Econ 2009

[cheesehead]

BTW, the NBER (http://www.nber.org/) does a lot of studies that bear on discussions here.

Examples:

1) http://www.nber.org/digest/mar09/w14753.html

"Did the 2008 Tax Rebates Stimulate Spending?"

They conclude that three studies of 2008 and 2001 tax rebates resulted in "a marginal propensity to consume of about one-third" and "there was no evidence that the spending rate was higher for low-income households".

That is, of course, relevant to current Republican/conservative contentions that tax cuts are the best way to stimulate the economy.

2) http://www.nber.org/digest/mar09/w14492.html

"Understanding Crude Oil Prices"

The $140/barrel price in the summer of 2008 and the $60/barrel in November of 2008 could not both be consistent with the same calculation of a scarcity rent warranted by long-term fundamentals.

What caused the high price of oil in the summer of 2008? In Understanding Crude Oil Prices (NBER Working Paper No. 14492), James Hamilton reviews a number of theories, including commodity price speculation, strong world demand, time delays or geological limitations on increasing production, OPEC monopoly pricing, and an increasingly important contribution of the "scarcity rent" associated with oil. He suggests that there is an element of truth to all of these explanations.

The key features of any account, he writes, are the low price elasticity of demand for oil; the strong growth in demand from China, other newly industrialized economies, and the developing Middle East itself; and the failure of global production to increase. These factors explain the initial strong pressure on prices that may have triggered commodity speculation. Speculation could have edged producers like Saudi Arabia into the discovery that small production declines could increase current revenues and might be in their long-run interest as well. The strong demand may also have moved us into a regime in which scarcity rents, which were negligible in 1997, were perceived to be an important permanent factor in the price of oil.

. . .

Overall, Hamilton concludes, the low price-elasticity of short-run demand and supply, the vulnerability of supplies to disruptions, and the occurrence of a peak in U.S. oil production explain the general behavior of oil prices over the period of 1970-97. Although the traditional economic theory of exhaustible resources does not fit in an obvious way into this historical view, the profound change in demand coming from the newly industrialized countries and recognition of the finiteness of oil offer a plausible explanation for more recent developments in oil prices.

Still, Hamilton writes, "the $140/barrel price in the summer of 2008 and the $60/barrel in November of 2008 could not both be consistent with the same calculation of a scarcity rent warranted by long-term fundamentals." He nevertheless concludes that "if demand growth resumes in China and other countries at its previous rate, the date at which the scarcity rent will start to make an important contribution to the price, if not here already, cannot be far away."

[ewmayer]

AIG's Liddy Says New U.S. Bailout Terms Allow Insurer to Repay Taxpayers: American International Group Inc. Chief Executive Officer Edward Liddy said the revised federal bailout package will still enable the insurer to pay back “every penny” provided by the U.S.

March 2 (Bloomberg) -- American International Group Inc. Chief Executive Officer Edward Liddy said the revised federal bailout package will still enable the insurer to pay back “every penny” provided by the U.S.

The new terms will protect policyholders while “helping the taxpayers,” Liddy said today during a Bloomberg Television interview, adding AIG’s liquidity crunch “is behind us.” All of the outstanding loan from the Federal Reserve will be repaid, Liddy said.

AIG is counting on asset sales to help cover its debt to the U.S., which saved the New York-based company -- once the world’s largest insurer -- from bankruptcy last September. The relaxed terms of the bailout announced today give the company more time to complete those sales, with the pace depending on the stability of capital markets, Liddy said.

Liddy is trying to steer AIG toward recovery after the insurer posted the worst quarterly loss by any U.S. corporation. The loss during the last three months of 2008 widened to $61.7 billion from $5.29 billion in the year-earlier period. The insurer had to delay its plan to sell subsidiaries and ask for more U.S. help after potential buyers balked because plunging values for financial assets left some of them short on capital.

My Comment: Mr. Liddy is either flat-out lying or deluding himself ... AIG is multi-hundred-billion-dollar financial tar pit for U.S. taxpayers, who will lucky to ever see more than a few pennies on the dollar in returns for their "investment".


EU Leaders Reject Pleas for Eastern European, Auto Aid on Budget Concerns: European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates.

EU leaders vetoed an appeal by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told carmakers such as General Motors Corp.’s European arm to look to national capitals for help.

“I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”

The worst economic slump since World War II is devastating eastern Europe, putting at risk EU goals of stitching together a continent-wide free market.

Stocks in Europe, Asia and U.S. futures slumped. The MSCI World Index of 23 developed countries sank 1.9 percent to 736.68 at 11:30 a.m. in London, extending its 2009 decline to 20 percent, the worst start to a year since the gauge was created in 1970. The MSCI Emerging Markets Index slid 3.5 percent, while Hungary’s forint fell 2.5 percent.

