Treasury International Capital Flow Stats

Posted By on August 27, 2010

By Brian Pretti on Fri, 27 Aug 2010   

The most important information in the Treasury International Capital flow stats concerns equities. Have a look at the chart below. To the point, the top clip of the chart is the twelve month moving average of foreign purchases of US equities. Clearly there is cyclical rhythm here. In the bottom clip we are looking at the same data with the history of the S&P overlaid. I’m sure you can guess where I’m going with this.

foreign purchases of us equities

Again, right to the point, at least over the last decade, the foreign community has virtually a perfect track record in top-ticking US equity prices when using the 12 MMA data. And of course the reason I am bringing this up right now is that we may have reached yet another important cycle peak in foreign purchases of US equities. We’ll have to see what lies ahead, but as of now the May-June period of this year was the first very meaningful downtick in the 12MMA numbers for foreign purchases of US equities for the current cycle post the May 2009 US equity market bottom. This peak is clearly seen in the clip above. To show you how important this has been over time and why we need to sit up and take notice of this data right now, the following table goes back a few decades and quantitatively recounts what has happened to S&P price only performance in the three, six, nine and twelve month periods after the 12MMA of foreign purchases of US equities has peaked. Have a look.

s&p price only performance table

www.financialsense.com

Robert Shiller Says Double Dip “May Be Imminent”

Posted By on August 27, 2010

08/27/2010

The WSJ’s Simon Constable interviews Robert Shiller.  He says that an economic double dip may be “imminent.”   Shiller also believes that when the NBER looks back at the data, Q3 of this year will mark the beginning of the second dip of the recession. Ironically, since up to now the previous recession has never actually officially ended according to the NBER, it will merely confirm that the recession which started in December 2007, will have continued for three years, in what is possibly the longest recession on record. Furthermore, those looking to sell houses are advised not to listen to the interview, as the co-creator of the Case-Shiller Home Price Index also added that he is worried housing prices could decline for another five years. He noted that Japan saw land prices decline for 15 consecutive years up to 2006. Following up on this week’s weakest new home sales data in history this should probably not come as a big surprise to most. This is a 20 minute interview about the new normal.

Please click here to listen to this video…………..Robert Shiller

One In 10 Mortgage Holders Face Foreclosure

Posted By on August 26, 2010

Modest is putting it bluntly…..There was some modestly encouraging news. The percentage of mortgage borrowers receiving foreclosure notices fell slightly to 4.57 percent in the April-to-June quarter.  Government efforts haven’t made much of a difference. Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration’s main mortgage-relief program have been cut loose through July, the Treasury Department said last week. The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments.  Roughly 32 percent of those who started the program have received permanent loan modifications and are making their payments on time.

 
         08-26-2010
         By ALAN ZIBEL

WASHINGTON — One in 10 American households with a mortgage was at risk of foreclosure this summer as the government’s efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

The number of Americans missing payments and falling into foreclosure has followed the upward trend in unemployment, which has been near double digits all year and has shown no sign of dropping soon.

“Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story,” Jay Brinkmann, the trade group’s top economist, said in a statement. “Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers.”

There was some modestly encouraging news. The percentage of mortgage borrowers receiving foreclosure notices fell slightly to 4.57 percent in the April-to-June quarter. That’s down from 4.63 percent in the January-to-March period and the first drop in four years.

Entire article at:  http://www.msnbc.msn.com/id/38864587/ns/business-real_estate/

Just How Important Are Labor Costs…..Answer: Very!

Posted By on August 26, 2010

One reason of many for a tough road ahead…..        From JPM……The latest profit recovery (the three red dots) is reliant on declining labor costs like none before it. A profit recovery whose foundation is so reliant on sustained high productivity and low real wage growth should not command a very high P/E multiple.
 
A recent JPM report points out, “the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it.”

More from JPMorgan:

These deflationary trends surface some important questions about corporate profits, which have beaten expectations for the last 5 quarters. As shown below, a proxy for profits (nominal GDP growth less unit labor costs) is growing at a healthy clip, which usually indicates recovery rather than recession. But let’s decompose this profit proxy for a moment, looking specifically at periods when it’s rising faster than 5%. Most of the time, a profit proxy of 5% or more reflects healthy nominal GDP growth in excess of still-rising unit labor costs. But the latest profit recovery (the three red dots) is reliant on declining labor costs like none before it. A profit recovery whose foundation is so reliant on sustained high productivity and low real wage growth should not command a very high P/E multiple.

More at:  http://www.zerohedge.com/article/profit-recovery-driven-plunging-labor-costs-explains-why-pe-multiples-will-remain-depressed

Illinois Retirement Funds Selling Assets To Pay Benefits

Posted By on August 26, 2010

The Canary in the coal mine.     Sounds like a bad situation is setting itself up here…… We went over some of this just a few days ago……It’s an unfolding disaster…. Illinois Teachers’ Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.  Looks like other Illinois retirement funds are planning to do the same.  My question is…..how do they ever get this money back.  It won’t likely be from the stock market, nor in real estate…..so where is it going to come from?    Auh, the government!  They’re going to support or bail out everything and everyone………except the conservative and prudent will get nothing but a poke in the eye!   And if they think changing investment managers will save them, dream on.  Most are only as good as the economy!

Jim Sinclair’s Commentary

The reason for this is the quiet disaster. The major losses in retirement program investments is twofold:

1. The legal liability that the managers of pension funds absolutely have as compared to your average whacked hedgie.

2. The fact that for decades pension funds have been Wall Street’s circular file for junk.

Illinois Teachers’ Retirement System selling off $3B to cover benefits
By: Barry B. Burr

(Crain’s) Illinois Teachers’ Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.

The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.

Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments from its $12.2 billion defined benefit fund this fiscal year to raise liquidity to pay benefits to participants.

The Illinois State Board of Investment, Chicago, could sell $840 million investments from its $9.9 billion fund to pay benefits of the Illinois State Employees’ Retirement System, Illinois Judges’ Retirement System and Illinois General Assembly Retirement System. ISBI oversees the investments of the three systems.

The liquidity stress from the investment sales at the five plans could force each of them to restructure their strategic asset allocations, terminate investment managers and search for new managers.

http://www.jsmineset.com/

 
 
 

Kicking The Can Down The Road….Then Stepping On It!

Posted By on August 26, 2010

Hmm…..Two months in a row, right in the middle of the traditional best seasonal time of the year for real estate….not one new home was sold valued above $750,000 in the whole U.S. according to David Rosenberg (he worked for Merrill Lynch and now resides in Canada as chief economist and strategist at Gluskin Sheff). …..Attitudes towards discretionary spending, credit and housing have been altered, likely for a generation. To make matters worse, 25% of the household sector now have a sub-600 FICO score.

The most damning words on the recent horrendous housing data come from David Rosenberg: and since he has long been spot on in his macro observations, the 15% or so in additional price losses anticipated, will make this down turn a truly memorable one (we will investigate not only the surging supply side of the housing equation, but the plunging demand side in a later post), and will leave the Fed with absolutely no choice than the nuclear option: “If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring…The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer  zero, nada, rien; and for the second month in a row.

This is what we have been saying for some time, in the aftermath of a credit bubble burst and a massive asset deflation, trauma has set in. The rupture to confidence and spending from our central bankers’ and policymakers’ willingness to allow the prior credit cycle to go parabolic has come at a heavy price in terms of future economic performance. Attitudes towards discretionary spending, credit and housing have been altered, likely for a generation.

The scars have apparently not healed from the horrific experience with defaults, delinquencies and deleveraging of the past two years — talk about a horror flick in 3D. The number of unsold homes on the market exceeds four million and that does include the shadow bank inventory, which jumped 12% alone in August, according to the venerable housing analyst Ivy Zelman.

Nearly 1 in 4 of the population with a mortgage are “upside down” and as a result are now prisoners in their own home. We have over five million homeowners now either in the foreclosure process or seriously delinquent. The government’s HAMP program was supposed to bail out between 3 and 4 million distressed homeowners and instead we have only had a success rate of fewer than half a million.

