation.
After the deal is completed, which is expected to happen on or around July 14, Teck's class-A shareholders will have a 61.8% voting interest in Teck with Temegami Mining Company holding a 28.5% voting interest.
CIC has told Teck that it is acquiring the shares to become "a long-term passive investor", according to a written statement. It will hold the shares for at least a year and it has the right to maintain its percentage ownership through market purchases or participation in future class-B share issuances. CIC is bound by a standstill agreement that forbids it from increasing its holding for any purpose other than avoiding the dilution of its stake. If it decides to sell, CIC has agreed not to transfer its shares to any company in the international mining industry or to any of Teck's significant customers.
The main rationale behind the sale is that it allows Teck to pay off some of the debt that it took on when it acquired the assets of Fording Canadian Coal Trust last year. Teck's aim is to bring its credit metrics within the criteria to restore an investment grade rating. It has a target debt-to-Ebitda ratio of 2.5 times, which would put it into rating agency guidelines for an investment grade rating of between 2.5 times and 3.5 times. Its target debt-to-capitalisation ratio is between 25% and 30%, compared to the rating agency requirement of 30% to 40%.
A private placement was chosen because it would provide better value than a public equity issue. And it is no coincidence that the investor was Chinese. "This transaction... represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products," said Teck president and CEO Don Lindsey.
Teck is the largest diversified mining, mineral processing and metallurgical company in Canada. The company is a major player in the production of copper, metallurgical coal and zinc. It has interests in 15 mines in Canada, the US, Chile and Peru, as well as exploration activities in four continents.
Friday's deal is the latest in a series of moves by Chinese resource companies to acquire assets abroad. Two weeks ago, Sinopec put $7.2 billion on the table to buy oil exploration company Addax Petroleum; and, also in June, Wuhan Iron and Steel Corp made a $400 million investment into Brazilian mining company MMX.
Aluminum Corporation of China (Chinalco) announced last Thursday that it had taken its full entitlement in Rio Tinto's $15 billion rights offering, just one month after Rio rebuffed the Chinese company's attempt to double its 9% interest in the company.
Treasury To Leverage Toxic Asset Plan
Why print when you can hit zero a few more times on the keyboard...
China Conducts First Cross Border Yuan Settlements
And so it begins...
UPDATE: China Conducts First Cross-Border Yuan Transactions
By Denis McMahon, Dow Jones Newswires; 8621 6120-1200; denis.mcmahon@dowjones.com
SHANGHAI (Dow Jones)--China formally allowed the use of the yuan to settle cross-border trade Monday, and three Shanghai-based firms completed transactions using the currency.
While Hong Kong residents have been allowed to move yuan between their local bank accounts and mainland China on a limited basis for years, this is the first time Beijing has extended yuan settlement to include commercial transactions.
It is also an important first step toward promoting the yuan as a regional currency and reducing China's dependence on the U.S. dollar.
Of the transactions completed Monday, Bank of China Ltd. (3988.HK) settled a deal by a unit of Shanghai Electric Group, a manufacturer of mechanical and electrical equipment.
Bank of Communications Ltd. (3328.HK) settled trades by Shanghai Silk Group Co., a textiles exporter, and that of a Shanghai-based trading house whose English name wasn't immediately available.
Bank of Communications also said over the weekend it set up a yuan-denominated letter of credit for a China-based unit of conglomerate Salim Group, on the order of PT Indotruck Utama, an Indonesian firm.
With dollar-denominated trade financing having dried up globally with the financial crisis, yuan settlement will allow China's highly liquid banking sector to offer finance in yuan and help keep the country's export sector humming.
Although Beijing first signaled its intention to allow the use of the yuan for cross-border settlement in December, guidelines governing how it should work on a trial basis were only issued last week.
According to the statement from Bank of Communications over the weekend, currently only 100 firms in Shanghai, 100 from Shenzhen, and a combined 200 from Guangzhou, Dongguan, and Zhuhai can settle cross-border trade in yuan.
"We want to strictly keep this limited to trade-based transactions," said People's Bank of China Vice Gov. Su Ning on the sidelines of an event marking the launch of yuan settlement.
"The trial will increase the liquidity of the yuan outside of China, but by keeping it limited to only a handful of cities in this starting stage, we can control the volume," Su added.
He also said the program will help promote the stability of China's exports, and that a stable currency will help to expand the country's external trade.
China's central bank has been keeping the yuan stable against the U.S. dollar for almost a year.
UPDATE: China Conducts First Cross-Border Yuan Transactions
By Denis McMahon, Dow Jones Newswires; 8621 6120-1200; denis.mcmahon@dowjones.com
SHANGHAI (Dow Jones)--China formally allowed the use of the yuan to settle cross-border trade Monday, and three Shanghai-based firms completed transactions using the currency.
While Hong Kong residents have been allowed to move yuan between their local bank accounts and mainland China on a limited basis for years, this is the first time Beijing has extended yuan settlement to include commercial transactions.
It is also an important first step toward promoting the yuan as a regional currency and reducing China's dependence on the U.S. dollar.
Of the transactions completed Monday, Bank of China Ltd. (3988.HK) settled a deal by a unit of Shanghai Electric Group, a manufacturer of mechanical and electrical equipment.
Bank of Communications Ltd. (3328.HK) settled trades by Shanghai Silk Group Co., a textiles exporter, and that of a Shanghai-based trading house whose English name wasn't immediately available.
