Econ 2009

[cheesehead]

Originally Posted by ewmayer

Moody's, Standard & Poor's, and Fitch ... yeah ... where have I heard that combination before?

http://www.stockbrokerfraudblog.com/..._and_fitc.html

http://marketpipeline.blogspot.com/2...-of-trust.html

Is "sovereign debt" a new type of CDS?

[AES]

Originally Posted by Fusion_power

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

DarJones

The U.S. is not yet insolvent but many of her senior citizens nearing retirement are.

[cheesehead]

"5 CEOs on their recession plans"

http://money.cnn.com/galleries/2009/...une/index.html

The fifth's finale:

Originally Posted by Fred Smith, FedEx

. . .

On taking bailout funds: If you take government money and you get yourself in the public arena, then the Congress, quite frankly, has a right to put whatever restrictions on you that they desire. That's really the cost of the deal.

[only_human]

Everyday something draws my ire. As part of relocation assistance, some businesses and government agencies buy employee's current homes (and intend to resell it) so that the employee can move on to a new area. Here is a postmaster's home that squeeked through prior to a new cap of $1 million on the amount that the USPS will spend:
Postal Service draws criticism for $1.2 million home buy
They bought and sold over a thousand homes in 2007-2008:

In 2007, after the U.S. housing boom peaked, the USPS lost an average of $50,542 on each deal, he said. In 2008, with the market in full retreat, the average loss climbed to $58,397.

[ewmayer]

Unemployment hits 25-year high: Jobless rate hits 8.1% in February as a record-high 12.5 million people are unemployed.

Most workers who have jobs today are not old enough to have worked in a labor market this bad, while 13% of workers weren't even alive the last time unemployment was at this level.

The survey of households found 12.5 million people are now unemployed, the most since records started being kept in 1940.

My Comment: It must really suck to be a recent or soon-to-be college grad...and unfortunately, no reason to believe things will improve any time soon:

Worst is yet to come for job market: This is the most brutal downturn in decades, but the unemployment numbers only show part of the pain.

The government reported Friday that the unemployment rate rose to a 25-year high of 8.1% in February, as employers cut 651,000 jobs from payrolls.

Still, as bad as those numbers are, some have argued that this jobs downturn is not as bad as the early 1980s. The unemployment rate peaked at 10.8% in late 1982.

But several experts say it would be a mistake to come to that conclusion. They argue that unemployment rate only hints at why this jobs downturn is worse than any since the Great Depression.

Over the last six months, 3.3 million jobs have been lost. That's the largest six-month job loss since the end of World War II.

Even adjusting for the large growth in the nation's job base in recent decades, this is still the biggest six-month job loss since March 1975.

Economists say the steepness of this decline will make it tougher for the job market to improve any time soon. The increasing job losses create a downward spiral in which businesses, faced with lower demand because people can't afford to buy their products, lay off even more people.
...
Another reason why this downturn is more painful is because the layoffs have come from companies in virtually all parts of the economy.

"There's no place to hide in terms of job losses," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "And when measuring the impact of job losses, it's very important how pervasive the losses are. That's what makes this the worst since the Great Depression."

Roubini on the "Surreal" Bank Nationalization Debate

Nouriel Roubini`s latest newsletter comments of the "surreal debate" regarding bank nationalization in the U.S.:

The massacre in financial markets and among financial firms is continuing. The debate on “bank nationalization” is borderline surreal: with the U.S. government having already committed – between guarantees, investment, recapitalization, liquidity provision – about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure). Thus, the U.S. financial system is de-facto nationalized as the Fed has become the lender of first and only resort rather than the lender of last resort and the Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure rather than only de facto.

Banks That Shunned Subprime Ask Why They're Paying for Wall Street `Greed': TCF Financial Corp., the Wayzata, Minnesota-based bank that never made a subprime loan and hasn’t lost money since 1995, is asking why it should help clean up the mess made by Wall Street.

“I’m kind of bitter,” said William Cooper, chief executive officer of the 448-branch bank, adding that over the years TCF has invested about $1 billion in the Federal Deposit Insurance Corp.’s fund that guarantees bank deposits. “We pay for the excesses of our competitor over and over again.”

TCF is among more than 8,300 banks and lenders insured by the FDIC facing increased fees and a one-time “emergency” charge designed to raise $27 billion this year for the agency’s depleted coffers. Community banks may take a 10 percent to 20 percent hit to 2009 earnings even if the FDIC halves that charge, said Camden Fine, president of the Independent Community Bankers of America.

My Comment: It`s the same story at all levels ... the prudent being asked to bail out the reckless and profligate.

GE's Capital Woes

If you`ve been wondering why the "gold standard" of blue-chip companies, GE, has been tumbling despite the fact that their core businesses seem to be doing OK, read this - GE`s problem is that they turned much of their operations away from "making stuff" to financial wizardry:

General Electric's Immelt Pays Price for Investments in Real Estate, Debt: General Electric Co. Chief Executive Officer Jeffrey Immelt is paying the price for his investments in commercial real estate and U.K. property debt.