Now back to the new home sales data. Every region in the U.S. was down, and down sharply. The homebuilders did not cut their inventory levels and as a result, the backlog of new homes surged to 9.1 months’ supply from 8.0 months in June, which means more discounting and margin squeeze is coming in the homebuilder space. As it stands, median new home prices were sliced 6% in July and this followed on the heels of a 4.7% drop in June. And, at $235,300, average new home prices are down to levels last seen in March 2003, down nearly 30% from the 2007 peak. If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring.

The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).

www.zerohedge.com

A Novel Idea, But Way To Logical To Catch On!

Posted By on August 26, 2010

In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn) proposed that borrowers be required to make a 5% down payment in order to qualify. His proposal was rejected 57-42 on a party-line vote because, …………Senator Chris Dodd (D-Conn) explained, “passage of such a requirement would restrict home ownership to only those who can afford it.”

So…..

Posted By on August 25, 2010

Existing Home Sales

An economic recovery doesn’t look anything like this:

US Unemployment

www.dailyreckoning.com

Most Have Probably Never Heard Of NIKOLA TESLA, But He Was The Genius Behind Many New Inventions

Posted By on August 25, 2010

NIKOLA TESLA

         THE GENIUS WHO LIT THE WORLD  

            Nikola Tesla was born on July 10, 1856 in Smiljan, Lika, which was then part of  the Austo-Hungarian Empire, region of Croatia. His father, Milutin Tesla was a Serbian Orthodox Priest and his mother Djuka Mandic was an inventor in her own right of household appliances. Tesla studied at the Realschule, Karlstadt in 1873, the Polytechnic Institute in Graz, Austria and the University of Prague. At first, he intended to specialize in physics and mathematics, but soon he became fascinated with electricity. He began his career as an electrical engineer with a telephone company in Budapest in 1881. It was there, as Tesla was walking with a friend through the city park that the elusive solution to the rotating magnetic field flashed through his mind. With a stick, he drew a diagram in the sand explaining to his friend the principle of the induction motor. Before going to America, Tesla joined Continental Edison Company in Paris where he designed dynamos. While in Strassbourg in 1883, he privately built a prototype of the induction motor and ran it successfully. Unable to interest anyone in Europe in promoting this radical device, Tesla accepted an offer to work for Thomas Edison in New York. His childhood dream was to come to America to harness the power of Niagara Falls.

            Young Nikola Tesla came to the United States in 1884 with an introduction letter from Charles Batchelor to Thomas Edison: “I know two great men,” wrote Batchelor, “one is you and the other is this young man.” Tesla spent the next 59 years of his productive life living in New York. Tesla set about improving Edison’s line of dynamos while working in Edison’s lab in New Jersey.  It was here that his divergence of opinion with Edison over direct current versus alternating current began. This disagreement climaxed in the war of the currents as Edison fought a losing battle to protect his investment in direct current equipment and facilities.

            Tesla pointed out the inefficiency of Edison’s direct current electrical powerhouses  that have been build up and down the Atlantic seaboard. The secret, he felt, lay in the use of alternating current ,because to him all energies were cyclic. Why not build generators that would send  electrical energy along distribution lines  first one way, than another, in multiple waves using the polyphase principle?

            Edison’s lamps were weak and inefficient  when supplied by direct current. This system had a severe disadvantage in that it could not be transported more than two miles due to its inability to step up to high voltage levels necessary for long distance transmission. Consequently, a direct current power station was required at two mile intervals.

            Direct current flows continuously in one direction; alternating current changes direction 50 or 60 times per second and can be stepped up to vary high voltage levels, minimizing power loss across great distances. The future belongs to alternating current.

            Nikola Tesla developed polyphase alternating current system of generators, motors and transformers and held 40 basic U.S. patents on the system, which George Westinghouse bought, determined to supply America with the Tesla system. Edison did not want to lose his DC empire, and a bitter war ensued. This was the war of the currents between AC and DC. Tesla -Westinghouse ultimately emerged the victor because AC was a superior technology. It was a war won for the progress  of both America and the world.

            Tesla introduced his motors and electrical systems in a classic paper, “A New System of Alternating Current Motors and Transformers” which he delivered before the American Institute of Electrical Engineers in 1888. One of the most impressed was the industrialist and inventor George Westinghouse. One day he visited Tesla’s laboratory and was amazed at what he saw. Tesla had constructed a model polyphase system consisting of an alternating current dynamo, step-up and step-down transformers and A.C. motor at the other end. The perfect partnership between Tesla and Westinghouse for the nationwide use of electricity in America had begun.

In February 1882, Tesla discovered the rotating magnetic field, a fundamental principle in physics and the basis of nearly all devices that use alternating current.  Tesla brilliantly adapted the principle of rotating magnetic field for the construction of alternating current induction motor and the polyphase system for the generation, transmission, distribution and use of electrical power.

            Tesla’s A.C. induction motor is widely used throughout the world in industry and household appliances. It started the industrial revolution at the turn of the century. Electricity today is generated transmitted and converted to mechanical power by means of his inventions. Tesla’s greatest achievement is his polyphase alternating current system, which is today lighting the entire globe.

            Tesla astonished the world by demonstrating. the wonders of alternating current electricity at the World Columbian Exposition in Chicago in 1893. Alternating current became standard power in the 20th Century.  This accomplishment changed the world. He designed the first hydroelectric powerplant in Niagara Falls in 1895, which was the final victory of alternating current.  The achievement was covered widely in the world press, and Tesla was praised as a hero world wide.  King Nikola of Montenegro conferred upon him the Order of Danilo.

Tesla was a pioneer in many fields.  The Tesla coil, which he invented in 1891, is widely used today in radio and television sets and other electronic equipment.  That year also marked the date of Tesla’s United States citizenship.  His alternating current induction motor is considered one of the ten greatest discoveries of all time.  Among his discoveries are the fluorescent light , laser beam, wireless communications, wireless transmission of electrical energy, remote control, robotics, Tesla’s turbines and vertical take off aircraft. Tesla is the father of the radio and the modern electrical transmissions systems. He registered over 700 patents worldwide. His vision included exploration of solar energy and the power of the sea. He foresaw interplanetary communications and satellites.

            The Century Magazine published Tesla’s principles of telegraphy without wires, popularizing scientific lectures given before Franklin Institute in February 1893. 

The Electrical Review in 1896 published X-rays of a man, made by Tesla, with X-ray tubes of his own design.  They appeared at the same time as when Roentgen announced his discovery of X-rays.  Tesla never attempted to proclaim priority.  Roentgen congratulated Tesla on his sophisticated X-ray pictures, and  Tesla even wrote Roentgen’s name on one of his films.  He experimented with shadowgraphs similar to those that later were to be used by Wilhelm Rontgen when he discovered X-rays in 1895.  Tesla’s countless experiments included work on a carbon button lamp, on the power of electrical resonance, and on various types of lightning.  Tesla invented the special vacuum tube which emitted light to be used in photography.

The breadth of his inventions is demonstrated by his patents for a bladeless steam turbine based on a spiral flow principle.  Tesla also patented a pump design to operate at extremely high temperature. 

Nikola Tesla patented the basic system of radio in 1896.  His published schematic diagrams describing all the basic elements of the radio transmitter which was later used by Marconi.

In 1896 Tesla constructed an instrument to receive radio waves.  He experimented with this device and transmitted radio waves from his laboratory on South 5th Avenue. to the Gerlach Hotel at 27th Street in Manhattan.  The device had a magnet which gave off intense magnetic fields up to 20,000 lines per centimeter.  The radio device clearly establishes his piority in the discovery of radio. 

The shipboard quench-spark transmitter produced by the Lowenstein Radio Company and licensed under Nikola Tesla Company patents, was installed on the U.S. Naval vessels prior to World War I.

In December 1901, Marconi established wireless communication between Britain and the Newfoundland, Canada, earning him the Nobel prize in 1909.  But much of Marconi’s work was not original.  In 1864, James Maxwell theorized electromagnetic waves.  In 1887, Heinrich Hertz proved Maxwell’s theories.  Later, Sir Oliver Logde extended the Hertz prototype system.  The Brandley coherer increased the distance messages could be transmitted.  The coherer was perfected by Marconi.

