Econ 2009

[ewmayer]

2 million jobs lost so far in '09: Unemployment rate spikes to 8.5%, a 25-year high, as 663,000 jobs lost in March. 5.1 million jobs have now been lost since the beginning of 2008.

Employers trimmed 663,000 jobs from their payrolls last month, roughly in line with forecasts of a loss of 658,000 jobs, according to economists surveyed by Briefing.com.

For the first three months of the year, 2 million jobs have been lost, and 5.1 million jobs have been lost since the start of 2008.

To put the three-month loss in context, if no more jobs are lost over the next nine months, 2009 would still be the fourth worst year for job losses since the government started tracking the number of workers in 1939.

March's monthly loss is up slightly from the loss of 651,000 jobs in February, although it's less than the number of jobs lost in January. That figure was revised up to a loss of 741,000 jobs -- which now stands as the biggest monthly drop in 59 years.

My Comment: 2 million through March - exactly as I predicted last month, as many jobs lot in 3 months as "most economists" said we would lose in all of 2009. Given that the originally-announced January number was revised significantly upwards, it is not unlikely that February and March may similarly prove to be even-worse-than-announced when the final tallies are in a few months from now. Predictably, Wall Street rallied (albeit moderately compared to yesterday) yet again on all this fabulous economic recovery news. Guess they figure that all that payroll-slashing will boost profit margins...I know that hope springs eternal (and in general that's not a bad thing, as long as you don't bet the farm on the hope and the hype), but the disconnect between what's happening on Main Street and the irrational exuberance that has come roaring back on Wall Street is, quite frankly, stunning.

But dire as the above 8.5% unemployment figure is, it underestimates the true level of malaise:

Employers cut back the number of hours for their workers as well. The average hourly work week fell to 33.2 hours, the lowest level on record going back to 1964.

There also was an increase in the number of people working part-time jobs who want to get a full-time job. A record 9 million Americans were "underemployed" in March.

Including those people along with discouraged job seekers no longer counted in the main unemployment rate, the government's so-called underemployment rate stood at 15.6% in March.

FASB Shift Won't Spur Bank Rally Because of Loan-Loss Growth, Goldman Says: The relaxation of fair-value accounting rules won’t prevent bank shares from falling because growth in bad loans is accelerating, according to Goldman Sachs Group Inc.

“Our core view is that banks will not bottom until underperforming asset growth decelerates,” Richard Ramsden, a New York-based analyst at Goldman Sachs, wrote in a report today. “Loans are going bad faster than banks earn money.”

Bank stocks in the Standard & Poor’s 500 Index advanced 4.2 percent yesterday after the Financial Accounting Standards Board relaxed so-called mark-to-market rules that Citigroup Inc. and Wells Fargo & Co. said don’t work when markets are inactive. The changes allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities.

My Comment: Like I said, it`s just accounting hocus-pocus to enable the banks to put lipstick on the pig. Note the clever wording "inactive markets" translates to: no one (excpet the government) is willing to pay anywhere near what you are valuing your bad-loan portfolios at. Rather like the housing market being "inactive" in areas where prices are still too high.

U.S. regulators may force Bank of America, Citigroup and at least a dozen of the nation’s biggest financial institutions to write down as much as $1 trillion in loans, twice what they’ve already recorded, based on Federal Deposit Insurance Corp. auction data compiled by Bloomberg.

Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the bank- insurance agency’s auctions brought 0.02 cent on the dollar.

Lower valuations would lead to new writedowns and capital injections from the $134.5 billion remaining in the Troubled Asset Relief Program, Nobel Prize-winning economist Joseph Stiglitz said.

My Comment: There you have it - banks have little incentive to mark their assets down to market value (and the FASB ruling now lets them avoid even having to make the pretense of doing so) because they know that the longer they delay, the more likely it is that the government will simply bail them out by taking the toxic garbage off their hands, at taxpayer expense, for far above market value. If I had a rusty car with no engine or tires sitting in my front yard, and the city (FDIC) cited me for it and said to move it, but I knew that if I let it sit and rust away long enough the county (U.S. Treasury) would come in and take it off my hands for 85% of its non-rusted, fully operational value, which option would I choose?