The EU’s $17 trillion economy will shrink 1.8 percent in 2009, the European Commission predicts. Latvia, a former Soviet republic that was the bloc’s star performer only three years ago, will contract 6.9 percent. Growth in Poland, the biggest eastern economy, will tumble to 2 percent, the slackest pace since 2002.

Investors Flee

Investors fleeing eastern Europe to cover losses at home have pushed down Poland’s zloty by 28 percent against the euro in the past six months, Hungary’s forint by 21 percent, Romania’s leu by 18 percent and the Czech koruna by 12 percent.

Nine eastern leaders met before the summit to warn the West against putting up new walls in Europe, five years after the EU overcame historic divisions by admitting its first eastern members.

My Comment: It is no longer considered ludicrously pessimistic to ask whether the EU - not just the west/east axis of it but the union as a whole - will survive the global financial crisis.


Buffett's worst year: Berkshire Hathaway reports a rough, down 2008, cheered up by preferred-stock investments Buffett likes.

NEW YORK (Fortune) -- Berkshire Hathaway reported today that its net worth fell in 2008 by $11.5 billion, a decline reducing its per-share book value by 9.6%. That was Berkshire`s worst result in the 44 years that Chairman Warren Buffett has run the company and, in fact, only the second decline in that period. The other drop was 6.2% in 2001, a year hurt by 9/11 and other problems in Berkshire`s insurance operations.

My Comment: Even a legendary investor like WB has never experienced a true secular (multiyear) bear market, resulting from a global financial system leveraged to the gills and catastrophically riddled with systemic risk. Nothing in even his vast experience has prepared him for the kind of scenario playing out here. Having too much experience of bull markets punctuated by mercifully-brief downturns may be working against folks like Warren.

But it appears to be more than just Buffett being done in by supposedly-unforeseeable "black swan" events - during last year`s jaw-dropping oil-price runup he somehow failed to consider what might happen if the financial crisis "went global", which it was already showing signs of doing last summer:

Speaking of his "purchases totaling $14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs (NYSE: GS - News) and General Electric (NYSE: GE - News)," Buffett said, "To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble and ConocoPhillips)." This explanation is far less distressing than what many had speculated about Buffett's moves.

While Buffett's motive for selling these blue chips appears much more benign than many feared, he clearly wasn't happy with the trajectory of his ConocoPhillips bet: "Without urging from [Buffett's Berkshire partner] Charlie [Munger] or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."

My Comment: That sounds very much like the kind of falling-prey-to-speculative-mania and ending up "buying high, selling low" mistake inexperienced would-be-investors make. Shocking to see someone of Buffett`s stature doing it.


I close this post on this tidbit left over from last Friday`s wild selling in Citgroup:

Citigroup Sets U.S. Record for Single-Day Trading Volume, Beating WorldCom: Citigroup Inc. set a U.S. record for the most shares traded in a single day, beating the mark set by WorldCom Inc. in 2002, according to the New York Stock Exchange.

The New York Stock Exchange’s tally of the five busiest
sessions for a U.S. stock:

Company Date Shares Traded
Citigroup Feb. 27, 2009 1.87 billion (preliminary)
WorldCom July 1, 2002 1.51 billion
AIG Sept. 16, 2008 1.23 billion
Citigroup Nov. 21, 2008 1.029 billion
WorldCom July 3, 2002 1.026 billion

My Comment: Looking at the previous "leaders", not exactly the kind of competition one wants to win...1.87 billion represents more tha one-third of the entire float of Citi, 5.4 billion shares.

[cheesehead]

Originally Posted by ewmayer

My Comment: That sounds very much like the kind of falling-prey-to-speculative-mania and ending up "buying high, selling low" mistake inexperienced would-be-investors make. Shocking to see someone of Buffett`s stature doing it.

Yeah, but let's see an inexperienced would-be investor make an $11.5 billion "buying high, selling low" mistake that's only a -9.6% result.

Citigroup Sets U.S. Record for Single-Day Trading Volume, Beating WorldCom: Citigroup Inc. set a U.S. record for the most shares traded in a single day, beating the mark set by WorldCom Inc. in 2002, according to the New York Stock Exchange.

It's a lot easier to set that kind of record when your share price is in the sub-two-dollar range!

I love the way financial sites are always citing that sort of record, number of shares traded in a day, instead of a more-meaningful (to me, anyway) dollar-value of shares traded-in-a-day record. Now, your translation into "more than one-third of the entire float" -- there's something meaningful to me, Ernst.

Similarly, newsfolks making a big deal of a $200 DJIA drop without mentioning what percentage change that was and how that percentage compares to recent day-to-day volatility.

[ewmayer]

Originally Posted by cheesehead

Yeah, but let's see an inexperienced would-be investor make an $11.5 billion "buying high, selling low" mistake that's only a -9.6% result.