However, the heart of radio transmission is based upon four tuned circuits for transmitting and receiving.  It is Tesla’s original concept demonstrated in his famous lecture at the Franklin Institute in Philadelphia in 1893.  The four circuits, used in two pairs, are still a fundamental part of all radio and television equipment.

The United States Supreme Court, in 1943 held Marconi’s most important patent invalid, recognizing Tesla’s more significant contribution as the inventor of radio technology.

Tesla built an experimental station in Colorado Springs, Colorado in 1899, to experiment with high voltage, high frequency electricity and other phenomena.

When the Colorado Springs Tesla Coil magnifying transmitter was energized,  it created sparks 30 feet long.  From the outside antenna, these sparks could be seen from a distance of ten miles.  From this laboratory, Tesla generated and sent out wireless waves which mediated energy, without wires for miles.

 In Colorado Springs, where he stayed from May 1899 until 1900, Tesla made what he regarded as his most important discovery– terrestrial stationary waves.  By this discovery he proved that the Earth could be used as a conductor and would be as responsive as a tuning fork to electrical vibrations of a certain frequency.  He also lighted 200 lamps without wires from a distance of 25 miles( 40 kilometers) and created man-made lightning.  At one time he was certain he had received signals from another planet in his Colorado laboratory, a claim that was met with disbelief in some scientific journals.

The old Waldorf Astoria was the residence of Nikola Tesla for many years.  He lived there when he was at the height of financial and intellectual power.  Tesla  organized elaborate dinners, inviting famous people who later witnessed spectacular electrical experiments in his laboratory.

Financially supported by J. Pierpont Morgan, Tesla built the Wardenclyffe laboratory and its famous transmitting tower in Shoreham, Long Island between 1901 and 1905. This huge landmark was 187 feet high, capped by a 68-foot copper dome which housed the magnifying transmitter.  It was planned to be the first broadcast system, transmitting both signals and power without wires to any point on the globe.  The huge magnifying transmitter, discharging high frequency electricity, would turn the earth into a gigantic dynamo which would project its electricity in unlimited amounts anywhere in the world.

Tesla’s concept of wireless electricity was used to power ocean liners, destroy warships, run industry and transportation and send communications instantaneously all over the globe.  To stimulate the public’s imagination, Tesla suggested that this wireless power could even be used for interplanetary communication.  If Tesla were confident to reach Mars, how much less difficult to reach Paris.  Many newspapers and periodicals interviewed Tesla and described his new system for supplying wireless power to run all of the earth’s industry.

Because of a dispute between Morgan and Tesla as to the final use of the tower.  Morgan withdrew his funds.  The financier’s classic comment was, “If anyone can draw on the power, where do we put the meter?”

The erected, but incomplete tower was demolished in 1917 for wartime security reasons.  The site where the Wardenclyffe tower stood still exists with its 100 feet deep foundation still intact.  Tesla’s laboratory designed by Stanford White in 1901 is today still in good condition and is graced with a bicentennial plaque.  

Tesla lectured to the scientific community on his inventions in New York, Philadelphia and St. Louis and before scientific organizations in both England and France in 1892. Tesla’s lectures and writings of the 1890s aroused wide admiration among contemporaries popularized his inventions and inspired untold numbers of younger men to enter the new field of radio and electrical science.

            Nikola Tesla was one of the most celebrated personalities in the American press, in this century.  According to Life Magazine’s special issue of September, 1997, Tesla is among the 100 most famous people of the last 1,000 years.  He is one of the great men who divert the stream of human history.  Tesla’s celebrity was in its height at the turn of the century.  His discoveries, inventions and vision had widespread acceptance by the public, the scientific community and American press.  Tesla’s discoveries had extensive coverage in the scientific journals, the daily and weekly press as well as in the foremost literary and intellectual publications of the day.  He was the Super Star. 

Tesla wrote many autobiographical articles for the prominent journal Electrical Experimenter, collected in the book, My Inventions.  Tesla was gifted with intense powers of visualization and exceptional memory from early youth on.  He was able to fully construct, develop and perfect his inventions completely in his mind before committing them to paper. 

According to Hugo Gernsback, Tesla was possessed of a striking physical appearance over six feet tall with deep set eyes and a stately manner.  His impressions of Tesla, were of a man endowed with remarkable physical and mental freshness, ready to surprise the world with more and  more inventions as he grew older.  A lifelong bachelor he led a somewhat isolated existence, devoting his full energies to science. 

In 1894, he was given honorary doctoral degrees by Columbia and Yale University and the Elliot Cresson  medal by the Franklin Institute.  In 1934, the city of Philadelphia awarded him the John Scott medal for his polyphase power system. He was an honorary member of the National Electric Light Association and a fellow of the American Association for the Advancement of Science. On one occasion, he turned down an invitation from Kaiser Wilhelm II to come to Germany to demonstrate his experiments and to receive a high decoration.

            In 1915, a New York Times article announced that Tesla and Edison were to share the Nobel Prize for physics.  Oddly, neither man received the prize, the reason being unclear.  It was rumored that Tesla refused the prize because he would not share with Edison, and because Marconi had already received his.
(Tesla’s friend Mark Twain, famous American writer) 

On his 75th birthday in 1931, the inventor appeared on the cover of Time Magazine. On this occasion, Tesla received congratulatory letters from more than 70 pioneers in science and engineering including Albert Einstein. These letters were mounted and presented to Tesla in the form of a testimonial volume.  

            Tesla died on January 7th, 1943 in the Hotel New Yorker, where he had lived for the last ten years of his life.  Room 3327 on the 33rd floor is the two-room suites  he occupied.

            A state funeral was held at  St. John the Divine Cathedral in New York City. Telegrams of condolence were received from many notables, including the first lady Eleanor Roosevelt and Vice President Wallace. Over 2000 people attended, including several Nobel Laureates. He was cremated in Ardsley on the Hudson, New York. His ashes were interned in a golden sphere, Tesla’s favorite shape, on permanent display at the Tesla Museum in Belgrade along with his death mask.

            In his speech presenting Tesla with the Edison medal, Vice President Behrend of the Institute of Electrical Engineers eloquently expressed the following:  “Were we to seize and eliminate from our industrial world the result of Mr. Tesla’s work, the wheels of industry would cease to turn, our electric cars and trains would stop, our towns would be dark and our mills would be idle and dead.  His name marks an epoch in the advance of electrical science.”  Mr. Behrend ended his speech with a paraphrase of Pope’s lines on Newton:  “Nature and nature’s laws lay hid by night.  God said ‘Let Tesla be’ and all was light.”

                        “The world will wait a long time for Nikola Tesla’s equal in

                                           achievement and imagination.”  E. ARMSTRONG

http://www.teslasociety.com/biography.htm

Given A Choice, Commercial Property Owners Choose to Default

Posted By on August 25, 2010

The big players always knew that real estate loans were non-recourse loans.

They walk-away voluntarily.  Remember  the commercial market is more professional than housing.

As  more of the big boys bite the dust,  the huge bounce will  crest,  and down she comes.

Pension funds, insurance companies, small banks, retirement accounts etc. get hammered.

Commercial Property Owners Choose to Default
By KRIS HUDSON And A.D. PRUITT

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as “jingle mail.” These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

“We don’t do this lightly,” said Robert Taubman, chief executive of Taubman Centers Inc. The luxury-mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J.

Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.

When Dominos Fall…..Illinois Teachers’ Retirement System Enters The Death Spiral….Are Other Pension Plans The Next Shoe To Drop?

Posted By on August 24, 2010

Pension funds everywhere had better pay attention to what’s going on with the Illinois Teachers Retirement System.  It’s a wake up call……Hello, anybody there!

When the financial crisis erupted, it first hit banks, insurance companies, hedge funds, real estate/ private equity funds, asset managers, and then hit pension funds.

But pensions remain very vulnerable because as interest rates fall and assets dwindle, their pension deficits explode, and if they need money to cover benefits, well guess what, they’re forced to sell liquid stocks to meet those obligations.

And they typically sell stocks at the worst possible time. This is what happened to the Caisse in 2008 when they lost $40 billion and got whacked hard with non-bank asset-backed commercial paper (ABCP), forcing them to shore up liquidity at the worst possible time.