Timothy Geithner's Non-Recourse Gift That Keeps on Giving to Bill Gross: Treasury Secretary Timothy Geithner’s plan to rid banks and markets of devalued assets may be a boon for Pacific Investment Management Co.’s Bill Gross.

The plan may reward investors with 20 percent annual returns on “really ‘toxic’” mortgages bought at 45 cents on the dollar by allowing them to borrow six times their money with “non-recourse” government-backed debt, New York-based Credit Suisse Group AG analysts Carl Lantz and Dominic Konstam wrote in a March 27 report. That loan would be worth 15 cents to an investor seeking the same return who can’t use borrowed money.

Geithner’s Public-Private Investment Program, or PPIP, promises to boost prices enough to encourage banks, insurers and hedge funds to sell their mortgage holdings, freeing them to make loans while creating a potential windfall for investors. Federal Reserve Chairman Ben S. Bernanke said March 20 that “credit market dysfunction” is countering efforts to fix the economy.

My Comment: No, it`s Bernanke and Geithner`s et al's abandonment of any semblance of free markets and socializing of risk that`s hampering any economic recovery. But for government-connected "private" asset funds like PIMCO and its pimp-in-chief Bill Gross, bailouts are great business. Gross may end up making as much at taxpayer expense in the next few years as in his entire long career to this point. A kind of Daddy Warbucks of the financial crisis.


Kazakhstan's Biggest Bank May Fail After Bailout, Former BTA Chairman Says: BTA Bank, Kazakhstan’s largest lender, may fail after a state takeover, dragging down other large banks and leaving the state unable to rescue them from default, BTA’s ousted chairman said.

BTA’s failure would lead to ratings cuts for Kazkommertsbank and Halyk Savings Bank, Kazakhstan’s second- and third-largest lenders, triggering technical defaults and cross defaults and allowing investors to demand early debt repayment, Ablyazov said, adding that he owns a stake in BTA of less than 10 percent.

He said the banks would then have to restructure their debts, and that the state may not have enough money to support them.

...

“When the government stepped in, BTA needed a liquidity injection, but I’m sure they might have wanted to do it differently,” HSBC Bank Kazakhstan CEO Simen Munter said in an interview today. “The way it was done created a lot of acrimony.”

My Comment: If they need another liquidity injection, maybe they could get Borat to give them one of his trademark "liquid explosions".

[cheesehead]

Originally Posted by garo

And you agree with them saying that the deal to be struck may happen behind closed doors so we the public won't really find out if some super-duper deal goes on in the background and shows Germany which side their bread is buttered on. So we have no quantifiable way of knowing whether these anal-ysts will be right or wrong.

Re-examine what I wrote:

Originally Posted by cheesehead

We will see something new and front-page-worthy come out from Obama's visit to Turkey

By "front-page-worthy", I meant the sort of news story that is placed on front pages of newspapers. If we hadn't recently seen major newspapers going out of business, and if it weren't common nowadays to get our news from the Web, I would have phrased it, "We'll see a front-page story about something new coming out of Obama's visit to turkey."

What I'm referring to is something that will be a lead item in the news media in the next week, during or shortly after Obama's visit to Turkey. I wasn't trying to reserve the option that something in secret would be front-page news if only it could be revealed publicly.

I'd appreciate it if you'd stop being so suspicious of hidden meanings behind every sentence I write, and stop placing such unfavorable interpretations on my postings. I'm getting to the point that my fingers hurt after I'm typing keying for a while, so it's literally a pain to have to spell out all these things to counter your unwarranted cynicism, pessimism and paranoia. Try balancing with a bit of positive imagining in your interpretations once in a while.