It wasn`t just his ill-timed and ill-advised bet on Big Oil - he also inked billions of $ worth of market-index-based derivatives contracts last year, in a bet that the major indices would keep going up, just as the U.S. and the rest of the world began entering an undeniable-to-even-the-most-diehard-CNBC-pumptard recession:

According to the Wall Street Journal Buffett's exposure on those derivatives now stands at $10 billion up from $6.7 billion at the end of the third quarter. See Berkshire Hathaway Reports Worst Year Ever for more details.

I do not buy Buffett's "accounting loss" defense that looks only at cash paid out. That defense smacks of the same logic that says Bear Stearns and Lehman were well capitalized and that Citigroup, Ambac, and MBI still are.

Of course Berkshire Hathaway has enough capital at this point to weather the storm. However, the fact remains Buffett made a major mistake in the timing of those derivative bets. Conceptually, this is a far bigger mistake than his ill-timed buy of more ConocoPhillips at the peak. ConocoPhillips is not going to zero, many of the financial companies in the S&P will.

I still wonder what he possibly could have been thinking to make such a bet right as the entire world was entering a recession. There has not been a recession in history where equity prices did not decline substantially, yet he made his bets before the recession was even acknowledged.

Buffett claims the bet frees up cash. It actually does no such thing. It ties up cash even though he claims by agreement it doesn't. Cash will only be "freed up" when he is ahead on the bet. That may or may not happen.

Had he been "freeing up cash" now instead of when he did, he would have $10 billion more "free cash" instead of being billions of dollars in the hole.

Warren Buffett is clearly an incredibly bright man. And while everyone makes mistakes, what strikes me most is his attempt to defend an indefensible derivatives play made at the worst possible time, while simultaneously stating “Derivatives Are Dangerous.”

On to today`s news roundup...

---------------------------------

GM's 53% U.S. Sales Drop Leads Industry's February Plunge as Demand Slumps: General Motors Corp., surviving with federal loans, said its February U.S. sales plummeted 53 percent as the recession pushed industrywide purchases toward the lowest in almost three decades.

Sales tumbled 48 percent for Ford Motor Co., 40 percent for Toyota Motor Corp., 38 percent for Honda Motor Co. and 37 percent for Nissan Motor Co. GM said it plans to build 34 percent fewer vehicles in North America next quarter, and Ford announced a 38 percent reduction from a year earlier.

Industry sales at last month’s levels make it more challenging for Detroit-based GM and Chrysler LLC to become profitable and pay back $17.4 billion in U.S. loans. President Barack Obama’s auto task force may approve as much as $21.6 billion more aid for the two automakers and support for the thousands of companies that supply car manufacturers with parts.

My Comment: "More challenging" - that has got to be the understatement of the (admittedly still quite young) year.


Big Firm Conflict of Interest: The Penalty Box

Early in 2008, [our pair of brokers-who-work -for-a-firm-whose-name-rhymes-with-Shmerrill-and-who-shall-remain-anonymous] moved aggressively into cash. (Obviously they are TBP readers). For most of the year, they run about 20% bonds, plus 5% percent stocks (some client would not sell). All told, about 75% of their asset base is in money market funds, which pays out essentially nothing to the broker — but preserves the clients investments. Late in the year, they put a toe back in the water.

Overall, the clients do very well. In a year where the markets are practically cut in half, their clients lose about 10%. The investors are ecstatic, and while the two brokers annual compensation was schmeissed — they went from over $3 million gross to under $1 million — they have happy, referral making clients to rebuild their business upon. Its a short term income hit that should generate gains over the long term. And, they got there by doing the right thing.
...
Here’s where things get completely misaligned. When 2009 rolls around, their manager calls them into his office, and says: “Bad news, boys. Your revenues dropped so much last year you are in the Penalty Box. As per your contract, your payout for this year is 30%.”

Let me make sure I understand this: We did the right thing by our clients, and although we took a big short term revenue hit, we hope it pays off over the long run. And the firm response is to drop our payout even further? So the entire system is set up to discourage doing the right thing by the client?