Other funds like PSPIB also got hit (to a lesser extent) with ABCP but they benefited from net inflows, so they weren’t forced to sell stocks to meet pension obligations. The same goes for CPPIB, which suffered a 19% loss in FY2009, but kept buying stocks throughout the crisis.

But unlike the Caisse, PSPIB, and CPPIB, the Illinois TRS is not managed anywhere near as well, and they took stupid risks to meet unrealistic investment targets. Moreover, instead of learning from their mistakes, they continued taking excessive risks to try to address their widening pension deficit.  When you’re a mature pension plan, you’ve got to manage your liquidity risk very carefully.

In the last fiscal year, the TRS system sold $1.3 billion in assets to pay pension benefits; it received $170.4 million in employer contributions and $899 million in member contributions, while requesting $2.08 billion in employer contributions alone.

TRS’ current asset allocation is U.S. equities, 30.5%; international equities, 20.3%; fixed income, 17.5%; real estate, 9.6%; real return, 9.3%; private equity, 8.3%; absolute return, 3.6%; and short-term investments, 0.9%.

Finally, today  Nortel retirees stand to lose one third of their pension and  Ontario will toughen pension funding requirements for companies and bolster its guarantee fund as it works to fix a pension system hit hard by the financial crisis (better late then never).

While pensions are finally getting the attention they deserve,  they could be the next AIG (but much, much bigger). The Fed is going to do what it can to bail out pensions, but there are serious doubts that even they are fully aware of the magnitude of the pension Ponzi and how it could easily topple the global financial system (ever tried quantifying total aggregate pension leverage and counterparty risk?  Good luck!).

When pensions are forced to liquidate to meet pension obligations, we should all be concerned. If this becomes a pattern among U.S. (and global) pension funds, watch out, the pension tsunami will have far reaching effects which will make the whole AIG fiasco look like a walk in the park.

www.zerohedge.com

Wagons Hoe……Err, Seems Like The Old Wagon Trains West In The U.S. From The 1840-1850’s But This Is China In 2010

Posted By on August 24, 2010

Beijing has a 62-mile traffic jam near the Chinese capital that could last until mid-September.  It has become a symbol of the dark side of China’s automobile age.

Officials say traffic has been snarled along the outskirts of Beijing stretching toward the border of Inner Mongolia since roadwork on the Beijing-Tibet Highway started Aug. 13. 

The jam on the National Highway 110 passed the 10-day mark as of  Tuesday, while local authorities dispatched hundreds of police to keep order and to try to reroute cars and trucks carrying essential supplies, such as food or flammables, around the main bottleneck.   Vehicles were inching along little more than a third of a mile a day.

Existing Home Sales Fall Hard In July – Can Anyone Be Really Surprised?

Posted By on August 24, 2010

Existing home sales fell to their lowest level in over 15 years in July as inventories soared.   It portrays a grim picture for the housing market absent government support.

Home resales dropped a record 27.2%  or nearly twice as much as analysts had expected to an annual rate of 3.83 million in July, according to the National Association of Realtors. Inventories rose to 12.5 months from 8.9 months in June, a worst case for already depressed home prices. Inventories are at their highest level in more than a decade.  Economists  had expected existing-home sales to fall about 14.3% to an annual rate of  around 4.6 million.

This shows that the housing industry has hit more trouble, and is not leveling off.  The positive seasonality for housing is about over, and may be setting up a cliff dive as  unemployment, foreclosures and record shadow inventory are keeping consumers on the sidelines.

Mortgage rates remain at or near record lows, and are expected to stay low for some time to come but lingering troubles in the labor market will restrain the nation’s housing recovery for the foreseeable future..  

Median home prices in July rose 0.7% to $182,600, most likely the effects of seasonal adjustments and the expiring real estate tax credits.

Todd Harrison Of Minyanville…..Seeking Solutions In An Uncertain World

Posted By on August 23, 2010

By Todd Harrison of Minyanville

Seeking Solutions In An Uncertain World 

We used to play for silver, now we play for life; ones for sport and one’s for blood at the point of a knife. –Grateful Dead


We live in interesting times. During the last two years, a financial virus spawned and infected the economic and social spheres as a matter of course.

This isn’t just about money anymore. Our civil liberties, the foundation of free market capitalism and the quality of life for future generations are dynamically shifting as we traverse our current course.

I once offered that Shock & Awe was a tipping point through a historical lens; as Baghdad blew-up on CNN, I somberly sensed America would never be the same. That’s not a political statement — we don’t know what would have been if we didn’t invade — it’s simply an observation. Almost overnight, world empathy turned to global condemnation.

If we’ve learned anything through these years, it’s that unintended consequences tend to come full circle. Whether it’s the moral hazard of bailing out some banks, the gargantuan profits of a chosen few — Goldman Sachs (GS), JP Morgan (JPM), Bank America (BAC), Morgan Stanley (MS), Wells Fargo (WFC) — the caveats of percolating protectionism, or the growing chasm of social and geopolitical discord, times they are a-changin’ and it’s freaking people out.

As speculators are vilified and hedge funds are perceived as acceptable casualties of war, financial fatigue will evolve in kind. We’ve already seen the burnout manifest in trading volume — upwards of 70% of the flow are the robots — and we’ve witnessed it in financial media, with reported ratings of some of CNBC’s marquee shows down as much as 25% year-over-year. (See: The War on Capitalism)

Sun-tzu once said, If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight and if not, split and reevaluate. As we navigate this socioeconomic maelstrom, an increasing number of people are weighing their options — and some of the smarter folks I know are going dark.

What does that mean? They’re selling businesses, unwinding trading operations or otherwise distancing themselves from the capital markets. The thematic reasoning is straight out of an Ayn Rand novel: I can’t compete and when I do, the rules of engagement change in the middle of the game. I’ll let the powers that be vanquish themselves and return in three to five years to sift through the remains.(See: The Last Gasp Bubble)

The first time I heard this, I took notice. The second time, it piqued my interest. Now, with four or five savvy seers pulling the plug, I felt compelled to communicate these observations. I’m often early and sometimes wrong but I’ll always put it out there; while few are talking about this, it’s on many people’s mind.

I’ll also share that the most lucid thought I’ve had since offering in 2003 that we should “sell tech and financials, buy energy and metals and open a taco stand in Costa Rica” is to edge away from NYC. While I’m not the panicky type — heck, some would say I thrive under pressure — I would be remiss if I didn’t offer the respect of that honesty. I’m unsure of the genesis of this particular vibe — quality of life or proactive self-preservation — but the intuition is palpable and ever-present.

As it stands, I’m not in a position to do that — this is where we are and this is what we do — but my personal choice doesn’t alleviate the overarching societal shift or the collective tension that seems to be percolating. I speak with a ton of people in an array of industries throughout the world and “business is great” feedback is a rarity.

More often than not with increased frequency, the sentiment skews in the other direction, as do anecdotal data points such as thinning crowds at concerts and excess capacity at high-end restaurants and sporting events. There are of course exceptions — $10 million plus homes in Manhattan are well-bid, due in large part to Wall Street bonuses — but they’re an outlier in the broader array of our societal fray.

Last week on Minyanville, we shared the following feedback from someone within our community. And I quote:

I read your exchange on going dark and wanted to share some anecdotal evidence. I owned a chemical and manufacturing corporation that employed twelve people. We sold the company in October, 2009 for three reasons: expectations of higher future tax rates (income and cap gains), lack of clarity in regulations and the perceived coming wave of governmental policies.

Looking at that last sentence reminds me of why we decided to take our cards off the table after a successful run; the words EXPECTATION, CLARITY, and PERCEIVED.

All of these lead to one thing — uncertainty. It was hard enough to make a dime with the relative stability of the previous period. Change the operating environment and in my mind, you change the probability of success. Smart people (being presumptuous there!) don’t wager in that environment!

Now, I’m not suggesting we cower in a corner, buy guns and butter and get all Mel Gibson on each other. Further, I understand most folks aren’t in a position to seize the day and walk away. I’ve written in the past that if we’re not part of the solution, we’re part of the problem and that remains true, now more than ever; society, at the end of the day, is simply a sum of the parts.