(Note to readers: Will Garo exaggerate that last part to make it seem that I'm Pollyanna or I'm asking him to be? I hope not. I'm a moderate! and I'll keep proving that no matter how many times I have to beat someone on the head with it! Stay tuned. :-)

- -

Re: my references to secret negotiations --

Are you so naive as to expect that all good negotiations must necessarily be public, or that secret negotiations are necessarily evil? When a diplomat is trying to find an acceptable mutual bargain for two countries to accomplish something good and positive on each side, it still is legitimately desirable to negotiate in private so that each sides' options that may not be used in the final deal are not blared out for all to see.

Suppose the U.S. presents Turkey with a choice of any two of five things the U.S. could do for Turkey in exchange for Turkey's intervention in Iraq. Turkey selects two and the countries shake hands on it. It's not in the U.S.'s interest to have the three nonselected options publicly known, and may not be in Turkey's either. And all that could apply to a final deal that will be completely revealed to the public -- no covert stuff included.

[only_human]

Various things seem be stirring in Mexico. The biggest two items are the activation of an IMF Flexible Credit Line of 47 billion dollars and the drawing on a 30 billion dollar currency swap line with the U.S. Federal Reserve.
IMF Aid Boosts Mexico's Credibility (Forbes) and Mexico asks to tap $47 bln IMF credit line

The currency swap line was established in October last year and was set to expire at the end of April but was extended in February to the current end in October 2009.

3rd of April 2009
First drawing of the Federal Reserve swap line and auction from US dollar loan facility.
The Bank of Mexico announces that it will draw on its swap line with the Federal Reserve. This line was announced to the public on the 29th of October 2008 and will mature on the 30th of October 2009. The proceeds from the swap transactions with the Federal Reserve will be used to finance auctions of dollar loans to domestic credit institutions. The first auction will be held on the 21st of April for an amount of up to USD 4 billion with a maturity of 264 days. The Bank of Mexico will set a minimum interest rate based on the relevant Overnight Index Swap rate plus a spread of 50 basis points. While the maximum tenor of individual drawings under the swap line is 88 days, the Bank of Mexico stands ready to request additional draws from the swap line to fund the longer-maturity loans or, if needed, to use other sources of financing. The purpose of these loans is to provide financing to private sector participants who face pressures in obtaining term dollar funding.

The above quote from http://www.banxico.org.mx/sitioIngles/index.html this PDF: First drawing of the Federal Reserve swap line and auction from US dollar loan facility

Remittances are 3% down in February versus the previous February but not nearly the 12% hit that that January took: Mexican remittances fall 3 percent in February (AP/Forbes)

Other news is that the Drug war hits Mexican economy in crisis.

U.S. President Barack Obama will visit Mexico this month, and is sending high-tech gear and hundreds more agents to the border to fight the smuggling of drugs, weapons and cash.

I found this assertion surprising:

Tourists, a big source of foreign exchange earnings, are still coming to Mexico, attracted by the weak peso currency and most are so far unfazed by the drug violence. The number of tourists is up slightly so far this year despite travel warnings by the U.S. and Canadian governments.

Most Americans Concerned About Mexico's Drug Violence

A new Gallup Poll finds 79% of Americans saying they are concerned about "drug violence in Mexico," including 51% who are "very concerned."

I think it is fair to say that the U.S. is paying attention to Mexico at the moment as demonstrated by Secretary of State Hillary Clinton's visit last week and President Obama's visit scheduled this month.

[cheesehead]

"Fed 'extremely uncomforable' about bailouts"

http://news.yahoo.com/s/ap/20090403/...bi_ge/bernanke

CHARLOTTE, N.C. – While acknowledging that the Federal Reserve was "extremely uncomfortable" about last year's bailouts of big financial companies, Fed Chairman Ben Bernanke said Friday the central bank's strategy to ease the financial crisis is working.

Bernanke was referring to the Fed's unprecedented decisions last year to step in and financially back JPMorgan Chase & Co.'s takeover of then-troubled investment house Bear Stearns and throw its first of four financial lifelines to insurance giant American International Group Inc.