My Comment: But you know, if you move into cash now, you`re sure to miss the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY!!! Now we don`t know where the bottom is - but we know it`s out there somewhere, and in our vast wisdom [this is the make-you-brokers talking here], we know that we`re closer to it than we were a year ago. For all we know, the housing market might instantly reinflate due to the mega-huge game-changing Obama administration SUPER DUPER FISCAL STIMULUS PACKAGE, hard-hit consumers SUDDENLY HAVING ACCESS TO HUGE LINES OF CREDIT IRRESPECTIVE OF INCOME, or Warren Buffett (a.k.a. THE ORACLE OF OMAHA - make sure to bow and scrape in proper obeisance to THE ORACLE when you say it, or even when you think it) might announce that - well shucks, let`s just let him say it - I, WARREN E. BUFFETT (henceforth to be referred to simple as THE ORACLE) decree that STOCKS ARE SUPER CHEAP AND THIS IS A GENERATIONAL BUYING OPPORTUNITY WE GOT HERE, thus igniting the aforementioned HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY - except that my MIGHTY ORACULARITY I further decree that the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY will in fact go on for YEARS, possibly for DECADES. In fact THE ORACLE (bow, scrape, lick the floorboards) DID DECREE JUST SUCH A THING last Fall, but you failed to HEED MY DECREE, and see where it landed you. so next time, LISTEN UP and mortgage the house (quite likely for a 2nd or 3rd time, running concurrently) so you can START BUYING - a good mix for starters would be found under the ticker symbols BRKA and BRKB, for instance. But the reason you don`t want to miss even ONE DAY of the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY is that at least half of the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY PROFITS will occur on that first day, just like in the biblical Genesis where GOD does a bunch of stuff for a whole week (well, six days, actually) but all of the THE REALLY COOL STUFF happens right on day 1, the loaves and fishes being created from the void-without-form and the wine being parted from the base metal, that stuff. So you can see that the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY is in fact THE WILL OF GOD THE MERCIFUL AND MOST HIGH (HALLOWED BE HIS NAME, EVEN THOUGH WE DARE NOT SPEAK IT), and you wouldn`t want to go AGAINST THE WILL OF GOD now, wouldja?


AIG's Bailout Made Bernanke `More Angry' Than Any Other Episode in Crisis: Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the insurer made him “more angry” than any other episode during the financial crisis.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

My Comment: A.k.a. "please don`t blame us at the Fed - we only enabled, aided and abetted all the speculative excesses of the past several decades ... consumers and companies have free will - our job at the Fed is merely to guide that free will into speculative asset bubbles by way of encouraging speculative leverage via risk-decoupled near-zero-interest-rate policies ... ". But what I really want to know is: Given the mild-mannered-academic face Uncle Ben presents to the public, what constitutes "angry" in his book? Are we talking about Marvin the Martian-you-are-making-me-very-angry-style angry?


Hidden Pension Fiasco May Foment Another $1 Trillion Bailout by Taxpayers: The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.

Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.

The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

My Comment: Ah, what`s another trillion here or there? We can just sell Rhode Island to the Chinese government...oh wait, if we use Rhode Island`s GDP (figuring optimistically that GDP rose from $43 B in 2005 to $50 B last year) like Wall street uses corporate earnings to guide fair valuations, figure a P/E of 15, thus 15 times $50 billion state GDP gives only $750 billion. so somewhere we need to cough up another $250 billion worth of national assets ... anybody wanna suggest some other states we could sell? Or maybe some national parks?

[cheesehead]

Originally Posted by ewmayer

But you know, if you move into cash now, you`re sure to miss the HUGE MASSIVE ONE-DAY-ONLY SNAPBACK BOTTOM-IS-IN RECOVERY RALLY!!! Now we don`t know where the bottom is - but we know it`s out there somewhere, and in our vast wisdom [this is the make-you-brokers talking here], we know that we`re closer to it than we were a year ago.

Personally, I like "500 at 600". (http://www.google.com/search?hl=en&q...earch&aq=f&oq=)

Perhaps a Forrest Gump-ish "500 is as 500 does" will turn out true also, but OTOH waiting for that could be foolish, what with all those folks waiting to plunge in at 599. OTOOH, that would be a classic bear rally, right?

- - -

Regarding Warren Buffet:

Perhaps he has so often profited from his past contrarian moves that he figured that everyone-can-see-the-coming-recession just meant that "everyone" was being fooled.

[cheesehead]

Remember when the phrase "global surplus of savings" made it into the predecessor thread on 18 Dec 07? Probably not. How about the catchier "global savings glut" several months later?

It seems that Ben Bernanke was using the latter phrase four years ago.

"Revenge of the Glut" by Paul Krugman

http://www.nytimes.com/2009/03/02/op...rugman.html?em

Remember the good old days, when we used to talk about the “subprime crisis” — and some even thought that this crisis could be “contained”? Oh, the nostalgia!

Today we know that subprime lending was only a small fraction of the problem. Even bad home loans in general were only part of what went wrong. We’re living in a world of troubled borrowers, ranging from shopping mall developers to European “miracle” economies. And new kinds of debt trouble just keep emerging.

How did this global debt crisis happen? Why is it so widespread? The answer, I’d suggest, can be found in a speech Ben Bernanke, the Federal Reserve chairman, gave four years ago. At the time, Mr. Bernanke was trying to be reassuring. But what he said then nonetheless foreshadowed the bust to come.

