Econ 2009

[__HRB__]

http://www.reuters.com/article/topNe...edName=topNews

They have got to be kidding.

[ewmayer]

Originally Posted by __HRB__

http://www.reuters.com/article/topNe...edName=topNews

They have got to be kidding.

Maybe they're going to be building the Hondas and Toyotas the C4C buyers are going for...

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

Apparently for Bernie Madoff`s ex-mistress-cum-scam-victim Sheryl Weinstein, revenge is dish best served steamy:

Bernie Madoff wooed, then robbed me blind, ex-mistress Sheryl Weinstein claims in steamy book

Bernie Madoff may have been the biggest con man in history.

In the sack, not so much.

[please see above-linked article for all the naughty dirt-dishing ... this is after all a website for the whole family, gotta keep it semi-clean]

...Weinstein, who is still married to her husband of 37 years, Ronald, said she told a few friends about the affair.

They dubbed Madoff "Winky Dink" because he constantly blinked his eyes nervously whenever she was around.

My Comment: That`s in addition to Sheryl`s private nickname for him, "Dinky Dink"... definitely a hell-hath-no-fury moment, here, folks.


Bloomberg article on the Great Junk Rally of 2009:

Aug. 18 (Bloomberg) -- Anyone who did what Wall Street analysts advised last March has only losses after the biggest stock market rally in seven decades.

Citigroup Inc., Bank of America Corp. and more than a dozen other firms told clients to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. An investor who used $10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9 lost everything and would owe as much as $6,000 to cover bearish trades, the data show.

The recommendations didn’t work because companies with the worst earnings led the 45 percent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago. Securities firms that failed to foresee that the hardest-hit stocks last year would recover fastest steered investors to drug and energy producers, which have trailed the MSCI World Index by more than 22 percentage points, the data show.

My Comment: "Cash for Clunkers", indeed.


Bad banks -- They're baaack!: Seeking to lure more buyers at a time of intense distress, the FDIC has dusted off the oft-touted, but rarely used, plan of setting up bad banks. Will it work this time?

NEW YORK (Fortune) -- Facing mounting bank failures, regulators are putting a new twist on a familiar idea: splitting a bank's good assets from the bad ones.

The Federal Deposit Insurance Corp. said last month it would consider splitting the toxic assets of a failed bank from its more valuable parts, such as deposits and loans that aren't going sour.

The goal is to help the FDIC, facing the biggest wave of bank failures in almost two decades, find new buyers for the remains of failed banks while limiting losses on its depleted insurance fund.

"This helps us widen the net in marketing bank assets," said FDIC spokesman David Barr. "When you have the inventory we have, you look for different ways to try to sell it."

Thanks to the ill effects of the housing bubble, the FDIC certainly has the inventory. Barr said the FDIC had $26.5 billion in assets in liquidation at the end of July, with two-thirds of that in mortgages and real estate-backed securities.

Though the FDIC says it's having success in finding buyers for much of these assets, it is also trying to find ways to move inventory at better prices. In one program, the agency will provide financing to acquirers of troubled loans.

My Comment: Might that be no-money-down negative-amortization "teaser rate" financing the FDIC will provide, then? What a patently ludicrous proposal. FDIC, desperately trying to hide their own insolvency ... I never got how "Bad Banks" are supposed to be some magic panacea - let`s see, you take Third Ponzi Savings & Trust into receivership because it`s got a negative net capitalization, even with its massively optimistic "mark to fantasy" self-valuation of its garbage loan portfolio. No one wants to buy TPS&T because all the potential buyers have a clue as to the toxicity of said loan book and realize that they'll be lucky to get (say) half the bank`s stated valuation when all is said and done. So the idea is that you set up a "bad bank" which will pay "fair value" to take the bad assets onto its books and leave the rest in a now-solvent (possibly after an added capital injection from the government) "good bank" which you can sell. Sounds like just another shell game with bad debt to me, because there is no magic by which the whole is worth something different than the sum of its parts, and the crux of the issue remains that one still needs a quasi-fair-market valuation of the assets. The NY Times` Paul Krugman is similarly puzzled.