In remarks during a Fed conference in Charlotte, N.C., Bernanke said the central bank was forced to take action because the collapse of those companies would have dealt a serious blow to the financial system and the national economy.

.
.
.

[garo]

Well we got a surprise all right and a rather pleasant one and at the NATO/EU summits unlike the Stratfor anal-ysts predicted.

[cheesehead]

Garo, you're really out to put Stratfor in a negative light any way you can, right down to the consistency of your puerile-level punctuation of "analysts", aren't you?

What is the basis for that intense dislike? That they didn't publish the same line about Gaza that you did, or what?

I hope you're not going to repeat your argument that Stratfor is incompetent because its articles aren't encyclopedaic.

[garo]

Well, I just don't like their fear-mongering political agenda and posing as knowledgeable insiders with some insight into the shadowy world of realpolitik. Their condescending tone reminds me of The Economist. It has nothing to do with Gaza, my dislike (not intense but just normal) predates that conflict.

And there are precious few facts in their reports - generally just opinions which they prop up through constant allusions to "classified" information and "intelligence". In a word: HOGWASH.

Meanwhile, back to the thread topic, here is a defence of Stratfor's economic articles by its founder. Anyone who has been reading this thread and its predecessors carefully will see plenty of weasel words and basically a lack of honesty in being able to admit that they have no frigging clue as to the size of the problem. And yes you will have to evade the membership pitch yet again.

http://www.investorsinsight.com/blog...thodology.aspx

[cheesehead]

Originally Posted by garo

Well, I just don't like their fear-mongering political agenda and posing at knowledgeable insiders with some insight into the shadowy world of realpolitik. Their condescending tone reminds me of The Economist. It has nothing to do with Gaza, my dislike (not intense but just normal) predates that conflict.

And there are precious few facts in their reports - generally just opinions which they prop up through constant allusions to "classified" information and "intelligence". In a word: HOGWASH.

Thank you for your answer.

[garo]

You are welcome.

[ewmayer]

Barry Ritholtz summarizes some recent disclosures about the in-bed-with-Big-Finance-ness of top White House economic adviser Lawrence Summers:

Larry Summers: Wrong Man for the Job

I have been wondering why the new administration has continued carrying out the ruinous, misguided policies of the Bush administration when it came to the banks. I simply couldn’t figure out why the hell we were giving away trillions of dollars on absurdly favorable terms to a group of incompetent managers — reckless speculators, really — who destroyed their own companies.

Perhaps this helps shed some light:

“Top White House economic adviser Lawrence Summers received about $5.2 million over the past year in compensation from hedge fund D.E. Shaw, and also received hundreds of thousands of dollars in speaking fees from major financial institutions.

A financial disclosure form released by the White House Friday afternoon shows that Mr. Summers made frequent appearances before Wall Street firms including J.P. Morgan, Citigroup, Goldman Sachs and Lehman Brothers. He also received significant income from Harvard University and from investments, the form shows.

In total, Mr. Summers made a total of about 40 speaking appearances to financial sector firms and other places, with fees totaling about $2.77 million. Fees ranged from $10,000 for a Yale University speech to $135,000 for an appearance paid for by Goldman Sachs & Co.

The disclosure — in a financial report that is required for federal office holders — comes as Mr. Summers is involved in shaping the Obama administration’s policy decisions on the financial meltdown as well as the broader recession. Among the many decisions the economic team has wrestled with has been whether to step up regulation of hedge funds, one of the most contentious subjects during a summit of world leaders this week. European nations pushed for tougher rules, while the Obama administration preferred a less stringent approach.” (emphasis added)

Let’s review: Summers, along with Robert Rubin, pushed for the repeal of Glass Steagall, and supported the Commodity Futures Modernization Act; If memory serves, he was also around during the LTCM bailout.

If the history books eventually judge the Obama administration a failure, they may have to point to one horrific appointment as the root cause of the misguided policies: The “Smart Guy” who decided to continue the “Dumb Guy’s” policies.