The speech, titled “The Global Saving Glut and the U.S. Current Account Deficit,” offered a novel explanation for the rapid rise of the U.S. trade deficit in the early 21st century. The causes, argued Mr. Bernanke, lay not in America but in Asia.

. . .

Still, much of the global saving glut did end up in America. Why?

Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.

And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article;

Sure and begorrah: a just-starting PBS show on Ireland mentions "the Celtic Tiger". But its idyllic tourism-boosting mood hints of a pre-global-crisis filming.

“The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.

Will conservatives remember how wrong they were?

If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut.

And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.

One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.

"a global paradox of thrift"

[ewmayer]

German `Pot of Gold' Lies in 24 Million Mobile Phones Tossed in the Trash: One man’s waste is another’s gold. Or so Germany’s Norddeutsche Affinerie AG has discovered.

Germans throw away about 24 million mobile phones each year, almost one for every three residents, violating a federal law against electronic waste. Added up, it’s almost a half-ton of gold that can be melted out of the circuitry of discarded mobile phones and computers.

That means the precious-metals refinery that Norddeutsche Affinerie operates in Germany, where Europe’s largest economy is suffering from its worst recession since World War II, is running at full speed forging gold bars out of the carcasses of German mobile phones and PCs.

“Electronic waste is a tremendous resource but it’s not being managed nearly as effectively as it could be,” Kevin Brigden, a scientist at Greenpeace, said from Exeter in the U.K. Phones and computers need to be designed so recyclers can easily extract the “pot of gold” in the waste, he said in an interview.

The Hamburg-based refiner, one of a handful of precious- metal recycling firms in the world, recovers about 3.5 tons of gold worth some $110 million each year from mobile phones and other electronic scrap. Similarly, Umicore SA near Antwerp, Belgium, recovers about 6 tons of gold a year from waste.

My Comment: I expect a typical PC motherboard plus the CPU with its fine gold (modern ones are gold-plated tin, so the old 386/486 are best) wires contains something on the order of a gram of gold - and of course the copper (especially in the power supply) can also be profitable when recoved on an industrial scale. at the very least, the recovery potential could serve as an inducement for manufacturers to sponsor e-waste recycling programs - key is to make sure that such e-waste reprocessing facilities also make every efoort to recycle less-profitable parts of the waste stream, instead of just "strip mining" the high-value stuff and dumping the remainder.


Short-Sale Rule Revival Undermined by SEC Data After Bernanke Urges Review: The revival of Securities and Exchange Commission rules aimed at curbing speculators who seek to drive down stocks may be hindered by a report from the agency’s own economists.

Daniel Aromi and Cecilia Caglio, economists at the SEC in Washington, said in a December report to former Chairman Christopher Cox that the so-called uptick rule was less effective when needed most, during panics that drive prices down and volatility up. Even with delays imposed by the curb, short sellers in a simulation executed trades 25 percent faster on average when stocks plunged than when prices were steady, according to the study.

“The uptick rule is not going to slow down the market that much,” said Michael Pagano, a finance professor at Villanova University in Villanova, Pennsylvania, who read the report. “The time when you’d want to see the uptick rule become more binding is exactly when you have high volatility, and particularly when you have large negative returns.”

Regulators are considering restrictions on speculators after the Standard & Poor’s 500 Index fell 54 percent in the 20 months since the uptick rule was eliminated. Mary Schapiro, who succeeded Cox, said in January during her confirmation hearings that examining the rule is “one of the things that I would be committed to doing very quickly.” Federal Reserve Chairman Ben S. Bernanke told Congress last week that the measure, removed after 69 years on the books, should be revisited.

...

The December SEC report examined the benefits of barring short sales unless they were done at prices at least 1 cent higher than the last trade. While more than 58 percent of short sales would be delayed or barred by such a requirement, the impact lessens in times of panics, according to the 28-page study. Short sellers would be able to execute as much as 57 percent more trades in certain stocks when the market slides, compared with times when prices are steady, the report shows.

Effective Ban

The SEC also considered raising the threshold to as much as 5 cents. For increments of 4 cents or more, the uptick rule would effectively ban short sales, a policy counter to the agency’s position. In October, the SEC said short selling plays an “important role” by increasing liquidity, helping traders hedge other assets and curbing speculation.

A separate SEC analysis concluded that in September, when the S&P 500 lost 9.1 percent, short sales were more common during rallies than declines.

My Comment: Varied thoughts: I wonder whether there still might be a synergistic effect from reinstating the uptick rule - even by slowing shorting modestly, one might be able to mitigate the huge plunges, thus removing a feedback mechanism present in the non-uptick system we have currently. Also, basing any such threshold on absolute price changes is just stupid - should be a percentage of the share price. a 5-cent change in BRKA represents a roughly 70000-fold-less percentage change as it does for Citigroup.

Year of the Ox? More like Year of the Bull...