As we wrestle with reality and attempt to operate in the best interests of ourselves and those we love, some have chosen to extricate themselves from an increasingly tenuous struggle to focus on the little things in life. I suppose they’re lucky to have that option and their actions are consistent with a widespread reprioritization following the Great Recession. I’ve written about them before; net worth vs. self-worth, having fun vs. being happy and the caveats of looking for validation at the bottom of a bank account. (See: Memoirs of a Minyan)

For those motivated to power through to better days and easier trades, the actions of a few effects the lives of many; we, the people, need motivated, innovative proactive problem-solvers to remain engaged as the second side of the storm approaches. While our financial equation is multi-linear and ever-changing, my sense is that we’ve got four to five years of perseverance and preservation as a precursor to the profound, generational opportunities that will emerge thereafter. (See The Eye of the Financial Storm)

Looking at this emerging trend of distancing another way, we know the opposite of love isn’t hate, its apathy. Through that lens, folks walking away from the capital market construct may indeed be another step in the steady migration from what was to what will be. We often say the leaders who emerge from the crisis are rarely the same as those who entered it. At the very least, it should be noted that several former leaders have removed themselves from the running.

More at: www.zerohedge.com

New Housing Finance Ideas…….Can It Work?

Posted By on August 23, 2010

Let’s keep this in mind…..Quoting PIMCO’s Bill Gross on real estate mortgages, Fannie Mae and Freddie Mac….”To suggest the private market can come back in and take the place [of the government] is simply impractical. It won’t work”.

Sources say the Obama administration is floating the idea  that any federal backing of mortgages be paid for through fees on the lending industry. 

Other proposals have been floated by two trade groups, the Financial Services Roundtable and the Mortgage Bankers Association.  They think new private-sector entities could be created to securitize and insure mortgages, and would then pay a fee into a government-insurance fund.

Researchers at the New York Federal Reserve Bank, writing on their own behalf, have proposed creating lender-owned cooperatives that would replace Fannie and Freddie. Private lenders would pay into a “mutualized loss pool” to provide guarantees for mortgage-backed securities, and members would also pay a reinsurance fee to the government for a separate fund to backstop additional losses.

Interestingly, mortgages were once funded primarily through the banking system. When the new world of financal engineering took place, it created massive securitizations and that fueled the growth of the nation’s $10 trillion mortgage market.  In the end it dwarfed the capacity of the nation’s banking system to fund loans.  The rest is history!

We’ve Talked About Demographic Issues Recently…..They’re Not Going Away Any Time Soon

Posted By on August 23, 2010

Bill Gross reviewed demographics in his PIMCO August Investment Outlook, and he showed a graph, “Deep Demographic Doo-Doo”…..Now we can read David Rosenberg’s take on the matter.

Today David Rosenberg begins to tackle the U.S. demographic issues from his own perspective, with his preliminary conclusions,  not validating any current optimistic perspectives in the U.S. economy: “starting next year, this key age cohort for both the economy and the markets will begin to decline —  every year until 2021. The last time we saw sustained declines in this part of the population was from 1975-83, which was an awful time for both the economy (except for that very last year when the negative growth rate in this age segment was drawing to a close) as the S&P 500, in real terms, was as flat as pancake and real per capita income barely expanded.”  We should hope to be so lucky this time!

Look at the charts below. Despite the most aggressive government efforts in the modern era to kick-start the economic cycle, what we still have on our hands is a broken financial system.

As of yet, there is very little impetus in the money multiplier or money velocity even if they have stabilized at depressed levels; the Japanese charts look eerily similar.

The last charts below illustrate how focused households, businesses and banks are in terms of maintaining historically high levels of liquidity despite the fact that interest rates are at microscopic levels. This says something about the desire on the part of economic agents to maintain very high levels of precautionary balances, ostensibly because they understand that recession risks are high and that means an emphasis on survival kits.

But when everyone is building their liquid assets at the cost of not putting the funds to work in the real economy, then what we get is the infamous paradox of thrift. The government is there to help counteract these deflationary excessive savings trends in the private sector, but the problem now is one of high and rising structural deficits and a debt-to-GDP ratio that is a year away from breaking above 90%, which is the Rogoff-Reinhart threshold for when fiscal policy does more harm than good for the broader economy.

There are no quick fixes to a post-bubble credit collapse. Time and shared sacrifice are the only viable solutions and people on this side of the ocean should probably go and ask the folks that endured the Asian collapse and depression back in the late 1990s what it took beyond intestinal fortitude to get to where these “emerged” markets are today (ie, radical economic, financial and political reforms). By letting failed companies and banks survive with the help of government intervention, what the U.S. government decided to do was to avoid further pain after Lehman collapsed — and what you pay for by putting an artificial floor under the “levels” of output, spending, credit etc, is that it becomes difficult to achieve any meaningful “growth rates”. There may be something to be said to rebuild the system from the rubble, which is what Japan never did but what the other Asian countries managed to accomplish as social contacts were rewritten and sacred cows laid to rest. Why is America sending troops into harms way and at the same time finding different ways to subsidize delinquent mortgage borrowers?

Source: www.zerohedge.com

Quote Of The Day

Posted By on August 23, 2010

Milton Friedman:  “The most efficient way of spending money is to spend your own, and the least efficient way is to spend other people’s”…“If you go out to lunch and have to pay your own bill, you have what you can afford. If someone else is paying, you may just have the steak and lobster.”.

Credit Card Rates Are Climbing To New 9 Year Highs While Most Other Interest Rates Are At Or Near All Time Record Lows!

Posted By on August 23, 2010

One more reason that the average person on main street has no chance,  and that’s official!

Interest rates continue to drop for the U.S. Treasury, large companies and home buyers, but for most of the 381 million U.S. credit-card accounts borrowing rates have been flying to the upside at an alarming pace.

[CARDS]

Amoung the reasons:  New credit-card rules that took effect Sunday limit banks’ ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers’ ability to adjust rates on the fly. Issuers have responded by pushing card rates to their highest level in nine years.

In the second quarter, the average interest rate on existing cards was 14.7%, up from 13.1% last year, according to research firm Synovate. That’s the highest rates since 2001.

Those figures look bad when measuring the gap between the prime rate—the benchmark against which card rates are set—and average credit-card rates. The current difference of 11.45 percentage points is the largest in at least 22 years, Synovate estimates.

The moves are driven by a number of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish.   At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.

Hours Worked Index Heading South In A Hurry

Posted By on August 22, 2010

The Phillie Fed report was just awful. Buried in the details was the fact that the hours-worked index is collapsing, consistent with previews to past recessions. Very worrisome. (From my favorite slicer and dicer of data, Greg Weldon: www.weldononline.com)

image002

Bottom line? It is going to be a tough environment for the next 6-8 years. That is just what happens when you have a deleveraging / balance sheet / deflationary / end of the Debt Supercycle recession. It is what it is, and no amount of wishing or finger pointing can change the facts.

John Mauldin Weekly E-Letter

U..S. Sounds Alarm At China’s Military Buildup

Posted By on August 21, 2010

So, what does our government (boneheads) expect.  The emerging new economic power of the world is China.  They are also the largest holder of our debt (by the way, this sets up the potential of financial warfare).  Doesn’t logic say that military power will follow!  It might behove the United States NOT to sell Taiwan any of its newest most sophisticated weapons being that at some point in the future, China becomes one again.

By ADAM ENTOUS

WASHINGTON—The Pentagon voiced alarm over China’s military buildup, saying it was expanding its advantage over Taiwan and investing heavily in ballistic and cruise missile capabilities that could one day pose a challenge to U.S. dominance in the western Pacific.

In its annual report to Congress on Chinese military capabilities, the Pentagon also cited China’s advances in electronic warfare. The U.S. government has been the target of cyber intrusions the report says appear to have originated in China and aimed to steal military secrets. “These intrusions focused on exfiltrating information, some of which could be of strategic or military utility,” the report said.

Though their two countries are increasingly interlinked economically, ties between the U.S. military and the People’s Liberation Army of China have deteriorated since January, when the Obama administration notified Congress of a plan to sell Taiwan up to $6.4 billion in arms.

Defense Secretary Robert Gates has appealed to the Chinese to re-engage to reduce the risk of military miscommunications. But U.S. officials say they have seen few signs of a thaw.