Digg Dialogg: Timothy Geithner: Digg has partnered with The Wall Street Journal for an exclusive interview with U.S. Secretary of Treasury Timothy Geithner. Alan Murray, Deputy Managing Editor of The Wall Street Journal, will be asking him the most popular questions as submitted and voted upon by you. From now until Thursday, August 20th at 12 Noon PT, you can submit and Digg up questions to decide which will be asked.

My Comment: Some of the user-suggested questions are simply hilarious:

zwendkos, on 08/17/2009, -117/+549
You failed to pay some of your federal taxes in 2001. And in 2002. And in 2003. And in 2004. Please explain.

sausman, on 08/17/2009, -57/+222
Cash for Clunkers: When consumer debt and the national debt are two of the biggest problems America faces, why is the government going deeper into debt in order to destroy working cars while at the same time enabling consumers to go deeper into debt to buy a new car?

boozedrinker, on 08/17/2009, -52/+134
Will you please tell us all where we can find the "evade" menu in TurboTax?

horatiod, 20 hr 17 min ago, -11/+62
Where did the 23.7 trillion go?

eviscero, on 08/17/2009, -30/+77
When did you first realize you have no idea what you're doing?

[__HRB__]

Originally Posted by ewmayer

Maybe they're going to be building the Hondas and Toyotas the C4C buyers are going for...

You wish!

The gummint owns the place. They're subsidizing both supply AND demand. I wonder how long it will take until it will become necessary to cut out the pesky middleman (a.k.a. the consumer).

[Uncwilly]

Originally Posted by __HRB__

GM raises production as "clunker" sales rise.

They have got to be kidding.

They were the company that had a hybrid fullsize pick-up truck and dropped it. It was to have had an option for AC plugs premounted on the bed. Hmm, a big battery with a nice inverter, a four-stroke engine with a full emissions package to run the generator/charge the battery, potential for strong on-demand 4 wheel drive (with great traction control), and mileage that would kick the Ridgeline in the tenders. Now, tell me, why didn't Honda worry about a potential slump in their generator sales? Oh, wasn't it GM that 'killed the electric car'?

[shakes head in disgust]
I was supposed to be routinely driving one of the hybrid Silverados. Instead, it is an F-150.

[ewmayer]

Couple of economic heavyweights come out in favor of mark-to-market valuations of banks` illiquid (a.k.a. "toxic" assets):

Scholes Says Banks Should Provide Fair-Value Data on Their Illiquid Assets: Myron Scholes and Robert Merton shared the 1997 Nobel price for economics, and they are now united in calling for banks to give more accurate valuations on their illiquid assets.

My Comment: The biggest, most highly-leveraged banks of course will fight this tooth and nail, because any realistic semblance of "market pricing" of their massive bad-loan portfolios would make it instantly obvious that they are wildly insolvent, a fact which the U.S. government is also doing everything in its power to obfuscate. Of course Mr. Scholes has some personal experience with highly-leveraged bets gone bad:

Scholes and Merton, together with the late Fischer Black, developed the Black-Scholes model of pricing options, or contracts that give the buyer the right to purchase a security or commodity at a later date for a specified price. Black died in 1995.

Platinum Grove Asset Management LP, the Rye Brook, New York-based hedge fund where Scholes is chairman, was forced to freeze investor withdrawals in November after a surge in redemptions. He was a partner in Long-Term Capital Management LP, whose $4 billion loss in 1998 set off a near panic in financial markets and prompted the Federal Reserve to orchestrate a bailout by 14 lenders.

Your $3 Trillion Credit Card Application Has Been Approved: We dare anyone to go to the bank and try getting a new credit card (with a limit anywhere between $50 and $5 trillion) by presenting this personal budget.