Profit at GE Real Estate dropped by $1.1 billion last year, according to the annual report from the parent company’s GE Capital finance arm. Fairfield, Connecticut-based General Electric’s real estate earnings are likely to fall further as occupancies and rents drop in a U.S. recession that’s now in its second year, said James S. Corl, who oversees distressed real estate investments at Siguler Guff & Co. in New York.

“They spent a huge amount of money in real estate,” Corl said. “They paid a full price for what ends up being a lot of mediocre real estate.”

General Electric shares this week dropped below $6 for the first time since December 1991 on concern that GE Capital may require additional cash. GE Vice Chairman and Chief Financial Officer Keith Sherin said in a statement yesterday that he sees no need to raise additional capital, and that the company’s financial services businesses expect to be profitable in the first quarter of 2009 and all year.

My Comment: Pull the other one, Keith ... you sound like you`re channeling former Bear Stearns CEO Alan Schwartz, or any number of Wall Street firm heads who lied repeatedly in the past year about their company`s financial state and alleged lack-of-need-to-raise-money. The article goes on to quote a less-credulous independent analyst who estimates GE`s losses form it RE investments could top $10 billion.

One Business That Really is Recession-Proof

A rare bright spot in the dire Eastern European economic picture:

Eastern European Condom Sales Will Bolster Durex Maker During Recession: SSL International Plc Chief Executive Officer Garry Watts is taking the manufacturer of Durex condoms to eastern Europe just as the region’s economic meltdown turns investors away.

The U.K. maker of Durex and Contex brands plans to raise its stake in a unit that distributes contraceptives in Russia and nine other eastern European countries to 50 percent by April and expects to take full ownership by 2010, Watts said. The 200 million-pound ($283 million) takeover will raise SSL’s sales in the region by 100 million pounds a year starting from April.

“Russian people aren’t going to stop having sex any more than British people are,” Watts, 52, said in an interview in London. “We’re not immune from the downturn, but it’s a bit like Pizza Hut: If you’re not going out, then you might be willing to drop a five-pound vibrator ring into your trolley.”

My Comment: Perhaps it`s just me, but that last quote about Pizza Hut, trolley and vibrating devices has me utterly baffled - "reading it is like giving a rolling pin to a magician".

Getting back to condom sales, I wonder if those might in fact be a growth area (wink, wink, nudge, nudge, say no more) during recessionary times ... people eating in more instead of going out, thus enjoying other forms of "low-cost home-based entertainment", but at the same time less inclined to engage in procreative sex.

[ewmayer]

Washington prepares for big bank failure: A bill introduced in the Senate would give FDIC chief, Sheila Bair, a huge loan to handle 'emergency situations' in the banking sector.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans' bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill -- the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho -- wouldn't change the status of individual bank accounts, which through the end of this year are insured up to $250,000.

But the Dodd-Crapo bill acknowledges what the financial markets have been signaling for the past month -- that the government must take the lead in a costly cleanup of the mess in the financial sector.

My Comment: So, anybody wanna start a betting pool as to which of the giants will end up in FDIC receivership first? Citigroup seems a good candidate.

Can`t help but smirk at the name of the proposed legislation: the "Dodd-Crapo" bill. If it passes, I suppose it`ll be called the "Dodd-Crapo law". [Any similarity to "Dodd crapola" completely unintentional].

[AES]

It’s an interesting chart regarding scope, even if irrelevant to current market conditions. It's usually updated every trading day.

http://dshort.com/charts/bears/four-bears-large.gif

[only_human]

I look at ethanol blended automotive fuel with some genuine optimism about green issues and new government directions but also a lot of skepticism and lingering resentments generated by the gaming of energy supply as with Enron and the California energy crisis.

Although I wouldn't call it a perfect storm, but many issues to be coalescing around ethanol right now (let's not forget the commodity pricing and animal feedstock issues either):

[Washington Post] Ethanol Producers Press for Higher Limits

But many critics say the push for higher ethanol limits is really about propping up the heavily subsidized ethanol industry and giving a boost to venture capital firms that are still struggling to come up with an economically competitive way to produce other forms of ethanol made from plants that do not compete with food products.

Many ethanol producers are pressing for a decision quickly. The industry has the capacity to produce 12.5 billion gallons a year of corn-based ethanol, about 9 percent of the nation's motor fuel supply and three times as much as was produced in 2005.

But it is falling about 2 billion gallons short of that capacity as prices have tumbled in the economic downturn. VeraSun, once the nation's second-biggest producer, filed for bankruptcy protection last fall after losing hundreds of millions of dollars on a bad bet on corn prices. It accounts for about half of the nation's idle capacity.