Washington has long voiced alarm over China’s military buildup opposite Taiwan. In this year’s report, which was delivered months behind schedule, the Pentagon said China’s military edge over Taiwan was continuing to “shift in the mainland’s favor,” the main argument used by the Obama administration in approving the arms deal.

More…

HAMP Not On A Ramp

Posted By on August 20, 2010

HAMP stands for Home Affordable Modification Plan…… The key here is that these borrowers are still up to their eyeballs in debt after the modification.

From Treasury: HAMP Servicer Performance Report Through July 2010

According to HAMP, there are 255,934 “active trials”, down from 364,077 last month. There is still a large number of borrowers in limbo since only 165 thousand trials were started over the last 5 months. I expect another large number of cancellations in August.

HAMP Trials

The above graph shows the cumulative HAMP trial programs started.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to under 17,00 in July. The program is winding down …

Debt-to-income ratios

If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.8% – the same as last month. And the back end DTI was an astounding 79.7 (about the same as last month).

Think about that for a second: for the median borrower, about 80% of the borrower’s income went to servicing debt. And the median is 63.5% after the modification.

These borrowers are still up to their eyeballs in debt after the modification.

Summary:

  • Another large number of trial programs were cancelled. This will mean more foreclosures (or short sales) in the near future.
  • A large number of borrowers are still in modification limbo, so there will probably be more cancellations coming.
  • The program is winding down quickly.
  • The borrowers DTI characteristics are poor – suggesting a high redefault rate over the next year or two.
  • More at: http://www.calculatedriskblog.com/

    Just A Theory

    Posted By on August 20, 2010

    Quoted from Art Cashin on the floor of The New York Stock Exchange

    Yesterday, there was a bit of floor buzz on a Bloomberg TV item.  The story was that when the President headed off to vacation, he assigned two top defense aides to follow him.

    That raised some discussion about whether an Israeli move on Iran might be expected within the next 11 days.  Hmm

    PIMCO’s Bill Gross Has A Big Idea…..Question: Is It Fair To Save The Irresponsible At The Expense Of The Prudent And Conservative?

    Posted By on August 20, 2010

      Aug 20, 2010
     
     
    PIMCO’s Bill Gross Has A Big Idea…..Actually JP Morgan might have started these thoughts.   Question:  Is It Fair To Save The Irresponsible At The Expense Of The Prudent And Conservative? 
     
    Where is the bonus for being fiscally responsible?   Auh, there is none unless your in financial trouble!

    At Tuesday’s conference on the Future of Housing Finance, Bill Gross suggested that anyone who was current on a Fannie/Freddie loan should automatically be refinanced to the current mortgage interest rate of about 4.5 percent. This should happen instantaneously, without underwriting.

    Let’s see, everything has unintended consequences, so what’s the downside of this. Well, it reduces the probability of default because it reduces the present value of the loan balance and payments. It only rewards those who pay their mortgages on time (this is a stipulation?). And as Bill Gross pointed out, it would amount to an enormous stimulus (it also would be at least partly funded by foreign holders of MBS).  And what about the non Fannie Mae mortgages?  And what about the investors that wrote these loans?

    Fidelity Study Says A Record Number Of Hardship Withdrawls From Retirement Funds Are Taking Place

    Posted By on August 20, 2010

    We’re sure that everyone has the best intentions to pay these hardship loans back, but…….

    A new study by Fidelity says record number of workers tapped their retirement funds and made hardship withdrawals from their accounts in the second quarter.

    According to the Fidelity study, “Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier. By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier.

    CBO Says Its Own Budget Estimate May “Significantly Underestimate” Short-Term Deficit Outlook

    Posted By on August 19, 2010

    Congressional Budget Office director Doug Elmendorf who said that in reality the budget deficit could come in much higher than the just disclosed estimates, and the recent economic data releases have been “more negative” than data factored into the projection. Which, in government talk, means that the real deficit will likely come at least 20-30% higher, and since debt issuance tends to track around 40% higher than nominal deficits, the bottom line is that the US will have to issue a gross $3 trillion+ over the next two years.

    Congressional Budget Office director Doug Elmendorf said Thursday that his agency’s new fiscal report may “significantly underestimate” the nation’s short-term deficit outlook because of the requirements of budget estimating.

    At a briefing following the release of the CBO’s mid-year budget and economic outlook, Elmendorf emphasized that under budget law the CBO must make its baseline estimates by assuming that current tax and spending laws are unchanged.

    He added the U.S. fiscal outlook would be “quite different” if other, arguably more plausible, assumptions were made.

    Elmendorf said the U.S.’s long-term fiscal outlook is “daunting,” adding that even using optimistic scenarios the U.S. level of public debt will hit 70% of GDP by 2020.

    “This is an extraordinarily high level of debt” when viewed in the context of American history, he said.

     Elemendorf said the CBO sees growth in the U.S. economy as “continuing at a modest pace.” The recovery so far has been “anemic,” compared to other American recoveries after deep recessions, he said.

    Elmendorf said recent economic indicators since CBO completed its economic estimates have been “more negative” than it expected, but he added that the new reports would not have changed CBO’s overall economic estimates significantly.

    The CBO chief said that he expects interest rates in the U.S. to increase “as the recovery takes hold over time.” He also said that large debt levels would put upward pressure on rates.

    More at: http://www.zerohedge.com/article/cbo-says-its-own-budget-estimate-may-significantly-underestimate-short-term-deficit-outlook

    Commercial Property Sounds The Alarm

    Posted By on August 19, 2010

     U.S. commercia real estate mall prices fall almost 11% in second quarter.   
     
          Question……To whom would one sell commercial property to if forced in this environment?    The red ink is going to be massive.  The plunge is on.  Let’s hope the powers to be never require this stuff to be marked to market by the small banks or pension funds  (they are the largest commercial mortgage holders).
     
    By Brian Louis and David M. Levitt
     
    Aug 19, 2010
     
    U.S. commercial real estate prices fell the most in almost a year in June as the economic recovery showed signs of faltering, Moody’s Investors Service said.

    The Moody’s/REAL Commercial Property Price Index dropped 4 percent from May, the company said today in a report. The decline was the biggest since July 2009, and pushed the gauge down 0.9 percent from the start of the year.  The Moody’s index is down 41 percent from its 2007 peak, having gained 4.2 percent from the seven-year low set in October.

    High unemployment and concern over slowing economic growth are hampering a price rebound for offices, apartments, industrial and retail properties, Moody’s said. U.S. gross domestic product expanded at a estimated 2.4 percent annual pace in the second quarter, less than economists forecast and slower than the 3.7 percent rate in the previous three months.

    The value of malls and shopping centers fell almost 11 percent in the second quarter, the biggest drop of any commercial property type tracked in the Moody’s index. Apartments and offices values both gained about 4 percent, while industrial properties dropped 2.9 percent.

    More at: http://www.bloomberg.com/news/2010-08-19/retail-spaces-lead-biggest-drop-in-u-s-commercial-property-prices-in-year.html      

    Unemployment Claims Unexpectedly Shot Up By 12,000 To 500,000 In The Week Ended Aug. 14

    Posted By on August 19, 2010

    How does this come as an unexpected surprise……This isn’t rocket science folks, maybe the bigs in Washington need to get out a little more. 

    By Bob Willis and Courtney Schlisserman

    Aug 19, 2010

    Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast.

    The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index turned negative in August, signaling contraction.

    Claims exceeded estimates of all 42 economists surveyed by Bloomberg News and compared with the median forecast of 478,000. Estimates ranged from 460,000 to 495,000. The government revised the prior week’s claims figure to 488,000 from a previously reported 484,000.

    “There’s a red flag being waved right now that says ‘Danger,’” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Growth is going to slow in the second half and we might face something a little more ominous than that.”

    More at: http://www.bloomberg.com/news/2010-08-19/jobless-claims-in-u-s-rose-to-500-000-highest-since-november.html

    Greece On Edge As Austerity Measures Backfire

    Posted By on August 19, 2010

    A scary setup……Greece is just the beginning, not an end, we have started a spiral.  The dominoes are now falling one by one.  Life will get a lot harder for the entire world including here in the U.S (we haven’t even got to the austerity part here), we’re now entering the twilight zone.  The solutions are going to be experiments because nobody has ever seen this before. 

