Econ 2009

[Fusion_power]

Garo,

If you run the numbers, the apparent unemployment is now 17%. I can make a pretty good argument that this number is still a bit low because of the way it is tallied. Regardless, we now have 1 in 5 Americans in the ranks of the jobless.


Today we saw another round of banks closed. This takes us to 51 so far in 2009. You might ask yourself why Canada has had very few banking problems in this recession. The answer lies in the rules that the Canadian banks have to operate under. They are much more conservative and stringent than U.S. banking rules. Why can't we revise our banking structure similar to Canada?

DarJones

[garo]

I agree completely that the figure of 17% may well be an underestimate. This is in part due to the ridiculous birth-death model used by the Bureau of Labor Statistics. Mish at Global Economic Trend analysis has been writing about this for a while. http://globaleconomicanalysis.blogsp...ght-month.html

Why the US banks are not subject to the same rules as Canadian banks is due at least in part because of regulatory capture. The agencies that were supposed to regulate financial markets and banks began to see the interests of those they had to regulate as their own interests.

In the meantime, while Ernst is away, a few more fistfights are brewing in the financial blogosphere. Taibbi had an excellent follow up to his earlier piece about the meltdown this time pointing the finger at Goldman. You can see the text of his article here:
http://forums.somethingawful.com/sho...2&pagenumber=1
Goldman replied by dismissing him as a "hysterical" conspiracy theorist to which he wrote a rebuttal. http://trueslant.com/matttaibbi/2009...dman-a-chance/
And this just in, a TV interview: http://watch.bnn.ca/the-close/july-2...09/#clip189690
Of course you can't have him on CNBC so it is for the Canadians to provide him with a forum

Meanwhile, those who have been following this thread know that Tyler Durden over at Zero Hedge has been posting on Goldman Sachs Program Trading Activities for a while.This has resulted in NYSE deciding to stop publishing Program Trading information
http://www.zerohedge.com/node/11769

At the same time Tyler also wrote about a disclaimer for clients using some Goldman Sachs software which allows GS to monitor client trades in real time and potentially front-run them.
http://zerohedge.blogspot.com/2009/0...ero-hedge.html
which again brought a response from GS.

I think a major PR problem for GS is brewing which might actually get people to start investigating their activities seriously. Except that the people with the power to investigate them are invariable Goldman alums.

Meanwhile Dennis Kneale of CNBC has picked a fight with all the financial bloggers of the world. He says the recession is over and only these negative bloggers are keeping the economy and our mood down.
http://zerohedge.blogspot.com/2009/0...nt-let-go.html

[garo]

http://blogs.reuters.com/felix-salmo...hernan-arbizu/

[Fusion_power]

There are 3 significant drivers to our economy today.

1. Housing industry declines

The housing industry continues to report price declines. The most recent data suggests an average U.S. wide decline just under 5% for the first quarter of 2009. While this is less rapid than the last quarter of 2008, there is still no end in site. Based on historic trends, we could see a further loss of about 20% U.S. wide with some locales losing as much as 80% more. Significantly weak markets include Detroit Michigan and most of Florida.

2. Unemployment (a function of general malaise in the manufacturing sector)

Unemployment is currently running at about 17%. Official figures are about 9.5% but do not include several categories as per discussions above. The underlying cause of unemployment is an ongoing loss of manufacturing capacity triggered by the rapid loss of demand across most industries.

3. Energy market disfunction

This is caused mostly by speculation. Money on a world wide basis is flowing into energy futures as people gamble on rising prices. Sudden drops hit as the broad economy suffers the effects of unemployment increases and other destabilizing concerns. The instability of the energy market will continue until the housing and unemployment situation stabilizes. This will take at least another year and full recovery may take 20 years or more.

There is no way to accurately guess when the market will bottom. At this point, a decline of 20 to 25% is highly likely within the next 3 months. Can you say 6000 on the dow? Ignore the advice of the ballyhoo pundits, they will continue to talk about green shoots and recovery as the economy slides further down the drain. The reality is that this one will be the longest market decline since the great depression and before it is over, may be even worse

DarJones

[Fusion_power]

unemployment numbers are in the news today with a report of a sharp drop in new claims for unemployment to 552,000 compared to the expected level of about 605,000. Just raw math says that is about 10% fewer claims than were expected. Now does this deserve the ballyhoo and whoopla in the headlines? I don't think so. The numbers are still 'seasonally adjusted' and they are still a MAJOR increase in overall unemployment. In fact, unemployment claims went up to 6.88 million an increase of about 9%.

We can anticipate ongoing job loss over at least the next year. There are no green shoots folks, there is no recovery on the horizon. There might be a glimmer in someones eye, but that is probably sun glinting off their bifocals.