In other news (also from ZH), we now know who`s been bidding up the prices of all those industrial commodity metals.


The Wall Street Journal has an unintentionally-amusing headline this morning: Reluctant shoppers hold back recovery

Why don't they just come right and say it:

"Legions of unemployed mental-recession proponents blocking economic recovery".

[ewmayer]

9% of all home loans are delinquent: Mortgage lenders say the flood of foreclosures has not yet crested. Highwater mark should come this fall.

What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.

The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey.

My Comment: The NAR will probably spin this as a positive, because they will be able to continue touting the fact that "Over 90% of mortgages are current".That`s because once a default occurs and the property goes into foreclosure, there is no longer "a mortgage" on it - the mortgage magically disappears from the headlines statistics, similarly to folks who`ve given up looking for work or exhausted their unemployment benefits magically disappearing from the jobless statistics. Isn`t "new math" wonderful? Denninger has another one of great daily rants about this.

"Highwater mark should come this fall..." - ha, wait `til the Alt-A/pay-option-ARM time bomb goes off ... that slo-motion explosion is scheduled for 2010 and 2011. You think you`ve seen a 'tidal wave' of folks walking away and mailing their housekeys to the bank already? You ain`t seen nothin` yet.


Stocks in U.S. Advance After AIG Says It Will Pay Back U.S. Bailout Funds: U.S. stocks rose for a third day as American International Group Inc. said it expects to repay the government and data on manufacturing and economic indicators added to evidence the recession may be ending.

My Comment: Bwahahahahahahahahahaha - oh, that`s rich ... "Sure, we got that $182 billion we owe you - plus interest - right here in our back pocket..." Note they have no concrete plans or sudden increase in revenue which will actually *allow* them to pay back any significant chunk of the bailout money, but nonetheless "AIG jumped 31 percent to $34.93 after [new AIG CEO Robert, who was on a plane to his first vacation before the ink on his compensation package was even dry] Benmosche said in an interview in Croatia that 'at the end of the day, we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.' "

So, at the end of which day might that be exactly? Shall we say Friday after next? And don`t forget to keep enough for that fat dividend you just promised your shareholders. Man, y`all must just be swimming in profits.


Nice article for John Makin at the American Enterprise Institute (linked via ZeroHedge) on China`s Bogus Boom - here are some of the crucial snips, highlights are mine:

Once China had announced its 8 percent growth target, it began to disburse funds directed at a sharp increase in public works spending. It is important to understand that the disbursal of funds is recorded as GDP growth. So the government can easily control the pace of growth by the pace at which it releases funds that have already been allocated in the stimulus package to the creation of higher production or growth numbers. Funds disbursed for fixed-asset investment by state-owned enterprises or provincial governments are counted as having been spent when they are disbursed. In fact, the funds go out to the state-owned enterprises and provincial governments and may be held until actual projects are identified and undertaken.

The same convention, counting production and shipments as de facto outlays by end-users, is employed with respect to retail sales data in China. Shipments to retailers are counted as retail sales [ewm: I.e. *immediately counted as 'sales'] on the apparent assumption that ultimately all goods shipped will be sold at some point in the future.

It appears that Chinese policymakers are experiencing difficulties in prompting total spending to match their ambitious growth targets implied by a production growth target of at least 8 percent, and so they have allowed a rapid surge of money and credit at midyear. The resulting flood of money has—somewhat counterproductively—flowed into stocks, property markets, commodity stockpiles, and consumer durables (with the help of special incentives for purchases of durables). There are anecdotal reports of Chinese households buying washing machines that were aggressively shipped and counted as retail sales during the first half of the year. However, many of the households that purchased washing machines, or were virtually given such machines, have found them unusable because their homes lack either the running water or electricity (or both) necessary to make use of a modern appliance

Speculative flows into Chinese stock and property markets have become so intense that authorities fear any abrupt cessation could burst the equity bubble, especially given that the state-owned enterprises and other recipients of stimulus funds have purchased stocks themselves rather than leaving funds idle until they can be disbursed for actual projects and have already been counted in GDP data as having been undertaken. China’s State Council apparently has decided to overrule those at China’s central bank—the People’s Bank of China—who are worried about the bubbles and to keep the party going with continued rapid money and credit growth.