    By Corinna Jessen in Athens

    The austerity measures that were supposed to fix Greece’s problems are now dragging down the country’s economy.  Stores are closing, tax revenues are falling and unemployment has hit aa high as 70 percent in some places.  Now frustrated workers are threatening to strike back.

    This dire prognosis comes even despite Athens’ massive efforts to sort out the country’s finances. The government’s draconian austerity measures have managed to reduce the country’s budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.

    The problem is that the austerity measures have in the meantime affected every aspect of the country’s economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country’s gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.

     Barely any of the country’s industries can keep up with international competition in terms of productivity, and experts expect the country’s gross domestic product to fall by 4 percent over the course of the entire year. Germany, by way of comparison, is hoping for growth of up to 3 percent.

    Prime Minister George Papandreou’s austerity package has seriously shaken the Greek economy. The package included reducing civil servants’ salaries by up to 20 percent and slashing retirement benefits, while raising numerous taxes. The result is that Greeks have less and less money to spend and sales figures everywhere are dropping, spelling catastrophe for a country where 70 percent of economic output is based on private consumption.

    A short jaunt through Athens’ shopping streets reveals the scale of the decline. Fully a quarter of the store windows on Stadiou Street bear red signs reading “Enoikiazetai” — for rent. The National Confederation of Hellenic Commerce (ESEE) calculates that 17 percent of all shops in Athens have had to file for bankruptcy.

    A sign on the other side of the street advertises “Sakis’ Restaurant.” The owner, Sakis, is still hanging on, with customers filling one or two of the restaurant’s tables now and then. “There’s really no work for me here anymore,” says one Albanian employee, who goes by the name Eleni in Greece. “Many others have already gone back to Albania, where it’s not any worse than here. We’ll see when I have to go too.”

    The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.

    The country’s unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This year it may rise to 12.1 percent and economists expect it to reach 14.3 percent in 2011 . It considers 20 percent to be a more likely figure for 2011. This would put the unemployment rate as high as it was in 1960, when hundreds of thousands of Greeks were forced to emigrate. Meanwhile, purchasing power has fallen to its 1984 level, according to the GSEE.

    Menelaos Givalos, a professor of political science at Athens University, has appeared on television, warning viewers that the worst times are still to come. He predicts a large wave of layoffs starting in September, with “extreme social consequences.”

    “Everything is getting more expensive, I’m hardly earning any money, and then I’m supposed to pay more taxes to help save the country? How is that supposed to work?” asks Nikos Meletis, the shipbuilder. His friends, gathered in a small cafeteria on the pier in Perama, are gradually growing more vocal. They are all unemployed, desperate and angry at the politicians who got them into this mess. There is no sympathy here for any of the political parties and no longer any for the unions either.

    “If you take away my family’s bread, I’ll take you down — the government needs to know that,” Meletis says. “And don’t call us anarchists if that happens! We’re heads of our families and we’re desperate.”

    He predicts the situation will only become more heated. “Things are starting to simmer here,” he says. “And at some point they’re going to explode.”

    For more: http://www.spiegel.de/international/europe/0,1518,712511,00.html

    Alexis de Tocqueville ……Lessons

    Posted By on August 18, 2010

    When pondering new stimulus and home ownership plans that are subsidized entirely on the backs of the population or future generations, consider this prescient quotable:

    “The American Republic will endure, until politicians
    realize they can bribe the people with their own money.”

    — Alexis de Tocqueville (1800’s French historican)–

    www.ingerletter.com

    Change In U.S. Employment During 10 Postwar Recessions

    Posted By on August 18, 2010

    Personal Savings Rate Looking Up

    Posted By on August 18, 2010

    Banks Could Face Up To $179 Billion Of Losses On Loan Buyback Demands

    Posted By on August 18, 2010

    By David Mildenberg and Jody Shenn

    Aug 18, 2010

    That’s the base estimate by analyst Chris Gamaitoni, who told clients costs may range from $55.3 billion in a best-case scenario to $179.2 billion at worst. The losses would be in addition to $28 billion of buyback demands by Fannie Mae and Freddie Mac that Compass previously predicted. Deutsche Bank AG and Goldman Sachs Group Inc. are among lenders confronting the biggest potential impact, according to Gamaitoni’s report.

    Lenders have been barraged by claims from mortgage buyers and insurers who say banks sold housing debt to investors based on untrue or misleading data about home loans. The estimated losses exceed 10 percent of tangible book value at eight of the banks Gamaitoni cited. While solvency isn’t at risk, the drain on profit could last for years, he said.

    “The investor community overall doesn’t understand the magnitude of the problem,” Gamaitoni said in a telephone interview. Gamaitoni was a senior financial analyst at Fannie Mae before joining Compass Point, a Washington-based research and investment banking firm founded in 2007 by former executives of Friedman Billings Ramsey & Co.

    Bond insurers including MBIA Inc. and investors including three of the government-chartered Federal Home Loan Banks have sued securities underwriters and issuers, citing inaccurate claims over property values and quality of underlying assets. Fannie Mae and Freddie Mac collapsed into U.S. conservatorship, while MBIA saw its stock price slide more than 80 percent as losses mounted.

    More at: http://www.bloomberg.com/news/2010-08-18/bofa-jpmorgan-may-lead-banks-facing-134-billion-loss-on-loan-repurchases.html

    Must Watch Kyle Bass Interview On CNBC

    Posted By on August 17, 2010

    From Zerohedge.com     08/17/2010

    The one must watch interview of the week (if not of the year) features Hayman Capital’s Kyle Bass.  Bass, who correctly called the subprime implosion (and profited handsomely from it) as a iconoclast contrarian to conventional wisdom, tells David Faber that “given my outlook on the world, I don’t know how I can be long stocks.” Themes touched upon in Bass’ interview are the inevitable restructuring of untenable sovereign debt, the nearly $5 trillion in new global debt that needs to be issued just to plug near-term deficits, and the European stress test along with and the ongoing insolvency of the European banking system which is multiple times bigger than its U.S. equivalent, the imminent downward revision of Q2 GDP to sub 1%, the Fed’s conflicted position as a political authority whose sole purpose now is to keep interest rates as low as possible, as even the slightest shift to higher short-end rates will be seen as a black swan, indicative the Fed is losing control over the economy, and ultimately the futility of Keynesian theory band-aiding of a world caught in a toxic debt death spiral. In short, Bass sees no way the world can get out of its current state absent a huge reset. If Bass is eventually proven right the existing financial system will no longer exist, everything will be restructured.

    Watch this CNBC Video at ….http://www.zerohedge.com/article/must-watch-kyle-bass-interview-there-no-way-i-can-be-long-stocks

    More at:  www.zerohedge.com

    U.S. Household Debt Dropped 1.5% In The Second Quarter

    Posted By on August 17, 2010

    American households pared their debts last quarter, closing credit card accounts and taking out fewer mortgages as unemployment persisted near a 26-year high, a survey by the Federal Reserve Bank of New York showed.

    Consumer indebtedness totaled $11.7 trillion at the end of June, a decline of 1.5 percent from the previous three months and down 6.5 percent from its peak in the third quarter of 2008, according to the New York Fed’s first quarterly report on household debt and credit.

    The report reinforces forecasts for a slowing economy in the second half of 2010 as consumers hold back on spending and rebuild savings.

    “Everybody understood coming into this recovery that the need for reduction in debt and deleveraging was going to be a pretty significant headwind,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “Households in particular continue to be much more conservative than in the recent past.”

    More on this article at: http://www.bloomberg.com/news/2010-08-17/household-debt-in-u-s-shrank-last-quarter-as-consumers-cut-back-fed-says.html

    Pimco’s Gross Urges `Full Nationalization’ of Housing Finance

    Posted By on August 17, 2010

    Big changes coming to the housing market.  One thing you can be assured of, this will end badly, it always does when the government gets heavily involved.  “To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,”  “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.” Gross said today at a U.S. Treasury Department conference…..

    Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the mortgage- finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.

    “To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said today at a U.S. Treasury Department conference in Washington. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.” The position taken by Gross, whose firm is among the biggest holders of U.S.-backed mortgage debt, is at odds with industry and government officials who have urged a smaller federal role.