Other firms have been hit too. Last week Pacific Ethanol, struggling to negotiate new loan terms with Wachovia and other lenders, announced that it would suspend operations at two 60 million-gallon-a-year facilities, one in Stockton, Calif., and one in Burley, Idaho. Pacific Ethanol had already suspended operations at a 40 million-gallon-a-year plant.

[New York Times] Bigger Share of Ethanol Is Sought in Gasoline

Should current gasoline consumption levels persist and the blend level remain at 10 percent, demand at the nation’s gas pumps would be inadequate to absorb the 15 billion gallons of ethanol that refiners are required to blend.

Ethanol producers also argue that without higher blend levels, there will be no room for the development of advanced biofuels, like ethanol made from wood chips or biological waste. Congress has set a target of using 21 billion gallons of that type of ethanol and other biofuels by the year 2022.

The industry has a capacity of 12.5 billion gallons a year, but so many plants have been idled that production is expected to reach only about 10 billion gallons this year.

VeraSun seems to be a big piece of the existing picture. They have been in bankruptcy proceedings and look like they might have led to lemony expressions from farmers. Recall that not long ago (yet effectively prehistoric in the current climate) many farmers switched to corn production because of high market prices and labor issues involving crops that could not have automated harvesting.

[The Center for Agricultural Law and Taxation at Iowa State University] VeraSun Energy Bankruptcy Poses Perils for Farmers and Elevators Peril Continues for VeraSun Corn Suppliers The following language is clearly more lucid to commodities trading personalities:

VeraSun Corn suppliers have been asking numerous questions regarding whether they should sell their corn without having received notice of rejection of their contracts. That could be a huge mistake. Until the contracts are rejected, the corn supplier is under contract to sell to VeraSun even though VeraSun may later reject the contract.

What happens if a VeraSun Corn Supplier sells his corn prior to contract rejection?
Assume that a VeraSun Corn Supplier has a contract for February delivery to a VeraSun plant at $6.00 per bushel and chooses to sell the corn at the current price offered by the elevator of $3.00 per bushel. If the prices stay low, VeraSun will most probably reject the contract and the corn supplier will not suffer any ill consequences. However, if the price of corn flips and the price for February corn increases to $7.00 per bushel, where it was last February, VeraSun would have the option to assume the contract and if the corn supplier did not have corn to fill the contract, the corn supplier would have to pay VeraSun the difference of $1.00 per bushel -- the difference between the market price and the contract price. The VeraSun Corn Supplier would effectively receive only $2.00 per bushel, instead of the $3.00 per bushel he thought he would receive.

[Ethanol Producer Magazine] RIN Credits, Ethanol Blending and the 800-pound Gorilla Ethanol producers look to rebound from bankruptcy I chose not to directly quote these articles because I am always somewhat concerned about permissions and copyrights. Worth reading. The first link recognizes an instance of the modern day dumping of bad news on a Friday so that it will be stale before greatly noticed. Valero is trying to buy five of VeriSun's ethanol plants. A giant railroad capacity investment on expectations of ethanol shipping has gone bad.

[AES]

It’s a shame to mix ethanol with such an unpalatable thing as gasoline.

[__HRB__]

Originally Posted by AES

It’s a shame to mix ethanol with such an unpalatable thing as gasoline.

Pfui! Shame on you for trying to trick us...you guys from Tennessee just want it all for yourselves.

[cheesehead]

Here's an idea (my idea):

Since six Republican governors (Alaska, Idaho, Louisiana, Mississippi, South Carolina, Texas) have said they may reject portions of the federal stimulus money (http://www.nytimes.com/2009/02/21/us/21govs.html), let's take the opportunity to run a little experiment. Many Republicans have shown that they value ideology over science, but this experiment doesn't require their cooperation because it can be done with existing reports that states are required to make to the feds. (Some may scoff that this experiment can't possibly be scientific, but a scientific approach doesn't require that an experiment be as formal as a lab study with controls and such if that's not possible, as in this case. It only requires that observations and reports be as objective and accurate as possible in the circumstances, with guards against self-, and other-, deception.)

Let's carefully study the state-by-state differences in economic and other effects of applications of federal stimulus money -- with particular attention to the differences between those states that reject all or part of the money and those that accept all. (Note: the federal stimulus bill provides state legislatures the choice of overriding their governor's refusals, so it may be that ultimately no state rejects any portion.)

Let's see if we can (perhaps we won't be able to) determine how the observed differential effects correlate with liberal, conservative, or libertarian views and predictions.

I expect that several institutions and many economists will be doing exactly that, and their reports in, say, summer of 2012 ought to be illuminating -- whenever they're sufficiently objective, that is. I wouldn't expect a Heritage Foundation (http://en.wikipedia.org/wiki/Heritage_Foundation) study, for example, to say much that contradicts conservative principles, or a study by the Tellus Institute (http://en.wikipedia.org/wiki/Tellus_Institute) to make a big deal about any results that don't fit liberal expectations.