The big risk from higher inflation in China lies with the problems faced by typical Chinese households with wealth storage. Chinese households save a high portion of their income because they have to provide, on their own, for health care, retirement, emergency outlays, and other needs that are provided by governments in most advanced economies. Typical households have limited alternatives beyond stock-market and property speculation as ways to preserve wealth in an environment of rising prices.

The consensus forecast, including that of the U.S. Federal Reserve, that U.S. growth will pick up in the second half of the year, along with optimism about growth in other industrial countries, has probably convinced the State Council to keep pushing along the growth path in the hopes that a resumption of export growth, or at least a moderation in its slowdown, will make it possible to achieve the 8 percent growth target without risking an inflation rate that is too high. That said, there is little evidence in the U.S. data that second-half demand growth will be sufficient to produce a positive growth rate for the economy as a whole. Rather, it looks like second-half U.S. growth may average around –2 percent, as opposed to the consensus figure that is closer to 1 percent. Meanwhile, there are no signs of a rapid pickup in European growth, and Japan’s growth forecasts are being scaled down for the second half of the year as capital expenditure weakens sharply and exports continue to languish.

My Comment: It sounds like Chinese central planners are making exactly the same disastrous mistake the Greenspan Fed did in the early 2000s - In an attempt to ward off the recessionary effects of the bursting of one bubble (in the U.S. it was dot-com, in China it`s export growth - which of course was enabled by the Greenspan EZ-credit bubble encouraging Americans to go into hock as never before by buying e.g. Chinese-made goods they didn't really need and bidding house prices up to the moon) they are blowing an even bigger one. As with the U.S. housing-and-credit bubble, this misguided experiment in central planning of the Ponzi variety will end very badly.

[ewmayer]

Government Jobs Have Grown Since Recession

While the private sector has shed 6.9 million jobs since the beginning of the recession, state and local governments have expanded their payrolls and added 110,000 jobs, according to a report issued Thursday by the Nelson A. Rockefeller Institute of Government.

The report, based on an analysis of federal jobs data, found that state and local governments steadily added jobs for eight months after the recession began in December 2007, with their employment peaking last August. State and local governments have since lost 55,000 jobs, but from the beginning of the recession through last month they gained a net of 110,000 jobs, the report found, in part because of the federal stimulus program.

Government jobs are always more stable than private sector jobs during downturns, but their ability to weather the current deep recession startled Donald J. Boyd, the senior fellow at the institute who wrote the report.

“I am a little surprised at the fact that state and local government has remained as stable as it has in the nation as a whole, given the depth of the current recession,” Mr. Boyd said in an interview.

The report offered several possible explanations for the disparity between the private and public sectors. It noted that there can be a short lag between an economic downturn and the time it hits states in the form of lower tax collections, and an even longer delay before the problems hit local governments in the form of reduced state aid and lower property tax collections.

It pointed to the slow pace of decision-making in many states, and the power yielded by politically influential unions. But it also noted that the demand for many government services rises in a recession, and said that billions of dollars of federal stimulus money sent to states helped them avert layoffs.

The expansion, coming as many states and localities are raising taxes, troubled Tad DeHaven, a budget analyst for the Cato Institute, a libertarian research group in Washington. “That is disturbing,” Mr. DeHaven said. “Basically what you have is your producers in society losing their jobs and looking for work, and their tax burden isn’t necessarily going down — and as a matter of fact they are likely to face tax increases going forward — and government growing.”