    Geithner said the government must reduce its role in housing markets and ensure Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, won’t require future bailouts.

    “We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said today at the conference.  There’s “no clear consensus” on how to design a new system, he said.

    “The government’s footprint in the housing market needs to be smaller than it is today,” Donovan said at the conference, adding that Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee more than 90 percent of all mortgage loans.  Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have been sustained by almost $150 billion in Treasury aid since September 2008.

    “We need to begin the process of weaning the markets away from government programs and make room for the private sector to get back into the business of providing mortgages,” Geithner said. “We need to continue working to keep overall mortgage rates reasonably priced.”

    Geithner said the administration “will not support” a system that relies on taxpayer funds to backstop the gains of private shareholders.  “Fixing this system is one of the most consequential and complicated economic policy problems we face as a country,” he said. “This is a test for Washington. The stakes are high. The housing industry supports millions of jobs. For many Americans, their home is their largest financial asset.”

    U.S. home ownership rate fell to 66.9 percent in the second quarter, the lowest level since 1999 and down from a peak of 69.2 percent in 2004, according to Commerce Department figures.

    For full article….http://www.bloomberg.com/news/2010-08-17/geithner-says-fannie-mae-freddie-mac-need-overhaul-to-reduce-u-s-role.html

    Matterhorn Asset Management: There Will Be No Double Dip… It Will Be A Lot Worse

    Posted By on August 16, 2010

    The ECRI index is an important leading indicator. It has now fallen for 10 straight weeks.

    There are three insurmountable problems in the US economy that are of a magnitude and gravity which can only be remedied by money printing:

    • Federal and state deficits will soon escalate at an exponential rate. The US Federal debt has increased from $ 8 trillion in 2006 when Bernanke took office to soon $ 14 trillion. Many forecasts expect this debt to go up to nearer $ 20 trillion in the next 5 years. In our view it will be substantially higher. Add to that interest rates of 15% or higher and the American people will work just to pay taxes that don’t even cover the interest payments on the federal debt. This is why the US will either default or more likely print unlimited amounts of money.
    • The real unemployment rate is now 22%. Since 2007 over 8 million Americans have lost their jobs and it will get a lot worse.  Non-farm unemployment in the 1930s reached 35% and we would expect this level to be reached in the next few years.
    • The financial system is bankrupt. Banks are failing at a much faster rate than last year. To date circa 110 banks have failed. More seriously the assets of the failed banks are only worth an estimated 30-50% of their balance sheet value. Banks are valuing their toxic debt at phoney values with the blessing of the government. But even debt that today is considered safe will soon turn toxic with the consumer coming under enormous financial pressure. Add to that the OTC derivatives held by US banks of at least $ 400 trillion. A big percentage of these are worthless and there are virtually no reserves to cover potential losses.

    Within the next few years, the three areas above are likely to result in the biggest money printing programme in world history and simultaneously lead the US (and many other countries) into the abyss.

    Markets

    There has probably never been a period in world history which has caused the amount of wealth destruction that we are likely to see in the next few years. If we are correct in our assumption that the West will see a correction of the excesses of the last circa 40 years but more probably of the last 200 years, since the start of the industrial revolution, we could see a total annihilation of the assets that have been fuelled by the credit bubbles. The spike in asset values in the last 100 years, which is unprecedented in history, is likely to be corrected by a waterfall which could start at any time. We will issue a separate report in the next 10 days covering our market predictions and the importance of physical gold for wealth preservation purposes.

    16th August

    Egon von Greyerz

    Berkshire’s Sokol Says U.S. Economy Faces `Painful Period’ of Debt Unwind

    Posted By on August 16, 2010

    Debt unwind means deflation!

    The U.S. is facing a “painful period” in the next five years as homeowners and governments unwind debt built up during the housing boom, Berkshire Hathaway Inc.’s David Sokol said today.  “All of that just feeds into a slow-growth environment,”“It’s going to be a painful period” 

    “People have been shocked into the notion that maybe some monthly savings is a good thing,”  “We’ll end up with a lot of people that are struggling until their home values come back a little bit.”

    Distribution Of Net Worth….Getting Current Using Fuzzy Logic

    Posted By on August 15, 2010

    Even after looking at the market’s rebound from the lows of 2009, nest eggs remain severely impaired.  As of the first quarter of 2010, net household assets—homes, 401(k) plans, pension assets and other investments minus debts—stood at $54.6 trillion, down an average of 18% from the end of 2007.   We actually think the losses are higher but we’ll use these numbers and give them the benefit of the doubt!

    Since this isn’t a job for crisp logic,  we’re going to apply some fuzzy logic calculations to the figures below.

    The iTulip chart below is from 2007, ……so to get current we will multiply the numbers below by 82% (we have to take into account the 18% net asset loss on average since 2007 and that leaves us with 82% left,  multiply times the value of 2007).  So,  the 90 percentile will be $475,000 total net worth for 2007 (taken from the chart below)  x  82% = $389,500.    $389,500 total net worth and greater now puts that person in the 90th percentile as of the first quarter 2010.

    Like wise, for the 95th percentile we do a similar calculation and come up with the formula $785,000 total net worth x 82% = $643,700 total net worth.  So $643,700 and greater will put an individual in the 95th percentile as of quarter 1, 2010

    The current mean, (average) net worth  is $227,483 x .82% = $186,536.  This shows  $186,536 as the mean or average total net worth as of quarter 1, 2010.

    www.thestatedtruth.com

    Baby Boomers And Money Not To Spend

    Posted By on August 15, 2010

     

    More at:  www.wsj.com

    A Broad Concentration Of Wealth — And Benefits — At The Top

    Posted By on August 15, 2010

    A major class struggle lies dead ahead!   The gap between the super-rich, the wealthy and “the rest of us” has widened, forming what is in essence two Americas.  Economists Emmanuel Saez and Thomas Piketty have reported that the top 10% of earners took home about half of all income.  According to Moody’s Analytics research, the top 5% of Americans by income are responsible for 37% of all consumer spending — about the same as the entire bottom 80% by income (39.5% of consumer outlays).  “Our problem,” Alan Greenspan said, “is that we have a very distorted economy…. there has been a significant recovery in a limited area of the economy amongst high-income individuals,  but “The rest of the economy, small business, small banks, and a very significant amount of the labor force, is in tragic long-term unemployment, and it is pulling the economy apart,”  “The average of those two is what we are looking at, but they are fundamentally two separate types of economy.”

    As total household income declines, the wealthiest Americans take home a larger piece of the national income pie.

    Put the data together, and this reveals an increasing concentration of income and wealth at the top — and this small group increasingly dominates the U.S. economy. According to Moody’s Analytics research, the top 5% of Americans by income are responsible for 37% of all consumer spending — about the same as the entire bottom 80% by income (39.5% of consumer outlays).

    This trend has led to the coining of a new word, plutonomy — an economy that’s dependent on the spending and investing of the wealthiest slice of citizenry for growth.

    As a result, when the top 5% in income — those households earning $210,000 or more annually — rein in their discretionary spending, the U.S. economy suffers disproportionately. Indeed, the economy’s slump this summer can be tracked directly to a decline in the discretionary spending of the wealthiest Americans.

    In the housing and stock market boom years of 2002 and 2007, the incomes of the bottom 99% of households by earnings grew by a meager 1.3% a year in inflation-adjusted terms, while the pockets of the top 1% grew 10% a year.

    Over the past 25 years since 1985, the top 1%’s share of national income has doubled — in 2007, it netted 23% of the nation’s total income. The income of the wealthiest Americans — the top 0.1% — has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million wage earners.

    The extremely wealthy are pulling away because their earnings come from capital, not labor. While wages have stagnated, returns on capital investments and speculations have soared. None other than former Federal Reserve Chairman Alan Greenspan recently described this yawning divide between those in the top slice of the economy who are doing very well and the 95% below them who are struggling.

    “Our problem,” Greenspan said, “is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it. Large banks and large corporations, as everyone’s pointing out, are in excellent shape.”

    “The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic long-term unemployment, that is pulling the economy apart,” noted Greenspan. “The average of those two is what we are looking at, but they are fundamentally two separate types of economy.”

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