Chinese Manufacturing Index Rises, Signaling Economy Closer to a Recovery: A Chinese manufacturing index climbed for a third month, adding to evidence that a 4 trillion yuan ($585 billion) stimulus package is pushing the world’s third-biggest economy closer to a recovery.

The Purchasing Manager’s Index rose to a seasonally adjusted 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A reading below 50 indicates a contraction.

Stocks rose after output and new orders expanded for the first time in five months. Chinese Premier Wen Jiabao may announce extra measures to reverse the nation’s economic slide at the annual meeting of the National People’s Congress starting in Beijing tomorrow.

“There are more noticeable signs that China’s economy is bottoming out,” said Zhang Liqun, an economist at the State Council Development and Research Center.

The Shanghai Composite Index rose 2.4 percent as of 10:47 a.m. local time.

While manufacturing contracted for a fifth straight month as the worst financial crisis since the Great Depression cut exports, the PMI is up from a record low of 38.8 in November.

Surging loans, growth in retail sales in January, and an increase in electricity output and consumption from the middle of last month are signs that government measures have shown “preliminary results,” according to Premier Wen.

Recovery ‘Very Likely’

A recovery in the first half is “very likely,” central bank Vice Governor Su Ning said yesterday.

Industrial-output growth in January and February may be higher than in November and December, Zhang forecast. Still, he cautioned that “seasonal factors” may have boosted the output and new-order indexes, which could fall again.

“The government’s stimulus investment has finally started to take effect,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “However, a recovery may be short-lived as export demand may get worse in the second half and the outlook for consumption is uncertain.”

My Comment: Listen to the government-paid shills confusing (either deliberately or just stupid-hopefully) "temporary effect of government make-work money" with "economic recovery". It`s even more egregious than the similar blather on the part of the stimulus pumptards here in the U.S., because in the case of China the (real, not fake stimulus-based) economy is so lopsidedly dependent on exports.

[ewmayer]

Citigroup, Once World's Biggest Bank by Value, Sees Stock Decline Below $1: Citigroup Inc. dropped below $1 in New York trading for the first time, the latest sign that stock investors are losing confidence in a company that was once the world’s biggest bank by market value.

The stock fell to 99 cents at 11:22 a.m. on the New York Stock Exchange, marking an 85 percent decline this year and giving the company a market value of $5.5 billion. At its peak in late 2006, Citigroup stock was worth $55.70, giving the company a market value of $277.2 billion.

Citigroup has reported more than $37.5 billion in net losses during the last five quarters and the U.S. government has provided the company with $45 billion. Last week, the government agreed to convert the preferred stock it owned in Citigroup to common shares, gaining a 36 percent stake in the company and boosting its buffer against future losses.

NYSE Euronext, which owns the New York Stock Exchange, has suspended until June 30 a rule that delisted companies trading below $1 after six months. The change was made to help prevent a wave of delistings after the Standard & Poor’s 500 Index fell to a 12-year low.

Citigroup was created by the 1998 combination of Citicorp and Travelers Group Inc., which with a value of $85 billion was the largest merger in history at the time. The transaction helped persuade the U.S. government to repeal a Great Depression-era law, the Glass-Steagall Act, that prohibited banks that took consumer deposits from engaging in investment-banking activities.

My Comment: U.S. government could have bought the whole frickin` company for under $10 billion, saving over $30 billion, and gotten a several-months head start on the inevitable unwind of Citi`s business units and disposal of toxic assets which is necessary. Sure, markets would have coughed up a giant hairball in the near term (as opposed to a never-ending series of smaller hairballs as presently), but propping up an insolvent banking sector's share prices is not the government`s job.


U.S. Stocks Retreat After China Signals No Additional Stimulus; GM Slumps: U.S. and European stocks fell, driving the Standard & Poor’s 500 Index to the lowest level since 1996, after Moody’s Investors Service said it may cut JPMorgan Chase & Co.’s credit rating and China quelled speculation the government will add to its stimulus plan.

JPMorgan dropped 8.4 percent. Wells Fargo & Co. and Bank of America Corp. slumped more than 9.2 percent after Moody’s said it’s reviewing their ratings, while Citigroup slumped to a record low of 97 cents. General Motors Corp. plunged 15 percent after its auditor said the automaker may not survive. European stocks fell after Aviva Plc, the biggest U.K. insurer, reported a loss.

“You have to have stability in the banks for a sustainable rally,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We’re not there yet.”

My Comment: It helps to have "solvency in the banks" as well, and we`re "not there yet" by a long shot.


U.S. Jobless Claims Exceed 600,000 for a Fifth Week; Productivity Declines: More than 600,000 Americans filed initial claims for jobless benefits last week as companies strived to cut the costs of workforces that are producing less as the recession deepens.

Economists forecast the Labor Department tomorrow will say U.S. payrolls fell by 650,000 in February, the most since 1949, according to a Bloomberg News survey. The unemployment rate probably surged to 7.9 percent.