There are times I would love to boil media pun-ditz in oil for being stupid. Unfortunately, stupidity is not illegal.

DarJones

[Fusion_power]

GM emerged from bankruptcy today in one of the most startling changes imaginable. How so? Well, with the stroke of a pen, $100,000,000,000.00 in debt and equity was wiped out. A 101 year old company was trimmed and pruned into a ghost of its former self. If you happen to be one of the unlucky stock owners, you now have worthless pieces of paper to paste on your walls.


DarJones

[garo]

Expect to see many more of these events in the coming years.

[cheesehead]

Such things are better carried-out promptly rather than dragged-on.

- -

This morning's Milwaukee Journal Sentinel headline article is about lenders abandoning foreclosures -- that is, after getting a foreclosure judgment, sometimes a lender will decide it doesn't want to take ownership of the property after all. This may lead to the following sequence:

lender gets foreclosure judgment and sends notice to the homeowner,

homeowner figures he's going to lose the house, stops taking care of it, and moves out,

lender changes mind, doesn't follow-through by taking ownership, and (just to be nasty) never notifies the homeowner that they are abandoning foreclosure and that the homeowner still owns the house,

the vacant house becomes vandalized and/or stripped of fixtures,

eventually the still-homeowner finds out he's still responsible for taxes, upkeep and mortgage on his abandoned house, plus even the demolition cost if it has been bulldozed.

So, "walkaway" can now be performed by either party -- the homeowner before foreclosure notice, or the lender after suing for foreclosure, but failing to take title.

From my paper today:

Originally Posted by Milwaukee Journal Sentinel, page 12A

. . .

"This is just the meanest and nastiest thing (lenders) could do", said Catherine Doyle, chief staff attorney at the Milwaukee Legal Aid Society. "Even more profound is the terrible damage to the community. All of us are going to have to bail them out."

. . .

The Journal Sentinel found more than $400,000 in back taxes, fees and demolition costs owed on nearly three dozen properties that lenders foreclosed on in the past two years but didn't complete the process. Three more have been condemned and are scheduled to be bulldozed at an estimated cost of up to $15,000 each.

Here's a link to the online article:

"Lenders abandoning foreclosed properties"

http://www.jsonline.com/watchdog/wat.../50548282.html

[cheesehead]

"GOP unifies against any more stimulus spending"

http://news.yahoo.com/s/ap/20090713/..._obama_economy

Well, of course -- Republican leaders have proudly and publicly declared that they want Obama to fail.

They're complaining that the current stimulus plan has "failed" because it hasn't had enough effect -- hasn't turned the economy around on a dime. (Of course, they want you to forget that excessive conservative laissez-faire toward derivatives is what got us here in the first place.) They complain that not enough of the existing stimulus money has been spent already. So, it naturally follows that they'd want to spend more stimulus money sooner ... uh, that is, block any more stimulus money from being spent ... yeah, that's it -- block any more stimulus.

Mainstream economic wisdom is that the reason the Great Depression dragged on so long is that there was not enough of a government-sponsored stimulus.

I've recently seen conservatives maintain that the reason the Great Depression was so long is that there was too much spending, and proudly point to the fact that it took World War 2 to end it. But, as others besides me have pointed out, it was precisely the vastly expanded government spending for war preparation as WW2 got going that finally got our economy thriving again!!!

Some conservatives would love to see our economic recession drag on and on, purely for political purposes. They also will keep beating the anti-Obama drums as long and as loudly as they can.

... because conservative think tanks figured out in the 1970s that in order to regain political power after the Watergate debacle, conservatives would have to abandon some of their previously-held economic principles such as balancing the budget, incessantly call for tax cuts to redistribute wealth from the lower- and middle-income families to the upper-income families (and -- bonus! -- be able to yell the simplistic cry "They're raising taxes!" over and over again during all Democratic attempts to regain fiscal balance and responsibility by simply restoring taxes to their pre-unsound-cut levels), and adopt certain rhetorical "framing". This disgusts me. It preys upon the public's general low level of economic understanding (rather than trying to improve it), and it's fundamentally dishonest.

I know that there are many conservatives who have not abandoned the pre-1970s economic principles, but they have not held power within the GOP for thirty years.

[ewmayer]

Originally Posted by garo

Taibbi had an excellent follow up to his earlier piece about the meltdown this time pointing the finger at Goldman. You can see the text of his article here:
http://forums.somethingawful.com/sho...2&pagenumber=1

Nice...his description of GS as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" has got to be one of the best financial-markets lines ever.

---

"Confused" Investors bid up GM Common Stock

A Stock With Bounce: Investors Stick to G.M.

Shares in “General Motors,” the company says, are worthless. But many investors apparently have missed the message.