My Comment: The mention of D.E. Shaw is interesting on a personal level: A couple years back I found myself on the receiving end of a high-pressure, very persistent recruiting pitch from an HR firm under contract to D.E. Shaw. As I have zero background in Big Finance and my only personal experience with the hedge fund industry is my purchase of a pair of Fiskars brand heavy-duty long-handled pruning shears a few years ago, you might well be wondering what D.E. Shaw's interest in someone like myself might be. The obvious guess, that they were looking for math/computation geeks for their quantitative analysis group, is incorrect - in fact, it was my silicon-modeling experience they were interested in. Apparently they had budgeted some outlandish sum (no amounts were discussed, but one can infer lower bounds from the nature of the project) to fund R&D on a custom-designed, super-secret proprietary supercomputer. Apparently even the massively parallel DoD Blue Gene and Earth-Simulator-style setups weren`t enough for these folks - they wanted something way beyond even those. Delusional? Perhaps. But it gives you an idea of just how flush with cash and full of itself the hedge fund industry was at the height of the credit/housing bubble. (On the other hand, it`s probably unfair to lump DES in with the rest of the hedge-fund rabble ... these guys appear to be playing the quant/hedgie game at a level well above most of the mere money-grubbing hedgies, the ones blowing up left and right since the post-RE-bubble recession started.) But alas, tantalizing as the lure of working for "most intriguing and mysterious force on Wall Street" may have been, I opted to pass, since the requisite level of Deep Cover would very likely have interfered with my blogging.


Larry Summers: Wrong Man for the Job, Part II

The fun never stops around here. Yesterday, we noted the rampant conflict of interest that Summers works under. The latest brick thrown thru the glass that was Larry Summers reputation: His oversight of the Harvard endowment:

“Back in 2002, a new employee of Harvard University’s endowment manager named Iris Mack wrote a letter to the school’s president, Lawrence Summers, that would ultimately get her fired.

In the letter, dated May 12 of that year, Mack told Summers that she was “deeply troubled and surprised” by things she had seen in her new job as a quantitative analyst at Harvard Management Co.

She would go on to say, in later e-mails and conversations, that she felt the endowment was taking on too much risk in derivatives investments, and that she suspected some of her colleagues were engaging in insider trading, according to a separate letter written by her lawyer that summarized the correspondence.

On July 2 Mack was fired. But six years later, the kinds of investments she allegedly warned about did blow up on Harvard. The endowment plunged 22 percent last summer, in part due to the collapse of the credit markets. As a result, the school is cutting costs and under criticism that it took on too much risk in its investment portfolio.”

As bad as that is, it gets worse: Despite of the confidential nature of the letter, Summers apparently forwarded the letter to her boss. She was fired soon after

Harvard’s endowment is down 40% since late 2007 — and that’s not counting its private equity investments, some of which are being shopped at 40 - 60% off listed value.

Mayo Says Bank Loan Losses Will Exceed the Levels Seen in Great Depression: Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight” rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.

U.S. stocks dropped after Mayo gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Mayo said in a report today.

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

The 46-year-old Mayo gained a reputation for independence at Frankfurt-based Deutsche Bank for his willingness to put a “sell” rating on banks and to criticize investors and companies for trying to curb objective analysis. At Deutsche, Mayo had “sell” or “hold” ratings on all 18 companies he covered, according to data compiled by Bloomberg. CLSA is an affiliate of New York-based Calyon Securities.

My Comment: That objectivity and skepticism is not appreciated by The Matrix ... LOL, 98 cents on the dollar! Only an idiot would pay pay even half of that for most of the garbage loan portfolios the banks are holding and refusing to mark down. Correction: only an idiot ... or a U.S. taxpayer, thanks to Terrible Timmay Geithner`s socialized-loss plan for the banks.

We now return to our previously scheduled irrationally exuberant financials-led stock rally...

[cheesehead]

Here's Stratfor's interim take after Obama's first speech in Turkey but before the end of the trip:

"Obama's Strategy and the Summits"

http://www.stratfor.com/weekly/20090...gy_and_summits