...

A report from ADP Employer Services yesterday showed U.S. companies cut an estimated 667,000 jobs in February, up from 614,000 the month before. The ADP figures include only private employment and do not take into account hiring by government agencies.

Already the 3.6 million jobs lost since the U.S. recession began in December 2007 mark the biggest employment slump of any economic contraction in the postwar period.

The faltering labor market has caused consumer sentiment to plummet and crippled spending. Purchases dropped at a 4.3 percent rate in the fourth quarter, the most since 1980, according to Commerce Department figures.

My Comment: At beginning of this year "most economists" were predicting around 2 million job losses for the year. No idea what those clowns have been smoking, but we`re going to hit that in just the first 3 *months* of 2009.


Empty Vessels Flock to Subic Bay as Shipping Lines Battle Plunging Rates: Subic Bay in the Philippines is the busiest it’s been since the U.S. Navy moved out 16 years ago. The traffic surge is coming from ships all carrying the same cargo --nothing.

Hundreds of vessels have been laid up worldwide as container lines try to boost rates depressed by U.S. and European consumers paring spending on Asian-made furniture, toys and other goods. Still, with shipyards set to deliver the largest amount of container ships by capacity in at least 15 years in 2009, lines may still struggle to post profits.

My Comment: No amount of China stimulus spending can counter that implosion in exports.


Austria Default Risk Passes Italy as Bet on Eastern Europe Growth Misfires: [i]Eastern Europe’s imploding economies may take Austria’s reputation for stability down with them.[.i]

After leading the way in providing credit to the eight former communist nations that joined the European Union in 2004, Austria’s banks are now on the hook for 201 billion euros ($254 billion) in loans, equal to about 71 percent of the nation’s gross domestic product. International investors rank Austria’s bonds as less safe than those of Italy, Spain or even Slovakia.

The risk to Austria’s economy has pushed it to the forefront of countries clamoring for a bailout of eastern Europe. Chancellor Werner Faymann on Jan. 27 called for “a European Union initiative” to bolster international financing for economies to the east. But EU leaders rejected such pleas at their March 1 meeting.

“For Austria, the actual crisis is yet to come,” said Peter Eigner, a professor of economic history at the University of Vienna. “The decline of the eastern European economy will hit Austria in 2009.”

The Austrian Traded Index has fallen 70 percent from its July 2007 peak, and the cost of bond insurance against sovereign default has risen 15-fold in the past year. Shares of Austria’s Erste Group Bank AG, which made more than two-thirds of its profit from emerging European economies in 2008, and Raiffeisen International Bank-Holding AG, which operates only in the region, each have lost more than 85 percent from their peaks.

...

To be sure, Raiffeisen, Erste and UniCredit’s Bank Austria AG are profitable. Austria’s banks could withstand losses of as much as 31 billion euros on their 201 billion euros in east European investments, Austria’s central bank said in February.
...
Standard & Poor’s, Moody’s and Fitch Ratings all have given Austria their highest sovereign debt rating and say they don’t expect to change the classifications any time soon.

My Comment: That is, alas, precisely the wrong kind of "Austrian economics" to practice. A 31-billion-Euro loss on a 201-billion-Euro total investment might have seemed out of the realm of possibility a year ago, but that represents just a 14% loss, which is nothing in the current worldwide economic climate. Given their recent track record in rating debt securities, the "AAA" sovereign debt ratings bestowed by the ratings cartels do not reassure me one bit.

[ewmayer]

Fortune is running selected excerpts from a forthcoming book on the demise of Bear Stearns:

Inside the Bear Stearns boiler room: Exclusive book excerpt: Bestselling author William Cohan uncovers the inner workings of the misadventure that brought down Bear Stearns and foreshadowed the financial crisis to come.

Years from now, when academics search for causes of the stock market crash of 2008, they will focus on the pivotal role of mortgage-backed securities. These exotic financial instruments allowed a downturn in U.S. home prices to morph into a contagion that brought down Bear Stearns a year ago this month - and more recently have brought the global banking system to its knees.

What scholars should not miss is the role that the human element - call it greed or ignorance - played in this tragedy. In an exclusive excerpt from William Cohan's new book, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street," to be published March 10 by Doubleday, the bestselling author sheds light on the bankers who thought they had mastered what Warren Buffett has called "financial weapons of mass destruction."

My Comment: I found the tie-in between the 9/11, the resulting huge easing of monetary policy by the Fed and the demise of Bear to be especially interesting - recommended reading.


China's hard landing: With exports shrinking and unemployment rising, China must find a way to recover. That will take longer than most think.