G.M.’s stock, which now represents the company’s bankruptcy estate, continued an improbable rise in price on Friday, prompting concern by company officials and securities regulators that investors are confused.

The stock, which trades under the ticker symbol GMGMQ, gained as much as 43 percent on Friday, after G.M. announced that it had completed the sale of its assets to an entirely new company. Nearly 75 million shares traded hands until the securities industry’s self-regulator, Finra, halted trading at 2:09 p.m., citing “extraordinary events.”

The stock closed at $1.15 a share, up 31.3 cents, or 37 percent, for the day, giving the bankrupt company a market value of $702 million, up from $512 million on Thursday.

“This certainly has all the hallmarks of market manipulation, but it’s very hard for the S.E.C. to prove,” said Peter J. Henning, a law professor at Wayne State University in Detroit. “Someone made a lot of money here.”

...

It is not uncommon for public companies that have filed for Chapter 11 protection to maintain stock listings, and a small market remains for shares in Lehman Brothers, Delphi and others. For some companies, those shares could regain real value some day. Some companies are able to retain enough value in their reorganizations that equity holders, who are last in line for repayment under the federal bankruptcy code, can gain some recovery when they emerge from bankruptcy.

That is not expected to be the case with Motors Liquidation. As part of G.M.’s reorganization, bondholders — the next rung up from shareholders — were asked to take a large cut to their investments’ value, all but ensuring stockholders would receive nothing.

My Comment: See my post of 01 Jun, the day GM filed Chapter 11 and its common shares promptly rocketed from a post-announcement low of 25 cents to nearly a dollar. Since then the common has consistently traded above a dollar. Not bad for a guaranteed-to-go-to-zero issue. Perhaps the herd of delusional Greater Fools is even more vast than supposed, but one thing is guaranteed: There are folks making a lot of money from the price fluctuations.

[ewmayer]

Originally Posted by only_human

Various things seem be stirring in Mexico. ...
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)

A recent USA Today article notes that remittances from Mexican migrants (both legal and illegal) in the U.S. back to Mexico dropped an unprecedented 20% in May, so January and February appear to have been but brief respites:

With USA in a recession, rural Mexico feels the pain

PACULA, Mexico — Not long ago, this remote Mexican mountain town was in the middle of a construction boom — as families proudly built their American-style dream homes, using cash sent home by relatives working in the USA.

Work on those houses has stopped, leaving shiny steel rebar jutting awkwardly out of concrete walls all over this town of 4,500. Meanwhile, residents have been forced to cut back on staples such as rice and corn. Eggs, meat and milk are now out of reach for many families.

"Thank God, we haven't had anyone die of hunger yet," says Jesus Tello, 63, a farmer. "But things are getting harder and harder. People are living on beans."

Across Mexico, desperation is increasing among the millions of families who depend on money sent home by relatives in the United States. Those money transfers suffered an unprecedented drop in May, falling 20% — to $1.9 billion — compared to the previous year, according to the Bank of Mexico. That's because the recession has left many migrants unable to find jobs in the USA, especially in construction.

The consequences have been particularly devastating in rural towns such as Pacula known as pueblos fantasmas — or "ghost towns" — because so many men have left to work in the United States, often illegally.

It's mostly women, children and the elderly who remain in Pacula, which lies roughly 100 miles north of Mexico City. About 80% of households here rely on cash transfers, also known as remittances, for basic needs such as food and clothing, Mayor Olga Hernández says. "People are just living day to day," she says.

The market permaBulls found their Green Shoot of the day in the better-than-expected Intel earnings ... maybe a lot of those recently and soon-to-be-unemployed folks are buying laptop PCs to allow them to continue online job searching once they've been evicted from their homes. ;) (Less facetiously, Karl Denninger's dissection of the Intel earnings report is here - his takeaway is that Intel beat based on aggressive cost-cutting and a one-time China stimulus bounce, but nothing in the earnings report points to an economic recovery scenario). Computer giants Intel and Dell gave wildly divergent guidance, Intel was bullish and Dell was bearish. 3 guesses as to which of the 2 got ignored by the party crowd at the Wall street trading desks.

The ever-enlightening ZeroHedge reader known as RoboTrader gives his hilarious (and quite insightful) take on today`s cocaine-binge market action:

ZeroHedge: Stop Trading!

Wire-to-wire meltup, reminiscent of 1999. Thanks to that old, worn-out Supermodel INTC uttering something about back-to-school sales? Just like Kathie Lee Gifford, who occasionally comes out into the daylight after a facelift and a breast lift to remind everyone that she's still marketable.