My Comment: Bloated government bureaucracies ... absolutely the last place one wants to see "stability" and "jobs growth". But like all good parasitic self-regulating metastases, they only know one thing ... keep growing and diverting more of the blood supply until you kill the host. The twist with state government being that instead of the host simply dying and thus ending the rot, the host can run to Uncle Stupid and beg for bailout money, which is in effect a "hidden tax increase" to make up for the overt ones the states can no longer convince their citizens to grant them.

Kerry Korpi, the director of the research and collective bargaining department at the American Federation of State, County and Municipal Employees, a union representing government employees, said the public sector often lagged behind the economy in both downturns and recoveries. Ms. Korpi said that a growing number of government jobs were being eliminated now, and that many government workers had been forced to take pay cuts and pay more for benefits. And she noted that government workers were providing services that are needed in a downturn.

“At a time like this,” she said, “it’s really hard to lay people off at your unemployment office or your food stamp office, where they’re having trouble keeping up with what they’ve got.”

My Comment: Suuuuure it is ... but I have the strangest feeling that the AFSCME doesn't find it any easier to lay all the presumably-superfluous workers off during good times. Let me guess, during good times the party line is "It's really hard to lay people off when tax revenues are increasing."

[garo]

Ernst, sorry to take your thunder away but this is priceless. Multiple MotWee award winner Lawrence Yun nails it again this week with this quote:

"The housing market has decisively turned for the better. We are bouncing back," NAR chief economist Lawrence Yun told reporters.

Meanwhile the inventory of homes for sale increases 7.3% too.

[Fusion_power]

and the unemployment rate in california finally tweaks to the 12% range. Wow, what some people will do to claim things are 'on the uptrend'.

Ernst, hope you are not one of the casualties of this economy!

DarJones

[ewmayer]

Garo, nice call on chief NAR shill Yun ("There are no foreclosures in downtown Baghdad! Never!!") - we are always happy to accept MotWee nominations from the floor.

Fusion, no, I am not (yet) among the ranks of CA unemployed (or should I say "future v-shaped recovery providers"?) ... thanks for asking. It just sucks being a bear in this investment "climate", is all. You don't want to go long because you know the rally is based not on fundamentals but on delusional hope and Fed-supplied free liquidity crack, but if you dare go short you find yourself on the opposite side of the trade from the Great Unlimited Fiat-Money-Printing and Bubble-Blowing Machine and the mainstream media which are at its beck and call. And even if you are right about the economy or some particular sector (e.g. banks, housing), our bailout-happy government immediately takes any semblance of free-market dynamics out of the equation by throwing another couple hundred billion $ of magic fiat money at the problem, and kicking the "having to deal with the underlying rot" issue down the road another couple months or years.

Sure, you could stay in cash for the next few years, but there are 2 things which make that unattractive:

1) The government's money-printing is having the effect of debasing the dollar, even if (due to ongoing credit and paid-for-with-credit wealth destruction) there are no signs of runaway inflation yet ... except in the equity markets, which is where most of the government money-print is going, since the Fed can create credit & money but can't force people to go to their local bank and borrow it;

2) When the next leg of the collapse comes, you'd never forgive yourself for having done your homework about fundamentals (which convinced you that more pain was inevitable, with the only question being one of specific triggers and timing) and yet not having profited one whit from it.

It may be fun being a genuine salmon-and-berry-eating bear, but being a metaphorical one is very tough. I think I have an idea of how the mythical Cassandra must have felt.

[R.D. Silverman]

Originally Posted by ewmayer

It may be fun being a genuine salmon-and-berry-eating bear, but being a metaphorical one is very tough. I think I have an idea of how the mythical Cassandra must have felt.

And we also have additional bits of lunacy coming from the courts.

I heard on the news this morning that 6 Flags (in bankruptcy) is
being bought out by a number of banks (who will acquire at least
some of the existing debt). No surprise here.

The lunacy is that the courts agreed to some $5million in bonuses
being paid to senior 6 Flags executives...

This is nothing more than legalized theft.

Has everyone taken leave?