Bank of Communications also said over the weekend it set up a yuan-denominated letter of credit for a China-based unit of conglomerate Salim Group, on the order of PT Indotruck Utama, an Indonesian firm.
With dollar-denominated trade financing having dried up globally with the financial crisis, yuan settlement will allow China's highly liquid banking sector to offer finance in yuan and help keep the country's export sector humming.
Although Beijing first signaled its intention to allow the use of the yuan for cross-border settlement in December, guidelines governing how it should work on a trial basis were only issued last week.
According to the statement from Bank of Communications over the weekend, currently only 100 firms in Shanghai, 100 from Shenzhen, and a combined 200 from Guangzhou, Dongguan, and Zhuhai can settle cross-border trade in yuan.
"We want to strictly keep this limited to trade-based transactions," said People's Bank of China Vice Gov. Su Ning on the sidelines of an event marking the launch of yuan settlement.
"The trial will increase the liquidity of the yuan outside of China, but by keeping it limited to only a handful of cities in this starting stage, we can control the volume," Su added.
He also said the program will help promote the stability of China's exports, and that a stable currency will help to expand the country's external trade.
China's central bank has been keeping the yuan stable against the U.S. dollar for almost a year.
Thursday, July 2, 2009
Homeownership's Downsides
The two American dreams - of homeownership and of unfettered economic mobility - may be in conflict, as homeownership, especially in downturns like today, impedes mobility and makes it harder for individuals to move to work and the labor market on the whole to adjust.
The benefits versus costs of homeownership is an important debate.
Continue reading:
http://correspondents.theatlantic.com/richard_florida/2009/07/homeownerhips_downsides.php
The benefits versus costs of homeownership is an important debate.
Continue reading:
http://correspondents.theatlantic.com/richard_florida/2009/07/homeownerhips_downsides.php
Wednesday, July 1, 2009
California Funny Money
Hasbro, maker of Monopoly and other board games, rumored to be front runner on IOU printing contract (kidding...kind of)
California misses budget deadline, readies "IOUs"
Wed Jul 1, 2009 10:29a
SAN FRANCISCO (Reuters) - California's lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday morning, clearing the way to suspend payments owed to the state's vendors and local agencies, who instead will get "IOU" notes promising payment.
The notes will mark the first time in 17 years the most populous U.S. state's government will have to resort to the unusual and dramatic measure.
Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes.
Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases. They instead see deep spending cuts as the solution to balancing the budget, but Democrats say that would slash the state's safety net for the needy to the bone.
Tempers flared in the state Senate as the midnight start of the new fiscal year neared.
"There is no excuse to hold this whole state hostage," state Senate President Pro Tem Darrell Steinberg told Republicans during a floor debate.
Senate Republican Leader Dennis Hollingsworth countered that major cuts are urgently needed. Otherwise, "There will be entire programs that will have to be lopped off," he said.
CASH CRISIS LOOMS
California lawmakers struggle with budget deadlines practically every year, but this year's budget fight is taking place amid the state's worst drop in revenues from personal income taxes since the Great Depression as recession and rising unemployment pile on to the damage done to the state's economy from its long housing slump.
Because of its steep revenue decline, California risks running out of cash later this month to pay all of its bills unless its books are balanced quickly.
To conserve cash, State Controller John Chiang plans to issue IOUs by Thursday to the state's vendors, local agencies overseeing health programs and various recipients of state aid -- including the elderly and disabled and college students.
He plans to send $3.36 billion in IOUs this month to help maintain $10.9 billion in other payments, including money owed to investors holding California's general obligation debt.
"The general obligation bonds will be paid," Chiang told Reuters on Tuesday. "California has never defaulted on its debt obligation and we don't plan to do so."
California aims to reassure investors because Wall Street's concerns about the state's finances are growing and because state officials see the need to sell $7 billion to $9 billion in short-term debt for cash-flow purposes once there is a budget agreement.
Fitch Ratings last week downgraded its rating on California's general obligation debt and warned it may lower the rating again. Fitch cut California's rating by one notch to A-minus, placing it four notches above speculative, or "junk" status, and making it the lowest rating of any U.S. state.
Standard & Poor's Ratings Services and Moody's Investors Service have also warned of possible downgrades to California's general obligation debt. Moody's has said the state could see a multi-notch downgrade of its A2 rating. S&P rates $57 billion of the state's outstanding general obligation bonds A.
(Additional reporting by Marianne Russ in Sacramento, California; Editing by Eric Walsh)
Freddie Mac Back With Hand out
Freddie Mac gets $6.1B from Treasury
Wednesday, July 1, 2009, 8:08am PDT
Silicon Valley / San Jose Business Journal
Mortgage giant Freddie Mac received $6.1 billion from the Treasury Department Tuesday to cover its first quarter shortfall, the company reported in a securities filing Wednesday.
The Treasury Department funds are part of the $200 billion the agency pledged last year to back McLean-based Freddie Mac (NYSE: FRE). The company told its regulator May 12 that its first quarter liabilities were more than $6 billion greater than its assets and that it would need to draw on the funds.
Freddie Mac, and its government sponsored sibling Fannie Mae, were put under federal conservatorship in September.
Freddie has thus far drawn on $50.7 billion from the Treasury. Fannie Mae has drawn $34.2 billion.
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