Reminds me of the good old days when Goldman used to recruit Dan "The Greaseman" Niles to come out and issue his infamous "chip sales have bottomed" or "second half v-shaped recovery" call to goose the Nasdaq. By the way, why is it that anyone with a dot on his forehead wearing a turban is deemed to be an expert on tech stocks? What was The Greaseman's real name? Probably one of those names with 14 consonants and only 3 vowels that nobody could pronounce.

The wire-to-wire run today was easily telegraphed when Amanda Drury on CNBC Asia last night teased the audience by unbuttoning her blouse. Followed by both Erin Burnett at CNBC and Alexis Glick on FBN this morning, both showing cleavage. Too bad Michelle Caruso-Cabrera had her ICBM warheads constrained by what looked like a cable sweater reinforced by kevlar. Unfortunately Becky Quick also jumped into the mix, but her bare chest was so white, pasty, and flat, it looks as if you were peering at the bottom of an old bathtub from an apartment in N. Hollywood.

By the way, anyone see Contessa Brewer and Dylan Ratigan on MSNBC last night? Looks as if they were both within a hairsbreadth of rushing off the set to head to the nearest hotel room.

Sure looks as if Goldman Sachs is intent on making another $3.4 billion this quarter, by blowing up thousands of hedge funds getting caught offsides. Just look at how they were hacky-sacking the SPY in between the 50-day and 200-day, keeping things fairly predictable. Then the clotheslined the averages below the 50-day to get the Program Robots to trigger a massive sell program, and they pinned it there for several days. Then in just 3 trading days, they nearly overtook both the 50-day and 200-day in one fell swoop.

http://bigcharts.marketwatch.com/quickchart/qui...

Wild squeezes going on today, especially among the credit card plays:

http://clearstation.etrade.com/cgi-bin/bbs?post...

Looks like the whole world was gunning the oft-discussed, widely-predicted "Shampoo Breakdown" aka head and shoulders move back to the March lows.

Banks were also on fire. Check these intraday charts out, they look totally "natural", like one of those La Cienega Blvd. waitresses/actresses with her breast implants mistakenly put in upside down by an Iranian plastic surgeon advertising in the LA Weekly:

http://clearstation.etrade.com/cgi-bin/bbs?post...

Now I see Maria Bartiromo screeching on CNBC with less than a half hour to go, she's wearing a red blouse with two buttons beckoning to be unbuttoned. Maybe she'll let them loose when we are up 400 points. Or maybe she will wait until we get the all clear from Bill O'Neil's when we get the next "follow-through day".

In some non-earnings-blippish macroeconomic news, another Green Shoot is withering due to lacking of fisacl irrigation capacity:

Credit-Market Rally Reverses as Investors Question Whether Growth Reviving: The record credit-market rally of 2009 engineered by President Barack Obama and Federal Reserve Chairman Ben S. Bernanke is starting to reverse as optimism erodes that the economy is poised to recover.

My Comment: "Engineered" being the operative word, since there is absolutely no "natural" reason for a revival of the credit markets in the absence of any tangible macro-economic rebound. "Slowing contraction" != growth.

...And in consumer-finance news, the U.S. is officially a nation of credit deadbeats (big surprise there, eh?):

You knew things were bad in the credit department, but now there are some new numbers to back it up: We’re collectively about 27% riskier credit bets than we were a decade ago, according to the TransUnion credit bureau. The firm’s national Credit Risk Index for the first quarter of this year clocked in at 127.3 compared to the 1998 start-point of 100. The index is based on the average weighted probability of 90-day delinquencies on mortgages, auto loans and credit cards.

TransUnion’s global chief scientist Chet Wiermanski didn’t even try to position the latest reading as a green shoot. “…(T)he index remains at an all-time historical high,” he commented, “indicating that delinquencies and foreclosures will continue to rise in the coming months.”

The five states that pose the biggest credit risk, according to TransUnion:

• Mississippi (Credit Risk Index of 166.45)
• Texas (162.59)
• Nevada (158.97)
• South Carolina (158.76)
• Louisiana (153.84)

The least risky states:
• North Dakota (82.02)
• Minnesota (88.53)
• Vermont (91.82)
• South Dakota (94.75)
• Iowa (95.26)

The high/low credit risk lists might suggest a new Weather Channel indicator: Is there something about cold-weather winter states that engenders better credit management? Okay, okay, what’s really at play is of course something more down to earth, like jobs. All five of the lowest-risk states have unemployment rates below the 9.5% national average.

My Comment: Fitting that Texas - i.e. Dubya Bush, guns-n-ammo and Who shot J.R.? country - is near the top of the worst-of list. However, fear not - I doubt this dire news of the financial state of hoi polloi will trickle up and negatively impact the funding campaign for the G.W. Bush Presidential Library, 3-D "Bombs Away!" War-Footage Cinema Megaplex and Economic Holocaust Memorial Museum.