In the early evening light, on a block that once bustled but is now deathly quiet, Li Zhong-he walks to the front gate of the factory where he used to work. There he looks for his name on a sheaf of papers. They are notices from a local administrative court, granting small unemployment payments to workers like Li and the hundreds of others who were left without jobs when their company, Hejun Toy Manufacturing, ceased operation.

Nearly a decade ago Li had come from the countryside to Dongguan, a sprawling manufacturing town in southeast China that for much of the past decade had boomed. He had made decent money, the equivalent of about $250 a month, worked his way up to shift supervisor on the factory floor, and unlike many of China's migrant workers - an army of an estimated 115 million people nationwide - he had asked his wife and young son to join him so that they could have what he calls a "normal life."

Now, he says quietly as he turns away, disappointed that his name was not on the list, "I don't know what I'm going to do."

On a lighter note...

The Daily Show sticks it to the CNBC shills:

http://www.thedailyshow.com/video/in...nancial-advice

Interesting how the alleged-hard-news-shows have turned into ever-more-silly-infotainment parodies of themselves, while one can frequently get the most honest take on the real news from the designed-to-be-parodies-of-the-real-news-shows shows like TDS. Art imitating life imitating art - when "the real news" becomes little more than a parody, the parody of the parody becomes a better source of "the real news" than TRN itself. Or something like that. :P

[xilman]

Originally Posted by ewmayer

German `Pot of Gold' Lies in 24 Million Mobile Phones Tossed in the Trash: One man’s waste is another’s gold. Or so Germany’s Norddeutsche Affinerie AG has discovered.

My Comment: I expect a typical PC motherboard plus the CPU with its fine gold (modern ones are gold-plated tin, so the old 386/486 are best) wires contains something on the order of a gram of gold - and of course the copper (especially in the power supply) can also be profitable when recoved on an industrial scale. at the very least, the recovery potential could serve as an inducement for manufacturers to sponsor e-waste recycling programs - key is to make sure that such e-waste reprocessing facilities also make every efoort to recycle less-profitable parts of the waste stream, instead of just "strip mining" the high-value stuff and dumping the remainder.

For many years now I've been saying to anyone prepared to listen that landfill is not waste. It is a store of material to be processed when the price is right.

One industry's landfill has been another's raw material for a very long time. As just one example, Roman lead miners discarded rock they couldn't process economically. Roman mine tailings have been used as lead ore for well over 200 years.

Paul

[Fusion_power]

It is getting deeper and deeper all the time, yet some people don't get it.

General Motors is essentially bankrupt. An internal audit indicates the company is not likely to survive.

An estimated 12% of all U.S. mortgages are currently in arrears.

Citibank is selling for $1.02 per share closing price as of today or about $5.5 billion market value.

Unemployment is at 7.9%.

The FDIC is essentially bankrupt. This is an odd state of affairs given that their own figures show they still have $35 Billion give or take a few. The problem is that the number of insolvent banks is huge and getting worse daily. Even with the special 'fee' FDIC is levying from participating banks, they will likely run out of money by September or October of this year.

Add the above up and you have to ask yourself where the eternal optimists are coming from.

Here is the one that hurts for me, not because it affects me, but because I empathize with the people who are in this mess. When my daughter was born 24 years ago, I came very close to starting a college fund for her in PACT. I chose not to do that and am happy to report that she will complete her studies in 3 months.

http://www.waff.com/Global/story.asp?S=9941068

Alabama's Prepaid Affordable College Tuition, or PACT, is in financial trouble.

This affects a number of parents and grandparents.

48,000 families with money in the fund were warned by mail last week the program they've paid into is on the brink of collapse.

Sending your child to college is an expensive investment.

So when the Alabama Prepaid Affordable College Tuition Fund or PACT was created, many families started saving for the future.

Wanda Curtis uses money from PACT, set up by her son's grandparents to pay his tuition.

"It's been really helpful so far because for the first 2 semesters its paid over $5,000 towards his total bill," said Curtis. "That's been wonderful."

Curtis along with many other parents may have to find other ways to fund college.

PACT has lost more than 45 percent of its value in a year and a half, including a 20 percent loss to the recent stock market.

The money paid into the fund by parents and grandparents of thousands of current and future students is in deep financial trouble.

Dr. Greg Fitch is on the program's board of directors.

"The 2008 economy everyone is faced with challenges is the one that's impacted us the most dramatically," said Dr. Greg Fitch, a member of the PACT Board of Directors.

With PACT funding cuts, many parents don't know what they will do or where the money will come from.

They depended on the extra funds to pay tuition for Alabama's 4-year college system.

If PACT managers can't find additional dollars, many will have to shell out of their own pocket.

"Getting a second job to pay the premium for him to get through college. That's the option. There is no option of him dropping out of college," said Curtis.

A special called meeting of the PACT board will be held March 24th to discuss the trust fund trouble.

The serious question to be raised is "Is America bankrupt?"

DarJones